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724 F.2d 747	421 F.3d 96	ACAN	Santiago Amaro v. The Continental Can Company	CUDAHY, Circuit Judge. For plaintiffs Alexina Nechis and Doris Mady, members of health insurance plans offered by Oxford Health Plans, Inc., their assorted aches became a legal pain in the neck when their claims for chiropractor coverage were denied. Both Nechis and Mady had selected plans that covered chiropractic treatment from providers outside plan networks and both were treated by out-of-network chiropractors in late 2002. In December of 2002, Oxford had retained Triad Healthcare, Inc. to review its chiropractor claims and presumably to reduce its expenses. After receiving notice that most or all of their chiropractor claims had been denied, the plaintiffs sued Oxford and Triad on behalf of themselves and other similarly situated members, alleging multiple violations of the Employee Retirement Income Security Act (ERISA), including breach of their fiduciary duty and of their disclosure obligations, as well as failure to provide benefits as described in plan documents. The district court dismissed the plaintiffs’ claims pursuant to Fed.R.Civ.P. 12(b)(6), finding that Nechis had failed to exhaust administrative remedies and that Mady’s claims failed on their merits. The plaintiffs appeal, and we affirm. I. Oxford Health Plans, Inc. underwrites, administers and operates employee welfare plans. As part of its product line, it offers HMO, PPO and PSO plans, each of which includes coverage for chiropractic care that is “medically necessary.” Oxford defines “medically necessary” services as those services “required to identify or treat your illness or injury” which its medical director determines to be “1) Consistent with symptoms or diagnosis and treatment of your condition; 2) Appropriate with regard to standards of good medical practice; 3) Not solely for your convenience or that of any provider; and 4) The most appropriate supply or level of service which can safely be provided.” In December of 2002, Oxford retained Triad Healthcare, Inc. to review its claims for chiropractic service. In the spring of 2003, Oxford distributed to its members a brochure titled “Healthy Mind, Healthy Body,” informing subscribers that their in-network chiropractors would now be required to submit treatment plans for prior approval by Triad before chiropractic services would be covered, but that submission by out-of-network chiropractors for pre-approval was optional. The brochure also stated that post-service determinations would include a review of clinical notes, patient records and like documentation. As required by ERISA, Oxford has an appeals process for adverse benefit determinations, consisting of three steps. Members must first file a grievance by telephone or mail; Oxford is supposed to acknowledge receipt of each such grievance within 15 days and to issue a determination within 30 days after receiving the information pertinent to the grievance. Members who wish to dispute the outcome of their grievance determination can re-file the grievance with Oxford’s Grievance Re99view Board and thereafter may institute a final appeal of a denied grievance to its Board of Directors’ Committee. Both Alexina Neehis and Doris Mady had been members of Oxford health plans. Neehis received coverage through her union benefits package that entitled her to unlimited in-network chiropractic coverage, including 15 visits to out-of-network chiropractors based on a showing of medical necessity. Mady was a member of Oxford’s Freedom Plan, and her premiums were paid by her employer from approximately April of 1997 until March of 2002, when her job was eliminated through downsizing. After losing her job, Mady elected to continue her coverage through COBRA until April 30, 2003.1 Switching to COBRA coverage did not alter the terms or conditions of her plan, which entitled her to unlimited in-network chiropractic care and coverage for a maximum of $500 per year for out-of-network care. Both plaintiffs submitted out-of-network chiropractic care claims after Triad began reviewing claims; Neehis had been treated in January 2003 and Mady had been treated in November 2002 by providers whom they had seen previously without insurance coverage difficulties. After receiving notice that their benefit claims for out-of-network services had been denied, both Neehis and Mady assert that they attempted to contact Oxford and/or Triad but were unable to do so. Neehis alleges that both she and her chiropractor tried to contact Oxford and Triad for months via telephone, fax and mail but received no satisfactory response. Mady states that she attempted to resolve her denied claims through Oxford’s administrative channels by writing letters and placing phone calls appealing the denial of coverage. She was actually notified that her files were being turned over for review and that her grievance had been submitted to the appeals division for first-level review. However, she received no word about the status of her appeal after waiting 60 days. On September 22, 2003, the plaintiffs brought this action against Oxford and Triad on behalf of themselves and other similarly situated plan participants. The plaintiffs first alleged that Oxford breached its ERISA disclosure obligations by failing to inform participants within 60 days of instigating its practice of making chiropractic coverage decisions based on undisclosed cost-based criteria rather than medical necessity and by not informing participants that Triad received financial incentives to deny chiropractic claims and to limit coverage. Further, the plaintiffs alleged that Oxford delayed payment of covered claims to earn additional interest on premiums. The plaintiffs also contended that Oxford failed to provide benefits due under health insurance plans governed by ERISA and that this failure resulted in unjust enrichment for Oxford. Finally, the plaintiffs asserted that both Oxford and Triad had breached their fiduciary duties under ERISA. Both plaintiffs also stated that they had exhausted all administrative remedies. On January 16, 2004, Oxford moved to dismiss the plaintiffs’ claims under Fed. R.Civ.P. 12(b)(6), and Triad moved to dismiss them for lack of subject matter jurisdiction under Rule 12(b)(1) (and alternatively under 12(b)(6)). On August 4, 2004, the district court granted the defendants’ motions and dismissed the plaintiffs’ claims under Rule 12(b)(6), finding that 100Nechis had failed to exhaust administrative remedies and that Mady’s claims failed on their merits, in particular because legal restitution was not one of the “equitable remedies” available under § 502(a)(3) of ERISA and that no additional disclosure obligations could be imposed on the defendants. On appeal, the plaintiffs assert that they did seek appropriate equitable forms of relief available under § 502(a)(3), that Oxford is liable for disclosure violations, that Nechis exhausted her administrative remedies and that the district court abused its discretion by not granting leave to re-plead. II. We have jurisdiction over this appeal under 28 U.S.C. § 1291. We review de novo the dismissal of this case under Fed. R.Civ.P. 12(b)(6). Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 216 (2d Cir.2004). Dismissal of a complaint under Fed. R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted is appropriate when “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Harris v. City of New York, 186 F.3d 243, 250 (2d Cir.1999) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). The appropriate inquiry is not whether a plaintiff is likely to prevail, but whether he is entitled to offer evidence to support his claims. See Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir.1998). At this stage, we assume that all well-pleaded factual allegations are true and draw all reasonable inferences in the plaintiffs favor. See E.E.O.C. v. Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir.2000). In addition, we limit our consideration to facts stated in the complaint or documents attached to the complaint as exhibits or incorporated by reference. See Newman & Schwartz v. Asplundh Tree Expert Co., 102 F.3d 660, 662 (2d Cir.1996). A. Standing to Sue Under § 502(a)(3) of ERISA In granting the defendants’ motions to dismiss under Fed.R.Civ.P. 12(b)(6), the district court held that Nechis had failed to exhaust administrative remedies under Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588 (2d Cir.1993), and so addressed only Mady’s claims on the merits. We find, however, that considerations of standing prove fatal to Mady’s allegations since she is not a plan “participant” under § 502(a)(3). As is discussed below, we are dubious that Nechis’s claims may be dismissed for failure to exhaust administrative remedies and hence address them on the merits. Oxford argues that, since Mady was not a member of its Freedom Plan at the time her complaint was filed, she could not benefit from injunctive relief and thus does not have standing to seek it. See Selby v. Principal Mutual Life Ins. Co., 197 F.R.D. 48, 64 (S.D.N.Y.2000) (stating that plaintiffs who were no longer participants in defendants’ insurance plan could not benefit from injunctive relief and thus did not have standing to seek it on behalf of class members). However valid this argument, it is only the tip of the iceberg; a larger standing problem lurks beneath the surface. Section 502(a)(3) of ERISA provides that a civil action may be brought “by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain any other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” See 29 U.S.C. § 1132(a)(3) (2005). The Supreme Court 101has construed § 502 narrowly to allow only the stated categories of parties to sue for relief directly under ERISA. See Franchise Tax Board v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 27, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983) (“ERISA carefully enumerates the parties entitled to seek relief under [§ 502(a)(3)]; it does not provide anyone other than participants, beneficiaries, or fiduciaries with an express cause of action.... ”). The Court has also held that § 502(a)(3) strictly limits the “universe of plaintiffs who may bring certain civil actions.” Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 247, 120 S.Ct. 2180, 147 L.Ed.2d 187 (2000) (emphasis omitted). The Second Circuit has, of course, followed on these well-marked paths. See Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12, 14 (2d Cir.1991) (stating that § 1132(a) “names only three classes of persons who may commence an action,” including a participant or beneficiary, the Secretary of Labor, and a fiduciary); Pressroom Unions-Printers League Income Sec. Fund v. Continental Assurance Co., 700 F.2d 889, 892 (2d Cir.1983) (rejecting standing of plan itself on grounds that § 1132(a) limits standing to a participant, beneficiary or fiduciary). In her complaint, filed September 22, 2003, Mady conceded that she was a member of the Oxford Freedom Plan only from approximately April 1, 1997 through April 30, 2003. ERISA defines a “participant” as “any employee or former employee of an employer...who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer.... ” 29 U.S.C. § 1002(7) (2005). Thus, Mady was not a participant when her complaint was filed; her complaint establishes that her employer ceased to pay premiums on her account in March of 2002 when she lost her job as a result of downsizing and that her COBRA coverage was terminated on April 30, 2003. Participants can lose standing to sue if, despite their having suffered an alleged ERISA violation, their participant status has been terminated before suit is filed. Chemung, 939 F.2d at 15 (citing Katzoff v. Eastern Wire Products Co., 808 F.Supp. 96 (D.R.I.1992)). Because Mady extended her participation in the Oxford Freedom plan through COBRA only until April of 2003, and thus was not a participant when her complaint was filed on September 22, 2003, she lacks standing to sue under ERISA. Nor has Mady alleged that she may again become eligible for such benefits. In order to establish that she may become eligible for benefits, Mady must have a colorable claim that (1) she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117-18, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). As a practical matter, Mady’s termination in a downsizing meant that she could no longer expect to receive health insurance from Oxford as a fringe benefit of her employment, thus effectively ending her future eligibility for continuing coverage under the Oxford Freedom Plan. Since Mady was no longer a participant, she no longer had an interest in seeking the equitable relief available under § 502(a)(3). With Mady’s claims dismissed for lack of standing, we turn to those of Nechis. The parties disagree as to whether Nechis’s claim is barred by a failure to exhaust administrative remedies. Some courts have held that exhaustion is not required for statutory claims,2 while others apply 102the exhaustion doctrine to both plan-based and statutory claims.3 See De Pace v. Matsushita Elec. Corp. of Am., 257 F.Supp.2d 543, 557-58 (E.D.N.Y.2003) (discussing circuit split). This circuit has not addressed the specific question whether exhaustion is required for statutory claims, but has consistently recognized that the primary purposes of the exhaustion requirement are to “(1) uphold Congress’ desire that ERISA trustees be responsible for their actions, not the federal courts; (2) provide a sufficiently clear record of administrative action if litigation should ensue; and (3) assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo." Davenport v. Harry N. Abrams, Inc., 249 F.3d 130, 132-34 (2d Cir.2001) (quoting Kennedy, 989 F.2d at 594). Nechis’s claims are equitable in nature and do not involve interpretation of the terms of her plan. “District courts in the Second Circuit have routinely dispensed with the exhaustion prerequisite where plaintiffs allege a statutory ERISA violation.” De Pace, 257 F.Supp.2d at 558 (E.D.N.Y.2003) (collecting cases). Nevertheless, because we find that the plaintiffs lack standing to sue and, as discussed below, that Nechis has not stated a legally cognizable claim, we need not here decide whether administrative exhaustion is a prerequisite to a statutory ERISA claim. B. Nechis’s Claims Fail on Their Merits Yet whatever the impact of Nechis’s failure to exhaust administrative remedies, summary judgment is still appropriate since, as the district court properly determined, none of her claims are legally cognizable under ERISA. 1. Breach of Fiduciary Duty and Request for Relief Under § 502(a)(3) of ERISA Nechis first contends that Oxford and Triad breached their fiduciary obligations imposed by § 404 of ERISA by denying, delaying or mishandling claims for chiropractic care and failing to disclose information to plan participants. Nechis seeks to remedy these practices by asserting a claim under § 502(a)(3) of ERISA, which authorizes civil actions “to enjoin any act or practice which violates... the terms of the plan, or... to obtain other appropriate equitable relief.” 29 U.S.C. § 1132(a)(3). On appeal, she argues that the district court improperly disregarded her request for equitable relief and wrongly concluded that restitution was not an available remedy. Nechis renews her demand for injunctive relief, corrective disclosures and reformation, and requests certain forms of “equitable” restitution. As the district court concluded, Nechis’s allegations with respect to disclosure violations and concerning reformation of claims resolution and appeals procedures are unavailing. Oxford has no duty to disclose to plan participants information additional to that required by ERISA; Ox103ford is not bound to inform participants either that it has adopted cost-containment mechanisms or that it offers financial incentives for cost savings. See Ehlmann v. Kaiser Foundation Health Plan, 198 F.3d 552, 556 (5th Cir.2000) (dismissing plaintiffs argument that a duty to disclose financial incentives was implied by § 404 of ERISA); In re Managed Care Litigation, 150 F.Supp.2d 1330, 1356 (S.D.Fla.2001) (dismissing plaintiffs breach of fiduciary claims based on non-disclosure of cost-containment mechanisms and financial incentives). Nechis merely asserts that Oxford’s claims resolution and appeals procedures should be reformed; she does not specify the context of the requested reformation and she does not allege a basis for reformation such as fraud, mutual mistake or terms violative of ERISA. See, e.g., AMEX Assurance Co. v. Caripides, 316 F.3d 154, 161 (2d Cir.2003) (fraud and mutual mistake); DeVito v. Pension Plan of Local 819 I.B.T. Pension Fund, 975 F.Supp. 258, 267 (S.D.N.Y.1997) (reformation of plan that violated ERISA accrual provisions). The equitable relief available under § 502(a)(3) consists of those remedies “that were typically available in equity.” Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002) (internal citation omitted). On appeal, Nechis claims that injunctive relief would be appropriate to end Oxford’s allegedly deceptive practices, to correct its disclosures and to reform its claims resolution procedures. However, injunctive relief is generally appropriate only when there is an inadequate remedy at law and irreparable harm will result if the relief is not granted. The basic requirements to obtain injunctive relief have always been a showing of irreparable harm and the inadequacy of legal remedies. Ti-cor Title Ins. Co. v. Cohen, 173 F.3d 63, 68 (2d Cir.1999). Here, Nechis cannot satisfy the conditions required for injunctive relief; any harm to her can be compensated by money damages, and she could have pursued an alternative and effective remedy under § 502(a)(1)(B) of ERISA to recover the value of benefits wrongly denied. This leaves the question whether restitution is available as an equitable remedy under § 502(a)(3) of ERISA. Although Nechis seeks restitution, the Supreme Court, as the district court noted here, has stated that “almost invariably” suits seeking “to compel the defendant to pay a sum of money to the plaintiff are suits for ‘money damages.’ ” Great-West, 534 U.S. at 213, 122 S.Ct. 708 (internal quotation omitted). “A claim for money due and owing under a contract is quintessentially an action at law.” Id. The Supreme Court has delineated what forms of equitable restitution are available under § 502(a)(3), distinguishing permissible forms of equitable restitution such as employment of a constructive trust or of an equitable lien from forms of legal restitution. Id. Thus, a constructive trust or equitable lien is imposed when, “in the eyes of equity,” a plaintiff is “the true owner” of funds or property, and the “money or property identified as belonging in good conscience to the plaintiff [can] clearly be traced back to particular funds or property in the defendant’s possession.” Id. For the reasons aptly articulated by the district court, neither form of equitable restitution is involved here; the monies upon which Nechis seeks to impose a trust are premiums paid for health care coverage, which Oxford is under no obligation to segregate and which Nechis does not allege to be segregated in a separate account. Moreover, the language of Nechis’s request for relief involves words of contract rather than those of equity, a cireum-104stance that undermines her claim that the district court misconstrued the nature of the relief that she has sought. Since early on, Nechis has complained that she did not “receive[ ] the benefit of the bargain” and has requested “disgorgement of ill-gotten gains” and “restitution of premiums paid.” And she persists in seeking money damages under a theory of “unjust enrichment,” alleging that ERISA’s remedies must be supplemented by the federal common law since the statute does not provide adequate relief in the present circumstances. We decline this invitation to perceive equitable clothing where the requested relief is nakedly contractual. 2. Breach of Disclosure Obligations Under §§ 102 and 101 of ERISA. Nechis also alleges that Oxford failed to disclose that its decisions on chiropractic coverage were not based solely on medical necessity but instead invoked undisclosed cost-based criteria, that it provided financial incentives to Triad to deny chiropractic claims and that it intentionally and unreasonably delayed payment of covered claims to earn greater interest on premiums. Section 104(b) of ERISA requires that plan administrators provide notification to participants of any material reduction in benefits or services within 60 days of their effective date. 29 U.S.C. § 1024(b)(1)(B). ERISA defines an “administrator” either as someone who is “specifically designated” by plan documents or the plan sponsor; if no administrator is designated and no plan sponsor is identified, the administrator is “such other person as the Secretary may by regulation prescribe.” 29 U.S.C. § 1002(16)(A). When “an employee benefit plan is established or maintained by a single employer,” the “plan sponsor” is the employer. 29 U.S.C. § 1002(16)(B)(I). However, as the district court recognized, Nechis concedes that Oxford meets none of these criteria and is therefore not the plan administrator,4 and therefore does not have the disclosure obligations alleged. For much the same reasons as apply to Oxford, the allegations against Triad fail, whether or not Triad is deemed to be a fiduciary, as Nechis alleges. 3. Leave to Amend Finally, the plaintiffs contend that the district court erred in not granting them leave to amend their complaint. We review a denial of leave to amend for abuse of discretion. Koehler v. Bank of Bermuda (New York) Ltd., 209 F.3d 130, 138 (2d Cir.2000). There is no abuse of discretion here; not only does Mady lack standing to sue under ERISA, but Nechis’s claims also fail on their merits. We do not see how these deficiencies can be supplied by amendment. III. For all these reasons, we AffiRM the dismissal of these claims.. In its August 4, 2004 order granting summary judgment to defendants, the district court stated that Mady continued her COBRA coverage for 18 months, paying $276.44 each month. However, in her complaint dated September 22, 2003, Mady states that she was a member of the Oxford Freedom Plan only through April 30, 2003.. See, e.g., Smith v. Sydnor, 184 F.3d 356, 364-65 (4th Cir.1999); Chailland v. Brown & *102Root, Inc., 45 F.3d 947 (5th Cir.1995); Richards v. General Motors Corp., 991 F.2d 1227 (6th Cir.1993); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197 (10th Cir.1990); Zipf v. American Telephone & Telegraph Co., 799 F.2d 889, 891-92 (3d Cir.1986); Amaro v. Continental Can Co., 724 F.2d 747, 749-50 (9th Cir.1984). These cases also note that § 503 of ERISA, the origin of the exhaustion doctrine, refers only to procedures regarding claims for benefits. See, e.g., Zipf, 799 F.2d at 891.. See, e.g., Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11th Cir.1985); Kross v. Western Electric Co., 701 F.2d 1238 (7th Cir.1983). However, the Seventh Circuit now permits district courts in their discretion to decide whether exhaustion should be required in a given case. See Lindemann v. Mobil Oil Corp., 79 F.3d 647, 649-50 (7th Cir.1996).. In her Memorandum in Opposition to Defendants’ Motion to Dismiss, Nechis states that "Oxford does not designate a plan administrator in its Certificates of Coverage, or identify the plan administrator with respect to the plaintiffs’ plans. ERISA provides that when a Plan Administrator is not so designated, the employer is the default plan administrator.” This statement acknowledges in effect that Oxford cannot be the administrator.	CONFLICT_NOTED
724 F.2d 747	398 F.3d 765	C	Santiago Amaro v. The Continental Can Company	OPINION FORESTER, Chief Judge. The Defendant Pfizer, Inc. (“Pfizer”) herein appeals the District Court’s ruling on its motion to dismiss the claims of Plaintiff Joseph Simon (“Simon”). Pfizer argues that the District Court erred in failing to dismiss Simon’s four-count complaint concerning allegedly improper refusal of, and interference with the attainment of, benefits under the Warner-Lambert Company Enhanced Severance Plan (“ESP”) because the ESP mandates that such disputes be decided in an arbitral, not judicial, forum and because Simon failed to exhaust internal administrative remedies. We REVERSE, in part, AFFIRM, in part, and REMAND for the reasons set forth in this opinion. BACKGROUND Simon was employed by Warner-Lambert Company (“Warner-Lambert”) from 1989 until May of 2002. Prior to the merger of Warner-Lambert and Pfizer in May of 2000, Warner-Lambert adopted the ESP, which was designed to protect the job security of its employees in the event of a merger with another company. The ESP provides for the payment of enhanced severance benefits to certain eligible employees under limited circumstances that result in an “Activation Event” within two years of a “Change in Control.” This two-year period is sometimes referred to as the “protected period.” An “Activation Event” is either a “Constructive Termination” or an actual termination other than for “Just Cause.” A “Change of Control” within the meaning of the ESP occurred when Pfizer and Warner-Lambert merged in May of 2000. Under the ESP, “Termination for Just Cause” is defined as “termination for the commission of a wrongful action such as theft of Company property or alcohol or drug abuse.” A “Constructive Termination” is defined, in relevant part, in the ESP as a “substantive change in job duties” or “change in reporting relationship” occurring after a change in control. Under the ESP, the Plan Administrator has the authority to interpret the ESP’s terms. Near the end of the protected period, in May of 2002, Simon was terminated for accessing information contained in his manager’s computer without authorization. 768 Simon claims that the information accessed consisted of an organizational chart that he reviewed in an attempt to determine whether he was eligible for Constructive Termination benefits based on a change in his reporting relationship under the ESP. Simon further asserts that he was granted access to the area of the corporate network where he viewed this information and that no Pfizer policies or procedures prohibited his conduct. On July 8, 2002, Simon submitted a request for benefits under the ESP, alleging Constructive Termination based on an alleged change in reporting relationship and Actual Termination other than for Just Cause. By letter dated July 9, 2002, Simon’s attorney notified Pfizer that Simon demanded reinstatement to his position at Pfizer because his termination was, allegedly, in retaliation for, and an interference with, Simon’s exercise and attainment of his rights under the ESP. J.A. p. 235. In order for a plan participant to seek severance benefits under the ESP based on Constructive Termination or to contest a Termination for Just Cause, he must submit his claim(s) to the ESP Plan Administrator. The Plan Administrator reviews all claims and renders a determination through a three-step review process. The review process takes place in this order: (1) the participant completes a Constructive Termination form and files it with the Plan Administrator, who, after an internal review, forwards the claim to the ESP Advisory Group; (2) the participant may appeal to the ESP Administrative Committee; and (3) the participant may appeal to the Senior Vice President of Corporate Human Resources. If the participant is not satisfied with the outcome of this three-step review process, the ESP flow chart indicates that arbitration may be initiated. The chart clearly states that a participant “can proceed to arbitration only if [the participant] ha[s] completed the above three steps of the internal ESP process.” J.A. p. 101. Pursuant to the ESP, any unsuccessful participant must submit his or her claim(s) to arbitration before the American Arbitration Association (“AAA”) regardless of whether they are claims of Actual Termination for Just Cause 1 or Constructive Termination. 2 The results of arbitration are binding on Pfizer (and Warner-Lambert) and on the participant. J.A. p. 101. Simon commenced this suit in the Eastern District of Michigan on September 24, 2002, prior, to resolution of his claims in the three-step administrative process. His complaint contains counts for retaliatory discharge and discrimination in violation of ERISA § 510, codified at 29 U.S.C. § 1140 (Count I), 3 improper denial of plan benefits 769 (Count II), breach of fiduciary duty in violation of 29 U.S.C. § 1132(a)(3) (Count III), and failure to provide timely and proper notice of COBRA benefits pursuant to 29 U.S.C. §§ 1161, 1166 (Count IV). 4 Thereafter, on November 12, 2002, Pfizer filed a motion to dismiss all counts of the complaint based on the ESP’s mandatory arbitration provisions and on Simon’s failure to exhaust his administrative remedies. Alternatively, Pfizer requested that the District Court stay litigation of Simon’s claims until the resolution of his claims filed with Pfizer for benefits under the ESP. At the time of oral argument on Pfizer’s motion to dismiss, Simon’s administrative claims filed with Pfizer for benefits (for Constructive Termination and Actual Termination under the ESP) were winding through the three-step administrative process established by the ESP. Pfizer repre 770 sented to the District Court that the ESP Advisory Group informed Simon by letter dated January 23, 2003, of its decision to deny Simon’s claim for benefits based on Constructive Termination, thus completing the first level of review. J.A. pp. 441-443; Pfizer’s Motion to Supplement the Record, Exhibit 3. Pfizer further represented that it was continuing to follow the internal review procedures with respect to Simon’s claim for benefits based on Actual Termination. J.A. pp. 441-443. The District Court denied Pfizer’s motion to dismiss with respect to all but Count III (breach of fiduciary duty). The District Court refused to require exhaustion of administrative remedies as to Simon’s ERISA Section 510 (Count I) and COBRA (Count IV) claims on the basis that said claims are statutory and are thus separate and apart from Simon’s claim under the ESP. The court ruled that Simon’s failure to exhaust his administrative remedies was excused on the basis of futility for Simon’s claim for wrongful denial of ESP benefits (Count II) and also held that arbitration was not required. 5 The Court did, however, dismiss Simon’s fiduciary duty claim (Count III). Pfizer timely appealed the District Court’s ruling, arguing that Simon should be required to both exhaust his administrative remedies and arbitrate his claims. 6 On February 19, 2003, Simon filed an administrative appeal from the denial of Constructive Termination benefits. Simon then received a March 17, 2003, letter regarding his Actual Termination claim, advising him of the determination of the ESP Advisory Group (the first level of review) that he had been terminated for Just Cause and was therefore ineligible for benefits under the ESP. Thereafter, the Administrative Committee, at the second level of review, again denied Simon’s Constructive Termination claim on June 1, 2003. Simon appealed both his Constructive Termination and Actual Termination claims to the final level of review — Robert Norton, Senior Vice President of Corporate Human Resources — on June 27, 2003, attempting to skip the Administrative Committee review (the second level of review) of his Actual Termination claim. See Pfizer’s Motion to Supplement the Record, Exhibit 1-3. 771 DISCUSSION 1. Appellate Jurisdiction As an initial matter, we note that this Court has appellate jurisdiction over all “final decisions” of the district courts, 28 U.S.C. § 1291; however, the District Court’s partial denial of Pfizer’s motion to dismiss is not a “final” order that is ap-pealable under 28 U.S.C. § 1291. See Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 275, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988) (In general, an order denying a motion to dismiss is not final because it “ensures that litigation will continue in the District Court.”). 7 Notwithstanding, an appeal of such an order may be taken if it falls within the small class of orders that are final for purposes of 28 U.S.C. § 1291 under the “collateral order doctrine” established in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949) (noting that the collateral order doctrine embraces the “small class [of orders] which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated”). An order that does not finally resolve a case fits within the collateral order doctrine if the order: (1) “conclusively de-terminéis] the disputed question,” (2) “re-solvéis] an important issue completely separate from the merits of the action,” and (3)is “effectively unreviewable on appeal from a final judgment.” Gulfstream Aerospace, 485 U.S. at 276, 108 S.Ct. 1133 (citations omitted). If the order at issue fails to satisfy any one of those requirements, it is not appealable under the collateral order exception. Id. See Decker v. IHC Hospitals, Inc., 982 F.2d 433, 435 (10th Cir.1992). In this case, the District Court based its partial denial of Pfizer’s motion to dismiss on two grounds, ruling that Simon was excused from exhausting his administrative remedies on the basis of futility and finding that Simon’s claims were not subject to arbitration. Pfizer appeals on both grounds. Because the District Court’s ruling on the exhaustion issue is not conclusive with respect to Simon’s underlying claims and because it is effectively reviewable on appeal from a final judgment, 8 it does not fit within the collateral order doctrine and thus this Court does not have appellate jurisdiction to review the District Court’s ruling on that ground. 9 However, because Pfizer 772 appeals, in part on the District Court’s refusal to enforce, through dismissal or stay, an agreement to arbitrate, this Court has independent jurisdiction over that question under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 16, and Rule 4 of the Federal Rules of Appellate Procedure. 2. Arbitration District Court decisions on motions to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) are generally subject to a de novo standard of review. See, e.g., Tahfs v. Proctor, 316 F.3d 584, 590 (6th Cir.2003); Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 511-12 (6th Cir.2001). The standard of review for a district court’s decision regarding whether a dispute is arbitrable is also de novo. Haskins v. Prudential Ins. Co. of Am., 230 F.3d 231, 234 (6th Cir.2000). Pfizer attacks the District Court’s ruling regarding the arbitrability of Simon’s claims, arguing that his claim for wrongful denial of benefits under the ESP (Count II) is expressly covered by the arbitration provisions of the ESP, and that his statutory claims (Count I, III and IV), while not expressly covered, are sufficiently connected to the claim of wrongful denial of benefits that arbitration should be required. 10 Simon responds that the arbitration agreement contained in the ESP is limited, applying only to disputes concerning Constructive Termination. In support of this contention, Simon points to language contained in Section 20.3 of the ESP, which provides: “[a]ll disputed [sic] regarding the application of this Section 20 shall be submitted to an Arbitration Panel whose findings shall be binding on the Company and the Participant.” J.A. p. 54. Section 20 deals exclusively with Constructive Termination and the meaning and application of that term with respect to benefits eligibility. Simon ignores, however, similar language contained in Section 14 of the ESP, which clearly mandates arbitration with respect to disputes concerning Termination for Just Cause. Section 14 is titled “Termination for Just Cause,” and, likewise, states in pertinent part: “[t]he determination of whether alleged grounds for termination qualify as Termination for Just Cause shall be made by an Arbitration Panel.” J.A. p. 52. Thus, contrary to Simon’s argument, the ESP expressly mandates arbitration for disputes concerning both Constructive Termination and Termination for Just Cause. The central inquiry, therefore, is whether Simon’s claims sufficiently fit 773 within the ESP’s arbitration clauses such that arbitration should be required. 11 With respect to Simon’s ESP claims, this Court finds that they do and, thus, the District Court’s decision denying Pfizer’s motion to dismiss with respect to Simon’s ESP claims must be overturned — a compulsory arbitration provision divests the District Court of jurisdiction over claims that seek benefits under an ERISA plan, such as the ESP. See United Steelworkers v. Mead Corp., 21 F.3d 128, 132-33 (6th Cir.1994) (refusing to consider the merits of a claim after determining the claim was within the scope of the parties’ arbitration agreement). 12 A. Wrongful Denial of Benefits (Count II) Count II of the complaint alleges that Simon was constructively and involuntarily terminated and that Pfizer wrongly failed to respond to his requests for involuntary and Constructive Termination benefits under the ESP. J.A. p. 9-10. 13 To the contrary, Simon’s claims filed internally with Pfizer were being addressed, 14 and any disputes regarding the resolution of said claims are clearly governed by the arbitration provisions in the ESP. As noted above, the ESP contains mandatory arbitration provisions governing all claims for benefits for Constructive Termination or Actual Termination for Just Cause. It is undisputed that Simon has refused to proceed to arbitration as required with regard to any of these claims. Under a de novo standard of review, and based on policies favoring arbitration, 15 this Court 774 finds that the District Court erred in denying Pfizer’s motion to dismiss with respect to Simon’s claim for benefits under the ESP (Count II) — the subject matter of this claim must be arbitrated pursuant to the ESP under -which Simon claims an entitlement to benefits. B. ERISA Section 510 (Count I) and COBRA Claims (Count IV) Next, an inquiry must be made with respect to Simon’s ERISA Section 510 and COBRA claims. Simon claims that the information he accessed on his manager’s computer without authorization (for which conduct he was terminated) was information pertaining to his eligibility for benefits under the ESP. Simon thus argues that he was terminated for attempting to determine his rights and benefits under the ESP in violation of ERISA Section 510, see 29 U.S.C. § 1140,-which prohibits employer conduct engaged in for the purpose of interfering with an employee’s attainment of benefits. Simon also alleges, a COBRA notice violation under 29 U.S.C. §§ 1161, 1166, in that Pfizer was tardy in providing Simon notice of his COBRA rights, elections and benefits. Simon contends that, because these claims arise under ERISA, they are not within the scope of the ESP arbitration mandate. Thus, this Court must tangentially consider the narrow issue of whether ERISA preempts arbitration under the FAA. This narrow issue has not yet been addressed by the Sixth Circuit, see Eckel v. Equitable Life Assur. Soc. of the U.S., 1 F.Supp.2d 687, 688 (noting that the Sixth Circuit had not yet addressed the issue); however, the majority of courts considering this issue have held that disputes arising under ERISA, including COBRA claims, are subject to arbitration under the FAA. See Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th Cir.1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1115-16 (3d Cir.1993); Bird v. Shearson Lehman/American Express, Inc. 926 F.2d 116, 122 (2d Cir.1991), cert. denied 501 U.S. 1251, 111 S.Ct. 2891, 115 L.Ed.2d 1056 (1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475, 479 (8th Cir.1988); Peruvian Connection, Ltd. v. Christian, 977 F.Supp. 1107, 1111 (D.Kan.1997); Fabian Fin. Serv. v. Kurt H. Volk, Inc. Profit Sharing Plan, 768 F.Supp. 728, 733-34 (C.D.Cal.1991); Southside Internists Group PC Money Purchase Pension Plan v. Janus Capital Corp., 741 F.Supp. 1536, 1541-42 (N.D.Ala.1990); Glover v. Wolf, Webb, Burk & Campbell, Inc., 731 F.Supp. 292, 293 (N.D.Ill.1990). 16 Notwithstanding the 775 foregoing, the following discussion reveals why this issue need not be resolved herein. A longstanding principle of this Circuit is that no matter how strong the federal policy favors arbitration, “arbitration is a matter of contract between the parties, and one cannot be required to submit to arbitration a dispute which it has not agreed to submit to arbitration.” United Steelworkers, Local No. 1617 v. Gen. Fireproofing Co., 464 F.2d 726, 729 (6th Cir.1972). See also AT & T Techs., Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”); Bratt Enters., Inc., v. Noble Int’l Ltd., 338 F.3d 609, 612 (6th Cir.2003); Roney & Co. v. Kassab, 981 F.2d 894, 897 (6th Cir.1992). This Court has drawn a clear line between the extensive applicability of general arbitration provisions and the more narrow applicability of arbitration clauses tied to specific disputes. When faced with a broad arbitration clause, such as one covering any dispute arising out of an agreement, a court should follow the presumption of arbitration and resolve doubts in favor of arbitration. See Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir.2004). Indeed, in such a case, “only an express provision excluding a specific dispute, or the most forceful evidence of a purpose to exclude the claim from arbitration, will remove the dispute from consideration by the arbitrators.” Id. at 627 (internal quotations and citation omitted). However, when an arbitration clause by its terms extends only to a specific type of dispute, then a court cannot require arbitration on claims that are not included. See Bratt Enters., Inc., 338 F.3d at 613. Passing to the central inquiry, this Court must determine whether the arbitration provisions contained in the ESP herein at issue are broad enough to encompass Simon’s ERISA Section 510 and COBRA claims. The ESP does not contain a general arbitration provision under which the parties agreed to arbitrate all disputes arising from the employment relationship. The arbitration provisions in the ESP are admittedly narrower and are contained specifically in the sections of the document concerning Constructive Termination and Actual Termination. J.A. pp. 52, 53. In other words, only two types of disputes are subject to arbitration under the ESP — disputes regarding the application of Section 20 dealing with Constructive Termination and disputes concerning 776 the application of Section 14 dealing with Termination for Just Cause. Neither of these ESP sections anywhere refers to ERISA or COBRA, and therefore, as an initial matter, it is clear that Simon’s ERISA Section 510 and COBRA claims are not within the scope of any general or specific arbitration provision. Even assuming that Simon’s statutory claims arise from the same factual underpinnings as his claim for wrongful denial of benefits under the ESP, it does not necessarily follow that the ERISA claims must also be arbitrated. The question of whether or not Simon’s ERISA claims share facts with the arbitra-ble claims is not necessarily determinative of arbitrability of the ERISA claims. Where one claim is specifically covered by an arbitration agreement, and a second claim is not, the arbitrability of the second is governed by the extent to which the second claim is substantially identical to the first. On the one hand, a party cannot avoid arbitration simply by renaming its claims so that they appear facially outside the scope of the arbitration agreement. See Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395 (6th Cir.2003). In order to determine whether such renaming has occurred, a court must examine the underlying facts — when an otherwise arbitrable claim has simply been renamed or recast it will share the same factual basis as the arbitrable claim. However, a claim that is truly outside of an arbitration agreement likewise cannot be forced into arbitration, even though there may be factual allegations in common. In particular, the determination that a claim “require[s] reference” to an arbitrable issue or factual dispute is not determinative. Bratt Enters., Inc., 338 F.3d at 613. Bratt Enterprises is particularly instructive as to how much factual overlap there may be without requiring arbitration of disputes not expressly subject to arbitration. In Bratt Enterprises, the arbitration clause covered disagreements relating to “any of the amounts included in the Closing Balance Sheet” of an asset purchase agreement transaction. Id. at 612-13. The parties ultimately had numerous disputes, and in a lawsuit filed by Bratt Enterprises, the Defendant Noble International, Inc. counterclaimed for breach of contract. Part of the breach of contract claim centered around a provision under which Bratt Enterprises retained accounts payable in excess of $1.2 million. Noble International’s closing balance sheet reflected accounts payable of over $1.8 million, but despite the $1.2 million limit, Bratt Enterprises disputed and sought to avoid payment of the $.6 million difference back to Noble. Because the breach of contract claim by Noble was therefore related to a balance sheet dispute, the district court ordered arbitration on the breach of contract claim in addition to the dispute over the actual accounts payable balance. Id. at 611-13. This Court reversed, holding that [w]hile Noble’s claim would obviously require reference to the closing balance sheet to determine matters of valuation should Noble prevail on this issue, the dispute regarding the validity of the [$1.2 million] limitation provision does not itself involve a “disagree[ment] with any of the amounts included in the Closing Balance Sheet.”... Thus, this aspect of Noble’s breach of contract claim is not within the scope of the arbitration clause and is, therefore, not arbitrable. Id. at 613. Nor was this result altered by the fact that ordering arbitration on the dispute over the proper amount of accounts payable and refusing to order arbitration on the breach of contract claim resulted in “piecemeal litigation.” Id. at 613. As noted above, although Simon’s claims are intermingled, this does not support the 777 conclusion that arbitration is necessarily required. Even if Simon were terminated for Just Cause, he would not necessarily be ineligible for COBRA benefits. Although it is true that COBRA expressly excludes termination for “gross misconduct” from the list of qualifying events, it does not follow that a termination for Just Cause under the ESP would necessarily be a termination for gross misconduct. Section 14 of the ESP states that: “ ‘Termination for Just Cause’ shall mean termination for the commission of a wrongful act such as theft of Company property or alcohol or drug abuse.” J.A. p. 52. This is not synonymous with the definition of gross misconduct, and different courts apply different standards. See, e.g., Chatterjee v. School Dist. of Philadelphia, 170 F.Supp.2d 509, 518 (E.D.Pa.2001) (recog-, nizing that there is no definition of “gross misconduct”). Therefore, it is possible that the arbitrator could decide that Simon had been terminated for just cause, while, in litigation, a court could determine that Simon had not been terminated for gross misconduct and was, therefore, eligible for COBRA notification and benefits. Returning to the question of whether arbitration is required because of the remaining degree of factual overlap, this case is sufficiently analogous to Bratt Enterprises so that the same result should be reached. Simon’s ERISA Section 510 and COBRA claims require consideration of some factual issues that are subject to arbitration, but the claims have independent legal bases. The Section 510 claim and COBRA claim are not simply claims for violations of the ESP that have been recharacterized in order to avoid arbitration; rather, they are independent claims that are statutorily authorized and that depend upon different legal standards. As discussed above, Simon’s COBRA claim could be resolved in his favor even if he loses the arbitration regarding his ESP claims. In other words, there is no greater degree of issue overlap than was the case in Bratt. In Bratt, the actual amount of the accounts payable could have controlled the entire breach of contract dispute had the arbitrator determined that the amount was equal to the $1.2 million cap and not in excess of it. The amount of recovery that Noble International would be entitled to if it prevailed depended upon the figure the arbitrator assigned to the accounts payable. In this case, as in Bratt, it is appropriate to permit litigation of the independent claims even though they may require some reference to the decision reached by the arbitrator. Only the desire to avoid piecemeal litigation counsels in favor of requiring arbitration, and that desire is legally insufficient under Bratt. ■Therefore, because Simon’s-ERISA Section 510 and COBRA claims are not covered by the arbitration clauses at issue, it is not necessary 'to address the question of whether ERISA would pre-empt an arbitration clause that did cover those claims. Thus, based on the de novo standard of review, this Court finds that Simon’s ERISA and COBRA claims (Counts I and TV) are not subject to arbitration in this case and, therefore, the District Court did not err in failing to require arbitration with respect to those claims. CONCLUSION For the foregoing reasons, this Court REVERSES the District Court with respect to denying Pfizer’s motion to dismiss Simon’s claim for benefits under the ESP, AFFIRMS the District Court’s decision regarding the arbitrability of Simon’s Section 510 and Cobra claims; arid REMANDS for proceedings not inconsistent with this opinion. 1. See J.A. p. 52 ("The determination of whether alleged grounds for termination qualify as a Termination for Just Cause shall be made by an Arbitration Panel”). 2. ' See J.A. p. 53 (stating that the term "Constructive Termination” shall include "any other action which shall be determined by an Arbitration Panel to constitute a Constructive Termination”). 3. Title 29, Section 1140 of the United States Code, titled "Interference with protected rights,” states as follows: It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this subchapter, section 1201 of this title, or the Welfare and Pension' Plans Disclosure Act [29 U.S.C.A. §§ '301 et seq.], or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act. It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter or the Welfare and 769 Pension Plans Disclosure Act. The provisions of section 1132 of this title shall be applicable in the enforcement of this section. Id. 4. The notice requirements set forth in 29 U.S.C. § 1166 provide: (a)In general In accordance with regulations prescribed by the Secretary— (1) the group health plan shall provide, at the time of commencement of coverage under the plan, written notice to each covered employee and spouse of the employee (if any) of the rights provided under this subsection, (2) the employer of an employee under a plan must notify the administrator of a qualifying event described in paragraph (1), (2), (4), or (6) of section 1163 of this title within 30 days (or, in the case of a group health plan which is a multiemployer plan, such longer period of time as may be provided in the terms of the plan) of the date of the qualifying event, (3) each covered employee or qualified beneficiary is responsible for notifying the administrator of the occurrence of any qualifying event described in paragraph (3) or (5) of section 1163 of this title within 60 days after the qualifying event and each qualified beneficiary who is determined, under title II or XVI of the Social Security Act [42 U.S.C.A. §§ 401 et seq. or 1381 et seq.], to have been disabled at any time during the first 60 days of continuation coverage under this part is responsible for notifying the plan administrator of such determination within 60 days after the date of the determination and for notifying the plan administrator within 30 days after the date of any final determination under such title or titles that the qualified beneficiary is no longer disabled, and (4)the administrator shall notify- (A) in the case of a qualifying event described in paragraph (1), (2), (4), or (6) of section 1163 of this title, any qualified beneficiary with respect to such event, and (B) in the case of a qualifying event described in paragraph (3) or (5) of section 1163 of this title where the covered employee notifies the administrator under paragraph (3), any qualified beneficiary with respect to such event, of such beneficiary’s rights under this subsection. (b) Alternative means of compliance with requirements for notification of multiem-ployer plans by employers The requirements of subsection (a)(2) of this section shall be considered satisfied in the case of a multiemployer plan in connection with a qualifying event described in paragraph (2) of section 1163 of this title if the plan provides that the determination of the occurrence of such qualifying event will be made by the plan administrator. (c) Rules relating to notification of qualified beneficiaries by plan administrator For purposes of subsection (a)(4) of this section, any notification shall be made within 14 days (or, in the case of a group health plan which is a multiemployer plan, such longer period of time as may be provided in the terms of the plan) of the date on which the administrator is notified under paragraph (2) or (3), whichever is applicable, and any such notification to an individual who is a qualified beneficiary as the spouse of the covered employee shall be treated as notification to all other qualified beneficiaries residing with such spouse at the time such notification is made. Id. 5. Specifically, the Court stated: "[t]he other issue that remains is, which I think is actually taken off my prior words, but is whether plaintiff's complaint should be dismissed for failure to arbitrate, and the Court finds under the same reasoning [as that applied with respect to exhaustion] that you'd never get to arbitration since there’s no response from the company." J.A. p. 448. 6. Lastly, and in the alternative, Pfizer argues that the District Court erred in refusing to stay the litigation of all claims until such time as the parties conclude their arbitration. Pfizer did not, however, present the District Court with a separate motion to stay proceedings, but rather included the request in a footnote to its brief in support of its motion to dismiss as an alternative remedy to dismissing Simon's claims. See J.A. p. 29, Pfizer’s Brief in Support of its Motion, n. 3 ("At a minimum, the Court should stay the action pending arbitration of all or any part of these claims”). The District Court did not therefore explicitly make a ruling on this request, and as the court found that neither arbitration nor exhaustion was required with respect to any of Simon’s claims, there would have been no reason to grant a stay pending arbitration— no arbitration of claims was being required. J.A. p. 446-448. As furdier evidence that this is a non-issue, Simon does not even address this argument in his brief. See Appellee's Brief. Neither was Pfizer's request to stay considered at a later date. The next motion considered by the Court was on February 19, 2003, when it considered Pfizer’s motion for a stay pending appeal. J.A. p. 455. Because the District Court did not reach the question of whether a sta}' should be required pending arbitration, the issue is not properly before this Court. Based on this Court's ruling herein, however, this question may become pertinent on remand. 7. See also, e.g., Suarez Corp. Indus. v. McGraw, 125 F.3d 222, 225 (4th Cir.1997) ("Ordinarily, appellate jurisdiction is lacking to hear an appeal from an order denying a Rule 12(b)(6) motion to dismiss since such an order is interlocutory in nature"); Hill v. City of New York, 45 F.3d 653, 659 (2d Cir.1995)("a denial of a motion to dismiss is ordinarily considered non-final, and therefore not immediately appealable”). 8. See Stewart v. Oklahoma, 292 F.3d 1257, 1260 (10th Cir.2002) (noting that the collateral order doctrine did not apply, preventing the court from reviewing the district court's denial of motion to dismiss on the basis of exhaustion because the third requirement of that doctrine, that the question be effectively unreviewable after final judgment, was not met — the "exhaustion claim, rests on less urgent questions of statutory interpretation and equitable considerations effectively reviewable after final judgment”). 9.Neither does the doctrine of pendent appellate jurisdiction allow us to consider the issue of exhaustion because that issue is not "coterminous with, or subsumed in” the arbitration issue. U.S. v. Any and All Radio Station Transmission Equipment, 204 F.3d 658, 668 (6th Cir.2000). See also Brennan v. Township of Northville, 78 F.3d 1152, 1157-58 (6th Cir.1996) (pendent jurisdiction exists "where the appealable and non-appealable issues are 'inextricably intertwined’,” meaning "when... resolution of the collateral appeal necessarily 772 resolves the pendent claim as well”); Chambers v. Ohio Dep’t of Human Servs., 145 F.3d 793, 797 (6th Cir.1998) ("pendent appellate jurisdiction... only may be exercised when the appealable issue at hand cannot be resolved without addressing the nonappealable collateral issue”). 10. Although the District Court did not give a separate analysis with respect to the question of arbitrability, it appears from what the court did say that it based its ruling on the assumption that Pfizer had not responded to the claims Simon had filed with the company internally, and that, therefore, forcing Simon to arbitrate the claims before the district court would have been futile. The court was concerned that Pfizer had not yet, at the time of the hearing on Pfizer’s motion to dismiss, reached a decision at the first level of review on Simon's Actual Termination claim filed internally with the company. After explaining why, based on that fact, exhaustion was futile for Simon's claim of wrongful denial of benefits under the plan, J.A. pp. 446-447, the court stated: "[t]he other issue that remains is, which I think is actually taken off my prior words, but is whether plaintiff's complaint should be dismissed for failure to arbitrate, and the Court finds under the same reasoning [as that applied with respect to exhaustion] that 'you’d never get to arbitration since there’s no response from the company.” J.A. p. 448. 11. See Toledo Technologies, Inc. v. INA Walzlager Schaeffler, 1999 WL 681557, 2 (N.D.Ohio 1999) ("In ruling on such a motion, a court must first determine if the parties actually agreed to arbitrate the issue in question.") (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); and AT & T Technologies v. Communications Workers, 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (noting that with respect to arbitration the parties’ intentions control, but that there is an initial presumption of arbitrability)). 12. The following language from the Mead decision is extremely pertinent herein: [W]here the agreement contains an arbitration clause, the court should apply a presumption of arbitrability, resolve any doubts in favor of arbitration, and should not deny an order to arbitrate "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” See AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 648-51, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Navigation, Co., 363 U.S. at 582-83, 80 S.Ct. at 1353 (1960)). Moreover, in cases involving broad arbitration clauses the [U.S. Supreme] Court has found the presumption of arbitrability "particularly applicable," and only an express provision excluding a particular grievance from arbitration or "the most forceful evidence of a purpose to exclude the claim from arbitration can prevail.” Id., 475 U.S. at 650, 106 S.Ct. at 1419 (quoting Warrior & Gulf Navigation, 363 U.S. at 584-85, 80 S.Ct. 1347); see also International Union, UAW v. United Screw & Bolt Corp., 941 F.2d 466, 472-73 (6th Cir.1991) (finding that the employer had "not satisfied the requirement for forceful evidence to overcome the presumption that the grievances should be arbitrated”). United Steelworkers of America v. Mead Corp., 21 F.3d at 131. 13. Simon claims that1 this alleged improper denial of benefits is in violation of ERISA. 29 U.S.C. § 1132(a)(1)(B) allows a participant or beneficiary to pursue a civil action to recover benefits due him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. Id. 14. See supra, pp. 6 -7. 15. Consider this excerpt: The Federal Arbitration Act (FAA) provides for the compulsory arbitration of disputes covered by a valid arbitration agreement. 9 U.S.C. § 2; see also Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). 774 "By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Furthermore, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitra-bility.” Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). If the matter at issue can be construed as within the scope of the arbitration agreement, it should be so construed unless the matter is expressly exempted from arbitration by the contract terms. United Steelworkers of Am. v. Mead Corp., 21 F.3d 128, 131 (6th Cir.1994). Eckel v. Equitable Life Assur. Soc. of the U.S., 1 F.Supp.2d 687, 688 (E.D.Mich.1998). 16. Simon does not argue to the contrary, but merely cites two out-dated cases in which courts did not require arbitration of ERISA claims: Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir.1984), for the proposition that arbitrators lack the necessary competence to deal with ERISA statutory violations, and McLendon v. Continental Group, Inc., 602 F.Supp. 1492 (D.N.J.1985), for the proposi *775 tion that ERISA claims deal with the enforcement of substantive rights and thus should not be subject to the same arbitration provisions as govern contractual rights between parties. However, Amaro was discredited by Fabian Financial Services v. Kurt H. Volk, Inc. Profit Sharing Plan, 768 F.Supp. 728, wherein the court stated: Fabian also cites, as did Graphic Communications, Johnson v. St. Frances Xavier Cabrini Hosp., 910 F.2d 594 (9th Cir.1990). Johnson, too, relied on Amaro and, in particular, Amaro's expressed distrust of arbitrators' competence to decide ERISA claims. This rationale for rejection of an arbitration provision appears to contradict express Supreme Court holdings to the contrary. It is true, however, that the Amaro court did not have the benefit of the recent decisions discussed above. For reasons not obvious, the Ninth Circuit decisions have not addressed the several Supreme Court cases relied upon by the Plan and which this Court finds persuasive and binding. Thus, in asserting that an arbitrator cannot interpret ERISA, Fabian finds itself in conflict with, for example, McMahon, where the Supreme Court stated " 'we are well past the time when judicial suspicion of the desirability of arbitration and of the competence of arbitral tribunals' should inhibit enforcement of the Act 'in controversies based on statutes.' ” Id. at 731-32 (citations omitted).	CRITICIZED_OR_QUESTIONED
724 F.2d 747	223 F.3d 814	ACAN, DR	Santiago Amaro v. The Continental Can Company	HANSEN, Circuit Judge. Twenty-three nurses (“the nurses”) filed an action against the appellees (collectively “Union Pacific”), alleging violations of 816 ERISA 1 and Title VII of the Civil Rights Act of 1964. The district court 2 dismissed both the ERISA and Title VII claims for failure to exhaust administrative remedies. All but one of the nurses appeal. We affirm. I. Facts The nurses who are appellants in this action all entered into individual employment contracts at various times between 1971 and 1997 with the railroad appellees to provide nursing consultive services. Each contract specifically designated the signatory nurse as an independent contractor rather than an employee of the railroads. In the mid-1990’s, the Railroad Retirement Board (RRB) examined the propriety of Union Pacific’s classification of nine nurses as independent contractors. After reviewing the nurses’ contracts, as well as Internal Revenue Service (IRS) documents, the RRB, using definitions contained in the Railroad Retirement Act and the Railroad Unemployment Insurance Act, concluded that the nine nurse consultants who provided services for Union Pacific in the early 1990’s actually were employees of the railroads rather than independent contractors. Following the RRB’s determination, these twenty-three nurses brought this action in federal district court seeking damages for violations of ERISA and Title VII. 3 Both sides filed motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The district court granted Union Pacific’s motion for summary judgment with regard to the ERISA and Title VII claims after finding that the nurses failed to exhaust then-administrative remedies. All but one of the nurses appeal the district court’s summary judgment determinations to this court, II. Discussion We review a district court’s summary judgment determinations de novo, applying the same standards as the district court. See Treanor v. MCI Telecomms. Corp., 200 F.3d 570, 573 (8th Cir.2000). A. ERISA Claims The nurses contend that by improperly classifying them as independent contractors rather than employees, Union Pacific wrongfully denied them participation in employee benefit plans offered to other employees. Pursuant to § 502(a)(1)(B) of ERISA, the nurses seek to enforce and clarify their rights under the employee benefit plans. They also seek to recover benefits that they allege they would have received if they had been allowed to participate in the plans. The nurses additionally allege violations of § 510 of ERISA, which provides that “[i]t shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary... for the purpose of interfering with the attainment of any right to which such participant may become entitled...” under the employee benefits plan at issue. 29 U.S.C. § 1140. Without addressing the merits of the nurses’ ERISA claims, the district court held that the claims must be dismissed because the nurses failed to exhaust their administrative remedies. The 817 district court noted that although ERISA itself contains no exhaustion requirement, beneficiaries must exhaust their administrative remedies if such exhaustion is mandated by the ERISA plan at issue. The district court is correct. It is well-established that when exhaustion is clearly required under the terms of an ERISA benefits plan, the plan beneficiary’s failure to exhaust her administrative remedies bars her from asserting any unexhausted claims in federal court. See Layes v. Mead Corp., 132 F.3d 1246, 1252 (8th Cir.1998). Exhaustion is clearly required under the plans at issue in this case, and the nurses did not pursue their administrative remedies before seeking relief from the federal court. Hence, the nurses’ claims are barred. 4 The nurses argue that exhaustion requirements are not applicable to plaintiffs pursuing remedies for violations of § 510 of ERISA. The nurses contend that claims brought pursuant to § 510 implicate questions of statutory analysis and do not require courts to interpret the ERISA benefit plan in order to determine whether a statutory violation has occurred. We note that a split exists among the circuits as to whether exhaustion is required when a plaintiff alleges a violation of § 510. Some courts hold that exhaustion in a § 510-type context is not required. See Smith v. Sydnor, 184 F.3d 356, 364 (4th Cir.1999), cert. denied, - U.S. -, 120 S.Ct. 934, 145 L.Ed.2d 813 (2000); Richards v. General Motors Corp., 991 F.2d 1227, 1235 (6th Cir.1993); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1205 (10th Cir.1990); Berger v. Edgewater Steel Co., 911 F.2d 911, 916 n. 4 (3d Cir.1990), cert. denied, 499 U.S. 920, 111 S.Ct. 1310, 113 L.Ed.2d 244 (1991); Amaro v. Continental Can Co., 724 F.2d 747, 750-52 (9th Cir.1984). Other courts extend the exhaustion requirement to § 510-type claims. See Counts v. American Gen. Life and Accident Ins. Co., 111 F.3d 105, 109 (11th Cir.1997); Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (holding that although exhaustion principles apply to § 510-type claims, the decision to require exhaustion in the § 510-type context lies within the discretion of the district court). The question of whether exhaustion is required when a plaintiff is alleging a § 510 violation has not been addressed by this court. We need not, however, resolve the question in the context of this case. Although the nurses allege that they “are challenging the legality of [Union Pacific’s] plan provisions which attempt to define out the Nurses in violation of ERISA and the IRS code,” (Appellants’ Br. at 26), in this case, the district court cannot consider such a challenge without interpreting Union Pacific’s benefit plans. Hence, the challenge presented is not simply a question of statutory analysis. Rather, the question of whether Union Pacific’s plans operate in a manner that impermissi-bly excludes the nurses from participation necessarily requires the district court to interpret the operation and application of the employee benefits plans. In particular, the question of whether these nurses, who were always paid on an hourly basis, are “salaried employees” is critical to a determination of whether they ever were eligible to be “participants” in the plans. In cases where resolution of the § 510 issue turns on an interpretation of the ERISA benefits plan at issue, a district court does not abuse its discretion in requiring plaintiffs to exhaust their administrative remedies. Cf. Lindemann, 79 F.3d at 650 (“Thus the law of [the Seventh] Circuit remains that the decision to require exhaustion as a prerequisite to bringing a federal lawsuit is a matter within the discretion of the trial court and its *818 decision will be reversed only if it is obviously in error”) (citations omitted); Zipf v. American Tel. & Tel. Co., 799 F.2d 889, 894 n. 6 (3d Cir.1986) (“We acknowledge that cases may arise in which a Section 510 claim is so closely intertwined with a serious issue requiring interpretation of a benefit plan that a trial court could properly stay the statutory action pending resolution of the issue by the plan fiduciaries”); Stumpf v. Cincinnati, Inc., 863 F.Supp. 592, 598 (S.D.Ohio 1994) (holding that in cases where the § 510 claim is so intertwined with an issue necessitating interpretation of a benefit plan, a district court has discretion to stay the § 510 action pending an administrative resolution of the issue), aff'd, 70 F.3d 116 (6th Cir.1995) (unpublished table decision). We do not reach the question of whether exhaustion of administrative remedies is required in every case where the plaintiff is asserting a § 510 violation. We simply hold that in the facts and circumstances of this case, the district court committed no error in dismissing the nurses’ § 510 claims without prejudice and requiring them to exhaust their administrative remedies before seeking court relief. B. Title VII Claims The nurses allege that Union Pacific violated 'Title VII of the Civil Rights Act of 1964 by discriminating against them on the basis of gender. The district court dismissed their claims after finding that Nurse Gail Huss, the only nurse to file an administrative claim before the Equal Employment Opportunity Commission, failed to file her claim within 180 days of the alleged discriminatory acts as required by law. See 42 U.S.C. § 2000e-5(e). Nurse Huss argues that she remained unaware of Union Pacific’s gender discrimination until the RRB issued its decision in 1996. The district court disagreed. The district court noted that during “her deposition, Huss testified that the only sex discrimination that she experienced was defendants’ act of classifying her as an independent contractor rather than an employee, thereby denying her benefits. It is undisputed that Huss ceased being an independent contractor and became an employee with full benefits in August of 1990. It follows that August of 1990 is the last possible date on which actionable sex discrimination could have occurred.” (Appellants’ Add. at 17.) We are persuaded by the district court’s thorough and well-reasoned opinion. We conclude, therefore, that the district court properly dismissed the nurses’ Title VII claims. III. Conclusion For the foregoing reasons, we affirm the' judgment of the district court. 1. The Employee Retirement Income Security Act of 1974 (codified as amended at 29 U.S.C. §§ 1001-1461 (1994 & Supp. Ill 1997) and in scattered sections of Title 26 U.S.C.). 2. The Honorable Catherine D. Perry, United States District Judge for the Eastern District of Missouri. 3.The nurses also alleged other statutory and state common law violations, which the district court dismissed for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). The nurses are not appealing the district court's Rule 12(b)(6) determinations. 4. ERISA plan beneficiaries are not required to exhaust their claims if they can demonstrate that exhaustion "would be wholly futile.” Glover v. St. Louis-San Francisco Ry., 393 U.S. 324, 330, 89 S.Ct. 548, 21 L.Ed.2d 519 (1969). The nurses, however, have failed to show futility in this case.	CONFLICT_NOTED
724 F.2d 747	209 F.3d 1309	ACAN, DR	Santiago Amaro v. The Continental Can Company	PUBLISH IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT FILED U.S. COURT OF APPEALS ________________________ ELEVENTH CIRCUIT APR 20 2000 THOMAS K. KAHN No. 98-5189 CLERK ________________________ D. C. Docket No. 88-06602-CV-NCR ANGELO PERRINO, STEPHEN PLACIDO, EDNA SHEPARD, ARTHUR WILSON, Plaintiffs-Appellants, versus SOUTHERN BELL TELEPHONE & TELEGRAPH CO., Defendant-Appellee, ________________________ Appeal from the United States District Court for the Southern District of Florida _________________________ (April 20, 2000) Before BIRCH and MARCUS, Circuit Judges, and MILLS, Senior District Judge. MARCUS, Circuit Judge. This appeal concerns whether plaintiffs who bring a federal suit based on claims arising under the Employee Retirement Income Security Act of 1974 (“ERISA”) are required to exhaust available administrative remedies when their employer fails to comply with all of ERISA’s procedural requirements for establishing a reasonable claims procedure, 29 U.S.C. § 1133; 29 C.F.R. § 2560.503-1. In this case, the district court granted summary judgment to BellSouth Telecommunications, Inc. on the ERISA claims of four plaintiffs, Angelo Perrino, Stephen Placido, Edna Shepard, and Arthur Wilson, who failed to exhaust a grievance and arbitration procedure contained in the company’s collective bargaining agreement. The plaintiffs had sought a termination pay allowance based on a provision of the agreement--a provision which constituted, as BellSouth concedes, an ERISA welfare benefits plan. We conclude that because the grievance and arbitration procedure afforded the plaintiffs access to an administrative scheme from which they could have received an adequate legal remedy for their ERISA claims, plaintiffs were required to exhaust this scheme Honorable Richard Mills, Senior U.S. District Court Judge for the Central District of Illinois, sitting by designation. 2 prior to filing suit in federal court. Accordingly, we affirm the judgment of the district court. I. The facts of this case are straightforward. Angelo Perrino, Stephen Placido, Edna Shepard, and Arthur Wilson (“Appellants”) are four former employees of BellSouth Communications Inc. (“Appellee”) who became disabled during the course of their employment with BellSouth in the 1980's.1 At the time, BellSouth maintained a Sickness and Accident Disability Benefit Plan (the “STD” plan) which provided short-term disability benefits to employees for up to one year. After a year, BellSouth would remove a disabled employee from the company payroll and the ex-employee then would become eligible for long-term, disability- related pension benefits. In this case, all of the named Appellants received both short-term and long-term, disability-related pension benefits from BellSouth.2 At the time of Appellants’ employment, BellSouth did not maintain a formal ERISA plan. Instead, the terms and conditions of Appellants’ employment were 1 During the period of Appellants’ employment, BellSouth was known as Southern Bell Telephone and Telegraph. 2 At the time of summary judgment, Angelo Perrino and Edna Shepard still were receiving these long-term benefits. Stephen Placido and Arthur Wilson received these same benefits until the time of their deaths. 3 governed solely by the collective bargaining agreement (“Agreement”) between Bell South and their union, Communication Workers of America (“Union”). Article 8.07A2 of the Agreement contains a termination pay provision, the subject of this litigation. The provision allows certain classes of employees, for example, laid-off workers, to receive a termination pay allowance separate and apart from the short-term and long-term disability benefits received by Appellants. The provision reads in part: 8.07 Employment Termination Allowance A. Basis of Payment. A termination allowance shall be paid to a regular or temporary employee whose service is terminated under any of the conditions outlined below; moreover, service pension eligibility will not be a factor in determining whether an employee is eligible for a termination allowance, except as described in 8.06A2.... 2. As an inducement proposed, or agreed to, by the Company to an employee to resign because of inability or unadaptability to perform properly the duties of the job as distinguished from misconduct. For purposes of this litigation, BellSouth concedes that these termination pay provisions constitute an employee welfare benefit plan under ERISA.3 3 BellSouth also admitted before the district court that there were no formal ERISA plan documents aside from the Agreement, for the relevant time period, and that, during this period, the company did not strictly comply with ERISA provisions codified at 29 U.S.C. § 1133 or at 29 C.F.R. § 2560.503-1. Bell South subsequently promulgated a summary plan description on August 9, 1992, which outlined all of the statutorily-required, ERISA-plan features including an ERISA claims 4 The Agreement also specifies a grievance and arbitration procedure for resolving any disputes as to “the true intent and meaning” of the Agreement or disputes “adversely affect[ing] the rights of any employee” such as a dispute over the eligibility of disabled ex-employees to receive termination pay allowances.4 procedure. 4 Article 21.01 of the Agreement describes the grievance procedure in great detail. It reads: 21.01 Grievance Levels. The parties agree that in the handling and adjustment of grievances by the Union the following procedures shall be followed. A. An employee or group of employees shall have the right to present and adjust with the management any grievances as provided in Section 9(a) of the National Labor Relations Act, as amended, provided, however, that no adjustment shall be made with the employee or group of employees involved which is inconsistent with the terms of any collective bargaining agreement between the parties then in effect, and provided further that the Union has been given an opportunity to be present at such an adjustment. B. After an employee or employees have presented a grievance to the Union for settlement and a Union representative has informed the Company that the Union represents the employee, or employees, the Company will not discuss or adjust such grievance, with said employee, or employees, unless the aggrieved employee, or employees, initiate a request that the Company discuss and adjust such grievance directly with him, or them, but in no event shall an adjustment be made unless a Union representative is afforded an opportunity to be present at such an adjustment. C. All grievances, other than discipline related grievances and those involving the true intent and meaning of this agreement between the parties or adversely affecting the rights of other employees, shall be handled under the procedure set forth below.... (emphasis added). Article 21.01 then proceeds to describe the available four-level grievance 5 Previously, BellSouth has been involved in several grievance proceedings with ex- employees who sought termination allowance pay, including two cases which proceeded to arbitration. According to the terms of the Agreement, a person has sixty days, from the last occurrence on which the grievance is based, to present a grievance for review. On August 5, 1988, Appellants filed a class action suit against BellSouth under § 301 of the Labor-Management Relations Act (“LMRA”), 29 U.S.C. § 185, and § 502 of the Employment Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132. Appellants alleged that they were entitled to termination pay pursuant to the collective bargaining agreement in effect during the tenure of their employment with BellSouth and sought injunctive, declaratory, and compensatory relief. Appellants also sought a judgment that the termination pay provisions of the Agreement constituted an employee welfare benefit plan under ERISA and that they were entitled to benefits thereunder. Appellants asserted, based largely on a BellSouth memorandum from Assistant BellSouth VP Joe Walling, that disabled procedure in intricate detail. Grievances which cannot be resolved through the provisions outlined in Article 21.01 may be arbitrated by an independent arbitrator at the request of either the Union or BellSouth. This arbitration procedure is outlined in detail in Article 23 of the Agreement. 6 workers, at the time of Appellants’ disability-related terminations, were eligible for the termination pay allowances in addition to disability-related pension benefits.5 On April 14, 1989, Appellants amended their complaint to assert an additional theory of recovery, claiming that BellSouth had changed its interpretation of the termination pay provisions after Appellants had filed this suit for termination allowance benefits. Specifically, Appellants contended that BellSouth secretly tried to rescind Walling’s interpretive memorandum after they had filed suit, an act which constituted a breach of BellSouth’s fiduciary obligations under ERISA. Appellants then sought a permanent injunction requiring BellSouth to administer the plan in accordance with its prior interpretation of the termination pay provisions. 5 Appellants argue that the December 16, 1986 memo from Walling explains that disabled workers may receive both the termination allowance and pension benefits. The memo states in part: This [Article 8.07A] language was clearly intended to mean that we would pay an employee termination allowance if eligible under Article 8.07A, whether or not that employee might receive a pension in addition to the termination allowance. One example of when this might occur would be in the case of an employee who is unable to return to work after exhausting 52 weeks of benefits. Such an employee if still disabled after 52 weeks would be dropped from the payroll and if pension eligible, would receive a pension in addition to termination allowance under Article 8.07A4. 7 On June 30, 1992, BellSouth filed a motion for summary judgment. It argued that the Agreement never has allowed disabled workers to receive termination pay allowances. Moreover, BellSouth contended that Appellants’ claims were barred in federal court by their failure to exhaust available administrative remedies prior to filing suit. Specifically, BellSouth argued that Appellants had not filed grievances pursuant to the Agreement under which they were seeking termination pay. On July 9, 1998, the district court entered summary judgment in favor of BellSouth on this basis. Prior to filing suit, only one of the Appellants, Angelo Perrino, actually requested a termination pay allowance from BellSouth. Perrino’s request was made on January 29, 1988, four years after he was terminated by BellSouth, and was denied on March 7, 1988. In its letter denying Perrino the termination pay allowance, BellSouth informed Perrino that the Agreement did not authorize termination allowance payments to ex-employees with long-term disabilities, but that if he had made a timely request for a termination pay allowance, Perrino would have been able to invoke the Agreement’s grievance and arbitration procedure to challenge the denial of the pay allowance. Before the district court, Appellants claimed that because the Agreement did not adhere to all of the procedural requirements of ERISA, they need not have 8 resorted to the Agreement’s administrative process for handling employment- related grievances. Appellants also argued that the grievance and arbitration procedure specified in the Agreement only applied to disputes or controversies between the Union and the Company, and that arbitration only can occur upon written request of either the Union or BellSouth. In response, BellSouth observed that the plain language of Article 21.01 of the Agreement grants an “employee” or “group of employees” the right to file “any” grievance, including grievances over the denial of termination pay allowances, with or without Union involvement, and that BellSouth has been involved in several such grievance and arbitration procedures with ex-employees over denials of termination pay allowances. In granting BellSouth summary judgment on Appellants’ claims, the district court concluded that Appellants had failed to exhaust available administrative remedies in the form of the Agreement’s grievance and arbitration procedure. The district court made several pertinent factual findings in connection to its ruling. First, the district court determined that despite its technical noncompliance with ERISA regulations, “the Agreement sets forth with sufficient clarity the provisions for termination pay and the grievance procedures to be followed,” and that despite this clarity, Appellants failed to file grievances for termination pay allowances. Second, the district court found that Appellants’ failure to exhaust this 9 administrative scheme was not due to a lack of knowledge about the scheme or a lack of access to the scheme. The district court observed: [T]here has been no evidence that the plaintiffs did not have access to the agreement or that the defendant failed to provide a copy upon request from the plaintiffs. When plaintiff Perrino made his request for termination pay, he cited the provisions of the Collective Bargaining Agreement. Consequently, he was well aware of the grievance procedures in the Bargaining Agreement. Finally, the district court determined based on record evidence that the Agreement’s grievance and arbitration procedure previously had been employed by similarly-situated ex-employees to challenge the denial of termination pay allowances. The district court explained that “former employees of defendant have availed themselves of the grievance procedure in similar circumstances as those presented by plaintiffs,” making the grievance and arbitration procedure an available administrative remedy for Appellants’ claims. II. We review the district court’s grant of summary judgment de novo, viewing the evidence in the light most favorable to the party opposing the motion. See Counts v. Amer. Gen. Life & Accident Ins. Co., 111 F.3d 105, 108 (11th Cir. 1997) (citing Harris v. Board of Educ. of Atlanta, 105 F.3d 591, 595 (11th 10 Cir.1997)). In this case, however, it is undisputed that Appellants failed to exhaust the administrative remedy outlined in their ERISA plan. Appellants concede that they did not pursue a grievance over the denial of termination pay benefits through the grievance and arbitration procedure explained in BellSouth’s collective bargaining agreement. Both parties also concede that this Agreement constituted an ERISA plan for the relevant time period. Our law is well-settled that “plaintiffs in ERISA actions must exhaust available administrative remedies before suing in federal court.” Counts, 111 F.3d at 108; see also Springer v. Wal-Mart Associates’ Group Health Plan, 908 F.2d 897, 899 (11th Cir.1990); Mason v. Continental Group, Inc., 763 F.2d 1219, 1225-27 (11th Cir.1985). However, a district court has the sound discretion “to excuse the exhaustion requirement when resort to administrative remedies would be futile or the remedy inadequate,” Counts, 111 F.3d at 108, or where a claimant is denied “meaningful access” to the administrative review scheme in place, Curry v. Contract Fabricators, Inc. Profit Sharing Plan, 891 F.2d 842, 846-47 (11th Cir.1990). In this case, the district court did not excuse the exhaustion requirement, and granted summary judgment on this basis. On appeal, Appellants challenge this decision for two principal reasons: first, they claim that exhaustion should not be required where an ERISA plan fails to comply in full with all ERISA regulations, 11 and second, they argue that the grievance and arbitration procedure contained in the ERISA plan was not available to ex-employees, making resort to this procedure futile. The decision of a district court to apply or not apply the exhaustion of administrative remedies requirement for ERISA claims is a highly discretionary decision which we review only for a clear abuse of discretion. See Springer, 908 F.2d at 899; Curry, 891 F.2d at 846. After carefully reviewing the record, we conclude that the district court did not abuse its discretion in applying the exhaustion requirement to Appellants’ claims. First, our caselaw makes plain that as a general rule plaintiffs in ERISA actions must exhaust available administrative remedies before suing in federal court. See Counts, 111 F.3d at 108; Springer, 908 F.2d at 899; Mason, 763 F.2d at 1225-27. This rule is grounded in several important policy rationales, and also is consistent with Congressional intent. As we explained in Mason: Compelling considerations exist for plaintiffs to exhaust administrative remedies prior to instituting a lawsuit. Administrative claim-resolution procedures reduce the number of frivolous lawsuits under ERISA, minimize the cost of dispute resolution, enhance the plan's trustees’ ability to carry out their fiduciary duties expertly and efficiently by preventing premature judicial intervention in the decisionmaking process, and allow prior fully considered actions by 12 pension plan trustees to assist courts if the dispute is eventually litigated. In addition, imposing an exhaustion requirement in the ERISA context appears to be consistent with the intent of Congress that pension plans provide intrafund review procedures. Id. at 1227 (internal citation omitted). As a result, we strictly enforce an exhaustion requirement on plaintiffs bringing ERISA claims6 in federal court with certain caveats reserved for exceptional circumstances. See Springer, 908 F.2d at 899. Thus far, our circuit has recognized exceptions only when “resort to administrative remedies would be futile or the remedy inadequate,” Counts, 111 F.3d at 108, or where a claimant is denied “meaningful access” to the administrative review scheme in place, Curry, 891 F.2d at 846-47. Appellants do not dispute this precedent. However, Appellants argue that we should recognize a new exception to our exhaustion requirement; namely, that 6 We apply this exhaustion requirement to both ERISA claims arising from the substantive provisions of the statute, and ERISA claims arising from an employment and/or pension plan agreement. See Counts, 111 F.3d at 109; Springer, 908 F.2d at 899; Mason, 763 F.2d at 1225-27; see also Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (finding that rationale for exhaustion applies equally to claims for benefits and claims based upon ERISA itself). However, several other circuits do not apply the exhaustion requirement to causes of action based on statutory violations. See Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1205 (10th Cir.1990); Zipf v. American Tel. & Tel. Co., 799 F.2d 889, 891-94 (3rd Cir.1986); Amaro v. Continental Can Co., 724 F.2d 747, 750-53 (9th Cir.1984). This circuit split, however, is irrelevant to this dispute since Appellants’ claims are based on the termination allowance provision of a collective bargaining agreement and not on a substantive violation of ERISA. 13 an employer’s noncompliance with ERISA’s technical requirements (for example, creating a summary plan description, or delineating a formal claims procedure) should excuse a plaintiff’s duty to exhaust administrative remedies. Under ERISA, an employer is required to furnish employees with a “Summary Plan Description” that gives details of the benefits provided by the company, and articulates the claims procedure available to present and adjudicate ERISA claims. See 29 U.S.C. § 1021-22; 29 C.F.R. § 2560.503-1. Federal regulations also mandate certain requirements for an ERISA claims procedure in order to ensure the procedure is “reasonable.” According to federal regulations, “a plan established and maintained pursuant to a collective bargaining agreement,” in order to comply with ERISA’s requirements for a reasonable claims procedure, must “set[] forth or incorporate[] by specific reference”: (A) Provisions concerning the filing of benefit claims and the initial disposition of benefit claims, and (B) A grievance and arbitration procedure to which denied claims are subject. 29 C.F.R. § 2560.503-1(b)(2)(A)-(B). Before the district court, BellSouth conceded that the Agreement, at the time of Appellants’ employment and termination, did not comply strictly with all of ERISA’s regulations. For instance, the termination benefits provision never was 14 formalized by a separate summary plan description. In addition, although the Agreement contained a detailed provision explaining the terms and conditions under which employees could receive termination allowances as well as a detailed grievance and arbitration procedure available for “any” employment-related grievance, these provisions did not state explicitly that employees could file termination allowance claims or obtain independent review of these claims if they were denied by the plan administrator. Because of these technical deficiencies, Appellants contend that the ERISA exhaustion requirement ought to be waived. They claim that because the Agreement’s provisions do not explicitly aver that termination allowance claims can be filed or receive review and arbitration, the Agreement does not contain a “reasonable” claims procedure. Appellants also assert that because BellSouth did not promulgate and distribute a summary plan description, they should not be compelled to exhaust the plan’s administrative remedy procedures.7 7 In support, Appellants cite proposed federal regulations which state: A failure to provide the procedures mandated by the [ERISA] regulations effectively denies participants and beneficiaries access to the process mandated by the [ERISA] Act. It is the view of the Department that claimants should not be required to continue to pursue claims through an administrative process that fails to meet the minimum standards of the regulation. Rules and Regulations for Admin. and Enforcement, Claims Procedure, 63 Fed. Reg. 48390, 48397 15 We find Appellants’ arguments unpersuasive. After reviewing the relevant federal regulations and our prior precedent, we decline to create an exception to the exhaustion requirement in this case. First, we stress the exceedingly technical nature of Appellants’ contention. While the Agreement is in technical noncompliance with some ERISA regulations, the Agreement does contain specific provisions which explain employee eligibility for termination allowances (the ERISA benefit at issue) as well as the process for adjudicating termination-related grievances. Moreover, the district court determined that other similarly-situated ex-employees had used the Agreement’s grievance and arbitration procedure to challenge the denial of termination pay allowances, and that several of these ex- employees had obtained independent arbitration of their claims. In addition, the district court found that the only Appellant who even requested a termination allowance, Angelo Perrino, had specific knowledge of the Agreement’s grievance and arbitration procedure yet never filed a grievance. The district court also concluded that there was no evidence that any of the Appellants lacked access to or knowledge about the Agreement’s grievance and arbitration procedure.8 (1998) (to be codified at 29 C.F.R. pt. 2560) (proposed Sep. 9, 1998). 8 It is important to note that BellSouth did not maintain an ERISA benefits plan separate from the collective bargaining agreement, and is not seeking to impose a “twin” exhaustion requirement on plaintiffs requiring them to proceed through both an ERISA claims procedure and a separate grievance and arbitration procedure contained in the collective bargaining agreement. Here, the 16 Therefore, we conclude that, while technically deficient, the Agreement’s administrative scheme was available to Appellants for the review and arbitration of their ERISA termination allowance claims, and that if the process had been invoked, Appellants could have received independent arbitration and an adequate legal remedy for their claims. Our prior precedent makes clear that the exhaustion requirement for ERISA claims should not be excused for technical violations of ERISA regulations that do not deny plaintiffs meaningful access to an administrative remedy procedure through which they may receive an adequate remedy. For instance, in Counts, the plaintiff argued that the district court erred in not excusing the exhaustion requirement because his employer’s termination letter failed to comply precisely with ERISA’s notice requirements under §29 U.S.C. 1133 and §29 C.F.R. 2560.503-1(f). See Counts, 111 F.3d at 107. The district court acknowledged that the termination letter was technically deficient in some respects, but concluded that “the letter substantially complied with the notice requirements because, taken as a whole, it supplied Counts ‘with a statement of reasons that, under the circumstances of the case, [the employer’s letter] permitted a sufficiently clear termination pay provisions of the collective bargaining agreement serve as the ERISA plan. In short, plaintiffs wish to seek and receive ERISA benefits based on the termination provisions of the collective bargaining agreement while ignoring the grievance and arbitration procedure clearly explained in this same agreement for exhaustion purposes. 17 understanding of the administrator’s position to permit effective review.’” See id. at 108. On appeal, we affirmed the district court’s application of the exhaustion requirement despite the employer’s noncompliance with the ERISA notice provision. In so doing, we explained that while the “normal time limits for administrative appeal may not be enforced” against a claimant who receives an inadequate benefits termination letter, the “usual remedy” should not be “excusal from the exhaustion requirement, but remand to the plan administrator for an out-of- time administrative appeal.” Id. The clear import of our decision was the conclusion, that though employees should not have their ERISA claims adversely affected by an employer’s technical noncompliance with ERISA regulations, so too, they should not be able to avoid the exhaustion requirement where technical deficiencies in an ERISA claims procedure do not hinder effective administrative review of their claims. See Baxter v. C.A. Muer Corp., 941 F.2d 451, 453-54 (6th Cir. 1991) (upholding exhaustion requirement despite the employer’s failure to issue a written denial of an employee’s benefits where the error resulted in no 18 prejudice to the employee’s ability to obtain administrative review of the claim denial).9 This approach conforms with the logic of our exhaustion doctrine in which we apply the exhaustion requirement strictly and recognize narrow exceptions only based on exceptional circumstances. See Counts, 111 F.3d at 108; Springer, 908 F.2d at 899; Curry, 891 F.2d at 846-47. Our exceptions to this doctrine where resort to an administrative scheme is unavailable or would be “futile,” or where the remedy would be “inadequate” simply recognize that there are situations where an ERISA claim cannot be redressed effectively through an administrative scheme. In these circumstances, requiring a plaintiff to exhaust an administrative scheme would be an empty exercise in legal formalism. That said, it makes little sense to excuse plaintiffs from the exhaustion requirement where an employer is technically noncompliant with ERISA’s procedural requirements but, as the district court determined in this case, the plaintiffs still had a fair and reasonable opportunity to 9 Analogously, several federal circuits have denied remedial relief for technical violations of ERISA’s statutory requirements absent a showing that the violations had adversely affected the plaintiffs’ ERISA rights. See Berger v. Edgewater Steel Co., 911 F.2d 911, 920-21 (3rd Cir.1990); Blau v. Del Monte Corp., 748 F.2d 1348, 1350-51 (9th Cir.1984). In addition, we have held that procedural errors in the management of an ERISA plan did not warrant a more liberal review standard than the traditional “arbitrary and capricious” standard for the judicial review of ERISA benefit determinations. See Anderson v. Ciba-Giegy Corp., 759 F.2d 1518, 1520 (11th Cir. 1985); see also Blau v. Del Monte Corp., 748 F.2d 1348, 1352-53 (9th Cir.1984); Dennard v. Richards Group, Inc., 681 F.2d 306, 313-14 (5th Cir.1982). 19 pursue a claim through an administrative scheme prior to filing suit in federal court. Cf. Curry, 891 F.2d at 846-47 (finding that “[w]hen a plan administrator in control of the available review procedures denies a claimant meaningful access to those procedures, the district court has the discretion not to require exhaustion”). Therefore, if a reasonable administrative scheme is available to a plaintiff and offers the potential for an adequate legal remedy, then a plaintiff must first exhaust the administrative scheme before filing a federal suit. Finally, Appellants also argue that resort to the Agreement’s grievance and arbitration procedure would have been futile because they are ex-employees not owed a duty of fair representation by the Union. They contend that under the arbitration provision of the Agreement, arbitration is available only after either the Union or BellSouth requests it in connection to an employment-related grievance, and that the Union is not obligated legally to pursue arbitration for them.10 10 The arbitration provision states in relevant part: 23.01(B) If at any time a controversy should arise between the Union and the Company regarding the true intent and meaning of any provisions of this or any other agreement between the parties or a controversy as to the performance of an obligation hereunder, which the parties are unable to compose by full and complete use of the grievance procedure set up by Article 21, the matter shall be arbitrated upon written request of either party to this Agreement to the other. The provision goes on to explain that an “impartial arbitrator” will be chosen upon agreement of the parties, and that if no agreement is reached, either side may apply to the Federal Mediation and 20 Appellants therefore claim that they lack access to arbitration of their ERISA claims under the Agreement’s administrative scheme. Based on the undisputed facts of this case, we find this argument to be without merit. This case might be different if Appellants actually had resorted to the grievance and arbitration procedure only to be told by the Union that it would not seek arbitration for their benefits claims. However, none of the Appellants even pursued the grievance and arbitration procedure available, at least, in theory. In addition, the district court specifically found, based on the uncontroverted affidavit of Ray Giesler, BellSouth’s Operations Manager of Labor Relations, and the record of several prior arbitrations, that the Union filed a substantial number of grievances on the behalf of terminated employees, and that BellSouth retirees enjoyed the same rights as active employees with respect to filing a termination- related grievance. The district court also noted that at least two retirees previously had arbitrated with BellSouth over the termination pay allowance. We therefore conclude that the futility objections raised by Appellants in terms of access to the arbitration proceeding are merely theoretical, if present at all, and therefore do not justify Appellants’ excusal from the exhaustion requirement. III. Conciliation Service for an appointed arbitrator. 21 In short, we find that Appellants were not denied access to an administrative scheme from which they could have received an adequate legal remedy for their ERISA claims. As such, we conclude that Appellants were compelled to first exhaust the available administrative remedies contained in the collective bargaining agreement prior to filing suit in federal court. We therefore AFFIRM in full the district court’s order granting summary judgment to BellSouth on Appellants’ ERISA claims. AFFIRMED. 22	CONFLICT_NOTED
