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https://www.courtlistener.com/api/rest/v3/opinions/1523572/
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826 F. Supp. 1143 (1993)
Elmer SUNDSTROM, Plaintiff,
v.
VILLAGE OF ARLINGTON HEIGHTS, Board of Fire and Police Commissioners of Village of Arlington Heights, Robert Schuldt, Harold Pollard and Bruce Rodewald, Defendants.
No. 92 C 56.
United States District Court, N.D. Illinois, E.D.
June 16, 1993.
*1144 *1145 Joel A. D'Alba, Chicago, IL, for plaintiff.
Jack M. Siegel, Chicago, IL, for defendants.
MEMORANDUM OPINION AND ORDER
SHADUR, Senior District Judge.
Lieutenant Elmer Sundstrom ("Sundstrom") of the Fire Department ("Department") of the Village of Arlington Heights ("Village") claims that defendants Village itself, its Board of Fire and Police Commissioners ("Board") and three individuals denied Sundstrom's promotion to the rank of Department's Captain in retaliation for his airing complaints about Department to a reporter. Sundstrom's 42 U.S.C. § 1983 ("Section 1983") Complaint asserts that such conduct violated his First Amendment[1] and due process rights.
All defendants have moved for summary judgment under Fed.R.Civ.P. ("Rule") 56.[2] For the reasons stated in this memorandum opinion and order, their motion is granted in principal part and is denied only as to one claim (the First Amendment claim) against one defendant (Village's Fire Chief Bruce Rodewald ("Rodewald")).
Facts[3]
Sundstrom joined Department as a fire-fighter in 1983 and became a Lieutenant in February 1989 (D. 12(M) ¶ 10). From February through April 1989 he was trained as a fire prevention officer, and in May 1989 he became responsible for inspection of the Arlington International Racecourse (D. 12(M) ¶ 11; P. 12(N) Supp. ¶ 2). Sundstrom's examination of the Racecourse revealed over 700 violations (P. 12(N) Supp. ¶ 2).
In June 1991 Captain Frank Woodruff ("Woodruff") announced his retirement from Department effective November 21, 1991 (D. 12(M) ¶ 17). That led to the Village Manager's request that Board fill the anticipated vacancy by promotion (id. ¶ 18). Sundstrom wanted that Captaincy.
Before this opinion turns to Sundstrom's application for that promotion and its eventual denial, a brief explanation of Board's promotional procedure is in order. Under Illinois law Board has the authority to select persons for promotion, with its choice required to be made from among the three highest ranking candidates (sometimes referred *1146 to as a "rule of three," discussed in this Court's opinion in Houk v. Village of Oak Lawn, 647 F. Supp. 710, 716-17 (N.D.Ill. 1986)). Here is the relevant portion of 65 ILCS 5/10-2.1-15:
The board, by its rules, shall provide for promotion in the fire and police departments on the basis of ascertained merit and seniority in service and examination, and shall provide in all cases, where it is practicable, that vacancies shall be filled by promotion. All examinations for promotion shall be competitive among such members of the next lower rank as desire to submit themselves to examination. All promotions shall be made from the 3 having the highest rating, and where there are less than 3 names on the promotional eligible register, as originally posted, or remaining thereon after appointments have been made therefrom, appointments to fill existing vacancies shall be made from those names or name remaining on the promotional register....
Tracking that provision, Board's Rules state (D. 12(M) ¶ 16):
The Commission shall make promotions from the three persons having the highest rating.
Board's procedures to provide input for its decision comprised written evaluations, oral interviews[4] and departmental evaluations (for which the Chief apparently was responsible). As an added factor, Illinois law boosts the ranking of those applicants who have had military service (D. 12(M) ¶ 14; 65 ILCS 5/10-2.1-11).
To return to the particular facts of this case, initial results of the evaluations (posted on January 30, 1991) placed Sundstrom third on the list, behind Thomas Landmeier ("Landmeier") and Dennis Horcher ("Horcher") (P. 12(N) Supp. ¶ 3). Inclusion of military points advanced Sundstrom to first place on the list (id.).
During November and December 1991, after the examinations but before anyone was promoted to Captain, Sundstrom met with newspaper reporter Rebecca Carr ("Carr"). Sundstrom told Carr of his concerns about the Racecourse's fire safety and expressed concern that Fire Chief Rodewald had signed off on the Racecourse even though safety violations still existed (P. 12(N) Supp. ¶ 4).
Carr interviewed Rodewald on December 5, 1991 (Carr Dep. 29). Sundstrom claims, and Carr's deposition supports the claim, that Rodewald knew that Sundstrom had told Carr of what he considered irregularities in issuance of the Racecourse's certificate of occupancy. Specifically, she asked Rodewald (1) about discrepancies between his report and Sundstrom's and (2) why, contrary to standard practice, he had ordered Sundstrom to give him both copies of the fire inspection report rather than to mail one to the State Fire Marshal (id. 47, 100-01; P. 12(N) ¶ 5). Rodewald, while conceding that he was aware that Sundstrom had met with Carr, purports to deny "knowledge of specific statements by Sundstrom" (D.Mem. 4). But of course this Court cannot credit such a statement in a party's brief that does not identify any supporting evidence in the record.
On December 10, 1991, five days after Carr had interviewed Rodewald, the latter wrote a memorandum to the Village Manager recommending appointment of Landmeier to fill the captain vacancy (P. 12(N) Supp. ¶ 9). Sundstrom also asserts (id.) that Rodewald called Board member Howard Pollard ("Pollard") to suggest that Sundstrom not be appointed, at least in part because he had gained his ranking through military points rather than on merit.[5] On December 17, *1147 1991 Rodewald met with Board members Robert Schuldt ("Schuldt") and Pollard about the promotion, and Rodewald again recommended that Landmeier fill the vacancy. This time his stated reason for the recommendation was that Landmeier had 18 years on the force, including 8 years as an inspector (P. 12(N) Supp. ¶ 11). Rodewald did not refer to Sundstrom's statements to Carr (P. 12(N) Supp. ¶ 10).
Landmeier eventually received the promotion, and Sundstrom brought this Section 1983 against Village, Rodewald, Board and Board members Schuldt and Pollard. Federal jurisdiction derives from 28 U.S.C. §§ 1331 and 1343(a)(3).
Procedural Due Process Violation?
For Fourteenth Amendment purposes as such, Sundstrom trains his sights on a claimed deprivation of his right to procedural due process, claiming that defendants denied him promotion without a proper hearing.[6] But that misses the point that the deprivation itself must implicate a property or liberty interest. Because Sundstrom fails on that score to begin with, this opinion need not reach the question whether Sundstrom received an adequate hearing.
Board of Regents v. Roth, 408 U.S. 564, 570, 92 S. Ct. 2701, 2705, 33 L. Ed. 2d 548 (1972) explains that "the range of interests protected by procedural due process is not infinite" but extends only to the deprivation of liberty or property interests (id. at 569, 92 S.Ct. at 2704). Only the second of those categories is arguably at issue here.[7] And the absence of a property interest in the promotion dooms that aspect of Sundstrom's claim.[8]
Property interests derive not from the Constitution but from an independent source such as state law (Roth, 408 U.S. at 577, 92 S.Ct. at 2709). There need not be an express statutory provision evidencing the entitlement, for it may arise from a nonstatutory promise on the part of the State (see Perry v. Sindermann, 408 U.S. 593, 601, 92 S. Ct. 2694, 2699, 33 L. Ed. 2d 570 (1972) (a person's due process property interest in a benefit exists "if there are such rules or mutually explicit understandings that support his claim of entitlement to the benefit"); Shlay v. Montgomery, 802 F.2d 918, 921 (7th Cir.1986)).[9] But Sundstrom must show that he had a "legitimate claim of entitlement" to the position and not just an "abstract need, desire or unilateral expectation" (Munson v. Friske, 754 F.2d 683, 692 (7th Cir.1985) (citations omitted). Without such a legitimate claim there is no real interest for plaintiff to invoke at a hearing (Roth, 408 U.S. at 577, 92 S.Ct. at 2709)).
Each of Perry and Hermes v. Hein, 742 F.2d 350, 355 (7th Cir.1984) (the latter case dealing specifically with promotions) states that a property interest may derive from a de facto rule that gives rise to a mutually explicit understanding (see also *1148 Shlay, 802 F.2d at 921.)[10] Attempting to latch onto those decisions, Sundstrom claims that an unwritten but mutually recognized pact existed under which first-ranked individuals would receive promotions to Captain.
To support that contention Sundstrom points principally to (1) deposition testimony referring to Board's practice to promote in rank order, (2) defendants' inability to produce documentation to support their deposition testimony that some past promotions had been made other than to a first-ranked applicant and (3) Sundstrom's own testimony that Rodewald told him and a representative of a company that made firefighter uniforms that Sundstrom would receive the promotion. Defendants deny that Rodewald made those comments. But on defendants' Rule 56 motion, this Court must credit the pro-Sundstrom evidence (see n. 2).
Those things, however, do not salvage Sundstrom's claim. His potential for promotion "was created and defined by statutory terms" (Roth, 408 U.S. at 578, 92 S.Ct. at 2709) that do not of themselves confer on the first-ranked applicant any entitlement to the promotion. And Sundstrom's own testimony negates any "mutual understanding" that would create the equivalent of such an entitlement.
Illinois' statute specifically sets out the promotion procedure under which a choice is made from among the top three candidates. Illinois case law teaches that the statute "grants to a police or fire commission the discretion to promote any candidate from among the three highest candidates that appear on a certified promotion list" (Brunke v. Board of Fire & Police Comm'rs, 99 Ill. App. 3d 25, 28, 54 Ill. Dec. 503, 506, 425 N.E.2d 15, 18 (1st Dist.1981), citing McCoy v. Board of Fire & Police Comm'rs, 79 Ill. App. 3d 742, 35 Ill. Dec. 70, 398 N.E.2d 1020 (1st Dist.1979)). And Bigby, 766 F.2d at 1057 also points to McCoy in its succinct summary of Illinois law:
Furthermore, the promoting officials are authorized to choose among the highest-rated applicants, and no criteria are provided for the choice. See Ill.Rev.Stat. 1981, ch. 24, ¶ 10-1-13; Chicago Municipal Code ¶ 25.1-5(5) (1977). Construing the counterpart provision in the statute governing the police forces of smaller municipalities, McCoy v. Board of Fire & Police Comm'rs, 79 Ill.App.3d 742, 744, 35 Ill. Dec. 70, 72, 398 N.E.2d 1020, 1022 (1979), holds that "the promotion of a patrolman to sergeant is one of discretion," so that the plaintiff "had no vested right to promotion." The same is true of promotion from sergeant to lieutenant. Indeed it is more strongly true, since discretionary factors loom larger as one moves up in a hierarchy. Promotion to lieutenant's rank is not a matter of right and is not governed by fixed rules which if complied with automatically entitle the applicant to promotion. "To have a property interest ... a person ... must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972) (emphasis added). That is missing here.
Thus Sundstrom must somehow show that or more accurately in the Rule 56 context, he must at least create a material factual dispute as to whether he shared a mutual understanding with Board that the latter had abdicated its statutory discretion in favor of an invariable appointment of the number-one-ranked applicant. Put aside for a moment the question whether public officials might validly do that whether what amounts to such an administrative amendment to a statute would not contravene public policy or would not be otherwise invalid under Illinois law (issues reserved in Hermes, 742 F.2d at 355). Quite apart from that, Sundstrom himself has really negated the existence of any mutual understanding to that effect rather he was well aware "that *1149 the Fire & Police Commissioners have the option to pick one of the top three names on any list" (his Dep. 15-16). That dooms any claim by Sundstrom under the mutual-understanding approach.
In sum, the applicable Illinois statute confers "unfettered discretion" (United States v. City of Chicago, 869 F.2d 1033, 1036 (7th Cir.1989)) on Board to have chosen either Sundstrom or Landmeier (or for that matter Horcher). And there is no evidence that Board ever communicated to Sundstrom any surrender of that discretion, so as to create a "mutually explicit understanding" that he had an enforceable right to the promotion. Like the applicants in Bigby and City of Chicago and numerous other cases, Sundstrom therefore succumbs at the first step of the due process analysis the need to show a property interest.
First Amendment Violation?[11]
As for Sundstrom's second ground for recovery, defendants' memoranda appear to argue (though they are not wholly clear on the subject) that no First Amendment claim exists absent a property interest. But that reflects a total misunderstanding of the conceptual basis of such a claim (see McGill v. Board of Educ. of Pekin Elementary Sch. Dist. No. 108, 602 F.2d 774, 780 (7th Cir. 1979) ("The question is not, as in a procedural due process case, whether plaintiff had a protected property interest in her position at any particular school"); see also Altman, 734 F.2d at 1243; Berndt, 781 F.Supp. at 557).[12] As Mount Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 283-84, 97 S. Ct. 568, 574, 50 L. Ed. 2d 471 (1977) (citation omitted) explains:
[C]laims under the First and Fourteenth Amendments are not defeated by the fact that [plaintiff] did not have tenure. Even though he could have been discharged for no reason whatever, and had no constitutional right to a hearing prior to the decision not to rehire him, he may nonetheless establish a claim to reinstatement if the decision not to rehire him was made by reason of his exercise of constitutionally protected First Amendment freedoms.
So Sundstrom has at least a potential First Amendment claim despite his lack of legal entitlement to the promotion. But before the refinements of such a claim are explored, the very statement of the rule in Mt. Healthy dictates drastic surgery on the prospective targets of that potential claim.
Village itself does not belong in this case. Illinois law squarely vests the decisional process as to promotion in Board. And even if that statutory vesting could be viewed as some kind of delegation by Village (surely a bizarre reading of the statute), notions of respondent superior play no role in Section 1983 jurisprudence (Monell v. Department of Social Services, 436 U.S. 658, 691, 98 S. Ct. 2018, 2036, 56 L. Ed. 2d 611 (1978)).
Board, Schuldt and Pollard are entitled to be exculpated as well, for there is not a whisper of evidence to connect them with the claimed retaliation by Rodewald. Carr's article had not been published when Schuldt and Pollard acted, and each of them has filed an uncontroverted affidavit that he had no knowledge of Sundstrom's meeting with Carr or of Sundstrom's speech. Caldwell v. City of Elwood, 959 F.2d 670, 672 (7th Cir.1992), quoting Brownlee v. Conine, 957 F.2d 353, 354 (7th Cir.1992), puts the matter simply:
A civil rights complaint must outline a violation of the constitution or a federal statute "and connect the violation to the named defendants." *1150 Because Sundstrom has plainly not made that connection, those defendants too are out of the case.
That leaves only Rodewald for consideration. And to evaluate Sundstrom's First Amendment claim against Rodewald the claim that he poisoned the well of Board's decision to get back at Sundstrom for the latter's critical statements to reporter Carr it is necessary to explore the refinements of the law applicable to such retaliatory conduct.
Public employees such as Sundstrom who claim to have been sanctioned on the basis of their speech face a multi-tiered legal burden. As a threshold matter the employee must show that his or her speech directly implicated a matter of public concern (Connick v. Myers, 461 U.S. 138, 143-49, 103 S. Ct. 1684, 1688-91, 75 L. Ed. 2d 708 (1983)). Marshall, 984 F.2d at 795 has most recently elaborated on that concept, originally announced in Pickering v. Board of Education, 391 U.S. 563, 568, 88 S. Ct. 1731, 1734, 20 L. Ed. 2d 811 (1968):
Opinions of this court subsequent to Connick have directed that, when determining whether speech touches upon a matter of public concern, we are not to examine solely the content of that speech. "[T]he Connick `test requires us to look at the point of the speech in question: was it the employee's point to bring wrongdoing to light? Or to raise other issues of public concern, because they are of public concern? Or was the point to further some purely private interest?'"
And there is a further hurdle to overcome: "Even when speech concerns public issues, Pickering requires the court to strike a balance between the interests of the public employee in commenting on matters of public concern and that of the State, as an employer, in efficiently carrying out its public services" (Biggs v. Village of Dupo, 892 F.2d 1298, 1303 (7th Cir.1990)). But it must be remembered in administering the balancing test that "freedom of speech is not traded for an officer's badge" (id.).
Moreover, it is not enough for the employee to pass those two tests, the former dealing with content and the latter dealing with context (id. at 1301).[13] As the earlier quotation from Mt. Healthy states, the employee must also show causation. O'Connor v. CTA, 985 F.2d 1362, 1368 (7th Cir.1993) has characterized Mt. Healthy as having "placed the burden on the plaintiff alleging retaliation for the exercise of constitutionally protected rights to show that the protected conduct was a `substantial' or `motivating' factor in the defendant's action." Accord, Rakovich v. Wade, 850 F.2d 1180, 1189-90 (7th Cir.1988) (en banc).
So much, then, for the legal framework of Sundstrom's First Amendment claim against Rodewald. Application of that framework to the facts here (that is, to the assumed facts for purposes of Rodewald's summary judgment motion) poses little difficulty.
As for the Connick requirement that Sundstrom show that his speech dealt with a matter of public concern,[14] it is a fair inference from the evidence that Sundstrom's speech was not just the personal grievance of an employee whose sole concern was self-advancement. Nor were Sundstrom's statements to Carr "personal criticism of a coworker, e.g., carping comments about personal characteristics or traits, that essentially are of private concern among the individuals involved" (Egger v. Phillips, 710 F.2d 292 (7th Cir.1983 (en banc)). Instead it is reasonable to infer that Sundstrom sought "to bring to light actual or potential wrongdoing or breach of public trust on the part of" Rodewald (Connick, 461 U.S. at 148, 103 S.Ct. at 1690). Sundstrom spoke to Carr about a pattern of what he considered improperly motivated approvals (P. 12(N) ¶ 14) breaches on the part of a public servant Sundstrom considered to have that endangered the public's safety.
*1151 As for the Pickering balancing test, Rodewald has really let that issue go by default at the summary judgment stage by failing even to cite Pickering, let alone to explain how or why any institutional interests should outweigh Sundstrom's interest in commenting on matters of public concern. It is not this Court's role to do that job of lawyering for Rodewald.
Finally, as to causation, Sundstrom's Mem. 10 directs this Court to this set of assertedly material facts:
1. Fire Chief had never requested a nonrank order promotion and told plaintiff and another firefighter that he would be the next captain;
2. There are no fire department personnel records to show that anybody has been promoted out of rank order;
3. The custom and practice of the Board has been to promote on the basis of rank order and give the promotions to the person on the top of the list;
4. The Fire Chief made his recommendation five days after learning from the newspaper reporter the substance of what plaintiff told her;
5. The Fire Chief denied knowing what the newspaper reporter learned from the plaintiff;
6. Under the evaluation system used by the Board, plaintiff had already been given a higher experience rating than the person who was promoted, and the plaintiff had higher experience points than the Fire Chief, Deputy Chief and Captain Leligdon at the time of their promotions;
7. The Fire Chief assigned plaintiff as an inexperienced inspector to work on the race track but blocked his promotion to captain allegedly because of his inexperience;
8. Shortly after the Chief recommended plaintiff not be promoted, the Fire Chief allowed the promotion of a lieutenant to work in the Fire Prevention Bureau, even though the second ranking person on the lieutenant's list had previous fire inspection experience;
9. Military points to which plaintiff was entitled were used against him when the Fire Chief told the Board about the military points and Commissioner Pollard asked Commissioner Harwell if plaintiff could be bypassed because he had used military points. Board rules allowed plaintiff a right to use military point for his promotion.
With all reasonable pro-Sundstrom inferences, those pieces of evidence would indeed support a finding that Rodewald retaliated against Sundstrom because of his protected speech. Whether or not that is so, or whether or not even assuming a retaliatory motive Landmeier's greater experience would have led Rodewald to recommend him anyway, are matters to be decided at trial.
Other Potential Defenses
Just as Samuel Johnson cynically remarked that "Patriotism is the last refuge of a scoundrel,"[15] so no Section 1983 lawsuit would be complete without defendants' advancement of a qualified immunity defense. This case is no exception, with defendants' memoranda asserting one such claimed defense that really fits that label but is plainly wrong on the law and another that is both mislabeled and equally without merit.
Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982) teaches that under qualified immunity doctrine "public officials performing discretionary functions are protected against suits from damages unless their conduct violates clearly established statutory or constitutional rights of which a reasonable person would have known." Anderson v. Creighton, 483 U.S. 635, 640, 107 S. Ct. 3034, 3039, 97 L. Ed. 2d 523 (1987) amplifies upon Harlow by stating:
The contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right.
But Pickering has been the law for a quarter century.[16] And since its pronouncement *1152 courts have consistently applied the First Amendment to protect employees from being retaliated against for exercising their right to free speech. Sundstrom's First Amendment claim breaks no new ground, so that Rodewald is not entitled to qualified immunity.
As for the wrongheaded "qualified immunity" argument, D. Mem. 13-14 cites Memphis Community Sch. Dist. v. Stachura, 477 U.S. 299, 106 S. Ct. 2537, 91 L. Ed. 2d 249 (1986) to urge that Sundstrom could at best show only minimal damages (and impliedly should therefore not be entitled to sue at all). But whether Sundstrom had a clearly established right (the true qualified immunity issue) is a wholly different question from the price that must be paid for violating that right. And even in the latter respect Hessel v. O'Hearn, 977 F.2d 299, 301 (7th Cir.1992) (citations omitted) confirms that any claimed lack of substantial actual damages in a substantive due process case does not bar a plaintiff from seeking damages, let alone from bringing suit:
[T]here is no minimum amount of controversy in federal civil rights cases ... [A]lthough general or, as they are sometimes called, "presumed" damages compensatory damages awarded without proof of injury are not recoverable in a constitutional tort suit when the only infringement of constitutional rights is a denial of due process in the sense of a right to notice and a hearing, they may be recoverable when substantive constitutional rights, such as the right to freedom of speech, or the right to be free from unreasonable searches and seizures, are infringed.[17]
Defendants Mem. 12-13 has also urged that Sundstrom's failure to utilize an Illinois procedure to seek review of Board's decision serves as a bar to his claim. Even as to Board (and leaving aside the acknowledged split in Illinois case law as to the availability of such review of its promotion decisions), that contention disregards the controlling decision in Patsy v. Florida Board of Regents, 457 U.S. 496, 102 S. Ct. 2557, 73 L. Ed. 2d 172 (1982) that Section 1983 plaintiffs need not exhaust state judicial or administrative remedies before going to federal court. Patsy clearly applies in the First Amendment context (see, e.g., Miller v. Town of Hull, Mass., 878 F.2d 523, 529-30 (1st Cir.1989)). And as to the sole remaining defendant, Rodewald, there is an added factor: Nothing suggests that any potential state administrative review of Board's action would afford any remedy against him individually to begin with.
Conclusion
There is no genuine issue of material fact as to Sundstrom's attempted reliance on the Due Process Clause, and all defendants are entitled to a judgment as a matter of law on Count II. As for Sundstrom's invocation of the First Amendment, there are again no genuine issues of material fact as between Sundstrom on the one hand and Village, Board, Schuldt and Pollard on the other. Each of those defendants is entitled to a judgment as a matter of law on that issue as well. Because this action is therefore dismissed in its entirety as to all of those defendants, as permitted under Rule 54(b) this Court expressly determines that there is no just reason for delay and expressly directs the entry of final judgment in their favor (see National Metalcrafters v. McNeil, 784 F.2d 817, 821 (7th Cir.1986)).
But as to Sundstrom's claim of retaliatory conduct on Rodewald's part, material factual issues compel the denial of Rodewald's current Rule 56 motion. Both parties' counsel are ordered to appear at a next status hearing at 1:30 p.m. on June 28, 1993 to discuss arrangements for the trial of that claim.
NOTES
[1] As always, this opinion adheres to the conventional and convenient (though technically imprecise) practice of referring to the First Amendment's underlying Bill of Rights provision (which of course imposes limitations only on the federal government) rather than to the Fourteenth Amendment (which applies to state actors and has been construed to embody such Bill of Rights guaranties). Because inattention to that distinction can sometimes lead to some confusion in the analytical approach to Section 1983 cases, it is always desirable to keep the conceptual difference in mind throughout the discussion (see Marshall v. Allen, 984 F.2d 787, 789 n. 1 (7th Cir. 1993)).
[2] Familiar Rule 56 principles impose on defendants as movants the burden of establishing the lack of a genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986)). For that purpose this Court is "not required to draw every conceivable inference from the record only those inferences that are reasonable" in the light most favorable to nonmovant Sundstrom (Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991) (citations omitted)).
[3] This District Court's General Rule ("GR") 12(M) requires every Rule 56 movant to submit a statement of assertedly uncontested facts, with citations to the record in support of each of those facts. GR 12(N) requires the nonmoving party to respond point by point, with citations to the record in support of (1) any claimed contest of the movant's version of the facts and (2) any additional facts that the nonmovant chooses to assert. Defendants' GR 12(M) statement will be cited "D. 12(M) ¶ ___," while Sundstrom's GR 12(N) response will be cited "P. 12(N) ¶ ___" and his supplemental response will be cited "P. 12(N) Supp. ¶ ___." Whenever Sundstrom has simply admitted any portion of the GR 12(M) statement, only the latter will be cited here. Finally, whenever Sundstrom has set out any additional factual assertions in his P. 12(N) and P. 12(N) Supp. responses, the principle stated in n. 2 calls for those to be treated as true for purposes of the present motion.
[4] Board members conducted the oral interviews, and they evaluated candidates for promotion based on nine factors, including experience and overall fitness (P. 12(N) Supp. ¶ 3).
[5] Rodewald denies having made that call, but another Commissioner stated when deposed that Pollard had called him and told him of the phone call (Harwell Dep. 16-18; P. 12(N) Supp. ¶ 9). That statement is hearsay as to Rodewald and is hence inadmissible on the current Rule 56 motion, just as it would be at trial (Rule 56(e)). But even if it were considered, it would not really bear on the question whether Rodewald was fueled by a retaliatory motive based on Sundstrom's statements to Carr. Nothing suggests that the emphasis to be placed on particular factors entering into an applicant's score may not be considered in deciding which of the top three applicants to promote.
[6] Sundstrom did meet with Board once for an interview. However, he argues that he should have been able to meet with it again after Rodewald had made his recommendation that is, before Board reached a final decision. That contention is fabricated out of whole cloth no authority cited by Sundstrom or known to the Court even hints at such a requirement in due process terms. It is worth noting (though of course it cannot control for constitutional purposes) that one of the limited statutory exceptions to the Illinois Open Meetings Act permits public bodies to hold executive sessions to consider information regarding their personnel decisions (5 ILCS 120/2(B)(1)), just as Board did here.
[7] Sundstrom does not and could not claim a liberty interest in the promotion. Paul v. Davis, 424 U.S. 693, 709-10, 96 S. Ct. 1155, 1164, 47 L. Ed. 2d 405 (1976) holds that loss of a job does not amount to a liberty deprivation so long as other employment opportunities have not been foreclosed. It follows a fortiori that there is no liberty interest in a promotion where there is no accompanying threat to the employee's existing position (to say nothing of the availability of other jobs) see the extended discussion in Bigby v. City of Chicago, 766 F.2d 1053, 1057-60 (7th Cir.1985).
[8] Case law in this are employs the terms "property interest" and "entitlement" interchangeably.
[9] Of course the "mutually explicit understandings" must still "support `a legitimate claim of entitlement'" under "an independent source such as state law." (Regents of Univ. of Michigan v. Ewing, 474 U.S. 214, 224 n. 9, 106 S. Ct. 507, 513 n. 9, 88 L. Ed. 2d 523 (1985)).
[10] Hermes also dealt with a claim by the first-ranked of three top applicants, governed by the same Illinois statute, that he was entitled to promotion. However, the court declined to decide in that case whether "Illinois law would allow the defendants to adopt a policy of promoting only the highest ranked candidate because, even if it would, there is no evidence from which we can reasonably infer that this alleged policy was ever promulgated" (742 F.2d at 355).
[11] As alluded to in n. 1, Sundstrom's asserted First Amendment rights necessarily flow from the Fourteenth Amendment. While his claimed entitlement to a hearing has unsuccessfully sought to implicate the procedural component of the Due Process Clause, his First Amendment allegations involve the substantive component of that clause (see Altman v. Hurst, 734 F.2d 1240, 1243 (7th Cir.1984) (per curiam); Berndt v. Jacobi, 781 F. Supp. 553, 556 (N.D.Ill.1991), aff'd by an unpublished order, 978 F.2d 1261 (Table), 1992 WL 313118, 1992 U.S.App. LEXIS 28334 (7th Cir. Oct. 30)).
[12] For a discussion of the types of constitutional claims available to a Section 1983 claimant under the Fourteenth Amendment, see Zinermon v. Burch, 494 U.S. 113, 125-26, 110 S. Ct. 975, 983, 108 L. Ed. 2d 100 (1990).
[13] Both the Connick and the Pickering issues are to be decided by the district judge in the first instance (Connick, 461 U.S. at 148 n. 7, 150 n. 10, 103 S.Ct. at 1690 n. 7, 1691 n. 10; Biggs, 892 F.2d at 1300 n. 1).
[14] That issue was not raised by defendants until their reply brief, so that Sundstrom's counsel did not have occasion to address it.
[15] James Boswell, Life of Dr. Johnson, vol. I at 547 (Everyman ed.).
[16] Indeed, the case is sufficiently ancient that this Court then a private practitioner was counsel for the ACLU as amicus curiae, arguing in support of the First Amendment claim (391 U.S. at 564).
[17] [Footnote by this Court] This Court of course recognizes the inherent problem of applying the notion of proximate cause the relationship between the wrongful conduct and the ultimate harm in a case such as this one, where the actual decisionmakers were free of any fault in the decision that they reached. That however remains to be sorted out in the future.
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644 F.Supp. 108 (1986)
UNITED STATES, Plaintiff,
v.
James Lee MISSOURI, Defendant.
No. 86-80284.
United States District Court, E.D. Michigan, S.D.
August 18, 1986.
*109 Stanley Lee Janice, Asst. U.S. Atty., Detroit, Mich., for plaintiff.
Cornelius Pitts, Detroit, Mich., for defendant.
MEMORANDUM AND ORDER ADOPTING MAGISTRATE'S REPORT AND RECOMMENDATION
COHN, District Judge.
I.
This case involves a two-count indictment for a felon[1] in possession of firearms. 18 U.S.C. App. § 1202(a)(1). The physical evidence was seized in two different premises searches, one on January 14, 1986 and the other on January 17, 1986. Defendant moves to suppress the firearms on the grounds that there was not probable cause for issuance of the January 14 search warrant.[2] He also seeks disclosure of the identity of the informant who supplied the affiant, a police officer, with most of the facts supporting the warrant. Finally, he asks for a "Franks" evidentiary hearing, Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1983), on the basis of affidavits that he argues show the affiant acted with reckless disregard of the falsity of the facts supporting the search.
The magistrate to whom the motion to suppress was referred, 28 U.S.C. § 636, recommends rejecting defendant's motion in all respects. The magistrate's report and recommendation of June 17, 1986 sufficiently sets forth the relevant facts. The magistrate found that the affidavits do not necessarily put into dispute any of the factual statements made by the affiant. The magistrate also found that the affidavit supported a determination of probable cause under a "common cause" interpretation. Illinois v. Gates, 462 U.S. 213, 103 S.Ct. 2317, 76 L.Ed.2d 527 (1983). In particular, he found that the affidavit, on its face, made sufficient representations to establish the credibility of the informant and the basis for his knowledge of the underlying facts. Defendant objects that, without *110 knowledge of the informant's identity, it is impossible for him to determine whether the affiant acted in reckless disregard of falsity. Further, he argues that nothing in the affidavit independently establishes the credibility of the informant to justify a determination of probable cause; that there was insufficient corroboration to establish the basis of the informant's knowledge; that the informant's information was stale; and that the information was insufficient to establish a nexus between the alleged place of drug transactions and defendant's residence.
Reading the affidavit in light of the applicable legal principles, discussed below, and after having conducted an in camera hearing in which I examined the affiant, I am satisfied that the state court magistrate who approved the issuance of the warrant could logically conclude that defendant's residence contained cocaine or evidence of cocaine trafficking and, therefore, the warrant was properly issued.
II.
"[G]reat deference" is accorded to a magistrate's determination of probable cause in the issuance of a search warrant. United States v. Leon, 468 U.S. 897, 914, 104 S.Ct. 3405, 3417, 82 L.Ed.2d 677 (1984); United States v. Rosenbarger, 536 F.2d 715, 719 (6th Cir.1976). There is a presumption that a magistrate has properly performed his duty with regard to whether an affidavit for a search warrant shows probable cause. See United States v. Giacalone, 541 F.2d 508, 513-14 (6th Cir.1976). My task in reviewing the warrant application "is not to conduct a de novo determination of probable cause, but only to determine whether there is substantial evidence in the record supporting the magistrate's decision to issue the warrant." Massachusetts v. Upton, 466 U.S. 727, 728, 104 S.Ct. 2085, 2086, 80 L.Ed.2d 721 (1984), relying on Illinois v. Gates, 462 U.S. 213, 103 S.Ct. 2317, 76 L.Ed.2d 527 (1983). In doubtful cases or where alternative readings of the affidavit are equally reasonable the magistrate's judgment is to be respected in light of the preference given to search warrants. See Gates, 462 U.S. at 237 n. 10, 103 S.Ct. at 2331 n. 10, quoting United States v. Ventresca, 380 U.S. 102, 109, 85 S.Ct. 741, 746, 13 L.Ed.2d 684 (1965); United States v. Jenkins, 525 F.2d 819, 824 (6th Cir.1975).
III.
As to the facial validity of the affidavit, the issue is whether it indicates reasonable grounds to believe that defendant's residence contained the items described in the warrant (cocaine, proceeds, paraphernalia, records, firearms, etc.). United States v. Eisner, 297 F.2d 595, 597 (6th Cir.), cert. denied, 369 U.S. 859, 82 S.Ct. 947, 8 L.Ed.2d 17 (1962). The affidavit must be tested and interpreted by magistrates and courts in a common sense and realistic fashion. Ventresca, supra, 380 U.S. at 108, 85 S.Ct. at 745. As explained in Gates, supra, probable cause exists where there is a "fair probability that contraband or evidence of a crime will be found in a particular place." 462 U.S. at 238, 103 S.Ct. at 232. This determination is made based upon a consideration of "the totality of the circumstances," 462 U.S. at 230, 103 S.Ct. at 2328, although the informant's credibility and basis of knowledge remain relevant considerations, id, and a strong showing as to one factor will compensate for a deficiency in the other, id. at 233, 103 S.Ct. at 2329. All that is required is that "enough information be presented to the [magistrate] to enable him to make the judgment that the charges are not capricious and are sufficiently supported to justify bringing into play the further steps of the criminal process." Gates, 462 U.S. 230 n. 6, 103 S.Ct. at 2328 n. 6, quoting Jaben v. United States, 381 U.S. 214, 224-25, 85 S.Ct. 1365, 1370-71, 14 L.Ed.2d 345 (1965).
A.
The Sixth Circuit Court of Appeals has said that it is sufficient to establish an informant's credibility where his information regarding the defendant is based on direct observation and he has been reliable in the past. United States v. Algie, 721 F.2d 1039, 1041 (6th Cir.1983). While a simple statement that there is "an established reliable informant" does not suffice *111 to establish credibility, the informant's presence at the scene of a crime, the specification of information such as location, personal knowledge of several illegal sales, and the fact that the affiant swears to the informant's "reliability," will suffice to establish reliability. United States v. Townsend, 394 F.Supp. 736, 742 (E.D.Mich.1975).
Here, the warrant affidavit states that the informant observed narcotics transactions on premises, although not defendant's residence, being otherwise sufficiently connected with defendant; there was a recitation of prior correct information obtained from the informant based on corroborative investigation; and defendant had been convicted for using narcotics in the past. The affidavit showed the basis for the informant's knowledge and his credibility. These combined facts suffice to support the magistrate's determination of probable cause. See Jones v. United States, 362 U.S. 257, 80 S.Ct. 725, 4 L.Ed.2d 697 (1960), discussed in Gates, 462 U.S. at 232 n. 7, 103 S.Ct. at 2329 n. 7.
B.
It is obvious, of course, that probable cause must exist at the time the warrant is issued. Sgro v. United States, 287 U.S. 206, 210-11, 53 S.Ct. 138, 140, 77 L.Ed. 260 (1932). In Rosenbarger, supra, the Sixth Circuit found "eminently reasonable" the assumption that stolen goods delivered to a particular place will be there a mere twenty-one days later. 536 F.2d at 720. In the case sub judice, it was likewise reasonable to believe that proceeds and records of cocaine transactions, credibly tied to defendant, would be found only 72 hours after the informant advised he witnessed such sales.
Even if other facts supporting the warrant occurred at some "unspecified time in the past," this is not fatal to the warrant. Townsend, supra, held that, although information is stale where it relates to isolated prior dealings that occurred at some point in the unspecified past, the staleness is vitiated where early encounters set the pattern for and are followed by recent similar ones. 394 F.Supp. at 745.
C.
There must also have been some reason to believe that the items to be searched for existed on defendant's premises, Gates, supra, although this is a "practical, nontechnical conception," United States v. Thomas, 757 F.2d 1359, 1367 (6th Cir.1985), quoting Brinegar v. United States, 338 U.S. 160, 176, 69 S.Ct. 1302, 1311, 93 L.Ed. 1879 (1949). The evidence need not be "direct, first-hand, or `hard.'" Thomas, id. Some courts have drawn the inference that known drug dealers are likely to keep drugs in their homes, even where there is no evidence directly leading to that inference. E.g., United States v. Gant, 759 F.2d 484 (5th Cir.), reh'g denied, 765 F.2d 1120, cert. denied, ___ U.S. ___, 106 S.Ct. 149, 88 L.Ed.2d 123 (1985); United States v. Johnson, 660 F.2d 749, 753 (9th Cir.1981), cert. denied sub nom. Winter v. United States, 455 U.S. 912, 102 S.Ct. 1263, 71 L.Ed.2d 452 (1982).
Although "the informant did not say that any of the illegal activity that he observed had taken place at" defendant's residence, Thomas, 757 F.2d at 1368, he did report seeing defendant's car in front of his residence "after narcotics records and proceeds have been turned over to Missouri." In light of the facts presented in the warrant to the magistrate and what is generally known about drug traffickers, there was substantial evidence to support the magistrate's determination of probable cause to believe proceeds or records were on defendant's premises.
IV.
A.
To obtain a requested "Franks" hearing, the defendant must make a "substantial preliminary showing" of falsity or reckless disregard by the affiant for the falsity of an informant's information, Franks, 438 U.S. at 155-56, 170, 98 S.Ct. at 2676, 2683. As previously discussed, where the affiant relies upon an informant's tip, there must only be some objective basis for ascertaining whether the affiant *112 could reasonably believe the informant's veracity:
[T]he affidavit must recite "some of the underlying circumstances from which the informant concluded" that relevant evidence might be discovered, and "some of the underlying circumstances from which the officer concluded that the informant, whose identity need not be disclosed, was `credible' or his information `reliable.'"
Id. at 165, 98 S.Ct. at 2681, quoting Aguilar v. Texas, 378 U.S. 108 at 114, 84 S.Ct. 1509, at 1514. Therefore, to obtain an evidentiary hearing, the Supreme Court noted in Franks that "more [is required] than a mere desire [by defendant] to cross-examine." Id. at 171, 98 S.Ct. at 2684.
B.
There is no evidence in the record, in the classical Franks sense, that the affiant lied to obtain the warrant. Thus, the issue is whether defendant made a sufficient showing through the affidavits filed in support of the motion to suppress to establish reckless disregard for truth or falsity in the affiant. It was proper for the magistrate to conclude, as he did in his report and recommendation, that the affidavits offered on behalf of defendant, even if credited, did not necessarily contradict the informant's statements as related in the warrant affidavit. Defendant's own denial of the informant's statements as to his alleged drug activity do not show that the affiant was on notice of facts that establish recklessness in relying on the informant's statements. United States v. Brian, supra, 507 F.Supp. 761 at 764 (D.R.I.1981).
V.
At the July 17 hearing on his objections to the magistrate's report and recommendation, defendant pressed for disclosure of the informant's identity and urged that I conduct an in camera inquiry regarding the affiant's reliance on the informant, United States v. Brian, supra.
A.
Although the Supreme Court has indicated that an informant's identity may be required to be disclosed when essential to the defense, as when the officer's good faith is at issue, see Scher v. United States, 305 U.S. 251, 59 S.Ct. 174, 83 L.Ed. 151 (1938) (declining to require disclosure), the Supreme Court has shied away from requiring disclosure in all cases even at the trial stage. See Roviaro v. United States, 353 U.S. 53, 76 S.Ct. 623, 1 L.Ed.2d 639 (1957). When the issue is not guilt or innocence, but, as here, the question of probable cause for a search, the Supreme Court has been reticent to require disclosure. See generally McCray v. Illinois, 386 U.S. 300, 87 S.Ct. 1056, 18 L.Ed.2d 62 (1967). The magistrate who issued the warrant already had the opportunity, had he doubted the affiant's credibility, to "require that the informant be identified or even produced." McCray, 386 U.S. at 307-08, 87 S.Ct. at 1060-61. Unless defendant presents some reason for doubting the affiant's credibility, disclosure will not be required; neither the issuing magistrate nor the reviewing magistrate need "assume the arresting officers are committing perjury." McCray, 386 U.S. at 313, 87 S.Ct. 1063.
In the case sub judice, the informant does not purport to have participated in the sale of cocaine or assisted in transporting to defendant's residence the contraband sought. Defendant has not shown that the informant's testimony would be significant. Disclosure of the informant is not required.
B.
Defendant also argues that he needs to know who the informant is, however, if he is to have any chance of establishing his entitlement to a "Franks" hearing. In other words, he argues that without knowing who the informant is, he cannot hope to establish facts showing the affiant's bad faith. Brian, supra. At the July 17 hearing, defendant presented an excerpt from an evidentiary hearing in a state criminal case involving the same affiant as here. The state court judge found that, contrary to the affidavit before him, there was no informant. Defendant suggested this sufficiently put the affiant's credibility into question to require further examination of the affiant at an in camera hearing.
*113 I agree that the threshold showing to obtain such an in camera hearing is low and it is problematic if it was met here. See 1 W. LaFave, Search and Seizure § 3.3(g) at 579 (1978); J. Grano, A Dilemma For Defense Counsel: Spinelli-Harris Search Warrants and the Possibility of Police Perjury, 1971 U.Ill.L.F. 405, 445-47; see also People v. Poindexter, 90 Mich. App. 599, 607-09 & n. 2, 282 N.W.2d 411 (1979). I see no reason, however, to quibble on whether or not to conduct an in camera hearing since the only real good reason for my not examining the affiant in camera in this case is a lack of time or inconvenience. An occasional in camera hearing regarding a search warrant may have a therapeutic institutional effect.
Therefore, on July 25 and August 1, I conducted an in camera hearing with the affiant, the Assistant United States Attorney, my law clerk, and the court reporter present. I probed the basis for the affiant's statements that an informant supplied him with the information contained in the warrant and had provided correct information in previous cases. Based upon the affiant's answers to my questions and the documents he produced, I am satisfied that an informant as described in the affidavit existed and that the affiant was credible. Therefore, defendant's request for a Franks hearing is rejected.
VI.
For the above reasons, I adopt the magistrate's report and recommendations in their entirety. The motion to suppress is DENIED. SO ORDERED.
NOTES
[1] Defendant was convicted in 1976 in the Eastern District of Michigan for possession of heroin.
[2] Defendant explicitly challenges only the January 14 search warrant of his residence (another January 14 warrant was the predicate for a search of premises where drug sales allegedly occurred). The subsequent January 17 search of the residence of defendant's friend was based in part on information provided by the same informant who supplied information for the January 14 search. The results of the January 14 search itself also provided some of the grounds for the January 17 search because it turned up evidence that upheld the credibility of the informant.
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On the 13th day of July, 1936, affidavit was made before the clerk of the police court of the city of Pascagoula, charging that "Bruno Rogers, Lawrence Cropp and Jesse Allen, in the city of Pascagoula, on or about the 12 day of July, 1936, did violate Ordinance No. 20-1923 to wit: Speeding and reckless driving, and operating automobile while under the influence of intoxicating liquor, against the peace and dignity of the City of Pascagoula and State of Mississippi. (Signed) C.F. Hudson, V.P. DeJean, Clerk."
The case was tried before the mayor on a plea of not guilty, and the defendant was fined $100; from which *Page 326
sentence Rogers appealed to the Circuit Court, in which court the city moved to amend the affidavit on file by striking therefrom the following: "Speeding and reckless driving, and operating automobile while under the influence of intoxicating liquor, against the peace and dignity," etc., substituting therefor, "By operating a motor vehicle on Pascagoula street and the Beach Boulevard in the said City of Pascagoula, the same being public streets in said city and within the corporate limits thereof at a rate of speed in excess of fifteen miles an hour." The Circuit judge sustained the motion, whereupon the defendant demurred to the affidavit, on the ground that it did not charge violation of law or of any city ordinance; and contended that it is not a violation of any city ordinance to operate any motor vehicle at a rate of speed in excess of fifteen miles per hour. The court sustained the demurrer, whereupon the appellant requested leave to amend the affidavit, as amended, and on file; changing the words, "fifteen miles per hour," to "thirty miles per hour." The motion was overruled by the court, the charge dismissed, and the defendant discharged; from which order this appeal is prosecuted.
Neither the Circuit Court nor this Court takes judicial notice of a municipal ordinance, and no ordinance is embraced in the motion to amend the last affidavit, showing that the city had an ordinance covering the subject sought to be charged in the amended affidavit. It is here argued that the proper time in the trial had not been reached for the introduction of the ordinance, and consequently the motion should have been sustained; that the court erred in not doing so.
When the city instituted the prosecution against the defendant, it charged violation of an ordinance by number, but the substance of the ordinance was not alleged. It is presumed that the officer preferring charges knows the facts, and that the affidavit made by him charges the facts which violate the alleged ordinance. While it is permissible to amend an affidavit made on the trial de *Page 327
novo in the Circuit Court, the motion to amend should either set forth the ordinance in haec verba, or by sufficient allegations to show the substance of the ordinance, and what acts were intended to be prohibited by it. In the present case the motion did not do this, and the court is not required to sustain the motion to amend until it appears to the court that the affidavit, as amended, would charge an offense upon an ordinance enacted by the city.
The city had the opportunity to amend, and failed to set forth the violation of any ordinance in the said charge; and the court is not required, in the absence of a showing by the city as to the ordinance, violation of which it intends to charge, to sustain a motion to amend an affidavit filed.
It follows that the judgment of the court below is affirmed.
Affirmed.
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553 F. Supp. 2d 337 (2008)
Robert WRIGHT et al., Plaintiffs,
v.
Henry J. STERN et al., Defendants.
No. 01 Civ. 4437 (DC).
United States District Court, S.D. New York.
May 15, 2008.
*338 Beldock Levine & Hoffman LLP, by Cynthia Rollings, Esq., Jody L. Yetzer, Esq., Myron Beldock, Esq., Lewis M. Steel, Esq., NAACP Legal Defense & Education Fund, Inc., by Robert H. Stroup, Esq., Melissa S. Woods, Esq., New York, NY, for Plaintiffs.
Michael A. Cardozo, Esq., Corporation Counsel of the City of New York, by Kathleen M. Comfrey, Esq., Sherri R. Rosenberg, Esq., Alessandro G. Olivieri, Esq., NYC Department of Parks & Recreation, New York, NY, for Defendants.
OPINION
CHIN, District Judge.
In this class action, plaintiffs allege that the New York City Department of Parks and Recreation ("Parks") engaged in a pattern and practice of discrimination against African-American and Hispanic employees and a pattern and practice of retaliation against employees who attempted to oppose the discriminatory practices. Plaintiffseleven African-American and Hispanic current and former employees of *339 Parkssue on their own behalf as well as on behalf of similarly situated individuals.
Following nearly seven years of litigation in this Courtand some ten years of litigation dating back to the investigation that led to the filing of administrative charges with the United States Equal Employment Opportunity Commission in March 1999the parties entered into a settlement agreement (the "Agreement"), subject to approval by the Court. The parties now seek approval of the Agreement, as required by Rule 23(e) of the Federal Rules of Civil Procedure.
Out of some 3,500 class members, a small numberthirteenhave objected to the Agreement, and an even smaller numberthreehave opted out so that they may pursue their own remedies. I have carefully considered the objections, but ultimately I am convinced that the proposed settlement is fair, reasonable, and adequate. A settlement is a compromise; it achieves a measure of success for both sides, and it eliminates the risks that accompany continued litigation, including the risk that a trial would result in no recovery at all. The City of New York (the "City") has defended this case passionately, and it would continue to do so if the settlement were not approved. The Agreement will result in extensive and concrete equitable relief and it also provides for the payment of some $11,869 million to eligible class members. There is simply no assurance that more years of litigation would result in any greater recovery. The Agreement is hereby approved.
BACKGROUND
A. Summary of the Facts
The facts are set forth in detail in the Court's decision granting plaintiffs motion to certify this case as a class action, see Wright v. Stern, No. 01 Civ. 4437(DC), 2003 WL 21543539 (S.D.N.Y. July 9, 2003) ("Wright I"), and in the Court's opinion granting in part and denying in part the City's motion for summary judgment, see Wright v. Stern, 450 F. Supp. 2d 335 (S.D.N.Y.2006) ("Wright II"). For purposes of the instant motion, the facts may be summarized as follows:
Parks is responsible for the care of more than 4,000 City properties, including parklands, playgrounds, public beaches, ball fields, swimming pools, recreational areas, senior citizen centers, golf courses, ice skating rinks, tennis courts, and more than 600,000 street trees. Wright II, 450 F.Supp.2d at 345. During the relevant time period, at any given time, Parks employed approximately 3,400 to 5,000 fulltime, year-round employees, and an additional 3,000 to 7,000 employees who worked on a seasonal basis only. Id. Between January 1, 1997, and December 31, 2003, Parks employed a total of 6,295 fulltime, year-round employees, of whom approximately 2,124 (33.7%) were African-American and 1,163 (18.5%) were Hispanic. Id. at 346. Parks employees were subject to both the civil service structure and the union contracts in place at the time. Id.
As summarized in Wright II, plaintiffs have presented substantial evidence of discrimination against African-American and Hispanic Parks employees in promotions and pay, including statistical evidence, anecdotal evidence, comments betraying a discriminatory animus, and evidence of disparate treatment. See id. at 347-55. For example, the statistics show that in 2000, 92.9% of Parks employees earning an annual salary of less than $20,000 were African-American or Hispanic, while only 20.7% of Parks employees earning an annual salary of between $60,000 and $70,000 were African-American or Hispanic. Indeed, only 13.3% of Parks employees earning more than $70,000 annually were African-American or Hispanic. Id. at 347. In addition, the statistics show that, controlling *340 for job title, class members were paid between $16.44 and $32.59 less than Caucasian employees on a bi-weekly basis between 1997 and 2003. Id. Without controlling for job title, the disparity was much greater: class members were paid between $283.25 and $364.09 less than Caucasians on a bi-weekly basis over the same time period. Id. Plaintiffs also presented substantial evidence that class members suffered retaliation when they complained of discrimination. See id. at 355-57.
The City has steadfastly denied that it engaged in any discrimination or retaliation against African-American and Hispanic Parks employees.
B. Prior Proceedings
Plaintiffs commenced this lawsuit almost precisely seven years ago, on May 24, 2001. On June 19, 2002, the United States filed an action against the City as well, alleging a pattern and practice of racial and national origin discrimination by Parks in promotions.
On July 9, 2003, I certified the instant case as a class action. See Wright I.
On June 8, 2005, the United States and the City entered into a consent decree, whereby the City agreed to implement certain personnel practices.
Plaintiffs and the City engaged in extensive discovery, under the supervision of Magistrate Judge Michael Dolinger. The parties exchanged tens of thousands of documents and took approximately 100 depositions. (Jt. Mem. at 4).[1] Plaintiffs engaged three expert witnesses, who conducted statistical and other analyses and produced substantial reports.
The City filed a motion for summary judgment, one prong of which sought to strike plaintiffs' expert reports and to preclude their experts' testimony. The motion papers were voluminous. In Wright II, I denied the application to preclude the expert reports and testimony, 450 F.Supp.2d at 358-63, and I granted in part and denied in part the motion for summary judgment, id. at 363-79. I dismissed plaintiffs' claims of (i) discrimination in the assignment of employees and the allocation of funding and (ii) a racial hostile work environment. I denied the motion for summary judgment as to plaintiffs' promotion, pay, and retaliation claims. See id. at 378.
Following my ruling on the summary judgment motion, I had discussions with the parties about trial. The parties disagreed in some respects on how the trial should be conducted, but they agreed that there should be at least two stages. One side suggested that the trial be divided into three stages: (1) an initial liability phase on the class pattern and practice and disparate impact claims; (2) the individual claims of the eleven names plaintiffs; and (3) the claims of the remaining class members. The parties were estimating as much as one year for the trial of the first stage alone. I scheduled trial of the first stage to commence on November 5, 2007. (See Jt. Decl. ¶ 47; Jt. Mem. at 4).
C. The Settlement Negotiations
The settlement negotiations began in December of 2006, when the parties agreed to mediation before former Magistrate Judge Kathleen A. Roberts. (See Jt. *341 Mem. at 2). Over the course of the next twelve months, the parties met with Judge Roberts some twenty-five times. (Id.) With Judge Roberts's able assistance, the parties were able to agree on most of the issues, including monetary relief. (Jt. Decl. ¶ 6).
In November 2007, the parties reported that they still had not been able to agree on several issues relating to injunctive relief. In light of the progress the parties had made in settlement discussions, however, I adjourned the trial and met with the parties myself several times to mediate the open items. By the end of November 2007, the parties essentially reached agreement on all remaining itemswith the exception of attorneys' fees. (Id. ¶¶ 6-7).
From the outset of settlement discussions, the parties had agreed to refrain from discussing attorneys' fees and costs until after they had settled in principle all claims for injunctive and monetary relief. (Id. ¶¶ 7, 79; Comfrey Decl. ¶ 2). The City reviewed plaintiffs' counsel's time and disbursements records, and I met with the parties several more times to mediate the fees and costs. (Jt. Decl. ¶ 8; Comfrey Decl. ¶ 3). The parties reached an agreement in principle on attorneys' fees and costs in late January 2008. (Jt. Decl. ¶ 8).
The parties agreed on the final language of the Agreement on February 25, 2008. (Id. ¶ 8).
D. The Agreement
I preliminarily approved the Agreement on February 26, 2008, and scheduled the fairness hearing for May 12, 2008, with objections and opt-outs to be submitted by May 2, 2008. (Id. ¶ 10).
The Agreement contains both injunctive and monetary relief. For example, in terms of equitable relief, it enjoins Parks and its agents and employees from "unlawfully discriminating against any employee based on race, color or national origin with respect to salary, compensation, or in making compensation decisions." (Agreement § IV(C)(1)). It enjoins Parks and its agents and employees "from retaliating against any person" for asserting claims of race, color, or national origin discrimination or opposing such discriminatory practices. (Id. § IV(C)(2)). It requires Parks to establish a five-person advisory committee to address discrimination and retaliation concerns; three of the five members must be full-time African-American and/or Hispanic Parks employees. (Id. § IV(D)(1)).
The Agreement requires Parks to provide training to employees who conduct interviews to fill job vacancies, and it requires Parks to adopt certain procedures intended to make the promotion process more objective. (Id. § V(A)). It requires Parks to conduct an annual "adverse impact study" of the selections for certain job titles to ascertain the selection rates for African-American and Hispanic candidates versus Caucasian candidates. (Id. § V(C)(1)). It requires Parks to establish a training program to develop future managers. (Id. § VI(A)). It requires Parks to adjust the salaries for certain jobs in the recreation area, where plaintiffs believed discrimination against class members was particularly prevalent. (Id. § VII; see Tr. 6). It requires Parks to adopt a postcomplaint follow-up procedure to determine whether employees complaining of discrimination have been subjected to retaliation. (Agreement § VIII(B)).
In terms of monetary relief, the Agreement provides for the City to pay $11,869,856.25 in settlement of all monetary claims. The bulk of the funds will be diyided among three funds: a "promotion fund" ($4,951,013.88); a "pay fund" ($5,804,886.12); and a "retaliation fund" ($563,956.25). (Id. § X(A)). Plaintiffs' counsel estimates that these amounts will *342 result in payments to approximately 50 cents on the dollar for the estimated damages on the promotion and retaliation claims and roughly 40 cents on the dollar on the pay claims. (Tr. 7). The remainder of the settlement funds will be paid as "service awards" of $50,000 each to the eleven named plaintiffs, as compensation for the services they provided to the class and the inconvenience, pain, and suffering they suffered as a consequence of having been a named plaintiff in the case. (Agreement § X(A)(4)). The named plaintiffs will also share in any of the three funds for which they are eligible (id), and five of the named plaintiffs will also receive salary adjustments (id. § IX).
Eligible class members who have a valid promotion, pay, and/or retaliation claim will share in the corresponding fund or funds. (Id. § X(F)). For the promotion and retaliation funds, all eligible class members will share equally, and if all eligible class members participate (id. § X(F)(1), (3)), each class member eligible for the promotion fund will receive approximately $1,900 and each class member eligible for the retaliation fund will receive approximately $5,500. (Tr. 31). Payments from the pay fund will be based on calculations using the regression analyses performed by the labor economists, and eligible class members with a pay claim will receive an amount ranging from a minimum of $1,000 to as much as approximately $65,000. (Agreement § X(F)(2); Tr.8,31).
The Agreement also provides that the City will pay to plaintiffs' counsel attorneys' fees of $8 million and litigation expenses (including expert witness fees) of $999,999.79. (Id. § XVIII). When the parties started their discussion of attorneys' fees and costs, plaintiffs requested fees of $11.2 million, based on their lodestar calculations (number of hours x hourly rates), and $1.2 million in disbursements. (Tr. 12; Jt. Decl. ¶ 76).[2] The City disputed the reasonableness of these amounts, and the negotiations described above resulted in a substantial compromise. In addition, these amounts do not include an additional approximately 2,000 hours plaintiffs' counsel expended in the settlement process, as they had agreed at the outset of mediation not to seek fees for their time spent in settlement negotiations. (Tr. 12-13; Jt. Decl. ¶ 80).
Finally, it should be noted that the statistical patterns of disparity that existed prior to 2004that plaintiffs contend were the result of discriminationno longer existed after 2004, and anecdotally more class members seemed to be getting promotions in recent years. (Tr. 14, 36). No doubt this lawsuit helped bring about these changes.
E. Notice to the Class and the Fairness Hearing
Notice of the proposed settlement, the fairness hearing, and the process for objecting and opting-out were mailed to the approximately 3,500 members of the class. (Jt. Decl. ¶¶ 11, 12). In addition, notice was published in four newspapers; the NAACP Legal Defense Fund held a press conference on February 27, 2008 (which generated newspaper articles in the New York major newspapers as well as The Chief and the District Council 37 ("DC37") newspaper); class counsel met with the DC37 local unions to explain the settlement; and class counsel held four meetings directly with class members to explain the settlement. (Id.) Accordingly, adequate notice of the Agreement, the fairness *343 hearing, and the procedures for objecting and opting out were given to the class. (See id.).
Thirteen objections and three opt-outs were filed. These are discussed below.
The fairness hearing was held on May 12, 2008. A number of class members, including objectors and at least one optout, appeared. They were given a chance to be heard. I inquired of the parties whether they objected to my giving the objectors an opportunity to opt-out if I overruled the objections and approved the settlement. Class counsel had no objection. Defense counsel did not believe the City would have an objection, but asked for some time to confirm. (Tr. 32-33). At the conclusion of the hearing, I reserved decision on the motion to approve the Agreement. By letter dated May 13, 2008, the City advised that it would not object to giving the thirteen objectors a limited extension of time to opt-out.
DISCUSSION
A. Applicable Law
Under Rule 23(e) of the Federal Rules of Civil Procedure, a settlement of a class action requires approval of the court. Fed.R.Civ.P. 23(e). The court may approve a settlement that is binding on the class only if it determines that the settlement is "fair, adequate, and reasonable" and not a "product of collusion." Joel A. v. Giuliani 218 F.3d 132, 138 (2d Cir.2000); see Fed.R.Civ.P. 23(e)(2). This evaluation requires the court to consider both "the settlement's terms and the negotiating process leading to settlement." Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir.2005) (citation omitted), cert. denied, 544 U.S. 1044, 125 S. Ct. 2277, 161 L. Ed. 2d 1080 (2005). "A`presumption of fairness, adequacy, and reasonableness may attach to a class settlement reached in arm's-length negotiations between experienced, capable counsel after meaningful discovery.'" Id. (quoting Manual for Complex Litigation, Third § 30.42 (1995)).
Rule 23(e) does not set forth the factors a court is to consider in determining whether an agreement is fair, reasonable, and adequate. In this circuit, courts traditionally have considered the following factors, commonly referred to as the Grinnell factors: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining a class action through trial; (7) the ability of defendants to withstand greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund in light of the attendant risks of litigation. City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir.1974), abrogated on other grounds, Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000); see also Wal-Mart Stores, 396 F.3d at 117-19 (applying Grinnell factors to determine that settlement agreement was fair). The weight given to any particular factor will vary based on the facts and circumstances of the case. Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, 7B Federal Practice and Procedure: Civil § 1797.1, at 77 (3d ed. 2005).
Public policy, of course, favors settlement. Wal-Mart, 396 F.3d at 116-17; accord Williams v. First Nat'l Bank, 216 U.S. 582, 595, 30 S. Ct. 441, 54 L. Ed. 625 (1910) ("Compromises of disputed claims are favored by the courts."); TBK Partners, Ltd. v. W. Union Corp., 675 F.2d 456, 461 (2d Cir.1982) (noting "the paramount policy of encouraging settlements"). Consequently, when evaluating a settlement agreement, the court is not to substitute *344 its judgment for that of the parties, nor is it to turn consideration of the adequacy of the settlement "into a trial or a rehearsal of the trial." Grinnell Corp., 495 F.2d at 462. "Rather, the Court's responsibility is to reach an intelligent and objective opinion of the probabilities of ultimate success should the claims be litigated and to form an educated estimate of the complexity, expense and likely duration of such litigation and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise." In re Met. Life Derivative Litig., 935 F. Supp. 286, 292 (S.D.N.Y.1996) (quoting Lewis v. Newman, 59 F.R.D. 525, 527-28 (S.D.N.Y.1973)) (internal quotation marks and ellipses omitted):
B. Application
I consider the "settlement's terms" and the "negotiating process" in the context of discussing the Grinnell factors. As the Second Circuit did in Wal-Mart Stores, I combine certain of the factors and discuss them together. See 396 F.3d at 118 (combining fourth, fifth, and sixth factors), at 119 (combining eighth and ninth factors). I then consider the reasonableness of the Agreement's provisions for attorneys' fees and costs.
1. The Grinnell Factors
a. Complexity, Expense, and Likely Duration of Litigation
The claims in this case present difficult and complex legal and factual questions. The parties have compiled a massive body of evidence and the parties had estimated that the first stage would take as many as twelve months to try, even though the first stage would have addressed only the class pattern and practice and disparate impact claims. The individual claims of the eleven named plaintiffs and the claims of thousands of other class members as well would have remained. And assuming plaintiffs prevailed on liability, the remedial phase would have been complex and protracted as well. Accordingly, this factor strongly favors settlement. See Wal-Mart, 396 F.3d at 118 (likelihood of three-month trial involving complex antitrust claims favored settlement); Marisol A. v. Giuliani 185 F.R.D. 152, 162-63 (S.D.N.Y.1999) (likelihood of five-month trial involving more than one hundred fact witnesses and twelve experts favored settlement).
b. Reaction of the Class
Of some 3,500 class members, only thirteen filed objections and only three opted out. The thirteen objections were filed by:
Saifulllah As-Salaam
Walter R. Boyd
Diane Cleveland-Goins
Arnyce Foster
Porfirio E. Lantigua R.
Robert McClain
Dennis Moody
Leon Negron
Dyanne Norris
Al Peterson
Edwin Rosario
George Scott
Ruben Vargas
I carefully reviewed all of the written objections, and I listened to those who spoke at the hearing. Substantially for the reasons set forth in plaintiffs' joint declaration, the objections are overruled. While I am sympathetic to some of the concerns raised, the objections simply do not undermine "the wisdom of the proposed compromise." For example:
Two objectors complained that they had not been selected to be among the named plaintiffs. Class counsel could not, of course, include every class member who wanted to be a named plaintiff, and the law imposes no obligation on them to do so. *345 Eleven named plaintiffs was certainly sufficient.
Some objectors objected to the payment of service awards to the named plaintiffs. Such payments, however, are permitted by the case law. The amount here$50,000was reasonable in light of the burdens imposed by participating as a named party in litigation that spanned some ten years. See, e.g., Ingram v. Coca-Cola Co., 200 F.R.D. 685, 694 (N.D.Ga.2001) (approving service awards to two named plaintiffs of $300,000 each in two-year lawsuit); Beck v. Boeing Co., No. 00-CV-301P, at 4 (W.D.Wa. Oct. 8, 2004) (order approving award of $100,000 each to twelve named plaintiffs in four-year lawsuit); Roberts v. Texaco, Inc., 979 F. Supp. 185, 188-89 (S.D.N.Y.1997) (approving awards of $85,000 and $50,000 to named plaintiffs in three-year lawsuit).
Some objectors complained that the City and individual administrators are not being held accountable, and that the Agreement contains no admission of liability. Of course, defendants rarelyif everadmit liability or wrongdoing when they settle a case. Moreover, with the exception of former Commissioner Henry J. Stern and current Commissioner Adrian Benepe, other administrators and supervisors are not named as defendants in the case. Finally, the fact that the City has agreed, after some ten years of litigation, to significant injunctive relief and the payment of more than $20 million is surely an acknowledgment that there was exposure and that it was in the best interest of the City to compromise plaintiffs' claims of discrimination and retaliation. The statistical and anecdotal evidence shows that this lawsuit has already had a significant effect on the disparities that led to its filing.
Several objectors complained that the amounts being paid out of the settlement funds were inadequate to compensate for the discrimination encountered over many years (23 years in one case, 24 years in another case, 30 years in another) of employment. These complaints are understandable, but the fact is that the law provides only a limited remedy for this kind of historical discrimination. (See Tr. 8-11). As plaintiffs' counsel acknowledges, "given the statute of limitations, it is not possible to compensate persons for injustices dating prior to May 24, 1997." (Jt. Decl. 1120). But this lawsuit and the Agreement will go a long way toward addressing discrimination and retaliation in the future. Moreover, any class member who believed he or she has a strong case and is likely to recover greater damages had the right to opt out.
Some objectors complained that for the promotion and retaliation funds all eligible class members were to receive the same amount and suggested that the amounts should have been based on seniority. In view of the statute of limitations, the number of eligible class members, and the difficulties in making individual determinations, the decision to allocate the funds equally among all eligible class members was reasonable. (Jt. Decl. ¶¶ 20-21).
The fact that the vast majority of class members neither objected nor opted out is a strong indication that the proposed settlement is fair, reasonable, and adequate,
c. Stage of Proceedings and Discovery Completed
Discovery has been completed; defendants filed their summary judgment motion (which included a request under Daubert to strike plaintiffs' expert testimony); the Court has ruled on the motion in a lengthy decision; and a trial date had been set. Hence, both the Court and the parties have a substantial basis for evaluating the strengths and weaknesses of plaintiffs' claims and defendants' defenses. "[F]ew *346 unknowns" remained. Wal-Mart, 396 F.3d at 118.
The extensive discovery included the exchange of tens of thousands of documents and the taking of some 100 depositions. The litigation was hard-fought and the settlement negotiations, as discussed above, were extended and were supervised by an experienced private mediator (and former magistrate judge) as well as by the Court. See Wal-Mart, 396 F.3d at 117 (noting that district court held that "`there could not be any better evidtsnce of procedural integrity' than the aggressive litigation spanning nearly a decade and the impassioned settlement negotiations that produced an agreement on the brink of trial").
There was no collusion. To the contrary, the litigation was passionately contested, and the Agreement was the result of extensive arm's-length negotiations between experienced, capable counsel after meaningful discovery.
The lawyers for both sides are to be highly commended. Class counsel, led by Robert H. Stroup of the NAACP Legal Defense Fund (who joined the case in 2003), Cynthia Rollings of Beldock Levine & Hoffman LLP, and Lewis M. Steel, are highly respected and experienced members of the civil rights bar. The City was more than capably represented by Kathleen M. Comfrey and other members of the Corporation Counsel's office as well as by Sherri Rosenberg of the Parks legal department. With these dedicated advocates involved, I have no doubt that both sides were represented zealously and effectively and I have no hesitation as to the procedural integrity of the settlement process. This factor strongly favors approval of the Agreement.
d. Risks of Establishing Liability and Damages and Maintaining the Class
While plaintiffs had amassed a substantial body of evidence to prove their claims, establishing liability was by no means certain. Notably, some of the objecting class members had lost when they pursued individual claims of discrimination. Recently, the Supreme Court granted certiorari in Crawford v. Metropolitan Government of Nashville and Davidson County, ___ U.S. ___, 128 S. Ct. 1118, 169 L. Ed. 2d 846 (2008), a case that raises questions regarding the scope of Title VII's protections against retaliation for filing an internal claim of discrimination. (Jt. Decl. ¶ 46; Tr. 11). A decision by the Supreme Court in Crawford holding that Title VII's antiretaliation provisions did not reach internal complaints would surely have an adverse impact on some of the class members' retaliation claims in this case.
Even assuming plaintiffs were to establish liability at trial, substantial risks would have existed as to the scope of any relief. The City argued that the Supreme Court's recent decision in Ledbetter v. Goodyear Tire & Rubber Co., ___ U.S. ___, 127 S. Ct. 2162, 167 L. Ed. 2d 982 (2007), altered the legal standard for pay claims. (Jt. Decl. ¶ 46; Tr. 10-11).
There was also a substantial risk that the case would not have been maintained as a class action through trial. I certified this case as a class action in 2003. See Wright I. Since then, however, the law in this Circuit on class certification has changed. In In re Initial Public Offering Securities Litigation (In re IPO Sec. Litig.), 471 F.3d 24, 40-42 (2d Cir.2006), the Second Circuit overruled the holding in Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 292 (2d Cir.1999), which had permitted courts to certify a class based merely on "some showing" of compliance, with the Rule 23 requirements. Instead, in the IPO case, the Second Circuit held that "a district court may not grant class certification without making a determination that all of the Rule 23 requirements *347 are met." 471 F.3d at 40. District courts may no longer "accept plaintiffs' [class] allegations as true and refrain from conducting an examination of the merits when determining the propriety of class certification," as I did here. See Wright I, 2003 WL 21543539, at *4-5. Rather, district courts are now required to make such factual determinations as are necessary to deciding whether all of Rule 23's requirements have been met, even if that means making factual determinations on Rule 23 issues that overlap with the merits. IPO Sec. Litig., 471 F.3d at 41-12.
In light of the change in the law, there was a substantial risk that, absent a settlement, the City would have moved to decertify the class. During the course of the litigation, the City had suggested they might move to de-certify or re-define the class. (Jt. Decl. ¶ 46). There was certainly some risk that, under the new Rule 23 standards, I would have been persuaded to grant a de-certification motion if one were made. See, e.g., McCracken v. Best Buy Stores L.P., 248 F.R.D. 162 (S.D.N.Y.2008) (Chin, J.) (denying class certification motion).
These factors strongly favor approval of the settlement,
e. Defendants' Ability To Withstand Greater Judgment
This factor does not favor settlement, as the City has the ability to withstand a greater judgment.
f. Reasonableness of Settlement in Light of Best Possible Recovery and Attendant Risks of Litigation
Plaintiffs' counsel estimates that the recoveries on the promotion and retaliation funds will be roughly 50% of the damages that could have been recovered (in terms of economic losses) and that the recoveries on the pay fund would be roughly 40% of the damages that could have been recovered had the case proceeded to trial and plaintiffs prevailed. Recovery of these percentages, then, is more than reasonable in light of the attendant risks of litigation and the burdens and delay of proceeding to trial, as discussed above. While some class members will be recovering only small amounts, this is largely a result of the limitations of the law, the nature of promotion and pay claims (which often do not result in substantial recoveries for the types of jobs in question), and the absence of a continuing violation claim in the case. (See Tr. 9). Moreover, in view of the difficulty in getting the City to reach this point, there is little reason to believe that further settlement negotiations would result in any additional settlement funds. See Wal-Mart, 396 F.3d at 119.
These factors strongly favor approval.
In short, the Grinnell factors overwhelmingly support approval of the Agreement.
2. Attorneys' Fees and Costs
The Agreement provides for the payment to counsel of $8 million in fees and the reimbursement of $999,999.79 in costs (including expert fees). These amounts are fair and reasonable. They cover some ten years of time and expenses. These negotiated amounts reflect a substantial reduction from counsel's initial demands, and do not include the 2,000 hours spent negotiating the settlement and drafting the Agreement. Moreover, in view of quality of the representation provided by class counsel and the depth of their commitment, the fees and costs are well-deserved.
CONCLUSION
For the reasons set forth above, the Agreement is approved as fair, reasonable, and adequate. The objections to the Agreement are overruled. The Court will sign the Agreement forthwith.
*348 The thirteen individuals who submitted written objections prior to the fairness hearing (and only these thirteen individuals) are hereby granted an extension of time, until June 2, 2008, to opt out of this case. If they wish to opt out, they must submit a separate piece of paper in accordance with the opt-out procedures set forth in the notice to the class. The optout request must be in writing and it must be signed and dated; it must contain the statement set forth in the class notice; and it must be mailed to the Claims Administrator at the address set; forth in the class notice, no later than June 2, 2008. Any of the thirteen who does not submit an optout request by June 2, 2008 will not be permitted to opt out.
NOTES
[1] "Jt. Mem." refers to the Joint Memorandum submitted by both plaintiffs and the City in support of their motion for preliminary approval of the Agreement. "Jt. Decl." refers to the Joint Declaration dated May 8, 2008 submitted by Cynthia Rollings, Lewis M. Steel, and Robert H. Stroup in support of plaintiffs' request for approval of the Agreement. "Comfrey Decl." refers to the declaration of Kathleen M. Comfrey in. support of the City's request for approval of the Agreement. "Tr." refers to the transcript of the fairness hearing held on May 12, 2008.
[2] Each of the three sets of lawyers has submitted a declaration with attachments setting forth their credentials and experience and showing the hours they expended and the services they provided. (See Jt. Decl. ¶ 78 & accompanying declarations).
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707 F. Supp. 741 (1989)
KALIPHARMA, INC., Plaintiff,
v.
BRISTOL-MYERS COMPANY, Defendant.
No. 88 CIV. 4640 (SWK).
United States District Court, S.D. New York.
March 3, 1989.
Bass and Ullman by Milton A. Bass, Jacob Laufer, Peter T. Cobran, Dianne N. Crosson, New York City, for plaintiff.
Kenyon and Kenyon by Francis T. Carr, Edward W. Greason, Paul Lempel, James Galbraith, for defendant.
MEMORANDUM OPINION AND ORDER
KRAM, District Judge.
Plaintiff filed this action for declaratory judgment and injunctive relief on July 5, *742 1988 seeking a declaration that defendant's patent, U.S. Patent No. 4,504,657 (the "Bristol-Myers Patent"),[1] is invalid and an injunction enjoining defendant from asserting that plaintiff's activities infringed defendant's patent rights. Plaintiff claims that prior art, found in U.S. Patent No. 3,781,282 (the "Garbrecht Patent"), anticipated the claim in defendant's patent. Defendant served its answer on September 22, 1988, and raised as a defense lack of subject-matter jurisdiction based on a purported lack of "case or controversy" as required by Article III to the United States Constitution.[2] This action, originally filed under seal, is now subject to a protective order entered by Magistrate Sharon Grubin on November 15, 1988, and approved by Order of this Court on December 30, 1988 after consideration of the objections and responses filed by the parties. On January 27, 1989, defendant appeared before the Court ex parte seeking (1) an ex parte order allowing defendant to amend its answer to assert a counterclaim for infringement, and (2) an order to show cause for a hearing on a temporary restraining order (the "TRO") based on plaintiff's alleged imminent infringement of defendant's patent. The Court refused to sign the ex parte order granting leave to file an amended answer, and instructed counsel to proceed with notice to plaintiff. The Court also set down a hearing date for the proposed TRO.
The parties appeared on February 1, 1989, at which time the Court granted defendant leave to file its amended answer and granted the requested TRO.[3] The parties have submitted voluminous declarations and exhibits, along with memoranda of law, regarding defendant's application for a preliminary injunction enjoining plaintiff from making, using or selling the patent product in issue, an antibiotic known as crystalline cefadroxil monohydrate. The central issue before the Court is the validity of the Bristol-Myers Patent. Because of the complexities involved and the shifting focus of the parties' arguments, the Court will outline below the relevant facts and then, in general terms the arguments, presented by each side in each of their memoranda of law.
BACKGROUND
Statement of Relevant Facts
1. The Parties
Kalipharma is a Delaware corporation, with its principal place of business in New Jersey, Complaint ¶ 2, and is engaged in the manufacture, marketing, distribution and sale of generic pharmaceutical products. Declaration of Samuel H. Gray, dated February 8, 1989 ("Gray Decl. I"), at ¶ 2, attached to Declarations in Opposition to Defendant's Motion for Preliminary Injunction submitted on February 9, 1989 ("Plaintiff's Declarations in Opposition"). In 1988, Kalipharma's sales in the United States reached approximately $41 million. Id. at ¶ 16. Bristol-Myers is a Delaware corporation, with its principal place of business in New York, and is a research-based pharmaceutical company. Declaration of Bruce R. Ross, dated January 25, 1989, at ¶ 5, attached to Defendant's Application for an Order to Show Cause submitted on January 27, 1989 ("Defendant's Order to Show Cause"). Approximately 20% of Bristol-Myers's business in the United States consists of the sales of prescription products, 35% of which are antibiotics. Id. at ¶ 6. Total net sales for Bristol-Myers exceeded $5 billion in 1987. Declaration of Samuel H. Gray, dated February 15, 1989, ("Gray Decl. II"), attached to Plaintiff's Reply Declarations in Opposition to Defendant's *743 Motion for a Preliminary Injunction, submitted on February 15, 1989 ("Plaintiff's Reply Declarations"). Crystalline cefadroxil monohydrate is described and claimed in the Bristol-Myers Patent, U.S. Patent No. 4,504,657. Id. at ¶ 7. This patent was issued by the United States Patent and Trademark Office on March 12, 1985 to Bristol-Myers, and contains one claim for crystalline cefadroxil monohydrate, described in terms of the x-ray diffraction properties of the compound. See Bristol-Myers Patent; see also Declaration of Edward P. Abraham, dated July 11, 1988, at ¶ 40, attached as Exhibit C to Defendant's Memorandum in Support dated February 11, 1989 ("Defendant's Memorandum in Support"). One of defendant's scientists, Professor Jon Clardy, tested a sample of the drug plaintiff intends to market, and concluded that this sample, identified as Sample T, was identical to the cefadroxil monohydrate claimed in defendant's patent based on the x-ray diffraction properties of each. Declaration of Jon Clardy, dated January 26, 1989 ("Clardy Decl. I"), at ¶¶ 6-9, submitted with Defendant's Order to Show Cause.
2. The Cefadroxil Monohydrate Market
The market for oral cephalosporins is highly competitive, and new drugs are being developed and marketed to supplant existing ones. Ross Decl. at ¶ 9. Defendant believes that the market for cefadroxil monohydrate will run its course approximately within the next five years. Id.
The principal antibiotic marketed by defendant is crystalline cefadroxil monohydrate under the trade names ULTRACEF and DURICEF, which had combined sales in the United States of $100 million for the year 1988. Id. at ¶¶ 6, 8. In 1987, defendant spent more than $1.7 million on product development for these two drugs. Id. at ¶ 12. Defendant's approximate expenses for research and development of cefadroxil monohydrate amount to $33 million, roughly half of which has been spent on continuing research since FDA approval in 1978. Id. Defendant employs a large support staff to visit doctors, pharmacists and hospitals in order to explain to them the characteristics of ULTRACEF and DURICEF. Id. at ¶¶ 13-15.
Defendant's president, Bruce Ross, claims that the introduction of a generic cefadroxil monohydrate would cost Bristol-Myers some $50 million in the first year alone, based on an anticipated loss of 30% to 50% of its sales. Id. at ¶ 20. Such a loss would cause Bristol-Myers to cease its research and development on new uses for cefadroxil monohydrate and eliminate the support staff services it offers to health-care providers. Id. at ¶ 22. Kalipharma and IBI have expended approximately $1.5 million in investigating, researching, studying, testing and preparing to market its own cefadroxil monohydrate product in the United States. Gray Decl. at ¶ 12.
Plaintiff's president, Samuel Gray, states that generic drugs can be expected to capture 50% of cefadroxil monohydrate sales and that the generic price will be roughly 50% of the Bristol-Myers price. Id. at ¶ 13. Plaintiff stands to lose, based on its calculations, up to $25 million per year in potential sales if it is enjoined from marketing its cefadroxil monohydrate. Id. Even if plaintiff ultimately were to prevail, the delay in entering the market could cost it a large percentage of the generic market. Id. Kalipharma has announced the availability of 500 mg capsules of cefadroxil and has received at least one purchase order for its cefadroxil monohydrate. See Exhibits G and J to Lempel Decl.
3. The Patent Prosecution
Crystalline cefadroxil monohydrate is a particular form of an oral cephalosporin antibiotic useful in combatting bacterial diseases, see Bristol-Myers Patent, and it has a unique crystalline structure detectable by x-ray analysis. Abraham Decl. at ¶ 40 and n. 21. This particular antibiotic has a longer half-life than other cephalosporins, allowing it to be administered only once or twice daily, as opposed to four times daily. Abraham Decl. at ¶ 41. Other features make cefadroxil monohydrate more clinically useful than other cephalosporins, Declaration of George A. Pankey, *744 dated July 26, 1988, at ¶ 7, attached as Exhibit B to Defendant's Memorandum in Support, which as a general rule are safer than penicillins. Id. at ¶ 5.
Daniel Bouzard, Abraham Weber and Jacques Stemer (the "applicants") filed an application in the United States on August 7, 1978 for a patent for a single claim to the cefadroxil monohydrate in question.[4] Patent Examiner Mark Berch rejected the application on April 17, 1979 as being fully anticipated by the Garbrecht Patent and Example 7 in particular. See Exhibit 3 to Plaintiff's Memorandum of Law in Opposition. The Patent Examiner rejected the applicants' contention that the Garbrecht Patent did not indicate that cefadroxil monohydrate was recovered in crystalline form. He determined that since the applicants' product "had in fact been prepared before, using the same method and for the same purpose (production of high purity antibiotic) it cannot be considered `new' (35 USC 101)." Id. (emphasis in original). He commented that even if the Garbrecht material had a different crystalline form, "such a change in habit is not a patentable difference, unless the new form has properties not residing in the old form." Id. (emphasis in original).
The applicants challenged this ruling by arguing that Example 7 of the Garbrecht Patent was only a "paper" example that taught nothing about the product formed and that Garbrecht did not indicate that cefadroxil had been recovered in crystalline form. See Appeal Brief before the Board of Appeals, received March 7, 1980, in the File Wrapper, at 12-13, 17. They also argued that the Garbrecht Patent did not inherently produce their product, that their process differed significantly from that used by Garbrecht and that the Patent Examiner incorrectly presumed that the ultimate products would be the same. Id. at 15-16.
The applicants also presented an argument to the Board of Examiners based on a "seeding" phenomenon. In their brief, applicants describe the nature of crystallization and the seeding phenomenon, though the references in the brief are not attached as indicated. They state first that "[c]rystalline substances are solids containing their constituent atoms in an orderly, repeating arrangement. * * * A given arrangement would characterize a particular solid from (sic) of a given substance." Appeal Brief at 6. They then explain that, according to Ostwald's Law, chemical compounds crystallize first in the least stable form and then proceed through various intermediate stages of stability until the most stable form is isolated. Id. at 8. They then assert that "because of seeding and the `polution' (sic) of an environment with a more stable form it can become impossible to subsequently reproduce a prior known, more metastable, crystalline form." Id. Based on this theory, the applicants contested that they could not attempt to repeat Example 7 because even if they did recover the crystalline cefadroxil monohydrate of their application, it would be due to seeds of their own compound in the environment. Id. at 11.
Weber explains in his declaration attached to the Appeal Brief that he had isolated two other crystalline forms of cefadroxil before isolating the form claimed in the application. He labelled the first form "old cefadroxil monohydrate", the second form "cefadroxil trihydrate", and the third form, the one for which he sought the patent, "new cefadroxil monohydrate". Declaration of Abraham Weber, dated August 1, 1979, at ¶ 3, in File Wrapper. Based on his evaluation of the available x-ray crystallographic data, he concluded that each of these cefadroxils "are different and distinct crystalline entities." Id. at 8. He concluded that the new cefadroxil monohydrate was "apparently ... the more thermodynamically stable form." Id. Once he produced the new cefadroxil monohydrate, it became impossible to reproduce cefadroxil trihydrate in his laboratory because of the presence of crystal seeds of the new cefadroxil monohydrate. Declaration of Abraham Weber, dated June 10, 1980 ("Weber Decl. II"), at ¶ 5, in the File Wrapper.
*745 The applicants compared the Garbrecht process for Example 7 with a prior experiment performed by Weber, referred to as Exhibit IV.[5] They claimed that this Exhibit IV was very similar to the Example 7, except for the manner in which the dimethylformide ("DMF") solvate was made. The Exhibit IV experiment was performed in 1973 before the production of new cefadroxil monohydrate. Weber Decl. II, at ¶ 5. The Exhibit IV experiment originally yielded cefadroxil trihydrate, but once the new cefadroxil monohydrate had been produced, the same experiment yielded only new cefadroxil monohydrate and cefadroxil trihydrate could not be recovered. Id.
The Board of Appeals adopted the decision of the Patent Examiner "in toto". Appeal Decision, dated (as mailed on) January 19, 1982, attached as Exhibit 5 to Plaintiff's Memorandum in Opposition. The Board added:
(1) While Garbrecht does not expressly describe the product of ... Example 7 as crystalline, in our view he clearly obtains a crystalline product ...
* * * * * *
(2) We find nowhere in the record a clear statement that the direct comparison vis-a-vis Garbrecht, called for by the Examiner to refute his "inherency" position, was or is scientifically impossible to make. All we find by way of actual evidence is the assertion ... that "it is now impossible to prepare cefadroxil trihydrate ... in his laboratory and pilot plant" (emphasis added). Indeed, the statement in the same Declaration ... that the Garbrecht method applied to the solvate complex resulted in Appellants' claimed compound, would appear to support rather than refute the Examiner's position as to inherency.
The applicants filed a "continuation" on March 16, 1982, and submitted additional declarations in support of its arguments that Garbrecht did not anticipate the claimed "new cefadroxil monohydrate". Professor Ronald G. Micetich, with Ph.D in Organic Chemistry and experience in the field of beta-lactam antibiotics, including cephalosporins, attempted to reproduce the Garbrecht procedures in his laboratory at the University of Alberta in Canada. He describes the Garbrecht Patent as involving a two-step process. A cephalosporin DMF complex is produced, and then this complex is treated so as to cause the cephalosporin to liberate from the DMF complex, resulting in the precipitation of a crystalline hydrate. Declaration of Ronald G. Micetich, dated August 31, 1982 ("Micetich Decl. I"), at ¶ 3. After five separate experiments, he claims that he could not prepare cefadroxil DMF solvate by repeating the instructions of Example 7 of the Garbrecht Patent, and from this fact he states that it "necessarily follows" that the crystalline cefadroxil monohydrate cannot be prepared. Id. at ¶ 11.
On January 28, 1983, Patent Examiner Berch rejected this second application under 35 U.S.C. § 102(b) as anticipated by Example 7 of the Garbrecht Patent. He criticized Micetich for not going to greater lengths to remove certain chemical groups in the processing of the experiment. He noted that the conventional method for removing the t-butoxicarbonyl (t-BOC) group is through the use, not only of aqueous hydrochloric acid, but also triflouroacetic acid or formic acid. The Patent Examiner noted that the Board of Appeals had rejected Weber's seeding theory and he himself criticized Weber's conclusions.
The applicants did not end their efforts, but instead pressed forward with a request for reconsideration. They argued that the Patent Examiner conceded that the claimed invention was not "obvious" pursuant to 35 U.S.C. § 103 and that the Garbrecht example could only be replicated with certain modifications known to those with ordinary skill in the art. They stressed that they were not claiming an invention for cefadroxil, but for a new and unobviously superior crystalline form, and that the lack of marketing by Garbrecht or anyone else of the claimed prior art suggests that the claimed new cefadroxil monohydrate was not anticipated. Applicants submitted a *746 second declaration by Professor Micetich, in which he described a number of experimental variations in an attempt to remove the ester and BOC groups. He concluded that, although he was able to recover cefadroxil, it was not the new cefadroxil monohydrate claimed in the patent application. Declaration of Ronald Micetich, dated June 29, 1984 ("Micetich Decl. II"). In further support of the Micetich conclusions, Professor Ilya Prigogine, experienced in statistic mechanics and thermodynamics, concluded that,
in view of the fact that cefadroxil had not previously been prepared in Professor Micetich's laboratory, the environmental conditions under which Professor Micetich performed his work were such as to favor the production of a crystalline form of cefadroxil that represents the results that would have been obtained by one reproducing Garbrecht Examples 7, 1 and 5 under the environmental conditions in the early 1970's.
Declaration of Ilya Prigogine, dated June 18, 1984, at ¶ 7, in the File Wrapper. Examiner Berch then approved the application, and the Patent was issued on March 12, 1985. The reasons for approving the patent are not enclosed in the File Wrapper, though the Notice of Allowability recites that a statement of reasons was attached. The Notice does state, however, that the claim was allowed in view of applicants' communications dated July 11, 1984 and September 13, 1984. Counsel's Supplemental Reply and Request for Reconsideration on behalf of applicants is dated July 10, 1984; the second Micetich declaration and the Prigogine declaration are appended. A cover letter indicating that a formal drawing of the application was enclosed is dated September 13, 1984. The Court concludes that the final approval was based on these documents.
4. The Challenge to Validity
a. Flaws in Micetich's Procedure
Plaintiff challenges the validity of Professor Micetich's conclusions, upon which the Patent Examiner granted the Bristol-Myers Patent, that the Garbrecht Patent could not be followed to reproduce the "new" cefadroxil monohydrate. Professor Alvin Kosak, who specializes in heterocyclic organic chemistry, declared that Dr. Micetich did not use sufficient quantities of hydrochloric acid ("HCl") in performing the Garbrecht Patent, and that this deficiency caused the experiment to fail. Declaration of Alvin I. Kosak, dated February 7, 1989 ("Kosak Decl. I"), at ¶ 9, attached to Plaintiff's Declarations in Opposition. Specifically, Kosak noted that the cefadroxil produced was modified by two protecting groups and that Micetich failed to adjust to the presence of the second protecting group by not adding more HCl. Id.
Professor Bernard R. Belleau, who has extensive experience in pharmaceutical chemistry, states that the analytical procedures described by Micetich are "appropriate and reliable methods" and that the experimental work described by Micetich "represents the range of the variations, modifications or alterations of Examples 1, 5 & 7 of the '282 patent [the Garbrecht Patent] which would have been suggested to or considered by one of ordinary skill in the art ..." Declaration of Bernard R. Belleau, dated July 19, 1988, at ¶¶ 11-12, attached as Exhibit I to Defendant's Memorandum in Support. He does not respond specifically to the challenge by Kosak, but merely gives Micetich his stamp of approval.
b. Actual Reproduction of the Garbrecht Patent
Plaintiff claims to have obtained the "new" cefadroxil monohydrate claimed in the Bristol-Myers Patent by repeating, with certain obvious modifications, Example 7 of the Garbrecht Patent. Plaintiff's business affiliate, Instituto Biochimico Italiano ("IBI"), under the supervision of Paolo M. Farina, who has a doctorate in industrial chemistry, attempted to reproduce the Garbrecht Patent in its laboratories in Milan and claims to have succeeded. Farina Declaration, dated March 31, 1988, attached to Plaintiff's Declarations in Opposition. Farina used more HCl than called for in the Garbrecht method Example 1, since the amount specified would not in his opinion *747 be sufficient for hydrolysis of both the ester group and the BOC group.[6] He thus used a larger concentration of 5 parts HCl to each part zinc as described in Garbrecht Example 2. See IBI Report at 4, 11. He also increased the temperature from the specified 20°C to 55°C in order to increase the ultimate yield of cefadroxil. Id. at 4-5. Professor Giancarlo Jommi, an organic chemist at the University of Milan, reviewed the IBI report and concluded that the modifications made are "obvious and only marginal for a person with some experience in Organic Chemistry" and that Example 7 could be repeated to obtain crystalline cefadroxil monohydrate. Declaration of Giancarlo Jommi, dated October 23, 1987, at ¶¶ 3-4, attached to Plaintiff's Declarations in Opposition.
In a second experiment in October, 1987 at a laboratory at the University of Bologna, Professor Gianfranco Cainelli, an organic chemist with experience in beta-lactam antibiotics, repeated the experiment performed by Farina and obtained the same results. Cainelli confirmed that Farina's deviation in experimental procedure from that described in the Garbrecht Patent example 7 "are to be considered obvious and not important for a person working in the field of beta-lactam antibiotics." Cainelli Declaration, dated October 28, 1987, at ¶ 4, attached to Plaintiff's Declarations in Opposition. The experiment was repeated a third time by Dr. Farina on November 16-17, 1987, with similar result. Declaration of Samuel H. Gray, dated February 8, 1989, at ¶ 6, attached to Plaintiff's Declarations in Opposition.
Professor Samuel J. Danishefsky, a synthetic organic chemist who is "very familiar" with beta-lactam chemistry, concludes that the IBI reports fail to establish that the Garbrecht Patent could produce cefadroxil monohydrate. Declaration of Samuel J. Danishefsky, February 10, 1989, at ¶ 4. Danishefsky believes that IBI's purification of the chemical intermediate by silica gel chromatography, a procedure not described in Example 7 of the Garbrecht Patent, constituted a "radical departure ... which precludes the IBI work from claiming to be a reproduction of the Garbrecht patent." Id. at ¶ 5. Danishefsky also disagrees with IBI's use of additional hydrochloric acid to "remove blocking groups". He states that the use of other types of acids is more appropriate under the circumstances, id. at ¶ 8, that the Garbrecht Patent did not call for the levels of hydrochloric acid used by IBI, id. at ¶ 11, and that the use of higher temperatures by IBI constituted a departure from Garbrecht, id.
Professor Kosak, in a second declaration, challenges Professor Danishefsky's attack on IBI's use of silica gel chromatography. Kosak first notes that a "person of ordinary skill in the art performing Garbrecht Example 7 would know that purification of intermediate products is desirable before proceeding to the next step in the process. The use of silica gel chromatography for the purification of organic materials is a method which has been known since at least the 1940's and would certainly have been obvious to any person of ordinary skill in the art performing Garbrecht 7." Declaration of Alvin I. Kosak, dated February 14, 1989 ("Kosak Decl. II"), at ¶ 3, attached to Plaintiff's Reply Declarations. Professor Kosak, who reviewed the laboratory notes of Professor Micetich's experiments, states that Micetich used the same silica gel column chromatography used by Dr. Farina at IBI and for the same purification purposes. Id. at ¶ 6. Kosak concludes that this purification technique, used by two scientists years apart and without the knowledge of the other, is one that a person of ordinary skill in the art would use under these circumstances. Id. at ¶ 7.[7]
Kosak also challenges Danishefsky's conclusions regarding Dr. Farina's use of hydrochloric acid and higher temperatures. See id. at ¶¶ 8-11. He restates that Example 7 involved two protecting groups, *748 whereas Example 1 only involved one.[8] He asserts that "removal of two protecting groups requires more reagent than would be used for the removal of one protecting group. Additionally, ... it is customary to employ a significant excess of reagent above the calculated so-called `stoichiometric' amount." (citation omitted). Id. at ¶ 9. Although Kosak recognizes that anhydrous acids such as triflouroacetic acid and formic acid are frequently used to remove a BOC protecting group, a person of ordinary skill in the art would first attempt to vary the amounts of reagents suggested directly in the experiment. Id. at ¶ 10. He thus concludes that the proper procedure would be first to vary the amounts of HCl:Zn and then attempt to remove the protecting groups with other reagents. Kosak also notes that the increased temperature used by Farina was not a departure from standard procedure. Id. at ¶ 11. He notes that Farina obtained cefadroxil monohydrate by using the specified temperature of 20°C, and then increased the temperature only to increase the yield. As he put it, "increasing the temperature for the purpose of speeding up the reaction and improving the yield is in any event a standard procedure obvious to one skilled in the art and is in no sense a significant departure from the Garbrecht patent." Id.
c. Identity of the Garbrecht and Bristol-Myers Materials
Professor Alessandro Coda, at the behest of plaintiff, compared the x-ray diffraction pattern of the cefadroxil monohydrate described in the Bristol-Myers Patent with the diffraction pattern of the cefadroxil monohydrate produced in accordance with IBI's own patent, U.S. Patent No. 4,625,021. This "IBI Patent" appears to be a high-yield process for producing cefadroxil monohydrate. Coda also compared the diffraction patterns of the IBI material with the Garbrecht Patent material. See Declaration of Alessandro Coda, dated March 9, 1987, attached to Plaintiff's Declarations in Opposition. Professor Seymour Z. Lewin, also at plaintiff's request, reviewed the work of Professor Coda and concluded that the data demonstrate "that there is no objective material difference in the x-ray diffraction patterns he found for the Garbrecht Example 7 sample, the IBI sample and the reported data for the Bristol patent at issue in this litigation." Declaration of Seymour Z. Lewin, February 6, 1989, at ¶ 4, attached to Plaintiff's Declarations in Opposition. He noted that any differences between the IBI sample data and the Bristol-Myers data were within the limits of instrumentational and analytical tolerances. Id.
Professor Clardy reviewed the test results obtained by Professor Coda and concluded that the "material made in accordance with the Garbrecht patent is different from the crystalline cefadroxil monohydrate material described in Bristol-Myers patent." Declaration of Jon Clardy, dated February 1, 1989 ("Clardy Decl. II"), at ¶ 4, submitted on February 9, 1989. He also concluded that "the material made in accordance with the IBI patent is different from the crystalline cefadroxil monohydrate material described and claimed in the Bristol-Myers patent." Id. at ¶ 5. Clardy expressed his opinion that the IBI material and the Garbrecht material are identical. Id. at ¶ 7. He concludes that the Coda report presents data that establishes that the Garbrecht Patent material is not the same as the Bristol-Myers Patent material. Id. at ¶ 8.
Samuel H. Gray, the president and chief executive officer of Kalipharma states that Kalipharma has never produced cefadroxil monohydrate, that it has received all its cefadroxil monohydrate from IBI and that the sample provided to Bristol-Myers came from the cefadroxil monohydrate provided by IBI. Declaration of Samuel H. Gray, dated February 15, 1989 ("Gray Decl. II"), at ¶ 3, attached to Plaintiff's Reply Declarations. Dr. Enrico Bosone, who served as assistant to the general manager of IBI through November, 1988, and who is now *749 IBI's Deputy Manager for Regulatory Affairs, states that all the cefadroxil monohydrate supplied to Kalipharma and to Professor Coda was produced in accordance with the IBI Patent, U.S. Patent No. 4,625,021. Declaration of Enrico Bosone, dated February 14, 1989, at ¶ 6, attached to Plaintiff's Reply Declarations.
Professor Lewin, after reviewing Professor Clardy's declarations, states that Clardy's conclusion that Sample T is the same as the Bristol-Myers product on the one hand, and his conclusion that the Kalipharma/IBI product is different than the Bristol-Myers product on the other hand, is scientifically insupportable. Declaration of Seymour Z. Lewin, dated February 14, 1989 ("Lewin Decl. II"), at ¶ 8, attached to Plaintiff's Reply Declarations. Lewin criticized Clardy for disregarding minor variations in the intensities and angular measurements between Sample T and those in the Bristol-Myers cefadroxil monohydrate, while subsequently giving great weight to similar and no greater differences in intensities and angular measurements between the IBI sample and the Bristol-Myers sample. Id. at ¶ 5. He also noted that Coda compared the IBI Standard, a composite of 30 samples, against the published, and less precise, data of the Bristol-Myers Patent. As such, the conclusions to be drawn from this comparison must reflect this inherent difference. Id. at ¶ 6. Lewin prepared a number of tables, attached as Exhibit 3 to his declaration, that compare the diffraction peak d-value positions for the various samples of cefadroxil monohydrate discussed. These tables indicate that the variances in the peak d-values all fall within the expected experimental variances. See id. at ¶ 9.
Clardy, after reviewing the declarations of Professor Lewin and Professor Coda's data, states that
it is now my opinion that I cannot reach a conclusion as to whether the "Garbrecht pattern" is or is not the same as the x-ray powder diffraction pattern in the Bristol-Myers Patent No. 4,504,657. The same is true with respect to the diffraction patterns of the material made by IBI in accordance with the process described in IBI Patent No. 4,625,021 when compared to the Bristol-Myers patent.
Declaration of Jon Clardy, dated February 20, 1989 ("Clardy Decl. III"), at ¶ 2(a), attached as Exhibit A to Defendant's Response to Plaintiff's Reply, submitted on February 21, 1989. Clardy stands by his conclusion stated in Clardy Decl. I that Sample T is identical to the Bristol-Myers product, since he personally conducted that experiment. Clardy Decl. III at ¶ 5.
d. The Seeding Theory
Defendant submitted, somewhat belatedly, the testimony of Professor William Nunn Lipscomb, Jr., a chemical crystallographer who received the Nobel Prize in Chemistry in 1976. Appended to his declaration is approximately sixty pages of hearing testimony that Professor Lipscomb gave in another action at which the validity of the Bristol-Myers patent for cefadroxil monohydrate is at issue. Biocraft Laboratories, Inc. v. Bristol-Myers Company, No. 89 Civ. 0158 (DRD), pending before Judge Debovoise in the United States District Court for the District of New Jersey.[9] In his own words, he "generally testified about the phenomenon wherein in certain instances a less stable crystallline (sic) form of a crystalline material transforms into a more stable crystalline form, and the earlier, less stable form can no longer be obtained." Declaration of William N. Lipscomb, Jr., dated February 21, 1989, at ¶ 3. He testified, again in his own words, "about a description in the literature wherein the phenomenon appeared to be universal in the sense that the less stable material could no longer be made even in another area of the world." Id. at ¶ 4. This "universal" seeding might occur by the distribution of very small seeds, perhaps as small as 100 molecules, that act as crystallization templates preventing the crystallization of less stable forms. Id. at *750 ¶ 5. Professor Lipscomb testified about this phenomenon generally and did not comment on the specific experiments at issue in the present case.
Outline of Arguments
When defendant first sought the TRO, it argued that its patent was valid due to (1) the statutory presumption of validity attached to existing patents pursuant to 35 U.S.C. § 282, and (2) the conclusion by Professor Clardy that the Kalipharma product submitted to him, identified only as Sample T, was identical to the Bristol-Myers product, based on comparisons of the X-ray powder diffraction properties of each sample. Clardy Decl. I, at ¶¶ 6-9.
Plaintiff opposed the preliminary injunction on the grounds (1) that there were serious flaws in the scientific evidence presented by Professor Micetich to the patent examiner, evidence which purports to show that the teachings in a prior patent, the Garbrecht Patent, cannot be replicated by a person of ordinary skill in the art to produce the claimed form of cefadroxil monohydrate, (2) that plaintiff had in fact successfully replicated Example 7 of the Garbrecht Patent so as to produce cefadroxil monohydrate, and (3) that the material produced according to the terms of the Garbrecht Patent is the same as that produced by the Bristol-Myers Patent.
Defendant replied to these arguments by contending (1) that the original evidence presented to the patent examiner was valid and that accordingly the Garbrecht Patent could not be replicated, (2) that the cefadroxil monohydrate produced by plaintiff's IBI, purportedly according to the terms of the Garbrecht Patent, is different in a significant manner from the Bristol-Myers Patent according to plaintiff's own scientist, Professor Alessandro Coda, and thus, the Garbrecht Patent does not anticipate the Bristol-Myers Patent, and (3) that plaintiff did not in fact reproduce cefadroxil monohydrate using the technique taught in the Garbrecht Patent.
Plaintiff replied to these arguments by contending (1) that plaintiff did replicate the Garbrecht Patent using state of the art techniques reasonably known to a person of ordinary skill, and in particular that Micetich, who presented the experimental data to the patent examiner at the time defendant received its patent, used the same techniques now challenged by defendant, and that (2) defendant has argued itself into a knot by claiming initially that plaintiff's IBI cefadroxil monohydrate was identical to the Bristol-Myers product, in support of its infringement argument, and then later arguing that the evidence demonstrated that plaintiff's IBI cefadroxil monohydrate was indeed different than the Bristol-Myers product, in support of its argument that plaintiff had not replicated the Garbrecht Patent material.
Defendant then replied to these arguments by contending (1) that plaintiff has itself twisted the evidence by asserting that it reproduced the Garbrecht Patent, which plaintiff argues establishes a prior art for the Bristol-Myers product, while the scientist who conducted the experiment, Professor Coda, concluded that plaintiff's product was distinct in certain ways from the Bristol-Myers product, (2) that defendant's scientist, Professor Clardy, withdraws his argument that the IBI material and the Garbrecht sample, are not the same as the Bristol-Myers product, and (3) that to the extent that plaintiff actually did reproduce the Garbrecht material, it did so because (a) the process used to obtain the material was modified to such an extent that it cannot fairly be considered a reproduction of the prior art, and/or (b) the local atmosphere in the laboratories used by plaintiff's scientists contained "seeds", or "templates", of the Bristol-Myers product, which in turn made it possible to reproduce the Garbrecht process to produce the cefadroxil monohydrate made by Bristol-Myers.
Plaintiff strenuously objected to the late submission of new theories and declarants.[10] Plaintiff argued, with regard to the *751 substance of the submissions (1) that the recantation by Clardy of his earlier declarations evidences the falsity of his earlier declarations,[11] (2) that defendant's argument that Coda's work demonstrates that the Kalipharma/IBI product and the Bristol-Myers product are materially different completely undermines defendant's contention that plaintiff has or will infringe defendant's patent,[12] (3) that defendant has abandoned the Danishefsky declaration to the extent that it challenged the IBI experimenters' use of silica gel column chromatography, and (4) that defendant's seeding theory should be rejected because (a) it constitutes "injunction by ambush", being introduced so late in these expedited proceedings, (b) the testimony comes from another action and does not contend with the specific experiments performed by plaintiff in this case, (c) the theory is speculative, (d) the patent examiner rejected the seeding theory as a basis for not attempting to reproduce the Garbrecht patent, (e) defendant did attempt to repeat the experiment in an uncontaminated laboratory and claimed that it could not be replicated, and (f) plaintiff replicated the Garbrecht example through Professor Cainelli's laboratory at the University of Bologna where cefadroxil had not previously been produced.[13]
DISCUSSION
Preliminary Injunction Standard
The Patent Act, 35 U.S.C. § 1 et seq., gives inventors the exclusive right to "exclude others from making, using or selling the invention...." 35 U.S.C. § 154. The Court has the power to enjoin "the violation of any right secured by patent, ..." 35 U.S.C. § 283. In a patent case, the Court must consider four factors in determining whether to issue a preliminary injunction: (1) a reasonable likelihood of success on the merits, (2) irreparable harm, (3) a balance of hardships in favor of the party seeking the injunction, and (4) the impact of the injunction on the public interest. T.J. Smith & Nephew, Ltd. v. Consolidated Medical Equip., 821 F.2d 646, 647 (Fed.Cir. 1987). No single factor is dispositive, and the Court must balance each against the others. Hybritech, Inc. v. Abbott Laboratories, 849 F.2d 1446, 1451 (Fed.Cir.1988). The substantive patent law of the Federal Circuit, as opposed to the Second Circuit, controls in this action. Id. at n. 12. The issuance of an injunction lies within the discretion of this Court. Id.
Likelihood of Success on the Merits
1. Legal Discussion
In a patent action, "a patent holder must establish a likelihood of success on the merits both with respect to validity of its patent and with respect to infringement of its patent." Id. While the parties do not question this principle, they disagree as to which party has the burden of establishing the validity or invalidity of the patent for purposes of the pending application for preliminary injunctive relief. Normally, the party seeking injunctive relief has the burden of clearly establishing the necessary elements, including patent validity. Atlas Powder Co. v. Ireco Chemicals, 773 *752 F.2d 1230, 1233 (Fed.Cir.1985). The Atlas Powder court specifically stated that the moving party need not establish that the patent is valid "beyond question", id. a standard advocated by plaintiff and earlier case law. See Smith International, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1578 (Fed.Cir.1983) (citations omitted). Pursuant to statute, a patent is presumed valid and the party challenging a patent has the burden of establishing invalidity. 35 U.S. C. § 282. The Federal Circuit has stated that
the party asserting invalidity not only has the procedural burden of proceeding first and establishing a prima facie case, but the burden of persuasion on the merits remains with that party until final decision.
Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530, 1534 (Fed.Cir.1983). Once the challenging party presents a prima facie case of invalidity, the burden of production shifts to the patentee to come forward with rebutting evidence, though the burden of persuasion always remains with the challenging party. Cable Elec. Products, Inc. v. Genmark, Inc., 770 F.2d 1015, 1022 (Fed.Cir.1985).
This burden exists at the trial on the merits. At the preliminary injunction stage, where a patentee seeks a preliminary injunction and the resisting party challenges the patent's validity, the moving party, here defendant, must demonstrate a reasonable likelihood that the challenging party, here plaintiff, will fail to meet its burden at trial of proving by clear and convincing evidence that the patent is invalid. H.H. Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384, 387 (Fed.Cir.1987). Defendant does not have to prove that its patent is valid, only that plaintiff is not likely to prove that the patent is invalid.
The parties have concentrated their arguments on the narrow issue of anticipation. "An inventor is not entitled to a patent if the invention was anticipated by prior art or, as of the time it was made, would have been obvious to a person having ordinary skill in that art." Lam, Inc. v. Johns-Manville, Corp., 668 F.2d 462, 468 (10th Cir.), cert. denied, 456 U.S. 1007, 102 S. Ct. 2298, 73 L. Ed. 2d 1302 (1982). In the present case, the prosecution history indicates that, although obviousness was once raised as a basis for denying the application, the Patent Examiner decided that Garbrecht anticipated the invention of "new" cefadroxil monohydrate. The Patent Examiner ultimately allowed the patent after considering Micetich's second declaration in which he stated that he could not obtain "new" cefadroxil monohydrate by following the teachings of Garbrecht. A claimed invention is anticipated under 35 U.S.C. § 102 by "disclosure in a single prior art reference of each element of the claim under consideration." Rolls-Royce Ltd. v. GTE Valeron Corp., 800 F.2d 1101, 1105 (Fed.Cir.1986). "In the case of chemical compounds, the mere recitation of a structural formula is insufficient to be an anticipation: the disclosure must also recite means of preparing the compound and at least one significant useful property." Warner-Jenkinson Co. v. Allied Chemical Corp., 477 F. Supp. 371, 383 (S.D.N.Y.1979), aff'd mem., 633 F.2d 208 (2d Cir.1980).
2. Resolution of Factual Disputes
The central issue in the present case is whether proper application of the Garbrecht Patent in an uncontaminated environment would yield the cefadroxil monohydrate of the Bristol-Myers Patent. Plaintiff claims that Garbrecht Example 7 yields cefadroxil monohydrate and that Micetich was incorrect in concluding that it did not. In its latest submission, defendant states its argument in two parts. First, defendant argues that plaintiff's own evidence by Professor Coda demonstrates that the Garbrecht sample produced by IBI and the Bristol-Myers material are different. Second, and in the alternative, if the Court concludes that the Garbrecht and Bristol-Myers samples are the same cefadroxil monohydrate, then defendant argues either (1) that plaintiff changed the process to such a degree that Garbrecht cannot be considered prior art, or (2) that seeds from defendant's cefadroxil monohydrate in the atmosphere account for the identity of the *753 Garbrecht sample produced by IBI and the Bristol-Myers material.
a. Identity of the Cefadroxil Monohydrate Samples
The Court will first consider the report prepared by Professor Coda, upon which defendant now relies heavily. Professor Coda found certain differences between the published Bristol-Myers x-ray diffraction pattern for its cefadroxil monohydrate and the pattern for what Coda called the IBI Standard, which represents a composite of some thirty samples of cefadroxil monohydrate produced according to the IBI Patent. Coda, in a separate experiment, concluded that the diffraction pattern for the Garbrecht sample provided to him by IBI was equivalent to the diffraction pattern for the IBI Standard. Defendant argues that since Coda found Garbrecht to be the same as the IBI Standard, while finding the IBI Standard distinguishable from the Bristol-Myers pattern, then as a matter of logic the Garbrecht sample must be distinguishable from the Bristol-Myers product.
While this transitive theory has a certain appeal, the Court finds a number of weaknesses in defendant's argument. First, after the recantation of the Clardy declarations, the conclusion drawn from the Coda report rests only on the assertion of counsel. The Court notes that Coda did not himself reach the conclusion that the Garbrecht sample's diffraction pattern was distinguishable from the Bristol-Myers pattern; he did not undertake that comparison. In contrast, plaintiff has presented the declaration of Professor Lewin, who has reviewed Coda's report and concludes that the differences identified by Coda between the Bristol-Myers pattern and the IBI Standard pattern are not a sufficient basis for distinguishing the two materials. Lewin Decl. I at ¶ 4. Lewin concludes that "there is no material difference in the x-ray diffraction patterns" for the Garbrecht sample, the IBI Standard sample and the reported Bristol-Myers sample. Id. The charts comparing the peak d-values for each of the cefadroxil monohydrate samples clearly supports this conclusion, and the Court agrees.
Defendant certainly could not hope that this Court finds that their conclusion as to the Coda data is correct. If the IBI material is in fact materially different from the Bristol-Myers material, and since it is unrefuted that Kalipharma does not make its own cefadroxil monohydrate, but receives it from IBI, then it would be logical to conclude that the introduction of the IBI product by Kalipharma into the market would not infringe the Bristol-Myers Patent. Indeed, the only conclusion that Professor Clardy maintains is his opinion that the Sample T he tested is identical to the Bristol-Myers product. Clardy Decl. III at ¶ 5; see Clardy Decl. I at ¶ 8. It is not disputed that this Sample T is the IBI product; therefore, based on Clardy's own opinion, the IBI product is the same as the Bristol-Myers product. This conclusion is consistent with Professor Lewin's opinion. Accordingly, the Court finds by clear and convincing evidence that the IBI Patent product is identical to the Bristol-Myers Patent product. Using the logic of defendant's argument, though with different facts, the Court can conclude that the Garbrecht sample produced by IBI, which is admittedly identical to the IBI Patent cefadroxil monohydrate, is not materially different from the Bristol-Myers Patent.[14]
b. Variances in the IBI Procedure
Plaintiff must now contend with defendant's second line of attack. Defendant argues, based on the declaration of Professor Danishefsky, that the IBI researchers who purportedly repeated Example 7 of the Garbrecht Patent introduced radical modifications in the procedure not taught by the prior art nor reasonably apparent to one with ordinary skill in the art at the time the *754 Garbrecht Patent was obtained.[15] Specifically, defendant argues that IBI used too much hydrochloric acid and too high a temperature. Danishefsky stated that the use of concentrated hydrochloric acid was not the appropriate modification to the Garbrecht example, and that one skilled in the art would not normally use such a technique. Instead, Danishefsky recommends the use of anhydrous acids such as triflouroacetic acid and formic acid. Professor Kosak explains that Danishefsky's challenge to the use of additional hydrochloric acid is unfounded. According to Kosak, the Garbrecht Patent specifically calls for the use of hydrochloric acid with zinc as the reagents needed to remove "protecting groups" introduced in the process. Kosak then states that "the amount of reagent to be used for such `deprotection' necessarily depends on the number of protecting groups which need to be removed." Kosak Decl. II at ¶ 8. He comments that anyone skilled in the art would customarily employ an excess of reagent in these types of experiments. Id. at ¶ 9. Additionally, he states that examples 1 and 2 of the Garbrecht Patent only involve one protecting group, whereas example 7 involves two, thus requiring larger amounts of reagent. Id. Professor Micetich performed example one using the proper amount of reagent, but failed to increase it properly in performing example 7. Id. The Court agrees with Kosak's analysis. Although it is undisputed that the alternate, anhydrous acids are commonly used to remove protecting groups, it is equally appropriate first to attempt to perform the experiment using varying quantities of the suggested reagent. Danishefsky, whose credibility as an expert has been tarnished, merely stated that using larger quantities of HCl is the "less advisable" approach, Danishefsky Decl. at ¶ 8(c), and this critique does not indicate that one skilled in the art would not have used a larger ratio of HCl under these conditions.
Kosak also comments on Danishefsky's challenge to the higher temperature used by Farina by noting that, contrary to Danishefsky's statement, Farina first obtained cefadroxil at the specified temperature of 20°C, and then increased the temperature to 55°C to increase the yield. Id. at ¶ 11 (citing Farina's Report, attached to his declaration, at 4-5). Kosak contends that "increasing the temperature for the purpose of speeding up the reaction and improving yield is in any event a standard procedure obvious to one skilled in the art and is in no sense a significant departure from the Garbrecht patent." Id. Danishefsky stated that the IBI work indicates that cefadroxil monohydrate was not obtained until the temperature was raised to 55°C. Danishefsky Decl. at ¶ 11. The Farina Report directly contradicts this conclusion.
The Court finds that the variations made by Farina in attempting to reproduce the Garbrecht Patent were obvious to those persons with ordinary skill in the art. The Court thus rejects defendant's argument that Farina's procedures constituted a marked departure from the teachings of the prior art.
c. The Seeding Theory
The last factor to consider is the seeding theory advocated by defendant as an explanation for Farina's ability to reproduce the new cefadroxil monohydrate. The evidence on this issue is not particularly well-developed since defendant submitted the Lipscomb testimony only in its last set of papers. More importantly, the Court finds that the evidence does not support defendant's theory to the extent they argue. It is unclear what defendant claims the Garbrecht Patent would produce absent the presence of seeds of the claimed cefadroxil monohydrate. Micetich explains in his second declaration that his attempts to repeat the Garbrecht procedure yielded cefadroxil, though not the cefadroxil claimed in the patent application. Micetich Decl. II, at ¶ 7. The Court cannot discern whether the cefadroxil Micetich obtained was a less stable crystalline form that would by its nature *755 crystallize into the more stable "new" cefadroxil monohydrate claimed in the Bristol-Myers Patent. This lack of showing renders the seeding theory irrelevant. If the cefadroxil produced by Micetich was not the less stable crystalline form, then, accepting the seeding theory, the presence of seeds from the "new" cefadroxil monohydrate would apparently not affect the compound.
Even if the cefadroxil produced were the less stable form, the Court would have very serious reservations and would not conclude as defendant does. First, Professor Lipscomb admitted that "the seeding mechanism is a little speculative and very, very hard to prove. Yet, the phenomenon itself has appeared so many times that it, by itself, is convincing whatever the explanation." Transcript of Testimony before Judge Debevoise, attached as Exhibit B to Lipscomb Decl. ("Tr."), at 394. He also stated that the earlier, less stable form could be replicated under the proper conditions, namely by running the experiment in a seed-free environment. Id. at 398, 403. The Court understands his testimony to mean that, as a theoretical matter, seeding may occur under certain circumstances, but not others. Nothing in his testimony concerned the specific experiments at issue in this case, however.
Second, the Patent Examiner and the Board of Appeals rejected this same seeding theory. Weber described that because of local seeding he could not reproduce the less stable forms of cefadroxil in his laboratory. The Board stated that this conclusion did not disprove the Patent Examiner's conclusion. The applicants then turned to Professor Micetich to attempt to repeat Garbrecht. Professor Prigogine concluded that Professor Micetich's laboratory at the University of Alberta would not be contaminated with seeds of the "new" cefadroxil monohydrate since cefadroxil had not been previously produced there, and on that basis concluded that the experiments run would be reliable. This position was necessary since the applicants argued that Garbrecht could not produce the crystalline cefadroxil monohydrate in question, even in the absence of seeds. If Prigogine's statement is true, as defendant argued before the Patent Examiner at the time it received patent approval, then it is equally true that Professor Cainelli's laboratory at the University of Bologna, where the Garbrecht sample was also obtained, would not be contaminated since he too indicates that he had not previously produced cefadroxil. Cainelli repeated the experiment performed by Farina and obtained the same results. The Court finds defendant's seeding argument unfounded on the record before the Court.
The Court notes that Judge Debevoise, based on the information presented, reached a contrary conclusion. Biocraft Laboratories v. Bristol-Myers Co., No. 89 Civ. 0158 (DRD), Tr. at 465 (D.N.J. February 24, 1989). Judge Debevoise faced a different set of facts, since the party challenging the patent's validity based its arguments on another prior art, not Garbrecht. Although a scientist had been able to reproduce the prior art after the "new" cefadroxil monohydrate had been introduced, he had not been able to do so earlier. Based on these facts, Judge Debevoise gave particular credence to the seeding theory. Id. Judge Debevoise ordered the parties to conduct additional experiments to determine the accuracy of the seeding theory, and this Court is of course interested in the outcome of those experiments.
3. Conclusion
The Court concludes, for the reasons stated above, that plaintiff has established a prima facie case of invalidity and that defendant has not rebutted it. Plaintiff has presented clear and convincing evidence that its scientists have replicated the claimed cefadroxil monohydrate according to the terms of Garbrecht Example 7, using only state of the art modifications. Garbrecht thus anticipates the Bristol-Myers claim. The Court has not accepted defendant's only remaining challenge, that seeds from its cefadroxil monohydrate acted as a template such that any attempt to repeat Garbrecht Example 7 anywhere in the world would yield Bristol-Myers cefadroxil monohydrate, for the reasons stated. Accordingly, *756 defendant has not established that plaintiff is likely not to succeed in challenging the Bristol-Myers Patent.
Irreparable Harm
Each side has submitted evidence and arguments concerning the irreparable harm each would face if they were not to prevail. Defendant is not entitled to a presumption of irreparable harm since it has not established likelihood of success on the merits. Cf. Roper Corp. v. Litton Systems, Inc., 757 F.2d 1266, 1271-72 (Fed.Cir. 1985) (irreparable harm presumed if validity and infringement clearly established). Defendant has established, however, that it is likely to lose a significant share of the market for this drug if generic competitors are allowed access. The cost will be in the millions of dollars. Defendant has also argued that Kalipharma has relatively small amounts of sales and may not be able to compensate defendant for its losses in monetary damages. Kalipharma is not insolvent, and it has noted that the sales from cefadroxil monohydrate alone will be sufficient to compensate defendant for its damages. Gray Decl. at ¶ 16. The Court agrees.
Finally, plaintiff argues that defendant's delay in seeking preliminary injunctive relief undermines its claim to irreparable harm. Significant delay rebuts an inference of irreparable harm. Hybritech, supra, 849 F.2d at 1457. In the present case, plaintiff argues that defendant unreasonably delayed seven months, from the time that the action was filed, until the time defendant sought the TRO. Defendant does not deny that it knew that plaintiff was actively taking steps to market cefadroxil monohydrate. It is not clear whether or not defendant's claimed irreparable injury would be "immediate", as is required, until such time that an infringer was actually ready to produce or market the infringing goods. See Roper, supra, 757 F.2d at 1273 (fear of future infringement is not basis for preliminary injunctive relief). The Court does have some skepticism, however. First, defendant never moved to dismiss for lack of subject-matter jurisdiction, the defense it claimed instead of counterclaiming for infringement. Second, in the New Jersey action involving Biocraft, defendant appears to have moved more expeditiously in seeking injunctive relief. The combination of these factors lead the Court to conclude that defendant would not irreparably be harmed if Kalipharma were to enter the market at this time.
Balance of Hardships
The Court appreciates that the losing party may effectively be precluded from this market. The evidence indicates that the expected life span of this antibiotic will be only a few years, and past experience suggests that this type of litigation could take nearly that length of time. Since it is the nature of litigation that one party wins and one loses, this factor does not weigh heavily in either party's favor. Each side has invested time and money into the development of marketable cefadroxil monohydrate, though defendant, on an absolute level, has spent much more. Nonetheless, this loss will be a very small percentage of defendant's overall revenue, whereas plaintiff's potential loss would represent a far greater percentage of its sales. The weight given to defendant's loss is strongly colored by whether the patent upon which Bristol-Myers relies is valid. Since the patent has been challenged, the Court discounts the weight it might otherwise give to defendant's reliance on its patent.
Public Interest
Each side has set forth convincing arguments that the public interest favors its victory. Defendant has recited the virtues of patent monopoly, the incentive it gives to research and development, and has described the loss to the public of its continued research into further uses for this cefadroxil monohydrate. Plaintiff has described the cost benefits to the public of generic drugs, allowing for lower health-care costs and wider distribution.
Of course, public policy favors enforcement of valid patent rights, including the right to exclude others. Smith Int'l, supra, 718 F.2d at 1581. The key word here is "valid", however, and in this case plaintiff has strongly and convincingly challenged the patent's validity. In Smith *757 Int'l the Court held that a "court should not be reluctant to use its equity powers once a party has so clearly established his patent rights." Id. The converse is also true, that a court should be cautious to use its equity powers when a challenger has so clearly challenged the patent's validity.
CONCLUSION: Balance of Factors
The single most important issue in this case concerns the validity of the Bristol-Myers Patent. The Court has determined that the prior art has been reproduced and that the claimed invention was therefore anticipated and not novel. The Court has carefully considered defendant's explanations and challenges, and finds them less than persuasive. With the patent's validity called into question so strongly, the other relevant factors become less significant. The Court has considered each, however, and finds that none of them so strongly tilts in defendant's favor to make issuance of a preliminary injunction appropriate. For the reasons stated in this opinion, defendant's application for a preliminary injunction is denied.
SO ORDERED.
NOTES
[1] A copy of the patent is attached to the Declaration of Paul Lempel, dated January 26, 1989, as Exhibit B.
[2] Defendant did not list lack of subject-matter jurisdiction as a "defense" in its answer, but included the assertion in response to the first averment in plaintiff's complaint, which asserted jurisdiction. In retrospect, if defendant were serious that this Court did not have subject-matter jurisdiction, it should have moved for dismissal pursuant to Fed.R.Civ.P. 12(b)(1), 12(c) or 56.
[3] The TRO remains in effect through March 2, 1989 according to the terms of a Memorandum Opinion and Order issued by the Court on February 24, 1989.
[4] This information is garnered from the File Wrapper filed by plaintiff.
[5] Results from this experiment are attached to Weber's August 1, 1979 declaration.
[6] Example 7 stated that the procedures described in Example 1 should be used for deprotection of these groups.
[7] Faced with this obvious contradiction, defendant has withdrawn the testimony of Professor Danishefsky, at least as it concerns the challenge to IBI's use of silica gel column chromatography as a purification technique.
[8] Kosak states that Example 2 only involved one protecting group as well, but the Court notes that according to Farina's table at page 11 of his report, Example 2 called for a 5:1 stoichiometric ratio of HCl:Zn.
[9] In an oral opinion, Judge Debevoise granted defendant's application for a preliminary injunction on February 24, 1989. Defendant has provided the Court with a copy of the transcript of the opinion.
[10] Although the Court will not completely disregard the declaration of Professor Lipscomb, who presented the seeding theory, the Court notes that plaintiff is extremely anxious for a resolution of the preliminary injunction application and will therefore not be submitting further memoranda of law or declarations. The Court will give these latest submissions the weight it views appropriate under these circumstances.
[11] Specifically, plaintiff notes that none of the data has changed, only Clardy's interpretation of it. Plaintiff states that Clardy did not know that the Kalipharma sample he originally tested, Sample T, is the same material as the sample discussed by Coda and later commented upon by Clardy. Plaintiff then surmises that Clardy had to withdraw his earlier statements once he discovered that the materials were actually the same.
[12] Plaintiff argues first that it is Professor Clardy who concludes, based on the Coda data, that Coda found plaintiff's product and the Bristol-Myers product to be different. Plaintiff then points out that its Professor Lewin, after reviewing the same Coda data, explains that Clardy's conclusions are faulty and that there are no material differences between the plaintiff's product, the Garbrecht sample produced by plaintiff's scientists and the Bristol-Myers product. Lewin also states that even if the differences identified by Coda were significant, they are not so significant as to warrant the issuing of a new patent to defendant.
[13] See Declaration of Gianfranco Cainelli, dated February 14, 1989, at ¶ 3, attached to Plaintiff's Reply Declarations.
[14] These facts sufficiently establish that defendant is likely to succeed on the infringement prong of its claim, which need only be established by a preponderance of the evidence. Smithkline Diagnostics, Inc. v. Helena Lab Corp., 859 F.2d 878, 889 (Fed.Cir.1988). The parties have not contested this point.
[15] Danishefsky concentrated his argument on the "radical" use of silica gel column chromatography. This argument has since been discredited in light of Micetich's use of the same technique, and only Danishefsky's secondary arguments remain.
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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/3538669/
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Dear Secretary Carnahan:
This opinion letter responds to your request dated January 6, 2011, for our review under § 116.334, RSMo, of a proposed summary statement prepared for the petition submitted by Matt Cologna (version 2) regarding a proposed amendment to Article VIII of the Missouri Constitution. The proposed summary statement is as follows:
Shall the Missouri Constitution be amended to allow early voting prior to federal general elections and include certain procedures relating to voter identification affidavits, voting address updates, and provisional ballots?
Pursuant to § 116.334, RSMo, we approve the legal content and form of the proposed statement. Because our review of the statement is mandated by statute, no action that we take with respect to such review should be construed as an endorsement of the petition, nor as the expression of any view regarding the objectives of its proponents.
Very truly yours,
CHRIS KOSTER
Attorney General *Page 1
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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/1575101/
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274 F. Supp. 169 (1967)
Charles V. KARCZEWSKI and Alma L. Karczewski, Plaintiff,
v.
The BALTIMORE AND OHIO RAILROAD COMPANY, Defendant.
No. 66 C 2074.
United States District Court N. D. Illinois, E. D.
June 27, 1967.
*170 Patrick Mahoney, Edward J. Burke, Chicago, Ill., for plaintiffs.
John Gobel, N. E. Liontakis, R. L. Galassini, Chicago, Ill., for defendant.
MEMORANDUM OPINION
MAROVITZ, District Judge.
Defendant's Motion for Summary Judgment on Count II
This two count action, removed from the state courts, stems from an auto-train wreck in which plaintiff Charles Karczewski, the driver of the automobile, allegedly suffered permanent injuries of a serious nature and was rendered sexually impotent. In count two, Charles' wife Alma Karczewski, seeks recovery of $350,000 for loss of consortium with her husband, which is allegedly a result of defendant's negligent conduct.
The accident occurred in Gary, Indiana. Defendant moves for summary judgment on count two, urging that Indiana law, which is applicable to this suit, does not recognize a cause of action based on loss of consortium brought by the wife of a negligently injured man.
Under Illinois conflict of laws principles, the law of the place of the tort must determine the substantive law in these circumstances. Insull v. New York World-Telegram Corp., 172 F. Supp. 615, 632 (N.D.Ill.1959); Colligan v. Cousar, 38 Ill.App.2d 392, 187 N.E.2d 292 (1963); Wartell v. Formusa, 34 Ill. 2d 57, 59, 213 N.E.2d 544 (1966); Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938); Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Accordingly, Indiana law is controlling.
It is undisputed that despite criticism in Miller v. Sparks, 136 Ind.App. 148, 189 N.E.2d 720, 722 (1963), Indiana does not allow a wife to sue for loss of consortium because of negligent injury to her husband. Brown v. Kistleman, 177 Ind. 692, 98 N.E. 631, 40 L.R.A.,N.S., 236 (1912); Boden v. Del-Mar Garage, 205 Ind. 59, 185 N.E 860 (1933); Miller v. Sparks, supra; See Burk v. Anderson, 232 Ind. 77, 109 N.E.2d 407 (1952). However, in the reciprocal situation, he may recover for loss of consortium for negligent injury to his wife. Burk v. Anderson, supra. Thus, if we follow Indiana law, we must dismiss count two of the complaint.
The recent case of Owen v. Illinois Baking Corp., 260 F. Supp. 820 (W.D. Mich.1966), however, casts doubt upon the constitutional validity of the Indiana position. Owen expressly upholds the wife's right to sue in Indiana for loss of consortium, on facts foursquare with those involved here, by holding the current doctrine to be contrary to the equal protection clause of the Fourteenth Amendment. Allowing the husband to maintain an action for loss of consortium while denying a similar action to the wife seemed an arbitrary and unreasonable classification to Judge Fox.
Neither of the parties cited the Owen case in their original briefs, so we asked them to file supplementary briefs *171 discussing the vitality of the Indiana law in light of Owen, and to focus on the equal protection issue, which had not previously been raised by the plaintiff.
It is clear that under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), the federal courts in diversity cases must follow state substantive law. However, they may look to the governing federal law when a federal question is raised. Palmer v. Bender, 287 U.S. 551, 53 S. Ct. 225, 77 L. Ed. 489 (1933); Porter Royalty Pool Co. v. Commissioner of Internal Revenue, 165 F.2d 933 (6th Cir. 1948). It is indisputable that federal law governs when, as here, a state law is challenged for federal constitutional reasons. Thus we would not be bound to adhere to Indiana law, if we determined it to be unconstitutional.
Owen was decided in the Michigan Federal District Court. It was brought by the wife of a man negligently injured by the defendant, to recover damages for loss of consortium. The accident in Owen, like the instant case, occurred in Indiana. Under Michigan conflicts law, the Indiana substantive law governed the action. In reaching its decision, the court cited approvingly the landmark case of Hitaffer v. Argonne Co., 87 U.S.App.D.C. 57, 183 F.2d 811 23 A.L.R. 2d 1366 (1950), which was the first case to uphold the wife's action for loss of consortium where negligence was the cause of the accident.[1] In addition, Judge Fox noted that the Indiana law was severely criticized, although not overturned, in Burk v. Anderson, 232 Ind. 77, 109 N.E.2d 407 (1952). He concluded that since in Indiana, husbands may maintain actions for loss of consortium for injuries to their wives, wives should have an equal right, and:
"To draw such a distinction between a husband and wife is a classification which is unreasonable and impermissible, and is likewise a violation of the Fourteenth Amendment guarantees." (260 F.Supp. at 822)
But as defendant pointed out, the Court essentially based its decision on the following: (at 821)
"And to grant a husband the right to sue on this right while denying the wife access to the courts in assertion of this same right is too clearly a violation of Fourteenth Amendment equal protection guarantees to require citation of authority."
Thus we think that the Owen case, in and of itself, is not of great precedential weight on the issue, since, as indicated by the above quotation, it did not actually analyze the problem, but essentially stated a conclusion. Nevertheless, the decision in that case raises a major issue, to which we propose to give careful consideration. We think a proper discussion of the issue should begin with an historical analysis of the disputed right of action.
The early status of women during the sixteenth and seventeenth centuries vitally affected the common law attitude toward relational marital interests. The wife was viewed for many purposes as a chattel of her husband, and he was entitled to her services in the eyes of the law. Thus he was given the right at common law to recover for injuries to his wife caused by intentional wrongs, as compensation for the loss of her services. The wife, however, as a "servant" was not entitled to sue for the loss of services of her husband, since in theory he provided none.
The Married Women's Acts, however, removed some of the disabilities of married women, and allowed them to seek redress for torts intentionally inflicted upon their husbands. Indeed, in Indiana, they have long been able to *172 sue for an intentional interference with the marital relationship, in the form of an action for alienation of affections. Holmes v. Holmes, 133 Ind. 386, 32 N.E. 932 (1893).
With the development of the law of negligence, the Indiana courts gave recognition to the husband's right to recover for negligent harm to his conjugal interests. Burk v. Anderson, 232 Ind. 77, 109 N.E.2d 407 (1952). As has been indicated, wives are denied a similar right in Indiana insofar as consortium is involved.
Indeed until 1950, wives were denied this right in all states. But Hitaffer v. Argonne Co., 87 U.S.App.D.C. 57, 183 F.2d 811, 23 A.L.R. 2d 1366 (1950), established the wife's right to sue for loss of consortium for negligent conduct. Since that decision, the courts of last resort for the most part have split on the issue.[2]
Part of the increased recognition of the wife's rights may have stemmed from the expanded scope of interests thought to be encompassed by the action for the loss of consortium. Whereas originally, it was thought to include only the loss of services, it became clear that benefits peculiar to the conjugal relationship were contained as well. These included certain sentimental values such as loss of love, affection, society and companionship, as well as loss of sexual relations. Burk v. Anderson, 232 Ind. 77, 109 N.E.2d 407 (1952).
There appeared to the Hitaffer court no reasonable justification for differentiating between marriage partners on this issue. It was determined that since both have an equal interest in the incidents of the marriage, both must have equal redress to the courts for negligent interference with that interest.
Most writers can see no justification for the pre-Hitaffer state of the law.[3] And indeed, the reasons suggested by the courts which have refused to follow Hitaffer are less than compelling. We believe they have been demonstrated to be without merit.[4]
*173 One of these arguments is that the wife's action is too remote and indirect to warrant protection. Brown v. Kistleman, 177 Ind. 692, 98 N.E. 631, 40 L.R.A.,N.S., 236 (1912); Feneff v. N. Y. Central & Hudson River R. R. Co., 203 Mass. 278, 89 N.E. 436, 24 L.R.A.,N.S., 1024. However, it is readily apparent that although the husband's reciprocal loss would logically be equally as remote, he has been allowed to sue therefor. Montgomery v. Stephan, 359 Mich. 33, 101 N.W.2d 227, 228 (1960); Hitaffer, supra, 183 F.2d at 818.
Another reason advanced for denying the wife a right of action is that it may result in double recovery since the husband's actions for decreased ability to support his family would overlap with the wife's suit for loss of his services. Deshotel v. Atchison T. & S. F. Ry., 50 Cal. 2d 664, 328 P.2d 449 (1958); Nickel v. Hardware Mutual Casualty Co., 296 Wis. 647, 70 N.W.2d 205 (1955). But as was indicated above, consortium involves other elements in addition to loss of services. The wife's interest in these intangibles does not overlap with the husband's action for loss of earning power. These elements are independent of the loss of services factor, and should be assessed separately where the possibility of a double recovery exists. As Hitaffer points out at 183 F.2d page 815, double recovery can be avoided by deducting from the wife's damages, any amount recovered by the husband for loss of earning power.
Some courts insist that since the wife had no right at common law, the lifting of the disabilities of coverture did not create new rights. Howard v. Verdigris Valley Elec. Co-op., 201 Okl. 504, 207 P.2d 784 (1949); Sheard v. Oregon Electric Ry., 137 Or. 341, 2 P.2d 916 (1931). But where there is an interest to be protected, the common law will do so. The early common law considered the wife's rights to be merged with those of her husband. Removing the barriers of coverture did not affirmatively create new rights, but gave the wife a separate and distinct legal existence. Inherent in that status were certain interests co-extensive with those already enjoyed by her husband. Her husband's conjugal interests already were protected. Can it be said that either in logic or reason any justification appears for the creation of new interests without the attendant right to protect them in court? We have already recognized that married women already possessed the right to sue for intentional interference with the marriage relationship. It would seem that the interest to be protected is identical whether interfered with negligently or intentionally. No justification is apparent for treating the situations differently, Hitaffer recognizes this:
"There can be no doubt, therefore, that if a cause of action in the wife for the loss of consortium from alienation of affections or criminal conversation is to be recognized it must be predicated on a legally protected interest. Now then, may we say that she has a legally protected and hence actionable interest in her consortium when it is injured from one of these so-called intentional invasions, and yet, when the very same interest is injured by a negligent defendant, deny her a right of action? It does not seem so to us. Such a result would be neither legal nor logical. On the contrary, it has already been held in this jurisdiction that her interest in the marriage relation is coextensive with that of her husband, and that any interference therewith is a violation of her legal rights. When a legally protected interest of a person has been injured by the wrongful act of another, it is no less actionable because the invasion was negligent rather than intentional or malicious. Some authorities seek to avoid the impact of such logic by holding *174 that in the cases involving intentional invasions to the consortium the injury to the wife is direct, because the husband having participated with the defendant, cannot join with her and benefit from his own wrong. The wife therefore has a cause of action. But we are unable to see how the injury to the consortium is any less direct when the invasion is by a negligent act. Certainly the directness or remoteness of the injury cannot be affected by the fact that in such cases the measure of the wife's damages may be less because of the husband's recovery of the diminished value of his obligation to support his wife. * * *" (183 F.2d at 817)
See Novak v. Kansas City Transit, 365 S.W.2d 539, 541-542 (Mo.1963).
Another ground advanced for denial of the wife's action is that such denial might avoid multiplicity of litigation. Hoffman v. Dautel, 189 Kan. 165, 368 P.2d 57 (1952); Criqui v. Blaw-Knox Corp., 318 F.2d 811, 814 (10th Cir. 1963). This is because the husband will likely sue for loss of earning power, and to allow his wife to sue in addition, would assertedly result in unjustified multiple litigation. However, it has been pointed out that certain sentimental interests are encompassed by the action for loss of consortium, which are not compensated for by the husband's action for loss of earnings. The husband can recover for loss of these intangibles when his wife is injured. Her rights are based on the same principles which permit the husband's reciprocal right. The multiplicity argument succeeds only in lessening the number of lawsuits at the expense of barring redress for a legitimate interest of the wife.
Some courts think the problem is one for the legislature. Deshotel v. Atchison T. & S. F. Ry., supra 328 P.2d at 452, Ripley v. Ewell, 61 So. 2d 420 (Fla. 1952); Ash v. S. S. Mullen, Inc., 43 Wash.2d 345, 261 P.2d 118 (1953). Cf. Dini v. Naiditch, 20 Ill. 2d 406, 428, 170 N.E.2d 881, 86 A.L.R. 2d 1184 (1960).
For the most part, many of the courts which have refused to follow Hitaffer have either expressly or implicitly questioned the wisdom of the rule denying the wife a cause of action, but have either felt compelled to follow precedent, or think the problem is for the legislature. Miller v. Sparks, 136 Ind.App. 148, 189 N.E.2d 720, 722 (1963), decided by a lower court in Indiana, quite clearly intimated that the Indiana Supreme Court should overrule its earlier decisions. See also Larocca v. American Chain & Cable Co., 23 N.J.Super. 195, 92 A.2d 811 (1952); Ripley v. Ewell, 61 So. 2d 420 (Fla.1952); Coastal Tank Lines v. Canoles, 207 Md. 37, 113 A.2d 82 (1955); Garrett v. Reno Oil Co., 271 S.W.2d 764 (Tex.Civ.App.1954).
Some authorities have felt that the solution is to equalize the positions of married people, by not only denying the wife the right to sue for loss of consortium, but by abolishing the husband's similar right as well. Helmstetler v. Duke Power Co., 224 N.C. 821, 32 S.E.2d 611, 614 (1945); West v. City of San Diego, 346 P.2d 479 (Cal.App.1959). See 36 Notre Dame L. 439 (1961). The reasoning goes like this. The husband always had the right to recover for the loss of his wife's consortium at common law. The removal of the disabilities of coverture put his wife on an equal footing in the eyes of the law. The reason for the husband's right to sue for injuries to his wife having ceasedthat is, her previous disability to sue for injuries to herself having been lifted his right should also be abolished.
This position at least has the merit of consistency, by abolishing the right of action for both husband and wife, and by denying that the interests represented by the action exist for either party. Whether or not we agree with the view that the reason for suit has ceased is not relevant here because Indiana has adopted the policy that the husband does have the right to sue. That policy is not in issue here. We must solely decide: assuming that to be the law, does the denial of an equal right to the *175 wife constitute an unconstitutional deprivation of equal protection?
Our decision cannot be based upon our opinion of the wisdom shown by the Indiana view of the law. That is where our position in considering this matter differs from Hitaffer and the cases adhering to it, and meshes with Owen v. Illinois Baking Co. Unlike the Hitaffer line of cases, which were able to be decided without consideration of the constitutional issue, we are bound by the expressed law of the situs of the tort. Only if that law is unconstitutional, as opposed to unwise, may we overturn it. Thus we may only uphold plaintiff's right to maintain count two if the denial of her cause of action under Indiana law would violate the Equal Protection clause. That a policy is unwise is an insufficient reason, without more, for it to reach the stature of an unconstitutional discriminationit must, at the least, be arbitrary and unreasonable.
No reason is apparent which would support the diverse treatment accorded husbands and wives in Indiana on this issue. It might be suggested that the process of history has carved out a definition of women's rights based upon a rationale which has ceased to exist, but which is based upon firm precedent.
We are aware of no principle which protects a longstanding axiom of law from being invalidated when it is antiquated and offends some portion of the constitution as currently interpreted by the Supreme Court. In holding that the common law of Florida has been abrogated by the Fourteenth Amendment, and that a woman may sue her husband despite common law doctrine to the contrary, a South Carolina Federal District Court recognized that married women are "entitled to the same protection of the law as other individuals regardless of ancient provisions of the common law." Alexander v. Alexander, 140 F. Supp. 925, 928 (W.D.S.C.1956). That women cannot sue for loss of consortium is not excusable because based upon an historical legal doctrine which viewed a woman as her husband's chattel or "servant." Some positive justification is required. Nothing persuasive is offered by any of the cases which deny her this right.
Marriage is no longer viewed as a "master-servant" relationship. It has assumed a special status in which each party has equal rights under the law. As put long ago by the New York Court of Appeals in Bennett v. Bennett, 116 N.Y. 584, 590, 23 N.E. 17, 6 L.R.A. 553, as cited in Hitaffer, at page 816: (183 F.2d)
"The actual injury to the wife from loss of consortium which is the basis of the action, is the same as the actual injury to the husband from that cause. His right to the conjugal society of his wife is no greater than her right to the conjugal society of her husband. Marriage gives each the same rights in that regard. Each is entitled to the comfort, companionship, and affection of the other. The rights of the one and the obligations of the other spring from the marriage contract, are mutual in character, and attach to the husband as husband and to the wife as wife. Any interference with these rights, whether of the husband or of the wife, is a violation, not only of natural right but also of a legal right arising out of the marriage relation. * * * As the wrongs of the wife are the same in principle, and are caused by acts of the same nature, as those of the husband, the remedy should be the same."
The Hitaffer court put it this way: (183 F.2d at 816)
"It is clear to us, in light of this plain broad language, that in order to circumvent its impact on all cases involving the loss of consortium, whether by the husband or the wife, we would have to engage in the legalistic gymnastics which we are here criticizing. There can be no doubt that the expressed view of this court is that the husband and the wife have equal rights in the marriage relation which will receive equal protection of the *176 law. That these rights existed prior to the passage of the Married Women's Acts cannot be doubted. The Act simply removed the wife's disability to invoke the law's protection. And what we have said in this regard is equally applicable to the large number of cases which satisfy themselves with simply stating that the wife had no such action at common law and the Emancipation Acts gave her no new causes of action. It is not for us, at this late date under the modern concepts of the marital relations, to deny the wife legal protection of this right."
The Indiana doctrine, as stated in Boden v. Del-Mar Garage, 205 Ind. 59, 185 N.E. 860, 863 (1933) was premised upon the theory that actions for loss of consortium were in fact based upon the loss of services. Since the husband or his representative could maintain an action for loss of services or decreased earning power, there appeared no reason to allow his wife what would amount to double recovery. Boden distinguished the wife's right to recover for intentional interferences such as alienation of affection on the ground that such an action "is based on the injury done to her, and not to the husband." (185 N.E. at 863). But, as above stated Burk v. Anderson, 232 Ind. 77, 109 N.E.2d 407 (1952), undermined the theory of the Boden case by recognizing that loss of consortium involves other elements such as love, affection, society, companionship, and sexual relation. Cf. McDaniel v. McDaniel, 245 Ind. 551, 201 N.E.2d 215, 218 (1964). A wife certainly has rights in these elements of consortium equal to those of her husband. As stated in Hitaffer:
"Furthermore, we can conceive of no reasons for denying the wife this right for the reason that in this enlightened day and age they simply do not exist. On the contrary it appears to us that logic, reason and right are in favor of the position we are now taking. The medieval concepts of the marriage relation to which other jurisdictions have reverted in order to reach the results which have been handed to us as evidence of the law have long since ceased to have any meaning. It can hardly be said that a wife has less of an interest in the marriage relation than does the husband or in these modern times that a husband renders services of such a different character to the family and household that they must be measured by a standard of such uncertainty that the law cannot estimate any loss thereof. The husband owes the same degree of love, affection, felicity, etc., to the wife as she to him. He also owes the material service of support, but above and beyond that he renders other services as his mate's helper in her duties, as advisor and counselor, etc. Under such circumstances it would be a judicial fiat for us to say that a wife may not have an action for loss of consortium due to negligence." (183 F.2d at 819)
In light of Burk, no justification remains for the Boden rationale. Miller v. Sparks, 136 Ind.App. 148, 189 N.E.2d 720, 722 (1963), seemingly agreed, but as a lower appellate court was without power to overrule Boden. The court said:
"We have emphasized Judge Gilkison's thought (in Burk v. Anderson). The writer of this opinion is inclined to agree with the thought expressed by Judge Gilkison that the consortium rights of one spouse should be co-extensive with the consortium rights of the other. However, it appears that the majority members of the Supreme Court did not agree with this idea and supported the doctrine as announced in Boden v. Del-Mar Garage, supra. We are bound by the decisions of our Supreme Court, and the doctrine they announced in the Boden case, supra, is binding upon us until the same is changed, either by the Supreme Court or legislative enactment. * * *"
In addition, Owen v. Illinois Baking Corp., 260 F. Supp. 820, 821 (W.D.Mich. *177 1966) refutes a theory initially advanced to support the Indiana rule:
"In Brown v. Kistleman, 177 Ind. 692, 98 N.E. 631, 40 L.R.A.,N.S., 236 (1912), the court held that this interest of the wife was not a property right or derived from a contract of bargain and sale, and it lies in an area which the law will not enter except out of necessity. However the right is characterized, it arises from the marital relation, and to say that it inheres in the husband but not the wife is to indulge in what the Hitaffer court termed `legal gymnastics.'"
It is indeed true that certain of the ancient disabilities of coverture remain, and that in the law husband and wife still are not on a parity in all respects. By way of example, the husband is obligated to support his family, and cannot dispose of his property by will so as to defeat his wife's right to take at least one-third of his property. But there is a legitimate reason for such laws. In our society, the husband by force of custom and practice is regarded as the family breadwinner. Surely our laws may conform to soundly rooted custom. Indeed custom gave birth to such laws and they are as reasonable today as when enacted. (I might expect a challenge on this point from some married men.)
But no reasonable suggestion can be offered any longer to explain the disparity in the spouses' relative rights to sue for loss of consortium. It is fair to say that no such rationale exists.
It is clear that classification per se is not prohibited by the equal protection clause. In order to constitute a violation thereof, a law must establish a classification so unreasonable as to be purely arbitrary. Or as the Supreme Court has oft-times stated: "A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it." McGowan v. State of Maryland, 366 U.S. 420, 426, 81 S. Ct. 1101, 1105, 6 L. Ed. 2d 393 (1961); New York Rapid Transit Corp. v. City of New York, 303 U.S. 573, 578, 58 S. Ct. 721, 82 L. Ed. 1024 (1938).
The Supreme Court has been noticeably more reluctant to interfere with state policy where economic interests, as distinguished from the "basic civil rights of man", are involved. This reluctance has prompted at least one writer to state that the Equal Protection Clause has "two sides"one imposing a definition of reasonableness for classifications involving economic interests which is "comfortably loose", and the other rigorously scrutinizing any classification which impinges upon the "basic civil rights of man". McKay, Political Thickets and Crazy Quilts; Reapportionment and Equal Protection, 61 Mich.L. Rev. 645, 666 (1963); See Krause, Equal Protection for the Illegitimate, 65 Mich. L.Rev. 477 (1966). The defendant suggests that since the instant dispute concerns an "economic interest" of Mrs. Karczewski, rather than a "basic civil right," that an economic classification which distinguishes between husbands and wives is tenable.
But the Supreme Court's reluctance to act in economic matters has not prevented it from applying the equal protection clause to certain conflicts regarding state regulation of economic activity. In Morey v. Doud, 354 U.S. 457, 77 S. Ct. 1344, 1 L. Ed. 2d 1485 (1957), the Court struck down a state legislation which created a closed class by exempting money orders issued by the American Express Company from regulations applicable to all other issuers of such orders. In Wheeling Steel Corp. v. Glander, 337 U.S. 562, 69 S. Ct. 1291, 93 L. Ed. 1544 (1949), an ad valorem tax imposed by a state only upon certain intangible property owned by foreign corporations which did business within the state, was held to violate the equal protection clause since the tax was not levied upon domestic corporations. And in several other cases, the Court has recognized that economic interests are protected by the equal protection clause. Hillsborough v. Cromwell, 326 U.S. 620, 66 S. Ct. 445, 90 L. Ed. 358 (1946) (discriminatory *178 property tax assessment); Hartford Steam Boiler Inspection and Ins. Co. v. Harrison, 301 U.S. 459, 57 S. Ct. 838, 81 L. Ed. 1223 (1937) (Discrimination between various categories of insurance companies.)
Nevertheless, in matters involving economic interests, it must clearly be shown that the challenged classification is without any reasonable basis, and is clearly arbitrary, before it can be upset on equal protection grounds. As was stated long ago in Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-79, 31 S. Ct. 337, 340, 55 L. Ed. 369 (1911), and still relevant today:
"1. The equal protection clause of the 14th Amendment does not take from the state the power to classify in the adoption of police laws, but admits of the exercise of a wide scope of discretion in that regard, and avoids what is done only when it is without any reasonable basis, and therefore is purely arbitrary. 2. A classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety, or because in practice it results in some inequality. 3. When the classification in such law is called in question, if any state of facts reasonably can be conceived that would sustain it, the existence of that state of facts at the time the law was enacted must be assumed. 4. One who assails the classification in such a law must carry the burden of showing that it does not rest upon any reasonable basis, but is essentially arbitrary."
Accord; McGowan v. State of Maryland, 366 U.S. 420, 525, 81 S. Ct. 1101, 6 L. Ed. 2d 393 (1961).[5]
In the instant case, we have already determined that the denial of the wife's right of action can no longer be explained on any rational basis. It is clearly no more than a relic of an ancient era in the law. Where no reasonable justification for its existence other than longevity can be offered, and defendant and the Indiana courts offer no other, it must be considered to be an arbitrary classification.
Defendant however, insists that the Supreme Court does not often enter into the area of marital relationships, and has never found a law distinguishing on the basis of sex to be in violation of the Fourteenth Amendment. It cites several cases in support of the proposition that sex furnishes a reasonable basis for legislative or judicial classification. But it suggests no reasonable basis for the instant classification. Certainly the classifications upheld by the Supreme Court in the cases cited by defendant had a reasonable basis. They involved limitations on the number of hours women could work, Muller v. State of Oregon, 208 U.S. 412, 28 S. Ct. 324, 52 L. Ed. 551 (1908); Miller v. Wilson, 236 U.S. 373, 35 S. Ct. 342, 59 L. Ed. 628 (1915); Riley v. Commonwealth of Massachusetts, 232 U.S. 671, 34 S. Ct. 469, 58 L. Ed. 788 (1914); Bosley v. McLaughlin, 236 U.S. 385, 35 S. Ct. 345, 59 L. Ed. 632 (1915); Radice v. People of State of New York, 264 U.S. 292, 44 S. Ct. 325, 68 L. Ed. 690 (1924), or womens' minimum wage laws. West Coast Hotel Co. v. Parrish, 300 U.S. 379, 57 S. Ct. 578, 81 L. Ed. 703 (1937). As the Court recognized in those cases: "`a woman's physical structure and the performance of maternal functions place her at a disadvantage in the struggle for subsidence' and that her physical well being `becomes an object of public interest and care in order to preserve the strength and vigor of the race.'" West Coast Hotel Co. v. Parrish, supra at 394, 57 S.Ct. at 583.
The instant classification bears no relation to a woman's physical well being as did those cases. It discriminates against her without reason.
*179 Nor is the failure of the Supreme Court in Hoyt v. State of Florida, 368 U.S. 57, 82 S. Ct. 159, 7 L. Ed. 2d 118 (1961), to strike down a Florida law excluding women from jury duty unless they volunteered to serve, helpful to defendant. For it is likely that the voluntary feature of that law saved it from invalidation. Significantly, a three-judge federal court has recently held the total exclusion of women from jury service to be an arbitrary classification, and therefore, a denial of the equal protection of the laws. White v. Crook, 251 F. Supp. 401 (M.D.Ala. 1966).
Furthermore, Barrington v. Barrington, 206 Ala. 192, 89 So. 512, 17 A.L.R. 789 (1921), cited by defendant, is not applicable here. In that case, the Supreme Court of Alabama upheld a state statute permitting a wife to sue for divorce on the grounds of non-support, and that she had lived separately from her husband for a specified period, while denying the husband the right to sue for divorce on the same grounds. But unlike the instant case, that classification was based on reasonable grounds relating to the husband's duty of support. The Court said: (at 514)
"Specifically, as to the case under consideration, the single factor of the husband's legal duty to shelter and support the wife, and the demoralizing impolicy of grounding an equitable remedy in his favor upon his repudiation or evasion of that important and necessary duty, is a sufficient basis for the discriminatory favor here shown to the wife."
Indeed, all of the cases cited by the defendant involve state use of the police power to apply classification to certain activities of women which relate to their special status as wives and mothers in the community, and which recognize that they are not generally as physically strong as males.
But none of those considerations are present in the instant case. We have demonstrated the absolute lack of any reasonable justification for the disputed Indiana doctrine. A recent article has recognized that women are deserving of special status and legislation which relates to their function as mothers and their relative physical distinctions from men. Murray and Eastwood, Jane Crow and the Law; Sex Discrimination and Title VII, 34 Geo.Wash.L.Rev. 232, 238-39 (1965). But the article contends, classification based on sex, like any other classification, is not justified where it restricts womens' rights in a manner which has no bearing on either the maternal function, physical characteristics, or any other reasonable explanation. Where classification is done without reason, "it disregards individuality and relegates an entire class to inferior status." The article suggests that the concept of "classification by sex", which was derived from progressive labor legislation, and upheld in such cases as Muller v. State of Oregon, 208 U.S. 412, 28 S. Ct. 324, 52 L. Ed. 551 (1908), cited by defendant, has been extended as a basis for legislative classification to subjects remote or unrelated to sex. And this is undoubtedly true, so that "classification by sex", even without any reasonable justification has either been benignly approved, or gained a certain dubious aura of respectability. See Murray and Eastwood, at 237-239.
We believe that the instant classification by sex certainly is unrelated to any of the concerns which could motivate a distinction on that basis. As we have indicated, the intangible segments of the elements comprising the cause of action for loss of consortium are equally precious to both husband and wife. Certainly, no justification is apparent, or is offered, to affirmatively support the classification. We think, therefore, that it discriminates unreasonably and arbitrarily against women, and must be abolished.
It is not relevant to say that because all wives are similarly situated all are equally protected. For that is to ill-define the relevant classification. In these circumstances, all married people, husbands and wives, must comprise the class to be protected. That is because *180 each has an equal interest in the elements of the marital relationship which are protected by the action for loss of consortium. To deny it to wives is a classification without reason, is arbitrary, and is consequently a violation of the Equal Protection Clause of the Fourteenth Amendment.
In view of our decision on this issue of law, defendant's motion for partial summary judgment is denied and plaintiff Alma Karczewski may prosecute count two of this complaint.
NOTES
[1] A North Carolina case, Hipp v. E. I. DuPont de Nemours & Co., 182 N.C. 9, 108 S.E. 318, 18 A.L.R. 873 (1921), established the wife's right to sue for loss of consortium caused by negligent conduct, but was subsequently overruled in Hinnant v. Tidewater Power Co., 189 N.C. 120, 126 S.E. 307, 37 A.L.R. 889 (1925).
[2] Those courts following Hitaffer have been: Dini v. Naiditch, 20 Ill. 2d 406, 170 N.E.2d 881, 86 A.L.R. 2d 1184 (1960); Montgomery v. Stephan, 359 Mich. 33, 101 N.W.2d 227, 228 (1960); Brown v. Georgia-Tennessee Coaches, Inc., 88 Ga.App. 519, 77 S.E.2d 24 (1953); Gordy v. Powell, 95 Ga.App. 822, 99 S.E.2d 313; Bailey v. Wilson, 100 Ga.App. 405, 111 S.E.2d 106 (1959); Missouri Pacific Transportation Co. v. Miller, 227 Ark. 351, 299 S.W.2d 41 (1957); Acuff v. Schmit, 248 Iowa 272, 78 N.W.2d 480 (1956); Cooney v. Moomaw, 109 F. Supp. 448 (D.C.Neb.1953); Hoekstra v. Helgeland, 78 S.D. 82, 98 N.W.2d 669 (1959); Luther v. Maple, 250 F.2d 916 (8th Cir. 1958) (Neb.); Hayes v. Swenson, 14 Pa. D. & Co.R.2d 708; Yonner v. Adams, 3 Storey 229, 53 Del. 229, 167 A.2d 717 (1961); Duffy v. Lipsman Fulkerson Co., 200 F. Supp. 71 (D.C.Mont. 1961); Novak v. Kansas City, Transit, Inc., 365 S.W.2d 539 (Mo.1963); Shepherd v. Consumers Coop. Assoc., 384 S.W.2d 635 (Mo.);
These cases have expressly rejected the Hitaffer rationale: Ripley v. Ewell, 61 So. 2d 420 (Fla.1952); Baird v. Cincinnati N. O. & T. R.R. Co., 368 S.W.2d 172 (Ky., 1963); LaEace v. Cincinnati Newport & Covington Ry. Co., 249 S.W.2d 534 (Ky., 1952); LaRocca v. American Chain & Cable Co., 23 N.J.Super. 195, 92 A.2d 811 (1952); Ash v. S. S. Mullen, Inc., 43 Wash.2d 345, 261 P.2d 118 (1953); Nelson v. A. M. Lockett & Co., 206 Okl. 334, 243 P.2d 719 (1952); Garrett v. Reno Oil Co., 271 S.W. 764 (Tex.Civ.App.1954); Jeune v. Del E. Webb Constr. Co., 77 Ariz. 226, 269 P.2d 723 (1954); Franzen v. Zimmerman, 127 Colo. 381, 256 P.2d 897 (1953); Nickel v. Hardware Mutual Cas. Co., 269 Wis. 647, 70 N.W.2d 205 (1955); Kronenbitter v. Washburn Wire Co., 176 N.Y.S.2d 354 (1958); Deshotel v. Atchison T. & S. F. Ry., 50 Cal. 2d 664, 328 P.2d 449 (1958); Coastal Tank Lines v. Canoles, 207 Md. 37, 113 A.2d 82 (1955); Seagraves v. Legg, 147 W.Va. 331, 127 S.E.2d 605 (1962);
See also Anno. 23 A.L.R. 2d 1378, and supplements thereto.
[3] See Prosser, Torts, 703-704 (1955); 64 Harv.L.Rev. 672 (1951); Note, 30 Ind.L.J. 276 (1955).
[4] The opinion in Dini v. Naiditch, 20 Ill. 2d 406, 170 N.E.2d 881, 86 A.L.R. 2d 1184 (1960), which establishes the wife's right to sue for loss of consortium in Illinois, in this court's judgment, demolished these reasons as valid criteria. Following is a brief discussion of our feelings on each of the proffered reasons.
[5] For a collection of cases which have refused to invalidate certain economic situations on grounds of equal protection, see McKay, Political Thickets and Crazy Quilts; Reapportionment and Equal Protection, 61 Mich.L.Rev. 645, 669 n. 100 (1963).
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612 F. Supp. 1421 (1985)
Robert Saks MECHIGIAN, on Behalf of himself and all other investors similarly situated, Plaintiff,
v.
ART CAPITAL CORP., Marigold Enterprises, Inc., American Contemporary Art, Inc., Notar Services Corp., Harris Shapiro, Marilyn Goldberg, Harry Gurwitch, Joseph P. Notaro, Sigmund Rothschild, F. Peter Rose, Joseph Gandolfo and Harry J. Schaare, Defendants.
84 Civ. 4617 (KTD).
United States District Court, S.D. New York.
June 25, 1985.
*1422 *1423 *1424 Wayne O. Alpern, New York City, for plaintiff.
Booth, Lipton & Lipton, New York City, for defendants Art Capital Corp. and Harris Shapiro; H. Adam Prussin, New York City, of counsel.
Friedman & Shaftan, P.C., New York City, for defendants American Contemporary Art, Inc., Harry Gurwitch, Sigmund Rothschild and F. Peter Rose; Robert S. Groban, Jr., New York City, of counsel.
MEMORANDUM & ORDER
KEVIN THOMAS DUFFY, District Judge.
Plaintiff, Robert Saks Mechigian ("Mechigian"), brings this suit against various defendants alleging the following eight causes of action: (1) conspiracy to fraudulently induce investment; (2) violation of state security laws; (3) violation of federal security laws; (4) fraud, misrepresentation, and deceit; (5) innocent misrepresentation; (6) negligence; (7) breach of fiduciary duty; and (8) breach of contract. Defendants, Art Capital Corporation ("ACC") and Harris Shapiro, move to dismiss Counts Two and Three on the ground that, inter alia, these causes of action fail to state claims upon which relief can be granted. Defendants, American Contemporary Art, Inc. ("ACA"), Harry Gurwitch, F. Peter Rose, and Sigmund Rothschild, move to dismiss plaintiff's complaint in its entirety. Plaintiff opposes the motions and cross-moves for class action certification.
Plaintiff alleges in pertinent part the following facts in his class action complaint. On June 30, 1978, plaintiff purchased for $137,000 a lithographic plate for "Track Relay," an original artwork by defendant, Harry J. Schaare. Previously, "Track Relay" had been purchased from Schaare for $3,000 by the defendant promoters Shapiro, Marilyn Goldberg, and Gurwitch and their respective corporations, ACC, Marigold Enterprises, Inc., and ACA. These promoters arranged for two art appraisers, defendants Rothschild and Rose, to render their assessments of the fair market value of "Track Relay." At the June 30, 1978 closing, Rothschild and Rose stated that the current fair market value of "Track Relay" was between $165,000 and $175,000. The complaint suggests that the defendants advised the plaintiff that prints could be made from the original and could be sold for a profit. Plaintiff alleges that he was the victim of a deliberate conspiracy by all of the defendants to fraudulently induce him to purchase "Track Relay," whose actual value was in fact substantially less than $137,000. In addition, plaintiff alleges that "numerous other members of the general public constituting the class herein, entered similar transctions [sic] with defendants and purchased similar investments in a similar manner." Class Action Complaint at ¶ 28.
Following the purchase of "Track Relay," plaintiff entrusted entirely to defendants the marketing of the artwork. Plaintiff alleges that other members of the proposed class similarly relied upon the marketing efforts of defendants to produce profits.
DISCUSSION
I. MOTIONS TO DISMISS
A. Securities Claims
Defendants move to dismiss plaintiff's state and federal securities causes of action *1425 on the ground that "Track Relay" is not a security and therefore the securities laws are not implicated. Section 2(1) of the Securities Act of 1933, (the "1933 Act"), 15 U.S.C. § 77b(1), defines a security as, among other things,[1] an investment contract. Plaintiff argues that his purchase of "Track Relay" meets the definition of an "investment contract" and thus constitutes the purchase of a security.
The elements necessary to a finding of an "investment contract" were set forth in Securities & Exchange Commission v. W.J. Howey Co., 328 U.S. 293, 298-99, 66 S. Ct. 1100, 1102-03, 90 L. Ed. 1244 (1946). The Supreme Court stated that "[a]n investment contract ... means a contract, transaction or scheme whereby a person [1] invests his money [2] in a common enterprise and [3] is led to expect profits solely from the efforts of the promoter or a third party...." Defendants argue that plaintiff's purchase does not constitute an investment contract because (1) it is not an investment in a "common enterprise" and (2) plaintiff was not led to expect his profits solely from the efforts of others. Because I find for the following reasons that plaintiff's purchase does not constitute an investment in a common enterprise, it is unnecessary to reach defendants' second argument.
1. The Approaches
When determining whether an investment has satisfied the "common enterprise" element of the Howey test, courts are divided on which of two basic approaches to apply: "horizontal commonality" or "vertical commonality." Courts which require "horizontal commonality," require plaintiff to show a pooling of the investors' interests in order to establish a "common enterprise." See Salcer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 682 F.2d 459, 460 (3d Cir.1982); Curran v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 622 F.2d 216, 222 (6th Cir.1980), aff'd on other grounds, 456 U.S. 353, 102 S. Ct. 1825, 72 L. Ed. 2d 182 (1982); Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 100-01 (7th Cir.1977). "Horizontal commonality" clearly does not exist under the present set of facts. Nowhere does plaintiff allege that any of his funds were pooled with other investors' funds. Rather, plaintiff urges that this court adopt the second, more expansive definition of "common enterprise" and hold that "vertical commonality" is sufficient to satisfy this second prong of the Howey test. See Mordaunt v. Incomco, 686 F.2d 815, 817 (9th Cir.1982), cert. denied, ___ U.S. ___, 105 S. Ct. 801, 83 L. Ed. 2d 793 (1985); Securities and Exchange Commission v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 n. 7 (9th Cir.), cert. denied, 414 U.S. 821, 94 S. Ct. 117, 38 L. Ed. 2d 53 (1973).
There is a split in the courts that have applied the "vertical commonality" approach regarding precisely what is necessary to satisfy this standard. The courts applying the more restrictive definition state that "vertical commonality" exists where "the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or third parties." Securities and Exchange Commission v. Glenn W. Turner Enterprises, Inc., 474 F.2d at 482 n. 7 (9th Cir.), cert. denied, 414 U.S. 821, 94 *1426 S.Ct. 117, 38 L. Ed. 2d 53 (1973). Thus, the Ninth Circuit appears to require merely that there be a "direct relation between the success or failure of the promoter and that of his investors." Mordaunt v. Incomco, 686 F.2d at 817 (9th Cir.1982), cert. denied, ___ U.S. ___, 105 S. Ct. 801, 83 L. Ed. 2d 793 (1985). However, absent such a direct relation, the Ninth Circuit will not find "vertical commonality." See Meyer v. Thomas & McKinnon Anchincloss Kohlmeyer, Inc., 686 F.2d 818, 819 (9th Cir.1982) (No "vertical commonality" in situations where "the promoter continued to profit through commissions even as the account lost money ... [and], had the account been successful, the promoter would not necessarily have shared the benefits because [the investor] could elect to withdraw profits as they accrued."), cert. denied, 460 U.S. 1023, 103 S. Ct. 1275, 75 L. Ed. 2d 495 (1983); Brodt v. Bache & Co., 595 F.2d 459, 461 (9th Cir. 1978) ("Vertical commonality" does not exist where the brokerage house for a discretionary commodities trading account "could reap large commissions for itself and be characterized as successful, while the individual accounts could be wiped out.")
A broader definition of "vertical commonality" seems to have been articulated by the Fifth Circuit which has held that "the requisite commonality is evidenced by the fact that the fortunes of all investors are inextricably tied to the efficacy of the [promoter's efforts]." Securities & Exchange Commission v. Continental Commodities, 497 F.2d 516, 522 (5th Cir. 1974) (quoting Securities & Exchange Commission v. Koscot Interplanetary, Inc., 497 F.2d 473, 479 (5th Cir.1974)). Thus, rather than requiring a tie between the fortunes of the investors and the fortunes of the promoters, as is necessitated under the restrictive definition of "vertical commonality," the broader definition merely requires a link between the fortunes of the investors and the efforts of the promoters. Judge Robert J. Ward of this court has noted that the application of this broader definition of "vertical commonality" essentially eliminates the "common enterprise" prong of the Howey test because the only inquiry required is whether the success or failure of the investment is dependent upon the promoter's efforts i.e. the third prong of the Howey test. Savino v. E.F. Hutton & Co., Inc., 507 F. Supp. 1225, 1237-38 n. 11 (S.D.N.Y.1981). Because, as a practical matter, the broad definition of "vertical commonality" renders the second element of the Howey test meaningless, I must reject it as untenable. I fully concur with Judge Ward's observation that "[a]ssuming that the courts have been correct in fastening on Howey's `common enterprise' language as an independent component in the test for the existence of an investment contract, the Court has little doubt that the broad version of vertical commonality is inconsistent with Howey." Id.
2. The Second Circuit
Although plaintiff asserts that "[i]t is well settled in the Second Circuit that vertical commonality alone is sufficient to create a common enterprise," Plaintiff's Memorandum Of Law In Opposition To Motions To Dismiss ("Plaintiff's Memorandum") at 17, he is unable to cite a single Second Circuit opinion in support of this proposition. Moreover, the cases which have addressed this issue in the Southern District are divided on whether "horizontal commonality" or "vertical commonality" is required, compare Darrell v. Goodson [1979-80] Fed.Sec.L.Rep. (CCH) ¶ 97,349 at 97,325 (S.D.N.Y.1980) ("horizontal commonality" or a "pooling of the monies of various investors ... [is] necessary to the existence of a `common enterprise.'") with Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. at 1238 ("a `common enterprise' should be found to exist within the meaning of Howey where there is vertical commonality ..."); additionally, those courts which have approved of the "vertical commonality" approach are split as to whether the narrow or broad definition should be applied, compare Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. at 1238 n. 11 ("the Court has little doubt that the broad version of vertical commonality is inconsistent *1427 with Howey") with Troyer v. Karcagi, 476 F. Supp. 1142, 1147-48 (S.D.N.Y.1979) (discretionary securities trading accounts which satisfied only the broad definition of vertical commonality held "sufficient to satisfy the common enterprise component of the Howey test.")
3. Plaintiff's Purchase
Although plaintiff does not argue that his purchase satisfies the "horizontal commonality" test, he does apparently take the position that he meets the requirements of the narrow version of "vertical commonality." Without passing on the issue of whether the narrow definition of "vertical commonality" is sufficient to meet the "common enterprise" prong of the Howey test, or whether "horizontal commonality" is required, I find that plaintiff's purchase does not satisfy the narrow definition of "vertical commonality" and can only possibly satisfy the broad definition of "vertical commonality." Because I reject this broad definition of "vertical commonality," I conclude that plaintiff's purchase of "Track Relay" did not constitute the purchase of a security.
With respect to the narrow version of "vertical commonality," plaintiff alleges that "[t]he utilization of non-recourse financing based upon an artificially inflated purchase price created a commonality of interest between buyer and seller in the actual success of the venture." Plaintiff's Memorandum at 17. However, I am simply unpersuaded by plaintiff's reasoning that mere payment through a non-recourse note should be sufficient to catapult an ordinary purchase of art into the purchase of a security with all the concomitant ramifications of such a purchase.
Plaintiff argues that payment on this type of note "amounts to profit-sharing." Id. at 18. However, none of the cases cited by plaintiff held that a common enterprise existed because the plaintiff executed a non-recourse note. In fact, in the only Second Circuit case cited by plaintiff, the "common enterprise" issue was not even presented to the court. See Securities and Exchange Commission v. Aqua-Sonic Products Corp., 524 F. Supp. 866, 877 (S.D. N.Y.1981), aff'd, 687 F.2d 577 (2d Cir.), cert. denied, 459 U.S. 1086, 103 S. Ct. 568, 74 L. Ed. 2d 931 (1982).
Plaintiff contends that because "the purchase price was artificially inflated over the actual value for tax purposes, and the long-term note did not reflect true economic value or consideration, payments thereon constitute actual profit to the seller, rather than a mere repayment of consideration." Plaintiff's Memorandum at 19. Plaintiff asserts that "the promoters created the false illusion of a `pay-back' of the investment, but which in substance amounts to a sharing of profits." Id. His reasoning logically implies that good bargains will be purchases of artworks and poor bargains will be purchases of securities. I disagree. Assuming, as I must, that plaintiff's assertion that the purchase price was artificially inflated is correct, I conclude that all that plaintiff has is a bad deal possibly resulting from a fraudulent scheme by defendants.
The non-recourse note merely represents the consideration plaintiff owes defendants for the "Track Relay" and does not represent a profit-sharing arrangement simply because plaintiff feels he has been cheated. In addition, the narrow definition of "vertical commonality" requires plaintiff to show not only that the defendants' and his fortunes rise together, but also that their fortunes will fall together. See Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. at 1237 (narrow theory of "vertical commonality" requires "that the investment manager's fortunes rise and fall with those of the investor." (citation omitted) (emphasis supplied)). Plaintiff does not contend that defendants' fortunes will fall with his; apparently, defendants could do no worse than maintain their position after the purchase.
Thus, at best, plaintiff may only be able to satisfy the broad definition of "vertical commonality" espoused by the Fifth Circuit which merely requires the fortunes of the investor to be inextricably tied to the promoter's efforts. Given that I reject this *1428 broad version of "vertical commonality," plaintiff cannot be considered the purchaser of a security.
In sum, as plaintiff has not met either the "horizontal commonality" test or the narrow definition of "vertical commonality," he has not satisfied the "common enterprise" prong of the Howey test for investment contracts. Accordingly, plaintiff's purchase of the "Track Relay" did not constitute the purchase of a security and therefore his second and third causes of action for state and federal securities laws violations are dismissed.[2]
The expansion of the scope of the securities laws sought by the plaintiff herein seems to me to be unwarranted and even perhaps detrimental to the common good. In our mercantile economy, we should not try to turn every "thing" which might be purchased and sold into a "security." If we did, every commercial contract would end up being enforced in the Federal Courts in what some plaintiffs and their attorneys would turn into class actions. Clearly this is not what was intended by Congress in passing the Securities laws.
B. Conspiracy
Plaintiff's first cause of action alleges conspiracy to fraudulently induce investment. The law in New York regarding the validity of a civil conspiracy cause of action is as follows:
conspiracy to commit fraud, standing alone, is not actionable and allegations and proof of conspiracy are important only to connect a defendant with the transaction and to charge him with the acts and declarations of his co-conspirators. ...
Ippisch v. Moricz-Smith, 1 Misc. 2d 120, 144 N.Y.S.2d 505, 508 (Sup.Ct. Kings County 1955) (citations omitted), aff'd as modified, 1 App.Div.2d 968, 150 N.Y.S.2d 419 (2d Dep't 1956); see also Friedlander v. National Broadcasting Co., 39 Misc. 2d 612, 241 N.Y.S.2d 477, 481 (Sup.Ct. New York County 1963) (citations omitted), rev'd on other grounds, 20 App.Div.2d 701, 246 N.Y.S.2d 889 (1st Dep't 1964) ("There is ... no cause of action as such for civil conspiracy. Allegations of conspiracy serve only to connect defendants with the acts of co-conspirators.").
Although plaintiff acknowledges that New York does not recognize an independent tort of civil conspiracy, see Routsis v. Swanson, 26 A.D.2d 67, 270 N.Y.S.2d 908, 913 (1st Dep't 1966), he explains that his allegation of a conspiracy "is a pleading device to connect the acts of one defendant with the acts of his co-defendants for joint and several liability." Plaintiff's Memorandum at 11. Under New York law, "whenever it becomes necessary to prove a conspiracy in order to connect the defendant with the fraud, no averment of the conspiracy need be made in the pleadings to entitle it to be proved." Brackett v. Griswold, 112 N.Y. 454, 466-67, 20 N.E. 376 (1889).
Thus, plaintiff's cause of action for civil conspiracy is dismissed because New York does not recognize such an independent *1429 cause of action. However, plaintiff may, of course, prove a conspiracy existed in order "to connect the acts of one defendant with the acts of his co-defendants."
C. Fraud
Defendants also move to dismiss plaintiff's fourth and fifth causes of action for fraud, misrepresentation, and deceit, and innocent misrepresentation on the ground that he has not complied with the specificity requirement of Fed.R.Civ.P. 9(b). Rule 9(b) provides in pertinent part: "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." The extent of plaintiff's allegations of fraud is essentially contained in paragraph 41 of his "Class Action Complaint" wherein he states:
41. Defendants expressly misrepresented to MECHIGIAN, as one member of the class, that among other things:
(a) SCHAARE had prime recognition as an artist, produced artwork that was highly saleable, and had already received popular and commercial acceptance as an artist which made the potential for his market predictable,
(b) the current fair market value of SCHAARE's "TRACK RELAY" was $165,000-$175,000,
(c) because of the acceptability of the subject matter of "TRACK RELAY" and SCHAARE's widespread popularity as an artist, MECHIGIAN could anticipate significant profits from sales of reproductions,
(d) the master plate of "TRACK RELAY" was a valuable capital asset which had substantial economic value independent of any reproductions.
Although there are twelve defendants named in the complaint, plaintiff does not specifically allege the extent or nature of each defendant's involvement in the fraud, but rather simply refers to "defendants" collectively. This is insufficient under Rule 9(b). At the least, plaintiff must allege the following:
(1) the nature of each individual defendant's participation in the fraud, including the facts constituting scienter and an explanation of the defendant's duty toward the plaintiff; (2) whether the defendant is being sued as a primary defendant or as an aider and abettor; and (3) as to allegations on information and belief, a statement of the source of the information and the reasons upon which the belief is founded.
Goldberg v. Meridor, 81 F.R.D. 105, 111 (S.D.N.Y.1979) (footnotes omitted).
In addition to failing to detail each defendant's particular participation, plaintiff has also not given the time or place that the misrepresentations were made. In sum, plaintiff has not met the requirements of Rule 9(b). Accordingly, plaintiff's fourth and fifth causes of action are dismissed without prejudice to plaintiff filing a properly pleaded amended complaint within twenty days of the filing of this decision. Such amended complaint should, at the least, include the following:
(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) the same, (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants "obtained as a consequence of the fraud."
Todd v. Oppenheimer & Co., Inc., et al., 78 F.R.D. 415, 420-21 (S.D.N.Y.1978) (quoting Gross v. Diversified Mortgage Investors, 431 F. Supp. 1080, 1088 (S.D.N.Y. 1977)).
D. Negligence
Defendants also seek dismissal of plaintiff's negligence cause of action on the ground that defendants did not owe plaintiff a duty of care, a necessary element in any negligence action. See Donohue v. Copiague Union Free School District, 64 A.D.2d 29, 407 N.Y.S.2d 874, 877 (2d Dep't 1978), aff'd, 47 N.Y.2d 440, 391 N.E.2d 1352, 418 N.Y.S.2d 375, (1979) (elements of *1430 negligence cause of action are: "(1) the defendant owed the plaintiff a cognizable duty of care, (2) the defendant failed to discharge that duty and (3) the plaintiff suffered damage as a proximate result of such failure...."). Defendants do not argue in their papers that the remaining two elements of a negligence action have not been sufficiently pleaded.
Plaintiff alleges the following with respect to the duty of care element of his negligence cause of action:
Defendants owed MECHIGIAN and each member of the class a duty to use reasonable care to, among other things:
(a) select a suitable investment,
(b) fully and adequately disclose all risks and factors associated with the investment,
(c) not misrepresent or omit any material facts, to comply with applicable laws, regulations and requirements,
(d) act in accordance with accepted professional appraising standards and procedures,
(e) know or make reasonable efforts to ascertain material facts relevant to the fair market value and financial prognosis of such investment, and
(f) base their appraisals, predictions and prognoses upon objective considerations and existing market conditions.
Class Action Complaint at ¶ 51.
Although it is unclear from plaintiff's complaint precisely which defendants owed him a duty of care, in his Memorandum of Law, plaintiff's counsel argues that such duty was owed by each defendant. For example, he alleges that, as professional appraisers, defendants Rothschild and Rose had a duty of care imposed by law. He states that:
[a]n appraiser retained to evaluate property to one which [sic] he knows or is reasonable [sic] foreseen to rely upon it, and makes an appraisal in a grossly negligently [sic] manner so as to inordinately overstate the value is liable in negligence [essentially because of the] independent legal duty [which] is imposed by the professional relationship of trust and confidence between the appraiser and the appraisee, based upon the apparent objectivity, disinterestedness, self-professed expertise and superior knowledge of the appraiser....
Plaintiff's Memorandum at 98. In an analogous case, the First Department of the Appellate Division held:
If it be shown that a real estate appraiser, retained by a property owner to make an appraisal that he knows the owner will use to obtain financing, makes it in a grossly negligent manner so as to inordinately overstate the value, we are not ... prepared to hold the appraiser exempt from liability to the damaged financing party.
Chemical Bank v. National Union Fire Insurance Co., 74 A.D.2d 786, 425 N.Y. S.2d 818, 819 (1st Dep't 1980). The court explained:
[if] it was within the contemplation of the appraiser and the owner when they contracted for the appraisal that a financing party would rely upon it and be persuaded by it, then, since those whose conduct was to be so governed would be a "fixed, definable and contemplated group" the appraiser would have assumed a duty of care for the benefit of those in the group.
Id. (citation omitted). In the instant matter, the defendant appraisers Rothschild and Rose were apparently retained by certain of the other defendants to provide appraisals of "Track Relay" to plaintiff. Given that it is possible that the appraisers and the other defendants contemplated that plaintiff would rely, at least to some extent, on the appraisals, Rothschild and Rose may have assumed a duty of care as to plaintiff.
With respect to the other defendants, plaintiff alleges that "[t]hose promoting and selling an investment to members of the public have a duty to act with reasonable care in making truthful representations." Plaintiff's Memorandum at 102. However, plaintiff provides absolutely no support for this proposition. Moreover, *1431 plaintiff's arguments regarding the duties of brokers in securities transactions are unconvincing and inapplicable to this case as I have already dismissed plaintiff's securities claims. In sum, I am unwilling to create a duty of care where no sound basis for doing so has been provided.
Accordingly, plaintiff's negligence cause of action is dismissed as to all defendants except Rothschild and Rose.
E. Fiduciary Duty
Plaintiff's seventh cause of action alleges defendants breached their fiduciary duty to plaintiff. Defendants move to dismiss this claim on the ground that no fiduciary relationship existed as between defendants and plaintiff.
A fiduciary "relationship exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed." Penato v. George, 52 A.D.2d 939, 383 N.Y.S.2d 900, 904 (2d Dep't 1976). This type of relationship exists not only in technical fiduciary situations, but also in more informal settings in which one places his trust in another. Id., 383 N.Y.S.2d at 904-05.
Plaintiff does not contend that his relationship with defendants could be categorized as a traditional or conventional fiduciary relationship. Rather, he argues that the defendants had a fiduciary duty to plaintiff "by virtue of their expertise and superior knowledge, their professional capacity as art dealers, art merchants, appraisers, broker/dealers, advisors and salesmen, their knowledge of plaintiff's ... lack of knowledge and experience regarding art, and the close and confidential relationship of trust and goodwill the defendants nutured." Plaintiff's Memorandum at 108. These allegations are insufficient to support a claim that a fiduciary relationship existed between the parties. Plaintiff has provided no support for the proposition that mere expertise in a matter creates fiduciary responsibilities, which is essentially the sum and substance of his argument. "[A] fiduciary relationship might be found to exist, in appropriate circumstances, between close friends or even where confidence is based upon prior business dealings." Penato v. George, 383 N.Y.S.2d at 905 (citations omitted). No such relationship wherein confidence and trust are justifiably present has been alleged by plaintiff. There has been no allegation of past business dealings and I am unwilling to hold that in every case wherein someone with expertise is hired a fiduciary relationship is created. Accordingly, plaintiff's cause of action for breach of a fiduciary duty is dismissed.
F. Contract
Defendants move to dismiss plaintiff's breach of contract cause of action. Plaintiff alleges that defendants breached their contract to:
(a) sell an investment in strict accordance with reasonable and accepted standards, procedures and requirements applicable to such investments,
(b) provide expert and competent investment advice, appraisals and management services in accordance with professional standards and expectations,
(c) provide a good and valuable investment which had a fair market value equal to or greater than the purchase price and a realistic potential for reasonable profits, and
(d) deal competently and fairly in good faith.
Class Action Complaint ¶ 58. Although defendants contend in conclusory fashion that "Mechigian's breach of contract allegations ... contradict the plain language of [the Memorandum and Purchase Agreement]," Memorandum of Law of Defendants ACA, Gurwitch, Rothschild, and Rose in Support of the Motion to Dismiss at 27, they cite to no specific contradictions in support of this allegation.
On a motion to dismiss the complaint, I must "accept as true all material factual allegations of the complaint and construe its terms in favor of the plaintiff." County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 57 (2d Cir.1984). Because it *1432 does not "appear ... beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957) (footnote omitted), defendants' motion to dismiss plaintiff's contract claim is denied.
II. CLASS ACTION CERTIFICATION
Plaintiff moves pursuant to Fed.R.Civ.P. 23 for an order certifying that this action may proceed as a class action. The proposed class consists "of all former and present investors in the investment plan or plans conducted by defendants...." Class Action Complaint ¶ 10. Alternatively, plaintiff asks that the determination whether to certify the proposed class be postponed until he has been able to engage in discovery on the issue. In order to prevail on his class certification motion, the plaintiff must establish the following six elements: (1) numerosity; (2) commonality of questions; (3) typicality of claims or defenses; (4) adequacy of representation; (5) predominance of common questions; and (6) superiority of class action.[3] Moreover, it is plaintiff's burden to convince the court that the requirements of Rule 23(a) are met. Greeley v. KLM Royal Dutch Airlines, 85 F.R.D. 697, 700 (S.D.N. Y.1980) (citation omitted). See Fed.R. Civ.P. 23(a); 23(b)(3). Plaintiff is unable to satisfy these six requirements.
Rule 23(a) provides that the class must be "so numerous that joinder of all members is impracticable." In his affidavit in support of the Class Action Certification motion, plaintiff's attorney, Wayne O. Alpern, Esq., states "plaintiff reasonable [sic] believes he is one of a large number of clearly defined and ascertainable investors across the country who purchased the investment from defendants during the same period on the basis of the same or similar documentation in a substantially similar manner." Alpern Affidavit ¶ 8. However, this assertion that the numerosity requirement is satisfied is based merely on broad speculation and is insufficient to satisfy the numerosity test. Plaintiff's claim is simply premised on the belief that because "[d]efendants [sic] documentation and the pattern of their conduct is clearly addressed to a large number of investors across the country ... [t]he class is so numerous that joinder of all members is impracticable." Id. This is hardly sufficient evidence to support a finding that the numerosity requirement has been met. Indeed, even though plaintiff's counsel has submitted well over one hundred pages of memoranda, reply memoranda, and rebuttal memoranda in support of his certification motion alone, he states that "[n]otwithstanding the foregoing request for class certification, however, plaintiff reasonably envisions that the Court may conclude that the above representations, particularly regarding the size of the class, are insufficient to satisfy the requirements of certification at this time." Id. ¶ 11.
Aside from it being unlikely that plaintiff would be able to establish numerosity, it is also doubtful that plaintiff could show that there are common questions of law or fact. For example, there exists the possibility that different state laws will have to be applied for different members of the proposed class. See Simon v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 482 F.2d 880, 883 (5th Cir.1973) ("[T]he geographical *1433 dispersion of the alleged representations would bring into issue various state common law standards. With no single law governing the entire class, common issues of law cannot be shown to warrant Rule 23 treatment."). In addition, plaintiff's claims, which allege certain oral misrepresentations, may indeed be atypical of the claims of the other putative class members.
Plaintiff alternatively argues "that [the certification] determination is in most likelihood premature at this point in the absence of factual discovery establishing the prerequisites for class action status." Id. ¶ 13. I disagree. Even if, given time and further discovery, plaintiff were able to establish numerosity, commonality of questions, and typicality of claims or defenses (itself, a dubious proposition), plaintiff would not be able to satisfy the requirements of adequacy of representation, predominance of common questions, and superiority of class action, regardless of any amount of time given for discovery.
I note at the outset that the "requirement of adequate representation must be stringently applied because members of the class are bound unless they affirmatively exercise their option to be excluded, even though they may not be actually aware of the proceedings." Albertson's, Inc. v. Amalgamated Sugar Co., 503 F.2d 459, 463-64 (10th Cir.1974). When discussing what is required for one to be considered an adequate class representative, the Second Circuit has stated that "an essential concomitant of adequate representation is that the party's attorney be qualified, experienced and generally able to conduct the proposed litigation. Additionally, it is necessary to eliminate so far as possible the likelihood ... that plaintiff has interests antagonistic to those of the remainder of the class." Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 562 (2d Cir.1968) (citations omitted). Courts are also to consider whether the plaintiff has sufficient financial resources to conduct the litigation. See, e.g., National Auto Brokers Corp. v. General Motors Corp., 376 F. Supp. 620, 637 (S.D.N.Y.1974), aff'd, 572 F.2d 953 (2d Cir.1978), cert. denied, 439 U.S. 1072, 99 S. Ct. 844, 59 L. Ed. 2d 38 (1979).
Although plaintiff's counsel has been unquestionably zealous in his prosecution of this matter to date, mere zeal is not sufficient to constitute "adequate representation." Mr. Alpern has provided a summary of his background, see Plaintiff's Reply Memorandum at 41 & n. 45; based on this, it is clear that in the limited time he has been an attorney, he has had absolutely no experience as an attorney for a class representative or as a participant in a class action in any respect. Moreover, given his presentation of the case thus far, I have serious doubts that he is qualified to represent the proposed class. Indicative of his inability to act as the attorney for the putative class is the fact that Mr. Alpern failed to move for class certification "[w]ithin sixty (60) days after the filing of [the class action complaint]," as required by Local Civil Rule 4(c). See Weinberg v. Lear Fan Corp., 102 F.R.D. 269, 272 (S.D. N.Y.1984) ("Counsels' inattention to the class certification motion is a factor to be considered on the issue of whether the named plaintiffs will fairly and adequately represent the putative class.").
In addition, it is also apparent that plaintiff's interests are, at least in part, antagonistic to the interests of the rest of the class. For example, plaintiff's position regarding the tax consequences resulting to all members of the proposed class from their purchases of art works from defendants is almost certainly antagonistic to the general position of the class. Plaintiff states the following:
as a matter of law, no member of the class is entitled to those [tax] benefits and, as a matter of fact, each investor either has or is almost certain to lose them ... [a]ny unchallenged tax benefits are clearly temporary and doomed ... [a]ny potential members of the class are kidding themselves if they believe those benefits will be sustained ... [a]ll class *1434 members have a potential tax liability. ...
Plaintiff's Reply Memorandum at 37.
Finally, plaintiff has not provided adequate support for his claim that he is financially capable to function as a class representative. Thus, plaintiff has not presented sufficient evidence to support a determination that he would be an adequate class representative and, in fact, the evidence presented mandates the opposite conclusion.[4]
Accordingly, as plaintiff cannot satisfy the standards set forth in Rule 23, his motion for class certification is denied.
To summarize, plaintiff's securities, conspiracy, and fiduciary duty claims are dismissed in their entirety; plaintiff's fraud, misrepresentation, deceit, and innocent misrepresentation claims are dismissed without prejudice to his filing an amended complaint within twenty (20) days of the filing of this decision; plaintiff's negligence claim is dismissed as to all defendants except Rothschild and Rose; defendants' motion to dismiss plaintiff's contract claim is denied; and, plaintiff's motion for class action certification is denied.
SO ORDERED.
NOTES
[1] The 1933 Act defines a security as:
any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
The definition of a security in the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. § 78a et seq., is "virtually identical" to the 1933 Act's definition. United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 847 n. 12, 95 S. Ct. 2051, 2058 n. 12, 44 L. Ed. 2d 621 (1975). This is also essentially the definition under New York law. See N.Y.Gen.Bus.Law § 359-g1(b) (McKinney 1984).
[2] Because plaintiff's second and third causes of action are being dismissed for failing to meet the second element of the Howey test, I need not address defendants' alternative arguments that plaintiff's purchase did not satisfy the third element of the test and that plaintiff's securities claims are time-barred. I do note, however, that plaintiff's purchase appears to be deficient with respect to the third element of the Howey test which requires that plaintiff expect profits solely or primarily from the efforts of others. Unlike the purchasers in Aqua-Sonic, the case plaintiff primarily relies on, plaintiff has not alleged nor does it appear that he can allege that he had no realistic alternative to relying on the promoters' efforts for his profits. Indeed, in contrast to the situation in Aqua-Sonic where a particular sales agent was recommended to the purchasers and additional economic benefits existed for those who took advantage of the sales agency option, the defendants in this case did not recommend particular distributors in their sales materials and, instead, simply indicated that, if requested, a list of suitable distributors would be provided. Furthermore, plaintiff does not allege in his complaint that defendants ever represented that additional benefits would accrue to plaintiff if he enlisted the defendants to exploit and market the "Track Relay." Thus, this is not the case where the plaintiff's reliance on the promoters "is precisely what the defendants must have expected from their behavior." Aqua-Sonic, 687 F.2d at 584.
[3] Rule 23(a) provides:
(a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
In addition to the above, the court must also find the following:
that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.
Fed.R.Civ.P. 23(b)(3).
[4] As I have found that plaintiff is not an adequate class representative, I need not address the final two elements needed for certification, predominance of common questions and superiority of class actions. I do note in passing, however, that plaintiff cannot meet these requirements either. Individual issues will predominate the case, including, inter alia: (1) what was the price of each class member's particular purchase; (2) what was the actual value of each class member's particular purchase; (3) what oral representations were made to each class member about his artwork; and (4) whether each class member actually relied on any of the alleged misrepresentations. Given the predominance of individual issues such as fraud, reliance, and damages, it is axiomatic that a class action is not the superior method of proceeding in this case.
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629 F. Supp. 466 (1986)
PRUDENTIAL INSURANCE COMPANY OF AMERICA, Plaintiff,
v.
David M. BAUM, Defendant.
Civ. A. No. C85-2744A.
United States District Court, N.D. Georgia, Atlanta Division.
February 24, 1986.
*467 S. Richard Gard, Jr., Carier, Ansley, Smith & McLendon, Atlanta, Ga., for plaintiff.
*468 Wendell K. Willard, Willard & Olsen, Tucker, Ga., for defendant.
ORDER
MOYE, Chief Judge.
Prudential Insurance Company of America ("Prudential") has sued one of its former sales agents in this action for conversion of its property, breach of fiduciary duty, tortious interference with contract, and breach of a contract of employment. The defendant now moves to dismiss the complaint. Jurisdiction in this case is predicated upon diversity of citizenship between the parties. Both a temporary restraining order and a preliminary injunction have been granted in favor of Prudential.
Prudential asserts that because its requested injunctive relief was granted, this precludes the grant of a motion to dismiss. This argument, based on the stringent requirements for injunctive relief, is meritless. By definition, such relief is granted in an expedited manner in order to preserve the status quo, pending a meaningful investigation into the merits. A motion to dismiss, on the other hand, tests the legal sufficiency of the complaint. Material extraneous to the complaint is not considered unless the court elects to convert the motion to dismiss into one for summary judgment. Fed.R.Civ.P. 12(b).
In a motion to dismiss for failure to state a claim under Rule 12(b)(6), the allegations of the complaint and all reasonable inferences from the facts alleged must be taken as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S. Ct. 1079, 1081, 31 L. Ed. 2d 263 (1972); Brown v. Ivie, 661 F.2d 62, 66 (5th Cir.1981). A complaint must not be dismissed unless it is shown that the "[p]laintiff can prove no set of facts in support of his claim, which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 (1957). Thus, the movant sustains a high burden in cases under Rule 12(b)(6). Dismissal is appropriate, however, if the complaint fails to allege facts regarding an element of the claim necessary to obtain relief. Blum v. Morgan Guaranty Trust Co. of New York, 709 F.2d 1463, 1466 (11th Cir.1983); 2A J. Moore & J. Lucas, Moore's Federal Practice ¶ 12.07[2.-5] at 12-68 & n. 19 (2d ed. 1985). Furthermore, a motion to dismiss should be granted if an affirmative defense or other bar to relief appears on the face of the complaint. Quiller v. Barclays American/Credit, Inc., 727 F.2d 1067, 1069 (11th Cir.1984); 2A J. Moore & J. Lucas, supra, at 12-69.
I. Breach of contract
A. Noncompetition and nonsolicitation provisions
The defendant argues generally that the contract provisions on which the Prudential bases its claim for breach of contract are unenforceable and void. "By both constitutional and legislative provision, Georgia prohibits contracts or agreements in general restraint of trade." Howard Schultz & Associates of the Southeast, Inc. v. Broniec, 239 Ga. 181, 183, 236 S.E.2d 265 (1977). These provisions do not rigidly bar restrictive covenants in employment contracts, but the Georgia courts scrutinize them closely with certain requirements of reasonableness in mind. "A covenant not to compete ancillary to an employment contract is enforceable only where it is strictly limited in time and territorial effect and is otherwise reasonable considering the business interest of the employer sought to be protected and the effect on the employee." Id. Prudential argues that consideration of these reasonableness requirements is inappropriate upon a motion to dismiss because it involves questions of fact, but "whether or not a covenant against competition in an employment contract is reasonable is a question of law appropriately answered based upon the wording of the covenant." Koger Properties, Inc. v. Adams-Cates Co., 247 Ga. 68, 69, 274 S.E.2d 329 (1981).
The Sales Manager's Agreement ("Agreement"), which is the source of the restrictive covenants in question, is appended as exhibits "A" and "B" to the complaint. *469 In particular, the noncompetition and nonsolicitation provisions are found at section 5(2) and provide as follows:
The Sales Manager Agrees: ...
(2) That for a period of two years from the termination date of this Sales Manager's Agreement, I shall not directly or indirectly:
a. sell to or solicit from any company or subsidiary contractholder who became known to me during my employment, on behalf of any other person or organization, any insurance policy, contract, or any other financial service or product that competes with those sold by the Company or its subsidiaries; or
b. do anything to cause or encourage anyone to reduce, discontinue, or terminate any Company or subsidiary policy, contract, service, or product of any kind; or
c. do anything to cause or encourage any Company or subsidiary employee to either:
(1) terminate his or her employment with the company for any reason; or
(2) to sell or solicit services or products on behalf of any other company which are in any way similar to those sold by the Company or its subsidiaries.
These contract provisions contain no territorial limitation on the employment restraints whatsoever. The absence of such geographical limitations renders a noncompetition covenant void. Fuller v. Kolb, 238 Ga. 602, 603, 234 S.E.2d 517 (1977); Edwin K. Williams & Co.East v. Padgett, 226 Ga. 613, 614, 176 S.E.2d 800 (1970). See generally Comment, A Fresh Look: Lowering the Mortality Rate of Covenants Not to Compete Ancillary to Employment Contracts and to Sale of Business Contracts in Georgia, 31 Emory L.J. 636, 652 (1982). Whether the clauses found in section 5(2) are characterized as noncompetition or as nonsolicitation provisions does not alter this analysis. Guffey v. Shelnut & Associates, Inc., 247 Ga. 667, 669, 278 S.E.2d 371 (1981); Lane Co. v. Taylor, 174 Ga.App. 356, 358, 330 S.E.2d 112 (1985).
B. Nondisclosure provisions
The defendant also challenges the enforceability of the nondisclosure clauses found at section 1(h), which reads:
Under these amended provisions I agree to:
(1) treat all information which either identifies or concerns contractholders of the Company or any of its subsidiaries, including but not limited to, contract values, or beneficiary information, as Company property, confidential, and of special value to the Company; and therefore, the Sales Manager agrees not to provide at any time to any person outside the Company's employ, any such information which would be used to solicit for sales on behalf of another company or organization.
(2) Deem as exclusively Company property, all supplies, documents, records, and all contractholder information or product information from any source relating to any Company or any subsidiary product; and therefore the Sales Manager agrees that all such property, including all copies thereof, shall be delivered only to a proper Company representative.
(3) Deliver to the Company promptly upon termination of my Agreement, either by myself or the Company, all Company property including that mentioned above as well as all Company monies, equipment and the like then in my custody.
Complaint, Exhibit "B."
Nondisclosure covenants are subject to reasonableness requirements because they affect the dissemination of information necessary to free competition among businesses. See Nasco, Inc. v. Gimbert, 239 Ga. 675, 676, 238 S.E.2d 368 (1977). "Unlike general noncompetition provisions, however, specific nondisclosure clauses bear no relation to territorial limitations and their reasonableness turns on factors of time and the nature of the business interest sought to be protected." Durham v. Stand-By Labor of Georgia, Inc., 230 Ga. 558, 563, 198 S.E.2d 145 (1973). The Durham *470 court said that the "business interest" component of this reasonableness requirement depends on two subsidiary considerations:
(1) whether the employer is attempting to protect confidential information relating to the business, such as trade secrets [sic], methods of operation, names of customers, personnel data, and so oneven though the information does not rise to the stature of a trade secret; and (2) whether the restraint is reasonably related to the protection of the information.
Id. at 564, 198 S.E.2d at 149-150. Accord Lane, 174 Ga.App. at 359, 330 S.E.2d at 116. The protection of such confidential information is ordinarily not "within the purview of traditional Georgia law as to property" and thus requires a valid contract to prevent postemployment disclosure. Durham, 230 Ga. at 563, 198 S.E.2d at 149. The clauses prohibiting disclosure lack any time limitation and therefore purport to be effective in perpetuity. The Georgia courts have held that a nondisclosure covenant is unreasonable and therefore unenforceable if it lacks any time limitation. Broniec, 239 Ga. at 188, 198 S.E.2d at 270; Thomas v. Best Manufacturing Corp., 234 Ga. 787, 788, 218 S.E.2d 68, 70 (1975). See Aladdin, Inc. v. Krasnoff, 214 Ga. 519, 520, 105 S.E.2d 730 (1958) (invalidating nondisclosure covenant unlimited as to time or territory because "[c]onceivably, this would include all of the plaintiff's customers from the time of its incorporation to that time in the unforeseeable future when it shall cease to do business.")
The plaintiff's principal argument that section 1(h) does not constitute a nondisclosure provision is that this part of the contract merely fixes title to property. Prudential cites Merrill Lynch, Pierce, Fenner & Smith v. Stidham, 658 F.2d 1098 (5th Cir., Unit B, 1981), in which the Fifth Circuit affirmed the upholding of a "nondisclosure clause" requiring employee assent that:
1. All records of Merrill Lynch, including the names and addresses of its clients, are and shall remain the property of Merrill Lynch at all times during my employment with Merrill Lynch and after termination for any reason of my employment with Merrill Lynch, and that none of such records nor any part of them is to be removed from the premises of Merrill Lynch either in original form or in duplicated or copied form, and that the names, addresses, and other facts in such records are not to be transmitted verbally except in the ordinary course of conducting business for Merrill Lynch.
Id. at 1099. The court of appeals characterized this provision as "no more than an agreement between parties (1) fixing title to physical documents and (2) requiring confidentiality during employment." Id. at 1102. It further held that "the perpetuality of the title agreement is not offensive nor is the confidentiality agreement unreasonable." Id.
This opinion, which charts a course not taken by any Georgia court to date, is factually distinguishable from the case at bar. The first part of the clause at issue in Stidham stated that various records, including client lists, were to remain the property of and in the possession of the plaintiff. This fact supports the appellate court's conclusion that such a contract clause merely fixes title to property, thereby constituting what the plaintiff characterizes as a "proprietary covenant." In the case sub judice, however, subsection (1) of section 1(h) prohibits disclosure of "all information which either identifies or concerns contractholders, ... including but not limited to, contract values, or beneficiary information...." Subsection (2) further prohibits disclosure of "all contractholder information or product information from any source...." Finally, subsection (3) refers to "all Company property including that mentioned above....," and is thus integrated with subsections (1) and (2). These requirements are substantially more extensive than a contract provision merely prohibiting removal of records from the premises or the verbal transmission of their contents. In addition, Stidham reaches its result without construing Georgia *471 law.[1] The ruling in Stidham, expressly referring to the contract provision in question as a "nondisclosure clause," does not abrogate the common law rule in Georgia requiring such covenants to be reasonable. See Quittmeyer, Trade Secrets and Confidential Information Under Georgia Law, 19 Ga.L.Rev. 543, 666-67 & nn. 187, 192 (1985) (suggesting that Stidham upheld a nondisclosure covenant lacking time limitations because the misconduct in that case occurred during the defendants' employment). While it may have been possible for Prudential to draft subsections (2) and (3) in order to create a "proprietary" covenant merely fixing title to its property, it did not so cleverly draft these clauses.[2]
This distinction brings the instant case within the line of Georgia authority governing nondisclosure covenants. As discussed above, the absence of any restriction upon the duration of the nondisclosure provision renders it unenforceable. Even if this flaw failed to defeat its enforceability, the provision is also unreasonable because it is overbroad. Nondisclosure covenants adjudged overbroad are considered an unfair restraint upon competition. See e.g., Rollins Protective Services Co. v. Palermo, 249 Ga. 138, 142-43, 287 S.E.2d 546 (1982). The nondisclosure clauses in the Agreement forbid disclosure of all information that identifies or concerns policyholders or Prudential products, whether or not that information is within the scope of the plaintiff's legitimate business interests. Nondisclosure provisions will not be enforced when they "prohibit disclosure of information not needed for the protection of the employer's legitimate business interests." Nasco, Inc. v. Gimbert, 239 Ga. 675, 676-77, 238 S.E.2d 368 (1970) (invalidating covenant that prohibited disclosure of "any information concerning any matters affecting or relating to the business of employer"). The Georgia Supreme Court in Thomas v. Best Manufacturing Co., 234 Ga. 787, 788, 218 S.E.2d 68 (1975), held the following contract term overbroad: "I will not at any time publish or disclose to others or use for my own benefit any research, development, ... or other information pertaining to the business or affairs of ... [the employer] or any of its clients, customers...." The Thomas court held this nondisclosure clause unreasonable because "[t]o restrict an employee from utilizing the experience gained and using information not designated as trade secrets and attempting to extend the restriction beyond the employer's business in perpetuity to that of its clients, customers, ... reaches beyond the scope permitted in Georgia in terms of time, territory, and activities protected." Id. Recently, the Georgia Court of Appeals held that a jury question was presented on whether a nondisclosure covenant was related to an employer's legitimate need to maintain the confidentiality required. Lane Co. v. Taylor, 174 Ga.App. at 359, 330 S.E.2d at 116. The court said that the covenant in question was not facially overbroad because its reference to the protection of various items along with "any other confidential information" "severely limited" the protected materials to "only those methods, documents, forms, etc., which were confidential." Id. In the case at bar, the covenant only requires that the defendant "treat all information ... as *472 Company property, confidential, and of special value to the Company...." This covenant is not saved by the reference to confidentiality, since, unlike Taylor, the covenant does not refer to materials confidential in the first instance. This covenant is overbroad principally because it restricts disclosure of any information whatsoever pertaining to contractholders or Prudential products no matter where or how obtained. This covenant would prohibit disclosure of information obtained from newspaper articles, advertisements, corporate annual reports, and so on. It is therefore unenforceable.
C. Trade Secrets
Even though the court considers all the clauses of section 1(h) of the Agreement unenforceable, there is another basis on which to prohibit the disclosure of certain business information. The Georgia courts will provide injunctive relief to protect against disclosure of trade secrets notwithstanding an unenforceable nondisclosure covenant; this protection is an "implied term" in an employment contract. Thomas v. Best Manufacturing Co., 234 Ga. at 789, 790, 218 S.E.2d at 71; Howard Schultz & Associates, Inc. v. Broniec, 239 Ga. at 187, 236 S.E.2d at 269-70. In this context, a trade secret "within the rules pertaining to the rights which can be protected by injunction, is a plan, process, tool, mechanism, or compound known only to its owner and those of his employees to whom it must be confided in order to apply it to the uses intended." Thomas, 234 Ga. at 789, 236 S.E.2d at 71.
Prudential does not specifically argue that trade secrets in the conventional sense are at stake in this case. But the Georgia courts have suggested that certain specialized, as opposed to general, confidential customer information may be protectible as a trade secret. Rollins Protective Services Co. v. Palermo, 249 Ga. 138, 142 n. 1, 287 S.E.2d 546 (1982); Durham, 230 Ga. at 563, 198 S.E.2d at 149; Taylor Freezer Sales Co. v. Sweden Freezer Eastern Corp., 224 Ga. 160, 165, 160 S.E.2d 356 (1968) See generally Quittmeyer, supra, 19 Ga.L.Rev. at 663 & nn. 166-69. Whether the customer information or product information Prudential seeks to protect from disclosure rises to the level of a trade secret is a question of fact.
Furthermore, some items of confidential business information not qualifying as trade secrets, "non-specialized customer lists and other general confidential business and customer information," may be protectible if the defendant garnered them by "improper means or otherwise disclosed without privilege, as in violations of relationships of confidence." Durham 230 Ga. at 563, 198 S.E.2d at 149. The complaint adequately alleges these elements, and the materials in question are arguably protected on this basis as well. Complaint ¶¶ 9-12, 14-15.
II. Tortious interference with contract
The defendant challenges Prudential's allegations of tortious interference with contract. This challenge does not rest on the sufficiency of the elements required to state a cause of action. Rather, it rests on the argument that Prudential has alleged a complete defense to the cause of action on the face of the complaint. Competitive privilege is such a defense, and its elements have been stated as follows:
(a) the relation concerns a matter involved in the competition between the actor and the competitor; (b) the actor does not employ improper means; (c) the actor does not intend thereby to create or continue an illegal restraint of competition; and (d) the actor's purpose is at least in part to advance its interests in its competition with the other.
Orkin Exterminating Co. v. Martin Co., 240 Ga. 662, 666, 242 S.E.2d 135, 138 (1978).
While the Court agrees that Prudential has interlaced its complaint with elements of this privilege, dismissal cannot be ordered because facts are alleged negating the second element of the defense. Paragraph eighteen of the complaint states that "defendant has acted improperly and without privilege." Furthermore, paragraph *473 sixteen, which is incorporated by reference at paragraph seventeen, states that the defendant used "information improperly and wrongfully obtained." These allegations satisfy the pleading requirements for this cause of action.
III. Breach of fiduciary duty
The defendant challenges the cause of action stated in count two of the complaint. The Court agrees that because of its findings regarding the unenforceability of the restrictive covenants, no contractual basis for a fiduciary duty exists. While an implied, noncontractual fiduciary duty may exist, such a duty generally ends when severance of an agent's employment with his principal occurs. Wight v. Brown, 77 Ga.App. 375, 378, 48 S.E.2d 784, 786 (1948).
Under certain circumstances, however, the duty may survive severance of the employment relationship.
`It may be generally stated that one having completed his office as agent or in good faith severed his relationship is free to begin negotiations on his own behalf and may operate adversely to the interests of his former principal as fully as any other individual. Due to the previous trust relationship, however, such subsequent transactions will be subjected to a rigorous examination to see that the former agent did not abuse his position of trust and influence, or in any way fail in his attitude as agent during the agency. An agent will not be permitted to terminate an agency in order to take advantage of his principal's condition or to profit by information resulting from his agency.' ... See, in this connection, Stein v. National Life Assn., 105 Ga. 821 [32 S.E. 615]....
Id. at 378-79, 48 S.E.2d at 786-87. Thus, the agent may not abuse the fiduciary relationship by profiting under certain circumstances from information resulting from that relationship. Such information must generally rise to the level of a trade secret or confidential business information. Taylor Freezer Sales Co., 224 Ga. at 164-65, 160 S.E.2d at 359-60 (1968). The Stein case to which the Wight court referred also involved an insurance agent. The Georgia Supreme Court reversed a grant of injunctive relief against an insurance agent who attempted to influence policy-holders of his former company to transfer to the insurance company with which he was subsequently employed. The analysis in Stein supports the view that one cannot state a claim for breach of fiduciary duty under these circumstances without alleging reliance upon the plaintiff's confidential business information or trade secrets. It is settled that such information may be protected in the absence of a written agreement. Textile Rubber & Chemical Co. v. Shook, 243 Ga. 587, 589, 255 S.E.2d 705, 707 (1979).
The defendant argues vigorously that this claim should fall because customer lists and general customer information do not constitute trade secrets, as stated in Thomas v. Best Manufacturing Corp., 234 Ga. at 789-90, 218 S.E.2d at 71 (1975). The Court is not persuaded that this issue should be disposed of on a motion to dismiss. The evidence may show the existence of confidential business information such as was discussed in Taylor Freezer Sales Co. and is alleged in paragraph nine of the complaint. The Court therefore denies the motion as to this claim.
IV. Conversion
The defendant argues that Prudential has failed to include allegations of all elements of its conversion claim in the complaint. Citing Wood v. Sanders, 87 Ga. App. 84, 86, 73 S.E.2d 55, 56 (1952), the defendant suggests that the following allegations must be made: "(1) that Plaintiff has title to the property in question; (2) that the Defendant is in possession of the property at the present time; and (3) that Defendant claims title to the property or that Plaintiff has made demand for and the Defendant has refused to redeliver the *474 property." Defendant's brief, filed 25 June 1985, at 24. These requirements are analogous to the showing that must be made in order to prove a conversion claim. Charter Mortgage Co. v. Ahouse, 165 Ga.App. 497, 498, 300 S.E.2d 328, 330 (1983).
The Court finds the defendant's argument overly technical. The form of complaint for conversion shown in the Georgia Civil Practice Act supports this conclusion. O.C.G.A. § 9-11-111 (Supp.1985) suggests that a pleading need only state that the defendant "converted to his own use" the property in issue. See Charles S. Martin Distributing Co. v. Indon Industries, Inc., 134 Ga.App. 179, 179, 182, 213 S.E.2d 900 (1975); Ricketts v. Liberty Mutual Insurance Co., 127 Ga.App. 483, 488, 194 S.E.2d 311, 316 (1972). Even if the Court accepted the defendant's argument, it is arguable that title has been claimed in paragraph 12 of the complaint, in the prayer for relief. It may reasonably be inferred from the request for the return of property that the plaintiff's title in that property and the defendant's possession thereof is alleged. Furthermore, the caption for count one reads: "Conversion of Property." It is further arguable that demand for the property has been made under section 1(h) of the employment contract appended to the complaint, notwithstanding its present unenforceability. The Court feels that the defendant's argument elevates form over substance and declines to order dismissal on this ground.
V. Effect of this order
The Court has granted the defendant's motion to dismiss Prudential's claim for breach of contract to the extent that it relies on the noncompetition and nondisclosure sections of the Agreement. The claims remaining in the case are those for tortious interference with contract, breach of loyalty, and conversion.
In sum, the defendant's motion to dismiss is GRANTED in part and DENIED in part.
NOTES
[1] Since this court sits in diversity, it is bound by the decisions of Georgia courts. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). When the federal court sitting in diversity is confronted with an issue on which the Georgia courts have not ruled, it must assess all relevant information and choose the rule it thinks the Georgia Supreme Court would adopt. See Putnam v. Erie City Manufacturing Co., 338 F.2d 911, 917-18 (5th Cir.1964).
[2] This is precisely what distinguishes the instant case from Prudential Insurance Co. of America v. Rhodes, No. C85-4075A (N.D.Ga. January 15, 1986), which upheld, "summarily and without discussing the case authority or evidence cited by the defendant," the following covenant:
That all books, records, and supplies furnished to me by the Company shall be the property of the Company; and that, upon termination of this Agreement, I will hand over said books, records, and supplies to a proper representative of the Company.
Id., slip op. at 2 (attached to the plaintiff's supplementary brief).
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629 F. Supp. 2d 321 (2009)
INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff,
v.
David L. JOHNSON, Defendant.
No. 09 Civ. 4826 (SCR).
United States District Court, S.D. New York.
June 26, 2009.
*323 Evan R. Chesler, Stephen S. Madsen, Cravath, Swaine & Moore LLP, New York, NY, for Plaintiff.
Ronald E. Richman, Holly Hexter Weiss, Sara Elena Solfanelli, Schulte Roth & Zabel LLP, New York, NY, Michael L. Banks, Michael S. Burkhardt, Morgan, Lewis & Bockius, L.L.P., Philadelphia, PA, for Defendant.
MEMORANDUM DECISION AND ORDER
STEPHEN C. ROBINSON, District Judge.
International Business Machines Corporation ("IBM" or the "Company") commenced this diversity action against David L. Johnson, formerly IBM's Vice-President of Corporate Development, asserting claims for breach of a non-competition agreement and misappropriation of trade secrets. On June 1, 2009, IBM sought a preliminary injunction enjoining Mr. Johnson from violating the purported non-competition agreement and from continuing his employment as Senior Vice President of Strategy at Dell Inc. ("Dell"), a competitor of IBM. At a hearing before Judge Kenneth M. Karas, to whom this action was assigned originally, doubt was raised as to whether the alleged non-competition agreement had been duly executed by Mr. Johnson. As a result, Judge Karas scheduled a preliminary injunction hearing for June 22, 2009, to permit the parties to engage in expedited discovery and file legal memoranda on New York contract law. Judge Karas also permitted Mr. Johnson to commence his employment at Dell but restricted him from advising Dell on any matter concerning the business strategy of Dell or IBM and enjoined him from disclosing any of IBM's confidential information in his possession. Subsequently, the case was transferred to this Court, which held the preliminary injunction hearing on June 22, 2009.[1]
For the reasons set forth in this opinion, the Court denies IBM's request for a preliminary injunction.
I
BACKGROUND
The following recitation of the facts is based upon the affidavits, submitted in lieu of live direct testimony, of Mr. Johnson, J. Randall MacDonald,[2] and other witnesses; the in-court cross-examination and re-direct examination of those witnesses; and the exhibits received into evidence during the June 22, 2009, hearing.[3]
Until his resignation a few weeks ago, Mr. Johnson had worked for IBM for more than twenty-seven years. For the last nine years, he held the position of Vice President of Corporate Development, reporting directly to Mark Loughridge, *324 IBM's Senior Vice President and Chief Financial Officer. In that capacity, Mr. Johnson directed IBM's mergers, acquisitions, and divestitures strategy, and, according to IBM, he possesses IBM's most sensitive confidential strategic information. During his tenure at IBM, Mr. Johnson was a member of IBM's Integration & Values Team ("IVT"), a group composed of IBM's 300 most senior managers.[4] The IVT is charged with developing IBM's corporate strategy and driving the Company's innovation and growth. As an IVT member, IBM contends, Mr. Johnson gained access to confidential information concerning the Company's strategic plans, marketing plans, and long-term business opportunities, including information regarding the development status of specific IBM products.
In 2005, IBM began requiring its most senior executives, including Mr. Johnson, to execute non-competition agreements. In consideration for the promise not to compete,[5] employees were eligible to continue qualifying for certain equity grants grants that they had qualified to receive before the implementation of the non-compete regime. Mr. Johnson received the form non-competition agreement in March 2005, and IBM asked him to execute the agreement and return it within a few months.
By May 2005, Mr. Johnson had yet to execute the agreement, and he received an e-mail from MacDonald. The e-mail explained that Mr. Johnson's agreement had not yet been received by IBM and warned him that his 2005 equity award would not take effect until the non-competition agreement was signed and received. MacDonald's, e-mail also notified Mr. Johnson that IBM had set a deadline of June 1, 2005, for return of the executed non-competition agreement.
Mr. Johnson nevertheless was reluctant to enter into a non-competition agreement with IBM. In 2001, Mr. Johnson had foregone an opportunity to become the chief executive officer of another technology company based upon assurances that he would be considered for a promotion to a General Manager position at IBM within two years. In 2004, Mr. Johnson had approached Loughridge, IBM's CFO, who assured Mr. Johnson that he would be considered for a General Manager position. Loughridge prepared an Annual Development Plan for Mr. Johnson in September 2004, which indicated that Mr. Johnson's next position would be in General Management.
Despite the representations of Loughridge and other IBM executives, Mr. Johnson was concerned that his growth possibilities at IBM were limited. Mr. Johnson therefore contacted Randy MacDonald and asked him whether IBM would consider him for a General Manager position. MacDonald told Mr. Johnson that he would look into the matter and get back to him by the end of June 2005.
IBM, however, had set a June 1, 2005, deadline for return of the executed non-competition agreement. Thus, in an effort to extend the time during which he could consider whether to enter into such an agreement, Mr. Johnson purposefully signed the non-competition agreement on the signature block designated for IBM.[6]*325 Mr. Johnsonwho, in this Court's view, was an extremely credible and reasonable witnesstestified that he believed that the act of signing the agreement on the signature block designated for IBM would prevent the agreement from being valid and would allow him more time to decide whether to commit to a non-competition agreement with IBM.
Mr. Johnson's gambit appears to have worked just as he envisioned. In the Fall of 2005, IBM returned to Mr. Johnson the original version of the improperly signed agreement and told him that his signature was on the wrong line. Randy MacDonald testified that he was the IBM executive in the United States designated to sign the non-competition agreements and the executive with final responsibility for binding the company to non-competition agreements. MacDonald testified that he had signed hundreds of other non-competition agreements on IBM's behalf, but he never signed Mr. Johnson's agreement. Concurrent with its return of the original, improperly signed agreement, IBM sent to Mr. Johnson a blank agreement and asked him to execute and return it.
Around the same time, Loughridge initiated a discussion with Mr. Johnson regarding the General Manager position. Loughridge explained to Mr. Johnson that he did not see Mr. Johnson as a General Manager and expressed shock that Mr. Johnson wanted to move into that position. According to Loughridge, finance people at IBM never moved into General Manager positions. Mr. Johnson reminded Loughridge about the conversation that he had had with Loughridge in 2004, and other IBM executives in 2001, regarding his desire to move into a General Manager position. Mr. Johnson testified that Loughridge had indicated that these conversations never occurred and then stated that he was offended that Mr. Johnson suggested otherwise.
Thereafter, Mr. Johnson was not willing to enter into the non-competition agreement, and he refused to sign the blank agreement that IBM had sent to him. Mr. Johnson testified that, over the next year, personnel from IBM's Human Resources Department regularly called his office and sent him e-mails asking that he sign and return the non-competition agreement. Indeed, in February 15, 2006, Teri Wood, Staff Counsel to the Human Resources Law Group, wrote an e-mail to Barbara Brickmeier, Vice President of Human Resources, explaining that Mr. Johnson had "still not signed his non-compete on the employee line." Def. Exh. 1 at 1. Deb Cannone, a paralegal who was copied on the e-mail exchange between Wood and Brickmeier, handwrote the following on a printed copy of the e-mail: "Dave Johnson signed on Corporate line. When asked to resign on employee line, he refused." Id.
On May 10, 2006, Donna Riley, Vice President of Human Resources, wrote an e-mail to Mr. Johnson stating: "Hi Dave. A while ago we had talked about the need for you to re-sign the standard non-compete agreement for SLT members since your original had been signed on the wrong line. We are about to go through an update for new I & VT members, so you will receive a fresh copy of the agreement that you can sign and return during that cycle." Def. Exh. 2 at 1. Still several months later, on July 18, 2006, Riley again wrote to Mr. Johnson:
Hi Dave. Hate to be a pest, but we're still working on getting all of the non-compete *326 agreements signed and filed and yours isn't booked since the original was signed in the wrong place. I'm asking my team to have a hard copy put in your mail today since anyone who hasn't returned theirs to Chris Gregory in North Castle by the end of Friday will receive a personal call from Randy regarding the status of their equity grant.
Def. Exh. 4 at 1 (emphasis added). Despite this threat of sorts and despite continuing to refuse to sign the non-competition agreement, Mr. Johnson testified that he never received a subsequent call from MacDonald or any other IBM employee regarding the status of his equity grants.
Mr. Johnson also testified that he discussed his improper signature of the non-competition agreement with Don Rosenberg, IBM's General Counsel. During this conversation Mr. Johnson told Rosenberg that he purposefully had signed on the wrong line and that he thought that meant that the agreement was not binding. According to Mr. Johnson, Rosenberg expressed doubts about whether this was the case. Mr. Johnson then told Rosenberg that IBM employees had pursued him to sign another version of the agreement. Rosenberg's eyebrows went upa signal that, according to Mr. Johnson, conveyed the meaning that Rosenberg did not believe that the agreement was bindingand he (Rosenberg) told Mr. Johnson to "save the documentation to demonstrate that there had been repeated efforts where [Mr. Johnson] didn't respond." Preliminary Injunction Hearing Transcript ("Prelim. Inj. Hr'g Tr.") 28-31, June 22, 2009.
On September 15, 2006, Cannone sent an e-mail to Margaret Sohr, who was working with Reily on the administrative aspects of booking the non-competition agreements, informing her that Mr. Johnson's agreement was among those still outstanding. Cannone's e-mail explained that Mr. Johnson "did not sign last year and you sent him another [20]05 [agreement] to sign." Def. Exh. 7 at 1 (emphasis supplied). In the same e-mail, she noted that another employee "had signed in the wrong place." Id.
According to IBM's internal protocols for handling non-competition agreements, when an employee signed the agreement, it then had to "be signed by Randy MacDonald or an appropriate country representative, as designated by Legal." Def. Exh. 24 at 1. After MacDonald's signature, the Company's protocols required that "the original signed versions of the [non-competition agreements] [be] sent to Deb Cannone of the [Human Resources Legal Group]. The HRLG [would] maintain the original versions of the agreements." Id. at 2. IBM obviously did not follow these protocols with Mr. Johnson's non-competition agreement. Neither MacDonald nor any other IBM representative signed the agreement, and IBM did not retain an original copy of the agreement.
Despite not having properly signed the non-competition agreement, Mr. Johnson received yearly equity awards from 2005 through 2008awards which he had been receiving annually from IBM since 1992. In order to accept the awards for 2005 and 2006, Mr. Johnson had to complete an electronic equity award acceptance form containing the following language:
IBM's grant to you of stock options and the Long-Term Investment Program Award (the "LTIP Award") are not effective until, and are conditioned upon (1) your accepting the terms and conditions of the award agreements and the Long-Term Performance Plan ("LTPP") under which these equity awards are granted, including those provisions relating to the cancellation and rescission of awards and (2) your agreeing to the terms and conditions of the Noncompetition *327 Agreement, which you have received under a separate cover....
....
... By pressing the ACCEPT button, you also agree that the grant of these awards by IBM is subject to the condition that, and your acceptance of such awards is not effective until, you agree to the terms and conditions of the Noncompetition Agreement by signing and returning the agreement as directed.
Def. Exh. 15 at 1 (holding in original; italicization supplied); see also Def. Exh. 15 at 3. MacDonald was the executive at IBM with the authority to rescind equity awards due to an employee's failure to execute and return a non-competition agreement, and he also had the discretion not to rescind the awards despite an employee's failure to do so. See Def. Exh. 22 at 1-2; Prelim. Inj. Hr'g Tr. 56.
Mr. Johnson received the 2005 award on March 8, 2005, approximately two months before the non-competition agreement was due, and he received the 2006 award on May 8, 2006, almost one-year since he had submitted the improperly executed agreement. By 2007 and 2008, however, IBM had dropped the language conditioning acceptance of the equity awards on the employee's execution of the non-competition agreement.
In late 2008, a recruiter contacted Mr. Johnson concerning an employment opportunity at Dell. After several rounds of negotiations, Mr. Johnson agreed to join Dell as Senior Vice President of Strategy. In that capacity, Mr. Johnson will help Dell set a strategic vision, mission, and goals based upon its existing resources and internal capabilities.
IBM contends that it will suffer irreparable harm should the Court not enjoin Mr. Johnson from violating the purported non-competition agreement. According to IBM, Mr. Johnson is aware of IBM's past, present, and future business strategies and all acquisitions, transactions, and divestitures that IBM is considering. Because of his work as head of IBM's Corporate Development group, Mr. Johnson knows IBM's strategies for growth, and its method of evaluating future business needs and companies as candidates for acquisition. In addition, IBM contends that Mr. Johnson is aware of IBM's assessment of its clients' needs, its competitors' strategies, its opportunities, and its own strategies for carrying out its business objectives. Mr. Johnson knows in which areas, companies, and technologies IBM will invest, at what times, and with what expected rates of return. Statements by Michael Dell, IBM notes, demonstrate that Dell intends to expand its presence in the server, storage, and enterprise areasthree areas in which IBM and Dell compete and about which Mr. Johnson has confidential information. Finally, Dell will pay Mr. Johnson his full salarywell over $1 millioneven if Mr. Johnson is forced to comply with the purported non-competition agreement.
Mr. Johnson disputes IBM's contention that he possesses a great deal of IBM's confidential information or trade secrets. For example, Mr. Johnson notes that as a member of the IVT, he attended only thirteen meetings between 1996 and January 2009, and he does not recall any IVT meeting focusing on IBM's competitors, development plans for unannounced products or trade secret information regarding hardware, software, or services. Mr. Johnson also explains that he never attended the meetings of the Technology Committee, which is the forum for internal discussions about IBM's research and development. According to Mr. Johnson, his ability to identify potential acquisitions was not based on IBM's confidential or proprietary information, but rather on analyses of other companies from publicly available sources.
*328 Furthermore, Mr. Johnson believes that he would suffer great hardship should the Court enforce, what he characterizes as, the invalid non-competition agreement. Mr. Johnson explains that the nature of his qualifications and skills requires that he deal with information that changes rapidly and requires constant attention. If he is not in a position to monitor the external factors that guide and mold the technology industrythrough access to daily reports, surveys, and analyses conducted industrywidehe believes that his skill set will quickly become obsolete. Finally, Mr. Johnson has developed a large personal network of investment bankers, consulting groups, and chief information officers with whom he risks losing touch without a formal position in the technology industry.
II
DISCUSSION
The Court begins with the legal standards governing the issuance of a preliminary injunction"one of the most drastic tools in the arsenal of judicial remedies." Hanson Trust PLC v. SCM Corp., 774 F.2d 47, 60 (2d Cir.1985).
Within the Court of Appeals for the Second Circuit, a party seeking a preliminary injunction[7] generally must establish two elements: (1) the likelihood of irreparable injury in the absence of an order or injunction; and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships "tipping decidedly" in the movant's favor. Fed. Express Corp. v. Fed. Espresso, Inc., 201 F.3d 168, 173 (2d Cir.2000); see also Doninger v. Niehoff, 527 F.3d 41, 47 (2d Cir. 2008). But see Winter v. Nat'l Res. Def. Council, ___ U.S. ___, 129 S. Ct. 365, 374, 172 L. Ed. 2d 249 (2008).[8]
The Second Circuit has defined "irreparable harm" as "an injury that is not remote or speculative but actual and imminent, and `for which a monetary award cannot be adequate compensation.'" Tom Doherty Assocs., Inc. v. Saban Entm't, Inc., 60 F.3d 27, 37 (2d Cir.1995) (quoting Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979)). Also falling within the ambit of "irreparable harm" are situations in which "there is a threatened imminent loss that *329 will be very difficult to quantify at trial." Id. at 38. "This rule is necessary," the Second Circuit has reasoned, "to avoid the unfairness of denying an injunction to a plaintiff on the ground that money damages are available, only to confront the plaintiff at trial on the merits with the rule that damages must be based on more than speculation." Id.
Moreover, where an applicant for a preliminary injunction cannot establish a likelihood of success on the merits, a court nevertheless may grant injunctive relief if it determines that the applicant "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 deliberate investigation." Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 740 (2d Cir.1953). This is a less rigorous and more lenient standard, Sweeney v. Bane, 996 F.2d 1384, 1388 (2d Cir.1993), and therefore it requires that the applicant establish that the harm which it would suffer is "`decidedly' greater" than the harm his opponent would suffer. Buffalo Forge Co. v. Ampco-Pittsburgh Corp., 638 F.2d 568, 569 (2d Cir.1981) (quoting Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc., 601 F.2d 48, 58 (2d Cir.1979)). "The decision to grant or to deny a preliminary injunction," the Second Circuit has explained, "depends in part on a flexible interplay" between these two factors, and therefore they ought not be considered in isolation. See Packard Instrument Co. v. ANS, Inc., 416 F.2d 943, 945 (2d Cir.1969).
Regardless of which preliminary injunction standard is applied, the Court is cognizant of the Second Circuit's "continuing admonishments that interim injunctive relief is an `extraordinary and drastic remedy which should not be routinely granted.'" Buffalo Forge Co., 638 F.2d at 569 (2d Cir.1981) (quoting Med. Soc'y of New York v. Toia, 560 F.2d 535, 538 (2d Cir. 1977)); see also Grand River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 63 (2d Cir.2007).
A. Whether IBM and Mr. Johnson Entered Into a Non-Competition Agreement
IBM submits that it and Mr. Johnson entered into a binding non-competition agreement. It points out that Mr. Johnson signed the agreement and returned it to IBM without disclosing to anyone at the Company his motivation for signing the agreement on IBM's signature block. According to IBM, Mr. Johnson's actions viewed objectivelymanifested assent to the non-competition agreement. IBM also contends that its conduct indicated that it believed that Mr. Johnson had assented to the non-competition agreement. IBM allowed Mr. Johnson, for example, to continue to remain eligible for, and indeed paid to him, substantial equity awards.[9] IBM permitted Mr. Johnson continuous access to the Company's confidential information. IBM also argues that its signature was not required to create a legally enforceable obligation because the non-competition agreement did not contain an explicit dual signature requirement.
IBM submits that even if there was no express contract created between it and Mr. Johnson, Mr. Johnson nevertheless *330 should be equitably estopped from denying the validity of the non-competition agreement.
After setting forth the applicable principles of contract law, the Court shall return to IBM's arguments.
1.
The formation of a valid, express contract under New York law requires an offer, acceptance, consideration, mutual assent, and intent to be bound. Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 427 (2d Cir.2004); Maffea v. Ippolito, 247 A.D.2d 366, 668 N.Y.S.2d 653, 654 (1998). There must, in other words, be "an objective meeting of the minds sufficient to give rise to a binding and enforceable contract." Tractelbel Energy Marketing, Inc. v. AEP Power Marketing, Inc., 487 F.3d 89, 95 (2d Cir.2007) (New York law).
Under New York law, "an acceptance `must comply with the terms of the offer and be clear, unambiguous and unequivocal.'" Krumme v. WestPoint Stevens Inc., 143 F.3d 71, 83 (2d Cir.1998) (quoting King v. King, 208 A.D.2d 1143, 617 N.Y.S.2d 593, 594 (1994)) (emphasis supplied). Although cases often treat the requirement that an acceptance be unambiguous and unequivocal as "identical with the requirement that an acceptance may not change, add to, or qualify the terms of the offer," "the requirement... is in fact separate." 2 RICHARD A. LORD, WILLISTON ON CONTRACTS § 6:10 (4th ed. 2004) (footnotes omitted). "[E]ven though no change in the offer is suggested in the reply by the offeree," one authority explains, "the reply may not sufficiently clearly indicate assent to the offer as to create a contract." Id.
Whether an acceptance is ambiguous or equivocalthat is, an acceptance that a reasonable person could view as assent, rejection, or an invitation to bargain further, see Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008)depends not on the subjective, undisclosed intent of the offeree, but rather on the offeree's words and actions as viewed from the perspective of a reasonable person. See R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 74 (2d Cir. 1984) ("What matters are the parties' expressed intentions, the words and deeds which constitute objective signs in a given set of circumstances."); Stockland Martel, Inc. v. Donald J. Pliner of Florida, Inc., 32 A.D.3d 779, 821 N.Y.S.2d 555, 555 (2006) ("[D]efendant's assent to the agreement... is not clear and unambiguous from the document itself, and resort to extrinsic evidence is in order.").
Where an offeree communicates to an offeror an ambiguous acceptance, it is the offeror's reaction to that ambiguous acceptance that controls whether the parties entered into a contract. As Professor Samuel Williston has stated:
[B]y their nature, equivocal responses are capable of being understood either as the offeree apparently intends them... or as the offeror might apparently understand them.... To the extent that either interpretation is plausible, the offeree can hardly complain if the offeror understands the communication as the offeree apparently intended; and the offeror who reasonably treats an equivocal response as an acceptance may hold the offeree to a contract. This rule ... operates to protect the offeror who acts reasonably in relation to what it supposes is intended to operate as an acceptance, yet provides the offeror with significant flexibility as the master of the offer. In short, how the offeror treats the offeree's language will, assuming that treating the language either as language of acceptance or treating it as language requiring further discussion is *331 reasonable, determine the language's effect.
WILLISTON ON CONTRACTS, supra, § 6:10 (emphasis supplied); cf. Kreiss v. McCown DeLeeuw & Co., 37 F. Supp. 2d 294, 299 (S.D.N.Y.1999) (New York law) ("The Court of Appeals has cautioned ... that courts should not frustrate a party's `forthright, reasonable signals' of his or her intent.") (quoting R.G. Group, Inc., 751 F.2d at 74); 22 N.Y. Jur.2d Contracts § 29 (2009) ("Unless a person has conducted himself or herself in such a manner that his or her assent may fairly be inferred, he or she has not contracted."). Indeed, under New York law, courts will find that a contract is created when the offeree engages in ambiguous conduct that leads an offeror to believe that the offeree has assented to the deal. See Russell v. Raynes Associates, 166 A.D.2d 6, 569 N.Y.S.2d 409, 414 (1991). Similarly, the Restatement (Second) of Contracts explains that "[t]he conduct of a party is not effective as a manifestation of assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents." RESTATEMENT (SECOND) OF CONTRACTS § 19(2) (1981) [hereinafter RESTATEMENT]. Thus, if a party "either intentionally or negligently" manifests "an appearance of assent," then a contract is created so long as "[t]he other party ... also manifest[s] assent." Id. § 19(2) cmts. b-c.
In other words, where an offeree communicates an ambiguous acceptance, the offeree must assume the risk of the offeror's misinterpretation. See Russell, 569 N.Y.S.2d at 414. This makes good-sense as a matter of contract law. It is merely a more specific iteration of the traditional principle that ambiguity is construed against the party who issued the communicationa principle that encourages parties to transaction to be as clear as possible. See Shaw Group, Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 121 (2d Cir.2003) ("[A]mbiguous language should be construed against the interest of the drafting party."); R.G. Group, Inc., 751 F.2d at 75 ("It is important to commerce that the law make clear what force will be given to various expressions of intent....").
2.
Here, Mr. Johnson's conductat least until he later refused forthrightly to resign a new non-competition agreement was ambiguous. He signed the non-competition agreement on the signature block designated for IBM and submitted it without disclosing to IBM executivesat first[10]his intent. Because of his ambiguous conduct, Mr. Johnson assumed the risk of IBM's misunderstanding, and therefore IBM's reaction to Mr. Johnson's conduct controls whether it entered into a contractual relationship with him.
From IBM's conduct following its receipt of Mr. Johnson's improperly signed non-competition agreement, it is evident that there are, at the very least, significant doubts as to whether it believed that Mr. Johnson had accepted its offer. After IBM's receipt of Mr. Johnson's improperly signed agreement, IBM failed to sign and, indeed, returned to himthe original copy of the agreement, in contravention of its internal protocols for booking validly executed non-competition agreements. Concurrently, IBM asked Mr. Johnson to re-sign a new copy of the non-competition agreement on the proper signature line essentially, asking him to clarify his intentions. Mr. Johnson then unambiguously *332 stated his intentionhe refused to sign the agreement in the appropriate space, as is memorialized by Cannone's handwritten note on a printed e-mail exchange between Staff Counsel (Wood) and Brickmeier. Def. Exh. 1 at 1.
At no point did IBM take any actions, concurrent with its requests that Mr. Johnson resign the agreement, suggesting that it believed that Mr. Johnson had accepted its offer to enter into a non-competition agreement or that obtaining a properly signed agreement was simply a clerical issue.[11] In fact, on July 28, 2006, Donna Riley, IBM's Vice President of Human Resources, explicitly told Mr. Johnson that the Company did not consider his ambiguous conduct an acceptance. In an e-mail to Mr. Johnson, Riley acknowledged that she was being a "pest," presumably by repeatedly contacting Mr. Johnson regarding the non-competition agreement, and explained that Mr. Johnson's agreement "isn't booked since the original was signed in the wrong place." Def. Exh. 4 at 1. Riley then threatened Mr. Johnson, indicating that he would be receiving a call from MacDonald regarding the status of his equity grants. Such a threat, and IBM's acknowledge that it had not "booked" the agreement, certainly is not suggestive of a belief on IBM's behalf that Mr. Johnson had accepted its offer.
Mr. Johnson also testified that he discussed his improper signature of the non-competition agreement with Don Rosenberg, IBM's General Counsel. During this meeting, Mr. Johnson told Rosenberg that he purposefully had signed on the wrong line and that he thought that meant that the agreement was not binding. According to Mr. Johnson, Rosenberg explained to Mr. Johnson that that was not necessarily the case. Mr. Johnson then told Rosenberg that IBM employees had pursued him to sign another version of the agreement. Rosenberg's eyebrows went upa signal that, according to Mr. Johnson, conveyed the meaning that Rosenberg did not believe that the agreement was bindingand he (Rosenberg) told Mr. Johnson to "save the documentation to demonstrate that there had been repeated efforts where [Mr. Johnson] didn't respond." Prelim. Inj. Hr'g Tr. 28-31. The Court considers it significant that IBM presented no evidence suggesting that this meeting with IBM's General Counsel did not occur or casting doubt on Mr. Johnson's interpretation of Rosenberg's communications.
IBM's payment of equity awards to Mr. Johnson in 2005 and 2006 also does not suggest that it believed that Mr. Johnson had accepted the non-competition agreement. First, IBM's payment of these awards was not concurrent with Mr. Johnson's signing of the non-compete. In 2005, Mr. Johnson received the award two months before the non-competition agreement was even due. In 2006, he received the award nearly a year after he had improperly signed the non-competition agreement and within weeks of the date of the e-mail from Staff Counsel to the Human Resources Law Group, which contained a handwritten note that Mr. Johnson had refused to sign a new copy of the agreement. Second, MacDonald testified that he had the discretion to permit the awards despite an employee's failure to sign a non-competition *333 agreement. See Prelim. Inj. Hr'g Tr. 56. Third, IBM's 2001 LTIP contained a provision allowing IBM to claw-back certain portions of the equity awards if Mr. Johnson accepted employment with a competitor, and this claw-back provision operated independently of any non-competition agreement. Def. Exh. 33 pg. 10 ¶ 13.
IBM also argues that, even if there was no express contract created between it and Mr. Johnson, Mr. Johnson nevertheless should be equitably estopped from denying the validity of the agreement. It contends that Mr. Johnson's conduct suggests that he specifically intended to mislead IBM into believing that he had accepted his agreement by the deadline. Although Mr. Johnson certainly was too clever by half, his goal was not to mislead IBM into believing that he had assented to the non-competition agreement, but rather to extend the time that he would have to enter into such an agreement. He was counting on IBM realizing that by improperly signing the agreement he had not assented to its terms. Moreover, having presided over the live, in-court cross- and re-direct examination of Mr. Johnson, this Court believes that he was an extremely credible and reasonable witness.[12]
Indeed, the equities in this case go both ways. According to Mr. Johnson, IBM's conduct, prior to this lawsuit, consistently suggested to him that IBM did not believe that it and Mr. Johnson had a valid non-competition agreement, yet IBM has now changed its position and seeks to enforce the agreement. Furthermore, Mr. Johnson has submitted evidence suggesting that IBM misled him into believing that he would be considered for a General Manager position, while at the same time it attempted to obtain a one-year non-competition agreement from him.
In short, IBM faces a daunting, if not insurmountable, task in convincing a finder-of-fact that it treated Mr. Johnson's ambiguous conduct as an acceptance of its offer to enter into a non-competition agreement. Consequently, the Court cannot find, based on the limited record before it, that IBM has established a likelihood of success on the merits of its breach of contract claim. Moore v. Consol. Edison Co., 409 F.3d 506, 510 (2d Cir.2005).
B. The Balance of Equities
Although IBM has not carried its burden of establishing a likelihood of success on the merits, it has an alternative avenue of relief under Second Circuit jurisprudence. The Second Circuit has held that a party may obtain injunctive relief if it shows that (1) there are "questions so serious, substantial, difficult, and doubtful as to make them fair ground for litigation and thus more deliberate investigation"; and (2) the harm that it would suffer is "`decidedly' greater" than the harm that its adversary would suffer. Buffalo Forge Co., 638 F.2d at 569 (quoting Buffalo Courier-Express, Inc., 601 F.2d at 58); Fed. Express Corp., 201 F.3d at 173 (wording the first prong of the test as "sufficiently serious questions going to the merits to make them a fair ground for litigation"). In the Court's view there is little question that IBM has shown that there are sufficiently *334 serious questions going to the merits to make them a fair ground for litigation, and therefore the Court shall confine its discussion to a balancing of hardships.
1.
In Buffalo Courier-Express, the Second Circuit explained that "`[a] balance of hardships tipping decidedly toward the party requesting preliminary relief must mean real hardship from the denial of relief Pendente lite not merely the showing of difficulty of measurement which may suffice to constitute `irreparable damage' where a plaintiff shows probable success." 601 F.2d at 58. In vacating the preliminary injunction issued by the district court, the Second Circuit in Buffalo Courier-Express noted: "There can be no doubt that if the [applicant] had shown a significant possibility that it would be driven out of business by the [opposing party] in the period before a trial could be held, the Hamilton-Benrus test would have been amply passed." Id. (citing Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 743 (2d Cir.1953); Hamilton Watch Co. v. Benrus Watch Co., 114 F. Supp. 307, 311, 313-14 (D.Conn.1953); and Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197, 1205 (2d Cir.1970)).
Hamilton and Semmes both presented the risk of dramatic hardship.[13] Later, in Nemer Jeep-Eagle Inc. v. Jeep Eagle Sales Corp., the Second Circuit explained that it did not read the foregoing cases "so narrowly." 992 F.2d 430, 435-36 (2d Cir.1993). The court included within the ambit of the Hamilton test "[m]ajor disruption of a business" and a "`threat to the continued existence of a business.'" Id. (first emphasis in original) (quoting John B. Hull, Inc. v. Waterbury Petrol. Prods., Inc., 588 F.2d 24, 28-29 (2d Cir. 1978)); see also American Airlines v. Imhof, 620 F. Supp. 2d 574, 586, 2009 WL 1531098, at *9 (S.D.N.Y.2009). The Court also is mindful that "[i]f the element of irreparable damage is prerequisite for relief where the plaintiff must show probable success on the merits, then a fortiori where the plaintiff establishes something less than probable success on the merits, need for proof of the threat of irreparable damage is even more pronounced." Triebwasser & Katz v. American Tel. & Tel. Co., 535 F.2d 1356, 1359 (2d Cir.1976).
The Court pauses to note that at least one authority has read the Supreme Court's recent decision in Winter v. Natural Resources Defense Council, ___ U.S. ___, 129 S. Ct. 365, 374, 172 L. Ed. 2d 249 (2008), as casting doubt on Second Circuit case law allowing parties who cannot show a likelihood of success to obtain an injunction if they show that there are "questions so serious, substantial, difficult, and doubtful as to make them fair ground for litigation." 13 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 65.22[5][c] (3d ed. 2009) ("In light of Supreme Court precedent, the Second Circuit's references to `sufficiently serious questions going to the merits of the claim,' should not be read to authorize preliminary injunctions in the absence of a showing that the party seeking the injunction is likely to succeed on *335 the merits; a possibility of success is insufficient." (citing Winter, 129 S.Ct. at 374)) (first emphasis supplied) (footnote omitted).[14] In Winter, the Supreme Court explained that "[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." 129 S.Ct. at 374 (emphasis supplied). Because the Court determines that IBM has not satisfied the Second Circuit's alternative avenue for obtaining a preliminary injunction, it is not necessary for the Court to address this apparent tension.
2.
In balancing the hardship as between the parties, the Court begins with a discussion of the harm that IBM would suffer absent an injunctive order. The real or inevitable disclosure of trade secret information is sufficient to establish a real risk of irreparable harm. Int'l Bus. Mach. Corp. v. Papermaster, No. 08-cv-9078, 2008 WL 4974508, at *10 (S.D.N.Y. Nov. 21, 2008). Under New York law, a trade secret is defined as "any formula, pattern, device or compilation of information which is used in one's business, and which gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it." N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 44 (2d Cir.1999) (internal quotation marks and citation omitted) (alteration in original).[15]
IBM would undoubtedly suffer harm absent an injunctive order. According to IBM, Mr. Johnson is aware of IBM's past, present, and future business strategies as well as the acquisitions, transactions, and divestitures that IBM is considering. Because of his work as head of IBM's Corporate Development group, Mr. Johnson knows IBM's strategies for growth, and its method of evaluating future business needs and companies as candidates for acquisition. In addition, IBM contends that Mr. Johnson is aware of its assessment of its clients' needs, its competitors' strategies, its opportunities, and its strategies for carrying out its business objectives. Mr. Johnson knows in which areas, companies, and technologies IBM will invest, at what times, and with what expected rates of return. Mr. Johnson, in short, has inside strategic business information about IBM, and disclosure of that information would harm the Company.
The Court nevertheless believes that IBM has overstated its case. Mr. Johnson does not have the sort of information that is considered quintessential trade secret informationdetailed technical know-how, formulae, designs, or procedures. See American Airlines, 620 F.Supp.2d at 582, 2009 WL 1531098, at *6 ("[I]t is well to bear in mind that we are dealing with an *336 individual responsible for sales of a widely used service as distinct, for example, from a food chemist privy to the secret formula for Coca-Cola or even a salesman for a highly specialized, technical product used only by small numbers of obscure manufacturers."). At issue in IBM v. Papermaster, for example, was an employee who had "worked for years with some of the crown jewels of IBM's technology" and who had "been inculcated with" technical knowledge regarding "the development of cutting-edge microprocessors that have application across the full spectrum of electronics products." Papermaster, 2008 WL 4974508, at *8. What is more, IBM's submissions regarding Mr. Johnson's knowledge of its technological information is long on generalities and rather short on details.[16] This makes it extraordinarily difficult to determine whether and, if so, how much of, the information that Mr. Johnson possesses is public and readily available to its competition. See Sci. Components Corp. v. Sirenza Microdevices, Inc., No. 03-CV-1851, 2006 WL 2524187, at *28 (S.D.N.Y. Aug. 30, 2006) ("[B]y definition, information that is publicly available is not secret."). Also left unclear are details regarding how many potential acquisitions and divestitures were in the "pipeline," as it were, when Mr. Johnson resigned, how large and critical those potential transactions are to IBM and/or Dell, or what other market players are potentially aware of such transaction. Cf. Amended Affidavit of David L. Johnson ("Johnson Am. Aff.") ¶ 30 ("Upon my retirement from IBM, the `pipeline' of potential acquisitions was unusually short. Thus, I have limited knowledge regarding transactions that IBM is currently considering."). Even so, the Court concludes that IBM would suffer harm absent an injunctive order, and the Court turns to the hardship that Mr. Johnson would suffer.
The Court believes that forcing Mr. Johnson, a 55-year old man who is at the peak of his career, to abstain from plying his trade for a year would cause him not insubstantial harm. Due to the nature of his qualifications and skills, Mr. Johnson must deal with information that changes rapidly and requires constant attention. Indeed, given that Mr. Johnson does not have detailed technical know-how regarding technology products, his ability to stay au courant with industry rumors and developments is fundamental. Without monitoring the external factors that guide and mold the technology industrythrough access to daily contact with insiders, reports, surveys, and analyses conducted industrywideMr. Johnson's skill set might well become obsolete. Moreover, Mr. Johnson has developed a large personal network of investment bankers, consulting groups, and chief information officers with whom *337 he risks losing touch without a formal position in the technology industry. Although IBM notes that Dell is willing to pay Mr. Johnson quite handsomely during the one-year non-compete term, there is no guarantee that Dell will continue to employ Mr. Johnson, who was hired by Dell as an at-will employee, if he is forced to sit on the sidelines of the ever changing and evolving technology industry. See Pl. Exh. 73 at 4-5. The damage to Mr. Johnson's career and the risk that he will be sentenced to an early retirement, especially during these volatile economic times, cannot be underestimated.
New York's public policy, which "strong[ly] disfavor[s] ... non-competition covenants in employment contracts," is another factor in determining that the balance of equities here does not tip decidedly in favor of IBM.[17]Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1099 (2d Cir. 1992). "Undoubtedly judicial disfavor of these covenants," the Court of Appeals of New York has written, "is provoked by powerful considerations of public policy which militate against sanctioning the loss of a man's livelihood." Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 386 N.Y.S.2d 677, 353 N.E.2d 590, 593 (N.Y. 1976) ("Indeed, our economy is premised on the competition engendered by the uninhibited flow of services, talent and ideas."); see also McKay v. Communispond, Inc., 581 F. Supp. 801, 806 (S.D.N.Y. 1983).
In sum, given IBM's failure to show a likelihood of success on the merits, the significant hardship that Mr. Johnson would suffer from the issuance of an injunctive order, and New York's public policy disfavoring non-competition agreements, this Court cannot find that the balance of equities tips "decidedly" in favor of IBM.
CONCLUSION
Following its receipt of Mr. Johnson's improperly executed agreement, IBM's actions raise significant doubts as to whether it believed that Mr. Johnson had accepted its offer to enter into a non-competition agreement. After receiving the improperly signed agreement, IBM failed to sign and, indeed, returnedthe original copy of the agreement, in contravention of its internal protocols for booking validly signed non-competition agreements. IBM asked Mr. Johnson to re-sign a new copy of the agreement on the proper signature line essentially, asking him to clarify his intentionsand he refused. A senior IBM executive then told Mr. Johnson that IBM had not "booked" his agreement because "the original was signed in the wrong place." Def. Exh. 4 at 1. Rosenberg, IBM's General Counsel, also suggested to Mr. Johnson that IBM did not consider his improperly signed agreement to be an acceptance of the Company's offer. Accordingly, the Court cannot find, based on the limited record before it, that IBM has established a likelihood of success on the merits of its breach of contract claim. See Moore, 409 F.3d at 510.
Although this case presents "questions so serious, substantial, difficult, and doubtful as to make them fair ground for litigation and thus more deliberate investigation," see Buffalo Forge Co., 638 F.2d at *338 569, the Court cannot grant IBM's request for a preliminary injunction. After balancing the hardship that would result from the erroneous grant or denial of a preliminary injunction, the Court concludes, based on the record before it, that IBM would indeed suffer some harm, but assuredly that harm is not "decidedly greater" than the harm that would befall Mr. Johnson. See Semmes Motors, Inc., 429 F.2d at 1205; American Airlines, 620 F.Supp.2d at 586-87, 2009 WL 1531098, at *9.
Consequently, the Court denies IBM's motion for a preliminary injunction, and Judge Karas' Order June 4, 2009, along with this Court's extension of that Order, is vacated. The parties are directed to submit a proposed Rule 16 scheduling order.
It is so ordered.
NOTES
[1] IBM has since filed an Amended Complaint, adding causes of action for breach of contract and breach of fiduciary duty. Amended Complaint ("Am. Compl.") ¶ 61-72.
[2] MacDonald is currently employed by IBM as its Senior Vice President of Human Resources, and he was IBM's designee, pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure, to discuss the circumstances surrounding Mr. Johnson's non-competition agreement. Despite being so designated, MacDonald testified that, at the time that he drafted his affidavit, he had not been shown numerous IBM documents related to the Company's handling of Mr. Johnson's non-competition agreement, particularly those supporting Mr. Johnson's position. Preliminary Injunction Hearing Transcript ("Prelim. Inj. Hr'g Tr.") 72-78, June 22, 2009; see also infra note 12.
[3] FED. R. CIV. P. 65(a)(2)("Even when consolidation is not ordered, evidence that is received on the motion and that would be admissible at trial becomes part of the trial record and need not be repeated at trial. But the court must preserve any party's right to a jury trial.").
[4] The IVT was the successor group to the Senior Leadership Team ("SLT"), of which Mr. Johnson became a member in 1996.
[5] The agreements provided for a one-year term of non-competition and world-wide geographic scope. Second Supplemental Declaration of J. Randall MacDonald ("MacDonald Decl.") Exh. 4 at ¶¶ 1(b), 2(d).
[6] The following signature blocks appear immediately below the last paragraph of the non-competition agreement:
Name:
Date:
INTERNATIONAL BUSINESS
MACHINE CORPORATION
By: ____________________
Name:
Title:
MacDonald Decl. Exh. 4 at 7.
[7] A typical preliminary injunction is prohibitory, and it seeks to maintain the status quo pending a trial on the merits. If the preliminary injunction seeks to "alter the status quo by commanding some positive act," however, it is a mandatory injunction. Tom Doherty Assocs., Inc. v. Saban Entm't, Inc., 60 F.3d 27, 34 (2d Cir.1995). Parties seeking to obtain a mandatory injunction must satisfy a more burdensome test. A mandatory injunction should issue, the Second Circuit has explained, "only upon a clear showing that the moving party is entitled to the relief requested, or where extreme or very serious damage will result from a denial of preliminary relief." Id. (internal quotation marks and citation omitted). Mr. Johnson contends that any injunctive order issued in this case would alter the status quo because he has already begun working at Dell. This argument is flawed because it fails to take into account Judge Karas' Order of June 4, 2009, which placed severe restrictions on Mr. Johnson's work at Dell and which was meant to preserve the status quo. Indeed, on the date that Judge Karas issued his Order, Mr. Johnson still was an employee of IBM. See Transcript of Temporary Restraining Order Hearing 25-26, June 1, 2009.
[8] In Winter, the Supreme Court explained that "[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." 129 S.Ct. at 374 (emphasis supplied). Winter, and its effect on the Second Circuit's standard, is discussed in more detail in section II.C., infra.
[9] On June 25, 2009, Mr. Johnson filed a number of documents suggesting that, subsequent to the filing of this action, IBM placed a permanent hold on Mr. Johnson's equity awards and arguing that such action represents an admission on IBM's behalf that it did not believe that it and Mr. Johnson had entered into a non-competition agreement. In response, IBM contends that this hold is routine, temporary, and simply a matter of recordkeeping. This dispute does not factor into the Court's decision to deny IBM's motion for a preliminary injunction, and therefore it need not be resolved at this point.
[10] As discussed in more detail below, Mr. Johnson disclosed to Don Rosenberg, IBM's General Counsel, his intent in signing the non-competition agreement on the signature block designated for IBM.
[11] Brickmeier testified that "[a]t some point in 2006, we decided to stop asking Mr. Johnson to re-execute his existing non-compete because he had already signed the agreement, and the placement of his signature was just a minor record-keeping issue." Declaration of Barbara Brickmeier ("Brickmeier Decl.") ¶ 20. In the limited record currently before the Court, however, there is little documentary support for this testimony, and, in fact, IBM's conduct throughout all of 2006 belies this position.
[12] In contrast, the Court found much less persuasive MacDonald's testimony because, despite being IBM's designee under Rule 30(b)(6) to discuss matters related to Mr. Johnson's signing of the non-competition agreement, MacDonald had not been shown or reviewed all the documents in IBM's possession, particularly those supporting Mr. Johnson's position. See supra note 2. Rule 30(b)(6) clearly states that the person "designated must testify about information known or reasonably available to the organization." The Court finds it troubling that MacDonald was proffered as IBM's Rule 30(b)(6) witness without being provided with enough information to fulfill that mandate.
[13] In Hamilton, the denial of an injunctive order would have brought the movant under the control of a direct competitor, which may have led to drastically reduced competition in the market. 206 F.2d at 743-44. Similarly, in Semmes Motors, Inc., the Second Circuit concluded that the balance of hardships tipped decidedly in favor of the movant where it had demonstrated that, without an injunctive order, it would have been forced out of business as a Ford distributor. 429 F.2d at 1205; see also Roso-Lino Beverage Distribs., Inc. v. Coca-Cola Bottling Co., 749 F.2d 124, 126 (2d Cir. 1984) (holding that the potential loss of the plaintiff's distributorship in the absence of an injunctive order decidedly tipped the equities in the plaintiff's favor).
[14] See also MOORE ET AL., supra, § 65.22[5][b] ("Confusion has also resulted from the suggestion that the threat of irreparable harm must be greater under the second prong of the test than under the first. The Supreme Court has clarified this matter by stating that the party seeking injunctive relief must establish a likelihood of success on the merits and that irreparable injury is likely in the absence of an injunction; a possibility of either is insufficient").
[15] Specifically, courts look to the following factors to determine whether information constitutes a trade secret: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated. See N. Atl. Instruments, Inc., 188 F.3d at 44.
[16] For instance, IBM contends that Mr. Johnson possesses a "deep knowledge of virtually all of IBM's technological innovations and initiatives," and it then provides a laundry list of technological products that IBM sells. Supplemental Declaration of Mark Loughridge ("Loughridge Supp. Decl.") ¶ 15. Notably absent, however, is any indication of what specific details Mr. Johnson possesses about these products or product areas or how much technical detail his mergers and acquisitions work for IBM required him to know. See American Airlines, 620 F.Supp.2d at 584, 2009 WL 1531098, at *7 ("[T]hese claims are generalities, easily voiced and, to a great degree, devoid of real content."). Indeed, Mr. Johnson disputes IBM's claims. As a member of the IVT, Mr. Johnson contends that he attended only thirteen meetings between 1996 and January 2009, and he does not recall any IVT meeting focusing on IBM's competitors, development plans for unannounced products, or trade secret information regarding hardware, software, or services. Mr. Johnson also explains that he never attended the meetings of the Technology Committee, which is the forum for internal discussions about IBM's research and development.
[17] The Second Circuit has explained that although its "settled preliminary injunction standard does not explicitly mention the public interest, as do other Circuit's standards, we have recognized that, as a court of equity, we `may go much further both to give or to withhold relief in furtherance of the public interest than where only private interests are involved.'" Standard & Poor's Corp., Inc. v. Commodity Exch., Inc., 683 F.2d 704, 711 (2d Cir.1982) (quoting Brown & Williamson Tobacco Corp. v. Engman, 527 F.2d 1115, 1121 (2d Cir.1975)); Winter, 129 S.Ct. at 374.
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516 F. Supp. 725 (1981)
LaVerta HARPER, Individually and t/d/b/a LaVerta's Beauty Salon, Inc., Plaintiff,
v.
NATIONAL FLOOD INSURERS ASSOCIATION, Defendant.
Civ. A. No. 78-0577.
United States District Court, M. D. Pennsylvania.
June 19, 1981.
*726 Clifford A. Rieders, Stuart, Murphy, Smith, Mussina, Harris & Rieders, Williamsport, Pa., for plaintiff.
Stephen E. Hart, Dept. of Justice, Washington, D. C., for defendant.
MEMORANDUM
RAMBO, District Judge.
This action was initiated when plaintiff filed a complaint in the Court of Common Pleas of Lycoming County, Pennsylvania on April 28, 1978, in which she alleged the defendant had wrongfully denied insurance coverage for damage to a waterproofing membrane caused by a flood in September, 1975. The case was removed to this court pursuant to 28 U.S.C. §§ 1441(b) and 1442(a)(1). Plaintiff's motion to remand was denied by this court on July 18, 1980, 494 F. Supp. 234, as was defendant's motion to dismiss. Presently before the court is defendant's motion to dismiss or in the alternative, for summary judgment.[1]
In its motion, defendant first alleges that plaintiff's action is time barred. Defendant argues that the Standard Flood Insurance Policy (SFIP), which is consistent with the mandates of 42 U.S.C. §§ 4053[2] and 4072,[3] requires the insured to bring suit within twelve months of the notice of disallowance or partial disallowance.[4] Further, the one *727 year limitation is contained in the applicable regulation, 44 C.F.R. § 62.22(a).[5]
Defendant also argues that plaintiff did not comply with the terms of the SFIP in that she did not file a written proof of loss claim covering the waterproofing membrane within the sixty day limit.[6]
Plaintiff, in her brief in opposition to defendant's motion to dismiss or for summary judgment, does not directly refute defendant's allegations but contends that the written proof of damage requirement was, in effect, waived by defendant (or its agent) and that defendant should be estopped from claiming the sixty day proof of loss requirement since it has not been raised heretofore. Plaintiff did not address the issue of whether or not the action is time barred by the one year statute of limitations.
The uncontested facts of record indicate that defendants were aware on January 19, 1976 that a claim for the waterproofing was filed or would be filed; that an inspection of the membrane by defendant's agents resulted in the plaintiff being notified on January 20, 1976 that the two estimates of repair of the waterproofing membrane would not be honored; that on April 22, 1976, plaintiff's counsel contacted defendant's agent and was informed that the "claim" for the alleged damage to the waterproofing membrane would be denied; that plaintiff did not file this action until April 28, 1978; and that plaintiff never filed a written proof of loss claim concerning the waterproofing membrane. Based upon these undisputed facts, it is clearly seen that plaintiff did not file a claim within the time prescribed by the statutes, the regulations, and the contract.
Plaintiff obfuscates the issue with her argument regarding estoppel. Plaintiff has not alleged that defendant made representations to the effect that she would not have to comply with the sixty day proof of loss requirement or the one year limitation on initiating suit, nor would the record support such an allegation.
Defendant has cited a plethora of cases standing for the proposition that any waiver of sovereign immunity must be strictly construed and that the one year statute of limitations is to be strictly adhered to. Plaintiff's cases cited as rebuttal are not persuasive to this court. Accordingly, defendant's *728 motion for summary judgment will be granted on the basis that plaintiff failed to comply with the sixty day proof of loss requirement and failed to file suit within one year after being notified that her claim with respect to the waterproofing membrane had been rejected by defendant.
NOTES
[1] Since material outside the pleadings have been considered (i. e. affidavit by Merten), the court will treat this as a motion for summary judgment.
[2] 42 U.S.C. § 4053, which establishes the guidelines for payment of claims in the industry program with federal financial assistance, provides in pertinent part:
[U]pon the disallowance by any such company or other insurer of any such claim, or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance of the claim, may institute an action on such claim against such company or other insurer in the United States district court for the district in which the insured property or the major part thereof shall have been situated, and jurisdiction is hereby conferred upon such court to hear and determine such action without regard to the amount in controversy. (Emphasis added)
[3] 42 U.S.C. § 4072, which establishes the procedure for payment of claims in the government program with industry assistance, provides in pertinent part:
[U]pon the disallowance by the Secretary of any such claim, or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance by the Secretary, may institute an action against the Secretary on such claim in the United States district court for the district in which the insured property or the major part thereof shall have been situated, and jurisdiction is hereby conferred upon such court to hear and determine such action without regard to the amount in controversy. (Emphasis added)
[4] Paragraph T of the SFIP, under the "General Conditions and Provisions" section provides:
Action Against the Company No suit or action on this policy for the recovery of any claim shall be sustainable in a court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 12 months next after the date of mailing of notice of disallowance or partial disallowance of the claim. An action on such claim against the Company may be instituted, without regard to the amount in controversy, in the United States District Court for the district in which the property shall have been situated. (Emphasis added)
[5] 44 C.F.R. § 62.22(a), formerly 24 C.F.R. § 1912.22(a) provides:
Upon the disallowance by the Federal Insurance Administration or the servicing agent of any claim on grounds other than failure to file a proof of loss, or upon the refusal of the claimant to accept the amount allowed upon any such claim, after appraisal pursuant to policy provisions, the claimant within one year after the date of mailing by the Federal Insurance Administration or the servicing agency of the notice of disallowance or partial disallowance of the claim may, pursuant to 42 U.S.C. § 4053, institute an action on such claim against the Secretary of Housing and Urban Development in the U. S. District Court for the district in which the insured property or the major portion thereof shall have been situated, without regard to the amount in controversy. (Emphasis added)
[6] Paragraph O provides in pertinent part:
Requirements in Case of Loss The Insured shall give written notice, as soon as practicable, to this Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged property and put it in the best possible order. Within 60 days after the loss, unless such time is extended in writing by this Company, the Insured shall render to this Company a proof of loss, signed and sworn to by the Insured, stating the knowledge and belief of the Insured as to the following: the time and origin of the loss, the interest of the Insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto.... The Insured, at the option of the Company, may be required to furnish a complete inventory of the destroyed, damaged and undamaged, property, showing in detail quantities, costs, actual cash value and amount of loss claimed, and verified plans and specifications of any building, fixtures or machinery destroyed or damaged. (Emphasis added)
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468 F. Supp. 105 (1979)
Philip M. SMITH, John Plutino, Ronald Cornell and Stephen Marks
v.
Richard C. GROOVER, Robert N. Meyer, Jr., Ralph J. Hemminger, Edward A. Arnold, and the Chicago Board of Trade and John Does 1 thru 20, Sam H. LaMantia and William R. Marbel.
No. 77 C 2297.
United States District Court, N. D. Illinois, E. D.
February 2, 1979.
Supplemental Opinion February 22, 1979.
*106 *107 Liebling, Hauselman, Miller, Chicago, Ill., for plaintiff.
Anton R. Valukas, Eugene R. Wedoff, Jenner & Block, Irwin Askow, Tenney & Bentley, Kirkland & Ellis, Philip F. Johnson, John H. Stassen, Duane M. Kelley, Winston & Strawn, David S. Acker, Winston & Strawn, William J. Martin, Chicago, Ill., for defendants.
MEMORANDUM OPINION
GRADY, District Judge.
Plaintiffs are buyers and sellers of soybean futures contracts at the Chicago Board of Trade's soybean pit. Defendants are individual soybean traders or brokers and the Chicago Board of Trade ("CBOT" and "the Board"). Plaintiffs allege that they were injured by the manipulative pricing practices of the individual defendants and the failure of the CBOT to enforce its rules.
The CBOT is a contract market, as defined in the Commodity Exchange Act, 7 U.S.C. Section 7 ("CEA"), through which transactions for the future delivery of commodities are consummated. The CEA requires orders for both buyers and sellers to be traded openly and competitively. On the floor of the CBOT, orders are filled and executed through a system known as "open outcry." Prices for futures contracts are quoted in dollars per bushel. A floor trader accepts an offer to purchase or sell a contract at a particular price by shouting his acceptance of the proposed contract terms, or by a hand signal. As the price of the transaction is called out, it is reported to a clerk, who feeds the information into an electronic ticker. The ticker then reports the current price to all those interested in the transaction.
In Count I of their complaint, plaintiffs allege that the individual defendants executed buyers' and sellers' orders without trading in the pits by open outcry, a practice known in the trade as "bucketing." Plaintiffs charge that these defendants thereby manipulated the price of soybean futures contracts in violation of 7 U.S.C. Sections 1-13. In Count II, plaintiffs claim that the individual defendants bucketed orders in furtherance of a conspiracy in restraint of trade, in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1, 2. In Count III, plaintiffs claim that the CBOT "failed and neglected" to prevent, report, and expose the unlawful activity of the individual defendants, as required by the statute and regulations promulgated by the Commodity Futures Trading Commission ("CFTC" and "the Commission").
Defendants move to dismiss. They argue primarily that the 1974 amendments to the Commodity Exchange Act, which were contained in the Commodity Futures Trading Commission Act ("CFTCA"), and which provided *108 for reparation proceedings in the CFTC, extinguished the private right of action that courts had previously implied from the statute. Defendants argue, therefore, that plaintiffs' complaint fails to state a claim upon which relief can be granted. Defendants also urge that the CFTC[1] has primary jurisdiction to adjudicate claims of rule violations by either floor traders or contract markets, and that this court is therefore without jurisdiction to entertain plaintiffs' suit at this time.
For the reasons stated below, the motions to dismiss Counts I and III of the complaint are denied. The motions to dismiss Count II are granted. For purposes of these motions, the factual averments of the complaint are assumed true.
I. INTRODUCTION: BACKGROUND OF THE 1974 AMENDMENTS TO THE CEA
The original Commodity Exchange Act was enacted in 1936, and significantly amended the Grain Futures Act of 1922. The amended Act established a scheme for regulating trading in agricultural commodities futures based chiefly on the concept of self-regulation. The Act required that all transactions in commodity futures be executed by a member of a designated "contract market." 7 U.S.C. Section 6h. A contract market could be designated as such by the Secretary of Agriculture only after satisfying the Secretary that it had taken certain prescribed steps to insure that its members would not engage in various manipulative practices. 7 U.S.C. Section 7. A contract market could establish rules of conduct for its members, who were subject also to certain prohibitions in the Act itself, including provisions against bucketing orders and engaging in other manipulative conduct. 7 U.S.C. Sections 6b, 7a(1).
The CEA did not explicitly provide a remedy for defrauded commodity futures investors. In 1967, however, a private right of action was implied against a registered commission merchant for violations of the CEA. Goodman v. H. Hentz & Co., 265 F. Supp. 440, 447 (N.D.Ill.1967). In Deaktor v. L. D. Schreiber & Co., 479 F.2d 529, 534 (7th Cir. 1973), rev'd on other grounds sub nom., Chicago Mercantile Exchange v. Deaktor, 414 U.S. 113, 94 S. Ct. 466, 38 L. Ed. 2d 344 (1973), the Seventh Circuit extended the holding in Goodman by recognizing a private right of action against a commodities exchange for negligent failure to enforce its rules against fraudulent and manipulative practices by floor traders. In subsequent decisions, the Seventh Circuit has consistently upheld the right of a defrauded commodity futures investor to maintain a private damage action under the CEA against floor traders and the exchange on which they traded. Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 103 (7th Cir. 1977) (commission merchants); Case & Co. v. Board of Trade, 523 F.2d 355, 360 (7th Cir. 1975) (exchange).
Closely related to the question of an implied private right of action in the decisions just discussed was the question of the primary jurisdiction of the Commodity Exchange Commission, the predecessor of the CFTC. The seminal case on the issue of primary jurisdiction was Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93 S. Ct. 573, 34 L. Ed. 2d 525 (1973). In Ricci, plaintiffs sued the Chicago Mercantile Exchange, its officers and directors, and an exchange member for transferring plaintiff's seat on the exchange without notice and a hearing. According to the complaint, this exclusion of plaintiff from trading violated the CEA and the Exchange's rules, and constituted an unreasonable restraint of trade under the Sherman Act. The Seventh Circuit held that the District Court should have stayed proceedings until the Secretary of Agriculture or the Commodity Exchange Commission had determined in an administrative proceeding whether the CEA or the Exchange's rules had been violated. The Supreme Court affirmed. The Court found that the case satisfied three conditions which made a stay of the district court proceedings prudent. First, had the *109 case gone forward in the district court, that court would necessarily have had to determine whether the CEA and the Exchange's membership rules created an immunity from the antitrust laws. Second, part of the controversy was within the statutory jurisdiction of the Commission. Finally, a decision by the Commission promised to be of material aid in resolving the immunity question. Id. at 302, 93 S. Ct. 573.
In Deaktor v. L. D. Schreiber & Co., 479 F.2d 529 (7th Cir. 1973), the Seventh Circuit had its first opportunity to apply the rationale of Ricci. Plaintiffs sued individual members of the Chicago Mercantile Exchange for cornering the market in, and manipulating the price of, pork bellies. Plaintiffs also charged that the Chicago Mercantile Exchange had negligently failed to enforce its rules against the manipulations. As in Ricci, plaintiffs joined to their counts under the CEA an allegation that defendants' conduct violated both the CEA and the Sherman Act. Defendants argued that the doctrine of primary jurisdiction applied, but the Seventh Circuit held that the three conditions established by the Supreme Court in Ricci were not present. The court acknowledged that the related claims of cornering and price manipulation clearly fell within the jurisdiction of the Commission. The second Ricci condition, therefore, had been satisfied. But in Deaktor, unlike Ricci, the allegedly anticompetitive conduct, price manipulation, could not even arguably be immunized by the CEA or the Exchange's rules. Thus, the first and third Ricci conditions were not satisfied. Furthermore, the Seventh Circuit found that the Deaktor case did not pose any questions which required for their resolution administrative fact-finding expertise. Judges and juries are considered competent to unravel the complexities of price manipulation in both antitrust and securities cases, the court noted, and "[t]here is no reason to believe that they would have more difficulty with factual issues involving the purchase and sale of commodities." Id. at 533. Thus, the policy rationale for deferring to the Commission was lacking.
Defendants appealed and in a short per curiam opinion, the Supreme Court reversed. Reasoning that Congress had established a specialized agency to determine whether an Exchange rule had been violated, and that the Commission's determination would greatly assist the district court in arriving at an accommodation between the antitrust and regulatory schemes, the Court held that plaintiffs "should be routed in the first instance to the agency whose administrative functions appear to encompass adjudication of the kind of substantive claims made against the Exchange in this case." Chicago Mercantile Exchange v. Deaktor, 414 U.S. 113, 115, 94 S. Ct. 466, 467, 38 L. Ed. 2d 344 (1973). By its holding, the Court apparently intended that, regardless of the judicial factfinder's competence to decide a particular cause of action, the district court was obliged to refer to the Commission any cases involving alleged violations of both the commodities and antitrust laws. The Court's decision in Deaktor, rendered on December 3, 1973, represented the most current judicial development of the doctrine of primary jurisdiction during the time Congress was considering a major overhaul of the CEA.
Reacting to a variety of recent economic developments, Congress in 1974 enacted the Commodity Futures Trading Commission Act ("CFTCA"), which significantly amended the CEA. By 1974, commodities trading, which had undergone a tremendous expansion during the late 1960's and early 70's was playing a more significant role in the marketing system of the United States. In 1973, over $500 billion in futures were traded. Remarks of Senator Talmadge, 120 Cong.Rec. 30458 (1974). During this era of rapid growth, instances of fraud and manipulation had increased significantly. Under the CEA, dishonest practices were supposed to be controlled both by the Commission's regulations and by the Exchange's own rules. By 1974, however, self-regulation had become noticeably ineffectual.
Congress traced the inadequacies of the self-regulatory regime to a number of factors. First, the enforcement staffs of commodities exchanges were unable to handle *110 the vastly increased trading volume. H.R. Rep. No. 975, 93d Cong. 2d Sess. 46 (1974). Also, exchanges faced "growing difficulties . . . as a result of private plaintiffs seeking damages against self-regulatory activities of the markets." Id. at 48. Because an implied right of action could be brought against an exchange for failure to enforce its own rules, "attorneys to several boards of trade had been advising the boards to reduce not expand exchange regulations designed to insure fair dealing." Id. at 46. Finally, an exchange simply lacked the necessary motivation and vigilance to effectively police its own members.
Despite its shortcomings, however, self-regulation remained a "commendable and noble concept and useful in such a complex atmosphere as that which surrounds futures trading." H.R.Rep. No. 975, 93d Cong., 2d Sess. 48 (1974). What was needed was a "strong Federal regulatory umbrella," to insure the efficacy of the regulatory efforts undertaken by exchanges. Id. The mainstay of this umbrella, Congress decided, would be the CFTC. Armed with strong regulatory powers, the CFTC was designed to guarantee "fair practices and honesty on the exchanges" and curb "speculative activities that periodically demoralize markets." Remarks of Senator Talmadge, 120 Cong. Rec. 30458 (1974).
As envisaged by the Congress, the CFTC would strike at unfair trading practices both at the institutional, or exchange level, and at the individual level. If an exchange fails to enforce its approved rules, the Commission's regulations, or the statute's prohibitions the CFTC may initiate an administrative hearing in which a civil penalty of up to $100,000.00 could be assessed against it. 7 U.S.C. Section 13a. The Commission may also alter or supplement the exchange's own rules after providing notice to the exchange. 7 U.S.C. Section 12a(7). The CFTCA also empowers the Commission to file an action in federal district court to enjoin an exchange from engaging in any conduct violative of either the statute or the regulations of the CFTC. 7 U.S.C. Section 13a-1. Other provisions in the Act grant the Commission an even more potent enforcement power. After notice and an administrative hearing, and subject to review in the Circuit Court of Appeals, the CFTC may suspend or revoke an exchange's designation as a contract market for failure to enforce the statute, the Commission's regulations, or the contract market's own rules. 7 U.S.C. Sections 7b, 8.
Similarly, Congress vested in the Commission broad enforcement powers to combat trading abuses by individual traders. The 1974 amendments authorize the Commission to initiate an administrative hearing against any individual who has violated the statute or exchange regulations, to assess a civil penalty of up to $100,000.00, and to revoke or suspend the individual's trading privileges. 7 U.S.C. Section 9. The Commission may also issue cease and desist orders. 7 U.S.C. Section 13b. Finally, the amended statute provides that the United States Attorney may seek an indictment against an individual who has violated certain sections of the Act, including the section which prohibits bucketing of customer orders. 7 U.S.C. Section 13(c).
In addition to these public enforcement measures at both the exchange and individual trader levels, Congress also provided for reparations proceedings, in which an injured party may sue to recover for injuries caused by violations of the Act, CFTC regulations, or exchange rules. 7 U.S.C. Section 18(e). The House Committee carefully delineated the range of potential respondents in these reparations proceedings: "It is primarily intended as a forum for aggrieved customers of persons registered under the Act under Sections 4d, 4e, 4k or 4m. Contract markets are not intended to be included since they are not persons registered under the Act." H.R.Rep. No. 975, 93d Cong., 2d Sess. 22 (1974). Thus, reparations proceedings may be initiated against futures commission merchants, floor brokers, commodity trading advisors, and commodity pool operators, but not against exchanges. 7 U.S.C. Section 18(a), (e). After obtaining a reparation award against an individual, the aggrieved party may enforce the award in an appropriate federal district court. 7 U.S.C. Section 18(f).
*111 Congress also attempted to accommodate the 1974 CEA amendments with the antitrust laws. The Department of Justice objected to language in the original House bill which merely required the CFTC to consider the public interest to be protected by the antitrust laws as well as the policies and purposes of the Act. 120 Cong.Rec. 30460. The House Committee on Agriculture and Forestry also "did not want to exempt the futures industry from the antitrust laws and it did not wish to encourage the Commodity Futures Trading Commission to restrict competition and ignore the public policies protected by the antitrust laws." Id. The Justice Department's concern found eventual expression in the amended House bill and the Act as finally passed:
The Commission shall take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of this chapter, as well as the policies and purposes of this chapter, in issuing any order or adopting any Commission rule or regulation, or in requiring or approving any bylaw, rule, or regulation of a contract market.
7 U.S.C. Section 19. If a person or group of persons involved in the commodities trade are acting outside the scope of a rule or regulation adopted under the CFTCA, or if they are violating such a rule, the Act does not purport "to exempt them from existing laws or regulations such as the antitrust laws." Remarks of Senator Talmadge, 120 Cong.Rec. 30459, 30461 (1974); see also, Remarks of Congressman Mayne, 120 Cong. Rec. 34754 (1974); S.Rep. No. 1131, 93d Cong., 2d Sess., reprinted in U. S. Code Cong. & Ad. News 5863 (1974).
Congress realized that the 1974 amendments represented a thorough revision of the manner in which the commodities futures trading industry would be regulated, and that, absent an explicit statutory direction, the amendments could confuse existing law. As a result, the sponsors sought to delimit the intended effect of the amendments upon existing judicial and administrative law. According to the sponsors, the CFTC would have exclusive jurisdiction over commodities futures trading, and the SEC would retain its jurisdiction over trading in securities and securities options. 120 Cong.Rec. 30459, 30461 (1974); Remarks of Rep. Poage, 120 Cong.Rec. 34737 (1974). If, in certain situations, the jurisdiction of the CFTC and the SEC overlapped, the two agencies were expected to consult with one another and work out a common policy. Congress was willing to tolerate the possible inefficiencies inherent in overlapping jurisdiction in order to achieve its fundamental purpose the prevention of regulatory gaps in stock and commodity trading. Remarks of Senator Talmadge, 120 Cong. Rec. 34997 (1974).
Congress also considered what effects the creation of the CFTC should have upon the jurisdiction of the courts. The basic Congressional policy was that "jurisdiction conferred on Federal and State courts . . under the laws of the United States or any State are retained." Remarks of Senator Humphrey, 120 Cong.Rec. 35000 (1974); see also, Statement of Senator Talmadge, 120 Cong.Rec. 34997 (1974). With regard to the variety of administrative proceedings which may be brought by the CFTC, Congress intended that:
The vesting in the Commission of the authority to have administrative law judges and apply a broad spectrum of civil and criminal penalties is likewise not intended to interfere with the courts in any way. It is hoped that giving the Commission this authority will somewhat lighten the burden upon the courts, but the entire appeal process and the right of final determination by the courts are expressly preserved. (emphasis added).
Remarks of Senator Talmadge, 120 Cong. Rec. 30459 (1974). This intention found expression in the definitional section of the Act, which provides:
That the Commission shall have exclusive jurisdiction with respect to accounts, agreements (including any transaction which is of the character of, or is commonly known to the trade as an "option" . . ..) Nothing in this section shall supersede or limit the jurisdiction conferred *112 on courts of the United States or any State. (emphasis added).
7 U.S.C. Section 2.
With this brief review of the history of the CFTCA in mind, we turn to the merits of defendants' motions.
II. COUNT I: IMPLIED RIGHT OF ACTION AGAINST INDIVIDUAL DEFENDANTS
Since the passage of the CFTCA, three courts have indicated either expressly or by implication that the amendments to the CEA abolished the implied private right of action against a member of a commodities exchange. See Consolo v. Hornblower & Weeks-Hempill, Noyes, Inc., 436 F. Supp. 447, 454-455 (D.Ohio 1976) (no private right to stay arbitration proceeding and compel litigation in district court); Bartels v. International Commodities Corp., 435 F. Supp. 865, 870 (D.Conn.1977) (no private right to sue on commodity options contract; reparation the primary remedy); Arkoosh v. Dean Witter & Co., Inc., 415 F. Supp. 535, 540 (D.Neb.1976) (statutory claims to be tried before agency and common law claims before courts). On the other hand, at least four courts have stated that a private right of action is still available. Hofmayer v. Dean Witter & Co., 459 F. Supp. 733 (N.D. Cal.1978); Gravois v. Fairchild Arabatzis & Smith, Inc., No. 78-1406 (E.D.La.1978); Berenson v. Madda Trading Company, No. 78-544 (D.D.C.1978); Bache Halsey Stuart, Inc. v. French, 425 F. Supp. 1231, 1234 n.4 (D.D.C.1977) (dictum); Shearson Hayden Stone v. Lumber Merchants, Inc., 423 F. Supp. 559, 561 (S.D.Fla.1976) (doctrine of primary jurisdiction does not mandate that action for damages for alleged violations of the Act be stayed pending reparations proceedings in the CFTC). Such a sharp schism in the relevant case law compels us to examine in some detail the intricacies of this issue.
At the outset, we note that the parties disagree as to the proper analytical approach we should take to the question of whether the prior, well-established cause of action against defendants for violations of the CEA and exchange rules survived the 1974 amendments to the CEA. Defendants urge us to apply the standards announced by the Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975). There, a stockholder brought a private action to compel directors to reimburse the corporation for corporate political expenditures allegedly made in violation of 18 U.S.C. Section 610. The Court of Appeals had implied a private remedy from the statute. The Supreme Court reversed. In its opinion, the Court enumerated four elements which must be considered in deciding whether a private remedy should be implied from a particular statute:
First, is the plaintiff "one of the class for whose especial benefit the statute was enacted" (cite omitted) that is, does the statute create a federal right in favor of the plaintiff?
Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? (cites omitted).
Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? (cites omitted).
And, finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law? (cites omitted).
422 U.S. at 78, 95 S.Ct. at 2088.
Plaintiffs argue that the Cort v. Ash standards apply only when a federal court is determining whether a previously unrecognized cause of action will be implied from a given statutory scheme. They, and the CFTC as amicus curiae, claim that an implied right of action under the CEA must be presumed to have survived amendments to the statute unless Congress explicitly abolished the private remedy in enacting the amendments. We agree with plaintiffs that a recognized cause of action should not be subjected to the Cort v. Ash scrutiny every time such an action is litigated. But where the statutory framework in which *113 the private remedy had its provenance is significantly altered, the continued vitality of the private remedy should be re-examined. Such a reappraisal is particularly appropriate here, where Congress provided aggrieved commodities traders additional remedies in the 1974 amendments. Accordingly, we proceed with the Cort v. Ash test.
A. The Protected Class
Defendants argue that if plaintiffs are speculators, a term which defendants leave undefined, they are not within the class for whose especial benefit the statute was enacted. Defendants direct us to two sections of the Act, 7 U.S.C. Sections 5 and 6a, which, defendants claim, indicate that the class for whose "especial" benefit it was enacted are only the producers and consumers of commodities.[2] Those sections, however, merely reveal a congressional concern for excessive speculation, and the adverse effect it can have on commodity prices; nothing in them indicates that Congress intended to exclude "speculators" from the Act's protection. In fact, in reporting on the 1974 amendments to the CEA, the House Agriculture Committee recognized the important role speculators play in the commodity futures trading market and the need to regulate the market to protect these investors. H.R.Rep. No. 975, 93d Cong., 2d Sess. 35 (1974).
Thus, we conclude that the 1974 amendments to the CEA were designed to protect all investors in commodities, including both hedgers and speculators, from manipulative practices such as those alleged to have been engaged in by defendants.
B. Legislative Intent
The parties offer us diametrically contradictory interpretations of the legislative history of the 1974 amendments to the CEA. On one point, however, there can be no disagreement. The legislative history shows conclusively that in 1974 Congress was aware that a number of federal courts had implied a private right of action under the CEA. See, e. g., Remarks of Rep. Poage, 119 Cong.Rec. 41333 (1973); Hearings on H.R. 11955 Before the House Committee on Agriculture, 93d Cong., 2d Sess. 249, 321; Hearings on S. 2485, S. 2578, S. 2837 and H.R. 13113 Before the Senate Committee on Agriculture and Forestry, 93d Cong., 2d Sess. pt. 3, at 737, 746 (1974). Our review of legislative history must be made with this in mind.
Defendants argue that the defeat of three bills which were introduced in 1973 and which contained provisions for private damage remedies for aggrieved investors[3] reflected a congressional unwillingness to subject floor traders and others to private damage actions. We disagree. The bills to which defendants refer all provided for the recovery of treble damages, a remedy previously unavailable to plaintiffs suing on an implied right of action. The defeat of these bills, therefore, demonstrates nothing more than a congressional decision not to expand recovery under the existing private right.
Defendants also claim that the exclusive jurisdiction provision of the CFTCA, amended Section 2, indicates an intention to abolish the implied right of action. Section *114 2(a)(1) of Chapter 7 vests the Commission with "exclusive jurisdiction" with respect to
[a]ccounts, agreements (including any transaction which is of the character of, or is commonly known to the trade as, an `option' . . .), and transactions involving contracts of sale of a commodity for future delivery . . ..
Since its enactment, courts have interpreted that section as ousting all other federal agencies of authority to act with respect to matters within the Commission's exclusive jurisdiction and preempting state regulation of these matters. See, e. g., Securities and Exchange Commission v. American Commodity Exchange, Inc., 546 F.2d 1361, 1367 (10th Cir. 1976); Securities and Exchange Commission v. Univest, Inc., 405 F. Supp. 1057, 1059 (N.D.Ill.1976), remanded, 556 F.2d 584 (7th Cir. 1977). We agree with the amicus curiae, however, that the legislative history of Section 2(a)(1) refutes defendants' argument that the exclusive jurisdiction provision affected the existence of a private right of action.
As noted above, when Congress enacted the exclusive jurisdiction provision, it recognized that "courts [had] implied a private remedy for individual litigants in the Commodity Exchange Act." Remarks of Rep. Poage, 119 Cong.Rec. 41333 (1973). The Senate Committee on Agriculture and Forestry, however, heard testimony warning that the cumulative effect of the reparation provision and the exclusive jurisdiction provision might have been to inadvertently repeal the previously recognized jurisdiction of the courts to entertain private damage actions. Hearings on S. 2485, S. 2578, S. 2938 and H.R. 13113 Before the Senate Committee on Agriculture and Forestry, 93d Cong., 2d Sess. pt. 1 at 205 (testimony of Senator Dick Clark), pt. 3 at 737 (testimony of Ray A. Schotland, Professor of Law, Georgetown University Law Center) (1974). The Senate Committee therefore inserted into the exclusive jurisdiction section, 2(a)(1), the following proviso: "Nothing in this section shall supersede or limit the jurisdiction conferred on courts of the United States or any State."
Highlighting the word "section," defendants argue that since the reparations proceeding is found in another section of the act, Section 18, congressional disapproval of the implied right of action could still be found, consistent with the language of the Act. We are not persuaded. The Conference Committee adopted the language of the Senate amendment, but explained in its report that the purpose of the amendment was "to make clear that nothing in the Act would supersede or limit the jurisdiction presently conferred on courts of the United States or any State." 120 Cong.Rec. 34997 (October 10, 1974); 120 Cong.Rec. 34737 (October 9, 1974). (emphasis added).