724 F.2d 747	111 F.3d 105	NF	Santiago Amaro v. The Continental Can Company	111 F.3d 105 97 FCDR 2684, 10 Fla. L. Weekly Fed. C 854 J.W. COUNTS, Plaintiff-Counter-Defendant, Appellant,v.AMERICAN GENERAL LIFE AND ACCIDENT INSURANCE COMPANY;American General Corporation Plan Administrator,Defendants-Counter-Claimants-Appellees,Gulf Life Insurance Company, et al., Defendants. No. 96-8795. United States Court of Appeals, Eleventh Circuit. April 29, 1997. Susan Warren Cox, Gerald M. Edenfield, Edenfield & Cox, P.C., Statesboro, GA, for Plaintiff-Counter Defendant-Appellant. Wade W. Herring, II, Hunter, Maclean, Exley & Dunn, Savannah, GA, for Defendants-Counter Claimants-Appellees. Appeal from the United States District Court for the Southern District of Georgia. Before DUBINA and BLACK, Circuit Judges, and COHILL, Senior District Judge. DUBINA, Circuit Judge: 1 Appellant J.W. Counts ("Counts") appeals the district court's grant of summary judgment in this ERISA1 action in favor of Appellees American General Life and Accident Insurance Company and American General Corporation Plan Administrator (collectively, "AGLA"). The district court ruled that Counts failed to exhaust his administrative remedies. For the reasons that follow, we affirm. I. BACKGROUND 2 Counts worked as an insurance agent and sales manager for AGLA and its predecessors from 1965 to 1990. Counts was a participant in the Gulf Life Field Representative's Long-Term Disability Plan ("the Plan"),2 an employee benefit plan governed by ERISA and administered by AGLA. A participant must be totally disabled to receive long term disability ("LTD") benefits under the Plan. The Plan defines total disability as a sickness or injury which prevents a participant from performing the main duties of his or her regular occupation. After 12 months, however, the definition changes: the participant must be unable to perform "each and every of the main duties of any occupation. Any occupation is one that the Participant's training, education, or experience will reasonably allow." R3-61, District Court Order at 3 (emphasis added). 3 Counts injured his back in 1986. Four years later, he became totally disabled and stopped working. In November 1990, AGLA began paying Counts LTD benefits under the Plan. Counts received LTD benefits for 12 months. AGLA then suspended his benefits pending receipt of an opinion from his physician, Dr. Cannon, as to whether Counts was totally disabled under the "any occupation" definition. In March 1992, Dr. Cannon sent AGLA a letter stating that he felt Counts was capable of light clerical work and was not totally disabled. Two other doctors who evaluated Counts reached similar conclusions. 4 By letter dated April 30, 1992, AGLA's Disability Committee terminated both Counts' LTD benefits and his employment with AGLA. The termination letter stated that the committee had determined that Counts no longer met the requirements for total disability under the Plan. The letter also provided as follows: 5 The Disability Committee decision is final unless overturned by an appeal; therefore, your employment and benefit status will remain terminated during the appeal process. 6 If you disagree with this determination, you may appeal the decision by sending your written request within 60 days following your receipt of this notice stating the reason for your appeal along with any additional information for review to [address omitted]. 7 If you wish to examine any pertinent documents, we will need a written authorization from your physician before medical information can be released to you. 8 District Court Order at 4-5. 9 Counts did not appeal the decision. Four months after the 60-day appeals period expired, Counts' attorney wrote AGLA a letter discussing Counts' medical situation and stating, "We would appreciate hearing from you regarding this matter at your earliest convenience." Id. at 5. Counts' attorney did not request any specific information from AGLA. AGLA wrote back reiterating its basis for discontinuing Counts' benefits and offering further assistance upon request. Ten months later, Counts' attorney wrote AGLA a second letter stating that AGLA's letter terminating Counts' LTD benefits failed to comply with the notice requirements set forth in 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1(f). AGLA responded that it felt its denial letter was in substantial compliance with the regulatory requirements, but that it welcomed further inquiries. Counts made none. Five months later, Counts filed this action. 10 Counts' complaint alleged (1) that AGLA wrongfully discontinued his LTD benefits under the Plan and (2) that AGLA terminated his employment for the purpose of interfering with his rights under other AGLA employee benefit plans in which Counts was a participant. Counts sought an order reinstating his LTD benefits and requiring AGLA to continue contributing to his other employee benefit plans. Counts also sought attorney's fees and an award of civil penalties for AGLA's alleged failure to supply him with requested information. AGLA counterclaimed for overpayment of LTD benefits. The district court granted AGLA's motion for summary judgment on the ground that Counts failed to exhaust his administrative remedies. Counts appealed.3 II. DISCUSSION 11 We review the district court's grant of summary judgment de novo, applying the same standards as the district court. Harris v. Board of Educ. of the City of Atlanta, 105 F.3d 591, 595 (11th Cir.1997). "Summary judgment is appropriate if the pleadings, depositions, and affidavits show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law." Harris v. H & W Contracting Co., 102 F.3d 516, 518 (11th Cir.1996). In reviewing a grant of summary judgment, we view the evidence in the light most favorable to the party opposing the motion. Id. at 519. 12 It is undisputed that Counts failed to exhaust his administrative remedies. The Plan required Counts to appeal the denial of his LTD benefits within 60 days of receiving his termination letter. Counts never appealed. The law is clear in this circuit that plaintiffs in ERISA actions must exhaust available administrative remedies before suing in federal court. Springer v. Wal-Mart Associates' Group Health Plan, 908 F.2d 897, 899 (11th Cir.1990); Mason v. Continental Group, Inc., 763 F.2d 1219, 1225-27 (11th Cir.1985). However, district courts have discretion to excuse the exhaustion requirement when resort to administrative remedies would be futile or the remedy inadequate. Curry v. Contract Fabricators, Inc. Profit Sharing Plan, 891 F.2d 842, 846 (11th Cir.1990). The district court found neither circumstance present here. Accordingly, the district court declined to excuse the exhaustion requirement in this case. Counts argues that the district court erred for several reasons. 13 First, Counts argues that the district court should have excused his failure to exhaust administrative remedies because AGLA's termination letter failed to comply with ERISA's notice requirements. See 29 U.S.C. § 1133; 29 C.F.R. § 2560.503-1(f). The district court agreed that AGLA's letter was technically deficient. Nevertheless, the district court concluded that the letter substantially complied with the notice requirements because, taken as a whole, it supplied Counts "with a statement of reasons that, under the circumstances of the case, permitted a sufficiently clear understanding of the administrator's position to permit effective review." District Court Order at 12, quoting Donato v. Metropolitan Life Ins. Co., 19 F.3d 375, 382 (7th Cir.1994). 14 Even if the district court erred in finding substantial compliance, Counts would not be excused from the exhaustion requirement. The consequence of an inadequate benefits termination letter is that the normal time limits for administrative appeal may not be enforced against the claimant. Epright v. Environmental Resources Management, Inc. Health & Welfare Plan, 81 F.3d 335, 342 (3rd Cir.1996); White v. Jacobs Eng'g Group, 896 F.2d 344, 350 (9th Cir.1989). Thus, the usual remedy is not excusal from the exhaustion requirement, but remand to the plan administrator for an out-of-time administrative appeal. Weaver v. Phoenix Home Life Mut. Ins. Co., 990 F.2d 154, 159 (4th Cir.1993); Brown v. Babcock & Wilcox Co., 589 F.Supp. 64, 71-72 (S.D.Ga.1984). Counts consistently took the position in the district court that remand was unwarranted and the only suitable course of action was excusal of the exhaustion requirement. Counts now argues that remand may be appropriate. However, "[a]n appellate court generally will not consider an issue raised for the first time on appeal... [, especially] where the appellant pursued a contrary position before the district court." United States v. One Lear Jet Aircraft, 808 F.2d 765, 773-74 (11th Cir.), vacated on other grounds, 831 F.2d 221 (11th Cir.1987). We hold that Counts waived any entitlement he may have had to the remedy for deficient notice. Accordingly, we need not address whether AGLA's termination letter substantially complied with regulatory notice requirements. 15 Counts also argues that the district court should have excused the exhaustion requirement because AGLA blocked his efforts to exhaust by failing to answer his requests for information about its benefits decision. In Curry v. Contract Fabricators Inc. Profit Sharing Plan, 891 F.2d 842, 846-47 (11th Cir.1990), we held that "[w]hen a plan administrator in control of the available review procedures denies a claimant meaningful access to those procedures, the district court has discretion not to require exhaustion." In Curry, the plan administrator failed to send Curry a written denial of his benefits claim. When Curry requested copies of plan documents to pursue his claim administratively, the administrator failed to provide them. The situation in this case was quite different. AGLA sent Counts a written termination letter which informed him of its decision and of his right to appeal within 60 days. Counts took no action during the 60 days. Months later, Counts' attorney sent AGLA two letters, neither of which requested Plan documents or other specific information from AGLA. AGLA responded to both letters and offered to supply additional information upon request. AGLA did not deny Counts meaningful access to the administrative review process. Curry simply does not apply here. 16 Finally, Counts argues that the exhaustion requirement should not apply to his claims alleging that AGLA violated ERISA by firing him to avoid contributing to his other employee benefit plans and by withholding information about its decision. We have consistently stated that the exhaustion requirement applies both to actions to enforce a statutory right under ERISA and to actions brought to recover benefits under a plan. Springer v. Wal-Mart Associates' Group Health Plan, 908 F.2d 897, 899 (11th Cir.1990); Mason v. Continental Group, Inc., 763 F.2d 1219, 1225-27 (11th Cir.1985). Counts asks us to depart from this precedent and hold, along with several of our sister circuits, that exhaustion is not required for claims of statutory violation. See Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1205 (10th Cir.1990); Zipf v. American Tel. & Tel. Co., 799 F.2d 889, 891-94 (3rd Cir.1986); Amaro v. Continental Can Co., 724 F.2d 747, 750-53 (9th Cir.1984); but see Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (rationale for exhaustion applies equally to claims for benefits and claims based upon ERISA itself). However, even if we agreed with Counts' position, this panel lacks the authority to overrule prior panel decisions of this court. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc). Under controlling precedent, Counts was required to exhaust administrative remedies for all of his ERISA claims. III. CONCLUSION 17 Counts failed to exhaust his administrative remedies before filing this ERISA action. The district court did not abuse its discretion in refusing to excuse that failure. Accordingly, we affirm the district court's grant of summary judgment in favor of AGLA. 18 AFFIRMED. Honorable Maurice B. Cohill, Jr., Senior U.S. District Judge for the Western District of Pennsylvania, sitting by designation 1 Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq 2 AGLA assumed control of all Gulf Life operations in 1990 3 Counts' first appeal was dismissed for lack of jurisdiction. The district court then certified that its summary judgment order was final, and Counts renewed his appeal. AGLA's counterclaim is still pending in the district court	LIMITED_OR_DISTINGUISHED
724 F.2d 747	50 F.3d 1478	D	Santiago Amaro v. The Continental Can Company	SHADUR, Senior District Judge. Mario Diaz (“Mario”) and his wife Maria (collectively “Diazes”) sue United Agricultural Employee Welfare Benefit Plan and Trust (the “Plan”) and Associated Citrus Packers (“Associated”) for medical benefits assertedly owed to Diazes under the Plan, an employee welfare benefit plan subject to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001-1461, and to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), 29 U.S.C. §§ 1161-1169.1 Associated and the Plan sought and obtained summary judgment under Fed.R.Civ.Proc. (“Rule”) 56 on grounds stemming from Diazes’ failure to exhaust the Plan’s internal administrative remedies. We affirm. Background Mario was employed by Associated as an agricultural worker during the late 1980’s and early 1990’s. On June 1, 1990 Associated switched health care providers and began offering coverage to its employees and their families through the Plan. Employees were given the option of electing single coverage for themselves alone or family coverage for themselves and eligible dependents. Associated paid the cost of employee coverage, while employees were responsible for the cost of dependent coverage via deductions from their pay checks. Like many Associated employees, Mario neither speaks nor reads English. After Mario received a 45-page Summary Plan Description dated June 1, 1990 that explained the Plan’s terms in both English and Spanish, Mario read portions of the Summary Plan Description in Spanish. In part the document included the Spanish counterpart of this description of claim procedures: Processing Procedures for Medical or Dental Claims 1481Any claim for Benefits under the Plan must be made in writing to the Benefit Trust Claims Department. If a claim for medical or dental benefits is denied in whole or in part, the Claim Department will notify you of the action being taken on the claim. If a denial is necessary, such denial shall: (a) be in writing, in a manner intended to be understood by the average person, (b) contain the specific reason for denial of the claim; and (c) include an explanation of the claims review procedure. Appeal Procedures for Medical, Dental or Vision Claims 1. If a claim for benefits is denied in whole or in part, you, or a representative you choose, may request a review of the decision within 60 days of the date you receive the notice of denial or limitation. A request for review must be in writing, addressed to the Benefits Administrator, c/o United Agricultural Employee Welfare Benefit Plan & Trust Claims, 54 Corporate Park, Irvine, CA 92714. You should state the reason you are requesting review, and include any additional information which might help the Administrator in evaluating your claim. 2. After the claim has been reviewed, if the denial is upheld, the Benefits Administrator will: (a) notify you in writing, (b) include a copy of the specific Plan provisions affecting the denial; and (c) let you know how to file an appeal. 3. If you disagree with the conclusions reached by the Benefits Administrator, you may file a written appeal within sixty (60) days of receipt of the results of that review. A written appeal should include: (a) your name, address and Social Security number, (b) the name of the patient, (c) the claim number and date of denial notice, (d) the specific facts upon which your appeal is being made; and (e) all documents you have supporting those facts. Any appeal should be addressed to the Benefit Committee, c/o United Agricultural Employee Welfare Benefit Plan & Trust, 54 Corporate Park, Irvine, CA 92714. Benefit Committee consideration will be based on your written statement, unless you request a formal hearing. If you request a hearing, it will be conducted at the offices of the Trust, upon 10 days written notice to all parties. Although not necessary, you may be represented by an attorney of your choice at the hearing. The Benefit Committee will then conduct a full and fair evaluation of the appeal and shall base its decision on the information available at the time of consideration. 4.The Benefit Committee shall mail a written decision on the appeal to you within 30 days after receipt of the appeal. If there are special circumstances, such as a request to hold a hearing, the 30 day period will be extended to a maximum of 120 days. The Committee’s final decision shall: (a) be written in a manner intended to be understood by the average person; (b) include the specific reason or reasons for the decision; and (c) contain a specific reference to the pertinent Plan provisions upon which the decision is based. This direction (in Spanish) was on the final page of the Summary Plan Description: For assistance in filing a claim or for information, call or write: UNITED AGRICULTURAL EMPLOYEE WELFARE BENEFIT PLAN & TRUST CLAIMS ADMINISTRATIVE OFFICE 54 Corporate Park Irvine, California 92714 (714) 975-1424 (800) 223-4590 Although immediately before the switchover to the Plan Mario had not opted for family coverage, he asserts (and we credit for purposes of dealing with the Rule 56 ruling) that he elected such coverage under the Plan. Mario told Gregorio Perez (part of Associates’ father and son managerial team) of that choice and relied on Gregorio to implement it. After enrollment in the Plan was complete, Associated mailed its first monthly Group 1482Contribution Report (“Report”) to the Plan along with a check for the month of June 1990. Mario was listed for single coverage, and his wife and children were never added to the June 1 enrollment card. Insurance premiums for family coverage, however, appear to have been deducted from Mario’s paychecks by Associated in June and July. Due to the seasonal nature of his work, Mario was laid off on July 6, 1990. Under the terms of the Plan his coverage expired on July 31, the last day of the month. Associated notified the Plan of Mario’s termination by drawing a line through his name as it appeared on the August 10 Report. What happened next is in dispute. According to the Plan, in satisfaction of its COBRA obligations under Section 1166 it sent Mario a letter on August 30, 1990 notifying him in Spanish of his right to continue coverage at his own expense. ■ As proof the Plan offers a document generated by its computer during this litigation that indicates an August 30 “Letter Creation Date.” In addition, the Plan supplies an example of the type of letter that it says was mailed on that date. Mario testified during his deposition that he did not receive notification until October or November 1990, well past COBRA’s 60-day election period under Section 1165. If true, that would violate Section 1166(c), which requires notification within 14 days of the Plan’s receipt of Associated’s August 10 Report. In any event the actual notification letter (if there ever was one) has disappeared. Mario was rehired on August 28, 1990. There is no dispute that this time he elected family coverage. According to the terms of the Plan, however, Diazes were not eligible for coverage until Mario had worked at least 60 hours in a single month. That occurred in September 1990, causing coverage to kick in on October 1. Mario and his family were thus without coverage during the months of August and September 1990. In September 1990 Diazes’ daughter Julia was diagnosed with and began treatment for leukemia, leading to her death on May 2, 1991. But the Plan denied Mario’s claim for Julia’s medical expenses on the basis of the Plan’s pre-existing condition limitation.2 Although the text of each of the Plan’s several denial letters sent during the spring and summer of 1991 was entirely in English, the back of each letter contained the following notice in both English and Spanish: APPEAL RIGHTS If you believe your claim has not been paid correctly, you may send a written appeal within 60 days of the date of this notice. Any written appeal should include member’s name and social security number, the claim number, the reason for your appeal and any other information you feel might help us in reviewing your claim. Appeal should be mailed to the address below: Benefits Administrator Tayson Insurance Administrators 54 Corporate Park Irvine, CA 92714 Mario understood (indeed, he gleaned from the back of the letters) that his claim for Julia’s expenses was being denied. Instead of following the directions for an appeal, however, he went to see Barbara Hartley (“Hartley”), Associated’s on-site insurance representative. Hartley told Mario, “They’re not going to pay.” Mario asked, “What am I going to do?” — a question to which Hartley had no answer. Mario never took any appeal in the manner explained in the Summary Plan Description and the Plan’s denial-of-benefit letters. Instead on January 24, 1992 Diazes filed suit under Section 1132. On June 11, 1993 the 1483District Court granted both defendants’ motions for summary judgment because the Diazes had failed to exhaust the Plan’s internal administrative remedies. This appeal followed. Exhaustion Doctrine Quite early in ERISA’s history, we announced as the general rule governing ERISA claims that a claimant must avail himself or herself of a plan’s own internal review procedures before bringing suit in federal court. Amato v. Bernard, 618 F.2d 559, 566-68 (9th Cir.1980).3 Although not explicitly set out in the statute, the exhaustion doctrine is consistent with ERISA’s background, structure and legislative history and serves several important policy considerations, including the reduction of frivolous litigation, the promotion of consistent treatment of claims, the provision of a nonadver-sarial method of claims settlement, the minimization of costs of claim settlement and a proper reliance on administrative expertise. Id. at 566-68. “Consequently the federal courts have the authority to enforce the exhaustion requirement in suits under ERISA, and [] as a matter of sound policy they should usually do so.” Id. at 568. By not submitting a written appeal to the Benefits Administrator, Mario failed to comply with the Plan’s internal review procedures and hence did not exhaust the available administrative remedies. Diazes urge (1) that exhaustion principles simply do not apply because Diazes advance a claim of statutory violation rather than one of Plan violation and (2) that even if exhaustion requirements do apply, Diazes’ claim falls within each of two recognized exceptions to those requirements: inadequacy and futility. We consider those arguments seriatim. Because the potential applicability vel non of exhaustion principles is a question of law, we consider it de novo. But if that question gets an affirmative answer, the District Court’s decision not to grant an exception to the application of those principles is reviewed for abuse of discretion. Amato, 618 F.2d at 569. ERISA Violation v. Plan Violation Diazes argue that because their action is premised on the Plan’s failure to comply with the statutory requirements of Section 1166, Diazes were excused from seeking administrative review. To that end they point to Amaro v. Continental Can Co., 724 F.2d 747, 750-53 (9th Cir.1984) and Zipf v. American Telephone & Telegraph, 799 F.2d 889, 891-94 (3rd Cir.1986) as purportedly standing for the proposition that ERISA’s usual exhaustion requirements do not apply where a claimant’s action is based on a statutory violation. But that characterization seriously overstates the holdings in those cases. Both Amato and Zipf dealt with claimed violations of Section 1140, which prohibits interference with or discrimination against an employee’s exercise or attainment of plan benefits. Neither ease involved an individual’s claim for plan benefits under a particularized set of facts—the kind of scenario that is presented here and that has led this and other Circuits to establish the claimant’s need to go the administrative route first rather than turning directly to the courts. Indeed, Amaro, 724 F.2d at 751 (footnote omitted) highlighted that very distinction, reconfirming the viability of Amato and its applicability to resolve cases such as the one before us: In Amato we enforced the exhaustion requirement in an action for a “declaration of the parties’ rights and duties” under a pension plan. Amato, 618 F.2d at 561. Like Challenger [v. Local Union No. 1, 619 F.2d 645 (7th Cir.1980)], the pension plan in Amato contained the internal appeal procedure required by section 503. Our decision was based on the required section 503 administrative remedies and on the assistance the courts receive by “pension plan trustees interpreting their plans.” [618 F.2d] at 568 (emphasis added). 1484Both Challenger and Amato, the cases relied on by Kross [v. Western Elec. Co., 701 F.2d 1238 (7th Cir.1983)], dealt with the rights of a party under a pension plan that falls within ERISA coverage. Both cases contained internal appeal procedures, eon-gressionally mandated by section 503, that were designed to hear the claims presented in those cases. We are faced solely with an alleged violation of a protection afforded by ERISA. There is no internal appeal procedure either mandated or recommended by ERISA to hear these claims. Furthermore, there is only a statute to interpret. That is a task for the judiciary, not an arbitrator. And Zipf, 799 F.2d at 891-92 pointed to precisely the same contrast after having reconfirmed the Third Circuit’s own exhaustion doctrine (Wolf v. National Shopmen, 728 F.2d 182, 185 (3d Cir.1984)) that parallels our Amato requirement. To be sure, many employee claims for plan benefits may implicate statutory requirements imposed by ERISA or COBRA (or perhaps other statutes, for that matter). And when the administrative resolution of those claims is then presented for judicial review, courts may then be called upon to determine whether the plan administrators have construed or dealt with those statutes in an appropriate manner. But that prospect does not give a claimant the license to attach a “statutory violation” sticker to his or her claim and then to use that label as an asserted justification for a total failure to pursue the congressionally mandated internal appeal procedures. Exceptions to the Exhaustion Requirement 1. Inadequacy of Remedy Diazes next contend that because the body of the denial letters was written in English, the Plan failed to alert them to the reason for the denials (the pre-existing condition limitation) in a language that they could comprehend. Their not knowing why their claims were being denied allegedly undercut their ability to lodge an appeal, so that the internal review procedures were assertedly rendered “inadequate.” Inadequacy of remedy is an exception to the exhaustion requirement. Amato, 618 F.2d at 568. When Diazes’ claims were denied they had in their possession the Spanish language version of the Summary Plan Description. As already indicated, that document outlined the appeals procedure and provided an address and two telephone numbers “[f]or assistance in filing a claim or for information.” If the denial letters left Diazes in the dark (something that we will accept on this appeal), a toll-free telephone call could have shed light on the matter. Diazes fail to explain why that phone call was not made, nor have they suggested that the call would have been unproductive. Moreover, Diazes were informed in Spanish that their claims were being denied, that they had 60 days to file an appeal and that an appeal consisted of a written review followed (if necessary) by a hearing and subsequent evaluation by a committee. In sum, surely the District Court did not abuse its discretion in finding the Plan’s internal appeal procedures adequate. Diazes seek to avoid the consequence of that finding by arguing that ERISA’s statutory and regulatory disclosure requirements obligated the Plan to notify them in Spanish of the reason for the denial. Diazes claim that because they could neither speak nor read English, the denial letters failed to furnish specific reasons for the denial “written in a manner calculated to be understood by the claimant,” in asserted violation of Section 1133(1) and 29 C.F.R. § 2560.503-l(f).4 And we recognize that if there were indeed a statutorily insufficient disclosure of a denial of plan benefits, even a carefully crafted internal appeals procedure (carefully crafted in purely procedural terms, that is) would be rendered inadequate. But that aspect of Diazes’ contention also fails to survive analysis. ERISA itself contains no express foreign language requirement, and ERISA’s regulations contain only 1485two limited foreign language mandates, the most relevant of which is found in Reg. § 2520.102-2(c) relating to summary plan descriptions. Importantly, the selfsame statutory language on which Diazes seek to rely— “written in a manner calculated to be understood by the participant” — is echoed both in the ERISA provision dealing with summary plan descriptions (Section 1022(a)(1)) and in the ERISA provision dealing with letters of denial (Section 1133(1)).5 What we have then are two essentially identical statutory requirements, both of which have been interpreted and elaborated on in regulations issued by the Secretary of Labor (“Secretary”) — who is charged with the responsibility of administering the ERISA statute and promulgating regulations. And in only one of those instances has Secretary attached any requirement that under certain circumstances a document transmitted to plan participants must be in a foreign language. Both in that instance (Reg. § 2520.102-2(c), relating to summary plan descriptions) and in the only other regulation that imposes any foreign language requirement, that requirement is expressly limited to providing plan participants with offers of assistance6 — in no instance has Secretary, after having given full consideration to the problems of workforces that are not English-language-literate, imposed any requirement that the operative document itself — either any summary plan description (Reg. § 2520.102-2(a) and (b)) or any summary annual report (Reg. § 2520.104b-10(d)) or any denial of benefits such as those involved in this case (Reg. § 2560.503-l(f)) — must be furnished to employees in their native tongues.7 If we were to accept Diazes’ invitation to read Section 1133(1) as requiring the letters of denial at issue here to be written in Spanish, there would be no legitimate reason to construe the identical statutory language in Section 1022(a)(1) any differently. And again Secretary, after full deliberation, has not imposed any such requirement with respect to summary plan descriptions or claim denials. For us to read such a requirement into the statutes by judicial fiat where Secretary has not done so would do violence to the legitimate expectations of employers and plan administrators who have conformed their conduct to the existing regulations. 2. Futility of Exhaustion Finally, Diazes argue that it would have been “futile” for them to demand administrative review because both defendants have demonstrated by their continued refusal to pay that they have no intention of doing so. That argument is really circular, for defendants’ current denial is pegged entirely to Diazes’ failure to have pursued the administrative route. Moreover, such bare assertions of futility are insufficient to bring a claim within the futility exception, which is designed to avoid the need to pursue an administrative review that is demonstrably doomed to fail. Amato, 618 F.2d at 569; Communications Workers of America v. AT & T, 40 F.3d 426, 432-34 (D.C.Cir.1994); Springer v. WalMart Assoc. Group Health Plan, 908 F.2d 897, 901 (11th Cir.1990); 1486Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821, 826 (1st Cir.1988). In this instance Diazes’ own delinquency in pursuing an internal appeal prevented the possibility of an administrative look at the merits, and the record contains nothing but speculation to suggest that the administrators would have reached a preconceived result in that respect.8 Conclusion No error was involved in the District Court’s application of the exhaustion doctrine to dismiss Diazes’ claim, nor did that court abuse its discretion by refusing to recognize an exception to the exhaustion doctrine. We AFFIRM.. All further citations to ERISA and COBRA provisions will take the form "Section —,” referring to the Title 29 numbering rather than to either statute’s internal numbering.. Included in the two-language Summary Plan Description that had been delivered to Mario was this definition, in both English and Spanish, of "pre-existing condition": The term "pre-existing condition” refers to any illness which began, or accidental injury which happened, before the patient's effective date of coverage under the Plan. For benefit purposes, the condition will be considered preexisting if the patient incurred expense for diagnosis, or treatment of the condition or symptoms of the condition before diagnosis is established, including related complications, at any time prior to his or her effective date. Treatment includes medications, as well as medical care and/or diagnostic testing.. Amato has become (and remains) an authority followed in other Circuits in announcing and adhering to the same requirement.. Further citations to regulations in 29 C.F.R. will simply take the form "Reg. § —.”. To be more precise, Section 1022(a)(1) speaks in terms of the summary plan descriptions having to be written in a manner calculated to be understood by the "average plan participant.” In the present context that language variation is not material — in each instance the clear statutory purpose is to create an objective standard, a type of plain-language requirement in contrast to the often overly technical lawyerese that tends to be employed in the underlying plan documents themselves.. Reg. § 2520.104b-l 0(e) imposes an identical foreign language offer-of-assistance requirement in connection with English-language summary annual reports provided to plan participants. That further buttresses the analysis in the text..As already stated, in this instance the Plan went the extra mile by providing the entire 45-page Summary Plan Description, and not just an offer of assistance, in Spanish as well as English. We see no reason to treat either the Plan or Associated less favorably for having done more than Secretary’s regulation requires.. Diazes' Reply Brief attaches a letter from the Plan’s Benefit Administrator rejecting an effort by Diazes' counsel to seek administrative review after the District Court had already granted summary judgment for the reasons dealt with here. That rejection, based as it was entirely on the outcome of the litigation between the parties, obviously gives no support to Diazes' futility argument.	LIMITED_OR_DISTINGUISHED
724 F.2d 747	45 F.3d 947	DR	Santiago Amaro v. The Continental Can Company	E. GRADY JOLLY, Circuit Judge: Brown & Root, Inc. fired Donald Chail-land. Chailland sued Brown & Root, Inc., alleging that it had fired him to prevent him from attaining increased benefits under its pension plan, in violation of § 510 of the Employee Retirement Income Security Act (ERISA). Brown & Root, Inc. moved to dismiss Chailland’s complaint for failure to exhaust administrative remedies provided by ERISA and Brown & Root’s Employees’ Retirement and Savings Plan. Alternatively, Brown & Root, Inc. moved to stay the proceedings pending arbitration under the provisions of the plan. The district court denied the motion. This appeal presents the question-whether Brown & Root, Inc. may raise these exhaustion requirements, including arbitration, in a suit claiming a violation of ERISA § 510. I Upon attaining fifteen years of service with Brown & Root, Inc., (“Brown & Root”) participants in its Employees’ Retirement and Savings Plan (the “ER & SP”) become entitled to substantially greater benefits. 1 On February 5, 1992, when he was about six months from that threshold, Brown & Root fired Donald Chailland. Brown & Root contended that Chailland had been insubordinate, but Chailland contended that he was fired to prevent his attaining an increase in benefits under the ER & SP. Without pursuing administrative remedies provided by 949 the ER & SP, Chailland sued Brown & Root, alleging illegal termination under ERISA § 510, 29 U.S.C. § 1140. 2 Chailland did not sue the ER & SP. In his complaint, he sought back pay, reinstatement — or, failing that, front pay — and restitution of the benefits to which he would have been entitled. 3 Brown & Root moved to dismiss Chail-land’s complaint for failure to exhaust his administrative remedies under ERISA and the ER & SP. It also moved for a stay pending arbitration, but it never requested an order compelling arbitration. 4 Chailland contended that the exhaustion requirement did not apply to his claim under § 510 and that neither the ER & SP’s administrative remedies nor its requirement for arbitration applied to his claim. The district court agreed with Chailland and denied Brown & Root’s motions. Brown & Root appealed the district court’s order denying arbitration, invoking our jurisdiction under 28 U.S.C. § 1292(a)(1) and the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(A). The district court then certified a discretionary appeal under 28 U.S.C. § 1292(b) from its order denying dismissal for failure to exhaust administrative remedies. Because of the appeal hinging on arbitration — an appeal of right — we consolidated the two appeals and carried with the case the petition to grant an appeal on the exhaustion issue under § 1292(b). We will grant Brown & Root’s petition, and consider the matters together. II A We consider this appeal against the backdrop of three critical points, which we establish at the outset. First, as Brown & Root admits, the ER & SP is a separate legal entity as a matter of law, and may sue or be sued in its own right. 29 U.S.C. § 1132(d). At oral argument, it became clear that in this lawsuit Brown & Root claims no legal relationship with the ER & SP. The ER & SP is not an agent of Brown & Root, and Brown & Root is not a third party beneficiary of any agreement between Chailland and the ER & SP. Brown & Root would not be obligated to abide by any determination made by the ER & SP if Chailland had submitted his claim to it. Second, the arbitration agreement urged in this case derives solely from the provisions of the ER & SP. At oral argument, counsel for Brown & Root conceded that the arbitration agreement applies only to disputes “regarding” the ER & SP, and the duty to arbitrate arises only after administrative remedies provided by the ER & SP have been exhausted. In other words, there is no agreement between Brown & Root and Chailland to arbitrate anything. 5 The only agreement to arbitrate is between Chailland and the ER & SP. Third, the ER & SP is not a party to this suit. Neither Chailland nor Brown & Root 950 joined it as a party, and the ER & SP did not attempt to intervene. Chailland does not contend that the ER & SP denied him any benefit or violated the law in any way. Instead, this dispute involves the ER & SP only tangentially, if at all; Chailland argues only that the terms of the ER & SP provide the motive for his termination. It is clear,, therefore, that this is an action against Brown & Root, Inc., alone. Bearing these preliminary points in mind, we turn to the question presented by this appeal. B Brown & Root argues that the district court erred when it denied its motion to dismiss Chailland’s complaint for failure to exhaust administrative remedies under ERISA caselaw and the ER & SP, which includes binding arbitration. It argues that under the terms of the ER & SP and the applicable case law, Chailland must pursue the ER & SP appeal procedures before filing this suit. Chailland argues that neither the administrative remedies of the ER & SP nor the exhaustion requirement imposed by our cases apply to a lawsuit for wrongful termination solely based on the wrongful conduct of Brown & Root. We agree. ERISA itself is silent on the question of exhaustion of administrative remedies under ERISA § 510. Indeed, ERISA contains no exhaustion requirement whatsoever. 6 However, relying upon Amato v. Bernard, 618 F.2d 559 (9th Cir.1980), plus Congressional intent and well-settled principles of administrative law, we adopted the common law rule that a plaintiff generally must exhaust administrative remedies afforded by an ERISA plan before suing to obtain benefits wrongfully denied. Denton v. First National Bank, 765 F.2d 1295, 1300-03 (5th Cir.1985). 7 Our cases applying this common law exhaustion requirement presuppose that the grievance upon which the lawsuit is based arises from some action of a plan covered by ERISA, and that the plan is capable of providing the relief sought by the plaintiff. 8 As our earlier discussion makes clear, neither of these conditions is present here. First, the decision to fire Chailland, which is the sole grievance presented in this case, was made by Brown & Root, not by the ER & SP. This lawsuit therefore does not involve any action of a plan covered by ERISA. In addition, the ER & SP is not capable of providing the remedy that Chailland seeks. Because neither of these conditions is present, we hold that our exhaustion doctrine is *951 simply inapplicable in this ease. Indeed, to remit Chailland’s claim to the ER & SP would make absolutely no sense and would be a hollow act of utter futility. Accordingly, we hold that the district court properly denied Brown & Root’s motion to dismiss pursuant to our exhaustion of remedies doctrine. 9 Ill For the above reasons, we hold that the district court properly denied Brown & Root’s motions to dismiss Chailland’s complaint or, in the alternative, to stay his suit pending arbitration. Accordingly, the judgment of the district court is affirmed and the case is remanded for further proceedings not inconsistent with this opinion. AFFIRMED and REMANDED. 1. According to the terms of the profit sharing plan, employees with ten to fourteen years of service are entitled to share in profits allocated to the plan in a proportion determined by multiplying their annual earnings by two, but upon reaching fifteen years of service, the multiplier rises to three. Thus, upon reaching fifteen years of service, an employee can expect a fifty percent increase in his benefits from the profit sharing plan. 2. Among other things, § 510 prohibits an employer from discharging an employee "for the purpose of interfering with the attainment of any right to which such participant may become entitled” under the provisions of an employee benefit plan. 3. Section 510 declares that the provisions of § 1132, ERISA § 502, "shall be applicable in the enforcement of this section.” Section 502 authorizes civil suits by a participant “to recover benefits due... under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan"; 29 U.S.C. § 1132(1); and "to obtain... appropriate equitable relief” to redress violations of ERISA or an ERISA plan, or to enforce any of its provisions. 29 U.S.C. § 1132(3). 4. According to the terms of the ER & SP, before suing in federal court, participants must "exhaust the Brown and Root Appeal and Arbitration Procedure to resolve any disputes." That procedure is available to a participant "if any benefit is denied in whole or in part, or if you believe the plan is violating the law in any way, or if any other dispute arises under the plan provisions.” The procedure is set forth in an amendment to the plan. Chailland denies that he was ever notified of the amendment, and therefore argues that he should not be bound by it. Because we determine that they are not applicable to his claims for other reasons, we need not consider this argument. 5.Because no agreement to arbitrate exists between Brown & Root and Chailland, we hold that the district court properly denied Brown & Root's motion to stay the lawsuit pending arbitration. 6. Because exhaustion is not required by ERISA, it is not a prerequisite to our jurisdiction. See Central States Southeast & Southwest Areas Pension Fund v. T.I.M.E.-D.C., 826 F.2d 320, 326-27 (5th Cir.1987). 7. The circuits are split on the general issue whether exhaustion of administrative remedies may be required for an ERISA § 510 claim. The Third, Ninth, and Tenth Circuits do not require exhaustion. See Zipf v. American Telephone & Telegraph Co., 799 F.2d 889, 891-94 (3rd Cir.1986); Amaro v. Continental Can Co., 724 F.2d 747, 750-52 (9th Cir.1984); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1204-05 (10th Cir.1990). The Seventh Circuit, on the other hand, vests district courts with discretion to require exhaustion. Kross v. Western Electric Co., 701 F.2d 1238, 1243-45 (7th Cir.1983). The Eleventh Circuit apparently requires it. Mason v. Continental Group, Inc., 763 F.2d 1219, 1225-27 (11th Cir.1985), cert. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986). In Mason, which is the sole instance in which a circuit court mandated exhaustion of remedies, the pension plan incorporated into its terms the collective bargaining agreement between the employer and the former employee's union, and thus provided an administrative mechanism for resolving the wrongful termination claims. Id. at 1226. In this case, however, the ER & SP cannot provide a remedy. In short, none of these cases furnishes a legal or logical justification for requiring exhaustion of remedies when, as here, the grievance is completely foreign to the plan and plan is incapable of providing a remedy. 8.See, e.g., Denton v. First National Bank, 765 F.2d 1295 (5th Cir.1985) (former employee sought lump-sum payment of benefits from pension plan); Meza v. General Battery Corp., 908 F.2d 1262 (5th Cir.1990) (former employee and union member sought payment of pension benefits from employer and pension plan, based on collective bargaining agreement and pension plan); Simmons v. Willcox, 911 F.2d 1077 (5th Cir.1990) (former employee sought payment of benefits and further alleged that the plan had breached its fiduciary duties to her by refusing to pay her claims for benefits); Medina v. Anthem Life Insurance Co., 983 F.2d 29 (5th Cir.1993) (insured sought payment of a disputed claim from group health insurer covered by ERISA). 9. Our previous cases have not characterized the exhaustion requirement as a personal defense that may be raised or waived only by a particular party, and it is unnecessary to so hold today. We observe, however, that in substance it is a defense to litigation, and that the prudential concerns underlying the exhaustion requirement suggest to us that if it is a defense, it belongs to the ER & SP, which is not a party to this case. It is a well-established general rule that parties may not raise defenses that are not their own. In United States v. Metropolitan St. Louis Sewer Dist., 952 F.2d 1040 (8th Cir.1992), for example, a federal case paralleled a concurrent state proceeding that culminated first in a consent decree. Intervenors sought to raise the consent decree approved by the state court to preclude, on the grounds of res judicata, entry of a consent decree by the federal court. The Eighth Circuit held that the intervenors could not assert the defense of res judicata. "This defense, if it is available at all, may only be raised by [the original defendant]. [The defendant's] decision not to assert this defense does not give the intervenors standing to raise it, as a party may assert a third party's rights only if, inter alia, the third party is unable to assert its own rights, a condition not present here." 952 F.2d at 1043.	CONFLICT_NOTED
724 F.2d 747	994 F.2d 1426	D, DR	Santiago Amaro v. The Continental Can Company	ALARCON, Circuit Judge: International Union of Operating Engineers-Employers Construction Industry Pension, Welfare and Training Trust Funds (“Trusts”) appeal from the order granting summary judgment in favor of Richard D. Karr, doing business as Alaska Unlimited Company (“AUC”). The Trusts seek reversal of the order dismissing their claims on two grounds. First, the Trusts contend that the doctrine of res judicata is inapplicable to this action, because a claim to recover accurate payments is separate and distinct from a claim to collect delinquent payments for the same time period. Second, the Trusts argue that it would be inequitable to bar an action by an employee benefit trust fund to recover accurate contributions from an employer. The Trusts argue that as a separate entity from both the union and the employer, they had no knowledge of the, inaccurate payments at the time they brought the earlier claims for delinquent contributions. We affirm because we conclude that the Trusts’ action is barred by the doctrine of res judica-ta. I. PERTINENT FACTS AND PROCEDURAL HISTORY The Trusts are unincorporated associations operating as employee benefit trust funds 1428under section 302 of the Labor Management Relations Act, 29 U.S.C. §§ 141-187 and the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001-1461. The Trusts were created to provide retirement, medical, and training benefits to eligible employees. Richard D. Karr operates a construction company in Fairbanks, Alaska, and does business as AUC. From January 1, 1986, through December 31, 1988, AUC and Locals 302 and 612 of the International Union of Operating Engineers (“Union”) were parties to a collective bargaining agreement and several Trust Agreements established under ERISA. The Trust Agreements required AUC to file timely reports and to make monthly contributions to each of the Trusts for the benefit of eligible employees. The Trust Agreements granted the Trusts the right to recover liquidated damages, interest, and attorneys’ fees incurred in collecting any unpaid contributions from participating employers. They further permitted the Trusts to audit the payroll records of a participating employer “on demand.” Under the terms of the Trust Agreements, the employer was required to assume the costs of an audit if it revealed that he or she had failed to comply with the terms of the collective bargaining agreement. On May 29,1986, the Trusts filed an action against Karr under section 502(e)(1) and (f) of ERISA, 29 U.S.C. § 1132(e)(1) and (f), and section 301 of the Labor Management Relations Act, 29 U.S.C. § 185, to collect delinquent contributions for the periods May 1, 1985 through September 30, 1985, and November 1, 1985, through May 31, 1986. The Trusts also sought liquidated damages, interest and costs. While that action was pending, the Trusts filed a motion to compel an audit of AUC’s payroll records. On June 28, 1988, the district court entered an order granting the Trusts’ motion. The Trusts subsequently entered into a settlement agreement with AUC without conducting an audit. In the settlement agreement, AUC agreed to pay the Trusts $51,596.86 in exchange for the dismissal of the action with prejudice. The settlement agreement did not contain a reservation of the right to bring an action for any additional payments disclosed by an audit to be due as a result of the employer’s inaccurate payments for the same time period^ On August 9, 1988, the district court entered an order dismissing the action with prejudice. In October, 1987 and again in September, 1988, the Trusts requested Karr to submit to an audit of AUC’s payroll records. Karr refused to comply with the first request due to the ongoing litigation in the first action. Karr also refused to comply with the September, 1988 request because the Trusts failed to notify him of their intent to audit, as required in the Trust Agreements. On March 21, 1989, the Trusts filed a second action against Karr to collect delinquent contributions for July through October, 1988, and to recover liquidated damages, interest, attorneys’ fees, and costs. Notwithstanding Karr’s refusals to comply with the Trusts’ prior requests for an audit, the Trusts did not include a claim in this action to compel an audit of AUC’s payroll records. The parties settled the second action on June 28, 1989. Karr agreed to pay $15,000 to the Trusts in three monthly installments. The Trusts did not reserve the right in the settlement agreement to collect sums that might later be found to be due and owing under the Trust Agreements for the same time period. Karr subsequently made the three installment payments contemplated under the settlement agreement. On July 21, 1989, the district court entered an order dismissing the second action with prejudice. In 1990, the Trusts attempted to audit AUC for the period January, 1986, through December, 1988. Karr refused to provide the Trusts with complete payroll records with which to conduct the audit. On August 24, 1990, the Trusts filed the present claims to compel an audit of AUC for the period January 1,1986, through March 21, 1989, and to collect any funds found to be due and owing under the Trust Agreements. The district court granted summary judgment in favor of Karr. The court determined that the present claim for accurate contributions was barred because it arose out of the same transaction as the first two actions for delinquent payments. 1429II. RES JUDICATA The Trusts contend that the district court erred in holding their action barred by the doctrine of res judicata. The Trusts argue that the present action to compel an audit and to recover funds found by the audit to be owed under the Trust Agreement, is separate and distinct from the prior actions to collect delinquent contribution payments owed under the Trust Agreement for the same time periods. We review an order granting summary judgment de novo. Clark v. Bear Stearns & Co., 966 F.2d 1318, 1320 (9th Cir.1992). We review de novo the district court’s determination that an action is barred by the doctrine of res judicata. Id. The doctrine of res judicata bars “all grounds for recovery which could have been asserted, whether they were or not, in a prior suit between the same parties'... on the same cause of action, if the prior suit concluded in a final judgment on the merits.” Ross v. Int’l Bhd. of Elec. Workers, 634 F.2d 453, 457 (9th Cir.1980). The Trusts’ request to compel an audit of AUC’s payroll records for January 1, 1986 through April 12, 1988, was presented to the district court in the first action. As previously noted, the Trusts filed an action against AUC to recover delinquent payments on May. 29, 1986. While that action was pending, the Trusts filed a motion on April 12, 1988 to compel an audit of AUC. The district court granted the motion. After the parties entered into a settlement agreement, the district court dismissed the entire action with prejudice. The dismissal of the action with prejudice constitutes a final judgment on the merits, and prevents the Trusts from-reasserting the same claim in a subsequent action against AUC. See Lawrence v. Steinford Holding B.V. (In re Dominelli), 820 F.2d 313, 316-17 (9th Cir.1987) (dismissal of action with prejudice pursuant to a settlement agreement constitutes a final judgment on merits and precludes parties from reasserting the same claim in a subsequent action). Thus, we hold that the Trusts’ claim to recover accurate payments for the periods January 1, 1986 through April 12, 1988, the filing date of the Trusts’ motion to compel an audit, is barred by the doctrine of res judicata. The Trusts’ second action, filed on March 21, 1989, did not include a claim to compel an audit. We must decide whether the Trusts’ present claim to compel an audit for the period April 13, 1988, through March 21, 1989 could have and should have been brought in the Trusts’ second action to recover delinquent payments. In determining whether successive claims constitute the same cause of action, we consider (1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional, nucleus of facts. - Costantini v. Trans World Airlines, 681 F.2d 1199, 1201-02 (9th Cir.), cert. denied, 459 U.S. 1087, 103 S.Ct. 570, 74 L.Ed.2d 932 (1982). “The last of these criteria is the most important.”. Id. at 1202 (footnote omitted), “Whether two events are part of the same transaction or series depends on whether they are related to the same set of facts and whether they could conveniently be tried together.” Western Sys., Inc. v. Ullod, 958 F.2d 864, 871 (9th Cir.1992), cert. denied, — U.S. -, 113 S.Ct. 970, 122 L.Ed.2d 125 (1993). We are persuaded that the Trusts’ claim for accurate payments arises out of the-same transactional nucleus of facts as the prior actions for delinquent payments. The Trusts’ second action was premised on AUC’s alleged breach of the same Trust Agreements and- involved overlapping time periods with this present action. We have held that claims based on a breach of the same contract should be brought in the same action so long as the alleged breaches antedate the original -action. See McClain v. Apodaca, 793 F.2d 1031, 1034 (9th Cir.1986) (holding plaintiffs action for- breach of contract was barred under doctrine of res judi-cata because breach arose prior to filing of original' action for breach of contract). See also Restatement (Second) of Judgments 1430§ 25 cmt. b, illus. 2 (illustrating that all contractual breaches arising prior to filing of original action for breach of contract must be brought in same action to avoid bar of res judicata). We further conclude that the claim for accurate payments and the claim for delinquent payments form a convenient trial unit. The Trust Agreements permitted the Trusts to conduct an audit of AUC’s payroll records “on demand.” Thus, the Trusts had the opportunity to audit AUC’s payroll records and bring their claims for accurate and timely payments in the same cause of action. If, as the Trusts suggest, AUC refused to allow the Trusts to conduct their audit, the Trusts could have brought their claim to compel an audit and to recover underpaid contributions found by the audit in the same action as them prior claims for delinquent payments. Indeed, that is exactly the course of action pursued by the Trusts in the first action to recover delinquent payments. Citing Costantini, 681 F.2d at 1202, the Trusts argue that we must reverse because the present action for accurate payments involves infringement of a different right than the prior action to collect delinquent payments. We disagree. The Trust Agreements conferred upon the Trusts the right to receive proper monthly contributions from the employer. May v. Parker-Abbott Transfer and Storage, Inc., 899 F.2d 1007, 1010 (10th Cir.1990). This single right under the contract inherently assumes that the employer’s contributions will be “both accurately computed and timely paid.” Id. The Trusts further argue that res judicata should not bar this action because the evidence in this action is not substantially the same as that which would have been presented in the settled actions. See Costantini, 681 F.2d at 1202 (whether substantially the same evidence will be presented in both actions is a factor we may consider in determining the applicability of res judicata). Karr does not dispute the Trusts’ contention that the claim to recover inaccurate payments would involve different documentary evidence than a claim to recover delinquent payments for the same time period. The fact that some different evidence may be presented in this action to recover accurate payments, however, does not defeat the bar of res judicata. We have emphasized that the factors cited in Costanti-ni are “tools of analysis, not requirements.” Derish v. San Mateo-Burlingame Bd. of Realtors, 724 F.2d 1347, 1349 (9th Cir.1983). We have previously applied the doctrine of res judicata on the ground that the two claims aros'e out of the same transaction, without reaching other factors cited in Cos-tantini. See, e.g., C.D. Anderson & Co. v. Lemos, 832 F.2d 1097, 1100 (9th Cir.1987) (without reaching the other Costantini factors, we held second claim barred by res judicata solely on the ground that it arose out of the “same transactional nucleus of facts” as the original suit); Ulloa, 958 F.2d at 871 (holding that “[t]he test for whether a subsequent action is barred is whether it arises from the same transaction, or series of transactions as the original action”) (citation and internal quotation marks omitted); Sidney v. Zah, 718 F.2d 1453, 1459 (9th Cir.1983) (citing with approval transactional approach of Restatement (Second) of Judgments § 24 (1982), and noting that whether the claim “arise[s] out of the same transactional nucleus of facts fis] the criteria most stressed in our decisions”) (citation and internal quotation marks omitted). Because the Trusts’ claim to recover accurate payments from April 13, 1989 through March 21, 1989 arises out of the same transactional nucleus of facts as the Trusts’ second action for delinquent payments, we hold that this action is barred under the doctrine of res judicata. The policies underlying res judicata support our conclusion. The doctrine of res judicata “is motivated primarily by the interest in avoiding repetitive litigation, conserving judicial resources, and preventing the moral force of court judgments from being undermined.” Haphey v. Linn County, 924 F.2d 1512, 1518 (9th Cir.1991), rev’d in part on other grounds, 953 F.2d 549 (9th Cir.1992) (en bane). For this reason, res judicata bars not only all claims that were actually litigated, but also all claims that “could have been asserted” in the prior action. McClain, 793 F.2d at 1033. Because the audit claim in this matter could have been brought in the prior actions, the district court properly avoided 1431piecemeal litigation by invoking the doctrine of res judicata. In a case involving a strikingly similar ERISA dispute between a trust fund and an employer, the Tenth Circuit held that an action to compel an audit and to recover accurate contributions was barred by the doctrine of res judicata. May, 899 F.2d at 1010. In May, the trusts filed an action under ERISA to collect delinquent contributions, liquidated damages, interest, attorneys’ fees, and costs. After the parties negotiated a settlement, the district court dismissed the action with prejudice. Id. at 1008. Later, the trust fund informed the employer that it intended to audit its payroll records for periods preceding the filing date of the original action. Id. When the employer refused, the trust fund filed a second action to compel an audit and to recover monies owed due to the employer’s inaccurate payments. Id. The Tenth Circuit employed a transactional analysis in May. The court reasoned that “a contract is generally considered to be a transaction, so that all claims of contractual breach not brought in an original action would be subject to the bar of claim preclusion, so long as the breaches antedated the original action.” Id. at 1010 (citation and internal quotation marks omitted). The court explained its holding as follows: The essential purpose of the one “contract” underlying this litigation (the Trust Agreement) is to provide for proper payment of monthly contributions by Parker-Abbott to the Fund. For the performance of Parker-Abbott’s obligations to be complete, those contributions must be both accurately computed and timely paid. The contract provides remedies for late contributions and provides the Fund with audit powers to ensure that contributions are accurate. However, the existence of these tivo provisions within the contract does not justify two separate trips to the courtroom. Id. (emphasis added). The Trusts rely on I.A.M. Natl Pension Fund v. Indus. Gear Mfg. Co., 723 F.2d 944, 948 (D.C.Cir.1983) to support their argument that this action to recover unpaid contributions discovered during an audit is separate and distinct from the earlier actions to recover delinquent payments. In Industrial Gear, the D.C. Circuit was faced with the same' issue presented in May, i.e.; whether the settlement agreement in an action for delinquent contribution payments bars a later action between the same parties for underpaid contributions subsequently discovered during an audit of the employer’s records for the same time period. Id. The D.C. Circuit held that an action to receive accurate payments was separate and distinct from an action to recover delinquent payments, even though both actions covered the same time period and arose out of the same trust agreement. Id..at 948-49. In holding that the second action was not barred, the D.C. Circuit explained that the first action alleged the delinquency since April 1977 of Industrial Gear’s reports and payments. On the other hand, the instant suit alleges the inaccuracy of contributions for the audited period January 1977 to January 1981.... The fund in [the first action] did not raise the issue of the accuracy of reports and contributions submitted after January 1977. Indeed, not having audited the period after January 1977, the Fund had no knowledge of Industrial Gear’s inaccurate payments.... Because the Fund, when the consent decree was entered, had audited Industrial Gear’s payroll records only up to January 1977, it did not and could not have raised the issue of inaccurate payments beyond January 1977. We will not allow the consent decree to forever foreclose inquiry into the merits of this issue. Id. (first and second emphases added). The D.C. Circuit’s analysis in. Industrial Gear is contrary to the transactional approach to res judicata questions employed in this circuit. See, e.g., Ulloa, 958 F.2d at 871 (applying transactional approach to determine applicability of res judicata). The Trusts’ claims for accurate and timely payments arise from the same set of facts and can be conveniently tried together. We agree with the Tenth Circuit that an action to recover accurate contributions arises from 1432the same transactional nucleus of facts as a prior action to recover delinquent payments and is barred under the doctrine of res judi-cata. Relying on Amaro v. Continental Can Co., 724 F.2d 747, 749 (9th Cir.1984), the Trusts argue that the Ninth Circuit has carved out an exception to the transactional approach to res judicata questions in cases involving labor agreements or employee pension trust fund issues. In Amaro, employees filed a grievance with the union alleging that their employer had laid them off in violation of a collective bargaining agreement. The arbitrator denied the grievance on the ground that the employer’s conduct did not violate the collective bargaining agreement. Id. at 748. The employees subsequently filed a second action, alleging that the employer violated ERISA, 29 U.S.C. § 1140 by intentionally preventing them from qualifying for a pension. Id. We held that the ERISA claim was not barred by the arbitration ruling on the contractual claim, even though both actions arose from the same nucleus of facts. Id. at 749. Amaro is inapposite on two grounds. First, we based our holding in that case entirely on the fact that the statutory right of recovery under ERISA was completely “independent of any collectively bargained rights.” Id. See also International Ass’n of Machinists and Aerospace Workers v. Aloha Airlines, Inc., 790 F.2d 727, 731 (9th Cir.) (res judicata inapplicable because statutory right to recover under federal Railway Labor Act was independent of contractual claims even though both actions shared a common nucleus of facts), cert. denied, 479 U.S. 931, 107 S.Ct. 400, 93 L.Ed.2d 354 (1986). The Trusts’ claim, in contrast, is based entirely on the remedies provided for in the Trust Agreement. The Trusts do not point to any statutory right to compel an audit that is independent of the Trust Agreement. Furthermore, we noted in Amaro that the ERISA claim could not have been brought in the original action before the arbitrator, because the arbitrator did not have the authority to consider the resolution of this federal statutory issue. Amaro, 724 F.2d at 750. Because the ERISA claim could not have been brought in the original action before the arbitrator, it could not have been subject to claim preclusion. III. SEPARATE CHARACTER OF EMPLOYEE BENEFIT TRUST FUNDS The Trusts argue that the transactional approach applied in this circuit to res judica-ta determinations involving disputes between parties to a contract should not bar an action brought by a trust fund established under a trust agreement between a union and an employer. The Trusts point out that a trust fund is a separate and distinct entity from the employer and the union. Because it has no access to an employer’s payroll records, a trust fund has no way of determining whether a contribution is accurate unless the employer consents to an audit. The Trusts argue it will place an undue burden on them to conduct an audit every time they bring an action against an employer to recover delinquent payments. We disagree. Under the terms of the Trust Agreement, the employer is required to assume the cost of an audit. The Trusts must assume the costs of the audit only if the audit reveals that the employer has fulfilled all of his or her obligations under the Trust Agreement. We will not abandon the doctrine of res judicata simply because its application may be costly to a party whose claim proves to be groundless. A trust fund that wishes to preclude the application of res judicata to a future action based on a claim that the employers’ payments have been inaccurate, can reserve that right in any agreement that results in the dismissal with prejudice of an action for delinquent payments. See May, 899 F.2d at 1010 (parties can draft the terms of a settlement agreement so as to alter the preclusive effect of prior judgments (citing 18 Charles A. Wright et al, Federal Practice and Procedure, § 4443, at 384 (1981)). In this case, however, the settlement ■ agreements contained no provisions regarding their intended preclusive effect. We will not “supply by inference what the parties have failed to expressly provide, especially when 1433that inference would suspend the application of this circuit’s principles of res judicata.” May, 899 F.2d at 1011. IV. ATTORNEYS’ FEES Karr seeks attorneys’ fees for this appeal under 29 U.S.C. § 1132(g)(1). Section 1132(g)(1) provides, in pertinent part: “In any action under this subchapter... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). In exercising our discretion to award attorneys’ fees under section 1132(g)(1), we consider: (1) [T]he degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees; (3) whether an award of fees against the opposing party would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties’ positions. Sapper v. Lenco Blade, Inc., 704 F.2d 1069, 1073 (9th Cir.1983) (quoting Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 452-53 (9th Cir.1980)). Karr has failed to make a showing that it is entitled to attorneys’ fees under this statute. Accordingly, Karr’s request to recover attorneys’ fees for this appeal is DENIED. The district court’s order granting summary judgment in favor of Karr on the ground that the Trusts’ action is barred under the doctrine of res judicata is AFFIRMED.	LIMITED_OR_DISTINGUISHED, CONFLICT_NOTED
724 F.2d 747	994 F.2d 692	D	Santiago Amaro v. The Continental Can Company	GOODWIN, Circuit Judge: Flying Tiger Line, Inc. (“Flying Tiger”) and the Flying Tiger pilots’ former union entered into a collectively bargained agreement regarding pilot pension benefits. Appellants, four former Flying Tiger pilots, seek enforcement of the terms of the summary plan description of the pension agreement pursuant to 29 U.S.C. § 1022(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The district court found that it lacked subject matter jurisdiction over appellants’ claim because (1) a Railway Labor Act-mandated arbitration board had determined appellants’ rights under the pension plan, and (2) ERISA does not provide an independent statutory right to enforcement of the summary plan description. We affirm. System Board of Adjustment Determination The Railway Labor Act requires that an air carrier and its employees establish a system board of adjustment with jurisdiction over disputes “growing out of grievances, or out of the interpretation or application of agreements concerning rates of pay, rules, or working conditions.” 45 U.S.C. § 184. “No federal or state court has jurisdiction over the merits of any employment dispute subject to determination by a system board of adjustment.” De la Rosa Sanchez v. Eastern Airlines, Inc., 574 F.2d 29, 32 (1st Cir.1978). Railway Labor Act-mandated boards 694 are the “mandatory, exclusive, and comprehensive system for resolving grievance disputes.” Brotherhood of Locomotive Eng’rs v. Louisville & Nashville R.R. Co., 373 U.S. 33, 38, 83 S.Ct. 1059, 1062, 10 L.Ed.2d 172 (1963). Judicial review is appropriate only if a system board oversteps its jurisdiction, or if it commits fraud or corruption. 45 U.S.C. § 153(q). The collectively bargained agreement between Flying Tiger and the pilots’ former union, the Air Line Pilots Association, International (“ALPA”), provided for two pilot pension plans: the Fixed Pension Plan and the Variable Annuity Pension Plan. Pension benefits are calculable under either section 10.1 or section 10.2 of the Fixed Plan. It is undisputed that a pilot is entitled to the greater of the two calculable pensions under the Fixed Plan. Appellants and Flying Tiger also agree that a pilot who opts for a Fixed Plan benefit under section 10.1 is not entitled to a separate Variable Plan benefit. Appellants and Flying Tiger disagree whether a pilot who chooses a Fixed Plan benefit under section 10.2 is also entitled to a separate Variable Plan benefit. Appellants stress that the summary plan description expressly states that a pilot may opt for a Fixed Plan benefit under section 10.2 and also receive a benefit under the Variable Plan. Flying Tiger concedes that the terms of the summary plan description provide that the Variable Plan benefit is added to, rather than subtracted from, the benefit provided by section 10.2 of the Fixed Plan. It maintains, nonetheless, that the summary plan description, read in the context of the plan document and the bargaining history, contains a mistake which does not reflect the intent of Flying Tiger or ALPA, and therefore cannot be enforced. An employee pension plan falls within the scope of the Railway Labor Act and is subject to its mandatory arbitration procedures. Air Line Pilots Ass’n, Int’l v. Northwest Airlines, Inc., 627 F.2d 272, 275 (D.C.Cir.1980). Flying Tiger and appellant Long referred this dispute to the Retirement Board, a special system board of adjustment with authority to decide all disputes regarding the pension plan’s application, interpretation or administration. The Retirement Board rejected Long’s claim. Appellants concede that this determination is equally applicable to the other three pilots who are parties to this appeal. ERISA Claim Appellants maintain that the district court had subject matter jurisdiction to enforce the unambiguous terms of the summary plan description. 29 U.S.C. § 1022(a)(1) provides, in relevant part, that a summary plan description “shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” If the statutory claim “is independent of the correct construction of the pension plan, [then] the District Court had jurisdiction of that statutory claim.” Air Line Pilots Ass’n, 627 F.2d at 277. The interpretation of ERISA, a federal statute, is a question of law subject to de novo review. Arnold v. Arrow Transp. Co. of Delaware, 926 F.2d 782, 785 (9th Cir.1991). The legislative history of ERISA does not reveal whether Congress intended to create a statutory right to enforce a summary plan description against a system board’s determination of the scope of the collectively bargained pension plan. To buttress their argument in favor of an independent statutory right, appellants rely on a number of cases that provide that in the event of a conflict between a pension plan and the express provisions of a summary plan description, the terms of the summary must prevail. See McKnight v. Southern Life & Health Ins. Co., 758 F.2d 1566, 1570-71 (11th Cir.1985) (employee entitled to pension pursuant to summary plan description even though plan itself did not provide such benefits); see also Senkier v. Hartford Life & Accident Ins. Co., 948 F.2d 1050, 1051 (7th Cir.1991) (must also demonstrate reliance on language of summary plan description); Hansen v. Continental Ins. Co., 940 F.2d 971, 982 (5th Cir.1991) (no need to prove detrimental reliance); Heidgerd v. Olin Corp., 906 F.2d 903, 907-08 (2d Cir.1990) (same); Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 695 136-37 (6th Cir.1988) (same). The Ninth Circuit has not yet reached this issue. 1 These cases suggest that the Retirement Board had reason to defer to the express language of the summary plan description in the event of a contradiction between the summary and the plan itself. Nonetheless, the issue before this court is whether the district court had subject matter jurisdiction over appellants’ claim for relief. Without such jurisdiction, the district court cannot consider the correctness of the Retirement Board’s decision or the relevance of the McKnight line of cases. In limited circumstances, ERISA does provide independent statutory rights. In Ama-ro v. Continental Can Co., 724 F.2d 747 (9th Cir.1984), for instance, we held that section 510 of ERISA provides a statutory right independent of the construction of a pension agreement. Id. at 748-49. Section 510 prohibits “interference with the attainment of any rights to which a person may become entitled under the provisions of an employee benefit plan that falls within the coverage of ERISA.” Id. at 749. We concluded that a claim under section 510 is “not for benefits under a collective bargaining agreement. The employees, in fact, are not yet eligible for those benefits.” Id. Two other circuits have found an independent statutory claim based on a party’s breach of its fiduciary obligations to the pension. Placzek v. Strong, 868 F.2d 1013, 1014 (8th Cir.1989) (independent claim if breach of fiduciary duty to plan itself); Air Line Pilots Ass’n, 627 F.2d at 277 (independent claim if air carrier breached fiduciary duty through deliberate and unnecessary withholding of funds due pilots and use of funds to decrease its own contributions to trust fund). These decisions are distinguishable from the present case. The question whether an employer is interfering with the attainment of rights under a pension plan, for example, is a separate issue from the nature of those rights once they are attained by an employee. See Amaro, 724 F.2d at 749. In contrast, any claim relating to the construction of a pension plan can be transformed into a claim that a summary plan description was insufficiently accurate or complete. If a system board of adjustment issues a determination contrary to an employee’s construction of a pension plan, the employee can always claim that the summary plan was not “written in a manner calculated to be understood by the average plan participant, and [was not] sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” 29 U.S.C. § 1022(a)(1). If we were to find subject matter jurisdiction over such a claim, we would eviscerate the Railway Labor Act’s system of arbitrating disputes. No longer would the decision of a system adjustment board be the final word on disputes “growing out of... the interpretation or application of agreements concerning rates of pay, rules, or working conditions.” 45 U.S.C. § 184. Nothing in ERISA’s legislative history supports such a sweeping change in the treatment of Railway Labor Act claims. To the contrary, Congress’s enactment of ERISA, which opened the federal courts to suits over the interpretation of pension plans, did not “modif[y] the exclusivity of this pattern of the Railway Labor Act.” Air Line Pilots Ass’n, 627 F.2d at 275. ERISA explicitly provides: “Nothing in this subchapter shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States (except as provided in sections 1031 and 1137(b) of this title) or any rule or regulation issued •under any such law.” 29 U.S.C. § 1144(d) (excepted sections irrelevant to present case). The present action, despite being clothed as an independent ERISA claim, is an attempt to relitigate the very issue decided by the Retirement Board. In determining the extent of the pilots’ benefits under the collectively bargained pension agreement, it was within the Retirement Board’s jurisdiction to consider the weight that should be accorded *696 to the summary plan description. 2 We therefore affirm the district court’s holding that it lacked subject matter jurisdiction over the interpretation of the summary plan description. Attorney’s Fees Both parties seek attorneys’ fees on appeal pursuant to 29 U.S.C. § 1132(g). Because we find in favor of Flying Tiger on the merits, we deny appellants’ request for attorneys’ fees. Furthermore, we deny Flying Tiger’s request for attorneys’ fees on the following grounds: appellants did not act in bad faith; any such award would have a deterrent effect on others bringing such suits; appellants’ action would have benefited other members of their pension plan; and, although we rule in Flying Tiger’s favor, appellant’s action was not without some merit. See Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 453 (9th Cir.1980) (standard for awarding attorney’s fees under ERISA). AFFIRMED. 1. Appellants mischaracterizc a reference in Arnold as an endorsement of Edwards. In Arnold, an employee claimed that a summary plan description contained a promise of certain benefits. 926 F.2d at 784-85 n. 3. The court cited Edwards and related cases only to support its finding that the employee’s allegation based on the summary plan description constituted "a claim for benefits under the Retirement Plan and ERISA.” Id. at 785 n. 3; cf. id. at 787 (Ferguson, J., dissenting) (following Edwards and McKnight). 2. Consequently, the Retirement Board did not exceed its jurisdiction under 45 U.S.C. § 184, and its decision is not reversible pursuant to 45 U.S.C. § 153(q).	LIMITED_OR_DISTINGUISHED
724 F.2d 747	938 F.2d 823	C	Santiago Amaro v. The Continental Can Company	HARLINGTON WOOD, JR., Circuit Judge. Plaintiff Donald Powell sued his former employer, A.T. & T. Communications (AT & T), alleging that AT & T discharged him to avoid paying his medical insurance and disability benefits in violation of Section 510 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1140. The district court granted AT & T’s motion for summary judgment on the ground that Powell had failed to exhaust his administrative remedies with AT & T prior to filing suit. We affirm that decision. I. Powell started working for AT & T in 1970. Throughout his eighteen years of employment, he was covered by a Sickness and Accident Disability Benefit Plan (Plan). In the event of an illness, the Plan provides for first full pay and then half pay for a total of one year. An employee who remains disabled after receiving fifty-two weeks of short-term disability benefits may apply for long-term disability benefits at half salary. An AT & T Employees’ Benefit Committee (Benefit Committee) administers the Plan, with Rosanne Maglio responsible for day-to-day administration. Upon written request by a plan participant, a decision of the Benefit Committee can be reviewed by the AT & T Employees’ Benefit Claim Review Committee (Review Committee), which is made up of non-Benefit Committee employees. Under the Plan, both committees are named fiduciaries as that term is used in ERISA. 29 U.S.C. §§ 1102-1114. AT & T provided a summary plan description — in other words, a plain language version of the Plan — to every employee. The summary establishes the application procedure for disability benefits. First, the participant must notify a supervisor of the absence, next be placed under a physician’s care, and finally follow the physician’s recommended treatment. The participant must also submit a doctor’s certification of the disability on a company form. The form goes to the AT & T Medical Department, which medically verifies the disability described in the certificate. If the Benefit Committee denies the claim, the participant is informed of that decision and given an explanation. The participant is also informed about the right to take an administrative appeal within sixty days to the Review Committee. The decision of that Committee is final. Powell’s medical problems started in 1986. Because he was suffering from moderate depression, AT & T granted him a three-month disability leave. He returned to work as a supervisor in January 1987, but several months later the symptoms reappeared. He then took a second disability leave which ended in January 1988. For a second time, Powell went back to his old job, but continued to have mental difficulties. He also began carrying a loaded long-barrel revolver in his briefcase and even showed the gun to one of his clerical employees. When Powell’s supervisors 825 found out, they placed him on paid administrative leave, determined through a consulting psychologist that he was not currently mentally disabled, and then fired him on March 14, 1988. Three months later on June 10, 1988, Powell’s counsel wrote to AT & T regarding “the legality of his termination after seventeen years of employment, the status of his pension, and the availability of any other forms of disability benefits.” The attorney requested a copy of the pension and disability plans as well as notification on the status of Powell’s pension. Counsel concluded that “[w]e are currently researching Mr. Powell’s potential legal rights in this matter including but not limited to, claims under ERISA, Illinois Workman’s Compensation Act, Illinois Human Rights Act, and the Social Security Act.” AT & T responded, stating that “[t]he materials and information you have requested is (sic) currently being reviewed and assembled.” Counsel subsequently received two pamphlets on employee benefits. When Powell filed suit in October 1988, he claimed that he was fired so that AT & T could avoid paying a third round of disability benefits. In its motion for summary judgment, AT & T countered that Powell was fired because of the gun. The district court never reached these issues because in granting summary judgment, the court accepted AT & T’s alternative argument that Powell had failed to exhaust his administrative remedies under the benefit plan. The court rejected Powell’s argument that exhaustion of the claim and appeal procedures would have been futile and that he was denied meaningful access to the administrative process. This appeal ensued. II. Powell’s complaint alleged that he was discharged in violation of section 510 of ERISA, 29 U.S.C. § 1140. Section 510 prohibits an employer from discharging an employee “for the purpose of interfering with the attainment of any right to which [a plan] participant may become entitled” under an employee benefit plan. These substantive rights can be enforced through civil actions brought pursuant to section 502 of ERISA, 29 U.S.C. § 1132. Specifically, section 502(a)(3), 29 U.S.C. § 1132(a)(3), encompasses civil actions such as this one for violations of ERISA itself. Section 502 is silent as to whether exhaustion of administrative remedies is a prerequisite to bringing such a civil action. The rule in this court is clear: the decision to require exhaustion as a prerequisite to bringing suit is a matter within the discretion of the trial court and may be disturbed on appeal only when there has been a clear abuse of discretion. Dale v. Chicago Tribune Co., 797 F.2d 458, 466 (7th Cir.1986), cert. denied, 479 U.S. 1066, 107 S.Ct. 954, 93 L.Ed.2d 1002 (1987) (citing Kross v. Western Elec. Co., 701 F.2d 1238, 1244-45 (7th Cir.1983)). The district court’s decision is disturbed only if the reviewing court is confident that the decision is obviously in error. See Kasper v. Board of Election Comm’rs, 814 F.2d 332, 339 (7th Cir.1987). Abuse of discretion means a serious error of judgment, such as reliance on a forbidden factor or failure to consider an essential factor. Id. This court held in Kross that the strong federal policy encouraging private resolution of ERISA-related disputes mandates the application of the exhaustion doctrine to statutory claims for breach of a fiduciary duty under ERISA. 701 F.2d at 1244. Since we decided Kross, five other circuits have reached a similar conclusion. Simmons v. Willcox, 911 F.2d 1077, 1081 (5th Cir.1990); Curry v. Contract Fabricators Inc. Profit Sharing Plan, 891 F.2d 842, 846 (11th Cir.1990); Leonelli v. Pennwalt Corp., 887 F.2d 1195, 1199 (2nd Cir.1989); Makar v. Health Care Corp. of Mid-At 826 lantic, 872 F.2d 80, 83 (4th Cir.1989); Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821, 825-26 (1st Cir.), cert. denied, 488 U.S. 909, 109 S.Ct. 261, 102 L.Ed.2d 249 (1988); contra Zipf v. AT & T, 799 F.2d 889, 893 (3rd Cir.1986); Amaro v. Continental Can Co., 724 F.2d 747, 752 (9th Cir.1984). In making the case for exhaustion, we stated in Kross that implementing the exhaustion requirement enhances the ability of plan fiduciaries to expertly and efficiently manage their plans by preventing premature judicial intervention and because fully considered actions by plan fiduciaries may assist the courts when they must resolve controversies. Kross, 701 F.2d at 1244 (quoting Amato v. Bernard, 618 F.2d 559, 567-68 (9th Cir.1980)). In addition, Congress’s apparent intent in mandating internal claims procedures found in ERISA, see section 503 of ERISA, 29 U.S.C. § 1133; see also 29 C.F.R. § 2560.503-1, was to minimize the number of frivolous lawsuits; promote consistent treatment of claims; provide a non-adversarial dispute resolution process; and decrease the cost and time of claims settlement. Makar, 872 F.2d at 83. In short, Congress intended plan fiduciaries, not federal courts, to have primary responsibility for claims processing. Kross, 701 F.2d at 1244. We take this opportunity to reaffirm this court’s notion that a district court may properly require exhaustion of administrative proceedings prior to the filing of a claim involving an alleged violation of an ERISA statutory provision. Next, Powell argues that exhaustion of administrative procedures would have been futile in this case. He contends that to be entitled to disability benefits he has to be an employee. Once he was fired, he argues, he could not file a request for benefits because the Benefit Committee had no authority to reinstate Powell or award benefits. Powell has not shown that the filing of a claim under the Plan would have been an exercise in futility and a useless gesture. Dale, 797 F.2d at 467; Kross, 701 F.2d at 1246. The Plan at section 6(1) gives participants the right to pursue a claim for disability benefits even after discharge, as long as the right to the benefit accrued prior to discharge. The language of section 6(1) of the Plan provides: [n]either the action of the Board of Directors in establishing this Plan, nor any action hereafter taken by the Board or the Committee shall be construed as giving to any officer, agent or employee a right to be retained in service of the company or right or claim to any benefit or allowance after discharge from the service of the company, unless the right to such benefit has accrued prior to such discharge. In other words, the Committees had the authority to review a request from Powell for disability benefits after termination, assuming he was disabled prior to termination. This language from the Plan also gives the Committees the ability to provide Powell with a remedy, in this case an award of disability benefits. We will never know what the Committees might have done with a disability claim from Powell, because he never initiated administrative review. They might have concluded that AT & T’s consulting psychologist was wrong in finding him not disabled prior to termination. Powell might have brought in his treating physician to state that he was in fact disabled at the time of termination, and the gun-brandishing incident would have given him further ammunition for this argument. Because the Committees had the power to hear Powell’s claim and provide a remedy, and because Powell had a reasonable argument to present to them, the district court did not err in declining to find an exception to the exhaustion requirement based on futility. Last, Powell argues that he was denied meaningful access to administrative remedies because his counsel’s letter to AT & T represented a reasonable attempt to initiate an administrative resolution of the charges. An attorney’s letter can be sufficient to initiate administrative review if a reasonable procedure for filing claims has not been established. 29 C.F.R. 827 § 2560.503-1(d); see, e.g., Curry, 891 F.2d at 845 n. 4. Ignoring Powell’s failure to argue that AT & T’s filing procedure in the Plan was inadequate, not just any letter would do. The content of the letter must be reasonably calculated to alert the employer to the nature of the claim and request administrative review. 29 C.F.R. § 2560.503-1(d). The letter from Powell’s counsel was not an attempt to jump start administrative proceedings, but a threat to take AT & T to court if the matter was not settled. While the letter requested general information on the various benefit plans, it sought the status only of the pension plan, not the disability plan. AT & T responded with an acknowledgment letter and copies of the plans. At that point, any uncertainty about the potential for commencing an administrative review regarding disability benefits could have been clarified by a quick note from Powell’s attorney to AT & T. Powell’s rear-guard attempt to turn a request for information and threat to sue into a demand for administrative review must be rejected. Absent a more clear-cut request for administrative review, the denial of Powell’s claim on the grounds of exhaustion was proper. III. The district court did not abuse its discretion in requiring that Powell exhaust his administrative remedies at AT & T prior to bringing this ERISA claim. We cannot say that an attempt to exhaust those remedies on Powell’s part would have been futile. Finally, the letter sent by Powell’s counsel was insufficient to invoke administrative remedies. For these reasons, the decision of the district court granting summary judgment in favor of AT & T is AFFIRMED. * Powell argues that the district court did not use the proper standard of review in evaluating his claim. He claims that in reaching its decision the district court resolved contested factual matters. In his appellate brief, he fails to identify in his section on this issue any findings by the district court that he contests. It is not this court’s job to comb the record to determine the factual issues he has in mind. See Holzman v. Jaymar-Ruby, Inc., 916 F.2d 1298, 1303 (7th Cir.1990). The argument is waived.	CRITICIZED_OR_QUESTIONED