The legislative history of more recent amendments to the CEA supports our position that the 1974 amendments were not intended to deprive plaintiffs of the private right of action courts had implied from the Act. During the floor debates on an amendment which would increase the number of reparation claims that might be disposed of by the Commission without resort to a full adjudicatory hearing, Senator Walter D. Huddleston, sponsor of the bill, noted:
Thus, an aggrieved commodity customer will be able to obtain more expeditious treatment of his claim should the customer elect to pursue a claim in reparations rather than proceed to arbitration or pursue in court the private right of action which has been judicially implied for violations of certain provisions of the Commodity Exchange Act, or which in the future courts may recognize for other provisions of the Act.
124 Cong.Rec. S. 10537 (July 12, 1978). Senator Huddleston also criticized a federal district court's opinion, on which defendants rely, which took the "unfortunate position that Congress intended reparations to be the exclusive forum for adjudicating commodity customer claims." Id.
In light of the foregoing excerpts from the relevant legislative history, we think that Congress intended the reparations proceeding provided for in the CFTCA as a supplement to, rather than a substitute for, the existing private right of action.
*115 C. Consistency with the Statutory Scheme
We believe that the continued existence of a private right of action for aggrieved investors is perfectly compatible with the language and purpose of the CFTCA. Affording injured commodities futures buyers a multiplicity of remedies against futures traders will deter the sort of manipulative pricing practices alleged to have been committed by defendants. As shown above, Congress intended the reparations proceedings in the CFTC to constitute an alternative to the more time-consuming, cumbersome, expensive and formal adjudication of private claims in federal or state courts. The availability of a variety of remedies thus harmonizes well with the Congressional intent to protect the public from fraud and price manipulation.
Recent administrative interpretations of the CFTCA also demonstrate the compatibility of a private right of action with the purposes of the Act. The CFTC has consistently interpreted the reparations section as permitting commodity customers an election of forums in which to pursue their claims. See 41 Fed.Reg. 3994 (1976); 41 Fed.Reg. 18472 at n.5 (1976); Stucki v. American Options Corp., CCH Comm.Fut.L. Rep. ¶ 20,559 at 22,283 (CFTC 1978). The CFTC will not even entertain a reparation claim if civil court litigation involving the same facts and parties has been instituted. 17 C.F.R. § 12.21(a)(7) (1977). We recognize that ". . . the consistent construction of a statute `by the agency charged with its enforcement is entitled to great deference by the courts.'" United States v. Consumer Life Insurance Co., 430 U.S. 725, 752, 97 S. Ct. 1440, 1454, 52 L. Ed. 2d 4 (1977), quoting from NLRB v. Boeing Co., 412 U.S. 67, 75, 93 S. Ct. 1952, 36 L. Ed. 2d 752 (1973); see also, Chemehuevi Tribe of Indians v. Federal Power Commission, 420 U.S. 395, 409-10, 95 S. Ct. 1066, 43 L. Ed. 2d 279 (1975). Accordingly, we find that this third Cort v. Ash factor also weighs in favor of implying a private right of action.
D. State Cause of Action
As defendants point out, plaintiffs may have an action against defendants sounding in tort or breach of fiduciary duty, which plaintiffs could prosecute in state court. See Barker v. Commodity Management Systems, Inc., CCH Comm.Fut.L.Rep. ¶ 20,432 (CFTC 1977). But it cannot be said that a cause of action against floor traders for "bucketing" their customers' orders is one "traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law." Cort v. Ash, 422 U.S. 66, 78, 95 S. Ct. 2080, 2088, 45 L. Ed. 2d 26 (1975). The practices of traders on the floor of a commodity market are primarily of federal concern. Federal, not state regulation, is the hallmark of trading in commodities futures, and has been since the predecessor of the Commodity Exchange Act was first enacted in 1922. Furthermore, the legislative history of the 1974 amendments to the CEA reveals a congressional desire not to relegate aggrieved investors to state remedies, but to provide a "federal regulatory umbrella" over trading in commodities futures, complete with federal remedies. Thus, notwithstanding the possible availability of a common law remedy to redress plaintiffs' injuries, this fourth factor still tips in favor of implying a federal cause of action.
For the reasons outlined above, we deny defendants' motion to dismiss Count I of the complaint. An implied private right of action against the individual defendants survived the 1974 legislative overhauling of the CEA.
III. COUNT II: CLAIMS UNDER THE SHERMAN ACT
The individual defendants move to dismiss Count II of the complaint on the ground that the remedies under the Sherman Act are inconsistent with those under the CEA. Defendants rely on Schaefer v. First National Bank of Lincolnwood, 326 F. Supp. 1186, 1190-92 (N.D.Ill.1970), aff'd, 509 F.2d 1287, 1300 (7th Cir. 1975), cert. denied, 425 U.S. 943, 96 S. Ct. 1682, 48 *116 L.Ed.2d 186 (1976). In Schaefer, plaintiffs sued defendants for manipulating the price of stock which plaintiffs had purchased. Plaintiffs' complaint alleged common law fraud, violations of Section 1 of the Sherman Act, Sections 1, 4, 5, 12 and 16 of the Clayton Act, and various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The district court, per Judge Decker, dismissed the antitrust claims. The court reasoned that where the law provides a special statutory remedy for specific conduct, as well as a general provision which is comprehensive enough to include that specific conduct and a wide variety of other conduct, the general remedy is inapplicable. Thus, plaintiff could rely only on the specific remedy implied from the securities law. 326 F. Supp. 1190. Judge Decker added that
a number of inconsistencies would result if plaintiffs were permitted to pursue both a Sherman Act and Securities Act cause of action. Beyond the differences in recoverable damages just referred to, there are significant differences in the governing statutes of limitation . . . and in the provisions for attorney's fees . . ..
Id. at 1192. In affirming Judge Decker's decision, the Court of Appeals for the Seventh Circuit approved his rationale for dismissing the antitrust claims. 509 F.2d 1287, 1299-1300 (1975).
Schaefer was recently followed in the case of In re Transocean Tender Offer Securities Litigation, 427 F. Supp. 1208 (N.D. Ill.1977). There, plaintiffs filed a class action complaint alleging that defendants violated both the securities and antitrust laws in making a tender offer for the shares of one of the corporate defendants. The court dismissed the antitrust portions of plaintiffs' complaint because plaintiffs had not alleged that defendants' method of acquiring the stock had lessened competition in some line of commerce. 427 F.Supp. at 1210. The court added, however:
[T]o the extent that plaintiffs seek relief because of alleged actions such as market manipulation or coercion, their claims must be pursued under the securities law. See Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287, 1299-1300 (7th Cir. 1975), cert. denied, 425 U.S. 943, 96 S. Ct. 1682, 48 L. Ed. 2d 186 (1976). When, as here, the securities laws protect plaintiffs against the acts complained of and when, as here, plaintiffs have elected to pursue said claims under these laws, the antitrust claims are superfluous at best.
Id. at 1300.
We find the Schaefer reasoning applicable to this case. Plaintiffs alleged that defendants bucketed orders for soybean futures, in violation of the CEA, and the rules of the CBOT and CFTC regulations. Since plaintiffs have a private right of action under the CEA, their antitrust claims, like those of plaintiffs in Schaefer, are "superfluous." The specific statutory prohibitions contained in the CEA, as amended, must prevail over the general prohibitions of the Sherman Act. See also, Bucher v. Shumway, 452 F. Supp. 1288, 1291-92 (S.D.N.Y. 1978).
Furthermore, the remedies plaintiffs are here pursuing are somewhat inconsistent, as they were in Schaefer. Under the CEA, plaintiffs may recover only single damages; the Sherman Act provides for recovery of treble damages. Also, the statute of limitations for plaintiffs' CEA claims are shorter than that provided by the Sherman Act. (See Part IVC, infra). Given these apparent inconsistencies, plaintiffs must pursue their more specialized remedy.
Plaintiffs mischaracterize the issue as whether the 1974 amendments to the CEA impliedly repealed the antitrust laws. We agree with plaintiffs that the drafters of the CFTCA intended to leave the antitrust laws intact. One provision in the Act, for instance, directs the CFTC to "take the least anticompetitive means of achieving the objectives of this chapter" in formulating regulations and orders. 7 U.S.C. Section 19. But the question we face is merely whether plaintiffs may pursue different remedies, one which is aimed at the precise conduct alleged to have been committed by *117 defendants, and the other which is aimed at a universe of conduct, of which defendants' alleged acts constitute just a small set. The Schaefer decision compels us to answer this question in the negative.
The Silver case, on which plaintiffs rely, is inapplicable here. In Silver v. New York Stock Exchange, 373 U.S. 341, 83 S. Ct. 1246, 10 L. Ed. 2d 389 (1963), the Supreme Court held that exchanges are not absolutely immune from liability under the antitrust laws. There, plaintiffs brought suit against the exchange under the Sherman Act and the common law of tort. Defendant claimed that its acts were in furtherance of its statutory duty of self-regulation, and that it was therefore immune from the antitrust laws. The Supreme Court held that the Securities Exchange Act did not impliedly repeal the antitrust laws with regard to the exchange. The Silver case is inapposite because there plaintiffs were not simultaneously pursuing an antitrust action and an action under the securities laws. Had the Silver plaintiffs had a cause of action against the Exchange under, say the Securities Exchange Act, then the Schaefer rationale might have come into play. Since they did not, the only question before the Court was whether defendant's conduct was immunized by the securities laws. Here, that question is absent from the case.
The motion to dismiss Count II will be granted.
IV. COUNT III: IMPLIED RIGHT OF ACTION AGAINST THE BOARD
The Chicago Board of Trade moves to dismiss Count III, the only Count asserted against it, on a number of grounds. We will discuss each ground separately.
A. Implied Private Right Against the Board
The CBOT, like the individual defendants, claims that the implied private right of action which was previously recognized did not survive the 1974 amendments to the CEA. The CBOT's argument is somewhat different from that of the individual defendants, however. Basically, the Board contends that by consciously excluding contract markets from liability under both the reparations provision of the CFTCA, 7 U.S.C. Section 18, and more recently from the section of the amended Act which allows parens patriae actions by state attorneys general, Act of Sept. 30, 1978, 92 Stat. 872 (7 U.S.C. Section 13a-2), Congress demonstrated an intent to insulate them from private damage actions altogether. In terms of the Cort v. Ash elements, the preferential treatment of contract markets under the 1974 and 1978 amendments to the CEA, the Board argues, tips the balance against continuing to imply a private right of action against it.
We disagree. The relevant legislative history, as already pointed out, shows conclusively that Congress was aware in 1974 and 1978 that courts had recognized private rights of action against contract markets and individual floor traders. To be sure, Congress did insulate contract markets from parens patriae suits and from the administrative remedy provided by reparations proceedings; but when it had the opportunity, Congress elected not to overrule the judicially created right of action against exchanges like the Board. We fail to see how an apparent congressional unwillingness to extend the liability of contract markets suggests an intention to abolish such liability altogether. Congress painstakingly immunized contract markets from some damage actions. Had it intended to eliminate private actions against exchanges entirely, it could have done so. Thus, legislative history simply does not support the position of the CBOT.
As the CBOT correctly points out, the House Committee on Agriculture voiced its concern
that attorneys to several boards of trade have been advising the boards to reduce not expand exchange regulations designed to insure fair trading, since there is a growing body of opinion that failure to enforce exchange rules is a violation of the Act which will support suits by private litigants.
*118 H.R. Rep. No. 975, 93d Cong., 2d Sess. 46 (1974). But the solution Congress opted for was not to eliminate private rights of action against exchanges. Rather, it was to provide a federal "regulatory umbrella," in the form of the CFTC, to insure that exchanges adequately performed their policing function. As Senator Talmadge, Chairman of the Senate Committee on Agriculture and Forestry, explained his Committee's bill to the Senate, "[t]he Commission is given the tools to require that the exchanges perform their regulatory functions better." 120 Cong.Rec. 30462 (1974). Thus, a private right of action against a contract market for failing to enforce rules which it knows, or reasonably should know, are being violated by floor traders, is perfectly compatible with the principal purpose of the Act, the strengthening of protections afforded the public.
B. Private Damage Suits and the Public Interest Embodied in the CEA
Defendant CBOT next argues that, since it and the CFTC share the responsibility for enforcing the CEA, it should enjoy the same immunity from private damage actions as the CFTC. The CBOT claims that the 1974 amendments to the CEA converted the Board into a "quasi-public" institution which is, "in respect to its self-regulatory activities . . . indistinguishable from the CFTC itself." (Memorandum of CBOT, at 55). To perform its "quasi-public" responsibilities, the Board contends, it must be immunized from private actions for damages.
In support of its argument, the Board cites a number of decisions containing dicta to the effect that private damage actions against individuals who are part of a self-regulatory scheme may chill self-regulatory efforts.[4] As a practical matter, however, this chilling effect is likely to occur only where the self-regulating entity, here the contract market, retains the power to lower the standards required of those regulated, here the floor traders, to a level which can be more easily enforced. By vesting in the CFTC the power to review, approve and unilaterally amend exchange rules, see 7 U.S.C. Sections 7a(12), 12a(7), the 1974 amendments to the CEA effectively withdraw that power from the Board. Thus, the Board cannot, with impunity, escape its obligations under the amended CEA. If the Board attempts to suspend or even pursue less zealously its enforcement efforts, it might subject itself to a private damage action by injured investors, as well as substantial civil penalties and cease-and-desist orders enforceable by criminal sanctions. 7 U.S.C. Section 13a. If, on the other hand, the Board decides to relax its rules, and thereby institute a more comfortable enforcement regime, the CFTC can overturn this decision and amend the rules. 7 U.S.C. Section 12a(7). Viewed in this light, private damage actions against the Board are merely a supplementary means of compelling Board adherence to, and enforcement of the CEA.
We agree with amicus curiae that "the purposes of the Act are effectuated if a private right of action against an exchange is held to be available at least for the kind of conduct that is alleged in the complaint at bar." The complaint, it must be remembered, charges, inter alia, that the CBOT "knew, or should have known of (bucketing) by its members" and "failed and neglected to report and, in fact, concealed violations of the Commodity Act, the Rules and Regulations of the CFTC and its own By-Laws, Rules and Regulations by the defendant floor brokers and other members." (Complaint, pars. 35, 37). Our decision that a private right of action against the CBOT exists for the conduct complained of here, therefore, in no way vitiates the previously recognized immunity which the Board enjoys when it in good faith exercises the discretion accorded it by the CEA. See, e. g., Lagorio v. Board of Trade of City of Chicago, 529 F.2d 1290, 1292 (7th Cir. 1976).
*119 The remainder of the Board's public policy argument that it cannot both defend private actions and police floor traders, that it cannot conduct investigations when it fears that its findings may be used against it, that it cannot review its enforcement procedures without fear that its self-criticism will later haunt it in private damage actions is equally untenable. Self-regulation of commodities markets and private actions against exchanges for not performing their self-regulatory function simply are not inconsistent enforcement devices. Thus, the Board's public policy argument must fail.
C. Statute of Limitations
Defendant CBOT next contends that some of plaintiffs' claims are time-barred. To determine the appropriate limitations period for a cause of action which has been implied into a federal statute, we must consult analogous state law. UAW v. Hoosier-Cardinal Corp., 383 U.S. 696, 86 S. Ct. 1107, 16 L. Ed. 2d 192 (1965). The Board argues that private actions for damages based upon an alleged failure to fulfill duties under a regulatory statute are "penal" in character, and are governed by the Illinois two year statute of limitations. Ill.Rev. Stat. ch. 83, Section 15.[5] Plaintiffs contend that the five year statute of limitations for civil actions "not otherwise provided for" should apply. See Ill.Rev.Stat. ch. 83, Section 16.[6] The Illinois Securities Law offers a third possibility, a three year limitations period. Ill.Rev.Stat. ch. 121½, Section 137.13.[7] Each of these possible limitations periods must be examined more closely.
Illinois courts have applied the five year limitations provision favored by plaintiffs to civil actions for negligence and fraud. See, e. g., Thompson v. Howard, 32 Ill. App. 3d 991, 337 N.E.2d 94, 99 (3d Dist. 1975); Coumoulas v. Service Gas, Inc., 10 Ill.App.3d 273, 293 N.E.2d 187 (2d Dist. 1973). In this case, the conduct with which defendants are charged does bear some resemblance to the common law torts of negligence and deceit or fraud. But this action is really a product of the statute, the CEA. The entire regulatory apparatus which defendants are alleged to have frustrated was created by the statute, and it was from the statute that courts originally implied the right of action which plaintiffs are now pursuing.
Where civil liability has resulted from the violation of a regulatory statute, Illinois courts have held that the liability is penal in nature. Vestal Co. v. Robertson, 277 Ill. 425, 115 N.E. 629 (1917); Gridley v. Barnes, 103 Ill. 211 (1882). Actions grounded upon those statutes, therefore, are subject to the two year limitations provision which governs suits for a "statutory penalty," even though plaintiffs might have availed themselves of a longer limitations period had they sued at common law. Id. In Daly v. Columbia Broadcasting System, Inc., 309 F.2d 83 (7th Cir. 1962), the Seventh Circuit relied on the Vestal and Gridley cases in applying the two year statute of limitations to an action brought under the Federal Communications Act.
More recently, in Parrent v. Midwest Rug Mills, 455 F.2d 123 (7th Cir. 1972), the Seventh Circuit applied the three year limitations period in the Illinois Securities Law to private actions brought under Section 10(b) of the Securities Exchange Act and Rule *120 10b-5. Focusing on the textual similarities of the federal and state securities laws, and especially their anti-fraud provisions, the court held that the three year limitations provision "best effectuated" the federal policy of protecting "the uninformed, the ignorant, the gullible." Id., at 126. The court did not refer to the two year statute it had found applicable to another action implied from a federal regulatory statute in Daly.
Because the Illinois Securities Law now regulates trading in commodities futures, see Ill.Rev.Stat. ch. 121½, Section 137.2-1, we adopt the three year statute of limitations period here. We realize that our decision will give defrauded investors one year longer in which to bring their private actions than they have under the amended CEA to initiate reparations proceedings.[8] But the textual similarities of the two Acts, compare, e. g., 7 U.S.C. Section 60 with Ill.Rev.Stat. ch. 121½, Section 137.12, and their similar purposes, leads us to believe that the three year limitation period "best effectuates" the policies underlying the CEA.
Having decided this preliminary matter, we turn again to the motion to dismiss. The complaint alleges misconduct by the individual defendants "from on or about January 1, 1969, up to and including the present date." (Complaint, pars. 24, 29). The complaint also charges that "notwithstanding warnings by CFTC personnel (in 1976 and 1977), the manipulative practices of the defendant floor brokers and other floor brokers was (sic) so widespread as to constitute a situation where the CBT either knew or should have known of said illegal conduct by its members." (Par. 35). Since wrongful acts are alleged to have been committed by defendants within the three years preceding the filing of this suit, at least some of the plaintiffs' claims are still live, and the motion to dismiss must be denied.
Furthermore, the complaint contains allegations which, if proved, would entitle plaintiffs to an equitable tolling of the statute of limitations. In paragraph 37, plaintiffs claim that defendants concealed from them violations of the Commodity Act, the Rules and Regulations of the CFTC, and the Board's own By-Laws. The tolling principle could save plaintiffs' claims against the CBOT as well as those against the individual defendants, for as the Seventh Circuit has said, "[t]he federal tolling doctrine operates both against those who commit the alleged fraudulent acts and those who negligently facilitate fraud." Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287, 1296 (7th Cir. 1975); Tomera v. Galt, 511 F.2d 504 (7th Cir. 1975).
In Tomera, supra, as in this case, the complaint alleged facts which, if proved, would trigger an equitable tolling. In reversing the district court's dismissal of the complaint, the court noted, "[l]imitations issues ordinarily require factual determinations and are best left to trial." 511 F.2d at 510, 511. Heeding this advice, we will not now decide which of plaintiffs' claims might be time-barred.
D. The Board of Trade's Duty to Enforce Its Rules After April 21, 1975
Defendant CBOT asserts that it was under no duty to enforce its rules after April 21, 1975, because the CFTC did not affirmatively approve those rules, as required by the CFTCA. 7 U.S.C. Section 7a(8). That section requires each contract market to:
(8) enforce all bylaws, rules, regulations, and resolutions, made or issued by it or by the governing board thereof or any committee, which relate to terms and conditions in contracts of sale to be executed on or subject to the rules of such contract market or relate to other trading requirements, and which have been approved by the Commission pursuant to paragraph (12) of this section . . ..
This section, which took effect on April 21, 1975, replaced an earlier requirement that contract markets enforce all their rules which had not been disapproved by the Secretary of Agriculture. Under the CFTCA, the CFTC had a duty to review and affirmatively *121 approve each contract market rule by the effective date of the amendments. 7 U.S.C. Section 7a(12). Congress later granted the CFTC an additional 90 days, until July 18, 1975, in which to review and approve the exchanges' pre-existing rules. On July 17, the CFTC adopted Regulation Section 1.53 (17 C.F.R. Section 1.53), which provided
Each contract market shall enforce each bylaw, rule, regulation, and resolution, made or issued by it or by the governing board thereof or any committee, which is in effect as of July 18, 1975, and which relates to terms and conditions in contracts of sale to be executed on or subject to the rules of such contract market or relate to other trading requirements, unless such bylaw, rule, regulation or resolution has been disapproved by the Commission pursuant to section 5a(12) of the Act, or the amendment or revocation of such bylaw, rule, regulation or resolution has been approved by the Commission pursuant to section 5a(12) of the Act.
The CBOT contends that Regulation Section 1.53 is invalid first, because in formulating and promulgating it, the CFTC did not follow the relevant rule-making provisions of the Administrative Procedure Act, see 5 U.S.C. Section 553; and second, because the CFTC lacked statutory authority to abolish by rule or regulation the requirement that it affirmatively approve contract market rules.
We need not reach the merits of these contentions now. Even if Regulation Section 1.53 is invalid, the CFTCA obligated the CBOT, as a contract market, to "provide for the prevention of manipulation of prices . . .." 7 U.S.C. Section 7(d). If the Board negligently failed to carry out its duties under Section 7(d), it may be liable to plaintiffs completely apart from any potential liability under 7a(8).
Relying on the case of Cargill, Inc. v. Hardin, 452 F.2d 1154 (8th Cir. 1971), cert. denied, 406 U.S. 932, 92 S. Ct. 1770, 32 L. Ed. 2d 135 (1972), the CBOT contends that "This is not a `manipulation' case." (Reply Memorandum of Board, at 2). Defendant's disingenuous interpretation of Cargill, however, cannot survive even the most superficial reading of that case. In Cargill, the court outlined the elements of a manipulation case where the Government alleged that defendant had employed a device known as a "little corner" or a "squeeze." The court in Cargill did not, as the Board claims, purport to enumerate the elements of every manipulation case, regardless of the precise theory of price manipulation relied on by a particular plaintiff. As the Cargill court itself noted
We think the test of manipulation must largely be a practical one if the purposes of the Commodity Exchange Act are to be accomplished. The methods and techniques of manipulation are limited only by the ingenuity of man. The aim must be therefore to discover whether conduct has been intentionally engaged in which has resulted in a price which does not reflect basic forces of supply and demand.
452 F.2d at 1163. (emphasis added)
The practice of "bucketing" customers' orders can be just as manipulative of futures prices as the "squeeze." If, as plaintiffs claim, defendants executed certain futures transactions by pre-arrangement among themselves rather than by open outcry in the trading pit, their conduct "manipulated" the price at which plaintiffs traded and also affected the current quoted price for soybean futures in the pit. The CBOT's bald assertion that "this is not a manipulation case" cannot withstand recognition of this simply economic fact by creating their own market for trading in soybean futures, defendants insulated plaintiffs' transactions from competitive forces and thereby manipulated the price at which soybean futures were traded.
The motion to dismiss Count III will be denied.
V. PRIMARY JURISDICTION IN THE CFTC
Defendants argue that this case should be referred to the CFTC for adjudication of the alleged rule violations there. *122 We find no reason to apply the doctrine of primary jurisdiction. Since plaintiffs' antitrust claims have been dismissed, this is not a case where we need to draw on the particular expertise of the CFTC in accommodating the regulatory scheme of the CEA to the antitrust laws, as the CFTC is bound to do in issuing orders and approving regulations. 7 U.S.C. Section 19. See Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93 S. Ct. 573, 34 L. Ed. 2d 525 (1973); Chicago Mercantile Exchange v. Deaktor, 414 U.S. 113, 94 S. Ct. 466, 38 L. Ed. 2d 344 (1973). Nor is this a case where resolution of the issue requires the particular administrative expertise of the Commission. See Lagorio v. Board of Trade of City of Chicago, 529 F.2d 1290 (7th Cir.), cert. denied, 426 U.S. 950, 96 S. Ct. 3171, 49 L. Ed. 2d 1187 (1976). The issues in this case whether defendants bucketed orders in violation of the rules of the Board, and whether the Board failed to enforce its own rules are within the factfinding competence of this court. When confronted with similar questions of fact, other courts have also declined to defer to the CFTC. See, e. g., Berenson v. Madda Trading Co., No. 78-544 (D.D.C.1978); Shearson Hayden Stone, Inc. v. Lumber Merchants, Inc., 423 F. Supp. 559 (S.D.Fla. 1976).
As the Commission itself has pointed out, "private litigation seeking damages for alleged violation of provisions of the Act will rarely, if ever, involve issues appropriate for review by the Commission under the doctrine of primary jurisdiction." 41 Fed. Reg. at 18472. And, as the Commission noted in its amicus brief to this court, "[t]he judicial resolution of a private action involving concepts of manipulation, prearranged trading, and failure to enforce rules, `requires only the application of specific statutory standards to the particular conduct alleged.'" (Amicus Curiae Brief, at 31). Thus, we decline to refer this action to the Commission.
VI. CONCLUSION
Defendants' motions to dismiss Counts I and III of the complaint are denied. The motions to dismiss Count II are granted.
SUPPLEMENTAL OPINION
Defendants move to modify Part IV C of our Memorandum Opinion dated February 2, 1979, on the grounds that the Illinois Securities Law does not regulate trading in commodities futures, and is therefore not the most analogous state law for purposes of the applicable statute of limitations. As defendants point out, our earlier reading of the definition of "security" in the amended Illinois act was too broad. "Security" as defined in the state statute includes
any . . . option, put, call, privilege, indemnity or any other right to purchase or sell a contract for the future delivery of any commodity offered or sold to the public and not on a registered contract market . . ..
Ill.Rev.Stat. ch. 121½, Section 137.2-1. Thus, the Illinois law covers transactions in rights to purchase commodity futures, but not the underlying futures themselves. Furthermore, as defendants point out, and as noted in our opinion, at pp. 113-114, the Act would be preempted by the CFTCA to the extent that it attempted to regulate matters within the exclusive jurisdiction of the CFTC. The CFTC vests in the Commission exclusive jurisdiction with respect to
accounts, agreements (including any transaction which is of the character of, or is commonly known to the trade as, an "option," "privilege," "indemnity," "bid," "offer," "put," "call," "advance guaranty," or "decline guaranty"), and transactions involving contracts of sale of a commodity for future delivery . . ..
7 U.S.C. Section 2.
We believe the Illinois Securities Law is still the most analogous state law, even though it does not cover transactions in commodities futures on contract markets. Commodities futures and commodities options are obviously distinct investment opportunities. But our search is only for the most analogous state law. The acts alleged to have been committed by defendants depend for their significance not on the thing *123 traded, but on their fraudulent nature. That these defendants are alleged to have defrauded investors and manipulated prices through their illegal conduct on the floor of an exchange makes this action more closely resemble one brought under the Illinois Securities Law than an action for a statutory penalty. Defendants allegedly violated not just a regulatory statute, but a regulatory statute designed to protect investors. Thus, the federal purpose is best served by adopting the limitations period of the Illinois Securities Law.
NOTES
[1] The CFTC has filed an amicus curiae brief.
[2] Those sections provide, in relevant part:
[T]he transactions and prices of commodity (sic) on such boards of trade are susceptible to speculation, manipulation, and control, and sudden or unreasonable fluctuations in the prices thereof frequently occur as a result of such speculation, manipulation, or control, which are detrimental to the producer or the consumer and the persons handling commodity (sic) and products and byproducts thereof in interstate commerce, and such fluctuations in prices are an obstruction to and a burden upon interstate commerce in commodity (sic) and the products and byproducts thereof and render regulation imperative for the protection of such commerce and national public interest therein. 7 U.S.C. Section 5.
(1) Excessive speculation in any commodity under contracts of sale of such commodity for future delivery made on or subject to the rules of contract markets causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity. 7 U.S.C. Section 6a.
[3] H.R. 11195, 93d Cong., 1st Sess. Section 17(3) (1973); S. 2837, 93d Cong., 1st Sess. Section 505 (1973); S. 2578, 93d Cong., 1st Sess. Section 20(3) (1973).
[4] See, e. g., Utah State University v. Bear, Stearns & Co., 549 F.2d 164 (10th Cir. 1977); Nelson v. Hench, 428 F. Supp. 411 (D.Minn. 1977); Landy v. Federal Deposit Insurance Corp., 486 F.2d 139 (3d Cir. 1973); Lange v. H. Hentz & Co., 418 F. Supp. 1376 (N.D.Tex.1976).
[5] Section 15 of Chapter 83 provides:
Actions for damages for an injury to the person, or for false imprisonment, or malicious prosecution, or for a statutory penalty, or for abduction, or for seduction, or for criminal conversation, shall be commenced within two years next after the cause of action accrued.
[6] Ill.Rev.Stat. ch. 83, Section 16 provides:
[A]ctions on unwritten contracts, expressed or implied, or on awards of arbitration, or to recover damages for an injury done to property, real or personal, or to recover the possession of personal property or damages for the detention or conversion thereof, and all civil actions not otherwise provided for, shall be commenced within 5 years next after the cause of action accrued.
[7] Ill.Rev.Stat. ch. 121½, Section 137.13, provides in relevant part:
D. No action shall be brought for relief under this Section or upon or because of any of the matters for which relief is granted by this Section after three years from the date of sale.
[8] 7 U.S.C. Section 18(a).
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612 F.Supp. 1139 (1985)
Ruth I. GANT, Plaintiff,
v.
ALIQUIPPA BOROUGH and Daniel LaRue, Defendants.
Civ. A. No. 84-1675.
United States District Court, W.D. Pennsylvania.
July 10, 1985.
*1140 *1141 Scott L. Melton, Conte & Courtney, Conway, Pa., for plaintiff.
George M. Evan, Tighe, Evan & Ehrman, Pittsburgh, Pa., for defendant LaRue.
Dougherty, Larrimer & Lee, Jr., Peter Molinaro, Jr., Pittsburgh, Pa., for defendant Aliquippa Borough.
OPINION
GERALD J. WEBER, District Judge.
Plaintiff is a black woman, age 53, who has filed a civil rights complaint against the Borough of Aliquippa and a police officer, Daniel LaRue, employed by it. The complaint alleges that she was arrested by defendant LaRue without justification or probable cause, was severely beaten by him, manacled, taken by Borough police officers to the police station, detained, questioned, and denied necessary medical care while confined. She was later released. She alleges that as a result of this treatment she had to undergo hospitalization for 25 days.
She alleges violations of 42 U.S.C. § 1983 and § 1985 by both defendants.
Both defendants have moved for judgment on the pleadings and for summary judgment on all counts of the complaint. Plaintiff has moved for leave to amend the complaint to supply some of the details whose absence are the grounds of defendants' motions for judgment on the pleadings. Defendants oppose the motion to amend on the grounds of lateness, further delay, the necessity of further discovery, and the like. Any delay in this case is as much the fault of defendants as of plaintiff; the court can see no possible surprise to defendants or need of further discovery because the matters added by amendment were disclosed during the discovery period and are equally known and available to defendants as to plaintiff. At any rate we would not dismiss this complaint on the pleadings without an allowance to plaintiff to amend. The Federal Rules of Civil Procedure provide that leave to amend be liberally allowed; we see nothing particularly liberal in our allowance.
[W]here the entire record reveals facts susceptible of inferences that would justify an amendment of the pleadings and save the action, a motion for summary judgment should not be granted, but the party against whom the motion is directed should be afforded an opportunity to amend his faulty pleadings.
Castner v. First National Bank, 278 F.2d 376, 384 (9th Cir.1960). The amended complaint sets forth in considerable narrative detail the material generally covered in brief summary form in the complaint.
Considerable discovery has been employed here. The defendants' motions and plaintiff's response are documented in detail, and all are extensively briefed.
THE MOTION OF DEFENDANT LaRUE
(a) The 1983 claim:
LaRue argues that while plaintiff has properly alleged that he was acting under color of state law and that she was deprived of the rights, privileges and immunities secured her by the constitution, nevertheless she was not deprived of these without due process of law because adequate state remedies are available to her by civil actions for assault, battery, false arrest and false imprisonment against Officer LaRue. This is an extreme extension of the *1142 rule of Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1980). That case involved the procedural due process claim of a prisoner whose model building kit was lost in the prison post office. The Court held that not all deprivations of rights to liberty and property are so egregious as to amount to constitutional deprivations and held that the proper inquiry was whether proper post-deprivation due process was available. It found that it was in a simple and readily available state remedy for recompense for the loss of property.
But plaintiff here is not alleging a due process claim. She alleges a claim for a direct and intentional invasion of her substantive right to the constitutional guarantees, the right to be free from violence and injury by the state's own agents. As such she has a right of action against the officer under Section 1983. This complaint does not allege a simple tort action against a state officer, but a deliberate and intentional invasion of a substantive constitutional right. Whether or not that allegation can be sustained requires the production of evidence of all the surrounding circumstances.
(b) The 1985(3) claim:
Defendant LaRue argues that the conspiracy claim against him must fail because plaintiff has failed to come forth with any evidence showing a prior agreement between LaRue and other police officers or representatives of the Borough. Nevertheless she has pleaded that she was arrested by LaRue, put into the custody of other police officers, and detained and interrogated by them. Conspiracy can rarely be proven by direct evidence of agreement; rather it largely depends on the circumstances and this is a matter of fact which must be determined by trial. Adickes v. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). This cannot be determined by summary judgment. We will discuss the conspiracy claim further with respect to the defendant Borough's parallel motion.
THE MOTION OF DEFENDANT BOROUGH
(a) The 1985(3) claim:
We recognize that an employer may not be subject to a conspiracy claim by the doctrine of respondeat superior. Neither may the employer be held to conspire with one of its own employees acting in his official capacity. See, Keddie v. Penn State Univ., 412 F.Supp. 1264 (M.D.Pa. 1976). This is a situation where it takes more than two to tango. Nevertheless, in Novotny v. Great American Federal Savings & Loan Association, 584 F.2d 1235 (3d Cir.1978) it was held that two agents of one corporation acting within the scope of their employment could be held liable for conspiracy under Section 1985(3). The plaintiff has recited acts by LaRue and other police officers, either in concert or in tandem, violative of her constitutional rights. This appears to open the door to the inclusion of the Borough in the conspiracy charge. See Brown v. Fairleigh Dickenson Univ., 560 F.Supp. 391, 405-6 (fn. 5) (D.N.J.1983).
The Borough is a "person" subject to Section 1983 claims; it may be assumed that it is a "person" subject to Section 1985(3) claims. See Thompson v. State of New York, 487 F.Supp. 212, 228 (N.D.N.Y.1979). Because plaintiff has pleaded a series of acts by members of the Borough police department, all directed against black persons, with evidence of racial animus, within a period of a few months, known to superior officers of the Borough and the subject of comment and inquiry at meetings of the Borough council, the plaintiff may be allowed to produce proof of circumstances sufficient to establish a tacit agreement or an official policy of acquiescence by the Borough. Leonard v. Argento, 699 F.2d 874 (7th Cir.1983); Turpin v. Mailet, 619 F.2d 196 (2d Cir. 1980); Herrera v. Valentine, 653 F.2d 1220 (8th Cir.1981). This is not susceptible of summary judgment.
*1143 (b) The 1983 claim.
Defendant Borough relies on the landmark opinion in Monell v. Department of Social Services, 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978), which holds that a local government unit may not be held liable in a federal civil rights claim under a theory of respondeat superior or vicarious liability. Monell held that liability attaches when the unconstitutional violation is the result of some Borough policy that implement or execute a policy statement, ordinance, regulation or decision officially adopted or promulgated by those whose edicts or acts may fairly be said to represent official policy.
In support of its contention, defendant Borough has produced a series of identical affidavits, and deposition testimony, from the Mayor, the Chief of Police, members of Council, and other employees, that they knew of no ordinances, laws, regulations and policies adopted by the Borough which serve to deny constitutional rights to blacks. But Monell is not so limited. "[L]ocal governments, like every other 1983 `person', by the very terms of the statute, may be sued for constitutional deprivations visited pursuant to governmental `custom' even though such custom has not received formal approval through the body's official decision making channels. Aa Mr. Justice Harlan, writing for the Court, said in Adickes v. S.H. jKress & Co., 398 U.S. 144, 167-168, 90 S.Ct. 1598, 1613-1614, 26 L.Ed.2d 142 (1970): `Congress included customs and usages [in § 1983] because of the persistent and widespread discriminatory practices of state officials.... Although not authorized by written law, such practices of state officials could well be so permanent and well settled as to constitute a `custom or usage' with the force of law.'" pp. 690-691.
Plaintiff has pleaded a series of racially related acts of alleged constitutional violations within a short time period around the time of the present incident, knowledge of these by the governing body and inquiry into the same, and the failure of the governing body to implement its well intentioned resolution by any affirmative corrective action. Plaintiff specifically pleads the lack of specialized training for its police officers to meet the particular problems that it was aware existed. These are all matters of fact which preclude summary judgment. They must be fully developed and answered at trial.
An appropriate order will be entered.
ORDER
NOW, this 10th day of July, 1985, in accordance with the foregoing Opinion it is ORDERED that:
(1) Plaintiff's Motion for leave to Amend the Complaint is GRANTED;
(2) The motions of both Defendants for judgment on the pleadings and for summary judgment are DENIED;
(3) Counsel shall appear before the Court for a Pretrial Conference on Thursday, August 29, 1985, at 4 p.m.
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707 F.Supp. 840 (1989)
UNITED STATES of America, Plaintiff,
v.
CARILION HEALTH SYSTEM and Community Hospital of Roanoke Valley, Defendants.
Civ. A. No. 88-0249-R.
United States District Court, W.D. Virginia, Roanoke Division.
February 13, 1989.
*841 Anthony E. Harris, U.S. Dept. of Justice, Washington, D.C., for plaintiff.
William B. Poff, Woods, Rogers & Hazlegrove, Roanoke, Va., for defendants.
MEMORANDUM OPINION
TURK, Chief Judge.
This antitrust action, brought by the U.S. Justice Department's Antitrust Division to prevent the merger of two hospitals in Roanoke, Virginia, is before the court for entry of judgment. Based on the findings of fact to follow, the court concludes that the government has failed to prove that the planned merger of the defendants would constitute an unreasonable restraint of trade under the antitrust laws and will enter judgment for the defendants.
The government filed this action in May, 1988, and claimed that defendants' planned affiliation would violate Sherman Act § 1, 15 U.S.C. § 1 (1982), and Clayton Act § 7, 15 U.S.C. § 18 (1982). The court dismissed the government's Clayton Act claim in September,[1] and the remaining claim under Sherman Act § 1 was tried for three weeks to the court sitting with a nine-member advisory jury between December 12, 1988, and January 17, 1989. At trial, the government contended that defendants' combination would eliminate actual and potential competition between the two defendants and would lessen competition generally to provide acute inpatient services in the Roanoke Valley. The government therefore argues that the planned affiliation would constitute an unreasonable restraint of trade, in violation of § 1, and prays the court to enjoin the merger. This court has federal question jurisdiction to hear the government's claim under 15 U.S. C. § 4 and 28 U.S.C. § 1331 (1982).
At the conclusion of the evidence, the court certified three special interrogatories *842 to the advisory jury.[2] The jury found the relevant service market for the government's claim to include acute inpatient hospital services and certain outpatient health care services provided by various clinics. The jury also found the relevant geographic market for the case to be "the Roanoke Valley, defined as the cities of Roanoke and Salem, Roanoke County including the Town of Vinton, and adjacent parts of Montgomery, Craig, Floyd, Franklin, Bedford and Botetourt Counties that surround Roanoke County, Virginia." Finally, the jury found that, "considering both anticompetitive and procompetitive effects," the planned affiliation would not "substantially reduce competition" in the relevant market and would not constitute "an unreasonable restraint of trade."
It now becomes the court's duty to "find the facts specially and state separately its conclusions of law thereon," Fed.R.Civ.P. 52(a), and to enter judgment pursuant to Fed.R.Civ.P. 58.
Findings of Fact
Defendant Carilion Health System is a non-stock, nonprofit holding company that owns three nonprofit hospitals in Virginia and manages six others. The company also owns a number of for-profit subsidiaries, including a helicopter ambulance service, an eye, ear, nose and throat clinic, a pharmacy, an insurance company and a health club. Carilion's largest facility is Roanoke Memorial Hospitals in Roanoke, a facility licensed by Virginia health planning authorities for 677 acute inpatient beds, of which the hospital staffs and operates 609. Occupancy averages something less than 500 patients. Roanoke Memorial is a teaching affiliate for the University of Virginia Medical School in Charlottesville.
Carilion also owns Bedford County Memorial Hospital in Bedford, a facility licensed for 75 beds, and Radford Community Hospital in Radford, a facility licensed for 160 beds that staffs and operates about 120 beds. In addition, Carilion manages Franklin Memorial Hospital in Rocky Mount, licensed for 60 beds, Giles Memorial Hospital in Pearisburg, licensed for 60 beds, Wythe County Community Hospital in Wythe County and Tazewell Community Hospital in Tazewell County.[3]
Defendant Community Hospital of Roanoke Valley is a nonstock, non-profit corporation that owns a hospital by the same name in downtown Roanoke. The facility has 400 licensed beds of which 220 are staffed. Occupancy averages about 175 patients. Both Carilion and Community have been organized principally to provide hospital services to the general public, and both provide indigent care to the extent that funds are available. The boards of directors of both institutions are comprised in large part of business leaders from the Roanoke area who have sought to minimize health care costs to employers and patients.
Both Roanoke Memorial and Community draw more than half their patients from the Roanoke metropolitan area, including the cities of Roanoke and Salem and Roanoke County. About 53 percent of Roanoke Memorial's patients come from this area, while Community draws about 74 percent of its patients from there. If defendants' planned affiliation took place, a third facility in the Roanoke area, Lewis-Gale Hospital in Salem, would not be involved in the transaction. Owned by Hospital Corporation of America, Lewis-Gale is licensed for 406 beds, of which it operates about 335. The hospital's average occupancy is about 242. Lewis-Gale receives about 70 percent of its patients from the Roanoke area.[4]
*843 All three of these hospitals draw substantial numbers of patients from outside the immediate vicinity of Roanoke. Roanoke Memorial draws 27 percent of its patients from an area that includes Alleghany, Bedford, Botetourt, Craig, Floyd, Franklin, Giles, Montgomery, Pulaski, Rockbridge and Wythe Counties and the cities of Lynchburg and Radford in Virginia, as well as Greenbriar, Mercer and Monroe Counties in West Virginia. The hospital treats at least 100 patients a year from each of these localities and from each of the following: Amherst, Campbell, Patrick, Smyth and Tazewell Counties and Carroll County together with the City of Galax. Roanoke Memorial receives an average of $5,000 in revenue from each patient. Community draws 18 percent of its patients from an area that includes Alleghany, Bedford, Botetourt, Craig, Floyd, Franklin, Montgomery and Rockbridge Counties and the City of Lynchburg, all in Virginia. Twenty percent of the patients who receive treatment at Lewis-Gale come from an area that includes Bedford, Craig, Botetourt, Floyd, Franklin and Montgomery Counties.
Professionals in the hospital industry distinguish among types of care various facilities provide, based on the sophistication of services they render and the seriousness and complexity of the illnesses they treat. Primary care services involve the prevention, early detection and treatment of disease. Such services include obstetrics, gynecology, internal medicine and general surgery. A hospital that limits itself to providing primary care usually has some diagnostic equipment to do X-rays and laboratory analysis. Secondary care involves more sophisticated treatment and may include cardiology, respiratory care and physical therapy. Equipment and laboratory capabilities are more sophisticated. Tertiary care is designed to arrest disease in process. It usually includes heart surgery and such cancer treatments as chemotherapy and requires still more sophisticated equipment than primary or secondary services do. Research hospitals associated with university medical schools also provide state-of-the-art quaternary level care. See testimony of Karl Miller, administrator of Lewis-Gale Hospital (Dec. 19, 1988).
All three of the hospitals in Roanoke and Salem provide primary, secondary and some types of tertiary care. Roanoke Memorial provides a significantly greater variety of care at this level and thus tends to treat more serious illnesses than the other two hospitals. Community, while offering some tertiary services, provides the least such care of the three hospitals.
Within its licensed capacity, Lewis-Gale has about 160 unfilled beds. While the hospital would need some time and money to again staff the 70 beds that it no longer operates, it could do so and could then take in at least about 100 more patients before its occupancy would be uncomfortably close to capacity. Hospital administrators testified that they are uncomfortable with occupancy above about 85 percent of capacity.
About 20 other hospitals within the geographic area Roanoke Memorial and, to some extent, Community serve provide primary and, in some cases, secondary level services. Besides the hospitals listed above that Carilion owns or manages, these include hospitals in Lynchburg and Galax and in Alleghany, Bedford, Carroll, Giles, Henry, Montgomery, Patrick, Pulaski, Rockbridge and Smyth Counties.
While the record does not contain specific evidence about some of these hospitals, the administrators of three testified at trial: Edgar L. Belcher of Pulaski Community Hospital, Robert D. Fraraccio of Montgomery Regional Hospital, and Walter Parmer of Alleghany Regional Hospital. Pulaski Community is licensed for 153 beds, has 103 staffed and has an average occupancy of 64 patients; Montgomery Regional is licensed for 146 beds, has 103 staffed and has an average occupancy of under 70; Alleghany Regional is licensed for 214 beds, operates 174 and has an average daily *844 census of about 105. Montgomery Regional and Alleghany Regional are both within about an hour's drive of the three Roanoke-hospitals, while Pulaski Community is about 100 minutes away.
Each of these hospitals serves patients from the county where it is located, as well as residents of several surrounding counties. Messrs. Belcher and Parmer testified, and the court finds, that a significant number of patients from the areas those hospitals serve choose to go to the Roanoke hospitals for the same types of lower-level care available in those hospitals. In some cases, patients perceive that the services obtainable in the larger hospitals in Roanoke are superior to those offered by smaller local facilities, even for the same kinds of procedures. Community and Lewis-Gale advertise their services in the yellow pages telephone directory for Rocky Mount, Boones Mill, Ferrum, Burnt Chimney and Union Hall, as does Carilion's Franklin Memorial Hospital, and in that for Blacksburg, Christiansburg, Radford and Shawsville, where their ads appear along with others for Montgomery Regional, Pulaski Community and Radford Community.[5] Both Roanoke Memorial and Community advertise in the Clifton Forge-Covington directory along with Alleghany Regional.
These facts show that the Roanoke hospitals compete with the various hospitals in the counties that surround Roanoke to provide primary and secondary level care to patients from those areas. A patient who desires care at a hospital away from home generally must be referred to a doctor who practices near that hospital and has admitting privileges there, but this can be done with little difficulty. See testimony of Jeffrey Jones, M.D. (Dec. 15, 1988).
In providing tertiary care, the Roanoke hospitals do not face competition from the hospitals in surrounding counties, but several other large hospitals in Virginia and North Carolina do compete with them. Mr. Belcher testified, for example, that when patients at his hospital need more sophisticated care than his hospital provides, they are referred to hospitals both in Roanoke and in Winston-Salem. Gerald Hewitt, an executive of North Carolina Baptist Hospital in Winston-Salem, testified that his hospital, which operates 625 beds and plans to expand to accomodate over 800, draws .5 percent of its patients from Bedford, Botetourt, Franklin and Floyd Counties. And the hospital draws even more patients from the southwestern portion of Roanoke Memorial's service area, including Pulaski County and Radford, and especially Galax and Hillsville. Similarly, John T. Ashley, M.D., the executive director of the University of Virginia Hospitals, testified that his institution receives a number of patients from western Virginia for tertiary care. The area in which Carilion's ambulance helicopter operates overlaps substantially with the areas covered by helicopters of several other large hospitals in Virginia and North Carolina. Based on this and other evidence in the record, the court finds that Roanoke Memorial, and to a lesser extent Community, face competition to provide tertiary services from facilities of comparable or larger size in Winston-Salem and Durham, North Carolina, and in Charlottesville and Richmond, Virginia.
Various witnesses agreed that some medical needs are treated exclusively on an outpatient basis, while others are treated only in a hospital. Most also agreed, however, that a significant number of problems could be treated either on an in or outpatient basis. Reasonable doctors differ as to when a problem must be treated in a hospital or when outpatient treatment is appropriate. Moreover, various insurance carriers, including Blue Cross and Blue Shield of Virginia, two of whose executives testified at trial, have restructured their reimbursement policies in recent years in order to encourage patients to use outpatient services, which are less expensive than inpatient care. Because patients or their doctors can choose to have problems treated either in a hospital or in an outpatient clinic or doctor's office in a significant *845 number of cases, the court finds that certain clinics and other providers of outpatient services compete with the defendants' hospitals to treat various medical needs.
New entry into the hospital market would be financially difficult. Expansion of an existing hospital, however, would cost substantially less. Expansion beyond licensed capacity would require state approval. See Va.Code Ann. §§ 32.1-102.1 to 32.2-102.11 (1985). Such approval is unlikely until at least July 1, when a state moratorium is scheduled to expire. However, most hospitals now staff substantially fewer beds than their licensed capacity and could expand to their full licensed quotas without obtaining state approval. Moreover, the number of problems treated on an inpatient basis has declined steadily in recent years and can be expected to continue to fall. Defendants' hospitals and their competitors can therefore be expected to have even more beds to fill within their licensed capacity, and competition for patients can therefore be expected to intensify further. And even if state ceilings did limit a hospital's capacity to accept more patients, it appears likely that Virginia will soon remove its caps on the number of beds hospitals can have. Eva. S. Teig, Virginia's Secretary of Health and Human Resources, firmly predicted at trial that Virginia would soon follow the lead of other states in deregulating the hospital industry.
Hospitals have high fixed costs, and their financial health depends on high occupancy. The court bases this finding on various evidence adduced at trial, including testimony that hospitals require a large capital investment. Testimony about the federal Medicare program also was probative on this point. To reimburse hospitals for the cost of treating Medicare patients, the Medicare program pays the hospitals an amount fixed according to each Medicare patient's particular medical problem. These fixed amounts are greater for urban hospitals than they are for rural hospitals, such as the local hospitals in the western Virginia counties surrounding Roanoke that compete with Roanoke Memorial and Community for patients who live in the vicinities of those local hospitals. Even though Medicare reimbursement levels allow rural hospitals to treat Medicare patients only by charging other patients disproportionately more for the services they receive, the local hospitals must continue to treat Medicare patients in order to maintain their occupancy and cover high fixed costs.
Because hospitals have high fixed costs, Roanoke Memorial or Community would sustain significant financial harm if either lost a significant number of patients to any of their various competitors: local hospitals in outlying rural areas that compete to provide primary and secondary services to patients who live in those areas; large hospitals in Virginia and North Carolina that compete to provide tertiary level services to patients in western Virginia; outpatient clinics and other facilities that compete to treat medical problems that might otherwise have been treated in a hospital; and Lewis-Gale.
Under defendants' planned affiliation, which defendants approved on July 30, 1987, Carilion would acquire sole membership in and ownership of Community, and Community would gain minority representation on Carilion's board of directors. Defendants want to merge in order to enhance the competitive positions of both Roanoke Memorial and Community. Roanoke Memorial needs more space in which to offer its obstetrics services and for various other clinical and administrative functions. On the other hand, Community's occupancy has declined faster than that of Roanoke's other hospitals. Community has extra space and needs more patients. Defendants plan to consolidate all obstetrics and other clinical services of both hospitals at Community. The merger also can be expected to help the two hospitals strengthen and expand joint operations, which already have begun in the areas of data processing and laundry. Credible testimony at trial satisfies the court the merger will produce capital avoidance and other clinical and administrative efficiencies that will save the two hospitals at least $40 *846 million over the first five years of the affiliation.
In response to defendants' announcement of their merger plans, Lewis-Gale lowered its patient rates and has begun considering a joint venture with an adjacent clinic of over 100 physicians. As an aspect of the venture, the hospital and clinic are considering an affiliation with a regional medical school, such as Bowman Gray School of Medicine in Winston-Salem, to rival Roanoke Memorial's affiliation with the U.Va. Medical School. The hospital continues to expand its tertiary care offerings to compete with Roanoke Memorial. Lewis-Gale opposes defendants' merger, however. Lewis-Gale also retains ties to two smaller hospitals in the area where it competes with defendants' hospitals, Montgomery Regional and Pulaski Community. Hospital Corporation of America, Lewis-Gale's owner, retains a minority stake in the parent company of these two smaller hospitals. HCA also manages another area hospital, Alleghany Regional.
Based on expert testimony, the court also finds that as a general rule hospital rates are lower, the fewer the number of hospitals in an area. In addition, charitable, nonprofit hospitals tend to charge lower rates than for-profit hospitals. Relative to other products and services consumers buy, hospital services are not price sensitive in a relevant market. Finally, the Virginia Health Services Cost Review Council can be expected to use effective persuasive power to keep hospital rates relatively low in western Virginia. While the Council's official powers are hortatory, hospitals and the press closely watch its publication of hospital rates.[6]
In conclusion, the court finds that the planned merger would probably improve the quality of health care in western Virginia and reduce its cost and will strengthen competition between the two large hospitals that would remain in the Roanoke area. Defendants' boards of directors could be expected to help insure that savings realized from the affiliation will be passed on to consumers.
Conclusions of Law
The government brings this action under Sherman Act § 1, which provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal...." 15 U.S.C. § 1 (1982). While "any commercial contract" could be deemed to be a restraint of trade that violates the provision, courts use a "`rule of reason' analysis for determining whether most business combinations or contracts violate the prohibitions of the Sherman Act." United States v. Topco Associates, Inc., 405 U.S. 596, 606-07, 92 S.Ct. 1126, 1133, 31 L.Ed.2d 515 (1972). Whether a particular combination is unreasonable depends on such factors as "the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reason for its adoption." Id. at 607, 92 S.Ct. at 1133.
Some business relationships have such a "pernicious effect on competition" and are so lacking in "redeeming virtue" that the courts presume them to be unreasonable without investigating their possible benefits each time they occur. Id. (quotation omitted). Mergers, however, are not among those commercial practices which have been declared unreasonable per se. The Supreme Court has recognized that "[m]ergers among competitors eliminate competition, including price competition, but they are not per se illegal, and many of them withstand attack under any existing antitrust standard." Broadcast Music v. CBS, Inc., 441 U.S. 1, 23, 99 S.Ct. 1551, 1564, 60 L.Ed.2d 1 (1979). The court therefore will analyze the facts it has found under the rule of reason standard.[7]
*847 In analyzing a merger under § 1, the court must evaluate the percentage of business the new merged entity would control, "the strength of remaining competition, whether the action springs from business requirements or purpose to monopolize, the possible development of the industry, consumer demands, and other characteristics of the market." United States v. Columbia Steel Co., 334 U.S. 495, 527, 68 S.Ct. 1107, 1124, 92 L.Ed. 1533 (1948).[8]
Relevant Market
The government challenges the effect of defendants' merger on competition to provide acute inpatient hospital services in the Roanoke Valley. To determine the percentage of business the merged entity would control and the strength of remaining competition, "[i]t is first necessary to delimit the market in which the concerns compete" to provide inpatient services. Id.
Based on the finding above that providers of outpatient services compete with providers of inpatient services for the same patients in a significant number of cases, the court concludes that the relevant service market for this case includes not only other inpatient hospitals but also various outpatient clinics that treat medical problems for which patients might otherwise have sought treatment in an inpatient hospital setting.
Based on the finding above that the Roanoke hospitals compete with hospitals in surrounding counties to provide primary and, in some cases, secondary services to residents of those counties, the court concludes that all those areas are included in the relevant geographic market for this case with respect to primary and secondary services. Specifically, the market includes all the counties and cities from which Roanoke *848 Memorial draws at least 100 patients a year. This area is comprised of 16 counties and three independent cities of Virginia and three counties of West Virginia. Competitors to provide primary and secondary services in the relevant geographic market include not only defendants and Lewis-Gale but nearly 20 hospitals in the counties and cities that surround Roanoke, including a relatively large institution in Lynchburg, as well as relevant outpatient clinics throughout those areas.
Based on the finding above that hospitals in central Virginia and northern North Carolina compete with defendants and Lewis-Gale to provide tertiary level services to the same residents of western Virginia that the three Roanoke hospitals serve, the court concludes that for tertiary level services the relevant geographic market includes hospitals in Charlottesville and Richmond, Virginia, and in Winston-Salem and Durham, North Carolina.[9] For these reasons, the court must reject the advisory jury's finding as to the relevant geographic market.
Reasonableness of Restraint
The government argues that defendants' merger would give Roanoke Memorial and Community a market concentration of over 70 percent, based on share of patient occupancy. The court must reject this calculation, however, as it is based on market assumptions that the court cannot accept. The record does not allow the court to produce a concentration figure because the size and occupancy of many of the hospitals in the market were not disclosed at trial. However the market is defined, the merger would doubtless give Carilion a larger market share than it now enjoys. When the various hospitals in the market area surrounding Roanoke are included, however, defendants' market share, even adjusted for the six other hospitals in the market that are owned or managed by Carilion, cannot be expected to approach the estimates advanced by the government. The market share is further reduced by the share of patients drawn away by large research hospitals in central Virginia and northern North Carolina and by various outpatient clinics throughout the geographic market.
In any case, "[t]he relative effect of percentage command of market varies with the setting in which that factor is placed." Columbia Steel Co., supra, 334 U.S. at 528, 68 S.Ct. at 1124. The court has found that defendants rely for their financial health on filling their beds with various patients who, even after defendants' merger, could turn to one or more other providers for care. These include residents of outlying areas who could go to hospitals near their homes rather than going into Roanoke, patients needing tertiary care who could get it at various hospitals in central Virginia and northern North Carolina and persons who could have their problems treated on an outpatient basis. More importantly, Lewis-Gale, which plans to increase its tertiary service offerings and is considering an affiliation with a major medical school in the region, promises to be a major competitor. The hospital's 160 legally available beds can be expected to put substantial competitive pressure on the merged Carilion hospitals as the number of patients who are hospitalized anywhere continues to decline. The continuing decline in the number of patients in the market increasingly reduces the importance of state legal restraints on hospital expansion, restraints which themselves appear likely to be removed. Financial and legal barriers to expansion by existing hospitals therefore cannot be viewed as prohibitive, and so defendants' various competitors in the geographic market would be able to expand their capacity if necessary *849 in order to compete more vigorously with defendants. The strength of remaining competition and the ease with which remaining competitors can further challenge defendants thus outweighs the increased market share defendants would acquire through their combination.
Also relevant is the fact that defendants seek to merge in order to strengthen, rather than reduce, competition. Based on Roanoke Memorial's serious need to expand and Community's need for more patients, they have found various ways in which more efficient operations can save money and thereby enable them to offer their services more competitively than ever, to patients' benefit. Greater competitiveness in both prices charged and the quality of services offered serves to benefit both patients and those who pay for their health care. That business requirements and consumer demand, rather than a monopolistic design, motivate defendants' intention to merge argues strongly in favor of the planned merger's reasonableness.
Defendants' nonprofit status also militates in favor of finding their combination reasonable. Defendants' boards of directors both include business leaders who can be expected to demand that the institutions use the savings achieved through the merger to reduce hospital charges, which are paid in many cases by employers, either directly or through insurance carriers. Defendants concede, of course, that Sherman Act § 1 applies to nonprofit entities. Leading cases on the subject, however, do not address nonprofit entities' charitable activities. NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984), involved the televising of college football games in order to raise money for the schools whose teams were broadcast. The schools' charitable educational activities were not at issue. Similarly, Goldfarb v. Virginia State Bar Ass'n, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed. 2d 572 (1975), and Am. Soc. of Mechanical Eng'rs v. Hydrolevel Corp., 456 U.S. 556, 102 S.Ct. 1935, 72 L.Ed.2d 330 (1982), both involved anti-competitive rules promulgated by associations of profit-making professionals. Without deciding whether defendants' nonprofit status should exempt their merger from § 1 scrutiny, the court concludes that their nonprofit status weighs in favor of their merger's being reasonable.
The court therefore adopts the jury's finding as to the reasonableness of defendants' planned merger and finds that the merger would not constitute an unreasonable restraint of trade under Sherman Act § 1. The court will therefore enter judgment for the defendants and must deny the injunctive relief the government seeks. The court will enter an appropriate order this day.
NOTES
[1] In dismissing the claim, the court noted that § 7 had two clauses, one that prohibited certain stock acquisitions, and a second that barred certain assets acquisitions by persons "subject to the jurisdiction of the Federal Trade Commission." The court found that the clause addressed to stock acquisitions did not apply to defendants because no stock was involved in their transaction. Both defendants are nonstock, nonprofit corporations. The assets clause did not apply either, the court ruled, because the FTC Act did not confer jurisdiction over nonprofit entities on the FTC. In December, on the eve of trial, the court rejected a request by amicus curiae Lewis-Gale Hospital, Inc., that the court reconsider its holding that § 7's assets clause did not apply to defendants' planned affiliation. Mem.Op. on Defendants' Motion for Summary Judgment at 2 n. 1 (Dec. 9, 1988).
By a motion filed during trial on January 6, the government asks the court to reconsider its ruling that § 7's stock clause does not apply to the planned affiliation. The government points out that defendant Carilion is a holding company that through the affiliation will acquire control of defendant Community. The government argues that even if Carilion cannot acquire Community's stock, if it consummated its planned acquisition of Community it would acquire Community's "share capital," thereby subjecting its transaction to § 7 scrutiny. The government points to no case, however, in which a court has applied § 7 to a merger of non-stock, nonprofit corporations, and the court again concludes that § 7's stock clause is worded so as to address only acquisitions of stock or of an interest equivalent to stock. Community, which has no private owners, has not issued, and by law cannot issue, any share capital equivalent to stock, and § 7 therefore does not govern its affiliation with Carilion. See Mem.Op. on Defendants' Motion to Dismiss at 3-6 (Sept. 30, 1988).
[2] The court based its jury instructions on proposals of the parties and on American Bar Association Antitrust Section, Sample Jury Instructions in Civil Cases at A-2 to A-8, C-6 to C-13 (1987).
[3] Carilion also manages two other facilities, Southside Community Hospital in Farmville and Lonesome Pine Hospital in Big Stone Gap, but they are located outside the geographic area considered in this case and are therefore not relevant to this action.
[4] A Veterans Administration Medical Center in Salem also provides hospital care, but its services are available only to certain veterans, and in recent years it has rendered acute inpatient services to only a very limited number of patients. Defendants have not seriously contended that the hospital offers competition to other hospitals in the area, and the court finds that it is not relevant to an analysis of market concentration or of the likely effect on competition of defendants' proposed merger.
[5] Roanoke Memorial lists itself in the Rocky Mount book but does not advertise further there. It is not listed in the Blacksburg yellow pages. A local Carilion hospital is advertised in each of these directories.
[6] The court cannot credit expert testimony proffered by the government to the effect that defendants' merger is likely to raise hospital rates. Government witness David S. Salkever did not explain the basis of his findings to the court's satisfaction, and another witness, economist David M. Eisenstadt, raised serious questions about Dr. Salkever's method of analysis. The court therefore finds Dr. Salkever's prediction to be of little probative value.
[7] Prior to trial, defendants moved the court to dismiss the government's claim without prejudice on grounds that it was not ripe for adjudication. The court already has concluded, however, that the Supreme Court in 1948 and again in 1964 unanimously accepted the propriety of courts' scrutinizing a planned merger or acquisition under § 1 before it has been carried out. United States v. First National Bank & Trust Co. of Lexington, 376 U.S. 665, 84 S.Ct. 1033, 12 L.Ed.2d 1 (1964); id. at 673, 84 S.Ct. at 1038 (Brennan & White, JJ., concurring in the judgment); id. at 673-80, 84 S.Ct. at 1037-42 (Harlan, J., dissenting); United States v. Columbia Steel Co., 334 U.S. 495, 68 S.Ct. 1107, 92 L.Ed. 1533 (1948); id. at 534-40, 68 S.Ct. at 1127-30 (Douglas, J., dissenting). Moreover, the antitrust cases defendants cite to support their contention are inapposite. Volvo North Am. Corp. v. Men's Prof. Tennis Council, 857 F.2d 55 (2d Cir.1988), involved, among other matters, an antitrust challenge to a tennis association's proposed rules. The court held that the rules would not be ripe for challenge until the association had definitely decided to adopt them, unless the claimants could show that the mere fact that they were being considered was itself having an anti-competitive effect. Id. at 64-65. Defendants' plan to affiliate, by contrast, is definite and can be expected to be carried out unless the government obtains the relief for which it prays. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 53 S.Ct. 471, 77 L.Ed. 825 (1933), differs from this case also in that the joint selling arrangement at issue there presumably could have been discontinued by court order more practicably than a merger, once consummated, can be diseffectuated.
[8] In United States v. First Nat'l Bank & Trust Co. of Lexington, 376 U.S. 665, 672-73, 84 S.Ct. 1033, 1037-38, 12 L.Ed.2d 1 (1964), the court stated that Columbia Steel Co.'s holding, that the acquisition in question did not unreasonably restrain trade, turned on the "special facts" of the case. This court summarized the facts of Columbia Steel in its Memorandum Opinion on Defendants' Motion for Summary Judgment at 8-9 (Dec. 9, 1988). A § 1 analysis takes into account the characteristics peculiar to the industry considered. The Supreme Court thus found in First Nat'l Bank that the banking industry considered there differed from the steel industry considered in Columbia Steel, and so the court applied different weight to the relevant factors in First Nat'l Bank than it had in Columbia Steel. The court went on in First Nat'l Bank to quote without disapproval the language of Columbia Steel which this court uses as guidance in undertaking its § 1 analysis. 376 U.S. at 672, 84 S.Ct. at 1037. By that language, the court only adapted to the context of a merger general principles of a § 1 analysis that the court has enunciated more recently in such cases as Topco Assoc., Inc., supra.
In light of the Supreme Court's discussion of mergers in Broadcast Music, discussed above, this court concludes that First Nat'l Bank should not be read to stand for the proposition that § 1 prohibits any merger between "major competitive factors in a relevant market." 376 U.S. at 673, 84 S.Ct. at 1037. By quoting Columbia Steel, the court indicated that, as in any rule of reason analysis, courts must weigh various factors, some peculiar to the industry under consideration, in analyzing a merger under § 1. But cf. United States v. Third Nat'l Bank in Nashville, 390 U.S. 171, 181, 88 S.Ct. 882, 889, 19 L.Ed.2d 1015 (1968).
[9] Community does not now provide as many tertiary level services as Roanoke Memorial or Lewis-Gale. As a large hospital, the facility nevertheless might conceivably be regarded as a potential competitor to provide services it does not yet offer. The steady and severe decline in patient base Community has suffered in recent years, however, renders doubtful that it would be able, absent a merger, to add tertiary level services at the same rate as Roanoke Memorial or Lewis-Gale. For this reason, the court puts less weight on the proposed merger's effect on potential competition between Roanoke Memorial and Community to provide tertiary level services as it does on the merger's effect on actual competition between the two institutions.
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516 F.Supp.2d 424 (2007)
JOSEPH M. and Judith M., as Parents and Natural Guardians of a Minor, B.M., Plaintiffs,
v.
NORTHEASTERN EDUCATIONAL INTERMEDIATE UNIT 19, Susan Comerford Wzorek, The School District of Abington Heights, Fred R. Rosetti, Ed.D, Clarence Lamanna, Ed.D., David Arnold, Ed.D., William McNulty, and Mariellen Sluko, Defendants.
No. 3:06-CV-01903.
United States District Court, M.D. Pennsylvania.
May 15, 2007.
*425 *426 *427 *428 *429 Christina A. Coury, Lawrence. J. Moran, Edwin A. Abrahamsen, Jr., James J. Conaboy, Abrahamsen, Moran & Conaboy, P.C., Scranton, PA, for Plaintiffs.
John E. Freund, III, King Spry Herman Freund & Faul, LLC, Bethlehem, PA, Richard A. Polachek, Stephen Molitoris, Polachek & Associates, P.C., Wilkes-Barre, PA, Robin B. Snyder, Angela Januski, Marshall Dennehey Warner Coleman & Goggin, Scranton, PA, for Defendants.
MEMORANDUM
A. RICHARD CAPUTO, District Judge.
Presently before the Court are three motions to dismiss. The first was filed by Defendant Susan Comerford Wzorek. (Doc. 5.) The second was filed by Defendants Northeastern Educational Intermediate Unit 19, Fred R. Rosetti, Ed.D. and Clarence Lamanna, Ed.D. (Doc. 6:) The third motion was filed by Defendants The School District of Abington Heights, David Arnold, Ed.D., William McNulty, and Mariellen Sluko. (Doc. 7.)
For the reasons stated below, the motions to dismiss will be granted in part and denied in part, as described in the attached order. The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 ("federal question"). This is a removal action for which federal jurisdiction is predicated upon the counts of Plaintiffs' Complaint that allege violations of the United States Constitution and the Individuals with Disabilities Education Act, codified at Title 20 of the United States Code, sections 1400, et seq. The Court exercises supplemental jurisdiction over Plaintiffs' state-law tort claims pursuant to 28 U.S.C. § 1367.
BACKGROUND
The allegations of Plaintiffs' Amended Complaint are as follows.
Defendant Susan Comerford Wzorek ("Wzorek") was, at all times relevant to this action, employed by Defendant Northeastern Educational Intermediate Unit 19 ("NEIU") as an autistic support teacher. (Compl. ¶ 2.) NEIU is part of the public school system of the Commonwealth of Pennsylvania and provides statutorily-mandated educational services to school districts in Lackawanna County, including, inter alia, Defendant The School District of Abington Heights ("Abington" or "the School District"), who cannot provide these specialized services themselves. (Id. ¶ 13, 5.) Defendant Fred R. Rosetti, Ed.D. ("Rosetti"), at all times relevant to this action, was a policymaker of NEIU, and was authorized by NEIU to perform the duties and functions of NEIU's Executive Director. (Id. ¶ 7.) Defendant Clarence Lamanna, *430 Ed.D. ("Lamanna"), at all times relevant to this action, was employed by NEIU as Director of Special Education. (Id. ¶ 8.) Defendant David Arnold, Ed.D. ("Arnold"), at all times relevant to this action, was employed as Superintendent of the School District, and was authorized as a policymaker therefor. (Id. ¶ 9.) Defendant William McNulty ("McNulty"), at all times relevant to this action, was employed as the Supervisor of Special Education for the School District. (Id. ¶ 10.) Defendant Mariellen Sluko ("Sluko"), at all times relevant to this action, was employed by Abington as the Principal of Clarks Summit Elementary School ("CSES"). (Id. ¶ 11.) It was within the scope of responsibilities of Defendants Rosetti, Lamanna, Arnold, McNulty, and Sluko to supervise and monitor Defendant Wzorek at the time of the events outlined herein below. (Id. ¶¶ 7-11.) Additionally, it was within the responsibilities and duties of Defendant Arnold, as Superintendent of the School District, to supervise the school property where Defendant Wzorek worked and the care and custody of the children being taught there. (Id. ¶ 9.)
Minor-Plaintiff, BM, was born on September 19, 1991. (Id. ¶ 12.) He has been diagnosed as having autism, a disorder that falls under the umbrella of Pervasive Developmental Disorders, and which is a complex developmental disability that impacts development in the areas of social interaction and communication skills. Children with autism, although typically exhibiting difficulty as far as language development and ability to interact socially, can learn and function normally, with appropriate treatment and education. (Id. ¶¶ 13-14.) BM's specific condition renders him non-verbal, and his level of functioning ranges from low to average. (Id. ¶ 15.)
BM, at all times relevant to this action, was enrolled in the NEIU, and the School District, specifically their Special Education Autistic Support Division, whose purpose is to meet the needs of students with specific interactive/social impairments. (Id. ¶ 16.) At all times relevant hereto, Defendants NEIU and the School District exercised supervisory responsibilities over the autistic support teachers, including Defendant Wzorek. (Id. ¶¶ 17-18.) At all times material and relevant hereto, Defendant Wzorek was minor Plaintiff BM's autistic support teacher, and was an employee of both NEIU and the School District. (Id. ¶¶ 24-25.)
As special needs institutions the School District and NEIU, along with their special education teachers, are required to follow the Regulations for Special Education devised by the State Department of Education, codified at Title 22 of the Pennsylvania State Code, Chapter 14. These regulations govern the treatment and education of special needs public school children, including behavior management. (Id. ¶ 19.) The Boards of Directors of both NEIU and the School District have adopted the Child Protective Services Law of 1990 ("CPSL"), codified at 23 PA.CONS. STAT.ANN. § 6301, et seq., to affirm the obligation of their respective employees to assist in identifying possible child abuse, as well as victimization of students by other employees, and to establish procedures for supporting such in compliance with the CPSL and its amendments. (Id.¶¶ 20-21.) The Pennsylvania Department of Education ("PDE") must approve both the School District and NEIU's annual plans as assurance that they will adhere to the aforementioned regulations and statutes regarding the education of students with disabilities. (Id. ¶ 22-23.)
At all times relevant and material hereto, Defendant Wzorek held a teaching certificate issued by the PDE. (Id. ¶ 29.) As a special education teacher, Defendant Wzorek was required by the PDE to maintain *431 her teaching certification active by earning a required number of continued education credits every five years. (Id. ¶ 26.) The PDE, through its Teacher Certification Bureau, ensures that special education teachers are properly trained, and have taken part in an initiative to train special education teachers specifically on autism. (Id. ¶ 27.) At all times material and relevant hereto, Defendant Wzorek's immediate employers and supervisors, i.e., NEIU and the School District, were responsible for ensuring that each teacher, including Wzorek, was adequately trained. (Id. ¶ 28.)
As an autistic support teacher, Defendant Wzorek's duties included, inter alia, keeping safe and secure the autistic children in her care, custody, and control, and attending to all of the daily classroom needs of her autistic students, which include feeding, toileting, academic training, and assisting in independent learning, as well as routinely accompanying NEIU students to Abington's library, gym, cafeteria, art class, music class, computer training center, and mainstream classrooms within the School District. (Id. ¶ 30.) During the course of performing the aforementioned daily duties, Defendant Wzorek continuously and systematically employed the use of aversive techniques, which are deliberate activities designed to establish a negative association with a specific behavior, and which techniques are specifically excluded from the list of positive approaches to behavior management found in Title 22 of the Pennsylvania School Code (PSC), section 14.133(e). (Id. ¶ 31.) Defendant Wzorek used aversive techniques to redirect her autistic students' behavior, including that of Minor-Plaintiff BM. Specifically, these techniques included, but were not limited to: (a) strapping BM to a Rifton Chair with silver duct tape around his legs, rendering him unable to move, (b) punishing BM by depriving him of his "Picture Exchange System," which book served as BM's main means of communicating his basic needs and necessities, including, but not limited to bathroom use and hunger, (c) backhanding BM in the face, causing blood to gush from his nose and lips, (d) pinching BM, leaving fingermark bruising on his arms, (e) hitting BM, leaving cuts on his face, legs, back, and pelvis, and (f) stepping on BM's insteps, causing bruising to the tops of his feet. (Id. ¶ 32.)
Additionally, Defendant Wzorek employed the use of restraints on her autistic students, the proper use of which is specifically reserved for instances where there is a clear and present immediate threat of danger of injury to self or to others, as per Title 22 of the PSC, § 14.133(c). A lawful use of restraints shall cause a meeting of the IEP team to review the current Individualized Educational Program, or IEP, for appropriateness and effectiveness. An IEP is a statement of educational services prepared collaboratively by the local education agency, the parents, teachers, and if applicable, related service providers (e.g., occupational or physical therapists, or speech and language pathologists) for each student. This group is known as the IEP team. (Id. ¶ 33.)
During the relevant time period from September 2001 through June 2002, three Rifton Chairs were kept in Defendant Wzorek's classroom, in full and open view of the Minor-Plaintiff BM and all other students in the classroom. One of the Rifton Chairs had straps, and for the other two, Defendant Wzorek used bungee cords as straps. The sole, proper use and purpose of a Rifton Chair is to provide support for those autistic children with little motor control or muscular strength. It looks like a small highchair with straps and a tray, but is low to the ground. During the relevant time frame from September 2001 through June 2002, Defendant *432 Wzorek restrained other students in the presence of Minor-Plaintiff BM in a Rifton Chair in order to punish or abuse them. (Id. ¶ 34.) At no point during the relevant time period was an IEP team meeting convened to address the unlawful use of the restraints, and to propose positive behavioral management techniques should the need for discipline arise in the future. (Id. ¶ 35.)
As part of the administration of her classroom, Defendant Wzorek kept "contact books" for each student in her class, to serve as a communication liaison between her students and their parents. In the contact books, Defendant Wzorek would make comments as to each student's progress, and provide a forum for each student's parents to express their questions and concerns. (Id. ¶ 36.)
Shortly after the 2001-2002 school year began, Plaintiffs noticed pronounced changes in their Minor son BM's behavior, and specifically, that a trend of regression as to his development was taking place. Minor-Plaintiff BM exhibited, inter alia, (a) outlandish behavior, e.g., climbing onto the balcony or opening the moving car's door; (b) charging his sister and puller her to the floor, and (c) holding a tantrum when he was brought to school while shaking his head "no". (Id. ¶ 37.)
During the relevant time frame, Defendant Wzorek's classroom benefited from the employment of two full-time teacher's assistants, Ms. Jill Celli ("Celli") and Ms. Robin L. Medeiros ("Medeiros"), who worked with Defendant Wzorek in her classroom for two years. (Id. ¶ 38.) In or about October of 2002, Medeiros witnessed Defendant Wzorek backslap one of the children in the Plaintiff's classroom across the face which caused the child to develop a fat lip. When the child wouldn't keep quiet, Defendant Wzorek hit her a second time. Medeiros then witnessed Defendant Wzorek call the child's mother to tell her that the child had just injured herself by falling forward. (Id. ¶ 39.)
In or about May of 2003, teaching assistants Celli and Medeiros confronted Defendant Wzorek in an attempt to stop Wzorek's abusive techniques. Her response to Celli and Medeiros was "I know, but I don't know how to stop." Upon receiving this reply, Celli and Medeiros decided to report Defendant Wzorek to NEIU's Executive Administrators. (Id. ¶ 40.) On or about July 28, 2003, both Celli and Medeiros approached Defendant Lamanna, Defendant NEIU's Director of Special Education, with detailed documentation regarding the treatment Defendant Wzorek displayed towards the autistic students in her classroom. Specifically, they claimed that such treatment was aggressive, abusive, and that use of such aversive techniques was unlawful. (Id. ¶ 41.) Defendant Lamanna's response to Celli and Medeiros was that the situation was "over his head" and that Defendant Rosetti, NEIU's Executive Director, would have to get involved. A subsequent meeting was then scheduled with Mr. Rosetti. (Id. ¶ 42.)
As Celli and Medeiros arrived at NEIU for their meeting with Defendant Rosetti, Ms. Medeiros overheard Defendant Rosetti on the phone with Defendant Wzorek saying, "Don't worry Sue, they are coming in here to shoot their loads but nothing's going to happen and then we'll be done with it." (Id. ¶ 43.) During the meeting with Defendant Rosetti, Celli and Medeiros again presented detailed documentation of their eyewitness accounts of Defendant Wzorek's abusive treatment towards Minor-Plaintiff and other autistic students. (Id. ¶ 44.)
Around mid-August, 2003, Celli and Medeiros were informed that an internal investigation of Defendant Wzorek would be conducted. (Id. ¶ 45.) One week later, *433 Celli and Medeiros were summoned by NEIU to attend another meeting regarding Defendant Wzorek's abuses, and arrived at NEIU to instead be met by NEIU's attorney, Mr. Jeffrey Tucker. Attorney Tucker represented to Celli and Medeiros that they had a right to know neither the results of the NEIU investigation, nor whether NEIU even intended to take any action in response to their allegations against Defendant Wzorek. (Id. ¶ 46.) Around the same time, Celli and Medeiros were advised by NEIU that it had completed its investigation. However, they later learned that no meaningful investigation had ever taken place, i.e., that the documented parents and school employees, who would have been instrumental in conducting an investigation, were never contacted. Additionally, Celli and Medeiros were advised that Defendant Wzorek's classroom conduct would net be reported to law enforcement officials. (Id. ¶ 47.) In October of 2003, Celli and Medeiros approached the Principal of CSES, Defendant Sluko, in order to voice their concerns. During this meeting, Defendant Sluko accused Celli and Medeiros of "breaking a silent code," which she likened to a code among police officers. (Id. ¶ 48.)
NEIU decided that Defendant Wzorek would be transferred to the Scranton School District for the 2003-2004 school year, where she would continue to have contact with special needs students, as a Learning Support teacher at West Scranton High School. (Id. ¶ 49.) In late September of 2003, Defendant Arnold, Superintendent of the School District, wrote a letter to Defendant Lamanna, soliciting his assistance in having Celli and Medeiros transferred to another school district. Specifically, he wrote, ". . . [the teacher's assistants'] behavior has negatively affected the work environment for our teaching staff, and . . . I am asking that they be moved from our building as soon as possible." (Id. ¶ 50.) Defendants Lamanna and Rosetti then advised the School District in the spring of 2004 that they would not oppose the transfer of the entire autistic support classroom, which effectively served to transfer Celli and Medeiros. (Id. ¶ 52.)
On September 26, 2006, Defendants filed a notice of removal from the Court of Common Please of Lackawanna County, Pennsylvania to this Court, based on Plaintiffs' inclusion of federal causes of action in their Amended Complaint. (Doc. 1.) On October 2, 2006, Defendant Wzorek filed her motion to dismiss. (Doc. 5.) On this same date, Defendants NEIU, Rosetti, and Lamanna filed their motion to dismiss (Doc. 6.) On the following day, October 3, 2006, Defendants Arnold, McNulty, Sluko, and the School District filed their motion to dismiss. (Doc. 7.) These three motions to dismiss are fully briefed and ripe for disposition.
LEGAL STANDARD
Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. Dismissal is appropriate only if, accepting as true all of the facts alleged in the complaint and "drawing all reasonable inferences in the plaintiffs favor, no relief could be granted under any set of facts consistent with the allegations of the complaint." Tramp Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir.1998); ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994) (citing Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)).
In deciding a motion to dismiss, the Court should consider the allegations in the complaint, exhibits attached to the complaint and matters of public record. See Pension Benefit Guar. Corp. v. White *434 Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.1993), cert. denied, 510 U.S. 1042, 114 S.Ct. 687, 126 L.Ed.2d 655 (1994). The Court may also consider "undisputedly authentic" documents where the plaintiff s claims are based on the documents and the defendant has attached a copy of the document to the motion to dismiss. Id. The Court need not assume that the plaintiff can prove facts that were not alleged in the complaint, see City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 263 (3d Cir.1998), nor credit a complaint's "bald assertions" or "legal conclusions." Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997).
When considering a Rule 12(b)(6) motion, the Court's role is limited to determining whether the plaintiff is entitled to offer evidence in support of the claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The Court does not consider whether the plaintiff will ultimately prevail. See id. In order to survive a motion to dismiss, the plaintiff must set forth information from which each element of a claim may be inferred. See Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993). The defendant bears the burden of establishing that the plaintiffs complaint fails to state a claim upon which relief can be granted. See Gould Elecs. v. United States, 220 F.3d 169, 178 (3d Cir.2000). In their motions to dismiss, Defendants aver that each of the Counts of Plaintiffs' Complaint fails to state a claim upon which relief can be granted, and seek dismissal pursuant to Rule 12(b)(6).
Further, Defendants' motions to dismiss seek dismissal of Plaintiffs' Complaint on the grounds that Plaintiffs failed to exhaust their administrative remedies. In most circumstances, motions for dismissal based on a failure to exhaust administrative remedies are reviewed under Rule 12(b)(6), rather than under Federal Rule of Civil Procedure 12(b)(1), because the exhaustion requirement normally does not implicate a court's jurisdiction. Anjelino v. New York Times Co., 200 F.3d 73, 87-88 (3d Cir.2000); see also D'Amico v. CBS Corp., 297 F.3d 287, 290 (3d Cir.2002). In contrast, the Third Circuit Court of Appeals in W.B. v. Matula determined that exhaustion is jurisdictional in the IDEA context. 67 F.3d 484, 493 (1995). Accordingly, the appropriate device by which to consider this jurisdictional challenge is a motion to dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction. See FED.R.Civ.P. 12(b)(1) (providing for dismissal of complaint where court lacks subject matter jurisdiction). See Falzett v. Pocono Mountain Sch. Dist., 150 F.Supp.2d 699, 701 & n. 2 (M.D.Pa. 2001) (Caputo, J.). Therefore, Defendants' motions to dismiss will be construed as pursuant to Rule 12(b)(1) to the extent that they challenge Plaintiffs' failure to exhaust administrative remedies.
Unlike dismissal under Federal Rule of Civil Procedure Rule 12(b)(6), dismissal under Rule 12(b)(1) for lack of subject matter jurisdiction is not a judgment on the merits of the plaintiffs case, but only a determination that the court lacks the authority to hear the case. Mortensen v. First Fed. Say. and Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977). A Rule 12(b)(1) motion may be treated either as a facial or a factual challenge to the court's subject matter jurisdiction. Gould, 220 F.3d at 178 (3d Cir.2000). If the motion is treated as a facial attack, the court may consider only the allegations contained in the complaint and the exhibits attached to the complaint, matters of public record such as court records, letter decisions of government agencies and published reports of administrative bodies, and "undisputably authentic" documents which the plaintiff has identified as a basis of his claims and which the defendant has attached as exhibits *435 to his motion to dismiss. See generally Pension Benefit Guar. Corp., 998 F.2d at 1196-97.
On the other hand, if the defendant submits and the court considers evidence that controverts the plaintiff's allegations, the court must treat the motion as a factual challenge under Rule 12(b)(1). Gould, 220 F.3d at 178. In such cases, "the trial court is free to weigh evidence and satisfy itself as to the existence of its power to hear the case." Mortensen, 549 F.2d at 891. No presumption of truthfulness attaches to the allegations in the plaintiff's complaint, and the burden of proof is on the plaintiff to show that the court possesses jurisdiction. Id. However, the plaintiff must be permitted to respond to the defendant's evidence with evidence supporting jurisdiction. Id. In the present matter, Defendants have submitted no evidence controverting the allegations contained in Plaintiffs' Amended Complaint. Therefore, the Court will consider only the allegations in the Plaintiffs' Amended Complaint, treating the Defendants' motions to dismiss as a facial attack on subject matter jurisdiction pursuant to Rule 12(b)(1) to the extent that they are challenging Plaintiffs' failure to exhaust administrative remedies.
DISCUSSION
Plaintiffs' Complaint contains fourteen (14) counts. Count I alleges against all Defendants, pursuant to Section 1983 of Title 42 of the United States Code, a violation of Minor-Plaintiff BM's civil rights under the IDEA, for Defendants' failure to provide a free and appropriate education to Minor-Plaintiff, and for the physical and mental abuse inflicted upon BM as a result of Defendants' actions. Count II alleges violations of the Equal Protection Clause and Due Process Clause of the 14th Amendment to the United States Constitution, against all named Defendants. Count III alleges a violation of the IDEA, codified at Title 20 of the United States Code, sections 1400 et seq., against all named Defendants, for their failure to identify, evaluate, and provide a free appropriate public education to BM and for the use of bodily restraints against Minor-Plaintiff without his consent and in disregard of the law.
Count IV alleges assault and battery against Defendant Wzorek for her intentional acts against BM's person, as described above. Count V alleges intentional infliction of emotional distress against Defendant Wzorek for placing the Minor-Plaintiff in apprehension of bodily harm, in assaulting and battering him, and in verbally and emotionally abusing him. Count VI alleges a breach of fiduciary duty against Defendant Wzorek for breaching her duties as a teacher, mentor, and care-giver to Minor-Plaintiff BM as a result of her alleged actions. Count VII alleges the tort of negligence against Defendant Wzorek for negligently, carelessly, and recklessly breaching her duty to render educational and other services with reasonable care for the heightened needs of her special education students, including BM, and that as a proximate result of these breaches of duty, Minor-Plaintiff BM suffered various damages. Count VIII seeks punitive damages against Defendant Wzorek, alleging that her acts were performed outrageously, maliciously, wantonly, and willfully, and resulted in the aforementioned injuries to BM.
Count IX alleges vicarious liability against Defendants NEIU and the School District (hereinafter referred to collectively as "the Organization Defendants"), and Defendants Lamanna, Rosetti, Sluko, McNulty, and Arnold (hereinafter referred to collectively as "the Supervisor Defendants") for the acts of Defendant Wzorek, alleging that all relevant times she was performing her duties and functions within *436 the scope of her employment as an autistic support teacher with the Organization Defendants, and was under the review and supervision of the Supervisor Defendants. Count X alleges intentional infliction of emotional distress against the Organization Defendants and Supervisor Defendants, alleging that the actions or inactions of said Defendants placed Minor-Plaintiff BM in an unreasonable risk of bodily harm that constituted extreme and outrageous conduct. Count XI alleges breach of fiduciary duty against the Organizational Defendants and the Supervisor Defendants, by failing to properly supervise Defendant Wzorek and provide Minor-Plaintiff with the type of specialized education he required. Count XII alleges negligence against the Organizational Defendants and Supervisor Defendants, averring that said Defendants breached their duty owed to properly screen, train, and supervise Defendant Wzorek, and that as a result BM suffered various damages. Count XIII raises a claim for punitive damages against the Organizational Defendants and Supervisor Defendants, claiming that their actions were reckless, extreme, outrageous, wanton, willful, malicious, and in conscious disregard of the risk of harm to Minor-Plaintiff BM. Finally, Count XIV alleges civil conspiracy against all named Defendants, alleging that their concerted actions constituted a wrongful combination or agreement to do unlawful acts, or to do otherwise lawful acts by unlawful means.
A.) Plaintiffs' Federal Claims Counts I-III
I. The IDEA Count III
In 1970, Congress enacted the Education of the Handicapped Act (EHA), later renamed the Individuals with Disabilities Education Act (hereinafter, "the IDEA"), codified at Title 20 of the United States Code, sections 1400 et seq., to assure that all children with disabilities have available to them a free appropriate public education, which emphasizes special education and related services designed to meet their unique needs. The central purpose of the IDEA is to ensure that children with disabilities have a free appropriate public education (FAPE) and that their rights are protected. 20 U.S.C. § 1400(d).
The IDEA conditions a state's receipt of federal funds for special education programs on its implementation of "policies and procedures to ensure that [a] free appropriate public education is available to all children with disabilities. . . ." 20 U.S.C. § 1412(a)(1)(A); Shore Regional High Sch. Bd. of Educ. v. RS., 381 F.3d 194, 198 (3d Cir.2004). A free appropriate public education "`consists of educational instruction specifically designed to meet the unique needs of the handicapped child, supported by such services as are necessary to permit the child to "benefit" from the instruction.'" W.B. v. Matula, 67 F.3d 484, 491 (3d Cir.1995) (quoting Bd. of Educ. of Hendrick Hudson Cent. Sch. Dist., Westchester County v. Rowley, 458 U.S. 176, 188-89, 102 S.Ct. 3034, 73 L.Ed.2d 690 (1982)). The "primary vehicle" for implementing a free appropriate public education is the Individualized Educational Program (IEP). "The IEP consists of a detailed written statement arrived at by a multi-disciplinary team summarizing the child's abilities, outlining the goals for the child's education and specifying the services the child will receive." Polk v. Cent. Susquehanna Intermediate Unit 16, 853 F.2d 171, 173 (3d Cir.1988) (citing 30 C.F.R. § 300.347), cert. denied, 488 U.S. 1030, 109 S.Ct. 838, 102 L.Ed.2d 970 (1989). Melissa S. v. School Dist. of Pittsburgh, 183 Fed.Appx. 184, 186-87 (3d Cir.2006).
To prevail on a claim that a school district failed to implement an IEP, a plaintiff must show that the school failed to implement substantial or significant *437 provisions of the IEP, as opposed to a mere de minimis failure, such that the disabled child was denied a meaningful educational benefit. Houston Indep. Sch. Dist. v. Bobby R., 200 F.3d 391, 349 (5th Cir.2000). Flexibility to implement an IEP is maintained, yet the school district is accountable for "confer[ring] some educational benefit upon the handicapped child," as required by the IDEA. T.R. ex rel. N.R. v. Kingwood Twp. Bd. of Educ., 205 F.3d 572, 577 (3d Cir.2000) (citing Rowley, 458 U.S. at 188-89, 102 S.Ct. 3034). Melissa S., 183 Fed.Appx. at 187.
a.) Exhaustion of Administrative Remedies
The IDEA creates a "right, enforceable in federal court, to the free appropriate public education required by the statute." Smith v. Robinson, 468 U.S. 992, 1002 n. 6, 104 S.Ct. 3457, 82 L.Ed.2d 746 (1984), superseded by statute on other grounds by Pub.L. No. 99-372, 100 Stat. 796 (1986); accord Honig v. Doe, 484 U.S. 305, 310, 108 S.Ct. 592, 98 L.Ed.2d 686 (1988) (describing the right to a free appropriate public education as "an enforceable substantive right"). Before a plaintiff can bring a claim in federal court for an IDEA violation, however, he must exhaust his administrative remedies, including, in Pennsylvania, a local due process hearing and an appeal to the state educational agency. 20 U.S.C. § 1415(f). Any party dissatisfied with the state administrative hearing may bring a civil action in state or federal court, in which the court must conduct an independent review based on the preponderance of the evidence, while giving "due weight" to the state administrative findings. Polk, 853 F.2d at 173 (citing Rowley, 458 U.S. at 206-07, 102 S.Ct. 3034).
The IDEA's exhaustion requirement applies to all claims for relief available under the IDEA, even if a claim arises under a different cause of action. Jeremy H. v. Mount Lebanon Sch. Dist., 95 F.3d 272, 281 (3d Cir.1996). That is to say, Plaintiffs may not avoid the exhaustion requirement by alleging an IDEA violation in a § 1983 claim predicated upon the IDEA.
b. `Futile or Inadequate' Exception to IDEA Exhaustion Requirement
As stated above, the IDEA requires a party to exhaust administrative remedies before they may sue in federal court. 20 U.S.C. § 1415(1); Lester H. by Octavia P. v. Gilhool, 916 F.2d 865, 869 (3d Cir.1990). Plaintiffs concede that they did not satisfy the IDEA's exhaustion requirements. They argue, however, that their failure to exhaust is excused under a recognized exception to the exhaustion doctrine.
According to the Third Circuit Court of Appeals, exhaustion under the IDEA is excused when resort to such procedures would be "futile or inadequate." Matula, 67 F.3d at 495; see also Honig, 484 U.S. at 327, 108 S.Ct. 592 (recognizing "futile or inadequate" exception to exhaustion requirement). Where plaintiffs seek application of this exception, it is their burden to prove the futility or inadequacy of administrative exhaustion. Honig, 484 U.S. at 327, 108 S.Ct. 592.
The Third Circuit Court of Appeals, `excusing failure to exhaust based on the futility exception, has held that "where the relief sought in a civil action is not available in IDEA administrative proceedings, recourse to such proceedings would be futile and the exhaustion requirement is excused." Matula, 67 F.3d at 496 (citing Gilhool, 916 F.2d at 870). Accord McCachren v. Blacklick Valley Sch. Dist., 217 F.Supp.2d 594, 597 (W.D.Pa.2002) (holding that the exhaustion requirement is limited to actions seeking relief that is "also available" under the IDEA). In reaching this conclusion, the Court of Appeals looked first to the language of the statute itself. The IDEA states that "before the filing of *438 a civil action under such laws . . . seeking relief that is also available under this subchapter, the procedures under subsection (f) and (g) of this section shall be exhausted. . . ." 20 U.S.C. § 1415(1) (emphasis added); Matula, 67 F.3d at 495 (quoting this language, which was then found at 20 U.S.C. § 1415(f)). Recognizing that damages are available under § 1983, but not under the IDEA administrative procedures, the Matula court then concluded that "by its plain terms [this section] does not require exhaustion where the relief sought is unavailable in an administrative proceeding." Matula, 67 F.3d at 495. The Matula court reviewed the legislative history, and found compelling support for applying this exception to failure to exhaust IDEA administrative procedures in that case. Id. (citing Congressional reports, infra).
The administrative process utilizes the expertise of local agencies, resolves evidentiary disputes, develops a factual record, and encourages consistency and procedural efficiency. Komninos v. Upper Saddle River Bd. of Educ., 13 F.3d 775, 779 (3d Cir.1994) (noting that the IDEA administrative "process offers an opportunity for state and local agencies to exercise discretion and expertise in fields in which they have substantial experience."); Gilhool, 916 F.2d at 869.
c. Plaintiffs' Complaint
It is undisputed that Plaintiffs have not utilized Pennsylvania's IDEA administrative process to redress any of their claims. As justification, Plaintiffs invoke the futility exception and argue that exhaustion is not required in this case because they seek only monetary damages, a form of relief unavailable under the IDEA. Additionally, however, Plaintiffs' § 1983 claim (Count I) and IDEA claim (Count III) assert that Defendants failed to "implement a proper behavior management plan" (Compl. ¶ 56), and failed "to identify, evaluate, and provide the Minor[-]Plaintiff with a [FAPE]" (Compl. ¶ 75). Defendants claim that this language challenges the contents of the IEP prepared for the Minor-Plaintiff, thus requiring administrative exhaustion. While a challenge to the contents of an IEP would require exhaustion of administrative remedies since school administrators are in the best position to establish appropriate educational programs exhaustion of administrative remedies when a plaintiff is challenging only a failure to implement an IEP would prove fruitless. See Joseph M. ex rel. Kimberly F. v. Southeast Delco Sch. Dist., No. Civ. A. 99-4645, 2001 WL 283154, at *7 (E.D.Pa. Mar.19, 2001) (citing Gilhool, 916 F.2d at 869-70 (noting that courts require exhaustion where the "peculiar expertise" of a hearing officer is needed to develop a factual record concerning the development of an appropriate IEP)).
Though the terms "identify" and "evaluate" are used in Count III of Plaintiffs' Complaint, there is no further suggestion that there was a failure to either identify[1] the Minor-Plaintiff as a child with a disability or that BM's IEP would have been inadequate if not for the allegedly improper implementation thereof. Plaintiffs have challenged, in effect, only the Defendants' failure to implement the Minor-Plaintiff's IEP. Where some district courts have refused to apply the futility exception to IDEA plaintiffs who have not exhausted administrative remedies, the factual scenarios present in those cases are distinguishable from the case at bar. Those courts were primarily focused on the issue *439 of eligibility under the IDEA, i.e., whether the child was disabled and thus qualified for the special services under the IDEA. No such determination is required in this case. Minor-Plaintiff has been diagnosed as having autism and was enrolled specifically in the Special Education Autistic Support Division. (Compl. ¶¶ 13, 16.) Defendants here do not contest that Minor-Plaintiff is disabled, and thus qualified for the special services under the IDEA. The courts that have invoked the policy underlying the exhaustion requirement in cases seeking only monetary damages specifically that an administrative agency, rather than a district court, is the appropriate entity to determine the factual question of IDEA eligibility have done so when IDEA eligibility was unresolved. See, e.g., Blanck v. Exeter Sch. Dist., No. Civ.A.01-1402, 2002 WL 31247983, at *2-3 (E.D.Pa. Oct.2, 2002); Lindsley ex rel. Kolodziejczack v. Girard Sch. Dist., 213 F.Supp.2d 523, 535 (W.D.Pa.2002).
The legislative history relied upon by the Third Circuit Court of Appeals in Matula, 67 F.3d at 495, provides further guidance here. In Joseph M., another district court in this Circuit cited this congressional evidence, and more. It relied upon Congress's distinction between "the implementation of an IEP, as opposed to the contents of an IEP." No. Civ. A. 99-4645, 2001 WL 283154, at *7 (E.D.Pa. Mar.19, 2001) (emphasis in original) (quoting a Representative and a Senator making identical remarks that "there are situations in which it is not appropriate to require the exhaustion of [IDEA] administrative remedies before filing a civil law suit. These include complaints that . . . an agency has failed to provide services specified in the child's individualized education program."); 131 Cong. Rec. S10396-01 (daily ed. July 30, 1985) and H9964-02 (daily ed. Nov. 12, 1985); see also House Report at 7 (discussing appropriate exceptions to exhaustion requirement of EHA and stating that "it would be futile to use due process procedures . . . [when] an agency has failed to provide services specified in the child's IEP. . . ."). This legislative history supports the finding that Congress intended exhaustion to be excused in this instance.
There is one additional consideration worthy of discussion here that was central to the Court of Appeals's holding in Matula. The parties in Matula had participated in an extended series of administrative proceedings, including four IDEA due process hearings, which resulted in the development of an extensive factual record. Thus one of the principal reasons for the exhaustion requirement to allow the administrative body with the relevant expertise to create an evidentiary record prior to judicial review did not apply in Matula, and the Court therefore had little difficulty in disposing of the exhaustion requirement.
Quite obviously, there is no detailed factual record before the Court, as there have been no administrative proceedings in this matter. Defendants argue that development of this factual record necessarily requires administrative exhaustion in this case. However, in light of the fact that the Plaintiffs are requesting relief that is unavailable through the IDEA administrative process, that IDEA eligibility is not in issue, and that the relevant factual record may be adequately developed through standard discovery procedures, this Court will dispense with the exhaustion requirement in this matter. The Court will therefore deny Defendants' motions to dismiss the IDEA Count for failure to exhaust administrative remedies.
II. 14th Amendment Violations Due Process & Equal Protection Count II
Plaintiffs also allege that Defendants violated Minor-Plaintiff BM's rights under *440 the 14th Amendment's Due Process and Equal Protection Clauses.
a.) Procedural Due Process
The procedural component of the Due Process Clause provides that certain substantive rights life, liberty, and property cannot be deprived except pursuant to constitutionally adequate procedures. Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 541, 105 S.Ct. 1487, 84 L.Ed.2d 494 (1985). The IDEA imposes extensive procedural due process requirements, as the Court has stated above. Plaintiffs in this action, however, have not alleged any procedural inadequacies with respect to the provision of a FAPE to the Minor-Plaintiff. Indeed, they avail themselves of this Court's jurisdiction based on the argument which the Court accepts that an administrative due process hearing would be inadequate to provide the relief requested in their Complaint.
Accordingly, the Court will grant Defendants' motions to dismiss Count II of Plaintiffs' Complaint to the extent it alleges a violation of procedural due process.
b.) Substantive Due Process
Plaintiffs' substantive due process claims appear to arise from (1) Defendants' failure to provide BM with a FAPE and (2) Defendants' failure to protect BM from bodily harm. (Compl. ¶¶ 70-73).
The denial of a FAPE does not give rise to a substantive due process violation because the substantive component of the Due Process Clause does not protect educational interests. M.M. v. Tredyffrin/Easttown Sch. Dist., No. 06-CV-1966, 2006 WL 2561242, at *12 (E.D.Pa. Sept. 1, 2006) (citing San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 33-38, 93 S.Ct. 1278, 36 L.Ed.2d 16 (1973) (holding that education is not a fundamental right or liberty)); see Nicholas v. Penn. State Univ., 227 F.3d 133, 141 (3d Cir.2000) ("[A] property interest must be constitutionally `fundamental' in order to implicate substantive due process."). Accordingly, Defendants' motions to dismiss Plaintiffs' substantive due process claim based on BM's educational interests will be granted for Plaintiffs' failure to identify a property interest that is protected by the Due Process Clause. See Nicholas, 227 F.3d at 139-40 (holding that due process-protected property interest is threshold element plaintiff must establish for non-legislative substantive due process claim).
Plaintiffs also claim that Defendants' conduct toward the Minor-Plaintiff violated his substantive due process right to bodily integrity. The substantive component of the Due Process Clause "protects individual liberty against certain government actions regardless of the fairness of the procedures used to implement them." Gottlieb v. Laurel Highlands Sch. Dist., 272 F.3d 168, 172 (3d Cir.2001) (quotations omitted). Only state conduct that is "arbitrary, or conscience shocking, in a constitutional sense" rises to this level. County of Sacramento v. Lewis, 523 U.S. 833, 847, 118 S.Ct. 1708, 140 L.Ed.2d 1043 (1998).
"[T]he constitutional concept of conscience-shocking duplicates no traditional category of common-law fault. . . ." Lewis, 523 U.S. at 848, 118 S.Ct. 1708. The pertinent inquiry is "`whether the force applied caused injuries so severe, was so disproportionate to the need presented, and was so inspired by malice or sadism rather than a merely careless or unwise excess of zeal that it amounted to a brutal and inhumane abuse of official power literally shocking to the conscience.'" Jones v. Witinski, 931 F.Supp. 364, 369 (M.D.Pa.1996) (quoting Webb v. McCullough, 828 F.2d 1151, 1158 (6th Cir.1987)).
Defendants move the Court to dismiss Plaintiffs' substantive due process claim on the ground that Defendant Wzorek's *441 actions, even when viewed in the light most favorable to the Plaintiffs, were not sufficiently severe as to "shock the conscience." While a single slap to the face, see Lillard v. Shelby County Bd. of Educ., 76 F.3d 716, 725-26(6th Cir.1996), or punch to the chest of a student, see Kurilla v. Callahan, 68 F.Supp.2d 556, 564 (M.D.Pa.1999) (Vanaskie, J.), are conduct insufficient to "shock the conscience", the alleged repeated administration of injuries to BM's person, as described in the Complaint, are sufficiently shocking to the conscience, at this juncture, to survive the motions to dismiss the substantive due process claim.
Accordingly, Defendants' motions to dismiss Count II of Plaintiffs' Complaint to the extent it alleges a violation of substantive due process for a failure to protect BM's bodily integrity will be denied.
c.) Equal Protection,
The Equal Protection Clause requires that the law treat similarly situated people alike. U.S. CONST. amend. XIV, § 1; Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 439, 105 S.Ct. 3249, 87 L.Ed.2d 313 (1985). Plaintiffs assert that an equal protection violation resulted from Defendants' discrimination against BM based on his handicap, which denied him an equal educational experience. (Compl. ¶ 70.) Plaintiffs' equal protection claim is based on the same allegations of disability discrimination used to support their due process claim.
A disability, such as autism, is "not `a quasi-suspect classification calling for a more exacting standard of judicial review than is normally accorded economic and social legislation.'" Cleburne, 473 U.S. at 442, 105 S.Ct. 3249. Nevertheless, at this stage Plaintiffs need only have plead that a state actor had an intent to disadvantage all members of a class that includes the Minor-Plaintiff BM. See generally Crawford-El v. Britton, 523 U.S. 574, 592, 118 S.Ct. 1584, 140 L.Ed.2d 759 (1998). Plaintiffs have alleged that Defendant Wzorek repeatedly discriminated against the Minor-Plaintiff and other autistic students in her class by inflicting physical and emotional abuse upon them, but did not so discriminate against her other special education students. (Compl. ¶ 70.)
Accordingly, Defendants' motions to dismiss Count II of Plaintiffs' Complaint to the extent it alleges a violation of the Equal Protection Clause will be denied.
III. 42 U.S.C. § 1983 CountI
Plaintiffs seek to hold the School District, NEIU, and its employees liable under Title 42, United States Code, section 1983 for their actions, or inactions, with respect to the Minor-Plaintiff. The theory of respondeat superior cannot be the basis for such liability; "[r]ather, a municipality may be held liable only if its policy or custom is the `moving force' behind a . . . violation." Sanford v. Stiles, 456 F.3d 298, 314 (3d Cir.2006) (citing Bd. of County Comm'rs v. Brown, 520 U.S. 397, 400, 117 S.Ct. 1382, 137 L.Ed.2d 626 (1997) and Monett v. Dep't of Soc. Servs., 436 U.S. 658, 690, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978)).
In the instant Complaint, Plaintiffs aver that the alleged violations under the IDEA resulted from a policy, custom, or practice of the School District and NEIU. To prevail on the section 1983 claim at trial, Plaintiffs will need to demonstrate that a School District or NEIU employee(s) violated BM's federally protected rights while implementing an official policy, custom, or practice of the School District. See Hill v. Borough of Kutztown, 455 F.3d 225, 245 (3d Cir.2006) (describing the circumstances under which an individual's conduct implements an official policy or practice).
*442 At this stage, the allegations as set forth in Plaintiffs' Complaint are sufficient to survive a motion to dismiss. Therefore, the Court will deny Defendants' motions to dismiss the § 1983 claim.
B.) Plaintiffs' Tort Claims against Defendant Wzorek Counts IV, V, VI, and VII
I. Count IV Assault and Battery
In Pennsylvania the common law torts of assault and battery are consolidated under the term "assault", and a person is guilty of assault if he either "attempts to cause or intentionally, knowingly or recklessly causes bodily injury to another" or "attempts by physical menace to put another in fear of imminent serious bodily injury." Commonwealth v. Jackson, 907 A.2d 540, 545 (Pa.Super.Ct.2006) (citing 18 PA. CONS.STAT. ANN. § 2701(a)).
Certainly, Defendant Wzorek's alleged acts of corporal punishment against the Minor-Plaintiff constitute acts that, when viewed in the light most favorable to the Plaintiffs, make dismissal of this Count inappropriate.
II. Count V Intentional Infliction of Emotional Distress
"To prove a claim of intentional infliction of emotional distress, the following elements must be established: (1) the conduct must be extreme and outrageous; (2) it must be intentional or reckless; (3) it must cause emotional distress; (4) that distress must be severe." Hoy v. Angelone, 456 Pa.Super. 596, 691 A.2d 476, 482 (Pa.1997). Extreme and outrageous conduct is conduct which is "so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized society." Strickland v. Univ. of Scranton, 700 A.2d 979, 987 (Pa.Super.1997). Generally, "the case is one in which the recitation of the facts to an average member of the community would arouse his resentment against the actor, and lead him to exclaim, `outrageous'!" Id.
Defendant Wzorek's alleged acts of corporal punishment against Minor-Plaintiff BM could reasonably be considered extreme and outrageous and having been performed intentionally. Further, Plaintiffs have averred that the Minor-Plaintiff suffered severe emotional distress, including but not limited to post-traumatic stress disorder, fear, and developmental delays as a result of Defendant Wzorek's alleged acts.
Accordingly, dismissal of this Count is inappropriate at this stage.
III. Count VI Breach of Fiduciary Duty
The basic duties which arise from the teacher-student relationship are a duty to supervise, a duty to exercise good judgment, and a duty to instruct as to correct procedures, particularly, not but exclusively, when potentially hazardous conditions or instrumentalities are present, and these basic duties must co-exist with the whole purpose for the teacher-student relationship, viz. education. Bottorf v. Waltz, 245 Pa.Super. 139, 369 A.2d 332, 334 (Pa. Super.Ct.1976) (citing a summary of the applicable law in another jurisdiction).
Under Pennsylvania law, "[t]he general test for determining the existence of a [fiduciary] relationship is whether it is clear that the parties did not deal on equal terms." Frowen v. Blank, 493 Pa. 137, 425 A.2d 412, 416 (1981). Indeed, a fiduciary relationship "is not confined to any specific association of the parties." Leedom v. Palmer, 274 Pa. 22, 117 A. 410, 411 (1922). Rather, a fiduciary relationship will be found to exist "when the circumstances make it certain the parties do *443 not deal on equal terms, but, on the one side there is an overmastering influence, or, on the other, weakness, dependence, or trust, justifiably reposed; in both an unfair advantage is possible." Id.; see also In re Estate of Clark, 467 Pa. 628, 359 A.2d 777, 781 (1976) (a fiduciary relationship exists "as a matter of fact whenever one person has reposed a special confidence in another to the extent that the parties do not deal with each other on equal terms, either because of an overmastering dominance on one side, or weakness, dependence or justifiable trust, on the other"); Drob v. Jaffe, 351 Pa. 297, 41 A.2d 407, 408 (1945) (a fiduciary relationship "exists wherever one occupies toward another such a position of advisor or counsellor as reasonably to inspire confidence that he will act in good faith for the other's interest"). One in a fiduciary relationship with another is under a duty to act solely in the interest of that person. McCarrell v. Cumberland County Employees Retirement Bd., 120 Pa.Cmwlth. 94, 547 A.2d 1293, 1296 (Pa. Commw.Ct.1988); see also Leedom, 117 A. at 411 (a fiduciary relationship "is one wherein a party is bound to act for the benefit of another, and can take no advantage to himself'). Failure to act in the other's interest results in breach of the duty imposed by the fiduciary relationship. RESTATEMENT (SECOND) OF TORTS § 874 (1979).
Certainly, Defendant Wzorek, as the special education teacher in charge of the instruction of Minor-Plaintiff BM, a child with autism, was in an overmastering position in this relationship, and was trusted and depended upon by BM to exercise sound judgment in handling his care and instruction. Consequently, when viewed in the light most favorable to the Plaintiffs, Defendant Wzorek's motion to dismiss this Count must be denied.
IV. Count VII Negligence
It has long been held in this Commonwealth that to succeed on a negligence theory, four elements must be present: 1) a duty recognized by law requiring the actor to conform to a certain standard of conduct; 2) failure by the actor to observe this standard; 3) causation between the conduct and injury; and 4) actual damages. Tomko v. Marks, 412 Pa.Super. 54, 602 A.2d 890, 892 (Pa.Super.Ct.1992) (citing Casey v. Geiger, 346 Pa.Super. 279, 499 A.2d 606, 612 (Pa.Super.Ct.1985)).
Plaintiffs' Complaint alleges that Defendant Wzorek negligently, carelessly, and recklessly breached her duty to render educational services with reasonable care for the heightened needs of her special education students, including for the Minor-Plaintiff (Compl. ¶¶ 01-02), and that as a direct and proximate result of this negligence BM suffered and will continue to suffer various injuries (¶¶ 103-04).
As averred in the Complaint, however, the abusive conduct that Defendant Wzorek is accused of was intentional, not negligent. Consequently, Defendant Wzorek's motion to dismiss will be granted as to Plaintiffs' Count VII.
C.) Plaintiffs' Tort Claims against Organizational Defendants and Supervisor Defendants Counts IX, X, XI, XII
I. IMMUNITY ISSUES
a.) The Political Subdivision Tort Claims Act
Defendants The School District of Abington Heights and NEIU, as a school district and intermediate unit, respectively, are "local agencies" as defined by the Political Subdivision Tort Claims Act, 42 PA. CONS.STAT. ANN. § 8541 et seq. ("PSTCA"), and therefore argue that they are immune from Plaintiffs' state law tort claims pursuant *444 to this statute. Under the PSTCA, local agencies are immune from liability "for any damages on account of any injury to a person or property caused by any act of the local agency or an employee thereof or any other person." 42 PA. CONS.STAT. ANN. § 8541. This immunity "is waived under § 8542 to the extent the agency would otherwise be liable for a narrow subset of negligent acts by its agents or employees."[2] None of these exceptions apply to this case. Therefore, the general grant of immunity in section 8541 controls and insulates the Organizational Defendants from liability for Plaintiffs' tort claims. Furthermore, the Organizational Defendants, as local agencies under the PSTCA, cannot be held liable for punitive damages. Marko v. City of Phila., 133 Pa.Cmwlth. 574, 576 A.2d 1193, 1194 (Pa. Commw.Ct.1990). Accordingly, the Court will grant Defendants the School District and NEIU's motions to dismiss as to all state-law tort claims contained in Counts IX, X, XI, XII, and the punitive damages claim contained in Count XIII, of Plaintiffs' Complaint.
Note, however, that the PSTCA cannot immunize a municipality or political subdivision against a federal cause of action. Wiehagen v. Borough of N. Braddock, 126 Pa.Cmwlth. 353, 559 A.2d 991 (Pa. Commw.Ct.1989), aff'd, 527 Pa. 517, 594 A.2d 303 (1991). The governmental immunity statute, although effective against a state tort claim, has no force when applied to suits under the Civil Rights Acts. Cooper v. City of Chester, 810 F.Supp. 618 (E.D.Pa.1992); Stock v. Forbes Health Sys., 697 F.Supp. 1399 (W.D.Pa.1988). Accordingly, the PSTCA has no application to Plaintiffs' causes of actions contained in Counts I-III, and those Counts will survive against the Organization Defendants to the extent described in the attached order.
b.) Official Immunity
The Plaintiffs argue that the Supervisor Defendants forfeited their official immunity by committing acts of willful misconduct. "Willful misconduct". is more than mere negligence or even gross negligence. For purposes of section 8550 of the PSTCA, "willful misconduct" has the same meaning as the term "intentional tort." Delate v. Kolle, 667 A.2d 1218, 1221 (Pa.Commw.Ct.1995); see also, Black's Law Dictionary 54 (7th ed.1999), which defines "willful misconduct" as "misconduct committed voluntarily and intentionally." In Evans v. Phila. Transp. Co., 418 Pa. 567, 212 A.2d 440, 443 (1965), the Pennsylvania Supreme Court defined "willful misconduct" to mean that "the actor desired to bring about the result that followed, or at least that he was aware that it was substantially certain to ensue." It is a step beyond "wanton misconduct," which "means that the actor has intentionally done an act of an unreasonable character, in disregard of a risk known to him or so obvious that he must be taken to have been aware of it, and so great as to make it highly probable that harm would follow. It usually is accompanied by a conscious indifference to the consequences." Gaul v. Consol. Rail Corp., 383 Pa.Super. 250, 556 A.2d 892, 898 (Pa.Super.Ct.1989) (quoting PROSSER, TORTS § 33 at 151 (2nd ed.1955)).
In light of the liberal notice-pleading provisions under the Federal Rules of Civil Procedure, Plaintiffs' Complaint has adequately set forth facts from which it may reasonably be inferred that the Supervisor Defendants committed acts of *445 willful misconduct, thus forfeiting their official immunity. Plaintiffs have alleged that the Supervisor Defendants knew, and failed to act upon the knowledge, that Defendant Wzorek had committed abusive acts towards the Minor-Plaintiff and other autistic students, and that this conduct was likely to occur again. It is of little moment that certain named Defendants are not prominently mentioned throughout the Complaint. At this stage of the proceedings, the Supervisor Defendants' failure to take appropriate action after being put on notice of Defendant Wzorek's alleged abuse of students amounted to "willful misconduct" for which they are not entitled to official immunity under the PSTCA. Accord DiSalvio v. Lower Merion High Sch. Dist., 158 F.Supp.2d 553.
c.) Qualified Immunity
Additionally, the Supervisor Defendants argue that they enjoy qualified immunity. With regard to the federal claims, public officials generally enjoy qualified immunity for their actions unless those actions violate clearly established constitutional rights of which a reasonable person would know. See, e.g., Anderson v. Creighton, 483 U.S. 635, 639-41, 107 S.Ct. 3034, 97 L.Ed.2d 523 (1987); Harlow v. Fitzgerald, 457 U.S. 800, 817-18, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). Defendants bear the burden of establishing that they enjoy qualified immunity. See Ryan v. Burlington County, 860 F.2d 1199, 1204 n. 9 (3d Cir.1988). The Supervisor Defendants have not carried that burden. Any reasonable person would have known that acting in the alleged manner would violate the Minor-Plaintiff's well-established rights to bodily integrity and equal protection of the laws.
Further, while an agency's employees generally enjoy qualified immunity to the same extent as does the agency itself, employees do not have such protection where their actions constitute misconduct". See 42 PA. CONS.STAT. ANN. § 8850. "While `willful misconduct' generally refers to intentional torts, it can also mean . . . misconduct `whereby the actor . . . was aware that [a result] was substantially certain to follow, so that desire [that a particular outcome results] can be implied.'" DiSalvio, 158 F.Supp.2d at 564 (citing Owens v. City of Phila., 6 F.Supp.2d 373, 394-95 (E.D.Pa.1998)). Based on the allegations of the Complaint, none of the Supervisor Defendants have carried their burden of showing that they enjoy qualified immunity for their actions, or failures to act. Plaintiffs have alleged facts particularly Celli and Medeiros' communications sufficient to give rise to the reasonable inference that these Defendants were on notice about Defendant Wzorek's alleged abusive acts and knew or should have known that their nonfeasance would allow the abuses to continue. Because these Defendants were aware that continued abuse of Minor-Plaintiff, amongst others, was substantially certain to follow if they did not act, their desire that it continue can be implied. Accordingly, based solely on the allegations of the Complaint, read in the light most favorable to the Plaintiffs, the Supervisor Defendants do not enjoy qualified immunity against Plaintiffs' state-law tort claims that have been raised against them.
II. Count IX Vicarious Liability
Under Pennsylvania law, "an employer is held vicariously liable for the negligent acts of his employee which cause injuries to a third party, provided that such acts were committed during the course of and within the scope of the employment." Fitzgerald v. McCutcheon, 270 Pa.Super. 102, 410 A.2d 1270, 1271 (Pa.Super.Ct.1979). "In certain circumstances, liability of the employer may also extend to intentional or criminal acts committed by the employee." Id. "The conduct of an *446 employee is considered `within the scope of employment' for purposes of vicarious liability if: (1) it is of a kind and nature that the employee is employed to perform; (2) it occurs substantially within the authorized time and space limits; (3) it is actuated, at least in part, by a purpose to serve the employer; and (4) if force is intentionally used by the employee against another, the use of force is not unexpected by the employer." R.A. ex rel. N.A. v. First Church of Christ, 748 A.2d 692, 699 (Pa.Super.Ct.2000). "Where, however, the employee commits an act encompassing the use of force which is excessive and so dangerous as to be totally without responsibility or reason, the employer is not responsible as a matter of law." Fitzgerald, 410 A.2d at 1272. Indeed, "a master is not liable for the willful misconduct of his servant, and that such willful misconduct, while it may be within the course of the employment, is not within the scope thereof." McMaster v. Reale, 177 Pa.Super. 429, 110 A.2d 831, 832 (Pa.Super.Ct.1955).
In addition, Pennsylvania courts have held that "an assault committed by an employee upon another for personal reasons or in an outrageous manner is not actuated by an intent to perform the business of the employer and, as such, is not within the scope of employment." Fitzgerald, 410 A.2d at 1272. For example, in Sanchez by Rivera v. Montanez, 165 Pa. Cmwlth. 381, 645 A.2d 383 (Pa. Commw.Ct.1994), a child and his parents sued a community action agency, alleging that the agency was vicariously liable for an employee's sexual molestation of the plaintiff child. The Commonwealth Court of Pennsylvania affirmed the trial court's entry of summary judgment in the defendant agency's favor, holding that the employee's actions were clearly outrageous and motivated purely by personal reasons. Id. at 391, 645 A.2d 383.
In this case, Plaintiffs have alleged actions by Defendant Wzorek which would constitute violations of the Pennsylvania School Code, and can in no fashion be said to have been undertaken, even in part, to serve her employers. Nor could these alleged intentional uses of aversive techniques have been expected by any of the Supervisor Defendants, since such techniques are specifically excluded from Title 22 of the Pennsylvania School Code's list of positive approaches to behavior management of special needs students. (Compl. ¶ 31.)
Defendant Wzorek's alleged abusive acts, therefore, should be considered outside the scope of her employment, since they were performed in an outrageous manner and were not actuated by an intent to perform the business of her employer, and therefore her employers can not be held liable for these actions on a theory of respondeat superior. Accordingly, Defendants' motions to dismiss will be granted as to Count IX of Plaintiffs' Complaint.
III. Count X Intentional Infliction of Emotional Distress
The Court has delineated above the applicable Pennsylvania law to maintain a cause of action for intentional infliction of emotional distress. To reiterate briefly, this tort requires outrageous conduct that would arouse resentment against the actor because his actions exceed all possible bounds of decency. Strickland, 700 A.2d at 987. While the Supervisor Defendants are clearly not as culpable as Defendant Wzorek, their alleged concealment, or at the very least, inactivity, in the face of Celli and Medeiros' repeated warnings, constitutes outrageous behavior. While it may be that the evidence revealed through discovery will show otherwise, the allegations of the Complaint, and all reasonable *447 inferences to be drawn therefrom, make out a case for intentional infliction of emotional distress against the School District Defendants. Accordingly, dismissal of Count X is inappropriate at this time.
IV. Count XI Breach of Fiduciary Duty
The court has previously described the applicable law in Pennsylvania to make out a prima facie case of breach of fiduciary duty.
The Supervisor Defendants were clearly in an overmastering position in their relationships vis-a-vis the Minor-Plaintiff, and were trusted and depended upon, and indeed carried the obligation, to supervise Defendant Wzorek and insure that the Minor-Plaintiff receive a safe and proper education. The Supervisor Defendants' alleged actions, or inactions, after being warned by Mses. Celli and Medeiros of Defendant Wzorek's alleged behavior represents a failure to act in the interest of the Minor-Plaintiff, and consequently a breach of the duty imposed by the fiduciary relationship. Consequently, when viewed in the light most favorable to the Plaintiffs, the Defendants' motions to dismiss this Count must be denied.
V. Count XII Negligence
An employer owes a duty "to exercise reasonable care in selecting, supervising and controlling employees." R.A. ex rel. N.A., 748 A.2d at 697. The Supreme Court of Pennsylvania has held that, "[t]o fasten liability on an employer[,] it must be shown that the employer knew or, in the exercise of ordinary care, should have known of the necessity for exercising control of his employee." Dempsey v. Walso Bureau, Inc., 431 Pa. 562, 246 A.2d 418, 422 (1968) (stating that, in a case in which an employee committed an assault, the employer may be liable for the failure to exercise reasonable care in determining the employee's propensity for violence).
In this case, negligent hiring is not in issue. Plaintiffs have made no allegation that the School District or NEIU, or any of the Supervisor Defendants, had any knowledge that Defendant Wzorek had a history of abusive or aggressive physical behavior towards students with whom she had come in contact, thus placing them on notice of Wzorek's propensity for this type of behavior, at the time of her hiring. Thus, dismissal of this Count will be granted to the extent that it states a cause of action for negligent hiring of Defendant Wzorek.
Once Mses. Celli and Medeiros notified the Supervisor Defendants of Ms. Wzorek's alleged abusive behavior towards the Minor-Plaintiff and other students, however, they were properly put on notice of Wzorek's potential inclination towards behavior of this manner. Where a plaintiff can establish that a school knew or reasonably should have known of such a propensity, the school will generally be liable for the foreseeable abuse of students by that employee. Accord Hutchison ex rel. Hutchison v. Luddy, 560 Pa. 51, 742 A.2d 1052, 1059 (1999).
Accordingly, when viewing all of the alleged facts in the light most favorable to the Plaintiffs, and drawing all reasonable inferences therefrom, dismissal of this Count will be denied to the extent that it states causes of action for negligent supervision and negligent retention.
D.) Civil Conspiracy Count XIV
The ingredients of a cause of action for civil conspiracy were recently summarized in Goldstein v. Philip Morris Inc., 854 A.2d 585, 590 (Pa.Super.Ct.2004), as follows:
In order to state a civil action for conspiracy, a complaint must allege: (1) a *448 combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage. . . . Additionally, absent a civil cause of action for a particular act, there can be no cause of action for civil conspiracy to commit that act.
See also McKeeman v. Corestates Bank N.A., 751 A.2d 655, 660 (Pa.Super.Ct.2000) (citations and internal quotation marks omitted)
Plaintiffs' Complaint fails to state a cause of action for conspiracy. The complaint does not aver any overt act on the part of a Defendant to further the alleged common purpose. The Plaintiffs argue that the "Defendants unlawfully conspired and agreed to conceal the abuses that transpired in Defendant Wzorek's classroom, and agreed not to initiate an investigation [or to] take action to prevent the harm that Defendant Wzorek was inflicting upon the autistic children, including [BM]." (Compl. ¶ 167.) Plaintiffs seem to make the argument that no overt act is required because the alleged conspiracy is one of concealment, thereby contending that inaction by the co-conspirators is sufficient to satisfy the overt act requirement. However, the case law does not support such a proposition. The requirement of an overt act is an essential part of the conspiracy law. Goldstein, 854 A.2d at 590. Concealment may be the basis for a conspiracy claim, but only where there has been an overt act to cover up or conceal. For example, when the Watergate co-conspirators shredded or "deep-sixed" documents, these were overt acts aimed at furthering their common purpose of concealment. The Complaint does not aver any overt act to cover up or conceal Defendant Wzorek's alleged actions.
Accordingly, Defendants' motions to dismiss this Count will be granted.
E.) Punitive Damages Counts VIII & XIII
Under Pennsylvania law, "[p]unitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others." Feld v. Merriam, 506 Pa. 383, 485 A.2d 742, 747 (1984). "As the name suggests, punitive damages are penal in nature and are proper only in cases where the defendant's actions are so outrageous as to demonstrate willful, wanton or reckless conduct." Luddy, 870 A.2d at 770. In determining whether punitive damages are warranted in a particular case, "[t]he state of mind of the actor is vital. The act, or the failure to act, must be intentional, reckless or malicious." Id. at 771. An appreciation of the risk is a necessary element of the mental state required for the imposition of punitive damages. Id. at 772. As such, a showing of mere negligence, or even gross negligence, will not suffice to establish that punitive damages should be imposed. Phillips v. Cricket Lighters, 584 Pa. 179, 883 A.2d 439, 445 (2005). However, notwithstanding this heightened standard, punitive damages may be awarded based on a cause of action sounding in negligence if the plaintiff is able to show that "the defendant's conduct not only was negligent but that the conduct was also outrageous." Luddy, 870 A.2d at 772.
Accordingly, under Pennsylvania law, a punitive damages claim must be supported by evidence sufficient to establish that (1) the defendant had a subjective appreciation of the risk of harm to which the plaintiff was exposed and that (2) he acted, or failed to act, as the case may be, in conscious disregard of that risk. Id. Stated another way, punitive damages will *449 be imposed where the defendant knew or had reason to know of facts which create a high degree of risk of physical harm to another, and deliberately proceeded to act, or failed to act, in conscious disregard of, or indifference to, that risk. Id. at 771 (citation omitted).
At this stage of the proceedings, Plaintiffs have made adequate factual allegations to support a punitive damages claim against Defendant Wzorek and the Supervisor Defendants. See, e.g., DiSalvio, 158 F.Supp.2d 553, 562 n. 10 (quoting Coleman v. Kaye, 87 F.3d 1491, 1497 (3d Cir.1996)). Accordingly, dismissal of Counts VIII and XIII is inappropriate at this juncture.
CONCLUSION
For the reasons set forth above, the Court will grant in part and deny in part Defendants' motions to dismiss as described in detail in the Order that follows.
ORDER
NOW, this 15th day of May, 2007, IT IS HEREBY ORDERED that:
(1) Defendants' motions to dismiss (Docs.5, 6, 7) will be GRANTED in part and DENIED in part as to Count II as follows:
a.) GRANTED as to the Procedural Due Process claim;
b.) GRANTED as to the Substantive Due Process claim as it relates to Defendants' failure to provide the Minor-Plaintiff with a free appropriate public education;
c.) DENIED as to the Substantive Due Process claim as it relates to Defendants' failure to protect the Minor-Plaintiff's bodily integrity;
d.) DENIED as to the Equal Protection Claim.
(2) Defendant Susan Comerford Wzorek's motion to dismiss (:Doc. 5) is GRANTED in part and DENIED in part as follows;
a.) GRANTED as to Counts VII and XIV;
b.) DENIED as to Counts I, III, IV, V, VI, and VIII.
(3) Defendants Northeastern Education Institute Unit 19's (Doc. 6) and the School District of Abington Heights' (Doc. 7) motions to dismiss are' GRANTED in part and DENIED in part as follows:
a.) GRANTED as to Counts IX, X, XI, XII, XIII, and XIV based on these local agencies' right to assert immunity from state tort claims and punitive damages pursuant to the Pennsylvania Political Subdivision Tort Claims Act;
b.) DENIED as to Counts I and III.
(4) Defendants Fred. R. Rosetti, Ed.D., and Clarence Lamanna, Ed.D.'s motion to dismiss (Doc. 6) and Defendants David Arnold, Ed.D., William McNulty, and Mariellen Sluko's motion to dismiss (Doc. 7) is GRANTED in part and DENIED in part as follows:
a.) GRANTED as to Counts IX and XIV and to Count XII to the extent that it states a claim for negligent hiring of Defendant Wzorek;
b.) DENIED as to. Counts I, III, X, XI, XIII, and to Count XII to the extent that it states a claim for negligent supervision and negligent retention of Defendant Susan Comerford Wzorek.
NOTES
[1] The IDEA imposes on school districts the so-called "child find" duty, which requires that they have a system in place to identify, locate, and evaluate all children with disabilities residing in their district. 20 U.S.C. § 1412(a)(3); Lauren W. ex rel. Jean W. v. Deflaminis, 480 F.3d 259, 275 (3d Cir.2007).
[2] These acts include liability arising from (1) the operation of motor vehicles, (2) the care, custody or control of personal property, (3) the care, custody or control of real property, (4) trees, traffic controls and street lighting, (5) utility service facilities, (6) streets, (7) sidewalks, and (8) the care, custody or control of animals. 42 PA. CONS.STAT. ANN. § 8542(b).
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553 F.Supp. 1052 (1982)
ZENITH RADIO CORPORATION, et al., Plaintiffs,
v.
UNITED STATES, et al., Defendants.
Consolidated Court No. 81-6-00734.
United States Court of International Trade.
November 18, 1982.
Frederick L. Ikenson, P.C. by Frederick L. Ikenson, Washington, D.C., for Zenith.
Dept. of Justice, Commercial Litigation Branch by Shiela N. Ziff, Joseph I. Liebman, New York City, for the United States.
Collier, Shannon, Rill & Scott by Paul D. Cullen, Paul C. Rosenthal, Washington, D.C., for COMPACT.
Arent, Fox, Kintner, Plotkin & Kahn by Robert H. Huey, Washington, D.C., for intervenors Toshiba Corp., Toshiba America, Toshiba Hawaii, Inc.
Baker & McKenzie by Thomas P. Ondeck, Washington, D.C., for intervenors Mitsubishi Electric Corp. and Mitsubishi Electric Sales America, Inc.
Weil, Gotshal & Manges by Stuart M. Rosen, New York City, for intervenors Victor Co. of Japan, Ltd., U.S. JVC Corp., Matsushita Electric Industrial Co., Ltd., Panasonic Co. and Quasar Co., Panasonic Hawaii, Inc. and Panasonic Sales Co.
Tanaka, Walders & Riter by Lawrence R. Walders, Patrick O'Leary, New York City, for intervenors Nippon Electric Co., Ltd. and NEC; Hitachi Ltd., Hitachi Sales Corp. of America, and Hitachi Sales Corp. of Hawaii.
Wender, Murase & White by Peter J. Gartland, Robert D. Pilliero, New York City, for intervenor Sharp Electronics Corp.
Siegel, Mandel & Davidson, P.C. by Brian S. Goldstein, New York City, for intervenor General Corp. of Japan.
*1053 Memorandum Opinion and Order
LANDIS, Judge:
In this action brought pursuant to section 751(a) of the Tariff Act of 1930, as amended (19 U.S.C. § 1675(a)), plaintiff Zenith Radio Corporation (Zenith) moves to preliminarily enjoin the defendants from liquidating any entries of television receivers entered or withdrawn from the warehouse for consumption during the period April 1, 1979 through and including March 31, 1980 which are subject to T.D. 71-76 other than those produced by Orion Electric Co., Ltd. and exported by Otake Trading Co., Ltd. The particular annual review decision in issue was published in the Federal Register on June 5, 1981, 46 Fed.Reg. 30163. Defendants and defendant intervenors oppose Zenith's motion and each have filed memorandums in opposition thereto.
Zenith basically claims that if the impending liquidations are not enjoined it will be irreparably injured in that it will have lost its right to judicial review and its competitors will have been erroneously assessed no or de minimis amounts of antidumping duties. It further claims that it has a substantial likelihood of success on the merits and that no substantial harm would result to other parties. Finally, Zenith argues that it is in the public interest that Commerce faithfully execute the laws enacted by Congress and that the court not be ousted of its jurisdiction by having the case become moot.
Defendants and defendant intervenors argue that liquidation of the involved entries will not render this action moot. They argue that liquidation pending judicial review is the rule rather than the exception and is consistent with Congressional intent and statutorily provided by Section 516A(c)(1) as amended (19 U.S.C. § 1516a(c)(1)).
Defendants further argue that Section 751(a), (19 U.S.C. § 1675(a)) has a dual purpose in that it establishes (1) the basis for the assessment of antidumping duties on entries of the merchandise included within the determination and, (2) the basis for the deposit of estimated duties on entries of such merchandise on or after the date of publication of that final determination pending completion of the next annual administrative review proceeding. Defendants argue that the next annual review proceeding pursuant to 751(a) (involving post March 31, 1980 entries) are pending and cannot be liquidated until the instant 751(a) annual review is completed and the final determination published. Therefore, defendants state Zenith's right to review of the issues raised in its pleading is fully preserved.
A preliminary injunction is an extraordinary remedy that should not be routinely granted. Medical Society of the State of New York v. Toia, 560 F.2d 535, 538 (2nd Cir.1977); Flintkote Company v. Blumenthal, 469 F.Supp. 115, 125-126 (N.D.N.Y. 1979), aff'd 596 F.2d 51 (2nd Cir.1979); Wright & Miller, Federal Practice & Procedure: Civil, § 2948. It is now well established that generally four conditions must be met before a preliminary injunction is granted. There must be a threat of immediate irreparable harm; a showing that the public interest would be better served by issuing than by denying the injunction; that there is a likelihood of success on the merits; and that the balance of hardship on the parties favors the party seeking injunctive relief. S.J. Stile Associates Ltd., et al. v. Dennis Snyder, et al., 68 CCPA ___, C.A.D. 1261, 646 F.2d 522 (1981); Asher v. Laird, 475 F.2d 360 (D.C.Cir.1973); American Air Parcel Forwarding Company, Ltd., A Hong Kong Corporation v. United States, 1 Ct. Int'l. Trade 293, 515 F.Supp. 47 (1981); PPG Industries, Inc. v. United States, et al., 2 CIT ___ Slip Op. 81-59 (July 6, 1981). The burden of establishing a right to injunctive relief by demonstrating that irreparable injury will result absent such relief falls squarely upon the party seeking the injunction Joseph Bancroft & Sons Co. v. Shelley Knitting Mills, Inc., 268 F.2d 569 (3rd Cir.1959).
A review of the papers in support of the preliminary injunction and other documents and papers filed in this action indicates that plaintiff Zenith (hereinafter *1054 plaintiff) has not sufficiently met its burden of establishing its right to a preliminary injunction.
In antidumping proceedings liquidation is specifically provided for in 19 U.S.C. § 1516a(c)(1) and the enjoining of such liquidation is specifically provided for in 19 U.S.C. § 1516a(c)(2). The court must look to the intent of Congress in enacting these two sections when considering injunctive relief in antidumping cases.
Plaintiff baldly alleges that liquidation in the instant case would essentially moot the case and oust the court of jurisdiction. Plaintiff gives no concrete explanation for its assertion. Presumably, plaintiff believes that once liquidation occurs it will be unable to enforce higher antidumping duties on the imported merchandise. However, this premise would be true in every anti-dumping action brought before the court. The consequences of liquidation in every 751(a) review action and every antidumping duty action applies equally to all. Under plaintiff's argument, any liquidation prior to a final decision of this court would constitute irreparable harm per se and would therefore qualify every litigant contesting an antidumping determination for a preliminary injunction provided the other factors necessary for an injunction were met.
Plaintiff's position is in clear conflict with the wording and format of 19 U.S.C. § 1516a(c)(1) and (c)(2). 19 U.S.C. § 1516a(c)(1) clearly provides for liquidation of entries of the merchandise in accordance with the determination of the administering authority. This is the general rule to be used in the normal course of events.
Congress, however, did see fit to carve out an exception to liquidation by enacting 19 U.S.C. § 1516a(c)(2) which provides for enjoining liquidations upon a proper showing by an interested party that it should be granted such relief under the circumstances.
It is at once apparent that had Congress desired to make liquidation an element of irreparable harm per se it would have done so by specifically providing that no liquidation of entries of imported merchandise take place until a final decision of the Court of International Trade. Rather, Congress carved out a narrow exception with stringent guidelines to be met before enjoining liquidation.[1]
Instructive on this point is the legislative history accompanying the Trade Agreements Act of 1979. Specifically, S.Rep. No. 96-249, 96th Cong., 1st Sess. 253 (1979), U.S.Code Cong. and Admin.News, pp. 381, 638-639.
Section 516A will remedy this problem by empowering the court to issue an injunction restraining liquidation while the litigation is pending. However, due to the commercial uncertainty relating to the suspension of liquidation, section 516A specifies certain factors which the court must take into account before injunctive relief may be issued and makes the grant or denial of injunctive relief immediately appealable. These factors are specified in the statute so as to make it clear that the issuance of injunctive relief is truly an extraordinary measure and that the relief should not be granted in the ordinary course of events. (emphasis supplied.)
Although Congress repealed the four enumerated criteria (footnote 1, infra) it did not repeal its basic intent that enjoining liquidation in an antidumping proceeding should not be granted in the ordinary course of events. Had the intent been otherwise Congress would have enacted legislation withholding liquidation until a final decision by this court.
Recent case law sheds additional light on this subject. In Smith-Corona Group, Consumer *1055 Products Division, SCM Corporation v. United States et al., 1 CIT 89, 507 F.Supp. 1015 (1980), Judge Newman granted plaintiff's application to enjoin liquidation of entries (covering a span of four months) pending final determination of the antidumping suit by the court. In so doing Judge Newman found that plaintiff successfully carried his burden of meeting the four criteria for injunctive relief.
Most instructive is the finding that plaintiff would suffer irreparable harm absent the enjoining of relief. Specifically, the court stated:
Additionally, I find that plaintiff would suffer irreparable harm if liquidation of the entries covered by the early antidumping determination were not enjoined. It appears that in 1980 plaintiff has continued to experience substantial adverse operating results in its PET business, at least partly due to the less than fair value sales by the Japanese manufacturers. To buttress its argument that injunctive relief is necessary to prevent irreparable harm to its PET business, plaintiff cites statistics showing that increased imports of PETs from Japan in 1980 over 1979 have captured an additional share of the market this year at the expense of plaintiff. Moreover, plaintiff's statistics demonstrate that plaintiff continues to suffer a decline in: operating income, return on net sales, production and United States sales. Plaintiff has also shown that its inventories of United States produced PETs have substantially increased, and that there has been a continuation of price suppression.
It further appears from an affidavit executed by plaintiff's vice-president and general manager that substantial numbers of Japanese made PETs imported earlier this year remain in inventory. Liquidation of the subject entries prior to the final decision in this case would allow any inventoried units to escape the imposition of the correct amount of antidumping duties if plaintiff prevailed on any of the contested adjustments to the foreign market value.
SCM, supra at 1022-1023.
Thus, in SCM the court did not simply enjoin liquidation because it would cause irreparable harm per se. Rather, the injunction issued after plaintiff's detailed showing of harm to its business backed up by statistics ranging from operating income, sales and production to remaining inventory of Japanese portable electric typewriters (PETs). SCM presented a far greater degree of proof than mere surface arguments regarding liquidation per se.
As above stated, plaintiff relies heavily upon the mere fact of liquidation per se as the grounds for irreparable harm. There is no detailed showing of the nature of this harm nor are any facts or statistics submitted with the motion that would approach the character of the evidence submitted in SCM, supra. In passing 19 U.S.C. § 1516a Congress did not envision the mere fact of liquidation to be the cornerstone for injunctive relief. Indeed, the statutory language and legislative history clearly bear out the fact that Congress anticipated enjoining liquidation to be the rare exception established only by concrete proof rather than an automatic response granted by the court.
Accordingly, plaintiff's motion for a preliminary injunction is, in all respects, denied.
NOTES
[1] As originally enacted, § 516A(c)(2) as added July 26, 1979, Pub.L. 96-39, Title X, § 1001(a), specifically enumerated four criteria to be met before an injunction enjoining liquidation could issue. These criteria, in effect closely parallel the criteria formulated for issuing a preliminary injunction generally.
In 1980, this statute was amended, See Pub.L. 96-417, §§ 601(7), 608(c), deleting the enumerated criteria as the Customs Court Act of 1980 renamed and gave full equity powers to this court.
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437 F.Supp. 1388 (1977)
MIDAS PRODUCTIONS, INC., Plaintiff,
v.
Max BAER, Jr., Roger Camras, Richard Compton, Samuel Z. Arkoff, American International Pictures and Max Baer Productions, Defendants.
No. CV 76-579-DWW.
United States District Court, C. D. California.
September 30, 1977.
Willard D. Horwich, Willard D. Horwich, Inc., Los Angeles, Cal., for plaintiff.
Lillick McHose & Charles, Kenneth E. Kulzick, Andrew W. Robertson, Los Angeles, Cal., for defendants.
JUDGMENT
DAVID W. WILLIAMS, District Judge.
Plaintiff consists of a group of businessmen-investors, all residing in Tupelo, Mississippi, organized by a physician, who purchased a photoplay script from an amateur author and registered it for protection under § 12 of the Copyright Act on July 15, 1974. The story was called "Rednek Amerika Love it or . . ." It centered around three young people, one of them black, who were traveling by auto and motorcycle from San Francisco to the Deep South. They were made victims of rural bigotry, and were falsely accused of a murder. In fact, the murder was committed by a redneck deputy sheriff who organized the search party to look for the youths.
Plaintiffs contracted for the services of Max Baer to play the role of Billy Bob, the deputy sheriff, and production of the film was begun in Tupelo. After a day or two of shooting, Baer complained that the script was inferior and the director incompetent. He returned to Hollywood, taking a copy of the script with him, ostensibly to have another writer examine it to see if it could be rewritten. He gave a copy of the script to defendant, Richard Compton, a talented playwright; but Baer was unable to get the plaintiffs to engage Compton for the purposes of making suggested changes in the story. This effectively ended Baer's connection with the Tupelo company, although the company continued with its efforts to *1389 make a film. After several false starts, the Tupelo people finally managed to put together a revised script of "Rednek" and made a film which has to this date not been distributed.
Shortly after returning from Mississippi, Baer conceived the idea to write a script about young people with long hair making a trip from California to the Deep South. He secured the writing talents of Compton to aid in putting the story together. Baer organized his own group of investors who financed the filming of the story, with Baer acting in the capacity of both actor and producer. The picture was made in or near Sacramento, California, and was given the title of "Macon County Line." After considerable trouble in getting a distributor to purchase it, the picture was finally sold to defendant, American International Pictures, who marketed it for a phenomenal gross rental of approximately $10 million. There is no evidence that Baer attempted to secrete from the Tupelo investors the fact that he had written a script of his own. On the contrary, he kept them informed of his new efforts, and solicited their investment into his venture. He also invited them to attend the early screening of the finished film in California, and the wife of the doctor did, in fact, attend.
Plaintiffs filed this copyright infringement action alleging that Baer and Compton copied their copyrighted property in making "Macon County Line." A prima facie case of copyright infringement is established by proof of, 1) access to the allegedly infringed work, and 2) "substantial similarity" between the two works. Nimmer on Copyright §§ 141.2 et seq.; Reyher v. Childrens Television Work Shop, 533 F.2d 87, 90 (2nd Cir. 1976); and Arnstein v. Porter, 154 F.2d 464 (2nd Cir. 1946). There is no question but that defendants, Baer and Compton, had "access" to the script of "Rednek". It is admitted that Baer read the entire document, criticized it, and returned to Hollywood with a copy of it. There is also evidence that this copy was given to Compton who testified that he read approximately half of it. The principal issue is whether "Macon" was "substantially similar" to plaintiff's property.
Plaintiff's expert witness, who holds a doctor's degree in English, compared the two pieces and found substantial similarity as to plot, characters, setting and theme. She pointed out the following similarities of plot:
1. Three young people travel through the South.
2. While stopped at a service station, they are warned by a lawman to "keep moving."
3. Their vehicle becomes stranded after a breakdown.
4. They camp out.
5. A murder occurs, and circumstantial evidence suggests the trio to be guilty of the murder.
6. The trio is pursued.
7. One of the young people in "Rednek" is murdered and two of them in Macon are murdered.
The witness further pointed out that in each of the scripts the members of the trio were in their early 20s and wore long hair. In each script there was a romantic involvement between a female hitchhiker who joined them and one of the group, and that this relationship included a scene of nude frolicking in the water. The witness also pointed out that both "Rednek" and "Macon County Line" had a scene in a service station in which the service station operator's wife was depicted as a fat, course, country woman. Additionally, there was a scene common to both that took place in a diner in which the young travelers "ripped off" the cafe owner.
Defendants produced witnesses who were conversant with the writing and producing of "exploitation" type films. Those witnesses offered a laundry-list of pictures, both before and after the authorship of "Rednek", all of which were woven around a familiar matrix of ideas which, according to the witnesses, are common to all pictures which show young people of the '60s "on the move." These pictures included most of the following components:
*1390 1. Long-haired males in their early 20s traveling in a rural or Deep South area on motorcycles, vans or automobiles. The vehicles are shown to be unusual in construction and of the type that appeals to young people.
2. The trip is financed by the sale of drugs.
3. An attractive female hitchhiker is picked up along the way and becomes involved with one of the males in sexual encounters which culminate in a scene of nude bathing in a lake, stream or water tank.
4. The vehicle becomes disabled and help is sought at a dilapidated country service station or garage operated by a redneck type who barters for the cost of repairs.
5. A lawman, as well as other local country people, encounter the long-haired strangers, treat them with disdain, and subject them to ridicule and assault.
6. A scene is developed in a country diner during which one of the young people makes his exit after a full meal without paying the bill.
7. A murder occurs under circumstances that focus attention upon the young people as the perpetrators, when, in fact, they are innocent.
8. A chase ensues during which one or more of the young innocents are brutally slain.
Defendants' witnesses point out that the "exploitation" pictures are formulated to appeal to a market that is between the ages of 16 and 24. For this reason the protagonists in these films are young and the older characters are shown as corrupt, lawless, and bigoted.
A comparison of the two scripts indicates that the differences outweigh the similarities. For instance, the temporal settings of stories are dissimilar. "Rednek" depicts the drug culture and hippies of the late 1960s; while "Macon County Line" is set in the 1950s and involves the mischievous, but reasonably wholesome youth of that era. In addition, the characterization of the parallel roles is treated differently. "Rednek's" sheriff is a racist philanderer who kills his wife's lover and then seeks to blame the crime on the protagonists. By contrast, the sheriff in "Macon County Line" is a devoted family man who exhibits much less of the courseness and intolerance of his counterpart. The wife of the sheriff in "Rednek" is shown as promiscuous, in contrast to the portrait of the faithful wife of "Macon County Line." In sum, the contrasts between the movies indicates that the Baer-Compton script was an independent creation.
Plaintiff asserts that the copyright on "Rednek" is infringed. This position misconceives the ambit of their copyright. Copyright protection is given only to the expression of the idea, not the idea itself. Mazer v. Stein, 347 U.S. 201, 217, 74 S.Ct. 460, 98 L.Ed. 630 (1954); Herbert Rosenthal Jewelry Co. v. Kalpakian, 446 F.2d 738 (9th Cir. 1971). Thus, in Baker v. Zelden, 101 U.S. 99, 25 L.Ed. 841 (1879), the Court held that a copyrighted book on a peculiar system of bookkeeping was not infringed by a similar book which achieved similar results but used a different arrangement of the columns and different headings.
In the literary field this rule means that themes and plots are not protected. Shipman v. RKO Pictures, 100 F.2d 533, 538 (2nd Cir. 1938). They are in the public domain. Likewise, there can be no property interest in stereotyped characters. "Almost every story and motion picture about the old west contains some stereotyped roles of hero, heroine and villain. Necessarily, character traits of individuals portraying these roles will exhibit similarities." Funkhouser v. Loews Inc., 208 F.2d 185, 189 (8th Cir. 1955).
Nor does copyright protect against the borrowing of abstract ideas contained in the copyrighted work. Burtis v. Universal *1391 Pictures Co., 40 Cal.2d 823, 256 P.2d 933 (1953), Nimmer § 143.11, p. 621. To grant property status to a mere idea would permit withdrawing the idea from the stock of materials which would otherwise be open to other authors, thereby narrowing the field of thought open to development and exploitation.
I must conclude from the evidence, and from having read plaintiff's script and viewed defendant's film (as well as having viewed "Easy Rider," a pre-Rednek production) that plaintiff's suit for actionable infringement must fail.
Judgment for the defendants.
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644 F.Supp. 1497 (1986)
UNITED STATES of America, Plaintiff,
v.
GENERAL DYNAMICS CORPORATION, James M. Beggs, Ralph E. Hawes, Jr., David L. McPherson, James C. Hansen, Jr., Defendants.
No. CR-85-1123 FFF.
United States District Court, C.D. California.
October 1, 1986.
As Amended October 28, 1986.
*1498 Randy I. Bellows, Michael L. Fayad, Brenda Gruss, Fraud Section, U.S. Dept. of Justice, Washington, D.C., J. Stephen Czuleger, Asst. U.S. Atty., Los Angeles, Cal., for plaintiff.
Thomas P. Sullivan, Robert T. Markowski, Jenner & Block, Chicago, Ill., Stephen D. Miller, Stephen D. Miller, Inc., Beverly Hills, Cal., James J. Gallagher, McKenna, Conner & Cuneo, Los Angeles, Cal., for defendant General Dynamics Corp.
Vincent J. Fuller, Judith A. Miller, Williams & Connolly, Washington, D.C., Bert H. Deixler, McCambridge & Deixler, Los Angeles, Cal., for defendant James M. Beggs.
Thomas E. Holliday, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendant Ralph E. Hawes, Jr.
Max L. Gillam, Karen R. Leviton, Latham & Watkins, Los Angeles, Cal., for defendant David L. McPherson.
Douglas Dalton, Patricia Eckert, Dalton & Godfrey, Los Angeles, Cal., for defendant James C. Hansen, Jr.
MEMORANDUM OPINION
FERNANDEZ, District Judge.
On December 2, 1985, the Grand Jury charged General Dynamics Corporation, James M. Beggs, Ralph E. Hawes, Jr., David L. McPherson, and James C. Hansen, Jr., with conspiracy to defraud the United States. It also charged them with a number of substantive offenses for filing false writings and documents with the Department of Defense (DOD). The latter charges were filed under 18 U.S.C. Section 1001.
Defendants have made a number of pretrial motions. Among them are a Motion to Dismiss the Indictment for Failure to Charge an Offense, and a Motion to Dismiss the Indictment on primary jurisdiction grounds. These motions are the subjects of this Opinion.
I. BACKGROUND
The charges arise out of the activities of the Defendants related to the building of the prototype of a division air defense (DIVAD) gun system. General Dynamics was awarded Contract No. DAAK10-78-C-0058 (hereafter referred to as "the Contract"). The Contract was stated to be a "firm fixed-price (best efforts) contract". Ford Aerospace and Communications Corporation was also awarded a contract to build a DIVAD prototype. The concept of DOD was that these major companies would vigorously compete, and that the prototypes would be involved in a shoot off. A large production contract would then be awarded to the victor.
General Dynamics was to receive forty-one million dollars for work under the Contract. It expended much more than that, and charged a significant part of the extra costs to other funds it had received from DOD. Those funds were for bid and proposal (B & P) and independent research and development (IR & D) tasks.
The Government contends that the Contract was a firm fixed-price contract, and that General Dynamics could only use DIVAD funds to build the prototype, unless it chose to use its own corporate profits to accomplish the Contract's objective. It is said that the people at DOD hoped that General Dynamics would devote its efforts to building the best possible prototype, even if the Contract price was insufficient, since the prospect of winning the ultimate production contract was very attractive. Instead, the Government contends, the Defendants formed a conspiracy to charge the excess costs to the Government by fraudulently using B & P and IR & D funds to pay expenses that should have been charged to DIVAD or absorbed by General Dynamics itself. In order to carry out the conspiracy, the argument goes, the Defendants had to misallocate expenses, create false records, and then make false reports of various kinds to DOD.
The Defendants assert that the Contract was not a firm fixed-price contract, but was a best efforts contract. They further assert *1499 that it was clearly a best efforts contract, and even if it was not, it was at least ambiguous. They go on to assert that charges beyond the Contract price could therefore be made to B & P and IR & D without any impropriety whatever. Certainly, they say, their interpretation was a reasonable one, even if it was incorrect. This forms the basis of their claim that the nature of the Contract is such that it cannot support an allegation of criminal wrongdoing.
Defendants also note that the Contract is an extremely complex document, and that its provisions, and the regulations surrounding it, B & P and IR & D funding are so arcane that this Court should refer the question of their proper construction to the administrative body that has been created to deal with DOD contracts the Armed Services Board of Contract Appeals (hereafter referred to as the "ASBCA" or the "Board").
These issues will now be considered in detail.
II. DISCUSSION
A. The Motion That No Offense Is Stated.
Defendants have made a Motion under Rule 12(b) of the Federal Rules of Criminal Procedure. That motion is to dismiss the indictment on the ground that the Contract, which forms the very core of the indictment, is either so clearly against the assertions made in the indictment, or so ambiguous, that it cannot sustain the weight of a criminal prosecution. As a subsidiary to this argument, they go on to state that the indictment also rests on equally ambiguous regulations regarding the use of B & P and IR & D funds to accomplish the objectives of the Contract.
The Government suggests that the Court cannot even look at the Contract, since its terms are not pled on the face of the indictment, and a motion to dismiss under Rule 12(b) is limited to the face of the indictment itself. This threshold matter must first be considered.
(1) Consideration of the terms of the Contract.
In the Court's opinion, the Government's view of Fed.R.Crim.P. 12(b) is too narrow. That rule permits the Court to consider a motion which is capable of determination without trial of the general issue. That expressly includes motions based upon claimed defects in the indictment itself. The motion to dismiss is used to attack the indictment. It takes the place of what used to be called a demurrer. The Government's position is founded upon the general rule that this type of motion to dismiss requires the Court to consider all well pleaded allegations as true, and should not involve consideration of other evidence. That rule was set forth in Las Vegas Merchant Plumbers Ass'n v. United States, 210 F.2d 732, 741 (9th Cir.1954).
While some courts have stated that one can go beyond the face of the indictment or that one can at least look to the bill of particulars, others take a much more crabbed view and even reject consideration of the bill of particulars itself. In that regard, compare, United States v. Jones, 542 F.2d 661, 665 (6th Cir.1976), and United States v. Carrier, 672 F.2d 300, 303 n. 5 (2d Cir.1982), with United States v. Mann, 517 F.2d 259, 267 (5th Cir.1975), and United States v. Rubbish Removal, Inc., 602 F.Supp. 595, 597-98 (N.D.N.Y.1984). More recently, the Ninth Circuit has outlined its approach to at least some pretrial motions, and has expressed a general view that appears to give district judges a degree of flexibility. See, United States v. Shortt Accountancy Corp., 785 F.2d 1448 (9th Cir.1986).
It is safe to say that the authorities are decidedly against a broad acceptance of evidence when a demurrer-like motion is being considered. However, the Court has not been shown any authority that would preclude referring to matters over which the Court can take judicial notice. This Court is of the opinion that when the propriety of an indictment is considered, judges should be able to and can consider *1500 matters which are the subject of judicial notice in the context of the particular case. That will not cause any untoward expansion of the motion, and will allow it to be decided on principles that comport with reason and good sense, without at the same time converting it into a kind of criminal summary judgment proceeding.
In the case at hand, the Contract is the very subject of the indictment. Its meaning and terms are referred to in the indictment, and neither party can or does take a different position. For example, paragraphs 3 and 4 of the indictment describe the Contract and its requirements. Other paragraphs characterize it as a fixed price contract. (See, for example, paragraph 9). The heart of the conspiracy its purpose is said to have been the charging of expenses to other accounts when they should have been charged to the Contract (paragraph 16). Moreover, this is a contract with the Government itself, and there is absolutely no dispute between the parties about what the terms of the Contract are. They do dispute the meaning of those terms, but the words that are used to convey that meaning are agreed to.
In other words, its terms are subject to accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned, and are not subject to any reasonable dispute in the context of this case. See, Federal Rule of Evidence 201. If those terms make it clear that the indictment should not proceed, it would be a travesty if the Defendants were forced to engage in a lengthy trial with the inevitable result that the Court would then dismiss the indictment once the Contract came into evidence.
For example, if a contract explicitly and clearly said that a contractor could do "X", and if an indictment were returned that said the contractor had conspired to commit a fraud under the contract by doing "X", it would be absurd to require a trial. Yet that would seem to be the result of the position the Government has asked this Court to take. The Court will not do so. It will consider the Contract.
(2) The Substance of the Motion.
Once the Contract comes before the Court, one must seriously consider the Defendant's assertion that the Contract either clearly favors the legality of what the Defendants did, or that the Contract and the regulations are so terribly ambiguous that what was done did not constitute a crime. This claim touches fundamental principles of legality. Those principles support numerous rules of law.
At perhaps the deepest level, it can be said that law itself is a teleological endeavor, and that its purpose is to guide people as they go about their daily activities. As such, the law should be clear and understandable, for how can people follow its dictates if it is not? If you take away that clarity to a sufficient extent, it is proper to question whether you are dealing with law at all, as opposed to raw power. In that regard, see, Lon J. Fuller, The Morality of Law, (Yale University Press, 1964).
This principle supports the view stated by Justice Holmes in McBoyle v. United States, 283 U.S. 25, 27, 51 S.Ct. 340, 341, 75 L.Ed. 816 (1931). That is: "[I]t is reasonable that a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed. To make the warning fair, so far as possible the line should be clear."
The same principle supports the long standing rule that ambiguity in criminal statutes should be resolved in favor of lenity. See, e.g., Bell v. United States, 349 U.S. 81, 83-4; 75 S.Ct. 620, 622, 99 L.Ed. 905 (1955). See, also, Rewis v. United States, 401 U.S. 808, 91 S.Ct. 1056, 28 L.Ed.2d 493 (1971).
The principle further supports the oft expressed view that an individual cannot be found to have the intent to violate a vague or highly debatable law, United States v. Mallas, 762 F.2d 361 (4th Cir.1985), and that if "no statute, regulation, or court decision gave fair warning" it would be a violation of the fifth amendment to the *1501 United States Constitution to permit a prosecution. United States v. Dahlstrom, 713 F.2d 1423, 1429 (9th Cir.1983). As the Court of Appeals suggested in United States v. Critzer, 498 F.2d 1160, 1164 (4th Cir.1974), a criminal prosecution is not the place to decide pioneering interpretations of the law.
Finally, and directly applicable to the case at hand, this salutory principle of legality undergirds the decision in United States v. Race, 632 F.2d 1114 (4th Cir. 1980). There the Court pointed out that a prosecution for making false statements could not be founded on an ambiguous contract. It is worth noting that the Court first found that the contract clearly authorized what the defendants did, and then opined that the district court should have dismissed the matter. It went on to state that even if the contract were ambiguous, that is "susceptible of at least two reasonable constructions," the defendants could not, as a matter of law, be found guilty of making a false statement. United States v. Race, supra, at 1120. That was because the Government could not possibly sustain its burden of proving knowing and willful submission of false statements beyond a reasonable doubt. As the Court said:
[W]henever a defendant's statement or action under a contract accords with a reasonable construction of the enabling language of the contract, the Government will not have carried its burden of "negativ[ing] any reasonable interpretation that would make the defendant's statement factually correct" and thus a conviction under Section 1001 cannot stand under those circumstances. United States v. Race, supra, at 1120.
The Court of Appeals even went on to comment that the defendants' good faith would not be an issue. As it said, what the defendants thought was beside the point, since their thoughts would become important "if, but only if, the billing was false, that is, was not within the reasonable construction of the contract." United States v. Race, supra, at 1120.[1]
Armed with this background, the Court must now turn to the contract at hand. When that is done, the Court is struck with the apparent peculiarity of the Contract's language. It is designated as a firm fixed-price (best efforts) contract. (Paragraph E. 2) Under the heading "Objective" the Contract indicates that the contractor will "provide his best efforts, manpower, resources, and facilities, to design, develop and deliver the DIVAD Gun System...." (Paragraph F. 1 I-a) Similar language appears in other places.
It is true that the Grand Jury dropped the "best efforts" language from the indictment, and thus either avoided the necessity of wrestling with the issue now confronting the Court, or chose to construe the Contract as though that language did not appear, or both. That, of course, points to the fact that the Court's concern about an indictment that fails to reflect the specific terms of the Contract upon which it is based is not an entirely unwarranted concern.
If this Court felt certain that the Contract included "no words of art, but only words of common understanding and use" then it may well feel constrained to hold that the Contract is so ambiguous and so susceptible of differing reasonable interpretations that the indictment should be dismissed at this time, unless the actions of the Defendant's in allocating funds to the B & P or IR & D accounts could not be supported under any of those interpretations. United States v. Race, supra, at 1119. The Court is not in a position to make any such declaration.
The word "ambiguous" is not itself free from ambiguity. Surely one cannot decide ambiguity in a vacuum. What appears problematic to an outsider may seem perfectly clear to a cognoscente of the area in question. *1502 Perhaps there truly is no lack of clarity in the Contract to one who is expert or otherwise familiar with the words, laws and regulations that pervade the area of military contracting. Given that situation, this Court is unable to say that the Contract is clearly one for best efforts or clearly a firm fixed-price contract or clearly some kind of hybrid. Nor is it able to say at this juncture that its own feeling that the Contract is vague and ambiguous is a valid one. It may well be that an expert would see that the demands of this Contract and the rules and regulations which control charges to it, to B & P and to IR & D are so pellucid that there could be no doubt about their meaning or intent.
Therefore, even if there are instances when a Rule 12(b) motion of this type should be granted, and the Court thinks that there are, it would be improper to grant the motion to dismiss at this time, and the motion will be denied without prejudice.[2]
B. The Primary Jurisdiction Motion.
The suggestion that this Court refer the basic issue of proper construction of the Contract to the ASBCA is a most intriguing one. As far as the Court has been able to ascertain, there is no prior published case where a district court has referred issues to the ASBCA, although there is authority for the proposition that bankruptcy courts should defer to boards of contract appeals in certain instances. Gary Aircraft Corp. v. United States (In Re Gary Aircraft Corp.), 698 F.2d 775 (5th Cir.1983). Therefore, a brief review of the contours of the doctrine of primary jurisdiction would seem to be appropriate.
The genesis of the doctrine is found in Texas and Pacific Ry. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553 (1907). Like other rules, which are designed to harmonize overlapping jurisdictional demands and to promote uniformity and basic fairness,[3] this doctrine has evolved as a means of preventing clashes between duties imposed upon citizens by administrative tribunals and those imposed by the courts. As the Supreme Court explained in United States v. Western Pacific R.R. Co., 352 U.S. 59, 63-64; 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956):
"Primary jurisdiction" ... applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views.
A further explanation of the doctrine appears in Far East Conference v. United States, 342 U.S. 570, 72 S.Ct. 492, 494, 96 L.Ed. 576 (1952) where the court noted that primary jurisdiction is:
[A] principle, now firmly established, that in cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating this subject matter should not be passed over. This is so even though the facts after they have been appraised by specialized competence serve as a premise for legal consequences to be judicially defined. Uniformity and consistency in the regulation of business entrusted to a particular agency are secured, and the limited functions of review by the judiciary are more rationally exercised, by preliminary resort *1503 for ascertaining and interpreting the circumstances underlying legal issues to agencies that are better equipped than courts by specialization, by insight gained through experience, and by more flexible procedure.
Although it is true that there is no particular formula to be used in deciding when to apply the doctrine of primary jurisdiction, four principal factors have been identified. Those factors are: whether the question is within the conventional experience of judges; whether the question lies peculiarly within the agency's discretion or requires the exercise of the agency's expertise; whether there exists a danger of inconsistent rulings; and whether a prior application to the agency has been made. See, Oasis Petroleum Corp. v. U.S. Dept. of Energy, 718 F.2d 1558, 1564 (Temp. Emer.Ct.App.1983), and In Re Long Distance Telecommunication Litigation, 612 F.Supp. 892, 893-94 (E.D.Mich.1985).
It should also be noted that although the doctrine originally developed in cases involving some of the more traditional administrative agencies, it has not been confined to those. Rather, it has expanded to include virtually any case whose consideration lies within the competence of an administrative body. See, e.g., the cases cited in Oasis Petroleum Corp. v. U.S. Dept. of Energy, supra, at 1563-64; National Republican Congressional Committee v. Legi-Tech Corp., 795 F.2d 190 (D.C.Cir. 1986) (deferral of a copyright matter to the Federal Election Commission); and Allegheny Electric Cooperative, Inc. v. Power Authority, 630 F.Supp. 1271 (S.D.N.Y. 1986) (deferral to the Federal Energy Regulatory Commission). That should not come as a surprise, for in our increasingly complex society we find more and more pockets of specialization. At the same time, the demands upon the federal court system have greatly increased over the years. That has resulted in a significant reduction in the ability of any one judge to properly resolve technical issues by simply using common knowledge and experience. That has also resulted in a tendency to change from a rule that both agency expertise and the need for uniformity are required to a rule that either one will suffice. Compare, Locust Cartage Co. v. Transamerican Freight Lines, Inc., 430 F.2d 334, 340 n. 5 (1st Cir.1970), with In Re Department of Energy Stripper Well Litigation, 578 F.Supp. 586, 596 (D.Kan.1983), and Skoller v. Blue Cross, 584 F.Supp. 288, 290 (S.D.N.Y.1984).
The possibility that this doctrine could be applied in criminal cases has been recognized for many years. See, United States v. Alaska S.S. Co., 110 F.Supp. 104 (W.D. Wash.1952). While that application was often refused [e.g., In Re Grand Jury Investigation, 186 F.Supp. 298 (D.D.C.1960), and United States v. Castner, 116 F.Supp. 475 (N.D.Ill.1953)], the Ninth Circuit has now declared that criminal prosecutions should not be excluded from the doctrine's operation. United States v. Yellow Freight System, Inc., 762 F.2d 737 (9th Cir.1985). In fact, that Court has stated that a failure to refer a properly referable case will result in the reversal of a conviction.
This development is not too surprising. Why should a defendant in a criminal case, and the court before whom the defendant must appear, be deprived of the expertise and clarification of the law and regulations that would be available in a civil case? Surely the need for basic fairness and for uniformity of decision is as strong in criminal prosecutions as it is in civil cases. Surely the judge should have the best information possible when he makes rulings in the criminal law area.
In deciding the question of referral, the Court must first consider the nature of the ASBCA, and the industry to which it relates. That must be an important part of any decision.
The defense industry in this country is highly regulated. In fact, as one commentator has noted, it is "... essentially ... totally regulated." Jacques S. Gansler, The Defense Industry 258 (1980). It is well known that a large portion of the Government's annual budget is spent on defense. So, through its power over the *1504 purse, the Government has acquired detailed control over the actions of its contractors. It has done so through webs of laws, regulations, and directives, that can almost defy understanding as they descend to the smallest details, and ascend to the most grandiose plans. As Gansler put it in The Defense Industry, supra, at pg. 5, "the Department of Defense is the regulator, the specifier of new products, the `banker', the judge of claims, and almost the sole buyer."
Government regulation of the defense industry proceeds through contracts laced with specialized provisions and jargon, sets of military specifications, regulations, on the spot inspections, management systems, review committees, contracting officers, and a myriad of other devices, all of which are designed to assure the ultimate protection of the national interests, both technologically and economically.
The desire, if not the need, for detailed controls has generated a situation in which contracts are linked to specifications and regulations in a reticulated manner that makes it almost impossible to consider one without the other. The resulting documents bear little or no resemblance to the usual picture that one conjures up when the word "contract" is heard. In this case, for example, the Contract takes up several feet of shelf space, and is filled with special usage words. Even the seemingly simple description of it as a firm fixed-price (best efforts) contract turns out to be loaded with non-obvious meanings.
Faced with such an infrangible mass, even if a Court were able to read and understand the words in a contract like the one involved here, it would have made little headway toward reasoned analysis. It would also have to master the various regulations that are incorporated into or that otherwise guide a proper interpretation. Beyond that, if the contract were reasonably subject to more than one interpretation, mastery of the rules that would apply to each construction of it would be required. Then to truly clear away the brume, the Court would have to look to the ASBCA's own constructions of those very regulations.
Only an extreme case of hubris could convince a district judge that all of this was simply within his conventional experience, and only a gross form of pertinacity would cause him to cling to that opinion once he had been given the opportunity for enlightenment.
This strongly suggested the need for a specialized body whose focus would be defense contracts and regulations. That need was manifest for years and the ASBCA is an outgrowth of it.
The Board finds its historical roots in joint directives within DOD, and is now provided for by statute. See, 41 U.S.C. Section 607. The Supreme Court alluded to the Board's function in United States v. Utah Construction and Mining Co., 384 U.S. 394, 421 n. 18, 86 S.Ct. 1545, 1559 n. 18, 16 L.Ed.2d 642 (1966), where it quoted the following language with approval: "[C]ongress intended the boards ... to be the fact-finders within their contract area of competence, just as the Interstate Commerce Commission, the Federal Trade Commission, and the National Labor Relations Board are the fact-finders for other purposes."
The Court of Appeals for the Fifth Circuit put it even more graphically when it stated:
Boards of Contract Appeals were created precisely because of the needs for expertise, speed, and uniformity in resolving government contract disputes. One cannot help but think that the ASBCA might have been better qualified by its experience and expertise to resolve the present case than was a bankruptcy judge who was at one stroke forced to master government contracting law. Gary Aircraft Corp. v. United States (In re Gary Aircraft Corp.), 698 F.2d 775, 784 (5th Cir.1983).
Considering its historical origin and its expertise, it is not amazing to find that the ASBCA plays a significant role in the military procurement process. One does not *1505 marvel to hear that the military agencies closely monitor the handling of disputes before the Board, and that "DOD makes changes to bring its acquisition system into compliance with Board decisions." See, G.A.O. Report NSIAD 85-102, entitled The Armed Services Board of Contract Appeals Has Operated Independently, page 25 (September 23, 1985). Thus, the interpretations of the hierophants who man the ASBCA do, indeed, form an important part of the whole scheme of regulation of the defense industry.
Therefore, while it is true that when taken by itself the ASBCA does not necessarily operate in the same fashion as the more traditional administrative agencies, it is certainly embedded in and even rather central to the operation of defense procurement. It performs traditional agency functions. It brings a highly honed and respected expertise to bear on this technical area, and makes authoritative determinations which have the effect of explaining and setting DOD policy for the defense industry.
Nor would the mere fact that a party must bring the matter to the Board before it will take action change the situation. That kind of problem was dealt with by the Court of Appeals in Israel v. Baxter Laboratories, Inc., 466 F.2d 272 (D.C.Cir.1972). There the Court simply indicated that the matter could be referred once the party did activate the process before the administrative agency.
Absent the use of the ASBCA in an area like the one now before the Court, there may well be significant chaos in the defense industry. The possibility that various district judges throughout the country would construe defense contracts and regulations in different ways could lead to a great lack of uniformity in an area that should be free of that sort of uncertainty.[4]
The last major factor is a consideration of whether a prior application has been made to the agency. The Government properly notes that General Dynamics did make an application, and that the agency declined to exercise jurisdiction at that time. It did so in ASBCA Case No. 32297. However, a review of that decision shows that it did so for two reasons.
First, the contracting officer had not yet made a decision. The Court notes that on March 10, 1986, the Board ordered that officer to make a decision within 60 days of receipt of the contractor's claims, or state why a decision could not issue within the 60 days and indicate when a decision would be issued. The Court has been informed by defendants (and this is not disputed) that the contracting officer has refused to make a decision, because of the fact that this case is presently pending in this Court. It would, therefore, appear that for practical purposes a decision has been made, although it was a decision not to decide. Pursuant to the Board's own order, that impediment to its jurisdiction appears to have been removed.
The second reason was that this criminal case was already pending. The Board was of the opinion that it should not assume jurisdiction by deciding for itself that the primary jurisdiction doctrine applied. Rather, it said, "applicability of the doctrine is a matter for decision by the U.S. District Court...." Now that this Court has made that decision, the Board may well be prepared to decide the issues in question. If the Board is still not willing to proceed, it will be a simple, and not very time consuming, matter for it to so state, in which event this case will move forward.
*1506 All of this strongly militates in favor of a referral to the Board, but the Government has raised some issues which require discussion.
First, the Government argues that referral would be futile, because the decision of the ASBCA will not bind this Court. It is true that the Board's decision will not decide this criminal fraud case. Still, the decision need not be binding in that sense, if it would constitute a material aid in resolving this case. Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 302-05, 93 S.Ct. 573, 580-82, 34 L.Ed.2d 525 (1973). Here a determination by the Board "can do nothing but assist the Court in reaching the appropriate result." Jacksonville Maritime Ass'n v. City of Jacksonville, 551 F.Supp. 1130, 1135 (M.D.Fla.1982).
The Contract and the proper interpretation of the regulations that apply to it are matters central to this case. The Court has already noted that the Contract appears to be ambiguous on its face, but that it may or may not be. Moreover, the regulations that guide payment of expenses from B & P and IR & D funds do not clearly indicate whether payment would be proper in the context of a best efforts contract, or in the context of a firm fixed-price (best efforts) contract. These sorts of issues are at the core of what the ASBCA is designed to adjudicate. At the same time, they lie at the core of this prosecution.
If under every proper construction of the Contract, the regulations preclude charging of expenses related to or required by it to the B & P or IR & D accounts, then that has a profound effect on the issues facing this Court and on the defense industry. On the other hand, if under the proper construction of the Contract and the regulations, it is clear that it was proper to charge the expenses here exactly the way they were charged, the effect on this indictment would be most devastating. That is, if the Government's theory of the proper manner to charge DIVAD expenses pursuant to the regulations is wrong, then it would be quite problematic to state that substantive offenses were committed when the records showing that the expenses were so charged were submitted to the DOD. Moreover, we would then have to deal with the argument that the defendants had constructed a conspiracy to do acts that were not truly wrong at all. This, of course, raises the whole spectre of whether there can be a criminal conspiracy to do that which is not criminal or fraudulent in the first place. Cf., Fletcher, Constructing a Theory of Impossible Attempts, 5 Crim. Justice Ethics 53 (Winter/Spring 1986), which discusses a somewhat related area.
The Board may, however, decide that the Contract is ambiguous, even when its terms are viewed from the standpoint of the experts who must interpret and apply the regulations and rules that support defense contracting. Under one proper interpretation, the regulations may prohibit the use of B & P or IR & D funds, and under another the regulations may permit that use. That, too, could have serious implications in light of United States v. Race, supra.
In other words, the decision of the ASBCA on the proper construction of the regulations and the proper meaning of the language of the Contract, may well resolve issues that will allow this Court to dispose of all or a major portion of the case before it. Even if the Board's determinations do not result in a resolution of the criminal case itself, those determinations will surely aid the Court in the admission of evidence, consideration of motions for judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure, and instruction of the jury on the law that it will have to apply in deciding the case.
Next, the Government asserts that this is a fraud case and that pursuant to 41 U.S.C. Section 605(a), the Board cannot decide it at all. However, the Board will not be asked to decide fraud issues, but need only rule on the meaning of the Contract and the regulations. It cannot be gainsaid that if the Contract and the applicable regulations allowed for the precise charging done here, *1507 an award to General Dynamics would be proper. On the other hand, if it did not, the Board would make no such award. It is true that in the first instance it would also be difficult for a Court to find that fraud existed, but that does not mean that the Board would have decided the fraud issue, any more than a decision in any case which results in issue preclusion in another case can be said to have decided the other case. Nor will a determination that it was improper to make the charges in question decide the fraud issue, because the issue of fraud will still remain before this Court. Thus, the fact that the Board cannot make a decision on whether fraud exists will not preclude this referral. See, Time Contractors Joint Venture, DOT CAB Nos. 1669, 1691, 86-2 BCA (CCH) Paragraph 19,003 (May 15, 1986), M & M Services, Inc. ASBCA No. 28712, 84-2 BCA (CCH) Paragraph 17,405 (April 19, 1984), and Beaves, dba Commercial Marine Services, DOT CAB Nos. 1160, 1324, 83-2 BCA (CCH) Paragraph 16,648 (July 6, 1983).
The Government also asserts that the Board will take too long to reach a decision in this case. That is certainly a consideration in any primary jurisdiction referral. See, e.g., Rohr Industries, Inc. v. Washington Metropolitan Area Transit Authority, 720 F.2d 1319 (D.C.Cir.1983), where the Court indicated that there had been a rather egregious delay at the administrative level. Then, too, this is a criminal prosecution and care must be taken to see that it is not delayed excessively. United States v. Yellow Freight System, Inc., 762 F.2d 737, 741 (9th Cir.1985). That policy is certainly expressed in the speedy trial laws. 18 U.S.C. Section 3161 et seq.[5] Nonetheless, justice is as important as speed, and this is not an ordinary criminal prosecution by any means. In any event, this Court will retain authority to terminate the referral if that becomes necessary.
Finally, the Government argues that a referral will frustrate its ability to prosecute other fraud cases. Even if this Court should consider that kind of consequentialist argument, it rather doubts that the reality will live up to the Government's fears. It is doubtful that there will be a plethora of cases like this one. If there is, and if they are founded upon complex and apparently unclear contracts and regulations, one would think that courts should unblinkingly continue to ask for the aid of the expert agencies. Moreover, the Government's real concern seems to be with the implications of United States v. Yellow Freight System Inc., supra, but this is not the forum that should address and answer that concern.
This case touches upon important issues in the area of defense procurement. Those issues involve nice questions about the proper construction of contracts and regulations. Those questions, in turn, call for expert consideration and uniform answers. Since the ASBCA is uniquely qualified to supply the needed answers, certain issues will be referred to it.
C. Questions to be referred to the ASBCA.
Once it is decided that issues should be referred, it becomes the Court's duty to frame its questions with some care. On the one hand, it is improper to submit a question which is so narrow that the views of the Board are unduly restricted. Oasis Petroleum Corp. v. U.S. Department of Energy, 718 F.2d 1558, 1566 (Temp.Emer. Ct.App.1983). On the other hand, the Court should not simply send some broad and amorphous question to the Board. Mississippi Power and Light Co. v. United Gas Pipe Line Co., 532 F.2d 412, 421 (5th Cir.1976).
Therefore, the Court has determined that it will refer the following questions to the Board:[6]
*1508 (1) Is the nature of the Contract, which is designated as a firm fixed-price (best efforts) contract, ambiguous in the sense that it can reasonably be construed in more than one way? What are the possible ways?
(2) Is the nature of the Contract clearly a firm fixed-price contract, or clearly a best efforts contract, or clearly another type of contract a hybrid of some kind? What type of contract is it?
(3) Considering the type of contract involved here, was the contractor required to spend any more than the contract price itself toward the accomplishment of the objectives of the Contract?
(4) If the contractor was not required to spend amounts above the contract price toward accomplishment of the objectives of the Contract, do the regulations governing charges to B & P and IR & D permit the charging of additional amounts expended to accomplish the objectives of the Contract to those accounts?
(5) If considering the type of contract this was, no expenditures over the Contract price to accomplish the objectives of the Contract were "required", would it have been improper to expend B & P or IR & D funds to accomplish some or all of those objectives?
(6) If the Contract is ambiguous (see first question) would it have been proper to charge any of the expenses which would accomplish the objectives of the Contract to B & P or IR & D under any of the reasonable constructions of its terms? Which ones?
(7) Do the regulations regarding the proper charging of expenses clearly require the above answers, or is further construction of the regulations required?
(8) Considering the type of contract this was, would it have been proper to charge expenses "related to" the work performed under the Contract, although not necessarily "required by it," to the B & P and IR & D accounts?
(9) Considering the type of contract this was: What was the contractor required to do under the Contract? Was performance of work in excess of the contract price required? Could the Contract reasonably be construed to limit the obligation to the contract price?
(10) If any of the questions are overlapping the Court would be pleased to have cross-references rather than repetitive answers. In addition, the Court does not intend to unduly limit this referral, so if other questions can and should be posed and answered, the Court would be pleased to receive that information from the Board. Furthermore, if the Board is unable to answer certain questions, it should simply so state.
III. CONCLUSION
The Court DENIES the Motion to Dismiss for Failure to State an Offense, without prejudice.
However, the Court GRANTS the Motion to Defer to the ASBCA, refers certain questions to it at this time, and orders that all proceedings in this case be stayed pending action by that Board. The Court notes that the stay will not become fully effective until the Defendant, General Dynamics, reapplies for consideration of this matter by the Board. See, Israel v. Baxter Laboratories, Inc., 466 F.2d 272 (D.C.Cir.1972).[7]
NOTES
[1] One district court has suggested that this reasoning as to substantive counts may not apply in a conspiracy case, but the reason for so stating is not clear, and perhaps that suggestion was not intended. United States v. LaBar, 521 F.Supp. 203, 216 (M.D.Pa.1981), affirmed, 688 F.2d 826 (3d Cir.1982), cert. denied, 459 U.S. 945, 103 S.Ct. 260, 74 L.Ed.2d 202 (1982).
[2] There is authority to the effect that such a motion should not be granted until after evidence is taken. United States v. Computer Sciences Corp., 511 F.Supp. 1125, 1136 (E.D.Va. 1981), reversed on other grounds, 689 F.2d 1181 (4th Cir.1982).
[3] Exhaustion of administrative remedies, exhaustion of state remedies in habeas corpus cases, and various abstention doctrines all have this as at least a part of their purpose. For example, the factors to be used in deciding a case involving Pullman abstention are remarkably similar to those in this area. See, Railroad Comm'n v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941); and Kollsman v. City of Los Angeles, 737 F.2d 830, 833 (9th Cir.1984).
[4] The Court, of course, recognizes that the Claims Court is another avenue for the consideration of these cases. But use of that Court is relatively infrequent, and that use would not, in any event, raise the spectre of confusion that use of a multiplicity of district courts would. The very fact that it is the alternative underscores some of the points being made here. In fact, it would seem rather peculiar to hold that civil cases must go to the ASBCA or the Claims Court, so that this area of law will benefit from the advantages of expertise and uniformity, while criminal cases, where those advantages are just as important, must entirely bypass those fora.
[5] The Court has determined that the ends of justice require that there be excludable time so that this referral can be made.
[6] However, the parties have been invited to comment on this list, and changes may be made by the Court after it has heard those comments.
[7] The Court has been informed that the application was made on September 24, 1986.
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281 F.Supp. 1007 (1968)
Laura BAKSAY, as Executrix of the Estate of Louis Baksay, Deceased, Plaintiff,
v.
RENSELLEAR POLYTECH INSTITUTE, Defendant.
No. 68 Civ. 157.
United States District Court S. D. New York.
March 27, 1968.
*1008 Harry H. Lipsig, New York City, for plaintiff; David Blatt, Brooklyn, N. Y., of counsel.
Reilly & Reilly, New York City, for defendant; James McAllister, Brooklyn, N. Y., of counsel.
OPINION
HERLANDS, District Judge:
Defendant moves, pursuant to 28 U.S. C.A. § 1404(a)[*], to transfer this action to the United States District Court for the Northern District of New York on the grounds (1) that venue is improperly placed in the Southern District of New York and (2) that such transfer is for the convenience of the parties and witnesses and in the interest of justice.
Plaintiff, a resident of Connecticut, commenced this action against defendant, a New York corporation, on January 22, 1968, seeking money damages for personal injuries and wrongful death. Jurisdiction is predicated on diversity of citizenship.
On June 9, 1967, Louis Baksay (plaintiff's testate) was injured when he fell from a grandstand on defendant's premises, while watching his son's college graduation. As a result of these injuries, Louis Baksay died on June 12, 1967. Plaintiff's complaint alleges that the accident was due solely to the negligence of the defendant.
I
Defendant seeks to transfer this action to the Northern District of New York chiefly on the ground that venue as placed is improper since the action was not brought in the judicial district where all the defendants or all the plaintiffs reside, as required by 28 U.S.C.A. § 1391(a). The plaintiff is a resident of Westport, Connecticut and is, therefore, not a resident of the Southern District of New York. The question is whether the defendant, a New York corporation located in Troy, New York (part of the Northern District of New York), is considered a resident of the Southern District of New York for the purpose of the federal venue statute.
28 U.S.C.A. § 1391(c) the statutory section central to the disposition of this branch of defendant's motion provides:
"A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business and such judicial district shall be regarded as the residence of such corporation for venue purposes."
*1009 On its face, the statute seemingly allows a corporation to be sued in any district in the state in which it is incorporated. However, the authorities which have interpreted this section are divided. One group holds that, for purposes of the federal venue statute, a domestic corporation may be sued only in the judicial district where it has its principal place of business. Joscar Co. v. Consolidated Sun Ray, Inc., 212 F.Supp. 634, 638 (E.D.N.Y.1963); Westerman v. Grow, 198 F.Supp. 307, 308 (S.D.N.Y.1961); Johnson v. B. G. Coon Construction Co., 195 F.Supp. 197, 198 (E.D.Pa.1960); Sawyer v. Soaring Society of America, Inc., 180 F.Supp. 209 (S.D.N.Y.1960); Jacobson v. Indianapolis Power & Light Co., 163 F.Supp. 218, 220 (N.D.Ind. 1958). See also 1 Moore, Federal Practice ¶ 0.142 [5.-3], p. 1496 (2d ed. 1964). These cases apparently conclude that the adoption of 28 U.S.C.A. § 1391(c) in 1948 did not materially change the preexisting rule of venue that a domestic corporation could be sued only in the judicial district where it maintained its principal office and engaged in its general corporate business.
On the other hand, there is substantial authority for the proposition that a domestic corporation may be sued in any district in the state of its incorporation. Carson v. Vance Trucking Lines, Inc., 245 F.Supp. 13, 15-16 (W.D.So.Car. 1965); DeGeorge v. Mandata Poultry Co., 196 F.Supp. 192, 195 (E.D.Pa.1961); Minter v. Fowler & Williams, Inc., 194 F.Supp. 660, 661 (E.D.Pa.1961); Johnstone v. York County Gas Co., 193 F. Supp. 709, 711 (E.D.Pa.1961); Garbe v. Huminston-Keeling & Co., 143 F.Supp. 776, 778-779 (E.D.Ill.1956), rev'd on other grounds 242 F.2d 923 (7th Cir. 1957); Hintz v. Austenal Laboratories, Inc., 105 F.Supp. 187, 188 (E.D.N.Y. 1952). See also 1 Barron & Holtzoff, Federal Practice and Procedure, § 80, p. 386 (Wright ed. 1960). Cf. Vance Trucking Co., Inc. v. Canal Insurance Co., 338 F.2d 943, 944 (4th Cir. 1964) (Sobeloff, C. J.).
After comprehensive consideration of the statute and case law, this Court holds that, for venue purposes, a domestic corporation is a resident of every judicial district in the state of its incorporation. Because the defendant, Rensellear Polytech Institute, is a New York corporation, it is subject to suit in the Southern District of New York.
The Court's conclusion is based on the plain and unambiguous statutory language of 28 U.S.C.A. § 1391(c), which provides that "a corporation may be sued in any judicial district in which it is incorporated * * *." Incorporation is effected by the state and not by the judicial district; and the corporation is licensed to transact business throughout the entire state. Every corporation is incorporated in every judicial district of the state of incorporation, regardless of the situs of its principal place of business. As 1 Barron & Holtzoff, Federal Practice and Procedure, § 80, p. 386 (Wright ed. 1960) points out:
"Congress took the next long step by enacting into law the provision that `a corporation may be sued in any judicial district in which it is licensed to do business * * *.' Presumably if the state of incorporation has more than one district a corporation may be sued in any district thereof on the theory that it is `licensed to do business' throughout the whole state."
II
Defendant also seeks to transfer this action to the Northern District of New York on the grounds that (1) it would be more convenient to the defendant; (2) it would be more convenient for witnesses; and (3) it is the district wherein the accident occurred.
Unless the balance of convenience is clearly in favor of the defendant, the traditional right of the plaintiff to choose the forum should not be disturbed. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947); Ford Motor Co. v. Ryan, 182 F.2d 329 (2d Cir.), cert. denied, 340 *1010 U.S. 851, 71 S.Ct. 79, 95 L.Ed. 624 (1950). The defendant "must make a clear-cut showing that when all the interests are considered, trial would more conveniently proceed and the interests of justice would be better served in the other district." Peyser v. General Motors Corp., 158 F.Supp. 526, 529 (S.D. N.Y.1958).
In deciding a motion for transfer under 28 U.S.C.A. § 1404(a), it is necessary for the court to "make a reasonable appraisal between conflicting factors that admit of no quantitative measure. In the last analysis, the problem is one of particularized judgment." Securities and Exchange Comm'n v. Golconda Mining Co., 246 F.Supp. 54, 57 (S.D.N.Y. 1965), petition for writ of mandamus denied, sub nom. Golconda Mining Corp. v. Herlands, 365 F.2d 856 (2d Cir. 1966).
In the present case, the defendant has failed to make the "clear-cut showing" required to justify transfer. Aside from conclusory allegations of inconvenience, the defendant has not shown how it would, in fact, be inconvenienced were this case to be tried in the Southern District of New York.
Nor has the defendant shown that witnesses would be inconvenienced if transfer was not effected. The defendant has not specified what witnesses, if any, might be unable to attend the trial, what testimony they would be expected to provide and how relevant and necessary is their testimony. A mere statement that witnesses would be inconvenienced if trial were held in the Southern District of New York is plainly insufficient. Peyser v. General Motors Corp., supra 158 F.Supp. at 529; Schmidt v. American Flyers Airline Corp., 260 F.Supp. 813, 814 (S.D.N.Y.1966).
Finally, the defendant has not given any indication why it is necessary or desirable for the trial to be held in the judicial district where the accident occurred.
The defendant's motion to transfer this action to the Northern District of New York is denied. So ordered.
NOTES
[*] 28 U.S.C.A. § 1404(a) provides:
"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
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437 F.Supp. 79 (1977)
FEDERAL TRADE COMMISSION, Petitioner,
v.
BRITISH OXYGEN COMPANY, LTD., BOC Financial Corporation, BOC Holdings, Ltd., British Oxygen Investments, Ltd., and Airco, Inc., Respondents.
Civ. A. No. 74-31.
United States District Court, D. Delaware.
August 26, 1977.
Richard L. McMahon of Potter, Anderson & Corroon, Wilmington, Del., Jay H. Topkis, Lewis A. Kaplan and Moses Silverman of Paul, Weiss, Rifkind, Wharton & Garrison, New York City, of counsel, for BOC Intern. Ltd., f/k/a British Oxygen Co., Ltd., BOC Financial Corp., BOC Holdings, Ltd., British Oxygen Investments, Ltd.
R. Franklin Balotti of Richards, Layton & Finger, Wilmington, Del., W. Foster Wollen, R. Bruce MacWhorter of Shearman & Sterling, New York City, of counsel, for AIRCO, Inc.
James W. Garvin, Jr., U. S. Atty., and Kent Walker, Asst. U. S. Atty., Wilmington, Del., Michael N. Sohn, Gen. Counsel, Gerald P. Norton, Deputy Gen. Counsel, Jerold D. Cummins, Acting Asst. Gen. *80 Counsel, and David M. Fitzgerald, Atty., Washington, D. C., for the Federal Trade Commission.
LATCHUM, Chief Judge.
On March 8, 1974, this Court entered an Order granting the Federal Trade Commission's (the "Commission") application for a preliminary injunction and enjoining the British Oxygen Company, Ltd. ("BOC") from taking any action which might hinder divestiture of BOC's controlling stock interest in AIRCO, Inc. ("AIRCO") pending an expedited administrative proceeding to determine if BOC's controlling interest in AIRCO violated the antitrust laws. BOC has now filed a petition seeking an Order dissolving or modifying that preliminary injunction.[1]
In February, 1974, the Commission issued a complaint charging BOC with violations of § 7 of the Clayton Act, 15 U.S.C. § 18 (1970) and § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (1970) as amended (Supp. IV 1974), based principally upon the theory that BOC's acquisition of a controlling stock interest in AIRCO would eliminate BOC as an actual potential entrant into the American industrial gases market. In addition, the complaint charged that the planned merger of BOC and AIRCO would substantially lessen competition in three product lines of medical inhalation anesthetic equipment in which AIRCO and two American subsidiaries of BOC were in direct competition. In order to preserve the status quo pending the outcome of its cease and desist proceeding, the Commission applied for, and was granted, a preliminary injunction requiring BOC to maintain AIRCO as a separate entity.[2] The preliminary injunction was entered pursuant to § 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b) (Supp. IV 1974), and was expressly based upon this Court's determination at the time that the Commission had satisfied its burden of making a proper showing of its likelihood of ultimate success and that, after considering "the equities," temporary injunctive relief would be in the public interest. After several months of hearings, the Commission affirmed the holding of its administrative law judge that the BOC acquisition of AIRCO did in fact violate § 7 of the Clayton Act. The Commission's affirmance was apparently predicated entirely on the belief that while BOC as a potential entrant in the relevant markets was not presently having a procompetitive effect, divestiture of its AIRCO interest would serve to increase future competition in the industrial gases market and would preserve existing procompetitive effects in the medical equipment submarkets.
Thereafter BOC and AIRCO filed a petition with the Second Circuit Court of Appeals, asking that the Commission's divestiture order be set aside. On May 19 of this year the Second Circuit reversed the Commission on the merits of its industrial gases holding, set aside the order directing BOC to divest its controlling stock interest in AIRCO, and remanded the Commission's medical inhalation anesthetic equipment holding for reconsideration in light of the reversal of its industrial gases holding.[3] This latest event is what prompted BOC's petition to dissolve or modify this Court's preliminary injunction.
The pertinent provision of § 13(b) of the Federal Trade Commission Act reads:
"Whenever the Commission has reason to believe
(1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and
*81 (2) that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public
the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond . . .."
15 U.S.C. § 53(b) (Supp. IV 1974) (emphasis added). The Commission is therefore empowered to seek a preliminary injunction until its administrative complaint is either dismissed by the Commission itself or set aside by the court on review. The words "court on review" logically refer to the Circuit Courts of Appeals which are granted exclusive jurisdiction to enforce, set aside, or modify orders of the Commission.[4] Section 5(c) of the Federal Trade Commission Act also pertinently provides:
"Any person, partnership, or corporation required by an order of the Commission to cease and desist from using any method of competition or act or practice may obtain a review of such order in the court of appeals of the United States, within any circuit where the method of competition or the act or practice in question was used or where such person, partnership, or corporation resides or carries on business, by filing in the court, within sixty days from the date of the service of such order, a written petition praying that the order of the Commission be set aside. . . . Upon such filing of the petition the court shall have jurisdiction of the proceeding and of the question determined therein concurrently with the Commission until the filing of the record and shall have power to make and enter a decree affirming, modifying, or setting aside the order of the Commission, and enforcing the same to the extent that such order is affirmed and to issue such writs as are ancillary to its jurisdiction or are necessary in its judgment to prevent injury to the public or to competitors pendente lite. . . ."
15 U.S.C. § 45(c) (1970) (emphasis added). As noted earlier, BOC and AIRCO accordingly filed a petition with the Second Circuit, the court on review, which thereafter entered a decree setting aside the Commission's divestiture order and remanding for reconsideration of the medical equipment aspect of the case. With the outright reversal of the Commission's pivotal determination that the proposed merger would substantially lessen competition in the industrial gases market in violation of § 7 of the Clayton Act, the Commission's likelihood of ultimate success an essential consideration in a § 13(b) application for a preliminary injunction was inevitably attenuated. Nevertheless, the Commission contends that it would be premature to dissolve or modify the preliminary injunction since there is still a possibility that it will succeed on the merits of the underlying antitrust proceeding left upon remand.
This ostensible answer, however, fails to appreciate the significance of the Second Circuit's reversal. It should be remembered that this Court originally entered a preliminary injunction after a proper showing of the Commission's probable success on the merits of its contention that the planned merger would violate the antitrust laws. Now that a panel of the Second Circuit, after a full review of all the evidence, has unanimously set aside the Commission's *82 divestiture order and rejected the essential finding which served as a necessary predicate for that order, the Commission's likelihood of success, the very basis for this Court's preliminary injunction, is necessarily diminished. Momentum has shifted decidedly against the Commission and merely emphasizing the strength of what little remains of the case cannot conceal the damage wrought by the reversal.
The Commission has further suggested that the Court withhold an opinion on BOC's petition until the Solicitor General, or the Commission itself, decides whether to file a petition with the Supreme Court for certiorari in BOC International Ltd. v. FTC, supra, and, assuming that a petition is filed, and is granted, to await the Supreme Court's mandate.[5] However, the Court cannot agree to follow this course for it would impose an additional requirement under § 13(b) without any perceived justification. If Congress had intended for a § 13(b) preliminary injunction to continue until the Commission's complaint is dismissed, set aside by the court on review, and certiorari denied or the cause reversed by the Supreme Court, it could in plain language have easily so provided when the amended subsection (b) to § 13 was recently considered and passed.[6]
Moreover, the fact that the Commission may seek certiorari in this case does not, in this Court's opinion, necessarily enhance its likelihood of ultimate success. The Second Circuit reversed the Commission's industrial gases holding on the narrow ground that it applied an inappropriate legal standard. The Commission held that there was a reasonable probability that BOC would eventually enter the American industrial gases market by internal expansion but for its acquisition of AIRCO. The merger would therefore have, according to the Commission, probable anticompetitive effects violative of the antitrust laws. The Second Circuit, however, reversed solely on the ground that in the actual potential entrant situation the finding of probable entry must contain some "reasonable temporal estimate related to the near future, with `near' defined in terms of the entry barriers and lead time necessary for entry in the particular industry."[7] Since a fundamental "precondition" to application of the actual potential entrant doctrine was not established on the record, the Court of Appeals expressly declined to examine the issue of the validity of that doctrine. In addition, the Supreme Court in two relatively recent cases also refused to wrestle with the basic issue of the doctrine's validity, resting instead on a conclusion in each case that an essential predicate for its application had not been established. United States v. Marine Bancorporation, Inc., 418 U.S. 602, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974); United States v. Falstaff Brewing Corp., 410 U.S. 526, 93 S.Ct. 1096, 35 L.Ed.2d 475 (1973). The Fourth Circuit as well has "recognized that the doctrine of actual potential entry as a basis for finding a violation of the antitrust laws is an evolving doctrine and not one with regard to which a body of controlling authority has yet been developed." FTC v. Atlantic Richfield Co., 549 F.2d 289, 293 (C.A.4, 1977) (footnote omitted). In fact, Judge Winter, writing for a unanimous panel in that case, observed in dictum that:
"The novelty of the doctrine and the absence of definitive authority sanctioning it and defining its parameters could well serve as a basis for denial of a preliminary injunction under § 13(b), since it is difficult, if not impossible, to determine FTC's chances of ultimate success when the law is so uncertain and the parameters of the doctrine obscure." *83 549 F.2d at 294. In light of the narrowness of the Second Circuit's holding and the fact that it specifically eschewed any intention of passing upon the fundamental validity of the Commission's legal theory, it appears less than probable that four members of the Supreme Court would consider the underlying issue sufficiently meritorious for the grant of certiorari. See Beame v. Friends of the Earth, ___ U.S. ___, 98 S.Ct. 4, 54 L.Ed.2d 23 (1977) (Marshall, J., in chambers); Commodity Futures Trading Commission v. British American Commodity Options Corp., ___ U.S. ___, ___, 98 S.Ct. 10, 54 L.Ed.2d 28 (1977) (Marshall, J., in chambers); Times-Picayune Publishing Corp. v. Schulingkamp, 419 U.S. 1301, 1305, 95 S.Ct. 1, 42 L.Ed.2d 17 (1975) (Powell, J., Circuit Justice).
This Court therefore can no longer conclude that there is a reasonable likelihood that the Commission will ultimately succeed on the merits of its antitrust proceeding, nor that the equities or the public interest weigh in favor of continuing the restrictions earlier imposed upon BOC. In the absence of such a conclusion, of course, the statutory basis for the preliminary injunction evaporates. Accordingly, the Order of this Court granting the Commission's application for a preliminary injunction will be dissolved.[8]
NOTES
[1] Docket Item 31. The petition is actually filed jointly by BOC International Ltd., formerly known as the British Oxygen Company, Ltd., and several of its subsidiaries, all of which are named respondents. Reference throughout this opinion to BOC includes the related companies.
[2] FTC v. British Oxygen Co., Ltd., 1974-1 Trade Cases ¶ 75.004 (D.Del.1974), vacated in part on other grounds, 529 F.2d 196 (C.A.3, 1976) (en banc).
[3] BOC International Ltd. v. FTC, 557 F.2d 24 (C.A.2, 1977).
[4] Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (1970) as amended (Supp. IV 1974) provides:
"(d) Upon the filing of the record with it the jurisdiction of the court of appeals of the United States to affirm, enforce, modify, or set aside orders of the Commission shall be exclusive."
[5] The time to file a petition was due to expire on August 17, 1977; BOC informed the Court by letter, however, that the Solicitor General has asked the Supreme Court to extend the time to file the petition until October 16, 1977. In response, of course, BOC's counsel filed a similar application.
[6] 15 U.S.C. § 53(b) (Supp. IV 1974); for the legislative history, see 1973 U.S. Code Cong. & Admin. News, p. 2533.
[7] BOC International Ltd. v. FTC, 557 F.2d 24, supra.
[8] There is no doubt that the Court has the inherent power to modify or dissolve a preliminary injunction whose purpose has been fulfilled or as changing conduct or circumstances may require. United States v. Swift & Co., 286 U.S. 106, 114, 52 S.Ct. 460, 76 L.Ed. 999 (1932); Indiana Quartered Oak Co. v. FTC, 58 F.2d 182, 184 (C.A.2, 1932). The Commission, however, contends that BOC's petition is a delitescent effort to relitigate issues already decided which, if permitted, will encourage parties to return to the Court at each development in the administrative proceeding to reargue the likelihood of success, the equities, or the public interest, contrary to notions of finality and conservation of judicial resources. But cf. Rule 62(c), F.R.Civ.P. (authorizing trial courts to suspend, modify, restore, or grant injunctions during periods when the case may be on interlocutory appeal), and Rule 60(b), F.R.Civ.P. (conferring on trial courts the power to amend or modify permanent injunctions). Suffice it to say that such a scenario has not occurred in this case and the Court is not particularly moved by an in terrorem argument not in accord with reality.
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553 F.Supp. 745 (1982)
Kenneth ZUREK, Plaintiff,
v.
Michael HASTEN, et al., Defendants.
No. 80 C 3365.
United States District Court, N.D. Illinois, E.D.
December 15, 1982.
*746 Kenneth Zurek, pro se.
Tyrone C. Fahner, Atty. Gen. of Illinois, Roger P. Flahaven, Asst. Atty. Gen., Chicago, Ill., for defendants.
MEMORANDUM OPINION AND ORDER
SHADUR, District Judge.
Kenneth Zurek ("Zurek") has filed this action against officials and employees of the Illinois Commerce Commission ("ICC"),[1] charging an array of torts and civil rights violations in connection with Zurek's discharge as an ICC accountant. Defendants have moved to dismiss all five counts of Zurek's current amended complaint filed July 22, 1982 (the "Complaint"). This opinion deals only with Counts II, III and IV:[2]
1. Count II, brought under 42 U.S.C. § 1983 ("Section 1983"), charges that defendants' stigmatization of Zurek in connection with his discharge infringed Zurek's constitutionally protected liberty interests by foreclosing him from other employment opportunities.
2. Count III is a pendent state law defamation claim.
3. Count IV asserts the pendent tort claim of retaliatory discharge.
For the reasons stated in this memorandum opinion and order, defendants' motion is denied as to each of those counts.
Count II
Count II asserts Zurek was deprived of his constitutionally protected "liberty" because a derogatory letter placed in Zurek's personnel file[3] allegedly foreclosed, as the Court put it in Board of Regents v. Roth, 408 U.S. 564, 573, 92 S.Ct. 2701, 2707, 33 *747 L.Ed.2d 548 (1972), "his freedom to take advantage of other employment opportunities." Specifically, Count II ¶¶ 11-12 allege the letter and the circumstances of his termination bar Zurek from Internal Revenue Service ("IRS") employment, and Count II ¶ 16 asserts Zurek's actual inability to obtain other professional employment since his termination.
Though Opinion I found comparable allegations sufficient to state a Section 1983 claim, defendants nevertheless advance several reasons for dismissing Count II:[4]
1. Zurek did not adequately allege the stigmatizing information was publicized.
2. Zurek did not allege defendants' actions actually precluded him from securing employment.
3. Zurek failed to request, and thus was never denied, a "name clearing" hearing.
4. Zurek failed to attach a copy of Dimmick's letter as an exhibit to the Complaint.
None of those arguments warrants departure from Opinion I's ruling.
As to the public disclosure issue, the Complaint does seem to look in two directions. Count II ¶ 6 refers to the offending letter as having been put "in general circulation," but there is no specific allegation of delivery (either of the document or its contents) to any prospective employer. In much the same way, it is unclear whether Zurek's inability to obtain IRS employment is the product of actual unsuccessful applications consequent on the stigmatizing disclosure, or rather simply a prediction of that possibility (see Count II ¶ 12, which reads like the latter, and Count II ¶ 14, which states clearly premature claims of expected effects on Zurek's career as a lawyer).
What saves Zurek is the necessary drawing of inferences most favorable to him (appropriate on a motion to dismiss). So taken, Count II suggests defendants actually divulged the stigmatizing information to the IRS and are also willing to disclose it to any other prospective government employer. As Larry v. Lawler, 605 F.2d 954, 958 (7th Cir.1978) makes clear, such potential government-wide disclosure would satisfy any requirement of public dissemination.[5]
Those same allegations, coupled with the same favorable inferences, meet the pleading requirement of "tangible" loss, Paul v. Davis, 424 U.S. 693, 701, 96 S.Ct. 1155, 1161, 47 L.Ed.2d 405 (1976), that must accompany the stigma: foreclosure of (as distinct from mere interference with) employment opportunities. Zurek's claimed inability to obtain any government employment would be a deprivation of constitutionally protected liberty interests under Larry, 605 F.2d at 958.[6]
Nor does Zurek's failure specifically to request a "name clearing" hearing jeopardize his liberty deprivation claim. As soon as they were aware of this action (it was filed one day before Zurek's actual termination), defendants were aware of his desire for an opportunity to rebut the charges underlying his discharge. Despite that knowledge, defendants have never offered Zurek such an opportunity. Absent some showing that a particular form of *748 request is necessary, defendants' inaction must be viewed as tantamount to a refusal to afford a "name clearing" hearing. And as defendants concede, denial of such a hearing infringes the Due Process Clause (assuming a protected liberty interest has been impaired). See Codd v. Velger, 429 U.S. 624, 627, 97 S.Ct. 882, 884, 51 L.Ed.2d 92 (1977) (per curiam).
Finally, Zurek's failure to annex Dimmick's allegedly stigmatizing letter to the Complaint is not fatal. Federal (unlike Illinois state) pleading does not impose such a requirement. Indeed, if Zurek's allegations as to the nature of the letter are accurate, it would be most unfair to force its public disclosure by making it part of the pleadings (an absolutely privileged vehicle for possible defamation and stigmatization).[7]
Count II thus survives defendants' renewed attack. Their motion for its dismissal is denied.
Counts III and IV
Counts III and IV are pendent state tort claims, respectively asserting defamation and retaliatory discharge. At the threshold defendants assail both counts on sovereign immunity grounds, contending this action is effectively directed against the State of Illinois itself in violation of Ill.Rev.Stat. ch. 127, § 801. That position is obviously unsound, for (1) defendants' claimed wrongful acts allegedly exceeded their authority and (2) the relief sought by Zurek (individual damages against defendants) would not "control the operations of the State or subject it to liability." See Hoffman v. Yack, 57 Ill.App.3d 744, 748, 15 Ill.Dec. 140, 144, 373 N.E.2d 486, 490 (5th Dist.1978).[8] This opinion turns, then, to claimed defects in the individual Counts.
1. Count III
As to Zurek's defamation-based claim defendants assert:
1. Any defamatory statements are absolutely privileged under McLaughlin v. Tilendis, 115 Ill.App.2d 148, 153, 253 N.E.2d 85, 86-88 (1st Dist.1969), absent any allegation they were made to private individuals.
2. Zurek failed to plead "actual malice," a vital element of any defamation claim against a public official. New York Times Co. v. Sullivan, 376 U.S. 254, 279-80, 84 S.Ct. 710, 725-26, 11 L.Ed.2d 686 (1964).
Neither contention has merit.
First, McLaughlin itself recognizes, 115 Ill.App.2d at 152, 253 N.E.2d at 87 (quoting Cook v. East Shore Newspapers, Inc., 327 Ill.App. 559, 577-78, 64 N.E.2d 751, 759-60 (4th Dist.1945)) the absolute privilege extends only to a narrow category of communications, including those "made in the discharge of a duty under express authority of law, or to heads of the executive departments of the State, and matters involving military affairs." True enough, Dimmick's letter and other derogatory statements by defendants in deciding whether to terminate Zurek may have been expressly authorized by state law. But any dissemination of such defamatory information to outsiders (including IRS officials) is not similarly sanctioned (or more accurately, defendants have not identified any state law so doing). See Yack, 57 Ill.App.3d at 748-49, 15 Ill.Dec. at 144, 373 N.E.2d at 490 (defendant's false accusation not privileged because not in furtherance or within the scope of his duties as supervisor).
Defendants' second argument is equally fallacious, because its premise that Zurek is a "public official" for First Amendment purposesis mistaken. Rosenblatt *749 v. Baer, 383 U.S. 75, 86 S.Ct. 669, 15 L.Ed.2d 597 (1966), the most recent Supreme Court exposition of that nebulous term, put the question in two ways:
1. whether the government employee has, or appears to the public to have, "substantial responsibility for or control over the conduct of governmental affairs" (id. at 85, 86 S.Ct. at 676); and
2. whether the employee's "position in government has such apparent importance that the public has an independent interest in the qualifications and performance of the person who holds it, beyond the general public interest in the qualifications and performance of all government employees" (id. at 86, 86 S.Ct. at 676).
Zurek simply does not fall within either contour of the public official profile.[9]
Perhaps defendants could establish (as they urge) Zurek was a significant evidentiary source as an expert witness in some ICC rate proceedings. But lacking either prosecutorial or adjudicatory responsibility, Zurek did not have "substantial responsibility for or control over" the conduct or resolution of those cases. By the same token, Zurek plainly did not have "apparent importance" arousing public interest greater than that regarding the typical government employee.
Our Court of Appeals' liberal construction of the "public official" doctrine in Meiners v. Moriarity, 563 F.2d 343, 351-52 (7th Cir. 1977) is clearly distinguishable. Moriarity bestowed "public official" status on federal narcotics agents because their "decisions to search and to arrest directly and personally affect individual freedoms," 563 F.2d at 352 (emphasis added). At most Zurek's involvement in the rate proceedings had only an indirect economic impact on the general public (even assuming his testimony influenced the disposition of these cases).
Accordingly Count III withstands defendants' Fed.R.Civ.P. 12(b)(6) challenge. It too must be answered.
2. Count IV
Defendants urge a retaliatory discharge claim can be brought only against an employer (here the ICC) and not against the individuals responsible (the individual defendants). However none of the handful of Illinois cases involving the retaliatory discharge tort has foreclosed this possibility. In fact, in the one reported lawsuit brought against both the employer and the "retaliating" supervisor, Rozier v. St. Mary's Hospital, 88 Ill.App.3d 994, 44 Ill.Dec. 144, 411 N.E.2d 50 (5th Dist.1980), the Appellate Court, though dismissing the case on a variety of grounds, passed up the opportunity to confine this tort to employers.
Moreover, it would distort normal tort doctrine, once a cause of action is recognized, to impose liability on a wrongdoer's principal but not on the wrongdoer himself. And at least two other policy reasons support the normal concept of individual responsibility here:
1. Deterrence always a goal of intentional tort liability would be better served if both the active wrongdoer and the employer were assessed with joint and several responsibility.
2. Even more important here, if and to the extent sovereign immunity would insulate government employers from liability, any government employee who has been terminated on grounds offensive to public policy would have no remedy for that wrong unless the responsible co-employees could be sued.
Count IV also withstands dismissal.
Conclusion
Defendants' motion to dismiss is denied as to each of Counts II, III and IV. They are ordered to answer those Counts on or before December 30, 1982.
NOTES
[1] Defendants are Michael V. Hasten, ICC chairman during the relevant period, Charles Stalon, Helen Schmid and Alfred Reichman, past or present ICC members, and Neill Dimmick ("Dimmick"), Chief ICC accountant during the events at issue.
[2] Two prior opinions have dealt in part with the legal sufficiency of the Complaint:
1. This Court's June 29, 1982 opinion ("Opinion I") upheld allegations now embodied as part of Count II.
2. Its October 28, 1982 opinion ("Opinion II") dismissed Count I.
Zurek has been delinquent in responding as to Count V, and this Court has recently extended his time to file a memorandum on that score.
[3] Count II ¶ 4 alleges:
That Hasten and Dimmick on or about June 25, 1980 put in Zurek's personnel file a letter written by Dimmick containing false, stigmatizing, defaming and malicious information regarding Zurek's termination and Zurek's period of employment with ICC.
[4] Opinion I does not preclude this Court from reconsidering its earlier stance, contrary to Zurek's belief. Law of the case principles are inapposite because the issues now raised by defendants were never addressed to this Court (defendants' motion to dismiss the corresponding part of Zurek's earlier complaint was justifiably focused on their inability to perceive any "liberty" claim within that impenetrable document). In any event, even were the doctrine applicable, it would not preclude reconsideration (particularly at this early stage in the litigation). See 1B Moore Federal Practice ¶ 0.404[4], at 451.
[5] As Larry intimates (605 F.2d at 957-59), public dissemination of the defamatory information may have no significance except as it bears on the extent of employment foreclosure the focus of the due process inquiry in liberty deprivation cases.
[6] Because the case is unfortunately still at the pleading stage, it is unnecessary to decide now whether inability to secure any IRS hiring would alone implicate the Due Process Clause. Larry 605 F.2d at 958 distinguishes between the denial of a particular government position and a government-wide employment bar.
[7] If the letter is in Zurek's ICC personnel file, defendants obviously have it. If not, discovery rather than pleading is the way to address the matter.
[8] Defendants also advance an equally invalid Eleventh Amendment argument. Claims grounded in state law do not appear to implicate that Amendment at all, for it really defines the sovereign immunity defense to a federal cause of action (such as a Section 1983 claim). But even if it did apply, it would not enlarge the scope of immunity beyond what the State claims for itself.
[9] Defendants must recognize the limitations imposed on this kind of argument at the pleading stage: They are restricted to the Complaint's allegations, and construed in Zurek's favor at that. However, because this action has been so slow to develop (primarily due to Zurek himself) this opinion will give defendants the benefit of a good deal of doubt to provide further guidance for the parties as to Count III's required proof.
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392 F.Supp. 270 (1975)
Harvey S. MOSER, Plaintiff,
v.
Bill BOATMAN and Ellen Boatman, Defendants.
No. 74 C 1471.
United States District Court, E. D. New York.
April 17, 1975.
Jesse A. Falzone, Brooklyn, N. Y., for plaintiff.
Bresler, Kallman, Hackmyer & Walzer, New York City, for defendants.
OPINION and ORDER
PLATT, District Judge.
In this diversity action for breach of contract and conversion, defendants, citizens of Ohio move pursuant to Rule 12(b)(2) and (5) of the Federal Rules of Civil Procedure for dismissal on the ground that this Court lacks in personam jurisdiction, and on the related ground that dismissal is mandated by Rule 12(b)(5) because of insufficiency of service of process.
*271 Plaintiff Moser, a citizen of New York, was the owner of a herd of pure bred registered Aberdeen-Angus cattle. His herd was originally maintained at the Black Watch farms.
In or about September 1970 Black Watch Inc. filed Chapter 11 proceedings in the Southern District of New York. At that time, defendants, Bill and Ellen Boatman, mailed a four-page form letter to Moser in New York, outlining, in detail, the services that their Rolling Ridge Ranch could provide. There is no dispute as to this solicitation, but conflicts arose as to the succeeding events where defendants and defendants' alleged agent were present in the State of New York.
Plaintiff's affidavit (Garber) indicates that in October 1970, a meeting took place in the Sheraton Inn at LaGuardia Airport between defendants Bill and Ellen Boatman, Mr. William Brown (the Boatmans' attorney), Mr. Roger Mesecher (the Boatmans' Administrative Assistant) and Harry Garber, attorney for seventeen herd owners, including plaintiff Moser. According to Mr. Garber, terms of an agreement between the herd owners and Boatman were discussed; however, there is no mention of the length or outcome of the meeting. Shortly thereafter, another meeting took place at the same Sheraton Inn. Present was Bill Boatman, along with his ranch office manager, Mr. James Cawley, Mr. Garber and the herd owners. The basic agreement was reached at this meeting except for some subsequent revisions. The contract was then prepared by the Boatmans' attorney in Ohio, forwarded to New York for the herd owners' signatures and was thereafter executed by the Boatmans in Ohio.
The foregoing two occasions were the only instances that the Boatmans were present in New York. However, plaintiff's affidavit refers to three occasions in March, April and May 1971 where an alleged agent for the Boatmans, one John King, was in New York City to discuss a possible assignment of the original agreement to a new corporation, the Forty-one Cattle Company, an Ohio corporation. This assignment agreement was signed by plaintiff on May 24, 1971.
Defendant Bill Boatman's affidavit disputes the Garber description of the two meetings at LaGuardia Airport. According to him, they were "brief meetings" where defendant Boatman merely "outlined the services he could provide." He concludes that all negotiations concerning the agreement occurred in Ohio. Further, he denies plaintiff's allegation that King was his agent, when King made his three visits to New York.
The relevant statute here is New York's so-called "long arm" statute, CPLR Section 302, the pertinent part of which provides that
"§ 302. Personal jurisdiction by acts of non-domiciliaries
(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nonndomiciliary, or his executor or administrator, who in person or through an agent:
1. transacts any business within the state;"
The basis for the New York "long arm" statute was the line of Supreme Court decisions beginning with International Shoe v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). There the Court established the "minimum contacts" theory for establishing jurisdiction over a foreign corporation. After this decision it was no longer essential that the foreign corporation "consent" to jurisdiction or be "doing business" within the forum state. Due process "requires only that in order to subject a defendant to a judgment in personam, * * * he have certain minimal contacts with it such that the *272 maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" 326 U.S. at 316, 66 S.Ct. at 158.
International Shoe was extended even further in McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957) where jurisdiction was allowed over an insurance company with no office or agent in California, which had never solicited business there and whose only contact was the writing of the policy. The critical factor was that "the suit was based on a contract which had substantial connection with that State." 355 U.S. at 223, 78 S.Ct. at 201 (emphasis added).
However, McGee and International Shoe must be read in conjunction with the Supreme Court's later and more restrictive view on long arm jurisdiction in Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). The Court warned that "it is a mistake to assume that this trend [International Shoe and McGee] heralds the eventual demise of all restrictions on the personal jurisdictions of state courts." 357 U.S. at 251, 78 S.Ct. at 1238. The Court set forth the test for a reasonable contact as to whether there "be some act by which the defendant purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." 357 U.S. at 253, 78 S.Ct. at 1240.
Thus, this Court's task is to determine whether the acts of the Boatmans, and of their alleged agent King, within New York were sufficient to conclude that they "purposefully avail[ed] [themselves] of the privilege of conducting activities within . . . [this] State [New York]" and thereby "invok[ed] the benefits and protections of its laws." The problem is, of course, in evaluating the contacts, in determining what weight should be given to each, and to all of them taken together.
The leading New York case in this area is Longines Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68. There the court sustained jurisdiction on a "totality of contacts" where defendant had numerous contacts with New York, although the contract was not executed here:
They comprised substantial preliminary negotiations through high-level personnel during a period of some two months; the actual execution of a supplementary contract; the shipment for use here, subject to acceptance following delivery, of two specially designed machines, priced at the not inconsiderable sum of $118,000; and the rendition of services over a period of some three months by two of the appellant's top engineers in supervising the installation and testing of the complex machines. 15 N.Y.2d at 457, 261 N.Y.S.2d at 19, 209 N.E.2d at 75.
However, the court did "not determine whether any one of the foregoing activities would, in and of itself, suffice to meet the statutory standard." 15 N.Y. 2d at 458, 261 N.Y.S.2d at 19, 209 N.E. 2d at 76.
From Longines Wittnauer it may be seen that certain factors may be deemed to be important, such as the presence of defendants or defendants' agent in New York. Professor McLaughlin views physical presence as "one of the most concrete manifestations of his [defendants] purposeful activity in New York." McLaughlin, Practice Commentary, McKinney CPLR § 302 (1972) at 74. However, there are other factors that should be considered: Who was present in New York? Was it a minor functionary or a "high-level" officer? What was he doing in New York? Was he engaged in negotiating the contract out of which this cause of action arises? If it was negotiation rather than mere discussion, what was the duration? Finally, where was performance to be rendered?
Later cases have clarified the Longines Wittnauer factors in cases where the contract negotiations were within New York, and where execution was without the state the instant fact pattern. *273 In Liquid Carriers Corp. v. American Marine Corp., 375 F.2d 951 (2d Cir. 1967) the court held that substantial preliminary negotiations consisting of five or six meetings over a five day period conducted by high level personnel of defendant without the other Longines Wittnauer factors (performance in New York and execution of supplementary agreement) was sufficient to meet the statutory requirements for transaction of business.
As for the duration of negotiations in New York, a more recent opinion of Judge Dooling, ECC Corporation v. Slater Electric, Inc., 336 F.Supp. 148 (E.D. N.Y.1971) indicates that the length of the meeting is no longer critical. There a single meeting of as little as one half hour or up to two hours occurred in New York. However, at this meeting, the Court found that the parties agreed on the essential terms of the agreement. 336 F.Supp. at 151. Another District Court allowed jurisdiction when it found that "the critical part of the negotiations of this contract was conducted in New York." Northland Paper Co. v. Mohawk Table Co., 271 F.Supp. 763 (S. D.N.Y.1967). It should also be noted that in the last case, the defendant's president was only in New York twice, and that each visit was of short duration.
In National Iranian Oil Co. v. Commercial Union Insurance Co. of New York, 363 F.Supp. 129 (S.D.N.Y.1973), the court utilized another approach to sustain jurisdiction. There, the parties' first negotiations were in Iran. They then held a four day negotiating session in New York. Finally, the negotiations were shifted to Washington, D.C., where the contract was signed. The parties, of course, differed as to the N.Y. negotiations, plaintiffs characterizing them as long and extensive and basically culminating in agreement on the essential terms. Defendants denied this. The court did not decide the issue of fact as to whether the essential terms of the agreement had been reached in New York; rather, it sustained jurisdiction because it looked at the history of the negotiations, and concluded that the New York "session represented a turning point at which the parties for the first time reached sufficient agreement to leave little doubt that a final contract would actually be concluded." 363 F. Supp. at 132.
The most recent Second Circuit Court of Appeals opinion dealing with this statute (Sterling National Bank and Trust Co. of New York v. Fidelity Mortgage Investors, 510 F.2d 870 (2d Cir. 1975)) set forth the following standard for this Court to apply:
The proper inquiry in a case such as this is "whether looking at `the totality of the defendant's activities within the forum', purposeful acts have been performed in New York by the foreign corporation in relation to the contract, `albeit preliminary or subsequent to its execution.'" Galgay v. Bulletin Company, Inc., 504 F.2d 1062, 1064 (2d Cir. 1974), quoting Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 457 & n. 5, 261 N.Y.S.2d 8, 18, 209 N.E.2d 68, 75 (1965), cert. denied sub nom. Estwing Manufacturing Co., Inc. v. Singer, 382 U.S. 905 [86 S.Ct. 241, 15 L.Ed.2d 158] (1965).
Applying this standard and the factors previously mentioned, it is clear that defendants Bill and Ellen Boatman have committed purposeful acts within New York, allowing this Court to exercise jurisdiction over them. The Court arrives at this conclusion, mindful of the fact that "[i]n commercial cases the [New York] Court of Appeals has indicated a tendency to expand New York's jurisdiction." Weinstein, Korn, Miller, New York Civil Practice § 302.06a at 3-65 (1974). This determination is made without resolving King's alleged agency on the basis of conflicting affidavits.
Perhaps most important is the fact that the Boatmans were present in New York on at least two occasions. See Hi Fashion Wigs v. Hammond Advertising, *274 32 N.Y.2d 583, 347 N.Y.S.2d 47, 300 N. E.2d 421 (third party defendant who was in New York on only one occasion held to have transacted business here).
In addition, it is undisputed that the Boatmans' presence in New York, was "in connection with the matter in suit." Parke Bernet Galleries v. Franklyn, 26 N.Y.2d 13, 16, 308 N.Y.S.2d 337, 339, 256 N.E.2d 506, 507 (1970), quoting, Longines Wittnauer v. Barnes & Reinecke, supra, 15 N.Y.2d at 456, 261 N.Y. S.2d 8, 209 N.E.2d 68.
Moreover, this Court concludes that the Boatmans were actively involved in at least preliminary (if not all of the) contractual negotiations in New York, (Liquid Carriers Corp., supra) where agreement on at least a number of the essential terms was apparently reached.
These factors are determinative (ECC Corporation v. Slater Electric, Inc., supra, 336 F.Supp. at 151) even though the contract may have been formally executed in the State of Ohio. Therefore, it is apparent that personal jurisdiction may properly be exercised over Bill and Ellen Boatman because they have transacted business within New York and their motion must accordingly be denied.
One other point merits brief discussion. Plaintiff also alleged jurisdiction over defendants pursuant to CPLR § 302(a)(3)(ii) (Committing a tortious act without the State causing injury to persons or property within the State). This Court refuses to sustain jurisdiction over the Boatmans under this section of the "long arm" statute.
Although the tortious act of converting the cattle occurred in Ohio, it did not cause injury to person or property within the State of New York; rather, the injury was also in the State of Ohio. American Eutectic Weld. Alloys Sales Co., Inc. v. Dytron Alloys Corp., 439 F.2d 428 (2d Cir. 1971); Friedr. Zoellner Corp. v. Tex. Metals Co., 396 F.2d 300 (2d Cir. 1968) (tort of conversion). As Professor McLaughlin has indicated, where "[t]he tort alleged was conversion . . . it would seem that the tortious act and the tortious injury coalesce." McLaughlin, Practice Commentary, McKinney's CPLR § 302 (1972) at 87.
So ordered.
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274 F.Supp. 227 (1967)
S. T. TRINGALI CO., Inc.
v.
The TUG PEMEX XV, her engines, tackle, furniture and appurtenances, in rem, and Petroleos Mexicanos, her Owner, in personam.
No. 65-B-8.
United States District Court S. D. Texas, Brownsville Division.
October 17, 1967.
*228 Cox, Wilson, Duncan & Clendenin (Tom Clendenin, Jr.), Brownsville, Tex., for libellant.
Hardy & Sharpe, (Benjamin S. Hardy), Brownsville, Tex., for respondent.
MEMORANDUM AND JUDGMENT
GARZA, District Judge.
This is a suit for damages, brought by S. T. Tringali Co., Inc., as owner of the O/S JO-FRANCES, a shrimp trawler, that it claims was damaged when it was in a collision with the Tug PEMEX XV and its barge that it had in tow.
The case was tried before the Court on August 24, 1967, and live witnesses were heard and the depositions of others were introduced. Briefs have been filed by the parties, and the case is now ready for decision by this Court.
The O/S JO-FRANCES is a 61.6 foot shrimp trawler owned by S. T. Tringali Co., Inc., a Florida corporation.
The PEMEX XV, a tug, and the PEMEX BARGE 494 at all times material to this cause were owned by Petroleos Mexicanos, a government-owned corporation of the Republic of Mexico, which is engaged in commercial production and sale of petroleum products, and was not performing a governmental function at the time of the collision in question.
On April 14, 1964, at approximately 16.05 hours, the PEMEX XV with one barge in long tow set sail from the Port of Campeche, Mexico, for the Port of Minatitlan in the State of Vera Cruz, Mexico. The tug and its tow were proceeding upon a course of 241 degrees true with uneventful sailing until approximately 21.30 hours when a fishing vessel (which later turned out to be the O/S JO-FRANCES) was sighted 30 degrees on the port bow of the PEMEX XV.
At the time the JO-FRANCES was sighted, it was traveling on a parallel course with the PEMEX XV and tow until a green side light began to show on the JO-FRANCES, which indicated that her course was changing to starboard.
Upon noticing the change of course of the JO-FRANCES, the officer on watch ordered the course of the PEMEX XV and its tow changed to 271 degrees true, which would enable the PEMEX XV and its tow to steer clear of the JO-FRANCES.
The JO-FRANCES made a complete turn to starboard and was then meeting the PEMEX XV and tow in a port to port passing situation, and passed the PEMEX XV on the port side at approximately one-fourth of a mile distant.
After the JO-FRANCES passed the PEMEX XV, the Captain of the JO-FRANCES changed his course suddenly *229 to port, and collided with the PEMEX BARGE 494 at approximately 22.21 hours.
The collision took place in international waters about thirty miles off the Mexican coast at an estimated position of Latitude 19 deg. 34 min. North, and Longitude 91 deg. 15 min. West.
The maneuvers of the vessels involved in this collision were governed by the International Rules for Navigation at Sea, 33 U.S.C. § 144 et seq.
From the evidence before me, I find that the tug PEMEX XV at all times was displaying the proper lights required by the International Rules, as was the case with PEMEX BARGE 494.
The Captain of the JO-FRANCES, Kellis Brinn, was in exclusive control and at the wheel of the JO-FRANCES with an automatic pilot engaged when the collision occurred.
The Captain of the JO-FRANCES has testified that he did not know that the three white lights displayed upon the mast of the tug PEMEX XV, as required by Rule 3 of the International Rules, indicated a tug with tow of over 600 feet. He claims never to have seen the lights on the barge, but from the evidence before the Court, I find that the lights required to be on the barge were there.
It is possible for a shrimp trawler, such as the JO-FRANCES, to approach a tug and its tow from approximately a ninety degree angle and not see the lights on the barge, but the three white lights on the mast of the tug should have indicated to Captain Brinn of the JO-FRANCES that it had a barge in tow of over 600 feet.
Captain Brinn, however, did not know the meaning of the lights on the tug and was unaware of the tow. Because of this, I find that he was incompetent for night navigation in international waters, and his incompetence was the cause of the collision in question.
The two main officers on board the PEMEX XV have testified before the Court; and I find them to be competent and not guilty of any negligence in any respect, and that the PEMEX XV and PEMEX BARGE NO. 494 did not cause or contribute to the collision in any manner.
After the collision, the officers and crew of the PEMEX XV inquired of the JO-FRANCES whether or not there were any injuries and if assistance was needed. Even though there seemed to be a language barrier, from the signs received by the officers of the PEMEX XV, they were led to believe that even though damages had been caused to the JO-FRANCES, assistance was not needed, and they proceeded on their voyage.
Having found that the sole cause of the collision in question was the failure of those aboard the O/S JO-FRANCES to keep a proper lookout for the PEMEX BARGE NO. 494, the damaged claimant is not entitled to a decree for damages.
When this suit was filed, it was filed against the tug PEMEX XV, her engines, tackle, furniture and appurtennances, in rem, and Petroleos Mexicanos, in personam.
A writ of attachment was requested and issued, and the SS PRESIDENTE JUAREZ, an ocean-going tanker, the property of Petroleos Mexicanos, was seized to acquire jurisdiction and security in the suit. Subsequent to the seizure of the SS PRESIDENTE JUAREZ, a special appearance was filed and a release of the vessel obtained by posting bond. After bond was posted, Libellant served the local agent of Petroleos Mexicanos, Mr. Severo Villarreal, with citation, and then Petroleos Mexicanos, also known as PEMEX, answered.
Petroleos Mexicanos now contends that the seizure of the SS PRESIDENTE JUAREZ was unauthorized because it is the property of a friendly sovereign power and thus is immune from seizure for security and satisfaction of judgments; and that the seizure should be quashed and also the bond posted for its release.
Chief Judge Connally, of this District, in United States, Libellant, v. Tug *230 PEMEX XV, in rem and Barge PEMEX 559, in rem, and Petroleos Mexicanos, in personam, et al, Respondents, 1960 A.M.C. 896, held that under the current executive policy adhering to the "restrictive theory" of sovereign immunity, Petroleos Mexicanos being a government-owned corporation engaged in the production, refining and distribution of petroleum, its vessels are not entitled to the defense of sovereign immunity in the courts of the United States since they are not in the possession and ownership of a foreign sovereign, but are owned and operated by an independent corporation and its vessels were engaged in private commercial activity and are not engaged in a public or governmental function.
The Respondent, Petroleos Mexicanos, is urging on the Court the distinction between the seizure of its vessels for the purpose of acquiring jurisdiction, and the sale of its vessels to satisfy judgments against it, and that the State Department of the United States has taken the position that property of a friendly foreign state is not immune from attachment in order to acquire jurisdiction, but that the same property is immune from execution in satisfaction of any judgment obtained in the suit; and cites the case of Flota Maritima Browning de Cuba, Sociedad Anonima v. M/V CIUDAD DE LA HABANA, her Motors, &c., Banco Cubano del Comercio Exterior, succeeded by Banco Para El Comercio Exterior, De Cuba, &c., 4 Cir., 335 F.2d 619.
The decision by this Court as to the question of liability would seem to make the question of the quashing of the seizure and the bond moot, but the question of costs might still bring this question to the surface. Petroleos Mexicanos is also constantly sending its vessels into American ports, and it might be necessary that this question be decided for the future.
This Court agrees that the property of a friendly foreign government may be immune from execution, such as its credits in banks and the like. The vessels of Petroleos Mexicanos, however, are not considered as being owned by the Republic of Mexico, but by an independent corporation engaged in a private commercial activity; and I, therefore, hold that the vessels of Petroleos Mexicanos, also known as PEMEX, may not only be seized to acquire jurisdiction, but will have to respond for damages; and that Petroleos Mexicanos, when one of its vessels is seized, such as the SS PRESIDENTE JUAREZ was in this case, may either post a bond for its release, which bond will be responsible for the damages found, or may allow the vessel to remain seized, and if damages are assessed againt Petroleos Mexicanos, the vessel seized may be sold to satisfy the judgment.
The Respondent's request that the seizure of the SS PRESIDENTE JUAREZ and the bond posted for its release be quashed, is, therefore, denied.
It is, therefore, ordered, adjudged and decreed by this court that the claim of the Libellant, S. T. Tringali Co., Inc., is without merit in that the crew of its shrimp trawler O/S JO-FRANCES were solely at fault for the collision in question, and that its libel should be, and the same is hereby dismissed; and Petroleos Mexicanos is discharged with its costs which are taxed against the Libellant S. T. Tringali Co., Inc.; but no costs are to be taxed for the seizure of the SS PRESIDENTE JUAREZ and its later release.
This constitutes the Findings of Fact and Conclusions of Law of this Court, and is also a Final Judgment.
The Clerk will send to counsel for the parties, copies of this Memorandum and Judgment.
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274 F.Supp. 776 (1967)
Lynda L. CHOATE, Plaintiff,
v.
CATERPILLAR TRACTOR CO., a Foreign Corporation (referred to in the complaint as Caterpillar Tractor Company), Defendant.
No. P-2894.
United States District Court S. D. Illinois, N. D.
November 1, 1967.
*777 James L. Hafele, Peoria, Ill., for plaintiff.
Homer W. Keller, Miller, Westervelt & Johnson, Peoria, Ill., for defendant.
OPINION AND ORDER
ROBERT D. MORGAN, District Judge.
This cause is before the court upon defendant's motion to dismiss the complaint.
The complaint, based upon the equal employment opportunities provisions of the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq., alleges that plaintiff applied to defendant for employment as a factory worker on February 22, 1966, and that she was then told by an agent of defendant that she would not be employed for the reason that defendant would employ men to the exclusion of women as factory workers so long as male applicants for such work were available.[1] that, about March 14, 1966, plaintiff filed "a written complaint with the Equal Employment Opportunity Commission"; that on or about October 5, 1966, plaintiff was advised by the Commission, by a writing, that the Commission "had determined that there was reasonable cause to believe" that the Act had been violated; that her complaint was filed in this court within thirty days thereafter; that the stated premises reveal that plaintiff was discriminated against on her application for employment because of her sex, and that defendant is intentionally engaging in an unlawful employment practice in violation of the Act.[2]
Defendant bases its motion upon its contention that the complaint fails in several particulars to allege that plaintiff has complied with procedural requirements of the Act. Though the complaint does sufficiently allege the substantive violation of the act of sexual discrimination in employment practices as applied to plaintiff,[3] the contention that she does not allege her compliance with the procedures required by the Act has a semantic basis which is apparent from the complaint. Whether those omissions require dismissal of the complaint depends upon whether allegations of plaintiff's strict compliance with the provisions of the Act are a substantive prerequisite to her statement of a cause of action.[4]
*778 The complaint alleges an act of discrimination on February 22, 1966, and that plaintiff filed "a written complaint" with the Commission on March 14, 1966. There can be no question that her initial contact with the Commission was timely if the complaint which she filed was adequate to invoke the administrative jurisdiction of the Commission.[5]
A critical question arises from the fact that the complaint does not allege that the written charge which plaintiff filed with the Commission was "under oath." Defendant contends that a complaint "under oath" is essential to initiate the administrative remedy for which the Act provides, and that allegations showing required pursuit of such administrative remedy is a jurisdictional prerequisite to the institution of a civil action.
In that regard, the statute provides that a person claiming to be aggrieved by an unlawful employment practice, as defined in the Act, may file a charge "in writing under oath" with the Commission; that the Commission shall then make an investigation, and, if there is reasonable cause to believe the charge is true, the Commission shall attempt, "by informal methods of conference, conciliation and persuasion," to obtain voluntary compliance with the Act; and that, if voluntary compliance cannot be obtained, the Commission shall so notify the person aggrieved who then may, within thirty days thereafter, file a civil suit against the alleged violator. 42 U.S. C. § 2000e-5(a) & (e).
No reported decision dealing with the precise question presented here has been found, but several courts have considered the related question whether exhaustion of the administrative remedy provided by the Act is a prerequisite to the institution of a civil action.
The issue involved in Dent v. St. Louis-San Francisco Ry. Co., N.D.Ala., 265 F. Supp. 56, was whether a civil action could be prosecuted before there had been any effort by the Commission to obtain voluntary compliance with the Act by conciliation. Following a lucid and extensive analysis of the legislative intent, as embodied in the legislative history of the Act, 265 F.Supp. at 58-60, the court held that compliance with the provisions of the Act requiring resort to conciliation is a jurisdictional prerequisite to the institution of a civil action. The court said that conciliation was intended by Congress as the basic means for enforcement of the Act's provisions, and that the alternative of coercion by civil process was permissible only after it had been determined that voluntary compliance could not be obtained.
Mickel v. South Carolina State Employment Service, 4 Cir., 377 F.2d 239, was an appeal from a judgment dismissing the plaintiff's complaint against Exide Battery Company. The plaintiff had filed a charge with the Commission against the State Employment Service. No charge had been filed against Exide.
In affirming the judgment, the court said that resort to the administrative remedy of conciliation is a prerequisite to "the extreme measure of bringing a civil action," and that a civil action would lie "only after conciliation efforts had failed, or, in any event, after opportunity had been afforded the Commission to make such efforts." 377 F.2d 241. The court held that the plaintiff had not availed herself of the administrative remedy of conciliation by filing a charge against *779 Exide, and that, therefore, she had not complied with the statutory requirements prerequisite to her right to prosecute a civil action against Exide. 377 F.2d at 242.
In Hall v. Werthan Bag Corp., M.D. Tenn., 251 F.Supp. 184, the court considered the question whether a class action would lie to enforce the provisions of the Act. The complaint was filed by Hall, a Negro employee of Werthan, on behalf of himself and all other Negro employees of the company who were similarly affected by alleged discriminatory practices. A motion by Tate, another Negro employee of the company, to intervene as a party plaintiff, gave rise to the court's opinion. Only Hall had invoked the administrative remedy provided by the Act by filing a charge with the Commission.
The court did hold that Tate could intervene in the suit and that the suit would lie as a class action. That decision was, however, expressly limited to the prayer of the complaint for prospective relief. The court reasoned that the Commission had employed the conciliation process in an effort to obtain voluntary compliance with the Act upon the charge filed by Hall. It held that the demands of the statute, that the conciliation process be first invoked, were satisfied insofar as the complaint sought to enjoin the continuation of racially discriminatory practices which were alleged to affect all Negro employees in the same way as a class. 251 F.Supp. at 187-188.
The court further held that retrospective relief, i. e., back pay or reinstatement, was available only to Hall in the proceeding, because the Commission had not had the opportunity to attempt "conciliation in regard to rectifying any alleged injuries which other Negro employees or would-be employees may claim to have suffered as a result of the defendant's alleged discrimination." 251 F.Supp. at 188.
All of those decisions are considered as consistent in holding that resort to the remedy of conciliation is a jurisdictional prerequisite to the right to file a civil action. This court agrees with that construction of the Act. The plain language of the statute requires it, as does the established principle that statutes creative of remedies not known to the common law are to be strictly construed. Cf., e. g., Matheny v. Porter, 10 Cir., 158 F.2d 478, 479; Atlantic Coast Line R. Co. v. United States, M.D. Fla., 213 F.Supp. 199, 204, 205. Under such a statute, the right of action itself is conditioned upon strict compliance with all conditions imposed by the statute as a basis for assertion of a right of redress by resort to court processes.
Plaintiff's argument is rejected that Hall v. Werthan Bag Corp., M.D.Tenn., 251 F.Supp. 184, is authority tending to sustain her position that resort to the conciliation procedure is not a prerequisite to the right to file a civil suit. What the court did hold, as we have noted above in this opinion, is that where attempts at conciliation have failed to resolve a question which is common to a whole class of employees, it is not necessary, for the purpose of seeking prospective relief, that conciliation had been attempted on behalf of every member of the class. Clearly, the court would require each to invoke the conciliation machinery as a prerequisite to his seeking individual and retrospective relief. 251 F.Supp. at 188.
This court also rejects dictum in Ward v. Firestone Tire & Rubber Co., D.C., 260 F.Supp. 579, at 580, construing the Hall case as holding that a complaint before the Commission is not a jurisdictional prerequisite to a civil suit. Compare, Mickel v. South Carolina State Employment Service, 4 Cir., 377 F.2d 239, 242.
Does the provision requiring that the charge before the Commission be "under oath" partake of the same character as does the provision requiring resort to the conciliation procedure as a prerequisite to the institution of a civil action? In this court's opinion it does.
The legislative history of this Act unquestionably places the statutory emphasis *780 upon conciliation and voluntary compliance as the principal and preferable method for its enforcement. The Act creates the Commission for the single, expressed purpose of enforcing the Act. 42 U.S.C. 2000e-4. It establishes an express course of procedure to be followed in the initiation and processing of charges filed with the Commission under the Act. 42 U.S.C. 2000e-5(a). The jurisdiction of the Commission is invoked only by the filing of a charge. Charges may be filed in two ways, namely, "a written charge" by any of the Commissioners who have reason to believe that a violation has occurred, or a charge "in writing under oath" by a person claiming to be aggrieved by a violation of the Act. 42 U.S.C. 2000e-5(a). When a charge has been properly initiated, the Commission is directed to give notice of the charge and to make an investigation thereof, and, if the Commission believes from its investigation that the charge is likely true, to seek to obtain voluntary compliance with the Act by "informal methods of conference, conciliation and persuasion." 42 U.S.C. 2000e-5(a). If that effort fails, a civil action may be filed within thirty days after the aggrieved person is notified that the Commission's efforts have proved to be fruitless. 42 U.S.C. 2000e-5(e) (1). The course of procedure is clearly delineated, with each step, in sequence, geared to the obtaining of compliance with the Act.
In addition to the mandate of avoiding discrimination in the specified particulars, the Act also requires an employer to keep and maintain records and to open them to the Commission in the course of any lawful investigation. The ultimate burden upon an employer which the Act envisions is a civil suit for injunction and other relief, including an award of attorneys' fees in a proper case. The statutory purpose of preventing discrimination in employment is tempered by an equally cogent need to protect employers and other persons subject to the Act's mandate from subjection to the burden of frivolous charges, claims and demands. The requirement that a person aggrieved invoke the statute's procedures by a sworn complaint effectually preserves the major purpose of this legislation and, at the same time, affords a measure of protection against harassment by frivolous and groundless claims to those upon whom the burden of the Act falls.
It seems obvious from the language of the Act that Congress attached significance to the requirement of an oath. There is no other explanation for the distinction made between charges made by a commissioner and charges made by a person who claims to be aggrieved. In the former case, a "written charge" suffices, while in the latter a charge "in writing under oath" is required. 42 U. S.C. 2000e-5(a). It seems to this court that the fact that Congress saw fit to make that distinction provides sufficient basis for holding that a sworn charge is a necessary requisite to the right to invoke the statutory remedy.
Plaintiff almost concedes the premise in her argument. She argues that a charge under oath is not necessary to the initiation of a civil suit, but that it is a prerequisite to setting the conciliation machinery of the Commission in motion. The analysis of previously decided cases hereinabove demonstrates the lack of merit of that contention. The right to file a civil suit presupposes, at the very least, that the conciliation processes of the Commission have been properly invoked. Effect must be given to the plain language of the statute.
Strict application of similar statutory provisions has been decreed in cases of other types. Atlantic Coast Line R. Co. v. United States, M.D.Fla., 213 F.Supp. 199, 205; Burrell v. LaFollette Coach Lines, E.D.Tenn., 97 F.Supp. 279, 282, 283. In the former, the filing of an unverified complaint before the Interstate Commerce Commission did not stop the running of a statute of limitations where the complainant had not complied with a rule of the Commission requiring that such complaints be verified. In the latter, an amendment to the Fair Labor Standards Act required that any suit for overtime *781 compensation be filed within 120 days after the effective date of the amendment and that a class suit could be instituted within such time by the filing of a complaint and, also, the written consent of each named plaintiff to become a party to the suit. It was held that a class suit was not commenced by the filing of a complaint only, not accompanied by the consents signed by each party plaintiff.
This court concludes that the filing of a verified charge with the Commission is necessary to invoke the statutory enforcement procedures. The complaint herein is fatally defective because it fails to allege that the complaint filed with the Commission was under oath.
No useful purpose appears for commenting upon other contentions made by the defendant against this complaint. For the reasons herein stated, judgment is entered for the defendant dismissing plaintiff's complaint.
NOTES
[1] Though there is no clear allegation of the fact, it is assumed from the name "Lynda," the reference in the complaint to "the exclusion of women" and the feminine pronoun usage employed in the complaint, that plaintiff is a woman.
[2] It is an unlawful employment practice for an employer "to fail or refuse to hire * * * any individual * * * because of such individual's * * * sex." U.S.C. § 2000e-2(a) (1).
[3] Defendant's contention that the complaint fails to allege that employment was denied to plaintiff solely upon the basis of sexual discrimination is rejected. The allegation that an agent of defendant told plaintiff that her application for employment was denied because women would not be accepted for employment in the work classification sought as long as men were available is sufficient to allege a violation of Section 703 of Title VII of the Act. 42 U.S.C. § 2000e-2(a) (1).
The court is also satisfied that defendant's alleged "intentional" engagement in discriminatory practices is sufficient to satisfy any such requirement imposed by Section 706 of Title VII of the Act. 42 U.S.C. § 2000e-5(g). Defendant's argument upon such basis is also rejected.
[4] The complaint fails to allege where the alleged unlawful practice was committed. It is, therefore, wanting in any sufficient allegation as to venue.
The Act provides that all United States district courts have jurisdiction of suits arising under the Act, and that such suits "may" be filed in any district of the state in which the alleged unlawful employment practice was committed, in the district in which the employment records relevant to such alleged practice are kept, in the district in which the plaintiff would have been employed, except for such unlawful practice, or, in a proper case, in the district wherein the employer maintains his principal office. 42 U.S.C. § 2000e-5(f).
This complaint is defective in that particular and it might be dismissed on that basis. The objection, however, is one which could undoubtedly be cured by amendment. Justice to both parties dictates that decision should be based upon the substantive contentions against the complaint rather than on the question of venue.
[5] "A charge under subsection (a) of this section shall be filed within ninety days after the alleged unlawful employment practice occurred * * *." 42 U.S.C. § 2000e-5(d).
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707 F.Supp. 793 (1989)
MINNESOTA MINING & MANUFACTURING CO., Plaintiff,
v.
DACAR CHEMICAL PRODUCTS CO., Defendant.
Civ. A. No. 88-374.
United States District Court, W.D. Pennsylvania.
March 4, 1989.
David Hanson, Pittsburgh, Pa., John D. Gould, Randall A. Hillson, Minneapolis, *794 Minn., for plaintiff 3M.
Lawrence G. Zurawsky, Pittsburgh, Pa., for defendant Dacar.
Lisa M. Pupo, Pittsburgh, Pa., for defendant Louis S. Miller.
MEMORANDUM OPINION
SMITH, District Judge.
This is a patent case which presently gives rise to a discovery dispute, not the first such disagreement between counsel to reach us during the course of this complex litigation.[1] The contestants have conferred in an unsuccessful effort to resolve the impasse which arises from defendant Dacar Chemical Products Company's (Dacar) request to depose one of plaintiff Minnesota Mining and Manufacturing Company's (3M) inhouse patent attorneys in Pittsburgh, rather than in Minneapolis. Accordingly, compliance with our Local Rule 4 has been accomplished. Nevertheless, the resulting proliferation of motions, memoranda and responses devoted to this one narrow question reminds us once again that complex litigation, with its attendant "paper battles," may ultimately bring about the deforestation of North America. At the very least, it represents a drain upon scarce judicial resources, while being a boon to photocopier manufacturers and suppliers.
The instant dispute began when Dacar served upon 3M a notice on November 17, 1988, to produce a witness pursuant to Fed.R.Civ.P. 30(b)(6).[2] 3M designated those witnesses who will represent it in the areas of inquiry set forth in the notice, one of whom is Mark A. Litman, a Senior Patent Counsel II who prepared and prosecuted before the United States Patent and Trademark Office one of the three patents involved in this lawsuit. An affidavit of Mr. Litman[3] reveals that he is not an officer, director or managing agent of 3M, but that he is solely responsible for counselling several divisions of that company on "all aspects of intellectual property law...."
Dacar has filed a motion to compel the attendance of Mr. Litman at a deposition to be held in Pittsburgh. Defendant Louis S. Miller has joined in that motion. 3M has filed both a response in opposition to that motion, and a motion for a protective order pursuant to Fed.R.Civ.P. 26(c). We heard brief oral argument on these motions, despite the fact that this minor avalanche referred to above resulted in our receipt of the following: "Memorandum In Support Of Motion By Defendant Dacar To Compel Appearance Of Plaintiff's Rule 30(b)(6) Witness Litman For Deposition In Pittsburgh" (including seven exhibits); "Plaintiff's Memorandum In Support Of Its Motion For A Protective Order Pursuant To Rule 26(c)(2) Fed.R.Civ.P." (including Exhibits A-D); "Memorandum In Support Of Joinder By Miller In Motion Of Defendant Dacar To Compel Appearance Of Plaintiff's Rule 30(b)(6) Witness Litman For Deposition In Pittsburgh" (mercifully appending no exhibits); "Plaintiff's Response To Memorandum In Support Of Joinder By Miller In Motion Of Defendant Dacar To Compel Appearance Of Plaintiff's Rule 30(b)(6) Witness Litman For Deposition In Pittsburgh"; and "Defendant Dacar's Memorandum In Opposition To Plaintiff's Motion For A Protective Order Pursuant To Rule 26(c)(2) Fed.R.Civ.P." Suffice it to say that the simple and straightforward issue that is before the Court has been amply briefed.
Plaintiff 3M and defendants Dacar and Miller recognize that determining the place of depositions where the litigation and the residence of a witness are in different districts is a decision committed to the discretion of the Court. The policies which shape our discretion are straightforward and, like the Rules of Civil Procedure, are directed to securing "just, speedy and inexpensive" determinations. First, as a rule depositions should be taken in the district where the *795 action is being litigated. This not only permits predictability in prospective litigation, it also pragmatically permits the trial court to resolve disputes which may take place during the course of deposition without undue expenditure of time, both the parties' and the court's. It is a secondary policy that depositions should be taken where the deponent works or resides. Third, when these two rules conflict, the court will consider the nature of the testimony and for which party the testimony will be offered. If plaintiff wishes to depose a liability witness, it should bear the expense of going to the witness. If defendant wishes to establish an affirmative defense by deposing a witness, it should bear the inconvenience of going to the witness. Fourth, the court will examine the nature of the witness himself. As a general rule, status of a witness as a party tips the balance in favor of requiring him to come to the forum, while non-party witnesses should be deposed "at home."
In light of these factors, it is preferable to depose a plaintiff's designated representative in the forum that plaintiff has chosen, in this case the Western District of Pennsylvania. 3M suggests that it did not "choose the forum" because it could only bring this action in one venue, the Western District of Pennsylvania, where Dacar does business. It is true that frequently plaintiffs do not choose the forum in the sense of selecting the one most advantageous forum from many available. Nonetheless, it is plaintiffs which make the primary choice to bring suit or not, and thus choose a forum. It is only appropriate that in making that decision plaintiffs must consider the costs of prosecuting that suit, rather than rely on shifting the cost onto defendants before adjudication on the merits.
We also do not give much weight to the distinction which 3M would have us draw between officer, director, or managing agent, and an "ordinary employee." Whether ordinary or not, Mr. Litman here is to be deposed as 3M's designated representative on a variety of subjects relevant to 3M's complaint and Dacar's defenses, and stands on the same footing as an officer, director, or managing agent.[4]
This decision does not, as 3M suggests, open a wedge for defendant Dacar to harass and impede 3M's business operations by requiring indispensable 3M scientific and management employees to travel to Pittsburgh for days on end. First of all, counsel for both 3M and Dacar are proficient and experienced and can be trusted to resolve the vast majority of disputes amicably. Secondly, our decision here that a senior patent counsel for 3M who is a designated representative must travel to Pittsburgh does not give Dacar carte blanche to notice depositions of all 3M witnesses in Pittsburgh. In fact, it is clear that with the exception of the very few witnesses in Mr. Litman's class, depositions shall be taken at a witness' residence or place of business.
For the foregoing reasons, it is therefore
ORDERED, that defendant Dacar Chemical Company's Motion to Compel the attendance of Mark A. Litman, Esquire, at a deposition to be taken in Pittsburgh, Pennsylvania, is granted.
NOTES
[1] This case was re-assigned to us on November 10, 1988, by Order of the Honorable Gerald J. Weber.
[2] That notice has subsequently been modified on two occasions, although the form of notice is not at issue in this controversy.
[3] Curiously, this affidavit, enumerating various professional and personal demands upon Mr. Litman which allegedly would create hardship were he to be compelled to attend a deposition in Pittsburgh, fails to state the location of either his personal residence or professional address.
[4] As such, he is not subject to the 100-mile limitation of Fed.R.Civ.P. 45(d)(2) suggested by 3M.
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418 F.Supp. 735 (1976)
Robert FEITLER, Plaintiff,
v.
MIDAS ASSOCIATES et al., Defendants.
No. 75-C-6.
United States District Court, E. D. Wisconsin.
August 5, 1976.
*736 John S. Sammond, Thomas W. O'Brien, and Quinn W. Martin, Milwaukee, Wis., for plaintiff.
Marvin E. Klitsner, Robert A. Christensen, and Joseph P. Hildebrandt, Milwaukee, Wis., for defendants.
DECISION AND ORDER
REYNOLDS, Chief Judge.
This action, in which the plaintiff seeks statutory damages for the defendants' alleged violation of the Wisconsin Uniform Securities Law (Chapter 551, Laws of 1971), was originally commenced on or after December 9, 1974 in the Circuit Court of Milwaukee County, Wisconsin. On January 8, 1975, the action was removed to this court pursuant to 28 U.S.C. § 1441, it appearing that the diversity of citizenship between the parties and the amount in controversy were such as to vest this court with original jurisdiction under 28 U.S.C. § 1332.
On the basis of the pleadings, stipulated facts, and supporting affidavits, both the plaintiff and the defendants have moved for summary judgment.[1] For the reasons hereinafter stated, the Court has determined that the defendants' motion for summary judgment must be granted, and the plaintiff's motion for summary judgment denied.
I
From the record in this case, the following facts appear: The plaintiff, Robert Feitler, is a resident of the State of Wisconsin. The defendant, Midas Associates, is a limited partnership organized under the laws of the State of New York, and has its principal place of business at 595 Madison Avenue, New York, New York 10022. The defendants, Samuel M. Stayman, Alfred Rand, Robert L. Bachner and Walter H. Weil, are each New York residents and general partners of Midas Associates.
The plaintiff first learned of Midas Associates from his brother-in-law who was visiting Wisconsin. The plaintiff subsequently contacted defendant Stayman and arranged for a meeting in the New York offices of Midas Associates on March 7, 1972. At that *737 meeting, plaintiff discussed Midas Associates with defendant Stayman and other persons involved in Midas Associates. Although the plaintiff indicated at this meeting that he desired to purchase a limited partnership interest in Midas Associates, he was then uncertain as to the amount of the interest he wished to purchase and whether the purchase was to be made in his own name or that of his wife or some other family member. During the meeting, the plaintiff was given an unexecuted copy of a Midas Associates limited partnership agreement, which he took back to Wisconsin.
On March 24, 1972, plaintiff signed the partnership agreement before a notary public in Milwaukee County, Wisconsin; pursuant to the terms of that agreement, as completed, the plaintiff was to make a cash capital contribution of $250,000. On that same date, the plaintiff mailed the signed and notarized limited partnership agreement to defendant Stayman in New York. On March 28, 1972, defendant Bachner signed the limited partnership agreement in his capacity as a general partner of Midas Associates before a notary public in New York County, New York. On that same date, defendant Bachner mailed a letter to the plaintiff at his Wisconsin home address, advising him that the agreement had been executed and enclosing an exact copy thereof.
On March 30, 1972 and April 3, 1972, the plaintiff mailed defendant Stayman checks in payment of the limited partnership interest purchase price. Thereafter, in November of 1973, the plaintiff became unhappy with the performance of Midas Associates and asked to withdraw from the partnership. His partnership share was returned to him, less the net losses which had been incurred by the partnership as a result of adverse business operations in the interim.
In December of 1974, plaintiff filed this lawsuit, seeking to recover the amount lost by him on his investment, plus interest.
II
A. Plaintiff asserts that recovery is authorized by § 551.59(1), Wis.Stats. (1973), which in relevant part provides:
"Any person who * * * sells a security in violation of s. 551.21 * * * or any rule relating thereto * * * shall be liable to the person purchasing the security from him * * * for damages * * *."
Midas Associates did not register its partnership agreement with the Wisconsin Commissioner of Securities, or ever report its sale of a limited partnership interest to the plaintiff to the Wisconsin Department of Securities. Plaintiff asserts that the absence of registration or a report results in the defendants' liability under § 551.59(1). In its answer and motion for summary judgment, defendants assert that by its terms, Chapter 551, Wis.Stats., does not apply to the transaction here in question; that if it does, the transaction was exempt from any requirement of registration or reporting; and that if it was not, this civil action is barred by the statute of limitations embodied in § 551.59(5).
The Court has carefully considered each of these positions. It has determined that the Wisconsin Uniform Securities Law applies to the transaction in question and that that transaction was subject to the reporting requirement established by administrative regulations promulgated pursuant to that law. The Court has concluded, however, that the limited partnership agreement was exempt from any requirement of registration. As a consequence of this conclusion, as explained more fully herein, the Court finds that the defendants incurred no liability to the plaintiff under § 551.59(1), and accordingly does not reach the question of the applicability of the statute of limitations.
B. The reach and scope of the Wisconsin Uniform Securities Law with respect to sales of securities is defined by § 551.66, Wis.Stats. (1973):
*738 "(1) The provisions of this chapter concerning sales * * * apply when [a] a sale or [b] offer to sell is made in this state or when [c] an offer to purchase is made and accepted in this state * *."
"Sale" and "offer to sell" are defined in § 551.02(11):
"(a) `Sale' * * * includes every sale, disposition or exchange, and every contract of sale of, or contract to sell, a security or interest in a security for value.
(b) * * * `[o]ffer to sell' includes every attempt or offer to sell or dispose of, or solicitation of an offer to purchase, a security or interest in a security for value * * *"
For the securities law to apply, however, it is also necessary for the sale or offer to sell to be "made in this state." When it is that an "offer to sell" is made in this state is defined in § 551.66(2):
"* * *
For the purpose of this section, an offer to sell * * * is made in this state, whether or not either party is then present in this state, when the offer originates from this state or is directed by the offeror to this state and received by the offeree in this state, but for the purpose of s. 551.21, an offer to sell which is not directed to or received by the offeree in this state is not made in this state."
On the basis of this record, the Court cannot conclude that an offer to sell either originated from this state, or was directed by an offeror to this state and received by the offeree in this state. The only thing sold in this case was a limited partnership interest. The only offer to sell which ever occurred was the offer which defendants extended to the plaintiff while the latter was in New York on March 7, 1972. That offer to sell was admittedly perhaps not an offer to sell in the traditional contract sense of the term, since the object of the offer was then uncertain as to amount and form. In contract law, an offer to sell matures into a bonding contract upon a bare acceptance. Here, a bare acceptance would have left the critical terms of amount and form uncertain. Be that as it may, there was an "offer to sell" in the statutory sense of the term, since § 551.02(11)(b) defines offer to sell as including a "solicitation of an offer to purchase." Such a solicitation occurred when the defendants gave the plaintiff an unexecuted copy of the partnership agreement, implicitly inviting him to return it completed as to form and amountin effect, inviting him to make an offer of purchase. But this offer to sell, in the sense of a solicitation of an offer to purchase, originated in New York and was directed to and received by the plaintiff in that state.
Unlike an offer to sell, it does not appear that the statute defines when it is that a "sale" is "made in this state." While in determining whether a transaction is a "sale" within the scope of the statute, this Court should look to the statute itself and not to the common law, Hardtke v. Love Tree Corporation, 386 F.Supp. 1085, 1090 (E.D.Wis.1975), the Court believes that in the absence of a statutory definition of a "sale * * * made in this state," it is not precluded from interpreting that phrase in the light of common sense.
The defendants' assertion that a sale of the limited partnership interest took place in New York on March 7, 1972, is belied by the fact that both the amount and the form of the transaction were at that time uncertain. Certainty of form and amount did not exist until the plaintiff executed the limited partnership agreement on March 24, 1972. Arguably, the uncertain "offer to sell" extended on March 7, 1972, was accepted by the plaintiff's execution of a document supplying certainty to theretofore uncertain terms, and consequently a sale took place on March 28, 1972 in Wisconsin. The better view, however, would seem to be that the enforceable rights which are the hallmark of a sale did not occur until four days laterand then in New Yorkwhen defendant Bachner signed the agreement in his capacity as a *739 general partner of Midas Associates. On that date, mutually enforceable rights came into existence, and it can reasonably be said that a sale had occurred. The Court believes that the sale which then occurred must be said to have taken place in New York, and not in Wisconsin, and thus that no sale was ever "made in this state."
The absence of a "sale" or "offer to sell" "in this state" does not, however, require a finding that the provisions of Chapter 551 concerning sales and offers to sell are inapplicable to this case. The statute also provides that "[t]he provisions of this chapter concerning sales and offers to sell apply * * * when an offer to purchase is made and accepted in this state," § 551.66(1). The statute defines when it is that an offer to purchase is "made" and "accepted" in this state:
"(2) For the purpose of this section, an offer * * * to purchase is made in this state, whether or not either party is then present in this state, when the offer originates from this state * * *.
(3) For the purpose of this section, an offer to purchase * * * is accepted in this state when acceptance is communicated to the offeror in this state, and has not previously been communicated to the offeror, orally or in writing, outside this state; and acceptance is communicated to the offeror in this state, whether or not either party is then present in this state, when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received by the offeror in this state." § 551.66, Wis.Stats. (1973) (emphasis added)
The statutory definition of when it is that an offer to purchase is made "in this state" focuses on the locus of certain actions, and this focus is without regard to the actual presence of either party in the state. By completing and executing the limited partnership agreement, and placing it in the mail addressed to the defendant Stayman in New York on March 24, 1972, the plaintiff made an offer to purchase, complete as to amount and form, which offer can be said to have originated "from this state." Cf. Kreis v. Mates Investment Fund, Inc., 473 F.2d 1308, 1311 (8th Cir. 1973). And although for purposes of determining when and where the "sale" took place, the Court has relied upon the counter-execution of the limited partnership agreement by defendant Bachner in New York on March 28, 1972upon Bachner's "acceptance", as it were, of the plaintiff's offer§ 551.66(3) requires that a different standard be used for determining where and when an acceptance of the offer to purchase occurred for purposes of § 551.66(1). That standard requires that this Court look to see whether the acceptance of the offer to purchase was communicated to the purchase offeror in this state. Defendant Bachner's letter of March 28, 1972, informing the plaintiff that the agreement had been signed was an acceptance directed to and received by the plaintiff in this state, and in the stipulation of facts the parties agree that this letter was the first communication to the plaintiff of the agreement's execution. The Court accordingly holds that, in statutory terms, an offer of purchase was both made and accepted in this state, and therefore that the provisions of Chapter 551 governing sales and offers to sell apply to the transaction in question.[2]
One of the provisions of Chapter 551 concerning sales and offers to sell is the registration requirement contained in § 551.21(1):
"* * * It is unlawful for any person to offer or sell any security in this state unless it is registered under this chapter or the security or transaction is exempted under s. 551.22 or 551.23."
*740 The defendants maintain that registration of the Midas Associates limited partnership agreement was not required because the transaction in question was exempted from registration by § 551.23(11):
"(a) Any transaction pursuant to an offer directed by the offeror to not more than 10 persons in this state, excluding persons exempt under sub. (8) but including persons exempt under sub. (10), during any period of 12 consecutive months, whether or not the offeror or any of the offerees is then present in this state, if the offeror reasonably believes that all the persons in this state are purchasing for investment, and no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state other than those exempt by sub. (8).
(b) The commissioner may by rule or order, as to any security or transaction, or any type of security or transaction, withdraw or further condition this exemption, or increase or decrease the number of offerees permitted, or waive the conditions in par. (a), and may require reports of sales under this exemption."
The parties agree that the only rule promulgated by the commissioner pursuant to the authority of subsection (b) which is relevant to the present case is Rule SEC 2.02(5):
"With respect to an offer or sale of a security exempted under sections 551.23(10) or (11), Wis.Stats.:
(a) Any issuer or other person effecting sales of securities of any issuer shall file with the commissioner written reports of such sales on forms prescribed by him within 10 days after the aggregate amount of such sales in this state exceeds $100,000 or sales are effected to an aggregate of 30 persons in this state within a 3-year period. * * *"
As previously noted, the parties have stipulated that the sale of the limited partnership interest in question was never reported to the office of the Commissioner of Securities of the State of Wisconsin. The parties have also stipulated that no limited partnership interests were sold to, nor was the subject matter of admission to partnership ever discussed with any Wisconsin resident other than the plaintiff.
The defendants' first line of defense appears to be an argument to the effect that the reporting requirement established by SEC 2.02(5)(a) applies only to sales made after the aggregate amount of sales has exceeded $100,000. In the instant situation, defendants would argue that the initial sale of a single limited partnership interest in the amount of $250,000 need not be reported, but that any subsequent sale in whatever amountwould have to be reported. Such a reading of the statute is unacceptable.
When "the aggregate amount of such sales * * * exceeds $100,000," such sales must be reported in writing to the Commissioner within 10 days. The referent of "such" sales is obviously that of the introductory phrase, i. e., a sale of a security exempted under § 551.23(11). Since the sale of the partnership interest here involved was a transaction exempt under § 551.23(11), and since the amount of that sale was in excess of $100,000, SEC 2.02(5)(a) required that that sale be reported to the Commissioner.
The defendants' alternate line of defense assumes that a report of the sale of a single $250,000 limited partnership interest was required, but argues that the filing of a report was not a condition subsequent to the existence and validity of the transaction's exemption under § 551.23(11) from § 551.21(1)'s requirement of registration. An evaluation of this argument requires an interpretation of § 551.23(11)(b), which in relevant part provides that "[t]he commissioner may by rule * * * further condition this exemption * * * and may require reports of sales under this exemption." As we have seen, SEC 2.02(5)(a) requires the filing of a report of the sales of securities which need not be registered since the transaction in which they are sold is one falling within the requirements of *741 § 551.23(11)(a), whenever the dollar amount of securities so sold exceeds $100,000. The difficult question presented is whether the reporting requirement contained in SEC 2.02(5)(a) is a § 551.23(11)(b) "condition" of § 551.23(11)(a), or whether SEC 2.02(5)(a) is merely an exercise of the Commissioner's § 551.23(11)(b) authority to require "reports of sales under this exemption [§ 551.23(11)(a)]," (emphasis added). The significance of the distinction is that under the former analysis, a failure to file the required report could be deemed a failure to meet the conditions of § 551.23(11)(a), thus making the sale of the security non-exempt thereunder and consequently subject to the registration requirement of § 551.21(1). Under the latter analysis, a failure to file the required report would constitute a violation of SEC 2.02(5)(a), but that violation alone would not endanger the transaction's status as one exempted from the registration requirement of § 551.21(1) by operation of § 551.23(11)(a). Upon due consideration of the arguments of counsel, the Court has concluded that the latter analysis comports more fully with the language of the statute.[3]
SEC 2.02(5)(a) requires a report of sales of securities when the amount of securities sold exceeds $100,000, when those securities are "exempted under [section] 551.23 * * (11)," (emphasis added). The exempted status of the securities is a prerequisite to the reporting requirement. If the failure to file the required report were to result in the loss of the exemption, the loss of the exemption would in turn destroy the requirement to report. The rule does not state that a security is exempt if and only if the report is filed; it states that the report must be filed if the security is exempt and sales thereof exceed $100,000.
§ 551.21 requires registration only if the security or transaction is not exempt. Exemption, in turn, is a condition precedent to the requirement to report. It is an inversion of this statutory and regulatory scheme to argue that the report is a condition *742 subsequent to the exemption, and that if the report is not filed, the exemption falls and the security must be registered.
In support of his position that a sale violative of SEC 2.02(5)(a) loses its exemption under § 551.23(11)(a), and thus violates § 551.21, the plaintiff refers the Court to a provision of the Illinois Securities Law of 1953, Ill.Rev.Stat. Ch. 121½, § 137.4, subd. G. An examination of that statute reveals that the statute itself explicitly conditions the exemption upon the subsequent filing of a report thereof:
"G. The sale or sales of securities other than fractional undivided interests in an oil, gas or other mineral lease, right or royalty, for the direct or indirect benefit of the insurer thereof or a controlling person, whether through a dealer (acting either as principal or agent) or otherwise, within any period of 12 consecutive months to not more than 25 persons in this State [is exempt] if:
* * * * * *
(4) The issuer * * * shall file with the Secretary of State a report of sale not later than 30 days after the sale * *." (emphasis added)
Effective September 1, 1972, the Wisconsin Commissioner of Securities adopted new regulations which effectively changed Wisconsin law so as to make it parallel to the provisions of the aforementioned Illinois statute:
"SEC 2.02(6)(d)
Any issuer or other person selling securities under these sections shall file with the commissioner a report of such sales on a form prescribed by him, within 30 days after the aggregate amount of such sales in this state exceeds $50,000 or sales are effected to an aggregate of 20 persons in this state within a 3-year period, setting forth the name and address of the issuer and each purchaser in this state, a description of the securities sold, the amount of securities and price paid by each purchaser and the date of each transaction. Each such person shall file with the commissioner supplemental reports within 30 days after the end of each calendar quarter in which further sales of the securities are effected.
SEC 2.02(6)(e)
The exemption for any offer or sale under these sections is withdrawn with respect to: any offer or sale by or on behalf of any issuer or other person who has failed to file the most current report of sales specified in subsection (6)(d); * * *"
In promulgating SEC 2.02(6)(e), the Commissioner was exercising his § 551.23(11)(b) authority to "by rule or order, as to any security or transaction, or any type of security or transaction, withdraw or further condition this exemption [§ 551.23(11)(a)]," (emphasis added). In contrast, in promulgating SEC 2.02(5)(a), the rule governing this transaction, the Commissioner was only exercising his § 551.23(11)(b) authority to "require reports of sales under this exemption [§ 551.23(11)(a)]," (emphasis added). The "withdrawing or conditioning" of an exemption is distinct from the requiring of reports of "sales under an exemption," and the latter phrase clearly implies that the exemption itself is not effected by the reporting requirement.
Neither of the parties contend that SEC 2.02(6)(c) should be retroactively applied. Instead, the plaintiff argues that SEC 2.02(6)(e) merely clarifies the pre-existing effect of SEC 2.02(5)(a). In support of his contention that SEC 2.02(5)(a) operated as a condition subsequent to § 551.23(11)(a) at the time of the transaction in question, the plaintiff has filed certified copies of ten opinion letters from the Office of the Commissioner of Securities of Wisconsin, issued between April 15, 1970 and November 30, 1971. In these letters, the Commissioner takes interpretative positions with respect to certain transactions which are seemingly supportive of the plaintiff's position that the failure to file a report as required under SEC 2.02(5)(a) results in the revocation of the transaction exemption conferred by § 551.23(11).
To the extent that the Commissioner's interpretative position is supportive of the *743 plaintiff's position, the Court must conclude that it is contrary to and negated by the clear terms of § 551.23(11) and SEC 2.02(5)(a). In the Court's opinion, a violation of the reporting requirement contained in SEC 2.02(5)(a) does not result in the revocation of an exemption under § 551.23(11)(a). On the facts of this case, the Court accordingly must hold that although the defendants did violate the reporting requirements of SEC 2.02(5)(a), they did not violate the registration requirements of § 551.21.
In the absence of a sale in violation of § 551.21 or a rule "relating thereto,"[4] the defendants' failure to register the limited partnership agreement or to report the sale of an interest therein does not give the plaintiff a cause of action under § 551.59(1). Since the plaintiff has advanced no other basis in support of his claim, his claim must fail.
In light of this result, it is not necessary for the Court to pass on defendants' assertion that plaintiff's claim is barred by the statute of limitations set forth in § 551.59(5).
IT IS THEREFORE ORDERED that plaintiff's motion for summary judgment be and it hereby is denied.
IT IS FURTHER ORDERED that defendants' motion for summary judgment be and it hereby is granted.
NOTES
[1] At oral argument, the plaintiff informed the court that a dispute existed between the parties as to the method to be used in computing damages in this case. This dispute had not previously been raised, nor has it been briefed by the parties. The plaintiff's motion might thus more accurately be characterized as a motion for partial summary judgment on the issue of liability. In contrast, the defendants' cross-motion is for complete summary judgment, since the question of damages is not reached if defendants prevail on liability. Having noted this technical distinction, the Court will hereafter simply refer to the pending motions as motions for summary judgment.
[2] For purposes of clarity, it should be emphasized that an offer to purchase made and accepted in this state is not a "sale" or "offer to sell"; rather, it is a transaction to which the provisions of Chapter 551 governing sales and offers to sell apply. The Court will hereinafter use the term "sale" in discussing the scope and effect of certain laws upon the transaction in question, but in so doing, the Court is only using a shorthand expression for the concept that provisions governing sales also apply to offers of purchase made and accepted in this state.
[3] At first glance, it would appear that the Court need not decide this difficult question, since the plaintiff's right to recover under § 551.59(1) is premised upon a sale "in violation of s. 551.21 * * * or any rule relating thereto," (emphasis added). Plaintiff accordingly might well argue that (1) the sale in question was a sale in violation of SEC 2.02(5)(a), and (2) that SEC 2.02(5)(a) is a rule relating to § 551.21.
As previously determined, SEC 2.02(5)(a) required that the defendants report the sale in question, and consequently, that rule was violated when the defendants failed to file the required report. Defendants could argue that even if SEC 2.02(5)(a) was violated by their failure to file a report, it does not follow that the sale in question was one in violation of the rule.
Such a contention would be, however, but a sophistic exercise in logic. SEC 2.02(5)(a) requires that a report be filed after the amount of sales of stock within the transaction exemption of § 551.23(11)(a) exceeds $100,000. It is the sale which triggers the reporting requirement. To hold that the rule is violated by a failure to report, but that the sale which makes the report necessary is not in violation of the rule requiring the report would be to ignore that in the absence of such a sale, no report is required. The Court accordingly holds that the sale in question was a sale in violation of the rule.
The Court, however, cannot conclude that SEC 2.02(5)(a) is a rule relating to § 551.21. § 551.21 requires the registration of securities not exempt under the transaction exemptions of § 551.23. § 551.23(11)(a) exempts transactions "pursuant to an offer directed by the offeror to not more than 10 persons in this state." SEC 2.02(5)(a) requires that sales of securities "exempted under [section] 551.23 * * * 11" be reported when "the aggregate amount of such sales in this state exceeds $100,000." SEC 2.02(5)(a) is not a rule "relating to" § 551.21, which requires registration of certain securities, but rather a rule relating to transactions which § 551.23 exempts from § 551.21's registration requirement.
§ 551.59(1) speaks of sales in violation of "s. 551.21, 551.31 or 551.55 or any rule relating thereto." These sections deal with registration requirements, licensing requirements, and unlawful representations, respectively. It would have been a simple matter for the legislature to include within § 551.59(1) the phrase "rules relating to §§ 551.22 and 551.23," but this the legislature did not do. The Court concludes that SEC 2.02(5)(a) is a rule relating to an exemption under § 551.23(11)(a) and not a rule relating to § 551.21, and accordingly, that a sale in violation of SEC 2.02(5)(a) is not a sale "in violation of * * * [a] rule relating [to § 551.21]."
[4] See n. 3, supra.
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788 F. Supp. 960 (1992)
Colleen R. STORCH and Michael J. Storch, Plaintiffs,
v.
BEACON HOTEL CORPORATION, Defendant.
Civ. A. No. 89-72522.
United States District Court, E.D. Michigan, S.D.
April 6, 1992.
*961 Cary S. McGehee, Kelman Loria, Detroit, Mich., for plaintiffs.
Dennis M. Barnes, Barris Sott, Detroit, Mich., Karl M. Terrell, Stokes Lazarus, Atlanta, Ga., Jonathan W. Greenbaum, Reid & Priest, Washington, D.C., for defendant.
MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S JULY 26, 1991 MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S SEPTEMBER 26, 1991 RENEWED MOTION FOR SUMMARY JUDGMENT AS TO COUNT III
GADOLA, District Judge.
On July 26, 1991, defendant Beacon Hotel Corporation ("Beacon") filed a motion for summary judgment as to Counts I and IV of the complaint. Plaintiffs filed a response August 23, 1991; defendant filed a reply September 4, 1991. Plaintiffs then filed a supplement brief in opposition to defendant's motion for summary judgment September 11, 1991. Defendant subsequently filed a renewed motion for summary judgment as to Count III of the complaint on September 26, 1991, to which plaintiffs responded on October 16, 1991. Oral argument was heard February 6, 1992.
BACKGROUND FACTS[1]
Plaintiff Colleen Storch began her employment with Days Inn as a front office manager on November 24, 1986. Defendant Beacon is the parent company of Days Inn, which was originally a defendant in this action. The parties have agreed that Beacon was plaintiff's "employer." Consequently, any reference to Days Inn will be construed as applying to Beacon. Plaintiff worked continuously for Days Inn from November 1986 to July 1988.
In October 1987 Gary Rogers, Days Inn's assistant general manager, was transferred to another hotel. In March 1987 Arthur Knox, Days Inn's general manager and originally a defendant in this action, told plaintiff that he would be training her for the assistant general manager position. The complaint alleged that in December 1987 Knox dissuaded plaintiff from applying *962 for a position at a different hotel owned by Beacon and assured her that she would be promoted to assistant general manager by June 1988.
In January 1988 Knox placed plaintiff in charge of the hotel while he went out of town. In February 1988 plaintiff informed Knox that she was pregnant. According to the complaint, in February 1988 Knox dissuaded plaintiff from applying for the director of sales position at Days Inn, again assuring her that she would be promoted to assistant general manager in June 1988. Knox again placed plaintiff in charge of the hotel in April 1988 while he went out of town.
In June 1988 plaintiff, then five months pregnant, had a meeting with Knox to express her concern over the promotion to assistant general manager. Plaintiff alleges that during the meeting Knox again assured plaintiff that she would be promoted. Knox went on vacation for two weeks during June and left plaintiff in charge of the hotel. Following Knox's return, plaintiff met with Knox to discuss the promotion to assistant general manager, at which time Knox alleged told her to "be patient and maybe next year, after you return from your maternity leave, we can discuss my training you for a position for assistant general manager."
On July 26, 1988, plaintiff told Caren Lynn, defendant's personnel manager, that Knox was treating her unfairly with respect to the "promised promotion to assistant general manager." On that same day, plaintiff, Caren Lynn, and Knox met to discuss plaintiff's charge of unfair treatment and the promotion. Plaintiff asked Knox why she had not been promoted to assistant general manager. Plaintiff claims that Knox stated, "Even if I were to fill the position, I would not consider you, Colleen, a candidate for the position due to your expected maternity leave." Both Knox and Lynn denied that such a statement was made. Knox dep. at 121-22; Lynn dep. at 45, 52. Plaintiff claims that Caren Lynn then said, "Art, you can't say that. That's sex discrimination," and that Knox replied, "It is my hotel, and I will say what I want."
Plaintiff then notified defendant that she was resigning as of July 28, 1988, and that the reason for the resignation was the defendant's sex discrimination, which created intolerable working conditions and amounted to constructive discharge. On September 2, 1988, plaintiff filed a charge of discrimination with the Michigan Department of Civil Rights and notified defendant of this action. Plaintiff alleges that defendant and its representatives retaliated against her by contesting her unemployment compensation benefits, intimidating and harassing her, and threatening to institute a civil suit against her for monetary damages and injunctive relief.
On August 1, 1989, plaintiff filed a five-count complaint in the Circuit Court for the County of Wayne. The case was removed to this court August 23, 1989, on the basis of diversity jurisdiction. The parties agree that Michigan substantive law applies. Counts II and V were dismissed in the court's February 6, 1990 order. In the remaining counts, plaintiff Colleen Storch claims sex discrimination (Count I) and breach of contract (Count III). Her husband, plaintiff Michael Storch claims loss of consortium (Count IV).
STANDARD OF REVIEW
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "A fact is material and precludes grant of summary judgment if proof of that fact would have [the] effect of establishing or refuting one of the essential elements of the cause of action or defense asserted by the parties, and would necessarily affect [the] application of appropriate principle[s] of law to the rights and obligations of the parties." [Citation omitted]. Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir.1984) (quoting Black's Law *963 Dictionary 881 (6th ed. 1979)). The court must view the evidence in a light most favorable to the nonmovant as well as draw all reasonable inferences in the non-movant's favor. See United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962); Bender v. Southland Corp., 749 F.2d 1205, 1210-11 (6th Cir.1984).
The movant bears the burden of demonstrating the absence of all genuine issues of material fact. See Gregg v. Allen-Bradley Co., 801 F.2d 859, 861 (6th Cir. 1986). The initial burden on the movant is not as formidable as some decisions have indicated. The moving party need not produce evidence showing the absence of a genuine issue of material fact. Rather, "the burden on the moving party may be discharged by `showing' that is, pointing out to the district court that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986). Once the moving party discharges that burden, the burden shifts to the nonmoving party to set forth specific facts showing a genuine triable issue. Fed.R.Civ.P. 56(e); Gregg, 801 F.2d at 861.
To create a genuine issue of material fact, however, the nonmovant must do more than present some evidence on a disputed issue. As the United States Supreme Court stated in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S. Ct. 2505, 2510-11, 91 L. Ed. 2d 202 (1986),
There is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the [nonmovant's] evidence is merely colorable, or is not significantly probative, summary judgment may be granted.
(Citations omitted). See Catrett, 477 U.S. at 322-23, 106 S.Ct. at 2552; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct. 1348, 1355-56, 89 L. Ed. 2d 538 (1986). The standard for summary judgment mirrors the standard for a directed verdict under Fed. R.Civ.P. 50(a). Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. Consequently, a nonmovant must do more than raise some doubt as to the existence of a fact; the nonmovant must produce evidence that would be sufficient to require submission to the jury of the dispute over the fact. Lucas v. Leaseway Multi Transp. Serv., Inc., 738 F. Supp. 214, 217 (E.D.Mich.1990), aff'd, 929 F.2d 701 (6th Cir.1991).
ANALYSIS
I. COUNT III: BREACH OF CONTRACT
This court, in a memorandum opinion dated April 23, 1990, denied defendant Beacon's motion for summary judgment as to Count III of the complaint. The court found that a genuine issue of material fact remained regarding whether a discharge for cause relationship existed between plaintiff and defendant. Defendant subsequently filed a motion for reconsideration, and that, too, was denied by this court. However, defendant has renewed its motion for summary judgment as to Count III of the complaint in light of the recent Michigan Supreme Court decision in Rowe v. Montgomery Ward & Co., Inc., 437 Mich. 627, 473 N.W.2d 268 (1991).
Upon revisiting the issue, the court finds that plaintiff's breach of contract claim is actually a claim for constructive discharge. Plaintiff has alleged such a claim, and it will be addressed by the court later in this opinion. The Rowe decision, as well as many other breach of employment contract actions, was based on the fact that an employee was terminated by the employer. In the present case, it is undisputed that plaintiff resigned from her position at Days Inn. Thus, it is not necessary to analyze the employment contract between the parties and to determine whether it was breached. Defendant is entitled to summary judgment on the breach of contract claim.
II. COUNT I: SEX DISCRIMINATION
A. Failure to Promote
Michigan's Elliott-Larsen Civil Rights Act, Mich.Comp.Laws Ann. § 37.2202, states in relevant part:
*964 1. An employer shall not:
(a) fail or refuse to hire, or recruit, or discharge, or otherwise discriminate against an individual with respect to employment, compensation, or a term, condition, or privilege of employment because of ... sex.
(b) limit, segregate, or classify an employee or an applicant in any way which deprives or intends to deprive the employee or applicant of an employment opportunity, or otherwise adversely affects the status of an employee or applicant because of ... sex.
Pursuant to Mich.Comp.Laws Ann. § 37.2201(d), "`sex' includes, but is not limited to pregnancy, childbirth, or a medical condition related to pregnancy or childbirth...."
In an employment discrimination case involving a failure to promote, the employee must first establish a prima facie case of discrimination. If the employee succeeds in proving the prima facie case, the burden then shifts to the employer to articulate some legitimate, nondiscriminatory reason for the action against the employee. Subsequently, if the employer carries its burden, the plaintiff must then have an opportunity to prove that the reasons offered by the defendant were a mere pretext for discrimination. Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S. Ct. 1089, 1093, 67 L. Ed. 2d 207 (1981).
In Burdine a female employee sued her employer under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., for failing to promote her to a supervisor's position which had been vacant for six months. Id. at 250, 101 S.Ct. at 1092. A male employee from another division of the defendant agency was hired for the position. Id. at 251, 101 S.Ct. at 1092. The Court stated, "[t]he plaintiff must prove by a preponderance of the evidence that she applied for an available position for which she was qualified, but was rejected under circumstances which give rise to an inference of unlawful discrimination." Id. at 253, 101 S.Ct. at 1094 (emphasis added). The Court added
"[i]n the instant case, it is not seriously contested that [the employee] has proved a prima facie case. She showed that she was a qualified woman who sought an available position, but the position was left open for several months before she finally was rejected in favor of a male...."
Id. at 253 n. 6, 101 S.Ct. at 1094 n. 6 (emphasis added). This analysis is commonly referred to the disparate treatment approach to discrimination cases.
Michigan case law follows the same analysis. A plaintiff may establish a prima facie case of sex discrimination under the disparate treatment analysis by showing that: (1) she belongs to the protected group, (2) she applied for an available position for which she was qualified, and (3) she was rejected under circumstances giving rise to an inference of unlawful discrimination. Pomransky v. Zack Co., 159 Mich.App. 338, 344, 405 N.W.2d 881 (1987).
Assuming her allegation is true, i.e., that Knox told her that even if he were to fill the position she would not be considered for a promotion because of her expected maternity leave, plaintiff has failed to present a prima facie case of sex discrimination. The court makes this finding based on one unique fact to which both parties agree, i.e. that the position to which plaintiff was not promoted was never offered to anyone, male or female. It is further undisputed that plaintiff never applied for the position of assistant manager at the hotel. The parties also agree that, to this day, no one holds this position at this hotel. Thus, plaintiff cannot show any disparate treatment.
Michigan courts have recognized another method of establishing a prima facie case of employment discrimination by showing intentional discrimination in cases in which employees have been discharged.[2]Brewster v. Martin Marietta *965 Aluminum Sales, Inc., 145 Mich.App. 641, 654-55, 378 N.W.2d 558 (1985) (plaintiff alleging sex discrimination); Jenkins v. Southeastern Mich. Chapter, Am. Red Cross, 141 Mich.App. 785, 793-95, 369 N.W.2d 223 (1985) (plaintiff alleging race discrimination); Schipani v. Ford Motor Co., 102 Mich.App. 606, 617, 302 N.W.2d 307 (1981) (plaintiff alleging age discrimination). To establish a prima facie case of intentional discrimination, each plaintiff was required to prove 1) that he or she was discharged, 2) that the individual defendant discharging him or her was predisposed to discriminate against the protected group, and 3) that the individual defendant discharging him or her had acted on that predisposition in discharging the plaintiff.
In the instant action plaintiff was not discharged from her position; rather, she resigned. However, Michigan's Elliot-Larsen Civil Rights Act prohibits many actions in addition to discharge, i.e. "fail[ing] or refus[ing] to hire, or recruit ... or otherwise discriminat[ing] against an individual," Mich.Comp.Laws Ann. § 37.2202(a), and "limit[ing], segregat[ing] or classify[ing] an employee ... in any way which deprives or intends to deprive the employee ... of an employment opportunity, or otherwise adversely affects the status of an employee or applicant ..." Id. at § 37.2202(b).
The court has found no Michigan case law which uses the intentional discrimination analysis in a failure to promote case. However, in adapting and using the intentional discrimination analysis in a failure to promote case, this court believes that in order to prove a prima facie case, plaintiff must first show that he or she applied for a vacant position. Such a requirement in a failure to promote case is the equivalent of the first element in the discharge cases that the employee was, in fact, discharged. An employment discrimination claim for failure to promote simply cannot stand absent proof that a position was available and that the employee applied for it.
In the instant action plaintiff never applied for the position of assistant manager at the hotel. Thus, this court cannot reach the issues of whether defendant was predisposed to discriminate against the protected group and whether defendant acted on that predisposition. If the job of assistant manager had been vacant and plaintiff had applied for it, then the court could continue the analysis under the intentional discrimination theory.
Because plaintiff has failed to establish a prima facie case using either the disparate treatment analysis or the intentional discrimination analysis, defendant is entitled to summary judgment on plaintiff's sex discrimination charge for failure to promote.
B. Constructive Discharge
Count I of the complaint also alleges a claim for constructive discharge. Constructive discharge may be found in situations in which working conditions were so difficult or unpleasant that a reasonable person in the employee's shoes would have been compelled to resign. Held v. Gulf Oil Co., 684 F.2d 427, 432 (6th Cir.1982). A finding of constructive discharge will depend on the facts of each case, and such a claim requires inquiry into the intent of the employer and the reasonably foreseeable impact of the employer's conduct on the employee. Id. In order to show that he or she has been constructively discharged in a civil rights action, the employee must show discrimination plus aggravating circumstances. Jenkins, 141 Mich.App. at 796, 369 N.W.2d 223.
Plaintiff contends that after Knox learned of plaintiff's pregnancy, he
gave her unfair job assignments, yelled at her, intimated [sic] her, embarrassed her in front of co-workers, caused her to leave the hotel property in tears on one occasion, ... made a joke about her physical appearance caused by her pregnancy in front of another co-worker, reneged on his approval of a vacation day, and refused to continuing [sic] training *966 or considering her for a promotion for the position of General Manager.
Plaintiff's Resp. at 19-20. Plaintiff contends that she was, in effect, forced to resign from "an extremely hostile work environment." Id. at 20.
The court finds that the parties have presented disparate facts regarding whether working conditions were so difficult or unpleasant that a reasonable person in plaintiff's shoes would have been compelled to resign. Therefore, defendant's motion for summary judgment on this claim in Count I must be denied.
COUNT IV: LOSS OF CONSORTIUM
Plaintiff Michael Storch's claim for loss of consortium is derivative of plaintiff Colleen Storch's claims. Because two of Colleen Storch's claims remain in this suit, the defendant is not entitled to summary judgment on Michael Storch's loss of consortium claim.
ORDER
NOW, THEREFORE, IT IS HEREBY ORDERED that defendant's motion for summary judgment as to the portion of Count I which relates to sex discrimination for defendant's failure to promote plaintiff is GRANTED.
IT IS FURTHER ORDERED that defendant's motion for summary judgment as to the portion of Count I which relates to constructive discharge is DENIED.
IT IS FURTHER ORDERED that defendant's motion for summary judgment as to Count III, breach of contract, is GRANTED.
IT IS FURTHER ORDERED that defendant's motion for summary judgment as to Count IV, loss of consortium, is DENIED.
NOTES
[1] The following statement of facts is taken from the court's opinions of February 6, 1990, and April 23, 1990.
[2] The United States Supreme Court in Burdine discussed only the disparate treatment theory in that sex discrimination case alleging a failure to promote. The Court discusses "intentional discrimination" as a feature of the third step of the discrimination analysis, which occurs after the plaintiff has established a prima facie case and after the defendant has presented a legitimate reason for the action. Burdine, 450 U.S. at 255, 101 S.Ct. at 1094.
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788 F. Supp. 109 (1992)
Dr. William R. McCANN, Plaintiff,
v.
Dr. Alejandro RUIZ, et al., Defendants.
Civ. No. 90-2164 (JP).
United States District Court, D. Puerto Rico.
February 11, 1992.
*110 *111 *112 Judith Berkan, Rio Piedras, P.R. and Federico Lora López, Hato Rey, P.R., for plaintiff.
Rubén Nigaglioni and James D. Noel, III, Ledesma, Palou & Miranda, Hato Rey, P.R., for defendants Ruiz, Smith, Joyce, Soto, Schellenkens, Larue.
Engadi Charneco Barreto, Federal Litigation Div., Dept. of Justice, San Juan, P.R., for defendants Del Valle and Angleró.
Pedro Santiago Torres, San Juan, P.R., for defendant PREPA.
OPINION AND ORDER
PIERAS, District Judge.
The Court has before it (i) a Request for Summary Judgment on plaintiff's Complaint filed by defendants Larue, Angleró, Del Valle and PREPA, (ii) a Request for Summary Judgment on plaintiff's Complaint filed by defendants Ruiz, Smith, Joyce, Soto and Schellekens, (iii) a Request for Dismissal of Claim Regarding Denial of Tenure filed by defendants Ruiz, Smith, Larue, Joyce, Soto, and Schellekens, and (iv) a Request for Summary Judgment on plaintiff's Amended Pleadings filed by defendants Ruiz, Smith, Joyce, Soto, Schellekens, and Larue. For the reasons set forth below, defendants' motions for summary judgment on plaintiff's procedural due process cause of action is hereby GRANTED while defendants' motions for summary judgment on plaintiff's first amendment and substantive due process causes of action are hereby DENIED. Defendants' motion to join necessary and indispensable parties is likewise DENIED.
I. Background
Plaintiff, Dr. William McCann, brings this action seeking injunctive relief and monetary damages for the alleged violations of his constitutional rights. His action was filed pursuant to 42 U.S.C. §§ 1983 and 1988 and the First, Fifth, Ninth, and Fourteenth Amendments to the United States Constitution. The jurisdiction of this Court is predicated on 28 U.S.C. §§ 1331 and 1343. Plaintiff also invokes the pendent jurisdiction of the Court to entertain certain claims arising under the laws of Puerto Rico.
Plaintiff was an Associate Professor in the Geology Department at the Mayagüez Campus of the University of Puerto Rico (hereinafter "RUM") for four years. During most of this time, he also occupied the position of Director of the Seismic Network of the Commonwealth of Puerto Rico. As Director of the Seismic Network, plaintiff was responsible for the maintenance of all of the network's stations, for the monitoring of earthquakes, and allegedly for the education of the public about earthquake hazards.
The Seismic Network is a series of seismic stations and recording instruments. It was owned by defendant Puerto Rico Electrical Power Authority ("PREPA") until 1988, at which time the University of Puerto Rico ("UPR") and PREPA entered into a contract for the transfer of the network's property to UPR. The network was operated by the United States Geological Survey *113 until 1982, at which time operational responsibilities were assumed by UPR's Center for Environmental and Energy Research ("CEER"). In 1987, the operational responsibilities for the network were once again transferred from CEER to RUM. At the time that PREPA transferred the operational responsibilities for the network to CEER, PREPA was in the process of preparing a seismic "risk map" for Puerto Rico containing information that would assist it in the design and location of power generation stations, dams, ports, and other structures under its direction. As part of the transfer, CEER agreed to continue the project and provide PREPA with a completed risk map, as well as any other information gathered from the operation of the network. When CEER transferred the operational responsibilities to RUM, RUM accepted the same conditions. In addition, PREPA provided RUM with certain proprietary data pertaining to seismic reflection lines. Defendants assert that this transfer was completed by means of a verbal contract which contained a confidentiality provision because of the considerable value of the seismic reflection lines in petroleum research.
When McCann arrived at RUM in August 1986, he assumed his duties as Assistant Professor under a temporary contract. This contract expired in June 1987, at which time McCann was granted a probationary appointment and placed on a tenure track. This appointment was renewed yearly until 1990. When he arrived at RUM he was also appointed Director of the Seismic Network, for which he received additional compensation. This appointment expired in May of 1990 and was not renewed.
On October 21, 1989, McCann participated in a radio show interview during which he opined that the proposed location for a coal-induced power plant was located unnecessarily close to a seismically active fault in the Mayagüez area of Puerto Rico and therefore posed a public hazard. His comments were reported in a general circulation newspaper the next day. Plaintiff asserts that following the broadcast defendants José Del Valle (Executive Director of PREPA) and Orlando Angleró (Director of Planning and Environmental Planning at PREPA), acting on behalf of PREPA, contacted defendant Dr. David Larue (RUM Geology Professor), whom plaintiff alleges was "PREPA's man" at RUM. Plaintiff asserts that from this conversation, other conversations, and meetings involving Del Valle, Angleró, Larue and defendants Dr. Alan Smith (Director of RUM Geology Department), Dr. James Joyce (RUM Geology Professor), Alejandro Soto (RUM Geology Professor), and Johannes Schellekens (RUM Geology Professor), a decision was made to take retaliatory action against the plaintiff in response to his statement.
The alleged retaliatory acts included (i) the issuance of a temporary gag order requiring McCann to clear all comments with defendant Smith, (ii) the prohibition of use by McCann of information generated by PREPA, (iii) the distribution, to the press and to the public, of letters denouncing the statement made by McCann, (iv) requests made by Smith, Larue, Joyce, Soto, and Schellekens that McCann be dismissed from his professorship, (v) the dismissal of McCann from his directorship of the Seismic Network, (vi) the denial of McCann's access to resources of the network, (vii) interference with McCann's relations with students, professionals, and others, (viii) the institution of a "sham" evaluation of McCann carried out by Smith, Joyce, Soto, and Schellekens as members of the Geology Department Personnel Committee, and (ix) the publication in a trade magazine of an advertisement seeking a replacement for McCann's position. Plaintiff asserts that these acts occurred with the knowledge and approval of defendant Alejandro Ruiz, the Chancellor of RUM who, despite being informed of the retaliatory acts and his power to stop them, took no action.
The PREPA-related defendants assert that they had no hand in the alleged retaliation. They concede that they contacted RUM officials immediately after the radio broadcast, but insist that their only purpose in doing so was to inform these officials of their concerns that McCann might have been violating the verbal confidentiality *114 agreement and that he appeared to be providing crucial information to the general public before providing it to PREPA, in violation of the agreement through which RUM took control of the network. They assert that they never called for or encouraged any retaliatory action or the dismissal of McCann from his directorship or his professorship.
Plaintiff alleges that as a result of defendants' continuing infringement of his constitutional rights, he has suffered physical pain and mental anguish, damage to his professional reputation, pecuniary losses in failing to obtain contracts, loss of compensation for his duties as professor and Director of the Seismic Network, uncertainty about future employment, and interference with his ongoing research.
II. Standard of Review
Rule 56(c) of the Federal Rules of Civil Procedure provides for the entry of summary judgment in a case where the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that no genuine issue exists as to any material fact and the moving party is entitled to judgment as a matter of law. Accord Brennan v. Hendrigan, 888 F.2d 189, 191 (1st Cir.1989); Lipsett v. University of Puerto Rico, 864 F.2d 881, 894 (1st Cir.1988). Summary judgment is appropriate where, after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no doubt exists as to whether a genuine issue of material fact is present. Kennedy v. Josephthal & Co., 814 F.2d 798, 804 (1st Cir.1987); Peckham v. Ronrico Corp., 171 F.2d 653 (1st Cir.1948). A "genuine" issue is one that is dispositive, and which consequently must be decided at trial. Mack v. Great Atlantic and Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989); Anderson v. Liberty Lobby, 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1986). A "material" fact, which is defined by the substantive law, is one which affects the outcome of the suit and which must be resolved before attending to related legal issues. Mack, supra, at 181. For issues on which the non-movant bears the ultimate burden of proof, he must present definite, competent evidence to rebut the motion. See Anderson, 477 U.S. at 256-57, 106 S.Ct. at 2514-15; Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990). The movant's burden is particularly rigorous, however, when the disputed issues involve questions of motive or intent, since in these cases "`jury judgments about credibility are typically thought to be of special importance.'" Lipsett v. University of Puerto Rico, 864 F.2d 881, 895 (1st Cir.1988) (quoting Stepanischen v. Merchants Despatch Transportation Corp., 722 F.2d 922, 928 (1st Cir.1983)).
III. Discussion
42 U.S.C. § 1983 provides for the recovery of damages and injunctive relief against individuals and governmental bodies who deprive a plaintiff of rights, privileges, or immunities secured by the Constitution and laws of the United States.[1] In order to establish a prima facie cause of action under Section 1983 based on a constitutional violation, the plaintiff must prove that the defendant's conduct was a cause in fact of plaintiff's constitutional deprivation.
A. "Under Color of Law" Requirement
Section 1983 requires that the challenged conduct be carried out "under color of law." For all practical purposes, "color of law" and "state action" are the same where, as here, Fourteenth Amendment violations are charged. See Lugar v. Edmondson Oil Co., 457 U.S. 922, 102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982); Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). In this case, *115 only one defendant, Larue, suggests that his conduct cannot be construed as having been carried out under color of state law. He suggests that his conduct in this case involved only the expression of his opinion regarding McCann's conclusions about the dangers of the Mayagüez fault. He contends that this conduct was not carried out as part of his state-created authority but instead merely independent and individual conduct.
Cases in which a state official asserts that allegedly actionable conduct was carried out "off-duty" can be difficult to resolve. Courts have stated that the consideration of such an assertion requires a particularized study of "the nature of the act performed." Stengel v. Belcher, 522 F.2d 438 (6th Cir.1975), cert. granted, 425 U.S. 910, 96 S. Ct. 1505, 47 L. Ed. 2d 760, cert. dismissed as improvidently granted, 429 U.S. 118, 97 S. Ct. 514, 50 L. Ed. 2d 269 (1976); see also Polk County v. Dodson, 454 U.S. 312, 102 S. Ct. 445, 70 L. Ed. 2d 509 (1981). In this case, however, plaintiff has alleged actionable conduct on the part of defendant Larue far greater than that Larue himself is willing to recognize and which was carried out in connection with his duties at RUM including the alleged fabrication, in concert with defendant Angleró, of the confidentiality agreement between PREPA and RUM. As a result, plaintiff has set forth more than sufficient information to suggest that defendant Larue might have been acting under color of law and Larue's request for summary judgment on this ground is therefore hereby DENIED.[2]
B. Substantive Violations
To establish a cause of action under Section 1983, plaintiff must establish that defendants owed him a constitutional duty and that the duty was breached. An analysis of this issue requires a consideration of the standards of care imposed upon public officials under the constitutional provisions which plaintiff alleges were violated.
1. First Amendment
The elements a plaintiff must show in a case in which a public employee claims that he was retaliated against for engaging in protected First Amendment activities is set forth in a series of Supreme Court decisions. See Rankin v. McPherson, 483 U.S. 378, 107 S. Ct. 2891, 97 L. Ed. 2d 315 reh'g denied, 483 U.S. 1056, 108 S. Ct. 31, 97 L. Ed. 2d 819 (1987); Connick v. Myers, 461 U.S. 138, 103 S. Ct. 1684, 75 L. Ed. 2d 708 (1983); Mount Healthy School District Board of Education v. Doyle, 429 U.S. 274, 97 S. Ct. 568, 50 L. Ed. 2d 471 (1977); Pickering v. Board of Education, 391 U.S. 563, 88 S. Ct. 1731, 20 L. Ed. 2d 811 (1968). These decisions establish that a public employer may not discharge an employee in a manner that infringes upon his constitutionally protected interest in freedom of speech and that an employee who is discharged under such circumstances may be entitled to reinstatement. Accord Rankin v. McPherson, 483 U.S. at 383-84, 107 S.Ct. at 2896-97 (citing Perry v. Sindermann, 408 U.S. 593, 597-98, 92 S. Ct. 2694, 2697-98, 33 L. Ed. 2d 570 (1972); Mount Healthy, 429 U.S. at 284-85, 97 S.Ct. at 574-75).[3]
*116 The determination of whether a public employer has properly discharged an employee for engaging in speech requires an analysis of four factors. First, the court must make a determination on the threshold issue of whether the employee's speech may be "fairly characterized as constituting speech on a matter of public concern." Connick v. Myers, 461 U.S. 138, 146, 147-48, 103 S. Ct. 1684, 1689, 1690-91, 75 L. Ed. 2d 708 (1983) (footnote omitted) (determination should be made based on a consideration of "the content, form, and context of a given statement, as revealed by the record as a whole.").[4] Defendants apparently do not contend that plaintiff's statements did not address an issue of public concern. The statements were made during the course of a public radio broadcast. More importantly, the statements not only concerned matters of public concern but, at least arguably, were made to protect the public interest.
Second, the court must balance "the interests of the [plaintiff], as a citizen, in commenting on matters of public concern and the interest of the State, as an employer, in promoting efficiency of the public services it performs through the employees." Pickering, 391 U.S. at 568, 88 S.Ct. at 1734-35; see also Connick v. Myers, 461 U.S. at 140, 103 S.Ct. at 1686. This balance has been deemed necessary "in order to accommodate the dual role of the public employer as a provider of public services and as a government entity operating under the constraints of the First Amendment." Rankin v. McPherson, 483 U.S. at 384, 107 S.Ct. at 2897. Considerations which may support a state's action may include the extent to which the plaintiff's conduct impairs discipline by superiors or harmony among co-workers, the extent to which the conduct has a detrimental impact on close working relationships for which personal loyalty and confidence are necessary, and the extent to which the conduct impedes the performance of the speaker's duties or interferes with the regular operation of the defendant's enterprise. Pickering, 391 U.S. at 570-73, 88 S.Ct. at 1735-37. On this issue, which is at the heart of the controversy in this case, defendants vehemently assert that plaintiff's interest in making public statements regarding the risks associated with the Mayagüez fault was "not superior to that of the University and the government of Puerto Rico in providing the public with reliable and carefully studied information regarding earthquake hazards." Defendants contend that plaintiff's actions undermined the credibility of the Geology Department, injured the morale of its professors, and hindered the public interest in its smooth operation. Plaintiff contends that he had both a professional and a moral duty to inform the public of the hazards that he perceived. This issue will be central to the resolution of this case and is sure to be hotly contested at trial. As such, it is not ripe for action in a summary judgment context.
Third, plaintiff must show that his injuries were caused by defendants' alleged constitutional violations. Accord Mount Healthy, 429 U.S. at 286, 97 S.Ct. at 575. Plaintiff has the initial burden of showing that his conduct was "substantial" or "motivating" *117 factor in the defendants' decision to discharge him. Id. at 287, 97 S.Ct. at 576. If plaintiff makes this showing, the burden then shifts to the defendant to show that "it would have reached the same decision ... even in the absence of the protected conduct." Id. The First Circuit, in McDonough v. Trustees of the University System of New Hampshire, 704 F.2d 780 (1st Cir.1983), addressed the appropriateness of a trial court's preliminary dismissal of cases using this prong of the Pickering analysis. The Court explained that given that the analysis is "intensely fact-oriented" summary dismissal by a trial court is difficult for a defendant to obtain. Id. at 784 (citations omitted). Again, defendants, particularly the PREPA-related defendants,[5] vehemently assert that plaintiff cannot make the required causation showing in this case. They contend that, among other things, since the decision on whether or not to grant McCann tenure was made independently by the UPR Administrative Board, which did not base its decision on his speech-related conduct, the causal link between his statements and the denial of his request for tenure was broken. Plaintiff has not yet set forth in particularly great detail the causal link between his public comments, the actions of each of the defendants, and each of his injuries; however, such a showing is not required of the plaintiff at this juncture of the litigation. As has already been noted, the First Circuit has explained in a related context that
the test [for granting summary judgment] remains particularly rigorous when the disputed issue turns on a question of motive or intent. "Under such circumstances, jury judgments about credibility are typically thought to be of special importance." In a discriminatory discharge case, particularly, a plaintiff "will rarely, if ever be able to produce a `smoking gun' that provides direct, subjective evidence of an employer's [animus]. Rather, a plaintiff must try to convince the fact-finder to draw an inference from a broad array of circumstantial and often conflicting evidence...."
Lipsett v. University of Puerto Rico, 864 F.2d 881, 895 (1st Cir.1988) (citations omitted) (editing in original) (summary judgment appropriate if plaintiff relies on unsupported allegations but not if he can point to specific facts in supporting documents giving rise to an inference of unlawful conduct). Since the plaintiff in this case has set forth at least a plausible scenario whereby his protected speech conduct might have led to the injuries he has suffered, defendants' requests for summary judgment on plaintiff's speech-related claims are hereby DENIED.
2. Procedural Due Process
Procedural due process protections originating in the Fourteenth Amendment guaranty public officials who enjoy a "property" or "liberty" interest associated with their continued employment the right to at least an informal hearing before they are discharged. Accord Kauffman v. Puerto Rico Telephone Co., 841 F.2d 1169, 1173 (1st Cir.1988) (citing Cleveland Board of Education v. Loudermill, 470 U.S. 532, 538, 105 S. Ct. 1487, 1491, 84 L. Ed. 2d 494 *118 (1985)). Plaintiff seeks to set out claims for violations of his procedural due process rights resulting from the University's denial of his request for tenure, its failure to renew his contract as a professor, and his dismissal as Director of the Seismic Network. To do so, he must set out facts sufficient to show that he had either a property or liberty interest associated with both of the positions and that he was not afforded adequate pre-termination procedures.
a. property interest
A state employee's job is "property" only if state law gives the employee such a "property" right in his continued employment. Accord Loudermill, 470 U.S. at 538, 105 S.Ct. at 1491. Under the law of Puerto Rico, only government employees holding "career" or "tenured" positions possess such property rights in their continued employment. Kauffman, 841 F.2d at 1173; see also Beitzell v. Jeffrey, 643 F.2d 870, 877 (1st Cir.1981) (citations omitted) ("In the absence of unusual circumstances, where a formal tenure system exists, that system confers no `property' interest on probationary employees.")
In regard to his position as professor, plaintiff obviously does not contend that he reached official tenured status. He does contend, however, that he benefitted from a "de facto tenure system" which allegedly operated at RUM. The First Circuit considered in detail the possibility of acquiring de facto tenure in Lovelace v. Southeastern Massachusetts University, 793 F.2d 419 (1st Cir.1986), in which it explained:
Where a college or university has a written, formalized tenure procedure, courts have generally rejected claims that a plaintiff has somehow acquired de facto tenure or a legitimate expectation of continued employment outside of and apart from the codified process. This is because one of the very purposes of formalized hiring procedures is to avoid the type of de facto tenure recognized in Perry v. Sindermann, 408 U.S. 593, 601-603, 92 S.C. 2694, 2699-2700, 33 L. Ed. 2d 570 (1972). Consequently, when there is a written system of which the employee is aware, it generally will not be reasonable for the employee to rely on employment assurances made outside of the formalized system.
Lovelace, 793 F.2d at 423 (citations omitted) (emphasis added). Since the University of Puerto Rico does in fact have written, formalized tenure procedures (which are set forth in Article 50 of the General Regulations of the University of Puerto Rico), plaintiff does not contend that he was unaware of these written procedures, and plaintiff has failed to set forth "truly extraordinary circumstances where de facto rights can be acquired" id. at 423 (discussing Soni v. Board of Trustees, 513 F.2d 347 (6th Cir.1975), cert. denied, 426 U.S. 919, 96 S. Ct. 2623, 49 L. Ed. 2d 372 (1976)),[6]Lovelace compels a finding that plaintiff did not acquire de facto property rights to his professorship in this case.
In regard to his position as Director of the Seismic Network, plaintiff is again forced to present a somewhat creative argument as to how he acquired property interests in the position. He cannot claim that he obtained any state-created property right in the position because, pursuant to Section 50.5.4.1 of the UPR Regulations, members of the UPR faculty to whom administrative functions have been assigned "shall not be granted tenure in the performance of such functions." Plaintiff asserts, however, that he obtained property rights in the position because of guarantees he received that as long as he held his professorship he would also hold his directorship. This argument can be disposed of easily. Since the Court has already held that plaintiff had no property interest in his position as professor, the alleged connection between the professorship and the directorship can create no property rights in the latter.
*119 b. liberty interest
Under certain circumstances, the list of fundamental "liberties" that are accorded procedural protection under the Fourteenth Amendment "includes an interest in reputation at least where the injury to reputation is likely to be sufficiently severe to interfere with the exercise of other fundamental freedoms such as ... the right `to engage in any of the common occupations of life.'" Beitzell v. Jeffrey, 643 F.2d at 877 (quoting Meyer v. Nebraska, 262 U.S. 390, 399, 43 S. Ct. 625, 626, 67 L. Ed. 1042 (1923)). In Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972),
the [Supreme] Court, after referring to Meyer, suggested that the Fourteenth Amendment offers protection against a severely defamatory charge, such as a claim of "dishonesty or immorality" that might "seriously damage" one's "standing and associations in his community" or impose a "stigma" that significantly interfered with his ability to "take advantage of other employment opportunities."
Beitzell v. Jeffrey, 643 F.2d at 877. Therefore, where an employer, in connection with the termination of an employee, makes statements which may damage the employee's standing or reputation,[7] the employee may have a right to a "name-clearing hearing." Owen v. City of Independence, 560 F.2d 925 (8th Cir.1977), vacated on other grounds, 438 U.S. 902, 98 S. Ct. 3118, 57 L. Ed. 2d 1145 (1978).
Defendants concede that plaintiff may have a claim based on "stigma" or damage to reputation, but assert that sufficient procedures were followed to allow plaintiff opportunities to respond to any allegations. Plaintiff was provided copies of each evaluation of his work that was prepared and was allowed to answer to any charges therein. He was invited to a meeting at which the charges against him were to be discussed. He was given an opportunity to speak with Stuart Ramos, a member of the UPR Administrative Board, and to provide Mr. Ramos with documents defending plaintiff's position. Mr. Ramos submitted these documents to the Board when it considered plaintiff's tenure request and advocated the granting of tenure to the plaintiff. The Court believes that these procedures were sufficient to provide plaintiff with an adequate opportunity to "respond, explain, and defend" (Gorman v. University of Rhode Island, 837 F.2d 7, 13 (1st Cir.1988)) his reputation against the charges levied against him.
Therefore, given the fact that plaintiff had no property interest in any of the positions that he lost and that sufficient procedures were followed to provide plaintiff with an opportunity to clear his name of charges that may have damaged his reputation, plaintiff has not set forth sufficient facts to state a cause of action under the procedural due process clause and defendants' motions for summary judgment on this cause of action are hereby GRANTED.
3. Substantive Due Process
The due process clause does not cast an entirely cold eye on plaintiff's claims, however. Plaintiff's essential contention in this case is not that insufficient procedures were provided to him but that the procedures that were provided were tainted. Plaintiff's claims, which are more qualitative than quantitative, can be analogized to charges by employees that they have been the victim of arbitrary or capricious decisions affecting their employment status. His claims are therefore more appropriately viewed as presenting issues of substantive due process.
The First Circuit has held that "school authorities who make an arbitrary and capricious decision significantly affecting a tenured teacher's employment status are liable for a substantive due process violation." Newman v. Commonwealth of Massachusetts, 884 F.2d 19, 25 (1st Cir. *120 1989), cert. denied, Newman v. Burgin, 493 U.S. 1078, 110 S. Ct. 1132, 107 L. Ed. 2d 1037 (1990) (footnote omitted) (noting that courts are split on the issue, which the Supreme Court has side-stepped on several occasions). Therefore, if the plaintiff can prove that the evaluation procedure that was followed by the Personnel Committee was in fact a "sham," so that the reasons for dismissing him from his positions were "unrelated to the educational process ... or ... wholly unsupported by a basis in fact" (McEnteggart v. Cataldo, 451 F.2d 1109, 1111 (1st Cir.1971), cert. denied, 408 U.S. 943, 92 S. Ct. 2878, 33 L. Ed. 2d 767 (1972)), he may be entitled to substantive due process recovery based on the decision to deny him tenure.[8] On this claim defendants reiterate their causation argument that because of the review procedures followed by the University the evaluation and recommendation of the Personnel Committee could not have caused plaintiff to have been denied tenure. The Court has already found that triable issues exist on this issue. In addition, since it is defendants' contention that the decision not to renew plaintiff's contract was a direct result of the decision to deny him tenure, plaintiff may also be entitled to recovery on the decision not to renew his contract.[9] Defendants' requests for summary judgment on plaintiff's substantive due process claims are therefore DENIED.
C. Qualified Immunity
The RUM-related defendants contend that, to the extent they are being sued in their individual capacities, they are entitled to the protections of a qualified immunity. Since the Court has found that plaintiff's procedural due process claim fails on the merits, defendants' qualified immunity defense as to this claim is moot. The Court must still consider, however, whether or not defendants can avail themselves of the qualified immunity defense against plaintiff's claims predicated on the first amendment and the substantive due process clause.
The doctrine of qualified immunity insulates government actors in the exercise of discretionary powers from civil liability insofar as their conduct does not abridge clearly established federal rights about which a reasonably prudent official should have been aware. Accord Anderson v. Creighton, 483 U.S. 635, 639, 107 S. Ct. 3034, 3038, 97 L. Ed. 2d 523 (1987); Harlow v. Fitzgerald, 457 U.S. 800, 102 S. Ct. 2727, 73 L. Ed. 2d 396 (1982). The Supreme Court has explained:
The qualified immunity inquiry logically begins with identification of the right at issue and proceeds to place that right in historical perspective. If the right allegedly violated was "clearly established" when the challenged conduct took place, then the defendants should reasonably have been cognizant of it. In this context, the phrase "clearly established" has a special condition: "The contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right."
Amsden v. Moran, 904 F.2d 748 (1st Cir. 1990), cert. denied, ___ U.S. ___, 111 S.Ct. *121 713, 112 L. Ed. 2d 702 (1991) (citations omitted).
As the discussion in Section II.B. of this Opinion illustrates, it was clearly established at the time the defendants acted that a public employee had right not to have his employer violate either his first amendment or substantive due process rights in the fashion plaintiff alleges. In addition, plaintiff has set forth sufficient facts to suggest that a reasonable official in defendants' shoes should have known that his acts or omissions violated the established constitutional rights. Accord Anderson v. Creighton, 483 U.S. 635, 107 S. Ct. 3034, 97 L. Ed. 2d 523 (1987); Feliciano-Angulo v. Rivera Cruz, 858 F.2d 40, 45 (1st Cir.1988) (discussing purely objective nature of inquiry). If defendants did in fact agree to retaliate against plaintiff because of the exercise of his right to free speech and did in fact design an unfair and tainted review procedure with the intention of arranging the dismissal of plaintiff from his positions at RUM, it is beyond peradventure of doubt that they should have known that these actions were in violation of plaintiff's clearly established constitutional rights. Defendants' motions for summary judgment based on the qualified immunity defense are therefore hereby DENIED.
D. Necessary and Indispensable Parties
Defendants contend that since the ultimate authority on whether or not to grant plaintiff tenure lay with the Administrative Board, which relied on a recommendation of the Dean of Arts and Sciences in reaching its decision, plaintiff should have joined as parties to this action both the Board and the Dean of Arts and Sciences. Defendants assert that in the absence of these parties plaintiff will be unable to show the causal link between his statements and the decision to deny him tenure and the Court will be unable to implement the remedies plaintiff seeks. Defendants have moved for the joinder of these allegedly necessary and indispensable parties under Rule 19 of the Federal Rules of Civil Procedure.
Rule 19 provides, in pertinent part:
A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties....
Fed.R.Civ.P. 19(a). This subsection of Rule 19 is designed to protect the interests of existing parties in securing complete relief and the interest of the public in avoiding repeated lawsuits. Accord Evergreen Park Nursing & Convalescent Home, Inc. v. American Equitable Assurance Co., 417 F.2d 1113 (7th Cir.1969). Since a court is however empowered with wide discretion to shape a decree and adjudicate the rights of parties before it without affecting the rights of absent persons, such as by granting a monetary judgment instead of an injunction that might affect the rights of third parties, those third parties must be joined only where a flexible decree is impossible so that any relief the court will be able to grant can only be characterized as "hollow" or a "paper decree." Accord Schutten v. Shell Oil Co., 421 F.2d 869 (5th Cir.1970).
In addition, underlying Rule 19 is a concern for possible prejudice to existing parties where a suit goes forward without third parties deemed indispensable to the just resolution of the dispute. It has therefore been stated that the burden on the moving party under Rule 19 is to show "the nature of the unprotected interests of the absent parties" (5A C. Wright & A. Miller, Federal Practice and Procedure, Civil § 1359) (citing Ilan-Gat Engineers, Ltd. v. Antigua International Bank, 659 F.2d 234 (D.C.Cir.1981)) or that the absence of the parties named in the motion may operate to injure a defendant (accord Meyerding v. Villaume, 20 F.R.D. 151 (D.Minn.1957)). In this case, defendants are in the unusual position of advocating the joinder of parties based on the interest of the plaintiff in setting forth a complete chain of causation and in obtaining a remedy *122 which may be implemented. Plaintiff has objected to the motion on the ground that the parties named in the motion are not necessary to the presentation of his case. As a result, the only asserted prejudice is to the interests of plaintiff, who is wholly unconcerned by the situation. In addition, the Court feels that the interests of the absent parties are so closely aligned with those of the defendants that these interests will be adequately protected even though the case will go forward without these parties. Defendants' request for the joinder of the Administrative Board and the Dean of Arts and Science is therefore hereby DENIED.
IT IS SO ORDERED.
NOTES
[1] 42 U.S.C. § 1983 states, in pertinent part:
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State of Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to any deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.
[2] Defendants Ruiz and Smith initially argued that to the extent they are sued in their official capacities they are not "persons" subject to claims for retrospective injunctive relief or damages under Section 1983. See Will v. Michigan Department of State Police, 491 U.S. 58, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989); Ngiraingas v. Sánchez, 495 U.S. 182, 110 S. Ct. 1737, 109 L. Ed. 2d 163 (1990). In his response to defendants' motions, plaintiff clarified that he is suing Ruiz and Smith in their official capacities only for the implementation of remedies to cover both these officials and their successors. Defendants have accepted that this course of action is appropriate and have asked only that plaintiff's claims be clarified. The foregoing shall constitute the requested clarification.
[3] Defendants point out that courts have been reluctant to intervene with academic judgments. See Regents of the University of Michigan v. Ewing, 474 U.S. 214, 106 S. Ct. 507, 88 L. Ed. 2d 523 (1985). They also suggest that the First Circuit has been particularly reluctant to intervene with academic discretion in the award of tenure. See, e.g., Kumar v. Board of Trustees, University of Massachusetts, 774 F.2d 1 (1st Cir. 1985), cert. denied, 475 U.S. 1097, 106 S. Ct. 1496, 89 L. Ed. 2d 896 (1986); Banerjee v. Board of Trustees of Smith College, 648 F.2d 61 (1st Cir.), cert. denied, 454 U.S. 1098, 102 S. Ct. 671, 70 L. Ed. 2d 639 (1981). The Court notes first the distressing fact that several of the cases cited by defendants on this point do not in fact deal with tenure decisions. In addition, plaintiff has cited to a case in this circuit which, in a related, Title VII context, stated that although courts should be "`extremely wary of intruding into the world of university tenure decisions,' ... once a university has been found to have impermissibly discriminated in making a tenure decision, ... the university's prerogative to make tenure decisions must be subordinated to the goals embodied in Title VII." Brown v. Boston University, 891 F.2d 337, 359 (1st Cir.1989), reh'g denied, 1989 WL 143545, 1990 U.S.App. LEXIS 839 (1st Cir.1990) (quoting Kumar, 774 F.2d at 12 (Campbell, C.J., concurring)). It appears therefore that the Court does have the power to order a decision denying tenure overturned if such a remedy is deemed appropriate.
[4] See Hall v. Ford, 856 F.2d 255, 258 (D.C.Cir. 1988) ("The first two inquiries [in the Pickering analysis] are questions of law for the court to resolve. See, e.g., Connick, 461 U.S. at 148 n. 7 & 1692 n. 10 [103 S.Ct. at 1691 n. 7 & 1692 n. 10]; Joyner v. Lancaster, 815 F.2d 20, 23 (4th Cir.), cert. denied, [484] U.S. [830], 108 S. Ct. 102, 98 L. Ed. 2d 62 (1987). The latter two are questions of fact ordinarily left to the jury. See, e.g., Jett v. Dallas Indp. School Dist., 798 F.2d 748, 758 (5th Cir.1986).")
[5] The PREPA-related defendants assert that since they were not McCann's "employers" the injuries McCann alleges dismissal from his positions at RUM cannot have come as a result of any actions on their parts. Plaintiff has at least two legitimate rejoinders to this assertion. First, he has alleged injuries such as his being denied information generated by PREPA which was important to his research that may have in fact resulted from actions by PREPA personnel. Second, and more important, he has suggested that PREPA personnel might have been a driving force in the dismissal of McCann from his positions. Plaintiff's essential contention in this action appears to be an unholy alliance was struck between the PREPA and RUM defendants, who, acting in concert, conspired to retaliate against McCann for his "whistle-blowing" activities. See Plaintiff's Opposition to Requests for Summary Judgment ("It would certainly not be unreasonable to infer that the result of the extensive communication between Angleró and Larue, and the meeting of PREPA officials and the RUM hierarchy was an agreement to have McCann fired, both as director of the Seismic Network and as professor at the University of Puerto Rico Mayagüez Campus.") As the Court notes, plaintiff may have a difficult time proving all the facts necessary to support this claim; however, he has set out facts sufficient to afford him the opportunity to attempt to do so at trial.
[6] See also Beitzell v. Jeffrey, 643 F.2d at 877 ("It would take highly unusual circumstances to show that plaintiff had been granted de facto tenure.")
[7] See Beitzell v. Jeffrey, 643 F.2d at 878 (footnote and citations omitted) ("... [T]he Fourteenth Amendment procedurally protects reputation only where (1) government actions threatens it, (2) with unusually serious harm, (3) as evidenced by the fact that employment (or some other right or status) is affected.")
[8] The Court notes that several hurdles must be cleared by plaintiff to recover under the substantive due process clause in this case. First, Newman, which discusses the rights of a "tenured teacher" might appear to contain a threshold requirement that plaintiff show a property interest in his job a requirement that the Court has already found plaintiff cannot meet. On the other hand, if plaintiff succeeds in showing that he had a protected "liberty" interest associated with his position, there appears to be no reason why the protections set forth in Newman should not carry over to his situation. Second, the Newman court recognized that "the courts are not yet unanimous on whether this substantive right exists." 884 F.2d at 25. Plaintiff will have to show that the right continues to be recognized in this circuit. Third, the Newman court was faced with claims that a decision was "arbitrary and capricious." Plaintiff will have to establish that the protection should apply in situations where the decision is the result of intentional retaliation. Since neither of the parties has explored the contours of these issues to this point, the Court expects that it will receive from them considerably more argumentation on the applicability of the substantive due process protections to this case.
[9] It is as yet unclear whether the decision to terminate plaintiff's position as Director of the Seismic Network might also be subject to substantive due process scrutiny.
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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/1599800/
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788 F. Supp. 196 (1992)
UNITED STATES of America
v.
Yahya AHMED, Defendant.
No. 89 Cr. 565 (DNE).
United States District Court, S.D. New York.
March 27, 1992.
*197 *198 Otto Obermaier, U.S. Atty., S.D.N.Y. (Celeste L. Koeleveld, Asst. U.S. Atty., of counsel) for the U.S.
Kurzman Karelsen & Frank, New York City (Samuel A. Abady, Henry L. Saurborn, Jr., Daniel J. Kaiser, of counsel) for defendant.
OPINION & ORDER
EDELSTEIN, District Judge:
Yahya Ahmed ("defendant" or "Ahmed") is charged, under Title 18, United States Code, section 3146, with failing to appear before the United States District Court for the District of Maryland, as required by the conditions of bail established in this District by Magistrate Judge Michael H. Dolinger. Defendant has moved for my recusal, or, in the alternative, for dismissal of the indictment because prosecution on the bail jumping charge violates defendant's rights under the Fifth Amendment's double jeopardy clause. If this Court denies these motions, defendant seeks a transfer of this action to the District of Maryland. For the reasons stated below, defendant's motions are denied in their entirety.[1]
Background
In November 1987, the Government charged defendant, in the District of Maryland, *199 with possession with intent to distribute heroin and conspiracy to possess with intent to distribute heroin. Defendant was not arrested, however, until January 25, 1988, upon entering this country at Newark International Airport. He was then presented to Magistrate Judge Dolinger in the Southern District of New York pursuant to Rule 40,[2] at which time Judge Dolinger set bail at a $40,000 personal recognizance bond. As a further condition of bail, Judge Dolinger ordered defendant to appear in the District of Maryland on February 8, 1988, to face the narcotics charges pending against him in that District.
Defendant failed to appear in the District of Maryland on February 8. As a result, a bench warrant for his arrest issued on February 10, 1988, and, on July 27, 1989, defendant was indicted in this District, pursuant to 18 U.S.C. § 3146, for violating the conditions of his bail set by Magistrate Judge Dolinger. Defendant was arrested on the February 10, 1988 bench warrant on March 30, 1991, upon entering this country at Newark International Airport. After being transferred to the District of Maryland, he stood trial on the narcotics charges from October 15, 1991 to October 24, 1991 before Honorable Norman M. Ramsey.
During the trial in the District of Maryland (the "Maryland trial"), the Government introduced evidence of defendant's failure to appear in 1988 in order to prove his consciousness of guilt of the narcotics charges contained in the November 1987 indictment. The Government did not formally charge defendant for his failure to appear in the District of Maryland on February 8, 1988. In the Maryland trial, the Government identified defendant, described the proceedings before Magistrate Judge Dolinger in January 1988, and set forth the conditions of release established by Judge Dolinger. The parties stipulated that defendant failed to appear in the District of Maryland in 1988, 1989 and 1990, and that a warrant for defendant's arrest had issued in early 1988. On October 24, 1991, Judge Ramsey, pursuant to Rule 29, dismissed all charges against defendant. Judge Ramsey found that there was insufficient evidence to link defendant to the narcotics on the date specified in the indictment, and insufficient evidence to establish a narcotics conspiracy.
After dismissal of the charges in the Maryland trial, defendant was removed to this District to face the charge of violating the conditions of his bail by failing to appear in the District of Maryland. Defendant has made several motions in this matter. Defendant seeks my recusal on the ground that I am biased against defendant's attorney, Samuel A. Abady.[3] In the alternative, defendant moves to dismiss the indictment on Fifth Amendment double jeopardy grounds, claiming that the introduction of evidence at the Maryland trial of defendant's failure to appear precludes this prosecution. If this Court denies these motions, defendant seeks a transfer of this case to the District of Maryland, pursuant to Rule 21(b).[4]
*200 Discussion
A. Recusal
Defendant has moved for my disqualification under Title 28, United States Code, sections 144, 455(a) and 455(b)(1), as well as under the American Bar Association's Code of Judicial Conduct and the Fifth Amendment. Specifically, defendant asserts that I developed such an antipathy towards Mr. Abady in an unrelated civil proceeding, Schoenberg v. Shapolsky Publishers, 140 F.R.D. 282 (S.D.N.Y.1991), that I am incapable of impartially presiding at a trial of Mr. Abady's client.
Defendant's primary basis for recusal is found in comments I made at a hearing connected with the Schoenberg case, held on October 15, 1991, that addressed whether to hold Mr. Abady in contempt for his conduct in the course of discovery in that action. At that hearing, I declared to Mr. Abady and his counsel that:
If you had any professional intelligence ... you would have gone back to your client and said I'm going to scrutinize every file you've got.... You haven't done that. That's how brazen you are. Adjourned. I don't want to hear from you or ever see you again. You are a disgrace to the profession. To come here with an argument such as you've reflected on the record. I don't think in all the years I've been here that I've ever chastised counsel as I have both of you today. Bald-faced, brazen and unprofessional. You've decided what to redact, you've decided what to submit. Where have you been? How did you ever get admitted to this court? Not even the character to say give us another opportunity to look at this. Maybe we can correct it. Maybe we're ill-advised. Maybe we don't understand. But the chutzpa, that's the term I can use that you will understand, is enormous.... You're a disgrace to this profession.... I have nothing more to hear from you. You've had your chance, you've had your argument, you've made your argument.
(Transcript of October 15, 1991 hearing, at 28-29).
My comments at the Schoenberg contempt hearing stemmed from events described in an opinion filed on December 10, 1991, in which I ultimately found Mr. Abady in contempt. See Schoenberg v. Shapolsky Publishers, 140 F.R.D. 282 (S.D.N.Y.1991). In the December 10 opinion, I set forth the basis for holding Mr. Abady in contempt and imposing sanctions:
This Court issued an order compelling discovery on June 19, 1991. Mr. Abady obviously did not agree with this Court's decision, and rather than comply or seek a stay of discovery, he sought a writ of mandamus in the Second Circuit. Having no stay in place after the Court of Appeals denied the petition from the bench, Mr. Abady continued to ignore the June 19 order. Indeed, since March 13, 1991, [plaintiff's attorney] Mr. Malina had sought, without success or even a response from Mr. Abady, to induce Mr. Abady's compliance with plaintiff's discovery requests without having to resort to further litigation. While Mr. Abady attempts to blame defendants for the failure to provide discovery, it was Mr. Abady who sought a writ of mandamus rather than provide discovery. Mr. Abady also chose not to cooperate in any way with Mr. Malina throughout the discovery process. Even if defendants are at fault, Mr. Abady's conduct still merits sanctions and a finding that he is in contempt of this Court's order.
Indeed, only upon learning of plaintiff's intention to seek sanctions and to hold them in contempt, did Mr. Abady feel obliged to produce any discovery. In a transparent attempt to avoid sanctions and contempt, he handed a sheaf of photocopied documents, in no apparent order, to Mr. Malina a few hours before a conference before this Court concerning plaintiff's contempt and sanctions motion. Although Mr. Abady seeks refuge *201 in this production, it came months after this Court ordered discovery.
Even this late document production, however, had glaring defects, including the absence of many requested documents relating to this case and the presentation of the document production, with documents given in no discernible order and without any written response to plaintiff's requests. In addition, this Court finds it likely that Mr. Abady hoped that delaying production and forcing plaintiff to compel discovery would raise the emotional and financial cost of prosecuting the action, which could either encourage a favorable settlement or induce plaintiff to discontinue the action. This Court will not countenance such brazen dilatory tactics.
Schoenberg, at 288.[5]
On November 26, 1991, at an initial conference in this matter, I had two exchanges with Mr. Abady that are relevant to defendant's recusal motion. First, as an illustration of my supposed bias against Mr. Abady, defendant points to a comment I made after Mr. Abady suggested that I assign this case to another judge. (Transcript of November 26, 1991 Hearing, at 3-5). Defendant contends that this comment, in which I suggested to Mr. Abady that he disclose events surrounding the Schoenberg litigation to his client, was tantamount to urging that defendant retain different counsel. (Transcript of November 26, 1991 Hearing, at 3-5). Second, after Mr. Abady requested reassignment of this case, I asked Mr. Abady "Do you think I am going to transfer the [Schoenberg] proceeding and the conclusion about you to [defendant]? The answer is no. He will get a fair judgment from this court.... [To the defendant]: Do you understand me? You can be sure of that." (Transcript of November 26, 1991 hearing, at 4).
1. Section 455(a) and ABA Code of Judicial Conduct Canon 3
Defendant contends that recusal is appropriate under Title 28, United States Code, section 455(a), which provides that "[a]ny justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." 28 U.S.C. §§ 455(a). Defendant also contends that recusal is warranted under Canon 3 of the American Bar Association's Code of Judicial Conduct. Canon 3(E)(1) provides that "[a] judge shall disqualify himself or herself in a proceeding in which the judge's impartiality might reasonably be questioned, including but not limited to instances where ... (1) the judge has a personal bias or prejudice concerning a party or a party's lawyer." Section 455(a)'s recusal standard is virtually identical to the rule espoused in Canon 3(E)(1). See United States v. Helmsley, 760 F. Supp. 338, 341 (S.D.N.Y.1991) (Walker, J.). The test for recusal is the same under both provisions. See id. Accordingly, this Opinion's discussion of section 455(a) applies with equal force to Canon 3.
*202 A judge is obligated not to recuse himself where grounds for recusal do not exist. See SEC v. Drexel Burnham Lambert Inc., 861 F.2d 1307, 1312 (2d Cir.1988), cert. denied, 490 U.S. 1102, 109 S. Ct. 2458, 104 L. Ed. 2d 1012 (1989). "In deciding whether to recuse himself, the trial judge must carefully weigh the policy of promoting public confidence in the judiciary against the possibility that those questioning his impartiality might be seeking to avoid the adverse consequences of his presiding over their case." Drexel, 861 F.2d at 1312; see Helmsley, 760 F.Supp. at 341-42. Therefore, recusal is not warranted for "remote, contingent, or speculative" reasons. Drexel, 861 F.2d at 1313. Any other rule would bestow upon litigants the power to force the disqualification of judges who are not to their liking. While litigants are entitled to an impartial judge, they have no right to the judge of their choice. See id., at 1315.
When construing whether recusal is appropriate under section 455(a), courts are to apply an objective test that "assumes that a reasonable person knows and understands all the relevant facts." Id. at 1313 (emphasis in original). Under such a standard, a judge must consider not only whether actual prejudice exists, but also whether the situation bears the appearance of impartiality. See United States v. Johnpoll, 748 F. Supp. 86, 90 (S.D.N.Y.1990), aff'd, 932 F.2d 956 (2d Cir.), cert. denied, ___ U.S. ___, 112 S. Ct. 229, 116 L. Ed. 2d 185 (1991); Lamborn v. Dittmer, 726 F. Supp. 510, 516 (S.D.N.Y.1989). This rule is tempered, however, where a recusal motion is based upon alleged bias against an attorney. Except in rare circumstances, the appearance of bias against an attorney is insufficient to justify recusal. See, e.g., In re Cooper, 821 F.2d 833, 838-39 (1st Cir.1987); In re Beard, 811 F.2d 818, 830 (4th Cir.1987); Moore v. McGraw Edison Co., 804 F.2d 1026, 1032 (8th Cir.1986); United States v. Burt, 765 F.2d 1364, 1368 (9th Cir.1985); Gilbert v. City of Little Rock, 722 F.2d 1390, 1398-99 (8th Cir. 1983).[6]
In fact, it is clear that "courts have drawn a sharp distinction between alleged hostility between judge and party and alleged hostility between judge and attorney." Helmsley, 760 F.Supp. at 342. Recusal based on the alleged appearance of hostility between an attorney and judge, or bias by a judge against an attorney, is not warranted except in extreme or rare instances. See id.; see also Panzardi-Alvarez v. United States, 879 F.2d 975, 984 (1st Cir.1989) (it is rare when judge's attitude toward party's counsel is so hostile that judge is rendered unable to remain impartial toward client), cert. denied, 493 U.S. 1082, 110 S. Ct. 1140, 107 L. Ed. 2d 1045 (1990); United States v. Jacobs, 855 F.2d 652, 656 n. 2 (9th Cir.1988) (recusal not warranted based on prejudice against attorney except where bias is so virulent that amounts to bias against party); United States v. Burt, 765 F.2d 1364, 1368 (9th *203 Cir.1985) (same); Gilbert v. City of Little Rock, 722 F.2d 1390, 1399 (8th Cir.1983) (alleged hostility between judge and attorney does not warrant recusal unless can show bias against party). The hostility or bias must be so virulent and of such magnitude that it prejudices the judge against the attorney's client. See Drexel, 861 F.2d at 1316; In re Cooper, 821 F.2d 833, 838-39 (1st Cir.1987); In re IBM Corp., 618 F.2d at 932; United States v. Wolfson, 558 F.2d 59, 63 n. 12 (2d Cir.1977).[7]
As previously noted, defendant's recusal motion rests on my supposed bias against Mr. Abady stemming from the Schoenberg case. Nevertheless, a reasonable person who knows and understands all the relevant facts would not conclude that I harbor any bias against Mr. Abady, let alone one so virulent that it renders me incapable of impartially presiding at a trial of his client. Indeed, I am not prejudiced against Mr. Abady or his client.
At the contempt hearing, I briefly gave voice to my frustration and discouragement over having to hold an attorney in contempt for wilfully disregarding a court order. These comments are not tantamount to bias against Mr. Abady, let alone his client. They were made during the course of a lengthy hearing, at which Mr. Abady's counsel had ample opportunity to oppose plaintiff's contempt motion. "[I]t is not at all unusual, given the combative nature of litigation for a judge to have an attorney before him with whom the judge has had prior acerbic relations. It is one of the earliest and most fundamental lessons of judging that a judge must rule on the merits without regard to the personality of the attorney or any unpleasant experiences the judge may have had with the attorney in the past." Helmsley, 760 F.Supp. at 341.
My comments at the initial conference in this matter illustrate that I bear no animosity towards Mr. Abady, and that nothing that occurred in the Schoenberg case will affect my ability to provide defendant a fair trial in an impartial forum. At this initial conference, I stated that any prior conflict between Mr. Abady and the Court lay not in "acrimony" or "antipathy," but in "defense counsel's failure to comply with an order of this Court, clear and positive.... There is no antipathy about this." (Transcript of November 26, 1991 hearing, at 5).
Defendant contends that other remarks I made at this conference, where I suggested to Mr. Abady that he fully inform his client of events surrounding the Schoenberg case, amounted to a suggestion that defendant retain different counsel. In making these comments, however, I merely sought to assure that Mr. Abady would fulfill an obligation to his client by fully disclosing events surrounding the Schoenberg litigation. I did not refer to Mr. Abady's conduct in the prior proceeding, nor did I "import[it] into this case," other than by seeking to ensure full disclosure. (Defendant's Reply Memorandum of Law in Support of the Omnibus Motion, at 5). My inquiry at this conference, far from evincing a prejudice against defendant, stemmed from a desire to protect him. See, e.g., Bell v. New York State Teamsters Conference Pension & Retirement Fund, No. 86 Civ. 0126, 1987 WL 30307, 1987 U.S.Dist. LEXIS 11904 (S.D.N.Y. Dec. 28, 1987). In fact, I unequivocally assured defendant that he will receive a fair trial. After Mr. Abady requested reassignment of this case, I asked Mr. Abady "Do you think I am going to transfer the [Schoenberg] proceeding and the conclusion about you to [defendant]? The answer is no. He will get a fair judgment from this court.... [To the defendant]: Do you understand me? You can be sure of that." (Transcript of November 26, 1991 hearing, at 4). See, e.g., Panzardi, 879 F.2d at 984 (quoting In re Cooper, 821 F.2d 833, 841 (1st Cir.1987)) (emphasis in original) ("`[A] court's disagreement even one strongly stated with counsel over the propriety of trial *204 tactics does not reflect an attitude of bias against the client.'"); Drexel, 861 F.2d at 1317 ("The sharpness in colloquy between the judge and counsel ... does not demonstrate bias.").
I bear no ill-will toward Mr. Abady or bias against him in either a personal or professional capacity. His conduct in Schoenberg, and his dealings with this Court in that case, will in no way influence the current proceeding. Mr. Abady's client, Mr. Ahmed, is assured of a fair trial in an impartial tribunal.
2. Sections 144 and 455(b)(1)
Title 28, United States Code, section 144 provides that "[w]henever a party to any proceeding in a district court makes and files a timely and sufficient affidavit that the judge before whom the matter is pending has a personal bias or prejudice either against him or in favor of any adverse party, such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding." 28 U.S.C. § 144. Section 455(b)(1) provides for recusal where a judge "has a personal bias or prejudice concerning a party." 28 U.S.C. § 455(b)(1).
Sections 144 and 455(b)(1) are construed in pari materia, and the test of legal sufficiency of a motion for recusal is the same under both statutes. See Apple v. Jewish Hosp. and Medical Ctr., 829 F.2d 326, 333 (2d Cir.1987); In re IBM Corp., 618 F.2d 923, 928 (2d Cir.1980); Johnpoll, 748 F.Supp. at 88.[8]
To establish grounds for recusal under sections 144 and 455(b)(1), a court's bias must stem from an extrajudicial source. See United States v. Grinnell Corp., 384 U.S. 563, 583, 86 S. Ct. 1698, 1710, 16 L. Ed. 2d 778 (1966). Recusal "must be based on extra-judicial conduct, not conduct arising in a trial setting.... [L]egal disagreements with counsel are not sufficient for judicial disqualification under § 455(b)(1), or, to state it another way, bias against a lawyer, even if found to exist, without more is not bias against his client." Drexel, 861 F.2d at 1314. Accord Gilbert v. City of Little Rock, 722 F.2d 1390, 1398 (8th Cir.1983).
The grounds for recusal in this matter stem from an exchange with Mr. Abady at a contempt hearing; in other words, the alleged source of bias derives from the performance of judicial duties, and therefore, it does not spring from an extrajudicial source. The situation is analogous to the one in King v. United States, 576 F.2d 432, 437 (2nd Cir.), cert. denied, 439 U.S. 850, 99 S. Ct. 155, 58 L. Ed. 2d 154 (1978), because "[t]he grounds urged for disqualification are for the most part rulings made by [the trial judge] during the trial or statements made by him in the course of his judicial duties.... Nothing of this kind, what the judge has learned from or done in the proceedings before him, is any basis for disqualification; to be sufficient for disqualification the alleged bias or prejudice must be from an extrajudicial source." Moreover, the alleged source of bias is not extrajudicial simply because it arose in an unrelated proceeding involving defendant's attorney. See, e.g., United States v. Kelley, 712 F.2d 884, 889-90 (1st Cir.1983). Finally, even if the prior hearing is considered extrajudicial for purposes of sections 144 and 455(b)(1), this Court has explained *205 that it bears no bias or prejudice against Mr. Abady or his client. See supra at pp. 202-04. Accordingly, recusal is not appropriate.
3. Recusal under the Fifth Amendment
This Opinion implicitly addresses defendant's Fifth Amendment claim in its discussion of the recusal statutes. A rejection of defendant's claims under sections 144 and 455 "a fortiori defeats [his] due process allegations." In re IBM Corp., 618 F.2d 923, 932 n. 11 (2d Cir.1980). The recusal statutes were designed to protect Fifth Amendment guarantees, and therefore, "it would be anomalous to hold that a claim under the statutes insufficient on its merits could nevertheless satisfy the constitutional standard." Id. (quoting In re Murchison, 349 U.S. 133, 136, 75 S. Ct. 623, 625, 99 L. Ed. 942 (1955)). Because this Court has rejected defendant's claims under the recusal statutes, it also rejects his claim for recusal under the Fifth Amendment.
B. Permissibility of Prosecution under the Fifth Amendment
The double jeopardy clause of the Fifth Amendment provides that "[n]or shall any person be subject for the same offence to be twice put in jeopardy of life or limb." U.S. Const. amend. V. The clause protects against a second prosecution for the same offense after conviction or acquittal, and against multiple punishments for the same offense. See North Carolina v. Pearce, 395 U.S. 711, 717, 89 S. Ct. 2072, 2076, 23 L. Ed. 2d 656 (1969).
Courts must engage in a two-step inquiry to determine the permissibility of a subsequent prosecution. See United States v. Calderone, 917 F.2d 717, 721 (2d Cir.1990). Courts first apply the traditional test formulated in Blockburger v. United States, 284 U.S. 299, 304, 52 S. Ct. 180, 182, 76 L. Ed. 306 (1932). If a subsequent prosecution is permissible under Blockburger, a court must still assess whether the Supreme Court's decision in Grady v. Corbin, 495 U.S. 508, 110 S. Ct. 2084, 109 L. Ed. 2d 548 (1990), prohibits a second prosecution.
This Court finds, and the parties do not appear to dispute, that prosecution of defendant in this case is permissible under Blockburger. In Blockburger, the Supreme Court held that separate prosecutions are prohibited where offenses have identical statutory elements or where one is a lesser included offense of the other. See Brown v. Ohio, 432 U.S. 161, 166, 97 S. Ct. 2221, 2225, 53 L. Ed. 2d 187 (1977). "[W]here the same act or transaction constitutes a violation of two distinct statutory provisions, the test to be applied to determine whether there are two offenses or one, is whether each provision requires proof of a fact which the other does not." Blockburger v. United States, 284 U.S. 299, 304, 52 S. Ct. 180, 182, 76 L. Ed. 306 (1932). The Blockburger test focuses on the elements of the crimes, and "[i]f each requires proof of a fact that the other does not, the Blockburger test is satisfied, notwithstanding a substantial overlap in the proof offered to establish the crimes." Iannelli v. United States, 420 U.S. 770, 785 n. 17, 95 S. Ct. 1284, 1294 n. 17, 43 L. Ed. 2d 616 (1975) (citation omitted).
Defendant was charged in the Maryland trial with various violations of the narcotics laws of the United States. In this case, defendant has been charged with failing to appear in the District of Maryland, in violation of the conditions of bail established by Magistrate Judge Dolinger. It is beyond reasonable dispute that the charges in the two indictments require proof of distinct facts. Accordingly, this prosecution is appropriate under Blockburger.
Defendant asserts, however, that Grady bars prosecution of defendant on the bail violation charge. Defendant asserts that because the Government, in the Maryland trial, introduced evidence surrounding defendant's failure to appear in the District of Maryland to support the narcotics charges, a separate prosecution for violating the conditions of bail is unconstitutional.
"Grady significantly altered the jurisprudential landscape of double jeopardy, supplementing the traditional inquiry required *206 by Blockburger v. United States, 284 U.S. 299, 52 S. Ct. 180, 76 L. Ed. 306 (1932), and its progeny." United States v. Gambino, 920 F.2d 1108, 1112 (2d Cir. 1990), cert. denied, ___ U.S. ___, 112 S. Ct. 54, 116 L. Ed. 2d 31 (1991). In Grady, the Supreme Court held that "the Double Jeopardy Clause bars a subsequent prosecution if, to establish an essential element of an offense charged in that prosecution, the government will prove conduct that constitutes an offense for which the defendant has already been prosecuted." Id. 495 U.S. at 510, 110 S.Ct. at 2087.
The Court was careful to distinguish between Grady's "same conduct" test and a "same evidence" standard, which the Grady Court did not adopt. The Court stated that the test in Grady was
not an `actual evidence' or `same evidence' test. The critical inquiry is what conduct the State will prove, not the evidence the State will use to prove that conduct. As we have held, the presentation of specific evidence in one trial does not forever prevent the government from introducing that same evidence in a subsequent proceeding.
Id. at 521-22, 110 S.Ct. at 2093. In explaining this standard, the Sixth Circuit stated that
The Supreme Court did not hold that no conduct shown by the evidence in the earlier trial may be used to sustain the charges in the later trial. What is forbidden is the establishment of essential elements of the offense charged in the later prosecution by evidence of the conduct for which the defendant was convicted in the earlier prosecution. It is not the same conduct, per se, that may not be used, but the particular unlawful conduct that was the basis of the first conviction.
United States v. Evans, 951 F.2d 729, 737 (6th Cir.1991) (emphasis in original) (citation omitted); see, e.g., McIntyre v. Trickey, 938 F.2d 899, 905-06 (8th Cir.1991).
With this in mind, it is apparent that prosecution of defendant for failing to appear in the District of Maryland is permissible under Grady. The conduct that the State attempted to prove in the Maryland trial, and the conduct for which defendant was prosecuted, involved narcotics violations. Accordingly, Grady might bar a subsequent prosecution that relied, for instance, on proof of conduct constituting violations of the narcotics laws. In the present case, however, defendant is charged with conduct violating a condition of bail that is wholly unrelated to the narcotics violations for which defendant was charged and prosecuted in the Maryland trial.
Indeed, the only connection between the Maryland trial and this case is that evidence that was introduced in the former proceeding to show consciousness of guilt may be used in this one to support a bail jumping charge. The Government's use of evidence in one proceeding, standing alone, does not preclude a subsequent proceeding in which that evidence will again be introduced. See Grady, 495 U.S. at 521-22, 110 S.Ct. at 2093. The crucial inquiry, and the protection offered by Grady, focuses on previously prosecuted conduct, not previously introduced evidence. Because defendant has not previously been prosecuted for the conduct with which he is currently charged, prosecution on the bail violation charge is permissible under the Fifth Amendment.
Defendant also claims that this prosecution is impermissible under the doctrine of collateral estoppel, which is a component of the Fifth Amendment's double jeopardy clause. See Dowling v. United States, 493 U.S. 342, 347, 110 S. Ct. 668, 671, 107 L. Ed. 2d 708 (1990); Ashe v. Swenson, 397 U.S. 436, 90 S. Ct. 1189, 25 L. Ed. 2d 469 (1970); United States v. Friedberg, 766 F. Supp. 87, 90 (E.D.N.Y.), aff'd, 948 F.2d 1277 (2d Cir.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1292, 117 L. Ed. 2d 515 (1992). The doctrine provides that "when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Ashe, 397 U.S. at 443, 90 S.Ct. at 1194. Under this rule, a defendant seeking to invoke collateral estoppel must "demonstrate that the issue whose relitigation [defendant] seeks to foreclose was actually *207 decided in the first proceeding." Dowling, 493 U.S. at 350, 110 S.Ct. at 673.
Mr. Ahmed has not met this burden. Judge Ramsey granted defendant's Rule 29 motion in the Maryland trial based on insufficient evidence to link defendant to the narcotics on the date specified in the indictment, and insufficient evidence to show a narcotics conspiracy. There is no indication from Judge Ramsey's ruling that he "actually decided" that defendant had not violated bail conditions an issue that was not before the judge or jury in the Maryland trial. "As the record stands, there is nothing at all that persuasively indicates that the question of [bail jumping] was at issue and was determined in [defendant's] favor at the prior trial." Dowling, 493 U.S. at 352, 110 S.Ct. at 674.
C. Transfer to the District of Maryland
Finally, defendant has moved to transfer this action to the District of Maryland under Rule 21(b), which provides for such a transfer "[f]or the convenience of parties and witnesses, and in the interest of justice." Fed.R.Crim.P. 21(b). Among the factors to consider in assessing a Rule 21(b) motion are:
(a) location of the defendants; (b) location of the possible witnesses; (c) location of the events likely to be at issue; (d) location of relevant documents and records; (e) potential for disruption of defendants' businesses if transfer is denied; (f) expenses to be incurred by the parties if transfer is denied; (g) location of defense counsel; (h) relative accessibility of the place of trial; (i) docket conditions of each potential district; and (j) any other special circumstance that might bear on the desirability of transfer.
United States v. Maldonado-Rivera, 922 F.2d 934, 966 (2d Cir.1990), cert. denied, ___ U.S. ___, 111 S. Ct. 2811, 115 L. Ed. 2d 984 (1991). No single factor is dispositive, but rather courts should "strike a balance and determine which of the factors are of greatest importance." United States v. Stephenson, 895 F.2d 867, 875 (2d Cir.1990).
Transfer is not appropriate in this case. Defendant is a resident of New York, who currently is present in New York and who has retained New York based defense counsel. Moreover, most of the relevant witnesses and documents are in New York, because while defendant violated bail conditions by failing to appear in Maryland, the conditions of bail were established in this District. Furthermore, defendant concedes that several factors do not favor either district, such as expenses incurred upon denial of transfer and the court's accessibility. Similarly, the events supporting the current charge occurred both in this District and in Maryland. While defendant asserts that docket conditions in this District favor a transfer to the District of Maryland, this Court has no basis to assess docket conditions in the District of Maryland, and, in any event, defendant is assured of a speedy trial before this Court.
Finally, defendant asserts that his previous trial on narcotics violations in the Maryland trial, where the Government introduced evidence surrounding defendant's failure to appear, is a special circumstance that compels a transfer to the District of Maryland. Defendant's arguments rests on the assumption that Judge Ramsey would hear the case, and that his familiarity with the case would promote judicial economy. While attempting to foster judicial economy is a worthy endeavor, transferring this case will not result in saving any judicial resources. Even if Judge Ramsey heard this matter, the Government will present evidence surrounding the bail jumping charge to a jury, which must hear the Government's evidence in its entirety. In addition, this case is not at all complex, and familiarity with the events surrounding this matter is not necessary. Accordingly, defendant's motion to transfer this action to the District of Maryland is denied.
Conclusion
For the reasons stated above, defendant's motions are denied in their entirety.
SO ORDERED.
NOTES
[1] The National Association of Criminal Defense Lawyers seeks leave to appear amicus curiae on behalf of defendant. District courts have broad discretion to permit or deny the appearance of amici curiae in a given case. See Hoptowit v. Ray, 682 F.2d 1237, 1260 (9th Cir.1982); Pennsylvania Envtl. Defense Found. v. Bellefonte Borough, 718 F. Supp. 431, 434 (M.D.Pa.1989). In this case, defendant's interests are adequately represented by his counsel. See, e.g., Village of Elm Grove v. Py, 724 F. Supp. 612, 613 (E.D.Wis. 1989). Moreover, the additional memorandum of law would not aid this Court's evaluation of defendant's motion. See, e.g., United States v. Yonkers Contracting Co., 697 F. Supp. 779, 781 (S.D.N.Y.1988). Accordingly, leave to appear amicus curiae is denied.
[2] Rule 40 provides that "[i]f a person is arrested in a district other than that in which the offense is alleged to have been committed, that person shall be taken without unnecessary delay before the nearest available federal magistrate.... If held to answer, the defendant shall be held to answer in the district court in which the prosecution is pending." Fed.R.Crim.P. 40(a).
[3] Defendant also asserts that I should reassign this case to another judge in this District pursuant to Rule 22 of the Rules for the Division of Business Among District Judges. Rule 22 provides that a party may move for reassignment, or the judge may sua sponte have it reassigned, "in the interest of justice or sound judicial administration." For the reasons stated in this Opinion's discussion of defendant's recusal motion, defendant's reassignment request is denied.
Moreover, in his papers, defendant recognizes that at an initial conference in this matter, Mr. Abady suggested that I transfer this case to another district judge, pursuant to Rule 17 of the Rules for the Division of Business Among District Judges, "as [I] was completely free to do as a Senior District Judge." (Defendant's Memorandum of Law in Support of the Omnibus Motion, at 6; Certificate of Good Faith, at 1). Defendant is incorrect. I am an active district judge.
[4] Subject to denial of all three motions, defendant requests a hearing to suppress items taken from him upon his arrest. Defendant has not provided any basis, in his memoranda of law or in an affidavit, for the need to hold a suppression hearing. While his counsel makes the conclusory assertion that a hearing is necessary to determine the admissibility of items taken from defendant upon his arrest, defendant does not assert the existence of disputed factual issues that require resolution in a hearing. Accordingly, defendant's request for a suppression hearing is denied.
[5] At another point in the Opinion, this Court stated that:
Mr. Abady's cavalier and consistent disrespect for the discovery process and this Court's orders unnecessarily delayed the litigation, created litigation for plaintiff's counsel and this Court, and manifested a disregard of Mr. Abady's duties as an officer of the court. Mr. Abady's actions are "so completely without merit" that they justify the conclusion that he acted in bad faith for an improper purpose, such as delay. Accordingly, Mr. Abady is liable for plaintiff's attorneys' fees and other expenses incurred in an effort to obtain discovery.
Schoenberg, at 289.
At yet another point, this Court stated that:
Equally clear is Mr. Abady's willful failure to comply with this order and his refusal to provide any of the requested discovery until September 4, 1991. As previously noted, however, this September 4 production is inadequate and this Court does not find that it satisfies the June 19 order. Nor has Mr. Abady diligently attempted to provide discovery, either in accordance with this Court's June 19 order or in compliance with the discovery process. Instead, he has sought to evade being adjudged in contempt of this Court's June 19 order by providing a last minute, inadequate, flawed document production, after he had for months refused to respond to Mr. Malina's correspondence and phone calls concerning discovery. Accordingly, Mr. Abady is in contempt of this Court's June 19, 1991 order.
Id. at 290.
[6] Section 455(a) "is broader than §§ 144 and 455(b)(1) in that it does not contain the term `personal' and therefore, [as opposed to sections 144 and 455(b)(1),] it is not an absolute requirement that the disqualifying bias spring from an extrajudicial source." Johnpoll, 748 F.Supp. at 89; see Apple, 829 F.2d at 333; Lamborn, 726 F.Supp. at 514. Nevertheless, while section 455(a) does not require an extrajudicial source for the alleged bias, whether the recusal basis stems from an extrajudicial source is a relevant consideration. See United States v. Coven, 662 F.2d 162, 168 (2d Cir.1981), cert. denied, 456 U.S. 916, 102 S. Ct. 1771, 72 L. Ed. 2d 176 (1982). Courts generally have denied recusal motions based upon incidents occurring in a judicial setting. See, e.g., In re IBM Corp., 618 F.2d 923, 929 (2d Cir.1980); King v. United States, 576 F.2d 432, 437 (2d Cir.), cert. denied, 439 U.S. 850, 99 S. Ct. 155, 58 L. Ed. 2d 154 (1978); United States v. Schwartz, 535 F.2d 160, 165 (2d Cir. 1976), cert. denied, 430 U.S. 906, 97 S. Ct. 1175, 51 L. Ed. 2d 581 (1977); United States v. Bernstein, 533 F.2d 775, 784-85 (2d Cir.), cert. denied, 429 U.S. 998, 97 S. Ct. 523, 50 L. Ed. 2d 608 (1976). The source of the alleged bias in this case arose during the performance of judicial duties, which suggests that recusal is not appropriate. See infra pp. 204-05.
This Court also notes that defendant's memorandum of law in support of his motion incorrectly asserts that bias under section 455(a) must stem from an extrajudicial source. (Defendant's Memorandum of Law in Support of the Omnibus Motion, at 8 n. 1). As previously noted, section 455(a) contains no such requirement.
[7] For instance, "where a judge had disparaged an attorney's testimony, called his partner a `name dropper' and described their conduct as `dirty work,' recusal was not called for because even such an attitude toward the attorney did not reasonably call into question the judge's ability to rule impartially as to the attorney's client." Helmsley, 760 F.Supp. at 342 (emphasis in original) (commenting on In re Cooper, 821 F.2d 833, 841 (1st Cir.1987)).
[8] A movant seeking recusal under section 144 must satisfy various procedural requirements. A motion under this section must be brought at the earliest possible date, the accompanying affidavit must set forth facts and reasons that support the bias charge, and the movant's attorney must file a certificate that the affidavit is made in good faith. See 28 U.S.C. § 144; Lamborn, 726 F.Supp. at 515. The attorney's certificate is crucial because a judge may not assess the accuracy of a section 144 affidavit even if the "`knows to a certainty that the allegations of personal prejudice are false.'" Johnpoll, 748 F.Supp. at 89 (quoting In re Martin-Trigona, 573 F. Supp. 1237, 1244 (D.Conn.1983)). Of course, a judge need not accept as true conclusory assertions that lack any factual support. See Lamborn, 726 F.Supp. at 516. In addition, a judge may place allegations in context and examine surrounding circumstances. See Farkas v. Ellis, 768 F. Supp. 476, 478 (S.D.N.Y.1991).
The Second Circuit has not yet decided whether these requirements govern section 455(b)(1). See Apple, 829 F.2d at 333. Nevertheless, defendant has complied with the procedural aspects of section 144, and thus, he has also satisfied any procedural obligations associated with section 455(b)(1).
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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/1600200/
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788 F. Supp. 1317 (1992)
UNITED STATES of America, Plaintiff,
v.
A & N CLEANERS AND LAUNDERERS, INC., Ben Forcucci, Marine Midland Bank, N.A., Jordan W. Berkman, John A. Petrillo, Joseph Curto, and Mario Curto, Defendants.
MARINE MIDLAND BANK, N.A., Third-Party Plaintiff,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, St. Paul Mercury Insurance Company, Utica Mutual Insurance Company, the North River Insurance Company and United States Fire Insurance Company, Third-Party Defendants.
No. 89 Civ. 6865 (RWS).
United States District Court, S.D. New York.
April 3, 1992.
As Amended April 16, 1992.
*1318 *1319 Otto G. Obermaier, U.S. Atty., S.D.N.Y., Paul K. Milmed, Asst. U.S. Atty. and Beverly Kolenberg, Sp. Asst. U.S. Atty., New York City (Sara L. Shudofsky, Asst. U.S. Atty., of counsel), for U.S.
Steven A. Greenwold, P.C., Poughkeepsie, New York (Jonathan D. Katz, of counsel), for defendants A & N Cleaners and Ben Forcucci.
Edwards & Angell, New York City (Lynn Wright, of counsel), for defendants Jordan W. Berkman, John A. Petrillo, Joseph Curto and Mario Curto.
Phillips, Lytle, Hitchcock, Blaine & Huber, Buffalo, New York (Robert E. Glanville, of counsel), for third-party plaintiff.
OPINION
SWEET, District Judge.
Plaintiff United States of America (the "Government") has moved for partial summary judgment against defendants A & N Cleaners and Launderers, Inc. a/k/a Alben Cleaners & Launderers ("A & N" or "Alben Cleaners"), Ben Forcucci ("Forcucci"), Marine Midland Bank, N.A. ("Marine"), Jordan W. Berkman ("Berkman"), John A Petrillo ("Petrillo") and Joseph and Mario Curto (the "Curtos") (collectively with Berkman and Petrillo, the "Berkman Defendants") pursuant to Rule 56, Fed. R.Civ.P. on the ground that the defendants are jointly and severally liable under § 107(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. §§ 9601-9675, for costs incurred and to be incurred by the Government in response to the release or threatened release of hazardous substances at the Brewster Wellfield Site (the "Site") in Putnam County, New York. The Berkman Defendants and Marine have cross-moved for summary judgment dismissing the complaint against them. For the following reasons, the Government's motion is granted; Marine's motion is denied; and the Berkman Defendants' motion is denied.
The Parties
Defendant Jordan W. Berkman ("Berkman") is an attorney admitted to practice in New York State who has specialized in real estate law for approximately 33 years. Berkman was the Village Attorney for the Village of Brewster on a part-time basis from 1975 through 1990. John A. Petrillo ("Petrillo") was a builder and was engaged in the construction business in 1978 and all times relevant to this action. Mario and Joseph Curto (the "Curtos") are retired individuals. The Berkman Defendants presently hold title as one-third tenants in common to a piece of real property and the improvements thereon, consisting of a single one-story building (the "Building") and a parking lot, located at the intersection of Routes 6 and 22 in the Town of Southeast, in Putnam County, New York (the "Property").
Defendant Ben Forcucci ("Forcucci") is the sole shareholder, officer and director of A & N. He alone was responsible for the day-to-day operation of the dry cleaning machines and the disposal of waste.
Defendant Marine Midland Bank, N.A. ("Marine") was the lessee of the Property from 1970 through 1990. From 1970 to the present, Marine has maintained a branch bank at the Property. Since 1990, Marine's lease at the Property relates only to that part occupied by its branch office.
*1320 Prior Proceedings
The Government filed its complaint on October 16, 1989 (the "Complaint"). On June 5, 1991, this court ordered that the case be bifurcated for the litigation of liability and damages.
Background
This action arises out of the Government's investigation of and remedial actions relating to contamination at the Brewster Well Field in Putnam County, New York (the "Site" or the "Well Field"). The Government has alleged that releases of hazardous substances from the Property caused it to incur response costs for which the defendants are liable.
The Property and the Building
The Property consists of a one-story brick building (the "Building") akin to a shopping mall, which is surrounded by a parking lot and adjacent grassy area on a total of approximately 1.8 acres. The Building occupies 12,500 square feet and is currently occupied by a Marine branch office, A & N and a limousine service company. The Property is located approximately 900 feet from the Site, across the East Branch of the Croton River to the south. Significant to this action, a floor drain traverses the entire length of the interior of the Building which allegedly empties into a dry well (the "Dry Well") under the parking lot in the rear of the Property near the septic tank.
Until 1979, title to the Property was held by Six & Twenty-Two Real Estate Company ("Six & Twenty-Two"). Effective October 1, 1970, Marine leased the entire Property from Six & Twenty-Two for a term of ten years, with a renewal option for two successive five year terms (the "Marine Lease"). Both renewal options were exercised, giving Marine a continuous leasehold over the Property from 1970 through 1990. Marine currently holds a two-year lease for only that portion of the Property occupied by its branch office.
Under the Marine Lease, Marine was obligated to maintain fire, casualty and liability insurance on the Property, and to maintain the Property in good condition and repair. Marine also was obligated to comply with all governmental rules and regulations for the prevention or abatement of nuisances or other grievances relating to the Property. Marine was permitted to alter the Building, to change the grade of any land surrounding the Building, to erect embankments and/or retaining walls, and to place, alter or remove any temporary building on the Property. Marine had the unconditional right to sublet all or part of the Property or to assign the Marine Lease, but remained obligated to pay rent on the entire Property and to perform its obligations under the Marine Lease regardless of any subleases or assignments.
The Marine Lease was subject and subordinate to prior leases to portions of the Property. Six & Twenty-Two assigned to Marine all of its right, title and interest in each of those leases and authorized Marine to collect rents and enforce all of the obligations of the tenants under them. One of the leases was held by Pircio's Aristocratic Cleaners Corp. ("Pircio's") and was to run until November 30, 1972 (the "Pircio's Lease"). The Pircio's Lease provided that the premises were to be used and occupied as a dry cleaning establishment and that responsibility for the care and maintenance of the Dry Well belonged to Pircio's. On October 5, 1970, Marine notified Pircio's to make all rent payments to Marine "as your new landlord." Glanville Aff. Ex. F.
Shortly thereafter, Marine was notified that A & N had succeeded to Pircio's rights under the Pircio's Lease. Id. Like Pircio's, A & N occupied the premises as a dry cleaning business. In early 1971, Marine wrote to A & N to request that the store relocate from the northwest corner of the Building to a location on the north side of the Building, which move was to be financed by Marine. In consideration for the move, the Pircio's Lease was extended through October 31, 1977, and A & N was given the option to renew for one three-year term and one two-year term. In 1982, A & N entered into a sublease with Marine, running through 1985 (the "1982 Sublease"). The 1982 Sublease specifically provided that the premises would be used and occupied for a dry cleaning, rug cleaning *1321 and laundry establishment. The 1982 Lease contained no provision regarding the Dry Well. Marine extended the lease term on August 12, 1985, subject to cancellation by either party on 90-days notice.
Meanwhile, the Berkman Group had purchased the Property from Six & Twenty-Two on March 2, 1979, taking title to the Property subject to the Marine Lease. The Building is presently occupied by three commercial establishments, including a Marine branch office and A & N's dry cleaning business.
The Site and the Contamination
The Site supplies water to the Village of Brewster ("Brewster") and parts of the Town of Southeast in Putnam County. Aquifers beneath lands owned by Brewster supply the Well Field. In 1978, the Putnam County Department of Health ("PCDH") detected contamination in the groundwater at the Well Field in the form of volatile organic compounds including perchloroethylene ("PCE") and trichloroethylene ("TCE"). Residents were urged by the PCDH to boil their water before drinking it. In response to the contamination, Brewster conducted several studies to identify possible alternative groundwater sources and to remove the volatile compounds. During 1978 and 1979, contaminant source investigations were also performed by the PCDH and the New York State Department of Environmental Conservation ("NYSDEC"). Based on these studies, the Village installed and began operating an air stripper in 1984 to treat the water supply.
In September 1983, the United States Environmental Protection Agency ("EPA") placed the Site on the National Priorities List established pursuant to § 105 of CERCLA, 42 U.S.C. § 9605. Subsequently, the EPA and the NYSDEC entered into a cooperative agreement whereby NYSDEC's studies of the Site would be financed by the Superfund. In 1985 and 1986, GHR Engineering Associates ("GHR") conducted soil and groundwater sampling to identify the extent and potential sources of the contamination. (This study shall hereinafter be referred to as "OU One"). A & N and the Dry Well, together with a number of other commercial establishments, were considered as possible sources of the contamination. However, OU One did not definitively establish the source of the contamination. The Record of Decision of September 30, 1986 ("ROD One") recommended installing a second air stripper.
A second study was performed in 1987 by EBASCO Services, Inc. ("EBASCO") (This study shall hereinafter be referred to as "OU Two"). Again, A & N and the Dry Well were a subject of the investigation. This time, the remedial investigation report ("OU Two RI") and Record of Decision for OU Two ("ROD Two") identified the Dry Well as a source of the Well Field contamination. Wing Dec. Ex. B at 64; id. Ex. C. The ROD Two provided for the excavation, treatment and disposal of the Dry Well, the Dry Well sediments and the surrounding contaminated soils. Id. Ex. C.
A & N's Disposal of Hazardous Waste on the Property
Forcucci personally operated A & N and was responsible for the day-to-day operation of the dry cleaning machines and of the disposal of waste. In the dry cleaning process, clothes are cleansed in a washer by agitation with a solvent, in this case, PCE. After washing, the clothes are transferred to dryers to remove as much solvent as possible. During the drying phase, the condensed PCE is recovered and collected in a bucket in front of each dryer for reuse; water containing PCE from the water separator of the dryer is collected in a bucket at the back of the dryer.
Forcucci admittedly disposed of the PCE-infused waste water regularly through the floor drain of the Property. The date after which he ceased this practice and began storing waste water in 55-gallon containers is in dispute; the defendants claim that 1978 is the operative date, while the Government contends that the disposal of hazardous substances continued through at least 1983.
The United States claims to have incurred approximately $3 million in response costs in connection with the contamination *1322 at the Site. However, in light of the bifurcation, the cost of the Government's response is not in issue at this time.
I. CERCLA[1]
Congress enacted CERCLA in 1980, and amended it in 1986, Pub.L. 99-499, 100 Stat. 1613 (1986), in response to severe environmental and public health effects posed by the disposal of hazardous wastes. See United States v. Hooker Chems. & Plastics Corp., 680 F. Supp. 546, 548 (W.D.N.Y.1988). Despite a legislative history "shrouded with mystery," due in large part to CERCLA's enactment as a "lastminute compromise," it is possible to identify two essential purposes behind CERCLA. See Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1080-81 (1st Cir.1986). As articulated by the court in United States v. Reilly Tar & Chemical Corp., 546 F. Supp. 1100 (D.Minn. 1982),
First, Congress intended that the federal government be immediately given the tools necessary for a prompt and effective response to the problems of national magnitude resulting from hazardous waste disposal. Second, Congress intended that those responsible for problems caused by the disposal of chemical poisons bear the costs and responsibility for remedying the harmful conditions they created.
Id. at 1112, quoted in Dedham, 805 F.2d at 1081.
CERCLA establishes an "array of mechanisms" to achieve its objectives. Relevant here, the Government may take response action whenever there is a release or threatened release of "hazardous substances" and then sue certain persons for reimbursement of the cleanup costs. 42 U.S.C. § 9604. To establish liability, the Government must demonstrate that (1) there has been a "release" or a "substantial threat of release"[2] of a "hazardous substance"[3]; (2) from a "facility"[4]; (3) which caused the Government to incur response costs; and (4) each of the defendants fits within one of the categories of responsible parties identified under § 107(a) of CERCLA. 42 U.S.C. § 9607(a); CPC Int'l, Inc. v. Aerojet-Gen. Corp., 777 F. Supp. 549 (W.D.Mich.1991).
Among the four classes of potentially liable defendants under CERCLA § 107(a) are the current "owner and operator" of the facility, 42 U.S.C. § 9607(a)(1), and any person who at the time of disposal of any *1323 hazardous substance "owned or operated" any facility at which such hazardous substances were disposed. Id. § 9607(a)(2). These so-called "covered parties" are liable for "all costs of removal or remedial action incurred by the United States or a State not inconsistent with the national contingency plan," if "there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance" from the facility. Id. § 9607(a)(4).
Absent a showing by a preponderance of the evidence that one of the affirmative defenses contained in § 107(b), id. § 9607(b), has been satisfied, the liability of covered parties for costs incurred in the clean-up is strict. B.F. Goodrich Co. v. Harold Murtha, 958 F.2d 1192, 1198 (2d Cir.1992); New York v. Shore Realty Corp., 759 F.2d 1032, 1044 (2d Cir.1985); United States v. Monsanto Co., 858 F.2d 160, 167 & n. 11 (4th Cir.1988), cert. denied, 490 U.S. 1106, 109 S. Ct. 3156, 104 L. Ed. 2d 1019 (1989). Where the environmental harm is indivisible, liability is also joint and several. B.F. Goodrich, 958 F.2d at 1198; O'Neil v. Picillo, 883 F.2d 176, 178-79 (1st Cir.1989), cert. denied, 493 U.S. 1071, 110 S. Ct. 1115, 107 L. Ed. 2d 1022 (1990).
Of the defenses available to a defendant otherwise liable under § 107(a), two are relevant here. First, under the "third party defense" set forth in section 107(b)(3), a defendant is not liable if it establishes by a preponderance of the evidence that the release or threatened release was caused by third parties other than those with whom it has a direct or indirect contractual relationship, assuming that the defendant has also exercised due care under the circumstances and has taken precautions against foreseeable acts or omissions by the third parties. 42 U.S.C. § 9607(b)(3). Section 101(35) defines a "contractual relationship" to include "land contracts, deeds or other instruments transferring title or possession." Id. § 9601(35).
The second defense relevant in this case is the "innocent purchaser" or "innocent landowner" defense set forth in § 101(35). This defense is applicable if the covered party establishes by a preponderance of the evidence that the requirements of § 107(b)(3)(a) and (b) are satisfied and that:
the real property ... was acquired by defendant after the disposal or placement of the hazardous substances on, in or at the facility, and one or more of the circumstances described in clause (i), (ii), or (iii) is also established by the defendant by a preponderance of the evidence: (i) At the time the defendant acquired the facility the defendant did not know and had no reason to know that any hazardous substance which is the subject of the release or threatened release was disposed of on, in or at the facility....
Id. § 9601(35)(A) (emphasis added). Section 101(35)(B) further specifies that:
To establish that a defendant had no reason to know, as provided in clause (i) of subparagraph (A) of this paragraph, the defendant must have undertaken, at the time of acquisition, all appropriate inquiry in to the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability. For purposes of the preceding sentence the court shall take into account any specialized knowledge or experience on the part of the defendant, the relationship of the purchase price to the value of the property if uncontaminated, commonly known or reasonable ascertainable information about the property, the obviousness of the presence or likely presence of contamination at the property, and the ability to detect such contamination by appropriate inspection.
Id. § 9601(35)(B).
The Government has moved for summary judgment holding each defendant liable under § 107(a). The Berkman Defendants oppose the motion and cross-move for summary judgment on the ground that they are relieved of liability under either the third party defense or the innocent landowner defense. Marine opposes the Government's motion and cross-moves on the ground that, as a lessee/sublessor of the Property which has never held title to the Property nor participated in or controlled *1324 disposal activities, it is not a "covered party" under § 107(a). Marine argues in the alternative that the third party and innocent landowner defenses absolve it of any liability.
II. Discussion
The Court of Appeals for the Second Circuit has recently re-articulated the well-known standard for summary judgment:
Summary judgment may be granted only when there is no genuine issue of material fact remaining for trial and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). "As a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party."
Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir.1991) (citations omitted). The court will find that there is no genuine issue of material fact and may therefore grant summary judgment where, "[v]iewing the evidence produced in the light most favorable to the nonmovant, ... a rational trier could not find for the nonmovant." Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir.1991); see also Bay, 936 F.2d at 116. Summary judgment may be an appropriate mechanism for resolving liability issues under CERCLA. See, e.g., Shore Realty, 759 F.2d at 1032; Hooker Chems & Plastics Corp., 680 F.Supp. at 551, 556.
It is undisputed that PCE and TCE are "hazardous substances" under CERCLA. It is also undisputed that, at least until 1978, there was a release or threatened release of these substances from the Property. The Government has submitted factual affidavits and studies demonstrating that PCE and TCE are present in the Dry Well and surrounding property. Moreover, it is beyond dispute that A & N disposed of waste water infused with these substances through the floor drain in the Building at least until 1978. The defendants do contend, however, that the release did not cause the Government to incur response costs.
A. The Release Caused the Government to Incur Response Costs
For CERCLA liability to attach, the plaintiff must prove that there was a release or threatened release "which causes the incurrence of response costs." 42 U.S.C. § 9607(a)(4). To prevail on this component of its motion for summary judgment, therefore, the Government must show that it incurred costs as a result of the release of hazardous substances from the Property.
According to the Government, the demands of this element must be distinguished from a requirement that it prove that the release caused the actual contamination of the Property, which, it maintains, does not exist under CERCLA. In support, the Government cites Dedham Water Co. v. Cumberland Farms Dairy, Inc., 889 F.2d 1146 (1st Cir.1989), in which the court stated that "[t]here is nothing in the statute, its legislative history, or the case law, which requires proof that the defendant's hazardous wastes actually have migrated to plaintiff's property, causing contamination of plaintiff's property, before CERCLA liability is triggered." Id. at 1154. Rather, the question is whether the release or threatened release has caused the plaintiff to incur response costs. Id. at 1152-53. In that case, the same volatile organic compounds found to have contaminated plaintiff's well field were found in defendant's well and storm drain, into which the defendant's personnel regularly dumped these solvents. These drains were connected to a drainage pipe owned by defendant which discharged directly into a drainage ditch which flowed toward the plaintiff's well field.
In a factually similar case, Artesian Water Co. v. New Castle County, 659 F. Supp. 1269 (D.Del.1987), aff'd, 851 F.2d 643 (3d Cir.1988), the plaintiff's well field, which drew water from the Upper Potomac Aquifer, became contaminated with groundwater pollution. A report found that leachate from defendant's site had entered the Upper *1325 Potomac Aquifer and there was "uncontradicted evidence that the threat of contamination from the defendant's site was initially the sole factor, and remained a substantial factor," in the continued contamination of the well field. Id. at 1283. Studies indicated that another landfill, located near defendant's, also contained hazardous substances that posed a threat to the Upper Potomac Aquifer.
The court stated that:
CERCLA's strict liability scheme does not diminish the necessity of demonstrating a causal connection between a release or threatened release and the incurrence of costs by a [§ 9607] plaintiff.... [Plaintiff] must therefore show that it incurred costs as a result of the release or threatened release of hazardous substances from the [defendant's] Site.
Artesian, 659 F.Supp. at 1282. Nevertheless, in rejecting the defendant's argument that no CERCLA liability could attach absent proof that the contamination would not have resulted "but for" defendant's release, the court held that "if the release or threatened release of contaminants from the Site was a substantial factor in causing [plaintiff] to incur costs, the County may not escape liability merely because other causes contributed to the result." Id. at 1283.
The factual submissions establish that PCE and TCE have been detected in the Dry Well and property surrounding it, in A & N's floor drain, and in soil around the Property. It is also undisputed that the Government incurred costs investigating the releases from the Property, and will incur further costs if it follows up on its proposed plan to excavate, contain and decontaminate the Dry Well. Therefore, a causal nexus has been established between the release and the Government's incurrence of response costs satisfying § 107(a)(4).
Nevertheless, due to the bifurcation, the extent of these response costs shall not be addressed. Importantly, the court declines to reach a conclusion as to whether the release from the Property was a substantial factor, or any factor at all, in the Well Field contamination, finding that the defendants have raised triable issues of fact as to this question.[5] Therefore, it remains to be determined whether any costs incurred in connection with the Well Field contamination can be attributed to the defendants.
B. A & N and Forcucci
The Government contends that A & N and Forcucci are liable under § 107(a)(2) as parties who "at the time of disposal of any hazardous substance ... operated any facility *1326 at which such hazardous substances were disposed of." 42 U.S.C. § 9607(a)(2). None of the facts raised negates the conclusion that, at least prior to 1978, A & N and Forcucci disposed of water infused with PCE and TCE down the floor drain of the Building. Therefore, except as provided in Part II.A., supra, the Government's motion for summary judgment as to the CERCLA liability of A & N and Forcucci is granted.
C. The Berkman Defendants
The Government asserts that the Berkman Defendants are liable under § 107(a)(1) and (2) as the current and past owners of the Property. In opposition, and on their cross-motion, the Berkman Defendants counter that they are relieved of liability under the third party defense because they do not have a contractual relationship with A & N and/or Forcucci. Furthermore, they claim that they meet the requirements of the innocent landowner defense.
There being no dispute that the Berkman Defendants are covered parties under § 107(a)(1) as the current owners of the Property, it remains only to determine whether they have satisfied either of these defenses.
1. Third Party Defense
To prevail on the third party defense, the Berkman Defendants must establish by a preponderance of the evidence that: (1) a third party was the sole cause of the release; (2) that third party was not their employee or agent or one with whom they had a direct or indirect contractual relationship; (3) they exercised due care with respect to the hazardous substance; and (4) they took precautions against the foreseeable acts or omissions of the party causing the release. 42 U.S.C. § 9607(b)(3).
The Government does not dispute that the Berkman Defendants did nothing to contribute to the release and thus that the activities of third parties were the "sole" cause of the release. The Government maintains, however, that the third party defense is unavailable to the Berkman Defendants because they had an "indirect" contractual relationship with A & N by virtue of A & N's sublease from Marine. Furthermore, the Government argues that the Berkman Defendants did not exercise due care or take precautions with respect to the release of the hazardous substances.
a. Contractual Relationship
It is well-established that a lease constitutes a "contractual relationship" under § 107(b)(3). See id. § 9601(35)(A) ("contractual relationship" for purposes of § 107(b)(3) includes land contracts, deeds or other instruments transferring title or possession (emphasis added)); International Clinical Labs., Inc. v. Stevens, 710 F. Supp. 466, 470-71 (E.D.N.Y.1989); United States v. Northernaire Plating Co., 670 F. Supp. 742, 748 (W.D.Mich.1987); United States v. Argent Corp., 14 E.L.R. 20616, 20616, 1984 WL 2567 (D.N.M.1984). Nevertheless, because no "lease" has ever existed between the Berkman Defendants and A & N, it is necessary to inquire as to whether the Berkman Defendants' status as lessor to Marine, A & N's lessor, gives rise to an "indirect" contractual relationship between the Berkman Defendants and A & N.
A sublease may constitute a direct or indirect contractual relationship between an owner and its lessor's sublessee under certain circumstances. In United States v. Monsanto Co., 858 F.2d 160 (4th Cir.1988), the Fourth Circuit held that two site-owners had not established the absence of a direct or indirect contractual relationship with the sublessee ("SCRDI"), the party causing the release, in part because they had accepted rent payments from SCRDI. Id. at 167.
In O'Neil v. Picillo, 682 F. Supp. 706 (D.R.I.1988), generators of hazardous wastes ultimately disposed of at the contaminated site argued that the release had to have been caused solely by third parties for whom they had no responsibility, claiming that the licensed waste transporters to whom they had consigned their wastes had no contact with the contaminated site. Id. at 728. The court rejected the defendants' argument, however, finding that:
*1327 The simple fact is that during the time the defendants consigned their waste to licensed disposers, some of that waste, in identifiable containers, came to rest at the Picillo site.... The defendants must demonstrate by a preponderance of the evidence that "a totally unrelated third party is the sole cause of the release." [United States v.] Stringfellow, 661 F.Supp. [1053, 1061 (C.D.Cal.1987)].... Absent any evidence along these lines, I must concluded that it is equally likely that either the licensed disposers or a subcontractor of the disposers deposited the waste at the site.
Id. (emphasis added).
And, in Washington v. Time Oil Co., 687 F. Supp. 529 (W.D.Wash.1988), the court denied a motion for summary judgment by the defendant landowner, Time Oil, based on the innocent landowner defense.[6] The court found that because Time Oil's subsidiary was also responsible for the contamination of the property, Time Oil had failed to establish that the release was caused solely by a third party for whom it was not responsible. Id. at 532. Though this finding alone precluded Time Oil from invoking the defense, the court also stated in dictum that:
The last operator on the property was Time Oil's sublessee, Drexler. As mentioned above, the Court is satisfied Drexler was in an indirect contractual relationship with Time Oil. It is clear that if the Court concludes that the waste oil and other substances handled by Drexler contained the hazardous substances later found on the property, Time Oil will be liable for the harm caused by Drexler's operation.
Id. at 532-33 (emphasis added).
Each of these cases is distinguishable from the instant factual scenario, however. In Monsanto, for instance, the owners received a direct financial benefit from the sublessee, presumably in lieu of the lessee's payment of rent under its lease with the owners. In Picillo, it is apparent that, in disposing of the generator's waste, the hypothetical "subcontractors" would simply have been executing the duties which the waste transporters owed to the generator of the waste. In these cases, a flow of benefits or obligations between the "owner" and the "subparty" is distinctly discernible. Cf. CPC Int'l, 777 F.Supp. at 581 (acquisition of site from bankruptcy trustee of party responsible for contaminating site constitutes "indirect contractual relationship" between debtor and purchaser).
No such relationship exists between the Berkman Defendants and A & N. There has been no allegation, for instance, that the Berkman Defendants, like the defendant in Monsanto, received rent from A & N, either directly or through Marine. Cf. Marine Lease, Berns Dec. Ex. A, ¶ 18 (Marine obligated to pay rent on entire Property regardless of subleases). And, unlike the "subcontractors" in Picillo, A & N was not fulfilling Marine's obligations to the Berkman Defendants by occupying the premises and operating its business. Finally, though Time Oil may not be technically distinguishable, the opinion does not provide sufficient facts or reasoning to lend meaning to its conclusion that an indirect contractual relationship existed between Time Oil and the sublessee.[7]
Common law provides some support for the conclusion that, on the facts of the instant dispute, no contractual relationship exists between A & N and the Berkman Defendants. As stated in Tefft v. Apex Pawnbroking & Jewelry Co., 75 A.D.2d 891, 428 N.Y.S.2d 52 (2d Dept.1980), no privity of contract exists between the owner of a building and its lessee's subtenant. As such, a subtenant is not directly liable to the original lessor for performance of the covenants contained in the original *1328 lease and the original lessor may not maintain an action against the subtenant for breach of the lease. Id. Rather, the original lessee remains liable to his lessor notwithstanding a subletting of the premises. A sublease creates a "new and ... separate contractual relationship between the original lessee and the sublessee.... there are two contracts, the original lease and the sublease, only the original lessee is a party to both." Mire v. Sunray DX Oil Co., 285 F. Supp. 885 (W.D.La.1968). Even after the expiration of the main lease, the subtenant continues as the statutory tenant of the main tenant, not of the owner-landlord. 214 West 39th Street Corp. v. Miss France Coats, Inc., 274 A.D. 597, 598-600, 84 N.Y.S.2d 818, 820-22 (1st Dept. 1948).
The court is not persuaded by the Government's argument that an indirect contractual relationship may be implied because the Berkman Defendants could have affected A & N's activities by (1) enforcing its lease with Marine, which, among other things, required Marine to comply with all governmental requirements; (2) by requesting Marine to take action, such as maintenance action with respect to the Property; and (3) because they were "well-acquainted personally with the subtenants and discussed maintenance problems with them from time to time when the owners were conducting business at the Property." Government Memo. in Opp. at 24 & nn. 11-12. Any authority held by the Berkman Defendants related solely to Marine. On these facts, a contractual relationship between the Berkman Defendants and A & N does not ensue simply because the exercise of that authority may have affected A & N at some point, assuming that Marine chose to comply with the Berkman Defendants' requests. Finally, no contractual relationship springs from the mere fact that the Berkman Defendants were acquainted with Marine's subtenants and occasionally chatted about maintenance problems, which all concerned understood Marine had the responsibility to remedy.
b. Due Care and Precautions
Having concluded that no contractual relationship existed between the Berkman Defendants and A & N, the Berkman Defendants must also show that they exercised due care and took precautions with respect to the release. Specifically, for a party to prevail on the third party defense, § 107(b)(3) requires that
(a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.
42 U.S.C. § 9607(b)(3) (emphasis added).
The Government contends that the Berkman Defendants neither exercised due care nor took adequate precautions in light of the following undisputed facts: (1) the Berkman Defendants were at all times aware that A & N conducted a dry cleaning business, Berkman Dep., Berns Reply Dec. Ex. G, at 78, 85, 87; Petrillo Dep., Berns Reply Dec. Ex. F, at 12; (2) they were aware of the PCDH's September 1978 notice to Brewster residents advising of possible contamination at the Site and of the need to boil drinking water; (3) local newspapers published articles during 1978 and 1979 discussing the Well Field contamination and describing the source of the contamination as "tetrachloroethylene commonly used as a spot remover or solvent;"[8]*1329 and (4) in December 1979, Berkman gave the Village of Brewster permission to perform borings on the Property "for the purpose of determining the source of contamination of the Village well fields." Berns Reply Dec. Ex. D. It is undisputed that the Berkman Defendants did not inquire as to the waste disposal activities of any of its subtenants until 1988, when they were contacted by the EPA.
According to the Government, the Berkman Defendants' failure to exercise due care began when they purchased the Property without inquiring into the use of the floor drain or of the waste disposal practices of A & N, without communicating with state and local health and environmental agencies, and without inquiring as to whether the commercial tenants on the Property were in violation of any environmental laws.
The submissions reveal triable issues of fact as to whether the pre-purchase inquiries undertaken by the Berkman Defendants satisfy the due care requirement, see Part C.2 infra. However, unlike the innocent landowner defense,[9] the language of the due care/precautions requirement of the third party defense is not temporally limited to the time of acquisition. Accordingly, it must be inferred that due care must be exercised throughout the period of ownership or operation.
The due care/precautions requirement clearly contemplates some degree of awareness by the defendant of the potential for release of a hazardous substance: it is hard to fathom how a defendant could take due care "taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances," or take precautions against "foreseeable acts or omissions of any third party" if it is unaware that any hazardous substance is being used or disposed of. Cf. Shore Realty, 759 F.2d at 1049 (defendant failed on third party defense where it was "aware of the nature of the tenants' activities before the closing and could readily have foreseen that they would continue to dump hazardous waste at the site").
The court is satisfied that, given the newspaper articles, Berkman's consent to have the Village of Brewster take borings on the Property "for the purpose of determining the source of contamination of the Village well fields," and the extent of investigative activity that apparently was taking place at the Property, the Berkman Defendants were sufficiently aware that they should have made inquiry of the various subtenants.
Nevertheless, as to the period spanning from the purchase to the present, there are also triable issues of fact as to whether the Berkman Defendants exercised due care and took precautions consistent with the third party defense. Primarily, there is a factual question as to what care was due under the circumstances, which necessarily depends on the answer to the disputed question of what the circumstances were. If, for instance, Forcucci indeed did cease his disposal activities as of 1978, as he informed the Berkman Defendants in 1988, see Part C.2 infra, it is unclear what action or precautions the Berkman Defendants should have taken.
For these reasons, the Berkman Defendants' motion for summary judgment is denied.
2. The Innocent Purchaser Defense
In addition to requiring satisfaction of the requirements of § 107(b)(3), the innocent purchaser defense requires that the defendant have acquired the property after *1330 the release occurred and that it did not know and had no reason to know that any hazardous substance had been released at that facility. 42 U.S.C. § 9601(35)(A).
A triable issue of fact exists as to the date after which A & N ceased disposing of contaminated wastes down the floor drain. Forcucci has testified that he ceased disposing of waste water down the floor drain in 1978. Forcucci Dep., Wright Aff. Ex. C, at 80-81. However, Forcucci has also given conflicting information to the EPA[10] and, according to Louis Esposito, Marine's Fire Safety Officer until 1990, informed Mr. Esposito in 1988 that he disposed of waste liquids down the drain "prior to 1983." Esposito Dec., Berns Third Dec. Ex. A, at ¶ 6. Furthermore, the OU Two RI states that, as of December 1985, "condensation water from the ironing machine shows PCE at 117 ppb. A sample of water from the drain ... contained PCE at only 6.6 ppb." Wing Dec. Ex. A, at 3-49. This conflicting data thus presents a question for the trier of fact as to whether the Berkman Defendants' purchase of the Property in 1979 post-dated the disposal.
Additionally, the Berkman Defendants have raised a triable issue of fact as to whether they "had no reason to know ... [having] undertaken, at the time of acquisition, all appropriate inquiry in to the previous ownership and uses of the property consistent with good commercial or customary practice...." 42 U.S.C. § 9601(35)(B) (emphasis added). The Government contends that under this standard the Berkman Defendants should have inquired into the disposal activities of A & N, the use of the floor drain, whether commercial tenants on the Property were in violation of environmental laws, and should have communicated with state and local health and environmental agencies.
While conceding that the level of inquiry undertaken may not be consistent with "good commercial or customary practice" today, the Berkman Defendants have submitted the affidavit of Vincent Ficarra, a New York realtor, who attests that the level of inquiry undertaken by the Berkman Defendants prior to purchasing the Property constituted good commercial practice in 1979.
Section 101(35)(A) provides that satisfaction of the requirements set forth in § 107(b)(3)(a) and (b) must be established for a party to prevail on the innocent landowner defense. See 42 U.S.C. § 107(b)(3)(a) and (b) (due care and precautions requirement). As discussed above, issues of fact remain to be tried on the Berkman Defendant's satisfaction of those requirements. Therefore, the Berkman Defendant's motion for summary judgment is denied.
D. Marine Midland
The Government contends that Marine is liable under §§ 107(a)(2) as the "owner and operator" of a facility at the time of the release. Although it is undisputed that Marine has never held title to the Property or any part thereof, the Government asks the court to rule that a lessee of property that maintains control over and responsibility for the property from which the release took place is an "owner" for purposes of CERCLA. Marine counters that, absent a showing that a lessee/sublessor has engaged in disposal activity or exercises control over that activity, it cannot be held liable under CERCLA as an "owner." Furthermore, Marine argues that it did not exercise the requisite control over A & N's disposal operations to be considered an "operator." Marine thus *1331 cross-moves for summary judgment declaring that it is not a covered party under § 107(a). In the alternative, Marine moves for summary judgment dismissing the complaint against it on the grounds that it is relieved of liability under either the third party defense or the innocent landowner defense.
1. Marine's § 107(a) Liability
A party need not be both an owner and an operator to be liable under § 107(a); either status is sufficient to establish CERCLA liability. See, e.g., United States v. Maryland Bank & Trust, 632 F. Supp. 573, 577-78 (D.Md.1986); Shore Realty, 759 F.2d at 1044. The terms "owner and operator" are defined in § 101(20) of CERCLA as "any person owning or operating a facility." 42 U.S.C. § 9601(20)(A). While the circularity of this definition necessarily precludes its use as an interpretive device, courts generally resolve ambiguities in CERCLA's language in favor of imposing the most expansive liability, citing the statute's remedial purpose. See, e.g., Dedham, 805 F.2d at 1081; Shore Realty, 759 F.2d at 1045 (court "will not interpret section 9607(a) in any way that apparently frustrates [CERCLA's] goals, in the absence of a specific congressional intention otherwise"); Maryland Bank & Trust, 632 F.Supp. at 578-79. At the same time, however, the court is mindful of the Supreme Court's directive that a remedial purpose alone is not sufficient "to add a gloss to the operative language of the statute quite different from its commonly accepted meaning." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 198-99, 96 S. Ct. 1375, 1383-84, 47 L. Ed. 2d 668 (1976) (regarding § 10(b) of Securities Exchange Act of 1934; concluding that use of words "manipulative," "device" and "contrivance" "make unmistakable a congressional intent to proscribe a type of conduct quite different from negligence").[11]
Despite the disjunctive nature of the terms "owner" and "operator" under the statute, some courts have resisted defining the terms separately, preferring instead to define the conjunctive term "owner-operator." In CPC Int'l, Inc. v. Aerojet-General Corp., 731 F. Supp. 783 (W.D.Mich.1989), for example, the court articulated the following test:
The most commonly adopted yardstick for determining whether a party is an owner-operator under CERCLA is the degree of control that party is able to exert over the activity causing the pollution. Other district courts have reached this conclusion by borrowing the definition of "owner-operator" as used in the Federal Water Pollution Control Act, 33 U.S.C. § 1321(a)(6).... That definition is:
The owner-operator of a vessel or vacility [sic] has the capacity to make timely discovery of oil discharges. The owner-operator has power to direct the activities of persons who control the mechanisms causing the pollution. The owner-operator has the capacity to prevent and abate the damage.
Id. at 788 (citations omitted; emphasis added); see also Idaho v. Bunker Hill Co., 635 *1332 F.Supp. 665, 672 (D.Idaho 1986) (parent corporation was "owner-operator" of property owed by subsidiary where parent "was in a position to be, and was, intimately familiar with hazardous waste disposal and releases at the Bunker Hill facility; had the capacity to control such disposal and releases; and had the capacity, if not total reserved authority, to make decisions and implement actions and mechanisms to prevent and abate the damage caused by the disposal and releases of hazardous wastes at the facility."). However, because an "owner" may be liable without being an "operator," and vice versa, this test is not sufficiently precise to define the separate terms.
Marine Was an "Owner" Subject to Liability Under § 107(a)(2)
In contrast to the "owner-operator," as defined by the cases cited above, an "owner" under CERCLA need not have any control over the disposal activity. Mere ownership of the property on which the release took place is sufficient to impose liability under § 107(a), regardless of any control or lack or control over the disposal activities. See, e.g., Monsanto, 858 F.2d at 169 (site owners liable regardless of degree of participation in disposal of hazardous wastes); Argent Corp., 14 E.L.R. at 20616 (mere ownership of land and building from which owner's lessor released hazardous substances sufficient to support liability as "owner"; participation in management or operation of business causing release not a prerequisite to owner liability); United States v. South Carolina Recycling & Disposal, Inc., 653 F. Supp. 984, 993 (D.S.C.1984), aff'd sub nom. United States v. Monsanto, 858 F.2d 160 (4th Cir.1988), cert. denied, 490 U.S. 1106, 109 S. Ct. 3156, 104 L. Ed. 2d 1019 (1989) (property owners Hutchinson and Seidenberg held liable under § 107(a)(2) merely by virtue of "ownership of the ... property [and disposal of] hazardous substances ... on the property during their period of ownership"). Nurad, Inc. v. William E. Hooper & Sons, No. WN 90-661, slip op. at 25-26 (D.Md. Aug. 15, 1991) (officer and principal shareholder of corporation that formerly owned property is an owner even though not involved in managing hazardous substances handled by tenants and unable to control tenant's activities; "it is clear that absentee landlords can be held liable under Section 107(a)(2) of CERCLA as prior owners at the time of disposal even though they have not participated in conduct resulting in the release of hazardous substances."). The relevant inquiry is, then, what constitutes "ownership" in the absence of title?
The one court to address the question of the ownership status of a lessee/sublessor found that party to be an "owner" under § 107(a) using the following definition:
As evidenced by the definitional provisions of CERCLA, site control is an important consideration in determining who qualifies as an "owner" under Section 107(a). Accordingly, site lessees like COCC should, along with the property owners themselves, be considered "owners" for purposes of imposing liability under Section 107(a). To conclude otherwise would frustrate Congress's intent that persons with responsibility for hazardous conditions bear the cost of remedying those conditions.
United States v. South Carolina Recycling and Disposal, Inc., 653 F. Supp. 984, 1003 (D.S.C.1985) (hereinafter "SCRDI") (emphasis added), aff'd sub nom. United States v. Monsanto, 858 F.2d 160 (4th Cir. 1988).[12] "Site control" in this case meant that the lessee/sublessor "as lessee of the site, maintained control over and responsibility for the use of the property and, essentially, stood in the shoes of the property *1333 owners." Id. at 1003 (emphasis added).[13] That COCC had subleased a portion of the property to which it held a leasehold strengthened the case against it as an owner. "As a general rule," the court wrote, "a lessor or sublessor who allows property under his control to be used by another in a manner which endangers third parties or which creates a nuisance, is, along with the lessee or sublessee, liable for the harm." Id.
The undisputed facts establish that Marine exercised a degree of site control over the Property, that, under this definition, confers ownership status upon it for purposes of CERCLA § 107(a).
From 1970 through 1990, Marine leased the entire Property, first from Six & Twenty Two, and subsequently from the Berkman Defendants. Under the Marine Lease, which remained in effect over that period of time, Marine assumed obligations and acquired rights with respect the Property that, when considered with the actual course of conduct that ensued, placed it in the shoes of "owners." The Marine Lease gave Marine the right to sublet all or part of the Property, Berns Dec. Ex. A, ¶ 13, and to evict tenants, Marine Response to Government's 3(g) Statement ¶ 15. Marine was not obligated to notify the Berkman Defendants when such events took place. Berkman Dep., Berns Reply Dec. Ex. F, at 115. At the same time as Marine's use of the Property was not limited, Marine Lease, Berns Dec. Ex. A, at ¶ 5, Marine had the discretion to determine the use of the Property by its subtenants. For instance, the Pircio's Lease and the 1982 Lease clearly provide that the premises occupied by A & N were to be used as a dry cleaning establishment.[14] Marine had the authority to collect all rents from existing tenants on the Property and to enforce all obligations of those tenants under their leases. Marine Lease, Berns Dec. Ex. A, at ¶ 8; see also Glanville Aff. Ex. F (Marine letter to Pircio's notifying it to make all rent payments to Marine "as your new landlord").
Marine was obligated to keep the entire premises in good condition and repair at all times, Marine Lease, Berns Dec. Ex. A, at ¶ 12, to comply with all governmental rules and regulations for the correction, prevention and abatement of nuisances, id. at ¶ 16, and to perform all of its obligations under the Marine Lease, including the payment of rent, regardless of any subleases or assignments. Id. ¶ 18.
Marine in fact did exercise responsibility for maintenance and repair of the Property.[15]See Berns Dec. Exs. J, K. It maintained *1334 a Real Estate Department and a Facilities Department through which it inspected and maintained Marine's real estate, including the Property. Berns Dec. Ex. K. It employed a Safety Officer who was authorized to investigate activities on the Property and report to Marine. Esposito Dec., Berns Third Dec. Ex. A, at ¶ 2. According to the declaration of Louis Esposito, Marine's Safety Officer from 1988 through 1990, the duties of that position included "all fire safety, health and safety of the Marine Midland employees, the training of fire wardens, investigation of complaints of foul air in the workplace, investigation of accidents ... and environmental matters referred to [him] by the Facilities Department ... of Marine Midland." Id. Contrary to Marine's contention that its responsibilities related only to exterior and common areas of the Building, Marine also had the authority to investigate and repair the interiors of the sublet premises. See Pircio's Lease, Glanville Aff. Ex. E, at ¶ 13 ("Landlord or Landlord's agents shall have the right to enter the demised premises at all times to examine the same ... and to make such decorations, repairs, alterations, improvements or additions as Landlord may deem necessary or desirable.... Landlord or Landlord's agents may enter [the premises] by a master key or may forcibly enter the same."); 1982 Lease, Berns Dec. Ex. D, at ¶ 13 ("Owner [Marine] or Owner's agents shall have the right but shall not be obligated to enter the demised premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable ... for purpose of complying with laws, regulations and other directions of governmental authorities."). Marine in fact exercised this authority, when, for instance, Esposito investigated A & N and another subtenant after Marine was notified by the EPA that there had been dumping of environmental contaminants from the Property. See Berns Reply Dec. Ex. D; id. Ex. R; Glanville Supp.Aff. Ex. A.
Moreover, the Berkman Defendants and Marine's subtenants looked to Marine as the party exercising control over the use and maintenance of the Property. The individual owners of the Property regularly contacted Marine Midland with problems concerning the Property. See Petrillo Dep., Berns Reply Dec. Ex. F, at 25-28; id. at 24 (Petrillo instructed Forcucci to contact Marine regarding leaking roof, which Forcucci had already done); Berkman Dep., Berns Reply Dec. Ex. G, at 25-29 (if there was a problem, he would call branch manager or real estate department of Marine); id. at 96-97 (Marine was "responsible for everything. We had nothing to do with the building"). Appended to the Berns Declaration and Reply Declaration are letters from the Berkman Defendants requesting that Marine address itself to certain maintenance problems, including an electric box, leaking roof, discharge by a subtenant of contaminants in the area around the bank and potholes in paved areas around Property, Berns Reply Dec. Ex. C, as well as requests that Marine repair parking lot lamp posts and roof. Berns Dec. Ex. K. One subtenant threatened a lawsuit against Marine for alleged water damage to merchandise due to the leaking roof. Id.
With the exception of the power of alienation, therefore, Marine enjoyed the rights and bore the obligations of an "owner" as the term is commonly understood. For this reason, Marine is liable as an "owner" under CERCLA § 107(a)(2). Having concluded that Marine was an owner, it is not necessary to determine whether Marine was also an "operator."
2. The Third Party Defense
The lease agreement between Marine and A & N constitutes a direct contractual relationship.[16] This finding is not dispositive *1335 of the availability of the third party defense to Marine, however. The Second Circuit has recently held that:
The mere existence of a contractual relationship between the owner of land on which hazardous substances are or have been disposed and a third party whose act or omission was the sole cause of the release or threatened release of such hazardous substances into the environment does not foreclose the owner of the land from escaping liability.... In order for the landowner to be barred from raising the third-party defense under such circumstances, the contract between the landowner and the third party must either relate to the hazardous substances or allow the landowner to exert some element of control over the third party's activities.
Westwood Pharmaceuticals, Inc. v. National Fuel Gas Distrib. Corp., 964 F.2d 85, 89, 91 (2d Cir.1992) (emphasis in original). In Westwood, the court held that a prior owner of property was not precluded from invoking the third party defense by a land sale contract with the party responsible for the release. On the other hand, the "classic scenario" in which a defendant would be barred is that of a landowner who contracts with a third party to operate a landfill. Shapiro v. Alexanderson, 743 F. Supp. 268 (S.D.N.Y.1990).
The contract between Marine and A & N relates to hazardous substances. Both the Pircio's Lease and the 1982 Lease specifically provide that the premises are to be used for a dry cleaning establishment. A & N used hazardous substances as a matter of course in conducting its business. Thus, "the contract between the landowner and the third party somehow is connected with the handling of hazardous substances," Westwood, 964 F.2d at 89, making the third party defense unavailable to Marine.
3. The Innocent Purchaser Defense
The innocent purchaser defense likewise is unavailable to Marine. As discussed above, this defense requires that the defendant have acquired the property subsequent to the release or disposal activity. It is undisputed that Marine entered into the Marine Lease for the entire Property in 1970 and that A & N's disposal activity continued at least until 1978. Marine contends, nevertheless, that it cannot be considered the "owner" of the Dry Well until 1982, when it entered into the 1982 Lease with A & N. Prior to that time, claims Marine, ownership of the Dry Well cannot be imputed to it because under the Pircio's Lease, Pircio's/A & N was "to maintain and repair the pump and cesspool or dry well presently located on the premises of which the herein demised premises are a part; which said pump and cesspool or dry well provide water for and collect waste from the demised premises." Pircio's Lease, Glanville Ex. E, at ¶ 43. Marine maintains that it is therefore an innocent purchaser because A & N had ceased its disposal activities prior to 1982.
Even assuming that A & N did cease its disposal activities prior to 1982, Marine cannot invoke the innocent purchaser defense because it acquired the Property, including the Dry Well, in 1970 when it entered into the Marine Lease. The Marine Lease conveyed to Marine possession of the entire Property, and made no exception for the Dry Well. Under CERCLA, an owner or operator cannot contract away its responsibility for purposes of CERCLA liability. See 42 U.S.C. § 9607(e)(1) ("No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from the owner or operator of any vessel or facility ... to any other person the liability imposed under this section."); Rodenbeck v. Marathon Petroleum Co., 742 F. Supp. 1442 (N.D.Ind.1990). Thus, Marine's motion for summary judgment based on the innocent purchaser defense is denied.
*1336 Conclusion
For the foregoing reasons, the Government's motion for summary judgment as to the CERCLA liability of A & N and Forcucci, the Berkman Defendants and Marine is granted. The motion by the Berkman Defendants for summary judgment dismissing the claims against them based on the third party and innocent purchaser defenses is denied. Marine's motion for summary judgment dismissing the claims against it on the grounds that it is not a covered party under CERCLA § 107(a), or, in the alternative, that it is absolved of liability under the third party or innocent purchaser defenses is denied. Triable issues of fact remain as to the affirmative defenses interposed by the Berkman Defendants.
It is so ordered.
NOTES
[1] The seemingly mandatory dissertation on the history of CERCLA and the circumstances under which it was enacted shall be omitted here, those topics having been amply chronicled by courts confronting issues arising under the statute. See, e.g., New York v. Shore Realty Corp., 759 F.2d 1032, 1039-1042 (2d Cir.1985).
[2] A "release" is
any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any hazardous substance or pollutant or contaminant), ...
42 U.S.C. § 9601(22).
[3] A "hazardous substance" is
(A) Any substance designated pursuant to section 1321(b)(2)(A) of Title 33, (B) any element, compound, mixture, solution, or substance designated pursuant to section 9602 of this title, (C) any hazardous waste having the characteristics identified under or listed pursuant to section 3001 of the Solid Waste Disposal Act [42 U.S.C.A. § 6921] (but not including any waste the regulation of which under the Solid Waste Disposal Act [42 U.S.C.A. § 6901 et seq.] has been suspended by Act of Congress), (D) any toxic pollutant listed under section 1317(a) of Title 33, (E) any hazardous air pollutant listed under section 112 of the Clean Air Act [42 U.S.C.A. § 7412], and (F) any imminently hazardous chemical substance or mixture with respect to which the Administrator has taken action pursuant to section 2606 of Title 15. The term does not include petroleum, including crude oil or any fraction thereof....
42 U.S.C. § 9601(14).
[4] A "facility" is defined as
(A) any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft, or (B) any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located; but does not include any consumer product in consumer use or any vessel.
42 U.S.C. § 9601(9).
[5] The OU One RI was inconclusive as to whether there was a connection between the releases from the Property and the Well Field contamination. See Wing Dec. Ex. A, at 3-48 to 3-49 (investigation revealed no connection between floor drains and storm sewer system, although speculation that if there were discharges to septic tank or Dry Well could cause leaching into groundwater); id. at 6-23 (concluding that "investigations at and in the vicinity of Alben Cleaners building did not confirm any direct discharge connections between the building and the on-Site storm water collection system"); id. ("If past disposal practices included discharging wastes into their on-site septic system or dry well, as results of the RI indicate, contamination of the adjacent aquifer is likely. Under influence of Well Field pumping groundwater from this location could be drawn toward the Well Field making Alben Cleaners a likely source of the contamination." (emphasis added)).
While the OU Two RI concluded that "the Alben Cleaners dry well was identified as a significant source of VHO contamination," Wing Dec. Ex. B. at 64, the defendants have cast uncertainty on this conclusion in the form of an affidavit by Glenn T. Wygant, a Manager of ERM-Northeast, Inc. and geologist who is responsible for reviewing, evaluating and commenting on various remedial investigation studies performed on sites located in New York State. Mr. Wygant avers that the data and conclusions in the OU One and OU Two RI's and Feasibility Studies by the EPA do not establish that the Dry Well is a source of the groundwater contamination at the Well Field. He attacks the methodology and substantive conclusions of these investigations, relating, among other things, to concentrations, groundwater flow and the position of the Dry Well contamination in the aquifer.
Drawing all inferences in favor of the parties opposing the motion for summary judgment, therefore, the court declines to draw what, according to the Government, is "the only logical conclusion ... that the drywell is a significant source of contamination at the Well Field." Wing Reply Dec. ¶ 8.
[6] Although the court states that Time Oil raised this defense, it is apparent from the opinion that it was actually the third party defense that was in issue.
[7] For instance, it is unclear whether Time Oil's subsidiary was the original lessor who then sublet the premises to Drexler. In light of the court's imputation of the subsidiary's disposal activities to Time Oil, a lease between the subsidiary and Drexler would necessarily translate into a contractual relationship between Time Oil and Drexler.
[8] That article appeared in The Reporter Dispatch on September 27, 1978. Additional articles raised the link between PCE, TCE and dry cleaning establishments. For example, on November 20, 1979, an article in The Reporter Dispatch stated that "the chemical, known as TCE.... is commonly used as a grease solvent or spot remover by dry cleaners and auto mechanics." Another article, appearing on April 2, 1979, reported that "the chemical, a degreaser, is used primarily by dry cleaners as a solvent." These articles and others are contained in Exhibit E to the Berns Reply Declaration.
Additionally, a Putnam County Department of Health News Release, which, though undated, is assumed to have been published in November 1979, stated that after some test drilling "[t]he results indicate that the contamination may have originated from one or more of the commercial establishments located in the highly developed area surrounding the intersection of Routes 22 and 6." Berns Dec. Ex. D; see also Courier article dated November 21, 1979, Berns Reply Dec. Ex. E, reporting that the source of contamination had been narrowed to "commercial establishments located in the highly developed area surrounding the intersection of Routes 22 and 6 in Brewster."
[9] Section 101(35) provides that to invoke the innocent purchaser defense, "[a]t the time the defendant acquired the facility the defendant did not know and had no reason to know that any hazardous substance ... was disposed of...." 42 U.S.C. § 9601(35).
[10] The EPA's Supplemental Request for Information Under 42 U.S.C. § 9604(e) posed the following question to Forcucci:
Were dry cleaning wastes or any other substances ever disposed of or discharged by Alben Cleaners or any of its employees or agents into the drywell located adjacent to the premises currently occupied by Alben Cleaners? If so, describe in detail (i) the nature and quantities of such wastes or other substances, (ii) the dates of such disposal or discharge, (iii) the location of the disposal or discharge (e.g., into a drain or pipe), and (iv) the names of the persons who performed such disposal or discharge.
Rehm Dec. Ex. B, at 4, # 6.a.
Forcucci responded: "Yes. Water from separator of dryer. 1965-1983. Drain in hallway at rear of store. Ben Forcucci." Id. at 3, # (6-a).
[11] The Government cites the legislative history as evidence of Congress's intent that the term "owner" be construed to include individuals and entities other than those actually holding title. House Report 96-172, which accompanied the first draft of the Comprehensive Oil Pollution Liability and Compensation Act, one of the four major bills out of which CERCLA emerged, contains the following definition of "owner" proffered by the Committee on Merchant Marine and Fisheries:
"Owner" is defined to include not only those persons who hold title to a vessel or facility but those who, in the absence of holding a title, possess some equivalent evidence of ownership.
reprinted in A Legislative History of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, Vol. 2, at 546 (emphasis added), cited in Maryland Bank & Trust Co., 632 F.Supp. at 579-80.
As this definition was rejected in the enacted version of the statute, however, it can hardly be said to put flesh on the bare bones provided. It seems equally plausible to infer that, Congress having excised the underscored language, it intended that the terms be given their ordinary meaning. See Edward Hines Lumber Co. v. Vulcan Materials Co., 861 F.2d 155 (7th Cir.1988) (circularity of definition implies that "owner and operator" have ordinary meanings).
[12] In SCRDI, Columbia Organic Chemical Company ("COCC") was the lessor of certain property pursuant to a verbal lease. During its leasehold, COCC entered into a verbal sublease with South Carolina Recycling and Disposal, Inc. ("SCRDI"), which conducted hazardous waste operations on the property, leading to the release of hazardous substances. The United States, the plaintiff, moved for summary judgment as to the liability of SCRDI, COCC and others. The court found that COCC was liable as either an "owner" or an "operator" of the site, as well as a "generator" under § 107(a)(3) and as a "transporter" under § 107(a)(4). SCRDI, 653 F.Supp. at 1003-06.
[13] See also Developments in the Law Toxic Waste Litigation, 99 Harv.L.Rev. 1458 (1986). Synthesizing the case law, the authors of this article conclude that "[o]ne may be an `owner,' without possessing legal title to a site, if one had authority to determine how the land was to be used." Id. at 1514 (emphasis added).
Control over the property as the definitional characteristic of ownership should be contrasted to the factors considered by the SCRDI court in holding that COCC was an "operator," namely that COCC was generally involved in the hazardous waste disposal business; one of the officers of SCRDI, COCC's sublessee, had apparent authority to act on behalf of COCC; and COCC was a "joint venturer" with SCRDI, making it vicariously liable for acts undertaken by SCRDI's agents. SCRDI, 653 F.Supp. at 1003-05.
Indeed, state law cited by Marine, addressing the requisite degree of control a landlord must exercise over leased property to be liable in tort to third parties injured on those premises, provides an analogy that supports the "control over the property" definition of ownership. In De Clara v. Barber S.S. Lines, 309 N.Y. 620, 132 N.E.2d 871 (1956), the New York Court of Appeals held that the requisite degree of control existed where the landlord had reserved the right to enter, inspect and repair in his discretion, and had maintained a crew to guard, police, inspect and repair the premises. The court noted that "[i]ndeed, such control [has been found to exist] in an act of repair made by the landlord after the accident, even though the primary duty of repair rested upon the tenant." Id. at 628-29, 132 N.E.2d at 875-76.
[14] Other subleases likewise specify the use to which the subleased premises were to be put. See, e.g., Berns Dec. Ex. H (Marine sublease to Brady and Standard Chevrolet Cadillac Group; specifies that premises are to be used and occupied for "the maintenance and repair of automobiles").
[15] Among other things, Marine repaired a metal storm sewer grate and potholes in the parking lot, removed heating units from the tenant areas of the garage, restored the roof on the Building, installed a new boiler, arranged to have the septic tank pumped out, closed holes in the basement ceiling to comply with fire codes, and formulated a contingency plan in 1989 for replacement of the dry well since neither the Berkman Defendants nor the United States had made such arrangements. Berns Dec. Exs. J, L.
[16] Marine claims that no such relationship existed prior to 1982 when Marine and A & N entered into the 1982 Lease. Prior to that time, in effect was the Pircio's Lease, subject and subordinate to which Marine leased the Property. Notwithstanding the original parties to the Pircio's Lease, however, Marine did have a contractual relationship with A & N as of 1970: Marine was assigned all of Six & Twenty Two's rights under that lease, directly renewed the lease twice, and in 1971 informed Pircio's/A & N to make all rent payments to Marine "as your new landlord." Glanville Aff. Ex. F.
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257 F. Supp. 761 (1966)
In the Matter of John William CLARK, Bankrupt.
No. 23335.
United States District Court E. D. Virginia, Norfolk Division.
August 31, 1966.
Bernard G. Barrow, Norfolk, Va., for General Electric Credit Corporation, petitioning creditor.
*762 L. Charles Burlage, Norfolk, Va., for J. A. Motors, Inc.
Charles L. Marcus, Portsmouth, Va., trustee, for defendant.
MEMORANDUM ORDER
WALTER E. HOFFMAN, Chief Judge.
General Electric Credit Corporation seeks a review of the order of the Referee in Bankruptcy entered on May 12, 1966, wherein the Credit Corporation was enjoined from proceeding in the state courts against a certain 1962 Liberty House Trailer, formerly owned by the bankrupt and subject to a valid recorded lien in favor of the Credit Corporation, which said House Trailer was sold by the trustee in bankruptcy to J. A. Motors, Incorporated, on October 1, 1965, for the sum of $1500.00 in cash.
The bankrupt was duly adjudicated as such on August 10, 1965. Among the creditors holding securities, the bankrupt listed "General Electric Credit Corp., 1405 Locus-, Philadelphia, Pa.", showing an indebtedness of $5600.00 and the value of the security being listed at $3500.00. On August 12, 1966, notices were mailed to all creditors advising them of a hearing on August 24, 1966, at 2:00 P.M., and directing all creditors to appear
"* * * and show cause, if any they can, why the tangible and intangible asset of the bankrupt should not be sold free and clear of lien, at public auction or private sale, as may be deemed most advantageous to the estate.
"It is ORDERED that any creditor, or other person, claiming a lien upon, or interest in, and intending to assert a claim to possession of, any specific personal property, or other tangible or intangible asset of the bankrupt, do file his petition for abandonment or reclamation thereof, or other proper pleading, with relation thereto, on or before the 14th day of September, 1965.
"NOTICE IS FURTHER GIVEN that for good cause shown, the time for filing such petitions, and the time before the hearing as to such assets, or any of them, against which liens or adverse interests are claimed, may be shortened, or enlarged, or that any asset of the bankrupt may be sold, without notice, by order of the Court."
The credit manager of the Norfolk office of the Credit Corporation testified that the file in this matter was not sent to Norfolk from Philadelphia until the latter part of November or early December, 1965, at which time the file contained no notices relating to the bankruptcy proceedings. The file had been forwarded to the Norfolk credit manager after he had been informed by Walker Realty Trailer Company of the bankruptcy proceeding. There is no affirmative evidence that the notice from the bankruptcy court was not received in Philadelphia. The creditor's correct address was "1405 Locust Avenue", whereas the schedule listed same as "1405 Locus". No notices addressed to General Electric Credit Corporation were returned for improper address. The system employed by the bankruptcy court in sending notices is to check the envelopes with the names and addresses as listed in the schedule, and then double-checking by counting the envelopes against the number of creditors on the schedule.
In due time the House Trailer was appraised in the sum of $3000.00. The trustee made efforts to find a purchaser at a private sale for a price approximating the appraisal value of the asset, but without sucess. On October 1, 1965, the trustee recommended the acceptance of a private offer from J. A. Motors, Inc., in the sum of $1500.00. The trustee's petition made no mention of the lien and did not affirmatively request the acceptance of the offer as being free and clear of liens. The Referee's order of October 1, 1965, authorizing the acceptance of said offer makes no reference to the sale being free and clear of liens. However, counsel for the Credit Corporation concedes that the trustee and the purchaser *763 intended that the sale would be free and clear of liens, and he rejected an offer to remand the case for the purpose of inquiring as to the intention of the parties.
It was not until January 14, 1966, that General Electric Credit Corporation filed its claim in the bankruptcy proceeding. This claim has been allowed as "secured" and there is no controversey that the lien follows the purchase price. Nevertheless, the Credit Corporation is not satisfied with the amount realized at the trustee's private sale and, on January 3, 1966, filed an action against J. A. Motors, Incorporated, in the Court of Law and Chancery of the City of Norfolk, seeking the foreclosure of the lien and requesting the state court to order the House Trailer sold to satisfy the lien. On the petition of J. A. Motors, Incorporated, the Referee entered an order enjoining the Credit Corporation from proceeding further in the state court and this review follows.
Counsel for the Credit Corporation does not contest the authority of the Referee to issue the injunction against it under the provisions of § 2(a) (15) of the Act of Bankruptcy. His chief contention is that, assuming the mailing of the order to show cause and receipt of same in Philadelphia, the petition for sale as filed by the trustee and the order directing the acceptance of the offer did not, as a matter of record, state that the sale was free and clear of liens. When the Referee entered the injunction order on May 12, 1966, it specifically stated that the purchase was free and clear of liens and, as noted above, the Credit Corporation now concedes that this was the intent of the trustee, the purchaser, and the Referee.
The Referee has the same power to reconsider his own orders as that possessed by the District Judge, In re Pottasch Bros. Co., Inc., 2 Cir., 79 F.2d 613, 101 A.L.R. 1182, and this is true where the order of sale does not truly represent the contract between the parties, In re Crosby Stores, 2 Cir., 65 F.2d 360. As stated in Hume v. Myers, 4 Cir., 242 F. 827, 829, a court of bankruptcy is always open to reconsider the merits of its own orders until there has been a distribution of the funds in controversy. Moreover, Rule 60(b) of the Federal Rules of Civil Procedure furnishes abundant authority to correct the omission in the order of October 1, 1965. It follows, therefore, that the general rule of law applicable to an order of sale making no mention of liens which, under normal circumstances, would constitute a sale subject to existing liens, is inapplicable.
The Credit Corporation also contends that the requirements of § 58(a) (4), 11 U.S.C. § 94(a) (4), were not met in that the Credit Corporation did not get ten days' notice by mail of "all proposed sales of property". Reliance is placed upon In the Matter of Park Distributors, Inc., S.D. Cal., 176 F. Supp. 38. That case deals essentially with the inadequacy of notice, in that the notice of first meeting of creditors stated, among other things, that business coming before the meeting could include "petitions * * by the trustee * * * to sell assets of the said bankrupt". The court properly held that such a notice was insufficient to authorize a sale without further notice.
The foregoing authority has been considered and discussed in an opinion by Judge Michie in a case arising in this court. In re Bourland, E.D. Va., 221 F. Supp. 157. There, as here, an order to show cause against the sale of assets, free and clear of liens, at public or private sale, was mailed to creditors. In referring to Park Distributors, Judge Michie said:
"This is of course a far cry from a specific notice that consideration of the authorization of the sale of all of the assets free and clear of any liens would be given if objection was not received thereto by a certain date."
Judge Michie also quotes from Miller v. McKenzie, 217 Cal. 389, 19 P.2d 1, 29 Am.B.R. (N.S.) 284, pointing out that an "order to show cause" why a certain act should not be done, or a certain *764 course pursued, is the regular and approved method of giving notice of contemplated action to parties to proceedings in bankruptcy.
The necessity for prompt and efficient administration of bankruptcy estates compels a ruling upholding the use of an order to show cause in connection with proposed sales of assets. As in this case, the trustee is frequently called upon to take possession of a motor vehicle and store same, either for the benefit of a lien creditor or the general creditors. Sales must be promptly made to prevent deterioration in value of the asset.
Holding that J. A. Motors, Inc., acquired title to the House Trailer, free and clear of liens, at the time of the sale on October 1, 1965, the injunction against the Credit Corporation was properly issued.
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445 F. Supp. 1156 (1977)
UNITED STATES of America ex rel. Fred SCHMIDT, Petitioner,
v.
J. Edwin LaVALLEE, Superintendent, Clinton Correctional Facility, Dannemora, New York, Respondent.
No. 75 CIV. 872.
United States District Court, S. D. New York.
December 12, 1977.
*1157 Fred Schmidt, pro se.
Louis J. Lefkowitz, Atty. Gen., State of New York by Ralph McMurry, Kevin J. McKay, Asst. Attys. Gen., New York City, for respondent.
MEMORANDUM OPINION
MOTLEY, District Judge.
This petition for a writ of habeas corpus is before us pursuant to 28 U.S.C. § 2254. On July 17, 1972 petitioner pleaded guilty to a single count of robbery in the second degree in the County Court, Rockland County, New York.[1] He was sentenced to a minimum term of five years and a maximum of fifteen years on October 10, 1972. The judgment of conviction was affirmed without opinion in both the Appellate Division (People v. Schmidt, 42 A.D.2d 690, 346 N.Y.S.2d 200 (2d Dept.1973)) and in the Court of Appeals (People v. Schmidt, 35 N.Y.2d 929, 365 N.Y.S.2d 163, 324 N.E.2d 545 (1974)). The petitioner is presently confined at Arthur Kill Correctional Facility.
Petitioner makes essentially two claims[2] on collateral attack: First, he claims that *1158 the trial judge wrongly denied him permission to withdraw his guilty plea. Second, petitioner claims that he could not understand the court proceedings due to mental illness and that the trial judge refused to grant him a hearing on that issue prior to sentencing. For the reasons which follow, the petition for a writ of habeas corpus is dismissed.
The Competency Claim
Chronologically, the first claimed infirmity was the trial judge's denial of petitioner's motion to withdraw his guilty plea. However, for purposes of clarity, his competency claim will be discussed first.
The relevant facts are based on the record below, counsel's brief on appeal, and the uncontradicted assertions in petitioner's papers. Petitioner was convicted of second degree murder in 1944. He was sentenced to sixty years to life. He was paroled on January 24, 1971. He was arrested by a parole officer on February 23, 1974 for an alleged parole violation, i. e., robbery. He was arraigned on a single charge of robbery shortly thereafter with no counsel present. At this point, the arraigning judge inquired into the mental history of petitioner noting that he had been committed to a state mental hospital for a total of almost fifteen years while serving his murder sentence at Clinton Prison. The judge committed petitioner to the Rockland County Jail and appointed counsel. On February 25 petitioner was apparently again arraigned on the robbery charge, but this time counsel was present.
In May of 1972, with the same counsel present, petitioner pleaded not guilty to five indictments for bank robbery. One of these indictments covered the original robbery charge on which petitioner was arraigned on February 25. The other four indictments were handed down on April 17, 1972. All told, petitioner was charged with six B felonies, seven C felonies, two D felonies, four E felonies and one A misdemeanor stemming from five separate incidents alleged to have occurred within a fifty-two day period.
On July 17, 1972 petitioner pleaded guilty on a single count of one indictment. In turn, the remaining counts of that indictment and the other four indictments were dismissed. Counsel was again present. The minutes of the guilty plea are fourteen pages in length and clearly reveal the judge's careful inquiry into whether petitioner understood the consequences of his plea. Satisfied that he did, the judge accepted the plea of guilty and set a sentencing date for September 19, 1972.
On the date set for sentencing petitioner, himself, moved to withdraw the guilty plea despite the fact that his counsel was present. The trial judge called for formal motion papers to be submitted by October 5, 1972 and adjourned the sentencing date. Petitioner submitted his own handwritten motion to counsel who, in turn, submitted a typed version to the judge.
Not once in his moving papers did petitioner assert that his guilty plea was invalid because he did not understand the proceedings due to a mental illness. The closest language to that effect was that the defendant was "confused" when he entered his guilty plea due to the fact that there were four other indictments outstanding against him in addition to the one to which he pleaded guilty. Petitioner did note, however, that his counsel during this time was "superb".
The motion to withdraw the plea was denied by the trial judge, who notified petitioner of this decision on October 10, 1972, the day of sentencing. At that time the following colloquy took place:
THE CLERK: The People of the State of New York against Fred Schmidt, Indictment No. 72-85.
MR. SEIDENBERG: Your Honor, I understand a decision has been rendered with respect to Mr. Schmidt's application to withdraw his plea in this matter. I just had about two minutes to look at the decision. I respectfully request a two week adjournment until sentencing.
*1159 THE COURT: No. I am going to deny that.
MR. SEIDENBERG: So I can have an opportunity to ascertain
THE COURT: I am going to deny the application.
MR. GRIBETZ: May I move the case for sentencing, Your Honor?
THE COURT: Yes.
MR. GRIBETZ: Your Honor, at this time the People move for sentence the case of the People of New York against Fred Schmidt, Indictment No. 72-85.
THE DEFENDANT: The People can't move for sentencing. Neither can the Court. The Court can't sentence me, Your Honor.
THE COURT: Ask him whether he has any legal cause to show why judgment should not be pronounced upon him.
THE CLERK: Fred Schmidt, do you have any legal cause to show why judgment should not be pronounced upon you according to the laws of the State of New York?
THE DEFENDANT: Yes, I have.
THE COURT: State what your legal cause is.
THE DEFENDANT: I have 14 and a half years in Dannemora State Hospital and I am suffering from insanity at all times. So I cannot be legally sentenced because I did not understand anythingproceedings or anything.
THE COURT: With respect to that the Court will make a finding that up until this time there has been no question raised about the defendant's insanity. Counsel hasn't raised it. He himself has never raised it. I will deny the application and proceed to sentence him.
THE DEFENDANT: It's been on the record all the while. The Court inquired into the record and it could not miss it.
THE COURT: I am going to deny it. I am going to proceed to sentence him.
THE DEFENDANT: I am not going for sentencing.
THE COURT: Move the matter for sentence. The Court finds there is no legal cause why the defendant should not be sentenced.
* * * * * *
THE COURT: I will let the record indicate there is nothing before the Court that would indicate the defendant is insane. He has understood all the proceedings up until this time. The Court will find there is no legal cause
THE DEFENDANT: I never had any examination by doctors whatsoever, Your Honor. You can't consider yourself a psychiatrist. You are prejudiced anyway.
THE COURT: Let me talk, please. You are indicating that you are insane but you have no difficulty talking to the Court. You have had no difficulty talking to your counsel, and the Court is going to make a finding that the defendant is capable of understanding the charges against him and proceeding. I direct that sentence be imposed.
* * * * * *
The standards governing when a sanity hearing must be held by the trial court were set forth by the Supreme Court in Pate v. Robinson, 383 U.S. 375, 86 S. Ct. 836, 15 L. Ed. 2d 815 (1966). In holding that the court was required, sua sponte, to hold a hearing on the sanity of the defendant and that a new trial was required, it said (at 387, 86 S.Ct. at 843): "If the State elects to retry Robinson, it will of course be open to him to raise the question of his competence to stand trial at that time and to request a special hearing thereon. In the event a sufficient doubt exists as to his present competence such a hearing must be held." Thus the question in the instant case is whether there was a "sufficient doubt" as to petitioner's competence to require a hearing to resolve that issue.
The only evidence before the sentencing judge as to the incompetence of petitioner was the fact that the petitioner had spent almost fifteen years in a mental institution. Petitioner's last confinement to Dannemora State Hospital, however, had ended more than ten years prior to the plea in this case.
*1160 What does stand out in bold relief in this record is the weighty evidence of the defendant's sanity. While it is true that demeanor evidence is not conclusive on the sanity question, it is relevant to that issue. Pate, supra at 385-86, 86 S. Ct. 836. And it can not be disputed that throughout the proceedings and as evidenced by petitioner's own motion to withdraw his plea, he was sane by all outward appearances. Furthermore, counsel, who represented petitioner throughout these proceedings never raised any question as to petitioner's competence.
In brief, the trial judge was faced with the following situation: The defendant is ready to be sentenced and has, until that point, never once raised the possibility of his incompetence before this judgenot even in support of his motion to withdraw his plea. Nor has his counsel raised that issue.[3] Rather, as soon as defendant is informed that his motion to withdraw his guilty plea has been denied, he moves for the first time to withdraw his plea on the grounds of competency. There can be little doubt that the trial judge regarded this claim as a sham; as an eleventh hour attempt to avoid the 5 to 15 year sentence which the judge had explicitly said would be imposed when the guilty plea was entered.
The New York Court of Appeals expounded the rule to be applied to this case in People v. Boundy, 10 N.Y.2d 518, 521, 225 N.Y.S.2d 207, 208, 180 N.E.2d 565, 567 (1962). The court noted defendant's extensive history of mental illness which continued up to the time he pleaded guilty. "The fact that defendant had a previous history of mental disturbance does not in itself prove that he was insane at the time of this judgment [of conviction]. However, where there is some proof that a defendant was in fact insane at the time of plea a coram nobis application should not be denied without trial. The petition in this present proceeding is not limited . . . to a mere say-so that he was insane. The showing that this defendant had been in and out of State hospitals for years and went back to a State hospital after this sentence and is there now is certainly some evidence that he was insane at the time of the plea." (Citations omitted.)
In the instant case, petitioner asserted that he was insane after a full ten year period during which he could show no evidence of incompetence. Petitioner's argument is essentially that when a defendant indicates, without more, that he has previously been hospitalized for a mental illness, a per se rule is constitutionally mandated which would require that the judge hold a competency hearing regardless of the evidence of sanity at that juncture. However, this is not the law. The paramount fact in this case is that there was not enough evidence before the trial judge to raise a sufficient doubt that petitioner was incompetent at the time he pleaded guilty.
This case is akin to Miranda v. United States, 458 F.2d 1179 (2d Cir.), cert. denied, 409 U.S. 874, 93 S. Ct. 207, 34 L. Ed. 2d 126 (1972) where a motion to set aside a guilty plea was denied without a hearing on the ground that the trial judge was fully justified in determining, in light of all the circumstances, that the defendant was competent. See also, Sailer v. Gunn, 548 F.2d 271, 274-5 (9th Cir. 1977), reversing, 387 F. Supp. 1367 (C.D.Cal.1974).
In conclusion, the court finds that petitioner's constitutional rights were not infringed by the failure of the trial judge to conduct a competency hearing. But we must stress that this has not been an easy determination under the facts in this case. The existence of an extensive history of confinement in a mental hospital should be a clear signal to any judge that defendant's competence may be in question regardless of his trial demeanor. Surely the better *1161 course in the instant case would have been to order a psychiatric examination of defendant before sentencing him to a five to fifteen year prison term.
Withdrawal of the Plea
After pleading guilty to the single indictment, petitioner, himself, moved to withdraw his plea on the following grounds noted in his affidavit:
"1) Not informed of the charges against him; and
2) Deprived the aid of counsel at all states of the proceeding; and
3) Deprived the right to confront the witnesses against him and the right to get witnesses in his behalf; and
4) Illegal suggestive identifications by pictures outside of the Court; and
5) Not informed of his right to appear before the grand jury upon the four additional indictments; and
6) The negligence of the grand jury to inquire; 1) If defendant was represented by counsel on the four indictments; and 2) Where and how was defendant identified; and 3) Why was a hearing denied, to provide an in court identification, and 4) Informed of the charges against him; and 5) Informed of his right to appear before the Grand Jury in person; and 6) To be identified upon an independent recollection instead of suggestive picture identification outside of the Court; and
7) Why such long delay to present the indictments."
There is no absolute right to withdraw a guilty plea. It is within the trial judge's sound discretion whether or not to allow the plea to be withdrawn. United States ex rel. Scott v. Mancusi, 429 F.2d 104, 109 (2d Cir.) cert. denied, 402 U.S. 909, 91 S. Ct. 1385, 28 L. Ed. 2d 651 (1971). As a general rule, "a guilty plea, intelligently and voluntarily made, bars the later assertion of constitutional challenges to the pretrial proceedings." Lefkowitz v. Newsome, 420 U.S. 283, 288, 95 S. Ct. 886, 889, 43 L. Ed. 2d 196 (1975). And a plea is not to be deemed involuntary simply because defendant is faced with the difficult choice of pleading or going to trial on more serious charges. United States ex rel. Brown v. LaVallee, 424 F.2d 457, 464 (2d Cir. 1970), cert. denied, 401 U.S. 942, 91 S. Ct. 946, 28 L. Ed. 2d 223 (1971). Finally, petitioner did not move to withdraw his plea on the ground that he was innocent of the charge. United States v. Blauner, 337 F. Supp. 1394, 1395 (S.D.N.Y.1971) (a motion to withdraw a plea should, at least, include an allegation of innocence) and cases cited therein.
The only serious claim made by petitioner seeking to withdraw his plea was that he was not informed of the charges against him. The minutes of the guilty plea belie this contention:
* * * * * *
THE COURT: In other words, you now wish to withdraw your previous plea of not guilty to this Indictment 72-85 and you wish to enter a plea of guilty to the second count of that indictment, which is robbery in the second degree in violation of Section 160.10, paragraph 1, of the Penal Law, which is a Class C felony, to cover not only that indictment but also to cover the following outstanding indictments against you: Indictment 72-81, 72-82, 72-84 and 72-86; is that correct?
THE DEFENDANT: That's correct, Your Honor.
THE COURT: Have you fully and thoroughly discussed this matter of entering a plea of guilty as you have here today with your lawyer, Mr. Seidenberg?
THE DEFENDANT: I did.
THE COURT: Are you making this plea after having talked to him in detail about it?
THE DEFENDANT: Yes, Your Honor.
THE COURT: Do you realize and understand that by pleading guilty you are waiving certain rights? Do you understand that?
THE DEFENDANT: That is correct.
* * * * * *
*1162 Since petitioner has waived any constitutional rights he may have had by pleading guilty, his claims that these rights were violated are not properly before us on habeas corpusso long as his plea was entered knowingly and voluntarily. As already noted, the trial judge could properly have found that petitioner was competent during the pendency of the proceedings and entered his guilty plea with full knowledge of the consequences.
The petition for habeas corpus must be dismissed.
NOTES
[1] Penal Law § 160.10.
[2] Petitioner does complain about his treatment by the parole board in his statement of facts. But his legal argument and his reply affidavit focus solely on the two issues noted here. The respondent has only answered these two issues, and since it appears that the petitioner does not press his parole board complaints, the court will not reach those questions.
[3] See Miranda v. United States, 458 F.2d 1179, 1181 (2d Cir.), cert. denied, 409 U.S. 874, 93 S. Ct. 207, 34 L. Ed. 2d 126 (1972) where the court noted that defendant's experienced defense lawyer found defendant to be rational and coherent. Although this court has no evidence as to the experience of petitioner's trial counsel, it is noteworthy that counsel did not ever raise the possibility of petitioner's competence, even after having met with him on various occasions as the case proceeded to sentencing.
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445 F. Supp. 985 (1978)
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
v.
EAST HILLS FORD SALES, INC., a Delaware Corporation.
Civ. A. No. 76-1295.
United States District Court, W. D. Pennsylvania.
March 3, 1978.
*986 Judith G. Eagle, Frank J. Tuk, Philadelphia, Pa., James S. Bukes, Pittsburgh, Pa., for plaintiff.
Henry W. Fulton, Jr., Stevens, Clark, Laubach & Semple, Pittsburgh, Pa., for defendant.
MEMORANDUM AND ORDER
COHILL, District Judge.
Jurisdiction and Background
The Equal Employment Opportunity Commission ("EEOC") filed an action against defendant, East Hills Ford Sales, Inc. ("East Hills") pursuant to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq. alleging unlawful employment practices. Jurisdiction of this court is invoked pursuant to 28 U.S.C. §§ 451, 1343, and 1345.
*987 East Hills filed a Motion for Partial Summary Judgment raising questions as to the permissible scope of the court complaint filed here by the EEOC.
Facts
On March 28, 1975 Richard Wright had filed with the EEOC a charge against his employer, East Hills, alleging that he was being denied the right to work overtime because of his race. On August 22, 1975 the EEOC issued a determination letter stating that Wright's charge concerning overtime work, was without merit, but that its investigation had disclosed that there was reasonable cause to believe that East Hills had violated Section 704(a) of Title VII by discharging Wright the following work day after he filed his charge with the EEOC. The determination letter included an information sheet entitled Notice of Conciliation Process intended to facilitate a collective effort of the parties to resolve the matter. The EEOC later instituted this action.
Scope of the Complaint
In its court complaint the EEOC alleges that the defendant engaged in unlawful employment practices which "include, but are not limited to the following:
a. The discharge of at least one black employee in retaliation for his having made a charge of employment discrimination with the Commission under Title VII."
East Hills, in its Motion for Partial Summary Judgment, endeavors to have dismissed all claims except those relating specifically to Wright's discharge, arguing that the language in the complaint, "Such unlawful employment practices include, but are not limited to . . .", results in an impermissible broadening of the complaint by raising issues which had not been the subject of the EEOC investigation and conciliation. We agree.
When the EEOC is unable to obtain an acceptable conciliation, it is authorized to bring a civil action against the respondent. 42 U.S.C. 2000e-5(f)(1). The scope of the EEOC court complaint is not necessarily limited to the original charge. The original charge merely provides the EEOC with "a jurisdictional springboard to investigate whether the employer is engaged in any discriminatory practices." EEOC v. Huttig Sash & Door Co., 511 F.2d 453, 455 (5th Cir. 1975). The EEOC has the right, during its investigation of the filed charge, to compel the production of materials relevant to any claim made in that charge. If, during the investigation, facts to support a charge of discrimination other than that in the filed charge are discovered, that new discrimination may be the subject of a "reasonable cause" determination to be followed by an offer of conciliation. If that conciliation fails, a civil suit may be started without the necessity of filing a new charge on such claim of discrimination. EEOC v. General Electric Co., 532 F.2d 359 (4th Cir. 1976).
In other words, the filed charge is sufficient to support a civil action by the EEOC for any discrimination stated in that charge, or developed in the course of a reasonable investigation of that charge, provided such discrimination was included in the "reasonable cause" determination of the EEOC and was followed by compliance with the conciliation procedures fixed in Title VII. EEOC v. Greyhound Lines, 411 F. Supp. 97 (W.D.Pa.1976) citing EEOC v. General Electric Co., supra.
When the EEOC sues in its own name, it may litigate only those claims which have been subjected to the complete administrative processing required by Title VII. Holden v. H. J. Heinz Co., Inc., C.A. 76-20 (W.D.Pa., filed Oct. 17, 1977). Investigation, determination of reasonable cause and genuine conciliation are jurisdictional prerequisites for the maintenance of a civil action by the EEOC. EEOC v. E. I. Du Pont de Nemours and Co., 373 F. Supp. 1321 (D.Del.1974), aff'd on other grounds, 516 F.2d 1297 (3d Cir. 1975). See also, EEOC v. Allegheny Airlines, 436 F. Supp. 1300 (W.D. Pa.1977).
*988 The relationship between the perimeters of a Title VII court complaint and the preliminary administrative processing of a charge has been judicially explored. In Sanchez v. Standard Brands, Inc., 431 F.2d 455 (5th Cir. 1970) the Fifth Circuit stated the now widely adopted rule that the scope of an individual's Title VII judicial complaint is limited to the scope of the EEOC investigation which can reasonably be expected to grow out of the initial charge of discrimination. See also, Ostapowicz v. Johnson Bronze Co., 541 F.2d 394 (3d Cir. 1976). In Du Pont, supra, and in EEOC v. Magnetics Division of Spang Industries, et al., C.A. 75-130 (W.D.Pa., filed May 26, 1976) two district courts of this Circuit applied Sanchez, supra, in actions filed by the EEOC.
The extent of the EEOC investigation is the key to the resolution of questions regarding the scope of the judicial complaint. In the instant case we find that the EEOC limited its investigation and conciliation to the question of overtime. Wright's discharge occurred following his filing of the charge with EEOC. The investigation revealed that fact. The applicable part of the August 22, 1975 determination letter states as follows:
"The purpose of Section 704(a) would be defeated if employers could with impunity retaliate against employees for behavior which has the effect of opposing an employment practice made unlawful by Title VII. The Commission therefore finds reasonable cause to believe that Respondent Employer violated Section 704(a) of the Title by discharging Charging Party.
Having determined that there is reasonable cause, in part, to believe that the Respondent has engaged in unlawful employment practices under Title VII of the Civil Rights Act of 1964, as amended, the Commission now invites the parties to join with it in a collective effort toward a just resolution of this matter. We enclose an information sheet entitled Notice of Conciliation Process for the attention of each party."
It is obvious that besides the overtime question, the only issue which was actually investigated by the EEOC was the discharge of Wright, no one else. Wright's firing was found to merit a reasonable cause determination, and there was an unsuccessful attempt at conciliation. No affidavits were submitted to indicate otherwise.
In EEOC v. National Cash Register Co., 405 F. Supp. 562 (N.D.Ga.1975) the court limited the scope of the judicial complaint to consideration of the charging party's claim of discharge while on maternity leave and payment of wages lower than those paid to a male employee for comparable work. The court refused to include the allegation of unspecified unlawful employment practices against women not limited to the discharge of an unknown number of female employees because of their sex as these claims were never investigated and conciliated.
The EEOC has the right to seek redress for any employment discrimination legitimately revealed in a reasonable investigation and subjected to genuine conciliation. EEOC v. Allegheny Airlines, supra. In the instant action there is no indication of any set of circumstances, other than Wright's, which were investigated and conciliated. Under this set of facts, the lawsuit must be jurisdictionally limited to the claim of violation of Title VII regarding Wright's discharge.
In its Motion, entitled "Motion . . . for Partial Summary Judgment," East Hills moved that we enter "Partial Summary Judgment in its favor by dismissing all claims, save that of Richard Wright . ." This rather nebulous prayer is in response to a rather nebulous complaint. We have considered it under Fed.R.Civ.P. 56(d) as a "case not fully adjudicated on motion." There is no genuine issue of material fact supporting liability for any claim other than that of Richard Wright for a wrongful discharge.
AND NOW, to-wit, this 3rd day of March, 1978, after consideration of pleadings, affidavit, memoranda, and oral arguments *989 of counsel, and in accordance with the foregoing Opinion, IT IS HEREBY ORDERED AND DECREED that defendant's Motion for Partial Summary Judgment be and is granted to the extent that the issue to be tried in this case will be limited to the discharge of Richard Wright in alleged retaliation for his having made a charge of employment discrimination with the EEOC.
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445 F. Supp. 101 (1977)
BENEFICIAL CORPORATION, Plaintiff,
v.
Honorable Frank P. BARKER, Jr., George H. Clay, and ISC Financial Corporation, Defendants.
No. 77-0797-CV-W-2.
United States District Court, W. D. Missouri, W. D.
December 29, 1977.
*102 Harry P. Thomson, Jr., Shugart, Thomson & Kilroy, P.C., George E. Leonard, Jennifer A. Gille, George A. Barton, Kansas City, Mo., for plaintiff.
F. Philip Kirwan, Norman M. Arnell, Margolin & Kirwan, Kansas City, Mo., for defendants Judge Barker and Clay.
Gene A. DeLeve, Berman, DeLeve, Kuchan & Chapman, Kansas City, Mo., for defendant ISC Financial Corp.
*103 MEMORANDUM OPINION AND JUDGMENT DISMISSING COMPLAINT
COLLINSON, District Judge.
The factual background of this case is as follows: The ISC Financial Corporation owned a subsidiary corporation known as Interstate Securities Company, which was engaged in the consumer loan business. In March, 1977 the major portion of its "finance receivables," consisting of loan accounts and installment sale contracts, were sold to Beneficial Corporation. Various forms of insurance had been written in connection with these finance receivables, which apparently consisted of insurance on the consumer goods which secured the loans and credit life insurance policies on the borrowers' lives. This insurance had been written by insurance companies which were also subsidiaries of ISC Financial Corporation. Beneficial was justifiably suspicious of the financial soundness of these companies and, as part of the transaction, ISC guaranteed to Beneficial the payment by these companies of all unearned premiums and claim losses on the insurance coverage connected with the finance receivables purchased by Beneficial.
To secure this guarantee ISC pledged to Beneficial all of the capital stock of Anchor Savings Association owned by ISC (over 99% of the stock of the Association) and delivered physical possession of the stock to Beneficial in accordance with the terms of the pledge agreement. The life insurance companies whose payments were thus guaranteed later went into receivership and numerous checks written to Beneficial by these companies have been dishonored.
On September 7, 1977 ISC filed a petition under Chapter XI of the Bankruptcy Act and listed these pledged shares of stock as assets pledged as collateral security to Beneficial under the above agreement.
Under the local rules of this district that petition was assigned to Division 3 of this Court, over which Chief Judge John W. Oliver presides, and was automatically referred and assigned under the local rules to the Honorable Frank P. Barker, Jr., Bankruptcy Judge. On September 7 and September 15, 1977 Judge Barker entered orders stating that
"The filing of the petition by the debtor above named operates as a stay of the commencement or continuation of any court proceeding against the debtor, or the enforcement of any judgment against it, of any act or the commencement or continuation of any court proceeding to enforce any lien on the property of the debtor, and of any court proceeding commenced for the purpose of rehabilitation of the debtor or the liquidation of its estate as provided by Rule 11-44."
Of course, this order follows the exact wording of Rule 11-44 and does not enlarge in any way the provisions of that rule, which states that the filing of the petition alone operates as such a stay.
Beneficial Corporation has filed this complaint in three counts, naming as defendants Judge Frank P. Barker, Jr., George H. Clay, the duly appointed receiver of the debtor in the Chapter XI proceedings, and ISC Financial Corporation, the petitioning debtor corporation.
The first count of the complaint seeks a declaratory judgment that the bankruptcy judge of the bankruptcy court has no jurisdiction over the Anchor Savings Association stock or this plaintiff and that, if any such jurisdiction does exist, it is a limited jurisdiction and cannot be exercised to prevent the giving of notice of default and demand for performance by the plaintiff to the debtor and the debtor's receiver; and does not prevent and cannot prevent the disposition of the Anchor Savings Association stock under the pledge agreement. Plaintiff further seeks a declaration that, after giving such notice, the plaintiff may elect to retain all of the stock now held under the pledge agreement in discharge of the obligations of ISC. Plaintiff also prays for a declaration that Rule 11-44(a) of the Bankruptcy Rules of Procedure is unconstitutional as depriving the plaintiff of property rights without due process of law.
Count II prays for an injunction against Judge Barker and the receiver to prevent *104 and prohibit them from interfering with the giving of the proposed notice of default and demand for performance to ISC and its receiver.
Count III is a request for a full plenary hearing and expedition of proceedings with respect to Count II.
Under the random assignment procedure provided by the local rules in this district, this case was assigned to Division 2 of this Court, which is presided over by the undersigned Judge. The three defendants have filed motions to dismiss this action for lack of jurisdiction, and this motion has been fully briefed by all the parties. The Court has also been favored by a brief from the Securities and Exchange Commission, which declares that it has a paramount interest in the Chapter XI proceedings, but filed its brief without application for or leave of court.
The plaintiff's arguments in support of its petition are lengthy and ingenious, but this Court finds little support for its position in the cases cited by it. The plaintiff does not discuss section 311 of the Bankruptcy Act, 11 U.S.C.A. § 711, which provides that the court in which the debtor's petition is filed has "exclusive jurisdiction of the debtor and his property, wherever located." In 1 Collier on Bankruptcy § 3.01(7), that eminent authority discusses section 311:
"In matters relating to bankruptcy, the power of Congress is paramount. Even in respect to property adversely claimed and not within the possession of the bankruptcy court, Congress can confer upon it jurisdiction to adjudicate a controversy involving the rights of the trustee to the property, by conferring jurisdiction over the person who has possession of the property. Congress also has the power, subject to constitutional guarantee, to determine to what extent jurisdiction conferred, whether through possession of the res or otherwise, shall be exercised in summary proceedings and to what extent in plenary suits. The summary jurisdiction of the bankruptcy court over `controversies arising in proceedings in bankruptcy' under Chapters I to VII has been enlarged by Sec. 311 in arrangement cases under Chapter XI."
The case of Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir. 1977), cert. denied, 429 U.S. 1093, 97 S. Ct. 1107, 51 L. Ed. 2d 540, discusses at length both section 311 and Rule 11-44. That opinion states:
"And, indeed, the need for exclusive jurisdiction in bankruptcy proceedings is compelling. Such jurisdiction is necessary to exclude any interference by the acts of others or by proceedings in other courts where such activities or proceedings tend to hinder the process of reorganization." 550 F.2d l. c. 53.
"The policy considerations underlying Rule 11-44 are considerable. The automatic stay of Rule 11-44 is designed to prevent a chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts. The stay insures that the debtor's affairs will be centralized, initially, in a single forum in order to prevent conflicting judgments from different courts and in order to harmonize all of the creditor's interests with one another." 550 F.2d l. c. 55.
". . . the need to centralize bankruptcy related proceedings and to prevent a chaotic scramble for the debtor's assets is an interest of paramount importance in the bankruptcy laws." 550 F.2d l. c. 57. "While the bankruptcy rules cannot, of course, expand the jurisdiction of the federal courts, we think it noteworthy that Rule 11-44 stays all actions, both state and federal in progress when the bankruptcy petition is filed. Such a rule would be useless if those prior, pending actions deprive the bankruptcy courts of jurisdiction over the property involved in them."
Plaintiff relies on a number of well known cases that in a Chapter XI proceeding claims of secured creditors cannot be affected by the plan of reorganization. However, there are a number of cases which hold that that rule does not prevent *105 the bankruptcy court from enjoining enforcement of the security interest against the property of the debtor corporation pending the proceeding under Chapter XI. In Akron National Bank & Trust Co. v. Freed & Co., 534 F.2d 1235 (6th Cir. 1976), the court upheld the power of the bankruptcy court to enjoin enforcement of a lien "which the court could not affect otherwise." The opinion fully recognized that the court could not otherwise affect the interest of the secured creditor or require him to join in the arrangement.
It should be noted that the bankruptcy rules provide for an orderly process by which the plaintiff can have its day in court on the issue of whether the stay order is proper under the facts of its particular lien. The same rule (Rule 11-44) which provides that the filing of the petition operates as an automatic stay further provides under subsection (d)
"Upon the filing of a complaint seeking relief from a stay provided by this rule, the bankruptcy court shall, subject to the provisions of subdivision (e) of this rule, set the trial for the earliest possible date, and it shall take precedence over all matters except older matters of the same character. The court may, for cause shown, terminate, annul, modify or condition such stay. A party seeking continuation of a stay against lien enforcement shall show that he is entitled thereto."
The last sentence of the above rule obviously places the burden of proof on the receiver to demonstrate the propriety of continuing the stay after such a complaint is filed. See Collier on Bankruptcy § 11-44.05. This provision providing for an expedited hearing upon a complaint for relief from the automatic stay granted by Rule 11-44(a) is almost identical to the provisions of Rule 65 of the Rules of Civil Procedure providing for expedited hearings after the granting of a temporary restraining order. Of course, the aggrieved party from the decision of the bankruptcy judge would have all the rights of appeal from that decision.
It should be noted that in this case the plaintiff makes no claim of ownership of the Anchor Savings Association stock. In fact, all of the allegations of the complaint and the prayer for relief are premised upon the fact that the debtor corporation has legal title to the stock and that the plaintiff Beneficial has a lien upon the stock, which it seeks to enforce. The many cases discussing summary and plenary jurisdiction based upon the distinction between "colorable" and substantial claims to property of the bankrupt, therefore, have no application under this set of facts.
All of the parties to this case have advised the Court that they are anxious to secure an early resolution of the issues raised by the motions to dismiss. From the Court's viewpoint, it is unnecessary to discuss any of the other arguments advanced, by reason of the Court's conclusions from the above authorities. The Court finds that Rule 11-44 is constitutional and clearly stays any act to enforce any lien against the property of the debtor. Beneficial Corporation has a lien against the debtor's stock of the Anchor Savings Association, which has been perfected by Beneficial receiving and retaining the physical possession of the stock certificates evidencing that stock ownership. The stock certificates are the property of the debtor and Beneficial is at the present time stayed from performing any act to enforce that lien.
Section 311 of the Bankruptcy Act vests exclusive jurisdiction over this stock, which is the property of the debtor, in the bankruptcy court in which the Chapter XI petition was filed, regardless of the fact that the debtor did not have physical possession of the stock at the date of the filing of the petition. This Court has no jurisdiction to divest the bankruptcy court of the statutory jurisdiction vested in it, which would necessarily occur if this Court granted any of the relief which is sought in this case. The rehabilitative purposes of Chapter XI procedures are too well known to require discussion and the necessity for an orderly process in one court to accomplish this purpose is clearly contemplated by the provisions of Chapter XI and by the express provisions of section 311.
*106 For the foregoing reasons, it is hereby
ORDERED, ADJUDGED AND DECREED that the separate motions of each of the defendants to dismiss this complaint for lack of jurisdiction are each granted, and this cause is ordered dismissed with prejudice at plaintiff's cost.
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361 F. Supp. 647 (1973)
WAGNER ELECTRIC COMPANY, Plaintiff,
v.
LOCAL 1104 INTERNATIONAL UNION OF ELECTRICAL, RADIO AND MACHINE WORKERS, AFL-CIO, Defendant.
No. 71 C 500(2).
United States District Court, E. D. Missouri, E. D.
March 16, 1973.
*648 Lewis, Rice, Tucker, Allen & Chubb, St. Louis, Mo., for plaintiff.
Levin & Weinhaus, St. Louis, Mo., for defendant.
MEMORANDUM OPINION AND ORDER
REGAN, District Judge.
By this Section 301 action[1] injunctive relief and money damages are sought. The suit stems from a work stoppage alleged to be violative of the no-strike clause in the collective bargaining agreement between the parties. We have jurisdiction under Section 185, 29 U.S.C.
The provision of the collective bargaining agreement relied on by plaintiff provides in pertinent part:
"The Union agrees that during the term of this Agreement there shall be no strikes, * * * stoppage of work, or any other form of interference of production or other operations * * *."
In other provisions of the agreement an orderly grievance and arbitration procedure for processing and settling disagreements is set forth.
At the times in question the Union was and still is the sole bargaining agent for approximately 2700 of plaintiff's employees. The bargaining units represented by defendant consist of all of plaintiff's production and maintenance employees and certain clerical employees[2] employed at plaintiff's three plants (Lackland, Plymouth and Berkeley) in St. Louis County, Missouri. Each plant operated on three shifts, the first from 7:30 A.M. to 4 P.M., the second from 4:00 P.M. to 12:30 A.M., and the third from 12:30 A.M. to 7:30 A.M. The 2700 employees represented by the union were scheduled to work these shifts during the week commencing on August 9, 1971 and ending on Friday, August 13, 1971.
There is a chief steward (formerly called building chairman) on each shift for all departments in each of the three plants, and a steward on each shift for each department within the plant. These functionaries are elected by the union members in each plant and department respectively. Each chief steward has authority to determine what action should be taken with respect to oral grievances which have not been resolved at the department level by the steward.
By way of background: In July of 1971, a disagreement arose between the parties concerning the interpretation of seniority provisions of the collective bargaining agreement as they apply to reassignment rights of employees. This dispute resulted principally from plaintiff's decision to eliminate the third shift at its Lackland plant. On August 6, union representatives from the Lackland plant together with union Vice-President Theodore Crockett met with Lackland plant management to discuss the disagreement. However, no formal grievance was filed relating to the dispute until after the work stoppage was in progress.
On August 6, 1971, the employees were notified of the monthly union meeting to be held on August 9, 1971. The notice informed the members that "a very special order of business" would be brought up concerning employees' seniority rights, and urged all members to attend if they valued their jobs and seniority rights. A separate meeting was held for each of the three shifts. The first meeting was at 8 a. m. for the third shift. About a dozen members were present. The second shift met at 2 p. m., and the final meeting was at 8 p. m. for the first shift members. Also in attendance at the last meeting, at the invitation of union President Raymond Wotjtowicz, were Richard Bowman, the chief steward of the second shift at Lackland, Jerry Blankenship, an executive *649 board member, and Robert Regelski, a steward from the second shift at Lackland. Bowman and Blankenship had earlier attended the 2 p. m. second shift meeting. They later requested and received permission from plaintiff to leave their work to attend the evening first shift meeting.
Following the first shift meeting, Bowman, Blankenship and Regelski reported back to the Lackland plant at about 11:30 p. m., and upon their arrival talked to various groups of employees and were seen beckoning to employees to leave the plant. They were also heard to state to employees that a strike decision had been made and that the only question was whether to walk out at once or to wait until the end of the shift to walk out. Immediately thereafter the second shift employees began leaving the plant, and by 11:45 p. m. almost all of them (Bowman, Blankenship and Regelski included) had walked out, although they were not scheduled to leave the plant until 12:30 a. m.
Some of these second shift Lackland workers proceeded to plaintiff's Plymouth plant. However, the Plymouth employees remained on the job for the remainder of the second shift. There is evidence, which we credit, that executive board member Turner appeared at the Plymouth plant entrance early in the morning of August 10 and was heard to tell employees who were congregating there that a strike was in progress and they should not cross the picket line. In addition, Turner not only took no action to get the numerous employees milling around the entrance to go to work but he himself did not go to work that day.
On August 10, 1971, virtually all of the 2700 union members, among them all of the executive board members, all of the chief stewards, and all of the stewards, failed to report for work. Commencing on that morning, large groups of the employees including stewards and chief stewards congregated outside the Lackland and Plymouth plants at times they should have been working. Material and equipment were available and ready for operation and production had the employees reported.
At about 5:30 p. m. on August 10, this Court issued a temporary restraining order to prevent the union members from concertedly refusing to perform services for plaintiff. However, it was not until the following day that the employees reported for work, and even so only about one-fourth of the first shift employees and about one-half of the second shift employees at the Lackland plant reported on August 11th.
Did the union breach the no-strike clause? We hold that it did. That the contract expressly provides "there shall be no strikes" is admitted. That there was a strikevirtually 100 per cent effectiveis not in dispute. It is the position of the defendant that at worse what occurred was simply a wild-cat strike which was neither called nor sponsored by the union as such. In our judgment, whatever name be given to the strike, and even though there is no evidence that a formal strike vote was taken, the circumstances here present are not such as to relieve defendant of liability for the strike prohibited by the contract.
Involved in this case is an express, broad and all-inclusive "no strike clause." In this respect, the case differs from those in which a no-strike agreement is implied by the courts from an agreement to settle all disputes and disagreements by compulsory arbitration. The case also differs from those in which the agreement expressly or implicitly requires proof of an affirmative strike vote by the union or which insulates the union from damage liability for "unauthorized" strikes. Here, the agreement, in unambiguous language, assured the employer that without exception "there shall be no strikes [or] stoppage of work."
We start with the premise that the union does not consist merely of the elected officers, but rather is made up of its rank and file members. "As long as a union is functioning as a union it *650 must be held responsible for the mass action of its members." Vulcan Materials Company v. United Steelworkers of America, 5 Cir., 430 F.2d 446, 455; United States v. International Union, United Mineworkers of America, D.C.D. C., 77 F. Supp. 563, 566; United States v. Brotherhood of Railroad Trainmen, D.C.Ill., 96 F. Supp. 428, 431.
It is true there is no direct evidence that a strike was formally authorized either at the meetings of August 9 or otherwise. Nevertheless, the circumstances here present renders suspect the union's claim that what happened was simply spontaneous individual action on the part of Lackland employees dissatisfied with the company's plan to eliminate the third shift at that plant. We note that only about a dozen of all third shift employees attended the first of the August 9 meetings in spite of the strong language in the notice of the meeting. Apparently attendance was improved at the second of the meetings at which the second shift members expressed their views. During all of the meetings the sentiments of the union's leadership was expressed in rather strong language and the employer was denounced for "abusing" the rights of employees and allegedly violating the contract. Statements were made by officers to the effect they would not "stand for" such company action. Although treasurer Crockett stated that he had attempted to set up a meeting for the following Thursday with management, intimating that the members should defer any action until after such meeting, it is clearly to be inferred that the members were given the option of walking out to exert pressure on management at the Thursday meeting. In this connection it is significant that Bowman, Regelski and Blankenship were invited by the union president to leave their jobs on the second shift for the purpose of attending the 8 o'clock meeting, even though at least Bowman and Blankenship had already attended the earlier meeting of their own shift.
We believe that even though a formal strike call may not have been issued, what occurred was union strike action, in that the walkout was initiated by Bowman, Regelski and Blankenship upon their return to the Lackland plant immediately following the last of the August 9 meetings. When they told the employees that a decision to strike had been made and that the only question was whether to leave the job immediately or at the end of the shift we may reasonably infer that they were speaking for the membership present at the meetings and that the decision they referred to had in fact been made. The prompt response of the second shift employees to the statements clearly indicate that they had no doubt as to the reality of the strike call.
Defendant questions the authority of a chief steward to call a strike. We do not believe that the strike was in fact called simply by an individual steward or chief steward. The case of NLRB v. P. R. Mallory & Co., 7 Cir., 237 F.2d 437 which involved an alleged unfair labor practice, as distinguished from a breach of contract, is relied on by defendant. The issue there was simply whether the union had caused the employer to discharge an employee because of her nonmembership in the union and the court concluded that the acts of a few out of a total of several hundred stewards (completely contrary to the express policy of the union) did not, under the circumstances, bind the local union. Mallory is wholly inapposite. We note that it has been several times distinguished and narrowly limited to its specific facts. See for example, NLRB v. International Longshoremen's and Warehousemen's Union, 9 Cir., 283 F.2d 558, 564-565, and NLRB v. Local 815 International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, 2 Cir., 290 F.2d 99, 104-105. Here, there is more than mere individual action on the part of one or two stewards but rather, all of the union's functionaries, the stewards, chief stewards and executive board members participated in and supported the work stoppage by the entire membership. In these circumstances *651 and in light of the fact that the work stoppage resulted from a union as distinguished from a mere individual grievance, the inference is clear that the union as such is responsible therefor.
We are not impressed with the action of the union hierarchy in attempting to disclaim responsibility for the walkout. When the union President came to his office at 7:30 on the morning of August 10, he then became aware, if he was not previously, that his union members were engaged in a work stoppage. He saw a number of members who should have been working milling about his outer office, yet he made no effort to order them out of the office and back to work but instead proceeded to work on some other matters which he deemed of more consequence. Several hours later, when the full impact of what was occurring was beginning to be evident, he called the union attorney for advice and it was at the instance and with the assistance of the union attorney, who promptly came to his office, that an exculpatory press release was drafted. He telephoned the executive board members at their homes, and instead of expressing dismay, indignation or surprise that these officials were not at work, called them to his office for a meeting at which a back-to-work order was considered and approved around noon. In our judgment these decisions resulted from advice of counsel in an attempt to avoid union responsibility for union conduct. The belated disavowal of the strike does not suffice to relieve the union of its liability for its breach of the no-strike agreement. Parenthetically, we add that there is not the slightest indication in the record that any disciplinary action was ever taken by the union against any of the strikers or the leaders of the strike.
One further comment. Although the union disavows responsibility for the company-wide strike which unquestionably is violative of the agreement that "there shall be no strikes," and insists that only its members and not the union struck the company, there is no suggestion that the striking members should be held liable for the damages sustained by the company. In the recent case of Sinclair Oil Corporation v. Oil, Chemical and Atomic Workers International Union, 7 Cir., 452 F.2d 49, it was held that union members who engaged in wildcat strikes for which the union itself is not liable may not be subject to individual liability for damages.[3] If Sinclair correctly expresses the law then it would follow that the employer who is struck by the concerted action of all union members is left without remedy other than by the discharge or discipline of the individual strikers, a remedy which is obviously inadequate.
Should a permanent injunction issue? We have concluded that the injunction heretofore issued has served its purpose. Both the union officials and the rank and file members appear to have learned their lesson with the aid of counsel, so that we deem it extremely unlikely that any other strike will occur during the effective period of the collective bargaining agreement.
The remaining issue is that of damages. That damage was sustained by plaintiff is conceded. In this situation, plaintiff is not required to prove the amount of its damages with mathematical accuracy, an impossible task. It is sufficient if the evidence supports a just and reasonable approximation of damages. United Electrical Workers v. Oliver Corp., 8 Cir., 205 F.2d 376; Sheet Metal Workers, International Association, Local 223 v. Atlas Sheet Metal Company, 5 Cir., 384 F.2d 101, 109.
Here, the damage claim is based on continuing overhead costs that were not offset by production on August 10, 1971 and in part on August 11, 1971. For the purpose of determining these *652 overhead costs, an audit was made of plaintiff's books and records. The approach taken in the audit was that the company's overhead is based on a per cent of direct labor costs expended and units being produced. It was recognized that on the days in question plaintiff had certain materials, buildings and equipment ready for its employees to utilize in turning out inventoriable items raw material, work in process and finished product, going from one stage to another based on the work performed by direct labor. Under the audit, there were certain fixed costs in the company's operation which continued on August 10 and August 11 and which would normally be offset against units being produced on those days, but since the employees comprising the direct labor force who were scheduled to work on those days performed no direct labor at all on August 10 and only some labor on August 11, these fixed costs were not absorbed at all on August 10 and only partially on August 11.
The approach taken in the audit is recognized as sound accounting practice in determining the results of operations. In addition, the inclusion of certain indirect labor items could have been justified in calculating overhead not absorbed, but the entire category of indirect labor was removed from consideration in making the calculations. Based on the approach taken in the audit, the overhead not absorbed in the manufacturing department of plaintiff amounted to $103,542 for August 10 and $19,563 for August 11, an aggregate for those two days of $123,105. In addition the audit reveals that with reference to its Selling, General and Administrative Departments, to the extent those operations were affected by the work stoppage, the overhead not absorbed on August 10 was $41,983 and for August 11, $9,001, a total of $50,984. The grand total as shown by this audit of overhead not absorbed and for which plaintiff makes claim amounts to $174,489.
For purposes of determining the unabsorbed overhead on the particular days of the work stoppage, the audit utilized the pre-determined schedule of work days for the entire year, broken down into twelve accounting periods. In the accounting period in which the work stoppage took place there were twenty scheduled working days. Although the scheduled number of work days were pre-determined, the overhead allocated to each of these work days represented actual expense monies paid out for such overhead items as light, power, dues and subscriptions, medical expenses, hospital supplies, doctor services, postage, freight, and commissions, as well as depreciation and other recognized overhead categories. Ordinarily, the amount of overhead broken down on a daily basis would be charged to or absorbed by inventoriable items produced. However, since there was no production on August 10, 1971, this day's part of the overhead could not be charged to inventoriable items and were treated simply as expenses the company could not recoup. A similar treatment was made of the portion of August 11, 1971 as to which there was a work stoppage.
Evidence on behalf of defendant was to the effect that there are other approaches consistent with sound accounting practice under which a few items treated as overhead in the audit could be handled differently. The method used by plaintiff was that which it followed consistently in its cost accounting.
Obviously, the determination of the cost of running a plant for one day or a portion of a day presents a problem. In arriving at our conclusion on this issue we have eliminated from the charges shown on the plaintiff's audit certain items which are questioned by defendant such as overtime bonus for work which was obviously not done, as well as shift differentials, no shift having worked, freight in and freight out, which could well have been charged against the cost of goods sold (although that was not plaintiff's normal method) and certain other expenses of selling, travel and entertainment and some general administrative costs. After removing such *653 items from consideration, it is our view that a fair and just approximation of the damages sustained by plaintiff and for which defendant should be charged is at least $70,000.00.
The foregoing memorandum constitutes our findings of fact and conclusions of law.
NOTES
[1] Section 185, 29 U.S.C.
[2] There are approximately 500 other employees of plaintiff who are not in the bargaining units.
[3] A contrary view had earlier been expressed by District Court Judge Juergens in DuQuoin Packing Co. v. Local P-156, Amalgamated Meat Cutters and Butchers Workmen of North America, D.C.Ill., 321 F. Supp. 1230.
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882 F. Supp. 249 (1995)
Lisa F. LIEBERMAN-SACK, D.M.D.
v.
HARVARD COMMUNITY HEALTH PLAN OF NEW ENGLAND, INC. and Leon G. Danish, D.D.S.
Civ. A. No. 93-160L.
United States District Court, D. Rhode Island.
April 11, 1995.
*250 *251 Marc Gursky, Providence, RI, for plaintiff.
Kelly Sheridan, Providence, RI, for defendants.
MEMORANDUM AND ORDER
LAGUEUX, Chief Judge.
This matter is before the Court on three motions filed by defendants Harvard Community Health Plan of New England, Inc. ("HCHP-NE") and Leon G. Danish, D.D.S. ("Danish"). First, defendants move to dismiss plaintiff's claim for compensatory and punitive damages and expert witness fees under the 1991 amendments to Title VII, 42 U.S.C. § 2000e et seq. ("Title VII/1991 Civil Rights Act"). Second, defendants move for partial summary judgment as to plaintiff's claim for compensatory damages under the Rhode Island Fair Employment Practices Act, R.I.G.L. § 28-5-1 et seq. ("FEPA"). Finally, defendants move to strike plaintiff's demand for a jury trial or, in the alternative, to dismiss without prejudice or sever plaintiff's claims brought under FEPA. For the following reasons, defendants' motions are granted in part and denied in part.
I. Facts
Plaintiff Lisa F. Lieberman-Sack, D.M.D. ("Lieberman-Sack") is a dentist formerly employed by Rhode Island Group Health Association ("RIGHA"), now known as *252 HCHP-NE. Plaintiff commenced practice with RIGHA in December, 1986. She was hired as an independent contractor, was paid on an hourly basis, and received no benefits. In April, 1987, plaintiff was made a part-time employee of RIGHA, and she agreed to work three days per week, as well as to be on-call and to work occasional weekend days.
Plaintiff worked for RIGHA until July 2, 1991, when she was terminated by defendant Danish. Danish was the Chief of the RIGHA Dental Department. Plaintiff claims that Danish stated that he was terminating her because she had refused to treat HIV-positive patients. Plaintiff denies that allegation. Plaintiff claims that Danish's stated reason for her dismissal was pretextual and that she was really terminated for discriminatory reasons, i.e., because of her gender and/or religion.
The complaint alleges that during the time that plaintiff worked for RIGHA and HCHP-NE that she was treated "less favorably than similarly situated male and non-Jewish co-workers." Complaint ¶ 14. She claims that she was given inferior working facilities and equipment, inadequate assistance, and inconvenient patient schedules. Plaintiff also claims that she was held to stricter attendance schedules and that she did not receive annual evaluations. She attributes all these disparities to the fact that "she was a female dentist raising a family, working part time...." Complaint ¶ 14. Plaintiff notes that she temporarily left work in 1988 to give birth to a son, Jordan, and that when she was terminated in 1991, she had informed her employer that she was expecting a second child.
Plaintiff brings this action to challenge the conduct of defendants during the time that she was employed. Plaintiff has two employment discrimination claims, both of which proceed under "disparate treatment" theories. First, plaintiff alleges that the defendants violated Title VII/1991 Civil Rights Act, discharging and otherwise discriminating against her with respect to her compensation, terms, conditions, or privileges of employment because of her gender and/or religion. Second, plaintiff seeks recovery for the same alleged discriminatory treatment under FEPA, the state law analogue to Title VII. Plaintiff appropriately followed administrative procedures before filing this action.
II. Analysis
Defendants' two dispositive motions address the question of what damages are available to plaintiff if she proves the two causes of action alleged. Defendants' motion to dismiss challenges plaintiff's claim for compensatory and punitive damages under federal law, and defendants' motion for partial summary judgment contests plaintiff's claim for compensatory damages under state law.
A. Defendants' Motion to Dismiss
Defendants move to dismiss plaintiff's claims for compensatory and punitive damages under the 1991 Civil Rights Act.[1] In ruling on a motion to dismiss under Rule 12(b)(6), this Court must take the allegations of the complaint as true and view them in the light most favorable to the plaintiff. Brower v. County of Inyo, 489 U.S. 593, 598, 109 S. Ct. 1378, 1382, 103 L. Ed. 2d 628 (1989); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974). A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 *253 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 (1957); Paradis v. Aetna Casualty & Sur. Co., 796 F. Supp. 59, 61 (D.R.I.1992); Lopez v. Bulova Watch Co., 582 F. Supp. 755, 767 (D.R.I.1984). In this case, defendants bear the burden of establishing that the claims of the plaintiff are insufficient as a matter of law. National Credit Union Admin. Bd. v. Regine, 795 F. Supp. 59, 62 (D.R.I.1992) (citing Harper v. Cserr, 544 F.2d 1121, 1122 (1st Cir.1976)).
Defendants' motion to dismiss under Rule 12(b)(6), dated July 8, 1994, is a renewal of a motion to dismiss filed in this action on August 23, 1993. Defendants renewed their motion after this Court had stayed the litigation, pending the outcome of Landgraf v. USI Film Products, ___ U.S. ___, 114 S. Ct. 1483, 128 L. Ed. 2d 229 (1994). The stay was entered because the question at issue in Landgraf whether the 1991 Civil Rights Act could be retroactively applied was dispositive of defendants' motion to dismiss. Plaintiff had relied on the retroactive application of the 1991 Civil Rights Act as a basis for her federal claims for compensatory and punitive damages.
In Landgraf, the Supreme Court held that the provisions of the 1991 Civil Rights Act creating a right to recover compensatory and punitive damages for certain violations of Title VII did not apply to pending cases. In other words, the Court held that the 1991 Civil Rights Act is not retroactive. The Court's unequivocal holding is fatal to plaintiff's claim for compensatory and punitive damages in this case under federal law. Since the 1991 Civil Rights Act took effect on November 21, 1991, see Civil Rights Act of 1991, Pub.L. No. 102-166, 105 Stat. 1071 (1991), and plaintiff complains of conduct that occurred on or before July 2, 1991, plaintiff may not rely on the 1991 Civil Rights Act as a basis for her claim for compensatory and punitive damages. Plaintiff's claim accrued before the 1991 Civil Rights Act became law.
Since plaintiff has no legal foundation upon which to base her claims for compensatory or punitive damages under Title VII/1991 Civil Rights Act, defendants' motion to dismiss these claims must be granted.
B. Defendants' Motion for Partial Summary Judgment
Defendants also move for partial summary judgment under Rule 56 as to plaintiff's claim for compensatory damages brought under FEPA. By invoking Rule 56, the moving party effectively declares that the evidence is insufficient to support the non-moving party's case. U.S. v. One Parcel of Real Property with Bldgs., Appurtenances, and Improvements, Known as Plat. 20, Lot 17, Great Harbor Neck, New Shoreham, R.I., 960 F.2d 200, 204 (1st Cir.1992). Summary judgment is granted when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). This Court must examine the record in the light most favorable to the nonmoving party and indulge all reasonable inferences in that party's favor in deciding this motion. Maldonado-Denis v. Castillo-Rodriguez, 23 F.3d 576, 581 (1st Cir.1994).
Defendants contend that they are entitled to judgment as a matter of law because plaintiff's claim for compensatory damages is rooted in an unconstitutional amendment to FEPA, enacted by the Rhode Island General Assembly in 1992. The 1992 amendment to FEPA stated that "[t]he complainant shall not be required to prove that he or she has suffered physical harm or physical manifestation of injury in order to be awarded compensatory damages." 1992 Pub.L. ch. 447 ("1992 Amendment"). The 1992 Amendment also stated that it "shall take effect upon passage and apply to all pending cases." 1992 Pub.L. ch. 447, § 2. Defendants contend that the 1992 Amendment to FEPA creates new law and that it retroactively impairs defendants' rights.
The threshold question that faces this Court is whether the 1992 Amendment to FEPA is new law or is simply declaratory of existent law. If the 1992 Amendment creates new law, then this Court must analyze whether the retroactive application of the new law offends principles of due process, since the statute explicitly applies to all pending cases. General Motors Corp. v. Romein, 503 U.S. 181, 112 S. Ct. 1105, 117 *254 L.Ed.2d 328 (1992); Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 104 S. Ct. 2709, 81 L. Ed. 2d 601 (1984). If, however, the amendment is declaratory of existent law, then this Court need not perform a due process evaluation of its retroactivity.
It is well-settled that a federal court must defer to the highest court of the state as the arbiter of state law. Martin v. Lincoln Bar, Inc., 622 A.2d 464 (R.I.1993); Donahue v. Rhode Island Dep't of Mental Health, 632 F. Supp. 1456, 1478 (D.R.I.1986). However, the Rhode Island Supreme Court has not clarified whether or not the 1992 Amendment to FEPA creates new law or restates existing law. Neither have any of the lower state courts in Rhode Island published any opinions on this subject. Thus, where the state's highest court has not interpreted the rule or statute in question, the federal court may attempt to predict how the state's highest court would rule on the issue in a pending federal case. Ryan v. Royal Ins. Co. of America, 916 F.2d 731, 739 (1st Cir.1990). Of course, in Rhode Island, if a federal court has no guidance from state law or "better reasoned authorities," Ryan, 916 F.2d at 739, the court may certify a question to the Rhode Island Supreme Court. See Rule 6, R.I. Supreme Court Rules of Appellate Procedure.
In this case, however, the Rhode Island Supreme Court has not left this Court without guidance. The Rhode Island Supreme Court has explicitly held that trial courts hearing causes of action brought under FEPA should look for guidance from federal courts that have construed Title VII. Newport Shipyard, Inc. v. Rhode Island Comm. for Human Rights, 484 A.2d 893 (R.I.1984); Narragansett Elec. Co. v. Rhode Island Comm. for Human Rights, 118 R.I. 457, 374 A.2d 1022 (1977). This Court has noted the near identity of Title VII to FEPA in the past. See, e.g., Marley v. United Parcel Service, 665 F. Supp. 119 (D.R.I.1987). Moreover, these statutes, FEPA and Title VII, have been amended in similar ways. Both statutes now allow for the recovery of compensatory and punitive damages in the case of intentional discrimination.[2] Therefore, this Court concludes that Title VII jurisprudence is relevant to the interpretation of FEPA.
Defendants urge this Court to recognize that the 1992 Amendment to FEPA creates new law, since it relieved plaintiff of the burden of proving a physical manifestation of injury. As support for their argument, defendants rely on Reilly v. U.S., 547 A.2d 894 (R.I.1988). In that case, the Rhode Island Supreme Court held that a plaintiff must prove physical symptomology in order to recover damages for mental anguish under the tort of negligent infliction of emotional distress. Also in a footnote, id. at 899 n. 3, the Court stated that a plaintiff must prove physical symptomology in order to recover damages for mental anguish in a claim for intentional infliction of emotional distress. See Curtis v. R.I. Dept. of Children and Their Families, 522 A.2d 203 (R.I.1987). Defendants offer this case to prove that plaintiff, before the 1992 Amendment to FEPA, would have had to prove physical symptomology in order to recover damages under FEPA, as her claim seeks compensatory damages for mental anguish and emotional distress.
This Court disagrees. While defendants' argument makes a clever analogy to tort law, defendants' argument presents a novel interpretation of FEPA, one that is unsupported by relevant case law. At no time, in any case, has either Title VII/1991 Civil Rights Act or FEPA been interpreted to require that a plaintiff prove physical symptomology to recover compensatory damages. Physical manifestations of injury have always been irrelevant to the prima facie burden placed upon an employment discrimination plaintiff.
The case law upon which defendants rely is generated from the common law of torts, and the common law of torts exists independently of the statutory law of employment discrimination in Rhode Island. Had the Rhode Island legislature meant to incorporate the common law of torts as an interpretive mechanism *255 for FEPA, it could have done so in the statute. The statute is silent on that subject. If the Rhode Island Supreme Court had found the common law of torts relevant to the interpretation of FEPA, it could have so stated. But it has not, and neither has any other court. Therefore, this Court declines the invitation to import common law tort concepts into the interpretation of FEPA.
This Court concludes that the 1992 Amendment to FEPA, stating that "[t]he complainant shall not be required to prove that he or she has suffered physical harm ... or ... manifestation of injury," does not create new law. Rather, this Court finds that the amendment was adopted by the Rhode Island General Assembly to clarify existent law. Since the 1992 Amendment was simply declaratory of existing law, it cannot be regarded as retroactive. Therefore, the Court can deny defendants' motion for partial summary judgment on this ground alone.
There is, however, an additional and perhaps more potent reason to deny defendants' motion for partial summary judgment. Assuming arguendo that the 1992 Amendment to FEPA did create new law, defendants still have the burden of proving that a retroactive application of that law would unconstitutionally deny them due process. Defendants cannot do that in this case.
The test for determining the constitutionality of retroactive legislation was articulated by the Supreme Court in Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 104 S. Ct. 2709, 81 L. Ed. 2d 601 (1984). In that case, the Supreme Court held that retroactive legislation is constitutional so long as the legislation effects a legitimate legislative purpose furthered by rational means. Id. at 730, 104 S.Ct. at 2718. See General Motors Corp. v. Romein, 503 U.S. 181, 112 S. Ct. 1105, 117 L. Ed. 2d 328 (1992). While the Court has stated that "[r]etroactive legislation presents problems of unfairness that are more serious than those posed by prospective legislation, because it can deprive citizens of legitimate expectations and upset settled transactions," Romein, 503 U.S. at 191, 112 S.Ct. at 1112, the Court has also noted that it is "clear that legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations." Pension Benefit Guaranty, 467 U.S. at 729, 104 S.Ct. at 2718 (citations omitted).
Defendants argue that the 1992 Amendment to FEPA denies them due process because "an employer such as HCHP-NE could not expect in 1991 that its discharge of an employee would result in a compensatory damage claim under FEPA when the employee suffered no physical manifestation of injury." Defendants' Motion for Partial Summary Judgment, at 5. The Amendment is also unconstitutional, defendants argue, because it "deprives them of a defense that would otherwise be dispositive of this action." Id., at 4.
The core of defendants' argument is that the legislation is unconstitutional because it changed their expectations about the extent of their liability in this case. However, this reason alone is an insufficient basis to strike down the law as unconstitutional. Indeed, defendants' argument is framed in precisely the terms adumbrated by the Supreme Court when it held that "readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations." Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 729, 104 S. Ct. 2709, 2718, 81 L. Ed. 2d 601 (1984) (citations omitted). Defendants are bound to show that the 1992 Amendment to FEPA lacked a legitimate legislative purpose, but the only one they offer is that it disturbed their expectations. Such an argument fails to demonstrate unconstitutionality under Pension Benefit Guaranty.
There are two reasons why the 1992 Amendment to FEPA is not unconstitutionally retroactive. First, and most important, the 1992 Amendment to FEPA does have a legitimate legislative purpose as required by Pension Benefit Guaranty and Romein, and therefore meets the test of due process articulated by the Supreme Court. The 1992 Amendment was enacted to clarify the burden of proof of damages placed on plaintiff in an employment discrimination case. Second, the 1992 Amendment to FEPA did not make a change in the law and, therefore, could not *256 have disturbed defendants' reasonable expectations. Any claim that the 1992 Amendment was a change in the law necessarily departs from the large body of employment discrimination law which has never required a plaintiff to prove physical manifestations in order to recover compensatory damages. Defendants have failed to provide the Court with a single employment law case in which plaintiff was required to prove physical manifestations upon which defendants could have reasonably relied as stating pre-1992 Amendment law.
Defendants' argument regarding constitutionality is also weakened by the fact that the 1992 Amendment to FEPA pertains to damages, and not to liability. When a legislature effects a retroactive change in the law of damages and not in the law of liability, due process concerns are not as compelling. In this case, the 1992 Amendment to FEPA does not make defendants liable for conduct that was formerly legal; it merely expands, to some degree, the consequences flowing from defendants' illegal conduct. Moreover, since the 1992 Amendment conditions the recovery of compensatory damages on the plaintiff's physical reaction to the discrimination and not on the actions which defendants took, defendants cannot logically argue that their behavior would have been different had the 1992 Amendment been in effect at the time of the alleged offending action. To do so would require defendants to argue that since they did not expect plaintiff to have any physical manifestations resulting from intentional discrimination, they intentionally discriminated against her; but had defendants known that plaintiff could recover without physical manifestations, they would not have intentionally discriminated against her. Such an approach is contrary to the purposes to be achieved by FEPA, and this Court finds no reason to credit such a view.
The 1992 Amendment to FEPA clearly has a legitimate purpose: it serves to clarify what plaintiff has to prove in order to recover compensatory damages in an employment discrimination case. Moreover, since the 1992 Amendment followed closely on the heels of the 1991 Amendment allowing compensatory damages, it was clearly designed to apply to all cases brought under the 1991 Amendment before they went to trial.
Therefore, this Court concludes that even if the 1992 Amendment to FEPA did create new law, the retroactive application of this new law does not offend principles of due process. The 1992 Amendment clearly has a legitimate legislative purpose, and the purpose is achieved by a rational legislative means. The 1992 Amendment therefore meets the requirements of due process under the Fourteenth Amendment and is applicable to this case.
Consequently, defendants' motion for partial summary judgment as to plaintiff's claim for compensatory damages under FEPA is denied.
C. Defendants' Motions to Strike Plaintiff's Claim for a Jury Trial
Having decided defendants' dispositive motions, this Court will now consider defendants' motion to strike plaintiff's claim for a jury trial or, in the alternative, to sever or dismiss without prejudice plaintiff's pendent claim under FEPA ("motion to sever or dismiss"). Defendants have petitioned this Court to renew their motion to sever or dismiss in the event that their motion for partial summary judgment on plaintiff's state law claims was denied. Thus, defendants' motion to strike jury demand and defendants' motion to sever or dismiss are all before this Court for decision.
In federal court, a plaintiff is entitled to a jury trial on claims for damages at law. Taylor v. State of R.I. Dept. of Mental Health, Retardation and Hospitals, 736 F. Supp. 15, 18 (D.R.I.1990); Chauffeurs, Teamsters and Helpers, Local No. 391 v. Terry, 494 U.S. 558, 563, 110 S. Ct. 1339, 1344, 108 L. Ed. 2d 519 (1990); Lytle v. Household Mfg., Inc., 494 U.S. 545, 548-50, 110 S. Ct. 1331, 1335, 108 L. Ed. 2d 504 (1990). The Constitution of the United States provides this right to a jury trial in "suits at common law." U.S. Const. Amend. VII. Yet, where the remedies being sought are of an equitable nature only, a plaintiff has no right to a jury trial. Noviello v. State of R.I. Dept. of Mental Health, 142 F.R.D. 581 *257 (D.R.I.1991) (citing Tull v. United States, 481 U.S. 412, 107 S. Ct. 1831, 95 L. Ed. 2d 365 (1987)). In short, the remedies requested dictate whether the case will be tried with or without a jury.
The problem in this case at this juncture is that plaintiff may secure different remedies under her federal and state law claims. On the federal claims plaintiff can only obtain equitable remedies, while on the state law claims, plaintiff can recover both legal damages and equitable relief. As a result, plaintiff is not entitled to a jury trial on the federal claims but is entitled to have a jury consider some of her state law claims, i.e., liability and damages. Since plaintiff is entitled under the Constitution to a jury trial on some of her claims, defendants' motion to strike plaintiff's claim for a jury trial is denied.
In the alternative, defendants urge this Court to either dismiss without prejudice or sever plaintiff's state law claims. Trying the two causes of action together before a jury, defendants argue, will deny them a fair trial because certain evidence, relevant only to the state law claim, should not be heard by the factfinder deciding the federal claim. Plaintiff opposes defendants' motions, arguing that severance or dismissal of the state law claims is unfairly burdensome to her.
Defendants argue that the state claims should be severed or dismissed because the introduction of evidence concerning compensatory and punitive damages under state law might inflame the jury and influence their determination of liability, especially on plaintiff's federal claim. For support, defendants cite Mitroff v. Xomox Corp., 797 F.2d 271 (6th Cir.1986), an age discrimination case in which the plaintiff brought analogous state and federal causes of action against the employer in federal court. The trial court in that case held that it was unfair to the defendant for the jury to hear the state and federal claims together. The court opined that state law was unclear as to whether the plaintiff could recover monetary damages, and thus, it was unable to determine whether evidence concerning monetary damages was relevant. In light of the potentially inflammatory effect of the evidence, the court declined to hear the state law claims. Defendants use Mitroff to argue that "the addition of monetary damages testimony for a pendent state law claim in the trial of a federal law claim without monetary damages is an appropriate basis for refusing to exercise pendent jurisdiction over the state claim." Defendants' Motion to Dismiss, at 9.
Defendants' argument has some merit. Evidence relevant to the determination of compensatory and punitive damages on plaintiff's state law claim is irrelevant to the determination of liability on either the state or federal claims, and it may influence the jury's determination of liability. Yet, plaintiff's argument has some persuasive force also. It would be a significant burden on plaintiff to try two cases one federal and one state, one with a jury and one without.
The best solution to this dilemma is to keep the whole case in this Court and bifurcate the issues of liability and damages for trial purposes. To do so, this Court will bifurcate this trial sua sponte, pursuant to Fed.R.Civ.P. 42(b). The trial will proceed in two stages: a liability portion and, if necessary, a remedy portion. The liability portion will be tried before a jury, since the issue of liability under both FEPA and Title VII is identical. If the jury decides for plaintiff, i.e., that HCHP-NE, through its agents, discriminated against her, then the case will proceed to the second stage. If the jury decides for defendants, then judgment will enter for defendants.
A bifurcation of the trial addresses the concerns regarding prejudice, as expressed by the Mitroff court. The prejudicial evidence about which defendants express concern evidence relating to compensatory and/or punitive damages will not be reached until the second part of the trial, and only if defendants' liability has been determined. Since this evidence will not be admissible until after defendants' liability has been determined, the jury's determination of liability obviously cannot be influenced by it. The bifurcation eliminates prospective prejudice.
A bifurcation of this trial is also in the best interest of judicial economy. If the jury *258 finds for defendants on the issue of liability, then, of course, no other hearing will be necessary and much time and effort will have been saved. If defendants are found liable, a determination of damages can be made in the second stage. At that time, evidence concerning punitive and compensatory damages will be introduced, and clearly, such evidence cannot prejudice the findings of the jury. All of that evidence is relevant to the jury's deliberations on damages. The jury will determine damages under state law and the Court will decide what equitable remedies are available under federal and state law.
Since this Court has bifurcated the trial sua sponte, defendants' motion to sever or dismiss plaintiff's state law claims is denied.
III. Conclusion
For the foregoing reasons, defendants' motion to dismiss plaintiff's claim for compensatory and punitive damages under federal law is granted. Defendants' motion for partial summary judgment as to plaintiff's claim for compensatory damages under state law is denied. In addition, defendants' motions to strike plaintiff's claim for a jury trial, or, in the alternative, to sever or dismiss without prejudice plaintiff's state law claims are denied. Finally, this Court bifurcates this case for trial, pursuant to Fed.R.Civ.P. 42(b). The question of liability on both federal and state claims will be determined by a jury. If the jury finds for plaintiff on the issue of liability, there will be a separate trial to determine remedies. A jury will determine damages under FEPA, and the Court will determine the available equitable remedies under both Title VII/1991 Civil Rights Act and FEPA. If the jury finds for defendants on the liability question, then the case will be concluded by the entry of judgment for defendants.
It is so ordered.
NOTES
[1] The 1991 Civil Rights Act allows a plaintiff in a disparate treatment case to recover compensatory and punitive damages when discrimination by an employer is intentional. Section 102(a) of the statute reads:
In an action brought by a complaining party under section 706 or 717 of the Civil Rights Act of 1964 (42 U.S.C. 2000e-5) against a respondent who engaged in unlawful intentional discrimination (not an employment practice that is unlawful because of its disparate impact) prohibited under section 703, 704, or 717 of the Act (42 U.S.C. 2000e-2 or 2000e-3), and provided that the complaining party cannot recover under section 1977 of the Revised Statutes (42 U.S.C.1981), the complaining party may recover compensatory and punitive damages ... in addition to any relief authorized by section 706(g) of the Civil Rights Act of 1964, from the respondent.
Pub.L. No. 102-166, 105 Stat. 1071 (1991).
[2] FEPA was so amended on June 17, 1991, 1991 Pub.L.Ch. 135, 343, and Title VII was so amended on November 17, 1991, Pub.L. No. 102, 166, § 102.
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813 F. Supp. 1570 (1993)
SOUTH CAROLINA INS. COMPANY, Plaintiff,
v.
Frances M. COODY, et al., Defendants.
Civ. A. No. 92-54-4-MAC (WDO).
United States District Court, M.D. Georgia, Macon Division.
February 11, 1993.
*1571 William S. Goodman, Edward H. Lindsey, Atlanta, GA, for plaintiff South Carolina Ins. Co.
Linwood Robert Lovett, J. Douglas Cowart, Macon, GA, for defendants Frances M. Coody and Timothy A. McCord, trustees for T.A. McCord, Jr.
ORDER
OWENS, Chief Judge.
Before the court is plaintiff's motion for summary judgment. After careful consideration of the arguments of counsel, the relevant case law, and the record as a whole, the court issues the following order.
FACTS
In this case, plaintiff South Carolina Insurance, Co. seeks a declaratory judgment that it is not liable to defendants for coverage provided in two insurance policies issued to the T.A. McCord, Jr., Trust ("Trust"). Defendants Frances M. Coody and Timothy A. McCord are trustees of the Trust. The policies at issue are comprehensive general liability policies providing coverage for property and casualty losses on a piece of property formerly owned by the Trust in Byron, Georgia ("Byron property").
In July, 1967, Turner Ashby McCord, Jr., purchased the Byron property. He leased this property to Peach Metal Industries, Inc. ("PMI"), an electroplating plant, in 1971.
In 1977, the Georgia Environmental Protection Division ("EPD") inspected the Byron property, determined that PMI's existing system for treating industrial waste was insufficient, and ordered PMI to improve its waste disposal plan. PMI proposed a plan in which PMI would pipe industrial waste from the plant into two impoundment ponds, or lagoons, designed to hold the waste on the property. Both the EPD and McCord approved the plan, and PMI immediately implemented it.
In 1982, Turner Ashby McCord, Jr., set up the T.A. McCord, Jr. Trust, with defendants Timothy A. McCord and Frances M. Coody as trustees for the Trust. The Trust acquired an insurance policy ("1984 policy") from plaintiff for coverage of certain real estate owned by the Trust on July 4, 1984.
On November 30, 1984, Turner Ashby McCord, Jr., conveyed the Byron property to the Trust by quitclaim deed. The Byron property was added to the 1984 policy on *1572 April 18, 1985. The 1984 policy remained in effect on the Byron property through July 4, 1987.
On April 7, 1987, the EPD conducted an investigation on the Byron property in response to a water quality complaint. During the investigation, an EPD official discovered that PMI was generating hazardous waste and improperly disposing of it on the Byron property. The hazardous waste consisted of wastewater sludge generated during PMI's electroplating operations.
The EPD found that PMI was discharging wastewater sludge into the soil through its practice of pumping the sludge to the two lagoons on the property. In addition, discharge from one lagoon entered a drainage ditch connected to a creek located off the property. Further discharge into the soil and into the creek resulted from a black oxide process used by PMI.
The EPD also discovered several drums containing various hazardous chemicals in various states of corrosion on the property. PMI had purchased these drums from a now-defunct chemical company in 1985.
Timothy McCord learned of the EPD investigation and met with Al DeGraw, president of PMI, to discuss it during the summer of 1987. DeGraw told McCord that the EPD was requiring PMI to change its operations, but that there was nothing to worry about.
In July, 1987, the EPD issued a Notice of Violation letter to PMI effective August 18, 1987. PMI negotiated with EPD to extend the time for compliance with the order through September 8, 1987. DeGraw later informed McCord that it was economically infeasible for PMI to make the required modifications, and therefore, PMI would be forced to go out of business. PMI ceased operations in September, 1987.
Immediately after it ceased operations, PMI remained on the Byron property to attempt to clean up. However, a week later, Timothy McCord denied PMI access to the property because PMI owed back rent. PMI subsequently filed for bankruptcy on October 26, 1987.
On September 18, 1987, the McCord Trust conveyed the Byron property to Concrete Sales & Service, Inc. ("Concrete Sales"), a concrete mixing plant. Timothy McCord is the president of Concrete Sales, and the McCord Trust is its sole stockholder.
On February 12, 1988, the EPD contacted Timothy McCord regarding ownership of the Byron property. McCord informed the EPD that the property was currently owned by Concrete Sales. On May 5, 1988, the EPD notified Concrete Sales and requested the corporation's assistance in correcting the conditions on the property.
In April, 1988, the bankruptcy trustee for PMI proposed to the bankruptcy court that PMI abandon all PMI materials and assets remaining on the Byron property. Timothy McCord protested the proposal, but the bankruptcy court ultimately approved the abandonment.
In July, 1988, McCord met with EPD officials and learned that Concrete Sales, as owner of the Byron property, was liable for the costs of cleaning up the property. However, he was not informed that prior owners of the property could also be held liable for these costs.
In May, 1988, the McCord Trust obtained a new insurance policy ("1988 policy") from plaintiff, effective from May 23, 1988, to May 23, 1989. The Byron property was not originally listed under the 1988 policy.
Between June, 1988, and December, 1988, McCord, as president of Concrete Sales, actively negotiated with EPD concerning ways to remedy the hazardous waste problems on the Byron property. Concrete Sales retained counsel in October, 1988, to aid in these negotiations.
In December, 1988, McCord contacted plaintiff to attempt to add the Byron property to the Trust's 1988 policy. McCord informed plaintiff's agent that the Trust owned the Byron property and described the property as a "vacant building." The request was denied.
In January, 1989, McCord again attempted to add the Byron property to the Trust's 1988 policy. McCord described the property *1573 as "ten acres of vacant land located in Byron, Georgia." Plaintiff added the Byron property to the 1988 policy, effective January 6, 1989. This policy was in effect through May 23, 1991.
Between 1989 and 1990, there was little EPD activity regarding the Byron property due to the death of the EPD official handling the PMI file. Then, on December 13, 1990, the EPD sent a notice of violation to McCord for resolution of the hazardous waste problems on the Byron property. This was the first time the EPD informed McCord of the potential liability of previous owners of the Byron property for cleanup costs.
The United States Environmental Protection Agency ("EPA") sent McCord a Notice of Potential Liability regarding the cleanup of the Byron property on December 14, 1990. This was the first time McCord learned of the potential liability of previous owners to the EPA for cleanup costs.
On December 31, 1990, the Trust sent notice to plaintiff concerning a potential occurrence and claim on the Byron property. Plaintiff did not respond to this notice, and the Trust sent another notice to plaintiff regarding its potential liability on March 6, 1991.
The EPA issued an administrative order concerning the Byron property on February 12, 1991. In this order, the EPA made the following findings:
1. That between 1971 and 1980, PMI discharged hazardous waste directly into a drainage ditch that flowed into a creek located outside the property.
2. That in 1982, PMI constructed two lagoons that were used for the disposal of hazardous waste.
3. That there are numerous drums containing hazardous wastes located on the Byron property and that these drums are in an unprotected condition.
4. That the past, present, or future migration of hazardous wastes from the site constitutes a threatened release.
The EPD issued an administrative order concerning the Byron property on April 17, 1991. This order cites numerous violations of the Georgia Hazardous Waste Management Act, O.C.G.A. § 12-8-60 et seq.
Plaintiff filed this declaratory action on January 31, 1992. It seeks a declaratory judgment holding that it owes no obligation to defendants under the 1984 and 1988 policies. Defendants have filed a counterclaim, seeking the proceeds under the policies and damages for bad faith breach of contract.
DISCUSSION
In its motion for summary judgment, plaintiff has raised five grounds to establish that it owes no obligation to defendants under the 1984 and 1988 insurance policies: (1) that no occurrence took place within the time periods covered by the policies; (2) that recovery is barred by the pollution exclusion clauses; (3) that recovery is barred by the owned-property exclusion; (4) that defendants made material misrepresentations in procuring the 1988 policy; and (5) that defendants failed to provide plaintiff with timely notice of an occurrence.
I. THE OCCURRENCE PROVISION
Plaintiff contends that defendants cannot show that an "occurrence" took place during the effective dates of either policy. Plaintiff argues that, under the terms of both policies, an "occurrence" consists of both the cause of the injury and the injury itself. Defendants, on the other hand, argue that the court should use the "continuous trigger test" in determining whether an occurrence took place within the policy periods. They further argue that they have established that an occurrence took place within each policy period under this test, and are consequently entitled to coverage.
Thus, the court must decide how to determine when an occurrence takes place in a case involving a claim for recovery of environmental cleanup costs. This case is a diversity case to which Georgia law applies, and the court notes that no Georgia court has ever addressed this issue. Thus, this court must determine how the Supreme Court of Georgia would decide the *1574 issue, basing its determination upon the language of the policies and decisions of other courts.
A. The Language of the Policies
Both the 1984 and 1988 policies provide coverage that is standard in comprehensive general liability policies. Moreover, although the language of each slightly varies, both policies offer the same basic coverage.
1. The 1984 Policy
The 1984 policy was effective from April 18, 1985, to July 4, 1987. It provides coverage as follows:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance, or use of the insured premises.... (emphasis in original).
In addition, the term "occurrence" is defined as:
[A]n accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected not intended from the standpoint of the insured. (emphasis in original).
Moreover, "property damage" in the 1984 policy means:
(1) [P]hysical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or
(2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period. (emphasis in original).
Plaintiff contends that the language of this policy is unambiguous and requires defendants to establish that both the "accident", or cause of contamination on the Byron property, and the "injury" occurred during the policy period. See Continental Casualty Co. v. Synalloy Corp., 667 F. Supp. 1563, 1575 (S.D.Ga.1986) (in order to establish that an "occurrence" took place, the insured must show that both the cause and effect happened during the policy period), aff'd, 826 F.2d 1024 (11th Cir. 1987).
However, a reading of this policy shows that it unambiguously requires that only the "injury" must occur within the policy period. Commercial Union Insurance Co. v. Sepco Corp., 765 F.2d 1543, 1545 (11th Cir.1985) ("The language of each policy at issue in this case clearly provides that an "injury," and not the "occurrence" that causes the injury, must fall within a policy period for it to be covered by the policy.") (quoting Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 1041 (D.C.Cir.1981)).[1]
Unfortunately, this unambiguous language does not aid the court at all in determining whether an occurrence took place during the policy period. Because of the nature of waste contamination, there is great difficulty in determining when the "accident" and "injury" occurred, and courts have adopted various approaches for resolving this difficulty. The various approaches will be addressed in a subsequent section of this opinion.
2. The 1988 Policy
The effective dates of the 1988 policy are from January 6, 1989, to May 23, 1991. This policy provides the following coverage:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.... This insurance applies only to "bodily injury" and "property damage" which occurs during the policy period. The "bodily injury" or "property damage" must be caused by an "occurrence". *1575 The "occurrence" must take place in the "coverage territory." ....
Furthermore, "occurrence" under this policy means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." "Property damage" in the 1988 policy is defined as follows:
a. Physical injury to tangible property, including all resulting loss of use of that property; or
b. Loss of use of tangible property that is not physically injured.
The 1988 policy, like the 1984 policy, unambiguously states that only the "injury" has to occur within the policy period.
B. Injury
In both policies at issue in this case, coverage is only provided if the "injury" takes place within the policy period. Thus, the court must determine whether the "injury" occurred between April 18, 1985, and July 4, 1987, or between January 6, 1989, and May 23, 1991.
Plaintiff contends that the injury in this case did not take place until December, 1990, when defendants were notified by the EPD and EPA that the Trust was a potentially responsible party liable for cleanup costs. Thus, defendants are not entitled to any coverage under the 1984 policy, which was only effective until July 4, 1987.
Defendants, on the other hand, contend that plaintiff's view of injury is too narrow. They argue that while the cleanup costs do constitute a part of the injury in this case, these costs are not the only injury. Instead, in environmental contamination cases, the injury continuously occurs from the first moment at which the property is exposed to hazardous wastes through the time at which cleanup costs are incurred. Therefore, under defendants' argument, they are entitled to proceeds under both policies because each policy was in effect during this continuous time period.
The court agrees with defendants' argument in part. Both policies describe "property damage" as "physical injury to tangible property," and it is clear that contamination of property by hazardous waste is a physical injury to tangible property. The cleanup costs are merely compensatory damages owed by the insured to the government as a result of environmental property damage. See Atlantic Wood Industries, Inc. v. Lumbermen's Underwriting Alliance, 196 Ga.App. 503, 396 S.E.2d 541 (1990); Continental Insurance v. Northeastern Pharmaceutical & Chemical Co., 811 F.2d 1180, 1189 (8th Cir.1987), cert. denied, 488 U.S. 821, 109 S. Ct. 66, 102 L. Ed. 2d 43 (1988).
In addition, a majority of courts have adopted the position that an occurrence takes place within the policy period if environmental damage occurred during this period. E.g., Continental Insurance, 811 F.2d at 1189 ("environmental damage occurs at the moment that hazardous wastes are improperly released into the environment and ... a liability policy in effect at the time this damage is caused provides coverage for the subsequently incurred costs of cleaning up the wastes.").
Thus, if defendants can establish that environmental damage occurred within the effective periods of these policies, then they are entitled to coverage under each policy. However, as will be subsequently discussed, the court does not adhere to defendants' position that injury in this case occurred up until the date on which they received notice that the Trust was a potentially responsible party.
1. The "Occurrence" Theories
In environmental contamination cases, it is very difficult to determine when environmental damage occurred. This difficulty arises because, as in this case, the damage is usually not discovered until several years after it first began. This problem is somewhat analogous to cases involving people who have been exposed to toxic substances like asbestos at one time and develop serious diseases several years later. See, e.g. Commercial Union Insurance Co. v. Sepco Corp., 765 F.2d 1543 (11th Cir.1985).
Thus, courts have adopted several approaches for determining when an injury occurred in cases involving exposure to toxic *1576 substances. These approaches are characterized as determining whether an "occurrence" triggered coverage during the policy period.
In Morrisville Water & Light Dept. v. United States Fidelity & Guaranty Co., 775 F. Supp. 718 (D.Ver.1991), the District Court of Vermont identified five different theories used by various courts to determine if an occurrence was triggered during the policy period in a case involving exposure to toxic substances:
(1) The Exposure Ruledamage occurs when the environment is first exposed to the toxic chemical; i.e. when the toxin is deposited in the landfill.
(2) The Manifestation Ruledamage occurs when it becomes apparent to the injured party; i.e. damage occurs when the EPA or private owner discovers that toxic waste has leaked onto the soil or into the groundwater.
(3) The Double Trigger Ruledamage occurs when the environment is first exposed to the toxic chemical and at the time the damage becomes apparent to the injured party.
(4) The Triple or Continuous Trigger Ruledamage occurs when the environment is first exposed to the toxic chemical, at the time the damage first becomes apparent, and at all times in between.
(5) The Actual Injury Ruledamage occurs when the property is actually harmed by the toxic chemical, but the damage does not have to be apparent because symptoms may manifest themselves well after the injury occurs.
In this case, it is unnecessary to determine which of the above approaches would be adopted by the Georgia Supreme Court because, under either policy, the same result occurs using any of the above approaches.
a. The 1984 policy
In the 1984 policy, coverage is triggered under every approach used by courts in determining whether an occurrence took place during the policy period. It is undisputed that the 1984 policy was in effect both before the environmental damage on the Byron property was discovered and at the time it was discovered. Thus, the date of manifestation of at least some of the injury occurred during the 1984 policy period. As described above, the date of manifestation triggers coverage under the manifestation, double trigger, and continuous trigger rules. See, e.g., Mraz v. Canadian Universal Insurance Co., 804 F.2d 1325 (4th Cir.1986).
The only other dates that may trigger coverage are the date of initial exposure, as required in the exposure rule, and the date of actual injury, as required in the actual injury rule. Thus, in this case, if defendants can show that the date of initial exposure and the date of actual injury occurred during the 1984 policy period, then they are entitled to coverage under the exposure and actual injury rules as well.
In addition, it is irrelevant whether an "occurrence" in this case consists of both accident and injury, as plaintiff argues, or only injury under the 1984 policy. This is because in environmental contamination cases, the accident and the injury occur at virtually the same time.
As the Eighth Circuit stated in Continental Insurance Cos. v. Northeastern Pharmaceutical & Chemical Co., 811 F.2d 1180, 1189 (8th Cir.1987), "environmental damage occurs at the moment that hazardous wastes are improperly released into the environment." Thus, the improper release[2] is both the cause and the injury that triggers coverage.
In this case, there is no dispute that improper releases of hazardous wastewater sludge occurred on the Byron property from 1971, when PMI first began its electroplating operations, until 1987, when it ceased doing business. Improper releases occurred whenever PMI engaged in its electroplating operations. Thus, improper releases of wastewater sludge occurred between April 18, 1985, and July 4, 1987. *1577 The Byron property was initially exposed to and actually injured by this industrially-generated sludge during the 1984 policy period. See, e.g., Continental Insurance, 811 F.2d at 1192.
In addition, drums containing various hazardous chemicals were improperly disposed of by PMI on the property in 1985. Plaintiff concedes that at least some of these drums were disposed of on the property while the 1984 policy was in effect. The EPD then discovered these drums in various states of corrosion in April, 1987. Thus, improper releases of hazardous chemicals occurred during the 1984 policy period. Id.
The manifestation of at least some of the above improper releases occurred during the EPD investigation in April, 1987. Therefore, since improper releases occurred after the 1984 policy period went into effect, and these releases were discovered before the 1984 policy period ended, an occurrence took place that triggered coverage. This is the case under the exposure, manifestation, double trigger, continuous trigger, or actual injury rules. See Morrisville Water & Light Dept. v. United States fidelity & Guaranty Co., 775 F. Supp. 718 (D.Ver.1991). Hence, plaintiff is not entitled to summary judgment on the 1984 policy based upon the "occurrence" issue.
b. The 1988 policy
In the 1988 policy, coverage is not triggered under any of the five approaches used for determining whether an occurrence took place during the policy period. This is because, under every approach, coverage is not triggered after the environmental damage becomes apparent to the injured party. See Morrisville, 775 F.Supp. at 730-31. In this case, the environmental damage was first discovered in 1987, during an EPD investigation. However, defendants did not obtain coverage of the Byron property under the 1988 policy until January, 1989. Thus, the "occurrence" took place prior to the 1988 policy period. Furthermore, since PMI ceased operations in 1987, no other release or occurrence took place during the 1988 policy period.
It is settled insurance law that an insured is not entitled to coverage under a policy obtained after the insured is aware of an occurrence prior to the policy period. Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 788 F. Supp. 846, 853 (D.N.J.1992); see also New Castle County v. Hartford Accident and Indemnity Co., 933 F.2d 1162 (3d Cir.1991).
However, defendants contend that they were not actually aware of an occurrence until December, 1990, when they were notified by the EPD and the EPA that the Trust was a potentially responsible party. This was the first time that they learned that former owners of the Byron property were liable for cleanup costs. Therefore, they contend that the damage did not manifest itself until 1990, well within the 1988 policy period.
The court is unpersuaded by this argument. The EPD investigated the Byron property on April 10, 1987, and determined that PMI had committed numerous violations of the Georgia Hazardous Waste Management Act. PMI was ordered to clean up the wastes on the property by September, 1987. Defendant McCord became aware of the hazardous waste problems on the property during the summer of 1987.
The property was then conveyed to Concrete Sales in September, 1987. The Trust is the sole stockholder of the corporation, defendant McCord is president, and defendant Coody is secretary. In May, 1988, the EPD notified Concrete Sales of its potential liability for cleanup costs under state and federal law. Defendant McCord, as president of Concrete Sales, then took part in extensive negotiations with EPD officials concerning the cleanup of the Byron property during 1988. Concrete Sales was represented by counsel during the negotiation process.
Hence, there is no doubt that defendants McCord and Coody knew of the extensive hazardous waste problems, or occurrences, on the Byron property before the Trust obtained insurance on the property in January, *1578 1989. The fact that they did not know that the Trust was a potentially responsible party for the contamination is irrelevant. There was no occurrence of contamination on the Byron property after September, 1987, and the environmental damage had manifested itself before defendants obtained the 1988 policy.
The court notes that there are cases holding that the "manifestation of injury" for purposes of determining when an occurrence triggers coverage in environmental cleanup cases does not occur until the insured receives notice that it is a potentially responsible party ("PRP"). See, e.g., Liberty Mutual Insurance Co. v. Triangle Industries, Inc., 765 F. Supp. 881 (N.D.W.Va.1991), aff'd, 957 F.2d 1153 (4th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 78, 121 L. Ed. 2d 42 (1992).
However, these cases are distinguishable from the case at bar because they do not involve parties with as much knowledge of the hazardous waste contamination as defendant McCord. For example, in Liberty Mutual, the insured had transported hazardous waste to a landfill for disposal between 1977 and 1980. The state EPA detected contamination at the landfill in 1981, and the federal EPA determined that the landfill was releasing hazardous substances in 1983. Id. at 883-884. One year thereafter, the insured was notified of its status as a PRP because it had transported hazardous waste to the landfill. Id. at 884. The court found that policies issued between 1981 and the date of the PRP notice provided coverage because the manifestation of the injury to the insured did not occur until the date of the PRP notice. Id. at 885.
In the case at bar, defendants had much more extensive knowledge of the environmental damage to the property than the insured party in Liberty Mutual. The insured in Liberty Mutual was completely unconnected to the contaminated property and had no real way of learning about the contamination except through the PRP notice. In contrast, defendants actively communicated with the EPD concerning the contamination of the property; therefore, they were intimately connected with all the details. Hence, there is no comparison between the insured in Liberty Mutual and defendants in the case at bar. Accordingly, plaintiff is entitled to summary judgment on its claim that it owes no coverage under the 1988 policy.
II. THE OWNED-PROPERTY EXCLUSION
Plaintiff next contends that it owes no coverage under the 1984 policy based upon the owned-property exclusion. This provision states as follows:
This insurance does not apply
(k) to property damage to
(1) property owned or occupied by or rented to the insured,
(2) property used by the insured, or
(3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control. (emphasis in original).
Plaintiff contends that the property damage in this case occurred only upon the Byron property; therefore, the costs to clean up this damage are excluded under the 1984 policy.
However, the general rule in environmental cases refutes plaintiff's contention:
So long as the ... complaint contains allegations that encompass the possibility that off-site contamination exists or that the clean-up was performed to prevent damage to the property of third parties, the owned property exclusion would not be applicable to work done on the property.
Boyce Thompson Institute v. Insurance Co. of North America, 751 F. Supp. 1137, 1141 (S.D.N.Y.1990) (emphasis added); see also Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 788 F. Supp. 846, 852-53 (D.N.J.1992); Claussen v. Aetna Casualty & Surety Co., 754 F. Supp. 1576, 1578-79 (S.D.Ga.1990).
In this case, the EPA and EPD expressly found that hazardous sludge had contaminated a creek located off-site. In addition, the EPA found that there was a threat of *1579 present and future migration of the contamination to off-site locations. Thus, the owned-property exclusion does not apply to the coverage of at least some of the cleanup costs in this case, and plaintiff is not entitled to summary judgment on this issue.
III. THE POLLUTION EXCLUSION
Plaintiff contends that defendants are not entitled to coverage under the 1984 policy based upon the pollution exclusion. Under this exclusion, insurance does not apply:
[T]o bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. (emphasis in original).
Plaintiff claims that the contamination on the Byron property was not "sudden and accidental;" therefore, the pollution exclusion applies.
In Claussen v. Aetna Casualty & Surety Co., 259 Ga. 333, 380 S.E.2d 686 (1989), the Georgia Supreme Court held that the phrase "sudden and accidental" means "unexpected and unintentional." Since the contamination on the Byron property was not discovered until 1987, this court cannot find as a matter of law that the contamination was unexpected and unintentional during the policy period of the 1984 policy. Thus, plaintiff is not entitled to summary judgment on this issue.
IV. MISREPRESENTATION IN OBTAINING 1988 POLICY
As the court has already found that defendants are not entitled to any coverage under the 1988 policy, it is unnecessary to address this issue.
V. FAILURE TO GIVE REASONABLE NOTICE
Plaintiff contends that defendants failed to give notice of the "occurrence" on the Byron property within a reasonable time. They base this contention on the following provision in the 1984 policy:
(a) In the event of an occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable. (emphasis in original).
In this case, it is undisputed that defendants did not give notice of a potential claim resulting from the contamination on the Byron property to plaintiff until December 31, 1990. This notice occurred more than three years after defendants first learned of the contamination on the Byron property. Plaintiff contends that this delay is unreasonable under Georgia law.
Defendants, in contrast, contend that notice in this case was reasonable. They claim that they were not aware of the potential liability of the Trust until December, 1990, when they received notices from the EPA and EPD that the Trust was a potentially responsible party. Thus, according to defendants, there was no delay at all in giving notice to plaintiff.
Under Georgia law, the determination of whether notice of an occurrence was "as soon as practicable" is generally a question for the jury. Richmond v. Georgia Farm Bureau Mutual Insurance Co., 140 Ga.App. 215, 231 S.E.2d 245 (1976). However, if "[u]nder all of the facts and circumstances, ... it may be found that an insured's delay in giving notice of an accident to this insurer was unjustified and unreasonable, ... the court may rule on the question as a matter of law." Id. at 220-21, 231 S.E.2d 245.
In this case, defendants first became aware of the environmental contamination on the Byron property in the summer of 1987 and did not notify plaintiff of any potential liability from this contamination *1580 until December, 1990. However, defendants offer as justification for their delay the fact that they were unaware of the Trust's potential liability until notification by the EPA and the EPD in December, 1990.
The court cannot find as a matter of law that defendants should have known of the Trust's potential liability prior to notification by the EPD and EPA. Thus, there is a dispute of fact on the issue of reasonable notice that should be determined by a jury, and summary judgment is not appropriate. See Insurance Co. of North America v. Waldroup, 462 F. Supp. 161, 163 (M.D.Ga. 1978).
CONCLUSION
In conclusion, the court GRANTS plaintiff's motion for summary judgment IN PART and DENIES it IN PART. Plaintiff's motion for summary judgment is GRANTED on the question of coverage under the 1988 policy. The court HOLDS that plaintiff owes no obligation to defendants under this policy. However, as there are several disputes of fact remaining on the question of coverage under the 1984 policy, plaintiff's motion for summary judgment on this policy is DENIED.
SO ORDERED.
NOTES
[1] However, whether both the "accident" and "injury" must occur within the policy period is irrelevant to this case, as will be discussed later in this opinion.
[2] Under CERCLA, a release is defined as "any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment." 42 U.S.C. § 9601(22).
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813 F. Supp. 1547 (1993)
C. DOE, Plaintiff,
v.
CUTTER BIOLOGICAL, Defendant.
No. 90-687-CIV-ORL-22.
United States District Court, M.D. Florida, Orlando Division.
February 19, 1993.
*1548 *1549 Judith S. Kavanaugh, Peeples, Earl & Blank, Sarasota, FL, Robert Edwin Turffs, Kanetsky, Moore & Deboer, P.A., Venice, FL, Thomas L. Colaluca, Cleveland, OH, for plaintiff.
Duncan Barr, JoAnn Arkfeld, O'Connor, Cohn, Dillon & Barr, San Francisco, CA, Patricia E. Lowry, Steel, Hector & Davis, West Palm Beach, FL, Charles P. Goodell, Jr., Goodell, Devries, Leech & Gray, Baltimore, MD, for defendant.
ORDER
CONWAY, District Judge.
This cause comes before the Court for consideration of Defendant Cutter's Second Motion for Summary Judgment on the Basis that Plaintiff's Amended Complaint is Time-Barred (Dkt. 154), filed September 11, 1992. The Court has reviewed the Plaintiff's response and the materials submitted by both parties in support of their memoranda of law. Because this action is time-barred under applicable Florida law, the Defendant's motion for summary judgment is granted.
Summary judgment is appropriate only when the Court is satisfied "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." Rule 56(c), F.R.Civ.P. In making this determination, the Court must view all of the evidence in a light most favorable to the non-moving party. Samples on Behalf of Samples v. Atlanta, 846 F.2d 1328, 1330 (11th Cir.1988). The moving party has the initial burden of establishing the absence of a genuine issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Next, the "non-moving party ... bears the burden of coming forward with sufficient evidence of every element that he or she must prove." Rollins v. TechSouth, Inc., 833 F.2d 1525, 1528 (11th Cir.1987). To that end, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file', designate `specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. The issue here is whether there exists a genuine issue of material fact that Plaintiff's cause of action accrued more than four years prior to the filing of this action. Defendant has the final burden of showing the absence of any material fact in order to prevail on its motion.
I. FACTS
Plaintiff, an adult male, suffers from hemophilia, a hereditary disease characterized by abnormally low levels in the blood of a protein called "Factor VIII." Factor VIII is a clotting protein. Hemophiliacs lack this clotting protein and are therefore subject to spontaneous hemorrhage into soft tissues, bones, joints, muscles and the brain. These bleeding episodes can be fatal. Bleeding into joints can cause severe arthritis and crippling. Severe hemophiliacs like Plaintiff must use blood products on a regular basis to prevent or treat bleeding episodes.
One such blood product is concentrated Factor VIII. Developed in the late 1960's, Factor VIII concentrates offer advantages over other therapies such as transfusions *1550 of whole human blood, plasma, and cryoprecipitate (a derivative of plasma taken from a single donor or small groups of donors). For example, transfusions of whole blood involve a large volume of fluid, creating a significant risk of vascular overload and congestive heart failure. In contrast, with factor concentrates the level of clotting factor sufficient to stop bleeding can be achieved without the risk of vascular overload. Additionally, factor concentrates can be stored easily; a hemophiliac can carry a supply with him to school or to work. These unique characteristics of concentrates allow prompt treatment of trauma or a spontaneous bleeding episode. This, in turn, improves treatment and also allows hemophiliacs greater freedom of movement. Indeed, Factor VIII concentrates allowed Plaintiff to maintain a more normal lifestyle than otherwise would have been possible.
Plaintiff began using Factor VIII concentrates in the late 1960's or early 1970's. During the time relevant to this action, Cutter processed and distributed Factor VIII concentrates under the name Koate. Koate is a prescription biological product, available only through a licensed physician.
Plaintiff has stated that in November 1983, he received a memorandum from the Central Florida Blood Bank that enclosed a letter from Cutter dated October 31, 1983. The Cutter notice listed lot numbers that were being voluntarily withdrawn by Cutter, and also states:
The purpose of this letter is to make you aware that the above lots contain plasma donated from an individual who subsequently was diagnosed as having Acquired Immune Deficiency Syndrome (A.I.D.S.).
According to Plaintiff, the memorandum and letter prompted Plaintiff to return to the blood bank about six vials of one of the affected lots. These events provided Plaintiff with the first notice he can recall of the possibility that Acquired Immune Deficiency Syndrome (AIDS) could be transmitted through blood or blood products.
In April 1984, medical researchers identified the virus HTLV-III (now known as the human immunodeficiency virus or "HIV") as the cause of AIDS. After that discovery, a test was developed to detect antibodies to HIV. Licensed by the FDA in March 1985, the ELISA (enzyme linked immunosorbent assay) test has proven almost 99% effective in detecting exposure to the AIDS virus. The ELISA test, however, detects only the presence of antibodies to HIV. There is still no screening test for the presence of the virus itself.
In September 1985, on the recommendation of his physician, Dr. Clarence H. Brown, III, Plaintiff was given an ELISA test. The result was positive, indicating that Plaintiff had been exposed to HIV. Before the end of October 1985, Dr. Brown informed Plaintiff that he had tested positive for HIV. Plaintiff now alleges that he became infected in 1983 with HIV, the virus that causes AIDS, as a result of being treated with HIV-contaminated Koate.
Dr. Brown provided Plaintiff with the following explanation of the meaning of a positive test result:
What I provided to him and to all of the other patients who were positive at that time, was a package of information that had been provided to me by the Hemophilia Association of Central Florida and the National Hemophilia Foundation which was a published description of the impact of being positive for HTLV-III, how one was to use the information that one was positive for the virus, in terms of how it was contracted, how it was transmitted, what one should do in practicing safe sex, if you will, for the reduction of the transmission of the virus to sexual contacts, how to handle this information with health care providers dealing with the individuals, such as dentists, surgeons, other physicians. All of that was a package that was produced by the National Hemophilia Foundation and transferred to our patients who were part of the Hemophilia Association of Central Florida of which I was at that time a medical director. So I was serving not only as the information liaison as medical *1551 director but also as a private or personal physician of a number of these hemophiliacs.
....
In terms of my specific conversation with [Plaintiff], I don't recall [telling Plaintiff what his medical course likely would be]. But, all of the patients who tested positive were informed of what we all now know about HIV being a life long infection, that there would be life long ramifications of that in terms of the potential for serious illness, certainly as we all know early death from those serious illnesses, and that he would need to inform his spouse of the positive results. In fact, she was tested at the same time he was tested and she tested negative.
Dr. Brown Deposition dated August 8, 1991, at 8-10.
In his deposition, Plaintiff made the following statements regarding the conversation with Dr. Brown:
Q. But you were told in the fall of 1985 that you had tested positive for HIV antibody?
A. Yes.
Q. What did Dr. Brown tell you about it at that time?
A. That I had a 50/50 chance to live.
Doe Deposition dated July 30, 1991, at 71. During this meeting, Dr. Brown also stated that the HIV infection "probably occurred" from the factor concentrates. Doe Deposition dated August 8, 1991, at 55-56.
In addition to discussing the HIV positive test results with Dr. Brown,[1] Plaintiff discussed his situation with other individuals and sought out whatever information was available from the medical community. Of particular interest to the Court is the information that was available to Plaintiff regarding the effects of the HIV virus itself and the connection between the virus and AIDS.
For example, an "AIDS UPDATE," dated March 1985 from the Hemophilia Information Exchange of The National Hemophilia Foundation contained the following information:
....
3. What are the causes of AIDS?
The cause of AIDS is a virus of unusual type, and most experts now believe this virus to be the human T lymphotropic virus III (HTLV-III), as described in later sections of this document.
....
4. How does one get AIDS?
The great majority of people who are exposed to the AIDS agent appear not to be susceptible to AIDS, or to develop such mild symptoms that no disease is detectable after exposure to the virus.
....
11. Does the finding of antibodies to HTLV-III indicate a person has AIDS?
No. Many persons with hemophilia have been exposed to this virus without developing any evidence of AIDS.... Having antibodies simply indicates that one has been exposed to the virus and had an immune response to it.
....
14. What do early tests of HTLV-III in hemophilia show?
The majority of persons with hemophilia have developed an antibody against HTLV-III, indicating they have been exposed to the agent and have developed an immune response to it. This *1552 indicates that HTLV-III generally produces no clinical symptoms or very mild symptoms, and only rarely cause [sic] AIDS to occur. This is similar to the situation with hepatitis virus: most persons with hemophilia have hepatitis B antibody, but rarely does severe liver disease (e.g., cirrhosis) develop.
....
An "AIDS UPDATE," dated July 25, 1985, from the same organization provides the following information:
....
5. If I am the sexual partner of a person with hemophilia who has a positive HTLV-III antibody test, what should I do?
Until more information is available, NHF is recommending the use of condoms. Many persons with hemophilia have been exposed to this virus without developing any evidence of AIDS. Having antibodies simply indicates the individual has had an immune response. Recent research, however, has shown that in some instances the virus has been transmitted to sexual partners of otherwise healthy persons with hemophilia, and only in extremely rare instances, has the disease been transmitted. But it is important to remember that preventive measures can be taken (see section B, below).
....
11. How am I and my partner to cope with the AIDS risk?
AIDS is not an invariable consequence of multiple transfusions. Even though a person is exposed to the virus the chances of him or her developing AIDS are low. Some people exposed to the virus: will develop AIDS (less than 1%); some may develop symptoms of mild immune deficiency which does not progress to AIDS; others may carry the virus without any symptoms of illness; some may develop antibodies to the virus; the rest will not carry the virus. It is the uncertainty of outcome that creates emotional discomfort.
....
Whatever may have been the information available in 1985, at some point the information available to the medical community progressed until it became fairly widely accepted that a person who tested positive for HIV would be likely to develop AIDS. Dr. Brown, in his deposition, made the following statements regarding this growing awareness:
Q. Did there come a time, Dr. Brown, between, say, the middle of '85 and the time that you stopped being the medical director when the information available on AIDS and hemophiliacs suggested that the large majority of hemophiliacs who had who were testing positive for HIV would at some point in time develop AIDS?
A. Yes.
Q. Do you recall during what time frame that became apparent to you?
....
THE WITNESS: I would say within one to two years after testing became available in March of 1985, those of us taking care of hemophiliacs and the hemophiliac population appreciated that fact.
Q. All right. Is it your belief, then, based on what you said, that sometime between May of 1986 and May of 1987 the Plaintiff in this case appreciated the fact that because he had tested positive for HIV that he would at some point in time develop AIDS?
A. I would say that would be at the latest when he would have some understanding of that, since we knew in 1985 he was HIV positive, and information by, I would say, 1987 was available that once HIV positive the risk of developing AIDS was virtually 100 percent.
Dr. Brown Deposition dated September 3, 1992, at 180-81.
In addition to discussing with others the information that was available regarding the HIV virus and AIDS, Plaintiff discussed *1553 the relative merits of bringing a lawsuit. Plaintiff solicited various opinions, including those of his parents, his wife, his brother and of a Dr. Craig Kitchens, M.D. Plaintiff initially stated in a deposition that he recalls the conversation with Dr. Kitchens taking place in 1986 or 1987. Doe Deposition dated September 3, 1992, at 32-34. Plaintiff has subsequently asserted that the conversation took place in 1988.
Plaintiff provides the following account of his conversation with Dr. Kitchens:
Q. What do you recall discussing with Dr. Kitchens in '86 or '87?
A. I asked him his opinion of hemophiliacs suing providers or pharmaceutical companies.
Q. And what did he tell you?
A. He told me it was asinine. I remember his turning up his face and stomping his foot down and told me, he said, Doe, I think it is asinine. He always called me by my last name. And he said, I think it is asinine. He said, it is stupid. He said, they're going to go out of business and hemophiliacs won't be able to get their factor.
Q. How do you recall that as being in '86 or '87?
A. Because of it was around the time that there was major litigation coming out. Some hemophiliacs were getting sick and there was some major litigation in the news.
....
Q. Did anyone suggest to you that you go to Dr. Kitchens and seek his opinion about bringing a lawsuit?
A. About bringing a lawsuit?
Q. Yes.
A. No one suggested that I go to him.
....
Q. Has anyone at Cutter ever suggested to you directly that you speak to Dr. Kitchens about your lawsuit?
A. Would you rephrase that, please?
Q. Has anyone from Cutter ever, through correspondence or verbally, advised you personally to speak to Dr. Kitchens?
A. No about my lawsuit, you're saying?
Q. Or about anything, for that matter?
A. I don't remember that anyone ever did.
Q. Did you ever approach Dr. Kitchens specifically for advice about whether you personally should bring a lawsuit?
A. Just I think our discussion was asking him the opinion of hemophiliacs in general bringing lawsuits, and I think a few of them well, we did discuss some names of some lawsuits when we were discussing that happening.
Q. But, you never specifically went to him and said, "Should I file a lawsuit?"
A. I don't remember doing that.
....
Id. at 33-34 and 43-44.
In an affidavit provided in response to Defendant's motion for summary judgment, Plaintiff now makes the following statement regarding his conversation with Dr. Kitchens.
In 1988, after the Ray family filed suit against Cutter Laboratories and another pharmaceutical company for negligence, arising out of the infection of the three Ray boys with the AIDS virus through the use of factor concentrates, I discussed with Dr. Craig Kitchens whether I or other hemophiliacs should consider such a lawsuit in the event it turned out I had been infected and developed AIDS. I had great respect for Dr. Kitchens' opinion, as I had known him for years during his tenure with the Florida Hemophilia Association. Dr. Kitchens told me that the Rays were wrong to file suit and that Cutter Laboratories had done everything possible to make the factor concentrates safe and were not at fault in any way. He stated that if hemophiliacs *1554 filed law suits [sic] against Cutter and the other companies it would make Cutter stop manufacturing factor concentrates and the hemophiliacs would have to use other treatments. Based on his advice, I did not seek legal advice at that time.
It is now clear that counsel for Defendant contacted Dr. Kitchens in January 1988 about the possibility of acting as a consultant on behalf of Defendant. Dr. Kitchens was not retained as an expert witness on behalf of Defendant during 1988 nor was he paid any money by or on behalf of Defendant during 1988. In February 1989, counsel for Defendant contacted Dr. Kitchens regarding a case pending against Defendant in Florida. In April 1989, Dr. Kitchens received compensation for his services as an expert witness on behalf of Defendant.[2]
Assuming that Plaintiff's conversation with Dr. Kitchens did occur in 1988, rather than 1986 or 1987, it is clear that Plaintiff did not know at the time of the conversation that Dr. Kitchens had been contacted by counsel for Defendant. In 1990, Plaintiff began to show symptoms of AIDS.
II. LEGAL ANALYSIS
The parties appear to agree that Plaintiff's claims are subject to a four-year statute of limitations pursuant to Section 95.11 of the Florida Statutes. The four year time period begins running "from the time the facts giving rise to the cause of action were discovered or should have been discovered with the exercise of due diligence...." Fla.Stat. § 95.031(2) (1991).
Defendant has referred the Court to University of Miami v. Bogorff, 583 So. 2d 1000 (Fla.1991) for interpretation of the statute of limitations in a products liability case. In Bogorff, the Florida Supreme Court states that "[p]laintiffs need only have notice, through the exercise of reasonable diligence, of the possible invasion of their legal rights." 583 So.2d at 1004. The plaintiffs in Bogorff had such notice when they became aware of a dramatic change in their son's physical condition and also became aware of the possible involvement of defendant's product. The Bogorff holding has been explained more fully as follows:
We interpret the test which the supreme court has fashioned here as having two essential ingredients: an injury distinct in some way from conditions naturally to be expected from the plaintiff's condition, and (as opposed to or in the medical malpractice context) exposure to the product in question. Use of the conjunction `and' in this equation necessarily implies that the connection must be to some extent causal. There could be no `invasion of their legal rights' unless this were so.
Babush v. American Home Products Corp., 589 So. 2d 1379 (Fla. 4th DCA1991) (emphasis in the original).[3]
*1555 Defendant argues that Plaintiff was on notice that he was injured when Defendant recalled some of its factor concentrate in 1983.[4] This position is supported by the analysis in Doe v. American National Red Cross, 796 F. Supp. 395 (W.D.Wisc.1992). Alternately, Defendant argues that at the very latest, Plaintiff was on notice that he was injured when he tested positive for the HIV virus in the fall of 1985. Defendant's argument assumes that the injury to Plaintiff is the HIV virus itself. By contrast, Plaintiff argues that it is the onset of AIDS, not the HIV virus, that is Plaintiff's injury. Plaintiff first experienced pre-AIDS symptoms in 1990 and then filed this suit on September 12, 1990. Under Defendant's analysis, Plaintiff's claims are time-barred for failure to file suit by the fall of 1989. Under Plaintiff's analysis, Plaintiff could have filed suit until some time in 1994.
It appears to the Court that Plaintiff was injured when he received some type of blood product containing the HIV virus prior to the time that companies began treating the blood products to kill the virus. Therefore, Plaintiff was injured some time prior to 1984. However, the injury itself did not trigger the statute of limitations.
The key issue, then, is at what point in time Plaintiff knew, or should have known, that he had been injured. In the Court's analysis, the knowledge available to the medical community must be imputed to Plaintiff since this knowledge would be similarly available to Plaintiff upon the exercise of due diligence.
Plaintiff has been most diligent in attempting to decipher the rapidly changing and often conflicting information that was available to him throughout the 1980's. He understood when he was diagnosed as being HIV positive that he had a virus for which there was no cure. The consequence of this virus was, as his doctor advised him, a "50-50 chance to live." Although the possibility of contracting AIDS was generally minimized in the information available to Plaintiff, Plaintiff was advised that he had a 50/50 chance of contracting AIDS which would result in death, not an insignificant injury.
Florida law does not require that Plaintiff know the full extent of his injury. Plaintiff need only have notice of the possible invasion of his legal rights. University of Miami v. Bogorff, 583 So. 2d 1000 (Fla. 1991). By October 1985, Plaintiff knew that he was HIV positive and thus, that he had suffered an injury; and Plaintiff knew that he was HIV positive as a result of being treated with HIV-contaminated factor concentrate. The fact that Plaintiff did not test positive for AIDS until 1990 is not dispositive because under Florida law, the statute of limitations begins to run even if the full consequences of the injury are not known. Byington v. A.H. Robins Co., Inc., 580 F. Supp. 1513 (S.D.Fla.1984); City of Miami v. Brooks, 70 So. 2d 306 (Fla. 1954).
Recognizing that there was a potential problem with the statute of limitations, Plaintiff has attempted to craft an argument that Defendant fraudulently concealed Plaintiff's cause of action and, therefore, the statute of limitations must be tolled during the period of concealment. In the response to Defendant's motion, Plaintiff has argued that "Dr. Kitchens' failure to disclose his Cutter contacts to Plaintiff in 1988 when he advised Plaintiff not to sue Cutter, and his subsequent failure to disclose his expert relationship once it was formalized in 1989, raises questions of fraudulent conduct by both Cutter and Dr. Kitchens." Plaintiff's Response (Dkt. 177) at 14.
To prevail on a claim of fraudulent concealment in order to toll the statute of limitations, the Plaintiff must establish 1) that the Defendant successfully concealed the cause of action, and 2) that the Defendant employed fraudulent means to achieve that concealment. Nardone v. *1556 Reynolds, 333 So. 2d 25, 37 (Fla.1976). In Nardone, the Florida Supreme Court held that
Although generally the fraud must be of such a nature as to constitute active concealment to prevent inquiry or elude investigation or to mislead a person who could claim a cause of action, we do recognize the fiduciary, confidential relationship of physician-patient imposing on the physician a duty to disclose; but, this is a duty to disclose known facts and not conjecture and speculation as to possibilities.
Id. at 39.
Solely for the purpose of deciding Plaintiff's fraudulent concealment argument, the Court accepts as fact that at the time Plaintiff had his conversation with Dr. Kitchens, Dr. Kitchens was working for Defendant. However, even if the Court were to go so far as to assume that Dr. Kitchens was a direct employee of Defendant, Plaintiff's argument must fail as a matter of law. Plaintiff already knew he was HIV positive and that he had been exposed to contaminated factor concentrate. Once he learned lawsuits were being filed by other hemophiliacs, he knew that he had a potential cause of action, if he chose to pursue it. He knew all of this before he spoke to Dr. Kitchens. Perhaps if Dr. Kitchens had told Plaintiff that he had not tested positive for the HIV virus or that exposure to contaminated factor concentrates could not result in a positive test result for the HIV virus, Plaintiff might have prevailed in a fraudulent concealment argument, even though Dr. Kitchens was not Plaintiff's personal physician. Perhaps if Plaintiff had been advised by an attorney that he had no basis for stating a claim of negligence or even a marginal chance of prevailing in court, the Court might be able to toll the running of the statute of limitations. However, Dr. Kitchens' opinion regarding the advisability of pursuing a lawsuit or of the alleged negligence of Defendant cannot toll the statute of limitations.
Plaintiff, in managing his hemophilia, has already overcome obstacles that most people will never encounter. It seems particularly tragic that he now has AIDS, through no fault of his own. Yet the Court cannot ignore the requirements of the statute of limitations as they have been set forth by the Florida legislature and interpreted by the Florida Supreme Court. Therefore, the Court finds that there exists no genuine issue of material fact concerning whether Plaintiff's cause of action accrued more than four years prior to the filing of the Complaint.
Accordingly, it is hereby ORDERED that Defendant Cutter's Second Motion for Summary Judgment on the Basis that Plaintiff's Amended Complaint is Time-Barred (Dkt. 154) is GRANTED. The Clerk is hereby directed to enter judgment in favor of Defendant.
DONE AND ORDERED.
NOTES
[1] In describing his discussions with Plaintiff, Dr. Brown has noted:
With [Plaintiff] it has always been a very open, intellectual dialogue. He's a very intelligent man who has a full understanding of what this means and it's been very comfortable in discussing all of these things with [him]. He's been a leader in the hemophilia association at a local and state level, so it's never been a difficult problem with him. In fact, he's been one of those who has been helpful in providing information to others.
Dr. Brown Deposition dated August 8, 1991, at 10.
[2] Plaintiff also refers to a letter sent in 1990 by Defendant to the mother of hemophiliac sons in Orlando. The letter refers the mother to Dr. Kitchens, among others, for additional information regarding AIDS.
It appears that Plaintiff never saw the 1990 letter. In any case, there is no argument that he in any way relied on such a letter. The letter appears to relate to other claims made by Plaintiff. Its only relevance to the issues the Court must consider at this juncture is that it tends to establish a relationship between Dr. Kitchens and Defendant in 1990.
[3] Plaintiff has asserted that "fraud and products liability claims accrue when both of two events have occurred: 1) the plaintiff discovers he was injured, and 2) that it arises out of Defendant's negligent act." Memorandum (Dkt. 177) at 6. The court in Babush did not require an awareness of a negligent act by a plaintiff before the statute of limitations was triggered in a product liability case. The plaintiff need only be aware of exposure to the product so as to suggest causation.
In this case, Plaintiff was aware of exposure to the factor concentrate that allegedly caused his HIV virus in 1983 and was informed by his doctor in 1985 that he probably acquired the HIV virus from factor concentrate. Therefore, one prong of the Babush test was satisfied at least by 1985. It was not necessary for Plaintiff to realize that Defendant's acts were allegedly negligent before the statute of limitations was triggered. Therefore, Plaintiff's arguments related to when Plaintiff first learned of alleged negligence in connection with the filing of other lawsuits is not relevant.
[4] The recall of factor concentrate in 1983 goes to Plaintiff's awareness of exposure to the product that allegedly caused his harm. In 1983, Plaintiff did not experience any symptoms or have any test results so as to be on notice that he had been injured.
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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/4555650/
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Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:08 AM CDT
- 860 -
Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
Douglas S. Bierman and James A. Hoppenstedt,
appellees and cross-appellants, v.
Brenda L. Benjamin, personally and
individually, et al., appellants
and cross-appellees.
___ N.W.2d ___
Filed May 22, 2020. No. S-18-915.
1. Summary Judgment: Appeal and Error. An appellate court will affirm
a lower court’s grant of summary judgment if the pleadings and admit-
ted evidence show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from those facts and
that the moving party is entitled to judgment as a matter of law.
2. ____: ____. In reviewing a summary judgment, the court views the
evidence in the light most favorable to the party against whom the
judgment was granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.
3. Contracts. The interpretation of a contract and whether the contract is
ambiguous are questions of law subject to independent review.
4. Appeal and Error: Words and Phrases. Plain error exists where there
is an error, plainly evident from the record but not complained of at
trial, which prejudicially affects a substantial right of a litigant and is of
such a nature that to leave it uncorrected would cause a miscarriage of
justice or result in damage to the integrity, reputation, and fairness of the
judicial process.
5. Appeal and Error. An appellate court may, at its option, notice plain
error.
6. Contracts. In interpreting a contract, a court must first determine, as a
matter of law, whether the contract is ambiguous.
7. Contracts: Words and Phrases. A contract is ambiguous when a word,
phrase, or provision in the contract has, or is susceptible of, at least two
reasonable but conflicting interpretations or meanings.
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Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
8. Contracts. When the terms of a contract are clear, a court may not
resort to rules of construction, and the terms are to be accorded their
plain and ordinary meaning as an ordinary or reasonable person would
understand them.
9. ____. The fact that the parties have suggested opposing meanings of a
disputed instrument does not necessarily compel the conclusion that the
instrument is ambiguous.
10. Contracts: Evidence. A contract found to be ambiguous presents a
question of fact and permits the consideration of extrinsic evidence to
determine the meaning of the contract.
Appeal from the District Court for Buffalo County: John H.
Marsh, Judge. Reversed and remanded for further proceedings.
Bradley D. Holbrook and Nicholas R. Norton, of Jacobsen,
Orr, Lindstrom & Holbrook, P.C., L.L.O., for appellants.
William J. Lindsay, Jr., and John A. Svoboda, of Gross &
Welch, P.C., L.L.O., Kenneth F. George, of Ken George Law
Office, and Luke M. Simpson, of Bruner, Frank & Schumacher,
L.L.C., for appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Per Curiam.
INTRODUCTION
Plaintiffs Douglas S. Bierman (Doug) and James A.
Hoppenstedt (Jim) filed a complaint against Brenda L.
Benjamin and BD Construction, Inc./Kearney (BD), alleging
various causes of action: to require Brenda to sell shares of
BD, to remove Brenda as an officer and director of BD, for
an accounting, and for damages based upon breach of fidu-
ciary duty. Following a grant of partial summary judgment in
favor of Doug and Jim and a trial, the court set a value for
BD, found that Brenda had breached her fiduciary duty to
BD, removed Brenda as an officer and director of BD, and
awarded Brenda $1,703,197.79. We reverse, and remand for
further proceedings.
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Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
BACKGROUND
BD is a construction company operated out of Kearney,
Nebraska. At all times relevant to this litigation, BD had three
shareholders: Mark W. Benjamin, who was a director and
president and owned 59 percent of the shares; Doug, a director
who owned 25 percent of the shares; and Jim, also a direc-
tor, who owned 16 percent of the shares. The three entered
into a buy-sell agreement on September 29, 2009, which
provided for the sale and purchase of BD shares in a variety
of scenarios.
Mark died on April 14, 2015. On May 26, Brenda was
appointed to serve as president of BD, but Doug ran the com-
pany on a day-to-day basis. On April 20, 2016, Brenda termi-
nated the employment of Doug and Jim. On May 6, Doug and
Jim filed this lawsuit against Brenda and BD, initially seeking
specific performance of the buy-sell agreement, an accounting,
and the appointment of new officers and directors. Doug and
Jim also sought damages for wrongful termination and breach
of fiduciary duty.
Prior to trial, Doug and Jim filed a motion for summary
judgment seeking a finding that the buy-sell agreement was
enforceable. The district court granted summary judgment to
Doug and Jim on that issue. The court reserved for trial the
issue of the value of BD. Following trial, the district court val-
ued BD, as of the date of Mark’s death, at $3.8 million, with
Mark’s 59-percent interest valued at $2.242 million. In addi-
tion, the district court found that Brenda breached her fiduciary
duty to BD and its shareholders in various ways. In accordance
with the preceding findings, the district court awarded Brenda
$1,703,197.79 for Mark’s interest in BD. Brenda appeals, and
Doug and Jim cross-appeal.
ASSIGNMENTS OF ERROR
On appeal, Brenda alleges that the district court erred in
(1) granting partial summary judgment finding the buy-sell
agreement enforceable; (2) finding that she acted in bad faith,
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305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
finding that she breached her fiduciary duties, and in removing
her as a director and officer of BD; (3) not admitting testimony
from Brenda’s advisors regarding the good faith and reason-
ableness of the process utilized to set bonuses and of Brenda’s
review of applicable industry standards; (4) setting the value of
Mark’s shares, both because April 14, 2015, the date of Mark’s
death, bore no relationship to the value of BD and because
life insurance proceeds received by BD on Mark’s life were
excluded; and (5) allowing a certified public accountant to tes-
tify regarding bonuses and compensation, because he was not
qualified as an expert.
On cross-appeal, Doug and Jim assign that the district court
erred in (1) reducing their damage award by 59 percent as to
the distribution of bonuses, (2) failing to reinstate the debt or
receivables owed to BD by Brenda and the estate, and (3) not
awarding them attorney fees.
STANDARD OF REVIEW
[1,2] An appellate court will affirm 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
those facts and that the moving party is entitled to judgment
as a matter of law. 1 In reviewing a summary judgment, the
court views the evidence in the light most favorable to the
party against whom the judgment was granted and gives such
party the benefit of all reasonable inferences deducible from
the evidence. 2
[3] The interpretation of a contract and whether the con-
tract is ambiguous are questions of law subject to indepen-
dent review. 3
1
Merrick v. Fischer, Rounds & Assocs., ante p. 230, 939 N.W.2d 795
(2020).
2
Id.
3
DH-1, LLC v. City of Falls City, ante p. 23, 938 N.W.2d 319 (2020).
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Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
[4,5] Plain error exists where there is an error, plainly evi-
dent from the record but not complained of at trial, which prej-
udicially affects a substantial right of a litigant and is of such
a nature that to leave it uncorrected would cause a miscarriage
of justice or result in damage to the integrity, reputation, and
fairness of the judicial process. 4 An appellate court may, at its
option, notice plain error. 5
ANALYSIS
Brenda assigns that the district court erred when it granted
partial summary judgment in favor of Doug and Jim on the
issue of the enforceability of the buy-sell agreement.
As relevant to this issue, article III of the buy-sell agreement
states that “in the event of the death of a Shareholder, and only
in such event, the Corporation will be required and shall, to the
fullest extent permitted by applicable law, purchase the shares
of stock of the Deceased Shareholder from the legal representa-
tive of the Deceased Shareholder’s estate.”
Article V purports to deal with the determination of pur-
chase price in the event of the sale of shares. Section 5.1
applies where the shares are for sale pursuant to an offer of the
disposing shareholder. Section 5.2 purports to apply to “Other
Operative Events” and provides:
In the case of all other Operative Events other than the
Death of Shareholder, the price per share of the shares of
stock shall be paid by the Corporation and/or the Non-
disposing Shareholders. The price per share shall be the
price which is agreed to annually by the Shareholders and
attached hereto as an Exhibit. In the event of the failure
to agree for two (2) consecutive years, the parties agree
that the Corporation will employ an independent third
party to appraise the business and determine the price per
4
Mays v. Midnite Dreams, 300 Neb. 485, 915 N.W.2d 71 (2018).
5
Id.
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Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
share, with appraisal costs split between the Corporation
and the Shareholders as a group.
(Emphasis supplied.)
The district court found that the agreement was unambigu-
ous, reasoning that the exclusion for “the death of a share-
holder” noted in the first sentence did not modify the pricing
method set forth in the second sentence. For that reason, the
court concluded that the pricing method set forth in the second
sentence should be used to calculate the share price for all
operative events.
[6-10] In interpreting a contract, a court must first deter-
mine, as a matter of law, whether the contract is ambiguous. 6
A contract is ambiguous when a word, phrase, or provision
in the contract has, or is susceptible of, at least two reason-
able but conflicting interpretations or meanings. 7 When the
terms of a contract are clear, a court may not resort to rules of
construction, and the terms are to be accorded their plain and
ordinary meaning as an ordinary or reasonable person would
understand them. 8 The fact that the parties have suggested
opposing meanings of a disputed instrument does not neces-
sarily compel the conclusion that the instrument is ambigu-
ous. 9 A contract found to be ambiguous presents a question
of fact and permits the consideration of extrinsic evidence to
determine the meaning of the contract. 10
None of the parties have challenged the district court’s under-
lying determination that the buy-sell agreement was unambigu-
ous, though they disagree as to the meaning of the agreement.
But an appellate court may, at its option, notice plain error. 11
6
Wintroub v. Nationstar Mortgage, 303 Neb. 15, 927 N.W.2d 19 (2019).
7
Id.
8
Gibbons Ranches v. Bailey, 289 Neb. 949, 857 N.W.2d 808 (2015).
9
Id.
10
David Fiala, Ltd. v. Harrison, 290 Neb. 418, 860 N.W.2d 391 (2015).
11
Mays v. Midnite Dreams, supra note 4.
- 866 -
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305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
We do so here because we find the buy-sell agreement to be
clearly ambiguous on the question of what pricing mechanism,
if any, is set forth by the document.
In this case, we find the buy-sell agreement to be suscep-
tible to multiple meanings. Most notably, section 3.1 provides
that in the event of the death of a shareholder, BD is required,
“[s]ubject to the terms and conditions as set forth herein,” to
purchase those shares from the estate of the deceased share-
holder. While the agreement provides for the procedure to
be followed for such a purchase via section 6.3, it does not
include any explicit provision with language setting forth the
price to be paid in that event. Article V purports to deal with
the “Determination of Purchase Price,” but has language that
could be read as excluding “the death of a shareholder” from
that particular pricing mechanism.
While section 3.1 states that the agreement sets forth certain
“terms and conditions” to follow to effectuate such a pur-
chase, there is an interpretation of the agreement that would
not provide all necessary “terms and conditions.” In addition,
we observe that language in the agreement allowing for the
purchase of life insurance policies to facilitate the purchase of
the shares as required by the agreement could arguably be read
as providing a pricing mechanism for the purchase of shares in
the event of the death of a shareholder.
In short, it is not possible to determine the meaning of the
buy-sell agreement as applied to the death of a shareholder.
We find plain error in the district court’s determination that the
buy-sell agreement was unambiguous. The interpretation of an
ambiguous contract presents an issue of fact not appropriate
for determination on summary judgment. The consideration of
extrinsic evidence is necessary to determine the meaning of
the buy-sell agreement.
Accordingly, we find merit to Brenda’s assignment of error
asserting that the grant of partial summary judgment was
in error. We reverse the district court’s grant of summary
- 867 -
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305 Nebraska Reports
BIERMAN v. BENJAMIN
Cite as 305 Neb. 860
judgment and remand the cause to the district court for fur-
ther proceedings. Because we find that the grant of summary
judgment was error, we decline to reach the remainder of
Brenda’s assignments of error or to reach Doug and Jim’s
cross-appeal.
CONCLUSION
The district court’s grant of summary judgment is reversed
and the cause remanded for further proceedings.
Reversed and remanded for
further proceedings.
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814 F. Supp. 986 (1993)
Hiram W. WRIGHT, Plaintiff,
v.
MONTGOMERY WARD & CO., INC., Defendant.
Civ. A. No. 91-4241-DES.
United States District Court, D. Kansas.
February 5, 1993.
*987 Lynn D. Lauver, Dwight L. Miller, Topeka, KS, for plaintiff.
Grant M. Glenn, Woner, Glenn, Reeder, Lowry & Girard, Topeka, KS, for defendant.
MEMORANDUM AND ORDER
SAFFELS, Senior District Judge.
This matter is before the court on motion by the defendant Montgomery Ward & Co., Inc. ("Montgomery Ward") for summary judgment. The plaintiff Hiram Wright is suing Montgomery Ward on several legal theories. He alleges false imprisonment, intentional infliction of emotional distress, malicious prosecution and violation of his civil rights, 42 U.S.C. § 1983. The court finds *988 that even taking the plaintiff's facts as true and uncontroverted, the defendant is entitled to judgment as a matter of law and Montgomery Ward's motion for summary judgment (Doc. 62) will be granted.
The plaintiff's claims are based upon an incident occurring July 29, 1990, in which Glenn Hawks, a loss prevention specialist for Montgomery Ward, reported that merchandise presented to the plaintiff for payment was not properly rung up. The plaintiff was a cashier for Montgomery Ward and the customer was Bridgette Criglar, the wife of another Montgomery Ward employee. The total for all purchases was $1.05, but the value of merchandise found in Ms. Criglar's package was over $50.
The police were called to the scene, Glenn Hawks's statement was taken and subsequent theft charges were filed against both the plaintiff and Ms. Criglar. The plaintiff was interviewed by store officials on July 29, 1990, for over one and one-half hours and was arrested on September 9, 1990. The plaintiff was eventually acquitted.
A moving party is entitled to summary judgment only when the evidence indicates that no genuine issue of material fact exists. Fed.R.Civ.P. 56(c); Maughan v. SW Servicing, Inc., 758 F.2d 1381, 1387 (10th Cir.1985). The requirement of a "genuine" issue of fact means that the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). The moving party has the burden of showing the absence of a genuine issue of material fact. This burden "may be discharged by `showing' that is, pointing out to the district courtthat there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986). "[A] party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. Thus, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. The court must consider factual inferences tending to show triable issues in the light most favorable to the existence of those issues. United States v. O'Block, 788 F.2d 1433, 1435 (10th Cir. 1986). The court must also consider the record in the light most favorable to the party opposing the motion. Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir.1984), cert. denied, 469 U.S. 1214, 105 S. Ct. 1187, 84 L. Ed. 2d 334 (1985).
FALSE IMPRISONMENT
The plaintiff asserts his false imprisonment claim as to two separate events. First, he alleges the interview conducted on July 29, 1990, amounted to false imprisonment. Specifically, the plaintiff contends the interview lasted over one and one-half hours, the tone was hostile and accusatory, he believed he would be arrested if he tried to leave and he was summoned to the interview under pretext. The defendant contends the plaintiff consented to the interview, and, even if he had not, the merchant's defense, K.S.A. § 21-3424, would shield Montgomery Ward from liability for false imprisonment.
The court finds that even taking all the plaintiff's allegations as true, the plaintiff has not demonstrated any genuine issue of material fact. Taking as true for the purpose of this motion, the plaintiff states he came to the interview having been led to believe the loss prevention employee, Glenn Hawks, was going to question him about matters unrelated to the incident with Bridgette Criglar or a credit card transaction scheme. He signed a consent form not knowing he was the subject of the inquiry. The plaintiff also states he was told, after requesting to leave, that it would look bad for him if he left.
The plaintiff stated the following in his deposition:
Q Did you try to leave the interview at any time?
A No. I think I cooperated fully with them.
Q They didn't restrain you or threaten you?
*989 A I didn't think I could leave until I clarified my position or tried to clear up some kind of misunderstanding, because now my character and my name is involved and I didn't think I would be able to leave without being implicated as being guilty because I left the interview. I felt like I had to stay.
Q You were trying to cooperate to clear your name?
A Yes.
Q But at no time did they threaten you if you left they were going to do so and so?
A No.
Q And at no time did they restrain you to prevent you from physically leaving?
A Personally I felt like I couldn't leave. Now what kind of definition you want to put on it, I just felt like I just couldn't leave. I thought I would be charged and maybe arrested right then, that is how I felt. Physically no restraint was put on me, but mentally it was because I felt like if I didn't clear this matter up or clear my name that I could be charged right there on the spot with some kind of improprieties that I wasn't aware that I was a part of.
The Kansas Supreme Court has held that "all that is necessary is that the individual be restrained of his liberty without any sufficient legal cause therefor, and by words or acts which the one being restrained fears to disregard. It is universally held the action of false imprisonment always includes the element of an assault in the technical sense." Thompson v. General Finance Co., 205 Kan. 76, 468 P.2d 269, 280 (1970). Further, it is recognized that a person must be held against their will. "[I]f one agrees of one's own free choice to surrender freedom of motion, as by remaining in a room or accompanying another voluntarily, to clear oneself of suspicion or to accommodate the desires of the other, rather than yielding to the constraint of a threat, then there is no imprisonment." W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 11, at 49 (5th ed. 1984) (and cases cited therein). Further, there can be no liability for threats for the future, such as to call the authorities or have the plaintiff arrested. Id. at 50. This amounts to moral pressure and not any unlawful restraint.
By the plaintiff's own admission, the reason he felt constrained to remain in the interview was the desire to clear his name. He was afraid if he left he might be charged with a crime or even arrested. The plaintiff admits there were no threats other than it might look bad for him if he left. As a matter of law, the court finds this is not sufficient to make a submissible case of false imprisonment and judgment must be granted to the defendant on this claim as to the July 29, 1990, interview. Based upon the court's resolution of this issue, the defendant's affirmative defenses of consent and/or the merchant's defense need not be analyzed.
The plaintiff further alleges false imprisonment for the September 9, 1990, arrest at his residence. The plaintiff was arrested by the Shawnee County Sheriff's Department.
The law is settled that the arrest does not have to be directly ordered by the defendant but "it must appear that they either instigated it, assisted in the arrest, or by some means directed, countenanced or encouraged it." Thompson v. General Finance Co., 205 Kan. 76, 468 P.2d 269, 280. In Thompson, the defendant filed an affidavit for extradition of the defendant from Colorado that contained numerous inaccuracies. For example, the affidavit stated the defendant had personal knowledge that the defendant was in Kansas on a certain date and committed the alleged offense on that date. The record was clear the plaintiff was not in Kansas on that date. Id. The court found that by not making a full and truthful disclosure of facts to the county attorney, the defendant instigated, countenanced or assisted the arrest. Id.
On the other hand, the Kansas Supreme Court has held that the defendant cannot be liable for false arrest by turning over to the authorities its knowledge of a suspected offense where the officer then makes an arrest on the officer's own judgment and discretion. Thurman v. Cundiff, 2 Kan. App. 2d 406, 580 P.2d 893, 898 (1978).
*990 The question for the court for the purpose of this motion is whether the facts in dispute are material and preclude summary judgment for the defendant. The plaintiff contends the defendant made false statements and failed to disclose Darren Criglar's role in the transaction in question, which amounted to Montgomery Ward instigating the plaintiff's arrest. There is no question that the accuracy of loss prevention specialist Glenn Hawks's statement to the police is in dispute.
The court, however, cannot find that Montgomery Ward is subject to liability on these facts. Even if the report made to Topeka police contained inaccuracies, Montgomery Ward did not swear out a complaint, did not submit an affidavit, and, after the initial call about the suspected crime, did not have any further role in whether charges would be filed. In fact, the plaintiff was not immediately arrested. From the exhibits submitted in conjunction with this motion, it appears the affidavit in support of the warrant was sworn on August 13, 1990, and the warrant issued on August 22, 1990. The plaintiff was not arrested until September 9, 1990. Any inaccuracies in the report given to the police officer on July 29, 1990, are attenuated by the length of time between the report and the arrest and the lack of further activity on the part of Montgomery Ward to pursue a criminal prosecution. That a Topeka police officer chose to treat the incident as they would a shoplifting call, which it was not, and do no further investigation should not subject Montgomery Ward to liability. It is undisputed that further investigation could have been done. Further, the office of the District Attorney had the discretion of whether to file theft charges based upon the report of Glenn Hawks, not investigated, as related to the police officer. It simply would be too great a stretch to find that Montgomery Ward is subject to liability on these facts and the court will grant judgment to the defendant on the false imprisonment claim regarding the September 9, 1990, arrest.
MALICIOUS PROSECUTION
To prove a claim for malicious prosecution, the plaintiff must establish that "the defendant initiated the criminal proceeding of which complaint is made, that the defendant in so doing acted without probable cause and with malice, and that the proceeding terminated in favor of the plaintiff." Braun v. Pepper, 224 Kan. 56, 578 P.2d 695, 698 (1978).
To establish that the defendant initiated the criminal proceeding, Kansas case law is clear that the defendant must have acted affirmatively in instigating or participating in the prosecution. Barnes v. Danner, 169 Kan. 32, 216 P.2d 804, 807 (1950). As in a cause of action for false imprisonment, merely reporting facts to a law enforcement officer who then deems a crime to have been committed and directs the defendant's arrest is not sufficient to establish this element. Id.
The analysis of this element for the purpose of malicious prosecution is necessarily similar to that for false imprisonment. Again, for the purpose of this issue, the court acknowledges that the truthfulness of Glenn Hawks's statement to the police after the alleged incident of theft is in dispute. The court further agrees with the plaintiff that providing false statements to law enforcement officials may subject the defendant to liability for malicious prosecution in a proper case.
On the present facts, however, any false statements to the police are attenuated by the lack of active participation by Montgomery Ward in procuring a prosecution and by the discretionary decision of the Shawnee County District Attorney to pursue a criminal prosecution several weeks after the incident. As stated above, the police made the initial decision to accept Glenn Hawks's statement without further investigation, in effect treating the alleged theft as a shoplifting. This is despite the reported involvement of a store employee. Subsequently, the district attorney made a decision to accept the report of the police officer, which restated the facts as reported by Glenn Hawks. Apparently the district attorney did no further investigation. The court is not saying that because the attorney had the discretion of whether to file charges Montgomery Ward escapes liability. On that basis, no claim *991 could ever be sustained. Rather, because this incident resulted in criminal charges in the manner it did, the court believes the district attorney's discretion is a valid and weighty factor to consider. The court finds as a matter of law that the plaintiff cannot establish the first element of his malicious prosecution claim and judgment will be granted to the defendant on this issue.
Two points bear emphasis here. First, although the court is deciding these issues as a matter of law despite whether Glenn Hawks made false statements to the police, there was undisputed objective evidence that warranted further investigation. The store receipt, which was on Bridgette Criglar's package, showed a total of $1.05 and the items in her sack clearly totaled more than that amount. It is undisputed that the plaintiff was the cashier who rang up the purchases. On that basis alone, it is the court's opinion that the defendant had probable cause to pursue the matter and relate that information to the police.
Second, although the truthfulness is disputed, Bridgette Criglar made two written and signed statements to the effect that she was aware of previous wrongdoing at the store by the plaintiff. Her source of this information was allegedly her husband, who apparently denied knowing anything about his wife's statement. In any event, these statements were made available to the police officer who took the report. Taking into consideration the posture of the entire case, the court finds the defendant must be granted judgment on the above two causes of action.
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS
To prove a cause of action for intentional infliction of emotional distress, commonly referred to as the tort of outrage, the plaintiff must establish the following four elements:
(1) The conduct of defendant must be intentional or in reckless disregard of plaintiff; (2) the conduct must be extreme and outrageous; (3) there must be a causal connection between defendant's conduct and plaintiff's mental distress; and (4) plaintiff's mental distress must be extreme and severe.
Roberts v. Saylor, 230 Kan. 289, 637 P.2d 1175, 1179 (1981). Liability for the tort of outrage has two threshold requirements, which initially must be determined by the court as a matter of law.
(1) Whether the defendant's conduct may reasonably be regarded as so extreme and outrageous as to permit recovery; and (2) whether the emotional distress suffered by plaintiff is in such extreme degree the law must intervene because the distress inflicted is so severe that no reasonable person should be expected to endure it. Id.
The Kansas Supreme Court has provided some guidance as to what conduct should be considered extreme and outrageous for the purpose of the tort of outrage. The court states, "liability may be found only in those cases where the conduct has been so outrageous in character, and so extreme in degree, as to go beyond the bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized society." Id. The benchmark has been stated as that behavior which would cause an ordinary citizen, upon hearing the facts, to exclaim, "Outrageous!" Id.
The court cannot find that the defendant's behavior in this case, even if the plaintiff's allegations are true, is at all close to rising to the required level of intolerability. The court has examined the Kansas cases disallowing liability and finds the facts of those cases much more questionable than the facts of this case. See Burgess v. Perdue, 239 Kan. 473, 721 P.2d 239 (1986); Neufeldt v. L.R. Foy Constr. Co., 236 Kan. 664, 693 P.2d 1194 (1985); Hoard v. Shawnee Mission Medical Center, 233 Kan. 267, 662 P.2d 1214 (1983); Hanrahan v. Horn, 232 Kan. 531, 657 P.2d 561 (1983); and Roberts v. Saylor, 230 Kan. 289, 637 P.2d 1175 (1981).
The court does not discount that if the plaintiff was falsely accused of a crime, it was unfortunate and surely upsetting to say the least. The defendant's actions, however, were not so egregious as to incur liability in this case. The plaintiff cannot meet the threshold requirements for proceeding with *992 this claim and judgment must be granted for the defendant on the cause of action for the tort of outrage.
DEPRIVATION OF CIVIL RIGHTS 42 U.S.C. § 1983
The plaintiff contends that Montgomery Ward acted in concert with the police in this case and is subject to liability under 42 U.S.C. § 1983. The defendant, however, maintains that no direct action was taken by the police, but by the district attorney. Further, the defendant asserts there was no plan under which the police would arrest anyone identified by Montgomery Ward as a shoplifter without independently investigating for probable cause.
In Lee v. Town of Estes Park, Colo., 820 F.2d 1112, 1115 (10th Cir.1987), the court makes it clear that liability must be predicated upon actions that fairly identify one as a state actor. See Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982). In Lee, reporting suspected criminal activity and escorting the suspect to the police station did not result in the conclusion that the defendant had acted under color of state law. The court stated, "[I]n order to hold a private individual liable under § 1983, it must be shown that the private person was jointly engaged with state officials in the challenged action, or has obtained significant aid from state officials, or that the private individual's conduct is in some other way chargeable to the State." 820 F.2d at 1114.
In the instant case, the court finds that Montgomery Ward cannot be considered a state actor for the purpose of liability under 42 U.S.C. § 1983. First, the same reasoning used by the court above is applicable here. The nexus between the defendant's actions and the ultimate arrest and charges against the plaintiff are too tenuous upon which to predicate liability. Further, any purported implied plan or agreement between the police and the defendant in prosecuting shoplifters is irrelevant in this situation. This incident involved a store employee, who the police did not question or arrest. That the police officer chose to treat the incident as he would a shoplifting and not do further investigation should not expose Montgomery Ward to liability on this theory.
Finally, the merchant's defense might be relevant to Montgomery Ward's liability if the plaintiff had been accused of shoplifting. On these facts, however, the court finds the Kansas statute, which allows the merchant to detain persons suspected of shoplifting, provides no inference of liability.[1]
The court finds that Montgomery Ward cannot fairly be said to be a state actor. As stated by the Court in Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937, 102 S. Ct. 2744, 2754, 73 L. Ed. 2d 482, "Without a limit such as this, private parties could face constitutional litigation whenever they seek to rely on some state rule governing their interactions with the community surrounding them." The court will grant judgment for the defendant on the cause of action for violation of the plaintiff's civil rights under 42 U.S.C. § 1983.
IT IS BY THE COURT THEREFORE ORDERED that the defendant's motion for summary judgment (Doc. 62) is granted.
NOTES
[1] This court did not address the issue of whether the merchant's defense, K.S.A. § 21-3424, in conjunction with the aider and abettor ordinance would allow the defendant to detain its employee without liability. Because of the policy behind this statute of providing the merchant a way to prevent the merchandise and suspect from leaving the store and disappearing, it is doubtful the defendant's interpretation would apply to later questioning of an employee. See Alvarado v. City of Dodge City, 238 Kan. 48, 708 P.2d 174, 183 (1985).
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883 F. Supp. 1047 (1995)
Andre M. SHELTON, Sr.,
v.
Detective Gregory MACEY and Detective Shupp, Lancaster County Drug Task Force.
Civ. A. No. 94-CV-2529.
United States District Court, E.D. Pennsylvania.
May 5, 1995.
*1048 Andre M. Shelton, Sr., Lancaster, PA, pro se.
Denise A. Kuhn, Pa. Deputy Atty. Gen., Philadelphia, PA, for defendant.
MEMORANDUM
WALDMAN, District Judge.
Plaintiff is an inmate at the Lancaster County Prison. In this pro se 42 U.S.C. § 1983 action, he alleges that the search and seizure which resulted in his arrest and conviction for a drug offense were unlawful. Defendants were members of the Lancaster County Drug Task Force.
Plaintiff alleges that defendants stopped him in the Lancaster train station, asked him questions and searched his bag without his consent, without a warrant and without probable cause. Defendants seized 39 packets of cocaine and a quantity of marijuana found in plaintiff's bag and arrested him. Based on the drug evidence and plaintiff's admission that he brought the drugs to Lancaster to sell, he was charged with and convicted in a jury trial of possessing cocaine with intent to deliver.
Plaintiff seeks monetary damages, an order directing the Commonwealth to change the verdict in his case from "guilty" to "not guilty" and his immediate release from incarceration.
To the extent that plaintiff challenges his confinement and seeks release from custody, his exclusive remedy is habeas corpus, which may not be pursued until state remedies are exhausted. Preiser v. Rodriguez, 411 U.S. 475, 488-90, 93 S. Ct. 1827, 1835-37, 36 L. Ed. 2d 439 (1973). Plaintiff does not allege such exhaustion and it clearly appears from the record adduced that his state remedies have not been exhausted.
Plaintiff's criminal defense attorney moved to suppress the drug evidence on the ground that the bag had been unlawfully searched without consent, a warrant or probable cause. After conducting a suppression hearing, the Court of Common Pleas found that the search and arrest were lawful and denied the suppression motion. In a fully and capably briefed post-trial motion, defense counsel again challenged the lawfulness of the search of the bag and seizure of the drugs. The *1049 Court denied the motion by opinion and order of September 16, 1994.
Defendants argue that the doctrine of collateral estoppel precludes plaintiff from relitigating the lawfulness of the search and seizure which resulted in his arrest and trial. The doctrine of issue preclusion applies in § 1983 actions to issues decided in state criminal proceedings. Allen v. McCurry, 449 U.S. 90, 104-05, 101 S. Ct. 411, 419-21, 66 L. Ed. 2d 308 (1980).
A federal court must give to state court judgments the same preclusive effect as would the courts of the state in which the judgment was rendered. Id. at 96, 101 S.Ct. at 415-16. Under Pennsylvania law, a party is precluded from relitigating an issue decided adversely to him in a prior case when: (1) he was a party to the prior litigation; (2) he had a full and fair opportunity to litigate the issue in question in the prior proceeding; (3) the issue determined in the prior proceeding was the same as that raised in the subsequent action; (4) the decision in the prior proceeding was essential to the judgment rendered; and, (5) a final judgment was rendered on the merits. Ashford v. Skiles, 837 F. Supp. 108, 112 (E.D.Pa.1993) (citing Pittsburgh v. Zoning Bd. of Adjustment, 522 Pa. 44, 55, 559 A.2d 896, 901 (1989)). See also Temple University v. White, 941 F.2d 201, 212 (3d Cir.1991).
Plaintiff is clearly a party in both pertinent cases. The issues raised in the state court suppression hearing and post trial proceedings and in plaintiff's § 1983 action are identical. The determination that defendants' search and seizure were lawful was essential to the state Court's orders denying the suppression and post-trial motions. Plaintiff, who was represented by counsel who filed well crafted briefs, had a full and fair opportunity to litigate the issues. It does not clearly appear of record, however, that plaintiff has failed timely to appeal his conviction or that any direct appeals have been decided.
In Bailey v. Ness, 733 F.2d 279 (3d Cir. 1984), the Court concluded that proceedings in a § 1983 action should be stayed pending resolution of appeals from a state court conviction in a case in which a common dispositive issue was decided because of the uncertainty of Pennsylvania law regarding the finality for collateral estoppel purposes of a judgment pending appeal. Id. at 282.[1] The key concern of the Court in Bailey in prescribing a stay rather than a dismissal was to protect a § 1983 plaintiff from a potential statute of limitations problem. Id. at 283.
Later, in Linnen v. Armainis, 991 F.2d 1102 (3d Cir.1993), the Court noted that subsequent to Bailey Pennsylvania courts unequivocally held that a state trial court judgment is final unless and until it is reversed. Id. at 1107.[2] Moreover, the recent opinion of the Supreme Court in Heck v. Humphrey, ___ U.S. ___, 114 S. Ct. 2364, 129 L. Ed. 2d 383 (1994) places the statute of limitations concern in a new perspective.
The Court in Heck held that whenever a § 1983 plaintiff seeks a judgment for damages for unlawful actions which would render his conviction invalid, his complaint must be dismissed unless he demonstrates that the conviction has already been reversed, expunged or otherwise invalidated. Id. at ___, 114 S.Ct. at 2372. It follows that the statute of limitations for such a § 1983 claim does not run until the plaintiff's conviction is reversed, expunged or invalidated. See, e.g., McMillian v. Johnson, 878 F. Supp. 1473, 1498-1500 (M.D.Ala.1995).
The Court in Heck recognized that a § 1983 claim for damages for an unreasonable search may present circumstances where a judgment for the plaintiff would not necessarily imply that his criminal conviction was unlawful. ___ U.S. at ___ n. 7, 114 S.Ct. at 2372 n. 7. Such would be the case where there was adequate untainted evidence *1050 to sustain the conviction, the unlawfully seized evidence was admitted under an exception to the suppression rule or an unconstitutional search did not produce evidence that was used to convict the § 1983 plaintiff. Even then, a plaintiff cannot sustain a § 1983 claim absent proof that an unlawful search "caused him actual, compensable injury" other than his conviction and imprisonment. Id.
The Supreme Court in Heck did not categorically exempt unreasonable search claims from the invalidation requirement. The Court noted that such a claim "may lie" and posited circumstances in which the success of such a claim would not necessarily impugn a plaintiff's conviction. Id. The Court's direction to the district courts is exact and unequivocal. "[W]hen a state prisoner seeks damages in a § 1983 suit, the district court must consider whether a judgment in favor of the plaintiff would necessarily imply the invalidity of his conviction or sentence; if it would, the complaint must be dismissed unless the plaintiff can demonstrate that the conviction or sentence has already been invalidated." Id. at ___, 114 S.Ct. at 2372 (emphasis added).
It is clear from the uncontroverted record in the instant case that a finding that the search of plaintiff's bag and seizure of the drugs found within it would necessarily imply that plaintiff's conviction was invalid. It clearly appears from the record that without the drugs, the prosecution had absolutely no case to present. Plaintiff's conviction rests squarely and solely on evidence of his possession of the drugs seized at the train station and his subsequent postseizure inculpatory admission. If the search and seizure at the train station were unconstitutional, plaintiff's conviction cannot stand.
The court will deny defendant's motion for summary judgment. Even accepting that the Common Pleas Court judgment is final unless and until reversed, it is inappropriate to enter a judgment which would bar reassertion by a pro se plaintiff of a claim of the type presented on a record that does not preclude the possibility of such a reversal. Prior to Heck, the court would have stayed proceedings until plaintiff exhausted his appeals or the time for doing so expired. Given the particular circumstances apparent from the uncontroverted record presented in this case, however, Heck mandates a dismissal of plaintiff's claim without prejudice to renew if and when his state court conviction is legally invalidated. An appropriate order will be entered.
ORDER
AND NOW, this 5th day of May, 1995, upon consideration of defendants' Motion for Summary Judgment and in the absence of any response thereto, consistent with the accompanying memorandum, IT IS HEREBY ORDERED that said Motion is DENIED and the above action is DISMISSED without prejudice.
NOTES
[1] The Court in Bailey noted Pennsylvania Supreme Court cases from 1848 and 1904 holding that such a judgment is not final, and cases of that Court from 1927, 1934 and 1957 holding that such judgments are final unless and until reversed. 733 F.2d at 281.