724 F.2d 747	926 F.2d 116	C	Santiago Amaro v. The Continental Can Company	TIMBERS, Circuit Judge: Appellants Shearson Lehman/American Express, Inc. (Shearson) and Raymond R. Clements appeal from an order entered July 16, 1990 in the District of Connecticut, Jose A. Cabranes, District Judge, denying their motion to compel arbitration of a claim brought by appellees Frank L. Bird, Individually and as Trustee of the Frank L. Bird Profit Sharing Trust, and Joan Shea for breach of fiduciary duty pursuant to the Employee Retirement Income Security Act (ERISA). 29 U.S.C. § 1001 et seq. (1988). On appeal, appellants contend that the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (1988),' requires that agreements to arbitrate statutory ERISA claims are enforceable. For the reasons that follow, we reverse the judgment of the district court and remand for proceedings consistent with this opinion, including arbitration forthwith. I. We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal. Frank L. Bird is the Trustee and a participant and beneficiary in the Frank L. Bird Profit Sharing Trust (the Trust). Joan Shea is a participant and beneficiary in the Trust. The Trust was established to provide for the retirement of its participants and beneficiaries and is governed by the terms of ERISA. Raymond Clements, a broker and vice president of Shearson, solicited Bird as a client. Bird was interested in investing the assets of the Trust. At their first meeting, Bird alleges that he explained to Clements that the investment objectives for the Trust were long term growth and safety of the Trust’s assets. In his capacity as Trustee, Bird invested all the assets of the Trust in a securities account with Shearson. Bird signed Shearson’s standard “Customer’s Agreement” prior to opening the account. That agreement contained an arbitration clause which provided that “Unless unenforceable due to federal or state law, any controversy arising out of or relating to my accounts, to transactions with you for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect, of the National Association of Securities Dealers, Inc. or the Boards of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange, Inc. as I may elect.” All of the Trust’s assets, a total of $62,-205.56, were deposited in the account. Fifty-five transactions were made in the account between July 24, 1984 and May 28, 1986. At the end of that period, $13,427.53 remained in the account. Appellees allege that the assets of the Trust were diminished due to mishandling by appellants, who allegedly made high risk investments on behalf of the Trust in disregard of the stated investment objectives of the Trust. On July 21, 1987, appellees commenced this action and filed the complaint in the District of Connecticut. Count one of the complaint alleged a breach of fiduciary duties under ERISA. 29 U.S.C. § 1104 (1988). Count two alleged that the account had been churned in violation of the Securities Exchange Act of 1934, 15 U.S.C. § 78j 118(1988), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1990). The complaint also set forth various state law claims; these subsequently were dismissed. On August 18, 1987, appellants filed a motion invoking the arbitration clause in the Customer’s Agreement and seeking a stay of proceedings in the district court. The district court granted the motion as to the securities law claim, but denied the motion as to the ERISA claim. We affirmed the district court’s decision. Bird v. Shearson Lehman/American Express, Inc., 871 F.2d 292 (2 Cir.1989) (Bird I). We held that Congress intended to preclude a waiver of judicial remedies for statutory ERISA claims, but not for contractual claims involving ERISA-covered plans. Id. at 298. Appellants filed a petition for a writ of certiorari in the Supreme Court. In the meantime, the Supreme Court filed its opinion in Rodriguez de Quijas v. Shearson/American Express, Inc., 109 S.Ct. 1917 (1989). In Rodriguez, the Court held that agreements to arbitrate statutory claims arising under the Securities Act of 1983 were enforceable. Subsequently, the Court granted certiorari in Bird I, vacated our judgment, and remanded the case for reconsideration in light of Rodriguez. Shearson Lehman/American Express, Inc. v. Bird, 110 S.Ct. 225 (1989). On January 19, 1990, we entered an order remanding the case to the district court for reconsideration in light of Rodriguez. On July 16, 1990, the district court, in a thoughtful opinion, affirmed its original decision. The district court reasoned that “Rodriguez [was] consistent with the Supreme Court’s other recent rulings on arbitration and therefore [did] not significantly change the legal landscape in which this issue was originally considered.” The district court held that statutory ERISA claims were not subject to compulsory arbitration. The court denied appellants’ motion to compel arbitration and for a stay of the district court proceedings pending arbitration. This appeal followed. II. Initially, we set forth our standard of review. “[A] court asked to stay proceedings pending arbitration in a case covered by the [FAA] has essentially four tasks: first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then determine whether to stay the balance of the proceedings pending arbitration.” Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 844 (2 Cir.1987) (citations omitted). We review the district court’s determinations on those issues de novo. Id. at 846. In Bird I, we affirmed the district court’s holding that Bird and Shearson entered into a valid arbitration agreement that encompassed the ERISA claim. Bird I, supra, 871 F.2d at 295. We see no reason to disturb that holding. Accordingly, the only issue before us on the instant appeal concerns the third element, i.e., whether Congress intended statutory claims created by ERISA to be nonarbitra-ble. III. We turn first to appellants’ contention that the FAA requires that their agreement to arbitrate be enforced notwithstanding the fact that appellees’ claim is for a breach of fiduciary duties under ERISA. We agree. In Bird I, we held that the text of ERISA — particularly the provisions for exclusive federal jurisdiction of statutory claims, the remedial nature of the statute, and the underlying purposes of ERISA— compelled the conclusion that “Congress intended the federal courts to be the exclusive forum for resolving disputes of substantive rights.” Bird I, supra, 871 F.2d at 295. We are told that Bird I was motivated, in part, by an “outmoded presumption of disfavoring arbitration proceed119ings”. Rodriguez, supra, 109 S.Ct. at 1920. Rodriguez makes it clear that that is no longer tenable. Accordingly, we now reach a contrary result. The FAA, “reversing centuries of judicial hostility to arbitration agreements, was designed to allow parties to avoid ‘the costliness and delays of litigation,’ and to place arbitration agreements ‘upon the same footing as other contracts... Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11 (1974) (footnote and citation omitted). Section 2 of the FAA provides that “an agreement in writing to submit to arbitration an existing controversy... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at láw or in equity for the revocation of any contract.” 9 U.S.C. § 2 (1988). “Section 2 [of the FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements.” Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); see also Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985) (the FAA “requires that we rigorously enforce agreements to arbitrate”). The “duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights.” Shear-son/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987). Congress, however, may override the presumption favoring arbitration agreements by a contrary provision in another statute. Id. The burden of demonstrating such congressional intent rests with the party opposing arbitration. Rodriguez, supra, 109 S.Ct. at 1921; McMahon, supra, 482 U.S. at 227. The party contending that an agreement to arbitrate a statutory claim is not enforceable must show that “Congress intended in a separate statute to preclude a waiver of judicial remedies....” Rodriguez, supra, 109 S.Ct. at 1921. “[S]uch an intent ‘will be deducible from [the statute’s] text or legislative history,’ or from an inherent conflict between arbitration and the statute’s underlying purposes.” McMahon, supra, 482 U.S. at 227 (citations omitted). Applying these standards in a series of recent cases, the Supreme Court has upheld arbitration agreements involving various statutory claims. E.g., McMahon, supra, 482 U.S. at 227-38 (claim under § 10(b) of the Securities Exchange Act of 1934); id. at 238-42 (claim under civil provisions of Racketeer Influenced and Corrupt Organizations Act); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628-40 (1985) (claim under Sherman Antitrust Act). Most recently, the Court held that agreements to arbitrate claims brought pursuant to the Securities Act of 1933 are enforceable. Rodriguez, supra, 109 S.Ct. at 1919-21. In so holding, the Court overruled its holding in Wilko v. Swan, 346 U.S. 427 (1953) (a 1933 Act decision), which it stated “rested on suspicion of arbitration as a method of weakening the protections afforded in the substantive law” and had “fallen far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes.” Rodriguez, supra, 109 S.Ct. at 1920. Prior to Rodriguez, courts of appeals that considered the enforceability of agreements to arbitrate claims derived from ERISA reached varying conclusions. Compare Bird I, supra, 871 F.2d at 298 (agreement to arbitrate statutory ERISA claims is not enforceable) and Barrowclough v. Kidder, Peabody & Co., Inc., 752 F.2d 923, 941 (3 Cir.1985) (same) with Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475, 477-79 (8 Cir.1988) (agreement to arbitrate statutory ERISA claim is enforceable). No court of appeals has considered this issue since Rodriguez. This ease is one of first impression. (A) We consider next the text and legislative history of ERISA. We find nothing in the text or legislative history explicitly addressing the issue of whether Congress intended to preclude a waiver of a judicial forum for claims arising from the substantive guarantees of ERISA. We also find nothing in the text or legislative history that compels us to reach that conclusion by implication. 120We are aware that one of the means by which Congress sought “to protect... participants in employee benefit plans and their beneficiaries” was “by providing... ready access to the Federal courts.” 29 U.S.C. § 1001(b) (1988). This provision, however, does not speak to whether Congress intended to require that parties avail themselves of that forum. Sulit, supra, 847 F.2d at 478. It does not follow that “by permitting a federal judicial forum Congress also intended to override the Arbitration Act’s aim of ensuring the enforcement of privately made agreements in which parties... have chosen to forego an available judicial forum in favor of arbitration.” Id. at 479. Similarly, the fact that Congress provided for exclusive federal jurisdiction of claims brought to enforce ERISA’s substantive provisions, 29 U.S.C. § 1132(e) (1988), speaks only to which judicial forum is available, not to whether an arbitral forum is available. Moreover, the Supreme Court has upheld an arbitration agreement which was involved in a dispute grounded in a statute that similarly provides for exclusive federal jurisdiction. E.g., McMahon, supra, 482 U.S. at 227 (Securities Exchange Act of 1934, 15 U.S.C. § 78aa (1988)). In short, “any claim that the jurisdictional language of ERISA evidences a congressional intent to foreclose arbitrability would appear to be untenable in light of McMahon and [Rodriguez ].” Southside Internists Group v. Janus Capital Corp., 741 F.Supp. 1536, 1541 (N.D.Ala.1990). Liberal procedural provisions that facilitate bringing ERISA claims in federal court pursuant to § 1132 also do not compel a conclusion that Congress intended such claims to be nonarbitrable. The Supreme Court rejected that reasoning in Rodriguez. It declined to imply such an intent based on similar provisions that govern claims brought in the federal courts pursuant to the Securities Act of 1933. Rodriguez, supra, 109 S.Ct. at 1920. We hold that ERISA’s text and legislative history do not support a conclusion that Congress intended to preclude arbitration of claims brought pursuant to it. (B) We turn next to whether arbitration is inconsistent with ERISA’s underlying purposes. We hold that it is not. In its statement of findings and declaration of policy, Congress explained the circumstances leading to the passage of ERISA and the purpose of the legislation: “that despite the enormous growth in [pension] plans many employees with long years of employment are losing anticipated retirement benefits owing to the lack of vesting provisions in such plans; that owing to the inadequacy of current minimum standards, the soundness and stability of plans with respect to adequate funds to pay promised benefits may be endangered; that owing to the termination of plans before requisite funds have been accumulated, employees and their beneficiaries have been deprived of anticipated benefits; and that it is therefore desirable... that minimum standards be provided assuring the equitable character of such plans and their financial soundness.” 29 U.S.C. § 1001(a) (1988). “A reading of the statute’s legislative history compels the conclusion that ERISA’s purpose is to secure guaranteed pension payments to participants by insuring the honest administration of financially sound plans.” Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 914 (2 Cir.), cert. denied, 459 U.S. 1039 (1982); see also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113 (1989) (“ERISA was enacted ‘to promote the interests of employees and their beneficiaries in employee benefit plans,’ and ‘to protect contractually defined benefits’ ” (citations omitted)). Allowing parties to provide by agreement that their disputes will be resolved in arbitration is not inconsistent with those purposes. “By agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” Mitsubishi, supra, 473 U.S. at 628. Thus, arbitration is inconsistent with the underlying pur121poses of a statute “where arbitration is inadequate to protect the substantive rights at issue.” McMahon, supra, 482 U.S. at 229. A presumption that arbitration is an inadequate forum in which to resolve disputes based on complex federal statutes is untenable in light of recent Supreme Court decisions. Id. at 232; Mitsubishi, supra, 473 U.S. at 633-34. Rodriguez put to rest “ ‘the old judicial hostility to arbitration.’ ” Rodriguez, supra, 109 S.Ct. at 1920 (citation omitted). Appellees suggest no reason why the substantive rights guaranteed by ERISA will be jeopardized if the arbitration agreement is enforced. We are aware of no such reasons. As in Rodriguez, “ ‘[t]here is nothing in the record before us nor in the facts of which we can take judicial notice, to indicate that the arbitral system... would not afford the plaintiff[s] the rights to which [they] are entitled.’ ” Id. at 1921 (citation omitted). Accordingly, we disagree with those courts that have expressed the fear that substantive rights guaranteed by ERISA may be foreclosed by an arbitration agreement. E.g., Barrowclough, supra, 752 F.2d at 941; Amaro v. Continental Can Co., 724 F.2d 747, 752 (9 Cir.1984). Similarly, ERISA’s remedial nature, Firestone, supra, 489 U.S. at 108, is not compromised “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, [since] the statute will continue to serve... its remedial... function.” Mitsubishi, supra, 473 U.S. at 614. The Supreme Court has upheld agreements to arbitrate claims arising under other remedial statutes. E.g., McMahon, supra, 482 U.S. at 240 (considering remedial role of RICO); Mitsubishi, supra, 473 U.S. at 636-37 (considering remedial role of antitrust legislation). Appellees contend that their view is supported by a line of cases that held that arbitrations of claims under Title VII of the Civil Rights Act of 1964, Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), the Pair Labor Standards Act, Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728 (1981), and 42 U.S.C. § 1983 (1988), McDonald v. City of West Branch, 466 U.S. 284 (1984) were not preclusive in subsequent litigation to vindicate rights under those statutes. We disagree. In those three cases, the arbitrations were commenced pursuant to a clause in a collective bargaining agreement negotiated by the union, rather than the employee. They rely partially on the reasoning that an employee should not be bound by an arbitration clause he did not negotiate “where the employee’s claim is based on rights arising out of a statute designed to provide minimum substantive guarantees to individual workers.” Barrentine, supra, 450 U.S. at 737. The Court was concerned with the fact that the union’s interest might not coincide with the employee’s and, therefore, the union’s representation at arbitration might not be adequate. McDonald, supra, 466 U.S. at 291; Barrentine, supra, 450 U.S. at 742; Gardner-Denver, supra, 415 U.S. at 58 n.19 The instant case does not raise such concerns. Bird signed the agreement that contained the arbitration clause. He cannot complain that his rights were bargained away by a third party. Although Shea did not sign the agreement, her interests and claims are essentially identical to Bird’s. Under such circumstances, requiring Shea to arbitrate does not work an injustice. Cf. Barrowclough, supra, 752 F.2d at 938-39 (beneficiaries are bound by principal’s agreement to arbitrate when they “claim no present entitlement to the [benefits] and press no claims separate from his”). We also do not find arbitration inconsistent with the enforcement and oversight responsibilities granted to the Secretary of Labor. The Secretary is involved in reporting requirements, 29 U.S.C. § 1021 (1988), is authorized to commence an action for a plan fiduciary’s breach of duty, 29 U.S.C. § 1132(a)(2) (1988), and is authorized to participate in litigation commenced by plan participants, 29 U.S.C. § 1132(h) (1988). Moreover, the Secretary is vested with broad investigatory powers to determine compliance with ERISA’s provisions. 29 *122U.S.C. § 1134 (1988). “We are reluctant to conclude that the mere fact of administrative involvement in a statutory scheme of enforcement operates as an implicit exception to the presumption of arbitral availability under the FAA.” Gilmer v. Interstate/Johnson Lane Corp., 895 F.2d 195, 198 (4 Cir.), cert. granted, 111 S.Ct. 41 (1990). Arbitration of ERISA claims will not impede the Secretary’s supervisory and enforcement responsibilities. “[Ijmplemen-tation of the statutory purpose is [not] dependent upon the [Secretary’s] involvement in each and every allegation [under ERISA].” Id. Finally, one of the purposes of ERISA is to “bring a measure of uniformity in an area where decisions under the same set of facts may differ from state to state.” H.R. Rep. No. 533, 93rd Cong. 1st Sess. 12 (1973), reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4650. This desire has led the Supreme Court to conclude that Congress intended that “courts... develop a ‘federal common law of rights and obligations under ERISA-regulated plans.’ ” Firestone, supra, 489 U.S. at 110 (citation omitted). We are not persuaded that the fact that federal common law is to be created and applied to ERISA disputes alleging breaches of fiduciary duties creates an inherent conflict with arbitration. First, we do not believe that our holding will prevent the development of federal common law in this area. Our holding does not prohibit plaintiffs from bringing ERISA claims alleging a breach of fiduciary duty in federal courts. We merely hold that parties may provide by agreement that such claims will be arbitrated. If such agreements are the result of unequal bargaining power between the parties, general principles of contract law will bar enforcement. Second, the import of recent Supreme Court decisions is that arbitration is not to be distrusted no matter what the source of law to be applied is. Third, an arbitration determination is subject to review by the federal courts through a motion to enforce or to vacate the award. Arbitration is not inconsistent with the underlying purposes of ERISA. Appel-lees have not sustained their burden of demonstrating that the text, legislative history, or underlying purposes of ERISA indicate that Congress intended to preclude a waiver of a judicial forum for claims arising under it. Accordingly, we hold that statutory claims arising under ERISA may be the subject of compulsory arbitration. IV. To summarize: We hold that Congress did not intend to preclude a waiver of a judicial forum for statutory ERISA claims. We further hold that the FAA requires courts to enforce agreements to arbitrate such claims. The district court, therefore, erred in denying appellants’ motion to compel arbitration of appellees’ ERISA claim and for a stay of the district court proceedings pending arbitration. Reversed and remanded with instructions that arbitration proceed promptly. The mandate shall issue forthwith.	CRITICIZED_OR_QUESTIONED
724 F.2d 747	734 F.2d 414	D	Santiago Amaro v. The Continental Can Company	SKOPIL, Circuit Judge: This case concerns two separate district court actions that have been consolidated on appeal. We are again “confronted with the competing tensions of access to the courts and arbitration.” Amaro v. Continental Can Co., 724 F.2d 747, 748 (9th Cir.1984). At the outset we must decide if a valid arbitration agreement exists between the parties. If we hold such an agreement exists, we must then decide: (1) whether a declaratory relief action concerning interpretation of a provision of the Commodity Exchange Act (“CEA”) is properly referable to arbitration; (2) whether the district court erred in holding an implied private right of action does not exist under the CEA; (3) whether the district court erred in ordering arbitration of a breach of fiduciary duty claim; and (4) whether the district court erred in confirming the arbitrator’s decision on the breach of fiduciary duty claim. We affirm in part, reverse in part, and remand. BACKGROUND For at least the past seven years Dominic Márchese engaged in commodities futures trading 1 through Shearson Hayden Stone, Inc. (“Shearson”), a securities broker and commodities futures commission merchant. The relationship between Márchese and Shearson has been governed by a series of “Commodity Customer Agreements”. The last two contracts between the parties were entered in December 1976 (“1976 Agreement”) and August 1977 (“1977 Agreement”). The' 1977 contract contained an arbitration agreement that is set off from the principal agreement and is separately endorsed. 2 Marchese signed this 1977 417 Agreement when he opened with Shearson an account that is not a subject of these controversies. In fact, no margin was ever deposited and no trading conducted in that account. In 1978 Márchese filed a district court action in which he sought a declaratory judgment that the “increment and interest” on funds maintained pursuant to section 4d of the CEA, 7 U.S.C. § 6d, and its attendant regulations can only be retained by Shearson up to the amount of its lawful commission (“1978 action”). The district court held that the arbitration clause in the 1976 Agreement was void. It found the arbitration provision failed to meet the requirements set forth in 17 C.F.R. § 180.-3(b)(2) & (4) that arbitration clauses be separately endorsed and contain cautionary language in bold-faced type. It did hold, however, that the 1977 agreement, which contained the cautionary language, was valid and that the claim presented in the 1978 action was within the scope of that agreement. Accordingly, it stayed this proceeding and ordered Márchese to submit this claim to arbitration. In 1979 Márchese filed a related but distinct district court action (“1979 action”). In this claim he sought damages for losses he allegedly incurred from Shearson’s mishandling of his account in violation of the CEA. The district court granted Shear-son’s motion for judgment on the pleadings on the ground that there was no implied private right of action for violation of the CEA. Márchese amended his complaint to allege a breach of fiduciary duty in addition to the CEA claim. Again the district court stayed the action and ordered Márchese to submit this claim to arbitration. An arbitration panel selected by the New York Stock Exchange, Inc. considered both of these claims. In February 1983 the arbitrators issued a decision that “dismissed” both claims. Upon Shearson’s motions, the court confirmed the arbitrator’s decision and dismissed with prejudice both the 1978 and 1979 actions. I. APPLICABILITY OF ARBITRATION AGREEMENT A. Standard of Review The interpretation of a contract is a mixed question of fact and law. Interpetrol Bermuda, Ltd. v. Kaiser Aluminum International, 719 F.2d 992, 997 (9th Cir.1983) (citation omitted). If the district court makes factual findings concerning what the parties said and did, they are subject to clearly erroneous review. Id. We are here concerned with the principles of contract interpretation which are legal issues that are reviewed de novo. Id. B. Analysis Márchese advances a host of arguments that the district court erred in relying on the 1977 arbitration agreement to compel arbitration of his claims. We find them unpersuasive. The district court determined that, when the accounts in question here were 418 opened, the arbitration agreements between the parties were invalid. Shearson does not question that finding. The 1977 Agreement — the last agreement between the parties — was entered into after Márchese opened the accounts that form the basis of these controversies. Márchese claims the 1977 agreement does not apply to the accounts forming the basis of his claims. This argument is faulty. Paragraph 13 of the 1977 Agreement expressly states that “the signing of this agreement revokes any and all other agreements made with Shearson Hayden Stone, Inc.” Therefore, the 1977 Agreement superseded all other agreements between the parties and covered all of Marchese’s accounts. Márchese further claims the 1977 Agreement is not supported by consideration because he never deposited any margin into the account and did not conduct any transactions in it. This, too, is without merit. The preamble to the 1977 Agreement stated: “In consideration of your accepting my account and your agreement to act as my broker, I agree to the following with respect to any of my accounts with you." (emphasis added). This specifies the consideration involved. Furthermore, the accounts forming the bases of this lawsuit were evidently active after Márchese signed the 1977 Agreement. The 1977 Agreement applied to these accounts. Trading in these accounts is evidence of additional consideration to support the agreement. A third argument advanced by Márchese is that the 1977 Agreement was induced by fraud and is therefore invalid. Specifically, he claims that Shearson was in a fiduciary relationship with him and that its failure to advise him of the invalidity of the previous arbitration clauses constituted constructive fraud within the meaning of California Civil Code § 1573. 3 We disagree. As a securities broker and commodities futures commission merchant, Shear-son stood in a fiduciary relationship with Marchese. See Securities & Exchange Commission v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194, 84 S.Ct. 275, 284, 11 L.Ed.2d 237 (1963). This status imposed on it an “affirmative duty of utmost good faith, and full and fair disclosure of all material facts.” Id. We find that Shearson did not breach this duty or engage in any constructive fraud. First, the 1977 Agreement cited the relevant federal protective regulations, including 17 C.F.R. § 180.3. There was no concealment of the existence of these regulations or the fact that these regulations invalidated the previous agreements. Cf. Smoky Greenhaw Cotton Co., Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 720 F.2d 1446, 1450-51 (5th Cir.1983) (holding no fraud in arbitration agreement). Second, the 1977 Agreement contained the necessary cautionary language, including the provision that Márchese “need not sign this arbitration agreement to open an account with Shearson Hayden Stone.” This emphasized the voluntariness of the decision to agree to arbitration. The agreement expressly stated that signing this new “Commodity Customer Agreement” revoked all other agreements. Márchese could have entered into the basic Commodity Customer Agreement without agreeing to the separate arbitration provision. Had he not desired arbitration, he could have effectively repudiated his prior arbitration agreements by signing the basic agreement but not endorsing the arbitration provision. We find that Shearson did not fail to disclose any material information that resulted in any advantage to it. II. 1978 ACTION A. Standard of Review A district court’s decision to compel arbitration of a claim depends on an interpretation of the arbitration agreement 419 and a determination that the matter question is appropriate for arbitration. Both determinations are questions of law subject to de novo review. See Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1462-63 (9th Cir.1983); see also Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953).(appropriateness of dispute for arbitration was based on consideration of the applicable statutes). B. Analysis We now consider whether it was proper for the district court to refer Marchese’s 1978 claim to arbitration. Section 4d(2) of the CEA, 7 U.S.C. § 6d(2), places restrictions on the manner in which a futures commission merchant may deal with the “money, securities and property” of a customer. The statute provides in part that the customer’s “money may be invested in [certain] obligations... in accordance with such rules and regulations and subject to such conditions as the Commission may prescribe.” 7 U.S.C. § 6d(2). 17 C.F.R. § 1.29 provides in part that the permissible investments “shall not prevent the futures commission merchant... investing such funds from receiving and retaining as its own any increment or interest resulting therefrom.” See also 17 C.F.R. § 1.25. Marchese’s 1978 action is brought as a class action and seeks a declaratory judgment that section 4d of the CEA, 7 U.S.C. § 6d, and its attendant regulations establish that plaintiffs are entitled to the “interest and increment” on the margin deposits except to the extent of Shearson’s lawful brokerage charge. Márchese argues that arbitration is inappropriate when the cause of action concerns only the interpretation to be given to a federal statute of this nature. Shearson counters by arguing that the arbitration agreement encompasses all disputes relating to Marchese’s account, including this one. We begin our analysis by considering the arbitration agreement. “[A] party cannot be compelled to arbitrate any matter in the absence of a contractual obligation to do so.” Nolde Bros., Inc. v. Local No. 358, Bakery and Confectionery Workers Union, AFL-CIO, 430 U.S. 243, 250-51, 97 S.Ct. 1067, 1071-72, 51 L.Ed.2d 300 (1977); see Leyva v. Certified Grocers of California, Ltd., 593 F.2d 857, 861 (9th Cir.), cert. denied, 444 U.S. 827, 100 S.Ct. 51, 62 L.Ed.2d 34 (1979). The agreement here provides in pertinent part that “[a]ny controversy arising out of or relating to my account, to transactions with you for me or to this agreement or the breach thereof, shall be settled by arbitration.” We ordinarily will not except a controversy from coverage of a valid arbitration clause “unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Leyva, 593 F.2d at 860, (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960)). This liberal construction of arbitration agreements is in harmony with the national policy favoring arbitration that Congress evinced when it enacted the Federal Arbitration Act, 9 U.S.C. § 1 et seq. See Southland Corp. v. Keating, — U.S. -, -, 104 S.Ct. 852, 858, 79 L.Ed.2d 1, 12 (1984). To help us determine which disputes are intended to be arbitrated, we need to focus on the inherent distinction between “statutory and contractual rights,” Leyva, 593 F.2d at 863. It is now clear that at least claims based on “nonwaivable statutory rights”, Amaro v. Continental Can Co., 724 F.2d 747, 752 (9th Cir.1984), will not easily be construed as being within the coverage of an arbitration agreement. See, e.g. Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728 (1981) (Fair Labor Standards Act, 29 U.S.C. § 201 et seq.); Alexander v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974) (Title VII of the Civil Rights Act, 42 U.S.C. §§ 2000e et seq.); Amaro, 724 F.2d at 749 (§ 510 of the Employee Retirement Income Security Act, 29 U.S.C. § 1140); Leyva, 593 F.2d at 863 (Fair Labor Standards Act). Absent at least an 420 express provision, we will not construe an agreement as contemplating arbitration of these types of statutory claims. Leyva, 593 F.2d at 863. Some disputes, however, may not be a proper subject of arbitration even if the agreement contains an express provision. In Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the Court considered the applicability to the Securities Act of 1933 of an arbitration agreement which provided for arbitration of any controversy between the investor and the brokerage firm. The Court held the agreement invalid, finding that the non-waiver provision in § 14 of the Securities Act for-bad waiver of any rights under the Act, including the plaintiffs right to choose the forum. Id. 346 U.S. at 438, 74 S.Ct. at 188. The Court reasoned that the protection Congress afforded investors by the Securities Act of 1933 was “not easily reconcilable” with the Congressional policy favoring arbitration found in the United States Arbitration Act, 9 U.S.C. § 1 et seq. (1952). Id. It held the protection exhibited by the Securities Act predominated over the policy favoring arbitration. Id. Similarly, the Second Circuit in American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 825-28 (2d Cir.1968), relied on Wilko to hold claims under the antitrust laws were not proper subjects of arbitration. See also Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 558 F.2d 831 (7th Cir.1977) (Securities Exchange Act claims not of international nature are not proper subjects of arbitration). These cases are consistent with the concept that “non-waivable statutory rights”, Amaro, 724 F.2d at 752, are best left to judicial interpretation. Essentially, courts have engaged in a “balancing process” to determine which statutory rights should be left to the judiciary to interpret and apply. Waits v. Weller, 653 F.2d 1288, 1292 & n. 9, (9th Cir.1981). We agree with Shearson that arbitrators, in appropriate cases, may decide questions of law. See Lundgren v. Freeman, 307 F.2d 104, 109 (9th Cir.1962); see also Wilko, 346 U.S. at 431-32, 74 S.Ct. at 184-85 (expressed hope for use of arbitration in disputes based on statutes). In some situations, however, it has been determined that for policy reasons the balance as a matter of law weighs against arbitration of certain disputes. E.g. Wilko, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953) (Securities Act of 1933); Power Replacements, Inc. v. Air Preheater Co., 426 F.2d 980 (9th Cir.1970) (antitrust claims). We have not foreclosed the possibility that in other situations the balance may swing in favor of arbitration if there is an express provision, fairly bargained for, that provides for arbitration of the statutory question. See Leyva, 593 F. 2d 857, 863 (9th Cir.1979). It is up to case-by-case interpretation to determine which statutes are such that an arbitrator can consider the statutory claim. The courts that have considered the enforceability of arbitration agreements in the context of the CEA have reached differing results. 4 We note, however, that the courts of appeal that have considered this have been unanimous in upholding the arbitrability of claims in the context of the commodities futures market. The opinion that most thoroughly considers this issue is Ingbar v. Drexal Burnham Lambert, Inc., 683 F.2d 603 (1st Cir.1982). The first circuit there rejected the argument that the doctrine of Wilko v. Swan forbids predispute broker-customer arbitration agreements. Id. at 605. It reasoned that the CFTC has promulgated regulations that ex 421 pressly authorize predispute arbitration agreements and guard their fairness and voluntariness. Id. at 605-06. The court found that the CEA, unlike the Securities Act of 1933, does not contain a clause allowing the plaintiff the right to choose the judicial forum or a clause forbidding waiver of the statutory rights. Id. at 605. Accordingly, it held referable to arbitration a dispute concerning the broker’s liability for Ingbar’s loss on his investment. Id. at 606. Ingbar and the other circuit decisions are inapposite to our consideration of Marchese’s 1978 claim. 5 None of these cases concerned purely the interpretation of a statute as we have here. They instead primarily involve the type of factual inquiry that arbitrators traditionally have handled. We conclude that the district court erred in staying Marchese’s 1978 claim and compelling arbitration of it. First, the agreement here does not expressly sweep statutory disputes within the scope of arbitration. Second, we will not construe an agreement such as the one here as encompassing disputes of this nature. This action only involved an interpretation of a statute. That “ ‘is a primary responsibility of courts’, not arbitrators.” Amaro, 724 F.2d at 750 (quoting Alexander, 415 U.S. at 57, 94 S.Ct. at 1024). As we recently said: “[Arbitrators, many of whom are not lawyers,... lack the competence of courts to interpret and apply statutes as congress intended.” Amaro, 724 F.2d at 750 (citation omitted). The 1978 action does not entail any factual inquiry concerning whether Shearson properly handled Marchese’s funds. Moreover, we are influenced by the protective nature of the CEA. A principal purpose of the CEA “is to ensure fair practice and honest dealing” in commodity futures trading. S.Rep. No. 93AL131, reported in 3 U.S.Code Cong. & Admin.News, 93d Cong., 2d Sess., pp. 5843, 5856 (1974). This counsels against allowing arbitrators to interpret this legislation. See Milani v. Conticommodity Services, Inc., 462 F.Supp. 405, 407 (N.D.Cal.1976); cf. Wilko, 346 U.S. at 438, 74 S.Ct. at 188 (Securities Act designed to protect investors and disputes under it are not referable to arbitration). Further militating against arbitration of this claim is the fact that arbitrators that consider these CEA claims may include other brokers, “insiders in the commodities industry”, Tamari v. Bache & Co. (Lebanon) S.A.L., 565 F.2d 1194, 1205-06 (7th Cir.1977) (Swygert, J. dissenting), cert. denied, 435 U.S. 905, 98 S.Ct. 1450, 55 L.Ed.2d 495 (1978). To force Márchese to have a broker interpret whether the brokers or their customers are entitled to the interest and increment on the broker’s investment of the customers’ funds would deny the customer the objectivity envisaged by legislation of this type. Cf. American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 827 (2d Cir.1968) (quoting Wilko v. Swan, 201 F.2d 439, 445 (2d Cir.) (Clark, J., dissenting), rev’d, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953) (arbitration does not assure the objective consideration of a securities claim intended by the Securities Act). That would not comport with the spirit of the CEA. See Tamari, 565 F.2d at 1205 (Swygert, J., dissenting). Finally, our holding is consistent with the policies favoring arbitration. By statutorily establishing the desirability of arbitration, Congress desired in appropriate cases to avoid the expense, delay, and complications inherent in litigation. See, e.g., Wilko, 346 U.S. 431, 74 S.Ct. 184. Our decision, however, will not result in a flood of litigation. Marchese’s 1978 claim involves interpretation for the first time in this circuit of section 4d of the CEA and its attendant regulations. Judicial construction of this question will obviate the need for further judicial consideration of this precise issue. It will also provide assistance to arbitrators by clarifying the law if an arbitrator is required in the future to apply this statute. 422 III. THE 1979 CLAIM A. Implied Cause of Action under CEA (1) Standard of Review The district court granted Shearson’s motion for judgment on the pleadings on this issue. Because it is apparent the district court considered matters outside the pleadings, we will treat this as a grant of summary judgment. Fed.R.Civ.P. 12(c). Because there is an absence of any issue concerning the existence of a material fact, we need only decide whether the district court correctly applied the substantive law. See Amaro, 724 F.2d at 749. (2) Discussion Márchese claims that the district court erred in granting Shearson judgment on the pleadings on Marchese’s claim based upon a violation of the CEA. We agree. Subsequent to the district court’s decision the Supreme Court held that violations of the CEA imply a private cause of action. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982). The district court erred in not allowing Márchese to pursue this claim. Notwithstanding the Supreme Court’s decision in Curran, Shearson argues that the arbitrators’ dismissal of the breach of fiduciary duty claim precludes consideration of this implied right of action claim because the breach of fiduciary claim arises from the same operative facts as the CEA claim. This issue was not adequately briefed 6 or brought up at oral argument. The record on appeal does not contain a transcript of the arbitral proceedings. Accordingly, we are simply unable to determine whether the arbitral proceedings which “dismissed” Marchese’s breach of fiduciary duty claim should have preclusive effect over this claim for a violation of the CEA. For these same reasons we reject Shearson’s argument that the district court’s error is harmless within the meaning of Rule 61 of the Federal Rules of Civil Procedure. We reverse the district court’s grant of judgment on the pleadings based on its finding that no private right of action exists under the CEA and remand the case for further consideration. B. The Breach of Fiduciary Duty Claim (1) Standard of Review The district court’s interpretation of an arbitrator’s decision is a question of law, subject to de novo review. This is a question in which there is only a writing to interpret without the need to weigh the credibility of witnesses. Cf. Interpetrol Bermuda, Ltd., 719 F.2d at 992 (contract interpretation may include factual finding concerning what parties said and did). (2) Discussion The arbitration decision read, in pertinent part, that the arbitrators “having heard and considered the proofs of the parties, have decided and determined that the claims of the claimant be and hereby are in all respects dismissed.” Upon Shearson’s motion, the district court confirmed this arbitral decision and dismissed Marchese’s breach of fiduciary duty claim with prejudice. Márchese claims the district court erred because the arbitrators did not reach the merits of this claim and that he should now be left to his legal remedies. Specifically, Márchese relies on rule 604 of the Arbitration Rules of the New York Stock Exchange, Inc. (“NYSE”). That rule provides: [a]t any time during the course of an arbitration, the arbitrators may either upon their own initiative or at the request of a party, dismiss the proceeding and refer the parties to the remedies provided by law. The arbitrators shall 423 upon the joint request of the parties dismiss the proceedings. Márchese claims that because this is the only NYSE Arbitration Rule in which “dismissal” is discussed, the effect of the arbitrators’ “dismissal” of his claim is to refer the parties to their other legal remedies. Márchese essentially claims that under rule 628 of NYSE’s Arbitration Rules only an arbitral decision labeled an “award” is deemed final so that it is appropriate to be entered as a judgment in a court of competent jurisdiction. We disagree. Though it may be wise for an arbitration panel acting pursuant to the NYSE’s Arbitration Rules to distinguish expressly between “dismissals” and “awards” in its decisions, we will hold them to no such technical niceties. Instead we will consider the substance of the decision to determine whether the arbitrators intended their decision to be an award under rule 628, a dismissal under rule 604, or some other “ruling” or “determination”, see rule 623. We are convinced that the substance of the arbitral decision shows a clear intent that the decision be an “award” within rule 628. The decision stated that the arbitrators had “heard and considered the proofs of the parties” and had “decided and determined that the claims” be dismissed. We do not see how this language can be interpreted any way other than that the arbitrators considered and determined the merits of Marchese’s claim, making in favor of Shearson an award within the meaning of rule 628. We further note that the decision did not “refer the parties to the remedies provided by law”, rule 604. That distinguishes this case from Rhodes v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 75 A.D.2d 767, 427 N.Y.S.2d 826 (1980), the authority on which Márchese primarily relies. In Rhodes the arbitrators expressly dismissed the proceedings and referred the parties to their remedies at law. Id. at 768, 427 N.Y. S.2d at 827. This would be a different case had Márchese similarly been referred to his legal remedies. C. Arbitrability of Breach of Fiduciary Duty Claim (1) Standard of Review This is a question of law which we review de novo. Mediterranean Enterprises, Inc., 708 F.2d at 1462-63. (2) Discussion Márchese also appeals the district court order that stayed the court proceeding and compelled arbitration of the breach of fiduciary duty claim. On this matter we agree with the general tone of the other circuits that the policy favoring arbitration of this type of issue outweighs the countervailing considerations. E.g. Smoky Greenhaw, 720 F.2d 1446 (5th Cir.1983); Ingbar, 683 F.2d 603 (1st Cir.1984). Unlike the provisions of the Securities Act of 1933 considered by the Court in Wilko, the CEA expresses congressional approval of arbitration. In 1974 Congress amended the CEA to sanction expressly the use of arbitration for the settlement of traders’ claims not exceeding $15,000. 7 U.S.C. § 7a(11) (1974), see Curran, 456 U.S. at 366, 102 S.Ct. at 1833. The CFTC promulgated regulations that allowed arbitration of disputes in excess of $15,000. 17 C.F.R. § 180.5. In 1982 Congress amended section 7a(11) to delete reference to the $15,000 limitation. The reasoning behind Wilko, therefore, is inapplicable to this claim. See Ingbar, 683 F.2d at 605-06. Furthermore, our decision here is consistent with this circuit’s recent decision in Amaro. Unlike Amaro, we do not here consider a statutory claim. See Amaro, 724 F.2d at 749. We hold the district court did not err in compelling arbitration of this claim. We do not express, however, any view on whether Marchese’s claim based on an implied private right of action under the CEA is a proper subject for arbitration. Cf. Salcer v. Merrill Lynch, Pierce, Fenner & Smith, 682 F.2d 459 (3d Cir.1982) (this type claim 424 is proper subject of arbitration). That issue was not briefed or argued. 7 CONCLUSION We hold that the district court erred in compelling arbitration of the 1978 case and in granting Shearson judgment on the pleadings in the 1979 claim based on a finding that there is no implied private right of action under the CEA. We further conclude the district court did not err in compelling arbitration of the breach of fiduciary duty claim or in its confirmation of the arbitrator’s decision on that claim. AFFIRMED in part, REVERSED in part, and REMANDED. Each party to bear its own costs. 1. Justice Stevens provides a cogent explanation of the futures trading business in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 357-60, 102 S.Ct. 1825, 1828-30, 72 L.Ed.2d 182 (1982). 2. The arbitration agreement provides: "Any controversy arising out of or relating to my account, to transactions with you for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules, then in effect, of the American Arbitration Association of the Board of Directors of the New York Stock Exchange, Inc. as I may elect. If I do not make such elections by registered mail addressed to you at your main office within five days after de *417 mand by you that I make such election, then you may make such election. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.” WHILE THE COMMODITY FUTURES TRADING COMMISSION (CFTC) ENCOURAGES THE SETTLEMENT OF DISPUTES BY ARBITRATION, IT REQUIRES THAT YOUR CONSENT TO SUCH AN AGREEMENT BE VOLUNTARY. YOU NEED NOT SIGN THIS ARBITRATION AGREEMENT TO OPEN AN ACCOUNT WITH SHEARSON, HAYDEN, STONE (SECTION 17 C.F.R. 180.1-180.6). BY SIGNING THIS ARBITRATION AGREEMENT, YOU MAY BE WAIVING YOUR RIGHT TO SUE IN A COURT OF LAW. BUT YOU ARE NOT WAIVING YOUR RIGHT TO ELECT LATER TO PROCEED PURSUANT TO SECTION 14 OF THE' COMMODITY EXCHANGE ACT TO SEEK DAMAGES SUSTAINED AS A RESULT OF A VIOLATION OF THE ACT. IN THE EVENT A DISPUTE ARISES YOU WILL BE NOTIFIED THAT SHEARSON, HAYDON, STONE INTENDS TO SUBMIT THE DISPUTE TO ARBITRATION. IF YOU BELIEVE A VIOLATION OF THE COMMODITY EXCHANGE ACT IS INVOLVED AND YOU PREFER TO REQUEST A SECTION 14 “REPARATIONS” PROCEEDING BEFORE THE CFTC, YOU WILL HAVE FIVE DAYS IN WHICH TO MAKE THE ELECTION. 3. California Civil Code § 1573 provides in pertinent part that Constructive Fraud consists in any breach of duty which, without any actually fraudulent intent, gives an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him. 4. Decisions holding in favor of arbitrability of CEA claims include Smoky Greenhaw Cotton Co., Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 720 F.2d 1446 (5th Cir.1983); Ingbar v. Drexal Burnham Lambert, Inc., 683 F.2d 603 (1st Cir.1982); Salcer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 682 F.2d 459 (3rd Cir.1982); Romnes v. Bache & Co., 439 F.Supp. 833 (W.D.Wis.1977). See Tamari v. Bache & Co. (Lebanon) S.A.L., 565 F.2d 1194 (7th Cir.1977) (a declaratory relief action based on alleged fraud in violation of CEA is referable to arbitration). Cases holding to the contrary include Milani v. Conticommodity Services, Inc., 462 F.Supp. 405 (N.D.Cal.1976); Breyer v. First National Monetary Corp., 548 F.Supp. 955 (D.NJ.1982); Bache Halsey Stuart, Inc. v. French, 425 F.Supp. 1231 (D.C.Cir.1977). 5. See Section III C, infra. 6. Shearson’s brief cites two cases to support this argument, neither of which is relevant to the facts as we understand them. 7. We also express no view on whether claims arising before the 1982 amendment to 7 U.S.C. § 7a(ll) and for an amount in excess of $15,000 are a proper subject of arbitration. Compare Breyer v. First National Monetary Corp., 548 F.Supp. 955 (D.N.J.1982) (holding these claims are not arbitrable) with Ingbar, 683 F.2d at 605 (stating the $15,000 limitation does not preclude arbitrability). This question has not been briefed or argued here and is considered not to be in issue. Márchese only cited Breyer at the end of a post-argument brief that the court expressly ordered was to be limited to the impact of Amaro v. Continental Can, 724 F.2d 747 (9th Cir.1984), on this case.	LIMITED_OR_DISTINGUISHED
724 F.2d 747	723 F. Supp. 2d 268	ACAN	Santiago Amaro v. The Continental Can Company	ORDER ON DEFENDANT’S MOTION TO DISMISS PLAINTIFF’S AMENDED COMPLAINT D. BROCK HORNBY, District Judge. On May 17, 2010, 2010 WL 1994790, I granted the defendant employer’s motion to dismiss on grounds of federal preemption and granted the plaintiff employee leave to amend. Now the employee has filed an amended complaint charging his employer in two counts: interfering with his ERISA-protected rights to certain medical benefits under the employer’s welfare benefit plan, in violation of 29 U.S.C. § 1140; and violating the Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12112(b)(1), (b)(3)(A), for discriminating against him based upon a heart attack and surgery. The employer has moved to dismiss the first count for failure to exhaust administrative remedies and the second count because the original motion to amend (and hence my Order granting it) did not extent to asserting an ADA claim. The employer’s motion is Denied. Facts as Alleged in the Amended Complaint According to the Amended Complaint, the employee took a week of unpaid vacation leave, with his employer’s permission, between Christmas 2007 and New Year’s Day 2008. Am. Compl. ¶¶ 12-13 (Docket Item 17). On December 26, 2007, while on leave, he suffered a heart attack. Id. ¶ 14. On December 27, he had quadruple bypass surgery. Id. At the time he was a member of his employer’s welfare benefit plan. Id. ¶ 11. Upon learning of the heart attack and surgery, his employer terminated him from employment and backdated the decision to December 21, 2007, the last day he had been at work. Id. ¶ 17. This 270 employer’s decision resulted in the Plan Administrator (the employer’s parent company) withdrawing the payments it had been making to his medical providers and refusing to pay medical bills. Id. ¶¶ 19-20. This in turn prevented the employee from obtaining follow up care and rehabilitation services. Id. ¶ 22. Discussion A. ERISA Claim In Count 1, the employee asserts that his retroactive termination was “intended to and in fact did interfere with Plaintiffs right(s) to benefits under the Plan in violation of 29 U.S.C. § 1140.” Id. ¶ 26. Section 1140 provides: It shall be unlawful for any person to discharge... a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan [or] this subchapter... or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan [or] this subchapter.... The provisions of [29 U.S.C. § 1132] shall be applicable in the enforcement of this section. 29 U.S.C. § 1140. The employer asserts that the employee may not proceed on this claim because he has not exhausted his administrative remedies, namely, that he has failed to appeal the Plan’s denial of benefits. Def.’s Mot. to Dismiss Am. Compl. at 5 (Docket Item 18). The employee says that exhaustion is not required for a § 1140 statutory interference claim and that, in any event, exhaustion would have been futile because the Plan Administrator interpreted the Plan properly and that it was only his employer who did wrong by terminating him and backdating the decision. Pl.’s Objection to Def.’s Mot. to Dismiss at 5 (Docket Item 20). The circuit caselaw is divided about the need to exhaust administrative remedies when an employee makes a straight statutory claim (rather than a plan-based claim) under § 1140. 1 Compare Metro. Life Ins. Co. v. Price, 501 F.3d 271, 279 (3d Cir.2007) (exhaustion not required); Smith v. Sydnor, 184 F.3d 356, 364 (4th Cir.1999) (same); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1205 (10th Cir.1990) (same); Amaro v. Continental Can Co., 724 F.2d 747, 749 (9th Cir.1984) (same), with Counts v. American Gen. Life & Accident Ins. Co., 111 F.3d 105, 109 (11th Cir.1997) (exhaustion is required); Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (district court has discretion to require exhaustion as a prerequisite to bringing a statutory ERISA claim). The First Circuit requires exhaustion of administrative remedies for contractual claims under ERISA. Morais v. Central Bev. Corp. Union Employees’ 271 Supplemental Retirement Plan, 167 F.3d 709, 712 n. 4 (1st Cir.1999). In Madera v. Marsh USA, Inc., 426 F.3d 56 (1st Cir.2005), the court explained that where an employee is making a claim for past due benefits (in Madera, severance pay) based upon a § 1140 violation and suing both his employer and the Plan, the claim is subject to the same principle: A claim for the wrongful denial of benefits, such as the one here, is not to be treated as a “statutory” claim, but rather as a “contractual” one. We have explicitly recognized that the argument that a “claim for past due benefits is based not on the contract but on the violation of... statutory rights under ERISA and is thus not subject to the exhaustion requirement... is a simple contract claim artfully dressed in statutory clothing. If we were to allow claimants to play this characterization game, then the exhaustion requirement would be rendered meaningless.” 426 F.3d at 63 (quoting Drinkwater v. Metro. Life Ins. Co., 846 F.2d 821, 826 (1st Cir.1988)). Here, the employee says that he is not making “a claim for past due benefits” as in Madera because he seeks nothing from the Plan or the Plan Administrator. PL’s Objection at 7. Instead, he seeks from his employer reinstatement and back pay, and compensatory damages for medical bills and expenses, emotional distress and mental anguish. Am. Compl. at 5 (Prayer for Relief). However, any claim for § 1140 relief proceeds under § 1132. 29 U.S.C. § 1140; Fitzgerald v. Codex Corp., 882 F.2d 586, 589 (1st Cir.1989); see also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 144, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990). I am not yet called upon to decide what relief might be available under § 1132. Some circuits have held that only subsection (a)(3) of § 1132 can be used to seek relief for a § 1140 violation. See, e.g., Eichorn v. AT & T Corp., 484 F.3d 644, 652-53 (3d Cir.2007); see also Eichorn v. AT & T Corp., 489 F.3d 590, 592 (3d Cir.2007) (Ambro, J., concurring in denial of rehearing en banc). Section 1132 provides that a participant, beneficiary, or fiduciary may seek “(A) to enjoin any act or practice which violated any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this sub-chapter or the terms of the plan.” 29 U.S.C. § 1132. Thus, reinstatement may be available without exhaustion, perhaps back pay (often called equitable relief) also without exhaustion, and a contractual claim for benefits (perhaps requiring exhaustion according to Madera). But ERISA may not allow for compensatory damages for a § 1140 violation. At the very least, then, the exhaustion question is complicated in this lawsuit against the employer who terminated the employee retroactively. In any event, the employee has alleged in the Amended Complaint that it is futile for him to appeal to the Plan Administrator, because it is his employer, not the Plan Administrator, who changed his status retroactively. Am. Compl. ¶¶ 27-28. The First Circuit has recognized the availability of the futility exception to exhaustion. See Madera, 426 F.3d at 62 (citing Drinkwater, 846 F.2d at 826). The futility allegation here is “plausible on its face.” SEC v. Tambone, 597 F.3d 436, 442 (1st Cir.2010) (quoting Ashcroft v. Iqbal, — U.S. -, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)). At this stage of the case, I know neither the Plan language nor the specific acts, and thus it is unlike the cases where the First Circuit has found no futility after the record was developed and presented at summary judgment. See Madera, 426 F.3d at 62-63; Drinkwater, 846 F.2d at 826. *272 In light of these complexities, I think it advisable to have a fully developed record before ruling on the consequence of any failure to exhaust. I therefore Deny the motion to dismiss Count 1 of the Amended Complaint.. B. ADA Claim The employee initially made no federal ADA claim in this lawsuit for the termination resulting from his heart attack and surgery. Instead, he filed his lawsuit solely as a Maine Human Rights Act claim in state court. It is true that in granting the original motion to dismiss on preemption grounds, I recognized that he had not alleged the necessary elements of a federal ADA claim (Maine law is less demanding 2 ). It is also true that he did not ask for permission to add a federal ADA claim at that time. But had he so requested, I would have granted the motion, given the procedural history of removal, and therefore I do so now. There is no undue prejudice to the defendant at this early stage of the lawsuit for the plaintiff to add a federal ADA claim. The basic facts of the case remain the same, and I see no evidence of undue delay, bad faith, or dilatory motive on the part of the plaintiff that would lead me to deny amendment. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). As to the motion to dismiss, the plaintiff has pleaded that due to his inability to pay medical expenses, he has not been able to make a “complete and full recovery” from his heart attack. Am. Compl. ¶ 22. On a motion to dismiss, I take as true all facts pleaded in the plaintiffs complaint and make all inferences in the plaintiffs favor. Martino v. Forward Air, Inc., 609 F.3d 1, 1-2 (1st Cir.Mass.2010). It is reasonable to infer (and plausible on its face) that incomplete recovery from a heart attack and a quadruple coronary bypass, Am Compl. ¶ 14, would “substantially limit” the plaintiffs ability to work. 42 U.S.C. § 12102(1)(A) (2007). I therefore Deny the motion to dismiss Count 2 of the Amended Complaint. So Ordered. 1. The Second, Third, and Fifth Circuits have held that under ERISA, exhaustion of remedies is an affirmative defense rather than a jurisdictional element. See Paese v. Hartford Life & Accident Ins. Co., 449 F.3d 435, 446 (2d Cir.2006) (holding that "a failure to exhaust ERISA administrative remedies is not jurisdictional, but is an affirmative defense"); Metro. Life Ins. Co. v. Price, 501 F.3d 271, 280 (3d Cir.2007) ("The exhaustion requirement is a nonjurisdictional affirmative defense."); Wilson v. Kimberly-Clark Corp., 254 Fed. Appx. 280, 286-87 (5th Cir.2007) (holding that exhaustion is an affirmative defense to an ERISA claim and that a plaintiff need not plead or demonstrative exhaustion to avoid 12(b)(6) dismissal); Crowell v. Shell Oil Co., 541 F.3d 295, 309 (5th Cir.2008) (exhaustion is an affirmative defense). The First Circuit has held that a district court should grant a Rule 12(b)(6) motion based on an affirmative defense only if the facts establishing that defense are "definitively ascertainable from the complaint and other allowable sources of information” and "suffice to establish the affirmative defense with certitude." Gray v. Evercore Restructuring L.L.C., 544 F.3d 320, 324 (1st Cir.2008) (citation omitted). 2. The employee claims that he is disabled due to heart disease, which Maine law considers to be a disability "[w]ithout regard to severity.” 5 M.R.S.A. § 4553-A(l)(B) (2007). He now alleges that his heart disease “substantially limits a major life activity [, i.e.,] working,” Am. Compl. ¶ 30 (Docket Item 17), which satisfies the requirements of the ADA (and Maine law). See 42 U.S.C. § 12102(1)(A) (2007) ("The term 'disability’ means... a physical or mental impairment that substantially limits one or more major life activities.”); 5 M.R.S.A. § 4553-A(l)(A) (2007) (" 'Physical or mental disability' means... [a] physical or mental impairment that... [substantially limits one or more of a person's major life activities.”).	CONFLICT_NOTED
724 F.2d 747	132 F. Supp. 2d 989	C, NF	Santiago Amaro v. The Continental Can Company	992 ORDER GRANTING IN PART AND DENYING IN PART VARIOUS DEFENDANTS’ MOTIONS TO COM- ' PEL ARBITRATION MORENO, District Judge. This multi-district litigation involves two separate categories of plaintiffs who have filed suit against various insurance companies that provide managed care. One group of plaintiffs consists of subscribers (patients) who allege causes of action against managed care companies under RICO, ERISA, and common law civil conspiracy. The other group of plaintiffs consists of providers (doctors) who allege causes of action against managed care companies under various legal theories, including RICO, ERISA, quantum meruit, breach of contract, federal clean claim payment regulations, unjust enrichment, and state prompt pay statutes. Certain defendants seek to compel certain plaintiffs to arbitrate the issues raised in this lawsuit, based upon arbitration clauses contained in the contracts that form the basis of the plaintiffs’ claims. This Order shall determine which plaintiffs are bound by contract to use arbitration as the forum to resolve certain claims asserted against certain managed care companies. WHETHER TO COMPEL ARBITRATION I. Threshold Matters to Be Resolved Pri- or to Analyzing Each Arbitration Clause Prior to deciding each of the defendants’ motions to compel arbitration individually, the Court must address certain threshold matters that relate to all of the motions to compel arbitration. These are: (A) the Federal Arbitration Act’s (the “FAA’s” or the “Act’s”) strong presumption in favor of arbitration, (B) whether ERISA claims may be arbitrated, (C) whether allegations of conspiracy and aiding and abetting.may be arbitrated, absent a contract to arbitrate between the parties, (D) whether a nonsignatory to an arbitration clause may be compelled to arbitrate due to the relationship between the nonsignatory and a signatory to the arbitration agreement, (E) the impact of the Eleventh Circuit decisions in Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054 (11th Cir.1998), and Randolph v. Green Tree Fin. Corp., 178 F.3d 1149 (11th Cir.1999) rev’d in part Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000), (F) whether class action implications affect whether to compel arbitration, and (G) whether the doctrine of unconscionability is useful in determin 993 ing the validity of the arbitration clauses at issue. After addressing each of these matters, the Court shall analyze each motion to compel separately to determine which, if any, claims must be arbitrated. A. The Federal Arbitration Act’s Presumption in Favor of Arbitration Section 4 of the FAA provides in relevant part: A party aggrieved by the alleged failure, neglect or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court... for an order directing that such arbitration proceed in the manner provided for in such agreement.... [T]he court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. 9 U.S.C. § 4. The FAA establishes a strong federal policy in favor of arbitration and creates “a body of substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the act.” Moses H. Cone Memorial Hosp. v. Mercury Contr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The scope of the Act’s provisions concerning the validity of arbitration clauses reaches to the farthest limits of Congress’ power under the Commerce Clause. Paladino, 134 F.3d at 1060. There is no dispute that the defendants in this action are engaged in interstate commerce, and accordingly, the Act applies to the present motions to compel arbitration. Section 2 of the FAA provides that an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. As the Supreme Court in Cone instructs, this language reflects “a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Cone, 460 U.S. at 24, 103 S.Ct. 927. “Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration-” Id. at 24-25, 103 S.Ct. 927. The strong federal policy in favor of arbitration applies to statutory claims with equal force. E.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). If the plaintiffs’ allegations “touch matters” covered by the arbitration agreement, then those claims must be arbitrated, irrespective of how the allegations are labeled. Id. at 625 n. 13. This approach furthers the Act’s strong presumption in favor of arbitration. Id. at 626, 105 S.Ct. 3346 (“[T]he parties’ intentions control, but those intentions are generously construed as to issues of arbitrability.”). B. Whether ERISA Claims Are Subject to Arbitration The first threshold issue presented by the various motions to compel arbitration, raised in both provider and subscriber track motions to compel, is whether ERISA claims may be arbitrated. While the Supreme Court has ruled that RICO and antitrust claims are subject to arbitration, Shearson/American Express v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (holding RICO claims arbitrable); Mitsubishi, 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (holding antitrust claims arbitrable), there has been no such determination with respect to ERISA claims. The Eleventh Circuit has not yet ruled upon the issue, but many circuit courts have ruled that ERISA claims are arbitrable. Williams v. Imhoff, 203 F.3d 758 (10th Cir.2000); Kramer v. Smith Barney, 80 F.3d 1080 (5th Cir.1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110 (3rd Cir.1993); Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116 (2nd Cir.1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, 847 F.2d 475 (8th Cir.1988). 994 Plaintiffs argue that the Eleventh Circuit would follow the Ninth Circuit decision, Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir.1984), which holds that ERISA claims are not arbitrable. The Amaro ruling rests upon the assumption that “[arbitrators, many of whom are not lawyers,... lack the competence to interpret and apply statutes as Congress intended.” Id. at 750 (citation omitted). This Court rejects the plaintiffs’ argument and finds that ERISA claims are subject to arbitration, in view of the Act’s strong presumption in favor of arbitration discussed above. The Court also finds persuasive Supreme Court rulings finding that arbitration is an appropriate forum for RICO and antitrust injuries to be vindicated. An arbitrator can resolve ERISA claims with the same skill, precision, and competence as RICO or antitrust claims. Moreover, there is no language in ERISA that leads to a finding that Congress did not intend to have ERISA claims arbitrated. The limiting factor with respect to this ruling that ERISA claims are subject to arbitration is that the arbitration clause at issue must afford the plaintiffs the opportunity of meaningful relief in an arbitration proceeding. Paladino, 134 F.3d at 1062. This limiting factor will be addressed below in Section 1(E), where the Court will address the impact of two Eleventh Circuit decisions, Paladino and Randolph, upon the instant motions to compel arbitration. This limiting factor also will be addressed with respect to certain arbitration clauses individually in Section II of this Order. C. Whether Allegations of Conspiracy and Aiding and Abetting May Be Arbitrated Where There is No Contract to Arbitrate Between the Parties The next threshold issue presented by both subscriber and provider track motions to compel arbitration is whether conspiracy and aiding and abetting allegations may be arbitrated where there is no contract to arbitrate between the parties. This scenario occurs, for example, where Plaintiff A sues Defendants B, C, and D alleging conspiracy to violate 18 U.S.C. § 1962(a) and (c) in violation of 18 U.S.C. § 1962(d), and for seeking to aid and abet and for aiding and abetting violations of 18 U.S.C. § 1962(a) and (c) within the meaning of 18 U.S.C. § 2. Plaintiff A has agreed to resolve such claims with Defendant B through arbitration, but has no contractual relationship with Defendants C and D— who have no relation to Defendant B except that all three defendants are separate operators of separate managed care companies. Plaintiffs posit that there can be no arbitration of the conspiracy and aiding and abetting claims against nonsignatories (Defendants C and D in the above example) because the plaintiffs have not contracted with these parties to arbitrate such disputes. E.g., Morewitz v. West of England, 62 F.3d 1356, 1363 (11th Cir.1995) (quoting In re Talbott Big Foot, Inc., 887 F.2d 611, 612 (5th Cir.1989) (“We are unaware of any federal policy that favors arbitration for parties who have not contractually bound themselves to arbitrate their disputes.”)). Defendants argue that these claims must be arbitrated, relying upon the Eleventh Circuit reasoning in MS Dealer Service Corp. v. Franklin, 177 F.3d 942 (11th Cir.1999). Notwithstanding the general rule that only parties who agree to arbitrate may be compelled to do so, the Eleventh Circuit has ruled that there exist limited circumstances where a matter will be compelled to arbitration, absent a signed agreement between the parties. Id. at 947 (citing Sunkist Soft Drinks, Inc. v. Sunkist Growers Inc., 10 F.3d 753 (11th Cir.1993)). These are: (1) equitable estoppel, (2) agency or related principles concerning signatory defendants and nonsignatory defendants, and (3) third party beneficiary relationships. MS Dealer, 177 F.3d at 947. 995 ’ Defendants’ reliance on MS Dealer, where the court found equitable estoppel existed, is misplaced. That case involved a consumer transaction where Ms. Franklin executed a “Buyers Order” to purchase a vehicle from Jim Burke Motors, Inc. The Buyer’s Order incorporated by reference a Retail Installment Contract, which Ms. Franklin purchased for $990.00, and also contained a valid arbitration clause. Ms. Franklin filed suit after purchasing the car, asserting claims for breach of contract, breach of warranty, fraud, and civil conspiracy between signatory defendant Jim Burke Motors Inc. and nonsignatory defendant MS Dealer. Among other allegations, Ms. Franklin claimed that both parties shared in the excessive profits from the Retail Installment Contract. The only claims asserted against MS Dealer related to the Retail Installment Contract. MS Dealer moved to compel arbitration, based upon the Buyers Order arbitration clause, and Ms. Franklin objected on the ground that there was no signed agreement to arbitrate between herself and MS Dealer. Id. at 944-45. The MS Dealer court found that Ms. Franklin was equitably estopped from objecting to arbitration of the dispute under both circumstances where equitable estoppel arises. First, equitable estoppel arises where a signatory to a written agreement must rely on the terms of the agreement in asserting its claims against the nonsignatory. Id. at 947 (citing Sunkist, 10 F.3d at 757). Under this form of equitable estoppel, there also must be a close relationship between nonsignatory and signatory defendants, which did exist between signatory defendant Jim Burke Motors Inc. and nonsignatory defendant MS Dealer. See Sunkist, 10 F.3d at 757. Second, equitable estoppel applies where there is interdependence and concerted misconduct between the nonsignatory and signatory defendants. Otherwise, the arbitration proceeding between the two signatories would be rendered meaningless and the federal policy in favor of arbitration thwarted. MS Dealer, 177 F.3d at 947. In the instant action, the plaintiffs allege violations against parties bound to arbitrate (“signatories”) and seek to hold non-signatories liable for conspiracy and aiding and abetting. Some signatory defendants have valid arbitration clauses that will be enforced, while other signatory defendants will litigate before the undersigned either for lack of an arbitration agreement or an invalid arbitration agreement. The issue before the Court is whether the nonsigna-tory defendants may compel arbitration, relying upon the doctrine of equitable es-toppel. With respect to the first way to find equitable estoppel discussed above, there is a distinguishing factor between this case and MS Dealer and Sunkist; namely, the relationship between signatory defendants and nonsignatory defendants. In MS Dealer, the defendants worked in concert to sell vehicles with retail installment contracts included in the purchase agreement for the vehicle. In Sunkist, which involved licensing issues, the nonsignatory, Del Monte, acquired all of the stock of signatory Sunkist Soft Drinks. The instant action is distinguishable because the signatory managed care company and nonsignatory manage care companies do not have the requisite “close relationship” needed to find equitable estoppel. Sunkist, 10 F.3d at 757. With respect to the second way to find equitable estoppel, this Court finds the doctrine inapplicable to the current action. The MS Dealer court was concerned with thwarting the FAA by a scenario where the nonsignatory defendant would litigate the same action in federal court that the signatory defendant would arbitrate concurrently. The present action is much more complex, involving many more parties. The concern that the FAA will be thwarted does not exist in the present scenario. In fact, this Court is painstakingly following the FAA’s mandate to arbitrate whatever the parties 996 agree to arbitrate, even though it will lead to concurrent proceedings. While the Court believes that it would be most efficient to have all claims heard either in Federal court or in front of an arbitrator due to the strong likelihood of concurrent proceedings before itself and multiple arbitrators, the Supreme Court has instructed otherwise. Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 217, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (holding that Federal Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims, “even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.”). As such, the Court will compel arbitration of whichever claims are deemed arbitrable and retain jurisdiction to hear all other claims. 1 Here, it is inevitable, based upon this Order, that some signatory defendants will be forced to arbitrate certain claims, while the same claims will be litigated before the undersigned concurrently. This Court will be hearing the same RICO issues (including RICO conspiracy and aiding and abetting by nonsignatories) with respect to defendants that do not have arbitration clauses in their agreements with the plaintiffs, or whose arbitration clauses are ruled invalid. By way of example, Humana either does not have an arbitration clause in its agreements with providers or it does not move to compel arbitration. The plaintiffs allege conspiracy and aiding and abetting against the other named defendants in this action, stemming from Huma-na’s contractual relationship with the plaintiffs. All nonsignatory defendants to the Humana agreements will be forced to defend the conspiracy and aiding and abetting claim in front of the undersigned. Accordingly, this Court does not find the justification necessary (i.e. the thwarting of the FAA) to allow nonsignatories to an arbitration agreement to compel arbitration based upon the doctrine of equitable estoppel. 2 D. Whether a Nonsignatory to an Arbitration Agreement May Be Compelled to Arbitrate A related issue concerning nonsignato-ries to arbitration agreements arises (1) where a plaintiff sues a parent company, concerning an agreement between the plaintiff and the parent’s subsidiary (or affiliate), where only the subsidiary has contracted with the litigant to arbitrate; and (2) where a nonsignatory plaintiff sues a signatory defendant, based upon an agreement (that contains an arbitration clause) between the defendant and a third party to whom the plaintiff is affiliated. The principles enumerated by the Eleventh Circuit in MS Dealer for justifying a nonsignatory to arbitrate discussed above apply with equal force to these issues, but lead to a different result. MS Dealer, 177 F.3d at 947. The Court finds that under either theory of equitable estoppel, as well as under the agency and third party beneficiary exceptions, a nonsignatory parent should be compelled to arbitrate where either (a) the signatory subsidiary or affiliate is compelled to arbitrate, or (b) the nonsignatory parent benefits from the contractual relations of its subsidiary’s relationship with the plaintiffs — irrespective of whether the subsidiary is a party to the lawsuit. Likewise, the Court finds that a nonsignatory plaintiff is bound to arbitrate disputes against a signatory defendant, where the plaintiff brings suit based upon 997 an agreement between the defendant and a third party to whom the defendant is affiliated. E. The Impact of the of the Eleventh Circuit Holdings in Paladino and Randolph The next issue before the Court is the Eleventh Circuit’s rulings in Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054 (11th Cir.1998), and Randolph v. Green Tree Fin. Corp., 178 F.3d 1149 (11th Cir.1999) rev’d in part Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). Not surprisingly, these cases have received quite a bit of attention from the litigants in this action. Based upon the holdings in these two cases, the plaintiffs seek to negate contractual obligations to arbitrate disputes between the parties because the arbitration forum does not provide meaningful relief for the plaintiffs’ statutory claims. Defendants argue that the cases are distinguishable and that an arbitration forum can meaningfully resolve all of the plaintiffs’ claims. Despite the FAA’s strong presumption in favor of arbitrating all disputes as agreed between the parties, the Eleventh Circuit has refused to permit arbitration of certain statutory disputes under limited circumstances. See Paladino, 134 F.3d at 1062 (“[T]he arbitrability of such claims rests on the assumption that the arbitration clause permits relief equivalent to court remedies.”). In Paladino, the court refused to enforce the parties’ employment agreement to arbitrate all disputes between the parties. In relevant part, the arbitration agreement permitted the arbitrator to award damages for breach of contract, but prohibited the arbitrator from awarding any other type of damages. Id. at 1056. The Paladino court based its holding on two grounds. First, the court found that the clause prohibiting extra contractual damages denied the plaintiff of any meaningful relief for her Title VII claims. “This clause defeats the statute’s remedial purposes because it insulates Avnet from Title VII damages and equitable relief.” Id. at 1062. Second, the court found that the statutory policy behind Title VII would be frustrated further by the parties’ agreement to arbitrate through the American Arbitration Association (“AAA”), which charges high fees — $2,000 in this case. “[A] clause such as this one that deprives an employee of any hope of meaningful relief, while imposing high costs on the employee, undermines the policies that support Title VII.” Id. In Randolph, the plaintiff alleged violation of the Truth in Lending Act (“TILA”) because the defendant required her to obtain “vendor’s single interest” insurance in connection with the financing of the purchase of her mobile home, but did not include the requirement in its TILA disclosure. The arbitration clause in the retail installment agreement governed all disputes between the parties, and granted the arbitrator authority to award money damages, declaratory relief, and injunctive relief. However, the arbitration clause made no mention of what organization shall conduct the arbitration, whether the parties were to share the expenses of the arbitration, or what the filing fees of the arbitration would be. Randolph, 178 F.3d at 1151. In holding the arbitration clause unenforceable, the Randolph court was concerned that the plaintiffs statutory rights under TILA would not be vindicated in an arbitration forum due to the exorbitant cost of initiating arbitration as compared to the “small sum” of plaintiffs claims. Id. at 1158 (“[T]he arbitration clause... fail[ed] to provide minimum guarantees required to ensure that Randolph’s ability to vindicate her statutory rights will not be undone by steep filing fees, steep arbitrator’s fees, or other high costs of arbitration.”). Perhaps realizing the potentially far reaching effect of its holding, the court distinguished this “small consumer transaction,” as well as the employment agree 998 ment in Paladino, from other contexts, such as commercial franchise agreements. Id. at 1159. The issue before this Court is how these cases relate to both the provider track and subscriber track agreements to arbitrate. Beginning with the provider track plaintiffs, they argue that their statutory rights under RICO and ERISA will not be vindicated in an arbitration forum, and that they will not be able to obtain meaningful statutory relief through arbitration. The burden of establishing this proposition rests with the provider plaintiffs. Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 522, 148 L.Ed.2d 373 (2000); see also Shearson/American Express, 482 U.S. at 225-26, 107 S.Ct. 2332. The issues raised by Paladino concerning limitation of an arbitrator’s authority to award extra contractual damages will be addressed individually below in Section II, where the Court will determine whether any of the arbitration agreements at issue prevent meaningful relief in an arbitration forum due to a limitation on extra contractual damages. With respect to the Randolph (and to a lesser extent Paladino.) concern that steep filing fees and costs of arbitration will prevent meaningful relief through arbitration, the Court declines the provider track plaintiffs’ invitation to expand the Eleventh Circuit holdings. The Eleventh Circuit decision in Randolph made clear that its holding was limited to small consumer transactions concerning small sums of money, as well as Title VII claims in employment relationships. This Court finds the relationship between sophisticated groups of doctors and managed care companies, where the doctors contract to provide health care to large groups of patients, quite distinguishable. Another distinguishing factor between Randolph and the instant action is the alleged amount in controversy. In Randolph, the amount in controversy was a “small amount” stemming from a failure to disclose a requirement to purchase vendor insurance in connection with the purchase of a mobile home. In the instant action, the provider plaintiffs attempt to persuade the court that their statutory claims are too small to combat the hefty costs of arbitration. This argument is unpersuasive because each provider plaintiff alleges multiple instances of statutory violations over an extended period of time. In aggregate, each provider plaintiff allegedly has suffered considerable harm. These aggregate claims may be arbitrated by each plaintiff who has signed a valid and enforceable arbitration agreement. Moreover, today the Supreme Court reversed in part the Randolph decision, ruling that an arbitration agreement that is silent with respect to arbitration costs does not render the agreement unenforceable. Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 521-22, 148 L.Ed.2d 373 (2000) (“The ‘risk’ that Randolph will be saddled with prohibitive costs is too speculative to justify the invalidating of an arbitration agreement.”). While the Supreme Court did acknowledge that “the existence of large arbitration costs could preclude a litigant... from effectively vindicating her federal statutory rights in the arbitral forum[,]” id. at 10, the Court was “mindful of the FAA’s purpose to reverse the longstanding judicial hostility to arbitration agreements and to place arbitration agreements upon the same footing as other contracts.” Id. at 9 (quotation and citation omitted). In total, the doctors are sophisticated individuals, not consumers alleging TILA violations in connection with the purchase of a mobile home or employees suing under Title VII. The Court is unpersuaded that the provider track plaintiffs’ statutory claims will not be vindicated in an arbitration forum due to excessive filing fees and costs. Green Tree Fin. Corp., 531 U.S. 79, 121 S.Ct. 513, 522, 148 L.Ed.2d 373 (stating that the party resisting arbitration bears the burden of proving that the 999 claims at issue are unsuitable for arbitration); see also Williams v. Cigna, 197 F.3d 752, 763-64 (5th Cir.1999) (enforcing arbitration clause absent evidence that plaintiff cannot afford to pay half the filing fees). To rule otherwise would expand the Eleventh Circuit’s holdings and frustrate the FAA’s strong presumption in favor of arbitration. In contrast, the subscriber plaintiffs are in a better position to argue that their claims are analogous to the consumer transaction or employment relationships addressed by the Eleventh Circuit. The subscriber plaintiffs are individuals who have contracted, through their- employer, to receive managed care from the defendants. They allege statutory violations stemming from being overcharged for the price of their managed care due to misrepresentations and omissions. Because there is only one subscriber defendant who seeks to compel arbitration, it is most efficient for the Court to acknowledge the potential analogy, and determine whether Plaintiff Hitsman may avail herself of the Randolph holding now. (All other issues concerning Plaintiff Hitsman’s arbitration clause will be addressed below in Section III.) Plaintiff Hitsman argues that her agreement to arbitrate disputes with PacifiCare-Oklahoma will deny her the ability to vindicate her statutory claims. However, in contrast to the Randolph arbitration agreement that did not discuss which organization would arbitrate or how costs would be shared, Plaintiff Hitsman’s arbitration agreement is governed by JAMS/Endispute and states that the fees and expenses of the arbitrator and neutral administrator will be divided equally. The filing fee for a JAMS/Endispute arbitration is $250. Accordingly, the concerns raised in Randolph involving steep filing fees and uncertainty as to whom shall bear the brunt of these unknown fees do not exist here. Moreover, the Court is unpersuaded that the amount in controversy for Plaintiff Hitsman is such a “small sum” as the plaintiffs injury in Randolph. Plaintiff Hitsman has failed to meet her burden on this point, as well as her burden of establishing that her statutory rights will not be vindicated in an arbitration forum due to excessive fifing fees. The Randolph holding will not assist Plaintiff Hits-man in opposing the motion to compel arbitration. F. Whether Class Action Implications Affect Whether to Compel Arbitration The next issue concerning both subscriber and provider cases concerns the potential that this Court may certify this case as a class action. Named plaintiffs who may be forced to arbitrate their claims seek to prevent arbitration on the ground that this multi-district litigation is a class action, and that other, unnamed plaintiffs will surface who are not required to arbitrate. Following this argument, the Court should not compel arbitration for the named plaintiffs who agreed to arbitrate. This argument is misguided. The Court is only concerned with deciding the issues before it presently, not the issues of hypothetical plaintiffs in a potential class action lawsuit. O’Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974). If other plaintiffs come forward who are not bound by an agreement to arbitrate, the Court will address such issue when ripe. Moreover, class action allegations do not prevent the named plaintiffs from being forced to compel arbitration when such plaintiffs have agreed to arbitrate all of their disputes with the defendants. Caudle v. American Arbitration Ass’n, 230 F.3d 920 (7th Cir.2000) (“A procedural device aggregating multiple persons’ claims in litigation does not entitle anyone to be in litigation; a contract promising to arbitrate the dispute removes the person from those eligible to represent a class of litigants.”); see also Johnson v. West Suburban Bank, 225 F.3d 366, 368 (3rd Cir.2000) 1000 (holding that arbitration of plaintiffs statutory claims is required even where the arbitration clauses may prevent the bringing of class action lawsuits). G. Whether the Doctrine of Unconscio-nability Is Useful in Determining the Validity of the Arbitration Clauses at Issue Lastly, at oral argument on October 26, 2000, there was discussion of whether the arbitration clauses at issue are unconscionable contracts of adhesion. To prevail on this argument, the plaintiffs must show that the clauses are both procedurally and substantively unconscionable for the clauses to be deemed unenforceable. Golden v. Mobil Oil Corp., 882 F.2d 490, 498 (11th Cir.1989). “Procedural unconscionability exists when the individualized circumstances surrounding the transaction reveal that there was no ‘real and voluntary meeting of the minds’ of the contracting parties. Substantive unconscionability exists when the terms of the contractual provision are unreasonable and unfair.” Id. (citations omitted). Plaintiffs’ unconscionability argument must be summarily dismissed because the Court finds there is nothing substantively unconscionable with an arbitration clause per se. Coleman v. Prudential Bache Securities, Inc., 802 F.2d 1350, 1351 (11th Cir.1986) (“[TJhere is nothing inherently unfair or oppressive about arbitration clauses.”). As discussed above, the Court intends to examine each arbitration clause to determine whether it is enforceable. The Court need not rule upon whether each arbitration clause is substantively unconscionable because an unfair or oppressive clause will not be enforceable under existing Supreme Court and Eleventh Circuit precedent governing arbitration clauses, irrespective of whether the clause is procedurally unconscionable. With these threshold issues addressed, the Court now examines each of the defendants’ motions to compel arbitration. II. ANALYSIS OF INDIVIDUAL ARBITRATION CLAUSES TO DETERMINE WHETHER TO COMPEL ARBITRATION IN PROVIDER TRACK CASES A. United UnitedHealthcare, Inc. and United-Health Group Incorporated f/k/a United Healthcare Corporation (“United”) seek to compel arbitration of all claims raised by provider plaintiffs Manual Porth, M.D. and Glenn L. Kelly, M.D. With respect to Dr. Porth, the United Defendants proffer a United Healthcare of Florida Medical Group Participation Agreement between United Healthcare of Florida and Community Orthopaedics and Pain Management, Inc. 3 The arbitration clause provides in relevant part that all matters arising from the agreement shall be arbitrated, but limits the arbitrator’s authority by preventing the arbitrator from awarding extra contractual damages, including punitive or exemplary damages. Moreover, the arbitration agreement includes a one year statute of limitations to bring the claims in arbitration once there is written notice of the dispute. The prohibition on extra contractual damages is precisely the type of arbitration agreement that was found unenforceable in Paladino. Such an arbitration agreement prevents Dr. Porth from obtaining any meaningful relief for his statutory claims. Additionally, the one year statute of limitations raises grave concerns that Dr. Porth’s statutory claims will not be adjudicated appropriately in an arbitration forum. Paladino, 134 F.3d at 1058 1001 (citing Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244 (9th Cir.1994)). Accordingly, the Court will not compel arbitration of Dr. Porth’s claims arising under RICO, ERISA, federal clean claim payment regulations, state prompt pay statutes, unjust enrichment, and state prompt pay statutes. However, the Court is not persuaded that the statute of limitations provision is a strong enough factor, on its own, to overcome the FAA’s strong presumption in favor of arbitration. Thus, the Court will compel arbitration of Dr. Porth’ breach of contract and quantum meruit claims, as these claims, if successful, would lead to contractual damages. United moves to compel Dr. Kelly to arbitrate based upon a United Healthcare of Colorado, Inc. Physician Participation Agreement between United Healthcare of Colorado and Dr. Kelly. 4 The arbitration provision is identical to the United arbitration agreement discussed above concerning Dr. Porth, except that Dr. Kelly’s arbitration clause only prevents the arbitrator from granting punitive or exemplary damages. The arbitrator may award extra contractual damages. The Court finds that the limitation on punitive or exemplary damages serves as a limitation on the types of statutory claims that may be adjudicated before an arbitrator. Paladino, 134 F.3d at 1062 (“[T]he arbitrability of such claims rests on the assumption that the arbitration clause permits relief equivalent to court remedies.”). Dr. Kelly alleges RICO violations, which provide for treble damages. Treble damages are a form of punitive damages. Genty v. Resolution Trust Corp., 937 F.2d 899, 910-11 (3rd Cir.1991); Pine Ridge Recycling, Inc. v. Butts County, Georgia, 855 F.Supp. 1264, 1273 (M.D.Ga.1994); cf. Shearson/American Express, 482 U.S. at 240-41, 107 S.Ct. 2332 (indicating in dicta that treble damages are primarily remedial and secondarily punitive). The Court also finds that the one year statute of limitations serves the function of limiting the ability for-Dr. Kelly to obtain meaningful relief in an arbitration forum for his other statutory claims. Thus, the Court shall only compel arbitration of Dr. Kelly’s breach of contract and quantum meruit claims. There is one final contention raised by United that must be addressed. In an effort to compel arbitration and dismiss the instant action against Drs. Porth and Kelly, United has expressed a willingness to waive the arbitration clauses’ limitations that prevent an arbitrator from awarding extra contractual damages and punitive or exemplary damages. 5 Principles of justice and fair play, however, lead to the conclusion that one party unilaterally cannot alter post litem motam terms of an agreement so that a case is dismissed. Cf. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56-57, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) (“[I]f the contract says ‘no punitive damages,’ that is the end of the matter, for courts are bound to interpret contracts in accordance with the expressed intentions of the parties— even if the effect of those intentions is to limit arbitration.”). The Court rejects United’s attempted waiver. B. Foundation Foundation Health Systems, Inc. (“Foundation”) references four agreements that contain arbitration clauses in moving to compel plaintiff Dennis Breen, M.D. to arbitrate. Because three of the four agreements are enforceable, the Court shall compel Dr. Breen to advance all of his claims, except the conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies, in accordance with 1002 the parties’ contracted arbitration agreement. Foundation argues that an arbitration clause in the Sutter Agreement, entered into between Health Net and Sutter Independent Physicians as a Participating Medical Group, requires that Dr. Breen’s claims be arbitrated. 