[2] The Court in Linnen proceeded to hold that plaintiff's § 1983 illegal search claim was not precluded because the merits of that claim were never reached and determined by the state trial court in a case where plaintiff had filed but never litigated a motion to suppress. 991 F.2d at 1105.
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687 F. Supp. 2d 133 (2010)
UNITED STATES of America,
v.
Peter POLOUIZZI, Defendant.
No. 06-CR-22 (JBW).
United States District Court, E.D. New York.
January 20, 2010.
As Amended February 11, 2010.
*135 Allen Lee Bode, United States Attorneys Office, Central Islip, NY, Andrea Goldbarg, United States Attorneys Office, Eastern District of New York, Brooklyn, NY, for Plaintiff.
MEMORANDUM AND ORDER GRANTING NEW TRIAL (POLOUIZZI V)
JACK B. WEINSTEIN, Senior District Judge:
*136 Table of Contents
I. Introduction........................................................................ 137
II. Facts and Procedural History ...................................................... 138
A. Defendant and the Crime......................................................... 138
1. Childhood Sexual Abuse in Sicily............................................. 138
2. Resulting Psychological Trauma............................................... 140
B. Arrest and Indictment .......................................................... 140
1. Execution of Warrant......................................................... 140
2. Twenty-Three Count Indictment................................................ 142
C. Trial Proceedings............................................................... 142
1. Images....................................................................... 142
2. Testimony ................................................................... 143
a) Polizzi's Testimony....................................................... 143
b) Dr. Lisa Cohen............................................................ 145
c) Dr. Eric Goldsmith........................................................ 146
d) Dr. Naftali Garcia Berrill........_....................................... 148
3. Jury Charge ................................................................. 150
a) Written Charge Sheet...................................................... 150
b) Insanity Defense.......................................................... 152
c) Mandatory Minimum Sentence ............................................... 152
D. Jury Verdict and Colloquy....................................................... 152
1. Jury Verdict................................................................. 152
2. Jurors Opposed To Incarceration ............................................. 152
E. Post-Trial Proceedings.......................................................... 155
1. First Grant of New Trial Based on Trial Court's Perception of Error.......... 155
2. Sentencing on Counts Fourteen through Twenty-Four............................ 155
F. Appeal.......................................................................... 155
G. Proceedings on Remand........................................................... 156
III. Second Grant of New Trial.......................................................... 157
A Standard....................................................................... 157
B. Preliminary Issue.............................................................. 158
C. Overindictment................................................................. 159
1. No Prejudice From Evidence Admitted......................................... 159
2. Prejudice From Overbreadth of Charges Tried ................................ 160
D. Timeliness..................................................................... 164
1. "Seven-Day" Rule............................................................ 164
2. Excusable Neglect........................................................... 165
3. Supplemental Order.......................................................... 167
IV. Informing New Jury of Mandatory Minimum Sentence ................................... 167
A The Sixth Amendment^History and Context........................................... 167
1. American Practice Circa 1791 ........................................... 172
2. British Practice Circa 1791........................ .................... 176
a) Ryder Papers.................................................................. 176
b) Old Bailey Session Papers .................................................... 180
B. Caselaw.......................................................................... 183
1. Jury's Historic Sentencing Role............................................... 184
2. Keeping Jury in the Dark Incompatible with Historic Jury Role................. 186
3. Jury's Power to Moderate Harsh Effects of Law................................. 188
C. Attempts to Restrict Sixth Amendment Jury Discretion............................. 190
1. Eighteenth and Nineteenth Century............................................. 190
2. Contemporary.................................................................. 195
D. Second Circuit Court of Appeals: Jury Knowledge.................................. 197
1. Thomas and Pabon-Cruz Premises.............................. 197
*137
a) Thomas .......................................................... 197
b) Pabon-Cruz....................................................... 199
c) Post-Boofcer, Pabon-Cruz, Thomas and Shannon Require
Reinterpretation........................................................ 201
d) Pabon-Cruz Applied to Polizzi.................................... 202
2. Gilliam's, Language Represents Current General Role of Informed
Jury as Representative of Community Mores................................. 202
3. In Instant Case, Informing the Jury of the Applicable Penalty Was
Necessary Because of the Defendant's Unusual Background and
the Unknown Punishment.................................................... 204
E. Variability of Results Depending Upon Informed & Non-Informed
Jurors ......................................................................... 204
F. Summary: Informing Jury in Present Case.......................................... 207
G. Special Circumstances............................................................ 208
V. Conclusion.......................................................................... 209
I. Introduction
The defendanta successful, middle-aged business and family man with no criminal recordwas tried and convicted of twelve counts of receiving and eleven counts of possessing child pornography in the privacy of his locked garage. See 18 U.S.C. §§ 2252(a)(2) (receipt); 2252(a)(4)(B) (possession). See also United States v. Polizzi (Polouizzi I), 549 F. Supp. 2d 308, 319 (E.D.N.Y.2008). The only defense proffered was insanity, predicated largely on repeated rapes by a relative, a friend of the family, the police, and other sexual abuse Polizzi suffered as a preteen boy in rural Sicily. See 18 U.S.C. § 17. The jury found him guilty on all counts.
A new trial was granted by the trial court on the receipt counts, on the ground that the judge had erred in failing to recognize, and to exercise, his discretion to inform the jury of the mandatory five-year minimum sentence required by the receipt counts, see 18 U.S.C. § 2252(b)(1), depriving the defendant of his Sixth Amendment right, when some jurors believed that medical treatment rather than long incarceration was required, and that it would be permitted on a finding of guilt. See Polouizzi I, 549 F.Supp.2d at 443-50.
The Court of Appeals for the Second Circuit reversed. United States v. Polouizzi (Polouizzi II), 564 F.3d 142 (2d Cir. 2009). It sharply reduced the number of crimes that could be charged in the indictment, from twenty-three to five, and remanded the case for further action by the trial court in accordance with the appellate opinion. Id. at 153-59.
Defendant moved for a new trial. The government opposed.
To expedite an appeal, this court promptly issued two preliminary memoranda, indicating that this more extensive memorandum, Polouzzi V, would follow. See United States v. Polizzi (Polouizzi III), 257 F.R.D. 33 (E.D.N.Y.2009) (Mem. on Post-Appellate Proceedings); United States v. Polizzi (Polouizzi IV), 262 F.R.D. 160 (E.D.N.Y.2009) (Abbreviated Mem. & Order Granting New Trial). In view of the decision of the Court of Appeals for the Second Circuit in Polouizzi II, sharply reducing the scope of the indictment, the trial court in Polouizzi III declared that a new trial would be required. 257 F.R.D. at 36-38. In Polouizzi IV, the trial court noted that it would exercise its discretion on retrial to inform the jury of the five-year mandatory minimum sentence of incarceration required by a conviction for receipt of child pornography *138 through the Internet. Polouizzi IV, 262 F.R.D. at 161-62.
The reduction in charges by Polouizzi II has substantially changed the dynamics of a jury's approach to the defendant's insanity defense. "[LJetting the guilty verdict stand would be a manifest injustice." United States v. Ferguson, 246 F.3d 129, 134 (2d Cir.2001).
II. Facts and Procedural History
A. Defendant and the Crime
The defendant's background is detailed in the district court's prior order. See Polouizzi I, 549 F.Supp.2d at 320, 323-26. For the convenience of the reader, much of the material in Polouizzi I, II, III, and IV is incorporated in the present comprehensive document, Polouizzi V.
The defendant, Peter Polizzi, is fifty-six years old. He was brought to this country when he was a young teenager after suffering serious sexual abuse as a child in rural Sicily. Without funds, and with only a few years of schooling, he worked assiduously at a pizzeria in Queens, ultimately buying it and turning it into what he and his family now operate as a valuable and well-known restaurant. Trial Tr. 169. He taught himself to play the guitar, became leader of a band, met and married his present wife, with whom he had five successful and lawfully engaged sons, who are close to him. Id. at 165, 169, 1018, 1366. He bought and lives in a fine home. A religious man, he attends church regularly and is much respected in his religious and secular communities. Id. at 907. He had never before been charged with a crime. So far as is known, he has never molested a person, sexually or otherwise.
The defendant had a double-locked room in the attic of his detached garage. There he collected and viewed child pornography through the Internet. Eventually he possessed over 5,000 pictures, the majority of which were of young girls. Id. at 355, 859. Polizzi never sent photos to anyone, nor did he enter teenage chat rooms or attempt online solicitation. Id. at 534-38, 1366; see id. at 1058. Beyond his present conviction for receipt and possession of child pornography, no allegations of improper conduct have ever been made. See id. at 165.
Polizzi claimed he came across child pornography accidentally through a "pop-up" advertisement while looking for adult pornography, and was "shocked" by what he saw. Id. at 1046. He thought such "filthy" photos should be outlawed, but did not realize they were illegal; if they were forbidden, he asked himself, why were they freely available on the Internet? Id. at 1047, 1105 ("Now, I know it's wrong, but back then I didn'tI didn't know it was wrong. You say it was illegal, to me something that is there you see is not illegal, because if it's illegal what to stop, what is there is illegal [sic]?").
He testified that his goal was to turn his collection over to law enforcement. Id. at 1047, 1070; see id. at 782. The images, he said, reminded him of his of being sexually abused multiple times as a child in Sicily, and he said he wanted to help those children he now saw suffering the same fate. Id. at 1046; see Part II.C.2.a, infra. With what he testified was fear of law enforcement based upon the sexual abuse he suffered at the hands of Italian police officers, and hesitant to reveal his own sexual abuse of which his family knew nothing, he never notified any authorities. Trial Tr. 1047, 1048, 1071 ("Always, when I see the police I get anxiety attack, even now.").
1. Childhood Sexual Abuse in Sicily
Before arriving in the United States from Sicily with his family, Polizzi lived in rural Sicily, where he suffered serious sexual abuse. As a preteenager, he was repeatedly *139 molested and raped by his uncle, sodomized at knife-point by a family friend, and raped by Italian police officersone of whom sodomized him with a gun.
In Sicily, Polizzi and his family lived in a small rural village, working as sharecroppers. Trial Tr. 941. Dr. Jane Schneider, a cultural anthropologist specializing in 1950s and 1960s Western Sicily, testified as to the general poverty, living arrangements, and economic structure of the region, lending general background support to Polizzi's account. Id. at 166, 721-37. She confirmed that Burgetto, Polizzi's village, was then a "very poor," "socially stratified" "rural town" of about 6,500 people, a peasant society with a feudal-like history of large estates and sharecroppers, id. at 728:
The majority of the population had very little land or no land and they worked for or were sharecroppers of large landowners. . . . If they were fortunate they had a mule or maybe a donkey, they commuted to their fields sometimes on mule back. . . . The mules lived in the household with the family. A typical . . . poor peasant's house was maybe one room or two rooms with perhaps alcoves for children to sleep in . . . and adjacent to that would be the stall with the family's mule.
Id. at 729.
Dr. Schneider also described the corrupt carbina, the Italian national police force, and its officers, the carabinieri:
[T]he police in a rural town in those days would have been members of the car[b]ina and this is a quasi militarized national policing institution in Italy. . . . [T]he carabinieri would not have local ties . . ., you would be assigned to some community in Italy where you didn't have any local connection, so the carabinieri was for the most part outsiders to the communities in which they were policing. . . . [T]he police and carabinieri in Sicily, especially western Sicily, which got this history of large estates and the Mafia and so on, were veryhad a very bad reputation, a reputation for corruption, reputation for not prosecuting organized crime, criminal offenses... .
Id. at 732-33. A poor peasant family, Polizzi, his parents, and his six younger brothers and sisters shared their hovel with a mule. Id. at 942.
Polizzi was often forced to share a bed with his teenage uncle, who sexually molested him beginning when he was four years old. Id. at 952. At age seven, Polizzi was beaten and raped by this uncle, who threatened to kill him if he ever told anyone. Id. at 959-62. Despite the warning, he did tell his mother, only to be struck by her and accused of lying. Id. at 963.
A year later, Polizzi was raped again. Sent into the fields on an errand, a family friendhis brother's godfatherbeat and sodomized him at knifepoint, threatening to kill him if he said anything. Id. at 970-71. Polizzi later revealed the abuse to the village priest, whose only comment was "don't do that again, because God [is] going to punish you." Id. at 990; see id. at 1247.
Additional incidents of sexual abuse took place when he was nine. Walking home from school, Polizzi was seized by two Italian carabinieri, who raped him in a stable. After they finished, one of the officers took his service revolver, inserted it in Polizzi's anus and then his mouth, telling him that he and his family would be killed if he ever told. Id. at 975-79. Polizzi never went back to school, instead obtaining work in a bakery. Id. at 980.
*140 Polizzi had two friends in the village, boys his age who had also been raped by the police. Id. at 983-84. Playing hide and seek on the outskirts of town one summer night, they suddenly heard "screaming, running." Id. at 987. Polizzi froze under a bush, but his two friends decided to run, only to be caught by carabinieri. The police officers beat one of his friends, punching and kicking him to the ground, where he hit his head on a rock. "[A]s soon as [his friend] fell he didn't move no more." Id. at 988. In testimony made more credible by the sociologist's testimony about carabinieri practice in rural Sicily at the time, the defendant swore that the carabinieri fled, taking one boy with them and leaving the other dead. Polizzi never again saw the boy the police had taken away. Id. at 987-88. A year or two later, Polizzi left for the United States with his family.
2. Resulting Psychological Trauma
Although he achieved the American dream in many ways, Polizzi retained, according to his own testimony and that of experts, psychological scars from his childhood abuse. His wife and children did not know these secrets from his past. After he left Sicily, the next person Polizzi told about these rapes, some forty years later, was a counselor assigned after his arrest. Id. at 990, 1240, 1302. Polizzi's adult life was marked by post-traumatic stress and obsessive-compulsive disorders; prior to trial, he never sought any mental health treatment. Id. at 791, 1209. Lacking self-awareness, he considered his behavior normal. See Trial Tr. 873. It was only during supervised release associated with the sentence for his possession counts that he obtained treatment, to which he responded successfully. See Part II.E.2, infra.
Concussive head injuries were suffered by the defendant from several car accidents in the early 1990s. See Trial Tr. 1139-40. Because the only medical record introduced was a recent MRI scan that by itself did not reveal anything of significance, it is impossible to say how, if at all, head trauma affected him. See id. at 1262-64, 1320.
The opposing experts at trial disagreed on the extent of his mental functioning and health. See Parts II.C.2.b-d, infra. Upon a retrial, the physical and psychological history of the defendant will be examined in greater depth.
B. Arrest and Indictment
Polizzi's arrest followed an extensive investigation of Hardcore, a "private child porn club," advertised in a spam email message that ultimately was forwarded to the Suffolk County Police Department by a Long Island householder. Trial Tr. 182, 199. Computers and information seized from companies hosting Hardcore's website included an "access log" of visitors. The log recorded 900,000 internationally traded Internet Protocol addresses during a ten-day period in March 2005, representing some 1,900 unique "customers." Trial Tr. 261, 263, 273. One of the addresses included in the log was traced to Polizzi. Id. at 270. Entries showed repeated access by defendant on March 28, 2005, indicating downloading of a number of images from Hardcore's "archive girls" area. Id. at 273.
1. Execution of Warrant
On November 16, 2005, FBI and local law enforcement agents arrived at defendant's home to execute a federal court-ordered search warrant seeking computer equipment and evidence related to the possession of child pornography. Id. at 150, 208, 279. Arriving at 6:00 p.m. at the single-family residence, the agents waited almost two hours for Polizzi and his wife to arrive home from work in their restaurant. Trial Tr. 280. While pulling into their *141 driveway, the couple was approached by the agents who identified themselves and explained that they were there to search the house for child pornography pursuant to a warrant. Id. at 283. Polizzi said nothing, but nodded, opened the driveway gate for the agents, and drove inside.
Polizzi's wife became "hysterical" as the officers questioned the couple and their youngest son, then sixteen, in the kitchen. Id. at 286, 296, 592-98, 742. She suggested that whatever happened might have been caused by a friend of one of her sons. Id. at 286.
Polizzi fully cooperated with the agents. Id. at 174. He informed them that there was a family computer in the basement; it was seized. Id. at 285. This computer had no forbidden images on it. Id. at 518.
After fifteen to twenty minutes of trying to calm his "extraordinarily upset" wife, Polizzi told the agents there were additional computers in the detached garage. Id. at 276, 746; see id. at 1049. But see id. at 294. Two agents escorted him there, id. at 291-96; the two others remained behind with Polizzi's family to "make sure [his wife] was okay." Id. at 296.
On the staircase leading up to the rooms on the second floor of the garage, Polizzi informed the officers that "[t]his is where are [sic] I look at the children." Id. at 687. It was, he said, himself and not his sons who had downloaded the images. Id. at 313. Polizzi then asked them what could be done to stop the child abuse depicted: "What are we going to do about this?" Id. at 1367, 1379. Inside the two upstairs roomsone with two door locks and the other with three, to which he alone had keyshe showed the agents the computers they sought. Id. at 145-47, 300, 686.
Polizzi was then questioned by the agents. Upon being read Miranda warnings, id. at 306, he signed forms waiving his rights and stated he was willing to talk without an attorney present. Id. at 309, 312. Polizzi then signed the following statement at 8:40 p.m., id. at 156, 305-19:
I, Peter Polizzi, Senior, being duly sworn and deposed says I am 52 years old, having been born on . . . [19]53. I live with my family at . . ., Glendale, New York, with my family.
I am here giving this statement to Detective Forrestal and Special Agent Danielle Massineo having been made no threats or promises to do so. Some time in February or March, 2005, I received an email in my AOL email account, ppoli . . . @aol.com inviting me to join a website called "Hard Lovers." It was $79 or $89 to join and I had to use my credit card to join. I used my MasterCard from Citibank; it's in my name. The number is. . . .
After I joined, I would visit ever [sic] couple of days. After I joined, I knew it was a child pornography website. I downloaded pictures and videos from this website. I keep the pictures on my external hard drive that's a Maxtor 300 gig that I bought new about six months ago. I have another external hard drive that I used and transferred everything over from an external drive that I also bought new.
The computer I used to go to, the . . . hard lovers website I had custom made at a computer store on Cypress and Weirfield. I had bought it new about two years ago. It was the black tower where I pointed to the Detective Forrestal at my desk. I'm not sure how may [sic] child pornography pictures I have but I have a lot. I know I'm a member of the site now and I downloaded this morning. I know I have of a lot. I know I'm a member of the site now and I have Red [sic] something, I don't remember *142 exactly, it's in my favorites. I used the same credit card number, the Citi MasterCard to join. I don't send them out, it's only private. The different passwords of the websites are in my AOL email that I have so I know what they are.
I do have anti-virus software, it's in my computer, and I'm the only person that uses my computer. I keep it in a locked room upstairs that I only have access to. I have read the above two page handwritten statement and I swear that it is all true.
Id. at 317-18.
Over 5,000 digital still images and some motion videos of child pornography (in addition to adult pornography) were found stored on the garage computers and three external hard drives. The images and videos had been downloaded over a period of at least four years, id. at 145-46, 349-50; the agents found a list of child pornography search terms dated June 9, 2001. Also in his garage were huge collections of music, baseball cards, comic books, stamps, and other materials. Id. at 765, 860, 862, 888. See Part II.C.2.b, infra.
2. Twenty-Three Count Indictment
Polizzi was arrested and charged with twelve counts of receipt and twelve counts of possession of seventeen different photos and videos he had downloaded from the Hardcore website. See 18 U.S.C §§ 2252(a)(2) (receipt) and 2252(a)(4)(B) (possession). See Arrest Warrant, Jan. 12, 2006, Docket Entry ("D.E.") No. 4. The receipt counts (Counts One through Twelve) charged him with receiving two illicit images on February 20, 2005, two on March 5, 2005, four on March 16, 2005, and four on March 20, 2005. The possession counts (Counts Thirteen through Twenty Four) charged him with possessing, on November 16, 2005, the day his home was searched, twelve prohibited images or videos, stored on three different external hard drives.
He was charged with both receipt and possession of several of the images: Counts One and Twenty were based on the same depiction, as were Counts Three and Eighteen, Four and Nineteen, Seven and Twenty-Three, Eight and Twenty-Four, Eleven and Twenty-One, and Twelve and Twenty-Two. See Superseding Indictment, D.E. No. 35. One of the possession counts (Count Thirteen) was dismissed on the government's motion before trial. Govt.'s Letter to Dismiss Count Thirteen, Aug. 27, 2007, D.E. No. 62. Defendant's motion to dismiss the indictment on constitutional grounds was denied. Polouizzi I, 549 F.Supp.2d at 329-30.
C. Trial Proceedings
At trial, defendant's knowing receipt and possession of pornographic images and the fact that they depicted minors engaging in sexually explicit conduct were not disputed. Polizzi admitted collecting child pornography and described at length how and why he began to do so. See Polouizzi I, 549 F.Supp.2d at 330. The only contested issue at trial was his defense of insanity. See 18 U.S.C. § 17.
Polizzi contended that obsessive-compulsive and hording behavior, combined with the trauma he re-experienced upon seeing images of abused children, caused him reflexively to collect child pornography in an attempt to "help the children." See Part II.C.2.b, infra. The jury's deliberations on this issue were critical, with some jurors expressing the view, after the verdict, that Polizzi needed mental treatment, not imprisonment. See Part II.D.2, infra.
1. Images
During jury selection, potential jurors were informed that the case would involve "offensive" and "distasteful" depictions of *143 "individuals engaged in sexually explicit conduct." See Juror Questionnaire 11. At trial, a few illicit images from Polizzi's computer were introduced through the testimony of an officer with the Suffolk County Police Department who had viewed the images on Polizzi's computer in connection with the underlying investigation. See Polouizzi I, 549 F.Supp.2d at 326-29 (describing underlying investigation).
To prevent unnecessary prejudice, the images were shown to the jury in brief flashes. Short segments of the videos were played, followed by testimony that each segment was representative of the video from which it was excerpted. See id. at 331 (discussing presentation of images to jury); Polouizzi II, 564 F.3d at 148-50 (same).
2. Testimony
Testimony was elicited from a number of witnesses regarding Polizzi's insanity. To satisfy the federal Insanity Defense Reform Act ("IDRA"), Polizzi had to prove by clear and convincing evidence that he was legally insane when the offenses occurred, in that: 1) he had a severe mental disease or defect at the time he received and retained the images; and 2) as a result he had been "unable to appreciate the nature and quality or the wrongfulness of his acts." 18 U.S.C. § 17.
Focusing on Polizzi's childhood sexual abuse, the defense emphasized lasting psychological effects as manifested in defendant's post-traumatic stress and obsessivecompulsive disorders. Defendant contended that when he first accidentally came across child pornography, he had re-experienced his own abuse and obsessively began to collect as many photos as he could to help the children. Trial Tr. 1069-70 ("I have been collecting, the material that I've been collecting, every time I was on the internet, collect anything I find that was not appropriate to see it [sic], in my opinion should not be there, I save all of them, all the materials I come across."). According to defense counsel,
Mr. Polizzi was doing what he believed to be right. He could not appreciate that downloading pictures of the children was wrong. What is wrong, what Mr. Polizzi knows is wrong ... is child abuse. . . . Mr. Polizzi, in a wrong way maybe, but in his way because of his psychological trauma, is trying to figure out a way to stop child abuse.
Id. at 1368; see id. at 782.
Two defense experts, Dr. Eric Goldsmith and Dr. Lisa Cohen, testified about Polizzi's mental condition. Dr. Naftali Garcia Berrill provided expert evidence in rebuttal for the government. The experts were permitted to opine on whether Polizzi "did or did not have the defect or disease relied upon as a defense." Jury Charge 19. Their opinions on whether Polizzi was "legally insane," were not permitted, since that was a question for the jury. See id. at 1215-16; Fed.R.Evid. 704(b) ("No expert witness testifying with respect to the mental state or condition of a defendant in a criminal case may state an opinion or inference as to whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto. Such ultimate issues are matters for the trier of fact alone.").
a) Polizzi's Testimony
Polizzi testified in detail to the severe sexual abuse he had suffered in Sicily as a child. His distress in reliving the events was evident. A recess was required several times when he broke down while he was on the stand. Trial Tr. 1047; see id. at 959, 998. When the first charged photo was shown to the jury, Polizzi suffered an acute anxiety attack and was taken by ambulance to a hospital. Id. at 397-99. *144 The trial continued the following day. To avoid another breakdown, Polizzi voluntarily removed himself from the courtroom while the sixteen images of child pornography were shown to the jury. Id. at 405.
The defendant testified that he had originally learned of Internet child pornography accidentally, in 2001 or before, through a "pop-up" while visiting an adult pornography website. Id. at 1046. "`Pop-up' windows are windows containing notifications or advertisements that appear on the screen, usually without any triggering action by the computer user." 1-800 Contacts, Inc. v. WhenU.com, 309 F. Supp. 2d 467, 476 n. 18 (S.D.N.Y.2003). In his written statement to the police, he said he had later discovered the Hardcore website after receiving an email in his AOL account.
The images, he testified, shocked and horrified him. See Trial Tr. 1178, 1230. Seeing such graphic depictions reminded Polizzi of being raped and molested in Sicily. Id. at 1046 ("Oh, boy. I see my childhood, the event of the abuse happened over and over."). Curiously, he said he thought he might be able to find a photograph of himself: "Oh, my God. When I used to see this material I used to see myself in there, I look for my picture and my uncles [sic]." Id. at 1048.
He said he knew that child pornography was wrong, but he believed the online images were legal. Had they been illegal, he reasoned, such "garbage" would not be available on the Internet. Id. at 1105. Hence he had used his real name, email address, street address, and credit card number to pay the membership fee to join Hardcore. Id. at 152, 276, 317, 368. Despite the fact that many websites themselves cautioned that their material "was not legal in many countries," id. at 155, 253, he contended that he had not understood that his actsthe downloading of the pictureswere wrong. Id. at 1090. He said one reason for his downloading was to stop other children from being abused as he himself had been abused. Hence his first statement to the FBI agents was, "[w]hat are we going to do about this?" Id. at 1367, 1379. What he meant by that question, he later explained, was that
whoever put this kind of material in there should be brought to justice because this is not right, because no one close to me should not have cause [sic] to others, because my life all the fear, all the nightmares, and everything else involved comes from this, and if it's nothing be done [sic] about this, a lot of innocent children will be raped because of this.
Id. at 1050.
Notwithstanding his desire to stop the depicted abuses, Polizzi never voluntarily informed law enforcement or anyone else of his collection. See id. at 858, 1138, 1180, 1309. He asserted that he did not trust the police on such matters after his experiences with the Italian carabinieri. Id. at 1048. He could not go to the police because of "[m]any reason [sic]. The reason that I was abused in [sic] this carabinieri, which in this country mean the uniform of the police. Second, oh, boy, I beenI was at gun point by police. . . ." Id.
Polizzi recognized that if he "share[d] that information I would tell my even [sic] sickness, which I kept for 45 years and I could not." Id. at 1047. In order to explain why he had collected the photos, he would have to reveal his childhood sexual abuse, something he felt was impossible.
45 years it's inside of me, this has been like something unexchangeable [sic], only people that went through this, what this come from or what this causes and where you go from this. This is something that you keep inside because you cannot share with anybody because it's *145 very, very, very awful thing to share with anybody and I don't wish my worse [sic] enemy what happened to me, why because is [sic] this is wrong.
Id. at 1062. When the FBI showed up in his driveway, Polizzi said he was relieved.
[I]nside I had the feeling of joyness. Why? Because finally the stuff that I have turn it over or say to the police . . . they will find it there. To me it was a kind of relief. I also said because now that they find out I have to tell my secret, which was very hard because now finally my wife know [sic] I had secret.
Id. at 1048-49. Even after his arrest Polizzi did not immediately disclose his childhood experience to the police or anyone else. Not until six months into post-arrest counseling ordered by Pretrial Services did he speak with a therapist about the matter, after learning of a woman who had spoken to her family about similar abuses with positive results. Id. at 1054.
When that happen, you know, make me felt [sic] that I was not alone in this, someone else be in the situation that I was, and regarding the information that we share there, by sharing this kind of information it was a kind of relief for her and I thought releasing this kind of information will be the same for me.
Id.
b) Dr. Lisa Cohen
Dr. Lisa Cohen, a clinical psychologist at Beth Israel Hospital conducting research with individuals accused of child sex crimes, was the first expert to testify. Id. at 766-902. She had administered a battery of neuropsychological tests to Polizzi and interviewed him twice; she also interviewed one of his sons. Id. at 771, 875. Test results showed that Polizzi had significant "impairment of executive function," the "collection of cognitive abilities that have to do with being able to use judgment to think in complex ways, to think in flexible ways, to monitor one's own behavior, impulse control." Id. at 774. In the four cognitive functioning tests, his scores were quite lowbetween the 0.1 and 10.8 percentilewhich Dr. Cohen attributed to possible brain injuries from Polizzi's car accidents; they also "showed memory problems." Id. at 773-77, 870. His overall IQ score was considered "borderline range of average intelligence." Id. at 1280-83. Dr. Cohen also evaluated Polizzi using the Yale-Brown Obsessive Compulsive Scale ("YBOCS"), "the standard measure of obsessive compulsive disorder." Id. at 778.
Dr. Cohen's final diagnoses were "significant cognitive impairment," id. at 783, and "obsessive compulsive disorder characterized by severe hoarding" with "limited insight" as defined in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition ("DSMIV"). Id. at 882, 885. She did not evaluate Polizzi for post-traumatic stress disorder. Id. at 782, 882.
The "severe hoarding" Dr. Cohen identified referred to Polizzi's extensive and varied collections besides child pornography. In his rooms over the garage, Polizzi had collected and organized tens of thousands of baseball, soccer, hockey, frisbee, and football cards, movies, musical recordings, comic books, stamps, and coins; he had never sold any. Id. at 765, 860, 862; see id. at 900. Polizzi estimated he had 4,500 videos, 10,000 comic books, 10,000 baseball cards, 4,000 CDs, 4,500 coins, 3,000 stamps, 150 boxing cards, and 500 soccer cards. Id. at 888.
According to Dr. Cohen, Polizzi, like other hoarders, did not see his collecting as a problem. See id. at 889. He rationalized that his collections were "a good investment for his children," id. at 861, and talked with his sons of "one day" opening a *146 comic book store, id. at 749, 863, or a video store. Id. at 890. It was obvious, the expert declared, that such talk was only a dream; "people who hoard always think that they have a future use for the items that they're hoarding." Id. at 889.
Unlike most people with obsessive compulsive disorder ("OCD") who understand that their actions are not normal, Dr. Cohen found that "Polizzi had no insight into his obsessive compulsive disorder. He seemed to feel that it was all appropriate and reasonable behavior. . . ." Id. at 873.
[N]o matter how many times I tried to explain the concept of obsessions and compulsions it was difficult for him to grasp. And the point of an obsession is that it should not make sense, it should be excessive and inappropriate. So he had a hard time differentiating from what was an appropriate concern and what was an excessive, inappropriate concern.
Id. at 856.
In the face of the government's repeated insistence that Polizzi's low cognitive test results were due to his "malingering," Dr. Cohen declared that she did not find that Polizzi was exaggerating his symptoms. See id. at 789 (defining malingering as "the intentional and conscious flaring of mental symptoms in order to gain what they call secondary gains or primary gains to gain something else."). Although she did not administer any specific validity tests, id. at 897, 1260, her testing included internal validity components. Id. at 830. Based on her interviews with Polizzi and one son, Dr. Cohen concluded that "if anything, he seemed to be minimizing his problems and that was not in his interest. It would be in his interest to maximize his problems. So, in my mind, he was not trying to manipulate me to present him as sicker than he was." Id. at 905; see id. at 898.
c) Dr. Eric Goldsmith
Dr. Eric Goldsmith, Polizzi's expert forensic psychiatrist, testified that he had diagnosed Polizzi with post-traumatic stress disorder ("PTSD") resulting from the sexual abuse defendant had suffered as a child. Id. at 1130 ff. Of the three experts, Dr. Goldsmith had spent the most time evaluating Polizzi. He had interviewed separately four of defendant's sons as well as his wife. Id. at 1131; see id. at 1176. Dr. Goldsmith had also prescribed medication for Polizzi's acute anxiety and PTSD symptoms. Id. at 1174. Medication was necessary, defendant testified,
[S]ince I have this nightmares, a lot of nightmares actually, when you have those nightmares when you have, when you see . . . photos so, you know, you smell certain smells, the events come back and I told this nightmare that I have and told me if I slept well, when the time comes, when I go to sleep, I go to sleep very exhausted, because the crime that is involved, you know, the fear, it makes you, it takes everything out of you, which left you with very sadness and no kind of strength.
Id. at 1060.
Dr. Goldsmith corroborated Dr. Cohen's diagnosis of obsessive compulsive personality disorder as defined in the DSM-IV. Id. at 1134 ff., 1186. He also found that Polizzi "has no awareness it is a problem for him." Id. at 1143. Polizzi was "very very difficult" to interview "because of his obsessive pathology[:] he . . . gets stuck on a detail or particular issue and needs to retell the story over and over and over again. . . ." Id. at 1136-37. It required "hours and hours" for Dr. Goldsmith to obtain a medical history.
It is reflective of some significant obsession compulsive pathology. It explains his behavior of just downloading hundreds and hundreds of images. It explains *147 his behavior of collecting thousands and thousands of baseball cards. It explains his routinized behavior, the styling of how he communicates and how it is just obsessive and obsessive and repetitive and repetitive.
Id. at 1139; see also id. at 779 (Dr. Cohen noting the difficulty of interviewing Polizzi). The jury had the opportunity to witness defendant's repetitive oral behavior firsthand on multiple occasions when Polizzi was on the stand. Dr. Goldsmith also found that,
[h]e has memory problems. He has difficulty in providing really specific information about times and dates. There has been a real problem throughout the course of the interviews with him. He has misinterpretations of statements. Sometimes you would ask him a question, he really doesn't understand what you are asking him and you have to re-ask it in a different way.
Id. at 1184.
During his first sessions with Dr. Goldsmith, Polizzi did not disclose what had happened to him in Sicily. This was not surprising to the doctor, given "the type of trauma that [Polizzi] experienced," because of the issues of "humiliation and shame and fear [that] pervade the adult mind" in such a victim of "severe child sexual abuse." Id. at 1136-37. When informed of the abuse, Dr. Goldsmith found Polizzi credible:
And it is not only what he says, that he was abused, and how he says it, and how he gives it such rich detail, reflective of just a true autobiographical experience that's so convincing, but what is really convincing about why this is not a malingered post-traumatic condition is all of the clinical factors there follow the trauma and abuse that he could just not make up. It's the re-experiencing phenomena, the description of the flash-backs. It is not just saying I have flashbacks, but describing what he goes through in showing it to me in the office, when I interview him about this, and how literally his mind and body kind of separate and he begins to just follow like he's back in the experience that he shows all of this emotion that is just reflective of true experience.
Id. at 1153.
After Polizzi revealed his childhood sexual abuse, Dr. Goldsmith added a PTSD diagnosis, id. at 1157, which is considered a "major mental illness," based on the DSM-IV definition. Id. at 1257. In Dr. Goldsmith's opinion, Polizzi "when viewing child pornography on the Internet had a retraumatizing experience. In a regressed and obsessive state he downloaded and searched child pornographic images for evidence of victimization, something he had experienced as a child." Dr. Goldsmith's Addendum: Psych. Rep. 1, Jan. 2, 2007.
His . . . level of sophistication, the way that his mind operates is again very concrete, extremely unsophisticated, old world . . . when he first downloaded all of the information over the internet, he had this very unsophisticated idea, by taking it all down off the internet, it could be off the internet and nobody else could see it. Really just not sensible. . . . [T]he images overwhelms [sic] him emotionally and overwhelms any kind of rational thought that he had of what he was doing.
Trial Tr. 1162-63. His PTSD, the expert believed, had caused Polizzi to develop OCD: "[T]he obsessive pathology that he experiences, that he has in adult life, is really a way to control everything in his environment so that it doesn't hurt him." Id. at 1160.
No trace of sexual deviance in Polizzi was found by Dr. Goldsmith. His first report, *148 written before he learned of Polizzi's child abuse, did hypothesize that Polizzi had "possible low level deviant sexual arousal," but concluded he "[did] not confer high risk for future dangerous[ness]," and did not meet the DSM-IV criteria for pedophilia. Id. at 1150. At trial, Dr. Goldsmith explained why he had initially noted "low level sexual deviancy": because he had had no other explanation as to why Polizzi collected child pornography. Id. at 1151-52.
[I]t seemed to me that the[re] credibly could becould have been at that time some deviant interest, because individuals who are arrested for these crimes often have a large level of denial and don't share and admit to their deviance. . . . At that time Mr. Polizzi was presenting consistent with that and it just didn't make sense why he clicked on the images.
Id. at 1185. Once he learned of an alternative reasonPolizzi's childhood traumaDr. Goldsmith concluded that Polizzi in fact had no deviant sexual arousal.
In my previous report from June 9, 2006, I speculated that Mr. Polizzi's past behavior of downloading and viewing child pornography was perhaps related to sexually deviant thinking. However, after further assessment it is my opinion, with a reasonable degree of psychiatric certainty, that Pietro Polizzi's encounter with child pornography elicited a post-traumatic stress reaction. Pietro Polizzi credibly describes how the child pornography pictures triggered memories from the past. Consistent with his compulsive hoarding behavior he downloaded hundreds and hundreds of images. While viewing these images Pietro Polizzi describes it as if he was reliving his own childhood sexual abuse. He looked for signs of forced injuries on the victims and evidence for the perpetrators.
In summary, his behavior of downloading and viewing child pornography is directly related to his history of childhood sexual abuse and obsessive compulsive behavior. The images triggered painful traumatic memories that had been repressed for many years. This behavior was not related to sexually deviant thinking or pedophilia. . . . Mr. Polizzi does not pose a risk of sexual predatory behavior against children.
Dr. Goldsmith's Addendum: Psych. Rep. 5, Jan. 2, 2007; Trial Tr. 1169 ("[It's c]lear in my mind that he's not a pedophile ... He has no paraphilia [sexual interest in children in general], he has no deviant sexual arousal or interests.").
Like Dr. Cohen, Dr. Goldsmith did not believe Polizzi was malingering. Even though the doctor was aware that PTSD was frequently faked, Trial Tr. 1195 (noting that PTSD is "the most important area where malingering needs to be considered"), he concluded that "[n]one of the examiners and none of the testing and none of the data from the clinical exam identified that [Polizzi] was malingering." Id. at 1147.
d) Dr. Naftali Garcia Berrill
Dr. Naftali Garcia Berrill, a board-certified forensic psychologist, was the government's expert. Id. at 1217-1329. Polizzi initially attended Dr. Berrill's clinic for mandatory sex offender counseling as required by Pretrial Services. Id. at 1223. (Through a contract with the Department of Probation and Pretrial Services, Dr. Berrill's private practice assesses many defendants accused of sex offenses. Id. at 1221.) Polizzi participated in group counseling while he awaited trial; Dr. Berrill did not treat him. Id. at 1240.
Polizzi eventually requested that the court approve his transfer from the clinic *149 to private counseling, citing the trauma he experienced during group therapy with other child sex offenders. Approval was given. See Order, Jan. 1, 2007, D.E. No. 20.
After Polizzi had filed a notice of intent to raise the insanity defense, Dr. Berrill evaluated Polizzi for an hour at the government's request, and administered several standard tests. One of his associated counselors wrote a report. Trial Tr. 1225, 1277. During his first interview with Dr. Berrill, Polizzi had not disclosed his history of child abuse. Id. at 1229. Dr. Berrill later evaluated Polizzi again for an additional four hours during which Polizzi informed him of his past abuse; the doctor then wrote a second report himself, but never spoke with Polizzi's wife or sons. Id. at 1315.
Dr. Berrill initially diagnosed Polizzi as having an adjustment disorder with anxiety and possibly generalized anxiety disorder. Such conditions, in his opinion, "shouldn't interfere with someone's ability to think clearly." Id. at 1233. After the second interview, id. at 1244, his diagnosis remained the same: Polizzi had "no severe mental disease or defect," id. at 1243, 1246-48, only an "anxiety disorder." See Dr. Berrill, Psycho-Legal Eval. 20, Aug. 3, 2007.
On the witness stand, the doctor agreed that defendant had some obsessive-compulsive personality disorder "features," but not OCD itself. Trial Tr. 1255. Having OCD, in any event, does not prevent a person, in Dr. Berrill's opinion, "from being [able] to appreciate what they are doing or knowing . . . . [that it] is wrong." Id.
Dr. Berrill considered Polizzi's history of child abuse irrelevant because "psychological testing . . . did not reveal a post-traumatic stress disorder." Id. at 1258, 1328. Had Polizzi suffered from PTSD, the doctor believed he would have avoided child pornography, not sought it out. The "criminal behavior" Dr. Berrill typically associated with PTSD, moreover, was an "explosive kind of behavior," not a prolonged quest. Id. at 1265.
His second report diagnosed Polizzi with "paraphilia" not otherwise specified (sexual interest in children in general), "hebophilia" (sexual interest in adolescents), and possible pedophilia (sexual interest in young children). Id. at 1233; see Dr. Berrill, Psycho-Legal Eval., Aug. 3, 2007. He gave no reasons for these conclusions in the report. Such diagnoses were appropriate, Dr. Berrill testified at trial, because
Based on one of the tests that we had given and based [on] Mr. Polizzi acknowledging that he was looking at both young kids and adolescents in terms of the child pornography that he collected, number one, the tests results suggested first and foremost he was likely interested in adolescent girls, that is referred to clinically as Hebephilia. . . . I wasn't really sure whether he was interested in young children. I really couldn't tell based on my interview with him. He denied or disavowed an interest in all of this but nonetheless, testing raised some issues about teenagers and the fact that he collected pictures of kids who were younger than 10 raises a distinct possibility that was an area of interest.
Trial Tr. 1233-34. The doctor was concerned that Polizzi had "provided contradictory information during the evaluation," id. at 1301, denying all sexual interest in children, yet admitting he had collected child pornography for years. Polizzi had received a low score on the Abel Assessment, a test designed "to ascertain whether or not somebody is sexually interested in kids." Id. at 1297. He had "not endorse[d] items that reflect the types of rationalization or excuses frequently used by individuals sexually involved with kids," *150 id. at 1300, but his answers on Dr. Berrill's Internet activity questionnaire were suspicious: he had checked several boxes indicating he had looked at child pornography "to avoid having sex with children" and "out of curiosity," which had raised concern in the doctor's mind. Id. at 1116-18. Dr. Berrill did not explain the questions to Polizzi nor did he ask him why he had marked the boxes. Id. at 1078, 1394.
On the stand, Polizzi described what he had meant by his checkmarksthat he looked at the photos "to avoid [i.e., to stop child abusers from] having sex with kids"and that he was "curious" to find out how the photos came to be on the Internet, i.e., to find out who was producing them. Id. at 1115-18 (testifying that he had "[c]uriosity what was up there, what was on that box. Why this was over there. Why this material. It is a lot of do you understand there's a lot of material, understand where this comes from, whose [sic] behind this, the curiosity, you know, why are they doing this.").
Although Dr. Berrill never mentioned malingering specifically in either of his reports, at trial he testified at length about Polizzi's possible exaggeration of his symptoms. Id. at 1248 ff., 1322 ("I am not sure I said he was malingering. I said one has to imagine that that is a possibility."). The doctor pointed out that Polizzi's second MMPI-2 diagnostic test included several true-false answers reporting paranoid or delusional symptoms, which Polizzi had not reported on his first test a year before. Id. at 1251, 1327, 1253 ("[I]t raises the specter of, you know, Mr. Polizzi trying to exaggerate some of the symptoms he's having right now. He's exaggerating the level of distress or exaggerating the kinds of problems he is encountering."). Dr. Berrill did note that Polizzi had never complained of any delusions or hallucinations. Dr. Berrill, Psycho-Legal Eval. 18, Aug. 3, 2007. Because Dr. Cohen had not conducted any independent validity testing, Dr. Berrill considered her cognitive testing results "worthless." Trial Tr. 1260.
Dr. Goldsmith rejected the malingering-related concerns cited by Dr. Berrill. That Polizzi had answered a few multiple-choice questions in odd ways was irrelevant: "you can't take one question from 567 questions and make anything of it." Id. at 1211. Such multiple-choice tests "are not great at detecting PTSD," Dr. Goldsmith warned, "but they have some symptomatology that . . . can come out with PTSD." Id. at 1205. Such tests were certainly not "substitute[s] for psychotherapy or psychiatric evaluations." Id. at 1211. To Dr. Goldsmith it "ma[de] perfect sense" that some of Polizzi's answers had changed over the course of the year; his PTSD symptoms had recently worsened because "as he tells the story, as he exposes the trauma . . . that is when all of the symptoms come up, and that's when the nightmares come about." Id. at 1204. Polizzi "was not experiencing the active symptoms of post-traumatic stress disorder in May of 2006, when he first took the MMPI-2. While taking the second MMPI-2 a year later, he was in the [midst] of a severe PTSD condition, talking about this with myself and other examiners, Dr. Berrill, bringing up all the active symptoms." Id. at 1212.
3. Jury Charge
a) Written Charge Sheet
Following a charging conference, a written charge and a verdict form showing questions to be answered, were prepared for the jury. As is the general practice of the court, copies of the charge and verdict form were distributed to jurors so they could follow the text of the instructions as they were delivered orally by the court. Trial Tr. at 1407:2-17. These documents *151 were taken into the jury room to assist in deliberations. See id. See generally United States v. Russo, 110 F.3d 948, 953 (2d Cir.1997) (stating that "submission of written instructions to a jury is often advisable" and "will usually enhance a jury's understanding of ... crime[s] charged and the burdens of the prosecution"); United States v. Delano, 55 F.3d 720, 732 (2d Cir.1995) (recognizing discretion of trial court to provide written charge to jury); Leonard B. Sand & Steven Alan Reiss, A Report on Seven Experiments Conducted by District Court Judges in the Second Circuit, 60 N.Y.U. L.Rev. 423, 453-56 (1985) (discussing propriety of written charge).
The charge repeatedly conveyed that the defendant was charged with a multiplicity of crimes: twenty-three crimes of child pornography. E.g. Trial. Tr. at 1413:4-11 ("[T]he indictment contains 23 counts ... Counts One through Twelve charge the defendant with receiving child pornography. Counts Fourteen through Twenty-Four charge the defendant with possessing child pornography.... [E]ach act charged is charged as a separate crime."); id. 1413:13-14 ("Counts One through Twelve charge the defendant Peter Polizzi with receipt of child pornography."); id. at 1421:9-10 ("Counts Fourteen through Twenty-Four charge the defendant with Possession of Child Pornography."); Id. at 1413:22-1414:4 (noting that the defendant was charged with receiving child pornography on various dates: "[Count] One, on or about February 20, 2005; Two, February 20, 2005; Three, March 5, 2005.... Count Four, March 5, Count Five, March 16, Count Six, March 16, Count Seven, March 16, Count Eight, March 16, Count Nine, March 20, Count Ten, March 20, Count Eleven, March 20; and Count Twelve, March 20"); id. at 1421:16-22 ("You have a separate file name and path for each count.... one for Fourteen, Fifteen, Sixteen, Seventeen, Eighteen, Nineteen, Twenty, Twenty-One, Twenty-Two, Twenty-Three, and Twenty-Four. Each constitutes a separate crime charged") (emphasis added).
The verdict form was eight pages long, listing the twenty-three crimes charged in the indictment. Beneath each listed crime was the name and file path of the illicit image associated with each count. Charge 23-30 ("COUNT ONERECEIPT OF CHILD PORNOGRAPHY C:*Child 2*Photo*Girls*l*4.6.BMP ... COUNT TWELVE RECEIPT OF CHILD PORNOGRAPHY C:*Child 2*Mix*3*94.BMP... COUNT FOURTEEN POSSESSION OF CHILD PORNOGRAPHY C:*MY Site*Little Sites*MIXEDLOLITAS_files*07.JPG .... COUNT TWENTY FOUR C:*Child 2*Up Date Photo*3-13*26.BMP"). For each of the twentythree counts, there was a question requiring jurors to indicate whether they found the defendant "guilty," "not guilty only by reason of the legal definition of insanity," or "not guilty". Id.
During its oral instructions, the court reiterated the number and nature of counts charged:
Now turn over [the sheet] and you will see the way the verdict sheet is set up.
For example, Count one, Receipt of Child Pornography, then it is C:*Child2*Photo*Girls*1*46*46.BMP....
....
.... [T]hen you will find again not guilty, not guilty only by reason of the legal definition of insanity, or guilty....
Then you will go through each count.... You go through each one of these counts; Count One, Count Two, Count Three, Count Four, Count Five, Count Six, Count Seven, Count Eight, *152 Count Nine, Count Ten, Count Eleven, Count Twelve, those are Receipt of Child Pornography.....
Then you have Count Fourteen, Count Fifteen, Count Sixteen, Count Seventeen, Count Eighteen, Count Nineteen, Count Twenty, Count Twenty-One, Count Twenty-Two, Count Twenty-Three, Count Twenty-Four, and those are the Possession Counts.
Id. at 1432:13-1433:9.
Jurors were instructed that the indictment "is not evidence of guilt and it's entitled to no weight in your judgment of the facts." Id. 1412:10-12. They were told that the list of twenty-three crimes on the verdict form should guide their deliberations. Id. at 1408:8-9 ("At the end of the charge, there will be a question list, and that will help you focus your discussion."). Jurors were aware that multiple counts were at issue. See id. Trial Tr. at 1431:10-15 ("[The court:] Then each of you is going to be asked `is that your verdict'... [A Juror]: Excuse me your Honor, to each count would we be asked that? [The court]: Yes[.]") (emphasis added); see also id. 1432:6-9 ("[A juror]: Your Honor, on each of the counts we have to all agree on the count; is that correct? [The court]: Each count has to have a unanimous agreement.") (emphasis added).
b) Insanity Defense
After extensive briefing and argument on the definition of "legal insanity," for which the parties submitted sharply contrasting language, the court issued its own charge on the insanity defense; there were no objections. United States v. Polizzi, 545 F. Supp. 2d 270, 276-78 (E.D.N.Y.2008) (defining "wrongfulness" as "unlawfulness"); Polouizzi I, 549 F.Supp.2d at 330 (discussing legal insanity charge); Polouizzi II, 564 F.3d at 153 (finding objections to insanity charge waived).
c) Mandatory Minimum Sentence
Defense counsel repeatedly sought to have the jury informed of the five-year mandatory minimum sentence of imprisonment applicable to the receipt counts. See, e.g., Def.'s Letter, Sept. 7, 2007, D.E. No. 71. The government opposed. Govt.'s Letter Br., Sept. 6, 2007, D.E. No. 70.
On the eve of trial, the court issued a decision from the bench denying Polizzi's request that the jury be informed of the mandatory minimum. Hr'g Tr. 3, 19, Sept. 10, 2007. Also denied was defendant's request for an alternative instruction informing the jurors simply that a guilty verdict would necessarily result in imprisonment. See id. at 19-20.
The jury was not informed before rendering its verdict of the long prison sentence a conviction on the receiving counts entailed. It was specifically instructed that it should not consider sentencing when deciding on a verdict. See Charge 21 ("The question of possible punishment of the defendant is no concern for you and should not enter into or influence your deliberations. The duty of imposing sentence rests with the court."); accord Trial Tr. 1430:23-1431:1.
D. Jury Verdict and Colloquy
1. Jury Verdict
On October 5, 2007, after three days of deliberation, the jury found Polizzi guilty on all twenty-three counts charged. Trial Tr. 1445-47.
2. Jurors Opposed To Incarceration
During jury deliberations, it was evident from the jury's questions that it quickly decided all issues against the defendant except insanity. Determining whether Polizzi had carried his burden of proving legal insanity took the jury several days during which jurors repeatedly reviewed exhibits concerning Polizzi's mental condition, *153 including the medical reports. See, e.g., id. at 1439. The jury ultimately rejected the insanity defense.
A post-verdict colloquy with the jurors after they were discharged confirmed the seriousness of the jury's deliberations on the insanity defense. All of the jurors who spoke when invited to do so by the court acknowledged the defendant's mental illness, recognized his need for mental health treatment, and believed imprisonment was not called for. See id. at 1454-59.
Upon being informed by the court that Polizzi would mandatorily be subject to at least five years imprisonment rather than treatment, see 18 U.S.C. § 2252(b)(1), those jurors who evinced an opinion declared they would have voted to find the defendant not guilty by reason of legal insanity, causing a mistral, had they known of the mandatory minimum. They believed treatment and supervision, not a long term of imprisonment, was required. The post-verdict colloquy with jurors proceeded as follows:
THE COURT: You [the jury] are discharged. However, stay here for a moment, please.
I know this has been a difficult case for you, and some of you are nodding, and you don't have to answer the questions I'm going to put to you, but it might be helpful. Just answer, if you want to answer as to yourself, not as to what anybody else said, because everybody is entitled to privacy.
Now, the Supreme Court of the United States has suggested that for constitutional reasons th[at] juries participate much more heavily in the sentencing, although the sentencing does not suggest in any way how you should decide. As I told you, in considering your verdict, you should not consider that. I will do the sentencing, not you. You all recall that?
However, because these are somewhat difficult cases, and they do involve to some extent the morality and the views of the community, it might be helpful, if you wish, to indicate what you think under these circumstances that you have heard here, the penalty for a person like this defendant might be, in terms of incarceration or other punitive aspects.
Do you have any view, juror one?
JUROR NO. 1: No.
THE COURT: Two?
JUROR NO. 2: No.
THE COURT: Three?
JUROR NO. 3: No.
THE COURT: Four?
JUROR NO. 4: No.
THE COURT: Five?
JUROR NO. 5: No.
THE COURT: Six?
JUROR NO. 6: No.
THE COURT: Seven?
JUROR NO. 7: No.
THE COURT: Eight?
JUROR NO. 8: No.
THE COURT: Nine?
JUROR NO. 9:[sic].
THE COURT: Ten?
JUROR NO. 10: Yes, I do.
THE COURT: What's your view?
JUROR NO. 10: My view is that if it is at all possibleand I don't know if it isI see no useful purpose to have Mr. Polizzi confined. I believe that there should be an alternative, if possible, other than confinement.
THE COURT: What would that alternative be?
JUROR NO. 10: Treatment.
THE COURT: Compulsory treatment?
JUROR NO. 10: Oh, absolutely.
THE COURT: Juror eleven?
*154 JUROR NO. 11: I agree with him.
THE COURT: You agree with juror ten?
JUROR NO. 11: Yes.
THE COURT: Juror twelve?
JUROR NO. 12: No.
THE COURT: You prefer not to speak?
JUROR NO. 12: Yes.
THE COURT: Now, as we discussed during the earlier preparation for the case a problem that doesn't arise very frequently, and that's what's called jury nullification. The power of a jury, if it doesn't like a rule of law, to ignore the instructions and just acquit, or, conversely, to convict for a higher [sic] crime. That's called nullification, and the judge is not permitted and should not suggest to the jury nullification. In fact, I told you, you have to follow the law. You remember that?
THE JURORS: Yes.
THE COURT: But some jurors do under some circumstances we believe nullify.
Now, the question comes up in this way: Had you known that the penalty was five to 20 years, a minimum of five, maximum of 20, probably concurrent, not times 20, but for the total, would that have affected the verdict of any of you, raise your hands?
MR. BODE: I object, your Honor.
JUROR NO. 9: Yes, I also feel that incarceration would not serve in this case. I think the gentleman should receive treatment, compulsory, but that he should definitely receive treatment. I don't think justice is served for incarceration.
THE COURT: Would your verdict have been affected if you knew that there was a minimum of five years imprisonment[?]
JUROR NO. 9: Yes.
THE COURT: How would it have been affected?
JUROR NO. 9: Under all the circumstances, I would have probably gone not guilty by reason of insanity.
THE COURT: Anyone else?
JUROR NO. 2: I would have done the same.
THE COURT: You would have found him not guilty, if you knew what the total punishment was.
Anyone else wish to speak? Juror eleven?
JUROR NO. 11: I would not. I would have found him [not] guilty by reason of insanity.
THE COURT: You would have nullified, if you knew what the punishment was.
Do any of you wish to say anything else about this case? I know it was very difficult and I do want to thank you. I know you gave it a great deal of attention.
JUROR NO. 7: I also believe that Mr. Polizzi should not be incarcerated. I believe that mental health treatment should be the proper verdict for Mr. Polizzi.
Id. at 1454-59.
Defense counsel reported to the court that he spoke with two of the jurors, Jurors No. 9 and No. 11, by telephone after the verdict and that they had indicated to him there was nearly universal support among the jurors for a non-jail disposition for Mr. Polizzi due to the unique circumstances of his case. Def.'s Mem. of Law Regarding the Sentencing of the Def. Peter Polizzi 3 n. 2, D.E. No. 127; Def.'s Letter 2 n. 3, Dec. 5, 2007, D.E. 114.
*155 E. Post-Trial Proceedings
1. First Grant of New Trial Based on Trial Court's Perception of Error
Following the jury's verdict of guilty on all counts, the trial court granted a new trial on Counts One through Twelve (receipt). Polouizzi I, 549 F.Supp.2d at 449-50. It noted its prior conclusion that it had no discretion to charge the jury that conviction on any of those counts would require a five-year minimum sentence. Id. at 448. See also Polouizzi II, 564 F.3d at 152 ("[T]he district court explained that it erred because, believing erroneously that it had no discretion to instruct the jury about the mandatory minimum sentence, it failed to exercise its discretion to give such an instruction."). Post verdict, the court concluded that it did have such discretion. It determined that if it had been properly informed of the law during the trial, it would have exercised its discretion so to charge the jury of the mandatory minimum incarceration, and that such an instruction might well have profoundly affected its verdict. See Polouizzi I, 549 F.Supp.2d at 339-41.
The district court concluded, upon a historical review of the jury system since colonial times, that Polizzi had a Sixth Amendment right to be tried by a jury informed of the mandatory minimum sentence. Id. at 404-43. See also Parts IV.A-F, infra.
2. Sentencing on Counts Fourteen through Twenty-Four
Polizzi was sentenced on Counts Fourteen through Twenty-Four (possession) to one year and one day in prison, a fine of $50,000, a special assessment of $1,000, and a supervised release term of ten years. See Polouizzi I, 549 F.Supp.2d at 448-49; United States v. Polizzi, No. 6-CR22, 2008 WL 1820900, *3 (E.D.N.Y. Apr. 1, 2008).
Pursuant to federal and New York state law, Polizzi was required to register as a sex offender upon his release from prison; he will be subject to severe restrictions and reporting requirements for ten to fifteen years under federal law and twenty years under state law. See 42 U.S.C. §§ 16911, 16915(a)(1) (fifteen years for lowest risk federal offenders); § 16915(b) (possibility of early termination for federal offenders after ten years); N.Y. Correct. Law § 168-h(1) (twenty years for lowest risk offenders).
The defendant already has served his year-and-one-day sentence in connection with the possession counts. Since his release in August of 2008, he has been under strict supervised release, with house arrest and electronic monitoring. See Order setting Conditions of Release on Bond, Aug. 14, 2008, D.E. No. 173. According to defense counsel, the conditions of defendant's release have impeded his ability to provide care and emotional support to his wife, who has been diagnosed with cervical cancer. See Def.'s Memo, of Law in Supp. of Def. Resentencing 4, D.E. No. 209; Discharge Summary Report, Wyckoff Heights Med. Ctr, Jan. 21, 2009, D.E. No. 209-4.
While on supervised release, Polizzi has received treatment for mental problems resulting in his becoming more forthcoming about the sexual abuse he suffered as a child. See Def.'s Memo, of Law in Supp. of Def. Resentencing 3, D.E. No. 209. At the request of his counselors, Polizzi has given lectures to other victims about the lifelong impact of such abuse. Id. Polizzi has reportedly fully complied with the conditions of his release.
F. Appeal
By its written opinion of April 24, 2009, the Court of Appeals reversed the trial court's grant of a new trial. The appellate court concluded that the trial court's decision *156 not to inform the jury of the mandatory minimum punishment associated with the receipt counts was "certainly within its discretion." Polouizzi II, 564 F.3d at 160.
Rejected on appeal was the government's contention that the trial court's grant of a new trial "was premised on an erroneous belief that it had discretion to instruct the jury of the applicable mandatory minimum." Id. at 152. Without reaching the question whether it would have been appropriate to so instruct the jury in the circumstances of this case, the Court of Appeals for the Second Circuit observed that "The District Court Has Discretion to Instruct the Jury on [the] Applicable Mandatory Minimum Sentence in Some Circumstances." Id. at 161 (italics in original). See also id. (reviewing the Supreme Court's decision in Shannon v. United States, 512 U.S. 573, 586, 114 S. Ct. 2419, 129 L. Ed. 2d 459 (1994), stating that "[f]ar from prohibiting all instructions to the jury regarding the consequences of its verdict.... [I]n some, albeit limited circumstances, it may be appropriate to instruct the jury regarding those consequences").
In its decision, the Court of Appeals sharply reduced the permissible scope of indictments in cases involving child pornography and the Internet. As a matter of first impression, it held that possessing a collection of downloaded images cannot, consistent with congressional intent, be punished with multiple convictions under 18 U.S.C. § 2252(a)(4)(B). Polouizzi II, 564 F.3d at 153-57. It explained that multiple possession counts "affect[ed] Polizzi's substantial rights," id. at 156 (emphasis added), and that "maintaining these convictions would seriously affect the fairness, integrity, or public reputation of judicial proceedings," id. at 157 (emphasis added). Recognizing that concurrent sentences would not remedy the defect, see id. at 156-57, the Court of Appeals ordered vacatur of all but one of the possession counts, directing "[t]he district court [to] exercise its discretion when determining which conviction should remain," id. at 157. It observed:
[T]he rule of lenity requires the conclusion that a person who receives multiple prohibited images in a single transaction can only be charged with a single violation of § 2252(a)(2) [receipt].... [The] record would appear to support Polizzi's conviction on four receipt countsone for each date on which he received imagesbut not multiple receipt counts per day.
Id. at 158.
The trial court's decision to grant a new trial was reversed. The case was remanded by the Court of Appeals, with instructions "to vacate all but one of the § 2252(a)(4)(B) [possession] convictions and [all but four of the § 2552(a)(2) (receipt) convictions] and for further proceedings consistent with this opinion." Id. at 163.
G. Proceedings on Remand
Following reversal, on April 30, 2009, the district court held a conference with the parties to discuss how to conduct "further proceedings consistent with [the appellate] opinion." Order, Apr. 24, 2009, D.E. No. 188. The defendant orally moved for a new trial. See Hr'g Tr. 7:2-4, Apr. 30, 2009 ("The only way of correcting [the prejudice to defendant] is actually giving Mr. Polizzi a new trial."). Noting that the case "[is] before the appellate court," the trial court stated that it "has no jurisdiction to act at this time except with respect to bail." Id. at 10:9-11.
The trial court declined defendant's invitation to choose receipt counts that would necessarily lead to a double jeopardy conclusion, as inconsistent with a reasonable *157 reading of the decision of the Court of Appeals. Id. at 8:22-9:20 ("[Defendant's Counsel]: There are ... four receipt counts that are identical to the possession counts. Your honor, you could say those are the four receipt counts and say those counts do not survive because of double jeopardy.... The Court: I'm not going to exercise that kind of discretion. I'll obviously follow the suggestion of the Court of Appeals.").
An advisory memorandum issued the same day by the trial court considered methods of complying with the decision of the Court of Appeals. Polouizzi III, 257 F.R.D. 33 (E.D.N.Y.2009). It stated that the district court was, at the moment, without jurisdiction to act since there was no mandate from the appellate court, but suggested that a new trial might be required in light of the extreme overindictment, now reduced by the Court of Appeals. Id. at 34, 36-38. Shortly thereafter, the trial court indicated in Polouizzi IV that, if it granted a new trial, it intended to inform the jury of the mandatory minimum sentence associated with the receipt counts. 262 F.R.D. at 161-62.
The parties were urged by the trial court in its advisory memorandum to seek clarification of the remand from the Court of Appeals. See Polouizzi III, 257 F.R.D. at 38-39. They did not do so. The mandate was issued by the Court of Appeals on July 7, 2009 and entered on the docket of the district court on July 30, 2009.
Defendant filed a letter motion moving for a new trial under Rule 33. Def.'s Letter, July 31, 2009, D.E. No. 202. The government opposed. Govt.'s Letter, Aug. 13, 2009, D.E. No. 204; Govt.'s Letter, July 27, 2009, D.E. No. 199.
Argument on defendant's motion for a new trial was heard on September 29, 2009. A new trial was granted for reasons set forth in the trial court's April memorandum. See Polouizzi IV, 262 F.R.D. at 161-62. The trial court accepted the government's suggestionsubject to appeal and without waiver of the government's objection to the grant of a new trialthat retrial proceed on Counts Two, Three Six, and Nine (Receipt of Child Pornography) and Count Fourteen (Possession of Child Pornography). Order, Sept. 30, 2009, D.E. No. 212.
III. Second Grant of New Trial
A. Standard
Rule 33(a) of the Federal Rules of Criminal Procedure directs the trial court to grant a new trial "if the interest of justice so requires." Fed.R.Crim.P. 33(a). The Court of Appeals for the Second Circuit has observed that "[t]his rule `confers broad discretion upon a trial court to set aside a jury verdict and order a new to avert a perceived miscarriage of justice.'" Polouizzi II, 564 F.3d at 159 (quoting United States v. Sanchez, 969 F.2d 1409, 1413 (2d Cir.1992)). See also United States v. Cote, 544 F.3d 88, 101 (2d Cir. 2008) ("[A] new trial is proper when a district court `is convinced that the jury has reached a seriously erroneous result or the verdict is a miscarriage of justice.'") (quoting United States v. Landau, 155 F.3d 93, 104 (2d Cir.1998)).
Despite the trial court's broad discretion, a Rule 33 motion should be granted "sparingly" and in the "most extraordinary circumstances." Cote, 544 F.3d at 101 (quoting Sanchez, 969 F.2d at 1414); accord United States v. Bell, 584 F.3d 478, 483-84 (2d Cir.2009). See also United States v. Perez, No. 01-CR-848, 2003 WL 721568, at *3 (S.D.N.Y., Feb. 28, 2003) ("It is well settled ... that `motions for new trials are not favored and should be granted only with great caution.'") (quoting *158 United States v. Costello, 255 F.2d 876, 879 (2d Cir.1958)).
In determining whether to grant a new trial, "the trial court must examine the entire case, take into account all facts and circumstances, and make an objective evaluation." United States v. Ferguson, 246 F.3d 129, 133-34 (2d Cir.2001). See also 5 Lester B. Orfield, Criminal Procedure Under the Federal Rules § 33:9 (1968) (noting in context of Rule 33 that "[j]ustice is not a sentimental concept which each person may have as to right or wrong with relation to a given cause, or any duty he may have in connection with it, but it is an impartial, fair and reasonable application of prescripts of law both vengeful and protective") (internal quotation marks omitted).
"[A] motion for a new trial may be granted even if there is substantial evidence to support the jury's verdict." Landau, 155 F.3d at 104 (citing Bevevino v. Saydjari, 574 F.2d 676, 683 (2d Cir. 1978); Song v. Ives Laboratories, Inc., 957 F.2d 1041, 1047 (2d Cir.1992)). "The `ultimate test' is `whether letting a guilty verdict stand would be a manifest injustice.'" United States v. Canova, 412 F.3d 331, 349 (2d Cir.2005) (quoting Ferguson, 246 F.3d at 133)). The Court of Appeals for the Second Circuit has held that "there must be a real concern that an innocent person has been convicted." Id. An "innocent person," in this context, includes a person who, after a fair trial, is found not guilty only by reason of the legal definition of insanity. See 18 U.S.C.A. § 17 (providing for affirmative defense of legal insanity); cf. United States v. Bohle, 475 F.2d 872, 874-75 (2d Cir.1973) (characterizing the jury's decision whether to credit insanity defense as "for the jury as part of guilt determination."); Britz v. Cowan, 192 F.3d 1101, 1103 (7th Cir.1999) (Posner, J.) (holding, in habeas context, that "when the accused ... has an affirmative defense of insanity ... [and is] acquitted on ground of insanity, he is actually innocent"). But cf. Herrera v. Collins, 506 U.S. 390, 419-20, 113 S. Ct. 853, 122 L. Ed. 2d 203 (1993) (O'Connor, J., concurring) (stating that petitioner who sought a new trial was not "innocent" in the eyes of the law when found guilty after a "fair trial.").
The merits of defendant's motion are considered in detail below. Although a new trial will not be granted on the ground that the trial court failed to recognize, and exercise, its discretion to inform the jury of the mandatory minimum sentence associated with a conviction on the receipt counts, see Part III.B, infra, a new trial is required in light of the sharp reduction in the child pornography counts charged against the defendant, see Part III.C.2, infra.
Having considered the special and unique circumstances of this case, the trial court is "convinced that ... the [guilty] verdict is a miscarriage of justice." Cote, 544 F.3d, at 101 (internal quotation marks omitted). The overindictment would have affected the jury's deliberations regarding the insanity defense. There is a substantial probability that, in the absence of the overindictment, the juryeven if it were unaware of the high minimum sentence would have either acquitted or returned a verdict of not guilty by reason of insanity. A new trial is required to "avert this perceived miscarriage of justice." Polouizzi II, 564 F.3d at 159 (internal quotation marks omitted). See also id. at 162 ("[A] compelling reason involving substantial unfairness [can] justify undoing the jury's verdict and ordering a new trial").
B. Preliminary Issue
A preliminary issue is whether to grant a new trial on the ground that the trial court failed to know it had, and to *159 exercise, its discretion to inform the jury of the five-year minimum sentence associated with a conviction for receipt of child pornography. See Polouizzi II, 564 F.3d at 162 n. 8 ("A district court, if it becomes aware of its own error, may well be justified in ordering a new trial....").
Although the opinion of the Court of Appeals is ambiguous about the particular circumstances in which it is within the court's discretion to inform the jury of a mandatory minimum sentence, see Part II.F, infra, it is evident from the opinion that, under the circumstances of this case, it would be an abuse of discretion for the trial court to now grant a new trial on this ground. The Court of Appeals wrote:
In this case, it is not necessary to decide whether it would have been within the district court's discretion to inform the jury of the applicable mandatory minimum sentence. Even assuming arguendo that the district court had discretion to give such an instruction, it was certainly within the trial court's discretion to decline to instruct the jury on the mandatory minimum sentence.
Polouizzi II, 564 F.3d at 162.
As indicated in the trial court's prior memorandum reviewing the opinion for the Court of Appeals, see Polouizzi III, 257 F.R.D. at 38-39, it was suggested that the parties seek further clarification from the Court of Appeals before remand, and that, without further clarification or modification of the opinion, a new trial would not be granted on this ground. Neither party sought clarification. See Hr'g Tr. 2:19-3:11, Sept. 29, 2009.
C. Overindictment
The main issue now presented arises from the seminal opinion of the Court of Appeals for the Second Circuit in Polouizzi II. As described above, Part II.F, infra, in a major break with prior practice in the trial of child pornography cases, the appellate court reduced the indictment from twenty-three counts to five. See Polouizzi II, 564 F.3d at 153-58. The question now posed is whether a new trial should be granted in light of the substantial change in the indictment.
There are two subsidiary issues: 1) whether the evidence would have been different if the case had been tried with the indictment now limited, and 2) whether the extreme overbreadth of the indictment itself would have had a substantial effect on the jury in its deliberations.
1. No Prejudice From Evidence Admitted
As to the first issue, the evidence would have been essentially the same under the indictment tried and the indictment as reduced by the Court of Appeals. Although the trial court would have been likely to have somewhat limited repetitive evidence admitted under Federal Rules of Evidence 403 and 404(6), had the trial proceed on five counts rather than twenty-three, the jury would have known the number and nature of the hoard of pornographic materials the defendant possessed. See Polouizzi II, 564 F.3d at 153 (finding that content of images was relevant to the jury's consideration of the insanity issue). The government was as solicitous of the defendant and non-prejudicial as it could be in introducing materials downloaded and retained by the defendant. See Polizzi I, 549 F.Supp.2d at 331 ("The still photos and moving video were shown to the jury in brief flashes on a courtroom screen to avoid unnecessary prejudice."); Polizzi II, 564 F.3d at 153 ("[T]he risk of unfair prejudice was minimized by the mode of presentation."). The extreme sensitivity in the presentation by the government would have prevented any undue prejudice from the introduction of the same evidence *160 whether the trial involved five or twenty-three counts.
2. Prejudice From Overbreadth of Charges Tried
A trial court is guided in applying its authority to grant a new trial under Rule 33 by the decisions of the Court of Appeals for the Second Circuit recognizing broad nisi prius discretion. See, e.g., Polizzi II, 564 F.3d at 159 ("This rule confers broad discretion upon a trial court to set aside a jury verdict and order a new trial to avert a perceived miscarriage of justice.") (internal quotation marks omitted).
Based upon its own observation of hundreds of jury criminal trials and of many thousands of potential jurors, reinforced by a review of available studies on the sociology of juror deliberations, the trial court concludes that the jury was overwhelmed by the seriousness of the defendant's criminal conduct as reflected in the long indictment on twenty-three counts. As this trial court has noted previously:
... [A] twenty-three count child pornography trial is qualitatively different from a five count trialwhere a serious defense is insanity. Jurors would be more inclined to find lack of insanity when trying the large multiple-count indictment, with its overtone of a far more serious threat to many children requiring a heavier condemnation by society....
An indictment so multiplicitous exaggerates the jury's impression of the nature and scope of defendant's criminal activity by chargingand requiring a separate finding of guilty"an offense multiple times, in separate counts, when, in law and fact, only one crime has been committed." United States v. Chacko, 169 F.3d 140, 145 (2d Cir.1999). See also, e.g., United States v. Reed, 639 F.2d 896, 904 (2d Cir.1981) ("The vice in multiplicity of charges is that it may lead to multiple sentences for the same offense and may improperly prejudice a jury by suggesting that a defendant has committed not one but several crimes.") (emphasis added); United States v. Ketchum, 320 F.2d 3, 8 (2d Cir.1963) (finding that the objectives of preventing multiplicitous counts are "primarily those of promoting the order and efficiency of the trial and avoiding the risk that the prolix pleading may have some psychological effect upon a jury" by overstating the level of the defendant's criminal activity) (internal quotation marks and citation omitted; emphasis added); United States v. Carter, 576 F.2d 1061, 1064 (3d Cir.1978) (multiplicitous indictment "may prejudice the jury against the defendant by creating the impression of more criminal activity on his part than in fact may have been present.") (emphasis added); United States v. Langford, 946 F.2d 798, 802 (11th Cir.1991) (multiplicitous indictment "may improperly prejudice a jury by suggesting that a defendant has committed several crimesnot one") (emphasis added); United States v. Duncan, 850 F.2d 1104, 1108 n. 4 (6th Cir. 1988) (multiplicitous counts "may falsely suggest to a jury that a defendant has committed not one but several crimes") (emphasis added), overruled on other grounds by Schad v. Arizona, 501 U.S. 624, 111 S. Ct. 2491, 115 L. Ed. 2d 555 (1991); United States v. Clarridge, 811 F. Supp. 697, 702 (D.D.C.1992) (The reason for keeping unnecessary counts from the jury is that, "[o]nce such a message [of multiple crimes] is conveyed to the jury, the risk increases that the jury will be diverted from a careful analysis of the conduct at issue" and "[c]ompromise verdicts or assumptions that, with so many charges pending the defendant must be guilty on at least some of them, *161 pose significant threats to the proper functioning of the jury system.") (emphasis added).
Polouizzi IV, 262 F.R.D. at 161 (underlining added).
Jurors are human beings, not slot machines. They do not work in a mechanical fashion. Depending on the circumstances of a particular case, jurors may be lenient. E.g. United States v. Powell, 469 U.S. 57, 65, 105 S. Ct. 471, 83 L. Ed. 2d 461 (1984) (Rehnquist, J.) (refusing to overturn "inconsistent verdict," noting the possibility that the jury "returned a guilty verdict on the compound offense, and then ... through ... lenity, arrived at an inconsistent conclusion on the lesser offense."). Or, as in treating recidivists and repeat offenders, jurors may harsh. E.g. United States v. McCallum, 584 F.3d 471, 476-77 (2d Cir.2009) (recognizing risk of undue prejudice arising from introduction of prior convictions); Durr v. Mitchell, 487 F.3d 423, 444 (6th Cir.2007) (recognizing prejudice where prosecutor's closing arguments "impl[ied] that defendant was ... a recidivist continually engaged in criminal conduct"). Our jury system brings human understanding to difficult criminal cases.
"[E]ven when cautioned, juries are apt to regard with a more jaundiced eye a person charged with two crimes than a person charged with one." United States v. Smith, 112 F.2d 83, 85 (2d Cir.1940). See U.S. Dep't of Justice, United States Attorneys' Manual, tit. 9, Criminal Resources Manual 215 (1997) ("In order to promote the fair administration of justice, as well as the perception of justice, all United States Attorneys should charge ... as few separate counts as are reasonably necessary to prosecute fully and successfully.... To the extent reasonable, indictments... should be limited to fifteen counts or less.") (emphasis added).
There is a sense in our society that individuals may "slip" from time to time. But when a crime is committed again and again, that tendency to forgive is seriously attenuated.
This inherent "human element" in jury deliberations is magnified in the context of the insanity defense, where "[s]anity and insanity are concepts of incertitude," Leland v. State of Oregon, 343 U.S. 790, 803, 72 S. Ct. 1002, 96 L. Ed. 1302 (1952) (Frankfurter, J., dissenting), and the determination of "legal insanity" involves assessments of culpability and public morality. See 18 U.S.C. § 17 (requiring defendant to prove, inter alia, that he was "unable to appreciate the nature and quality or the wrongfulness of his acts") (emphasis added); accord Polizzi, 545 F.Supp.2d at 278 (instructing jurors to "Ask yourselves, for example, was [Polizzi] not only intellectually able to understand, but was he emotionally able to realize the nature and quality or wrongfulness of his acts?"). Even in the instant case, where the trial court defined "wrongfulness" as "unlawfulness," rather than "contrary to public morality," assessments of public morality were central to the litigation. See, e.g., Polouizzi II, 564 F.3d at 153 (finding the "nature and content" of illicit images relevant to the insanity defense, noting that "the government ... has a right to present evidence ... to establish the "human significance" of the fact and to "to implicate the law's moral underpinnings." ") (internal quotations omitted; emphasis added).
An experienced jurist or lawyer may see no essential difference between an indictment for child pornography charging five counts and an indictment charging twenty-three counts, but it is highly probable that a lay juror would be prepared to find a defendant guilty more readily if he were *162 tried for twenty-three rather than five separate child pornography crimes.
Child pornography is abhorrent, as indicated by harsh punishments associated with conviction. It is precisely these kinds of cases in which one would expect juries to be less likely to credit the insanity defense than jurists or lawyers. See, e.g., Harry Kalven Jr. & Hans Zeisel, The American Jury 404-05, 405 n. 11 (1966) (comparing actual verdicts to verdicts favored by judges, reporting that insanity cases involving "heinous and violent" crimes were "virtually the only cases in which the judge rates the case as clear for acquittal where the jury nevertheless refuses to acquit"); id. at 405 (characterizing such cases as an "extreme form ... of jury revolt in favor of greater severity."). See also Rita James Simon, The Jury and the Defense of Insanity 89 (1967) (conducting first systemic research on jury reactions to the insanity defense, observing that jurors were relatively hesitant to defer to psychiatric testimony when a defendant has committed a heinous crime). See also generally Dennis J. Devine et al., Jury Decision Making: 45 Years of Empirical Research on Deliberating Groups, 7 Psych., Pub. Pol. & L. 22 (2001) (reviewing empirical literature on sociology of jury decision making).
The overindictmentresulting in a verdict sheet requiring jurors to answer twenty-three questions, covering eight pages cannot have failed to affect the jury's deliberation on the insanity defense. Cf. United States v. Spock, 416 F.2d 165, 182 (1st Cir.1969) (expressing concern with "subtle, and perhaps open, direct effect that answering special questions may have upon the jury's ultimate conclusion" where a verdict form includes a "progression of questions each of which seems to require an answer unfavorable to the defendant"). As explained above, Part II.C.3.a, supra, the trial court's instructions necessarily emphasized that the indictment contained many counts, and it was apparent from discussions during the charging conference that jurors would be keyed in to the fact that multiple counts of child pornography were at issue. The overindictment was a serious impediment on any objective deliberations on the insanity defense.
That the Court of Appeals understood the deleterious effect of this overindictment was apparent. It made its view clear: maintaining multiplicitous convictions in this case would "seriously affect the fairness, integrity, or public reputation of judicial proceedings." Polouizzi II, 564 F.3d at 154 (internal quotation marks omitted).
Where a district court is presented with a multiplicitous indictment before or during trial, potential prejudice can sometimes be avoided by requiring the prosecution to elect between counts charged rather than merging sentences. See, e.g., United States v. Clarridge, 811 F. Supp. 697, 702-07 (D.D.C.1992) (requiring government to elect between multiplicitious counts of false statements and perjury). The reason for keeping unnecessary counts from the jury is that, "[o]nce such a message [of repeated crimes] is conveyed to the jury, the risk increases that the jury will be diverted from a careful analysis of the conduct at issue," and "[compromise verdicts or assumptions that, with so many charges pending the defendant must be guilty on at least some of them, pose significant threats to the proper functioning of the jury system." Id. at 702 (emphasis added).
If the profound peril of prejudice and a miscarriage of justice from flagrant overindictment has not been negated before or at trial, a new trial is warranted. In the instant case, neither the parties nor the trial court were aware of the serious *163 overcharging before the appellate court ruled that the defendant had been excessively charged, as a matter of first impression on this appeal.
Although in some instances curative instructions on how to appropriately consider each individual crime charged may adequately avoid prejudice to a defendant faced with multiplicitous counts, see United States v. Chipps, 410 F.3d 438, 449 (8th Cir.2005), this technique is not now available. Once the impression of enhanced criminal activity "`is conveyed to the jury, the risk increases that the jury will be diverted from a careful analysis of the conduct at issue, and will reach a compromise verdict or assume the defendant is guilty.'" United States v. Johnson, 130 F.3d 1420, 1426 (10th Cir.1997) (quoting Clarridge, 811 F.Supp. at 702) (emphasis added).
Questions of jurors during deliberations and post-verdict statements support a serious concern that a less extensive indictment would have led to an acquittal because of the insanity defense. Having considered objectively the totality of the circumstances, this court finds that there was a high probability that the unlawfully increased number of child pornography charges caused the jury to consider the defendant's conduct to be more systematic and dangerous than it would have if the counts were substantially reducedwith the likely result that the jury would have found him insane. See Polouizzi III, 257 F.R.D. at 38.
Because this court is convinced that the initial verdict constituted a manifest injustice, a new trial is required in the exercise of this court's discretion. A retrial must proceed on all five countsboth those for possession and receipt. The overindictment cannot have failed to infect the deliberations with respect to every count charged on the indictment. As explained previously,
[t]hat the cause of a juror's action might be psychological, predicated upon unanalyzed feelings, rather than rational, based on the evidence and charged law, does not control the issue posed: under the special and unique facts of this case, would the jury be more likely to accept the defense of insanity if one instead of eleven counts of child pornography possession was being tried, and four instead of twelve counts of receipt of child pornography were before them at the same time? Based on this court's experience with many thousands of citizens called from a cross-section of the Eastern District's heterogenous community for service as petit jurors, the answer is yes.
Polouizzi IV, 262 F.R.D. at 161. Where, as here, the interest of justice requires, "a motion for a new trial may be granted even if there is substantial evidence to support the jury's verdict." Landau, 155 F.3d at 104. See also United States v. Quintanilla, 193 F.3d 1139, 1149-50 (10th Cir.1999) (Seymour, C.J., dissenting) (noting that when a new trial is sought on grounds other than newly discovered evidence," `the motion should be neither favored nor disfavored, and the question is only what the interest of justice requires.'") (quoting 3 Charles A. Wright, Federal Practice & Procedure § 551 (2 ed.1982)); cf. Mattox v. United States, 146 U.S. 140, 149, 13 S. Ct. 50, 36 L. Ed. 917 (1892) ("It is vital ... that the jury should pass upon the case free from external causes tending to disturb the exercise of deliberate and unbiased judgment.").
It must be emphasized that this is an unusual case, where there was no question of receipt and possession of child pornography by the defendant, but the only issue for the jury was the insanity defense. And questions from the jury indicated that this *164 was a serious sticking point over a period of its days of deliberation. Eighteen erroneously charged counts could not have failed to have affected juror deliberations and analysis of the insanity issue.
D. Timeliness
Notwithstanding the government's contentions to the contrary, see Govt.'s Letter 13-14, July 27, 2009, D.E. No. 199; Govt.'s Letter 3, Aug. 13, 2009, D.E. No. 204, the fact that defendant's motion was filed after this case was remanded by the Court of Appeals does not impinge on this court's jurisdiction to grant now a new trial.
1. "Seven-Day" Rule
Rule 33(b)(2) states in pertinent part that "[a]ny motion for a new trial grounded on any reason other than newly discovered evidence must be filed within seven days after the verdict or finding of guilty." Fed.R.Crim.P. 33(b)(2). See also Advisory Committee Notes to 1998 Amendment to Rule 33 ("It is the intent of the Committee ... [to use] the trial court's verdict or finding of guilty as the triggering event."). Rule 33 must be read in conjunction with Rule 45, which governs how to compute time and extensions. United States v. Owen, 559 F.3d 82, 84 (2d Cir.2009) (citing U.S. v. Robinson, 430 F.3d 537, 541 (2d Cir.2005)).
Rule 33(b)(2) was amended, effective December 1, 2009, to change the time limitation for filing a new trial motion from seven to fourteen days after the verdict. Because Polizzi's motion for a new trial was filed before the effective date of December 1, 2009, the pertinent time period remains seven days, subject to extension for excusable neglect. As explained in the Advisory Committee notes to the 2005 amendment to Rule 33:
The defendant may under Rule 45 seek an extension of time to file the underlying motion as long as the defendant does so within the seven day period. But the court itself is not required to act on that motion within any particular time. Further, under Rule 45(b)(1)(B), if for some reason the defendant fails to file the underlying motion for a new trial within the specified time, the court may nonetheless consider that untimely underlying motion if the court determines that the failure to file it on time was the result of excusable neglect.
Id. (emphasis added). Rule 45(b)(1)(B) states that "[w]hen an act must or may be done within a specified period, the court on its own may extend the time, or for good cause may do so on a party's motion made... after the time expires if the party failed to act because of excusable neglect." Fed.R.Crim.P. 45(b)(1)(B).
A party need not seek or obtain leave to file a belated motion for a new trial pursuant to Rule 45. See Fed. R.Crim.P. 45(b)(1)(B) ("[T]he court on its own may extend the time ... if the party has failed to act because of excusable neglect.") (emphasis added). Nor do the Rules limit the time in which a district court may properly decide on a new trial motion. See Advisory Committee Notes for 2005 Amendment to Rule 45 ("The rules ... do not force the court to rule on a motion to extend the time for filing ... within a particular period of time....").
Rule 33 is not jurisdictional. Eberhart v. United States, 546 U.S. 12, 13-15, 126 S. Ct. 403, 163 L. Ed. 2d 14 (2005) (per curiam) (denominating Rule 33 a "claim processing rule[]"); United States v. Owen, 559 F.3d 82, 83-84 (2009) (same); United States v. Melenedez, No. 04-CR-473, 2006 WL 1379624, at *5 (S.D.N.Y. May 15, 2006) (same).
*165 As explained above, Part II.G, supra, defendant orally requested a new trial on April 30, 2009days after the Court of Appeals issued its opinion in this case. See Hr'g Tr. 7:2-3, Apr. 30, 2009. Defendant's letter motion was filed on July 31, 2009. Neither application was made within the seven-day window specified in Rule 33(b)(2), since it is the jury's October 5, 2007 verdict, not the date of remand, that triggers the seven-day clock.
2. Excusable Neglect
Consideration of the merits is appropriate because defendant's belated filing was excusable under Rule 45a finding inherent in prior action of this court following remand. See Polouizzi III, 257 F.R.D. at 36-38 (suggesting that, upon remand, a new trial might be required). See also, e.g., United States v. Owen, 559 F.3d 82, 84 (2d Cir.2009) (construing trial court's indication that it would "have to hear" a pro se Rule 33 motion as embodying a finding of excusable neglect).
This court's finding of excusable neglect is based on consideration of all relevant circumstances, including: 1) the danger of prejudice to the non-moving party; 2) the length of delay and impact on judicial proceedings; 3) the reason for the delay, including whether it was in the reasonable control of the moving party; and 4) whether the moving party acted in good faith. See Pioneer Inv. Servs. Co., 507 U.S. 380, 395, 113 S. Ct. 1489, 123 L. Ed. 2d 74 (1993) (setting forth factors for determination of equitable neglect in context of Bankruptcy Rule 9006(b)). See also Eberhart v. United States, 546 U.S. at 19-20, 126 S. Ct. 403 (explaining that Bankruptcy Rule 9006(b) and Federal Rule of Criminal Procedure 45(b) are both modeled on the Federal Rule of Civil Procedure 6(b)) (internal quotation marks omitted); United States v. Riley, No. SI 06-CR-80, 2008 WL 2662277, at *1 n. 3 (S.D.N.Y. July 7, 2008) (applying Pioneer in context of Rule 33); United States v. Urena, No. S3 05-CR-0760, 2008 WL 2229847, *2-3 (S.D.N.Y. May 29, 2008) (same).
These four factorsseparately and togethersupport a finding of excusable neglect.
There is no risk of prejudice to the government, where a possible new trial has been the focus of this litigation for over a year. It has long been apparent at least since the close of evidence in this casethat defendant's counsel intended to seek a new trial on any and all available grounds. The government learned of the present grounds for the motion immediately after the Court of Appeals for the Second Circuit filed its opinion. See Hr'g Tr. 7:2-3, Apr. 30, 2009; Polouizzi III, 257 F.R.D. at 36-38. It was in effect in the same position to respond to a Rule 33 motion as it was immediately after the verdict. Cf. Hr'g Tr. 10:6-8 ([AUSA:] "In terms of timing, I have no objection if your Honor wants to set a long date or mark it off calendar.").
The reason for the delay tips heavily in favor of the defendant. Defendant's contention that it was only after the appellate decision that he became aware of the need for a new trial on the basis of prejudicial spillover, Def. Letter, July 31, 2009, D.E. at 202, is credible and justified. As described above, Part II.F, supra, it was as a matter of first impression that the Court of Appeals limited the number of crimes that could be charged in cases involving downloading and viewing of child pornography though the Internet, reducing the crimes charged against the defendant from twenty-three to five. See Polouizzi II, 564 F.3d at 153-61.
Failure of defendant's counsel to anticipate that decision can hardly be characterized as neglect, much less inexcusable neglect. *166 See Canfield v. Van Atta Buick/GMC Truck, Inc., 127 F.3d 248, 250 (2d Cir.1997) ("`[N]eglect,' for purposes of interpreting `excusable neglect' in the federal rules, has its normal, expected meaning: inadvertence, carelessness, and mistake."). Attorneys are expected to be zealous advocates, not clairvoyants. Cf. Hawknet, Ltd. v. Overseas Shipping Agencies, 590 F.3d 87, 90-91 (2d Cir.2009) ("The doctrine of waiver demands conscientiousness, not clairvoyance, from the parties."); United States v. Roberts, 978 F.2d 17, 24 (1st Cir.1992) ("In general, mistake or inadvertence as to the meaning of a rule is not a sufficient reason to grant a belated application.... Nonetheless, ambiguity in a rule ... can give rise to excusable neglect sufficient to warrant an extension of time.") (citations omitted).
It is well established that, as a general matter, "there is nothing to prevent the court from granting the defendant a significant extension of time." Advisory Committee Notes to 2005 Amendment to Rule 45. A significant extension was particularly appropriate here, where a long delay in any new trial was unavoidable. Consistent with this court's instructions, see, e.g., Polouizzi III, 257 F.R.D. at 34 (stating that the trial court could not act until a "mandate ha[d] been ... received"), the defendant filed the instant motion immediately after the mandate of the Court of Appeals for the Second Circuit was docketed with the district court. Although technically this court had jurisdiction to decide a motion for a new trial when the mandate was issued some days earlier, see United States v. Rivera, 844 F.2d 916, 921 (2d Cir.1988), defendant's counsel cannot be faulted for following the district court in assuming what was not the casethat this court would receive the mandate the same day it was issued by the Court of Appeals. Cf., e.g., Spear, Leeds & Kellogg v. Pub. Serv. Co. of New Hampshire, 700 F. Supp. 791, 794 (S.D.N.Y.1988) (finding excusable neglect arising from "ambiguous" order of the district court). See also De Santa v. Nehi Corp., 171 F.2d 696, 698 (2d Cir.1948) (finding excusable neglect arising from order of district court which was not "clear[ly] ... correct"); Roberts, 978 F.2d at 24 (finding that "ambiguity in a ... court order can give rise to excusable neglect"). To the extent that defendant's counsel misinterpreted any prior order extending time, see Polouizzi I, 549 F.Supp.2d at 447, to extend the time following remand, see Def. Letter 1 n. 1, July 31, 2009, D.E. No. 202, any delay was excusable. See United States v. Marquez, 291 F.3d 23, 28 (D.C.Cir.2002) (recognizing permissibility of belated filings where a party is "misled by a ruling or order of the court containing assurances that the deadline has been extended.").
There has been no accusation or showing of bad faith on the part of defendant. His counsel has pursued a new trial consistently from the time of verdict.
In light of the unique procedural circumstances of this case, defendant's belated filing is excused. Even if the delay could properly be characterized as "neglect" which is dubiousit was excusable. See United States v. Owen, 559 F.3d 82, 84 (2d Cir.2009) ("[T]he District Court is in the best position to decide, in the exercise of its informed discretion, whether ... [a] motion was timely under Rule 33 and Rule 45(b)."). It would be a grave injustice to refuse to consider the merits of defendant's motion here, where a new trial is required in the interests of justice. Cf. Ogden v. United States, 112 F. 523, 525 (3d Cir.1902) ("The right to move for a new trial, and to have that motion considered upon the reasons presented for it, is an absolute one.... To refuse leave to make or file such a motion and the reasons therefore is the denial of a right....").
*167 3. Supplemental Order
This court had, and has, jurisdiction to issue a supplemental memorandum and order granting a new trial to facilitate an expeditious and informed appeal to the Court of Appeals. See Polouizzi IV, 262 F.R.D. at 162 ("This abbreviated memorandum and order is issued now to permit an expedited appeal by the government. A more expansive explanation will be issued shortly."). See also United States v. Katsougrakis, 715 F.2d 769, 777, n. 7 (2d Cir.1983) (noting that although filing of notice of appeal transfers jurisdiction to the appellate court, the trial court still may act "to aid the appeal"). Cf. In re Walker, 515 F.3d 1204, 1211 (11th Cir.2008) ("[W]hen a trial court reduces its oral findings to writing and cites relevant case law, it does not lack jurisdiction to do so because the losing party filed a notice of appeal after the oral hearing but before the entry of the written order. Such a subsequent order aids appellate review."); In re Silberkraus, 336 F.3d 864, 869 (9th Cir.2003) ("[T]he bankruptcy court retained jurisdiction to publish .... findings of fact and conclusions of law because they were consistent with the court's oral findings and because they aid us in our review of the court's decision.") (footnote omitted; citation omitted). See also generally Catherine T. Struve, Power, Protocol, and Practicality: Communications from the District Court During an Appeal, 84 Notre Dame L.Rev.2053 (2009) (discussing actions district courts may properly take while appeal is pending).
IV. Informing New Jury of Mandatory Minimum Sentence
The motion for a new trial having been granted because of the ground provided by Polouizzi II, the question which must be decided is whether to inform the new jury of the five-year mandatory minimum sentence of imprisonment required with a finding of guilt on any of the receipt counts. See 18 U.S.C. § 2252(b)(1). All else being equal with the first trial, the court will so instruct the jury.
Colonial constitutional history establishes this court's duty to inform the jury in special cases, such as the instant one, the minimum terms of punishment. See Polouizzi I, 549 F.Supp.2d at 404-43 (enunciating this view); Parts IV.A-G, infra (reiterating this view). From the discussions with the jury after the first verdict, it is apparent that this knowledge would probably have affected the outcomeresulting in either a mistrial or acquittal on the ground of insanity.
A. The Sixth AmendmentHistory and Context
A brief historical review demonstrates the Sixth Amendment right of the defendantin cases such as this oneto be tried by a jury that knows the sentencing impact of its decisions.
Under the majority approach of the Supreme Court to the Sixth Amendment, championed by Justice Scalia and others, judges must look to criminal practices of the Thirteen Colonies and England in 1791, when the amendment was adopted. See Parts IV.B-C, infra (discussing effect of sentencing decisions of the Supreme Court). Judges today must deal with the caveats of Professor Julius Goebel, Jr. and other historians about difficulties in understanding the vagaries of colonial practice. See, e.g., United States v. Khan, 325 F. Supp. 2d 218, 226 (E.D.N.Y.2004) ("The Constitution requires that we apply 1780 jury practice in our courts. Yet any attempt to fully understand and apply eighteenth-century rules for juries in twenty-first century federal sentencing is bound to be somewhat chimerical."); Morris Cohen, Historical Research Sources on Early *168 American Criminal Law, Criminal Procedure and Evidence in Current trends in Criminal Procedure and Evidence: A Collection of Essays in Honor of Professor Eliahu Haron 25-48 (Anat Horowitz and Mordechi Krimnitzer eds., 2009); Essay, The Role of Judges in a Government Of, By, and For the People, 30 Cardozo L.Rev. 1, 36-37 (2008) (criticizing some of the historiography of Supreme Court originalism). Reception of British law before and at the time of the Declaration of Independence makes contemporary English practice particularly important in construing the Sixth Amendment. See, e.g., Julius Goebel, Jr., Cases and Materials on the Development of Legal Institutions 298-329 (7th ed.1946).
Interpreting and extrapolating from eighteenth century practice is particularly difficult since original materials are hard to come by and the technological, political, and legal contexts in each of the Thirteen Colonies were then so different from what they are today. Yet it appears fairly clear, from a review of legal and historical scholarship on eighteenth-century colonial and English criminal practice, that the petit juries of 1791 would have been aware of any harsh sentence imposed mandatorily upon a finding of guilt of a particular crime. It is equally apparent that a jury so apprised would have been expected to deliver a verdict of not guilty or guilty of a lesser crime had it believed the punishment excessive for the crime actually charged and proved.
The Sixth Amendment was adopted in 1791 as one of the first matters of business of the new republic, guaranteeing the right of a defendant "[i]n all criminal prosecutions... [to] trial, by an impartial jury of the State and district wherein the crime shall have been committed." U.S. Const. amend. IV. It was then understood that the jury had the power to refuse to convict even if the facts and law indicated guilt. In later years this fundamental power of the juryand the right of the accused has been termed the power to "nullify." Negative current connotations of this characterization of the jury's power and responsibility ignore history and the meaning of the Sixth Amendment.
When a jury refuses to convict on the basis of what it thinks is an unjust law as applied, a misconceived prosecution, or an excessive penalty, it is performing exactly its role as imposed by the Sixth Amendment. As the following discussion demonstrates, these powers of the jury were exercised consistently by jurors who were aware or made aware of the punishments their verdicts would entail, before, and for many years after, the Sixth Amendment was adopted. See, e.g., Polouizzi I, 549 F.Supp.2d at 450-54 (providing as an appendix a selected bibliography on powers of jurors when Sixth Amendment was adopted); see also Jeffrey Abramson, We, The Jury: The Jury System and the Ideal of Democracy 30-31, 63-64, 67-77 (1994); The Complete Juryman: Or, a Compendium of the Laws Relating to Jurors 194-202, 246-47 (1752); Clay S. Conrad, Jury Nullification: The Evolution of a Doctrine 13-63 (1998); William L. Dwyer, In the Hands of the People: The Trial Jury's Origins, Triumphs, Troubles, and Future in American Democracy 62-72 (1st ed.2002); The English-mans Right: A Dialogue Between a Barrister at Law and a Jury-Man 10-35 (1680); Norman J. Finkel, Commonsense Justice: Jurors' Notions of the Law 24-31 (1995); Thomas Andrew Green, Verdict According to Conscience: Perspectives on the English Criminal Trial Jury 1200-1800, at 153-99 (1985); John Hostettler, The Criminal Jury Old and New: Jury Power From Early Times to the Present Day 30-32, 48, 70-72, 92-103, 112-14, 121, 133-34 (2004); *169 Larry D. Kramer, The People Themselves: Popular Constitutionalism and Judicial Review 28-29 (2004); Leonard W. Levy, The Palladium of Justice: Origins of Trial by Jury 69-105 (1st ed.1999). If the law is not hidden from them, "[t]he people can always nullify an unpopular law if they feel like it, and there is no power on earth that can stop them ...." See Bruce Catton, The Centennial History of the American Civil War: The Coming Fury 44 (2001).
Introduced by James Madison as a promised quid pro quo for approval of the Constitution by the people of the States, the Sixth Amendment's right to a jury trial in criminal cases solidified and ratified the primary power of the petit jury as one of essential institutions upon which the people's liberties would depend. It was expected to limit the kind of governmental overreaching that led to the Revolutionary War. See, e.g., Abramson, supra, at 28-29, 32; Kramer, supra, at 29-34, 70, 157; Shannon C. Stimson, The American Revolution in the Law: Anglo-American Jurisprudence Before John Marshall 142-43 (1990).
For the Framers, there would have been no need to go back before the Magna Carta for support in the "courts of conscience." See, e.g., Andrew J. Parmenter, Nullifying the Jury: "The Judicial Oligarchy" Declares War on Jury Nullification, 46 Washburn L.J. 379, 380 (2007). They could look to recent and contemporary juries, such as those in the well-known trials of John Lilburne, William Penn, and John Peter Zenger, which had refused to convict when authorities insisted that the law required them to do so.
In the mid-seventeenth century, Colonel John Lilburne had been repeatedly acquitted in England of the crime of distributing pamphlets critical of the British government. See The Trial of Lieutenant-Colonel John Lilburne, in 4 Cobbett's Collection of State Trials 1270, 1320, 1466 (Old Bailey 1649). In his second trial he asked the jury to acquit if it found capital punishment too severe. It responded by finding him "not guilty of any crime worthy of death," thus directly involving itself in the issue of punishment. Id. at 197. Lilburne was released and then financially compensated for being improperly tried.
The Quakers, William Penn and William Mead, were prosecuted in London in 1670 for preaching to an unlawful assembly and for breach of the peace. Trial of Penn and Mead, in 6 Cobbett's Collection of State Trials 950 (London, T.C. Hausard 1810). After the jury acquitted Mead of all charges and found Penn not guilty of disturbing the peace, it was deprived of food, water and heat. Despite these coercive tactics, the jury still refused to find guilt, and was fined. Some jurors, including a man named Bushell, refused to pay; they were imprisoned, until ordered released by the Chief Justice on the ground that the jury in effect determines the law when deciding by general verdict. Bushell's Case, 124 Eng. Rep. 1006, 1012-13 (1670).
One of the most famous of the colonial cases in which juries frustrated the crown and its judges was the Trial of John Peter Zenger. See T.B. Howell, The Trial of Mr. John Peter Zenger in 17 A Collection of State Trials 675 (1735). In 1735, a jury acquitted Zenger after his counsel argued that truth was sufficient basis to refuse to convict even though the jury had been charged to the contrary. Anti-monarchist writings are sprinkled with encomiums for the Zenger and other defiant juries. See Parmenter, supra, at 384 nn. 53-61 and accompanying text. For other like cases, see, e.g., Levy, supra, 55 ff. (1999). The right to trial by jury incorporated in the Constitution by the Sixth Amendment was *170 envisaged as a check against overreaching by the new federal government.
The power of colonial and British jurors depended in large measure upon the fact that they were from the vicinage, were well-informed and self-confident property owners, see, e.g., Randolph A. Jonakit, The American Jury System 107-09 (2003), and knew the essentials of the local criminal law and its punishments. See, e.g., Abramson, supra, at 22-29, 32, 34-35 ("[J]urors did not even need to rely on a judge's instructions to know the common law of the land."); Neil Vidmar & Valerie P. Hans, American Juries: The Verdict 49 (2007) (noting that John Adams "remarked that the common law was known by everyone and `imbibed with the Nurses Milk and first Air'" and that, accordingly, "[i]n many cases judges gave the jury no instructions on the law" (quoting 1 The Legal Papers of John Adams 230 (L. Kinvin Wroth & Hiller B. Zobel eds., 1965))).
Jury power not to convict was extensively exercised when the punishments that would be expected to follow from conviction were deemed excessive. See, e.g., 4 William M. Blackstone, Commentaries on the Laws of England *342-44 (1769) (noting with approval that juries often found the value of stolen goods to be less than twelvepence in order to avoid the mandatory death penalty for theft of goods worth more than twelvepence, calling such practice "pious perjury"); Conrad, supra, at 20; Dwyer, supra, at 49; Green, supra, at 28-29, 35-44; Leon Radzinowicz, A History of English Criminal Law and Its Administration from 1750: The Movement for Reform 1750-1833, at 93-97 (1948) (discussing elimination of capital charges by "pious perjury"). Exercise of the power to reduce the sentence presupposed knowledge of the expected punishment.
It is not strange that jurors should, in the second half of the eighteenth century, know details of criminal law and punishmentmatters of which many of our present jurors do not know and are deliberately kept from knowing. Criminal law then was much simpler than today. Now it requires tomes of highly abstruse, convoluted definitions and extraordinary combinations of statutory prison maximums and minimums, fines, restitutions, forfeitures, probationary terms, treatment for mental health, and post-incarceration supervision, and it presents legal problems in and out of prison, sentencing guidelines, caselaw and local practice. It would have been inconceivable, for example, that a New York jury of 1791 trying a child pornography video case (were there such a case) would not knowas this jury did notthat conviction required a five-year minimum prison term and an even higher term under applicable federal guidelines. It is hardly likely that a present jury would be aware of the fact that "receiving" one illicit image by the Internet in private called for at least a five-year term in prison while "possession" of 5,000 such depictions would permit probation.
Practice received from eighteenth-century England varied among, and within, the separate colonies. Much of it has not been, and cannot be, fully known or understood in its details. Yet modern courts cannot ignore the former predominant jury power to control sentences simply because judicial views beginning after the Jacksonian period have gradually eroded the influence of laity. See e.g., Bryant v. State, 163 Ga.App. 872, 296 S.E.2d 168, 169-70 (Ga.Ct.App.1982) (citing early cases); Stevenson v. State, 289 Md. 167, 423 A.2d 558, 569-70 (1980); Commonwealth v. Leno, 415 Mass. 835, 616 N.E.2d 453, 457 (1993) ("declin[ing] to require an instruction on jury nullification" in accordance with the prevailing view, though "recogniz[ing] that jurors *171 may return verdicts which do not comport with the judge's instructions"); State v. Bonacorsi, 139 N.H. 28, 648 A.2d 469, 470 (1994) ("While recognizing the prerogative [of a jury to nullify], we have nonetheless consistently held that jury nullification is neither a right of the defendant, nor a defense recognized by law." (citation omitted)); State v. Ragland, 105 N.J. 189, 519 A.2d 1361, 1373 (1986) ("It will not do for defendant to recite the acknowledged virtues of jury independence when what is really approved is the dark side of jury nullification."); People v. Douglas, 178 Misc. 2d 918, 680 N.Y.S.2d 145, 151 (N.Y.Sup.Ct.1998) (history of power of jury not to convict in New York); State v. Lang, 46 N.C.App. 138, 264 S.E.2d 821, 828 (N.C.Ct.App.1980), rev'd on other grounds, 301 N.C. 508, 272 S.E.2d 123 (1980); State v. Champa, 494 A.2d 102, 104 (R.I.1985); Walls v. Commonwealth, 38 Va.App. 273, 563 S.E.2d 384, 387 (Va. Ct.App.2002); Green, supra; Samuel K. Dennis, Maryland's Antique Constitutional Thorn, 92 V. Pa. L.Rev. 34 (1943); Dierdre A. Harris, Jury Nullification in Historical Perspective: Massachusetts as a Case Study, 12 Suffolk U.L.Rev. 968, 970-74 (1978); Gary J. Jacobson, The Right to Disagree: Judges, Juries and the Administration of Criminal Justice in Maryland, 1976 Wash. U.L.Q. 571 (1976); Stanton D. Krauss, An Inquiry into the Right of Criminal Juries to Determine the Law in Colonial America, 89 J.Crim. L. & Criminology 111, 212-14 (1998). For a selective bibliography, see Polouizzi I, 549 F.Supp.2d at 450-54 (Appendix A). See also, e.g., Barbara J. Shapiro, Beyond Reasonable Doubt and Probable Cause: Historical Perspectives on the Anglo-American Law of Evidence (1991); Lance Cassak & Milton Heumann, Old Wine in New Bottles: A Reconsideration of Informing Jurors About Punishment in Determinateand Mandatory Sentencing Cases, 4 Rutgers J.L. & Pub. Pol'y 411, 420-37 (2007) (modern federal cases narrowing the scope of jury discretion must be revisited in view of recent Supreme Court cases); Teresa L. Conaway, Carol L. Mutz & Joann M. Ross, Jury Nullification: A Selective Annotated Bibliography, 39 Val. U.L.Rev. 393 (2004) (listing articles, some books, cases and state constitutions); Note, The Changing Role of the Jury in the Nineteenth Century, 74 Yale L.J. 170, 170-92 (1964) (noting that at the outset of the nineteenth century the jury was regarded as a mainstay of liberty and an integral part of democratic government, but outmoded by the end of the century); Parmenter, supra, at 380-97 (tracing history of the nullification doctrine from the Magna Carta to O.J. Simpson and beyond); Arie M. Rubenstein, Note, Verdicts of Conscience: Nullification and the Modern Jury Trial, 106 Colum. L.Rev. 959, 967-72 (2006); Steve J. Shone, Lysander Spooner: Jury Nullification and Magna Carta, 32 Quinnipiac L.Rev. 651, 669 (2004) (endorsing powerful "theoretical arguments" for jury nullification over "the more modern attempts to find precedents or constitutional authority for the practice in the extensive, but somewhat repetitive law journal literature."); see also generally State v. Poulin, 277 A.2d 493 (Me. 1971); Commonwealth v. Feaser, 723 A.2d 197 (Pa.Super.Ct.1999); State v. Findlay, 171 Vt. 594, 765 A.2d 483, 488-89 (2000).
Two authors stand out in their reliability and usefulness in understanding the colonial jury's knowledge and control of sentencing: Julius Goebel, Jr. (George Welwood Professor of Legal History at Columbia University School of Law), and John H. Langbein (Sterling Professor of Law and Legal History at Yale Law School). The works of both are discussed below.
*172 1. American Practice Circa 1791
Although there has been extensive recent historical research on the subject, the preeminent analysis of colonial practice continues to be that of the late Julius Goebel, Jr. and T. Raymond Naughton: Law Enforcement in Colonial New York (1944) (hereinafter "Goebel"). Some quotations from Professor Goebel's seminal work demonstrate that the vicinage and property requirements for jurorsthat they be local "freeholders," responsible men having some stake in the communityassumed the jury's knowledge of the law and awareness of its power to control penalties.
The policy of the Province [of New York] respecting the qualifications of persons who were to do jury service was patterned on the English, that is to say, freeholding was taken as the basic standard.
Id. at 466.
The English statutes had long set for petit jurors a high property qualification. This policy, which rested upon the presumed higher responsibility and intelligence of propertied persons, had found expression in a series of statutes going back to the fifteenth century. In 1699 the colonists, perhaps under the influence of a recent English act, by statute fixed upon a house with ten acres freehold in the country, a dwelling house or personal estate of £50 in New York City and Albany. This statute was continued and revived until the year 1741 when in a new and elaborate act the qualification was set at a freehold in lands, tenements or rents of the value of £60. In New York City (and later Albany) the alternative of a personal estate of like value would serve to qualify a man. As the preamble shows this was done to approximate somewhat the modern "blue ribbon" standard. A body of fairly substantial persons was assured.
Id. at 467 (footnotes omitted).
The chief obstacle [to conviction by government] was the necessity of using (even for trials at bar) juries of the vicinage who did not always convict when they should have. In many of the cases where crown rights were involved, the defendant was a person of power and standing in the community. The juries were picked from the freeholders, as we have intimated the very class most likely to entertain the reasonable doubt when a squire-in-chief was in the dock.
Id. at 221.
Freeholder opinion and conviction made the jury an instrumentality of great independence, the more to be reckoned with as the judges were many of them men of small or mediocre parts. This was perhaps the most interesting outcome of the tedious process of making trial practice conform to English models, for it contributed largely to the feeling in Revolutionary times that of all incidents of criminal justice trial by jury should remain inviolate.
Id. at 679 (emphasis added).
The several constitutions of the state [of New York] from 1777 onward have all contained the provision that trial by jury as "heretofore used" or guaranteed should remain inviolate. These words are a direct reference to the pre-Revolutionary practices which, musty though they be, it behooves the citizen to know.
The Charter of Liberties of 1683 [New York's first constitution] which the Crown rejected had provided that all trial should be by twelve men, "as neer as may be peers or Equals" of the neighborhood in the country "where the same should arise and grow." ... The [New York] Judicature Acts of 1691 and 1692 also contained provisions that no *173 man's rights or property should be determined (except as facts were admitted or there had been default) unless the facts be found by verdict of twelve men of the neighborhood. This safeguard was also contained in Bellomont's judiciary ordinance. Although the jury of the vicinage was revered as a constitutional fundamental, like all fundamentals it was subject to vicissitudes for, as we have seen, summary jurisdiction was expanded, and the colonists took great pains to require a property qualification for jurors. With one detail, however, there was little tampering, viz., the necessity of trial by the vicinage. Indeed from the viewpoint of the inhabitants this was the chief raison d'être....
Id. at 603 (footnotes omitted).
After being tried in a well-publicized trial and found guilty of treason in 1702, Nicholas Bayard, a former commanding officer of the New York militia and mayor of New York under British rule, appealed to the British Crown based on irregularities in the jury compositioni.e., the jurors' ignorance of the law:
In his petition and "appeal" to Queen Anne, Nicholas Bayard stated among other things that he had been "convicted by an illegal petty jury of Aliens and Dutch unduely returned and very ignorant of the English Laws and Language".... Among the affidavits taken by John Bridges and Samson Shelton Broughton, under the Queen's order of reference for the collection of evidence in connection with the Bayard appeal, are statements of some of the petit jurors who had joined in the verdict declaring Bayard guilty of high treason. Thomas Sanders and Isaac Stoutenbergh, two of the trial jurors, made oral statements as follows, confirming the allegations made by Bayard in his petition: "... these Depon doe owne [sic] their great Ignorance of the Laws of England at that time not knowing what was High Treason ... the Foreman ... Did assert it was High Treason ... to disturb the peace good and quiet of this Government and that Colonell Bayard had disturbed the peace by the addresses and eight or nine jurors were for clearing ... Bayard but were perswaded [sic] by the foreman."
Id. at 604 n. 7 (emphasis added).
The impact of the Bayard case upon New York politics outlasted the lifetime of the participants, and it may be that publication of the proceedings and especially their inclusion in [Howell's] State Trials [one preeminent source on seventeenth-, eighteenth-, and nineteenth-century case law] kept alive recollections respecting the issues over the jury. In any event, it is striking that through the rest of the colonial period the visne was treated with tenderness so that only on a few occasions was a venue changed, and then specifically because the neighborhood was prejudiced against a defendant.
Beyond the circumstances of particular cases, beyond even the colonists' own legislation lurked the deep-seated feelingand feeling it wasthat the common law was controlling in this fundamental matter of the jury, and that nothing could avail to diminish the rights of Englishmen, even if expatriate, in respect thereto.
Id. at 605.
That colonial and British juries had great power to decide law and fact after being informed is demonstrated by the practice of counsel, in closing arguments, to highlight not the facts but the law of the case.
Most of the early examples of defendants' closing ... contain little or no comment on the evidence. Neither Nicoll *174 nor Emott in their closing for Colonel Bayard dwelt upon the glaring omissions in the Crown's case, but devoted themselves to a discussion of the law.
Id. at 660 (footnote omitted).
It is obvious that the jury derived most of its guidance as to the weight and effect of the evidence and as to the law from the arguments of counsel. Under these circumstances it is understandable that, as in the Makemie and the Zenger cases, the jury might encroach upon the judicial function and settle whether as a matter of law a particular accusation was a crime....
After the charge, the jury was left to deliberate on its verdict, a process which might be accomplished without [leaving the courtroom]. Usually ... the jury withdrew and a constable was sworn to attend. The constable's oath required:
You shall well and truly keep every person sworn of this inquest together in some private and convenient Room without Meat, Drink, Fire or Candle light. You shall suffer no person whatever to speak to them or any of them, neither shall you yourself speak to them or any of them unless to ... [know] if they are agreed on their verdict.
The common law apparently proceeded on the theory that conscience-searching best went forward with a little fasting.
Id. at 669 (footnotes omitted).
The jury's right to decide the lawor rather how the law would apply to the case at barcould take several forms. The jury could acquit an obviously guilty defendant. Through "special" or "partial" verdicts, a jury could convict, but on a lesser chargemurder becoming manslaughter and larceny shrinking from grand to its petty form. "Not infrequently the juries in New York would return special verdicts, and apparently, as we have seen in the Makemie and Zenger cases, it was regarded as the privilege of the jury to decide whether or not it would so do." Id. at 676 (footnotes omitted).
Often juries returned special verdicts convicting on a lesser charge in order to make the defendant eligible for "benefit of clergy," i.e., immunity from hanging. Jury lenity was often motivated by the desire to avoid conviction on a capital charge if the crime or the offender was felt not deserving of death. "[A] system of mitigated sanctioning ... by which a person convicted of a less serious crime was spared capital punishment," the benefit of clergy allowed a first-time offender to instead be branded on the thumb. John H. Langbein, The Origins of the Adversary Criminal Trial 193 (2003) (hereinafter Langbein, Origins); see Goebel, supra, at 192-93. Branding, which visibly labeled a person a felon, also ensured that the convict could not again take advantage of "his once-in-a-lifetime privilege to invoke the doctrine of benefit of the clergy." Langbein, Origins, supra, at 193. Professor Goebel discusses such special verdicts at length:
The verdicts ... are illustrative of one of the most important aspects of the jury's prerogativethe power to effect a mitigation in the severity of the law by verdicts which would let off an obvious offender with penalties less than the worst of the charges against him would make inevitable. This power was not confined to the selection of a relatively innocuous count on which to return a conviction, but extended, as indicated above, to a finding of an offense less in degree than that charged in the indictment. The importance of this rule in the case of felonies was obvious, since it was possible thus for the defendant to pray clergy and escape the rigor of the otherwise inevitable judgment of life and *175 limb. The rule was essential where a homicide, by misadventure or in self-defense, was involved since the limitations of criminal pleading required that facts in extenuation or excuse be put in evidence and the jury give its verdict thereon....
....
... John Fisher was indicted in April term, 1698, for murder, but on April 7, 1698, "the jury ... finds the prisoner not guilty of murder but homicide and by misadventure and that he did not flea for it." Huybert Vendenberg was tried on an indictment for murder on March 12, 1713/14 and "the jury find the defendant not guilty of murder but guilty of Chance Medley only." Jacob Koole and two others were indicted for manslaughter and were tried on October 22, 1754, when
the jurors find that the prisoners are not guilty nor is either of them guilty of the Felony charged in the indictment ... nor did either of them file for it. But the Jurors say that the prisoners did on the day charged in the indictment ... shoot and discharge a gun ... into some Reeds ... to kill a Bear ... not knowing or mistrusting that the said Cornelius Vanck was in the said Reeds ... [and that the said Cornelius was killed by three wounds] ... by misfortune and that the prisoners nor either of them had any goods or chattels to their knowledge at the time of the crime charged in the indictment ... Ordered discharged ...
A curious case was that of Frederick Locidon (Lowden?), who was arraigned on an indictment of "killing se defendendo," and was also arraigned on a coroner's inquest for manslaughter. He was tried on August 3, 1764, and "the jury without going from the bar find the prisoner not guilty of manslaughter but guilty of homicide in his own defense and that he did not fly for it to their knowledge," whereupon the court ordered him discharged.
We have noticed many cases where defendants indicted for murder were merely convicted of manslaughter. Peter Mullinder was tried on March 13, 1712/13, on an indictment for murdering Henry Clarke and "The Jury find the defendant guilty of manslaughter and that he had no goods or chattels lands or tenements at the time of the felony committed or since to their knowledge." Patrick Kreamer was arraigned on a coroner's inquest for the murder of Martinus Cregier, and was also arraigned on an indictment for manslaughter. He was tried on both charges and "the jurors find the prisoner not guilty of murder on the coroner's inquest and guilty of manslaughter on the indictment and that he had no goods or chattels to their knowledge.
Another situation where mitigation could be effected were those cases where grand larceny was charged. It had long been settled in England that where an indictment charged the stealing of goods of a certain value above 12d., the jury might find the defendant guilty but could find the value of the goods to be less than 12d. Verdicts of this sort were usual in New York, and there is evidence that the colonists added some variations as where persons indicted for burglary were merely found guilty of felonious stealing.
Goebel, supra, at 673-75 (footnotes omitted) (emphasis added). Upon the return of a guilty verdict, juries could also mitigate the sentencing implications for a defendant's family. By finding an offender guilty but penniless, the jury could avoid turning his family into paupers; otherwise *176 forfeiture of property to the crown apparently was mandatory.
The jury's finding with respect to a convicted prisoner's property may also have something to do with the alleviation of the law's severity. The return as to flight, chattels and tenements was essential to establish the royal forfeitures, and the year and day in felony cases. In New York, however, we have found only three cases where the jury found goods. In 1733, Edward King was convicted of murder and the jury at Circuit found "he had no goods chattels lands or tenements at the time of the murder but what are in the coroners hands." A convicted counterfeiter in 1756 was found to have a horse and saddle valued at £5, and John Allen, indicted in 1775 for "larceny from the person privilly was found to have a Jersey bill of credit, a Johannis and a guinea, of goods and chattels." The failure otherwise to find chattels is not completely explained by the fact that felons were often from the poorest class. We think it likely that owing to the feeble growth of exchequer powers in New York, the juries, as a persistent matter of policy for the purpose of relieving the families of felons and the general burden of poor relief, deliberately avoided finding forfeitures.
Id. at 676 (footnotes omitted). Repeated references by juries to the lack of goods owned by the defendant prevented such forfeitures.
According to Professor Goebel, New York juries could, in sum, provide mercy in a variety of ways:
We have spoken of the grooves in which the jury might exercise its charity: the verdict in thefts for amounts under the 12d. boundary between grand and petit larceny, and the privilege of finding manslaughter, self-defense or accident upon indictments for murder. These prerogatives the juries in New York did not hesitate to assert, and to these old and established powers of mitigation may be added, perhaps, the avoidance in New York of the incidents of felony judgment by the persistent finding of no goods or tenements. Of considerably greater significance than these possible interferences of the jury, but connected therewith in the case of verdicts for crimes of a less degree when murder, burglary, arson, highway robbery and certain others were charged, is the mitigation obtained by benefit of clergy.
Id. at 751 (footnote omitted) (emphasis added).
2. British Practice Circa 1791
a) Ryder Papers
Responsible scholarship supports Professor Goebel's conclusions that an informed jury had power to refuse to convict or to convict of a lesser crime when it deemed the potential punishment excessive. One of the most useful windows into the eighteenth-century jury's control over sentencing is through the notebooks of Sir Dudley Ryder, an Old Bailey criminal trial judge from 1754 to 1756 (hereinafter "Ryder"). See John H. Langbein, Shaping the Eighteenth-Century Criminal Trial: A View from the Ryder Sources, 50 U. Chi. L.Rev. 1 (1983) (hereinafter Langbein, Ryder Sources). Judge Ryder's trial notes reveal the jury's knowledge of the punishments that would follow from its findingsoften because judges told it precisely what they would be. Apparently other judges and juries were taking parallel courses, so that Ryder's notes may be taken as typical. Id. at 2.
Like the early New York juries described by Goebel, London juries could precisely tailor their verdicts by acquitting, convicting of lesser crimes, or "down-sizing" *177 the amounts found to have been stolen; thus avoided were harsh punishments, such as death by hanging, hanging plus dismemberment to make afterlife more difficult, or transportation out of England to a colony as an indentured servant. By the time Sir Ryder presided, the courts and parliament had manipulated the benefit of clergy concept to mitigate the death penalty so literate males could commit, in most cases, one felony (for which their thumb was branded on conviction) without fear of the death penalty. Id. at 37-41.
A critical issue in many of Ryder's larceny, theft, and shoplifting cases was the amount stolen, which determined whether the offender, if guilty, would live or die. At one time the defining cutoff for theft as grand larceny was a shilling:
Grand larceny, defined as theft of goods or money worth more than a shilling, was by far the most commonly prosecuted offense at the Old Bailey. Hence, in theory, practically every accused at the Old Bailey was on trial for his life. No feature of English criminal law became more notorious, or aroused more indignation, than the nominally capital character of small thefts. A seventeenth-century tractitian reproached English law in the following words, which were echoed incessantly in reformist literature down into the nineteenth century:
"Doest thou value the life of a man no more than so as to cut it off for the value of a garment, yea even of a pair of shoes or stockings or a shirt or any other thing above such a piece of money"?
Id. at 36 (emphasis in original). Importantly, the amount stolen was determined by the jurynot by the judge, or the prosecutor, or the evidence. After 1713, when the clergy defense was withdrawn by law from shop and home thefts of forty shillings or more, jury valuations for property taken of exactly thirty-nine shillings (or four shillings and ten pence, for five-shilling capital crimes) increased, allowing defendants to pray clergy and avoid the noose. The resulting "downsizing" practice is reflected in much the same way as the current debate on modern jury "nullification."
An act of 1699 withdrew clergy from shoptheft of goods to the value of five shillings or more; an act of 1713 withdrew clergy from thefts of goods to the value of forty shillings or more committed in dwelling houses. Since most thefts would have occurred in shops and homes, and many would have extended to property of such values, these two acts would have inflicted a heavy toll of capital punishment if fully enforced. In practice, these and the other statutes that withdrew clergy from crimes of larceny on condition of circumstance or amount were invoked relatively sparingly. The victim could and often did "undercharge" by declining to charge the circumstances or amount that made the offense nonclergyable. Further, when the victim charged the offense fully, the jury could convict of a lesser and clergyable offense. The jury could "downcharge" by convicting of simple larceny while refusing to find that the theft occurred in the shop or dwelling house or that it had been committed by means of breaking and entering; or the jury could "downvalue" by finding the worth of the stolen goods to be below the respective five- and forty-shilling ceilings. The recurrent verdicts of four shillings ten pence and thirty-nine shillings in Old Bailey trials are telltale signs of this process, bringing the offenses within the benefit of clergy in order that the offenders *178 be transported rather than executed.
Id. at 40-41 (footnote omitted).
But how was a jury to know of the particular cut-off for the particular crime? Doubtless many jurors knew already, from prior jury service or general knowledge; John H. Langbein, The Criminal Trial Before the Lawyers, 45 U. Chi. L.Rev. 263, 284 (1978) (hereinafter Langbein, Criminal Trial) ("The juries were laden with veterans, who needed less instructing" than modern American juries); often, however, Judge Ryder made sure to so instruct them:
Ryder sometimes found time to jot down a little of what he was telling the jury. John Taplin was tried before Ryder in October 1754 on an indictment charging theft from a dwelling house of a watch, valued at forty shillings, and of more than twenty guineas in money. The OBSP [Old Bailey Session Papers, see infra] report of the outcome is as curt as possible, "Guilty 39s.," meaning that the jury convicted him but determined the combined value of what was stolen to be thirty-nine shillings (less than two guineas, hence well below the value charged in the indictment). Ryder's notes explain why. "The jury found him guilty to [the] value of 39s., which they did after I told them that 40s. was necessary to make him guilty of felony that was without benefit of clergy. It is by Act of 12 Ann." Ryder thus records his own role in guiding the jury's prerogative of "valuing" the loot. Because the statute of 1713 to which Ryder refers withdrew so-called benefit of clergy from thefts of forty shillings' value or more when committed in a dwelling house, it foreclosed the primary ground upon which a convict could escape the death penalty for such an offense. The convention of the day, immortalized in Blackstone's phrase as the jury's "pious perjury," was that the jury could "downvalue" the goods, in this instance to thirty-nine shillings, in order to consign the convict to a lesser sanction of transportation for seven years.
Langbein, Ryder Sources, supra, at 22 (footnotes omitted) (emphasis added).
Another example, ... occurs when Ryder explains the verdict in the case of Daniel Malone and Richard Dudley, charged with stealing several pounds' worth of rigging from a vessel on the Thames.... Ryder reports the verdict, guilty to the value of 39 shillings, and adds:
Note: They found it to that value being under 40s. because it was in reality a crime, if of 40s. value, without benefit of clergy. For the clergy is taken away from felony in stolen goods on board a vessel in a navigable river of 40s. value, but not if under it... [by] the statute of 24 G.2 [24 Geo. 2, ch. 45 (1751)] and so would be only simple felony.
Ryder must have instructed the jury about this special statute, which set a 40-shilling ceiling on benefit of clergy for river thefts, and he may have done it in a manner that invited the "downvaluing" that results.
Id. at 23 n. 79 (emphasis added).
The result of routine downsizing of the crime by the jury is dramatically revealed by a Langbein sample of 171 cases: fifteen showed a jury finding of forty shillings or more while fifty-three were for just under forty shillings resulting in a much lower punishment. Id. at 42. This "downsizing" ran through the system right down to the original complaint. "It also seems plausible that officials advised victims in some cases to undercharge on the ground that the jury would downcharge if the indictment attempted to charge fully." Id. at *179 51. Judges themselves engaged in downsizing in misdemeanor cases tried at quarter sessions without a jury.
Downsizing or downvaluing goods was one way in which a jury could return a special or a partial verdict in property cases. Referring to the same sample cases, Langbein writes: "In thirty-nine of our 171 cases, involving forty-four accused, the jury returned what we call (following Beattie) a `partial verdict.' The jury convicted the accused, but only in part; the jury convicted him of a less serious offense than the indictment charged, either by downcharging or by downvaluing the goods." Id. at 52 (footnote omitted). For example, "Old Bailey juries [would] return petty larceny verdicts in grand larceny cases when they chose to downvalue goods to below one shilling, which is one of the forms of `partial verdict.'" Id. at 42 (footnote omitted).
The juries were thoughtful and responsible in exercising their own form of clemency through partial verdicts:
Partial verdicts did not occur randomly across the various types of offenses. Rather, juries distinguished, first, according to the seriousness of the offense, and second, according to the conduct and character of the accused in a particular case. Some offenses were seldom or never the subject of partial verdicts, in others partial verdicts were routine, but in most the matter was more circumstantial.
Thus, in our sample, partial verdicts were not returned in any of the cases of livestock theft and highway robbery. Livestock theft was peculiar in that the offense was defined in a way that did not lend itself to a viable form of downchargingthe accused either stole the horse (or other beast) or not, and the governing statute did not further condition the capital sanction on the value of the animal or on any aggravating circumstance that the jury could manipulate in a partial verdict. Highway robbery could be downchargeda jury could convict of theft not on the highwaybut this did not happen much and not at all in our sample.
By contrast, we find the juries all but invariably downvaluing in pickpocket cases that were charged capitally (at a shilling or above). There were nine such cases in the four Ryder sessions. The juries downvalued below a shilling in eight but convicted capitally in the last.
Most of the major property crimes fell between these extremes of offenses routinely subjected to partial verdicts and offenses never so treated. The quality of the evidence in the individual case became more important than the type of offense. The juries were lenient in dealing with persons indicted of shoptheft and theft from dwelling houses above the capital sums. The only cases not downcharged or downvalued were those in which the evidence indicated the offenders were professionals or gang members. The juries were quite unashamed about returning partial verdicts even in situations involving thefts of money, in which downvaluing became transparent fiction. We noticed in another connection the case of John Taplin, indicted for stealing twenty-one guineas in money and a watch. The jurors valued this loot at thirty-nine shillings, and with the active connivance of Dudley Ryder, who recorded that they did it "after I told them that 40s. was necessary to make him guilty of felony that was without benefit of clergy." Favorable evidence also motivated the juries fairly frequently to downvalue from grand to petty larceny in order to turn transportation into whipping, especially *180 when the goods were of relatively small amount or when the accused was a married woman or a family man. The jurors took a harsher attitude towards burglary and breaking and entering, being more reluctant to prevent the capital sanction from being imposed.
Id. at 53-54 (footnotes omitted) (emphasis added). Important to a jury's decision to downsize or acquit was the nature of the defendant, as Ryder likely pointed out to the jury:
Occasionally, the Ryder notes attribute a rationale for the jury's verdict that we suspect originated in his instruction. Thus, in a case in which a child was acquitted of a theft, Ryder notes after the verdict: "Her father on my examining him said she was 12 years old excepting one month. The only color for finding her Not Guilty was her age, which made it a matter for their judgment whether she had sufficient discretion to be guilty of felony."
Id. at 23.
What is particularly significant for our purposes is that the juryoften after being informed of the precise effect of their decision on the sentencewas in effect deliberately deciding the sentence.
The jury not only decided guilt, but it chose the sanction through its manipulation of the partial verdict. Since guilt was typically although not inevitably a forgone conclusion in many (perhaps most) cases, sentence is what was at stake when these cases were "contested."
Id. at 55 (emphasis added). Langbein's most fascinating conclusion is just this: that the jury's primary function was, as a practical matter, to determine punishment rather than guilt.
Only a small fraction of eighteenth-century criminal trials were genuinely contested inquiries into guilt or innocence. In most cases the accused had been caught in the act or otherwise possessed no credible defense. To the extent that trial had a function in such cases beyond formalizing the inevitable conclusion of guilt, it was to decide the sanction. These trials were sentencing proceedings. The main object of the defense was to present the jury with a view of the circumstances of the crime and the offender that would motivate it to return a verdict within the privilege of clergy, in order to reduce the sanction from death to transportation, or to lower the offense from grand to petty larceny, which ordinarily reduced the sanction from transportation to whipping.
Id. at 41 (emphasis added).
Much of the Ryder materials are supported by those of Professor Goebel, discussed above, as well as the extensive collections listed in Appendix A to Polouizzi I, 549 F.Supp.2d at 450-54. That there were variations among the colonies, some of which gave the juries less power than others, does not reduce the enormous weight of evidence contemporary with the adoption of the Sixth Amendment demonstrating the jury's critical sentencing role based on its knowledge of the punitive effects of possible verdicts. See, e.g., Laura I. Appleman, The Lost Meaning of the Jury Trial Right, 84 Ind. L.R. 397 (2009) (analysis of various state practices to demonstrate why juries determined all critical aspects of punishment); see also generally Douglas Greenberg, Crime, Law Enforcement, and Social Control in Colonial America, 26 Am. J. Legal Hist. 293 (1982) (placing varying colonial law enforcement practices in historical context).
b) Old Bailey Session Papers
Another study by Professor Langbein based upon the more superficial Old Bailey Session Papers ("OBSP"), a group of "reports" *181 from the mid-1670s to the mid-1730s, supports many of the scholarly conclusions about jury sentencing power at the time our Constitution was adopted. See Langbein, Criminal Trial, supra. The OBSP confirm the criminal practicesand the primary nature of the jury as a sentencing bodydescribed by Professors Goebel and Langbein. Repeatedly, the court informed defendants they should not plead guilty because on such a plea hanging was mandatory, while a quick trial would permit the jury to mercifully downgrade the offense. Id. at 279-80.
Significantly for our inquiry, juries were more likely to know beforehandor be informed by the judgeof the effect of their verdicts on punishment. The same English jury would try multiple cases so that the "substantive criminal law held few mysteries for these experienced jurors." Id. at 277. "When instructing a jury, the judge possessed what seems to have been a wholly unrestricted power to comment on the merits of the case.... [T]he judge had no hesitation about telling the jury how it ought to decide." Id. at 285. Despite more extensive instructions and commentary from the bench, court control over jury knowledge and conclusions was much less stringent than it is today. Id. at 272 ff. Both judges and jurors could recommend royal mercy through pardon upon a guilty verdict. Id. at 297.
Summing up on the issue, Professor Langbein states:
[T]he jury of that time had a large role in what we think of as sentencing, that is, in determining the sanction. In a significant fraction of the cases that went to trial, the real issue was whether the jury would choose to exercise its power to "value" stolen goods in ways that would affect the applicable sanction. It was understood that the value that the jury assigned was fictional, and that the jury was in truth deciding whether to rescue the culprit from the ordinary sanctions of transportation and death by so characterizing the crime that only a lesser sanction could be invoked. If the goods were valued below 12 pence (in practice the Old Bailey juries used the figure of 10 pence), the crime became petty larceny, hence a misdemeanor, and the convict escaped with a whipping or a short jail term. Under certain circumstances the jury could, by valuing goods below other monetary ceilings, bring the culprit under the rubric of benefit-of-clergy, for which the sanction was branding in the thumb. The decision between finding an accused guilty of murder or manslaughter, which also belonged to the jury, can be seen as the choice between capital punishment and branding. It could be argued that in all these situations the jury was in reality discharging a sentencing function, and even today we expect sentencing officers to consult past conviction evidence. But we have seen that the OBSP show that the juries were using past conviction evidence to determine guilt, and with no constraint from the bench. Furthermore, modern juries have the power to affect the sanction by not convicting on all counts or by finding only a lesser included offense, yet we do not, on that account, deem them sentencing officers entitled to learn of the accused's criminal record.
Another possibility is that it was not thought feasible to apply a rule of exclusion to past conviction evidence, since already-branded defendants necessarily carried their thumbs into court. But many of the former offenses that are laid to Old Bailey defendants would not have left them branded, branding itself was sometimes proved by record, and in any event the judges could have devised, had they cared to, a routine that would *182 have kept defendants' hands out of jurors' sight.
Id. at 303-04 (footnotes omitted) (emphasis supplied).
In a more recent book, The Origins of Adversary Criminal Trial (2003), John H. Langbein recapitulates much of what were the jury's powers on sentencing.
Trial as a Sentencing Proceeding
The sentencing practices of the later seventeenth and eighteenth centuries were a powerful source of pressure on the defendant to speak at his trial. Our modern expectation is that sentencing will occur in a separate post-verdict phase, after the trial has determined guilt. Furthermore, in jury-tried cases, we expect the judge, not the jury, to exercise whatever sentencing discretion the law might bestow. In early modern times, however, these divisions of function in sentencing matters between trial and post-trial, and between jury and judge, were less distinct. The trial jury exercised an important role in what was functionally the choice of sanction through its power to manipulate the verdict by convicting on a charge that carried a lesser penalty. (A vestige of this power to mitigate the sentence survives in modern practice, when the jury convicts of a lesser included offense, or when it convicts on fewer than all the counts that are charged and proved).
The practice of juries convicting only of a lesser charge, or "downvaluing" stolen goods in order to make the offense less serious, and especially in order to mitigate against the death penalty, was immortalized in Blackstone's as "pious perjury" to describe these verdicts that convicted the defendant but reduced the sanction.
In the Elizabethan-Jacobean period partial verdicts were relatively uncommon. It was the development of alternatives to the death penalty in the eighteenth century, especially the system of transportation to the New World for a term of penal servitude, that allowed partial verdicts to burgeon. Transportation became the sanction for offenses that fell within the rubric of benefit of clergy, giving the jury an effective choice between convicting an offender in a manner that would lead to the imposition of capital punishment or in a way that would result in transportation. For example, if the jury convicted a defendant of burglary, the punishment was death; but if, on the same facts, the jury convicted of the clergyable offense of mere theft, the convict would be transported. Not all partial verdicts involved transportation: When the jury valued stolen goods at less than a shilling (invariably at 10d.), the offence became petty rather than grand larceny, for which the common sanction was whipping. In a sample of London cases from the Old Bailey in the 1750s I found that the juries returned partial verdicts in nearly a quarter of the cases. For a few offenses, like picking pockets, the juries all but invariably downvalued, expressing a social consensus that the capital sanction was virtually never appropriate. At the opposite end of the spectrum were a few property crimes, especially highway robbery and gang-style burglary, that were regarded as so menacing that juries virtually never mitigated the capital sanction. Across the broad range of property crimes, however, jury discretion held sway. In deciding whether to return verdicts of mitigation, juries distinguished, first, according to the seriousness of the offenses, and second, according to the conduct and character of the accused.
The jury's power to mitigate sanctions profoundly affected the purpose of *183 the criminal trial for those many offenses in which the jury might return a partial verdict. Only a small fraction of eighteenth-century criminal trials were genuinely contested inquiries into guilt or innocence. In many cases, perhaps most, the accused had been caught in the act or with the stolen goods or otherwise had no credible defense. To the extent that trial had a function in such cases beyond formalizing the inevitable conclusion of guilt, it was to decide the sanction. Because the main purpose of defending such a case was to present the jury with a sympathetic view of the offender and of the circumstances of the crime that would encourage a verdict of mitigation, the criminal defendant labored under an enormous practical compulsion to speak in his own defense. By structuring sentencing as an incident of the trial, the procedure foreclosed the defendant from participating in what was in function his sentencing hearing unless he spoke about the circumstances of the offense. To be sure, character witnesses could and did carry some of this burden for the defendant in some cases; it was not impossible to remain silent and still obtain jury leniency. But it was a grave risk that few defendants had the stomach to undertake. Thus, the same factors that caused the procedure to prefer trials over guilty pleas also induced criminal defendants at trial to speak to their knowledge of the events.
The partial verdict system abated slowly, toward the end of the eighteenth century and during the early decades of the nineteenth century, as the sanction of imprisonment replaced transportation. The modern system of post-verdict judicial sentencing arose in response to many factors. The movement to revise the substantive criminal law by consolidating and rationalizing the categories of offenses invited the grading of sentences according to severity. This development was deeply connected to the appearance of imprisonment as the routine punishment for cases of serious crime. The older sanctions, death and transportation, had lent themselves to jury manipulation, because they came as "either-or" choices. Because the new sanction of imprisonment for a term of years was all but infinitely divisible, it invited the concept of the sentencing range, which transferred to the judge the power to tailor the sentence to the particular offender.
Id. at 57-60 (footnotes omitted) (emphasis added).
With the advent of mandatory minimum sentences, however, federal juries today again facealbeit often unknowingly"either-or" choices similar to those facing the British and colonial juries of 1791. To fully exercise their historical function, juries today must understand the implications of their decision in a case such as the present one. They cannot rely on the court to mitigate because it is bound by the statutory minimum term of imprisonment.
B. Caselaw
Recent Supreme Court cases have recognized the appropriate power of the jury in some circumstances, to consider punishment in deciding guilt or innocence, and in so doing have emphasized the need to interpret the Sixth Amendment in light of its historical context.
Those who would limit the powers historically exercised by juries must now consider the Supreme Court's Booker-Apprendi line of sentencing decisions, see United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005); Apprendi v. New Jersey, 530 U.S. 466, 120 *184 S.Ct. 2348, 147 L. Ed. 2d 435 (2000), and its reinvigoration of the Confrontation Clause in Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004). These decisions bear on the question of whether juries should be informed of the sentences in some instances that would result from guilty verdicts. They emphatically reaffirm three propositions that support the argument that juries can be trusted with this information. First, the right to a jury trial is a fundamental constitutional right; it provides a check on the courts equivalent to that of the voter on elected officials. Second, the Supreme Court, in interpreting the Sixth Amendment, relies on criminal practice the Court believes existed in the late eighteenth century. Third, the Supreme Court is willing to overturn long-established legal misconceptions, with some measure of reasoned disregard for the consequences of doing so, when it determines that precedent impinges on the constitutional powers historically exercised by juries (or, in Crawford, the historical scope of the confrontation right). These three principles make it inappropriate to cavalierly treat jurors' power to refuse to convict (or to be informed of mandatory minimums) as improper.
1. Jury's Historic Sentencing Role
The Supreme Court's recent line of sentencing decisions have not left much doubt of the Court's belief that the right to a jury as embodied in the Sixth Amendment is one of the Constitution's most cherished liberties. These cases have addressed varying permutations of the same question: When must facts that enhance the possible punishment of a defendant be proved beyond a reasonable doubt to a jury?
The Supreme Court recently addressed this issue in Jones v. United States, 526 U.S. 227, 119 S. Ct. 1215, 143 L. Ed. 2d 311 (1999), when it used the constitutional issue avoidance canon to sidestep the question. Id. at 239, 248, 251-52, 119 S. Ct. 1215. Fifteen months later, in Apprendi, it held that "any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt." 530 U.S. at 490, 120 S. Ct. 2348. It then applied this holding to a range of situations. Most notable is United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005), in which one majority opinion concluded that statutory provisions mandating the U.S. Sentencing Guidelines were unconstitutional, id. at 226-27, 244, 125 S. Ct. 738; a different majority then effectively rendered the Guidelines advisory rather than mandatory, id. at 245, 125 S. Ct. 738; see also Blakely v. Washington, 542 U.S. 296, 305, 313, 124 S. Ct. 2531, 159 L. Ed. 2d 403 (2004) (holding unconstitutional Washington state sentencing procedure); Ring v. Arizona, 536 U.S. 584, 592-93, 609, 122 S. Ct. 2428, 153 L. Ed. 2d 556 (2002) (invalidating law allowing trial judge to find aggravating factors necessary to impose capital punishment).
The rationale supporting these decisions was that the courts could not be allowed to make factual findings that would enhance a sentence that must be imposed if that practice would infringe upon the Sixth Amendment right to a jury trial. See, e.g., Blakely, 542 U.S. at 305-06, 124 S. Ct. 2531 ("Our commitment to Apprendi in this context reflects not just respect for longstanding precedent, but the need to give intelligible content to the right of jury trial.... Without [Apprendi] the jury would not exercise the control that the Framers intended."). When explaining its reasoning, the Supreme Court took pains in each case to stress the importance of the jury's appropriate constitutional powers and its essential role within the Constitution's system of checks and balances. *185 Repeatedly, the Court relied upon strong language. Thus, in Jones, it quoted Blackstone:
Identifying trial by jury as "the grand bulwark" of English liberties, Blackstone contended that other liberties would remain secure only "so long as this palladium remains sacred and inviolate, not only from all open attacks, (which none will be so hardy as to make) but also from all secret machinations, which may sap and undermine it; by introducing new and arbitrary methods of trial, by justices of the peace, commissioners of the revenue, and courts of conscience. And however convenient these may appear at first, (as doubtless all arbitrary powers, well executed, are the most convenient), yet let it be again remembered, that delays, and little inconveniences in the forms of justice, are the price that all free nations must pay for their liberty in more substantial matters."
Jones, 526 U.S. at 246, 119 S. Ct. 1215 (quoting 4 W. Blackstone, Commentaries on the Laws of England 342-44 (1769)); see also Apprendi, 530 U.S. at 477, 120 S. Ct. 2348 (stating that jury right is meant to "`guard against a spirit of oppression and tyranny on the part of rulers'" and is" `the great bulwark of [our] civil and political liberties'" (quoting 2 J. Story, Commentaries on the Constitution of the United States 540-541 (4th ed. 1873))).
Justice Scalia's majority opinion in Blakely contains language to the same effect: "[The jury] right is no mere procedural formality, but a fundamental reservation of power in our constitutional structure. Just as suffrage ensures the people's ultimate control in the legislative and executive branches, jury trial is meant to ensure their control in the judiciary." Blakely, 542 U.S. at 305-06, 124 S. Ct. 2531; see also Booker, 543 U.S. at 238-39, 125 S. Ct. 738 ("The Framers of the Constitution understood the threat of judicial despotism that could arise from arbitrary punishments upon arbitrary convictions without the benefit of a jury in criminal cases.") (internal quotation marks omitted).
Perhaps the most evocative of the recent Supreme Court writings concerning the jury is an opinion by Justice Scalia in a non-sentencing case, Neder v. United States, 527 U.S. 1, 10, 15, 119 S. Ct. 1827, 144 L. Ed. 2d 35 (1999) (holding that harmless error rule applies to failure to submit issue of materiality to the jury). In that opinion, Justice Scalia called juries the "spinal column of American democracy." Id. at 30, 119 S. Ct. 1827 (Scalia, J., concurring in part and dissenting in part). He continued:
Perhaps the Court is so enamoured of judges in general, and federal judges in particular, that it forgets that they (we) are officers of the Government, and hence proper objects of that healthy suspicion of the power of government which possessed the Framers and is embodied in the Constitution. Who knows?20 years of appointments of federal judges by oppressive administrations might produce judges willing to enforce oppressive criminal laws, and to interpret criminal laws oppressivelyat least in the view of the citizens in some vicinages where criminal prosecutions must be brought. And so the people reserved the function of determining criminal guilt to themselves, sitting as jurors. It is not within the power of us Justices to cancel that reservation.
Id. at 32, 119 S. Ct. 1827 (emphasis in original); see Blakely, 542 U.S. at 307, 124 S. Ct. 2531 (addressing "the plausibility of the claim that the Framers would have left definition of the scope of jury power up to judges' intuitive sense of how far is too *186 far," the Court found "that claim not plausible at all, because the very reason the Framers put a jury-trial guarantee in the Constitution is that they were unwilling to trust government to mark out the role of the jury"). These passages confirm that the modern Supreme Court attributes great value to defendants' Sixth Amendment right to trial by a jurywith power to prevent sentences it deems excessive.
2. Keeping Jury in the Dark Incompatible with Historic Jury Role
Recent sentencing opinions show that the Supreme Court is willing is strike down precedents and statutes that impinge on the historical functions of the jury. The opinions do so in the teeth of arguments that pro-jury doctrines could have adverse consequences, such as reducing the efficiency of the adjudicatory process, creating unfair sentencing disparities, and throwing the federal criminal courts into disarray. A similar tale is told by Crawford and the current interpretation of the Confrontation Clause of the Constitution.
The Supreme Court's decisions in its recent sentencing cases were based on the need to prevent the erosion of the historical function of the jury. The cases forced the Court to "face[ ] ... the issue of preserving an ancient guarantee under a new set of circumstances.... [I]n a meaningful way [this] guarantees that the jury would still stand between the individual and the power of the government under the new sentencing regime." Booker, 543 U.S. at 237, 125 S. Ct. 738. The Court's "answer [was] not motivated by Sixth Amendment formalism, but by the need to preserve Sixth Amendment substance." Id. at 237, 125 S. Ct. 738; see, e.g., Blakely, 542 U.S. at 305, 124 S. Ct. 2531; Apprendi, 530 U.S. at 518, 120 S. Ct. 2348 ("Today's decision, far from being a sharp break with the past, marks nothing more than a return to the status quo antethe status quo that reflected the original meaning of the Fifth and Sixth Amendments." (Thomas, J., concurring)); see also, e.g., Bertrall L. Ross, Reconciling the Booker Conflict: A Substantive Sixth Amendment in a Real Offense Sentencing System, 4 Cardozo Pub.L. Pol'y & Ethics J. 725, 728 (2006) ("[I]n a system based on a punishment model, the jury has a constitutionally protected substantive role to play in checking government power.").
The resulting Booker-Apprendi line of cases was founded largely on the Court's interpretation of the jury's role in sentencing in early American and English cases. See, e.g., Apprendi, 530 U.S. at 478-83, 120 S. Ct. 2348. Its approach to the Sixth Amendment is useful for present purposes since, if the court examines the case law of that period on juries' power to find the law and refuse to convict, it would, it is respectfully submitted, be compelled to determine that the jury's Sixth Amendment powers over sentencing were then well-established.
These cases demonstrate that the Supreme Court holds the jury right in such high esteem that it was willing to invalidate widespread accepted sentencing practice, even though critics portended that dire consequences would result. In response to Justice Breyer's dissenting argument in Apprendi that the majority's solution would be unworkable, Justice Scalia noted that it was constitutionally required:
I feel the need to say a few words in response to Justice Breyer's dissent. It sketches an admirably fair and efficient scheme of criminal justice designed for a society that is prepared to leave criminal justice to the State. (Judges, it is sometimes necessary to remind ourselves, are part of the Stateand an increasingly bureaucratic part of it, at that.) The *187 founders of the American Republic were not prepared to leave it to the State, which is why the jury-trial guarantee was one of the least controversial provisions of the Bill of Rights. It has never been efficient; but it has always been free.
....
In Justice Breyer's bureaucratic realm of perfect equity, by contrast, the facts that determine the length of sentence to which the defendant is exposed will be determined to exist (on a more-likely-than-not basis) by a single employee of the State. It is certainly arguable (Justice Breyer argues it) that this sacrifice of prior protections is worth it. But it is not arguable that, just because one thinks it is a better system, it must be, or is even more likely to be, the system envisioned by a Constitution that guarantees trial by jury. What ultimately demolishes the case for the dissenters is that they are unable to say what the right to trial by jury does guarantee if, as they assert, it does not guaranteewhat it has been assumed to guarantee throughout our historythe right to have a jury determine those facts that determine the maximum sentence the law allows. They provide no coherent alternative.
Apprendi, 530 U.S. at 498-99, 120 S. Ct. 2348 (Scalia, J., concurring) (emphasis added). Justice Scalia's majority opinion in Blakely sounded the same theme:
Ultimately, our decision cannot turn on whether or to what degree trial by jury impairs the efficiency or fairness of criminal justice. One can certainly argue that both these values would be better served by leaving justice entirely in the hands of professionals; many nations of the world, particularly those following civil-law traditions, take just that course. There is not one shred of doubt, however, about the Framers' paradigm for criminal justice: not the civil-law ideal of administrative perfection, but the common-law ideal of limited state power accomplished by strict division of authority between judge and jury.
Blakely, 542 U.S. at 313, 124 S. Ct. 2531. Lest he be misunderstood, Justice Scalia repeated the argument in Booker:
We recognize, as we did in Jones, Apprendi, and Blakely, that in some cases jury factfinding may impair the most expedient and efficient sentencing of defendants. But the interest in fairness and reliability protected by the right to a jury triala common-law right that defendants enjoyed for centuries and that is now enshrined in the Sixth Amendmenthas always outweighed the interest in concluding trials swiftly.
Booker, 543 U.S. at 243-44, 125 S. Ct. 738.
Concern about difficulties spawned by changes in practice and precedent is not a ground for ignoring the Constitution. Some have lamented the Court's sentencing revolution as threatening to throw the federal system of criminal justice into disarray. See, e.g., United States v. Penaranda, 375 F.3d 238, 247-48 (2d Cir.2004) (en banc) (warning of "an impending crisis in the administration of criminal justice in the federal courts"); Richard G. Kopf, The Top Ten Things I Learned From Apprendi, Blakely, Booker, Rita, Kimbrough, and Gall, OSJCL Amici: Views From the Field (Jan.2008), http://moritzlaw.osu.edu/osjcl/blog/Articles_l/kopf-final-12-28-07.pdf (last visited Jan. 18, 2010) ("It is telling and painfully obvious that not a single Justice ever had to look a federal defendant in the eye while not knowing what law to apply."). One commentator even suggested that "the Blakely decision disrupts nearly every (seemingly established) aspect of current sentencing law and practice." Douglas Berman, Supreme *188 Court Cleanup in Aisle Four: Blakely Is Too Big and Messy to Ignore, Slate, July 16, 2004, http://www.slate.com/id/2104014/ (last visited Jan. 18, 2010).
In point of fact, the changes required by Booker and its siblings have proven easy to implement. They have reduced practice problems while enhancing due process.
Crawford's reinvigoration of the Confrontation Clause reflects a similar jurisprudential shift. The Court had previously held, in Ohio v. Roberts, 448 U.S. 56, 100 S. Ct. 2531, 65 L. Ed. 2d 597 (1980), that the Confrontation Clause did not prohibit courts from admitting an unavailable witness's statement against a criminal defendant if there were "adequate indicia" of the statement's reliability, at least under some circumstances. 448 U.S. at 66, 100 S. Ct. 2531. In Crawford, the Court reviewed English and early American historical materials, determining that "the Framers would not have allowed admission of testimonial statements of a witness who did not appear at trial unless he was unavailable to testify, and the defendant had had a prior opportunity for cross-examination." Crawford, 541 U.S. at 53-54, 124 S. Ct. 1354. The Court then adopted this as constitutional doctrine, reversing Roberts, a precedent that had been the law for more than twenty years. Id. at 63-69, 124 S. Ct. 1354. It took this path even though some, including Chief Justice Rehnquist, argued that it could result in the exclusion of reliable evidence and impair the truth-finding process. Id. at 73-75, 124 S. Ct. 1354 (Rehnquist, C.J., concurring in the judgment).
Crawford has not proven disruptive, even though some argue that it is based in part on dubious historical analysis. See Essay, The Role of Judges in a Government Of, By, and For the People, 30 Cardozo L.Rev. 1, 37 n. 125 (2008) (citing historians' views). Implementation of Crawford has created no insuperable problems.
Implications of the Booker and Crawford interludes in our constitutional history are apparent in the instant case. As in the sentencing cases, modern practice has eroded a right historically reserved to the jury, to wit, the power to refuse to convict or to modify its decisions based upon its knowledge of overly harsh sentencing implications. Supposed efficiencywhich is an objection largely based on phantoms of chaoscannot trump the Constitution.
3. Jury's Power to Moderate Harsh Effects of Law
The argument for informing the jury of sentencing implications proceeds by some degree of analogy, but there is language in some of the sentencing cases that directly addresses the issue of jury nullification. In Jones, the Court was faced with the constitutional question of whether a federal statute should be interpreted to create three distinct offenses or a single crime that carried three different maximum penalties, with two of the maximums only applicable if a judge (not a jury) made certain factual findings. Jones, 526 U.S. at 229, 239-40, 119 S. Ct. 1215. In determining that there would be a constitutional issue raised if the statute were to be read to allow federal courts to impose higher sentences based on findings of fact not made by a jury, Justice Souter's majority opinion noted that:
The question might well be less serious than the constitutional doubt rule requires if the history bearing on the Framers' understanding of the Sixth Amendment principle demonstrated an accepted tolerance for exclusively judicial factfinding to peg penalty limits. But such is not the history. To be sure, the scholarship of which we are aware does not show that a question exactly like this one was ever raised and resolved *189 in the period before the Framing. On the other hand, several studies demonstrate that on a general level the tension between jury powers and powers exclusively judicial would likely have been very much to the fore in the Framers' conception of the jury right.
Id. at 244, 119 S. Ct. 1215 (emphasis added). In support of this assertion that the Framers did not want to leave too much power in the hands of the judiciary, the Court's first example of a check on the judiciary was what today would be called jury nullification:
Even in this system, however, competition developed between judge and jury over the real significance of their respective roles. The potential or inevitable severity of sentences was indirectly checked by juries' assertions of a mitigating power when the circumstances of a prosecution pointed to political abuse of the criminal process or endowed a criminal conviction with particularly sanguinary consequences. This power to thwart Parliament and Crown took the form not only of flat-out acquittals in the face of guilt but of what today we would call verdicts of guilty to lesser included offenses, manifestations of what Blackstone described as "pious perjury" on the jurors' part.
Id. at 245, 119 S. Ct. 1215 (emphasis added).
The Court then discussed various attempts to limit the power of the jury, but it soon returned to the concept of nullification. It continued:
A second response to the juries' power to control outcomes occurred in attempts to confine jury determinations in libel cases to findings of fact, leaving it to the judges to apply the law and, thus, to limit the opportunities for juror nullification. Ultimately, of course, the attempt failed, the juries' victory being embodied in Fox's Libel Act in Britain, see generally T. Green, Verdict According to Conscience 318-55 (1985), and exemplified in John Peter Zenger's acquittal in the Colonies, see, e.g., J. Rakove, Original Meanings 300-02 (1996). It is significant here not merely that the denouement of the restrictive efforts left the juries in control, but that the focus of those efforts was principally the juries' control over the ultimate verdict, applying law to fact (or "finding" the law, see, e.g., id. at 301), and not the factfinding role itself. There was apparently some accepted understanding at the time that the finding of facts was simply too sacred a jury prerogative to be trifled with in prosecution for such a significant and traditional offense in the common law courts. That this history had to be in the minds of the Framers is beyond cavil. According to one authority, the leading account of Zenger's trial was, with one possible exception "the most widely known source of libertarian thought in England and America during the eighteenth century." L. Levy, Freedom of Speech and Press in Early American History 133 (1963). It is just as much beyond question that Americans of the period perfectly well understood the lesson that the jury right could be lost not only by gross denial, but by erosion.
Id. at 246-48, 119 S. Ct. 1215 (emphasis added) (footnotes omitted). The Jones Court went on to conclude that the Framers' concern with erosion of the jury's power supported doubts about the constitutionality of allowing judges to impose higher penalties based on judicial fact finding. See also Apprendi, 530 U.S. at 479 n. 5, 120 S. Ct. 2348 (noting that "juries devised extralegal ways of avoiding a guilty verdict, at least of the more severe form of the offense alleged, if the punishment associated *190 with the offense seemed to them disproportionate to the seriousness of the conduct of the particular defendant") (citing Jones, 526 U.S. at 245, 119 S. Ct. 1215)).
To be sure, these passages do not flatly state that the Sixth Amendment encompasses any sort of right to jury discretion. But it is telling that when the Court recognized a need to expound upon the historical ability of juries to check the judiciary, its first resort was to cite the jury's power to refuse to convict (or to convict of a crime that carried a lesser sentence). Also significant is the fact that the Court discussed the Zenger trial, thought by many to be one of the prime examples in support of the historical argument in favor of nullification. Jones, 526 U.S. at 246-47, 119 S. Ct. 1215. Finally, rather than denigrate the Zenger case, the Court cited a commentator who labeled it the "most widely known source of libertarian thought" in eighteenth-century America. Jones, 526 U.S. at 247, 119 S. Ct. 1215. It is hard to come away from this passage with anything other than the conclusion that the Court accepts the view that jury exercise of its power to ameliorate excessively harsh sentencing laws in limited circumstances such as the instant case is one of the consequences of the Sixth Amendment.
C. Attempts to Restrict Sixth Amendment Jury Discretion
1. Eighteenth and Nineteenth Century
That the eighteenth-century recognition of the jury's right to decide the lawor to decide how the law applies to particular defendants in light of the severity of punishmentwas incorporated into the Sixth Amendment's right to "trial by jury" is illustrated by the 1794 Supreme Court case, Georgia v. Brailsford, 3 U.S. 1, 3 Dall. 1, 1 L. Ed. 483 (1794). The jury, sitting in original jurisdiction because the State of Georgia was a party, see U.S. Const, art. Ill, § 2, was charged as follows by Chief Justice John Jay:
It may not be amiss, here, Gentlemen, to remind you of the good old rule, that on questions of fact, it is the province of the jury, on questions of law, it is the province of the court to decide. But it must be observed that by the same law, which recognizes this reasonable distribution of jurisdiction, you have nevertheless a right to take upon yourselves to judge of both, and to determine the law as well as the fact in controversy. On this, and on every other occasion, however, we have no doubt, you will pay that respect, which is due to the opinion of the court: For, as on the one hand, it is presumed, that juries are the best judges of facts; it is, on the other hand, presumable, that the court are [sic] the best judges of law. But still both objects are lawfully, within your power of decision.
3 U.S. at 4 (emphasis added). With justices who had been instrumental in framing the Constitution, the Supreme Court of 1794 accepted the jury's power and right to decide both the facts and the law of a caseand to be so instructed by a judge.
Brailsford's ruling was attenuated in the late nineteenth century. Two major Supreme Court Justices' opinions in the nineteenth century have language relied upon by subsequent courts as restricting the Sixth Amendment's jury discretion and right to know the effect of its decision. They are Justice Story's in the Circuit Court of the District of Massachusetts, United States v. Battiste, 24 F. Cas. 1042 (C.C.D.Mass.1835) and the first Justice Harlan's in Sparf v. United States, 156 U.S. 51, 15 S. Ct. 273, 39 L. Ed. 343 (1895).
Battiste is distinguishable from modern anti-nullification cases. Justice Story's statement was made in the context of preventing *191 a conviction unfounded under the statute as he construed it, not to prevent the jury from refusing to convict a person technically guilty.
Justice Harlan's opinion, sixty years later, in Sparf contains a long and learned analysis. It restricts the effect of the historical Sixth Amendment by preventing the jury from finding the lesser of the crimes of murder or manslaughterthe difference between death or life for the prisoner.
Modern historical research demonstrates that the equally long and learned dissent of Justice Gray in Sparf had the history of the Sixth Amendment right. He wrote:
Until nearly forty years after the adoption of the Constitution of the United States, not a single decision of the highest court of any State, or of any judge of a court of the United States, has been found, denying the right of the jury upon the general issue in a criminal case to decide, according to their own judgment and consciences, the law involved in that issueexcept the two or three cases ... concerning the constitutionality of a statute....
It must frankly be admitted that in more recent times, beginning with ... Mr. Justice Story's charge to a jury in 1835 in United States v. Battiste, 2 Sumn. 240, [24 F. Cas. 1042], the general tendency of decision in this country (as appears by the cases cited in the opinion of the majority of the court) has been against the right of the jury....
156 U.S. at 168, 15 S. Ct. 273.
It would be an example of inordinate tediousness and supererogation to rehearse again the superb historical analyses of Justices Harlan and Gray that include detailed statements of the views of such luminaries as Alexander Hamilton, John Marshall, John Jay, Samuel Chase, Joseph Story, Lemuel Shaw, Lord Coke, Lord Bacon, John Milton, and John Adams; details of cases such as Anthes, Bushell, Zenger, Penn & Mead, Burr, and others; as well as the Magna Carta and statutes adopted on both sides of the Atlantic. Cf, e.g., The Three Trials of William Hone (Tegg ed. 1876) (three different juries refused to convict in three different trials despite judicial instructions); Bushell's Case, in 6 Howell's State Trials 999 (1670); Penn & Mead's Case, in id. at 951 (1670) (jury refusing to convict William Penn of unlawful assembly despite threats from judge); James Alexander, A Brief Narrative of the Case and Trial of John Peter Zenger (1963).
Justice Harlan's majority opinion was well designed to produce a more efficient court system calculated to deal with the growing complexity of the law; the much improved training and professionalism of bench and bar; a lay public increasingly out-of-touch with the law's details; and a desire to provide predictable rules protecting our growing national industry and commerce. In addition, courts following Sparf appear to reflect a pervasive fear that our heterogeneous jurors, unbound by common principles of morality, education and dedication to the law, may deviate too far from judicial views of the rule of law unless they are tightly controlled. Cf, e.g. James Bradley, The Imperial Cruise 23-34 (2009) (noting that, as the nineteenth century turned into the twentieth, America's ruling classes accepted the myths of racial superiority); id. at 33 ("Such beliefs ruled America."). This appellate lack of faith in the good sense of juries is not generally shared by today's trial judgesincluding the one who signs this memorandumwho deal with them on a daily basis. Our sense of our jury's bona fides and judgment is quite high.
Whatever the judicial system's evaluation of modern juries and their proper *192 role, the Supreme Court has recently instructed us that in matters of sentencing as well as hearsay, it is necessary to go back to the practice as it existed in 1791 to construe the meaning of constitutional provisions such as the Sixth Amendment. Justice Gray dissenting in Sparf seems to have hit both the modern and ancient marks. Judges are today forcefully reminded in Crawford v. Washington, reevaluating the constitutional right of confrontation and the limits on the use of "testimonial" hearsay, that no matter how long and firm a precedential line of Supreme Court cases, if analysis shows it was ill-based historically it must be abandoned. 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004).
It is worthwhile recalling that the author of the majority opinion in Sparf was the first Justice Harlan. His minority opinion in Plessy v. Ferguson, 163 U.S. 537, 16 S. Ct. 1138, 41 L. Ed. 256 (1896), which approved over his strong dissent the doctrine of separate but equal, degrading African-Americans, was adopted more than a half century later in Brown v. Board of Education, 347 U.S. 483, 74 S. Ct. 686, 98 L. Ed. 873 (1954), overruling Plessy. By contrast, Justice Harlan's Sparf majority ruling limiting jury power is in effect overruled now, more than a century later, by the recent Booker line of cases, essentially adopting the minority conclusion in Sparf. It is not particularly significant that the same 1890s Supreme Court appears to have been wrongby our present standardson two important cases, but it is notable that the Supreme Court feels called upon now to overrule major precedents going back to the late nineteenth century based upon a revised historical analysis.
As for Justice Story's early eighteenth-century opinionBattistethe first significant federal case seeming to limit Sixth Amendment discretionit lends little support to Sparf. Battiste, 24 F. Cas. 1042 (1835), was a capital case charging a violation of the 1820 United States statute outlawing international trade in slaves; Justice Story held that, on the facts, the defendant had committed no crime. See id. at 1044, 1046. He held that the mere transportation of those already enslaved from one part of the Portuguese enclaves in Africa to another was internal carriage, not the kind of international trade outlawed by the statute. Id. at 1045-46.
In the course of his dispositive analytical opinion on the statute's meaning, Justice Story declared that in criminal and civil cases,
[The jury's] verdict, when general, is necessarily compounded of law and of fact; and includes both. In each they must necessarily determine the law, as well as the fact. In each, they have the physical power to disregard the law, as laid down to them by the court. But I deny, that, in any case, civil or criminal, [jurors] have the moral right to decide the law according to their own notions, or pleasure. On the contrary, I hold it the most sacred constitutional right of every party accused of a crime, that the jury should respond as to the facts, and the court as to the law. It is the duty of the court to instruct the jury as to the law; and it is the duty of the jury to follow the law, as it is laid down by the court. This is the right of every citizen; and it is his only protection. If the jury were at liberty to settle the law for themselves, the effect would be, not only that the law itself would be most uncertain, from the different views, which different juries might take of it; but in case of error, there would be no remedy or redress by the injured party; for the court would not have any right to review the law as it had been settled by *193 the jury. Indeed, it would be almost impracticable to ascertain, what the law, as settled by the jury, actually was. On the contrary, if the court should err, in laying down the law to the jury, there is an adequate remedy for the injured party, by a motion for a new trial, or a writ of error, as the nature of the jurisdiction of the particular court may require. Every person accused as a criminal has a right to be tried according to the law of the land, the fixed law of the land; and not by the law as a jury may understand it, or choose, from wantonness, or ignorance, or accidental mistake, to interpret it. If I thought, that the jury were the proper judges of the law in criminal cases, I should hold it my duty to abstain from the responsibility of stating the law to them upon any such trial. But believing, as I do, that every citizen has a right to be tried by the law, and according to the law; that it is his privilege and truest shield against oppression and wrong; I feel it my duty to state my views fully and openly on the present occasion. It is not, indeed, an occasion, on which there is any reason to doubt, that an intelligent jury can understand the principles of law applicable to the subject, as well as the court; for they are the principles of common sense. And as little reason is there, in my view, to suppose, that they can operate injuriously to the real merits of the case of the prisoner.
Id. at 1043 (emphasis added).
Since the defendant, Battiste, was being protected by Justice Story against an incorrect interpretation of the statute by a jury that could have convicted a guiltless defendant, Story had the obligation to prevent exercise of jury discretion against the law. This is the law todayas it must beunder the Federal Rules of Criminal Procedure, which grant courts broad discretion to prevent a criminal conviction unfounded under the law. No one challenges the power of the judge to prevent an unlawful conviction, and the lack of right of the jury to convict against the law. But that does not permit judges to compel a criminal conviction by withholding information from the jury that, if known by it, would likely result in acquittal.
Battiste does not address what was the practice and conceded power of the jury to refuse to convict even when the judge instructed that the law required conviction. That view was inherent in the Sixth Amendment even though judges in the late-nineteenth, twentieth and twenty-first centuries were increasingly trying to control juries by limiting their power and prerogative not to convict or to convict of a lesser crime to reduce the sentence. Placing the pejorative characterization of "nullification" on the jury's Sixth Amendment power does not define it out of existence.
Evisceration of felony death penalties as well as the pre-Civil War Fugitive Slave Acts in the Northcontinued well into the nineteenth century, leading ultimately to considerable reduction in the number of capital offenses since such draconian penalties could not be enforced. See John Clark, The Social Psychology of Jury Nullification, 24 Law & Psychol. Rev. 39, 43-44 (2000). Increased pressure on the judiciary to assert control denied it by the Sixth Amendment was created by growing diversification of the jury pool and reluctance of juries to convict, for example, in labor unrest cases, liquor prohibition cases, cases of white violence against blacks, Vietnam War resister cases, and consensual statutory rape cases involving members of the armed forces in World War II. See, e.g., United States v. Dougherty, 473 F.2d 1113, 1136-37 (D.C.Cir.1972) (denying nullification instruction, over strong dissent, for clergy who had ransacked *194 a napalm chemical plant); see also, e.g., Parmenter, supra, 393-96 & nn. 143-74 (discussing the Marion Barry, Rodney King, Menendez brothers, O.J. Simpson and "Bronx" juries).
The notoriety of the Dougherty case at the time of Vietnam War unrest was probably sufficient to make a nullification charge unnecessary to apprise the jury of its power. See Parmenter, supra, 389-90. By contrast, the current lack of awareness of the many statutory-based minimum sentence requirements renders juries vapid through their lack of awareness of the effects of their verdicts. See id. at 402-416 nn. 231-370 (illustrating the increasing frustration of courts at jury refusals to convict, leading to increasing pressure by courts on juries not to nullify, including threats of contempt, removal of a nullifying juror, and instructing the jury that they could not nullify).
Consistent modern judicial attempts to water down the Sixth Amendment have not escaped notice by academics and other scholars whose commentary has been generally critical of limitations on Sixth Amendment jury power to dispense mercy. See, e.g., Polouizzi I, 549 F.Supp.2d at 450-54 (providing selected bibliography on powers of jurors when Sixth Amendment was adopted); see also, e.g., Akhil Reed Amar, The Bill of Rights as a Constitution, 100 Yale L.J. 1131, 1191-99 (1991) (noting that juries had power to declare laws unconstitutional and calling that argument "strong," but cautioning that "I do not mean to suggest that I am wholly persuaded"); David C. Brody, Sparf and Dougherty Revisited: Why the Court Should Instruct the Jury of Its Nullification Right, 33 Am.Crim. L.Rev. 89, 105 (1995) ("The time has come for the Supreme Court to reconsider its decision in Sparf, as well as the question of whether the jury should be instructed of its nullification power."); Paul Butler, Racially Based Jury Nullification: Black Power in the Criminal Justice System, 105 Yale L.J. 677, 679 (1995) (arguing that African-American jurors should nullify in some cases to combat racism in criminal justice system); David N. Dorfman & Chris K. Iijima, Fictions, Fault, and Forgiveness: Jury Nullification in a New Context, 28 U. Mich. J.L. Reform 861, 900-01 (1995) (arguing that jury nullification is a "popular check on executive and judicial discretion"); Arie M. Rubenstein, Note, Verdicts of Conscience: Nullification and the Modern Jury Trial, 106 Colum. L.Rev. 959 (2006) (basing argument in favor of jury nullification on recent Supreme Court jury right cases); Alan W. Scheflin, Jury Nullification: The Right to Say No, 45 S. Cal. L.Rev. 168, 224 (1972) ("Preservation of... the right to nullify ... [is] essential to a restoration of the vaunted stature the judicial system should occupy."); Alan W. Scheflin & Jon M. Van Dyke, Merciful Juries: The Resilience of Jury Nullification, 48 Wash. & Lee L.Rev. 165, 166 (1991) ("[O]ur judicial system would be better served if judges instructed jurors of their true powers."); Ran Zev Schijanovich, The Second Circuit's Attack on Jury Nullification in United States v. Thomas: In Disregard of the Law and the Evidence, 20 Cardozo L.Rev. 1275, 1278 (1999) ("Thomas is unsound both as a matter of law and as a matter of policy."); Chaya Weinberg-Brodt, Jury Nullification and Jury-Control Procedures, 65 N.Y.U. L.Rev. 825 (1990) (arguing for refocusing arguments regarding nullification on defendants' rights and reconsidering doctrines that impede nullification). But see Pamela Baschab, Jury Nullification: The Anti-Atticus, 65 Ala. Law. 110, 114 (2004) ("Jury nullification, no matter how you slice it, is at bottom a desecration of the basic premise that we are all equal under the law."); Leo P. Dreyer, Jury Nullification *195 and the Pro Se Defense: The Impact of Dougherty v. United States, 21 U. Kan. L.Rev. 47, 60-63 (1972-73) (arguing against allowing instructions to juries regarding their power to nullify); Andrew D. Leipold, Rethinking Jury Nullification, 82 Va. L.Rev. 253 (1996) (arguing that jury nullification has a larger cost than is normally realized and that the Sixth Amendment does not protect the right of jury nullification); Richard St. John, License to Nullify: The Democratic and Constitutional Deficiencies of Authorized Jury Lawmaking, 106 Yale L.J. 2563 (1997) (criticizing legislative proposals to authorize jury nullification).
2. Contemporary
Since the late nineteenth century, jury power has increasingly been suppressed in favor of judicial control in both civil and criminal trials through case law and amendments to the statutes and rules governing the trial process. This trendespecially since the 1990sis so strong that one commentator considers it "war." See Andrew J. Parmenter, Nullifying the Jury, The Judicial Oligarchy Declares War on Jury Nullification, 46 Washburn L.J. 379 (2007). That the courts of three out of the four states that grant juries the power in criminal cases to decide both law and fact "have eviscerated any literal translation of these constitutional provisions" is one such example. Id. at 391; see Ga. Const, art. I, § 1, para. xl(a) (1998); Ind. Const, art. I, § 19 (1999) ("In all criminal cases whatever, the jury shall have the right to determine the law and the facts."); Md.Code Ann., Const, art. 23, Declaration of Rights (same).
The reasons for this trend are beyond the scope of this opinion, but hypotheses include "changes in the American psyche, transitioning a young republic with revolutionary zeal and distrust for governmental authority into a mature democracy" more concerned with law and order; professionalization of the legal profession and prioritizing law over facts; fears of an increasingly diverse jury pool due to the twentieth-century opening up of jury service, particularly with a post-World War II influx of immigrants to the country on a non-discriminatory basis from all parts of the world; and the need to have a uniform predictable national law and its enforcement that would favor the growth of national commerce. See Parmenter, supra, at 386-87; see also Husain v. Springer, 494 F.3d 108, 138 (2d Cir.2007), cert. denied, 552 U.S. 1258, 128 S. Ct. 1658, 170 L. Ed. 2d 356 (2008); Monroe v. Kuhlman, 436 F. Supp. 2d 474, 480 (E.D.N.Y.2006), aff'd, 248 Fed.Appx. 223 (2d Cir.2007) (suggesting that causes include" `the reluctance to expand the powers of totally passive and unenlightened juries stems from three sources: (1) the tremendous inertia of long-standing legal tradition; (2) a basic distrust of juries; and (3) trial attorneys' and judges' fear of loss of control of the trial process.' "(quoting Mark A. Frankel, Legal Institutions: A Trial Judge's Perspective on Providing Tools for Rational Jury Decision-Making, 85 Nw. U.L.Rev. 221, 222 (1990))).
Relying on Sparf v. United States, judges now generally refuse to inform juries of their full powers, including their power to nullify. Nullification instructions, historically common, are no longer given. It is generally accepted that defendants have no right to such a charge. Yet Sparfsupposedly the bedrock case against jury nullificationadopted no such holding:
Harlan's opinion did not preclude judges from rendering nullification instructions or allowing nullification arguments in proper circumstances, it did not require judges to mislead jurors about their *196 power to judge the law, and it did not sanction a judicial denial of the jury's nullification power, either by instruction or interference. Sparf only held that it was not reversible error to instruct the jury that it would be wrong to disregard the court's instruction as to the law. In fact, the trial judge in Sparf informed the jury that it had the "physical power" to render a verdict contrary to his instructions.
Parmenter, supra, at 388 (footnotes omitted).
Not only are juries not informed of their constitutional and historic power to nullify, judges increasingly issue directive and authoritative jury instructions, which increase judicial control over jurors. See B. Michael Dann, "Must Find the Defendant Guilty" Jury Instructions Violate the Sixth Amendment, 91 Judicature 12, 12 (2007) (stating that a "survey of the states' and federal circuits' corresponding jury instruction language reveals that 24, almost 40 percent, of state courts and federal circuits use the command `must' or its equivalent (`shall' or `duty') to point juries to verdicts of guilty when all of the elements of the alleged crime have been proven. Another 7, or 13 percent, use the milder admonition `should' to steer the jury's decision to guilt."). Some judges have gone as far as to tell jurors they have a legal obligation to apply the law, that they could face sanctions upon nullification, and that they "had a duty to notify the court if any juror expressed intent `to disregard the law.'" See Parmenter, supra, at 404, 409.
Judicial control over potential and actual members of the jury has steadily increased. Voir dire, in practice since the Fugitive Slave Acts, is used to weed out potentially nullifying jurors. See Parmenter, supra, at 398 (citing Lysander Spooner, Trial by Jury (1852)). The Court of Appeals for the Eleventh Circuit has upheld a trial court's sua sponte dismissal of a juror because the juror knew the jury had the power to nullify. United States v. James, No. 98-1479, 2000 WL 136816, 2000 U.S.App. LEXIS 1738 (11th Cir. Feb. 7, 2000).
Dismissals for cause based on jurors' beliefs still result, especially in death penalty cases, in pro-conviction jury panels not fairly selected as a cross-section of the community. See, e.g., Uttecht v. Brown, 551 U.S. 1, 127 S. Ct. 2218, 167 L. Ed. 2d 1014 (2007) (approving a trial court's decision to dismiss a juror for cause after finding that the juror's ability to impose the death penalty was substantially impaired, even though he indicated that he would follow the law as instructed by the judge).
Since the 1990s, there has been a growing trend towards discharging jurors who may nullify. See Parmenter, supra, at 408-10 (citing cases). The court in United States v. Thomas, 116 F.3d 606 (2d Cir. 1997), discussed further in Part IV.D.l, infra, utilized Federal Rule of Criminal Procedure 23(b) to approve removal of a juror during deliberations, thus allowing the return of an eleven-person verdict, citing as "good cause" the juror's possible nullificatory intent. Other circuits have followed Thomas. See Paramenter, supra, at 407 n. 279. After Thomas, judges might well feel empowered to disqualify potentially nullifying jurors at both voir dire and trial under Rule 24(c). See Fed.R.Crim.P. 24(c)(1) ("The court may impanel up to 6 alternate jurors to replace any jurors who are unable to perform or who are disqualified from performing their duties.").
A completely distinct division between the roles of judge and jury as is said to be embodied in Sparf is unsupported historically, see Parts IV.A and IV.B, supra, and now, post-Booker, it is unsupportable legally. *197 See Part IV.D., infra. Providing jurors sentencing information would enable the jury to more effectively fulfill its historical Sixth Amendment role as the conscience of the community and guardian against government oppression.
D. Second Circuit Court of Appeals: Jury Knowledge
An analysis of Sparf's Second Circuit Court of Appeals recent progeny, Thomas and Pabon-Cruz, is illustrative of the approach now sometimes required in this circuit. It should be compared with the Court of Appeal for the Second Circuit's expansiveand more historically aptlanguage regarding the nature of the jury's role in Gilliam. Compare United States v. Pabon-Cruz, 391 F.3d 86 (2d Cir.2004) and United States v. Thomas, 116 F.3d 606 (2d Cir.1997) with United States v. Gilliam, 994 F.2d 97 (2d Cir.1993).
1. Thomas and Pabon-Cruz Premises
It is no criticism to respectfully point out that the statements of the Court of Appeals for the Second Circuit in Thomas and Pabon-Cruz suggesting strict limitations on information which may be made available to a jury must be read in the light of Supreme Court cases reinterpreting the Sixth Amendment and its own analysis in Polouizzi II, 564 F.3d 142 (2008).
a) Thomas
Thomas is an example of judicial attempts to control the jury's mercy-dispensing powers, one of many discussed in Part IV.C, supra. The Thomas court did not simply discourageas many other courts have donejury nullification; it went further in suggesting that a trial court may dismiss a potentially nullifying juror during jury deliberations. See Ran Zev Schijanovich, The Second Circuit's Attack on Jury Nullification in United States v. Thomas: In Disregard of the Law and the Evidence, 20 Cardozo L.Rev. 1275, 1277 (1999) ("The Second Circuit's holding represents perhaps the most far-reaching action taken by the federal courts to suppress the jury's prerogative to refuse to follow the law `based on its own sense of justice or fairness' in reaching a verdict."). The Thomas court's assertion that its ruling was "one fully consistent with our history and traditions," 116 F.3d at 622, might have been supported by a broad reading of late nineteenth- and twentieth-century cases. But it cannot stand in light of colonial history and practice at the time the Sixth Amendment was adopted, as that history must now be interpreted pursuant to twenty-first century Supreme Court jurisprudence.
In Thomas, the defendants were convicted by an eleven-person jury after the trial court dismissed the twelfth juror during jury deliberations pursuant to Rule 23(b)(3)'s "just cause" provision, after finding that the juror "was purposefully disregarding the court's instructions on the lawin effect, that the juror intended to acquit the defendants regardless of the evidence of their guilt." 116 F.3d at 608; see Fed.R.Crim.P. 23(b)(3) ("After the jury has retired to deliberate, the court may permit a jury of 11 persons to return a verdict, even without a stipulation by the parties, if the court finds good cause to excuse a juror."). On appeal, the Court of Appeals declared "a deliberating juror's intent to nullify constitutes `just cause' for dismissal" under Rule 23 (as long as certain high evidentiary standards were met). Thomas, 116 F.3d at 612. It declared the presiding judge had a duty to dismiss such a juror. Id. at 616. But, because it was not "clear beyond doubt" that the dismissed juror in Thomas had not simply been unconvinced by the prosecution's case, the appellate court vacated the judgment *198 and ordered a new trial. Id. at 608-09.
The Court of Appeals for the Second Circuit's dictum in Thomas that trial courts have a duty to dismiss potentially nullifying jurors was based on its
categorical[ ] rejection of] the idea that, in a society committed to the rule of law, jury nullification is desirable or that courts may permit it to occur when it is within their authority to prevent. Accordingly, we conclude that a juror who intends to nullify the applicable law is no less subject to dismissal than is a juror who disregards the court's instructions due to an event or relationship that renders him biased or otherwise unable to render a fair and impartial verdict.
Id. at 614 (citation and footnote omitted).
Before it rejected the possibility of jury nullification, the Thomas court briefly reviewedbut ultimately found unpersuasivenullification's history as a form of "tolerable" "civil disobedience" as exemplified in Zenger, id. at 614, and the "long and complicated history of juries acting as judges of the law as well as the evidence" in the "Anglo-American legal system," id. at 614-15; the various procedural rules that serve to protect jury verdicts from outside inquiry (e.g., secrecy of deliberations, general verdicts, inconsistent verdicts), id. at 615; the jury's part in "`introducing] a slack into the enforcement of law, tempering its rigor by the mollifying influence of current ethical conventions,' "id. (quoting U.S. ex rel. McCann v. Adams, 126 F.2d 774, 776 (2d Cir.1942) (Hand, J.)); and the federal courts' common acknowledgment of the "de facto power of a jury to render general verdicts `in the teeth of both law and facts.'" Id. (quoting Horning v. District of Columbia, 254 U.S. 135, 138, 41 S. Ct. 53, 65 L. Ed. 185 (1920)). But, because jury nullification can lead to a "sabotage of justice," id. at 616 (quoting Randall Kennedy, The Angry Juror, Wall St. J., Sept. 30, 1994, at A12) (referring to acquittals of white defendants by white juries in 1960s civil rights trials), and because of existing Supreme Court precedentSparf v. United States, 156 U.S. 51, 15 S. Ct. 273, 39 L. Ed. 343 (1895)the Court of Appeals for the Second Circuit concluded that "trial courts have the duty to forestall or prevent [potential nullification], ... where it does not interfere with guaranteed rights or the need to protect the secrecy of jury deliberations, by dismissal of an offending juror from the venire or the jury." Id. at 616 (citations omitted).
Most respectfully, it is submitted that it is doubtful whether Thomas fully expresses the law in view of current Supreme Court rulings. That Rule 23(b)'s "just cause" provision may be used to dismiss a potentially nullifying juror is dubious in view of what appears to be Colonial history and the design of the 1983 amendment to Rule 23 of the Federal Rules of Criminal Procedure to dismiss only those jurors who are unable to continue to serve due to sudden physical illness or mental stress. See Advisory Committee Notes, Fed.Crim. Code and Rules 119 (Thomas/West 2007) ("[O]ne of the jurors is seriously incapacitated or otherwise found to be unable to continue service upon the jury"); Schijanovich, supra, at 1309-13.
Application of the Thomas testto permit judicial inquiry to determine whether jurors are simply unconvinced by the evidence, or are intent on nullificationinevitably destroys the essential secrecy of jury deliberations, as the court itself acknowledged. See Thomas, 116 F.3d at 621 ("Where ... as here, a presiding judge receives reports that a deliberating juror is intent on defying the court's instructions on the law, the judge may well have no means of investigating the allegation *199 without unduly breaching the secrecy of deliberations."). Because it is difficult to distinguish between a "juror who favors acquittal because he or she is purposefully disregarding the court's instructions on the law, and the juror who is simply unpersuaded by the Government's evidence," dismissals of jurors will, in some cases, necessarily violate a criminal defendant's right to a unanimous jury verdict. Id. at 621 ("[T]o remove a juror because he is unpersuaded by the Government's case is to deny the defendant his right to a unanimous verdict."). Despite the appellate court's serious efforts to develop a "balancing test" in Thomas, its approach does not guarantee protection of constitutional Sixth Amendment rights of jurors or of defendants.
In any event, because it is based primarily on Sparfnow largely abrogated by the Booker line, see Parts IV.A-C, supra the Thomas ruling probably exceeds the power of judges under the Sixth Amendment to control juries. That it is a criminal jury's duty "to take the law from the court and apply that law to the facts as they find them," id. at 615 (quoting Sparf 156 U.S. at 102, 15 S. Ct. 273), is a far cry from holding that it is the court's duty to dismiss a juror favoring mercy over the law as charged by the judge. The law does not countenance interference with the jury's essential function, one of which, the Thomas court conceded, is to "`provid[e] `play in the joints' that imparts flexibility and avoid[] undue rigidity ... [and] act[] as a `safety valve' for exceptional cases, without being a wildcat or runaway institution.'" Id. at 622 (quoting United States v. Dougherty, 473 F.2d 1113, 1134 (D.C.Cir. 1972)).
Despite Thomas's current lack of a firm foundation, other appellate courts (both before and after Booker) have followed its conclusion. The Court of Appeals for the Eleventh Circuit has approved the dismissal of a potentially nullifying juror under Rule 23(b)'s just cause provision, applying a "beyond reasonable doubt" standard to ensure that a juror may only be excused "when no `substantial possibility' exists that she is basing her decision on the sufficiency of the evidence." United States v. Abbell, 271 F.3d 1286, 1302 (11th Cir.2001) (per curiam). And the Court of Appeals for the Third Circuit went as far as to declare that "courts agree that a district court has the authority to dismiss a juroreven during deliberationsif `that juror refuses to apply the law or to follow the court's instructions.'" United States v. Kemp, 500 F.3d 257, 303 (3d Cir.2007), cert. denied, 552 U.S. 1223, 128 S. Ct. 1329, 170 L. Ed. 2d 138 (2008) (quoting Abbell, 271 F.3d at 1302) (emphasis added).
While Thomas purports to protect jurors and defendants by its ruling that "if the record evidence discloses any possibility that the request to discharge stems from the juror's view of the sufficiency of the government's evidence, the court must deny the request," Thomas, 116 F.3d at 621-22 (citing United States v. Brown, 823 F.2d 591, 596 (D.C.Cir.1987)) (emphasis omitted), other courts have facilitated juror dismissal by requiring only "any reasonable possibility." See, e.g., Kemp, 500 F.3d at 303 (emphasis added); United States v. Symington, 195 F.3d 1080, 1087 (9th Cir.1999). These courts appear not to be in step with current Supreme Court practice on the Sixth Amendment.
b) Pabon-Cruz
Following its Thomas decision, the Court of Appeals for the Second Circuit again failed to fully recognize the jury's historic Sixth Amendment mercy-dispensing powers in Pabon-Cruz, 391 F.3d 86. Like Polizzi, the defendant, an eighteen-year-old college student majoring in computer science, had no criminal history. Id. *200 at 88. He was charged with advertising to distribute or receive images of child pornography and receiving or distributing child pornography. The advertising charge carried a ten-year mandatory minimum sentence. Id. at 88-89.
Before trial, both parties made in limine motions. Offering to stipulate that the files found on the defendant's computer were child pornography, the defense moved to preclude showing the jury any of the pornographic images. The government moved to preclude the jury from learning of the ten-year mandatory sentence. Viewing the motions as related, the district court denied both stating:
I must say, I find both sides a little bit inconsistent.... The defense seems to want the jury to make some kind of a judgment about whether the penalty is appropriate for the conduct without letting the jury see what the conduct consists of. On the other hand, the government, which had the opportunity to have a fact finder who would be bound to apply the law and the evidence, chose a fact finder, I assume, because it wanted a judgment of the community, and yet it doesn't want the community to know what it is actually judging about or what the consequences of its judgment are.
Id. at 90. Indicating that it would inform the jury of the sentence to be imposed on defendant if convicted of the advertising offense but would not allow the defense to argue nullification, id., the trial court explained its reasoning:
But I think there is a difference between saying that the court does not and cannot approve of nullification, and ignoring the fact that juries have historically played this role. I think they are only appropriately able to play that role when they do it against a backdrop of stern admonitions that they are not supposed to do it. I think it is an act of civil disobedience if they do it. And they should not be given any encouragement or any condonation or any instruction that suggests to them that it is legally permissible for them to violate their oath as jurors. On the other hand, historically jurors have sometimes done that, and the judgment of history is sometimes that when they do that, they are in effect lawless and evil, and at other times the judgment of history is that they've done the right thing.
....
I would not expect the average juror to be very tempted to civil disobedience in light of the seriousness of the conduct shown here and the strength of the evidence against the defendant.
But in the unlikely event that members of the jury were so troubled that they decided to acquit in the face of the court's instruction, in violation of their oaths, and on the face of the evidence in the case, that, it seems to me, would constitute a significant exercise of the historic function of the jury and one that the jurors could never imagine if they had no notion of the seriousness of this offense in terms of punishment.
Id. at 90-91.
The government promptly filed an application in the Court of Appeals for the Second Circuit for an emergency stay and writ of mandamus. Id. at 91. The court granted the writ in an unpublished summary order, which stated in its entirety:
IT IS HEREBY ORDERED that the petition for a writ of mandamus is granted. Challenges to a proposed jury charge may properly be considered on a petition for a writ of mandamus. The District Judge's proposed jury instruction regarding the penalties the defendant faces if convicted is a clear abuse of discretion in light of binding authority. See Shannon v. United States, 512 U.S. *201 573, 114 S. Ct. 2419, 129 L. Ed. 2d 459 (1994); United States v. Thomas, 116 F.3d 606 (2d Cir.1997). IT IS FURTHER ORDERED that the stay of trial proceedings is hereby lifted.
Id. at 91-92.
Pabon-Cruz appealed after a jury verdict of guilty. In the published decision on the direct appeal, United States v. Pabon-Cruz, 391 F.3d 86 (2d Cir.2004), the Second Circuit acknowledged that the issue posed on appeal was different from that recognized on mandamus:
[T]he pertinent question on appeal is not whether that [mandamus] ruling was correct, but whether defendant was denied the benefit of a charge he requested to which he was legally entitled. Accordingly, even if we believed the earlier panel was incorrect in forbidding the District Court from instructing the jury on the sentencing consequences, the conviction remains sound unless the instructions actually given by the District Court were in error or the defendant had a legal entitlement to the instruction he was denied.
Id. at 94 (emphasis added). Finding no reversible error in the charge, the Court of Appeals supported its reasoning by an explanation relying on its previous opinion in Thomas and adopting the Supreme Court's "fully persuasive dicta" in Shannon v. United States, 512 U.S. 573, 114 S. Ct. 2419, 129 L. Ed. 2d 459 (1994):
The principle that juries are not to consider the consequences of their verdicts is a reflection of the basic division of labor in our legal system between judge and jury. The jury's function is to find the facts and to decide whether, on those facts, the defendant is guilty of the crime charged. The judge, by contrast, imposes sentences on the defendant after the jury has arrived at a guilty verdict. Information regarding the consequences of a verdict is therefore irrelevant to the jury's task. Moreover, providing jurors sentencing information invites them to ponder matters that are not within their province, distracts them from their fact-finding responsibilities, and creates a strong possibility of confusion.
Pabon-Cruz, 391 F.3d at 94-95 (quoting Shannon, 512 U.S. at 579, 114 S. Ct. 2419).
The appellate court in Pabon-Cruz, it is respectfully suggested, too broadly interpreted Shannon. Shannon had held that a defendant had no legal right to a charge informing a jury of the consequences of a not guilty by reason of legal insanity verdict (commitment to a mental asylum). Pabon-Cruz interpreted Shannon's holding to mean that defendants have "no legal right to a charge informing the jury of [any of] the sentencing consequences of its decisions." Id. at 94. Because Thomas had held that jurors have "no right" to engage in nullificationalthough they do have the power to do sotrial "courts have the duty to forestall or prevent such conduct." Id. at 95 (citing Thomas, 116 F.3d at 616). Hence, the Pabon-Cruz court concluded that the defendant had no right to a jury instruction informing the jury of the ten-year mandatory minimum sentence and strongly implied that trial courts were forbidden to so instruct or allow juries to be so informed.
c) Post-Booker, Pabon-Cruz, Thomas and Shannon Require Reinterpretation
Pabon-Cruz, Thomas, and Shannon were all issued without taking full account of Booker and the sea change in Sixth Amendment and sentencing practice it required. As demonstrated in Part IV.B, supra, courts must now interpret Sixth Amendment questions in light of the jury's role in colonial times, when juries knewor were informed at least in some casesof the applicable sentences and had the *202 recognized ability to dispense mercy. See, e.g., Agostini v. Felton, 521 U.S. 203, 117 S. Ct. 1997, 138 L. Ed. 2d 391 (1997). But cf. Pabon-Cruz, 391 F.3d at 90 (criticizing the district court for deciding to inform the jury of the ten-year mandatory minimum, after noting that "juries have historically played this role . . . and at . . . times the judgment of history is that they've done the right thing").
d) Pabon-Cruz Applied to Polizzi
At Polizzi's first trial, the jury was not informeddespite defendant's requestof the five-year mandatory minimum sentence consequent to a guilty verdict. This decision was based on the trial court's acceptance of the government's argument before trial that Pabon-Cruz controlled and required denial of the request as a matter of law. If the trial court had indicated that it would inform the jury or allow the defendant to inform the jury of the mandatory minimum sentence, the government would almost certainly have sought an emergency stay and a writ of mandamus from the Court of Appeals for the Second Circuit, which likely would have been summarily granted following Pabon-Cruz. Because of recent Sixth Amendment Supreme Court constitutional jurisprudence, this court's finding that Pabon-Cruz precluded it from exercising its discretion by issuing Polizzi's requested jury instruction on sentencing was incorrect. Polizzi did have a Sixth Amendment right to exercise of the court's discretion to inform the jury of the minimum sentence.
Technically, even if Pabon-Cruz withstood analysis post-Booker, the decision would not itself constitute binding authority on a trial court's discretion to inform a jury of a mandatory minimum sentence. The writ of mandamus granted by the Court of Appeals for the Second Circuit in Pabon-Cruz was an unpublished summary order. United States v. Pabon-Cruz, No. 02-3080 (2d Cir. Oct. 11, 2002); see Pabon-Cruz, 391 F.3d at 91-92. Summary orders do not have precedential value.2d Cir. Local Rule 32.1.1(b). The Court of Appeals' subsequent published decision after the defendant appealed his guilty verdict only addressed the question whether the defendant was legally entitled to a jury charge describing the mandatory minimum. The issue was notas it is now in the instant casewhether the trial court has the power and discretion to inform the jury, in a charge or otherwise, of the mandatory minimum. See id. at 95 n. 11 ("Because the issue is not before us, we intimate no view as to whether, or in what circumstances, a trial judge may inform the jury of the relationship between punishment and offense."). Despite this technical distinction, since the overall tenor of Pabon-Cruz was fairly clearly opposed to Polizzi's proposed jury instruction in the instant case, this trial court declined as a matter of law to issue the proposed instruction on sentencing impact to the jury, a decision that this court now recognizes was in error. Even under Pabon-Cruz, however, it arguably had discretion to grant the charge.
2. Gilliam's Language Represents Current General Role of Informed Jury as Representative of Community Mores
In comparison with Thomas and Pabon-Cruz, language of the Court of Appeals for the Second Circuit more in keeping with the jury's traditional function is that in United States v. Gilliam, 994 F.2d 97 (2d Cir.1993)putting aside the validity of its holding. In Gilliam, the defendant appealed from a guilty jury verdict on a felon-in-possession charge, protesting the trial court's failure to force the government to accept his proposed stipulation to an entire element of the offense. Before trial, defendant had offered to stipulate that he not only had a prior felony convictionthe *203 facts stipulating the predicate element of the crimeas allowed by Old Chief v. United States, 519 U.S. 172, 117 S. Ct. 644, 136 L. Ed. 2d 574 (1997), but that he was a felon as defined under the applicable felonin-possession statute. Acceptance of the proposed stipulation would have prevented the jury from learning the nature of the statute under which Gilliam was being tried: all the jury would have had to determine was whether the defendant possessed a gun at the time the government alleged. The trial court opted not to require the government to accept the defendant's proposed stipulation, and the Court of Appeals for the Second Circuit affirmed, emphasizing the potential harm to the traditional "role of the jury" in a reversal. Reliance was placed on the importance to the jury system of jurors knowing "the true import" of its findings:
But there is harm done by his proposal, harm to the judicial process and the role of the jury in determining the guilt or innocence of the accused as charged. Gilliam's proposal violates the very foundation of the jury system. It removes from the jury's consideration an element of the crime, leaving the jury in a position only to make findings of fact on a particular element without knowing the true import of those findings. . . . The jury speaks for the community in condemning such behavior, and it cannot condemn such behavior if it is unaware of the nature of the crime charged.
Gilliam, 994 F.2d at 100-01 (emphasis added).
Just as juries, according to Gilliam, cannot condemn behavior when they are unaware of all elements of the offense, to understand the full "nature of the crime," in our society juries must be aware of the severity of the consequences of their verdicts in cases such as the present one. Comprehending the "true import of [a jury's] findings," id. at 101, necessarily entails knowledge of a mandatory penalty in cases such as the one now before the court. That the jury in Polizzi should have been informed of the applicable mandatory minimum sentence before deciding the insanity defense, is driven home by other language in Gilliam extolling the jury's "mollifying influence":
Our constitution guarantees the accused the right of a trial by a jury of his peers, primarily in order to ensure that the accused is judged by prevailing community mores. As Judge Learned Hand stated, the institution of the jury "introduces a slack into the enforcement of law, tempering its rigor by the mollifying influence of current ethical conventions." As representatives of the people, the jurors can rebuke the accused for violation of community standards, morals, or principles. See, e.g., Witherspoon v. Illinois, 391 U.S. 510, 519 n. 15, 88 S. Ct. 1770, 20 L. Ed. 2d 776 (1968) ("[O]ne of the most important functions any jury can perform . . . is to maintain a link between contemporary community values and the penal system. . . ."). The jury is the oracle of the citizenry in weighing the culpability of the accused, and should it find him guilty it condemns him with the full legal and moral authority of the society. The public listens with rapt attention to the jury's pronouncement of guilt or innocence, for in that singular moment the convictions and conscience of the entire community are expressed.
Id. at 101 (citation omitted) (emphasis added).
Mandatory minimums in a case like the present one reduce the impact of local community values on our community and the penal systems. Cf. United States v. Lucania, 379 F. Supp. 2d 288, 293-96 *204 (E.D.N.Y.2005) (Sifton, J.), aff'd in part, vacated in part sub nom. United States v. Cavera, 550 F.3d 180 (2d Cir.2008); Essay, The Role of Judges in a Government Of, By, and For the People, 30 Cardozo L.Rev. 1, 195-99 (2008); Daniel Richman, Federal Sentencing in 2007: The Supreme Court HoldsThe Center Doesn't, 117 Yale L.J. 1374, 1414-15 (2008) (decentralization, federal enforcement with deference to local state law and practice and jury of community (citing United States v. Brennan, 468 F. Supp. 2d 400 (E.D.N.Y.2007))); Rachel E. Barkow, 152 U. Penn. L.Rev. 33, 34 (2004) (characterizing mandatory minimums as "secret machination" that erode the jury's power to check government); Charles P. Sifton, Themes and Valuations: The Relationship Between National Sentencing Standards and Local Conditions, 5 Fed. Sent'g Rep. 303 (1993).
To ensure that the accused is judged by prevailing community mores in connection with "the penal system," a jury in some cases applies its own judgment regarding the defendant's culpability to determine whether the acts in question fit both society's definition of the crime and the socially-approved punishment. As the Gilliam opinion declared, the jury is not a mere factfinder:
Without full knowledge of the nature of the crime, the jury cannot speak for the people or exert their authority. If an element of the crime is conceded and stripped away from the jury's consideration, the jurors become no more than factfinders. The jury must know why it is convicting or acquitting the defendant, because that is simply how our judicial system is designed to work.
Id. at 101 (emphasis added). If the jury is unaware of the severity of a sentence, as in a case such as the present one where guilt hangs on sanity with a possibly mentally disturbed defendant, they become no more than menial factfinders rather than spokespersons for the community, as Gilliam and the Sixth Amendment establish they must be.
3. In Instant Case, Informing the Jury of the Applicable Penalty Was Necessary Because of the Defendant's Unusual Background and the Unknown Punishment
It must be emphasized that not all juries need to be, or should be, informed of applicable sentences. The discretion of the trial court will be exercised responsibly in a limited number of cases in accordance with Colonial and British practice described in Part IV.A, supra. The case at bar is not typical, but one in which it was critical that the jurors "be aware of the moral consequences of their decisions." United States v. Pabon-Cruz, 255 F. Supp. 2d 200, 214 (S.D.N.Y.2003). Such awareness is required, as the Pabon-Cruz trial court noted, in the special circumstances,
Where .... the average juror might well not remotely imagine that advertising child pornography not only carries a harsher penalty than actually delivering it, but that the penalty is a mandatory ten years in prison, even for a defendant who is little more than a child himself.
Id. Here the special circumstances include the mandatory minimum sentence unknown to the jury, the need for psychiatric help in view of sexual childhood abuse, the locked door behind which viewing took place, and other factors.
E. Variability of Results Depending Upon Informed & Non-Informed Jurors
Perhaps the most prejudicial aspect of a failure to be candid with the jury on the effect of its decision in a case such as the present one, is that some juries may have a juror who knows the sentencing implications *205 and will accurately inform his or her co-jurors in discussions, others will have no such informed person, and still others will have an ill-informed person with influence on the decision. This kind of exchange undoubtedly occurs frequently in juror deliberations, but is almost impossible to detect or even to investigate. See Fed.R.Evid. 606(b).
Disparate impact caused by different levels of juror knowledge can lead to serious equal protection and due process issues. See generally Milton Heumann & Lance Cassak, Not-So Blissful Ignorance: Informing Jurors About Punishment in Mandatory Sentencing Cases, 20 Am. Crim. L.Rev. 343 (1983); Katherine M. Sullivan & Gerald Gunther, Constitutional Law 467 ff. (15th ed.2004) (discussing the origins of the due process clause as incorporating federal rights against the states). The excellent field work and analysis of Heumann and Cassak as well as the reaction of the jurors in the instant case demonstrates that the due process and equal protection dangers both to defendants and the judicial system of silence by the court in a case such as the present one are substantial. Lack of candor and transparency here, as in so many other aspects of our democracy, creates an unnecessary hazard to justice.
The problem of the misinformed juror is reflected in the trial judge's opinion in United States v. Buck, 23 F. Supp. 503 (W.D.Mo.1938), explaining why it was necessary to inform the jury of sentencing ranges because of the special situation in that case.
In the joint motion of all of the defendants criticism is expressed of the reference in the charge of the court to the fact that in the event any defendant was found guilty by the jury he would receive neither the maximum nor the minimum punishment provided by the statute. It is scarcely necessary, however, to refer to that matter. The very first argument to the jury by any of the attorneys for the defendants, being the argument by Mr. Swanson, began with the reading to the jury of the statute, including that part of the statute setting out the maximum punishment which might be imposed. Counsel then developed his argument by seeking to impress upon the jury that although the statute provided for a minimum punishment of a day in jail or a dollar fine, that no such punishment could be expected from the presiding judge in the event of a verdict of guilty. With the possible exception of counsel representing Mrs. Ryan (who say that they made no reference to the matter of punishment) every one of the six attorneys who argued for the defendants in this case dwelt on the fact that a penitentiary sentence might be imposed upon the defendants by the presiding judge. There was never in any case over which we have presided any such enlargement upon the subject of punishment possible under the statute. It is inconceivable that any one can believe that under such circumstances the presiding judge should not have referred at all to that matter in the charge. In what possible way could any defendant have been prejudiced by the fact that the jury was told that if that defendant was found guilty he would receive substantial and not a merely trifling punishment? In what possible way was any defendant prejudiced because the judge told the jury (after attorneys over and over again had referred to the maximum punishment provided in the statute) that the maximum punishment would not be imposed on any defendant?
Id. at 505.
Post-verdict polling evidence suggests that informing juries could cause them to *206 acquit more often, but that any such effect will be relatively slight and will not throw the federal courts into disarray. There are at least two reasons to conclude that informing juries of mandatory minimums will cause them to nullify in a few cases. First, polls that ask generalized questions about jury nullification sometimes show that most Americans are willing to exercise some mercy if they believe it is morally right to do so. See Leonard W. Levy, The Palladium of Justice: Origins of Trial by Jury 55 (1999). Second, some polling data suggests that while jurors are generally supportive of mandatory minimums in the abstract, when forced to analyze how the mandatory minimum statutes apply to the individual defendants before them, they become less willing to see doled out the harsh sentences required by such laws. See Brandon K. Applegate, et al., Assessing Public Support for Three-Strikes-and-You're-Out Laws: Global Views Versus Specific Attitudes, 42 Crime & Delinquency 517 (1996) (finding that when respondents are given descriptions of a crime that would require life terms under three-strikes laws, most would not sentence defendant to life term, and that most favored exceptions to three-strikes laws in many situations, despite fact that eighty-eight percent of respondents said that they wanted the state to adopt a three-strikes law).
If juries use information on mandatory minimum sentences to nullify, they are likely to do so judiciously. Notable is Heumann and Cassak's interesting study of the Michigan Felony Firearm Statute. Heumann & Cassak, supra; see Mich. Comp. Laws § 750.227b. In 1977, Michigan passed a statute, known colloquially as the "Gun Law," which required that any defendant who possessed a firearm while committing a felony receive a two-year sentence in addition to whatever sentence he otherwise would have received. Heumann & Cassak, supra, at 346. At the same time, the state launched a publicity campaignreplete with billboards and bumper stickers announcing that "one with gun gets you two"to ensure that the public was aware of the new mandatory minimum. Id. at 347 & n. 15.
Heumann and Cassak hypothesized that juries would find the mandatory minimum to be unjust in many cases, and that many Michigan juries would be aware of the law even if it was never mentioned at trial due to the widespread publicity that accompanied its enactment. See id. at 346-47. They gathered information on how frequently juries acquitted defendants in Gun Law cases before and after the law was enacted. See id. at 349-52. Their hypothesis of increased nullification was not strongly supported by the data. See id. Prior to 1977, eight of the eleven felonious assault cases that went to the jury resulted in acquittals. Id. at 352 n. 27. After 1977, thirty-two of the forty-three cases that went to juries resulted in acquittals. Id. In percentage terms, 72.7% of the cases resulted in acquittals before the Gun Law, while after the Gun Law 74.7% resulted in acquittals. Id. This increase is not statistically significant.
But Heumann and Cassak argued that despite this insignificant change in the acquittal rate, the Gun Law did cause some increase in nullification: they noted that their interviews with prosecutors, judges, and defense attorneys suggested that the strict Gun Law sentence caused juries to nullify. Id. They also pointed out that even if the acquittal rate did not increase significantly, juries did acquit more defendants, in absolute terms, after the passage of the law than before. Whatever one makes of these arguments, Michigan post-Gun Law juries which were likely to have been aware of the mandatory minimum did not substantially increase nullification. *207 There is no reason to suspect that informing juries of mandatory minimums in the small number of cases where the defendant requests such a charge, and the court exercises its discretion to give it, will create any crisis in law enforcement.
The Supreme Court's fears of a slippery slope expressed in Shannon in giving juries sentencing information are unwarranted:
Moreover, Shannon offers us no principled way to limit the availability of instructions detailing the consequences of a verdict to cases in which an NGI [not guilty by reason of insanity] defense is raised. Jurors may be as unfamiliar with other aspects of the criminal sentencing process as they are with NGI verdicts. But, as a general matter, jurors are not informed of mandatory minimum or maximum sentences, nor are they instructed regarding probation, parole, or the sentencing range accompanying a lesser included offense. See United States v. Thigpen, 4 F.3d 1573, 1578 ([11th Cir.] 1993) (en banc), cert, pending, No. 93-6747; United States v. Frank, 956 F.2d 872, 879 ([9th Cir.] 1991), cert, denied, 506 U.S. 932, 113 S. Ct. 363, 121 L. Ed. 2d 276 (1992). Because it is conceivable that some jurors might harbor misunderstandings with regard to these sentencing options, a district court, under Shannon's reasoning, might be obligated to give juries information regarding these possibilities as well. In short, if we pursue the logic of Shannon's position, the rule against informing jurors of the consequences of their verdicts would soon be swallowed by the exceptions.
Shannon v. United States, 512 U.S. 573, 586-87, 114 S. Ct. 2419, 129 L. Ed. 2d 459 (1994).
Our jurors are intelligent and responsible. They can understand complex legal and factual issues that are adequately explained to them with the aid of effective advocates and judges. Given the general antipathy to such criminals, there is no reason to expect that jurors will be soft on child pornographers, drug traffickers, repeat offenders, or others subject to mandatory minimums.
F. Summary: Informing Jury in Present Case
Perhaps the issue is as well summed up as it need be by quoting briefly from Professor Roscoe Pound and Judge Learned Hand. Pound referred to jury nullification as "the great corrective of law in its actual administration." Roscoe Pound, Law in Books and Law in Action, 44 Am. L.Rev. 12, 18 (1910). And Learned Hand declared that nullification introduces the necessary "slack into the enforcement of law." United States ex rel. McCann v. Adams, 126 F.2d 774, 776 (2d Cir.1942). It allows the jury to temper the law's rigor "by the mollifying influence of current ethical conventions." Id.; see, e.g., Andrew J. Parmenter, Nullifying the Jury: "The Judicial Oligarchy" Declares War on Jury Nullification, 46 Washburn L.J. 379, 426 (2007) (providing other supporting citations). See Polouizzi I, 549 F.Supp.2d at 450-54 (providing selected bibliography on powers of jurors when Sixth Amendment was adopted).
In Harry Kalven, Jr.'s and Hans Zeisel's comprehensive and still valid study, The American Jury (1966), the authors concluded that in the relatively rare cases where the jury reaches a "different conclusion from the judge on the same evidence, it does so not because it is a sloppy or inaccurate finder of the facts, but because it gives recognition to values which fall outside the official rules." Id. at 495. "It . . . will move where the equities are. And where the equities are at any given time *208 will depend on both the state of the law and the climate of public opinion." Id.; see also, e.g., Valerie P. Hans, Judges, Juries, and Scientific Evidence, 16 J.L. & Pol'y 19, 23 (2007) ("[M]any disagreements [between judges and juries] are explained by the fact that compared to judges, juries appear to require a stronger case by the prosecution to convict the defendant; or by the fact that juries infuse community notions of justice into their verdicts." (citing, inter alia, Kalven and Zeisel, supra)).
The experience of trial judges is that the jury is among our most conservative institutions. When in doubt we should trust its judgment, as did those who adopted the Sixth Amendment.
G. Special Circumstances
The Supreme Court has recognized that the jury has a significant role in determining punishment. See United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005); Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004); Apprendi v. New Jersey, 530 U.S. 466, 120 S. Ct. 2348, 147 L. Ed. 2d 435 (2000). The Court of Appeals for the Second Circuit has conceded the appropriateness of instructing the jury about punishment in some cases. See Polouizzi II, 564 F.3d at 159. Courts recognize the limits of their new rulings to the special situation before them. As one commentator put it, in "predicting the administrative feasibility of a proposed remedy" on instructing the jury, the courts must move gingerly, limiting themselves to special situationsas this court now does in the present case. Note, Judicial Intervention and Organization Theory: Changing Bureaucratic Behavior and Policy, 89 Yale L.J. 513 (1980).
In those decisions reducing the constitutional role of the jury and arrogating to courts themselves greater control of jurors than the Constitution permits, modern federal judges have assigned the ugly name "nullification" to the jury's exercise of discretiona word having negative connotations dating back to some juries' post-Civil War harsh treatment of minorities. A more apt word for modern juries' exercise of their constitutional power to soften the application of overly harsh laws in specific cases would be "rectification." Exercise of this corrective power relies on the jury's historic role, going back to Colonial times, of bringing the law as applied into better accord with current community human considerations.
The argument that the jury will abuse its rectification powers, as it has in some instances in the past to enforce racist local social prejudice, is no longer persuasive in our more tolerant America. Unjustified verdicts of conviction based upon racism can and should be set aside by the court. The fact that a few juries may refuse to convict for racist or other disreputable reasons does not justify denying the jury its historic constitutional role in exercising clemency in appropriate cases. This slippery slope argument is not, in any event, persuasive in the Eastern District of New York where our heterogeneous juries discharge their duties without prejudice.
Federal judges who deal with these cases and diverse defendants are increasingly disenchanted with strict and unnecessarily punitive minimum sentencing requirements in child pornography cases that treat with the same harshness those requiring control and medical help outside of prison and those requiring long incarcerations to incapacitate. See, e.g., Amir Ffrati, Judges Trim Jail Time for Child Porn, Wall St. J., Jan. 20, 2010, available at http://online.wsj.com; Alan Gomez, Judges Seek Flexibility in Child Porn Cases, USA Today, Dec. 23, 2009, at A3; United States Sentencing Commission, *209 The History of Child Pornography Guidelines 8, n. 33 (2009); cf. America's Unjust Sex Laws; Illiberal Politics, Economist, Aug. 6, 2009; Judge James Gwin, Juror Sentiment on Just Punishment: Do the Federal Sentencing Guidelines Reflect Community Values? 4 Harv. Law & Pol. Rev. (forthcoming 2010) (summarizing actual jurors' views; they would have imposed incarcerative punishments in criminal cases generally only some 20% as long as those likely to be imposed under the Guidelines. This view reflects the same dynamics as the increased flexibility in Guideline Sentencing ultimately approved by the Supreme Court following strong judicial opposition to the harsh rigidity originally required. See, e.g., Gall v. United States, 552 U.S. 38, 128 S. Ct. 586, 169 L. Ed. 2d 445 (2007), United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005), Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004), Apprendi v. New Jersey, 530 U.S. 466, 120 S. Ct. 2348, 147 L. Ed. 2d 435 (2000). Compare too, the reduction of death sentences in response to increased opposition, through its elimination in the states, refusals of prosecutors to seek its imposition, opposition of judges, and denial by juries, based upon community sentiment. See, e.g., John Swartz, "Death Sentences Dropped, but Executions Rose in 09," N.Y. Times, Dec. 17, 2009, at A22. Judges as well as juries are not immune to the views and influence of an informed community.
Each Article III judge is granted the responsibility to interpret the Constitution as he or she understands it. History confirmswhat the Supreme Court has now held of sentencing generallythat the jury's power to ameliorate the harshness of the law is built into our system of justice. The Sixth Amendment's right to a jury trial was designed to confirm the opportunity and power of the community (speaking through its cross-section of the petty jury) to forgive, condone or mediate punishment under special circumstances warranting that grace.
V. Conclusion
Following the Court of Appeals' conclusion in Polouzzi II, that "the mere fact that jurors advised of the harsh sentencing law might have voted to acquit in an effort to nullify its application did not furnish adequate justification for vacating the jury's verdict and ordering a new trial," 564 F.3d at 163, this court specifically refuses to grant a new trial on that ground.
For the reasons stated above, see Part III.C, supra, it grants a new trial on all counts. Rejected is the government's contention, see Govt.'s Letter, July 27, 2009, that this result is precluded by the terms of the remand. If the case had been remanded solely for resentencing, the Court of Appeals panel would have stated in terms or substance: "with instructions to resentence the defendant." Instead, it stated: "[W]e VACATE the April 9, 2008 order granting defendant's motion for a new trial and REMAND this case . . . for further proceedings consistent with this opinion." Polouizzi II, 564 F.3d at 163 (emphasis added).
In accordance with the mandate of the Court of Appeals: the judgment of conviction is vacated and the jury verdict is set aside on all counts. A new trial is granted on Counts Two, Three, Six and Nine (Receipt of Child Pornography) and Fourteen (Possession of Child Pornography).
SO ORDERED.
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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/1767751/
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687 F. Supp. 601 (1988)
Ray SHIPES, Plaintiff,
v.
The HANOVER INSURANCE CO., Defendant.
Civ. A. No. 87-69-3-MAC (WDO).
United States District Court, M.D. Georgia, Macon Division.
July 1, 1988.
*602 Burton Lee, Elizabeth R. Francisco, Macon, Ga., for plaintiff.
Cubbedge Snow, III, Macon, Ga., for defendant.
ORDER
OWENS, Chief Judge.
On September 30, 1987, this court issued an order in the above-captioned case granting plaintiff's motion for partial summary judgment on the issue of the proper calculation of benefits due an injured employee pursuant to O.C.G.A. § 33-34-8(c). See Shipes v. Hanover Insurance Co., 670 F. Supp. 354 (M.D.Ga. 1987). Now pending before the court is defendant Hanover Insurance Company's motion of March 14, 1988, in which defendant Hanover moves for summary judgment on plaintiff's claims premised upon O.C.G.A. § 33-34-6(b) and (c). Those subsections, the relevant portions of which are quoted below, provide for the award of certain penalties, attorney's fees and punitive damages in the event an insurer fails or refuses to pay benefits upon proper proof of loss when such failure or refusal to pay was not in good faith.
(b) Benefits required to be paid without regard to fault shall be payable monthly as loss accrues. The benefits are overdue if not paid within 30 days after the insurer receives reasonable proof of the fact and the amount of loss sustained.... In the event the insurer fails to pay each benefit when due, the person entitled to the benefits may bring an action to recover them and the insurer must show that its failure or refusal to pay was in good faith, otherwise the insurer shall be liable for a penalty not exceeding 25 percent of the amount due and reasonable attorney's fees.
(c) In addition to all other penalties provided for in this Code section, in the event that an insurer fails or refuses to pay a person the benefits which the person is entitled to under this chapter within 60 days after proper proof of loss has been filed, the person may bring an action to recover the benefits; and, if the insurer fails to prove that its failure or refusal to pay the benefits was in good faith, the insurer shall be subject to punitive damages.
O.C.G.A. § 33-34-6(b) and (c).
Both parties adopt for the purposes of this motion the facts as reported in this court's previous order; thus, those facts need not be repeated here. See Shipes, supra. Defendant Hanover supplements those facts with the following admission: "Defendant further states that the Eleven Dollars and Twenty-three Cents ($11.23) which plaintiff claims he was underpaid weekly was not paid within the thirty-day and sixty-day periods contained in O.C.G.A. § 33-34-6." Defendant's Brief in Support of its Motion for Summary Judgment, p. 2. Defendant's admission clearly implicates O.C.G.A. § 33-34-6.
While the question of good or bad faith is generally one properly submitted to a jury, in some instances the issue is one of law for the court. Georgia Farm Bureau Mutual Insurance Company v. Matthews, 149 Ga.App. 350, 352, 254 S.E.2d 413, 415 *603 (1979).[1] In holding that the issue of good or bad faith should not have been submitted to the jury, the court explained that if there was no evidence of a frivolous or unfounded refusal to pay, or if the question of liability was a close one, the court for the furtherance of justice should not permit a verdict awarding bad faith penalties to stand. Id. at 352, 254 S.E.2d at 415. The question of the good or bad faith of an insurer is also properly determinable on motion for summary judgment. See American Interstate Insurance Company of Georgia v. Revis, 156 Ga.App. 204, 274 S.E.2d 586 (1980) (insurer's interpretation of judicial construction of statute, although erroneous, was not unreasonable, and court should have granted insurer's motion for summary judgment on issue of good faith); Insurance Company of North America v. Smith, 183 Ga.App. 266, 358 S.E.2d 658 (1987) (correct proposition of law is that an insurer has no liability for bad faith penalties if it can be said as a matter of law that insurer had a reasonable defense to denial of benefits); Whitlock v. United States Fidelity & Guaranty Co., 579 F. Supp. 293 (N.D.Ga.1984) (court granted defendant insurer's motion for summary judgment on issue of good or bad faith finding insurer's argument, while unpersuasive, not unreasonable or frivolous); Russell v. Dairyland Ins. Co., 580 F. Supp. 726 (N.D.Ga. 1984) (court granted defendant insurer's motion for summary judgment on issue of good or bad faith finding insurer's reliance on court decisions a reasonable and probable cause for contesting liability).
"The test under [O.C.G.A. § 33-34-6(b) and (c)] is one of good faith of the insurer; the burden of proving such good faith is on the insurer." Whitlock, 579 F.Supp. at 295. In its motion for summary judgment, defendant Hanover relies upon an affidavit ascribed to by Hanover employee Emita Hyman which states that Hanover at all times "acted in good faith and relied upon [its] interpretation of O.C. G.A. § 33-34-8(c)" in determining plaintiff Shipes' benefits.[2] Affidavit of Emita Hyman attached to defendant's Motion for Summary Judgment. Attached to Ms. Hyman's affidavit were copies of the correspondence explaining Hanover's position to plaintiff's counsel.
Additionally, defendant points out that in Shipes, supra, this court was the first court to address directly the correlation of benefits under O.C.G.A. § 33-34-8. Prior to this court's order, defendant relied for its benefits determination upon Brown v. Boston Old Colony Insurance Co., 247 Ga. 287, 275 S.E.2d 651 (1981), a decision in which the Georgia Supreme Court recited in the facts the method of calculating benefits utilized by Boston Old Colony Insurance Company. That method resulted in a greater award of benefits than one mentioned in another case. See Atlanta Casualty Co. v. Sharpton, 158 Ga.App. 758, 282 S.E.2d 214 (1981). Defendant Hanover employed the method mentioned in Boston Old Colony Insurance Co., and plaintiff Shipes was timely paid the benefits as calculated by that method.
"There is no bad faith where a doubtful question of law is involved." Whitlock, 579 F.Supp. at 295, citing Brown v. Seaboard Lumber and Supply Company, 221 Ga. 35, 142 S.E.2d 842 (1965). This court finds that the proper correlation of benefits pursuant to O.C.G.A. § 33-34-8(c) was such a doubtful question of law. Defendant Hanover's position on the interpretation of that statute was neither frivolous nor unfounded; in fact, defendant relied, albeit erroneously, upon language contained in an opinion by the Georgia Supreme Court. "`Bad faith' on the part of *604 an insurance company is a `frivolous and unfounded denial of liability.'" Whitlock, 579 F.Supp. at 295, citing State Farm Mutual Insurance Company v. Harper, 125 Ga.App. 696, 188 S.E.2d 813 (1972).
Further, this court notes that the question of the proper correlation of benefits payable pursuant to O.C.G.A. § 33-34-8(c) was a question of first impression. Other cases merely recited in the facts methods of calculation previously employed. There can be no bad faith where an insurer has reasonable and probable cause for litigating a matter of first impression. See Mowery, 145 Ga.App. at 49, 51, 244 S.E.2d at 577 and 579 (that the question is one of first impression does not alone, as a matter of law, forbid the imposition of sanctions; there must be reasonable and probable cause for litigating such a question). Certain factors make clear that defendant Hanover had reasonable and probable cause to litigate the question of the proper calculation of benefits pursuant to O.C.G. A. § 33-34-8(c). First, the two cases mentioned previously, Boston Old Colony Insurance Co. and Sharpton, each included a different method of calculating the benefits in question. Litigating such a matter in hopes of receiving a determinative ruling does not constitute "bad faith." Second, defendant Hanover's selected method, though ultimately shown to be erroneous, was not in direct violation or contravention of the statute; instead, that interpretation was reasonable and based upon the language in a published opinion. See Mowery, 145 Ga.App. at 52-53, 244 S.E.2d at 578 (action taken in direct violation or contravention of statute not reasonable). Defendant Hanover's reliance upon the methods of calculation described in the facts of Boston Old Colony Insurance Co., while perhaps unwise, was not "bad faith."
In opposing this motion for summary judgment, plaintiff argued in the alternative for a continuance to permit further discovery on the issue of defendant Hanover's good faith. Plaintiff cited two cases in support of this argument: Mid-South Grizzlies v. National Football League, 720 F.2d 772 (3rd Cir.1983), and Sam Wong & Son, Inc. v. New York Mercantile Exchange, 735 F.2d 653 (2nd Cir.1984). In Mid-South Grizzlies, a complex antitrust case, the court noted that a continuance may properly be granted "[w]here Rule 56(f) affidavits have been filed, setting forth specific reasons why the moving party's affidavits in support of a motion for summary judgment cannot be responded to...." Mid-South Grizzlies, 720 F.2d at 779. Such affidavit must show a legitimate basis for non-movant's inability to present by affidavit the facts essential to justify his opposition to the motion. Id. In Sam Wong & Son, Inc., a factually complex case involving emergency actions taken by the commodities exchange in which the personal feelings and animosities of certain actors were at issue, the court stated that "summary judgment is `particularly inappropriate' where it is sought on the basis of `the inferences which the parties seek to have drawn [as to] questions of motive, intent, and subjective feelings and reactions.'" Sam Wong & Son, Inc., 735 F.2d at 678, quoting Friedman v. Meyers, 482 F.2d 435, 439 (2nd Cir.1973) (other citations omitted).
The above-cited cases are distinguishable from the case sub judice. First, the factual scenario in this case is nowhere near as complex as that found in either an antitrust or commodities exchange case. Second, plaintiff Shipes has made no allegations regarding any personal animosities which might have motivated defendant's conduct in this case. Third, unlike the cases relied upon by plaintiff Shipes, defendant Hanover in the instant case can present sound legal justifications for its conduct. Until this court's order of September 30, 1987, the proper correlation of benefits payable pursuant to O.C.G.A. § 33-34-8(c) was in doubt. A continuance in this case would delay the inevitable.
This court determines that defendant Hanover's conduct in this case was, as a matter of law, in good faith. Thus, pursuant to Rule 56 of the Federal Rules of Civil Procedure, this court hereby GRANTS defendant Hanover's motion for summary judgment on plaintiff Shipes' claims for *605 bad faith penalties, attorney's fees and punitive damages.
NOTES
[1] In Matthews, the Georgia Court of Appeals explained its prior holding in Bituminous Casualty Corp. v. Mowery, 145 Ga.App. 45, 244 S.E.2d 573 (1978), in which the court had stated that "[t]he question of good or bad faith of the insurer is for the jury." Mowery, 145 Ga.App. at 53, 244 S.E.2d at 579.
[2] This court notes plaintiff's concern regarding the credibility of Ms. Hyman's affidavit, and it has considered the cited case of Carlin Communication, Inc. v. Southern Bell Telephone and Telegraph Company, 802 F.2d 1352 (11th Cir. 1986). The letters attached to Ms. Hyman's affidavit, however, tend to support her statement regarding defendant Hanover's course of conduct.
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687 F. Supp. 946 (1988)
UNITED STATES of America, Plaintiff,
v.
225 CARTONS, MORE OR LESS, OF AN ARTICLE OF DRUG, each carton containing 12/100 capsule bottles, labeled in part:
(carton)
"* * * Sandoz Pharmaceuticals East Hanover, NJ 07936 * * *" with an area cut out showing bottle labeling described below
(bottle)
"* * * Fiorinal with Codeine No. 1 * * * Sandoz Inc. East Hanover, NJ * * *"
(insert attached to bottle)
"Fiorinal with Codeine Capsules * * *" 144 packages, more or less, of an article of drug, each package containing 12/100 capsule bottles and covered by an unlabeled, see-through, cellophane overwrap, labeled in part:
(bottle)
"* * * Fiorinal with Codeine No. 2 * * * Sandoz Inc. East Hanover, NJ * * *"
(insert attached to bottle)
"Fiorinal with Codeine Capsules * * *" 4,780 blister packs, more or less, of an article of drug, each blister pack containing 20 capsules and one insert, labeled in part:
(blister pack)
"* * * Fiorinal with Codeine No. 2 Sample * * * Sandoz, Inc. East Hanover, N.J. 07936 * * *"
and
undetermined quantities of the articles of drug, Fiorinal with Codeine No. 1 and Fiorinal with Codeine No. 2, packaged and labeled as described above, Defendants.
Civ. A. No. 86-3877.
United States District Court, D. New Jersey.
March 8, 1988.
*947 Samuel A. Alito, Jr., U.S. Atty. by Jerome L. Merin, Asst. U.S. Atty., Deputy *948 Chief, Civ. Div., Newark, N.J., Jacqueline H. Eagle, Civ. Div., Dept. of Justice, Office of Consumer Litigation, Washington, D.C., and Eric M. Blumberg, Associate Chief Counsel for Enforcement, Food and Drug Adm'n, Rockville, Md., for plaintiff.
Shanley & Fisher by Robert A. Boutillier, Morristown, N.J., for Claimant Sandoz Pharmaceuticals Corp.; Kleinfeld, Kaplan & Becker by Peter O. Safir, Bonnie Beavers, Washington, D.C., and Sandoz Pharmaceuticals Corp. by Anne S. Davidson, East Hanover, N.J., of counsel.
OPINION
DEBEVOISE, District Judge.
I. The Proceedings
Plaintiff is the United States which instituted this action on behalf of the Food and Drug Administration (FDA). The defendants are two prescription drug products, FIORINAL WITH CODEINE NO. 1 and NO. 2 (FWC No. 1 and FWC No. 2). The claimant is Sandoz Pharmaceutical Corporation (Sandoz) which manufacturers and distributes the FWC products.
This is an in rem seizure action brought under 21 U.S.C. § 334. The complaint for forfeiture alleges that the seized FWC No. 1 and FWC No. 2 are "new drugs" within the meaning of 21 U.S.C. § 321(p) which may not, without violating 21 U.S.C. § 355(a), be introduced into interstate commerce because a new drug application (NDA) has not been approved by the FDA pursuant to 21 U.S.C. § 355(b). Further, the complaint alleges that the FWC products are misbranded within the meaning of 21 U.S.C. § 352(f)(1) because their labeling fails to bear adequate directions for use, and they are not exempt from this requirement because they are unapproved "new drugs".
After the drugs were seized by the United States Marshal pursuant to court order, Sandoz intervened and filed a claim. In its answer it admitted that the court has jurisdiction, that the seized articles are drugs located within the jurisdiction of the court and that the seized articles were manufactured from one or more components which were shipped in interstate commerce. Sandoz denied that the FWC products are "new drugs" within the meaning of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301, et seq. (the FDC Act) and that they are misbranded. Further, Sandoz defended on the ground that the case must be dismissed because the FDA did not develop an administrative record pursuant to 5 U.S.C. § 554 before it filed its complaint for forfeiture.
The FDA moved for summary judgment. It contends that to obtain judgment on the "new drug" charge it need only establish (i) that no NDA for the FWC products has been approved by the FDA (which Sandoz will admit) and (ii) that the FWC products are "new drugs". The FDA further contends that to obtain judgment on the misbranding charge it need only prove the same two facts and that the FWC products are prescription drugs (which Sandoz will admit). Thus, according to the FDA, the only contested issue is whether the FWC product is a new drug. The FDA submitted in support of its summary judgment motion exhibits and declarations of experts which, it contends, establish that there is no genuine issue of material fact and that the FWC product is indeed a new drug.
In response to FDA's motion Sandoz submitted declarations to support its contention that FWC No. 1 and FWC No. 2 are not new drugs and it moved pursuant to Fed.R.Civ.P. 56(f) for a continuance to permit discovery to oppose the motion for summary judgment.
II. The Applicable Statute and Regulations
The FDA Act establishes a system for the premarket clearance of drug products. 21 U.S.C. § 355. Under the Act as adopted in 1938, 52 Stat. 1040, no new drug could lawfully be introduced into commerce unless and until an NDA for that product had been filed with and approved by the FDA. See 21 U.S.C. § 355(a), 52 Stat. 1052. The 1938 Act defined a new drug as any product which, among other things, was not "generally recognized" by qualified experts as safe for its intended use. See § 201(p), 52 Stat. 1041.
*949 Congress adopted amendments to the FDA Act in 1962. See Drug Amendments of 1962, Pub.L. No. 87-781, 76 Stat. 780. Under the 1962 amendments manufacturers were required to show that a new drug product was effective as well as safe for its intended use. 21 U.S.C. § 355(a) and (b). A "new drug" was defined as "[a]ny drug ... the composition of which is such that such drug is not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof...." 21 U.S.C. § 321(p).
Under the 1962 amendments a manufacturer seeking approval of an NDA was required to submit "substantial evidence" of the product's safety and effectiveness. The statute defined "substantial evidence" as "evidence consisting of adequate and well-controlled investigations, including clinical investigations ... on the basis of which it could fairly and responsibly be concluded ... that the drug will have the effect it purports ... to have under the conditions of use prescribed ... in [its] labeling...." 21 U.S.C. § 355(d). Sandoz FWC products are exempt from the FDA's premarket clearance procedures only if they are "generally recognized" as safe and effective for their intended uses. 21 U.S.C. § 321(p).
The 1962 amendments required the FDA to evaluate the effectiveness of all drug products, not grandfathered, which had been placed on the market since 1938. To do this, the FDA enlisted the services of the National Academy of SciencesNational Research Council (NAS-NRC), which, after investigation, made recommendations to the FDA regarding the effectiveness of therapeutic classes of products. As the FDA reviewed the NAS-NRC recommendations, it published drug efficacy study implementation (DESI) notices in the Federal Register which rated products as to their effectiveness for specific labeled indications. Products that were found to be effective were still regarded as new drugs and manufacturers were required to supplement their NDAs to conform to conditions imposed by the DESI notices. In the period shortly after adoption of the 1962 amendments the FDA issued informal opinions with respect to some drug products that they found were not new drugs. However, in 1968 the FDA adopted a regulation revoking all such opinions. 21 C.F. R. § 310.100(d). Thereafter virtually all prescription drug products which had come on the market since 1938 would be regarded as a new drug requiring either a full or, in certain narrowly defined cases, an abbreviated new drug application (ANDA).
In 1976 the FDA published a Compliance Policy Guide (CPG) which established enforcement priorities for proceedings against DESI-related drugs that were being marketed without approved applications. The sixth category included unapproved combination drugs that are related to drugs which had been found effective in the DESI program.
As noted above before a product can be exempted from the statutory, new drug preclearance procedures, it must be "generally recognized" by qualified experts as safe and effective for its intended uses. 21 U.S.C. § 321(p). The "general recognition" requirement does not involve the actual safety or effectiveness of the product. Rather, it is the product's reputation in the scientific community that is relevant. Further, the experts' opinion as to general recognition must be based upon well-controlled, clinical studies which are published; the opinions of experts may not be based upon uncontrolled data or upon their own personal experiences. Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 619, 93 S. Ct. 2469, 2478, 37 L. Ed. 2d 207 (1973). The general recognition of a product's safety and effectiveness must be documented by at least the same quality and quantum of evidence that would suffice to obtain FDA's approval of the product in the first instance. Weinberger v. Bentex Pharmaceuticals, Inc., 412 U.S. 645, 652, 93 S. Ct. 2488, 2493, 37 L. Ed. 2d 235 (1973).
Certain FDA regulations are particularly pertinent to the present case. One is contained *950 in 21 C.F.R. § 314.126. It sets forth in considerable detail the essential components of an adequate and well-controlled investigation. A study must meet these criteria in order to constitute substantial evidence of a product's effectiveness. Weinberger v. Hynson, Westcott & Dunning, Inc., supra, 412 U.S. at 617-20, 93 S.Ct. at 2477-78; Cooper Laboratories, Inc. v. FDA, 501 F.2d 772 (D.C.Cir.1974).
Another particularly pertinent regulation is set forth in 21 C.F.R. § 300.50 and provides in part:
(a) Two or more drugs may be combined in a single dosage form when each component makes a contribution to the claimed effects and the dosage of each component (amount, frequency, duration) is such that the combination is safe and effective for a significant patient population requiring such concurrent therapy as defined in the labeling for the drug.
These, then, are the statutory and regulatory provisions which must be applied in determining the critical factual issue in the case, namely, whether FWC No. 1 and FWC No. 2 are generally recognized on the basis of well-controlled, published clinical studies to be safe and effective for their intended use.
III. The FWC Products
Fiorinal is an analgesic marketed by Sandoz. Originally it contained the peripheral analgesic aspirin (200 mg), phenacetin (130 mg), the analgesic adjuvant caffeine (40 mg) and the barbituate butalbital (50 mg). In 1983 pursuant to an FDA directive pertaining to products containing phenacetin, the phenacetin was removed and the quantity of aspirin was increased to 325 mg.
The FWC product consists of the Fiorinal ingredients plus varying amounts of codeine. FWC No. 1 contains 7.5 mg codeine; FWC No. 2 contains 15 mg codeine; FWC No. 3 (which is not a subject of seizure in the present case) contains 30 mg codeine. When phenacetin was removed from Fiorinal it was also removed from the FWC products. FWC is a widely prescribed combination product useful for severe tension headaches, post-surgical pain, and other forms of pain.
In 1962 Sandoz received from the FDA an informal written opinion that the FWC products were not new drugs. In July 1963 Sandoz began marketing FWC. In 1968 the FDA revoked all its informal opinions. 21 C.F.R. § 310.100(d).
In response to a 1973 DESI notice Sandoz submitted data to support its NDA for Fiorinal, but did not submit any data for its FWC products. On November 15, 1977, in response to this submission, the FDA published a DESI follow-up notice which stated that Fiorinal "has been evaluated as effective for ... tension ... headache" and that "[s]uch drugs are regarded as new drugs (21 U.S.C. § 321(p)."
In 1977 and 1978 Sandoz filed ANDAs with the FDA for its FWC products, the difference between an abbreviated and full NDA being that the abbreviated application need not contain full reports of clinical studies to prove the product's safety and effectiveness. 21 C.F.R. § 314.55(a). On both occasions the FDA rejected the applications because it had not made a specific finding that such short-form applications were appropriate for the FWC products and because the approved products, plain Fiorinal and Trigesic with Codeine, upon which Sandoz sought to "piggy back" its ANDA applications for the FWC products, contained different ingredients from the FWC products. FWC contains codeine; Fiorinal does not. FWC contains butalbital; Trigesic with Codeine does not.
Sandoz did not appeal these decisions but in 1978 filed a Notice of Claimed Investigational Exemption for a New Drug (IND). The IND has been maintained since that date.
In March 1978 FDA officials informed Sandoz that the FWC products were new drugs, requiring a full NDA. Sandoz was also informed, among other things, of the studies that would be required for approval of an NDA and that FWC No. 1 containing 7.5 mg codeine would probably not show effectiveness.
A June 24, 1980 FDA DESI order stated that no evidence had been presented to show that two products containing butalbital, *951 acetaminophen and other analgesics were effective. On November 15, 1984 FDA sent Sandoz a Regulatory Letter reminding it that the FWC products were regarded as new drugs, that the FWC products were identical, similar or related to the barbiturate-analgesic combination drug product found to lack substantial evidence of effectiveness in the June 24, 1980 DESI order, and that continued marketing of the FWC products without an approved NDA would violate 21 U.S.A. § 355.
By letters dated December 5, 1984 and January 11, 1985, Sandoz responded to the November 15, 1984 regulatory letter and asked that the agency not take immediate regulatory action against FWC and further requested that the FDA allow FWC products to remain on the market pending review and approval of a soon-to-be submitted NDA. On February 1, 1985 Sandoz submitted an NDA for the FWC products.
On February 20, 1985 Sandoz submitted a third request that the FDA accept an ANDA for the FWC products, stating among other things that "Fiorinal with Codeine is identical to ... Fiorinal with the exception of a single active ingredient, codeine phosphate, ... the ingredients of Fiorinal with Codeine are in the same therapeutic class as the ingredients in Fiorinal, [and] there are ample data to establish that the addition of codeine to ... Fiorinal can be expected to have the same effect as Fiorinal."
On April 16, 1985 the FDA advised Sandoz that a preliminary review of its NDA for the FWC products indicated that the application was not approvable.
On April 26, 1985 Sandoz wrote the FDA and advised that it was taking the position that the FWC products were not new drugs. It cited a long history of safe and effective use and referred to "an extensive series of clinical investigations which have given rise to a general recognition of the safety and effectiveness of the product and the contribution thereto of each of its active components."
The April 26 letter was accompanied by the declarations of Dr. Donald Dalessio and Dr. Neil Raskin. Dr. Dalessio based an opinion about the safety and effectiveness of FWC products upon his experience in prescribing the drug for a 15 year period and upon published and unpublished material which Sandoz provided him. He referred specifically to the published studies of MacDonald and Ehrenreich and of Madore and Chiricosta and to a Sandoz multicenter study which had been submitted to the FDA in support of Sandoz' NDA.
On May 16, 1985 Sandoz submitted to the FDA the declaration of Dr. Arnold P. Friedman attesting to the general recognition of the safety and effectiveness of FWC products. None of the three declarations which Sandoz submitted differentiated between the three FWC formulations.
On October 3, 1986 the complaint in this action was filed and on January 12, 1987 the United States Marshal seized the FWC products.
IV. The Published Clinical Studies
The critical issue in this case is whether Sandoz' FWC products are generally recognized among qualified experts as safe and effective. Safety does not appear to be a contested issue, and thus the present inquiry is confined to the FWC products' effectiveness and to the effectiveness of each of their constituent drugs. The opinions of the experts as to general recognition must be based upon well-controlled clinical studies which are published. The parties in this proceeding refer to six such studies in support of and in opposition to the motion for summary judgment.
A. Madore, P. and Chiricosta, A., "Analgesic Effect of Fiorinal with Codeine," Anesthesia and Analgesia, Vol. 46, No. 4 July-Aug. 1967: This study used FWC No. 3 which contained 30 mg of codeine. The FWC No. 3 formulation differed from that which is presently marketed in that it contained 130 mg phenacetin and 200 mg aspirin. Today's FWC No. 3 (like today's FWC No. 1 and No. 2) contains no phenacetin and 325 mg aspirin.
In the Madore and Chiricosta study 41 patients who had undergone various types of operations and complained of acute pain episodes were given, in double-blind, single *952 dose, random-sequence fashion, one of three treatments: (a) placebo, (b) one capsule FWC No. 3, or (c) two capsules FWC No. 3. Thereafter, at hourly intervals and for 6 hours each patient's pain relief was evaluated. The authors concluded that both quantities of active drugs were superior to placebo at hours 2 through 4, and that two capsules of FWC No. 3 were superior to one capsule of the same product only at the first hour.
B. MacDonald, C. and Ehrenreich, K.A., "A Double-Blind Comparison of Two Analgesics with Placebo Control," Canadian Med. Assoc. J. 95:1072-75, Nov. 19, 1966: This study compared two codeine combination analgesics prescribed in the 1960s. One was FWC No. 2 as then formulated which contained butalbital (50 mg), phenacetin (130 mg), caffeine (40 mg), aspirin (200 mg) and codeine (16 mg). The other product, APC with Codeine, contained all of those ingredients except butalbital. One purpose of the study was to assess the contribution of butalbital.
In this study pain relief was measured in 83 post-surgical patients who reported a total of 206 episodes of severe or moderate pain. Patients estimated their level of post-operative pain just prior to treatment and their pain relief approximately one hour after treatment. Three treatments were assigned randomly to 206 severe or moderate pain episodes.
FWC No. 2 (having butalbital) provided greater pain relief than APC with Codeine (having no butalbital) in moderate and severe pain episodes and both were more effective than placebo.
C. Desjardins, P.J., Cooper, S.A., and Finizio, T., "Efficacy of Low Dose Combination Analgesics: Acetaminophen/Codeine, Aspirin/Butalbital/Caffeine/Codeine, and Placebo in Oral Surgery Pain," Anesth.Prog. 1986, May-June, 33(3):143-6: This was a double-blind, randomized, single-dose study performed to compare the efficacy and safety of two combination analgesic products to placebo. The products were Tylenol with Codeine No. 3 containing acetaminophen (300 mg) and codeine (30 mg) and FWC No. 3 containing aspirin (325 mg), butalbital (50 mg), caffeine (40 mg) and codeine (30 mg). The study showed that FWC No. 3 was significantly more effective than placebo for total pain relief, peak relief and global evaluation. FWC No. 3 was numerically superior to Tylenol with Codeine No. 3 for every measure of analgesic efficacy but the difference did not achieve statistical significance. The report stated, "[w]hether the slight improvement in analgesia is therapeutically exploitable or whether it can be attributable to a caffeine or butalbital effect cannot be answered in the present study design."
D. Forbes, J.A., Jones, K.F., Smith, W.K., and Gongloff, C.M., "Analgesic Effect of an Aspirin-codeine-butalbital-caffeine Combination and an Acetaminophen-codeine Combination in Post-operative Oral Surgery Pain," Pharmacotherapy 1986, Sept.-Oct. 6(5):240-47: This study was a randomized, double-blind, placebo-controlled comparison between current formulas FWC No. 2 and Tylenol with Codeine No. 3. The efficacy of FWC No. 2 was compared to Tylenol with Codeine No. 3 and placebo in outpatients who had moderate or severe pain after the surgical removal of impacted third molars.
The report stated, among other things:
... Although the rationale for many combinations, for example, aspirin and codeine, is readily apparent, other combinations have less surface validity. One such combination is that of aspirin 325 mg, caffeine 40 mg, codeine phosphate 15 mg with butalbital 50 mg, a barbituate. ... The butalbital constituent of this combination is presumed to decrease anxiety and act as a muscle relaxant.
MacDonald et al demonstrated the statistical superiority of an aspirin-phenacetin-caffeine-codeine-butalbital combination to the combination without butalbital in the treatment of postoperative pain. The study, however, did not attempt to measure the effect, if any, of the medications on anxiety or relaxation. Although the study was conducted double-blind and employed a concomitant placebo control group, it was unusual in that (1) patients *953 could participate more than once, (2) only one measure of effect, pain relief, was used, and (3) patients were evaluated only once, that is, at one time point, after the administration of the study medication.
The Forbes study leads to the conclusions that each medication was significantly superior to placebo for measures of analgesia and relaxation and that although the butalbital containing combination provided consistently greater analgesia, the differences between the active medications were not statistically significant. The report further stated that "[o]ne can only speculate as to the relative contribution of the constituents of these combinations since a factorial study was not conducted."
E. Friedman, A.P., et al., "Assessment of Fiorinal with Codeine in the Treatment of Tension Headache," Clinical Therapeutics, Vol. 8, No. 6, 703-21, 1986: This was a double-blind, randomized multicenter study in which 39 patients with specific symptoms of tension headache (pain, psychic tension, and muscle-stiffness) and 15 patients with any two of those symptoms were given one of four treatments: the early version of FWC No. 3 (containing phenacetin and 200 mg aspirin); the early version of plain Fiorinal (also containing phenacetin and 200 mg aspirin); codeine phosphate (30 mg); or placebo. Before taking one of these treatments and at .5, 1, 2, 3 and 4 hours following treatment patients rated six items on a four point scale. The physicians also made global evaluations of the effectiveness of treatment.
FWC No. 3 was found to be generally significantly more effective than placebo or Fiorinal alone in improving all patient-evaluated items between the second and fourth hours after administration. FWC No. 3 was also found to be generally significantly better than codeine alone with respect to pain severity, pain relief, the ability to perform daily activities and average pathology. The three variables rated by the physicians also were found to be generally reduced significantly more with FWC No. 3 than with placebo or Fiorinal alone.
F. Dar-shong Hwang, Ph.D., et al., "Fiorinal with Codeine in the Management of Tension Headache: Impact of Placebo Response," Clinical Therapeutics, Vol. 9, No. 2, 1987: This study analyzed a subset of 67 patients admitted under a protocol identical to the Friedman, et al., study. It compared the old Fiorinal (containing phenacetin and 200 mg aspirin), the old FWC No. 3 (containing phenacetin and 200 mg aspirin), codeine and placebo. The report noted that "[i]n the original analysis of the study data, no distinction was apparent between patient response to Fiorinal with Codeine and the response to the individual components, a finding that appeared to conflict with the results of a similar earlier study." The authors of the report attributed the discrepancy to a high placebo response in the later study. To adjust for this factor they identified a subset of less anxious patients with mild to moderate pain severity who, according to the authors, were least likely to respond to placebo.
Based on the data from this less anxious subset of patients the authors found that FWC No. 3 was significantly better than placebo in improving patients' self-ratings of various symptoms of tension headache at 0.5, 1, 2, 3, and 4 hours after ingestion of the study medication and that FWC No. 3 was also consistently superior to Fiorinal alone and codeine alone in improving patients' self-evaluation items, and differences between FWC No. 3 and its components were generally of statistical or borderline significance during the last half of the study.
The investigators' assessments of the effect of treatment on the three principal variables in tension headache (headache pain, psychic tension, and muscle contraction of the head, neck and shoulders) at the final patient visit also showed FWC No. 3 to be significantly superior to placebo and consistently superior to Fiorinal and codeine. The superiority of FWC No. 3 over Fiorinal alone achieved borderline significance for headache pain and psychic tension.
*954 V. Summary Judgment Standards
In order to prevail on a motion for summary judgment, a moving party must establish that "there is no genuine issue as to any material fact and that [it is] entitled to a judgment as a matter of law." Fed.R. Civ.P. 56(c). The moving party has the initial burden of informing the court of the basis of its motion and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). A plaintiff opposing a summary judgment motion must set forth specific facts showing a genuine issue of material fact. "[T]he inferences to be drawn from the underlying facts ... must be viewed in the light most favorable to the party opposing the motion." Id. 106 S.Ct. at 1357. However, the Matsushita Court explained that in evaluating the evidence presented, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" 106 S.Ct. at 1356.
In addition, should it appear from the affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for summary judgment or may order a continuance to permit affidavits to be obtained or discovery taken. Fed.R.Civ.P. 56(f).
VI. The FDA's Demonstration
The FDC Act provides that no new drug may be introduced into interstate commerce unless and until the FDA has approved an application for that drug. 21 U.S.C. §§ 355(a), 331(a). Before products such as FWC No. 1 and FWC No. 2 can be exempted from the statutory new drug preclearance procedures they must be "generally recognized" by qualified experts as safe and effective for their intended uses. 21 U.S.C. § 321(p). The "general recognition" requirement does not involve the actual safety or effectiveness of the product. Rather, it is the product's reputation in the scientific community that is relevant.
An expert's opinion as to general recognition must be based upon published well-controlled clinical studies meeting the requirements of 21 C.F.R. § 314.126 and may not be based on uncontrolled data and personal experience. Further, when a product contains more than one active ingredient, the contribution of each ingredient in the product must be scientifically demonstrated.
It is FDA's contention that there are no well-controlled clinical studies on the basis of which it can be concluded that FWC No. 1 and FWC No. 2 are effective for their labeled indications and there are none which show that each ingredient of the FWC products contributes to the effectiveness of these two products. This being so, FDA urges, it is entitled to summary judgment.
To establish the absence of a factual issue, the FDA has submitted the declaration of six highly qualified experts, William Forrest, M.D., Thomas Kantor, M.D. Michael Weintraub, M.D., Michael Lockshin, M.D., Richard Black, M.D. and Raymond Dionne, D.D.S., Ph.D. The FDA asked each of them to give his opinion regarding the general recognition of the safety and effectiveness of FWC No. 1 and FWC No. 2 and whether each component of the two drugs contributes to their effectiveness. Their factual statements and opinions were generally to the same effect. They can be summarized as follows:
The doctors described the contents of the two FWC products and referred to their labels which set forth the conditions for which the products may be used. They noted their familiarity with the requirements of 21 C.F.R. § 314.126 and 21 C.F.R. § 300.50.
As the manufacturer of a combination drug product Sandoz must show that each *955 ingredient in FWC No. 1 and FWC No. 2 contributes to the claimed effects. Typical of the opinion of the six doctors is that of Dr. Forrest:
8.a. ... To establish that FWC No. 1 complies with [§ 300.50 governing combination drug products], Sandoz must show that the addition of codeine (7.5 mg.) will significantly increase the effectiveness of the combination of aspirin (325 mg.), caffeine (40 mg.), and butalbital (50 mg.) to treat mild to moderate pain as indicated in this product's label. This must be done by conducting adequate and well-controlled studies in which the effect of the combination of aspirin, caffeine, and butalbital is compared with the effect of the combination of aspirin, caffeine, codeine, and butalbital (i.e., FWC No. 1) in patients who have mild to moderate pain. The addition of 7.5 mg. codeine is justified only if there is significantly greater relief of pain in the latter group.
b. Because FWC No. 1 also contains butalbital and caffeine, Sandoz must further show that the addition of each of these ingredients, as formulated in FWC No. 1, significantly increases the effectiveness of the FWC No. 1 combination. These showings must be made by comparing the pain relief achieved with FWC No. 1 against the relief achieved with additional control groups which eliminate each of the ingredients whose effect is to be measured (e.g., to measure the contribution of butalbital, a group of patients must receive aspirin, caffeine and codeine; to measure the contribution of caffeine a group of patients must receive aspirin, codeine, and butalbital). (In my view, it is necessary to separately establish the contribution of caffeine in this product, even though there is reasonable evidence which shows that caffeine in larger doses (65 mg.) enhances the effectiveness of clinical doses of aspirin. I am not aware of any adequate and well-controlled studies which show that caffeine increases the effectiveness of aspirin when codeine and butalbital are present in the product.) The studies outlined in paragraphs 8a and 8b could be combined.
c. Because the foregoing reasoning applies with equal force to FWC No. 2, each of the showings described in paragraphs 8a and 8b above would have to be made with the FWC product which contains 15 mg. codeine phosphate.
The FDA doctors reviewed the published data which Sandoz furnished to the FDA and concluded that none of it contributes information on the safety and efficacy of FWC No. 1 and FWC No. 2 as they are presently constituted.
With respect to FWC No. 1, the experts noted that none of the studies analyzed an FWC product which contained 7.5 mg codeine phosphate. One of the studies reviewed by the FDA experts used the FWC No. 2 product which contained 15 mg codeine. The other studies reviewed by the FDA experts used FWC No. 3, a product which contained 30 mg codeine. Thus the products which were studied contained two and four times the amount of codeine contained in FWC No. 1. There is, therefore, an absence of published clinical data to show that 7.5 mg codeine will contribute to the effects claimed for FWC No. 1.
Further, the FDA's experts found that the studies which Sandoz had submitted to the FDA contained deficiencies which rendered them not well-controlled and thus incapable of supporting the claims of either FWC No. 1 or FWC No. 2. The various clinical studies submitted in connection with this proceeding are described above. The FDA doctors addressed the three of them which Sandoz had submitted to the FDA during the course of its applications before that agency. They did not address three additional studies which Sandoz submitted in opposition to the summary judgment motion.
The FDA doctors referred first to the MacDonald and Ehrenreich study which compared the old FWC No. 2 formulation (containing phenacetin and only 200 mg aspirin) with APC with Codeine in an attempt, among other things, to establish the contribution of butalbital. The FDA doctors concluded that absent published data such as dissolution and/or bioavailability studies showing that removing phenacetin *956 and increasing the aspirin did not affect the product, one cannot rely upon it as evidence that the butalbital contained in FWC No. 2 (as presently formulated) contributes to the effectiveness of the product.
The MacDonald and Ehrenreich study provides no data which would enable one to evaluate the contribution of caffeine in the product, nor was it designed to do so.
The FDA doctors noted certain defects in the MacDonald and Ehrenreich study, some of which were noted in the Forbes, et al. study upon which Sandoz relies. The study is flawed because the authors treated each episode of pain as a separate event even though the patients could have received different drugs for each episode and many patients received multiple treatments, an approach that detracts from the reliability of the findings. Further, there was only one postoperation assessment and even that assessment was not made consistently at one hour.
The Madore and Chiricosta study merely compared one capsule of the old formulation of FWC No. 3 (containing phenacetin and 200 mg aspirin) with two capsules of old formulation FWC No. 3 with placebo. The FDA doctors concluded that this study is inapplicable to FWC No. 1 and FWC No. 2 because it studies a product containing phenacetin and 125 mg less aspirin and because it studied a product having four times as much codeine as FWC No. 1 and twice as much codeine as FWC No. 2. Furthermore there is nothing in the study which would enable a person to determine how much each component in the currently marketed FWC No. 1 and FWC No. 2 product contributes to the claimed effects.
The FDA doctors also critiqued the Friedman study which compared the effects of (i) the old formulation of FWC No. 3, (ii) the old formulation of plain Fiorinal, (iii) codeine (30 mg) and (iv) placebo.
This study rated only the contribution of codeine, containing no data concerning the contribution of butalbital or caffeine. The FDA experts stated that they could not take the butalbital data from MacDonald and apply it to the Friedman study. Apart from its various deficiencies and the fact that MacDonald studied old FWC No. 2 with 15 mg codeine and Friedman studied old FWC No. 3 with 30 mg codeine, in the MacDonald study the authors measured postoperative pain which, unlike tension headache measured by Friedman, is usually not described as having a tension component.
The FDA doctors found a number of general deficiencies in Friedman insofar as it purports to be a basis for conclusions about FWC No. 1 and FWC No. 2. It examined FWC No. 3 which contains 30 mg codeine as compared to FWC No. 1's and FWC No. 2's codeine content of 7.5 mg and 15 mg, respectively. The study dealt with the old formulation of FWC No. 3 containing phenacetin and only 200 mg aspirin. The authors failed to provide data or analysis assuring that test and control groups were comparable with respect to pertinent variables such as age, sex, severity of disease or investigator effect. In any event, in view of the unusual separation of drug effects in so few patients, in the opinion of the FDA doctors there should be a replication in the same pain model.
One must conclude that the FDA has sustained its initial summary judgment burden. It has identified those portions of the record which it believes demonstrates the absence of a genuine issue of material fact. Its experts have identified what they consider to be the relevant published clinical studies. They have set forth what must be published in the way of clinical studies to establish the general recognition of FWC No. 1 and FWC No. 2 as safe and effective and what must be published to establish the contribution that each component of those products makes to their claimed effect. Finally they have made an initial showing that the requisite published clinical studies do not establish the requisite recognition of the product or contribution of its components.
The burden shifts to Sandoz to show a genuine issue of material fact.
VII. Sandoz's Showing
Sandoz asserts that there is an issue of material fact with respect to the new drug *957 issue. To support its contention that there is evidence that published well-controlled clinical studies establish that the FWC products are generally recognized by qualified experts as safe and effective for their claimed uses and that each component contributes to their effectiveness, Sandoz has submitted three studies not referred to by the FDA experts and it has submitted the declarations of eight eminent medical doctors or scientists. The additional studies are those by Hwang, et al., Desjardins, et al. and Forbes, et al. The doctors and scientists are Donald J. Dalessio, M.D., Robert B. Daroff, M.D., Arnold P. Friedman, M.D., Victor Siegel, M.D., Geroge W. Paulson, M.D., Irvin Warth, M.D., DarShong Hwang, Ph.D., and Jack Singer, M.D. In addition Harry Baird, M.D., submitted a declaration reciting the history of FDA approval of Fiorinal (which originally contained aspirin 200 mg, phenacetin 132 mg, caffeine 40 mg, and butalbital 50 mg) and of the FDA's actions with respect to Fiorinal after issuance of the 1983 order for the removal of phenacetin. Further, Sandoz submitted the declaration of Karl A. Enright, M.D., who (under the name of K.A. Ehrenreich) conducted the study with MacDonald. He described certain of the procedures which were followed and attempted to answer the criticisms of the FDA experts.
I have reviewed with care the Sandoz submissions. I conclude that Sandoz has produced evidence on the basis of which a rational trier of the facts could conclude that FWC No. 1 and FWC No. 2 are safe and effective for their intended uses and that each component contributes to the claimed benefits of the two products. However, I also conclude that even if the six studies relied upon by Sandoz are deemed to be well-controlled clinical studies, they do not establish general recognition by qualified experts that the particular drugs in this case and each of the components of those drugs are effective to produce the claimed results.
A. The Evidence of Effectiveness and Contribution: By means of the available studies, by means of many years experience using FWC products and by means of extrapolating data obtained from the studies and from other sources, Sandoz's experts were able to arrive at their opinion that FWC products are in fact safe and effective for their intended uses and that each component contributes in one way or another to that effectiveness. It is significant that although there are three FWC products, only two of which are involved in this case, Sandoz's experts give global opinions about FWC products generally. They do not, and undoubtedly cannot on the basis of available data, differentiate between the three products when discussing their overall effect or the effect of their individual components. Because of the paucity of data they have had to treat as irrelevant the amount of codeine in each dosage.
The opinions of Sandoz's experts, which like the opinions of FDA's experts, are in good measure duplicative of each other, can be summarized as follows:
A single study evaluating each ingredient of FWC would be needlessly complex and a waste of resources. There are ample data, according to Sandoz's experts, in the published literature on FWC and that may be extrapolated to FWC from other published materials, and there is sufficient clinical experience of these experts to establish that FWC is more effective than each of its components and that each component contributes to the therapeutic effect.
The combination constituting FWC is a rational one. Aspirin, a peripherally acting agent, has well-recognized analgesic properties for all types of pain. Codeine, a centrally acting narcotic, has long been combined with aspirin and other peripheral analgesics. Where used together the additive effect is often substantially greater than would be achieved by administration of a higher degree of either aspirin or codeine alone. Caffeine has been shown to enhance the analgesic properties of aspirin and other analgesics. Butalbital is a barbituate having both sedative and muscle relaxing properties which are helpful in relieving the muscle contraction component of tension headache and muscular spasms that may be associated with other types of pain. Thus there is a general theoretical *958 basis for concluding that FWC would be effective to relieve pain and that each constituent drug would contribute something to that effectiveness.
Sandoz's experts point to the six studies described above to show that these generalized conclusions find support in adequate and well-controlled clinical trials. They acknowledge, as they must, that none of these studies tested FWC No. 1 and that only two of them tested FWC No. 2. They also acknowledge, as they must, that one of the two studies involving FWC No. 2 and three of the five studies testing FWC No. 3 tested the old formulation containing phenacetin (130 mg) and only 200 mg aspirin. Further, they acknowledge, as they must, that they rely on the MacDonald study to show that butalbital makes a contribution to the product and that there is no study involving FWC showing that caffeine makes a contribution. Nevertheless, the Sandoz experts conclude that by extrapolation from these studies as well as from other published data the necessary conclusions as to effectiveness and contribution can be made.
Conceding that Madore and Chiricosta was not designed to establish the contribution of any specific ingredient, the Sandoz experts state that it demonstrates the effectiveness of FWC versus placebo. They conclude that the 1983 formulation change involving the removal of phenacetin and increasing the aspirin dosage did not alter the effectiveness of the product and thus render less persuasive the Madore and Chiricosta study. The basis for this conclusion is that the FDA freely permitted substitution of aspirin or acetaminophen for phenacetin on a mg/mg basis. For example, Fiorinal, which had been approved by the FDA, was reformulated in this matter and the FDA did not require any new clinical trials. Confirmation of this conclusion was found in the Desjardins, et al. and Forbes, et al. studies which compared the present formulation of FWC No. 3 (Desjardins) and FWC No. 2 (Forbes) with placebo (and also with Tylenol with Codeine No. 3 and codeine alone in the case of Desjardins and also with Tylenol with Codeine No. 3 in the case of Forbes).
A greater degree of extrapolation and reliance on general knowledge and clinical experience is required by these experts in order to establish the contribution of each component of FWC.
Reliance is had on the MacDonald study to show the contribution of butalbital. In the Sandoz experts' opinion although the MacDonald study involved postsurgical pain the conclusion may be extrapolated to pain associated with muscle contraction. For reasons noted above although the MacDonald study involved the old formulation of FWC No. 2, it may be extrapolated to FWC No. 2 with the new formulation and to FWC No. 1.
To establish the effectiveness of codeine the Sandoz experts rely on "numerous articles concerning the enhanced effectiveness of analgesics with codeine" (Dalessio declaration p. 11) and upon the Friedman study, thus extrapolating the results of a study of the effect of codeine in a product having the old FWC No. 3 formulation and 30 mg codeine to new formulation FWC No. 2 having 15 mg codeine and to new formulation FWC No. 1 having 7.5 mg codeine. The Sandoz experts found the Hwang, et al. study to be confirmatory of the Friedman study.
None of the studies sought to evaluate the contribution of caffeine to any form of FWC. However, Sandoz's experts concluded that the fact of its contribution can be inferred on several bases. They refer to "available data concerning both caffeine and aspirin" which "may be extrapolated to support their contribution to Fiorinal with Codeine" (Siegel declaration p. 8). They refer to the fact that Fiorinal, which contains the same amounts of aspirin, caffeine and butalbital as FWC, was approved by the FDA, and therefore it must have been established that caffeine made a contribution to the effect of Fiorinal. They suggest that the addition of codeine would not alter that effect.
Sandoz submitted an article which perhaps summarizes the "available data" concerning aspirin and caffeine to which its experts referred: Laska, E.M., et al., "Caffeine *959 as an Analgesic Adjuvant", The Journal of the American Medical Association, Vol. 251, No. 13, Apr. 6, 1984. The article surveys 30 clinical studies conducted during the past 20 years in order to assess the value of caffeine as an analgesic adjuvant. It concluded that "[b]ased on these studies and a review of the literature, it seems reasonable to conclude that the addition of caffeine, 65 mg, to an analgesic tablet taken in a two-tablet dose results in a more effective analgesic." From this Sandoz's experts arrive at the opinion that the 40 mg caffeine in FWC would combine with the aspirin and result in a more effective product.
These are all rational conclusions. If FDA were contending that FWC No. 1 and FWC No. 2 were not in fact safe and effective and that each constituent drug does not contribute to the total effect of the product, then the evidence submitted by Sandoz would be more than sufficient to create a genuine issue of fact.
However, actual safety and effectiveness and actual contribution of the components to the total effect are not the issues, e.g., Premo Pharmaceutical Laboratories, Inc. v. United States, 629 F.2d 795 (2d Cir. 1980). The issue is whether there is a lack of substantial evidence to support a finding that FWC No. 1 and FWC No. 2 are generally recognized as effective and a finding that each component of the two products contributes to their effectiveness, e.g., Weinberger v. Hynson, Westcott & Dunning, Inc., supra. Substantial evidence consists "of adequate and well-controlled investigations, including clinical investigations, by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved...." 21 U.S.C. § 355(d).
B. The Lack of Substantial Evidence: It is the FDA's position that the studies upon which Sandoz relies were not well-controlled clinical studies which meet the specific regulatory criteria. The FDA's experts pointed out what they considered to be deficiencies in the various studies. For the purposes of this opinion, however, I shall assume that they did meet the statutory and regulatory criteria. Their deficiency for the purpose of this case is that they did not adequately address the two drugs at issue and they did not adequately address the ingredients of those two drugs as used in those two drugs. The deficiencies cannot be remedied by the extensive clinical experience of Sandoz's experts who have prescribed some forms of FWC for a number of years. Nor can the deficiencies be remedied by the extensive extrapolation of data to which these experts resorted.
There is a rational bases for the requirement of 21 C.F.R. § 300.50 that in the case of a combination drug there be a showing that each active ingredient makes a contribution to the claimed effect. Most drugs are associated with some degree of risk. Further, any one component of a drug may react with or affect the safety and effectiveness of the other components of the drug. Accordingly, before two or more drugs may be combined into a single product, the manufacturer must demonstrate, by adequate and well-controlled investigations that each additional component provides a specific benefit to the patient that warrants the increased risk.
Sandoz's own evidence establishes that the clinical studies upon which it relies to establish the contribution of the components of FWC No. 1 and FWC No. 2 were not studies of either of those two drugs. Sandoz urges on a number of grounds that it should nevertheless prevail on this summary judgment motion.
Citing Weinberger v. Bentex Pharmaceuticals, Inc., 412 U.S. 645, 93 S. Ct. 2488, 37 L. Ed. 2d 235 (1973), Sandoz contends that an exception to the well-controlled clinical investigations requirement exists for certain long-used drugs such as FWC No. 1 and FWC No. 2. In Bentex the Supreme Court stated that "[i]t may ... be true" that "in some cases" general recognition "might" be made without the type of scientific data necessary to obtain approval by the FDA. 412 U.S. at 652, 93 S.Ct. at 2493. (Emphasis added). The Supreme Court did not refer to long-used drugs as being within such an exception, and subsequent case law does not disclose any specific category *960 of cases which would fall within this dictum. The long use situation has specifically been held not to fall within any exception to the well-controlled clinical investigations requirement, e.g., Upjohn Co. v. Finch, 422 F.2d 944 (6th Cir.1970) (decided before Bentex); United States v. Articles of Food and Drug ... Coli-Trol 80 Medciated, 372 F. Supp. 915 (N.D.Ga.1974) (decided after Bentex). Thus the extensive successful use of some forms of FWC by some of Sandoz's experts is not pertinent. Such use, of course, does not even purport to attest to the contribution of each FWC ingredient.
Sandoz contends that clinical studies of FWC containing phenacetin and 200 mg aspirin can be deemed to be clinical studies of FWC No. 1 and FWC No. 2 containing no phenacetin and 325 mg aspirin. Sandoz contends that inasmuch as FDA issued a Federal Register notice which required that phenacetin be removed from the old product and replaced with aspirin (or another analgesic), it must be concluded that the new and the old products will be equally efficacious. Force is given to this contention, Sandoz argues, by the fact that the FDA did not require new clinical trials of the newly formulated products.
It should be noted that the Federal Register notice was published under the authority of 21 U.S.C. § 355 governing new drugs. While the notice did not require manufacturers to conduct new clinical trials, it did require manufacturers to submit dissolution data and bioavailability data to show that the reformulation did not affect the products. 47 Fed.Reg. at 36641, col. 2.
The significance of the data which the FDA called for is noted in Dr. Lockshin's declaration:
The "new" and the "old" FWC No. 2 are simply two different products. They contain different amounts and types of active ingredients, and there is no published literature of which I am aware that establishes that these differences do not influence the effectiveness of the FWC No. 2 product. Such a showing could only be made by a direct comparison of the "new" and "old" FWC No. 2. Additionally, I am not aware of any published data which shows that the two products contain the identical inactive ingredients or were manufactured under precisely the same conditions. These factors are important because they may affect the bioequivalence of the two products (i.e., their comparative rate and extent of absorption of the active ingredients). The bioequivalence of the two FWC product [sic] can also properly be established only by direct comparison.
None of Sandoz's experts state that they have any knowledge of the inactive ingredients in the new or the old formulations and they do not mention bioequivalence. More to the point, Sandoz's experts do not refer to any well-controlled, published scientific data upon which experts can fairly conclude that each of the ingredients in the new and old formulations is bioequivalent.
Thus I conclude that studies conducted using the old formulation are not well-controlled clinical investigations of products using the new formulation and extrapolation of the data derived from them is not justified for the purpose of a "new drug" determination.
Sandoz advances a legal basis for applying clinical studies of contributions of components of FWC No. 3 (containing 30 mg codeine) to the ingredients of FWC No. 2 (containing 15 mg codeine) and FWC No. 1 (containing 7.5 mg codeine). It advances the same legal basis for applying clinical studies of contributions of components of old formulations of FWC to ingredients of products containing the new formulations. It cites United States v. An Article of Drug ... Mykocert, 345 F. Supp. 571 (N.D. Ill.1972) and United States v. Entrol-C Medicated, 513 F.2d 1127 (9th Cir.1975) for the proposition that the general recognition of a combination preparation could under certain circumstances be based upon the general recognition of its component parts, presumably as they manifested themselves in other contexts. I conclude that the proper rule and the rule that will be followed in this circuit is that the combination policy of 21 C.F.R. § 300.50 can only be met by studies of the particular drug product at *961 issue or a drug having the same active ingredients which is demonstrably its bioequivalent. Even if Mykocert and Entrol-C Medicated were applied in this case, the exception to the general rule which they announce is limited and would not extend to the extrapolations Sandoz relies upon in this case.
Having made these general observations, I will state briefly the reasons why I have concluded that Sandoz has failed to produce evidence on the basis of which it could be found that published, well-controlled clinical studies establish recognition of the contribution of the ingredients of FWC No. 1 and FWC No. 2.
Initially, there has been no study of FWC No. 1 either with respect to its overall efficacy or with respect to its components.
There has been no study of any old or new FWC formulation to determine the contribution of 40 mg caffeine. Sandoz's experts described generally the phenomenon whereby combining caffeine with aspirin increases the effectiveness of aspirin. However, they did not specify what amount of caffeine was required or refer to any data describing the effect of adding caffeine when butalbital and codeine were a part of the mixture. The 1984 Laska article described 30 studies (most of which were not published) none of which involved a product containing either butalbital or codeine. The Laska article concluded that the addition of 65 mg caffeine to an analgesic tablet taken in a two tablet dose results in a more effective analgesic. Thus there are no published, well-controlled clinical studies showing what contribution 40 mg caffeine makes or what contribution caffeine in any amount makes to FWC No. 1 and FWC No. 2.
The only published study purporting to show the contribution of butalbital is the 1966 MacDonald study using the old phenacetin-containing FWC No. 2. Apart from the various deficiencies in that study referred to by the FDA's experts and in the Forbes report submitted by Sandoz, the study was conducted on a product having a different formulation which has not been shown to be the bioequivalent of FWC No. 1 or FWC No. 2.
Even though Sandoz has submitted evidence on the basis of which one could conclude that in general codeine has pain-relieving qualities, it has not produced evidence of published, well-controlled clinical studies that codeine or the amount of codeine in FWC No. 1 (7.5 mg codeine) and FWC No. 2 (15 mg codeine) contribute to the effectiveness of the product.
The Friedman and the Hwang studies dealt with the old formulation of FWC No. 3 which contained twice as much codeine as FWC No. 2 and four times as much codeine as FWC No. 1. I am disregarding the deficiencies in those studies to which the FDA's experts referred.
The MacDonald study sought only to determine the contribution of butalbital. The Desjardins study dealt with FWC No. 3 and did not analyze the contribution of the components of the drugs studied. The Forbes study, which did deal with FWC No. 2, did not purport to assess the effectiveness of each component. None of the Sandoz experts stated that either of the lower amounts of codeine in FWC No. 1 or FWC No. 2 made a clinically and statistically significant contribution to the seized articles, nor, more important, were there any published studies showing such contribution.
I conclude therefore that Sandoz has failed to produce evidence that there exist the published, well-controlled clinical studies on the basis of which one could find that FWC No. 1 and FWC No. 2 are generally recognized by qualified experts as effective for their intended use and that each of their active ingredients contributes to their effectiveness. FWC No. 1 and FWC No. 2 are, therefore, new drugs.
The only basis for denying the FDA's motion for summary judgment would be a showing by Sandoz that discovery would be likely to produce evidence which would preclude summary judgment. Sandoz has moved for a continuance and for leave to take discovery. I have noted the subjects about which Sandoz seeks to take discovery. Responses to the requested discovery *962 could not fill the void in necessary published clinical investigations. The information sought appears to me to be irrelevant and consequently the motion for a continuance and for discovery will be denied.
VIII. The Misbranding Claim
Having found that FWC No. 1 and FWC No. 2 are new drugs, it follows that they are also misbranded within the meaning of 21 U.S.C. § 352(f)(1) and 21 C.F.R. § 201.100(c) because their labeling has not been approved by the FDA in the context of an NDA.
IX. Remand for Administrative Review
Sandoz asserts as an affirmative defense that the FDA has not made an administrative determination of FWC's new drug status on the basis of an administrative record, and thus the matter should be remanded to the FDA for a formal administrative determination. This, Sandoz asserts, would assist the court in developing a factual record.
I see no reason to remand the case. An administrative proceeding is not mandated as a prerequisite to the institution of a seizure action under 21 U.S.C. § 334(a). The record before me is complete. There is nothing to suggest that there is any relevant published material which has not been submitted by one or the other of the parties. Remand would be at odds with the purposes of seizure, Ewing v. Mytinger & Casselberry, Inc., 339 U.S. 594, 70 S. Ct. 870, 94 L. Ed. 1088 (1950); United States v. Alcon Laboratories, 636 F.2d 876 (1st Cir.), cert. denied, 451 U.S. 1017, 101 S. Ct. 3005, 69 L. Ed. 2d 388 (1981).
Therefore, Sandoz's contention that the case should be remanded to the FDA is rejected.
X. Conclusion
Sandoz's motion for a continuance and for discovery will be denied. Sandoz's contention that the matter should be remanded to the FDA for administrative proceedings is rejected.
The FDA's motion for summary judgment on the new drug and misbranding issues is granted.
In its briefs in support of its motion for summary judgment the FDA asked for injunctive relief. Formal application for an injunction has not been made and consequently I will not act upon the request. The FDA may make formal application for an injunction if it wishes to do so.
The FDA is requested to submit a form of order implementing this opinion.
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687 F. Supp. 360 (1988)
Ronald NEWSON, Plaintiff,
v.
Jimmy N. HARRISON, et al., Defendants.
No. 81-2235-TUB.
United States District Court, W.D. Tennessee, W.D.
March 4, 1988.
Ronald Newson, Nashville, Tenn., pro se.
David M. Himmelreich, Deputy Atty. Gen., State of Tenn., Nashville, Tenn., for defendants.
ORDER ON DEFENDANTS' OBJECTIONS TO MAGISTRATE'S ORDER
TURNER, District Judge.
On July 9, 1987, the plaintiff, Ronald Newson, filed a Petition for Writ of Habeas Corpus ad Testificandum wherein he requested that the Court issue a writ requiring the Tennessee Department of Corrections officials to bring certain individuals before the Court for the trial to start on August 3, 1987. The trial has since been continued to March 21, 1988 and the petition is being treated as a petition which speaks to the current trial date of March 21, 1988.
The plaintiff's claim which is to be tried is based on 42 U.S.C. § 1983[1] and has been prosecuted in forma pauperis.
The petition seeking production of witnesses was referred to the Magistrate for disposition after the defendants filed a response to the petition.
In their response, the defendants objected to the issuance of the writ with respect to certain non-inmate witnesses: the first is an ex-inmate who lives in Memphis, Tennessee, the Court's seat; the second is an attorney located in Memphis, Tennessee; and the third, a former Southern Prison Minister worker, resides in Minneapolis, Minnesota.
After studying the petition and the defendants' response, the Magistrate, with reference to the request for the issuance of writs for certain witnesses who are not prisoners, noted that writs cannot issue for such witnesses. The Magistrate, however, treated "Mr. Newson's motion as a request that process issue for these non-prisoner witnesses to be served at government expense."
*361 The Magistrate thus concluded that process should issue for Russell Blanchard, an ex-inmate living in Memphis, and Joe Brown, an attorney in Memphis. The Magistrate also denied the request with respect to the witness Michele Little whose address is given as Minneapolis, Minnesota, on the basis that process cannot issue beyond the subpoena jurisdiction of this Court in this, a civil case.
The Magistrate's ruling was entered on the docket sheet on February 9, 1988, and on February 16, 1988 the defendants objected to the Magistrate's Order insofar as it required the issuance of subpoenas for Russell Blanchard and Joe Brown, contending that there is no authority for the United States government to advance witness fees for a prisoner proceeding in forma pauperis under 42 U.S.C. § 1983. In particular, the defendants argue that 28 U.S.C. § 1915 does not authorize the District Court to order the United States to pay such fees, relying upon Johnson v. Hubbard, 698 F.2d 286, 289-90 (6th Cir.1983), cert. denied, 464 U.S. 917, 104 S. Ct. 282, 78 L. Ed. 2d 260.
Since the payment of such fees is necessary to the validity of the requested subpoenas, the question of whether or not the Court can order the United States to pay such fees is critical to a decision.
In Johnson v. Hubbard, id., the Sixth Circuit Court of Appeals reviewed a civil rights action which had been filed in forma pauperis wherein the plaintiff had submitted a letter to the court indicating that he wished to subpoena twelve witnesses but that he was unable to pay their transportation costs and other fees specified by law. The plaintiff requested that the court pay those fees for him, but was informed by the court that it had no source of money from which to pay such fees.
On the day of the hearing in the District Court in Johnson, only one of the plaintiff's witnesses appeared and the trial court dismissed the case for lack of prosecution. On appeal, the plaintiff argued that the District Court had denied him access to the court to prosecute his case and that under 28 U.S.C. § 1915, the court had an obligation to pay the witness fees. The plaintiff insisted that right of access to the courts should encompass [the payment of] witness fees to insure that he can present his case completely to the court. Johnson, id. at 289.
The Sixth Circuit held that the right of access to the courts does not extend that far, noting:
Initially, while a party under certain circumstances is granted the right of access to the courts, we do not feel that such a right requires a court to grant every party a perfect trial in all respects. Witness fees clearly fall in the category of items such as trial transcripts, depositions, and other documents, which the Constitution does not require a court, or in practical terms, the federal government, to pay for at the request of the indigent party. Johnson is not barred from access to the court simply because the court will not or cannot pay for all witnesses to appear.
Johnson v. Hubbard, 698 F.2d 286, 289 (6th Cir.1983).
Likewise, the Sixth Circuit held that 28 U.S.C. § 1915 does not require the court in a civil rights action to pay a plaintiff's reasonable witness fees when the plaintiff is declared indigent and unable to pay such costs.
The statute, while authorizing the court to waive certain court fees when a party is declared indigent, provides with respect to witnesses:
The officers of the court shall issue and serve all process, and perform all duties in such cases. Witnesses shall attend as in other cases, and the same remedies shall be available as are provided for by law in other cases.
28 U.S.C. § 1915(c).
The Sixth Circuit in Johnson noted with respect to 28 U.S.C. § 1915:
At all times, a court must carefully scrutinize legislation to follow the spirit and meaning of each congressional enactment. Nonetheless, it must remember the proper province of the judiciary is to interpret the laws, not to create them. This concept is especially important *362 where the construction involves the doctrine of sovereign immunity.
Johnson v. Hubbard, 698 F.2d 286, 290 (6th Cir.1983).
Using this careful scrutiny, the Johnson court noted that the Congress had failed to amend § 1915 to allow for the payment of witness fees at the time in 1965 when they passed 28 U.S.C. § 1825 which authorized the payment of witness fees by the marshal in certain cases. On this basis, the court concluded in Johnson that 28 U.S.C. § 1915 does not provide for the payment by the court of such witness fees. The same rationale applies to the payment of such fees by the "government."
The Eighth Circuit in a slightly different context involving the United States as a party has reached a similar result.
The plain language, statutory context and legislative history of 28 U.S.C. § 1915 convince us that the statute neither expressly nor implicitly authorizes the payment of the witness fees and expenses as ordered by the district court.
United States Marshals Service v. Means, 741 F.2d 1053, 1057 (8th Cir.1984).
The dictates of the Sixth Circuit in Johnson are compelling in this case. Therefore, the defendants' objections to the issuance of subpoenas for Russell Blanchard and Joe Brown at government expense are sustained and no process shall issue at government expense for said witnesses.
NOTES
[1] This matter originated in this Court upon the filing of a complaint under 42 U.S.C. § 1983 which, although clearly seeking appropriate relief under § 1983, also sought restoration of good time and other matters more in the nature of a writ of habeas corpus.
Through the history of this case the issues have, by various motions and orders, been narrowed considerably but no order has explicitly dismissed the claim insofar as it seeks habeas corpus relief, although the Court's original order on March 19, 1981 at least implicitly disposed of that portion of the claim.
The Court notes at any rate that the complaint in no fashion indicates or alleges an exhaustion of state remedies as required and, therefore, is insufficient insofar as the habeas corpus relief is concerned and any such claim should be and is dismissed. This is, therefore, solely a § 1983 claim.
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796 F.Supp. 674 (1992)
KEY BANK OF NEW YORK, N.A., formerly known as Key Bank of Eastern New York, N.A. and Key Bank, N.A., Plaintiff,
v.
Ramesh PATEL, Pravin Khatiwala and Paul Menell, Defendants.
No. 91-CV-1440.
United States District Court, N.D. New York.
August 18, 1992.
Cooper Erving Savage Nolan & Heller, Albany, N.Y., for plaintiff (Justin A. Heller, of counsel).
Tabner and Laudato, Albany, N.Y., for defendants (William F. Ryan, of counsel).
MEMORANDUM-DECISION AND ORDER
McCURN, Chief Judge.
Plaintiff commenced this action in New York State Supreme Court, Albany County, in November, 1991, alleging breach of a *675 guaranty agreement. Defendants removed the case to this court pursuant to 28 U.S.C. § 1441 (1988 & West Supp.1992). Jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332 (1988 & West Supp.1992). On July 7, 1992, the court heard oral argument on plaintiff's motion for summary judgment against defendant Khatiwala and defendant Khatiwala's cross-motion for summary judgment, after which the court granted plaintiff's motion and denied defendant Khatiwala's cross-motion. This memorandum is issued to explain the reasoning behind the court's decision.
I. OVERVIEW
The defendants are directors of V.I.P. Motor Lodge, Inc. ("V.I.P."). V.I.P.'s sole asset is a Howard Johnson's Motor Lodge and Restaurant in Colonie, New York. On December 18, 1987, plaintiff Key Bank extended a $250,000.00 loan to V.I.P. in consideration for a promissory note. Under its express terms, the promissory note would become immediately due without demand if V.I.P. (1) failed to make timely payments under the note, or (2) became the subject of a bankruptcy proceeding. Four days later, on December 22, 1987, defendants allegedly executed and delivered a joint and several absolute guaranty of payment on the note.
Key Bank alleges that conditions requiring immediate payment on the note have occurred, thereby triggering V.I.P.'s obligation to pay the value of the note. Specifically, Key Bank contends that V.I.P. failed to make timely payments under the note and, in August, 1990, filed a voluntary petition for bankruptcy. V.I.P., however, refused to honor its obligation to pay the total amount due on the note. Key Bank thereafter sought recourse from the defendants as guarantors, but the defendants apparently refused to honor their obligations, as well. Key Bank subsequently commenced this suit against the defendants, seeking performance on their commitment to guaranty payment due on the note. Key Bank now moves for summary judgment against defendant Khatiwala. Khatiwala cross-moves for summary judgment against Key Bank.
II. DISCUSSION
A. Merits of Key Bank's claim
Key Bank argues that summary judgment is warranted because there exists no genuine issue of material fact that Khatiwala is legally bound by the guaranty and therefore must fulfill its obligation to Key Bank in accordance with the agreement. See Phelan Aff. (6/9/92) at ¶ 4 & exh. "B" (guaranty signed by, inter alia, Khatiwala). The motion is directed against Khatiwala only, without regard to the other two guarantors/defendants, because of Key Bank's admitted inability to effectuate proper service of process upon the others. In response, Khatiwala does not contest the substance of Key Bank's claim; rather, he contends only that the court does not have personal jurisdiction over him in the first place. The court's purported lack of personal jurisdiction also provides the sole basis for Khatiwala's cross-motion for summary judgment.
Since Khatiwala presents no evidence to dispute the allegations supporting Key Bank's substantive claim (i.e. that Khatiwala is bound by the guaranty agreement), the court must assume that there exists no genuine issue of material fact as to that claim. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (burden is on party opposing summary judgment to present with evidence showing a genuine issue of material fact). Given the lack of a factual dispute as to Khatiwala's obligation under the guaranty agreement, Key Bank would be entitled to summary judgment as a matter of law but for Khatiwala's contention that the court lacks personal jurisdiction over him. See Fed. R.Civ.P. 56(b); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, 477 U.S. 242, 247-49, 106 S.Ct. 2505, *676 2509-11, 91 L.Ed.2d 202 (1986). Since Khatiwala's jurisdictional challenge presents the only obstacle to summary judgment for Key Bank, the remainder of this discussion will focus on whether Khatiwala is subject to the personal jurisdiction of this court.
B. Personal jurisdiction
As the parties are aware, Key Bank, as the plaintiff, has the burden of demonstrating the court's personal jurisdiction over Khatiwala pursuant to New York law. See Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985); Hammond v. Alpha 1 Biomedicals, Inc., No. 91-CV-1477, 1992 WL 44365 * 2-3, 1992 U.S. Dist. LEXIS 2421 * 6-7 (N.D.N.Y. Mar. 2, 1992) (McCurn, C.J.) (appeal filed). Key Bank asserts that N.Y.Civ.Prac.L. & R. ("CPLR") 302(a)(1) provides the basis for jurisdiction. That statute subjects a defendant to personal jurisdiction in New York if he or his agent "transacts any business in the state, or contracts anywhere to supply goods or services in the state." § 302(a)(1); see CutCo Indus. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986); Khatiwala contends that he neither transacted business within the state nor contracted to supply goods or services within the state, and therefore is not covered by this statute.
Generally, when a defendant asserts in a summary judgment motion that the court lacks personal jurisdiction, the court must determine whether undisputed facts exist that warrant judgment. Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied, ___ U.S. ___, 111 S.Ct. 150, 112 L.Ed.2d 116 (1990). If the defendant contests the plaintiff's factual allegations, then the court must hold a hearing at which plaintiff must prove the existence of jurisdiction by a preponderance of the evidence. Id. No such evidentiary hearing is required in the present case, however; the court has before it enough undisputed facts to determine as a matter of law that Khatiwala is subject to the personal jurisdiction of this court.
The absence of a material factual dispute is inherent in Khatiwala's concession that he entered into the guaranty agreement with New York-based Key Bank. See Khatiwala Aff. (6/20/92) at ¶ 6. By making this fatal concession, Khatiwala falls prey to the well-settled rule that "making a guarantee of payment to New York is `supply[ing] goods or services' in the state" within the meaning of CPLR 302(a)(1). Manufacturers Hanover Leasing Corp. v. Ace Drilling Co., 720 F.Supp. 48, 49 (S.D.N.Y.1989) (quoting CPLR 302(a)(1)). The rationale behind this rule is simple enough: "CPLR 302(a)(1) contemplates that jurisdiction will be exercised not only over a non-domiciliary who contracts outside of New York and actually ships goods into the state, but also over a non-domiciliary who contracts outside the state and subsequently fails to perform any part of the contract." Weinstein, et al., New York Civil Practice ¶ 302-11(a) at 3-103, quoted in Chemco Int'l Leasing, Inc. v. Meridian Eng'g, Inc., 590 F.Supp. 539, 542 (S.D.N.Y.1984).
The rule that a guaranty to make payments to a New York entity constitutes a contract to provide services in New York pursuant to CPLR 302(a)(1) is so firmly entrenched in case law that it is hardly worth elucidation. Chase Manhattan Serv. Corp. v. National Bus. Sys., Inc., 766 F.Supp. 203, 205 (S.D.N.Y.1991). The court directs counsel to the numerous published opinions which discuss this axiom. See, e.g., id.; Manufacturers Hanover Leasing Corp., 720 F.Supp. at 49; Gaines Serv. Leasing Corp. v. Ashkenazy, 635 F.Supp. 805, 807 (E.D.N.Y.1986); Chemco Int'l Leasing, Inc., 590 F.Supp. at 542; Culp and Evans v. White, 524 F.Supp. 81, 82-83 (W.D.N.Y.1981); Fashion Tanning Co. v. Shutzer Indus., Inc., 108 A.D.2d 485, 489 N.Y.S.2d 791 (3d Dep't 1985). Rather than discuss each of these cases individually, the court simply points out that many of these cases are notably similar to the present in that the defendant's *677 only contact with New York was through a guaranty that was executed outside of New York State but directed to a New York creditor. The respective courts in these cases were not swayed by the defendant's purported lack of physical contact with the state, and uniformly maintained that the guaranty relationship was in itself sufficient to subject the defendant to personal jurisdiction in New York State. See Gaines Serv. Leasing Corp., 635 F.Supp. at 806 (defendant "did not come to New York ... [but] [h]e did sign in California a guarantee of performance for each contract"); Chemco Int'l Leasing, Inc., 590 F.Supp. at 542; Culp and Evans, 524 F.Supp. at 81-82. Similarly, this court concludes that Khatiwala's lack of physical contact with this forum is inconsequential because his execution of the guaranty by itself automatically subjected him to personal jurisdiction in this court pursuant to section 302(a)(1).
The effect of Khatiwala's admitted contract to provide services within New York State, of course, is that he is subject to personal jurisdiction in New York State (and hence in this forum). Consequently, his sole basis for opposing Key Bank's motion for summary judgment is defeated.[1] Since Khatiwala has proffered no other evidence suggesting the existence of a genuine issue of material fact concerning his obligations under the guaranty, and it is clear that the guaranty requires him to pay Key Bank the amount owing under the note, Key Bank is entitled to judgment as a matter of law. Khatiwala's cross-motion for summary judgment for want of personal jurisdiction is denied.
III. CONCLUSION
Defendant Khatiwala is subject to personal jurisdiction in this court. Accordingly, his cross-motion for summary judgment for want of personal jurisdiction is denied. Key Bank's motion for summary judgment is granted.
IT IS SO ORDERED.
NOTES
[1] Since Khatiwala is subject to this court's jurisdiction due to the guaranty agreement, the court need not examine Key Bank's alternative, more tenuous basis for asserting jurisdiction against him, to wit that a V.I.P. agent transacted business within the state and thus, by operation of agency law, subjected Khatiwala to this court's jurisdiction.
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644 F.Supp. 263 (1986)
Gerardo DE ANDA, Plaintiff,
v.
MIDLAND-ROSS CORPORATION, etc., Defendant.
MIDLAND-ROSS CORPORATION, etc., Third-party plaintiff,
v.
BORSE PLASTIC PRODUCTS CORP., etc., Third-party defendant.
No. 85 C 3819.
United States District Court, N.D. Illinois, E.D.
September 22, 1986.
Michael Dockterman, Cal R. Burnton, Wildman, Harrold, Allen & Dixon, Chicago, Ill., for defendant-third party plaintiff Midland-Ross Corp.
Thomas P. Burke, Carmel Cosgrave, Eric Samore, Querrey, Harrow, Gulanick, & Kennedy, Chicago, Ill., for third party defendant Borse Plastics Corp.
MEMORANDUM AND ORDER
MORAN, District Judge.
Third-party defendant Borse Plastic Products Corp. moves to dismiss the complaint of defendant/third-party plaintiff Midland-Ross Corp. against it for contribution or indemnity. The underlying action *264 arose apparently in April 1983 when Gerardo DeAnda, an employee of Borse, was allegedly injured on the job while working on a plastic mold press machine manufactured by Midland-Ross.
Barred from suing his employer by the Illinois Workmen's Compensation Act, Ill. Rev.Stat. ch. 48 ¶ 138.1 et seq., DeAnda seeks to recover from Midland-Ross on a strict liability theory. He alleges that the press was defective and unreasonably dangerous because operators had to go under the machine to make "a continuous injection head adjustment" and both the safety gates and the warnings to operators were inadequate to prevent injury. Midland-Ross both defends against DeAnda's suit with, and rests its third-party complaint against Borse on, allegations that Borse carelessly and negligently failed to install the proper safety gates and failed to properly train and warn its employees.
What concerns us at the moment is that Midland-Ross has alleged three counts against Borse: one purportedly for contribution under Ill.Rev.Stat. ch. 70 ¶ 301 et seq., an "Act in Relation to Contribution Among Joint Tortfeasors" (Contribution Act); another for "implied contractual indemnity;" and a third simply labeled "indemnity" which attempts to rest on a distinction between alleged active negligence by Borse and Midland-Ross' own passive conduct. Borse moves to dismiss all three counts, contending that an "implied contractual indemnity" and "indemnity" are the same thing, that the Contribution Act and recent Illinois decisions have extinguished any common law indemnity which would have applied in this case, and that the remaining count fails to state a claim under the Contribution Act because it does not allege that Borse either misused the press or assumed the risk of its use.
This court initially deferred consideration of the motion in the hope that the Illinois Supreme Court's expected decision in Allison v. Shell Oil Company, Nos. 61799 and 61834, would decide the matter. DeAnda v. Midland-Ross Corp., No. 85 C 3819, minute order (N.D.Ill. June 12, 1986). That case has now been decided. Allison v. Shell Oil Co., 113 Ill.2d 26, 495 N.E.2d 496, 99 Ill.Dec. 115 (1986). While it does not control the result here as squarely as we had hoped, the opinion has cleared up enough of the confusion surrounding indemnity and contribution that this court can rule with more confidence. The complaint is dismissed, but with leave to amend the contribution count.
Discussion
1. "Downstream" Indemnity for a Products Liability Defendant
The status of indemnity in Illinois has been a puzzle since the judicial recognition of contribution among tortfeasors in Skinner v. Reed-Prentice Division, Package Machinery Co., 70 Ill.2d 1, 374 N.E.2d 437, 15 Ill.Dec. 829 (1977), cert. denied, 436 U.S. 946, 98 S.Ct. 2849, 56 L.Ed.2d 787 (1978), and the codification of that decision in the Contribution Act. See, e.g., Blommer Chocolate Co. v. Bongards Creameries, Inc., 635 F.Supp. 919, 931 (N.D.Ill. 1986); Gustman & Schreiber, Active-Passive Implied Indemnity: The Current Status of this Obsolete Doctrine, 74 Ill.Bar J. 252 (1985-86). Indemnity took shape historically as a means of mitigating the harshest effects of the rule prohibiting contribution among tortfeasors. The no-contribution rule left one defendant bearing the entire cost of a judgment regardless of the degree to which other defendants also were at fault. Courts came to avoid the worst effects of the rule by implying in law a contract to indemnify when the conduct of one party left the other at risk of tort liability. An action for indemnity would lie when the party seeking indemnity could show (1) a pre-tort relationship from which a contract to indemnify could reasonably be implied and (2) conduct which was at most passive negligence, as compared to the active negligence, or worse, of the party from which indemnity was sought. Id. at 252-253; Van Slambrouck v. Economy Baler Co., 105 Ill.2d 462, 475 N.E.2d 867, 86 Ill.Dec. 488 (1985). Indemnity, however, was not without its own unfairness. The *265 doctrine provided for shifting all of the liability or none, but nothing in between, so that a party could still be saddled with a judgment disproportionate to its fault. Gustman & Schreiber, supra, at 253; Holmes v. Sahara Coal Co., 131 Ill.App.3d 666, 475 N.E.2d 1383, 86 Ill.Dec. 816 (5th Dist.1985).
After Skinner and the Contribution Act eliminated the principal reason for indemnity, namely the no-contribution rule, a number of commentators assumed that implied indemnity's days were numbered. See Holmes, 131 Ill.App.3d at 675, 475 N.E.2d at 1389, 86 Ill.Dec. at 822. The Illinois Supreme Court in Allison largely, but not entirely, fulfilled their expectations holding that implied indemnity "is no longer a viable doctrine" in Illinois. 113 Ill.2d at 35, 495 N.E.2d at 501, 99 Ill.Dec. at 120. The stumbling block for the problem before us, however, is that Allison was not a products liability case. The Allison court pointedly declined to express an opinion on the status of implied indemnity when the claim was "premised upon an underlying action regarding a defective product." 113 Ill.2d at 27, 495 N.E.2d at 497, 99 Ill.Dec. at 116. The exception, however, probably does not include the case at bar, because this indemnity claim runs "downstream."
Indemnity claims stemming from products liability actions can be divided into "upstream" and "downstream" claims. "Upstream" indemnity refers to shifting liability to a manufacturer or previous user of the product, while indemnity "downstream" is a shift to a subsequent user or handler. See Phillips Petroleum Co. v. Norfolk & Western Railway, 96 Ill.App.3d 1093, 1097, 422 N.E.2d 138, 141, 52 Ill.Dec. 457, 460 (4th Dist.1981). Classic "upstream" claims would be those of a dealer held strictly liable who sought to recover all his liability from the manufacturer of the product, or an assembler who sought to lay the blame on the producer of a component part. See, e.g., Maxfield v. Simmons, 96 Ill.2d 81, 449 N.E.2d 110, 70 Ill.Dec. 236 (1983); Liberty Mutual Insurance Co. v. Williams Machine & Tool Co., 62 Ill.2d 77, 338 N.E.2d 857 (1975). "Downstream" is, of course, the reverse, e.g., a manufacturer shifting liability to a dealer or subsequent user. Phillips, 96 Ill.App.3d at 1097, 422 N.E.2d at 141, 52 Ill.Dec. at 460.
Because strict liability is based in part on the policy goal of distributing the economic burden of injuries to the party who has profited the most from the product and therefore can best bear the burden, shifting all the liability "upstream" through indemnity has generally been more favored than efforts to shift it all "downstream". Lowe v. Norfolk & Western Railway, 124 Ill.App.3d 80, 97, 463 N.E.2d 792, 805, 79 Ill.Dec. 238, 251 (5th Dist.1984). Cf. Ill. Rev.Stat. ch. 110 ¶ 2-621 (defendant other than manufacturer of product may be dismissed from strict liability action on certifying identity of manufacturer). Several of the pre-Allison Illinois Appellate Court decisions which held that the Contribution Act extinguished indemnity expressly made exceptions for the "upstream" claim arising from strict liability, fearing, for example, that otherwise a manufacturer could escape the liability the law would ordinarily impose through a quick settlement offer. See Lowe, 124 Ill.App.3d at 98, 463 N.E.2d at 806, 79 Ill.Dec. at 252; U.S. Home v. George W. Kennedy Construction Co., 617 F.Supp. 893 (N.D.Ill.1985), modified, 624 F.Supp. 528 (N.D.Ill.1986); Galliher v. Holloway, 130 Ill.App.3d 628, 474 N.E.2d 797, 85 Ill.Dec. 837 (5th Dist.1985); Morizzo v. Laverdure, 127 Ill.App.3d 767, 469 N.E.2d 653, 83 Ill.Dec. 46 (1st Dist.1984).
Though the Allison court did not use the phrase "upstream" when it discussed why it was not deciding the survival of indemnity in a strict liability situation, 113 Ill.2d at 35, 495 N.E.2d at 501, 99 Ill.Dec. at 120, it cited Jethroe v. Koehring Co., 603 F.Supp. 1200, 1204 (S.D.Ill.1985), which did. We strongly suspect that the Allison court had only "upstream" indemnity in mind. The instant case, of course, involves a "downstream" indemnity claim, a manufacturer seeking to shift all its potential liability to a buyer and user of its product. We think it falls within the vast majority of indemnity claims which Allison intended to eliminate.
*266 Our reading of Allison is supported by other cases which indicate that indemnity does not lie "downstream" from a strict liability action. In Robinson v. International Harvester Co., 70 Ill.2d 47, 374 N.E.2d 458, 15 Ill.Dec. 850 (1977), a case decided concurrently with Skinner, an employee injured while operating an industrial truck had sued the manufacturer of the truck on a strict liability theory. The manufacturer brought a third-party complaint for indemnity against the employer. The Supreme Court reversed the trial court's dismissal of the third-party claim, but only after recharacterizing the action as one for contribution rather than indemnity. 70 Ill.2d at 50, 374 N.E.2d at 459, 15 Ill.Dec. at 851. Accord: Stevens v. Silver Manufacturing Co., 70 Ill.2d 41, 46, 374 N.E.2d 455, 457, 15 Ill.Dec. 847, 849 (1977). The court in Heinrich v. Peabody International Corp., 139 Ill.App.3d 289, 295, 486 N.E.2d 1379, 1384, 93 Ill.Dec. 544, 549 (1st Dist. 1985), read these cases as at least expressing a preference for contribution over indemnity in the "downstream" situation.
Further, in Van Slambrouck the Illinois Supreme Court rejected the claim of the manufacturer of a paper baling machine for indemnity from the firm which owned the machine at the time a worker was injured. The court technically did not reach the question of whether a manufacturer could bring an indemnity action against a subsequent user, because it found instead that the complaint did not allege one of the basic elements of indemnity: a pre-tort relationship which could give rise to a duty to indemnify. 105 Ill.2d at 469-470, 475 N.E.2d at 870, 86 Ill.Dec. at 491. However, since the complaint did allege a manufacturer/purchaser relationship, and the Supreme Court in Maxfield, 96 Ill.2d at 86, 449 N.E.2d at 112, 70 Ill. Dec. 238, had expressly found a buyer/seller relationship to be the kind on which "upstream" indemnity could be based, the opinion strongly suggests that a manufacturer/purchaser relationship will never support indemnity "downstream." See Van Slambrouck, 105 Ill.2d at 471-473, 475 N.E.2d at 871-872, 86 Ill.Dec. at 492-493 (Simon, J. dissenting).
In short, the weight of authority indicates that Midland-Ross's counts for "implied contractual indemnity" and active/passive indemnity are not well grounded in Illinois law. Borse is of course correct in pointing out that the two counts do not represent two different legal theories of recovery. Rather, each supplies half of the elements of an indemnity action. One deals with the relationship from which a contract to indemnify purportedly could be implied, the other with the necessary distinction between the parties' conduct. Cf. Van Slambrouck, 105 Ill.2d at 469, 475 N.E.2d at 870, 86 Ill.Dec. at 491. Taking them as comprising one claim for indemnity, that action will no longer lie after the Contribution Act. Allison, especially when read in light of Robinson, Stevens and Van Slambrouck, indicates that a defendant in a strict liability action may not seek indemnity "downstream".
2. Elements of a Claim for Contribution from an Underlying Strict Liability Claim
The action which does lie "downstream", at least for causes arising after March 1st, 1978, is an action for contribution. Skinner, 70 Ill.2d at 15-16, 374 N.E.2d at 443, 15 Ill.Dec. at 835; Stevens, 70 Ill.2d at 45, 374 N.E.2d at 457, 15 Ill. Dec. at 849; Robinson, 70 Ill.2d at 50, 374 N.E.2d at 459, 15 Ill.Dec. at 851. See also Heinrich, 139 Ill.App.3d at 302, 486 N.E.2d at 1388, 93 Ill.Dec. at 553. Borse, however, contends that even Count I of Midland-Ross' complaint falls short. To have a claim for contribution arising from a strict liability action, says Borse, one must allege misuse of the product or assumption of risk.
This court agrees. Perhaps, as Midland-Ross argues, no Illinois decision has precisely spelled out such a limitation on a strictly liable defendant's claim for contribution. Nevertheless it follows from the logic of other decisions. Contribution apportions liability according to the relative *267 fault of the parties. Ill.Rev.Stat. ch. 70 ¶ 303; Doyle v. Rhodes, 101 Ill.2d 1, 17, 461 N.E.2d 382, 386, 77 Ill.Dec. 759, 763 (1984). There is tension between any system which allocates liability according to fault and the law of strict liability, since the latter imposes liability on the manufacturer of a defective product as a matter of public policy whether the manufacturer has been negligent or not. See Coney v. J.L.G. Industries, Inc., 97 Ill.2d 104, 114-115, 454 N.E.2d 197, 201, 73 Ill.Dec. 337, 341 (1983). In Coney, the Illinois Supreme Court resolved that tension by striking a balance between the policies. It concluded that a manufacturer should be able to reduce the amount of damages strictly imposed on it by law only to the extent that another party's conduct proximately caused the plaintiff's injuries. 97 Ill.2d at 117, 454 N.E.2d at 203, 73 Ill.Dec. at 343.
The question before the Coney court was whether the principles of comparative negligence, which allocates liability between a plaintiff and a defendant according to the comparative fault of each, see Alvis v. Ribar, 85 Ill.2d 1, 27, 421 N.E.2d 886, 898, 52 Ill.Dec. 23, 35 (1981), apply to a strict liability action. The court held that they do. Coney, 97 Ill.2d at 117, 454 N.E.2d at 203, 73 Ill.Dec. at 343. However, the court also held that a proper respect for the principles of strict liability means that mere carelessness on the plaintiff's part should not reduce his award. As the Coney court put it:
A consumer's unobservant, inattentive, ignorant, or awkward failure to discover or guard against a defect should not be compared as a damage-reducing factor ... [t]he consumer or user is entitled to believe that the product will do the job for which it was built.
97 Ill.2d at 119, 454 N.E.2d at 204, 73 Ill.Dec. at 344 (citation omitted.) Only affirmative conduct like misuse or assumption of risk could justify shifting a portion of the loss back on to the consumer. Id. See also Simpson v. General Motors Corp., 108 Ill.2d 146, 483 N.E.2d 1, 90 Ill.Dec. 854 (1985) (evidence of plaintiff's contributory negligence not admissible in products liability case).
Coney dealt with comparative fault between a plaintiff and a defendant, but its reasoning applies equally to a manufacturer's efforts to deflect part or all of its strict liability to a third party through contribution. First, as the Allison court noted, the action for contribution (as opposed to indemnity) rests on precisely the same theory and policy as comparative negligence, namely the desire to allocate liability according to comparative fault. Indeed, the Allison court rested its rejection of implied indemnity in large part on the difficulty of reconciling indemnity doctrines with Alvis, the decision which adopted pure comparative negligence for Illinois. Allison, 113 Ill.2d at 34, 495 N.E.2d at 501, 99 Ill.Dec. at 120.
If under comparative fault principles conduct by a plaintiff would not rise to a level which allowed a manufacturer to escape liability, then it follows that the identical conduct by a third party should not allow a manufacturer to escape liability either. Under Coney, when a third party was merely careless or negligent, a strictly liable manufacturer has no claim to contribution. Cf. Pell v. Victor J. Andrew High School, 123 Ill.App.3d 423, 462 N.E.2d 858, 78 Ill.Dec. 739 (1st Dist.1984) (school's carelessness in assembling trampoline so warnings were not visible not a damage-reducing factor in injured pupil's strict liability suit against manufacturer).
Secondly, the Contribution Act was a legislative codification of the Illinois Supreme Court's decision in Skinner, and Skinner analyzed the question of what conduct gives rise to a strict liability defendant's claim for contribution in exactly the same way that Coney analyzed the question of comparative fault between plaintiff and strict liability defendant. See Doyle, 101 Ill.2d at 16, 461 N.E.2d at 389, 77 Ill.Dec. at 766. Like Coney, the Skinner opinion speaks of a manufacturer reducing its liability only when the third party's conduct amounted to a proximate cause of the plaintiff's injuries. 70 Ill.2d at 14, 374 N.E.2d at 442, 15 Ill.Dec. at 834. Indeed, *268 the Coney court's analysis expressly relied on precisely that portion of Skinner. See Coney, 97 Ill.2d at 117, 454 N.E.2d at 203, 73 Ill.Dec. at 343. As to what conduct rises to that level, the Skinner court said:
If the manufacturer's third-party complaint alleges that the employer's misuse of the product or assumption of the risk of its use contributed to cause plaintiff's injuries, the manufacturer has stated a cause of action for contribution.
70 Ill.2d at 15, 374 N.E.2d at 443, 15 Ill. Dec. at 835. Cf. Stevens, 70 Ill.2d at 45, 374 N.E.2d at 457, 15 Ill.Dec. at 849; Robinson, 70 Ill.2d at 50, 374 N.E.2d at 459, 15 Ill.Dec. at 851 (finding that such allegations by strictly liable manufacturers state claims for contribution). We conclude that in Illinois only a showing of affirmative misuse or assumption of risk gives a strictly liable manufacturer a right to contribution.
Here, however, Midland-Ross appears to have alleged no more than carelessness on Borse's part toward any defect. The complaint states, for example, that Borse "carelessly and negligently failed to have adequate safety gates" and "carelessly and negligently failed to train its employees ... in ... the danger of crawling under the machine." Midland-Ross does not, however, allege facts which could be characterized as misuse or assumption of risk. For example, it does not claim that Borse knew that the safety gates were inadequate, knew that better safety gates were available, or knew that crawling under the machine would be dangerous. Cf. Robinson, 70 Ill.2d at 49, 374 N.E.2d at 459, 15 Ill.Dec. at 851 (allegation that employer knew that safety devices could be bought as optional equipment.)[1] By the usual principles of strict liability, without such knowledge Borse was entitled to think that the press was safe as built. The facts as alleged thus do not state a claim for contribution.
This court nevertheless would prefer to see the question of Borse's possible contributing liability decided on the merits rather than on pleading deficiencies. Cf. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 223 (1962). Given the confusion which has surrounded indemnity and contribution in Illinois law, we could well understand uncertainty about what to plead. Midland-Ross maintains in its brief that it will be able to show through discovery that Borse actually physically altered the press. Such affirmative conduct could, of course, give rise to misuse of the product or assumption of risk. We need, however, to see some inkling of this factual base in the complaint. Count 1 is dismissed, but Midland-Ross has leave to file an amended complaint with the facts that could lead to contribution.
Conclusion
Counts 2 and 3 of defendant/third-party plaintiff's third-party complaint are dismissed. Count 1 is also dismissed, but with leave to amend within 30 days.
NOTES
[1] Midland-Ross argues in its reply brief that since the Robinson court recharacterized a complaint with allegations of negligence into a claim for contribution, this court can similarly recharacterize its complaint. We think, however, that Midland-Ross is misreading Robinson. The manufacturer there pled not only negligence but wilful and wanton conduct and, crucially, had alleged facts which supported misuse and assumption of risk. 70 Ill.2d at 49-50, 374 N.E.2d at 459, 15 Ill.Dec. at 851. Midland-Ross has not. The result does not change because Midland-Ross is in federal rather than state court. Under the Federal Rules, the legal theory used in the complaint does not define the scope of the claim, but the facts do. See, e.g., Original Ballet Russe v. Ballet Theatre, Inc., 133 F.2d 187, 189 (2d Cir.1943).
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644 F.Supp. 744 (1986)
John J. CANARIO, et al., Plaintiffs,
v.
BYRNES EXPRESS & TRUCKING CO., INC., and Albert J. Byrnes, individually and as President of Byrnes Express & Trucking Co., Inc., Defendants.
No. CV 85-4209.
United States District Court, E.D. New York.
September 16, 1986.
*745 O'Connor & Mangan, Long Island City, N.Y., for plaintiffs.
Matthew J. Vetri, Brooklyn, N.Y., for defendants.
MEMORANDUM AND ORDER
WEXLER, District Judge.
Plaintiff trustees[1] commenced this action pursuant to the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"), as amended by the Multiemployer *746 Pension Plan Amendments of 1980, Pub.L. 96-364, 94 Stat. 1296 (1980) ("MPPAA"), against defendants Byrnes Express & Trucking Co., Inc. ("Express" or the "Company") and Albert J. Byrnes to collect withdrawal liability under ERISA. Plaintiffs have moved for summary judgment against both defendants, who have cross-moved for partial summary judgment in favor of Byrnes.
I.
Defendant Express was a trucking concern. Express occupied leased space in New Jersey and a facility in Brooklyn that Byrnes leased rent-free to Express. Since 1974 when Byrnes obtained the business from his mother, he was Express's President, sole shareholder, and its only management employee. Byrnes drew only a salary, took no other money from Express, and did not comingle his funds with those of the Company. Due to declining economic fortunes, Express had shown losses for several years and Byrnes loaned thousands of dollars to the Company in order to make up the deficit and avert bankruptcy. Byrnes cut back operations in an effort to keep the Company in business but Express continued to operate at a loss. Consequently, Byrnes acted to liquidate Express's assets and dissolve the Company, a process that was completed in early 1984. Express has no debts other than those arising from this lawsuit.
At the time of Express's demise, it was a party to a collective bargaining agreement with Local 816, an affiliate of the International Brotherhood of Teamsters, Chauffeurs, Warehouseman and Helpers of America. The agreement, which had been signed by Byrnes as President of Express, required the Company to make monthly contributions to Local 816's pension trust fund. Express made contributions to the trust fund until April 30, 1984, when the company finally ceased operations and was no longer obligated to make contributions.
On March 8, 1985, over a year after Byrnes dissolved Express, Joseph Matranga, Local 816's Pension Fund Manager, sent a letter to Byrnes notifying him that, as a consequence of the cessation of operations, Express had a withdrawal liability to Local 816 of $26,800.[2] Matranga also informed Byrnes that in light of Express's financial condition, Local 816's Trustees had concluded that Express was in default of its obligation pursuant to 29 U.S.C. § 1399(c)(5)(B), and the full amount was due April 1, 1985. Failure to comply would result in the commencement of a lawsuit but, pursuant to 29 U.S.C. § 1399(b)(2)(A), Express would have ninety days to seek a review of the Trustees' decision. Express neither tendered any money nor requested a review of the decision. On April 15, 1985 and again on June 15, Matranga subsequently notified Express of its delinquency, but no payments were made and Express made no attempt to either review the Trustee's decision under 29 U.S.C. § 1399(b)(2)(A) or pursue arbitration. 29 U.S.C. § 1401. This lawsuit ensued.
II.
As enacted, ERISA is divided into three subchapters, the largest of which, Subchapter III, 29 U.S.C. §§ 1301-1461, concerns plan termination insurance. Subtitle E of Subchapter III, 29 U.S.C. §§ 1381-1426, is devoted specifically to multiemployer pension plans, and the first part of Subtitle E contains provisions relating to employer withdrawals.
Not long after the passage of ERISA, Congress became concerned that the accumulated pension funds would be inadequate to satisfy vested benefits, forcing the government-owned Pension Benefits Guaranty Corporation ("PBGC") to assume any *747 excess liability. In an effort to shore-up the pension system, Congress amended ERISA in 1980 through the enactment of the MPPAA. In PBGC v. R.A. Gray & Co., 467 U.S. 717, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984), the Supreme Court outlined the history and purposes of the 1980 amendments to ERISA. "As enacted, the MPPAA requires that an employer withdrawing from a multiemployer pension plan pay a fixed and certain debt to the pension plan. This withdrawal liability is the employer's proportionate share of the plan's `unfounded vested benefits,' calculated as the difference between the present value of the vested benefits and the plan's assets." Id. § 1391(a) places the burden on the plan sponsor to determine the extent of the employer's withdrawal liability, and § 1391(b) sets forth an evaluation sequence for determining the withdrawal liability. Using a statutory formula, the plan sponsor must look to § 1391(b), (c), or (d) to compute an employer's withdrawal liability. Once a figure has been arrived at, § 1381(b)(1) then directs that this figure is to be adjusted by the sequential application of other sections of the statute, each of which have the effect of limiting an employer's withdrawal liability. The plan sponsor also has the burden of notifying the employer and demanding payment. 29 U.S.C. § 1391(b)(1). The employer may seek an informal review of the plan sponsor's decision on withdrawal liability, but must do so within ninety (90) days after receipt of notice. § 1399(b)(2)(A). The plan sponsor must respond to the employer's request for review within a reasonable time. § 1399(b)(2)(B). Any dispute between the employer and the plan sponsor concerning the existence or extent of withdrawal liability must be arbitrated before it can be litigated in federal court. § 1401(a)(1).
A. EXPRESS
In this case plaintiffs contend that the fact and amount of Express's withdrawal liability has already been determined by Local 816 and, by failing to request a review or seek arbitration, Express has waived its right to contest that determination in this Court. Defendants concede that Express did not request a review of Local 816's decision within ninety days of March 8, 1985 and never made a request for arbitration.[4] Nevertheless, they maintain that Express is permitted to contest the amount of its withdrawal liability here because, in the case of an insolvent employer, there is no explicit statutory requirement that the employer contest the withdrawal liability decision through arbitration before proceeding in federal court. Defendants buttress this contention by arguing that the clear language of ERISA and the policies favoring arbitration allow Express to bypass the statutory procedures for review and arbitration and present its claim under § 1405 for the first time in this Court. Plaintiffs' rejoinder is that this position is contrary to both the policies underlying the requirement of arbitration and settled precedent.
The Court turns first to the statute. § 1401 requires arbitration for "[a]ny dispute *748 between an employer and a plan sponsor ... concerning a determination made under sections 1381 through 1399 of this title...." 29 U.S.C. § 1401(a)(1).[5] § 1405(b), the section of ERISA that limits withdrawal liability for insolvent employers, is not within §§ 1381-99.[6] Although it appears that arbitration is not mandatory for determinations made under § 1405(b), there are other indications from that statute that Congress intended arbitration for § 1405. First, § 1381(b)(1)(D) requires plan sponsors to consider § 1405 when adjusting withdrawal liability. Therefore, it seems clear that any decision of a plan sponsor under § 1381, and any subsequent arbitration, would have considered an employer's insolvency under § 1405. Second, after a matter has gone to arbitration, the procedures under § 1401(a)(3)(A) contemplate that the arbitrator will evaluate issues of insolvency under § 1405.[7] Therefore, despite the absence of any specific statutory language requiring arbitration for § 1405, the numerous cross-references in the statute make evident that issues of insolvency under § 1405 are part of the calculus for determining withdrawal liability under § 1381 and § 1391 and, therefore, should be a subject for informal review under § 1399 and arbitration under § 1401.
Furthermore, Express's interpretation of the statutory scheme would result in cumbersome and unnecessarily protracted litigation. If, as defendants contend, an employer is not required to litigate insolvency in arbitration and could defer presenting any defense under § 1405 until the federal court proceeding was commenced, there would be no incentive to arbitrate withdrawal liability fully because any decision in arbitration would be incomplete until the court had resolved any § 1405 issues. The consequence of this interpretation is piecemeal adjudication; an arbitration hearing would both precede and follow the decision of the district court, with either party able to return to the court for a second time after the final decision of the arbitrator has been issued. It is more likely that Congress intended for an employer to present, in the arbitration context, and before proceeding to court, all claims or defenses relating to the fact and extent of withdrawal liability. Trustees of the Amalgamated Cotton Garment and Allied Industries Fund v. Baltimore Sportswear, Inc., 632 F.Supp. 641, 642 (S.D.N.Y.1986). The case of Trustees of the Amalgamated Insurance Fund v. Geltman Industries, Inc., 784 F.2d 926 (9th Cir.1986) is an example of how the Court envisions the functioning of the adjudicatory process.
The policies underlying arbitration also support this conclusion. Arbitration fulfills Congress's express preference for dispute resolution in a non-judicial forum, utilizes the arbitrator's skill and expertise *749 with matters unfamiliar to the courts, and promotes judicial economy. I.A.M. National Pension Fund Benefit Plan C v. Stockton Tri Industries, 727 F.2d 1204, 1208 (D.C.D.C.1984); Republic Industries v. Central Pennsylvania Teamsters Pension Fund, 693 F.2d 290, 294 (3d Cir.1982). Courts have held that arbitration is not a jurisdictional prerequisite to a suit under MPPAA, Dorn's Transportation, Inc. v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, 787 F.2d 897 (3d Cir.1986); Stockton Tri Industries, 727 F.2d 1204; but these are rare cases and, for a court to bypass arbitration there must be a constitutional question, an issue of statutory construction, or no need to develop a factual record. IUE AFL-CIO Pension Fund v. Barker & Williamson, 788 F.2d 118, 128-29 (3d Cir.1986); Dorn's Transportation, 787 F.2d at 903.
The facts of the instant case do not justify allowing Express to raise a § 1405 issue for the first time in this forum. Express argues that the issue of whether or not it is insolvent under § 1405(d) is an issue of statutory construction requiring the expertise of this Court. We disagree. Insolvency is defined in the statute.[8] Establishing insolvency under § 1405(d) does not require statutory interpretation or other skills beyond an arbitrator's expertise or jurisdiction. Moreover, there has not yet been a determination as to whether Express is insolvent. The need to develop the record on this issue places the matter squarely within the province of the arbitrator. In addition, the arbitrator is better equipped to apply the complex statutory formulae under § 1391 and § 1405(b). Arbitration might not necessarily have been the best forum in which to litigate § 1405 issues. Defendants could have availed themselves of other procedures to contest withdrawal liability. E.g., Barker & Williamson, 788 F.2d at 128. But from the time that Matranga informed Express on March 8, 1985 that there was withdrawal liability, until the commencement of this lawsuit, Express did nothing. It did not seek an informal review, request arbitration, or commence an action in this Court. It should not be rewarded for its inaction. Id.
Therefore, the Court concludes the withdrawal liability of Express has been established at $26,800 and by failing to seek a review under ERISA, 29 U.S.C. § 1399, 1401, Express waived its right to contest liability in this Court. Plaintiffs are therefore entitled to summary judgment against Express.
B. BYRNES
Plaintiffs also seek summary judgment against Byrnes as the President and sole owner for the withdrawal liability of his corporation. Plaintiffs' argument is two-fold. Plaintiffs argue first that under the "economic reality" theory espoused in Donovan v. Agnew, 712 F.2d 1509 (1st Cir. 1983), the broad definition of "employer" under the Fair Labor Standards Act, 29 U.S.C. § 203(d) ("FLSA"), should be applied to ERISA because the two statutes evince a similar Congressional purpose and seek to advance congruent policies. An application of the economic reality test to this case, plaintiffs suggest, will show conclusively that Byrnes was the employer because, among other things, he was Express's President, sole shareholder, lone management employee, and acted for the company in every aspect of its affairs. Plaintiffs argue second that Byrnes falls within ERISA's definition of employer. 29 U.S.C. § 1002(5). Therefore, under either *750 theory, plaintiffs maintain that Byrnes should be personally responsible for the withdrawal liability of Express.
Despite plaintiffs' arguments, the Court is persuaded by the cases that hold corporate officers and stockholders immune from a corporate employer's withdrawal liability. See Solomon v. Klein, 770 F.2d 352 (3d Cir.1985); Connors v. B.M.C. Coal Company, 634 F.Supp. 74 (D.D.C.1986); Combs v. Sun-Up Coal Co., 634 F.Supp. 13 (D.D.C.1985); Connors v. Darryll Waggle Construction, Inc., 631 F.Supp. 1188 (D.D. C.1986); Combs v. Indyk, 554 F.Supp. 573 (W.D.Pa.1982). See also Operating Engineers Pension Trust v. Reed, 726 F.2d 513 (9th Cir.1984) (individual corporate officer generally not liable for corporate pension fund obligations); Refined Sugars, Inc. v. Local 807 Labor-Management Pension Fund, 632 F.Supp. 630 (S.D.N.Y.1986). Plaintiffs' reliance on Connors v. Calvert Development Co., 622 F.Supp. 877, (D.D.C. 1985); PBGC v. Ouimet Corp., 630 F.2d 4 (1st Cir.1980); Central Pennsylvania Teamster's Pension Fund v. Service Group, Inc., 645 F.Supp. 996, 6 EBC 1491 (BNA) (E.D.Pa.1985); and Local 807 Labor-Management Pension Fund v. ABC Fast Freight Forwarding Corp., 82 CV 3356 (E.D.N.Y. March 1, 1984) is misplaced because these cases do not involve closely related corporate entities or a common control group. 29 U.S.C. § 1301(b)(1). Express, which was a party to the collective bargaining agreement was owned wholly by Byrnes, and, was neither linked to nor controlled by any other corporation. Insofar as there is no dispute that Express was Byrnes's alter ego or that he defrauded Local 816 through the corporate entity, this Court is limited to the question of whether Congress intended to hold corporate officers liable for the corporation's MPPAA withdrawal liability. We conclude that it did not.
The Court is aware that there are a line of cases originating primarily from the District of Massachusetts that would hold a corporate officer or shareholder liable for the debts of the corporation.[9] Nevertheless, this Court is persuaded, largely for the reasons stated in Combs v. Sun-Up Coal Co., Inc., 634 F.Supp. 13, that Byrnes should not be liable here. Unlike Solomon, Sun-Up Coal, B.M.C. Coal, and the other cases cited above, the lead case favoring liability, Massachusetts State Carpenters Pension Fund v. Atlantic Diving Company, 635 F.Supp. 9 (D.Mass. 1984), was a contributions case and does not involve withdrawal liability. As Judge Greene noted in Sun-Up Coal, it may be incorrect to apply the "economic reality" doctrine of the FLSA to Title IV of ERISA because withdrawal liability usually involves circumstances quite removed from a failure to pay contributions. 634 F.Supp. at 16. Second, there are strong textual arguments that the definition of employer under Title I of ERISA, 29 U.S.C. § 1002(5), should not be extended to withdrawal liability under Title IV. 634 F.Supp. at 16-17. Although "employer" is not re-defined under Title IV, the Supreme Court has held that the definitions under Title I are "not necessarily applicable to Title IV because they are limited by the introductory phrase, `For the purposes of this title.'" Nachman Corp. v. PBGC, 446 U.S. 359, 370, 100 S.Ct. 1723, 1731, 64 L.Ed.2d 354 (1980). A court must examine the legislative history to determine if the term employer, as used in Title I, was meant to apply to Title IV. A close reading of the statute and the legislative history does not indicate any intent by Congress to abrogate the normal state law immunity of corporate officers or shareholders from corporate liability. See Connors v. Darryl *751 Waggle Construction, 631 F.Supp. at 1191 (citing 1980 U.S.Code Cong. & Ad.News 2918, 2924). Because plaintiffs have not sought to pierce the corporate veil, the Court concludes that Byrnes is not liable for the withdrawal liability of Express.
III.
Plaintiffs' motion for summary judgment against defendant Express is granted. Plaintiffs' motion for summary judgment against defendant Byrnes is denied. The motion of defendant Byrnes for summary judgment is granted and the Complaint is dismissed as against him. The Clerk of the Court is directed to enter judgment on behalf of Byrnes.
The Clerk of the Court shall not enter judgment against Express at this time. Plaintiffs are directed to submit to the Court and to opposing counsel within ten (10) days a proposed form of judgment containing: (1) the amount of Express's withdrawal liability; (2) the amount of interest due; and (3) any liquidated damages. No attorneys fees. Each side to bear its own costs.
SO ORDERED.
NOTES
[1] The plaintiffs in this action are John J. Canario, Vincent Connell, Fred Acquavita, Morton Schimmel, Frank Scotto, and Benjamin Young, as Trustees of the Local 816 Labor and Management Pension Trust Fund.
[2] Byrnes has long been aware that Express faced withdrawal liability. The Court takes judicial notice of a prior lawsuit commenced by the same plaintiffs against Express, Canario v. Byrnes Express & Trucking Co., Inc., CV 84-3933 (E.D.N.Y. discontinued by stipulation on February 15, 1985 prior to the entry of a default judgment). In that case, plaintiffs also sought to collect withdrawal liability from Express after defendant corporation allegedly failed to make the required payments.
[] § 1381(b)(1) states that:
(b) For purposes of subsection (a) of this section
(1) The withdrawal liability of an employer to a plan is the amount determined under section 1391 of this title to be the allocable amount of unfunded vested benefits, adjusted
(A) first, by any de minimis reduction applicable under section 1389 of this title,
(B) next, in the case of a partial withdrawal, in accordance with section 1386 of this title,
(C) then, to the extent necessary to reflect the limitation on annual payments under section 1399(c)(1)(B) of this title, and
(D) finally, in accordance with section 1405 of this title.
[4] The instant case is therefore unlike Jaspan, et al v. Certified Industries, Inc., 645 F.Supp. 998 (E.D.N.Y.1985) (Mishler, J.) where the defendant disputed its withdrawal liability under § 1384. There the Court held that if the defendant did not arbitrate its dispute, it could not litigate in federal court because the statutory language in § 1401(a) explicitly requires that withdrawal liability must be arbitrated. Jaspan, 645 F.Supp. at 1005-06.
[5] § 1401(a)(1) states that:
(1) Any dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under section 1381 through 1399 of this title shall be resolved through arbitration.
[6] § 1405(b) states that:
(b) Unfunded vested allocable to involvent employer undergoing liquidation or dissolution; maximum amount; determinative factors.
In the case of an insolvent employer undergoing liquidation or dissolution, the unfunded vested benefits allocable to that employer shall not exceed an amount equal to the sum of
(1) 50 percent of the unfunded vested benefits allocable to the employer (determined without regard to this section), and
(2) that portion of 50 percent of the unfunded vested benefits allocable to the employer (as determined under paragraph (1)) which does not exceed the liquidation or dissolution value of the employer determined
(A) as of the commencement of liquidation or dissolution, and
(B) after reducing the liquidation value of the employer by the amount determined under paragraph (1).
[7] § 1401(a)(3)(A) states that:
(A) For the purposes of any proceeding under this section, any determination made by a plan sponsor under sections 1381 through 1399 of this title and section 1405 of this title is presumed correct unless the party contesting the determination shows by a preponderance of the evidence that the determination was unreasonable or clearly erroneous.
[8] § 1405(d) states that:
(d) Insolvency of employer; liquidation or dissolution value of employer
For purposes of this section
(1) an employer is insolvent if the liabilities of the employer, including withdrawal liability under the plan (determined without regard to subsection (b) of this section), exceed the assets of the employer (determined as of the commencement of the liquidation or dissolution), and
(2) the liquidation or dissolution value of the employer shall be determined without regard to such withdrawal liability.
Once the arbitrator has determined a corporation's assets and liabilities, it is a matter of simple arithmetic to conclude whether a corporation is insolvent under § 1405(d).
[9] United Association of Journeymen & Apprentices of the Plumbing and Pipefitting Industry, Local 276 v. Babbit & Simmons, No. 84-1537 (D.Mass. May 8, 1986) (Collings, Mag.) [Available on WESTLAW, DCTU database]; Debreceni v. Graf Brothers Leasing, Inc., No. 85-3366 (D.Mass. Apr. 2, 1986) (Mazzone, J.); Rubenstein v. Tri-State Transport, 646 F.Supp. 1, 6 EBC 2372 (BNA) (D.Mass.1984) (Skinner, J.); Massachusetts State Carpenters Pension v. Atlantic Diving Co., Inc., 635 F.Supp. 9 (D.Mass.1984) (Mazzone, J.); Alman v. Servall Mfg., 6 EBC 2031 (BNA) (D.Mass. Apr. 9, 1984) (Mazzone, J.).
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644 F.Supp. 682 (1986)
John E. SEGARS, Jr., and Gilla W. Byers, Plaintiffs,
v.
FULTON COUNTY, GEORGIA, Defendant.
Civ. A. No. C85-4426A.
United States District Court, N.D. Georgia, Atlanta Division.
September 9, 1986.
Jeffrey O. Bramlett, George W. Fryhofer, Bondurant, Mixson & Elmore, Atlanta, Ga., for plaintiffs.
Lewis C. Horne, Jr., Franklin Biggins, Dorothy W. Famb, Atlanta, Ga., for defendant.
ORDER
ROBERT H. HALL, District Judge.
Plaintiffs brought this action for declaratory and injunctive relief challenging certain Fulton County personnel regulations as applied to plaintiff Segars' candidacy for and service as mayor of Ball Ground, Georgia. Plaintiffs contend these regulations, as applied, unreasonably abridge their constitutionally protected rights of political speech and association in violation of the First and Fourteenth amendments. Currently before this court are the parties' cross-motions for summary judgment.
FACTS
On November 12, 1985, plaintiffs brought this action and moved for a temporary restraining order prohibiting defendant Fulton County from compelling plaintiff: (1) to take leave without pay from his employment with Fulton County in order to file as a candidate or to conduct his campaign; and (2) to forfeit his employment with Fulton County in order to serve as mayor of Ball Ground. The court granted the temporary restraining order on November 18, 1985, under which plaintiff Segars successfully ran for mayor of Ball Ground. Plaintiff Segars was sworn into office on January 11, 1986. He has served in that capacity while remaining in the employ of Fulton County.
On December 11, 1985, plaintiff moved for judgment on the pleadings following *683 the expiration of the court's earlier order. The court denied plaintiffs' motion on January 9, 1986. The parties indicated a willingness for the case to receive speedy adjudication by filing a Joint Stipulation of Facts as to which there is no dispute on April 15, 1986. Plaintiffs moved for summary judgment and defendant filed a cross-motion for summary judgment on April 28, 1986. In addition to the Joint Stipulation of Facts, the parties filed the affidavits of plaintiff Segars, plaintiff Byers and Solicitor General Webb for this court's consideration.[1] The court, therefore, incorporates the stipulated facts as follows, and will disclose as necessary any other undisputed facts on which the court relies.
Plaintiff John E. Segars, Jr. is a citizen of the United States and a resident of Ball Ground, Cherokee County, Georgia.
Since March 1967, Mr. Segars has been continuously employed as a law enforcement officer in the classified service of Fulton County. Mr. Segars currently holds the position of chief investigator for the Solicitor General of the State Court of Fulton County. As chief investigator, Mr. Segars has supervisory responsibility for six investigators and, in turn, is directly supervised by the State Court Solicitor General and such Assistant Solicitor Generals as the Solicitor may designate.
Gilla W. Byers is a citizen of the United States and a resident of Ball Ground, Cherokee County, Georgia. Ms. Byers is registered to vote in Ball Ground municipal elections. Ms. Byers advocated Mr. Segars' candidacy in the December 7, 1985 mayor's race and voted for him.
Ball Ground is a town of approximately 700 residents located in the northeast quadrant of Cherokee County approximately 50 miles from the Fulton County Court-house in Atlanta, Fulton County, Georgia. Ball Ground lies within the Atlanta Standard Metropolitan Statistical Area as defined by the 1980 Report of the United States Bureau of the Census.
The Ball Ground Town Charter, as modified by ordinance and practice, governs the operation of Ball Ground municipal government.
In Ball Ground municipal elections, including those held on December 7, 1985, neither ballots nor campaign literature formally identify candidates as belonging to or supported by any political party or organization. Candidates in these elections are not formally nominated by any party caucus or primary election. Under Section 14 of the Ball Ground Town Charter, any qualified citizen can stand for election to municipal office in Ball Ground by submitting a written request to the town clerk.
Mr. Segars stood as a candidate and won election as mayor of Ball Ground in the December 7, 1985 municipal election. Mr. Segars was sworn in as mayor of Ball Ground on January 11, 1986 and has since that time continuously performed his duties as mayor.
The duties of the mayor are defined in Section 5 of the Ball Ground Town Charter. These duties have been customarily performed by previous mayors on a less than forty hour a week basis. As part of his platform for election as mayor of Ball Ground, Mr. Segars pledged to improve city services. Since taking office on January 11, Mr. Segars has devoted approximately five hours per week to his mayoral duties.
Section 20 of the Ball Ground Town Charter provides authority, exercisable at the joint discretion of the mayor and city council, to pay the mayor a salary of up to $100.00 per year. Notwithstanding this express authority, Ball Ground has traditionally not paid its mayor a salary. Mr. Segars is not receiving a salary for his service as mayor.
Mayors of Ball Ground have traditionally received free city water service as a form of compensation for their duties. Mr. Segars, whose monthly city water bill averages approximately $7.50, has discontinued *684 this tradition. He has declined free city water service and still pays his city water bill.
On Saturday, January 18, 1986 and Sunday, January 19, 1986, Mr. Segars attended a workshop for newly elected officials sponsored by the University of Georgia and the Georgia Municipal Association. Ball Ground reimbursed Mr. Segars for the $75.00 registration fee he paid to attend this workshop.
The City of Ball Ground customarily reimburses its elected officials, including the mayor, for reasonable out-of-pocket expenses necessarily incurred in the performance of their official duties. Requests for reimbursement must be submitted to and approved by the Ball Ground City Council. To date, the only reimbursement Mr. Segars has asked for or received has been the $75.00 registration fee relating to his attendance at the January 18-19, 1986 workshop for newly-elected officials.
In the course of his employment as chief investigator, Mr. Segars has investigated or supervised investigations of matters outside of Fulton County, Georgia. However, during his tenure with the office of the State Court Solicitor General, Mr. Segars has not yet been called upon to investigate any matter involving the town of Ball Ground or Cherokee County.
Since he took office on January 11, 1986, Mr. Segars has received one written complaint from Solicitor Webb and no verbal complaints from Solicitor Webb regarding his performance as Fulton County employee.
Fulton County has promulgated certain regulations limiting political activities by employees in the classified service of Fulton County. These Regulations, as amended and promulgated by the Board of Commissioners of Fulton County on January 30, 1985, provide in pertinent part:
PR-1600-1 Political Activity
No employee shall use or seek to use, directly or indirectly, his official authority or influence for the purpose of interfering with or affecting the result of a political election, nomination or referendum, provided, however, that the foregoing shall not be interpreted or construed so as to abrogate or abridge the right of any such employee to express his political opinions, vote, seek elective office or otherwise participate in political undertakings in accordance with applicable law and Personnel Regulations, provided, however, that any non-elected employee (Classified or Unclassified) who runs for any public office shall be placed on LWOP under the provisions of PR-1200-11 Leave Without Pay (LWOP).
PR-1200-11 Leave Without Pay (LWOP)
(1) Upon approval by an Appointing Authority, an employee may be granted leave without pay (LWOP) for cogent reasons, not to exceed six (6) consecutive months, provided, however, that the Personnel Board may approve a one-time extension of up to an additional six (6) months, for a total absence of one (1) consecutive year, which shall constitute the maximum allowable amount of such leave. Examples of cogent reasons are illness, convalescence, emergencies, personal reasons, educational pursuits, or to run for public office, provided, however, that any non-elected employee (Classified or Unclassified) who runs for any public office shall be placed on LWOP, and provided further that if such employee is elected, he/she shall be separated from Fulton County employment effective as of the date of being sworn into such office.
* * * * * *
(3) Leave without pay (LWOP), except to run for public office, shall not be granted until after all of the employee's accumulated vacation leave has been exhausted; and if the leave without pay is due to health reasons, until all of the employee's accumulated sick leave has been exhausted. LWOP is mandatory to run for public office.
On October 4, 1985, Mr. Segars requested an interpretation from the Personnel Director for Fulton County of the Regulations *685 as applied to his plans to run for mayor of Ball Ground. Specifically, Mr. Segars requested administrative relief from the requirement that he take leave without pay during the part-time, two-week campaign and relief from the requirement that he forfeit his position with the classified service if elected.
On October 14, 1985, the Assistant County Attorney, responding on behalf of Fulton County, denied the requested administrative relief and affirmed that the Regulations, as applied to Mr. Segars, would compel him to take leave without pay in order to run and to forfeit his job with the County in order to serve as mayor of Ball Ground.
DISCUSSION
Plaintiff John E. Segars, the Chief Investigator for the Solicitor General of Fulton County, brings this action along with plaintiff Gilla W. Byers, a citizen of Cherokee County registered to vote in Ball Ground municipal elections, against defendant Fulton County, plaintiff Segars' employer, to declare unconstitutional certain provisions of the Fulton County personnel regulations which compel plaintiff Segars (1) to take leave without pay to run for elective office, and (2) now that he has been elected, to forfeit his job with Fulton County.
In response, defendant contends that (1) its Regulations are constitutionally reasonable and (2) there are inherent conflicts with plaintiff Segars serving as Mayor of Ball Ground while holding a position with Fulton County that the Regulations reasonably prohibit.
Courts have held that the right to run for public office is not a fundamental right, but is an important right. Bullock v. Carter, 405 U.S. 134, 92 S.Ct. 849, 31 L.Ed.2d 92 (1972); Magill v. Lynch, 560 F.2d 22 (1st Cir.1977). Hickman v. City of Dallas, 475 F.Supp. 137 (N.D.Tex.1979). Restrictions on that right are constitutionally permissable where the government entity impairing the right shows that the strictures placed on the ability to run for office are reasonably necessary to achieve a compelling public objective. Morial v. Judiciary Commission, 565 F.2d 295, 300 (5th Cir.1977) (en banc) cert. denied 435 U.S. 1013, 98 S.Ct. 1887, 56 L.Ed.2d 395 (1978). Thus, Fulton County must demonstrate (1) that the "ends" of the challenged regulations are compelling and (2) that the "means" are reasonably necessary in order to justify impairing plaintiffs' First Amendment right.
Fulton County identifies the goals of its Regulations as (1) to protect the integrity of the Fulton County Civil Service and address the problem of potential corruption in the civil service system, (2) to protect employees from political interference, (3) to preserve public confidence in government, and (4) to maintain the efficiency of its employees. The court finds that Fulton County has a compelling interest in achieving each of these goals. Furthermore, each interest is sufficiently compelling that Fulton County may place reasonable restrictions on the right of its employees to run for and serve in elective office.
The court now turns to the second part of the inquiry. Courts have held in adopting a "balancing" approach to this second step of the inquiry, that the government may place limits on a public employee's right to run for office if the limits substantially serve government interests that are "important" enough to outweigh the employee's First Amendment rights. Civil Service Commission v. Nat'l Ass'n of Letter Carriers, 413 U.S. 548, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973) (upholding the constitutionality of the Hatch Act). See also Broadrick v. Oklahoma, 413 U.S. 601, 93 S.Ct. 2908, 37 L.Ed.2d 830 (1973); Magill v. Lynch, supra; Hickman v. City of Dallas, 475 F.Supp. 137 (N.D.Tex.1979).
Several factors have been held to influence whether, with respect to an individual government employee seeking elective office, a regulation is reasonably necessary to achieve the compelling public objective. First, the potential for overlap between the jurisdictional authority of each position is a factor that has been considered. Hickman v. City of Dallas, supra. Courts have *686 found the potential for conflict when a city employee seeks office within the city where he is an employee may well be sufficient to justify a restriction on a candidacy. Magill v. Lynch, supra, cited in Hickman v. City of Dallas, 475 F.Supp. 137 (N.D. Tex.1979).
Second, the nature of an employee's responsibilities is an important consideration. Elrod v. Burns, 427 U.S. 347, 96 S.Ct. 2673, 49 L.Ed.2d 547 (1976). If an employee is in a managerial or supervisory position, his candidacy even in another jurisdiction would be more likely to threaten the compelling objectives. Hickman, supra.
Third, although no court has explicitly grounded its decision solely on this factor, courts have considered whether the elective office sought is "partisan" or "non-partisan" as a factor in determining the potential for interference with the compelling public objectives.[2]
With respect to the first factor, defendant contends that the mayoral position conflicts with plaintiff's duties as a "peace officer" under the Code of Laws, Fulton County Georgia. That provision establishes that plaintiff Segars:
... serve(s) at the pleasure of ... Solicitor-General, and shall act as, and have authority of peace officers of the State of Georgia ... [and] shall have the same authority to make arrests as the sheriffs, their lawful deputies, and court bailiffs to serve warrants, summons, rules, orders, and process of every hand ... and make proper returns of service thereof."
Code of Laws, Fulton County, § 4-2-40, Vol. I (1983). Further, the parties have stipulated that in the course of his employment as chief investigator, plaintiff Segars has investigated or supervised investigations of matters outside of Fulton County. However, during his tenure with the office of the State Court Solicitor General, plaintiff Segars has not yet been called upon to investigate any matter involving the town of Ball Ground or Cherokee County. (Joint Stipulation ¶ 14).
Second, defendant contends that the regulation is reasonable with respect to plaintiff Segars because he holds the position a Chief Investigator and has supervisory responsibility for six investigators (Joint Stipulation ¶ 3), and therefore an inherent conflict exists between his position and that as Mayor of Ball Ground.
Third, the parties have stipulated that in Ball Ground municipal elections, including those held on December 7, 1985, neither ballots nor campaign literature formally identify candidates as belonging to or supported by any political party or organization. Candidates in these elections are not formally nominated by any party caucus or primary election. Under Section 14 of the Ball Ground Charter, any qualified citizen can stand for election to municipal office in Ball Ground by submitting a written request to the town clerk. (Joint Stipulation ¶ 7).[3] In Magill v. Lynch supra, the First *687 Circuit in finding that an election was partisan looked behind the clear statutory language of a town charter setting up a nominally non-partisan election to whether political parties played a large role in the election. Here, where the clear language of the statute creates a non-partisan election and there is no evidence that parties play a role in Ball Ground municipal elections, the court finds the mayoral election to be "nonpartisan."
Additionally, defendant contends that plaintiff Segars' responsibilities as Mayor of Ball Ground may in the future interfere with his efficiency as an employee (1) by causing interruptions in his normal work day as chief investigator and (2) by making him inaccessible if called to serve after hours.[4] The parties have stipulated that since plaintiff Segars took office as mayor of Ball Ground, he has received one written complaint from Solicitor General Webb (Joint Stipulation ¶ 15), apparently arising from plaintiff granting an interview and opportunity for local media to take photographs while plaintiff was at work in his Fulton County capacity. Also, defendant argues its compelling objective in maintaining the efficiency of its employees may be eroded in that plaintiff Segars is subject to call to duty at any and all time, day or night, (Webb Affidavit ¶ 10, ¶ 4).[5]
Having considered and weighed each of the appropriate factors, The court believes that defendant Fulton County has failed to establish that its personnel regulations bear a reasonable relation to its articulated goals. Therefore, the court finds those regulations are an unreasonable restriction on plaintiffs' First Amendment rights. First, the theoretical possibility that plaintiff's duties and loyalties as Chief Investigator might overlap with his duties and loyalties as Mayor of Ball Ground is remote at best. Defendant provides only speculation that plaintiff's dual responsibilities may create the potential for conflict.[6] Defendant can point to no fact to firmly establish this allegation. Defendant does not contend any investigation involving Ball Ground, or even Cherokee County has ever taken place in the past. Nor has defendant mentioned a context in which such a conflict might arise. A restriction without any geographical limitation whatsoever sweeps too broadly in the absence of some showing of the realistic expectation of a conflict.[7] Thus, the geographical *688 remoteness and lack of jurisdictional overlap between jobs demonstrate the absence of a reasonable connection between the county's goals and the broad sweep of its regulations as applied to plaintiff Segars.
Moreover, although courts have noted that a "supervisory" position may engender a conflict even outside the county of a plaintiff's employment see Hickman, supra; Elrod v. Burns, supra, here where the potential for actual conflict is negligible, the supervisory/subordinate distinction is less important. Therefore, the mere fact that as Chief Investigator plaintiff supervises six subordinates, without some realistic potential that a conflict of loyalty might arise, is insufficient to establish the proper nexus between the county's goals and its regulations.
Third, the court has determined the mayoral election in Ball Ground to be "nonpartisan". Thus, the concern that plaintiff Segars' position as mayor of Ball Ground might create the fact or appearance of partisan impropriety is absent in this case. The fact that the race and the position are nonpartisan reduces the potential for interference with the compelling objectives of Fulton County and enhances plaintiff Segars' claim that his right to run and serve as mayor not be denied. Hickman supra at 141.
Furthermore, there is no evidence before the court sufficient to validate defendant's concern that plaintiff merely holding another post inherently interferes with his efficiently dispatching the duties of Chief Investigator to any greater extent than other employees who engage in outside employment explicitly permitted by the county.[8] Solicitor General Webb's conclusion that plaintiff's granting an interview to a local reporter constitutes interference with his duties as Chief Investigator is gratuitous and altogether insufficient to demonstrate a conflict or lack of efficiency.
Although it need not reach the issue, the court believes facial invalidation of the Regulations would be appropriate. Id. Hickman supra at 141. See also Bruno v. Garsaud, 594 F.2d 1062 (5th Cir.1979). As is, the Regulations are vague and overbroad.[9] However, the threat of further litigation should suffice to encourage appropriate revisions by the Fulton County Board of Commissioners.
In sum, the court finds that provisions PR-1600-1 "Police Activity" and PR-1200-11 "leave without pay" of the Fulton County Board of Commissioners which compel plaintiff Segars (1) to take leave without pay from his employment with Fulton County in order to file as a candidate or conduct an election campaign; and (2) to forfeit his employment with Fulton County in order to serve as mayor of Ball Ground, violate his First Amendment rights and are therefore unconstitutional as applied to him.
Accordingly, the court GRANTS plaintiffs' motion for summary judgment and permanently enjoins defendants from enforcing these provisions against plaintiff John E. Segars. Defendant's motion for summary judgment is thereby DENIED.
NOTES
[1] As a preliminary matter, because it contains only inadmissable hearsay, the court grants plaintiff's motion to strike the Affidavit of Jacquelyn Mitchell. Fed.R.Civ.P. 56(e).
[2] The Supreme Court applying the "overbreadth doctrine" in Broadrick v. Oklahoma, 413 U.S. 601, 93 S.Ct. 2908, 37 L.Ed.2d 830 (1973), found no "substantial" overbreadth in a statute restricting "partisan" campaigning. The court had no occasion to rule on the question of "non-partisan" elections. Courts since that decision have recognized degree of actual as opposed to statutory partisanship as a factor to be weighed in the balance. See e.g., Magill v. Lynch, supra; Hickman v. City of Dallas, supra. Other courts have ignored the factor altogether. See Barry v. Dist. of Columbia Bd. of Elections, 448 F.Supp. 1249 (D.D.C.1978).
[3] Plaintiff argues that the description contained in the stipulation establishes that these elections are "non-partisan." Defendant contests this assessment arguing that state statutory provisions control the determination of "partisan" or "non-partisan" status. Defendant cites the court to Ga.Off'l Code Ann. § 21-3-103 which provides as follows:
Each candidate for nomination to an office in a non-partisan primary shall qualify as such candidate by personally, or by his duly authorized agent, filing notice of his candidacy in the office of the superintendent of his municipality at least 45 days prior to the date of the primary in accordance with the provisions of the charter and ordinances as of the municipality not inconsistent with the requirements of this chapter. (emphasis supplied).
Ga.Off'l Code § 21-3-103.
Defendant argues that because the provisions of the Ball Ground Charter provide that candidates for mayor must file with the clerk fifteen days prior to the election, these provisions do not meet the statutory test for non-partisanship. The court disagrees. The Georgia Code Provision cited is inapplicable to this determination because it speaks to primary elections.
[4] Defendant also argues under Ga.Off'l Code Ann. § 35-2-12 which regulates the political activities of employees of the Department of Public Safety, that because Fulton County has given plaintiff Segars the authority of a "peace officer" of the State of Georgia he is bound by the regulations for public safety employees. Such is patently not the case. It may be true that employees of the Public Safety Department vested with the authority to enforce criminal or traffic laws are "peace officers." It does not follow, however, that all "peace officers" are bound by the prohibitions placed on employees of the Department on Public Safety. Plaintiff Segars is not bound by these restrictions. Thus, the court has no occasion to rule on the constitutionality of Ga.Off'l Code Ann. § 35-2-12, but notes that if applied to restrict an employee's candidacy, it appears facially overbroad.
Secondly, defendant's federal law argument that 5 U.S.C. § 1502 (1977) prohibits plaintiff Segars' candidacy and service as mayor is meritless. Because this court has found the Ball Ground mayoral election to be non-partisan, 5 U.S.C. § 1503 which permits local employees to run for nonpartisan elective office controls. It is also questionable whether the position of Chief Investigator for the Solicitor General's Office falls within the definition of "State or local office or employee" under 5 U.S.C. § 1501 which limits its application to local agencies whose principal employment is in connection with an activity financed in whole or in part by loans or grants made by the United States or a federal agency. Defendant has produced no evidence on this point.
[5] Defendant has introduced no admissable evidence that plaintiff's responsibilities as mayor have interfered with his job performance as Chief Investigator.
[6] Solicitor General Webb's affidavit admits that it is merely "possible" that plaintiff might be called on to conduct an investigation in Ball Ground without substantiating this contention. (Webb Affidavit ¶ 3) (emphasis supplied).
[7] Defendant likewise has not offered an explanation that if the unlikely contingency actually occurred, why plaintiff could not merely recuse himself from that particular investigation. Presumably, if any other conflict arose, for example where an investigator was personally or professionally acquainted with the subject of an investigation, the conflict would be resolved in this manner without hampering the efficiency of the office or calling its integrity into question.
[8] The Regulations at Section PR-1100-4 provide as follows:
An employee may engage in part-time or occasional extra employment outside of regular working hours, provided that such employment does not interfere with or conflict in any manner with assigned Fulton County duties and working hours; provided, however, that such extra work involving sworn law enforcement employees shall be approved in writing in advance by the Appointing Authority concerned.
[9] If constitutionally valid at all, they may be valid with respect to an employee who decides to become a candidate for elective office within Fulton County.
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796 F.Supp. 812 (1992)
GREENSMITH COMPANY, INC., and J.N. Bearden, III, Plaintiffs,
v.
COM SYSTEMS, INC., Resurgens Communications Group Inc., and John D. Phillips, Defendants.
Civ. No. 92-2313.
United States District Court, D. New Jersey.
August 27, 1992.
Bruce W. Clark, Dechert Price & Rhoads, Princeton, N.J., for plaintiffs.
William J. Riina, Wilson, Elser, Moskowitz, Edelman & Dicker, Newark, N.J., for defendants.
OPINION
DEBEVOISE, District Judge.
This cause of action was removed from the New Jersey State Courts on or about June 1, 1992. Plaintiffs contend that Defendants' Notice of Removal was not filed in a timely fashion; consequently, they move to remand. For the reasons set forth below, Plaintiffs' motion is granted.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Plaintiffs filed this suit in the Superior Court of New Jersey, Morris County on April 13, 1992. Plaintiffs maintain that Defendant John D. Phillips ("Phillips") was served with a summons and copy of the Complaint on April 27, 1992. Defendants contend that service upon Phillips was improper. Defendant Resurgens Communications Group, Inc. ("Resurgens") was served with a summons and copy of the Complaint on May 6, 1992 via its agent, Corporation Trust Company. The third Defendant, Com Systems, Inc. ("Com Systems") was served on June 1, 1992.
Defendants filed a Petition for Removal from state court on June 1, 1992. The Petition, filed in Defendant Resurgens name, stated that removal was made with the consent of Defendants Phillips and Com Systems. Pursuant to Defendants' Petition, the case was removed from the state court.
DISCUSSION
A. Removal
The time limits governing removal of actions to federal court are stated in 28 U.S.C. § 1446(b):
The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required *813 to be served on the defendant, whichever period is shorter.
Pursuant to this rule, removal must be made within 30 days, after receipt by the defendant, through service or otherwise, of a copy of the initial pleadings.
Plaintiffs' motion raises two pivotal issues: (i) whether receipt of the pleadings is sufficient to trigger the 30 day time period established in 1446(b) or whether service is necessary to commence the 30 day limitation; and (ii) whether, in multi-defendant cases, receipt of the pleadings by the first defendant triggers the 30 day removal period provided in 1446(b) for all defendants. As noted by the parties in their respective briefs, the Third Circuit has not squarely addressed the first issue. The intent of the drafters, however, is clear. The statute provides that a notice of removal "shall be filed within thirty days after the receipt by the defendant, through service or otherwise," of a copy of the pleadings. The plain language of this rule is unequivocal: the thirty day limitation will begin to run after receipt of the pleadings. Receipt is not limited to service; rather, it is granted broader application. Accordingly, I conclude that service is not required under the rule. All that is required to trigger the thirty day statute of limitations is receipt of the pleadings. See North Jersey Sav. & Loan v. Fidelity & Deposit Co. of Maryland, 125 F.R.D. 96, 100 (D.N.J.1988) (relying upon Cooperman v. Board. of Educ. of Hillside Township, 577 F.Supp. 52 (D.N.J.1983).
In the instant case, it is undisputed that Phillips received a copy of Complaint on April 27, 1992 by certified mail. See Defendants' Memorandum in Opposition to Plaintiffs' Motion to Remand at 3. The time for removal, therefore, began to run on April 27, 1992.
The second issue raised in this motion is also a novel one which has not been squarely addressed by the Third Circuit: whether, in multi-defendant cases, receipt of the pleadings by the first defendant triggers the 30 day removal period provided in Section 1446(b) for all defendants.
Plaintiffs contend that removal in this case was improper because the Petition for Removal was filed 33 days after Phillips received the pleadings. Defendants argue, however, that, although Defendants Phillips and Com Systems consented to removal, the Petition was filed by Resurgens. Since Resurgens was not served until May 6, 1992, Defendants maintain that removal took place within 30 days thereafter.
Section 1446(b) enjoys relatively easy application in single defendant cases: removal must be accomplished within 30 days after the defendant receives the pleadings. In the multi-defendant context, however, application of the rule is rather problematic. The rule does not state whether, in multi-defendant cases, where service upon the defendants is staggered, all defendants (even those not yet served) are required to file for removal within 30 days after receipt of the pleadings by the first defendant, or whether each defendant enjoys its own 30 day time period in which to file for removal.
The Plaintiff urges me to adopt a rule which provides for a common 30 day removal period for all defendants beginning to run on the date on which the first defendant receives the pleadings. Application of this rule in a multi-defendant case would operate as follows: defendant A receives the pleadings on January 1st; defendant B receives the pleadings on March 1st. Although defendant B was not served until well after expiration of the 30 day period triggered by service on defendant A, defendant B would be required to file for removal or join in a notice of removal on or before January 31st.
The Defendant urges me to adopt a rule whereby any defendant may remove a case within 30 days after receipt of the pleadings by that particular defendant. Pursuant to this approach, each defendant in a multi-defendant case would have thirty days to file for removal after that defendant receives the pleadings. This rule preserves the rights of defendants who do not receive the pleadings until 30 days after the first defendant is served in the case. Application of this rule in the scenario described *814 above would permit defendant B to file for removal up until March 31st.
For obvious reasons, neither the Plaintiffs' nor the Defendants' approach to this dilemma is completely satisfactory. The rule advanced by Plaintiffs is unfavorable to defendants who may be foreclosed from removal before they have been served. Similarly, the rule advanced by defendants is unsatisfactory because it creates an open-ended right to removal for all defendants.[1]
Federal courts have consistently construed removal statutes strictly and, on the whole, against the right of removal. See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941); American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951); White v. Baltic Conveyor Co., 209 F.Supp. 716 (D.N.J.1962). In Shamrock Oil & Gas Corp. the Supreme Court cautioned against liberal construction of the statute:
Not only does the language of the Act of 1887 evidence the Congressional purpose to restrict the jurisdiction of the federal courts on removal but the policy of the successive acts of Congress regulating the jurisdiction of the federal courts is one calling for the strict construction of such legislation.
313 U.S. at 108, 61 S.Ct. at 872.
In accordance with the principles of strict construction espoused by the Court in Shamrock Oil & Gas Corp., many courts have adopted the approach advanced by the Plaintiffs in this case. For example, in Brown v. Demco, Inc., the Fifth Circuit held that: "[i]f the first served defendant abstains from seeking removal or does not effect a timely removal, subsequently served defendants cannot remove." 792 F.2d at 481 (quoting 1A J. Moore, Moore's Federal Practice, ¶ 0.168 [3.5-5], page 586-87 (2d ed. 1991)); accord Pic-Mount Corp. v. Stoffel Seals Corp., 708 F.Supp. 1113 (D.Nev.1989); Dachenbach v. Pamida, Inc., 683 F.Supp. 1268 (S.D.Iowa 1988).
This rule springs from two well established principles. First, the failure of a defendant to remove within 30 days is tantamount to a waiver of its right to remove. The waiver cannot be cured retroactively by joining a subsequently served defendant's notice of removal. Likewise, a defendant which has irretrievably lost its right to remove, may not consent to removal by another defendant. The second principle is that all defendants must join in a petition for removal. If unanimity is lacking, removal is impermissible. See Gorman v. Abbott Laboratories, 629 F.Supp. 1196, 1201 (D.R.I.1986).
In Balestrieri v. Bell Asbestos Mines, Ltd., 544 F.Supp. 528 (E.D.Pa.1982) the first defendant, G.A.F., was served on February 18, 1982. Another defendant, Bell Asbestos Mines ("Bell"), was served on March 3, 1982. On April 1, 1982, 29 days after service upon Bell and 42 days after service upon G.A.F., Bell filed a petition for removal. Id. at 529.
The district court concluded that removal was not timely. The court recognized that strict construction of the federal removal statute may, at times, impart harsh consequences. The court concluded, however, that the result in the pending case was equitable because Bell, the removing defendant, was served within thirty days of G.A.F. and consequently, had the opportunity to persuade G.A.F. to join in a timely application for removal. Id. at 530.
Similarly, in the case at bar, the removing defendant, Resurgens, was served approximately eight days after Phillips received a copy of the pleadings on April 27, 1992. Resurgens, therefore, had an opportunity to persuade Phillips to file a notice of removal in a timely manner. Moreover, because Phillips, the Chief Executive Officer and Director of both Resurgens and Com Systems, was served with a copy of the pleadings on April 27, 1992, Resurgens *815 had constructive notice of this action on that date. Resurgens, therefore, was afforded thirty days in which to file for removal.
CONCLUSION
Plaintiffs' motion to remand is granted.
NOTES
[1] As a general rule, all defendants who may properly join in the notice of removal must join. Brown v. Demco, Inc., 792 F.2d 478 (5th Cir. 1986) (citing Tri-Cities Newspapers, Inc. v. Tri-Cities Printing, Local 349, 427 F.2d 325, 326-27 (5th Cir.1970); see also 1A J. Moore, Moore's Federal Practice, ¶ 0.168 [3.2-1], 546 (2d ed. 1991)).
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257 F.Supp. 619 (1965)
REINES DISTRIBUTORS, INC., etc., Plaintiff,
v.
ADMIRAL CORPORATION et al., Defendants,
v.
EMPIRE STATE INSULATION CO., Inc., et al., Additional Defendants on Counterclaims.
Civ. No. 143-263.
United States District Court S. D. New York.
December 6, 1965.
Landis, Carrow, Bernson & Tucker, and Nathan Shapiro, New York City, for plaintiff, Berthold H. Hoeniger, New York City, of counsel.
O'Brien, Driscoll & Raftery, New York City, for defendants Admiral Corp. and others, George A. Raftery and William *620 D. Friedmann, New York City, of counsel.
METZNER, District Judge.
Plaintiff Reines moves for an order pursuant to Fed.R.Civ.P. 42(b) for a separate trial of the issues of whether the defendant Admiral Corporation's branch located in Newark, New Jersey (herein called Newark), was throughout the period relevant in this action, a "purchaser" from defendant within the meaning of section 2(a) and section 2(e), and a "customer" of defendant within the meaning of section 2(d), of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a), (d) and (e); and a "distributor" within the meaning of section A(3) of the distributor contract dated January 1, 1957, between defendant and plaintiff.
To succeed under its Robinson-Patman causes of action, plaintiff must prove
(1) Distributors other than plaintiff were purchasers from defendant.
(2) There was discrimination by defendant in price and service between such purchasers and plaintiff.
(3) Plaintiff and the favored distributor[s] were competitors for the same customers.
(4) Damage.
It is plaintiff's contention that Newark was an independent distributor of defendant, and therefore a purchaser-customer within the meaning of sections 2(a), (d) and (e) of the Robinson-Patman Act, and in the same relationship to defendant as plaintiff and other distributors throughout the country. If this be the case plaintiff intends to prove its claims against defendant
"solely on the prices, services and facilities and other preferences afforded Newark and will wholly disregard the approximately 79 other Admiral distributors during the relevant period."
If it fails to prove that Newark was an independent distributor, then it will seek to prove its claims against Admiral Corporation by reason of the preferences, etc., given to the other 79 distributors.
Thus if plaintiff is initially successful, the parties will not have to prepare or try the issues of discrimination, competition, damage or Robinson-Patman defenses with respect to 79 distributors referred to in plaintiff's complaint. If plaintiff should lose on the issue of whether Newark was independent, a second trial would be had after the case was prepared as to the 79 other distributors. In that event there would be no saving of time, but there would be no duplication of fact presentation. The pertinent portion of Fed.R.Civ.P. 42(b) states that
"The court in furtherance of convenience * * * may order a separate trial of * * * any separate issue".
The purpose of the rule is to prevent delay and expense. See 5 Moore, Federal Practice ¶ 42.03 (2d ed. 1964). Generally a single trial tends to lessen delay, expense and inconvenience to all concerned. See e. g. Drake v. Handman, 30 F.R.D. 394 (S.D.N.Y. 1962); Grissom v. Union Pacific R. Co., 14 F.R.D. 263 (D.Colo. 1953). When there is a possibility, however, of shortening the trial considerably by holding a separate trial on an issue, the court should exercise its discretion, Collins v. Metro-Goldwyn Pictures Corp., 106 F.2d 83, 85 (2d Cir. 1939), and try the issue separately if such a procedure will not prejudice either side. Rossano v. Blue Plate Foods, 314 F.2d 174 (5th Cir.), cert. denied, 375 U.S. 866, 84 S.Ct. 139, 11 L.Ed.2d 93 (1963) (agency in negligence action); Bowie v. Sorrell, 209 F.2d 49, 43 A.L.R.2d 781 (4th Cir. 1953) (release); Bernardo v. Bethlehem Steel Co., 200 F.Supp. 534 (S.D.N.Y. 1961) (whether drydock was a vessel); Huffmaster v. United States, 186 F.Supp. 120 (N.D. Calif. 1960) (whether flood was an Act of God); United States v. Mulligan, 177 F.Supp. 384 (D.Ore. 1959) (validity of mining claim); Michael Rose Prods. v. Loew's Inc., 19 F.R.D. 508 (S.D.N.Y. 1956) (release); Hall Laboratories v. National Aluminate Corp., 95 F.Supp. 323 (D.Del. 1951) (prior art). See Miner, *621 Court Congestion, A New Approach, 45 A.B.A.J. 1265 (1959).
The substantial portion of evidence as to whether or not Newark was a purchaser-customer of defendant will be addressed to proving that Newark acted independently of defendant. For example, plaintiff will attempt to show that Newark had the right to engage and discharge its own personnel, select its own merchandise and buy only what it chose, right to fix prices on resale, to accept or reject factory promotions, method of invoicing, maintenance of separate books of account, right to contract for its own special services, negotiate pricing, advertising, allowances and special promotional deals with its own customers, maintenance of separate bank accounts. This proof would support the claim that Newark exercised dominion and control over goods, which seems to be an essential in arriving at a determination that a seller-purchaser relationship exists. Baim & Blank, Inc. v. Philco Corp., 148 F.Supp. 541 (E.D.N.Y. 1957); Students Book Co. v. Washington Law Book Co., 98 U.S.App.D.C. 49, 232 F.2d 49 (1955), cert. denied, 350 U.S. 988, 76 S.Ct. 474, 100 L.Ed. 854 (1956); cf. Western Fruit Growers Sales Co. v. FTC, 322 F.2d 67 (9th Cir. 1963). The proof would not be duplicated in further stages of the trial. It is independent of proof regarding the 79 other distributors.
In support of its contention that Newark was a purchaser-customer, plaintiff has also relied on Danko v. Shell Oil Co., 115 F.Supp. 886 (E.D.N.Y. 1953), which held that a wholly-owned subsidiary may be considered independent of its parent for Robinson-Patman purposes, and thus be a "purchaser" and "customer" in its own right. The theory of Danko is that for antitrust purposes the definition of purchaser, customer and distributor is a matter of substance and competitive function and not of form. See Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 95 L.Ed. 1199 (1951); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 215, 71 S.Ct. 259, 95 L.Ed. 219 (1951). To bring itself within the Danko theory plaintiff will offer proof that Newark competed with plaintiff for the business of dealers in plaintiff's territory. This will be offered as circumstantial evidence that Newark was in effect a purchaser-customer. The mere fact that Newark competed with plaintiff is only slight evidence that Newark was independent. The court will fix the limitation on this offer of proof within what is material.
At this point the issue of whether Newark was independent of defendant would be submitted to the jury. If the jury determines that Newark was such a distributor, then the case will proceed on the remaining three issues referred to above, but solely as to Newark. For example, the jury would have to consider as a substantive element of the Robinson-Patman claims, the issue of competition if it found that Newark was a purchaser-customer.
The situation is analogous to that in Woburn Degreasing Co. of New Jersey v. Spencer Kellogg & Sons, 37 F.Supp. 311 (W.D.N.Y. 1941), where the court in a patent case allowed a separate trial on the issue of validity of a patent, although proof of prior art would be involved in both that issue and another issue in the case. Here there is no duplication of proof of competition, only slight cumulation, if plaintiff is successful in the separate trial.
If plaintiff should lose on the Newark issue, the issues of competition, discrimination and damage as to Newark will be out of the case and there will be neither duplication nor cumulation. While the defendant would have to prepare the Newark phase of the claims in its entirety customer, competition and damages it would have to do that in any event if only one trial were held to dispose of all of the claims.
The inherent complexity of an antitrust case is itself a factor promoting a separate trial of an issue in such a case where the result of the separate trial may simplify the litigation. See *622 Seaboard Terminals Corp. v. Standard Oil Co. of New Jersey, 30 F.Supp. 671 (S.D.N.Y. 1939). Because of the possibility of simplifying fact presentation, reducing costs, saving trial time and finding no prejudice to defendant Admiral, the court grants plaintiff's motion for a separate trial.
Counsel are directed to settle a final pretrial order in conformity with the above opinion on or before January 15th, 1966.
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788 F.Supp. 597 (1992)
John J. HILBERT, et al., Plaintiffs,
v.
DISTRICT OF COLUMBIA, Defendant.
Civ. A. No. 90-2973.
United States District Court, District of Columbia.
April 2, 1992.
Michael J. Riselli, Riselli & Pressler, P.C., Washington, D.C., for plaintiffs.
David S. Healy, Washington, D.C., for plaintiffs-intervenors.
Ruthanne G. Miller, Asst. Corp. Counsel, Washington, D.C., for defendant.
MEMORANDUM OPINION AND ORDER
SPORKIN, District Judge.
Plaintiffs filed this action seeking a declaratory judgment from this Court establishing that they were entitled to overtime compensation under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. They also sought back pay for the two years before they filed their complaint as well as the time from the date of filing *598 to the date of the decision for the difference between the overtime compensation they actually received and the overtime compensation to which they were entitled under the FLSA. The Court entered an order granting summary judgment to the plaintiffs on February 25, 1992. Defendants have now submitted a motion seeking to alter or amend the judgment.
A. Construction of the FLSA
The Court rejects defendant's claim that the plaintiffs in this case are salary basis employees despite the fact that they receive overtime compensation, calculated at an hourly rate, under the aegis of a District of Columbia statute. Although the regulations under the FLSA state that "additional compensation besides the salary is not inconsistent with the salary basis of payment," 29 C.F.R. § 541.118(b), the example given to illustrate the regulation is a "branch manager who receives a salary of $155 or more a week and in addition, a commission of 1 percent of the branch sales." Id. The Court disagrees with the decisions reached in Hartman v. Arlington County, Va., 720 F.Supp. 1227 (E.D.Va.1989) and International Association of Fire Fighters, Alexandria Local 2141 v. City of Alexandria, 720 F.Supp. 1230 (E.D.Va.1989), where it was determined that captains, lieutenants and fire shift commanders who received a base salary plus additional compensation calculated on an hourly rate were salary basis employees. While some additional compensation beyond a salary may still be permissible, where that compensation is measured by the number of hours worked and is paid at an hourly rate, there is a clear indication that the employee is not working on a salary basis.
In addition, neither of the Alexandria opinions cites a statute or ordinance prescribing how overtime compensation would be paid to the firefighters. The system of compensation for the plaintiffs in this case has not been set through a temporary administrative decision or through informal practice. There has been a formal legislative decision, memorialized in a statute, that police and fire department personnel serve unique functions and face special challenges in their work. They are compensated accordingly, based on the hours they work. If the District of Columbia makes a legislative change in the compensation system for police and fire personnel, some of them may become salary basis employees, but as the law now stands, none of them are.
Defendant points to a letter ruling from the Wage and Hour Division of the Department of Labor to support its position. That letter, dated January 15, 1986, concerns whether deduction of sick leave on an hourly basis affects an employee's status as a salary basis employee. That is a very different question from the one posed here where actual compensation for hours worked beyond the basic workweek is being calculated on an hourly basis. Defendant also cites Nairne v. Manzo, C.A. No. 86-0206, 1986 WL 12934 (E.D.Pa. Nov. 14, 1986), but that case concerns the terms of an agreement between two private parties. The employee was given an hourly rate of pay but she was promised a minimum weekly payment regardless of the number of hours she worked. Her pay records indicated that she was paid for at least thirty-two hours of work in a week although at times she worked considerably less. That promise undermined the proposition that she was being paid on a non-salary basis. The plaintiffs in this case have a direct correlation between the number of hours they actually work and their paychecks. They are not salary basis employees within the meaning of 29 C.F.R. 541.118.
B. Other Overtime Statutes
The determination that the plaintiffs are not salary basis employees is based on the existence of a special statute covering only employees of the police and fire departments. See D.C.Code § 4-1104. Other District personnel are eligible for overtime under 5 U.S.C. § 5541, a generic statute covering a vast range of public employees. The District maintains that the FLSA did not override "any existing District pay laws." See Department of Personnel Manual Instruction 11B-4. However, the *599 FLSA may well have overridden 5 U.S.C. § 5541. If it was overridden, then there is no overtime statute in force that would cause most District employees to be paid on a non-salary basis. Nonetheless, even if section 5541 is still in force, by dint of D.C.Code § 1-612.4(e) or some other means, police and fire personnel are still a special case.
The separate law covering District of Columbia police and fire personnel, all the way up to the chief of the police department, is tailored to a select group of employees. It recognizes that "police and fire department jobs are unique." See Memorandum Opinion at 8. In fact, 5 U.S.C. § 5541 reinforces that view. Section 5541 defines all District of Columbia employees as eligible for premium pay under the terms of 5 U.S.C. § 5542 but then gives a list of exceptions. Members of the Metropolitan Police, the Fire Department, the Park Police and the Executive Protective Service are explicitly exempted. See 5 U.S.C. § 5541(2)(A)(iv).[1] This Court's opinion will in no way open a "floodgate" of employees claiming they are entitled to overtime because the District has not enacted special compensation statutes for all employees.
If the District of Columbia remains unhappy about the status of its high-ranking police officers under the FLSA, it can amend the statute that now treats them as hourly employees and pays them specifically on an hourly basis for their overtime hours. Until the statute is changed, their positions will not meet the salary basis test.
C. Freedom of the Court to Choose its Reasons
Lastly, defendants argue that they are entitled to reconsideration because the Court based its decision on a legal argument that neither party presented in its written briefs. Specifically, defendant argues, "As the grounds for this request, defendant respectfully submits that the crux of this Court's decision ... was not fully addressed by the parties, but arrived at sua sponte by this Court." Defendant's Motion to Alter or Amend Judgment, 1. Such a contention is not a viable ground for reconsideration.
To say now that the Court was not free to rest its decision on certain reasoning because that reasoning did not appear in the parties' briefs is to treat the Court like a puppet that can only move when the parties pull the strings. The Court is always free to base its judgments on whatever legal arguments it finds applicable and persuasive. Although the parties may not have presented complete arguments in their briefs or at hearings in court, they did not fail to do so because they lacked the opportunity. At the initial hearing on summary judgment held on December 11 and 12, 1991, the Court specifically asked the parties how the FLSA was to be interpreted in light of Public Law 89-282, 79 Stat. 1013 (1965), now codified as D.C.Code § 4-1104. After hearing the parties, the Court took the matter under advisement and rendered its judgment on February 25, 1992. It is required to do no more. Clearly the Court is under no duty to continuously vet its own cognitive processes to the parties every time it comes up with a thought that has not been fully briefed or discussed. While a Court may at times seek additional briefing from the parties, it is not required to do so. There comes a time when litigation must finally be put to rest. The decision in this case is based on the relevant statutes and regulations to the best this Court has been able to determine. That judgment will stand.
NOTES
[1] Other groups of employees are also excluded from the ambit of section 5542 including District of Columbia teachers, heads of agencies, Foreign Service employees, Tennessee Valley Authority employees and a handful of others.
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361 F.Supp. 897 (1973)
NATIONAL COUNCIL OF COMMUNITY MENTAL HEALTH CENTERS, INC., et al., on behalf of themselves and others similarly situated, Plaintiffs,
v.
Caspar WEINBERGER et al., Defendants.
Civ. A. No. 1223-73.
United States District Court, District of Columbia.
August 3, 1973.
*898 *899 Jerome S. Wagshal, Pearce & Wagshal, Washington, D. C., for plaintiffs.
Kenneth A. Rutherford, Atty., Dept. of Justice, Washington, D. C., for defendants.
MEMORANDUM OPINION
GESELL, District Judge.
Plaintiffs as a class bring this action seeking an order requiring defendants to review, approve, and obligate to the plaintiffs funds in the amount of $52,050,000 for first-year grants for staffing of community mental health centers and for construction and staffing of mental health treatment centers for children under the Community Mental Health Centers Act, as amended, 42 U.S.C. §§ 2688-2688d, 2688u (hereinafter referred to as the Act). The class, certified by the Court under Rule 23, Fed.R.Civ.P., consists of all those having applied for first-year grants under these provisions of the Act.
Defendants have moved to dismiss this action on the grounds that the Court lacks jurisdiction over the subject matter of this action; that plaintiffs have failed to join an indispensible party; that there is no justiciable case or controversy presented by this action; and that the complaint fails to state a claim upon which relief can be granted. In addition, plaintiffs and defendants have each cross-moved for summary judgment as a matter of law. The issues have been thoroughly briefed and the underlying facts are not in dispute.
Administration of the Act lies with the Secretary of the Department of Health, Education and Welfare (HEW). The Regional Offices of HEW review applications and then send them to the National Advisory Mental Health Council for approval. If that approval is obtained, each of the ten HEW Regional Directors then makes the final determination on which of the applications as recommended favorably by the National Advisory Mental Health Council will be finally approved for award, the amount to be awarded, and the priority order for payment. Accordingly, although a Regional Health Director may not award a grant that has not been recommended for approval by the National Advisory Mental Health Council, a favorable recommendation by the National Advisory Mental Health Council neither constitutes effective approval of a grant application nor obligates the respective Regional Health Directors to award a grant to the applicant.
On February 23, 1973, the Director of the National Institute of Mental Health issued a directive to the HEW Associate Regional Directors for Mental Health which in pertinent part:
(1) Noted that because of the revised 1973 budget "no new staffing grants will be awarded in 1973."
(2) Noted that "[a]ll activities of the Regional Offices pertaining to the development of additional staffing grant applications should be discontinued since they cannot be funded."
(3) Discouraged potential applicants for grants from making application: assistance in the form of "staffing application kits" was directed "not [to] be distributed to potential applicants;" applications received and not yet reviewed were not to be "site visited or reviewed for funding but should be acknowledged to the applicant in a letter explaining the reason the application will not be reviewed . . .;" staffing grant applications already reviewed by the Regional Office were ordered "not [to] be duplicated or presented to the National Advisory Mental Health Council."
As of February, 1973, a total of 77 grant applications had been recommended for approval by the National Advisory Mental Health Council, in total sum of $39,026,565, and many other applications had been received and were under review, or had been initially approved by Regional Directors. After February 23, 1973, defendants ceased *900 procuring and developing first-year grant applications by members of the plaintiff class and applications have not been processed or developed. No action was taken by defendants after February 23, 1973, to obligate or expend funds for the 77 approved grant applications, or for any other first-year grant applications in fiscal 1973, although the defendants made available funds in fiscal 1973 to applicants to meet the continuation costs of previously funded grants.
By continuing resolution, for fiscal year 1973 Congress has appropriated for obligation and expenditure the sums of $165,000,000 for Community Mental Health Center staffing and $20,000,000 for Mental Health for Children.[1] Although approximately $52,050,000 of this appropriation is available for funding first-year grant applications, none of this amount had been obligated or expended as of the date of suit. On June 28, 1973, the Court entered a preliminary injunction ordering defendants to review and fully process by normal criteria all pending applications, and to take measures necessary under 31 U.S.C. § 200 to prevent all unobligated and unspent funds for the first-year grant programs from lapsing at the end of fiscal 1973, and thus returning to the general treasury fund pursuant to 31 U.S.C. § 701(a)(2).
Before turning to the merits, the issues raised by defendants' motion to dismiss must be considered.
The defendant Government officials raise standard objections so typical in these cases and many other categories of current Government litigation. They plead sovereign immunity and say that citizens directly affected as potential beneficiaries of appropriations have no standing to complain because these appropriation matters raise transcendent political issues which a Federal Court should not venture to resolve.
It is time this litany was displaced by a modicum of common sense. When Congress directs that money be spent and the President, as Chief Executive, declines to permit the spending, the resulting conflict is not political. The President, after being advised, believes he has the power because of economic conditions and other reasons to refuse to spend at his discretion. Yet he is charged by the Constitution faithfully to execute the laws. If the President is in all good faith mistaken as to the meaning and effect of the law or his inherent power under the Constitution, what is more normal and consistent with our American system of government than for the courts to interpret the law and thus resolve the apparent conflict one way or the other.
This dispute can readily be resolved by the customary exercise of judicial power, and therefore is not a non-justiciable political question. Powell v. McCormack, 395 U.S. 486, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969); Baker v. Carr, 369 U.S. 186, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962). Furthermore, any affirmative order of this Court would be premised on a determination that official action by the defendants in refusing to spend is beyond their statutory or constitutional powers. This would go no further than to require the spending of funds already appropriated by Congress to achieve the declared purposes of the Act. Accordingly, there can be no effective assertion of sovereign immunity and the defendants' actions are reviewable by the courts. See Dugan v. Rank, 372 U. S. 609, 83 S.Ct. 999, 10 L.Ed.2d 15 (1963); Larson v. Domestic & Foreign Corp., 337 U.S. 682, 69 S.Ct. 1457, 93 L. Ed. 1628 (1949); Scanwell Laboratories, Inc. v. Shaffer, 137 U.S.App.D.C. 371, 424 F.2d 859 (1970). The Court has jurisdiction pursuant to 5 U.S.C. §§ 701-706, and 28 U.S.C. §§ 1331 and 1361.
An issue of statutory interpretation and constitutional construction is presented. To say that the Constitution forecloses judicial scrutiny in these circumstances *901 is to urge that the Executive alone can decide what is best and what the law requires. To say that persons immediately and seriously affected by failure to commit funds authorized by the Legislature cannot go to court is to ignore the democratic base of our society. Indeed, it is only when the three equal and coordinate branches of government function that a stable government can be assured. Cf. Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803). The rule of law dictates calm judicial determination rather than political confrontation. Such confrontations are either resolved by naked power utilized in many irrelevant ways, or the issue stalemates. We are a government of law, not men, and the law must be determined and upheld. This is the never-ending process by which the Constitution is molded to the exigencies of the times and will be made rational in this and succeeding centuries. These cases should move to higher courts for prompt, definitive determination shorn of the confusing inconsequential defenses so typical of Government legalese these days. The defendants' motion to dismiss is denied.
The controlling question on the merits is whether the money authorized under the legislation was appropriated to be spent at the discretion of the Executive, or appropriated with an affirmative direction that the money be fully spent within the fiscal year. This issue is to be resolved without regard for the merits or demerits of the particular program involved, although it is perhaps of some significance in weighing the matter to note that this particular appropriation does not affect our foreign or military affairs. Rather, it falls squarely in an area of domestic concern in which the President's responsibility to execute the laws must be viewed without regard to issues of national defense or foreign policy, where the Constitution may recognize some special authority of the President to deal with developing conditions.
The defendants emphasize the overall economic problems confronting the nation, the heavy demand for funds in areas where national security considerations abound, and the absence of any national procedure for reconciling various appropriations in the light of current budgetary pressures, in part exacerbated by debt limitations. All of this is indeed pertinent, but whatever may be the President's power to limit expenditures to accommodate the total moneys available, he does not have complete discretion to pick and choose between programs when some are made mandatory by conscious, deliberate congressional action. At least with respect to the programs involved here, there is no basis for defendants' assertion of inherent constitutional power in the Executive to decline to spend in the face of a clear statutory intent and directive to do so. Kendall v. United States ex rel. Stokes, 37 U.S. 524, 9 L.Ed. 1181 (1838); Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 72 S.Ct. 863, 96 L.Ed. 1153 (1952); State Highway Comm'n v. Volpe, 479 F.2d 1099 (8th Cir. 1973); Local 2677, Am. Fed'n Gov't Employees v. Phillips, 358 F.Supp. 60 (D.D.C. 1973).
The Court concludes that Congress intended to require a full commitment of the fiscal 1973 appropriated funds by the end of the fiscal year. This intent is established by the following facts and circumstances, among others.
Through the Act, Congress has constructed an elaborate scheme to advance the cause of community mental health treatment, and has continually appropriated money to achieve the purposes of the Act. The object of the Act is to provide federal money to establish new community mental health centers and programs throughout the nation. Once begun, the federal moneys continue to be available in succeeding years at somewhat reduced levels. In extending the program to make available initial grants in additional fiscal years, Congress has necessarily also permitted additional centers to be eligible for the substantial succeeding year grants. In the face of vast unmet mental health needs throughout *902 the nation, Congress has continuously appropriated money for new grants to extend the benefits of the Act. The Act was never viewed by Congress as a demonstration program to get communities to follow the examples of others and start their own centers, but rather a national effort to redress the presently wholly inadequate measures being taken to meet increasing mental health treatment needs.[2]
The defendants' present efforts to shut down these programs, perhaps in favor of others, on the grounds these initial general funding grants were for demonstration programs and have served their purpose, is not only inconsistent with the Act, its continuing support and expansion by Congress, and the congressional intent found in the legislative history, but is a view recently explicitly rejected by Congress in extending the programs, with appropriations, through fiscal 1974, so that community facilities can be further expanded.[3] Therefore, while the internal language of this Act is "discretionary," it would appear Congress did not intend that the Executive shall have discretion simply to end the program in total without regard to the essential purposes of the Act. See State Highway Comm'n v. Volpe, supra.
Given this intent, the question then arises whether this intent was anywhere made sufficiently explicit by the statutes as to constitute a mandatory directive to the President. Subsequent to the passage of the Act, an amendment (hereinafter "Section 601") was enacted which provided as follows:
Notwithstanding any other provision of law, unless enacted after the enactment of this Act expressly in limitation of the provisions of this section, funds appropriated for any fiscal year ending prior to July 1, 1973, to carry out any program for which appropriations are authorized by . . . or the Mental Retardation Facilities and Community Mental Health Centers Construction Act of 1963 (Public Law 88-164, as amended) shall remain available for obligation and expenditure until the end of such fiscal year. Medical Facilities Construction and Modernization Amendments of 1970, Pub.L.No. 91-296; Title VI, § 601, 84 Stat. 353, 42 U.S.C.A. §§ 201 note and 2661 note (emphasis added).
While the meaning of the language "shall remain available for obligation and expenditure until the end of such fiscal year" is not readily apparent on its face nor free from doubt, read in the light of the legislative history of Section 601 and the meaning commonly given and accepted for such language,[4] the Court must conclude that this provision makes mandatory the spending of funds appropriated under the Act for fiscal 1973.
Before initial passage by Congress, the Executive recognized that all other statutory provisions notwithstanding, Section 601 converted "HEW health-related *903 programs into mandates to spend regardless of considerations of commonsense economy and prudent use of the taxpayers' money." Letter from Robert P. Mayo, Director, Bureau of the Budget, to Rep. Harley D. Staggers, May 11, 1970. This section was originally a Senate amendment and its mandatory nature was agreed to by the House conferees only after it was limited to funds for fiscal years through 1973 and to the three health programs with the greatest needs. Moreover, the floor debates and committee reports reflect a clear understanding that Section 601 made spending mandatory "to prevent administration imposed freezes, reductions and rollbacks from applying to health programs." H.R.Rep.No.91-1167, 91st Cong., 2d Sess. 25-26 (1970). See 116 Cong.Rec. 22266, 22267, 22268, 22271-73 (1970) (remarks by Senators Yarborough, Dominick, Javits and Kennedy). The President vetoed Section 601 principally because Congress was insisting that fiscal 1973 funds "to carry out the programs involved must be spent." 116 Cong.Rec. 20876 (1970) (Veto Message of President Nixon). With this meaning clearly in mind, Congress overrode the President's veto. Finally, with this legislative background and the current debate over Executive spending well in mind, Section 601 has recently been extended through fiscal 1974. The Health Programs Extension Act of 1973, Pub. L.No.93-45, § 401(a), 87 Stat. 95 (June 18, 1973). In so doing, the committee reports make explicitly clear that the language in question here requires the expenditure of funds. H.R.Rep.No.93-227, 93d Cong., 1st Sess. 10 and 15 (1973).
Money has been appropriated to achieve the purposes of the Act and the defendants are given the non-discretionary statutory duty to spend those funds for grants that meet the pre-February 23, 1973, lawful criteria embodied in rules and regulations promulgated to achieve the purposes of the Act. The defendants have no residual constitutional authority to refuse to spend the money. Accordingly, the plaintiffs' motion for summary judgment is granted and the motion of defendants for summary judgment is denied. An appropriate Final Order accompanies this Memorandum Opinion.
As to the question of relief, the Court must address one point pressed by plaintiffs. Because the Act, Section 601, and supporting appropriations have in effect been carried over to fiscal year 1974 (87 Stat. 94 and 95, §§ 203, 207, 401(a) (1973), and 87 Stat. 130 (1973)), plaintiffs seek relief applicable to fiscal year 1974 as well as 1973. The Court must decline such relief. There is no controversy as to fiscal 1974 before the Court and ripe for determination. Congress has various proposals under consideration which may affect this controversy, and the Executive has substantial time in which to formulate a position on expenditure of 1974 funds before new applicants would face injury. If and when such injury is real, those aggrieved can proceed by a separate action.
NOTES
[1] 86 Stat. 402 (1972), as amended, 86 Stat. 563, 746, 1204 (1972) and 87 Stat. 7 (1973); H.R. 15417, 92d Cong., 2d Sess. (passed June 15, 1972).
[2] See, e. g., S.Rep.No.92-1064, 92d Cong., 2d Sess. 38-49 (1972); S.Rep.No.91-583, 91st Cong., 1st Sess. (1969); H.R.Rep. No.91-735, 91st Cong., 1st Sess. (1969); S.Rep.No.294, 90th Cong., 1st Sess. (1967); H.R.Rep.No.212, 90th Cong., 1st Sess. (1967), U.S.Code Cong. & Admin. News 1967, p. 1252; S.Rep.No.366, 89th Cong., 1st Sess. (1965); H.R.Rep.No. 248, 89th Cong., 1st Sess. (1965), U.S. Code Cong. & Admin.News 1965, p. 2401; S.Rep.No.180, 88th Cong., 1st Sess. (1963); H.R.Rep.No.694, 88th Cong., 1st Sess. (1963), U.S.Code Cong. & Admin. News 1963, p. 1054.
[3] Health Programs Extension Act of 1973, Pub.L.No. 93-45, §§ 203 and 207, 87 Stat. 94 (June 18, 1973); 87 Stat. 130 (1973); H.R.Rep.No.93-227, 93d Cong., 1st Sess. 10 (1973).
[4] Language like that used in Section 601 has previously been used by Congress with the intent to make mandatory the spending of appropriated funds. Such an intent of similar language has been recognized by the Executive, and the courts have so interpreted it. See 20 U.S.C. § 1226 and 23 U.S.C. § 118(a); S.Rep.No. 91-634, 91st Cong., 2d Sess. 78-79 (1970); 114 Cong.Rec. 29014-16 (1968) (remarks of Senators Morse and Yarborough); State Highway Comm'n v. Volpe, supra.
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361 F.Supp. 1132 (1972)
William NELSON et al., Plaintiffs,
v.
Jule R. SUGARMAN, Individually and as Commissioner of the New York City Department of Social Services, et al., Defendants.
No. 71 Civ. 1719.
United States District Court, S. D. New York.
November 15, 1972.
*1133 *1134 Community Action for Legal Services, Inc. by Richard J. Hiller, David Rudenstine, Constance McDougal, New York City, for plaintiffs.
Louis J. Lefkowitz, Atty. Gen., of the State of New York by Mark T. Walsh and Benton J. Levy, Asst. Attys. Gen., New York City, Norman Redlich, Corp. Counsel, City of New York by Victor Muskin, New York City, for defendants.
Findings of Fact and Conclusions of Law
MOTLEY, District Judge.
The plaintiffs in this action are all recipients of public assistance from the State of New York under federally-funded programs, The complaint, as amended on May 24, 1971, charges defendants Sugarman and the New York City Department of Social Services with violating the mandate of Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L. Ed.2d 287 (1970), in their refusal to abide by and in their attempts to review ex parte certain "fair hearing" decisions of the New York State Department of Social Services involving the proposed termination, reduction, or suspension of welfare benefits.[1] Nine of the plaintiffs alleged that these defendants failed to comply with such fair hearing decisions which were favorable to the plaintiffs and, thereby, deprived them of their due process rights. This claim is similar, if not identical, to the claim presented in the case of Almenares v. Wyman, 453 F.2d 1075 (2d Cir. 1971), cert. denied, 405 U.S. 944, 92 S.Ct. 962, 30 L.Ed.2d 815 (1972), which held such a claim to be cognizable under 28 U.S.C. § 1343(3), the jurisdictional statute implementing the Civil Rights Act, 42 U.S.C. § 1983. In light of the decision in Almenares and 42 C.F.R. § 205.10(a)(5)[2] and their apparent effect on New York welfare procedures in cases involving the termination, reduction and suspension of benefits, the claim is now moot.[3]
The other allegations in the complaint charge all of the defendants with failing to comply with the regulation of the United States Department of Health, Education and Welfare (HEW) which prescribes fair hearing procedures to be *1135 followed by state welfare agencies, 45 C.F.R. § 205.10, 36 Fed.Reg. 3034 (1971). Eight of the plaintiffs alleged that defendants failed to implement in timely fashion fair hearing decisions which had upheld their right to increased benefits.[4] Another plaintiff, Mrs. Sexton, who was an applicant for public assistance, claimed that she waited almost six months after a fair hearing examiner had determined that she was eligible for assistance before she received any benefits. The specific provision of the HEW regulations which these plaintiffs claim has been violated by the defendants is 45 C.F.R. § 205.10 (a)(11) which provides:
§ 205.10 Fair hearings.
(a) State plan requirements. A State plan under title I, IV-A, X, XIV, XVI or XIX of the Social Security Act must provide for a system of fair hearings under which:
* * * * * *
(11) Prompt, definitive, and final administrative action will be taken within 60 days from the date of the request for a fair hearing, except where the claimant requests a delay in the hearing.
In their complaint, all the named plaintiffs alleged that they represented "members of a class, . . . who are all recipients of public assistance in the City and State of New York [and who] have received or will receive a favorable `fair hearing' decision from [State] Commissioner Wyman with which City Commissioner Sugarman and the [City] Department have refused or will refuse to comply or with which Commissioner Sugarman and the City Department have complied or will comply only after an inordinate and unreasonable delay." [Para. 4] In addition, the complaint represented that plaintiffs were bringing this action "on behalf of themselves and all others similarly situated." [Para. 9] By order dated December 17, 1971, this court granted plaintiffs' motion to prosecute their claims as a class action under Fed.R. Civ.P. 23(b)(2) for injunctive relief against the defendants.[5] The Almenares decision is authority for class action treatment in the circumstances presented here. See 453 F.2d at 1083-1086.
A trial of this action was held in December, 1971 and January, 1972. Subsequently, representations by the defendants of extensive changes in state and local welfare procedures were considered at a hearing on June 29, 1972 and the trial was reopened on September 12, 1972 to receive evidence of compliance by the state with the HEW regulations, in particular, the 60-day rule set forth above.
At the outset, the court is faced with the challenge by defendants to its jurisdiction over this action. It is clear that the Almenares-type claim would confer jurisdiction in this court and that the ancillary claims would clearly fall within this court's pendent jurisdiction if the Almenares issue were still unresolved. See 453 F.2d at 1083-1084; *1136 Serritella v. Engelman, 339 F.Supp. 738, 747 (D.N.J.1972) and cases cited therein. Consequently, the mootness of the Almenares issue does not deprive this court of its pendent jurisdiction over the statutory claims, for "mootness [is] a factor affecting its discretion, not its power" and "the extent of the investment of judicial energy and the character of the claim[s]" warrant assertion of jurisdiction in this case.[6]See Rosado v. Wyman, 397 U.S. 397, 403-405, 90 S.Ct. 1207, 1213-1214, 25 L.Ed.2d 442 (1970).
Furthermore, the claim that defendants are failing to implement, within a reasonable time, fair hearing decisions on the eligibility of new applicants for public assistance itself presents a colorable cause of action under 42 U.S.C. § 1983. The failure to provide assistance to such applicants, who have been found to have insufficient means of support, is certainly as serious as the "total or substantial withdrawal of benefits from families living near the edge of subsistence."[7]See Almenares, supra, 453 F.2d at 1082. And, as in Almenares, the claim of the welfare applicant and members of her class is of "unconstitutionality [of the regulations] as applied." Id. Thus, this claim also comes within 28 U.S.C. § 1343 (3) and supports jurisdiction of the related, "pendent"[8] statutory claims.
Indeed, under the broad Supreme Court holding in Lynch v. Household Finance Corporation, 405 U.S. 538, 92 S.Ct. 1113, 31 L.Ed.2d 424 (1972), which expressly rejected the "personal rights""property rights" analysis undertaken in Almenares, this court has § 1343(3) jurisdiction over all of the claims alleging a failure of the defendants to implement fair hearing decisions within a reasonable time. Those claims present a colorable issue of denial of the due process safeguards mandated in Goldberg v. Kelly, supra, and, therefore, state a cause of action under 42 U.S.C. § 1983.
Proceeding to the merits of this action, the court must determine whether the defendants are in compliance with the 60-day prompt-action requirement of 45 C.F.R. § 205.10(a)(11) in three categories of cases. The categories are as follows:
1. A claimant's initial application for assistance is denied and he or she requests a fair hearing;
2. A welfare recipient's application for increased benefits or for an additional payment is denied and the recipient requests a fair hearing; or
3. A recipient's assistance is reduced, discontinued, or suspended and the recipient requests a fair hearing, but not within "the advance notice period."
*1137 In each of these situations, both the HEW and New York State regulations afford the claimant or recipient the right to a fair hearing. See 45 C.F.R. § 205.10(a)(3); 18 N.Y.C.R.R. § 358.4(a)(1), (3) and (4). The request for a fair hearing must be made "within 60 days after the action or failure to act complained of." 18 N.Y.C.R.R. § 358.5(a). See 45 C.F.R. § 205.10(a)(3) (iii). When the hearing decision is favorable to the claimant or recipient, corrective payments are made retroactively to the date the incorrect action was taken. 45 C.F.R. § 205.10(a)(13); 18 N.Y.C.R.R. § 358.20.
Plaintiffs claim that fair hearing decisions are not rendered within 60 days of the request for a hearing in many cases in the categories set forth above and that when they are timely issued, the Departments of Social Services of the city and state do not implement the decisions within 60 days of the date of request. Plaintiffs contend that the failure to act within that 60-day period violates HEW's prompt-action regulation, 45 C.F.R. § 205.10(a)(11), reproduced supra. All defendants respond that this regulation "is directory and not mandatory" and that, in any event, it "requires only that fair hearing decisions be rendered within 60 days of date of request; the state is not obliged to implement the decisions within 60 days." Post-Trial Memorandum of state defendants, dated March 7, 1972, at 25, 29.
The simple answer to the contentions of the defendants is contained in the amicus brief of the United States submitted to this court. In that brief, HEW states that:
". . . it has always been the Department's position that the words [`final administrative action' utilized in 45 C.F.R. § 205.10(a)(11)] refer to the mailing of the check or increased check, or notification of denial of assistance or increased assistance, as the case may be."
Memorandum of United States of America as Amicus Curiae 2. See id. at 4-5. The brief concluded: "The regulation in 45 C.F.R. § 205.10(a)(11) requires that a fair hearing decision be reached and implemented within the 60-day period prescribed therein." Id. at 17. [Emphasis supplied to "requires"; emphasis on "and" in the original.] The court holds that the regulation is within the rulemaking power of HEW under 42 U.S.C. § 1302, that it is consistent with the policies of the Social Security Act and the mandate of Goldberg v. Kelly, supra, and that it is properly interpreted as a mandatory prescription requiring actual compliance by the state and city departments with fair hearing decisions within 60 days of the date of request for such a hearing.[9]Cf. Almenares, supra, 453 F.2d at 1087-1088; Jeffries v. Swank, 337 F.Supp. 1062, 1067 (N.D. Ill.1971).
It should be noted that the present regulations of the State Department of Social Services conform substantially with the HEW prompt-action requirement:
18 N.Y.C.R.R. § 358.18: "Decision after hearing. (a) The fair hearing *1138 decision . . . shall be issued as promptly as feasible and within 60 days from the date the request for a fair hearing is received by the department. However, such time may be extended when the appellant requests a delay in his hearing. The decision shall . . . when appropriate, direct specific action by the social services official. The decision shall be binding upon the social services officials.
* * * * * *
§ 358.22. Compliance with decision. When a decision of the commissioner (whether made after or without a hearing) directs a social services official to perform specific actions, such official shall comply promptly with such directions and make a report thereof to the department within 30 days after receipt of the decision."
It is apparent that, if the department simply complies with its own regulations, it should ordinarily meet the federal 60-day rule. Only in cases where a fair hearing decision is rendered at the very end of the 60-day period following a hearing request will prompt compliance by the appropriate state or city official exceed the 60-day "final administrative action" requirement of 45 C.F.R. § 205.10(a)(11).
Consequently, it would be a relatively simple matter for the department to bring itself in full conformity with the federal regulation, assuming that the department is actually complying with its own regulations. One alternative might be to shorten the period in which fair hearing decisions must be rendered in order to guarantee that prompt compliance by local social services officials with the decision will occur within 60 days of the request for the hearing. That is to say, an amendment of 18 N. Y.C.R.R. § 358.18 to require issuance of fair hearing decisions within 40 days, rather than 60 days, from the date of the request, might better insure adherence to the federal regulation. Such a change in the department's policy might well be coupled with a specification in § 358.22, supra, that the local social services official must, in all cases, comply with the directions of the hearing officer within 10 days after receipt of the decision. Neither of these proposed modifications in the present procedure of the department would increase the duties of or demands on departmental officials in any substantial way.
Of course, whether or not the present state regulations need revision and what modifications would be preferable are matters for the department, not for this court, to determine. The court has made the foregoing observations in order to indicate that the demands of the plaintiffs in this action are little different from the demands imposed upon the city and state social services departments by the state's own regulations. There is no challenge here to the validity of the regulations. Rather plaintiffs charge that defendants are presently violating these regulations and, in the process, are violating the HEW 60-day rule as well. The questions for the court are 1) whether the defendants have failed to comply with 45 C.F.R. § 205.10 and are still failing to comply and 2) if that is the case, whether injunctive relief is appropriate and what form such relief should take.
Over the past year, the state department has made substantial efforts to increase its capability for promptly adjudicating fair hearing requests. The fair hearing section of the department has increased its staff, streamlined its procedures, and expedited the handling of hearing requests. These improvements are reflected in the following statistics:[10]
*1139
TABLE 1
IMPROVEMENTS IN FAIR HEARING PROCESS IN 1972
Clerical Staff
Devoted to Processing
No. of No. of Fair Fair
Hearing Supervising Hearing Applications Hearings
MONTH Officers Examiners Held
JAN. 12 0 19 417
FEB. 14 0 19 582
MAR. 15 2 19 780
APR. 17 2 19 630
MAY 18 2 24 979
JUNE 23 2 33 1200
JULY 23 2 42 1051
AUG. 25 2 47 2017
SEPT. 27 4 49 1325
However, despite these efforts, the state department has still been unable to keep pace with the number of fair hearing requests received by it. While the backlog of requests to be decided has been reduced during the year, a significant number of hearing decisions have not been rendered within 60 days of the date of request, as shown in the following table:[11]
TABLE 2 HEARING DECISIONS IN 1972
Decisions
No. of Fair Exceeding % of Cases
Hearing Decisions 60 Days Exceeding
MONTH Requests Rendered To Render 60 Days
JAN. 1215 432 171 39.6
FEB. 1500 450 166 36.1
MAR. 1900 621 435 30
APR. 1900 686 282 41.1
MAY 3600 696 139 20
JUNE 5000 870 160 18.4
JULY 4300 675 160 17.8
AUG. 4200 900 187 20.8
SEPT. 3817 1120 Unavailable Unavailable
Perhaps the primary cause of the state department's difficulties has been the enormous rise in fair hearing requests since 1970. In the first six *1140 months of 1972, the department received four times as many requests for a fair hearing as it had received in the comparable period of 1970.[12] As a consequence, although the department rendered over 2500 more hearing decisions and disposed of over 7000 more hearing requests in January-June, 1972 than in the same months of 1970, on May 31, 1972, there were over 3000 hearing requests pending decision as compared to only 1700 on June 30, 1970. A comparison of the January-June, 1970 period with the January-May, 1972 period[13] is shown in the following table:
TABLE 3 FAIR HEARING STATISTICS
1970 and 1972 COMPARISON[14]
Pending
Hearing Requests at the
Requests Disposed Disposition End of
PERIOD Received Of By Hearing Period
JAN.-JUNE
1970 3800 3600 1200 1700
JAN.-MAY
1972 10,179 10,900 2885 3032
However, between January 1, 1972 and April 30, 1972 the department managed to reduce the number of pending requests from 3572 to 2139, although due to a doubling of requests in May, 1972 the figure of pending requests jumped to 3032 by the end of that month.[15] As indicated in note 13, supra, the pending-requests statistics for the months following May, 1972 have not been provided to the court.
Nevertheless, the department has dealt successfully with fair hearing requests in cases covered by the Almenares decision. See page 1134 and note 3 supra. That decision undoubtedly triggered the department's effort to increase its staff, so that rapid adjudications could be rendered in fair hearing cases requiring the continuation of aid during the pendency of the hearing decision.[16] Indeed, in its "Monthly Fair Hearing Report: May *1141 1972," the department announced that its "foremost goal . . . was to issue State fair hearing decisions in 4-6 weeks from the dates agencies sent the notices [of proposed action to effect the suspension, discontinuance or reduction of assistance] in aid-continuing cases."[17]
This policy of rapid disposition of fair hearing decisions has not been extended to the types of cases under consideration in this opinion. The reason for giving priority to the so-called "aid-continuing cases" is, obviously, that delayed decisions in such cases result in increased costs for the state. However, 45 C.F.R. § 205.10(a)(11), the federal prompt-action rule, makes no distinction between aid-continuing cases and other types of cases in which a claimant has the right to a fair hearing. As a practical matter, a claimant whose application for public assistance is denied is as much in need of a rapid decision on his case as was a recipient whose assistance was terminated prior to the Almenares decision. Likewise, a claimant who seeks increased assistance from the state has no less an interest in rapid determination of his fair hearing request than a recipient whose aid had been reduced prior to Almenares. In fact, the class members in this action are in greater need of expedited fair hearing decisions than welfare recipients who are now protected by the aid-continuation rule of Almenares and 18 N.Y.C.R.R. § 358.8. Since the state has been rendering fair hearing decisions within the prescribed 60-day period in aid-continuation cases since May of this year, it is apparent that the May-August figures for untimely decisions in Table 2, supra, represent primarily cases within the categories at issue here. Consequently, the percentage figures for decisions exceeding 60 days to render in non-Almenares cases are actually greater than the percentage figures stated in that table. Plaintiffs' Exhibit 200, the accuracy of which has not been contested by defendants, documents the problem for plaintiffs' class.
The exhibit, which is in chart form, sets forth the time element involved in 56 fair hearing cases in which decisions were rendered in excess of 60 days.[18] Sixteen of the cases involve the denial of applications for increased assistance. Twenty-two represent claimants whose initial applications for welfare were denied. Sixteen involve cases where a welfare recipient requested a fair hearing on proposed action by the local agency to terminate, reduce, or suspend assistance, but where aid is not continued under 18 N.Y.C.R.R. § 358.8 because the request was not made within the "advance notice period."[19]
In all but two of the cases on the chart, the claimant's request for a fair hearing was made during the first seven months of this year. In six of the cases, over 200 days elapsed between the date of the hearing request and the date of decision. In 36 other cases, the period exceeded 100 days. As of September 12, 1972, there were 44 cases on the chart where the fair hearing decision was not yet issued.
The court finds that Commissioner Wyman and the New York State Department of Social Services have failed to comply with 45 C.F.R. § 205.10(a)(11) in a substantial number of fair hearing cases, most probably exceeding 1000 cases, involving members of plaintiffs' class between January and August, 1972.[20]
*1142 In these cases, of course, it has been impossible for Commissioner Sugarman and the New York City Department of Social Services to comply with the decisions within 60 days of the date of the hearing request. In view of the revision of welfare procedures in the state during the past year, the prescriptions in 18 N.Y.C.R.R. § 358.18 and § 358.22, see p. 1138, supra, and the lack of evidence of delayed compliance by the city agency with fair hearing decisions in recent months, the court is unable to find that Commissioner Sugarman and the City Department are violating the 60-day rule in cases where timely decisions are issued by state hearing examiners. However, the court does find that these city defendants have misconstrued the meaning of 45 C.F.R. § 205.10(a)(11) in the past and still misconstrue it. See p. 1137 supra.
The failure of the New York State Department of Social Services to comply with HEW's 60-day rule has resulted in substantial harm and creates the potential for substantial harm to members of plaintiffs' class. In reponse to the court order imposed in Almenares, the state department managed to eliminate untimeliness in the decision of hearing requests covered by that order within a three-month period. The state department has therefore fully demonstrated its ability to comply with the 60-day rule. The court finds and concludes that the state department can successfully bring itself into compliance with the 60-day rule in the categories of cases at issue here in the same rapid manner. From the time this action commenced, the state department has repeatedly advised the court that such compliance would be possible as soon as it completes its present recruitment program for additional staff.
To fully satisfy the 60-day requirement, the state department must also implement procedures to assure that timely fair hearing decisions issued by that department will result in "the mailing of [a] check or increased check, or notification of denial of assistance or increased assistance," within 60 days of the hearing request. (See p. 1137, supra) It is the state department's responsibility to apprise local social services officials of this federally-imposed duty and to supervise its fulfillment.
Since Commissioner Wyman and the state department have represented to this court their full intention to comply with the 60-day rule and since they are presently in the process of achieving full compliance with it, the court denies permanent injunctive relief as to these defendants at this time. However, the court will retain jurisdiction over this action for a period of 90 days from the date of its order, issued pursuant to these findings and conclusions, to give the state department time to complete its recruitment program and to change any other necessary procedures to insure its full compliance with the 60-day rule in cases covered by this decision.
With respect to Commissioner Sugarman and the New York City Department of Social Services, a permanent injunction is denied.
The court directs the defendant state department to submit a report to the court within 60 days from the date of its order setting forth the steps which have been taken by it to fully comply with 45 C.F.R. § 205.10(a)(11). The report shall specify all relevant changes in the department's regulations and procedures as they affect fair hearing requests in the categories of cases considered in this opinion and the status of the recruitment program.
NOTES
[1] A fair hearing in conformity with Goldberg is required by the Social Security Act, 42 U.S.C. §§ 602(a)(4) and 1202(a) (4), and the United States Department of Health, Education and Welfare regulation contained in 45 C.F.R. § 205.10, which was issued pursuant to its rulemaking power, 42 U.S.C. § 1302.
[2] This regulation, which was published by HEW in February, 1971 and became effective on April 14, 1971, provides as follows:
§ 205.10 Fair hearings.
(a) State plan requirements.
A State plan under title I, IV-A, X, XIV, XVI or XIX of the Social Security Act must provide for a system of fair hearings under which:
* * * * *
(5) In cases of any proposed action to terminate, suspend or reduce assistance:
(i) The State or local agency will give timely and adequate advance notice detailing the reasons for the proposed action. Under this requirement:
(a) "Timely" means that the notice is mailed at least 15 days before the action is to be taken.
* * * * *
(iii) (a) In cases in which there is a request for a fair hearing within the advance notice period:
(1) Assistance is continued until the fair hearing decision is rendered and through a period consistent with the State's established policies for issuance of payments unless a determination is made by the State agency, in accordance with criteria issued by the Social and Rehabilitation Service, that the issue is one of State agency policy and not one of fact or judgment relating to the individual case, including a question of whether the State agency rules or policies were correctly applied to the facts of the particular case.
New York has incorporated this rule in its own regulations, effective July 18, 1972. See N.Y.C.R.R. § 358.8.
[3] Mr. Hiller, attorney for plaintiffs: "The plaintiffs concede that the State is now rendering decisions within 60 days in those cases covered by Almenares v. Wyman . . . of proposed reduction, termination, suspension or discontinuance." Trial Transcript, September 12, 1972, at 4.
[4] In addition, the complaint demanded that the court "[a]ward actual damages in the amount of $5000 and punitive damages in the amount of $10,000 to each of the plaintiffs in this action." Complaint, at para. E. This claim has been abandoned. See Order of the court, dated December 14, 1971, at 4.
[5] Although the plaintiffs named in the complaint only receive either Aid to Families with Dependent Children (AFDC) benefits or Aid to the Disabled (AD) benefits, the plaintiffs properly represent all welfare applicants and recipients in all of the six federally-funded programs to which 45 C.F.R. § 205.10(a), supra, specifically refers, namely, Old Age Assistance (OAA), 42 U.S.C. § 301 et seq., Aid to the Blind (AB), 42 U.S.C. § 1201 et seq., Aid to the Aged, Blind, or Disabled (AABD), 42 U.S.C. § 1381 et seq., and Medical Assistance, 42 U.S.C. § 1396 et seq., in addition to the AFDC and AD programs. See Alemenares, 453 F.2d at 1080 n. 7. The home relief program, N.Y. Social Welfare Law § 157 et seq. (McKinney's Consol.Laws, c. 55, Book 52-A, 1966), from which plaintiff Nelson received benefits, is not federally funded and is therefore not covered by the HEW regulations.
[6] The Almenares-type claim did not become entirely moot until the state changed its procedures subsequent to denial of certiorari in that case by the Supreme Court on February 22, 1972 (405 U.S. 944, 92 S.Ct. 962, 30 L.Ed.2d 815). The plaintiffs did not concede mootness of the claim until September 12, 1972. See note 3 supra.
[7] Compare Goldberg v. Kelly, 397 U.S. 254, 262-264, 90 S.Ct. 1011, 1017-1018, 25 L.Ed.2d 287 (1970):
"[Welfare] benefits are a matter of statutory entitlement for persons qualified to receive them. Their termination involves state action that adjudicates important rights.
. . . [W]hen welfare is discontinued, only a pre-termination evidentiary hearing provides the recipient with procedural due process. [Citation omitted]. For qualified recipients, welfare provides the means to obtain essential food, clothing, housing, and medical care. [Citation omitted.] Thus the crucial factor in this context . . . is that termination of aid pending resolution of a controversy over eligibility may deprive an eligible recipient of the very means by which to live while he waits. Since he lacks independent resources, his situation becomes immediately desperate. His need to concentrate upon finding the means for daily subsistence, in turn, adversely affects his ability to seek redress from the welfare bureaucracy."
(Emphasis in the original. Footnotes omitted.)
[8] See Almenares, supra, 453 F.2d at 1083 n. 10.
[9] HEW points out in its amicus brief, at 3, that the basic purpose of 45 C.F.R. § 205.10(a)(11) is to assure "that an individual who is applying for assistance or for an increased amount of assistance must receive his entitlement promptly." It is clear that the retroactive-payment requirement in that regulation, see p. 1136 supra, does not ameliorate the desperate situation of a claimant who has insufficient means of support while he is awaiting final administrative action on his claim. The 60-day rule is precisely designed to minimize the period of delay and, as HEW points out, an interpretation of that rule which only requires a hearing decision within 60 days would leave its "implementation open to bureaucratic delays of uncertain duration." Amicus brief, at 3. Furthermore, "it should be emphasized that the basic requirement in section 205.10(a)(11) is for `prompt' action on a hearing request. Under this requirement the outer limit of 60 days cannot be interpreted to permit a 60-day delay to become normal procedure." Id.
[10] The data in Tables 1 and 2 are contained in a chart furnished by the state which was stipulated to by the parties at the September 12, 1972 hearing in this court to represent the testimony of Carmen Shang, Assistant Commissioner of the New York State Department of Social Services. Hearing Transcript 13-14. See also id. at 25-30. (Testimony of Mr. Shang.)
[11] See note 10 supra.
[12] Approximately 15,100 requests were received between January and June, 1972 as compared to approximately 3800 in the same period of 1970. See Table 2 and Table 3.
[13] The information for the January-June period of 1970 is taken from DHEW Publication No. SRS 72-03257, HEW, "Fair Hearings in Public Assistance, January-June 1970." The publication was submitted to the court in Exhibit A to the state defendant's notice of motion, filed February 1, 1972. The chart referred to in note 10, supra, does not contain information as to the total number of hearing requests disposed of and pending in June, 1972. Plaintiffs' Exhibit 198 does contain such information, but only for the period of January-May 1972. That exhibit consists of memoranda, entitled "Monthly Fair Hearing Reports" for the months of January through May, 1972, which were prepared by the New York State Department of Social Services. For this reason, the time periods compared in Table 3 are disparate; however, they clearly demonstrate the trend which is of relevance here.
[14] The source of these statistics is discussed in note 13, supra.
[15] See Plaintiffs' Exhibit 198, New York State Department of Social Services, "Monthly Fair Hearing Report," (Memorandum), for the months of January, April, and May, 1972.
[16] See note 2 supra. Almenares was decided by the Court of Appeals on December 10, 1971. Between January and August of 1972, the state department doubled the number of its hearing officers and hired 28 additional clerical personnel to process fair hearing applications. See Table 1 supra.
[17] Plaintiffs' Exhibit 198, supra note 15, at 1.
[18] Fifty-seven cases are included in the chart. However, one case, numbered 17 on the chart, was evidently included by mistake, since the fair hearing decision in that case was issued within 60 days of the request date.
[19] The type of case was not indicated with respect to two of the claimants in the chart. For the definition of "advance notice period," see note 2 supra.
[20] In light of the change in department policy after May, 1972, which eliminated untimely hearing decisions in Almenares-type cases, the court infers from Table 2, supra, that at least half of the untimely decisions rendered between January and April, 1972 involved cases not within Almenares and most probably of the types under consideration in this action. Additional support for this conclusion is found in the HEW publication, cited at note 13, supra. Table 5 of that publication indicates that in the neighboring states of Connecticut and New Jersey well over 50% of the fair hearing requests disposed of between January and June, 1970 related to either "denial of application" or "amount and/or form of payment."
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418 F.Supp. 96 (1976)
John W. RENDE
v.
Mayor Frank L. RIZZO et al.
Civ. A. No. 75-3389.
United States District Court, E. D. Pennsylvania.
July 13, 1976.
*97 Helen H. Cutner, Philadelphia, Pa., for plaintiff.
Stephen T. Saltz, Deputy City Solicitor, Philadelphia, Pa., for defendants.
OPINION
DITTER, District Judge.
Two of the defendants in this police brutality suit, Mayor Frank L. Rizzo and Police Commissioner Joseph F. O'Neill, have filed a motion to dismiss.
The complaint, in which compensatory and punitive damages as well as injunctive relief are sought, is based upon 42 U.S.C. § 1983, and the doctrine of Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971).[1] This court's pendent jurisdiction is also invoked as to state law claims of assault and battery and various forms of negligence. Plaintiff asserts that the defendants conspired to and in fact did commit acts of brutality against him on the basis of his "class" membership, the class consisting of non-propertied alcoholics with criminal records.[2]
The law in this Circuit is clear that, ". . . complaints in civil rights cases must be specifically pleaded in order to avoid a motion to dismiss." Kauffman v. Moss, 420 F.2d 1270, 1275 (3d Cir.), cert. denied, 400 U.S. 846, 91 S.Ct. 93, 27 L.Ed.2d 84 (1970); see, Negrich v. Hohn, 379 F.2d 213 (3d Cir. 1967). This is especially true when a conspiracy is alleged. Kauffman v. Moss, supra; Everett v. City of Chester, 391 F.Supp. 26, 29 (E.D.Pa.1975); Pitt v. Coxe, 65 F.R.D. 355, 356 (E.D.Pa.1975). With this principle in mind, I conclude that the motion to dismiss must be granted.
*98 While the complaint, sub judice, is quite specific with reference to the alleged civil rights violations committed by certain named and unnamed police officers, other than Rizzo and O'Neill, it is noticeably vague as to them. In fact, the sole involvement of Rizzo and O'Neill in the conspiracy allegedly took the form of encouraging acts of police brutality through public statements calling for a "get tough" policy towards crime.[3] Without even considering the First Amendment implication of predicating liability on such statements, when it is remembered that liability under Section 1983 must be based on personal culpability, Bracey v. Grenoble, 494 F.2d 566, 571 (3d Cir. 1974); Padover v. Gimbel Bros. Inc., 412 F.Supp. 920 (E.D.Pa.1976), it is patently obvious that this allegation is insufficient to withstand the motion to dismiss. Plaintiff's reliance on Armstrong v. Carbonara, Civil Action No. 75-1888 (E.D.Pa. filed March 5, 1976) is misplaced. The crucial distinction between that case and this one is that the complaint there specifically alleged that Commissioner O'Neill knew of the violent propensities of the lower ranking police officers but failed to restrain or discipline them. Such allegations are an accepted basis for imposing liability on upper echelon police administrators, Fisher v. Volz, 496 F.2d 333, 349 (3d Cir. 1974), and are certainly a far cry from the "conduct" alleged here.
Plaintiff urges upon me another wellspring of federal law as a basis for granting relief against Rizzo and O'Neill. Essentially, it is plaintiff's position that defendants were acting as agents for the United States Government because they sought information concerning plaintiff's involvement in a bank robbery, a federal crime, and therefore are exposed to liability under 28 U.S.C. § 1331 and the Due Process clause of the Fifth Amendment. This assertion is an offshoot of the Supreme Court's holding in Bivens, supra, which established that money damages may be maintained for violations by federal officers of the Fourth Amendment. Without deciding whether Bivens applies to other than Fourth Amendment claims or to other than federal officers, I find that this claim will not survive defendants' motion to dismiss for the same reason that the Section 1983 claim failedlack of specificity in the pleading. Aside from the broad, conclusory allegations set forth above, the only other allegation relating to this theory is that, "Persons acting in behalf of the United States Government have a duty to act within the strictures of the Fifth Amendment to the United States Constitution, which defendants failed to do."[4]
Claims brought under Section 1331 and Bivens are the federal counterpart to Section 1983 civil rights complaints. As such, collateral issues developed under Section 1983 should apply to these claims by analogy. The Second Circuit, in the remand decision of Bivens, Bivens v. Six Unknown Agents of the Federal Bureau of Narcotics, 456 F.2d 1339, 1346-47 (2d Cir. 1972), recognized the logic of this approach. In that opinion the court held that the Section 1983 case law regarding immunity of state police officers should apply to Bivens-type claims against federal officers. In an earlier decision from this Circuit, Bethea v. Reid, 445 F.2d 1163 (3d Cir. 1971), cert. denied, 404 U.S. 1061, 92 S.Ct. 747, 30 L.Ed.2d 749 (1972), Judge Gibbons touched upon the propriety of this reasoning when he said:
This circuit held, in Bauers v. Heisel, 361 F.2d 581 (3d Cir. 1965), that a state prosecuting attorney was immune from suit under the Civil Rights Act, 42 U.S.C. § 1983. . . . Bauers v. Heisel would seem to compel the result that an Assistant United States Attorney is clothed with judicial immunity, unless there is some reason to distinguish between the *99 liability of State prosecutors under the Civil Rights Act and the liability of federal prosecutors under the federal common law created by the Bivens decision. We perceive no reason for such a distinction.
Id. at 1165-66. Common sense would require that the specificity requirement of the Kauffman-Negrich line of cases apply equally to Bivens-type claims under § 1331.
Because plaintiff's complaint fails to meet these requirements, the motion to dismiss Rizzo and O'Neill must be granted. However, heeding the Court of Appeals' recent admonition in Rotolo v. Borough of Charleroi, 532 F.2d 920, 923 (3d Cir. 1976) that "courts . . . allow liberal amendments of civil rights complaints" id. at 923, I will grant the plaintiff 30 days in which to amend his complaint against these defendants to cure, if he can, the deficiencies noted above.[5]
NOTES
[1] The complaint merely asserts jurisdiction under 28 U.S.C. § 1331, alleging over $10,000. in controversy. Since Section 1331 provides no substantive basis for relief and in view of the claim that the defendants were acting as federal officers during the period in question, see the text infra, I can only assume that plaintiff relies on the Bivens doctrine.
[2] Complaint, paragraphs 18-19.
[3] Paragraph 14 of plaintiff's complaint alleges that: "Defendants Rizzo and O'Neill, by public statements and otherwise, have encouraged their subordinates, including the persons performing the aforesaid acts, to `get tough' in solving crimes and are therefore averred to have conspired in the aforesaid acts."
[4] Complaint, paragraph 24.
[5] Since plaintiff will have 30 days in which to amend his complaint, I need not now decide whether I can or should exercise pendent jurisdiction over his state law claims against Rizzo and O'Neill. If plaintiff is able to cure the defects in his federal claims, I will then decide whether to exercise my discretion in favor of hearing the state claims against these defendants. In the event plaintiff is unable to amend his complaint so as to cure the deficiencies in his federal claims against them, I will then afford the parties an opportunity to present further memoranda or arguments on the appropriate disposition of the pendent jurisdiction question in light of Aldinger v. Howard, ___ U.S. ___, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976).
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814 F.Supp. 664 (1992)
ITT COMMERCIAL FINANCE CORP., a Nevada Corporation, Plaintiff,
v.
UNLIMITED AUTOMOTIVE, INC., d/b/a Fox Valley R.V., an Illinois Corporation, Bank One Milwaukee, N.A., a federally chartered banking association, and Richard Messenger, Defendants.
CHRYSLER FIRST COMMERCIAL CORPORATION, a Pennsylvania Corporation, Intervenor,
v.
UNLIMITED AUTOMOTIVE, INC., d/b/a Fox Valley R.V., an Illinois Corporation, and Everett J. Hiller, Defendants.
No. 92 C 1059.
United States District Court, N.D. Illinois, E.D.
December 9, 1992.
*665 *666 Daniel John Voelker, Peter C. Woodford, James L. Curtis, Christopher V. Langone, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for plaintiff.
Douglas Allan Lindsay, Blake T. Lynch, Thomas Maurice Weithers, Michele K. Parthum, Lewis, Overbeck & Furman, Mark Stephen Boyle, Law Offices of Mark S. Boyle, Chicago, IL, for defendants.
MEMORANDUM OPINION AND ORDER
ASPEN, District Judge:
Presently before the court are the motions of defendants Bank One Milwaukee, N.A. ("Bank One") and Richard Messenger to dismiss respectively Counts III and IV of plaintiffs second-amended complaint for lack of subject matter jurisdiction. For the reasons set forth below, we deny both motions.
I. Motion to Dismiss Standard
A motion to dismiss should not be granted unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); see also Beam v. IPCO Corp., 838 F.2d 242, 244 (7th Cir.1988); 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.E.2d 574 (1986). We take the "well-pleaded allegations of the complaint as true and view them, as well as reasonable inferences therefrom, in the light most favorable to the plaintiff." Balabanos v. North Am. Inv. Group, Ltd., 708 F.Supp. 1488, 1491 n. 1 (N.D.Ill.1988) (citing Ellsworth).
II. Factual Background
ITT is an entity incorporated under the laws of the State of Nevada, having its principal place of business in the State of Missouri. Defendant Unlimited Automotive, Inc. d/b/a Fox Valley R.V. ("Fox Valley") is a corporation organized and existing under the laws of the State of Illinois, having its principal place of business in Chicago, Illinois. Bank One is a federally chartered banking association with its principal place of business located in Milwaukee, Wisconsin. Messenger, an individual, is an Illinois resident.
On December 17, 1991, ITT and Fox Valley entered into a written agreement whereby ITT agreed to provide Fox Valley financing for the purchase of inventory. As security for its indebtedness, Fox Valley gave ITT an interest in all of its inventory and in other collateral as defined in the agreement. ITT properly perfected this security interest by the filing of a financial statement with the Illinois Secretary of State. According to ITT, Fox Valley is in default of its obligations under the agreement in at least the following respects: (1) Fox Valley has sold inventory financed by ITT out of trust by not paying the full amount of collateral financed by ITT when each such item was sold; (2) Fox Valley has refused to provide to ITT financial information as requested; (3) Fox Valley has failed to pay its indebtedness to ITT as it came due in the amount of $424,559.56; and (4) Fox Valley has altered or destroyed serial numbers of collateral financed by ITT in an attempt to avoid and confuse the extent of its obligations to ITT. Paragraph ten of the agreement provides in part that, in the event of default, ITT may "without notice or demand ... take immediate possession of the Collateral, together with all related documents." To effectuate this remedy, ITT filed this four-count diversity action against Fox Valley, Bank One and Messenger.
In Count III, the only count in which Bank One is named as a defendant, ITT seeks a declaratory judgment that it is the rightful owner of a certain 1986 Airstream Motor Home, Model No. 345LE, Serial No. 1GBKP37W6F3345951 (the "Bank One vehicle"). Similarly, in Count IV, the sole count in which Messenger is named as a defendant, *667 ITT seeks a declaration that it is the rightful owner of a certain 1977 Airstream Motor Home, Vehicle Identification No. 131A7J2405 (the "Messenger vehicle").[1] Bank One and Messenger have moved to dismiss the counts of ITT's complaint in which each is named for lack of subject matter jurisdiction on the grounds that the amount in controversy does not exceed $50,000, exclusive of interest and costs. See 28 U.S.C.A. § 1332(a) (Supp. 1992).
III. Discussion
At the threshold, we note that each defendant's potential liability on the respective claims is several. As such, jurisdiction under § 1332(a) can be sustained "only against those defendants whose respective controversies individually involve matters exceeding the jurisdictional amount." Motorists Mutual Ins. Co. v. Simpson, 404 F.2d 511, 513 (7th Cir.1968), cert. denied, 394 U.S. 988, 89 S.Ct. 1470, 22 L.Ed.2d 763 (1969); see also Corporate Resources, Inc. v. Southeast Suburban Ambulatory Surgical Center, Inc., 774 F.Supp. 503, 505 (N.D.Ill.1991). In other words, ITT must establish that the amount in controversy exceeds $50,000 for both Counts III and IV individually.
It is well-settled that the amount in controversy requirement is met by a good faith allegation of the minimum requirement in the complaint. As stated in St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938): "The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith." Upon a factual challenge by a defendant, however, the court is not bound to accept the mere allegations in plaintiff's complaint. Racich v. Mid Continent Builders Co., 755 F.Supp. 228, 229 (N.D.Ill.1991); Bellock v. Orkin Exterminating Co., 754 F.Supp. 122, 123 (N.D.Ill.1990). Instead, the party seeking to invoke federal jurisdiction bears the burden of supporting its jurisdictional allegations by "competent proof." McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936); Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir.1979); Kennedy v. Commercial Carriers, Inc., 739 F.Supp. 406, 410 (N.D.Ill.1990). However, this burden (technically placed on the plaintiff) is not exacting: "plaintiff is entitled to considerable latitude in supporting his allegations; he must be given the benefit of any facts he could conceivably prove in support of his allegations." Racich, 755 F.Supp. at 229 (citing Lichter v. Paine, Webber, Jackson & Curtis, Inc., 570 F.Supp. 533, 536 (N.D.Ill. 1983)). Further, in order for defendants to prevail on their motions to dismiss, "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount." St. Paul Mercury, 303 U.S. at 289, 58 S.Ct. at 590.
"In actions seeking declaratory or injunctive relief, it is well established that the amount in controversy is measured by the value of the object of the litigation." Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 347, 97 S.Ct. 2434, 2443, 53 L.Ed.2d 383 (1977); see also McNutt, 298 U.S. at 181, 56 S.Ct. at 781. In Count III, that object is the Bank One vehicle, a 34½ foot 1986 Airstream motor home. Respecting Bank One's motion, our task is the determination of the vehicle's value as of May 21, 1992, the commencement date of this action against Bank One. See Pariente v. Scott Meredith Literary Agency, Inc., 771 F.Supp. 609, 613 (S.D.N.Y.1991) (citing St. Paul Mercury, 303 U.S. at 289-90, 58 S.Ct. at 590-91). Bank One's factual challenge to the value of the Bank One vehicle consists entirely of the affidavit of Eric Pedersen, a partner in E & D Auto and Marine Services. Pedersen states that on February 28, 1992, the Bank One vehicle required repairs in excess of $5,000, and that in his estimate was worth approximately $15,000 wholesale and less than $25,000 retail. As of September 10, 1992, Pedersen pronounced the fair market value of the vehicle at approximately $40,000.[2]*668 Pedersen's affidavit, however, is insufficient to challenge ITT's allegation of an amount in controversy in excess of $50,000. Specifically, Pedersen's affidavit is silent as to the value of the vehicle, either retail or wholesale, on May 21, 1992. True, it is probable that Pedersen's estimate of the vehicle's value on May 21, 1992, would likely fall between his estimates for February 28, 1992 ($15,000 wholesale) and September 10, 1992 ($40,000 fair market value). Nonetheless, any attempt to extrapolate the vehicle's value on May 21, 1992, would be nothing more than pure guesswork, as no evidence exists as to its condition on that date.
This court, however, takes judicial notice that Kelley's Blue Book is an authoritative guide to the valuation of recreational vehicles. See In re Mitchell, 954 F.2d 557, 559 (9th Cir.1992) (using Kelley's Blue Book to estimate value of vehicle), cert. denied, ___ U.S. ___, 113 S.Ct. 303, 121 L.Ed.2d 226 (1992); In re Miller, 4 B.R. 392, 393 (Bankr. S.D.Cal.1980) (same). That publication indicates that, in May of 1992, a "typical" 34½ foot 1986 Airstream Motor Home had a retail value of $59,100 and a wholesale value of $44,500. Were this court to accept the retail value as the most appropriate valuation, or even the average of the retail and wholesale estimates as employed by many bankruptcy courts, ITT surely would meet the amount in controversy requirement. However, as did the Ninth Circuit in In re Mitchell, 954 F.2d at 559-61, we believe that the wholesale value should apply to the valuation of vehicles. Significantly, ITT is a creditor seeking to gain possession of collateral. As the Ninth Circuit noted, the creditor's interest in a vehicle is equivalent to what the creditor could receive upon a reasonable disposition of the collateral. Id. at 560. The vast majority of the difference between retail and wholesale price represents overhead, i.e., costs necessarily incurred by dealers to realize the retail price. Without such expense on the part of a creditor,[3] the wholesale price best approximates a reasonable disposition. Id. With a wholesale value of $44,500, it is apparent to a legal certainty that ITT's claim in Count III of its second-amended complaint is for less than the jurisdictional amount.
The object of litigation in Count IV of ITT's second-amended complaint is the Messenger vehicle, a 1977 Airstream Motor Home. ITT commenced this action against Messenger on July 24, 1992, thus fixing July 24, 1992 as the relevant date of valuation. In support of his motion, Messenger has attached a check and purchase agreement indicating that he paid $10,500 for the Messenger vehicle in June of 1991. Based on this evidence, he concludes that the vehicle cannot be valued in excess of $50,000 on July 24, 1992. In response, rather than pointing to any evidence that the Messenger vehicle was valued in excess of $50,000 on July 24, 1992, ITT argues we should strike Messenger's evidence for lack of foundation. Messenger has since laid a proper foundation in an affidavit attached to his reply memorandum. More significantly, apart from Messenger's evidence, the wholesale value listed in Kelly's Blue Book for a "typical" 1977 Airstream Motor Home is far short of $50,000. As such, it is apparent to a legal certainty that ITT's claim in Count IV of its second-amended complaint is for less than the jurisdictional amount.
In that neither Count III nor Count IV may be sustained under this court's diversity jurisdiction, we turn to consider the propriety of exercising supplemental jurisdiction over the claims. With limited exceptions, a federal district court "shall have supplemental jurisdiction over all other claims that are so related to claims in the action within [the court's] original jurisdiction that they form part of the same case or controversy. ..." 28 U.S.C.A. § 1367 (Supp.1992). Significantly, "[s]uch supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties." Id. Section 1367(a) overrules previous case law, specifically Finley v. United States, 490 *669 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989), and Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976), prohibiting "pendent party jurisdiction." American Pfauter, Ltd. v. Freeman Decorating Co., 772 F.Supp. 1071, 1073 (N.D.Ill.1991) (citing Practice Commentary, 28 U.S.C.A. § 1367, at 221).
Whether Counts III and IV form part of the same case or controversy as a claim within the court's original jurisdiction (i.e., Counts I or II), is to be determined under the standards governing the exercise of pendant jurisdiction as announced in United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). Roe v. Little Co. of Mary Hosp., 800 F.Supp. 620, 622 (N.D.Ill.1992); Corporate Resources, 774 F.Supp. at 506. In Gibbs, the Supreme Court held that federal courts may exercise pendant jurisdiction over a state claim if the state and federal claims "derive from a common nucleus of operative fact." Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138. Moreover, the Court ruled that pendant jurisdiction may properly be exercised if "plaintiff's claims are such that he ordinarily be expected to try them all in one judicial proceeding." Id.
In the instant case, Counts III and IV of ITT's second-amended complaint derive from a common nucleus of operative fact as Counts I and II. Contrary to defendants' assertions, Counts III and IV stem from the same contractual relationship as that alleged in Counts I and II. ITT maintains that Fox Valley breached a written financing agreement. As a result of that breach, and given the fact that the Bank One and Messenger vehicles were taken on consignment, ITT claims entitlement to those vehicles. In this regard, Counts III and IV are nothing more than an attempt to enforce a contractual remedy, such remedy flowing from the breach detailed in Counts I and II. Where multiple remedies (one of which falls in the court's original jurisdiction) stem from a single wrong (in this case Fox Valley's breach of contract), the court should find that the claims against all of the defendants comprise the "same case or controversy." See Roe, 800 F.Supp. at 623.
As a final effort to derail Counts III and IV of ITT's second-amended complaint, defendants contend that we should decline the exercise of supplemental jurisdiction under § 1367(c), which provides:
The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if(1) the claim raises a novel or complex issue of State law, (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction, (3) the district court has dismissed all claims over which it has original jurisdiction, or (4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.
28 U.S.C.A. § 1367(c) (Supp.1992). Of the four above listed exceptions, only the third arguably applies to this case. As defendants point out, this court has awarded ITT the relief requested in Counts I and II against Fox Valley. Though recognizing that those counts were not "dismissed," defendants contend that the practical result is the same, i.e., no claims remain within this court's original jurisdiction. Nonetheless, we believe that the interests of judicial economy and efficiency are best served by retaining supplemental jurisdiction over Counts III and IV of ITT's second-amended complaint and, hence, we refuse to invoke § 1367(c). Accordingly, we deny Bank One and Messenger's motions to dismiss.
IV. Conclusion
For the reasons set forth above, we deny Bank One and Messenger's motions to dismiss for lack of subject matter jurisdiction. It is so ordered.
NOTES
[1] The designation of the two vehicles with respect to the named defendants in no way reflects upon the issue of ownership.
[2] This increase of over $15,000 in market value is presumably a result of the $5,000 in repairs.
[3] It is unlikely that a creditor would expend the associated costs to realize retail price as its net recovery would likely be no greater than the wholesale value, a price it could receive with considerably less effort.
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883 F.Supp. 1076 (1994)
Errol "Romo" ROMERO, Sheriff of Iberia Parish, Louisiana
v.
UNITED STATES of America.
Civ. A. No. 94-0419.
United States District Court, W.D. Louisiana, Lafayette-Opelousas Division.
December 8, 1994.
Memorandum Denying Amendment of Findings But Altering Judgment, February 6, 1995.
*1077 *1078 John C. Holleman, Holleman & Little, New Iberia, LA, for plaintiff.
Michael D. Skinner, U.S. Attorney's Office, Lafayette, LA, Pamela J. Eppli, U.S. Dept. of Justice, Washington, DC, for defendant.
Judy P. Martinez, Simon Peragine Smith & Redfearn, New Orleans, LA, for Amici Curiae Handgun Control Inc., Center to Prevent Handgun Violence, Major Cities Chiefs of Police, Intern. Ass'n of Chiefs of Police, Nat. Ass'n of Police Organizations, Fraternal Order of Police, Police Foundation, Federal Law Enforcement Officers Ass'n, Police Executive Research Forum, Nat. Troopers Coalition, Nat. Organization of Black Law Enforcement Executives, Intern. Broth. of Police Organizations.
MEMORANDUM RULING
DOHERTY, District Judge.
This matter comes before the Court on plaintiff's complaint seeking both declaratory and injunctive relief against the defendant, the United States of America. Plaintiff seeks an order of this Court enjoining enforcement of portions of § 102(a) of P.L. 103-159, 107 Stat. 1536 (1993), and § 302(d), 107 Stat. 1545. Both provisions were enacted as part of the Brady Handgun Violence Prevention Act ("Brady Act") as an amendment to the Gun Control Act of 1968.
Plaintiff's complaint was filed on March 7, 1994, and on that date, a status conference was held before Judge Rebecca F. DOHERTY wherein plaintiff's request for a temporary restraining order was denied. The parties briefed the Court on plaintiff's Motion for a Preliminary Injunction. On May 11, 1994, the Court and counsel agreed to consolidate trial on the merits in this matter with the preliminary injunction hearing, pursuant to Fed.R.Civ.Pro. 65(a)(2), with all evidence to be submitted in supplemental briefs and joint stipulations of the facts. Thereafter, another status conference was held on August 2, 1994, wherein the Court requested additional briefing from the parties. Additional briefing was received and this Court now issues its ruling.
The Brady Act
The Brady Handgun Violence Prevention Act, enacted in 1993, imposes new restrictions on transfers of handguns throughout the nation. In enacting the Brady Act, Congress chose to impose new, more difficult hurdles to obtaining ownership of handguns. Section 102(a) of the Brady Act is entitled "Interim Provision," and establishes the rules for handgun transfers until the early part of the year 1999. This interim provision imposes certain duties upon local law enforcement officers, and it is these provisions which are challenged by plaintiff herein as inconsistent with the Tenth Amendment to the United States Constitution. These provisions are as follows:
"A chief law enforcement officer to whom a transferor has provided notice pursuant to paragraph (1)(A)(i)(III) shall make a reasonable effort to ascertain within five (5) business days whether receipt or possession would be in violation of the law, including research in whatever State and local record-keeping systems are available and in a national system designed by the Attorney General." § 102(a), codified at 18 U.S.C. § 922(s)(2) (emphasis added).
"Unless the chief law enforcement officer to whom a statement is transmitted ... determines that a transaction would violate Federal, State, or local law (i) the officer shall, within twenty (20) business days ... destroy the statement, any record containing information derived from the statement, and any record created as a result of the notice required ..." 102(a), codified at 18 U.S.C. § 922(s)(6)(B)(i) (emphasis added).
"If a chief law enforcement officer determines that an individual is ineligible to receive a handgun and the individual requests the officer to provide the reason for such determination, the officer shall provide the reasons to the individual in writing within twenty (20) business days after *1079 receipt of the request." § 102(a), codified at 18 U.S.C. 922(s)(6)(C) (emphasis added).
In addition to the Tenth Amendment challenge, plaintiff also challenges the criminal sanctions provision of the Brady Act, asserting that it is unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment. "Whoever knowingly violates subsection (s) or (t) shall be fined not more than $1,000.00, imprisoned for not more than one (1) year or both." 18 U.S.C. § 924(a)(5).
Stipulated Facts[1]
Sheriff Errol Romero is the Chief Law Enforcement Officer, as defined by the Brady Act, for the Parish of Iberia, State of Louisiana. As Sheriff, Mr. Romero has responsibility for performing various civil functions as well as criminal interdiction throughout Iberia Parish. Due to lack of sufficient funding, Sheriff Romero does not have the ability both to completely fulfill his duties as defined by the State of Louisiana and to undertake the additional duties mandated by the Brady Act.
Due Process
Sheriff Romero seeks a declaratory judgment that the criminal sanctions provision of the Brady Act is unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment to the United States Constitution, as well as an injunction prohibiting enforcement against himself of that provision. Defendant has challenged Sheriff Romero's standing to seek equitable relief concerning the criminal sanctions provision.
In order to assert a claim for equitable relief, a party must satisfy the jurisdictional requirements of this Court. The primary jurisdictional requirement is that a claim presents a "case or controversy," as found in Art. III of the United States Constitution.[2] In order to present a case or controversy, a plaintiff must have standing to bring his claim.[3] The United States Supreme Court recently reiterated the standing doctrine's requirements: (1) An injury in fact which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical; (2) a causal connection between the injury and the conduct complained of; (3) and a likelihood that the injury will be redressed by a favorable decision.[4] The party invoking federal jurisdiction bears the burden of establishing these elements.[5]
By his own admission, Sheriff Romero is not enforcing the provisions of the Brady Act,[6] and claims to be in peril of criminal prosecution for knowingly violating the terms of the federal law. By this admission, Sheriff Romero seeks to establish that the harm of prosecution is sufficiently imminent to satisfy the standing requirement.
The only entity which is legally authorized to enforce the criminal sanctions contained in the Brady Act is the United States Department of Justice. The Office of Legal Counsel of the United States Department of Justice has issued a memorandum finding that the Brady Act's criminal penalties "do not apply to [local law enforcement officers] in performance of their duties under the Act."[7]*1080 In making this finding, the Office of Legal Counsel states that enforcement of the criminal penalty provision would be "contrary to Congress' intent as determined according to rules of statutory construction and the relevant legislative history."[8] The Memorandum concludes with the assertion that "18 U.S.C. § 924(a)(5) does not apply to state officials and that the United States therefore lacks the authority to prosecute such officials for violations of the Act."[9]
The Department of Justice has clearly indicated an intent not to enforce the criminal sanctions provision of the Brady Act against law enforcement officers in connection with the background check provisions of the Brady Act, presumably including Sheriff Romero. Furthermore, Sheriff Romero has not presented this Court with any evidence to suggest that the local U.S. Attorney intends to act in violation of the Justice Department's clearly stated interpretation of the enforcement authority granted in the Brady Act. Therefore, plaintiff has not sustained his burden of proving that he is under an imminent threat of indictment sufficient to grant him standing to challenge the constitutionality of the criminal sanctions provision of the Brady Act.[10]
For the foregoing reasons, this Court does not have jurisdiction to hear plaintiff's Fifth Amendment challenge to the criminal sanctions provision of the Brady Act.
The Tenth Amendment and the Commerce Clause
I.
Complainant seeks a declaratory judgment that § 102(a) of the Brady Act is inconsistent with the Tenth Amendment and unconstitutional for that reason. As noted above, Sheriff Romero cannot assert a claim for equitable relief unless he proves his standing to bring such a claim. Standing requires the existence of an injury in fact, a causal connection between the injury and the conduct complained of, and the likelihood that the injury will be redressed by a favorable decision.[11]
The parties have stipulated to the harm actually caused and threatened by the Brady Act. The law creates a political dilemma for Sheriff Romero. "[The Brady Act] puts him in the middle of the conflict between those citizens of Iberia Parish who firmly believe that the provisions of the Brady Handgun Control Act unconstitutionally infringes [sic] upon their right to bear arms and those who feel it is a legitimate exercise of Congressional authority."[12] This is precisely the type of injury which the Supreme Court has recognized that the Tenth Amendment and the constitutional structure are designed to avoid.[13] Sheriff Romero has Hobson's Choice of either being a law enforcement officer not enforcing the law, or enforcing a law he and many of his constituents believe is unconstitutional. Moreover, due to a serious funding shortage, compliance with the federal mandate will have the effect of making it impossible for Sheriff Romero to fulfill his duties as defined by Louisiana law. Irrespective of his choice, Sheriff Romero suffers the damage incumbent upon being politically accountable for an action taken by Congress, for which he was not responsible.
*1081 Plaintiff has sustained his burden of proving he has suffered and continues to suffer an injury in fact. Furthermore, the injury to Sheriff Romero's political standing directly results from the Congressional imposition of law enforcement duties above and beyond those described and defined in Louisiana law. Finally, a ruling by this Court on the question of the constitutionality of § 102(a) of the Brady Act will resolve the plaintiff's political dilemma: either he will be proven right in choosing not to enforce the law, or he will be deprived of a valid excuse for failing to do so.
For the foregoing reasons, this Court finds that it has jurisdiction to hear Sheriff Romero's request for equitable relief from the duties imposed upon him by § 102(a) of the Brady Act.
II.
Sheriff Romero alleges that the provisions of § 102(a) of the Brady Act which impose duties upon him, as a state officer, are beyond the enumerated powers granted to Congress in the United States Constitution and, therefore, are inconsistent with the Tenth Amendment. The Brady Act, as noted above, requires local Chief Law Enforcement Officers ("CLEOs"), upon receiving notice from a gun dealer of an applicant's desire to purchase a handgun, to make a reasonable effort to ascertain whether the proposed gun purchase would violate federal, state, or local law.[14] In addition to undertaking such research, the CLEO is required, where the purchase would not violate the law, to destroy both the application and the materials accumulated during the research thereof.[15] Finally, if a purchase is disapproved, the CLEO is required, upon request, to issue a letter stating the reasons for such disapproval.[16] Under the statute, all of the foregoing actions expose the CLEO to liability for attorney's fees which might be incurred by anyone bringing an action based upon the CLEO's recommendation to the gun dealer.[17]
The Brady Act imposes duties on CLEOs exclusively in the context of their official capacities as officers of the states. The provisions are clearly designed to regulate and control States' methods of enforcing their own and federal criminal statutes concerning possession of handguns. This regulation of CLEOs' law enforcement methods, rather than commercial activities, suggests the purpose of these provisions is not regulation of commerce but of an essential element of state sovereignty: maintenance of public order.
The Tenth Amendment to the U.S. Constitution limits the exercise of power by the U.S. Government. "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."[18] In view of this express limitation upon the federal government's authority, a Congressional enactment is constitutionally proper only if it is enacted pursuant to an enumerated power granted Congress in the Constitution.
The United States invokes the Commerce Clause, and no other, as the source of its authority to enact the Brady Act.[19] "The Congress shall have Power ... To regulate Commerce ... among the several States...."[20] In regulating pursuant to its enumerated powers, the Constitution also grants Congress the authority "[t]o make all laws which shall be necessary and proper" in pursuit of such regulation.[21]
In analyzing the interplay between the Tenth Amendment and the Commerce Clause, the Supreme Court, in some cases, has inquired "whether an Act of Congress is authorized by one of the powers delegated to *1082 Congress in Article I of the Constitution."[22] In other circumstances, the Supreme Court has approached the issue by asking "whether an act of Congress invades the province of state sovereignty reserved by the Tenth Amendment."[23] Most recently, the Court has noted that the two questions are mirror images of each other.[24] "[T]he Tenth Amendment confirms that the power of the Federal Government is subject to limits that may, in a given instance, reserve power to the States."[25] Thus, the ultimate determination to be made in an analysis of whether an Act of Congress violates the Tenth Amendment is "whether an incident of state sovereignty is protected by a limitation on an Article I power."[26]
The Supreme Court has, thus far, declined to clearly establish an analytical framework for determining whether a particular Act is consistent with the Tenth Amendment, the Commerce Clause and the federalist concept of state sovereignty inherent in the Constitutional structure. This Court has closely scrutinized the Supreme Court's efforts to delineate a method for interpreting and applying the various concepts relevant to the circumstances found in this case. Each effort seems simply to make the morass of language and meaning more difficult to discern.[27] There are, however, at least two appropriate analyses which have been used which are relevant to the instant challenge. As the same result obtains under either analysis, both are set out hereinbelow.
A.
The Commerce Clause, according to well-established jurisprudence of the United States Supreme Court, grants Congress plenary authority to regulate all interstate commercial activity as well as intrastate commercial activity which has a substantial impact upon interstate commerce.[28] "The allocation of power contained in the Commerce Clause, for example, authorizes Congress to regulate interstate commerce directly; it does not authorize Congress to regulate state governments' regulations of interstate commerce."[29] "[T]he Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress' instructions."[30] This position derives from the Framers' choice to allow Congress to exercise its legislative authority directly over individuals rather than over States.[31]
The provisions of the Brady Act under challenge herein clearly seek to regulate the state's regulation and impose duties upon the states through their CLEOs, and therefore regulate state enforcement officials' methods of enforcing state, local, and federal criminal laws. The Commerce Clause does not authorize Congress to regulate states' regulation of commerce, a fortiori it does not allow federal regulation of the states' CLEOs' methods of law enforcement as a method of regulating interstate commerce.[32] As the *1083 relevant provisions of the Brady Act are not authorized under the Commerce Clause, they are inconsistent with the Tenth Amendment to the United States Constitution.
B.
While the foregoing analysis relies upon explicit language contained in several Supreme Court cases, the Court's use of language which could be argued as quite broad and perhaps contradictory in this area of constitutional consideration calls into question whether such a simple analysis will be found sufficient. The jurisprudence might be distilled to derive an alternative analysis which does not simply foreclose Congress from regulating local law enforcement methods under the Commerce Clause, but looks to the type of regulation at issue for a determination of whether it is constitutionally permissible.
A Court will uphold legislation enacted under the Commerce Clause power if two requirements are met: (1) a Congressional finding that a regulated activity affects interstate commerce will be sustained if there is any rational basis for such a finding; and (2) the means selected by Congress must be reasonably adapted to the end permitted by the Constitution.[33] There is no argument and this Court will not belabor the point by reiterating the obvious that Congress can and has regulated handguns under the auspices of the Commerce Clause based upon the effect on interstate commerce of the purchase of handguns. Moreover, the method of regulation chosen by Congress creating a new requirement that gun sellers notify local law enforcement of the proposed handgun purchase and allow time for a criminal background check prior to the transfer is a means reasonably adapted to the control of interstate commerce in handguns. Thus, the Brady Act meets the Commerce Clause threshold test of constitutionality. The question remains, however, whether the Brady Act, in its method of regulating handgun transfers, encroaches upon an incident of state sovereignty protected by the Tenth Amendment's limitation on the Commerce Clause.
Where the question is not merely whether Congress had the authority to regulate a particular area of commerce, but whether the Commerce Clause grants Congress the authority to instruct the states to act pursuant to federal edict, the analysis looks closely at the particular mandate in determining its constitutionality. The Supreme Court has established some bright line rules regarding the extent of Congress' authority to intrude upon state sovereignty. To date, under no circumstances may Congress order the states to legislate in accordance with a national mandate.[34] However, Congress clearly does have the authority to order states' judiciary officers to enforce federal law.[35] Congress is also allowed to subject states to regulations imposed upon commercial activities generally.[36] Yet a fourth bright line rule is that *1084 where an area of state regulation is preemptible, Congress is allowed to "encourage" or "influence" states to act, legislate, adjudicate, or enforce in accordance with federal standards, irrespective of the intrusive nature of the request, so long as there is no coercion and the states are free to choose not to regulate the commercial activity and, thus, not comply with the Congressional "request."[37]
The mandates on CLEOs contained in the Brady Act do not fall into any of the bright line categories of present Tenth Amendment jurisprudence. With the Brady Act, Congress has not ordered the states to legislate or to adjudicate, nor has it ordered the judiciary to act; it has ordered the state through its executive officers to enforce federal, state, and local gun possession statutes by researching possible criminal violations before they take place. Of note is the fact that the provisions at issue do not apply to individuals or anyone other than the specified state officials. While the Government does argue that Congress has created a permissive statute which merely gives the states an option to perform in accordance with Congressional wishes, this Court finds that position to be contrary to the express language of the Act and without merit.
The language imposing the duty on CLEOs is clearly mandatory in nature:
"A chief law enforcement officer to whom a transferor has provided notice pursuant to [this section] shall make a reasonable effort to ascertain within five (5) business days whether receipt or possession would be in violation of the law, including research in whatever State and local record-keeping systems are available and in a national system designed by the Attorney General." 18 U.S.C. § 922(s)(2) (emphasis added).
While the statute does not specify a set sequence of particular procedures to be followed, the language clearly mandates some action in response to each notice. The Government argues that the reasonableness standard incorporated into the statute minimizes the mandatory effect of this language. In so doing, Government counsel describe the statutory duty in benign almost permissive language.[38]
As support for its argument that the Brady Act's duties are permissive in nature, the Government has provided the Court evidence of the position taken by the ATF at this time on the statute's mandate. This evidence is in the form of a copy of an Open Letter to State and Local Law Enforcement Officers from the Bureau of Alcohol, Tobacco & Firearms ["ATF"] dated January 21, 1994, which includes the following passage: "Each law enforcement agency serving as the CLEO will have to set it [sic] own standards based on its own circumstances, i.e., the availability of resources, access to records, and taking into account the law enforcement priorities of the jurisdiction."[39] However, the Open Letter also states that, "In terms of the initial search, the law clearly anticipates some minimal effort to check commonly available *1085 records."[40] In view of ATF's explicit recognition that the law mandates at least some minimal effort with every application and the explicit language of the Act, the Government's position that Sheriff Romero will be able to completely avoid the mandate of the Brady Act simply by determining that he is too busy elsewhere is, at the very best, a misreading of the language of the statute and the Open Letter. The statute clearly imposes and the Bureau of Alcohol Tobacco & Firearms admits the statute imposes mandatory duties upon state officials, thus precluding this case from properly being placed in the bright line category for Congressional "encouragement" of state actions in regulating preemptible areas of commerce.
As the Brady Act does not fall into any of the bright line clearly-defined categories of Tenth Amendment jurisprudence, a deeper foray into the tangle of existing Supreme Court holdings and language is necessary. The jurisprudence illustrates the primary and overriding tension in cases interpreting the Tenth Amendment is that Congress cannot be allowed to jeopardize the continued vitality and independence of states as sovereign entities separate and distinct from the federal government.[41]
In some circumstances, the Supreme Court has allowed Congress to impose duties upon state officials where the additional duties do not expand the scope of the officials' responsibilities. In Federal Energy Regulatory Commission v. Mississippi, the Supreme Court upheld the Commission's decision to impose upon Mississippi administrative authorities a duty to adjudicate disputes arising under the Public Utilities Regulatory Policies Act ("PURPA"), relying upon its precedent in Testa v. Katt.[42] Both Testa v. Katt and Federal Energy Regulatory Commission v. Mississippi are distinguishable from the instant matter in several instances, first, because they impose duties upon state judiciary officers, which allowed the Supreme Court, in both cases, to invoke the Supremacy Clause as additional justification for imposing the adjudicatory duties in those cases. In contrast, Sheriff Romero is clearly not a member of the judicial branch of state government, nor does the Brady Act impose adjudicatory duties upon CLEOs. Consequently, the judiciary and the Supremacy Clause are not involved.
Second, Federal Energy Regulatory Commission v. Mississippi is distinguishable from the instant case in its rationale. "[T]he statute and the implementing regulations simply require the Mississippi authorities to adjudicate disputes arising under the statute. Dispute resolution of this kind is the very type of activity customarily engaged in by the Mississippi Public Service Commission."[43] In other words, the Congressional action in Federal Energy Regulatory Commission v. Mississippi did not expand the scope of the officials' responsibilities. The Brady Act, however, does expand the scope of CLEOs' responsibilities and does so, in this instance, in a manner which precludes the official from performing his state duties. Sheriffs in the State of Louisiana are not required under state law to perform background checks on or issue letters to individuals desiring to purchase a handgun. Further, a state law requiring such activity would have to be crafted so as not to violate the provisions of Article 1, § 5 of the Louisiana Constitution of 1974 which provides: "The right of each citizen to keep and bear arms shall not be abridged."
Further, Sheriff Romero argues and the government admits to the stipulation that Sheriff Romero faces a severe funding shortage and the cost of following the mandates of the Brady Act would prohibit Sheriff Romero from carrying out the state's mandates to preserve public order. Consequently, in *1086 Sheriff Romero's situation, the Brady Act's unfunded mandates strip the state of the ability to preserve public order in his jurisdiction. This was not the case with the congressional action in Federal Energy Regulatory Commission v. Mississippi. First, Congress did not expand the scope of duties in Federal Energy Regulatory Commission v. Mississippi; second, in Federal Energy Regulatory Commission v. Mississippi Congress recognized that a state's compliance with PURPA would involve expenditure of funds and therefore, it authorized grant funding for states to assist them in carrying out the requirements of PURPA.[44] Thus, upon full review, Federal Energy Regulatory Commission v. Mississippi does not control herein because its rationale is not applicable in these circumstances.
Yet another factor on which constitutionality of Congressional enactments under the Commerce Clause turns is whether the area of regulation is preemptible. As noted above, Congress has plenary authority to regulate all attributes of interstate commerce. The Court's jurisprudence has made it clear that Congress may preempt state regulation of private activity affecting interstate commerce in all its forms.[45] However, as discussed above, an additional limit on Congress' authority under the Commerce Clause is the definition of "commerce." Another limit is the Tenth Amendment itself, which precludes preemption of state regulation where doing so would sufficiently interfere with an incident of state sovereignty.[46]
The Supreme Court has not provided extensive guidance to aid in determining which incidents of state sovereignty are fully protected by the Tenth Amendment. Clearly, the power to determine the legislative agenda, and to be free of Congressional mandates to legislate, is an incident of state sovereignty.[47] Just as clearly, control over the terms and conditions of employment is not such an incident of state sovereignty.[48] The parties have not cited this Court to any further jurisprudence helpful in defining "incidents of state sovereignty," nor has this Court discovered any additional guidance in its own research of the issue beyond the integral relationship and construction of and between the Constitution and its amendments. However, it is possible to extrapolate at least one such incident of state sovereignty, without the necessity for defining all incidents, from the very nature of state sovereignty: maintenance of public order.
The State of Louisiana has created sheriffs' offices throughout its territory as part of its regulatory mechanism for maintaining public order within its borders. It must be without question that a crucial element of sovereignty is the power to maintain public order within the sovereign's territory. It is clear to this Court that, irrespective of the parameters of the "incidents of state sovereignty" definition, the maintenance of public order must come within those parameters.
One way in which the State of Louisiana exercises its sovereign right of maintaining public order within its borders is by defining and assigning the duties of its sheriffs, through its Constitution and statutory enactments. To strip the sheriffs of their ability to maintain public order and thus strip the state of its ability to assign and define the duties of its sheriffs clearly totally removes one incident of state sovereignty.
Intercepting possible criminal activity by performing background checks of individuals seeking to purchase handguns is not among the duties which have been assigned to sheriffs *1087 by state law. To conform with the federal mandate would preclude the sheriffs from conforming with the state's mandate to maintain public order.[49] As a consequence, the Brady Act is not in the tradition approved in Federal Energy Regulatory Commission v. Mississippi. By mandating additional law enforcement duties which would prevent Sheriff Romero from fulfilling his statutorily-defined duties, the Brady Act significantly impairs the ability of the states to function effectively in a federal system.[50]
Yet another exercise of sovereign power is allocation of funding for Sheriffs' Offices. The parties have stipulated that, due to an extreme shortage of funding, one inevitable effect of the Brady Act would be to preclude Sheriff Romero from fulfilling the duties imposed upon him by the State of Louisiana. By imposing the Brady Act's unfunded mandate on the states, Congress has displaced Louisiana's policy and priority determinations in the crucial area of maintaining public order. For every dollar spent fulfilling the Brady Act's mandate, Sheriff Romero would have one less dollar available for performing the duties assigned him by law to the effect that Sheriff Romero would be unable to perform those duties assigned him by the state. Of crucial import in this matter is that the facts establish that the mandates of the Brady Act go beyond mere interference in the states' right to control and effectuate their own law enforcement priorities. The effect of the Brady Act in this case is to remove Sheriff Romero's ability to perform certain tasks assigned him by the state which preserve the public order and therefore remove their sovereign authority to maintain public order in Iberia Parish.
As the ability to establish a mechanism for maintaining public order, and the means of effectuating public order in accordance with determined policies and priorities, clearly must be incidents of state sovereignty crucial to the continued vitality and independence of states as sovereign entities, this Court finds that the Tenth Amendment limits Congress from preempting state regulation for the maintenance of public order. Moreover, the ability to control its law enforcement officers, methods of law enforcement and law enforcement funding priorities are necessary elements of any sovereign's ability to maintain public order. Thus, the Tenth Amendment precludes Congress, under the auspices of the Commerce Clause, from issuing mandates which obstruct states' exercise of their ability to preserve public order, or from ordering the states' law enforcement officers to preserve public order in accordance with federally-defined procedures.
If Congress is precluded from preempting the states' maintenance of public order, the question becomes whether, and to what extent, Congress may occupy the regulatory arena at issue. The parties have not cited this Court to any case law addressing this question. Without any Supreme Court or Fifth Circuit guidance on this question, this Court can only assume that Congress' exercise of its Commerce Clause authority concerning an incident of state sovereignty would be either equivalent to, or less than but certainly not more than its authority to regulate preemptible interstate commerce activities.
Outside of the exceptions noted above,[51] Congress is allowed to preempt state regulation of interstate commerce, but cannot mandate states' regulation in accordance with federal law. Rather, Congress must give states a choice of whether to regulate in accordance with federal mandate or, in the alternative, to abstain from regulating at all.[52] This is so because the constitutional *1088 structure allows Congress to regulate individuals, not states.
[E]ven where Congress has the authority under the Constitution to pass laws requiring or prohibiting certain acts, it lacks the power directly to compel the States to require or prohibit those acts.... The allocation of power contained in the Commerce Clause, for example, authorizes Congress to regulate interstate commerce directly; it does not authorize Congress to regulate state governments' regulation of interstate commerce.[53]
In the Brady Act, Congress achieves regulation of state law enforcement officials under the guise of regulating interstate commerce. By acting to control state law enforcement methods rather than controlling interstate commerce itself, Congress has gone one step too far.
Thus, even where Congress' authority is supreme, it cannot simply dictate that states shall regulate interstate commerce in accordance with congressionally-imposed rules. Yet, that is precisely what Congress has done under the Brady Act. As noted above, the Act clearly contains mandates to CLEOs in their official state capacities. These mandates impose duties on CLEOs to act, in their official state capacities, in accordance with federal directives. The Act's new duties constitute an edict that CLEOs shall prevent possible violation of local, state, or federal handgun regulations by certain ordained law enforcement methods, i.e. background checks and explaining negative results of those checks, but destroying the accumulated information where no potential violation is found.
The mandatory nature of the duties created in the Brady Act places the Act outside of the scope of Congress' Commerce Clause authority in the context of regulating state governments. Such regulation of states' and of the states' daily activities in pursuit of maintaining public order, ostensibly pursuant to Commerce Clause authority, is beyond the limits placed upon Congress by the Tenth Amendment.
For the foregoing reasons, this Court finds the challenged provisions of § 102(a) of the Brady Handgun Violence Prevention Act, codified at 18 U.S.C. § 922(s)(2), (s)(6)(B-C), to be inconsistent with the Tenth Amendment to the United States Constitution and, therefore, unenforceable by the United States of America.
Severability
The final question that this Court must address is the issue of severability of the unconstitutional provisions, 18 U.S.C. §§ 922(s)(2), 922(s)(6)(B-C), from the remainder of the Brady Handgun Control Act. Plaintiff argues that the unconstitutional portions of § 922(s) are the "heart and foundation of that entire subsection and thus, would not be severable, with the result that the entirety of 18 U.S.C. § 922 should be declared unconstitutional."[54]
"Unless it is evident that" Congress would not have enacted the constitutional provisions in a statute independently of any unconstitutional ones, "the invalid part may be dropped if what is left is fully operative as law."[55] If a statute includes a severability clause, as the Gun Control Act does,[56] there is a presumption that any of its provisions found to be unconstitutional are severable.[57]
*1089 This Court has found the Brady Act's mandates to CLEOs unconstitutional. Considering the arguments made by the United States,[58] this Court believes that the primary goal of the Brady Handgun Control Act, a five-day waiting period for handgun purchases and the sharing of information between handgun dealers and local law enforcement officials, continues to be served even though this Court has invalidated the mandates to CLEOs. Further, although released from the mandate, CLEOs will maintain the option of acting on any given notice from a handgun dealer, at their option and in pursuit of their own law enforcement priorities and policies.
Therefore, this Court finds that plaintiff has not overcome the presumption that Congress would not have passed the Brady Act unless the mandates had been included and therefore, this Court finds that said section is severable and that the Brady Handgun Control Act remains "fully operative as law."[59]
Conclusion
In conclusion, this Court has found Sheriff Romero does not have standing to prosecute a Due Process vagueness challenge to the criminal sanctions provision of the Brady Act, 18 U.S.C. § 924(a)(5). The Due Process challenge is DISMISSED. Furthermore, the challenged provisions imposing federal mandatory duties upon CLEOs is inconsistent with the Tenth Amendment to the United States Constitution and is, for that reason, UNCONSTITUTIONAL. The United States is permanently enjoined from enforcing 18 U.S.C. § 922(s)(2), 18 U.S.C. § 922(s)(6)(B)(i), and 18 U.S.C. § 922(s)(6)(C). The remainder of the Brady Act being functional and fully operative as law, the unconstitutional provisions are severed therefrom and continue in full force and effect.
MEMORANDUM RULING ON MOTION TO AMEND FINDINGS AND TO ALTER JUDGMENT
Before the Court is a Motion for Amendment of Findings and to Alter Judgment filed on behalf of defendant, the United States of America. Plaintiff, Sheriff Errol Romero, opposes the motion.
Defendant asserts that this Court's analysis of the constitutionality of the Brady Act turned on "mistaken factual findings," which defendant now requests this Court to correct. Defendant asserts that this Court incorrectly concluded that the parties stipulated that it would be impossible for plaintiff to discharge his duties under state law and also comply with his responsibilities under the Brady Act as the chief law enforcement officer (CLEO) for Iberia Parish. Defendant states, "The parties agreed to no such stipulation, however, and that is not the government's interpretation of the Brady Act." (Memorandum in Support, p. 1). This statement reveals that the defendant is in fact asserting two (2) points: (1) the government's interpretation of the Brady Act; and (2) how with this interpretation there cannot result a joint stipulation as described by the Court.
With regard to the government's interpretation of the Brady Act, this Court notes that defendant has put forth the same arguments this Court addressed in its Memorandum Ruling at pp. 16-18. The government has argued and continues to argue that the reasonableness standard incorporated into the Brady Act minimizes the mandatory effect of the language imposing a duty on CLEOs such that a "reasonable" Brady Act check could be "no check at all." As fully explained in this Court's previous ruling, this Court has found the government's interpretation of the Act to be incorrect. "While the statute does not specify a set sequence of particular procedures to be followed, the language clearly mandates some action in response to each notice." (Memorandum Ruling, p. 17).
Secondly, defendant asserts that it did not agree to the "Stipulated Facts" as described by the Court in its Memorandum Ruling. Specifically, defendant quotes the following from the Court's ruling:
Due to lack of sufficient funding, Sheriff Romero does not have the ability both to *1090 completely fulfill his duties as defined by the State of Louisiana and to undertake the additional duties mandated by the Brady Act.
Defendant asserts that it simply agreed to "what plaintiff's testimony would have been, had he been called to testify." (Memorandum in Support, p. 5). Defendant contests the factual basis of plaintiff's testimony in its Memorandum in Support of its Motion to Amend and in its previous submission to this Court not by proffering any evidence or arguing that if plaintiff performed any of the duties required by the Brady Act, plaintiff also could fulfill his state law duties, but by arguing its interpretation of the Act, which for the reasons already given, this Court finds incorrect. Defendant has submitted no evidence to contradict plaintiff's testimony and therefore, this Court accepts that testimony as fact and therefore finds that plaintiff is unable to both fulfill his duties as defined by Louisiana law and undertake those additional duties whatever they might be which are required of him by the Brady Act. Therefore, this Court has found and continues to find that if plaintiff were to testify he would testify that:
The implementation of the Brady Handgun Control Act and the commands put upon him under its provisions as chief law enforcement officer will subject him to irreparable injury in that he does not now have sufficient funds or resources to comply with the provisions of the act and to do so would eliminate his ability to perform those functions which he is required to perform under the laws of the state of Louisiana.
See Affidavit in Support of Motion for Temporary Restraining Order at 3.
Accordingly, this Court DENIES defendant's Motion to Amend this Court's factual findings and the judgment will stand as rendered.
Defendant also requests this Court to alter its judgment by limiting application of the permanent injunction so that it only applies to plaintiff. This Court has found the challenged provisions of § 102(a) of the Brady Act to be in violation of the Constitution and, therefore, unenforceable by the United States. In its judgment, this Court permanently enjoined the United States from enforcing said provisions.
Defendant states that the injunction ordered by this Court "purports to be of nationwide scope." It then asserts that "in a non-class action, a court may not issue an injunction that benefits persons other than the named plaintiff unless it is necessary to do so in order for the plaintiff to obtain effective relief." (Memorandum in Support, p. 8). Defendant then directs the Court to various cases; however, this Court finds those cases to be not directly on point and distinguishable from the case before this Court. For instance, in Califano v. Yamasaki, 442 U.S. 682, 702, 99 S.Ct. 2545, 2558, 61 L.Ed.2d 176 (1979), the issue addressed by the Court was whether it was proper to certify a nationwide class action under Rule 23. In PACE v. El Paso County Community College District, 730 F.2d 258 (5th Cir.), cert. denied, 469 U.S. 881, 105 S.Ct. 248, 83 L.Ed.2d 186 (1984), a state agency, El Paso County Community College District, was sued under 42 U.S.C. § 1983, and an injunction was issued by the Court prohibiting certain conduct by the college that would be in violation of § 1983. In Meinhold v. The United States Dept. of Defense, 34 F.3d 1469, 1480 (9th Cir.1994), the Ninth Circuit limited the injunction issued by the district court because effective relief could be obtained "by directing the Navy not to apply its regulation to Meinhold based only on his statement that he is gay."
The Court finds the above cases cited by defendant not to be on point and to be distinguishable. In the instant case, this Court declared a federal law to be unconstitutional and, then, as a logical next step, issued the requested injunction prohibiting enforcement of the unconstitutional law. Moreover, the Court notes that a strong argument can be made that it does have the power to issue a nationwide injunction and that "there is no general requirement that an injunction affect only the parties in the suit." Bresgal v. Brock, 843 F.2d 1163, 1169-71 (9th Cir.1987) (citing Evans v. Harnett County Board of Education, 684 F.2d 304, 306 (4th Cir.1982); Meyer v. Brown and Root Construction Co., 661 F.2d 369, 373-74 (5th Cir.1981)).
Although the proper scope of the injunction in a situation such as this is an interesting *1091 question, this Court need not reach that issue for the following reasons. First, this Court is not unaware of the potential conflicts with courts of equal stature in other jurisdictions involving this matter both within and without the Fifth Circuit. Second, this Court is also cognizant that this matter, perhaps, is unique as there are numerous cases on this same issue making their way through the courts, all to be subject to review by a circuit court and perhaps ultimately by the United States Supreme Court. In particular, this Court notes there are two (2) other cases on this same issue now pending before the Fifth Circuit and four (4) other cases making their way through other circuits. Consequently, this Court is not unmindful of the need for an orderly process through the courts and the anticipated ruling by the Fifth Circuit which could settle this matter within this circuit. Accordingly, this Court hereby STAYS the enforcement of the injunction as to all individuals not party to this suit pending final resolution of this matter by the Fifth Circuit Court of Appeal.
For the above reasons, this Court DENIES defendant's Motion to Amend Findings and ALTERS its judgment as explained above.
NOTES
[1] As found in the Joint Stipulation of Facts ["Stipulation"] dated June 1, 1994, as well as affidavits referenced therein.
[2] U.S. Const. Art. III, § 2, cl. 1 states:
The judicial Power shall extend to all Cases, in Law and Equity arising under this Constitution, the Laws of the United States and Treaties made, or which shall be made, under their Authority; to all Cases affecting Ambassadors, other public Ministers and Consuls; to all Cases of admiralty and maritime Jurisdiction;to Controversies which the United States shall be a Party; to Controversies between two or more States; between a State and Citizens of another State; between Citizens of different States; between Citizens of the same State claiming Lands under Grants of different States, and between a State, or Citizens thereof, and foreign States, Citizens or Subjects.
[3] Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984).
[4] Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-61, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992).
[5] Id.
[6] Stipulation, Paragraph 3.
[7] Defendant's Opposition to Plaintiff's Motion for a Preliminary Injunction, Exh. 2, at 1.
[8] Id., at 3.
[9] Id.
[10] See Allen v. Wright, 468 U.S. 737, 755, 104 S.Ct. 3315, 3326-27, 82 L.Ed.2d 556 (1984) (citing O'Shea v. Littleton, 414 U.S. 488, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974), and Rizzo v. Goode, 423 U.S. 362, 96 S.Ct. 598, 46 L.Ed.2d 561 (1976)) (Plaintiff who cannot show that he has been or would likely be subject to the challenged government conduct lacks standing to contest the conduct).
[11] Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-61, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992).
[12] Stipulation, paragraph 3.
[13] Where Congress encourages state regulation rather than compelling it, state governments remain responsive to the local electorate's preferences; state officials remain accountable to the people..... But where the Federal Government directs the States to regulate, it may be state officials who will bear the brunt of public disapproval, while the federal officials who devised the regulatory program may remain insulated from the electoral ramifications of their decision.
New York v. United States, 505 U.S. 144, ___, 112 S.Ct. 2408, 2424, 120 L.Ed.2d 120 (1992) (emphasis added).
[14] 18 U.S.C. § 922(s)(2).
[15] 18 U.S.C. § 922(s)(6)(B)(i).
[16] 18 U.S.C. § 922(s)(6)(C).
[17] 18 U.S.C. § 925(a).
[18] U.S. Constitution. amend. X.
[19] See Defendant's Supplemental Brief, at 7.
[20] U.S. Constitution art. 1, § 8, cl. 3.
[21] U.S. Constitution art. 1, § 8, cl. 18.
[22] New York v. United States, 505 U.S. 144, ___, 112 S.Ct. 2408, 2417, 120 L.Ed.2d 120 (1992).
[23] Id.
[24] Id.
[25] Id. 505 U.S. at ___, 112 S.Ct. at 2418.
[26] Id.
[27] New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992); Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985); Equal Employment Opportunity Commission v. Wyoming, 460 U.S. 226, 103 S.Ct. 1054, 75 L.Ed.2d 18 (1983); Federal Energy Regulatory Commission v. Mississippi, 456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982); Hodel v. Virginia Surface Mining and Reclamation Association, Inc., 452 U.S. 264, 101 S.Ct. 2352, 69 L.Ed.2d 1 (1981).
[28] See Federal Energy Regulatory Commission v. Mississippi, 456 U.S. at 754 n. 18, 102 S.Ct. at 2134 n. 18.
[29] New York v. United States, 505 U.S. at ___, 112 S.Ct. at 2423.
[30] Id. 505 U.S. at ___, 112 S.Ct. at 2421.
[31] Id. 505 U.S. at ___, 112 S.Ct. at 2422.
[32] Of course, the Constitution does clearly place limits on state law enforcement methods: the Fourth Amendment, Fifth Amendment and Sixth Amendment, as applied to the states through the Fourteenth Amendment, do not allow many types of activities by law enforcement authorities. However, the United States has clearly stated that the provisions at issue herein were enacted pursuant to the Commerce Clause not the Fourteenth Amendment.
[33] Preseault v. Interstate Commerce Commission, 494 U.S. 1, 17, 110 S.Ct. 914, 924, 108 L.Ed.2d 1 (1990).
[34] New York v. United States, 505 U.S. at ___, 112 S.Ct. at 2420 ("Congress may not simply `commandee[r] the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program.'") (citing Hodel v. Virginia Surface Mining and Reclamation Assoc., Inc., 452 U.S. 264, 288, 101 S.Ct. 2352, 2366, 69 L.Ed.2d 1 (1981)).
[35] Testa v. Katt, 330 U.S. 386, 67 S.Ct. 810, 91 L.Ed. 967 (1947).
In Testa, the Court ruled that Congress, through the Emergency Price Control Act clearly a Congressional exercise of Commerce Clause power was allowed to co-opt state courts for enforcement of the Act because of the Supremacy Clause's mandate that federal law is supreme throughout this nation. Due to the circularity of its rationale and the failure to distinguish between a Commerce Clause analysis and a Supremacy Clause analysis, Testa perhaps, is not a model of clarity in constitutional adjudication. In Federal Energy Regulatory Commission v. Mississippi, the Supreme Court overlooked the decision's potential shortcomings and cited Testa as support for the proposition that the Commerce Clause allows Congress to require state agencies to adjudicate disputes arising under federal law where that is the very type of activity customarily performed by the agency.
[36] See generally, New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992); South Carolina v. Baker, 485 U.S. 505, 108 S.Ct. 1355, 99 L.Ed.2d 592 (1988); Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985); Equal Employment Opportunity Commission v. Wyoming, 460 U.S. 226, 103 S.Ct. 1054, 75 L.Ed.2d 18 (1983).
[37] New York v. United States, 505 U.S. at ___, 112 S.Ct. at 2423 (Congress offered states the choice of either regulating disposal of radioactive waste according to federal standards or be denied access to disposal sites throughout the nation); Federal Energy Regulatory Commission v. Mississippi, 456 U.S. at 766, 102 S.Ct. at 2141 (States have the "choice" of either abandoning their regulation of public utilities altogether, or doing so in accordance with federal mandate, because utilities constitute an area of interstate commerce subject to preemption by Congress); Hodel v. Virginia Surface Mining & Reclamation Assoc., Inc., 452 U.S. at 288, 101 S.Ct. at 2366 (States may choose to participate in regulation of surface mining, in accordance with federal guidelines, but is under no compulsion to do so).
[38] "To the extent that [the statute] involves local officials such as plaintiff at all, it leaves it to their discretion to decide what, if any, amount of investigation of a potential handgun purchaser is reasonable, and it imposes only the most ministerial obligations on them." Defendant's Opposition to Plaintiff's Motion for Preliminary Injunction, at 3. "Should plaintiff find that the interdiction and investigation of crimes takes up all of his available resources, ... it would be eminently reasonable and compatible with both the Brady Act and ATF's open letter for him to decide that at any given time, he is unable to devote any of resources to Brady Act background checks. In other words, a reasonable effort may be no effort at all." Id. at 22 (emphasis added).
[39] Id. at 10.
[40] Id. at 9 (emphasis added).
[41] See New York v. United States, 505 U.S. at ___, ___, 112 S.Ct. at 2421, 2443 (White, J., partially dissenting); Federal Energy Regulatory Commission v. Mississippi, 456 U.S. at 765, 102 S.Ct. at 2141; State of Texas v. United States, 730 F.2d 339, 356 (5th Cir.), cert. denied, 469 U.S. 892, 105 S.Ct. 267, 83 L.Ed.2d 203 (1984).
[42] Federal Energy Regulatory Commission v. Mississippi, 456 U.S. at 760-61, 102 S.Ct. at 2137-38.
[43] Id. at 760, 102 S.Ct. at 2137 (emphasis added).
[44] Id. at 751 n. 14, 102 S.Ct. at 2133 n. 14.
[45] Hodel v. Virginia Surface Mining and Reclamation Association, Inc., 452 U.S. at 290, 101 S.Ct. at 2367 ("A wealth of precedent attests to congressional authority to displace or pre-empt state laws regulating private activity affecting interstate commerce when these laws conflict with federal law.").
[46] New York v. United States, 505 U.S. at ___, 112 S.Ct. at 2418.
[47] See New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992).
[48] See Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985) (states subject to provisions of the Fair Labor Standards Act); Equal Employment Opportunity Commission v. Wyoming, 460 U.S. 226, 103 S.Ct. 1054, 75 L.Ed.2d 18 (1983) (states subject to the Age Discrimination in Employment Act).
[49] The parties stipulate to the facts before this Court. Contained within those facts is the assertion that Sheriff Romero operated under a severe funding shortage and to perform the duties required by the Brady Act would require the sheriff to pull officers from their regular law enforcement duties leaving those duties unperformed.
[50] Federal Energy Regulatory Commission, 456 U.S. at 765, 102 S.Ct. at 2141.
[51] Congress may mandate state judiciary officers to enforce federal law, or subject states to mandatory commercial regulations.
[52] See New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992) (Court upheld statute granting states the choice of either regulating disposal of low-level radioactive waste or, in the alternative, being charged additional fees for disposal in other states); Federal Energy Regulatory Commission v. Mississippi, 456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982) (Court upheld statute imposing requirement to consider enacting new rate schedules, as well as use of federally-mandated procedure on states which chose to continue regulating public utilities); State of Texas v. United States, 730 F.2d 339, 353 (5th Cir.) cert. denied, 469 U.S. 892, 105 S.Ct. 267, 83 L.Ed.2d 203 (1984). (Court upheld constitutionality of the Staggers Act which preempts state law governing intrastate railroad rates, "but gives the states the option either to continue regulation in compliance with federal law or to cease independent regulation altogether.")
[53] New York v. United States, 505 U.S. at ___, 112 S.Ct. at 2423.
[54] Plaintiff's Motion for Preliminary Injunction, at 18-19.
[55] New York v. United States, 505 U.S. at ___, 112 S.Ct. at 2434 (quoting Alaskan Airlines, Inc. v. Brock, 480 U.S. 678, 684, 107 S.Ct. 1476, 1480, 94 L.Ed.2d 661 (1987)).
[56] 18 U.S.C. § 928.
[57] Alaskan Airlines, 480 U.S. at 686, 107 S.Ct. at 1481.
[58] See Defendant's Opposition to Plaintiff's Motion for Preliminary Injunction, at 25-30.
[59] Alaskan Airlines, 480 U.S. at 684, 107 S.Ct. at 1480.
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883 F.Supp. 1529 (1994)
SUMMIT MACHINE TOOL MANUFACTURING CORP., Plaintiff,
v.
GREAT NORTHERN INSURANCE COMPANY; Chubb & Sons, Inc.; and Ribbens Intl., Inc., Defendants.
Civ. A. No. L-94-139.
United States District Court, S.D. Texas, Laredo Division.
December 6, 1994.
*1530 H.N. Cunningham, III, Robert H. Bezucha, Pulley Cole Roberts Cunningham & Stripling, Dallas, TX, for Summit Machine Tool Mfg. Corp.
Russell W. Schell, Michael C. Lawrence, Schell Nichols Thompson Beene & Vaughn, Dallas, TX, for Great Northern Ins. Co., Chubb and Sons, Inc.
Robert J. Birnbaum, Austin, TX, for Ribbens Intern. Inc.
MEMORANDUM AND ORDER
KAZEN, District Judge.
Pending before this Court is the Plaintiff's motion to remand this case to state court. This lawsuit relates to machinery owned by the Plaintiff that was damaged while in transit from Puebla, Mexico to Oklahoma City, Oklahoma. The damaged machinery was covered under a primary policy of insurance issued by Aseguradora Mexicana, S.A. (ASEMEX). Defendant Ribbens International is a Mexican insurance broker which helped secure transportation insurance from ASEMEX. Defendants Great Northern and Chubb allegedly underwrote and issued a supplemental insurance policy covering the shipments.
Great Northern and Chubb removed this case on the basis of diversity jurisdiction on August 15, 1994. Defendant Ribbens International did not consent to removal. The Plaintiff then moved to remand the case, alleging that all defendants had not joined in the removal. Great Northern and Chubb responded that Ribbens International's consent was not required because it was a nominal party. The Court gave the removing defendants leave to file an amended notice of remand.
Defendants Great Northern and Chubb filed their amended notice of removal on October 6, 1994. They alleged that Defendant Ribbens International need not join in the notice of removal because it is a "nominal party" against whom the Plaintiff has no chance of recovering. As the removing defendants, Great Northern and Chubb bear the burden of alleging and proving the nonjoining party is a nominal party. Jernigan v. Ashland Oil Co., 989 F.2d 812, 815-16 (5th Cir.1993). The burden is a heavy one. The removing parties must prove there is absolutely no possibility that the Plaintiff will be able to establish a cause of action against the non-joining party. Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir.1983).
Great Northern and Chubb argue Summit cannot possibly recover against Ribbens International because Summit's parent corporation, LSB Industries, released Ribbens International from liability when it entered into a settlement and release agreement with ASEMEX dated March 10, 1994. The release states in relevant part:
LSB, their directors, officers, attorneys, employees, agents, representatives and their successors and assigns hereby release all their claims and causes of action, based on or arising out of any act or failure or refusal to act occurring on or *1531 before the effective date of this Agreement, against ASEMEX, or Grupo Financiero Asemex Banpais, their representatives, officers, directors, attorneys, agents or employees and their successors and assigns....
Great Northern and Chubb contend Ribbens International became the agent of ASEMEX when Ribbens and ASEMEX entered into a mercantile contract authorizing Ribbens to sell ASEMEX policies, collect premiums, and receive commissions for its efforts.[1] Therefore, they argue, the release applies to Ribbens International. They rely almost exclusively on the October 13, 1994 deposition testimony of Peter Ribbens, the principal shareholder and president of Ribbens International. The Plaintiff, on the other hand, maintains that this deposition testimony conclusively proves that Ribbens International was its agent, and not the agent of ASEMEX.
Ribbens' testimony supports both positions; however, the Court need not decide this "agency" issue to rule on the propriety of remand in this case. In construing a release agreement, the primary effort is to ascertain and give effect to the intention of the parties to the release. Anheuser-Busch Companies, Inc. v. Summitt Coffee Co., 858 S.W.2d 928, 933 (Tex.Civ.App. Dallas 1993, writ denied); Sanus/New York Life Health Plan, Inc. v. Dube-Seybold-Sutherland Mgmt., Inc., 837 S.W.2d 191, 196 (Tex.Civ. App. Houston [1st Dist.] 1992, no writ). The release must be considered as a whole and read in light of the surrounding circumstances. Anheuser-Busch, 858 S.W.2d at 933.
The evidence shows that neither party to the release intended to immunize Ribbens International or Peter Ribbens from liability. David Shear, Vice-President and general counsel of both LSB and Summit, negotiated and signed the settlement and release agreement on LSB/Summit's behalf. He states that "[a]t no time did anyone suggest that Ribbens International or Peter Ribbens was an Asemex agent or representative." LSB and Summit did not intend to release Peter Ribbens or Ribbens International. "Neither Peter Ribbens nor Asemex ever took the position that Ribbens International or Peter Ribbens was somehow released by the agreement." (Affidavit of David Shear, p. 2, para. 4).
The record contains no statement from ASEMEX indicating whether it ever viewed Ribbens as its agent, and whether it intended the agreement to release Ribbens from all liability. Even if Ribbens was ASEMEX's agent at the time Summit's machinery was insured, he could not have been its agent at the time the release was executed. This is because the mercantile agreement between Peter Ribbens and ASEMEX had expired by the middle of 1993, more than six months prior to the execution of the release. (Ribbens, pp. 72.21-73.9). Ribbens allowed it to expire because he no longer felt he could trust the company in the wake of its refusal to pay on Summit's claim. "I did not feel comfortable on continuing to do business with ASEMEX and have other clients be in the same situation, that if they have a claim that that claim would not be paid or it would be paid in one point in time with too many problems [sic]." (Ribbens, p. 18.9-.19). Because Ribbens or Ribbens International was no longer the agent or representative of ASEMEX at the time the release was executed, that document should not be read as applying to them.
Great Northern and Chubb assert a second theory for finding Ribbens International to be a nominal party. They contend that Summit should have sued Peter Ribbens personally instead of Ribbens International. They maintain Ribbens International S.A. de C.V. has no relation to this lawsuit because it is an administrative services company, not an insurance brokerage firm, whose sole purpose is to provide office support and accounting services for Peter Ribbens. Peter Ribbens, on the other hand, is an insurance broker who allegedly performed all services for LSB and Summit personally and individually.
This argument ignores reality. Peter Ribbens is the founder, president, and majority *1532 shareholder of Ribbens International. (Ribbens, p. 15.15). When Ribbens first entered the insurance brokerage business, he did so under the business name "Ribbens International." (Ribbens, p. 68.17-.21). Although he now claims that Ribbens International is an "administrative services" company, he admits he continues to refer to the company as a brokerage firm. (Ribbens, p. 54.9-.13). When asked whether his brokerage services were done personally or as an employee of Ribbens International, Ribbens responded: "I cannot make the distinction; its one in the same person. I can honestly not make that distinction." (Ribbens, p. 69.17-.22). Indeed, until recently, all of his correspondence to clients, including LSB and Summit, was on Ribbens International letterhead. The letterhead identifies the company as "insurance agents." (Ribbens, p. 55.12-.26). Ribbens also admits that few, if any, of his clients know that Ribbens International is an administrative services company. They believe it is an insurance brokerage house. (Ribbens, p. 30.3-.10). They often address their correspondence to "Ribbens International, attention Peter Ribbens." (Ribbens, p. 54.9-.13).
While the Plaintiff could very likely have established a viable claim against Peter Ribbens personally, it has not chosen to do so. Nevertheless, the Court is convinced that, on this record, the plaintiff has a viable claim against Ribbens International. At the very least, Great Northern and Chubb have not met their burden of showing that Ribbens International is a nominal party against which the plaintiff has no chance of prevailing. See Green, 707 F.2d at 205. Therefore Ribbens International's consent was required for proper removal. Getty Oil Corp. v. Insurance Co. of N. Am., 841 F.2d 1254, 1262 (5th Cir.1988). Without such consent, the remand motion must be and is GRANTED.
NOTES
[1] This agreement is not in the record.
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687 F. Supp. 172 (1988)
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
v.
INSURANCE PLACEMENT FACILITY OF PENNSYLVANIA, et al.
Civ. A. No. 87-1234.
United States District Court, E.D. Pennsylvania.
April 29, 1988.
*173 M. Stuart Goldin, Cozen and O'Connor, Philadelphia, Pa., for plaintiff.
Christopher P. Leise, Philadelphia, Pa., for Ins. Placement Facility of Pennsylvania.
Daniel B. Pierson, V, Victor A. Young, Weiss, Golden and Perison, Philadelphia, Pa., for George and Vera Falus, Jack and Vilma Collins.
MEMORANDUM
CLIFFORD SCOTT GREEN, District Judge.
Plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul") commenced the above captioned declaratory judgment action in order to determine the respective share of liability between it and Insurance Placement Facility of Pennsylvania ("the Fair Plan") with respect to fire damage caused to property insured under policies issued by both companies. Besides the Fair Plan, the buyers and sellers of the insured property are named as defendants. Counterclaims and cross claims have been filed by various parties. The matter has been submitted to the court for nonjury determination based upon stipulated record facts.
The facts of this lawsuit as stipulated by the parties are as follows: In October, 1986, Jack and Vilma Collins together with George and Vera Falus (collectively "the buyers") entered into an agreement with Peter N. Harrison, Administrator of the Estate of Anthony A. Fanelli, and Harry Waldron, Executor of the Estate of Frederick W. Waldron (collectively "the sellers") to purchase commercial property ("the property") located in Pennsylvania. At the time of the agreement's execution, the buyers were tenants of the sellers. Defendant Vera Falus owned and operated a retail food business on the site of the property and Jack and Vilma Collins maintained a jewelry shop. About November 5, 1986, the sellers obtained $210,000 worth of fire insurance coverage from the Fair Plan. About December 23, 1986, the buyers obtained $250,000 worth of all risk business owners' insurance from St. Paul. On or about December 26, 1986, the property was damaged by fire. As a consequence of the fire, the closing of the purchase contract was postponed until May 21, 1987 at which time the buyers took title to the property and the sellers assigned to buyers their right to insurance proceeds from the Fair Plan. The property was neither repaired nor replaced and the buyers were forced to discontinue their businesses on the property.
*174 St. Paul seeks an order adopting its position that since the fire insurance policy originally issued to the sellers of the property constitutes other insurance and since said policy contains a pro rata apportionment clause while its policy contains an excess coverage clause, St. Paul's liability is limited to the provision of excess coverage while Fair Plan is required to provide primary coverage. In addition, St. Paul asserts that Fair Plan is liable for the actual cash value of the loss and St. Paul is only liable for the difference between the actual cash value of the loss and the replacement cost of the loss, but only upon actual replacement.
Fair Plan in turn argues that since the buyers are entitled to only one recovery, that payment of the loss must be prorated between St. Paul and the Fair Plan as mandated by statute. Furthermore, the Fair Plan contends that the St. Paul policy specifically provides for insurance coverage on an actual cash value basis.
The buyers assert three points in their briefs. First, they argue that the interest of the buyer and the seller are legally distinct and separately insurable, and hence the "other insurance" clauses in both insurers' policies do not apply. Second, they maintain that any ambiguity in the policy of either insurer must be construed in the insureds' favor. Finally, the buyers contend that they are entitled to replacement cost.
Sitting in diversity, this court must apply the substantive law of the forum state Pennsylvania, Erie Railroad v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938); Wilson v. Asten-Hill Manufacturing Co., 791 F.2d 30, 32 (3d Cir.1986).
Pertinent to the court's disposition of the dispute among the parties is the presence of an apportionment clause in each policy of insurance. The Fair Plan policy contains an apportionment provision which provides for pro rata contribution in the event of double coverage, while the St. Paul policy contains the following "Other Property Insurance" clause:
Other Property Insurance
Other insurance may be available to cover a loss. If so, we'll pay the amount of loss that's left after the other insurance has been used up, less the deductible. But we won't pay more than the limit of coverage that applies.
(Stipulation of Facts, p. 5).
In order for either apportionment clause to be operative, "other insurance" must exist. This occurs only where there are two or more policies covering the same interest, the same subject matter, and the same risk. Blue Anchor Overall Co. v. Pennsylvania Lumbermens Mutual Insurance Co., 385 Pa. 394, 398, 123 A.2d 413, 415 (1956). In the present case, the policies in question both cover the same property and the risk of fire loss. The key issue is whether the policies cover the same interest. Other insurance clauses have no application where the policies cover distinct insurable interests in the property.
In Pennsylvania, the risk of loss to real property caused by fire or other peril is on the buyer, unless shifted by the parties in their agreement. Nonetheless, both the buyer and the seller may take out insurance policies to cover a loss which occurs prior to the conveyance of the property. The seller may cover his or her legal interest in the title, which is held as security for the payment of the unpaid purchase money, and the buyer may cover his or her interest as equitable owner. Patrick & Wilkins Co. v. Reliance Insurance Co., 500 Pa. 399, 456 A.2d 1348 (1983).
These interests of the buyer and seller are considered separate and distinct insurable interests. Vogel v. Northern Assurance Co., 219 F.2d 409, 413 (3d Cir.1955); Reliance Insurance Co. v. Allstate Indemnity Co., 514 F. Supp. 486, 488 (E.D.Pa. 1981), aff'd without op., 681 F.2d 808 (3d Cir.1982). Thus, an insurance policy held by a vendor of insured property would not normally qualify as other insurance in relation to a policy taken out by the vendee on said property.
In the instant case, the sellers assigned their interest in the policy issued by Fair Plan to the buyers. As a consequence of *175 the assignment, the buyers now possess two policies of fire insurance under which they seek to collect. The Vogel case presents a virtually identical factual scenario. In Vogel, the seller and buyer of real property each purchased fire insurance on the property which was the subject of the purchase agreement. The buyer obtained a policy worth $9,000.00, and the seller, one worth $6,000.00. The house was damaged by fire prior to the conveyance, and the seller assigned his claim under the fire policy to the buyer. The damage attributable to the fire totalled $12,000.00. The Third Circuit decided that under Pennsylvania law the other insurance clause was inapplicable because the policies covered two distinct and separate insurable interests. The court cited the rule that other insurance clauses must cover the same interest to be applicable. Applying Pennsylvania law, the Vogel court upheld a lower court ruling which permitted the buyer to recover the full amount under each policy of fire insurance. Although the Third Circuit considered this result inconsistent with the principle of limiting recovery on a loss to indemnification, it believed that Pennsylvania legal precedent compelled this outcome.
However, in light of the ruling by the Pennsylvania Supreme Court in INA v. Alberstadt, 383 Pa. 556, 119 A.2d 83 (1956), the double recovery permitted by the Vogel court could not stand today. In Alberstadt, the defendant Alberstadt, owner of the property, obtained fire insurance coverage for a parcel of real property that was subsequently sold at a sheriff's sale to recoup unpaid property taxes. The successful bidder at the sale also took out fire insurance on the property. When a fire occurred damaging the property, both Alberstadt and the purchaser demanded recovery under their respective policies. The lower court awarded judgments which in aggregate exceeded the loss caused by the fire. The insurance companies appealed, and expressed their willingness to pay pro rata shares up to the amount of the loss.
On appeal, the Pennsylvania Supreme Court first determined that although Alberstadt as the holder of legal title was entitled to collect proceeds under her own policy of insurance, she held all proceeds in trust for the subsequent purchaser. In addition, the court held that the purchaser was not entitled to recover twice; he could not recover from his insurer as well as the original owner's insurer and thus gain a windfall. Stated the court, "Since the fire insurance is only a contract of indemnity and its object is not to permit a gain by the insured but only to compensate him for a loss, it is obvious that he cannot recover insurance in an amount greater than the loss which he sustained." 383 Pa. at 561, 119 A.2d at 86. Recovery by the buyer, therefore, was limited to the total loss sustained as a result of the fire.
The court then considered which insurer should pay the loss and concluded that the insurers should each contribute a pro rata share. In reaching this conclusion the court recognized the validity of separate policies covering separate interests but limited the buyer to a recovery which did not exceed the limits of his loss. Thus, instead of a double recovery in excess of the loss suffered, the insured was limited to a single recovery prorated between the insurers.
The court in Alberstadt was merely striving to achieve a just result that required insurers within the limits of their policies to share the payment of the loss, thereby removing the possibility of the insured realizing a windfall from the fire. Accord, Smith v. Prudential Property and Casualty Insurance Co., 508 F. Supp. 452, 454 (W.D.Pa.1980). The court's decision in favor of proration conforms to Pennsylvania public policy. This policy is aptly expressed in the much earlier case, Thurston v. Koch, 4 U.S. (4 Dall.) 348, 1 L. Ed. 862, 23 F.Cas. no. 14,016, p. 1183, 1185 (C.C.D.Pa.1800) (quoting Godin v. The London Assurance Co., 97 Eng Rep 419, 420 (K.B. 1758) (Mansfield, L.J.)):
"Before the introduction of wagering policies, it was, upon principles of convenience, very wisely established, `that a man should not recover more than he had lost.' Insurance was considered as an indemnity only, in case of a loss; and *176 therefore, the satisfaction ought not to exceed the loss. This rule was calculated to prevent fraud; lest the temptation of gain should occasion unfair and wilful losses. If the insured is to receive but one satisfaction, natural justice says that several insurers shall all of them contribute pro rata, to satisfy that loss against which they have all insured." (Emphasis supplied.)
Under this analysis "other insurance" and proration clauses are not controlling because separate interests were insured and hence, "other insurance" is not involved. Accordingly, both St. Paul and Fair Plan shall prorate their payments not to exceed the limits of their respective policies. Since the limit on the St. Paul policy is $250,000 and that on Fair Plan's is $210,000, which total $460,000, St. Paul is liable for 25/46 of the total actual value of the loss and Fair Plan the remainder.
Next, we note that the St. Paul policy contains the following provision:
Replacement cost. Unless otherwise indicated, we'll pay the cost of repairing or replacing damaged property without deduction for depreciation. But we won't pay more than the smallest of the following:
1. the limit of coverage that applies to the property;
2. the amount you actually spend in repairing or replacing the property with property of similar kind and quality; or
3. the amount it would cost to replace the damaged item at the time of loss with property of similar kind and quality to be used for the same purpose on the same site.
Not replacing the property. You don't have to replace property on the same site. But we won't pay on a replacement cost basis until property has actually been replaced. If you decide not to replace the property, you must tell us of your decision within 180 days of the loss. If the property is not replaced we'll pay you on actual cash value basis.
(Stipulation of Facts, pp. 5-6).
St. Paul has argued that it should not be required to pay the buyers for replacement cost pursuant to the provisions of its policy until replacement is actually complete. However, the above provision also permits a calculation of loss on an actual cash value basis where the actual cash value is merely a part of the replacement value of the loss. At present, there is no evidence that replacement has actually occurred or that the buyers have actually complied with the replacement provision. Moreover, since the Fair Plan policy does not carry a replacement cost provision, there is no legal basis for requiring Fair Plan to share in any additional expenses incurred by the buyers in replacing the insured property. Thus, upon compliance with the St. Paul policy provision regarding replacement cost, buyers are entitled to recover from St. Paul the replacement cost in excess of the prorated actual cash value of the loss sustained.
An appropriate judgment follows.
JUDGMENT
AND NOW, this 29th day of April, 1988, upon consideration of St. Paul Fire and Marine Insurance Company's complaint for a declaratory judgment, the counterclaims and cross claims filed together with the legal memoranda and oral argument of counsel, IT IS DECLARED, ADJUDGED AND DECREED that:
1. The insureds Jack and Wilma Collins and George and Vera Falus, defendants herein, are entitled to recover the actual cash value of the loss caused by fire damage to the insured property;
2. Plaintiff St. Paul and defendant the Insurance Placement Facility of Pennsylvania shall prorate payment of the actual cash value of the loss, less deductibles, in the following proportions: St. Paul shall pay 25/46 of the loss, and the Insurance Placement Facility of Pennsylvania shall pay 21/46 of the loss;
3. Upon compliance with the replacement cost provision of St. Paul's policy, the defendant insureds shall also be entitled to recover from St. Paul the replacement cost *177 in excess of the actual cash value of the loss.
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687 F. Supp. 277 (1988)
Jorge B. CASTILLO, Plaintiff,
v.
Jim BOWLES, Sheriff, and Marcus Hatley, Deputy Sheriff, Defendants.
Civ. A. No. 3-87-1656-H.
United States District Court, N.D. Texas, Dallas Division.
April 8, 1988.
*278 Jorge B. Castillo, Tennessee Colony, Tex., pro se.
Dolena Westergard, Asst. Dist. Atty., Dallas, Tex., for defendants.
MEMORANDUM OPINION AND ORDER
SANDERS, Acting Chief Judge.
Before the Court are Defendants' Motion for Summary Judgment with supporting brief and evidence, filed September 25, 1987; Defendants' Appendix to Motion for Summary Judgment, filed September 29, 1987; Plaintiff's Response to Defendants' Motion for Summary Judgment and Cross-Motion for Summary Judgment with supporting briefs and affidavits, filed November 5, 1987; Defendants' Response to Plaintiff's Cross-Motion for Summary Judgment and Defendants' Reply to Plaintiff's *279 Response to Defendants' Motion for Summary Judgment, filed December 4, 1987; Plaintiff's Reply to Defendants' Response to Plaintiff's Cross-Motion for Summary Judgment, which is styled "Plaintiff Response To Defendant's Reply to Plaintiff's Response To Defendants Motion for Summary Judgment, And Plaintiff Objected To Any Defendants Pleading," filed December 28, 1987; and a final affidavit in support of Plaintiff's Cross-Motion for Summary Judgment, filed January 13, 1988.
This is a pro se § 1983 civil rights case filed by Jorge B. Castillo, an inmate at the Texas Department of Corrections ("TDC") against Jim Bowles, the Sheriff of Dallas County, and Marcus Hatley, a Dallas County Deputy Sheriff. Plaintiff filed suit as an individual alleging that his constitutional rights were violated by Defendants in a number of ways. All of Plaintiff's claims arise from incidents that occurred during two periods in which he was confined in the Dallas County Jail ("the jail"). Plaintiff was transferred from TDC to the jail for the purpose of trials in federal court. He was housed in the jail from May 12, 1986 to September 3, 1986 and from February 19, 1987 to March 4, 1987.[1]
Plaintiff alleges the following nine separate violations of his constitutional rights.
1. The jail was overcrowded while Plaintiff was confined therein.
2. Plaintiff was forced to sleep on the floor for several days during his incarceration in the jail.
3. Plaintiff's legal materials and other personal property were taken from him and, as a result, he was unable to prepare for his trial, which was held before the Honorable Robert Maloney on February 23, 1987.
4. When Judge Maloney ordered that Plaintiff's legal materials be brought to him in court, Plaintiff's property at the jail was subjected to an illegal search.
5. Plaintiff was defamed by jail guards who said very bad things about him while Plaintiff was in court.
6. Plaintiff was assaulted and verbally abused by Defendant Hatley on March 4, 1987.
7. The bus used to transport Plaintiff between the jail and TDC was unsafe.
8. Defendant Bowles conspired with the Dallas Court of Appeals to deny Plaintiff a fair hearing by convincing the Court of Appeals to expedite Plaintiff's appeal of his conviction.
9. Plaintiff suffered mental and emotional distress while at the jail.[2]
Defendants contend that they are entitled to summary judgment as to all of Plaintiff's claims on four separate and independent grounds. First, Defendants claim that Plaintiff has failed to carry his burden as set forth in Federal Rule of Civil Procedure 56 and Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) in opposing Defendants' Motion for Summary Judgment. Second, Defendants claim that Plaintiff has not made the necessary factual allegations regarding Defendants' qualified immunity defense. Third, Defendants claim that Plaintiff does not have standing to assert many of his claims because they rest on the legal rights of third persons. Finally, Defendants contend that Plaintiff's claims are not cognizable under 42 U.S.C. § 1983. For the following reasons the Court agrees that Defendants are entitled to summary judgment in their favor on all of Plaintiff's claims.
Insufficient Summary Judgment Evidence
Summary judgment is proper when the pleadings and evidence on file show that no *280 genuine issue exists as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. A movant for summary judgment need not support his motion with evidence negating his opponent's case. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). Summary judgment may be entered against a party if after adequate time for discovery the party fails to establish the existence of an element essential to his case and as to which he will bear the burden of proof at trial. Celotex, 106 S.Ct. at 2552-53.
Thus, the party with the burden of proof, the Plaintiff in this case, who opposes a motion for summary judgment must point out specific facts showing that there is a genuine issue for trial. Id.; Slaughter v. Allstate Ins. Co., 803 F.2d 857, 860 (5th Cir.1986). Factual specificity is required because summary judgment is designed to go beyond the pleadings in order to assess the proof and ascertain whether a claim is baseless and should be dismissed or, alternatively, whether a genuine fact issue exists and trial is necessary. Fontenot v. Upjohn Co., 780 F.2d 1190, 1196 (5th Cir.1986). Because the opponent of a summary judgment motion must designate specific facts, it is not enough that he merely restate his claims general allegations and self-serving conclusions unsupported by specific facts are not adequate. See Howard v. City of Greenwood, 783 F.2d 1311, 1315 (5th Cir.1986); Galindo v. Precision Am. Corp., 754 F.2d 1212, 1221-22 (5th Cir.1985); Gossett v. Du-Ra-Kel Corp., 569 F.2d 869, 872 (5th Cir.1978). Furthermore, the requirement that the party with the burden of proof set forth specific facts supporting his claim in response to a motion for summary judgment is not abandoned in pro se prisoner cases. Cf. Green v. McKaskle, 788 F.2d 1116, 1119 (5th Cir.1986).
Affidavits are an appropriate form in which to bring specific facts to the Court's attention. Fed.R.Civ.P. 56. General conclusory allegations, however, do not become sufficient simply because they are put in affidavit form and stated by someone other than the Plaintiff. Specific facts must be shown in order to avoid summary judgment. In addition, facts set forth in affidavits must be within the affiant's personal knowledge. Fed.R.Civ.P. 56(e); Barker v. Norman, 651 F.2d 1107, 1123 (5th Cir. Unit A July 1981).
In this case Defendants moved for summary judgment and supported their motion with proper summary judgment evidence: affidavits from both Defendants and three other deputy sheriffs, jail records, and excerpts from the transcript of Plaintiff's civil trial before Judge Maloney. That summary judgment evidence designated specific facts tending to support Defendants' argument that Plaintiff's claims had no basis in either fact or law. In response, Plaintiff failed to raise specific facts supporting his claim.
Plaintiff filed three affidavits, one signed by Mr. James Givens and two signed by Plaintiff and various other inmates. Those affidavits were full of conclusory allegations, but with one exception discussed below, they did not include any statements of fact within the personal knowledge of the affiants that support Plaintiff's legal claims. For example, in his affidavit Mr. Givens states that he was very sure that Plaintiff's complaints were true, that he had read Defendants' affidavits and was sure they were false, and that he knew Plaintiff was assaulted by Defendant Hatley because "Plaintiff is a quiet person and he like to correct the officers, and filed grievances...." Likewise, the affidavit signed by Plaintiff and five other inmates on January 8, 1988 conclusorily states: "The County jail facilities was over crowded thereby placing us in a cruel and unusual punishing position.... Some of us knew how [H]artly like to treat the inmates. Also Bowles is denying the inmates of their constitutional rights, we filed grievances and never the situation got any better...." These statements are either conclusory or concern facts about which the affiants do not have personal *281 knowledge or both.[3]
The only summary judgment evidence offered by Plaintiff that in any way lists specific facts that are both within the personal knowledge of the affiants and that tend to support any of Plaintiff's claims is the affidavit of Plaintiff and twelve other inmates signed on October 30, 1987. In that affidavit the inmates list specific facts about a bus or several buses used to transport prisoners between TDC and the jail. The facts are alleged in support of Plaintiff's claim that the bus is unsafe, and they do effectively rebut Defendants' general contention, which is supported by summary judgment evidence, that the bus complied with applicable safety regulations at the time it was manufactured.[4]
Plaintiff, who would have the burden of proof at trial, has failed to put forth specific facts in support of any of his claims except his unsafe bus claim. Therefore, Plaintiff's other seven claims are properly dismissed pursuant to Federal Rule of Civil Procedure 56.
Plaintiff's Claims Not Cognizable Under § 1983
Defendants argue that even if the facts alleged by Plaintiff were sufficiently specific to withstand a motion for summary judgment, Defendants would still be entitled to judgment in their favor because, even accepting all Plaintiff's allegations as true, his claims are not cognizable under § 1983. With two exceptions, discussed below, the Court agrees. The following discussion of the legal insufficiencies of Plaintiff's claims, therefore, provides an alternative and independent basis for the Court's dismissal of Plaintiff's claims.[5]
Plaintiff's first two claims are that the jail was overcrowded while he was incarcerated there and, as a result, Plaintiff was required to sleep on the floor for several days. Plaintiff's first claim makes sense only when read together with Plaintiff's second claim because the fact that Plaintiff was required to sleep on the floor is the only injury that Plaintiff claims to have been caused by the overcrowded conditions.[6] These claims are not cognizable under § 1983. The United States Constitution does not require that prisoners be provided an elevated bed. See Mann v. Smith, 796 F.2d 79, 85 (5th Cir.1986). Thus the fact that Plaintiff was temporarily forced to sleep on the jail floor does not give rise to a violation of his constitutional rights and is not cognizable under § 1983.
Plaintiff's third claim is that his legal materials were taken from him when he arrived at the jail, and, as a result, he was unable to prepare for his civil trial before Judge Maloney. Were these allegations true they would constitute a colorable § 1983 claim. See Tyler v. "Ron" Deputy Sheriff, 574 F.2d 427, 429 (8th Cir.1978) (taking of prisoner's legal papers states § 1983 claim if infringes right of access to courts). However, as discussed below, the evidence before the Court on the parties' cross-motions for summary judgment is such that summary judgment in favor of the Defendants on this claim is proper.
The Court may properly grant summary judgment against the party who has the burden of proof on an issue if a reasonable *282 jury could not return a verdict for that party based on the summary judgment evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202 (1986). The mere existence of a scintilla of evidence in support of the Plaintiff's position is insufficient. Id. In this case Defendants have presented summary judgment evidence that Plaintiff's legal materials were available to him from the property room at his request, that he requested them and received them, and that he had possession of his materials in his cell up until the time he left for Judge Maloney's courtroom.[7]
In response to Defendants' summary judgment evidence, Plaintiff denies the accuracy of Defendants' evidence and asserts that some of his legal materials were never returned to him. Based on this evidence the Court finds that a reasonable jury could not return a verdict for the Plaintiff. Accordingly, Plaintiff's third claim, that he was denied access to his legal materials in violation of his constitutional rights, is dismissed for lack of evidence.
Plaintiff's fourth claim is that his property was subjected to an illegal search when Judge Maloney ordered that Plaintiff's legal materials be brought to him in court on February 23, 1987. After carefully reading all of Plaintiff's pleadings and summary judgment responses, it appears to the Court that Plaintiff's allegations of an illegal search merely describe the acts of jail officials undertaken in an effort to bring Plaintiff his legal materials as ordered by Judge Maloney. However, even if the search was broader than required to comply with Judge Maloney's order or was unrelated to that order, Plaintiff's claim is not cognizable under § 1983. Prison inmates do not have a right of privacy in their cells and the Fourth Amendment proscription against unreasonable searches does not apply to searches of prison cells. Hudson v. Palmer, 468 U.S. 517, 526-27, 104 S. Ct. 3194, 3200-01, 82 L. Ed. 2d 393 (1984). Thus, even if jail officials did search Plaintiff's cell, they did not violate Plaintiff's constitutional rights by doing so.
Plaintiff's fifth claim is that he was defamed by jail guards who said very bad things about him while he was in court. Even if Plaintiff's allegations were true, Plaintiff alleges only harm to his reputation, which is not protected by the Constitution. Paul v. Davis, 424 U.S. 693, 712, 96 S. Ct. 1155, 1165-66, 47 L. Ed. 2d 405 (1976); White v. Thomas, 660 F.2d 680, 684 (5th Cir. Nov. 1981), cert. denied, 455 U.S. 1027, 102 S. Ct. 1731, 72 L. Ed. 2d 148 (1982). Thus, Plaintiff's fifth claim is not cognizable under § 1983.
Plaintiff's sixth claim is that he was assaulted and verbally abused by Defendant Hatley on March 4, 1987. Plaintiff alleges that while he and other inmates were waiting on chain to be transferred back to TDC, Defendant Hatley and six other officers assaulted and beat another inmate. Afterward, Plaintiff began talking with the allegedly beaten inmate. Plaintiff alleges that Defendant Hatley became angry with Plaintiff for talking with the other inmate, punched Plaintiff on the chest, pushed him around, threatened to hit Plaintiff again, threatened to handcuff Plaintiff's free hand, talked to Plaintiff in a generally provocative manner, and pushed Plaintiff along when Plaintiff started to walk. Plaintiff's Complaint at pages 7-8.
Defendant Hatley denied all of Plaintiff's allegations in an affidavit filed with Defendants' motion for summary judgment on November 5, 1987. As discussed in the first part of this opinion, Plaintiff's claim of assault is properly dismissed because Plaintiff produced no evidence in support of the allegations contained in his complaint. In addition, even if *283 all of Plaintiff's allegations concerning the assault are true, Plaintiff's claim is not cognizable under § 1983 because the assault as alleged does not constitute an invasion of Plaintiff's constitutional rights.
Plaintiff has not alleged that he suffered any injury as a result of Defendant Hatley's alleged assault. The cases are clear that at least some injury must have been inflicted in order to state a claim under § 1983. See e.g., Shillingford v. Holmes, 634 F.2d 263, 265 (5th Cir. Unit A Jan. 1981). At most Plaintiff has alleged an emotional injury, which, under the circumstances as he alleges them, is simply not sufficient to raise the alleged assault to the level of a constitutional invasion. See Baker v. McCollan, 443 U.S. 137, 146, 99 S. Ct. 2689, 2695, 61 L. Ed. 2d 433 (1979) (some state-agent-inflicted injury is so minor as to occasion only a tort claim, not a constitutional invasion); Mann v. Smith, 796 F.2d 79, 85 (5th Cir.1986) (guard's intemperate remark that he wished he could take the prisoner outside the jail and shoot him falls under the maxim de minimis non curat lex); McFadden v. Lucas, 713 F.2d 143, 146 (5th Cir.), cert. denied, 464 U.S. 998, 104 S. Ct. 499, 78 L. Ed. 2d 691 (1983) (threatening language and gestures do not amount to constitutional violations).
Plaintiff's seventh claim is that the bus used to transport Plaintiff between the jail and TDC was unsafe. Plaintiff alleges that the bus was overcrowded and had been modified such that the seats had been replaced with benches that faced the sides of the bus and ran its length. Plaintiff also alleges that the bus was unsafe because it did not have seat belts and that adequate provisions were not made for the transportation of handicapped prisoners.
In order to state a claim under § 1983 Plaintiff must have been deprived of a right secured by the constitution and laws of the United States. Martinez v. California, 444 U.S. 277, 283, 100 S. Ct. 553, 558, 62 L. Ed. 2d 481 (1980). Plaintiff has not alleged that the condition of the bus in which he was transported injured him in any way. At most Plaintiff has alleged that at some point in the future some inmate may be harmed because of the condition of the bus. Because Plaintiff has not alleged a deprivation of a protected right, his claim is not cognizable under § 1983. In addition, to the extent that Plaintiff attempts to base his claim on some nonspecific right of handicapped inmates, he has no standing to bring the claim. See supra note 6.
Plaintiff's eighth and final claim is that Defendant Bowles conspired with the Dallas Court of Appeals to deny Plaintiff a fair hearing by convincing the Court of Appeals to expedite Plaintiff's appeal of his conviction. If somehow Plaintiff could prove that Defendant Bowles did in fact conspire with the Dallas Court of Appeals and that such a conspiracy denied Plaintiff of a fair hearing, then Plaintiff would have proved a § 1983 violation. However, as noted in the first part of this opinion, Plaintiff has set forth absolutely no specific facts in support of his allegation of a conspiracy. "`Mere conclusory allegations of conspiracy cannot, absent reference to material facts,' state a substantial claim of federal conspiracy under 42 U.S.C.A. § 1983." Hale v. Harney, 786 F.2d 688, 690 (5th Cir.1986) (quoting Arsenaux v. Roberts, 726 F.2d 1022, 1024 (5th Cir. 1982)). Therefore, Plaintiff's eighth claim is dismissed.
Conclusion
In summary, Plaintiff's claim that Defendants violated his constitutional rights by forcing him to ride in an unsafe bus is dismissed solely because it is not cognizable under § 1983. Plaintiff's claim that Defendant Bowles conspired with the Dallas Court of Appeals to deny Plaintiff a fair hearing is dismissed solely because Plaintiff failed to designate specific facts in support of his allegations of a conspiracy. Plaintiff's claim that he was denied access to his legal materials in violation of his constitutional rights is dismissed because the summary judgment evidence conclusively establishes that he was not improperly denied access. Plaintiff's remaining five claims are dismissed both because Plaintiff failed to designate specific facts in *284 support of them and because even if Plaintiff's conclusory allegations are true, they do not constitute cognizable claims under § 1983.
Defendants' Motion for Summary Judgment is GRANTED, and judgment will be entered accordingly.
SO ORDERED.
NOTES
[1] The purpose of his first transfer is disputed; Defendant claims Plaintiff appeared in a habeas corpus proceeding under 28 U.S.C. § 2254, and Plaintiff claims he appeared in court on a federal misdemeanor charge. The facts disputed are not material. The parties agree that the purpose of Plaintiff's second transfer was to appear as Plaintiff at the trial of another § 1983 action.
[2] This allegation is a statement regarding Plaintiff's damages rather than a separate claim. As such it is not a ground for relief and will not be dealt with further in this opinion.
[3] As part of his summary judgment evidence Plaintiff also submitted two letters he wrote to the Chief Justice of the Texas Supreme Court. These letters contain only conclusory restatements of allegations made in his complaint. They do not present specific facts in support of his claims.
[4] Plaintiff's claim that Defendants violated his constitutional rights by transporting him on an unsafe bus fails for other reasons discussed below and is dismissed by this same order.
[5] In this section of the opinion the Court includes its discussion of Defendants' argument that Plaintiff does not have standing to assert many of his claims because they rest on the legal rights of third parties. The Court does not address Defendants' contention that Plaintiff has failed to make the necessary factual allegations regarding Defendants' qualified immunity defense.
[6] Plaintiff has no standing to assert a claim for injuries that other inmates may have suffered as a result of overcrowding at the jail. See Warth v. Seldin, 422 U.S. 490, 499, 95 S. Ct. 2197, 2205, 45 L. Ed. 2d 343 (1975); O'Hair v. White, 675 F.2d 680, 687 (5th Cir.1982).
[7] The affidavit of Robert Knowles describes the procedures used by the jail for the handling of inmates' legal materials. Defendants' exhibit 3A attached to the affidavit of Max Chester includes Inmate Property forms and Property Release forms signed by the Plaintiff, which indicate that Plaintiff requested and received the legal materials checked into the property room during his first stay at the jail. Defendants' exhibit 6 is an excerpt of the transcript of Plaintiff's civil trial before Judge Maloney on February 23, 1987. Plaintiff's testimony at that time indicates that he had his legal materials with him in his cell during his second jail stay.
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10-30-2013
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*221TEXTO COMPLETO DE LA SENTENCIA
Los apelantes, señor Pedro Juan Nigaglioni Loyola, su esposa, señora Ana Valentín Rosado, y la Sociedad Legal de Gananciales compuesta por ambos, nos solicitan la revocación de la sentencia parcial emitida el 12 de marzo de 2002 por el Tribunal de Primera Instancia, Sala Superior de Ponce. Mediante la misma, dicho foro desestimó la demanda de tercero presentada contra el señor Mitchael Rodríguez Rodríguez.
Por los fundamentos que expondremos, revocamos la sentencia parcial apelada.
I
El 23 de marzo de 2000, el señor Ángel Viviano Matos Rentas, su esposa Carmen Luz Torres, y la Sociedad Legal de Gananciales compuesta por ambos (señor Matos) presentaron demanda sobre daños y perjuicios en contra de los aquí apelantes, señor Pedro Juan Nigaglioni Loyola, su esposa, señora Ana Valentín Rosado, y la Sociedad Legal de Gananciales compuesta por ambos (señor Nigaglioni). Se alegó que el 15 de abril de 1999, mientras el señor Nigaglioni conducía su vehículo de motor marca Jeep, modelo Wrangler 1997, por la Carretera Número 2, jurisdicción de Peñuelas, en dirección de este a oeste, por el carril derecho, súbitamente realizó un viraje hacia la izquierda e invadió el carril izquierdo, provocando que su vehículo fuera impactado por otro vehículo, marca Mitsubishi, modelo Mirage 1996, que transitaba en la misma dirección. Dicha colisión, a su vez, provoco que el vehículo marca Jeep que conducía el señor Nigaglioni volviera a caer al carril derecho y fuera impactado por un tercer vehículo marca Ford, modelo Escort 1998. El señor Matos se encontraba de pasajero en el vehículo marca Jeep que conducía el señor Nigaglioni. Como consecuencia del accidente, el señor Matos sufrió daños físicos y emocionales los cuales requirieron hospitalización inmediata y tratamiento médico. Solicitó indemnización por los daños físicos y morales.
El señor Nigaglioni contestó la demanda. En esencia, negó las imputaciones sobre negligencia y alegó que el accidente ocurrió a consecuencia de los actos culposos o negligentes de terceras personas. Por tal razón, en esa misma fecha, presentó demanda de tercero en contra del señor Mitchael Rodríguez Rodríguez (señor Rodríguez). Alegó que mientras éste manejaba a velocidad exagerada un vehículo de motor marca Mitsubishi, modelo Mirage 1996, perdió el control del mismo e impactó un vehículo marca Ford, modelo Escort 1998, que se encontraba detenido junto al vehículo marca Jeep que conducía el señor Nigaglioni. Dicha colisión provocó, a su vez, que el vehículo marca Ford, modelo Mirage, se estrellara contra el vehículo del señor Nigaglioni, dentro del cual viajaba el señor Matos. Argüyó que ya que el accidente había ocurrido como resultado de la conducta negligente del señor Rodríguez, éste venía obligado a pagar cualquier cantidad que eventualmente tuviera que pagarle al señor Matos, así como por los daños los sufridos directamente por él.
El tercero-demandado, señor Rodríguez, presentó moción de desestimación por prescripción. Alegó que el accidente que dio origen a la reclamación ocurrió el 15 de abril de 1999, y no fue hasta el 22 de septiembre de 2000 cuando se presentó la reclamación en su contra, ya transcurrido en exceso el término de un año que *222establece el Artículo 1802 del Código Civil. Reveló, además, que la póliza de seguros expedida a su favor por la Cooperativa de Seguros Múltiples de Puerto Rico había cubierto los daños ocasionados a su vehículo. El señor Nigaglioni se opuso. Alegó que la demanda original fue presentada dentro del termino prescriptivo, y que al tratarse de un caso donde había varios co-causantes del daño, la radicación de la causa de acción en contra de uno de ellos dentro del término prescriptivo, lo interrumpía para todos los demás.
Posteriormente, el señor Rodríguez contestó la demanda contra tercero. Negó las alegaciones de dicha demanda y, en el mismo escrito, presentó reconvención en contra del señor Nigaglioni. Alegó que el accidente ocurrió debido a la exclusiva negligencia de éste. El señor Nigaglioni presentó réplica en la cual negaba las alegaciones. El tribunal señaló vista para de discusión para el 31 de agosto de 2001. El 10 de diciembre de 2001, Nigaglioni solicitó se le permitiera enmendar la demanda contra tercero a los fines de incluir a la señorita Neysa Pérez Colón, conductora del vehículo marca Ford, modelo Escort 1998, a la señora Gladis Suárez Mendoza, dueña del referido vehículo, y a Puerto Rican & American Insurance, Co. (PRAICO), aseguradora del vehículo. Celebrada la vista, el asunto quedó sometido.
El 12 de marzo de 2002, notificada el 19 de marzo de 2002, el Tribunal de Primera Instancia emitió sentencia parcial. En atención al párrafo número siete (7) de la demanda contra tercero, donde se alegaba que “[e]l accidente se debió a la negligencia de Mitchael Rodríguez al discurrir a velocidad exagerada sin tomar en cuenta la vida y propiedades ajenas”, el Tribunal de Primera Instancia resolvió que el tercero demandado fue traído al pleito para que le respondiera directamente al señor Nigaglioni. Por tal razón, concluyó que en este caso no se estaba ente la presencia de coautores solidarios, ni era de aplicación Arroyo v. Hospital La Concepción, 130 D.P.R. 596 (1992), que establece que la radicación de una causa de acción en contra de un coautor solidario interrumpe el término prescriptivo en perjuicio de todos los demás. Expresó que el término prescriptivo aplicable para presentar cualquier acción en contra del señor Rodríguez, era el de un año establecido en el Artículo 1802 para las acciones de daños y perjuicios. A tenor con lo anterior, desestimó la demanda contra tercero presentada en contra del señor Rodríguez, ya que “no existe co-causalidad, o más bien que el tercero demandado no fue co-causante de los daños. ” Se incluyeron las siguientes determinaciones de hechos:
“1. El 15 de abril de 1999, el señor Mitchael Rodríguez Rodríguez (tercero demandado) y el señor Pedro Nigaglioni se vieron envueltos en un accidente de tránsito. Como consecuencia de dicho accidente, la compañía de Seguros (Seguros Múltiples de Puerto Rico) indemnizó al señor Mitchael Rodríguez los daños a su vehículo.
2. El 8 de febrero de año 2000, la Cooperativa de Seguros Múltiples presentó Demanda de Acción de Subrogación en contra del señor Pedro Nigaglioni para recobrar de éste lo indemnizado al señor Rodríguez.
3. El 26 de abril de 2000, el señor Nigaglioni presentó Reconvención contra la Cooperativa de Seguros Múltiples y demanda contra tercero contra Mitchael Rodríguez Rodríguez (un año y doce días después de haber ocurrido el accidente).
4. El señor Mitchael Rodríguez Rodríguez fue emplazado y notificado con copia de la demanda contra tercero el 30 de octubre de 2000 (un año y seis meses después de haber ocurrido el accidente).
5. El 15 de diciembre de 2000, el representante legal del demandado (señor Nigaglioni), Licenciado Félix A. Toro Jr., presentó Moción con fecha del 12 de diciembre de 2000 desistiendo de su reconvención contra la Cooperativa y de la demanda contra tercero donde figuraba como demandado el señor Rodríguez, la cual fue declarada HA LUGAR por el Tribunal de Distrito de Guayanilla el día 23 de enero de 2001.
6. El 23 de marzo del año 2000, el señor Ángel Viviano Matos Rentas y su esposa presentaron demanda en Daños y Perjuicios contra el señor Pedro Nigaglioni por daños ocasionados por los mismos hechos que dan lugar al pleito mencionado en los acápites precedentes.
*2237. El 22 de septiembre de 2000, el señor Nigaglioni presentó demanda contra el tercero demandado Mitchael Rodríguez Rodríguez (un año y cinco meses después de haber ocurrido el accidente que da origen a la reclamación).
8. El tercero demandado Mitchael Rodríguez Rodríguez fue emplazado y notificado con copia de la demanda el 13 de marzo de 2001. ”
Así las cosas, el 27 de marzo de 2002, el señor Nigaglioni presentó “Solicitud de Determinaciones Adicionales . Solicito al Tribunal de Primera Instancia que realizara las siguientes conclusiones de hechos adicionales:
“A. La demanda se presentó el 23 de marzo de 2000.
B. El demandado fue emplazado el-20 de junio de 2000, o sea con posterioridad al año a partir de la fecha del accidente.
C. El 18 de septiembre de 2000, el demandado presentó demanda en contra de los terceros Mitchael Rodríguez y su aseguradora Cooperativa de Seguros Múltiples.
D. El demandado desistió de la demanda de tercero en cuanto a la Cooperativa de Seguros Múltiples porque su póliza no incluía responsabilidad pública.
E. El demandado realizó un activo descubrimiento de prueba.
F. El demandado realizo reiteradas gestiones para obtener información y documentos de la aseguradora PRAICO y no fue hasta el 15 de noviembre de 2001, que se le suplió la información y documentos solicitados.
G. El 6 de diciembre, el demandado presentó contestación enmendada a la demanda y solicitó la inclusión de terceros demandados adicionales.
H. Los documentos presentados por el demandado no fueron referidos a la atención del Juez hasta el 21 de marzo de 2002, cuando ya se había dictado la sentencia parcial.
I. En la contestación enmendada, el demandado informa no ser el único que contribuyó a la ocurrencia del accidente. ”
En esa misma fecha, presentó, además, “Moción para que se Deje Sin Efecto Sentencia”. Alegó que el 10 de diciembre de 2001, había solicitado enmendar su demanda contra tercero a los fines de añadir otros demandantes, y que a pesar de las gestiones realizadas, para la fecha en que se emitió la Sentencia Parcial, la Secretaría del Tribunal aún no había expedido los emplazamientos en cuanto a dichas partes. Por tanto, el dictamen se había emitido sin tomar en consideración dicha solicitud. Argumentó que por tratarse de un caso donde hay varios co-causantes de un daño, el tribunal debió haber esperado que se emplazara a todos ellos antes de tomar una determinación. Solicitó que se dejara sin efecto la sentencia parcial emitida, y una vez emplazados los restantes terceros demandados, se señalara una vista para la discusión de las cuestiones de derecho concernidas. Mediante orden emitida el 8 de abril de 2002, notificada el 16 de abril de 2002, el Tribunal de Primera Instancia concedió un término de diez (10) días al señor Matos para que replicara a ambas solicitudes. Ninguna de las partes •’resentó escrito en relación con dicha orden. El 24 de mayo de 2002 se expidieron los emplazamientos contra los terceros demandados adicionales, señorita Neysa Pérez Colón, conductora del vehículo marca Ford, modelo iScort 1998, señora Gladis Suarez Mendoza, dueña del referido vehículo, y Puerto Rican & American Insurance, Co. (PRAICO), aseguradora del vehículo. Estos solicitaron que se les notificara los escritos y la concesión de un *224término para contestar la demanda. Contestaron la demanda el 26 de septiembre de 2002. Luego de varios trámites procesales, se señaló la vista de discusión de las mociones presentadas por Nigaglioni para el 18 de octubre de 2002.
El 25 de noviembre de 2002, el Tribunal de Primera Instancia emitió resolución. Consideró la solicitud de determinaciones de hechos adicionales como una moción de reconsideración. Concluyó que fue interpuesta en corte abierta el 18 de octubre de 2002- no el 27 de marzo de 2002, cuando en efecto ocurrió-, y la declaró sin lugar por haberse sido radicada fuera de término. Expresó que:
“3. Que en la solicitud de Determinaciones Adicionales se solicitaba que se adicionaran varias determinaciones al amparo de la Regla 43.3 de Procedimiento Civil que ya formaban parte o estaban incluidos en la sentencia dictada como se establece a continuación:
a. La determinación adicional solicitada en el inciso A de la moción presentada relacionada está incluida en el inciso 6 de las determinaciones de hechos de la sentencia.
b. La determinación solicitada en el inciso B relacionada con la fecha en que fue emplazado el señor Rodríguez, surge de los autos del expediente del caso.
c. La solicitud de determinación adicional en el inciso C relacionada con la fecha en que se presentó la demanda en contra del señor Rodríguez y la Cooperativa de Seguros Múltiples, está contemplada en el inciso 7 de la sentencia.
d. Las determinaciones solicitadas en el inciso D, Ey F no constituyen ser hechos relevantes o pertinentes a la controversia medular del caso y más bien son aspectos procesales del trámite del pleito.
e. Las determinaciones adicionales solicitadas en el inciso Gy H son hechos que surgen de los autos y que hacen referencia al trámite procesal del casó y a mociones presentadas luego de celebrada la vista donde se discutió la moción de desestimación, por lo que no guardan relación con los hechos que dan lugar a la controversia en el presente caso.
En cuanto a la moción para que se dejara sin efecto la sentencia parcial, promovida en vista de las enmiendas realizadas y acogidas previo al dictamen, resolvió que “lo que contiene es una relación del trámite procesal del caso y de hechos que surgen de los autos y del expediente del caso ente nos.” El tribunal no hizo una determinación expresa en cuanto a esta moción, pero por sus expresiones parece haberla considerado, al igual que la solicitud de determinaciones adicionales, como una moción de reconsideración, declarándola sin lugar.
Oportunamente, el señor Nigaglioni presentó escrito de apelación ante nos. Señaló la comisión de los siguientes errores:
“PRIMER ERROR
Erró el Honorable Tribunal de Primera Instancia al dictar Resolución declarando Sin Lugar una Solicitud de Determinaciones Adicionales y decretar que era una solicitud de reconsideración, cuando los hechos que se solicita adicionar son específicos, no están incluidos en la sentencia parcial y son los que provocan la enmienda a la contestación a la demanda, a la demanda contra tercero y traer terceros adicionales presentados antes de que se dictara la sentencia parcial.
SEGUNDO ERROR
*225
Erro el Honorable Tribunal de primera Instancia al determinar que la solicitud de determinaciones adicionales era una solicitud de reconsideración radicada en corte abierta y, por tanto, juera del término jurisdiccional, cuando aun de acogerse como una solicitud de reconsideración, dicha solicitud no solamente fue presentada dentro del término, sino que fue acogida dentro del plazo jurisdiccional e interrumpió efectivamente los términos contemplados en las reglas de procedimiento civil.
TERCER ERROR
Erró el Honorable Tribunal de Primera Instancia al dictar sentencia parcial y aplicar a este caso la doctrina de prescripción contra el tercero demandado Mitchael Rodríguez, cuando no procede en derecho por ser un causante del daño y además no retrotraer los efectos de una enmienda a una demanda contra tercero. ”
Presentado el escrito, ordenamos a la parte apelada que presentara su alegato. Dicha parte presentó moción de desestimación. Alegó que la solicitud de determinaciones de hechos adicionales, que había sido considerada por el foro de instancia como una moción de reconsideración, fue rechazada de plano por dicho foro, razón por la cual no se interrumpió el término para apelar. Señaló, además, que el apelante no había incluido en el apéndice del escrito varios documentos que eran esenciales para la disposición del caso, tales como: copia de la demanda de subrogación presentada por la Cooperativa de Seguros Múltiples, moción de desistimiento contra el señor Rodríguez, contestación a la demanda de subrogación y la demanda contra tercero desistida. El señor Nigaglioni se opuso a la desestimación solicitada. Mediante resolución emitida el 9 de septiembre de 2003, este Foro declaró sin lugar la moción de desestimación. Entendimos que la solicitud de determinaciones de hechos adicionales sí fue acogida por el Tribunal de Primera Instancia, por lo que interrumpió el término para apelar ante nos. Por tanto, ordenamos a la parte apelada a presentar su alegato. En cumplimiento con nuestra orden, el señor Rodríguez presentó su alegato. Reprodujo los planteamientos de la moción de desestimación por prescripción que había presentado ante el Tribunal de Primera Instancia, alegando que fue traído al pleito como el único responsable de los daños del demandante original (señor Matos) y no como co-causante del daño, por lo que la acción contra tercero presentada por el señor Nigaglioni en su contra se encuentra prescrita.
II
La Regla 43.3 de Procedimiento Civil, 32 L.P.R.A. Ap. III, provee para la solicitud de determinaciones de hechos y conclusiones de derecho. La presentación de una moción bajo esta regla interrumpe el término para presentar moción de reconsideración, moción de nuevo juicio y recurso de apelación o certiorari. U.S. Fire Ins. Co. v. A.E.E., 151 D.P.R._(2000), 2000 J.T.S. 146, páginas 92-93. La parte insatisfecha con una sentencia puede solicitar determinaciones de hechos adicionales, o enmiendas a las determinaciones de hechos, dentro del término de diez (10) días a partir del archivo en autos de copia de la notificación de la sentencia. Esta moción se puede acumular con una de reconsideración, pero entonces el efecto interruptor del término para apelar se rige por el procedimiento de la Regla 47 de Procedimiento Civil. Esto es, la moción de reconsideración interrumpirá los términos para apelar sólo si el tribunal la acoge y adopta alguna determinación. Carattini v. Collazo Systems Análisis, Inc., 2003 J.T.S. 4; Andino v. Topeka, Inc., 142 D.P.R. 933, 937 (1997).
Para que tenga efecto interruptor, la moción solicitando determinaciones adicionales ha de exponer cuestiones sustanciales relacionadas con determinaciones de hechos o conclusiones de derecho materiales. Debe exponer con suficiente particularidad y especificidad los hechos que el promovente estima probados y fundarse en cuestiones sustanciales relacionadas con determinaciones de hechos pertinentes. Ausente o desprovista de esa propuesta específica, se trata de una moción de reconsideración que no tiene efecto interruptor en el término jurisdiccional para presentar recurso apelativo, a no ser que el tribunal la acoja y adopte alguna determinación en cuanto a la misma. Para que una solicitud de determinaciones de hechos y de derecho adicionales surta el efecto interruptor de la Regla 43.3, tiene que ser una moción suficiente de su faz. Debe contener una relación, aunque sea sucinta, de cuáles son los hechos que a juicio del promovente no han sido determinados por el Tribunal sentenciador, cuando deben serlo. Andino v. Topeka, supra.
*226Por otra parte, la Regla 47 de Procedimiento Civil, 32 L.P.R.A. Ap. HI, R. 47, gobierna lo relativo a la moción de reconsideración. Una parte adversamente afectada por una resolución, orden o sentencia del Tribunal de Primera Instancia podrá solicitar reconsideración, dentro del termino de quince (15) días desde la notificación de la determinación de que se trate. La presentación oportuna de una moción de reconsideración interrumpe los términos para apelar o presentar recurso de certiorari. No obstante, si el Tribunal de Instancia no toma acción alguna en relación con una moción de reconsideración dentro de los diez (10) días siguientes a su presentación, se considerará que el término para recurrir nunca fue interrumpido por la moción. Reyes v. ELA, 155 D.P.R._(2001), 2001 J.T.S. 171, página 531.
Sin embargo, cuando un tribunal rechaza de plano una mocion de reconsideración debida y oportunamente interpuesta, ya fuese por su acción afirmativa o por inacción, dicho foro no quedará privado, automáticamente, de su facultad para reconsiderar su actuación previa. Aunque el tribunal haya denegado inicialmente la moción de reconsideración, puede acogerla posteriormente si aun no ha transcurrido el termino para interponer el recurso de apelación o revisión. Pero transcurrido ese término para recurrir en alzada, el tribunal de instancia actúa sin jurisdicción al acoger la moción de reconsideración y resolverla. Lo decisivo para que se interrumpa el término de apelación o revisión es que el tribunal de instancia tome alguna acción para acoger la moción de reconsideración mientras aún tiene jurisdicción sobre el caso. Reyes v. ELA, supra, página. 531. El tribunal de instancia no tiene jurisdicción para acoger una mocion de reconsideración transcurrido el termino de treinta (30) días para recurrir en alzada ante el Tribunal de Circuito de Apelaciones, sin que hubiera tomado acción alguna sobre la moción durante el período de treinta (30) días. Para poder reconsiderar, el tribunal tiene que actuar antes de que la sentencia advenga final y firme. Reyes v. ELA, supra, página 532.
III
Por estar íntimamente relacionados, discutiremos en conjunto los primeros dos errores señalados.
Examinada la moción, así como los escritos y documentos que obran en el expediente, primeramente debemos concluir que el Tribunal de Primera Instancia erró al entender que el escrito no cumplía con el requisito de especificidad o propuesta específica de determinaciones adicionales. El señor Nigaglioni presentó determinaciones de hechos y conclusiones de derecho adicionales, que constituyeron una propuesta o exposición con suficiente particularidad y especificidad de hechos. A pesar de que no procedía añadir la totalidad de las determinaciones adicionales solicitadas, entre las mismas hay algunas que contienen ciertos datos que necesariamente debieron haber sido incluidos por el tribunal para que la sentencia quedara adecuadamente fundamentada. La solicitud de determinaciones de hechos presentada por el señor Nigaglioni el 27 de marzo de 2002, tuvo el efecto de interrumpir el término para apelar, hasta que el tribunal resolviera dicha solicitud. Se cometió el primer señalamiento de error.
No obstante, acogida como moción de reconsideración, nos queda por determinar si el termino para recurrir quedó interrumpido por su oportuna presentación. La moción fue radicada el 27 de marzo de 2002, a los ocho días de haberse notificado la sentencia parcial, en claro cumplimiento con los términos contemplados por las Reglas de Procedimiento Civil. A partir de su presentación, el Tribunal de Instancia tenía diez (10) días para considerarla. Si la rechazaba de plano, el término para presentar la apelación no quedaría interrumpido, a no ser que el tribunal tomara alguna acción para acoger la moción de reconsideración antes de expirar el período de treinta (30) días dispuesto para recurrir en alzada ante este Foro. El 8 de abril de 2002, antes de expirar el término de treinta (30) días para recurrir en alzada, el Tribunal de Primera Instancia emitió la orden para que las partes se expresaran. Por tanto, el Tribunal acogió la moción y el término para apelar quedó interrumpido.
ÍV
Resuelto lo anterior, en síntesis, la controversia se reduce a determinar si estamos o no ante la presencia de co-causantes o coautores solidarios de los daños, y si aplica o no la norma de Arroyo v. Hospital La Concepción, *227130 D.P.R. 596 (1992), a los fines de determinar el término prescriptivo aplicable.
La obligación solidaria es aquélla en la que concurren varios acreedores (solidaridad activa) o varios deudores (solidaridad pasiva), o varios acreedores y al mismo tiempo varios deudores (solidaridad mixta), y en que cada acreedor tiene derecho a pedir, y cada deudor tiene la obligación o deber de realizar íntegramente la prestación debida. Arroyo v. Hospital La Concepción, 130 D.P.R. 596, 606-607 (1992).
Aunque como norma general la solidaridad no se presume (Art. 1090 del Código Civil, 31 L.P.R.A. see. 3101), por excepción, existe solidaridad automática en las obligaciones que surgen entre los que participan o cooperan en la realización de un daño. En materia de daños extracontractuales o culpa aquilina, el Tribunal Supremo ha resuelto que cuando sean varios quienes con sus actos u omisiones culpables o negligentes causen un daño, se obligarán solidariamente a repararlo. Torres Ortiz v. E.L.A., 136 D.P.R. 556 (1994). Conforme las disposiciones del Artículo 1802 del Código Civil, supra, hay una declaración estaturaria de solidaridad entre los varios responsables del acto ilícito. En este tipo de caso, la solidaridad se presume. Arroyo v. Hospital La Concepción, supra.
En el caso de las obligaciones solidarias, la interrupción de la prescripción aprovecha o perjudica a todos los acreedores y deudores. Art. 1874 del Código Civil, supra, sec. 5304. Por lo tanto, la interposición de una reclamación judicial en tiempo contra uno de los codeudores solidarios tiene el efecto de interrumpir el término prescriptivo para todos los demás. Art. 1094 del Código Civil, supra, sec. 3105; Rivera Otero v. Casco Sales, 115 D.P.R. 662 (1984).
A tenor con lo anterior, en nuestra jurisdicción se permite traer a juicio a un co-causante solidario que originalmente no fue incluido en el pleito, a través de demanda contra tercero por parte del demandado original o por enmienda a la demanda por parte del demandante. En estos casos sólo se requiere alegar bien y suficientemente en la demanda el hecho de que el nuevo demandado, o tercero demandado, según los casos, responde solidariamente por los daños reclamados con el demandado original, contra quien se radicó la demanda dentro del término prescriptivo dispuesto por el ordenamiento. Arroyo v. Hospital La Concepción, supra, pág. 608. La demanda contra tercero también podría enmendarse para que el tercero le responda al demandado, en caso de éste tener que pagar al demandante, lo que también eliminaría el planteamiento de prescripción. García v. Gobierno de la Capital. 72 D.P.R. 138 (1951).
Corresponde entonces determinar si el apelante alegó bien y suficientemente en la demanda contra tercero el hecho de que el apelado respondía solidariamente por los daños reclamados contra el demandado original, en cuyo caso la interrupción de la prescripción ocurrida al presentarse la demanda original perjudicaría a todos los deudores. En la demanda contra tercero se alegó lo siguiente:
“1. El día 15 de abril de 1999, alrededor de las 9:15 de la mañana, el codemandado Pedro Juan Nigaglioni Loyola, acompañado de Ángel Matos Rentas, se dirigía en su vehículo Jeep-Wrangler 1997, tablilla número CQH-539 hacia el Barrio Encarnación y lo discurría por la carretera número 2 en dirección de Oeste a Este de Peñuelas a Ponce.
2. Al llegar al kilómetro 215, donde hay una brecha, se detuvo y se colocó en dirección norte para entrar a dicho Barrio.
3. Estando detenido en esa posición, surgió la dama Neysa Pérez Colón en el vehículo marca Ford, modelo Escort, tablilla DBG-662, quien se aparcó en forma paralela al vehículo del codemandado Nigaglioni. Esta dama discurría también en dirección de Oeste a Este.
4. Estando detenida dicha conductora en la forma descrita, el conductor Mitchael Rodríguez Rodríguez,
*228
quien discurría en la misma dirección a velocidad exagerada en su vehículo marca Mitsubishi, modelo Mirage, Tablilla CDS-097, perdió el control e impactó violentamente el vehículo manejado por Neysa, el cual fue lanzado hacia el vehículo del demandado y éste a su vez fue impulsado en contra de la barrera de metal.
5. Como consecuencia del accidente, el demandado sufrió lesiones en su cuerpo, específicamente en las piernas y al día siguiente sufrió un infarto. [...]
6. El vehículo de demandado sufrió daños de consideración [...].
7. El accidente se debió a la negligencia de Mitchael Rodríguez Rodríguez al discurrir a velocidad exagerada sin tomar en cuenta la vida y propiedad ajenas.
8. Que la parte demandante ha presentado demanda en contra del demandado compareciente en reclamación por los daños sufridos en el accidente antes relacionado. [...]
9. El tercero demandado, Mitchael Rodríguez Rodríguez, tenía expedida una póliza a su favor con la Cooperativa de Seguros Múltiples con cubierta para responder por los daños causados por la conducción de su vehículo, por lo que tanto él como su aseguradora le son responsables al demandado por cualquier suma que se le ordene pagar a la parte demandante y ademas le son responsables directamente al demandante por los danos causados a éste.
10. Se interesa que se expidan emplazamientos para ser diligenciados en los terceros demandados. ”
Al estudiar la demanda radicada en contra del señor Rodríguez, se desprenden alegaciones de responsabilidad solidaria entre el señor Nigaglioni y el señor Rodríguez. Específicamente se alegó que el señor Rodríguez conducía su vehículo a velocidad exagerada impactando el vehículo de la señora Pérez, el cual a su vez se estrelló con el vehículo del señor Nigaglioni. También que el señor Rodríguez le respondía al señor Nigaglioni por cualquier suma que el tribunal le ordenara pagar al señor Matos, además de su obligación de responderle directamente al señor Matos por los daños causados a éste. Por lo tanto, se cumplió con los requisitos dispuestos en Arroyo v. Hospital La Concepción, supra. Ante estas alegaciones, podemos considerar al señor Nigaglioni y al señor Rodríguez como co-causantes de dichos alegados daños. Por consiguiente, cuando el señor Matos demando al señor Nigaglioni, el término prescriptivo en cuanto al señor Rodríguez, por dichos daños, quedó interrumpido con la presentación oportuna de la demanda original. Esta conclusion, sin embargo, es sin perjuicio de que dicha defensa se preserve para el juicio, en caso de que el Tribunal llegara a determinar en su día que no existe solidaridad entre las partes. Arroyo v. Hospital La Concepción, supra. Esto implica que en caso que se resuelva que el demandado original no es responsable, entonces no puede emplearse el fundamento de solidaridad para interrumpir la prescripción contra la parte verdaderamente responsable. Si no hay responsabilidad de la primera parte, mucho menos hay solidaridad.
y
Por los fundamentos que anteceden, revocamos la sentencia parcial apelada. Se devuelve el caso para continuación de los procedimientos ante el Tribunal de Primera Instancia.
Lo acordó y manda el Tribunal y lo certifica la Secretaria General.
Aida Ileana Oquendo Graulau
Secretaria General
*229ESCOLIOS 2004 DTA 102
1. Aunque en la carátula del escrito de apelación lee Mitchell Rodríguez Rodríguez, surge de los autos que el nombre correcto es Mitchael Rodríguez Rodríguez.
2. La Cooperativa de Seguros Múltiples presentó acción de subrogación en contra del señor Nigaglioni para recobrar de éste lo indemnizado al señor Rodríguez.
3. Del análisis de la sentencia parcial emitida por el Tribunal de Primera Instancia y la lectura ponderada de la solicitud de determinaciones adicionales, nos percatamos, además, que esta última solicita que se incluyan unos hechos que, además, son sus alegaciones y argumentaciones sobre la procedencia de la moción para que se deje sin efecto la sentencia. Lo que se alega en la mocion sobre determinaciones adicionales, es la base jurídica de la moción para que se deje sin efecto la sentencia.
4. Cabe destacar en este punto que habíamos resuelto este asunto mediante nuestra resolución del 9 de septiembre de 2003, cuando declaramos sin lugar la moción de desestimación presentada por el apelado, señor Rodríguez, mediante la cual se alegaba que la referida mocion de determinaciones adicionales- atendida por el tribunal como una solicitud de reconsideración-, había sido rechazada de plano, por lo que no había interrumpido el término para apelar.
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687 F. Supp. 134 (1988)
BIC LEISURE PRODUCTS, INC., and Windglider Fred Ostermann, GmbH, Plaintiffs,
v.
WINDSURFING INTERNATIONAL, INC., Defendant.
No. 83 Civ. 3774 (MEL).
United States District Court, S.D. New York.
July 6, 1988.
*135 Jonathan A. Marshall, Pennie & Edmonds, New York City, for plaintiff BIC Leisure Products, Inc.; Thomas F. Reddy, Jr. and Brian M. Poissant, of counsel.
Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst, Los Angeles, Cal., for defendant; Harold E. Wurst, of counsel.
LASKER, District Judge.
In this motion, part of an ongoing patent infringement action, BIC Leisure Products, Inc. ("BIC") proposes to limit the theories upon which Windsurfing International, Inc. ("WSI") may seek damages for infringement of its reissue patent for sailboards. Earlier proceedings established that, although BIC had infringed WSI's patent, the infringement was not willful. Windsurfing International, Inc. v. Fred Ostermann, GmbH, 668 F. Supp. 812 (S.D.N.Y. 1987). The motion is denied.
Background
WSI suggests a number of damage theories based on some form of "lost profit" theory, with a damage floor of a "reasonable royalty." BIC contends that WSI may recover damages based only on the "reasonable royalty" theory.
WSI maintains that it is entitled to damages for: 1) lost profits for sales WSI would have made absent the infringement ("lost profits"), 2) lost profits for WSI sales made at prices reduced to match BIC's lower prices ("reduced profits"), 3) lost profits for the overall reduction in WSI's business attributable to its need to divert resources because of the infringement ("generally reduced business"), 4) lost future profits due to depressed sailboard prices generally, which WSI claims are attributable to BIC's infringement ("projected lost profits"), and 5) projected lost profits for future competition with BIC which WSI claims will be accelerated because BIC's infringement will allow it to reenter the market in an enhanced position ("accelerated reentry by BIC").
*136 As provided in 35 U.S.C. § 284 (1982), a successful plaintiff in a patent infringement action is entitled to "damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer...." The Federal Circuit has construed the statute to mean that "[w]hen a patent owner would have made the sale `but for' the infringement, the award based on his lost profits is appropriate ... [and t]he patent owner's burden of proof is not absolute, but one of reasonable probability." King Instrument Corp. v. Otari Corp., 767 F.2d 853, 863 (Fed.Cir.1985), cert. denied, 475 U.S. 1016, 106 S. Ct. 1197, 89 L. Ed. 2d 312 (1986) (citations omitted). The reasonable probability standard requires that damages may not be speculative. If damages based on lost profits are not proven according to the above test, the statute requires that damages equal to a reasonable royalty be awarded.
I.
BIC argues that WSI should not be permitted to pursue its first three damage theories because, according to BIC, WSI cannot satisfy two conditions necessary to the success of these theories.
A.
BIC claims that lost profits (of the form specified in the first three damage theories) can only be awarded in a two-supplier market, a condition not satisfied in this case, according to BIC, because of WSI's numerous licensees.
BIC cites a number of cases that it claims supports the proposition that a two-supplier market is a requirement for proving any kind of lost profit damage theory. Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649, 653 (Fed. Cir.) ("when the parties involved in an action are the only suppliers in the market, lost profits are a particularly appropriate measure of damages"), cert. denied, 474 U.S. 902, 106 S. Ct. 230, 88 L. Ed. 2d 229 (1985); Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 21 (Fed.Cir.1984) ("a patent holder can most commonly show [evidence justifying lost profits demand for his patented product, the absence of acceptable noninfringing substitutes, production capacity able to meet demand, and computations on the loss of profits] when the parties involved in the action are the only suppliers") (citation omitted); Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065 (Fed.Cir.1983) (in a two-supplier market, causation may be inferred). However, the cases do not stand for the proposition that a two-supplier market is a required condition. Instead, these cases only indicate that the existence of a two-supplier market makes the patentee's burden of proving causation easier.
As further support for its argument that a two-supplier market is required, BIC cites recent cases in which the courts awarded only reasonable royalty damages to patent owners in markets having more than two suppliers. For example, in Amstar Corp. v. Envirotech Corp., 823 F.2d 1538, 1543 (Fed.Cir.1987), the court affirmed an award of damages based on lost profits only for those sales made in a two-supplier market and reasonable royalties for the remaining sales as to which no two supplier market was proven, and in Del Mar Avionics v. Quinton Instrument Co., 836 F.2d 1320, 1328 (Fed.Cir.1987), the court emphasized the appropriateness of lost profits as a measure of damages, rather than reasonable royalties, where the patentee, unlike in the case at hand, had not granted any licenses. However, neither Amstar nor Del Martin held that a two supplier market is required for an award of lost profits. Amstar, like Lam, Kori, and Paper Converting, only emphasizes that one can infer causation if there are only two viable competitors in the market. Del Mar, upon close reading, provides even less support for BIC, because the court states that causation may be inferred where the patent owner and infringers were the only suppliers in the market and disagrees with the district court's rejection of Del Mar's argument that it was entitled to "its pro rata share of Quinton's sales based on the one or two (depending on the year) other suppliers *137 who were also accused infringers." 836 F.2d at 1327.
Not only does BIC lack support for the proposition that a two-supplier market is necessary to prove damages based on lost profits, but WSI cites cases in which lost profits have actually been awarded in the absence of a two-supplier market. Orthman Mfg., Inc. v. Chromalloy American Corp., 512 F. Supp. 1284, 1293-96 (C.D.Ill. 1981) (affirming award of lost profits where patent owner had a number of licensees and award was proportionate to percentage of market controlled by patent owner); Bros, Inc. v. W.E. Grace Mfg. Co., 320 F.2d 594, 598 (5th Cir.1963) (affirming award of lost profits to patentee, despite presence of other competitors, because to do otherwise would permit an infringer to go unaccountable "because had he not poached, another would or, at any rate, sales of similar products would have been made, not by the patent owner, but by others"); but see Saf-Gard Products, Inc. v. Service Parts, Inc., 491 F. Supp. 996, 1007 (D.Ariz.1980) (stating that loss of royalty is the appropriate measure of damages where the patent owner has granted royalty-bearing licenses and that lost profits is appropriate if no such licenses have been awarded). Although the facts of these cases do not exactly parallel those of the case at hand, they do stand for the proposition that lost profits can be awarded in a market with more than two suppliers, whether those other suppliers are infringers or licensees.
B.
BIC contends that the second condition the patent owner must prove to demonstrate lost profits is that the patent owner's sales increased upon the cessation of infringement. BIC claims that WSI's sales did not increase, and in fact decreased, when BIC's infringement ended. Again, however, the cases upon which BIC relies do not support this conclusion.
As WSI points out, in Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1068 (Fed.Cir.1983), the court merely stated that "[s]uch post-infringement growth rate is certainly admissible evidence to form a basis for inferring that [the patentee] would have grown at the pre-infringement rate...." In TWM Mfg. Co., Inc. v. Dura Corp., 789 F.2d 895 (Fed.Cir.), cert. denied, 479 U.S. 852, 107 S. Ct. 183, 93 L. Ed. 2d 117 (1986), the court affirmed the decision of the Special Master who, in her report, stated that a post-infringement increase in sales volume "is strong evidence of the fact that but for Dura's infringement, TMW would have realized a sales volume at least equal to the combined sales volume of the two companies." See Brief in Support of Motion by BIC Leisure Products, Inc. to Define and Limit the Accounting Issues, Exhibit E, Report of Special Master, at 79a. Contrary to BIC's assertion that proof of increased sales volume is necessary to establish lost profits, the cases merely support the proposition that increased sales volume is evidence which supports a claim for damages based on lost profits.
II.
BIC attacks WSI's remaining two damage theories, lost future profits due to depressed sailboard prices generally, ("projected lost profits"), and projected lost profits based on future competition with BIC ("accelerated reentry by BIC"), on the grounds that recovery based on these theories would effectively extend the term of WSI's patent monopoly.
BIC argues that any extension of the benefits of a patent beyond its expiration is impermissible as a matter of law. BIC cites two cases in support of its argument, neither of which addresses the question of damages. In Brulotte v. Thys Co., 379 U.S. 29, 85 S. Ct. 176, 13 L. Ed. 2d 99 (1964), the Court held that royalty agreements which extend beyond the date of the patent's expiration are unlawful per se and thus unenforceable. The Court's holding rested on the reasoning that "[i]f that device were available to patentees, the free market visualized for the post-expiration would be subject to monopoly influences that have no proper place there." Id. at 32-33, 85 S.Ct. at 179. The Court based its holding in part on a quotation from an *138 earlier patent decision: "... any attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws." Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 256, 66 S. Ct. 101, 104, 90 L. Ed. 47 (1945). See also Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 16 (Fed.Cir.1984) ("Care should be taken not to extend by judicial construction the [patent] rights and privileges which it was the purpose of Congress to bestow," quoting Bauer v. O'Donnell, 229 U.S. 1, 10, 33 S. Ct. 616, 617, 57 L. Ed. 1041 (1913)). Although these cases instruct courts to consider the actual effect of patent infringement determinations, they do not hold that the theories proposed here by WSI are impermissible.
WSI, in these theories, seeks compensation for future losses it claims it will incur because BIC will reenter the market at a level accelerated by its earlier infringement. By the very nature of the argument, WSI in these two damage theories proposes only to be made whole for past violations of BIC, and thus the theories are consistent with the purpose of 35 U.S.C. § 284 of awarding damages approximating what "the patent holder would have made had the infringer not infringed." Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1064 (quoting Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507, 84 S. Ct. 1526, 1543, 12 L. Ed. 2d 457 (1964)). Accordingly, having found BIC's argument that these theories constitute an impermissible extension of the patent unpersuasive, cf. Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F.2d 858 (Fed.Cir.) (finding use of a patented drug for federally mandated premarketing tests violated patent law, despite the argument that this holding effectively granted a de facto extension of the patent beyond its expiration), cert. denied, 469 U.S. 856, 105 S. Ct. 183, 83 L. Ed. 2d 117 (1984), WSI may attempt to prove the damages to which it is entitled under these theories. TWM Mfg. Co., Inc. v. Dura Corp., 789 F.2d 895, 898 (Fed.Cir.) ("The methodology of assessing and computing damages under 35 U.S.C. § 284 is within the sound discretion of the district court."), cert. denied, 479 U.S. 852, 107 S. Ct. 183, 93 L. Ed. 2d 117 (1986).
For the reasons stated, BIC's motion to define and limit the accounting issues is denied.
It is so ordered.
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687 F. Supp. 1145 (1988)
UNITED STATES of America, Plaintiff,
v.
Larry Roger SPARKS, Carlena Lawrence, Reginald Lawrence, Anthony Blocker, Eartha Diane Gaines, Bonnie Sparks, Elmer Charles Johnson, Eric Sparks, Diane Blacksher, Joseph Lawrence, Julian Lawrence, Bernard Peoples, Brenda Lawrence, Catrena Lawrence, Alex Taylor, Michael Lawrence, and Steve Lawrence, Defendants.
No. 88-CR-20019-BC.
United States District Court, E.D. Michigan, N.D.
June 7, 1988.
*1146 *1147 Michael J. Hluchaniuk, Asst. U.S. Atty., Bay City, Mich., for plaintiff.
Robert E. Bourne, Midland, Mich., for Carlena Lawrence.
Jerome E. Burns, Saginaw, Mich., for Reginald Lawrence.
Stevens J. Jacobs, Brady & Jacobs, P.C., Bay City, Mich., for Eartha D. Gaines.
Henry J. Sefcovic, Bay City, Mich., for Elmer C. Johnson.
Joseph Sheeran, Bay City, Mich., for Diane Blacksher.
David G. Myers, Caro, Mich., for Bernard Peoples.
Harry Gill, Bay City, Mich., for Catrena Lawrence.
Thomas Plachta, Mount Pleasant, Mich., for Michael Lawrence.
Robert J. Rhead, Midland, Mich., for Julian Lawrence.
Robert J. Dunn, Bay City, Mich., for Anthony Blocker.
Philip Sturtz, Saginaw, Mich., for Bonnie Sparks.
Benjamin L. Crossley, Saginaw, Mich., for Eric Sparks.
George C. Bush, Saginaw, Mich., for Joseph Lawrence.
Mark A. Kolka, Bay City, Mich., for Brenda Lawrence.
Richard King, Flint, Mich., for Alex Taylor.
Richard L. Lee, Jr., Midland, Mich., for Steve Lawrence.
MEMORANDUM OPINION
CHURCHILL, District Judge.
In this criminal case, three of the 17 defendants[1] charged with violations of 18 U.S.C. § 1029 raise constitutional and statutory challenges to the sentencing guidelines promulgated by the United States Sentencing Commission ("Commission") pursuant to the Sentencing Reform Act of 1984 ("Sentencing Reform Act"), Title II of the Comprehensive Crime Control Act of 1984, Pub.L. No. 98-473, 98 Stat. 1976, 2017 (codified at 28 U.S.C. §§ 991-998). Finding no merit in the defendants' statutory arguments and resolving the constitutional challenges in a manner that permits the sentencing guidelines to remain in force, the Court must deny the defendants' motions to preclude application of the sentencing guidelines.
I. FACTUAL BACKGROUND AND ARTICLE III CONSIDERATIONS
All of the defendants who have filed motions attacking the guidelines are subject to a plea cut-off date of June 21, 1988. Faced with a degree of uncertainty concerning the applicability of the sentencing guidelines, the defendants wish to know whether they will be sentenced under the guidelines before they enter into any type of plea agreement. Logically, then, the Court ought to provide a ruling on the validity of the sentencing guidelines. Counterbalanced with the pragmatic motivation for ruling on the guidelines, however, is the constitutionally mandated case or controversy requirement. See U.S. Const. art. III, § 2. The case or controversy requirement encompasses the concepts of standing and ripeness, both of which are prerequisites to judicial review. In the case before the Court, the defendants can *1148 demonstrate both standing and ripeness at this juncture; accordingly, Article III presents no barrier to resolution of the defendants' motions.
A. Standing
Constitutional standing analysis requires a party to allege "some actual or threatened injury" before raising issues relating to the merits of a case. Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 99, 99 S. Ct. 1601, 1607-08, 60 L. Ed. 2d 66 (1979). "`[A]bstract' or `conjectural' or `hypothetical'" injury is insufficient for the purpose of establishing standing. See, e.g., Allen v. Wright, 468 U.S. 737, 751, 104 S. Ct. 3315, 3324, 82 L. Ed. 2d 556 (1984). Applying this standard, the Court finds that the defendants in the case at bar can demonstrate adequate "threatened injury" to support standing. As the district court reasoned in United States v. Chambless, 680 F. Supp. 793 (E.D.La.1988), criminal defendants subject to sentencing under the guidelines can show an "impending injury," which is sufficient to confer standing upon defendants seeking to attack the guidelines. Babbitt v. United Farm Workers Nat. Union, 442 U.S. 289, 298, 99 S. Ct. 2301, 2308-09, 60 L. Ed. 2d 895 (1979). Likewise, any defendant who enters into a plea agreement necessarily is subject to sentencing under the guidelines; a defendant contemplating a plea offer therefore faces more than an "abstract" or "hypothetical" injury. Cf Allen, 468 U.S. at 751, 104 S.Ct. at 3324. Thus, the Court concludes that standing affords no impediment to disposition of the defendants' motions.
B. Ripeness
In a manner similar to standing, the concept of ripeness is intended "to prevent the courts ... from entangling themselves in abstract disagreements." Abbott Laboratories v. Garnder, 387 U.S. 136, 148, 87 S. Ct. 1507, 1515, 18 L. Ed. 2d 681 (1967). Ripeness, which focuses on "avoidance of premature adjudication," id., requires consideration of two factors. First, the Court must address the "fitness of the issues for judicial decision." See id. at 149, 87 S.Ct. at 1515. Second, the Court must evaluate "the hardship to the parties of withholding court consideration." Id.
As Judge Enright observed in United States v. Ruiz-Villanueva, 680 F. Supp. 1411 (S.D.Cal.1988), the defendants' challenges involve "purely legal issues which do not require further factual development." Id. at 1415. Accordingly, the issues raised by the defendants in the case at bar are entirely fit "for judicial decision." With respect to the "hardship" factor, there can be no doubt that defendants contemplating plea agreements require a decision as to the validity of the guidelines if they are to make an intelligent and informed choice to plead guilty and thus forego their right to a jury trial. In sum, defendants' motions raise questions that undoubtedly are ripe for judicial consideration.
II. CONSTITUTIONAL CHALLENGES TO THE SENTENCING GUIDELINES
The sentencing guidelines, which became effective on November 1, 1987, constitute a bipartisan[2] effort to "provide certainty and fairness" in the sentencing process and to alleviate "unwarranted sentencing disparities" among similarly situated defendants. 28 U.S.C. § 991(b)(1)(B). The guidelines are the product of the United States Sentencing Commission, which was created and empowered by Congress "as an independent commission of the judicial branch of the United States." Id. § 991(a). Because the defendants have interposed challenges to the nature, composition and product of the Commission, the Court will briefly review the substance of operative congressional *1149 directives despite the well-documented abundance of explanatory judicial discourse on this subject. See, e.g., 43 Crim.L.Rep. at 2122-27.
The Commission in question is comprised of a single chairperson, six additional voting members, and one nonvoting member. 28 U.S.C. § 991(a). Upon the recommendation of the Judicial Conference, see S.Rep. No. 225, 98th Cong., 2d Sess. 159, reprinted in 1984 U.S. Code Cong. & Admin.News 3182, 3342, "[a]t least three of the members [of the Commission] shall be federal judges." 28 U.S.C. § 991(a). Despite the statutory requirement concerning inclusion of federal judges, however, members of the Commission do not technically act in their capacity as judges while sitting on the Commission. See S.Rep. at 160, 1984 U.S. Code Cong. & Admin.News at 3343. All members of the Commission, including the chairperson, are appointed by the President with the "advice and consent of the Senate," 28 U.S.C. § 991(a), and are "subject to removal from the Commission by the President only for neglect of duty or malfeasance in office or for other good cause shown." Id.
The purposes of the Commission are quite simple in theory to "establish sentencing policies and practices for the Federal criminal justice system" subject to extensive congressional directives and to "develop means of measuring the degree to which the sentencing, penal, and correctional practices are effective in meeting the purposes of sentencing" as described in 18 U.S.C. § 3553(a)(2). See 28 U.S.C. § 991(b)(1) & (2). In furtherance of the Commission's stated function of promulgating sentencing guidelines, see id. § 994(a), Congress also provided the Commission with the power to "monitor the performance of probation officers with regard to sentencing recommendations," id. § 995(a)(9), to "issue instructions to probation officers concerning the application of Commission guidelines and policy statements," id. § 995(a)(10), and to "devise and conduct periodic training programs of instruction in sentencing techniques for judicial and probation personnel and other persons connected with the sentencing process." Id. § 995(a)(18). Additionally, the Commission is charged with the responsibility of considering "any petition filed by a defendant requesting modification of the guidelines utilized in the sentencing of such defendant." See id. § 994(s). Section 994 further authorizes the Commission to recommend changes to the existing guidelines, although any proposed amendments must be reported to Congress before such amendments can become effective. Id. § 994(p). Proposed amendments can be "disapproved or modified," however, only "by Act of Congress." Id.
After the Sentencing Reform Act became effective, the Commission comprised of three federal judges and four other voting members developed the sentencing guidelines at issue in the case at bar. Defendants raise challenges to several aspects of the Act that created the Commission. First, defendants contend that section 994(a) provides for an impermissible delegation of Congress' lawmaking power to the Commission. Second, defendants argue that section 994(p)'s reporting and congressional action provision amounts to an unlawful legislative veto. Next, defendants turn to the Commission itself and urge the Court to declare that the placement of the Commission in the judicial branch coupled with presidential appointment and removal power constitutes a violation of the separation of powers doctrine. The Court will address these arguments individually to allow discussion of the legal consequences that flow from the Court's rulings on the various issues.
A. The Relationship Between Congress and the Commission
To a limited extent, the Sentencing Reform Act constructs a system in which Congress and the Commission are interactive. Congress offered a great deal of guidance to instruct the Commission's creation of sentencing guidelines. Cf. 28 U.S. C. § 994. In addition, Congress included a reporting requirement in the Act. See id. § 994(p). In the final analysis, however, Congress vested a significant degree of *1150 autonomy in the Commission as far as the development of guidelines is concerned.
1. Congressional Delegation of Power to the Commission
In challenging the Sentencing Reform Act as including an unlawful delegation of congressional power, the defendants necessarily raise Article I concerns coupled with delegation doctrine issues. See U.S. Const. art. I, §§ 1, 8; see also A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 529, 55 S. Ct. 837, 842-43, 79 L. Ed. 1570 (1935); Schoenbrod, The Delegation Doctrine: Could the Court Give It Substance?, 83 Mich.L.Rev. 1223, 1224 (1985) (defining delegation doctrine as "a limit in article I on Congress' power to delegate the power of legislation to other branches of government"). Defendants have presented the Court with a two-pronged attack based upon the delegation doctrine. First, defendants contend that the Sentencing Reform Act, in delegating to the Commission the authority to promulgate sentencing guidelines, prescribes a congressional transfer of a "core legislative function." See, e.g., Ruiz-Villanueva, 680 F.Supp. at 1416. Defendants also assert that the delegation of power to the Commission is unfettered by "intelligible principles," see J.W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 409, 48 S. Ct. 348, 352, 72 L. Ed. 624 (1928), and thus is improper irrespective of whether Congress has the power to make such a delegation. See, e.g. Chambless, 680 F.Supp. at 795.
The defendants' argument concerning lack of congressional power to make such a delegation to the Commission relies on the Supreme Court's opinions in Schechter and Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S. Ct. 241, 79 L. Ed. 446 (1935). Schechter and Panama Refining, both New Deal era decisions, marked the zenith of the delegation doctrine's applicability. Soon after announcing Schechter in 1935, however, the Court retreated from its aggressive use of the delegation doctrine as a tool for limiting congressional delegation of authority. See J. Nowak, R. Rotuda & J. Young, Treatise on Constitutional Law: Substance and Procedure § 4.8, at 294 n. 4 (1986) ("Since 1936 no federal statute has been held unconstitutional by the Supreme Court because of an excessive delegation of legislative power.") In 1941, the Court decided Opp Cotton Mills v. Administrator of Wage & Hour Division, 312 U.S. 126, 61 S. Ct. 524, 85 L. Ed. 624 (1941), which proved to be a harbinger of the delegation doctrine's demise. Upholding a delegation of standard-setting authority to an executive branch administrator, the Opp Cotton Mills Court reasoned that "[i]n an increasingly complex society Congress obviously could not perform its functions if it were obliged to find all the facts subsidiary to the basic conclusions which support its defined legislative policy." Id. at 145, 61 S.Ct. at 532. The erosion of the delegation doctrine continued in 1944 with the Supreme Court's decision in Yakus v. United States, 321 U.S. 414, 64 S. Ct. 660, 88 L. Ed. 834 (1944). The Yakus Court, unpersuaded that Congress had unconstitutionally delegated its legislative power to control prices, stated: "The essentials of the legislative function are the determination of the legislative policy and its formulation and promulgation as a defined and binding rule of conduct.... These essentials are preserved when Congress has specified the basic conditions of fact upon whose existence or occurrence, ascertained from relevant data by a designated administrative agency, it directs that its statutory command shall be effective." Id. at 424-25, 64 S.Ct. at 667.
The progression of delegation doctrine decisions clearly indicates that while Schechter and Panama Refining cannot simply be discarded as aberrations, cf. National Cable Television Ass'n v. United States, 415 U.S. 336, 353, 94 S. Ct. 1146, 1156, 39 L. Ed. 2d 370 (1974) (Marshall, J., dissenting), the scope of the delegation doctrine "must be determined on the basis of the deferential post-Schechter cases decided by the Supreme Court." Synar v. United States, 626 F. Supp. 1374, 1384 (D.D.C.) (three-judge panel including Scalia, J.), aff'd on other grounds sub nom. Bowsher v. Synar, 478 U.S. 714, 106 S. Ct. 3181, 92 L. Ed. 2d 583 (1986); see also Humphrey v. Baker, 848 F.2d 211, 217 (D.C.Cir.1988). The *1151 deferential standard employed in Opp Cotton Mills and Yakus, which has served as the benchmark for delegation doctrine scrutiny since the New Deal era, unmistakably demonstrates that Congress has not impermissibly delegated a "core legislative function" by enacting the Sentencing Reform Act. See, e.g., United States v. Arnold, 678 F. Supp. 1463, 1466-67 (S.D.Cal.1988). The Court, therefore, finds that the only possible delegation doctrine impediment to constitutionality is the broad "intelligible principles" requirement. See, e.g., Ruiz-Villanueva, 680 F.Supp. at 1416-17 (rejecting "core functions" argument and undertaking "intelligible principles" inquiry); United States v. Johnson, 682 F. Supp. 1033 (W.D.Mo.1988) (providing extensive discussion of delegation doctrine argument); but see United States v. Tolbert, 682 F. Supp. 1517, 1522 (D.Kan.1988) (arguing for revival of delegation doctrine to strike down Sentencing Reform Act.)
The "intelligible principles" aspect of the delegation doctrine maintains that Congress cannot delegate authority without also offering guidance to assist the recipient of the delegated power. See, e.g., National Cable Television, 415 U.S. at 342, 94 S.Ct. at 1149-50 (quoting Hampton & Co.). Courts, however, are "justified in overriding [Congress'] choice of means for effecting its declared purpose ... only if ... there is an absence of standards ..., so that it would be impossible in a proper proceeding to ascertain whether the will of Congress has been obeyed." Yakus, 321 U.S. at 426, 64 S.Ct. at 668. In the case of the Sentencing Reform Act, Congress has provided ample guidance to direct the Commission in exercising its delegated power. See, e.g., 28 U.S.C. §§ 991, 994; cf. Chambless, 680 F.Supp. at 796-97. Accordingly, the Court finds that Congress' delegation of authority to the Commission passes constitutional muster in the face of defendants' delegation doctrine challenge.
2. Congressional Retention of Power
Relying on the Sentencing Reform Act's reporting requirement and allowance for congressional disapproval or modification of all Commission action concerning guidelines, see 28 U.S.C. § 994(p), defendants assert that Congress has impermissibly retained the type of legislative veto proscribed in Immigration and Naturalization Serv. v. Chadha, 462 U.S. 919, 103 S. Ct. 2764, 77 L. Ed. 2d 317 (1983). The Court disagrees with the characterization of congressionally retained power urged by the defendants; the Supreme Court's decision in Chadha does not mandate a finding that the Sentencing Reform Act's reporting provision is unconstitutional.
In Chadha, the Supreme Court explicitly indicated that the constitutional limitations of bicameralism and presentment prohibit congressional retention of a legislative veto for the purpose of controlling the exercise of congressionally delegated powers. See Chadha, 462 U.S. at 957-59, 103 S.Ct. at 2787-88. Thus, if Congress were to require the Commission to report proposed amendments that would be subject to rejection upon disapproval of the House or the Senate, the Court would have to strike such a provision as an impermissible legislative veto. Both the text of the Sentencing Reform Act and the legislative history indicate, however, that Congress has not reserved such a legislative veto. Rather, congressional disapproval or modification of Commission action must be "by Act of Congress." 28 U.S.C. § 994(p). The legislative history substantiates the Court's conclusion that this provision means what it says that Congress cannot override Commission activity absent compliance with the bicameral requirement and presentment to the President. See S.Rep. at 178, 1984 U.S. Code Cong. & Admin.News at 3361. Because the reporting requirement is innocuous based on Section 994(p)'s "Act of Congress" requirement, it does not implicate the constitutional concerns addressed in Chadha. The Court, therefore, finds defendants' legislative veto argument to be specious.
B. Separation of Powers
Defendants next challenge the Sentencing Guidelines as violative of the constitutional separation of powers doctrine. This challenge stems from a combination of the *1152 placement of the Commission within the judicial branch of government, the assignment to it of quasi-legislative duties, and the delegation of removal power to the President. The government takes the position that this combination of functions between the judicial and executive branches violates separation of powers principles. One of the solutions proposed by the government is that the Court simply ignore the judicial branch "label" and treat the Commission either as within the executive branch or as an independent agency. The problem with this approach is that Congress' intention to place the Commission within the judicial branch is clear from both the express language of the Sentencing Reform Act and its legislative history.
Section 991(a) provides that the Sentencing Commission is "an independent commission in the judicial branch of the United States." That there was method to this language is evident from the Senate Report, which states that the "[p]lacement of the Commission in the judicial branch is based on the Committee's strong feeling that, even under this legislation, sentencing should remain primarily a judicial function." S.Rep. at 159, 1984 U.S.Code Cong. & Admin.News at 3342. The intended judicial nature of the Commission is further evidenced by the fact that at least three of the seven voting members of the Commission must be federal judges. 28 U.S.C. § 991(a). In fact, as many as six of the seven voting positions conceivably could be filled by judges. See id. (at least three judges selected from a list of six). The only other mandated member, the Attorney General or his designee, serves in a nonvoting capacity. Additionally, the Commission is invested with the power to issue instructions to probation officers, id. § 995(a)(10), who are members of the judicial branch. Finally, one of the congressional justifications for utilizing active federal judges on a full-time basis without requiring them to resign their appointments as judges, id. § 992(c), is that the Commission operates as part of the judiciary. S.Rep. at 163, 1984 U.S. Code Cong. & Admin.News at 3346. Congress apparently felt that the use of judges in this way on a nonjudicial commission would raise constitutional difficulties.
The underlying purpose of the separation of powers doctrine is to prevent the concentration of executive, legislative and judicial power within a single, and potentially tyrannical, branch of government. See, e.g., The Federalist No. 47, at 326 (J. Madison) (J. Cooke ed. 1961). "While the Constitution diffuses power the better to secure liberty, it also contemplates that practice will integrate the dispersed powers into a workable government. It enjoins upon its branches separateness but interdependence, autonomy but reciprocity." Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 635, 72 S. Ct. 863, 870, 96 L. Ed. 1153 (1952) (Jackson, J., concurring). The separation of powers doctrine may be violated in two ways: 1) when one branch prevents or interferes with another branch's fulfillment of its constitutionally assigned function; or 2) when one branch assumes power constitutionally allocated to another branch. Chadha, 462 U.S. at 963, 103 S.Ct. at 2790 (Powell, J., concurring); Buckley v. Valeo, 424 U.S. 1, 122-23, 96 S. Ct. 612, 683-84, 46 L. Ed. 2d 659 (1976). Defendants' multifaceted attack upon the guidelines implicates each of these possibilities.