6 This agreement calls for arbitration of all grievances between the parties. Costs are split between the parties, unless assessed differently by an arbitrator. Fees are advanced by the initiating party. The one potentially objectionable part of this agreement is the mandate that fees are advanced by the initiating party. The initiate fee mandate may result in the concern raised in Paladino and Randolph that hefty fees wouíd prevent meaningful relief. This concern dissipates because there are two other enforceable arbitration clauses without a provision mandating that the fees be advanced by the initiating party. The Court intends to order arbitration under the other two agreements so that Dr. Breen is not required to advance the fees as the initiating party. The two other agreements that contain an arbitration clause are: (1) Physicians Services Agreement between Health Net and Foundation Health Systems Affiliates and Dr. Breen, and (2) Champus/Tricare Prime and Extra Professional Provider Agreement between Foundation Health Systems Affiliates and Dr. Breen. The Physicians Services Agreement calls for arbitration of claims arising in tort, contract, or otherwise. The arbitration shall be governed by the California Arbitration Act. The Champus/Tricare Agreement states that any problems or disputes relating to the agreement are to be arbitrated. The prevailing or substantially prevailing party’s costs shall be borne by the other party. Dr. Breen’s allegations against Foundation are interrelated with the Physicians Services Agreement and the Champus/Tri-care Agreement. Accordingly, the Court shall compel Dr. Breen to arbitrate all of his claims against Foundation, excluding conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. Lastly, for purposes of clarity to the future arbitrator, the Court finds unenforceable the fourth arbitration clause proffered by Foundation, located in the CHW Agreement between Foundation Health Systems Affiliates and CHW Medical Foundation as a Participating Medical Group. This arbitration agreement provides for a six month statute of limitations to bring arbitration, and divests the arbitrator of the ability to award punitive damages. For the various reasons addressed above, an arbitration clause with these limitations is unenforceable. Nonetheless, the Court will compel arbitration based upon the arbitration clauses found in the Physicians Services Agreement and the Champus/Tricare Agreement. C. WellPoint WellPoint Health Networks Inc. (“Well-Point”) seeks to compel arbitration of Dr. Breen’s allegations against it based upon an arbitration agreement found in a Provider Agreement between Dr. Breen and WellPoint’s subsidiary, Blue Cross of California. The arbitration clause provides first for a meet-and-confer process followed by arbitration. The clause governs any problems or disputes concerning the agreement. The arbitration shall be governed by AAA, and there is no limitation on damages or the types of disputes that may be brought. 1003 The Court finds nothing objectionable with this arbitration clause, in view of the Court’s holdings in Section I. Dr. Breen’s allegations against WellPoint arise from this agreement. There are no impediments that this Court is aware of that would prevent Dr. Breen from having all of his claims against WellPoint meaningfully resolved in an arbitration forum, except for conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. D. Prudential Prudential Insurance Company of America (“Prudential”) moves to compel arbitration of Dr. Porth’s claims against it based upon a Participating Physician Agreement between Dr. Porth and Prudential Health Care Plan, Inc. and/or its affiliates. Dr. Porth opposes this motion on the ground that the arbitration mandate in this agreement is optional. An examination of this arbitration clause indicates that both parties should have proceeded differently in handling this dispute, but ultimately leads to the conclusion that Dr. Porth must follow the dispute resolution procedures agreed upon between the parties. For the reasons discussed below, Dr. Porth must mediate or arbitrate the allegations against Prudential presently before the Court, except for conspiracy and aiding and abetting allegations that stem from contractual relationships with other managed care companies. Article IX of the Participating Physician Agreement, titled “Arbitration,” contains three subsections. Section A provides that the exclusive methods for resolving disputes concerning the parties’ agreement are “negotiation, mediation, and/or arbitration.” Section B, “Mediation,” states that if a dispute arises and the parties cannot settle the dispute through negotiation, then either party may elect to submit the dispute to a sole mediator. If the parties cannot resolve the dispute within sixty days from the start of mediation, “either party may elect to submit the dispute to binding arbitration.” Lastly, Section C, “Arbitration,” provides the ground rules for arbitration, none of which lead to a finding that the arbitration clause is unenforceable. Dr. Porth bases his argument that the arbitration clause is optional on the use of “and/or” language in Section A, as well as the preamble to Section C, which states “If the parties agree to binding arbitration.... ” The Court finds that this agreement provides for three different forms of dispute resolution to be the exclusive means for resolving disputes concerning the agreement. The use of “and/or” language in Section A documents that these forms of dispute resolution are options; an aggrieved party is not required by this agreement to avail himself of all three options. Either party may initiate the dispute resolution procedures through negotiation, or both parties can agree at the onset to arbitration. In the present scenario, neither party has elected for negotiation (which would lead to the unilateral power to compel mediation and then arbitration), and both parties do not agree to binding arbitration. Analysis of how both parties chose to proceed is instructive in determining how to resolve Prudential’s motion to compel arbitration. There is no record evidence that suggests that once Dr. Porth filed the instant action, Prudential attempted to avail itself of the dispute resolution procedures discussed above. Rather, Prudential unilaterally sought to compel arbitration, despite the fact that the arbitration clause requires both parties to agree to arbitrate. The only unilateral power Prudential possessed was to compel mediation after negotiation proved unsuccessful. A more prudent approach for Prudential, based upon the parties’ agreement, would have been to initiate negotiation. While negotiation probably would have been futile, it would have given Prudential unilateral power to submit the dispute to mediation. 1004 If mediation proved unsuccessful after sixty days, then Prudential would have the unilateral power to force arbitration, as per the parties’ agreement. Likewise, Dr. Porth did not follow the parties’ agreed upon dispute resolution procedures. Dr. Porth would have been able to seek redress for all of his claims, excluding the conspiracy and aiding and abetting allegations stemming from contractual relationships with other managed care companies, by following the agreed upon dispute resolution procedures. If negotiations proved futile, Dr. Porth could have unilaterally compelled mediation. If mediation was unsuccessful after sixty days, then Dr. Porth would have had the unilateral power to compel arbitration. At bottom, both parties agreed to have the aforementioned dispute resolution procedures exclusively govern their disputes. Accordingly, the Court must honor this commitment. Dr. Porth is ordered to follow the agreed procedures to resolve the present dispute, excluding conspiracy and aiding and abetting allegations that stem from contractual relationships with other managed care companies, which this Court retains jurisdiction to hear. Dr. Porth is free to attempt to negotiate. If such negotiation is unsuccessful, Dr. Porth is free to compel mediation or arbitration. Prudential already has consented to arbitration, but Dr. Porth has the option of mediation or arbitration — as the parties agreement only permits arbitration at this stage of the dispute resolution process by mutual agreement. E. CIGNA CIGNA Corporation, Connecticut General Corporation, and CIGNA Health Corporation (“CIGNA”) move to compel both Drs. Porth and Kelly to arbitrate their disputes with CIGNA. Dr. Porth consented to arbitration in a Physician Managed Care Agreement between Dr. Porth and CIGNA Healthcare of Florida, Inc. 7 Section 0(2) of the agreement states that “[ajrbitration shall be the exclusive remedy for the settlement of disputes arising under this Agreement.” There is no language limiting the authority of the arbitrator to award damages; fees and costs shall be split between the parties, and AAA governs. The Court finds that Dr. Porth has agreed to arbitrate the present dispute, and that the arbitration clause does not raise any concerns with respect to its enforceability. There is no reason for this Court to frustrate the parties’ agreement. All of Dr. Porth’s claims can be meaningfully adjudicated in an arbitration forum, except for conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies, which the Court retains jurisdiction to hear. With respect to Dr. Kelly, CIGNA proffers two agreements that allegedly contain arbitration clauses in moving to compel arbitration. CIGNA directs the Court’s attention to a Physician Managed Care Agreement between Dr. Kelly and CIGNA Healthcare of Colorado, Inc., and a Specialist Physician Agreement between Dr. Kelly and CIGNA Healthcare of Colorado, Inc. 8 The Physician Managed Care Agreement contains a dispute resolution section that states that all grievances and complaints between the parties shall be resolved in accordance with the dispute resolution procedures in the applicable Program Requirements. The Program Requirements mandate that the parties negotiate to resolve disputes. If negotiation fails, the parties are referred back to the Physician Managed Care Agreement, 1005 which does not give any direction as to how to proceed if negotiation does not resolve the dispute. The Specialist Physician Agreement does not suffer from the same infirmity. Section G of this agreement states that any dispute that arises concerning this agreement shall be sent to arbitration. AAA governs, and each party pays half the costs of the proceeding. Thus, the Court is faced with a scenario where the Physician Managed Care Agreement does not require arbitration, while the Specialist Physician Agreement requires arbitration. Accordingly, Dr. Kelley’s claims that relate to the Specialist Physician Agreement shall be arbitrated, except for conspiracy and aiding and abetting allegations that stem from contractual relationships with other managed care companies. Dr. Kelly’s claims that relate to the Physician Managed Care Agreement may proceed before this Court. F. PacifiCare PacifiCare Health Systems, Inc. and Pa-cifiCare Operations, Inc. (“PacifiCare”) seek to compel Dr. Breen to arbitrate his claims against PacifiCare, and bases its argument on two agreements: (1) Term Sheet between Sutter Health and Pacifi-Care of California, and (2) PMG Commercial Risk Agreement between Sutter Independent Physicians and PacifiCare of Florida. Dr. Breen counters by arguing that the Term Sheet does not apply to his claims against PacifiCare. While the Court disagrees with Dr. Breen’s contention, this issue is nondispos-itive of PacifiCare’s motion to compel arbitration because the PMG Commercial Risk Agreement contains substantially the same language in its arbitration clause as the Term Sheet’s arbitration clause. 9 As such, analysis of the PMG Commercial Risk Agreement will be dispositive of whether Dr. Breen’s claims shall be arbitrated or litigated in front of the undersigned. Both arbitration agreements contain broad language indicating that the parties intended for “any controversy, dispute, or claim arising out of the agreement” to be arbitrated. However, both agreements prohibit the arbitrator from awarding punitive damages. Thus, we are faced with a potential Paladino situation, discussed earlier within the context of United’s motion to compel arbitration (Section 11(A)), where the plaintiff may not be able to obtain meaningful relief for allegations of statutory violations in an arbitration forum. However, this agreement is distinguishable from the United scenario because the PacifiCare agreements do not impose a shortened statute of limitations. Accordingly, the Court will not compel Dr. Breen to arbitrate his RICO claims against PacifiCare due to the arbitrator’s inability to impose punitive (treble) damages. All other statutory and non-statutory claims shall be arbitrated, except for the conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. III. ANALYSIS OF INDIVIDUAL ARBITRATION CLAUSE TO DETERMINE WHETHER TO COMPEL ARBITRATION IN SUBSCRIBER TRACK CASE INVOLVING PACI-FICARE PacifiCare Health Systems, Inc. (“Pacifi-Care”) also moves to compel subscriber track plaintiff Debbie Hitsman to arbitrate her claims raised in the instant litigation. PacifiCare bases its argument on an arbitration clause in a Master Group Service Agreement between MCI-WorldCom, Inc. (“MCI”) and PacifiCare-Oklahoma. Plain- 1006 tiff Hitsman, as an MCI employee, became bound by the terms of the agreement when she enrolled in PacifiCare HMO. The dispute resolution process in the Master Group Service Agreement provides in § 7.01 that a dispute “relating to the performance of this Agreement by Pacifi-Care and Member” shall first be submitted to an internal dispute resolution process to resolve the dispute in a non-adjudicative setting. § 7.02 provides that any dispute that is not resolved through the dispute resolution process described in § 7.01 “shall have the matter resolved by binding arbitration by a single arbitrator.” JAMS/Endispute shall arbitrate, and its rules shall govern. The fees and expenses of the arbitrator and neutral administrator shall be divided equally among the disputants. Oklahoma law governs, and the Federal Arbitration Act also applies. Plaintiff Hitsman raises various defenses to enforcement of the arbitration clause: (1) the arbitration clause is invalid under Oklahoma law, (2) the present dispute is beyond the scope of the arbitration clause, (3) ERISA claims are not subject to arbitration, and (4) the clause is unenforceable under Randolph and Paladino. For the reasons discussed in Sections 1(B) and 1(E) above, the ERISA and Randolph and Paladino arguments are rejected. With respect to the issue of invalidity under Oklahoma law, the Court rejects that argument as well. Plaintiffs rely upon Cannon v. Lane, 867 P.2d 1235 (Okla.1993), where the Oklahoma Supreme Court invalidated an arbitration clause in an HMO contract because it was a contract with reference to insurance. Oklahoma law does not permit arbitration of claims between an insurer and the insured, “except where both the insured and insurer are insurance companies.” 15 Okla.Stat. §§ 801-18. In Cannon, a state employee sued Paci-fiCare of Oklahoma for failure to certify him for hemorrhoid surgery. The court relied upon the Oklahoma statute, as well as the common law policy that “agreements to submit future controversies to arbitration are contrary to public policy[,]” in refusing to enforce the arbitration clause. Id. at 1238. The instant action is distinguishable from Cannon. That case dealt with Oklahoma state law issues, while this ease deals with federal claims pursuant to the FAA. The Supreme Court has addresses this issue squarely in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). In Perry, the Court distinguished state laws that concern the validity, revocability, and enforceability of contracts generally, and state laws that take their meaning precisely from the fact that a contract to arbitrate is at issue. The FAA must defer to the former, but preempts the latter. Id. at 491, 107 S.Ct. 2520 (“This clear federal policy places § 2 of the [FAA] in unmistakable conflict with California’s § 229 requirement that litigants be provided a judicial forum for resolving wage disputes. Therefore, under the Supremacy Clause, the state statute must give way.”). For example, a federal court would apply state law regarding duress and inducement in determining the validity of an arbitration clause because it concerns the validity and enforceability of the contract; however, the court would not concern itself with a state law that invalidates a specific class of cases, such as stock fraud or insurance claims. Id. at 489, 107 S.Ct. 2520. Accordingly, the Oklahoma statute that prevents arbitration of insurance claims is of no assistance to Ms. Hitsman in the instant action. Plaintiffs remaining argument, that the dispute is beyond the scope of the arbitration clause, is also rejected. Plaintiff argues, by focusing on the language of § 7.01, that the arbitration clause is limited to the denial of claims relating to the performance of the agreement. § 7.02 only mandates arbitration for disputes “not resolved by the above appeals and dispute resolution processes.... ” Plaintiff posits that her allegations concerning systemic 1007 violations by PacifiCare (that speak to violations of RICO and ERISA) are not covered by the arbitration clause. PacifiCare counters by highlighting the preamble of § 7.02, “Any claim, controversy, dispute or disagreement....” The difficulty with Plaintiffs argument is two-fold. First, this Court is not persuaded that the arbitration clause at issue is limited only to denial of claims, particularly in view of the broad, all-encompassing preamble of § 7.02. Second, and perhaps more importantly, the FAA has a presumption in favor of arbitration, as propounded by the Supreme Court. Moses H. Cone Memo. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This Court is required to resolve any doubt “concerning the scope of arbitrable issues... in favor of arbitration.... ” Id. at 24-25, 103 S.Ct. 927. Accordingly, this argument is rejected as well. The parties entered into a valid arbitration agreement to resolve all disputes concerning the Master Group Service Agreement. Plaintiff must have all of her claims against PacifiCare resolved through arbitration. CONCLUSION Therefore, it is ADJUDGED that PacifiCare’s Motion to Compel Arbitration of Subscriber Track Plaintiff Debbie Hitsman’s claims (D.E. No. 76), filed on July 14, 2000, is GRANTED. All of Ms. Hitsman’s claims against PacfiCare shall be arbitrated. It is also ADJUDGED that PacifiCare’s Motion to Compel Arbitration of Provider Track Plaintiff Dennis Breen, M.D.’s claims against PacifiCare (D.E. No. 257), filed on September 8, 2000, is GRANTED in part and DENIED in part. All of Dr. Breen’s claims against PacfiCare shall be arbitrated, except for (1) RICO claims and (2) conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. It is also ADJUDGED that Prudential’s Motion to Compel Arbitration of Provider Track Plaintiff Manual Porth, M.D.’s claims against Prudential (D.E. No. 313), filed on September 22, 2000, is GRANTED in part and DENIED in part. All of Dr. Porth’s claims against Prudential shall be arbitrated, except for conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. It is also ADJUDGED that Foundation’s Motion to Compel Arbitration of Provider Track Plaintiff Dennis Breen, M.D.’s claims against Foundation (D.E. No. 314), filed on September 22, 2000, is GRANTED in part and DENIED in part. All of Dr. Breen’s claims against Foundation shall be arbitrated, except for conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. It is also ADJUDGED that United’s Motion to Compel Arbitration of Provider Track Plaintiffs Manual Porth, M.D.’s and Glen L. Kelly, M.D.’s claims against United (D.E. No. 319), filed on September 22, 2000, is GRANTED in part and DENIED in part. The only claims that shall be arbitrated are Dr. Porth’s and Dr. Kelly’s claims concerning breach of contract and quantum meruit. All other claims shall be litigated before the undersigned. It is also ADJUDGED that CIGNA’s Motion to Compel Arbitration of Provider Track Plaintiffs Manual Porth, M.D.’s and Glen L. Kelly, M.D.’s claims against CIGNA (D.E. No. 323), filed on September 26, 2000, is GRANTED in part and DENIED in part. All of Dr. Porth’s claims against CIGNA shall be arbitrated, except for conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. All of Dr. Kelly’s claims against CIGNA stemming from the Specialist Physician Agreement shall be arbitrated, except for conspiracy *1008 and aiding and abetting claims that stem from contractual relationships with other managed care companies. However, all of Dr. Kelly’s claims against CIGNA stemming from the Physician Managed Care Agreement shall be litigated before the undersigned. It is also ADJUDGED that WellPoint’s Motion to Compel Arbitration of Provider Track Plaintiff Dennis Breen, M.D.’s claims against WellPoint (D.E. No. 457), filed on October 25, 2000, is GRANTED in part and DENIED in part. Ml of Dr. Breen’s claims against WellPoint shall be arbitrated, except for conspiracy and aiding and abetting claims that stem from contractual relationships with other managed care companies. 1. Moreover, as the Eleventh Circuit instructs in Protective Life Ins. Corp. v. Lincoln Nat’l Life Ins. Corp., 873 F.2d 281 (11th Cir.1989), each party shall have individualized arbitration. There shall be no bundling of the various named plaintiffs’ claims that this Court deems arbitrable, unless an arbitrator rules otherwise. The Court takes no position on whether any of these arbitrations may become class action arbitrations. 2. The Court also does not find an agency or third party beneficiary relationship present to compel arbitration between the nonsignato-ries. MS Dealer, 177 F.3d at 947. 3. For the reasons discussed in Section 1(D), Dr. Porth may not frustrate the agreement to arbitrate by claiming that he is a nonsignatory to the agreement. Dr. Porth’s allegations "touch matters” relating to this arbitration agreement, and Dr. Porth is affiliated with Community Orthopaedics of Pain and Management, Inc. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346; MS Dealer, 177 F.3d at 947. 4. Dr. Kelly's allegations against United "touch matters” relating to this agreement. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346. 5. No such waiver has been proffered concerning the statute of limitations provisions. 6. For the reasons discussed in Section 1(D), Dr. Breen may not frustrate the agreement to arbitrate by claiming that he is a nonsignatory to the agreement. Dr. Breen’s allegations "touch matters” relating to this arbitration agreement, and Dr. Breen is affiliated with Sutter Independent Physicians. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346; MS Dealer, 177 F.3d at 947. Likewise, the Foundation Defendants are bound to this agreement to arbitrate due to their relationship with Health Net. 7. Dr. Porth’s allegations against CIGNA "touch matters" relating to this agreement. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346. 8. Dr. Kelly’s allegations "touch matters” relating to these agreements. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346. 9. For the reasons discussed in Section 1(D), Dr. Breen may not frustrate the agreement to arbitrate by claiming that he is a nonsignatory to the PMG Commercial Risk Agreement, or the Term Sheet for that matter. Dr. Forth's allegations "touch matters” relating to both of these arbitration agreements, and he is affiliated with Sutter Independent Physicians. Mitsubishi, 473 U.S. at 625 n. 13, 105 S.Ct. 3346; MS Dealer, 177 F.3d at 947.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 747	82 F. Supp. 2d 589	D	Santiago Amaro v. The Continental Can Company	ORDER AND REASONS •CLEMENT, District Judge. Before the Court are five motions, all of which have been decided on memoranda: Defendant’s Motion for Summary Judgment; Defendant’s Motion for Relief Pursuant to Rule 23(d)(4); Defendant’s Motion for Protective Order and/or Alternatively Motion to Stay Class Discovery Pending Decision on Class Certification and Issuance of Case Management Orders; Defendant’s Motion to Dismiss its Counterclaim; and Plaintiffs Motion for Class Certification. For the following reasons, Defendant’s Motions for Summary Judgment and to Dismiss its Counterclaim are GRANTED and Plaintiffs claims are DISMISSED. Plaintiffs Motion for Class Certification, Defendant’s Motion for Relief Pursuant to Rule 23(d)(4), and Defén-dant’s Motion for Protective Order and/or Alternatively Motion to Stay Class Discovery are DENIED. I. BACKGROUND. This case stems from Plaintiff Shawn Clancy’s unsuccessful attempt to receive certain benefits from Defendant Employer’s Health Insurance Company (“EHIC”) under the terms of a group health insurance policy financed by Ms. Clancy’s employer, Leake & Andersson, LLP (“Leake & Andersson”). Ms. Clancy claims that EHIC improperly withheld benefits in violation of Louisiana Revised Statute 22:663 and claims entitlement to these funds and to state-law penalties available under Louisiana Revised Statute 22:657 for improper processing of her claims. Ms. Clancy further requests that she be made representative of a class of similarly-aggrieved policyholders. In addition to opposing Ms. Clancy’s motion for class certification, EHIC contends that Ms. Clancy’s claims are preempted by ERISA, 29 U.S.C. §§ 1001-1461, and therefore should be dismissed. On September 28, 1995, Shawn Clancy was injured in an automobile accident, which required medical treatment and services. Petition ¶ 5. At the time of the accident, Ms. Clancy was insured under two separate policies. The first policy was an individual policy from State Farm Auto Insurance, which provided uninsured and underinsured motorist coverage and medical pay coverage. Petition ¶ 4. The second policy was a group health insurance policy issued by EHIC, which provided medical coverage to eligible employees of Leake and Andersson. Leake & Andersson paid 100% of the premium for the EHIC policy. Defendant’s Statement of Uncontested Material Facts ¶ 6. Ms. Clancy attempted to recover benefits under both policies. The record indicates that she successfully recovered benefits from State Farm under both the medical pay coverage and the uninsured motorist coverage. Petition ¶¶ 8-9. Ms. Clancy also recovered benefits from EHIC, although not in the amount to 592 which she claims she is entitled. EHIC informed Ms. Clancy that it considered the State Farm policy to be her primary policy, subject to the coordination of benefits provision of her EHIC policy, and therefore made no payments for any medical treatment or services until after State Farm’s medical pay coverage ($5000) had been exhausted. Petition ¶¶ 7-8. EHIC also claimed the right to obtain reimbursement or subrogation for $19,328 in payments EHIC made on behalf of Ms. Clancy. This amount was to come out of a settlement between Ms. Clancy and State Farm in connection with her uninsured motorist coverage. Petition ¶ 9. Ms. Clancy objects to both EHIC’s coordination of benefits and EHIC’s request for reimbursement or subrogation. According to Ms. Clancy, Under the plain meaning of the Employers Health policy and Louisiana law, Employers Health should not have coordinated any benefits available under the individually underwritten Med Pay coverage under the State Farm policy and should not have requested reimbursement or subrogation from or against any recovery received by Shawn S. Clancy from the State Farm Uninsured Motorist coverage. Petition ¶ 12. Instead, she contends that EHIC “should have paid and processed [her] claims without regard to any coverage afforded by the State Farm policy.” Id. Rather than availing herself of the appeal policy contained within the EHIC policy to redress her grievance, Ms. Clancy filed suit in state court, seeking to recover the $5000 in coordinated benefits, as well as penalties and attorney’s fees under state law, and to receive a declaratory judgment that she is not liable for $19,328 in reimbursement or subrogation. Ms. Clancy also requests that she be made representative of a class of similarly situated individuals who allegedly have been injured by EHIC’s coordination and subro-gation/reimbursement practices. EHIC responded to Ms. Clancy’s state suit by removing it to federal court on the basis that Ms. Clancy’s complaint “challenges a claim decision under an employee benefit plan as... defined by” the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1002, and because Ms. Clancy’s demanded relief is governed by ERISA, 29 U.S.C. § 1001, et seq. Notice of Removal ¶ 6. II. LAW AND ANALYSIS. The parties have now asked the Court to rule on several motions. Three motions decided here concern Ms. Clancy’s request for class certification 1 and one concerns EHIC’s request for dismissal of its counterclaim. However, because EHIC’s Motion for Summary Judgment is the keystone to the entire dispute, the analysis will begin there. A. DEFENDANT’S MOTION FOR SUMMARY JUDGMENT. EHIC moves the Court to render summary judgment on three grounds. First, EHIC contends that Ms. Clancy’s EHIC policy is an employee welfare benefit plan governed by ERISA and that Ms. Clancy was a participant in that plan. Second, EHIC contends that ERISA preempts Ms. Clancy’s state law claims and so does not permit extra-contractual, compensatory, or punitive damages. Third, EHIC contends that Ms. Clancy’s remaining claims should be dismissed because she failed to exhaust the administrative remedies provided by the EHIC policy. Ms. Clancy contests all three grounds. 2 593 1. Standard of Review. Summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). In determining whether summary judgment is appropriate, the Court must draw all justifiable inferences in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Oliver Resources PLC v. International Finance Corp., 62 F.3d 128, 130 (5th Cir.1995). To oppose a motion for summary judgment, the non-movant cannot rest on mere allegations or denials but must set forth specific facts showing that there is a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 321-22, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Floors Unlimited, Inc. v. Field-crest Cannon, Inc., 55 F.3d 181, 184 (5th Cir.1995); Fed. R. Civ. P. 56(e). 2. Was the EHIC Policy an ERISA Plan? The parties’ first, and most fundamental dispute, is whether the EHIC policy is part of an employee welfare benefit plan governed by ERISA. For the reasons set forth below, the Court finds, as a matter of law, that the EHIC policy is part of an ERISA plan. 3 ERISA defines an employee welfare benefit plan in pertinent part as: any plan, fund, or program which was... established or- maintained by the employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise... medical, surgical or hospital care or benefits. ERISA § 3(1). 4 Whether an ERISA plan exists is a question of fact. McDonald v. Provident Indem., Life Ins., Co., 60 F.3d 234, 235 (5th Cir.1995). Courts in the Fifth Circuit apply a three-part, comprehensive test for determining whether a particular plan qualifies as an “employee welfare benefit plan”. Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir.1993). The Court must ask whéther a plan (1) exists; (2) falls within the safe-harbor provision established by the Department of Labor; and (3) satisfies thé primary elements of an ERISA “employee benefit plan”, i.e. establishment or maintenance by an employer intending to benefit employees. Id.; McDonald, 60 F.3d at 236. If the Court finds that there is no genuine issue of fact as to the establishment of all three of these factors, then EHIC is entitled to judgment as a matter of law that an ERISA plan exists. The Court’s first task in applying the Meredith.test is to determine whether a plan exists by inquiring whether “from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, a class of beneficiaries, the source 594 of financing, and procedures for receiving benefits.” Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 240-41 (5th Cir.1990) (adopting test from Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir.1982) (en banc)); McDonald, 60 F.3d at 236; Meredith, 980 F.2d at 355; Hansen v. Continental Ins. Co., 940 F.2d 971, 977 (5th Cir.1991). The Court finds that any rational juror would find that such a plan exists: the benefits provided are described in the EHIC policy; the beneficiaries are Leake & Andersson employees; Leake & Andersson paid 100% of the premiums for enrolled employees; and the procedures for recovering the benefits are explained in the materials given to the employees. 5 The second task is to determine whether the plan is exempt from ERISA because it falls within the Department of Labor’s safe-harbor provisions. Because Leake & Andersson paid the insurance premiums, any rational juror would find that the plan falls outside the safe-harbor provision. 6 See 29 C.F.R. § 2510.3-1Q) (“the terms ‘employee welfare benefit plan’ and ‘welfare plan’ shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which... [n]o contributions are made by an employer or employee organization”); McDonald, 60 F.3d at 236. The third task is to determine whether the plan satisfies the primary elements of an ERISA “employee benefit plan.” This task requires two inquiries: whether (1) the plan was established or maintained by an employer (2) with the intent to benefit its employees. Any rational juror would find (1) that Leake & Andersson established an ERISA employee benefit plan when it purchased the group insurance from EHIC and selected its terms; (2) that Leake & Andersson maintained the plan by paying the premiums; 7 and (3) that Leake & Andersson took these steps with the intent to benefit its employees. See Defendant’s Motion for Summary Judgment Exhibit A (Employer Group Application); McDonald, 60 F.3d at 236. 8 595 In sum, the Court finds that the EHIC policy at issue is part of an ERISA plan and that Ms. Clancy is a participant in that plan. 3. Are Plaintiffs Claims Preempted by ERISA? Having concluded that Ms. Clancy’s EHIC policy is part of an ERISA plan, the Court must now decide whether her claims are preempted by ERISA. For analytical purposes, the Court notes that Ms. Clancy’s claims are of two types. First, Ms. Clancy seeks to recover benefits and to obtain a declaration that EHIC is not entitled to reimbursement; these claims are premised on Louisiana Revised Statute 22:663, which states in pertinent part: no group policy of accident, health or hospitalization insurance, or of any group combination of these coverages, shall be issued by any insurer doing business in this state which by the terms of such policy group contract excludes or reduces the payment of benefits to or on behalf of an insured by reason of the fact that benefits have been paid under any other individually underwritten contract or plan of insurance for the same claim determination period. Any group policy provision in violation of this section shall be invalid. Second, Ms. Clancy seeks penalties and attorney’s fees based on Louisiana Revised Statute 22:657, which provides in pertinent part: All claims arising under the' terms of health and accident contracts issued in this state... shall be paid not more than thirty days from the date- upon which written notice and proof of claim, in the form required by the terms of the policy, are furnished to the insurer unless just and reasonable grounds, such as would put a reasonable and prudent businessman on his guard, exist.... Failure to comply with the provisions of this Section shall subject the insurer to a penalty payable to the insured of double the amount of the health and accident benefits due under the terms of the policy or contract during the period of delay, together with attorney’s fees to be determined by the court. These two sets of claims require separate analysis. a. Claims for Benefits and for Clarification of Rights and the Exhaustion Requirement. Although Ms. Clancy did not frame her Petition in ERISA terms, EHIC argues that Ms. Clancy nonetheless brought an ERISA claim in asserting entitlement to medical benefits under an ERISA-regulat-ed plan. In EHIC’s view,-“[t]hese- claims not only relate to an ERISA-regulated plan, they fall directly within the enforcement provisions of ERISA § 502”. Defendant’s Memorandum in Support of Summary Judgment pp. 13, 14. In other words, EHIC claims that Ms. Clancy’s cause of action for recovery of benefits and clarification of her rights is preempted by, ERISA’s civil enforcement provision. In opposition, Ms. Clancy argues that ERISA does not preempt Louisiana Revised Statute 22:663 because it is a law that regulates insurance and is therefore saved from preemption under ERISA’s insurance “saving clause”. Consequently, argues Ms. Clancy, “any reimbursement/subrogation/coordination of benefits provisions contained within the [EHIC] policy that are violative of the statute are deemed stricken, and Employers Health is obligated to pay benefits as provided by Louisiana law.” Plaintiffs Opposition to Summary Judgment p., 28. As befits a complicated question of ERISA preemp 596 tion, 9 both arguments contain elements of truth, but both are incomplete. As a preliminary matter, the Court agrees with Ms. Clancy that ERISA does not preempt Louisiana Revised Statute 22:663. Although La. R.S. 22:663 clearly “relates to” an employee benefit plan, and thus falls under ERISA’s preemption clause, § 514(a), it is similarly clear that La. R.S. 22:663 is a law that “regulates insurance” and thus escapes preemption as to the plan at issue under the saving clause, § 514(b)(2)(A). This is because the plan at issue is insured rather than self-funded. 10 The Court’s finding that ERISA does not preempt La. R.S. 22:663 as to this plan does not end the story, however, as the Court is convinced that La. R.S. 22:663 supplies only the rule of decision for Ms. Clancy’s claim, which is, in reality, a claim under ERISA § 502(a). ERISA § 502(a) provides, inter alia, that a participant may bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan”. It is eminently clear that Ms. Clancy’s claims under La. R.S. 22:663 are of the nature contemplated by this section. What is not so clear, however, is whether ERISA provides “the sole launching ground for an ERISA enforcement action.” UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 1391, 143 L.Ed.2d 462 (1999). In UNUM Life Insurance Co. of America v. Ward, UNUM Life Insurance Company, the insurer of an ERISA plan, denied a participant’s claim for disability benefits because the participant failed to file his claim in a timely fashion. California insurance law, however, provides that late notice shall not preclude an insured’s claim for benefits absent proof that the insurer suffered actual prejudice because of the delay. Before the Supreme Court UNUM asserted, among several arguments, that ERISA preempts California’s “notice-prejudice” rule and that ERISA’s civil enforcement provision (§ 502(a)) preempts any action for plan benefits brought under state rules such as notice-prejudice. In the Supreme Court’s words, UNUM argued that § 502(a) provides the “sole launching ground for an ERISA enforcement action.” Id. In deciding UNUM, the Supreme Court first held that California’s notice-prejudice rule is a state law that “regulates insurance” and, therefore, applied to plaintiffs claim against the insurer of an ERISA 597 plan. Because the plaintiff sued under § 502(a)(1)(B) “to recover benefits due... under the terms of his plan”, however, the Court declined to address UNUM’s argument that § 502(a) provides the sole launching ground for an ERISA enforcement action. Nonetheless, the Court described the California law as supplying “the relevant rule of decision for this § 502(a) suit”. 119 S.Ct. at 1391. The Court further noted that, in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), it had agreed with the Solicitor General that § 502(a) provides the exclusive remedy for enforcing ERISA. Id. at n. 7. Based on the UNUM Court’s description of state law as a “relevant rule of decision” for a § 502(a) claim and the UNUM Court’s reference to its statements in Pilot Life that § 502(a) provides the exclusive remedy for enforcing ERISA, this Court concludes that Ms. Clancy’s claims for medical benefits and a declaratory judgment should have been brought under ERISA § 502(a) and that Louisiana Revised Statute 22:663 simply provides the relevant rule of decision for her claims. 11 This conclusion comports with prior Fifth Circuit jurisprudence that, “when beneficiaries seek to recover benefits from a plan covered by ERISA, their exclusive remedy is provided by ERISA, in [§ 502(a)(1)(B)]”. Hansen, 940 F.2d at 979 (“this Court has held that claims to recover benefits or for improper handling of insurance claims are barred by ERISA’s preemption provision”). This conclusion is further reinforced on the facts of this case because La. R.S. 22:663 does not itself provide a separate cause of action for recovery. Rather, by the plain wording of the statute, La. R.S. 22:663 simply invalidates any inconsistent policy provision, thereby striking it from the insurance contract. Thus, to the extent that Louisiana law provides a remedy for an insurer’s failure to pay benefits owed under an insurance policy, it would do so through a cause of action for breach of contract. As the Supreme Court held in Pilot Life, standard breach of contract claims are of general application and thus are not saved from ERISA preemption. 12 In sum, the Court finds that Ms. Clancy’s claims for benefits allegedly due her and for a '■declaratory judgment are preempted by ERISA § 502(a). Accordingly, these claims are subject to ERISA’s exhaustion requirement. 598 It is well established that a potential plaintiff generally must exhaust the administrative remedies provided by an ERISA plan before resorting to the federal courts. See Denton v. First Nat’l Bank of Waco, Texas, 765 F.2d 1295, 1308 (5th Cir.1985) (adopting exhaustion requirement); Hager v. NationsBank N.A., 167 F.3d 245, 247 (5th Cir.1999); Hall v. National Gypsum Co., 105 F.3d 225, 231 (5th Cir.1997); Medina v. Anthem Life Ins. Co., 983 F.2d 29, 33 (5th Cir.1993) (stating that “we have fully endorsed the prerequisite. of administrative remedies in the ERISA context” and collecting cases). 13 EHIC contends that Ms. Clancy’s claims should be dismissed because Ms. Clancy failed to appeal the denial of the claims that are the subject of this suit. In opposition, Ms. Clancy argues that she was not required to avail herself of EHIC’s appeals procedure. Ms. Clancy's EHIC policy contains the following “Claim Appeal Procedure”: If We partially or fully deny a claim for benefits submitted by You, and You disagree or do not understand the reasons for the denial, You may appeal this decision. You have the right to: 1. Request a review of the denial; 2. Review pertinent plan documents; and 3. Submit in writing, any data, documents or comments which are relevant to Our review of this denial. Your appeal must be submitted in writing within 60 days of receiving written notice of denial. We will review all information and send written notification within 60 days of Your request. Defendant’s Motion for Summary Judgment Exhibit C p. 63 (The Summary Plan Description); Plaintiffs Response to Request for Admissions No. 14 (admitting that the preceding quotation accurately re-fleets the language contained within the Certificate of Insurance). Ms. Clancy admits that she did not “appeal the denial of the claims that are the subject of this suit” and that she did not “exhaust the administrative remedies available to her under the Employers Health Insurance Company group health ■insurance “policy.” Plaintiffs Response to Request for Admissions Nos. 20-21. Ms. Clancy denies, however, that she was required to do so. Id. No. 15 (denying that she was required to appeal any claim denial within 60 days of written notice of the denial of her claim). Ms. Clancy emphasizes that the EHIC policy states that the insured “may” appeal the company’s decision to deny a claim for benefits and that the policy speaks of the insured’s “right” to appeal. Plaintiffs Opposition to Summary Judgment pp. 37-38. Taking these words together, Ms. Clancy argues that she was not required to exhaust her remedies, but rather that it was her choice whether to avail herself of the policy’s appeals process. Ms. Clancy further argues that, “if an ERISA plan fails to mandate use of its appeal procedure then the plan waives any right it may have under the exhaustion of remedies doctrine.” Id. at 38. Ms. Clancy’s argument fails under the Fifth Circuit’s decision in Denton v. First National Bank of Waco, Texas, 765 F.2d 1295 (5th Cir.1985). In Denton, the Fifth Circuit adopted the ERISA exhaustion requirement originally articulated by the Ninth Circuit in Amato v. Bernard, 618 F.2d 559 (1980), and held that the plaintiff was required to exhaust the administrative remedies provided under his plan. Significant for purposes of this controversy, the administrative remedy at issue in Denton stated that “[w]ithin 90 days after receipt of a notice of denial of benefits..., the claimant or his authorized representative 599 may request, in writing, to appear before the retirement committee for a review of Ms claim.” 765 F.2d at 1302 (quoting the policy, emphasis added). The Fifth Circuit also described this provision as affording the claimant “appeal rights”. Id. at 1303. Thus, it is clear from Denton that, prior to bringing suit in federal court, a plaintiff must exhaust the administrative remedy available under an ERISA plan, even if that remedy is phrased in permissive terms. 14 Ms. Clancy further attempts to escape the exhaustion requirement by arguing that case law makes a distinction between “contractual interpretation disputes” and “statutory disputes”. Plaintiffs Opposition to Summary Judgment pp.38-39. In her view, contractual interpretation disputes are subject to the exhaustion of remedies doctrine, whereas disputes over statutory interpretation are to be decided by the judiciary. Ms. Clancy argues that she was not required to exhaust her administrative remedies because her claims turn solely upon statutory interpretation and cites Amaro v. Continental Can Co., 724 F.2d 747, 751 (9th Cir.1984), Clouatre v. Lockwood, 593 F.Supp. 1136, 1138 (M.D.La.1984), and Greer v. Graphic Communications Intern. Union Offs., 941 F.Supp. 1, 3 (D.D.C.1996), for support. Neither Amaro nor Greer involved a claim for benefits under, an ERISA plan. Instead, both cases involved a violation of a separate protection afforded by ERISA: in Amaro, the plaintiffs alleged that they were laid off in violation of ERISA § 510, and in Greer, the plaintiff alleged that the plan trustees’ rewriting of a plan section was an amendment that reduced his benefits in violation of ERISA § 204(g)(1) and (h). Ms. Clancy’s suit, however, is premised on a claim for benefits and, as such, falls within the line of cases that requires exhaustion. Clouatre did involve a denial of benefits, but does not provide Ms. Clancy with any support. Although the district court in Clouatre stated that “[u]nless statutorily mandated, the application of the [exhaustion of remedies] doctrine is committed to the discretion of the court”, 593 F.Supp. at 1138, Denton subsequently held that exhaustion is required. Moreover, the Clouatre court also stated that the plaintiff was “not requesting a review of the merits of her case”; rather “[t]he issue in [Clouatre was] a determination of whether the remedy for a violation of [ERISA § 503] is the statutory penalty designated by [ERISA § 502(c)].” Id. Ms. Clancy is essentially requesting a review of the merits of her case, and, therefore, Clouatre is inapplicable even to the extent it has not been overruled by Denton. In sum, Ms. Clancy failed to exhaust her administrative remedies as required by ERISA and Denton, and her claims for benefits and for a declaratory judgment, therefore, must be dismissed. b. Claims for Penalties and Attorney’s Fees. In addition to her claims for benefits and for a declaratory judgment, Ms. Clancy has brought a claim under Louisiana Revised Statute 22:657, which, as set forth above, provides double benefits and attorney’s fees when an insurer fails, without just and reasonable grounds, to provide an insured benefits within 30 days of submission of a claim. The Louisiana Supreme Court’ and numerous courts in this federal district (including this Court) have held that ERISA preempts La. R.S. 22:657. See, e.g., Cramer v. Association Life Ins. Co., 569 So.2d 533 (La.1990); Hicks v. CNA Ins. Co., 4 F.Supp.2d 576, 579 (E.D.La.1998) (Fallon, J.); Taylor v. Blue Cross/Blue Shield of New York, 684 F.Supp. 1352 (E.D.La.1988) (Schwartz, J.); Gulf South Med. & Surgical Inst. v. Gils- 600 bar, Inc., 1993 WL 165685 (E.D.La.1993) (Clement, J.); Hawthorne v. Principal Mut. Life Ins. Co., 1999 WL 486902 (E.D.La.1999) (Porteous, J.); Russo v. United States Life Ins. Co., 1999 WL 102744 (E.D.La.1999) (Duval, J.); Wellness Aerobic & Sports Med. Clinic, Inc. v. Mutual of Omaha Co., 1998 WL 690925 (E.D.La.1998) (Lemelle, J.); Johnson v. Harvey, 1998 WL 596745 (E.D.La.1998) (Vance, J.). See also Lee v. Sun Life Assurance Co. of Canada, 20 F.Supp.2d 983 (M.D.La.1998); Coles v. Metropolitan Life Ins. Co., 837 F.Supp. 764 (M.D.La.1993). Not surprisingly, EHIC relies on these precedents to argue that this Court should again find that ERISA preempts La. R.S. 22:657. Ms. Clancy, however, argues that the Supreme Court’s decision in UNUM Life Insurance Company of America v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999), discussed above, has significantly changed the playing field such that this Court should find La. R.S. 22:657 saved from preemption. Essentially, Ms. Clancy makes two arguments. First, she argues that La. R.S. 22:657 is more like the notice-prejudice rule saved from preemption in UNUM than Mississippi’s law of bad faith found preempted in Pilot Life, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39. In Ms. Clancy’s view, the UNUM decision clarified the case law and compels this finding. Second, Ms. Clancy stresses the significance of the Solicitor General’s argument, set forth in footnote 7 of the UNUM decision, that ERISA does not preempt a state cause of action or remedy provided by a state law that regulates insurance. The Court agrees with EHIC’s position that UNUM does not represent the great sea change that Ms. Clancy believes it to be. First, the Supreme Court applied the same test for preemption in UNUM that it had applied in Pilot Life and Metropolitan Life: in determining whether the state law at issue “regulated insurance” and was thereby saved from preemption, the Court first looked to the “common sense” understanding of the term, then applied the three McCarran-Ferguson factors to determine whether the state law fit within the “business of insurance”. 119 S.Ct. at 1386. This test had been established well before the decisions by the Louisiana Supreme Court and the federal district courts noted above. Thus, UNUM does not require this Court to re-apply the Pilot Life / Metropolitan Life test to La. R.S. 22:657. Ms. Clancy’s second argument, that UNUM predicts a future holding by the Supreme Court that ERISA does not preempt a state cause of action or remedy provided by a state law that regulates insurance, is engaging but, in this Court’s opinion, premature. As the Court noted above, see supra note 11 and accompanying text, it does not believe that footnote 7 of the UNUM decision indicates that the Supreme Court has adopted the Solicitor General’s position; to the contrary, the Court reads footnote 7 as reinforcing the Supreme Court’s holding in Pilot Life that § 502(a) provides the exclusive remedy for ERISA enforcement. Regardless of the true import of footnote 7, however, the UNUM decision does not affirmatively change any precedent, and the Court finds no reason to depart from established precedent at this time. 15 Thus, based on prior precedent, the Court finds that ERISA preempts Louisiana Revised Statute 22:657. Ms. Clancy’s claims for penalties and attorney’s fees, therefore, must be dismissed. 601 4. Conclusion. The Court finds, as a matter of law, that the EHIC policy is part of an ERISA plan and that Ms. Clancy participated in that plan; that Ms. Clancy failed to exhaust her administrative remedies as required to recover benefits or clarify her rights; and that ERISA preempts Louisiana Revised Statute 22:657. Therefore, the Court grants EHIC’s summary judgment motion and dismisses Ms. Clancy’s claims. B. DEFENDANT’S MOTION TO DISMISS ITS COUNTERCLAIM. On May 13, 1999, this Court granted EHIC leave to file a counter-claim against Ms. Clancy. In the counter-claim, EHIC asserted, under ERISA § 502(a)(3)(B) and the terms of the policy, an entitlement to $19,350.23 it paid in medical expense benefits to or on behalf of Ms. Clancy for treatment of injuries she sustained in the September 28, 1995 accident. EHIC also requested reasonable attorney’s fees and costs pursuant to ERISA 502(g)(1). In its Motion to Dismiss this Counter-claim, EHIC informs the Court that it has waived its claim for reimbursement and authorized the release of the $19,350.23 to Ms. Clancy, thereby mooting the counterclaim. Ms. Clancy has not filed an opposition to this motion, and the Court finds no prejudice to her in dismissing the counterclaim. Thus, pursuant to Federal Rule of Civil Procedure 41(a)(2), the Court grants EHIC’s Motion to Dismiss its Counterclaim. C. CLASS ACTION MOTIONS. In accordance with the requests set forth in her Petition, Ms. Clancy has moved the Court to certify this action as a class action pursuant to Federal Rule of Civil Procedure 23(c)(1) and Local Civil Rule 23.1. Ms. Clancy states that she wishes to bring suit “on behalf of a class of persons who, within the ten year prescriptive period, submitted bona fide claims to Employers Health but had payment of benefits denied or had payment of benefits reduced due to the existence of alternative coverage provided them through an individually underwritten contract or plan of insurance.” Plaintiffs Memorandum in Support of Class Certification p. 4. The Court finds that class certification is improper. First, because the Court has dismissed Ms. Clancy’s claims, it finds her motion for class certification to be moot. See, e.g., White v. Diamond Motors, Inc. d/b/a Diamond Nissan, 962 F.Supp. 867, 868 n. 2 (M.D.La.1997) (“since the Court has granted defendants’ motions for summary judgment, the class action issue is now moot”); Tuchman v. DSC Communications Corp., 818 F.Supp. 971, 973 (N.D.Tex.1993) (denying plaintiffs motion for class certification as moot because all of plaintiffs.causes of actions were dismissed); Broussard v. South Central Bell, 1992 WL 96304 (E.D.La.1992) (McNamara, J.) (denying motion for class certification as moot following dismissal of petition on summary judgment). Second, even if the motion were not moot, the Court finds that the reasons for granting summary judgment make it clear that Ms. Clancy is not a proper class representative under Federal Rule of Civil Procedure 23(a)(4): Ms. Clancy’s failure to exhaust the available administrative remedies creates a defense to her claim “not present for the putative class members that would be unique and reasonably expected to consume a significant portion of the litigant[s’] time and energy.” Malbrough v. State Farm Fire & Cas. Co., 1997 WL 159511 at 2 (E.D.La.1997) (Lemelle, M.J.), adopted 1997 WL 289388 (E.D.La.) (Berrigan, J.); McNichols v. Loeb Rhoades & Co., 97 F.R.D. 331, 334 (N.D.Ill.1982) (“where the representative party is subject to unique defenses his claim is not typical of the class”). Accordingly, Ms. Clancy’s Motion for Class Certification is denied. Because the Court finds that Ms. Clancy’s claims should be dismissed and because the Court has denied Ms. Clancy’s Motion for Class Certification, the Court denies Defendant’s Motion for Relief Pursuant to Rule 23(d)(4), and Defendant’s 602 Motion for Protective Order and/or Alternatively Motion to Stay Class Discovery as moot. D. CONCLUSION. IT IS ORDERED that Defendant’s Motions for Summary Judgment and to Dismiss its Counterclaim are GRANTED and Plaintiffs claims are DISMISSED. IT IS FURTHER ORDERED that Plaintiffs Motion for Class Certification, Defendant’s Motion for Relief Pursuant to Rule 23(d)(4), and Defendant’s Motion for Protective Order and/or Alternatively Motion to Stay Class Discovery are DENIED. 1. Plaintiff's Motion for Class Certification; Defendant's Motion for Relief Pursuant to Rule 23(d)(4); and Defendant’s Motion for Protective Order and/or Alternatively Motion to Stay Class Discovery Pending Decision on Class Certification and Issuance of Case Management Orders. 2. Local Rule 7.8.IE states: "Except with pri- or permission of the judge, no trial brief or memorandum supporting or opposing a motion shall exceed 25 pages in length, exclusive of exhibits.” Ms. Clancy’s Memorandum in Opposition to Summary Judgment is 42 pages. Even recognizing that Ms. Clancy’s counsel uses a larger-than-usual font size, this 593 is still excessive. Local Rule 56.2E & W states that: “Each copy of the papers opposing a motion for summary judgment shall include a separate, short and concise statement of the material facts as to which there exists a genuine issue to be tried.” Ms. Clancy's counsel submitted this statement nearly three weeks after submitting the opposition memorandum. In the interests of justice, the Court has overlooked these procedural defects and has considered all of the materials submitted on Ms. Clancy's behalf. Counsel is cautioned, however, to pay more attention to procedural rules in the fiiture. 3. The Court notes Ms. Clancy’s emphasis that the burden is on EHIC to demonstrate the absence of a genuine issue of material fact as to the existence of an ERISA plan. The Court agrees with Ms. Clancy, but finds that EHIC has met its burden. 4. For convenience and consistency, the Court shall refer to the ERISA section rather than to the United States Code section from hereafter. 5. Ms. Clancy argues strenuously that no plan exists because, in her view, "the mere act of purchasing insurance coverage” is insufficient to constitute a “plan”. Ms. Clancy's argument is premised on Taggart Corp. v. Life and Health Benefits Administration, Inc., 617 F.2d 1208 (5th Cir.1980), in which the Fifth Circuit stated that ERISA does not regulate "bare purchases of insurance where... the purchasing employer neither directly nor indirectly owns, controls, administers, or assumes responsibility for the policy or its benefits.” Id. at 1211. Despite this superficially sweeping language, the Fifth Circuit has narrowly construed the Taggart opinion. In Memorial Hospital, the Fifth Circuit staled that the plan at issue in Taggart was not an ERISA plan because an epiployer-employee-plan relationship was lacking where a lone employee purchased insurance through a Multiple Employer Trust. 904 F.2d at 242-43. Taggart is thus factually distinct from the instant dispute. Here, as in Memorial Hospital, an employer-employee-plan relationship exists. 6. The parties do not disagree over this point. See Plaintiff’s Opposition to Summary Judgment p. 3 and Defendant's Reply to Plaintiff's Opposition to Summary Judgment p.2. 7. Ms. Clancy argues that the plan was neither “established” nor "maintained” by Leake & Andersson because Leake & Andersson merely purchased insurance and paid the premium, but did not otherwise meaningfully participate in creating or administering the plan. This argument is premised on the Fifth Circuit's language in Hansen, 940 F.2d at 978, that ERISA requires "some meaningful degree of participation by the employer in the creation or administration of the plan”. (Emphasis added) While Hansen does indeed use the word "meaningful”, it does not use it with as much force as Ms. Clancy urges. Read in light of the immediately preceding paragraph, "meaningful” participation means "involvement with the collection of premiums, administration of the policy, or submission of claims”, as distinguished from a mere purchase of insurance. Id. Here, Leake & An-dersson selected the policy and paid 100% of the premiums. For ERISA purposes, this is meaningful participation. 8. Ms. Clancy also argues that ERISA does not "apply to health plans because health plans are established and maintained by 'entrepreneurial businesses' — i.e., insurance companies.” Plaintiff’s Opposition to Summary Judgment p. 22. Ms. Clancy argues that, in 595 enacting ERISA, Congress did not intend to protect insurance companies, and a finding that the EHIC policy is an ERISA plan would, in fact, serve to protect an insurance company. By definition, however, an employee welfare benefit plan may be established through the purchase of health insurance, providing the other ERISA requirements are met. See ERISA § 3(1) (an ERISA-plan may be established or maintained "through the purchase of insurance or otherwise”). This definition does not change depending on which party to a lawsuit arguably benefits from a finding that.an ERISA plan exists. 9. See, e.g., Pilot Life Ins., Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987) ("Given the 'statutory complexity' of ERISA's three preemption provisions, as well as the wide variety of state statutory and decisional law arguably affected by the federal pre-emption provisions, it is not surprising that we are again called on to interpret these provisions.”) (internal citation omitted). 10. Ms. Clancy correctly notes that the Supreme Court's decision in FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990), compels this finding. In FMC, the Court held that ERISA preempted Pennsylvania’s anti-subrogation statute as to a self-funded plan, but stated that "employee benefit plans that are insured are subject to indirect state insurance regulation.” Id. at 61, 111 S.Ct. at 409. See also Sunbeam-Oster Co., Inc. Group Benefits Plan for Salaried and Non-Bargaining Hourly Employees v. White-hurst, 102 F.3d 1368, 1369 (5th Cir.1996) (stating, in a case involving a self-funded ERISA plan, "it is well established that state subrogation doctrines are preempted under ERISA”); PM Group Life Ins. Co. v. Western Growers Assurance Trust, 953 F.2d 543, 545-46 (9th Cir.1992) (stating that "[sjtate insurance regulation of insured plans is permissible”, but holding that ERISA preempts California's coordination of benefits provision as to self-funded plans); Blue Cross & Blue Shield of Alabama v. Sanders, 138 F.3d 1347, 1355 (11th Cir.1998) (holding that ERISA preempts a state's anti-subrogation law if the ERISA plan is self-funded). Accord UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999) (ERISA does not preempt state law regulating insurance as to insured ERISA plan). The plan at issue in this case is clearly insured and is thus subject to indirect regulation by Louisiana insurance law. This Court disagrees with the Louisiana Appellate Court's cursory treatment of this issue in Talley v. Enserch Corp., 589 So.2d 615 (La.Ct.App.1991). 11. In so holding, the Court rejects Ms. Clancy’s argument that ERISA § 502(a) does not preempt her state law cause of action. Ms. Clancy correctly notes that the Supreme Court has yet to decide whether ERISA § 502(a) provides the exclusive remedy for an enforcement action. However, this Court disagrees with her interpretation of the Supreme Court’s signal in footnote 7 of the UNUM decision. In footnote 7, the Supreme Court summarized the Solicitor General's position as amicus curiae. Although the Solicitor General had argued in Pilot Life that § 502(a) provides the exclusive remedy, the Solicitor General "endeavored to qualify” this argument in UNUM by asserting that ERISA does not preempt a state cause of action or remedy provided by a state law that regulates insurance. 119 S.Ct. at 1391, n. 7. Ms. Clancy believes the inclusion of this argument indicates that the Supreme Court has accepted this argument. For the reasons stated above, however, the Court rejects this argument. This Court also rejects Ms. Clancy’s argument that it is bound by the Solicitor General’s arguments in the UNUM case. Although reviewing courts often must defer to an agency's construction of a statute it is administering, see, e.g., Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-45, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984), it need not defer to the government's interpretation in a litigation context, especially when this interpretation arguably conflicts with past cases and the agency’s own prior arguments. See, e.g., Bowen v. Georgetown Univ., Hosp., 488 U.S. 204, 212, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988). Indeed, if deference were automatic, there would be no need for the judiciary whenever an agency was charged with administering a statute. 12. Thus, even if the Court were to accept the Solicitor General's argument that ERISA § 502(a) does not preempt a state insurance law that provides a state law cause of action or remedy, such an argument would be inapplicable to the facts of this case. 13. The exceptions to this rule are extremely limited. See Hall, 105 F.3d at 231 (recognizing exceptions to the general rule where resort to administrative remedies is futile or the remedy inadequate); Denton, 765 F.2d at 1302 (futility exception). Ms. Clancy does not argue that she falls within these exceptions, but rather argues that the exhaustion requirement does not apply to her for other reasons. 14. This reading of the language of Denton also comports with the policies articulated therein: upholding Congress' desire that ERISA trustees (not federal courts) be responsible for their actions; providing a sufficiently clear record of administrative action if litigation should ensue; and assuring that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo. Id. at 1300. 15. Even if the Supreme Court were to hold that ERISA does not preempt a state cause of action or remedy provided by a state law that regulates insurance, this Court believes that Ms. Clancy's claim under La. R.S. 22:657 is nonetheless premature. As the District Court recognized in Taylor, a cause of action under La. R.S. 22:657 for a wrongful delay in making insurance payments depends on a finding that the insurer breached a policy obligation. See Taylor, 684 F.Supp. at 1353. Ms. Clancy has not exhausted her administrative appeal, therefore a finding of wrongful delay would be premature.	LIMITED_OR_DISTINGUISHED
724 F.2d 747	12 F. Supp. 2d 162	C, NF	Santiago Amaro v. The Continental Can Company	MEMORANDUM AND ORDER FREEDMAN, Senior District Judge. I. INTRODUCTION Looking to compel his former employer to change its allegedly evil ways, plaintiff Mariano Santana (“Santana”) brought a nine-count complaint against defendants Deluxe Corporation (“Deluxe”) and John Hancock Mutual Life Insurance Company (“John Hancock”) claiming that Deluxe and John Hancock have denied certain health care benefits to participants of a Deluxe employee health insurance benefit.plan. Having granted summary judgment to John Hancock on all counts, see Santana v. Deluxe Corp., 920 F.Supp. 249 (D.Mass.1996), the Court now considers motions for summary judgment from both Santana and Deluxe. II. FACTS Santana was employed by Deluxe, a company in the business of printing checks and forms for financial institutions, between November 28,1977 and November 2,1988, at its facility in Springfield. Santana became disabled in an industrial accident in April 1988. Under Deluxe’s six-month salary continuation plan, he continued to receive weekly salary benefits until November 2,1988. In October 1988, he received a letter from Deluxe explaining that he would be terminated if he could not return to work by November 2, 1988. Because Santana could not return, he- was terminated. ' In January 1989, Santana moved from Massachusetts to Puer-to Rico. After termination, Santana applied for disability benefits under Deluxe’s Long Term Disability (“LTD”) Plan. On April 11, 1990, Santana received notification that his disability benefits were approved retroactive to January 1, 1989. Accordingly, he received a lump sum payment covering that period, with no federal income tax withheld from'it. He has received health care benefits under the LTD Plan ever since, remitting a premium to Deluxe. Deluxe requires participants in the LTD Plan to apply for Social Security Disability Benefits (“SSDI”) from the federal government to offset weekly salary plan benefits and LTD Plan benefits paid for the same period. In May 1991, the Social Security Administration awarded Santana SSDI benefits, retroactive to the date of his disability in October 1988. At the same time, he was notified that he was entitled to Medicare health insurance starting from October 1990, two years after the date he qualified for SSDI. As a Social Security recipient, Santana was automatically enrolled in Medicare Part A coverage, which provides insurance for hospital treatment, but not in Medicare Part B, which requires recipients to enroll and pay premiums for physician expenses. When Santana began to collect benefits under the LTD Plan in April 1990, Deluxe notified him that he and his family were enrolled as participants in Deluxe’s John Hancock/HMO plan (“the Indemnity Plan” or “Plan”), a health benefit plan funded by employer and participant contributions and managed by John Hancock. In June 1991, Deluxe sent Santana a copy of its 1991 employee handbook, ’entitled “Checking In with Deluxe,” that described the terms ■ of the Indemnity Plan. The terms of the 1991 handbook form the basis of this dispute. Specifically, The handbook contained the following statement under the heading “Submitting a 166 Claim for a Deluxe Retiree Eligible for Medicare”: NOTE: The benefits provided by the Deluxe Employee Health Care Plan shall be reduced by an amount equal to the benefits you are entitled to receive under the Medicare Program. As a retiree, when you qualify for Medicare, Medicare then becomes your first line of coverage. It pays first, and the Deluxe Employee Health Care Plan then considers the charges that Medicare didn’t cover. The Deluxe plan will pay the difference between what Medicare pays and what the Deluxe plan would have paid alone. So it is very important to enroll for Medicare coverage, both Part A, hospital, and Part B, supplemental, when you become eligible for it in order to have adequate medical coverage. This also applies to former Deluxe employees who become eligible for Medicare due to disability (after two years of disability). Beginning in November 1991, Santana incurred medical expenses from treatment by physicians and other medical providers, amounting to roughly $l;600. Santana applied to Medicare to cover the expenses but was informed that he could not receive Medicare Part B benefits because he was not enrolled. Deluxe also denied his claim for the expenses under its Indemnity Plan because, according to its interpretation of the handbook language, it considered the services covered by Medicare Part B. Santana did not file a formal written appeal through the Indemnity Plan’s process. In January 1992, Santana applied for Medicare Part B coverage, and became enrolled in July 1992. Deluxe has paid for all other expenses Santana incurred after October 1990 that were not covered by Medicare. In February 1994, Santana’s counsel requested fiom Deluxe its employee benefit plans in which Santana participated. In response, Deluxe sent plaintiffs counsel portions of its “Checking in with Deluxe” booklets from 1988 to 1993 describing the Indemnity Plan and LTD Plan. In May 1994, Santana filed a nine-count complaint against Deluxe and John Hancock, alleging an improper denial of benefits (Count Two), failure to provide an adequate summary plan description (“SPD”) under 29 TJ.S.C. § 1022(b) (Count Three), breach of contract (Count Four), violation of the Medicare As Secondary Payer (“MSP”) statute, 42 U.S.C. § 1395y(b) (Counts Five and Six), and requesting certification of a class action (Count One), injunctive relief (Count Seven), attorney’s fees (Count Eight) and double damages (Count Nine). In March 1996, the Court granted summary judgment to John Hancock on all counts. The Court now turns to the summary judgment motions before it. III. STANDARD OF REVIEW Under Rule 56 of the Federal Rules of Civil Procedure, the essential purpose of summary judgment is “to pierce the boilerplate of the pleadings” and appraise the proof to determine whether a trial is necessary. See Wynne v. Tufts Univ. Sch. of Med., 976 F.2d 791, 794 (1st Cir.1992), cert. denied, 507 U.S. 1030, 113 S.Ct. 1845, 123 L.Ed.2d 470 (1993). When summary judgment is at stake, the Court must scrutinize the record in the light most favorable to the nonmoving party, “indulging all reasonable inferences in that party’s favor,” Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.1990), yet disregarding unsupported allegations, unreasonable inferences, and concluso-ry speculation. See Smith v. F.W. Morse & Co., 76 F.3d 413, 428 (1st Cir.1996); Medinar-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990). If no genuine issue of material fact percolates through the record and the movant is entitled to judgment as a matter of law, then summary judgment is proper because a trial would serve no useful purpose. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Wynne, 976 F.2d at 794. In this case, the Court considers each parties’ cross motions for summary judgment on their merits. See Bellino v. Schlumberger Tech., Inc., 944 F.2d 26, 33 (1st Cir.1991). Cross motions for summary judgment do not alter the basic Rule 56 standard; they require a determination of whether either par 167 ty deserves judgment as a matter of law based on facts that are not disputed. See Wightman v. Springfield Terminal Ry. Co., 100 F.3d 228, 230 (1st Cir.1996); Wiley v. American Greetings Corp., 762 F.2d 139, 141 (1st Cir.1985). As such, cross motions simply demand that all factual disputes and any competing rational inferences be resolved in the light most favorable to the party opposing summary judgment. See Den Norske Bank v. First Nat’l Bank of Boston, 75 F.3d 49, 53 (1st Cir.1996); United States v. City of North Adams, 777 F.Supp. 61, 66 (D.Mass.1991). IV. DISCUSSION With no material facts in dispute, this case involves statutory construction and contractual interpretation. The pivotal issue is whether the Deluxe Indemnity Plan violates the MSP statute, 42 U.S.C. § 1395y(b). Counts Five and Six allege that the Indemnity Plan’s payment of benefits to him only for expenses not covered by Medicare violates the MSP Act. Deluxe contests this claim, arguing that Santana is not covered by the MSP statute’s reach. The determination of this dispute is crucial to the entire suit because Santana’s ERISA claims derive from the alleged MSP statutory violations. A. Medicare As Second Payer Passed as an amendment to the Social-Security Act in 1980, the MSP statute embodies the Congressional objective of reducing the cost of the federal Medicare program by preventing private health insurers from shifting primary health insurance coverage for certain employees from their private benefit plans to the Medicare program. See United States v. Rhode Island Insurers’ Insolvency Fund, 80 F.3d 616, 622 (1st Cir.1996) (“The MSP provision, and its implementing regulations, explicitly prohibit private insurers from negotiating or enforcing any insurance-contract term which purports to make Medicare the primary-insurance ob-ligor in lieu of a private insurance carrier, even though authorized by state law.”); Colonial Penn Ins. Co. v. Heckler, 721 F.2d 431, 435 (3d Cir.1983) (stating that as a “cost reduction measure,” the MSP statute mandates that an “insurer is responsible for primary coverage and cannot limit itself to secondary liability because Medicare is available.”); see also 42 C.F.R. § 411.32(a)(1) (“Medicare benefits are secondary to benefits payable by a third party payer even if State law or the third party payer states that its benefits are secondary to Medicare benefits or otherwise limits its payments to Medicare beneficiaries.”). As originally drafted in 1986, the pertinent MSP provision mandated that “[a] large group health plan... may not take into account that an active individual... is entitled to benefits under [the Medicare program].” 42 U.S.C. § 1395y(b)(l)(B)(i) (1988) (repealed 1993) (emphasis added). For enforcement of this payment provision, the MSP statute provided a private cause of action: “There is established a private cause of action for damages (which shall be in amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payments (or appropriate reimbursement) in accordance with [§ 1395y(b)(l) ].” 42 U.S.C. § 1395y(b)(3). The statute defined an “active individual” as “an employee..., an individual associated with the employer in a business relationship, or a member of the family of any such persons.” 42 U.S.C. § 1395y(b)(l)(B)(iv) (1988) (repealed 1993). The statute also defined a “large group health plan” (“LGHP”) in accordance with the definition provided by the Internal Revenue Code, 26 U.S.C. § 5000(b)(2): “a plan of, or contributed to by, an employer... (including a self-insured plan) to provide health care... to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families, that covers employees of at least one employer.” See 42 U.S.C. § 1395y(b)(l)(B)(iv)(II) (defining LGHP by reference to IRC’s definition). On August 10, 1993, Congress amended the MSP Act to instruct that “[a] large group health plan... may not take into account that an individual (or a member of an individual’s family) who is covered under the plan by virtue of the individual’s current employment status with the employer is entitled to 168 benefits under [the Medicare program].” 42 U.S.C. § 1395y(b)(l)(B)(i) (1994) (emphasis added). The private cause of action remained, and the revised statute also defined “current employment status” exactly as it had defined “active individual”: “[a]n individual has ‘current employment status’ with an employer if the individual is an employee, is the employer, or is associated with the employer in a business relationship.” 42 U.S.C. § 1395y(b)(l)(E)(ii) (1994). Against this statutory backdrop, Santana claims that Deluxe violated the MSP Act by failing to provide for primary payments after structuring its Indemnity Plan to take into account that Santana was entitled to Medicare benefits as an SSDI recipient. Santana’s argument hinges on his qualification as “an active individual” under section 1395y(b)(l) from October 1990, when he became entitled to welfare benefits, to August 10, 1993, when the MSP statute was amended, and then as an individual with “current employment status” since August 10, 1993. If Santana was “an active individual” or had “current employment status,” then the MSP statute forbade Deluxe from taking Santana’s entitlement to Medicare into account — and in fact designating it the primary payer — when coordinating his benefits. Deluxe asseverates that its coordination of Santana’s benefits as secondary to Medicare payments did not violate the MSP statute because Santana, as a former employee since November 1988, does not satisfy either section 1395y(b)(l) qualification during the relevant time periods. Santana responds that although he does not qualify as a “current active employee,” see Memorandum in Support of Plaintiffs Motion for Summary Judgment at 21, he is covered by both versions of the MSP statute because he is “associated [with Deluxe] in a business relationship,” see 42 U.S.C. § 1395y(b)(l)(E)(ii) (1994); 42 U.S.C. § 1395y(b)(l)(B)(iv) (1988) (repealed 1993). For the reasons that follow, the Court disagrees that for purposes of MSP statutory coverage the plaintiff was an active individual from between 1988 and 1993, or has had current employment status since the 1993 MSP statutory amendments. 1. Plain Meaning of the MSP Statutory Language As in any case where the Court considers certain contours of a Congressional creation, the first rule of thumb is to read statutory terms, including any provided definitions, according to their plain meaning. See Bailey v. United States, 516 U.S. 137, 144-45, 116 S.Ct. 501, 133 L.Ed.2d 472 (1995); United States v. Missouri Pac. R.R. Co., 278 U.S. 269, 278, 49 S.Ct. 133, 73 L.Ed. 322 (1929). When those terms are clear and unambiguous, the Court assigns them their “ordinary and natural” meaning. Bailey, 516 U.S. at 145,116 S.Ct. 501. If, and only if, “the literal words of the statute create ambiguity or lead to an unreasonable result,” then the Court will look to other principles of statutory construction and the underlying legislative history. See Inmates of Suffolk County Jail v. Rouse, 129 F.3d 649, 653-54 (1st Cir.1997) (quoting United States v. Charles George Trucking Co., 823 F.2d 685, 688 (1st Cir. 1987)), petition for cert. filed, 66 U.S.L.W. 3531 (U.S. Feb. 4, 1998) (No. 97-1278); Oregon Ass’n of Hosp. v. Bowen, 708 F.Supp. 1135, 1139-40 (D.Or.1989) (examining plain meaning and legislative history of MSP statute). When drafting the MSP statute, Congress defined “active individual” and “current employment status” in terms of being “associated with the employer in business relationship,” but gave no express explanation or definition of the meaning of the latter phrase. See 42 U.S.C. § 1395y(b)(l)(E)(ii) (1994); 42 U.S.C. § 1395y(b)(l)(B)(iv) (1988) (repealed 1993). Without that imprecise phrase, Santana’s argument that since his termination he has been an “active individual” and has maintained “current employment status” would fall like a house of cards. Based on the premise that “there is an absolute nexus between Santana’s (former) employment with Deluxe, and his ongoing coverage through the Deluxe Indemnity Plan,” Santana makes the tenuous assertion that the term “current employment status” can apply to a “former employee recipient of LTD benefits pursuant to health and LTD plans established for benefits of Deluxe employees.” See Memoran 169 dum in Support of Plaintiffs Motion for Summary Judgment, at 20-21. Eschewing this “absolute nexus” approach to statutory interpretation, the Court considers it a matter of fundamental logic that a former employee, like a retiree, is neither active nor currently employed. To his credit, Santana readily admits that he is “clearly not an ‘employee’ for purposes of establishing ‘current employment status.’ ” See Plaintiffs Memorandum in Support of Plaintiffs Motion for Summary Judgment at 20. Indeed, Santana is nothing short of an inactive former employee who was terminated from his position at Deluxe over nine years ago. This Court’s inquiry would end with Santana’s failure to qualify for protection under the MSP statute had Congress left courts only to consider the plain meaning of the primary statutory language. Congress, of course, did not. Santana clings to the ambiguous language of the MSP’s statutory definition section to qualify for the statute’s protection. As a result, the Court must answer the question of whether the MSP’s protection of “an individual associated with the employer in a business relationship” extends to a former employee still receiving his health care coverage through an employer-funded benefit plan. Santana’s argument for a broad interpretation of the phrase “associated with the employer in a business relationship” is not without some appeal. To participate in the Indemnity Plan during the relevant time period, Santana paid monthly premiums for health care benefits. He is correct to point out that those premiums cause “legal and economic rights and obligations” to run between the parties. See id. at 23. As a former employee participating in an employee benefit plan, Santana certainly has statutorily created rights under ERISA. The MSP statute, however, only gives express legal rights to active and current employees. Santana’s argument falters where he concludes that by paying premiums he has “associated” himself in a “business relationship” with Deluxe within the meaning of the MSP statute because his former employer is “in the business of providing health coverage.” Plaintiffs Memorandum in Opposition to Defendant’s Motion for Summary Judgment, at 4. First, Deluxe is not in the business of providing health care insurance. See 29 U.S.C. § 1144(b)(2)(B) (stating that “an employee benefit plan... shall [not] be deemed to be an insurance company or other insurer... or to be engaged in the business of insurance... for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts”); FMC Corp. v. Holliday, 498 U.S. 52, 61-62, 111 5.Ct. 403, 112 L.Ed.2d 356 (1990) (holding that self-funded employee benefit plans governed by ERISA are not subject to direct state regulation); see generally Laura J. Schacht, The Health Care Crisis: Improving Access For Employees Covered by Self-Insured Health Plans Under ERISA and the Americans with Disabilities Act, 45 Wash. U.J. Urb. & Contemp. L. 303 (1994) (discussing framework of ERISA preemption of state regulation of self-insured employee benefit plans). Santana did not simply walk off the street and approach Deluxe about a business relationship whereby Santana would pay Deluxe premiums in return for health insurance after shopping around and concluding that Deluxe’s benefit plan was superior to other health insurers. Santana is entitled to participate — and in fact does participate — in the Indemnity Plan because he was enrolled as a former employee receiving LTD benefits, not because he preferred the way Deluxe runs its benefit plan. Second, the argument for a broad construction of “associated in a business relationship” is refuted by the language defining a LGHP. Under 42 U.S.C. § 1395y(b)(l)(B)(iv)(II), an LGHP provides health care “to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families, that covers employees of at least one employer.” In relation to Santana, the Indemnity Plan is a self-insured health care benefit plan that provides health care to a “former employee.” Comparison of the definitions of “active individual” and “current employment status” with that of an LGHP reveals that an LGHP 170 provides coverage to both “former employees” and “others associated or formerly associated with the employer in a business relationship,” while both versions of the MSP statute apply to those “associated with the employer in a business relationship” but not “former employees.” Compare 42 U.S.C. § 1395y(b)(l)(B)(iv)(II), and 26 U.S.C. § 5000(b)(2) with 42 U.S.C. § 1395y(b)(l)(E)(ii) (1994), and 42 U.S.C. § 1395y(b)(l)(B)(iv) (1988) (repealed 1993). The conclusion that Congress did not intend to cover disabled former employees among those individuals “associated with the employer in a business relationship” is drawn from the principle of construction that “ ‘[wjhere Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.’ ” Brown v. Gardner, 513 U.S. 115, 120, 115 S.Ct. 552, 130 L.Ed.2d 462 (1994) (quoting Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983)); see Eastern Enterprises v. Chater, 110 F.3d 150, 155 (1st Cir.1997) (applying negative pregnant principle of statutory construction), cer t. granted sub nom Eastern Enterprises v. Appel, — U.S. —, 118 S.Ct. 334, 139 L.Ed.2d 259 (1997). According to this rule of construction, the inclusion of the term “former employees” in section 1395y(b)(l)(B)(iv)(II), combined with the exclusion of the term in sections 1395y(b)(l)(E)(ii) and 1395y(b)(l)(B)(iv), demonstrates that Congress intentionally excluded “former employees” from the latter sections. As a result, Congress did not intend that an LGHP treat “former employees” as individuals who are “active” or have “current employment status” for purposes of Medicare coverage. Without more, this inference would be a helpful one in resolving this dispute. But there is more here, establishing why the negative pregnant argument should be treated as an interpretive trump card. In the context of the definition sections, the term “associated” is susceptible of divergent interpretations depending on what constitutes a “business relationship.” The term “business relationship” plausibly can be defined in a myriad of ways that extend well beyond individuals actively working or currently employed by the employer subject to the MSP provision. The term is ambiguous because it can be construed to have meanings contradictory to the terms it is intended to define. An individual can be “associated in business relationship” without ever having worked or performed services for an employer. In the face of ambiguity, because the MSP statute does not expressly include or exclude former employees receiving benefits from its scope, the Court turns to the statute’s legislative history to resolve this ambiguity with evidence as to whether Congress meant somehow to precisely define the expansive language of “associated in a business relationship.” See North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 522, 102 S.Ct. 1912, 72 L.Ed.2d 299 (1982). Surveying the legislative landscape results in a firm confirmation that Congress did not intend to include former employees within the reach of the MSP provision. 2. Legislative History of the MSP Statute When Congress considered amendments to the MSP statute in the Omnibus Budget Reconciliation Act of 1986, the Senate bill proposed to “amend the Social Security Act to provide that Medicare would be the secondary payer for all Medicare beneficiaries (including disabled and those who buy into Medicare) who elect to be covered by employment based health insurance as a current employee (or family member of such employee) of a large employer.” H.R. Conf. Rep. No. 99-1012, at 320 (1986), reprinted in 1986 U.S.C.C.A.N. 3607, 3965 (describing section 611 of S. 2706, 99th Cong. (1986)). Specifically, the Senate proposal “would [have] explicitly include[d] under the secondary payer provision those persons with group health coverage who are the employer, former employees under age 65, individuals associated with the employer in a business relationship, or members of the families of any such persons.” Id. During conferencing, the Senate proposal was modified and agreed to without the language including “former 171 employees under 65” under the MSP statute’s umbrella of protection. Id. at 321, reprinted in 1986 U.S.C.C.A.N. 3607, 3966. The deletion of former employees from the definition provision works another principle of statutory construction into the mix. Where Congress incorporates inclusionary language in an earlier version of a bill but deletes it prior to enactment, it may be presumed that the inclusion was not intended. See Taylor v. United States, 495 U.S. 575, 590, 110 S.Ct. 2143, 109 L.Ed.2d 607 (1990) (“omission of a pre-existing definition of a term often indicates Congress’ intent to reject that definition”); INS v. Cardozar-Fonseca, 480 U.S. 421, 432, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987); Russello, 464 U.S. at 23-24, 104 S.Ct. 296; State of Rhode Island v. Narragansett Indian Tribe, 19 F.3d 685, 700 (1st Cir.) (“Deletion, without more, suggests that Congress simply had a change of heart.”), cert. denied, 513 U.S. 919, 115 S.Ct. 298, 130 L.Ed.2d 211 (1994). Congress’s deletion of the term “former employee under age" 65” from the text of section 1395y(b)(l)(B)(iv) in 1986 indicates that Congress did not intend the MSP statute to give former employees the same rights as an “active individual.” For purposes of the MSP statute, Santana wants this Court to define “associated in a business relationship” to include former employees still participating in an employee benefit plan, but, simply put, “Congress did not write the statute that way.” United States v. Naftalin, 441 U.S. 768, 773, 99 S.Ct. 2077, 60 L.Ed.2d 624 (1979). Logie dictates that if Congress intended to include former employees in the definition of “active individual” or “current employment status,” then it would have done so expressly, just as it did in defining an LGHP. 3. Deference to Administrative Interpretation Finally, in construing a statute, the Court accords great deference to the interpretation of the agency charged with the statute’s administration. See Chevron U.S.A Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); Blum v. Bacon, 457 U.S. 132, 141, 102 S.Ct. 2355, 72 L.Ed.2d 728 (1982); NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-75, 94 S.Ct. 1757, 40 L.Ed.2d 134 (1974). Here the Department of Health and Human Services’ Health Care Financing Administration (“HCFA”) enforces the mandates of the MSP statute. See 42 U.S.C. § 1395y(b)(2)(B)(ii) (authorizing HCFA to recover Medicare payments from “any entity which is required or responsible to pay... under a primary plan” for services rendered); Health Insurance Ass’n of Am., Inc. v. Shalala, 23 F.3d 412, 415 (D.C.Cir.1994), cert. denied, 513 U.S. 1147, 115 S.Ct. 1095, 130 L.Ed.2d 1064 (1995). Just as Congress has' not “directly addressed the precise question' at issue,” Chevron, 467 U.S. at 843, 104 S.Ct. 2778, the HCFA has also failed to provide a governing regulation expressly defining the meaning of being “associated with the employer in a business relationship.”' Instead, the relevant HCFA regulation states that: An individual has current employment status if— (1) The individual is actively working as an employee, is the employer (including a self-employed person), or is associated with the employer in a business relationship; or (2) The individual is not actively working and— • (i) Is receiving disability benefits from an employer for up to 6 months...; or (ii) Retains employment, rights in the industry and has not had his employment terminated by the employer, if the employer provides the coverage..., is not receiving disability benefits from an employer for more than 6 months, is not receiving disability benefits from Social Security, and has GHP coverage that is not pursuant to COBRA continuation coverage.... 42 C.F.R. § 411.104(a) (1997). While the HCFA’s definition of “current employment status” under section 411.104(a)(2) extends to individuals not “actively working” for an employer for up to six months after receiving disability benefits, it does not include former employees whose “employment [has been] terminated by the employer” and who have received disability 172 benefits for more than six months. While shedding no light on the reach of “associated in a business relationship,” the regulation supports the conclusion that former employees who were terminated and are receiving SSDI benefits do not have current employment status under the MSP statute. The HCFA, however, intentionally decided not to define “associated with the employer in a business relationship.” In 1995 when the HCFA considered defining the phrase in its regulations, it declined, rejecting the exact interpretation that Santana now requests. See Medicare Program; Medicare Secondary Payer for Individuals Entitled to Medicare and Also Covered Under Group Health Plans, 50 Fed.Reg. 45,344, 45,349-50 (1995). Specifically, the HCFA received a comment on its proposed regulations recommending “that individuals who are receiving health care coverage through an employer are associated with the employer in a business relationship regardless of whether they are employees... [because] employers provide such benefits as a part of a quid pro quo for services.” Id. at 45,349. The HCFA responded that it did “not agree that a definition of the term ‘individual associated with the employer in a business relationship’ is necessary in the regulations... [because a]ny individual who qualifies for LGHP coverage because of a business relationship with the employer (for example, suppliers and contractors who do business with the employer) is included within the term.” Id. The agency considered that “[d]efining the term in the manner proposed would bring many former employees, including retirees, who receive benefits from an employer within the scope of the MSP provision for the disabled.” Id. The HCFA concluded, and this Court agrees, that “Congress clearly did not intend the MSP provision for the disabled to extend to retirees and other former employees, since the term ‘former employee under age 65’ was specifically deleted from an early draft of legislation on MSP for the disabled.” Id. (citing S. Rep. 99-348 (1986)); see supra at 15-17. Instead, the HCFA reasoned that “[t]he inclusion of individuals ‘associated with the employer in a business relationship’ (that is, individuals whose relationship to the employer is based on business rather than on work) demonstrates that the Congress intended that the term ‘current employment status’ be given the broadest possible application.” Id. at 45,356. The agency stated that the latter term “encompasses not only individuals who are actively working but also individuals under contract with the employer whether or not they actually perform services for the employer, such as attorneys on retainer, tradesmen and insurance agents.” Id. The Court agrees with the HCFA’s opinion that the term “associated with the employer in a business relationship” does not reach former employees receiving benefits from an employer. The agency’s interpretation of the MSP statutory language to cover those whose work or services for an employer is intermittent to the point that they might be categorized as active or inactive over a given period of time, is based on a reasonable and “permissible construction of the statute.” See Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. The agency’s interpretation reflects the plain language and intent of the MSP provision by ensuring that LGHPs, rather than Medicare, serve as the primary payer for individuals with whom an employer maintains some kind of employment relationship under traditional agency principles, such as independent contractors and authorized agents. Cf. Perry v. Metropolitan Life Ins. Co., 852 F.Supp. 1400, 1407 (M.D.Tenn.1994) (consideration of the plain language and legislative history of the MSP statute “indicates that Congress intended Medicare to be the secondary payer for certain categories of working individuals”) (emphasis in original), rev’d on other grounds, 64 F.3d 238 (6th Cir.1995). Reviewing the HCFA guidelines leads this Court to conclude that Congress included “associated with the employer in a business relationship” to define employees broadly so that disabled employees would continue to be covered by an employer’s health benefit plan during periods, because of their disabilities, when they were not presently performing any work for the employer but still maintained the benefits and indicia of employment and anticipated returning to work in the 173 future (after, for example, a temporary layoff or siek leave). See Ridgeway v. Sullivan, 804 F.Supp. 1536, 1538 n. 2 (N.D.Ga.1992) (quoting 3 Medicare Carriers Manual, U.S. Dept. of Health and Human Services, HCFA-Pub. 14-3, at § 3337 (1988)) (“The question to be decided is whether the employer treats a disabled individual who is not working as an employee, in light of commonly accepted indicators of employee status rather than whether the person is categorized in any particular way by the employer.”). Accordingly, deference to the agency’s interpretation and consideration of other principles of statutory construction compel the conclusion that Santana, as a former employee receiving health benefits, does not fall under the umbrella of the MSP’s statutory protection for active individuals and those with current employment status. In the final analysis, Deluxe acted lawfully by taking into account Santana’s entitlement to benefits when coordinating his health care coverage as a disabled former employee participating in the Indemnity Plan. As a result, the Court grants summary judgment to the defendant on Counts Five- and Six, which allege violations of the MSP statute, Count Seven, which requests injunc-tive relief to stop the alleged violations, and Count Nine, which requests double damages under 42 U.S.C. § 1395(y)(3)(A) for the alleged violations. Conversely, the plaintiffs motion for summary judgment is denied on these four counts. B. ERISA violations Having had his claim for benefits denied by Deluxe’s health insurance plan, Santana seeks to invoke the protection of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. In Count Two, Santana claims that Deluxe improperly withheld benefits due him under the Indemnity Plan in violation of 29 U.S.C. § 1132(a) because the Plan wrongfully treated Medicare as Santana’s primary payer. Count Three alleges a failure to provide Santana with an adequate summary plan description (“SPD”) in violation of 29 U.S.C. § 1022. Count Eight requests attorney’s fees under 29 U.S.C. § 1132(g). Deluxe counters that Santana’s first claim is barred because he failed to exhaust administrative remedies provided by the Indemnity Plan, and regardless, that Deluxe properly denied his benefit request according to the valid terms of the Indemnity Plan. Deluxe also responds that it provided an adequate SPD, that the request for injunctive relief is not justified, and that Santana is not entitled to attorney’s fees. 1. Denial of Benefits “Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans.” Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78, 115 S.Ct. 1223, 131 L.Ed.2d 94 (1995). “ERISA does not create any substantive entitlement to employer-provided health benefits or any other kind of welfare benefits,” nor does it “establish any minimum participation, vesting, or funding requirements for welfare plans as it does for pension plans.” Id. Congress enacted ERISA “to promote the interests of employees and their beneficiaries in employee benefit plans,” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983), and “to protect contractually defined benefits,” Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 148, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). Where benefits are contractually defined, ERISA provides that a plan participant may bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). In addition, a participant may “obtain other appropriate equitable relief’ to redress an ERISA violation or enforce the terms of the plan. 29 U.S.C. § 1132(a)(3)(B). The Court reviews ERISA claims arising under section 1132(a)(1)(B) de novo •unless the benefits plan gives the administrator “discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. 174 Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). Because the welfare benefit plan in this case does not “clearly grant discretionary authority to the administrator,” the Court will not accord the administrator’s decision the deferential, arbitrary and capricious, standard of review. Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 583 (1st Cir.1993). Instead the Court will look at the denial of benefits claim de novo. See Recupero v. New Eng. Tel. & Tel. Co., 118 F.3d 820, 826-27 (1st Cir.1997) (discussing mechanics of de novo standard of review). a. Exhaustion ERISA requires that “every employee benefit plan shall... afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” 29 U.S.C. § 1133. Consistent with this section, courts have held that exhaustion principles require that employee welfare benefit plan participants must pursue all available administrative remedies prior to filing suit in federal court for benefits under a specific benefits plan. See Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821, 825-26 (1st Cir.) (affirming dismissal of contract-based benefit denial claim for failure to exhaust administrative remedies), cert. denied, 488 U.S. 909, 109 S.Ct. 261, 102 L.Ed.2d 249 (1988); McLean Hosp. Corp. v. Lasher, 819 F.Supp. 110, 121-23 (D.Mass.1993); Treadwell v. John Hancock Mutual Life Ins. Co., 666 F.Supp. 278, 283-84 (D.Mass.1987); see also Kross v. Western Elec. Co., 701 F.2d 1238, 1243-45 (7th Cir.1983); Amato v. Bernard, 618 F.2d 559, 567-68 (9th Cir.1980). Congress has not expressly mandated exhaustion in such cases, however, giving courts a certain degree of discretion to invoke the exhaustion requirement. See Portelar-Gonzalez v. Secretary of the Navy, 109 F.3d 74, 77 (1st Cir.1997). In this case, the Indemnity Plan provided for a process by which Santana could have appealed the denial of his claim. The process was clearly spelled out in the 1991 “Checking In With Deluxe” booklet that Santana received. Santana never filed a written appeal of the claim denial through the appropriate administrative channel. He now alleges in his suit, however, that he is “entitled to payment of medical bills for treatment by physicians, pursuant to his participation in the defendant's] employee benefit plan,” Complaint at 7, and asks for, among other things, “damages in the amount of unpaid medical bills,” id at 11. Santana should have raised these claims through the perfectly accessible administrative appeal procedures. Santana first attempts to salvage his cause of action for benefits by arguing that the appeal would have been futile. Yet he provides no evidence that the plan appeal process is a futile administrative route. Without any evidence of futility, his bare assertion does not defeat the strong public policy reasons underlying the exhaustion doctrine. See McLean Hosp. Corp., 819 F.Supp. at 121-22 (describing policy reasons); DePina v. General Dynamics Corp., 674 F.Supp. 46, 49 (D.Mass.1987). Santana next argues that he need not have exhausted the available administrative remedies because he has alleged a benefit claim which requires interpretation of the ERISA statute. Several district court decisions from the District of Massachusetts have distinguished between plan-based and statute-based claims, requiring plaintiffs to exhaust all administrative options on a claim involving contractual interpretation of a benefit plan — a task best left to a plan administrator or trustee — but not on a claim that entails statutory interpretation. See McLean Hosp. Corp., 819 F.Supp. at 121-22; Treadwell, 666 F.Supp. at 283-84. The First Circuit has not addressed the issue, see Drinkwater, 846 F.2d at 825-26 (stating that “exhaustion is required for claims which are purely contractual,” but failing to address argument that exhaustion unnecessary for benefit claim based on ERISA rights), while the circuits are split, compare Kross, 701 F.2d at 1243-45, and Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11th Cir.1985), ce rt. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986), with Zipfv. AT & T Co., 799 F.2d 889, 891-93 (3d Cir.1986), 175 and Amaro v. Continental Can Co., 724 F.2d 747, 751-52 (9th Cir.1984). This Court agrees with the Seventh and the Eleventh Circuits that strong public policy reasons — most prominently to render meaningful the Congressional mandate that all ERISA plans include an appeal process— compel plaintiffs to exhaust all benefit denial claims, regardless of their nature. Any commentary on the issue, however, would be mostly academic. Santana bases his benefits claim on the Indemnity Plan’s alleged violation of the MSP statute. Because the Indemnity Plan does not violate the MSP statute by treating its benefits secondary to Medicare, see supra at 172-73, the Court concludes that as a matter of law the benefits claim cannot succeed on this theory. Exercising the latitude Congressional silence provides when dealing with exhaustion questions, see Darby v. Cisneros, 509 U.S. 137, 153-54, 113 S.Ct. 2539, 125 L.Ed.2d 113 (1993), the Court will address the other arrow in Santana’s benefit denial quill because, upon close analysis, the Court concludes that it too misses its mark. b. Unenforceable SPD Provision Santana relies on Count Three of his Complaint to support Count Two. He contends that Deluxe wrongfully denied him benefits because the “Checking in With Deluxe” booklet, as a summary plan description, inadequately informed him of the circumstances in which it would deny claims, thereby violating section 1022 of ERISA. See 29 U.S.C. § 1022 (requiring SPDs to contain descriptions of “circumstances which may result in disqualification, ineligibility, or denial or loss of benefits”); Andersen v. Chrysler Corp., 99 F.3d 846, 856 (7th Cir.1996) (“To the extent any plan participant or beneficiary is harmed by a plan administrator’s violation of [section 1022], ERISA [section 1132] grants that beneficiary a right of action to recover any benefits due him and to enjoin the act or practice which violates ERISA or the terms of the plan.”). Santana asserts that the Medicare coordination clause is unenforceable against him because it did not adequately inform him that the Indemnity Plan would pay benefits “secondary to Medicare Part B even if the participant does not elect coverage under Medicare Part B.” Memorandum in Support of Plaintiffs Motion for Summary Judgment, at 4. ■ Specifically, Santana contends that Deluxe wrongfully withheld benefits under the Plan’s language stating that benefits would be “reduced by an amount equal to the benefits [the participant was] entitled to receive under the Medicare Program.” He argues that while he may have been “eligible” for Medicare Part B when Deluxe denied his claim for benefits, he was not yet “entitled” to Medicare coverage because he had not yet enrolled and paid the required premiums. See Plaintiffs Memorandum in Opposition to Defendant’s Motion for Summary Judgment, at 8. Such linguistic splitting of hairs is exactly the contractual interpretation properly addressed through the administrative appeal that Congress mandated in every benefits plan. See Drinkwater, 846 F.2d at 826. Regardless, the Court disagrees with the thrust of this hybrid of statute-based and plan-based section 1132 claims involving section 1022. SPDs are considered part of the ERISA plan documents, governing the contractual rights granted in employee benefit plans. See Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir.1988); see also McKnight v. Southern Life & Health Ins. Co., 758 F.2d 1566, 1570 (11th Cir.1985) (an SPD simplifies and explains the complex document that makes up the benefit plan). An SPD “shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” 29 U.S.C. § 1022. Congress enacted these statutory requirements “to arm employees with enough information to enable them to enforce their rights.” Helwig v. Kelsey-Hayes Co., 93 F.3d 243, 249 (6th Cir.1996), cert. denied, — U.S. —, 117 S.Ct. 690, 136 L.Ed.2d 613 (1997); see also Brumm v. Bert Bell NFL Retirement Plan, 995 F.2d 1433, 1439 (8th Cir.1993) (SPD “must not mislead, misinform, or fail to inform participahts and 176 beneficiaries of the requirements of the full plan”). 1 In construing the benefit provisions of an ERISA regulated plan governed by federal common law, see Wickman v. Northwestern, Nat’l Ins. Co., 908 F.2d 1077, 1084 (1st Cir.1990), the Court is guided by “common-sense canons of contract interpretation.” Burnham v. Guardian Life Ins. Co., 873 F.2d 486, 489 (1st Cir.1989). When ERISA plans contain unambiguous language, the Court construes them according to their “plain and natural meaning.” Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 178 (1st Cir.1995); see Wickman, 908 F.2d at 1084 (ERISA contract “terms must be given their plain meanings, meanings which comport with the interpretations given by the average person.”). As the Supreme Court has explained, the law of trusts provides guidance when interpreting ERISA plan documents: “The terms of trusts created by written instruments are ‘determined by the provisions of the instrument as interpreted in light of all the circumstances and such other evidence of the intention of the settlor with respect to the trust as is not inadmissible.’ ” Firestone, 489 U.S. at 112, 109 S.Ct. 948 (quoting Restatement (Second) of Trusts § 4 emt. d (1959)); see Bachelder v. Communications Satellite Corp., 837 F.2d 519, 522 (1st Cir.1988) (ERISA “plan must be interpreted in light of its apparent purposes, its structure and its history”). The need for “other evidence” depends on the relative ambiguity of the plan provision in question. See Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 586 (1st Cir.1993). “Contract language is usually considered ambiguous where an agreement’s terms are inconsistent on their face or where the phraseology can support reasonable differences of opinion as to the meaning of the words employed and obligations undertaken.” Fashion House, Inc. v. K mart Corp., 892 F.2d 1076, 1083 (1st Cir.1989). In this case, Santana received the 1991 “Checking in with Deluxe” handbook, the relevant SPD. As set out earlier, the language at issue was situated under the heading “Submitting a Claim for a Deluxe Retiree Eligible for Medicare”: NOTE: The benefits provided by the Deluxe Employee Health Care Plan shall be reduced by an amount equal to the benefits you are entitled to receive under the Medicare Program. As a retiree, when you qualify for Medicare, Medicare then becomes your first line of coverage. It pays first, and the Deluxe Employee Health Care Plan then considers the charges that Medicare didn’t cover. The Deluxe plan will pay the difference between what Medicare pays and what the Deluxe plan would have paid alone. So it is very important to enroll for Medicare coverage, both Part A, hospital, and Part B, supplemental, when you become eligible for it in order to have adequate medical coverage. This also applies to former Deluxe employees who become eligible for Medicare due to disability (after two years of disability). In October 1990, Santana was entitled to Medicare Part B coverage because he was a qualified SSDI recipient. The SPD informed him that his benefits would be reduced by what he was qualified to receive from Medicare. Reading the language of this offset provision as a whole, the Court concludes that the SPD unambiguously provides that the Indemnity Plan will not pay expenses covered by Medicare to disabled former employees. The SPD makes it clear that a disabled former employee needs to enroll in Medicare Part B upon qualification because the Indemnity Plan will not pay for expenses for which the employee is entitled to be paid through Part B. Why else would it be “very important” to enroll for Part B in order to have “adequate medical coverage”? The language is not reasonably prone to an interpretation that the Indemnity Plan will pay for expenses covered by Medicare Part 177 B when a disabled former employee who is entitled to Part B benefits fails to enroll. By contrast, it is readily understood from this language that a participant who does not enroll in Medicare Part B when eligible will not recoup payment from the Indemnity Plan for expenses that Medicare Part B would cover. Santana attacks the SPD from several angles. He argues first that the SPD inadequately notified him of his benefit rights because the provision’s heading indicates it applies to retirees, causing a disabled former employee like himself to avoid reading it. Given that Santana also received two letters from Deluxe outlining how the terms of the SPD’s Medicare coordination provision affected him as a disabled former employee, as discussed infra, the Court finds this assertion wholly unpersuasive. 2 Next he argues the SPD suffers from the failure to alert beneficiaries sufficiently of the consequences of neglecting to obtain Medicare Part B. Contrary to this assertion, the SPD informs disabled former employees who do not enroll in Medicare Part B when they are eligible that they do not have “adequate medical coverage,” and that the Indemnity Plan’s coverage does not overlap the reach of the Medicare program. The Court considers that when fairly read as a whole, the 1991 SPD, which Santana received before seeking physician’s services, reasonably informed participants that the Indemnity Plan did not cover benefits covered by Medicare, regardless of whether the participant obtained Part B coverage. Finally, Santana asseverates that the provision is ambiguous and should be construed against its drafter to nullify its application to his case. Even if the provision was open to reasonable differences of interpretation, the Court disagrees with the plaintiff’s suggested method. For a Court faeing ambiguous contractual terms, the First Circuit has instructed that construing them against their drafter—the doctrine of contra proferentem—does not generally apply in ERISA disputes. See Rodriguez-Abreu, 986 F.2d at 586 (“in the ERISA context, we generally do not construe ambiguous terms against the drafter”); Allen v. Adage, Inc., 967 F.2d 695, 701 (1st Cir.1992) (“in most ERISA eases, resort to contra proferentem contradicts the combined principles of the law of trusts and de novo review”). Instead, “[i]f the language of the contract is ambiguous, we turn to surrounding circumstances, undisputed extrinsic evidence, to divine the parties’ intent.” Rodriguez-Abreu, 986 F.2d at 586. Consideration of the extrinsic evidence squarely supports the plain reading of the SPD provision. When Santana received Deluxe’s October 1998 letter explaining his possible November termination, he also received an explanation of Deluxe’s LTD Plan for which he was eligible. In pertinent.part, it read: Two years after the date you qualify for Social Security disability benefits you become eligible for Medicare Part A (hospital benefits) and Part B (physician’s benefits). You will be automatically enrolled for Part A by the Social Security Administration, and there is no charge for it. However, you will have an option to take or not take Part B. There is a charge for Part B which is currently $24.80 a month. “When you become eligible for Medicare—Part B, you should enroll for it because at that time the Medicare plan becomes primary and our John Hancock/HMO plan will only pay those charges not covered by Medicare. The inference reasonably drawn from this language indicates that Deluxe’s employee benefit plan will not cover expenses covered by Medicare Part B, regardless of whether an eligible recipient actually enrolls in it. Similarly, Deluxe enclosed a letter to Santana when sending him the 1991 SPD. The letter, addressed to “Former Deluxe Employees With Extended Health Insurance 178 Coverage as the Result of Long Term Disability,” read, in relevant part: Enclosed is your copy of the 1991 “Checking In With Deluxe.” Of particular interest to you is the Health Care Plan section, beginning on page 87. It describes the medical coverage provided by the John Hancock Employee Health Care Plan. Just a reminder to you. Two years after you qualify for Social Security Disability Benefits you become eligible for Medicare Part A (hospital benefits) and Part B (physician’s benefits). When you become eligible for Medicare you must enroll for it because at that time the Medicare plan becomes your “first line” coverage, and your John Hancock plan will only consider those charges not covered by Medicare. The person qualified for Medicare submits to Medicare first, and what Medicare does not pay is sent to John Hancock for consideration. It is readily inferred from this letter that the Indemnity Plan required disabled former employees to enroll in Medicare Part B because the Plan would not pay for those expenses that Part B covers. This extrinsic evidence conclusively refutes Santana’s misguided conclusion that the Medicare coordination provision was inapplicable to his situation because he “was not ‘entitled’ to receive Medicare Part B benefits until July, 1992... [and that while he] may have been eligible for Medicare Part B, he was not entitled, because he had not enrolled and paid the premiums to become entitled.” Plaintiffs Memorandum in Opposition to Defendant’s Motion for Summary Judgment, at 8. Given the extrinsic evidence and the plain meaning of the Medicare coordination provision, this Court has “no right to torture language in an attempt to force particular results or to convey delitescent nuances the contracting parties neither intended nor imagined.” Bum-ham, 873 F.2d at 489. The SPD adequately disclosed the Indemnity Plan’s treatment of Medicare as the primary payer for disabled former employees. Santana could have understood from the SPD that his benefits would be limited by the Medicare coordination provision, and acted to gain “adequate coverage” by enrolling in Medicare Part B for a nominal fee. As a result, the SPD did not mislead, misinform, or fail to inform Santana of the Indemnity Plan’s treatment of Medicare coverage. Even had the SPD misled him, Santana has not alleged or attempted to show that he detrimentally relied on the SPD in choosing not to enroll in Medicare Part B or in seeking physician’s services. See Bachelder, 837 F.2d at 523 (participant who fails to show detrimental reliance upon misleading SPD may not recover under ERISA); Govoni v. Bricklayers, Masons and Plasterers, Int’l Union of America, Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir.1984) (plaintiff “must show some significant reliance upon, or possible prejudice flowing from, the faulty plan description.”). Simply put, Santana had adequate information to understand his rights under the Plan. See Alexander v. Primerica Holdings Inc., 967 F.2d 90, 94 (3d Cir.1992) (“Summary plan descriptions must warn employees of adversity.”); Lorenzen v. Employees Retirement Plan of the Sperry and Hutchinson Co., 896 F.2d 228, 236 (7th Cir.1990) (“the law is clear that the plan summary is not required to anticipate every possible idiosyncratic contingency that might affect a particular participant’s or beneficiary’s status”); Stahl v. Tony’s Bldg. Materials, Inc., 875 F.2d 1404, 1408-09 (9th Cir.1989) (“Summary plan descriptions... should focus... upon describing general rules in a way that allows the ordinary employee to understand when and where opportunity beckons and danger lurks”); Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032, 1040 (2d Cir.1985) (requiring SPD to explain “full import” of provisions affecting employee), cert. denied, 475 U.S. 1012, 106 S.Ct. 1189, 89 L.Ed.2d 304 (1986); Daniel v. International Bhd. of Teamsters, 561 F.2d 1223, 1249 n. 58 (7th Cir.1977) (“employees should be able to infer from information in the plan description that there is a risk of loss, and perhaps the nature of the risk”), rev’d on other grounds, 439 U.S. 551, 99 S.Ct. 790, 58 L.Ed.2d 808 (1979). As a result, the Court holds that Santana deserves no relief under section 1132 for denial of benefits because Deluxe did not 179 violate 29 U.S.C. § 1022. Accordingly, the Court grants summary judgment to Deluxe on Counts Two, Three, and Eight. 3 Consequently, the Court denies Santana’s motion on those counts. 4 C. Contract Claim On Count Four, Deluxe moves for summary judgment by arguing that Santana’s common law contract action is preempted by ERISA. See 29 U.S.C. § 1144(a).' Recognizing the expansive sweep of ERISA’s preemption provision, the Court will grant summary judgment on this Count. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (holding that state breach of contract action preempted because it relates to employee benefit plan); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 521-26, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) (state laws are preempted by ERISA insofar as they are related to any employee benefit plan covered by ERISA). D. Class Certification Count One of the Complaint, as well as a subsequent motion, request the certification of a class action of plaintiffs similarly situated to Santana. Having determined that Santana is not entitled to judgment as a matter of law, the Court notes that even if it had denied Deluxe’s motion for summary judgment, Santana’s motion for class certification cannot succeed. A district court may rule on the merits of a summary judgment motion before deciding the class certification issue under Rule 23 of the Federal Rules of Civil Procedure. See Floyd v. Bowen, 833 F.2d 529, 534-35 (5th Cir.1987);. Christensen v. Kiewit-Murdock Inv. Corp., 815 F.2d 206, 214 (2d Cir.), cert denied, 484. U.S. 908, 108 S.Ct. 250, 98 L.Ed.2d 209 (1987); Marx v. Centran Corp., 747 F.2d 1536, 1552 (6th Cir.1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985); Wright v. Schock, 742 F.2d 541, 543-44 (9th Cir.1984); Vervaecke v. Chiles, Heider & Co., 578 F.2d 713, 719-20 (8th Cir.1978); Crowley v. Montgomery Ward & Co., 570 F.2d 877, 879 (10th Cir.1978). While several courts have simply declined to address class certification motions after granting summary judgment against a plaintiff, see, e.g., Acker v. Provident Nat’l Bank, 512 F.2d 729, 732 n. 5 (3d Cir.1975), this Court prefers to decide the motions simultaneously, see Wofford v. Safeway Stores, Inc., 78 F.R.D. 460, 476-77 (N.D.Cal.1978). The Court need not tarry. Even assuming that the four prerequisites of Rule 23(a) can be established — -which is questionable given that Santana has not shown that any other similarly situated Plan participant was denied benefits — the plaintiff has not shown that this case satisfies Rule 23(b). Santana has not shown that separate actions would create a risk of inconsistent judgments and incompatible standards of conduct for the defendant, as the plaintiff has pointed to a disinclination to pursue legal action against 180 Deluxe on the part of others similarly situated to him as disabled former employees taking part in the Indemnity Plan. See Fed. R.Civ.P. 23(b)(1)(A). Nor has the plaintiff shown that a class action is superior to his individual action for injunctive relief to rewrite Deluxe’s SPD, as an injunction would have affected all Indemnity Plan participants. See Fed.R.Civ.P. 23(b)(3). As a result, the Court DENIES plaintiffs motion for certification of a class. V. CONCLUSION Having burrowed through the dense thicket of ERISA summary plan descriptions in this case, the Court arrives with the legal conclusions that Deluxe’s employee health insurance benefit plan does not violate the Medicare as Secondary Payer Statute, that Deluxe has not wrongfully denied Santana’s claim for benefits, and that Deluxe’s SPD does not violate ERISA. Accordingly, the Court GRANTS the defendant’s motion for summary judgment in its entirety, and DENIES the plaintiffs cross motion for summary judgment in its entirety. It is So Ordered. 1. According to 29 C.F.R. § 2520.102-2, an SPD: (1) must not mislead or misinform; (2) must describe limitations as prominently as benefits; (3) must not minimize limitations; and (4) must either disclose limitations in close conjunction to benefit provisions or provide page numbers on which restrictions are described adjacent to a description or summary of benefits. 2. The 1991 SPD provision should have indicated more clearly in its heading that the provision also applied to disabled former employees receiving Medicare benefits, but the provision is binding nonetheless and Deluxe brought it to the attention of disabled former employees like Santana through supplemental memoranda. A reasonably prudent employee would have read and reviewed this important provision. 3.Rather than amending his complaint, Santana alleges for the first time in his summary judgment memoranda separate ERISA violations under 29 U.S.C. §§ 1024, 1132(c). Section 1024(b) mandates that plan administrators provide participants with an SPD within 90 days after they first receive benefits, as well as with updated SPDs as they are amended. Section 1132(c) gives a court discretion to fine administrators up to $100 a day for failing to comply with a participant’s request for plan-related information. Plaintiff has failed to seek leave to plead these new causes of action under Fed.R.Civ.P. 15(a), which provides for the amendment of pleadings by leave of court. See Span East Airlines, Inc. v. Digital Equipment Corp., 486 F.Supp. 831, 835 (D.Mass.1980). Accordingly, the Court will not address them. Even if these allegations were included in the complaint, the Court notes that the plaintiff does not allege any harm arising from alleged violations of ERISA reporting procedures and he has not shown any indication that he detrimentally relied or was prejudiced by any violations. See Govoni, 732 F.2d at 252 (collecting cases requiring reliance and prejudice to entitle employees to monetary relief for employer’s procedural violations of ERISA); see also Kreutzer v. A.O. Smith Corp., 951 F.2d 739, 743 (7th Cir.1991) (employer’s failure to comply with ERISA’s reporting procedures excused because no showing of bad faith or active concealment). 4.To the extent that Santana requests consequential damages in Count Three, the Court notes that the Supreme Court has held that ERISA does not offer remedy for compensatory damages when a plan administrator fails to provide benefits-due. See Massachusetts Mutual, 473 U.S. at 142, 105 S.Ct. 3085.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 747	977 F. Supp. 1107	CID, Q	Santiago Amaro v. The Continental Can Company	MEMORANDUM AND ORDER EARL E. O’CONNOR, District Judge. This matter is before the court on the application of defendant R. Scott Christian to stay proceedings until completion of pending arbitration (Doc. # 8). Plaintiff Peruvian Connection (“PC”) has responded and opposes the motion. Defendant has filed a reply. In addition, Christian has, by separate motion, requested the court to extend the deadline to answer or otherwise respond to the complaint until twenty days after the stay is terminated or denied (Doc. # 6). The court has carefully reviewed the parties’ briefing, exhibits, and the applicable law, and is now prepared to rule. For the reasons stated below, the motions are granted. I. Factual Background. From September 1993 until August 1996, Christian was Chief Operating Officer of PC, a private, closely-held corporation engaged in the business of selling imported knitwear through mail-order catalogues and outlets. PC is controlled by Anne G. Hurlbut and her mother, M.L.M. “Biddie” Hurlbut (collectively “the Hurlbuts”), who hold the positions of Chief Executive officer and Chairman of the Board, respectively. On July 16, 1996, Christian received a “Notice of Termination Under the Employment Contract.” The Notice stated that Christian’s employment with PC was being terminated “without cause” pursuant to Section 6(b)(i) of the Employment Agreement. The Notice also stated that “in accordance with Section 3 of the September 3, 1993 Phantom Stock Agreement between you and the Company (‘PSAR’), any rights that you hold under the PSAR will be forfeited upon your termination of employment.” On the same day that PC gave notice it was terminating his employment agreement, PC offered to hire Christian as Chief Operating Officer at an increased salary but without the PSAR agreement. Christian declined the offer. Both the employment agreement and the PSAR Agreement contained an identical arbitration provision, as follows: Disputes under the Agreement shall be settled pursuant to binding arbitration be 1109 fore an arbitrator in the States of either Kansas or Missouri, in accordance with the voluntary labor arbitration rules of the American Arbitration Association, as then in effect. The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement, the arbitrator shall not change, add to, or subtract from, any of the provisions of the Agreement. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction over this matter may enter a judgment based upon such arbitration. PC’s Complaint for Declaratory Judgment, Ex. B § 17; Ex. C ¶ 11. On February 13, 1997, Christian initiated arbitration proceedings against PC by filing with the American Arbitration Association (“AAA”) a demand for arbitration addressed to PC and its owners. In the demand for arbitration, Christian asserted claims for (1) violation of § 510 of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1140; (2) wrongful termination; (3) breach of implied covenant of good faith and fair dealing; (4) quantum meruit; and (5) violation of Kansas Statutes Annotated § 17-1264(a). On March 31,1997, in response to Christian’s demand for arbitration, PC submitted to AAA an answering statement and a counterclaim for accounting. PC’s answering statement contains the sentence: “The PSAR agreement does not constitute an employee benefit plan governed by ERISA 29 U.S.C. §§ 1001, et seq.” Neither the answering statement nor the counterclaim contain any allegation challenging the arbitrability of the ERISA claim or any other claim raised by Christian. On April 8, 1997, Christian filed with AAA a reply to the counterclaim. On May 15, 1997, PC filed suit in this court seeking a declaratory judgment that its actions do not expose it to liability under ERISA, 29 U.S.C. § 1001, et seq. PC contends that the agreement under which Christian was to receive phantom stock appreciation rights (the “PSAR Agreement”) is not an ERISA plan. II. Standards for Arbitration. The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, “evinces a strong federal policy in favor of arbitration.” ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir.1995) (citing Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987)). The purpose of the FAA “was to reverse the longstanding judicial hostility to arbitration agreements... and to place arbitration agreements upon the same footing as other contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26 (1991). “If a contract contains an arbitration clause, a presumption of arbitrability arises.” ARW, 45 F.3d at 1462 (citing AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650, 106 S.Ct. 1415, 1419, 89 L.Ed.2d 648 (1986)). This presumption may be overcome only if “it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Id. All doubts should be resolved in favor of coverage. Id. As the Supreme Court stated in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983): The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. See also Esposito v. Hyer, Bikson & Hinsen, Inc., 709 F.Supp. 1020, 1022 (D.Kan.1988) (quoting Moses H. Cone, and noting that the Supreme Court has given its “stamp of approval” to the principle that arbitration provisions are to be construed broadly to effectuate the strong federal policy evidenced by the Federal Arbitration Act). Courts are to “rigorously” enforce agreements to arbitrate. ARW 45 F.3d at 1462 (citing McMahon, 482 U.S. at 226, 107 S.Ct. at 2337). Section 3 of the FAA provides: If any suit or proceeding be brought in any of the courts of the United States upon any 1110 issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. Although the Supreme Court has not directly addressed the issue of enforceability of predispute arbitration agreements in the context of ERISA-based claims, in a series of four cases, the Supreme Court has upheld the enforceability of predispute arbitration agreements under the FAA in connection with various other statutory claims. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (claim under Age Discrimination in Employment Act); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (claims arising under the Securities Act of 1933); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (claim under § 10(b) of the Securities Exchange Act of 1934 and claim under civil provisions of Racketeer Influenced and Corrupt Organizations Act); Mitsubishi Motors Corp., v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (claim brought under the Sherman Antitrust Act). In each of these cases, the Supreme Court determined that the FAA was enacted to reverse the longstanding judicial hostility toward arbitration agreements and to place such agreements on the same footing with other contracts. These cases also recognized that “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652 (citing Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354). Absent a well-founded claim that an arbitration agreement resulted from the sort of fraud or excessive economic power that “would provide grounds ‘for the revocation of any contract,’ ” Mitsubishi, 473 U.S. at 627, 105 S.Ct. at 3354 the FAA “provides no basis for disfavoring agreements to arbitrate statutory claims by skewing the otherwise hospitable inquiry into arbitrability.” Id. Consequently, the “duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights.” McMahon, 482 U.S. at 226, 107 S.Ct. at 2337. While the Supreme Court has made it clear that predispute arbitration agreements relating to statutory claims are generally enforceable, the court acknowledged that some claims may not be appropriate for arbitration where Congress itself intended to preclude a waiver of judicial remedies for the statutory rights at issue. Id. The burden to demonstrate such a contrary congressional intent rests with the party opposing arbitration. Id. at 227, 107 S.Ct. at 2337. The party contending that an agreement to arbitrate a statutory claim is not enforceable has the burden of showing that “Congress intended in a separate statute to preclude a waiver of judicial remedies.” Rodriguez, 490 U.S. at 483, 109 S.Ct. at 1921. To establish that Congress intended to preclude a waiver of a judicial forum for statutory claims, such intent must be manifested in the text of a particular statute, in its legislative history, or by an inherent conflict between arbitration and the underlying purposes of the applicable statute. McMahon, 482 U.S. at 227, 107 S.Ct. at 2337. Throughout such an inquiry, the supreme Court has cautioned that “questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.” Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652 (quoting Moses H. Cone, 460 U.S. at 24, 103 S.Ct. at 941). The circuit courts that have considered the arbitrability of an ERISA claim have uniformly concluded that nothing in the text of the statute evinces a Congressional intent to preclude arbitration. See Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th Cir.1996); Pritzker v. Merrill Lynch, 7 F.3d 1110, 1117-18 (3d Cir.1993); Bird v. Shearson Lehman/American Express Inc., 926 F.2d 116, 1111 119 (2d Cir.), cert. denied, 501 U.S. 1251, 111 S.Ct. 2891, 115 L.Ed.2d 1056 (1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475, 477-79 (8th Cir.1988). Even though ERISA provides that “the district courts of the United States shall have exclusive jurisdiction of civil actions under this subehapter brought by the Secretary or by a participant, beneficiary, or fiduciary,” 29 U.S.C. § 1132(e)(1), courts have not viewed this provision as establishing Congressional intent to preclude arbitration of ERISA claims. See Pritzker, 7 F.3d at 1118 (“such jurisdictional provisions speak only to the issue of which judicial forum is available, and not to whether an arbitral forum is unavailable” (citing Rodriguez, 490 U.S. at 482-83, 109 S.Ct. at 1920-21, McMahon, 482 U.S. at 227-28, 107 S.Ct. at 2337-38, and Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354)); Bird, 926 F.2d at 120. The circuits that have considered the question have also found that nothing in ERISA’s legislative history precludes arbitration. The court in Pritzker noted that although ERISA was intended to provide a consistent source of law to “help administrators, fiduciaries and participants to predict the legality of proposed actions,” (Pritzker; 7 F.3d at 1119 (quoting S.Rep. No. 127, 93rd Cong., 2nd Sess. 29, 1974 U.S.Code Cong. & Admin.News pp. 4639, 4865)), such a general statement of legislative purpose does not indicate that Congress intended to prohibit enforcement of arbitration agreements. Id. “So long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” Id. (quoting Gilmer, 500 U.S. at 28, 111 S.Ct. at 1653 (citations omitted)). See also Bird, 926 F.2d at 120 (no evidence in legislative history that Congress intended to preclude arbitration of ERISA claims); Sulit, 847 F.2d at 478 (same). The courts have also found that arbitration is not inconsistent with ERISA’s underlying purposes. ERISA was enacted “to promote the interests of employees and their beneficiaries in employee benefit plans,” and “to protect contractually defined benefits.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989). Arbitration would be inconsistent with the underlying purposes of a statute “where arbitration is inadequate to protect the substantive rights at issue.” McMahon, 482 U.S. at 229, 107 S.Ct. at 2339. In Bird, the court noted that any presumption that arbitration is an inadequate forum in which to resolve disputes based on complex federal statutes is untenable in light of recent Supreme Court decisions. Bird, 926 F.2d at 121 (citing McMahon, 482 U.S. at 232, 107 S.Ct. at 2340; Mitsubishi, 473 U.S. at 633-34, 105 S.Ct. at 3357-58; Rodriguez, 490 U.S. at 480,109 S.Ct. at 1919). We follow the lead of our sister circuits and, for the foregoing reasons, conclude that the text, legislative history, and purposes of the ERISA statute fail to indicate that Congress intended to preclude the use of arbitration to resolve statutory ERISA claims. Even if a particular dispute is not within the original arbitration agreement between the parties, “it is hornbook law that parties by their conduct may agree to send issues outside an arbitration clause to arbitration.” Kamakazi Music Corp. v. Robbins Music Corp., 684 F.2d 228, 231 (2d Cir.1982); Valley Decking Co. v. Local Union No. 9, 841 F.Supp. 354, 356 (D.Co.1994) (“Agreement to arbitrate may also be implied from the parties’ conduct.”). “Thus, the parties may agree to arbitration of disputes that they were not contractually compelled to submit to arbitration.” Executone Information Systems, Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir.1994). “[O]nce the parties have gone beyond their promise to arbitrate and have actually submitted an issue to an arbiter, we must look both to their contract and to the submission of the issue to the arbitrator to determine his authority.” Piggly Wiggly Operators’ Warehouse, Inc. v. Piggly Wiggly Operators’ Warehouse Independent Truck Drivers Union, 611 F.2d 580, 584 (5th Cir.1980). Accord United Food and Commercial Workers, Local Union No. 7R v. Safeway Stores, Inc., 889 F.2d 940, 946 (10th Cir.1989); Mobil Oil Corp. v. Independent Oil Workers Union, 679 F.2d 299, 302 (3d Cir. 1982). 1112 Whether the parties enter into a formal written agreement or merely ask the arbitrator to decide the claims submitted, “they have in effect empowered him to decide the issues stated in the grievance. The grievance itself becomes the submission agreement and defines the limits of the arbitrator’s authority.” Piggly Wiggly, 611 F.2d at 584. “On whatever basis it rests, waiver, estoppel or new contract, the result is that the grievance submitted to the arbiter defines his authority without regard to whether the parties had a prior legal obligation to submit the dispute.” Id. Although these principles are more often applied in cases where a party becomes dissatisfied with arbitration following an unsatisfactory result, see, e.g., Executone, 26 F.3d at 1319-20; Piggly Wiggly, 611 F.2d at 582, 584, the same rules preclude a party from withdrawing from an ongoing arbitration in favor of a judicial forum. Island Creek Coal Sales Co. v. Indiana-Kentucky Elec. Corp., 366 P.Supp. 350 (S.D.N.Y.1973) (after parties had framed the issues for arbitration, one party commenced action for declaratory judgment declaring that its decision to terminate the agreement was not arbitrable; district court granted summary judgment on grounds parties had agreed to submit issues to arbitration). “Where a disagreement exists over the scope of the arbitration agreement, and where the parties nevertheless voluntarily submit their dispute to arbitration, they ‘evinc[e] a subsequent agreement for private settlement which would cure any defect in the arbitration clause.’ ” Id. at 353 (quoting Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 809 (2d Cir.)), cert. denied, 363 U.S. 843, 80 S.Ct. 1612, 4 L.Ed.2d 1727 (1960); also citing with approval Finsilver, Still & Moss, Inc. v. Goldberg, Maas & Co., 253 N.Y. 382, 171 N.E. 579 (1930) (“We assume that circumstances may exist in which a party to an arbitration, joining in its proceedings without protest or disclaimer, may be found to have joined by implication in the appointment of the arbitrators, and to have confirmed their jurisdiction, if otherwise defective.” (per Cardozo, C.J.)). III. Discussion. Christian contends that PC is unable to carry its burden of convincing the court “with positive assurance” that Christian’s ERISA claim falls outside the scope of the arbitration clauses contained in the two agreements for several reasons. First, Christian asserts that the arbitration clauses in both agreements apply without limitation to “[disputes under the Agreement.” Christian argues that this simple and direct language easily encompasses the present controversy, including the ERISA claim. Moreover, he argues, there is no language in either agreement suggesting any intent to exclude the controversy from arbitration. Second, Christian maintains that the following language of the Employment Agreement demonstrates the parties’ express agreement to construe all contractual obligations in light of, and confined within, all applicable laws: This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. Employment Agreement, Section 19. The language “all applicable laws” would encompass ERISA. Therefore, an arbitrator empowered to resolve disputes under the Agreement is inherently empowered to consider and resolve statutory claims in order to define and enforce the rights and obligations of the parties under the Agreement. Third, Christian maintains that although this court must decide the issue of arbitrability without regard to any assessment of the merits of the underlying ERISA claim, PC’s own allegations on the subject confirm that the existence or non-existence of an ERISA plan is a “dispute under the agreement.” Thus, PC’s contention that there is no ERISA plan turns on its interpretation of the agreements. In response to the foregoing arguments, PC states that “the arbitrator’s sole authority” is “to interpret and apply the provisions of’ the Employment Agreement and the PSAR Agreement. PC argues that the issue of whether a PSAR Agreement constitutes a 1113 plan under ERISA involves more than an interpretation and application of the contract language. The portion of the arbitration agreement that PC has excerpted, when read in the context of the full sentence, provides: “The arbitrator’s sole authority shall be to interpret and apply the provisions of this Agreement, the arbitrator shall not change, add to, or subtract from, any of the provisions of the Agreement.” Thus, the arbitrator’s “sole authority” relates to the requirement that the arbitrator not alter any of the provisions of the Agreement; the Agreement does not preclude the arbitrator from interpreting the Agreement in light of pertinent case law, (i.e., the Fort Halifax Packing Company, Inc. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), and Herring v. Oak Park Bank, 963 F.Supp. 1558 (D.Kan.), appeal docketed, No. 97-3127 (10th Cir. May 20, 1997), cases PC urges in support of its position that the agreements do not constitute a “plan” under ERISA). PC relies upon Johnson v. St. Frances Xavier Cabrini Hosp., 910 F.2d 594 (9th Cir.1990). In Johnson, the Ninth Circuit held that an arbitrator is generally not considered competent to decide ERISA claims: “Arbitrators, many of whom are not lawyers, lack the competence of courts to interpret and apply statutes as Congress intended.” Id., 910 F.2d at 596 (quoting Amaro v. Continental Can Co., 724 F.2d 747, 749 (9th Cir.1984)). We are not persuaded by PC’s reliance on Johnson. First, we observe that any precedential value of Johnson is severely undercut by ample, recent, Supreme Court authority favoring the arbitrability of statutory claims and more recent case law from our sister circuits holding specifically that ERISA claims are arbitrable. In the time since Amaro was decided, the Supreme Court has stated ‘“we are well past the time when judicial suspicion of the desirability of arbitration and of the competence of arbitral tribunals’ should inhibit enforcement of the [Federal Arbitration] Act ‘in controversies based on statutes.’ ” McMahon, 482 U.S. at 226, 107 S.Ct. at 2337 (quoting Mitsubishi, 473 U.S. 614, 626-27, 105 S.Ct. 3346, 3354). See Southside Internists Group PC Money Purchase Pension Plan v. Janus Capital Corp., 741 F.Supp. 1536, 1539-42 (N.D.Ala.1990) (questioning Amaro and similar cases in the context of developing Supreme Court precedent). See also Fabian Financial Services v. Kurt H. Volk, Inc. Profit Sharing Plan, 768 F.Supp. 728, 731-32 (D.C.Cal.1991) (declining to follow Johnson in light of “persuasive and binding” Supreme Court precedent). PC does not dispute or even acknowledge the strong federal policy favoring arbitration and the expansive interpretation courts are to afford to arbitration agreements. Nor does PC attempt to rebut the principle that any ambiguity in an arbitration clause must be resolved in favor of arbitration. See Esposito v. Hyer, Bikson & Hinsen, Inc., 709 F.Supp. 1020, 1022 (D.Kan.1988). We note that PC’s argument perpetuates the discredited hostility toward arbitration: “an arbitrator likely would have considerably less expertise than a federal judge as it concerns a determination of [ERISA] law.” PC’s brief, at 7. Such “‘mistrust of the arbitral process,’ however, has been undermined by our recent arbitration decisions.” Gilmer, 500 U.S. at 34 n. 5, 111 S.Ct. at 1656 n. 5 (citing McMahon, 482 U.S. at 231-32, 107 S.Ct. at 2340-41.) Finally, in an effort to distinguish the case law from the Second, Third, Fifth, and Eighth Circuits recognizing the arbitrability of ERISA claims, PC characterizes the issues in this case as “more technical,” but acknowledges that an arbitrator might be competent to decide breach of fiduciary duty claims under ERISA. As Christian aptly points out, PC’s attempted distinction is self-defeating. An arbitrator called upon to decide a breach of fiduciary duty claim must apply several provisions of ERISA (see generally, 29 U.S.C. §§ 1101-1114), including a statutorily defined duty of care that requires (among other things) conduct “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with [specified provisions of ERISA],” 29 U.S.C. § 1104(a)(1)(D). Having conceded that an arbitrator is competent to decide sophisticated breach of fiduciary duty claims under 1114 ERISA, PC cannot be heard to assert this case is somehow beyond the competence of an arbitrator. Next, Christian contends that even without regard to the specific arbitration agreements, the dispute is arbitrable because the parties agreed to submit it to arbitration, and did so, earlier this year. We agree. On March 31, 1997 (well before PC filed its May 15, 1997 declaratory judgment action), PC filed an answering statement with AAA, which included a counterclaim against Christian for an accounting. Nowhere in these arbitration submission documents is there any assertion or defense by PC denying the arbitrability of the ERISA claim. The court finds that the very issue PC now attempts to present to the court is the identical issue that PC has already presented to an arbitrator. PC expressly raised in arbitration its contention that “The PSAR Agreement does not constitute an employee benefit plan governed by ERISA,” and asked the arbitrator to determine “that the claims made by Christian lack merit.” PC’s Answering Statement in arbitration, ¶. 3, 4, and 6. We view PC’s counterclaim for an accounting as further evidence of PC’s intention and agreement to arbitrate any and all issues between the parties. PC, in its brief, proceeds to cite and discuss the recent opinion of Herring v. Oak Park Bank, 963 F.Supp. 1558 (D.Kan.), appeal docketed, No. 97-3127 (10th Cir. May 20, 1997). While this case extensively addresses whether a phantom stock agreement constitutes a “plan” under ERISA, the opinion says nothing about the arbitrability of an ERISA claim. We find no reason why this authority could not be argued to, and considered by, the arbitrator. In sum, we conclude that PC has failed to overcome the presumption of arbitrability by demonstrating with “positive assurance” that the arbitration clauses in question are not arbitrable. Additionally, we find that even if the arbitration clauses did not encompass the ERISA question, the scope of the issues submitted to the arbitrator controls his authority, and the record reflects the parties’ submission of the ERISA dispute to the arbitrator. Accordingly, Christian’s motion to stay proceedings until completion of pending arbitration should be granted. The court further finds, for the reasons well-stated in Christian’s motion for extension of time to answer, that an extension should be and hereby is granted. Christian is given until ten days after the court lifts the stay to file any answer or otherwise respond to plaintiffs complaint. IT IS THEREFORE ORDERED that the application of defendant R. Scott Christian to stay proceedings until completion of pending arbitration (Doc. # 8) is granted. IT IS FURTHER ORDERED that defendant Christian’s motion for extension of time to answer or otherwise respond to plaintiffs complaint (Doc. # 6) is granted. The deadline for Christian to answer or otherwise respond to plaintiffs complaint is hereby extended until ten days after the court lifts the stay.	CRITICIZED_OR_QUESTIONED
724 F.2d 747	957 F. Supp. 1442	D	Santiago Amaro v. The Continental Can Company	MEMORANDUM OPINION AND ORDER GRAHAM, District Judge. Plaintiff Arthur Falliek is a former employee of defendant Nationwide Mutual Insurance Company, which is a subsidiary of defendant Nationwide Life Insurance Company (both hereinafter occasionally referred to as “Nationwide”). Falliek is a beneficiary of an employee medical benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1001 et seq. Plaintiff alleges that defendants improperly reduce or deny claims for benefits on the grounds that such claims are in excess of what defendants determine to be “reasonable and customary,” and that defendants ignore directions on their own preprinted claims forms and misdirect reimbursement claims to providers who have already been paid. In its order dated September 27,1996, this Court converted the motion to dismiss for failure to state a claim upon which relief can be granted to a motion for summary judgment on the issue of exhaustion of administrative remedies. The parties were then granted further time in which to submit evidence and briefs on this issue. The parties have done so and this matter is now before the Court on defendants’ motion for summary judgment. I. Plaintiff has currently pending before this Court a motion to certify this case as a class action. A motion for summary judgment may be decided before the district court determines whether the action is maintainable as a class action. Thompson v. County of Medina, Oh., 29 F.3d 238 (6th Cir.1994); Marx v. Centran Corp., 747 F.2d 1536, 1552 (6th Cir.1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985). Neither Fed.R.Civ.P. 23 nor due process necessarily requires that the district court rule on class certification before granting or denying a motion for summary judgment. Rule 23 clearly favors early determination of the class issue, but where considerations of fairness and economy dictate otherwise, and where the defendant consents to the procedure, it is within the discretion of the district court to decide the motion for summary judgment first. Wright v. Schock, 742 F.2d 541, 545-546 (9th Cir.1984). In this case, defendants, who have moved for summary judgment, clearly consent to the immediate resolution of the issues raised therein. Furthermore, it is particularly appropriate to resolve the issue of exhaustion of administrative remedies be 1444 fore addressing the issue of class action certification. Therefore, this Court shall proceed to decide the motion for summary judgment. Under Fed.R.Civ.P. 56(c), summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” See LaPointe v. United Autoworkers Local 600, 8 F.3d 376, 378 (6th Cir.1993); Osborn v. Ashland County Bd. of Alcohol, Drug Addiction and Mental Health Servs., 979 F.2d 1131, 1133 (6th Cir.1992) (per curiam). The party that moves for summary judgment has the burden of showing that there are no genuine issues of material fact in the case at issue, LaPointe, 8 F.3d at 378, which may be accomplished by pointing out to the court that the nonmoving party lacks evidence to support an essential element of its case. Barnhart v. Pickrel, Schaeffer & Ebeling Co., 12 F.3d 1382, 1389 (6th Cir.1993). In response, the nonmoving party must present “significant probative evidence” to demonstrate that “there is [more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris Cos., 8 F.3d 335, 339-10 (6th Cir.1993). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). See generally Booker v. Brown & Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir.1989). In reviewing a motion for summary judgment, “this Court must determine whether ‘the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’ ” Patton v. Bearden, 8 F.3d 343, 346 (6th Cir.1993) (quoting Anderson, 477 U.S. at 251-53, 106 S.Ct. at 2511-13). The evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587,106 S.Ct. 1348,1356, 89 L.Ed.2d 538 (1986); see Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). However, “[t]he mere existence of a scintilla of evidence in support of the plaintiffs position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252, 106 S.Ct. at 2512; see Gregory v. Hunt, 24 F.3d 781, 784 (6th Cir.1994). Finally, a district court considering a motion for summary judgment may not weigh evidence or make credibility determinations. Adams v. Metiva, 31 F.3d 375, 378 (6th Cir.1994). II. All ERISA plans are required to provide a claims appeal procedure. 29 U.S.C. § 1133, which governs the claims procedure under ERISA, provides that every employee benefit plan shall “afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.” 29 U.S.C. § 1133(2). While this section does not require the exhaustion of the administrative remedies it requires plans to provide, the Sixth Circuit Court of Appeals has held that “[t]he administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court.” Costantino v. TRW, Inc., 13 F.3d 969, 974 (6th Cir.1994) (quoting Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 986 (6th Cir.1991)); see also Mason v. Continental Group, Inc., 763 F.2d 1219, 1226-27 (11th Cir.1985), cert. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986); Amato v. Bernard, 618 F.2d 559, 566-67 (9th Cir.1980). However, the exhaustion requirement may be excused if fulfilling that requirement would be futile or the remedy inadequate. Costantino at 974; Amato, 618 F.2d at 568. As a general matter, the decision whether to apply the exhaustion requirement is a matter of the district court’s sound discretion. See Baxter v. C.A. Muer Corp., 941 F.2d 451, 453-54 (6th Cir.1991). 1445 III. In December 1992, plaintiff took a permanent disability leave from Nationwide Mutual after approximately twenty-three years employment. Plaintiff was and is entitled to health care and other benefits under Nationwide Group Insurance Policy Number 1202200, until January 1, 1994, and thereafter under the Nationwide Insurance Companies and Affiliates Employee Health Care Plan (hereinafter collectively referred to as the “Nationwide Plans”). Nationwide Life had insured the Nationwide Group Insurance Policy from on or before January 1, 1990 to December 31, 1993. Nationwide Life was therefore the fiduciary of that plan as that status is defined by 29 U.S.C. § i002(14)(A) According to the amended complaint, defendant Nationwide Mutual has continually been the “plan sponsor” for the Nationwide Plans as that term is defined under 29 U.S.C. § 1002(16)(B). Since January 1, 1994, Nationwide Mutual has been self-insured, thus qualifying as a fiduciary for the Nationwide Insurance Companies and Affiliates Employee Health Care Plan under 29 U.S.C. § 1002(14)(A). Defendants have, since 1990, regularly included in their standard group policies a coverage exclusion limiting payment and/or reimbursement to charges which are “reasonable and customary.” Any amount of a charge in excess thereof is not covered by the policy and is not applied to the individual’s deductible. The “reasonable and customary” exclusion is defined by defendants in the insurance contracts and the employee handbooks as follows: It means reasonable in terms of service, care, or treatment provided, and customary in that it is equal to the charge usually made by that provider and does not exceed the usual charge made by those in the same geographical area with similar professional standing. Nationwide Employee Handbook at 1195 (attached as Ex. 5 to Fallick Aff. of July 9, 1996). Plaintiff alleges that defendants refuse to disclose any further information or data relating to how they determine' what charges are in excess of “reasonable and customary.” Plaintiff claims that defendants’ calculations of reasonable and customary charges deviate from their written description of those calculations in three ways. First, plaintiff asserts that defendants calculate their payments for their group insurance plans based upon a set percentile (e.g. the 85th or 90th percentile) of the entire range of charges for a given procedure in a geographic region. Plaintiff claims that this practice is inconsistent with the “equal to the charge” and “does not exceed the usual charge” language that defendants use in their definition of “reasonable and customary.” Second, plaintiff asserts that defendants routinely fail to calculate the “usual charge” for a given medical procedure by the “reasonable and customary” amount in a geographic area. According to the amended complaint, defendants instead rely upon an organization known as the Health Insurance Association of America (“HIAA”), an association of commercial insurers that is purportedly supported by defendants, for such figures. Plaintiff also alleges that HIAA’s data is sometimes inadequate, and that when that is the case, multiple disparate geographic areas are grouped together in the process of calculating the “usual charge.” Third, plaintiff contends that, based upon defendants’ payment patterns, defendants make no effort to differentiate the professional standing of various health care providers. According to the amended complaint, for instance, defendants treat as identical all surgeons in a particular field for purposes of determining a “reasonable and customary charge,” regardless of a surgeon’s standing in the profession or reputation in the community. Plaintiff also alleges that defendants’ claim form allows the participant to indicate whether the participant has paid the provider. According to the amended complaint, even in those instances when the participant indicates on the claim form that he or she has paid the provider, defendants nevertheless routinely forward payment to the provider. Plaintiff believes that defendants do so in order to take advantage of the time value of money while the error is being corrected. 1446 Plaintiff contends that defendants’ wrongful conduct has damaged him and other members of the proposed class. Plaintiff, as an individual and as the sole representative for the proposed class, brings claims for recovery of benefits and enforcement of rights under ERISA, for breach of fiduciary duty under ERISA and for estoppel under ERISA and federal common law. The amended complaint also seeks an accounting in addition to the declaratory and injunctive relief. Defendants assert that plaintiff has failed to utilize the administrative review procedures established in the Nationwide Plans to raise his concerns about the specific aspects of defendants’ method of determining reasonable and customary charges that are the subject of this action or to complain about the misdirection of payments to service providers when the claim form indicates that the provider has been paid. Defendants reference § 13.1.13 of the plan which is currently in force, which provides: No action shall be brought against the Claims Administrator, the Plan Sponsor, or a Participating Employer by an Employee or Dependent unless, as a condition precedent thereto, the Employee or Dependent for whom benefits are claimed... shall have fully complied with all the terms and provisions of this Plan, nor until the claims for such benefits has been denied in writing by the Plan Administrator. Nationwide Insurance Companies and Affiliates Employee Health Care Plan, § 13.1.13 (attached as Ex. 2 to Defendants’ Motion for Summary Judgment). The plan further provides that “[ujpon receipt of a denial of a claim, the Employee or Dependent may request a review of the denial by filing a written appeal with the Plan Administrator within sixty (60) days.” Nationwide Insurance Companies and Affiliates Employee Health Care Plan, § 13.1.3(2) (attached as Ex. 1 to Defendants’ Motion for Summary Judgment). In addition, Nationwide prints on every explanation of benefits form, which are sent to the insured following a decision on a claim, the following in bold-face: If you disagree with the decision we made on your claim, you have the right to an appeal. Your request should be in writing, within 60 days from the time you receive this explanation of benefits. Upon receipt of your request we will review your claim and advise you of our decision. (See, e.g., Scott Aff. of November 4, 1996 Ex. 3). In response, plaintiff states that he has largely complied with defendants’ appeals process, and to the extent he has not, the process is both futile and inadequate. Plaintiff also asserts that administrative exhaustion should not be required because of the nature of certain of his claims. IV. This Court will initially examine the evidence of administrative exhaustion as it relates to plaintiff’s claims regarding Nationwide’s use of reasonable and customary limitations on coverage. Relying on the materials plaintiff has provided to the Court in opposition to the motion for summary judgment, it appears that Mr. Fallick began to act on his dissatisfaction with the processing of his claims in the Spring of 1993. At that time, plaintiff asserts that he contacted Artie Scott, a Nationwide Insurance Employee Claims Manager, regarding the use of reasonable and customary limitations in the processing of claims for reimbursement of certain medical procedures performed in 1991, 1992 and the early part of 1993. Plaintiff supplies no documentation relating to this contact with Ms. Scott, nor does he relate further the substance of this communication. Receiving what he deemed to be an insufficient response, plaintiff solicited the assistance of the State of New York Insurance Department (“NYID”). This was the first in a series of correspondence that would last over the next couple of years. Plaintiff supplies no documentation relating to this initial contact with the NYID. On or about September 8, 1993, plaintiff received a copy of a letter sent by Lloyd Lauver, a Nationwide Insurance Benefits Administration Manager, to Lester Grimmell, Supervisor of the Consumer Services Bureau at the NYID, which explains that Nationwide Life Insurance receives its health care charge data from a non-profit research orga 1447 nization (the HIAA). This data is arranged by the zip code of the service provider and the specific numeric code assigned to a particular procedure. Mr. Lauver indicates that Mr. Falliek’s claims were properly processed under reasonable and customary guidelines. On or about November 1, 1993, plaintiff received a copy of a letter from Ms. Scott to Merline Smith at NYID’s Consumer Services Bureau which indicated that the charges that plaintiff incurred in 1991,1992 and early 1993 were for services performed in area 105 (this area is defined by all zip codes beginning with the first three digits 1-0-5). Ms. Scott’s letter then lists seventeen of the charges incurred during this time period, the amounts of the charges, and the extent to which they were in excess of reasonable and customary, given that charges at or below the 85th percentile in area 105 for the relevant procedures were considered reasonable and were paid in full. 1 The portions of those charges that exceeded the 85th percentile were excluded from the coverage of the policy. In comparing the reasonable and customary limitations applicable to area 105 to the amount of those various charges that were actually allowed, the NYID determined that the reimbursement for eight charges had been miscalculated in the total amount of $138.00. That is, with respect to those eight charges, the amount allowed Mr. Fallick was less than the reasonable and customary amount for area 105. The cause of the miscalculations is not clear from the materials presented by the plaintiff. Nonetheless, the NYID contacted Nationwide about the discrepancies and on November 22, 1993 plaintiff was reimbursed an additional $138.00. Plaintiff complains at this point that “although Nationwide had reconsidered certain of my claims, it had not ceased to utilize faulty R & C rates in processing my claims[.]” (Fallick Aff. of March 25, 1996 at ¶ 7) (emphasis in original). However, Mr. Fallick did not address this concern to defendant in writing. Instead, on January 4,1994, plaintiff drafted a letter to Ms. Smith at the NYID in which he points out that no mention of the HIAA or the percentile payment scheme exists in his policy. Mr. Fallick also states that “[f]ee schedules are set by using the providers zip code, regardless of the provider’s educational background, specialization, experience or ability.” (Fallick Aff. of March 25, 1996 Ex. 5). It appears that this letter is the last time plaintiff made any communication specifically regarding the charges he incurred in 1991, 1992 and early 1993. As noted above, the communication was not to Nationwide nor is there any evidence that any of Fallick’s claims had been reduced or denied because of the matters he complained of in this letter. It is relevant at this time to point out that to oppose the motion for summary judgment, plaintiff has the responsibility to come forward with evidence tending to create a genuine issue of material fact as to whether, he has exhausted administrative remedies. This Court is not required to, “search the entire record to establish that it is bereft of a genuine issue of material fact.” Street v. J.C. Bradford & Co., 886 F.2d 1472, 1480 (6th Cir.1989). Rather, the Court’s analysis of the evidence presented on summary judgment is confined to factual issues supported by specific references to the record. Guari-no v. Brookfield Township Trustees, 980 F.2d 399, 404 (6th Cir.1992) (facts presented and designated by the parties are the facts at hand to be dealt with by the trial court). The nonmoving party has an affirmative duty to direct the Court’s attention to those specific portions of the record upon which it seeks to rely to create a genuine issue of material fact. Guarino, 980 F.2d at 406; InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir.1989) (“ [T]he designated portions of the record must be presented with enough specificity that the district court can readily identify the facts upon which the nonmoving party relies,”). With this in mind, the information provided by plaintiff surrounding his objections to the reimbursement he received for medical, procedures performed in 1991, 1992 and the early part of 1993 does not indicate that he exhausted his administrative remedies, or that he ever even prosecuted an appeal complying with Nationwide’s procedure that addressed the issues 1448 that he now brings in this action. Instead, it appears that the NYID brought a miscalculation to the attention of Nationwide which it acknowledged and corrected. The only place where issues resembling the ones in this action are mentioned during this time frame is in Mr. Fallick’s subsequent letter of January 4, 1994 where plaintiff complains to the NYID that Nationwide improperly uses a percentile system of payment, improperly employs data received from the HIAA and makes no effort to differentiate the professional standing of various health care providers. (Fallick Aff. of March 25, 1996 Ex. 5 {compare with Amended Class Action Complaint at ¶¶ 13-21)). Plaintiff contends that this triangular dialogue consisting of communications between himself and the NYID, and basically undocumented alleged transmissions of information from the NYID to Nationwide, complies with appeals process in the Nationwide Insurance Companies and Affiliates Employee Health Care Plan § 13.1.3(2). Plaintiff states that to hold otherwise would be a “reliance on hyper-technicalities [that] is plainly absurd in the context of this case.” (Plaintiffs Memorandum in Opposition at 4). It has been held that adherence to ERISA’s strict rules regarding the exhaustion of administrative remedies may be inappropriate when, for example, the beneficiary of a plan was not an employee of the plan sponsor and not acquainted with the terms of the plan. Metropolitan Life Ins. Co. v. Person, 805 F.Supp. 1411, 1419 (E.D.Mich.1992). However, plaintiff in this ease was an employee of Nationwide Mutual and does not contend that he was unfamiliar with Nationwide’s claims review procedures. To allow an employee, who is familiar with his policy and its requirements, to ignore its express terms with impunity is to eviscerate the requirement that an ERISA claimant exhaust the appeals process articulated in the plan. The more a claimant is allowed to deviate from the letter of the policy, the greater the purposes that the exhaustion requirement is designed to achieve are frustrated. See, e.g., Moffitt v. Whittle Communications, L.P., 895 F.Supp. 961, 969 (E.D.Tenn.1995)(holding that allowing the participant to ignore time restraints in an administrative appeals procedure frustrates the purposes of administrative exhaustion). Mr. Fallick was not free to conjure what he felt to be a functional equivalent to Nationwide’s administrative appeals policy, and his communications with the' NYID do not constitute appeals under the administrative procedures outlined in the Nationwide Plans. Even if this Court were to treat Mr. Fal-lick’s correspondence with the NYID as a formal written appeal to Nationwide, the January 4, 1994 letter is simply defective in that regard. It does not clearly relate to any specific charge when it discusses percentile payments, the use of HIAA data, or the lack of attention to the professional standing of the service provider. (Fallick Aff. of March 25, 1996 Ex. 5). Further, the letter does not state how any of those alleged aspects of Nationwide’s claims process adversely impacted any particular reimbursement decision that Nationwide made. Id. Finally, the letter is not asking Nationwide to review any reimbursement decision, it is apparently requesting that the department take some sort of regulatory enforcement action. Id. Plaintiff did not exhaust administrative remedies with respect to the medical charges he incurred in 1991, 1992 and early 1993. Defendants discuss the denial of a charge submitted by plaintiff in July 1993 in the amount of $125.00. (Scott Aff. of November 4, 1996 Ex. 5). Defendants denied the charge for being in excess of the maximum allowed by the plan, but not for being in excess of reasonable and customary. Id. Plaintiff does not direct the Court to any evidence relating to this charge. On or about August 3,1993, plaintiff wrote to Belinda Martin about the claim denial. Nationwide reconsidered the denial and concluded that the charge was covered by the plan but that $25.00 was in excess of reasonable and customary. Nationwide’s action with respect to this charge gave plaintiff a perfect opportunity to challenge the application of reasonable and customary limits, but he did not appeal the decision. In his January 4, 1994 letter to the NYID, Mr. Fallick also discusses a new charge for which he felt he was under-reimbursed. On 1449 November 22, 1993, Mr. Fallick’s wife, Astrid Fallick, was examined at the Mt. Kisco Medical Center by Dr. Charles Brown. Dr. Brown billed $100.00 for the examination. Nationwide treated $25.00 of that charge as in excess of reasonable and customary. Plaintiff was apparently informed in a telephone conversation with Ms. Scott that Dr. Brown had submitted a procedure code indicating that the examination only lasted fifteen minutes. Mr. Fallick insisted that the examination took at least a half an hour. Ms. Scott suggested that an incorrect code may have been submitted by Dr. Brown, and that plaintiff should discuss the subject with him. Ms. Scott further indicated that Nationwide would be willing to consider any additional information from Dr. Brown in the form of a narrative or a corrected code. In a letter from Ms. Scott to Ms. Smith dated March 3, 1994, Ms. Scott states that no additional information was ever received by her office for review. (Fallick Aff. of March 25, 1996 Ex. 6). Plaintiff does not produce any evidence that he discussed the matter with Dr. Brown or that he made any effort to prosecute a written appeal with Nationwide on this claim. Even if he had, plaintiff appears to dispute the characterization of the examination as having only taken fifteen minutes, which is a coding error committed by the service provider, not Nationwide. (Fal-lick Aff. of March 25, 1996 Ex. 5 (“[o]ne can see from the attached invoice... that his initial examination and discussion as to my wife’s condition took more than fifteen minutes.”). As such, it is not relevant to the claims based on Nationwide’s reasonable and customary policy which are at issue in this case. Plaintiff now makes the statement “[t]he bill should have been paid under the original code; thus, a ‘corrected code’ would have been inappropriate.” (Plaintiffs Memorandum in Opposition to Defendants’ Motion for Summary Judgment at 22 (emphasis in original)). However, plaintiff presents no evidence that his sentiment regarding the application of reasonable and customary limits to this charge was ever addressed to Nationwide before the commencement of this litigation. The next charge with which plaintiff takes issue was incurred on March 30, 1994. Area code 104, the first three digits of the zip code for Bronx County, New York, was used to process the charge for a laboratory procedure, even though the laboratory where the work was performed is located in New Jersey. Using the data for area code 104, Nationwide determined that the $60.10 charge was in excess of reasonable and customary in the amount of $8.10. (Fallick Aff. of March 25,1996 Ex. 8). It is not clear whether plaintiff pursued the administrative appeals process articulated in his policy with respect to this claim. Plaintiff points out that his grievance is characterized as an “appeal” by Ms. Scott who wrote on behalf of Nationwide in her letter to the NYID on March 19, 1994. (Fallick Aff. of March 25, 1996 Ex. 7). However, the procedure was apparently performed on March 30, 1994, according to Nationwide’s explanation of benefits for the charge. (Fal-lick Aff. of March 25, 1996 Ex. 8). Therefore, Ms. Scott’s comment could not have been in reference to this charge. It is possible that Ms. Scott was referring loosely to her continuing correspondence with the NYID that had transpired prior to that date. It is also possible that at some point Mr. Fallick prosecuted an appeal that complied with the procedure set forth in the plan. If that is the case, this Court has no way of knowing to what claims or charges the appeal was related, whether the issues raised in that appeal embrace the issues brought by plaintiff in this lawsuit, or the result of that appeal. On this motion for summary judgment, plaintiff has the duty to establish that he has complied with the administrative review process, but he has produced no documentation of any written appeal to Nationwide with respect to this charge. On August 22,1994, Paul Brozdowski, then counsel for plaintiff, wrote a letter to the NYID which inquired into the department’s legal authority to review reasonable and customary limitations imposed by insurers. Mr. Brozdowski also set forth to the NYID the circumstances surrounding the lab work which was the subject of plaintiff’s most recent grievance. Mr. Brozdowski points out to the NYID that not only is the laboratory in New Jersey, but Mr. Fallick’s residence 1450 and the doctor’s office are in Westchester County, New York, neither of which are within area 104. (Fallick Aff. of March 25, 1996 Ex. 9). The NYID apparently had some communication with Nationwide concerning this issue. On September 15, 1994, Ms. Scott wrote the NYID on behalf of Nationwide, acknowledging that a mistake had been made and that the data used for processing this charge was taken from the wrong area. According to HIAA data, the reasonable and customary charge for the lab procedure at issue was sufficiently higher in the New Jersey area such that the $8.10 should not have been disallowed as in excess of reasonable and customary. Enclosed with the letter was a copy of a check, dated September 12, 1994, reflecting the correction of the error. (Fallick Aff. of March 25, 1996 Ex. 11; see also Fallick Aff. of March 25, 1996 Ex. 17). At this point, plaintiff complains that Nationwide never explained why it used area 104 to process the charge in the first place. This complaint is purely hypothetical as it relates to the March 30, 1994 lab work because that charge was fully reimbursed once Nationwide was apprised of the location of the laboratory. Indeed, no part of that charge was left under-reimbursed once Nationwide looked to the rates charged for that work in New Jersey. Further, instead of directing this issue to Nationwide via its internal appellate procedure, Fallick apparently had his attorney send two subsequent letters to the NYID. In the second of those letters, dated December 12, 1994, Mr. Brozdowski states that Nationwide still employs the reasonable and customary charge limitation to its coverage. He encloses, evidently as an example, the Nationwide explanation of benefits form for the reimbursement of ten charges relating to a number of visits to a cardiologist, incurred between October 8 and October 25, 1994, of which five were held to be in excess of reasonable and customary. (Fallick Aff. of March 25, 1996 Ex. 12). On February 2, 1995, Ms. Scott sent a letter to Ms. Smith at the NYID which explained the use of area code 104: We allocated the UCR amount in 104 because the conversion table which accompanied the medical data we used indicates that services rendered in zip code areas 104, 105, 106 and 108 ALL fall within that geographic code. (Fallick Aff. of March 25, 1996 Ex. 13 (emphasis in original)). On April 14, 1995, Mr. Brozdowski asked Ms. Scott at Nationwide for the HIAA data underlying her above letter. Ms. Scott responded by indicating that she was restrained by Nationwide’s contract with the HIAA from releasing such data. On or about February 20, 1995, plaintiff wrote to Mr. David Handel, a Benefits Administrator at Nationwide, regarding the laboratory charge for which area 104 was erroneously used. Plaintiff states that in a subsequent conversation with Mr. Handel, Mr. Handel indicated that when the HIAA does not have enough data for a particular zip code, it rounds downward to the next nearest zip code area. For example, if the HIAA had no data for Westchester County, New York (which is area 105), then the data in area 104, Bronx County, New York, would be used. Convinced that Nationwide had done this in initially processing the lab charge of March 30, 1994, and suspecting that it was a practice that Nationwide was employing when processing all of his charges, plaintiff wrote one final letter to Mr. Handel on April 3, 1995. In that letter, plaintiff concluded “I can now assume that all services rendered in Westchester County get the same ratings as Bronx County, a borough of the City of New York.” (Fallick Aff. of March 25, 1996 Ex. 18). Plaintiff was clearly communicating both directly and indirectly with Nationwide for the purpose of gathering information on the potential misapplication of the reasonable and customary limitation. However, such a denial was never the subject of a proper appeal. Nationwide was never given the opportunity to reassess the way it was processing plaintiffs charges vis-a-vis the reasonable and customary limitation applicable to area 105 during that period of time because plaintiff never brought any alleged deficiencies in Nationwide’s calculation method to Nationwide’s attention in the context of the appeal of a charge. It is uncertain what the result 1451 would have been had plaintiff endeavored to do so. Mr. Handel responded to plaintiff by letter dated May 9,1995 stating that: Apparently, when the March, 1994 charge referred to in your letter was incurred, UCR levels in zip code 105 were the same as for zip code 104. It is not appropriate to assume that they will always be the same, though, because UCR expense information is updated every sixth months. Over time, relationships between UCR levels and zip codes can change. The objective is for each area to reflect its own UCR profile. Any similarity to another area or areas is coincidental. (Falliek Aff. of March 25, 1996 Ex. 19). In response to this explanation, plaintiff complains that Nationwide does not indicate which zip code area it is using to calculate reasonable and customary charges on benefit forms when it is paying benefits, so it is impossible to tell whether the “correct code is being used to process my claims.” (Falliek Aff. of March 25, 1996 at ¶ 15). Here again, this criticism does not appear in any correspondence between plaintiff and Nationwide, or in any appeal of a denial of benefits. Meanwhile, on April 27, 1995, Mr. Broz-dowski contacted Ms. Scott to request information about three of plaintiffs charges that were treated as in excess of reasonable and customary in the aggregate amount of $85.00. These were three charges of five which totaled $1300.00 for services rendered by Dr. Harold Stevelman in Westchester County between October 5 and October 7,1994. Plaintiffs counsel also asked for HIAA data sheets and conversion tables. (Falliek Aff. of March 25, 1996 Ex. 20). Ms. Scott responded by reiterating the information on Nationwide’s explanation of benefits form, that three charges for services rendered by Dr. Stevelman were in excess of reasonable and customary in the total amount of $85.00. Ms. Scott again stated that she was precluded by Nationwide’s contract with the HIAA from, releasing HIAA data. (Falliek Aff. of March 25,1996 Ex. 21). Ms. Scott was essentially responsive to Mr. Brozdowski’s request, he asked for an explanation and he received one. Asking for an explanation and information about the payment of a claim is simply not the same as assigning error to the amount that was paid and demanding its review. See Franklin H. Williams Ins. Trust v. Travelers Ins. Co., 847 F.Supp. 23, 27 (S.D.N.Y.1994) rev’d on other grounds 50 F.3d 144 (2d Cir.1995) (simply inquiring as to the reason for the insurance company’s adverse claim decision did not exhaust plaintiffs administrative remedies). Plaintiff does not assert that the denial of the request for HIAA data is in violation of 29 U.S.C. § 1132(c) relating to a plan administrator’s duty to provide participant certain types of information upon request. Further, although Mr. Brozdowski’s request for information on the processing of this claim was denied, this alone does not excuse compliance with Nationwide’s administrative review process. See McFarland v. Union Cent. Life Ins. Co., 907 F.Supp. 1153, 1161 (E.D.Tenn.1995) (claimant under ERISA plan was not entitled to forego resort to administrative review before bringing a court action simply because administrator declined to provide him with copies of documentation requested) Ms. Scott’s refusal to provide confidential information about HIAA data did not preclude Mr. Falliek from asserting that the charge was under-reimbursed and was indeed reasonable and customary. Mr. Fal-lick makes no reference to any further effort to obtain relief on this claim, but concludes that the claim remains outstanding. (Falliek Aff. of March 25,1996 at ¶ 16). Plaintiff has produced no evidence that he ever wrote to Nationwide about a particular charge for which he felt he had been under-reimbursed and asserted that because of the lack of sufficient data from the HIAA, the reasonable and customary levels from a different and less affluent zip code area (i.e. area 104 as opposed to area 105) had been used to process the claim, resulting in under-reimbursement in contravention of the terms of the plan. Had he wanted to do so, plaintiff could have obtained a statement from his service provider that the particular charge that was not covered in full was indeed reasonable and customary. Plaintiff could have 1452 contacted other nearby service providers and inquired into their charges for the same services. Such information could have been assembled and presented in an appeal as a compelling reason for Nationwide to reconsider this aspect of its reasonable and customary policy, or for Nationwide to adjust its calculations to accommodate the additional data. Nationwide has indicated a willingness to consider such information. (Scott Aff. of November 4, 1996 at ¶4). As earlier discussed, Nationwide never had the opportunity to reassess the way it was processing plaintiff’s Westchester County (area 105) medical charges because plaintiff did not point out any alleged deficiencies in Nationwide’s calculation method in the context of the appeal of a charge (including the charges for services rendered by Dr. Stevelman). Again, it is uncertain what the result might have been had plaintiff done so. This Court will turn now to the evidence of administrative exhaustion as it relates to plaintiff’s claims regarding Nationwide’s alleged misdirection of payments. Plaintiff alleges that defendants’ claim form allows the participant to indicate when the participant has already paid the provider. Plaintiff asserts that even when the participant indicates on the claim form that he or she has paid the provider, defendants ignore the claim form and routinely forward payment to the provider. Plaintiff alleges that defendants do so in order to take advantage of the time value of money while the error is being corrected. (See Amended Class Action Complaint at ¶¶ 22-25). Plaintiff makes this general and conclusory statement about his claims based on misdirection of payments: In addition, Nationwide’s claim form allows me the option of directing that the reimbursement payment be paid to me in those instances where the service provider has already been paid. However, Nationwide has repeatedly and consistently ignored these directions and sent checks to service providers which has delayed my receiving payment. Despite numerous complaints to Nationwide, Nationwide continues to misdirect reimbursement checks to the service providers in contravention of its own forms and my specific requests. (Fallick Aff. of March 25, 1996 at ¶ 18). Plaintiff Is general statements, in the absence of supporting documentation, are irrelevant. Plaintiffs counsel Aaron Tandy supplies several exhibits ostensibly related to this issue. Exhibit D appears to be a general written inquiry by plaintiff regarding the duration of the assignment of benefits to a service provider. Exhibit E appears to be a handwritten request for benefits or an explanation of a request for benefits. This exhibit is neither clearly identified nor is it clearly discussing charges which were the subject of the type of misdirection of payments that plaintiff alleges. Finally, exhibit F appears to be an internal Nationwide memorandum outlining a special procedure to be used when a claimant has not clearly indicated whether an assignment to the service provider is in place. These documents do not support a finding that plaintiff has exhausted administrative remedies with respect to this type of claim. According to defendants, not including charges submitted on behalf of his wife, plaintiff has submitted claims representing more than five hundred forty charges for medical services rendered since January 1, 1993. (Scott Aff. of November 4, 1996 at ¶ 9). Prior to the commencement of this litigation, the only communication which plaintiff had with defendants regarding the alleged misdirection of a payment to a service provider occurred in early 1995. This was apparently a telephone conversation which was never reduced to writing, therefore it was in contravention of Nationwide’s administrative appellate procedure. This communication concerned charges incurred at Danbury Hospital. Nationwide processed the Danbury Hospital charges even though a completed claims form was not submitted by Mr. Fallick and he had not otherwise indicated that he had already paid the service provider. (Scott Aff. of November 4, 1996 at •¶ 8). Further, defendants made notification to plaintiff in writing, to which there was never a response, that a check had been issued to the Danbury Hospital on December 2, 1994 and was cashed on December 14, 1994. Plaintiff has produced no evidence to 1453 the contrary. This is not the type of misdirection situation that plaintiff describes in his amended complaint. Nationwide did not ignore one of its preprinted claims forms. Nationwide’s check was cashed so Nationwide did not “play the float,” and, in any event, plaintiff did not prosecute a proper administrative appeal. Plaintiff commenced this action in November 1995 and filed his amended complaint January 26, 1996. There are apparently two payment misdirection incidents which occurred after that date. Plaintiff relates the following: During December, 1995, my wife, Astrid Fallick, received physical therapy twice weekly under the supervision of her doctor. During this period, I paid Jon Best, Jr., a physical therapist, weekly by personal check. I mailed invoices to Mrs. Artie Scott-Dawson, a Nationwide Insurance Employee Claims Manager, requesting reimbursement for these payments and directing that said reimbursement be paid to myself. On or about February 8, 1996, Jon Best, Jr. received a check from the Enterprise Group Life and Health Operations in payment for services to my wife for which he was previously paid directly by myself. (Fallick Aff. of July 9, 1996 at ¶ 6(a)). Plaintiff submits no documentation surrounding this incident beyond a copy of the check issued to Jon Best, Jr. and the accompanying remittance advice. (Fallick Aff. of July 9, 1996 Ex. 2). As an initial matter, this would appear to be a claim that belongs to Mr. Fallick’s wife who is not a plaintiff in this action. It is not clear whether plaintiff submitted a completed claims form to request reimbursement of these charges. Nevertheless, defendants indicate that upon being notified in writing that the payment had been misdirected, they issued a check to plaintiff. (Scott Aff. of November 4, 1996 at ¶ 7). Plaintiff provides no evidence of when he sent the invoices to Ms. Scott or when he filed his claim for benefits. Further, plaintiff provides no evidence of when he was paid by Nationwide. The second incident occurred in August 1996, when plaintiffs counsel informed Nationwide that payment was improperly sent to a dentist, Ronald Friedman. Plaintiffs counsel notified defendant’s counsel by letter on August 19, 1996, and a check was sent to plaintiff. (Sierra Aff. of November 4,1996 at ¶4 and Ex. 2). Insofar as this letter attempts to republish alleged statements made by Mr. Fallick to his attorney, it is hearsay. It is noteworthy that this letter, as well as a copy of the cheek to Dr. Friedman and a rather illegible pre-treatment estimate, are all appended to defendants’ motion for summary judgment. Plaintiff does not direct this Court to any evidence regarding this incident. It is not clear whether plaintiff ever submitted a claim form with respect to this charge. Plaintiff provides no evidence of when he filed this claim for benefits and plaintiff provides no evidence of when he was paid by Nationwide. Exhaustion is a prerequisite to commencing suit in federal court. See, e.g., Costantino v. TRW, Inc., 13 F.3d 969, 974 (6th Cir.1994) (quoting Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 986 (6th Cir.1991)); Baxter v. CA. Muer Corp., 941 F.2d 451, 453 (6th Cir.1991); Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11th Cir.1985), cert. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986); Moffitt v. Whittle Communications, L.P., 895 F.Supp. 961, 969 (E.D.Tenn.1995). Assuming defendants’ uncontradicted rendition of the facts is true, not only is it clear that administrative remedies have not been exhausted before commencement of suit on this issue, it also appears that plaintiff is unable to document any situation which befell him prior to the commencement of this action that conforms to the nature of the misdirection claims he alleges in his amended complaint. (See Amended Class Action Complaint at ¶¶ 22-25). Plaintiff does not allege any specific misdirection incident in his amended complaint and plaintiff has not supplemented his amended complaint to include specific occurrences subsequent to the commencement of this action. See Fed.R.Civ.P. 15(d). Even if this Court were to consider the two incidents which occurred after plaintiff filed this suit, and were to assume that they 1454 factually conformed with the allegations in the amended complaint, it appears that those claims were timely resolved in conformance with the claims review procedure in the Nationwide Plans. Plaintiff does not contend that he was not timely paid when he directed Nationwide’s attention to those errors. Defendants have ninety days during which to respond to claims for benefits under the Nationwide Plans. Nationwide Insurance Companies and Affiliates Employee Health Care Plan, § 13.1.3(2) (attached as Ex. 1 to Defendants’ Motion for Summary Judgment). Under the terms of the Nationwide Plans, plaintiff is not entitled to interest during this time period. In neither case does plaintiff contend that the misdirection of payments was corrected in greater than ninety days from the date he filed his initial claim for benefits. Nor could he prevail on such a contention in the absence of evidence showing when he filed his initial claims and when he was ultimately paid. Therefore, even if this Court were to consider these two incidents, it does not appear that plaintiff has a viable claim under the terms of the Nationwide Plans which survives the corrections that were the result of plaintiff’s complaints. See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985) (participant not entitled to additional extra-contractual damages for improper or untimely processing of claims). “There is a strong federal interest encouraging private resolution of ERISA disputes.” Makar v. Health Care Corp. of Mid-Atlantic, 872 F.2d 80, 82 (4th Cir.1989). The Sixth Circuit Court of Appeals in Costantino set forth the purposes of administrative exhaustion: (1) To help reduce the number of frivolous law-suits under ERISA. (2) To promote the consistent treatment of claims for benefits. (3) To provide a nonadversarial method of claims settlement. (4) To minimize the costs of claims settlement for all concerned. (5) To enhance the ability of trustees of benefit plans to expertly and efficiently manage their funds by preventing premature judicial intervention in their decision-making processes. (6) To enhance the ability of trustees of benefit plans to correct their errors. (7) To enhance the ability of trustees of benefit plans to interpret plan provisions. (8) To help assemble a factual record which will assist a court in reviewing the fiduciaries’ actions. Costantino, 13 F.3d at 975 (quoting Makar, 872 F.2d at 83) (the court in Makar also states that “[i]t would be ‘anomalous’ if the same reasons which led Congress to require plans to provide remedies for ERISA claimants did not lead courts to see that those remedies are regularly utilized.”). Several of the purposes articulated in Cos-tantino are furthered by requiring plaintiff to exhaust his administrative remedies before commencing this action. Nationwide’s administrative review procedure provides a method of claims settlement which is certainly less adversarial than a federal lawsuit and is far less demanding on the resources of both Nationwide and Mr. Fallick. The pursuit of administrative remedies in this case would have given Nationwide the opportunity to expertly and efficiently reconsider and perhaps reinterpret the suitability of its method of calculating reasonable and customary limits and the impact of that method on the payment of particular charges. Nationwide has shown a willingness to correct errors when they are actually brought to its attention. For example, the $138.00 miscalculation repaid on November 22, 1993 and the $8.10 for lab work initially excluded from coverage as in excess of reasonable and customary, but for which Nationwide paid additional reimbursement on September 12,1994. Plaintiff cites these corrections as evidence that he did appear charges. Assuming ar-guendo that they can be considered evidence of proper appeals, these incidents do not involve appeals attacking the alleged wrongdoings articulated in the amended complaint, to wit: the improper grouping of geographic areas when one area has insufficient data, or the assertion that the amount paid plaintiff was too low because reasonable and customary charges are set at a certain percentile, or that Nationwide ignored the professional 1455 qualifications of plaintiffs service provider. (See Amended Class Action Complaint at ¶¶ 13-21). If Nationwide committed errors of this nature in processing plaintiffs charges, it was not given the opportunity it deserved to correct them before the instigation of this lawsuit. Payment of benefits to the wrong payee will occasionally occur as well, given the volume of charges processed by Nationwide. These errors are the type which Nationwide deserves the chance to correct before being sued. Finally, if plaintiff had prosecuted a formal appeal in compliance with the policy, a factual record would have been assembled that would assist this Court. As an excellent example, such an appeal, clearly comprising the claims in this action, would have been memorialized so that this Court would not now be required to wade through a morass of extraneous documents to resolve the administrative exhaustion issue at hand. Having completed a comprehensive review of the evidence produced by plaintiff to create a genuine issue of material fact as to whether he has exhausted his administrative remedies, this Court finds that evidence lacking. Plaintiff has not produced documentation of a written challenge to Nationwide of the under-reimbursement of a charge which is based upon any of the three alleged deficiencies in Nationwide’s reasonable and customary limitations which form the bases of his complaint. With respect to his claims regarding the improper misdirection of payments, plaintiff has not documented that he has suffered, prior to the commencement of this action, the type of incident that he alleges in his amended complaint. Therefore, he cannot have exhausted administrative remedies with respect to this class of claims before filing this suit. Accordingly, plaintiff cannot be permitted to proceed on any of these claims unless this Court excuses the exhaustion requirement in this case. Traditionally, when administrative exhaustion is required, there is an exception for instances when resort to the administrative process would prove futile or the remedy available would be inadequate. Costantino, 13 F.3d at 974. Plaintiff asserts that he should be excused from compliance with Nationwide’s administrative appeals process because compliance would have been futile. Plaintiff asserts that exhaustion of administrative remedies would serve no purpose in this action because “there is no dispute that Nationwide will not change its policy voluntarily.” (Plaintiffs Memorandum in Opposition page 5). Plaintiff cites Costantino, supra, for the proposition that exhaustion is not required where an appeal would not alter the results of the administrator’s decision. In Costantino, however, the plaintiffs were challenging the legality of an amended plan which had the effect of decreasing the participants’ accrued benefits in violation of 29 U.S.C. § 1054(g). Costantino, 13 F.3d at 971. Therefore, defendant’s characterization of the dispute in that case as one of differing interpretations of the provisions of the plan, which the administrative appellate scheme is most effective at resolving, was improper. Id. at 974-975. Instead, the question in that: case was whether the amendment was legal under 29 U.S.C. § 1054(g). Id. at 975. In contrast, the central issue of plaintiffs claim for benefits here is the propriety of Nationwide’s calculation of reasonable and customary limitations. Whether Nationwide’s method impermissibly deviates from the terms of the plan is chiefly one of interpretation of those terms. That interpretation, of course, must be assessed in the context of the unique factual posture of each claim, all of the information relevant to each claim with which Nationwide was provided and the ultimate manner in which Nationwide calculated reimbursement of each claim. Since plaintiff never indicated to Nationwide in an appeal that its interpretation was improper, Nationwide was never given the opportunity to reconsider the propriety of its interpretation. Indeed, this Court finds that the policies underlying the exhaustion requirement articulated in Costantino command its application to plaintiff in this case. Id. and discussion supra. Plaintiff simply asserts that an appeal challenging Nationwide’s calculation of reasonable and customary limits would have been unavailing. In response, defendants assert that they are always open to considering evidence that their calculations are improper. 1456 Further, Nationwide has demonstrated repeatedly a willingness to correct errors which have been brought to its attention. With respect to the misdirection claims, when two instances of payment misdirections occurred after the commencement of this lawsuit, plaintiffs complaints apparently received prompt attention and resulted in payment directly to Mr. Fallick in conformance with the terms of the Nationwide Plans. These incidents illustrate the efficacy of Nationwide’s administrative review procedure, not its futility. Plaintiffs blanket assertion that administrative appeals wouldn’t work, unsupported by evidence, is simply insufficient to entitle him to ignore the administrative appellate process. Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (in order to come under futility exception to exhaustion of administrative remedies requirement, plaintiff must show that it is certain that his or her claim will be denied on appeal, not merely that he or she doubts that appeal will result in a different decision); Hickey v. Digital Equipment Corp., 43 F.3d 941 (4th Cir.1995) (plaintiff must present a clear and positive showing of futility); Makar, 872 F.2d at 83; Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821, 826 (1st Cir.1988), cert denied, 488 U.S. 909, 109 S.Ct. 261, 102 L.Ed.2d 249. With respect to the misdirection claims, plaintiff asserts that pursuit of administrative remedies would have been both futile and inadequate because even when alerted to a misdirected payment, Nationwide merely sends a new check to the participant and does not pay interest for the additional delay. There are several problems with this contention. First, plaintiff does not allege or establish the occurrence of an incident prior to the commencement of this litigation that answers to his description of defendants’ alleged practices in his amended complaint. That being the case, plaintiff has not had the opportunity to test whether an appeal assigning error to such a practice would be futile. Second, under the terms of the Nationwide Plans, plaintiff is not entitled to interest during the first ninety days after the receipt of a claim for benefits. Therefore, the correction of a misdirected payment within that time does not give rise to a claim for interest under the terms of the plan. Plaintiff does not contend or provide any evidence that he was ever paid later than ninety days after filing a claim for benefits which were subsequently misdirected. Since plaintiff has received the full benefits to which he was entitled under the Nationwide Plans with respect to these claims, he cannot contend that the administrative remedy was futile or inadequate. Third, as discussed above, Nationwide has demonstrated responsiveness when misdirected payments are brought to its attention, in those cases timely redirecting benefits due under the plan to Mr. Fallick. Although those incidents occurred following the filing of this lawsuit, and thus are not relevant to whether Mr. Fallick had the privilege of commencing the suit, they do indicate that Nationwide’s review procedure as it relates to misdirected payments is not futile. Finally, plaintiff has only shown, with the help of defendants in directing the Court to the relevant portions of the record, that payment misdirections of any sort have occurred three times. Plaintiff has apparently submitted over five hundred forty charges for medical services on behalf of himself alone since January 1, 1993. In showing only three misdirected payments out of well over five hundred charges, plaintiff has failed to establish a genuine issue of material fact as to his characterization of defendants’ behavior as deliberate. Therefore, plaintiff was not faced with the sort of futility present when a claimant is forced to appeal the actions of a willful wrongdoer directly to that same wrongdoer. Plaintiff has not clearly shown that resort to the administrative remedies available to him would have been futile or inadequate. Plaintiff next asserts that exhaustion of administrative remedies is only required for claims for benefits due under 29 U.S.C. § 1132(a)(1)(B). Although plaintiff does bring a claim for benefits under that section, he contends that even in the absence of his exhaustion of administrative remedies he may proceed with his claims for breach of fiduciary duty under ERISA and for estoppel and other equitable relief based on the same factual allegations. Plaintiff cites Stumpf v. 1457 Cincinnati, Inc., 863 F.Supp. 592 (S.D.Ohio 1994), in which the plaintiff brought suit under 29 U.S.C. § 1140, alleging that his employer terminated his employment in order to avoid providing him benefits under the plan. The court stated that: When a plan participant claims that he or she has unjustly been denied benefits, it is appropriate to require participants first to address their complaints to the' fiduciaries to whom Congress, in Section 503, assigned the primary responsibility. This ensures that the appeals procedures mandated by Congress will be employed, permits officials of benefit plans to meet the responsibilities properly entrusted to them, encourages the consistent treatment of claims for benefits, minimizes the costs and delays of claim settlement in a nonad-versarial setting, and creates a record of the plan’s rationales for denial of the claim.... However, when the claimant’s position is that his or her federal rights guaranteed by ERISA have been violated, these considerations are simply inapposite. Unlike a claim for benefits brought pursuant to a benefits plan, a section 510 [29 U.S.C. § 1140] claim asserts a statutory right which plan fiduciaries have no expertise in interpreting. Accordingly, one of the primary justifications for an exhaustion requirement in other contexts, deference to administrative expertise is simply absent. Indeed, there is a strong interest in judicial resolution of these claims, for the purpose of providing a consistent source of law to help plan fiduciaries and participants predict the legality of proposed actions. Moreover, statutory interpretation is not only the obligation of the courts, it is a matter within their particular expertise. Id. at 597-98 (quoting Zipf v. American Tel. and Tel Co., 799 F.2d 889, 892-93 (3d Cir.1986) (internal citations omitted)). Plaintiff also cites other cases with similar holdings. Garry v. TRW, Inc., 603 F.Supp. 157, 163 (N.D.Ohio 1985) (“exhaustion of administrative remedies is not a prerequisite to bringing a civil action to redress violations of § 510 [29 U.S.C. § 1140] of ERISA”); Amaro v. Continental Can Co., 724 F.2d 747, 750-52 (9th Cir.1984) (also holding that the exhaustion of administrative remedies is not required in 29 U.S.C. § 1140 actions). There are, however, also cases which have held that plaintiffs are required to exhaust administrative remedies before bringing an action under 29 U.S.C. § 1140. See Kross v. Western Electric Co., Inc., 701 F.2d 1238, 1243-45 (7th Cir.1983) (holding that administrative exhaustion is required for a claim under 29 U.S.C. § 1140 brought under 29 U.S.C. § 1132(a)(3)); Mason v. Continental Group, Inc., 763 F.2d 1219 (11th Cir.1985), ce rt. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986). In any event, plaintiff does not bring a claim under 29 U.S.C. § 1140 in this ease. Instead, plaintiff has brought what is primarily a claim for benefits under his insurance policy. This is the type of claim that-should be addressed to the administrative appellate process. The cases cited by plaintiff do not stand for the broad proposition that administrative exhaustion is not required for any claims outside 29 U.S.C. § 1132(a)(1)(B). These eases stand simply for the proposition that exhaustion should not be required where there is nothing at issue but a question of statutory interpretation in an action alleging the deprivation of a statutorily protected right under ERISA. Plaintiff also cites Unger v. U.S. West, Inc., 889 F.Supp. 419 (D.Colo.1995), which supports the same proposition and involved a claim for breach of fiduciary duty unaccompanied by any claim for benefits. Because plaintiff is asserting that he is entitled to additional benefits under the terms of his policy, this is not a case where all that is required is the interpretation of a section of ERISA. The mere fact that the same conduct resulting in an alleged deprivation of benefits can also be, for example, the basis for a claim of breach of fiduciary duty under 29 U.S.C. § 1109 does not mean that administrative exhaustion does not apply. Simmons v. Willcox, 911 F.2d 1077 (5th Cir.1990) (“any improper denial of benefits also constitutes a breach of fiduciary duty under ERISA, the court concluded that the exhaustion requirement would be rendered meaningless if plaintiffs could avoid it simply by recharacterizing their claims for benefits as claims for breach of fiduciary duty.”); Brown v. Star Enterprise, 881 F.Supp. 257, 259 1458 (E.D.Tex.1995); Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821, 826 (1st Cir.1988) (“[T]his [claim for past due benefits] is a simple contract claim artfully dressed in statutory clothing. If we were to allow claimants to play this characterization game, then the exhaustion requirement would be rendered meaningless.”); Challenger v. Local Union No. 1 of Int'l Bridge, 619 F.2d 645, 649 (7th Cir.1980) (“To make every claim into a federal case would undermine the claim procedure contemplated by the Act.”); see also Mason, 763 F.2d at 1224-27 (holding that administrative exhaustion is required not only for a claim under 29 U.S.C. § 1140, but also for claims for equitable relief under 29 U.S.C. § 1132(a)(3)). In Bartz v. Carter, 709 F.Supp. 827 (N.D.Ill.1989), the court considered a series of claims that focused on the trustees of a plan converting it from a profit sharing plan to an employees’ stock ownership plan in order to gain control of the corporation which was the plan sponsor. The court held that exhaustion of administrative remedies was not required for the breach of fiduciary duty claim embedded in the various claims for benefits in that action, but that the court could exercise discretion as to whether exhaustion was required for the remaining claims. Id. at 828. To the extent that this holding conflicts with the authority cited immediately above, it is rejected by this Court. However, the situation in Bartz is distinguishable from the present action. The court in Bartz pointed out that: [T]o the extent that Plaintiffs demand that the trustees personally make restitution for losses suffered by the Plan, they do not seek benefits due under the Plan as it presently exists, but rather they seek restitution of funds owing to the Plan due to violations of fiduciary duties committed by the trustees. See 29 U.S.C. § 1132(a)(3)(B)(ii). Therefore, plaintiffs’ action is at least in part an action for breach of fiduciary duty, and exhaustion is not required. In fact, this case illustrates the wisdom of the rule against repairing plaintiffs to exhaust claims for breach of fiduciary duty. To require that the plaintiffs in this case ask the trustees to personally repay large sums of money would be futile, create needless delay, and would not fulfil the policies underlying exhaustion. Id. (emphasis added). In this ease plaintiff does seek benefits due under the plan as it presently exists. Further, plaintiff does not allege the sort of personal liability and individual wrongdoing at issue in Bartz that made the administrative review process in that case so obviously ineffectual. In sum, the cases cited by plaintiff do no not convince this Court that his noncompliance with Nationwide’s administrative review procedure should be excused in this case. Next, plaintiff asserts that the exhaustion requirement should be waived in this case because the remedies he seeks would have class-wide applicability. Plaintiff relies on two cases for this proposition. The first case upon which plaintiff relies is Janowski v. Int’l Brotherhood of Teamsters, 673 F.2d 931 (7th Cir.1982), in which the court considered whether a plan adopted before ERISA could adopt ERISA’s definition of “normal retirement age” in 29 U.S.C. § 1002(24). The court held that, in contrast to the situation where an individual has applied for and been denied current benefits, where there is a pure question of statutory interpretation which defines the right of an entire class to future benefits, then administrative exhaustion could be waived. Id. at 935 (“This issue is solely a question of statutory interpretation and does not require a factual record.”). The case at hand involves not simply concerns about future benefits, upon which there has been no opportunity for appeal, but at issue are plaintiffs applications for benefits due and owing and the denial of some portions of some charges and the misdirection of the payment of others. Each of these charges has its own unique factual circumstances. Further, as discussed earlier, the issues involved with plaintiffs claims for benefits under the plan present more than a mere matter of statutory interpretation. The second case upon which plaintiff relies is Shepherd v. Boise Cascade Corp., 765 F.Supp. 376 (W.D.Ky.1990), in which the court stated that: 1459 Plaintiffs are asserting a class-applicable position that would have required the pension board to consider only the meaning of the Plan language, and would not have required the development of a factual record subject to controversy. The parties have stipulated concerning the length of credited service and the ages of the plaintiffs, and these are the only relevant facts. Where the only controversy is a matter of Plan interpretation, and the decision would have class applicability, the Court may properly waive the exhaustion requirement, and we do so in this case. Id. at 380. In the present case, there is more at issue than just a question of plan interpretation. There has been no formal stipulation as to all of the relevant facts. For example, if Nationwide admitted that it rigidly applies the HIAA regime to claims like those of plaintiff, without regard to circumstances surrounding those charges, and without regard to additional relevant information provided by plaintiff on appeal of the denial of a charge, then this Court might be left with only the task of analyzing the HIAA calculation scheme to see if it fits a permissible interpretation of the definition of “reasonable and customary” in the plan. Although this is what plaintiff contends that Nationwide does, plaintiff has not demonstrated that this is what Nationwide has done to him. Plaintiff has not shown that relevant factual circumstances have no effect on Nationwide’s decisions as to what charges are reasonable and customary. This is because plaintiff has never challenged Nationwide to reconsider an HIAA “reasonable and customary” calculation with information that might have made that calculation, as applied to one of his charges, produce a result in contravention of the terms of the plan. In other words, just because HIAA data is used by Nationwide to attempt to determine reasonable and customary limits does not necessarily mean that Nationwide would be inexorably wed to that data when additional information concerning a particular charge is provided to it in an appeal. Further, simply because the relief requested by plaintiff could potentially benefit an entire class of participants of a plan does not mean that administrative exhaustion is automatically excused. Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588 (2d Cir.1993); Adamski v. Meritor Savings Bank, Inc., 1990 WL 9796 (1990); Kross v. Western Electric Co., Inc., 701 F.2d 1238 (7th Cir.1983) (the court affirmed the grant of defendant’s motion for summary judgment where the plaintiff did not exhaust his administrative remedies prior to bringing suit, even though he brought a class action). Plaintiff wishes to maintain a class action on the basis of a suspicion or theory that Nationwide improperly calculates reasonable and customary charges when processing claims. Plaintiff wishes to proceed without having first brought the issues in his amended complaint to Nationwide’s attention in the context of a proper appeal which challenged Nationwide’s methodology. If plaintiff had done so, Nationwide would have had the opportunity to review the treatment of a given charge and determine if its method of calculation was proper before being sued in federal court. Also, plaintiff wishes to represent a class of plan participants who have allegedly had their benefits deliberately misdirected to a service provider in contravention of their signed claims forms. Plaintiff has not even established that he could be a member of such a class. This Court is directed to a “pattern” consisting of only three charges out of well over five hundred forty presented to Nationwide by plaintiff (not including charges submitted on behalf of his wife) since January 1, 1993. The circumstances surrounding the first of these three charges do not comport with plaintiffs misdirection claims in his amended complaint and plaintiff did not properly appeal the payment of this charge. The second two alleged misdirections occurred after the commencement of this case, do not conform specifically with plaintiff’s misdirection claims in his amended complaint, and were apparently paid to Mr. Fallick in full under the terms of the plan. To allow plaintiff to proceed to prosecute the claims that are asserted in his amended complaint on a class-wide basis, when he has not exhausted his administrative remedies prior to the commencement of this action, would be exceedingly unfair. For example, in responding to initial discovery requests alone, defendants would likely be required to *1460 manually review and potentially produce millions of documents relating to thousands upon thousands of Nationwide policy holders at tremendous time and expense. Having considered plaintiff’s arguments to the contrary, this Court concludes that plaintiff was required to exhaust the administrative remedies available to him before commencing this action. Mr. Fallick failed to exhaust his administrative remedies with respect to the claims he has articulated in his amended complaint. Further, plaintiff has failed to demonstrate that pursuit of the administrative remedies available to him would have been futile or that the remedies that were available to him would have been inadequate. V. Based on the foregoing, defendants’ motion for summary judgment is GRANTED. The clerk shall enter final judgment for the defendants. The costs of this action are assessed against the plaintiff. It is so ORDERED. 1. It appears that on February 6, 1993, Nationwide began paying claims as reasonable and customary at the 90th percentile level in each geographic area.	LIMITED_OR_DISTINGUISHED
724 F.2d 747	819 F. Supp. 110	DR	Santiago Amaro v. The Continental Can Company	ORDER DAVID S. NELSON, Senior District Judge. This matter is before the Court on Third-Party Defendant’s motion to dismiss or, in the alternative, for summary judgment (Docket No. 53). This Court referred the matter to Magistrate Judge Robert B. Collings for review. In a Report and Recommendation (“Report”) issued March 31, 1993 (Docket No. 77), Magistrate Judge Collings recommended that this Court deny both motions. Third-Party Defendant has filed no objection to the Report within the required 10 day period. After a review of Magistrate Judge Collings’ Report, this Court ALLOWS and ADOPTS the findings and recommendations contained therein. Third-Party Defendant’s motion to dismiss or, in the alternative, for summary judgment is therefore DENIED. SO ORDERED. REPORT AND RECOMMENDATION ON THIRD-PARTY DEFENDANT’S MOTION TO DISMISS OR IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT (# 53) COLLINGS, United States Magistrate Judge. I. STATEMENT OF THE CASE This case involves an action by plaintiff McLean Hospital Corporation (hereinafter “McLean”) against the defendants Patricia Simonetta (formerly Patricia Lasher, referred to hereinafter as “Patricia”), and Robert Lasher (hereinafter “Robert”), formerly wife and husband respectively, to recover payment on hospital bills incurred by Robert during his hospitalization at McLean from September to October 1987. The action was originally commenced in Cambridge District Court, and Patricia filed an answer and crossclaim against Robert, who, in turn, filed a counterclaim against Patricia and a third-party action against Durham Life Insurance Co. (hereinafter “Durham”), Robert’s health insurer at the time of his hospitalization. Initially, the third-party action alleged state law contractual claims based on the assertion that as Robert’s health insurer, Durham was responsible under the policy for payment of the costs of the hospitalization and that Durham’s refusal to make payment caused damage to him. Subsequently, Durham removed the case to federal court. Patricia moved to join in Robert’s third-party complaint; the motion was allowed by the court. See # 45. Since that time, Robert has been permitted by the Court to amend his third-party complaint on two occasions. 1 The effect of these two amendments was to discontinue Robert’s state law causes of action and to substitute a claim under the Employment Retirement Income Securities Act (hereinafter “ERISA”). Durham, pursuant to Rules 12 and 56 of the Federal Rules of Civil Procedure, has 114 filed a Motion to Dismiss the Third Party Complaint, or in the Alternative, for Summary Judgment (# 54) on various grounds. II. CONTENTIONS OF THE PARTIES A. Durham’s Motion to Dismiss Durham seeks dismissal on the grounds that: (1) Robert’s third-party complaint must be dismissed because the state law causes of action alleged are pre-empted by ERISA; (2) Robert’s third-party complaint must be dismissed due to improper/deficient pleading, in that: (a) it fails to allege that Robert exhausted administrative remedies as required under ERISA, and (b) it fails to allege sufficient facts to show that the denial of benefits by Durham was arbitrary or capricious. Robert and Patricia 2 oppose dismissal contending that the third-party complaint was amended subsequent to the filing of the motion so that, at present, the third-party complaint: (1) no longer alleges any state law causes of action but does properly allege an ERISA claim, and (2) does allege that Robert’s failure to exhaust administrative remedies is excused under ERISA, and (3) does properly allege that Durham’s denial of benefits was arbitrary and capricious. B. Durham’s Motion for Summary Judgment Durham alternatively seeks summary judgment, on the ground that there are no genuine issues of material fact to the extent that: (1) Robert’s claim is barred because he failed to exhaust administrative remedies and cannot show that Durham’s denial of benefits was arbitrary or capricious, and (2) Robert had previously exhausted all benefits available to him under the health insurance policy, and that Durham paid all benefits to which Robert Lasher was entitled, and (3)Durham’s denial of benefits was proper in light of Robert’s material misrepresentations on the initial application for insurance, relating to Robert’s failure to disclose a.pre-existing condition and hospitalization and treatment for substance abuse. Robert and Patricia oppose summary judgment contending that: (1) sufficient evidence has been presented to demonstrate that Durham’s failure to provide adequate notice of the reasons for denial of benefits and administrative appeal procedures excuses him from the exhaustion requirement, and demonstrates that Durham’s denial of the claim was arbitrary and capricious, and (2) there are genuine issues of material fact on the following issues: (a) the insurance policy is ambiguous in its terms insofar as the limitation of benefits does not apply to him; (b) the nature of treatment he received at McLean, i.e. whether he received treatment for drug abuse or for a mental disorder, which issue directly effects the amount of benefits available to him; (c) that any alleged misrepresentation in failing to disclose prior hospitalization for substance abuse was not intentional but inadvertent, and therefore cannot constitute a valid basis for denial of the claim; (d) the misrepresentation was not material, since Durham did not rely on any misstatements, as evidenced by its payment of other hospital bills subsequently, thus waiving its right to assert the" defense to the claim for the McLean hospitalization; and (e) in any event, the allegation of misrepresentation is an issue of fact for the jury making summary judgment inappropriate. 115 III. STATEMENT OF FACTS The relevant facts of the case needed to analyze the issues presented are gleaned from not only the stipulation of the parties (#47) but also supporting affidavits, interrogatories, excerpts from depositions, and exhibits submitted by the parties in support of their contentions. 3 I also consider facts submitted by McLean in connection with its motion for summary judgment. 4 The facts are considered in the light most favorable to Patricia and Robert, the parties opposing Durham’s motion. Robert and Patricia are residents of Pitts-field, Massachusetts. See # 47, paras. 1 & 2. At all times material hereto, they were husband and wife, albeit experiencing marital problems and were in the process of divorcing. In 1987, Robert and Patricia were co-owners of a Chinese Take-Out restaurant in Pittsfield, MA, known as Tahiti Takeout, Inc. On or about May 4, 1987, in order to obtain health insurance coverage, Patricia prepared and submitted an application for insurance on behalf of herself, as employee of Tahiti Takeout, Inc., the employer. Robert was listed as a beneficiary/dependent on the application. See exhibit attached to #55. The application was submitted to United Plans, Inc, which acted as the third-party administrator for Durham Life Insurance Company. See #47, para. 3; Affidavit of Virginia Hodson (# 55), para. 4. The application form contained various questions regarding the health status of the applicants and included questions concerning whether the applicants had undergone any treatment for, or had any known indication of, excessive use of alcohol, narcotics or other drugs, or treatment for any psychiatric illness or mental problems. In response to this question, Patricia answered in the negative, for both herself and Robert. In response to a question on the application whether the applicants had consulted a doctor or medical practitioner or been a patient in a hospital, clinic, sanitarium or other medical facility within the past five years, Patricia responded in the affirmative, and in providing additional details as required, stated that Robert underwent a hernia operation in February 1984, See # 55, para. 6 and attached exhibit. The application was signed by Patricia on behalf of both herself and Robert. Above the signature line was a declaration which stated that the applicant provided full and complete and true answers to the questions to the best of her knowledge and that any misstatements, omissions or misrepresentations could result in the rescission of the insurance coverage and a denial of any claims. See exhibit to # 55. The application submitted failed to disclose that in 1983, Robert was treated on an inpatient basis at Brattleboro Hospital for substance abuse. See # 55, para. 12. The application also failed to disclose that Robert had any pre-existing problems with substance or drug abuse. Based on the application submitted, Patricia and Robert became participants or beneficiaries of a health insurance plan, effective June 1, 1987, insured by Durham (Plan certificate # 011-44-4483). There is no dispute that the policy booklet containing the provisions of the health insurance policy controls. See #47, para. 4; #55, para. 5. In the summer of 1987, after the policy took effect, Patricia became concerned about Robert’s drug abuse problem and suicide threats. This concern followed an incident which she and Robert’s sister witnessed during which Robert threatened to commit suicide and she observed needle marks on his arms. At the request of family and friends, Patricia sought to have Robert admitted to two treatment facilities; however,, he was rejected at both due to his high level of toxicity. In August 1987, Robert was admitted to Worcester Ad Care facility but left after a few days. On September 9, 1987, Patricia, believing she had no other option, appeared in Central Berkshire District Court, along with Robert’s 116 father and sister, and testified to Robert’s addiction and the belief that he might harm himself and others. Consequently, a writ of apprehension was issued. See # 47, para. 5. The following day, September 10, 1987, the Pittsfield Police took Robert into protective custody and brought him to the Central Berkshire District Court. The Court ordered that he be evaluated by the Court psychiatrist, Dr. Gardner. Upon evaluation, Dr. Gardner determined that Robert was suicidal, and he suggested Robert be placed in a secure psychiatric facility. Patricia, together with family, friends and the Family Forensic Services Office in Pitts-field and other court personnel, attempted to find an appropriate placement for Robert. Toward the end of that day, the social worker for Berkshire Mental Health advised that officials at McLean Hospital had been contacted and agreed to Robert’s commitment to McLean. As a result, it was arranged for an ambulance to pick Robert up at the courthouse. The ambulance transported him to McLean where he was committed, against his will. 5 Robert remained hospitalized at McLean from September 10, 1987 until October 8, 1987. See #47, para. 6. On September 15,1987, one day before the initial commitment order was to expire, McLean petitioned the Court for an order committing Robert for an additional six months. The matter was taken under advisement pending an independent psychiatric evaluation. Based on that evaluation, the Court ordered Robert be discharged outright, see # 47, para. 7, since he was found not to be acutely suicidal at that time. Further treatment was recommended by McLean. The bill for McLean’s services, supplies, etc. provided to Robert during his hospitalization totalled $14,282.37. See #47, para. 8. A year later, i.e., from October 17, 1988 to November 16, 1988, Robert was hospitalized at the Charter Peachford Hospital in Atlanta, Georgia (hereinafter “Charter Peachford”) for treatment for drug abuse. The total cost of this hospitalization was $13,696.35. See #55, paras. 8 & 9. By letter dated November 8, 1988, Robert’s counsel, M. David Blake, Esquire, advised Durham that Robert had elected this treatment at Charter Peachford and that Durham was then authorized to make payment to Charter Peachford pursuant to the benefits available under the policy. See #47, para. 10 and Exh. C. attached. Durham subsequently paid $10,000 toward the Charter Peachford bill. See # 47, para. 11. The $10,000 represented the total lifetime benefits available under Robert’s policy since the policy contained a $10,000 maximum lifetime benefit for treatment for drug abuse. See #47, exh. B, p. 48. There is a dispute as to whether this lifetime limit is applicable in the present case. Subsequently, McLean filed suit against Patricia and Robert to recover for the charges associated with Robert’s hospitalization in 1987. A claim was made by Patricia and Robert to Durham for payment by Durham of the bill from McLean. At various times, the claim was denied by Durham for various reasons. Initially, Durham denied the claim on the ground that the McLean hospitalization was for a pre-existing condition of Robert’s. After further inquiry by Patricia, and further review by Durham, Durham withdrew its denial based on that ground and denied the claim on the ground that Robert had exhausted all benefits to which he was entitled under the policy in light of the $10,000 payment to Charter Peachford. Durham also denied the claim on the ground that the hospitalization was court-ordered. Neither Robert nor Patricia pursued any administrative appeals of Durham’s denial of the claim. Subsequently, Durham denied the claim on the ground that Patricia and Robert materially misrepresented facts on the application for insurance by failing to disclose Robert’s drug abuse and/or mental illness problems as well as failing to disclose Robert’s hospitalization for drug abuse at Brattleboro Hospital. 117 IV. ISSUES PRESENTED 1. Whether Robert’s third-party complaint against Durham should be dismissed due to pre-emption of the state law claims by ERISA; 2. Whether Robert’s third-party complaint against Durham should be dismissed due to improper or deficient pleading in the complaint with respect to the failure to allege facts showing the exhaustion of administrative procedures and to allege Durham’s arbitrary and/or capricious conduct in denying the review; 3. Whether Durham is entitled to summary judgment in light of the fact that Robert did not exhaust administrative remedies, or whether Robert is excused from such requirement, as being futile, due to the deficiency of notice of denial from Durham and lack of notice of the availability of an appeal; 4. Whether Durham is entitled to summary judgment because, under the arbitrary and capricious standard of review, Durham acted reasonably in denying the claim, or whether Robert has provided sufficient evidence that, in the court’s discretion, Durham’s denial of benefits was improper due to the reasons for denial, and the lack of adequate notice of denial; 5. Whether Durham is entitled to summary judgment in light of Durham’s payment of $10,000 toward the Charter Peachford Hospital bill which it claims constitutes full payment of the entire lifetime benefit to which Robert is entitled under the policy, or whether Robert has raised a genuine issue of material fact as to the nature of his treatment and the corresponding amount of benefits still available to him under the terms of the policy; 6.Whether Durham is entitled to summary judgment due to Patricia’s and Robert’s misrepresentations on the application for insurance as to pre-existing conditions and prior hospitalization, or whether there is a genuine issue as to whether the misrepresentations were intentional and whether they were “material.” V. ANALYSIS A. Durham’s Motion to Dismiss It should be noted that the two basic arguments set forth by Durham in support of dismissal have become moot since the motion was filed in view of this Court’s Order (# 66) issued May 6, 1992 which granted Robert leave to amend further his amended third-party complaint (# 67). 6 Additionally, this court’s allowance of Pafrieia’s Motion, Etc. (# 45) to join Robert as a third-party plaintiff pursuant to Rule 20(a), Fed.R.Civ.P., make some of Durham’s contentions moot as well. 7 Therefore, the arguments set forth by Dur 118 ham need not be discussed at great length here. First, the operative pleading (# 67) entitled “Amended Third Party Complaint” contains only an ERISA claim; no state causes of action are made. In sum, the third-party plaintiffs have recognized the preemptive force of ERISA and have conformed their operative pleading accordingly. Second, the third-party plaintiffs have also alleged in the operative pleading (# 67): 9. The Third-Party Plaintiff is not required to exhaust administrative remedies prior to seeking relief under ERISA due to lack of notice to him regarding the reasons for denying his claim and the proper review procedures available to him. 10. The Third-Party Plaintiff alleges that the Third-Party Defendant’s denial of the claim at issue was arbitrary and capricious due to lack of notice, and the Third-Party’s self-interest in denying the claim. Thus, Durham’s claims of insufficiency of the pleadings for failure to make those allegations are now moot. Although Robert does not allege that he has exhausted administrative remedies or that exhaustion would be futile, his allegations are a sufficient assertion that he is excused from the exhaustion requirement due to Durham’s failure to provide proper notice of the denial, the reasons therefor, and steps to appeal the decision. See DePina v. General Dynamics Corp., 674 F.Supp. 46 (D.Mass. 1987) (Young, J.) (holding that deficiency in denial notice and failure to advise of review procedures was factor which excused plaintiff from resorting to administrative procedures prior to federal suit). See also Curry v. Contract Fabrications, Inc. Profit Sharing Plan, 891 F.2d 842 (11 Cir. 1990). Thus, the failure to plead expressly that exhaustion would be “futile” does not render the pleading insufficient. Lastly, it is noted that the operative pleading now contains allegations that Durham’s denial was “arbitrary and capricious,” although there is some question as to whether this is the proper standard of review after the Supreme Court’s decision in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). See also Burham v. Guardian Life Insurance Co., 873 F.2d 486 (1 Cir. 1989); Ring v. Confederation Life Insurance Co., 751 F.Supp. 296, 298-9 (D.Mass. 1990). Whether the “arbitrary and capricious” standard or a de novo standard is to be applied depends on whether “the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire and Rubber Co. v. Bruch, supra, 489 U.S. at 115,109 S.Ct. at 956. If the answer is in the affirmative, the “arbitrary and capricious” standard applies; if not, the standard is a de novo review. See also Jader v. Principal Mutual Life Ins. Co., 723 F.Supp. 1338, 1340-1 (D.Minn. 1989). However, this issue need not be determined in order to rule on Durham’s motion for to dismiss. Accordingly, I shall recommend that Durham’s motion, to the extent that it seeks a dismissal of the third-party claims, be denied. B. Durham’s Motion for Summary Judgment 1. Failure to Exhaust Administrative Remedies a. The Facts and the Parties’ Contentions Despite the fact that Robert has now adequately plead excusal from exhaustion of administrative remedies, Durham contends that even on the facts construed most favorably to him, there is insufficient evidence upon which excusal can be found. There is no dispute of fact in this case that, although inquiry was made as to the reasons for denial of the claim, neither Patricia nor Robert sought any administrative review of the denial of the claim by Durham. 8 Robert claims that he is not required to exhaust all administrative remedies prior to seeking relief under ERISA due to the lack of notice to him regarding the reasons for denying his claim, and the proper review procedures available to him, and further, that the denial of benefits by Durham was arbitrary, capricious and in bad faith, motivated by Durham’s self-interest. 119 First, Robert alleges that ERISA does not speak directly as to whether exhaustion of administrative remedies is a prerequisite to bringing suit, and that this issue is left to the discretion of the trial court. In support of this contention, he cites Janowski v. Local 710 Pension Fund, Intern. Brotherhood of Teamsters, 673 F.2d 931 (7 Cir. 1982) and Curry v. Contract Fabricators, Inc. Profit Sharing Plan, 891 F.2d 842 (11 Cir. 1990). Robert asserts that the inference which should be drawn from the record is that any administrative review would have been “futile” in light of Durham’s failure to advise and notify him of the appropriate review procedures in accordance with ERISA. Thus, he contends, Durham is not entitled to summary judgment. Section 1133 of ERISA provides, in pertinent part:... every employee benefit plan shall— (1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by a participant and (2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim. 29 U.S.C. § 1133. Additionally, the regulations which are promulgated by the Secretary of Labor to implement the statute provide that the plan administrator shall provide written notice to every claimant who is denied benefits, and the written notice is to contain the following information: (1) the specific reason or reasons for the denial; (2) specific reference to pertinent plan provisions on which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (4)appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review. 29 C.F.R. § 2560.503-l(f) (1980). Courts have held that letters which contain only “conclusory” reasons for denial fail to indicate information needed to appeal, provide only sparse information as to procedures for review and lack notice of appeal rights are deemed insufficient and do not comply with section 1133. Wolfe v. J.C. Penny Co., 710 F.2d 388, 392 (7 Cir. 1983); Tomczyscyn v. Teamsters Local 115, 590 F.Supp. 211, 215 (E.D.Pa. 1984); DePina v. General Dynamics Corp., supra, 674 F.Supp. at 50. Moreover, inadequate notice, in and of itself, may constitute arbitrary and capricious denial of benefits. Jader v. Principal Mutual Life Ins. Co., supra, 723 F.Supp. at 1341. In the present case, Robert claims that actual notice of the denial of the claim was apparently sent to his (now ex-)wife Patricia. He claims that three separate notices of denial were sent to Patricia, and that none of the notices set forth any review procedures. Further, he contends that the first two notices indicated an incorrect reason for denial. The third notice changed the bases upon which Durham denied the claim but still lacked the requisite information. Robert claims the third notice was dated subsequent to his impleading of Durham as a third-party defendant when this case was still in state court. See # 62, p. 2. Further, in his affidavit, 9 Robert avers that he has received no direct written notice of any denial of his claim (paragraph 6), nor any notice of his rights of appeal or review, (paragraph 7). In her affidavit submitted in opposition to Durham’s motion, 10 Patricia asserts that the first response she received from Durham respecting a claim for payment for Robert’s hospitalization at McLean was on April 25, 1990. See # 61, para. 5. The April 25, 1990 letter from Durham advised that Durham was denying the claim because Robert’s 120 treatment at McLean was for a pre-existing condition. See # 68, exh. A. The letter read as follows: Dear Mr. Darrin: 11 Per your request, Mr. Lasher’s file has been reviewed regarding the action taken on his bills from McLean and Peachford Hospitals. McLean Hospital bill of Spetember (sic) 10,1987 to October. 16, 1987 in the amount of $13,523.00 was denied due to a preexisting condition. A pre-existing condition is defined as an illness or injury for which a covered person received medical care or treatment prior to the effective date of insurance. Injury or illness includes conditions or symptoms which were present and manifest prior to the effective date of insurance. This exclusion will end after one year from the effective date or twelve months treatment free whichever comes first. Peachford Hospital bill of October 17, 1988 to November 16, 1988 was paid the policy maximum of $10,000.00 on August 16,1989. If you have any further questions, please do not hesitate to call me. Sincerely, Patricia Girvan Claims Manager It should be noted that the letter contains no identification of the pre-existing condition upon which Durham was relying; however, the point is immaterial since Durham does not now contend that the exclusion does in fact apply. The April 25th letter prompted further inquiries by Patricia. The nature of the inquiry is unclear but a letter from Durham to her dated December 4,1990, see # 68, exh. B, states that it is written in response to Patricia’s “inquiry.” The letter reads as follows: DECEMBER 4, 1990 RE: INSURED: PATRICIA A.' SIMO-NETTA PATIENT: ROBERT A. LASHER CLAIM #: 65337-0001-1-0001 DEAR MRS. LASHER, PLEASE BE ADVISED THAT AVE HAVE RECEIVED YOUR INQUIRY AS TO OUR DENIAL OF THE MCLEAN’S HOSPITAL CHARGES AND APOLOGIZE FOR THE DELAY IN RESPONDING. AFTER REVIEAVING OUR FILE AVE FIND THAT AN ERROR ON OUR PART AVAS MADE BY DENYING THE CHARGES AS PRE-EXISTING; HOAVEVER THESE CHARGES AVOULD HAVE BEEN INELIGIBLE DUE TO THE FACT THE ATTORNEY STATES THIS STAY AVAS COURT ORDERED AVHICH AVE DO NOT COVER. ALSO, YOUR HUSBAND HA, (SIC) SATISFIED HIS LIFETIME MAXIMUM BENEFIT FOR THIS TYPE OF TREATMENT AVITH THE CHARTER PEACHFORD IN-PATIENT STAY. SHOULD YOU HAAUC ANY ADDITIONAL QUESTIONS PLEASE DO NOT HESITATE TO CONTACT ME AT THE NUMBER LISTED ON THE BOTTOM OF THIS LETTER. SINCERELY, LISA SANTOSPASO CLAIMS DEPARTMENT In sum, in the letter, Durham advises that the denial based on a pre-existing condition was erroneous. However, the claim is denied because Robert would have been ineligible for coverage due to the fact that “the attorney states this stay was court ordered which we do not cover.” No citation to the exclusion provision of the policy which would support this contention is referenced. Moreover, Durham alleged an additional basis for denial — i.e., that Robert had received his maximum lifetime benefit under the policy as a result of the Charter Peachford in-patient stay. 12 According to Patricia, after receipt of the December 4, 1990 letter, she informed Durham that the denial was in error in that the treatment was not court-ordered in lieu of a criminal conviction. See # 61, para. 6. She 121 further contends that Durham never informed her of any rights to appeal its denial of this claim. See # 61, para. 7. With regard to Durham’s $10,000.00 payment to Charter Peachford Hospital in Atlanta, Georgia (from October 17,1988 to November 16, 1988) which provides an additional basis for Durham’s denial of the McLean’s bill claim, Patricia asserts that she never authorized Durham to pay that bill and repeatedly requested that Durham pay the hospital bill from McLean. See #61, para. 9. However, it is not disputed that Robert did authorize the payment to the Charter Peach-ford Hospital. Finally, according to Patricia, well after June 1, 1989, Durham communicated to her its intention to deny the claim on yet another ground. Durham contends that it has no obligation to pay any benefits insofar as there was an alleged material omission on the application for insurance respecting Robert. See # 61, para. 8. It is unclear whether this reason was memorialized in a writing to Patricia but Durham presses this basis for denying the claim. Specifically, Durham alleges that Patricia, in completing the application for health benefits on behalf of Robert, answered in the negative to a question asking whether either she or Robert had ever been treated for, or ever had any known indication of excessive use of alcohol, narcotics or other drugs, or had consultation or treatment, therapy or counseling for psychiatric illness or problems relating to personality or mental state. See # 47, exh. A. Additionally, Durham asserts that, in response to the question whether either had consulted a doctor or medical practitioner or been a patient in a hospital, clinic, sanitarium or other medical facility within the past 5 years, Patricia failed to disclose that Robert had been hospitalized in 1983 at the Brattleboro Retreat Hospital for substance abuse. See #47, exh. A. Patricia and Robert assert a number of defenses to these contentions, and this issue of misrepresentation will be discussed in detail, infra. b. Legal Analysis The recitations in the parties’ submissions in connection with Durham’s motion for summary judgment on the exhaustion issue provide little assistance to the Court in resolving the issues presented. The briefs fail to include an adequate review of the law regarding the application of the exhaustion doctrine under ERISA as interpreted by district judges in this District. In fact, much of the case law cited by the parties focuses on decisions which have been rejected or modified by district judges in Massachusetts. However, The Court’s review of the case law from this District concerning the exhaustion doctrine provides substantial guidance in resolving the conflict, and a discussion of the doctrine in some detail is warranted. 13 It should first be noted that, by its own terms, ERISA does not expressly require all claimants to exhaust administrative remedies prior to suit in federal court. However, the exhaustion doctrine has been well established under case law. See e.g. Kross v. Western Electric Co., 701 F.2d 1238, 1243-5 (7 Cir. 1983); Amato v. Bernard, 618 F.2d 559, 567-8 (9 Cir. 1980); DeLisi v. United Parcel Service, Inc., 580 F.Supp. 1572, 1575-6 (W.D.Pa. 1984); King v. James River-Pepperell, Inc., 592 F.Supp. 54, 55-6 (D.Mass. 1984) (modified by Treadwell v. John Hancock Mutual Life Insurance Co., 666 F.Supp. 278, 283 (D.Mass. 1987)); Janowski v. Local 710 Pension Fund, Intern. Brotherhood of Teamsters, supra, 673 F.2d at 935. There are several public policy reasons underlying the exhaustion doctrine. These reasons were set forth in detail in Amato v. Bernard, supra, 618 F.2d at 567-8, and reiterated in Kross v. Western Electric Company, Inc., supra, 701 F.2d at 1244-5. These include: (1) to reduce frivolous lawsuits under ERISA; (2) to promote consistent and uniform treatment of claims and benefits; (3) to provide a nonadversarial method of claims settlement, and to encourage pri 122 vate resolution of ERISA related disputes, King v. James River-Pepperell, Inc., supra, 592 F.Supp. at 55-6, modified on other grounds, 593 F.Supp. 1344 (D.Mass. 1984); (4) to minimize the cost of claims settlement for all parties involved; (5) to foster the intent of Congress and the Secretary in establishing administrative remedial procedures which were to be regularly used by aggrieved claimants, see Drinkwater v. Metropolitan Life Insurance Co., 846 F.2d 821, 825 (1 Cir.), cert. denied, 488 U.S. 909, 109 S.Ct. 261, 102 L.Ed.2d 249 (1988); Kross v. Western Electric Company, Inc., supra, 701 F.2d at 1244-5; and, perhaps most important, (6) that prior considered actions by plan trustees or administrators interpreting their plans, refining and defining problems in cases, may well assist the courts in resolving the controversies eventually litigated. Id. at 1245. See also Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11 Cir.1985), cert. denied, 474 U.S. 1087 [106 S.Ct. 863, 88 L.Ed.2d 902] (1986). The underlying rationale for the last reason is that the plan trustee or arbitrator may be able to prevent premature judicial intervention in the decision-making process by applying some expertise in interpreting the provisions of the plan and in the carrying out of the fiduciary duties. Treadwell v. John Hancock Mutual Life Insurance Co., supra, 666 F.Supp. at 284. Despite these reasons based on policy, courts have carved out exceptions to the exhaustion requirement. A review of the exhaustion doctrine and its exceptions was explored by the court in the Treadwell case. In that case, Judge Caffrey traced the history of the doctrine, noting that the circuits are split as to whether exhaustion of internal plan remedies is a pre-requisite to bringing a claim under ERISA in federal court. Id. at 284 citing Mason v. Continental Group, Inc., supra and noting the dissents from the denial of certiorari by Justice White, 474 U.S. at 1087, 106 S.Ct. at 864 (“the conflict among the circuits over the issue of an exhaustion requirement under ERISA can hardly be passed over as an unimportant one, unworthy of this court’s attention”). The split involves a distinction between “statute-based” and “plan-based” claims. In applying the exhaustion doctrine, both the Third and Ninth Circuits apply this distinction. Zipf v. American Telephone and Telegraph Co., 799 F.2d 889, 891-3 (3 Cir.1986); Amaro v. Continental Can Co., 724 F.2d 747, 751-2 (9 Cir.1984). Plan-based claims, such as a claim for benefits, are those which arise under the terms of the specific plan, and are contractual in nature. Plan-based claims are barred from federal suit unless exhaustion of administrative remedies or intra-plan remedies has occurred prior to suit. Statute-based claims, such as a claim for wrongful discharge/forced retirement (a violation of the wrongful discharge provision in section 510 of ERISA) relate to rights which are afforded claimants by Congress. The rationale underlying the distinction is that plan-based claims relate merely to contractual interpretation, which can best be left to an administrator or trustee to resolve while a statute-based claim is considered to be a matter of statutory interpretation and application is therefore more appropriate for judicial determination. Treadwell v. John Hancock Mutual Life Insurance Co., supra, 666 F.Supp. at 284. Another reason for the distinction is that Congress assigned to plan fiduciaries the primary responsibility for evaluating claims for benefits but has not done so for statute-based claims. Id. at 283 citing Zipf v. American Telephone and Telegraph Co., supra, 799 F.2d at 892-893. The Court in Treadwell adopted the view of the Third and Ninth Circuits, holding that there is a logical distinction between plan-based and statute-based claims, and that the exhaustion rule above mentioned applies only to plan-based claims. On the other hand, there is no requirement of exhaustion of remedies prior to bringing a statute-based claim. See Amaro v. Continental Can Co., supra, 724 F.2d at 751-2; Zipf v. American Telephone and Telegraph Co., supra, 799 F.2d at 891-3. This view is in conflict with holdings of the Seventh and Eleventh Circuits which do not draw the distinction between plan-based and statute-based claims. 123 These Circuits have held that the exhaustion doctrine applies to both plan-based and statute-based claims. Kross v. Western Electric Co., supra, 701 F.2d at 1245, modified by Dale v. Chicago Tribune Co., 797 F.2d 458, 466 (7 Cir.1986), cert. denied, 479 U.S. 1066, 107 S.Ct. 954, 93 L.Ed.2d 1002 (1987). However, the conflict is only of academic interest with respect to the instant case since Robert is making a claim under ERISA for benefits under a specific health insurance plan, and therefore, his claim falls within the “plan-based” category which requires exhaustion of administrative remedies prior to suit in federal court, unless the facts indicate that Robert falls within a recognized exception to the exhaustion rule. This District Court has recognized that there are exceptions to the exhaustion requirement. These exceptions are delineated as follows: (1) when resort to administrative procedures would be futile, DePina v. General Dynamics Corp., supra, 674 F.Supp. at 49, or the remedy inadequate, Ring v. Confederation Life Ins. Co., 751 F.Supp. 296, 297 (D.Mass.1990) citing Drinkwater v. Metropolitan Life Ins. Co., supra, 846 F.2d at 825; see Giuffre v. Delta Air Lines, Inc., 746 F.Supp. 238, 240 (D.Mass.1990) (also citing Drinkwater)-, (2) if the claimant would suffer irreparable harm, DePina v. General Dynamics Corp., supra, 674 F.Supp. at 49; or (3) if the claimant is wrongfully denied meaningful access to the procedures. DePina v. General Dynamics Corp., supra, 674 F.Supp. at 49 citing Lieske v. Morlock, 570 F.Supp. 1426, 1429 (N.D.Ill.1983). It is clear that for any exception to apply, the plaintiff has the burden of asserting facts to support the claimed exception. See Giuffre v. Delta Air Lines, Inc., supra, 746 F.Supp. at 240 (where futility claim not supported by evidence, summary judgment granted against claimant). In the present case, Robert asserts he is excused from the exhaustion requirement due to the “futility” of pursuing administrative procedures and because of the lack of notice to him of his appeal rights and the reasons for denial of the claim. In the DePina ease, which is factually analogous to the present case, Judge Young held that proeedural deficiencies in the notice of denial and the attending futility of any further review excused a claimant from the exhaustion rule. In that case, DePina was an employee of General Dynamics Corporation for eight years. In his suit, he sought reimbursement under an employee benefit plan for hospital expenses incurred in October to November 1984. On June 26, 1983, DePina had been involved in an automobile accident in which another individual died; he was found to have been driving under the influence of alcohol at the time of the accident. Subsequent judicial proceedings resulted in an order that he undergo treatment for his alcoholism. After a preliminary confirmation of his insurance coverage for the treatment with personnel at General Dynamics, DePina entered the Beach Hill Treatment Center in October 1984 for several weeks. The admitting physician described DePina as a “binge alcoholic”. DePina v. General Dynamics Corp., supra, 674 F.Supp. at 48. On November 20, 1984, DePina submitted a claim to the plan for payment of $3,892.92, the amount of the hospital bill. General Dynamics denied the claim because (1) the hospitalization was not at the recommendation of a physician but was “court ordered”; and (2) DePina did not enter the hospital due to any alcohol “sickness” as defined under the plan. Later General Dynamics claimed that the denial of the claim was based upon its policy for not reimbursing its employees for any expenses in lieu of incarceration. DePina v. General Dynamics Corp., supra, 674 F.Supp. at 48. On April 3, 1985, DePina received a ■written notice of the denial of his claim. The notice consisted of an “explanation of benefits” form which is a preprinted form with DePina’s name, address, claim number, charges submitted and benefits payable typed in. Typed in the bottom in bold capitals was “This service is not covered by your medical plan.” On the reverse side, in small print, the basic appeal procedure is set out, although no address or telephone number is provided to enable an 124 appellant to contact the proper person before whom an appeal is to be brought. Id. After receipt, DePina obtained counsel who attempted to resolve the claim but was unable to do so. DePina brought suit in Quincy District Court; the suit was removed to federal court. It was undisputed that DePina never followed any appeal procedures listed either in the plan booklet given to employees or listed on the notice of denial. • Id. General Dynamics moved to dismiss the action, or for an entry,of summary judgment, on the grounds that DePina failed to exhaust administrative remedies (and the appeal period had expired). DePina argued that any resort to further procedures would have been futile and the actions of General Dynamics were arbitrary and in violation of ERISA. As noted previously, section 1133 of ERISA provides that every benefit plan shall provide adequate notice to a claimant denied benefits, setting forth the specific reasons for denial, written in a manner calculated to be understood by a claimant and that the notice must afford a reasonable opportunity to any claimant for a full and fair review of the denial of the claim. See also regulations set for in 29 CFR 2560.503-l(f) (1980) discussed supra at pp. 119-120. In DePina, the Court found that the letter General Dynamics sent failed to meet these requirements because specific reasons for the denial were not given, the letter failed to refer to specific provisions of the plan upon which the denial was based, and, while mentioning steps which could be taken for a review of the denial, the letter failed to provide an address or telephone number of the person to contact in order to pursue a review. 14 DePina v. General Dynamics Corp., supra, 674 F.Supp. at 50 citing Wolfe v. J.C. Penney Co., 710 F.2d 388, 392 (7 Cir.1983) (“ ‘conclusory’ reason for denial, failure to indicate information needed to appeal, and frugal information as to review procedure amounted to a violation of section 1133”) and Tomczyscyn v. Teamsters Local 115, supra, 590 F.Supp. at 215 (“defendant’s letter deficient as a matter of law due to failure to include notice of appeal rights”). Moreover, the Court in DePina rejected General Dynamic’s argument that the deficiencies in the letter were immaterial due to the fact that DePina had retained counsel within the time when an appeal could have been taken. Judge Young wrote: This court rejects that proposition [put forth by General Dynamics] for the same reason it was rejected by the court in Tomczyscyn. “That [plaintiff was] represented by counsel does not require a different result; nothing in the regulations suggests that its application is limited to cases in which claimants have no other means of learning their right to appeal.” DePina v. General Dynamics Corp., supra, 674 F.Supp. at 50 quoting from Tomczyscyn v. Teamsters Local 115, supra, 590 F.Supp. at 214. As a result of these findings, the Court refused to dismiss or remand DePina’s claim for failure to exhaust, writing: Where, as here, the record is complete, there is no hint of a frivolous claim and the Plan’s policies are well known already, those purposes are not effectuated by a remand. Concomitantly, here such action would cause DePina to expend needless resources for what appears to be a certain denial of his appeal. General Dynamics has made it apparent throughout this litigation that it intends to refuse any further claim by DePina, and that its refusal is consistent with its longstanding policy of denying any claims for reimbursement for hospitalization in lieu of incarceration. The futility exception is particularly appropriate where the past pattern of an agency or administrator as well as its position on the merits of the current matter in litigation reveal that any further administrative review would provide no relief, (citation omitted) DePina v. General Dynamics Corp., supra, 674 F.Supp. at 50-1. The holding in DePina was followed in the case of the Ring v. Confederation Life Ins. 125 Co., supra, 751 F.Supp. 296, wherein the Court held insufficient notice excused the claimant from the exhaustion requirement. In that case, Ms. Ring, an employee of Stop & Shop who suffered a back injury at work on March 4, 1985, sought disability benefits under an ERISA plan. She received benefits through April 21, 1988. At that time the insurance company administering the plan sent her a letter terminating benefits because they claimed she was no longer disabled and that she had a job offer which two physicians advised was compatible with her physical abilities. The letter also advised that Ms. Ring could have the denial of further benefits reviewed, and questions answered, by writing to them within 60 days. Within that time frame, Ms. Ring submitted a letter requesting a review. The insurer sent a second letter in February 1989 which stated that after further investigation, due to lack of further medical information, the decision denying benefits remained the same as previously stated. The company stated that if Ms. Ring wanted to submit further medical information, the company would be “happy to review it”. She never filed a request for review. Id. at 296-7. In rejecting the argument that Ms. Ring was barred from bringing the claim for failure to exhaust administrative remedies, the Court wrote: Even if the second notification were deemed to mark the decision from which Ms. Ring was required to request a review, the [second] letter... did not adequately notify Ms. Ring of the requirement. DePina v. General Dynamics Corp., 674 F.Supp. 46 (D.Mass.1987). Ms. Ring has exhausted all required administrative procedures and has permissibly brought suit in federal court. Ring v. Confederation Life Ins. Co., supra, 751 F.Supp. at 297-8. Thus, the court deemed Ms. Ring’s initial inquiry to be sufficient to satisfy the exhaustion rule, even though no official procedures were followed. The instant case is an even stronger case for the claimants than either the DePina and Ring cases were. The notices sent to Patricia Lasher Simonetta [on behalf of Robert Lasher] were clearly insufficient and violative of ERISA regulations. A plain reading of the letters leaves no room for dispute. No review or appeal rights are mentioned in the letter. Moreover, the evidence presented by Patricia and Robert raises genuine issues of material fact as to whether they knew of any appeal procedures available to them. As in DePina, the fact that counsel was obtained during the course of litigation is immaterial to the obligations clearly imposed onto Durham under the law. Under the DePina rationale, Patricia and Robert have clearly raised sufficient evidence of inadequate notice so as to support their claim that an exception to the exhaustion rule is applicable in their case. Moreover, the fact that Durham cited several varying reasons for the denial (i.e., preexisting condition, prior exhaustion of full benefits, hospitalization was in lieu of incarceration/eourt ordered, and material misrepresentation) would tend to indicate that had Patricia or Robert pursued any administrative review, the outcome would have been no different. I do not see a remand so as to permit exhaustion as advancing matters. DePina v. General Dynamics Corp., supra, 674 F.Supp. at 51. It is clear that Patricia and Robert’s claim is not frivolous, and it is equally clear that, given Durham’s past and current position on the merits of the claim, any administrative review at this time would be futile. Therefore, I shall recommend that Durham’s motion for summary judgment on the grounds that the Lashers failed to exhaust administrative remedies prior to bringing suit in federal court serves as a bar to the action be denied. 2. Exhaustion of Benefits Available Under the Policy Even if Robert is excused from the requirement that he exhaust administrative remedies, Durham contends that it is entitled to summary judgment on the grounds that it acted properly in denying the claim in that there is no genuine issue of material fact underlying the proposition Robert received the total lifetime benefits to which he was entitled under the policy. The predicate for 126 this argument is that Durham paid $10,-000.00 to Charter Peachford Hospital for Robert’s treatment for drug abuse. See # 47, para. 11; # 55, paras. 8 & 9. Durham claims that under the terms of the policy, and specifically in the Rider to the policy (page 48) Robert was only entitled to receive a maximum lifetime benefit of $10,000.00 for treatment for drug abuse. See # 47, exh. B, p„ 48. The parties have stipulated that the policy controls and that the Rider is included in the policy. See # 47, para. 4; see also Bluewaters, Inc. v. Boag, 320 F.2d 833 (1 Cir.1963) (insurance policy and Rider constitute single agreement). Although it is not explicitly mentioned by any party as to the date upon which the Rider became effective, it is presumed that the Rider was issued simultaneously with the Group policy, effective June 1,1987, since it appears to have been particularized for the state in which the insureds reside. See # 47, para. 4, # 55, para. 5. The Rider itself also states “the provisions of the rider apply on the effective date of any insured person whose primary residence is in the state of Massachusetts.” The original Group policy contained a provision dealing with limitations of benefits for certain types of illness. Form G1380.3-5 (3781-6) of the Group policy states, in pertinent part: -2. For care or treatment, whether inpatient or outpatient, of nervous and mental disorders, alcoholism or drug abuse, the maximum benefit is $25,000 per lifetime while a covered person. The maximum inpatient benefit period is 60 days per calendar year. #47, exh. B, p. 9. The Rider to the Group policy states, in pertinent part: 1. Form G1380.3-5 is amended to delete provision (2) which limits certain benefits for nervous or mental disorders, alcoholism, and drug abuse. The following is substituted in its place: (2) For care or treatment, whether inpatient or outpatient, of drug abuse, the maximum benefit is $10,000 per lifetime while a covered person. The maximum inpatient benefit period is as follows: (a) for care or treatment of mental or nervous disorders while confined in a licensed public or private mental hospital, 60 days per calendar year; (b) for care or treatment of alcoholism, 30 days per calendar year and (c) for care or treatment of drug abuse, 30 days per calendar year. #47, exh. B., p. 48. Durham claims that it received bills from Charter Peachford Hospital in Georgia where Robert was treated for drug abuse as an inpatient from October 17, 1988 to November 16, 1988. See #47, para. 9; #55, para. 8. It is undisputed that the bill for this hospitalization totalled $13,696.35 and that Durham was instructed by Robert’s counsel, M. David Blake, by letter dated November 8, 1988, that Robert elected to seek this treatment and that Durham was authorized to make payment to Charter Peachford under the policy. See #47, para. 10 & exh. C thereto. It is also undisputed that Durham actually paid the $10,000 toward that bill. See #47, para. 11; #55, para 9. In light of this payment to Charter Peach-ford, Durham contends that Robert is not entitled to any further benefits vis-a-vis the McLean hospital bill. It contends that Robert’s case falls within the limitation of the Rider for treatment for drug abuse, and that he was, in fact, treated for drug abuse at McLean. Robert, on the other hand, contends that under the Rider, there is no cap on the dollar amount (as opposed to a cap on the time period covered) on the benefits available to him for treatment other than for drug abuse, and therefore Durham’s denial was improper, or at the very least, a genuine issue of material fact is raised, which precludes summary judgment in favor of Durham. In his Answer to Durham’s Eighth Affirmative Defense (#52, p. 3) Robert asserts that the original policy contained a $25,000 lifetime cap for alcoholism, mental illness and drug abuse, but that the Rider to the policy substituted a provision which contained a maximum lifetime benefit for drug abuse alone, in 127 the amount of $10,000. 15 Robert asserts that, despite Durham’s claims that the $10,000 limit set forth in the Rider supersedes the $25,000 maximum of the group policy, the fact that the two máximums are founded upon different conditions or illnesses (“drug abuse” vs “alcoholism, mental illness and drug abuse”) creates an ambiguity in the agreement, and that any ambiguity should be resolved in favor of the insured, and against the drafter of the policy, the insurer. See Bennett Co. v. Fireman’s Fund, Ins. Co., 344 Mass. 99, 103, 181 N.E.2d 557, 560 (1962); Panesis v Loyal Protective Life Ins. Co., 5 Mass.App. 66, 72, 359 N.E.2d 319, 324 (1977) (construe language in fashion so as insured reasonably given to understand intended scope). However, I find no ambiguity. The Rider specifically states that the group policy provision is deleted, and the new provision in the Rider is substituted. The Rider does not state that the group policy provision is amended or modified, or supplemented, but deleted. Thus, there is no question that in determining the extent of benefits available under the policy, the group policy provision should be treated as if it did not exist. However, there is an ambiguity in the policy and the Rider because the provisions are unclear as to what benefits are available when an insured is treated at the same time for a condition which does have a limitation and another condition which does not. Specifically, Robert argues that the nature of his treatment while at McLean is a disputed issue of fact, not stipulated to, and that, contrary to Durham’s allegations, Robert was treated not for drug abuse, but for mental illness. Therefore, he asserts that if this fact is proven, then there is no lifetime maximum dollar limitation applicable here; rather, there is only a coverage limitation on length of yearly inpatient stays and that these limits have not been exhausted. Under this theory, the entire cost of the McLean hospitalization is covered and should have been paid by Durham. In the alternative, Robert argues that, at the very least, he has presented sufficient evidence to raise a genuine issue of fact which would preclude summary judgment for Durham on this issue. A review of the evidence is in order. Patricia contends that although Robert may have had a serious drug problem, 16 both Patricia and Robert nonetheless assert that the nature of the treatment he was expected to receive at McLean was related to his mental illness, and that his drug addiction may have caused a mental condition to surface. They point to comments made by the psychiatrist who examined Robert at the court clinic, i.e., “we are going to try to send him somewhere to get help. Because of the substance abuse, he appears suicidal.” See #70 citing Patricia’s deposition, page 23, lines 21-23. Additionally, Patricia asserts that it was Robert’s suicidal ideation that caused her to seek help for him from the court, and ultimately led to his hospitalization at McLean. See # 9, paras. 3-5. Specifically, Patricia states that Robert made a suicide 128 threat in the presence of his sister and herself during the time material to these issues. Id. at para. 3. She further asserts that she had the Pittsfield Police Department take Robert into custody because she was concerned not only about his drug abuse but also because of the suicide threat. Id. at para. 5. She noted that at the court hearing, Robert’s father testified that Robert was addicted to drugs (cocaine and heroin) and that he might harm himself or others, and that she met with Dr. Gardner, the court psychiatrist, who determined he was suicidal, and suggested placement in a secure psychiatric facility. See # 9, paras. 5-7. As additional support for these contentions, Patricia and Robert cite the McLean’s medical records, and argue that, when reviewed as a whole, they are not conclusive as to whether Robert was treated solely for drug abuse. The portion of the records supplied to the court reveal that Robert was diagnosed by Dr. Mark A. Schechter, M.D. and Frances Frankenburg, M.D., psychiatrist in charge, as having an “adjustment disorder with depressed mood. Condition: unchanged” and that he suffered from “mixed personality disorder with narcissistic and antisocial features” See #73, exch. A. 17 129 While-it is abundantly clear from the record that substance abuse was a substantial concern for Patricia and Robert’s family, and for McLean for treatment purposes, the assertions by the Patricia and Robert, combined with the medical records, convinces this court that sufficient evidence has been raised for a jury or factfinder to find that Robert was not treated solely for drug abuse 18, and/or to find that he was treated for drug or substance abuse in addition to mental illness, or that he was treated solely for mental illness, including suicidal ideation. It therefore follows, logically, that if a jury or factfinder determines the McLean hospitalization related to treatment solely for drug abuse, then pursuant to the Rider the $10,-000 maximum would apply, and since Durham already has paid these benefits toward the Charter Peachford Hospital bill, Robert would not be entitled to any further benefits. Conversely, if a jury or factfinder determined that the course of treatment at McLean was related to treatment for mental illness alone, then a sixty-day cap would apply under the Rider, and the McLean charge would be covered in its entirety. However, if a jury or factfinder determined that the McLean charge was due to a combination of both drug abuse and mental illness, or even a combination of drug abuse, alcohol abuse and mental illness, there is a real question as to how the Rider should be interpreted, and whether or not any dollar cap would apply. The Rider speaks only in terms of separate diagnoses, i.e., if the treatment is for drugs, then $10,000 is the limit of benefits, if for mental or nervous disorder, then 60 days inpatient is the limit, if for alcoholism, then 30 days is the limit, and so on. Thus, there is a genuine issue of material fact as to the purpose(s) for which the treatment at McLean was given. Until that dispute is resolved, it cannot be determined what the effect of the Rider is on the outstanding bill for the hospitalization at McLean. I shall recommend that the motion for summary judgment be denied to the extent that Durham contends that the policy limits have been reached and, therefore, it is not obligated to pay the McLean bill. 3. Alleged Misrepresentation on Application for Insurance Durham’s final argument in support of its motion for summary judgment is that it has no obligation to pay any benefits to Robert for the McLean hospitalization because of the failure of the insured to disclose Robert’s prior hospitalization for substance abuse on the application. Specifically, Durham alleges that on or about May 4, 1987, Patricia and Robert, in an attempt to obtain health insurance coverage, prepared an application for insurance coverage and submitted it to United Plans, Inc., which acted as the Third Party Administrator for Durham. See # 47, paras. 3-4 and exh. A; #55, paras. 1, 4. The application requested various background information from the applicant (in this case, Patricia) and for dependents (Robert) for whom coverage was sought. The application also contained five questions with subparts, relating to statements concerning the applicant’s and dependent’s health. Questions 1(e) and (3) read as follows: (1) Have you or any of your eligible dependents ever been treated for or ever had any known indication of * * * sfs * % e) Excessive use of alcohol, narcotics, stimulants, sedatives or hallucinogenic drugs; or consultation, treatment, therapy or counseling for psychiatric illness or problem relating to personality or mental state? 3) Have you or any of your eligible dependents consulted a doctor or other medical practitioner or been a patient in a hospital, clinic, sanitorium or other medical facility within the past five years? The application further provided that if any question was answered “yes”, then de 130 tails were to be supplied, and space was provided on the form for listing such information. Patricia completed the application and questionnaire for both herself and Robert. To question # 1(e), Patricia checked off the box under the heading “no”, meaning that she answered the question in the negative. To question # 3, Patricia, on behalf of Robert, checked off the box under the heading “yes”, an affirmative answer. In the space provided below the questions she provided information that in February 1984, Robert underwent a hernia operation and had fully recovered. The name of the doctor was also provided. The application also contained a declaration which was located at the last four paragraphs preceding the signature lines containing both signatures (signed by Patricia for both herself and Robert). The Declaration, in capital letters, stated, in relevant part: I DECLARE THAT THE INFORMATION IN THIS APPLICATION IS FULL, COMPLETE AND TRUE TO THE BEST OF MY KNOWLEDGE. I UNDERSTAND THAT ANY MISSTATEMENTS, OMISSIONS OR MISREPRESENTATIONS MAY RESULT IN THE RESCISSION OF THIS INSURANCE COVERAGE, AND THAT NO CLAIM WILL BE PAID IN THAT EVENT I APPLY FOR THE INSURANCE FOR WHICH I AM NOW OR MAY. BECOME ELIGIBLE AND AUTHORIZE DEDUCTIONS FROM MY EARNINGS SUFFICIENT TO COVER MY CONTRIBUTIONS, IF ANY. Subsequently, based on this application, effective June 1, 1987, Patricia and Robert became participants in the plan. Durham alleges in its motion (and raises this as an affirmative defense) that the Patricia and Robert materially misrepresented the status of Robert’s health in their responses to questions # # 1(e) and 3 insofar as they failed to disclose the fact that Robert was treated on an inpatient basis at Brattleboro Hospital for drug abuse, and that this treatment occurred sometime in 1983, within the 5 year period prior to the execution of the application. The fact of hospitalization at Brattleboro is not a disputed fact among the parties. Durham contends that such information should have been disclosed in answer to the questions in the application and submits that, had it known of the information, it would have either refused to issue the policy or would have rescinded the policy upon discovering the information. See #55, paras. 11-14. 19 In opposition to these assertions, Patricia and Robert put forth various defenses. First, Robert denies liability for the misstatement since he did not complete the application. This assertion is without merit since Patricia clearly acted as his agent, see # 61, para. 2, and there is no genuine dispute in this regard, especially in light of the fact that Robert is asserting a claim for benefits under the policy, and has accepted benefits with regard to the Charter Peachford Hospital bill. He cannot claim to be a beneficiary of the policy on one hand while denying any involvement with the policy on the other. Clearly, he seeks to take advantage of the application by asserting his entitlement to benefits. Thus, any misrepresentation made by Patricia must be imputed to Robert for the purposes of analyzing the claim of material omissions from the application. Next, Patricia and Robert submit that Patricia, when filling out the application, made an honest mistake in that she believed the Brattleboro hospitalization did not occur within 5 years of the date she made the application; rather, she thought it had occurred prior to 1983. See # 61, para. 2. She therefore claims she answered the questions to the best of her knowledge. She claims she 131 had no intention of deceiving Durham when she completed the application. Id. Thus, she denies any fraudulent misstatements were made. It should be noted that Patricia does not address the misstatement alleged to be found in question # 1(e), in which she denied Robert had any drug or mental problem. Patricia further points, as recited in footnote 19, supra, that under the terms of the policy: After 2 years from the effective date of the covered person’s coverage, no misstatements, except fraudulent misstatements, shall be used to rescind coverage or deny a claim. #47, exh. B, p. 16. Patricia submits that she was never informed of Durham’s allegations of misrepresentation within the two year period commencing June 1, 1987, which is the effective date of coverage. Thus, she contends that Durham would have to prove the misstatement was made fraudulently, which she disputes. This is an erroneous reading of the language of the policy provision. That provision implies that absent fraud, any misstatements made would not serve as a bar to a claim for benefits which accrued after the two-year period, and Durham could not rescind the policy on the grounds of misrepresentation. Thus, for example, if Robert’s hospitalization at McLean had occurred after June 1, 1989, then Durham could not deny a claim based on misstatements on the application, again unless there was fraud involved. It would certainly be illogical to assume that, as Patricia asserts, if Durham does not discover the misstatements and notify her of the discovery within 2 years from the effective date of the policy, then Durham cannot rescind the policy or deny a claim which arose during the initial two-year period. Next, Robert asserts that under M.G.L.A., eh. 175 § 186, 20 no misrepresentation will be deemed to be material or work to void a policy unless it was made with actual intent to deceive or if the matter which was misrepresented increased the risk of loss to the insurer. On this issue of “materiality,” Durham has the burden of proving the misrepresentation was material. Pahigian v. Manufacturer’s Life Ins. Co., 349 Mass. 78, 85, 206 N.E.2d 660, 665 (1965); Ayers v. Massachusetts Blue Cross, Inc., 4 Mass.App. Ct. 530, 535-6, 352 N.E.2d 218, 222-3 (1976). Robert contends there is no evidence to show that Patricia intended to deceive Durham, nor is there any evidence to show that, had the prior Brattleboro hospitalization been revealed to Durham on the application, it would have amounted to an increased risk of loss to Durham, or that Durham would, as part of the terms of the policy, have declined coverage, or would have raised the premiums. In any event, whether the misstatement was material in that it increased the risk of loss for the insurer is ordinarily a question of fact. Davidson v. Massachusetts Casualty Ins. Co., 325 Mass. 115, 119, 89 N.E.2d 201, 204 (1949) (“It could not have been said as a matter of law that degenerative joint disease increased the risk of loss” to health and accident insurer). In the case of Schiller v. Metropolitan Life Ins. Co., 295 Mass. 169, 177, 3 N.E.2d 384, 388 (1936), the Supreme Judicial Court wrote that “[w]hether the existence of certain ailments increased the risk of loss... commonly is a question of fact, not of law.” It noted that questions of fact are presented when the condition which was not disclosed is diabetes, kidney ailments, Bright’s disease, angina pectoris, sarcoma, etc. Id. However, the risk of loss can said to be increased as a matter of law when what was not disclosed is alcoholism, cancer, or consumption or the insured’s age is misrepresented to be five years less than it actually is. Id. At first blush, alcoholism would seem to be most analogous to drug addiction. However, the facts of the two eases cited by the court in Schiller are readily distinguishable from the facts of the instant case. Neither involved the issue of failing to report a prior 132 hospitalization for alcoholism; rather, in each case there was evidence that the insured was an alcoholic and used alcohol to excess at the time the application was signed. See Langdeau v. John Hancock Mutual Life Ins. Co., 194 Mass. 56, 57, 80 N.E. 452, 454 (1907); Rainger v. Boston Mutual Life Ass’n., 167 Mass. 109, 110, 44 N.E. 1088, 1089 (1896). More modern cases seem to continue the distinction set forth in the Schiller case. See Ayers v. Massachusetts Blue Cross, Inc., supra, 4 Mass.App.Ct. at 536, 352 N.E.2d at 222 where the Court noted that although the question is usually one of fact, “[mjisstatements [increase the insurer’s risk of loss] as a matter of law... when they conceal the presence of certain diseases, including cancer.” Id. citing Lennon v. John Hancock Mutual Life Insurance Co., 339 Mass. 37, 39, 157 N.E.2d 518, 519 (1959) (cancer); Pahigian v. Manufacturers’ Life Ins. Co., supra, 349 Mass, at 85, 206 N.E.2d at 665-6 (Hodgkin’s Disease). See also Warren v. Confederation Life Association, 282 F.Supp. 375, 376 (D.Mass.1968) (Caffrey, J.) (seizure disorder, compulsive disorder, epilepsy). Durham has not submitted to the Court any law in support of its contention that prior drug addiction is similar to “certain diseases, including cancer” and thus increases the risk of loss as a matter of law. Upon the record currently before me, I find the issue is one for the factfinder. There is an added element. Patricia and Robert contend that the misstatement on the application could not have been “material” since Durham did, in fact, learn about the Brattleboro Hospital stay, and after learning of that hospitalization, went on to pay benefits under the policy toward the Charter Peachford Hospital stay in 1988. The maximum policy amount of $10,000 was paid on August 16, 1989. See # 68, exh. A. Specifically, Patricia alleges that five months before Durham paid the Charter Peachford bill (in March 1989), Durham had requested, and had obtained, a release from Robert Lasher to obtain his medical records from Brattleboro Hospital. See # 61, para. 4. Durham does not deny the fact and does not contend that it did not act to obtain the records based on the release. Given that Patricia and Robert are the parties opposing summary judgment, it is a fair inference to draw ■ in Patricia and Robert’s favor that shortly after obtaining the releases in March, 1989, Durham knew all the pertinent information about the Brattleboro hospitalization and nonetheless honored the contract of insurance by paying for Robert’s treatment for drug addiction at Charter Peachford. Patricia and Robert argue that since Durham failed to deny the claim based on the misrepresentation in the application with respect to the Charter Peachford bill, even though Durham knew of the misrepresentation, then the misrepresentation could not have been considered “material” to Durham. Moreover, they contend that the act of paying the claim for the Charter Peachford hospitalization was an affirmation of Durham’s obligation under the contract and resulted in a waiver of Durham’s right to assert a material misrepresentation claim, or to claim it suffered an increased risk of loss. Oakes v. Manufacturers’ Fire & Marine Ins. Co., 135 Mass. 248, 249 (1883). In this connection the case of Shapiro v. American Home Assurance Co., 584 F.Supp. 1245, 1248-50 (D.Mass.1984) is instructive. The burden on an insurer who claims that a misrepresentation materially increased the risk of loss is to demonstrate by a preponderance of the evidence that the statement is:... one so central to the risk being insured that the insurer would be expected to take it into consideration in making the underwriting decision. s¡: Hs # * * Materiality has long been defined as something “the knowledge or ignorance of which would naturally influence the judgment of the underwriter in making the contract at all, or in fixing the premium.” Shapiro v. American Home Assurance Co., supra, 584 F.Supp. at 1250 quoting from Daniels v. Hudson River Fire Insurance Co., 66 Mass. (12 Cush.) 416, 425 (1853). As has been demonstrated, on the present record, I find that there are material issues of disputed fact which have to be resolved before the above-quoted standard may be 133 applied to decide whether the misrepresentation did increase the risk of loss. Summary judgment is, therefore, inappropriate. VI. RECOMMENDATION Accordingly, I RECOMMEND that Durham’s Motion to Dismiss the Third Party Complaint, or in the Alternative, for Summary Judgment (# 54) be DENIED. VII. REVIEW BY THE DISTRICT COURT The parties are hereby advised that under the provisions of Rule 3(b) of the Rules for United States Magistrates in the United States District Court for the District of Massachusetts, any party who objects to this report and recommendation must file a written objection thereto with the Clerk of this Court within 10 days of the party’s receipt of this Report and Recommendation. The written objections must specifically identify the portion of the recommendation, or report to which objection is made and the basis for such objections. The parties are further advised that the United States Court of Appeals for this Circuit has indicated that failure to comply with this rule shall preclude further appellate review. See Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603 (1 Cir.1980); United States v. Vega, 678 F.2d 376, 378-379 (1 Cir.1982); Scott v. Schweiker, 702 F.2d 13, 14 (1 Cir.1983). See also Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985). March 31, 1993. 1. See 12/19/91 endorsement on #40 and Order (# 66) entered May 6, 1992. 2. For purposes of the analysis, Patricia’s opposition will be considered identical to Robert's except where otherwise noted herein. 3. For purposes of deciding the motion to dismiss, the Court relies only on the third-party complaint as amended. 4. See Report and Recommendation on [Plaintiff’s] Motion for Summary Judgment entered March 11, 1993. 5. He was actually committed by the court to the Department of Mental Health. 6. Much of Durham’s arguments in connection with its motion to dismiss relate to Robert’s original third-party complaint which contained only state law causes of action and the amended third-party complaint (# 57) which adds an ERISA claim. However, this Court allowed Robert's motion to amend the third-party complaint (# 40) at a Rule 16(b) conference and motions hearing, held on December 19, 1991, at which time counsel for • Durham was present. The Amended Complaint (# 57, filed November 27, 1991), merely added a single paragraph as follows: 8. This claim by Third Party Plaintiff [Robert Lasher] against Third Party Defendant arises under ERISA section 502(a)(1)(B) whereby a civil action can be brought by a beneficiaiy to recover benefits due to him under the terms of a health insurance plan. Furthermore, the District Court for the District of Massachusetts has exclusive jurisdiction over this claim pursuant to ERISA section 502(f). ‘ On May 6, 1992, this Court allowed Robert to again amend the third-party complaint (# 67, filed May 6, 1992). The Court presumes that the third-party complaint as amended after the May 6th filing is the controlling pleading. 7. Although Durham objects to Patricia's motion to join in Robert’s ERISA claim, it has asserted that it intends to address this issue in its motion for summary judgment. See #51. This Court had previously allowed this motion at a Rule 16(b) conference and motions hearing held on December 19, 1991 at which counsel for Durham was present. •1 However, the Court recognizes that any claims- by Patricia against Durham are only as viable as Robert’s claims against Durham, and to this extent, the court will consider the arguments set forth by both Robert and Patricia interchangeably, except as otherwise noted. 8. The extent of the communications concerning the denials will be discussed, infra. 9. The Affidavit of Defendant Robert Lasher is an attachment to #62. 10. Affidavit of Patricia (Lasher) Simonetta (#61). 11. Mr. Darrin was Patricia’s attorney at the time. 12. This issue is contested by the parties, and will be discussed in further detail, infra. 13. There is no First Circuit law directly on point, but there are several District Court cases from the District of Massachusetts which touch upon the issues presented here and which will be discussed. 14. The Court in DePina also noted the letter failed to comport with its own procedures outlined in the Plan booklet requiring the notice to set forth the reasons for the denial. 15. Robert also contends the treatment at Charter Peachford Hospital was for alcoholism, and therefore, the $10,000 payment to Charter made by Durham (for treatment in 1988) was made under the $25,000 maximum benefit provision of the policy, and since the treatment at McLean occurred in 1987 for mental illness, he falls within the $25,000 maximum benefit provision. This implies that since Durham only paid $10,000, there would still be $15,000 available under the policy, which could be used to cover the McLean’s bill of $14,282.37. Other than this allegation that the treatment was for alcoholism and not drug abuse, there has been no evidence presented on this issue. Moreover, if the treatment was for alcoholism, then, under the Rider, no dollar cap would apply; rather, a 30 day per calendar year limitation would apply. However, the argument is nonetheless flawed. The provision in the policy was eliminated and the provisions of the Rider were substituted. Thus, the $25,000 maximum contained in the original policy for "nervous and mental disorders, alcoholism or drug abuse" is of no force and effect. 16. See # 70. Although Robert has, in this litigation, denied drug abuse or a drug problem, see # 73, ("My admission to McLean Hospital in September 1989 was not related to drugs or drug abuse, but was related to my family's allegations that I was suicidal and suffering from a mental illness"), this denial appears to be a recent assertion and clearly contradictory to statements made by Patricia and Robert himself which are contained in the medical records which Robert submitted from McLean. 17. Portions of the medical records from McLean are relevant and state as follows: (dated 10/8/87) History of Present Illness This is the third psychiatric and first McLean hospitalization for this 34-year-old married, white male whose chief complaint was "I was brought here against my will." The patient has at least a five-year history of drug abuse, having been admitted to Brattleboro Hospital five years prior to admission for a detoxification from heroin. He claims to have used heroin only a couple of times before this admission. He denies any further drug use until very recently, although, according to his wife and family, drug use has continued over the past five years. Nine months prior to admission the patient's wife left him and told him she was going to file for divorce. Since that time, the patient has been abusing intravenous cocaine. According to his wife, his drug use has been out of control and his behavior erratic. She says that he has been using up to $1500 a week worth of cocaine as well as drinking heavily at times and that on one occasion he beat her up and tried, unsuccessfully, to rape her after drinking heavily. The patient denies alcohol use during this time and says that, at most, he was doing a gram of intravenous cocaine per week. He was recently admitted to Ad Care in Worcester for drug detox but left after four days..... ____ The patient has apparently been trying to get his wife to come back to him, unsuccessfully, and his wife and father describe him as being more and more desperate. Five days prior to admission the patient and his wife had an argument about whether she would pursue a divorce. In the context of this argument,.he stated, in front of his wife and his sister that he knew he "needed to die” and that he knew enough about drug use to know how to do it. The patient’s wife, father and closest friend were extremely concerned about his drug use and possible self-destructive behavior and brought him to Berkshire Mental Health Court Clinic where he was pink-papered to McLean for evaluation and treatment...... His wife and father describe him as being very uninvolved in the business recently with increasingly erratic behavior..... Hospital Course.... Throughout his hospital course, the patient maintained that there was absolutely no reason for him to be in the hospital and that he had been railroaded in by his wife. He said that her main concern was that she wanted to get control of his money through their divorce. The patient also attributed his hospitalization to a friend of his who was running for City Council in Pittsfield, saying that this friend wanted him locked up so that his drug use would not interfere (sic) with his friend’s political ambitions. When confronted with the apparent sincerity of his wife's, his father's and his best friend's concern for him and his out of control drug use, he denied that there was any reason for concern or that he had much of a drug problem at all. The patient put in a three-day notice to leave the hospital and, after several meetings with the patient and with the family, it was decided to go for a commitment on the bases of his out of control drug use and behavior and his potential suicidality. (emphasis added).... Psychological testing revealed him to be quite guarded and unwilling to share his real feelings with the examiner. It also noted his great impulsivity and it was felt he was depressed, although not enough so to warrant a diagnosis of major depression. Also noted were a great deal of feelings of anger about women and some confusion around sexual issues. On 10-8-87, another court hearing was held. At this time, Dr. Jacobs presented his evaluation, stating that while the patient had significant problems that require treatment, he did not appear to be acutely suicidal at this time. It was decided by the court that the patient should be discharged outright from McLean, conditional on his entering a drug treatment program voluntarily. Diagnosis: AXIS I: Cocaine abuse, continuous. Probable alcohol abuse, continuous. Adjustment disorder with depressed mood. 129 Condition: unchanged AXIS II: Mixed personality disorder with narcissistic and antisocial features. Condition: Unchanged. AXIS III: No diagnosis 18. The medical records provided to the court do not specifically reveal any course of treatment outlined for Robert which addresses the drug abuse problem. 19. On page 16 of the policy (# 47, exh. B) under the section entitled "HEALTH STATEMENT AS A BASIS FOR INSURANCE,” the following language appears: "Any material omission about health history or status may be cause for us to decline a claim or rescind coverage. A photostatic copy of your application has been attached to this certificate at its issue. Please read the questions and your answers. If you failed to provide full, complete and true answers, you should provide us the correct information within 10 days of receipt of these forms. After 2 years from the effective date of the covered person’s coverage, no misstatements, except fraudulent misstatements, shall be used to rescind coverage or deny a claim.” 20. Insofar as a genuine issue of fact is presented with respect to the misrepresentation issue on other grounds, it is not necessary for this court to determine what law is controlling, i.e. whether Massachusetts law controls, even though the claim is governed by ERISA, although Durham does not dispute these assertions by Robert.	CONFLICT_NOTED