1. Interference with the Judicial Function
Defendants contend that the mandatory presence of federal judges on the Commission interferes with the judiciary's Article III responsibilities of deciding "cases" or "controversies." That the inclusion of judges on the Commission was at the request of the Judicial Conference of the United States, however, belies such "interference." S.Rep. at 159, 1984 U.S. Code Cong. & Admin.News at 3342. Moreover, no particular judge is forced to serve on the Commission. Each judge does so voluntarily and, the Court suspects, eagerly. The Third Circuit emphasized the voluntariness of a judge's service on the President's Commission on Organized Crime in rejecting a constitutional challenge based on separation of powers. In re President's Commission on Organized Crime, 783 F.2d *1153 370, 376 (3rd Cir.1986). The court also found the nonjudicial nature of the work to be significant in holding that "Congress may impose some extrajudicial duties on Article III judges individually duties that under the separation of powers may not be imposed on the courts qua courts." Id. at 375-76. The Court agrees with those cases finding that the service on the Commission of between three and six out of over 900 federal judges does not unconstitionally interfere with the performance of the judiciary. See, e.g., United States v. Alves, 688 F. Supp. 70, 76 (D.Mass.1988).
The second aspect to the "interference" argument is that service by judges on the Commission undermines the impartiality of the judiciary and places a judicial stamp of approval on the guidelines. Service on the Commission is different, however, from service on the President's Commission on Organized Crime or judicial involvement in the appointment of an independent counsel, each of which "undermines the status of the judiciary as a neutral forum for the resolution of disputes between citizens and their government." In re Sealed Case, 838 F.2d 476, 516 (D.C.Cir.1988) (independent counsel); Application of President's Commission on Organized Crime, 763 F.2d 1191 (11th Cir.1985) (service on President's Commission unconstitutional); but see In re President's Commission, 783 F.2d 370 (3rd Cir.1986) (service on President's Commission constitutional). As the Eleventh Circuit reasoned, "[a] judge who is charged with assisting and improving enforcement efforts against organized crime must adopt a progovernment perspective which is ill-suited to his obligation to be neutral in the courtroom." Application, 763 F.2d at 1197. Similarly, the appointment of the independent counsel under the Ethics in Government Act impermissibly involves an Article III court in the inherently executive duty of prosecuting criminal cases. Sealed Case, 838 F.2d at 516. Not only does such participation interfere with the proper functioning of the judiciary, but it also impermissibly transfers a core domain of executive power law enforcement to the judiciary.
By contrast, the imposition of a criminal penalty historically has been allocated between the judicial and legislative branches. While Congress retains the power to create mandatory sentences, it frequently sets a maximum, and sometimes also a mandatory minimum, penalty and leaves a great deal of discretion to the courts. In this context, it is difficult to argue that judicial participation in creation of the guidelines undermines the impartiality of the judiciary. After all, Congress intended that sentencing "remain primarily a judicial function." S.Rep. at 159, 1984 U.S.Code Cong. & Admin.News at 3342. Given the prevalent and often caustic disagreement among judges on every issue imaginable, it is unrealistic to assume that the mere fact that three federal circuit judges[3] were involved in promulgating the guidelines will have any bearing whatsoever with respect to their judicial treatment. Accordingly, the service of judges on the Commission does not unconstitutionally interfere with the functioning of the judiciary.
2. Assumption of Power by the Judiciary
The Sentencing Commission performs functions similar to rulemaking undertaken by administrative agencies within the executive branch.[4] Both the government and the defendants take the position that such "executive functions" cannot be performed by a Commission within the judicial branch. In addition, several district courts have classified the promulgation of the guidelines as executive in nature. See, e.g., United States v. Chambless, 680 F. Supp. 793, 800-01 (E.D.La.1988) (citing Bowsher v. Synar, 478 U.S. 714, 106 S. Ct. 3181, 92 L. Ed. 2d 583 (1986)). In Bowsher, the Supreme Court concluded that the duties of the Comptroller General are executive in *1154 nature: "Interpreting a law enacted by Congress to implement the legislative mandate is the very essence of `execution' of the law." 478 U.S. at 733, 106 S.Ct. at 3192. It is true that the work of the Commission is "executive" in a broad sense, in that the guidelines are fashioned pursuant to and in furtherance of enabling legislation. However, administrative agencies typically perform executive, legislative, and judicial functions. See, e.g., 1 K. Davis, Administrative Law Treatise §§ 2.2-2.4 (1984). In his concurring opinion in Buckley v. Valeo, Justice White recognized that "the development of the administrative agency in response to modern legislative and administrative need has placed severe strain on the separation-of-powers principle in its pristine formulation. Any notion that the Constitution bans any admixture of powers that might be deemed legislative, executive, and judicial has had to give way." 424 U.S. at 280-81, 96 S.Ct. at 755 (White, J., concurring) (citation omitted).
In analyzing the separation of powers doctrine, the Supreme Court has distinguished between the exercise of an executive function and the wielding of executive power. Ameron v. United States Army Corps of Engineers, 809 F.2d 979, 991 (3rd Cir.1986) (quoting Humphrey's Executor v. United States, 295 U.S. 602, 628, 55 S. Ct. 869, 874, 79 L. Ed. 1611 (1935)). Only the latter may not be exercised by the judicial and legislative branches. As the Court explained in Humphrey's Executor:
To the extent that [the FTC] exercises an executive function as distinguished from executive power in the constitutional sense it does so in the discharge and effectuation of its quasi legislative or quasi judicial powers, or as an agency of the legislative or judicial departments of the government.
295 U.S. at 628, 55 S.Ct. at 874. The Humphrey's Executor Court found that the Federal Trade Commission is not "an arm or an eye of the executive" because, while it effectuates legislative policies, it does not reside in the executive department nor does it exercise executive power vested solely in the President by the Constitution. Id. Similarly, "rulemaking power granted to an administrative agency charged with the administration of a federal statute is not the power to make law." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 213-14, 96 S. Ct. 1375, 1391, 47 L. Ed. 2d 668 (1976). This is true because the rulemaking power cannot go beyond the limits of the enabling legislation and, as previously discussed, must be guided by "intelligible principles." Although the Supreme Court has taken a flexible "common sense" approach to separation of powers, where one branch has "sought to assume power central to another branch, the Court has not hesitated to enforce the doctrine." Chadha, 462 U.S. at 962-63, 103 S.Ct. at 2790 (emphasis added);[5]see e.g., Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982) (plurality) (grant of Article III jurisdiction to Article I bankruptcy court unconstitutional); see 1 Davis, supra, § 2.2, at 64 (main judicial power in courts; main executive power in President; main legislative power in Congress).
Turning to the case at bar, the Court finds that placement of the Sentencing Commission within the judicial branch does not violate separation of powers because the Commission does not wield "executive power." The Commission has no power over executive branch officials, nor has it undertaken to perform duties delegated by Congress to the executive. It must be remembered that the nature and extent of the executive duty "to take care that the laws are faithfully executed," U.S. Const. art. I, § 3, depends in large part on the content of those laws. Bowsher, 478 U.S. at 733, 106 S.Ct. at 3192 ("content of the Act determines the nature of the executive duty"); see Myers v. United States, 272 U.S. 52, 177, 47 S. Ct. 21, 46, 71 L. Ed. 160 (1926) (Holmes, J., dissenting) ("The duty of the President to see that the laws be executed is a duty that does not go beyond the laws *1155 or require him to achieve more than Congress sees fit to leave within his power."). Bowsher and Chadha make clear that once Congress delegates authority to the executive branch to implement legislation, Congress must abide by its own delegation and may not retain the power to control the execution of the laws without revoking the delegation through new legislation, which entails bicameral passage and presentment to the President. Bowsher, 478 U.S. at 726, 106 S.Ct. at 3189; Chadha, 462 U.S. at 954-55, 103 S.Ct. at 2786; see Ameron, 809 F.2d at 993-94. On the other hand, Congress may in the first instance either reserve to itself the power to implement legislation or delegate such authority to the judicial branch. Ameron, 809 F.2d at 990-91. Indeed, in Sibbach v. Wilson & Co., 312 U.S. 1, 61 S. Ct. 422, 85 L. Ed. 479 (1941), the Supreme Court upheld congressional delegation of authority to the Court for the purpose of adopting the Federal Rules of Civil Procedure. Id. at 10, 61 S.Ct. at 424-25. Although Sibbach is often distinguished on the basis that it involves only "procedural" rules whereas the guidelines amount to substantive rulemaking, this distinction goes to the propriety of the delegation rather than the usurpation of executive power by the judiciary. Like the Supreme Court in Sibbach and the Federal Trade Commission in Humphrey's Executor, the Sentencing Commission is not an instrument of the executive branch and exercises no "executive power in the constitutional sense." Congress has chosen not to entrust the promulgation of the guidelines to the executive. In fact, the House Report indicates that Congress perceived constitutional difficulties in allowing the executive branch to do so. H.R.Rep. No. 1017, 98th Cong., 2d Sess. 95. Thus, the placement of the Sentencing Commission within the judicial branch does not violate separation of powers.
3. Assumption of Power by the Executive
The fact that the Commission is clearly an instrument of the judicial branch, however, underscores the problem of giving the President the power of removal. Section 991(a) provides that the President may remove members of the Commission for "neglect of duty," "malfeasance," or for "other good cause." The Supreme Court spoke to the constitutional infirmity of allowing one branch of government to have broad power to remove officials who exercise powers delegated to another branch in Bowsher. The statute in Bowsher authorized Congress to remove the Comptroller General, who exercised executive functions pursuant to a legislative delegation, for among other things "neglect of duty" or "malfeasance." Reasoning that "[t]hese terms are very broad and, as interpreted by Congress, could sustain removal of a Comptroller General for any number of actual or perceived transgressions of the legislative will," the Court held that the removal provision violates separation of powers. 478 U.S. at 729, 106 S.Ct. at 3190. The nebulous "good cause" standard in the present statute arguably provides an even broader power of removal. As the Supreme Court recognized in Bowsher, "[i]n constitutional terms, the removal powers over the [Sentencing Commission] dictate that [it] will be subservient to [the President]." Id. at 730, 106 S.Ct. at 3191. Under the authority of Bowsher, then, the Court finds this type of situation to be an unconstitutional assumption of power by the executive.
4. Severability
Having found the removal provision of the Act to be unconstitutional, the Court must determine whether that provision may be severed from the remainder of the statute. The Court notes at the outset that the Sentencing Reform Act does not contain an express severability clause. Congressional silence on the issue, however, does not defeat severability. Alaska Airlines, Inc. v. Brock, 480 U.S. 678, ___, 107 S. Ct. 1476, 1481, 94 L. Ed. 2d 661 (1987). On the contrary, there is a presumption in favor of severability. Regan v. Time, Inc., 468 U.S. 641, 653, 104 S. Ct. 3262, 3269, 82 L. Ed. 2d 487 (1984). "`Unless it is evident that the Legislature would not have enacted those provisions which are within its *1156 power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as a law.'" Id. (quoting Buckley v. Valeo, 424 U.S. at 108, 96 S.Ct. at 677). Courts have a duty to salvage as much of a statute as is possible consistent with both the Constitution and the intent of the legislature. Regan, 468 U.S. at 652, 104 S.Ct. at 3268-69.
In this case, the removal provision of section 991(a) must be severed unless the Court concludes that Congress would not have enacted the Sentencing Reform Act without that provision. The Court recently explained in Alaska Airlines, in the context of a legislative veto, that "[s]ome delegations of power ... may have been so controversial or so broad that Congress would have been unwilling to make the delegation without a strong oversight mechanism." 480 U.S. at ___, 107 S.Ct. at 1481. Similarly, the President's power of removal represents executive oversight of the Commission. Thus, the critical inquiry is whether Congress would not have enacted the Sentencing Reform Act but for post-appointment executive oversight of the Commission. Upon a review of the legislative history, the Court cannot conclude that Congress contemplated, must less required, executive oversight of the Commission. All references are to the contrary. See S.Rep. at 160, 1984 U.S.Code Cong. & Admin.News at 3343 ("Presidential appointments based on politics rather than merit would, and should, be an embarrassment to the appointing authority."), id. at 181, 1984 U.S.Code Cong. & Admin.News at 3364 ("There is ample provision for review of the guidelines by the Congress and the public; no additional review of the guidelines as a whole is either necessary or desirable."). Additionally, the Attorney General's participation on the Commission is in a nonvoting capacity. Even the President's appointment power is somewhat circumscribed by requiring consultation with various groups, for the purpose of obtaining "a broadly representative membership." Id. at 159, 1984 U.S.Code Cong. & Admin.News at 3342. Therefore, the Court concludes that the provision of the Sentencing Reform Act giving the President the power of removal is severable from the remaining constitutional portions of the Act.
III. STATUTORY CHALLENGES TO THE SENTENCING GUIDELINES
Despite the Court's determination that the sentencing guidelines need not be invalidated on constitutional grounds, defendants contend that the guidelines must be struck because they conflict with the enabling legislation in the Sentencing Reform Act. Specifically, defendants argue that the guidelines improperly preclude courts from utilizing the option of probation in cases involving nonviolent first offenders, cf. 28 U.S.C. § 994(j), incorrectly fail to account for prison overpopulation that allegedly will flow from application of the guidelines, cf. id. § 994(g), and inappropriately mandate supervised release and a fine in each case involving a term of imprisonment in excess of one year. Cf. 18 U.S. C. §§ 3571(a), 3583(a). These arguments are neither novel nor persuasive; courts faced with these statutory challenges have uniformly rejected the positions urged by the defendants. See, e.g., Chambless, 680 F.Supp. at 802; United States v. Smith, 686 F. Supp. 1246, 1253-54 (W.D.Tenn.1988); United States v. Erves, No. CR87-478A, slip op. at 1-2 (N.D.Ga. March 22, 1988) (adopting position of government brief on statutory challenges).
The argument that the Sentencing Reform Act requires probation for first offenders in all cases other than those involving crimes of violence is specious. If the Court were to adopt the defendants' interpretation of 28 U.S.C. § 994(j), congressional preclusion of probation for first offenders who commit "otherwise serious offense[s]" would be wholly superfluous. Cf. Smith, 686 F.Supp. at 1253. Likewise, defendants' contention that the guidelines fail to account for prison overcrowding is meritless. Defendants' unsupported, speculative concern about overcrowded prisons is readily assuaged by the Commission's ability to "make recommendations concerning any change or expansion in the nature or capacity of such facilities and services *1157 that might become necessary as a result of the guidelines." See 28 U.S.C. § 994(g) (emphasis added). Finally, defendants' assertion that the Commission cannot promulgate guidelines requiring fines and supervised release terms is contradicted by the statutory language on which the defendants rely. Sections 3571 and 3583 of Title 18 clearly state that fines and supervised release terms "may" be included as a part of sentences. See 18 U.S.C. §§ 3571(a), 3583(a). Accordingly, the Court need not strike the guidelines based on any conflict with Title 18. Because the Court finds no merit in defendants' statutory arguments, the sentencing guidelines must control the sentencing process in the cases at bar.
The sentencing guidelines promulgated by the United States Sentencing Commission, therefore, are fully applicable in this case. Thus, defendants' motions to preclude application of the guidelines will be denied by an appropriate order.
NOTES
[1] Only defendants Carlena, Julian, and Joseph Lawrence have objected to application of the guidelines.
[2] The bipartisan nature of the Sentencing Reform Act, which was authored by Senators Kennedy and Thurmond, see generally United States v. Johnson, 682 F. Supp. 1033, 1038 n. 5 (W.D. Mo.1988), is evident both in the text of the Act and in the legislative history. See, e.g., 28 U.S.C. § 991(a) ("Not more than four of the members of the Commission shall be members of the same political party."); S.Rep. No. 225, 98th Cong., 2d Sess. 160, reprinted in 1984 U.S.Code Cong. & Admin.News 3182, 3343 ("Presidential appointments based on politics rather than merit would, and should, be an embarrassment to the appointing authority.").
[3] The Court notes in passing that no Supreme Court Justices were involved in promulgating the guidelines.
[4] The legislative history indicates that 28 U.S.C. § 994(w) creates an exception to 5 U.S.C. § 551(1)(B) of the Administrative Procedures Act, which would otherwise prevent the application of the rulemaking requirements of the APA, id. § 553, to judicial branch entities. S.Rep. at 180, 1984 U.S.Code Cong. & Admin.News at 3363.
[5] The Supreme Court has found a violation of the separation of powers doctrine most often where power has been assumed or interfered with contrary to an express constitutional provision. Note Tomkowiak, 32 Wayne L.Rev. 151, 184-85 (1985).
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687 F. Supp. 60 (1988)
MANSHUL CONSTRUCTION CORP., Petitioner,
v.
UNITED STATES of America, Respondent.
Misc. No. 88-183.
United States District Court, E.D. New York.
May 18, 1988.
Melvin J. Kalish, New York City, for petitioner.
Varuni Nelson, Asst. U.S. Atty., Andrew J. Maloney, U.S. Atty., Brooklyn, for respondent.
MEMORANDUM OPINION
DEARIE, District Judge.
The King, it was held at English common law, could do no wrong. When "a long train of abuses and usurpations" by George III proved otherwise, events were set in motion that culminated in the formation of a government that, by the terms of its constitutive document, could do wrong if it exceeded its limited powers. That the rights of individuals against the government can meaningfully be vindicated at all in courts that are organs of that government is one of the miracles of American constitutional democracy.
The Framers' thaumaturgy, however, was less than complete: the hoary tradition endures that redress against the government can be had only by its consent, in the forum of its choice, and for only such relief to which it acquiesces. The immunity thus granted to the sovereign, whatever its virtues, has undeniably produced an uneven topography of standing and jurisdiction that leaves some litigants on terra firma while others languish in the twilight zone. *61 The petitioner presently before the Court, which may well have a valid contract claim against the government, is among those who, despite the possible merit of their complaints, find themselves deprived of any real-world court that is empowered to grant relief to them.
FACTS
Petitioner, Manshul Construction Corporation, alleges that it bid on a contract to construct barracks for the Navy in Stapleton, Staten Island, New York. Although Manshul was the low bidder, the Navy rejected its bid and announced that the contract would be negotiated. After protracted negotiations, Manshul won the contract.
The petition further alleges that, as the groundbreaking date approached, the Navy informed Manshul that stringent contractor quality control procedures would have to be implemented at Manshul's expense. Manshul, which in its negotiated price had allotted only $30,000 for quality control allegedly because the Navy had apparently agreed that others would be responsible for much of that work found itself facing a job some twenty times more expensive. After protests to the Navy proved fruitless, Manshul filed an action for rescission in the United States Claims Court.
As that suit winds its way through heavy judicial traffic, out-of-court events threaten to overtake it. Manshul, which has refused to perform any portion of the contract except under protest, Petition Exs. G-R, now faces imminent risk of being declared in default under the contract. Manshul alleges that it presently has but two, equally unpalatable, choices: either (1) to fail to perform and risk huge financial penalties if the Claims Court does not rescind the contract or (2) to perform and risk being estopped from obtaining rescission in the Claims Court. Manshul petitioned this Court for a temporary injunction that would preclude the Navy from requiring performance or declaring a default until Manshul's rescission claim is finally adjudicated. For the reasons stated below, Manshul's application for a preliminary injunction was denied, and the petition was dismissed, by an Order of this Court dated May 13, 1988.
DISCUSSION
Manshul's contract with the Navy is subject to the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613. Petitioner's Brief at 5; Respondent's Brief at 2. That act provides that in a contract dispute with a federal agency other than the Tennessee Valley Authority, "a contractor may bring an action directly on the claim in the United States Claims Court...." 41 U.S.C. § 609(a)(1); see 28 U.S.C. § 1491(a). Indeed, Manshul has done so. But the Claims Court apparently lacks the power to grant the injunction that petitioner seeks here. United States v. John C. Grimberg Co., 702 F.2d 1362, 1374 (Fed.Cir.1983) (equitable power of Claims Court limited by 28 U.S.C. § 1491(a)(3) to granting injunctions before contract award); see also, e.g., Brown v. United States, 3 Cl.Ct. 31 (1983), aff'd, 741 F.2d 1374 (Fed.Cir.1984); La Strada Inn, Inc. v. United States, 12 Cl.Ct. 110 (1987) (same re: implied contract); Wasko Aff. in Support of Petition ¶ 4 (Senior Deputy Clerk of Claims Court told Manshul's attorney that application for injunctive relief "would probably be dismissed for lack of jurisdiction"). Therefore, the instant petition was brought before this Court, whose power to grant equitable relief is not similarly limited. Petitioner's Brief at 1.
The general power to grant injunctions, however, does not carry with it the authority to hear any suit in which a petitioner feels injunctive relief is required. The Court's equitable powers may be exercised only in cases that are within its statutorily-defined jurisdiction, and this case lies outside it. Accordingly, petitioner's application for a preliminary injunction must be denied, and the petition must be dismissed.[1]
Prior to enactment of the Contract Disputes Act, the Tucker Act, 28 U.S.C. *62 § 1346(a)(2), would have vested this Court with jurisdiction over Manshul's claim, concurrent with the Claims Court. As amended by the Contract Disputes Act, however, § 1346(a) now reads, in pertinent part:
The district courts shall have original jurisdiction, concurrent with the United States Claims Court, of ... (2) Any ... claim against the United States, not exceeding $10,000 in amount, founded ... upon any express or implied contract with the United States, ... except that the district courts shall not have jurisdiction of any civil action or claim against the United States founded upon any express or implied contract with the United States ... which are [sic] subject to sections 8(g)(1) and 10(a)(1) of the Contract Disputes Act of 1978 [41 U.S.C. §§ 607(g)(1), 609(a)(1)].
Manshul concedes that its "underlying" claim for rescission is therefore committed to the exclusive jurisdiction of the Claims Court, Petitioner's Brief at 4-5, but contends that its petition to this Court is not "founded upon any express or implied contract with the United States." Rather, Manshul argues that the instant action is founded upon its statutory and common law right to bring its contract action in the Claims Court, unimpaired by the Navy's out-of-court efforts to compel performance. This creative recharacterization cannot permit petitioner to elude the jurisdictional strictures of the Contract Disputes Act.
A government contractor may, of course, seek relief in the District Court for a claim that bears some relation to a contract if the essential nature of the claim is not contractual. Megapulse, Inc. v. Lewis, 672 F.2d 959 (D.C.Cir.1982). Megapulse, however, is quite distinct from the case at bar. The plaintiff in Megapulse sought to protect proprietary information under the Trade Secrets Act, 18 U.S.C. § 1905. In Megapulse, the plaintiff went "to great lengths to demonstrate that it is not relying on the [disclosure protections in its government] contract at all.... but on an alleged governmental infringement of property rights and violation of the Trade Secrets Act." Id. at 969.
By contrast, the rights Manshul seeks to vindicate have no ultimate basis other than the contract between Manshul and the Navy. The "right" to seek rescission of a contract may be protected by statute and federal common law, but that right is meaningless in the absence of a contract. The Court finds it impossible to draw a jurisdictional line between a case arising out of a contract, on the one hand, and a case arising out of a right to enforce a right arising out of a contract, on the other. Indeed, petitioner, despite strenuous efforts to avoid doing so, occasionally lapses into language that reveals the fundamentally contractual origins of the relief sought here:
Petitioner's application to this Court is not based upon the contract.... Rather, the application is for a preliminary injunction which would, in essence, stay performance of the contract and prevent a termination based upon default pending the outcome of the Claims Court action.... The dispute is with the Navy's actions [that] imping[e] upon the federally protected right to pursue the action in Claims Court. It is only incidental that the means by which the Navy is interfering with Petitioner's rights is by demanding performance of the contract.
Petitioner's Reply Brief at 6-7. The Court cannot agree that the contractual roots of this controversy are "incidental"; rather, as the second quoted sentence makes clear, the relief sought by petitioner is entirely and inherently contractual. Were it not for the limits on the Claims Court's equitable powers, the requested injunction would normally be sought in the court hearing the rescission claim, as a preserver of the status quo pending litigation. The fact that plaintiff may be unable to gain such relief in the Claims Court does not grant this Court jurisdiction to hear, as an independent action, a claim for relief that is part and parcel of a contractual dispute with the government. American Science & Engineering, Inc. v. Califano, 571 F.2d 58, 62 (1st Cir.1978); Serra v. U.S. General Services Admin., 667 F. Supp. 1042, 1051 (S.D. *63 N.Y.1987); Consumers Electric Power Corp. v. U.S. Postal Service, 530 F. Supp. 702, 706-07 (C.D.Cal.1982). Nor can jurisdiction lie simply because petitioner alleges violations of statutory or common law rights, in the face of this Court's determination that the petition is "founded upon [a] contract" within the meaning of 28 U.S. C. § 1346(a)(2). Ingersoll-Rand Co. v. United States, 780 F.2d 74, 76-79 (D.C.Cir. 1985); American Science & Engineering, supra, 571 F.2d at 62-63; Management Science Am., Inc. v. Pierce, 598 F. Supp. 223, 225-26 (N.D.Ga.1984).
Petitioner cites a number of cases that purportedly assert that district courts have jurisdiction to grant equitable relief when the Claims Court cannot. Many of these cases, e.g. Parkview Corp. v. Department of Army, 490 F. Supp. 1278 (E.D.Wis.1980), involve interpretations of the Tucker Act but not claims covered by the Contract Disputes Act, and are therefore inapposite. Others are the so-called "frustrated bidder" cases, which are distinguished precisely because a frustrated bidder does not have a government contract out of which the suit arises. E.g., B.K. Instrument Inc. v. United States, 715 F.2d 713, 728 (2d Cir.1983); see Management Science, supra, 598 F.Supp. at 227-228 (excellent discussion of distinction between frustrated bidders and unhappy contractors). The case upon which petitioner principally relies, Vibra-Tech Engineers, Inc. v. United States, 567 F. Supp. 484 (D.Colo.1983), also fails to support petitioner's position. Vibra-Tech had been awarded a contract, which was then arbitrarily terminated. Vibra-Tech sued in district court for an injunction terminating the competitor's contract and reinstating its own. The court held that the remedy of an injunction was available to plaintiff, notwithstanding the Contract Disputes Act. Subject matter jurisdiction, which apparently was uncontested,[2] is not explicitly discussed in the opinion; the somewhat mysterious source of that jurisdiction, in light of the Contract Disputes Act, must be that the court viewed Vibra-Tech, post-termination, as a frustrated bidder rather than a holder of contractual rights. The court's citation of frustrated bidder cases in support of its holding on the remedy, id. at 487, supports this conclusion. See Management Science, supra, 598 F.Supp. at 230 (distinguishing Vibra-Tech).
Manshul has thus produced no apposite authority in support of this Court's jurisdiction to hear the instant petition. The Court recognizes that its limited jurisdiction combined with the Claims Court's limited equitable power trap petitioner in a Catch-22, but the Court must comply with the statutory scheme. See Management Science, supra, 598 F.Supp. at 225 (Congress intended to prevent district courts from hearing contract claims); Serra, supra, 667 F.Supp. at 1051 (Contract Disputes Act evidenced congressional conclusion that limited relief available from Claims Court would suffice for contractors). Manshul argues that, unless this Court hears its application for an injunction, it will be left with a right to seek contract rescission but with no remedy adequate to protect that right.[3] This argument may have some merit, but Manshul is entitled only to those remedies explicitly permitted by Congress in its limited waiver of sovereign immunity. See United States v. Mitchell, 445 U.S. 535, 538-40, 100 S. Ct. 1349, 1351-52, 63 L. Ed. 2d 607 (1980).
CONCLUSION
The Clerk of the Court is directed to enter judgment in accordance with this Court's May 13, 1988 order.
NOTES
[1] The Court also doubts that Manshul has made the showing of irreparable injury that is of course required for issuance of a preliminary injunction, see Citibank, N.A. v. Nyland (CF8) Ltd., 839 F.2d 93, 97 (2d Cir.1988), but does not reach this issue in light of the dismissal on jurisdictional grounds.
[2] The government stipulated to a preliminary injunction in Vibra-Tech, 567 F.Supp. at 485, a step that would be unimaginable where, as here, the government challenged the Court's jurisdiction to hear the case.
[3] The Court, given its jurisdictional holding, has not examined the correctness of Manshul's assumption that performance under the present circumstances would severely prejudice the pending rescission action. Perhaps, in light of the apparent unavailability of a forum in which to obtain the injunction Manshul seeks, the Claims Court might relax any rule of estoppel that would ordinarily apply to Manshul.
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687 F. Supp. 1550 (1988)
Mrs. Helen Stinson SMITH, As Trustee Under the Will of George F. Stinson by Order of Wilkinson County Superior Court of September 18, 1978, Plaintiff,
v.
FREEPORT KAOLIN COMPANY, et al., Defendants.
Civ. A. No. 84-241-1-MAC (WDO).
United States District Court, M.D. Georgia, Macon Division.
May 27, 1988.
*1551 Manley F. Brown, Macon, Ga., William H. Stanhope, Atlanta, Ga., Charles R. Adams, III, Ft. Valley, Ga., for plaintiff.
George C. Grant, Macon, Ga., for defendants.
ORDER
OWENS, Chief Judge.
This matter is before the court on the parties' cross motions for partial summary judgment. The focus of this dispute is a mining lease originally executed in September of 1945 between landowner Mr. I.B. Stinson, predecessor in interest of plaintiff Helen Stinson Smith, and Owen and Shepherd, an entity composed of two individuals, Mr. S.R. Owen and Mr. C.M. Shepherd. Defendant Freeport Kaolin Company, and subsequently defendant Engelhard Corporation, eventually acquired the mining rights described in the lease, and both corporations have conducted mining operations on the property described therein. This instant disagreement centers on a provision in the lease establishing the amount of royalties due the lessor, now Mrs. Smith. The parties agree that, at least initially, the interpretation of the lease is a question of law properly ruled upon by this court. To further such interpretation, the parties have submitted well-prepared pleadings. Having read and considered those materials, this court now makes the following findings of fact and conclusions of law.
Findings of Fact
1. In a lease recorded in Book 77, Page 133, in the Office of the Clerk of the Superior Court of Wilkinson County, Georgia, I.B. Stinson conveyed certain mining rights to Owen and Shepherd.[1] The disputed provision of this lease states as follows:
The party of the second part [Owen and Shepherd] agrees to pay to the party of the first part [I.B. Stinson], his heirs and assigns, the sum of .15 cents for each and every ton of said bauxite, clay or other ore moved from said lands said ton to weight (sic) 2240 pounds, said weight shall be ascertained from the records of the railroad companies shipping said material. ...
Exhibit B to Plaintiff's Memorandum in Support of Motion for Partial Summary *1552 Judgment, Docket No. 82; see also Exhibits A and B to Exhibit 1 attached to Brief in Support of Defendant Freeport Kaolin Company's Motion for Partial Summary Judgment, Docket No. 84.[2]
2. Owen and Shepherd executed a number of leases containing language identical to the provision in the Stinson lease. See Exhibit E attached to Plaintiff Smith's Reply Brief in Support of Motion for Partial Summary Judgment, Docket No. 90.
3. Owen and Shepherd executed a sublease on or about September 29, 1945, conveying the kaolin mining rights on the Stinson property to P.W. Martin Gordon Clays. See Exhibit C to Exhibit 1 attached to Defendant Freeport Kaolin Company's Motion for Partial Summary Judgment. This contract, which had a term of twenty-five years with an option provision for an additional five years, provided that the subtenant pay "the sum of twenty cents (20c) for each ton of 2240 pounds of refined clay and bauxite (railroad weight) removed from said land by [subtenant]." No mining occurred pursuant to the sublease, and it expired by its own terms no later than September of 1975.
4. George F. Stinson and Anita M. Stinson inured to the interests of the original landowner and lessor, Mr. I.B. Stinson. Plaintiff Helen Stinson Smith has succeeded George and Anita Stinson and is the holder of record title to the property at issue in this case.
5. Defendant Freeport Kaolin Company succeeded to the mining rights originally belonging to Owen and Shepherd and conducted mining operations on the Stinson property beginning in 1977 and continuing until 1985. In 1985, defendants Freeport and Engelhard entered into an agreement by which Freeport assigned to Engelhard its interest in the Stinson property. Defendant Engelhard conducted mining operations in the property until 1986.[3]
6. From the inception of mining in 1977 until and through January of 1982, Freeport made monthly royalty payments to George F. Stinson and his successors, Mrs. Anita M. Stinson and Mrs. Helen Stinson Smith.[4] Included with the monthly payments transmitted to the various payees were explanatory letters indicating that the payments were based upon the total number of "long tons (2240 pounds per ton) of refined clay removed." Exhibits G1-G53 to Exhibit 1 attached to Motion of Defendant Freeport Kaolin Company for Partial Summary Judgment, Docket No. 83. These checks have been cashed, and they amount to $45,244.92.
Following the installation of new equipment which accurately measured the amount of dry crude kaolin pumped by pipelines from the Stinson property, Freeport in a letter to plaintiff offered to pay royalties on the basis of crude or unrefined kaolin transported through the pipeline, and, in fact, Freeport tendered subsequent payments to plaintiff based thereupon. Id. at G-63 and at Exhibit H. This offer to pay royalties based upon crude tonnage alerted plaintiff to the fact that she and her predecessors had been receiving royalty payments based upon refined tonnage, and it caused plaintiff to question the propriety of such payments. The dispute which ensued resulted in this lawsuit, and the royalty payments by both Freeport and Engelhard since December of 1982 have not been cashed but have been paid into the court. Id. at Exhibit 1, p. 13.
*1553 7. "Crude kaolin as mined and removed from the ground contains approximately 22% moisture by weight. It takes at least 1.5 tons of dry crude kaolin to produce 1 ton of refined kaolin." Id. at Exhibit 1, p. 12, and at Exhibit 2, p. 3. "The railroad weight of refined kaolin which is shipped to the customer can be converted to wet crude tons of clay by mathematical calculation...." Exhibit C, p. 5, attached to Plaintiff Smith's Reply Brief in Support of Motion for Partial Summary Judgment, Docket No. 90.
Conclusions of Law
1. "The construction of the provisions of this lease, as with other contracts, is generally one for the court to determine as a matter of law." Peachtree on Peachtree Investors v. Reed Drugs, 251 Ga. 692, 694, 308 S.E.2d 825, 828 (1983), citing O.C.G.A. § 13-2-1.[5] As such, the interpretation of this written contract regarding the mining of certain materials from the Stinson property is "properly subject to disposition by summary judgment." Sims' Crane Service, Inc. v. Reliance Insurance Company, 514 F. Supp. 1033, 1036 (S.D.Ga.1981), aff'd 667 F.2d 30 (11th Cir.1982).
2. "Under Georgia law whether a contract is ambiguous is to be determined by the court." Kaiser Aluminum & Chemical v. Ingersoll-Rand Co., 519 F. Supp. 60, 71 (S.D.Ga.1981), citing Stone Mountain Scenic Railroad, Inc. v. Stone Mountain Memorial Association, 230 Ga. 800, 199 S.E.2d 216 (1973); see Georgia R.R. Bank & Trust v. Fed. Deposit Ins., 758 F.2d 1548, 1551 (11th Cir.1985)("[t]he existence vel non of an ambiguity is a question of law for the court"). "Ambiguity in a contract may be defined as duplicity, indistinctness, an uncertainty of meaning or expression." Salvatori Corp. v. Rubin, 159 Ga. App. 369, 372, 283 S.E.2d 326, 328 (1981) (citations omitted).
3. However, no construction is "required or even permissible when the language employed by the parties in the contract is plain, unambiguous, and capable of only one reasonable interpretation." Merrill Lynch, Pierce, Fenner & Smith v. Stidham, 506 F. Supp. 1182, 1186 (M.D.Ga. 1981) (citations omitted), modified for other reasons, 658 F.2d 1098 (5th Cir. Unit B. 1981).[6] Consequently, "[w]here the contract language is definite and unambiguous, the Court will not resort to surrounding circumstances to interpret the agreement." Kaiser Alumimum & Chemical, 519 F.Supp. at 71 (citations omitted).
4. If the court determines that an ambiguity exists, "it becomes the duty of the court to attempt to resolve the ambiguity by applying the rules of construction set forth in O.C.G.A. § 13-2-2." Capital Ford Truck v. U.S. Fire Ins. Co., 180 Ga. App. 413, 418, 349 S.E.2d 201, 206 (1986).
5. "The cardinal rule of construction is to ascertain the intention of the parties." O.C.G.A. § 13-2-3, quoted in Georgia R.R. Bank & Trust, 758 F.2d at 1551.
The courts are to afford greater regard to the clear intent of the parties than to any particular words which they may have used in expressing their intent. However unskillfully prepared a particular instrument or agreement may be, the courts are to discover and give effect to the intent of the parties if possible. Similarly, words in a contract are to be construed in the sense in which they are mutually employed by contracting parties, irrespective of the proper and logical meaning those words might otherwise carry.
Georgia R.R. Bank & Trust, 758 F.2d at 1551 (citations omitted). This "cardinal rule of construction" becomes applicable, however, only upon a determination that the contract is ambiguous. Id. at 1552. "Where parties have reduced to writing what appears to be a complete and certain agreement, it will, in the absence of fraud, accident or mistake, be conclusively presumed that the writing contains the entire *1554 contract...." Andrews v. Skinner, 158 Ga.App. 229, 231, 279 S.E.2d 523, 526 (1981). But see, In Re Smith, 436 F. Supp. 469, 475 (N.D.Ga.1977) (court's duty to ascertain intent of parties applies irrespective of whether contract is ambiguous or not).
6. If an ambiguity remains after application of the appropriate rules of construction, a jury question is presented. Travelers Ins. Co. v. Blakey, 255 Ga. 699, 342 S.E.2d 308 (1986).
7. A contract may be unenforceable due to the uncertainty, vagueness or indefiniteness of its terms. An agreement with such a defect may be cured by the parties' subsequent conduct. The general rule in Georgia is as follows:
A contract which is originally and inherently too indefinite may later acquire precision and become enforceable by virtue of the subsequent acts, words, or conduct of the parties.... Thus, the objection of indefiniteness may be obviated by performance and acceptance of performance.
Pine Valley Apts. Ltd. v. First State Bank, 143 Ga.App. 242, 245, 237 S.E.2d 716, 719 (1977), quoting 17 Am.Jur.2d 418, Contracts § 78; see Self v. Smith, 98 Ga. App. 876, 107 S.E.2d 721 (1959); M.W. Buttrill, Inc. v. Air Conditioning Contractors, Inc., 158 Ga.App. 122, 279 S.E.2d 296 (1981).
8. Rule 56(c) of the Federal Rules of Civil Procedure provides for the entry of summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."
9. Rule 56(c) mandates the entry of summary judgment, upon motion, against a party who, after adequate time for discovery, fails to make a showing sufficient to establish the existence of any element essential to his case and upon which he will bear the burden of proof at trial. Celotex Corp. v. Cattrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Movant may discharge this burden by showing "that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. at 2554, 91 L.Ed.2d at 275. The court, however, must review the evidence and all factual inferences in the light most favorable to the nonmovant. Thrasher v. State Farm Fire & Casualty Co., 734 F.2d 637, 638 (11th Cir.1984).
Discussion
Defendants first contend, as does plaintiff, that no ambiguity is present in the contract. Defendants contend that the inclusion of the phrase "said weight shall be ascertained from the records of the railroad companies shipping said material" evidences or discloses the parties' intent to base payment on only those tons actually shipped. Defendants assert that this reference necessarily confines payment to refined kaolin because in almost all cases only the refined product was shipped by railroad.
In the alternative, defendants correctly argue that a determination by this court that the contract is ambiguous does not necessarily mandate the submission of the question of its construction to a jury. "Contracts, even when ambiguous, are to be construed by the court and no jury question is presented unless after application of applicable rules of construction an ambiguity remains." Travelers Insurance Co., 255 Ga. at 700, 342 S.E.2d at 309 (emphasis in original). Defendants contend that any ambiguity which might be present in the contract can be resolved by the court using the applicable rules of construction provided in O.C.G.A. §§ 13-2-2 and 13-2-3. Such construction, defendants argue, based upon consideration of the circumstances attendant to and surrounding the written contract, upon recognition of the prevailing industry custom, upon consideration of other provisions in the contract and upon consideration of the subsequent performance of the contract in terms of royalties paid and accepted, would result in a finding that the parties intended that payment be rendered based upon the refined *1555 kaolin shipped by railroad companies to the ultimate customer.
Finally, defendants argue that any ambiguity in the contract which might be present, or an unambiguous provision originally providing for payment on the basis of crude tonnage, has been cured or altered by the payment of royalties to, and the acceptance of royalties by, the successors in interest to Mr. I.B. Stinson, especially considering the language in the letters which accompanied each payment. In addition to the proposition stated previously, that a contract unenforceable due to uncertainty, vagueness or indefiniteness may be cured by the parties' subsequent conduct, defendants cite in support two Georgia statutes and the case of Wiggins v. Engelhard Minerals & Chemicals Corporation, 328 F. Supp. 33 (M.D.Ga.1970). O.C.G.A. § 13-2-4 provides that "[t]he intention of the parties may differ among themselves. In such case, the meaning placed on the contract by one party and known to be thus understood by the other party at the time shall be held as the true meaning." O.C. G.A. § 24-4-23 provides as follows:
In the ordinary course of business, when good faith requires an answer, it is the duty of the party receiving a letter from another to answer within a reasonable time. Otherwise he is presumed to admit the propriety of the acts mentioned in the letter of his correspondent and to adopt them.
In Wiggins, supra, plaintiffs sought to have terminated a mineral lease in favor of Engelhard Minerals & Chemicals Corporation. The lease provided that royalty payments for kaolin and clay mined on the property would be due on a date certain of each year and that "all sums paid as royalties `would be credited upon the annual rental due or to be paid, and no rental shall be due for any year in which Royalties are sufficient to pay the annual rental.'" Wiggins, 328 F.Supp. at 34. Subsequent amendments, the court found, did not change the provision requiring that all royalty payments be credited against the annual rental. Plaintiffs contended, however, that only royalties representing payment for clay actually mined since the designated date were properly credited against the next year's annual rent.
The court found this contention without merit, finding no requirement in the contract that royalties credited against the annual rent be only those royalties paid for clay or kaolin actually mined during the lease year in which payment was made. In essence, then, the court refused to permit plaintiffs in Wiggins to read into the contract a requirement not expressly included therein.
Defendants in the case sub judice rely heavily upon Wiggins because the court in that case examined letters from Engelhard to plaintiffs which set forth Engelhard's construction of the disputed provisions in the contract. The court then cited the predecessors to the above quoted Georgia statutes, present day sections 13-2-4 and 24-4-23, and stated that if plaintiff had "disagreed with [Engelhard's] construction of the contract, it was incumbent upon them to so advise Engelhard. This they did not do, and they cannot now rely upon a different interpretation to the detriment of Engelhard." Id. at 36.
Plaintiff Helen Stinson Smith vigorously contends that the lease is not ambiguous and that the court need look no farther than the terms of the lease to determine that royalties should have been paid on the basis of crude tonnage mined rather than refined tonnage shipped to customers. Various cases, considered in light of the definition of an ambiguity in a contract as duplicity, indistinctness, or an uncertainty of meaning or expression, provide this court with guidance in determining whether the Stinson lease is ambiguous.
Georgia courts have found ambiguities in the following cases: Tidwell v. Carroll Builders, Inc., 251 Ga. 415, 306 S.E.2d 279 (1983) (agreement is ambiguous because Carroll's entitlement to certain proceeds comes about according to one portion of the agreement at the time Tidwell shall convey fee simple title to said premises to any third party while in another portion of the agreement Carroll's entitlement ripens upon the subsequent sale of said premises *1556 to a third party, thus speaking in terms of both conveyance of title and sale of premises); Andrews v. Skinner, 158 Ga.App. 229, 279 S.E.2d 523 (1981)(ambiguity obvious because the release identifies the collision as having occurred on two separate dates); Capital Ford Truck v. U.S. Fire Ins. Co., 180 Ga.App. 413, 349 S.E.2d 201 (1986) (not clear which phrase the term "collectible" modifies, thus creating an ambiguity as to whether the policy's provisions absolve insurance company of duty to defend).
No ambiguity was found in the case of Wood v. All American Assurance Company, 172 Ga.App. 655, 324 S.E.2d 483 (1984). The court found that the contractual terms plainly and clearly provided for payment to agents of "full commissions, both first year and renewal commissions," only as long as the agents remained with the company or "until such time as the account" requested their replacement as servicing agents. Id. at 656, 324 S.E.2d at 484-85. In addressing another issue more pertinent to the instant case, the court said that the appellants could not "with parole (sic) evidence impose upon the unambiguous written terms of the contract, which do not require thirty days' advance notice of termination, an alleged industry practice of thirty days' notice." Id. at 656, 324 S.E.2d at 485. See also Wiggins, 328 F.Supp. at 36-37 (court refused to read into contract a provision not expressly included therein).
This court determines that the contract in this case is not ambiguous. The provisions are neither contradictory nor conflicting. The contract clearly and unambiguously requires that the mining company pay "for each and every ton of said bauxite, clay or other ore moved from said lands" and that the tonnage "shall be ascertained from the records of the railroad companies shipping said material." Defendants would have this court read into the contract the modifier "refined" based upon the supposed industry custom of shipping to the ultimate consumer only refined kaolin. Such a reading would dilute the significance of the phrase "each and every ton" and would by adding a word omitted by the parties negate the meaning of "bauxite, clay or other ore." See discussion infra. This court will not read into the contract a provision or a word not expressly included therein, see Wood, supra, nor will this court permit defendants to impose upon the contract a supposed custom which is inconsistent with the express terms of the contract. See Church v. Trailmobile, Inc., 99 Ga.App. 750, 109 S.E.2d 636 (1959) (custom may not be considered part of an express and unambiguous contract when that custom is inconsistent with terms contained therein).
An examination of certain relevant terms in the disputed provision makes clear that the contract requires payment for the materials in their unrefined conditions. "Bauxite" is defined as "an impure mixture of earthy hydrous aluminum oxides and hydroxides...." Webster's Third New International Dictionary 188 (1971) (emphasis added). The dictionary defines "clay" as follows:
[A] widely distributed collodial lusterless earthy substance, plastic when moist but permanently hard when fired, that is composed of primarily decomposed igneous and methamorphic rocks rich in the mineral feldspar in the form of crystalline grains less than .002 mm in diameter, whose essential constituents are kaolinite and other hydrous6 aluminous minerals and fine particles....
Id. at 418 (emphasis added) (footnote added). "Ore" is defined as follows: "a natural or native mineral that can [usually] be profitably mined and treated for the extraction of any of its constituents; a source from which valuable matter is extracted; [and] an unrefined condition or material." Id. at 1589 (emphasis added). The dictionary defines "kaolin" as a type of clay, i.e., "a fine [usually] white clay resulting from extreme weathering of aluminous minerals (as feldspar) that contains kaolinite as its principal constituent...." Id. at 1232. Each of the contractually identified materials is an impure mixture of various substances or an unrefined material from which certain constituents are extracted. Further, clay, and kaolin as a type of clay, both naturally contain a substantial percentage of moisture. To insist that the *1557 contract should be read to mean refined kaolin or dry kaolin is to insist upon a reading contrary to the unambiguous language of the contract.
Defendants' assertion that the contractual phrase which bases payment on the tonnage as ascertained from the records of the railroad companies necessarily narrows the prior phrase which requires payment for each and every ton of materials moved is without merit. First, though the parties disagree as to the exact ratios involved, it is a fact that a formula exists, one which existed at the time this contract was executed, by which one can compute the quantity of unrefined materials excavated by reference to the quantity of refined kaolin shipped. Considering that accurate measurement was difficult if not impossible on site, this court finds it logical that the shipping weights would have been selected as a means of calculating the tonnage of the mined materials.
Second, the court notes that "ascertain" does not mean "equal." "Ascertain" means "to make (a person) certain, sure, or confident" and "to find out or learn for a certainty." Webster's Third New International Dictionary 126 (1871). The provision easily could have been written in a manner conclusively establishing the shipping weights as the exact tonnage for which the landowner should be paid. The contract does not so provide.
This court's determination that the contract as written is not ambiguous and that the contract requires payment for each and every ton of crude ore moved from the land makes it unnecessary for the court to consider defendants' arguments regarding the construction of an ambiguous contract. However, there remains for consideration defendants' arguments regarding the effects of the subsequent performance of the contract.
Defendants erroneously rely upon the premise that a contract unenforceable due to uncertainty, vagueness or indefiniteness becomes enforceable based upon the parties subsequent conduct. This contract, as explained above, is not of the type to which this principle of law applies, for this contract is not one that is unenforceable as written. The contract contains a price certain for each ton of certain identified materials moved from the Stinson property, and it contains a means of ascertaining the tonnage. This contract is neither uncertain, vague nor indefinite.
Defendants' arguments in reliance on the letters mailed from Freeport and Engelhard to the payees and the construction placed on the contract contained in those letters are likewise unavailing. O.C. G.A. § 13-2-4, which provides that "the meaning placed on the contract by one party and known to be thus understood by the other party at the time shall be held as the true meaning," is not applicable unless the contract is ambiguous. Lovable Company v. Honeywell, Inc., 431 F.2d 668, 675 (5th Cir.1970),[7] citing Holloway v. Brown, 171 Ga. 481, 483, 155 S.E. 917, 918 (1930). This court's finding that the contract is unambiguous makes this section inapplicable. The court further notes that the statute contemplates an expression of meaning contemporaneous with the execution of the contract, and it does not indicate that an expression of meaning by one party years after such execution imposes any obligation upon the other party to object to such an expression. In Wiggins, supra, the court employed subsequent letters to bolster the court's determination that the contract as written and as amended was susceptible to only one reasonable interpretation. The letters were used neither as a means of construing an ambiguous contract nor as a means of modifying an existing one.
O.C.G.A. § 24-4-23 provides that one failing to answer a letter which in good faith requires an answer is presumed to admit the propriety of matters mentioned therein. This presumption is a rebuttable presumption of fact, not an irrebuttable presumption of law. Georgia Health Care, Inc. v. Loeb, 151 Ga.App. 350, 259 S.E.2d 734 (1979) (presumption arising from failure to answer a letter is not one of law but is one of fact and is subject to *1558 explanation). Further, the statute is applicable only "where two parties have carried on a mutual correspondence in reference to a particular matter, and one of the parties has written a letter to the other making statements concerning a subject of which the latter has knowledge, and which the latter would naturally deny if true." Lyons Mfg. Co., Inc. v. Cedarbaum, 174 Ga.App. 218, 219, 329 S.E.2d 559, 561 (1985); see Merry v. Georgia Big Boy Management, Inc., 135 Ga.App. 707, 218 S.E.2d 694 (jury charge based on statute proper where evidence established mutual correspondence). Defendants may not rely upon their unilateral actions to establish a mutual correspondence.
Even if a mutual correspondence was established, this court could not properly grant defendants' motion for partial summary judgment based on this statute because the failure to answer the letters raises only a rebuttable presumption of fact. Defendant Freeport, through the affidavit of Mr. Joe H. McKenzie, Jr., an employee of Freeport at the time the letters in question were mailed, contends that it had explained to George F. and Anita M. Stinson the practice of paying royalties based on refined kaolin and that they understood and agreed to this practice. See Affidavit of Joe H. McKenzie, Jr., pp. 6-7, attached as Exhibit 1 to Motion of Defendant Freeport Kaolin Company for Partial Summary Judgment, Docket No. 83. Plaintiff contends that George F. and Anita M. Stinson were in ill health and suffered from poor hearing; thus, she argues, they were incapable of understanding either the significance of the letters transmitted by Freeport or the explanations offered of such by Mr. McKenzie. See Affidavit of Helen Stinson Smith, pp. 2-4, attached as Exhibit A to plaintiff Helen Stinson Smith's Reply Brief in Support of Motion for Partial Summary Judgment, Docket No. 90. This factual dispute, which essentially creates the issue of whether Freeport and the Stinson successors knowingly modified the contract, is not one properly resolved by the court on motion for summary judgment.
In conclusion, this court has determined that the contract as written plainly and unambiguously requires defendants herein to pay plaintiff for materials moved from the Stinson property based upon the crude tonnage excavated rather than upon the refined tonnage shipped. In accordance with this finding, the court hereby GRANTS plaintiff's motion for partial summary judgment on the question of ambiguity and DENIES defendants' motions for partial summary judgment on the same question. Further, this court has determined that defendants' arguments of law regarding performance of the contract and the conclusive effect of certain statutes either are not applicable to the instant case or do not, in this factual setting, presumptively vary the terms of the written contract. Thus, defendants' motions for partial summary judgment based thereon are likewise DENIED.
SO ORDERED.
NOTES
[1] The original signatories to the lease executed two materially identical leases nearly one year apart, one in September of 1945 and the second in September of 1946. The lease recorded in Wilkinson County was executed in 1946. Neither the parties nor this court attaches any significance to the recording of one lease rather than the recording of the other.
[2] Defendant Engelhard agrees with defendant Freeport's interpretation of the lease and supports Freeport's motion for partial summary judgment as well as moving on its own for summary judgment. In defendant Engelhard's motion it has adopted the facts, the law and the conclusions stated in its co-defendant's motion and memoranda. See Motion of Defendant Engelhard Corporation for Partial Summary Judgment, Docket No. 85 and Brief in Support thereof, Docket No. 86.
[3] Engelhard was not initially a party to this action. This court added Engelhard as a party defendant by its Order of September 23, 1987.
[4] The payments began on October 13, 1977, and they were made monthly thereafter to George F. Stinson until his death. Beginning in August of 1978 and continuing monthly thereafter until August of 1980, payments were made to Anita M. Stinson, executrix of George F. Stinson. Upon the death of Anita Stinson, the payments were made to Mrs. Helen Stinson Smith, Trustee under the will of George F. Stinson.
[5] "The construction of a contract is a question of law for the court. Where any matter of fact is involved, the jury should find the fact." O.C. G.A. § 13-2-1.
[6] All opinions of Unit B. of the former Fifth Circuit have been adopted as binding precedent upon this court. See Stein v. Reynolds Securities, Inc., 667 F.2d 33 (11th Cir.1982).
[7] In Bonner v. Pritchard, 661 F.2d 1206 (11th Cir.1981), the Eleventh Circuit adopted a binding precedent the cases of the old Fifth Circuit decided prior to October 1, 1981.
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687 F. Supp. 1239 (1988)
Joseph Jerome SCALISE, et al., Plaintiffs,
v.
Edwin MEESE III, Attorney General of the United States, et al., Defendants.
No. 87 C 7898.
United States District Court, N.D. Illinois, E.D.
June 3, 1988.
*1240 Anne M. Burke, Chicago, Ill., for plaintiffs.
Thomas P. Walsh, Asst. U.S. Atty., Chicago, Ill., for defendants.
MEMORANDUM OPINION
BRIAN BARNETT DUFF, District Judge.
Plaintiffs Joseph Scalise and Arthur Rachel are in a jail in a land far, far away. *1241 They want to come home. The Attorney General of the United States has the power to grant their wish, but he refuses to exercise it. Plaintiffs seek a writ of mandamus ordering the Attorney General to establish regulations which would govern the grant or denial of their request, as well as an order finding the Attorney General's refusal a violation of their due process rights. They have moved for summary judgment on their complaint. This court has jurisdiction under both the general federal subject matter jurisdiction statute, 28 U.S.C. § 1331, and the federal mandamus statute, 28 U.S.C. § 1361.[1] For the reasons set forth below, plaintiffs' motion will be granted and the writ of mandamus will issue.
BACKGROUND
Five years ago, plaintiffs, citizens of the United States, went to London, England for a trip. While they were there, they armed themselves with a firearm and robbed a jewelry store. They escaped with around $3.6 million dollars in jewels, including the famous Marlborough Diamond.
They did not remain free for long. The British authorities soon caught up with them, though not with the stolen jewels. Plaintiffs were tried and convicted in the Old Bailey for violations of the 1968 Theft Act of the United Kingdom and § 18(1) of the United Kingdom's Firearm's Act of 1968. The British judge sentenced them to fifteen years in prison, with their terms of imprisonment commencing August 6, 1984.
Under British law, plaintiffs will be eligible for release in July, 1993, although they will apparently be eligible for "parole license", a term with which this court is not familiar, in July of this year.
In any case, plaintiffs do not wish to remain in England. Beginning shortly after their incarceration, they began inquiring into the possibility of their being transferred to the United States to serve out their sentences. On July 1, 1985, the United States and the United Kingdom, in conjunction with a number of other countries, ratified the Convention on the Transfer of Sentenced Persons ("the Convention"). This treaty, which went into effect August 1 of that year, provides for the transfer of foreign prisoners from the country of their incarceration to their home countries.
In the United States, authority for the implementation of the Convention is vested with the Attorney General under the Transfer of Offenders To and From Foreign Countries Act ("the Act"), P.L. No. 95-144, 91 Stat. 1212, 18 U.S.C. § 4100 et seq.[2] The Act provides, in pertinent part:
Section 4102. Authority of the Attorney General
The Attorney General is authorized
(1) to act on behalf of the United States as the authority referred to in the treaty;
(2) to receive custody of offenders under a sentence of imprisonment, on parole, or on probation who are citizens or nationals of the United States transferred from foreign countries and as appropriate confine them in penal or correctional institutions, or assign them to the parole or probation authorities for supervision;
. . . . .
(4) to make regulations for the proper implementation of such treaties in accordance with this chapter and to make regulations to implement this chapter ...
After the Convention went into effect, plaintiffs wrote letters to both the British and the American authorities requesting transfer to American prisons. The British *1242 authorities told them that England would agree to their transfer, provided that the United States did likewise. The Justice Department, acting on behalf of the Attorney General, however, declined their request. In a letter from Phillip T. White, Director of the Criminal Division of the Office of International Affairs of the Justice Department, to Anne M. Burke, attorney for Plaintiff Joseph Scalise, the Justice Department explained its decision:
This is in reply to your letter of August 29, 1986. The principal factors we took into consideration in making the decision not to request Mr. Scalise's transfer were: the relative seriousness of his offense; his extensive criminal record; the manner of his return to the United Kingdom; his "A" security classification in the United Kingdom, the highest security category; and, the likelihood that a transfer would not further his rehabilitation.
Plaintiffs contend that the Attorney General has violated the Act and the Due Process Clause by failing to promulgate regulations and guidelines governing requests for transfer under the Convention, and by refusing to give them a hearing on their requests.
The Attorney General, in turn, contends that the Act does not require him to promulgate regulations or guidelines, and that he may deal with such requests on an ad hoc basis pursuant to internal (and undisclosed) criteria. He insists that his decision in this case was well within the permissible discretion granted to him by the Act. The Attorney General also argues that the Convention and the Act create no legitimate expectations for American prisoners incarcerated abroad and, accordingly, that his refusal to provide plaintiffs a hearing on their requests cannot violate the Due Process Clause.
What the Attorney General does not do, however, is to provide this court with any evidentiary material to oppose plaintiffs' summary judgment motion. The Attorney General states: that plaintiffs mailed the stolen jewels to America before they were caught and that the British authorities are continuing their investigation to locate the jewels; that plaintiffs have extensive criminal histories; that they have demonstrated no remorse for their conduct; that they would be immediately eligible for parole if they were transferred to this country; and that they would be a threat to their communities. Yet, he presents not a single shred of evidence to support these factual assertions. Such unsupported assertions are inadequate in a motion for summary judgment, and therefore will not be considered by this court in its resolution of the motion.[3]
DISCUSSION
Plaintiffs' complaint and motion for summary judgment can best be divided into three parts. The first part seeks a writ of mandamus ordering the Attorney General to promulgate regulations and guidelines as allegedly required by the Act. The second asks this court to review and reverse the Attorney General's administrative decision to deny their transfer requests. The third seeks a declaration that the Attorney General has violated their due process rights, and an order granting them an administrative hearing on their request.
The Writ of Mandamus
For a court to issue a writ of mandamus, or to grant relief in the nature of the writ,[4]*1243 against an executive agency is an extraordinary step.
In this circuit, it is well-established that mandamus jurisdiction may only be invoked when the following three elements are present:
"(1) a clear right in the plaintiff to the relief sought;
(2) a plainly defined and peremptory duty on the part of the defendant to do the act in question;
(3) no other adequate remedy available."
Homewood Professional Care center, Ltd. v. Heckler, 764 F.2d 1242, 1251 (7th Cir. 1985) (quoting Americana Healthcare Corp. v. Schweiker, 688 F.2d 1072, 1084 (7th Cir.), cert. denied, 459 U.S. 1202, 103 S. Ct. 1187, 75 L. Ed. 2d 434 (1982)); Beckless v. Heckler, 622 F. Supp. 715, 720 (D.C.Ill. 1985). These elements are addressed in turn.
1. Plaintiffs' Rights
Although the Attorney General asserts that plaintiff is not entitled to mandamus because the Act does not impose a duty on the Attorney General to promulgate regulations, the Attorney General does not argue that, if such a duty exists, plaintiffs lack the right to enforce it. This court agrees with the Attorney General's implied concession that the Act gives plaintiff a private right to enforce the terms of both the Act and the Convention. See, e.g., Letter of Submittal from Secretary of State to President, Recommending Transmittal of the Convention to the Senate, April 30, 1984 at 3 ("The purpose of the Convention is to facilitate the transfer of foreign prisoners to their home countries by establishing procedures that can be initiated by prisoners who prefer to serve their sentences there.") (emphasis added), adopted in Letter of Transmittal from President to Senate Recommending Ratification, May 7, 1984; Id. at 6 ("[The Convention] is fully consistent with the provisions of Public Law 95-144, 18 U.S.C. sec 4100 et seq., enacted by Congress to implement treaties relating to the transfer of offenders to or from foreign countries. No new legislation would be required."); H.Rep. No. 95-720, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 3146, 3155 (Congress intends that the Attorney General will, in most cases, consent to the receipt of Americans from abroad pursuant to the Act "if the offender requests ... such transfer"); see also Pfeiffer v. United States Bureau of Prisons, 615 F.2d 873, 876 (9th Cir.1980) ("[The] sole purpose of the treaty on the Execution of Penal Sentences [between the United States and Mexico] is to permit persons convicted in foreign countries to serve their incarcerations in the country of which they are citizens."). Thus, if the Act imposes a duty on the Attorney General to promulgate regulations, plaintiffs are entitled to compel him to abide by it.
2. The Attorney General's Duty
In determining whether the Act imposes on the Attorney General "a plainly defined and peremptory duty" to promulgate regulations and guidelines for the transfer of prisoners, this court's only function is to give effect to Congress' intent. United States v. Markgraf, 736 F.2d 1179, 1182 (7th Cir.1984), cert denied, 469 U.S. 1199, 105 S. Ct. 1154, 84 L. Ed. 2d 308 (1985). The Seventh Circuit has explained how the court must approach its task:
In determining [Congress'] intent, courts customarily look to several factors: the language of the statute; the legislative history; and the interpretation given by the administrative agency charged with enforcing the statute.
Id. at 1182.
As set forth above, the statute provides that the Attorney General "is authorized ... to make regulations for the proper implementation of such treaties in accordance with this chapter and to make regulations to implement this chapter." 18 U.S. C. § 4102. Whether this language mandates the promulgation of such regulations, or merely permits it, is not clear. Cf. Abrams v. Hill, 547 F.2d 1062 (9th Cir. 1976) (just because statute states that government officer "is authorized" to take certain action does not necessarily mean that the officer has discretion to refuse to act), cited with approval, United States v. *1244 Markgraf, 736 F.2d 1179 (7th Cir.1984) (statute stating that Secretary of Agriculture "may permit" the deferral of certain loans did not give Secretary the authority to refuse to implement the statute, but gave him the discretion to deny deferral to some borrowers). Thus, this court must look to the Act's legislative history.
Doing so clarifies the picture. The House Report adopted as the official legislative history of the Act provides, in pertinent part, as follows:
Section 4102. Authority of the Attorney General.
This section designates the Attorney General as the "authority" referred to in the treaties and gives him the necessary authority to implement the treaties with regard to receiving American offenders from a foreign country who are serving a sentence of imprisonment, or who are on probation or parole. It also authorizes the Attorney General to transfer Federal offenders who are serving a sentence of imprisonment, or who are on probation or parole, to the country of which they are citizens or nationals.
Standards for Attorney General Consent
Under existing treaties and this legislation, the Attorney General must agree to the receipt or transfer of an offender. The committee was concerned that the Attorney General exercise his discretion on this concern with care. In most cases, and possibly almost all cases, he should agree to any receipt or transfer, if the offender requests or voluntarily consents to such transfer. However, they [sic] may be an unusual situation, involving possibly a dangerous offender, where the Attorney General should not agree to the return of the offender, and his immediate eligibility for parole, to the United States. Similarly, there may be an unusual situation, involving an individual in American persons [sic], who for matters of future law enforcement, continuing investigation, or other national interests, should not be sent to his home country. The committee therefore expects the Attorney General to promptly establish regulations and to provide standards and guidelines which will govern the exercise of his consent as to his consent to receive or transfer offenders.
H.Rep. No. 95-720, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin. News 3146, 3155 (emphasis added).
The Attorney General's position his interpretation of the statute he is "charged with enforcing" that the Act permits him to deal with transfer requests on an ad hoc basis is thus totally unfounded. Congress clearly intended that the Attorney General would grant such requests in almost all cases, and would promulgate regulations and guidelines to deal with those "unusual situation[s]" in which denial of such requests might be warranted. Furthermore, the Attorney General reproduced for this court a portion of the very provision of the Act's legislative history which clarifies that, although he retains discretion as to the content of such regulations, he does not with respect to his duty to promulgate them. Thus, there can be no doubt that the Attorney General is aware of his duty and has consciously chosen not to fulfill it.
Accordingly, this court finds a plain and peremptory duty on the part of the Attorney General to promulgate regulations, a duty sufficiently clear to invoke this court's mandamus jurisdiction. Estate of Smith v. Heckler, 747 F.2d 583 (10th Cir.1984) (mandamus was proper remedy to compel Secretary of Health and Human Resources to promulgate regulations where statute imposed a clear duty on her to do so); see also Flynn v. Schultz, 748 F.2d 1186, 1194 (7th Cir.1984), cert. denied, 474 U.S. 830, 106 S. Ct. 94, 88 L. Ed. 2d 77 (1985).[5]
*1245 3. Adequacy of Alternative Remedies
The final element plaintiffs must satisfy to obtain mandamus relief is the requirement that there exist no adequate alternative remedies. The Attorney General does not argue that such alternative remedies are available, and this court can find none.
To be sure, plaintiffs can and, as discussed below, do challenge as an abuse of discretion the Attorney General's determination that they are not entitled to transfer. Thus, one could argue, plaintiffs have an alternative route available to them in challenging the Attorney General's decision.
Yet, this court's finding below that the Attorney General has indeed abused his discretion does not, and cannot "`afford[] [plaintiffs] full relief as to the very subject matter in question.'" Holmes v. United States Board of Parole, 541 F.2d 1243 (7th Cir.1976) (emphasis added) (quoting Carter v. Seamans, 411 F.2d 767, 773 (5th Cir. 1969)). The proper course for this court to follow in reversing the Attorney General's decision is to remand the case to the Attorney General for further action in accordance with this court's ruling. Flynn v. Schultz, 748 F.2d 1186, 1194 (7th Cir.1984), cert. denied, 474 U.S. 830, 106 S. Ct. 94, 88 L. Ed. 2d 77 (1985). Thus, unless this court also compels the Attorney General to promulgate regulations and guidelines to govern plaintiffs' requests, plaintiffs will again be forced to seek transfer to this country without the benefit of the generally-applicable regulations and rules which Congress clearly contemplated would guide the Attorney General in this and similar cases.
Accordingly, this court will issue a writ of mandamus ordering the Attorney General to promulgate regulations and guidelines to govern requests from American citizens and nationals incarcerated abroad for transfer to American prisons pursuant to the Convention and similar treaties.
Review of the Attorney General's Decision
The Administrative Procedure Act ("the APA") gives the federal courts the power to review final agency action unless federal "statutes preclude judicial review" or "agency action is committed to agency discretion by law." 5 U.S.C. § 701 et seq. The Attorney General "is an `agency' subject to review jurisdiction under the APA." Dellums v. Smith, 573 F. Supp. 1489, 1498 (N.D.Cal.1983), rev'd on other grounds, 797 F.2d 817 (9th Cir.1986). Further, the Attorney General does not contest, and this court finds, that the Act neither specifically precludes judicial review of the Attorney General's decisions regarding prisoner transfer requests, nor commits these decisions to his sole and unreviewable discretion.
On the contrary, Congress made quite clear that the Attorney General's discretion with regard to prisoner transfer decisions should be carefully circumscribed. The Attorney General must grant such requests in all but the most "unusual situations," and must define by regulation what those situations will involve. Implicit in this grant of authority is the recognition that, if the Attorney General abuses his discretion, courts will have the power to review, and if necessary reverse him. See Turner v. United States Parole Commission, 810 F.2d 612 (7th Cir.1987); Alvarez v. Longboy, 697 F.2d 1333 (9th Cir.1983).
Thus, the APA review provisions govern plaintiffs' appeal of the Attorney General's decision to deny their requests for transfer. Section 10(e) of the APA, 5 U.S.C. § 706, informs this court's review:
[T]he reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of agency action. The reviewing court shall
. . . . .
*1246 (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....
Because the Attorney General acted without the guidance of regulations specifically required by the Act, his denial of plaintiffs' requests constitutes an abuse of discretion, and requires reversal, as a matter of law. See Industrial Holographics, Inc. v. Donovan, 722 F.2d 1362, 1367 & n. 9 (7th Cir.1983) (failure to promulgate and adhere to regulations can amount to arbitrary and capricious conduct because of the "danger of arbitrary action in the absence of articulated standards"); cf. White v. Roughton, 530 F.2d 750, 754 (7th Cir.1976) (failure of township supervisor to promulgate rules and regulations governing welfare eligibility violated due process because it placed "virtually unfettered discretion in [the supervisor] and his staff"). However, even if the Act did not specifically require that the Attorney General adopt regulations in carrying out his duties under the Act, this court would still be forced to reverse his decision here.
In denying plaintiffs' requests, the Attorney General necessarily determined that their request fell within Congress' contemplation of "unusual situation[s]" in which denial of transfer might be appropriate. The Attorney General points to several factors he employed in reaching this conclusion:
(1) the relative seriousness of the offense for which plaintiffs are incarcerated;
(2) plaintiffs' "extensive" criminal history;
(3) the fact that plaintiffs will be immediately eligible for parole if transferred to an American prison; and
(4) the unlikelihood that transfer would facilitate plaintiffs' rehabilitation.
Yet, as noted earlier, the Attorney General has not provided this court with any evidentiary material supporting these "findings", or indicated how they compare with other transfer request cases. The only cases available to this court for comparison are those few published opinions in which prisoners have been granted transfer back to America and then attacked, through habeas corpus, the legality of their incarceration here. While those cases are unlikely to constitute a representative sample of the Attorney General's decisions on transfer requests, this court notes that many of them involved crimes more serious than those for which plaintiffs are currently incarcerated.[6]See, e.g., Tavarez v. U.S. Attorney General, 668 F.2d 805 (5th Cir. 1982) (manslaughter); Boyden v. Bell, 631 F.2d 120 (9th Cir.1980) (smuggling heroin); Kanasola v. Civiletti, 630 F.2d 472 (6th Cir.1980) (murder); Wilden v. Fields, 510 F. Supp. 1295 (D.Wis.1981) (murder).
This is not to say that there are no circumstances in which an American convicted of armed robbery abroad can be denied transfer back to the United States. But in the absence of clearly articulated reasons and factual support for a denial, such a deviation from past practice compels this court to find the Attorney General's decision arbitrary and capricious, and an abuse of discretion in this case. See West Chicago, Illinois v. United States Regulatory Commission, 701 F.2d 632, 648 (7th Cir.1983) (where agency proceeds through informal adjudication, it must clearly state and support its reasons for its decision).
Because, as noted above, this court finds it appropriate to remand this case to the Attorney General for further proceedings consistent with this ruling, a few comments are appropriate on the Attorney General's *1247 application of the factors noted above to plaintiffs' requests.
To the extent that the Attorney General relied on the above factors to determine the danger that plaintiffs might pose to the American public if transfer were granted, he acted appropriately. Although Congress specified only the seriousness of the crime for which the prisoner is incarcerated, and his eligibility for parole, as factors which could bring a case within the "unusual situations" in which transfer might be denied, see H.Rep. No. 95-720, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 3146, 3155, this court cannot say that the Attorney General abused his discretion in looking to other factors i.e. plaintiffs' past criminal record to determine plaintiffs' future threat.
In his arguments to this court, however, the Attorney General indicated that he also employed the above factors in reaching a determination that granting the transfer requests would contradict the Convention's salutory purpose of improving bilateral relations between transferring nations. Gov. Mem. at 5 ("[T]he transfer and possible parole of the plaintiffs would harm rather than enhance foreign relations between our countries."); see also H.Rep. No. 95-720, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 3146, 3148-49 (setting forth the three primary benefits of the Act: (1) increased probability or rehabilitation of offender; (2) improved bilateral relations between the transferring countries; (3) humanitarianism). This argument turns the Act and the Convention on their heads. Granting requests can improve bilateral relations; it cannot impair them. The host country always retains the right to decline a request for transfer and keep the prisoner in its own jails. Thus, to the extent the Attorney General rejected plaintiffs' request because he felt granting it would somehow impair relations between the United States and the United Kingdom, he clearly overstepped his discretion under the Act.
This Court also finds problems in the Attorney General's reference to the negligible rehabilitory benefits of bringing plaintiffs back to this country. The legislative histories of the Act and the Convention clearly indicate that Congress and the President presumed that permitting an American incarcerated abroad to serve out his sentence in America would enhance the chance of rehabilitation. See, e.g., H.Rep. No. 95-720, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 3146, 3149 ("Offender rehabilitation, which is one of the primary objectives of U.S. penal policy, is facilitated as a result of execution of penal sentences in an offenders home country.") (emphasis added). Nothing in these histories in any way suggests that the Attorney General may determine, on a case-by-case basis, whether he believes that transfer would serve such a function. Thus, the Attorney General also abused his discretion when he unilaterally made the determination that transfer would not facilitate rehabilitation, and then used this finding as a reason to deny plaintiffs' requests.
Procedural Due Process
The Constitution "prohibits the federal government from depriving a person of life, liberty, or property without due process of law." Campbell v. Miller, 787 F.2d 217, 222 (7th Cir.1986), cert. denied, ___ U.S. ___, 107 S. Ct. 673, 93 L. Ed. 2d 724 (1987). Liberty interests can be found in the Constitution itself, in statutes, or in administrative regulations. However, once it is determined that such a protected interest exists, the Constitution alone prescribes the procedures the government must follow in the course of depriving a person of it. Cleveland Board of Education v. Loudermill, 470 U.S. 532, 105 S. Ct. 1487, 84 L. Ed. 2d 494 (1985).
This court could find no authority, and the parties supplied none, on the liberty interests, if any, of American citizens incarcerated abroad who seek transfer to the United States. Nevertheless, there appears no reason why they should be treated differently from Americans imprisoned in American jails who claim the right to be, or not to be, transferred from one prison to *1248 another. Cf. Haig v. Agee, 453 U.S. 280, 101 S. Ct. 2766, 69 L. Ed. 2d 640 (1981) (American living in West Germany could challenge, under Due Process Clause, federal government's procedures in revoking his passport). And in those cases the law is quite clear: Where a statute or administrative regulation places limits on the discretion of administrative officials with regard to transfer decisions, a liberty interest arises and the Due Process Clause comes into play. Mitchell v. Hicks, 614 F.2d 1016 (5th Cir.1980); see Olim v. Wakinekona, 461 U.S. 238, 103 S. Ct. 1741, 75 L. Ed. 2d 813 (1983) (prisoner had no due process right to remain in Hawaii where state placed no substantive limits on authority of state officials to transfer him to California or any other state).
This court has already discussed at length the limits the Act places on the Attorney General's discretion with regard to transfer requests. Americans incarcerated abroad thus have a legitimate expectation that their requests will be granted, subject only to exceptions which the Attorney General is authorized to prescribe. Thus, this court finds that the Act creates a liberty interest in these American citizens which the Attorney General can only deny through the procedures mandated by the Due Process Clause.
Of course, just what these procedures encompass is not an easy question. Not only is a pre-deprivation hearing impossible to guarantee, but a post-deprivation one may be as well. At a minimum, however, the Attorney General should provide a prisoner whose request has been denied with both a specific explanation and elaboration of the grounds for his decision, and an opportunity to rebut them, see Campbell v. Miller, 787 F.2d at 224 ("The Supreme Court has repeatedly stated that procedural due process is a non-Euclidean concept critically related to time, place and circumstances."), either in writing or, where the prisoner desires, in person through a representative of his choosing.
In this case, the Attorney General responded to plaintiffs' requests with the single-paragraph letter reproduced above. This response leaves this court without a meaningful basis for reviewing his decision. More importantly, however, it leaves plaintiffs, in prisons thousands of miles away, at a loss to understand why their government has condemned them to serve out their sentences in foreign jails when, as far as they can tell, Americans who have committed far more egregious crimes have been afforded the opportunity to serve their penance in their homeland. Such action on the part of the Attorney General falls short of even the limited procedural requirements to which plaintiffs are entitled.
Summary
This court has determined that the Attorney General has violated its duty under the Act to promulgate regulations setting forth standards and guidelines to govern the requests of Americans incarcerated abroad to be transferred to an American prison. This court has also found that the Attorney General acted arbitrarily and capriciously, and abused his discretion, in denying the request of the plaintiffs in this case. Finally, this court has concluded that the Attorney General deprived plaintiffs of due process of law in denying their requests under the Act without a sufficient explanation and elaboration of his decision and without affording them an opportunity to rebut.
CONCLUSION
Accordingly, this court orders the Attorney General to promulgate regulations pursuant to its authority under the Act within a reasonable time. This court further orders the Attorney General, after the establishment of these regulations, to determine the eligibility of plaintiffs for transfer to America, to inform the plaintiffs of his decision, and, if negative, to afford the plaintiffs an opportunity to respond to this decision either in writing or, if plaintiffs choose, through personal representatives in this country.
NOTES
[1] 28 U.S.C. § 1361 provides:
The district court shall have original jurisdiction over any action in the nature of mandamus to compel an officer or employee of the United States, or any agency thereof, to perform a duty owed to plaintiff.
[2] Although the Act was passed and went into effect in 1977, all parties to this case agree that the Act governs the Convention. See 18 U.S.C. § 4101 ("(k) `treaty' means a treaty under which a foreign offender sentenced in the courts of one country may be transferred to the country of which he is a citizen or national for the purposes of serving the sentence."); H.Rep. No. 95-720, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 3146, 3146 ("The purpose of [the Act] is to provide the implementation procedures for offender transfer treaties with Mexico and Canada as well as for similar future treaties.") (Emphasis added).
[3] The court notes that the Attorney General did not indicate that it needed more time before responding to plaintiffs' motion.
[4] Section 10 of the Administrative Procedure Act, 5 U.S.C. § 706 provides in part:
To the extent necessary to decision and when presented, the reviewing court shall 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
(1) compel agency action unlawfully withheld or unreasonably delayed....
Like the traditional writ of mandamus, this provision may be invoked to compel agency action when the requirements for the common law writ have been satisfied. See Conservation Law Foundation of New England, Inc. v. Clark, 590 F. Supp. 1467 (D.C.Mass.1984).
[5] "Mandamus may be used to compel the performance of a ministerial duty when the obligation to perform it is plainly defined. Further, `it also is employed to compel action, when refused, in matters involving judgment or discretion, but not to direct the exercise of discretion in a particular way nor to direct the retraction or the reversal of action already taken in the exercise of either.'" Flynn v. Schultz, 748 F.2d at 1194 (quoting Interstate Commerce Commission v. Humboldt Steamship, 224 U.S. 474, 484, 32 S. Ct. 556, 559, 56 L. Ed. 849 (1952)) (other citations omitted).
[6] A letter from the American Consul, Embassy of the United States in London, to plaintiff Scalise, dated June 28, 1985, though obviously not binding on the Attorney General, provides an interesting view of at least one American official regarding the sorts of "unusual situation[s]" in which an American's transfer request might be denied:
[G]eneral policy for both the British and Americans is not to withhold consent for transfer except for extenuating circumstances; for example, a mass murderer. (Emphasis added).
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687 F. Supp. 708 (1988)
Janice C. HATHAWAY, Plaintiff,
v.
Newman STONE, et al., Defendants.
Civ. A. No. 87-1309-C.
United States District Court, D. Massachusetts.
June 27, 1988.
*709 Sheldon H. Ganz, Boston, Mass., for plaintiff.
Gerard A. Pugsley, Asst. Corp. Counsel, City of Boston Law Dept., Boston, Mass., for defendants.
MEMORANDUM
CAFFREY, Senior District Judge.
The plaintiff, Janice Hathaway, brought this action against the City of Boston and various individual employees seeking damages under 42 U.S.C. §§ 1981, 1983, 1985, 1986 and various state laws for alleged injuries. The matter is now before this Court on motions for summary judgment by the City of Boston, and defendants Robert Baird and Walter Reed.
I. Facts
This case stems from an incident that took place on August 31, 1985. At approximately 1:50 p.m., defendant Newman Stone, a Boston police officer, responded to a call at 31 Clarendon Street in Boston. The plaintiff had called the Boston police to remove a car that was preventing her from entering her driveway. For reasons which are disputed, Officer Stone refused to have the car towed after unsuccessfully attempting to find the owner. The plaintiff alleges that Stone threatened to tow the plaintiff's car if she double parked it to go into her apartment. Thereafter, for reasons which are in dispute, an altercation ensued between Stone and Hathaway. The plaintiff claims that Stone physically assaulted her. As a result of this altercation, Stone arrested Hathaway for disorderly conduct, allegedly without legal justification. A neighbor who observed the incident, William Gumes, allegedly told Stone that the arrest was illegal. In response, Stone supposedly threatened Gumes.
While Stone was handcuffing Hathaway, officers Baird and Reed arrived in response to Stone's call for assistance. Baird and Reed then transported Hathaway to the *710 station while Stone followed in his own cruiser. The neighbor, Gumes, also followed them to the station. At the station, Stone removed Hathaway from the cruiser. The plaintiff claims that Stone threw her to the ground, kicked her and swore at her. The plaintiff claims that Reed and Baird were present while this was going on, and that Gumes called out to Reed and Baird, "Hey, you see that. That's assault and battery. Stop that." Baird and Reed allegedly replied that they only saw Gumes' car blocking the street. The plaintiff was then booked and released on bail.
II. Discussion
In Count II of her complaint, the plaintiff alleges that Boston Police Department (the "Department") and the City of Boston violated her civil rights by failing to train, supervise, and discipline Boston police officers. The City and the Department move for summary judgment on the grounds that the complaint fails to state a claim under 42 U.S.C. § 1983. This argument is, however, more properly directed to a motion for judgment on the pleadings under Fed. R.Civ.P. 12(c), and their motion shall be treated as such. As in a Rule 12(b)(6) motion, judgment under a 12(c) motion will not be granted unless the movant clearly establishes that no material issue of fact remains and that he or she is entitled to judgment as a matter of law. Society Hill Civic Ass'n v. Harris, 632 F.2d 1045, 1054 (3d Cir.1988) (quoting 5 C. Wright and A. Miller, Federal Practice and Procedure, § 1368 (1969)). Of course, in passing upon such a motion, the Court must view the facts presented in the pleadings and all reasonable inferences to be drawn therefrom in the light most favorable to the nonmoving party. Id.
To establish liability of a municipality under § 1983, the plaintiff must show that the individual municipal employees were acting pursuant to some official policy or custom of the city when they violated the plaintiff's rights. Monell v. New York City Dept. of Social Services, 436 U.S. 658, 694, 98 S. Ct. 2018, 2037, 56 L. Ed. 2d 611 (1978). To establish a custom of failing to train its officers, the plaintiff must show, at least, that the municipality acted with gross negligence amounting to deliberate indifference in carrying out these responsibilities. Williams v. City of Boston, 784 F.2d 430, 434-35 (1st Cir.1986); Voutour v. Vitale, 761 F.2d 812, 820 (1st Cir.1985); Kibbe v. City of Springfield, 777 F.2d 801, 803 (1st Cir.1985), cert. dismissed, 480 U.S. 257, 107 S. Ct. 1114, 94 L. Ed. 2d 293 (1987). Such a showing requires that the municipal decision makers knew or should have known of officers' misconduct, and that they failed to take reasonable measures to rectify the situation. Voutour, 761 F.2d at 823; Woodley v. Town of Nantucket, 645 F. Supp. 1365, 1378 (D.Mass.1986).
In this case, though, the plaintiff fails to allege any facts concerning the City's knowledge of police misconduct or the City's attempts, or lack thereof, to prevent such misconduct. Rather, the plaintiff makes numerous conclusory allegations that the City knew or should have known of a pattern of police misconduct. Such conclusory allegations, however, are not sufficient to state a claim. As the Court of Appeals for the First Circuit has noted, "[C]omplaints based on civil rights statutes must do more than state simple conclusions; they must at least outline the facts constituting the alleged violations." Goldman v. Sears, Roebuck & Co., 607 F.2d 1014, 1018 (1st Cir.1979); Fisher v. Flynn, 598 F.2d 663, 665 (1st Cir.1979). See also Martin v. New York State Dept. of Mental Hygiene, 588 F.2d 371 (2d Cir.1978) (affirming dismissal of the plaintiff's civil rights claim where the plaintiff failed to allege any facts to support his allegation that he had been denied employment benefits on account of his race). The claim must at least set forth minimal facts, not subjective characterizations, as to who did what to whom and why. Dewey v. University of New Hampshire, 694 F.2d 1, 3 (1st Cir. 1982).
Ignoring the numerous conclusory allegations, the plaintiff's complaint at most supports a claim that the individual officers violated the plaintiff's constitutional rights. Without more, a single alleged *711 incident of individual misconduct will not support the inference that the City failed to train, supervise, or discipline its officers. City of Oklahoma City v. Tuttle, 471 U.S. 808, 823-24, 105 S. Ct. 2427, 2436-37, 85 L. Ed. 2d 791 (1985); Wierstak v. Heffernan, 789 F.2d 968, 974 (1st Cir.1986); Kibbe, 777 F.2d at 805. Since the plaintiff fails to allege facts sufficient to state a claim under § 1983, the City's motion for judgment on the pleadings should be granted.[1]
In Count III, the plaintiff alleges that the defendants violated the Massachusetts Civil Rights Statute, M.G.L. c. 12 § 11I. That section provides a cause of action against any person who interferes by threats, intimidation, or coercion, with the exercise of any rights secured by the constitutions or laws of the United States or the Commonwealth. The City of Boston and the Department argue that this claim should be dismissed also.
I agree that the plaintiff's complaint fails to state a claim against City and the Department and § 111. To state a claim against the City on the Department under § 11I, the plaintiff must allege that the defendants interfered with their rights "by threats, intimidation, or coercion." See Bell v. Mazza, 394 Mass. 176, 182, 474 N.E.2d 1111 (1985) (noting that the state legislature explicitly limited the remedy provided by § 11I to situations where the derogation of rights occurs by threats, intimidation, or coercion). In this case, even assuming the City or the Department failed to train, discipline, or supervise its officers, such a failure did not involve threats, intimidation, or coercion by the City or the Department. Therefore, even if the plaintiff had alleged sufficient facts to state a claim under § 1983, failure to train, supervise, or discipline is not actionable under M.G.L. c. 12 § 11I.
The City next moves for summary judgment on Count IX. The City argues that this count states a claim for assault and battery and other intentional torts, for which the City may not be held liable under M.G.L. c. 258. Massachusetts law requires a plaintiff to sue the City for damages resulting from the negligent acts of its employees. M.G.L. c. 258 § 2 (1988). The City may not be sued, however, for "any claim arising out of an intentional tort." M.G.L. c. 258 § 10 (1988). Here, the City is correct in arguing that it could not be sued for the alleged assault and battery committed by Stone. The City misconstrues the plaintiff's complaint, however. Count IX alleges that the City was negligent in training, supervising, and continuing to employ Stone, which negligence resulted in the assault and battery. This claim is based on the City's own negligence, rather than Stone's intentional tort. The negligence claim against the City does not "arise out of" Stone's intentional torts, but rests on an independent negligent act by the City. See Ortiz v. County of Hampden, 16 Mass. App.Ct. 138, 449 N.E.2d 1227 (1983) (plaintiff's action alleging negligent record-keeping by the County, which resulted in the issuance of a default warrant for the plaintiff, did not arise out of the resulting false imprisonment). Accordingly, the City is not entitled to summary judgment on Count IX.
Officers Baird and Reed also move for summary judgment on the plaintiff's § 1983 claims against them. The defendant argue that their actions, as alleged by the plaintiff, did not rise to the level of a constitutional deprivation as a matter of law. Even if it did, they further contend that they are entitled to qualified immunity. For the reasons set out below, I disagree with the defendants, and rule that they are not entitled to summary judgment on the § 1983 claims.
Beginning the analysis with the complaint, the plaintiff alleges that Officer Stone used excessive force in arresting her and in holding her. It is well settled that the use of excessive force by police in *712 arresting and detaining a suspect may violate the suspect's fundamental constitutional rights. Landrigan v. City of Warwick, 628 F.2d 736, 741-42 (1st Cir.1980). On the other hand, not all unlawful use of force by police rises to the level of a constitutional violation. Johnson v. Glick, 481 F.2d 1028, 1033 (2d Cir.1973); Bibbo v. Mulhern, 621 F. Supp. 1018, 1024 (D.Mass.1985); Meola v. Machado, 602 F. Supp. 3, 6 (D.Mass.1984). The determination as to whether the force used by the police was unconstitutionally excessive involves an ad hoc consideration of all the circumstances, including the need for the application of force, the relationship between the need and the amount of force used, the extent of the injury inflicted, and whether the force was applied in a good faith effort to maintain discipline, or maliciously for the very purpose of causing harm. Johnson v. Glick, 481 F.2d at 1033; Bibbo, 621 F.Supp. at 1024. In this case, accepting the plaintiff's allegations are true, a jury could find that Officer Stone used unconstitutionally excessive force in arresting and detaining the plaintiff.
Assuming Stone used excessive force, the question is whether Officers Reed and Baird could be held liable for this deprivation of the plaintiff's constitutional rights. Liability may be imposed under § 1983 upon one who has a duty to act to prevent a deprivation of anther's constitutional rights, and who fails to do so in reckless disregard of the other's constitutional rights. Clark v. Taylor, 710 F.2d 4, 9 (1st Cir.1983). Thus courts have held that a police officer who fails to prevent the use in his presence of excessive force by another officer may be held liable under § 1983. See, e.g. Byrd v. Brishke, 466 F.2d 6 (7th Cir.1972); Bruner v. Dunaway, 684 F.2d 422 (6th Cir.1982); Bibbo v. Mulhern, 621 F. Supp. 1018. Therefore, assuming Officer Stone was using unconstitutionally excessive force, Officers Baird and Reed may be held liable if they were present when the plaintiff was beaten, they knew that such force was being used, and they failed to stop Officer Stone from using such force. The plaintiff alleges that Reed and Baird were present when Stone allegedly dragged her from the patrol car and kicked her. The plaintiff also alleges that the officers saw Stone assaulting her. Not only did the officers fail to stop Stone, they allegedly threatened Gumes when he tried to get them to protect the plaintiff. Based on these facts, a jury could find Reed and Baird liable under § 1983. Reed and Baird, of course, claim that they did not know Stone was assaulting the plaintiff. This is, however, an issue of material fact the precludes summary judgment.
As mentioned, Reed and Baird also argue that they are entitled to summary judgment based on qualified immunity. To be sure, the First Circuit has recognized that there is a good faith immunity defense available under § 1983 in excessive force cases. Voutour v. Vitale, 761 F.2d 812, 818 (1st Cir.1985). As set out in Voutour, the standard for qualified immunity is whether a government official performing discretionary functions should reasonably have known that his or her actions violated clearly established statutory or constitutional rights. Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982); Voutour, 761 F.2d at 818. In applying this standard, the court should inquire first whether the official's actions violated the constitutional rights of the plaintiff, and second, whether these rights were clearly established at the time the action occurred. Harlow, 457 U.S. at 818, 102 S.Ct. at 2738. In practice, however, courts have applied the shorthand analysis of the reasonable official. That is, courts inquire whether a reasonable official in the defendant's position would have realized that his actions would violate the plaintiff's constitutional rights. See Voutour, 761 F.2d at 819 (police officer entitled to immunity since a reasonable man in his position would not have known that his actions would result in the decedent's death); Martin v. Afflerbach, 623 F. Supp. 565, 567 (D.Me.1985) (granting immunity because the defendant could not have foreseen that his actions would cause a constitutional violation).
Applying these principles to this case, it is clear that under the facts alleged, Baird and Reed are not entitled to summary judgment *713 on the basis of qualified immunity. At the time the events took place, the law concerning an officer's duty to protect prisoners from another officer's use of excessive force was clearly established. See, e.g., Byrd v. Brishke, 466 F.2d 6; Bruner v. Dunaway, 684 F.2d 422. Moreover, a reasonable officer who saw another officer drag an arrestee from a car, throw her to the ground, and begin to kick her, as the plaintiff alleges, would realize that he was under a duty to stop the assault. Therefore, Reed and Baird are not entitled to immunity. See Bibbo v. Mulhern, 621 F.Supp. at 1018 (officer not entitled to summary judgment on qualified immunity grounds where there are disputed issues of fact as to whether a reasonable officer would have concluded that deadly force was required).
Defendants Reed and Baird also move for summary judgment on the Massachusetts Civil Rights claim against them (Count III). The defendant's argue that the plaintiff's allegations are wholly conclusory, and therefore fail to state a claim under M.G.L. c. 12 § 11I. The allegations discussed above, however, are sufficient to support the reasonable inference that Reed and Baird conspired with Stone to deprive the plaintiff of her rights by threats, intimidation or coercion. Therefore, their motion for summary judgment on Count III should be denied.
As a final matter, the City and the plaintiff request that the case be retransferred to Massachusetts Superior Court. In light of the federal claims remaining against the individual officers, this Court shall retain jurisdiction over all remaining claims.
Order accordingly.
ORDER
In accordance with memorandum filed this date, it is ORDERED:
1. The City of Boston's motion for judgment on the pleadings on Counts II and III is granted;
2. The City of Boston's motion for summary judgment on Count IX is denied; and
3. Robert Baird's and Walter Reed's motion for summary judgment on Counts II and III are denied.
NOTES
[1] The plaintiff also argued that the Court should delay acting on the defendant's motion until further discovery has taken place. Where the plaintiff fails to state a claim, he is not entitled to discovery merely to find out whether or not there is a factual basis for his claim. Kadar Corp. v. Milbury, 549 F.2d 230, 233 n. 2 (1st Cir.1977).
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www.nebraska.gov/apps-courts-epub/
08/14/2020 08:08 AM CDT
- 879 -
Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BENJAMIN v. BIERMAN
Cite as 305 Neb. 879
Brenda L. Benjamin, Personal Representative of the
Estate of Mark W. Benjamin, deceased, appellant
and cross-appellee, v. Douglas S. Bierman and
Sixth Street Rentals, L.L.C., appellees
and cross-appellants.
Brenda L. Benjamin, Personal Representative of the
Estate of Mark W. Benjamin, deceased, appellant
and cross-appellee, v. Douglas S. Bierman et al.,
appellees and cross-appellants.
___ N.W.2d ___
Filed May 22, 2020. Nos. S-19-328, S-19-329.
1. Trial: Witnesses: Evidence: Appeal and Error. In a bench trial of an
action at law, the trial court is the sole judge of the credibility of the
witnesses and the weight to be given their testimony; an appellate court
will not reevaluate the credibility of witnesses or reweigh testimony but
will review the evidence for clear error.
2. Trial: Equity: Appeal and Error. On appeal from the bench trial of an
equity action, the standard of review is de novo on the record and the
court must resolve questions of law and fact independently of the trial
court’s determinations.
3. Equity: Appeal and Error. When the evidence is in conflict, the
appellate court considers and may give weight to the fact that the trial
court observed the witnesses and accepted one version of the facts
over another.
4. Contracts. The interpretation of a contract and whether the contract is
ambiguous are questions of law subject to independent review.
5. ____. A contract written in clear and unambiguous language is not sub-
ject to interpretation or construction and must be enforced according to
its terms.
6. ____. The court must accord clear terms their plain and ordinary mean-
ing as an ordinary or reasonable person would understand them.
- 880 -
Nebraska Supreme Court Advance Sheets
305 Nebraska Reports
BENJAMIN v. BIERMAN
Cite as 305 Neb. 879
7. ____. The fact that the parties have suggested opposite meanings of a
disputed instrument does not necessarily compel the conclusion that the
instrument is ambiguous.
8. ____. A court is not free to rewrite a contract or to speculate as to terms
of the contract which the parties have not seen fit to include.
9. ____. Extrinsic evidence is not permitted to explain the terms of a con-
tract that is unambiguous.
10. Witnesses: Testimony. The credibility of a witness is a question for the
trier of fact, and it is within its province to credit the whole of the wit-
ness’ testimony, or any part of it, which seemed to it to be convincing,
and reject so much of it as in its judgment is not entitled to credit.
11. Trial: Expert Witnesses. A trier of fact is not bound to accept expert
opinion testimony.
12. Expert Witnesses. The determination of the weight that should be given
expert testimony is uniquely the province of the fact finder.
Appeals from the District Court for Buffalo County: John
H. Marsh, Judge. Affirmed.
Bradley D. Holbrook and Nicholas R. Norton, of Jacobsen,
Orr, Lindstrom & Holbrook, P.C., L.L.O., for appellants.
William J. Lindsay, Jr., and John A. Svoboda, of Gross &
Welch, P.C., L.L.O., Kenneth F. George, of Ken George Law
Office, and Luke M. Simpson, of Bruner, Frank & Schumacher,
L.L.C., for appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Per Curiam.
I. INTRODUCTION
Brenda L. Benjamin, personal representative of the estate
of Mark W. Benjamin, filed separate complaints against
Douglas S. Bierman (Doug) and Sixth Street Rentals, L.L.C.
(Rentals), and against Doug, Eugene J. Bierman, and Sixth
Street Development, L.L.C. (Development) (collectively appel-
lees). In her complaints, Brenda generally sought an account-
ing, to dissolve both Rentals and Development, and damages.
The district court found that appellees breached the operating
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agreements of Rentals and Development, ordered an account-
ing for each, declined to dissolve either, and awarded Brenda
damages of $22,200 with respect to Rentals and $473,233 with
respect to Development. We affirm.
II. BACKGROUND
This is a companion case to Bierman v. Benjamin. 1 Mark
passed away on April 14, 2015, leaving his wife, Brenda, as
his primary beneficiary and the personal representative of
his estate. In addition to Mark’s share of BD Construction,
Inc./Kearney (BD), Mark owned a one-half share of Rentals
(case No. S-19-328) with Doug and a one-third inter-
est in Development along with Doug and Eugene (case No.
S-19-329).
Development is in the business of renting storage units.
Pursuant to an oral lease, Development also rents, for $8,000
per month, the office building and shop utilized by BD, and
it owns another building near the BD building and shop, as
well as some vacant lots held for sale. Rentals owns trailers
used for construction offices and storage, and a utility vehi-
cle, all of which are rented to BD for approximately $4,000
per month.
Mark was acting as manager for both Rentals and
Development at the time of his death. After Mark’s death,
Doug took over the manager position for both and continues to
serve in that capacity. The record shows no formal action was
taken to appoint Doug as manager of Development; rather,
Doug called Eugene (his father) to inform him that Doug
was going to elect himself as manager. At a later date, Doug
issued a formal notice and minutes reflecting that change. In
the same way, Doug named himself manager of Rentals and
communicated that change to Brenda. Brenda testified that
with respect to Development, Doug informed her that he and
Eugene were prepared to outvote her on anything she might
1
Bierman v. Benjamin, ante p. 860, ___ N.W.2d ___ (2020).
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want to do. As for Rentals, Brenda was less concerned with
Doug’s naming himself manager, because all of Rentals’ assets
were in the control of, and maintained by, BD.
Counsel for Rentals and Development sent notices to Brenda,
pursuant to the respective separate but identical operating
agreements, stating that Rentals and Development wished to
buy out Mark’s shares.
Brenda testified she and Doug had generally reached an
agreement that Doug would buy out Mark’s interest in Rentals
and that Doug and Eugene would buy out Mark’s interest
in Development. Brenda would then receive Development’s
interest in a storage facility jointly owned by Development,
Mark’s estate, and a third entity, as an offset against the pur-
chase price for Mark’s interest in Development.
In November 2015, Brenda and Doug agreed to have both
Rentals and Development valued. As relevant to this appeal,
the business appraisals were completed by Terry Galloway.
Galloway testified that Brenda and Doug agreed that December
31, 2014, was a more reasonable cutoff as the valuation
date, rather than Mark’s date of death just 4 months later.
Ultimately, Galloway valued Rentals at $144,400, with Mark’s
one-half interest valued at $72,200, and valued Development
at $5,641,700, with Mark’s one-third interest valued at
$1,880,900. The value of Development included $1.75 million
in life insurance proceeds on Mark’s life. These valuations
were completed in March 2016.
Brenda testified that by the end of March 2016, she became
aware there was going to be a problem closing on all three enti-
ties (BD, Rentals, and Development) at the same time. Closing
was set for April 15, 2016, but it never occurred. Brenda testi-
fied that Doug refused to close and that he informed her the
negotiations into BD needed to be rethought in light of the
values assigned to Rentals and Development. Doug testified
that he was unsure whether he wanted to own Rentals if he
did not also own BD and that he did not have the money to
buy Rentals at the time he sent notice of his election to do so.
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Doug never offered to close on Rentals. As for Development,
Doug wanted a determination as to whether the life insur-
ance proceeds were included in BD before he closed on
Development.
Following the failure to close on Rentals and Development,
Brenda filed lawsuits on June 1, 2016, seeking various forms
of relief as to both entities. Following a bench trial, the district
court found that appellees breached the operating agreements
of Rentals and Development, ordered an accounting for each,
declined to dissolve either, and awarded Brenda damages of
$22,200 with respect to Rentals and $473,233 with respect to
Development. These appeals followed.
III. ASSIGNMENTS OF ERROR
On appeal, Brenda assigns that the district court erred in not
ordering both Rentals and Development dissolved.
On cross-appeal, appellees assign, restated, that the district
court erred in (1) finding that the operating agreements set
forth an unambiguous method for determining fair market
value; (2) finding that Galloway’s appraisal was fair market
value for purposes of the operating agreements; (3) finding
that Galloway was an independent appraiser; (4) finding that
the proper date of valuation was December 31, 2014, and not
April 14, 2015; (5) finding that Galloway’s valuation was sub-
stantially complete as of November 30, 2015, for purposes of
determining when the 120-day period in which appellees were
obligated to purchase Mark’s interest; (6) finding that fair mar-
ket value was established by Galloway’s opinion of value as of
November 30, 2015; (7) entering judgment without determin-
ing the correct fair market value of Mark’s interest; (8) finding
that appellees refused to complete the purchase of Mark’s inter-
est, because no agreement had been reached on BD; (9) find-
ing that appellees rejected Galloway’s valuation only when the
parties did not agree on the value of the BD stock; (10) finding
that appellees failed to negotiate in good faith and breached
the contract to purchase Mark’s interest from Brenda under the
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operating agreements and that such was a substantial failure
of the exchange; (11) denying Development’s counterclaim
for specific performance; (12) not using the value determined
by their appraiser; (13) finding the starting date for accrual of
interest to be March 30, 2016; and (14) awarding $22,200 and
$437,233, respectively, plus interest, to Brenda.
IV. STANDARD OF REVIEW
[1] In a bench trial of an action at law, the trial court is the
sole judge of the credibility of the witnesses and the weight to
be given their testimony; 2 an appellate court will not reevalu-
ate the credibility of witnesses or reweigh testimony but will
review the evidence for clear error. 3
[2,3] On appeal from the bench trial of an equity action, the
standard of review is de novo on the record and the court must
resolve questions of law and fact independently of the trial
court’s determinations. 4 When the evidence is in conflict, the
appellate court considers and may give weight to the fact that
the trial court observed the witnesses and accepted one version
of the facts over another. 5
[4] The interpretation of a contract and whether the con-
tract is ambiguous are questions of law subject to indepen-
dent review. 6
V. ANALYSIS
1. Brenda’s Appeal
On appeal, Brenda argues that the district court erred in
not ordering Rentals and Development to be dissolved under
2
U.S. Pipeline v. Northern Natural Gas Co., 303 Neb. 444, 930 N.W.2d 460
(2019).
3
Id.
4
See Robertson v. Jacobs Cattle Co., 285 Neb. 859, 830 N.W.2d 191
(2013).
5
See O’Connor v. Kearny Junction, 295 Neb. 981, 893 N.W.2d 684 (2017).
6
DH-1, LLC v. City of Falls City, ante p. 23, 938 N.W.2d 319 (2020).
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the authority of Neb. Rev. Stat. § 21-147(a)(4)(B) or (a)(5)(B)
(Reissue 2012), which subsections provide:
A limited liability company is dissolved, and its activi-
ties must be wound up, upon the occurrence of any of the
following:
....
(4) on application by a member, the entry by the dis-
trict court of an order dissolving the company on the
grounds that:
....
(B) it is not reasonably practicable to carry on the
company’s activities in conformity with the certificate of
organization and the operating agreement; or
(5) on application by a member, the entry by the dis-
trict court of an order dissolving the company on the
grounds that the managers or those members in control of
the company:
....
(B) have acted or are acting in a manner that is
oppressive and was, is, or will be directly harmful to the
applicant.
As an initial matter, appellees argue that Brenda lacks stand-
ing to request dissolution. We agree.
Both Rentals and Development are limited liability corpo-
rations, governed by the Nebraska Uniform Limited Liability
Company Act. Under that act, a member is defined as “a person
that has become a member of a limited liability company under
section 21-130 and has not dissociated under section 21-145.” 7
Neb. Rev. Stat. § 21-145 (Reissue 2012) provides that a person
is “dissociated as a member from a limited liability company”
upon the death of that person. Thus, upon Mark’s death, he was
dissociated and was no longer a member per the definition of
the term under the act.
7
Neb. Rev. Stat. § 21-102 (Reissue 2012).
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Dissociated members’ “right to participate as a member
in the management and conduct of the company’s activities
terminates,” 8 and thereafter, a dissociated member has limited
rights. In the instance presented here, the death of a member,
“the deceased member’s personal representative or other legal
representative may exercise the rights of a transferee provided
in subsection (c) of section 21-141 and, for the purposes of
settling the estate, the rights of a current member under sec-
tion 21-139.” 9 These rights are limited and primarily consist
of the right to have access to records or other information
concerning the company’s activities.
Brenda has alleged that dissolution is proper under
§ 21-147(a)(4)(B) and (a)(5)(B). Both of those subsections
require an application to be made by a member, but Mark
ceased to be a member upon his death. By virtue of this disso-
ciation, Brenda is also not a member. As such, she cannot seek
dissolution under the plain language of the act.
Nor are we persuaded by Brenda’s contention that article
IX, section 2, of the operating agreement granted Mark the
power to transfer governance power, along with his economic
interest, in Rentals and Development. That section provides:
Any Member may transfer by gift or bequest all or any
portion of his or her interest in the Company to a spouse
or child of the transferring Member, or to a trust estab-
lished for the benefit of such spouse or child, or to an
existing Member of the Company upon written notice to
the Company, of such gift or bequest.
We read the plain language of this section of the agree-
ments as permitting the transfer of some or all of a member’s
or dissociated member’s interest in a limited liability company
by gift or bequest. Indeed, under Neb. Rev. Stat. §§ 21-140
and 21-141 (Reissue 2012) of the act, an interest in a limited
liability company is personal property that is transferable.
8
Neb. Rev. Stat. § 21-146(1) (Reissue 2012).
9
Neb. Rev. Stat. § 21-143 (Reissue 2012).
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But any interest that is transferred is accompanied by limited
rights, as discussed above. 10 We do not read the language of the
operating agreements as broadening the rights accompanying
the interest to include governance power or, indeed, any other
power beyond that permitted by the act.
We agree with appellees that Brenda lacks standing to seek
dissolution, and therefore, we find no merit to her assignment
of error on appeal.
2. Appellees’ Cross-Appeal
On cross-appeal, appellees assign 17 separate assignments
of error. Generally, appellees take issue with the fair market
value of Rentals and Development, and they assign error
to the district court’s interpretation of the operating agree-
ments regarding the calculation of the value, as well as the
district court’s adoption of one expert’s value over another
expert’s value. Appellees also argue that the court should
have ordered specific performance of the contract for the
purchase of Mark’s shares and that the court erred in finding
a breach of that contract and awarding Brenda damages for
the breach.
(a) Assignments of Error Related
to Fair Market Value
Appellees’ primary arguments on appeal center on the fair
market value of Rentals and Development. Appellees first
assign that the district court erred in finding that the operating
agreements set forth an unambiguous method for determining
the fair market value of Rentals and Development. In contrast,
Brenda argues that the operating agreements did set forth how
fair market value was to be determined—either the parties were
to agree to it or, in the absence of agreement, the parties were
to appoint an independent, third-party appraiser to calculate
that value.
10
See, § 21-141; Neb. Rev. Stat. § 21-143 (Reissue 2012).
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[5-9] A contract written in clear and unambiguous lan-
guage is not subject to interpretation or construction and
must be enforced according to its terms. 11 The court must
accord clear terms their plain and ordinary meaning as an
ordinary or reasonable person would understand them. 12 The
fact that the parties have suggested opposite meanings of a
disputed instrument does not necessarily compel the conclu-
sion that the instrument is ambiguous. 13 A court is not free to
rewrite a contract or to speculate as to terms of the contract
which the parties have not seen fit to include. 14 Extrinsic evi-
dence is not permitted to explain the terms of a contract that
is unambiguous. 15
The agreements provide in relevant part:
In the event that a Member dies . . . , the Company may
at its option repurchase the deceased . . . Member’s
interest in the Company for an amount equal to the fair
market value of such interest on the Member’s date of
death . . . . The fair market value of the Member’s inter-
est shall be as agreed in good faith by the Company and
the personal representative(s) of the deceased Member’s
estate . . . ; provided that if no such agreement has been
reached within ninety (90) days of the date of death . . . ,
then the fair market value shall be determined by an inde-
pendent and duly qualified appraiser mutually agreeable
to the Company and the estate of the deceased Member
. . . which shall equally bear equally [sic] the cost of
such appraisal. The fair market value of the deceased
Member’s interest . . . shall be payable by the Company
to the deceased Member’s estate . . . within one hundred
11
DH-1, LLC v. City of Falls City, supra note 6.
12
Ray Anderson, Inc. v. Buck’s Inc., 300 Neb. 434, 915 N.W.2d 36 (2018).
13
Id.
14
Id.
15
Id.
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twenty (120) days of the establishment of such fair
market value on the same payment terms as set forth in
Section 9.4 of this Agreement.
We disagree with appellees’ assertion that “fair market
value” is a term of art necessitating reliance on factors outside
of the agreements, and instead agree with Brenda’s reading of
the language of the operating agreements. The plain language
of the agreements clearly states that “the fair market value
shall be determined by an independent and duly qualified
appraiser mutually agreeable to the Company and the estate of
the deceased Member.” We need not rely on anything further to
interpret the agreements’ definition of “fair market value.” We
reject this assignment of error.
Appellees next assign that the district court erred in finding
that Galloway’s appraisal was the fair market value of Rentals
and Development for purposes of the operating agreements,
that he was independent at the time of his appraisal, that the
appraisal should be dated as of the end of the calendar year
preceding Mark’s death, and that the appraisal was substan-
tially completed as of November 30, 2015.
[10-12] The credibility of a witness is a question for the
trier of fact, and it is within its province to credit the whole
of the witness’ testimony, or any part of it, which seemed to it
to be convincing, and reject so much of it as in its judgment
is not entitled to credit. 16 A trier of fact is not bound to accept
expert opinion testimony. 17 The determination of the weight
that should be given expert testimony is uniquely the province
of the fact finder. 18 An appellate court will not reevaluate the
credibility of witnesses or reweigh testimony but will review
the evidence for clear error. 19
16
Fredericks Peebles v. Assam, 300 Neb. 670, 915 N.W.2d 770 (2018).
17
Id.
18
Id.
19
O’Connor v. Kearny Junction, supra note 5.
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The district court did not err in making these challenged
findings. First, the record shows that the parties agreed
Galloway should conduct the appraisal pursuant to the operat-
ing agreements. The record also supports the district court’s
finding that the parties were in agreement that the appraisal
should be done as of December 31, 2014.
In addition, evidence at trial showed that the appraisal was
originally received by the parties on November 30, 2015, but
that discussions were ongoing as to various issues related to
the appraisal. There is evidence that certain revisions to the
appraisal were made between November 30, 2015, and the end
of March 2016. The record supports the district court’s finding
that the appraisal was substantially complete by November 30
and that November 30 was appropriate from which to calcu-
late the 120-day period from which appellees had to comply
with the terms of the operating agreements for buying out
Mark’s interest.
The record is undisputed that Galloway eventually repre-
sented Brenda’s interests in various negotiations regarding
Rentals, Development, and BD. The record also shows that
at the time of the appraisal, Galloway was not representing
Brenda, and as such, there was evidence to support the court’s
finding that Galloway was independent.
We review the factual findings of the district court for clear
error. We find no such error in the district court’s finding that
Galloway’s valuation was the fair market value for purposes
of the operating agreements and in entering judgment accord-
ingly. Appellees’ assignments of error regarding fair market
value are without merit.
(b) Assignments of Error Related
to Breach of Contract and
Specific Performance
Appellees next assign that the district court erred in finding
that they failed to negotiate in good faith when they rejected
Galloway’s valuation and refused to close on the Rentals and
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Development sales only after the parties failed to reach an
agreement on BD. Appellees further argue that the court erred
in finding that they breached the agreement to buy Mark’s
interest. Again, we review the district court’s factual findings
for clear error and find none.
At trial, Doug testified that he and Brenda had a meeting
on November 11, 2015, concerning the value of BD at a time
when they were also in negotiations over the value of Rentals
and Development. Doug also testified that 5 minutes into the
meeting, Brenda said she was “done” and walked out.
But Brenda testified that her son had open heart surgery
in Omaha, Nebraska, on November 10, 2015, and that on
November 11, she was with him as he recovered at the hospi-
tal and was not at any meeting. The district court specifically
found Brenda more credible on this point. The court further
noted that the evidence supported Brenda’s claim that despite
having agreed on the value of Rentals and Development,
appellees rejected Galloway’s valuation and failed to close on
the purchase of Mark’s interests in Rentals and Development
only after the parties could not reach an agreement on the
value of BD.
We find no error in the district court’s conclusion that these
failures amounted to a failure to negotiate in good faith and a
breach of the contract to purchase Mark’s interests in Rentals
and Development.
Appellees also assign that the district court erred in not
ordering specific performance of the contract for purchase of
Mark’s shares. A court cannot award specific performance to
the breaching party unless the breach is minor or involves no
substantial failure of the exchange. 20 In this case, the court
specifically found that the breach was not minor and was a
substantial failure of the exchange. As noted above, the breach
involved failure to close on the sale after the terms of the
20
See Albers v. Koch, 185 Neb. 25, 173 N.W.2d 293 (1969).
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operating agreements regarding that sale were met. We agree
that this was not minor and was a substantial failure of the
exchange. This assignment of error is without merit.
(c) Remaining Assignments of Error
Appellees also contend that the district court erred in not
adopting the values of its expert as the values for Rentals and
Development.
Doug had an appraisal of Development performed for pur-
poses of trial with a valuation date of April 14, 2015. The
appraiser set an adjusted value of $860,000 for Mark’s one-
third interest in Development, with a total value of $4,019,019.
The appraiser set an adjusted value of $50,000 for Mark’s one-
half interest in Rentals, with a total value of $133,129.
There was no error in this determination. As noted above,
the record demonstrates that the parties agreed to be bound by
the fair market value as determined by Galloway. There is no
merit to this assignment of error.
Appellees next assign that the district court erred in order-
ing them to pay interest on the damages award as of March
30, 2016. Having concluded that Galloway’s fair market value
was binding; that his appraisal was substantially complete as of
November 30, 2015; and that appellees breached the contract
to purchase Mark’s interests, the district court did not err in
concluding that interest should accrue as of March 30, 2016,
or 120 days after the determination of fair market value as
required by the operating agreements. There is no merit to this
assignment of error.
In their final assignment of error, appellees assign that the
district court erred in awarding Brenda damages. The primary
basis of this assignment of error is appellees’ contention that
the district court erred in its reliance on Galloway’s appraisal.
We have previously found no merit to that assertion.
We additionally observe that appellees suggest Galloway’s
inclusion of the life insurance proceeds on Mark’s life was
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incorrect and that this affected the valuation of Rentals and
Development as discussed above, as well as Brenda’s ultimate
award of damages. But appellees did not assign as error any-
thing related to the inclusion of the life insurance proceeds,
perhaps because the district court agreed with that position
and excluded the value of the life insurance when determining
Brenda’s damages award. Accordingly, we find no merit to this
assertion or to appellees’ final assignment of error.
VI. CONCLUSION
The decision of the district court is affirmed.
Affirmed.
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202 F. Supp. 430 (1962)
Richard MARINER, Plaintiff,
v.
GREAT LAKES DREDGE & DOCK COMPANY, Defendant.
Civ. A. No. 37055.
United States District Court N. D. Ohio, E. D.
February 14, 1962.
*431 A. H. Dudnik, Cleveland, Ohio, for plaintiff.
Robert G. McCreary, Jr., Cleveland, Ohio, for defendant.
GREEN, District Judge.
Plaintiff filed suit to recover for personal injuries sustained on March 25, 1961, while in defendant's employ. His action is based on the Jones Act.
Defendant has filed a motion for production of the following items:
1) All medical records, including X-ray plates, of St. John's Hospital pertaining to plaintiff, covering the dates
(a) April 26May 6, 1935
(b) November 22November 23, 1940
(c) January 1January 11, 1942
(d) February 9February 19, 1946
(e) August 23August 28, 1951
(f) March 28, 1961
2) All medical records, including X-ray plates, of Ingleside Hospital, pertinent to plaintiff's stay in 1960.
3) All medical records, including X-ray plates, of Cleveland Clinic, pertinent to plaintiff's injury.
4) All records, etc., pertaining to medical treatment of plaintiff by
(a) Dr. Theodore J. Werb
(b) Dr. J. H. Fry
(c) Dr. Joseph Rossen
5) All personnel records, including medical records, pertinent to plaintiff during his service in the U. S. Marine Corps and U. S. Air Force.
Production is resisted by plaintiff, alleging that the items demanded are privieged and thus not subject to production under F.R.Civ.P. Rule 34, 28 U.S.C.A.:
"Upon motion of any party showing good cause therefor and upon notice to all other parties, and subject to the provisions of Rule 30(b), the court in which an action is pending may (1) order any party to produce and permit the inspection and copying or photographing, by or on behalf of the moving party, of any designated documents, papers, books, accounts, letters, photographs, objects, or tangible things, not privileged, which constitute or contain evidence relating to any of the matters within the scope of the examination permitted by Rule 26(b) and which are in his possession, custody or control * * *."
Counsel have provided the court with a copy of a deposition taken by the defendant of the plaintiff. The factual matter contained in defendant's supporting affidavit is found in the deposition, and reference will be made to the facts generally.
Plaintiff was working on one of defendant's scows on the evening of March 25, 1961. While engaged in the performance of his duties he was struck by a length of chain which had snapped loose from its moorings. The injury alleged, broadly speaking, is to the upper back and spine.
Following the accident, plaintiff consulted his family physician, Dr. Werb. He sent plaintiff to St. John's Hospital for X-rays. These were examined by Dr. Werb who concluded "nothing showed *432 up." Dr. Werb subsequently referred plaintiff to the Cleveland Clinic, where he was attended by Dr. Hartman. The deposition discloses that Dr. Dohn was a consulting physician during the course of treatment at the Clinic. At the Clinic plaintiff underwent nerve blocks and operative procedures on his spine.
Some years before, Dr. Rossen had removed a cyst from plaintiff's chest. He also treated plaintiff for a dislocated shoulder, X-rays of which were made at St. John's Hospital. Plaintiff had also been a patient at St. John's for about two weeks in 1951 with a broken jaw.
Plaintiff was hospitalized for a period in 1960 at Ingleside Hospital for treatment of a nervous condition. His physician at that time was Dr. Fry.
Plaintiff testified that he received a general discharge from the Marine Corps in 1950, after serving thirty days, due to his inability to adjust to military life. He stated that during this time he talked to a couple of doctors, but never had any treatment. He enlisted in the Air Force in 1951 and served until February 1953, when he was given an undesirable discharge.
Before the question of privilege is reached defendant must satisfy the burden of showing good cause and relevancy to this action, with regard to the items requested. It is not enough to say that the plaintiff's physical condition is in issue and the defendant should be entitled to every speck of matter relating thereto. It is the injury to the plaintiff's back we are concerned with here, and evidence regarding other portions of the body is not necessarily relevant.
There is no evidence before the court regarding items 1(a) (b) (c) (d). As to these, defendant has, therefore, failed to show relevance and good cause, as required under Rule 34.
From the facts, it may fairly be assumed that item 1(e) was the hospitalization due to plaintiff's broken jaw. The court sees no correlation between that occurrence and anything material to this action.
Regarding Dr. Rossen's records, it is clear that any information concerning removal of the cyst would be irrelevant. I also do not find the matter of the shoulder injury sufficiently relevant, although it does present a closer question.
The military records are not shown to contain any evidence relating to plaintiff's physical or mental condition. The affidavit recites that the records "May contain information relevant" to the issues of this case. There is nothing in plaintiff's testimony regarding his Air Force service and separation to support this contention. The Marine Corps separation for "inability to adjust" and plaintiff's allusion to talking to a couple of doctors, without any treatment, do not afford an adequate basis for a finding that the information in these records is relevant herein. I am of the opinion that a much stronger showing of relevancy should be made in order to require plaintiff to secure from the military authorities these records, which concededly are not presently in his possession.
The question of the Ingleside Hospital records and Dr. Fry are related. Plaintiff alleges that as a result of this accident, he has suffered "shock to his nervous system, which has manifested itself in nervousness, inability to gain normal rest and grief." It is quite clearly relevant to this claim whether plaintiff suffered from a similar nervous disorder in the past.
The records of Cleveland Clinic, St. John's Hospital of March 28, 1961, and Dr. Werb are all the outgrowth of this accident, and are therefore relevant.
It is my opinion that items 1(f), 2, 3, 4(a) and 4(b) all satisfy the requirements of Rule 34. This then brings us to the question whether they are privileged, within the meaning of that Rule.
There is no common-law rule of physician-patient privilege, and none has been accorded in the Federal Courts as a general evidentiary principle. Aetna Life Insurance Co. v. Gordy, 248 F.2d 129 (CA 8, 1957); Currie v. Moore McCormack Lines, Inc., 23 F.R.D. 660 (D.C. *433 Mass.1959); Collins v. Howard, 156 F. Supp. 322 (D.C.S.D.Ga.1957); Gretsky v. Basso, 136 F. Supp. 640 (D.C.Mass. 1955).
Plaintiff contends that by virtue of the provision of Ohio Revised Code Sec. 2317.02(A) the documents in question are privileged. The pertinent part of that statute provides:
"The following persons shall not testify in certain respects: (A) * * * or a physician, concerning a communication made to him by his patient in that relation, or his advice to his patient * * *."
Defendant urges that this physician-patient privilege, founded in state statute, does not apply in the Federal courts.
The Supreme Court in Connecticut Mutual Life Ins. Co. v. Union Trust Co., 112 U.S. 250, 5 S. Ct. 119, 28 L. Ed. 708 (1884), a diversity case, held that the New York physician-patient statute should be followed in the Federal courts. The ruling was based on Sec. 721 of the Revised Statutes, now 28 U.S.C. § 1652, declaring that the laws of the several states shall be regarded as rules of decisions in trials in the Federal courts. That decision was considerably prior to the Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, doctrine and the adoption of the Federal Rules of Civil Procedure, particularly Rule 43(a). However, it has never been expressly repudiated. Thus, while there may be some doubts as to its present applicability, the recognition of the principle of honoring state privilege statutes in the Federal courts should not be disregarded.
The decisions of this court in Scourtes v. Fred W. Albrecht Grocery Company, D.C., 15 F.R.D. 55 (1953), Humphries v. Pennsylvania R. R. Co., D.C., 14 F.R.D. 177 (1953), Brookshire v. Pennsylvania R. R. Co., D.C., 14 F.R.D. 154 (1953) and Panella v. Baltimore & Ohio R. R. Co., 14 F.R.D. 196 (1951) are cited by defendant in support of the theory that state privilege statutes are not controlling in the Federal courts. It was said in Scourtes:
"It has already been decided in this court, however, that the question of privilege, within the meaning of Rule 26 of the Federal Rules of Civil Procedure, 28 U.S.C.A., as applied to Rule 34, is a matter of procedure to be determined in accordance with federal principles."
This broad statement must be construed in the light of the Brookshire decision wherein the court recognized the rationale of 4 Moore's Federal Practice (2d ed.) Sec. 26.23(9), wherein it is stated:
"The Federal Courts, therefore, while respecting state statutes on privilege, should be free to give their own interpretation to the concept of privilege."
It thus appears that this court should recognize the basic privilege of state statute, while retaining a free hand with which to define its scope and draw its limitations.
The physician-patient privilege, founded in state statute, has been honored in most jurisdictions, State Mutual Life Assurance Co. v. Wittenberg, 239 F.2d 87 (CA 8, 1957); Galloway v. National Dairy Products, 24 F.R.D. 362 (D.C.E.D. Pa.1959); Schwartz v. Travelers Ins. Co., 17 F.R.D. 330 (D.C.S.D.N.Y.1953); Holbert v. Chase, 12 F.R.D. 171 (D.C. E.D.S.Car.1952); Tweith v. Duluth, M. & I. R. Ry. Co., 66 F. Supp. 427 (D.C. Minn.1946); Feldmann v. Connecticut Mutual Life Ins. Co., 57 F. Supp. 70 (D. C.Mo.1944).
The Ohio physician-patient privilege does not extend to hospital records. Perry v. Industrial Comm., 160 Ohio St. 520, 117 N.E.2d 34 (1954); Weis v. Weis, 147 Ohio St. 416, 72 N.E.2d 245, 169 A.L.R. 668 (1947). This is subject to the limitation that:
"Communications between physician and patient, not in the presence of third persons, for the purpose of diagnosis and treatment of the patient, if carried into a private hospital record or chart, remain confidential, and that such part of the *434 chart or record is inadmissible in evidence unless the privilege is waived." Weis v. Weis, supra.
Production will therefore be ordered of items 1(f), 2 and 3, in the manner hereafter set forth.
This leaves for determination items 4(a) and 4(b). They quite clearly come within the scope of the rule of privilege. Defendant claims that plaintiff waived the privilege by his testimony at the deposition. I fail to find a waiver under the instant facts. Harpman v. Devine, 133 Ohio St. 1, 10 N.E.2d 776, 114 A.L.R. 789 (1937) holds that testimony on cross-examination is not such a voluntary disclosure as to constitute a waiver.
However, although medical information may be privileged under the law, this privilege can, and in all probability will, be waived by the plaintiff at the time of the trial. If it is going to be waived at that time, then there is no reason why the defendant should not have this information prior to trial. The Supreme Court has stated:
"The deposition-discovery procedure simply advances the stage at which disclosure can be compelled from the time of trial to the period preceding it, thus reducing the possibility of surprise." Hickman v. Taylor, 329 U.S. 495, 507, 67 S. Ct. 385, 91 L. Ed. 451 (1946).
It is my opinion that this reasoning should apply here. I cannot perceive how the interests of justice could be served by permitting plaintiff to stand on his privilege now and abandon it at trial. The net result will still be disclosure of the facts. On this point it has recently been held:
"But this does not mean that the plaintiff can take advantage of the physician-patient privilege to prevent defendant from inquiring in pre-trial proceedings as to relevant and material matters necessary to the defense. If such matters were deferred to the trial the almost inevitable result would be an interruption of the trial when the privilege had been waived by the plaintiff so as to permit the defendant to prepare its defense." Awtry v. United States, 27 F.R.D. 399 (D.C.S.D.N.Y. 1961).
Privilege should be generally relied upon, not particularly taken advantage of. cf. Engl v. Aetna Life Ins. Co., 139 F.2d 469 (CA 2, 1943).
Based on the foregoing, I feel it appropriate that production be made at this time of that matter as to which it is contemplated any privilege will be waived at the time of trial.
Defendant's motion denied as to items 1(a) (b) (c) (d) (e), 4(c) and 5. Motion granted as to items 2 and 3. Plaintiff may, in good faith, delete therefrom any privileged matter as to which it is not contemplated the privilege will be waived at trial. Motion granted as to items 4(a) and 4(b), providing that it is contemplated that the privilege attached thereto will be waived at the time of trial.
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202 F. Supp. 811 (1962)
Mildred L. BUCHHEIT, as Administratrix of the Goods, Chattels and Credits of Jack Richard Buchheit, Deceased, Plaintiff,
v.
UNITED AIR LINES, INC., Trans World Airlines, Inc., and United States of America, Defendants.
United States District Court S. D. New York.
March 15, 1962.
*812 McGoldrick, Dannett, Horowitz & Golub, Gold & Lerner, New York City, for plaintiff.
Robert M. Morgenthau, U. S. Atty., S.D.N.Y., by Anthony H. Atlas, New York City, for defendants.
EDELSTEIN, District Judge.
This is an action for wrongful death arising out of the tragic mid-air collision between an aircraft of defendant United Air Lines, Inc. (United), and an aircraft of defendant Trans-World Airlines, Inc. (TWA) on December 16, 1960, over Staten Island, New York. Plaintiff is the administratrix of decedent, Jack Buchheit, who was a passenger on defendant TWA's airplane. In addition to the claims against the defendant airlines, plaintiff has joined the United States of America as a defendant. The alleged negligence of the United States is set forth in the complaint as the seventh and eighth causes of action. Jurisdiction of the claim against the *813 United States is founded on the Federal Tort Claims Act, 28 U.S.C. § 1346(b). The United States moves, pursuant to Rule 12(b) (3) F.R.Civ.P., 28 U.S.C., for an order dismissing the complaint against it for failure of the plaintiff to comply with the venue requirements of 28 U.S.C. § 1402(b).
Section 1402(b) provides that actions against the United States under 28 U. S.C. § 1346(b) "may be prosecuted only in the judicial district where the plaintiff resides or wherein the act or omission complained of occurred." The United States urges that neither of these requirements has been met by plaintiff.
Venue by Residence
Although not framed as such by either party, the real issue before the court is what is the residence of an administrator for purposes of venue in the federal courts. It is the government's contention that plaintiff's personal residence should control and that since she is a resident of Ohio, the Southern District of New York is not the proper venue. Plaintiff admits that in her individual capacity she is a resident of Wooster, Ohio. She urges, however, that for purposes of this action the place of appointment as administrator should govern.
The authorities on this point are meager, however the cases dealing with the citizenship of an administrator for purposes of diversity are legion. The general rule is that the personal citizenship of an executor or administrator controls for purposes of diversity jurisdiction; the citizenship of decedent as well as the place of appointment are not material. See cases collected in Annots. 136 A.L.R. 938 (1942); 77 A.L.R. 910 (1932). In wrongful death actions, the issue usually involves a choice between the personal citizenship of the administrator and the citizenship of the beneficiaries, depending upon who is the real party in interest. That issue in turn depends upon what status the administrator has under the state wrongful death statute being sued upon. "[W]here an administrator is required to bring suit under a statute giving a right to recover for death by wrongful act, and is, as here, charged with the responsibility for the conduct or settlement of such suit and distribution of its proceeds to the persons entitled under the statute and is liable upon his official bond for failure to act with diligence and fidelity, he is the real party in interest and his citizenship, rather than that of the beneficiaries, is determinative of federal jurisdiction." Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 186, 52 S. Ct. 84, 86, 76 L. Ed. 233 (1931); Annot. 77 A.L.R. 910 (1932); Annot. 136 A.L.R. 938 (1942).
The reasoning upon which the diversity rule is bottomed is equally applicable to determining residence for purposes of venue. And a review of the authorities relating to venue for an administrator, though they be scant, leads to the same conclusion. "The residence of an administrator of a decedent's estate is the same as his personal residence, even though the latter is in a state other than that in which he was appointed administrator." 3 Cyclopedia of Federal Procedure § 4.12 at 29 (3d ed. 1951) citing Doyle v. Loring, 107 F.2d 337 (6th Cir. 1939), cert. denied, 309 U.S. 686, 60 S. Ct. 808, 84 L. Ed. 1029 (1940); see 1 Moore, Federal Practice 1638 n. 7 (2d ed. 1960). In Kruskal v. United States, 178 F.2d 738 (2d Cir. 1950), plaintiffs, individual residents of the Southern District of New York, brought suit as Connecticut appointed executors to recover estate taxes paid. Venue was predicated upon 28 U.S.C. § 1402(a) which provides for venue only in the district where plaintiff resides. The court ruled that the suit was brought by plaintiffs in their individual, rather than fiduciary capacities, thus avoiding the need for ancillary letters in New York. But in dictum the court stated that "there is nothing to suggest departure from the usual rule that residence of the individual plaintiffs, rather than the situs of their estate, controls questions of federal jurisdiction, * * * [and] we think the plaintiffs have chosen the correct venue *814 for their action." 178 F.2d at 739. See also Friele v. Schaffer, 177 F. Supp. 654 (D.Mont.1959); Saunders v. United States, 59 F. Supp. 689 (D.N.H.1945); Craun v. United States, 78 F. Supp. 840 (M.D.Pa.1948).
Plaintiff argues that she is to be considered a resident of New York County by virtue of her appointment as administratrix by the Surrogates Court of New York County and the New York Civil Practice Act, § 182.[1] Her contention that the capacity of parties to sue under the Federal Tort Claims Act is governed by the law of the state where the injury occurred is correct. See Olson v. United States, 175 F.2d 510, 512 (8th Cir. 1949); Kunkel v. United States, 140 F. Supp. 591, 593 (S.D.Cal.1956). There is no dispute that plaintiff, as administratrix, is the proper party to bring this action. New York Decedent Estate Law, §§ 130, 133. But it does not follow that "therefore" CPA, § 182 governs her residence for purposes of venue in the federal courts. Section 182 is wholly procedural and is not binding on the federal courts. Moreover, by its very language it is limited to actions in the Supreme Courts of New York.[2]
The factors cited in Mecom, supra, as determining the real party in interest are present here. Plaintiff has been appointed administratrix by the Surrogates Court of New York County. She is conducting the action and is charged with the responsibility for distributing the proceeds under the New York Wrongful Death Act. Decedent Estate Law, § 133. Thus, the administratrix is the real party in interest and her personal residence controls. Cf. Rule 17, F.R.Civ.P., 28 U.S.C.A. But even if the choice were to be made on the theory that the beneficiaries are the real parties in interest, the result in this case would be the same. The sole beneficiary here is plaintiff, as the mother of decedent, Decedent Estate Law, § 133(6), and her residence is in Ohio.
Venue by Place of Negligent Act
An alternative venue is afforded a plaintiff under 28 U.S.C. § 1402(b) in the place "wherein the act or omission complained of occurred." The complaint alleges that the United States was negligent in the operation and control of the radar and other electronic directional facilities used by aircraft approaching Idlewild and LaGuardia airports. The air waves upon which the electronic impulses travel pass over the Southern District of New York. Since the complaint charges a failure in connection with the communications over these air waves, plaintiff contends that the places of collision *815 or crash are not necessarily where the accident, in a broad sense, happened. Counsel argues, in his affidavit, that "therefore, the negligence of the defendant occurred between the airport and the holding station by way of faulty communication over parts of the County of New York within this Court's jurisdiction." Plaintiff's theory, ingenious as it may seem, is untenable.
The complaint alleges that the negligent acts or omissions occurred in the operation and control of the radar, radio and electronic facilities used by the aircraft involved in this accident. It alleges further that the collision occurred while the airplanes were receiving advice, directions, information and radar services from the government facilities. The facilities maintained by defendant are located in Queens County or in New Jersey. If the United States was negligent in the operation and control of these facilities, that negligence occurred where the facilities existed. The collision between the two aircraft occurred over Staten Island and the airplane on which plaintiff's son was a passenger crashed in Staten Island. The other airplane crashed in Brooklyn. Thus, it is clear from the complaint that no act or omission complained of occurred in the Southern District of New York.
Request to Transfer
Plaintiff requests that the court, in the event it finds a failure to comply with 28 U.S.C. § 1402(b), transfer the action to the appropriate district where it might have been brought pursuant to 28 U.S.C. §§ 1404(a),[3] (c),[4] and 1406(a).[5] Plaintiff has made no showing which would warrant this court in transferring under 28 U.S.C. § 1404(a). Moreover, transfer pursuant to § 1404(a) is usually accomplished by motion on notice and here the defendant airlines have not been afforded any opportunity to be heard on plaintiff's application. Section 1404(c) is clearly inapplicable since the Southern District of New York is not subdivided into divisions. The availability of transfer under § 1406(a) depends upon whether § 1402(b) is jurisdictional in nature or whether it is merely a venue statute. The answer to that question is not entirely free from doubt.
"The United States, as sovereign, is immune from suit save as it consents to be sued, * * * and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Sherwood, 312 U.S. 584, 586, 61 S. Ct. 767, 769, 85 L. Ed. 1058 (1941); Mayer v. Wright, 251 F.2d 178, 179 (9th Cir. 1958). The Federal Tort Claims Act is a waiver of sovereign immunity and a consent to be sued under certain terms and conditions. See Yankwich, Problems Under the Federal Tort Claims Act, D.C., 9 F.R.D. 143 (1949). As one of these terms and conditions Congress has seen fit to limit the place where suits against the United States may be brought. Although § 1402(b) is listed under the venue provisions of the Judicial Code, it may be argued that it goes, in effect, to the court's power to entertain the claim against the United States. And where jurisdiction is lacking, transfer pursuant to 28 U.S.C. § 1406(a) is unavailable. See Goldlawr, Inc. v. Heiman, 288 F.2d 579 (2d Cir.) cert. granted, 368 U.S. 810, 82 S. Ct. 33, 7 L. Ed. 2d 19 (1961); Atlantic Ship Rigging Co. v. McLellan, 288 F.2d 589, 591 (3d Cir. 1961). On the other hand, it has been held that "the provisions of *816 28 U.S.C. § 1402(b) (1952) plainly relate to venue and not to jurisdiction * * *." Abramovitch v. United States Lines, 174 F. Supp. 587, 591-592 (S.D. N.Y.1959); cf. Hoiness v. United States, 335 U.S. 297, 301-302, 69 S. Ct. 70, 93 L. Ed. 16 (1948).
This issue need not be resolved here, for even if transfer were available, plaintiff has not shown where such transfer would be in the interests of justice. Plaintiff is not barred from recommencing this action against the United States in the appropriate district. The accident which forms the basis of this action occurred on December 16, 1960. Plaintiff is thus well within the two-year statute of limitations. 28 U.S.C. § 2401 (b).
Since plaintiff is neither a resident of this district, nor has she persuaded this court that an act or omission occurred in this district, she has failed to comply with 28 U.S.C. § 1402(b). Accordingly, the motion of the United States to dismiss is granted.
Settle order on notice within ten (10) days.
NOTES
[1] N.Y.C.P.A. § 182. "Place of trial at residence. An action in the supreme court not specified in the five following sections must be tried in the county in which one of the parties resided at the commencement thereof. An executor, administrator, trustee or receiver shall be deemed a resident of the county of his appointment, as well as the county in which he actually resides. If neither of the parties then resided in the state it may be tried in any county which the plaintiff designates for that purpose in the title of the summons or complaint. A party having or maintaining a residence in more than one county shall be deemed a resident of either county."
[2] A study of § 182 reveals even more clearly its inapplicability to a federal venue question. "Residence" as used in § 182 is not synonymous with "domicile". See Fromkin v. Loehmann's Hewlett, Inc., 16 Misc. 2d 117, 184 N.Y.S.2d 63 (S.Ct. 1958); Hammerman v. Louis Watch Co., 7 A.D.2d 817, 181 N.Y.S.2d 65 (3d Dept. 1958). And the language of the statute itself clearly contemplates that a party may have more than one residence. On the other hand, "residence" as used in the venue sections of 28 U.S.C. has been held to mean "domicile." See, e. g., Champion Spark Plug Co. v. Karchmar, 180 F. Supp. 727, 729 (S.D.N.Y.1960); United Nations Korean Reconstruction Agency v. Glass Products Methods, Inc., 143 F. Supp. 248, 250 (S.D.N.Y.1956); Koons v. Kaiser, 91 F. Supp. 511, 517 (S.D.N.Y.), mandamus denied, Koons v. Kaufman, 187 F.2d 1023 (2d Cir. 1950), cert. denied, 340 U.S. 942, 71 S. Ct. 505, 95 L. Ed. 679 (1951). And "an individual can be a resident of only one district." 1 Moore, Federal Practice 1483-85 (2d ed. 1960).
[3] "§ 1404. Change of venue. (a) For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
[4] "§ 1404. Change of venue. (c) A district court may order any civil action to be tried at any place within the division in which it is pending."
[5] "§ 1406. Cure or waiver of defects. (a) The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought."
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601 F. Supp. 87 (1984)
Herbert C. BROADFOOT, II, Trustee in Bankruptcy of Ace Contracting Company, Plaintiff,
v.
RELIANCE INSURANCE COMPANY, Defendant.
Civ. A. No. C83-404A.
United States District Court, N.D. Georgia, Atlanta Division.
December 24, 1984.
*88 A.L. Mullins, Jr., Atlanta, Ga., for plaintiff.
John D. Jones, Atlanta, Ga., for defendant.
ORDER
SHOOB, District Judge.
This is an action on an insurance contract. Plaintiff[1] alleges breach of contract in count one, bad faith in count two, and fraud in count three. Defendant Reliance Insurance Company has brought a renewed motion for summary judgment on the ground that suit was not commenced within twelve months of discovery of the loss, as required in the contract.
Ace Contracting Company, insured by Reliance under policy M1 41 90 90, suffered a loss during the period between January 12 and January 16, 1982, and had knowledge of the loss by January 19, 1982. After Ace filed a claim for the loss, Reliance investigated the claim; on June 3, 1982 Reliance denied that the claim was covered under the policy. On March 2, 1983, Ace filed its original complaint against Reliance for the loss.
Policy M1 41 90 90 includes, among other provisions, the following condition:
7. Suit. No suit, action or proceeding for the recovery of any claim under this Policy shall be sustainable in any court of law or equity unless the same be commenced within twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim....
Reliance seeks summary judgment because Ace did not institute suit within twelve months of January 19, 1982. Plaintiff contends that the time limitation on suit was waived and that any limitation period was tolled until Reliance denied the claim.
*89 Plaintiff relies chiefly upon Nicholson v. Nationwide Mutual Fire Insurance Co., 517 F. Supp. 1046 (N.D.Ga.1981), in his contentions about tolling. The court in Nicholson found no Georgia cases on point on the issue of tolling; it then proceeded to draw upon decisions of other states in concluding that a Georgia court would hold that a contractual limitation period is tolled between the insured's notice of loss and the insurer's formal denial of liability. 517 F.Supp. at 1051.
The Georgia Court of Appeals, in General Insurance Co. of America v. Lee Chocolate Co., 97 Ga.App. 588, 590, 103 S.E.2d 632 (1958), flatly rejected an argument that the contractual limitation period ran from the insurer's final denial of the claim. The court relied instead on the clear statement of the contract that the one-year limitation began to run from the date of the loss. Id.
In Modern Carpet Industries, Inc. v. Factory Insurance Association, 125 Ga. App. 150, 186 S.E.2d 586 (1971), the Georgia Court of Appeals upheld the dismissal of an action on the basis of a contractual limitation. The limitation clause required an action on the policy to be filed within a period of twelve months following the inception of the loss. The insurer accepted a late proof of loss, and it denied the claim 5½ months later; the insured filed suit 11 months after denial. The court noted that "there was a final denial well within the period and absolutely no evidence or explanation from plaintiff as to why it waited another 11 months to bring suit." 125 Ga.App. at 151, 186 S.E.2d 586. By upholding the dismissal, the court negated any rule that the contractual limitation begins to run from the date of the denial of coverage.
Likewise, in Pennsylvania Millers Mutual Insurance Co. v. Thomas Milling Co., 137 Ga.App. 430, 431, 224 S.E.2d 55 (1976), the court stated:
Where parties make by agreement a fixed and unqualified limitation that no suit or action on the policy shall be sustainable unless commenced within 12 months next after the incident giving rise to the claim, statutory limitations do not apply and the parties are bound to their contract as written. Under such a stipulation and limitation, the time is computed to begin from the date the incident occurred, and not from the accrual of the right of action under other stipulations of the policy.
Even though later decisions of the court of appeals seem to leave the question open, see e.g., Holland v. Independent Fire Insurance Co., 168 Ga.App. 761, 762, 310 S.E.2d 297 (1983); Looney v. Georgia Farm Bureau Mutual Insurance Co., 141 Ga.App. 266, 267, 233 S.E.2d 248 (1977), this Court must follow the expressions of that court in General Insurance, Modern Carpet Industries, and Pennsylvania Millers Mutual until contrary authority appears. Accordingly, this Court holds that, unless defendant waived the contractual limitation, that period began to run by January 19, 1982 and ended one year later.
Waiver of a contractual limitation on suit requires some affirmative promise, statement, or other act, or some actual or constructive fraud, to lead plaintiff into believing that defendant intended to enlarge on the limitation period contained in the contract. Johnson v. Georgia Farm Bureau Mutual Insurance Co., 141 Ga. App. 859, 861, 234 S.E.2d 693 (1977). Waiver is found where there are "investigations, negotiations, or assurances by the insurance company up to and past the period which would have led the insured to believe the limitation would not apply." Modern Carpet Industries, supra, 125 Ga.App. at 151, 186 S.E.2d 586.
Plaintiff claims that there are questions of material fact as to whether Ace's reliance on its relationship with its insurer may have lulled Ace into sleeping on its rights with regard to the suit limitation provision. Although the record reveals that negotiations were made to attempt a resolution, there is nothing to support any contention that Reliance made any affirmative statement or act to lead plaintiff to believe the limitation was waived; nor did *90 investigations or negotiations continue near to the end of the period. There is therefore no issue of material fact as to waiver of the contractual limitation. Because there is no genuine issue of material fact that plaintiff failed timely to file suit on the policy, defendant is entitled to summary judgment on counts one and two.
In the third count plaintiff alleges fraud in the insurance transaction. Specifically, plaintiff claims fraud in Reliance's use of ambiguous language, misrepresentations, and dissembling concerning the nature of coverage afforded under the policy, and in Reliance's denial of benefits from the policy. Reliance argues that plaintiff has failed to state a claim upon which relief may be granted and that the fraud count is barred by the contractual limitation.
A suit for fraud that induced a contract is not governed by the contractual limitation of suit "for the recovery of any claim under this policy": recovery for fraud is different from recovery on a contract claim.
Even though the fraud count is timely, the claim is barred by Parris & Son, Inc. v. Campbell, 128 Ga.App. 165, 196 S.E.2d 334 (1973). In that case the Georgia Court of Appeals stated that
representations alleged to have been made by the agent of the insurer, whether prior to or after the loss, to the effect that the insured was "fully covered" can amount to no more than an opinion as to coverage or a legal opinion as to the effect of the contract, which does not give rise to actionable fraud.
Id. at 168-169, 196 S.E.2d 334. Furthermore, use of ambiguous language in the contract and a denial of the claim, by themselves, do not constitute fraud. Reliance is therefore entitled to summary judgment on count three.
For the reasons stated above, the Court GRANTS the motion of defendant Reliance for summary judgment.
NOTES
[1] Ace Contracting Company instituted this action but was replaced as plaintiff by its trustee in bankruptcy.
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601 F. Supp. 845 (1985)
WIDGER CHEMICAL CORPORATION and Surface Treatments, Inc., Plaintiffs,
v.
CHEMFIL CORPORATION, Diversey Corporation, Diversey Wyandotte Corporation, and Diversey S.A. N.V., Defendants.
Civ. A. No. 84-CV-1618-DT.
United States District Court, E.D. Michigan, S.D.
January 29, 1985.
*846 Ernie L. Brooks, Mark A. Cantor, Brooks & Kushman, Southfield, Mich., for plaintiffs.
Raymond E. Scott, Kevin J. Heinl, Cullen, Sloman, Cantor, Grauer, Scott & Rutherford, P.C., Detroit, Mich., for Chemfil Corp.
Paul Sherr, Birmingham, Mich., for Diversey Corp., Diversey Wyandotte, and Diversey S.A. N.V.; Allan E. Lapidus, John R. Obiala, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., of counsel.
MEMORANDUM OPINION
FEIKENS, Chief Judge.
Plaintiffs, Widger Chemical Corporation and its subsidiary Surface Treatments, Inc., filed this antitrust and intentional interference with business relations action against defendants Chemfil Corporation, Diversey Corporation, Diversey Wyandotte Corporation and Diversey S.A. N.V. On November 9, 1984, a hearing was held on defendants Diversey S.A. N.V. and Diversey Corporation's motion to dismiss for want of personal jurisdiction. At that hearing, plaintiffs agreed to dismiss Diversey S.A. N.V. without prejudice. I denied Diversey Corporation's motion to dismiss. This opinion supplements that ruling.
I. BACKGROUND
Plaintiffs Widger Chemical Corporation (Widger) and its subsidiary Surface Treatments, Inc. (STI), sell specialty chemical products for treating and cleaning metals. Defendants Chemfil Corporation (Chemfil) and Diversey Corporation (Diversey) sell competing chemical products. Plaintiffs allege that Diversey and Chemfil have entered into "an overall scheme to stifle competition in [certain chemical p]roducts in the domestic and foreign market ..." in violation of the Sherman Act §§ 1, 2, 15 U.S.C. §§ 1, 2 (1982). Complaint ¶ 21. Plaintiffs also claim that defendants intentionally interfered with the advantageous business relations of Widger and STI. Complaint ¶ 32. Plaintiffs allege that four acts are part of, and manifest the alleged scheme to restrain trade: First, Diversey and Chemfil entered into a license agreement to distribute Chemfil products through Diversey's subsidiaries located *847 throughout the world. Second, Chemfil obtained a preliminary injunction against Widger and STI in a lawsuit filed in Oakland County Circuit Court (Chemfil v. Surface Treatments, Inc., No. 82-252363 (Feb. 16, 1984)). Chemfil filed suit against Widger, STI, and others, alleging, in part, theft of trade secrets and proprietary information. Widger and STI were enjoined from selling or licensing certain confidential formulas to third persons. Third, plaintiffs allege that representatives of Widger and Chemfil misrepresented the nature of the Oakland County proceedings as a suit for illegally breaking a patent to the Michigan Office of Economic Development (OED) in Belgium. That office promotes Michigan businesses throughout Europe. As a result of the misrepresentation, plaintiffs argue, OED refused to represent Widger. Finally, plaintiffs argue that while Inmont Corporation was negotiating for the purchase of Widger, counsel for Chemfil sent a letter to Inmont including a "copy of the Preliminary Injunction entered by the Court for your information." The preliminary injunction entered by the Court, however, differed from the one sent to Inmont. Diversey moves to dismiss, arguing that it has insufficient contacts with Michigan, and therefore, it is not subject to this Court's jurisdiction.
Diversey (defendant) pleads that it is a Canadian corporation which has never sold any products, been qualified or registered to do business, or maintained an office, telephone listing, or bank account in Michigan. The license agreement Diversey entered into with Chemfil concerns distribution of Chemfil products outside of the United States. Defendant further pleads that no Diversey shareholder, director, employee or agent has ever lived in Michigan, nor has Diversey ever owned any real or personal property located in Michigan. (Affidavit of John Pick, Senior Vice-President of Diversey). The license agreement between Diversey and Chemfil, however, was negotiated in Troy, Michigan, and by its own terms, is subject to the laws of Michigan. Pursuant to that license, Diversey makes payments to Chemfil in Michigan. (Deposition of Malcolm Pemberton). I must decide whether these contacts suffice for assertion of in personam jurisdiction over Diversey.
II. DISCUSSION
The in personam jurisdictional reach of a federal court hearing a federal question case, such as this one, may be determined by the law of the state in which the court sits. Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 376 n. 2 (6th Cir.1968); Mad Hatter, Inc. v. Mad Hatters Night Club Co., 399 F. Supp. 889, 890 (E.D.Mich.1975). The Michigan long-arm statute, Mich.Comp.Laws Ann. § 600.715 (West 1981), provides in part:
The existence of any of the following relationships between a corporation or its agent and the state shall constitute a sufficient basis of jurisdiction to enable the courts of record of this state to exercise limited personal jurisdiction over such corporation and to enable such courts to render personal judgments against such corporation arising out of the act or acts which create any of the following relationships:
(1) The transaction of any business within the state.
(2) The doing or causing any act to be done, or consequences to occur, in the state resulting in an action for tort.
This statute has been interpreted to reach to the extent permissible under the due process clause. Williams v. Garcia, 569 F. Supp. 1452, 1454 (E.D.Mich.1983); Chrysler Corp. v. Traveleze Industries, Inc., 527 F. Supp. 246, 249 (E.D.Mich.1981); Schneider v. Linkfield, 389 Mich. 608, 209 N.W.2d 225 (1973); Sifers v. Horen, 385 Mich. 195, 188 N.W.2d 623 (1971). I find that either subsection of the long-arm statute cited above can be applied constitutionally to obtain in personam jurisdiction over Diversey.
Where a state's long-arm statute reaches to the extent permissible under the due process clause, the relevant inquiry is whether exercise of personal jurisdiction is constitutional. Southern Machine, 401 F.2d at 377-78. The United States Supreme *848 Court has articulated the due process limitations on obtaining personal jurisdiction over non-resident defendants in three cases: Hanson v. Denckla, 357 U.S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958); McGee v. International Life Insurance Co., 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957); International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945). Based on this line of cases, the United States Court of Appeals for the Sixth Circuit articulated three criteria for determining the limits on in personam jurisdiction based on a single act[1]:
First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.
Southern Machine, 401 F.2d at 381. See also Welsh v. Gibbs, 631 F.2d 436, 439-40 (6th Cir.1980), cert. denied, 450 U.S. 981, 101 S. Ct. 1517, 67 L. Ed. 2d 816 (1981).
Initially, I note that the burden of establishing jurisdiction is on plaintiff. Weller v. Cromwell Oil Co., 504 F.2d 927 (6th Cir.1974). This burden, however, is relatively slight, and the Court must consider the pleadings and affidavits in the light most favorable to plaintiff. Welsh v. Gibbs, 631 F.2d 436, 439 (6th Cir.1980), cert. denied, 450 U.S. 981, 101 S. Ct. 1517, 67 L. Ed. 2d 816 (1981); Williams v. Garcia, 569 F. Supp. 1452 (E.D.Mich.1983). I now turn to consideration of each part of the test for establishing personal jurisdiction over defendant.
First, defendant has purposefully availed itself of the privilege of acting or causing consequences in Michigan. Defendant entered into a contract with a resident Michigan corporation, which alone, may satisfy the requirement of acting or causing consequences in the forum. See Chrysler Corp. v. Traveleze Industries, Inc., 527 F. Supp. 246, 250; Microelectronic Systems Corp. v. Bamberger's, 434 F. Supp. 168, 170-71 (E.D.Mich.1977). In addition, defendant negotiated this agreement, which by its terms is subject to Michigan law, in Troy, Michigan. See Health Care Industries, Inc. v. Logan Park Care Center, Inc., 573 F. Supp. 360 (S.D.Ohio 1983) (Defendant purposefully availed itself of the privilege of acting in Ohio because "[d]efendant was the one to initially contact [p]laintiff in Ohio, and several meetings to negotiate the contract took place between the parties, in Ohio ...."). Diversey also sent at least two letters to Chemfil, and makes periodic payments to Chemfil under the license agreement. Thus, defendant has purposefully "avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws." Hanson v. Denckla, 357 U.S. at 253, 78 S.Ct. at 1239.
Second, plaintiffs' antitrust and intentional interference with advantageous business relations claims arise out of defendant's activities in Michigan. Specifically, plaintiffs allege that the license agreement between Chemfil and Diversey is part of an overall scheme to restrain trade. As evidence of this scheme, plaintiffs cite a November 6, 1981, letter from Diversey's Vice-President for Marketing to Chemfil's President indicating that the parties would meet "to map out [their] strategy for introducing *849 Chemfil technology internationally." It is this strategy, of which the license is a part, which plaintiffs allege restrains trade.
Defendant argues, however, that plaintiffs' causes of action do not arise out of defendant's transaction of business in Michigan (Mich.Comp.Laws Ann. § 600.715(1)), specifically the license agreement, since plaintiffs are not a party to the contract which is the primary basis for jurisdiction. Defendant attempts to distinguish Traveleze Industries and Microelectronic Systems by arguing that in each of those cases, the plaintiff was a party to the contract upon which jurisdiction was based, and the lawsuit was brought to enforce that contract. Here, plaintiff is a stranger to the contract, and, defendant argues, there is no relation between the contract and this cause of action.
I reject defendant's contention that a cause of action arises out of a defendant's transaction of business in the forum only if the plaintiff is a party to any contracts defendant may enter. The "minimum contacts" analysis is concerned not with defendant's contacts with the plaintiff, but with the "relationship among the defendant, the forum, and the litigation." Shaffer v. Heitner, 433 U.S. 186, 204, 97 S. Ct. 2569, 2579, 53 L. Ed. 2d 683 (1977). See Hanson v. Denckla, 357 U.S. at 251, 78 S.Ct. at 1238 ("[A] defendant may not be called upon to [defend a suit in a foreign tribunal] unless he has had the `minimum contacts' with that State that are a prerequisite to its exercise of power over him." (emphasis added)); International Shoe, 326 U.S. at 319, 66 S.Ct. at 159 (The due process clause "does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties or relations."). Here, defendant negotiated and entered into a license agreement, and mapped out a strategy for introducing Chemfil products internationally. This transaction of business in Michigan allegedly injured plaintiffs. Thus, I find that plaintiffs' causes of action arise out of defendant's "transaction of ... business within" Michigan, Mich.Comp.Laws Ann. § 600.715(1).
Moreover, it is clear that defendant has done acts in Michigan "resulting in an action for tort." Mich.Comp.Laws Ann. § 600.715(2), and this provides an independent basis for this Court's jurisdiction. That section is applicable here because both plaintiffs' antitrust and intentional interference claims sound in tort. See Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1236 (6th Cir.), cert. denied, 454 U.S. 893, 102 S. Ct. 388, 70 L. Ed. 2d 207 (1981); Weinstein v. Norman M. Morris Corp., 432 F. Supp. 337, 344 (E.D.Mich.1977). When defendant negotiated and entered into a license agreement with Chemfil, it allegedly engaged in tortious activity in Michigan, and that activity has resulted in this lawsuit. Accordingly, defendant's contacts fall within the reach of § 600.715(2). I therefore conclude that defendant's contacts, whether viewed as transaction of business in Michigan or as acts resulting in an action for tort, satisfy the second part of the Southern Machine test.
Finally, I must determine whether "defendant [has] a substantial enough connection with [Michigan] to make the exercise of jurisdiction ... reasonable." Southern Machine, 401 F.2d at 381. This Court has previously asserted jurisdiction over nonresident defendants in two breach of contract actions based largely on the defendant's contract with a corporation located in Michigan, for the sale of goods manufactured in Michigan. Traveleze Industries; Microelectronic Systems. These cases rest in part on the view that when a defendant enters into a contract with a Michigan resident, the defendant has created an economic impact in Michigan which may justify assertion of jurisdiction. This notion of "economic impact" is quite broad and should not be equated with
the narrower concept of financial gain or loss in the forum.... The purposeful action test of Southern Machine, supra, 401 F.2d at 381, is not intended to require ... that to be subject to the personal jurisdiction of the courts of a state, a nonresident corporation must actively conduct an income-generating enterprise in that state. To the contrary, it is designed only
*850 "... to insure that the defendant has become involved with the forum state through actions freely and intentionally done. It seeks to avoid the assertion of jurisdiction in a situation where all contacts result entirely from a decision made by plaintiff as was the case in Hanson v. Denckla. [357 U.S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958)]" In-Flight Devices Corp., supra, 466 F.2d at 228.
Davis H. Elliot Co. v. Caribbean Utilities Co., 513 F.2d 1176, 1181-82 (6th Cir.1975).
Defendant contends, however, that unlike the defendants in Microelectronic Systems and Traveleze, it did not contract to purchase goods manufactured in Michigan, and any impact it had on Michigan is insufficient to justify assertion of jurisdiction. I disagree. Defendant freely and intentionally said "yes" to Michigan when it chose to negotiate and enter into the license agreement in Michigan, and to make payments under that agreement to Chemfil in Michigan. This activity clearly had an impact on this state's commerce. See Health Care Industries, Inc. v. Logan Park Care Center, Inc., 573 F. Supp. 360 (S.D.Ohio 1983) (West Virginia defendant had substantial enough connection with Ohio where defendant negotiated with plaintiff, an Ohio corporation, in Ohio, for the construction of a nursing home in West Virginia.); Hyatt International Corp. v. Inversiones Los Jabillos, C.A., 558 F. Supp. 932 (N.D.Ill.1982) (Jurisdiction over South American defendants was constitutional where defendants sent letters, made telephone calls, and traveled twice to Chicago to negotiate construction of hotels in South America.); Mercantile Financial Corp. v. UPA Productions, 551 F. Supp. 672 (N.D. Ill.1982) (Illinois Court's jurisdiction over California defendant was constitutional in a breach of a release action where the release was negotiated and executed in Illinois.).
Ultimately, whether defendant's contacts with Michigan are substantial enough to justify assertion of personal jurisdiction depends on this state's interest in resolving the present conflict. Once the first two criteria for jurisdiction have been satisfied, it is only the unusual case where that interest does not exist. Southern Machine, 401 F.2d at 384. These facts do not present that unusual case. Michigan certainly has an interest in providing a forum in which its residents may obtain relief from allegedly unlawful conduct pursued in Michigan. Accordingly, I find that plaintiffs have satisfied the third part of the three-part test for in personam jurisdiction.
III. CONCLUSION
I hold that plaintiffs have shown that defendant has the requisite minimum contacts with Michigan to justify this Court's assertion of personal jurisdiction over defendant. This conclusion rests on plaintiffs' satisfying the three-part test articulated in Southern Machine, and subsequent cases interpreting that decision. Accordingly, defendant's motion to dismiss for want of personal jurisdiction was denied following the hearing on this matter.
An appropriate order may be submitted.
NOTES
[1] A court may exercise jurisdiction over a nonresident defendant in one of two ways: First, a court may exercise "specific jurisdiction" over the defendant when the cause of action arises out of or relates to the defendant's contacts with the forum. Second, where the defendant carries on a continuous and systematic part of its business in the forum, a court may exercise "general jurisdiction" over a defendant for causes of action not arising out of or related to the defendant's contacts with the forum. See Helicopteros Nacionales de Colombia v. Hall, ___ U.S. ___, 104 S. Ct. 1868, 1872, 80 L. Ed. 2d 404 (1984). Since I hold that plaintiffs' causes of action arise out of defendant's contacts with Michigan, I need not consider whether defendant would be subject to this Court's general jurisdiction under Mich.Comp.Laws Ann. § 600.711 (West 1981).
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601 F. Supp. 1254 (1985)
Robert J. BILKA, Plaintiff,
v.
PEPE'S INC., Defendant.
No. 84 C 4065.
United States District Court, N.D. Illinois, E.D.
January 9, 1985.
*1255 Robert J. Bilka, pro se.
Lawrence Reich, Lederer, Reich, Sheldon & Connelly, Chicago, Ill., for plaintiff.
Mark L. Shapiro, Vincent A. Lavieri, Rudnick & Wolfe, Chicago, Ill., for defendant.
MEMORANDUM OPINION AND ORDER
ASPEN, District Judge:
Robert J. Bilka ("Bilka"), a former accountant for defendant Pepe's Inc. ("Pepe's"), has sued Pepe's under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. He alleges discrimination on the basis of his national origin: American. Pepe's has moved to dismiss the complaint *1256 for failure to state a claim for relief and for lack of jurisdiction. For the reasons stated below, the motion is granted in part and denied in part.
For the purposes of this motion to dismiss, we assume that the facts alleged in the complaint are true. We cannot grant the motion unless it appears beyond doubt that Bilka can recover on no set of facts consistent with his allegations. See Hishon v. King & Spalding, ___ U.S. ___, 104 S. Ct. 2229, 2233, 81 L. Ed. 2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957). With these standards in mind, we turn to the complaint.
Pepe's employed Bilka as an accountant from January 1981 through April 13, 1983, when it fired him, allegedly because he is an American. Beginning in August 1983, agents of Pepe's made threats to Bilka warning him against taking any legal action. The complaint does not disclose what the nature of these threats were. Apparently fearful, Bilka did not file a charge of discrimination with the Equal Employment Opportunity Commission ("EEOC") until February 9, 1984, 302 days following his discharge.
The complaint (as twice amended) contains three counts. Count I alleges national origin discrimination violating Title VII. Count II is a state law claim, alleging breach of contract for failure to give Bilka a 10% pay raise in 1983. Count III is a separate Title VII claim which alleges that Pepe's has given Bilka's prospective employers negative references since Bilka filed this action. This reprisal allegedly constitutes a separate violation of Title VII. Pepe's has moved to dismiss all three counts.
Count II must be dismissed because it obviously does not come within the Court's pendent jurisdiction. The breach of contract claim plainly does not derive from the same nucleus of operative facts as either Title VII claim. Accordingly, the Court lacks subject matter jurisdiction over that claim. See United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966).
Pepe's argues that Count I must also be dismissed because the EEOC charge upon which it is based was filed late. We disagree. It is undisputed that the charge was filed 302 days after the last act of discrimination. Normally, of course, in a "deferral-state" like Illinois, a federal court lacks jurisdiction over a Title VII claim if a claimant files an EEOC charge[1] later than the 300th day. See 42 U.S.C. § 2000e-5(c), (e).[2] However, as Pepe's concedes, this 300-day limit is not jurisdictional in the absolute, but rather is akin to a statute of limitations and as such "is subject to waiver, estoppel, and equitable tolling." Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 393, 102 S. Ct. 1127, 1132, 71 L. Ed. 2d 234 (1982). We think that the complaint's allegations of threatened reprisal, if true, estop Pepe's from raising the limitations issue. If, as we must assume, Pepe's made these threats, and if Bilka relied reasonably[3] on these threats in hesitating to go to the EEOC, then Pepe's must *1257 be estopped from invoking the limitations issue, which they allegedly created in the first place by their unlawful[4] threats of reprisal.
Pepe's does not confront the allegations of threats in connection with the limitations issue. Instead, it cites a test for equitable tolling set forth in Wolfolk v. Rivera, 729 F.2d 1114 (7th Cir.1984), and argues that Bilka does not satisfy this test; the limitations period should be tolled when a claimant is ignorant of facts supporting a discrimination charge because of "circumstances beyond his control." 729 F.2d at 1117; see also Vaught v. R.R. Donnelley & Sons Co., 745 F.2d 407, 410-11 (7th Cir.1984). We agree that Bilka does not satisfy the Wolfolk test, but Pepe's is firing at the wrong target. The issue here is estoppel, which focusses not on Bilka's knowledge of the facts underlying the discrimination but on Pepe's alleged misbehavior and Bilka's reliance on it. The Wolfolk test is relevant when the claimant argues that the statute must be tolled because he or she did not know of the facts. This ignorance may or may not toll the limitations clock, depending on whether "circumstances beyond the claimant's control," which might include some employer conduct, cloaked the relevant facts. But the Wolfolk test is not the only one which may toll the statute. Zipes makes clear that claimant may invoke a whole range of equitable arguments, including estoppel, to toll the statute. Estoppel was not an issue in Wolfolk. Moreover, Wolfolk involved federal employment discrimination, which allows for narrower exceptions to the limitations requirement. "[P]rivate employees may have a wider range of equitable exceptions at their disposal under Zipes ..." 729 F.2d at 1119. In sum, regardless of Bilka's knowledge of the alleged discrimination, Pepe's may be estopped from raising the limitations issue because of its own alleged misconduct.[5]
Defendant also argues that Count I must be dismissed for failure to state a claim upon which relief may be granted. Specifically, Pepe's argues that national origin discrimination against Americans is not actionable under Title VII. We disagree. Title VII outlaws, without exception, discrimination based on "national origin." 42 U.S.C. § 2000e-2(a)(1). We see no reason for reading an exception into the statute. The rare case when proved of an employer discriminating against an employee for being born an American is no less reprehensible than discriminating against one for being born an Italian, Mexican or any other nationality. To our knowledge, just one other reported case has addressed this issue directly. See Thomas v. Rohner-Gehrig, 582 F. Supp. 669, 674-75 (N.D.Ill. 1984) (Grady, J.).[6] We agree with the Thomas court's analysis, and its conclusion that "employment discrimination against American citizens based merely on country of birth, whether that birthplace is the United States or elsewhere, contradicts the purpose and intent of Title VII." 582 F.Supp. at 675.
*1258 Pepe's argues alternatively that the complaint does not allege enough facts to support the claim of national origin discrimination. Pepe's points out that in Thomas the complaint alleged that the defendant was a foreign-owned corporation, and that the plaintiffs were replaced by Swiss and German employees. In contrast, Bilka's complaint merely alleges that he was fired because of his "national origin American."[7] We believe that the complaint, while sparse, alleges enough to satisfy the notice pleading requirements of the Federal Rules. We note first that Thomas did not rely on the above factual allegations or discuss pleading requirements in reaching its holding. Moreover, we do not think the specific Thomas facts are necessary to recovery. It might be, for example, that an American employer would prefer foreign workers because of a bias that they are more docile than Americans.
More importantly, we recently denied a motion to dismiss a similar allegation of discrimination under the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq. See Oxman v. WLSTV, 595 F. Supp. 557, 562-63 (N.D.Ill.1984). In Oxman the plaintiff merely alleged that he had been fired "on the basis of his age which was 60." Id. at 562. The defendant argued that the complaint was deficient for not alleging the prima facie elements of McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S. Ct. 1817, 824, 36 L. Ed. 2d 668 (1973). We rejected this argument because proving the McDonnell-Douglas prima facie elements is not a prerequisite to recovery in every ADEA or Title VII case. Id. at 563. Applying the liberal notice pleading standard of Conley v. Gibson, supra, we denied the motion to dismiss because it was not beyond doubt that the plaintiff could prove no set of facts entitling him to relief. Id.
This case mirrors Oxman. Bilka's bare allegation of national origin discrimination is similar to Oxman's allegations of age discrimination. By demanding that Bilka allege that Pepe's is foreign owned or that Pepe's replaced him with a foreign employee, Pepe's essentially is arguing that Bilka allege the elements of a McDonnell-Douglas prima facie case. As we held in Oxman, that is not necessary under Title VII or Fed.R.Civ.P. 8(a)(2). This is not to say we approve of such naked pleading or that such brevity will always satisfy the Rules. But we think in this case that Pepe's has adequate notice on the general basis of Bilka's claim and should be able to prepare a response.[8]
Finally, Pepe's argues that Count III fails to state a claim for relief for retaliation. Count III alleges in part that "[s]ince the filing of his national origin *1259 charge with the EEOC and this lawsuit by [Bilka], [Pepe's] has retaliated against [Bilka] by giving negative references to employment agencies and prospective employers." Bilka alleges that this conduct violates § 704(a) of Title VII, 42 U.S.C. § 2000e-3(a). That section provides:
It shall be an unlawful employment practice for an employer to discriminate against any of his employees or applicants for employment ... because he has opposed any practice made an unlawful employment practice by this subchapter, or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this subchapter.
Title VII defines an "employee" as "an individual employed by an employer." 42 U.S.C. § 2000e(f). Pepe's concludes from these two sections that Bilka has not stated a claim for relief under § 704(a) because the alleged reprisals occurred long after the end of the employment relationship; thus, Bilka was no longer an "employee," and Pepe's could not have committed "an unlawful employment practice" under § 704(a). We disagree with this overly literal interpretation of the statute.
In Rutherford v. American Bank of Commerce, 565 F.2d 1162 (10th Cir.1977), the Court held that an employer violates § 704(a) when it gives bad references in retaliation for a former employee's assertion of Title VII rights. Rejecting the argument that § 704(a) does not apply to "former employees," the court concluded that "[t]he argument is based on a literal reading of the statute which, if followed, would result in a narrow interpretation of the statute not justified by its legislative history. A statute which is remedial in nature should be liberally construed." Id. at 1165. Other courts have also held that a former employee may state a claim for relief under § 704(a) based on reprisal. See Pantchenko v. C.B. Dolge Co., Inc., 581 F.2d 1052, 1055 (2d Cir.1978); Czarnowski v. Desoto, Inc., 518 F. Supp. 1252, 1257 (N.D.Ill.1981) (Flaum, J.). We think these opinions correctly interpret Title VII in a way which furthers its remedial purposes.[9] Section 704 was plainly written to protect employees who assert Title VII rights. If an employee asserts her rights after the relationship is over, her assertion nevertheless grows out of that relationship. "[T]he statute prohibits discrimination related to or arising out of an employment relationship, whether or not the person discriminated against is an employee at the time of the discriminatory conduct." Pantchenko, 581 F.2d at 1055. If Pepe's narrow reading of the statute were correct, employers could easily retaliate against former employees against whom they have discriminated. Section 704(a) was obviously written to prevent employers from chilling employees' assertions of Title VII rights, and the section should be read broadly to protect former employees as well as current employees.
In conclusion, Pepe's motion to dismiss Count II is granted. In all other respects, its motion to dismiss is denied. It is so ordered.
NOTES
[1] The fact that Bilka filed his charge with the EEOC rather than with the appropriate Illinois administrative agency does not bar this suit. In a "deferral" state like Illinois, the EEOC automatically refers charges to the state agency for initial consideration. See Zewde v. Elgin Community College, 601 F. Supp. 1237, 1240 (N.D.Ill. 1984); Stoecklein v. Illinois Tool Works Corp., 589 F. Supp. 139, 144 n. 7 (N.D.Ill.1984).
[2] As we have previously held in Zewde and Stoecklein, see n. 1 above, under Mohasco Corp. v. Silver, 447 U.S. 807, 814 n. 16, 100 S. Ct. 2486, 2491, 65 L. Ed. 2d 532 (1980) a plaintiff must file his EEOC charge within 240 days of the last discriminatory act in order to be sure of complying with the time requirements of the Act. The plaintiff may file the charge later than 240 days if the relevant state agency terminates its proceedings on or before the 300th day. See Zewde, 601 F.Supp. at 1241-1242. As noted below, Bilka filed his charge three weeks after the last alleged threat of retaliation. Thus, because we toll the statute on equitable grounds below, the charge was filed well within the 240-day Mohasco limit.
[3] As noted earlier, the complaint alleges that Pepe's began making threats in August 1983. The EEOC charge states that the threats continued until January 20, 1984, three weeks before Bilka filed his charge. At this point we do not know what the nature of these threats was. It might be that Pepe's threatened to "blacklist" Bilka, as Count III alleges they later did. While most of an employer's usual threatsfiring, demotion, pay-cutlose their bite after the employment ends, we cannot say as a matter of law that a former employer has no weapons with which he can reasonably frighten the former employee. See Rutherford v. American Bank of Commerce, 565 F.2d 1162, 1166 (10th Cir.1977) (recognizing that retaliation against former employees is both factually possible and actionable under Title VII).
[4] While these threats that occurred before the charge was filed possibly violate § 704(a) of Title VII, 42 U.S.C. § 2000e-3(a), Bilka has not set forth a separate claim for relief based on these threats.
[5] In so holding, we express no opinion on the facts. If no threats occurred, or if Bilka's reliance on them was unreasonable, then the limitations requirement may preclude this lawsuit. Because this threshold issue goes to our jurisdiction, we will dispose of it first. The parties should be prepared to proceed with this issue in an expedited manner.
[6] In Earnhardt v. Com. of Puerto Rico, 744 F.2d 1 (1st Cir.1984), the Court affirmed the district court's finding of national origin discrimination against an American. The case does not discuss the issue of whether Title VII forbids such discrimination.
[7] Bilka's EEOC charge states additional facts:
I was informed that I was being fired because I was too American. I was told I had too many American ideas, e.g.; (sic) union activities, teaching the Mexican workers English and how to file tax returns etc.
At this point we are not sure whether these facts amount to "national origin discrimination" as meant in Title VII. Being fired for having ideas which are labelled "American" is not the same as being fired for being born American. However, Title VII arguably can be read broadly to include such discrimination. We do not now express an opinion on this issue, pending further development of the facts surrounding Bilka's discharge.
[8] In Sutliff, Inc. v. Donovan Companies, Inc., 727 F.2d 648, 654 (7th Cir.1984), the Court commented that the very broad pleading standard of Conley "has never been taken literally." Yet after Sutliff was decided, the Supreme Court reiterated the Conley standard in Hishon, supra. Without citing Hishon, the Seventh Circuit followed Sutliff in Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984). One court in this district has criticized the Seventh Circuit's reading of Conley. See Biggus v. Southmark Mgt. Corp., 582 F. Supp. 883, 885 n. 3 (N.D.Ill.1984). Fortunately, we need not choose between the conflicting standards of the two higher courts, because we think the complaint satisfies the arguably narrower Sutliff test:
The complaint must contain either direct allegations on every material point necessary to sustain a recovery on any legal theory, even though it may not be the theory suggested or intended by the pleader, or contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial.
Sutliff, 727 F.2d at 654. The complaint directly alleges the ultimate fact of national origin discrimination. Given the strictures of Rule 11, we may fairly infer that evidence bolstering this allegation will be introduced at trial. See n. 7 above.
[9] Pepe's relies on Ferguson v. Mobil Oil Corp., 443 F. Supp. 1334, 1339 (S.D.N.Y.1978). Ferguson held that "blacklisting" a former employee is not prohibited under § 703(a) or (d) of Title VII, 42 U.S.C. 2000e-2(a), (d). The Court did not discuss whether such actions would violate § 704(a). To the extent Ferguson conflicts with our holding, we decline to follow it.
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33 F. Supp. 547 (1940)
UNITED STATES
v.
SCHAEFFER et al.
No. 327.
District Court, D. Maryland.
June 12, 1940.
*548 Bernard J. Flynn, U. S. Atty., and C. Warren Colgan, Asst. U. S. Atty., both of Baltimore, Md., for the United States.
William F. Laukaitis and Jacob A. Gross, both of Baltimore, Md., for defendants.
WILLIAM C. COLEMAN, District Judge.
This is a suit on a negotiable promissory note, and arises by reason of the National Housing Act of June 27th, 1934, and amendments thereto, 12 U.S.C.A. §§ 1702-1715, which creates a National Housing Administration, and provides that all powers of the Administration are to be exercised by a Federal Housing Administrator appointed by the President. Among other things, the Administrator is authorized and empowered to insure financial institutions, approved by him, against losses which they might sustain as a result of certain types of loans and advances of credit made by them for the purpose of financing alterations, repairs and improvements upon real property, including the purchase and installation of equipment and machinery. The Administrator is authorized to enter into loan agreements with such financial institutions, the funds to carry out the *549 provisions of the act to be obtained from the Reconstruction Finance Corporation, and, at the President's discretion, from any funds available to the President for emergency purposes.
The Heating & Plumbing Finance Corporation of New York City, hereinafter called the Finance Corporation, was accepted on August 10th, 1934, by the Administrator as eligible for credit insurance under the act. Although a separate corporate entity, it is a subsidiary of the American Radiator Company.
In the early part of 1935 the defendants desired to have a new oil burner heating system installed in their home in Baltimore and to take advantage of the credit provisions of the act. They were first approached by a representative of a company known as the Pioneer Oil Heating Company, by whom a proposal was made for the purchase of an oil burner, but no contract was actually signed by the defendants with this company, although defendants gave its representative a cash deposit of $10 and were further credited with the sum of $25 on the installation because of the fact that the electrical work was to be done by Mr. Schaeffer himself, one of the defendants. It appears that, about the same time, the American Radiator Company got interested in the situation through one F. R. Wagner, a local heating contractor, it being contemplated that defendants should purchase part of the equipment from the American Radiator Company. Accordingly, Wagner obtained the defendants' signatures to an application for credit under the act. In this application, which was signed in blank by the defendants and later filled out by a representative of the American Radiator Company, and which bears the printed statement that it has been "Approved by Federal Housing Administration," the estimated amount of credit required was stated to be $873.83. This same amount appears as the cost of installation in a proposal and specifications bearing the same date, namely, May 27th, 1935, which Wagner signed and which he got the defendants to sign in blank, and which also was later filled out by a representative of the American Radiator Company. This document contains a formal assignment also bearing the same date, namely, May 27th, 1935, from Wagner to the American Radiator Company of all of Wagner's right, title and interest in the contract of installation. At the same time a promissory note was taken from the defendants, which they both likewise signed in blank, and this document also was later filled out by a representative of the American Radiator Company so as to make its terms consonant with the contract of installation, that is to say, it was made payable for $873.83 to the order of Wagner, in thirty-six equal consecutive monthly installments, payable at the office of the Finance Corporation. It was postdated August 30th, 1935, because the above-mentioned contract for installation was under a "special summer plan" and it was contemplated that the completion of the work would run into the summer.
The note was indorsed by Wagner "without recourse"; was given to the American Radiator Company, which likewise indorsed it "without recourse", sent it to the Finance Corporation which discounted it, and the proceeds to the extent of $760, that is, the face value of the note less a finance fee of $113.83, were sent to the Baltimore Branch of the American Radiator Company and this company paid that amount to Wagner on June 13th, 1935. The "without recourse" indorsement of the American Radiator Company is by its treasurer and bears the following additional, printed notation, apparently all part of the one stamped indorsement: "This note is owned by the Heating & Plumbing Finance Corporation, New York, N. Y. L. H. Goldbright, Jr., Treas."
The Finance Corporation notified the defendants that it had purchased their note and to pay installments to it as they fell due. Upon maturity of the first installment of the note, namely, September 30th, 1935, the Finance Corporation duly presented it and pressed the defendants for payment, and continued to do so with respect to successive installments. However, they declined to make any payment, claiming that the installation of the heating plant had not been made according to specifications. Extensive correspondence ensued. The contractor, Wagner, made certain efforts to improve the operation of the heating equipment but the defendants remained unsatisfied. The note being long in default, on August 3rd, 1936, the Finance Corporation presented it for payment under its insurance agreement to, and received from the Administrator $804.81, representing the amount the Finance Corporation had paid Wagner, plus accrued interest and default charges; and the Finance Corporation indorsed *550 the note to the Administrator, this indorsement reading as follows: "All right, title and interest of the undersigned is hereby assigned (without warranty, except that the note qualified for insurance) to the Federal Housing Administrator acting in behalf of the United States of America." The Administrator in turn attempted to obtain payment of the note, but being likewise unsuccessful, the present suit was brought on September 2nd, 1939, that is, more than three years after the note became in default.
The aforegoing somewhat complicated facts, reduced to a brief summary and shorn of nonessentials, may be stated as follows: S signs, as maker, a note in blank and also a contract in blank, for work which W is to do for S. Then A, who is to supply materials to W for the work, takes both the note and the contract as assignee; gives no consideration for them, fills out the provisions of the contract and the note, the amount and terms of payment of the latter being consonant with the corresponding provisions of the former, and the note is postdated, making it payable to W. Before the note's maturity, W indorses it "without recourse" to A who, at the same time, indorses it "without recourse" to B, a subsidiary of A, and also surrenders the contract to B, and B pays W the amount of the note. After maturity, B, being unable to collect from S, assigns the note to F who, under an insurance arrangement with B, reimburses B for the then value of the note. F makes demand upon S for payment of the note, it is refused and F sues S.
In the above epitome of facts, for the sake of clarity and simplicity, F and S have been substituted for the plaintiff and the defendants, respectively, in the present suit.
It is the contention of the plaintiff, the United States, that it is entitled to recover from the defendants the face value of the note, including accrued interest and charges incident to default, because the Administrator, the present holder of the note and the agent of the Government, is to be treated as a holder in due course, since, although admittedly not a holder himself in due course because he purchased the note after maturity, he nevertheless acquired it from a party that, as is claimed by the Government, was at the time a holder in due course, namely, the Finance Corporation. Reliance is had upon Article 13, Section 77 of the Annotated Code of Maryland, which provides, "In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter."
Before considering the merits of the controversy, there are two questions which must be dealt with: (1) is the United States a proper party to this suit; that is to say, is it the real party in interest, or is the Federal Housing Administrator to be treated as a separate entity who should bring the suit in his own name; and (2) since more than the three-year period under the Maryland statute of limitations, Code Pub.Gen.Laws Md.1924, Art. 57, § 1, has elapsed between the date of default under the note sued on and the bringing of the present suit, is it barred by limitations?
While at the time of the hearing, a determination of both of these questions was not without some difficulty, on the then state of the reported decisions, they have been definitely answered by the very recent decision of the Supreme Court in United States v. Summerlin, 60 S. Ct. 1019, 84 L. Ed. ___, decided May 27th, 1940.
In the Summerlin case the question before the court was whether a Florida statute, limiting the time for filing claims against a decedent's estate, could deprive the United States of its right to enforce its claim on a note, insured just as was the note in the present case, under the Federal Housing Act. There, as here, the suit was brought in the name of the United States, the Federal Housing Administrator by a series of transactions having become the assignee of a claim against decedent's estate. The Supreme Court decided both questions in favor of the United States. That is to say, on the question of whether the United States was the proper party plaintiff, the court said, in an opinion by the Chief Justice: "The claim assigned to the Federal Housing Administrator acting on behalf of the United States became the claim of the United States, and the United States thereupon became entitled to enforce it. Act of June 27, 1934, 48 Stat. 1246 * * *." On the second question, namely, that of limitations, the Court said: "It is well settled that the United States is not bound by state statutes of limitation or *551 subject to the defense of laches in enforcing its rights. * * * The same rule applies whether the United States brings its suits in its own courts or in a state court. Davis, Director General of Railroads v. Corona Coal Co., 265 U.S. 219, 222, 223, 44 S. Ct. 552, 553, 68 L. Ed. 987. * * * When the United States becomes entitled to a claim, acting in its governmental capacity and asserts its claim in that right, it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement. Chesapeake & Delaware Canal Co. v. United States, 250 U.S. 123, 126, 127, 39 S. Ct. 407, 408, 63 L. Ed. 889."
Turning to the facts, we do not find support for the contention of the Government. The situation is governed by the law of Maryland, where the note was executed, and where also the contract was made and to be performed. We are unable to conclude that the Finance Corporation was a holder in due course. When the American Radiator Company acquired the note and accompanying contract from defendants, it did so as the Finance Corporation's agent, it gave no consideration for these documents, and the Finance Corporation, as the Radiator Company's principal, is charged with the same knowledge that the Radiator Company had of any defenses which the defendants had to the note, which were those of an original maker.
The entire character of the proceedings between the parties supports this conclusion. While a separate corporate entity to be sure, the Finance Corporation was nevertheless nothing but a subsidiary of the American Radiator Company through which the latter financed its contracts and consummated its insurance arrangements with the Government through the Federal Housing Administrator. This is borne out by a number of specific things, notably, the fact that the remittance voucher by which the contractor Wagner was paid, contains this recital, "Remittance from American Radiator Company, New York, N. Y." Also, the form of the indorsement of the Radiator Company already quoted, indicates that that company and the Finance Corporation were, for all practical purposes, one and the same. We will assume that no material significance attaches to the fact that the note was postdated, since one to whom an instrument so dated is delivered, acquires the title thereto as of the date of delivery, provided the postdating is not done for an illegal or fraudulent purpose. Annotated Code of Maryland, Article 13, Section 31.
Also, defendants have no complete legal defense merely by virtue of the fact that they may not have authorized the amount that was inserted in the note, since they signed the note in blank and by voluntarily giving general authorization for its completion and negotiation, are responsible for certain consequences arising therefrom, albeit, we cannot think the fact that, throughout the entire negotiations and the execution of the various rather complicated inter-related documents, little effort appears to have been made to acquaint the defendants with the precise nature of the agreement. On the other hand, it would be an unwarranted stretching of the definition of a holder in due course to attribute this status to the Finance Corporation, under the present circumstances. It is true that knowledge by the purchaser of a negotiable promissory note that the consideration therefor was an executory contract, does not prevent him from becoming a holder in due course, unless there has been a breach of the contract to the knowledge of such purchaser. Black v. Bank of Westminster, 96 Md. 399, 54 A. 88; Home Credit Co. v. Fouch, 155 Md. 384, 142 A. 515. But there is more to the present situation than that. Here, the Finance Corporation was, as we have seen, really the alter ego of the parent corporation, the Radiator Company, which was, in effect, an original party to the instrument, since it caused its preparation and represented the Finance Corporation in the negotiation which placed it in the hands of the Finance Corporation. Assuming that a payee may be, under certain circumstances, a holder in due course, clearly Wagner was not such, and the Finance Corporation was in his same position with respect to knowledge of original defenses that the defendants, makers of the note, might have. Wagner was, in effect, an employee or agent of the Radiator Company, and the latter stood in the same relation to the Finance Corporation and was, in effect, the seller of the equipment. So whether we consider the Radiator Company as the seller or as the agent of the Finance Corporation, its knowledge is imputed to the latter.
To decide that a holder under the present circumstances is a holder in due course, would be to say that every commercial credit or loan organization could, merely by *552 the creation of an affiliate or subsidiary, relieve itself of the ordinary obligations arising from contracts of this kind, and could compel payment in all instances, regardless of what the original understanding of the parties may have been. Such a ruling would, we think, be unconscionable. The mere suggestion of it contradicts the asserted purpose of the Government pursuant to which the note was given and the work undertaken, i. e., to assist, not to oppress, the homeowner.
We do not mean to be understood as suggesting that the rule here laid down should be extended to a case, unlike the present situation, where the finance corporation is, in fact, an independent agent. Such apparently was the situation disclosed in United States v. McCulloch, D.C., 26 F. Supp. 7, where the financing was done through a separate bank which was not, contrary to the situation of the Finance Corporation here, virtually in the position of the seller of the equipment.
The prerequisites of a holder in due course are that he has taken the instrument under the following conditions: "1. That it is complete and regular on its face. 2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact. 3. That he took it in good faith and for value. 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." Article 13, Annotated Code of Maryland, Sec. 70.
As has already been pointed out, the Finance Corporation was charged with the same knowledge as was Wagner and the Radiator Company because both of the latter were acting for and on behalf of the Finance Corporation. Wagner and the Radiator Company took the note when it was incomplete and irregular upon its face, and also being original parties to the instrument, they were charged with notice of any infirmities in the instrument, that is, they were subject, as original parties, to any defenses which the defendants, the makers, might have. In other words, the Finance Corporation really acquired the note from the defendants, the makers, and one who acquires negotiable paper from its maker or from one who is primarily liable for its payment takes it subject to all outstanding equities, when it is indorsed in blank or assigned by the payee even though such person acquires it before maturity. See Beeler v. Terrell, Tex.Civ.App., 245 S.W. 459. Thus, the Finance Corporation did not meet prerequisites (1) and (4) of the definition of a holder in due course, quoted above, when viewed from any angle.
The case of United States v. Hansett, D.C., 30 F. Supp. 455, is in point and reaches the conclusion here reached, although the United States was allowed to recover because the defendant's proof fell short of establishing a failure of adequate performance on the part of the contractor. On the point now under consideration, the court said, 30 F.Supp. at pages 457, 458:
"It would have been possible of course to direct judgment for the plaintiff in line with the decisions in United States v. McCulloch, D.C., 26 F. Supp. 7, and United States v. Hoover, D.C., 28 F. Supp. 556, but I have been unwilling to do that in view of the evidence in the case. The reason is that a terse ruling to the effect that the plaintiff's assignor was a holder in due course, so as to preclude the court from inquiring into anything beyond the question of title to the note, seemed to involve an unnecessarily technical ruling, and one which might conceivably ignore the essential equities of the situation.
"It is apparent that sections 91 and 96 of the Negotiable Instruments Law of the State of New York (Consol.Laws, c. 38) must be consulted to ascertain the legal status of the plaintiff's assignor; namely, the constituency of a holder in due course, and the rights of such a holder.
"As to the former, knowledge of the nature of the contract underlying the note, on the part of a discounting bank, may deprive the latter of its apparent status as a holder in due course; see Pellegrino v. First National Bank of Newark, N.Y., 210 A.D. 584, 206 N.Y.S. 716.
"Such knowledge was held to be absent in one of the cases upon which plaintiff relies: First National Bank & Trust Co. of Elmira v. Conzo, 169 Misc. 268, 7 N.Y.S.2d 334, 335, thus: `Nothing indicates that the plaintiff * * * knew or had any notice * * * that it (the note) was collateral to a contract with Moffat (the contractor) and payable only upon performance of that contract.'
"Credit Alliance Corporation v. Buffalo Linen Supply Co., 238 App.Div. 18,263 N. Y.S. 39, is thought not to point inevitably to the decision here to be made. That case holds that, since there was no breach of an *553 implied warranty of fitness of the article to pay the purchase price of which the notes were given, at the time the notes were purchased, the plaintiff is not chargeable with any infirmity, i. e., a subsequent breach of that warranty was no defense. That case involved a washing machine and the notes were given to secure its purchase price. It is necessary to assume that, when the court said the breach of warranty had not occurred when the notes were purchased, it did not mean that the machine was not already in existence, but only that it had not been tested.
"Here the contract was for labor and equipment, to be performed, delivered and installed so as to accomplish a known purpose, in the future, which the discounting agency knew precisely when it advanced its money; human experience teaches that such contracts are fruitful sources of controversy touching the nature and extent of performance, and the transaction must have been entered into with that prospect in view. If so much be conceded, it must follow that the Finance Corporation's status as a holder in due course may well be deemed to be putative merely, and subject to precise definition in the light of all attendant circumstances.
"The other cases cited by plaintiff are not helpful: Hulburt v. Walker, 258 N.Y. 8, 179 N.E. 34, and Riverside Bank v. Woodhaven Junction Land Co., 34 A.D. 359, 54 N.Y.S. 266, are not even remotely in point, and Gillette v. Hodge, 8 Cir., 170 F. 313, is based in part upon lack of notice to the plaintiff of the agreement between the original parties as to which a breach was asserted.
"The federal legislation giving rise to this and many similar transactions had for its object the encouragement of installment purchases of equipment on the part of those who might not otherwise be able to gratify their desires.
"Experience in other parts of the court has taught that frequently contracts were entered into by credulous purchasers with persons and enterprises utterly lacking in moral or financial stability; and that the latter promptly discounted their notes and then conveniently disappeared, or otherwise defaulted, leaving the purchasers, as makers of such notes, to deal only with the discounting agency or the government as insurer of the latter.
"Doubtless those observations have contributed to the conviction presently held, and which will persist until authoritative ruling is announced to the contrary, that it will not serve the ends of justice to dispose of such cases as this merely in response to the assertion that a financing agency is a holder in due course of such a note, and that the government, as its insurer, steps into its place."
The point was not considered in United States v. Lewin, D.C., 29 F. Supp. 512; United States v. Brooks, D.C., 28 F. Supp. 712; United States v. Nagorney, D.C., 28 F. Supp. 298, and United States v. Conti, D.C., 27 F. Supp. 756, relied upon by the Government.
Since, at the time of the trial, this court was largely influenced by a feeling that the claim of the Government was barred by the state statute of limitations; and the Supreme Court has since decided to the contrary in United States v. Summerlin, supra, this court will vacate the judgment heretofore entered in favor of the defendants, in accordance with Rule 6(c) and Rule 61 of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, and the case will be reassigned for trial on the merits. See Sprague v. Ticonic Bank, 307 U.S. 161, 169, note 9, 59 S. Ct. 777, 83 L. Ed. 1184; United States v. Clatterbuck, D. C., 26 F. Supp. 297.
At the trial already had, some testimony was introduced on behalf of the defendants, for the purpose of proving failure on the part of the contractor properly to perform the work for which the note in suit was given by the defendants. The Government, on behalf of the Federal Housing Administrator, is now entitled to an opportunity to present its evidence on this question; and the defendants are likewise entitled to an opportunity to present additional evidence in reply thereto.
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33 F. Supp. 337 (1940)
UNITED STATES
v.
ELDREDGE et al.
No. 1187.
District Court, D. Montana.
April 25, 1940.
*338 C. W. Buntin, Sp. Asst. Atty. Gen., of Glasgow, Mont., for plaintiff.
Ernest L. Walton, of Wolf Point, Mont., and John M. Kline and C. H. Roberts, both of Glasgow, Mont., for defendants.
Harrison J. Freebourn, Atty. Gen., for defendant and cross-complainant State of Montana.
PRAY, District Judge.
The above-entitled action was commenced on behalf of the Fort Peck Public Works Project in Montana to condemn for a public use the following described lands: Lots (6) and (9) of Section (28); Lots (1), (3) and (6) and the Northeast Quarter of the Northwest Quarter (NE¼ NW¼) of Section (33), Township (26) North of Range (41) East of the Montana Meridian, situated in Garfield County, State of Montana, containing 206.33 acres, more or less, including all the lands, if any, added thereto by reliction, alluvion or accretion.
The particular question before the court at this time arises over the issue of title to certain lands hereinafter mentioned and adjacent to above-described lands. The defendant Eldredge admitted that he was the record owner of the lands above described, and alleged ownership of the lands adjacent thereto as accretion lands which included an abandoned channel of the Missouri River consisting of 250 acres, more or less. The Missouri River had changed its channel by cutting across an ox-bow loop, thereby leaving the old channel of the river as abandoned land; this occurred in 1918. The State of Montana claimed the lands in dispute as accretion lands. From the evidence it appeared that after the survey of these lands the river had moved easterly, and that a large part of the lands in dispute had been formed prior to the entry of adjoining lands, above described, under the Homestead Laws. The plaintiff claimed a superior right to the lands lying easterly of the aforesaid homesteaded lands. It was ordered that the issue of title to the lands in dispute, the accretion lands, should be tried before the issue of compensation for the taking of the lands by plaintiff.
The official plat of survey of Township 26 North of Range 41 East of M. M., made in 1907 and approved by the Surveyor General August 11th, 1908, shows the tract of land lying easterly of the meander line marking the right bank of the river descending, which is in controversy. When the river occupied the old channel it flowed around a neck of land known as Peck's Point; it has since then become partially filled with soil. Several maps, plats and field notes were introduced in support of the plaintiff's contentions. Captain Ewart G. Plank, U. S. A., testified from a large map, consisting of an enlarged aerial photograph, with survey lines super-imposed, showing the identical lands in dispute, and also the homesteaded lands first above described, and owned by defendant Thomas H. Eldredge, which were surrounded by a red boundary line. The river is shown according to the survey of 1907, with meander lines shaded green, and the river as it existed in the 1918 avulsion, running easterly of the lands of defendant Eldredge, is shown by two orange lines marking the right and left bank descending. This plat was identified and received in evidence as Exhibit No. 6. A stand of timber appears on the plat in dark shadows, growing on the accretion lands lying easterly of the meander line and on the lands in dispute.
The original homestead entry was made on May 9th, 1916, under Sec. 2289, R.S., *339 43 U.S.C.A. § 161, for 160 acres by Herman A. Mielke, and embraced the lands first described, with the exception of Lot 6, which was taken under a homestead made May 9th, 1916, by Carrie Crider. The patent to Mielke conveyed 165.38 acres. He could take only 160 acres under that section of the statute, but the rule of approximation enabled him to take land in excess thereof where the lot or subdivision happened to be in excess, paying for it at the rate of $1.25 per acre. It appears from the evidence that when the survey of 1907 was being made the river was very high, and that the meander line was run as indicated on the map, and that east of it was a slough filled up by the high water in which vegetation was growing; there were other lands farther east, containing a growth of small trees, which were situated between the meander line, marking the easterly boundary of the above-described lands, and the channel of the river which was approximately half a mile eastwardly. The above facts were testified to by Roy L. Sheppard who was on the lands in dispute in the spring of 1907 while the lands were being surveyed and whose brother was then a member of the surveying party.
Chester T. Taylor testified that he resided in the vicinity of these disputed lands in 1913, had been on them and was familiar with them; that he was over them in October, 1913, and found them in place, all dry, with willows growing along the west part and no water in the slough; he testified to a conversation with Herman A. Mielke, homestead entryman aforesaid, in which the latter stated that he had investigated and found that he could not hold the accretion land, and that the only way he could get it would be to have it surveyed and then have someone else homestead it. Mr. Taylor further testified that the river cut the new channel when the ice broke up in the spring of 1918, and that the channel now referred to as the abandoned channel was the channel of the river at the time of the avulsion. Another witness was familiar with the lands from 1902 to 1913 and testified that the lands in question consisted of a large body of land formed and above low-water mark when he was on the lands in 1910; he estimated the amount of accretion lands at 200 acres. Another witness was familiar with the old river bank and the meander line and said that he cut hay on these lands in September, 1914, consisting of clover and willows, and had grazed his livestock thereon. Captain Plank testified that from his experience as an engineer that these lands were never an island; that the lands east of the meander line had been produced through the years by the normal process of accretion and that they did not come into existence by accretion to an island. The defendant Eldredge testified that he came to Montana in 1913. He was familiar with the lands in question as set forth on the map marked as Exhibit 6, and that he purchased the lands first described herein from Herman A. Mielke in 1928 for $10,000, giving a mortgage back to secure the balance of the purchase price; that the vendor told him at the time of the purchase that the lands here in dispute went with the patented lands, and that a part of the consideration was based upon acquiring the additional or accretion lands. There is very little, if any, contradictory evidence in the record.
There seems to be no question that practically all of the lands in dispute had been formed and were in place when Herman A. Mielke made his homestead entry. The deed from Mielke to Eldredge contained no reference to the lands in dispute nor to any lands other than those above described, nor did the mortgage for $7,000 which was given in return. Many authorities have been cited by counsel on both sides but the weight of authority seems to be decidedly in favor of plaintiff's contentions, and here the cases generally are found to be more directly in point. "The title of the government to land bordering on the Missouri river is subject to the same laws as that of a private owner. If it is cut off by erosion, the government loses title thereto, and, if accretions are added, they become a part of the government tract. Jefferis v. East Omaha Land Co., 134 U.S. 178, 10 S. Ct. 518, 33 L. Ed. 872." Bigelow v. Herrink, 200 Iowa 830, 205 N.W. 531, 533; 45 C.J. 526.
Under the rule adopted by the State of Montana the riparian owner owned land to the low-water mark of a navigable stream or lake, and in the present case the state can claim only that portion of the land in question occupied by the Missouri River at the time of the avulsion in 1918 extending to the ordinary low water mark. It is admitted that this river is a navigable stream. On the admission of the state to the union it became the owner of the bed of the river, subject to the *340 rights of the government in respect to navigation, as indicated by the following statutory provision: "The state is the owner of all land below the water of a navigable lake or stream * * *." Sec. 6674, R.C.M.1935. And the further provision as to the boundaries of water: "Except where the grant under which the land is held indicates a different intent, the owner of the land, when it borders upon a navigable lake or stream, takes to the edge of the lake or stream at low-water mark; when it borders upon any other water, the owner takes to the middle of the lake or stream." Sec. 6771, R.C.M.1935.
Counsel for plaintiff cited the rule that when a meander line is run where no lake or stream calling for it exists, or where it is established so far from the actual shore as to leave between its course and the shore such an excess of unsurveyed land as clearly indicates fraud or mistake, the meander line becomes the boundary and not the shore line, and if the United States has not parted with its right to the land left unsurveyed, it may cause a survey to be made and dispose of it as a part of the public domain. Security L. & E. Co. v. Burns, 193 U.S. 167, 24 S. Ct. 425, 48 L. Ed. 662; Niles v. Cedar Point Club, 175 U.S. 300, 20 S. Ct. 124, 44 L. Ed. 171; Id., 6 Cir., 85 F. 45; Lee Wilson & Co. v. United States, 245 U.S. 24, 38 S. Ct. 21, 62 L. Ed. 128.
If it should appear that at the time the homestead entry was made, a large body of land formed by accretion, existed between the meander line and the waters of the stream, and where to extend the lines of the entry and the lands conveyed by the patent to the waters of the stream would give the entryman an acreage largely in excess of what the patent calls for, while to limit the entry to the meander line will give the entryman all the accreage his patent calls for, and all that he paid for, then the court will construe the patent to mean that the meander line was intended to be the boundary line. Lammers v. Nissen, 154 U.S. 650, 14 S. Ct. 1189, 25 L. Ed. 562; Gleason v. White, 199 U.S. 54, 25 S. Ct. 782, 50 L. Ed. 87; Horne v. Smith, 159 U.S. 40, 15 S. Ct. 988, 40 L. Ed. 68. Another rule is cited as to the conclusiveness of the plat, to the effect that it is conclusive as to the government and individuals in respect to lands within the meander line; however, a claimant adverse to patentee may show that water course did not exist or that there was a large body of unsurveyed land beyond meander line at time of survey. Patentee may show that this was formed by accretion after his entry. French-Glenn Live Stock Co. v. Springer, 185 U.S. 47, 22 S. Ct. 563, 46 L. Ed. 800; Producers' Oil Co. v. Hanzen, 238 U.S. 325, 35 S. Ct. 755, 59 L. Ed. 1330; Kirwan v. Murphy, 189 U.S. 35, 23 S. Ct. 599, 47 L. Ed. 698; Security L. & E. Co. v. Burns, supra.
The purpose of running meander lines is not to define the boundaries of the tract of land but to define the sinuosities of the stream, and as a means of ascertaining the quantity of land in the fraction subject to sale and which is to be paid for by the purchaser. St. Paul & P. R. Co. v. Schurmeier, 7 Wall 272-286, 19 L. Ed. 74.
The question of adverse possession has been called to attention, but as it seems to the court it requires no further comment than reference to the case of Bode v. Rollwitz, 60 Mont. 481, 199 P. 688, 692, wherein the court held: "although the land in dispute was in the possession and occupancy of the plaintiff and her predecessor in interest for more than 30 years, neither she nor her grantor could secure title to it by adverse possession, use, or occupancy for any length of time as against the government."
According to the general rule a public grant is to be interpreted in favor of the grantor, whereas one between private parties is to be interpreted in favor of the grantee. Sec. 6852, R.C.M.1935; 50 C.J. 959; Story v. Woolverton, et al., 31 Mont. 346, 78 P. 589; United States v. Oregon & C. R. Co., et al., C.C., 186 F. 861; Oregon & C. R. Co. v. United States, 238 U.S. 393, 35 S. Ct. 908, 59 L. Ed. 1360.
Testimony was given concerning statements made by the original entryman, the defendant, Mielke, about the property in dispute. There is a special provision in the Montana Codes providing for the reception of evidence of that character: "Declarations of predecessor in title evidence. Where, however, one derives title to real property from another, the declaration, act, or omission of the latter, while holding the title, in relation to the property, is evidence against the former." Sec. 10510, R.C.M.1935; Delmoe v. Long, 35 Mont. 139, 154, 88 P. 778.
On the subject of alluvion the general rule appears in the language of the *341 statute which provides as follows: "Where, from natural causes, land forms by imperceptible degrees upon the bank of a river or stream, navigable or not navigable, either by accumulation of material or by the recession of the stream, such land belongs to the owner of the bank, subject to any existing right-of-way over the bank." Section 6820, R.C.M.1935.
The fact seems to have been established by proof that is clear and convincing that the lands here in question were in place at the time the survey was made and likewise when the adjoining lands were homesteaded, and that such area in controversy consisted of a large body of land between the meander line and the low-water mark of the river, and that consequently, the court being fully advised as to material facts and the law, such lands and the accretions thereto, should be held to be, actually were and continued to be, the property of the plaintiff herein, save and except the abandoned bed of the stream which belongs to the State of Montana. Granger v. Swart, 10 Fed.Cas. 961, No. 5685; Lammers v. Nissen, 154 U.S. 650, 14 S. Ct. 1189, 25 L. Ed. 562.
It therefore follows that the plaintiff is entitled to a decree in its favor quieting title to the lands in dispute.
Findings of fact and conclusions of law as provided by the rule, conforming to the foregoing views, will be signed by the court and filed herein.
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33 F. Supp. 206 (1940)
JACOBS, Acting Adm'r of Wage and Hour Division, Department of Labor,
v.
PEAVY-WILSON LUMBER CO., Inc.
No. 213.
District Court, W. D. Louisiana, Shreveport Division.
May 14, 1940.
*207 George A. McNulty, Gen. Counsel, of Washington, D. C., Conley Merchant, Regional Atty., of Birmingham, Ala., and Irving J. Levy, Asst. Gen. Counsel, C. Ira Funston, Senior Atty., Bessie Margolin, and David S. Polier, all of Washington, D. C., for plaintiff.
John B. Files, of Shreveport, La., J. W. Peavy, of Lufkin, Tex., and Maguire, Voorhis & Wells, of Orlando, Fla., for defendant.
PORTERIE, District Judge.
On December 13, 1939, plaintiff filed his complaint in this court seeking to enjoin defendant from violating the provisions of Sections 15(a) (1) and 15(a) (2) of the Fair Labor Standards Act of 1938 (Act of June 25, 1938, c. 676, 52 Stat. 1060, U. S.C., Title 29, Sec. 201, et seq., 29 U.S.C.A. § 201 et seq.).
Defendant is a corporation organized and existing under the laws of the State of Louisiana, and maintaining its principal office in this state. Its manufacturing plant and main sales office are located at Holopaw, Osceola County, Florida, where it owns and operates a large sawmill and planing mill, a lumber yard and various timber lands, and is engaged in the general lumber manufacturing business. It employs approximately four hundred employees and ships a substantial portion of its manufactured lumber in interstate commerce.
The Act (Section 6) requires the payment of a minimum wage (twenty-five cents an hour during the first year after October 24, 1938, and thirty cents for the next six years) to all employees engaged in interstate commerce or in the production of goods for interstate commerce. It prohibits the shipment in interstate commerce of goods produced in violation of the Act, Section 15(a) (1), and makes unlawful the failure to pay the minimum wage to persons engaged in interstate commerce *208 or the production of goods therefor. Section 15(a) (2).
The Act defines "wage" to include the "reasonable cost, as determined by the Administrator," to the employer of furnishing employees with "board, lodging, or other facilities, if such board, lodging, or other facilities are customarily furnished by such employer to his employees". Section 3(m).
On October 20, 1938, the Administrator of the Wage and Hour Division, acting under and pursuant to the authority conferred upon him by Section 3(m) of the Act, issued certain regulations fixing the method of determining the reasonable cost of furnishing the above-mentioned facilities (Regulations, Part 531). The regulations provide that the reasonable cost of company houses rented to the employee and of any other capital investments used in furnishing board, lodging, or other facilities, is to be the cost of operation and maintenance, including depreciation due to wear and tear, plus a reasonable allowance (not more than 5½ per cent.) for interest on the depreciated amount of capital invested. It is further provided that reasonable cost shall in no case exceed the fair rental value of the property, and shall not include a profit to the employer.
Defendant has filed motions which incorporate (1) a motion to strike the allegations of the complaint relating to the regulations issued pursuant to Section 3(m) of the Act; (2) a motion to dismiss the complaint, and (3) a motion for a bill of particulars.
The motion to strike is made on the ground that the allegations in question are immaterial for the reasons that: (1) Section 3(m) of the Act, for many reasons, is not applicable to the deductions described in the complaint; (2) if Section 3(m) is held applicable, it is unconstitutional; and (3) there has been no valid determination of reasonable cost by the administrator pursuant to Section 3(m) of the Act.
The motion to dismiss is based, primarily, on the claim that the pertinent provisions of the Fair Labor Standards Act are unconstitutional; or, secondarily, on the claim that the administration of the Act, in many ways, is unconstitutional.
The motion for a bill of particulars requests that plaintiffs supply, among other things, the names of the employees from whose wages illegal deductions are claimed to have been made; the names of the employees engaged in the production of goods for interstate commerce; the amounts of wages paid to each of them, and the dates of such payments; the particular amounts of the illegal deductions; and other data similar in character.
It is necessary, though it adds to the length of this opinion, to quote the most important articles of the petition of the plaintiff. A reading of them will disclose very few facts alleged, but many conclusions urged. This gives trouble in ruling on the motion to dismiss, because, with this generality of conclusion, the mind is left free to enter into scores of factual contingencies. The elaboration of these contingencies has taken eighty pages in the briefs of plaintiff and two hundred eighty-eight pages in the briefs of defendant. No criticism is here implied of the defendant's counsel, for their objections are well and legally deduced. The objections are numerous, and, because of the paucity of facts in the plaintiff's petition, the defendant is enabled to conjecture at will as to suppositional facts. But for the one fact alleged the giving of scrip in payment of wages, discounted at 10% for cash, bringing the wage below the minimum the court should dismiss the petition.
Here are the articles:
"V. That in connection with its business of manufacturing and producing lumber the defendant, commencing with the workweek beginning October 24, 1938, the effective date of the Act, and continuing to the date hereof, paid to many of its employees while engaged in the production of goods for interstate commerce and in processes and occupations necessary to such production, certain cash wages and deducted therefrom certain charges for the furnishing of homes as living quarters for said employees, for medicines and drugs, and for clothing, groceries, foodstuffs, meats, and other commodities, all of which were customarily furnished by said defendant to said employees."
"VII. That the amounts deducted by the defendant for such services, facilities, and commodities were far in excess of the reasonable cost of furnishing the same to said employees within the meaning of the Act and the regulations above set forth and were grossly excessive, exorbitant, oppressive and unreasonable and included in such charges a substantial profit to said defendant, and such grossly excessive, exorbitant, oppressive and unreasonable *209 charges and deductions were calculated to and actually did result in the payment to said employees while so engaged in the production of goods for interstate commerce and in processes and occupations necessary to such production of wages of less than 25 cents an hour for the period commencing on October 24, 1938, and continuing to October 23, 1939, and less than 30 cents an hour for the period from October 24, 1939, down to date, in violation of Sections 6 and 15(a) (2) of the Act.
"VIII. That during the workweeks beginning October 24, 1938, the effective date of the Act, and continuing to June 1, 1939, the defendant issued scrip to many of its employees while engaged in producing goods for interstate commerce, and in processes and occupations necessary to such production, in lieu of cash wages, which scrip coupons were discounted directly by said defendant at 90 percent of its face value and at 90 percent of the amount due to said employees as wages.
"IX. That since June 1, 1939, and down to the date hereof, the defendant has continued to discount said scrip at 90 percent of its face value and at 90 percent of the amount due to said employees as cash wages through a company barber as an intermediary and as a dummy in connection therewith, at a substantial profit to the defendant herein.
"X. That the issuance of said scrip and the discounting thereof by the defendant was calculated to and actually did result in the payment to many of its employees for work done while actually engaged in the production of goods for interstate commerce, and in processes and occupations necessary to such production, of wages which were less than 25 cents an hour for the period commencing October 24, 1938, down to and including October 23, 1939, and less than 30 cents an hour for the period commencing October 24, 1939, down to date, in violation of Sections 6 and 15(a) (2) of the Act.
"XI. That the defendant has violated Section 6 of the act in that by means of all of the foregoing unreasonable, exorbitant and oppressive deductions for housing accommodations, drugs, medicines, and other commodities and by the issuance of scrip in lieu of cash wages, and by discounting said scrip as above set forth, the defendant has paid to its employees while engaged in the production of goods for interstate commerce and in processes and occupations necessary to such production, wages which are less than 25 cents an hour for the period commencing October 24, 1938, down to and including October 23, 1939, and wages which are less than 30 cents an hour for the period from October 24, 1939 to date."
The Supreme Court of the United States in the case of West Coast Hotel Company v. Parrish, 300 U.S. 379, 57 S. Ct. 578, 81 L. Ed. 703, 108 A.L.R. 1330, upheld the constitutionality of a minimum wage law for women. The Fair Labor Standards Act of 1938, the constitutionality of which is at issue here, is the establishment of a minimum wage and a maximum hour law for all who labor. The reasoning, by Chief Justice Hughes, in the West Coast Hotel v. Parrish case, is so clearly applicable and all-encompassing in support of the constitutionality of the Fair Labor Standards Act that we quote from the decision generously:
"* * * The Constitution does not speak of freedom of contract. It speaks of liberty and prohibits the deprivation of liberty without due process of law. In prohibiting that deprivation, the Constitution does not recognize an absolute and uncontrollable liberty. Liberty in each of its phases has its history and connotation. But the liberty safeguarded is liberty in a social organization which requires the protection of law against the evils which menace the health, safety, morals, and welfare of the people. Liberty under the Constitution is thus necessarily subject to the restraints of due process, and regulation which is reasonable in relation to its subject and is adopted in the interests of the community is due process.
"This essential limitation of liberty in general governs freedom of contract in particular. More than twenty-five years ago we set forth the applicable principle in these words, after referring to the cases where the liberty guaranteed by the Fourteenth Amendment had been broadly described.
"`But it was recognized in the cases cited, as in many others, that freedom of contract is a qualified, and not an absolute, right. There is no absolute freedom to do as one wills or to contract as one chooses. The guaranty of liberty does not withdraw from legislative supervision that wide department of activity which consists of the making of contracts, or deny to government *210 the power to provide restrictive safeguards. Liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community.' Chicago, Burlington & Quincy R. Co. v. McGuire, 219 U.S. 549, 565, 31 S. Ct. 259, 262, 55 L. Ed. 328.
"This power under the Constitution to restrict freedom of contract has had many illustrations. That it may be exercised in the public interest with respect to contracts between employer and employee is undeniable. Thus statutes have been sustained limiting employment in underground mines and smelters to eight hours a day (Holden v. Hardy, 169 U.S. 366, 18 S. Ct. 383, 42 L. Ed. 780); in requiring redemption in cash of store orders or other evidences of indebtedness issued in the payment of wages (Knoxville Iron Co. v. Harbison, 183 U.S. 13, 22 S. Ct. 1, 46 L. Ed. 55); in forbidding the payment of seamen's wages in advance (Patterson v. The Bark Eudora, 190 U.S. 169, 23 S. Ct. 821, 47 L. Ed. 1002); in making it unlawful to contract to pay miners employed at quantity rates upon the basis of screened coal instead of the weight of the coal as originally produced in the mine (McLean v. Arkansas, 211 U.S. 539, 29 S. Ct. 206, 53 L. Ed. 315); in prohibiting contracts limiting liability for injuries to employees (Chicago, Burlington & Quincy R. Co. v. McGuire, supra); in limiting hours of work of employees in manufacturing establishments (Bunting v. Oregon, 243 U.S. 426, 37 S. Ct. 435, 61 L. Ed. 830, Ann. Cas.1918A, 1043); and in maintaining workmen's compensation laws (New York Central R. Co. v. White, 243 U.S. 188, 37 S. Ct. 247, 61 L. Ed. 667, L.R.A.1917D, 1, Ann.Cas.1917D, 629; Mountain Timber Co. v. Washington, 243 U.S. 219, 37 S. Ct. 260, 61 L. Ed. 685, Ann.Cas.1917D, 642). In dealing with the relation of employer and employed, the Legislature has necessarily a wide field of discretion in order that there may be suitable protection of health and safety, and that peace and good order may be promoted through regulations designed to insure wholesome conditions of work and freedom from oppression. Chicago, Burlington & Quincy R. Co. v. McGuire, supra, 219 U.S. 549, at page 570, 31 S. Ct. 259, 55 L. Ed. 328.
"The point that has been strongly stressed that adult employees should be deemed competent to make their own contracts was decisively met nearly forty years ago in Holden v. Hardy, supra, where we pointed out the inequality in the footing of the parties. We said (Id., 169 U.S. 366, 397, 18 S. Ct. 383, 390, 42 L. Ed. 780):
"`The legislature has also recognized the fact, which the experience of legislators in many states has corroborated, that the proprietors of these establishments and their operatives do not stand upon an equality, and that their interests are, to a certain extent, conflicting. The former naturally desire to obtain as much labor as possible from their employés, while the latter are often induced by the fear of discharge to conform to regulations which their judgment, fairly exercised, would pronounce to be detrimental to their health or strength. In other words, the proprietors lay down the rules, and the laborers are practically constrained to obey them. In such cases self-interest is often an unsafe guide, and the legislature may properly interpose its authority.'
"And we added that the fact `that both parties are of full age, and competent to contract, does not necessarily deprive the state of the power to interfere, where the parties do not stand upon an equality, or where the public health demands that one party to the contract shall be protected against himself.' `The state still retains an interest in his welfare, however reckless he may be. The whole is no greater than the sum of all the parts, and when the individual health, safety, and welfare are sacrificed or neglected, the state must suffer.'" 57 S.Ct. 581-583.
"There is an additional and compelling consideration which recent economic experience has brought into a strong light. The exploitation of a class of workers who are in an unequal position with respect to bargaining power and are thus relatively defenseless against the denial of a living wage is not only detrimental to their health and well being, but casts a direct burden for their support upon the community. What these workers lose in wages the taxpayers are called upon to pay. The bare cost of living must be met. We may take judicial notice of the unparalleled demands for relief which arose during the recent period of depression and still continue to an alarming extent despite the degree of economic recovery which has been achieved. It is unnecessary to cite official statistics to establish what is of common knowledge through the length and breadth of the land. While in the instant case no *211 factual brief has been presented, there is no reason to doubt that the state of Washington has encountered the same social problem that is present elsewhere. The community is not bound to provide what is in effect a subsidy for unconscionable employers. The community may direct its law-making power to correct the abuse which springs from their selfish disregard of the public interest." 57 S. Ct. 585.
The minimum wage at twenty-five cents per hour, forty hours per week, is forty dollars per month; at thirty cents per hour, the monthly wage is forty-eight dollars a bare subsistence.
Justice Hughes is dealing with the limitation upon state action under the Fourteenth Amendment. The instant case deals with the limitation imposed by the Fifth Amendment upon federal legislation. In United States v. Rock Royal Co-Op., 307 U.S. 533, 569, 59 S. Ct. 993, 1011, 83 L. Ed. 1446, decided June 5, 1939, the Court said: "The authority of the Federal government over interstate commerce does not differ in extent or character from that retained by the states over intrastate commerce."
In Nebbia v. New York, 291 U.S. 502, 524, 525, 54 S. Ct. 505, 510, 78 L. Ed. 940, 89 A.L.R. 1469, the Court asserted: "The Fifth Amendment, in the field of federal activity, and the Fourteenth, as respects state action, do not prohibit governmental regulation for the public welfare."
We hold, therefore, that the Fair Labor Standards Act of 1938, as written without considering administrative interpretations, some of which are a part of this case is constitutional. Art. 1, Sec. 8, Cl. 1, U.S. Constitution: Mulford v. Smith, 307 U.S. 38, 59 S. Ct. 648, 83 L. Ed. 1092; Kentucky Whip & Collar Co. v. Illinois Central Railroad Co., 299 U.S. 334, 57 S. Ct. 277, 81 L. Ed. 270; Labor Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 57 S. Ct. 615, 81 L. Ed. 893, 108 A.L.R. 1352; Currin v. Wallace, 306 U.S. 1, 59 S. Ct. 379, 83 L. Ed. 441; Santa Cruz Co. v. Labor Board, 303 U.S. 453, 58 S. Ct. 656, 82 L. Ed. 954; Brooks v. United States, 267 U.S. 432, 45 S. Ct. 345, 69 L. Ed. 699, 37 A.L.R. 1407; Champion v. Ames, 188 U.S. 321, 23 S. Ct. 321, 47 L. Ed. 492; see Hammer v. Dagenhart, 247 U.S. 251, 38 S. Ct. 529, 62 L. Ed. 1101, 3 A.L.R. 649, Ann.Cas.1918E, 724.
A number of its sections have been upheld already as to constitutionality by district courts. The separability as to constitutionality of the several sections provided by the Act has permitted piecemeal adjudications. Andrews, Administrator, etc. v. Montgomery Ward & Co., Inc., et al., D.C., 30 F. Supp. 380; United States v. Feature Frocks, Inc., et al., D.C.N.D.Ill., December 27, 1939, 33 F. Supp. 206; United States v. Chicago Macaroni Co., et al.,[1] D.C.N.D.Ill., Dec. 4, 1939; United States v. Walters Lumber Co. et al., (United States v. Florida Fruit & Produce Co., Inc., et al., United States v. Industrial Rag Co.) D.C.S.D.Fla., March 13, 1940, 32 F. Supp. 65; Williams, et al. v. Atlantic Coast Line R. R. Co.,[1] D.C.E.D.N.C., Feb. 19, 1940; Clifton I. Morgan and United States of America and Harold D. Jacobs, Administrator of the Wage & Hour Division, United States Department of Labor, Intervenors v. Atlantic Coast Line R. R. Co., D.C.S.D.Ga., April 29, 1940, 32 F. Supp. 617; but see United States of America v. F. W. Darby Lumber Co. and Fred W. Darby, D.C.S.D.Ga., April 29, 1940, 32 F. Supp. 734.
Quite recently, the minimum wage and maximum hour features of this law were upheld by the Circuit Court of Appeals for the 5th Circuit, Opp Cotton Mills, Inc., v. Administrator of Wage and Hour Division of Department of Labor, 5 Cir., April 2, 1940, 111 F.2d 23.
The sum of these decisions is that substantially the whole act has been maintained.
The constitutionality of the phrase "board, lodging, or other facilities" in Section 3(m), interpreted so as to include "medicines and drugs, clothing, groceries, foodstuffs, meats and other commodities", has not been decided.
The manner of administration under the Act, granting its validity vel non, is pleaded by defendant, in many ways, to be unconstitutional. Clear and definite facts must be had to satisfy inquiry into the constitutionality of administrative provisions. More, we have administrative provisions to consider in connection with a particular factual background a general lumber manufacturing business. The factual background is further detailed in that the enterprise in this case has several activities the operation of a sawmill, comprising the felling of the trees in the forest, the hauling of the logs from the forest to *212 the mill, then the sawing of the logs into rough lumber, followed by the manufacture of the rough lumber into the finished product to be sent into interstate commerce; currently with all of the above operations is the general merchandising through a company store, where the employees do their buying; also the renting by the Company of living quarters to all employees.
There is nothing in the petition alleging what are the exact wages paid by the defendant. The allegations of the petition as to the loss of 10% on the scrip that is given to the laborer as his wages, of itself, would immediately turn the case against the defendant, if the defendant pay the bare minimum wage. If the price paid the laborer be substantially above the minimum established by law, the 10% deduction could be permitted under freedom of contract, still leaving the clear minimum to the laborer, thus not violating the Act. We believe we have given enough suppositions to show the absolute need for facts.
This case involves issues of law directly affected by facts; the controlling facts are not yet before us. In such cases, on appeal from premature rulings of lower courts, the Supreme Court of the United States has not hesitated to refuse decision and to return the case to the lower court for the facts. See Chastleton Corp. v. Sinclair, 264 U.S. 543, 44 S. Ct. 405, 68 L. Ed. 841; Hammond v. Schappi Bus Line, 275 U.S. 164, 48 S. Ct. 66, 72 L. Ed. 218; Borden's Farm Products Co. v. Baldwin, 293 U.S. 194, 55 S. Ct. 187, 79 L. Ed. 281; Mayo v. Lakeland Highlands Canning Co., Inc., Feb. 26, 1940, 60 S. Ct. 517, 84 L.Ed. ___.
There is strong presumption in favor of the constitutionality and validity of an act of Congress. O'Gorman & Young, Inc. v. Hartford Fire Ins. Co., 282 U.S. 251, 51 S. Ct. 130, 75 L. Ed. 324, 72 A.L.R. 1163; United States v. Carolene Products Co., 304 U.S. 144, 152, 58 S. Ct. 778, 82 L. Ed. 1234; Metropolitan Casualty Ins. Co. v. Brownell, 294 U.S. 580, 584, 55 S. Ct. 538, 79 L. Ed. 1070. The same principle applies in favor of administrative interpretations. The merits of the case should be reached before the stamp of unconstitutionality is placed. Brewster v. Gage, 280 U.S. 327, 336, 50 S. Ct. 115, 74 L. Ed. 457; Pacific States Box & Basket Co. v. White, 296 U.S. 176, 56 S. Ct. 159, 80 L. Ed. 138, 101 A.L.R. 853; American T. & T. Co. v. United States, 299 U.S. 232, 57 S. Ct. 170, 81 L. Ed. 142.
The motion of the defendant to dismiss has forty-seven grounds, none of which is frivolous. We have analyzed each ground, and, if substantiated by evidence and not left to factual conjecture, any one of the grounds might be sufficient to sustain the motion. Every single one of the grounds urged for dismissal by the defendant is reserved to it, the present ruling is without prejudice, and the motion to dismiss is, accordingly, referred to the merits.
The motion to strike has forty reasons, all of a serious character and based upon some supposition which, because of the paucity of the present pleadings, is readily imagined. To sustain the motion to strike would eliminate the petition of plaintiff there would be nothing left of it. We overrule the motion to strike, for to sustain the motion would shut out all the facts most of which are relevant, material, and necessary.
We reach now the bill for particulars. By granting a bill, a court may restrict unreasonably the plaintiff's case; by refusing a bill, a court may expose the defendant to surprise at trial.
The information sought by defendant is peculiarly within defendant's knowledge. The names of the employees whose wages are subjected to illegal deductions, if any, the names of the employees engaged in the production of goods for interstate commerce, if any, the dates and amounts of wages paid each, particular amounts of the illegal deductions, if any, are all well known to the defendant itself. Its officers, agents and representatives know all of the facts relative to the wages paid to persons in its employ. It has its own books and records to give the information. The defendant could hardly be surprised at trial.
We overrule the motion for a bill of particulars. Bodine v. First National Bank of Merchantville, D.C., 281 F. 571; United States Hoffman Mach. Corp. v. Modern P. Appliances, D.C., 33 F.2d 991; Curtis v. Phelps, D.C., 209 F. 261; United Lace & Braid Mfg. Co. v. Barthels Mfg. Co., D. C., 213 F. 535; Shryock v. S. P. Calkins & Co., 4 Cir., 248 F. 649; Page Steel & Wire Co. v. Blair Engineering Co., 3 Cir., 22 F.2d 403; Sure-Fit Products Co. v. Med-Vogue Corporation, D.C., 28 F. Supp. 489. Under the new rules, see Kraft Corrugated Containers, Inc. v. Trumbull Asphalt *213 Co. of Delaware, D.C., 31 F. Supp. 314.
In the application of the administrative details of the Act, the court needs more facts, which could only come by hearing the case on the merits in order to determine whether there is or not a taking of property without due process of law. The case cannot be justly and intelligently decided in its present status. The factual background is too indefinite for a decision to be satisfactorily made. Judicial condemnation of the administrative details under an act, otherwise valid, should leave no disturbing doubt with the court.
NOTES
[1] No opinion for publication.
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14 F. Supp. 898 (1936)
LEFKOWITZ
v.
FINKELSTEIN TRADING CORPORATION et al.
District Court, S. D. New York.
January 3, 1936.
*899 Abraham H. Sarasohn, of New York City, for plaintiff.
James Charles Myers, of New York City, for defendants.
PATTERSON, District Judge.
The suit is by the trustee in bankruptcy of Finkelstein Hardware Corporation to set aside alleged transfers in fraud of creditors. The bankrupt was a corporation engaged in the retail hardware business, and was owned and managed by one Max Finkelstein. An involuntary petition in bankruptcy was filed against it on March 8, 1933. The transfers charged in the bill are of two types. The first is covered by the allegation that the bankrupt from time to time transferred merchandise to Finkelstein, doing business as Sun Range & Stove Company, without consideration and in fraud of creditors. There was a failure of proof with respect to transfers to the Sun Company. Nothing beyond vague suspicion was brought forward, and the case as to this feature must be dismissed.
The second alleged transfer is one that arose from a sale on execution. In November, 1932, one Lewson obtained judgment against the bankrupt in the sum of $387, for goods sold and delivered. A marshal of the municipal court levied execution on the entire contents of the bankrupt's store. While the value of the property so levied on was disputed, I am convinced that the fixtures had a fair market value of at least $1,000 and the stock in trade a fair market value of not less than $4,000. The marshal left a custodian in charge. Business went on as usual after the levy, except that the custodian took the cash receipts. At the execution sale, held on December 5, 1932, the property was knocked down in bulk to one Kessler for $430, barely enough to pay the judgment and expenses of sale. Kessler was a friend of Finkelstein. He made the purchase at the request of Finkelstein's sons and daughter. On the same day Kessler sold the property to the daughter for $500. A few days later the daughter transferred the property to a new corporation, Finkelstein Trading Corporation, of which Finkelstein was president and his sons and daughter were the stockholders. Some months later this corporation transferred the assets to still another corporation, Cranes Square Supply Company, Inc., owned and managed by one of the sons. The marshal's sale was not advertised, beyond notices put up in court and in marshals' offices, and very few were present at the sale. None of the creditors except Lewson knew of the sale.
The Lewson judgment was an honest one, and there is nothing to indicate collusion between Lewson and the Finkelsteins. Lewson got no more than a preference. But it cannot be doubted that the Finkelsteins, after the levy was made, determined to take advantage of it and to purchase the assets at a sacrifice, shaking off the creditors and carrying on the business the same as before. The result was that on an outlay of $500 they obtained fixtures and merchandise worth tenfold that figure, and the bankrupt, with liabilities of $15,000, was stripped of every item of property. To the extent that the value of the property so obtained exceeded the price paid for it, the transaction was one to hinder, delay, and defraud creditors of the bankrupt.
A conveyance by an insolvent debtor is not saved merely because the form of a judicial remedy is followed. Shapiro v. Wilgus, 287 U.S. 348, 53 S. Ct. 142, 77 L. Ed. 355, 85 A.L.R. 128. A transfer effected on execution sale may be as fraudulent on creditors as a transfer made by the debtor's own volition, where the effect is to hinder, delay, and defraud creditors. Crary v. Sprague, 12 Wend. (N.Y.) 41, 27 Am.Dec. 110; Decker v. Decker, 108 N.Y. 128, 15 N.E. 307. Here the bankrupt's entire property was quietly purchased on execution sale by the family of the sole stockholder at a small fraction of the fair value, leaving nothing for creditors. The transaction was void as to creditors, both under the statute of 13 Elizabeth and under the New York enactment of the Uniform Fraudulent Conveyance Act (Debtor and Creditor Law [Consol.Laws, c. 12], art. 10).
It is of significance that all the books of the bankrupt corporation vanished in the three months between execution sale and bankruptcy. The Finkelsteins had custody of them, but have no explanation to offer as to their whereabouts. Beyond doubt, they were secreted or destroyed. As the books would have shed light on the value of the property transferred, their *900 disappearance must be taken as evidence against the defendants on this issue. National Bank of Republic v. Hobbs (C.C.) 118 F. 626.
The case will be dismissed as to Sun Range & Stove Company, Inc., and as to Kessler. With respect to the latter, there is nothing to show that he was cognizant of the value of the property acquired on the execution sale. As to the remaining defendants, there will be a decree adjudging the transfer void and holding them liable to the plaintiff in the sum of $4,500.
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14 F. Supp. 384 (1936)
UNITED STATES
v.
EDWARDS.
No. 866-Y.
District Court, S. D. California, Central Division.
April 4, 1936.
*385 Peirson M. Hall, U. S. Atty., and Clyde Thomas and Hal Hughes, Asst. U. S. Attys., all of Los Angeles, Cal.
E. V. Knauff, of Los Angeles, Cal., and Henry Wenzlaff, of San Bernardino, Cal., for defendant.
YANKWICH, District Judge.
The controversy centers around certain provisions of the Agricultural Adjustment Act of 1933 as amended in 1935 (7 U.S. C.A. § 601 et seq.) relating to the control by the Secretary of Agriculture of the marketing of products in interstate commerce, with or without marketing agreements. They are too lengthy to be set out in full. However, the discussion of the problems involved calls for their general outline.
The act declares, in its preamble, an acute emergency to exist. The cause it declares to be the disparity "between the prices of agricultural and other commodities, which disparity has largely destroyed the purchasing power of farmers for industrial products, has broken down the orderly exchange of commodities, and has seriously impaired the agricultural assets supporting the national credit structure." These conditions have "burdened and obstructed the normal currents of commerce in such commodities," making the enactment of the legislation imperative. 7 U. S.C.A. § 601. In view of these conditions, it is declared to be the policy of the Congress to establish and maintain such balance between the production and consumption of agricultural commodities and such marketing conditions therefor "as will re-establish prices to farmers at a level that will give agricultural commodities a purchasing power with respect to articles that farmers buy, equivalent to the purchasing power of agricultural commodities in the base period." The base period, in the case of all agricultural commodities except tobacco and potatoes, is declared to be the pre-war period August, 1909, to July, 1914. 7 U.S.C.A. § 602. One of the methods provided for effectuating the declared purpose of the Congress is by means of marketing agreements with various persons engaged in the handling of any commodity or product thereof. 7 U. S.C.A. § 608b. From time to time, the Secretary of Agriculture is authorized to issue orders applicable to various persons, including associations of producers and others engaged in the handling of agricultural commodities. They are denominated "handlers." The orders must regulate the manner of handling of such agricultural commodities or products as are in the current of interstate or foreign commerce or which directly burden, obstruct, or affect interstate commerce in such commodity or product. Among the commodities affected are fruits, with certain exceptions. Whenever the Secretary has reason to believe that an order is necessary to effect the policy of the act with respect to any commodity, he must give notice for a hearing upon the proposed order. If, after such hearing, he finds that the order will carry into effect the declared policy of the act, he issues the order. 7 U.S.C.A. § 608c (1, 4). Orders relating to fruits must contain limitations of the total quantity of any commodity or product produced within a certain period which may be marketed in or transported to any or all markets in interstate commerce during any period by the handlers thereof; or allotment of the amount which any handler may purchase from or handle during any specified period or periods in interstate *386 commerce; or allotment of the commodity or produce which each handler may market in or transport to any or all markets in the currents of interstate commerce; or determination of the surplus of any such commodity, the establishment of means of eliminating the surplus, and the establishment of reserve pools. The orders must also contain one or more of the following terms and conditions: Prohibiting unfair methods of competition and unfair trade practices in the handling thereof, providing that the commodities shall be handled by all handlers at a price fixed by all, providing for the selection by the Secretary of an agency for the administration of the order and other conditions necessary to carry into effect the provisions as to limiting, allotting, et cetera. No order issued under the provisions relating to marketing is effective until the handlers of not less than 50 per cent. of the volume of the commodity or product so marketed have signed a marketing agreement under the provisions of the act. As to California citrus fruits, the marketing agreement is not effective until the handlers of not less than 80 per cent. of the volume of such commodity or product have signed the agreement. The issuance of such order must be approved by at least two-thirds of the producers in all localities except California, where, in the case of citrus fruits, it must be approved by three-fourths of the producers. 7 U.S.C.A. § 608c(7, 8). The order may be issued either with or without a marketing agreement. 7 U.S.C.A. § 608c(9, 10). The orders are to be regional unless the Secretary finds, as to a particular commodity or product, that orders made applicable to regional areas would not carry into effect the object of the act. 7 U.S.C.A. § 608c(11). The approval or disapproval of producers may be expressed through their co-operative associations. 7 U.S.C.A. § 608c(12). No order applies to any person who sells agricultural commodities or products at retail (with certain exceptions), nor to producers as such. 7 U.S.C.A. § 608c (13). The violation of an order is made an offense. 7 U.S.C.A. § 608c(14). A handler has the right to be heard by the Secretary in opposition to any order made. The ruling of the Secretary on the matter is subject to review by the various district courts of the United States. 7 U.S.C.A. § 608c(15). Orders of the Secretary may be terminated or suspended by him whenever he finds that the order obstructs or fails to effectuate the policy of the act. He may also terminate any marketing agreement, if he finds that such termination is favored by the majority of the producers who during a representative period have been engaged in the production for market of the commodity specified in the agreement or order. 7 U.S.C.A. § 608c(16). The parties to marketing agreements and handlers are required to furnish the Secretary with information relating to the manner in which the agreement has been carried out. The information is kept confidential. 7 U.S.C.A. § 608d. If the base period, or a portion of it, specified in the act cannot be determined from the available statistics of the Department of Agriculture, the post-war period, August, 1919, to July, 1929, governs. 7 U.S.C.A. § 608e. The Secretary is authorized to establish state and local committees or associations of producers to act as agents of their members in connection with the provisions of the act. The orders issued by the Secretary must require a prorating of the expenses of administration by the agency among the handlers. 7 U.S.C.A. § 610. Certain rights and powers of the Federal Trade Commission Act approved September 26, 1914 (15 U.S. C.A. §§ 41-51), are made applicable to the Secretary in the administration of the act. And he is authorized to confer, with state authorities, at their request, as to methods of administration aiming at uniformity and he may, with the consent of state authorities, use such state employees or local officers as may be necessary. 7 U.S.C.A. § 610.
The amendments of August 24, 1935, continued in effect the marketing agreements entered into under the provisions of the act of 1933.
The action was instituted under the direct authority of subdivision 6 of section 8a of the act (7 U.S.C.A. § 608a(6), which gives the District Courts jurisdiction to enforce the provisions of the section and to prevent and restrain the violation of any of its provisions or of any orders or agreements entered under it. The act also authorizes the several United States attorneys of the United States, under the direction of the Attorney General, to institute appropriate proceedings. 7 U.S.C.A. § 608a(7).
The bill of complaint recites the following facts:
*387 The defendant is a citizen of California, engaged in business under the name of Edwards Fruit Company at Colton, County of San Bernardino. In accordance with the provisions of the Agricultural Adjustment Administration General Regulations, Series A, No. 1, the Secretary of Agriculture, on September 24, 1935, gave to all interested persons, including the defendant, notice of a hearing to be held in Los Angeles, Cal., on October 9, 1935, with respect to a proposed order regulating the handling of oranges and grapefruit in the state of California and Arizona. From the evidence introduced at the hearing, the Secretary determined that an order regulating the handling of oranges and grapefruit would tend to improve the marketing conditions in the handling of these fruits in interstate and foreign commerce, and to effectuate the policy of the act. Accordingly, he issued an order on January 4, 1936, making a finding to that effect. The order became effective on January 13, 1936, and is still in effect. The order is applicable to shippers of oranges and grapefruit in the states of California and Arizona. It regulates the handling of such oranges and grapefruit in the same manner as the previous marketing agreement executed by the Secretary on December 14, 1933, after a public hearing. The parties signatory to the agreement were the shippers who handle more than 80 per cent. of the oranges and grapefruit shipped annually in the current of interstate and foreign commerce. The order designated members of a Growers' Advisory Committee and members of a Distribution Committee to be known jointly as the California-Arizona Orange Grapefruit Agency. The Secretary, upon the basis of the recommendation of the California-Arizona Orange Grapefruit Agency and other available information, established, on January 26, 1936, certain prorate districts for the purpose of allotting shipments of oranges and grapefruit. He also fixed for weekly proration periods beginning respectively on February 2, February 9, February 16, and February 23, 1936 the quantity of oranges for shipment in interstate commerce and to Canada from California and Arizona, as well as the prorate bases of shippers who applied for allotments and a prorate base for the purpose of making such shipments. He also fixed the allotment of the quantity of oranges to be shipped by each of such shippers.
The defendant is a shipper. He has failed to comply with the provisions of the order and declines to do so. He has declined to apply for allotments and a prorate base covering his shipments in interstate commerce.
In addition to the facts just outlined, the bill, and the affidavits filed in support of the granting of an interlocutory injunction, set forth the importance of the orange and grapefruit crop as the second most important fruit crop in the United States. It is estimated that of the 50,000 growers engaged in commercial production of these two fruits, 18,000 are located in California and Arizona. The value of the product is great, and its decline, at times, has been in excess of 50 per cent. The market for oranges and grapefruit is predominately interstate. Ninety per cent. of the production in the two states moves in interstate commerce. Because of this, proper marketing is essential to prevent the further demoralization of the industry. The marketing will be demoralized if persons like the defendant are permitted to ship in interstate commerce in violation of the rules.
The facts relating to the defendant's shipments are not in dispute. The only issue presented by the affidavits of the defendant is his opinion that no prorating for marketing purposes is necessary and that his shipments are not so numerous as to endanger any market control. A temporary restraining order was issued.
The facts stated would justify the issuing of an injunction, if the marketing provisions of the Agricultural Adjustment Act and the orders made under them with the violation of which the defendant is charged are valid.
It is the contention of the defendant that they are not.
At the outset we are met with the contention that the decision of the Supreme Court in United States v. Butler (1935) 297 U.S. 1, 56 S. Ct. 312, 314, 80 L. Ed. ___, has invalidated the entire Agricultural Adjustment Act. A study of the opinion in that case shows that the only matter decided was the validity of the processing tax in its relation to the scheme of crop control to which the proceeds of the tax were devoted. Without denying to the Congress the power to levy a processing tax, but rather conceding it (as the dissenting opinion of Mr. *388 Justice Stone emphasizes, 297 U.S. 79, 56 S. Ct. 324, 80 L. Ed. ___), the Supreme Court denied validity to the particular processing tax because it was tied to a scheme of intrastate agricultural control which the court thought beyond the power of the Congress. The only two features of the Agricultural Adjustment Act which the court had before it were the processing tax and the control of production through the use of the tax. That the court dealt only with certain (not with all the) provisions of the Agricultural Adjustment Act is evident from the first paragraph of the majority opinion, which reads: "In this case we must determine whether certain provisions of the Agricultural Adjustment Act, 1933, conflict with the Federal Constitution." (Italics added.)
Were these provisions the only constituent part of the act, the argument might have force. But they are not. The act is multifarious, and many other features, which were not involved in the decision in United States v. Butler, supra, are contained in it. These features are distinct, separable portions of the act. Their validity is not impaired by the decision.
Their purpose is to regulate market conditions in agricultural products by the use of the authority to regulate commerce. They are a distinct part of the act unconnected with the portions declared invalid in United States v. Butler, supra. These portions are clearly separable both under the separability clause of the act (7 U.S.C.A. § 614) and upon principle. See Berea College v. Kentucky (1908) 211 U.S. 45, 29 S. Ct. 33, 53 L. Ed. 81; Carey v. South Dakota (1919) 250 U.S. 118, 39 S. Ct. 403, 63 L. Ed. 886; Dorchy v. Kansas (1924) 264 U.S. 286, 44 S. Ct. 323, 68 L. Ed. 686; Champlin Refining Co. v. Corporation Commission (1932) 286 U.S. 210, 52 S. Ct. 559, 76 L. Ed. 1062, 86 A.L.R. 403. For they constitute a complete scheme which can be given effect after the processing and the control-of-production features of the act are completely eliminated. And this fact has always been considered a determinant test in saving the valid portions of a statute from those that were invalid.
We are thus brought to the consideration of a more fundamental question: Is the attempted control of marketing through the exercise of the commerce clause valid?
By clause 3, section 8, article 1 of the Constitution of the United States, the Congress is given power "to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."
In Texas & N. O. R. Co. v. Brotherhood of Ry. & S. S. Clerks (1930) 281 U.S. 548, 570, 50 S. Ct. 427, 433, 74 L. Ed. 1034, the extent of this power is thus given: "The power to regulate commerce is the power to enact `all appropriate legislation' for its `protection or advancement' (The Daniel Ball, 10 Wall. 557, 564, 19 L. Ed. 999); to adopt measures `to promote its growth and insure its safety' (County of Mobile v. Kimball, 102 U.S. 691, 696, 697, 26 L. Ed. 238); to `foster, protect, control, and restrain' (Second Employers' Liability Cases, 223 U.S. 1, 47, 32 S. Ct. 169, 174, 56 L. Ed. 327, 38 L.R. A.(N.S.) 44." (Italics added.) Ever since the decision in Gibbons v. Ogden (1824) 9 Wheat. 1, 196, 6 L. Ed. 23, the power of the Congress in this respect has been considered plenary. Mr. Chief Justice Marshall in that case asked the question: "What is this power?" And he answered: "It is the power to regulate; that is, to prescribe the rule by which commerce is to be governed. This power, like all others vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the constitution. These are expressed in plain terms, and do not affect the questions which arise in this case, or which have been discussed at the bar. If, as has always been understood, the sovereignty of Congress, though limited to specified objects, is plenary as to those objects, the power over commerce with foreign nations, and among the several states, is vested in Congress as absolutely as it would be in a single government, having in its constitution the same restrictions on the exercise of the power as are found in the Constitution of the United States. The wisdom and the discretion of Congress, their identity with the people, and the influence which their constituents possess at elections, are, in this, as in many other instances, as that, for example, of declaring war, the sole restraints on which they have relied, to secure them from its abuse. They are the restraints on which the people must often rely solely, in all representative governments." Gibbons v. Ogden, supra. 9 *389 Wheat. 1, 196, 6 L. Ed. 23, at page 70. (Italics added.) In the same opinion Mr. Chief Justice Marshall insisted that commerce should not be defined as traffic and limited to buying and selling, or the interchange of commodities. "This," he said, "would restrict a general term, applicable to many objects, to one of its significations. Commerce, undoubtedly, is traffic, but it is something more it is intercourse. It describes the commercial intercourse between nations, and parts of nations, in all its branches, and is regulated by prescribing rules for carrying on that intercourse." Gibbons v. Ogden, supra, 9 Wheat. 1, 189, 6 L. Ed. 23, at page 68. (Italics added.) In Board of Trustees of University of Illinois v. United States (1933) 289 U.S. 48, 53 S. Ct. 509, 77 L. Ed. 1025, Mr. Chief Justice Hughes says of the power to regulate commerce: "It is an essential attribute of the power that it is exclusive and plenary. As an exclusive power, its exercise may not be limited, qualified, or impeded to any extent by state action" (Italics added.)
In the exercise of this power the Congress may exercise powers akin to the police power within the field of interstate commerce.
The principle was thus stated by Mr. Chief Justice Taft in Brooks v. United States (1925) 267 U.S. 432, 436, 45 S. Ct. 345, 346, 69 L. Ed. 699, 37 A.L.R. 1407, in upholding the statute forbidding the transportation of stolen automobiles in interstate commerce: "Congress can certainly regulate interstate commerce to the extent of forbidding and punishing the use of such commerce as an agency to promote immorality, dishonesty or the spread of any evil or harm to the people of other states from the State of origin. In doing this it is merely exercising the police power, for the benefit of the public, within the field of interstate commerce." (Italics added.) This case, and others to be referred to, hold distinctly that regulation may take the form of prohibition.
In United States v. Hill (1919) 248 U.S. 420, 427, 39 S. Ct. 143, 145, 63 L. Ed. 337, the court, in upholding the act of Congress which prohibited the transportation of liquor into states having prohibition laws, said that the power to regulate commerce "may take the character of prohibition, in proper cases."
Federal legislation is replete with instances of the exercise of this power so as to prohibit the transportation of things and persons within interstate commerce. A few of them may be here given in the order of their enactment over a period of forty years.
The Wilson Act of 1890, subjecting to state laws liquors in interstate commerce upon their arrival in the state, sustained in Re Rahrer (1891) 140 U.S. 545, 11 S. Ct. 865, 35 L. Ed. 572.
The Anti-Lottery Act of 1895 (18 U.S. C.A. § 387), prohibiting the transportation of lottery tickets in interstate commerce, sustained in Champion v. Ames (1903) 188 U.S. 321, 23 S. Ct. 321, 47 L. Ed. 492.
The Lacey Act of 1900 (18 U.S.C.A. §§ 391-395), prohibiting the shipment and transportation in interstate commerce of game killed in violation of local laws, sustained in Rupert v. United States (C.C.A. 8th Cir.,1910) 181 F. 87.
The Hepburn Act of 1906 (49 U.S.C.A. § 1(8), prohibiting the transportation by railroads of certain commodities when those commodities have been manufactured, mined, or produced by the railroads or the railroads owned them, sustained in United States v. Delaware & Hudson Co. (1909) 213 U.S. 366, 29 S. Ct. 527, 53 L. Ed. 836.
The Pure Food and Drug Act of 1906 (21 U.S.C.A. §§ 1, 3), excluding from interstate transportation foods and drugs not inspected or labeled in accordance with the act, sustained in Hipolite Egg Co. v. United States (1911) 220 U.S. 45, 31 S. Ct. 364, 55 L. Ed. 364, and McDermott v. Wisconsin (1913) 228 U.S. 115, 33 S. Ct. 431, 57 L. Ed. 754, 47 L.R.A.(N.S.) 984, Ann.Cas.1915A, 39.
The Mann Act of 1910 (18 U.S.C.A. §§ 397-404), prohibiting the transportation of women for immoral purposes, sustained in Hoke v. United States (1913) 227 U.S. 308, 33 S. Ct. 281, 57 L. Ed. 523, 43 L.R.A. (N.S.) 906, Ann.Cas.1913E, 905; Bennett v. United States (1913) 227 U.S. 333, 33 S. Ct. 288, 57 L. Ed. 531; Harris v. United States (1913) 227 U.S. 340, 33 S. Ct. 289, 57 L. Ed. 534; Caminetti v. United States (1917) 242 U.S. 470, 37 S. Ct. 192, 197, 61 L. Ed. 442, L.R.A.1917F, 502, Ann.Cas. 1917B, 1168. In Caminetti v. United States, supra, the court said: "The authority of Congress to keep the channels of interstate commerce free from immoral and injurious *390 uses has been frequently sustained, and is no longer open to question." (Italics added.)
The act of 1912 prohibiting the transportation of prize fight pictures (18 U.S. C.A. § 405), sustained in Weber v. Freed (1915) 239 U.S. 325, 36 S. Ct. 131, 60 L. Ed. 308, Ann.Cas.1916C, 317.
The Webb-Kenyon Act of 1913 (c. 90, 37 Stat. 699 [27 U.S.C.A. § 122]), prohibiting shipment of intoxicants into a prohibition state to be used there in violation of its law, sustained in Clark Distilling Co. v. Western Maryland Railroad Co. (1917) 242 U.S. 311, 37 S. Ct. 180, 61 L. Ed. 326, L.R.A.1917B, 1218, Ann.Cas. 1917B, 845.
The Grain Standards Act of 1916 (7 U.S.C.A. § 71 et seq.), which the Supreme Court in Shafer v. Farmers' Grain Co. (1925) 268 U.S. 189, 45 S. Ct. 481, 69 L. Ed. 909, held to be so exclusive within the field of establishing standards for grain as to invalidate any state legislation, even in aid of it.
The Federal Quarantine Act of 1917 (7 U.S.C.A. § 161), excluding diseased plants and shrubs, from an infected area, sustained in Oregon-Washington R. & Nav. Co. v. State of Washington (1926) 270 U.S. 87, 46 S. Ct. 279, 70 L. Ed. 482.
The Dyer Motor Vehicle Theft Act of 1919 (18 U.S.C.A. § 408), prohibiting the transportation of stolen automobiles in interstate commerce, sustained in Brooks v. United States, supra.
The Grain Futures Act of 1922 (7 U.S. C.A. § 1 et seq.), aiming to regulate gambling in grains on the Chicago Board of Trade, sustained in Board of Trade of Chicago v. Olsen (1923) 262 U.S. 1, 4, 43 S. Ct. 470, 67 L. Ed. 839.
The Hawes-Cooper Act of 1929 (49 U.S.C.A. § 60), subjecting prison-made goods to the laws of the state into which they are transported, sustained in State v. Whitfield (1934) 216 Wis. 577, 257 N.W. 601, and Whitfield v. Ohio, 56 S. Ct. 532, 80 L. Ed. ___.
The so-called "Lindbergh" Anti-Kidnapping Act of June, 1932 (see 18 U.S. C.A. § 408a), prohibiting the transportation of kidnapped persons across state lines, sustained in Kelly v. United States (C.C.A.10, 1935) 76 F.(2d) 847; Bailey v. United States (C.C.A.10, 1934) 74 F.(2d) 451; and in Gooch v. United States (1936) 56 S. Ct. 395, 80 L. Ed. ___.
We also have various statutes regulating interstate commerce rates and prohibiting monopolies and trusts, invariably sustained in Northern Securities Co. v. United States (1904) 193 U.S. 197, 24 S. Ct. 436, 48 L. Ed. 679, Houston, East & West Texas Ry. Co. v. United States (1914) 234 U.S. 342, 343, 34 S. Ct. 833, 58 L. Ed. 1341, Standard Oil Co. v. United States (1911) 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L.R.A.(N.S.) 834, Ann.Cas.1912D, 734, as well as restrictions in our immigration laws. Head Money Cases (1884) 112 U.S. 580, 5 S. Ct. 247, 28 L. Ed. 798; Commissioner of Immigration v. Gottlieb (1924) 265 U.S. 310, 44 S. Ct. 528, 68 L. Ed. 1031.
In upholding these laws the courts have postulated the broadness of the commerce power.
Thus Mr. Justice Brandeis in Hamilton v. Kentucky Distilleries & Warehouse Co. (1919) 251 U.S. 146, 156, 40 S. Ct. 106, 108, 64 L. Ed. 194, in unholding wartime prohibition (chapter 212, 40 Stat. 1045), said: "That the United States lacks the police power, and that this was reserved to the states by the Tenth Amendment, is true. But it is none the less true that when the United States exerts any of the powers conferred upon it by the Constitution, no valid objection can be based upon the fact that such exercise may be attended by the same incidents which attend the exercise by a state of its police power, or that it may tend to accomplish a similar purpose." (Italics added.)
It is the general view of writers that in these decisions is found the authority of the Congress, under the commerce clause, to prohibit commerce entirely. See Edward S. Corwin, "Congress's Power to Prohibit Commerce" (1933) 18 Cornell Law Quarterly, 477; Theodore W. Cousens, "The Use of the Federal Interstate Commerce Power to Regulate Matters within the States," (1934) 21 Virginia Law Review, 51; Thomas Reed Powell, "Commerce, Pensions, and Codes," (1935) Harvard Law Review 1, 195; and see, also, 2 Willoughby on The Constitution (2d Ed., 1929) §§ 575 to 592-a. If, as Mr. Chief Justice Taft stated in Brooks v. United States, supra, the commerce clause may be used to prevent the spread of "any evil or harm" coming to a state through persons or commodities of another state, it is difficult to understand why, in order to prevent the "glutting" of markets by agricultural products that cannot be sold (a *391 "glutting" which could result only in demoralizing the commerce in these commodities), the Congress cannot exclude from interstate commerce a certain number of commodities over and above a quota established (with the consent of a majority of the producers) after an inquiry into the needs for a particular time. It is hard to see why constitutional validity should be denied to such a procedure and granted in the case of lottery tickets, stolen automobiles, grains that do not conform to standards, or the right be recognized in the interstate commerce commission, as was done in Assigned Car Cases (1927) 274 U.S. 564, 47 S. Ct. 727, 71 L. Ed. 1204, to limit the quantities of railroad cars to be used in conjunction with certain industries, even to the extent of holding that the Congress could exclude private cars altogether from interstate railroads.
The decision in the Child Labor Case, Hammer v. Dagenhart (1918) 247 U.S. 251, 38 S. Ct. 529, 62 L. Ed. 1101, 3 A.L.R. 649, Ann.Cas.1918E, 724, if interpreted in the light of later cases, such as Brooks v. United States, supra, does not stand in the way. The majority of the court were satisfied that the main object there had been to interfere with the internal affairs of states, by compelling a change in the employment of children, under the guise of the exercise of the commerce power.
From the exercise of the power to regulate commerce between states, incidental regulation or interference with intrastate activities may result. But the result so achieved does not invalidate it. In the matter of railroad rates, the Supreme Court has distinctly upheld interstate regulation of rates, even though their effect was to destroy valid intrastate rates. See Minnesota Rate Cases (1913) 230 U.S. 352, 33 S. Ct. 729, 57 L. Ed. 1511, 48 L.R.A.(N.S.) 1151, Ann.Cas.1916A, 18. This upon the theory expressed in Railroad Commission of Wisconsin v. Chicago, B. & Q. R. Co. (1922) 257 U.S. 563, 588, 42 S. Ct. 232, 237, 66 L. Ed. 371, 22 A.L.R. 1086, that: "Commerce is a unit and does not regard state lines, and while under the Constitution, interstate and intrastate commerce are ordinarily subject to regulation by different sovereignties, yet when they are so mingled together that the supreme authority, the Nation, cannot exercise complete effective control over interstate commerce without incidental regulation of intrastate commerce, such incidental regulation is not an invasion of state authority or a violation of the proviso." (Italics added.)
The regulation of interstate commerce here is not a regulation of production. It does not aim to control the amount of commodities to be produced in a particular state. It merely regulates the quantity to be shipped in interstate commerce. Admit that the object is to aid agriculture by securing a better price, that object is no more unconstitutional than the attempt to establish grain standards, or the attempt to aid agriculture, through the regulation of gambling of grain speculators whose activities may endanger the price of agricultural commodities.
Farm products not shipped in interstate commerce may be used or sold locally or transformed into other commodities. At best, the result to be attained is incidental to the exercise of the power. And where the power exists, the fact that the manner of its exercise may result in an incidental regulation of intrastate activity has not led courts to deny validity to its exercise. Thus to speak of something which concerns us all in the West, the power of the government to build Boulder Dam was sustained under the commerce clause (Const.art. 1, § 8) and upon the ground that the act of the Congress (43 U.S.C.A. §§ 617-617t) for its creation was passed "for river regulation, improvement of navigation, and flood control." See Arizona v. California (1931) 283 U.S. 423, 51 S. Ct. 522, 526, 75 L. Ed. 1154. This avowed purpose was attacked as being "a mere subterfuge and false pretense." But the court declined to go into the motives which had induced the members of the Congress to enact the act. And this, despite the fact that every school boy in the Southwest knows that one of the great aims was to preserve the flood waters of the Colorado for domestic and other uses of the great Southwest and to develop power for a growing community.
We conclude that if the power can be used to achieve beneficial results which may be called of a moral character, such as the exclusion of narcotics, liquors, lottery tickets, prize fight films, immoral persons, fruits and grain below a certain standard, from interstate commerce, when their use is incidental to the plenary control of the Congress over commerce between the states, an act which seeks to limit the shipment of the products of agriculture should not be denied validity upon *392 the ground that it may indirectly affect their production. After all, we are living in a realistic world. And while "man doth not live by bread alone," economic considerations in aid of a group which has been a dominant factor in our national life from the very beginning of our nation's existence should not be considered so evil as to contaminate the proper exercise by the Congress of its plenary control over commerce between the states. See Lemke v. Farmers' Grain Co. (1922) 258 U.S. 50, 42 S. Ct. 244, 66 L. Ed. 458; Shafer v. Farmers' Grain Co., supra.
If the indirect effect were controlling, few of the valid exercises of the taxing and commerce clauses of the Constitution could stand.
In practically every instance it can be pointed out (and it was, when they were attacked) that the commerce power was used to affect indirectly the conduct of persons and to achieve through its exercise beneficial local results.
No one can deny, for instance, that the Harrison Narcotic Act (see 26 U.S.C.A. § 1040 et seq. and notes), both in its taxing features and the added features which prohibit interstate shipment of narcotics, was aimed at the destruction of the traffic in narcotics, and of its deleterious effects upon users. In the Mann Act, the commerce clause was used to discourage not only commercialized vice, but even sporadic meretricious relations. The various fruit inspection and grain standards acts aim to achieve better standards in agricultural products. In many instances, the exercise of the commerce power is the only way to achieve a desired result. The Supreme Court has said so repeatedly. Thus in Lemke v. Farmers' Grain Co., supra, 258 U.S. 50, at page 60, 42 S. Ct. 244, 248, 66 L. Ed. 458, to the argument that the state of North Dakota, by endeavoring to regulate public grain elevators, had sought to protect the grain growers from certain bad commercial practices, the answer of Mr. Justice Day was: "It is alleged that such legislation is in the interest of the grain growers and essential to protect them from fraudulent purchases, and to secure payment to them of fair prices for the grain actually sold. This may be true, but Congress is amply authorized to pass measures to protect interstate commerce if legislation of that character is needed. The supposed inconveniences and wrongs are not to be redressed by sustaining the constitutionality of laws which clearly encroach upon the field of interstate commerce placed by the Constitution under federal control." (Italics added.) Similar language was used in Shafer v. Farmers' Grain Co., supra, 268 U.S. 189, at page 202, 45 S. Ct. 481, 486, 69 L. Ed. 909: "The defendants make the contention that we should assume the existence of evils justifying the people of the state in adopting the act. The answer is that there can be no justification for the exercise of a power that is not possessed. If the evils suggested are real, the power of correction does not rest with North Dakota but with Congress, where the Constitution intends that it shall be exercised with impartial regard for the interests of the people of all the states that are affected." (Italics added.) Thus, congressional legislative practice and judicial declarations give sanction to the power of Congress to affect market conditions through the exercise of the commerce clause.
None of the features of direct control of production which the processing portions of the act contained and which the court condemned in United States v. Butler, supra, is present in the marketing features. There are no direct benefits, promised or given, under direct or indirect coercion, in exchange for limitation of production. We only have an attempt (beneficial to agriculture, it must be admitted) to affect the market of agricultural commodities through the exercise of the plenary power of the Congress to regulate commerce. Under the authorities cited, this power implies the right to advance, enhance, promote, foster, restrain, and prohibit. Unless we promulgate the doctrine that even indirect aid to agriculture is beyond the scope of our Federal Government and cannot be achieved through constitutional means, other than by grants of money, and thus belie a century of congressional legislative practice to the contrary (see Edward S. Corwin. "The Taxing Power of Congress," (1922) 37 Harvard Law Review, 548), we must conclude that the power to regulate commerce implies the right to exercise it to achieve beneficial results in the marketing of agricultural products.
Nor is their validity impaired by unlawful delegation of legislative power.
The power to make laws is deemed among the most important in constitutional *393 governments. By the Constitution of the United States all legislative power is granted to the Congress (Constitution of the United States, art. 1, § 1), and the Congress is empowered to make all laws necessary and proper in carrying into execution its general powers (Constitution of the United States, art. 1, § 8, cl. 18). Courts guard jealously against any attempt of the legislative authority to delegate its power to others. Marshall Field & Co. v. Clark (1892) 143 U.S. 649, 12 S. Ct. 495, 36 L. Ed. 294; 3 Willoughby on The Constitution (2d Ed.) § 1075 et seq. However, the legislative power may declare its will and, after fixing a primary standard, delegate to others the duty of prescribing the administrative methods of carrying it into effect. See Buttfield v. Stranahan (1904) 192 U.S. 470, 24 S. Ct. 349, 48 L. Ed. 525; Union Bridge Co. v. United States (1907) 204 U.S. 364, 27 S. Ct. 367, 51 L. Ed. 523; St. Louis, Iron Mt. & Southern R. Co. v. Taylor (1908) 210 U.S. 281, 28 S. Ct. 616, 52 L. Ed. 1061; Atlantic Coast Line R. Co. v. North Carolina Corporation Commission (1907) 206 U.S. 1, 27 S. Ct. 585, 51 L. Ed. 933, 11 Ann. Cas. 398; Interstate Commerce Commission v. Illinois Central R. Co. (1910) 215 U.S. 452, 30 S. Ct. 155, 54 L. Ed. 280; Interstate Commerce Commission v. Northern Pacific R. Co. (1910) 216 U.S. 538, 30 S. Ct. 417, 54 L. Ed. 608; Louisville & N. R. Co. v. Interstate Commerce Commission (C.C.1910) 184 F. 118; Hampton & Co. v. United States (1928) 276 U.S. 394, 48 S. Ct. 348, 72 L. Ed. 624; United States v. Shreveport Grain & Elevator Co. (1932) 287 U.S. 77, 53 S. Ct. 42, 77 L. Ed. 175; United States v. Grimaud (1911) 220 U.S. 506, 31 S. Ct. 480, 55 L. Ed. 563; Panama Refining Co. v. Ryan (1935) 293 U.S. 388, 55 S. Ct. 241, 256, 79 L. Ed. 446. These cases show the utmost variety of instances in which the lodging of discretion and the right to exercise judgment has been sustained as without the constitutional injunction against delegation of legislative power. They range from the right to determine the purity, quality, and fitness of a food product upon the recommendation of experts (see Buttfield v. Stranahan, supra), to the exercise by the Interstate Commerce Commission of the right to fix "just and reasonable" rates (Louisville & N. R. Co. v. Interstate Commerce Commission, supra; and see Interstate Commerce Commission v. Brimson (1894) 154 U.S. 447, 14 S. Ct. 1125, 38 L. Ed. 1047), and the great powers given to the President under flexible tariff provisions (see Hampton & Co. v. United States, supra). The test of nonlegislative delegation of power is: Has the Congress provided the administrative or executive officer with a clear and definite standard to follow? If so, and the discretion is exercised with the aim to achieve that standard, the means of achieving it do not matter. See Marshall Field & Co. v. Clark, supra; see, also, note on Permissible Limits of Delegation of Legislative Power, 79 L. Ed. 474. The conditions of validity exist when, as Mr. Justice Cardozo stated in his dissent in Panama Refining Co. v. Ryan, supra: "Discretion is not unconfined and vagrant. It is canalized within banks that keep it from overflowing." The provisions of the Agricultural Adjustment Act under attack here comply with the tests of legitimacy of delegation thus laid down.
Briefly stated, the act declares its policy to regulate market conditions in such a manner as to produce parity of prices to the farmer. In the case of each product, there is established what is denominated a "base period." The statistical information filed in the Department of Agriculture forms the foundation for determining the price during the period. The act of the Secretary of Agriculture in that respect becomes merely a matter of mathematical calculation. As to shipment, the act provides that an order be issued by the Secretary of Agriculture providing for the manner of limiting shipments and allotting the commodities to each handler in interstate commerce during a specified period. To determine this amount, the Secretary of Agriculture may avail himself of the results of local hearings had by local committees, at his direction. He determines the limitation after he has received the result of the investigation, and enters into a marketing agreement, with the consent of a majority of the producers. So we have a standard to be attained, strictly limited by the Congress. Even the methods pursued in attaining them are delineated to a certain extent by providing what the orders should contain.
The mechanics of ascertaining the congressional standard as to each product is left to the determination of the Secretary of Agriculture upon the basis of factual inquiries determined either by reference to governmental statistics or by *394 reference to actual facts determined upon hearings.
It is the act of Congress, and not the act of the Secretary of Agriculture, which primarily results in control of the market of agricultural products. The Secretary of Agriculture merely fills in the details within the framework of the declared legislative purpose. This is not delegation of legislative power. See United States v. Grimaud, supra; Union Bridge Co. v. United States, supra, 204 U.S. 364, at page 386, 27 S. Ct. 367, 51 L. Ed. 523. No other questions require discussion.
An interlocutory injunction as prayed for in the bill of complaint will issue.
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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/1736848/
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535 F. Supp. 366 (1981)
Irene BROOKS, Plaintiff,
v.
ASHTABULA COUNTY WELFARE DEPARTMENT, Ashtabula County Commissioners, Defendants.
Civ. A. No. C78-62Y.
United States District Court, N. D. Ohio, E. D.
May 7, 1981.
*367 Kathryn J. King, Alan I. Goodman, Cleveland, Ohio, for plaintiff.
Mark S. Gervelis, Asst. Prosecutor, Jefferson, Ohio, Malcolm C. Douglas, Cleveland, Ohio, for defendants.
MEMORANDUM AND ORDER
ANN ALDRICH, District Judge.
This action was brought by the plaintiff Irene Brooks against the defendants Ashtabula County Welfare Department, the Ashtabula County Commissioners, and the Department of State Personnel,[1] alleging sex discrimination in employment in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and 42 U.S.C. § 1983.
Ms. Brooks specifically alleges that the Welfare Department has operated and continues to operate under a policy, practice, custom, or usage of discrimination against her, and against other female employees, on the basis of sex in (1) the terms, conditions and privileges of employment; (2) the assignment of job classifications; and (3) areas of promotion. Brooks further alleges that the County Commissioners have acquiesced in these discriminatory practices to her detriment, and to the detriment of other female employees. She seeks declaratory and injunctive relief, compensatory and punitive damages, and attorney's fees. This Court has jurisdiction.
Upon consideration of the evidence adduced at a two-day trial, stipulations, and briefs of the parties, the Court finds that the defendant Department's policies and practices with regard to the terms, conditions and privileges of employment; job assignments and classifications; and advancement and promotional opportunities are discriminatory on the basis of sex, in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and also 42 U.S.C. § 1983. Further, the Court finds that the Ashtabula County Commissioners have acquiesced in these discriminatory practices.
FINDINGS OF FACT
I
The Ashtabula County Welfare Department (Department) is under the control of the Ashtabula County Commissioners (Commissioners), pursuant to the provisions of Ohio Revised Code §§ 329.01-329.05. The Department is the body authorized to provide social services to the residents of Ashtabula *368 County including general relief, aid for the aged, aid to dependent children, aid for the disabled, the food stamp program, medicaid, and other specialized programs. The Department is administered by John H. Koren, who has the ultimate responsibility for hiring and promotional decisions. When Koren became the Director in 1959, there were 10 employees in the Department; by 1970, there were 43; and the Department had 74 employees at the time of trial.
Plaintiff Irene Brooks was first employed by the Department on May 1, 1963, and was certified as a Caseworker I on January 15, 1964, at a salary of $330 per month. She had completed over three years toward her college degree, and had three years' experience as a school teacher. Brooks was classified as a Caseworker II in 1964, and in 1967 she was a Caseworker III. Neither of these classifications was at the supervisory level.
When the State of Ohio modified certain of its social services procedures in 1969, case work in the Department was divided between an Intake Section and an Ongoing Section. Brooks was assigned to the Intake Section. Her new duties included processing applications for the various services provided by the Department, and determining eligibility on a periodic basis. Brooks' responsibilities have remained fairly constant since 1969, although her position has since been reclassified by the State of Ohio.
Brooks made requests for a supervisory promotion during the late 1960s; however, Koren advised her to complete the requirements for her college degree. This was despite the fact that Caseworker IV was the supervisory classification for those caseworkers without college degrees. In 1970, Thomas Schullery became Brooks' supervisor and requested her to train and supervise new employees, including caseworkers and some Social Workers who had college degrees. These additional responsibilities were assumed by Brooks at the same time that she carried on her usual duties, and without additional compensation. Brooks made additional requests for promotions through Schullery, who had begun evaluating Brooks' performance and had found her to be a very good employee. Between 1970 and 1973 Schullery, on several occasions, recommended Brooks for promotion to Caseworker IV, but Koren informed him that there were several other people Koren wanted to promote first. Once it became obvious to Schullery that Brooks would not be promoted, he relieved her of her training and supervisory responsibilities.
Additional evidence of the promotion policies and practices of the Department was presented by Brooks.[2] The witness Judy Beahon (Van Allen), a female with an undergraduate degree in Social Work, was hired by the Department in June, 1969 as a Social Worker I, Step 1, Range 16. In January, 1970, Thomas Schullery, a male with an undergraduate degree in Bible Studies, was hired in the same classification. Schullery became the Supervisor of the Intake Section in May 1970; and he and Beahon were classified and paid equally in January 1971. However, by July 1971, Beahon was a Social Worker II, Step 2, Range 18; and Schullery was a Social Worker III,[3] Step 2, Range 21, with a higher salary. By December 1972, Beahon was at her same classification while Schullery moved up to Social Worker IV, Step 2, where he remained until his resignation in 1975. Openings for the positions of Social Worker III and IV, to which Schullery was promoted, were never posted or otherwise announced to the staff.
Paul Fuller was another male who began with the Department after Beahon was *369 hired, with the same rank, unit, and duties as Beahon. Between 1970 and 1974, Fuller advanced from Social Worker I to Social Worker IV;[4] and in 1973, he was promoted to Supervisor of the new Social Services Unit. There was no posting for this new unit, nor were there postings or competitive examinations for Fuller's position. His promotion was announced, after it was known, at a staff meeting as a result of questioning by other employees.
Beahon's uncontraverted testimony was that she possessed the minimum qualifications for a supervisory position, that she requested promotions, by letter, in 1973, but that Koren never responded.
During the years 1970 through 1975, there were no female employees, in a non-clerical category, with the title, compensation, and duties of supervisor. Koren contends that throughout his tenure female employees have held supervisory positions, commencing with a Mrs. Osborn, who acted as a "working supervisor"[5] in the late 1960s. He also named Mrs. Kaufman and Mrs. Zalemini. Other witnesses, however, testified that these women never supervised anyone. Kaufman had the title Intake Supervisor, but this is the position Schullery took over in May 1970, and he testified that he supervised Kaufman, although she was classified as a Caseworker IV. Zalemini was in the Medicaid Unit, and there was testimony that she was the only one in the unit for a period of time prior to 1973.
The parties stipulated that during the 1970 through 1975 period, the Department did not post job vacancies, including those at a supervisory level. Moreover, there was no table of organization to show the supervisory chain of command; the number of potential positions at various levels; those positions designated as supervisory, and the numbers of positions and/or departments supervised by those persons in supervisory positions. There also was no policy or procedure for competitive bidding or examinations for promotional vacancies. It was Koren's testimony that the Department has never posted announcements for promotions into supervisory positions because he viewed those decisions as management's prerogative. Although he was aware that the Ohio Administrative Rules required merit selection of employees, Koren viewed those requirements as "recommendations" only.
Supervisors were never required to make written evaluations of the employees on a regular basis. Those evaluations that were written usually were not placed in the employees' files, and were not relied on by Koren when he made promotional decisions. Instead, Koren relied on his personal evaluation of the individuals, using standards established by him. He articulated those standards for supervisory qualifications as including: (1) minimum qualifications as contained in the job specifications provided by the State of Ohio; (2) a positive outlook toward one's fellow man; (3) the ability to absorb rules and regulations; (4) the ability to take and give instructions; (5) the ability to get along with one's fellow man; and (6) an understanding of human need. Koren explained that these standards were not contained in any written documents, but were maintained in his head, and were uniformly and consistently applied by him whenever he made the decision to promote a given employee into a supervisory position.
With regard to Brooks, Koren denied that Schullery had ever recommended her for promotion. However, he did acknowledge that Brooks wrote him letters asking why she was never promoted. He explained *370 that, in his judgment, Brooks was abrasive and judgmental in her attitude; and that she had engendered complaints from other agencies, lawyers, doctors, co-workers, and clients. He also felt that she had a propensity for making arbitrary moral judgments with respect to welfare clients. On cross examination, however, Koren admitted that there was no record of any complaint from any source in Brooks' personnel file. There was also no evidence that Koren ever discussed any complaints or problems with Brooks. Further, Koren did receive favorable evaluations from Schullery, which were contained in Brooks' file.
Koren also stated that Judy Beahon was never promoted because he did not consider her to be "as good", either.
In addition to those females previously named, Koren testified that other female supervisors were June Johnson, who began supervising the clerical staff, with 12 full-time and 6 part-time employees, in 1973; Eleanor Peckol and Janet Tomko, who became supervisors in 1976; and several other females who were promoted thereafter.
Janet Tomko, who was Brooks' supervisor from February 1976 to March 1979, testified that she reported to Koren that Brooks' performance was uneven, though acceptable, ranging from minimum to very good; her temperament was uneven, and that she sometimes exhibited an intolerant attitude toward clients. Tomko did not recommend Brooks for promotion; neither did she make written evaluations of Brooks' performance. In fact, any evaluations of employees supervised by Tomko were made in periodic oral discussions with Koren.
Tomko testified she was unaware of any discriminatory policy in the Department. However, she did admit that she had made applications for promotions, whenever positions became vacant, from the inception of her employment, in 1970, as a Social Worker II.[6] She was not promoted, however, and she remained in that classification until January 1976, when she was reclassified as an Income Maintenance Worker III. In 1975, she was given "quasi-supervisory" dutiesi.e., two clerical staff members were added to her responsibilitiesand it was not until February 1976, that she was promoted to Intake Supervisor[7] with the classification Income Maintenance Worker IV.
II
According to the job specifications promulgated by the Department of State Personnel, the nonclerical positions which did not require a college degree were Caseworker III and IV; Investigators I, II, and III; and Administrative Specialists I, II, and III. In December 1967, Robert McCoy became the first investigator hired by the Department, and was classified as an Investigator II, Step 2, with a salary of $499 per month. By November 1968, he was an Investigator III, at $572 per month. Prior to the creation of the Investigator's position in the Child Support Unit, the duties of the investigators were performed by the caseworkers. All of the investigators' positions were filled by males. June Johnson, who supervised the clerical staff and acted as personnel officer, was the only female classified as an Administrative Specialist.
The males who filled these positions during the years 1967 through 1973 did not have college degrees, and had not worked for the Department prior to obtaining these positions. The parties stipulated that through her work and educational experience, Brooks possessed the minimum qualifications for all of these positions. However, there were no announcements or posting of vacancies for the positions prior to the time they were filled. Therefore, Brooks, and other females within the Department, were never given any opportunity to compete, or even to apply, for the positions.
*371 III
In 1971, three employees of the Department[8] complained to the Commissioners about personnel practices within the Department. At the request of the Chairman of the Commission, the Ashtabula County Welfare Advisory Board conducted a study of the Department and made a written report to the Commissioners in June 1971. Included in the report were recommendations for greater communication between the Commissioners and the Director of the Department, and for the institution of written policies, written evaluations every six months, and merit promotions within the Department.
Koren indicated that he was not aware of the employees' written complaint until preparation for trial, but he was aware of the Advisory Board's recommendations as soon as they were sent out. He testified that after the policies came down from the Board, he complied as much as he could.
There was no evidence presented to show that the Commissioners did anything further to remedy the situation in the Department, although they were made aware of the problems as early as 1971.
IV
The impetus for plaintiff bringing this action appears to be the hiring of Ralph Butler in 1973. Although not alleged in her Complaint, Brooks specifically alleged in her charge before the E.E.O.C., and at trial, the disparity between her position and treatment as an employee, in the terms and conditions of her employment, and that of Butler, a nondegreed male with two years college experience. Butler began working for the Department on April 19, 1973, in a position similar to Brooks', but at a higher classification and higher salary. At the time Butler was hired, Brooks had been with the Department for 10 years, and was classified as a Caseworker III, Step 5, with a bi-weekly salary of $314. Butler was hired as an Administrative Specialist II, Range 18, Step 3, with a bi-weekly salary of $339.20.
Butler was hired into a newly created position in the Medicaid Unit. His duties included taking applications and making evaluations for eligibility in the Medicare program. Koren explained that Butler was hired into this position because of Koren's need for personnel to work in the intake process in the Medicaid Unit; with nursing home management, families, and funeral directors; and his need for someone with the ability to work with people. Although Brooks had all of these qualifications, Koren admitted that she was never considered for the position.
Butler's experience was that of a dairy farmer, a tester of milk for butter fat, and 8 years as an interviewer with the Ohio Bureau of Employment Services (OBES). Koren testified that Butler had been "laid-off" from his position with OBES as a result of a state-wide patronage ouster of holdover employees. He further explained that Butler's job classification and salary resulted from Koren's understanding that Butler was making a lateral transfer as a State employee, and that his compensation should not be diminished. Butler's last annual salary at OBES was $8,486; his beginning salary with the Department was $8,819.
The positions held by Brooks and Butler required the same qualifications and had essentially the same duties and responsibilities. This is underscored by the fact that when the State of Ohio reclassified all employees on January 4, 1976, both positions were reclassified as Income Maintenance II, Range 27. However, Brooks was at Step 2, with a base hourly rate of $4.80; while Butler was at Step 5, with a base hourly rate of $5.55.
The evidence showed that step increases are automatically given each year, and are based on longevity rather than on merit. However, in July 1976 and July 1977, *372 Brooks received increases to Steps 3 and 4, respectively, while Butler did not receive any step increase.[9] As of July 2, 1978, Brooks was also at Step 5 and she and Butler received the same salary. In 1979, they were both reclassified as Income Maintenance Worker III, with Brooks at Step 4 and an increase in pay; Butler was at Step 3 with no increase. By July 1, 1979, and until the time of trial, Brooks' salary was greater than that of Butler.
V
Defendants also introduced evidence to show the policies and practices that have existed in the Department since 1976. There is presently a table of organization which is not posted, but is kept in Mrs. Johnson's office, and is made available to interested employees. The same is true of job specifications. The procedure for job openings now is to verify with Administrative Services whether there is a certification list. If there is not, positions are posted within the Department. When the posting period is over, the supervisors review the applications and determine, through his/her own methods, whether the applicant is qualified for the position, or whether the supervisor wants the applicant on his/her team. There are no written, or otherwise articulated, guidelines to aid supervisors in making this determination. Written evaluation forms are not mandatory, and are used by supervisors on an irregular basis.
Additionally, the majority of supervisors in the Department are now female.
CONCLUSIONS OF LAW
I
Defendants contend that most of plaintiff's complaints are centered around events which occurred prior to March 24, 1972, the effective date of the extension of Title VII to the States and their subdivisions, and are thus irrelevant. It is true that a public employer who may have purposely maintained policies and practices of discrimination prior to March 24, 1972, would not violate Title VII if all of its employment decisions are made in a wholly nondiscriminatory way after that date. Hazelwood School District v. United States, 433 U.S. 299, 309, 97 S. Ct. 2736, 2742, 53 L. Ed. 2d 768 (1977). The Supreme Court did note, however, that there are some circumstances under which pre-Act discrimination may have some probative value:
... Proof that an employer engaged in racial discrimination prior to the effective date of Title VII might in some circumstances support the inference that such discrimination continued, particularly where relevant aspects of the decision-making process had undergone little change....
Id., at 309, 97 S.Ct. at 2742, n. 15.
Most of the "relevant aspects of the decision-making process" in this case underwent no change until 1976four years after the effective date of the Act. Some of those aspects, such as the selection process for promotional vacancies and supervisory personnel had not changed by the time of trial in 1980. Therefore, this Court considers the historical and background evidence presented by plaintiff Brooks to be relevant to the issue of defendant's policy, practice and custom of discrimination.
Plaintiff also alleges a violation of 42 U.S.C. § 1983. It is clear that pre-1972 evidence is relevant and probative of that issue.
II
Plaintiff proceeded to trial on her claim for recovery under Title VII on a disparate treatment theory. In distinguishing disparate treatment from its related theory, disparate impact, the Supreme Court noted, in International Brotherhood of Teamsters v. United States, 431 U.S. 324, 97 S. Ct. 1843, 52 L. Ed. 2d 396 (1977):
*373 `Disparate treatment' ... is the most easily understood type of discrimination. The employer simply treats some people less favorably than others because of their race, color, religion, sex or national origin. Proof of discriminatory motive is critical, although it can in some situations be inferred from the mere fact of differences in treatment.... Undoubtedly, disparate treatment was the most obvious evil Congress had in mind when it enacted Title VII....
Claims of ... `disparate impact' ... involve employment practices that are facially neutral in their treatment of different groups but that in fact fall more harshly on one group than another and cannot be justified by business necessity.... Proof of discriminatory motive, ... is not required under a disparate-impact theory....
Id., at 335, 97 S.Ct. at 1854, n. 15. It is clear that under the disparate treatment theory, proof of discriminatory motive is critical to plaintiff's case. This critical finding can be established, however, if the plaintiff can sustain her initial burden of a prima facie showing as set forth in McDonnell-Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973). See Teamsters, supra 431 U.S. at 358, 97 S.Ct. at 1866.
The basic allocation of the burden of proof in a disparate treatment case under McDonnell-Douglas, and as reaffirmed in the Supreme Court's recent decision in Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 101 S. Ct. 1089, 67 L. Ed. 2d 207 (1981), is that:
First, the plaintiff has the burden of proving by the preponderance of the evidence a prima facie case of discrimination. Second, if the plaintiff succeeds in proving the prima facie case, the burden shifts to the defendant `to articulate some legitimate, nondiscriminatory reason for the employee's rejection.' ... Third, should the defendant carry this burden, the plaintiff must then have an opportunity to prove by a preponderance of the evidence that the legitimate reasons offered by the defendant were not its true reasons, but were a pretext for discrimination.
Id., at 252, 101 S.Ct. at 1093. The "appropriate model"[10] for a prima facie case of discrimination under McDonnell-Douglas is that the plaintiff must show (1) that she belonged to a protected class; (2) that she applied for and was qualified for a position for which the employer was seeking applicants; (3) that despite her qualification, she was rejected; and (4) that, after her rejection, the position remained open and the employer continued to seek applicants from persons of plaintiff's qualification. Id. at 802, 93 S.Ct. at 1824.
By making this prima facie showing the plaintiff has supplied the Court with sufficient proof to "infer discriminatory animus because experience has proved that in the absence of any other explanation it is more likely than not that ... [the employer's] actions were bottomed on impermissible considerations." Furnco Construction Corp. v. Waters, 438 U.S. 567, 580, 98 S. Ct. 2943, 2951, 57 L. Ed. 2d 957 (1978).
Plaintiff Brooks' evidence sustained her burden of establishing a prima facie case of sex discrimination with regard to the terms and conditions of employment; assignment of job classifications and promotional opportunities within the Department; and the specific allegations about the hiring of Ralph Butler, including the equal pay aspect of those allegations. She is a member of a protected class. Defendants stipulated that she was qualified for the positions of Investigator I, II and III, and Administrative Specialist I, II, and III; however, she was never considered for these positions. She could not apply for them because there was never any information provided to apprise her of their availability. *374 All of these positions were filled by males. Brooks did apply for and was qualified for promotion to the position of Caseworker IV. There was no evidence that the promotion position sought by Brooks was filled by a male; however, there was evidence of the disparate treatment of other qualified females, including defendants' own witness, Janet Tomko, who sought supervisory promotions but were rejected, and the positions were subsequently filled by males.
During the period 1970 through 1975, male employees were substantially outnumbered by female employees; however, there were substantially more male supervisors than female. Additionally, the males were given preferential treatment by being placed in better positions, in higher classifications and pay ranges, and by progressing more rapidly in the Department than were the female employees. Males who began in the same positions as females quickly rose above them and continued to progress while their female counterparts remained in the same jobs, or progressed at a much slower rate.[11] Thus, in this pattern or practice action Brooks sustained her initial burden of demonstrating that "unlawful discrimination has been a regular procedure or policy followed" by the Department. See Teamsters, supra 97 S.Ct. at 1867.
Once plaintiff establishes a prima facie case of sex discrimination the burden of production shifts to defendants. It is sufficient if defendants' evidence (of a legitimate, nondiscriminatory reason for its actions) raises a genuine issue of fact as to whether it discriminated against the plaintiff. See Burdine, supra at 255, 101 S.Ct. at 1094. There the Court further explained that:
[t]o accomplish this, the defendant must clearly set forth, through the introduction of admissible evidence, the reasons for plaintiff's rejection. The explanation provided must be legally sufficient to justify a judgment for the defendant. If the defendant carries this burden of production, the presumption raised by the prima facie case is rebutted, and the factual inquiry proceeds to a new level of specificity.
Defendants offered no evidence to rebut the legally mandatory presumption of sex discrimination with regard to the terms, conditions, and privileges of employment, or assignment of job classifications, for the years 1970 through 1975. Because no issue of fact remains as to those issues, the Court must enter judgment for the plaintiff. See Burdine, supra at 254-255, 101 S.Ct. at 1094-1095.
Koren's justification for refusing to promote Brooks was that she manifested certain characteristics that he felt were inappropriate for a supervisory position, and also because of the complaints he had received from outside and within the Department regarding Brooks. The question of Brooks' ability to get along with people, especially co-workers and clients, bears heavily on the determination whether she was not promoted because she is a female. Defendants cite Shack v. Southworth, 521 F.2d 61 (6th Cir. 1975) as upholding a refusal to hire a minority applicant because of his attitude. Defendants misstate that case. Shack v. Southworth involved a situation where the plaintiff, a black, was one of five applicants (out of more than 70 screened) chosen for a final examination and interview for two openings for deputy sheriff. The plaintiff scored highest of the five on the written examination, but was rated third by the board conducting the oral interview. It was determined that although qualified, the plaintiff, even by his own admission, had no real interest in working for the sheriff's department. Consequently, plaintiff in that case did not get one of the two jobs, but was notified that he would be, and actually was, hired when the next vacancy occurred. In addition, the *375 plaintiff could identify no qualified black applicants who had been denied employment; and there was evidence by an NAACP representative that defendant was willing to hire qualified black applicants but none had been referred by a county committee created to promote hiring of minorities.
Also cited by defendants is Van de Vate v. Boling, 379 F. Supp. 925 (E.D.Tenn.1974), where the Court upheld defendant's decision not to rehire the plaintiff because of her "personality", and because she "would not fit in with the staff". In that case there were a number of witnesses for both sides who testified to plaintiff's ability or inability to get along with people. The evidence showed that the defendant made efforts to hire personnel on the basis of their qualifications as well as their ability to fit in with the staff. Further, these hiring decisions were made in light of applicable university regulations, and there was nothing in the record to indicate that sex had anything to do with the refusal to hire the plaintiff.
We do not have either of these situations in this case. Unlike the plaintiff in Shack v. Southworth, Brooks was very interested in being promoted to a supervisory or better paying position but was never even considered, although she demonstrated her ability to function in a supervisory capacity. Further, there was no evidence at all of any willingness on the part of defendants to promote qualified females to supervisory positions. Indeed, the evidence showed a definite unwillingness by Koren to promote females or place them in the better paying positions prior to 1976. The only evidence presented with regard to Brooks' ability or inability to get along with people was Koren's own testimony. This testimony was sufficiently discredited by Schullery's favorable evaluations and recommendations for Brooks' promotions during the 1970-1975 period, as well as Koren's own admission that he had no evidence to support his claim that he received complaints about Brooks. Tomko's testimony is not relevant to this time period since she did not become Brooks' supervisor until 1976.
Olson v. Philco-Ford, 531 F.2d 474 (10th Cir. 1976), another case cited by defendants, considered the question whether the promotion of a qualified male rather than a qualified female, competing for a single opening, was sufficient to establish a prima facie case of sex discrimination. The Court held that, standing alone, such showing was insufficient. In Olson, as here, the defendant did not post notices of vacancies and did not conduct formal interviews. However, unlike the situation here, there was no showing that in carrying on these practices the defendant engaged in sex discrimination. Indeed, the plaintiff in Olson knew of the vacancy and was interviewed by the Associate Director of the company, who made recommendations to the Director. Additional evidence showed that the Director considered all available information including recommendations received. The defendants' stated reasons for promoting the male in Olson were his apparent ability in leadership and public relations, and his demonstrated relationship with other staff members. While those reasons were not totally objective, there was no other evidence before the Court, including statistical evidence, to show the defendants' promotion policies.
In this case, the overall evidence shows that during the 1970-1975 period, the Department maintained a policy and practice of promoting males to supervisory positions within a short period of their initial employment with the Department. Female employees, on the other hand, were either put off for various reasons, made "working supervisors", or completely ignored when they made requests for promotions.
This disparity in treatment directly results from the fact that promotional decisions were within the sole discretion of the Director, John Koren. During the relevant time period the Department used no regular, written evaluations of its employees, or any other objective means by which to determine the employees best qualified for periodic promotions, and promotions to supervisory positions; moreover, there was a *376 failure to observe the state employees' merit system. In most instances supervisory (and other vacancies) were filled from within, or by hiring new personnel, before existing employees were even aware that a vacancy existed.
The Sixth Circuit Court of Appeals has stated, in Abrams v. Johnson, 534 F.2d 1226 (6th Cir. 1976), that absolute discretion over employment decisions where subjective race prejudice may control is no longer consistent with our law. See also Senter v. General Motors, 532 F.2d 511 (6th Cir. 1976), and Rowe v. General Motors, 457 F.2d 348 (5th Cir. 1972). This Court is of the opinion that the same principle holds true in sex discrimination cases.
In Rowe, hourly employees were seeking transfers or promotions to salaried positions. The promotion process was two-fold employer initiated or employee initiated and in both, the foreman's recommendation was required. That recommendation was partly based on the foreman's subjective evaluation of an employee's "ability, merit, and capacity". Seniority was not a factor, although experience was an indirect consideration. Prior to trial (as here), job openings were not posted and employees were not aware of openings or of qualifications necessary to obtain such jobs. The Court recognized that procedures which depend almost entirely on the subjective evaluations and favorable recommendation of the immediate foreman are a "ready mechanism" for covert discrimination. Those factors, which are present in this case, are:
1. the foreman's recommendation [here, the Director's determination] is the indispensable, single most important factor in the promotion process;
2. the foreman is given no written instructions regarding the qualifications necessary for promotion [here, the Director uses no objective criteria to determine qualifications];
3. the standards determined to be controlling are vague and subjective;
4. employees are not notified of promotional opportunities nor the qualifications necessary for promotion;
5. there are no safeguards in the procedure designed to avert discriminatory practices.
Although Rowe was a disparate impact case, this Court is of the opinion that these factors are equally applicable in this disparate treatment case.
Defendants emphasize the fact that since 1976, the majority of supervisory promotions within the Department have been females, and that there are specific procedures used in making promotional decisions. While the Department's venture into the 20th Century is to be commended, "present good faith compliance is no defense as to past practices which have resulted in present damage." Marquez v. Omaha District Sales Office, Ford Division, 440 F.2d 1157 (8th Cir. 1971). The Department's recent changes in its promotion policies are of little comfort to Brooks, and others, who are victims of the earlier post-Act discrimination. These recent changes cannot erase the Department's previous illegal conduct, nor its obligation to afford relief to those who suffered because of it. See Teamsters, supra, 431 U.S. 342, 97 S. Ct. 1858.
Further, the procedures utilized by the Department at present are almost as faulty as those used prior to 1976, because heavy reliance is still placed on the subjective evaluations and determinations of the supervisors who review the applicants for promotions.
While the defendants need not actually persuade the Court that they were motivated by the reasons stated, they surely must produce enough evidence to raise a genuine issue of fact as to whether plaintiff was the victim of sex discrimination. Burdine, supra at 255, 101 S.Ct. at 1094. This defendants failed to do.[12] Accordingly, the Court finds that the plaintiff's evidence was sufficient *377 to prove by a preponderance of the evidence that defendants' explanation of their actions was in fact a pretext for discrimination, and that defendants' policies and practices were designed to, and did, discriminate against its female employees, and Irene Brooks, on the basis of sex in violation of Title VII.
III
With regard to the specific allegation about the hiring of Ralph Butler, defendant articulated a legitimate, nondiscriminatory reason for its decision to hire Butleri.e., the need for additional personnel, and Koren's belief that Butler was a transfer from the State of Ohio payroll rather than a new hire. Support for this contention may be found in Koren's letter, dated April 16, 1973, in which he sought the Commissioners' permission to proceed with Butler's "transfer". (See Plaintiff's Exhibit 5d).
Plaintiff offered no rebuttal testimony on this issue but did request the Court to take judicial notice of inter alia, Ohio Revised Code § 124.32 regarding transfers. Upon consideration, the Court finds that this statute alone is insufficient to allow the Court to determine whether or not Butler was actually a transfer.[13] Nonetheless, even if Butler did in fact make a lateral transfer, Koren's explanation of Butler's salary is insufficient. While Koren might have operated under the belief that Butler's salary should not be diminished, surely he did not believe that state law required him to increase Butler's salary. At least that much is clear from the statute.
Accordingly, the Court finds that the limitation contained in the equal pay requirement of Title VII (42 U.S.C. § 2000e-2(h)) does not apply. Had Butler been "transferred" at his same rate of pay, which in itself was higher than that of Brooks, the situation might be different. Because his salary was increased, the Court finds, upon considering all of the evidence demonstrating that the better paying positions were held by male employees, that the pay differential was based on sex in violation of Title VII.
IV
Brooks' final claim is based on 42 U.S.C. § 1983. Defendants cite Washington v. Davis, 426 U.S. 229, 96 S. Ct. 2040, 48 L. Ed. 2d 597 (1976), for the proposition that plaintiff must prove by a preponderance of the evidence, that defendants were motivated by a discriminatory purpose in their personnel decisions. In Washington v. Davis, the Supreme Court was reviewing a Title VII disparate impact case with allegations of equal protection violations, and violations of § 1981. The Court held that Title VII standards should not be applied in determining constitutional violations, and that proof of racially discriminatory intent is required to show a violation of the Equal Protection Clause.
Here, we are not dealing with facially neutral policies or rules which impact disproportionately on women. In disparate treatment cases, such as the one here, the employer simply treats some people less favorably than others for impermissible reasons. The inquiry then under § 1983 and Title VII becomes the same. Once the plaintiff establishes a prima facie Title VII case under McDonnell-Douglas, supra, which is not rebutted by defendants, then plaintiff has proved, by a preponderance of the evidence, that the defendants were motivated by a discriminatory animus in violation of Title VII and § 1983.
During 1970 through 1975, females made requests for and were qualified for promotions to supervisory positions, but *378 were not even considered by Koren. On the other hand, males were almost automatically promoted to supervisory positions, or were given higher classifications with higher salaries. When Thomas Schullery was promoted from Social Worker I to Social Worker III, without the requisite qualifications, Judy Beahon and Janet Tomko (both of whom were qualified) were seeking and were denied promotions in the Social Worker classifications. Those women identified by Koren as supervisors were either titular supervisors only, or were "acting" supervisors without the benefits of pay or grade increases.
The Court notes the yeoman's task performed by Koren and the difficulties and challenges he initially faced in organizing the Welfare Department and providing needed services to the residents of Ashtabula County without the benefit of definitive directions or guidelines from the State of Ohio. By the time the Department began to grow from its initial 10 employees, guidelines by which certain personnel decisions were to be made had been promulgated; however, they were largely ignored by Koren. Further, the few evaluations and recommendations made by supervisors were also ignored, and Koren created his own policies and procedures which insured males better positions, higher pay, and greater advancement opportunities, to the detriment of the female employees, and Irene Brooks. Therefore, the Court finds that Brooks has sustained her burden of proving that the Department, through Koren, purposely discriminated against female employees on the basis of their sex in violation of 42 U.S.C. § 1983.
V
The final issue in this case is the relief to be afforded plaintiff Brooks, including the amounts and types of damages to be awarded. Pursuant to her Title VII claim, Brooks is seeking, in addition to a declaratory judgment, (a) permanent injunctive relief; (b) back pay; (c) attorney's fees and costs; and (d) an order of the Court retaining jurisdiction of this case until such time that defendants' unlawful activities have ceased. Under the § 1983 claim Brooks is seeking all of the above enumerated relief, plus compensatory and punitive damages.
The Court finds that Brooks is entitled to a permanent injunction against the defendants. The Court further finds that Brooks is entitled to a promotion to a supervisory position. While it is unclear what Brooks' supervisory classification would be at this point, it is clear that she should have been promoted to Caseworker IV at least as early as 1970. Therefore, Brooks is entitled to back pay in an amount which is the difference between what she earned and what she would have earned had there been no discriminatory denial of her promotion.
Title 42 U.S.C. § 2000e-5(g) provides that "[b]ack pay liability shall not accrue from a date more than two years prior to the filing of a charge" with the E.E.O.C. Brooks filed her charge with E.E.O.C. on July 3, 1973. The two-year limitations period would permit recovery from July 3, 1971; however, because Title VII was not made applicable to defendants until March 24, 1972, back pay liability under Title VII must be limited to that date. See Johnson v. Goodyear Tire & Rubber Co., 491 F.2d 1364 (5th Cir. 1974).
Prior to the 1972 amendments the period of back pay liability has been interpreted as being controlled by the most applicable state statute of limitations. See E.E.O.C. v. Detroit Edison Co., 515 F.2d 301 (6th Cir. 1975). The most analogous Ohio statute is Ohio Revised Code § 2305.10, with a two-year limitations period. Therefore, the Court finds that Brooks is entitled to compensatory damages in the form of back pay from July 3, 1971, on her § 1983 claim. Plaintiff Brooks presented no evidence of entitlement to any other compensatory damages. Nor was there any showing by plaintiff of any malice or willfulness which would warrant an award of punitive damages in this case.
Accordingly, it is hereby Ordered that the defendants are permanently enjoined and restrained from further operating under *379 any policy, practice, custom, or usage of discrimination against female employees on the basis of their sex in the terms, conditions, and privileges of employment; in the assignment of job classifications; and with regard to promotions.
It is further Ordered that the Department adopt policies which ensure that all employees are judged on a fair and impartial basis without regard to sex. These policies shall include (but shall not be limited to):
1. the announcement and posting of position vacancies and promotional vacancies, including those at the supervisory level;
2. the posting of job specifications for those positions in which vacancies exist;
3. the requirement that supervisors make periodic written evaluations of employees, which shall be kept in the employees' personnel files; and
4. the development of objective criteria or guidelines by which supervisors may determine whether applicants are qualified for position openings.
It is further Ordered that Plaintiff Irene Brooks be promoted to the appropriate supervisory position she would presently hold had she been promoted to Caseworker IV in 1970.
It is further Ordered that Brooks recover of defendants back pay, plus 8% interest, from July 3, 1971, to the date of judgment in this case. Brooks is also entitled to recover her attorney's fees and costs.
It is further Ordered that Plaintiff prepare and file with the Court documentation of the amount of back pay and attorney's fees and costs, by May 18, 1981. Defendants may file any objections within seven (7) days thereafter.
This Court is of the opinion that the injunctive relief granted is sufficient to ensure defendants' compliance with the law. Therefore, the Court will not retain jurisdiction in this case.
IT IS SO ORDERED.
NOTES
[1] By agreement of the parties, the Department of State Personnel has been dismissed.
[2] The Court notes that this action is brought by Brooks as an individual, rather than as a class representative; however, the Court deems the overall evidence presented by Brooks with regard to policies and practices toward female employees, as a group, highly probative of the question whether Brooks, as an individual, was the victim of sex discrimination as a result of these policies and practices.
[3] Schullery's uncontroverted deposition testimony was that he had requested a promotion to Social Worker II, but that Koren insisted that he would be promoted to Social Worker III.
[4] When Koren requested Fuller's promotion from Social Worker II to Social Worker III, in his November 8, 1972 letter to the Department of State Personnel, he indicated that Fuller did not have enough time in the Social Worker II grade, however, because Fuller was "filling the shoes" of a former employee, Koren felt that time in grade was "of little importance." See Plaintiff's Exhibit 5b.
[5] "Working supervisor" was defined by Koren as one who did not get a grade increase. The witness Beahon testified that Mrs. Osborn was under the supervision of Leonard McDaniels; she supervised employees under McDaniels in a similar fashion to Brooks' supervision of employees under Schullery.
[6] Tomko left the Department in March 1972 and returned in October 1973. Upon her return, she remained a Social Worker II.
[7] The Intake Supervisor's position was filled by Thomas Schullery from 1970 through 1975. He was replaced by Robert Frederick. After Frederick left, Tomko became the supervisor.
[8] Thomas Schullery, Leonard McDaniels (both supervisors), and Phyllis Vanek, Koren's secretary.
[9] This was after Brooks filed her charge with the E.E.O.C., but prior to the filing of the Complaint in this case. It appears that Butler was the only male who did not receive a step increase for those years.
[10] Because McDonnell-Douglas involved racial discrimination in hiring, the Court noted that the enumerated specifications for a prima facie showing would not be applicable in every respect to the varying fact situations that necessarily arise under Title VII. Id., at 802, 93 S.Ct. at 1824, n.3.
[11] Because of the limitations of the statistical information prepared by one of plaintiff's trial counsel, the Court has given no weight to Plaintiff's Trial Exhibits I and II, which were offered to reflect this disparity. Instead, the Court has considered the payroll records of the Department and the defendants' answers to plaintiff's Requests for Admissions, all of which were entered as exhibits.
[12] Although plaintiff offered no rebuttal evidence to show that Koren's explanation was a pretext for discrimination, the Court views the evidence as a whole, including Koren's cross examination testimony, as sufficient to sustain Brooks' overall burden of proof. See Burdine, supra at 255, n.10, 101 S.Ct. at 1095, n.10.
[13] It is difficult for the Court to understand how Butler's termination from OBES could be deemed a "lay-off" (and his subsequent hire by the Department, a "transfer") since that term implies a possibility of being recalled to a former position. Given the political realities of patronage ousters, it is highly unlikely that a recall would occur. Further, Koren's testimony that he hired Butler because of his concern that Butler had been "dropped" by OBES, is an indication that Koren also understood Butler's predicament as being one of termination rather than a lay-off. The Court, however, makes no finding as to this situation.
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535 F. Supp. 1002 (1982)
Laissez-Moi VIGILE, et al., Plaintiffs,
v.
Charles SAVA, District Director of the Immigration and Naturalization Service, Defendant.
Joseph BERTRAND and Pierre Baptiste, Plaintiffs,
v.
Charles SAVA, District Director of the Immigration and Naturalization Service, Kevin Doyle, Deputy Assistant District Director of Detention and Deportation of the New York District of the Immigration and Naturalization Service, Defendants.
Nos. 81 Civ. 7372 (RLC), 81 Civ. 7371 (RLC).
United States District Court, S. D. New York.
March 5, 1982.
*1003 *1004 Immigration Law Clinic by Harriet Rabb and Susan D. Susman, New York Civil Liberties Union by Steven Shapiro, New York City, for plaintiffs Laissez-Moi Vigile, et al.
Mailman & Ruthizer, P.C. by Stanley Mailman and Arthur C. Helton, New York City, for plaintiffs Joseph Bertrand and Pierre Baptiste.
John S. Martin, Jr., U. S. Atty., S.D.N.Y. by Thomas H. Belote, Sp. Asst. U. S. Atty., and Harvey J. Wolkoff, Asst. U. S. Atty., New York City, Steven R. Abrams, Trial Atty., Immigration and Naturalization Service, for defendants.
OPINION
ROBERT L. CARTER, District Judge.
These consolidated petitions for writ of habeas corpus were filed by eight Haitians who arrived in Florida between June and early July 1981. Along with 78 of their countrymen and women, petitioners were transferred from the Immigration and Naturalization Service ("INS") Krome Avenue facility in Miami to the Service Processing Center ("SPC"), an immigration detention facility in Brooklyn, New York. They have been incarcerated at the SPC to the present date.
All eight petitioners have applied for political asylum in this country. All have been subject to exclusion proceedings since early August. Between August 12 and October 9, requests for parole pending final adjudication of the asylum claims were made on behalf of all petitioners. Defendant Charles C. Sava, INS District Director for the New York District, has the authority to grant or deny those requests. See 8 U.S.C. § 1182(d)(5)(A); 8 C.F.R. § 212.5. In all eight cases, Sava refused to exercise his discretion in favor of parole.[1]
*1005 The stated reason for the two earliest parole denials was that the "information presented in [the] request[s] ... are [sic] insufficient to warrant a change in the alien's custody status." Joint Exhibit ("JE")[2] 17, 24. The six early December denials restated the above rationale and added one of two additional justifications. Two responses noted that the Department of State had yet to reply to the asylum applications and that a final decision on custody status would not be made until Sava received such information. JE 19, 23. The remaining four decisions expressly took into consideration Department of State recommendations "in which they stated that the subject has failed to establish a well-founded fear of persecution upon return to Haiti." JE 20, 21, 22, 25.
The habeas corpus petitions allege that Sava has abused his discretionary release authority by acting arbitrarily, capriciously and in sharp contrast to established parole policy. In addition, petitioners contend that Sava's treatment of Haitian "boat people" has been discriminatory in violation of the due process clause of the fifth amendment and the United Nations Convention and Protocol Relating to the Status of Refugees ("Protocol"), a treaty to which the United States is a party. See 19 U.S.T. 6223, T.I.A.S. No. 6557. The government opposes the petitions as both substantively and procedurally infirm. It argues that the court lacks jurisdiction to review the District Director's parole decision, that petitioners have presented the wrong standard for parole determinations, that defendant Sava properly exercised his discretion, that these aliens have no rights under the Constitution or the Protocol and that, in any event, neither the Protocol nor the Constitution has been violated.
JURISDICTION
Petitioners assert that jurisdiction is grounded in 28 U.S.C. § 2241, insofar as they are in custody pursuant to the Immigration and Nationality Act, 8 U.S.C. § 1101 et seq., and such custody allegedly is in violation of the Constitution, the Immigration and Nationality Act, the regulations of the INS, 8 C.F.R. § 1.1 et seq., and the Protocol. Respondent asserts that jurisdiction under the habeas statute is limited to review of the basis of petitioners' incarceration and does not permit, in the absence of a more specific jurisdictional grant, review of parole determinations involving unadmitted aliens.
The habeas writ "lies to enforce the right of personal liberty; when that right is denied and a person confined, the federal court has the power to release him." Fay v. Noia, 372 U.S. 391, 430-1, 83 S. Ct. 822, 844 5, 9 L. Ed. 2d 837 (1963). Habeas relief is available to aliens detained on our shores after being found excludable by immigration authorities. Shaughnessy v. United States ex rel. Mezei, 345 U.S. 206, 213, 73 S. Ct. 625, 629, 97 L. Ed. 956 (1953) (conceding that an excluded alien housed on Ellis Island pending admission to another country "may by habeas corpus test the validity of his exclusion"); see also Rodriguez-Fernandez v. Wilkinson, 654 F.2d 1382, 1390 (10th Cir. 1981). Habeas jurisdiction is properly exercised to stay exclusion orders when the relief sought "inhere[s] in the question of custodial restraint upon liberty." Pierre v. United States, 525 F.2d 933, 936 (5th Cir. 1976). Petitioners, clearly meeting the criteria of the habeas statute, cannot be denied review of the propriety of their detention on the basis of their immigration status.
Respondent's argument confuses jurisdictional issues with those relevant to whether a complaint states a claim upon which relief can be granted. If the statutes and regulations relied upon by petitioners *1006 permit the actions complained of, the petition must be denied on the merits, not for want of jurisdiction. See Fogel v. Chestnutt, 668 F.2d 100 at 105-07 (2d Cir. 1981) (discussing the tendency to confuse jurisdictional and pleading requirements). The precise, restricted nature of jurisdictional concerns, see id., is illustrated by the cases cited by respondent. No explicit mention of the term "jurisdiction" can be found in any decision declining review of exclusion determinations. See, e.g., United States ex rel. Knauff v. Shaughnessy, 338 U.S. 537, 543, 70 S. Ct. 309, 312, 94 L. Ed. 317 (1950); Leng May Ma v. Barber, 357 U.S. 185, 78 S. Ct. 1072, 2 L. Ed. 2d 1246 (1958); Petition of Cahill, 447 F.2d 1343 (2d Cir. 1971). Habeas petitions in these cases were denied as "without merit." Petition of Cahill, supra at 1344; see also Pierre v. United States, 547 F.2d 1281, 1290 (5th Cir.), vacated 434 U.S. 962, 98 S. Ct. 498, 54 L. Ed. 2d 447 (1977), vacated and remanded, 570 F.2d 95 (5th Cir. 1978).
The arguments that parole denials are unreviewable, that aliens are unprotected by either the Constitution or the Protocol and that Sava's conduct conformed with all applicable standards all go to the merits of this habeas action. To those contentions, the court must now turn its attention.
STANDARD OF REVIEW
The Attorney General may in his discretion parole into the United States "for emergent reasons or for reasons deemed strictly in the public interest" any alien applying for admission. 8 U.S.C. § 1182(d)(5)(A). This authority has been delegated by regulation to INS district directors. 8 C.F.R. § 212.5. The government contends that courts in the Second Circuit are without the power to review the discretionary denial of parole. This position derives from Petition of Cahill, supra, in which an alien was denied parole pending a five day adjournment of his exclusion hearing. 447 F.2d at 1343. Despite allegations that such denial was arbitrary and capricious, the court found review barred "as long as [the Attorney General] has exercised discretion under §§ 1182(d)(5) and (6) to deny parole." Id. at 1344; see also Man Chung Lam v. Immigration and Naturalization Service, 79 Civ. 181 (S.D.N.Y.1979) (Lasker, J.) (no judicial power to review revocation of parole of alien physically in the country for thirteen years).
Nonreviewability of parole decisions stems from the long accepted doctrine that the determination to exclude aliens is the province of the political branch of the government. See United States ex rel. Knauff v. Shaughnessy, supra 338 U.S. at 543, 70 S.Ct. at 312. Since neither detention on United States territory nor parole alters an alien's excludable status, Leng May Ma v. Barber, supra 357 U.S. at 188, 78 S.Ct. at 1074, it is not illogical to extend this judicial hands-off policy to parole decisions made in the course of proceedings testing admissability.
Parole adjudications, however, are not completely akin to final exclusion orders. On the most obvious level, the former merely determine the setting and character of an alien's existence until such time as the latter permanent decisions can be reached. Judicial review of the parole process, therefore, does not impinge upon the political judgment to exclude or accept nor interfere with the executive and legislative power to control our borders. It only insures that parole status, which Congress has determined does not necessarily interfere with such control, is conferred by district directors within the bounds anticipated by the delegation of discretion. A determination which governs the treatment of aliens while they await the possibility of admission cannot be left completely to unelected officials. Congress' unlimited authority to exclude does not necessarily imply the district directors' absolute, unreviewable discretion to decide what aliens may and what aliens may not be accorded parole status.
Most of the decisions found establish that parole in the exclusion context will be reviewed, even in this Circuit, in the proper circumstances. Petition of Cahill itself implies a scope of review sufficient to insure that the statutory discretion was in fact exercised. 447 F.2d at 1344. In United *1007 States v. Murff, 260 F.2d 610 (2d Cir. 1958), the Court of Appeals took a more active role in dealing with a Hungarian refugee paroled into this country from Austria. Despite the broad discretion granted the Attorney General to revoke parole, 8 U.S.C. § 1182(d)(5), the court ruled that due process could not be satisfied without a hearing to "give assurance that the discretion of the Attorney General shall be exercised against a background of facts fairly contested in the open." Id. at 615. In light of the unique facts underlying the alien's parole, the court was willing to depart from a broad reading of the parole authority, id. at 613, even though its ruling would lead to the temporary, and perhaps permanent, admission of an alien found inadmissible in an exclusion proceeding. See id. at 612.
In Conceiro v. Marks, 360 F. Supp. 454 (S.D.N.Y.1973) (Wyatt, J.), habeas corpus relief was denied because the court could find no abuse of discretion in the district director's denial of parole to an excludable political asylum applicant. Id. at 457. Abuse of discretion was defined as a decision made "without a rational explanation," in marked, unexplained contradiction of established policy or resting "on an impermissible basis such as an invidious discrimination against a particular race or group." Id.; see also Wong Wing Hang v. Immigration and Naturalization Service, 360 F.2d 715, 719 (2d Cir. 1966) (same standard applied to discretionary denial of application to suspend deportation); Soroa-Gonzales v. Civiletti, 515 F. Supp. 1049, 1058 (N.D.Ga. 1981) (same standard applied in habeas proceeding challenging a district director's revocation of parole); Pierre v. United States, supra, 547 F.2d at 1289. Similarly, in Massoud v. Attorney General of the United States, 459 F. Supp. 672, 677 (W.D.Mo.1978), respondent's denial of advance parole was approved because "a rational basis existed ... for the denial."
These decisions indicate that review for abuse of parole discretion is the norm. While displaying total restraint on issues of exclusion, federal courts have examined the treatment of aliens awaiting that final order. The summary disposition in Man Chung Lam cannot support nonreviewability in light of this series of rulings.
The three-pronged abuse of discretion standard set forth in Wong Wing Hang, supra, is appropriate in the case at bar. Although Petition of Cahill argues for an inquiry limited to whether discretion was exercised, its facts posed no serious problem of discrimination and no special circumstances. The alien seeking parole merely had his hearing delayed five days on his own request and sought parole during that time. Where petitioners faced long-term detention, Soroa-Gonzales, supra, possible discrimination by national origin, Conceiro, supra, or other problems unique to their immigration status, Murff, supra, parole decisions were reviewed under the abuse of discretion standard.
These Haitian petitioners have been incarcerated in substandard facilities for approximately eight months, allegedly pursuant to a program applicable to them alone. Their claims merit use of the stricter analysis. Therefore, defendant Sava will be found to have abused his authority if he failed to exercise his discretion, did so without a rational explanation, inexplicably departed from prior practice or discriminated against Haitians qua Haitians.
FACTS
a) Parole policy. The indicia of abuse of discretion cannot be identified without a clear understanding of the manner in which such discretion is usually exercised. Since Sava is vested with full authority over parole decisions, his description of the relevant criteria is highly probative. Of course, Sava's explanation must be tested against, and interpreted in light of, his parole determinations and any official policies which suggest a different formula.[3]
*1008 We are told that parole applications are given individual attention and are resolved on a case-by-case basis. Sava affidavit at ¶ 6. In each case, the application is reviewed by an immigration case officer, a recommendation is made by that officer and final action is taken by Sava or a delegate. Id. Three major themes pervade Sava's lengthy explanation of the factor analysis performed at the final action stage. Sava determines whether the applicant poses a risk to the community if released, id. at ¶ 7, is likely to abscond, or presents a particularly compelling case for release. Id.
The perceived threat that petitioners would not return for exclusion hearings if paroled is the focus of the instant action. Sava conceded that petitioners pose no threat to the community, Transcript ("Tr.") at 458,[4] and concluded that none possess "humanitarian factors" sufficient to warrant parole. Id. at 406.[5] Finally, he stated that "getting the people to those hearings ... is really the judgment that is being made along the line." Id. at 408. Of the many factors mentioned by Sava as relevant to the parole process, most advance the inquiry into an alien's likelihood of absconding.[6]Id.
An alien's documentation is important to estimate the absconding threat insofar as documented aliens have been through a screening process at a United States consular office abroad and have had their identities and histories examined and verified. Tr. at 402. Extensive screening is performed on aliens applying for both immigrant and non-immigrant visas, see 8 U.S.C. §§ 1201, 1202, but is not required of aliens being transported through the United States as transients without visa ("TWOV" or "TROV"). See 8 C.F.R. § 212.1(e). Thus, "documented" aliens have passports and immigrant or non-immigrant visas while "undocumented" aliens have no documents, false documents, passports without visas or passports with TROV status. See Tr. at 385 (describing as "undocumented" Afghans travelling with "a passport and no *1009 visa or some counterfeit documents").[7] In some respects, Sava's lack of confidence in the identities of undocumented aliens has led him to consider them greater absconding risks. See Tr. at 459.
Sava believes that a paroled alien's future cooperation with INS is determined in part by the conditions of release. Release can be secured through the posting of a bond, an offer of sponsorship or on one's own recognizance. Sava prefers the former approach because it gives greater "leverage" over the parolee. Tr. at 408. He also claims that relatives are preferred over organizations as sponsoring entities. Tr. at 407. The advantage that relatives enjoy over church and civic groups is difficult to explain or to credit. They do not differ in their ability to provide food, shelter and clothing, id., but, according to Sava, are more reliable in their "tracking" capabilities because organizations are responsible for many people. Id. This distinction demonstrates a misunderstanding or misrepresentation of organizational sponsors. Such sponsors, used for many years by INS to help settle refugees, see Pszyk deposition at 8, place each alien in a separate home environment much the same as direct placement with family. See Tr. at 72, 89 (testimony of Livingston Chrichlow); Pszyk deposition at 23-6 (large organization only does initial processing, then local churches place persons and arrange for their sustenance). Thus, rather than risking diffusion of responsibility and rendering tracking less likely, these organizations appear better structured than individual families to provide information needed by INS and to act as liaison between INS and the parolee.[8]
Other factors relevant to parole decisions are an alien's financial condition and job skills, prior immigration history, criminal record and the likelihood that his or her immigration applications will meet with success. Financial condition and past employment are relevant to the extent they vitiate the need for a sponsor to feed, clothe and house the alien. Tr. at 455. Prior immigration history is taken into account when the alien has made a prior entry and complied with all applicable immigration regulations. Id. at 459. A criminal record obviously reduces drastically the Director's confidence in the alien's future appearances and may indicate dangerousness. Sava's review of political asylum documents is limited to determining whether they are frivolous, for inadequate or non-serious papers might indicate a state of mind conducive to absconding. Id. at 414-5.
The parties disagree as to how these various factors and themes coalesce as Sava's parole policy. Petitioners view the record as indicating that "[p]hysical detention of aliens is ... the exception, not the rule, and is employed only as to security risks or those likely to abscond." Leng May Ma, supra 357 U.S. at 190, 78 S.Ct. at 1075. Respondent contends that policy never was formulated in those terms,[9] but puts forth *1010 no coherent alternative. Sava's testimony implies that he doesn't stray far from the Leng May Ma standard. He indicates more of a focus on the statutory language in his search for "emergent reasons" and compelling humanitarian factors favoring parole. He manifests, however, a willingness to grant parole in the absence of such public policy justifications if no threat to the community or risk of absconding would result. When an alien's file is such that Sava does not fear these negative consequences, parole is granted.
b) Parole Determinations. In order to determine whether Sava employed the above standards abusively with respect to petitioners, his resolution of comparable parole requests must be studied. If those granted parole do not possess more of the determinative factors than petitioners, abuse of discretion might be implied.
Petitioners based their fact presentation on file sheets for 183 aliens who arrived in the New York district in 1981 and were subject to exclusion proceedings. They compared the treatment of those 183 aliens with that of the 86 Haitians who were transferred from Miami in July. Sava based his explanations of parole policy and past results on this same sample. However, both sides err in their reliance on the 183 files.
Sava assumed his present position on July 6, 1981. Tr. at 378. Although he analyzed parole determinations made by his predecessors during 1981, he could testify from first-hand knowledge about only those applications on which he acted. Id. at 401. Post-hoc rationalizations of decisions to which he was not a party cannot be accepted as evidence of Sava's parole policy or the even-handedness of its application. Only testimony as to the reasons for Sava's parole choices can be considered "`supplementary articulations of the reasoning behind the original decision'." Massoud, supra at 675.
Ninety-nine of the 183 sheets constituting JE 68 represent aliens whose date of arrival or date of parole indicates that Sava was responsible for the final action taken. This group is still not fairly comparable to petitioners and the other detained Haitians because it includes nine individuals who never applied for political asylum and/or parole or who withdrew their applications and acceded to return to their country of origin.[10]*1011 Thus, Sava acted upon 90 parole requests other than those of petitioners and their peers.
All of the 90 non-Haitian parole applicants were successful in avoiding detention pending final resolution of their exclusion hearings. Yet, many were paroled for reasons clearly not applicable to petitioners. For example, 78 of the 90 excludable aliens had characteristics which qualified them as compelling cases according to Sava's guidelines. Current State Department policy, as interpreted by Sava, foreclosed exclusion hearings for the 65 Afghans in the group for at least one year after their arrival. See JE 66; Tr. at 385-8. These aliens, facing indeterminate periods of detention if not paroled, were released. Tr. at 387 (Sava deemed their situation a "compelling emergency").[11]
Eight humanitarian parolees were aliens arriving in nuclear family groups that included minor children. INS does not detain children, Tr. at 391, and, given his reluctance to fracture families, Sava considers such units "compelling cases for parole." Id. at 398. As cases involving emergent reasons for parole, these did not require the normal inquiry into security or risk of absconding. Thus Sava's conduct with respect to these applications has limited relevance to the instant lawsuit.
By the same token, five Iraqi nationals are not comparable to petitioners. These 5 "had approved applications for service benefits pending" as a result of petitions by relatives in this country able to pass derivative immigration benefits to aliens. Tr. at 396-7.[12] Sava foresaw difficulties in sustaining the government's burden of proof in exclusion hearings concerning these aliens, especially those who arrived from third countries.[13]Id. Both potential immigration benefits and anticipated delays in exclusion proceedings are compelling reasons for parole. Thus, these five aliens were not subject to the risk of absconding factor analysis.
Twelve of the 90 parolees were released pursuant to Sava's factor analysis and, thus, are particularly instructive in examining petitioners' claims. Of these, six were Iraqis,[14] three Iranians, one Dominican, one *1012 Lebanese and one Pole. The vital information from their file sheets will be summarized to aid the comparative analysis to follow.
None of the six Iraqis listed any employment status (with the exception of one student), none posted any bond and none were formally sponsored. All six did state specific United States addresses on their papers, and all had some relatives in this country. They were undocumented aliens, possessing valid passports and transients without visa status.[15] Only one had a prior immigration history, and that was without incident. Three of the six received negative State Department responses to their political asylum applications (after they were paroled), and the others were not responded to.
The status of the three Iranians is less clear from the file sheets. All had passports, and two had temporary non-immigrant visas while the third was travelling without a visa. Although none of the three formally requested parole,[16] it appears that all were released on their own recognizance within a day of their arrival. All three had close relatives in this country, none of whom had any permanent immigration status. Each claimed political asylum, but the files were silent as to the State Department determination on these claims. Two had no employment listed and no prior immigration history while the third was a business trader who had entered this country once before.
As for the remaining three aliens, the Dominican had valid non-immigrant documents, made applications for both asylum and parole, received no State Department reply, posted a $2,000 bond, had an uncle and aunt living in New York (United States citizens) and showed no employment or prior immigration experience. The Pole had similar documentation and pending applications, but had received a negative response from the State Department, posted only a $500 bond, had no relatives here or prior immigration status and was a motor mechanic. Finally, the Lebanese had fraudulent papers, both parole and political asylum applications, no State Department reply, a $1,000 bond, a brother with permanent status in New York, skill as a handbag maker and no prior entries.
Sava viewed petitioners as without sufficient ties to the community to assure their appearance at hearings, unlikely to succeed on their immigration applications, undocumented, lacking relatives able to pass benefits to them, illiterate, indigent, farmers without prior entries. Tr. at 406, 527. The immigration files reveal more individual detail. While all but one lived on a farm in Haiti, five claim to have been involved in some degree in a trade other than farming.[17] Only three are illiterate, the others *1013 having between three and eight years of schooling in Creole and some French. Six claim to have some relatives in this country one has a citizen uncle in New York, two have refugee relatives at various locations known and unknown, two have relatives of unknown status and address and one has a paroled brother at a known address in New York. None have relatives able to petition for special status for the alien. Sava's other descriptions seem to be uncontradicted by the files.
These descriptions make clear that, with respect to the factors identified by Sava as relevant to the parole inquiry, petitioners are indistinguishable from aliens paroled by Sava. Like eight of the twelve most similar applicants, petitioners are undocumented. As for the conditions of release, nine of the twelve were paroled on their own recognizance (without bond or formal sponsors), while only three posted bond. Petitioners all have prospective sponsors and none offered bond because Sava never indicated that bond was desired.[18] Unlike the Haitians who all listed job skills, only three of the twelve similar applicants had such qualities. None of these aliens, Haitian or non-Haitian, exhibited compelling reasons for parolenone travelled with minor children, none had family here able to confer immigration benefits on them[19] and none faced indeterminate detention due to foreign policy considerations.[20] The only constant differences in this group of 20 aliens are their race, their national origin and Sava's action on their parole application.
DETERMINATION
I
As a preliminary matter, the court must decide whether Sava has indeed exercised his discretion in denying petitioners' parole applications. See Petition of Cahill, supra at 1344. The record renders implausible Sava's representation that the requests of the Haitian petitioners were considered on a case-by-case basis. Rather, the testimony and exhibits indicate that the Haitians at the SPC have always been treated as a group without individual characteristics.
Sava's testimony was riddled with specific recollections of the particular circumstances of many of the aliens he paroled. He was able to recall the religious affiliation and travel history of the Iranians, the Iraqis' country of origin and other facts *1014 about individuals and groups of aliens. Many of these facts were not recorded in the exhibits accepted as evidence.
Yet, Sava never spoke about the individual characteristics of any Haitian. It is true that some descriptions are valid for the entire groupundocumented and indigent, for example. A cursory review of their parole and asylum applications reveals, however, that petitioners are not uniform in other ways relevant to Sava's decisional matrix. Petitioners vary markedly in their literacy levels, their job skills and their ties to this country through relatives. Sava apparently is ignorant of these differences in qualities admittedly relevant to a parole application and of which he had specific knowledge with respect to other, non-Haitian aliens.[21] This lack of familiarity with the particulars is especially puzzling given the extensiveness of petitioners' applications. Since many parole requests are made orally, see n.16 supra, and most were granted within several days, Sava probably had more information about petitioners than any other alien with whom he dealt.
The Haitian rejection letters themselves indicate a failure to give attention to each parole request as a distinct entity. Each denial, five of which were issued on the same day, contained the same language concerning the insufficiency of the information presented in the parole requests. Both the wording and the timing of these responses indicate that denial was a foregone conclusion, not a decision reached through independent review and analysis of each file.
While the last six denials also cited State Department inaction or negative action as reasons for denial, inclusion of this rationale was disingenuous in two ways. First, the timing and content of Sava's letters indicate that he delayed action until hearing from the State Department.[22] This makes a mockery of his claim that processing time is an important consideration in determining whether to release an alien, and contradicts his testimony as to how political asylum applications affect parole determinations. His review of such applications is limited to whether the alien's claim is frivolous, but does not anticipate, let alone depend upon, the State Department's final decision as to the legitimacy of the alien's fear of persecution if returned to his or her home nation. Tr. at 413-5.[23] Moreover, Sava admitted that petitioners have submitted serious, non-skeletal asylum applications. Id. at 440. Finally, a review of the 12 parole grants given to non-"humanitarian" aliens reveals that seven received *1015 no State Department recommendation and five failed to demonstrate a well-founded fear of persecution. See n.20 supra. In none of these 12 cases did Sava deny parole or put off decision pending State Department action, nor did he revoke the parole of the five aliens whose requests were denied soon after their release. Sava's improper consideration of State Department recommendations in denying petitioner's parole applications may, in and of itself, make the determinations defective. See Siang Ken Wang v. Immigration and Naturalization Service, 413 F.2d 286, 287 (9th Cir. 1969); Soroa-Gonzales, supra at 1060 (reliance on one impermissible factor refutes the contention that discretion was exercised rationally).
Assuming arguendo that Sava actually exercised his discretion, petitioners must meet an extremely heavy burden to show abuse thereof or arbitrary or capricious behavior by the Director. Soroa-Gonzales, supra at 1058. They must prove that the parole decisions were made without reasonable foundation, that they were "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." Id.
Is there a rational explanation for Sava's parole decisions concerning the eight petitioners? A two-fold justification was offered for their continued detention. First, and foremost, Sava implied that the Haitians were a risk to abscond. He reached this conclusion by observing that none of the parole requests offered to post a bond, and all sought release to organizational sponsors rather than family or friends. Tr. at 406. Furthermore, he stated that no petitioner had documents, and claimed that none had any education or job skills. Second, no Haitian presented a compelling case for release. Sava anticipated no delays in getting State Department recommendations or final exclusion decisions, and found no relatives able to pass derivative benefits to petitioners. Id. at 405-6.
Given Sava's overriding concern about "getting the people to those [exclusion] hearings," Tr. at 408, the rationality of his explanation is questionable. To the extent that he developed legitimate fears of absconding by petitioners, those fears arose by analyzing their applications differently from those of non-Haitians. This indicates discriminatory decision-making.
Documentation and release conditions are the two main indicia of absconding relevant to the instant case.[24] Lack of documentation alone cannot justify a parole denial. Tr. at 459. Similarly, Sava did not deny any parole application because he "wasn't satisfied with the sponsorship." Tr. at 531. Nonetheless, he made clear his preferences for bond over sponsorship, see Tr. at 407, and family sponsors over organizations. Id. at 529-30. The validity of these opinions is questionable. See pp. 12-13 & n.8, supra.
Neither factor being independently sufficient to justify parole denial, Sava's determination must have been based on a combination thereof. Nothing in the record shows that Sava was more than slightly uneasy about granting parole to non-Haitian aliens not manifesting the preferred documentation and release condition traits. He made no effort to explain how these two noncontrolling factors became controlling in combination, and no rational explanation is evident. It is particularly unclear how a visa or a $500 bond would significantly change petitioners' likelihood of reappearing. INS, through petitioners' own applications, has detailed information about each petitioner, making reliance on lack of documentation even less rational than Sava thought. See Tr. at 460 (Q: "Do you know whether your predecessor ... concurred in your view that undocumented persons are absconding risks ...? A: .... I didn't *1016 know until you mentioned it that I had that view."). Furthermore, after Sava admitted that he never studied the proposed sponsors' experience with undocumented aliens, he did not attempt to explain how a $500 bond would assure the aliens' attendance at hearings if their sponsors could not. Sava's stated fears that petitioners were absconding risks were not based in reasons communicated to the court.
Examination of Sava's other parole decisions supports this conclusion and shows that his treatment of Haitians inexplicably departed from his own established policies. The record discloses no formal family sponsorship for any of the 12 non-Haitians paroled by Sava. The exhibits merely document the extent of an alien's family here. Furthermore, nine of the 12 were released on their own recognizance. Only the Dominican, the Pole and the Lebanese were forced to post bond as a condition of release. These bonds ranged from $500 to $2,000 and, in the case of the Polish alien, seemed to result from a process in which INS requested the bond and the alien negotiated the amount down from the sum demanded. See n.18 supra.
The documentation factor is equally revealing. Of the 12 aliens most like petitioners, seven were TROVs, one had falsified documents, and four had visas inappropriate for immigration.[25] Of the eight undocumented persons in this group, only the Lebanese with falsified papers posted a bond.[26] While the seven others were released on their own recognizance, the eight petitioners in the same situation were all denied parole in large part for their failure to offer bond money. This discrepancy indicates, at the least, a clear, unexplained departure from prior parole policy.
This data suggests that Sava's actions were motivated by a desire to discriminate against Haitian aliens. Petitioners can invoke no fifth amendment protection against exclusion from the United States on the basis of their race or national origin. Rodriguez-Fernandez, supra at 1386; see generally, United States ex rel. Knauff v. Shaughnessy, supra 338 U.S. at 542-4, 70 S.Ct. at 312-3. Even though Congress may employ race or national origin as criteria in determining which aliens to exclude from the country, a district director may not apply neutral regulations to discriminate on such grounds. Wong Wing Hang, supra at 719; see also Washington v. Davis, 426 U.S. 229, 241, 96 S. Ct. 2040, 2048, 48 L. Ed. 2d 597 (1976) ("A statute, otherwise neutral on its face, must not be applied so as invidiously to discriminate on the basis of race"). Such invidious racial or national origin based discrimination constitutes abuse of discretion when insinuated into a neutral grant of decision-making authority. Wong Wing Hang, supra at 719.
The parole results during Sava's tenure as New York District Director demonstrate a gross maldistribution of releases. Of 86 Haitians whose applications he received, Sava paroled five, all pregnant women whose condition was an obvious compelling factor. Of 91 non-Haitian applicants, 90 were released and the other returned to his country of origin after withdrawing the parole request. These numbers imply more than coincidence, especially since they are paralleled in the population of 12 applicants most like petitioners. A prima facie case of discrimination may be made out by a showing of highly disproportionate impact, see Washington v. Davis, *1017 supra 426 U.S. at 242, 96 S.Ct. at 2049, especially when a "clear pattern, unexplainable on grounds other than race, emerges" from actions taken pursuant to facially neutral legislation. Village of Arlington Heights v. Metropolitan Housing Development Corporation, 429 U.S. 252, 266, 97 S. Ct. 555, 564, 50 L. Ed. 2d 450 (1977). Impact alone is not determinative, however, except in rare cases exhibiting stark patterns of unequal impact.
Impact could not be more disproportionate than that involved here. Sava does not parole Haitians unless pregnant, but paroles all non-Haitians who press their application. This statistical pattern is so extreme as to meet the strictest impact-based standards and render unnecessary inquiry into whether discriminatory intent motivated Sava's actions. See Village of Arlington Heights, supra at 266 & n.13, 97 S.Ct. at 564 & n.13. The Supreme Court, in Village of Arlington Heights, set forth Yick Wo v. Hopkins, 118 U.S. 356, 6 S. Ct. 1064, 30 L. Ed. 220 (1886), and Gomillion v. Lightfoot, 364 U.S. 339, 81 S. Ct. 125, 5 L. Ed. 2d 110 (1960) as examples of cases in which impact alone is determinative. In the former, the Court deemed unconstitutional discriminatory application of a zoning ordinance which resulted in denials of laundry licenses to 200 Chinese aliens while permitting 80 non-Chinese to "carry on the same business under similar circumstances." 118 U.S. at 374, 6 S.Ct. at 1073. Gomillion involved a legislative attempt to redefine local boundaries in such a way that all but five of 400 black voters would be ineligible to vote in the city while all whites would remain residents. 364 U.S. at 341, 81 S.Ct. at 127. Sava's parole determinations fall into a pattern indistinguishable from these two cases.
Thus, the burden of proof rests with respondent to rebut the presumption of invalidity by showing that the results were reached through racially neutral criteria. Washington v. Davis, supra 426 U.S. at 241, 96 S.Ct. at 2048. For the reasons detailed above, Sava has not met this burden. His purported rational explanations could not justify all the parole decisions, nor overcome the strong inference that Haitians did not merit his usual pro-parole point of view.
Where impact alone is insufficient to justify a finding of discrimination, other evidence such as the historical background of the decision and departures from normal procedures must be examined. Village of Arlington Heights, supra 429 U.S. at 267, 97 S.Ct. at 564. History, both related to these petitioners and to INS treatment of other Haitians in recent years, is instructive on the existence of discriminatory intent. Sava's handling of these parole applications evidenced callousness towards the claims. Petitioners' requests, for the most part, went unanswered until the State Department issued asylum applications, a procedure not used for any other alien, not relevant to Sava's stated decision-making formula and resulting in delays in responding unmatched during his period as Director. Tr. at 439-40. After such inordinate delay in responding, Sava issued denial letters in bulk, using near identical language and completely devoid of rational, legitimate bases for his action. While there is no persuasive evidence that past or present INS policies led to Sava's abuse of his discretion with respect to these aliens,[27] it is not irrelevant that Sava was involved in the formulation of the "Haitian program" found unconstitutionally discriminatory insofar as it prejudged all Haitian political asylum claims. See Haitian Refugee Center v. Civiletti, 503 F. Supp. 442, 511, 513-5 (S.D.Fla.1980) (a Sava authored memo on means of deterring Haitian immigration set forth policies which indicated "a predetermination that none of the Haitians could deserve asylum") (emphasis in original). Such a finding echoes the finding here that *1018 Sava prejudged Haitian parole applications by determining that none could meet his release criteria.
Along with this suspect history, it is also clear that Sava departed both procedurally and substantively from his normal treatment of parole requests. He altered the sequence of events leading up to disposition of parole applications by waiting for State Department action on petitioners' political asylum claims. The failure to give the same individual attention to Haitians resulted, moreover, in his overlooking of factors favoring release which led to release in other cases. See Village of Arlington Heights, supra 429 U.S. at 267, 97 S.Ct. at 564. The most poignant example of such inconsistency is the near identity of pertinent characteristics among some of the petitioners and some of the paroled Iraqi and Iranian nationals. The conclusion, therefore, is inescapable that Sava denied parole to petitioners because they were black and/or because they were Haitians.
II
Petitioners also claim that Sava's actions violated the Protocol, a treaty adopted by the United States effective November 1, 1968. 19 U.S.T. 6257. The Protocol provides in Article 1 that except for certain technical alterations:
The States Parties to the present Protocol undertake to apply articles 2 to 34 inclusive of the Convention [relating to the Status of Refugees] to refugees as hereinafter defined.
Its provisions are designed to aid those persons who "owing to well-founded fear of being persecuted for reasons of race, religion, nationality, [etc.] ... [are] outside the country of [their] nationality and [are] ... owing to such fear, ... unwilling to return to it." Article 1, A(2) of the Convention. Petitioners seek to vindicate rights allegedly granted them by Articles 3 and 31 of the Convention. Article 31 protects unlawful aliens from the imposition of penalties on account of their illegal presence and from unnecessary restrictions on their movements. Article 3 provides that all aspects of the treaty are to be applied without discrimination as to race or national origin. Respondent contends that the Protocol does not create a private right of action and, if it does, those rights are incorporated by existing statutes and regulations governing immigration matters.
"The history of the adoption of the Protocol by this country makes clear that all the individuals and institutions involved in that process had a continuing belief that the Convention would not alter or enlarge the effect of existing immigration laws, chiefly because it was felt that our immigration laws already embodied the principles of the Convention." Ming v. Marks, 367 F. Supp. 673, 677 (S.D.N.Y.1973) (Carter, J.), aff'd, 505 F.2d 1170 (2d Cir. 1974), cert. denied, 421 U.S. 911, 95 S. Ct. 1564, 43 L. Ed. 2d 776 (1975); see also Pierre v. United States, supra, 547 F.2d at, 1287-8 (discussing legislative history and reaching the same conclusion).[28] However, the Protocol and Convention have not been rendered meaningless by their infusion into pre-existing regulations. Several courts have construed vague or broad immigration statutes and regulations so as to incorporate rights declared in the treaty. See, e.g., Pierre v. United States, 525 F.2d 933, 935 (5th Cir. 1976) (statute providing for exclusion of certain aliens seeking to work in this country cannot apply to refugees because it would "render the Convention meaningless as a practical matter"); Sannon v. United States, 427 F. Supp. 1270, 1274-7 (S.D.Fla. *1019 1977), vacated and remanded, 566 F.2d 104 (5th Cir. 1978) (regulation barring immigration judges from hearing asylum claims of excludable aliens invalid as inconsistent with the Protocol and the Immigration and Nationality Act). Thus, regulations promulgated pursuant to unspecific statutory provisions must be interpreted consistent with the Protocol as well as the overall intent of the Act.[29] The language of the Protocol can be viewed as creating rights separate from those embodied in the regulations. See, e.g., Kashani v. Immigration and Naturalization Service, 547 F.2d 376, 379 (7th Cir. 1977) (independent review of the two sources indicated that the Protocol and the Act required the same standard of proof of refugee status); Ming v. Marks, supra, 505 F.2d at 1172 (Article 31 of the Protocol directly benefits refugees).
An individual's standing to invoke the Protocol has often depended upon his or her success in attaining refugee status. See, e.g., Pierre v. United States, supra, 547 F.2d at 1289; Sannon v. United States, supra at 1270. When parole could not be considered until INS and the State Department determined affirmatively an alien's refugee status, failure to obtain such status foreclosed challenge of discretion regarding parole. Pierre, supra at 1289.[30] Parole may now be granted at any time after an alien applies for admission, see 8 U.S.C. § 1182(d)(5), so this procedural obstacle has been removed. "Refugee" is a self-imposed label, not one requiring the imprimatur of the INS. See U.S.C. §§ 1101(a)(42), 1157(c)(4) (Attorney General may remove one's refugee status if it is determined that the provisions of § 1101(a)(42) are not met). Since parole is granted, in part, to avoid lengthy detention pending final exclusion determinations, and since Sava regularly paroles aliens before receiving the State Department's recommendation concerning political asylum, it would be incongruous to hold petitioners powerless to invoke the Protocol in their challenge to parole denials.
To the extent that the Protocol vests petitioners with rights relevant to this case, such rights must emanate from specific, rather than general, treaty language. See Huynh Thi Anh v. Levi, 586 F.2d 625, 629 (6th Cir. 1978) (no right of action maintainable under Article 4 of the Protocol relating to religious freedoms). Petitioners may assert their rights to be free of penalties due to their illegal entry and unnecessary restrictions on their movements while here seeking asylum. These specific Article 31 rights are also violated, according to Article 3, if such penalties or restrictions were imposed based on race or national origin. All of these rights are guaranteed within the detention and parole regulations pertaining to excludable aliens. Therefore, if Sava has abused his discretion under these provisions by withholding from petitioners parole that would ordinarily be granted, he has imposed the type of hardships prohibited by the Protocol.
The Protocol may also establish independent rights for petitioners insofar as Sava's parole policy departs from the Leng May Ma standard. By prohibiting all unnecessary restrictions on movement, the Protocol makes detention the "exception, not the rule, employed only as to security risks or those likely to abscond." Id. 357 U.S. at 190, 78 S.Ct. at 1075. Review of Sava's parole decisions has shown that detention was the rule for Haitians despite the absence of security risk and without serious, commonplace inquiry into likelihood of absconding. The Protocol's emphasis on the necessity of confinement leaves no room for Sava to interpret the vague parole authority as placing the burden on aliens to prove the nonexistence of these dangers. Thus, *1020 the parole policy apparently reserved for Haitians might violate the Protocol even if applied in a race and national-origin blind, case-by-case manner. In any event, the Protocol was clearly violated by the abusive and discriminatory way in which these parole requests were handled.
RELIEF
The court having found that respondent Sava failed to exercise properly the discretion given him by the statutes and regulations concerning the parole of excludable aliens, and having discriminated against petitioners because of their race or national origin, the writ of habeas corpus shall issue under the following conditions. Petitioners shall be released on parole or reasonable conditions shall be set therefor[31] within 10 days from the date of this order unless respondent can show cause in writing, supported by affidavit, reasons for believing that any or all of them pose a risk of absconding. Such proof must contain individual appraisals of each petitioner and must respond to the considerations purportedly used by Sava to conclude that similar aliens did not pose sufficient risk to merit detention. An explanation will be deemed lacking if it does not discuss why bonds and/or sponsorships cannot overcome whatever risks are identified and provide INS with leverage equal to that which sufficed for non-Haitians heretofore paroled by Sava.
IT IS SO ORDERED.
NOTES
[1] Notices of denial were sent to petitioners according to the following chronology; October 7, petitioner Vigile; October 7, petitioner Bertrand; December 1, petitioners Theodore, Mervil, Guerrier, Eril and Toussaint; and, December 4, petitioner Baptiste. Joint Exhibits ("JE") 17, 19-25.
[2] At evidentiary hearings conducted on January 22 through 26, 1982, the parties stipulated to the admissibility of approximately 64 exhibits. These were accepted in evidence as JE 4 through 68 and will be referred to as such in this opinion.
[3] The need to compare policy pronouncements made from the witness stand with policy as inferred from practice is especially acute in the absence of any formal, written statements of Sava's standards for parole. See Transcript ("Tr.") at 480-1. Several written statements have been placed in the record, presumably to suggest what parole policy might have been at various points in time. For example, memoranda explaining detention policy to INS employees at John F. Kennedy Airport in New York indicate that on January 29, 1981, before Sava took charge of this district, excludable aliens were to be detained "only when it appear[ed] likely that they [would] abscond or ... would clearly represent a danger to public safety and/or security," JE 7, while on November 2, 1981, all undocumented aliens were to be detained "unless release conditions [were] met as set forth by the District Director." JE 63. On January 4, 1982, after the initiation of this lawsuit and after all the parole decisions studied herein were made, INS issued "Detention Policy Guidelines in Exclusion Cases" which announced that "the statutory rule is one of detention, and that the use of parole authority is an exception to that rule which should be carefully and narrowly exercised." JE 65. Therefore, parole should be granted only to aliens with serious medical conditions (including pregnancy), those accompanied by minor children, those with parents, spouses, children or siblings who are United States citizens or lawful permanent aliens "who are eligible to file, and have filed, a visa petition on behalf of the detainee," and "in cases where detention is impossible or impractical for the Service." Id. As none of the Haitian petitioners and only one of the aliens studied infra applied for parole after November 2, and nothing in this entire case concerns decisions made after January 1982, these latter two statements are of limited relevance.
[4] Citations to Tr. refer to the record of the evidentiary hearings held in January 1982.
[5] The factors recognized as "humanitarian" include travelling with minor children, presence of relatives in this country able and willing to confer immigration benefits on an alien and executive policy which will prevent processing of exclusion cases and cause possibly indeterminate periods of detention. See Tr. at 403, 405. No petitioner meets any of these tests.
[6] Some factors, defined in a broad sense, are relevant to more than one of Sava's "themes." Confusion is possible when factors are identified generally, such as "family units," because such ambiguity muddies the clear division of themes. For example, an alien's family is relevant to the absconding inquiry insofar as the family will provide sponsorship or food and shelter, but is a compelling factor for release if it means that infants are travelling with adult aliens or that the alien has family in this country from whom immigration benefits can be acquired. Similarly, an alien's applications may indicate the projected length of the exclusion process and thus constitute a rationale for humanitarian release, or they may suggest, if in skeletal form, a serious danger of absconding.
[7] A review of the files, JE 67, 68, indicates that most Afghans were TROV's and, therefore, that "a passport and no visa" must refer to such transients. In fact, at least two file sheets listed under "Visa" both "TROV" and "No visa." JE 68, sheets 8, 16.
[8] It is also significant that Sava never investigated the organizational sponsors' ability to maintain contact with aliens or their experience with tracking similar groups. Tr. at 468-9. Neither families nor organizations suffer any legal recourse if aliens they sponsor fail to appear for scheduled immigration proceedings. Id. at 97-8, 447.
[9] Respondent's attack on the standard enunciated in Leng May Ma is twofold. First, the comments regarding detention and parole are shrugged aside as dicta. Next, respondent claims that the standard represents a misunderstanding of the INS and Attorney General's reports from which it was taken. The report, in pertinent part, read as follows:
Detention and Parole of Applicants for Admission. Detentions of aliens were at the lowest figure in the history of the Service at the close of 1955. This was accomplished through a new detention policy ... under which only those aliens likely to abscond and those whose release would be inimical to the national security are detained. Many aliens whose papers were not in order were previously detained .... Under the present policy, most aliens with purely technical difficulties are allowed to proceed to their destination under "parole."
Within ten days of the change, the number of aliens in detention in New York City dropped to about 25, compared with a usual detention population of several hundred.... From the inception of the new program to the close of the fiscal year more than 200,000 aliens entered the United States through the port of New York and 16 of these were detained.
As the fiscal year drew to a close the Service had put into effect, and found workable, a humane detention program while maintaining positive safeguards and security measures for protection of the Government and the public interest.
Annual Report of the Immigration and Naturalization Service at 6 (1955); see also Report of the Attorney General of the United States at 5-6 (1955). Respondent gives great weight to the last two sentences of the first paragraph and concludes that this "humane detention program" applied only to documented aliens with technical flaws in their papers. Such selective emphasis is undue. Both reports, when read in their entirety, present technical violators merely as one example of aliens no longer detained. The statements of policy are broad and general and not conducive to respondent's strained construction. See Report of the Attorney General, supra at 5-6 (after discussing technical violators, noting that "[a]nother relaxation of the former stringent policy ... was the decision to release those found to be unlawfully in the United States ... during the pendency of their deportation proceedings" unless they presented a danger to public safety). The numbers presented in the above extraction indicate that the policy could not apply in as limited a manner as respondent suggests as it is unlikely that only 16 of 200,000 aliens entering New York had non-technical problems with admissibility. Finally, both the substantive contention and the "dicta" argument are belied by the fact that several courts have accepted the Leng May Ma approach. Rodriguez-Fernandez v. Wilkinson, 654 F.2d 1382, 1389 (10th Cir. 1981) (noting that Justice Clark, author of Leng May Ma was Attorney General during the formation of the past and "presently effective immigration laws"); Soroa-Gonzales v. Civiletti, supra at 1060.
[10] Of these nine aliens, only one ever requested parole and two sought political asylum. Eight of the nine were excluded, including an individual who withdrew his asylum application, and the ninth, a Haitian requesting asylum but not parole, remains in custody at SPC. The one parole applicant withdrew his application for admission.
[11] Sava testified that family status and risk of absconding were also considered with respect to the Afghan nationals, Tr. at 385, 508-11, but since these factors apply to only some of the group, and their compelling nature applies to all, it is obvious that Sava would parole any Afghan regardless of these absconding factors.
[12] Sava claimed that the 11 Iraqis were "kind of unique in that they, for the most part, had approved applications for service benefits pending." Tr. at 396. Only five of these aliens fit that description. To receive immigration benefits from relatives in this country, the family tie must be that of parent, spouse, child or sibling, the relative must be a citizen or lawful permanent resident and the relative must petition to pass on the benefit. See 8 U.S.C. §§ 1151(b), 1153(a)(1), (2), (4), (5); Tr. at 443-4 (aunts, uncles, cousins, and other extended family members cannot pass on immigration benefits). Thus, this humanitarian factor applies to only five of the eleven paroled Iraqis.
[13] The court cannot give much weight to these purported factors. The country of origin of an alien's journey and the prospects for the government's success in exclusion hearings were never before identified as factors relevant to the absconding or compelling reasons inquiry. Nor should they logically be so. Both are considerations relevant to the post-exclusion treatment of aliens. See generally Rodriguez-Fernandez, supra. Indeed, the difficulties of proof involved in returning an alien to a third country arise only when there is some official policy restraining return to the nation of citizenship. See Tr. at 198 (DiRaimondo explanation of reasons why Afghans are special). Finally, the file sheets indicate that only one Iraqi arrived from a third country, and he was a compelling case because of family here. JE 68, sheet 10.
[14] These six are the ones who did not fit the general description ascribed by Sava to all 11 Iraqis whom he paroled. They had no relatives in the United States able to confer derivative benefits on them, see n.12, supra, and did not exhibit the questionable factor of third country origin. See n.13, supra. Nor is there any indication that they arrived in family groups as Sava claimed. Tr. at 398. Family groups are irrelevant, in any event, except where they include minor children or lawful United States residents able to confer benefits. Neither of these necessary conditions were met by these six Iraqis. Thus, these six must be examined under the traditional indicia of absconding applied by Sava to all non-humanitarian aliens.
[15] Sava referred to all 11 Iraqis as "documented," Tr. at 398, and transients without visa "documented to the extent that they had passports." Id. at 396. Such characterizations are misleading and totally erroneous. As noted above, Afghans travelling TROV were officially considered "undocumented." See supra at 8 & n.7. TROV's do not go through a consular screening process, see 8 U.S.C. §§ 1201, 1202, so they are by definition not documented in any respect relevant to the amount of trust INS may have in their identity. See Tr. at 459. The most incredible aspect of Sava's testimony on this matter is that transient without visa status is not available to citizens of Iraq. 8 C.F.R. § 212.1(e). In no sense can these Iraqis be deemed documented.
[16] The absence of parole request information on the file sheets in JE 68 may not indicate that no such request was made, but only that the request was oral and not recorded. See Tr. at 195. However, some aliens are released on their own recognizance without ever being detained. Id. at 195-6. DiRaimondo testified that the file suggests no detention for at least one of these Iranian aliens. Id. at 224-5. A review of the other two files reveals that file sheet number 101 was not detained and number 104 was in carrier custody (detained by the airline on which he arrived) for one day.
[17] Petitioner Guerrier was a cook/waiter in Haiti. The other petitioners were all involved in farming to some degree, but Eril, Mervil and Theodore were apprentice tailors, Vigile was an apprentice baker and Baptiste was a part-time jewelry maker. See Government Exhibits 76-85 (petitioners' applications for political asylum).
[18] At a meeting on August 31, 1981, Sava discussed with representatives of the Haitians at the SPC their desires to have those persons released. Sava stated that he would consider affidavits in support of parole requests without the formality of political asylum applications. Tr. at 479. While Sava told those attending that release would be considered upon submission of a parole request, an informal asylum application and a sponsorship offer, id. at 480, he did not mention that release would not be considered without offers of bond. In fact, the "subject of bond never came up at the meeting." Id. The record implies that the subject of bond is often opened by the District Director, see JE 68, file sheet 122 (indicating that the alien twice negotiated reductions in the bond sought by INS), and that many aliens are paroled on their own recognizance. Therefore, the absence of bond offers will not be taken as prejudicing petitioners' claims or distinguishing them from the 12 most similar aliens discussed above.
[19] Some, both Haitian and non-Haitian, had family in this country unable to pass on such benefits. For example, Iranian number 101 had a mother and siblings here who were also asylum applicants and all six Iraqis had uncles and/or cousins with permanent resident status. JE 68, file sheet numbers 47, 138, 140, 141, 144 (brother with unknown immigration status), 145. Petitioners' files demonstrate that Eril has a citizen uncle living in Brooklyn, New York, Baptiste has a paroled brother here and refugee cousins in Florida, and all but two of the others have siblings and/or uncles and cousins in some status (refugee or unknown) in the United States. Thus, six of them are indistinguishable from Iranian number 101 and Iraqi number 144, while Eril and Baptiste share stronger United States ties with others among the released non-Haitians.
[20] The government presented no proof of Afghan-type policies applicable to any of the other groups represented in the sample of 12. The State Department recommended against asylum with respect to five of the 12, finding that none had well-founded fears of persecution in their native countries. These responses came between one and five weeks after Sava paroled the aliens. The remaining seven had not received official recommendations at the time JE 68 was compiled.
[21] The blatant inadequacy of Sava's review of petitioners' detailed submissions is represented by the following colloquy:
THE COURT: Just generally, what kinds of things do you know about [petitioners]? Do you know about their education, things like that about them?
Sava: Well to the extent it is documented, I know that for the most part they are illiterate
THE COURT: How do you know that?
Sava: I think most of them in their affidavits make that ... admission.
THE COURT: Do you know about their employment skills?
Sava: Most of them were farmers, working land in Haiti.
Tr. at 527. These "facts" supposedly were learned from petitioners own affidavits. Id. at 527-8. But those affidavits make clear that six of the petitioners had, or were in the process of acquiring, skills other than farming, see n.17 supra, and that only three admitted to being illiterate, the other five having between three and eight years formal education and literacy in Creole and/or French. See Government Exhibits 76-85. Sava's casual, inaccurate generalizations rebut his claim to have conducted individualized review.
[22] Sava delayed these parole decisions longer than was his normal practice, see Tr. 439, and made specific reference in six of the denials to the State Department conclusion or the lack thereof necessitating keeping the application pending. See p. 1 & n.1, supra.
[23] In fact, the State Department recommendation is sent to Sava as District Director merely due to a procedural quirk. The recommendation is for the attention and use of the immigration court, not the District Director, and the latter serves only as a conduit in the bureaucratic scheme. Tr. at 451. This may help to explain why Sava's past parole decisions were made before any action was taken by the State Department and why negative executive recommendations do not usually cause Sava to revoke parole. Tr. at 450 2.
[24] It has been demonstrated, either through Sava's testimony or despite it, that the other absconding factors are not involved. Sava noted that petitioners' asylum applications were not skeletal so as to be disregarded and looked upon with suspicion. Tr. at 440. Similarly, financial condition is not important due to the presence of prospective sponsors. And, none of the petitioners has a criminal record or prior immigration history.
[25] These four, file sheet numbers 78, 100, 104 and 122, possessed facially valid documents entitling them to entry into this country for a limited time or purpose. Tr. at 430. They were excludable aliens because the immigration officer who processed their cases concluded that the documents misrepresented the aliens' intent, which was to settle here. Id. at 430-1. Thus, they each committed a fraud, either when they obtained the documents from a United States consul abroad or when they presented those documents upon entry to this country. Id. at 433. However, they are considered documented insofar as they were processed by a consular office.
[26] This Lebanese national was also the only one of the entire group of 12 who had a relative in this country able to pass on immigration benefits. It appears, however, that no petition to do so was filed. Thus, this alien belongs in a group of non-compelling cases.
[27] Petitioners attempted to show, through a speech by the Attorney General to a Congressional committee, JE 16, some newspaper reports concerning the administration's policy towards Haiti, and some specific conduct of INS trial attorney Michael DiRaimondo, that there exists a national policy of detention for Haitians which applies to no other ethnic group. The court is not persuaded by the scanty evidence presented on this matter.
[28] In discussing petitioners' rights under the Protocol the court will not engage in a discussion of whether the treaty is self-executing or executory. "Treaties effect the municipal law of the United States only when [they] are given effect by congressional legislation or are, by their nature, self-executing." United States v. Postal, 589 F.2d 862, 875 (5th Cir.), cert. denied, 444 U.S. 832, 100 S. Ct. 61, 62 L. Ed. 2d 40 (1979). As noted, several courts have found that Congress intended the Protocol to be given effect by pre-existing statutes concerning immigration. Thus, there is no need to engage in this most difficult task of treaty interpretation. Id. at 876. To the extent they are not inconsistent, both the treaty and the Immigration and Nationality Act determine the propriety of immigration regulations and their performance.
[29] See n.28 supra. "[T]he legislative history of the act reveals that Congress intended to rewrite the Immigration laws in a spirit of compassion and humanity toward excludable and deportable aliens alike." Sannon, supra at 1275. It is in this spirit that the court has viewed Sava's exercise of his parole authority and found it wanting.
[30] An alien could, of course, invoke the Protocol to challenge the procedures through which refugee status was distributed. See Sannon, supra at 1274-5.
[31] Such conditions may include sponsorships, reasonable bonds or some reasonable combination of these and other conditions sufficient to ensure INS of the degree of leverage typically required in similar cases.
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535 F. Supp. 55 (1982)
Dale E. WALKER; Sharon D. Patchett; Melba Jean Thomas as administrator of the estate of William N. Thomas, deceased; Danny Dill; Natalie Dill; Sandra N. Cole as administrator of the estate of Stanley E. Cole, deceased; Robert Conkle as administrator of the estate of Robert J. Conkle, deceased, Plaintiffs,
v.
Charles ROWE, former director of the Department of Corrections; Thaddeus Pinckney, former warden, Pontiac Correctional Center; David Sandall and William O'Sullivan, former assistant wardens, Pontiac Correctional Center, William Shehorn; Louis Lowery, Defendants.
No. 80 C 5310.
United States District Court, N. D. Illinois, E. D.
January 27, 1982.
*56 Jeffry J. Knuckles, Fawell, James & Brooks, Naperville, Ill., for plaintiffs.
Tyrone C. Fahner, Atty. Gen., Mary A. Mulhern, Asst. Atty. Gen., Chicago, Ill., for defendants.
MEMORANDUM OPINION AND ORDER
ASPEN, District Judge:
Plaintiffs are three former correctional officers, one of their wives and three administrators of the estates of correctional officers who died in an inmate riot at the Pontiac Correctional Center on July 22, 1978. Plaintiffs' cause of action is brought pursuant to 42 U.S.C. § 1983 on the theory that various state corrections officials deprived them of their constitutional rights by failing to take action to prevent the July 22, 1978, riot and its tragic consequences. Defendant William O'Sullivan, former assistant warden at the correctional center and defendants William Shehorn and Louis Lowery, former correctional officers at Pontiac, have moved to dismiss this claim for lack of subject matter jurisdiction and failure to state a claim upon which relief *57 may be granted.[1] Fed.R.Civ.P. 12(b)(1) and (6).
Plaintiffs' complaint seeks redress for defendants' alleged failure to take steps to control, if not prevent, the violence which occurred at the Pontiac Correctional Center on July 22, 1978. Although the complaint contains 29 separate allegations, the thrust of plaintiffs' claim involves defendants' failure to warn plaintiffs of an impending prison disturbance, to operate, equip and maintain the Pontiac facility in a safe manner in the months preceding the riot, to provide adequate training and supervision of prison personnel, and to promulgate and enforce sufficient safety rules in the prison as required by state law. Taken as true for purposes of this motion, Haines v. Kerner, 404 U.S. 519, 520-21, 92 S. Ct. 594, 595-96, 30 L. Ed. 2d 652 (1972), these facts do state a claim for which relief can be granted as to defendant O'Sullivan. For the reasons stated below, however, this Court holds that plaintiffs' complaint does not state a claim for which relief can be granted as to defendants Shehorn or Lowery.
Defendants argue as a threshold matter that the Court lacks subject matter jurisdiction over this case because the Illinois Workmen's Compensation Act, Ill.Rev. Stat. 1979 ch. 48, § 138.1 et seq., is the exclusive remedy for all employee claims arising out of deaths or injuries incurred in the course of employment. The state statute upon which defendants rely, however, does not and could not preclude the vindication of plaintiffs' constitutional rights in a federal forum.[2]See Hutchings v. Erie City and County Library Board of Directors, 516 F. Supp. 1265, 1272-73 (W.D.Pa.1981). State law cannot immunize the conduct of those persons who, acting under color of law, allegedly deprive others of their constitutional rights. Cf. Martinez v. California, 444 U.S. 277, 284 n.8, 100 S. Ct. 553, 558 n.8, 62 L. Ed. 2d 481 (1980); McLaughlin v. Tilendis, 398 F.2d 287, 290 (7th Cir. 1968). In light of the wide disparity between the breadth of plaintiffs' damage claims herein and the limited damages award provided in the Illinois Workmen's Compensation Act, Ill.Rev.Stat. 1979 ch. 48, § 138.8(b)(2) and (4.2), the effect of dismissal on this ground would leave plaintiffs without an adequate remedy for the alleged deprivation of their constitutional rights.
The essence of this action is that defendants' failure to control the situation at Pontiac deprived plaintiffs of life and liberty without due process of law as guaranteed by the fourteenth amendment. The question of whether such an allegation of wrongful inaction rises to the constitutional dimension necessary to ground a § 1983 cause of action was addressed by the Supreme *58 Court in Martinez.[3] As made clear in Martinez, not every injury resulting directly or indirectly from the conduct of state officials is actionable under § 1983. 444 U.S. at 281, 100 S.Ct. at 557. See also Williams v. Kelley, 624 F.2d 695, 697 (5th Cir. 1980), cert. denied, 451 U.S. 1019, 101 S. Ct. 3009, 69 L. Ed. 2d 391 (1981); Withers v. Levine, 615 F.2d 158, 162 (4th Cir. 1980). The alleged commission of a state law tort, for example, will gain federal cognizance under § 1983 only when the conduct complained of is particularly egregious. Williams, supra. See Van Horn v. Lukhard, 392 F. Supp. 384, 387 (E.D.Va.1975).
However, even if defendants' conduct herein constituted nothing more than mere negligence, this conclusion alone does not mandate the dismissal of this § 1983 action as a matter of law. See Parratt v. Taylor, 451 U.S. 527, 101 S. Ct. 1908, 1912-13, 68 L. Ed. 2d 420 (1981). Moreover, the causal relationship between defendants' failure to act and plaintiffs' damages, although indirect, is not so remote as to require this Court as a matter of law to grant defendants' motions to dismiss.[4]Cf. Spence v. Staras, 507 F.2d 554, 557 (7th Cir. 1974). The consequence of state officials' failure to act when they had an affirmative duty to do so under state law is sufficient to support a valid § 1983 claim. Arnold v. IBM, 637 F.2d 1350, 1355-56 (9th Cir. 1981); Clappier v. Flynn, 605 F.2d 519, 533 (10th Cir. 1979); Johnson v. Duffy, 588 F.2d 740, 743-44 (9th Cir. 1978); Sims v. Adams, 537 F.2d 829, 831-32 (5th Cir. 1976).
The critical question of law relevant to these motions to dismiss, therefore, is whether any of the moving defendants had a constitutionally cognizable duty to plaintiffs to take affirmative steps to prevent or control the disturbance at the Pontiac Correctional Center on July 22, 1978.[5] The existence of any affirmative duties owed these plaintiffs can be identified by examining the nature of the relationship between the parties involved. Although the exact nature of the relationship between plaintiffs and defendant O'Sullivan is not made clear in any of the papers filed before the Court, we are not prepared to *59 hold on this record that the assistant warden of the Pontiac facility does not, as a matter of law, owe any affirmative duty to the correctional officers serving that prison. Indeed, at common law, the "special relationship" between an employee and his superiors imposes upon those superiors the duty to protect employees from the reasonably foreseeable attacks of third persons.[6]See generally Hosein v. Checker Taxi Co., 95 Ill.App.3d 150, 154, 50 Ill. Dec. 460, 419 N.E.2d 568 (1st Dist. 1981); Willie Cross v. Chicago Housing Authority, 74 Ill.App.3d 921, 925, 30 Ill. Dec. 544, 393 N.E.2d 580 (1st Dist. 1979); Whalen v. Lang, 71 Ill.App.3d 83, 85, 27 Ill. Dec. 324, 389 N.E.2d 10 (3d Dist. 1979); Restatement (Second) of Torts, § 302B Comment e(B), 314A Comment A (1965). Whether defendant O'Sullivan satisfied such an obligation or whether his alleged inaction was so egregious under the circumstances that this claim rises to the level of a constitutional deprivation are factual questions which are more appropriately resolved on a motion for summary judgment or at trial.
The relationship between plaintiffs and defendants Shehorn and Lowery, fellow correctional officers at Pontiac, on the other hand, is not sufficient as a matter of law to support a § 1983 claim. Plaintiffs have not identified and this Court will not imply any affirmative duty on these defendants in the absence of the kind of special relationship between the parties required by state tort law. See Fancil v. Q. S. E. Foods, Inc., 60 Ill. 2d 552, 559-60, 328 N.E.2d 538 (1975); Rstmt. (Second) of Torts, § 314A (1965). A relationship between parties which does not support a tort claim under state law cannot support a § 1983 claim for which relief can be granted. As a practical matter, imposing on those defendants a legal duty to warn all other correctional officers every time a rumor of disturbance arises in the prison would almost certainly result in more confusion than caution.
For the foregoing reasons, the motions by defendants Shehorn and Lowery are granted and the motion by defendant O'Sullivan to be dismissed from this action is denied. It is so ordered.
NOTES
[1] Defendants also argue that Judge Grady's decision in Local 494, AFSCME v. Thompson, 79 C 5196, bars this action under the doctrines of res judicata and collateral estoppel. Although 79 C 5196 was also a civil rights action arising from the July 22 riot at Pontiac, defendants have not established that plaintiffs in this action were parties to or in privity with any of the parties in the prior litigation, Brown v. Felsen, 442 U.S. 127, 131, 99 S. Ct. 2205, 2209, 60 L. Ed. 2d 767 (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n.7, 99 S. Ct. 645, 649 n.7, 58 L. Ed. 2d 552 (1979). Moreover, defendants have not established that the broad range of issues raised by the parties in this case are identical to the issues litigated in 79 C 5196. Parklane Hosiery, supra at 326 n.6, 99 S.Ct. at 249 n.6. Accordingly, this Court will not dismiss plaintiffs' complaint on res judicata or collateral estoppel grounds.
[2] In relevant part, the Illinois Workmen's Compensation Act provides:
No common law or statutory right to recover damages from the employer, his insurer, his broker, any service organization retained by the employer, his insurer or his broker to provide safety service, advice or recommendations for the employer or the agents or employees of any of them for injury or death sustained by any employee while engaged in the line of his duty as such employee, other than the compensation herein provided, is available to any employee who is covered by the provisions of this Act, to any one wholly or partially dependent upon him, the legal representatives of his estate, or any one otherwise entitled to recover damages for such injury.
Ill.Rev.Stat. 1979 ch. 48, § 138.5(a) (emphasis added). Plaintiffs' suit, although brought pursuant to 42 U.S.C. § 1983, asserts a constitutional rather than common law or statutory right.
[3] Section 1983 provides:
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.
[4] In Martinez v. California, supra, the Supreme Court upheld the trial court's demurrer to the complaint in a § 1983 action on the ground that the murder of a 15 year old girl was "too remote a consequence" of the defendant's decision to release the murderer on parole five months earlier. Id. at 285, 100 S.Ct. at 559. The circumstances of the present case are substantially different. Particularly in light of the anticipated nature of the disturbance alleged in plaintiffs' complaint, this Court is not prepared to rule, as a matter of law, that the defendants' failure to act in this case is too remote a cause of plaintiffs' damages to support a § 1983 claim for which relief can be granted.
[5] Defendants cite Judge Grady's opinion in Local 494, AFSCME, supra, in support of the proposition that the state did not owe plaintiffs any cognizable duty to prevent or control the Pontiac riot. In his opinion, Judge Grady concluded that because the "state has not required [correctional officers] to give up their liberty and remain in the institution, [the state] does not owe them the same protections it owes to prisoners." Id. This conclusion, however, does not purport to establish that the state, under all circumstances, owes no cognizable duty to its correctional officers in state prisons.
At a minimum, the state as employer must provide its correctional officers with reasonably safe working conditions. Cf. American Federation of State, County and Municipal Employees v. Walker, 27 Ill.App.3d 883, 888-90, 327 N.E.2d 568 (4th Dist. 1975). See generally Coselman v. Schleifer, 97 Ill.App.2d 123, 126-27, 239 N.E.2d 687 (2d Dist. 1968); Mack v. Davis, 76 Ill.App.2d 88, 97, 221 N.E.2d 121 (2d Dist. 1966); Hendricks v. Socony-Mobil Oil Co., Inc., 45 Ill.App.2d 44, 56-57, 195 N.E.2d 1 (2d Dist. 1963). Defendants' attempt to distinguish the duties imposed on the state in AFSCME v. Walker on the theory that the court was concerned solely with the safety of the residents of the school is unpersuasive. Indeed, in dissent, Judge Simkins observed that the "premise" of the court's ruling was that "the residents and employees of the institution have a right to be protected from physical harm." Id. at 890, 327 N.E.2d 568 (emphasis added).
[6] The Court is not unmindful of the broad discretion generally afforded prison officials in the administration of prison affairs. U. S. ex rel. Miller v. Twomey, 479 F.2d 701, 721 (7th Cir. 1976), cert. denied, 414 U.S. 1146, 94 S. Ct. 900, 39 L. Ed. 2d 102 (1977). By denying defendant O'Sullivan's motion to dismiss, we do not mean to imply that defendants were obligated to take all the affirmative steps outlined in plaintiffs' complaint.
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535 F. Supp. 2d 347 (2008)
CONSTELLATION BRANDS, INC., Plaintiff
v.
ARBOR HILL ASSOCIATES, INC., Defendant.
Arbor Hill Associates, Inc., et al., Third-Party Plaintiffs
v.
Nixon Peabody LLP, f/k/a Nixon Hargrave Devans & Doyle LLP, Third-Party Defendant.
Nixon Peabody LLP, f/k/a Nixon Hargrave Devans & Doyle LLP, Fourth-Party Plaintiff
v.
Harter, Secrest & Emery LLP, Brian Shaw, and Stephen B. Salai, Fourth-Party Defendants.
No. 02-CV-6498 CJS.
United States District Court, W.D. New York.
February 26, 2008.
*348 *349 Allen J. Baden, Esq., Susan A. Smith, Esq., Kenyon & Kenyon, New York, NY, Paul V. Nunes, Esq. Underberg & Kessler LLP, Rochester, NY, for plaintiff, Constellation Brands, Inc.
A. Paul Britton, Esq., Kenneth Payment, Esq., Harter, Secrest and Emery, LLP, Rochester, NY, for defendant, Arbor Hill Associates, Inc. and third-party plaintiffs, Arbor Hill Associates, Inc., John H. Brahm, and Katharine Brahm.
*350 DECISION AND ORDER
CHARLES. J. SIRAGUSA, District Judge.
INTRODUCTION
This is an action between two wine producers involving, inter alia, claims of trademark, infringement. Now before the Court are the following motions: 1) a motion to dismiss and for summary judgment [# 115] by defendant-third-party plaintiff Arbor Hill Associates ("AHA")[1]; and 2) a cross-motion for summary judgment [# 117] by plaintiff Constellation Brands, Inc. ("Constellation."). For the reasons that follow, AHA's motion is granted in part and denied in part, and Constellation's motion is denied.
BACKGROUND
This action primarily involves a dispute between Constellation and AHA over the use of three federally-registered wine trademarks containing the word "arbor."[2] Specifically, AHA owns the trademark "Arbor Hill", while Constellation owns the marks "Arbor Valley" and "Arbor Mist." Unless otherwise indicated, the following are the undisputed facts of the case.
In or about 1964, AHA's owners, John Brahm and Katharine Brahm, purchased a farm in Naples, New York, which they named the Arbor Hill Vineyard. Between 1966 and 1986, the Brahms leased the Arbor Hill Vineyard to the Widmer Winery ("Widmer"), of which John Brahm was an employee and part-owner. In or about 1986, Constellation[3] purchased Widmer and, a short time later, terminated John Brahm's employment. (Brahm Affidavit ¶ 7). Subsequently, the Brahms decided to go into business for themselves, and formed AHA for that purpose. In early 1987, AHA selected the name "Arbor Hill" for a line of gourmet wine-based food products, which it intended to produce and sell. AHA federally registered the Arbor Hill trademark for food products; but on the advice of counsel, did not register the name for wine. In or about September 1987, AHA opened a retail shop in Bristol Springs, New York, named the Arbor Hill Grapery, from which it began selling Arbor Hill food products, such as wine sauces, jellies, and vinegars. At all relevant times, The Arbor Hill Grapery was located within a few miles of Constellation's facilities in Ontario County, New York, and according to AHA, during the relevant time some of Constellation's management personnel passed by Arbor Hill's facilities and signs on a daily basis.
In 1987, Constellation, which already produced a large variety of wines under different names, began selling grape table wine under the federally registered trademark Arbor Valley. Constellation's Arbor Valley wine was produced and shipped from Batavia, New York, primarily to distributors outside of New York State, although it was eventually sold to some distributors in New York. Specifically, between 1987 and February 1990, Constellation sold Arbor Valley wine exclusively to a distributor in Stratford, Connecticut. The earliest that Constellation sold Arbor Valley wine to customers located in New York State was February *351 1990, when it sold 144 cases to a customer in Deer Park, Long Island. (Roberts Declaration, Exhibit A). Constellation's first sale of Arbor Valley to a customer in upstate New York was in 1991, when it sold six cases to a customer in Batavia. (Id.). However, AHA maintains that it never heard of Constellation's Arbor Valley mark until 2001. In that regard, AHA never observed any Arbor Valley wine being sold in Western. New York, Moreover, although AHA's attorneys conducted a trademark search in 1987 in connection with the federal registration of the Arbor Hill mark for food products, the search did not reveal Constellation's use of the name Arbor Valley.
In or about August 1988, AHA began selling grape table wine under the brand name "Finger Lakes Lake Boat" ("Lake Boat"), with the label stating that the wine was made and bottled by Arbor Hill Grapery." Sometime prior to June 1989, AHA also began selling wine under the brand name "Arbor Hill." (Brahm Reply Decl. Exhibit BBB). Since then, AHA has sold Arbor Hill wine from the Arbor Hill Grapery and other local outlets, including liquor stores, restaurants and two retail wine stores owned by Constellation. (Brahm Affidavit ¶ 31). AHA indicates that sales of Arbor Hill wines have been "modest," but that the trademark has nevertheless "become a familiar part of the retail wine landscape in, the Finger Lakes region and, in western New York." (Id. at ¶ 30) In that regard, between 1993 and 2004, AHA's annual gross revenues for the sale of Arbor Hill products ranged between $200,000 and $550,000. (Smith Declaration, Exhibit 19). During that same period, AHA spent between $10,000 and $30,000 per year advertising Arbor Hill products. (Id., Exhibit 18). More recently, between 1994 and 2004, AHA spent approximately $30,000 per year on such advertising. (Id.). AHA also has "more than 15,000 customers visit [the Arbor Hill Grapery] for wine tasting" annually. (Brahm Reply Affidavit, ¶ 22).
Constellation indicates that it does not know when if first became aware of "the Arbor Hill Grapery." (Kane Declaration, Exhibit 11, p. 55). However, AHA contends that Constellation has been aware of AHA's use of the Arbor Hill mark for wine since about 1988. In that, regard, John Brahm, who was previously employed by Constellation[4], told various Constellation management personnel that he was starting a business using the Arbor Hill name. (Brahm Affidavit ¶ 31(a)). Subsequently, AHA purchased some of its wine-making ingredients directly from Constellation. (Id. at ¶ 31(d)). AHA also points to the close geographic proximity between the Arbor Hill Grapery and Constellation's facilities in Ontario County, New York, as well as the fact that Arbor Hill wine was being sold from the Arbor Hill Grapery and other outlets in the area, including two retail wine stores owned by Constellation. (Id. at ¶ 31(b) & (c)). Additionally, AHA indicates that Marvin Sands, the former chairman and founder of Constellation, received a bottle of Arbor Hill wine in 1991, and later complimented John Brahm on the wine. (Id. at ¶ 31(e)). And finally, Arbor Hill wines received media coverage during the relevant time. (Id. at ¶ 31(f)).
Moving to the crux of the instant case, in 1998, Constellation began selling a new wine beverage under the name Arbor Mist. Arbor Mist is a product consisting of wine mixed with fruit juice. (Encherman Affidavit ¶ 20) ("The concept evolved into a `wine with fruit' beverage wine product a great tasting, low-alcohol wine with a splash of fruit and other sweeteners."). Constellation developed Arbor Mist to appeal to consumers who did not like traditional wine. (Encherman Affidavit ¶ 19) *352 ("Constellation learned that many consumers did not like table wines because they were too dry, and that these consumers also were unsatisfied with the few low-alcohol sweet wines in the marketplace . . . because of the perceived social stigma."). Constellation first decided that it would sell the as-yet-unnamed product in a distinctive frosted bottle, which it believed would make "the product seem cold, refreshing, and classy." (Id., ¶ 20). The Arbor Mist name was later selected by Constellation marketing employee William R. Encherman ("Encherman"). (Fondiller Dep. at 82). Encherman indicates that, when he was attempting to name the new product, his wife suggested the partial name "__________ Mist." (Encherman Affidavit ¶ 23). Encherman liked the word "mist," "because it conjured up the frosted bottle and the cold refreshment of the drink." (Id.). Subsequently, while Encherman and his colleague Rob Vlosky ("Vlosky") were brainstorming possible names to go with the word "mist," they looked through a book and came upon the name "Arbor Low," "which is a location in the Peak District of England, near Derbyshire." (Id. at ¶ 27 & Exhibit I). Encherman and Vlosky liked the word "arbor," because to them, "it was synonymous with grapes and wine, but did not sound too fruity." (Id.). At the time they selected the name Arbor Mist, neither Encherman nor Vlosky was aware of AHA's Arbor Hill wine. (Id. at ¶ 31).
With regard to the alleged connection between the word "arbor" and wine making, Constellation states that
a grape arbor is a generic term for a place where grapes are grown. . . . Arbors are commonly used in the merchandising of wine our company and our competitors often provide arbor displays (with or without grapes) for liquor stores and other retailers for use in their stores to display our wines.
(Id. at ¶ 45). On the other hand, although AHA admits that the word "arbor" suggests "vines," it maintains that "[a]n `arbor' is not necessarily a `grape arbor' or vineyard." (AHA Memo of Law p. 3). Nevertheless, in addition to Arbor Valley, Arbor Hill and Arbor Mist, there are a number of other wines produced and sold in the U.S. that use the word "arbor" as part of their trademark. These wines include Arbor, Arbor Crest, Arbor Brook, Arbor Knoll, Arbor Frost, Arbor Trails, Thornapple Arbor, Bel Arbors, Old Arbor, and California Arbor. (Smith Declaration, Exhibits 9-12, 16; Encherman Affidavit, Exhibits C-I).
Constellation registered the name Arbor Mist as a federal trademark in 1998. Prior to adopting the Arbor Mist mark, Constellation had its trademark attorneys perform a trademark search for the name "Arbor Mist," to see "whether [that name was] available for use as a brand name." (Fondiller Dep. at 16, 18). Constellation did not, however, have its attorneys specifically render an opinion as to whether the name Arbor Mist would infringe the Arbor Hill mark, though it was aware of the nearby Arbor Hill Grapery. (Fondiller Dep. at 53-54, 60).
On or about January 13, 1999, AHA applied for trademark registration for the name Arbor Hill for wine, which the Patent and Trademark Office ("PTO") granted on June 27, 2000, although as already mentioned, AHA had been using the Arbor Hill mark for wine since at least 1989.
In or about April 2001, AHA approached Constellation, complaining that the Arbor Mist mark infringed AHA's Arbor Hill mark.[5] AHA provided Constellation with *353 a draft complaint alleging trademark, infringement, and suggested that the parties attempt to reach an out-of-court settlement, Subsequently, AHA and Constellation had settlement negotiations for more than a year, during which time AHA agreed not to commence litigation without notice to Constellation. AHA's counsel described that agreement as follows:
At the, request of [Constellation's attorney], I . . . agreed that Arbor Hill would not commence any litigation unless and until the discussions between the parties concluded unsuccessfully. Moreover, at our first substantive settlement discussion, at a meeting between counsel, [Constellation's attorney] specifically asked me for a commitment that Arbor Hill would not deem the negotiations failed and would not commence an action without giving him three days' prior notice (he advised me that Constellation would want to use the time to issue a press release). I agreed.
(Payment Aff. ¶ 6) (citation and internal quotation marks omitted). In September 2002, settlement negotiations between AHA and Constellation were at "an apparent impasse," and AHA's counsel told Constellation's counsel that the impasse "would probably mean litigation," although he wanted to consult with AHA before doing anything. (Id. at ¶¶ 7-9): On the day following that conversation, October 1, 2002, Constellation commenced the subject action.
In its complaint, Constellation seeks, as its first claim, a declaratory judgment that there is no likelihood of confusion between the Arbor Mist and Arbor Hill marks, and that the Arbor Mist mark does not, therefore, infringe the Arbor Hill mark. Alternatively, as a second claim, Constellation requests, that, if the Court finds that a likelihood of confusion exists, that the Court further find that the Arbor Hill mark infringes Constellation's Arbor Valley mark. In other words, Constellation alleges that its Arbor Mist mark does not infringe AHA's Arbor Hill mark, but that if it does, then AHA's Arbor Hill mark must necessarily infringe Constellation's Arbor Valley mark, which was in use first.
Arbor Hill answered the complaint and asserted counterclaims for trademark infringement, unfair competition, and false advertising under the Lanham Act and New York State law. In that regard, ABA alleges, for example, that Arbor Mist is "sold for as little as $1.99 per bottle and is not considered a high-quality wine by the wine community." (Amended Answer with Counterclaims ¶ 63). In fact, AHA contends that Arbor Mist is not truly "wine," since its alcohol content is too kw. (Id. at ¶¶ 63, 110). On the other hand, ABA contends that its wines have "won numerous awards in wine competitions and have grown steadily in both reputation and popularity over the years." (Id. at ¶ 59).
On November 12, 2004 while this action was pending, Constellation's patent attorney, Stephen Baker ("Baker"), whose offices were located in New Jersey, and who knew nothing about the instant litigation, notified Constellation that it was, time to file a "combined Section 8 and Section 15 affidavit" concerning the Arbor Mist mark with the PTO. For purposes of this decision, it is sufficient to note that, in a combined Section 8 and Section 15 affidavit, the affiant must swear to two statements of fact: 1) that the mark has been in use for five years; and 2) that the mark has not been the subject of any legal dispute. See, 15 U.S.C. § 1065. Baker indicates that since the Arbor Mist mark had been registered for five years, and since he was not aware of any legal dispute involving the mark, he recommended that Constellation file, the affidavit, to provide evidence supporting the mark's incontestability:
A registration becomes incontestable as a matter of law on its fifth anniversary *354 whether or not you file a declaration, assuming there's no litigation [involving the mark]. The Section 15 Affidavit doesn't render the registration incontestable, it's simply evidence that would support a claim of incontestability.
(Baker Deposition p. 37, 40).
Specifically, Baker contacted Constellation's Vice President and General Counsel, Ronald Fondiller ("Fondiller"), who was the individual at Constellation responsible for overseeing such trademark matters. (Fondiller Dep. at 9) ("I am the one that interacts with outside counsel on normal maintenance matters, whether trademarks [need] to be renewed or allowed to lapse or whatever may be needed."). In an email, Baker advised Fondiller that a combined Section 8 and Section 15 affidavit should be filed, and Fondiller directed Baker to send the proposed affidavit to an individual at Constellation named Chris Benzinger ("Benzinger"), who would sign the affidavit. (Baker Dep. at 42).[6] However, Baker advised Fondiller that no such signature was needed, since he could file the affidavit himself: "Mr. Fondiller [replied to my email], `Please have Chris Benzinger sign.' I replied, `There is nothing that has to be signed. I will photograph a bottle and file over my . . . signature unless you instruct to the contrary.' Mr. Fondiller instructed me to file." (Baker Dep. at 42). However, Fondiller indicates that when he directed Baker to file the declaration, he did not recall the specific contents of the form affidavit that would be used:
Q. Did Constellation know of the content of the declaration you just referred to prior to its filing?
A. Constellation in this case would be me. I did not recall the specific content of the [Section] 8 and 15 affidavit.
Q. You did I'm not sure I understand your answer when you say "I did not recall." You did not recall it at what time?
A. Really at any at the time that I was informed that it was time to file one in connection with Arbor Mist.
Q. Did you give any instructions to Mr. Baker with regard to this declaration that we're talking about?
A. Yes.
Q. And those instructions were?
A. To file it.
Q. Did you have any discussions with Mr. well, did you have any discussions with Mr. Baker as to the content of this declaration at the time that you gave the instruction to file it?
A. No.
(Fondiller Dep. at 79-80).
Prior to executing the affidavit, Baker obtained proof that the Arbor Mist mark was still in use, by purchasing a bottle of the product. (Baker Dep. at 50). Baker was also aware that the mark had been in continuous use, because he had seen the product in stores. (Id. at 51). Additionally, Baker believed that the Arbor Mist mark was not the subject of litigation, because he was familiar with Constellation's trademark affairs as a result of having represented Constellation "since at least 1964." (Baker Dep. at 52-54, 59-61).
I have worked with Canandaigua [Wine Company] and its successors [Constellation] since at lest 1964. I have litigated in Federal District Court. . . . I have handled oppositions in the U.S. Patent Trademark Office. I'm afraid I made an assumption that if there was anything going on, I would have known of it. Since I did not know of it, I felt confident in saying that [there was no litigation involving the mark.] That was clearly a mistake.
*355 (Baker Dep. at 53).[7] Because of this incorrect assumption, Baker did not ask anyone at Constellation whether there was any ongoing litigation involving the Arbor Mist mark. (Id. at 54-55). Nor did Baker submit the proposed affidavit to anyone at Constellation before filing it with the PTO. (Fondiller Deposition pp. 78-81). Consequently, Baker's sworn affidavit incorrectly stated that there was "no proceeding involving said [Arbor Mist trademark] rights pending and not disposed of either in the Patent and Trademark. Office or in the courts." That statement was incorrect since the subject action was pending at the time.
Constellation maintains that the erroneous filing was a mistake, but not fraud. Nevertheless, upon learning that the affidavit had been filed, AHA accused Constellation of attempting to defraud the PTO. On or about January 14, 2005, Constellation voluntarily withdrew the affidavit. However, AHA amended its answer to assert a counterclaim, alleging that the Court should cancel Constellation's Arbor Mist mark, as punishment for Constellation's alleged attempt to defraud the pill In that regard, AHA maintains that Fondiller "must have known" the contents of a Section 15 affidavit. In support of that accusation, AHA indicates that during the years leading up to the filing of the incorrect affidavit by Baker, during which Fondiller worked as an attorney for Constellation and was responsible for the company's trademark matters, Constellation filed ten Section 15 affidavits with the PTO, in connection with various trademarks. (Salai Reply Decl. ¶¶ 3-6).[8] According to AHA, those filings suggest that Fondiller had "considerable experience with Section 15 affidavits," and was "necessarily familiar with the averments that must be made in a Section 15 incontestability affidavit, including the key averment that the trademark in question is not the subject of litigation." (Id. at ¶¶ 5-6).
The parties subsequently conducted discovery on the issue of trademark infringement. On January 26, 2007, AHA filed the subject summary judgment motion [# 115], seeking three types of relief: 1) an Order dismissing Constellation's First Cause of Action (for a declaratory judgment of non-infringement), on the grounds that Constellation breached an agreement with Arbor Hill not to commence litigation while the parties were exploring settlement;[9] 2) an Order granting summary judgment on Constellation's Second Cause of Action (for trademark infringement), on the grounds of laches, and because there is no, infringement; and 3) an Order granting summary judgment on AHA's Eighth *356 Counterclaim (for cancellation of Constellation's Arbor Mist mark), on the grounds that Constellation committed fraud on the PTO.
On January 26, 2007, Constellation filed the subject cross-motion for summary judgment [# 117], seeking a declaration that its Arbor Mist mark does not infringe the Arbor Hill mark, and granting judgment on Count I of its complaint (declaratory judgment of non-infringement), and on AHA's counterclaims, Counts I (Federal Trademark Infringement), II (Violation of § 133 of the New York General Business Law), III (Federal Unfair Competition), IV (Violation of New York Common Law), VII (Intentional Infringement), and VIII (Cancellation of Arbor Mist registration on grounds of fraud).
In opposition to Constellation's motion, AHA contends, inter alia, that there has been confusion among consumers since Constellation adopted the Arbor Mist mark, and that Arbor Hill's goodwill among consumers is likely to be damaged since Arbor Mist is an inferior product. (See, Amended Answer [# 82] ¶ 71). For example, AHA indicates that numerous, customers at the Arbor Hill Grapery have assumed that AHA produced Arbor Mist. (Brahm Affidavit in Opposition to Summary Judgment ¶ 32). AHA also indicates that it received "a number of phone calls, emails, and letters from confused consumers." (Id. at ¶ 36). AHA states that, as a result of these incidents, it created a "form" which it asked customers to fill out when it "found that they were confused as to who was making Arbor Mist," and that "[n]early 30 such confused customers signed such forms." (Id.). From the documentation that AHA has submitted, it appears that of the total instances of alleged confusion, four were inquiries by individuals wondering if Arbor Hill produced Arbor Mist, one of the instances involved a mistake by a telephone operator, six of the instances involved people who actually bought Arbor Mist products and thought that it was produced by Arbor Hill, and 36[10] of the instances involved people who assumed that they could buy Arbor Mist at the Arbor Hill Grapery. (Id., Exhibits W-Y, Exhibits JJ-YY). Additionally, AHA has identified two instances in which local publications, The Finger Lakes Business Almanac and the Rochester Democrat and Chronicle, mistakenly referred to Arbor Mist as Arbor Hill. (Id. at ¶¶ 38-39). However, with regard to the mistake by the Finger Lakes Business Almanac, the Court notes that the mistake was made in a photo caption, while the article itself correctly identified Constellation's product as Arbor Mist. (Salai Declaration in Opposition to Constellation Summary Judgment Motion, Exhibit U).
AHA has also submitted an affidavit from a former employee, Loana J. Shields ("Shields"), who states that during her six years of employment at the Arbor Hill Grapery, beginning in 1999, "at least fifteen to twenty people per week visited the store looking to purchase Arbor Mist products," and that she "received complaints from customers who were dissatisfied with Arbor Mist products and believed that Arbor Hill produced Arbor Mist due to the similarity between the two products names." (Id., Exhibit II). Although issues of credibility cannot be resolved on a summary judgment motion, the Court notes that Shield's affidavit is curious in two respects. First, although Shields claims that between 1999 and 2005 she encountered at least fifteen to twenty customers per week at the Arbor Hill Grapery who believed that they could purchase Arbor Mist, AHA has only produced proof of 36 such instances, even though it *357 began documenting such instances of confusion, by asking confused customers to sign pre-printed forms, in the Fall of 2000. (Brahm Affidavit in Opposition to Summary Judgment ¶ 36). However, what is more curious about Shield's affidavit "is that on September 22, 2000, Shields herself signed one of AHA's pre-printed forms, indicating that she was confused about the relationship between Arbor. Hill and Arbor Mist, approximately one year after she began working at the Arbor Hill Grapery. (Id., Exhibit Y, Exhibit II).[11]
AHA has also submitted a two-page "pilot survey," conducted by a research firm, purporting to show consumer confusion involving the Arbor Hill and Arbor Mist marks. (Id., Exhibit Z). The pilot survey was conducted among 52 consumers of "domestic wine, and/or wine coolers and/or fruit flavored wines," in Syracuse, New York, and purportedly shows that between 15.4% and 17.3% of the respondents were "confused into believing either that Arbor Hill came from, was connected with, or received authorization from the makers of Arbor Mist," "based only upon the brand name." (Id.). The surveyor described his methodology as follows:
To simulate a reverse confusion situation, each respondent was handed a bottle of Arbor Mist and asked to examine it as if he/she `happened to see it in a store and were thinking about whether to buy it.' After the respondent indicated he/she was done, the bottle was removed from view. At this point, respondents were asked questions regarding their, household composition and TV viewing behavior. Next, using a rotated order across respondents, each respondent was shown an array of 3 bottles of wine bearing the following labels: Arbor Hill, Argent Mist (a fictitious brand designed to serve as a `control') and Beringer. At this point, the respondents were asked a series of questions designed to assess confusion as to source, confusion as to association or connection, and confusion as to sponsorship or authorization, and the reasons for their confusion.
(Id.) The survey report does not indicate what questions were asked, nor does it state the respondent's verbatim responses. The report states that the "pilot survey" or "first phase" survey is not a complete survey, and is intended to be used "as the basis for making a `go' or `no go' decision on whether to proceed with a complete survey." (Id., Exhibit AA, p. 4).
However, Constellation opposes the introduction of the pilot survey, since AHA declined to produce the survey in discovery on the grounds that it was work product.[12] Alternatively, Constellation contends *358 that the pilot survey "does not have any of the elements of an admissible survey." (Constellation Reply Memo at 13) Additionally, Constellation maintains that, since 1998, it has sold "hundreds of millions of bottles of Arbor Mist," and has never received any telephone calls or other communications indicating confusion between Arbor Mist and Arbor Hill wine. (Encherman Affidavit ¶ 53).
Counsel for the parties appeared before the undersigned for argument of the motions on May 31, 2007. Subsequently, the parties made various supplemental submissions. The Court has now considered all submissions, as well as the arguments of counsel.
ANALYSIS
Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists. See, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). "[T]he movant must make a prima fade showing that the standard for obtaining summary judgment has been satisfied." 11 MOORE'S FEDERAL PRACTICE, § 56.11[1][a] (Matthew Bender 3d ed.). "In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the moved may satisfy this burden by pointing to an absence of evidence to support an essential element of the nonmoving party's claim." Gummo v. Village of Depew, 75 F.3d 98, 107 (2d Cir.1996) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)), cert denied, 517 U.S. 1190, 116 S. Ct. 1678, 134 L. Ed. 2d 780 (1996). Once that burden has been established, the burden then shifts to the non-moving party to demonstrate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). To carry this burden, the nonmoving party must present evidence sufficient to support a jury verdict in its favor. Anderson, 477 U.S. at 249, 106 S. Ct. 2505. The parties may only carry their respective burdens by producing evidentiary proof in admissible form. FED.R.CIV.P. 56(e). The underlying facts contained in affidavits, attached exhibits, and depositions, must be viewed in the light most favorable to the non-moving party. U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 8 L. Ed. 2d 176 (1962). Summary judgment is appropriate only where, "after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party." Leon v. Murphy, 988 F.2d 303, 308 (2d Cir.1993).
At the outset, the Court will consider the arguments raised in AHA's motion.
AHA's Application to Dismiss Constellation's Declaratory Judgment Claim
As discussed above, AHA maintains that the Court should dismiss Constellation's declaratory judgment claim, since Constellation "sandbagged" AHA in order to win a race to the courthouse. Specifically, AHA alleges that, although its counsel and Constellation's counsel had an oral agreement not to commence litigation without giving opposing counsel three-day's notice, Constellation violated that *359 agreement, in order to "intimidate" AHA and "win a race to court." AHA maintains that Constellation's alleged misconduct in this regard should prompt the Court to dismiss Constellation's declaratory judgment claim.
In support of this argument, AHA cites various cases including Bausch & Lomb Inc. v. Alcide Corp., 684 F. Supp. 1155 (W.D.N.Y.1987) and Great Am. Ins. Co. v. Houston Gen. Ins. Co., 735 F. Supp. 581 (S.D.N.Y.1990), which indicate that a district court may decline to exercise jurisdiction over a declaratory judgment action in certain circumstances. See, Bausch Lomb Inc. v. Alcide Corp., 684 F.Supp. at 1159 ("A declaratory judgment action is an exception to the general rule that a Federal Court must exercise the jurisdiction which is conferred upon it. The determination of whether or not to exercise, jurisdiction is left to the sound discretion of the district court.") (citations omitted). However, these cases are factually inapposite to the situation here, since they involve attempts by parties to select more convenient forums by filing pre-emptive declaratory judgment lawsuits. See, e.g., Great Am. Ins. Co. v. Houston Gen. Ins. Co., 735 F.Supp. at 586 ("[T]he misuse of the Declaratory Judgment Act to gain a procedural advantage and preempt the forum choice of the plaintiff in the coercive action militates in favor of dismissing the declaratory judgment action.")[13] In this case, AHA does not claim that it would have brought suit against Constellation in a different venue, but rather, it is undisputed that ABA intended to commence its lawsuit here in the Western District of New York. Nor does AHA claim to be at any procedural disadvantage, apart from arguing that it is "unfair" that Constellation should get to appear before a jury as a plaintiff instead of as a defendant. (AHA Memo of Law [# 116-1] p. 12) (Arguing that Arbor Hill "should be entitled to appear before a jury in the posture of a plaintiff seeking to vindicate its rights, not as a declaratory action defendant."); (Payment Declaration at ¶ 16) ("Constellation's decision to `get the jump' on its adversary by filing an action while simultaneously asking me to forebear from filing-served an illegitimate purpose that the Court should not countenance.").
In any event, while AHA may have agreed to give Constellation a three-day notice before commencing a lawsuit, it does not appear that Constellation ever gave a reciprocal assurance. Moreover, while AHA suggests that it was "sand bagged" by Constellation's commencement of this lawsuit, it does not allege that there was any reasonable likelihood that further negotiations between the parties would have been successful. On the contrary, AHA's attorneys had indicated that they would likely sue Constellation, once they had discussed the matter with AHA's owners. Overall, AHA has not presented a compelling argument for declining jurisdiction over Constellation's declaratory judgment claim, and consequently, Arbor Hill's application to dismiss that claim is denied.
AHA's application to cancel the Arbor Mist mark on grounds of fraud
Next, AHA contends that the Court should grant summary judgment on AHA's eighth counterclaim, and cancel the federal registration of Constellation's Arbor *360 Mist mark pursuant to 15 U.S.C. § 1064, on the grounds that Constellation attempted to defraud the PTO by submitting a false Section 15 affidavit. In that regard, generally,
[a] party seeking cancellation of a registered trademark on grounds of fraud must demonstrate the alleged fraud by clear and convincing evidence. The allegedly fraudulent statements may not be the product of mere error or inadvertence, but must indicate a deliberate attempt to mislead the PTO. Moreover, the knowing misstatement must have been with respect to a material fact-one that would have affected the PTO's action on the applications.
Orient Exp. Trading Co., Ltd. v. Federated Dept. Stores, Inc., 842 F.2d 650, 653 (2d Cir.1988) (citations and internal quotation marks omitted). A party seeking such cancellation faces a "heavy burden," and must "present proof that leaves nothing to speculation, conjecture, or surmise. Should there be any doubt, it must be resolved against the party making the claim. Merely making a false statement is not sufficient to cancel a mark." De Beers LV Trademark Ltd. v. DeBeers Diamond Syndicate, Inc., 440 F. Supp. 2d 249, 267 (S.D.N.Y.2006) (citations and internal quotation marks omitted); see also, Pilates, Inc. v. Current Concepts, Inc., 120 F. Supp. 2d 286, 313 (S.D.N.Y.2000) ("Fraud in a trademark cancellation is something that must be `proved to the hilt' with little or no room for speculation or surmise; considerable room for honest mistake, inadvertence, erroneous conception of rights, and negligent omission; and any doubts resolved against the charging party.") (citation omitted).
Moreover, "a court must view the evidence presented through the prism of the substantive evidentiary burden' in determining whether a genuine issue of fact has been raised sufficient to withstand summary judgment." Association Ben. Services, Inc. v. Caremark Rx, Inc., 493 F.3d 841, 854 (7th Cir.2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. at 254, 106 S. Ct. 2505, 91 L. Ed. 2d 202). Consequently, the quantum of proof required to prevail on a summary judgment motion is greater where, as here, the fraud claim must be proven by clear and convincing evidence. See, Id. (Holding that the plaintiff's contentions were "insufficient to prevent summary judgment on an element of a claim, such as fraud, that ultimately must be proven by clear and convincing evidence."); see also, Compuware Corp. v. Moody's Investors Servs., Inc., 499 F.3d 520, 525 (6th Cir.2007) ("`When determining if a genuine factual issue as to actual malice exists in a [defamation] suit brought by a public figure, a trial judge must bear in mind the actual quantum and quality of proof necessary to support liability,' meaning that the court must grant summary judgment to the defendant `if the evidence presented . . . is of insufficient caliber or quantity to allow a rational finder of fact to find actual malice by clear and convincing evidence.'") (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. at 254, 106 S. Ct. 2505, 91 L. Ed. 2d 202.); see also, 6 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 31:68 (4th ed.) ("[F]raud in trademark registration procurement, though often alleged, is seldom proven.").
In the instant case, it is undisputed that Baker made an incorrect statement of fact in an affidavit submitted to the PTO. In that regard, Baker relied upon his own personal knowledge and his assumption that he would have known of any litigation involving the Arbor Mist mark. AHA has not come forward with any evidence to dispute Baker's explanation of his actions. Instead, AHA contends that Fondiller acted with fraudulent intent when he directed Baker to file the affidavit, even though Fondiller has stated under oath that he did not recall the specific contents of a combined *361 Section 8 and Section 15 affidavit when gave that direction. By way of proof, AHA relies on inferences drawn from the fact that, during the years leading up to the filing of the subject affidavit, while Fondiller was employed as legal counsel by Constellation, Constellation filed a number of other combined Section 8 and Section 15 affidavits with the PTO in connection with other trademarks.
At the outset, although Constellation contends that the filing of a false Section 15 affidavit cannot provide a basis for cancelling a trademark registration, the weight of case authority, though scant, is to the contrary. See, Robi v. Five Platters, Inc., 918 F.2d 1439, 1444 (9th Cir. 1990) (grilling a fraudulent incontestability affidavit provides a basis for canceling the registration itself.") (citing Crown Wallcovering Corp. v. Wall Paper Mfrs. Ltd., 188 U.S.P.Q. 141, 143-44 (1975)); Sunrise Jewelry Mfg. Corp. v. Fred S.A., 175 F.3d 1322, 1327 (Fed.Cir.1999) (The court's analysis indicates that the filing of a fraudulent Section 15 affidavit could warrant cancellation of the trademark); but see, 3 MCCARTHY ON TRADED/LARKS AND UNFAIR COMPETITION § 20:58 (4th ed.) ("Fraud made in a § 15 affidavit to obtain incontestability status would seem not to go to the continuance of the registration itself and hence would not constitute a ground for cancellation of the registration. Some decisions have held, however, that it does justify cancellation.") (footnotes omitted). In any event, in this case the Court finds that there are triable issues of fact as to fraudulent intent. Consequently, AHA's motion for summary judgment on its eighth counterclaim is denied.
AHA's Application for Summary Judgment on Constellation's Second Cause of Action for Infringement of the Arbor Valley trademark
Constellation's second cause of action alleges that AHA's Arbor Hill mark infringes Constellation's Arbor Valley mark. Essentially, the claim indicates that if the Arbor Mist mark infringes the Arbor Hill mark, then the Arbor Hill mark must necessarily infringe the Arbor Valley mark. However, Constellation clearly does not believe that the Arbor Mist mark infringes the Arbor Hill mark, and this cause of action is merely a fall-back position. Nevertheless, AHA maintains that this claim is barred by the equitable doctrine of laches, since. Constellation was aware of AHA's use of the Arbor Hill mark for at least a decade before bringing this action. The Court agrees that the claim is barred by lathes.
The equitable defense of laches applies in cases involving trademark infringement. See, Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 191, 193 (2d Cir. 1996). To establish the defense, the defendant must show four elements: 1) plaintiff was aware of defendant's use of the mark; 2) plaintiff unreasonably delayed challenging defendant's use of the mark; 3) defendant, suffered prejudice as a result of the delay; and 4) defendant has clean hands. See, Id. at 192; see also, Saratoga Vichy Spring Co., Inc. v. Lehman, 625 F.2d 1037, 1040, 1042 (2d Cir.1980). Moreover,
[a]lthough laches is an equitable defense, employed instead of a statutory time-bar, analogous statutes of limitation remain an important determinant in the application of a lathes defense. Because the Lanham Act establishes no limitations period for claims alleging unfair competition or false advertising, and because there is no corresponding federal statute of limitations, we look to the most appropriate or the most analogous state statute of limitations for laches purposes. That statute of limitations then determines which party possesses the burden of proving or rebutting the defense.
*362 * * *
[P]rior to the running of the most closely analogous state statute of limitations there is no presumption of laches and the burden remains on the defendant to prove the defense. Alternatively, once the analogous statute has run, a presumption of laches will apply and plaintiff must show why the laches defense ought not be applied in the case.
Conopco, Inc. v. Campbell Soup Co., 95 F.3d at 191 (citations and internal quotation marks omitted). For trademark infringement claims, the analogous state statute of limitations is New York's six-year fraud statute. Id.
In the instant case, Constellation waited far longer than six years before asserting its trademark claim against AHA. In that regard, AHA has produced evidence indicating that Constellation had to have been aware of AHA's" use of the Arbor Hill mark by the late nineteen-eighties or early nineteen-nineties. As just one example, as mentioned above, Marvin Sands, the President of Constellation's predecessor, Canandaigua Wine Company, acknowledged sampling Arbor Hill wine in 1991. In opposition, Constellation states only that it has no idea when it became aware of AHA's use of the Arbor Hill mark. However, "where the question of laches is an issue the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry." Polaroid Corp. v. Polarad Elecs. Corp., 182 F. Supp. 350, 355 (S.D.N.Y.1960) (quoting Johnston v. Standard Mining Co., 148 U.S. 360, 13 S. Ct. 585, 37 L. Ed. 480), aff'd, 287 F.2d 492 (2d Cir.1961). In short, Constellation either knew, or should have known, that AHA was making and selling Arbor Hill wine, in competition with Constellation's Arbor Valley wine, approximately twelve years before commencing this action. Consequently, the presumption of laches applies. The Court further notes, in any event, that AHA suffered prejudice, by continuing to develop and promote its Arbor Hill wines, and that there is no indication that AHA acted in bad faith.
Constellation, however, maintains that laches should not apply, on the somewhat convoluted theory that, if it is determined that the Arbor Mist mark infringes AHA's Arbor Hill mark, such result would constitute a change in the applicable law of trademarks, which in fairness should allow Constellation to claim that the Arbor Hill mark infringes Constellation's Arbor Valley mark.[14] Viewed another way, Constellation concedes that, but for a change in the applicable law, its second cause of action is barred by laches. In support of this argument, Constellation cites Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 714 (2d Cir.1993), rev'd on other grounds by New York State Conference of Blue Cross & Blue. Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S. Ct. 1671, 131 L. Ed. 2d 695 (1995), Omega S.A. v. Omega Eng'g, Inc., 228 F. Supp. 2d 112, 140-41 (D.Conn. 2002), and Bio-Technology Gen. Corp. v. Genentech, Inc. 80 F.3d 1553, 1564 (Fed. Cir.1996), which generally hold that a plaintiff cannot be found to have been dilatory in pursuing its rights when it reasonably believed that it was prevented from doing so, based upon the then-current state of the law. However, the cases cited by Constellation are inapplicable in the instant cage, since there has been no change in the relevant law applicable to trademark infringement claims. To the extent that Constellation alleges that a ruling in AHA's favor, in connection with *363 Constellation's declaratory judgment claim, would necessarily require a change in such applicable law, the Court disagrees. Consequently, AHA is entitled to summary judgment on Constellation's infringement claim, based on laches.
Constellation's Application for Summary Judgment on its First Cause of Action Regarding Federal Trademark Infringement
The Court will now consider Constellation's motion for summary judgment on its first cause of action, which seeks a declaratory judgment that the Arbor Mist Mark does not infringe AHA's Arbor Hill mark. To succeed on a claim for trademark infringement under the Lanham Act, 15 U.S.C. § 1114(a), in general,
a plaintiff has two obstacles to overcome: the plaintiff must prove that its mark is entitled to protection and, even more important, that the defendant's use of its own mark will likely cause confusion with plaintiff's mark. The bottom line is if no such likelihood of confusion is found, a defendant will generally not be held to have infringed plaintiffs mark.
Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d 1072, 1074 (2d Cir.1993).[15]
As for the first prong of this analysis, "[w]hether the mark is entitled to protection depends on whether it is inherently distinctive or, if merely descriptive, hat acquired `secondary meaning.'" Arrow Fastener Co., Inc. v. Stanley Works, 59 F.3d 384, 390 (2d Cir.1995). On this point,
[t]o be valid and protectible, a mark must be capable of distinguishing the products it marks from those of others. There are five different categories of terms with respect to the protection of a mark: generic, descriptive, suggestive, arbitrary, and fanciful. The categories reflect both the eligibility for protection and the degree of protection accorded. A mark is generic if it is a common description of products and refers to the genus of which the particular product is a species. A mark is descriptive if it describes the product's features, qualities, or ingredients in ordinary language or describes the use to which the product is put. A mark is suggestive if it merely suggests the features of the product, requiring the purchaser to use imagination, thought, and perception to reach a conclusion as to the nature of the goods. An arbitrary mark applies a common word in an unfamiliar way. A fanciful mark is not a real word at all, but is invented for its use as a mark. The five categories focus the inquiry on the distinctiveness of the mark, Fenciful, arbitrary, and suggestive marks are deemed inherently distinctive. Their intrinsic nature' serves to identify a particular source of a product, so they will be automatically protected. Marks which are descriptive are not inherently distinctive, and a showing that the mark has acquired distinctiveness-"secondary meaning"-is required before protection will be extended. Generic marks are not protectible.
Lane Capital Management, Inc. v. Lane Capital Management, Inc., 192 F.3d 337, 344 (2d Cir.1999) (citations omitted). Here, the Court finds that the Arbor Hill mark is arbitrary, and is therefore entitled to protection.[16]
*364 The second prong of the two-prong analysis described above is whether there is a likelihood of confusion between the Arbor Mist mark and the Arbor Hill mark. To establish "likelihood of confusion," the party alleging infringement must prove
that numerous ordinary prudent purchasers are likely to be misled or confused as to the source of the product in question because of the entrance in the marketplace of defendant's mark. For a finding of infringement a probability of confusion, not a mere possibility, must be found to exist.
The factors ordinarily weighed in determining the likelihood of confusion are the familiar Polaroid factors, which include: 1) the strength of the plaintiff's mark;[[17]] 2) the similarity of plaintiff's and defendant's marks; 3) the competitive proximity of the products; 4) the likelihood that plaintiff will "bridge the gap" and offer a product like defendant's; 5) actual confusion between products; 6) good faith on the defendant's part; 7) the quality of defendant's product; and 8) the sophistication of buyers. The Polaroid factors are not dispositive, and additional factors may be considered or initial factors abandoned.
Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d at 1077 (referring to Polaroid Corp. v. Polarad Elec. Corp., 287 F.2d 492, 495 (2d Cir.), cert. denied, 368 U.S. 820, 82 S. Ct. 36, 7 L. Ed. 2d 25 (1961)) (citations omitted); see also, Star Indus., Inc. v. Bacardi & Co. Ltd., 412 F.3d 373, 383 (2d Cir.2005) ("Likelihood of confusion includes confusion of any kind, including confusion as to source, sponsorship, affiliation, connection, or identification. In order to be confused, a consumer need not believe that the owner of the mark actually produced the item and placed it an the market. The public's belief that the mark's owner sponsored or otherwise approved the use of the trademark satisfies the confusion requirement.") (citations omitted).
Strength of the Arbor Hill mark
The Court has determined, that the Arbor Hill mark is arbitrary, and arbitrary marks are generally considered to be strong. Star Indus., Inc. v. Bacardi & Co. Ltd., 412 F.3d at 385 ("Among marks relying solely on inherent distinctiveness for their protectability, arbitrary or fanciful ones are the strongest."). However, "[o]nce a mark has been classified, the second step in determining strength is to consider its degree of distinctiveness, an inquiry that concerns both the inherent inventiveness of the mark itself and the amount of third-party usage of the term as a mark, especially in the market in question." Id. at 385; see also, Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d 474, 479 (2d Cir.1996) (Holding that, in determining the strength of a mark, "consideration of the recognition that the mark actually enjoys in the marketplace is not error," and may "cast doubt on the otherwise firm conclusion that [a mark] is strong.") (citation omitted). Here, there is extensive third-party use of the word "arbor" in the wine industry, which, detracts from the strength of the Arbor Hill mark. See, W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d 567, 573 (2d Cir.1993) ("[E]xtensive third party use of the words sport and *365 stick weighs against a finding that WWW's trade name is strong.") (citation and internal quotation marks omitted), limited on other grounds by Deere & v. MTD Products, Inc., 41 F.3d 39 (2nd Cir.1994). Moreover, the fact that AHA has had, only modest, regional success with Arbor Hill wine also detracts from the strength of the mark. Id. ("WWW has had only very modest sales since it entered the business. . . . This evidence indicates a low national recognition of WWW's product.") (citation omitted). Consequently, the Court finds that the Arbor Hill mark is "deserving of trademark protection, but not entitled to the fullest protection available under the law." Id. (quoting W.W.W. Pharm. Co., Inc. v. Gillette Co., 808 F. Supp. 1013, 1023 (S.D.N.Y.1992)).
Similarity of the marks
With regard to the second Polaroid factor, "[i]n assessing similarity, courts look to the overall impression created by the logos and the, contest in which they are found and consider the totality of factors that could cause confusion among prospective purchasers." Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 386; see also, W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d at 573 (Holding that, in assessing the similarity of the marks, a court should "look at the general impression created by the marks, keeping in mind all factors which the buying public will likely perceive and remember.") (citation omitted). "The similarity of the marks is a key factor in determining likelihood of confusion." Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d 108, 117 (2d Cir.2006) (citation omitted).
In the instant case, the marks are "marginally similar" in that they both contain the word "arbor." See, Nabisco, Inc. v. Warner-Lambert Co., 220 F.3d at 46 ("Dentyne Ice and Ice Breakers are at best marginally similar because of the common use of `Ice.'"). Additionally, both wines are sold in bottles that are roughly the same size and shape, which is basically the same size and shape of most wine bottles. However, apart from those facts, there is very little similarity between the appearance of the marks and products. (See, Exhibit A attached hereto.) Although both marks contain the word "arbor," they do not sound the same. Nor do the names produce the same effect, since "Arbor Hill" suggests a geographic location or place, i.e., a particular hill, while "Arbor Mist," used in connection with wine, more generally suggests a connection to a grape arbor and/or vines. The marks use different typefaces and styles, with the Arbor Hill name appearing in black lettering on a white paper label, while the Arbor Mist name appears in stylized white lettering on a distinctive, clear plastic label. Additionally, Arbor Hill labels bear the name of the particular type of wine, e.g., "Riesling," while Arbor Mist labels bear the names of various combinations of fruit juice and wine, such as "Strawberry White Zinfandel." Arbor Hill labels bear the image of a tree, while Arbor Mist labels have pictures of various fruits. Arbor Hill labels indicate that the wine is from the "Finger Lakes," while Arbor Mist labels have no such geographic designation. The Arbor Hill bottle is a traditional-looking, dark-green wine bottle, with a gold foil wrapper on the neck of the bottle, while the Arbor Mist bottle is a more distinctive, clear-frosted glass bottle, with a black foil wrapper on the bottle neck. Bottles of Arbor Mist are also unlike bottles of Arbor Hill wine in that each variety of Arbor Mist has a distinctive color, which is visible through the clear frosted bottle. Finally, the Arbor Hill bottle appears to be sealed with a cork, while the Arbor Mist bottle appears to have a screw-off cap.
In short, the two products create very different impressions. See, Nabisco, Inc. v. Warner-Lambert Co., 220 F.3d at 47 *366 ("The cumulative effect of the differences between the parties' products and in the commercial presentation of their marks creates distinct marketplace impressions.") Moreover, these differences, which are so obvious when viewing the products side by side, are sufficiently memorable to dispel confusion among consumers who may be viewing the products serially. See, Malletier v. Burlington Coat Factory Warehouse Corp., 426 F.3d 532, 538 (2d Cir. 2005) ("Whether simultaneous viewing by consumers is likely to result in confusion is not relevant when it is serial viewing that is at issue given the market context or the type of confusion claimed. In such a case, a district court must ask not whether differences are easily discernable on simultaneous viewing, but whether they are likely to be memorable enough to dispel confusion on serial viewing.") Consequently, the Court finds that this factor weighs heavily in Constellation's favor.
Competitive proximity of the products
With regard to the third Polaroid factor,
[t]he `proximity-of-the-products' inquiry concerns whether and to what extent the two products compete with each other. We look to the nature of the products themselves and the structure of the relevant market. Among the considerations germane to the structure of the market are the class of customers to whom the goods are sold, the manner in which the products are advertised, and the channels through which the goods are sold.
Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d at 480 (citations omitted). In the instant case, the products are both alcoholic beverages, which are sometimes sold through the same channels of trade, such as liquor stores, although unlike Arbor Hill, Arbor Mist is also sold in supermarkets and mass-merchandise stores. Although Arbor Mist is less expensive than Arbor Hill, that does not negate the fact that they compete with each other. Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 387 ("That Georgi vodka costs half as much as Bacardi rum and is displayed on different shelves in the same store does not imply that the products are not in competition."). However, the nature of the two products is clearly different, since Arbor Hill is traditional table wine, while Arbor Mist is a mix of wine and fruit juice, with a lower alcohol content than most wine. (See, e.g., Payment Declaration at ¶ 2) (AHA's counsel refers to Arbor Mist as a "wine cooler beverage product."). In fact, one of AHA's counterclaims in this action accuses Constellation of engaging in false advertising by calling its Arbor Mist products "wine," since they "are not wines." (AHA Amended Answer and Counterclaims, ¶ 99). Additionally, the products differ greatly as to "geographic distribution" and "market position," with Arbor Hill wine having modest regional sales and Arbor Mist having sales of millions of bottles nationwide. See, W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d at 573. Consequently, although the products compete with each other, this factor does not overwhelmingly favor AHA. Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 387 ("Appellees are correct to point out that vodka, rum, and malt beverages do reside in distinct submarkets of the market for alcoholic beverages. Vodka and ruin, while sold in the same stores to the same consumers for similar purposes, are distinct varieties of product; and this is more so with malt beverages . . . which contain a much smaller concentration of alcohol. Our finding of competitive proximity is thus tempered, and the factor does not overwhelmingly favor Star.").
Bridging the gap
This fourth Polaroid factor "refers to the likelihood that the senior user will enter the junior user's market in the future, or that consumers will perceive the *367 senior user as likely to do so," Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 387. In this case, there is no gap to bridge, since the parties, already compete in the same market. This is true even though one party sells table wine, and the other produces a wine fruit juice beverage. See, Id. (Finding no bridge to gap, despite the fact that one party produced rum and malt beverages and the other produced vodka). Therefore, this factor, is irrelevant to the Court's Polaroid analysis, Id. ("Because, as we have held above, Star's and appellee's products are already in competitive proximity, there is really no gap to bridge, and this factor is irrelevant to the, Polaroid analysis in this case.") (citations omitted).
Actual consumer confusion
When considering actual consumer confusion, the question is whether consumers will think that Arbor Mist comes from the same source as Arbor Hill wine. Playtex Prods., Inc. v. Georgia-Pacific Corp., 390 F.3d 158, 166 (2d Cir.2004) ("The question is whether consumers will think that "Quilted Northern Moist-Ones" come from the same source as "Wet Ones" products.") (emphasis added, citations omitted). "When balancing the Polaroid factors, evidence of actual consumer confusion is particularly relevant. See, Virgin Enters. Ltd. v. Nawab, 335 F.3d 141, 151 (2d Cir. 2003) ("It is self-evident that the existence of actual consumer confusion indicates a likelihood of consumer confusion. We have therefore deemed evidence of actual confusion `particularly relevant' to the inquiry.") (citation omitted).
In the instant case, AHA has presented evidence regarding actual instances of consumer confusion, as well as survey evidence. With regard to the survey evidence, AHA states that its "professional market survey" "confirm[s] that there [is] a significant tendency for consumers to be confused by the similarity between Arbor Mist and Arbor Hill; a sizeable percentage of consumers surveyed assumed that the two products were, produced by' the same company." (AHA Memo of Law in Opposition at 14). However, the Court declines to consider the pilot survey, since AHA did not produce it in discovery. See, FRCP 37(c)(1); see also, Malaco Leaf, AB v. Promotion In Motion, Inc., 287 F. Supp. 2d 355, 376 (S.D.N.Y.2003) ("This Court declines to consider any survey or expert report, including the Pilot Survey, offered to defendants for the first time on a summary judgment motion and inexplicably not produced during discovery."). Even if AHA had produced the survey summary during discovery, the Court would exclude it in any event, since it does not satisfy the criteria for admissibility. In that regard,
[s]urvey evidence is generally admissible in cases alleging trademark infringement under the Lanham Act. To assess the admissibility of survey evidence, the court should consider a number of criteria, including whether: (1) the proper universe was examined and the representative sample was drawn from that universe; (2) the survey's methodology and execution were in accordance with generally accepted standards of objective procedure and statistics in the field of such surveys; (3) the questions were leading or suggestive; (4) the data gathered were accurately reported; and (5) persons conducting the survey were recognized experts. A trademark survey must also approximate marketplace conditions. While errors in survey methodology usually go to weight of the evidence, a survey should be excluded under Rule 403, Fed.R.Evid., when its probative value is substantially outweighed by its prejudicial effect or potential to mislead' the jury. Thus, a survey should be excluded under Rule 403 when it is so flawed in its methodology that the survey proves little and the jury is very likely to be misled. While *368 courts in the Second Circuit rely mainly on Rule 403 to exclude unreliable surveys, we note that Rule 702 is clearly applicable as well, because the result of a survey is essentially expert testimony, and Rule 702 requires that such testimony must be reliable. The bottom line is that if the survey suffers from substantial methodological flaws, it will be excluded under both Rule 403 and Rule 702.
Malletier v. Dooney & Bourke, Inc., 525 F. Supp. 2d 558, 580-581 (S.D.N.Y.2007) (citations, internal quotation marks and footnote omitted). "The necessary foundation will normally be laid through the testimony of the persons responsible for the various parts of the survey." Toys R Us, Inc. v. Canarsie Kiddie Shop, Inc., 559 F. Supp. 1189, 1205 (S.D.N.Y.1983) (citations omitted).
Here, AHA's "survey" is a two-page summary of a pilot survey involving 52 consumers of alcoholic beverages who were shown a bottle of Arbor Mist, and then sometime later, shown three other bottles of wine "bearing the following labels: Arbor Hill, Argent Mist (a fictitious brand designed to serve as a `control'), and Beringer." (Brahm Affidavit, Exhibit Z).[18] The summary indicates that
based only upon the brand name, 17.3% of the 52 respondents definitely were confused into believing either that Arbor Hill came from, was connected with, or received authorization from the makers of Arbor Mist. The corresponding percentage for the control brand (Argent Mist) was only 1.9%. Thus, after subtracting for `noise,' our best empirically derived estimate of likely reverse confusion is (17.3-1.9=) 15.4%.
(Id.) (Emphasis added). The summary does not include photographs of the actual bottles used. Moreover, although the summary states that the consumers "were asked a series of questions designed to assess confusion as to source, confusion as to association or connection, and confusion as to sponsorship or authorization, and the reasons for their confusion," it does not provide the actual questions asked or answers given. (Id.). Consequently, the Court cannot determine if the summary evidence is reliable. Moreover, it has been held that surveys such as AHA's have little probative value where they show only that a certain number of consumers will assume that some type of relationship exists between two companies with similar names. Beneficial Corp. v. Beneficial Capital Corp., 529 F. Supp. 445, 451 (S.D.N.Y.1982) ("The survey establishes no more than that the names are similar, a factor as to which there can be little genuine dispute in any event, and that portions of the general public will make the reasonable assumption, that, in the absence of any other information, two companies with similar names are likely to have a business connection. However, this proposition provides no indication of public reaction under actual market conditions.").
AHA's remaining evidence of actual confusion consists of anecdotal and documentary evidence. For example, AHA has received phone calls and letters regarding Arbor Mist from consumers, and has documented other incidents involving visitors to the Arbor Hill Grapery who expressed an interest in purchasing Arbor Mist. Overall, it appears that six instances involved actual purchasers of Arbor Mist, and as many as 6240 instances, over a six-year period, involved people who stopped at the Arbor Hill Grapery assuming that they could buy Arbor Mist.[19] It appears that most, if not *369 all, of these persons assumed that there was a connection between the products, based solely on the similarity of the names., On the other hand, Constellation maintains that it has not encountered any instances of consumer confusion.
Viewing the evidence in the light most-favorable to AHA, this factor favors AHA. See, Lon Tai Shing Co., Ltd. v. Koch + Lowy, No. 90 Civ. 4464(DNE), 1991 WL 170734 at *11 (S.D.N.Y. Jun.20, 1991) (Holding that a plaintiff may use "confusion by only a small percentage of buyers" to establish actual confusion.); see also, Virgin Enters. Ltd. v. Nawab, 335 F.3d at 151 (Holding that, where "Plaintiff submitted to the district court an affidavit of a former employee of defendant Cel-Net, who worked at a mall kiosk branded as Virgin Wireless, which stated that individuals used to ask him if the kiosk was affiliated with plaintiffs VIRGIN stores," "[t]he district court correctly concluded that this evidence weighed in plaintiff's favor" with regard to the "actual confusion" Polaroid factor.).
Good faith
The sixth Polaroid factor asks "whether the defendant adopted its mark with the intention of capitalizing on plaintiff s reputation and, goodwill and any confusion between his and the senior user's product." W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d at 575. In that regard, "[g]ood faith can be found if a defendant has selected a mark which reflects the product's characteristics, has requested a trademark search or has relied on the advice of counsel." Id. Mere knowledge of the senior user's similar mark does not necessarily establish bad faith. Id.; see also, Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 388 ("[I]n some cases even where a trademark search resulted in knowledge of the earlier mark, in the absence of additional evidence indicating an intent to promote confusion or exploit good will or reputation, this Court has found the junior user to be in good faith.") (citations omitted).
Here, AHA concedes that Constellation was not attempting to benefit from Arbor Hill's goodwill when it selected the Arbor Mist name. (Brahm Reply Affidavit, ¶ 63) ("[G]iven that Constellation intended to market Arbor Mist nationally, it is apparent that Constellation could not have expected that the goodwill associated with Arbor Hill in western New York, would help Constellation sell bottles of Arbor Mist elsewhere in the country."). Nevertheless, AHA insists that Constellation acted in bad faith, since it was aware of the Arbor Hill mark when it selected the Arbor Mist mark. However, it is undisputed that neither Encherman nor Vlosky was aware of Arbor Hill when they selected the name Arbor Mist. See, Star Indus., Inc. v. Bacardi & Ltd., 412 F.3d at 389 (Finding no evidence of bad faith, where certain "regional vice presidents" of defendant's company were aware of plaintiff's mark, but individuals who actually selected defendant's mark were not.). To the contrary, Encherman and Vlosky selected the word "arbor" because of its association with wine, and the word "mist" because it went well with the product's frosted bottle and suggested "refreshment." AHA denies that the word "arbor" is necessarily connected with wine, and the Court agrees. However, it is also clear that, to a certain extent, the word "arbor" is suggestive of grapes and wine in the same way that the word "orchard" is suggestive of apples. Consequently, the name Arbor *370 Mist reflects the product's characteristics. Finally, Constellation had already been using the word "arbor" as part of its Arbor Valley trademark for over a decade. Overall, Constellation's prior knowledge of the Arbor Hill mark does not indicate bad faith.
AHA also contends that Constellation acted in bad faith by "fail[ing], to seek a legal opinion as to whether Arbor Mist would infringe the Arbor Hill mark." (AHA Memo of Law p. 17). However, it is again undisputed that Constellation conducted a trademark search for the name "Arbor Mist." The fact that Constellation did not obtain a specific opinion concerning the Arbor Hill mark does not indicate bad faith. See, Star Indus., Inc. v. Bacardi & Co. Ltd., 412 F.3d at 388 ("[I]n some cases even where a trademark search resulted in knowledge of the earlier mark, in the absence of additional evidence indicating an intent to promote confusion or exploit good will or reputation, this Court has found the junior user to be in good faith."); see also, Juicy ZCouture, Inc. v. L'Oreal USA, Inc., No. 04 Civ.7203(DLC), 2006 WL 1012939 at *28 (S.D.N.Y. Apr.19, 2006) ("Failure to perform a trademark search, standing alone, does not prove bad faith, even where a defendant is aware of other products using similar names.") Therefore, the Court finds that this Polaroid factor favors Constellation.
Quality of the defendant's product
This seventh Polaroid factor "considers whether the senior user's reputation could be tarnished by the inferior merchandise of the junior user." Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d at 483 (citations and internal quotation marks omitted). "Generally, quality is weighed as a factor when there is an allegation that a low quality product is taking unfair advantage of the public good will earned by a well-established high quality product." Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d at 1079 (citation omitted). The fact that the junior user's product is cheaper does not necessarily indicate poor quality. Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 389. On the other hand, "a very marked difference in quality between the two products would militate against finding a likelihood of confusion as consumers will be less likely to assume that the senior user whose product is high-quality will have produced the lesser-quality products of the junior user." Id. (citation and internal quotation marks omitted). However, similar to the issue of bad faith, this factor is not "of high relevance to the issue of likelihood of confusion." Virgin Enterprises Ltd. v. Nawab, 335 F.3d at 151. Instead, "[t]he issue of the quality of the secondary user's product goes more to the harm that confusion can cause the plaintiffs mark and reputation than to the likelihood of confusion." Id. at 152.
In this case, AHA maintains that Arbor Mist is a "clearly inferior" product that is viewed with disdain by the wine making community. (AHA Memo of Law in Opposition at 22). As discussed above, AHA's contention in this regard, if proven, might actually "militate against finding a likelihood of confusion." Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d at 389. However, although AHA has produced some hearsay evidence that a few consumers did not like Arbor Mist, it has not produced proof that Arbor Mist is an inferior-quality product. See, Jaret Intern., Inc. v. Promotion in Motion, Inc., 826 F. Supp. 69, 77 (E.D.N.Y.1993) ("The parties make self-serving assertions about the quality of their candies but no expert opinion or empirical evidence was offered on this issue."). Instead, the record indicates only that, compared to AHA's wines, Arbor Mist is a sweeter, lower-alcohol drink that appeals to a different segment of consumers. Consequently, the Court finds that this factor favors Constellation.
*371 Sophistication of the purchasers
The eighth and final Polaroid factor "recognizes "that the likelihood of confusion between the products at issue depends in part on the sophistication of the relevant purchasers." Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d at 480 (citations and internal quotation marks omitted). On this point, a court
considers the general impression of the ordinary purchaser, buying under the normally prevalent conditions of the market and giving the attention such purchasers usually give in buying that class of goods. Consumer sophistication may be proved by direct evidence such as expert opinions or, surveys. In addition, in some cases a court is entitled to reach a conclusion about consumer sophistication based solely on the nature of the product or its price.
Star Indus., Inc. v. Bacardi & Co. Ltd., 412 F.3d at 390 (citations and internal quotation marks omitted). Courts have found that consumers generally use less care when purchasing inexpensive products, and more care when purchasing expensive items. See, W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d at 575 ("Generally, purchasers of small items like lip balm are considered casual purchasers prone to impulse buying."); Star Indus., Inc. v. Bacardi & Co. Ltd., 412 F.3d at 390 (citations omitted) ("Liquor stores, which sell a limited variety of products, are not as cluttered and frantic as . . . supermarkets. . . . In comparison with the items available at such supermarkets, $24 bottles of liquor are relatively expensive. . . . Unhurried consumers in the relaxed environment of the liquor store, making decisions about $12 to $24 purchases, may be expected to exhibit sufficient sophistication to distinguish between Star's and Bacardi's products, which are differently labeled.").
In the instant case, neither party has presented any direct evidence of consumer sophistication. At most, the record indicates that Arbor Hill wines range in price from $7 to $12 "per bottle, while Arbor Mist is priced at $3 to $4 per bottle. (Smith Declaration Exhibit 7, Encherman Affidavit ¶ 51). Additionally, the record indicates that Arbor Hill wine is sold in wine shops, liquor stores, and restaurants, while Arbor Mist is Sold in "liquor stores, supermarkets, and mass merchandisers." (Encherman Affidavit ¶ 52). From these facts, it is possible that purchasers of Arbor Hill's products would tend to be more sophisticated and unhurried than purchasers of Arbor Mist. However, neither product is particularly expensive, and consumers of both products might therefore be presumed to be unsophisticated under the Polaroid analysis. Consequently, although the Court does not believe that it takes a high level of sophistication to distinguish between the two products, this factor favors AHA.
Balancing the Polaroid factors
The legal principles applicable to this final step of the Polaroid analysis are well settled:
Where the predicate facts are beyond dispute, the proper balancing of these [Polaroid] factors is considered a question of law. When balancing the factors, district courts generally should not treat any single factor as dispositive; nor should a court treat the inquiry as a mechanical process by which the party with the greatest number of factors wins. Instead, the court should focus on the ultimate question of whether consumers are likely to be confused.
Playtex Prods., Inc. v. Georgia-Pacific Corp., 390 F.3d at 162 (citations and quotation marks omitted). As already mentioned, in this regard, the party alleging infringement must prove "that numerous ordinary prudent purchasers are likely to be misled or confused as to the source of the product in question because of the *372 entrance in the marketplace of defendant's mark. For a finding of infringement a probability of confusion, not a mere possibility, must be found to exist." Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d at 1077.
Balancing all of the Polaroid factors, the Court cannot grant summary judgment. To summarize the findings above, four of the factors favor AHA, namely, strength of the mark, competitive proximity, actual confusion, and sophistication of buyers. On the other hand, three of the Polaroid factors weigh in Constellation's favor, namely, similarity of the marks, good faith, and quality of defendant's product. The fourth Polaroid factor, bridging the gap, is irrelevant here, since the parties already compete.[20] However, the Court finds that there are triable issues of fact as to actual confusion, which preclude summary judgment. Consequently, Constellation's summary judgment motion is denied.
CONCLUSION
For all of the foregoing reasons, AHA's motion for summary judgment is granted as to Constellation's Second Cause of Action for infringement, and is otherwise denied. Constellation's summary judgment motion is denied in its entirety.
NOTES
[1] The Court will refer to Arbor Hill Associates, Inc., John H. Brahm and Katharine Brahm collectively as "AHA."
[2] This also involves a state-law dispute between AHA and the law firm of Nixon Peabody LLP ("Nixon Peabody"), arising from Nixon Peabody's prior representation of AHA in connection with the Arbor Hill trademark.
[3] Widmer was actually purchased by Canandaigua Wine Company, which later changed its name to Constellation. However, for the sake of simplicity, the Court will refer to Canandaigua Wine Company herein as Constellation.
[4] See footnote 2.
[5] AHA became aware of Constellation's use of the name Arbor Mist as soon as the product was introduced in 1988.
[6] The record indicates that, in addition to Fondiller, Baker would sometimes deal directly with Fondiller's assistants. (Baker Dep. at 22-23).
[7] And more specifically, Baker had handled various matters involving the Arbor Mist mark during the preceding five years. (Baker Dep. at 60-61).
[8] AHA presented evidence that 15 such affidavits were filed during Fondiller's tenure leading up to the filing of the subject motions, however, only ten of those Section 15 affidavits pre-date the filing of the Section 15 affidavit at issue in this case. (Salai Reply Declaration, Exhibit CCC). Fondiller, who had been employed by Constellation since 1994, described his responsibilities, in relevant part, as follows: "I Was responsible [for trademark matters]. . . . When the company desires to name a new product, potential names are submitted to me or to my secretary, and they're referred to outside counsel for searching and clearance. Additionally, when we notice names that infringe, in our view, our marks, I'm the one that instructs outside counsel to act or not as the case may be. And I am the One that interacts with outside counsel on normal maintenance matters, whether trademarks to be renewed or allowed to lapse or whatever may be needed." (Fondiller Deposition pp. 8-9).
[9] This, application is made pursuant to FRCP 12(b)(1).
[10] This total is based, on both the pre-printed forms and the separate affidavits from customers submitted by AHA. (Id., Exhibits W-Y, Exhibits JJ-YY).
[11] On September 22, 2000, Shields executed a pre-printed form which states: "To whom it may concern: I stopped at Arbor Hill Winery in Bristol Springs today and asked for Arbor Mist wines. I had assumed that Arbor Hill was the producer of Arbor Mist, Signed: Loana J. Shields." (Brahm Affidavit in Opposition, Exhibit Y). On February 18, 2006, Loans J. Shields executed an affidavit, stating in relevant part that she became "an Arbor Hill employee in December 1999." (Id., Exhibit II).
[12] Constellation's First Set of Interrogatories, Interrogatory No. 28, asked AHA to "[i]dentify all consumer or marketing surveys or studies' conducted by or for AHA, or by or for any other entity affiliated with, related to or sponsored by AHA, concerning Arbor, Arbor Hill, Arbor Mist, Arbor Valley or Arbor Frost, and for each such survey, identify all documents embodying the results of each such survey and all other documents relating to each survey." AHA's answer to this interrogatory states: "Arbor Hill commissioned a survey during its consideration of whether to commence an action against Constellation. The survey was conducted by Jacob Jacoby Associates. AHA has not yet determined whether it will use the survey as evidence in connection with this matter and consequently, until it makes such determination, the results of the survey are work product." (Kane Supplemental Declaration [# 135], Exhibit D). AHA never supplemented its response to that interrogatory. (Id., Exhibit E).
[13] EMC Corp. v. Norand Corp., 89 F.3d 807 (Fed.Cir.1996), another, case cited by Arbor Hill, did not involve forum shopping. Nevertheless, the case is factually inapposite since it involved a party's attempt to apply pressure to another party in connection with ongoing negotiations over the sale and licensing of patents. Id. at 815 ("[T]he district court could properly view the declaratory judgment complaint as a tactical measure filed in order to improve EMC's posture in the ongoing negotiations-not a purpose that the Declaratory Judgment Act was designed to serve.")
[14] On this point, Constellation contends that the Arbor Valley mark has priority over the Arbor Hill Mark. On the other hand, AHA insists that the Arbor Hill mark has priority in upstate New York. However, based upon its rulings herein, the Court need not resolve that issue.
[15] The precise elements of a claim for trademark infringement under the Lanham Act are as follows; "Under § 1114 of the Lanham Act, plaintiff in a trademark infringement action must show that defendant (1) without consent, (2) used in commerce, (3) a reproduction, copy or colorable imitation of plaintiff's registered mark, as part of the sale or distribution of goods or services, and (4) that such a use is likely to cause confusion." Gruner + Jahr USA Publ'g v. Meredith Carp., 991 F.2d at 1075.
[16] Although the word "arbor" is the only term in common between the parties' marks, "the Court must analyze [the Plaintiff's] mark as a composite when determining whether it qualifies for trademark protection." Nabisco v. Warner-Lambert Co., 32 F. Supp. 2d 690, 696-97 (S.D.N.Y.1999), aff'd 220 F.3d 43 (2d Cir.2000).
[17] "The central consideration in assessing a mark's protectability, namely its degree of distinctiveness, is also a factor in determining likelihood of confusion." Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d 108, 115 (2d Cir.2006).
[18] AHA did not submit an affidavit from the individual(s) who conducted the pilot survey.
[19] The figure of 6240 consumers is based on the affidavit of AHA employee Loana J. Shields, who, as mentioned earlier, indicated that over a period of six years, or 312 weeks, approximately 15 to 20 people per week stopped at the Arbor Hill Grapery looking to purchase Arbor Mist. The Court has used the higher figure of 20 people per week.
[20] In any event, AHA has not shown that it intends to enter the market for wine and fruit juice beverages, nor has it shown that consumers would reasonably expect it to do so.
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535 F. Supp. 564 (1982)
Albert H. SHERMAN, Plaintiff,
v.
ST. BARNABAS HOSPITAL, a not-for-profit corporation of the State of New York; Dale D. Embich; District 1199, National Union of Hospital and Health Care Employees, RWDSU, AFL-CIO; Leon Davis; Doris Turner; Ramon Malave; Patrick Battel; Bernice Karolkowski and Tony Selka, Defendants.
No. 81 Civ. 4704 (GLG).
United States District Court, S. D. New York.
March 29, 1982.
*565 *566 *567 Lanigan, O'Connell, Jacobs & Chazin, New York City, for plaintiff (Andrew R. Jacobs, New York City, of counsel).
Emmet, Marvin & Martin, New York City, for defendants St. Barnabas Hospital and Dale D. Embich (Dennis C. Fleischmann, New York City, of counsel).
Sipser, Weinstock, Harper, Dorn & Leibowitz, New York City, for Union defendants (Jerome Tauber, New York City, of counsel).
OPINION
GOETTEL, District Judge:
St. Barnabas Hospital ("Hospital") is a voluntary, nonprofit hospital located in the South Bronx. The Hospital employs 1100 workers, approximately 800 of whom are members of the National Union of Hospital and Health Care Employees, RWDSU, AFL-CIO District 1199 ("Union"). In 1968, the Hospital hired the plaintiff, Albert H. Sherman, to head its food services department. There was no written contract between the plaintiff and the Hospital, nor was his employment for a definite term. The plaintiff served as director of food services from 1968 to 1980 and in that capacity was directly responsible for the selection, training, promotion, salary increases, and termination of the 175 employees in his department, all of whom were members of the Union. (The plaintiff was not a member of the Union.)
In the early spring of 1980, the Hospital began to receive complaints about the plaintiff and demands from the Union that he be discharged. (The reason for these complaints is in dispute. For the purposes of deciding the present motions, we must accept as true the plaintiff's allegations, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974), that the Union's complaints stem from the plaintiff's refusal to agree to the Union's preferential hiring and scheduling demands.) The Hospital attempted to resolve the situation through numerous meetings with the plaintiff and the Union during the spring and summer of 1980, but these meetings were not fruitful. The Union persisted in its demand that the plaintiff be fired and threatened an industry-wide work stoppage if this demand was not met. Fearful of a strike, the Hospital capitulated and placed the plaintiff on involuntary early retirement. (The plaintiff was 60 years old at the time.)
The Hospital concedes that union pressure was the only reason for the plaintiff's discharge, although it challenges plaintiff's allegations as to why the Union wanted him fired. There is no allegation that the plaintiff was incompetent. Indeed, the Hospital provided the plaintiff with excellent references when he was seeking new employment after his discharge from the Hospital.[1]
The plaintiff has filed this action against the Hospital and the Union to recover damages for lost wages and pension benefits and for mental suffering and humiliation. He sets forth a variety of causes of action: abusive discharge (Counts One and Two), breach of contract (Count Three) (Hospital only), prima facie tort (Count Four), tortious interference with contractual relations (Count Five) (Union only), tortious interference with an advantageous economic relationship (Count Six) (Union only), conspiracy to violate the plaintiff's constitutional rights, 42 U.S.C. § 1985(c) (1976) (Count Seven), and a violation of the Age Discrimination *568 Employment Act of 1967, 29 U.S.C. § 630(b) (Supp. III 1979) (Count Eight) (Hospital only).
The Hospital moves to dismiss Counts One through Four as well as Count Seven pursuant to Fed.R.Civ.P. 12(b)(6) and moves for summary judgment on Count Eight pursuant to Fed.R.Civ.P. 56. The Union moves to dismiss all of the counts against it pursuant to Fed.R.Civ.P. 12(b)(1) and (6) on the grounds that the action is preempted and falls within the exclusive jurisdiction of the National Labor Relations Board and that it is time barred by the six-month statute of limitations in section 10(b) of the National Labor Relations Act, 29 U.S.C. § 160(b) (1976).
For the reasons stated below, the motions to dismiss the abusive discharge counts (Counts One and Two), the breach of contract count (Count Three), and the tortious interference with contractual relations and an advantageous economic relationship counts (Counts Five and Six) are denied. The motion to dismiss Counts Four, Seven and Eight are granted.
I. Hospital's Motion to Dismiss
A. Counts One and Two: Abusive Discharge
The black letter law of employment at will contracts traditionally has been that an employer may discharge the employee "for good cause, for no cause, or even for cause morally wrong, without thereby being guilty of a legal wrong." Payne v. Western & A. R. R., 81 Tenn. 507, 519-20 (1884), overruled on other grounds, Hutton v. Watters, 132 Tenn. 527, 179 S.W. 134 (1915); see Blades, Employment at Will vs. Individual Freedom: On Limiting the Abusive Exercise of Employer Power, 67 Colum.L.Rev. 1404, 1405 (1967); Note, Implied Contract Rights to Job Security, 26 Stan.L.Rev. 335 (1974). So basic was this rule that one annotator could correctly write only a few years ago that "few legal principles would seem to be better settled than the broad generality that an employment for an indefinite term is regarded as an employment at will which may be terminated at any time by either party for any reason or for no reason at all." Annot., Employee's Arbitrary Dismissal as Breach of Employment Contract Terminable at Will, 62 A.L.R. 3d 271, 271 (1975).[2]
Although employers still retain relatively complete freedom to discharge employees at will, they can no longer discharge them for any reason whatsoever. Harsh applications and abuse of the rule have prompted statutory and judicial modifications aimed at *569 preventing discharges that are contrary to public policy.
The statutory modification of the rule can be found in laws prohibiting discrimination and retaliation. Title VII of the Civil Rights Act of 1964, for example, makes it unlawful for an employer to discharge an employee because of race, color, religion, sex, or national origin, 42 U.S.C. § 2000e-2 (1976), or to discharge any employee in retaliation for filing charges under Title VII. 42 U.S.C. § 2000e-3 (1976). Similarly, the National Labor Relations Act prevents an employer from discharging an employee for forming or joining a union or in retaliation for filing charges against the employer. 29 U.S.C. § 158 (1976). Many states and municipalities have enacted similar statutes. See 8A Lab.Rel.Rep. (BNA) 451: 101-05 (April 1978); Peck, Unjust Discharges From Employment: A Necessary Change in the Law, 40 Ohio St.L.J. 1, 14 (1979).
The courts have modified the rule through a number of legal theories. By implying a requirement that parties to an employment relationship deal in good faith, some courts have imposed contract liability on employers found to have acted in bad faith.[3]See Fortune v. National Cash Register Co., 373 Mass. 96, 104, 364 N.E.2d 1251, 1256 (1977) (employment at will contracts, like all contracts, contain an implied covenant of good faith); Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549, 551 (1974) (termination motivated by bad faith is not in the best interest of society and constitutes a breach of contract). See also McKinney v. National Dairy Council, 491 F. Supp. 1108 (D.Mass.1980); McNulty v. Borden, 474 F. Supp. 1111, 1119 (E.D.Pa. 1979). Another theory of liability holds employers liable for intentional infliction of emotional distress when the discharge has been extreme and outrageous. See Agis v. Howard Johnson Co., 371 Mass. 140, 355 N.E.2d 315 (1976) (restaurant manager held liable for firing waitresses in alphabetical order to force them to disclose who had been stealing from the restaurant). See also Contreras v. Crown Zellerbach Corp., 88 Wash.2d 735, 565 P.2d 1173 (1977); Alcorn v. Anbro Engineering, Inc., 2 Cal. 3d 493, 468 P.2d 216, 86 Cal. Rptr. 88 (1970); but see M. B. M. Co. v. Counce, 596 S.W.2d 681 (Ark.1980) (no cause of action for intentional infliction of mental distress because plaintiff was an employee at will).[4]See generally, Annot., 86 A.L.R. 3d 454 (1978 & Supp. 1981). Most courts have modified the rule under a "public policy" exception to the employment at will rule. This exception allows the discharged employee to recover where the discharge violates some important public policy. See, e.g., Petermann v. Teamsters Local 396, 174 Cal. App. 2d 184, 344 P.2d 25 (1959) (employee discharged for refusing to commit perjury entitled to recover under breach of contract); Smith v. Atlas Off-Shore Boat Service, Inc., 653 F.2d 1057 (5th Cir. 1981) (seaman discharged for filing Jones Act claim permitted action under maritime law); Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167, 610 P.2d 1330, 164 Cal. Rptr. 839 (1980) (employee discharged for refusal to participate in illegal price-fixing scheme allowed to recover in tort); Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (1973) (at will employee discharged for filing workmen's compensation claim may bring tort action against former employer); Nees v. Hocks, 272 Or. 210, 536 P.2d 512 (1975) (employee dismissed for *570 serving on jury duty entitled to recover in tort).[5]
There are presently no reported New York State appellate court decisions in this emerging area of the law. There are, however, several recent state trial court and federal district court decisions applying New York State law that indicate that New York will adopt the so called public policy exception.
The leading New York State court decision is Chin v. American Telephone & Telegraph, 96 Misc. 2d 1070, 410 N.Y.S.2d 737 (Sup.Ct.1978), aff'd mem., 70 A.D.2d 791, 416 N.Y.S.2d 160 (1st Dep't), leave to appeal denied, 48 N.Y.2d 603, 396 N.E.2d 207, 421 N.Y.S.2d 1028 (1979). Chin involved an employee who claimed to have been discharged for holding certain political beliefs and associations. One of the causes of action asserted against the employer was "abusive discharge." In ruling on the defendant's motion for summary judgment, the court noted that New York had not, as yet, recognized abusive discharge as stating a claim, but went on to suggest that such a claim might be recognized if the discharged employee could establish that "(1) there is a public policy of this state that (2) was violated by the defendant." 96 Misc.2d at 1075, 410 N.Y.S.2d at 741. The court concluded under the facts of the case that the plaintiff failed to meet the first part of the test. Summary judgment, consequently, was granted.
There are three other reported New York State court decisions involving claims of abusive discharge. See Murphy v. American Home Products Corp., Sup., 447 N.Y. S.2d 218 (1982); Fletcher v. Greiner, 106 Misc. 2d 564, 435 N.Y.S.2d 1005 (1980); Edwards v. Citibank, 100 Misc. 2d 59, 418 N.Y. S.2d 269 (1979), aff'd, 74 A.D.2d 553, 425 N.Y.S.2d 327 (1st Dep't), appeal dismissed, 51 N.Y.2d 875, 414 N.E.2d 400, 433 N.Y.S.2d 1020 (1980). None of these cases is very instructive. In Murphy v. American Home Products Corp., the court denied a motion to dismiss an abusive discharge claim where a fifty-nine year old accountant had been discharged after twenty-two years of employment with the defendant allegedly because of his age and because of his insistence on revealing certain illegal accounting practices. The decision does not analyze whether claims for abusive discharge are recognized in New York nor does it indicate what the plaintiff would have to establish to recover. The emphasis of the decision, *571 rather, is that the plaintiff should be entitled to some discovery before being put out of court.[6] In Fletcher v. Greiner, the court applied the Chin analysis, but did so in a manner that would strip Chin of any substance. In that case, the plaintiff, a medical technician, alleged that she was discharged for refusing to have sex with the defendant, her employer-doctor. The court dismissed her abusive discharge claim on the ground that there was no violation of public policy because the plaintiff had previously had an affair with the defendant that had since broken off. To permit her claim to go forward, said the court, "would open the floodgates of litigation by countless employees who have emotional affairs with their superiors that subsequently turn sour." 106 Misc.2d at 572, 435 N.Y.S.2d at 1010. In the third case, Edwards v. Citibank, the plaintiff alleged that he had been discharged because he had uncovered evidence of illegal foreign currency manipulation. The court dismissed the action. It is not clear from the decision whether the court rejected the Chin analysis in toto or whether it concluded that the plaintiff had failed to establish that a public policy had been violated.[7]
The federal district court cases that have applied New York law have followed the analysis taken in Chin. The leading case is Savodnik v. Korvettes, 488 F. Supp. 822 (E.D.N.Y.), rehearing denied, 489 F. Supp. 1010 (E.D.N.Y.1980). The plaintiff in Savodnik alleged that his employer discharged him solely to avoid contributing to the plaintiff's retirement plan. Applying Chin, Judge Platt concluded that New York had a strong public policy favoring the integrity of pension plans and that to discharge an employee to avoid contributing to a plan violates this public policy. 488 F.Supp. at 826; accord, Hovey v. Lutheran Medical Center, 516 F. Supp. 554 (E.D.N.Y.1981) (allegation that employee's discharge was motivated solely to reduce employer's obligations under the plaintiff's pension plans sufficient to withstand motion to dismiss); see Placos v. Cosmair, Inc., 517 F. Supp. 1287, 1289 (S.D.N.Y.1981) (motion for summary judgment denied when plaintiffs alleged that they were discharged in violation of the Age Discrimination Employment Act);[8]Shaitelman v. Phoenix Mutual Life Insurance Co., 517 F. Supp. 21, 24 (S.D.N.Y.1980) (New York public policy that every contract contains an implied covenant of good faith insufficient to trigger Chin doctrine).
Having reviewed the many recent cases and the academic commentary that these cases have spawned, the Court is persuaded that the highest court of New York will follow the national trend and recognize the public policy exception as defined in Chin. To recover, therefore, the plaintiff must establish that "(1) there is a public policy [of New York] that (2) was violated by the defendant." Chin v. American Telephone & Telegraph, supra, 96 Misc.2d at 1075, 410 N.Y.S.2d at 741.
The difficult question posed by this case is whether the Hospital acted contrary to public policy at the plaintiff's expense by yielding to the Union's demands to discharge Sherman. We know of no successful claim of abusive discharge that has ever gone this far, but in this developing area of the law it would be imprudent at the pleading stage to dismiss categorically the possibility. Murphy v. American Home Products, supra, Sup., 447 N.Y.S.2d 218 (1982); *572 see 5 C. Wright & A. Miller, Federal Practice and Procedure § 1357 (1969 & Supp. 1980) (court should be reluctant to dismiss novel theory of liability under Fed.R.Civ.P. 12(b)(6)).
To permit the Hospital to discharge the plaintiff in these circumstances could foster future union coercion.[9] This is particularly so where, as alleged here, the Hospital had legal remedies available to it to prevent a strike.[10] Moreover, we consider it significant that the alleged motivation for the Union's actions was the plaintiff's refusal to engage in preferential hiring and scheduling practices and that the Hospital purportedly knew that this was its motivation. It would have been improper and against public policy for the plaintiff to accede to the Union's demands.[11] It follows that it would be improper and contrary to public policy for the Union to retaliate against the plaintiff for exercising his public duty and for the Hospital, in turn, knowingly to yield to this retaliation. In such circumstances, the Hospital's actions could be said to amount to a retaliatory discharge.
The Hospital's answer to the plaintiff's allegations is that it was powerless to stop a strike and had an obligation to its patients to prevent it. Although there may be merit to these defenses, they are not properly considered on a motion to dismiss. See generally 5 C. Wright & A. Miller, Federal Practice and Procedure § 1357 (1969 & Supp. 1980). Nor are these matters properly resolved on a motion for summary judgment as many material facts remain in dispute. Although we have serious reservations about the plaintiff's ability to establish that the Union's complaints stemmed solely from his refusal to accede to its preferential hiring and scheduling demands, this is not a proper basis to dismiss an action on the pleadings. Speed Auto Sales v. American Motors Corp., 477 F. Supp. 1193, 1195 (E.D.N.Y.1979). Dismissal is not appropriate unless it appears beyond doubt that "the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957); Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980).
B. Breach of Contract
There are two branches to the plaintiff's breach of contract claim against the Hospital. First, the plaintiff claims that his termination was in violation of the terms of *573 the "Employee Handbook" issued by the Hospital. Second, pleading in the alternative to his allegation of tortious abusive discharge, the plaintiff realleges that his termination was contrary to public policy and argues that this gives rise to a breach of contract.
There is presently a split of authority as to whether an employee manual or company handbook may become part of an employment agreement to which the employer is legally bound. Compare Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880 (1980) (manual binds employer); Cleary v. American Airlines, Inc., 111 Cal. App. 3d 443, 168 Cal. Rptr. 722 (1980) (same); Carter v. Kaskahia Community Action Agency, 24 Ill.App.3d 1056, 322 N.E.2d 574 (1974) (same), with Mau v. Omaha National Bank, 207 Neb. 308, 299 N.W.2d 147 (1980) (manual does not bind employer); Sargent v. Illinois Institute of Technology, 78 Ill.App.3d 117, 33 Ill. Dec. 937, 397 N.E.2d 443 (1979) (same); Johnson v. National Beef Packing Co., 220 Kan. 52, 551 P.2d 779 (1976) (same); Shaw v. S. S. Kresge Co., 167 Ind.App. 1, 328 N.E.2d 775 (1975) (same). Although the issue is an interesting one, we need not address it because the New York courts have concluded that "[t]he issuance of a manual by the employer ... does not create an equitable estoppel which would preclude the employer from terminating an employee's employment except in compliance with the manual." Edwards v. Citibank, supra, 74 A.D.2d at 554, 425 N.Y.S.2d at 328.[12]See Weiner v. McGraw-Hill, Inc., 83 A.D.2d 810, 442 N.Y.S.2d 11 (1st Dep't 1981); Marinzulich v. National Bank of North America, 73 A.D.2d 886, 423 N.Y.S.2d 1014 (1st Dep't 1980); Chin v. American Telephone & Telegraph, supra, 96 Misc.2d at 1073, 410 N.Y.S.2d at 739. See also King v. Cornell Univ., 81 A.D.2d 712, 439 N.Y.S.2d 445 (3d Dep't 1981); Wernham v. Moore, 77 A.D.2d 262, 432 N.Y.S.2d 711 (1st Dep't 1980). In light of this authority, the plaintiff's claim that the handbook issued to him by the Hospital establishes conditions of employment or termination must be rejected.[13]
The plaintiff also argues that his termination violates public policy and thus constitutes a breach of an employment contract. He acknowledges that this claim is an "alternative analytical approach" to his tort claim and states that he included it only because the New York State appellate courts have not yet defined the parameters of a cause of action for abusive discharge. Plaintiff's Memorandum of Law at 21. Whether a cause of action for abusive discharge should be maintained in tort or contract or both raises difficult questions of law. See Tameny v. Atlantic Richfield Co., supra, 27 Cal.3d at 172-79, 610 P.2d at 1332-36, 164 Cal.Rptr. at 841-46.[14] None of *574 the courts that have interpreted New York law have focused on this issue, although we note that those abusive discharge actions that have been allowed to go forward have all been in tort, not contract. See Savodnik v. Korvettes, supra, 488 F.Supp. at 824-27; Placos v. Cosmair, Inc., supra, 517 F.Supp. at 1289; Murphy v. American Home Products Corp., supra, Sup., 447 N.Y.S.2d 218 (1982).[15] Nevertheless, in light of the fact that this claim arises from the same conduct as the tort claim, that we have determined that the tort claim should go forward, and that this issue raises difficult questions of New York law, the Court concludes that the wisest course is to abstain from deciding this legal issue and to permit the plaintiff to maintain his claims both in contract and tort. See generally Elkins v. Moreno, 435 U.S. 647, 662-63 n.16, 98 S. Ct. 1338, 1347-1348 n.16, 55 L. Ed. 2d 614 (1978) (desirable to have questions of state law decided in the first instance by the state courts); St. Martin's Press, Inc. v. Carey, 605 F.2d 41, 44 n.2 (2d Cir. 1979) (federal courts should try to abstain from interpreting unclear state law when the state courts have not yet spoken).[16]
C. Prima Facie Tort
New York permits a cause of action in prima facie tort when there has been an "infliction of intentional harm, resulting in damage, without excuse or justification, by an act or series of acts which would be otherwise lawful." James v. Board of Education of Central School District No. 1, 37 N.Y.2d 891, 894, 340 N.E.2d 735, 736, 378 N.Y.S.2d 371, 372 (1975) (Cooke, J. dissenting); see Wegman v. Dairylea Coop. Inc., 50 A.D.2d 108, 376 N.Y.S.2d 728 (4th Dep't 1975), appeal dismissed, 38 N.Y.2d 918, 346 N.E.2d 817, 382 N.Y.S.2d 979 (1976). To state a claim, the plaintiff must allege "an exclusive malicious motivation for the acts of the defendant," Chin v. American Telephone & Telegraph, supra, 96 Misc.2d at 1073, 410 N.Y.S.2d at 739 (citations omitted), and must plead actual damages. McCullough v. Certain Teed Products Corp., 70 A.D.2d 771, 417 N.Y.S.2d 353 (4th Dep't 1979). The complaint contains these requisite allegations. The motion to dismiss under Fed.R.Civ.P. 12(b)(6) is consequently denied.
The Hospital moves in the alternative for summary judgment on the ground that there is no material issue of fact to dispute that the Hospital did not have a malicious motivation for placing the plaintiff on involuntary early retirement. This motion is granted.
A comparison of the Rule 3(g) statements submitted by the Hospital and the plaintiff indicates that there is no dispute that the plaintiff was discharged as a result of coercion exerted by the Union upon the Hospital, that the Hospital made extensive efforts *575 to resolve the situation, that the Hospital ultimately discharged the plaintiff when it became apparent that approximately 800 of the Hospital's 1100 employees were about to strike, and that the Hospital had to discharge the plaintiff to continue its vital operations. It is clear from these undisputed facts that the Hospital's chief motivation in terminating the plaintiff was to protect itself and its patients. The plaintiff cannot establish in light of these undisputed facts that the Hospital was maliciously motivated to injure him.[17]
D. Age Discrimination
The undisputed facts of this case indicate that the plaintiff's claim of age discrimination is also without merit. The plaintiff concedes in his Rule 3(g) statement that his dismissal was the result of the Union's strike threats and the Hospital's belief that it had to discharge him to continue its vital operations. Whatever one thinks about the Hospital's actions, the facts do not support the inference that the termination was motivated by age.
The plaintiff argues that his discharge had "the effect" of age discrimination because he was replaced by a younger person and did not have the opportunity of acquiring the additional vesting benefits that he would have received if he stayed to age sixty-five or seventy. The plaintiff should be aware that the Age Discrimination Employment Act ("ADEA") is not a panacea for all older workers terminated by their employers. Mastie v. Great Lakes Steel Corp., 424 F. Supp. 1299, 1306 (E.D.Mich. 1976). As its title suggests, ADEA is designed to prevent age discrimination. ADEA claims should not be filed unless the claimant has a good faith belief that he was discriminated against "because of" his age. 29 U.S.C. § 623(a)(1).[18] The Court accordingly grants the Hospital's motion for summary judgment on Count Eight.
II. Union's Motion to Dismiss
The complaint alleges several causes of action against the Union: conspiracy to commit the tort of abusive discharge, conspiracy to violate the plaintiff's constitutional rights, prima facie tort, interference with contractual relations, and interference with an advantageous economic relationship. The Union moves to dismiss these claims on grounds that the plaintiff's claims against it are preempted by the exclusive jurisdiction of the National Labor Relations Board ("NLRB") and that the plaintiff's claims are barred by the statute of limitations of the National Labor Relations Act ("NLRA") § 10(b), 29 U.S.C. § 160(b) (1976). Although the Union has not moved to dismiss for failure to state a cause of action or for summary judgment, the Court dismisses sua sponte the causes of action for prima facie tort and conspiracy to violate the plaintiff's constitutional rights for the reasons discussed above. See pt. 1 supra.[19] With respect to the other causes of action, the Court concludes that these claims are not preempted and that they are not time barred.
A. Preemption
Any discussion of preemption in the field of labor law must begin with San Diego Building Trades Council v. Garmon, 359 U.S. 236, 79 S. Ct. 773, 3 L. Ed. 2d 775 (1959). In that case, the Supreme Court set *576 out the general rule of preemption: when an activity is arguably protected or prohibited by the NLRA, the courts must defer the matter to the NLRB unless the issues are of merely peripheral concern to the NLRA or the issues touch "interests so deeply rooted in local feeling of responsibility that, in the absence of compelling congressional direction, the Court could not infer that Congress had deprived the States of the power to act." Id. at 244, 79 S.Ct. at 779.
Garmon has since been clarified by a number of Supreme Court cases,[20] the most important of which for this case is Sears, Roebuck & Co. v. San Diego District Council of Carpenters, 436 U.S. 180, 98 S. Ct. 1745, 56 L. Ed. 2d 209 (1978). In Sears, the Supreme Court distinguished arguably prohibited conduct, 29 U.S.C. § 158 (1976) and arguably protected conduct, 29 U.S.C. § 157 (1976). When the preemption issue involves arguably prohibited activities, the critical inquiry is
whether the controversy presented to the state court is identical to ... or different from ... that which could have been, but was not, presented to the [NLRB]. For it is only in the former situation that a state court's exercise of jurisdiction necessarily involves a risk of interference with the unfair labor practice jurisdiction of the Board which the arguably prohibited branch of the Garmon doctrine was designed to avoid.
Id. at 197, 98 S.Ct. at 1757-1758 (footnote omitted). Arguably protected activities, in contrast, involve a greater risk of state interference with national labor policy. The preemption issue in these cases hinges on the aggrieved party's ability to present the issue before the NLRB: preemption is necessary "only in situations in which an aggrieved party has a reasonable opportunity either to invoke the [NLRB's] jurisdiction himself or else to induce his adversary to do so." Id. at 201, 98 S.Ct. at 1759.
This case comes within the "arguably prohibited" branch of the Garmon doctrine.[21] The plaintiff presently has pending before the NLRB a claim that the Union's strike threats constitute an unfair labor practice because it infringed upon the Hospital's selection of its own representative for the adjustment of grievances. See note 9 supra. The Union makes no claim that this conduct was arguably protected.[22] Our inquiry, therefore, must focus on whether the claims before this Court are identical to those before the NLRB. Sears, Roebuck & Co. v. San Diego District Council of Carpenters, supra, 436 U.S. at 197, 98 *577 S.Ct. at 1757. The Court concludes that they are not identical; consequently, the plaintiff's claims against the Union are not preempted.
The narrow issue before the NLRB is whether the Union's strike threats amount to an unfair labor practice. The claims against the Union in this Court are much broader. The root of these claims, whether they be characterized as a conspiracy to commit the tort of abusive discharge or tortious interference with contract and advantageous economic relations, lies in the allegation that the Union retaliated against the plaintiff for refusing to cooperate with the Union's improper preferential hiring and scheduling demands. The focus of these claims is on the Union's motivation and on the Union's conduct vis-a-vis the plaintiff and not only on the Union's conduct vis-a-vis the Hospital.[23]
B. Statute of Limitations
Plaintiff's action for abusive discharge does not derive its essence from the NLRA as defendant contends; therefore, the six-month statute of limitations for unfair labor practices under the NLRA is not applicable. Plaintiff's claim was asserted well within the New York three-year property damage statute of limitations, N.Y.Civ. Prac.Law & R. § 214.[24] Defendant's motion to dismiss on the grounds that plaintiff's claim is barred by the six-month statute of limitations of the NLRA § 10(b), 29 U.S.C. § 160(b) (1976) is accordingly denied.
In summary, the motions to dismiss Counts Four, Seven, and Eight are granted. The motions to dismiss Counts One, Two, Three, Five and Six are denied.
SO ORDERED.
NOTES
[1] He obtained a comparable job in New Jersey at an annual salary of approximately $8,000 less than what he was earning at St. Barnabas. The plaintiff's new supervisor indicates that the plaintiff was hired in large part because of the excellent reference he received from St. Barnabas. Affidavit of Albert Sherman ¶ 9.
[2] The employment at will rule is of American, not English, derivation. Under the common law, a contract for indefinite employment was presumed to extend for one year. The American rule is traced to an 1877 treatise on masterservant relationships:
With us the rule is inflexible that a general or indefinite hiring is prima facie a hiring at will, and if the servant seeks to make it out a yearly hiring, the burden is upon him to establish it by proof. A hiring at so much a day, week, month, or year no time being specified, is an indefinite hiring, and no presumption attaches that it was for a day even, but only at the rate fixed for whatever time the party may serve.
Note, Implied Contract Rights to Job Security, 26 Stan.L.Rev. 335, 341 (quoting H. Wood, Master and Servant § 134 (1877)).
It is generally agreed that Wood's analysis is erroneous and not supported by the cited authority. Knight, Contracts, Annual Survey of S.C. Law, 32 S.C.L.Rev. 54, 60-61 (1980). See Peck, Unjust Discharges From Employment: A Necessary Change in the Law, 40 Ohio St.L.J. 1, 2 (1979); Summers, Individual Protection Against Unjust Dismissal: Time for a Statute, 62 Va.L.Rev. 481, 485 (1976); Note, Implied Contract Rights to Job Security, supra, 26 Stan. L.Rev. at 341. Nevertheless, the rule quickly took root and even temporarily attained constitutional magnitude. Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 417 A.2d 505, 509 (1980); see Coppage v. Kansas, 236 U.S. 1, 13-14, 35 S. Ct. 240, 243, 59 L. Ed. 441 (1915); Adair v. United States, 208 U.S. 161, 174-75, 28 S. Ct. 277, 280-281, 52 L. Ed. 436 (1908). See generally Note, Protecting At Will Employees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith, 93 Harv.L.Rev. 1816, 1824-28 (1980); Note, Implied Contract Rights to Job Security, supra, 26 Stan.L.Rev. at 340-47.
The rule is apparently unique to the United States. Other industrialized countries generally have a "good cause" or "just cause" requirement for all discharges. See Summers, supra, 62 Va.L.Rev. at 508-19; Note, Protecting At Will Employees Against Wrongful Discharge. supra, 93 Harv.L.Rev. at 1835-36.
[3] The Uniform Commercial Code provides that "every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement." N.Y.U.C.C. § 1-203 (McKinney 1964 & Supp.1979); accord, Restatement (Second) of the Law of Contracts § 205 (1981).
[4] More traditional theories of avoiding the employment at will rule, such as implied-in-fact promises of job security and detrimental reliance, have also been used. See Note, Protecting At Will Employees Against Wrongful Discharge, supra, 93 Harv.L.Rev. at 1820; see generally Annot., Modern Status of Rule That Employer May Discharge At-Will Employee For Any Reason, 12 A.L.R. 4th 544, 598-604 (1982). These theories are not readily used in New York because of the statute of frauds. See, e.g., Savodnik v. Korvettes, 488 F. Supp. 822, 824 (E.D.N.Y.), rehearing denied, 489 F. Supp. 1010 (E.D.N.Y.1980); Murphy v. American Home Products Corp., Sup., 447 N.Y.S.2d 218 (1982).
[5] The courts have not been consistent in defining what public policies will trigger the exception. See generally Annot., supra, 12 A.L.R.4th at 582-598. Many courts have interpreted the public policy exception as providing protection to employees only when the discharge has been in contravention of some independent statutory policy. See Note, Protecting At Will Employees Against Wrongful Discharge, supra, 93 Harv.L.Rev. at 1822. Other courts have taken a broader view. In Palmateer v. International Harvester Co., 85 Ill. 2d 124, 52 Ill. Dec. 13, 421 N.E.2d 876 (1981), the Illinois Supreme Court permitted a cause of action brought by an employee who had been discharged for supplying information about a fellow employee to local law enforcement authorities. Recognizing that there was no explicit statutory policy involved, the court ruled that abusive discharge should be extended to judicially conceived and defined notions of public policy. 421 N.E.2d at 478. See Monge v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549, 551 (1974) (all bad faith discharges prohibited regardless of whether explicit statutory policy violated).
Some courts have taken a strict view of what public policies will support an action for abusive discharge. In Adler v. American Standard Corp., 291 Md. 31, 432 A.2d 464 (1981), for example, the Supreme Court of Maryland ruled that an employee's allegation that he was fired for reporting fellow employees' payment of bribes, falsification of corporate records, and misuse of corporate funds did not establish a violation of public policy. See Percival v. General Motors, 539 F.2d 1126 (8th Cir. 1976) (no relief to employee discharged for refusal to disclose false corporate records); Campbell v. Eli Lilly & Co., 413 N.E.2d 1054 (Ind.App.1980), aff'd, 421 N.E.2d 1099 (Ind.1981) (no relief to employee discharged after twenty-five years of employment for reporting superiors' misconduct and questioning the safety of the drugs); Hinrichs v. Tranquilaire Hospital, 352 So. 2d 1130 (Ala.1977) (no relief to employee discharged for refusing to falsify medical records); Geary v. United States Steel, 456 Pa. 171, 319 A.2d 174 (1974) (no relief to employee discharged for objecting to the marketing of a potentially defective product). See generally Note, Protecting At Will Employees Against Wrongful Discharge, supra, 93 Harv.L.Rev. at 1823-24.
[6] The court stated:
The day may be inevitable when the doctrine of abusive discharge will be a fixed principle in the substantive law of New York....
This case may or may not prove to be the turning point. The facts alleged by plaintiff, and assumed arguendo by defendant's motion, appear to be quite compelling. They may not, at this juncture, standing alone, be quite sufficient to carry the day for plaintiff to uphold a claim for abusive discharge. But disclosure proceedings may elicit still further evidence providing additional fabric on the claim.
447 N.Y.S.2d 218 (1982).
[7] The only issue discussed on appeal was whether the issuance of an employee manual sets forth conditions of employment. This claim was rejected.
[8] 29 U.S.C. §§ 621-634 (Supp. III 1979).
[9] The plaintiff filed a complaint with the National Labor Relations Board alleging that the Union committed an unfair labor practice when it threatened the Hospital with a strike. The National Labor Relations Board, in turn, filed a complaint against the Union.
Section 8(b)(1)(B) of the National Labor Relations Act, 29 U.S.C. § 158(b)(1)(B), provides that it is an unfair labor practice for a labor union "to restrain or coerce" an employer in the selection of his representative for collective bargaining or adjustment of grievances." The Fifth Circuit has noted that a congressional judgment is implicit in section 8(b)(1)(B) that "relations between an employer and its supervisory personnel should be insulated in full measure from coercive efforts by a labor union." Int'l Organization of Masters v. NLRB, 539 F.2d 554, 560 (5th Cir. 1976), cert. denied, 434 U.S. 828, 98 S. Ct. 106, 54 L. Ed. 2d 86 (1977). Because the plaintiff represented the Hospital at grievance hearings with the Union, the Union's attempts to have the plaintiff fired arguably constituted an unfair labor practice.
[10] Whether the Hospital indeed had legal remedies available to it to prevent a strike depends on facts that are in dispute. For example, the plaintiff alleges that the Collective Bargaining Agreement contained a no-strike clause. This Collective Bargaining Agreement expired in June, 1980. It is not clear whether the plaintiff was officially discharged before or after the new Collective Bargaining Agreement (and thus a no-strike clause) went into effect. Compare Hospital's 3(g) Statement ¶ 16 with Plaintiff's 3(g) Statement ¶ 16.
[11] Section 2800 of the New York Public Health Law declares that it is the public policy of New York that "[h]ospital and related services ... efficiently provided and properly utilized at a reasonable cost, are of vital concern to the public health." N.Y.Pub. Health Law § 2800 (McKinney 1977). See Fritz v. Huntington Hospital, 39 N.Y.2d 339, 348 N.E.2d 547, 384 N.Y.S.2d 92 (1976). The alleged preferential scheduling involved placing an employee on a shift where she was not needed. To permit this would have been a waste of hospital money in return for unproductive labor and contrary to the New York Public Health Law.
[12] The decision in Edwards was over a dissent by Judge Kupferman who argued that voluntary issuance of employment policies in personnel handbooks may give rise to a "mutuality of obligation which may be enforceable on both parties" and to a quasi-contractual duty preventing an employer from terminating employment except on specifically stated grounds. 74 A.D.2d at 554, 425 N.Y.S.2d at 329.
[13] The Court recognizes that it is not bound by the rulings of intermediate appellate state courts on an issue on which the highest court of the state has not spoken. Harem-Christensen Corp. v. M. S. Frigo Harmony, 477 F. Supp. 694, 697 (S.D.N.Y.1979). These rulings, however, must be given respect and should not be disregarded unless there is a sufficient reason for doing so. O'Connor v. Lee-Hy Paving Corp., 579 F.2d 194, 204-05 n.15 (2d Cir.), cert. denied, 439 U.S. 1034, 99 S. Ct. 638, 58 L. Ed. 2d 696 (1978).
[14] The only other reported case that discusses whether a cause of action for abusive discharge may be maintained in contract or tort or both is Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 417 A.2d 505 (1980). In that case, the Supreme Court of New Jersey held that both theories of recovery are appropriatethe contract action being predicated upon "an implied provision that an employer will not discharge an employee for refusing to perform an act that violates a clear mandate of public policy" and the tort being predicated upon "the duty" of an employer not to so discharge an employee. Id. at 72-73, 417 A.2d at 512.
Tort actions and contract actions are easily confused because they share many similar characteristics. See W. Prosser, Law of Torts § 92 (4th ed. 1971). The fundamental difference between them lies in the nature of the interests to be protected and the duties alleged to have been violated. See id.; F. Pollock, The Law of Torts 2-4 (12th ed. 1923); T. Cooley, A Treatise in the Law of Torts § 2 (1932). The duty alleged to have been violated in a contract action comes from the contract, the conditions of which are established by the parties to the contract. F. Pollock, The Law of Torts, supra, at 3. A tort, in contrast, involves a duty that is general. It is a duty that is fixed by law and owed to a general class of people. Id.
There are, of course, practical differences between bringing an action in tort or contract. The most significant difference is in the damages that may be recovered. There are other considerations, however, that may lead a plaintiff to prefer one action over the other. See generally W. Prosser, Law of Torts, supra, at 618-22.
[15] The issue was considered tangentially in Chin v. American Telephone & Telegraph. In an early part of the decision, the court noted that "[t]here is no cause of action for breach of contract based upon a contract terminable at will." 96 Misc.2d at 1073, 410 N.Y.S.2d at 739. This implies that the action would be recognizable in tort only. Later in the decision, however, the court stated that the doctrine of abusive discharge "implied by operation of law an additional condition of the contract." Id. at 1075, 410 N.Y.S.2d at 740 (emphasis added). This suggests that a cause of action based in contract is appropriate. Chin, therefore, is of little help in this regard.
[16] The plaintiff also argues that a breach of contract action flows from the Hospital's breach of an implied covenant of good faith. See Fortune v. National Cash Register Co., supra, 373 Mass. 96, 364 N.E.2d 1251. We do not consider this argument because the plaintiff failed to allege this theory of recovery in the complaint.
[17] We note, moreover, that the plaintiff acknowledges in his memorandum of law that Count Four is unnecessary and should be dismissed if the Court finds that Count Two states a legally recognizable claim. Plaintiff's Memorandum of Law at 25.
[18] Both Counts Seven and Eight are dismissed. The plaintiff concedes that Count Seven, alleging a conspiracy under 42 U.S.C. § 1985(c), "rises or falls" with Count Eight, the age discrimination count. Plaintiff's Memorandum of Law at 33.
[19] The Union's motives for its actions were certainly different from the Hospital's. We are uncertain whether they give rise to a claim for prima facie tort. Cf. Murphy v. American Home Products, supra, Sup., 447 N.Y.S.2d 218 (permitting abusive discharge action but not prima facie tort action to go forward). The plaintiff has stated, however, that his claim for prima facie tort should be dismissed if the claims for abusive discharge and interference with contractual relations and an advantageous economic relationship were permitted to go forward. See note 17 supra. Since these claims are going forward, we deem this cause of action withdrawn.
[20] See Amalgamated Ass'n of St., Electric Ry. & Motor Coach Employees v. Lockridge, 403 U.S. 274, 91 S. Ct. 1909, 29 L. Ed. 2d 473 (1971); Int'l Ass'n of Machinists & Aerospace Workers v. Wis. Employment Relations Comm'n, 427 U.S. 132, 96 S. Ct. 2548, 49 L. Ed. 2d 396 (1976); Farmer v. United Brotherhood of Carpenters & Joiners, 430 U.S. 290, 97 S. Ct. 1056, 51 L. Ed. 2d 338 (1977).
[21] In addition to the arguably prohibited or arguably protected rule of Garmon and Sears, there is another route to preemption for cases in which the challenged conduct is neither arguably prohibited nor protected under the NLRA. In those cases, the court must first determine whether Congress intended to leave the challenged conduct beyond all governmental regulation. If the court finds such an intent, the matter is preempted unless the court further finds that one of the recognized exceptions to preemption applies. Palm Beach Co. v. Journeymen's & Prod. Allied Services Local 157, 519 F. Supp. 705, 709-10 (S.D.N.Y.1981). See New York Tel. Co. v. New York State Dep't of Labor, 440 U.S. 519, 99 S. Ct. 1328, 59 L. Ed. 2d 553 (1979); Int'l Ass'n of Machinists & Aerospace Workers v. Wis. Employment Relations Comm'n, 427 U.S. 132, 96 S. Ct. 2548, 49 L. Ed. 2d 396 (1976). See also Cox, Recent Developments in Federal Labor Law Preemption, 41 Ohio St. L.J. 277 (1980).
[22] Employee protest over supervisory changes may, under certain circumstances, be protected under section 7 of the NLRA. See Puerto Rico Food Prod. Corp. v. NLRB, 619 F.2d 153 (1st Cir. 1980); Abilities & Goodwill, Inc. v. NLRB, 612 F.2d 6 (1st Cir. 1979). See generally Annot., Concerted Activity Over Supervisory Changes as Protected by the NLRA, 30 A.L.R. Fed. 626 (1976 & Supp.1980). To be protected, the protest must be over actual conditions of employment and the means of protest must be reasonable. Puerto Rico Food Prod. Corp. v. NLRB, supra, 619 F.2d at 155-56; Abilities & Goodwill, Inc. v. NLRB, supra, 612 F.2d at 9. Threats of violence and strikes are generally not protected. Id. See generally Kheel, Labor Law § 9A.04[2][d] (1981 & Supp.Dec.1981).
[23] The Court recognizes that business torts such as those asserted by the plaintiff, are generally preempted by the NLRB. Palm Beach Co. v. Journeymen's & Prod. Allied Services Local 157, 519 F. Supp. 705, 716 (S.D.N.Y. 1981). Even business torts, however, are not to be preempted when "an economic injury, because of its widespread impact on the community as a whole, raises a sufficient state interest to make a case for holding that the state tort law survives preemption." Id. at 714. Accord, Peabody Galion v. Dollar, 666 F.2d 1309 (10th Cir. 1981) (statute permitting cause of action for abusive discharge when worker discharged for filing workmen's compensation claim not preempted because action has widespread community impact). In this case, the plaintiff's claims, if proven, would have a broad impact upon the community. See pt. I supra. To permit the claim against the Hospital to go forward, but not the claims against the Union, would be unfair and lacking in common sense.
[24] N.Y.Civ.Prac.Law & R. § 213(1) and (2) (McKinney 1972 & Supp.1980), respectively, provide six-year statutes of limitations for actions for which no limitations are specifically prescribed and for actions pertaining to contractual obligations. These provisions arguably control this action because abusive discharge is a new cause of action and because contractual obligations are involved. This Court, however, relies on N.Y.Civ.Prac.Law & R. § 214(4) (McKinney 1972), the three-year property damage statute of limitations, because the cause of action is essentially an action for inducing breach of contract which is properly governed by § 214(4). Rolnick v. Rolnick, 29 A.D.2d 987, 290 N.Y.S.2d 111, aff'd, 24 N.Y.2d 805, 248 N.E.2d 442, 300 N.Y.S.2d 586 (1968); see also Frigi-Griffin, Inc. v. Leeds, 52 A.D.2d 805, 383 N.Y.S.2d 339 (1976); McLaughlin, Practice Commentary to N.Y.Civ.Prac.Law & R. §§ 213, 214 (McKinney 1972 & Supp.1980). Whether the three or six-year statute applies is not of great significance as this action has been commenced within three years.
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335 F. Supp. 95 (1971)
UNITED STATES of America
v.
MARPLE COMMUNITY RECORD, INC., et al.
Civ. A. No. 69-1634.
United States District Court, E. D. Pennsylvania.
November 10, 1971.
*96 *97 Gary Pearch, Trial Atty., U. S. Dept. of Justice, Washington, D. C., John Sutton, First Asst. U. S. Atty. and Louis C. Bechtle, U. S. Atty., Philadelphia, Pa., for plaintiff.
Patrick W. Kittredge and Cohen, Shapiro, Polisher, Shiekman, & Cohen, Philadelphia, Pa., for defendants.
OPINION
JOHN MORGAN DAVIS, District Judge.
Presently before this Court are several motions brought by plaintiff and defendants respectively in the above captioned matter.
The background of this case is as follows. Pursuant to its application dated February 20, 1961, the Marple Community Record, Inc. (hereafter Marple) was granted on March 29, 1961 the privilege of mailing its publication of the same name by second class mail. The application, signed by defendant Walter N. Connors, indicated that the publication then had 4,764 paid subscribers. The owner of Marple was listed as defendant Ralph V. Crisanti. From April, 1961, through April, 1965, the Marple Community Record was published regularly and mailed at second class rates on the basis of the initial application. On May 5, 1965, the Post Office Department reviewed Marple's files and found that Marple did not have a legitimate list of subscribers to qualify for second class mail privileges as of that date. By a list which Marple furnished to the Post Office Department and by the Post Office's own records of second class mailings by Marple, it was determined that Marple owed the Government $29,355.02 for deficient postage resulting from their usage of the second class rate during the calendar years 1962 through June 10, 1965. This information along with the Post Office's supporting statistics showing paid subscribers versus actual subscribers was included in a letter to Marple from Postal Inspector B. Krautheim. In reply by a letter dated October 26, 1965, Dominic D. Jerome, Esquire, attorney for Marple, denied Marple's liability to the government and requested a hearing. To this request, Edwin A. Riley, Director of Classifications and Special Services Division, Post Office Department, in a letter dated December 20, 1970, explained that no such hearing procedure was available but that the Post Office would consider any explanations Marple might wish to furnish. After this, at various times during 1966, 1967, and 1968, negotiations were carried on between plaintiff and Marple with respect to the alleged deficiency. No agreements were reached, however, and nothing was settled. During that time, i. e. on December 9, 1966, Mr. Riley wrote a letter informing Marple that "it was no longer entitled to second class mail privileges." This letter was followed by another from Mr. Riley, dated February 9, 1967, advising Marple that it must submit information demonstrating compliance with § 132.227, Postal Manual (percent of paid subscribers to total circulation) within thirty days on penalty of having its second class mail privileges revoked. Marple requested and received two extensions but its request for a third and longer extension in order to attract new subscribers to bring Marple into compliance with postal regulations was not acted upon. In April, 1967, plaintiff revoked Marple's second class mail privileges and Marple did not attempt to contest this decision. Consequently, this action was commenced on July 16, 1969. Count I of the action is brought under 31 U.S.C. §§ 231-235, the False Claims Act. Count II is a civil claim for fraud and deceit.
*98 The following motions are now ripe for determination, a full hearing having been held on July 8, 1971.
a. Plaintiff's Motion for Summary Judgment with respect to Count I.
b. Defendants' Cross-Motion for Summary Judgment with respect to Count I on the ground that it fails to state a cause of action under 31 U.S.C. §§ 231-235.
c. Motion of defendants, Walter N. Connors, Ralph V. Cristani, and Edward H. De Vita, for Summary Judgment.
d. Motion of defendant E. Dudley James for Summary Judgment on Count I.
e. Plaintiff's Motions to Strike Motions in c and d above.
f. Defendants' Motion for Summary Judgment with respect to Count I on the ground that the Statute of Limitations has run.
I.
For reasons which shall become apparent, we shall consider the Motions and Cross-Motion for Summary Judgment on Count I together, concentrating first on defendant's Cross-Motion.
As we have noted, Count I of the Complaint is brought pursuant to the False Claims Act, Title 31 U.S.C. § 231-235. At issue in defendant's motion is the scope of this act as defined in Title 31 U.S.C. § 231, to wit:
Any person * * * who shall * * * cause to be presented, for payment or approval * * * any claim upon or against the * * * United States * * *, knowing such claim to be * * * fraudulent, or who, for the purpose of obtaining * * * the payment or approval of such claim, makes, uses, or causes to be made or used, any false bill, receipt, voucher, roll, account, claim, certificate, affidavit, or deposition, knowing the same to contain any fraudulent or fictitious statement of entry, * * * shall forfeit and pay to the United States the sum of $2,000, and, in addition, double the amount of damages which the United States may have sustained * * *.
The defendants contend that this Act is inapposite to the present controversy, arguing that they made no "claim," as the word is used in the act, against the government when they applied for and sent the newspapers by second class postage. The historic purpose of the act and the meaning of the word "claim" as used in the context of act compels our agreement with defendant's position.
Congress' intent in adopting the False Claims Act during the Civil War was reviewed and succinctly summed up in United States v. McNinch, 356 U.S. 595, at p. 599, 78 S. Ct. 950, at p. 953, 2 L. Ed. 2d 1001 (1957) wherein the Court stated:
The False Claims Act was originally adopted following a series of sensational congressional investigations into the sale of provisions and munitions to the War Department. Testimony before the Congress painted a sordid picture of how the United States had been billed for nonexistent or worthless goods, charged exorbitant prices for goods delivered, and generally robbed in purchasing the necessities of war. Congress wanted to stop this plundering of the public treasury.
To catch the flavor of contemporary thinking as to the objective of the act, the Court in McNinch set forth a passage from a speech made by the manager of the bill when it was introduced into Congress:
I will simply say to the Senate that this bill has been prepared at the urgent solicitation of the officers who are connected with the administration of the War Department and Treasury Department. The country, as we know, has been full of complaints respecting the frauds and corruptions practiced in obtaining pay from the Government during the present war; and it is said, and earnestly urged upon our attention, that further legislation is pressingly necessary to prevent this great evil; and I suppose there can be no doubt that these complaints *99 are, in the main, well founded. From the attention I have been able to give the subject, I am satisfied that more stringent provisions are required for the purpose of punishing and preventing these frauds; and with a view to apply a more speedy and vigorous remedy in cases of this kind the present bill has been prepared. (Emphasis added.) Cong. Globe, 37th Cong., 3d Sess. 952.
United States v. McNinch, supra, at p. 559, n. 9, 78 S.Ct. at p. 953. See also United States ex rel. Marcus et al. v. Hess et al., 127 F.2d 233 (3rd Cir. 1942).
This congressional intent which gave birth to the act leads us as it has other courts have to conclude initially "that the False Claims Act was not designed to reach every kind of fraud practiced on the Government." United States v. McNinch, supra, 356 U.S. at p. 595, 78 S.Ct. at p. 953. See also United States v. Howell, 318 F.2d 162 (9th Cir. 1963). Rather as is evident, Congress designed the act to be applicable to the particular kind of cheating that was then inhibiting the war effort, namely the practice of certain private persons in fraudulently overcharging the government for goods supplied and services rendered and because the purpose of the act was limited to detering one kind of cheating, the writers in drafting it "used language descriptive of this kind of cheating." United States v. Tieger, 234 F.2d 589, at p. 591 n. 6 (3rd Cir. 1956). Over the years, the Courts have remained remarkably faithful to Congress' intent as expressed in the act and have refrained from applying it to all dealings between the government and private persons in which fraud was present.
The phrase "claim against the government normally connotes a demand for money or for some transfer of public property." United States v. Tieger, supra, at p. 591. That this connotation is proper when considering the scope of the act can be verified by noting that a "`claim' must be presented for `payment or approval'. This describes the usual procedure in making a demand for money or property." United States v. Tieger, supra, at p. 591, n. 7. In United States v. Cohn, 270 U.S. 339, 46 S. Ct. 251, 70 L. Ed. 616 (1926), the Supreme Court had to determine whether the conduct of the defendant amounted to "obtaining the approval of a `claim upon or against' the Government within the meaning of the Statute [False Claims Act]." The Court in construing the key language of the act said at pp. 345-346, 46 S.Ct. at p. 252:
While the word "claim" may sometimes be used in the broad juridical sense of "a demand of some matter as of right, made by one person upon another, to do or to forbear to do some act or thing as a matter of duty," Prigg v. Commonwealth of Pennsylvania, 16 Pet. 539, 615, 10 L. Ed. 1060, it is clear in the light of the entire context, that in the present statute, the provision relating to the payment or approval of a "claim upon or against" the Government relates solely to the payment or approval of a claim for money or property to which a right is asserted against the Government, based upon the Government's own liability to the claimant.
Dictum in the recent Supreme Court case of United States v. Neifert-White Co., 390 U.S. 228, 88 S. Ct. 959, 962, 19 L. Ed. 2d 1061 (1967) confirms the present validity of the interpretation made in Cohn. In referring to the Act, the Court concluded that "this remedial statute reaches * * * to all fraudulent attempts to cause the Government to pay out sums of money." United States v. Neifert-White, supra, at p. 233, 88 S.Ct. at p. 962.
In the situation before us, the defendants established the right to send mail at a second class rate. Involved in securing this right was fraud, perhaps, but if so, fraud of a type distinct from that contemplated by the False Claims Act. Plaintiff alleges that the defendants were saving themselves money by *100 fraudulently reducing their rightful obligation to the Post Office but it does not allege that the defendants were attempting to extract from the United States money or property not rightfully due to them, a concept which appears to be at the heart of the act. Here the obligation for payment was owed by the defendants and the claim for money or property was held by the United States. Clearly, history and semantics indicate that fraud associated with an obligation owed by an individual to the government does not fall within the purview of the act. To hold otherwise would unduly distort and aggrandize the determined intent of the act. The present case is akin to United States v. Howell, 318 F.2d 162 (9th Cir. 1963) which was an action brought by the United States against concessionaires who, being under contract to operate cleaning facilities on military bases, understated their gross receipts, a certain percentage of which were to be paid to Exchange Service. The Court in finding the False Claims Act inapposite stated at pp. 165-166:
The United States argues that the difference between a situation where the claimant is fraudulently demanding money and one where he is fraudulently seeking a reduction in the amount of money to be paid by him is not one which warrants a different result under the False Claims Act. The effect of both types of conduct is the same in that the Government is defrauded of money to which it is entitled. This reasoning would be valid if we were dealing with a general fraud statute. But the manner in which the fraud occurs is controlling in bringing the False Claims Act into play. To do that, there must be more than mere fraud; the fraud must be predicated on a claim. The fraudulent reduction of appellees' liability to the Government does not spell out a false claim as defined by the statute.
We have read with interest and carefully considered United States ex rel. Rodriguez v. Weekly Publications, Inc., 68 F. Supp. 767 (S.D.N.Y.1946) cited by the plaintiff. Although its factual situation corresponds with that of the present case, we cannot agree with its conclusion that the right to a lower postage rate can be considered a claim against the government, let alone one for money or property.
We find therefore that since the defendants' use of a second class postage rate did not constitute a "claim" against the government, the False Claims Act is inapplicable to the fraud plaintiff contends was perpetrated upon it. Accordingly we shall grant defendant's Cross-Motion for Summary Judgment on Count I. At the same time it becomes obvious that we must dismiss the plaintiff's Motion on the same Count. Moreover, our decision on this Motion renders moot defendants' Motion for Summary Judgment on Count I on the grounds that the Statute of Limitations has run. It will be dismissed without prejudice.
II.
We turn next to the Motion of defendants Connors, Cristani, and De Vita for Summary Judgment on the grounds that they were never properly served with a Summons and Complaint.
Plaintiff argues preliminarily that the defendants have waived this defense by failing to timely raise it. A brief review of events leading to the raising of this defense will indicate that this objection is without substance. The present action was filed on July 16, 1969 and upon defendants' failure to answer or otherwise respond, a default judgment was entered on November 21, 1969. On December 11, 1969, the defendants filed a Motion to Set Aside the Judgment by Default which was granted on December 19, 1969 by Judge Joseph S. Lord, III. In that Order defendants were allowed thirty (30) days in which to file an Answer to the Complaint. Thereupon on January 16, 1970, the defendants did file an Answer which included a challenge to the validity of the service of process.
To clear up any misconceptions on the part of the plaintiff, it *101 should be made clear that it was not necessary for defendants to object to jurisdiction and service of process by a special motion prior to their Answer. Rule 12 allows the responsive pleading to include as here such contradictory elements as jurisdictional defenses and counterclaims. Neifeld v. Steinberg, 438 F.2d 423 (3rd Cir. 1971). As Judge Biggs pointed out in Neifeld, at p. 428, "the Rule implicitly authorize[d] a defendant to join these [jurisdictional] defenses with a counterclaim without waiving these defenses." Clearly, the defense was raised in a timely manner since the Order that lifted the default judgment allowed the defendant thirty days in which to answer. The defense, having been properly and reasonably raised, was ripe for an application to have it determined pursuant to Rule 12(d). We should note that since the defense of improper service involves a matter in abatement and does not go to the merits of the action, the present application is improperly brought by a motion for summary judgment under Rule 56 F.R.Civ.Pro. See Moore's Federal Practice (2d Ed.) Vol. 6, Sec. 56.03. However, since this defense was timely raised in defendant's answer pursuant to Rule 12(b) and is properly before us, we shall deem defendants' Motion as an application for dismissal under Rule 12(d) F.R.Civ.Pro. and consider it now.
On August 26, 1969, the United States Marshal purported to effect service on the defendants who raise this defense by serving Walter C. Re David, Esquire, as their attorney, at his office. This was done pursuant to Rule 4 F.R.Civ.Pro. which provides:
(d) Summons: Personal Service. * * * Service shall be made as follows:
(1) Upon an individual * * * by delivering a copy of the summons and the complaint to him personally or by leaving copies thereof at his dwelling house or usual place of abode * * * or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.
Defendants contend simply that Re David was neither their attorney nor, and more importantly, authorized by any of them to accept service of process for them. In support of their position, they have submitted an affidavit signed by Re David in which he states that he was never authorized to receive process for them, that he told this to the Marshal, and that he was not at the time of service and is not now their attorney.
For service of process to be valid upon an agent, it must be shown that he was actually appointed by the defendant for the specific purpose of receiving process. Szabo v. Keeshin Motor Express Co., 10 F.R.D. 275 (N.D.Ohio 1950). See also Moore's Federal Practice (2d Ed.) Vol. 2, Sec. 4.12. Even had Re David been the defendants' attorney, as the plaintiffs claim, he would not have been the appropriate person upon whom to effect service, unless he was also specifically appointed for the purpose of receiving service. Schultz v. Schultz, 436 F.2d 635 (7th Cir. 1971). "But only where an attorney is expressly or impliedly authorized to accept service of process can his doing so bind his client and subject him to jurisdiction of the local court." Christensson v. Hogdal, 91 U.S.App.D.C. 251, 199 F.2d 402 (1952).
Plaintiff's position is that the totality of the circumstances implies that defendants did actually authorize Re David to accept service. It presents an affidavit, signed by James Kelley, who served the process upon Re David, in which he states that Re David did not refuse process and in fact, did accept it. In Schwarz v. Thomas, 98 U.S.App.D.C. 365, 222 F.2d 305 (1955) service of process was accepted by the defendant's attorney. The Court in quashing the service said, "The rule is clear that it must appear that any agent who accepts service must be shown to have been authorized to bind his principal by acceptance of process." Referring to Moore's *102 Federal Practice (2d Ed.) Vol. 2, Sec. 4.12, we note the following:
Obviously, something more than mere acceptance must be shown to demonstrate an agency relationship for this specific purpose.
This gap is not filled, moreover, by plaintiff's inference that since defendants came into Court seeking to have the Default Judgment vacated, Re David must have forwarded the Complaint and Summons to them. Perhaps Re David did forward the Summons and Complaint to the defendants. If he did so, his only motivation may have been that of courtesy or the possibility of future employment.
We do not find the implication that a special agency relationship existed between Re David and the defendants from the mere showing that Re David accepted process and that the defendants later came into Court seeking to vacate the Default Judgment. See Schwarz v. Thomas, supra. It is evident that plaintiff is attempting to construct an agency relationship upon a foundation of speculation. We can find nothing in the relationship between Re David and the defendants which convinces us that an agency agreement for the purposes of service existed. Cf. United States v. Balanovski, 236 F.2d 298 (CA2d 1956), cert. den. 352 U.S. 968, 77 S. Ct. 357, 1 L. Ed. 2d 322.
We shall therefore dismiss the present action as to defendants Connors, Cristani, and De Vita. Likewise we shall deny plaintiff's Motion to Strike the Motion that was presented by the defendants.
III.
The remaining motions may be disposed of quickly in light of our findings above.
Since we granted defendants Cross-Motion for Summary Judgment on Count I, the Motion of defendant Dudley James for Summary Judgment on Count I, will be dismissed without prejudice as moot. Also, plaintiff's motion to strike the motion of defendant James will be dismissed without prejudice as moot.
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836 F. Supp. 1508 (1993)
Reggie WHITE, Michael Buck, Hardy Nickerson, Vann McElroy and Dave Duerson, Plaintiffs,
v.
NATIONAL FOOTBALL LEAGUE; The Five Smiths, Inc.; Buffalo Bills, Inc.; Chicago Bears Football Club, Inc.; Cincinnati Bengals, Inc.; Cleveland Browns, Inc.; The Dallas Cowboys Football Club, Ltd.; PDB Sports, Ltd.; The Detroit Lions, Inc.; The Green Bay Packers, Inc.; Houston Oilers, Inc.; Indianapolis Colts, Inc.; Kansas City Chiefs Football Club, Inc.; The Los Angeles Raiders, Ltd.; Los Angeles Rams Football Company, Inc.; Miami Dolphins, Ltd.; Minnesota Vikings Football Club, Inc.; KMS Patriots Limited Partnership; The New Orleans Saints Limited Partnership; New York Football Giants, Inc.; New York Jets Football Club, Inc.; The Philadelphia Eagles Football Club, Inc.; B & B Holdings, Inc.; Pittsburgh Steelers Sports, Inc.; The Chargers Football Company; The San Francisco Forty-Niners, Ltd.; The Seattle Seahawks, Inc.; Tampa Bay Area NFL Football Club, Inc.; and Pro-Football, Inc.; Defendants.
Civ. No. 4-92-906.
United States District Court, D. Minnesota, Fourth Division.
August 20, 1993.
*1509 Edward M. Glennon, Carol T. Rieger, Charles J. Lloyd and Lindquist & Vennum, Minneapolis, MN, for named plaintiffs.
James W. Quinn, Jeffrey L. Kessler, Jonathan T. Weiss, Daniel Rubin, David G. Feher, Cathy E. Shore-Sirotin and Weil, Gotshal & Manges, New York City, for plaintiffs.
James Fitzmaurice, Daniel J. Connolly and Faegre & Benson, Minneapolis, MN, Herbert Dym, Gregg H. Levy and Covington & Burling, Washington, DC, Frank Rothman, Shepard Goldfein, William L. Daly and Skadden, Arps, Slate, Meagher & Flom, Los Angeles, CA, for defendants.
Peter S. Hendrixson and Dorsey & Whitney, Minneapolis, MN, for defendant Philadelphia Eagles Football Club, Inc.
Maxwell M. Blecher and Blecher & Collins, Los Angeles, CA, for defendant Philadelphia Eagles Football Club, Inc.
Thomas Fraser, Laurie J. Miller and Fredrikson & Byron, Minneapolis, MN, Don Howarth, Suzelle M. Smith and Howarth & Smith, Los Angeles, CA, for objector Leslie O'Neal.
FINAL CONSENT JUDGMENT
DOTY, District Judge.
There having been executed a Stipulation and Settlement Agreement, dated February 26, 1993, providing for settlement of this action upon the terms and conditions set forth therein; and
There having been an application to this court for an order and judgment pursuant to Rule 23(e) of the Federal Rules of Civil Procedure approving the February 26 Stipulation and Settlement Agreement as fair, reasonable, and adequate; and
This court having determined by an order dated February 17, 1993 that this action may be maintained as a class action pursuant to Rule 23(b)(1) of the Federal Rules of Civil Procedure, on behalf of (i) all players who have been, are now, or will be under contract to play professional football for an NFL club at any time from August 31, 1987 to the date of final approval of the settlement of this action and the determination of any appeal therefrom, and (ii) all college and other football players who, as of August 31, 1987 through the date of final approval of the settlement of this action and the determination of any appeals therefrom, have been, are now, or will be eligible to play football as a rookie for an NFL team; and
This court, by an order dated February 26, 1993, having determined preliminarily that the original Stipulation and Settlement Agreement is fair, reasonable, and adequate, and having approved two proposed forms of notice, and having directed that notice be given to all class members, pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, informing them of the proposed settlement of the action and of a hearing to be held on April 16, 1993 to determine whether the original Stipulation and Settlement Agreement should be finally approved by the court as fair, reasonable, and adequate; and due proof of mailing of the Notice to Class and of publication of the Summary Notice having been filed with the court; and
A hearing having been held before this court on April 16, 1993, pursuant to the court's February 26, 1993 order, at which all class members were afforded the opportunity to object to or otherwise express their views on the fairness, reasonableness, and adequacy of the settlement embodied in the February 26 Stipulation and Settlement Agreement; and
This court having considered the objections of certain class members as well as the Philadelphia Eagles and other interested persons; and
This court having determined that plaintiffs' predominant claim for relief is structural, *1510 injunctive relief and therefore that mandatory class certification pursuant to Rule 23(b)(1) is proper; and
This court after due deliberation upon presentation of all the relevant facts, having rendered its determination that the February 26 Stipulation and Settlement Agreement is fair, reasonable, and adequate and should be approved in all respects, and that all objections to the proposed settlement should be overruled, for the reasons stated in the court's order of April 30, 1993, 822 F. Supp. 1389; and
The parties, on May 6, 1993 and before entry of a judgment pursuant to Rule 23(e), having agreed to certain amendments to the February 26 Stipulation and Settlement Agreement;[1] and
There having been an application to this court for an order and judgment pursuant to Rule 23(e) of the Federal Rules of Civil Procedure approving the Stipulation and Settlement Agreement, as amended, as fair, reasonable, and adequate; and
A hearing having been held before this court on June 1, 1993, at which all class members and other interested persons were afforded the opportunity to object to or otherwise express their views as to whether the proposed amendments to the Stipulation and Settlement Agreement should be preliminarily approved as fair, reasonable, and adequate, and whether notice to the class should be ordered; and
This court, by an order dated June 2, 1993, having determined preliminarily that the proposed amendments to the Stipulation and Settlement Agreement were fair, reasonable, and adequate to all class members, and having approved two forms of notice, and having directed that notice be given to all class members likely to be affected by the proposed amendments to the Stipulation and Settlement Agreement, pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, informing them of the proposed amendments to the settlement of the action and of a hearing to be held on July 7, 1993 to determine whether the Stipulation and Settlement Agreement, as amended, should be finally approved by the court as fair, reasonable, and adequate; and due proof of mailing of the Notice to Class and of publication of the Summary Notice having been filed with the court; and
A hearing having been held before this court on July 7, 1993, pursuant to the court's June 2, 1993 order, at which all class members were afforded the opportunity to object to or otherwise express their views on the fairness, reasonableness, and adequacy of the settlement embodied in the Stipulation and Settlement Agreement, as amended; and
This court having once again fully considered the objections of certain class members as well as the Philadelphia Eagles; and
This court after due deliberation upon presentation of all the relevant facts, having rendered its determination that the settlement embodied in the Stipulation and Settlement Agreement, as amended, is fair, reasonable, and adequate and should be approved in all respects, and that all objections to the proposed settlement, and the amendments thereto, should be overruled, and hereby are overruled, for the reasons stated in the court's accompanying opinion of August 19, 1993,
THEREFORE, without trial or final adjudication of any issue of fact or law herein and upon consent of the parties, it is:
ORDERED AND ADJUDGED, that the terms of the settlement of this action as set forth in the Stipulation and Settlement Agreement dated February 26, 1993, as amended on May 6, 1993, a copy of which is annexed hereto as Exhibit 1, are a fair, reasonable, and adequate settlement of the claims asserted in this action, and that said Stipulation and Settlement Agreement, as amended, be, and it hereby is, approved in all respects; and it is further
*1511 ORDERED AND ADJUDGED, that the terms of the Stipulation and Settlement Agreement, as amended, are incorporated into and made part of this Final Consent Judgment; and it is further
ORDERED AND ADJUDGED, that the parties are hereby authorized and directed to consummate the terms and provisions of the Stipulation and Settlement Agreement, as amended; and it is further
ORDERED AND ADJUDGED, that the claims and counterclaims set forth in this action be, and they hereby are, dismissed on the merits, with prejudice and without costs (except those costs set forth in the Stipulation and Settlement Agreement, as amended), and the action is discontinued accordingly; and it is further
ORDERED AND ADJUDGED, that this Final Consent Judgment be, and it hereby is, a full and final discharge of, and conclusive as to, any and all liability with respect to the claims or counterclaims as specified in Article XIX of the Stipulation and Settlement Agreement, as amended; and it is further
ORDERED AND ADJUDGED, that in accordance with the terms of the Stipulation and Settlement Agreement, as amended, and without in any way affecting the finality of this Final Consent Judgment, this court retains exclusive jurisdiction over this action to effectuate and enforce the terms of the Stipulation and Settlement Agreement, as amended, and this Judgment; and it is further
ORDERED AND ADJUDGED, that no application for attorneys' fees or costs will be submitted by any party in this case.
LET JUDGMENT BE ENTERED ACCORDINGLY.
NOTES
[1] The Philadelphia Eagles object to this reference to "the parties", contending that they do not agree to proposed amendments. For the reasons set forth in the court's order of August 19, 1993, the court finds that the Eagles have no standing to object to that wording and are bound by the actions of the NFL Management Council. See White v. National Football League, 836 F. Supp. 1458, 1491-92 (D.Minn.1993).
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406 F.Supp. 858 (1976)
John W. NEFF, an Individual, Plaintiff,
v.
TIME, INC., a corporation, Defendant.
Civ. No. 75-983.
United States District Court, W. D. Pennsylvania.
January 27, 1976.
*859 William Shaffner, Pittsburgh, Pa., for plaintiff.
Frank L. Seamans, Pittsburgh, Pa., for defendant.
OPINION
MARSH, District Judge.
This diversity action was removed from the Court of Common Pleas of Allegheny County, Pennsylvania, where a complaint had been filed by John W. Neff, the plaintiff, against Time, Inc., the defendant. The complaint was verified by Neff and alleged that the defendant is the owner of a magazine known as Sports Illustrated sold weekly throughout Pennsylvania; that Neff is a private citizen employed in education; that in its issue of August 5, 1974, the defendant's magazine used Neff's picture without his prior knowledge and consent to illustrate an article entitled "A Strange Kind of Love;" that the photograph shows Neff with the front zipper of his trousers completely opened implying that he is a "crazy, drunken slob," and combined with the title of the article, "a sexual deviate." Neff alleges that the unauthorized publication and circulation of his picture to illustrate the article invaded his right of privacy and subjected him to public ridicule and contempt, injured his personal esteem and the esteem of his profession, reflected on his character, diminished his high standing reputation among his family, friends, neighbors and business associates, destroyed his peace of mind and caused him severe mental and emotional distress to his damage in excess of $5,000, amended to aver in excess of $10,000.
The defendant filed a motion for summary judgment and attached eight affidavits in which the defendant admitted that an authorized employee took Neff's photograph and five others selected it for publication. No counter-affidavits were filed by Neff. There is only one disputed issue of fact: Neff alleges that defendant has used his picture without his prior knowledge and consent; the defendant asserts that his picture was taken for and published in Sports Illustrated with his full knowledge and consent.
The undenied facts contained in affidavits filed by defendant establish beyond peradventure that the picture was taken with Neff's knowledge and with his encouragement; that he knew he was being photographed by a photographer for Sports Illustrated and thereby impliedly consented to its publication. Since Neff did not respond by counter-affidavits, in our opinion the motion should be granted. Rule 56(e) Fed.R. Civ.P.
The affidavits establish that the photograph was taken about 1:00 o'clock P.M. November 25, 1973, while Neff was present on a dugout with a group of fans prior to a professional football game at Cleveland between the Cleveland Browns and the Pittsburgh Steelers.[1] The photographer was on the field intending to take pictures of the Steeler players as they entered the field from the dugout. Neff and the others were jumping up and down in full view of the fans in the stadium; they were waving Steeler banners and drinking beer; they all seemed to be slightly inebriated. One of the group asked the photographer for whom he was working and was told Sports Illustrated, whereupon the group began to act as if a television camera had been put on them; as the pictures were taken they began to react even more, screaming and howling and imploring the photographer to take more pictures. The more pictures taken of the group, the more they hammed it up. All were aware that the photographer was covering the game for Sports Illustrated. There were no objections; *860 they wanted to be photographed. Thirty pictures were taken of the group on the dugout from different angles.
During the period from July through December, 1973, this photographer took 7,200 pictures pursuant to his assignment to cover the Steelers. As part of his duty he edited the pictures and submitted one hundred to the magazine for selection by a committee of five employees. After several screenings of the thirty pictures of the group on the dugout, the committee selected Neff's picture with his fly open. Although Neff's fly was not open to the point of being revealing, the selection was deliberate and surely in utmost bad taste; subjectively, as to Neff, the published picture could have been embarrassing, humiliating and offensive to his sensibilities.[2] Without doubt the magazine deliberately exhibited Neff in an embarrassing manner.
It appears that the pictures were taken to illustrate a book being written by one Blount about the Steeler fans, and three excerpts from the book were published in the magazine. Only three pictures, including Neff's, accompanied the article of August 5, 1974. The title to this article "A Strange Kind of Love" could convey to some readers a derogatory connotation. Neff is not mentioned by name in the article; the Steeler-Cleveland game of November, 1973, is not mentioned in the article;[3] Neff's photograph was not selected on the basis of its relationship to that game. The caption appearing adjacent to the photograph reads:
"In the fading autumn Sundays at Three Rivers, the fans joined the players in mean pro dreams."
Three Rivers is the name of the stadium in Pittsburgh. Neff's photograph was selected because "it represented the typical Steeler fan: a rowdy, strong rooter, much behind his team, having a good time at the game," and "it fitted in perfectly with the text of the story." (See affidavit of Richard M. Gangel, Art Director for Sports Illustrated).
It seems to us that art directors and editors should hesitate to deliberately publish a picture which most likely would be offensive and cause embarrassment to the subject when many other pictures of the same variety are available. Notwithstanding, "[t]he courts are not concerned with establishing canons of good taste for the press or the public." Aquino v. Bulletin Company, 190 Pa.Super. 528, 154 A.2d 422, 425 (1959).
The right of privacy is firmly established in Pennsylvania despite the fact that its perimeter is not yet clearly defined and its contours remain amorphous. Vogel v. W. T. Grant Company, 458 Pa. 124, 327 A.2d 133 (1974).
From Vogel it seems that Pennsylvania follows the rules promulgated by the Restatement (Second) of Torts §§ 652 B through E (Tent. Draft No. 13, 1967); that invasion of privacy is actionable under any one of four distinct, but coordinate, torts. These are concisely paraphrased in Goldman v. Time, Inc., 336 F.Supp. 133, 136 (N.D.Cal.1971) as follows:
"1. Intrusion upon the plaintiff's seclusion or solitude, or into his private affairs.
2. Public disclosure of embarrassing private facts about the plaintiff.
3. Publicity which places the plaintiff in a false light in the public eye.
4. Appropriation, for the defendant's advantage, of the plaintiff's name or likeness. Prosser on Torts at 837 et seq. (3d ed. 1964); Prosser, `Privacy,' 48 Cal. L.Rev. 383, 389 (1960)."
*861 See also § 652 A, Restatement (Second) of Torts (Tent. Draft No. 21, 1975).[4]
Plaintiff's claim is based on "appropriation of name or likeness" and "publicity given to private life," i. e., 4 and 2, supra. Plaintiff's brief, page 5.
As to 4, supra, § 652 C of the Restatement (Second) of Torts (Tent. Draft No. 21, 1975) states:
"One who appropriates to his own use or benefit the name or likeness of another is subject to liability to the other for unreasonable invasion of his privacy."
It is settled that this section is not applicable when a person's picture is used in a non-commercial article dealing with an accident, or the picture of a bystander at a political convention, or parade, Murray v. N. Y. Magazine Co., 27 N.Y.2d 406, 318 N.Y.S.2d 474, 267 N.E.2d 256 (1971), or generally in the reporting of news. We think actions of excited fans at a football game are news as is a story about the fans of a professional football team. As stated in Gautier v. Pro-Football, Inc., 278 App.Div. 431, 435, 106 N.Y.S.2d 553, 557 (1st Dept. 1951), aff'd 304 N.Y. 354, 107 N.E.2d 485 (1953): "Once an item has achieved the status of newsworthiness, it retains that status even when no longer current." See also Jenkins v. Dell Publishing Company, 251 F.2d 447 (3rd Cir. 1958); Murray v. N. Y. Magazine Co., supra. The fact that Sports Illustrated is a magazine published for profit does not constitute a "commercial appropriation of Neff's likeness." The fact that Neff was photographed in a public place for a newsworthy article, entitles the defendant to the protection of the First Amendment. Time, Inc. v. Hill, 385 U.S. 374, 397, 87 S.Ct. 534, 17 L.Ed.2d 456 (1967); New York Times Co. v. Sullivan, 376 U.S. 254, 266, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964). The tort described in 4, supra, and § 652 C Restatement (Second) of Torts is not applicable to the facts in this case.
As to 2, supra, § 652 D of the Restatement (Second) of Torts (Tent. Draft No. 13, 1967) states:
"One who gives publicity to matters concerning the private life of another, of a kind highly offensive to a reasonable man, is subject to liability to the other for invasion of his privacy."
In the 1975 draft of the Restatement (Second) of Torts § 652 D states:
"One who gives publicity to a matter concerning the private life of another is subject to liability to the other for unreasonable invasion of his privacy, if the matter publicized is of a kind which:
(a) would be highly offensive to a reasonable person, and
(b) is not of legitimate concern to the public."
The article about Pittsburgh Steeler fans was of legitimate public interest; the football game in Cleveland was of legitimate public interest; Neff's picture was taken in a public place with his knowledge and with his encouragement; he was catapulted into the news by his own actions; nothing was falsified; a photograph taken at a public event which everyone present could see, with the knowledge and implied consent of the subject, is not a matter concerning a private fact. A factually accurate public disclosure is not tortious when connected with a newsworthy event even though offensive to ordinary sensibilities. The constitutional privilege protects all truthful publications relevant to matters of public interest. Jenkins v. Dell Publishing Co., supra, family of victim of a murder; Samuel v. Curtis Pub. Co., 122 F.Supp. 327 (N.D.Cal.1954), plaintiff attempting to dissuade woman hanging on bridge from committing suicide; Berg v. Minneapolis Star & Tribune Co., 79 F.Supp. 957 (Minn.1948), courtroom; Gill v. Hearst Pub. Co., 40 Cal.2d 224, 253 P.2d 441 (1953), plaintiff embracing his wife in a market place; Jacova v. Southern Radio & Television Co., 83 So.2d 34 (Fla.1955), cigar store raid; Themo v. *862 New England Newspaper Pub. Co., 306 Mass. 54, 27 N.E.2d 753 (1940), police station; Murray v. N. Y. Magazine Co., supra, parade; Humiston v. Universal Film Mfg. Co., 189 App.Div. 467, 178 N.Y.S. 752 (1919), street; Meetze v. Associated Press, 230 S.C. 330, 95 S.E.2d 606 (1956), article reporting birth to 12 year old child; See The Law of Torts, by W. L. Prosser, Fourth ed. 1971 at pp. 811, 817. Cf. Virgil v. Time, Inc., 527 F.2d 1122 (9th Cir. 1975). The tort described in 2, supra, and § 652 D of the Restatement (Second) of Torts, supra, is not applicable to the facts in this case.
Of course, we are concerned that Neff's picture was deliberately selected by an editorial committee from a number of similar pictures and segregated and published alone. If his picture had appeared as part of the general crowd scene of fans at a game, even though embarrassing, there would be no problem. Although we have some misgivings, it is our opinion that the publication of Neff's photograph taken with his active encouragement and participation, and with knowledge that the photographer was connected with a publication, even though taken without his express consent, is protected by the Constitution.
An appropriate order will be entered.
NOTES
[1] One affidavit states the number of fans to be from eight to twelve; another states the number to be five or six.
[2] Counsel for defendant stated at argument that the remainder of the thirty photographs had been destroyed, but it is unlikely that any other member of the group had their zippers down.
[3] Cf. Murray v. N. Y. Magazine Co., 27 N.Y.2d 406, 318 N.Y.S.2d 474, 267 N.E.2d 256 (1971), judgment for plaintiff reversed.
[4] The Law of Torts, by W. L. Prosser, 4th ed. 1971, pp. 802-818.
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335 F. Supp. 1369 (1970)
Aldena ENGLISH et al., Plaintiffs,
v.
TOWN OF HUNTINGTON et al., Defendants.
69-C-144.
United States District Court, E. D. New York.
July 2, 1970.
*1370 Jack Greenberg, Michael Davidson, Jonathan Shapiro, Sam Raskin, New York City, for plaintiffs; Jonathan Shapiro, New York City, of counsel.
Nicholas LaCarrubba, Town Atty., of Huntington, for defendants; Andrew E. Ullmann, Deputy Town Atty., of counsel.
*1371 Edward R. Neaher, U. S. Atty., E. D. New York, for United States; Cyril Hyman, Asst. U. S. Atty., of counsel.
TRAVIA, District Judge.
This action was brought by an unincorporated association, the Huntington Township Committee on Human Relations ("HTCHR"), and individual plaintiffs, all displacees from an urban renewal area in the defendant Town of Huntington (the "Town") by the time of the writing of this decision. The complaint is framed as a class action by the plaintiffs on behalf of black and Puerto Rican residents of Huntington who have allegedly been deprived of their rights in connection with the urban renewal program and other activities of the Town.
The complaint sets forth three causes of action. The first concerns the alleged failure of the Town and its officials (the "local defendants") and officials of the Department of Housing and Urban Development (the "Federal defendants") to assure adequate relocation housing for those residents of the urban renewal area who have been displaced as a result of the project. The second attacks the issuance of general search warrants to building code inspectors for use in low-rent minority group neighborhoods of the Town. The third challenges the Town's zoning ordinance as denying the equal protection of the laws to minority groups because it has the purpose and tendency to exclude them from the Town by preventing the construction of housing which they can afford.
Both the Federal and the local defendants have moved to dismiss the first cause of action. The local defendants have also moved to dismiss the third cause of action. These motions attack both the jurisdiction of this Court and the merits of the complaint.
Although the complaint leaves much to conjecture and inference, for the reasons stated below the motions to dismiss must be denied at this time without prejudice to renewal during the trial. The defendants may move at the trial after the Court has heard the plaintiffs' case with respect to the issues of whether administrative remedies have been adequately exhausted, the sufficiency of the size of the class which plaintiffs purport to represent, the adequacy of the proof of a denial of equal protection of the laws, the standing of the unincorporated association, HTCHR, and any other appropriate trial motions.
The first cause of action, around which most of the dispute has centered, substantially alleges the following:
In an application for a grant contract from the Department of Housing and Urban Development ("HUD"), the Town of Huntington established an urban renewal project which provided for the building of 56 middle-income apartments on "Site A" and for 127 middle-income units (later expanded to 300 units) on "Site B" within the Town. Forty low-rent units have also been built. After HUD's approval in 1966, the Town and HUD executed a capital grant contract which included a provision by which the Town (by its Local Public Authority ("LPA")) was required to provide decent and safe relocation housing in the renewal area or another area, with equivalent facilities at rentals within the means of displaced families, reasonably accessible to relocatees' places of work, and equal in number to the number of displaced individuals and families.[1] The Town also agreed to follow HUD policies, *1372 Federal statutory requirements, and regulations of HUD for urban renewal, including the Urban renewal Handbook, RHA 7207.1.
It is claimed that about 174 families were displaced, of whom more than 50% were members of the minority groups represented by plaintiffs, and that the majority of the latter group of families are of low income. Families displaced by the project, the complaint alleges, were unable to obtain adequate relocation housing; that forty units of lowrent housing (public housing) were built with the project, including ten for the elderly, but this number is inadequate for the 174 displaced families; and that the middle-income housing built on sites A and B is beyond the price range of the displaced families.
It is further alleged that racial discrimination in the private housing market, which this Court recognizes exists, prevents the minority group displacees from securing adequate relocation housing within the Town. It is alleged that because of their race, color and origin, plaintiffs have been effectively restricted to securing housing in neighborhoods which have both a high percentage of minority group population and shortages of adequate housing.
It is also claimed that approximately 70 nonwhite and Puerto Rican displaced families now live in relocation housing within the Town which is below the standard for relocation set by the capital grant contract between the LPA and HUD; that many now live in overcrowded apartments and pay higher rents and paid higher purchase prices than are paid for comparable dwellings by whites; that because of the project, fewer low income units of adequate standards now exist in the Town than before the project was initiated; and that many of the displacees have left the Town in order to find housing.
The Federal and local defendants allegedly failed to take affirmative action to insure adequate relocation for plaintiffs' class, a violation of defendants' duties under 42 U.S.C.A. § 1455(c) and the HUD Urban Renewal Handbook, RHA 7207.1. This failure to act, it is alleged, has also deprived plaintiffs of the equal protection of the laws under the Fifth and Fourteenth Amendments to the Constitution and of the equal right to hold and lease property secured under the Thirteenth Amendment and 42 U.S.C.A. § 1982. In addition, plaintiffs allege that the failure to provide adequate relocation housing facilities was intended to force nonwhites and Puerto Ricans out of the Town because of their race in violation of their rights to the equal protection of the laws and to hold and lease property.
Finally, plaintiffs allege that they have exhausted their administrative remedies since the association plaintiff filed a formal complaint with HUD in July 1967 to which they have not yet received any reply. The complaint does not allege that any individual plaintiff has registered a complaint with any of the defendants.
Plaintiffs attack the relocation program on the ground that they have been denied the qual protection of the laws in its execution. They also seek judicial review of unspecified administrative determinations of HUD which approved the program and its operation.
I.
There is no doubt that this Court has subject matter jurisdiction to hear this action. Norwalk CORE v. Norwalk Redevelopment Agency, 395 F.2d 920, 926 at n. 6 (2d Cir. 1968) ("Norwalk CORE"). The substance of the action is alleged in part to be based on 42 U.S.C.A. § 1983, § 1985 and § 2000d, as well as § 1455(c). Jurisdiction in actions under 42 U.S.C.A. § 1983 is conferred by 28 U.S.C.A. § 1343(3). See Hague v. C.I.O., 307 U.S. 496, 508-513, 59 S. Ct. 954, 83 L. Ed. 1423 (1939). Action by Federal officials in conjunction with State officials brings the Federal officials within the jurisdictional purview of § 1343(3). Kletschka v. Driver, 411 F.2d 436, 449 (2d Cir. 1969). Jurisdiction for actions under 42 U.S. *1373 C.A. § 1985 is conferred by 28 U.S. C.A. § 1343(1). Jurisdiction for review of determinations made by HUD under 42 U.S.C.A. § 1455(c) is provided by the Administrative Procedure Act, 5 U.S.C.A. § 701 et seq., which also serves to waive the sovereign immunity of HUD. Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967); Kletschka v. Driver, supra, 411 F.2d at 445; Estrada v. Ahrens, 296 F.2d 690, 698 (5th Cir. 1961); Powelton Civic Home Owners Ass'n v. Dept. of H.U.D., 284 F. Supp. 809, 834 (E.D.Pa. 1968); Citizens Committee for the Hudson Valley v. Volpe, 425 F.2d 97 (2d Cir. 1970); Shanks Village Committee, etc. v. Cary, 197 F.2d 212, 214 (2d Cir. 1952); Krawez v. Stans, 306 F. Supp. 1230, 1233 (E.D.N.Y.1969); see Norwalk CORE, supra, 395 F.2d at 932 ff. Furthermore, the power granted to the Secretary of Hud to ". . . sue and be sued . . ." in actions involving urban renewal programs, 42 U.S.C.A. § 1456(c) (1), constitutes a waiver of sovereign immunity in suits regarding an alleged failure to perform a duty under 42 U.S.C.A. § 1455(c). Powelton Civic Home Owners Ass'n v. Dept. of H.U.D., supra, 284 F.Supp. at 834; see Federal Housing Administration, Region No. 4 v. Burr, 309 U.S. 242, 60 S. Ct. 488, 84 L. Ed. 724 (1940). But see Panama Canal Co. v. Grace Line, 356 U.S. 309, 317, 78 S. Ct. 752, 2 L. Ed. 2d 788 (1958).
Since plaintiffs have admitted that their individual monetary claims have been aggregated to reach the jurisdictional minimum of $10,000 under 28 U.S.C.A. § 1331, reliance on that section is not appropriate. Rosado v. Wyman, 414 F.2d 170, 176-177 (2d Cir. 1969), reversed on other grounds, 397 U.S. 397, 90 S. Ct. 1207, 25 L. Ed. 2d 442 (1970); see Snyder v. Harris, 394 U.S. 332, 89 S. Ct. 1053, 22 L. Ed. 2d 319 (1969). Nor does reliance have to be placed upon 42 U.S.C.A. § 2000d, see Norwalk CORE, supra, 395 F.2d at 936 at n. 40, since under Kletschka v. Driver, supra, jurisdiction has already been found as to the Federal defendants regarding the alleged denials of equal protection.
II.
Venue and personal jurisdiction over the Federal defendants is proper under 28 U.S.C.A. § 1391(e), since the only defendants outside of the district are the Federal defendants. They may be sued in and served from this district under that section. Liberation News Service v. Eastland, 426 F.2d 1379 at n. 5, 1382 (2d Cir. 1970); Kletschka v. Driver, supra, 411 F.2d at 442; Powelton Civil Home Owners Ass'n v. Dept. of H.U.D., supra, 284 F.Supp. at 832-834.
III.
Subject to a showing that the class which plaintiff displacees purport to represent is insufficiently large, see Moscarelli v. Stamm, 288 F. Supp. 453, 463 (E.D.N.Y.1968); DeMarco v. Edens, 390 F.2d 836 (2d Cir. 1968); Bonner v. Texas City Independent School District of Texas, 305 F. Supp. 600, 617 (S.D.Tex.1969); Fed.R.Civ.P. 23(a) (1), this action has been properly brought as a class action. See Norwalk CORE, supra, 395 F.2d at 923 at n. 2, 937 at n. 42. Whether the association plaintiff, HTCHR, may properly represent the interests of members of minority groups depends on a showing at trial that ". . . there is a compelling need to grant them standing in order that the constitutional rights of persons not immediately before the court might be vindicated." Id. at 937; see N.A.A.C.P. v. State of Alabama ex rel. Patterson, 357 U.S. 449, 458-460, 78 S. Ct. 1163, 2 L. Ed. 2d 1488 (1958).
IV.
Plaintiffs have standing to sue both on their claims of denial of equal protection, Norwalk CORE, supra, 395 F.2d at 927, and on their claims that the duties imposed on the defendants by 42 U.S.C.A. § 1455(c) (1) have been violated. Norwalk CORE, supra, at 932.
*1374 V.
Plaintiffs will have a heavy burden to bear at trial in order to satisfy the requirement, on their equal protection claim, that they show a failure to assure equal treatment in the operation of the LPA's relocation program between displaced black and Puerto Rican relocatees, on one hand, and displaced whites, on the other. See Norwalk CORE, supra, at 929-931. Such a claim, though not expressly alleged in the complaint, may be fairly inferred from it when the complaint is read so ". . . as to do substantial justice." Fed.R. Civ.P. 8(f). With such an allegation, plaintiffs have stated a claim upon which relief can be granted. Their failure clearly to claim and allege, as had been alleged in Norwalk CORE, supra, at 924-925, that the defendants had known or intended the discriminatory consequences of their acts when they entered into their loan grant contracts does not per se defeat this action. As the Court in Norwalk CORE, supra, at 931 noted, even if uneven treatment of minority groups and whites is not ". . . inherent in the administration of the program . . . [, the defendants are not excused] from making sure that there is available relocation housing for all displacees [equally]." The meeting of the contractual and statutory standard of providing adequate relocation housing for those able to secure it, but not for minority group members, constitutes ". . . state action [which] affirms the discrimination in the housing market. This is not `equal protection of the laws.'" Id.; see Hobson v. Hansen, 269 F. Supp. 401, 497 (D.D.C.1967).
"The basic constitutional claim raised by the allegations . . . is that . . . [the adequate relocation housing] standard was less sufficiently met in the relocation of Negroes and Puerto Ricans than in the relocation of whites." Norwalk CORE, supra, 395 F.2d at 929.
VI.
Though it is not clear which "final agency action," 5 U.S.C.A. § 704, under 42 U.S.C.A. § 1455(c)[2] of HUD *1375 the plaintiffs seek to have this Court review, any rejection of this claim at this time would be premature. However, plaintiffs will have to specify prior to trial what determinations they seek to have reviewed. The dispute over the meaning of 42 U.S.C.A. § 1455(c) (2), see Norwalk CORE, supra, at 932 at n. 24, may be discounted since that section is not applicable to the present action because "Federal recognition," 42 U.S. C.A. § 1460(k), was granted before August 10, 1965, see Pub.L. 89-117, § 305(c). The requirements of § 1455(c) (1) do not appear to be met merely by the inclusion of a provision for a program of adequate relocation housing in a loan contract between HUD and LPA. Instead, the provision creates rights, enforceable both by the Federal government and by displacees. See Norwalk CORE, supra, at 934. Furthermore, § 1455(c) (3), added on December 24, 1969, by Pub.L. 91-152, § 209, suggests that the duty to provide adequate relocation housing is a continuing one. Cf. Western Addition Community Org. v. Weaver, 294 F. Supp. 433, 436-437 (N. D.Cal.1968) (application by HUD of § 1455(c) (2) to pre-August 10, 1965 projects).
Of course, any review of determinations by HUD would be circumscribed by the limits established in the Administrative Procedure Act, 5 U.S.C. A. § 706.[3]Norwalk CORE, supra, 395 F.2d at 935 at n. 33, 937[4]; cf. Western Addition Community Org. v. Weaver, supra, 294 F.Supp. at 437-440.
VII.
At the present time, plaintiffs' administrative remedies appear to have been exhausted. Nearly three years have passed since the submission of HTCHR's complaint to HUD and there has been no response. Although HUD's regulations, 24 C.F.R. § 3.3(c), refer to the requirement that an urban renewal plan provide for adequate relocation facilities as specified in the Urban Renewal Handbook, *1376 RHA 7200 through 7228, no provision for complaints by aggrieved persons appears in the regulations governing urban renewal assistance. Compare 24 C. F.R. § 3.1, et seq., with 24 C.F.R. § 1.7. See Powelton Civic Home Owners Ass'n v. Dept. of H.U.D., supra, 284 F.Supp. at 829-832, 835-839; cf. Hicks v. Weaver, 302 F. Supp. 619, 624-627 (E.D.La. 1969) (delay in filing court action due to delay in determination by agency; no laches).
Hicks v. Weaver, supra, at 626 suggests that the filing of an administrative complaint by one person, not appropriately a party, may inure to the benefit of the members of the class of plaintiffs. That only the HTCHR filed a complaint with HUD here does not require a finding of failure to exhaust remedies by the other plaintiffs, especially since the availability of remedies is questionable and no response has ever been given to the complaint that was filed.
VIII.
Plaintiff's third cause of action, which alleges racially discriminatory use of the Town's zoning ordinance, is properly within the jurisdiction of this Court. 42 U.S.C.A. § 1983; 28 U. S.C.A. § 1343(3). A zoning ordinance may be attacked on Fourteenth Amendment grounds in a Federal court. Township of River Vale v. Town of Orangetown, 403 F.2d 684 (2d Cir. 1968) (deprivation of property without due process). No "direct" injury to plaintiffs' property is necessary to their standing to challenge the ordinances as unconstitutionally depriving them of the equal protection of the laws. Cf. id. Here, too, of course, plaintiffs will have a heavy evidentiary burden to meet and further discussion regarding the merits of plaintiffs' claim will be necessary after the record has been developed at trial.
Accordingly, it is
Ordered that defendants' motions to dismiss the first and third causes of action are denied.
NOTES
[1] The text of this contract requirement provides:
"The LPA shall provide for the relocation of individuals and families displaced from the urban renewal area in the urban renewal area or in other areas, not generally less desirable in regard to public utilities and public and commercial facilities and at rents or prices within the means of the individuals and families displaced in decent, safe and sanitary dwellings equal in number to the number of and available to such displaced individuals and families and reasonably accessible to their places of employment."
[2] "Contracts for loans or capital grants shall be made only with a duly authorized local public agency and shall require that
* * * * *
(c) (1) There shall be a feasible method for the temporary relocation of individuals and families displaced from the urban renewal area, and there are or are being provided, in the urban renewal area or in other areas not generally less desirable in regard to public utilities and public and commercial facilities and at rents or prices within the financial means of the individuals and families displaced from the urban renewal area, decent, safe, and sanitary dwellings equal in number to the number of and available to such displaced individuals and families and reasonably accessible to their places of employment. The Secretary shall issue rules and regulations to aid in implementing the requirements of this subsection and in otherwise achieving the objectives of this subchapter. Such rules and regulations shall require that there be established, at the earliest practicable time, for each urban renewal project involving the displacement of individuals, families, and business concerns occupying property in the urban renewal area, or [a] relocation assistance program which shall include such measures, facilities, and services as may be necessary or appropriate in order (A) to determine the needs of such individuals, families, and business concerns for relocation assistance; (B) to provide information and assistance to aid in relocation and otherwise minimize the hardships of displacement, including information as to real estate agencies, brokers, and boards in or near the urban renewal area which deal in residential or business property that might be appropriate for the relocating of displaced individuals, families, and business concerns; and (C) to assure the necessary coordination of relocation activities with other project activities and other planned or proposed governmental actions in the community which may affect the carrying out of the relocation program, particularly planned or proposed low-rent housing projects to be constructed in on [or] near the urban renewal area.
(2) As a condition to further assistance after August 10, 1965 with respect to each urban renewal project involving the displacement of individuals and families. the Secretary shall require, within a reasonable time prior to actual displacement, satisfactory assurance by the local public agency that decent, safe, and sanitary dwellings as required by the first sentence of this subsection are available for the relocation of each such individual or family.
(3) Within one year after December 24, 1969 and every two years thereafter, the Secretary shall review each locality's relocation plan under this subsection and its effectiveness in carrying out such plan."
[3] 5 U.S.C.A. § 706 provides:
"To the extent necessary to decision and when presented, the reviewing court shall 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
(1) compel agency action unlawfully withheld or unreasonably delayed; and
(2) hold unlawful and set aside agency action, findings, and conclusions found to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law;
(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute or
(F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.
In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error."
[4] "In determining whether there has been compliance with section [1455(c)] . . . courts will evaluate agency efforts and success at relocation with a realistic awareness of the problems facing urban renewal programs. Objections by individual displacees based on too literal an interpretation of the Act's standards could unnecessarily interfere with programs of benefit to the entire community." Norwalk CORE, supra, at 937.
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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/2470062/
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337 F.Supp.2d 887 (2004)
Ouida LOCKETT Plaintiff
v.
WAL-MART STORES, INC. Defendant
No. 5:03 CV 211.
United States District Court, E.D. Texas, Texarkana Division.
August 18, 2004.
*888 Ned Alexander Stewart, Jr., Autrey, Autrey & Stewart, Texarkana, TX, for Plaintiff.
Mark Douglas Temple, Littler Mendelson, Houston, TX, Scott Alan Forman, Littler Mendelson, Miami, FL, Judith Alane Colbert, Melissa Morales Fletcher, Godwin & Gruber LLP, Dallas, TX, Dionne Wilson Blake, Littler Mendelson, Miami, FL, for Defendant.
MEMORANDUM ORDER
FOLSOM, District Judge.
Before the Court are Plaintiff's Motion to Strike Defendant, Wal-Mart Stores, Inc.'s Responses to Plaintiff's First Request for Admissions (Dkt. No. 20), Defendant, Wal-Mart Stores, Inc.'s Motion to Strike Plaintiff's Expert Witness for Failure to Provide an Expert Report (Dkt. No. 22), and Defendant Wal-Mart Stores, Inc.'s Motion for Summary Judgment *889 (Dkt. No. 27). The Court, having reviewed the relevant briefing, is of the opinion that: (1) Plaintiff's motion to strike should be DENIED; (2) Defendant's motion for summary judgment should be GRANTED; (3) Defendant's motion to strike should be DENIED AS MOOT; and (4) Plaintiff's above-entitled and numbered cause of action should be DISMISSED WITH PREJUDICE.
I.
FACTUAL BACKGROUND
This is an employment discrimination action by Ouida Lockett ("Plaintiff"), a black female, who was at all relevant times an employee of Wal-Mart Stores, Inc. ("Defendant"). Plaintiff seeks declaratory relief, injunctive relief, and damages pursuant to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 et seq. ("Title VII") and 42 U.S.C. § 1981(a), (b), and (c) (§ 1981). Plaintiff alleges Defendant had an awards policy ("IPH program") in which its cashiers would receive gift certificates from Defendant if they achieved a certain pace of items per hour checked through the registers to which the cashiers were assigned. According to Plaintiff, the policy favored cashiers checking at regular, as opposed to express, registers because of the greater volume of items which would pass through such regular registers.
Specifically, Plaintiff alleges that on April 24, 2002, Defendant gave Plaintiff a written reprimand in the form of a Decision-Making Day written coaching for allegedly refusing to work as a cashier in an express register. Plaintiff asserts that she was subsequently fired on October 20, 2002, based in part if not whole, on the April 24, 2002 written reprimand. Plaintiff alleges that Defendant employed a white cashier who repeatedly complained about and objected to any effort by a supervisor to assign her to an express register, and the white cashier was never disciplined in any way by Defendant for said conduct.
II.
MOTIONS TO STRIKE
A. Plaintiff's Motion to Strike
1. Plaintiff's Arguments
In her motion to strike, Plaintiff seeks an Order striking Defendant's Responses to Plaintiff's First Request for Admissions. Plaintiff contends that she served her First Request for Admissions on April 6, 2004, and Defendant was obligated to answer the requests on or before May 6, 2004. Plaintiff states that when she learned Defendant had changed counsel in the case, Plaintiff faxed a copy of Plaintiff's First Request for Admissions to Defendant's new counsel. Plaintiff asserts that neither Defendant's former or current counsel sought or obtained an extension of time to answer Plaintiff's requests. Plaintiff contends that she received Defendant's responses on May 13, 2004. Plaintiff asserts that the matters on which admissions were sought were automatically deemed admitted when Defendant failed to answer the requests on or before May 6, 2004. Plaintiff further asserts that because Defendant's responses were untimely, they are of no effect and should be stricken.
2. Deemed Admissions
Under the Federal Rules of Civil Procedure, if a request for admission remains unanswered, with no objection lodged, for more than thirty days after service of the request, it is deemed admitted. Fed. R. Civ.P.36(a). Any matter admitted under Rule 36(a) is conclusively established. See Fed. R. Civ.P.36(b); see also Dukes v. South Carolina Ins. Co., 770 F.2d 545, 549 (5th Cir.1985).
*890 3. Discussion
Defendant correctly points out in its response that Plaintiff's calculations fail to consider the mailing time allowed by the Federal Rules of Civil Procedure. Rule 6(e) provides as follows:
Whenever a party has the right or is required to do some act or take some proceedings within a prescribed period after the service of notice or other paper upon the party and the notice or paper is served upon the party under Rule 5(b)(2)(B), (C), or (D), 3 days shall be added to the prescribed period.
Rule 5(b)(2)(B) applies when service is made by "mailing a copy to the last known address of the person served." Here, Plaintiff served her First Requests for Admission upon Defendant by United States mail. Thus, Rule 6(e) allows Defendant three additional "mailing days" in computing the deadline to respond. Therefore, Defendant's responses were due thirty-three days from the date of service on Sunday, May 9, 2004. See Eber v. Harris County Hospital District, 130 F.Supp.2d 847, 853-54 (S.D.Tex.2001).
Rule 6 further provides that if the deadline falls on a Sunday, the period runs until the end of the next business day. See FED.R.CIV.P.6(a). As such, Defendant's responses were due on May 10, 2003. Defendant timely served its responses on May 10, 2004. Even assuming that Defendant's responses were untimely by one or more days, the Court would not be inclined to strike Defendant's responses because Plaintiff has not evidenced any prejudice sufficient to permit admission of the requests. See Hadra v. Herman Blum Consulting Engineers, 74 F.R.D. 113, 114 (N.D.Tex.1977). For these reasons, Plaintiff's motion to strike is DENIED.
B. Defendant's Motion to Strike
In its motion to strike, Defendant moves, pursuant to Rule 37 of the Federal Rules of Civil Procedure, to strike Plaintiff's expert witness for failure to provide an expert report. Defendant states that on a few occasions prior to Plaintiff's discharge from employment, Plaintiff was treated by Dr. Timothy Overlock. According to Defendant, approximately one (1) year after her last visit with Dr. Overlock, Plaintiff filed this lawsuit. During discovery, Plaintiff identified Dr. Overlock as an expert witness who would testify on her behalf in the trial of this action.
Defendant asserts that it has repeatedly asked Plaintiff to provide Dr. Overlock's expert report pursuant to FED. R. CIV.P.26(a)(2)(B). Defendant asserts that Plaintiff has not provided the required report nor the information sought in the report. Therefore, Defendant moves to strike Dr. Overlock as an expert witness and to preclude him from testifying as an expert at trial. Based on the Court's ruling on Defendant's motion for summary judgment, this motion is DENIED AS MOOT.
III.
DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
In its Motion for Summary Judgment, Defendant seeks dismissal of Plaintiff's race discrimination claims under Title VII and § 1981 because Plaintiff cannot establish a prima facie case of discrimination. Defendant asserts that Plaintiff cannot demonstrate that she was treated less favorably than a similarly situated white employee. Even if Plaintiff establishes a prima facie case, Defendant contends that it has articulated a legitimate, nondiscriminatory reason for Plaintiff's discharge, namely, that Plaintiff refused to follow an express *891 directive of her supervisor. Finally, Defendant asserts that Plaintiff is unable to establish Defendant's articulated reason for the termination is pretext for race discrimination.
IV.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when the movant is able to demonstrate that the pleadings, affidavits, and other evidence available to the Court establish that there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. FED. R. CIV.P.56(c). The movant bears the responsibility of informing the district court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992). cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992).
The nonmovant is not required to respond to a motion for summary judgment until the movant first meets its burden of demonstrating that there are no factual issues warranting trial. Ashe v. Corley, 992 F.2d 540 (5th Cir.1993). Once the movant has shown the absence of material fact issues, however, the opposing party has a duty to respond, via affidavits or other means, asserting specific facts showing that there is a genuine issue for trial. FED. R. CIV.P. 56(e). It is not enough for the party opposing summary judgment to rest on mere conclusory allegations or denials in his pleadings. Topalian, 954 F.2d at 1131. The nonmovant must point out, with factual specificity, evidence demonstrating the existence of a genuine issue of material fact on every component of the nonmovant's case. Dunn v. State Farm & Casualty Co., 927 F.2d 869, 872 (5th Cir.1991). If the nonmoving party fails to make a sufficient showing on an essential element of his case with respect to which he has the burden of proof, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2551, 91 L.Ed.2d 265 (1986). In assessing the proof, the court views the evidence in the light most favorable to the nonmovant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
V.
APPLICABLE LAW
When 42 U.S.C. § 1981 and Title VII are alleged as parallel bases of relief, the same elements of proof are required for both actions. See Flanagan v. Aaron E. Henry Community Health Servs. Center, 876 F.2d 1231, 1233-34 (5th Cir.1989). In cases arising under 42 U.S.C. § 1981, the plaintiff must prove discriminatory intent. Crawford v. W. Elec. Co., Inc., 614 F.2d 1300, 1309 (5th Cir.1980). Title VII requires no such showing. Mason v. United Air Lines, Inc., 274 F.3d 314, 318 (5th Cir.2001).
A plaintiff can prove intentional discrimination through either direct or circumstantial evidence. The Supreme Court established the analytical framework for addressing Title VII race discrimination claims based on circumstantial evidence in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-04, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). See Rutherford v. Harris County, Texas, 197 F.3d 173, 179-80 (5th Cir.1999). Under the burden-shifting framework of McDonnell Douglas, a plaintiff must first present a prima facie case of discrimination.
In order to show a prima facie case of discriminatory discharge, a plaintiff must first establish that she (1) is a member of a protected class. (2) was subject to an adverse *892 employment action, (3) was qualified for her position, and (4) was replaced by someone outside the protected class, or, in the case of disparate treatment, that others similarly situated were treated more favorably than her. Shackelford v. Deloitte & Touche, LLP, 190 F.3d 398, 404 (5th Cir.1999); see also Rutherford v. Harris County, Texas, 197 F.3d 173, 184 (5th Cir.1999). If the plaintiff is successful in establishing a prima facie case of discrimination, the employer must rebut the presumption of discrimination by articulating a legitimate, nondiscriminatory reason for the adverse employment action.
If the employer presents such evidence of pretext, then the burden shifts back to the plaintiff to present substantial evidence that the employer's reason was pretext. Auguster v. Vermilion Parish Sch. Bd., 249 F.3d 400, 402 (5th Cir.2001). If the plaintiff can show that the proffered explanation is mere pretext, that showing coupled with the prima facie case, will be sufficient to survive summary judgment in most cases. Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 146-48, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). A plaintiff may establish pretext "by showing that a discriminatory motive more likely motivated" her employer's decision, such as through evidence of disparate treatment, "or that [her employer's] explanation is unworthy of credence." Deffenbaugh-Williams v. Wal-Mart Stores, Inc., 156 F.3d 581, 589 (5th Cir.1998)(quotations and citations omitted), vacated by 169 F.3d 215 (1999), reinstated in pertinent part by 182 F.3d 333 (1999).
VI.
THE SUMMARY JUDGMENT EVIDENCE
A. Defendant's Summary Judgment Evidence
Defendant attaches the following in support of its motion for summary judgment: (1) Excerpts from Plaintiff's Deposition; (2) Sworn Declaration of Jerry Clark; (3) Excerpts from Jeanette Thomas' Deposition; (4) Excerpts from Linda Baker's Deposition; (5) Excerpts from Rebecca Terry's Deposition; (6) Excerpts from Stacy Henderson's Deposition; (7) Coaching for Improvement Form; and (8) Exit Interview. The summary judgment evidence, attached by Defendant to its motion, establishes the following.
In April of 2001, Plaintiff interviewed with Assistant Manager Calvette Boyd for a part-time position in the shoe department in Wal-Mart's Atlanta, Texas store. On April 18, 2001, Plaintiff was hired for the part-time position. (Plaintiff's Depo. at pg. 54, line 11-pg. 55, line 1). The Store Manager throughout Plaintiff's employment, Jerry Clark, approved Plaintiff's hire. (Clark Decl. at ¶¶ 3-4)(Thomas Depo. at pg. 20, lines 6-12). During this period, Plaintiff worked another part-time position with another company. For months after Plaintiff's hire. Clark approached Plaintiff and offered her full-time employment. (Plaintiff's Depo. at pgs. 56 & 58-60). Plaintiff accepted the full-time position, and one month later, she began to work as a cashier. (Id. at pg. 61, lines 18-25).
As a cashier, Plaintiff reported to the Customer Service Managers ("CSMs"). (Id. at pg. 66, line 7 pg. 67, line 2). Jeanette Thomas (African American), Linda Baker (Caucasian), Stacy Henderson (African American), and Rebecca Terry (Caucasian), among others, were CSMs in the Atlanta, Texas store during Plaintiff's employ. (Id. at pg. 64, lines 22-23)(Clark Decl. at ¶ 12). The CSMs report to an Assistant Manager. (Thomas Depo. at pg. 20, line 21 pg. 21, line 3). Calvette Boyd, an African American, was one of six or seven Assistant Managers in the Atlanta, Texas store. (Id.). Boyd reported to the *893 Co-Manager, Richard Oxley (Caucasian), and the Store Manager, Jerry Clark (Caucasian). (Id. at pg. 17 & pg. 20, lines 12-20).
In mid-April of 2002, Plaintiff was directed by Linda Baker, a CSM, to replace a co-worker at the express register while the co-worker took her meal break. (Plaintiff's Depo. at pgs. 91-92)(Thomas Depo. at pgs. 46-47 & pg. 113, lines 18-22). Subsequently, while walking to the express register, Plaintiff questioned Thomas as to why she was directed to work the express register. (Plaintiff's Depo. at pg. 91, line4 pg. 92, line 6 & pg. 93, lines 12 pg. 94, line 15). No one was present during the discussion, but ultimately, both Plaintiff and Thomas were standing next to the customer service podium when CSM Linda Baker approached. (Id. at pg. 94, lines 13-22)(Thomas Depo. at pg. 48, lines 6-16; pgs. 57-58 & pg. 103, lines 10-24)(Baker Depo. at pg. 23, lines 12-23). Baker testified that the express register is a "distance away from the CSM podium." (Baker Depo. at pg. 49, lines 1-8).
Thomas informed Baker that, rather than going to work the express register as directed, Plaintiff became unhappy and upset, started "fussing," used profane language, walked away from the registers and stood at the CSM podium, and refused to work the express register. (Plaintiff's Depo. at pgs. 93-94) (Thomas Depo. pg. 47, line2 pg. 48, line 16; pg. 55, lines 18-19; pg. 57, line 11 pg. 58, line 23 & pgs. 101-04)(Baker Depo. at pg. 19; pg. 23, line 4-pg. 24, line 7 & pg. 49, lines 9-22). Thomas testified that Plaintiff insisted that unless she was permitted to work at a regular register, she would go home. (Thomas Depo. at pg. 103, line 20 pg. 104, line 2). Thomas testified that she believed Plaintiff was refusing to follow her directive. (Id.).
Baker, as a CSM, did not have the authority to send Plaintiff home or take disciplinary action against Plaintiff. CSMs are hourly supervisors; they are not members of Management; and they do not have the authority to coach or discipline an employee. (Thomas Depo. at pg. 28, lines 7-23 & pg. 104, lines 20-25)(Baker Depo. at pg. 16, lines 23-25; pg. 29, lines 13-15; pg. 29, line 20 pg. 30, line 14; pg. 43 & pg. 49, lines 23-25)(Terry Depo. at pg. 17, line 24 pg. 18, line 12)(Henderson Depo. at pg. 19). Baker testified that she simply told Thomas to put Plaintiff on a "regular register." (Thomas Depo. at pgs. 58 & 104)(Baker Depo. at pg. 24, lines 8-10; pgs. 29-30 & pg. 49, lines 13-25).
Later that day, Baker reported Plaintiff to Calvette Boyd, Assistance Manager. (Baker Depo. at pgs. 32 & 42). Boyd is African-American, like Plaintiff. (Thomas Depo. at pg. 21, lines 2-3)(Baker Depo. at pg. 42, lines 18-21). Boyd's immediate reaction was that Plaintiff's behavior amounted to gross misconduct, for which she could immediately be terminated. (Baker Depo. at pgs. 32-33 & 44). However, Boyd instructed Baker to prepare a Coaching for Improvement form for Plaintiff, giving Plaintiff a Decision-Making Day,[1] rather than terminating her. (Baker Depo. at pg. 44, line 3-pg. 45, line 4). The coaching form states that Plaintiff could have been terminated as a result of her insubordination, but she was being given another chance. (Coaching for Improvement). The coaching form further states that any similar behavior in the future will result in Plaintiff's termination (Id.). Boyd and Baker met with Plaintiff, and *894 Boyd explained that Plaintiff was being given a Decision-Making Day because of her insubordinate behavior. (Plaintiff's Depo. at pgs. 98-100).
Six months later, on October 16, 2002, Plaintiff was working a cash register and preparing to go on her break. (Plaintiff's Depo. at pgs. 89 & 108-09) (Thomas Depo. at pgs. 74-76)(Terry Depo. at pgs. 22-23 & 37). The store was busy. Therefore, CSMs Rebecca Terry and Jeanette Thomas directed Plaintiff to delay her lunch break and keep her register open until a replacement cashier arrived. (Plaintiff's Depo. at pgs. 11, 113-14 & 118-19)(Thomas Depo. at pgs. 78-80)(Terry Depo. at pgs. 22-24, 29 & 40, lines 4-24). Subsequently, Thomas reported that Plaintiff began throwing a fit, banged her hands on the register table, talked "out loud" in front of customers, and proceeded to close her register. (Thomas Depo. at pgs. 86-87 & 123)(Terry Depo. at pg. 39, lines 9-25 & pg. 50, lines 19-25). Thomas is African-American, like Plaintiff. (Plaintiff's Depo. at pg. 52. lines 1-2 & pg. 64, lines 22-23).
In response to Thomas' report, Clark, the Store Manager, asked Thomas, Terry, and Henderson to prepare written statements regarding what they witnessed. (Terry Depo. at pgs. 31-32)(Clark Decl. at ¶ 12). All three statements indicate Plaintiff closed her register in contravention of her supervisor's express directive. (Id.)(Def.Ex. 2-A). After obtaining the statements, Clark met with Thomas, Plaintiff's immediate supervisor, to discuss what action she believed was appropriate for Plaintiff's misconduct. (Thomas Depo. at pgs. 94 & 120)(Clark Decl. at ¶ 15). Thomas advised Clark that she believed Plaintiff should be discharged. (Id.).
Plaintiff denied the reports, but acknowledged in her deposition that if she did what Thomas accused her of, which is to shut down her register without authorization from a CSM, that behavior would violate policy and be grounds for "automatic [sic] termination." (Plaintiff's Depo. at pgs. 122 & 141). According to Clark, Plaintiff's conduct on October 16, 2002 was insubordinate and constituted gross misconduct, which under Defendant's policy, calls for immediate termination. (Clark Decl. at ¶ 13). Clark made the decision to discharge Plaintiff for her insubordination on October 16, 2002. (Plaintiff's Depo. at pgs. 149-150)(Clark Decl. at ¶ 17)(Thomas Depo. at pg. 91, lines 6-13). Clark states that Plaintiff's conduct was grounds for her termination regardless of her prior disciplinary history. (Clark Decl. at ¶ 14). Clark further states that he would have made the same decision regardless of whether Plaintiff had previously received a decision-making day. (Clark Decl. at ¶ 17).
On October 20, 2002, Clark met with Plaintiff to terminate her employment. (Plaintiff's Depo. at pgs. 126-27 & 129-131)(Clark Decl. at ¶ 21). During the exit interview, Clark explained that the incident of October 16, 2002 was "gross misconduct," and she was ineligible for rehire.[2] However, as a favor to Plaintiff, Clark completed the paperwork in a manner that would make her eligible for rehire in six (6) months. (Plaintiff's Depo. at pg. 131)(Clark Decl. at ¶¶ 13 & 21)(Exit Interview form). Clark, the sole decision-maker regarding Plaintiff's termination, is also the individual who (1) approved Plaintiff's hire and (2) voluntarily offered Plaintiff the opportunity to go from part-time to *895 full-time employment. (Plaintiff's Depo. at pgs. 56 & 58-60)(Clark Decl. at ¶¶ 4 & 17).
B. Plaintiff's Summary Judgment Evidence
Plaintiff relies on the following in support of her response to Defendant's motion: (1) Plaintiff's Affidavit; (2) Quoquise Waters' Affidavit; (3) Transcribed testimony of Virginia Berry in hearing on Plaintiff's claim for unemployment benefits; (4) Excerpts from Plaintiff's, Thomas', Baker's, Henderson's, and Terry's Depositions; (5) and briefing regarding Plaintiff's Motion to Strike Defendant's Responses to Plaintiff's First Request for Admissions. Plaintiff's summary judgment evidence shows the following.
At all relevant times, Defendant had a three step disciplinary or "coaching" policy with respect to its employees under which an employee was supposed to receive a verbal warning or coaching for the first disciplinary infraction, a written warning or coaching for the second disciplinary infraction, and a Decision-Making Day ("D-Day") written warning or coaching for the third disciplinary infraction. (Baker Depo. at pg. 34, lines 5-10)(Thomas Depo. at pgs. 27-28). If an employee has more problems after he/she receives a D-Day coaching, the employee is generally subject to termination. (Thomas Depo. at 27, lines 7-10). When an employee receives a D-Day coaching, the employee is to be sent home with pay for a day and upon the employee's return to work, the employee submits a written statement (action plan) stating what the employee is going to do to improve his/her behavior. (Id. at pg. 27, lines 13-17). It was the practice at Defendant's Atlanta store for the Assistant Managers to go either to the Store Manager or Store Co-Manager on D-Day coachings. (Terry Depo. at pg. 19). Richard Oxley, a white male, was Co-Manager of Defendant's Atlanta store at all times relevant to this action. (Thomas Depo. at pg. 20, lines 15-20).
There was a program in place in Defendant's Atlanta store for the benefit of the stores cashiers. The program was known as the Items Per Hour or IPH program (Thomas Depo. at pgs. 34-35). The cashiers could obtain up to $50.00 a month in store merchandise if they maintained a certain pace of checking items of customer merchandise through their cash registers. (Id.). Some cashiers thought there was an advantage to working a regular, as opposed to an express, register because a cashier can check more items in a given period of time at a regular register. (Terry Depo. at pg. 13, line7 pg. 14, line 5). Normally, if a cashier worked the first half of his/her shift on an express register, the cashier would be assigned to a regular register the second half of his/her shift. The cashiers were informed of this policy. (Henderson Depo. at pgs. 11-12)(Terry Depo. at pgs. 14-15)(Baker Depo. at pg. 26).
Each cashier was assigned to a particular Customer Service Manager ("CSM") who was responsible for performing a job evaluation of the cashier. A cashier's CSM was designated as the cashier's hourly supervisor. (Thomas Depo. at pgs. 30 & 59). All CSMs had the same authority, but the cashier's CSM hourly supervisor had somewhat more authority over the cashier than other CSMs. (Id. at pg. 59, lines 9-18). While CSMs at the Atlanta store cannot, without the approval of Management, coach a subordinate hourly employee, the CSMs can and frequently do initiate the coaching of a cashier. (Waters' Aff. at ¶ 5).
Plaintiff had never had any disciplinary or coaching action taken against her until April 24, 2002. (Plaintiff's Aff. at ¶ 2). On April 24, 2002, Plaintiff was given a D-Day coaching arising out an incident that occurred *896 on April 14, 2002, involving Jeanette Thomas and Linda Baker. Baker, a white female, was Plaintiff's hourly supervisor. (Coaching for Improvement Form attached to Defendant's motion). On April 14, 2002, Plaintiff had worked the first half of her shift on an express register, had gone to lunch, and had been assigned to work register 6, a regular register upon her return from lunch, Plaintiff testifies as follows:
I had went to lunch and I came back I had worked the express register. I went to lunch, came back from lunch, and they put me on register 6 [regular register]. I stayed on register 6 about twenty minutes, if twenty minutes, and I recall Linda Baker coming over there and telling me to go to register 20 [express register]. Jeanette was coming from customer service desk and I was going toward register 20. She asked me where I was going to and I told her to register 20. I said, why am I staying on express lanes all the day. I said, I thought in our meeting they told us to, we were going to be rotated from express as register to a regular register. Are we not going by that or what? And she was going over to the podium. She said come over here and let me look at the flow chart. And as we got over there she said, register 20 needs lunch. And I said, I've been on the express lanes all day. That's when she told Linda, she say, Linda, Ouida been on the express lanes all day. And she told Linda that I refused, but I only asked her why I was going to the express lane. AndI Miss Linda said, put her back on 6 and get someone else to go down there if she's been on the express lanes all day. That was the end of it. Until about, I guess it was a while before it was some days before they gave me this after that happened.
(Plaintiff's Depo. at pg. 91, line 9-pg. 92, line 6). Plaintiff explained to Baker that she did not refuse to go to register 20. She just "asked a question ... because that was brought up in [the] cashier meeting and [she] just wanted to know." Plaintiff just wanted to bring it to Baker's and Thomas' attention that she had been on the express lane. (Id. at pg. 95, lines 1-7).
On the night of April 14, 2002, Baker told Calvette Boyd, an Assistant Manager, about the incident. (Baker Depo. at pg. 32). Baker did not recommend that Plaintiff be coached over the incident, did not know who made the decision to give Plaintiff a D-Day coaching, and was never consulted about the D-Day coaching. (Id. at pg. 30). On April 24, 2002, Plaintiff met with Boyd and Baker in a private room in the store. (Plaintiff's Depo. at pgs. 97-98). When Plaintiff entered the room, she was handed a Coaching for Improvement Form stating she was receiving a step 3 D-Day coaching over the incident ten days earlier. The form was signed by Boyd, Baker, and Richard Oxley. (Coaching for Improvement form attached to Defendant's motion). Oxley was not present at the meeting. (Plaintiff's Depo. at pg. 98, lines 14-15). Boyd asked Plaintiff what happened on April 14, 2002. (Plaintiff's Depo. at pg. 99, line 1). Plaintiff denied she had done what the coaching form stated. Boyd then stated that is not what Thomas told her. (Plaintiff's Depo. at pg. 100). Plaintiff was asked to sign the coaching form, which she did after writing the following on the form:
I didn't do what they are saying. I just ask why I had to go to all the slow. reg. And she told me that she didn't and she didn't realize that.
(Plaintiff's Depo. at pg. 101)(Coaching for Improvement Form attached to Defendant's motion).
The Coaching for Improvement Form directed Plaintiff to prepare and submit an action plan for improvement when she returned to work. (Id.). Plaintiff submitted *897 her plan to Oxley. (Plaintiff's Depo. at pg. 104). In the plan Plaintiff initially submitted, Plaintiff told her version of the events of April 14, 2002, including her denial that she refused to go to register 20. (Id. at pgs. 105-106). Oxley refused to approve Plaintiff's initial plan, tore it up, and directed Plaintiff to write another plan omitting any reference to her version of the events of April 14, 2002. (Id. at pgs. 104-106). Plaintiff subsequently rewrote the plan. (Id. at pgs. 106-107). Plaintiff was then allowed to return to work. (Id. at pg. 107, lines 12-17).
Plaintiff was fired on October 20, 2002. Plaintiff was informed of her firing at an exit interview with Virginia Berry, a white Assistant Manager, and Jerry Clark, the Store Manager. (Id. at pg. 125). The Exit Interview form provides Plaintiff was fired for "Misconduct w/ Coachings" and was signed by Plaintiff, Thomas, Berry, and Clark. (Exit Interview attached to Defendant's motion). Plaintiff asserts it is "undisputed that Plaintiff would not have been fired by Defendant on October 20, 2002, if she had not received a D-Day coaching on April 20, 2002. (See Plaintiff's Motion to Strike Defendant, Wal-Mart Stores. Inc.'s, Responses to Plaintiff's First Request for Admissions filed herein on May 17, 2004, and Plaintiff's Reply to Defendant. Wal-Mart Stores, Inc.'s Response in Opposition to Plaintiff's Motion to Strike Defendant Wal-Mart Stores, Inc.'s Responses to Plaintiff's First Request for Admissions filed herein on June 7, 2004; see also Berry testimony pp. 9-10)"[3]
VII.
BURDEN-SHIFTING ANALYSIS
A. Prima Facie Case
First, it is important to note that Plaintiff does not claim that the IPH program or the rotation of the cashiers is done in a discriminatory manner.[4] Instead, Plaintiff contends that her firing on October 20, 2002, constituted disparate treatment based on her race because Defendant treated a white employee similarly situated to Plaintiff in a more favorable manner than Plaintiff. For her prima facie case of disparate treatment, Plaintiff relies on the following: (1) she is a member of a protected class (African-American); (2) she was qualified for her position (she worked as a cashier for over a year without complaint by Defendant); and (3) she suffered an adverse employment action (she was fired on October 20, 2002). Plaintiff has satisfied the first three requirements of her prima facie case.
In order to establish the fourth requirement, Plaintiff must present evidence that another similarly situated employee was treated more favorably than her. Plaintiff must show Defendant gave preferential treatment to another employee under "nearly identical circumstances;" that is, that the misconduct for which the plaintiff was discharged was nearly identical to that engaged in by other employees. See Okoye v. The University of Texas Houston Health Science Center, 245 F.3d 507, 514 (5th Cir.2001)(Emphasis added).
*898 The only evidence of preferential treatment in the record is Plaintiff's testimony regarding Brenda Hunt, a white female, who also worked as a cashier at Defendant's Atlanta store. According to Henderson and Thomas, Hunt disliked working express registers because she felt it would put her at a disadvantage under Defendant's IPH program. Hunt would complaint when assigned to work an express register. Her complaints in this regard were well known throughout the store. (Henderson Depo. at pgs. 12-16)(Thomas Depo. at pgs. 67-69).
On March 22, 2002, Quoquise Waters, Hunt's then CSM hourly supervisor, discussed Hunt with Oxley as part of Waters' job duty of evaluating the job performance of Hunt. (Waters' Aff. at ¶ 3). Waters advised Oxley that she had received a number of complaints on Hunt from other CSMs related to Hunt's dislike of being assigned to work express registers at the store. (Id.). "Hunt felt like working express registers put her at a disadvantage in the Items Per Hour program at the store whereby Cashiers could obtain gift certificates for merchandise from the store if they maintained a certain pace of checking items through their registers." (Id.). Each time Hunt was assigned to work an express register, Hunt would complaint about the assignment "so vigorously" that many of the CSMs would not assign Hunt to an express register "simply to avoid her wrath." (Id.). This caused problems with other cashiers who were not exempted from such assignments. (Id.).
Waters recommended to Oxley that Hunt be given a "meets expectations" rather than an "exceeds expectations" rating on Hunt's 2002 evaluation because of her conduct in vigorously complaining every time she was assigned to an express register. (Id.). Oxley declined to accept Waters' recommended evaluation rating and directed Waters to give Hunt an "exceeds expectations" rating on Hunt's 2002 evaluation. (Id. at ¶ 4).
Based on the testimony of Henderson, Thomas, and Waters regarding Hunt, the Court will assume, for purposes of this motion, that Plaintiff has presented a prima facie case of discrimination.
B. Legitimate, Non-discriminatory Reason
Defendant must set forth, "through the introduction of admissible evidence, reasons for its actions which, `if believed by the trier of fact,' would support a finding that unlawful discrimination was not the cause of the employment action." Bauer v. Albemarle Corp., 169 F.3d 962, 966 (5th Cir.1999), citing St. Mary's Honor Center v. Hicks, 509 U.S. 502, 507, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993). The evidence attached by Defendant to its motion provides as follows.
In April of 2002, Plaintiff was directed by Baker, a CSM, to replace a co-worker at an express register. Subsequently, while walking to the express register, Plaintiff questioned Thomas as to why she was directed to work the express register. Thomas informed Baker that, rather than going to work the express register as directed, Plaintiff became unhappy and upset, started "fussing," used profane language, walked away from the registers and stood at the CSM podium, and refused to work the express register. Thomas testified that Plaintiff insisted that unless she was permitted to work at a regular register, she would go home. Thomas further testified that she believed Plaintiff was refusing to follow her directive.
Later that day, Baker reported Plaintiff to Calvette Boyd, Assistance Manager. Boyd's immediate reaction was that Plaintiff's behavior amounted to gross misconduct, for which she could immediately be terminated. However, Boyd instructed *899 Baker to prepare a Coaching for Improvement form for Plaintiff, giving Plaintiff a D-Day, rather than terminating her. The coaching form states that Plaintiff could have been terminated as a result of her insubordination, but she was being given another chance. The coaching form further states that any similar behavior in the future will result in Plaintiff's termination (Id.).
Six months later, on October 16, 2002, Plaintiff was working a cash register and preparing to go on her break. CSMs, Terry and Thomas, directed Plaintiff to delay her lunch break and keep her register open until a replacement cashier arrived. Subsequently, Thomas reported that Plaintiff began throwing a fit, banged her hands on the register table, talked loudly in front of customers, and proceeded to close her register. In response to Thomas' report, Clark, the Store Manager, asked Thomas, Terry, and Henderson to prepare written statements regarding what they witnessed. All three statements indicate Plaintiff closed her register in contravention of her supervisor's express directive. (Id.) (Def.Ex. 2-A).
Subsequently, Clark made the decision to discharge Plaintiff for her insubordination on October 16, 2002. (Plaintiff's Depo. at pgs. 149-150) (Clark Decl. at ¶ 17)(Thomas Depo. at pg. 91. lines 6-13). Clark states Plaintiff's conduct was grounds for her termination regardless of her prior disciplinary history. (Id. at ¶ 14). Clark states he would have made the same decision regardless of whether Plaintiff had previously received a decision-making day. (Clark Decl. at ¶ 17).
Defendant has met its burden of production[5] by offering evidence that Plaintiff was terminated for her refusal to follow the directives of a CSM, including Thomas. In her deposition, Plaintiff states that if a CSM gives an employee a directive, the employee is supposed to follow the directive. (Plaintiff's Depo. at pg. 67, lines 3-5). In addition, Plaintiff acknowledged that if she had done what Thomas accused her of, which is to shut down her register without authorization from a CSM, that behavior would violate Defendant's policy and be grounds for "automatically termination." (Plaintiff's Depo. at pgs. 122 & 141). Defendant has met its burden of producing a legitimate, nondiscriminatory reason for its action.
C. Pretext
Plaintiff must raise a genuine issue of material fact that Defendant discriminated against her because of her race. Plaintiff may meet this threshold by proving an issue of material fact exists by demonstrating that Defendant's proffered reason is a pretext for discrimination. Okoye, 245 F.3d at 513. A plaintiff's prima facie case, combined with sufficient evidence to find the employer's asserted reason is false, may be sufficient to infer discrimination. Id., quoting Reeves, 530 U.S. 133, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). The Supreme Court has made clear "instances [exist] where, although the plaintiff has established a prima facie case and set forth sufficient evidence to reject the defendant's explanation, no rational factfinder could conclude that the action was discriminatory." Id.
First, relying on her motion to strike Defendant's responses to Plaintiff's First Request for Admissions and Virginia Berry's testimony, Plaintiff insists that it is "undisputed that Plaintiff would not have been fired by Defendant on October 20, 2002, if she had not received a D-Day *900 coaching on April 20, 2002."[6] The Court disagrees with this statement. Berry testified that perhaps Plaintiff would not have been terminated but for her prior D-Day. (Berry Depo. at pgs. 9-10). However, Berry made clear that Jerry Clark, not she, made the decision to terminate Plaintiff. (Id. at pg. 7). Defendant presented additional summary judgment evidence, namely Clark's Declaration, indicating Clark alone made the decision to discharge Plaintiff, and he would have terminated Plaintiff's employment on October 20, 2002 regardless of the fact that Plaintiff received a D-Day six months prior for engaging in the same insubordination. (Clark Decl. at ¶¶ 9, 17).
Next, Plaintiff relies on the testimony of Henderson, Thomas, and Waters to establish disparate treatment. However, Plaintiff fails to show that Hunt, a white cashier, was treated more favorably "under `nearly identical' circumstances." Okoye, 245 F.3d at 514. In this regard, Plaintiff asserts that she at all times disputed Thomas' accusations that she refused to work the express register in April of 2002. Even though Plaintiff presented evidence that she consistently denied the incident of refusing to work an express register, the summary judgment evidence, when viewed in the light most favorable to Plaintiff, still shows that it was reported to Management that Plaintiff refused to follow the express directives of her supervisors. On the other hand, Waters' testified that Hunt vigorously complained of having to work the express registers, not that she ever refused to follow an express directive of her supervisor. Similarly, Henderson testified that she had never heard anyone say that Hunt refused to work an express register. (Henderson Depo. at pg. 14, lines 12-24).
The issue is not whether Plaintiff actually engaged in the "gross misconduct," but whether Defendant believed in good faith that she did. Thomas, a person the same race as Plaintiff, reported to Baker that Plaintiff refused to follow her directive. Baker relayed the information to Boyd, who like Thomas is the same race as Plaintiff. Boyd advised Baker that Plaintiff's conduct constituted gross misconduct, and Plaintiff could be terminated. However, Boyd and Oxley gave Plaintiff a D-Day coaching instead. Plaintiff contends that Oxley would not consider her side of the story.
Such an argument does not lessen Defendant's legitimate, nondiscriminatory reason for terminating Plaintiff's employment. The Fifth Circuit has held:
Even an incorrect belief that an employee's performance is inadequate constitutes a legitimate, nondiscriminatory reason. We do not try in court the validity of good faith beliefs as to an employee's competence. Motive is the issue... [A] dispute in the evidence concerning ... job performance does not provide a sufficient basis for a reasonable factfinder to infer that [the] proffered justification is unworthy of credence.
Little v. Republic Refining Co., 924 F.2d 93, 97 (5th Cir.1991). Additionally, as stated above, Clark would have terminated Plaintiff solely based on the October insubordination.
Even if the Court considers Hunt's complaints similar to Plaintiff's reported refusal, there is no evidence in the record that Hunt engaged in insubordination subsequent to and in addition to those complaints. There is no evidence that Clark or Oxley was told that Hunt or any other employee refused to follow a directive of a supervisor. The Court cannot say that Plaintiff and Hunt were "similarly situated employees," and that Hunt was treated more favorably than Plaintiff. Plaintiff *901 must show, and has not shown for the reasons stated above, that Defendant gave preferential treatment to Hunt under "nearly identical circumstances;" that is, that the misconduct for which Plaintiff was discharged was nearly identical to that engaged in Hunt. Okoye, 245 F.3d at 514.
Finally, the Court notes that Plaintiff's pretext arguments are further weakened by the "same actor" inference in that Clark both approved Plaintiff's hire, promoted Plaintiff, and subsequently terminated Plaintiff. The "same actor" doctrine was first articulated by the Fifth Circuit in Brown v. CSC Logic, Inc., 82 F.3d 651, 658 (5th Cir.1996). In that case, the Fifth Circuit adopted the Fourth Circuit's decision in Proud v. Stone, 945 F.2d 796, 797-98 (4th Cir.1991), that when the same supervisory employee hires and fires a plaintiff within a short period of time, "a strong inference exists that discrimination was not a determining factor for the adverse action taken by the employer." Id. If a plaintiff was hired and fired by the same individual, it gives rise to such an inference because it is illogical that a decision maker would "hire workers from a group one dislikes (thereby incurring the psychological costs of associating with them), only to fire them once they are on the job." Brown, 82 F.3d at 658. "The relevance of the fact that the employee was hired and fired by the same person within a relatively short time span comes in at the third stage of the analysis." Proud, 945 F.2d at 798. While the same-actor hiring and firing may not automatically dispose of a plaintiff's discrimination claim, it creates a strong inference that discrimination was not a determining factor. Brown, 82 F.3d at 658.
VIII.
CONCLUSION
The Court, having viewed the evidence in the light most favorable to Plaintiff, holds Plaintiff has failed to meet her burden of showing Defendant's asserted reason for Plaintiff's discharge was pretext. Therefore, Plaintiff's Title VII claim must be dismissed. Claims of discrimination brought under Title VII and § 1981 require the same proof to establish liability. Byers v. Dallas Morning News, Inc., 209 F.3d 419, 422 n. 1 (5th Cir.2000). Therefore, since Plaintiff's Title VII claim fails, and because Plaintiff has failed to prove discriminatory intent, Plaintiff's § 1981 claim must also be dismissed. See Crawford v. W. Elec. Co., Inc., 614 F.2d 1300, 1309 (5th Cir.1980). Based on the foregoing, it is
ORDERED that Plaintiff's Motion to Strike Defendant, Wal-Mart Stores, Inc.'s Responses to Plaintiff's First Request for Admissions (Dkt. No. 20) is hereby DENIED. It is further
ORDERED that Defendant's Motion for Summary Judgment (Dkt. No. 27) is hereby GRANTED. It is further
ORDERED that Defendant, Wal-Mart Stores, Inc.'s Motion to Strike Plaintiff's Expert Witness for Failure to Provide an Expert Report (Dkt. No. 22) is hereby DENIED AS MOOT. It is further
ORDERED that Plaintiff's above-entitled and numbered civil action is DISMISSED WITH PREJUDICE.
NOTES
[1] A Decision-Making Day is a paid day off, during which an employee is supposed to decide whether she is committed to being successful in her position with Defendant. If so, she is required to write a written action plan, describing the steps she will take to improve and be successful. (Plaintiff's Depo. at pgs. 102-04)(Thomas Depo. at pg. 27).
[2] According to Defendant's policy, "gross misconduct" is conduct that subjects an employee to immediate termination, regardless of any prior misconduct. It also renders an employee ineligible for rehire. (Plaintiff's Depo. at pg. 141, lines 15-18)(Clark Decl. at ¶ 13)(Thomas Depo. at pg. 116, lines 13-15)(Baker Depo. at pgs. 32-34).
[3] Plaintiff's response at pg. 8.
[4] Plaintiff testified that it did not matter to what register she was assigned, regular or express. (Plaintiff's Depo. at pg. 81, lines 15-23). In addition, Plaintiff testified that she does not have any evidence or reason to believe that there was any type of racial discrimination in terms of who received gift cards through the IPH program. (Id. at pg. 85, lines 19-24). Even if Plaintiff were claiming the IPH program itself was discriminatory, the Court doubts that the implementation of the program constitutes an adverse employment action.
[5] The burden on the defendant is one of production, and not of persuasion. The burden of persuasion remains at all times with the plaintiff. Munoz v. Orr, 200 F.3d 291, 299 (5th Cir.2000).
[6] Plaintiff's response at pg. 8.
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420 F. Supp. 954 (1976)
NATIONAL AMERICAN CORPORATION, Plaintiff,
v.
FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants.
No. 76 Civ. 2745.
United States District Court, S. D. New York.
October 13, 1976.
*955 Finley, Kumble, Wagner, Heine, Underberg & Grutman, New York City, for plaintiff; Norman Roy Grutman, Jeffrey H. Daichman, Kenneth J. Gould, New York City, of counsel.
Kissam & Halpin, New York City, for defendants; Leo T. Kissam, James G. Simms, New York City, of counsel.
OPINION
EDWARD WEINFELD, District Judge.
Plaintiff, a Delaware corporation having a principal place of business in this district, commenced this action against the Republic of Nigeria ("Nigeria"), a foreign government, and the Central Bank of Nigeria ("Central Bank"), a foreign banking institution having its principal place of business in Lagos, Nigeria. Plaintiff seeks to recover from the defendants a sum in excess of $14,000,000, representing an unpaid balance for the purchase price of cement and unpaid demurrage charges claimed to be due under the terms of a written agreement entered into with Nigeria. The complaint alleges that payment for the cement and demurrage charges was guaranteed by an irrevocable letter of credit established by Central Bank in favor of plaintiff under which payments were to be made by Morgan Guaranty Trust Company of New York ("Morgan Guaranty") upon presentation to it by plaintiff of sight drafts accompanied by specified documents. The complaint further alleges that Morgan Guaranty notified plaintiff that it had been instructed by Central Bank to refuse payment for cement deliveries and demurrage charges unless plaintiff submitted documents confirming that (1) it had given two months' advance notice of the departure of each ship engaged to transport the cement for delivery at Lagos, Nigeria, and (2) clearance for such departures had been given by defendants. Plaintiff alleges that these conditions were contrary to its agreement with Nigeria for the sale of the cement and were not contained in the letter of credit.
Simultaneously with the commencement of this action, plaintiff applied for and was granted an attachment against the property of the defendants in this district pursuant to the laws of New York State[1] upon the ground that the complaint demanded a money judgment and the defendants were non-residents of this district. Funds of Nigeria and Central Bank on deposit with Morgan Guaranty were attached by the United States Marshal. The plaintiff, as required by the order of attachment, now moves to prove the ground upon which it was granted.
The voluminous papers submitted on this motion, wherein the parties argue the merits of their respective positions, require the Court to state that on the instant application the sole issue is whether the plaintiff has presented a prima facie case upon its claim.[2] The record as presented requires an affirmative answer.
First, both the contract between plaintiff and Nigeria for the sale and delivery of the cement and the irrevocable letter of credit established by Central Bank are clear, consistent with each other and unambiguous. Central Bank's instruction to Morgan Guaranty to withhold payments unless sixty days' advance notice of each ship's departure had been given and clearance had been obtained from defendants appears on its face to be contrary to the cement agreement and letter of credit. Indeed, although making no express acknowledgment of *956 these matters, defendants inferentially concede that the cement contract and letter of credit were valid and that they attempted unilaterally to impose conditions with respect to advance notice of, and clearance for, vessels' departures contrary to the parties' agreements.