724 F.2d 747	768 F. Supp. 728	C, CID	Santiago Amaro v. The Continental Can Company	OPINION ON ORDER DENYING PRELIMINARY INJUNCTION AND GRANTING ATTORNEYS’ FEES STOTLER, District Judge. PROCEDURAL HISTORY On April 5, 1991, plaintiff Fabian Financial Services (“Fabian”) filed its Application for Preliminary Injunction seeking to restrain the Kurt H. Volk, Inc. Profit Sharing Plan (the “Plan”) from proceeding with arbitration of a claim against Fabian before the American Arbitration Association (“AAA”). On April 29, 1991, the Plan filed its Motion to Stay in which the Plan sought a stay of plaintiff’s declaratory relief claim pending the outcome of arbitration. The Plan also sought an award of attorneys’ fees and costs. The issue presented is whether the Plan’s claim arising under ERISA against its investment advisor for breach of fiduci 730 ary duties may be submitted to arbitration over the objection of the advisor. Oral argument was heard on May 6, 1991. The Court denied Fabian’s application for preliminary injunction and granted the Plan’s motion to stay. The Court also awarded attorneys’ fees to the Plan and requested that counsel for defendant prepare, serve and lodge proposed Findings of Fact and Conclusions of Law consistent with the Court’s ruling pursuant to Local Rule 14.3. The Plan lodged its proposed findings on May 9, 1991 and filed the declaration of counsel in support of attorney fees on May 13, 1991. Fabian filed its Response to the Defendant’s Claim for Attorneys’ Fees on May 22, 1991. STATEMENT OF FACTS Fabian is registered as an investment advisor with the United States Securities and Exchange Commission. The Plan is an employee pension benefit plan within the meaning of the Employment Retirement Income Security Act of 1974 (“ERISA”). See 29 U.S.C. § 1002(2). The Plan was adopted by Kurt H. Volk, Inc., a Connecticut corporation engaged in the business of commercial printing. In or about the last quarter of 1984, the Plan retained Fabian to render investment advice. The parties subsequently entered into a written agreement (the “Management Agreement”). According to the allegations in Fabian’s complaint, Fabian was supposed to invest the Plan’s funds by switching these funds among various mutual funds based in part on the performance of certain technical market indicators. {See Complaint at para. 10). In August 1990, Fabian switched Plan funds into the United Services U.S. Gold Shares fund which subsequently suffered a decline in value. {See Complaint at para. 11). The Plan asserts that it lost in excess of $660,-000 due to Fabian’s decision to place all of the Plan’s assets under its control, approximately $5 million, into the United Services U.S. Gold Shares Fund. In September 1990, the Plan terminated the Management Agreement. The Management Agreement, drafted by Fabian, contains an arbitration clause which provides, Any controversy or claim arising out of or relating to this agreement shall be settled by arbitration in the City of Newport Beach, California in accordance with the rules of the American Arbitration Association then in effect, and judgment upon the award rendered may be entered and enforced in the Superior Court, Orange County, California or any other court having jurisdiction thereof. In January 1991, the Plan filed its Demand for Arbitration. The Plan alleged that Fabian breached “prudent person” and diversification fiduciary duties owed to the Plan under ERISA by investing all Plan assets under its control in a gold fund. The parties agree that the Plan’s claim constitutes a “controversy arising out of or relating to this agreement” and thus is covered by the Management Agreement’s arbitration clause. Fabian initiated this suit on April 5,1991, alleging that a claim brought under ERISA is not subject to arbitration. DISCUSSION I. Arbitration of ERISA Claims Fabian asserts that the claims the Plan seeks to have decided at arbitration — that Fabian violated its fiduciary duties under § 1104(a)(1)(B) and (C) of 29 U.S.C. — relate solely to whether ERISA has been violated and therefore the Plan’s claim cannot be decided in that forum. Fabian maintains that under Ninth Circuit precedent, the enforceability of an arbitration provision in an ERISA claim turns on whether it is the statute or the plan that gives rise to the underlying claim. See Graphic Communications Union v. GCIU-Employer Retirement Benefit Plan, 917 F.2d 1184, 1187-88 (9th Cir.1990). If the claims relate to whether the statute has been violated, exhaustion of internal dispute procedures such as arbitration is not required. Id. at 1187. However, exhaustion is required if the claim relates to 731 the parties rights and duties under the plan. Id. at 1187. In Graphic Communications, the court held that ERISA did not prevent the enforcement of the agreement to arbitrate the dispute because the claim at issue arose under the plan. Id. at 1188. There is no dispute that the Management Agreement’s arbitration clause otherwise appears to fall within the coverage of the Federal Arbitration Act. See 9 U.S.C. § 1 et seq. The agreement to arbitrate is “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. § 2. Fabian does not argue that the Management Agreement is revocable. The Arbitration Act was intended to reverse centuries of judicial hostility towards arbitration agreements and has established a federal policy favoring arbitration which requires that the courts rigorously enforce agreements to arbitrate. See Shearson/American Express v. McMahon ("McMahon”), 482 U.S. 220, 225-226, 107 S.Ct. 2332, 2336-2337, 96 L.Ed.2d 185 (1987). This duty is not diminished because a federal statutory claim is the basis of the parties’ dispute. Id. at 226, 107 S.Ct. at 2337. Congress can override the mandate of the Federal Arbitration Act in a separate statute. The party opposing arbitration bears the burden of showing that Congress intended to preclude a waiver of judicial remedies in that separate statute, or that waiver inherently conflicts with the underlying purposes of that other statute. See Rodriguez de Quijas v. Shearson/American Express, 490 U.S. 477, 483, 109 S.Ct. 1917, 1921, 104 L.Ed.2d 526 (1989). Congress’ intent may be deduced from (1) the text of the statute; (2) the statute’s legislative history; or (3) the “inherent conflict between arbitration and the statute’s underlying purposes.” McMahon, 482 U.S. at 227, 107 S.Ct. at 2338. Fabian undertakes to meet its burden by asserting that ERISA claims are not subject to arbitration because interpretation of ERISA is a task for the judiciary, not an arbitrator. As mentioned, Fabian relies on this Circuit’s Graphic Communications decision, which in turn relied on Amaro v. Continental Can Co., 724 F.2d 747, 752 (9th Cir.1984). Amaro held that the enforcement provisions of § 510 1 of ERISA required judicial enforcement, and the Graphic Communications opinion was careful to so limit it. Id. at 1187. This action, however, proceeds pursuant to § 1132 which generally governs civil enforcement of ERISA’s provisions. Fabian also cites, as did Graphic Communications, Johnson v. St. Frances Xavier Cabrini Hosp., 910 F.2d 594 (9th Cir.1990). Johnson, too, relied on Amaro and, in particular, Amaro’s expressed distrust of arbitrators’ competence to decide ERISA claims. Amaro at 750, Johnson at 596. This rationale for rejection of an arbitration provision appears to contradict express Supreme Court holdings to the contrary. It is true, however, that the Amaro court did not have the benefit of the recent decisions discussed above. For reasons not obvious, the Ninth Circuit decisions have not addressed the several Supreme Court cases relied upon by the Plan and which this Court finds persuasive and binding. Thus, in asserting that an arbitrator cannot interpret ERISA, Fabian finds itself in conflict with, for example, McMahon, where the Supreme Court stated “ 'we are well past the time when judicial suspicion of the desirability of arbitration and of the 732 competence of arbitral tribunals’ should inhibit enforcement of the Act ‘in controversies based on statutes.’ ” 482 U.S. at 226, 107 S.Ct. at 2337, quoting Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 626-627, 105 S.Ct. 3346, 3353-3354, 87 L.Ed.2d 444 (1985). Fabian also argues that the non-arbitra-bility of ERISA claims may be implied from the text of the ERISA statutes. Fabian cites to three sections of ERISA to demonstrate its argument: (1) section 1001(b) guarantees “ready access to the federal courts” for persons seeking to assert ERISA claims, (2) section 1144 preempts other causes of action, and (3) section 1132(e) grants exclusive federal jurisdiction to employee benefit disputes. Section 1001(b) does not address whether Congress intended to require that parties avail themselves of a federal forum in situations where the parties have chosen to forego an available judicial forum in favor of arbitration. See Bird v. Shearson Lehman/American Express, 926 F.2d 116, 120 (2nd Cir.1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, 847 F.2d 475, 479 (8th Cir.1988). Thus, section 1001(b) fails to support plaintiff’s argument that claims arising under ERISA cannot be submitted to arbitration. In its reply and at oral argument, Fabian argued that preemption of other causes of action pursuant to § 1144 ensures that all ERISA claims are heard in federal court, leaving no other recourse to aggrieved parties. Section 1144 provides that, Except as provided in subsection (b) of this section, the provisions of the sub-chapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title. As the California Supreme Court recently observed in Carpenters Southern California Administrative Corp. v. El Capitan Development Co., 91 Daily Journal D.A.R. 7481, 7482 (June 20, 1991), the United States Supreme Court has emphasized the unusual breadth of ERISA’s express preemption provision in a series of opinions. The Court has described section 514(a) of ERISA as a “virtually unique preemption provision” (see Franchise Tax Board v. Laborers Vacation Trust, 463 U.S. 1, 24, fn. 26, 103 S.Ct. 2841, 2854, fn. 26, 77 L.Ed.2d 420 (1988)), and as a clause “conspicuous for its breadth.” See FMC Corp. v. Holliday, 498 U.S. -, -, 111 S.Ct. 403, 407, 112 L.Ed.2d 356, 364 (1990). The Court has also characterized the provision as “deliberately expansive” {see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987), citing Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981)), and as “establish[ing] as an area of exclusive federal concern the subject of every state law that ‘relate[s] to’ an employee benefit plan governed by ERISA.” See FMC Corp., 498 U.S. at -, 111 S.Ct. at 407, 112 L.Ed.2d at 364. Consistent with the foregoing, the high court has also interpreted broadly the statutory term “relate to”. See 29 U.S.C. § 1144(a). Most recently, in Ingersoll-Rand Co. v. McClendon, 498 U.S. -, -, 111 S.Ct. 478, 482, 112 L.Ed.2d 474, 483 (1990), the Court explained that “[t]he key to § 514(a) is found in the words ‘relate to.’ Congress used those words in their broad sense, rejecting more limited preemption language that would have made the clause ‘applicable only to state laws relating to the specific subjects covered by ERISA.’ ” This is consistent with the Court’s previous instruction in Pilot Life that “a state law, ‘relate[s] to’ a benefit plan, ‘in the normal sense of the phrase, if it has a connection with or reference to such a plan’ ”. See Pilot Life, 481 U.S. at 47, 107 S.Ct. at 1553. “Because of the breadth of the preemption clause and the broad remedial purpose of ERISA, ‘state laws found to be beyond the scope of [§ 514(a) of ERISA] are few.’ ” See Cefalu v. B.F. Goodrich Co., 871 F.2d 1290, 1294 (5th Cir.1989). The doctrine of pre-emption is not inconsistent with recent decisions upholding pre- 733 agreement arbitration provisions where the claim involves interpretation of a federal statute. The goal of ERISA pre-emption is to establish a uniform national standard in the disposition of lawsuits which relate to employer benefit plans. See 29 U.S.C. § 1001 et seq. Disposing of the suit in an arbitral forum will not interfere with this policy because arbitrators must apply established ERISA law in their decision-making process, not state laws which contradict the dictates of ERISA. As the Supreme Court stated in Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. at 3354, By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum. It trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration. Mitsubishi also highlights the desirability of submitting ERISA claims to arbitration because it advances the policy of expediting disposition of disputes related to benefit plans. Fabian also argues that arbitration is improper because subsection (e) of § 1132 grants exclusive federal jurisdiction to employee benefit disputes. Section 1132(e)(1) states, Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subehapter brought by the Secretary or by a participant, beneficiary, or fiduciary. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under subsection (a)(1)(B) of this section. Section 1132(e)(1) does not lend strong support to Fabian’s position because state courts have concurrent jurisdiction over actions brought under § 1132(a)(1)(B) — i.e., where participants or beneficiaries seek to recover benefits due under the plan, enforce their rights under the terms of the plan, or clarify their rights to future benefits under the terms of the plan. Section 1132(e) does deal with which judicial forum is available, federal or state, but it does not preclude reference to an arbitral forum. See Bird, 926 F.2d at 120. The provisions of this statute fall short of compelling a conclusion that Congress meant to preclude resort to the provisions of the Arbitration Act, or, put another way, to preclude waiver of judicial remedies for ERISA’s statutory rights. Lastly, Fabian argues that since arbitration proceedings do not generally result in written opinions and allow for only limited post-award review, arbitration does nothing to further Congress’ goal that the law under ERISA be uniform nationwide. It is undoubtedly the goal of Congress that most, if not all, federal statutes be interpreted uniformly nationwide. However, this ideal has not prevented courts from enforcing pre-dispute arbitration agreements based on the Securities Exchange Act of 1934 {McMahon), RICO (McMahon ), the Securities and Exchange Act of 1933 {Rodriguez), and ERISA {Bird, Sul- it). More recently, the Supreme Court has enforced a pre-dispute arbitration agreement where a registered securities representative brought suit against his employer alleging that his termination violated the Age Discrimination in Employment Act (ADEA). See Gilmer v. Interstate/Johnson Lane Corp., — U.S. -, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). Fabian’s argument seems to assume that all ERISA claims will be adjudicated by arbitration and there will no longer be any precedent upon which the trier of fact may base its decision. However, countless ERISA claims will not and do not involve predispute arbitration agreements. As the trial docket of this court will attest, such cases will proceed to be adjudicated in federal courts. The body of case law interpreting ERISA will continue to grow and provide the framework within which arbitrators may base their decisions. Fabian has not carried its burden of showing, either by the text or legislative history of ERISA, or by analysis of ERISA’s underlying purpose, that Con *734 gress intended to preclude a waiver of ERISA’s judicial remedies. As stated by the Second Circuit in Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116, 122 (2nd Cir.1991): “We hold that Congress did not intend to preclude a waiver of a judicial forum for statutory ERISA claims. We further hold that the FAA [Federal Arbitration Act] requires courts to enforce agreements to arbitrate such claims.” II. Attorney Fees The Plan seeks an award of reasonable attorneys’ fees and costs under ERISA. See 29 U.S.C. § 1132(g)(1). The Court must analyze the Plan’s request in light of the factors set forth in Hummell v. S.E. Rykoff & Co., 634 F.2d 446 (9th Cir.1980). These factors include (1) the degree of the opposing parties’ culpability or bad faith, (2) the ability of the opposing party to satisfy an award of fees, (3) whether an award of fees would deter others from acting under similar circumstances, (4) whether the party requesting fees sought to benefit all participants or beneficiaries of an ERISA plan or to resolve a significant legal question under ERISA, and (5) the relative merits of the parties’ positions. Id. at 452. An award of attorneys’ fees to the Plan is appropriate in this case. It does not appear that Fabian filed this action in bad faith. Thus the first, and perhaps the third, Hummell factors militate against an award of fees. However, the remaining three factors favor a fee award. As to the second Hummell factor, Fabian does not deny that it has the ability to satisfy a fee award. As to the fourth Hummell factor, the Plan sought to benefit all participants and beneficiaries by vindicating the Plan’s right to arbitrate this dispute and contributed to the resolution of a significant legal question under ERISA. This is especially true in light of the fact that it was Fabian who actually drafted the Management Agreement which provided for arbitration. Lastly, as to the fifth Hummell factor, the Plan’s position on the merits was significantly stronger than Fabian’s. The Court additionally notes that, although most of the Hummell factors in this case point toward a fee award, it would not be necessary for the Court to so find in order to award fees because mere numerical assessment of the Hummell factors does not control. See Graphic Communications, 917 F.2d at 1190. Nevertheless, an award of attorneys’ fees is justified in this case. For the foregoing reasons, the Court exercises its discretion to award reasonable fees and costs to the Plan forthwith in the amount of $17,969.14, to be paid within 30 days of entry of judgment. In addition to the foregoing statement of reasons, the Court adopts as its Findings of Fact and Conclusions of Law those lodged by defendant on May 9, 1991. IT IS SO ORDERED. 1. “Interference With Protected Rights." It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this subchapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act [29 U.S.C.A. seq.], or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act. It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter or the Welfare and Pension Plans Disclosure Act. The Provisions of section 1132 of this title shall be applicable in the enforcement of this section. 29 U.S.C. § 1140 (1988).	CRITICIZED_OR_QUESTIONED
724 F.2d 747	741 F. Supp. 1536	DR	Santiago Amaro v. The Continental Can Company	EDWIN L. NELSON, District Judge. MEMORANDUM OF OPINION This cause is before the court on motion of the defendant Shearson Lehman Hutton Inc. (Shearson) to stay the proceedings as to it and to compel the plaintiffs to submit their dispute to arbitration and the plaintiffs’ demand for trial by jury on issues relating to the arbitrability of the dispute. The individual plaintiffs and defendant Janus entered into an agreement wherein the plaintiffs allege Janus agreed to invest and manage the assets of the plaintiffs investment plans with full discretion and fiduciary responsibility. Defendant Shear-son was the broker-dealer chosen by Janus and/or the plaintiffs to handle the transactions undertaken on behalf of the plans. Plaintiffs executed separate agreements with Shearson, all of which contain compulsory arbitration clauses. 1 The agreement with Janus contains no such clause. Plaintiffs assert claims against Janus under the Securities Exchange Act of 1934, §§ 10(b), 15, 20, ERISA §§ 404, 406-409, The Investment Advisors Act of 1940, and the anti-fraud provisions of the Securities Act of Alabama, §§ 8-6-17, 8-6-19(a)(l) and (2), 6-5-100. They also assert breaches of duties as agents and fiduciaries and common-law fraud. The plaintiffs assert that Shearson “aided and abetted” the wrongs allegedly perpetrated by Janus. Shearson has moved the court to stay these proceedings as to them and compel the plaintiff to submit their claims against it to arbitration and has chosen the New York Stock Exchange as arbitrator pursuant to their contracts. The plaintiffs assert that Shearson waived its right to arbitrate by “stonewalling” the plaintiffs’ own request for arbitration, the ERISA claims are not arbitrable, and the arbitration agreement is unenforceable as a contract of adhesion. The plaintiffs have demanded a jury trial on issues relating to arbitrability. The Arbitration Act provides two means of enforcing an arbitration agreement: Section 3 requires that a federal district court stay its proceedings if it is satisfied that an issue before it is arbitrable under the agreement, and Section 4 authorizes, a federal district court to issue an order compelling arbitration if there has been a “failure, neglect, or refusal” to comply with the 1538 arbitration agreement. 9 U.S.C. §§ 3, 4, Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987), rehearing denied, 483 U.S. 1056, 108 S.Ct. 31, 97 L.Ed.2d 819. Section 4, empowering the court to compel arbitration, provides that the party opposing arbitration may request a jury trial if there are factual questions regarding the making of the arbitration agreement or the failure, neglect, or refusal to perform the agreement. When considering whether the arbitration clause in question.is valid, the court may inquire only into those issues relating to the making and performance of the clause, and not to claims regarding the enforceability of the contract in general. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). There must be evidence that the arbitration clause, itself, standing apart from the whole agreement, was not enforceable. Coleman v. Prudential Bache Secur., Inc., 802 F.2d 1350 (11th Cir.1986). Allegations of fraud, duress or unconscion-ability in the contract as a whole are matters to be resolved in arbitration. Miller v. Drexel Burnham Lambert, Inc., 791 F.2d 850, 854 (11th Cir.1986). Section 3, empowering the court to stay proceedings requires only that the court find the issues at hand are- arbitrable. See generally Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 29, 36, 103 S.Ct. 927, 944, 947, 74 L.Ed.2d 765 (1983). Sections three and four call for an “expeditious and summary hearing, with only restricted inquiry into factual issues” by the federal court. Moses H. Cone Hospital, 460 U.S. at 22-23, 103 S.Ct. at 940-941. Since Shearson has moved to compel arbitration under § 4, the plaintiffs have a right to a jury trial on any genuine factual questions related to the validity of the arbitration clause. Although the waiver issue may arise in § 3 or § 4 cases, the right to the jury is available only if there is a § 4 motion to compel arbitration and if the party opposing arbitration requests a jury. See 9 U.S.C. §§ 3, 4. Nevertheless, plaintiffs are not entitled to a jury unless their factual allegations raise a genuine issue as to the making of the agreement for arbitration. T & R Enterprises, Inc. v. Continental Grain Co., 613 F.2d 1272, 1275 (5th Cir.1980). Furthermore, plaintiffs must challenge the clause itself, and not the contract as a whole and their factual allegations must, if proved, support a finding of waiver or adhesion under state law. Prima Paint, supra. The party resisting arbitration has the burden of showing entitlement to a jury trial. Merrill Lynch, Pierce, Fenner, & Smith, Inc. v. Haydu, 637 F.2d 391, 398 n. 12 (5th Cir.1981). Plaintiffs resist arbitration on the basis of assertions that Shearson waived the right to demand arbitration and that the arbitration agreement is a part of an adhesion contract. On neither of these claims are they, on the record here, entitled to a jury trial. In support of their claim that Shear-son has waived its right to arbitration, plaintiffs aver Shearson refused to arbitrate. Dr. Bayard Tynes submitted an affidavit in which he states he “made an effort... to arbitrate... by writing the letter of [March 28, 1988]”. He asserts Shearson “rejected our request” in a July 1, 1988 letter. Plaintiffs included the July 1, 1988 letter, in which Shearson denied responsibility for any of the losses sustained by plaintiffs. There is no mention of arbitration in the Shearson letter. Plaintiffs also present evidence of their pre-suit settlement offers. Dr. Tynes claims at no time did Shearson “demand we go to arbitration”. Plaintiffs allege Shearson failed to demand arbitration until after Shearson was added as a defendant in this action. None of these claims, if proved, would be sufficient to prove a waiver on Shearson’s part. Plaintiffs have not produced any evidence that Shearson refused to arbitrate, there is no reference to arbitration at all in the July 1, 1988 letter. Furthermore, none of the actions plaintiffs attribute to Shear-son could be construed as an implied waiver of its right to arbitrate. There is no set rule as to what constitutes a waiver of an 1539 arbitration agreement, the question depends upon the facts of each case and usually must be determined by the trier of facts. Burton-Dixie Corp. v. Timothy McCarthy Constr. Co., 436 F.2d 405 (5th Cir.1971). “[A]ny conduct of the parties inconsistent with the notion that they treated the arbitration provision in effect or any conduct that might be reasonably construed as showing that they did not intend to avail themselves of the arbitration provision may amount to a waiver.” Id. It is nonetheless clear that failure to file a pre-suit demand for arbitration is not a waiver. E.C. Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1040 n. 39 (5th Cir.1977), reh. den., 559 F.2d 268, citing General Guar. Ins. Co. v. New Orleans Gen. Agency, Inc., 427 F.2d 924 (5th Cir.1970). Shearson made its demand for arbitration immediately after it was added as a party to the present lawsuit, therefore it did not undertake any substantial discovery or litigation that “qualifies as the kind of prejudice... that is the essence of waiver”. E.C. Ernst, Inc. v. Manhattan Constr. Co., 559 F.2d 268, 269 (5th Cir.1977), cert. den., Providence Hospital v. Manhattan Constr. Co., 434 U.S. 1067, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978). Any doubts must be resolved in favor of arbitration, and the party opposing arbitration must meet a “heavy burden” to prove waiver. Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1025 (11th Cir.1982). Because the plaintiffs’ factual allegations raise no genuine issue as to whether Shearson waived its right to arbitrate, the plaintiffs are not entitled to a jury trial on that issue. T & R Enterprises, Inc. v. Continental Grain Co., 613 F.2d at 1275. Plaintiffs also claim the arbitration clause itself is invalid as a contract of adhesion. Dr. Tynes states the agreement was signed on a “take-it-or-leave-it basis without any choice or any discussion or negotiation of the arbitration provision or its meaning or its extent or application or ramifications.” If the party resisting arbitration claims the contract to arbitrate was adhesive, the record must contain sufficient factual showing to support that suggestion. Rodriguez de Quijas v. Shearson/American Express, — U.S. -, -, 109 S.Ct. 1917, 1921, 104 L.Ed.2d 526, 536 (1989). There is nothing inherently unfair or oppressive about arbitration clauses. Coleman v. Prudential Bache Secur., Inc., 802 F.2d at 1352 (11th Cir.1986). Further, absent a showing of fraud or mental incompetence, a person who signs a contract cannot avoid his obligations thereunder by showing he did not read what he signed. Id. Therefore, Dr. Tynes’ suggestion that he was unaware of the existence of the clause is unavailing. The remainder of Dr. Tynes’ factual allegations go to an assertion that the contract itself was adhesive. When considering whether the arbitration clause in question is valid, the court may inquire only into those issues relating to the making and performance of the clause, and not to claims regarding the enforceability of the contract in general. Prima Paint Corp. v. Flood & Conklin Mfg. Co., supra. There must be evidence that the arbitration clause itself, standing apart from the whole agreement, was not enforceable. Coleman v. Prudential Bache Secur., Inc., supra. Allegations of fraud, duress or unconscion-ability in the contract as a whole are matters to be resolved in arbitration. Miller v. Drexel Burnham Lambert, Inc., 791 F.2d at 854 (11th Cir.1986). Since plaintiffs allege the contract itself was adhesive, this is an issue to be determined in arbitration. Plaintiffs are not entitled to a jury unless their factual allegations raise a genuine issue as to the adhesive nature of the agreement for arbitration. T & R Enterprises, Inc. v. Continental Grain Co., supra. Finally, plaintiffs assert the ERISA claims they bring against Shearson are non-arbitrable. The arbitration agreement itself is broad, and without question encompasses the ERISA claims, therefore this court must decide if Congress intended to allow waiver of a judicial forum for ERISA claims. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354-55, 87 L.Ed.2d 444 (1985). 1540 In general, claims founded on statutory rights are as susceptible to arbitration as are other claims. Shearson/American Express, Inc. v. McMahon, 482 U.S. at 226, 107 S.Ct. at 2337, citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. at 626-627, 105 S.Ct. at 3353-54. However, statutory claims are not always arbitrable. “[T]he Arbitration Act’s mandate may be overridden by a contrary congressional command”. Shearson/American Express, Inc. v. McMahon, 482 U.S. at 226, 107 S.Ct. at 2337. The party opposing arbitration carries the burden of showing that Congress intended to preclude a waiver of a judicial forum for the statutory rights established in ERISA. This intent must be discernible from the text of the statute, or its legislative history, or its underlying policies. Rodriguez de Quijas v. Shearson/American Express, — U.S. at -, 109 S.Ct. at 1921, 104 L.Ed.2d at 536, Shearson/American Express, Inc. v. McMahon, 482 U.S. at 227, 107 S.Ct. at 2337-38. Neither the Supreme Court nor the Eleventh Circuit have explicitly held that ERISA claims are arbitrable. The Ninth Circuit’s holding that exhaustion of arbitration procedures could not be compelled, Amaro v. Continental Can Co., 724 F.2d 747, 751-752, (9th Cir.1984), was expressly rejected by the Eleventh Circuit in Mason v. Continental Group, Inc., 763 F.2d 1219 (11th Cir.1985), cert. denied, 474 U.S. 1087, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986). In Mason, the Eleventh Circuit required that plaintiffs claiming violations of ERISA statutory rights first exhaust administrative remedies available to them under a collective bargaining agreement, including any provisions made for arbitration. Id., at 1225-27. The Amaro and Mason cases did not involve any interpretation of the Arbitration Act, but only general principles of exhaustion of remedies. Their value as precedent is unclear. Two circuits, the Third and the Second, have decided that ERISA claims are not arbitrable under the Arbitration Act. The Third Circuit, citing Amaro, relied on a distinction between statutory and contractual claims to find that claims of statutory violations of ERISA are not arbitrable under the Arbitration Act. Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 939 (3rd Cir.1985). This distinction was expressly rejected in Mitsubishi, supra, 473 U.S. at 626-27, 105 S.Ct. at 3353-54 and McMahon, supra, 482 U.S. at 229-232, 107 S.Ct. at 2338-40. Arbitration must be an “adequate substitute” for adjudication as a means of enforcing the parties’ statutory rights, but “[ojrdinarily, by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” McMahon, 482 U.S. at 229-230, 107 S.Ct. at 2339, citing Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354-55. The Barrowclough court also found that arbitrators were inappropriate decision-makers in ERISA cases because they were not bound to consider law or precedent in their decisions. Mitsubishi foreclosed consideration of that line of inquiry until the arbitrator has failed to take cognizance of the statutory cause of action. Id., 473 U.S. at 636-37, and n. 19, 105 S.Ct. at 3358-59, and n. 19. Most recently, the Second Circuit held that ERISA claims were non-arbitrable. Bird v. Shearson Lehman/American Express, Inc., 871 F.2d 292 (2nd Cir.1989), vacated — U.S. -, 110 S.Ct. 225, 107 L.Ed.2d 177 (1989). The Supreme Court vacated and remanded the Bird decision, directing the Second Circuit to reconsider its opinion in light of Rodriguez de Quijas v. Shearson/American Express, Inc., supra. Shearson Lehman/American Express Inc. v. Bird, — U.S. -, 110 S.Ct. 225, 107 L.Ed.2d 177 (1989). 2 In de Quijas, the Court held claims under the 1933 Securities Act were arbitrable, overruling a decision the court said was “pervaded by 1541 what Judge Jerome Frank called ‘the old judicial hostility to arbitration’ Rodriguez de Quijas v. Shearson/American Express, Inc., — U.S. at -, 109 S.Ct. at 1919-20, 104 L.Ed.2d at 534, citing Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). The Court noted that view had steadily eroded over the years, most markedly in the McMahon and Mitsubishi decisions. Id. The de Quijas Court particularly noted the provisions in the 1933 Act providing for broad venue, nationwide service of process, and diversity jurisdiction without a minimum amount in controversy were present in other federal statutes which have not been interpreted to prohibit enforcement of pre-dispute agreements to arbitrate. Id., — U.S. at -, 109 S.Ct. at 1920-21, 104 L.Ed.2d at 535. The court rejected the idea that provisions for exclusive jurisdiction or concurrent jurisdiction made any difference in the determination of congressional intent. Id. The court finally stressed the “strong language” of the Arbitration Act, and found the party opposing arbitration had not met his burden of showing a congressional intent to preclude waiver of judicial remedies where “[tjhere is nothing in the record before us, nor in the facts of which we can take judicial notice, to indicate that the arbitral system... would not afford the plaintiff the rights to which he is entitled”. Id., — U.S. at -, 109 S.Ct. at 1921, 104 L.Ed.2d at 536. One circuit has found ERISA claims are arbitrable under the Arbitration Act. See Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475 (8th Cir.1988). In Sulit, the plaintiff claimed agreements to arbitrate ERISA claims were unenforceable under section 410(a) of ERISA. 3 Relying in substantial part on the reasoning of McMahon, the court held the plaintiff had not sustained his burden of showing that Congress intended ERISA claims to be non-arbitrable. 4 Plaintiffs have not cited any specific language in the statute which would evidence a congressional intent to preclude resort to arbitration, except they comment that ERISA has provisions for exclusive federal district court jurisdiction. 5 A similar provision in the Exchange Act of 1934 providing for exclusive jurisdiction in federal district courts has been found not to preclude waiver of the judicial forum. McMahon, supra. Furthermore, the Supreme Court has indicated a provision for concurrent jurisdiction was immaterial to the determination of whether Congress intended to foreclose any waiver of a federal forum. Rodriguez de Quijas v. Shearson/American Express, Inc., — U.S. at -, 109 S.Ct. at 1920-21, 104 L.Ed.2d at 535. Therefore, any claim that the jurisdictional language of ERISA evidences a congressional intent to foreclose arbitrability would appear to be untenable in light of McMahon and de Qui-jas. The Supreme Court has considered and rejected concerns that arbitrators might lack experience with the applicable substantive law. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. at 634, n. 18, 105 S.Ct. at 3357, n. 18 and accompanying text; see Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). Furthermore, plaintiffs claim that the New York Stock Exchange lacks congressional authority to arbitrate ERISA violations is irrelevant, since arbitrators derive their authority to resolve disputes from the agreement between the parties. 9 U.S.C. § 2, see AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. *1542 643, 648-49, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986). The claim that there is no arbitration agreement with “the primary ERISA violator” (Janus) is also without merit since Shearson seeks only to arbitrate those claims plaintiff brings against Shearson. The Act does not leave discretion in this court to refuse enforcement of an otherwise valid arbitration agreement merely because the issues to be arbitrated are peripheral to the central controversy. “[Fjederal law requires piecemeal resolution when necessary to give effect to an arbitration agreement. Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.” Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. at 20, 103 S.Ct. at 939. (emphasis in original, footnotes omitted). To the extent plaintiff asserts the claims against Shearson are “cognizable at common law” and “wholly compatible with modern 10b-5 aiding and abetting case law”, these claims are arbi-trable under the law as established in McMahon and Bird, supra. This court is persuaded that plaintiffs have not met their burden of showing Congress intended that the judicial forum provisions of ERISA are not subject to waiver. Shearson has moved the court to impose sanctions against the plaintiffs pursuant to Rule 11, Fed.R.Civ.P. The court is convinced, however, that the issues presented here are not so settled as to preclude the plaintiffs from raising them here without risking Rule 11 sanctions. The request for costs and attorney fees will be denied. In accord with this opinion, a separate order staying the proceedings as to the plaintiffs’ claims against Shearson and compelling arbitration will be entered. 1. The agreement to arbitrate is found in Section 14 of “Client Agreement[s]" entered between the parties. That section provides in pertinent part as follows: Unless unenforceable due to federal or state law, any controversy arising out of or relating to my accounts, to transactions with you, your officers, directors, agents and/or employees for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the National Association of Securities Dealers, Inc. or the Boards of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange, Inc. as I may elect. If I do not make such election by registered mail addressed to you at your main office within 5 days after demand by you that I make such election, then you may make such election. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 2. Thus, of the three appellate court decisions holding that ERISA claims are not arbitrable, one (Bird) has been rejected by the Supreme Court, one (Amaro) has been rejected by the Eleventh Circuit, and the third (Barrowclough) rests on reasoning which appears to this court to have been rejected by the Supreme Court in Mitsubishi, McMahon, and de Quijas. 3. 29 U.S.C. § 1110(a) provides as follows: Except as provided in sections 1105(b)(1) and 1105(d) of this title, any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy. 4. The court noted the textual language relied on by plaintiff did not support his claims, and further stated it examined the legislative history of the ERISA and found no evidence of an intent to foreclose waiver of judicial remedies. 5.ERISA provides that all civil actions under the act may be brought only in the federal district court, except that actions to recover benefits due or to enforce or clarify rights under the terms of the plan may be brought either in federal or state court. 29 U.S.C. § 1132(e)(1).	CONFLICT_NOTED
724 F.2d 747	2017 U.S. Dist. LEXIS 42887	ACAN	Santiago Amaro v. The Continental Can Company	MEMORANDUM OPINION TANYA S. CHUTEAN, United States District Judge This case arises out of Plaintiff Henry Perry’s inability to obtain lifetime retiree health benefits after working for the International Brotherhood of Teamsters (IBT) for seventeen years. Defendants IBT and the Teamsters Benefit Trust (TBT) maintain that Plaintiff was not eligible for lifetime retiree health benefits because he did not meet the required term or age criteria. Plaintiff maintains that Defendants discriminated against him in violation of federal and state law and improperly denied him benefits. For the reasons stated below, the court will GRANT both Defendants’ motions to dismiss. The court will DENY IBT’s motion for sanctions. I. BACKGROUND Plaintiff Henry Perry, an African-American man, worked for the International Brotherhood of Teamsters (IBT) from 1995 to 2012; first as a project organizer, then as an officer of a local union in Memphis, Tennessee, and finally as an International Trustee. (Am. Compl. ¶ 14). He was appointed Trustee to complete the term of a previous Trustee who had retired. (Id. ¶ 22). After that term ended, Perry was reelected to a second term as Trustee, which ended on March 21, 2012. (Id. ¶ 28). Perry ran unsuccessfully for re-election again in the summer of 2011. (Id. ¶ 41). After losing the 2011 election, Perry applied for pension and lifetime retiree health benefits at IBT Headquarters in Washington, D.C. (Id. ¶ 43). He alleges that John Slatery, Director of the Benefit Trust Administration, informed him that at the end of his tejrm he would be six days short for eligibility for lifetime health benefits. (Id. ¶ 44). Perry claims that he subsequently spoke with the IBT’s General Secretary-Treasurer, Thomas Keegel, who assured him he would be retained for an additional six days in order to “bridge his time” so that he would be employed until age sixty-five and qualify for retiree health benefits. (Id. ¶ 46, 49). Percy states that, after several months, and believing he had been denied the health benefits, he sent a letter to IBT on April 6, 2012, asking for an explanation of the denial. (Id. ¶ 47). Three days later, he spoke to Slatery and IBT’s General Counsel and Assistant to the General President about his benefits situation, and expressed his desire to appeal the denial of benefits. (Id. ¶ 48). According to Perry, Slatery told him that he would “forward” his appeal to the Health and Welfare Board of IBT’s Benefit Trust. (Id. ¶ 50). Several days later, Perry received a letter dated April 11, 2012 from an IBT Benefits Manager informing him that he was ineligible for retiree health benefits because he had neither reached age sixty-five nor completed fifteen or more years of. service. (Id. ¶ 52; IBT Mot. to Dismiss Ex. 3). The letter stated that he could contest the determination by bringing the issue to the “Administrative Committee of the International Union’s health and welfare plan” by “informing] the Administrative Committee, in writing, of [his] intentions and presenting], in detail, all.of the arguments and all of the evidence which [he] believe[d] supports [his] position on this issue.” (IBT Mot. to Dismiss Ex. 3). The letter included the writer’s phone number and email address in case of questions. (Id.). 6 Perry then sent a letter to Slatery on August 1, 20Í2, describing, his belief that Slatery intended to submit his appeal to the Health and Welfare Board. (IBT Mot. to Dismiss Ex. 5). The next day, Perry’s then-lawyer Neil Bruntrager sent a letter to Slatery stating that he had advised Perry. that “the Teamsters ha[d] arbitrarily denied him a bridge of. 15 days” in an apparently “discriminatory and retaliatory” manner and “because he has taken positions contrary to leadership.” (IBT Mot. to Dismiss Ex. 6). Bruntrager stated that his “research and past dealings with the Teamsters have demonstrated that there "have been several instances where an individual’s employment has been bridged in order to meet' [the] gap period” and obtain health coverage. (Id.). Ferry obtained new counsel at some point between 2012 and 2013, who filed a Complaint on Perry’s behalf.in this court on March 21, 2014. (ECF No. 1 in Perry I, 118 F.Supp.3d 1). The Complaint, sought equitable relief under the Employee Retirement Income Security Act (ERISA) section 502(a)(1)(B), “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights tó' future benefits under the terms of the plan.” (Id.). The Complaint also alleged violations of the District of Columbia Wage Payment and Collection Law (DCWPCL). (Id.). Perry then filed an Amended Complaint alleging violations of the D.C. Human Rights Act and interference with benefits in violation of ERISA, as well as the original D.C. wage claims. (ECF No. 5 in 14-cv-484; IBT Mot. to Dismiss Ex. 12). In a second Amended Complaint, Perry alleged a count pursuant to ERISA section 502(a)(3) for failure to make plan disclosures, sought “reformation of the eligibility rule to set the lowest number of years of service of any employee similarly situated to Plaintiff to whom Defendant has awarded eligibility for retiree health care benefits,” alleged breach of fiduciary duty, and alleged D.C. wage law violations. (ECF No.. 18 in 14-cv-484; id. Ex. 18). On July 15, 2015, this court issued a memorandum opinion in Perry I addressing IBT’s motion to dismiss the second amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted. The court concluded that the obligation to disclose plan documents and to provide information about.review of benefits. determinations lies with the Plan, not the employer, and therefore Perry could not state a claim against IBT for failure to provide information, and that Perry was not entitled to reformation in order to “share in the benefit of [] violations” of the Plan terms that he alleged other “bridged” employees had received. The court also declined to exercise supplemental jurisdiction over any D.C. claims. Perry v. Int’l Bhd. of Teamsters, 118 F.Supp.3d 1, 7 (D.D.C. 2015). The court’s accompanying order stated, “For the reasons set forth in the accompanying Memorandum Opinion, it is hereby ORDERED that Defendant the International Brother of Teamsters’ motion (ECF No. 19) to dismiss the Second Amended Complaint is GRANTED; and it is further ORDERED that this case is dismissed without prejudice.” (14-CV-484, ECF No. 24). 1 Approximately one month after this court issued its opinion in Perry I, Plaintiffs counsel sent another letter regarding Perry’s benefits eligibility to the -Teamsters Benefit Trust (TBT), the administrator of the IBT's employee benefit plan. (Am. Compl. ¶ 67). Two days later, on August 14, 2015, Plaintiff filed the instant, suit (Perry II). Plaintiff received a response from TBT oh November 25, 2015, inform 7 ing him that he was sixteen days short of reaching age sixty five when his employment terminated, and that he was not eligible for vacation days to reach age sixty five because he was a Class III employee who was not eligible, -without written authorization, to accrue vacation. (Id. ¶68-69). 2 The letter stated: “If you disagree with the Trustees’ decision, you have the right to bring suit in federal court under 29 U.S.C. Section 1132(a) to challenge the Trustees’ decision. Please be advised that the International Plan provides that any lawsuit brought based on a claims or appeal denial will be untimely if filed more than twelve months after the date of this letter.”, (TBT Mot. to Dismiss, EOF No. 21, Paterson Decl. Ex. C). Perry’s Amended Complaint names both IBT and TBT as Defendants, seeks benefits under ERISA section 502(a)(1)(B), alleges unlawful interference and “discrimination” under ERISA section 510 and requests relief under section 502(a)(3), and includes a count for violation of the DCWPCL. (Id. ¶ 73-92). Defendants have moved separately to dismiss the complaint, and IBT has moved for sanctions against Plaintiff for filing a suit which IBT claims is precluded and time-barred. II. LEGAL STANDARD A. Rule 12(b)(6) A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim “tests the legal sufficiency of a complaint.” Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks and citation omitted). Although a plaintiff may survive a Rule 12(b)(6) motion even where “recovery is very remote and unlikely,” the facts alleged in the complaint “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks and citation omitted). Moreover, a pleading must offer more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). If the facts as alleged, which must be taken as true, fail to establish that a plaintiff has stated a claim upon which relief can be granted, the Rule 12(b)(6) motion must be granted. See, e.g., Am. Chem. Council, Inc. v. U.S. Dep’t of Health & Human Servs., 922 F.Supp.2d 56, 61 (D.D.C. 2013); Clay v. Howard Univ., 82 F.Supp.3d 426, 430 (D.D.C. 2015). B. Sanctions Federal Rule of Civil Procedure 11 requires that an attorney certify that any pleading or paper she files with the court is, “to the best of [her] knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:” (1) 8 not intended to harass or cause delay or unnecessary expense; (2) “warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;” (3) contains factual contentions that are either already supported by evidence or will likely be supported by evidence after discovery; and (4) contains denials of facts that are either warranted by the evidence or, where explicitly indicated, “reasonably based on belief or a lack of information,” Fed. R. Civ. Proc. 11(b). The court may impose sanctions based on a violation of Rule 11(b) on its own accord or based on a motion by a party. Fed. R. Civ. Proc. (ll)(e). But “once [a] district court finds that a pleading is not well grounded in fact, not warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, or is interposed for any improper purpose, ‘Rule 11 requires that sanctions of some sort be imposed.’” Rafferty v. NYNEX Corp., 60 F.3d 844, 852 (D.C. Cir. 1995) (citing Westmoreland v. CBS, Inc., 770 F.2d 1168, 1174-75 (D.C. Cir. 1985) (emphasis added)). Sanctions are not discretionary in this Circuit if a court finds an attorney has violated Rule 11. III. DISCUSSION Defendants IBT and TBT have both moved for dismissal under Rule 12(b)(6). IBT contends that the suit is barred by res judicata, that it is untimely, that it fails to state a claim upon which relief can be granted, and that it fails to state a Wage Act claim under the DCWPCL. 3 IBT further contends that the court should impose sanctions on Plaintiffs counsel for filing the suit. TBT argues'that it is not the right defendant for any of Plaintiffs claim, and that all claims against it should therefore be dismissed. A. Claims against IBT i. Res judicata The doctrine of res judicata comprises claim preclusion and issue preclusion, both of which IBT argues bar Perry’s suit, a. Claim preclusion Claim preclusion “precludes the parties or their privies from relitigating issues that were or could have been raised” in a prior action that resulted in a final judgment on the merits. Drake v. F.A.A., 291 F.3d 59, 66 (D.C. Cir. 2002). The doctrine applies where there is (1) a final judgment on the merits, (2) a claim by the same parties or their privies, and (3) a subsequent suit based on the same cause of action. I.A.M. Nat. Pension Fund, Ben. Plan A v. Indus. Gear Mfg. Co., 723 F.2d 944, 946-47 (D.C. Cir. 1983). Claims are based on the same cause of action when they arise out of the same “nucleus of facts,” Drake, 291 F.3d at 66, or involve any “rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.” Stanton v. D.C. Court of Appeals, 127 F.3d 72, 78 (D.C. Cir. 1997) (internal quotation marks and 9 citation omitted). New legal theories based on the same facts as an otherwise precluded claim are also barred. For purposes of IBT’s separate motion to dismiss, the parties, Perry and IBT, are the same as in Perry I. The cause of action is clearly the same: Plaintiff challenges IBT’s failure to take action—such as “bridging” him with an additional short-term hire or vacation days—that would have made him eligible for retiree healthcare. Perry alleges a nearly identical series of facts in both cases, which differ only by the inclusion of counsel’s letter to TBT in November 2015 after the court’s memorandum opinion in Perry I, and TBT’s subsequent response. Perry’s Amended Complaint does not allege any new cause of action based explicitly on IBT’s conduct after counsel sent the letter; rather, the claim is based on IBT’s conduct prior to the end of Perry’s term in 2012. Plaintiff cannot avoid any preclusive effect of Perry I by bringing legal theories under different sections of ERISA in Perry II which are based on the same facts. But there is some question as to the finality of the judgment in Perry L Dismissals pursuant to Rule 12(b)(6) are generally considered final judgments on the merits. Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (“The dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is a ‘judgment on the merits.’ ”) (internal quotation marks and citation omitted). Federal Rule of Civil Procedure 41(b) provides that where the court dismisses a claim on motion of the defendant, “[ujnless the dismissal oi’der states otherwise, a[n] [involuntary dismissal]—except one for lack of jurisdiction, improper venue, or failure to join a party under Rule 19—operates as an adjudication on the merits.” Fed. R. Civ. Proc. 41(b). The court’s memorandum opinion in Perry I concluded that Perry had “state[d] no claim under ERISA,” “dismisse[d] all federal claims,” and “decline[d] to exercise jurisdiction over” Plaintiffs D.C. claims. Perry I, 118 F.Supp.3d at 7. The accompanying order both granted IBT’s motion to dismiss the complaint, and dismissed the case without prejudice. Defendant contends that the Perry I order was intended to dismiss only the Wage Act claims without prejudice, and the ERISA claims with prejudice, but the order did not indicate any such differentiation. Defendant points instead to the language and substance of the memorandum opinion, implying that the court had no reason to dismiss the case without prejudice, having found, after two amendments of Perry’s Complaint, that he failed to state a claim for relief under ERISA. Because dismissals of a complaint for failure to state a claim are, by default, adjudications on the merits and with prejudice, a dismissal without prejudice pursuant to 12(b)(6) is often for a specific reason, such as to give the plaintiff an opportunity to amend his complaint. See, e.g., Kamelgard v. Macura, 585 F.3d 334, 339 (7th Cir. 2009) (“The usual exception” to the principle that “a dismissal on the merits is normally with prejudice and thus a bar to relitigation... is where the court gives the plaintiff an opportunity to cure the defect in his complaint by filing an amended complaint.”). This court, by dismissing the entire case without prejudice, left open the opportunity to re-file a new case based on the same claim, but without any explicit reason for doing so. The memorandum opinion did not identify any apparently curable defects in the case, such as that it was brought under the wrong statute, or not yet administratively exhausted. Defendant therefore argues that the dismissal order was without prejudice only as to Plaintiffs D.C. claims, and with prejudice as to his ERISA claims. 10 The court will stand by the plain language of the dismissal order. Based on the language of the order, Plaintiff could have reasonably believed not only that he could re-file, but also that the.dismissal was not appealable. 4 Plaintiff therefore may have forfeited any ability to appeal (the time for which has long run) because of his not unreasonable belief that judgment was not final and that he could file again in this court. To label the dismissal of Plaintiffs claim “without-prejudice,” preventing appeal, but then find a subsequent complaint precluded, would effectively prevent Plaintiff from- exercising some of his rights in litigating his claim. In order to prevent any prejudice to Plaintiffs ability to have his case heard that could result from.the admitted ambiguity of the court’s order, the court will treat the previous dismissal as one without prejudice., b. Issue preclusion Issue preclusion prevents a party from relitigating an issue of fact or law that has been “actually litigated and resolved in a valid court determination essential to the prior judgment,” even “in the context of a different claim.” Taylor v. Sturgell, 553 U.S. 880, 892, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008) (internal quotation marks and citation omitted). IBT contends that Count II of. Perry’s Amended Complaint, which alleges “unlawful interference pursuant to ERISA § 510,” should be barred by issue preclusion, which, like claim preclusion, requires a final judgment on the merits. B & B Hardware, Inc. v. Hargis Indus., Inc., — U.S. —, 135 S.Ct. 1293, 1303, 191 L.Ed.2d 222 (2015). (“the general rule is that ‘[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between, the parties...,’”) (quoting Restatement (Second) of Judgments § 27 (1982)). Because the court has determined that the dismissal in Perry I was without prejudice and did not operate as. an adjudication on the merits, issue preclusion is unavailable. ii. Timeliness The parties agree that the applicable statute of limitations for Perry’s ERISA-section 510 claim is one year, as taken from the District of Columbia Human Rights Act (DCHRA). (IBT Mot. to. Dismiss at 19; P. Opp., ECF No, 16 at 8-9). IBT argues that any potential section 510 claim accrued "no later than April 6, 2012, the date that [Perry] contends he appealed the denial of his retiree health benefits." (IBT ’ Mot. to Dismiss at 19). Plaintiffs Amended Complaint alleged that the statute of limitations “restarted.on.November 25,.2015,” when Plaintiff received a letter from TBT explaining the denial of his benefits and indicating that any appeal must be brought within one year. (Am. Compl. ¶ 71-72). IBT asserts that action by the TBT, which is a separate and distinct entity from IBT, cannot restart the clock for a claim against IBT. 5 Plaintiff argues that DCHRA’s “discovery rule” allowing for filing of a claim “within one year after the time that the 11 plaintiff knew or should have known that the employment action was undertaken for an unlawful purpose,” D.C. Code § 2-1408.16(a), means that the- statute of limitations for the section 610 claim began to run upon receipt of TBT’s letter. Plaintiff argues that his claim in this case is timely because, while he was aware of his benefits denial earlier, he was not aware of the specific reason for the denial—which he characterizes as “the misclassification of him as a Class III employee”—-until November 2016. (Opp. at 9). But Plaintiff filed this suit in August 2016, prior to receiving the November letter from TBT. Plaintiffs invocation of the discovery rule appears to be an attempt to have it both ways: to claim that he had not “discovered” the “cause in fact” of his alleged injury until November, but knew enough. about the claim to file the lawsuit in August; while denying that he knew enough to file suit prior to August. Plaintiffs argument cannot succeed: either he knew the basis for this suit in August, in which case the statute of limitations had begun to run far earlier, as he alleges no other facts occurring between the denial letter of April 11, 2012 and August 2016 that implicate the statute of limitations or the discovery rule; or he did not know until November 2015, in which case the filing of this suit in August was either frivolous or prescient. The very case Plaintiff references to explain the D.C. discovery rule demonstrates that the discovery rule does not apply. In Brown v. Nat’l Acad. of Scis., 844 A.2d 1113, 1119 (D.C. 2004), the District of Columbia Court of Appeals found that the plaintiff could not invoke the discovery rule regarding when she heard a statement by another employee evincing discrimination towards her—because prior to that, “at the time she was given-her termination letter... it was her conclusion that she was being terminated for impermissible discriminatory reasons.” The court distinguished the case from one in which an employee believed conduct toward him was lawful until he discovered information that gave him reason to believe it was not. Id. (citing Doe v. Medlantic Health Care Grp., Inc., 814 A.2d 939 (D.C. 2003)). Here, Plaintiffs counsel’s August 2012 letter to IBT demonstrates that Plaintiff'already believed that the IBT’s failure to bridge him to qualify for benefits was unlawful; the discovery of information consistent with that theory therefore does not start the clock. The instant case resembles the facts of Brown rather than Doe, the discovery rule is not applicable and the statute of limitations did not begin to run in November 2015. 6 Plaintiff also asks the court to apply the doctrine of equitable tolling and stop the clock during the time period in which Plaintiff was engaged in exhausting his administrative remedies. Plaintiff suggests that he interpreted the' court’s dismissal order in Perry I as requiring Plaintiff to exhaust administrative avenues, prompting him to send the letter to TBT. (Opp. at 13). But tolling the time from the court’s order in Perry I to the November 2015 letter would only save Plaintiff approximately four months, and would not solve his timeliness problem. Plaintiff argues that Perry’s “long and tedious struggle... regarding his 'efforts to get his appeal heard by the correct body” would justify equitably tolling the time between the April 2012 letter and the filing of suit. (“Notice” at 15, ECF No. 23). Plaintiffs allegations in Perry I and here include that he believed IBT was helping him get an appeal of his benefits denial to the 12 appropriate forum for some time between 2012 and 2015. The question whether administrative exhaustion is required for ERISA section 510 claims, such that equitable tolling would be appropriate, has not been addressed by the D.C. Circuit. Other Circuits are split on the issue. Compare Smith v. Sydnor, 184 F.3d 356, 364 (4th Cir. 1999) (exhaustion not required for a statutory ERISA claim); Richards v. Gen. Motors Corp., 991 F.2d 1227, 1236 (6th Cir. 1993) (overturning district court decision that had required exhaustion of section 510 claim); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1205 (10th Cir. 1990) (“a plaintiff need not exhaust administrative remedies prior to bringing an action under § 510 of ERISA”); Berger v. Edgewater Steel Co., 911 F.2d 911, 916 n.4 (3d Cir. 1990) (exhaustion not required for § 510 claim); and Amaro v. Cont'l Can Co., 724 F.2d 747, 752 (9th Cir. 1984) (exhaustion not required for § 510 claim); with Counts v. Am. Gen. Life & Acc. Ins. Co., 111 F.3d 105, 109 (11th Cir. 1997) (“We have consistently stated that the exhaustion requirement applies both to actions to enforce a statutory right under ERISA and to actions brought to recover benefits under a plan”) and Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir. 1996) (requiring exhaustion of a § 510 claim). The question before this court is not whether exhaustion should be required for a section 510 claim, but whether the Plaintiff should benefit from equitable tolling. If he reasonably believed that exhaustion was necessary, regardless of whether it actually was, Plaintiff would have grounds for a favorable exercise of equitable tolling. Although the clear majority of Circuits have not required exhaustion of a section 510 claim, the absence of direct precedent in this Circuit suggests that Plaintiffs belief that exhaustion was required was not unreasonable. Plaintiffs alleged inability to find the right forum for his appeal is less credible. Not only did Plaintiffs counsel state in a June 7, 2013 letter to Slatery that Plaintiff was “not filing an appeal,” (Am. Compl. ¶ 63), but Plaintiffs original denial letter in April 2012 contained a contact number and email address through which Plaintiff could contact the IBT’s benefits manager if he had any questions. Plaintiff complains that the April 11 letter from the benefits manager “did not identify the members of the Administrative Committee or where to send the appeal,” (Am. Compl. ¶ 53), but does not allege that he ever contacted the writer to ask for that information. Plaintiffs apparent steadfast, but unsubstantiated, belief that Slatery was going to “forward” his appeal—based upon which he argues the court should equitably toll the statute of limitations for the Perry II suit because Plaintiff believed he was pursuing his administrative remedies—is not enough. The court declines to exercise equitable tolling, and finds the Complaint untimely. iii. Failure to state a claim Although the court finds that this suit is not timely, it will also address IBT’s argument that dismissal is warranted under Rule 12(b)(6) because the Complaint fails to state a claim upon which relief can be granted. IBT argues that Plaintiffs section 510 claim is “essentially based on the decision of the IBT to not rehire him in some other capacity for six (6) days after his term of elective office expired and he retired.” (IBT Mot. to Dismiss at 20). IBT argues that such hiring decisions are not covered by section 510. Plaintiff responds, and the,court agrees, that Plaintiffs claim is not comparable to a failure to hire. Plaintiff does not allege that IBT acted unlawfully after his term expired, but rather that IBT did not treat him appropriately as an employee by failing to “bridge” him. Additionally, it appears from the rec 13 ord that there was a procedure by which IBT could have “bridged” Plaintiff, with written authorization to classify him as a Class II employee eligible to accrue vacation. (See EOF No. 21, Paterson Decl. Ex. C. (“An elected... International Trustee-International Representative who also holds a senior staff position with the International Union and who does not hold a position with an IBT affiliate or other employer that provides for vacation and sick leave, may be classified as a Class II employer upon the written approval of the General President and.General Secretary-Treasurer or their designee”); see also Rule 11 Letter, ECF No. 25-2 Ex. 1 at 35, (Plaintiffs deposition testimony in an unrelated proceeding explaining that he was not otherwise receiving vacation time from the Local during the last two years of his employment.)). But Plaintiffs claim has a larger problem: the meaning of “discriminate” in ERISA’s section 510, which reads in relevant part: It shall be unlawful for any person to discharge... or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan... or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan. 29 U.S.C. § 1140. In other words, “[section 510 of ERISA guarantees that no employee will be terminated where the purpose of the discharge is the interference with the employee’s pension rights.” May v. Shuttle, Inc., 129 F.3d 165, 169 (D.C. Cir. 1997). The discrimination or interference to which the statute refers is conduct by an employer that discriminates against an employee in order to prevent the employee from attaining benefits, or interferes with an employee’s ability to attain benefits. “Discrimination” in ERISA is not discrimination on the basis of race or sex or religion, but rather discrimination against employees exercising their rights under the statute. Perry’s Amended Complaint alleges that IBT “discriminated against [him] by treating him differently than similarly situated employees as to benefit coverage,” and “treated [him] differently from other employees as to access to benefits based upon his race ” (Am. Compl. ¶ 82, 83). An allegation that IBT failed to “bridge” Perry in order to qualify for benefits, but did “bridge” other similarly situated Caucasian employees, might state a claim under Title VII of the Civil Rights Act, but it does not state a claim under ERISA, which does not provide any remedy for racial discrimination in the workplace. To state a claim of interference or discrimination under ERISA, Perry would need to have alleged that IBT discharged him in order to prevent him from attaining benefits. But Perry was not discharged, his term expired. Therefore, a properly pleaded interference claim would also not have survived dismissal under Rule 12(b)(6). 7 14 iv. Wage Act claims The court declined to exercise supplemental jurisdiction over Perry’s D.C. Wage Act claims in Perry I. In the interest-of finality, judicial economy, and the Plaintiffs ability to have his D.C. Wage Act claims considered on the merits at all, the court will exercise supplemental jurisdiction here and address the pendent state-law claims. The D.C. Circuit has explained that, pursuant to 28 U.S.C. § 1367, “[a] district court may choose to retain jurisdiction over, or dismiss, pendent state law claims after federal claims are dismissed.” Shek oyan v. Sibley Int'l, 409 F.3d 414, 423 (D.C. Cir. 2005). While “in the usual case in which all federal-law claims are dismissed before trial, the balance of factors 'to be considered under the pendent jurisdiction doctrine—judicial economy, convenience, fairness, and comity—will point toward declining to exercise jurisdiction over the remaining state-law claims,” id. at 424, the court finds that the lengthy history of litigation in this case—which deals with facts that occurred six years ago and which was originally filed three years ago—makes it an unusual one. IBT argues that Perry is not covered by the DCWPCL and that he fails to plead facts' that state a Wage Act claim. 8 The statute protects “employees,” defined by both prior versions of the statute that were in effect until February 26, 2015 as “any person suffered or permitted to work by an employer except any person employed in a bona fide executive, administrative, or professional capacity, (as such terms are defined and delimited by regulations promulgated by the Council of the District of Columbia).” D.C. Code § 32-1301 (1956; 2013). The regulation defines someone in. a “bona, fide administrative capacity” as an employee who does office or non-manual work “directly related to management policies or general business operations,” who has “authority to make important decisions;” who regularly assists executive or administrative employees; who does not spend more than 20 percent of the workweek on work that is not administrative; and who is paid at least $155 per week. D.C. Mun, Reg. tit. 7, § 999.2 (2014), The regulation also contains a “[s]pecial proviso” for “high salaried administrative employees” that states: [A]n administrative employee who is paid on a salary or fee basis at a rate of at least $250 a week is exempt if (a) his or her primary duty consists of responsible office or non manual work directly related to management policies or general business operations or (b) responsible work in the administration of a school system or educational establishment or institution or department or subdivision thereof that is directly related to the academic instruction or training; and such primary duty includes work requiring the exercise of discretion and independent judgment. Id. IBT maintains that the role of a Trustee is “well-established” and clearly satisfies the exemption requirements. Plaintiff responds that “his primary duty did not include work directly related to [IBT’s] management policies or general business operations.” (Opp. at 17). The court finds that Perry’s allegations that he did not conduct work related to IBT’s general 15 business operations as an- International Trustee do not pass the Iqbal plausibility-threshold. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”). Given the usual meaning of the word “trustee,” which the Oxford English Dictionary defines as, inter alia, “any of group of people appointed to manage the affairs of an institution,” Oxford, II The New Shorter Oxford English Dictionary 3411 (4th ed. 1993), the court finds it implausible that Perry did not perform tasks meeting the regulatory definition of an “administrative capacity.” Perry has not thoroughly explained his job responsibilities as a Trustee (beyond stating “[h]is primary duties required him to address the issues with his union local or address issues as assigned by the General Presi-. dent,” (Compl. ¶ 24)); he has only conclu-sorily stated that he did not perform the job of an administrative-capacity employee. The IBT Constitution adopted by the 27th International Convention, on which Plaintiff’s Amended Complaint alleges he took his oath, (Am. Compl.' ¶ 23), states: There shall be an Audit Committee consisting of the International Trustees and an independent accounting professional selected by the Trustees with the approval of the General Executive Board... The Audit Committee shall be re-' sponsible for reviewing the International Union’s -books and records on a quarterly basis... The Audit Committee shall be responsible for reviewing the work and duties of the Union’s Internal Audit Department... The Audit Committee shall investigate any complaints involving the International Union’s financial matters or other alleged violations of the Union’s internal code of conduct and shall report its findings to the General Executive Board. (IBT Mot. to Dismiss Ex. 2 at 62-64). 9 While an employee’s actual job duties might ordinarily be a fact question inappropriate for resolution at the motion to dismiss stage, that is not the case here, where there exists a job description that demonstrates that at least one of Perry’s “primary duties” met the function of an administrative capacity employee. Plaintiffs claim that quarterly audits were not a significant enough part of Perry’s role as International Trustee to constitute a “primary duty” is not plausible. In light of Plaintiff’s exemption from the statute as an administrative employee, the court finds Plaintiff has not stated a claim under the DCWPCL. Moreover, Plaintiff does not allege that he was actually entitled to vacation pay; he alleges that he should have been entitled to vacation pay. A DCWPCL claim must plead facts demonstrating that “(1) prior to performance of the work, there was an agreement entitling the employee to accumulate leave, and (2) as of the termination date he or she had accumulated the claimed number of days.” Nat’l Rifle Ass’n v. Ailes, 428 A.2d 816, 821 (D.C. 1981). Plaintiff has not pleaded the existence of any such agreement. Plaintiff states that “[s]everal members of the General Executive Board who served with Plaintiff who met [an] exception were paid vacation pay when they retired.” (Am. 16 Compl. ¶27) (emphasis added). Alleging that there was a rule, pursuant to an exception from which some other employees received vacation pay, does not establish that Plaintiff was entitled to vacation pay within the meaning of the DCWPCL. B. Claims against TBT Perry named TBT as a Defendant for the first time here in Perry II, only as to Count I under section 502(a)(1)(B). TBT contends that “Plaintiffs case is not an ERISA case” but rather a “dispute with... IBT.” (TBT Mot. to Dismiss at 1). The court agrees. The basis of Perry’s Complaint is that IBT failed to “bridge” him sufficient time to qualify him for retiree health coverage. Perry cannot sue TBT to enforce the terms of the Plan to obtain health benefits because Perry acknowledges that he was never eligible under the terms of the Plan. While this court certainly has jurisdiction to hear the claim, particularly in light of TBT’s November 25 appeal letter’s statement that Perry could file suit under ERISA section 502, Perry’s allegations necessarily fail to state a section 502(a)(1)(B) claim against TBT. ERISA’s role is to “protect contractually defined benefits,” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), and “it countenances only such relief as will enforce ‘the terms of the plan’.” US Airways, Inc. v. McCutchen, 569 U.S. 88, 133 S.Ct. 1537, 1548, 185 L.Ed.2d 654 (2013). ERISA “does not... authorize appropriate equitable relief at large.” Mertens v. Hewitt Assocs., 508 U.S. 248, 253, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (internal quotation marks omitted). Plaintiff seeks relief that is simply not authorized by ERISA. TBT argues that it cannot be held to a promise for benefits from an IBT employer or manager. See, e.g., Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032, 1041 (2d Cir. 1985) (abrogated on other grounds) (“representations made... by a Union representative are insufficient to support a claim of estoppel against the Plan”). Under the circumstances presented here, the court agrees. Perry has not alleged any claim for equitable remedies under section 502(a)(3) against TBT, and such remedies are in fact not available for violations of section 502(a)(1)(B), which is the only count Perry asserts against TBT. Any IBT promises to “bridge” Plaintiff do not give him a right to “reformation” of the Plan under section 502(a)(1)(B), to be exercised against TBT, requiring it to conform to such promises. Generally, courts have suggested that reformation in the ERISA context may only be available where there is a conflict between a Summary Plan Description and the Plan Document’s terms, leading to a mistaken belief as to the Plan terms, or some other type of mistake or fraud. See CIGNA Corp. v. Amara, 563 U.S. 421, 440-41, 131 S.Ct. 1866, 179 L.Ed.2d 843 (2011) (discussing reformation as a possible equitable remedy available under section 502(a)(3) where employees had been affirmatively misled); Skinner v. Northrop Grumman Ret. Plan B, 673 F.3d 1162, 1166 (9th Cir. 2012) (denying reformation.as 502(a)(3) remedy absent fraud or mistake); McC ravy v. Metro. Life Ins. Co., 690 F.3d 176, 183 (4th Cir. 2012) (finding equitable remedies available to plaintiff who sued for breach of fiduciary duty after Plan sponsor continued to accept premiums for plaintiffs daughter, despite her actual ineligibility for coverage for life insurance through plaintiff, and then refused plaintiffs claim for death benefits). Reformation has not been recognized as a general remedy where a participant’s request for benefits arises not out of any affirmatively misleading representations by the Plan or employer, but out of a belief that other employees have received benefits not 17 in conformity with established Plan documents. While Plaintiff attempts to plead the existence of a rule allowing for “bridging” that was within TBT’s purview—claiming that “Plaintiff is seeking to enforce the TBT’s interpretation of both the written and unwritten rule that the Trustees of the TBT have applied to other similarly situated participants”—the court remains persuaded that Plaintiff seeks enforcement of what he perceives to be an exception to the Plan terms, which is not available under ERISA. 10 Plaintiff has not alleged any fraud, mistake, or affirmative misrepresentation that would implicate equitable remedies under section 502(a)(3); he has only referenced equitable relief under 502(a)(3) in the context of his section 510 “discrimination” claim. C. Sanctions IBT asks the court to impose Rule 11 sanctions, in the form of attorney fees and costs on Plaintiff and his counsel for filing a complaint “after having knowledge of information that establishes that [Plaintiff] lacked any reasonable basis for filing or maintaining the lawsuit.” (Mot. for Sanctions, ECF No. 25 at 1). Rule 11(c)(2) provides that a party seeking sanctions shall serve notice on their opposition of their intent to ask the court for sanctions, and give the opposing party twenty-one days to withdraw the “challenged paper, claim, defense, contention, or denial.” Fed. R. Civ. Proc. 11(c)(2). IBT sent Rule 11 notice to Perry, resulting in a series of confusing filings, which the court will briefly describe. IBT’s Rule 11 letter contained a number of exhibits that IBT asserts demonstrate that: (1) Perry’s ERISA claim in Perry II is barred by the statute of limitations; (2) IBT did not engage in discriminatory conduct prohibited by section 510; (3) Perry is not entitled to vacation pay; and (4) Perry and his counsel were aware of all of that information prior to filing suit. IBT sent the Rule 11 letter on February 10, 2016. (Mot. for Sanctions, ECF No. 25-2). Plaintiff appears to have interpreted the Rule 11 letter as objecting not to the filing of the entire suit, but to a specific factual claim made in Plaintiffs opposition to TBT’s motion to dismiss: that Plaintiff only became aware of his Class III status upon receipt of the November 25, 2015 letter. 11 Plaintiff then filed a “Notice of Correction” (ECF No. 23), attempting to clarify that although Plaintiff knew of his Class III status earlier, he. did not know until the November 25 letter that his Class III status was the reason for his inability to accrue vacation pay. IBT then filed a motion to strike Plaintiffs “Correction,” after which Plaintiff filed an opposition and IBT filed a reply. (ECF Nos. 24, 29, 29). IBT argued in its motion to strike that Plaintiffs “Correction” was actually an “improper attempt to further amend his amended complaint and submit new argument in support of his opposition to the IBT’s Motion without first seeking leave of court to do so.” (Mot. to Strike at 1). The day after IBT’s motion to strike was filed, Plaintiff filed a motion for leave to file an amended opposition, which IBT opposed and Plaintiff then responded with a reply. 18 (ECF Nos. 27, 31, 33). IBT then filed its motion for sanctions. As an initial matter, thé court notes that Plaintiffs attempted correction of its contention regarding when he knew about his Class III status or when he knew the consequences of his Class III status is immaterial to the court’s dismissal of the Complaint. The facts pleaded would have relevance only to preclusion, on which the court found in Plaintiffs favor, or timeliness, and the court explained previously that Perry’s discovery of the consequences of his Class III status would not implicate the discovery rule. See supra note 6. IBT’s motion to strike and Plaintiffs motion to amend his opposition will accordingly be denied as moot. IBT argues that Perry’s section 510 claim is frivolous, because his previous counsel had already called the denial of benefits “discriminatory” as early as August 12, meaning that the Perry I claim, three years later, was clearly time-barred. But, although the court declined to exercise equitable tolling in. Plaintiffs favor, the argument that equitable tolling could apply was not so unreasonable as to warrant sanctions for the filing of an unquestionably untimely suit. The court has found no evidence of bad faith on Plaintiffs part. IBT also argues that Plaintiffs attempt to fit his “discrimination” claim, regarding IBT’s failure’ to “bridge” him, into ERISA’s section 510 was without basis. Although the court finds the allegations fail to state a claim and dismissal is warranted under Rule 12(b)(6), the court does not find the claim rises to the level of frivolousness that would constitute' sanc-tionable conduct. Plaintiffs are entitled to argue that the law should be extended, modified, or reversed, and are free to ask the court to establish new law. Plaintiff’s claim, construed, as an argument that ERISA should be interpreted to require employers and/or Plan sponsors to main-tarn consistent practices across employees, and to prevent employers from engaging in favoritism towards certain employees by doing so outside the Plan terms, is not unreasonable. IBT also claims the DCWPCL claim is frivolous, but' the court finds sufficient precedent suggesting Wage Act coverage is a fact issue to preclude sanctions. That the court is dismissing the claim does hot alone make it' sanctionable. IBT points the court to Plaintiffs deposition testimony in an unrelated proceeding, in which he described his work as an International Trustee as follows: Basically, we audit the records, where we have quarterly audit meetings each year, for the year... the duties that I did was we would go over the finances of the International, audit finances every quarter, go through them, and detail all of that, along with other assignments that I may have prior to that. (Rule 11 Letter, ECF No. 25-2 Ex. 1 at 7). Although the court finds Plaintiffs allegation that his job as a trustee does not meet the administrative capacity exemption to the DCWPCL implausible, it is not so far from plausible as to be baseless and sanc-tionable; The exemption turns on Plaintiffs “primary duty;” rather than on whether Plaintiff conducted any work at all related to general business operations. Therefore, the court finds -that sanctions against Plaintiff are not warranted. IV. CONCLUSION For the foregoing reasons, the court will dismiss the Complaint as to all counts with prejudice as to both Defendants. A corresponding final, appealable order will issue separately. 1. The court takes judicial notice of all relevant filings from Perry I. 2. The court is perplexed by TBT’s statement in the letter that "[e]ven if Mr. Perry had been able to accrue vacation, he would have not have had enough accrued vacation to meet any of the retiree benefit eligibility tests because: With only six plus years of IBT service, to qualify for retiree coverage he would have needed to reach age sixty-five when his active coverage ended; as noted above, he was only 64.” The court understands Perry’s argument to be that he was somewhere between six and sixteen days short of his sixty-fifth birthday at retirement; therefore, had he been credited additional days as vacation days, he would have technically reached age sixty-five while still employed. Ultimately, however, resolution of that fact does not change the court’s analysis. 3. IBT also asks the court to treat Perry's original complaint as conceded and dismiss the amended complaint, which was filed more than 21 days after IBT filed its motion to dismiss, without leave of the court. The court granted an extension for Perry to file an opposition to Defendant’s motion to dismiss, but Perry did not request an extension to file an amended complaint. Plaintiff requests that the court exercise discretion and extend the time to file the amended complaint under Federal Rule of Civil Procedure 6(b)(1)(B); Defendant responds that Plaintiff has not demonstrated “excusable neglect” as required by that subsection, nor filed a motion requesting the extension. However, in the interest of reaching the merits, the court will exercise its discretion and tréat the amended complaint as operative for purposes of this opinion. 4. Perry did file a Notice of Appeal with the D.C. Circuit, but then voluntarily dismissed the appeal within several months. See 118 F.Supp.3d 1, ECF Nos. 25, 27. 5. IBT also points out that Perry filed a discrimination claim with the District of Columbia Office of Human Rights, which determined the claim was untimely based on the April 6, 2012 letter Plaintiff sent to IBT, which started the one-year statute of limitations. (IBT Mpt. to Dismiss Ex. 5). The court notes that Perry's claim with the Office of Human Rights was not an ERISA claim, but does appear to be based on the same facts. However, the Office of Human Rights' timeliness determination is not binding on this court. 6. Defendant also contests Plaintiff’s representation that the November 2015 letter resulted in his “discovery” of his classification as a Class III employee. The court need not address this point because it finds the discovery rule inapplicable on other grounds, 7. The court notes that Perry's Amended Complaint listed both a section 510 count, “Count II,” and a "Count I” alleging wrongful denial of benefits under section 502(a)(1)(B), which allows a beneficiary to sue "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). IBT’s motion to dismiss argues that both counts fail to state a claim under Rule 12(b)(6); Plaintiffs opposition only addresses the section 510 claim brought under section 502(a)(3). The court finds Plaintiff has conceded the section 502(a)(1)(B) claim. Further, Plaintiff does not allege facts demonstrating any entitlement under the plan terms; in fact, his claim that he should have been "bridged” impliedly concedes that he was not eligible under the plan terms as they stood. His attempt to enforce benefits "due to him under the Plan... as modified by the TBT's Plan exception," (Am. Compl. ¶ 78), 14 does not state a section 502(a)(1)(B) claim, since it is the plan terms that control. See CIGNA Corp. v. Amara, 563 U.S. 421, 436, 131 S.Ct. 1866, 179 L.Ed.2d 843 (2011) (explaining that district courts are not permitted to alter plan terms for § 1132(a)(2) claims). Perry's section 502(a)(1)(B) claim would therefore fail even if not conceded. 8. Plaintiff’s opposition specifically argues that the DCWPCL claim is timely. Because IBT did not contend that the DCWPCL claim is not timely, the court will assume timeliness. 9. The court considers exhibits provided by Defendants that are referenced in the Complaint, including the IBT Constitution, the Plan document, and correspondence between Perry and Defendants, without converting the motion to one for summary judgment. See, e.g., Robinson v. D.C. Hous. Auth., 660 F.Supp.2d 6, 10 n.5 (D.D.C. 2009) (courts can consider documents that are referenced in the complaint and central to the plaintiff’s claims without converting). 10. Because Plaintiff, as he acknowledges, has not alleged a section 510 claim against TBT, the court will not address Plaintiff's five pages of argument in opposition explaining why a section 510 claim is available. (Opposition to TBT Mot. to dismiss at 7-11). It appears Plaintiff seeks to augment his opposition to IBT’s motion to dismiss, which is procedurally inappropriate here. 11. Plaintiffs belief that the letter related to Plaintiff's opposition brief appears to arise out of the timing: IBT sent the Rule 11 letter after Plaintiff filed his opposition and after IBT filed its reply.	CONFLICT_NOTED