Defendants seek to defeat plaintiff's claim to the attachment by contending that the parties entered into an agreement of compromise on February 6, 1976, whereby they agreed to discharge and release one another from the continuing obligations under the cement contract and letter of credit. Although such an agreement was signed by plaintiff, it was conditioned upon Central Bank paying plaintiff within thirty days for cement already delivered and paying demurrage charges within fourteen days after presentment of the relevant documents. Plaintiff contends that it never received payment for demurrage and accordingly that the release never became effective; defendants contend that the required payments were made.[3] These conflicting contentions present an issue of fact, the resolution of which must await determination upon a trial.[4] A fair reading of the papers and documents establishes evidential support for the essential elements of plaintiff's claim for breach of the cement agreement.[5]
Next, Nigeria and Central Bank assert sovereign immunity as a defense. It does not appear that defendants have requested the State Department to recommend that immunity be granted, nor has the State Department done so. The determination of this issue thus rests with the Court. The cement contract was signed by the "Permanent Secretary, Ministry of Defense, Lagos, for and on behalf of the Federal Republic of Nigeria." The contract describes the commodity purchased as "Portland Cement." The Legal Advisor of the Federal Ministry of Justice of Nigeria claims in an affidavit that the cement was for the use of the Nigerian armed services in the construction of military barracks, other military installations and government works projects. The latter, including the building of highways, allegedly would be undertaken by the Ministry of Defense. Nigeria thus seeks to assert sovereign immunity under the branch of the rule established in Victory Transport, Inc. v. Comisaria General[6] that confers immunity to foreign governments sued on their "acts concerning the armed forces."[7]
*957 The plaintiff, in resisting the claim of sovereign immunity, stresses the "intrinsically commercial" nature of the cement contract[8] and the absence in that document and in the letter of credit of any reference to the uses to which the cement was to be put. Plaintiff urges that the fact the agreement was signed by the Ministry of Defense on behalf of the Nigerian Government is irrelevant in deciding whether defendants are entitled to prevail upon their plea of sovereign immunity under the applicable criteria set forth in Victory Transport. The Court is inclined to agree that the mere signing of the agreement by the Minister of Defense on behalf of the Government by itself is not determinative of the issue whether Nigeria's entry into the contract was an "act concerning the armed forces."[9] Indeed, plaintiff in effect asserts that the cement was to be used for civilian purposes unrelated to activities of the armed forces. The facts concerning "the nature of the transaction at the time of contracting,"[10] which will ultimately control whether the transaction was commercial (jure gestionis) or governmental (jure imperii), are in sharp dispute.[11] Again, the papers do not permit resolution of the controverted issue, and it must await trial.
Finally, defendants contend that the action must be dismissed pursuant to Rule 19(b) of the Federal Rules of Civil Procedure because of failure to join an indispensable party, International Trade and Finance Espanalo, S.A. ("Intrafinsa"). After plaintiff had concluded its cement contract with Nigeria and the letter of credit had been established by Central Bank, plaintiff entered into a contract with Intrafinsa under which the latter was to provide it with the cement. Pursuant to their agreement, plaintiff, to secure payment to Intrafinsa, assigned some of its rights under the letter of credit to Intrafinsa, which in turn assigned these rights to National Bank & Trust Company ("Natbank"), the charterer of the vessels that were to transport the cement to Nigeria. The assignments to the respective assignees were partial, and partial assignees are not indispensable parties under Rule 19(b).[12] There is no showing that the absence of Intrafinsa, a Spanish corporation over whom jurisdiction cannot be acquired, will be prejudicial to the defendants. If plaintiff prevails, and upon a showing that assignments of a portion of plaintiff's claim are outstanding, recovery could be limited to such amounts that it would be entitled to under the letter of credit. Such recovery would not affect the rights of Intrafinsa or Natbank and would avoid any possibility of double recovery against the defendants. Moreover, the claim of lack of indispensable parties appears to dissolve, since both partial assignees reassigned all their rights in the letter of credit to plaintiff. The defendants' contention that the reassignment was collusive and thus that the Court is without jurisdiction[13] is denied by plaintiffthus another issue of fact is presented which does not permit disposition upon the affidavits.
The motion to prove the attachment is sustained and defendants' cross-motion to vacate the attachment is denied.
NOTES
[1] N.Y.C.P.L.R. § 6201(1) (McKinney's 1963); Fed.R.Civ.P. 64.
[2] Aerotrade, Inc. v. Banque Nationale De La Republique D'Haiti, 376 F. Supp. 1286, 1287 (S.D.N.Y.1974); World-Wide Carriers, Ltd. v. Aris S.S. Co., 301 F. Supp. 64 (S.D.N.Y.1968); Stines v. Hertz Corp., 22 A.D.2d 823, 254 N.Y. S.2d 903 (1964), aff'd, 16 N.Y.2d 605, 261 N.Y. S.2d 59, 209 N.E.2d 105 (1965). See also Chase Manhattan Bank v. Banque Intra, S.A., 274 F. Supp. 496 (S.D.N.Y.1967); Bard-Parker Co. v. Dictograph Prod. Co., 258 A.D. 638, 640, 17 N.Y.S.2d 588, 591 (1st Dep't 1940).
[3] Under New York law, on a motion to vacate an attachment, "[T]he truth of all the facts stated [in the papers in support of the attachment] must be assumed." United States v. Brown, 247 N.Y. 211, 217, 160 N.E. 13, 16 (1928).
[4] Upon the hearing of this motion, oral testimony was received in support of plaintiff's position that payments for demurrage were never made pursuant to the release agreement.
[5] Plaintiff has also presented evidentiary facts sufficient to form a basis for the computation of damages. See Usdan v. Dunn Paper Co., 392 F. Supp. 953 (E.D.N.Y.1975); Valentine Dolls, Inc. v. McMillan, 25 Misc. 2d 551, 202 N.Y.S.2d 620 (Sup.Ct.1960). Because plaintiff's evidence concerning the breach of the cement contract and letter of credit, if taken as true, would show that plaintiff was fully justified in treating Nigeria's actions as an anticipatory breach, see U.C.C. § 2-601 (McKinney's 1964), plaintiff need not present evidence that it stands ready to perform the remainder of the contract. Nevertheless, plaintiff's affidavits do indicate such a willingness to render performance.
[6] 336 F.2d 354 (2d Cir.1964), cert. denied, 381 U.S. 934, 85 S. Ct. 1763, 14 L. Ed. 2d 698 (1965).
[7] Id. at 360. Nigeria's Legal Advisor, as well as the Nigerian Ambassador to the United States, seek to extend the defense of sovereign immunity to Central Bank upon averments that the Bank established the letter of credit as a department of the Nigerian government and as the only agent of the government authorized to hold its funds extra-territorially. They assert that the funds in Central Bank's name at Morgan Guaranty belong to the Government of Nigeria and are used only to satisfy obligations of the government abroad. Even if taken to be true, however, these assertions would not automatically render Nigerian funds in Morgan Guaranty immune from attachment. See Aerotrade, Inc. v. Republic of Haiti, 376 F. Supp. 1281 (S.D.N.Y.1974); Aerotrade, Inc. v. Banque Nationale De La Republique D'Haiti, 376 F. Supp. 1286 (S.D.N.Y.1974); Miller, Service of Process on State, Local, and Foreign Governments under Rule 4, Federal Rules of Civil Procedure, 46 F.R.D. 101, 126 (1969). Rather, an attachment should be vacated only if the defendant is entitled to immunity on the underlying claims advanced by the plaintiff.
[8] See Pan American Tankers Corp. v. Republic of Vietnam, 296 F. Supp. 361, 364 (S.D.N.Y. 1969).
[9] Victory Transport, Inc. v. Comisaria General, 336 F.2d 354, 360 (2d Cir.1964), cert. denied, 381 U.S. 934, 85 S. Ct. 1763, 14 L. Ed. 2d 698 (1965). See also Aerotrade, Inc. v. Republic of Haiti, 376 F. Supp. 1281 (S.D.N.Y.1974) (sales of essentially military goods).
[10] Aerotrade, Inc. v. Republic of Haiti, 376 F. Supp. 1281, 1285 (S.D.N.Y.1974).
[11] This at once distinguishes the instant case from the Aerotrade case relied upon by defendants, in which there could not have been any doubt that the goods were intended for military use. See id.
[12] Resnik v. La Paz Guest Ranch, 289 F.2d 814 (9th Cir.1961); Atlantic City v. American Cas. Ins. Co., 254 F. Supp. 396 (D.N.J.1966); 3A Moore's Fed.Prac. ¶ 19.14[1], at 2402 (1967).
[13] 28 U.S.C. § 1359. Parties Collusively Joined or Made
A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.
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420 F. Supp. 310 (1976)
CAROLINA ACTION, an unincorporated association, Plaintiff,
v.
T. E. PICKARD, Jr., et al., Defendants.
No. C-C-76-236.
United States District Court, W. D. North Carolina, Charlotte Division.
September 20, 1976.
James C. Fuller, Jr. and Louis L. Lesesne, Jr., Chambers, Stein, Ferguson & Becton, Charlotte, N. C., for plaintiff.
W. A. Watts, Deputy City Atty., Charlotte, N. C., for defendants.
ORDER
McMILLAN, District Judge.
Plaintiff is an organization with political purposes (Defendants' Exhibit E) which include litigation and political action contesting changes in electric power rates, alleged short-comings of the State in financing participation in Federal benefits programs and other matters. Plaintiff is a state-wide organization and places heavy reliance upon its Charlotte activities.
Plaintiff applied to the defendants for a license to solicit contributions and memberships and support. The application was denied under Section 2-30 of the Code of the City of Charlotte, which requires the local Charlotte Solicitation Commission to deny a license if the cost of collection exceeds 25% of the total amount to be raised. The text of the ordinance, the text of the local law under which the ordinance exists, and the *311 text of the North Carolina General Statutes, 160A-178, are all appended as exhibits to this order.
Plaintiff offered evidence which would support a finding that the individual defendants, the Commissioners, actually based their decision upon a disapproval of the purposes of the plaintiff rather than upon a violation of the 25% rule. The defendants offered evidence in support of the view that the decision was based purely upon the technical requirement that the expenses of solicitation not exceed 25% of the total amount to be raised. The evidence will support a finding in favor of either the plaintiff or the defendants on this issue.
Plaintiff offered evidence that the contributions and other activities sought to be carried on in Charlotte are a substantial element of their operation; that if they are barred from solicitation in Charlotte they will be unable to operate in Charlotte; and that if the Charlotte operation fails, the state-wide operation may likewise fail. They have demonstrated that the actions of the defendants have caused and threaten to cause harm which is great, immediate and irreparable and which seriously threatens the existence of this organization and activities.
There is a threshold question whether the statute under which the local defendants proceed even contemplates any restriction on the kind of activities which the plaintiff seeks to conduct. If a constitutional interpretation is to be presumed, it would be easy to say that the statute does not authorize what the defendants are doing in this case. The defendants, by their actions and by way of contention stated in argument, say that the statute and the ordinance do apply; and it is therefore obvious that, as applied, the ordinance and statute are inhibiting the activities of plaintiff.
Beyond serious question, the ordinance as applied does restrict rights, protected by the First Amendment, to complain about the activities of bodies regulating the public utilities, of bodies charged with welfare programs and related Federal-State activities, and similar sensitive public issues, and also affects the capacity of poorly funded people to organize together for the purpose of raising these and similar questions.
The ordinance is overbroad; the 25% limitation, as this Court views it, is unrelated to and does not protect against fraud or violence on the part of solicitors; such protection, in fact, is not its stated purpose.
The ordinance is vague; and when a vague and overbroad ordinance is made the basis of an infringement on rights of speech and expression, it comes under the severest kind of constitutional scrutiny. It may be that the ordinance can be applied or even has been applied in this case without conscious intention to inhibit First Amendment rights. However, if so, it does not thereby lose its unconstitutional character; a restraint on protected freedoms in the form of a 25% expense requirement can be just as fatal as a restraint upon the overt theory that this kind of activity ought not to be allowed in Charlotte. Moreover, as the Supreme Court said in Murdock v. Pennsylvania, 319 U.S. 105, 63 S. Ct. 870, 87 L. Ed. 1292 (1942), at page 111, 63 S.Ct. at 874:
"It should be remembered that the pamphlets of Thomas Payne were not distributed free of charge".
I therefore conclude, without in any manner questioning the public spirit or motives of the Commissioners themselves, that as applied in this case the ordinance is unconstitutional and must not be used to inhibit the solicitation of money and support from the citizens of the City.
This decision and these findings are for the purpose only of preliminary injunctive relief pending the decision on the merits.
It is, therefore, ORDERED:
1. That, pending final decision on the merits, defendants are restrained from enforcing the 25% restriction of the ordinance against plaintiff;
2. That the parties advise by October 1 whether further evidence will be required prior to a final decision.
*312 APPENDIX
EXHIBIT A
DIVISION 2. CHARITY SOLICITATIONS COMMISSION[*]
Sec. 2-24. Definitions.
(a) The words "solicit" and "solicitation" shall mean the request directly or indirectly of money, credit, property, financial assistance or other thing of value on the plea or representation that such money, credit, property, financial assistance or other thing of value will be used for a charitable, patriotic, educational or philanthropic purpose, in any office or business building, by house to house canvass or in any other public or private place by telephone, personal interview, mail, or otherwise. The said words shall also mean and include the sale or offer to sell any article, tag, ticket, emblem, publication, advertisement, subscription or other thing, whether of value or not, on the plea or representation that such money, credit, property, financial assistance or other thing of value will be used for a charitable, patriotic, educational or philanthropic purpose.
(b) The word "promoter" shall mean any person who promotes, manages, supervises, organizes or attempts to promote, manage, supervise or organize a campaign of solicitation.
(c) The word "permit" shall mean a certificate signed by the city clerk issued to any person showing that he has complied with the provisions of this division.
(d) The word "commission" shall mean the charity solicitations commission hereinafter provided for. (Code 1946, Ch. 15, § 1)
Sec. 2-25. Created; appointment of members; terms of office; meetings, quorum and regulations.
There is hereby created for the administration of this division a charity solicitations commission, which shall be composed of three (3) members appointed by the mayor, all of whom shall be citizens of Charlotte, one of whom shall be designated by the mayor as chairman and another as vice chairman. The mayor shall appoint the members of this commission for terms of three (3) years each to succeed in regular order the members whose terms originally expired on May 31, 1942, May 31, 1943, and May 31, 1944. When a vacancy occurs the mayor shall appoint a citizen of the city to serve for the unexpired term of the member whose position has become vacant. The mayor shall not appoint any person who is the organizer or local head of any charitable, patriotic, educational or philanthropic agency. The commission shall determine its time and place of meeting and shall, except as herein otherwise provided, adopt such regulations as in its judgment will effectuate the purpose and intent of this division. A majority of the members shall constitute a quorum for the transaction of business. The members of the commission shall serve without compensation. No member of the commission shall serve more than two (2) full consecutive terms.
Any member who fails to attend at least seventy-five per cent (75%) of the regular and special meetings held by the commission during any one year period shall be automatically removed from said commission. Vacancies resulting from a member's failure to attend the required number of meetings shall be filled as provided herein. (Code 1946, Ch. 15, § 3; Ord. No. 590, § 1, 9-11-72; Ord. No. 124, § 1, 4-8-74)
Sec. 2-26. Exemptions from provisions, designated.
The following solicitations shall be exempt from the provisions of this division: Solicitations by an organization, society, association, league or corporation that is organized and operated exclusively for religious, educational, philanthropic, benevolent, fraternal, or charitable purposes and is not operated for the pecuniary profit of its members or shareholders where the solicitation is by members addressed to members *313 and is without remuneration on the part of solicitors; also solicitations in the form of collections or contributions sought at the regular exercises or services of any organization, society, association, league or corporation. (Code 1946, Ch. 15, § 2)
Sec. 2-27. PermitsRequired.
No person shall solicit within the city without a permit that is in full force and effect, nor shall any person act within the city as promoter of the solicitation campaign of any person who does not have such a permit. (Code 1946, Ch. 15, § 4)
Sec. 2-28. SameProcedure to obtain.
Any person desiring to obtain a permit shall sign and swear to an application addressed to the commission, which shall be filed with the city clerk and shall contain the following information:
(a) Name of person or organization applying for a permit to solicit and the address of its headquarters.
(b) Names and addresses of its principal officers and all promoters connected or to be connected with the proposed solicitations.
(c) The purpose for which such solicitation is to be made and the use or disposition to be made of any receipts therefrom.
(d) The name of the person by whom the receipts of such solicitation shall be disbursed.
(e) The names and addresses of the person who will be in direct charge of conducting the solicitation.
(f) An outline of the method or methods to be used in conducting the solicitations.
(g) The time when such solicitations shall be made, giving the proposed dates for the beginning and ending of such solicitations.
(h) The amount of any wages, fees, commissions, expenses or emoluments to be expended or paid to anyone in connection with such solicitation, together with the manner in which such wages, fees, commissions, expenses or emoluments are to be expended, to whom paid and the amount thereof.
(i) A financial statement for the last preceding fiscal year of any funds collected for the purposes named in the application by the organization or persons seeking the permit; said statement to give the amount of money raised, together with the cost of raising it and the details of the distribution thereof.
(j) A full statement of the character and extent of the charitable, educational, or philanthropic work being done by the applicant within the city.
(k) A statement of the estimated cost of conducting the proposed campaign of solicitation.
(l) A statement to the effect that if a permit is granted, it will not be used or represented in any way as an endorsement by the commission, the city, the governing body of the city, or by any employee thereof.
(m) Such other information as may be required by the commission in order to enable it to determine the kind and character of the proposed solicitation. (Code 1946, Ch. 15, § 5)
Sec. 2-29. SameFiling false application.
It shall be a violation of this division for any person knowingly to file, or cause to be filed, an application containing one or more false statements. (Code 1946, Ch. 15, § 6)
Sec. 2-30. SameInvestigation of applicants; issuance; procedure when permit refused; extensions.
When an application for a permit is filed, the commission shall make such investigation as it sees fit and if it finds that the proposed solicitation is to be for a bona fide charitable, patriotic, educational or philanthropic purpose, that the organization for which the solicitation is to be conducted is, and the disbursement of the funds raised by the solicitation will be, under the control and supervision of responsible and reliable persons, and that the cost of raising the funds and all expenses incident to the solicitation (including all fees and commissions *314 paid or to be paid to the promoter or promoters of the same) will not exceed twenty-five per cent (25%) of the total amount to be raised, then, and in that event, the commission shall authorize the city clerk to issue to the applicant a permit to solicit for the purpose named in the application, but, failing to so find, the commission shall reject the application.
If the commission rejects an application, written notice to that effect shall be given the applicant with an opportunity to appear before the commission and to present such evidence in support of his application as may be relevant.
If the commission authorizes the issuance of a permit it shall determine the period for which the permit shall run not to exceed ninety days from its date, provided that upon a further application the commission may, after such investigation as it sees fit, determine that it is in the public interest to extend the term of a permit, in which event an extension of the permit may be authorized up to but not exceeding ninety additional days.
The city clerk shall issue such permits and extensions as the commission shall authorize. (Code Supp.1954, Ch. 15, § 7)
Sec. 2-31. SameFees.
At the time when a permit is issued, there shall be paid to the city treasurer the sum of two dollars ($2.00) as a permit fee, and the sum of two cents ($0.02) for each facsimile copy of the permit that is desired up to and including one hundred (100) copies, and one cent ($0.01) for each copy desired in excess of one hundred (100). (Code 1946, Ch. 15, § 8)
Sec. 2-32. SameNontransferable; copies furnished.
Any permit approved and issued under this division shall be nontransferable, provided, however, that this shall not prevent any permittee from using any number of solicitors and representatives as shall be reported to the city clerk and, provided further, that the permittee shall furnish to each of its agents, employees or representatives making any solicitations a facsimile copy of the permit which shall be carried by all such agents, employees or representatives making solicitations at the time or times when solicitations are being made. (Code 1946, Ch. 15, § 9)
Sec. 2-33. SameRevocation; procedure.
If, upon the receipt of written information or upon its own investigation, the commission shall find that any officer, agent or representative of a permittee is misrepresenting facts or making untrue statements, or has misrepresented facts or made untrue statements, with regard to solicitations or the purposes thereof, or has made any untrue statements in the application, or that in any other way the solicitation has been conducted, or is being conducted, in violation of any part of this division and not in conformity with the intent and purpose of this division, then the commission shall notify the city clerk, who shall immediately revoke and cancel such permit; provided, however, that before any permit is revoked, the city clerk shall mail to the permit holder a notice that a hearing is to be had before the commission, and such notice shall be mailed at least twenty-four (24) hours before the hearing, and at said hearing the commission shall ascertain the facts, and if any reason or reasons above set forth for revoking the permit are found to exist, the permit shall be revoked. (Code 1946, Ch. 15, § 11)
Sec. 2-34. Representation of endorsement by city prohibited.
It shall be unlawful for any permittee or for any agent, employee or representative thereof to advertise, represent or hold out in any manner that said permit is an endorsement of the holder thereof by the governing body of the city or any employee thereof, or by the city; provided that it shall be lawful for a permittee to use, advertise or hold out the fact of its permit in the following words and no others: "Charities Solicitations Permit No. ," including in the blank space the serial number of the permit. (Code 1946, Ch. 15, § 10)
*315 A BILL TO BE ENTITLED AN ACT TO GRANT ADDITIONAL AUTHORITY TO THE CITY OF CHARLOTTE TO REGULATE PUBLIC SOLICITATIONS FOR CHARITABLE AND SIMILAR CAUSES. Ratified June 13, 1963, Chapter 903, 1963 Session Laws.
The General Assembly of North Carolina do enact:
Section 1. The governing body of the City of Charlotte is hereby authorized to regulate, by ordinance, any and all public solicitations within the City for any charitable, benevolent, health, educational, religious, patriotic or other similar cause; provided, that such ordinance shall not apply to any solicitation made by any church or religious organization, school or college, fraternal or patriotic organization, or civic club when such solicitation is confined to their respective memberships. Such ordinance may provide for a separate board, body or commission to administer the ordinance in accordance with the rules and standards prescribed therein; may provide for regulation of the time, place and manner of soliciting; may require registration and permits and impose such fees therefor as may defray the reasonable costs thereof; may require and cause to be published such information as will tend to insure that the purpose of any solicitation will be free from any element of deceit or fraud; and may include such other requirements as may reasonably protect the public from fraudulent solicitations.
Sec. 2. The authority granted herein is in addition to any and all other authority now granted by law and is intended specifically to supplement and not to repeal, amend or affect the authority granted to the State Board of Public Welfare by Article 5, Chapter 108 of the General Statutes of North Carolina; provided, that any license granted by said Board shall not exempt the licensee from the provisions of any ordinance adopted pursuant to this Act.
Sec. 3. Except as provided in Section 2 above, all laws and clauses of laws in conflict with this Act are hereby repealed to the extent of such conflict.
Sec. 4. This Act shall become effective upon its ratification.
EXHIBIT "B"
§ 160A-178. Regulation of solicitation campaigns and itinerant merchants.A city may by ordinance regulate, restrict or prohibit the solicitation of contributions from the public for any charitable or eleemosynary purpose, and also the business activities of itinerant merchants, salesmen, promoters, drummers, peddlers, or hawkers. These ordinances may include, but shall not be limited to, requirements that an application be made and a permit issued, that an investigation be made, that activities be reasonably limited as to time and place, that proper credentials and proof of financial stability be submitted, that not more than a stated percentage of contributions to solicitation campaigns be retained for administrative expenses, and that an adequate bond be posted to protect the public from fraud. (1963, c. 789; 1971, c. 698, s. 1.)
NOTES
[*] Cross referencesChurches, religious and fraternal organizations exempt from license tax, § 11-11; soliciting alms for charitable purposes, § 13-39.
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19 F. Supp. 749 (1936)
L. L. CORYELL & SON
v.
PETROLEUM WORKERS UNION, LOCAL NO. 18281 et al.
District Court, D. Minnesota, Third Division.
September 12, 1936.
George M. Tunison, of Omaha, Neb., and Otis, Farley & Burger, of St. Paul, Minn., for plaintiffs.
Leonard, Street & Deinard and James Saks, all of Minneapolis, Minn., for Petroleum Workers Union and certain individual defendants.
BELL, District Judge.
This is an action in equity for an injunction restraining the defendants from picketing the plaintiffs' place of business at 2250 University avenue, St. Paul, Minn. There is a diversity of citizenship, and the requisite jurisdictional amount is involved.
The plaintiffs are citizens of the state of Nebraska and are engaged as copartners in marketing petroleum products at retail and wholesale in territory covering fourteen or more states with their principal place of business at Lincoln, Neb. They own and operate a gasoline filling station and bulk plant at the above-mentioned address in St. Paul, Minn.
The defendants are petroleum workers unions, officers and agents thereof, and for a period of six weeks were engaged in picketing the plaintiffs' said place of business. Plaintiffs allege that about June 28, *750 1936, the defendants entered into a malicious combination and conspiracy to destroy plaintiffs' business in St. Paul by violence and unlawful conduct on the plaintiffs' premises, and continuously since that date have subjected the plaintiffs and their employees to coercion and intimidation by picketing and by signs and placards bearing false, misleading, and fraudulent matter; that the defendants have threatened, intimidated, and annoyed the customers of the plaintiffs; that the defendants and others under their direction have assembled at various times on and near the plaintiffs' place of business, have interfered with the ingress and egress of patrons, have assaulted and beat the employees of the plaintiffs, have used vile and indecent language in speaking to the plaintiffs' employees, threw stones and missiles striking the plaintiffs' buildings, pumps, and automobiles of customers, and that on one occasion the defendants threw stench bombs on the premises and drove customers therefrom; that since June 29, 1936, the defendants continuously have pursued, threatened, and harassed the employees of the plaintiffs and have tried to induce them to leave the service of the plaintiffs; and that, as a result of the picketing and conduct of the defendants, the plaintiffs have sustained irreparable loss and damages.
Plaintiffs further allege that none of the defendants is employed by the plaintiffs; that wages paid by plaintiffs to their employees and working conditions and hours are satisfactory to their employees; that said employees are ready, willing, and anxious to continue in the service of the plaintiffs; that the plaintiffs have not influenced or interfered with its employees in exercising their choice and judgment as to joining labor unions or organizations; and that their employees are paid substantially union wages.
Plaintiffs further allege that there is in existence no labor dispute between the plaintiffs and the defendants collectively or between the plaintiffs and any of the defendants; that the plaintiffs have not received any demand from the defendants made on condition that if complied with defendants would abstain from the objectionable conduct alleged.
On this petition the court issued a temporary restraining order and a rule on the defendants to show cause why an injunction pendente lite should not be granted.
The defendant unions and a number of the individual defendants entered a special appearance and moved for an order dissolving the temporary restraining order, vacating the rule to show cause, and a denial of plaintiff's application for an injunction pendente lite, on the ground that the court is without jurisdiction, because the bill of complaint did not allege facts showing compliance with the Norris-La-Guardia Act (29 U.S.C.A. §§ 101-115), in that (1) the complant did not allege an effort to settle a labor dispute; (2) the complaint failed to allege that the public officers of the city of St. Paul were unable or unwilling to furnish adequate protection; (3) the required bond was not filed; (4) testimony was not offered and received; (5) the order is contrary to the public policy of the United States as defined in said act; and (6) the temporary restraining order was for a longer period than five days.
In support of the motion of said defendants, the affidavit of Louis R. Lindsey, organizer of the Petroleum Workers Unions, was filed in which it is stated that about June 15, 1936, Floyd Davis and Donald Scringer, the employees of the plaintiffs, became members of Petroleum Workers Union No. 19802, that affiant on June 23, as a representative of said union and said employees, and as their chosen representative for collective bargaining with their employer, addressed a letter to the plaintiffs demanding that plaintiffs pay to said employees increased wages in accordance with the prevailing wage scale then in effect; that on June 27, 1936, said employees were discharged by plaintiffs without notice; that no reply to said letter of affiant was received until about July 1st, when a representative of the union called at plaintiffs' place of business in St. Paul to inquire why no answer had been received, and was there handed a letter from plaintiffs which, in effect, was a refusal to accede to the demand for increased wages; that affiant on inquiry July 1, 1936, was informed by plaintiffs' manager at St. Paul that said employees were competent; that he did not know why they had been discharged, but that he had been directed by plaintiffs' home office to discharge them; that affiant thereupon informed the manager that, as said employees had been discharged without cause and solely for the reasons that they had become members of the union and had made a demand for higher wages and shorter hours, the union would insist on said employees *751 being reinstated and that the union be recognized as their representative for collective bargaining; and that in the event of refusal the premises would be picketed.
Affiant further stated that said employees had been receiving $59.50 per month and had been required to work 72 hours per week, when the minimum wage for the same class of labor was $87.50 per month for a 48-hour week; that said employees were not reinstated or the union recognized, and that thereafter said premises were picketed in a peaceful and lawful manner until July 10, 1936, when picketing was discontinued at the direction of a representative of the American Federation of Labor who called at plaintiffs' place of business in St. Paul, conferred with the manager, and requested a conference with the plaintiffs or their duly authorized representatives with a view to adjusting the controversy, but that the request was denied, whereupon picketing was resumed on July 15, 1936, in a peaceful and lawful manner and without disturbance.
Affiant denied that the defendants entered into a conspiracy to destroy plaintiffs' business or used threats, violence, force, or coercion in any manner, or that false or fraudulent signs and placards were used, or that any of the defendants, or any one acting under their direction, assaulted or beat any employee of the plaintiffs, or any customer, or that they used vile and indecent language or threw stones and missiles; that the defendants have at all times been scrupulously careful to engage only in peaceful and lawful picketing; that any acts of violence, misconduct, and peace disturbance that occurred on the premises were by persons in no way associated with or under the control of the defendants, and were instigated and caused by the plaintiffs themselves to supply grounds for an injunction.
Affiant further stated that the wages and hours of labor were not satisfactory to said discharged employees or the union to which they belonged; that the plaintiffs have refused to settle or adjust the controversy, reinstate said employees, or recognize the union as their representative for collective bargaining concerning the conditions or terms of re-employment; that a labor dispute is involved; and that the defendants at all times have been ready, able, and willing to negotiate for arbitration and settlement, but the plaintiffs have refused.
The statements contained in the Lindsey affidavit are corroborated in part by the affidavits of the two discharged employees.
The plaintiffs filed a number of affidavits in support of the averments contained in their complaint.
Obviously, there is a great variance in the statements contained in the affidavits as to what occurred in connection with the picketing of the plaintiffs' place of business and as to who was responsible for it.
Plaintiffs rely on Lauf v. Shinner & Co. (C.C.A.) 82 F.(2d) 68, in which it was held that no labor dispute was involved, under the provisions of the Norris LaGuardia Act, where no members of the defendant union were employed by the plaintiffs and defendant union was endeavoring by picketing and other acts to coerce the plaintiff to compel its employees to join the union. In other words, there was no controversy between the employer and its employees. A similar view of the statute was taken in United Electric Coal Companies v. Rice (C.C.A.) 80 F.(2d) 1.
It has been held that an employer of nonunion labor is not entitled to injunctive relief against a labor union for picketing in an effort to unionize the laborers of the plaintiff where no fraud or violence was used. Levering & Garrigues Company v. Morrin (C.C.A.) 71 F.(2d) 284; Cinderella Theater Company v. Sign Writers' Local Union (D.C.) 6 F. Supp. 164; Miller Parlor Furniture Company v. Furniture Workers' Industrial Union (D.C.) 8 F. Supp. 209; Dean v. Mayo (D.C.) 8 F. Supp. 73; American Furniture Company v. I. B. of T.C., etc., Local No. 200, 222 Wis. 338, 268 N.W. 250, 106 A.L.R. 335.
It is unnecessary to analyze these cases because sufficient facts are admitted, or are evident, to show that a labor dispute as defined by the Norris-LaGuardia Act is involved in this case. On June 15, 1936, the employees Davis and Scringer joined the union. On June 23 the union made a demand for higher wages and shorter hours, and on June 27 they were discharged. On July 1st a demand for reinstatement was made on the plaintiffs. There was a refusal and picketing was commenced. These facts did not appear in the bill of complaint, but they are fully established by the affidavits and statements of counsel. It has been explained that the letter of the union to the plaintiffs demanding *752 higher wages and shorter hours was not known to counsel for plaintiffs at the time the bill of complaint was drafted and filed. Clearly, there is a controversy between the plaintiffs and their employees amounting to a labor dispute which brings this case within the provisions of the Norris-LaGuardia Act and leaves this court without jurisdiction.
The temporary restraining order should be dissolved; the rule to show cause should be vacated; and the application for an injunction pendente lite should be denied.
It is so ordered.
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19 F. Supp. 816 (1937)
IRVING TRUST CO.
v.
KAMINSKY et al.
District Court, S. D. New York.
May 7, 1937.
*817 Charles Seligson, of New York City, for plaintiff.
Moses & Singer, of New York City (Henry B. Singer, Sam L. Cohen and Henry Schneider, all of New York City, of counsel), for defendant Public Nat. Bank & Trust Co. of New York.
PATTERSON, District Judge.
The motion is by the defendant Public National Bank & Trust Company to dismiss the bill so far as the cause of action against it is concerned.
The bill is by a trustee in bankruptcy to set aside alleged transfers made by the bankrupt in fraud of creditors. The bill alleges generally that a petition in bankruptcy was filed by the bankrupt on January 20, 1933; that on March 15, 1932, the bankrupt owned some ten items of property and was insolvent; that he then formed a plan of getting rid of his property in favor of close relatives or of persons who would hold for his eventual benefit, intending thus to put his property beyond reach of his creditors and to hinder, delay and defraud them. The bill then avers, in causes of action against defendants other than the bank, that certain properties were transferred to them. The only cause of action directed against the bank is the fifth. It is there alleged that the bankrupt was indebted to the bank for $27,500; that on March 15, 1932, he transferred to the bank mortgages worth $50,000 as well as stocks of substantial value as collateral security for the antecedent debt; that the transfer was made pursuant to the plan already mentioned concerning the disposition of his property and that the bank had knowledge of the plan; finally, that on June 1, 1934, a son of the bankrupt made an agreement with the bank whereby the son agreed to pay the debt in installments and whereby the bank agreed to transfer and deliver the collateral to the son on full payment of the debt. The relief demanded against the bank is that the transfer be declared fraudulent and void and that the pledged properties be turned over to the plaintiff.
The suit against the bank is brought under section 70e of the Bankruptcy Act (as amended, 11 U.S.C.A. § 110(e); necessarily so because the transfer was made more than four months before bankruptcy, and section 60 (as amended, 11 U.S.C.A. § 96) relative to preferences and section 67e (as amended, 11 U.S.C.A. § 107(e) relative to transfers to hinder, delay or defraud creditors apply only to transfers made within four months of bankruptcy. By section 70e, "the trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided." *818 So the validity of the transfer in question turns on whether a creditor of the bankrupt might have upset it under the law of New York. Stellwagen v. Clum, 245 U.S. 605, 38 S. Ct. 215, 62 L. Ed. 507; Feist v. Druckerman, 70 F.(2d) 333 (C.C.A.2); In re Friedman, 72 F.(2d) 412 (C.C.A.2).
The New York law relative to transfers in fraud of creditors is article 10 of the Debtor and Creditor Law (Consol.Laws, c. 12 [section 270 et seq.]), being the Uniform Fraudulent Conveyance Act. It makes fraudulent two kinds of transfers. The first kind is a transfer without fair consideration, made by an insolvent debtor or by one engaged or about to engage in business with unreasonably small capital or by one about to incur debts beyond his ability to pay. Sections 273-275. These sections are an amplification of the old "imputed intent" doctrine. A transfer in good faith to secure an antecedent debt, however, is declared to be a transfer for fair consideration, provided the amount of the debt is not disproportionately small to the value of the property transferred. Section 272. There being no allegation here that the value of the securities transferred to the bank was out of line with the amount of the debt, no case is stated against the bank under sections 273, 274 or 275. The second kind is a transfer with actual intent "to hinder, delay, or defraud" present or future creditors, regardless of consideration; such a transfer is declared fraudulent as to creditors by section 276 of the Debtor and Creditor Law. The sufficiency of the bill against the bank come down to whether a cause of action is stated under section 276.
Under the Statute of Elizabeth a transfer by an insolvent debtor to pay or to secure an antecedent debt has never been treated as a transfer to hinder, delay or defraud creditors, although it is self-evident that other creditors are necessarily hindered and delayed by such a transfer. Lehrenkrauss v. Bonnell, 199 N.Y. 240, 92 N.E. 637; Huntley v. Kingman & Co., 152 U.S. 527, 532, 14 S. Ct. 688, 38 L. Ed. 540; Davis v. Schwartz, 155 U.S. 631, 15 S. Ct. 237, 39 L. Ed. 289; Giddings v. Sears, 115 Mass. 505; Bigelow on Fraudulent Conveyances, pp. 73, 74. Such transfers are preferences and may be successfully assailed only under section 60b of the Bankruptcy Act (as amended, 11 U.S.C.A. § 96(b) or under state legislation relative to preferences. Davis v. Schwartz, supra. As pointed out in Glenn on Fraudulent Conveyances, § 289, a sound practical reason why preferences are held not to be conveyances to hinder, delay or defraud creditors is that the rule against fraudulent conveyances may be availed of by a single creditor. To allow such a creditor, acting in his own interest alone, to set aside a preferential transfer as one in fraud of creditors would amount to substituting that creditor as the person preferred in place of the creditor chosen by the debtor.
The words "hinder, delay, or defraud" in section 276 of the Debtor and Creditor Law have no broader meaning than that put on the same expression in the familiar Statute of Elizabeth and do not embrace mere preferences. Section 276 was so construed by Mr. Justice Rosenman in Doehler v. Real Estate Board, 150 Misc. 733, 740-745, 270 N.Y.S. 386; and in Watson v. Goldstein, 174 Minn. 423, 219 N.W. 550, the same construction was placed on the equivalent words in the Minnesota enactment of the Uniform Fraudulent Conveyance Act. If section 276 were held to cover the case of an ordinary preference, we would have in many cases the result referred to by Mr. Glenn, one creditor recovering against another and himself getting the preference. It is safe to say that section 276 does not make unlawful the transfer of property of a debtor to secure an antecedent debt, unless the case is one where the debtor retains some dominion contrary to the transfer or in some other way has a benefit which the law does not sanction. See Irving Trust Co. v. Finance Service Co., 63 F.(2d) 694 (C.C.A.2).
The transaction alleged to have taken place between the bankrupt and the bank was a preference, nothing more. The bankrupt, being indebted to the bank, transferred property to the bank to serve as collateral security for the debt. The transaction is not made more offensive by the allegation that the transfer was part of a plan concocted by the bankrupt and known to the bank to hinder, delay or defraud other creditors or to put his property into the hands of kinsmen and out of the reach of creditors. Irving Trust Co. v. Chase Nat. Bank, 65 F. (2d) 409 (C.C.A.2). The mere giving of a preference in the ordinary way is not part of a scheme to hinder, delay or defraud creditors as those words are understood in law. If the transaction as carried into operation involved more than what appears on the surface, the plaintiff should have alleged the additional facts. As the bill stands, it *819 alleges no cause of action against the defendant bank.
The cases relied on by the plaintiff do not touch the situation here. In Dean v. Davis, 242 U.S. 438, 37 S. Ct. 130, 61 L. Ed. 419, a mortgage given by the bankrupt when insolvent to raise the money necessary to make a preferential payment to a creditor, the mortgagee knowing of the bankrupt's design, was held fraudulent. In Shapiro v. Wilgus, 287 U.S. 348, 53 S. Ct. 142, 77 L. Ed. 355, 85 A.L.R. 128, the debtor transferred all his assets to a new corporation which assumed his debts, in order to have the corporation go into equity receivership and thus forestall immediate collection by the creditors. In Buffum v. Peter Barceloux Co., 289 U.S. 227, 53 S. Ct. 539, 77 L. Ed. 1140, the debtor pledged his assets to an existing creditor as a step toward a secret sale whereby the assets were bought in by the pledgee at a low figure. There is no principle laid down in those cases that applies here.
The motion to dismiss the bill as to the defendant bank will be granted, with leave to the plaintiff to file an amended bill.
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382 B.R. 311 (2007)
In re Beverly COCHENER, Debtor.
David Barry, Appellant,
v.
Ronald L. Sommers, Trustee, Appellee.
No. 01-34884-H4-7. Civil Action No. H-07-0629.
United States District Court, S.D. Texas, Houston Division.
December 28, 2007.
*312 *313 *314 Edmond Nwamdi O'Suji, Attorney at Law, Houston, TX, for Debtor.
MEMORANDUM OPINION AND ORDER
SIM LAKE, District Judge.
Appellant, David Barry, appeals the Bankruptcy Court's February 9, 2007, Order granting the motion of Ronald L. Sommers, Trustee, for sanctions.[1]See In re Cochener, 360 H.R. 542 (Bankr.S.D.Tex. 2007). Pending before the court are the Appellant's Brief (Docket Entry No. 8), Brief for Appellee Ronald J. Sommers, Trustee (Docket Entry No. 17), Appellant's Reply Brief (Docket Entry No. 21), Motion of Ronald J. Sommers, Trustee, for Leave to File Surreply Brief (Docket Entry No. 22), and Appellee's Motion to Strike Certain of Appellant's Record (Docket Entry No. 23). For the reasons explained below the Bankruptcy Court's order granting the trustee's motion for sanctions will be reversed in part and affirmed in part, Appellee's motion to file surreply brief will be granted, and Appellee's *315 motion to strike will be declared moot.
I. Factual Background
A. Debtor's Petition and Hawks' Representation
On May 1, 2001, the debtor, Beverly Cochener, filed for relief under Chapter 7 of the Bankruptcy Code.[2] The debtor's attorney on May 1, 2001, was Jason Hawks.[3] Schedules filed together with the debtor's petition reflected total assets of $403, total liabilities of $111,000 owed to unsecured creditors, and no monthly income or expenses.[4] A footnote explained that the "[d]ebtor currently lives expense free with her son [Chad Cochener], who has been supporting her in his home since just prior to the date of [her] divorce [on November 3, 2000]."[5]See In re Cochener, 360 B.R. at 547-48.
On May 2, 2001, Sommers was appointed trustee for the debtor's bankruptcy estate.[6] The initial meeting of creditors was held on June 6, 2001. The only attendees were (1) the debtor, (2) Hawks, (3) the trustee, and (4) Pam Stewart, counsel for John Cochener, the debtor's former spouse. Based on information received from the attorney, representing the debtor's former spouse the trustee asked the debtor for documents including her divorce decree, any trust agreements she had with her son, Chad Cochener, and ownership information for the house in which she lived. Following the debtor's and Hawks' agreement to produce the requested documents, the creditors' meeting was continued until June 20, 2001.[7]See In re Cochener, 360 B.R. at 549-50 ¶¶ 16-22.
B. Barry's Representation and Debtor's Motion to Dismiss
Concerned that the debtor's former spouse would file an adversary action, Hawks who was not board certified in bankruptcy law brought the case to Barry in search of more experienced representation.[8] Since the debtor's former spouse was also her primary creditor, Barry concluded that bankruptcy would not achieve the debtor's objectives.[9] On June 18, 2001, Barry filed a motion to dismiss the debtor's petition on which he signed Hawks' name as "Attorney for Debtor" "with permission," *316 and he signed his own name as "Associate Counsel for Debtor."[10] Citing 11 U.S.C. § 305, the motion, sought dismissal on grounds that "[n]o creditor in this case would suffer any legal prejudice by its dismissal"; and that "[t]he interests of the creditors and Debtor would be better served by the dismissal of this bankruptcy proceeding rather than its continuation and adjudication."[11] The day he filed the motion, Barry sent a copy of it to the trustee together with a letter stating that the debtor would not attend the continued creditors' meeting on June 20, 2001.[12]See In re Cochener, 360 B.R. at 550-52 ¶¶ 23-30. On July 24, 2001, Barry filed a motion seeking to substitute for. Hawks as debtor's attorney of record,[13]In re Cochener, 360 B.R. at 552 ¶ 26, which the Bankruptcy Court granted on September 3, 2001.[14]
On August 6, 2001, the debtor's former spouse filed an adversary action against the debtor.[15]
On August 14, 2001, Barry wrote a letter to the trustee stating that neither he nor the debtor would appear at the continuation of the first creditors' meeting, which had been rescheduled for August 29, 2001, that a hearing on the debtor's motion to dismiss had been scheduled for September 4, 2001, and that "[i]n the unlikely event the case is not dismissed on September 4, 2001, if you wish to reconvene the § 341 meeting after that date, I will be glad to prepare, serve, and file the appropriate notice."[16]See In re Cochener, 360 B.R. at 553-54 ¶ 38.
On September 4, 2001, the Bankruptcy Court held a hearing on the debtor's motion to dismiss.[17] Barry's associate, Ira Joffe, explained that Hawks had filed the debtor's petition and that Barry substituted in because Hawks found himself "out of his depth."[18] Joffe explained that had the debtor come to Barry first, the bankruptcy would not have been filed because the debtor mistakenly believed that by filing bankruptcy she could obtain relief from a state court contempt proceeding arising from a messy divorce. Although the trustee's attorney agreed that the debtor's petition should not have been filed, she opposed the motion to dismiss because pleadings in the adversary action filed by the debtor's former spouse alleged that prior to filing her petition the debtor had transferred funds to family members that could possibly be made available to pay creditors.[19] Observing that such motions are rarely opposed, but that when they are opposed they deserve a full hearing, the *317 Bankruptcy Court continued the hearing so that the parties could conduct discovery.[20]
On October 17, 2001, the trustee noticed an examination of the debtor pursuant to 11 U.S.C. § 2004, which included a document production request.[21] Barry protested the document production request as overreaching because
[t]he Bankruptcy Code permits the Trustee to look back for up to one year with an eye toward fraudulent transfers or preferences to insiders. As you know, the Debtor was divorced in November 2000 and that court divided whatever property the Debtor may have owned prior to her divorce. Given the time limits permitted in the Bankruptcy Code and since the divorce decree will show transfers of property owned by the Debtor and her former spouse on the date of its entry, it would seem that only transfers made later are relevant here.[22]
Disagreeing with Barry, the trustee's attorney responded that
the Trustee[] can inquire about transactions for the past four years as he can avail himself of the fraudulent transfer statute under Texas law, as well as the one year statute provided by the Bankruptcy Code. I am not only concerned about transfers that the Debtor made to her ex-husband, but also transfers she may have made to any insider, including her children. Her divorce in 2000 does not necessarily shield her transfers made prior to her divorce during the four year period. The Debtor's refusal to produce documents during this four year time period makes me . . . suspect that she is hiding assets.[23]
See In re Cochener, 360 B.R. at 555-56 ¶¶ 44 and 46.
The 2004 examination was ultimately set for November 14, 2001. The debtor neither appeared nor produced documents, and Barry appeared only to state that he had lost contact with the debtor. See In re Cochener, 360 B.R. at 556 ¶¶ 47-49.
On November 20, 2001, the trustee filed an expedited motion to dismiss the debtor's motion to dismiss. Id. at ¶ 50 (citing Docket Entry No. 26 in Bankruptcy Case No. 01-34884-H4-7).[24] On. November 29, 2001, Barry filed a Motion to Withdraw.[25]Id. at ¶ 51.
On December 7, 2001, the Bankruptcy Court held a hearing on the trustee's motion to dismiss the debtor's motion to dismiss.[26] Asserting that the debtor had refused to participate in the discovery process, the trustee asked the court to dismiss the debtor's motion to dismiss because the debtor's failure to participate *318 suggested that she had something to hide, Citing 11 U.S.C. § 109(g), Barry argued in response that the debtor's failure to cooperate with the trustee constituted additional evidence in favor of granting her motion to dismiss. Barry explained that
the penalty for not showing up to prosecute your case properly is dismissal with prejudice for 480 days, which is basically, you know, what we've asked for in the Motion to Dismiss anyway.
At this point, the major creditor in the case is her ex-husband. He already has a judgment against her from the State Court he was pursuing when she filed the bankruptcy. The other creditors, which are a few credit cards, have not made an appearance in the case.[27]
Explaining that the trustee did not know enough to dismiss the case, the court continued the hearing and told the trustee to "do whatever you need to do to . . . collect, or find the Debtor and obtain the information you need or want."[28]
On December 17, 2001, the trustee filed an opposition to Barry's motion to withdraw.[29]Id. at ¶ 52. The trustee argued, inter alia,
[a]t the first meeting of creditors, it became apparent that Debtor may have concealed, hidden or failed to disclose transfer of assets to her son and other insiders. Barry's continued refusal to produce the documents and have Debtor appear at the first meeting of the creditor [sic] has caused the bankruptcy to incur costs and expenses. It is apparent that he had advised her not to appear or produce such documents which has now caused Debtor not to comply with the 2004 examination request.
. . .
Trustee requests that this Court deny Barry's motion to withdraw, or alternatively, if the Court allows withdrawal, require Barry to pay the Trustee's fees and costs incurred to date because of his refusal to produce the Debtor and documents at the reset creditors [sic] meetings.[30]
Id. On January 21, 2002, the Bankruptcy Court granted Barry's motion to withdraw.[31] Although the Bankruptcy Court denied the trustee's request for attorney's fees and costs because the request had not been made in a separate motion,[32] the bankruptcy judge wrote on the order granting Barry's motion to withdraw: "This order is without prejudice to any claims, ethical or otherwise, held by the Ch. 7 trustee."[33]Id. at 557 ¶¶ 53-54.
On May 6, 2002, the Bankruptcy Court held a hearing on the debtor's motion to *319 dismiss. The debtor failed to attend the hearing, and the Court denied her motion to dismiss.[34] The debtor did not appeal the Bankruptcy Court's denial of her motion to dismiss. See In re Cochener, 360 B.R. at 558 ¶¶ 57-59.
C. Trustee's Adversary Action Against the Debtor
On May 3, 2002, the trustee filed an adversary action to set aside fraudulent transfers under 11 U.S.C. § 544 and to recover avoidable transfers under 11 U.S.C. §§ 549 and 550, against Beverly Cochener, and against Chad Cochener, individually, as trustee of investment trusts for his sister Sarah and his son Hunter, and as next friend of Sarah and Hunter Cochener.[35] The trustee's complaint alleged that on or about March 30, 1999, American Title Company issued a check payable to John Cochener and Beverly Cochener in the amount of $95,668.44 for the sale of community property, that the debtor deposited the entire amount into a bank account at Fidelity Investments without John Cochener's consent, and then transferred most, if not all of the funds, to accounts held by Chad Cochener, either for himself, his son Hunter, or his sister Sarah, and that some, if not all of the. proceeds were used to purchase the real property located at 18314 Westlock Street and 18326 Campbellford Road in Tomball, Texas.[36] The complaint also alleged that the debtor transferred approximately $50,000 to the Hunter Cochener Investment Trust, personal property valued at approximately $39,000 to Chad Cochener, and $91,407 from various investment funds to all the defendants.[37] The complaint alleged that these transfers were fraudulent and sought turnover of all the property.[38]See In re Cochener, 360 B.R. at 559-60 ¶¶ 61-64.
Neither the debtor nor, any of her codefendants answered the trustee's complaint. On December 20, 2002, the trustee moved for default judgment.[39] On February 11, 2003, the Bankruptcy Court entered a judgement finding that the defendants "although having been duly and legally cited to appear and answer, failed to appear and answer, and wholly made default," and also finding that "the transfers of real and personal property and monies . . . by Beverly Cochener were fraudulent transfers and that such property is property of the . . . bankruptcy estate."[40]See In re Cochener, 360 B.R. at 560 ¶¶ 65-68. The debtor did not timely appeal the default judgment but, instead, filed a number of post-judgment, motions. The trustee's adversary action ended on June 30, 2005, when the debtor failed to appeal the District Court's decision affirming the Bankruptcy Court's denial of the debtor's post-judgment motions.[41]See In re Cochener, 360 B.R. at 560-62 ¶¶ 69-90.
*320 D. Trustee's Acquisition and Sale of Estate Property
In September of 2005 the debtor and her son released the real properties at 18314 Westlock and 18326 Campbellford Road to the trustee. Inspection showed the properties had been vandalized.[42] The, trustee sold the Westlock property for more than its mortgage lien, but abandoned the Campbellford Road property as worth less than the amount of its mortgage lien.[43]See In re Cochener, 360 B.R. at 562-64 ¶¶ 91-100, 106, and 567-68 ¶¶ 124-26.
II. Trustee's Motion for Sanctions Against Barry
On June 19, 2006, the trustee filed a motion for sanctions pursuant to Fed. R.Civ.P. 11 and 11 U.S.C. § 105 against Barry for causing unnecessary delay and expense to the debtor's bankruptcy estate arguing the motion to dismiss that Barry filed on the debtor's behalf in June of 2001 was frivolous, and that Barry's failure either to appear with the debtor or to produce documents at two continued creditors' meetings was improper.[44]
Beginning on August, 31, 2006, the Bankruptcy Court conducted four days of hearings on the trustee's motion for sanctions: After the first day of testimony the Bankruptcy Court continued the hearing and ordered the Debtor, her son Chad Cochener, and her first attorney, Jason Hawks, to appear in court and give testimony at the continuation of the hearing, ordered the Debtor to show cause why she should not be sanctioned for abuse of the bankruptcy process and/or defrauding the court, and ordered the Debtor and her son to show cause why one or both of them should not be sanctioned for destroying property of the bankruptcy estate.[45] The Bankruptcy Court reconvened the hearing on the trustee's motion for sanctions on September 27-28, 2006, and on October 20, 2006.
At the conclusion of the hearing the trustee withdrew his motion for sanctions under Rule 11 and its bankruptcy counterpart, Rule 9011, as legally unsupported, but continued to seek sanctions under the inherent authority granted to the Bankruptcy Court by 11 U.S.C. § 105.[46] On October 25, 2006, the Bankruptcy Court orally announced its findings of facts and conclusions of law in open court;[47] and on February 9, 2007, the Bankruptcy Court issued a written order granting the trustee's motion for sanctions.[48]See id. at *321 564-65 ¶¶ 101-105, 107-114, and 568 ¶ 129. The court sanctioned Barry "in the amount of $25,121.89 for attorney's fees and costs incurred by the Trustee in defending against Barry's Motion to Dismiss this case [Docket Entry No. 7] and in prosecuting the Trustee's Motion for Sanctions."[49]
In a Memorandum Opinion the Bankruptcy Court held that Barry could not be sanctioned under Rule 9011 but could be sanctioned under 11 U.S.C. § 105 and 28 U.S.C. § 1927. See id. at 569-72. The Bankruptcy Court explained that
under Bankruptcy Rule 9011, the Trustee had to have given Barry notice in 2001 to withdraw the Motion to Dismiss or else be subject to a motion for sanctions. Since the Trustee did not give Barry an opportunity to withdraw the Motion to Dismiss in 2001, this Court finds that Bankruptcy Rule 9011 is not presently an appropriate ground for sanctions.
Id. at 569-70. Citing 11 U.S.C. § 105 and the court's inherent powers, the Bankruptcy Court concluded that
sanctions are appropriate against Barry because his actions constitute bad faith conduct, including the following: (1) Barry concocted a reason for the Debtor not to attend the continued Meeting of Creditors, and then instructed her not to attend this meeting; (2) Barry himself did not attend the continued Meeting of Creditors; (3) Barry filed a Motion to Dismiss the Debtor's case, which included blatantly false factual and legal contentions, for the purpose of delaying and hindering the Trustee's further examination of the Debtor at the continued Meeting of Creditors; (4) Barry drafted a letter to the Trustee, dated October 17, 2001, grossly misstating the law regarding the allowable reach-back period for fraudulent transfers under the Bankruptcy Code in an attempt to mislead the Trustee and avoid having to produce documents; and (5) Barry instructed the Debtor not to produce the documents requested by the Trustee on June 6, 2001, which both prior counsel to the Debtor (i.e., Hawks) and the Debtor herself had already committed to produce.
In re Cochener, 360 B.R. at 574.
The Bankruptcy Court also concluded that it could "rely upon 28 U.S.C. § 1927 to sanction Barry's conduct in this case." Id. at 585. The court explained that
[a]lthough the Trustee's Motion for Sanctions did not expressly include any reference to 28 U.S.C. § 1927, the very filing of the Motion for Sanctions put Barry on notice that this Court would be considering sanctions against him. [See Docket No. 78; Finding of Fact Nos. 101-105, 108.] Further, the very conduct that served as the basis of the Trustee's Motion for Sanctions against Barry is identical to the conduct the Court considers under 28 U.S.C. § 1927. Additionally, the Court held the multi-day Sanctions Hearing during which Barry had ample opportunity to defend this conduct.
Id.
III. Standard of Review
A district court has jurisdiction to hear an appeal from a bankruptcy court's final judgment or order. See 28; U.S.C. § 158(a). A bankruptcy court's decision to impose sanctions is discretionary; therefore, *322 the exercise of that power is reviewed for abuse of discretion. See Matter of Terrebonne Fuel and Lube, Inc., 108 F.3d 609, 613 (5th Cir.1997). A bankruptcy court abuses its discretion when it "(1) applies an improper legal standard or follows Improper procedures . . ., or (2) rests its decision on findings of fact that are clearly erroneous." In re Cahill, 428 F.3d 536, 539 (5th Cir.2005). The "clearly erroneous" standard allows this court to reverse the Bankruptcy Court's findings of fact "only if on the entire evidence, the court is left with the definite and firm conviction that a mistake has been committed." In re Dennis, 330 F.3d 696, 701 (5th Cir.2003). "Mixed questions of fact and law, and questions concerning the application of law to the facts, are reviewed de novo." In re Bass, 171 F.3d 1016, 1021 (5th Cir.1999). "Generally, an abuse of discretion only occurs where no reasonable person could take the view adopted by the trial court." Whitehead v. Food Max of Mississippi, Inc., 332 F.3d 796, 803 (5th Cir.) (en banc) cert. denied sub nom. Minor v. Kmart Corp., 540 U.S. 1047, 124 S. Ct. 807, 157 L. Ed. 2d 694 (2003).
IV. Analysis
Barry argues that he is entitled to the affirmative defenses of laches and res judicata,[50] and that "[t]he Bankruptcy Court abused its discretion in making findings regarding privileged information and documents, in imposing sanctions against Barry [under 11 U.S.C. § 1105 and/or 28 U.S.C. § 1927], and in awarding excessive and unmitigated fees to the Trustee."[51]
A. Laches
Asserting that the motion for sanctions was filed five years after the allegedly vexatious conduct at issue, Barry argues that the Bankruptcy Court's "most egregious error was in finding that the Motion for Sanctions . . . was not barred by laches."[52] The trustee responds that the Bankruptcy Court did not err in concluding that his motion was not barred by laches because Barry received prompt notification of his sanctionable conduct, and because Barry has not been prejudiced by the delay.[53]
1. Applicable Law
The doctrine of laches bars recovery when a claim holder sits on his rights for an unreasonable time to the prejudice of the opposing Party. Whether to apply the doctrine of laches is committed to the court's discretion. A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1032 (Fed.Cir.1992) (en banc). To prevail on his claim that the trustee's motion for sanctions was barred by laches, Barry had to have proved to the Bankruptcy Court by a preponderance of the evidence that (1) the trustee delayed filing his motion for sanctions, (2) the delay was for an unreasonable and inexcusable length of time, and (3) the delay caused undue prejudice to Barry. Goodman v. Lee, 78 F.3d 1007, 1014 (5th Cir.), cert. denied sub nom. Lee v. Goodman, 519 U.S. 861, 117 S. Ct. 166, 136 L. Ed. 2d 108 (1996) (citing Geyen v. Marsh, 775 F.2d 1303, 1310 (5th Cir.1985)). See also Aukerman, 960 F.2d at 1032-33. In deciding whether laches applies a court looks at all of the facts and circumstances of each case *323 and weighs the equities of the parties. Aukerman, 960 F.2d at 1032-33. "The length of time which may be deemed unreasonable has no fixed boundaries but rather depends on the circumstances." Id. at 1032. Material prejudice includes "economic prejudice" and "evidentiary prejudice." Id. at 1033. Evidentiary prejudice "may arise by reason of a defendant's inability to present a full and fair defense on the merits due to the loss of records, the death of a witness, or the unreliability of memories of long past events, thereby undermining the court's ability to judge the facts." Id. "Economic prejudice may arise where a defendant . . . will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit." Id. The "facts of unreasonable delay and prejudice must be proved and judged on the totality of the evidence presented." Id. at 1038.[54] Even where the defendant establishes the factors of laches through actual proof or by presumption, the court retains discretion whether to recognize the laches defense based on the equities of the case. Id. at 1036.
2. Application of the Law to the Facts
The trustee was aware of Barry's allegedly sanctionable conduct when it occurred and certainly no later than January 21, 2002, the day that the Bankruptcy Court granted Barry's motion to withdraw and denied the trustee's request for the costs and attorneys fees that he later sought to recover through the motion for sanctions filed in June of 2006.[55] Although Barry argued that the doctrine of laches barred the trustee's motion, the Bankruptcy Court concluded otherwise explaining in its introductory remarks:
The attorney, David Barry (Barry), raises certain defenses, not the least of which is that his actions occurred in 2001, and to sanction him now after the passage of this much time is absurd and unfair. It is neither. Indeed, Barry has known since 2001 that the Chapter 7 Trustee was very unhappy with his conduct, and ever since the Trustee's initial expression to Barry of misgivings about his conduct, the Trustee has repeatedly told him that he needed to reimburse the Trustee for the unnecessary legal fees and expenses which the Trustee incurred due to Barry's conduct. Barry chose to turn a deaf ear to the patient pleas of the Trustee to arrive at a resolution. As a result of Barry's unwillingness to reimburse the Trustee, and because of other events that have occurred since 2001, the Trustee decided to file a Motion for Sanctions against Barry in 2006. Given that, in 2006, the Trustee was finally able to liquidate certain assets, the existence of which Barry did everything in 2001 to prevent the Trustee from uncovering, the Trustee's Motion for Sanctions is hardly absurd or untimely. Just the converse: it is reasonable and timely.
In re Cochener, 360 B.R. at 547. The Bankruptcy Court also noted that "this is not a case where evidence has become *324 stale. The letters and pleadings from 2001 are no less telling now than they were then." Id. at n. 2.
Barry argues that the trustee's delay of over four years from January of 2002 when the Bankruptcy Court allowed him to withdraw to June of 2006 when the motion for sanctions was filed is inexcusable. Assuming without deciding that the trustee's delay was inexcusable, the court is nevertheless not persuaded that the Bankruptcy Court erred by concluding that the equities weighed against applying the doctrine of lathes in this case because Barry failed to present any evidence demonstrating that the trustee's inexcusable delay prejudiced his ability to mount a full and fair defense on the merits. Although Barry argues that "the record is replete with testimony of vital witnesses, including the Trustee and his employees, stating under oath that they were unable to remember vital facts and conversations that were so remote at the time,"[56] Barry has neither identified any specific witnesses with lapsed memories, nor explained how the unreliability of any witness's memory of relevant events undermined his ability to mount a full and fair defense, or the Bankruptcy Court's ability to judge the facts. See Aukerman, 960 F.2d at 1033.
B. Res Judicata
Asserting that the court held the debtor responsible for all costs in the adversary action filed by the trustee, Barry argues that the sanctions imposed against him are barred by the doctrine of res judicata because the trustee could and should have named him as a defendant in that adversary action.[57] The trustee responds that this argument is barred because it was not raised before the Bankruptcy Court, and because Barry could not have been named as a defendant in the adversary action brought against the debtor since the causes of action asserted therein had nothing to do with his conduct as debtor's counsel in the bankruptcy proceedings.[58]
The court does not need to address Barry's res judicata argument because Barry neither pleaded it in response to the trustee's motion for sanctions nor presented it to the Bankruptcy Court. See American Furniture Co., Inc. v. International Accommodations Supply, 721 F.2d 478, 482-83 (5th Cir.1981) (res judicata is an affirmative defense that must be raised in the defendant's response or else waived under Federal Rule of Civil Procedure 8(c)); Matter of Gilchrist, 891 F.2d 559, 561 (5th Cir.1990) ("It is well established that we do not consider arguments or claims not presented to the bankruptcy court."). Although there are circumstances in which an appellate court is justified in resolving an issue not passed on below, Barry has failed to argue, much less establish, that this is such a case. See Singleton v. Wulff; 428 U.S. 106, 96 S. Ct. 2868, 2877, 49 L. Ed. 2d 826 (1976) ("[i]t is the general rule . . . that a federal appellate court does not consider an issue not passed upon below," but acknowledging the existence of exceptions when "the proper resolution is beyond any doubt," or "injustice might otherwise result"). Alternatively, the court concludes that Barry has failed to carry his burden of proof on this issue.
*325 Res judicata is a judicially-created doctrine applied by courts to prevent repeated litigation of the same claims and issues by the same parties. In addition to protecting litigants from the burden of multiple lawsuits, the doctrine fosters judicial economy and promotes the finality and certainty of judgments. See Allen v. McCurry, 449 U.S. 90, 101 S. Ct. 411, 415, 66 L. Ed. 2d 308 (1980) (res judicata serves to "relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication"). The doctrine embraces two distinct preclusion concepts: claim preclusion (res judicata) and issue preclusion (collateral estoppel). Id. at 414. "Under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or, could have been raised in that action." Id. "Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case." Id. The burden is on the party seeking to invoke res judicata to prove that the doctrine bars the second action. See Matter of Braniff Airways, Inc., 783 F.2d 1283, 1289 (5th Cir.1986).
Barry has asserted that the "Final Order in the Trustee's Adversary Proceeding was both res judicata and collateral estoppel as to the Trustee's fees and costs,"[59] but has failed to explain why either theory would bar the Bankruptcy Court from sanctioning him for bad faith conduct that occurred during his representation of the, debtor in her main bankruptcy case, i.e., a separate proceeding from the trustee's adversary action against the debtor. Moreover, despite having filed a reply brief, Barry has failed to explain why he would have been a proper party to the adversary action since he did not participate in the pre-petition transfers allegedly made by the debtor to her family members.[60] For these reasons Barry has failed to carry his burden of proof on his res judicata argument.
C. Imposition of Sanctions Under 11 U.S.C. § 105
Barry argues that the Bankruptcy Court erred in sanctioning him pursuant to 11 U.S.C. § 105 because (1) the Trustee's motion did not identify a specific violation of the Bankruptcy Code for which sanctions were sought, (2) there is no evidence that he violated the Bankruptcy Code or engaged in bad faith conduct, and (3) the Bankruptcy Court improperly used 11 U.S.C. § 105 as a fee shifting statute.
1. Applicable Law
In relevant part, 11 U.S.C. § 105 states: [t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a). Section 105(a) provides bankruptcy courts broad authority to "take any action that is necessary or appropriate `to prevent an abuse of process.'" Marrama v. Citizens Bank of *326 Massachusetts, ___ U.S. ___, ___, 127 S. Ct. 1105, 1112, 166 L. Ed. 2d 956 (2007). Courts have held that § 105 is broad enough to empower bankruptcy courts to sanction attorneys in conjunction with their inherent power "to implement the Bankruptcy Code and prevent abuses of bankruptcy process, powers inherent to district courts, as the Supreme Court recognized in Chambers v. NASCO, Inc., 501 U.S. 32, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991)." In re Osborne, 375 B.R. 216, 226 (Bankr.M.D.La.2007). See also Matter of Volpert, 110 F.3d 494, 500 (7th Cir.1997) ("We . . . hold that, under 11 U.S.C. § 105(a), bankruptcy courts may punish an attorney who unreasonably and vexatiously multiplies the proceedings before them."); In re Rainbow Magazine, Inc., 77 F.3d 278, 284 (9th Cir.1996) ("By providing that bankruptcy courts could issue orders necessary `to prevent an abuse of process,' Congress impliedly recognized that bankruptcy courts have the inherent power to sanction that Chambers recognized exists within Article III courts."); In re Courtesy Inns, Ltd., Inc., 40 F.3d 1084, 1089 (10th Cir.1994) ("We believe, and hold, that § 105 intended to imbue the bankruptcy courts with the inherent power recognized by the Supreme Court in Chambers.").
In Chambers the Supreme Court upheld the imposition of sanctions in the form of attorney's fees and associated costs pursuant to the court's inherent powers against a litigant who had repeatedly engaged in bad-faith conduct. The Court held that when sanctions under applicable rules and statutes are inadequate, a court may call upon its inherent powers to assess attorney's fees against a party who has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." 111 S.Ct. at 2133 (quoting Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S. Ct. 1612, 1622-23, 44 L. Ed. 2d 141 (1975)). The Court stated that
[i]n this regard, if a court finds `that fraud has been practiced upon it, or that the very temple of justice has been defiled,' it may assess attorney's fees against the responsible party . . . as it may when a party `shows bad faith by delaying or disrupting the litigation or by hampering enforcement of a court order.'
Id. (citations omitted). The Court explained that
the bad-faith exception resembles the third prong of Rule 11's certification requirement, which mandates that a signer of a paper filed with the court warrant that the paper "is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation."
Id.
In Matter of Case, 937 F.2d 1014, 1023 (5th Cir.1991), the Fifth Circuit held that the principles recognized by the Supreme Court in Chambers are "equally applicable to the bankruptcy court." The Fifth Circuit has since explained that "[t]he threshold for the use of inherent power sanctions is high," Crowe v. Smith, 151 F.3d 217, 226 (5th Cir.1998), cert. denied, 526 U.S. 1158, 119 S. Ct. 2047, 144 L. Ed. 2d 214 (1999) (Crowe I) (quoting Elliott v. Tilton, 64 F.3d 213, 217 (5th Cir.1995)), and that a court's inherent power to sanction "must be exercised with restraint and discretion," id., must be accompanied by "a specific finding that the . . . [sanctioned party] acted in `bad faith,'" id. at 236 (citing Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir.1995)), and "must comply with the mandates of due process, both in determining that the requisite bad faith exists and in assessing fees." Gonzalez v. Trinity Marine Group, Inc., 117 F.3d 894, 898 (5th Cir.1997) (quoting Chambers 111 S.Ct. at 2136). See also Marrama, 127 S.Ct. at *327 1116-1117 (Alito, J., dissenting) ("[b]ankruptcy courts have used their statutory and equitable authority to craft various remedies for a range of bad faith conduct: [including] . . . penalizing counsel; assessing costs and fees; or holding the debtor in contempt"). See also Crowe v. Smith, 261 F.3d 558, 563 (5th Cir.2001) (Crowe II).
Although the Fifth Circuit has explained that "[t]he threshold for the use of inherent power sanctions is high," Crowe I, 151 F.3d at 226, and has applied the clear and convincing evidence standard of proof to cases in which attorneys have been sanctioned with suspension and/or disbarment, Crowe I, 151 at 233,[61] it has not expressly decided which standard of proof courts are to apply when they consider imposing other types of inherent power sanctions. Other circuit courts of appeals have distinguished between sanctions that are fundamentally remedial and sanctions that are fundamentally punitive and held that the preponderance of the evidence standard applies to the former while the clear and convincing evidence standard applies to the latter. For example, in Shepherd v. American Broadcasting Companies, Inc., 62 F.3d 1469, 1478 (D.C.Cir.1995), the court held that
a district court may impose issue-related sanctions [in the form of adverse evidentiary determinations and the preclusion of evidence] whenever a preponderance of the evidence establishes that a party's misconduct has tainted the evidentiary resolution of the issue.
. . . However, for those inherent power sanctions that are fundamentally penal-dismissals and default judgments, as well as contempt orders, awards of attorney's fees, and the imposition of fines the district court must find clear and convincing evidence of the predicate misconduct.
In support of this holding, the Shepherd court reasoned that
[t]he Supreme Court has recognized that awards of attorneys' fees for bad faith conduct serve the same punitive and compensatory purposes as fines imposed for civil contempt. See Chambers, 501 U.S. at 53-54, 111 S.Ct. at 2137. As a result, courts require clear and convincing evidence of misconduct before imposing attorneys' fees under their inherent power.
Id. at 1477.
Citing In re Silberkraus, 253 B.R. 890, 913-14 (Bankr.C.D.Cal.2000), aff'd 336 F.3d 864 (9th Cir.2003), the Bankruptcy Court concluded that the trustee's motion for sanctions was governed by the preponderance of the evidence standard of proof because the trustee only sought sanctions in the form of attorney's fees and costs, not disbarment or suspension. In re Cochener, 360 B.R. at 572-74. Relying on Shepherd, 62 F.3d at 1469, the debtor in In re Silberkraus argued that any decision the court made to exercise its inherent power to sanction had to be based on clear and convincing evidence. 253 B.R. at 913. Rejecting the debtor's argument the court stated
[a]lthough Shepherd, and one additional district court decision, Samuel v. Michaud, 980 F. Supp. 1381 (D.Idaho 1996)[, aff'd 129 F.3d 127 (9th Cir.1997)], enunciate the clear and convincing standard, the Court can find no wording in 11 U.S.C. § 105(a), or in controlling Ninth Circuit case law, suggesting that awarding sanctions under the court's inherent power must be based on clear and convincing evidence, rather than on *328 the normal standard of proof in civil matters-proof by a preponderance of the evidence . . . The law in the Ninth Circuit merely states that a court's authority to sanction under the court's inherent powers is limited to when the court makes an "explicit finding that conduct `constituted or was tantamount to bad faith.'" Primus Automotive Fin. Serv., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir.1997).
Id. at 913-14. Neither the Silberkraus court's nor the Bankruptcy Court's discussion in the instant case of which standard of proof courts are to apply when considering inherent power sanctions addressed the reasoning applied by the District of Columbia Circuit Court of Appeals in Shepherd. Nor did these discussions acknowledge that at least two additional circuit courts of appeals have similarly concluded that the appropriate standard of proof for imposing monetary sanctions in the form of attorney's fees pursuant to the court's inherent authority is the clear and convincing evidence standard. See Autorama Corp. v. Stewart, 802 F.2d 1284, 1287-88 (10th Cir.1986) ("attorney's fees are awarded only when there is `clear evidence' that challenged actions were taken entirely without color and are pursued for reasons of harassment or delay"); accord Federal Trade Commission v. Freecom Communications, Inc., 401 F.3d 1192, 1201 (10th Cir.2005); and Weinberger v. Kendrick, 698 F.2d 61, 80 (2d Cir.1982), cert. denied, 464 U.S. 818, 104 S. Ct. 77, 78 L. Ed. 2d 89 (1983); accord Sauer v. Xerox Corp., 95 F. Supp. 2d 125, 133 (W.D.N.Y. 2000), aff'd 5 Fed.Appx. 52 (2d Cir.2001). Since the Fifth Circuit approvingly cited Shepherd in Crowe I, 151 F.3d at 226, this court concludes that the Fifth Circuit would find Shepherd's reasoning more persuasive than the reasoning used by the In re Silberkraus court, and that the Bankruptcy Court erred by applying the preponderance of the evidence standard to the trustee's motion. However, this conclusion does not end the court's analysis because the Bankruptcy Court stated that
if this Court is incorrect in this conclusion, and the standard of proof is clear and convincing evidence, then this Court nevertheless concludes that the Trustee has shown, by clear and convincing evidence, that . . . the conduct of Barry . . . merits sanctions under this Court's inherent powers.
Id. at 574 & n. 22.
2. Application of the Law to the Facts
(a) Code Violation
Citing Matter of Fesco Plastics Corp., Inc., 996 F.2d 152, 154 (7th Cir. 1993), Barry argues that the Bankruptcy Court erred by sanctioning him pursuant to 11 U.S.C. § 105 absent evidence that he had violated a specific provision of the Bankruptcy Code.[62] Barry's reliance on Matter of Fesco is misplaced because that case did not concern sanctions attorney for bad-faith conduct but, instead, an equitable exception to a specific section of the Bankruptcy Code. Matter of Fesco stands for the unexceptional principle that the powers conferred by § 105(a) may be exercised "only as a means to fulfill some specific Code provision [, and that] . . . a court may not employ its equitable powers to achieve a result not contemplated by the Code." Id. See also In re Cajun Electric Power Cooperative, Inc., 185 F.3d 446, 453 & n. 9 (5th Cir.1999) (citing Fesco for this principle). The relevant Seventh Circuit authority is Matter of Volpert, 110 F.3d at 500, which held that "under 11 U.S.C. § 105(a), bankruptcy courts may punish an attorney who unreasonably and vexatiously *329 multiplies the proceedings before them." Accord Matter of Case, 937 F.2d at 1023. Accordingly, the Bankruptcy Court did not need to find, that Barry had violated a specific provision of the Bankruptcy Code before imposing sanctions on him under 11 U.S.C. § 105.
(b) Due Process Violation
Barry argues that because the Trustee's motion did not allege that he had violated a specific provision of the Bankruptcy Code, "the notice of sanctions was inadequate to afford [him] basic due process."[63] The trustee responds that Barry received notice sufficient to satisfy the requirements of due process.[64] The court agrees.
"The fundamental requisite of due process of law is the opportunity to be heard." Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S. Ct. 652, 657, 94 L. Ed. 865 (1950) (quoting Grannis v. Ordean, 234 U.S. 385, 34 S. Ct. 779, 783, 58 L. Ed. 1363 (1914)). "Th[e] right to be heard has little reality or worth unless one is informed that the matter [affecting one's property rights] is pending and can choose for himself whether to appear or default, acquiesce or contest." Id. See also City of West Covina v. Perkins, 525 U.S. 234, 119 S. Ct. 678, 681, 142 L. Ed. 2d 636 (1999) ("A primary purpose of the notice required by the Due Process Clause is to ensure that the opportunity for a hearing is meaningful."). The Supreme Court's decision in Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 903, 47 L. Ed. 2d 18 (1976), sets forth the criteria courts are to consider when asked to determine what process is due. One of these factors is "the risk of an erroneous deprivation of . . . [a liberty or property] interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards." Id. Barry has not explained how the trustee's failure to allege, or the Bankruptcy Court's failure to identify, a code violation increased the risk that he would be erroneously sanctioned. Since the court has already concluded that the Bankruptcy Court's power to sanction Barry was not limited to violations of specific sections of the Bankruptcy Code, the failure of the trustee or the Bankruptcy Court to identify such a section of the code did not detract from the adequate notice and hearing that Barry received.
The motion for sanctions notified Barry that the trustee sought sanctions against him pursuant to 11 U.S.C. § 105 for filing the debtor's motion to dismiss, failing to attend the continued creditors' meeting, advising the debtor not to attend or to produce documents at the continued creditors' meeting, and misstating the law of reach back in a letter to the trustee.[65] The Bankruptcy Court held a multi-day hearing at which Barry defended the conduct at issue, and also argued that sanctions should not be awarded under § 105 because the acts of which the trustee complained were not taken in bad faith.[66] Because the trustee's motion apprized Barry that he could be sanctioned and described the conduct that could be found sanctionable, because the Bankruptcy Court accorded Barry an opportunity to defend himself *330 at the multi-day hearing, and because Barry has made no showing that the notice provided by the trustee's motion deprived him of a meaningful opportunity to be heard, the court concludes that Barry's due process argument fails. See In re Nails, 124 Fed.Appx. 232, 234 (5th Cir. 2005). ("Although the O[rder to] S[how] C[ause] in this case did not specifically mention the possibility of a suspension, nor did it specify any particular Rule of Professional Conduct that was breached, it did give reasonable notice."). See also In re Sunshine Jr. Stores, Inc., 456 F.3d 1291, 1306-07 (11th Cir.2006) (due process requires fair notice that one's conduct may warrant sanctions and must accord the opportunity to justify the allegedly sanctionable actions either orally or in writing).
(c) Bad Faith Conduct
Before a court may impose sanctions under 11 U.S.C. § 105 or its inherent authority, it must find that the party being sanctioned acted in bad faith. Crowe II, 261 F.3d at 563 (citing Chaves, 47 F.3d at 156). See also Hazeur v. Keller Industries, 983 F.2d 1061, 1993 WL 14973, *7 (5th Cir.1993) (unpublished) (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 100 S. Ct. 2455, 2464, 65 L. Ed. 2d 488 (1980)). "Bad faith, for purposes of § 105, is characterized as an attempt to abuse the judicial process." In re Gorshtein, 285 B.R. 118, 124 (Bankr.S.D.N.Y.2002). "[C]ourts have held that false representations during bankruptcy proceedings constitute bad faith and are, therefore, subject to sanctions." Id. See also Crowe II, 261 F.3d at 563 (court could rely on its inherent power to sanction attorneys for affirmative misrepresentation made during settlement conference). A finding that the sanctioned party acted in bad faith is a finding of fact reviewed under the clearly erroneous standard. Crowe II, 261 F.3d at 563 (citing Chaves, 47 F.3d at 156). See also Hazeur, 983 F.2d 1061, 1993 WL 14973 at *7 (citing United States v. Wallace, 964 F.2d 1214, 1217 (D.C.Cir.1992)).
Under this standard of review, a . . . court's finding may be set aside if it rests on an erroneous view of the law. Pullman-Standard v. Swint, 456 U.S. 273, 287[, 102 S. Ct. 1781, 72 L. Ed. 2d 66] (1982). Once it is determined, however, that the . . . court applied the correct legal standard in making a finding, that finding will not be set aside unless, based upon the entire record, we are "left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, [N.C.], 470 U.S. 564, 573[, 105 S. Ct. 1504, 84 L. Ed. 2d 518] (1985) (quoting United States v. [U.S.] Gypsum Co., 333 U.S. 364, 395[, 68 S. Ct. 525, 92 L. Ed. 746] (1948)). "If the . . . court's account of the evidence is plausible in light of the record viewed in its entirety," we will not set it aside as clearly erroneous even if convinced that had we "been sitting as trier of fact, [we] would have weighed the evidence differently." Anderson, 470 U.S. at 573-74[, 105 S. Ct. 1504].
Hazeur, 983 F.2d 1061, 1993 WL 14973 at *7.
The Bankruptcy Court sanctioned Barry under § 105 after finding that he had committed five acts in bad faith: (1) filed a motion to dismiss, based on blatantly false factual and legal contentions for the purpose of delaying and hindering the trustee's further examination of the debtor at the continued creditors' meeting, (2) instructed the debtor not to attend the continued creditors' meeting, (3) failed to attend the continued creditors' meeting on June 20, 2001, (4) misstated the law regarding the trustee's power of reach back in a letter to the trustee, and (5) instructed the debtor not to produce documents requested *331 by the trustee. In re Cochener, 360 B.R. at 574.[67] Barry argues that the Bankruptcy Court clearly erred in finding that he acted in bad faith. For the reasons explained below the court concludes that the Bankruptcy Court did not clearly err in finding that Barry acted in bad faith by advising the debtor not to participate in or produce documents for the continued creditors' meetings but did clearly err in all its other findings of bad faith conduct.
(1) Motion to Dismiss
The Bankruptcy Court sanctioned Barry for filing the debtor's, motion to dismiss upon finding that the motion contained blatantly false factual and legal contentions and that Barry filed it for the purpose of delaying and hindering the trustee's further examination of the debtor at the continued creditors' meeting. In re Cochener, 360 B.R. at 574, 581-83. Barry argues that these findings are clearly erroneous because he had a good faith basis for believing that his actions were legal.[68] In deciding whether to sanction Barry for having filed the motion to dismiss, the Bankruptcy Court was required to evaluate Barry's conduct at the time he filed the motion to dismiss. See Thomas v. Capital Security Services, Inc., 836 F.2d 866, 874 (5th Cir.1988) (en banc) ("Like a snapshot, Rule 11 review focuses upon the instant when the picture is taken when the signature is placed on the document. Rule 11 was promulgated for a particular purpose to check abuses in the signing of pleadings.").[69]
(A) Bankruptcy Court's Denial of Motion
On September 4, 2001, the Bankruptcy Court conducted a hearing on the motion to dismiss.[70] Barry's associate, Ira Joffe, explained that had the debtor come to Barry first, her petition would not have been filed because the filing was based on the debtor's mistaken belief she could obtain relief from a state court contempt proceeding related to a contentious divorce proceeding. The trustee's attorney agreed that the debtor's petition should not have been filed but opposed dismissal because the debtor's former spouse alleged that before filing her petition the debtor had transferred funds to family members that might be recoverable in fraudulent transfer actions.[71] The debtor's former spouse opposed the motion because he did not want to return to state court.[72] Stating that Chapter 7 filers have no absolute right to dismiss, the Bankruptcy Court *332 continued the hearing so discovery could begin.[73] On May 6, 2002, the hearing was reconvened. Because Barry had withdrawn and the debtor failed to appear, the Bankruptcy Court denied the motion. See In re Cochener, 360 B.R. at 558 ¶¶ 57-59 (citing Order Denying Motion to Dismiss, Docket Entry No. 41 in Bankruptcy Case No. 34884-H4-7).
(B) Bankruptcy Court's Finding of Bad Faith
On June 19, 2006, the trustee filed his motion for sanctions. The trustee alleged that Barry filed the motion to dismiss because he had discovered assets that the debtor was attempting to conceal.[74] Asserting that "Barry used the Motion to unreasonably delay the collection of assets and properties that Debtor had concealed, . . . [that t]he delay resulted in additional expenses to the Bankruptcy Estate and a diminution of assets to the Bankruptcy Estate's creditors,"[75] and that "Barry knew or should have known that the Motion to Dismiss was without merit,"[76] the Trustee sought sanctions under 11 U.S.C. § 105 and Rule 11.[77] Barry responded that his analysis showed the case to have been essentially a two-party dispute best resolved in state court because the debtor's main creditor was her former spouse. Rejecting Barry's argument as an improper attempt to downplay the existence of creditors other than the debtor's former spouse, the Bankruptcy Court found that
Barry made blatantly false factual and legal contentions in the Motion to Dismiss that were misleading to creditors. Barry falsely claimed that: (1) "No creditor in this case would suffer any legal prejudice by its dismissal;" and (2) "The interests of the creditors and the Debtor would be better served by the dismissal of this bankruptcy proceeding rather than its continuation and adjudication." [Docket No. 7, ¶¶ 3, 4.]
In re Cochener, 360 B.R. at 581. The Bankruptcy Court reasoned that
[w]ith respect to the creditors, nothing could have been further from the truth at the time Barry made these assertions, and he was clearly aware of their falsity. Barry knew that the Debtor had transferred property, that the Trustee was investigating such transfers, and that the Trustee was seeking documents relating to the transfers of property. [Finding of Fact No. 24.]
Id.
Although willful misrepresentation of the facts and/or the law in a submission to the court constitutes bad faith, see Chambers, 111 S.Ct. at 2131, and In re Gorshtein, 285 B.R. at 124, the Bankruptcy Court failed to cite any law or evidence from which it could plausibly have found that the two statements it characterized as "blatantly false" misstated the law or the facts, or represented anything other than a good faith attempt to dismiss a case that even the trustee's attorney agreed should not have been filed.[78]
*333 (i) False Factual and Legal Contentions Regarding the Interests of the Creditors and Debtor[79]
A debtor has no absolute right to dismiss a voluntarily filed Chapter 7 petition. See In re Bartee, 317 B.R. 362, 366 (9th Cir. BAP 2004); In re Turpen, 244 B.R. 431, 434 (8th Cir. BAP 2000). Barry's motion sought dismissal of the debtor's voluntary Chapter 7 under 11 U.S.C. § 305, an abstention statute that permits a bankruptcy court to dismiss or suspend proceedings in extraordinary circumstances.[80]See In re Eastman, 188 B.R. 621, 624-25 (9th Cir. BAP 1995); In re Pennino, 299 B.R. 536, 538 (8th Cir. BAP2003). In relevant part this statute provides
[t]he court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if
(1) the interests of creditors and the debtor would be better served by such dismissal or suspension;
11 U.S.C. § 305(a)(1). Courts that have construed 11 U.S.C. § 305 are in general agreement that dismissal is appropriate only when "the court finds that both `creditors and the debtor' would be `better served' by a dismissal." In re Eastman, 188 B.R. at 624. See also In re RAI Marketing Services, Inc., 20 B.R. 943, 945-46 (Bankr.D.Kan.1982); In re Tarletz, 27 B.R. 787, 793 (Bankr.D.Colo.1983). Although a motion to dismiss under § 305 must be considered in light of the unique facts of each case, courts have identified factors useful for determining when dismissal is appropriate. See In re Pennino, 299 B.R. at 538-39. These factors include:
(1) whether the case is a two-party dispute; (2) the economy and efficiency of administration; (3) the availability of another case or forum to protect the interests of the parties; (4) alternative means of achieving equitable distribution of assets, and (5) the purpose for which bankruptcy jurisdiction has been sought.
Id. at 539 (citing In re Iowa Trust, 135 B.R. 615, 621-22 (Bankr.N.D.Iowa 1992)). Both the statutory language and case law establish that the test under § 305 is not whether dismissal would benefit the debtor or prejudice creditors but, instead, whether dismissal would "better serve" both the debtor and the creditors. Id. See also In re Eastman, 188 H.R. at 624.
Essentially, the same standard would also have applied under 11 U.S.C. 707(a), the statute more commonly cited in support of motions like that filed by Barry and the statutory basis underlying the case that Joffe cited to the Bankruptcy Court in support of Barry's motion.[81] Section 707(a) allows dismissal
only after notice and a hearing and only for cause, including
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing *334 such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee.
11 U.S.C. § 707(a). Although this section does not expressly refer to motions filed by debtors seeking to dismiss a voluntarily filed petition, courts have interpreted it to apply to such motions. See In re Turpen, 244 B.R. at 434. What constitutes "cause" within the meaning of § 707(a) in this situation has been the source of scholarly and judicial debate. See Laura A. Pawloski, The Debtor Trap: The Ironies of Section 707(a), 7 Bankr.Dev. J. 175 (1990) (discussing how courts have developed different tests to determine when to grant dismissal under § 707(a)). One line of cases holds that dismissal should be freely granted absent a showing of plain legal prejudice, i.e., prejudice that is significant and real, not potential, when viewed in terms of the rights that debtors and creditors have after dismissal. See In re International Airport Inn Partnership, 517 F.2d 510, 511-12 (9th Cir.1975) (per curiam); In re Hall, 15 B.R. 913, 916-17 (9th Cir. BAP 1981); In re Geller, 74 B.R. 685, 689 (Bankr.E.D.Pa.1987) ("generally, a debtor wishing dismissal of a case should obtain this result in all but extraordinary situations"). Another line of cases holds that courts should weigh the benefits and prejudices of dismissal, and grant the motion only if dismissal would be in the best interests of both the debtor and the creditors. See In re Blue, 4 B.R. 580, 584 (Bankr.D.Md.1980) ("The court must deny the petitioner's requests [for dismissal] if the court feels that a dismissal of the bankruptcy would not be in the best interests of either the bankrupt or his creditors."). Yet another line of cases holds that voluntary dismissal should be denied if dismissal would prejudice creditors. See In re Turpen, 244 B.R. at 434 ("Even if the debtor can show cause, the court should deny the motion if there is any showing of prejudice to creditors."). The Fifth Circuit follows the middle approach that requires courts to determine if dismissal would be in the best interest of both the debtor and the creditors. See Matter of Atlas Supply Corp., 857 F.2d 1061, 1063 (5th Cir.1988) (quoting In re Blue, 4 B.R. at 584, in support of its conclusion that courts "must balance the equities and weigh the `benefits and prejudices' of a dismissal").
Whether the debtor had sought dismissal under 11 U.S.C. § 305 or § 707(a), the governing law required the Bankruptcy Court to balance the equities and weigh the benefits and prejudices to determine if dismissal would be in the best interest of both the debtor and the creditors. See In re Williams, 305 B.R. 618, 620 (Bankr. D.Conn.2004) ("Under Bankruptcy Code Section 707(a) (permitting dismissal `only for cause') or Bankruptcy Code Section 305(a)(1) (permitting dismissal of a case if the interests of creditors and the debtor would be better served by such dismissal . . .'), the task of the Court is to measure the prejudice to the Debtor triggered from a denial of the Motion against the prejudice to creditors if the case is dismissed"). Yet, without reference to any controlling law or any evidence that Barry had discovered assets that the debtor was attempting to conceal, the Bankruptcy Court concluded that Barry had filed the motion to dismiss in bad faith because his statements that
(1) "No creditor in this case would suffer any legal prejudice by its dismissal"; and (2) "The interests of the creditors and the Debtor would be better served by the dismissal of this bankruptcy proceeding rather than its continuation and adjudication"
were "blatantly false." In re Cochener, 360 B.R. at 581.
*335 The only evidence that the Bankruptcy Court cited in support of its finding that Barry knowingly made false statements in the motion to dismiss are the debtor's schedules, which showed liabilities of $111,000, assets of 8403, and no income. The Bankruptcy Court found the schedules to be inaccurate but did not find Barry responsible for filing them and did not find that Barry knew they were inaccurate. See In re Cochener, 360 B.R. at 549 (Finding of Fact No. 15: "The Debtor's Statement of Financial Affairs and Schedules, as initially filed and as amended, were inaccurate."). Asserting that "if [Barry] believed these Schedules, he could not possibly have believed that it was in the best interests of creditors for the case to be dismissed," the Bankruptcy Court concluded that "it was undeniably in the best interests of the creditors for the Trustee to retrieve and sell the Real Properties." Id. at 581. Missing from the court's analysis, however, is any evidence that when Barry filed the motion to dismiss he knew or should have known that the debtor held an interest in the, real properties that would make them subject to turnover. Also missing from the Bankruptcy Court's analysis is any explanation of why, if Barry believed the schedules, he should not have concluded that this was a no-asset case in which the creditors' interests would be better served by return to their pre-petition status from which they could pursue judgments against the debtor in state court. See Thomas, 836 F.2d at 874-75.
Had the Bankruptcy Court based its analysis of Barry's assertions on the governing law, the court would have recognized that Barry's assertion that the interests of creditors and the debtor would be better served by dismissal was not a false statement but, instead, an accurate statement of the showing that needed to be made before the relief sought in the motion could be granted. This court, after considering the evidence and the governing factors that courts use to guide their determination of when to grant a motion to dismiss, concludes that the Bankruptcy Court could not plausibly have found that Barry's statements were "blatantly false" or that Barry filed the motion in bad faith.
(a) Reason for Filing Petition
Barry assessed the case as having been filed due to the debtor's mistaken belief that the Bankruptcy Court could grant relief from orders arising from her divorce proceeding. Barry explained that after reviewing the debtor's divorce decree and the associated inventory of property, he concluded that the Bankruptcy Court could not grant the debtor relief from the state court orders.[82] Barry argues that he then reasonably concluded that the debtor should not have filed her petition.[83] Since bankruptcy filings are intended to provide debtors a fresh start and are not intended to provide debtors or creditors an alternative forum for on-going state court proceedings, see In re Heritage Wood `N Lakes Estates, Inc., 73 B.R. 511, 514 (Bankr.M.D.Fla.1987), and since marital debts are generally not subject to discharge, see 11 U.S.C. § 523(a)(15),[84] the *336 Bankruptcy Court could not plausibly have found that Barry unreasonably concluded that the debtor's petition should not have been filed. See In re McDaniel 363 B.R. 239, 243-46 (M.D.Fla.2007) (mistake in filing petition provided cause for voluntary dismissal despite some prejudice to primary creditor). Moreover, Barry's conclusion that the debtor's petition should not have been filed was corroborated by the trustee's attorney who also stated that the debtor's petition should not have been filed.[85]
(b) Two-Party Dispute
Barry assessed the case as primarily a two-party dispute between the debtor and her former spouse arising from their divorce proceedings.[86] The Bankruptcy Court found "that Barry's use of the two-party argument to justify his filing of [the] Motion to Dismiss . . . constitutes bad faith conduct on Barry's part." In re Cochener, 360 B.R. at 583. In further reliance on the debtor's schedules the Bankruptcy Court explained that
[t]he very Schedules, both initial and amended, completed and filed by the Debtor-and Barry had access to these Schedules prior to filing the Motion to Dismiss-showed that there were 10 creditors who held aggregate debt in the amount approximately $111,000.00, none of which claims the Debtor disputed. [Findings of Fact Nos. 4, 8, 13.] Moreover, both the initial Schedules and the amended Schedules reflect that the Debtor's ex-husband held $48,036.11, or 43%, of the aggregate debt, and that the other nine creditors held $62,963.89, or 57%, of the aggregate debt. [Docket Nos. 1, 5.] These dollar amounts and percentages underscore that the Debtor had several claimants other than her ex-husband and that the Chapter 7 was hardly a mere two-party dispute. Barry's contention that this Chapter 7 case was nothing more than a two-party dispute is further evidence of his willingness to disregard the truth in order to justify his tactics.
Id. at 582-83.
Use of bankruptcy to collaterally attack an underlying state court judgment such as that arising from the debtor's divorce case provides the context in which bankruptcy cases are often dismissed as nothing more than a "two-party dispute." See In re Dilling, 322 B.R. 353, 362 (Bankr. N.D.Ill.2005) (recognizing this situation). The presence of more than one creditor on a debtor's schedules does not preclude a court from finding that a case is essentially a two-party dispute. See In re SB Properties, Inc., 185 B.R. 206, 208-09 (Bankr. E.D.Pa.1995) (dismissing Chapter 11 case sua sponte upon concluding that it was "essentially a two party dispute . . . commenced *337 for the sole purpose of relocating pending litigation" from state court even though more than one creditor was named on the debtor's schedules).
Uncontroverted evidence establishes that Barry's investigation indicated the debtor had filed her petition in an effort to gain relief from orders arising from her state court divorce proceedings, and that the debtor's former spouse was not only the largest single creditor named on her schedules, but also the only creditor represented at the initial creditors' meeting and a creditor who held non-dischargeable debts.[87] In light of this evidence the Bankruptcy Court could not plausibly have found that Barry's characterization of the debtor's case as primarily a two-party dispute lacked any legal or factual support. Moreover, had the Bankruptcy Court at least referenced the governing law, it would have recognized that characterization of a case as primarily a two-party dispute serves as one of the criteria that courts use to help determine when a motion to dismiss should be granted, and that the presence of more than one creditor on the debtor's schedules does not preclude dismissing a voluntarily filed case. See In re Pennino, 299 B.R. at 539 (identifying "whether the case is a two-party dispute" as one of several criteria courts use for assessing motions based on 11 U.S.C. § 305), and In re SB Properties, Inc., 185 B.R. at 209 (more than one creditor did not preclude finding that case was primarily a two-party dispute).
(c) Alternative Forum
Dismissal of the debtor's petition would have allowed all the creditors to pursue their claims in state court. Since the debtor and her former spouse were already litigating in state court, and since Texas recognizes a cause of action for fraudulent transfer, the Bankruptcy Court could not plausibly have found that another forum was unavailable to protect the interests of the parties in the event of dismissal.
(d) Equitable Distribution of Assets
The debtor's schedules showed $111,000 of liabilities, $403 of assets, and no income. Although the Bankruptcy Court found the debtor's schedules to be inaccurate, it did not cite any evidence showing that Barry knew or should have known that the schedules were inaccurate. Moreover, for purposes of its finding that the motion to dismiss contained false contentions, the Bankruptcy Court assumed that Barry believed the debtor's schedules. See In re Cochener, 360 B.R. at 581. Assuming that Barry believed the debtor's schedules, the Bankruptcy Court could not plausibly have expected Barry to conclude that there were any assets for the trustee to marshal and distribute but, instead, that this was a no-asset case. In a no-asset case the Bankruptcy Court could not plausibly have concluded that dismissal would not better serve the interests of creditors than nondismissal because dismissal would have allowed each creditor to pursue claims against the debtor in state court while nondismissal would likely result in discharge that would extinguish their claims. Although in a no-asset case dismissal generally offers all creditors an equal opportunity to pursue their claims in state court while non-dismissal favors creditors like the debtor's former spouse who hold nondischargeable debt, the Bankruptcy Court rejected Barry's assertion that dismissal would benefit creditors without attempting to balance the equities or weigh the benefits and prejudices of dismissal. See Matter of Atlas Supply Corp., 857 F.2d at 1063 (requiring bankruptcy court to balance the *338 equities and weigh the benefits and prejudices of dismissal).
(e) Economy and Efficiency of Administration
Barry filed the motion to dismiss on June 18, 2001, less than two months after the debtor filed her petition on May 1, 2001, and over a month before the debtor's former spouse filed his adversary complaint on August 6, 2001. Although the initial creditors' meeting took place on June 6, 2001, soon thereafter Barry evaluated the case as one that should not have been filed at least in part because the debt held by the primary creditor, the debtor's former spouse, was non-dischargeable. Promptly thereafter Barry filed the debtor's motion to dismiss while the case was in its initial stages and well before any party had invested a significant amount of time or resources. Under these circumstances, the Bankruptcy Court could not plausibly have found that the interests of economy and efficiency of administration weighed against dismissal.[88]See In re Schwartz, 58 B.R. 923 (Bankr.S.D.N.Y. 1986) (judicial economy in dismissing case after determination that debts were nondischargeable outweighed creditors' contentions that debtor had engaged in fraudulent transfers and dismissal would delay the assertion of their rights).
(ii) False Factual and Legal Contentions Regarding Legal Prejudice to Creditors[89]
Evidence that dismissal would cause legal prejudice to creditors can be used to overcome a debtor's assertion that dismissal would benefit both the debtor and the creditors. Barry's motion asserted that dismissal would not cause legal prejudice to the creditors, but the Bankruptcy Court identified this assertion as one of the "blatantly false" contentions made in the motion. In determining whether a creditor would suffer legal prejudice by a dismissal courts consider (1) the creditor's effort and expense for trial preparation; (2) excessive delay or lack of diligence on the debtor's part in prosecuting the action; (3) the adequacy of the debtor's explanation of the need for dismissal; and (4) the stage of the litigation at the time the motion to dismiss is made, specifically whether a motion for summary judgment is pending. See In re Vitamins Antitrust Litigation, 198 F.R.D. 296, 305 (D.D.C.2000) (citing F.D.I.C. v. Knostman, 966 F.2d 1133, 1142 (7th Cir. 1992)). Moreover, under Fifth Circuit precedent "plain legal prejudice" has been found in cases in which dismissal of the action stripped the defendant of a viable affirmative defense. See Elbaor v. Tripath Imaging, Inc., 279 F.3d 314, 317-19 (5th Cir.2002) (plain legal prejudice often occurs where the grant of a motion for voluntary dismissal causes the non-movant to be stripped of an otherwise available defense).
The trustee opposed the debtor's motion to dismiss on grounds that dismissal would deprive creditors of the benefit of his powers to avoid pre-petition transfers to insiders. However, when Barry filed the motion to dismiss, the existence of fraudulent transfers had only been alleged not proved, and neither the Bankruptcy Court nor the trustee cited any evidence *339 showing that when Barry filed the motion he knew or should have known that the allegations of fraudulent transfers asserted by the debtor's former spouse were true.[90] Moreover, the trustee's objection did not allege that dismissal would cause any legal prejudice to creditors by depriving them of the ability to set aside the debtor's allegedly fraudulent transfers. See In re Kimble, 96 B.R. 305, 308 (Bankr.D.Mont.1988) (legal prejudice could be established by showing that dismissal would allow debtor to defeat potential recovery for creditors) (citing In re Hall, 15 B.R. at 917).
The debtor's former spouse opposed the motion to dismiss on grounds that he did not want to return to state court because the debtor had already violated a state court contempt order.[91] A creditor's desire to have its dispute with the debtor decided in federal as opposed to state court is insufficient to establish legal prejudice. See Templeton. v. Nedlloyd Lines, 901 F.2d 1273, 1276 (5th Cir.1990) (fact that a party faces the prospect of trial in state court is insufficient to demonstrate legal prejudice); In re Capistrano Associates, 66 B.R. 421, 422 (Bankr.S.D.Fla.1986) (creditor's desire to have its dispute with debtor decided by a speedy bankruptcy court as opposed to a state court is not a sufficient basis to prevent dismissal pursuant to § 305). In short, neither the Bankruptcy Court nor the trustee cited any legal or factual basis supported by evidence in the record for the finding that Barry's motion to dismiss falsely asserted that dismissal would not cause the creditors to suffer legal prejudice.
(C) Conclusions on Motion to Dismiss
The. Fifth Circuit has "long held that a . . . court, in applying sanctions, may have to make a detailed explanation for its legal reasons," F.D.I.D. v. Calhoun, 34 F.3d 1291, 1297 (5th Cir.1994), and that the. "failure to lay out the grounds for . . . serious sanctions may itself be reversible error." Id. (assessment of attorney's fees under Rule 11 constitute "serious sanctions"). The Fifth Circuit explained that
[t]he purpose of creating such a record is simple: In order to guard against the application of hindsight by . . . courts who have sat through long, complicated, and often contentious proceedings, we must not be put in the position of having to guess what unwarranted factual or legal errors were the basis of the sanctions. At [the] very least, such guidelines allow a fair and full appellate review of the decision.
Id. The Bankruptcy Court's failure to discuss the legal basis on which Barry's motion to dismiss was founded or to explain why under the facts of this case that legal basis was insufficiently researched or factually unsupported, led the Bankruptcy Court to clearly err by finding that the motion to dismiss contained blatantly false factual and legal contentions. For the reasons explained above the court concludes that the Bankruptcy Court's finding that the motion contained blatantly false factual and legal contentions must be vacated as clearly erroneous because it is based on findings of fact that are not plausible in *340 light of the entire record and on an erroneous view of the law that failed to consider any of law governing voluntary motions to dismiss.
(2) Barry's Attendance at Creditors' Meeting
When the initial creditors' meeting was adjourned, Hawks and the debtor both agreed to attend a continuation of the meeting scheduled initially for June 20, 2001, and ultimately for August 29, 2001. The Bankruptcy Court found that Barry engaged in bad-faith conduct when he "himself did not attend the continued Meeting of Creditors on June 20, 2001." In re Cochener, 360 B.R. at 579. Although Barry did not attend the creditors' meeting ultimately scheduled for August 29, 2001, the Bankruptcy Court inexplicably failed to make the same finding about Barry's failure to attend the meeting scheduled for that date. The Bankruptcy Court based its finding that Barry acted in bad faith by failing to attend the continued creditors' meeting on June 20, 2001, on its findings that Barry became the attorney in charge of the debtor's representation on or before June 18, 2001, when he filed the motion to dismiss, see id. at 552, and that Barry's acceptance of a $2,500 fee from the debtor obligated him to represent the debtor at creditors' meetings, including the June 20, 2001, meeting. See id. at 556, 579-580. However, these findings of the Bankruptcy Court are clearly erroneous because uncontroverted evidence establishes that on June 20, 2001, Hawks remained not only the debtor's attorney of record, but also, the attorney in charge of the debtor's representation and the only attorney to have received a fee for representing the debtor in her bankruptcy case.
(A) Attorney in Charge
Despite acknowledging that "it was not until July 24, 2001, that Barry, on behalf of the Debtor, filed a Motion to Substitute Attorney of Record, seeking to substitute himself for Hawks as the attorney of record [Docket Entry No. 12]," In re Cochener, 360 B.R. at 552, the Bankruptcy Court found that "Barry took over representation of the Debtor no later than June 18, 2001." Id. This finding was based on the fact that Barry drafted and filed the motion to dismiss. See id. at 551-52 and n. 7 ("The Court makes this finding despite Barry's testimony at the Sanctions Hearing that he filed the Motion to Dismiss `before I actually took over the representation.' [Docket. No. 135, p. 11:3-4.] For Barry to state that he filed the Motion to Dismiss before actually taking over the representation, is nothing short of disingenuous, particularly given the very credible testimony of Hawks, who stated that by June 18, 2001, he had `passed the football' to Barry.").
Neither the Bankruptcy Court nor the trustee has cited any evidence showing that Barry ever agreed to represent the debtor at the June 20 creditors' meeting or knew that the debtor and/or Hawks expected him to do so. Moreover, uncontroverted evidence shows that Barry sent the motion to dismiss to Hawks for his review prior to filing, that Barry signed Hawks' name as "Attorney for Debtor" on the motion "with permission," and that Barry. signed his own name as "Associate Counsel for Debtor." See id. at 551.[92] Uncontroverted *341 evidence also shows that on June 18, 2001, after the motion had been filed, Hawks wrote a letter to the debtor reminding her of her responsibility not only to attend the continued creditors' meeting on June 20, 2001, but also to produce documents requested by the trustee.[93] The letter informed the debtor of the date, time, and place at which the meeting would be held and implored her to "bring those documents and records requested by Mr. Sommers at the initial meeting[,]" and to "[b]ring an extra copy of all the documents to present to Ms. Stuart, your exhusband's attorney."[94] A notation at the bottom of the letter indicates that a copy was sent to Sommers. Although the letter admonished the debtor to contact Barry about the meeting, there is no indication that a copy of the letter was sent to Barry. On June 20, 2001, Hawks had not filed a motion to withdraw, and Barry had not filed a motion to substitute.[95] Finally, Hawks testified that although he had intended to "pass the football" to Barry before the June 20, 2001, meeting occurred he knew that on that date he was still the debtor's attorney of record.[96]
In light of the complete absence of any evidence that Barry either committed to attend the June 20 meeting or knew that Hawks and/or the debtor expected him to attend the June 20 meeting, and the uncontroverted evidence that (1) Barry sent the motion to dismiss to Hawks prior to filing it and received Hawks' permission to sign Hawks' name on the motion as the "Attorney for Debtor," (2) on June 20 Hawks had not filed a motion to withdraw and Barry had not filed a motion to substitute, (3) Hawks continued to advise the debtor about her responsibility to attend the continued creditors' meeting, and (4) Hawks knew he was still the debtor's attorney of record, the Bankruptcy Court's finding that Barry as opposed to Hawks was the attorney in charge of representing the debtor on June 20, 2001, is not plausible in light of the entire record.
(B) Fee Acceptance
The Bankruptcy Court's finding that Barry accepted a $2,500 fee from the debtor *342 or that obligated him to represent her at the June 20, 2001, continued creditors' meeting is negated by uncontroverted evidence that the debtor did not pay Barry the $2,500 fee until July of 2001,[97] and that only then did Barry file a motion to substitute for Hawks as her attorney of record.[98] Since the debtor did not pay Barry a fee until July of 2001, the Bankruptcy Court's finding that his acceptance of that fee obligated him to represent her at a creditor's meeting scheduled for an earlier date is not plausible in light of the entire record.
(C) Conclusions
Because the Bankruptcy Court's findings that Barry became the attorney in charge of the debtor's representation on or before June 18, 2001, and that Barry's acceptance of a $2,500 fee from the debtor in July of 2001 obligated him to represent her at the continued creditors' meeting scheduled for June 20, 2001, are not plausible in light of the entire record, the Bankruptcy Court's finding that Barry acted in bad faith by failing to attend that meeting must be set aside as clearly erroneous.
(3) Debtor's Attendance at Creditors' Meetings
The Bankruptcy Court found that Barry engaged in bad-faith conduct when he "concocted a reason for the Debtor not to attend the continued Meeting of Creditors, and then instructed her not to attend this meeting." In re Cochener, 360 B.R. at 575. Since for the reasons explained above in § IV.C.2(c)(1) the court has already concluded that the Bankruptcy Court could not plausibly have found that Barry filed the motion to dismiss in bad faith but, instead, in an effort to dismiss a case that both he and the trustee's attorney believed should not have been filed, the Bankruptcy Court could not plausibly have found that the motion to dismiss was merely concocted as a reason for the debtor not to attend the continued meeting of creditors.
There is no direct evidence in the record, that Barry instructed the debtor not to attend the continued creditors' meeting. The Bankruptcy Court inferred this finding of fact from the debtor's testimony that she followed the advice of her attorneys, and from evidence that Barry drafted and filed the motion to dismiss, and in a June 18, 2001, letter[99] notified the trustee that the debtor would not attend the continued creditors' meeting scheduled for June 20, 2001, and in an August 14, 2001, letter[100] notified the trustee that neither *343 he nor the debtor would appear at the rescheduled meeting on August 29, 2001. Id. Although Barry's June 18 letter offered no explanation why the debtor would not attend the June 20 creditors' meeting, his August 14 letter explained
[a]s you know, there is a hearing scheduled on September 4, 2001, at which time Judge Greendyke shall hear the pending Motion to Dismiss.
In the unlikely event the case is not dismissed on September 4, 2001, if you wish to re-convene the § 341 meeting after that date, I will be glad to prepare, serve, and file the appropriate notice.[101]
Based largely on the contents of this letter the Bankruptcy Court inferred that Barry "took the position that until Judge Greendyke ruled on the Motion to Dismiss, the Trustee could not further examine the Debtor or require her to produce the documents that Hawks and she had already agreed to produce. [Findings of Fact Nos. 38, 40.]" Id. Stating that Barry's position had "absolutely no basis in law," id., the Bankruptcy Court characterized it as "nothing more than a disingenuous attempt to shield the Debtor from further examination by the Trustee in the hope that Judge Greendyke would dismiss the case and thereby deprive the Trustee of the ability to go forward with his investigation." Id.
Section 521(a)(3) of the Bankruptcy Code establishes an affirmative duty on Chapter 7 debtors to cooperate with the case trustee in the administration of the bankruptcy estate. See 11 U.S.C. § 521(a)(3).[102] The debtor's duty to cooperate with the trustee includes the duty to "appear and submit to examination under oath at the meeting of creditors under section 341(a) of this title." 11 U.S.C. § 343. Although on June 6, 2001, the debtor, together with her attorney, Hawks, appeared at the initial meeting of creditors, that meeting was adjourned and continued so that documents requested by the trustee could be produced. See B.R. Rule 2003(e) (providing that "[t]he meeting may be adjourned from time to time by announcement at the meeting of the adjourned date and time without further written notice"). Undisputed evidence shows that both the debtor and Hawks agreed to appear and to produce documents requested by the trustee at the continued meeting of creditors scheduled for June 20, 2001, but that neither of them appeared or produced the requested documents. See In re Cochener, 360 B.R. at 550-553. The debtor's failure to appear or to produce documents at the continued creditors' meeting violated her duty to cooperate with the trustee and hindered and delayed the trustee's effective administration of this case. See also In re Cherry, 341 B.R. 581 (Bankr.S.D.Tex.2006) (discussing adjournment and recommencement of the creditors' meeting).
Barry has not cited and the court has not found any legal support for the debtor's failure to attend the continued creditors' meetings. Instead, Barry merely asserts that "[t]he Trustee filed no Motion to Compel, and Barry indicated that he would instruct the Debtor to cooperate if the case were not dismissed and the Court ordered the Debtor to appear."[103] a Barry's assertion that he would instruct the debtor to cooperate only if the case was not dismissed *344 confirms the Bankruptcy Court's finding that Barry in contravention to the duties that the Bankruptcy Code imposes on debtors instructed the debtor not to appear and not to produce documents at the continued creditors' meeting scheduled for August 29, 2001.
Although for the reasons explained in § IV.C.2(c)(2), above, the court has already concluded that Barry was neither the attorney in charge of the debtor's representation on June 20, 2001, nor the attorney obligated to represent her at the continued creditors' meeting scheduled for that date, his signature on the motion to dismiss as "Associate Counsel for Debtor" filed on June 18, 2001, together with his June 18, 2001, letter to the trustee, show that he was materially involved in the case by that date. Viewed in the light of Barry's August 14, 2001, letter to the trustee explaining the reasons why neither he nor the debtor would appear at the continued creditors' meeting scheduled for August 29, 2001, the Bankruptcy Court could plausibly have inferred from Barry's material involvement in the case by June 18, 2001, that Barry was responsible for the debtor's failure to attend or produce documents at the June 20 continued creditors' meeting.
Accordingly, for largely the same reasons explained by the Bankruptcy Court, this court concludes that the Bankruptcy Court's finding that Barry acted in bad faith by instructing the debtor not to attend and not to produce documents at the continued creditors' meetings scheduled for June 20 and August 29, 2001, is plausible in light of the entire record.
(4) Misstatement of the Law
The Bankruptcy Court found that Barry engaged in bad-faith conduct when he "drafted a letter to the Trustee, dated October 17, 2001, intentionally misstating the law regarding the allowable reach-back period for fraudulent transfers under the Bankruptcy Code in an attempt to mislead, deceive, and harass the Trustee." In re Cochener, 360 B.R. at 583. Barry's October 17 letter was written in response to the trustee's notice of a 2004 Examination of the debtor and to protest the trustee's request for documents. The contested portion of the letter states
[a]s I understand the Trustee's position with regard to the Debtor's desire to voluntarily dismiss this case, he believes the Debtor has concealed assets. The Bankruptcy Code permits the Trustee to look back for up to one year with an eye toward fraudulent transfers or preferences to insiders. As you know, the Debtor was divorced in November 2000 and that court divided whatever property the Debtor may have owned prior to her divorce. Given the time limits permitted in the Bankruptcy Code and since the divorce decree will show transfers of property owned by the Debtor and her former spouse on the date of its entry, it would seem that only transfers made later are relevant here.
If you would amend your subpoena, there would be no need for me to seek to quash the requests.[104]
Citing Tex. Bus. & Comm.Code Ann. § 24.005 (titled: Transfers Fraudulent as to Present and Future Creditors), the Bankruptcy-Court asserted that
Barry knew or should have known, that 11 U.S.C. § 544(b)(1) allows the Trustee to use the applicable Texas state law to look back four years to file fraudulent conveyance actions against a debtor, not the one year that Barry claimed in the letter. This is black letter law.
*345 . . .
Barry's letter, based on a legal falsehood, is yet another example of his obstructionist tactics and attempts to prevent the Trustee from carrying out his duties. The message of Barry's letter was that the Trustee would have to amend the subpoena to avoid dealing with Barry filing a motion to quash. The clear intent on Barry's part was first, to further delay the production of any documents to the Trustee; and, second, to prevent any production of documents pertaining to transactions occurring more than one year prior to the filing of the Debtor's petition. The Court finds that these tactics constitute bad faith conduct on the part of Barry.
In re Cochener, 360 B.R. at 583-84.
Barry argues that his letter of October 17, 2001, was not based on a legal falsehood but, instead, on the "correct position that, absent a showing of a fraudulent transfer, the proper look back period was one year."[105] Barry also argues that his assertion of this position on October 17, 2001, is not evidence of bad faith because "there was no indication that the Trustee communicated articulable suspicions of fraud prior to Barry's letter."[106] Barry's argument is contradicted by the transcript of the September 4, 2001, hearing on the motion to dismiss before Judge Greendyke. At that hearing the trustee's counsel opposed the motion on grounds that the debtor had transferred approximately $50,000 to her grandson sometime prior to filing her petition, and that the trustee had reason to believe that fraudulent transfer actions could recover additional assets for the estate.[107] As an example of such a transfer, the trustee's counsel stated "[w]e have a son who is a very young age that has bought two very large houses, that works basically as a manager for a car wash. And she's [i.e., the debtor] been feeding him cash."[108] On behalf of the debtor Mr. Joffe argued that the transfers mentioned by the trustee's counsel could all be time barred because they occurred more than a year before the debtor filed her petition. The trustee's counsel responded that the four-year statute would apply. Asserting that he would not "try the case on statements,"[109] Judge Greendyke continued the hearing to let the parties conduct discovery opining that "discovery ou[gh]t to be liberal."[110]
The suspicions of fraudulent transfer articulated by the trustee's counsel at the September 4, 2001, hearing, and her assertion that those suspicions entitled the trustee to assert the four-year look-back period provided by state law, coupled with Judge Greendyke's opinion that the discovery should be "liberal," demonstrate not only that the trustee had articulated suspicions of fraud prior to October 17, 2001, but also that both parties had stated their respective arguments regarding the appropriate look-back period in this case in open court on September 4, 2001, and that the Bankruptcy Court had responded by directing them to engage in liberal discovery. However, since Barry took the position at that hearing that the one-year as opposed to the four-year look-back period should be applied in this case, the Bankruptcy *346 Court could not plausibly have found that Barry's assertion of that same position in his October 17, 2001, letter to the trustee was a legal falsehood made in a bad-faith attempt to mislead or deceive the trustee. In re Cochener, 360 B.R. at 584. Instead, Barry's statement in his October 17, 2001, letter to the trustee that the one-year instead of the four-year look-back applied in this case was merely a restatement of the argument that he had previously made in open court. Moreover, even if the Bankruptcy Court could plausibly have found that Barry made this statement in an attempt to harass the trustee, for the reasons explained below the court could not plausibly have found that attempt was made in bad faith.
On October 22, 2001, the trustee's attorney sent a letter to Barry disagreeing with his contention regarding the applicability of the one-year look-back period.[111] The trustee's attorney explained that she was "not only concerned about transfers that, the Debtor made to her ex-husband, but also transfers she may have made to any insider, including her children. Her divorce in 2000 does not necessarily shield her from transfers made prior to her divorce during the four year period."[112] This explanation from the trustee's attorney implicitly acknowledges that the one-year look-back period might apply to this case if the only transfers of assets at issue were transfers to the debtor's former spouse, but that since the trustee was also concerned about transfers to other insiders that preceded the debtor's divorce, the trustee was entitled to rely on the four-year statute.
At the sanctions hearing Barry provided uncontradicted testimony that following this exchange of letters he and the trustee's attorney negotiated an agreement that was completed by October 30, 2001, regarding the specific documents that the debtor was to have produced at the 2004 Examination.[113] Although the debtor neither appeared nor produced documents at that examination, Barry appeared and stated that he had lost contact with the debtor. See In re Cochener, 360 B.R. at 556 ¶¶ 47-49. Since following the October 22, 2001, letter from the trustee's attorney explaining why she disagreed with his contention that the one-year look-back period should apply in this case, Barry abandoned that argument and within eight days negotiated an agreement regarding the specific documents that the debtor was to have produced, the Bankruptcy Court could not plausibly have found that Barry made the statement regarding the one-year look-back period in his October 17, 2001, letter in a bad-faith attempt to harass the trustee.
The bottom line on this issue is that Barry argued a position that he thought was plausible under the law (i.e., applicability of the one-year look-back period), and when presented with a cogent explanation of why his position might not be meritorious, Barry abandoned his position and negotiated a settlement of the dispute based on that position. This is not sanctionable conduct.
*347 (5) Debtor's "Failure to Produce Documents
The Bankruptcy Court found that Barry engaged in bad-faith conduct when he "instructed the Debtor not to produce documents' requested by the Trustee which prior counsel to the Debtor had already agreed to turn over." In re Cochener, 360 B.R. at 584. There is no direct evidence in the record that Barry instructed the debtor not to produce the documents requested by the trustee. The Bankruptcy Court inferred that Barry instructed the debtor not to produce these documents from its findings that "Barry advised the Debtor . . . not [to] attend the continued Meeting of Creditors because the Motion to Dismiss had yet to be ruled on. [Finding of Fact Nos. 30, 40.] Relying on this evidence the Debtor did not turn over the documents." Id. at 585.
Based on the August 14, 2001, letter to the trustee in which Barry stated, "[i]n the unlikely event that the case is not dismissed on September 4, 2001, if you wish to re-convene the § 341 meeting after that date, I will be glad to prepare, serve, and file the appropriate notice,"[114] the Bankruptcy Court could plausibly have inferred that Barry instructed the debtor not to produce documents requested by the trustee at the continued creditors' meetings, but could not plausibly have inferred that Barry continued to instruct the debtor not to produce the documents following the September 4, 2001, hearing at which Judge Greendyke directed the parties to engage in liberal discovery. Indeed, the Bankruptcy Court's finding on this issue is limited to the debtor's failure to produce documents at the continued creditors' meetings both of which were scheduled for dates prior to the September 4, 2001, hearing. Id. For these reasons the court has already concluded that the Bankruptcy Court could plausibly have found that Barry instructed the debtor not to attend the continued creditors' meetings. See § IV.C.(2)(c)(2), above. For these same reasons the court now concludes that the Bankruptcy Court could plausibly have found that Barry instructed the debtor not to produce the documents requested by the trustee at the continued creditors' meetings. However, there is no evidence in the record from which the Bankruptcy Court could plausibly have inferred that after Judge Greendyke's September 4, 2001, decision not to rule on the motion to dismiss until the parties had engaged in discovery, Barry instructed the debtor not to produce the documents or was otherwise responsible for the debtor's continued failure to produce them.
At the sanctions hearing Barry provided uncontradicted testimony that (1) by October 30, 2001, he had reached an agreement with the trustee's attorney regarding the specific documents that the debtor was to have produced, and (2) he could not have produced the documents himself because he never had them. Neither the trustee nor the trustee's attorney testified that they had any reason to believe that Barry possessed the documents but failed to produce them. Absent contradictory evidence from which the court could infer that Barry possessed the documents or had access to them, the Bankruptcy Court could not plausibly have imputed the debtor's failure to produce the documents to Barry even if it rejected his testimony as not credible.
(6) Conclusions as to Bad-Faith Conduct
For the reasons explained above the court concludes that in light of the entire *348 record the Bankruptcy Court could plausibly have found that Barry acted in bad faith by instructing the debtor not to attend and not to produce documents requested by the trustee at the continued creditors' meetings scheduled for June 20 and August 29, 2001; but could not plausibly have found that Barry acted in bad faith by (1) filing the motion to dismiss, (2) failing to attend the continued creditors' meeting on June 20, 2001, (3) misstating the law in his October 17, 2001, letter to the trustee in an attempt to mislead, deceive, or harass the trustee, or (4) instructing the debtor not to produce documents requested by the trustee after the September 4, 2001, hearing on the motion to dismiss at which Judge Greendyke directed the parties to engage in liberal discovery. Accordingly, the court concludes that the Bankruptcy Court did not clearly err by finding that Barry acted in bad faith by instructing the debtor not to attend and not to produce documents at the continued creditors' meetings, but did clearly err by making all its other findings that Barry acted in bad faith. See Hazeur, 983 F.2d 1061, 1993 WL 14973 at *7 (finding of fact will not be set aside as clearly erroneous "[i]f the . . . court's account of the evidence is plausible in light of the record viewed in its entirety").
(d) Sanctions
(1) Applicable Law
Although this court reviews the Bankruptcy Court's finding of bad' faith under the clearly erroneous standard, it applies an abuse-of-discretion standard to the Bankruptcy Court's ultimate decision to impose sanctions. See Hazeur, 983 F.2d 1061, 1993 WL 14973 at *8 (citing Wallace, 964 F.2d at 1217, and Chambers, 111 S.Ct. at 2136). The Fifth Circuit has explained that
[t]he differences between the two standards, however, appears negligible. In reviewing the [bankruptcy] court's decision to impose sanctions for bad faith conduct under the abuse of discretion standard, [the court] will not set that decision aside unless [it] "[has] a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors."
Id. (quoting United States v. Walker, 772 F.2d 1172, 1176 n. 9 (5th Cir.1985)).
(2) Sanctionable Acts
The Fifth Circuit has held that a court's inherent power to sanction "must be exercised with restraint and discretion," Crowe I, 151 F.3d at 226, and must be accompanied by "a specific finding that the . . . [sanctioned party] acted in `bad faith.'" Id. at 236 (citing Chaves, 47 F.3d at 156). See also Crowe II, 261 F.3d at 563. Therefore, the court's conclusion that the Bankruptcy Court clearly erred in finding that Barry acted in bad faith by (1) filing the motion to dismiss, (2) failing to attend the continued creditors' meeting on June 20, 2001, (3) misstating the law in his October 17, 2001, letter to the trustee in an attempt to mislead, deceive, or harass the trustee, and (4) instructing the debtor not to produce documents requested by the trustee after the September 4, 2001, hearing on the motion to dismiss at which Judge Greendyke directed the parties to engage in liberal discovery, see § IV.C.(2)(c), above, mandates the conclusion that the Bankruptcy Court abused its discretion by imposing sanctions on Barry for these acts pursuant to 11 U.S.C. § 105 and its inherent powers. However, the court's conclusion that the Bankruptcy Court did not clearly err by finding that Barry acted in bad faith by instructing the debtor not to attend and not to produce documents at the continued creditors' *349 meetings, supports the Bankruptcy Court's conclusion that Barry deserved to be sanctioned for this conduct.
Barry argues that the Bankruptcy Court abused its discretion in basing its decision to sanction him for instructing the debtor not to attend and not to produce documents at the continued creditors' meeting entirely on the debtor's testimony that she relied on his instruction without articulating any reason for finding that testimony credible."[115] But the Bankruptcy Court's finding that Barry instructed the debtor not to attend or produce documents requested by the trustee at the continued creditors' meetings was not based entirely or even primarily on the debtor's testimony but, instead, on Barry's June 18, 2001, letter to the trustee stating that the debtor would not attend the creditors' meeting scheduled for June 20, 2001, and his August 14, 2001, letter to the trustee stating that neither he nor the debtor would appear at the continued creditors' meeting scheduled for August 29, 2001, and stating that "Mil the unlikely event the case is not dismissed on September 4, 2001, if you wish to reconvene the § 341 meeting after that date, I will be glad to prepare, serve, and file the appropriate notice."[116] The contents of the August 14, 2001, letter, alone, allowed the Bankruptcy Court plausibly to infer that Barry instructed the debtor not to attend the creditors' meeting scheduled for August 29, 2001, and for the reasons explained in § IV.C.2(c)(3) the court has also concluded that the Bankruptcy Court could plausibly have inferred that Barry was materially responsible for the debtor's failure to attend or produce documents at the June 20 creditors' meeting. The court therefore concludes that the Bankruptcy Court acted well within its discretion by sanctioning Barry for this conduct.
(3) Sanctions Imposed
The Bankruptcy Court sanctioned Barry
in the aggregate amount of $25,121.89, representing the sum of: (1) the $2,500.00 retainer which Barry took from the Debtor; (2) the reasonable and necessary attorney fees of $6,901.25 for the Trustee's efforts in defeating the Motion to Dismiss; (3) the reasonable and necessary costs of $704.47 incurred in defeating the Motion to Dismiss; (4) the reasonable and necessary attorney fees of $13,951.25 for the prosecution of the Motion for Sanctions; and (5) the reasonable and necessary costs of $1,064.92 incurred in prosecuting the Motion for Sanctions.
In re Cochener, 360 B.R. at 596. Barry argues that the Bankruptcy Court abused its discretion by awarding attorney's fees to the trustee that were excessive and punitive, but does not contest the order to disgorge the $2,500 retainer paid by the debtor.[117]
Inherent powers may be exercised only if essential to preserve the authority of the court, and the sanction imposed must employ the least possible power adequate to the purpose to be achieved. See Natural Gas Pipeline Company of America v. Energy Gathering Inc., 86 F.3d 464, 467 (5th Cir.1996). *350 Sanctions imposed in any particular case must be "tailored to fit the particular wrong." Topalian v. Ehrman, 3 F.3d 931, 936 (5th Cir.1993) (extending the analytical principles for determining sanctions under Rule 11 "across-the-board" to all of the court's sanction powers). Moreover, in assessing sanctions against Barry the Bankruptcy Court had to be mindful of the caveat stated by the Fifth Circuit in United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir.1986), that 11 U.S.C. § 105 "does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity." Appropriate factors for the Bankruptcy Court to have considered in determining the sanction to impose include: (1) the precise conduct being punished, (2) the precise expenses caused by the violation, (3) the reasonableness of the fees imposed, and (4) the least severe sanction adequate to achieve the purpose of the rule relied upon to impose the sanction. See Topalian, 3 F.3d at 936-37.
(A) Disgorgement of Retainer
This court has concluded that the only finding of bad-faith conduct for which the Bankruptcy Court could have sanctioned Barry without abusing its discretion is the finding that Barry acted in bad faith by instructing the debtor not to attend or produce documents at the continued creditors' meeting. This finding requires that the sanctions imposed be tailored to ensure that Barry fulfills his obligation to advise his clients of their duties under the Bankruptcy Code, including the duty to cooperate with the trustee's efforts to administer estate assets. See In re Paige, 365 B.R. 632, 640 (Bankr.N.D.Tex.2007) (sanctioning attorney under 11 U.S.C. § 5 and the court's inherent power "as a means to ensure that . . . [the sanctioned party] satisfies his obligations and duties under the Bankruptcy Code, specifically his obligation to cooperate with the trustee's efforts to administer estate assets"). The Bankruptcy Court's order "that Barry pay to the Chapter 7 Estate the $2,500.00 retainer that the Debtor gave to him," In re Cochener, 360 B.R. at 593, is appropriate in this case because by instructing the debtor not to attend or produce documents at the continued creditors' meeting, Barry instructed the debtor to violate duties that the Bankruptcy Code expressly imposed upon her. Attorneys who instruct their clients to violate duties imposed by the Bankruptcy Code have not provided effective assistance of counsel and have not earned a fee.
(B) Trustee's Attorney's Fees
The Bankruptcy Court also ordered that Barry
pay to the Trustee a portion of the fees and expenses for which the Trustee-or, more precisely, the Chapter 7 estate-is liable to Eisen for services rendered relating to the Trustee's opposition to the Motion to Dismiss and the Trustee's prosecution of the Motion for Sanctions.
In re Cochener, 360 B.R. at 593. These sanctions were based on the following findings of fact:
127. The Trustee incurred reasonable attorney's fees and costs of $7,613.75 and $704.47, respectively, in dealing with: (1) the Debtor's Motion to Dismiss; (2) the Debtor's and Barry's refusal to appear at the continued Meetings of Creditors; and (3) obtaining documents that the Trustee requested so that he could carry out his duties as Trustee. [Trustee's Exhibit No. 25.]
128. Additionally, the Trustee incurred reasonable attorneys fees and costs of $15,587.50 and $1,064.92, respectively, in *351 prosecuting the Motion for Sanctions. [Trustee's Exhibits Nos. 26, 26A.]
Id. at 568. The standards for scrutinizing the amount of a sanctions award are the same regardless of the statutory basis upon which the award is imposed. See Topalian, 3 F.3d at 936 & 5 ("[A]lthough conduct that violates one rule may not warrant the same type or amount of sanction as conduct that violates another rule, we think the underlying principles elucidated in Thomas[, 836 F.2d at 876-77] in the context of Rule 11 apply across-the-board to all of the . . . court's sanction powers."). The trustee can recover attorney's fees and costs attributable to investigating, researching, and fighting the debtor's meritless pleadings and the fees and associated costs incurred in researching, preparing, and prosecuting its sanctions motion. But a party seeking the sanction must provide the court with contemporaneous time and expense records that specify, for each attorney, the date, amount of time, and nature of the work performed, and must also show that the fees and expenses were reasonable and necessary. Id. at 937.
(i) Motion to Dismiss, Debtor's and Barry's Refusal to Appear at the Continued Meetings of Creditors, and Obtaining Documents
The Bankruptcy Court sanctioned Barry $7,613.75 of fees and $704.47 of related costs for work performed by the trustee's attorney in dealing with (1) the Debtor's Motion to Dismiss, (2) the Debtor's and Barry's refusal to appear at the continued Meetings of Creditors, and (3) obtaining documents that the trustee requested so that he could carry out his duties as trustee. However, the Bankruptcy Court did not calculate the amounts of fees and costs attributable to each category of work. The Bankruptcy Court's failure to calculate the fees and costs separately may be attributed to the fee records submitted by the trustee in support of his motion for sanctions. All of the work recorded on the trustee's fee records is attributed to "dismissal," meaning the debtor's motion to dismiss.[118] Because the court has concluded that the Bankruptcy Court clearly erred by finding that Barry acted in bad faith by filing the motion to dismiss, the court concludes that the Bankruptcy Court abused its discretion by sanctioning Barry any amount of attorney's fees and/or related costs incurred by the trustee in dealing with the motion to dismiss. Because the fee records submitted by the trustee state that the $7,613.75 of attorney's fees and $704.47 of associated costs were all incurred dealing with the motion to dismiss, the Bankruptcy Court abused its discretion by sanctioning Barry in these amounts.
(ii) Prosecuting the Motion for Sanctions
The Bankruptcy Court sanctioned Barry $13,951.25 in attorney's fees and $1,064.92 in related costs for work that the trustee's attorney performed prosecuting the trustee's *352 motion for sanctions. Although the Bankruptcy Court explained the manner in which it calculated these fees, it did not explain the reasons why it decided that sanctions in the form of these attorney's fees and related costs were warranted.
The trustee's attorney testified that once Barry was allowed to withdraw from this case in January of 2002, sanctions were not needed to deter him from engaging in similar conduct.[119] The trustee also testified that to his knowledge Barry had not engaged in the type of conduct for which sanctions have been sought in this case since the events underlying the motion for sanctions now at issue.[120] Before filing the motion for sanctions, the trustee's attorney sent a letter to Barry intended to evoke an offer to settle the trustee's claim that Barry had engaged in bad-faith conduct during his representation of the debtor in this case. In response to that letter, Barry offered to pay the $2,500 retainer that he had received from the debtor to the trustee. The trustee rejected Barry's offer, and filed his motion for sanctions.[121]
Because the court has concluded that the only sanctions justifiably ordered by the Bankruptcy Court is the order that Barry disgorge the $2,500 retainer that he received from the debtor, and because Barry offered to settle this dispute with the trustee for exactly this amount before the trustee filed his motion for sanctions, the court concludes that the Bankruptcy Court abused its discretion by sanctioning Barry an amount of attorney's fees and associated costs incurred by the trustee in prosecuting his motion for sanctions.
3. Conclusions as to Sanctions Under 11 U.S.C. § 105
For the reasons explained above the court concludes that the Bankruptcy Court did not abuse its discretion by sanctioning Barry in the amount of the $2,500 retainer that the debtor paid him to represent her, but that the Bankruptcy Court abused its discretion by sanctioning Barry for attorney's fees and associated costs incurred by the trustee in opposing the motion to dismiss and prosecuting the motion for sanctions.
D. Imposition of Sanctions Under 28 U.S.C. 1927
As an alternative to 11 U.S.C. § 105 and its inherent powers, the Bankruptcy Court based its decision to sanction Barry on 28 U.S.C. § 1927. In re Cochener, 360 B.R. at 585-87. The Bankruptcy Court explained its reasons for sanctioning Barry under § 1927 as follows:
First, this Court has already found that this conduct multiplied the proceedings. Barry filed the Motion to Dismiss, which caused the Trustee to have to file a response and spend time and money defeating this motion. Further, if Barry had complied with the Trustee's original request to produce documents and instructed the Debtor to attend the continued Meeting of Creditors back in 2001, *353 the Trustee would not have had to spend the time and money tracking down the information about the status of the Real Properties. [Finding of Fact Nos. 30, 40, 60, 61.] It is conceivable that if Barry followed his duties and the Trustee had uncovered the complete factual picture back then, the substantial destruction of the Real Properties could have been prevented since that conduct did not occur until several years later. [See Finding of Fact Nos. 93.-99.]
Id. at 586. Barry argues, inter alia, that the Bankruptcy Court abused its discretion by sanctioning him under § 1927 because "[f]ar from seeking to multiply proceedings . . . [he] attempt[ed] to expedite dismissal of a case where a discharge was unlikely and whose underlying issues were best pursued, in other forums."[122]
1. Applicable Law
Section 1927 provides:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof[123] who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.
28 U.S.C. § 1927. Section 1927 allows federal courts to assess costs and attorney's fees against an attorney who has unreasonably multiplied the proceedings in a case. Under the plain language of the statute, three essential requirements must be satisfied with respect to an award of sanctions under § 1927:(1) the attorney must engage in "unreasonable and vexatious" conduct; (2) the "unreasonable and vexatious" conduct must be conduct that "multiplies the proceedings;" and (3) the dollar amount of the sanction must bear a financial nexus to the excess proceedings, i.e., the sanction may not exceed the "costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. See Stewart v. Courtyard Management Corp., 155 Fed.Appx. 756, 760, 2005 WL 3114914 at *4 (5th Cir.2005) (citing Peterson v. BMI Refractories, 124 F.3d 1386, 1396 (11th Cir.1997)). Proving that an attorney's behavior was both "vexatious" and "unreasonable" requires "evidence of bad faith, improper motive, or reckless disregard of the duty owed to the court." Id. (quoting Edwards v. General Motors Corp., 153 F.3d 242, 246 (5th Cir.1998)). Section 1927 only authorizes shifting fees that are associated with the persistent prosecution of a meritless claim. Id. (quoting Browning v. Kramer, 931 F.2d 340, 345 (5th Cir.1991)). "Underlying the sanctions provided in 28 U.S.C. § 1927 is the recognition that frivolous . . . arguments waste scarce judicial resources and increase legal fees charged to parties." Baulch v. Johns, 70 F.3d 813, 817 (5th Cir.1995). However, since § 1927 sanctions are penal in nature, and in order not to dampen the legitimate zeal of an attorney in representing his client, § 1927 is strictly construed. See Travelers Insurance Co. v. St. Jude Hosp. of Kenner, La., Inc., 38 F.3d 1414, 1416 (5th Cir.1994). Orders imposing sanctions for under § 1927 are reviewed for abuse of discretion. Id.
2. Application of the Law to the Facts
The Bankruptcy Court justified its decision to sanction Barry under § 1927 on two bases: (1) Barry's filing of the motion *354 to dismiss, and (2) Barry's instructing the debtor not to attend or produce documents at the continued creditors' meetings.
(a) Motion to Dismiss
The Bankruptcy Court abused its discretion by finding that Barry's motion to dismiss was vexatious just because the court found it to be meritless. Section 1927 requires a sanctioning court to do more than disagree with a party's legal analysis; the court must make a separate determination on both the issue of the reasonableness of the claims and the purpose for which they were instituted. See Calhoun, 34 F.3d at 1300-01. For the same reasons that this court has already concluded that the Bankruptcy Court could not plausibly have found that Barry filed the motion to dismiss in bad faith, the court concludes that the Bankruptcy Court could not plausibly have found that Barry filed the motion for an improper purpose. See § IV.B.2(c)(1)(B). Accordingly, the court concludes that the Bankruptcy Court abused its discretion by sanctioning Barry under § 1927 for having filed the motion to dismiss. See Stewart, 155 Fed.Appx. at 760, 2005 WL 3114914 at *4 (proving that sanctions are justifiably imposed under § 1927 requires "evidence of bad faith, improper motive, or reckless disregard of the duty owed to the court").
(b) Debtor's Failure to Attend Continued Creditors' Meetings or to Produce Documents
The Bankruptcy Court abused its discretion by sanctioning Barry under § 1927 for having instructed the debtor not to attend or to produce documents at the continued creditors' meetings because this conduct did not multiply the proceedings in the bankruptcy case and was not associated with Barry's prosecution of a meritless claim. See Browning, 931 F.2d at 345 ("Under § 1927, only those fees and costs associated with the persistent prosecution of a meritless claim' may be awarded."). Moreover, for the reasons explained in § IV.C.2(d)(3)(B), above, the trustee's records of attorney's fees and costs do not allow identification of any fees and costs incurred by the trustee that can reasonably be attributed to Barry's having instructed the debtor not to attend or produce documents at the continued creditors' meeting.
3. Conclusions as to Sanctions Under 28 U.S.C. § 1927
Accordingly, the court concludes that the Bankruptcy Court abused its discretion by sanctioning Barry under § 1927 for having instructed the debtor not to attend or produce documents at the continued creditors' meeting. See 28 U.S.C. § 1927 (the dollar amount of the sanction may not exceed the "costs, expenses, and attorneys' fees reasonably incurred because of such conduct").
V. Conclusions and Order
The Motion of Ronald L. Sommers, Trustee, for Leave to File Surreply Brief (Docket Entry No. 22) is GRANTED. Since the court has not considered any of the items that appellee seeks to have stricken, Appellee's Motion to Strike Certain of Appellant's Record and Issue Designation (Docket Entry No. 23) is MOOT.
For the reasons explained above the Bankruptcy Court's Order Granting the Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate by ordering Barry to pay to the Trustee $2,500 received from the debtor is AFFIRMED, and the Bankruptcy Court's Order Granting the Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate by ordering Barry to pay attorney's fees and *355 costs in the amount of $22,621.89[124] is REVERSED.[125]
NOTES
[1] Order: (1) Granting the Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate; (2) Denying David Barry's Motion to Dismiss the Trustee's Motion for Sanctions Against David Barry For Causing Unnecessary Delay and Expense to the Estate; and (3) Regarding the Court's Show Cause Order of September 1, 2006 Against Beverly Cochener, Chad Cochener, and Jason Hawks, Docket Entry No. 145 in Bankruptcy Case No. 01-34884-H4-7.
[2] Voluntary Petition, Docket Entry No. 1 in Bankruptcy Case No. 01-34884-H4-7 and Item 1 of Appellee's Amended Designation of Additional Items to be Included in the Record on Appeal (Appellee's Amended Record), Docket Entry No. 4.
[3] Id.
[4] Item 2 of Appellee's Amended Record, Docket Entry No. 4.
[5] Schedule 1, Current Income of Individual Debtor(s), Exhibit 2 of Appellee's Amended Record, Docket Entry No. 4,
[6] Notice of Appointment of Trustee, Ronald Sommers, Docket Entry No. 3 in Bankruptcy Case No. 01-34884-H4-7.
[7] Testimony of Ronald Sommers, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 130 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 in Appellant's Designation of Record on Appeal (Appellant's Record), Docket Entry No. 160 in Bankruptcy Case No. 01-34884-H4-7, pp. 33-36; Transcript of Sanctions Hearing held September 27, 2006, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and Item 18 in Appellant's Record, pp. 124-26, 131-35.
[8] Testimony of Jason Hawks, Transcript of Sanctions Hearing held September 27, 2006, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and Item 18 of Appellant's Record, pp. 55-56, 81-82.
[9] Testimony of David Barry, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 137 in Bankruptcy Case No. 01-34884-H4-7 and Item 18 in Appellant's Record (Barry Testimony Only), pp. 11-12, 43-44.
[10] Debtor's Motion to Dismiss, Docket Entry No. 7 in Bankruptcy Case No. 01-34884-H4-7 and Item 1 of Appellant's Record.
[11] Id.
[12] Exhibit B attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 in Appellant's Record.
[13] Docket Entry No. 12. in Bankruptcy Case No. 01-34884-H4-7.
[14] Docket Entry No. 20 in Bankruptcy Case No. 01-34884-H4-7.
[15] See Complaint, Docket Entry No. 1, filed in Adversary Proceeding No. 01-3306.
[16] Exhibit C attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 in Appellant's Record.
[17] See Transcript of Hearing held on September 4, 2001, Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's Record.
[18] Id. at 2.
[19] Id. at 4-5.
[20] Id. at 8-10.
[21] Docket Entry No. 24 in Bankruptcy Case No. 01-34884-H4-7.
[22] Letter of October 17, 2001, Exhibit E attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 of Appellant's Record.
[23] Letter of October 22, 2001, Exhibit F attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 of Appellant's Record.
[24] See Trustee, Ronald Sommers Expedited Motion to Dismiss Debtor's Motion to Dismiss Chapter 7 Proceeding, Docket Entry No. 26, in Bankruptcy Case N. 01-34884-H4-7, and Item 15 of Appellee's Amended Record.
[25] Docket Entry No. 10 in Adversary Proceeding No. H-01-3306.
[26] See Transcript of Hearing held on December 7, 2001, Docket Entry No. 181 in Bankruptcy Case No. 01-34884-H4-7 and Item 9 in Appellant's Record.
[27] Id. at 1-2.
[28] Id. at 2.
[29] See Trustee's Objection to Motion of David W. Barry to Withdraw as Attorney of Record, Docket Entry No. 34 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 of Appellee's Amended Record.
[30] Id. at 2-3 ¶¶ 9 and 11.
[31] See Order Allowing David W. Barry to Withdraw as Attorney of Record, Docket Entry No. 37 in Bankruptcy Case No. 01-34884-H4-7, Docket Entry No. 12 in Adversary Proceeding No. H-01-3306 and Item 10 of Appellant's Record.
[32] See Testimony of Mynde Eisen, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 130 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 in Appellant's Record, pp. 89-90.
[33] See Order Allowing David W. Barry to Withdraw as Attorney of Record, Docket Entry No. 37 in Bankruptcy Case No. 01-34884-H4-7, Docket Entry No. 12 in Adversary Proceeding No. H-01-3306 and Item 10 of Appellant's Record.
[34] See Order Denying Debtor's Motion to Dismiss, Docket Entry No. 41 in Bankruptcy Case No. 01-34884-H4-7 and Item 11 of Appellant's Record.
[35] Trustee's Complaint, Docket Entry No. 39, Bankruptcy Case No. 01-34884-H4-7, and Docket Entry No. 1 in Adversary Proceeding H-02-3261.
[36] Id. at 3 ¶¶ 11-15.
[37] Id. at 4 ¶¶ 16-19.
[38] Id. at 5-6 ¶¶ 20-29.
[39] Docket Entry No. 8 in Adversary Action H-02-3261.
[40] Docket Entry No. 9 in Adversary Action H-02-3261, pp. 1-2.
[41] See Memorandum Opinion and Order, Docket Entry No. 26 in Civil Action No. H-04-4261.
[42] Testimony of Janet Webster, Transcript of Sanctions Hearing held September 27, 2006, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and Item 18 of Appellant's Record, pp. 152-62.
[43] Id. at 163-64.
[44] Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 of Appellant's Record, p. 5 ¶ 20.
[45] See Order, Docket Entry No. 95 in Bankruptcy Case No. 01-34884-H4-7 and Item 21 of Appellee's Amended Record.
[46] See Transcript of Motion Hearing Held on September 28, 2006, Docket Entry No. 132 in Bankruptcy Case No. 01-43883-H4-7, and Item 19 of Appellant's Record, p. 98.
[47] See Transcript of Motion Hearing Held on October 25, 2006, Docket Entry No. 111 in Bankruptcy Case No. 01-43883-H4-7, and Item 21 of Appellant's Record.
[48] Order: (1) Granting the Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate; (2) Denying David Barry's Motion to Dismiss the Trustee's Motion for Sanctions Against David Barry For Causing Unnecessary Delay and Expense to the Estate; and (3) Regarding the Court's Show Cause Order of September 1; 2006 Against Beverly Cochener, Chad Cochener, and Jason Hawks, Docket Entry No. 145 in Bankruptcy Case No. 01-34884-H4-7.
[49] Id. at 2. Despite the language in the Order that describes the amount of sanctions ordered as the amount of attorneys fees and costs expended by the Trustee, the accompanying Memorandum Opinion explains that $2,500 of this amount represents disgorgement of the $2,500 retainer that Barry received from the debtor. See In re Cochener, 360 B.R. at 596.
[50] Appellant's Brief, Docket Entry No. 8, pp. 8-12 ¶¶ 54-63.
[51] Id. at 8.
[52] Id. at 25.
[53] Brief for Appellee Ronald J. Sommers, Trustee (Appellee's Brief), Docket Entry No. 17, pp. 31-32.
[54] Ackerman, 960 F.2d at 1020, was a patent case in which a rebuttable presumption of economic and material prejudice arises if the accused infringer establishes that the patentee delayed filing suit for over six years after receiving notice of the infringing activity. Id. at 1034-36. The patentee may rebut the presumption by coming forward with evidence that raises a genuine issue of fact as to either reasonableness or material prejudice. Id. at 1038.
[55] See Order Allowing David W. Barry to Withdraw as Attorney of Record, Docket Entry No. 37 in Bankruptcy Case No. 01-34884-H4-7, Docket Entry No. 12 in Adversary Proceeding No. H-01-3306 and Item 10 of Appellant's Record.
[56] Appellant's Brief, Docket Entry No. 8, p. 10 ¶ 58. See also Appellant's Reply Brief, Docket Entry No. 21, p. 5.
[57] Appellant's Brief, Docket Entry No. 8, pp. 11-12 ¶¶ 61-63, and p. ¶ 87.
[58] Appellee's Brief, Docket Entry No. 17, pp. 33-34. Although Barry filed a rely brief, he failed to address either of these arguments raised by the trustee therein. See Appellant's Reply Brief, Docket Entry No. 21,
[59] Appellant's Brief, Docket Entry No. 8, p. 12 § 63.
[60] See Appellee's Brief, Docket Entry No. 17, p. 33 (asserting that Barry would not have been a proper party to the adversary), and Appellant's Reply Brief, Docket Entry No. 21.
[61] See also Crowe II, 261 F.3d at 563 (citing Matter of Thalheim, 853 F.2d 383, 389 n. 9 (5th Cir.1988) and In re Medrano, 956 F.2d 101, 102 (5th Cir.1992)).
[62] Appellant's Brief, Docket Entry No. 8, pp: 13-14 ¶¶ 65-66.
[63] Appellant's Brief, Docket Entry No. 8, p. 19 ¶ 75.
[64] Appellee's Brief, Docket Entry No. 17, pp. 20-21.
[65] Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78, in Bankruptcy Case No. 01-34884-H4-7 and Item 12 of Appellant's Record.
[66] See, e.g., Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 130 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 in Appellant's Record, pp. 7-24.
[67] See also In re Cochener, 360 B.R. at 570-71 ("[T]his Court imposes sanctions against Barry for five different actions that he took. Of these actions, only the Motion to Dismiss, which included blatantly false factual and legal contentions, would have been subject to Bankruptcy Rule 9011. The remainder of the actions were not related to positions Barry took before this Court, but rather involved either advice to the Debtor or communications with the Trustee. It is clear that this mixed conduct is the exact situation to which Chambers referred as being `intertwined' and appropriate for sanctioning solely under the umbrella of inherent powers.").
[68] Appellant's Brief, Docket Entry No. 8, p. 14 ¶ 66.
[69] Although the Bankruptcy Court sanctioned Barry under 11 U.S.C. § 105 and its inherent power, since the conduct alleged to be sanctionable was Barry's filing of the motion to dismiss, this principle of Rule 11 law is equally applicable in this context and required the Bankruptcy Court to evaluate Barry's conduct at the time he filed the motion to dismiss.
[70] See Transcript of Hearing held on September 4, 2001, Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's Record.
[71] Id. at 3-5.
[72] Id. at 7.
[73] Id. at 8-10.
[74] Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78, in Bankruptcy Case No. 01-34884-H4-7 and Item 12 of Appellant's Record.
[75] Id. at 7 ¶ 24.
[76] Id. at 8 ¶ 26.
[77] Id. at 8,
[78] See Transcript of Hearing held on September 4, 2001, Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's Record, p. 5 (trustee's attorney stated, "I think this case, unfortunately, I think what's happened is that it shouldn't have been filed.").
[79] The court has reversed the order of these factors from that contained in the Bankruptcy Court's opinion, In re Cochener, 360 B.R. at 581.
[80] Debtor's Motion to Dismiss, Docket Entry No. 7 in Bankruptcy Case No. 01-34884-H4-7 and Item 1 of Appellant's Record.
[81] See Appellant's Brief, Docket Entry No. 8, pp. 16-17 ¶ 71 explaining that Barry had provided Judge Greendyke a case which seemed to strongly support his position: In re Geller, 74 B.R. 685 (Bankr.E.D.Pa.1987), a case that construed 11 U.S.C. § 707(a).
[82] See Transcript of Hearing held on September 4, 2001, Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's Record, pp. 3-4. See also Testimony of David Barry, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 137 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 (Barry Testimony Only) in Appellant's Record, pp. 11-12, 43-44.
[83] Appellant's Brief, Docket Entry No. 8, pp. 16-17, ¶ 71; Appellant's Reply Brief, Docket Entry No. 21, pp. 3, 10, 13-14.
[84] In May of 2002 the Bankruptcy Court entered a judgment in the adversary action filed by the debtor's former spouse decreeing "all unpaid balances due and' owing Plaintiff, JOHN COCHENER, by BEVERLY COCHENER pursuant to the divorce decree entered on November 3, 2000 . . . plus interest accrued . . . nondischargeable pursuant to 11 U.S.C. § 523(a)(15)." See Docket Entry No. 20 in Adversary Case No. 01-3306.
[85] See Transcript of Hearing held on September 4, 2001, Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's. Record, p. 5 (attorney for the trustee stated, "I think this case, unfortunately, I think what's happened is that it shouldn't have been filed.").
[86] Appellant's Brief, Docket Entry No. 8, pp. 23-24. See also Transcript of Hearing held on September 4, 2001, Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's Record, pp. 3-4. See also Testimony of David Barry, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 137 in Bankruptcy Case No. 011-34884-H4-7 and Item 17 (Barry Testimony Only) in Appellant's Record, pp. 11-12, 43-44.
[87] See Appellant's Brief, Pocket Entry No, 8, pp. 23-24.
[88] Although the debtor's petition was filed in May of 2001, when the Trustee testified on September 27, 2006, he stated that no distribution had yet been made to creditors. See Transcript of Sanctions Hearing held September 27, 2006, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and Item 18 in Appellant's Record, p. 145.
[89] The court has reversed the consideration of these factors from that contained in the Bankruptcy Court's opinion. See In re Cochener, 360 B.R. at 581.
[90] Although the trustee ultimately prevailed against the debtor on this issue, the default judgment that he obtained resulted from the debtor's failure to defend herself in a timely manner. Arguments that the debtor presented in her attempt to set aside the default judgment suggest that she may have had colorable defenses to the fraudulent transfer allegations.
[91] See Transcript of Hearing held on September 4, 2001, Docket Entry No. 21 in Bankruptcy Case No. 01-34884-H4-7 and Item 8 in Appellant's Record, p. 7.
[92] See Debtor's Motion to Dismiss, Docket Entry No. 7 in Bankruptcy Case No. 01-34884-H4-7 and Item 1 of Appellant's Record. See also Testimony of Jason Hawks, Transcript of Sanctions Hearing held September 27, 2006, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 18 in Appellant's Record, p. 85 (stating:
Q On page 2. That is not your signature, is it?
A No, ma'am: that is my signature with permission,
Q Okay. So would Mr. Barry call you and say "I'm filing this motion to dismiss. You're still attorney of record, so I need you to be on the pleading. Can I sign your name"?
A Correct.
Q And you agreed to that?
A Yes, ma'am.).
[93] See Testimony of Mynde Eisen, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 135 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 17 in Appellant's Record, pp. 118-19 (testifying that the time stamp on the motion to dismiss indicating when it was filed with the clerk's office and the time stamp on the letter indicating when it was faxed to Sommers shows that the motion was filed before the letter was sent to Sommers, and explaining that sanctions were not sought against Hawks because he sent this letter to the debtor).
[94] Exhibit A attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 in Appellant's Record.
[95] See Motion To Substitute Attorney of Record, Docket Entry No. 12 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 8 in Appellee's Record. Clerk's stamp and entry on Clerk's docket list show that this motion was filed on July 24, 2001.
[96] See Testimony of Jason Hawks, Transcript of Sanctions Hearing held September 27, 2006, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 18 in Appellant's Record, p. 84 ("I thought I had passed the football, but I guess I was technically still attorney of record.").
[97] See Testimony of David Barry on August 31, 2006, Transcript of Sanctions Hearing, Docket Entry No. 137 in Bankruptcy Case No. 01-34884-H4-7 and "Barry Testimony Only" included in Item No. 17 of Appellant's Record, p. 10. See also Testimony of David Barry on September 27, 2006, Transcript of Sanctions Hearing, Docket Entry No. 131 in Bankruptcy Case No. 01-34884-H4-7 and included in Item No. 18 of Appellant's Record, p. 20 describing his July 12, 2001, letter to Hawks asking if Hawks wanted him to continue as co-counsel or to substitute in as attorney of record; and Disclosure of Compensation Under 11 U.S.C. Sec. 329 and B.R. 2016(B), Docket Entry No. 25 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 59 of Appellee's Record (disclosing Barry's receipt of $2,500 fee from debtor signed by Barry ort October 15, 2001).
[98] See Motion To Substitute Attorney of Record, Docket Entry No. 12 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 8 in Appellee's Record. Clerk's stamp and entry on Clerk's docket list show that this motion was filed on July 24, 2001.
[99] See Exhibit B attached to Trustee's Motion for Sanctions, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 12 of Appellant's Record.
[100] See Exhibit C attached to Trustee's Motion for Sanctions, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 12 of Appellant's Record.
[101] Id.
[102] The statute provides that "(a) The debtor shall . . . (3) if a trustee is serving in the case . . . cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title." 11 U.S.C. § 523(a)(3).
[103] Appellant's Brief, Docket Entry No. 8, p. 14 ¶ 67.
[104] Exhibit E attached to Trustee's Motion for Sanctions, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 12 of Appellant's Record.
[105] Appellant's Reply Brief, Docket Entry No. 21, p. 15.
[106] Id.
[107] Docket Entry No. 174 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 8 in Appellant's Record, p. 4.
[108] Id. at 4-5.
[109] Id. at 5.
[110] Id. at 10.
[111] Exhibit F attached to Trustee's Motion for Sanctions, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 12 of Appellant's Record.
[112] Id.
[113] See Testimony of David Barry, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 137 in Bankruptcy Case No. 01-34884-H4-7 and Item No. 17 in Appellant's Record, pp. 25, 27, and 36 (testifying that by October 30, 2001, he and the trustee's attorney had negotiated an agreement regarding the documents that the debtor should produce at the 2004 examination).
[114] Exhibit C attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78 in Bankruptcy Case No. 01-34884-H4-7 and Item 12 in Appellant's Record.
[115] Appellant's Brief, Docket Entry No. 8, pp. 20-22; Appellant's Reply Brief, Docket Entry No. 21, pp. 15 and 16-17:
[116] Exhibit C attached to Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 78, in Bankruptcy Case No. XX-XXXXX-X-XX-X and Item 12 of Appellant's Record.
[117] Appellant's Brief, Docket Entry No. 8, p. 22; Appellant's Reply Brief, Docket Entry No. 21, pp. 15-16.
[118] See Attachment No. 2 to Index of Attachments to Memorandum Opinion on:" (1) Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate; (2) David Barry's"Motion to Dismiss the Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate; and (3) Regarding the Court's Show Cause Order of September 1, 2006, Against Beverly Cochener, Chad. Cochener, and Jason Hawks, Docket Entry No. 146-2. See also Testimony of the Trustee's attorney, Mynde Eisen, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 130 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 in Appellant's Record, pp. 96-99 (stating that damages sought related to time required to handle the motion to dismiss and interactions with Barry).
[119] Testimony of Mynde Eisen, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 130 in Bankruptcy Case No. XX-XXXXX-XXX-X and Item 17 in Appellant's Record, pp. 102-103.
[120] Testimony of Ronald Sommers, Transcript of Sanctions Hearing held August 31, 2006, Docket Entry No. 130 in Bankruptcy Case No. 01-34884-H4-7 and Item 17 in Appellant's Record, pp. 67-68.
[121] See June 15, 2006 letter from Mynde Eisen to David Barry, Exhibit 1 attached to Motion to Dismiss Trustee's Motion for Sanctions Against David Barry for Causing Unnecessary Delay and Expense to the Estate, Docket Entry No. 79 in Bankruptcy Case No. 01-34884-H4-7, and Item 13 in Appellant's Record.
[122] Appellant's Reply Brief, Docket Entry No, 21, p. 9.
[123] For purposes of this Memorandum Opinion and Order the court has assumed without deciding that a bankruptcy court is a "court of the United States."
[124] This amount was reached by subtracting the $2,500 retainer fee from the aggregate amount of sanctions imposed by the Bankruptcy Court $25,121.89.
[125] Both parties in this case have had numerous opportunities to submit written materials in support of their arguments. As the length of this Memorandum Opinion and Order indicates, the court has expended considerable time reading those materials and performing a significant amount of independent research to be as fully informed as possible when addressing their arguments. While, because of the sheer volume of information presented, it is not impossible that some arguments were overlooked, the failure to expressly address a particular argument in this Memorandum Opinion and Order reflects the court's judgment that the argument lacked sufficient merit to warrant discussion.
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287 F. Supp. 465 (1967)
Frank J. GEMIGNANI, Individually and as Administrator of the Estate of Gerald Robert Gemignani, Deceased
v.
PHILADELPHIA PHILLIES NATIONAL LEAGUE BASEBALL CLUB, INC.
Civ. A. No. 32001.
United States District Court E. D. Pennsylvania.
December 14, 1967.
*466 Arthur G. Raymes, John J. McCarty, Richter, Lord, Toll Cavanaugh & McCarty, Philadelphia, Pa., for plaintiff.
John B. Hannum, Pepper, Hamilton & Sheetz, Philadelphia, Pa., for defendant.
MEMORANDUM AND ORDER
HIGGINBOTHAM, District Judge.
In this action brought under the Pennsylvania Survival Act, P.L. 512, April 18, 1949, 20 Pa.Stat.Ann. § 320.601, defendant has moved for summary judgment pursuant to Rule 56, F.R.Civ.P., on the ground that the two year statute of limitations had run prior to the filing of the complaint. 12 Pa.Stat.Ann. § 34 (1895). The relevant facts, considered for the purposes of this motion in the light most favorable to the plaintiff, are as follows:
During September, 1958, the deceased signed a contract to play baseball for defendant's minor league team at Bakersfield.
In March, 1959, the deceased attended Spring training with the defendant and was there examined by the defendant's doctor. At the examination, there was revealed a symptomatic blood condition. Following this discovery, it is alleged, neither the defendant nor its doctor treated the deceased for this condition, nor did they advise either the deceased or his family of its existence so that treatment could have been obtained for him. It is this failure, which allegedly precluded early treatment thereby allowing the condition to develop into one of terminal nature, which is the basis for this action.
On July 15, 1960, defendant gave plaintiff an unconditional release from the contract. Deceased then returned home and, on August 3, 1960, was hospitalized because of a serious kidney problem.
Sometime in August, 1960, plaintiff learned that the deceased's doctor, Dr. Kitchen, had contacted defendant and had learned of the 1959 examination and of the symptomatic blood condition revealed thereby. There is no evidence presently before me that, prior to August 31, 1960, plaintiff reasonably suspected or should have reasonably suspected that the examination, the facts which it revealed and the failure of defendant to either treat it or inform deceased's family about it, were causally connected to the then condition of the deceased.
On September 3, 1960, deceased died as a result of uremic kidneys.
*467 On August 31, 1962, the complaint was filed.
The question which is dispositive of defendant's motion is whether the statute of limitations begins to run from the date on which the plaintiff knows facts from which, through the exercise of reasonable diligence he could learn the cause of the injury; or whether the statute begins to run from the time the plaintiff, through the exercise of reasonable diligence should have learned both the facts in question and that those facts bore some causative relationship to the injury.
As for the statute of limitations, there seems to be no dispute here that the statute runs, on causes arising from subsurface injury, from the time of discovery of the cause of the harm or the time when the cause of the harm reasonably should have been discovered, whichever is earlier. * * * The same principle has been adverted to in a cause arising from the alleged malpractice of a surgeon in failing to provide for the removal, at the proper time, of a rubber tube left in the patient's wound, which was invisible from the outside. Byers v. Bacon, 1915, 250 Pa. 564, 95 A. 711. * * *" (Emphasis added.) Smith v. Bell Telephone Co., 397 Pa. 134, 141-142, 153 A.2d 477, 481 (1959). See also Ayres v. Morgan, 397 Pa. 282, 154 A.2d 788 (1959).
It is true that in the cited cases, the courts spoke in terms of discovery of facts. However, it is also clear from reading those cases that discovery of the causative facts necessarily gave use, simultaneously to discovery of the causative relationship. Moreover, it would require the most narrow reading of the language of those cases and the ignoring of the policy basis thereof to fail to recognize that "discovery of the cause of harm" must comprehend discovery of both the facts or occurrences and also discovery of reason to believe that those facts might bear a causative relationship to the harm.
While plaintiff certainly must exercise reasonable diligence to inform himself of the facts and how they may relate to each other, the statute should not begin to run until, through reasonable diligence he should have reason to know that a claim exists.
As scientific knowledge and diagnostic techniques evolve, it becomes increasingly unfair to have the statute run from the time at which the injured party or his representative knew facts which might have led him to discover a cause of the injury even though at the time these facts were learned there was no reason for him to associate them with the injury in question. On the other hand, "much of the seeming hardship to a defendant is relieved by the fact that the same unavailability of scientific knowledge which may excuse a plaintiff's delay may also serve to excuse the defendant's conduct which is claimed to have been lacking in reasonable care." Daniels v. Beryllium Corp., 227 F. Supp. 591, 595 (E.D.Pa.,1964).
There is nothing in the record as it now stands so indisputable as to require that I find that, as a matter of law, the plaintiff, prior to August 31, 1960, should reasonably have known or suspected that the alleged negligence of the defendant following the March, 1959 examination was a cause of his son's then terminal illness. Thus, defendant's present motion for summary judgment must be denied. It should be clear, however, that this denial will not preclude the trial judge or jury from making a finding adverse to the plaintiff with respect to his knowledge of both causative facts and causative relationship prior to August 31, 1960, and consequently granting any motion filed by defendant for a directed verdict.
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19 F. Supp. 152 (1937)
CHESTER C. FOSGATE CO. et al.
v.
KIRKLAND et al. (ROPER BROS., Inc., et al., Interveners).
District Court, S. D. Florida.
March 25, 1937.
*153 *154 Thomas B. Adams, of Jacksonville, Fla., and William N. Ellis and J. J. Parrish, Jr., both of Orlando, Fla., for plaintiffs and intervenors.
Herbert S. Phillips, U. S. Dist. Atty., of Tampa, Fla., John S. L. Yost, Sp. Asst. to Atty. Gen., of Washington, D. C., Doyle E. Carlton, of Tampa, Fla., S. L. Holland, of Bartow, Fla., and E. G. Grimes and W. M. Smiley, both of Bradenton, Fla., for defendants.
AKERMAN, District Judge.
This cause is now before the court for the fourth time. It first came before the court upon application for temporary injunction as prayed for in the original bill, which temporary injunction against L. P. Kirkland and others, as the Florida Citrus Control Committee and against Henry A. Wallace, as Secretary of Agriculture, was granted January 28, 1937, effective until February 1, 1937.
The cause was next considered upon application of the plaintiffs to continue the temporary restraining order, and upon application of the defendant Henry A. Wallace to be dismissed because not a resident of this district, and upon objections of L. P. Kirkland and others to any extension of the injunction order, all of which resulted in a further order dated February 2, 1937, whereby the motion of defendant Wallace to be dismissed was granted, and whereby the application of the plaintiffs for a continuance of said injunction, as against said Control Committee, was denied because the committee had no enforcing powers, but the bill was retained as against the attacking motions in so far as the same might be deemed a motion to dismiss the bill.
The cause next came before the court upon the renewed application of the plaintiffs for temporary injunction based upon the original bill and an amendment to the original bill filed February 6, 1937, also upon a petition of intervention of Goldsmith Fruit Company, also upon petition of intervention by N. S. De Forest, also upon petition of intervention by Roper Brothers, Inc., and others, also upon objections by said District Attorney and others as new parties brought in by the amendment to said bill, to the granting of temporary *155 restraining order, also upon motions of some of said new defendants to be dismissed because not residents of this district, also upon objections of L. P. Kirkland and others as constituted the Control Committee to the granting of temporary injunction; all of which resulted in a further order made in this cause February 10, 1937, dismissing the intervention of Goldsmith Fruit Company, but allowing the other interventions to stand, dismissing all of the new defendants brought in by said amendment to the bill except Herbert S. Phillips, as United States District Attorney, continuing the application for temporary injunction until such future date as might be fixed by the court or by agreement of the parties, and requiring the defendant Herbert S. Phillips to make answer to the bill on March Rule Day, 1937.
L. P. Kirkland and others, constituting the Control Committee, on March 1, 1937, filed their motion to dismiss the bill of complaint as amended, and the defendant Herbert S. Phillips, as United States District Attorney, at the same time filed a like motion to dismiss. This, the fourth hearing, comes up on said motions to dismiss.
The original bill of Chester C. Fosgate Company and others attacked the validity of that certain citrus marketing agreement alleged to have been signed by Henry A. Wallace, Secretary of Agriculture, May 4, 1936, and the validity of that certain citrus handling order, known as order No. 7, issued by said Secretary of Agriculture May 4, 1936, and the validity of those sections, and parts of sections, of the Agricultural Adjustment Act, now 7 U.S. C.A. §§ 601 to 610, inclusive, upon which said marketing agreement and said handling order were predicated. It is alleged in the bill that each of the plaintiffs, save one a grower, is a handler of citrus fruits, who picks, packs, and ships citrus fruits from Florida in interstate commerce, and that, in consequence, each comes within the restrictive provisions provided for in said handling order, and that each has been restricted in the shipment of citrus fruits, pursuant to weekly prorate allotments made by said Citrus Control Committee, acting under the authority of said order and under the further orders and approvals made by said Secretary of Agriculture. The plaintiffs complain that the restrictions so imposed, have prevented them from operating their several citrus packing houses as they normally would and have cut down their operations to from one to two days per week, causing them loss of business with citrus growers who would ordinarily contract with them, also causing disorganization of their labor forces and other damages. The bill also charged that said Agricultural Adjustment Act (as amended [7 U.S.C.A. § 601 et seq.]), the agreement and handling order complained of, are severally void, because in conflict with sundry provisions of the Federal Constitution and the amendments thereto. Finally, the bill charged that on account of nonrestrictions in the handling of citrus fruits from the Texas citrus area, and on account of several severe freezes in California occurring in January of this year, that the prorate restrictions provided for by said order No. 7 are now unreasonable and should not, in any event, be longer maintained. The bill prayed for a temporary and permanent injunction against the enforcement of said order, and for a decree declaring the same to be void, etc.
The amendment to the bill of complaint set up that the defendant Herbert S. Phillips, as United States District Attorney, in co-operation with the Special Assistant to the Attorney General and other attorneys representing the Secretary of Agriculture, were threatening to institute proceedings, civil and semicriminal, against the plaintiffs for alleged violations of said handling order and the allotments made by the control committee in pursuance thereof; that the said attorneys had already instituted one such proceeding against the Goldsmith Fruit Company of Fort Pierce, Fla., by a suit in the name of United States of America against said company, and such threats of enforcement added to the injuries sustained by the said plaintiffs, as more fully set out in the original bill, were causing irreparable injury to the plaintiffs; wherefore the plaintiffs renewed the application for a temporary injunction and permanent injunction and also prayed that the court enter a declaratory decree pursuant to 28 U.S.C.A. § 400, adjudging said marketing agreement and said handling order No. 7 to be void and of no effect.
Roper Brothers, Inc., and others, whose petitions of intervention were allowed to stand, made like complaints and prayed that the same relief, which might be awarded to the plaintiffs, be also awarded to them as intervenors.
*156 The motions to dismiss now before the court on the part of Kirkland and others, as constituting the control committee, and on the part of Phillips, as United States District Attorney, admit as true all material facts which are well pleaded in the bill of complaint as amended. Payne v. Central Pacific R. Co., 255 U.S. 228, 232, 41 S. Ct. 314, 65 L. Ed. 598; Street v. Lincoln S. D. Co., 254 U.S. 88, 89, 41 S. Ct. 31, 65 L. Ed. 151, 10 A.L.R. 1548; Interstate Natural Gas Co. v. Gully (D.C.) 8 F. Supp. 174, affirmed 82 F.(2d) 145 (C.C.A.5).
The motion to dismiss filed by Kirkland and others, constituting the control committee, is a general motion attacking the jurisdiction of the court, asserting the absence of an indispensable party, and attacking the sufficiency of the bill as amended. The motion to dismiss filed by the defendant Phillips is likewise a general motion attacking the sufficiency of the bill and contending, among other things, as does the motion by Kirkland et al., that all contentions involved were determined adversely to the plaintiffs by a ruling made on February 25, 1937, by Hon. John W. Holland of the Miami Division of said court, in the suit of United States of America v. Goldsmith Fruit Company (D.C.) 19 F. Supp. 147. A letter from the said Judge to the several counsel engaged in that case, and purporting to set forth the views of said judge respecting the validity of said Agricultural Adjustment Act and said handling order No. 7, is attached to the motion to dismiss filed by said Phillips, as "Exhibit A." Passing the propriety of attempting to plead the subject-matter of said letter as a part of a motion to dismiss, I do not have before me the bill of complaint or the answer, or the evidence filed and taken in said suit of United States of America v. Goldsmith Fruit Company, although I gather from said letter and have been informed by the argument of defendants' counsel that the Hon. John W. Holland, upon the pleadings and evidence before him, entertains a view that said Agricultural Adjustment Act and said handling order are in all respects valid and binding. If the present case had now come before me as a new proceeding after the Goldsmith Case had been heard and ruled upon by Judge Holland, I would have been much inclined to follow his views in order to make the opinions and holdings of the several judges of this district harmonious where possible, but it appears by this record that the proceedings before Judge Holland were not filed until February 4, 1937, and that his ruling as evidenced by said joint letter to counsel was not made until February 25, 1937; whereas in this cause I had previously indicated my view to be that said Agricultural Adjustment Act was void and that said marketing agreement was void and said handling order also void, because by my order of February 2, 1937, I had sustained the bill of complaint as against attacks contained in all of the motions and objections up to that time interposed by the defendants, and by my order made in this cause on February 10, 1937, I again sustained the bill of complaint as amended as against the further motions attacking the same and required Herbert S. Phillips, as United States District Attorney, to answer the bill as amended on or before March Rule Day. Having previously made such orders in this cause, I do not feel myself bound, either on account of comity, or otherwise, to follow the contrary views of Judge Holland. In the case of Interstate Natural Gas Co. v. Gully (D.C.) 8 F. Supp. 174, 176, District Judge Holmes, now member of the Court of Appeals, Fifth Circuit, said: "As men must be just before they are generous, courts must dispense justice rather than comity, if the one endangers the other." This principle seems to require that I now follow my own independent judgment as to the several contentions of law presented by the pleadings in this cause.
A preliminary contention made by the motion of Kirkland et al., as control committee, is that Secretary Wallace is an indispensable party, without whose presence in this suit no relief can be granted to the plaintiffs. That contention is without merit. Similar contentions were made and overruled in the following cases: Yarnell v. Hillsborough Packing Co., 70 F. (2d) 435 (C.C.A.5), Ryan v. Amazon Petroleum Co., 71 F.(2d) 1, 4 (C.C.A.5); Rood v. Goodman, 83 F.(2d) 28, 31 (C.C.A. 5).
It is also contended by the defendants constituting the control committee that plaintiffs should first pursue their administrative remedies provided for by the Agricultural Adjustment Act, such as found in 7 U.S.C.A. § 608c (15), before resorting to a court of equity for relief. In the first place it is my opinion, for reasons hereinafter stated, that all of the Agricultural *157 Adjustment Act, relating to the marketing agreement and handling order complained of, is void, with the result that the administrative provisions of said act urged by the defendant must fall with the other parts thereof. United States v. David Buttrick Company (D.C.) 15 F. Supp. 655, text 659, supporting the sixth headnote. It is further my view that the attacks made by the bill and amendment thereto upon the marketing agreement and handling order No. 7, predicated upon sundry provisions of the Federal Constitution and amendments thereto, are questions of law and not administrative questions, with the result that the Secretary of Agriculture has, in any event, no jurisdiction or authority to determine such questions. This was the view taken by the Fifth Circuit Court of Appeals in the case of Gully v. Interstate Natural Gas Co., 82 F.(2d) 145, first headnote and supporting text. The Supreme Court of the United States denied certiorari in the Gully Case, 298 U.S. 688, 56 S. Ct. 958, 80 L. Ed. 1407.
There are still other fundamental reasons why the so-called administrative remedies do not exist or are insufficient to displace the power of a court of equity to give relief. It appears by section 2 of the amendment to the bill and by the copy of petition attached thereto that there are now pending before the Secretary of Agriculture petitions by several of the plaintiffs and interveners for cancellation or modification of handling order No. 7; also that by such petitions it is charged that the statutory consent of 50 per cent. of handlers (7 U.S.C.A. § 608c (8), as a condition precedent to the making of the order, was not obtained. The so-called administrative provisions of the Agricultural Adjustment Act entirely dispense with the right of trial by jury guaranteed by the Seventh Amendment to the Federal Constitution as applied to the determination of such questions as are embodied in said petitions.
It is a further fundamental element of due process of law that no judge shall try his own case. Sections 608b and 608c (8) of 7 U.S.C.A. require that the Secretary of Agriculture shall be one of the contracting parties to any marketing agreement executed pursuant to the act, and yet the Secretary is set up as the judge to try issues of act and issues of law attacking the validity of such an agreement.
The original objections of L. P. Kirkland et al., presented before me February 1 and 2, 1937, and filed with the clerk February 8, 1937, had attached thereto as "Exhibit A" a copy of certain regulations adopted by the Secretary and approved by the President for hearing and determining such petitions as referred to in the amendment to the bill filed in this case. Those regulations were published in Federal Register, and by act of Congress the court is required to take judicial notice thereof. By those regulations (section 303) the Secretary to whom such a petition is addressed is deemed to be the defendant or respondent and is to be represented by counsel adverse to the petitioner. Yet the hearing is to be conducted (section 302) by the Secretary or by a "Presiding Officer" or "such officer or employee of the Department as he may designate for the purpose." A code of procedure is then provided by said regulations adopted by the Secretary and approved by the President, prescribing how petitions shall be framed and filed, hearings conducted, evidence taken, etc. After the hearing is completed (section 312), the "Presiding Officer" transmits all of the record including the evidence taken to the office of the "Hearing Clerk" in Washington, D. C. The petitioner is accorded the right to file a brief in support of his contentions. In the course of time the Secretary (section 314) is required to "render his decision based upon the record, by making such final rulings upon the prayers of the petition as may be proper and in accordance with the law." By virtue of the Agricultural Adjustment Act the Secretary of Agriculture is now undertaking to supervise various branches of agriculture, horticulture, stock raising, and dairying in various parts of the United States. Before these multitudinous duties were taken over, he already had a great multitude of official duties to perform by virtue of prior enactments. Thus, in the very nature of the case a review of a record built up under such regulations as above referred to, must necessarily be reviewed and submitted to him by some one of his many subordinates, whom the petitioner and petitioner's attorneys in such case never see and never know. "The general rule undoubtedly is that Judicial Offices must be exercised in person, and that a Judge cannot delegate his authority to another" 6 R.C.L. 172. Such procedure *158 whereby the rights, properties, and liberties of citrus handlers and citrus growers are determined, is not due process of law guaranteed by the Fifth Amendment to the Federal Constitution. Moreover, such judicial power vested in such administrative officer and his subordinates is in my opinion an encroachment on the judicial branch of the government as defined by article 3 of the Federal Constitution. O'Donoghue v. United States, 289 U.S. 516, 53 S. Ct. 740, 77 L. Ed. 1356. Otto v. Harllee, 119 Fla. 266, 161 So. 402, and text supporting fourth headnote. Ponder v. Graham, 4 Fla. 23, 42, 43.
It is further contended by Kirkland et al., as well as by the District Attorney, that this court has no power to grant any relief on account of anything complained of in the bill of complaint and amendment thereto on the ground that neither the Secretary of Agriculture nor the Attorney General of the United States has directed Herbert S. Phillips, as United States District Attorney for this district, to institute proceedings against any of the plaintiffs or interveners. I cannot agree with that contention. The bill of complaint and amendment thereto, viz., the amendment filed February 6, 1937, show that all of the defendants, that is to say, those constituting the control committee and also the defendant Phillips, as United States District Attorney, are contending that the Agricultural Adjustment Act is valid in its entirety, also that the alleged handling order and the alleged marketing agreement are valid in all respects and that the plaintiffs and interveners are severally bound by the weekly pro rate of fruit allotted to them severally upon the recommendation of the control committee and approved by the Secretary of Agriculture. It further appears by said pleadings of the plaintiffs that one proceeding was previously instituted and is still pending against the plaintiffs Mr. and Mrs. Ivey, pursuant to 7 U.S.C.A. § 608a, subd. (7), also that the defendant Phillips, as District Attorney, joined by his assistant and other attorneys representing the Department of Agriculture, had instituted an injunction suit against Goldsmith Fruit Company, as previously mentioned. Indeed, each of the motions now under consideration asserts that the ruling made by Judge Holland on February 25, 1937, has already decided all of the contentions made by the plaintiffs in this cause, in favor of the Government, or rather in favor of the power and authority of the Secretary of Agriculture and said control committee. In such circumstances the enforcement of said Agricultural Adjustment Act and of said marketing agreement and handling order has proceeded beyond the mere stage of intention on the part of the defendants. Certainly the matter has proceeded to the point where it can be truly said that there is a "case" or "controversy" pending between the plaintiffs and interveners on one side and the defendants on the other. The plaintiffs show by their pleadings that the injuries from the activity of the defendants are not only threatened, but are now being suffered and are of such a character as to be irreparable. "Prevention of impending injury by unlawful action is a well-recognized function of courts of equity." Pierce v. Society of Sisters, 268 U.S. 510, 536, 45 S. Ct. 571, 574, 69 L. Ed. 1070, 1078, 39 A.L.R. 468; Ganley v. Wallace (D. C.) 17 F. Supp. 115, 118.
A further inquiry is whether plaintiffs are entitled to a declaratory decree pursuant to 28 U.S.C.A. § 400. On that branch of the case the decision of Judge Tuttle in the case of Black v. Little (D.C.) 8 F. Supp. 867, seems to be very much in point. The decision in that case was rendered upon motion to dismiss a bill praying for injunction against the enforcement of the Agricultural Adjustment Act and praying for a declaratory decree. The defendants in the case were Hugh A. Little acting as Market Administrator under the act, also his two assistants, and Gregory H. Frederick, United States District Attorney. The defendants now before the court in this suit occupy the same or similar positions. The court noted that the bill did not allege that the defendant District Attorney had instituted or threatened to institute any proceedings civil or criminal against the plaintiffs and that it did not appear that the other defendants had any power so to do. Judge Tuttle reached the same conclusion which has heretofore been reached by this court, i. e. that the circumstances did not justify an immediate temporary injunction. Nevertheless he did find that because the defendants asserted the validity of the Agricultural Adjustment Act and were insisting on compliance therewith that there existed a "controversy" between the parties sufficient to warrant the court in giving relief under the late Federal Declaratory Judgment Act. Judge Tuttle *159 followed as a precedent in that behalf the decision of the Supreme Court in Nashville, Chattanooga, etc., R. v. Wallace, 288 U.S. 249, 53 S. Ct. 345, 77 L. Ed. 730, 87 A.L. R. 1191. In the Wallace Case the plaintiff contended that a certain state statute requiring the payment of an excise tax on gasoline was unconstitutional, but that the defendants as public officers charged with the duty of enforcing the statutes asserted that such statutes applied to the plaintiff and that they were demanding payment of the tax. The case at bar is substantially a parallel situation, for here the defendants are not only insisting upon the validity of the statute and demanding compliance therewith by the plaintiffs, but the control committee in addition are asserting the right to collect and are demanding from the plaintiffs payment of seven-eighths of a cent on each box of fruit shipped in interstate commerce to defray the cost of administering the handling order. The conclusion reached by Judge Tuttle as shown by the third headnote of Black v. Little and the supporting text was that the bill in the case before him was sustainable as showing the right in the plaintiffs to have a declaratory decree rendered on the question of the legality or illegality of the Agricultural Adjustment Act, and in consequence he denied the motion to dismiss even though he also held that the situation did not warrant the immediate granting of a temporary injunction.
The decision in Black v. Little has been followed to such an extent that the rules therein laid down may now be regarded as settled. Judge Tuttle's decision was followed and applied by District Judge Kennerly in Ohio Casualty Insurance Company v. Plummer (D.C.) 13 F. Supp. 169. Also by Judge Patterson in Mitchell & Weber Inc. v. Williamsbridge Mills, Inc. (D.C.) 14 F. Supp. 954, 957. Judge Patterson held that under the Declaratory Judgment Act a prayer for declaratory decree may be joined with a prayer for injunctive relief.
In Gully v. Interstate Natural Gas Company, 82 F.(2d) 145, 149, the Fifth Circuit Court of Appeals cited and followed Black v. Little, together with other authorities. Circuit Judge Hutcheson, delivering the opinion of the court, pointed out the remedial character of the Declaratory Judgment Act, and held that in an appropriate case a court may take jurisdiction under that statute and "grant the relief of declaration, either before or after the stage of relief by coercion has been reached." (Italics supplied.) Judge Hutcheson further said: "The purpose of the statute is, we think, wise and benificent. It will, if applied in accordance with its terms, effect a profound, a far-reaching, a greatly to be desired procedural reform." Those pronouncements, coupled with the approval of Judge Tuttle's decision in the case of Black v. Little, show that the present case is an appropriate one for the application of the Declaratory Judgment Act. In the late case of Aetna Life Insurance Company v. Haworth, 57 S. Ct. 461, 81 L. Ed. ___, decided March 1, 1937, the United States Supreme Court followed Nashville, Chattanooga & St. L. R. Co. v. Wallace, supra, 288 U.S. 249, 264, 53 S. Ct. 345, 77 L. Ed. 730, 736, 87 A.L.R. 1191, in the construction of 28 U.S.C.A. § 400. The court also cited with approval the case of Gully v. Interstate Natural Gas Co. (C.C.A.5th) 82 F. (2d) 145, 149.
The plaintiffs and interveners now before the court show by their pleadings that they have large investments in their packing house facilities, and the Agricultural Adjustment Act bristles with penalties and forfeitures for violations of any handling order that may be issued by the Secretary of Agriculture pursuant thereto. It is, therefore, highly important to the several businesses of the plaintiffs and interveners that they be relieved from the uncertainty of liability, and that the cloud of possible forfeiture or the imposition of heavy penalties be lifted.
The two decisions of Judge Holmes, affirmed by the Court of Appeals decision just cited, were Interstate Natural Gas Company v. Gully (D.C.) 8 F. Supp. 174, and Memphis Natural Gas Co. v. Gully (D.C.) 8 F. Supp. 169. Judge Holmes, in overruling motions to dismiss, not only held that the Declaratory Judgment Act was applicable, but he proceeded to pass upon the merits of the bills and granted interlocutory injunctions. The plaintiffs in those cases were claiming exemption from state taxation pursuant to a certain provision of the Mississippi Constitution. So here, it is appropriate that the court should proceed to examine the merits of the attacks made in the plaintiffs' bill, as amended, upon the Agricultural Adjustment Act, the marketing agreement, and the handling order.
*160 The plaintiffs by their bill of complaint, as amended, have attacked the validity of the Agricultural Adjustment Act, the marketing agreement, and the handling order both from a factual standpoint and from a standpoint of law. The motions to dismiss interposed by the defendants now before the court admit the facts set up by the plaintiffs as the basis of their factual attack. The motions to dismiss in effect join issue upon the questions of law raised by the bill, as amended. In my opinion the facts alleged, if true, show that the act, the agreement, and the order are severally void. It is my further opinion that the attacks made from the standpoint of law are also well founded.
Section 11 of the original bill sets up that the handlers of 50 per cent. of the volume of citrus fruits covered or to be covered by the handling order, i. e., order No. 7, issued by the Secretary on May 4, 1936, never did sign the marketing agreement, and that in consequence the Secretary never acquired any jurisdiction or power to issue the handling order. Simmons v. Fessenden, 111 Fla. 83, 149 So. 21, 95 A.L.R. 112.
In connection with those averments it is recited by the printed copy of the handling order attached to the bill of complaint as Exhibit 2 (page 5 of said exhibit), that the alleged marketing agreement was signed by shippers who, during the shipping season of 1934-1935, handled more than 50 per cent. of the volume of oranges, grapefruit, and tangerines marketed during that season in the current of interstate commerce in the Continental United States and Canada. The handling order does not pretend to claim that the handlers of 50 per cent. of the volume of the Florida citrus fruits shipped in such commerce for the season of 1936-1937 signed such agreement. In any event, the bill alleges, section 11, that the signatures by the statutory 50 per cent. of handlers was not obtained. Since the motions to dismiss admit this fact, it cannot be assumed that the same persons, firms, and corporations who handled fruit in the 1934-1935 season also handled fruit in the 1936-1937 season or that the proportions which they severally handled remained the same during the current marketing season. Section 608c, subdivision (8), of title 7 U.S.C.A. plainly provides in part: "No order issued pursuant to this section shall become effective until the handlers * * * of not less than 50 per centum of the volume of the commodity or product thereof covered by such order * * * have signed a marketing agreement, entered into pursuant to section 608b of this title." (Italics supplied.)
It is contended by the defendants that if this statute be so construed as to require an agreement by the handlers of 50 per cent. of the volume of the crop to be handled pursuant to such order that the statute would become impracticable and impossible of fulfillment. That may be so, but the defect is one of legislation, which cannot be cured by judicial decision. If the court were at liberty to approve the selection of a season two years back as the basis of such an agreement, it could with equal propriety approve the selection of a period five years back as the basis for procuring the agreement of handlers of 50 per cent. of the volume, etc. It appears to the court that the question of fact thus raised is sufficient of itself to destroy the validity of the marketing agreement and the handling order predicated thereon. Recitals contained in the handling order itself bear out the averments of the bill in that behalf.
The plaintiffs contend, by section 18 of the original bill, that section 608c (8) of title 7 U.S.C.A. is void, and in derogation of article 1 of the Federal Constitution, in that same undertakes to vest in the handlers of 50 per cent. of the volume of fruit to be effected by the marketing agreement and order, the power to legislate, or rather to make an agreement to be incorporated in an order having the effect of law, binding upon all handlers and producers of Florida citrus fruit. The defendants assert that this contention is without merit, and they rely upon sections 608b, 608c (3) and (4), as showing that the Secretary could determine the terms of, issue and enforce a handling order, irrespective of any consent by the handlers, as provided for in section 608c (6), title 7 U.S.C.A. It is my view, however, that when all parts of section 608c, title 7 U.S.C.A., are considered, such contention of the defendants is untenable. This is made clearly to appear by the provisions of subdivisions (9) and (10) of section 608c, title 7 U.S.C.A. Subdivision (9) provides an alternative method for giving authority to issue a handling order, in the event that the statutory 50 per cent. of handlers defined by subdivision (8) of that section refuse to sign. The alternative procedure thus provided, however, is that the Secretary may issue *161 such an order in such circumstances only in the event the President determines:
"(A) That the refusal or failure to sign a marketing agreement * * * by the handlers * * * tends to prevent the effectuation of the declared policy of this title with respect to such commodity or product, and
"(B) That the issuance of such order is the only practical means of advancing the interests of the producers of such commodity pursuant to the declared policy."
Further parts of subdivision (9) define other things to be found by the President. And so it is that if the President should not intervene, it is not possible for the Secretary to issue any order whatsoever, without procuring an agreement signed by the statutory 50 per cent. of handlers. The same conclusion is borne out by subdivision (10), for in that section it shows that the execution of the agreement must have preceded the issuance of such an order, inasmuch as said subdivision (10) requires that: "No order shall be issued under this section unless it regulates the handling of the commodity or product covered thereby in the same manner as, and is made applicable only to persons in the respective classes of industrial or commercial activity specified in, a marketing agreement upon which a hearing has been held."
The relationship thus defined for 50 per cent. of the handlers is similar to that of one legislative branch in a legislature during the process of enacting a law. Neither House of the Legislature can enact a bill independent of the other; nor can both enact a law independent of the Governor's veto. Since the marketing agreement must be signed by 50 per cent. of handlers, and also by the Secretary, each occupies the position of a separate branch of the legislative body. Such delegation of authority to a part of those engaged in a particular industry has lately been condemned by several decisions of the Supreme Court of the United States, and by several decisions of the State Supreme Courts. Panama Refining Co. v. Ryan, 293 U.S. 388, 420, 55 S. Ct. 241, 248, 79 L. Ed. 446, 458 and 459; Schechter Poultry Corp. v. U. S., 295 U.S. 495, 529, 536, 537, 55 S. Ct. 837, 842, 846, 79 L. Ed. 1570, 1580, 1583, 1584, 97 A.L.R. 947; Carter v. Carter Coal Co., 298 U.S. 238, 311, 56 S. Ct. 855, 872, 80 L. Ed. 1160, 1189; Gibson Auto Co. v. Finnegan, 217 Wis. 401, 259 N.W. 420, 423, fifth headnote and supporting text; State v. Matson Co., 182 Wash. 507, 47 P.(2d) 1003; Van Winkle v. Fred Meyer, Inc., 151 Or. 455, 49 P.(2d) 1140.
In the Carter v. Carter Coal Co. Case, 298 U.S. 238, at page 311, 56 S. Ct. 855, 873, 80 L. Ed. 1160, at page 1189, the court on this subject, among other things, said: "The power conferred upon the majority is, in effect, the power to regulate the affairs of an unwilling minority. This is legislative delegation in its most obnoxious form. * * * A statute which attempts to confer such power undertakes an intolerable and unconstitutional interference with personal liberty and private property. The delegation is so clearly arbitrary, and so clearly a denial of rights safe-guarded by the due process clause of the Fifth Amendment, that it is unnecessary to do more than refer to decisions of this court which foreclose the question."
In Gibson Auto Co. v. Finnigan, the Wisconsin court made similar observations and pointed out that without the consent of a particular group interested in the industry no code (here marketing agreement) could go into effect, and that it was "difficult to conceive of a more complete abdication of legislative power."
The evils of such attempted delegation of legislative power are illustrated by the averments of sections 9 and 16 of the original bill in this case, showing ways and means whereby certain citrus handlers, competitors of the plaintiffs, have been able to so manipulate the handling order and the allotments made thereunder, as to secure unwarranted advantages, and practically force plaintiffs and others similarly situated out of business. To permit the handlers of 50 per cent. of the volume of any commodity to have such power in the making of a marketing agreement, which when approved by an order of some executive official shall have the force of law, is to my mind exactly what the Supreme Court said it is, namely, "Legislative delegation in its most obnoxious form," and in consequence, constitutes a violation of the Fifth Amendment to the Federal Constitution.
A further contention of the plaintiffs, by section 14 of their original bill, is that the provisions of the Agricultural Adjustment Act, particularly sections 608b *162 and 608c, title 7 U.S.C.A., undertaking to authorize the approval of such marketing agreement by the Secretary of Agriculture, and undertaking to define his powers and duties, are severally void, because they undertake to delegate to said Secretary, legislative powers, contrary to article 1 of the Federal Constitution. Against this contention it is urged by counsel for the defendants that the Agricultural Adjustment Act, particularly section 608c, subdivision (6), defines a definite program which must be followed by the Secretary, if he acts at all, and that therefore what the Secretary now undertakes to do under the act does not come within the unwarranted delegation of legislative authority condemned by the Supreme Court in Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S. Ct. 241, 79 L. Ed. 446, and Schechter Poultry Corp. v. U. S., 295 U.S. 495, 55 S. Ct. 837, 79 L. Ed. 1570, 97 A.L.R. 947. It seems to me, however, that a comparison of the provisions of the Agricultural Act, as it now stands, with the acts involved in the Ryan Case and Schechter Case, will show a complete analogy to such an extent that the objection now under consideration is here just as tenable as it was in those decided cases. The entire framework of the Agricultural Adjustment Act is based on section 2 thereof, which is now section 602, title 7 U.S.C.A. That section undertakes to define a declared policy of bringing about a parity between the prices received by producers and the prices paid by them for commodities which they use. All of the machinery subsequently provided for in the act looks to that object and purpose as the guiding star, and it leaves to the Secretary unlimited power and discretion to devise ways and means for accomplishing such declared purpose. For example, by section 8b of the act, now section 608b, title 7 U.S.C.A., the Secretary is given authority to enter into a marketing agreement only, if and when he may conclude that such marketing agreement will "effectuate the declared policy of this Chapter." The same thing is found in section 8c (3) of the statute, now section 608c (3), title 7 U.S.C.A., which provides: "Whenever the Secretary of Agriculture has reason to believe that the issuance of an order will tend to effectuate the declared policy of this chapter with respect to any commodity or product * * * he shall give due notice of and an opportunity for a hearing upon a proposed order." Thus it is that no movement of that sort can be initiated by any one except the Secretary. Congress did not undertake to define what conditions should exist to necessitate and require action by the Secretary. He is a law unto himself in that behalf. The only guide or standard is the definition of the declared policy contained in section 2 of the act. These observations are not weakened by anything contained in subdivision (6) of section 8c of the act (section 608c (6), title 7 U.S.C.A.). Paragraphs A, B, and C respectively start out as follows:
(A) "Limiting, or providing methods for the limitation of, the total quantity of any such commodity * * *"
(B) "Allotting, or providing methods for allotting, the amount of such commodity or product, or any grade, size, or quality thereof, which each handler may purchase," etc.
(C) "Allotting, or providing methods for allotting, the amount of any such commodity or product, or any grade, size, or quality thereof, which each handler may market," etc.
These clauses, therefore, leave it up to the Secretary and the agreeing 50 per cent. of the handlers to determine the methods in every instance. After the whole situation has been reviewed with the handlers, or rather not less than fifty per cent. of them, the Secretary still holds the veto power by virtue of his right to execute or not execute the proposed marketing agreement as a contracting party. After the agreement is executed, he then issues an order, which order must follow the terms of the agreement as required by subdivision (10) of section 8c of the act (7 U.S.C.A. § 608c (10); but in all these matters no yardstick of any sort binds the Secretary. He determines in the first instance whether there is any necessity for any sort of handling arrangement whereby the shipments shall be restricted as to quantities and grades; and after he shall have determined the necessity, he then dictates what the limitations and methods shall be. Under these circumstances the unlimited delegation of legislative power is just as complete as in the Ryan Case or the Schechter Case. Substantially the only difference is that here the Secretary is given unlimited powers of legislation, save the check of the required contract consent of 50 per cent. of the handlers, instead of vesting such power in the President, to be concurred in by *163 industrial groups in the process of Code making defined by the NRA.
My conclusion, therefore, is that the Agricultural Adjustment Act, the marketing agreement, and the handling order are severally void, on account of the delegation of legislative power to the Secretary of Agriculture, contrary to article 1 of the Federal Constitution, and contrary to the Fifth Amendment to that instrument.
It is next contended by section 13 of the bill of complaint that the end and purpose of the Agricultural Adjustment Act as defined by the declaration of policy contained in section 2 thereof (7 U.S.C.A. § 602) was to establish such balance between production and consumption of agricultural commodities, here citrus fruits, and the marketing conditions therefor "as will reestablish prices to farmers at a level that will give agricultural commodities a purchasing power with respect to articles that farmers buy, equivalent to the purchasing power of agricultural commodities in the base period." It is further urged by the plaintiffs that such defined purpose of the act and of the marketing agreement and of the handling order is outside of any express power vested in Congress and that in consequence the act, marketing agreement, and order violate the Tenth Amendment to the Federal Constitution. In my opinion such attack is well founded. As I construe the decision of the Supreme Court of the United States in United States v. Butler, 297 U.S. 1, 56 S. Ct. 312, 318, 80 L. Ed. 477, 102 A.L.R. 914, the court squarely held (297 U.S. 1, text 64, 56 S. Ct. 312, 80 L. Ed. 477, 102 A.L.R. 914) that the purpose of said act "is the control of agricultural production, a purely local activity, in an effort to raise the prices paid the farmer." In that case the court further said: "The act invades the reserved rights of the states. It is a statutory plan to regulate and control agricultural production, a matter beyond the powers delegated to the federal government. * * * To forestall any suggestion to the contrary, the Tenth Amendment was adopted. The same proposition, otherwise stated, is that powers not granted are prohibited. None to regulate agricultural production is given, and therefore legislation by Congress for that purpose is forbidden." This is unmistakable language and shows that the court condemned the act in its entirety not merely the provisions thereof dealing with processing taxes. In the case of Rickert Rice Mills v. Fontenot, 297 U.S. 110, 113, 56 S. Ct. 374, 375, 80 L. Ed. 513, 515, the court again had the act under consideration after certain amendments had been made in 1935, and there the court again said: "It [meaning the Act] remains a means for effectuating the regulation of agricultural production, a matter not within the powers of Congress."
Prior to these two decisions Judge Kennerly, in the case of Wallace v. Smith (D. C.) 11 F. Supp. 782, had held the Agricultural Adjustment Act void on the ground of an unconstitutional delegation of legislative authority and he cited in that behalf the Ryan Case and the Schechter Case. If the Butler Case had been decided prior to his opinion he undoubtedly would have followed that case also in reaching that conclusion. Since the decision in the Butler Case a number of lower courts have followed it in the construction of the Agricultural Adjustment Act and similar legislation holding all such acts void and interpreting the Butler decision as holding the act void in its entirety rather than as merely applied to the processing tax provisions thereof. Such cases are United States v. David Buttrick Co. (D.C.) 15 F. Supp. 655; Ganley v. Wallace (D.C.) 17 F. Supp. 115; Franklin Township v. Tugwell, 66 App.D.C. 42, 85 F.(2d) 208, 220-222; Burco Co. v. Whitworth, 81 F.(2d) 721-739 (C.C.A.4); Smith v. Glenn (D.C.) 16 F. Supp. 83; Taylor v. Robertson (D.C.) 16 F. Supp. 801. The decision of the Fifth Circuit Court of Appeals in the case of Speh v. Bullard, 83 F.(2d) 809 is also in accord for the court there applied the doctrine of a trust ex maleficio, Pomeroy (4th Ed.) § 1053, and impliedly at least recognized that the Supreme Court in the Butler Case held the Agricultural Adjustment Act void in its entirety.
Defendants' counsel have attempted to justify the act on the ground of regulating interstate commerce, but such contentions have in the past failed when the end and purpose sought to be accomplished, just as here, were not some object within the power of Congress, but dealt with some subject-matter reserved to the states. The Child Labor Cases are outstanding examples in this behalf. Hammer v. Dagenhart, 247 U.S. 251, 275, 38 S. Ct. 529, 62 L. Ed. 1101, 3 A.L.R. 649, Ann.Cas.1918E, 724, Bailey v. Drexel Furniture Co., 259 U.S. 20, 37, 42 S. Ct. 449, 450, 66 L. Ed. 817, 21 A.L.R. 1432. The doctrines of those cases *164 were fully approved in United States v. Butler, supra, also in Carter v. Carter Coal Co., 298 U.S. 238, and 295, 56 S. Ct. 855, 865, 80 L. Ed. 1160. In the face of the declared policy contained in section 3 of this act there is less effort to disguise than was contained in the Acts condemned in the Child Labor Cases. In the great case of McCulloch v. Maryland, 4 Wheat. 316, 403, 4 L. Ed. 579, 601, Chief Justice Marshall said: "No political dreamer was ever wild enough to think of breaking down the lines which separate the States, and of compounding the American people into one common mass." In the case of Texas v. White, 7 Wall. 700, 725, 19 L. Ed. 227, 237, Chief Justice Chase delivering the opinion of the Court, among other things, said: "The Constitution, in all its provisions, looks to an indestructible Union, composed of indestructible States." These doctrines were reaffirmed in United States v. Butler and in Carter v. Carter Coal Company, hence the conclusion that Congress may not by a mere pretext at regulating interstate commerce invade and control the internal affairs of the states for any such purpose as defined in section 2 of the Agricultural Adjustment Act. The control of the citrus industry which the Federal Government has undertaken by means of the Agricultural Adjustment Act is an effort to do precisely what the Supreme Court has several times condemned, for instance, in Kidd v. Pearson, 128 U.S. 1, 26, 9 S. Ct. 6, 32 L. Ed. 346, 352, and Heisler v. Thomas Colliery Co., 260 U.S. 245, 43 S. Ct. 83, 67 L. Ed. 237, cited and quoted in Carter v. Carter Coal Company, 298 U.S. 238, at pages 299 and 302, 56 S. Ct. 855, 867, 869, 80 L. Ed. 1160, at pages 1182 and 1184.
A still further contention of the plaintiffs, based upon alleged facts, which are admitted by the motions to dismiss, is that the handling order, as administered by the defendants constituting the control committee and the Secretary of Agriculture, has been and is depriving them of their properties without due process of law, and without just compensation, contrary to the Fifth Amendment to the Federal Constitution. The principal averments of the bill in this behalf are found in sections 4, 5, 6, 6-a, 9, 10, and 16. Supplementary matters of fact are shown by the amendments to the bill of complaint.
Section 4 of the bill states the effect of the handling order and its administration upon the business of Chester C. Fosgate Company, one of the plaintiffs, and shows, among other things, that its record for the last several years has been the shipment of around one-half million boxes of citrus fruits; that it has a packing house with a daily capacity of from 5,000 to 6,000 boxes of fruit, but on the limited prorate basis recommended by the control committee, and approved by the Secretary, it has been able to operate during the prorate period from one to three days per week; that as a result its labor forces are disorganized and unable to earn enough to keep their families; that the growers who ordinarily contracted with the plaintiff have been forced to seek other outlets for the marketing of their fruit; that this plaintiff has been unable to supply its customers with whom it has heretofore customarily dealt in the Northern markets; that by manipulations of the marketing order plaintiff's competitors have secured unfair advantages on what is known as current control basis, and have been able to buy fruit from growers who, under normal conditions, would have dealt with the Fosgate Company.
Similar showing is made in section V of the bill with respect to others of the plaintiffs.
Section VI of the bill shows that plaintiff Pontucket Groves Company is a grower near Orlando, which, for the past five years, has customarily dealt with Chester C. Fosgate Company as its marketing outlet, but on account of restrictions in the matter of shipments imposed by the control committee and the Secretary plaintiff has been unable to deal with the Fosgate Company as it ordinarily would have done, and that said company, as a citrus grower, has sustained losses, as set out in detail.
Section VI-A of the bill shows that the plaintiffs G. L. Ivey and Hilda Ivey, his wife, operate a small packing house plant, but that the allotments to them by the control committee and the Secretary have been approximately forty to one hundred boxes per week, less than enough to operate one day each week. That with such limited operations they cannot earn enough to supply themselves with the necessities of life.
Sections IX and XVI of the bill further show that since the opening of the present marketing season there has been a shift from what the marketing order describes as past performance basis to current control basis, so that now, instead of 30 per cent. *165 at the beginning being on current control basis, and 70 per cent. on past performance basis, the ratio is 80 per cent. current control and 20 per cent. past performance. That the control group have so manipulated the provisions of the order that they are for the most part able to operate freely or at full capacity in their respective packing houses, while such handlers as the plaintiffs, still on past performance basis, are restricted to less than one-third of their capacity, to the great damage of themselves and the growers with whom they customarily contract. That those on a current control basis who have so succeeded in getting themselves into favorable positions are doing a profitable business, while the plaintiffs doing business alongside of them, and under similar circumstances, are being forced to sustain large financial losses. That the manipulations of the order have been such as to create in the hands of the current control group a present monopoly in the handling and marketing of citrus fruits for the current season. That the properties of the plaintiffs have been and are being confiscated, and their rights to contract destroyed, without due process of law, contrary to the Fifth Amendment to the Federal Constitution.
Sections IX and XVI go into further detail as to the ways and means whereby the group known as current control group of handlers have procured what is alleged to be a monopoly of the handling of citrus fruits now going out of the State of Florida. The amendment to the bill of complaint, particularly sections 2 and 3, assert that the insistence by the control committee and the District Attorney, coupled with threats of action against plaintiffs, have created an impending danger over the several businesses of the plaintiffs, impairing their credit, destroying their good will, by increasing the risk of doing any business in violation of the prorate allotments. For example, it is pointed out that if the act is held valid, that they may, under section 608a, subdivisions (7) and (5), be subjected to a forfeiture equal to three times the current market value of all fruits shipped in excess of the prorate allotments, and thus at the end of the shipping season find themselves wiped out by such forfeitures insisted upon at the suits of the Government. All of these matters of fact, well pleaded, are admitted by the motions to dismiss, and thus again, the bill and its amendments amply present a "case" or a "controversy" entitling the plaintiffs to equitable relief, including a declaratory decree as to whether or not the parts of the Agricultural Act involved in this case, together with the Marketing Agreement and the Handling Order, are valid or void.
In the case of Lawton v. Steele, 152 U.S. 133, 137, 14 S. Ct. 499, 501, 38 L. Ed. 385, the court, speaking as to a state statute said: "The Legislature may not, under the guise of protecting the public interests, arbitrarily interfere with private business, or impose unusual and unnecessary restrictions upon lawful occupations." That rule is equally applicable to an act of Congress such as is now under consideration.
In the leading case of Yick Wo v. Hopkins, 118 U.S. 356, 6 S. Ct. 1064, 1071, 30 L. Ed. 220, the court laid down the following propositions which have been many times reiterated since that decision: "When we consider the nature and the theory of our institutions of government, the principles upon which they are supposed to rest, and review the history of their development, we are constrained to conclude that they do not mean to leave room for the play and action of purely personal and arbitrary power. * * * the fundamental rights to life, liberty, and the pursuit of happiness, considered as individual possessions, are secured by those maxims of constitutional law which are the monuments showing the victorious progress of the race in securing to men the blessings of civilization under the reign of just and equal laws, so that, in the famous language of the Massachusetts bill of rights, the government of the commonwealth `may be a government of laws and not of men.' For, the very idea that one man may be compelled to hold his life, or the means of living, or any material right essential to the enjoyment of life, at the mere will of another, seems to be intolerable in any country where freedom prevails, as being the essence of slavery itself. * * * Though the law itself be fair on its face, and impartial in appliance, yet, if it is applied and administered by public authority with an evil eye and an unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances, material to their rights, the denial of equal justice is still within the prohibition of the constitution."
*166 The principles declared in the Yick Wo Case in 1885 are just as applicable today as then. The provisions of the handling order here complained of, and the administration thereof, as described in the several paragraphs of the bill and the amendments above referred to, clearly come within the condemnation of the rules above quoted from the Yick Wo Case.
The same principle was reiterated in Meyer v. Nebraska, 262 U.S. 390, 399, 43 S. Ct. 625, 626, 67 L. Ed. 1042, 1045, 29 A. L.R. 1446, where the court pointed out that liberty guaranteed by the Fourteenth Amendment (here the Fifth Amendment) "* * * denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life, * * * and generally to enjoy those privileges long recognized at common law as essential to the orderly pursuit of happiness by free men." (Italics supplied.)
The averments of the bill and amendments thereto plainly show that the properties of the plaintiffs are not only being confiscated, but their rights of contract, both with growers and consumers in consuming areas, are being curtailed and cut off. All of these losses of property and property rights are being taken under color of the Agricultural Adjustment Act and the handling order without any compensation to these plaintiffs and interveners contrary to the due process clause of the Fifth Amendment to the Federal Constitution.
The case of Adkins v. Children's Hospital, 261 U.S. 525, 43 S. Ct. 394, 67 L. Ed. 785, 24 A.L.R. 1238, lately adhered to in Morehead v. People, 298 U.S. 587, 56 S. Ct. 918, 80 L. Ed. 1347, 103 A.L.R. 1445, reaffirms the liberty of contract guaranteed by the Fourteenth Amendment, and also by the Fifth Amendment.
It is another well-settled rule, as reiterated in Nashville, C. & St. L. Ry. Co. v. Walters, 294 U.S. 405, 415, 55 S. Ct. 486, 488, 79 L. Ed. 949, 955: "A statute valid as to one set of facts may be invalid as to another. A statute valid when enacted may become invalid by change in the conditions to which it is applied." And applying this principle to the admitted facts set up in the several paragraphs of the bill as above noted, it follows that these plaintiffs, under the facts so pleaded and admitted by the motions to dismiss, have a cause of complaint, irrespective of what might be the situation as applied to other facts and circumstances.
The fifteenth section of the bill of complaint presents a further proposition of changed conditions since the handling order was promulgated in May of 1936. That is to say, that Texas fruit has been moving all of the present season without any restrictions, and that California fruit was cut off 40 or 50 per cent. by the severe freezes which occurred in January, 1937; all with the result that there is no necessity for, and no justification for, any further restrictions on the movement of Florida fruit in interstate commerce. There is much merit in this contention, but since it is my opinion that the whole act and the whole scheme represented by the marketing agreement and handling order are void, it is not necessary to further analyze the situation in the light of such changed conditions.
For the several reasons pointed out in this opinion, I hold that the bill of complaint, as amended, states a case for equitable relief, and that the motions to dismiss should be denied. Proper order to that effect will be entered.
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200 B.R. 511 (1996)
In re STANDARD STEEL SECTIONS, INC., Debtor.
The COMMITTEE OF UNSECURED CREDITORS, Appellant,
v.
Francis V. LIANTONIO and Alvin L. Stern, as Co-Trustees, Appellees.
96 Civ. 4060 (JSR).
United States District Court, S.D. New York.
September 20, 1996.
Platzer, Fineberg & Swergold by Steven D. Karlin, New York City, for appellant.
Shaw Licata Parente Esernio & Schwartz by Howard B. Kleinberg, Garden City, NY, for appellees.
OPINION & ORDER
RAKOFF, District Judge.
The fundamental question raised by this appeal is what legal standard determines whether a committee of unsecured creditors is entitled to appointment of counsel under § 1103(a) of the Bankruptcy Code.
The question arises in connection with the bankruptcy proceedings for Standard Steel *512 Sections Inc. On June 20, 1995, an involuntary petition for relief was filed against the debtor, Standard Steel, pursuant to Chapter 7 of the Bankruptcy Code, and on July 11, 1995, the case was converted to Chapter 11. Pursuant to 11 U.S.C. § 1104, the Bankruptcy Court (Hon. Adlai S. Hardin, Jr.) appointed Co-Trustees to marshal and liquidate the assets of the estate for distribution to creditors. The Co-Trustees are represented by counsel.
On September 11, 1995, a Committee of Unsecured Creditors (the "Committee") was appointed. Section 1103(a) of the Bankruptcy Code provides that "with the court's approval, [such a] committee may select and authorize the employment by such committee of one or more attorneys . . . to represent or perform services for such committee." 11 U.S.C. § 1103(a). Accordingly, on February 26, 1996, the Committee applied to the Bankruptcy Court for approval to retain the law firm of Platzer, Fineberg & Swergold as counsel to the Committee.
On July 18, 1996, the Bankruptcy Court denied the Committee's application, concluding that "the interests of all creditors are satisfactorily represented by the Chapter 11 trustee and his counsel" and that, because the main business of separate Committee counsel would be to contest certain subordination issues with other creditors, "it would be inappropriate to authorize the Committee to retain counsel at the expense of the estate under the circumstances presented here." In re Standard Steel Sections, Inc., 194 B.R. 739, 740 (Bankr.S.D.N.Y.1996) (order denying committee application to retain counsel). The Committee promptly filed this appeal.[1]
At the outset, the Court must determine whether the Bankruptcy Court's order denying appointment of counsel is immediately appealable. With respect to Bankruptcy Court determinations, a district court shall have jurisdiction to hear appeals from "final judgments, orders, and decrees," from certain specified interlocutory orders not here relevant, and, "with leave of the court, from other interlocutory orders and decrees. . . ." 28 U.S.C. § 158(a). Because no leave to appeal has been sought or granted in this matter, nor any final judgment entered, any exercise of jurisdiction by this Court must be premised upon a "final order" by the Bankruptcy Court.
While there appears to be no direct precedent as to whether a denial of appointment of counsel under § 1103(a) is a "final" order in terms of § 158(a), "considerations unique to bankruptcy appeals require that courts consider `finality in a more pragmatic and less technical way in bankruptcy cases than in other situations.'" Committee of Dalkon Shield Claimants v. A.H. Robins Co., 828 F.2d 239, 241 (4th Cir.1987) (quoting In re Amatex Corp., 755 F.2d 1034, 1039 (3d Cir.1985)) (holding an order denying request for trustee appointment immediately appealable). In seeking guidance for such pragmatic application to orders of the kind here presented, the Court finds particularly instructive the standards developed in federal civil cases under the familiar doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949). Under that doctrine, a collateral order is appealable if the order involves:
(1) an issue essentially unrelated to the merits of the main dispute, capable of review without disrupting the main trial; (2) a complete resolution of the issue, not one which is "unfinished" or "inconclusive"; (3) a right incapable of vindication on appeal from final judgment; and (4) an important and unsettled question of controlling law, not merely a question of proper exercise of the trial court's discretion.
In re American Colonial Broadcasting Corp., 758 F.2d 794, 803 (1st Cir.1985) (citing Cohen).
Applying the Cohen factors to the Bankruptcy Court's order denying appointment of counsel, it is obvious that appointment of counsel is an issue essentially unrelated to the merits of the main bankruptcy dispute, and that a decision to deny such appointment *513 is capable of review at this stage without materially disrupting the ongoing proceedings. It is equally clear that such a decision completely resolves the issue for all practical purposes. Further, the Committee's putative right to appointment of counsel under § 1103(a) is a right virtually incapable of vindication on appeal from the final judgment. Finally, as detailed below, the grant or denial of counsel in this context involves an important and unsettled question of controlling law. Accordingly, the Court concludes that the order here in question is immediately appealable.
Turning to the merits, a district court reviews a bankruptcy court's conclusions of law de novo and its findings of fact under a clearly erroneous standard. In re Ngan Gung Restaurant, Inc., 195 B.R. 593, 596 (S.D.N.Y.1996). While here the Bankruptcy Court did not expressly articulate the legal test it employed in denying the Committee's application, this Court concludes that the standard is effectively articulated in Rule 2014(a) of the Rules of Bankruptcy Procedure, which provides that "[a]n order approving the employment of attorneys . . . pursuant to . . . § 1103(a) of the Code shall be made only on application of the . . . committee, stating the specific facts showing the necessity for the employment. . . ." Bankr. Rule 2014(a). This is only the beginning of the inquiry, however, because nothing in Rule 2014(a) defines the meaning of "necessity" in this context.
On the one hand, it can be argued that it is nearly always "necessary" for a committee of unsecured creditors to employ counsel to advise and represent their interests in the complex and arcane legal proceedings that attend virtually every bankruptcy. But nothing prevents those creditors from hiring their own counsel for those purposes at their own expense, independently of § 1103(a). Rather, since the real effect of appointment of counsel under § 1103(a) is to render the fees of such counsel eligible for reimbursement from the estate, see In re Lifschultz Fast Freight, Inc., 140 B.R. 482, 485 (Bankr. N.D.Ill.1992), "necessity" must be considered in that context.
On the other hand, the test cannot be that appointment of committee counsel under § 1103(a) must be necessary to maximize the assets of the estate, for that is the role of the bankruptcy trustee. Rather, as the legislative history of § 1103(a) indicates, Congress believed that separate legal representation of disparate and adversarial interests in a bankruptcy was necessary to the fair and efficient distribution of the assets of the estate and therefore ought to be eligible for reimbursement as an estate expense. 5 Collier on Bankruptcy ¶ 1103.05, at 1103-17, 18 (15th ed. 1995); see also In re Lifschultz, 140 B.R. at 487-88 (holding that "necessary services" includes attorney representation of committee interests that may conflict with those of the trustee).
On this analysis, the test of "necessity" is whether the committee seeking appointment of counsel under § 1103(a) has demonstrated a distinct and potentially conflicting interest in the disposition of the assets of the estate that requires separate legal representation.[2]
Here, as the Bankruptcy Court indicated, the Committee seeking appointment had demonstrated a need for separate representation by counsel on the issue of subordination. In re Standard, No. 95 Barb. 21163, at 3-4. As the Bankruptcy Court further noted: "The subordination issue pits two creditor constituencies against each other. The Trusts have purported claims substantially exceeding the aggregate claims of the other unsecured creditors, represented by the Committee." Id. While the appellant contends that it also demonstrated need for separate counsel to protect numerous other important interests of the unsecured creditors that the Bankruptcy Court ignored, it is sufficient to note that, even standing alone, the substantial interest of the Committee in protecting its legal position on the subordination *514 controversy is sufficient to meet the standard of "necessity" set forth by Rule 2014(a).
While the able and conscientious Bankruptcy Court is to be lauded for its concern with preserving the assets of the estate, on the approach this Court adopts that concern did not legally justify rejection of appointment of counsel under § 1103(a). Rather, the appropriate time to address such concern is when the actual request for reimbursement of such fees is before the Court, see In re Lion Capital Group, 44 B.R. 684, 686 (Bankr.S.D.N.Y.1984), for it is at that time that the Bankruptcy Court is expressly required to determine whether the legal services that were provided to the committee of unsecured creditors were reasonably necessary in terms of benefit to the overall estate and its orderly disposition. 11 U.S.C. § 330(a)(1). Consideration prior to that time is both inappropriate and premature.
For the aforementioned reasons, the appeal is granted and the Bankruptcy Court is directed to enter an order approving the Committee's application for appointment of counsel under § 1103(a).
Clerk to enter judgment
SO ORDERED.
NOTES
[1] Platzer, Fineberg & Swergold, in addition to representing the Committee on this appeal, listed themselves as appellants in this matter. As the Court noted at oral argument, the only party with standing to challenge the Bankruptcy Court decision is the Committee. Accordingly, Platzer, Fineberg & Swergold has been removed from the caption of this matter.
[2] Of course, even if such "necessity" is shown, the Bankruptcy Court may disapprove appointment of counsel under § 1103(a) if the proposed counsel is disqualified, e.g., by a conflict of interest. See 11 U.S.C. § 1103(b); cf. In re Heck's Inc., 83 B.R. 410, 417 (S.D.W.Va.1988). But the Court may not deny appointment simply because of its belief that such appointment may prove to be a drain on the assets of the estate.
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20 B.R. 1012 (1982)
In the Matter of Charles ELIN, Debtor.
Margaret ELIN, Plaintiff,
v.
Michael G. BUSCHE, as Trustee in Bankruptcy of Charles Elin, Debtor, et al., Defendants.
Civ. A. No. 82-749, Bankruptcy No. 81-02755, Adv. No. 81-1298.
United States District Court, D. New Jersey.
June 11, 1982.
*1013 Jerome C. Eisenberg, Frank Orbach, Clapp & Eisenberg, P.C., Newark, N.J., for plaintiff.
Michael G. Busche, Trustee, pro se.
OPINION
DEBEVOISE, District Judge.
This is an appeal from a judgment of the Bankruptcy Court. The Court authorized the sale of certain residential real estate and determined that plaintiff, Margaret Elin, owned only an undivided one-half interest in the property as a tenant in common. Plaintiff urges that the Bankruptcy Court erred in holding that the provisions of 11 U.S.C. § 544(a) rendered ineffective the debtor's (plaintiff's husband's) attempt, in 1973, to transfer all of his interests in the property to her.
The Facts
The facts are undisputed. In 1972 plaintiff and her husband, Charles Elin, now the debtor, separated after twenty-six years of marriage. After six weeks of separation the debtor, in consideration for plaintiff's return to him, agreed to convey to her all of his interest in their residence in South Orange, New Jersey. At the time they held the property as tenants by the entirety. The debtor directed his attorney to prepare a deed to effectuate his promise.
The attorney prepared a deed which was executed in March, 1973 and recorded on June 11, 1973. In the deed the debtor purported to transfer the premises (which were described by metes and bounds) to plaintiff. After the description there appeared the language: "The purpose of this deed is to relinquish the curtesy rights of the grantor pursuant to statute." At the time of delivery of the deed both plaintiff and her husband, as tenants by the entirety, stood to take the entire property in the event of the earlier death of the other. In such a form of tenancy the wife had no dower interest and the husband had no curtesy interest. Instead, each had a survivorship interest. Consequently the recital in the deed that its purpose was to relinquish the husband's curtesy rights made no sense. Both husband and wife intended that all of the husband's interests be conveyed to the wife, and the form of the deed was attributable to an attorney's error of which both parties to the deed were unaware. After delivery of the deed plaintiff began to receive the real estate tax bills addressed to her alone, and she commenced paying the taxes.
The reconciliation was short-lived and plaintiff instituted an action for divorce. On December 20, 1976, prior to the trial of the divorce action, plaintiff and the debtor entered into a property settlement agreement. The agreement provided, among other things:
4. In addition, the parties covenant and agree that the Wife shall retain the property presently owned or held by her, including, without limitation: the residence at 325 Highland Road, South Orange. . . .
5. In consideration of the division of real and personal property as more fully *1014 set forth in paragraphs 1 through 4, inclusive, above, the parties hereby waive, release, and abandon any claims that either may have for a division of property (other than as expressly set forth herein), held jointly or by the other, pursuant to the present or future laws of the State of New Jersey or any other state of the United States.
(Emphasis added.)
The January 6, 1977 divorce decree terminating plaintiff's and the debtor's marriage referred to the agreement and, in effect, adopted its provisions in lieu of determining the issues of equitable distribution and alimony.
In May, 1981 the debtor filed a voluntary petition in bankruptcy. He did not list the South Orange residence as one of his assets, believing that he had conveyed it to his wife in 1973 and had no further interest in it.
At about the same time plaintiff decided to sell the property. When the purchaser conducted a title examination the record disclosed title in plaintiff and debtor as tenants by the entirety, with the 1973 deed purporting to convey the debtor's non-existent curtesy rights. The purchaser, confronted with this cloud on title, refused to complete the transaction.
To cure the title defect plaintiff filed a complaint in the pending bankruptcy proceeding. The complaint recited the above facts, identified certain creditors who had obtained and docketed judgments against the debtor after the recording of the deed, and sought a judgment reforming the deed and directing the trustee to execute and deliver to plaintiff a corrective deed. The Bankruptcy Court conducted a hearing at which the United States Trustee opposed the relief plaintiff sought and urged the sale of the property free and clear of the debtor's and his creditors' interests.
The Bankruptcy Court held that the Trustee can defeat plaintiff's attempted reformation of the deed under 11 U.S.C. § 544(a)(3), which provides that "[t]he trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation of the debtor that is voidable by . . . (3) a bona fide purchaser of real property from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists." The Bankruptcy Court found that the original transfer of the property was made to plaintiff and the debtor as tenants by the entirety, that the 1973 deed from the debtor to plaintiff transferred only the debtor's curtesy interests, and that neither the deed, the unexpressed intent of the parties, nor the divorce decree established notice to a bona fide purchaser that there was a transfer of the debtor's interest to plaintiff's sole ownership. The Court stated, "The only way title could have been changed to defeat the interests of a bona fide purchaser is to record the deed with the County Records Office." (Transcript of Dec. 9, 1981, p. 29) (citing N.J.S.A. 46:22-1).
The Bankruptcy Court concluded that the Trustee succeeded to the debtor's one-half interest in the property he held as a tenant by the entirety with his wife, which, upon their divorce, was converted to a tenancy in common. A judgment was entered authorizing a sale of the real estate free and clear of liens and determining that plaintiff was entitled to only a one-half interest in the proceeds. After the filing and withdrawal of a motion for reconsideration, plaintiff filed a notice of appeal to this Court.
The appeal raises two issues. First: 11 U.S.C. § 541(d) provides that "[p]roperty in which the debtor holds . . . only legal title and not an equitable interest . . . becomes property of the estate . . . only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold". In the light of § 541(d), did the Bankruptcy Court err in holding that plaintiff's equitable interest in the South *1015 Orange real estate, which existed by reason of the 1973 transaction, became part of the estate? Second: If § 541(d) does not prevent plaintiff's interest in the South Orange real estate from becoming a part of the estate, did the Bankruptcy Court correctly apply 11 U.S.C. § 544(a) when he avoided the 1973 transfer to plaintiff of the debtor's interest in the South Orange real estate?
These are questions of law and are reviewable by this Court. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98 (3d Cir. 1981).
Plaintiff contends that under 11 U.S.C. § 541, which defines the bankruptcy estate, the estate does not include the onehalf interest in the South Orange real estate which the Bankruptcy Court awarded to the Trustee. This is so, plaintiff urges, because the debtor held the property under a constructive trust in favor of plaintiff.
The provisions of § 541 upon which plaintiff relies read:
(a) The commencement of a case . . . creates an estate. Such estate is comprised of all the following property, wherever located:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
. . . . .
(d) Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.
It is apparent, as plaintiff urges, that in the present case under New Jersey law were the debtor not in bankruptcy he would be deemed to hold his interest in the property subject to a constructive trust in favor of plaintiff. Plaintiff would be entitled, in the circumstances of this case, to a decree reforming the 1973 deed so that it would accomplish the intent of the parties to it.
New Jersey courts have recognized the availability of the constructive trust as a means of redressing inequitable results of mistakes in attempts to convey property. See D'Ippolito v. Castoro, 51 N.J. 584, 588-89, 242 A.2d 617 (1968); In re Hoffman, 63 N.J. 69, 81, 304 A.2d 721 (1973). Although courts ordinarily employ a constructive trust where there has been a transfer based on fraud or mistake, this device is also available where a purported conveyance based on consideration turns out to be ineffective to transfer the property. See Annotation, 12 A.L.R. 2d 961 (1950). At least one New Jersey court has impressed a constructive trust upon real property where, despite the parties' agreement to convey, the deed was invalid and thereby failed to convey the property. Voorhis v. Courter, 100 N.J.Eq. 65, 135 A. 145 (Ch. 1926).
New Jersey courts have also recognized the existence of a right to reformation in appropriate circumstances. As the Court stated in Scult v. Bergen Valley Builders, Inc., 76 N.J.Super. 124, 130, 183 A.2d 865 (Ch.Div.1962), aff'd on other grounds, 82 N.J.Super. 378, 197 A.2d 704 (App.Div. 1964):
Absent the existence of innocent third parties whose rights may be adversely affected by a scrivener's mistake, `"[w]here an instrument is drawn and executed, which professes, or is intended, to carry into execution an agreement, whether in writing or by parol, previously entered into, but which, by mistake of the draftsman, either as to fact or law, does not fulfill, or which violate the manifest intention of the parties to the agreement, equity will correct the mistake, so as to produce a conformity of the instrument to the agreement.'"
The Court pointed out that reformation of a mortgage would not be available against innocent third parties who had no notice and also were not chargeable with notice of *1016 the original mistake. Id. at 131-132, 183 A.2d 865. In Schnakenberg v. Gibraltar Savings and Loan Ass'n, 37 N.J.Super. 150, 117 A.2d 191 (App.Div.1955), the plaintiff sought reformation of a lease. The Court stated:
Reformation does not lie against a subsequent bona fide purchaser without notice. But . . . where the purchaser is chargeable with constructive notice, any right of reformation . . . for fraud or mistake which the tenant has against the landlord may . . . be enforced against the purchaser.
(Id. at 158, 117 A.2d 191.) (Citations omitted.) (Emphasis added.)
Plaintiff urges that inasmuch as she holds the equitable interests in the South Orange real estate and the debtor holds only legal title, § 541(d) compels the conclusion that the real estate never became a part of the debtor's estate. In the Matter of Abbott, 11 B.R. 583 (Bkrtcy.W.D.Pa.1981); In re Angus, 9 B.R. 769 (Bkrtcy.D.Or.1981); 4 Collier on Bankruptcy, ¶ 541.01, at 541-6 to 541-7; see also ¶ 541.13 (15th Ed. 1981). Since the real estate was never a part of the debtor's estate, plaintiff further urges, it was never subject to the provisions of § 544(a)(3), upon which the Bankruptcy Court relied to award the debtor's half of the real estate to the Trustee.
The fallacy of plaintiff's position lies in a misreading of § 541. Three sections of the Act must be read together§ 541, § 551 and § 544. Granted that the bare language of these sections may appear to be elliptical, the meaning which emerges is that assets recoverable by a trustee pursuant to § 544 become property of the estate notwithstanding the provisions of § 541(d). In other words, if a person other than the debtor holds an equitable interest in assets subject to recovery under § 544, the provisions of § 541(d) upon which plaintiff relies do not prevent the trustee from recovering those assets.
Section 541(a)(4) provides that an estate is comprised of "[a]ny interest in property preserved for the benefit of or ordered transferred to the estate under section . . . 551". § 551 provides that "[a]ny transfer avoided under section . . . 544 . . . is preserved for the benefit of the estate but only with respect to property of the estate". Thus, § 541, and § 551 which is incorporated therein by reference, bring within the debtor's estate property recoverable pursuant to § 544.
Although the House and Senate reports on the Act do not appear to have addressed this precise issue, the Commission on the Bankruptcy Laws of the United States did. In Section C of Part I of its report, under the heading "General Recommendations", the Commission wrote:
In addition to property owned by the debtor at the date of the petition [in bankruptcy], the property of the estate would include (a) recoveries under the avoidance sections of the proposed Act. . . .
[Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc.No. 93-137, 93d Cong., 1st Sess., Part I, p. 192 (1973) (reprinted in Collier on Bankruptcy, Appendix 2 (15th Ed. 1980)).]
Part II of the Commission Report included proposed statutory provisions accompanied by explanatory notes. Proposed § 4-601, identifying "Property of the Estate"obviously the model for § 541included as property of the estate all "property recovered pursuant to [proposed] sections 4-603 to 6-608 inclusive and [proposed] section 4-610". Comment Two to proposed § 4-601 states that "[p]roperty of the estate [includes] . . . property recovered under the `avoiding powers' of . . . § 4-610". Finally, proposed section 4-610 provided:
Preservation of Voidable Transfer. Whenever any transfer is voidable by the trustee, the court may determine on complaint filed by the trustee after hearing on notice to persons claiming an interest in the property subject to the transfer, whether the transfer shall be avoided or shall be preserved for the benefit of the estate.
Congress ultimately chose to make such preservation "automatic" upon exercise of *1017 the trustee's powers, and, as a result, any property made subject to those powers is included in the estate by virtue of § 541(a)(4).
The authors of a recent treatise on the new Act concur in this result. Weintraub and Resnick, in Bankruptcy Law Manual (Warren, Gorham & Lamont 1980), write:
¶ 4.03 Property Included in the Estate
* * * * * *
[4] Property Recovered Pursuant to the Trustee's Powers
The Bankruptcy [Reform Act] gives the trustee certain powers to recover property for the estate. These powers often give the trustee greater rights than the debtor has on the date the petition is filed. The trustee has powers to recover property in the hands of an assignee for the benefit of creditors, a receiver, or other custodian [citing 11 U.S.C. § 543]. The trustee has the power to avoid preferential transfers [§ 547] and fraudulent conveyances [§ 548] made prior to bankruptcy. In addition, certain security interests, mortgages, and statutory and judicial liens may be avoided by the trustee despite the validity of these interests as against the debtor [§ 544]. . . .
Accordingly, the [Act] provides that any property reached by the trustee pursuant to these or other powers becomes part of the estate [§§ 541(a)(3), 541(a)(4)].
(Id. at pp. 4-11.) (Latter emphasis added.)
These commentators support the conclusion that in those situations where § 544(a)(3) permits him to do so a trustee is not barred from asserting his bona fide purchaser status over property which might otherwise be excluded from the bankrupt's estate by the provisions of § 541.
Having rejected plaintiff's attempted end-run around the Bankruptcy Court's application of § 544(a)(3), it is still necessary to determine whether that section was applied properly in this case. It provides, in relevant part:
(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by
* * * * * *
(3) a bona fide purchaser of real property from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists.
(Emphasis added.)
This language is not completely clear, at least to me. However, with the assistance of the available legislative history and recent decisions on the subject, I conclude that it is to be construed as follows: If a debtor had effected a transfer of real estate to a transferee, and if under applicable state law a subsequent bona fide purchaser of the real estate would prevail over the transferee, then the trustee may avoid the transfer and claim the real estate as part of the debtor's estate.
Under this interpretation of § 544(a)(3), a trustee may avoid a transferee's interest whenever applicable state law would permit a bona fide purchaser to do so. Conversely, when, under applicable state law, a transferee's interest is sufficiently perfected so that it could not be divested by a subsequent bona fide purchaser, a trustee may not avoid the transfer, and the transferred property could not be brought into the estate. If this interpretation be correct the issue in this case is whether, under New Jersey law, the 1973 transfer of the South Orange real estate to plaintiff could be divested by the debtor's subsequent transfer of the real estate to a bona fide purchaser.
The legislative history of § 544(a)(3) is scant and sheds little light on the proper interpretation of this new strong-arm provision.
*1018 A few commentators, however, have discussed the trustee's new status under § 544(a)(3). One of them observes that the major impact of this provision will be to strengthen the trustee's position in those states where the recording statutes do not protect judgment creditors. See Rendleman, Liquidation in Bankruptcy Under the 1978 Code, 21 Wm. & Mary L.Rev. 575, 612 (1980). Two others agree, and view § 544(a)(3) as a potential "coupe de grace in bankruptcy proceedings". Teofan & Creel, The Trustee's Avoiding Powers Under the Bankruptcy Act and the New Code: A Comparative Analysis, 85 Comm.L.J. 542, 545 (1980). These latter two authors suggest the following analysis of § 544(a)(3):
The extent of the rights, remedies and powers of the trustee as such a bona fide purchaser are again measured by the substantive law of the state in which the real property is situated. Therefore, where the trustee seeks to avoid unrecorded or undisclosed interests in real property [under § 544(a)(3)] . . . two issues are presented: (1) under the applicable state law, are the rights of such a bona fide purchaser superior to the rights of the interest holder, and (2) under applicable state law, can the transfer sought to be avoided be perfected against a bona fide purchaser?
(Id.) (Footnote omitted.)
Another leading treatise on bankruptcy law, Collier on Bankruptcy, has not yet delivered on its promised discussion of the trustee's status as bona fide purchaser, see 4 Collier on Bankruptcy, ¶ 544.02 (15th Ed. 1980), at 544-7, but does discuss § 544(a) generally.
[S]ection 544(a) confers upon the trustee a status with the consequent status and capacity to act to invalidate transfer, just as if he were in actuality [a] bona fide purchaser of real property from the debtor. . . . Wherever under the applicable law such a . . . bona fide purchaser might prevail over prior transfers . . . the trustee will also prevail.
(4 Collier on Bankruptcy, ¶ 544.01 (15th Ed. 1980), at 544-3.)
[The trustee's] hypothetical status [as bona fide purchaser] depends for meaning upon a substantive law that is not explicitly indicated but that is incorporated by reference. Therefore, the trustee's powers, in every case governed by 544(a), are those which the state law would allow to a [bona fide purchaser] as of the commencement of the case.
(Id. at 544-5.) (Footnotes omitted.)
Finally, the authors of the Bankruptcy Law Manual, supra, state simply that, "any transfer of real estate by the debtor that is not perfected as against bona fide purchasers prior to bankruptcy may not be effective as against the trustee". Bankruptcy Law Manual, supra, at ¶ 7.02, p. 7-5.
This interpretationpermitting state law to define the limits of the trustee's status as bona fide purchaseris consistent with what appears to have been the purpose of § 544(a)(3). Prior to the Act, the trustee had the status of a judicial lien creditor as to real property.
[H]owever, a judicial lien creditor may not always defeat an unrecorded real estate mortgage because real property recording acts in some states were designed to protect [only] bona fide purchasers not judicial lien creditors. . . . By granting the trustee the additional rights of a bona fide purchaser of real estate, mortgages that are unrecorded on the day of bankruptcy may be avoided under the [Act] even in those states that give the unrecorded mortgage priority over judicial lien creditors.
(Id. at ¶ 7.02, p. 7-5.)
The trustee in the present case argues that under § 544(a)(3) he has a "super-priority" which does not depend on the status of a bona fide purchaser under state law but, instead, grants him automatic bona fide purchaser without notice status as a matter of federal law. Such a position would certainly enhance the trustee's ability to preserve property for the benefit of unsecured creditors. However, the authorities cited above are persuasive and lead me to conclude that Congress, in enacting § 544(a)(3), did not intend to transform the *1019 trustee into a "super-priority" creditor, see Hogan, Bankruptcy Reform and Delayed Filing Under the U.C.C., 35 Ark.L.Rev. 35, 43-44 (1981), but instead sought to alleviate state-to-state discrepancies in the trustee's avoiding powers which resulted from differing state recording statutes. Thus, I conclude that the trustee's rights as against a prior transferee of the debtor's real property must be measured under the applicable state law. The trustee may take only if under New Jersey law a bona fide purchaser of the South Orange real estate would have prevailed over plaintiff as of the date of filing in bankruptcy. Cf. Himmelstein v. Ewing Bank & Trust Company, 5 B.C.D. 288 (D.N.J.1979).[1]
As I interpret the bench opinion of the Bankruptcy Court in this case, it too did not accept the trustee's position that § 544(a)(3) confers upon the trustee a "super-priority" which overrides state law. Rather, the Bankruptcy Court sought to apply New Jersey law to determine if a bona fide purchaser of plaintiff's interest would have a right superior to plaintiff's. Ruling that a bona fide purchaser would prevail, the Bankruptcy Court held that "[t]he only way title could have been changed to defeat the interests of a bona fide purchaser is to record the deed with the County Records Office". That, I believe, is an incorrect statement of New Jersey law. There are situations where a transferee of real property will prevail over a subsequent purchaser for value even though a proper deed had not been recorded.
New Jersey's recording statute, N.J.S.A. 46:22-1, provides in relevant part:
Every deed or instrument . . . shall, until duly recorded or lodged for record in the office of the county recording officer in which the affected real estate . . . is situate, be void and of no effect against . . . all subsequent bona fide purchasers . . . for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded . . . but any such deed or instrument shall be valid and operative, although not recorded, except as against such . . . purchasers.
New Jersey courts have not limited the concept of "notice" under the recording statute to "actual notice" in the record. Rather, under New Jersey decisions,
A purchaser is "chargeable with notice of every matter affecting the estate, which appears on the face of any deed forming an essential link in the chain of title; and also notice of whatever matters he would have learned by any inquiry which the recitals in these instruments made it his duty to pursue." Roll v. Rea, 50 N.J.L. 264, 268 [12 A. 905] (Sup.Ct. 1888), [aff'd on other grounds, 57 N.J.L. 647 (32 A. 214) (E&A 1895)].
Camp Clearwater, Inc. v. Plock, 52 N.J. Super. 583, 598-99, 146 A.2d 527 (Ch.Div. 1958), aff'd on other grounds, 59 N.J.Super. 1, 157 A.2d 15 (App.Div.1959).
In Scult v. Bergen Valley Builders, Inc., supra, a plaintiff sought to reform a mortgage. Defendants resisted on the ground that they were bona fide purchasers without notice of the plaintiff's pre-existing claim. Noting that New Jersey courts would not recognize a right of reformation as against subsequent bona fide purchasers without notice, the Court quoted a discussion of the concept of constructive notice:
"Generally, actual notice on the part of the subsequent purchaser or encumbrancer of the error to be corrected is not necessary in order to permit reformation of the instrument as against him, provided *1020 he had constructive notice, or the facts were such as to put him upon inquiry.
The record of an incorrect instrument does not constitute notice of such inaccuracy to a purchaser or encumbrancer, thereby depriving him of any right to protection as against reformation, unless the nature of the inaccuracy is such as to put him upon notice or require him to make inquiry with regard thereto. . . ." Annotation, 79 A.L.R. 2d 1180, 1184 (1961).
76 N.J. at 132, 183 A.2d 865.
In Garden of Mem., Inc. v. Forest Lawn Mem. Pk. Assn., 109 N.J.Super. 523, 264 A.2d 82 (App.Div.1970), pet. for certif. den., 56 N.J. 476, 267 A.2d 58 (1970), the Court stated:
[I]t is unquestionably the duty of the purchaser to search the grantor and other pertinent recording indexes for each holder of record title for the period during which he held such title. . . .
* * * * * *
[A] record which affords record notice of the transfer therein made may contain a statement or recital which does not of itself give either record notice or actual notice but does place on inquiry one who is affected by the record. 4 American Law of Property, § 17.28, at 608-609 (1952). A purchaser who is placed on inquiry is chargeable with notice of such facts as might be ascertained by a reasonable inquiry.
Id., at 533, 535, 264 A.2d 82 (citations omitted).
In that case, the Court concluded that plaintiffs there were given "constructive notice" of certain deeds affecting their title and that a reference in the chain of title to the other deeds was sufficient to require plaintiffs to inspect those deeds and investigate the information in them.
The question which ultimately must be addressed in the present case is whether a prospective purchaser from the debtor of a tenancy in common interest in the South Orange real estate would have "had `clews' which were `so easily followed that to have failed to do so charges [the prospective purchaser] with [his] own neglect". Garden of Mem., Inc., supra, at 535, 264 A.2d 82, quoting Kennedy v. Island Development Co., 9 N.J.Misc. 921, 924, 156 A. 233 (Atlantic County Ct.1931). If there were such "clews" a purchaser of a tenancy in common interest from the debtor could not have become a bona fide purchaser who would take as against plaintiff. It would follow, under those circumstances, that the trustee in bankruptcy could not avoid the transfer to plaintiff under § 544(a)(3).
A purchaser of the debtor's tenancy in common interest as of the date of the filing of the bankruptcy case would be confronted with the 1973 deed from the debtor to plaintiff. The deed on its face purports to transfer a non-existent interestthe husband's curtesy interest in real estate held by the husband and wife as tenants by the entirety. Since any purchaser would know that it is highly unlikely that the parties to the deed intended to record an instrument having no effect, the deed constituted a "clew" which a purchaser would have an obligation to followto find out just what the parties to the deed were about when they executed and recorded it. An inquiry would have brought to light plaintiff's interest in the real estate. Thus, any purchaser of the debtor's tenancy in common interests would be charged with notice of plaintiff's ownership of all rights to the real estate.[2]
*1021 Under New Jersey law, therefore, no bona fide purchaser could have perfected an interest as against plaintiff's interest. The trustee is not entitled, under § 544(a)(3), to avoid the transfer to her. Plaintiff is entitled to the entire proceeds of the sale of the South Orange real estate. Therefore, the judgment of the Bankruptcy Court will be reversed and the case remanded for entry of an order in conformity with this opinion.
NOTES
[1] After the argument of this appeal and just before the opinion was filed, the Third Circuit ruled upon this § 544(a) issue raised in the present case. McCannon v. Marston, ___ F.2d ___, Docket No. 81-2490 (June 2, 1982). The Court rejected the bankruptcy and district courts' holding that the language contained in § 544(a)"without regard to any knowledge of the trustee or of any creditor" results in the trustee assuming the powers of a bona fide purchaser without notice, whether or not the transferee has given the rest of the world actual or constructive notice by possession. The Court stated: "That the words `without regard to any knowledge' were not meant by Congress to nullify all state law protections of holders of equitable interests is suggested both by the history of its inclusion in the statutory language and by other language within Section 544(a)(3)". (At p. ___)
[2] In view of my conclusion that the recording of the defective 1973 deed without more imposes upon a prospective purchaser a duty of inquiry, it is unnecessary to supplement the record to determine the routine practices of title searchers in examining real estate tax records (which, in this case, would show plaintiff's ownership) or in examining divorce decrees and separation agreements referred to therein (which would also disclose, in this case, plaintiff's ownership of the South Orange real estate). It is also unnecessary to determine the extent, if any, that these practices, which go to matters outside the chain of title, would bear upon the question whether, under the circumstances of this case, there would be a duty of inquiry which would prevent a bona fide purchaser from prevailing over plaintiff. Cf. Palamarg Realty Company v. Rehac, 80 N.J. 446, 460, 404 A.2d 21 (1979).
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20 B.R. 212 (1982)
In re Penny Ann DAVIS, a/k/a Penny Ann Payne, Debtor/Appellee.
TERRE HAUTE FIRST NATIONAL BANK, Terre Haute, Indiana, a National Banking Association, Plaintiff/Appellant,
v.
Penny Ann DAVIS, a/k/a Penny Ann Payne, Defendant/Appellee.
No. 71-2308.
United States District Court, C.D. Illinois, Danville Division.
April 21, 1982.
Timothy O. Smith, Lowenstein, Hubbard & Smith, Danville, Ill., for plaintiff/appellant.
Richard J. Doyle, Doyle & Howell, Danville, Ill., for defendant/appellee.
ORDER
BAKER, District Judge.
This case is on appeal from an order of the bankruptcy court issued October 23, 1981, 15 B.R. 118. The appellant, Terre Haute First National Bank of Terre Haute, Indiana, a creditor of the appellee debtor, Penny Ann Davis, appeals from the order which allowed the debtor to redeem a mobile home by installment payments pursuant to § 722 of the Bankruptcy Reform Act of 1978, 11 U.S.C. § 722.
The appeal raises two questions pertaining to the application of § 722: first, whether the value established in a repurchase agreement is dispositive of the property's redemption value; and second, whether § 722 permits a debtor to redeem property by installment payments. For the reasons given below, the court affirms in part and reverses in part the order of the bankruptcy court.
The creditor appellant is the assignee and holder of a retail installment contract under which the debtor appellee purchased a 1979 Horizon Village Park Mobile Home from Thomas Manufactured Housing, Inc. *213 [Thomas]. The assignment from Thomas to the appellant included a limited repurchase agreement and a partial guarantee. The limited repurchase agreement provided that if the assignee repossessed or recovered the mobile home upon the default of the debtor, the assignor would pay the unpaid balance to the assignee. At the time the debtor's petition in bankruptcy was filed, the balance due on the installment contract was in excess of the mobile home's fair market value. The unpaid balance on the contract was $15,076.43. The approximate fair market value of the property was $8,106.00. The provisions of § 722 applied because the trustee abandoned the property under § 544, and the debt was a dischargeable consumer debt secured by tangible personal property intended for personal, family or household use.
I.
The appellant first contends that the bankruptcy court erred in rejecting the value established in the repurchase agreement as dispositive of the mobile home's redemption value. Section 722 allows a debtor to redeem property abandoned by the trustee, pursuant to § 544, by paying the lienholder the amount of the allowed claim secured by the lien. Under § 506(a), the amount of the allowed secured claim is the value of the creditor's collateral. Section 506(a) further states that the value of the creditor's collateral shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property. . . ."
The bankruptcy court adopted a flexible and pragmatic standard in valuing the collateral. Under such an approach a bankruptcy court is not bound by a unilateral and oftentimes artificial value as established in a repurchase agreement. This is in accord with the legislative history of § 722 where redemption is described as a "right of first refusal on a foreclosure sale of the property involved." H.R.Rep.No.95-595, 95th Cong., 1st Sess. 127 (1977), reprinted in [1978] U.S.Code Cong. & Ad. News 5787, 6088. The record reveals no evidence indicating that the amount owing under the repurchase agreement reflects the fair market value of the mobile home or value which would be realized at its forced sale. Therefore the bankruptcy court properly concluded that the fair market value as opposed to the value established in the repurchase agreement determined the redemption value of the collateral. In re Beranek, 9 B.R. 864, 7 B.C.D. 522 (Bkrtcy.D. Colo.1981); Chrysler Credit Corp. v. Cooper, 7 B.R. 537, 7 B.C.D. 24 (Bkrtcy.N.D.Ga. 1980).
II.
The second issue raised by the appellant is that the bankruptcy court erred when it allowed the debtor to redeem the mobile home by installment payments. Section 722 provides the debtor with the option of retaining certain tangible personal property by paying the creditor the "amount of the allowed secured claim of such holder that is secured by such lien." 11 U.S.C. § 722. Although § 722 makes clear that the amount of the redemption payment is the "allowed secured claim" or current market value of the collateral, the section is silent as to the manner of payment.
The bankruptcy court adopted the view that redemption by installment is not per se proscribed under § 722, but that the manner of redemption should be determined on a case by case basis. Under this analysis, if a court finds that the need for redemption by installment, vis-a-vis the debtor's rehabilitation, is greater than the harm to the creditor, the court should order redemption by installment subject to any conditions or restrictions the court considers necessary and just to protect the creditor's security. In light of the legislative history of § 722 and the right of reaffirmation afforded under 11 U.S.C. § 524(c), the court concludes that nonconsensual redemption by installment is not an available remedy to a Chapter 7 debtor.
The Bankruptcy Reform Act of 1978 has two separate and distinct provisions which help promote a debtor's rehabilitation. *214 Congress was concerned with the leverage creditors had over unsuspecting consumer debtors, which often hindered the "fresh start" policy of the bankruptcy laws. To help alleviate the unfair advantages of creditors, Congress enacted §§ 524(c) and 722 of the Bankruptcy Reform Act, 11 U.S.C. §§ 524(c), 722. Section 722 allows for the redemption of tangible personal property used for personal, family or household use which has been exempted under 11 U.S.C. § 522 or abandoned under 11 U.S.C. § 554. Section 524(c) permits a debtor and creditor to enter into a consensual "reaffirmation" agreement regarding a dischargeable debt, subject to court approval. Both methods are available to prevent the repossession of property and help promote the "fresh start" of the debtor.
The newly-created right of redemption under § 722 is drawn from the redemption provision of Uniform Commercial Code § 9-506. Section 9-506 affords a property owner the right to redeem property from a creditor by a lump-sum payment of the full outstanding debt for which the property is held as collateral. Although the legislative history of § 722 indicates that a relaxed redemption provision is needed to promote debtor rehabilitation, Congress also evinced a concern in protecting the interests of the creditor. The following portion of the Senate Report which discusses proposed § 722 illustrates this dual objective:
This section is new and is broader than rights of redemption under the Uniform Commercial Code. It authorizes an individual debtor to redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a nonpurchase money dischargeable consumer debt. It applies only if the debtor's interest in the property is exempt or has been abandoned.
This right to redeem is a very substantial change from current law. To prevent abuses such as may occur when the debtor deliberately allows the property to depreciate in value, the debtor will be required to pay the fair market value of the goods or the amount of the claim if the claim is less. The right is personal to the debtor and is not assignable.
S.Rep.No.95-989, 95th Cong., 2d Sess. 95, reprinted in [1978] U.S.Code Cong. & Ad. News 5881. The House Report reflects similar concerns. See H.R.Rep.No.95-595, 95th Cong., 1st Sess. at 117, 127-28 (1977), reprinted in [1978] U.S.Code Cong. & Ad. News at 6077, 6087-88.
Essentially § 722 places the creditor and debtor in equilibrium; the consumer debtor is given an unwaivable right to retain necessary property by paying the lower of the outstanding debt or the current market value of the property, thereby avoiding high replacement costs, while the creditor receives a security similar to that had he foreclosed on the property. The legislative history supports the conclusion that Congress intended to compensate consumer debtors for the overreaching of creditors. In addition, nothing prevents a consensual agreement between the debtor and creditor for redemption by installment. However, Congress gave no indication that it intended to put a creditor's interest in jeopardy. Therefore, the court concludes that the legislative history does not support the conclusion that a court may order redemption by installment on a non-consenting creditor. See General Motors Acceptance Corp. v. Bell, 15 B.R. 859 (D.C.E.D.Mich.1981); First Bank & Trust Co. of Ithaca v. Hart, 8 B.R. 1020, 7 B.C.D. 301 (D.C.N.D.N.Y.1981); In re Cruseturner, 8 B.R. 581, 7 B.C.D. 235 (Bkrtcy.D.Utah 1981).
Construing § 722 to permit nonconsensual redemption by installment conflicts with § 524(c). Section 524(c) allows a creditor and debtor to voluntarily enter into a "reaffirmation" agreement. Oftentimes the renegotiated debt takes the form of an installment contract. To protect the debtor from an overreaching creditor, Congress mandated that the agreement be subject to judicial approval.
Finally, a statute should be construed to reflect a consistent and harmonious whole. Sections 524(c) and 722 pose alternative methods by which a debtor can retain possession of necessary property. If *215 § 722 is interpreted to allow nonconsensual redemption by installment, the effect will be to render § 524(c) agreements a virtual nullity. The court recognizes that the bankruptcy court retains the power to fashion equitable remedies. Moreover in some cases, §§ 524(c) and 722 will provide no assistance to the debtor. However, Congress intended §§ 524(c) and 722 to realign the debtor into equilibrium with the creditor. Absent congressional action or a consensual agreement altering that equilibrium, the bankruptcy court's equitable powers are stayed.
Accordingly, the order of the bankruptcy court is affirmed in part, reversed in part and remanded with judgment to be entered in accordance with this decision.
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*230TEXTO COMPLETO DE LA SENTENCIA
1
La parte recurrente, Loomis, Fargo & Company of Puerto Rico ( Loomis ), es una corporación autorizada a hacer negocios en Puerto Rico, dedicada a proveer servicios de seguridad. La recurrida Ranger American Armored Services, Inc. (“Ranger”) es una corporación similar, también dedicada a proveer servicios de seguridad.
A mediados de 2003, el Departamento de Hacienda publicó un aviso de subasta para la adquisición de servicios de transportación blindada para el depósito de valores de dicha agencia. Posteriormente, el Departamento aclaró que la licitación incluia el servicio para un total de 96 oficinas (95 colecturías y el Área del Tesoro), así como otros servicios adicionales y/o contingentes, tales como oficinas (colecturías nuevas), recogidos adicionales, entregas dedicadas especiales y tiempo de espera.
Loomis y Ranger comparecieron a la subasta. Para el servicio básico, Loomis ofreció una cotización para las 95 colecturías, ascendente a $29,925.00 mensuales. La oferta de Ranger fue sustancialmente más alta, de $33,600.00 mensuales, aunque la misma incluia el Área del Tesoro y la Oficina de Finanzas.
En cuanto a los otros servicios adicionales y contingentes, Loomis ofreció cotizaciones más bajas en cuanto a varias partidas, y Ranger en cuanto a otras.
Loomis cotizó $394.00 mensual por cada nueva oficina, mientras que Ranger cotizó $375.00; Loomis cotizó $125.00 por recogidos especiales, mientras que la cotización de Ranger era de $75.00 ó $100.00, dependiendo de si el recogido era en la zona metropolitana o en la Isla; Loomis cotizó $24.00 por viaje adicional, Ranger, $75.00, en cuanto al tiempo de espera, Loomis cotizó $2.50 por cada minuto en exceso de 15 minutos, mientras que Ranger ofreció una tarifa de $2.50 en exceso de 10 minutos de espera, más alta que Loomis.
*231El 26 de enero de 2004, Loomis recibió un aviso de adjudicación, donde se le informaba que el Departamento de Hacienda había decidido otorgar la subasta a Ranger. La notificación de la agencia no ofrecía explicaciones sobre su decisión. Únicamente se informó a las partes que la agencia había decidido otorgar la subasta a Ranger a base de los criterios de experiencia previa, calidad y costo por servicios recurrentes, en particular, nuevas oficinas y recogidos adicionales. El Departamento no elaboró sobre su ponderación de estos criterios, ni ofreció detalle adicional alguno que permitiera a Loomis entender la decisión tomada.
Inconforme con la adjudicación, Loomis solicitó que se le permitiera examinar el expediente de la subasta, a lo que el Departamento de Hacienda se negó. Loomis entonces presentó una solicitud de reconsideración, formulada en términos generales, reiterando su pedido de que se le permitiera examinar el expediente.
Luego de la presentación de dicho escrito, la agencia permitió a Loomis examinar el expediente, aunque no el obtener copia de los documentos relacionados a la adjudicación. Loomis fue informada que era norma del Departamento no expedir copia parcial o total del expediente en esa etapa del procedimiento.
A base de las notas tomadas, Loomis presentó un escrito suplementario.
El 9 de febrero de 2004, la Junta de Subastas de la agencia emitió una resolución declarando no ha lugar la solicitud de reconsideración de Loomis.
En su breve resolución, la Junta concluyó que lo “más beneficioso para el interés público” era adjudicar la subasta a Ranger. Dicha conclusión no estuvo acompañada de determinaciones específicas sobre las propuestas o de un análisis detallado de las mismas. La Junta se limitó a observar:
“El Comité de Evaluación del Área de Rentas Internas realizó la evaluación correspondiente a las propuestas en referencia a base de criterios tanto cualitativos como cuantitativos en cuanto a servicios prestados se refiere, a saber: (1) la experiencia con la compañía Ranger refleja cumplimiento con los servicios contratados, no habiendo demoras en los recogidos, ni equívocos en las entregas realizadas; (2) en la parte cuantitativa, a pesar de que los costos de transportación blindada del licitador agraciado es mayor[,] su cargo por oficina nueva mensual es menor ($375.00 vs. $394.00), los recogidos adicionales por oficina menores ($75.00 vs. $125.00 por hora), servicios de utilidad excepcional por situaciones suscitadas en el pasado, (3) la calidad del servicio prestado por el Licitador Agraciado en los últimos dos (2) años refleja cumplimiento con los servicios contratados. ”
La Junta de subastas denegó la moción de reconsideración de Loomis.
Loomis acudió entonces ante este Tribunal mediante el presente recurso.
Mediante resolución emitida el 4 de marzo de 2004 concedimos término a las partes recurridas para que comparecieran a mostrar causa por la cual no debíamos expedir el auto solicitado y revocar la resolución recurrida.
Luego de varias prórrogas, las partes recurridas han comparecido por escrito.
Procedemos según lo intimado.
II
En su recurso, Loomis plantea que el Departamento de Hacienda erró al adjudicar la subasta a Ranger a pesar de que la oferta de Loomis era mucho más baja.
*232El propósito de requerir que la realización de obras y la contratación por el gobierno sea conducido mediante el trámite de subasta, según se conoce, es proteger los intereses y dineros del pueblo. Dicho mecanismo, según ha explicado el Tribunal Supremo de Puerto Rico, sirve para promover la competencia y lograr los precios más bajos cosibles, evita el favoritismo, la corrupción, el dispendio, la prevaricación, la extravagancia y el descuido al otorgarse los contratos y minimiza los riesgos de incumplimiento. Mar-Mol Co., Inc. v. Adm. Servicios Gens., 126 D.P.R. 864, 871 (1990); Cancel v. Municipio de San Juan, 101 D.P.R. 296, 300 (1973); Justiniano v. E.L.A., 100 D.P.R. 334, 338 (1971).
Los procesos de subasta llevadas a cabo por el gobierno central y sus agencias bajo la Ley de Procedimiento Administrativo Uniforme son informales, 3 L.P.R.A. sec. 2169; Rafael Rosario & Assoc. v. Depto. Familia, 157 D.P.R._(2002), 2002 J.T.S. 93, a la pág. 1,342.
La Ley de Procedimiento Administrativo Uniforme, sin embargo, provee un detallado procedimiento para solicitar reconsideración y revisión de la adjudicación de una subasta. Estos trámites posteriores son formales. 3 L P R A secs. 2169 y 2172 (Supl. 2001); Constructora Celta, Inc. v. A.P., 155 D.P.R._(2002), 2002 J.T.S. 1, a la pág. 546; L.P.C. & D., Inc. v. A.C., 149 D.P.R. 869, 877 (2000); Cotto v. Depto. de Educación, 138 D.P.R. 658, 663-664 (1995).
En consecuencia, los mismos conllevan requisitos rigurosos de notificación y exposición de los fundamentos de la actuación administrativa, de manera que las partes puedan ejercitar su derecho a la revisión judicial. Véanse, Rafael Rosario & Assoc. v. Depto. Familia, 2002 J.T.S. 93, a la pág. 1,342; Constructora Celta, Inc. v. A.P., 2002 J.T.S. 1, a la pág. 546; Velázquez v. Adm. de Terrenos. 153 D.P.R. _ (2001) 2001 J.T.S. 35, a la pág. 974; L.P C. & D., Inc. v. A.C., 149 D.P.R. a las págs. 878-879; RBR Construction, S.E. v. A.C., 149 D.P.R. 836, 854-855 (2000); Const. I. Meléndez, S.E. v. A.C., 146 D.P.R. 743, 749 (1998).
La resolución que emita la agencia en estos casos debe contener, cuando menos, la siguiente información: los nombres de los licitadores en la subasta y una síntesis de sus propuestas; los factores o criterios que se tomaron en cuenta para adjudicar la subasta; los defectos, si alguno, que tuvieran las propuestas de los licitadores perdidosos y la disponibilidad y el plazo para solicitar reconsideración o revisión. L.P.C. & D., Inc. v A.C., 149 D.P.R. a la pág 879- véanse, además, Pta. Arenas Concrete, Inc. V. J. Subastas, 153 D.P.R._(2001), 2001 J.T.S. 50 a las págs. 1078-9; IM Winner, Inc. v. Mun. de Guayanilla, 151 D.P.R._(2000), 2000 J.T.S. 86, a la pag. 1,134.
Lo anterior es consistente con las garantías requeridas en los procedimientos adjudicativos ante las agencias administrativas.
En efecto, la función principal de la revisión judicial de decisiones administrativas es asegurarse de que las agencias administrativas con poderes adjudicativos actúen dentro de la facultad delegada por la Asamblea Legislativa y que cumplan con los preceptos constitucionales correspondientes, particularmente, los dictados por el debido proceso de ley. Assoc. Ins. Agencies v. Com. Seg. P.R., 144 D.P.R. 425, 435 (1997); véase, además, Misión Ind. P.R. v. J.P., 146 D.P.R. 64, 130 (1998).
La Ley de Procedimiento Administrativo Uniforme reconoce que las partes en este tipo de procedimientos gozan del derecho a la notificación oportuna de las determinaciones de la agencia, a presentar evidencia en apoyo de su posición, a que la adjudicación sea realizada por un juez imparcial y a que la decisión esté basada en el expediente 3 L.P.R.A. see. 2151; véase, además, Ramírez v. Policía de P.R., 158 D.P.R._(2003), 2003 J.T.S. 3, a la pág. 373; Magriz v. Empresas Nativas, 143 D.P.R. 63, 70 (1997); López y Otros v. Asoc. de Taxis de Cayey, 142 D.P.R. 109, 113-114(1996).
Es insostenible la práctica de adjudicar controversias a la luz de evidencia secreta que no puede ser conocida, explicada o rebatida por las partes. Torres Ramos v. Policía de P.R., 143 D.P.R. 783, 796 (1997); López y Otros v. *233Asoc. de Taxis de Cayey, 142 D.P.R. a la pág. 116; López Vives v. Policía de P.R., 118 D.P.R. 219, 230 (1987); López v. Junta de Planificación, 80 D.P.R. 646, 670 (1958).
Ahora bien, según ha observado el Tribunal Supremo de Puerto Rico, para que pueda hacerse valer el derecho a la revisión judicial, las agencias administrativas vienen obligadas a expresar claramente sus determinaciones de hechos y las razones para sus decisiones, incluyendo los hechos básicos de los cuales, a través de un proceso de razonamiento e inferencias, se derivan aquéllas. Las decisiones deben reflejar que el foro administrativo ha considerado y ha resuelto los conflictos de prueba, y sus determinaciones deben cubrir tanto los hechos probados como los que fueron rechazados. No pueden ser pro forma, y deben reflejar que la agencia ha cumplido con su obligación de evaluar y resolver los conflictos ante su consideración. Mun. de San Juan v. J.C.A., 152 D.P.R._ (2000), 2000 J.T.S. 193, a la pág. 482; Mun. de San Juan v. J.C.A., 149 D.P.R. 263, 280-281 (1999); Assoc. Ins. Agencies v. Com. Seg. P.R., 144 D.P.R. a la págs. 437-438.
Para conseguir lo anterior, la sección 3.14 de la Ley de Procedimiento Administrativo Uniforme, 3 L.P.R.A. see. 2164, requiere que cualquier orden o resolución final emitida por una agencia en un procedimiento de naturaleza adjudicativa incluya y exponga "separadamente determinaciones de hechos si éstas no se han renunciado [y] conclusiones de derecho, que fundamentan la adjudicación."
El Tribunal Supremo de Puerto Rico ha aclarado que se trata de un requisito de debido procedimiento de ley. Rivera Santiago v. Srio. de Hacienda, 119 D.P.R. 265, 274 (1987); Véanse, además, Vega Cruz v. Comisión Industrial, 110 D.P.R. 349, 352-353 (1980); P.N.P. v. Tribunal Electoral, 104 D.P.R. 1, 3-4 (1975); López v. Junta de Planificación, 80 D.P.R. 646, 667 (1958).
El Tribunal Supremo ha explicado que entre otros propósitos perseguidos por este requisito se incluye: (1) proporcionar a los tribunales la oportunidad de revisar adecuadamente la decisión administrativa y facilitar esta tarea; (2) fomentar que la agencia adopte una decisión cuidadosa y razonada dentro de los parámetros de su autoridad y discreción; (3) ayudar a la parte afectada a entender porqué el organismo administrativo decidió como lo hizo y, al estar mejor informada, poder decidir si acude al foro judicial o acata la determinación; (4) promover la uniformidad intraagencial, en particular, en cuanto el proceso decisorio institucional es adoptado por distintos miembros de un comité especial a quienes les está encomendado celebrar vistas y recibir prueba; (5) evitar que los tribunales se apropien de funciones que corresponden propiamente a las agencias administrativas bajo el concepto de especialización y destreza. Mun. de San Juan v. J.C.A., 149 D.P.R. a las págs. 280-281.
Dicho requisito se aplica, según hemos indicado, a procedimientos de naturaleza informal, incluso aquéllos de adjudicación de subastas. Pta. Arenas Concrete, Inc. V. J. Subastas, 2001 J.T.S. 50, a las págs. 1078-9; IM Winner, Inc. v. Mun. de Guayanilla, 2000 J.T.S. 86, a la pág. 1,134; L.P.C. & D., Inc. v. A.C., 149 D.P.R. a las págs. 877-878; Mun. de San Juan v. J.C.A., 149 D.P.R. a las págs. 280-281; Rivera Santiago v. Srio. de Hacienda, 119 D.P.R. a la pág. 265.
En la situación de autos, según hemos visto, la licitación de Loomis resultaba sustancialmente inferior en precio a la de Ranger. No obstante, la notificación de la adjudicación de la subasta enviada por el Departamento de Hacienda no explicaba los fundamentos de la decisión de la agencia. Aunque dicha notificación mencionaba que se habían considerado los factores de experiencia previa, calidad y costo por servicios recurrentes, señalando, entre éstos, a la cotización nuevas oficinas y recogidos adicionales, la notificación no contenía explicación alguna sobre cómo se habían tomado en consideración dichos factores.
Loomis solicitó acceso al expediente, la que le fue denegada por la agencia, a pesar de que la subasta ya había sido otorgada y se había notificado la decisión.
Los documentos en cuestión, sin embargo, son documentos públicos. Véase, 26 L.P.R.A. sees. 212 y 218; *234véase, además, 3 L.P.R.A. sec. 1001.
El Tribunal Supremo de Puerto Rico ha reconocido que los ciudadanos de nuestra jurisdicción tienen un derecho de acceso a la documentación pública, el cual es un corolario necesario de los derechos de libertad de expresión, prensa y asociación establecidos por la Sección 4 del Art. II de la Constitución del Estado Libre Asociado de Puerto Rico. Nieves Falcón v. Junta de Libertad Bajo Palabra,_D.P.R._(2003), 2003 J.T.S. 130, a la pág. 1,354; Guadalupe v. Saldaña, Pres. U.P.R., 133 D.P.R. 42, 55 (1993); Noriega v. Gobernador, 130 D.P.R. 919, 937 (1992); López Vives v. Policía de P.R., 118 D.P.R. a la pág. 227; Santiago v. Bobb, 117 D. P.R. 153, 159 (1986); Soto v. Srio. de Justicia, 112 D.P.R. 477, 485 (1982).
El Tribunal Supremo de Puerto Rico ha aclarado que cualquier ciudadano tiene interés especial para solicitar examinar documentación pública. Nieves Falcón v. Junta de Libertad Bajo Palabra, 2003 J.T.S. 130, a la pág. 1,354; Ortiz v. Bauermeister, 152 D.P.R._(2000), 2000 J.T.S. 157, a la pág. 185; véase, además, 32 L.P.R.A., sec. 1781.
Aunque no se trata de un derecho absoluto, el peso corresponde al Estado para justificar a plenitud cualquier reclamo de confidencialidad, el cual deberá ser examinado de la forma más favorable a favor del reclamante y en contra del privilegio. Nieves Falcón v. Junta de Libertad Bajo Palabra, 2003 J.T.S. 130, a las págs. 1,354-5; López Vives v. Policía de P.R., 118 D.P.R. a la pág. 233.
Como regla general, el Estado sólo puede reclamar válidamente la secretividad de información pública en un número limitado de supuestos, a saber, cuando: (1) una ley (o un reglamento) así específicamente lo declara, (2) la comunicación está protegida por alguno de los privilegios evidenciarios que pueden invocar los ciudadanos; (3) revelar la información puede lesionar derechos fundamentales de terceros; (4) se trate de la identidad de un confidente conforme a la Regla 32 de Evidencia, 32 L.P.R.A. Ap. IV; o (5) sea información oficial conforme a la Regla 31 de Evidencia. Véanse, Nieves Falcón v. Junta de Libertad Bajo Palabra, 2003 J.T.S. 130, a la pág. 1,354; Ortiz v. Bauermeister, 2000 J.T.S. 157, a la pág. 186; Angueira v. J.L.B.P., 150 D.P.R. 10, 24 (2000).
Cuando el gobierno invoca una ley o reglamento como fundamento para negar al ciudadano el acceso a información pública, la regulación debe satisfacer un escrutinio judicial estricto. En concreto, deben cumplirse los siguientes requisitos: (a) caer dentro del poder constitucional del gobierno; (b) propulsar un ínteres gubernamental apremiante; (c) que tal interés no esté directamente relacionado con la supresión de la libertad de expresión; y (d) que la restricción a la libertad de expresión no sea mayor de lo necesario para propulsar dicho interés. Nieves Falcón v. Junta de Libertad Bajo Palabra, 2003 J.T.S. 130, a la pág. 1,354; Ortiz v. Bauermeister, 2000 J.T.S. 157, a la pág. 186.
Ninguna legislación que no contenga estándares apropiados para determinar el tipo de documento e información que habrá de estar sujeta al escrutinio público y que, por el contrario, establezca una norma de confidencialidad absoluta, puede superar el escrutinio constitucional. Nieves Falcón v. Junta de Libertad Bajo Palabra, 2003 J.T.S. 130, a la pág. 1,354; Soto v. Srio. de Justicia, 112 D.P.R. a la pág. 495.
El derecho de acceso a los documentos públicos implica la obligación correlativa de permitir dicha inspección, el cual puede ser reclamado mediante un mandamus. Dávila v. Superintendente de Elecciones, 82 D.P.R. 264, 277-279 (1960).
En el presente caso, según hemos visto, la subasta había sido notificada a las partes, por lo que no percibimos razón para que se denegara acceso a Loomis al expediente. Compárese, Ortiz v. Bauermeister, 2000 J.T.S. 157, a la pág. 189.
*235Aunque a Loomis posteriormente le fue permitido ver el expediente, la agencia no accedió a que tuviera copia de los documentos relacionados a la adjudicación de la subasta, por lo que la comparecencia posterior de dicha parte tuvo que descansar en notas tomadas por sus abogados. Creemos que este trámite fue irregular, y que el mismo posiblemente privó a la recurrente de una oportunidad real de dilucidar sus planteamientos en tomo a la decisión recurrida ante el foro administrativo.
El Departamento de Hacienda, según hemos visto, emitió una resolución posterior el 9 de febrero de 2004, denegando la moción de reconsideración de Loomis. Dicha resolución tampoco nos asiste para sostener la determinación de la agencia.
En su resolución, la Junta de Subastas del Departamento hizo hincapié en que su experiencia anterior con Ranger había sido satisfactoria. Dicho criterio, por sí sólo, resulta insuficiente para justificar la decisión de otorgar la subasta a dicha parte, particularmente ante la sustancial diferencia de precio entre las cotizaciones.
Reconocemos que el hecho de que una agencia hubiera tenido negocios anteriores exitosos con una parte puede constituir un factor razonable para escoger su licitación entre otras ofertas comparables o cercanas en precios. Pero cuando la diferencia entre las licitaciones es sustancial, como sucede en el caso de autos, no está claro que dicho factor deba ser, de por sí, determinante en la decisión de la agencia, en ausencia de otras circunstancias que justifiquen dicha apreciación. Lo contrario implicaría la inamovilidad de los contratistas de gobierno.
El Departamento de Hacienda también expresó que había considerado que Loomis había presentado una oferta que resultaba más alta en cuanto a algunas de las partidas adicionales y/o contingentes. Expresó, en este sentido, que Loomis había ofrecido licitaciones más altas con respecto á los servicios para nuevas oficinas y para recogidos adicionales.
No está claro que dichas consideraciones sean suficientes para otorgar la subasta a Ranger. Lo cierto es que dichos servicios adicionales y/o contingentes no eran, como tal, parte de la subasta. La oferta de Loomis resultaba superior a la de Ranger en cuanto a varias de estas partidas (viz, Loomis cotizó $24.00 por viajes adicionales, mientras que Ranger cotizó $75.00; Loomis cotizó $2.50 por cada minuto de espera en exceso de 15 minutos, mientras que Ranger cotizó lo mismo, pero para cada minuto en exceso de 10 minutos de espera).
A nuestro juicio, es indispensable que cuando una agencia desea favorecer a un licitador que ha presentado una oferta que conlleva una erogación sustancialmente mayor de fondos públicos, tal decisión debe ser razonablemente justificada, exponiéndose de forma clara los fundamentos para dicha actuación.
En el presente caso, el Departamento de Hacienda no ofreció explicación alguna por la cual los renglones en los cuales Ranger había cotizado más bajo eran más importantes o significativos que aquéllos en que la cotización de Loomis era la más baja. No se aclaró, por ejemplo, que se anticipara un número específico de oficinas nuevas o de recogidos especiales que permitieran a este Tribunal concluir que la oferta de Ranger efectivamente conllevaría un ahorro al erario. Tampoco se explicó porqué aquellos renglones adicionales en los que la oferta de Loomis resultaba superior a la de Ranger no debían ser tomados en cuenta, para la adjudicación de la subasta.
La adjudicación de una subasta a base de partidas “adicionales” o “contingentes'’ introduce un grado de especulación en la determinación administrativa, y podría, de convertirse en una práctica generalizada, derrotar la política pública en esta área, que persigue que el gobierno logre los mejores negocios posibles. Si determinados servicios resultan nécesarios y accesorios a la contratación por parte de una agencia, el aviso de subasta generalmente así lo debe indicar, y dichas partidas deben ser sumadas para determinar cuál es el mejor postor de la subasta.
*236En el presente caso, este Tribunal no está en posición de concluir que la determinación de la agencia efectivamente represente el mejor negocio para el Gobierno. Al contrario, desde el punto de vista de los servicios objeto de la licitación, la oferta de Ranger resulta menos ventajosa para el Estado que la de Loomis.
Reconocemos que las decisiones de los organismos administrativos merecen deferencia. Pero esto no implica que debamos avalar una decisión administrativa errónea. A.A.A. v. Unión Abo. A.A.A., 158 D.P.R._(2002), 2002 J.T.S. 155, a la págs. 338-339; Franco v. Depto. de Educación, 148 D.P.R. 703, 709 (1999); Fuertes y Otros v., A.R.P.E., 134 D.P.R. 947, 953 (1993).
Los Tribunales debemos rechazar una decisión administrativa cuando la misma no está apoyada en el récord de un caso o resulta irrazonable. Asoc. Vec. H. San Jorge v. U. Med. Corp., 150 D.P.R. 70, 77 (2000); RBR Const., S.E. v. A.C., 149 D.P.R. a la pág. 856.
En el presente caso, concluimos que el Departamento de Hacienda erró al adjudicar la subasta a Ranger.
Por los fundamentos expresados, se expide el auto solicitado y se revoca la resolución recurrida. En su lugar se dicta sentencia ordenando al Departamento de Hacienda adjudicar la subasta en controversia a Loomis.
Lo pronunció y lo manda el Tribunal y lo certifica la señora Secretaria General.
Aida Heana Oquendo Graulau
Secretaria General
ESCOLIOS 2004 DTA 103
1. Según se desprende del récord, el Departamento de Hacienda no solicitó servicio de recogido en el Área de Finanzas, el cual no iba a ser necesario para el año en cuestión. Por otro lado, aunque Loomis no cotizó para el Area de Tesoro aclaro que estaba dispuesta a proveer el servicio para dicha facilidad a base del mismo precio.
2. Ello podría suceder, por ejemplo, cuando por la naturaleza de los servicios a ser contratados, resulte deseable que el contratante esté familiarizado con los procedimientos ante la agencia. No surge de los autos, sin embargo, que los servicios objeto de la presente contratación, requieran tal familiaridad previa.
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01-03-2023
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11-23-2022
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https://www.courtlistener.com/api/rest/v3/opinions/1832703/
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230 B.R. 239 (1999)
John GRAY, Nancy Gray, and Thomas Gray, Plaintiffs,
v.
Gerald P. HIRSCH, Churchill Mortgage Investment Corp., Abbot & Cromwell Corp., Churchill Securities, Inc., Edinberg Services Ltd., Churchill Conservation Services, Inc., C.D. Investment Group, Sensible Mortgage Co., and Does I to X, Defendants.
No. 97 Civ. 3082 CBM.
United States District Court, S.D. New York.
January 8, 1999.
*240 MEMORANDUM OPINION
MOTLEY, J.
Plaintiffs John Gray, Nancy Gray, and Thomas Gray filed this action against defendant Gerald P. Hirsch and several business entities he controlled (the "Hirsch entities"). The Grays claim that Mr. Hirsch fraudulently induced them to purchase unregistered securities, in violation of federal statutes, state statutes, and state common law.
The present question is whether the action, as against Mr. Hirsch, should be stayed during the Hirsch entities' bankruptcy. For the reasons given below, the court concludes that action against Mr. Hirsch should not be stayed and that the court should consider the pending motion for partial summary judgment against Mr. Hirsch.
I. Background
A. History of Proceedings
During the dealings at issue, Mr. Hirsch "owned or controlled" the Hirsch entities. See In re Churchill-Hemisphere, Inc., 97 Civ. 5301(CBM) (S.D.N.Y. July 21, 1997) (Heiss decl. ¶ 1). He was "chairman of the `Churchill Group'" of Hirsch entities, United States v. Hirsch, 97 Cr. 1038(DAB) (S.D.N.Y. Sept. 30, 1997) (indictment against Gerald Hirsch ¶¶ 1, 9), through which he "presented his companies as operating under a single umbrella," In re Churchill-Hemisphere, Inc., 97 Civ. 5301(CBM) (S.D.N.Y. July 21, 1997) (Heiss decl. ¶ 26).
*241 The Grays filed this action on April 29, 1997. By that time, however, the Securities and Exchange Commission ("SEC") had spent years prosecuting claims that Mr. Hirsch and the Hirsch entities violated federal securities law. In 1993, the SEC filed a complaint for injunctive relief against Mr. Hirsch and two of the Hirsch entities: Churchill Securities, Inc. and Churchill Mortgage Investment Corp. ("CMIC"). See Sec. & Exch. Comm'n v. Churchill Sec., Inc., et al., 93 Civ. 7486(CBM). The SEC alleged that the three defendants distributed unregistered securities, in violation of §§ 5(a), (c) of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. §§ 77e(a), (c), and that the defendants made material misrepresentations in doing so, in violation of § 17(a) of the 1933 Act, 15 U.S.C. § 77q(a), as well as § 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
That SEC lawsuit ended in this court by consent with an April 16, 1996 final judgment of permanent injunction and other equitable relief aiming to prevent further securities law violations ("1996 injunction"). On March 25, 1997, however, after the SEC alleged that the securities law violations were continuing, the Honorable Thomas P. Griesa entered a stipulation and order against Mr. Hirsch and the Hirsch entities. See Sec. & Exch. Comm'n v. Churchill Sec., Inc., et al., 93 Civ. 7486(CBM) (stipulation and order dated March 25, 1997) ("1997 order"). Part I of the 1997 order found that between April 1996 and January 1997, Mr. Hirsch and CMIC committed the violations the SEC alleged in its 1993 complaint, and thus violated the 1996 injunction as well. Part II held Mr. Hirsch and CMIC in civil contempt of the 1996 injunction for their continuing securities law violations. Part III froze assets of Mr. Hirsch and the Hirsch entities. Part IV ordered disclosure of all assets controlled by Mr. Hirsch and the Hirsch entities. Parts V-XII appointed a receiver to protect property of the Hirsch entities, to monitor transactions of the Hirsch entities, and to make reports to the court about the Hirsch entities.
On April 10 and April 28, 1997, this court issued orders modifying the 1997 order. Most relevant to the present matter is the April 28 order, which allowed the receiver to file bankruptcy petitions for the Hirsch entities. See Sec. & Exch. Comm'n v. Churchill Sec., Inc., et al., 93 Civ. 7486(CBM) (orders dated April 10 and 28, 1997). An involuntary Chapter 7 petition had been filed against CMIC on April 17, 1997; the receiver then filed voluntary Chapter 7 petitions on behalf of all 14 other known Hirsch entities on June 23, June 27, and July 2, 1997. All 15 Hirsch entities remain in bankruptcy. In re Churchill Mortgage Inv. Corp., et al., Chapter 7 Case Nos. 97 B 20967, 21613-21618, 21673-21677, 21708-21710 (Bankr.S.D.N.Y.).
The disputed dealings have led to not only civil and bankruptcy proceedings, but also criminal proceedings. On September 30, 1997, Mr. Hirsch was indicted on 16 counts of mail fraud, § 18 U.S.C. § 1341. United States v. Hirsch, 97 Cr. 1038(DAB) (S.D.N.Y.).
B. The Summary Judgment Motion and Bankruptcy Stay Issue
On February 9, 1998, the court issued a pre-trial scheduling order for the Grays' planned summary judgment motion. The order provided that the motion would be taken on submission and provided due dates between February 20 and March 27, 1998 for those submissions. On February 20, 1998, the Grays moved for partial summary judgment on the issue of Mr. Hirsch's liability under Counts I, II, and III of their complaint. Mr. Hirsch, having earlier indicated his view that action against him should be stayed, made no submission on the summary judgment motion by the ordered due date or since.
On July 6, 1998, the court denied the Grays' summary judgment motion without prejudice because of an unaddressed threshold question: should the bankruptcy of the Hirsch entities stay action against Mr. Hirsch in the present case? In the order denying summary judgment, the court ordered submissions from the parties, due between August 5 and September 11, 1998, on whether the Grays' action against Mr. Hirsch *242 should be stayed, pursuant to the Bankruptcy Code's automatic stay provision, 11 U.S.C. § 362(a)(1), because of the bankruptcy of the Hirsch entities. The court would decide the issue on submission. Only the Grays made a submission, but the court has considered the issue based on its own inquiry as well as the Grays' submission.
II. Conclusions of Law
A. General Limitation of Stay to Bankruptcy Debtor
The Bankruptcy Code's automatic stay provision, 11 U.S.C. § 362(a)(1), protects bankruptcy debtors from contemporaneous judicial proceedings:
a petition filed under section 301, 302, or 303 of this title . . . operates as a stay, applicable to all entities, of the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
Id. Mr. Hirsch controlled the Hirsch entities as officer and principal. However, while all 15 Hirsch entities are bankruptcy debtors, Mr. Hirsch as an individual is not. An action against Mr. Hirsch would not appear to be a proscribed "action or proceeding against the debtor," 11 U.S.C. § 362(a)(1), under the statute's plain meaning and the interpretation of courts in this circuit.
"It is well-established that stays pursuant to § 362(a) are limited to debtors and do not encompass non-bankrupt co-defendants." Teachers Ins. & Annuity Ass'n v. Butler, et al., 803 F.2d 61 (2d Cir.1986) (declining to extend stay of action against debtor partnership to its co-defendants, non-debtor individual partners). Applying Teachers Ins. & Annuity Ass'n, courts in this circuit regularly refuse to extend a debtor corporation's § 362 stay to its non-debtor officers and principals. See, e.g., Variable-Parameter Fixture Dev. Corp. v. Morpheus Lights, Inc., et al., 945 F. Supp. 603 (S.D.N.Y.1996) (non-debtor principal who, under state law, was debtor corporation's "alter ego"); E.I. Du Pont De Nemours & Co. v. Fine Arts Reprod. Co., et al., No. 93 Civ. 2462(KMW), 1995 WL 312505, *5 (S.D.N.Y. May 22, 1995) (non-debtor who was debtor corporation's president and guarantor); Levesque v. Kelly Communication, Inc., et al., 164 B.R. 29, 30 (S.D.N.Y.1994) (non-debtor whose two debtor corporations bore his name); CAE Indus. Ltd., et al. v. Aerospace Holdings Co., et al., 116 B.R. 31, 32 (S.D.N.Y.1990) (non-debtor former Chairman, CEO, and Director of debtor corporation); In re Crazy Eddie Sec. Litig., 104 B.R. 582, 584 (E.D.N.Y.1989) (all non-debtor co-defendants affiliated with debtor corporation); Ripley v. Mulroy, et al., 80 B.R. 17, 18 (E.D.N.Y.1987) (non-debtor "president, sole common-stock shareholder, and controlling person" of debtor corporation). Mr. Hirsch's control over the Hirsch entities is insufficient, without more, for their stay to encompass this action against him.
B. Extension of Stay to Non-Debtor in "Unusual Circumstances"
A non-debtor can claim the protection of a debtor's stay only in "unusual circumstances," as the Fourth Circuit held in A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir.1986), which courts in this district cite as the leading case on extension of a § 362 stays to a non-debtor. See, e.g., In re United Health Care Org., et al., 210 B.R. 228 (S.D.N.Y.1997) (staying action against non-debtor principals and officers of debtor corporation); In re North Star Contracting Corp., 125 B.R. 368, 370-71 (S.D.N.Y.1991) (same for non-debtor president of debtor corporation).
A.H. Robins held that in light of the "narrow construction" courts give the scope of § 362 stays, extension of a stay to a non-debtor only "arises when there is such identity between the debtor and [non-debtor] that the debtor may be said to be the real party defendant and that a judgment against the [non-debtor] will in effect be a judgment . . . against the debtor." 788 F.2d at 999. A.H. Robins specifically addressed a non-debtor "entitled to absolute indemnity from the debtor." Id. Accord In re North Star Contracting *243 Corp., 125 B.R. 368, 371 (S.D.N.Y. 1991).
Applying A.H. Robins, courts in this district have stayed actions against non-debtor officers and principals of debtor corporations, but only where the stayed actions would have posed a serious threat to the debtors' reorganization efforts. In In re United Health Care Org., et al., 210 B.R. 228 (S.D.N.Y. 1997), the court noted that "[c]ourts have . . . stayed creditor actions against non-debtors where they have found that the bankrupt estate would be adversely affected because the creditor's action would prevent the non-debtor from contributing funds to the reorganization, or would consume time and energy of the non-debtor that would otherwise be devoted to a reorganization effort." Id. at 232. The court then found that the debtor corporation's successful reorganization was contingent upon the two non-debtor defendants' contribution of their personal assets and efforts, which justified a stay of actions against the two. Id. at 234.
Similarly, In re North Star Contracting Corp., 125 B.R. 368 (S.D.N.Y.1991), carefully distinguished the general rule limiting bankruptcy stays to debtors because the case featured the requisite unusual circumstances. The court found that the "evidence shows that [debtor's] reorganization efforts would be harmed if [the] state lawsuit is allowed to proceed against [debtor's] President . . . [who] is a principal player in the corporation's reorganization process; he negotiates with the creditor's committee and formulates plans for reorganization." Id. at 371.
The broader rule here is that a debtor's stay may extend to a non-debtor only when necessary to protect the debtor's reorganization. The threatened harm may be to needed debtor funds (e.g., when non-debtors are entitled to indemnification) or personnel (e.g., when debtors need the services of non-debtors facing crushing litigation). The question is whether the action against the non-debtor is sufficiently likely to have a "material effect upon . . . reorganization effort[s]," CAE Indus. Ltd., et al. v. Aerospace Holdings Co., et al., 116 B.R. 31, 34 (S.D.N.Y.1990), that debtor protection requires an exception to the usual limited scope of the stay.
C. Lack of Sufficient "Unusual Circumstances" in Mr. Hirsch's Case
Mr. Hirsch's case features no "unusual circumstances" sufficient to justify extending the Hirsch entities' stay so as to protect Mr. Hirsch from the Grays' action against him. The Hirsch entities need not indemnify Mr. Hirsch and, more importantly, are in receivership, out of Mr. Hirsch's hands. The Grays' action against Mr. Hirsch does not pose any serious threat of a material effect on the Hirsch entities' financial or personnel needs for reorganization.
The bankruptcy court has taken no action indicating any belief otherwise. The bankruptcy court has relied almost exclusively on the standard statutory automatic stays, adding only limited injunctive relief against efforts to collect specific assets in Mr. Hirsch's control that bankruptcy proceedings might find are Hirsch entity assets. See In re Churchill Mortgage Inv. Corp., 97 B 20967(ASH) (Bankr.S.D.N.Y.) (orders dated Nov. 19, 1997 and Sept. 16, 1998). The court enjoined judgment creditors of Mr. Hirsch from efforts "to obtain possession of property that belongs or may belong" to CMIC, see Nov. 19, 1997 order, but then modified that order "to permit . . . [two parties] to resume prosecution of the mortgage foreclosure proceeding" they had brought against Mr. Hirsch, see Sept. 16, 1998 order. Whether or not the Hirsch entities' bankruptcies might place any limits on the Grays' ability to collect particular assets of Mr. Hirsch in enforcing a judgment is, at this time, a premature and unnecessary question. The Hirsch entities' bankruptcies place no limits on the Grays' present efforts to prosecute to judgment this action against Mr. Hirsch.
It is conceivable that a successful prosecution by the Grays could have some adverse effect on the Hirsch entities, such as by depleting the funds of Mr. Hirsch, whom the bankruptcy court at some point might order to return assets to the bankrupt Hirsch entities. There often is some such risk to a debtor that an action against a present or former principal or officer would *244 hinder its reorganization in some way. Limited or theoretical risk must be insufficient, however, or else the Teachers Ins. & Annuity Ass'n rule against extending stays to officers and principals would be eviscerated. Accordingly, as this court has held before, "[i]n the absence of evidence which demonstrates any impact upon the debtor's reorganization effort, the stay cannot be extended to a solvent co-defendant." CAE Indus. Ltd., et al. v. Aerospace Holdings Co., et al., 116 B.R. 31, 34 (S.D.N.Y.1990).
III. Conclusion
For the reasons given above, the court holds that this matter should not be stayed pursuant to the Bankruptcy Code. Accordingly, the court will proceed to consider the plaintiffs' pending motion for partial summary judgment.
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