724 F.2d 753	781 F.2d 692	D	Balelo v. Baldrige	PREGERSON, Circuit Judge. The district court granted defendants’ motion to suppress evidence seized by the Department of Commerce in a search of packages deposited in the mail by defendants’ company for overseas shipment. On appeal the government contends that the court erred in holding that: (1) the search was not a valid “border search;” and, (2) the search was not within the “good faith” exception to the fourth amendment’s exclusionary rule under United States v. Leon, - U.S. -, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984). We affirm. BACKGROUND In 1982, the Department of Commerce (“Commerce”) started to investigate Western Engineers, a Sacramento company owned by defendants George and Theodore Whiting. Commerce had learned that Western Engineers was exporting electronic components from the United States in violation of the Export Administration Act 694 of 1979 (“EAA”). 1 Brooks Ohlson, an agent of the Department of Commerce, Office of Export Enforcement (“OEE”), 2 who had been with the OEE for two months, was assigned to the matter. By January 1983, OEE agent Ohlson determined that the Whitings were regularly shipping electronic components from Elk Grove, California to Switzerland without the export licenses required by the EAA. He then decided to inspect outgoing packages at the Elk Grove Post Office to determine if they contained licensable goods. The local postal authorities advised agent Ohlson that he needed a warrant to search the packages. Ohlson obtained this warrant from a Federal Magistrate based on Ohlson’s affidavit which simply cited Commerce regulations. Ohlson then searched several packages mailed by Western Engineers and found assorted microcircuits and electronic components. Ohlson placed three of these packages in the Postal Inspector’s vault in Sacramento. On January 14, 1983, Ohlson obtained a second warrant and seized several more packages. Based on evidence obtained from these searches, Ohlson (along with other Commerce agents and a Federal Marshal) sought and obtained from a Federal Magistrate a search warrant for the Western Engineers business premises. A search there disclosed business records indicating illegal export of licensable commodities. Ohlson seized these records and at that time informed the Whitings of his previous seizures of packages mailed at the Elk Grove post office. A federal grand jury indicted the Whitings for conspiracy, unlawful export of high technology electronic parts, and false statements to a federal agency. The Whitings moved the district court to suppress the evidence seized at the post office and at their business premises, contending that the Elk Grove package search warrants were invalidly issued and the business premises search warrant was overbroad. 3 The government argued before the district court that the package search warrants were valid and, even if the warrants were invalid, the search at the post office was either a valid border search or one permissible under the “good-faith” exception to the fourth amendment’s exclusionary rule stated in United States v. Leon, - U.S. -, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984). 4 The government stipulated at oral argument on the motion to suppress that if the post office package searches were invalid, the business premises search was also invalid under the “fruit of the poisonous tree” doctrine. 5 The district court held that the package search warrants were invalid because OEE agent Ohlson was not a “law enforcement officer” authorized to obtain a search warrant under Fed.R.Crim.P. 41(a). 6 The court 695 further held that neither the EAA nor regulations promulgated thereunder authorized agent Ohlson to conduct a border search. Finally, the court ruled that the agent had not acted in “good faith” under Leon. Because of the government’s stipulation, the court also invalidated the search of the business premises. The district court therefore granted defendants’ motion to suppress. On appeal, the government no longer contends that the package search warrants were valid; accordingly, both parties now treat the searches of the packages at the post office as “warrantless” searches. ANALYSIS A. Border Search. 1. Standard of Review. A district court’s ruling on the validity of a border search is reviewed de novo. United States v. Cardona, 769 F.2d 625, 628 (9th Cir.1985). 2. The “Border Search ” Exception. Searches at international borders require neither a warrant nor probable cause. United States v. Ramsey, 431 U.S. 606, 616-17, 97 S.Ct. 1972, 1978-79, 52 L.Ed.2d 617 (1976); United States v. Soto-Soto, 598 F.2d 545, 548 (9th Cir.1979). Based on dicta in California Bankers Association. v. Schultz, 416 U.S. 21, 63, 94 S.Ct. 1494, 1518, 39 L.Ed.2d 812 (1974), this circuit has extended the “border search” doctrine to searches of persons and things exiting the United States. See United States v. Duncan, 693 F.2d 971, 977 (9th Cir.1982), cert. denied, 461 U.S. 961, 103 S.Ct. 2436, 77 L.Ed.2d 1321 (1983); United States v. Stanley, 545 F.2d 661, 665-67 (9th Cir.1976), cert. denied, 436 U.S. 917, 98 S.Ct. 2261, 56 L.Ed.2d 757 (1978). This includes search and seizure of mail leaving the country. Cardona, 769 F.2d 625, 629. 3.Existence of Actual Border Not Required. Elk Grove, located in the Eastern District of California, is clearly not an international border. A “border search,” however, need not take place at the actual border. See Almeida-Sanchez v. United States, 413 U.S. 266, 272-73, 93 S.Ct. 2535, 2539, 37 L.Ed.2d 596 (1973). Two separate doctrines extend border searches to points within the international boundary of the United States. The “functional equivalent” doctrine permits border searches at places other than the actual border where travelers functionally enter or exit the country. Almeida-Sanchez, 413 U.S. at 273, 93 S.Ct. at 2539; United States v. Duncan, 693 F.2d at 977. In addition, the “extended border” doctrine allows border searches to be conducted before or after the border is actually crossed. See, e.g., United States v. Caicedo-Guarnizo, 723 F.2d 1420, 1422 (9th Cir.1984). “Extended border” searches are thought to be more intrusive on an individual’s legitimate expectation of privacy than searches at the actual border. Accordingly, such searches must be justified by “reasonable suspicion” that the subject of the search was involved in criminal activity. Cardona, 769 F.2d at 628-29; United States v. Alfonso, 759 F.2d 728, 734 (9th Cir.1985). While the distinction between the two doctrines is often blurred, Cardona, 769 F.2d at 628, the “extended border” doctrine is more appropriate in cases like the instant case where the search occurred long before the item searched actually crossed the border. Id. at 628-29 (extended border doctrine applies where package searched 3,000 miles from border and twenty-four hours before package was to leave the country); cf. Alfonso, 759 F.2d at 734 (search of boat some thirty-six hours after crossing border upheld under extended border analysis). In Cardona, this court applied the “extended border” doctrine to a search similar 696 to the one involved in the instant case. There, a United States Customs agent searched a parcel delivered to Federal Express in Bell, California for eventual delivery to Colombia. The court upheld the search under the extended border doctrine, noting that “[w]hen the parcel was placed in the custody of Federal Express, it was all but certain that the parcel’s condition would remain unchanged until it crossed the United States border.” 769 F.2d at 629. The court also noted that reports of criminal activity and the agent’s observations established reasonable suspicion that the parcels contained illegally exported items. Id. This case is essentially indistinguishable from Cardona. Although Elk Grove is far from an international border 7 and the packages shipped by Western Engineers would go through two domestic post offices before leaving the country for Switzerland, the search of the packages, under the extended border doctrine as enunciated in Cardona, occurred at a “border.” 8 Further, agent Ohlson had reasonable suspicion, based on reports of illegal shipments and his own investigation, that the Whitings were shipping goods in violation of the EAA. The district court therefore correctly ruled that the search occurred at the border. 4. Authority to Conduct Warrantless Border Searches. A warrantless border search is valid only if conducted by officials specifically authorized to conduct such searches. United States v. Soto-Soto, 598 F.2d 545, 548-50 (9th Cir.1979). This court has upheld warrantless border searches conducted by the United States Customs Service (“Customs”), Border Patrol, and Coast Guard. 9 Id. at 549. A thorough analysis of the EAA and its administrative regulations is necessary to determine whether OEE agents such as Ohlson are similarly authorized to conduct warrantless border searches. The EAA itself does not expressly provide search and seizure authority. 10 The search and seizure provisions relevant to this case are found in regulations promulgated under EAA by the Secretary of Commerce (“export regulations”). 15 C.F.R. § 386.8(a), entitled “Delegation of authority to customs offices and postmasters”, provides: Customs offices and postmasters, including all customs and post office offi- 697 ciáis, are authorized and directed to take appropriate action to assure observance of the provisions of the Export Administration Regulations and of general and validated licenses issued thereunder. This includes, but is not limited to inspection of commodities and technical data being exported or about to be exported. The functions delegated to customs offices and postmasters by this paragraph may also be carried out by officials of the Office of Export Enforcement. (Emphasis added.) Paragraph (b) of section 386.8 describes “[t]ypes of actions which may be taken by customs offices.” Among these are examination of “commodities and technical data declared for export.” § 386.8(b)(1). Further, section 386.-8(b)(6) provides: “The customs office is authorized under [22 U.S.C. § 401 11 ] to seize and detain any commodities [exported or suspected of being exported in violation of the EAA].” (Emphasis added.) The government argues that section 386.8(a) gives to the OEE the search and seizure authority granted to Customs in section 386.8(b)(6). The search and seizure authority of section 386.8(b), however, is expressly limited to the “customs office.” The section simply acknowledges existing search authority of Customs. Specifically, section 386(b)(6) refers to the border search authority already granted Customs in 22 U.S.C. § 401; it does not actually grant such authority to Customs. Moreover, section 386.8(a)’s delegation to the OEE of authority held by Customs is limited to those functions “delegated by this paragraph.” This would seem to limit the OEE’s authority to conducting an “inspection” under section 386.8(a) and would not extend to the search and seizure provisions of section 386.8(b). Nowhere in the EAA or the export regulations is the OEE expressly given the power to conduct border searches. The conclusion that the OEE is not authorized to conduct warrantless border searches is supported by recent amendments to the EAA found in the Export Administration Amendments Act of 1985, Pub.L. No. 99-64, Aug. 1985 U.S.Code Cong. & Ad.News (99 Stat.) 120. 12 This Act extensively amended the vague enforcement provisions of 50 U.S.C.App. § 2411. Revised section 2411 specifically extends search and seizure authority only to Customs; the OEE is delegated other authority. 13 698 Thus, a fair reading of the EAA, the export regulations, and Congress’ recent express delegation of search and seizure authority to Customs indicates that OEE agent Ohlson did not have authority to search and detain the packages at the Elk Grove post office. The district court correctly ruled that Ohlson’s search and seizure of the packages was an unauthorized, and therefore an invalid, border search. 14 See Soto-Soto, 598 F.2d at 550. B. “Good Faith ” Exception. 1. Standard of Review. The issue whether the “good-faith” exception to the fourth amendment’s exclusionary rule might apply to this case involves the selection of a rule of law and is thus reviewed de novo. See United States v. McConney, 728 F.2d 1195, 1200 (9th Cir.) (en banc), cert. denied, - U.S. -, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). 2. The “Good-Faith” Exception In United States v. Leon, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984), the Supreme Court established the so-called “good faith exception” to the exclusionary rule. The Court held that evidence obtained pursuant to a search warrant issued by a neutral magistrate later invalidated for lack of probable cause should not be suppressed if the searching officer acted in reasonable reliance on the warrant. Leon, 104 S.Ct. at 3421-22 (1984); United States v. Merchant, 760 F.2d 963, 968 (9th Cir.1985). The government argues that even if the search of the packages at the post office was not a valid border search because the OEE lacked authority to conduct such searches, the evidence obtained from the search is admissible under Leon because Ohlson reasonably believed that the export regulations authorized his search. Leon, however, expressly involved good faith reliance on a warrant issued by a judicial officer later held to be unsupported by probable cause. As noted above, the government treats the search of the packages in this case as a “warrantless” search. It therefore does not assert that Ohlson reasonably relied on the warrants invalidated because Ohlson was not an authorized “law enforcement officer.” The government apparently recognizes that Leon does not apply to search warrants issued to people who are not permitted to obtain such warrants. Rather than asserting that Ohison reasonably relied on a warrant, the government argues that Leon applies because of Ohlson’s reliance on the export regulations. The government, relying on general language in Leon which talks about weighing the benefits of suppression against its costs, 15 apparently suggests that a “good-faith” exception applies to all illegal searches. The Leon exception, however, is clearly limited to warrants invalidated for lack of probable cause and does not create the broad “good faith” exception the government suggests. See Leon, 104 S.Ct. at 3419-24. The Leon rule should therefore not be applied to invalid warrant-less searches. See United States v. Miller, 769 F.2d 554, 560 n. 5 (9th Cir.1985) (“We do not see how [Leon’s] good faith exception for reasonable reliance on invalid warrants has any application to the warrant- 699 less search involved in the instant case”); United States v. Morgan, 743 F.2d 1158, 1165 (6th Cir.1984), cert. denied, 105 S.Ct. 2126, 85 L.Ed.2d 490 (1985) (refusing to extend Leon to a warrantless search which the government argued fell under the “exigent circumstances” exception); see also Merchant, 760 F.2d at 968 n. 6 (“In analyzing this case under Leon, we do not suggest that the good faith exception applies beyond the warrant context”). 16 CONCLUSION While the Elk Grove, California post office is properly considered a border under the “extended border” doctrine, OEE agent Ohlson’s warrantless search of the packages mailed by Western Engineers was an unauthorized border search. The Export Administration Act does not give the Department of Commerce agents the power to conduct border searches; rather, the Act and regulations thereunder only grant Commerce the authority to inspect. While the scope of this authority is unclear, it does not encompass the search and seizure of outgoing packages. 17 The government’s claim of “good faith” is unavailing because Leon does not apply to warrant-less border searches and, in any event, Ohlson did not act in good faith because a reasonable OEE agent would have known that he or she had no authority to conduct such a search. Accordingly, the district court properly suppressed the evidence. AFFIRMED. 1. 50 U.S.C.App. §§ 2401-20. This act endows the Secretary of Commerce with broad powers to impose export controls in pursuit of specified objectives. Id. at 2402. Under the Act, a person may not export certain high technology components from the United States without a valid export license obtained from the Department of Commerce. The licensing requirements and procedure are set forth in regulations promulgated under the EAA by the Secretary of Commerce. See generally, 15 C.F.R. §§ 370.1-399.1. 2. The Office of Export Enforcement enforces the EAA and the regulations thereunder. 15 C.F.R. §§ 370.2, 387.14. The office "directs the investigation of suspected export control violations for referral for administrative proceedings by the Department of Commerce and criminal prosecution by the Department of Justice.” Id. at § 370.2. 3. The defendants also moved: to dismiss the indictment; to strike surplusage; for a bill of particulars; and for search and disclosure of electronic or other surveillance. These motions were denied and are not pursued on appeal. 4. The government also argued that even if the warrants were invalid, the search of the packages was a valid warrantless search of a heavily regulated industry. The district court rejected this argument, and it is not pursued on appeal. 5. See Wong Sun v. United States, 371 U.S. 471, 486-87, 83 S.Ct. 407, 416-17, 9 L.Ed.2d 441 (1963). 6. The district court held that OEE agent Ohlson did not fall within the definition of "federal law enforcement officers” found in 28 C.F.R. § 60.2. While section 60.2(a) extends warrant authority to "persons authorized to execute search war *695 rants by a statute of the United States," the court correctly noted that the existing enforcement provisions of the EAA, 50 U.S.C.App. § 2411(a), contained no such grant. Congress recently amended § 2411(a) to give the OEE such authority. Export Administration Amendments Act of 1985, Pub.L. No. 99-64 § 113, Aug. 1985 U.S.Code Cong. & Ad.News (99 Stat.) 120, 149. 7. Elk Grove is located approximately 80 miles from the Pacific Ocean, 500 miles from Mexico, and 700 miles from Canada. 8. Because of the distance of Elk Grove from the border and because the packages would possibly not cross the border for several days, it is important in this case, as it was in Cardona, that the packages delivered to the postal authorities would remain unchanged before they actually crossed the border. See Cardona, 769 F.2d at 629 ("[I]t was all but certain that the parcel’s condition would remain unchanged until it crossed the United States border".). We do not suggest that an "extended border” search of such spatial and temporal distance from an actual border crossing would necessarily be valid as to persons or things other than mail. 9. The primary authority for border searches is 19 U.S.C. § 482, which provides in pertinent part: Any of the officers or persons authorized to board or search vessels may stop, search and examine... any... person, on which or whom he or they shall suspect there is merchandise... introduced into the United States in any manner contrary to law.... The authority granted by this section is not liberally construed. See, e.g., Soto-Soto, 598 F.2d at 550 (suppressing evidence seized by the F.B.I. in purported border search because F.B.I. agents were not "persons authorized" under section 482); see also United States v. Harrington, 681 F.2d 612, 614 (9th Cir.1982) (“We enforce [border search] limitations with great care."); United States v. Vasser, 648 F.2d 507, 511 n. 3 (9th Cir.1980) ("In Soto-Soto, it was necessarily found that a border search not conducted by customs or immigration officers is, by definition, 'unreasonable.' ”), cert. denied, 450 U.S. 928, 101 S.Ct. 1385, 67 L.Ed.2d 360 (1981); United States v. Johnson, 641 F.2d 652, 659 n. 5 (9th Cir.1980) (same). 10. The EAA broadly provides: “To the extent necessary or appropriate to the enforcement of this act,... any department or agency exercising any functions thereunder... [may] make such inspection of... property of... any person.” 50 U.S.C.App. § 2411(a). 11. This section authorizes Customs to make border searches where "arms or munitions of war or other articles are intended to be or are being or have been exported or removed from the United States in violation of law." See United States v. Ajlouny, 629 F.2d 830, 834-36 & n. 4 (2d Cir.1980), cert. denied, 449 U.S. 1111, 101 S.Ct. 920, 66 L.Ed.2d 840 (1981). 12. While not conclusive, subsequent amend-atory acts, and their legislative history, are useful in construing prior legislation. See Bell v. New Jersey and Pennsylvania, 461 U.S. 773, 784, 103 S.Ct. 2187, 2194, 76 L.Ed.2d 312 (1983); Russ v. Wilkins, 624 F.2d 914, 924-25 (9th Cir.1980), ce rt. denied, 451 U.S. 908, 101 S.Ct. 1976, 68 L.Ed.2d 296 (1981). 13. The amendments provide: 2(A) [T]he United States Customs Service is authorized to search, detain... and seize goods or technology at those points of entry or exit from the United States where officers of the Customs Service are authorized by law to conduct such searches, detentions and seizures.... 2(B) An officer of the United States Customs Service may (ii) Search any package or container in which such officer has reasonable cause to suspect there are any goods or technology [being illegally exported].... Export Administration Amendments Act of 1985, Pub.L. No. 99-64 § 113(a)(5), Aug. 1985 U.S.Code Cong. & Ad.News (99 Stat.) 120, MS-49. The OEE's authority under the revised section is limited to executing warrants, making arrests without a warrant, and carrying firearms. Id. at 149. The legislative history, noting that the amendments were intended to "clarify as precisely as possible... the relationship between the Department of Commerce and the customs service in enforcing [the EAA],” further emphasizes that search and seizure authority extends to Customs and not Commerce. H.Conf.Rep. No. 99-180, Joint Explanatory Statement of the Committee of Conference, reprinted in Aug. 1985 U.S.Code Cong, and Ad.News 108, 124. 14. The government argues that even if the OEE is not specifically authorized to conduct war-rantless border searches, the "general structure" of the EAA and export regulations provide such authority. The government’s reliance on Balelo v. Baldridge, 724 F.2d 753 (9th Cir.) (en banc), cert. denied, - U.S. -, 104 S.Ct. 3536, 82 L.Ed.2d 841 (1984), for this proposition is unpersuasive. Balelo did not address border searches; it involved a warrantless search pursuant to the "heavily regulated industry" exception. Id. at 764-65. Further, the regulations in Balelo, in contrast to the export regulations involved in this case, specifically authorized the "searches.” Id. at 757. Finally, the court noted that "effective implementation of [the Act] would be impossible without [the search].” Id. at 760. No such necessity exists in this case because Customs has full authority to conduct warrantless border searches of outgoing packages under the export regulations and 22 U.S.C. § 401. 15. See, e.g., 104 S.Ct. at 3412 (“[The question of whether suppression is appropriate] must be resolved by weighing the costs and benefits.”). 16. Further, even if Leon applies, it appears that agent Ohlson did not act in good faith. “Reasonable reliance" under Leon is an objective standard that requires an officer to have reasonable knowledge of his authority. Leon, at 3419-20 & n. 20. (“The objective standard we adopt... requires officers to have a reasonable knowledge of what the law prohibits.”); United States v. Savoca, 761 F.2d 292 (6th Cir.), cert. denied, - U.S. -, 106 S.Ct. 153, 88 L.Ed.2d 126 (1985) (f'Leon indicated that courts evaluating an officer’s conduct must charge the officer with a certain minimum level of knowledge-”); see also Merchant, 760 F.2d at 969. Although the delineation of enforcement authority between Customs and Commerce was somewhat ambiguous, the OEE did not have authority to search and seize outgoing packages, In fact, Ohlson admitted he had no authority to detain the packages. The district court was persuaded that Ohlson did not act in good faith. Under this court's en banc decision in McConney, this would appear to be a "state of mind” determination which we review under the clearly erroneous standard. 728 F.2d at 1203-04. We recently held in Merchant, however, that the issue of good faith under Leon is reviewed de novo. 760 F.2d at 969. We hold that for the reasons discussed above, the district court’s determination that Ohlson did not act in good faith was correct under either standard. 17. The government contends that Ohlson’s "inspection” authority included opening and examining packages. It views the district court’s opinion as invalidating the seizure of the Elk Grove packages but not their "inspection.” In this manner it seeks to avoid its "poisonous tree” stipulation below; it contends that even if the evidence seized could not be used to obtain the business premises search warrant, the "information” learned in “inspecting” the packages was sufficient to support that warrant. Even if the government is correct in characterizing the search of the packages as an inspection authorized by the export regulations, it would still violate the fourth amendment. War-rantless inspections which constitute searches, even if authorized by statute, must still fall under one of the exceptions to the warrant requirement. See Michigan v. Clifford, 464 U.S. 287, 104 S.Ct. 641, 78 L.Ed.2d 477 (1984) (post-fire inspection requires warrant or "exigency”); Marshall v. Barlow’s, Inc., 436 U.S. 307, 98 S.Ct. 1816, 56 L.Ed.2d 305 (1978) (striking down war-rantless OSHA inspections); Rush v. Obledo, 756 F.2d 713, 718 (9th Cir.1985) (warrant or exception required to conduct inspections of day-care facilities); Balelo, 724 F.2d at 764 (inspection of fishing vessels, even if a "search," permissible under “heavily regulated" industry exception). As opening and examining the packages was clearly a search, see, e.g., United States v. Cardona, 769 F.2d 625 (9th Cir.1985), such a warrantless search is invalid because it did not fall under the "border search” exception, which extends only to Customs, the Coast Guard and the Border Patrol, or any other recognized exception to the fourth amendment’s warrant requirement.	LIMITED_OR_DISTINGUISHED
724 F.2d 753	796 F. Supp. 1281	D	Balelo v. Baldrige	ORDER (Motions for Summary Judgment) HOLLAND, Chief Judge. The principal question now before the court is whether or not a rule of the United States Fish and Wildlife Service (FWS) properly interpreted the phrase “authentic native articles of handicrafts”, under the Marine Mammal Protection Act (MMPA). 1 Plaintiffs seek a summary judgment invalidating the FWS’s “interim final rule” 2 which purports to exclude from the Alaskan native handicraft exception to the MMPA (16 U.S.C. § 1371(b)) any handicrafts made from sea otters. 3 55 Fed.Reg. 14,793 (Apr. 20, 1990). In doing so, plaintiffs have asked this court to reconsider its earlier ruling in this case regarding a similar FWS regulation. See Katelnikoff v. United States Dept. of the Interior, 657 F.Supp. 659 (D.Alaska 1986). The Government opposes that motion and has filed a cross-motion for summary judgment seeking a declaration as to the regulation’s validity. The defendant-intervenors 4 have opposed plaintiffs’ motions and have re 1283 quested that summary judgment be granted in their favor. 5 The matter has been more than adequately briefed by the parties and oral argument has been heard. The court is now convinced that, in light of the most recent regulations promulgated by the FWS, the court was on the wrong track in Katelnikoff, and, accordingly, the court now finds in favor of plaintiffs.. STATUTORY BACKGROUND In 1972 the MMPA was passed, in large part as a response to public outcry over the killing of harp seal pups in Canada, the possibility of extinction of certain whale species, and the incidental killing of large numbers of porpoise by United States tuna fishermen in the eastern Pacific Ocean. 6 The MMPA (at 16 U.S.C. § 1371(a)) sets up a complete moratorium on the taking or importing of any marine mammal, 7 and then provides for certain exceptions to the moratorium. Under Section 1371(a)(1) through (a)(4), the Secretary of the Interior is given broad powers to permit exceptions to the moratorium and allow the taking of marine mammals for certain enumerated purposes. The exception which is the subject of the instant case is found at 16 U.S.C. § 1371(b), and provides as follows: Except as provided in [16 U.S.C. § 1379], the provisions of this chapter shall not apply with respect to the taking of any marine mammal by any Indian, Aleut, or Eskimo who resides in Alaska and who dwells on the coast of the North Pacific Ocean or the Arctic Ocean if such taking— (1) is for subsistence purposes; or (2) is done for purposes of creating and selling authentic native articles of handicraft and clothing: Provided, That only authentic native articles of handicrafts and clothing may be sold in interstate commerce: And provided further, That any edible portion of marine mammals may be sold in native villages and towns in Alaska or for native consumption. For the purposes of this subsection, the term “authentic native articles of handicrafts and clothing” means items composed wholly or in some significant respect of natural materials, and which are produced, decorated, or fashioned in the exercise of traditional native handicrafts without the use of pantographs, multiple carvers, or other mass copying devices. Traditional native handicrafts include, but are not limited to weaving, carving, stitching, sewing, lacing, beading, drawing, and painting; and (3) in each case, is not accomplished in a wasteful manner. Notwithstanding the preceding provisions of this subsection, when, under this chapter, the Secretary determines any species or stock of marine mammal subject to taking,by Indians, Aleuts, or Eskimos to be depleted, he may prescribe regulations upon the taking of such marine mammals by any Indian, Aleut, or Eskimo described in this subsection. The MMPA grants to the Secretary broad regulatory and enforcement powers over the MMPA’s implementation. Under 16 U.S.C. § 1373, the Secretary is authorized to prescribe “such regulations with respect to the taking and importing of animals from each species of marine mammal 1284... as he deems necessary and appropriate to insure that such taking will not be to the disadvantage of those species and population stocks and will be consistent with the purposes and policies [of the MMPA].” The Secretary’s enforcement powers include the issuance of permits (16 U.S.C. § 1374), the authority to assess civil penalties (16 U.S.C. § 1375), and the authority to seize cargo (16 U.S.C. § 1376); and the Secretary is authorized to make arrests, engage in searches, seize evidence, and execute warrants (16 U.S.C. § 1377(c) & (d)). BACKGROUND FOR THE INSTANT MOTIONS Immediately following the passage of the MMPA, the FWS, acting as the Secretary’s delegate, set about promulgating regulations implementing the MMPA. Included therein was a regulation defining “authentic native articles of handicrafts and clothing”. Initially the FWS definition was exactly the same as that appearing in the statute. See 37 Fed.Reg. 25,731-36 (Dec. 2, 1972). However, the final regulation added to the definition the requirement that the items be “commonly produced on or before December 21, 1972.” See 37 Fed.Reg. 28,147 (Dec. 21, 1972), codified at 50 C.F.R. § 18.3. The original plaintiff in this action, Marina Rena Katelnikoff, an Aleut living on Kodiak Island, and her husband killed several sea otters in 1984, and Mrs. Katelnikoff fashioned various items of handicrafts and clothing from the pelts. After placing Alaska Department of Commerce “Authentic Native Handicraft from Alaska” tags on the items, she placed the items for sale. In 1985, FWS agents seized the items, claiming that they did not fall within the native handicraft exception because they were not commonly made or produced prior to 1972. Mrs. Katelnikoff brought suit, claiming that the 1972 cut-off date was invalid. In Katelnikoff, this court held that Congress’s intent in passing the native handicraft exception was to protect extant “cottage industries”, but not to encourage expansion into new growth-oriented industries. Katelnikoff, 657 F.Supp. at 665. This court held that the FWS regulation was a reasonable interpretation of the statute and was therefore not subject to attack. Id. at 667. While this court did uphold the regulation, it was concerned about how Section 18.3 would be applied. Initially, the FWS maintained that there were no “traditional” uses of sea otter pelts for handicrafts prior to 1972. The FWS later revised this position and asserted that the regulation required an individual native claiming rights under the exception to show a personal history of harvesting sea otters. It was then the FWS’s position that uses predating western contact in 1740 would qualify. The implementation of Section 18.3 came to a head when plaintiff-intervenor Boyd Didrickson, a Tlingit residing in Sitka, Alaska, fashioned a parka and hat from sea otter pelts and placed them for sale in Sitka. FWS agents seized the parka and hat, claiming that the items did not qualify as “traditional” because he had used metal snaps and zippers. ■ At the time of the seizure, FWS agents informed Mr. Didrickson that the items were not authentic articles of handicraft or clothing. Then in September of 1987, Walter Steiglitz, the FWS regional director, issued a memorandum stating that traditional parkas could be made from sea otter pelts and could be sold by Alaskan natives. Mr. Didrickson’s parka and hat were subsequently returned to him. However, the notice of “vacation of assessment” sent to Mr. Didrickson stated: “You should be aware that the offer for sale of some of those items to nonnatives will continue to be illegal.” All of the above led this court to state as follows: As the court intimated to counsel during the course of oral argument on this matter, the situation discussed above cries out for a reasonable administrative response. It is the court’s impression that the Government’s position as regards what uses may be made of sea otter pelts has been a moving target. The court entertains doubt (based on oral testimony taken at the early stages of this litigation) that the Government has 1285 fully and adequately considered the possibility of establishment of bona fide, eighteenth century uses of sea otter pelts which would not be precluded by the clear language of 50 C.F.R. § 18.3” See order denying government’s motion to dismiss at 8 (Clerk’s Docket No. 104; June 27, 1988). The FWS responded by initiating administrative procedures to amend the regulation. On November 14, 1988, the FWS published a notice of its proposed rule which would explicitly ban all takings of sea otters for purposes of creating handicrafts or clothing. See 53 Fed.Reg. 45,-788-90 (Nov. 14, 1988). The stated rationale for the proposed rule was that, “Alaskan natives have apparently not commonly sold handicrafts or clothing from sea otters within living memory.” (Emphasis added.) Over the following two years the FWS held public hearings in ten cities throughout Alaska, as well as in San Francisco, California. The FWS also received over 2,000 written statements. On April 20, 1990, the FWS published the “interim final rule” which is the subject of this dispute. That rule was identical to the earlier regulation, except that it contained the following caveat: Provided that, it has been determined that no items created in whole or in part from sea otter meet part (a) [the 1972 cut off date] of this definition and therefore no such items may be sold. 55 Fed.Reg. 14,978, codified at 50 C.F.R. § 18.3. According to the FWS’s findings: [T]he historical record shows little evidence of Alaska Natives using sea otters for trade, barter, or other economic purposes that involved the creation of handicraft articles or clothing.... No evidence has been supplied to demonstrate that handicraft and clothing articles made from sea otters were commonly produced for commercial sale by Alaska Natives prior to 1972. 55 Fed.Reg. at 14,976. Three months later, the plaintiffs in both Didrickson v. United States Dept, of the Interior and Alaska Sea Otter Commission v. United States Dept, of the Interior filed motions for preliminary injunction against enforcement of the new regulation. The two cases were consolidated, and at a status conference the plaintiffs agreed to drop the preliminary injunction motions and proceed directly to the merits. The instant motions followed. DISCUSSION It is the fundamental purpose of the regulatory process to select and implement the values that underlie the governing statute. In the absence of statutory guidance, these values must be found through a process of deliberation. 8 Stated differently, where the agency decision-making serves to fill a statutory “gap”, the role of the agency is to make value judgments through a process of balancing competing interests with the underlying purpose of the statute. The standard by which courts review an agency’s interpretation of a statute is a function of the degree to which the interpretation calls for such a deliberative process. The Administrative Procedure Act (APA), 5 U.S.C. § 701, et seq., grants federal courts judicial review over agency actions to determine whether such actions are arbitrary, capricious, an abuse of discretion, or not otherwise in accordance with the law. 5 U.S.C. § 706. Within the ease law developed under the APA, there has evolved essentially three separate standards employed by courts reviewing agency interpretations of statutes. The Supreme Court has explained: When a court reviews an agency’s construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the pre 1286 cise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.... If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Sometimes the legislative delegation... is implicit rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency. Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-44, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984). Thus, courts are to review agency interpretations on an arbitrary and capricious standard, a reasonableness standard, or what is essentially a de novo standard. Where the governing statute contains an express delegation of legislative authority over a specific provision, Congress has in effect instructed the agency to engage in a deliberative process requiring the agency to weigh costs, benefits, and other competing interests and arrive at a value judgment. The process is by its nature highly discretionary, requiring the agency to make value judgments. Hence, judicial review of such legislative determinations is at its narrowest, asking only if the agency action was arbitrary and capricious. See, Schweiker v. Gray Panthers, 453 U.S. 34, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981); Mercy Hospital of Laredo v. Heckler, 777 F.2d 1028 (5th Cir.1985). Under this standard, it is the function of the reviewing court simply to ensure that the agency did, in fact, engage in a deliberative process. See, Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Ins. Co., 463 U.S. 29, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). The regulation at issue in the instant case is clearly not such a legislative regulation. The regulation purports to define what qualifies as an “authentic native article of handicraft or clothing” for purposes of section 1371(b). Section 1371(b)(2) contains an express congressional definition of that term. There is nothing in section 1371(b), or anywhere else in the MMPA, that explicitly delegates to the Secretary the authority to redefine that term. Intervenors attempt to characterize the regulation as falling within the Secretary’s general regulatory authority under section 1373. However, by the express terms of section 1371(b), the regulation cannot be so characterized. That section is prefaced, “[ejxcept as provided in [16 U.S.C. § 1379], the provisions of this act shall not apply with respect to____” 16 U.S.C. § 1371(b) (emphasis added). 9 Thus if the activity involved falls within the terms of section 1371(b), then no other part of the MMPA, including section 1373’s grant of regulatory authority, applies to the activity. 10 1287 There being no explicit grant of authority to define what activities might fall within section 1371(b)’s exemption, the question is whether the FWS’s interpretation is entitled to any deference. That is, has there been an implicit delegation of authority to interpret the provision, in which case the interpretation is reviewed under a reasonableness Standard, or is the matter one of simple statutory construction of which the court is the final arbiter? Natural Resources Defense Council, Inc. v, Herrington, 768 F.2d 1355 (D.C.Cir.1985). There is an implicit delegation where the power of the agency to administer a congressionally created program necessarily requires the formulation of policy in order fill a gap left by Congress. Morton v. Ruiz, 415 U.S. 199, 231, 94 S.Ct. 1055, 1072-73, 39 L.Ed.2d 270 (1974). It is often stated that such statutory “gaps” occur when Congress has not directly spoken to the precise question at issue. Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. at 842, 104 S.Ct. at 2781. However, this does not mean that in every instance where Congress has not explicitly contemplated the exact question then before the court, that the court must bow to any remotely reasonable interpretation. Rather, courts are to give deference to an agency’s construction of the statute where the decision as to the meaning and reach of the statute involves the reconciliation of conflicting policies. See United States v. Shimer, 367 U.S. 374, 382, 81 S.Ct. 1554, 1560, 6 L.Ed.2d 908 (1961). For example, in Bethesda Hospital Association v. Bowen, 485 U.S. 399, 108 S.Ct. 1255, 99 L.Ed.2d 460 (1988), the question was whether or not, under the medicare program, 11 the provider reimbursement review board could decline to hear a provider’s claim for reimbursement for malpractice insurance costs, where the provider had not claimed such in its report to a fiscal intermediary. Under 42 U.S.C. § 1395oo(a), the review board could hear claims by providers where they were “dissatisfied” with the final determination of a fiscal intermediary. The board had interpreted this statute to mean that in order to hear a claim, the claim must first have been raised in the report to the fiscal intermediary. The court held that the board interpretation was contrary to the plain meaning of the statute as well as contrary to the overall scheme of the act. Bethesda Hospital, 485 U.S. at 404, 108 S.Ct. at 1258-59. Even though the statute clearly did not address the exact issue before the court, the court refused to give any deference to the agency’s interpretation. 12 In I.N.S. v. Cardoza-Fonseca, 480 U.S. 421, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987), the court struck down an agency regulation even though the statute did not deal directly with the issue before the court. The question was whether the same standards applied for determining whether an alien was entitled consideration for asylum 1288 as applied for determining entitlement for withholding of deportation under the Immigration and Naturalization Act. The court refused to give deference to the agency interpretation because, “[t]he question whether Congress intended the two standards to be identical is a pure question of statutory interpretation for the courts to decide.” Id. at 446, 107 S.Ct. at 1221. In both of these cases, it was not appropriate to give deference to the agency construction because it was clear that Congress intended that only one meaning be given to the statute. Deference applies where Congress has deliberately left the matter ambiguous, not intending a specific meaning, thus leaving it for the agency to develop a construction that best implements the underlying values of the legislation. 13 Where, however, it is apparent that Congress did not intend to leave such a gap but intended that a statute have a single meaning, the matter is simply one of statutory construction, and the reviewing court need not give deference to the agency’s interpretation. The instant case presents just such a situation. The term “authentic native article of handicraft or clothing” was not left undefined by Congress. The statute expressly defines the term. There is no “gap” in Section 1371 as to this term. 14 While it is true that the MMPA gives the Secretary broad regulatory authority, as stated above, that authority is much more circumscribed and focused with respect to the Alaskan native exemption. So long as the harvest is made by an Alaskan native for either subsistence purposes or for making such articles of handicraft or clothing, and is not “wasteful”, the Secretary is authorized to regulate such takings only if he finds the particular species or stock to be “depleted.” 15 The question of what should qualify as authentic native handicrafts or clothing does involve policy choices among competing interests. However, Congress has already made those determinations by providing its definition, complete with a non-exclusive list of examples. Therefore the question for this court to resolve is whether or not the Secretary’s interpretation is consistent with that definition. Such being a matter of pure statutory construction, there is no need to give deference to the agency’s interpretation. In ascertaining the plain meaning of a statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole. Bethesda Hospital, 485 U.S. at 403, 108 S.Ct. at 1258; Usery v. First Nat’l Bank of Arizona, 586 F.2d 107, 108 (9th Cir.1978). Having carefully reviewed the present regulation, the court concludes that the regulation is inconsistent with the plain language of the statute as well as the overall regulatory scheme of the MMPA. 16 1289 The general provisions of the MMPA are not applicable to “the taking of any marine mammal” (emphasis added) if the taking is done either for subsistence purposes or for creating authentic native handicrafts. 16 U.S.C. § 1371(b). This language plainly allows for the taking of any species of marine mammal so long as it is done for a permitted purpose: subsistence or for the making of native articles of handicraft or clothing. The FWS’s most recent definition of “authentic” singles out a particular species for special treatment, even though a facial reading of the statute shows that no such particularized treatment was contemplated. The Government’s position is that products made from sea otters do not qualify as “traditional” native handicrafts and therefore do not fall within the statute’s requirement that the handicrafts be “authentic”. This finding is based upon a strained interpretation of the word “traditional”. But, more fundamentally, the Government’s attempt to define “authentic” in terms of whether the end product is a “traditional” item is plainly inconsistent with the definition of “authentic” as set out in section 1371(b)(2). Essentially, the Government’s position is that, for purposes of section 1371(b), “traditional” native handicrafts are only those items commonly produced for commercial sale within “living memory” before 1972. Hence the regulation creates an artificial time period from roughly 1900 through 1972 within which the search for traditional Alaskan native articles is limited. This rationale turns on its head any ordinary conception of the word “traditional”. The cultures of Alaskan native had been thriving for centuries prior to the first arrival of Western Europeans and Russians in the middle eighteenth century. As is true with any ancient culture, Alaskan native traditions have been handed down from generation to generation throughout the centuries. Yet with increasing outside influence in the region, many such traditions were seriously curtailed. The history surrounding sea otters provides but one example, although probably the most extreme example. To satisfy the Russian demand for sea otter pelts, Lord Baranoff issued an edict in 1792 forbidding Alaskan natives from hunting sea otters. By 1799, the Russians had virtually enslaved the Aleuts by requiring all males between the ages of eighteen and fifty to labor, primarily hunting sea otter, for the Russian America Company. 17 It is well documented that under Russian rule the sea otter population in Alaska nearly became extinct. Thus after the United States purchased Alaska from the Russians it prohibited all hunting of sea otters as part of the Fur Seal Treaty. 36 Stat. 326, § 4 (1910). The net effect was that, through no choice of their own, all Alaskan natives were deprived of the opportunity to use sea otters as they had traditionally done for centuries. The fact that Alaskan natives were prevented, by circumstances beyond their control, from exercising a tradition for a given period of time does not mean that it has been lost forever or that it has become any less- a “tradition”. It defies common sense to define “traditional” in such a way that only those traditions that were exercised during a comparatively short period in history could qualify as “traditional”. 18 1290 Equally artificial is the Government’s requirement that not only must the items be ones commonly produced in the twentieth century, but that they also have been commercially sold during that same time period. The Government has argued before this court that the present regulation is justified because even if items made from sea otters were commonly made within living memory, they were not generally sold to non-natives. Moreover, the Government contends that the regulation is further justified because it does not prevent the production of such items for subsistence purposes, but only for purposes of being sold to non-natives. Apparently, Government feels that included in “subsistence uses” is the sale of such items to other natives. 19 The government’s discussion and findings that there is little evidence of commercial trade of items made from sea otter are unpersuasive. The argument is a makeweight. Assuming that the Fur Seal Treaty (36 Stat. 326 (1910)) was effective, it necessarily follows that there was no commerce between native and non-natives in sea otter items between 1910 and enactment of the MMPA in 1972. More generally, the absence of commercial transactions with non-natives is not at all instructive on the question of whether there was traditional use of sea otter even after 1910 by and between natives. The Government’s position in this regard is particularly untenable. It again defies common sense to assert that an item is not “traditional” because it has not been regularly sold to western Europeans. The court can hardly think of anything more “traditional” to an Alaskan native than making a parka made from animal fur and exchanging it for some other useful item. In adopting the regulation, the FWS did not dispute that sea otter had been in use for clothing prior to the 1972 cut-off date. 55 Fed.Reg. 14,792. Yet because the items were not commonly sold to non-natives, the FWS characterized such items as not being traditional. Id. at 14,794. There is an additional shortcoming in the Government’s concept of what may be “traditional”. The regulatory definition of “authentic” in terms of whether the end product is a traditional item is fundamentally at odds with the definition contained in section 1371(b)(2). The statute does not define “authentic articles of native handicrafts or clothing” in terms of whether the item itself is a traditional native handicraft. Rather, it defines as authentic those items that are “produced, decorated, or fashioned in the exercise of traditional native handicrafts”. Thus the statutory definition refers not to the item as being traditional, but to the craft employed to produce the item. The statute gives examples of the types of activities that constitute a traditional native handicraft. Those include among others stitching, sewing, and lacing. Under the express terms of the statute, an item that was produced employing traditional crafts, such as sewing, qualifies as an authentic article of native handicraft. 20 We do not address at this time the question of whether or not an end product may be so far outside the realm of items that are traditionally produced by Alaskan natives that it would be impossible to characterize such as being the product of a traditional craft. However, to define “authentic” in terms of the end product is clearly inconsistent with the statutory definition. 1291 The Government does not now seriously contend that its definition of “authentic” is consistent with the plain language of section 1371(b). Rather, the Government seeks to justify the regulation as a reasonable implementation of the congressional intent underlying the native exemption. This argument is based upon this court’s earlier ruling that the purpose of the native handicraft exception was to protect existing native handicraft “cottage industries”, and that it was the express sense of Congress that the taking of marine mammals would remain at 1972 levels. Katelnikoff, 657 F.Supp. at 665. Since there were few, if any, commercial sales of sea otter handicrafts as of 1972, the Government argues that the regulation is completely consistent with congressional intent. The problem with this court’s earlier ruling is that it failed to recognize that what the Government was arguing as a justification, in reality worked an “end run” around the regulatory scheme of the act as a whole. In essence, the Government is seeking to limit the taking of marine mammals to 1972 levels as a means of regulating the number of marine mammals taken by native people. By its express terms, however, section 1371(b) does not allow this sort of regulation. As stated above, section 1371(b) clearly states “the provisions of this act shall not apply” to takings for the purpose of creating authentic native handicrafts. Thus, the broad grant of regulatory authority granted to the Secretary by section 1373 does not apply to takings under the native handicrafts exception. Any regulatory authority of the Secretary over such takings must be found in section 1371(b) itself. Under Section 1371(b), the Secretary’s authority to issue regulations is limited to the situation where the “Secretary determines any species or stock of marine mammal... to be depleted”. To redefine the term “authentic” in order to maintain a particular harvest level is to work an “end run” around the requirement that there first be a finding of depletion. Had Congress intended to authorize the Secretary to maintain any particular harvest level for purposes of the exception, it would have explicitly given the Secretary such power. Everywhere else in the MMPA the Secretary is explicitly given broad regulatory powers. Section 1371(b) is clearly intended to limit the Secretary’s authority. Congress considered and rejected an amendment that would have explicitly limited the taking of marine mammals for handicrafts to: “where such a taking is for use and sale of traditional native arts and crafts in conformity with existing patterns of the Alaskan natives arts and crafts industry and does not promote commercial growth industry.” Senate Amendment No. 1154 to H.R. 10420 (Apr. 20, 1972). This, amendment would have accomplished exactly what the FWS now seeks, yet Congress deliberately chose language giving Alaskan natives greater flexibility and the Secretary less power to regulate. As it stands, the FWS has defined the term “authentic” in such a way as to broaden its own regulatory authority over activities that the plain language of the statute would not otherwise permit. This it does not have the power to do, and the regulation fails. CONCLUSION This opinion should not be construed as authorizing a “free-for-all” killing of hundreds of sea otters. All that has been said is that the Secretary of Interior, through the FWS, does not have the authority to regulate the harvesting of sea otters for purposes of creating native handicrafts absent a finding of depletion. This does not mean the FWS has somehow lost its enforcement powers, particularly with regard to the requirement that the takings not be wasteful. Moreover, a particular article must still satisfy the statutory definition of “authentic”. What is clear is that the present FWS regulation defining “authentic” article of native handicrafts is fundamentally inconsistent with 16 U.S.C. § 1371(b). Accordingly, the court finds in favor of plaintiffs on their motion for summary judgment, and against defendants and defendant-in 1292 tervenors on their cross-motions. Specifically, this court orders and declares that part (a) of 50 C.F.R. § 18.3 is inconsistent with the Marine Mammal Protection Act. 1. 16 U.S.C. §§ 1361-1407. 2. The pertinent portion of the “interim rule”, 50 C.F.R. § 18.3(a), reads: Authentic native articles of handicrafts and clothing means items made by an Indian, Aleut, or Eskimo which (a) were commonly produced on or before December 21, 1972, and (b) are composed wholly or in some significant respect of natural materials, and (c) are significantly altered from their natural form and which are produced, decorated, or fashioned in the exercise of traditional native handicrafts without the use of pantographs, multiple carvers, or similar mass copying devices. Improved methods of production utilizing modern implements such as sewing machines or modern techniques at a tannery registered pursuant to § 18.23(c) may be used so long as no large scale mass production industry results. Traditional native handicrafts include, but are not limited to, weaving, carving, stitching, sewing, lacing, beading, drawing, and painting. The formation of traditional native groups, such as cooperatives, is permitted so long as no large scale mass production results: Provided that, it has been determined that no items created in whole or in part from sea otter meet part (a) of this definition and therefore no such items may be sold. 3. All references to sea otters contained in this order are to enhydra lutris, otherwise known as the northern sea otter. 4. Friends of the Sea Otter, Greenpeace, Alaska Wildlife Alliance, and the Humane Society of the United States. 5. In the absence of any factual issue, the court may grant a summary judgment to any party without requiring that a cross-motion be filed. Portsouth Square, Inc. v. Shareholders Protective Committee, 770 F.2d 866, 869 (9th Cir.1985); Golden State Transit Corp. v. City of Los Angeles, 563 F.Supp. 169, 170-171 (C.D.Cal.1983), aff'd, 726 F.2d 1430 n. 1 (9th Cir.1985), cert. denied, 471 U.S. 1003, 105 S.Ct. 1865, 85 L.Ed.2d 159 (1985). 6. Note, Congress Amends the Marine Mammal Protection Act, 62 Ore.L.Rev. 257, 258-59 (1983). 7. The term "marine mammal” is defined as: "any mammal which (A) is morphologically adapted to the marine environment (including sea otters and members of the orders Sirenia, Pinnipedia and Cetacea), or (B) primarily inhabits the marine environment (such as the polar bear); and, for the purposes of this chapter, includes any part of any such marine mammal, including its raw, dressed, or dyed fur or skin.” 16 U.S.C. § 1362(5). "Take” is defined to mean: "to harass, hunt, capture, or kill, or attempt to harass, hunt, cap-, ture, or kill any marine mammal.” 16 U.S.C. § 1362(12). 8. Sunstein, Factions, Self Interest, and the APA: Four Lessons Since 1946, 72 Va.L.Rev. 271 cisó). 9. 16 U.S.C. § 1379 deals with the transfer of authority over marine mammal protection to state governments. 10. In this regard the instant case is readily distinguishable from Balelo v. Baldridge, 724 F.2d 753 (9th Cir.1984), which also involved the MMPA. At issue was a regulation that required "purse seine" tuna fishing boats to carry with them observers to collect data and information on the number of porpoise that were incidentally killed by such boats. The fishermen objected to that part of the regulation that authorized the use of such information in criminal proceedings against the vessel owners. Initially, the MMPA had allowed for a two-year exemption to the moratorium for such vessels (16 U.S.C. § 1371(a)(2) (1972)), conditioned upon industry compliance with section 1381. Subsection (d) required the industry to allow government observers as part of a program to develop technologies to reduce the number of porpoise inciden 1287 tally killed. At the end of the two-year period, any further incidental takings were to be pursuant to a permit issued by the Secretary, “subject to regulations prescribed by the Secretary in accordance with section 1373". 16 U.S.C. § 1371(a)(2) (1976-1982) (emphasis added). Therefore, in Balelo the regulations at issue were authorized in the statute creating the exemption as well as being within the Secretary’s general regulatory authority under section 1373. In the instant case, section 1371(b) exempts the described takings not just from the moratorium, but also from the Secretary's section 1373 regulatory powers. Hence, Balelo’s rationale is simply not applicable to the present case.. 11. Title XVIII of the Social Security Act. 12. In fact, Bethesda Hospital was cited for the very proposition that where a statute is not silent or ambiguous, no deference is to be given to an agency construction thereof. K-Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 108 S.Ct. 1811, 1817, 100 L.Ed.2d 313 (1988). At issue in K-Mart was whether deference should be given to the Secretary of Labor's definition of the term "owned by” as it appears in 19 U.S.C. § 1526. That statute precluded the importation of goods without the trademark holder's permission where the trademark is "owned by” an American company. The court held the term ambiguous where the trademark holder is in a parent/subsidiary relationship with the company importing the goods, and therefore upheld the agency’s construction. However, where there is no such relationship, the statute lost its ambiguity, and the court therefore struck down a contrary agency interpretation with regard to such situations. 13. For example, in I.N.S. v. Jong Ha Wang, 450 U.S. 139, 101 S.Ct. 1027, 67 L.Ed.2d 123 (1981), the court held that the term "extreme hardship” (for purposes of determining whether or not to adjust an alien's deportable status) was sufficiently ambiguous to warrant giving deference to the agency interpretation. The court found that the question of whether to construe the term narrowly or broadly involved rendering a policy judgment which should be left to the agency to develop on a case-by-case basis. 14. This is unlike the term "wasteful” which appears in the same statute. That term was left undefined, thereby leaving it to the Secretary to give the term meaning through a case-by-case process. See, e.g., United States v. Clark, 912 F.2d 1087 (9th Cir.1990). 15. A substantive meaning for the term "depleted” necessarily involves a classic example of the deliberative process. In determining whether a species is depleted, the Secretary must balance the hardships upon native people of such a finding, and any regulations that might flow therefrom, against the benefits and needs to protect the marine mammals as well as the need to implement the values that underlie the MMPA. It is this sort of determination as to which the case law developed under the Administrative Procedure Act recognizes that a court should not substitute its judgment for that of the regulator. 16. Plaintiffs have argued strenuously that the Ninth Circuit's holding in Kenaitze Indian Tribe v. State of Alaska, 860 F.2d 312 (9th Cir.1989), mandates this finding. The court wishes to make it clear that this is in no way true. Kenaitze decided a narrow issue and is of little precedential value for this case. The issue there was whether or not the State of Alaska had properly defined the term "rural” for purposes 1289 of the subsistence preference mandated by the Alaska National Interest Lands Conservation Act 16 U.S.C. § 3113. The court simply found Alaska's definition contrary to the plain meaning of the word “rural”. In doing so, the court reiterated the unremarkable proposition that a statute should be interpreted in accord with the plain meaning of the language. The case represents nothing new or particularly helpful with regard to- the instant case. 17. J.R. Gibson, Russian Expansion in Siberia and America: Critical Contrasts at 34 (S.F. starr ed. 1987). 18. In fact, this court, in originally upholding the 1972 cut-off date,' clearly understood that there was no limit as to how far back in history Alaskan natives could search for their traditions. This court stated: Nothing in this result will transform Alaska natives into "museum pieces” or unnecessarily restrain their creative or artistic impulses, as contended by Plaintiff. In fact, the exemption and its interpretive regulation may well have just the opposite effect. As we have seen above, the record now contains testimony, as yet unrefuted, regarding a number of early uses of sea otter parts. As native artists and *1290 craftspeople increasingly search their cultural pasts for traditional uses, they will likely broaden the range of commercial options open to them and expand their creative visions as well. Katelnikoff, 657 F.Supp. at 667. 19. The fact that the Government believes that a sale to a non-native is somehow more of a commercial transaction than a sale to another Alaskan native reveals a fundamental misunderstanding of the realities of this state. Alaska is a vast state (the size of four Californias), whose original inhabitants were not a single people, but were peoples with languages and cultures as diverse and different as any region on the globe. It defies common sense to characterize transactions in goods between these various peoples, as any but commercial trade. 20. All of the items seized from Mr. Didrickson were items produced from the sewing of sea otter pelts. Thus, from a simple facial reading of the statute, it is clear that these items fall within the express terms of the statute.	LIMITED_OR_DISTINGUISHED
724 F.2d 753	621 F. Supp. 734	D	Balelo v. Baldrige	737 MEMORANDUM OPINION KOCORAS, District Judge: This matter comes before the Court on the plaintiffs’ motion for summary judgment. Plaintiffs seek an order declaring Illinois’ Thoroughbred Rule 322 and Harness Racing Rule 25.19 unconstitutional under the Fourth and Fourteenth Amendments, permanently enjoining defendants from engaging in certain acts under the authority of those Rules, and holding defendants liable for authorizing and conducting unlawful stops and searches. Defendants oppose plaintiffs’ motion and request summary judgment in their favor. For the reasons which follow, the plaintiffs’ motion is granted in part and denied in part. The plaintiffs in this action are Don Serpas, Raymond Johnson, and Carl Waters, individually and on behalf of the class of all occupation licensees of the Illinois Racing Board who serve as exercise persons, grooms, and hotwalkers at Illinois racetracks (the plaintiffs). 1 Each named plaintiff lives in residential quarters at Arlington Park Racetrack provided to him in connection with his work. The defendants are former and present members of the Illinois Racing Board, the director of the Illinois Department of Law Enforcement (IDLE), and unknown agents of IDLE. On a motion for a preliminary injunction, the plaintiffs challenged the constitutionality of certain searches conducted under the authority of Thoroughbred Rule 322 and Harness Rule 25.19 (the Rules). 2 The plaintiffs made three arguments against the Rules’ application and challenged: (1) the warrant-less searches of their residences; (2) the investigatory stops and searches of their persons within the race track enclosure; and (3) the conditioning of their occupation licenses upon their consent to such searches. On June 16, 1983, this Court granted the plaintiffs’ motion and preliminarily enjoined the challenged activities. Serpas v. Schmidt, Memorandum Opinion (N.D.Ill. June 16, 1983) (hereinafter Mem. Op.). 3 Plaintiffs now move for summary judgment and defendants have made a cross-motion for summary judgment as well. Summary judgment shall be granted when the record shows that “there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. The underlying facts and all inferences to 738 be drawn from them must be viewed in the light most favorable to the party opposing the motion. Fitzsimmons v. Best, 528 F.2d 692, 694 (7th Cir.1976). A material question of fact is one which is outcome determinative under the governing law. Egger v. Phillips, 710 F.2d 292, 296 (7th Cir.1988). Whether there is a disputed question of fact to be presented to the trier of fact is, in the first instance, a question of law for the Court to determine. The legal issues in the action fall into three parts: (1) whether Fourth Amendment protection is afforded plaintiffs during warrantless searches of their living quarters; (2) whether the investigatory stops and searches of the plaintiffs’ person while in the race track enclosure are unconstitutional under the Fourth Amendment; and (3) whether the Rules unconstitutionally condition the occupation license on consent to the searches. I. Warrantless Residential Searches In issuing the preliminary injunction, this Court placed the burden upon the defendants to show their warrantless residential searches, taken pursuant to the Rules, fell into a recognized exception to the warrant requirement of the Fourth Amendment. See Camara v. Municipal Court, 387 U.S. 523, 87 S.Ct. 1727, 18 L.Ed.2d 930 (1967). In opposing the plaintiffs’ summary judgment motion, defendants now contest the initial premise that the Fourth Amendment is applicable at all to the plaintiffs’ allegations. Defendants assert that the searches take place within the context of the horse racing industry, an industry with such a long history of regulation that “no reasonable expectation of privacy exists within the industry.” United States v. Harper, 617 F.2d 35 (4th Cir.1980). Therefore, defendants argue, plaintiffs are without any reasonable expectations of privacy and are necessarily outside the scope of Fourth Amendment protection. Defendants rely upon a variety of factors — a long history of warrantless racetrack searches, the public and plaintiffs’ knowledge of the searches, and the “commercial” nature of the plaintiffs’ living quarters. This reliance is misplaced. Without doubt, defendants accurately assert that horse racing is a highly regulated industry and that the State has an interest in maintaining the industry’s integrity. Phillips v. Graham, 86 Ill.2d 274, 427 N.E.2d 550 (1981). Moreover, the Supreme Court has clearly recognized that warrantless searches in closely regulated industries can be reasonable. Donovan v. Dewey, 452 U.S. 594, 600, 101 S.Ct. 2534, 2538-39, 69 L.Ed.2d 262 (1981). Under this exception to the Fourth Amendment’s warrant requirement, courts have found that by accepting the benefits of a highly regulated trade, an individual also accepts the burden of regulation and thereby consents to administrative investigations or inspections. Marshall v. Wait, 628 F.2d 1255, 1258 (9th Cir.1980). Therefore, the individual operating within a highly regulated industry can have no reasonable expectation of privacy as least as to administrative inspections. Id. (emphasis added). From this administrative inspection case law, defendants conclude that plaintiffs cannot have a reasonable expectation of privacy in their living quarters located within the racetrack grounds. To accept this conclusion, this Court must accept defendants’ necessary first premise — that the warrantless searches of plaintiffs’ living quarters are administrative inspections. This court cannot accept the characterization of the residential searches as administrative inspections because: (A) the warrantless searches are conducted on private, residential premises, not commercial premises; (B) the statute’s language in this case does not provide an adequate substitute for a warrant; (C) the regulatory scheme present does not provide an adequate substitute for a warrant; and (D) a balance of plaintiffs’ privacy interests and the Government’s enforcement needs favors the plaintiffs. (A) Residential Nature of Plaintiffs’ Quarters The administrative inspection exception to the Fourth Amendment’s war 739 rant requirement extends to commercial or public premises. An administrative search of commercial premises and a warrantless search of a private residence are afforded very different degrees of protection. Donovan v. Dewey, 452 U.S. at 598-99, 101 S.Ct. at 2537-38. Defendants acknowledge these differences, but justify the warrant-less searches of plaintiffs’ living quarters by describing the quarters as commercial premises. Defendants highlight the temporary, cramped, limited nature of the quarters. The rooms are: only provided to employees; adjacent to barns or above horse stalls; accessible by track authorities who have a master key; and very small— providing only one or two person occupancy. No cooking is permitted and some licensees do not choose to stay in the dorm room. The detailed description of the dorm rooms does not persuade this Court that they qualify as a commercial premise for purposes of the Fourth Amendment. The crucial quality which the rooms possess is their exclusive residential use. Serpas v. Schmidt, Mem.Op. at 8-10. The other details of the plaintiffs’ living conditions cannot deprive them of their constitutional rights to be free of unreasonable searches in their homes. The courts have viewed rooms similar to plaintiffs’ quarters as homes. These rooms include hotel rooms, boarding house rooms, and college dormitory rooms. See, e.g., Stoner v. State of California, 376 U.S. 483, 84 S.Ct. 889, 11 L.Ed.2d 856 (1964); Smyth v. Lubbers, 398 F.Supp. 777 (W.D.Mich.1975). Such private rooms have been found to be homes and residences although they share the very qualities the defendants argue make them “commercial”: they are small, temporary, and accessible by a master key. The plaintiffs’ rooms’ proximity to the barns and stalls do not make them commercial; they are used for residential purposes exclusively- Defendants, however, analogize the warrantless searches of plaintiffs’ rooms to the warrantless searches of the baggage of persons boarding airlines, United States v. Bonstein, 521 F.2d 459 (2d Cir.1975), cert. denied 424 U.S. 918, 97 S.Ct. 1121, 47 L.Ed.2d 324 (1976); of persons entering courtrooms, McMorris v. Alioto, 567 F.2d 897 (9th Cir.1978); of prison guards, United States v. Sihler, 562 F.2d 349 (5th Cir. 1977); and of a parolee’s residence pursuant to a consent provision in his parole terms, United States v. Dally, 606 F.2d 861 (9th Cir.1979). These cases do not change the nature of the plaintiffs’ quarters. The cases generally involve searches on public property — an airport, a courtroom, a prison. The search of a parolee in Dally was governed by the terms of a search consent which was a condition of a prisoner’s parole. The Dally search was not characterized as an administrative inspection. Plaintiffs’ situation is not analogous to individuals on parole from prison. Therefore, the plaintiffs’ living quarters are residential, not commercial. Their temporary and crowded conditions do not change their nature. Although employed in a highly-regulated industry, the plaintiffs possess the constitutional right to be from unreasonable searches in their homes. (B) Statutory Authority for the Searches In other highly regulated industries, warrants are not required where statutory language authorizes the terms and conditions of searches of particular premises. Donovan v. Dewey, 452 U.S. 594, 101 S.Ct. 2534, 69 L.Ed.2d 262 (1981) (mining industry); United States v. Biswell, 406 U.S. 311, 92 S.Ct. 1593, 32 L.Ed.2d 87 (1972) (gun dealers); Colonnade Catering Corp. v. United States, 397 U.S. 72, 90 S.Ct. 774, 25 L.Ed.2d 60 (1970) (liquor industry). The applicable statute in the Illinois horse racing industry reads, in pertinent part: (c) The Board, and any person or persons to whom it delegates this power, is vested with the power to enter the office, horse race track, facilities and other places of business of any organization licensee to determine whether there has 740 been compliance with the provisions of this Act and its rules and regulations. Illinois Horse Racing Act of 1975, 8 Ill. Ann.Stat. § 87-9 (Smith-Hurd Supp.1980). Defendants argued earlier and again urge the Court to find that the terms “race track” and “facilities” must include the dormitory rooms. Such a conclusion is said to be dictated by the track’s ownership of the rooms, the rooms’ location within the racetrack, the track’s accessibility to the room for health and safety inspections, and the track’s provision of the rooms to licensees at no charge. Defendants’ Memo, at 19-20. None of these allegations change the exclusive residential nature and purpose of the rooms themselves. Nor does the language of the statute support defendants’ conclusion that the rooms are a “facility” or a “racetrack.” The sentence specifically lists a series of places and ends with the general phrase— “and other places of business____” This concluding phrase labels the earlier places as places of business. The most reasonable reading of “facility” or “racetrack” within the sentence is to find that they are examples of places of business. Therefore, as this Court found earlier, there is “a complete dearth of statutory authorization for searches of residences or statutory limitations on any searches.” Therefore, this Court “will not authorize what the legislature has not.” Mem.Op. at 17. (C) Regulatory Powers as Authority for the Searches In the absence of specific statutory authority, the defendants argue that the power to conduct the warrantless searches of plaintiffs’ living quarters may be inferred or implied from the broad regulatory powers of the Illinois Racing Board. Defendants rely upon Balelo v. Baldridge, 724 F.2d 753, 765 (9th Cir.1984), to argue that the Board has been given extensive regulatory powers from which the power to search may be inferred. Other courts have viewed a warrantless administrative search as permissible only when the search is specifically authorized by a statute. See, e.g., United States v. Biswell, 406 U.S. 311, 315, 92 S.Ct. 1593, 1596, 32 L.Ed.2d 87 (1972); Bionic Auto Parts and Sales, Inc. v. Fahner, 721 F.2d 1072, 1078 (7th Cir. 1983). This Circuit does not appear to recognize implied statutory authority for warrantless administrative searches. Even if this Circuit should determine to recognize inferred authority, the regulatory scheme in this case is inadequate. Under Balelo, to determine whether warrantless searches in a closely regulated industry are reasonable, the court “must decide whether the regulatory scheme ‘in terms of the certainty and regularity of its application, provides a constitutionally adequate substitute for a warrant.’ ” Balelo v. Baldridge, 724 F.2d at 765-66, quoting in part, Dewey v. Donovan, 456 U.S. at 603, 101 S.Ct. at 2540. The Balelo court found that a program of observers of fishing vessels, which collected data pursuant to the Marine Mammal Protection Act, was sufficiently regulated to provide an adequate substitute for a warrant. The court based its decision on several grounds: published regulations which clearly defined the objective and purpose of the observer; regulations which limited the scope of the observer’s activities; written manuals to define the observer’s role;. standardized forms to record observations; advance notice to the vessel’s owner of an observer’s presence; a pre-departure conference; and the manual’s specific limits which “do not authorize the observers to conduct searches of the persons, personal effects, or living quarters of the Captains and their crews.” Balelo v. Baldridge, 724 F.2d at 767. Moreover, no alternative method of enforcement existed aboard the vessel. Balelo v. Baldridge, 724 F.2d at 768 (Nelson, J., concurring). The defendants urge the Court to find that the Board’s regulatory scheme offers similar “certainty and regularity” of application and provides an adequate substitute for a warrant. In contrast to the Balelo regulations, however, the agents who conduct the living quarters’ searches are not given written manuals, but “given instructions” on “how to carry out the searches.” 741 No further details of the nature of the instructions are offered. The search procedures include: having the agent identify himself; signing a written consent form or where no consent is given, the individual is reported to the steward; and providing individuals with a receipt if the agents take any property. Generally, rooms are searched only when an occupant is present and the agent has permission to enter. These practices, however, do not impose any meaningful limitations on the agents’ discretion. The searches may be focused or random and are not restricted to particular times nor restricted to particular areas or items in those areas which are in plain view. Unlike the observers in Balelo, the agents here may search plaintiffs’ living quarters and personal effects as extensively as they wish. Plainly, the agents have an unrestricted scope of search; requiring them to hand out receipts or consent forms does not affect or limit the agent’s discretion to undertake an exhaustive search of every personal effect in an individual’s room. These practices fall short as an adequate substitute for a warrant. (D) Balance of Privacy Interests and Enforcement Interests In determining the reasonableness of a warrantless search, the Court must balance the enforcement needs of the government and the privacy interest of the plaintiffs. See, e.g., Marshall v. Barlow’s Inc., 436 U.S. 307 at 321, 98 S.Ct. 1816 at 1825, 56 L.Ed.2d 305. The plaintiffs’ interest is strong. “[PJhysical entry of the home is the chief evil against which the wording of the Fourth Amendment is directed____” United States v. United States District Court, 407 U.S. 297, 313, 92 S.Ct. 2125, 2134-35, 32 L.Ed.2d 752 (1972). Because of the constitutional protection afforded the home, the warrant requirement has been strictly applied to searches of the home. Illinois Migrant Council v. Pillod, 531 F.Supp. 1011, 1021 (N.D.Ill.1982). Therefore, governmental authorities may not search the home without a warrant showing probable cause unless there are exigent circumstances. Id. at 1022. In Camara v. Municipal Court, the Court found that administrative warrants could authorize searches of dwellings for building code violations. 387 U.S. at 537-40, 87 S.Ct. at 1735-36. The Court articulated several factors which made the search reasonable, including: public interest in preventing or abating dangerous conditions; the history of such inspections; good alternate techniques to discover violations were not available; the searches were not personal in nature; and the searches were not directed toward discovering evidence of a crime. 387 U.S. at 536-37, 87 S.Ct. at 1734-35. The defendants contend that although plaintiffs’ privacy interests are great, the government’s enforcement needs are greater. They argue the warrantless residential searches are reasonable and cite the long history of such warrantless searches in Illinois and elsewhere. But, primarily, defendants’ arguments are focused on the public and the State’s interests in maintaining the integrity of the horse racing industry — an industry prone to abuse by “undesireable elements.” Feliciano v. Illinois Racing Board, 110 Ill. App.3d 997, 66 Ill.Dec. 578, 443 N.E.2d 261 (1st Dist.1982). Specifically, defendants justify the warrantless searches because they serve as deterrents to violations, are justified by the “positive results” — contraband found during searches, and because less intrusive methods would be ineffective. The deterrent effects of the searches cannot render them constitutional. Proof of such deterrence is speculative. The statistics of positive results from searches of the plaintiffs do not readily support the defendants’ position. During 1981-1983, there were 361 reported searches of the plaintiffs’ residences and persons. The stated purpose of such searches is to find illegal “buzzers” and drugs which could affect the results of the horse race. There appear to be approximately seven searches which produced these items. Affidavit of Leonard Becika, Exhibits A, B, C. These statistics do not justify the warrantless searches. While the individual character 742 and integrity of the Board’s licensees may reflect upon the character of the horse racing industry, this does not justify warrantless residential searches to insure that licensees possess no drugs used by humans in their homes. The defendants also contend that these unannounced warrantless searches are the most effective method of enforcement and that other less intrusive methods would be ineffective. The element of surprise is deemed crucial to enforcement. The element of surprise and a warrant to search, however, may co-exist in an ex parte warrant. Marshall v. Barlow’s Inc., 436 U.S. at 319-20, 98 S.Ct. at 1824. This alternative would accommodate enforcement needs and the plaintiffs’ privacy rights. The rest of defendants’ enforcement scheme does not involve warrantless searches and can prevent the wrongs they seek to prevent. Defendants may continue to detain horses and conduct metal detector searches of them before the race, make searches of the commercial premises of the racetrack, and use drug testing techniques. The defendants’ enforcement needs do not outweigh the plaintiffs’ privacy interests. The additional Camara factors — that the search not be personal in nature nor directed towards discovery of criminal evidence — are plainly not present here. Therefore, having considered both parties’ interests fully, this Court finds the plaintiffs’ privacy interest is superior and renders the warrantless searches of their homes unreasonable under the Fourth Amendment. II. Stops and Searches of Plaintiffs’ Persons The plaintiffs have also challenged the warrantless investigative stops and searches of their persons, which take place anywhere within the racetrack enclosure. Defendants argue that these searches, like the residential searches, are sanctioned under the administrative search exception to the Fourth Amendment. Once again, defendants have the burden of showing statutory authority or even implied statutory authority for the warrantless searches. The statute authorizes the search of “facilities” and other commercial premises, but nowhere is there authorization for the search, not of a place, but of a person. 4 There is no statutory authority for the searches nor any limits placed on the searchers’ discretion. The “orders” and procedures of the agents do not supply the requisite limits on discretion. See supra, at 9-12. Moreover, as Judge Prentice Marshall noted in Illinois Migrant Council v. Pilliod, the Supreme Court has stated that administrative warrants authorize searches of commercial premises or property only— not the search of persons found on the premises. 531 F.Supp. 1011, 1020-21 (N.D. Ill.1982). Finally, this Court has distinguished this case from Willey v. Illinois Racing Board, et al., 74 C 3524, aff'd, 423 U.S. 802, 96 S.Ct. 9, 46 L.Ed.2d 23 (1975), and there are no reported opinions which permitted administrative searches of commercial premises and warrantless searches of licensees on the premises. Mem.Op. at 18-23. III. Conditioning License on Consent The plaintiffs’ last challenge is directed to the conditioning of their occupation licenses upon their consent to be searched. Defendants argue that the plaintiffs have voluntarily consented to the searches by signing a statement to abide by Board Rule 332 and 25.19, which are printed on the application form. The defendants rely upon the doctrine of implied consent — that when plaintiffs entered their occupation, they agreed to abide by the industry’s regulation. This Court has found, however, that the issue is not whether consent can be implied, but whether, absent the condition, the challenged searches are constitutional. Mem.Op. at pp. 23-28. Standing alone, the searches of 743 the residences and persons have been found to be unconstitutional because they violate plaintiffs’ Fourth Amendment rights. Because these searches are unconstitutional, the license applications requiring consent to such searches are also unconstitutional. The Racing Board cannot issue a license conditioned on the applicant’s consent to waive his or her Fourth Amendment protections. Frost v. Railroad Commission, 271 U.S. 583, 592-594, 46 S.Ct. 605, 606-07, 70 L.Ed. 1101 (1926). Defendants argue, however, that the question of consent by plaintiffs raises a disputed question of material fact which bars plaintiffs’ motion for summary judgment. The facts demonstrate that plaintiffs’ signature and compliance was motivated by their fear of losing the license and the livelihood that could be available to them only through that license. 5 The forms cannot make reasonable the warrant-less searches of plaintiffs’ persons and homes. Schneckcloth v. Bustamonte, 412 U.S. 218, 93 S.Ct. 2041, 36 L.Ed.2d 854 (1973). IV. Requirements for Permanent Injunction To gain injunctive relief, the plaintiffs must demonstrate that they have no adequate remedy at law and will suffer irreparable harm without an injunction. The plaintiffs have shown that in the absence of permanent injunction, they will continue to have their homes and persons searched without a warrant. Fourth Amendment violations have been deemed “irreparable harm” for purposes of gaining injunctive relief. Illinois Migrant Council v. Pillod, 531 F.Supp. 1011, 1023 (N.D.Ill. 1982). Additionally, the public has an interest in securing the plaintiffs’ constitutional rights. The defendants will retain their full complement of enforcement procedures and will only be precluded from making unlawful searches and seizures. Therefore, plaintiffs have demonstrated that they are entitled to permanent injunctive relief. V. Defendant’s Liability for Unlawful Acts Plaintiffs seek to have this Court hold defendants liable for authorizing and conducting the unlawful stops and searches of the named plaintiffs. Summary judgment is sought only on the issue of liability, not damages. Both parties agree that the applicable law of government official’s qualified immunity is set out in Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). The Supreme Court stated: “On summary judgment, the judge appropriately may determine, not only the currently applicable law, but whether the law was clearly established at the time.” To establish this qualified immunity as an affirmative defense, the defendants must demonstrate that the searches of the named plaintiffs were authorized when they were made. The standard requires the defendants to establish that their c'onduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known. Defendants argue that the law of warrantless administrative investigations in closely regulated industries plainly authorized their searches. Reasonable people could have concluded they had the authority to conduct the searches. Donovan and Camara permitted administrative searches and defendants could have believed there were sufficient limits on the discretion of those conducting the search. Therefore, this court holds the defendants are not liable for authorizing and conducting the unlawful stops and searches of the named plaintiffs. VI. Discovery Sanctions Defendants have asked this Court to dismiss plaintiffs’ action because plaintiffs failed to answer discovery demands. Plaintiffs invoked the Fifth Amendment in response to defendants’ interrogatories about plaintiffs’ possession or use of 744 equine drugs, buzzers or mechanical devices, and cocaine or marijuana. Defendants assert that the information is requested to show the need for their searches and to develop a possible equitable defense of unclean hands. At a minimum, defendants ask the Court to dismiss plaintiffs’ damages claim. Without addressing the necessity or relevance of the evidence requested, this Court finds that the plaintiffs’ invocation of the Fifth Amendment does not warrant the extreme remedy of dismissal. Case law indicates that dismissal is an option only where the invocation of the right is improper and pretextual and the plaintiff has refused the court’s order compelling discovery. See, e.g., Campbell v. Gerrans, 592 F.2d 1054, 1057-58 (9th Cir.1979). Neither element is present here; plaintiff’s invocation is not improper and no court order issued. Plaintiffs have replied to discovery completely with this exception. Defendants are not entitled to dismissal. VII. Scope of the Injunction The defendants also raise an issue concerning the scope of this Court’s injunction, if it issued. The plaintiffs seek relief against the named defendants and this Court’s injunction binds them and “those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.” Fed.R.Civ.P. 65(d). At this time, the Court grants the injunction against the named defendants. VIII. Probable Cause Requirement In its earlier decision, this Court conducted an extensive analysis of Camara v. Municipal Court, 387 U.S. 523, 87 S.Ct. 1727, 18 L.Ed.2d 930 (1967) and concluded that under its rationale, an administrative warrant would be inappropriate and that defendants must procure a warrant based upon “the more vigorous standard of ‘probable cause’ used in criminal cases.” Mem.Op. at 29-37. At that time, the Court indicated that it would entertain a motion to modify the type of warrant required if further evidence were forthcoming. The evidence developed during discovery has not disturbed the Court’s initial findings. Therefore, the Court finds that: (1) the harm resulting from violations of racing requirements is not comparable to the harm from “an epidemic or an uncontrollable blaze” in Camara; (2) there is no showing that defendants will be unable to regulate the industry effectively if probable cause is required for a warrant; (3) there are important privacy interests at stake and the searches are personal and aimed at discovery of criminal evidence; (4) there are no “reasonable legislative or administrative standards” for the searches. See supra at 8-12. For the foregoing reasons the Court declares: that Thoroughbred Rule 322 and Harness Racing Rule 25.19 are unconstitutional under the Fourth and Fourteenth Amendments to the United States Constitution. The Court permanently enjoins defendants from engaging in these acts pursuant to the Rules: a. Conducting or authorizing searches and seizures of the persons and residential quarters of plaintiffs and the class they represent without warrants and probable cause; b. Conducting or authorizing investigatory stops of plaintiffs and the class they represent without at least a reasonable suspicion, based on specific, articulable facts, that the person stopped is engaged in criminal activity; and c. Conditioning the issuance of occupation licenses upon applicants’ forfeiture of their constitutional right to be free from the searches authorized by Rules 322 and 25.19. Finally, this Court holds that defendants are not liable to the named plaintiffs for authorizing and conducting unconstitutional searches of named plaintiffs’ persons and residences. 1. This Court certified these persons as a Rule 23(b)(2) class on September 19, 1983. 2. The regulations are set forth in two rules, identical in language, which read as follows: INSPECTIONS AND SEARCHES a. The Illinois Racing Board or the state steward investigating for violations of law or the Rules and Regulations of the Board, shall have the power to permit persons authorized by either of them to search the person, or enter and search the stables, rooms, vehicles, or other places within the track enclosure at which a meeting is held, or other tracks or places where horses eligible to race at said race meeting are kept, of all persons licensed by the agents of any race track operator licensed by said Board; and of all vendors who are permitted by said race track operator to sell and distribute their wares and merchandise within the race track enclosure, in order to inspect and examine the personal effects or property on such persons or kept in such stables, rooms, vehicles, or other places as aforesaid. Each of such licensees, in accepting a license, does thereby irrevocably consent to such search as aforesaid and waive and release all claims or possible actions for damages that he may have by virtue of any action taken under this rule. Each employee of a licensed operator, in accepting his employment, and each vendor who is permitted to sell and distribute his merchandise within the race track enclosure, does thereby irrevocably consent to such search as aforesaid and waive and release all claims or possible actions for damages they may have by virtue of any action taken under this rule. Any person who refuses to be searched pursuant to this rule may have his license suspended or revoked. b. The Illinois Racing Board delegates the authority to conduct inspections and searches, under this rule, to the Chief Investigator of the Illinois Racing Board and to Special Agents of the Illinois Bureau of Investigation, or designees of the Department of Law Enforcement assigned, from time to time, to assist the Chief Investigator in his duties. 3. The underlying facts of the action are set out in the preliminary injunction ruling. Mem.Op. at 1-5. 4. Section 37-9(a) grants the Board jurisdiction over "all persons on organizational grounds.” Section 37-9(d) authorizes the Board to "investigate alleged violations of the provision of this Act.” Neither of these constitute authorization of the warrantless search of persons. 5. Disputes over when consent for a single, particular search was given or what precise items were searched are not material questions of fact.	LIMITED_OR_DISTINGUISHED
723 F.2d 730	516 U.S. 349	O	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	516 U.S. 349 (1996) PEACOCK v. THOMAS No. 94-1453. United States Supreme Court. Argued November 6, 1995. Decided February 21, 1996. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT 351 Thomas, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O'Connor, Scalia, Kennedy, Souter, Ginsburg, and Breyer, JJ., joined. Stevens, J., filed a dissenting opinion, post, p. 360. David L. Freeman argued the cause for petitioner. With him on the briefs were J. Theodore Gentry, Carter G. Phillips, and Richard D. Bernstein. J. Kendall Few argued the cause for respondent. With him on the brief were John C. Few, Margaret A. Chamberlain, and James R. Gilreath. Richard P. Bress argued the cause for the United States as Amicus Curiae in support of respondent. With him on the brief were Solicitor General Days, Deputy Solicitor 351 General Kneedler, Thomas S. Williamson, Jr., Allen H. Feldman, Nathaniel I. Spiller, and Edward D. Sieger.[] Justice Thomas, delivered the opinion of the Court. This case presents the issue whether federal courts possess ancillary jurisdiction over new actions in which a federal judgment creditor seeks to impose liability for a money judgment on a person not otherwise liable for the judgment. We hold that they do not. I Respondent Jack L. Thomas is a former employee of TruTech, Inc. In 1987, Thomas filed an ERISA class action in federal court against Tru-Tech and petitioner D. Grant Peacock, an officer and shareholder of Tru-Tech, for benefits due under the corporation's pension benefits plan. Thomas alleged primarily that Tru-Tech and Peacock breached their fiduciary duties to the class in administering the plan. The District Court found that Tru-Tech had breached its fiduciary duties, but ruled that Peacock was not a fiduciary. On November 28, 1988, the District Court entered judgment in the amount of $187,628.93 against Tru-Tech only. Thomas v. Tru-Tech, Inc., No. 87-2243-3 (D. S. C.). On April 3, 1990, the Court of Appeals for the Fourth Circuit affirmed. Judgt. order reported at 900 F. 2d 256. Thomas did not execute 352 the judgment while the case was on appeal and, during that time, Peacock settled many of Tru-Tech's accounts with favored creditors, including himself. After the Court of Appeals affirmed the judgment, Thomas unsuccessfully attempted to collect the judgment from Tru-Tech. Thomas then sued Peacock in federal court, claiming that Peacock had entered into a civil conspiracy to siphon assets from Tru-Tech to prevent satisfaction of the ERISA judgment.[1] Thomas also claimed that Peacock fraudulently conveyed Tru-Tech's assets in violation of South Carolina and Pennsylvania law. Thomas later amended his complaint to assert a claim for "Piercing the Corporate Veil Under ERISA and Applicable Federal Law." App. 49. The District Court ultimately agreed to pierce the corporate veil and entered judgment against Peacock in the amount of $187,628.93the precise amount of the judgment against Tru-Techplus interest and fees, notwithstanding the fact that Peacock's alleged fraudulent transfers totaled no more than $80,000. The Court of Appeals affirmed, holding that the District Court properly exercised ancillary jurisdiction over Thomas' suit. 39 F. 3d 493 (CA4 1994). We granted certiorari to determine whether the District Court had subject-matter jurisdiction and to resolve a conflict among the Courts of Appeals.[2] 514 U. S. 1126 (1995). We now reverse. II Thomas relies on the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 832, as amended, 29 353 U. S. C. § 1001 et seq., as the source of federal jurisdiction for this suit. The District Court did not expressly rule on subject-matter jurisdiction, but found that Thomas had properly stated a claim under ERISA for piercing the corporate veil. We disagree. We are not aware of, and Thomas does not point to, any provision of ERISA that provides for imposing liability for an extant ERISA judgment against a third party. See Mackey v. Lanier Collection Agency & Service, Inc., 486 U. S. 825, 833 (1988) ("ERISA does not provide an enforcement mechanism for collecting judgments..."). We reject Thomas' suggestion, not made in the District Court, that this subsequent suit arose under § 502(a)(3) of ERISA, which authorizes civil actions for "appropriate equitable relief" to redress violations of ERISA or the terms of an ERISA plan. 29 U. S. C. § 1132(a)(3). Thomas' complaint in this lawsuit alleged no violation of ERISA or of the plan. The wrongdoing alleged in the complaint occurred in 1989 and 1990, some four to five years after Tru-Tech's ERISA plan was terminated, and Thomas did notindeed, could notallege that Peacock was a fiduciary to the terminated plan.[3] Thomas further concedes that Peacock's alleged wrongdoing "did not occur with respect to the administration or operation of the plan." Brief for Respondent 11. Under the circumstances, we think Thomas failed to allege a claim under § 502(a)(3) for equitable relief. Section 502(a)(3) "does not, after all, authorize `appropriate equitable relief' at large, but only `appropriate equitable relief' for the purpose of `redress[ing any] violations or... enforc[ing] any provisions' of ERISA or an ERISA plan." Mertens v. Hewitt Associates, 508 U. S. 248, 253 (1993) (emphasis and modifications in original). Moreover, Thomas' veil-piercing claim does not state a cause of action under ERISA and cannot independently support 354 federal jurisdiction. Even if ERISA permits a plaintiff to pierce the corporate veil to reach a defendant not otherwise subject to suit under ERISA, Thomas could invoke the jurisdiction of the federal courts only by independently alleging a violation of an ERISA provision or term of the plan.[4] Piercing the corporate veil is not itself an independent ERISA cause of action, "but rather is a means of imposing liability on an underlying cause of action." 1 C. Keating & G. O'Gradney, Fletcher Cyclopedia of Law of Private Corporations § 41, p. 603 (perm. ed. 1990). Because Thomas alleged no "underlying" violation of any provision of ERISA or an ERISA plan, neither ERISA's jurisdictional provision, 29 U. S. C. § 1132(e)(1), nor 28 U. S. C. § 1331 supplied the District Court with subject-matter jurisdiction over this suit. III Thomas also contends that this lawsuit is ancillary to the original ERISA suit.[5] We have recognized that a federal court may exercise ancillary jurisdiction "(1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent; and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees." Kokkonen v. Guardian Life Ins. Co., 511 U. S. 375, 379-380 (1994) (citations omitted). Thomas has not carried his burden of demonstrating that this suit falls within either category. 355 See id., at 377 (burden rests on party asserting jurisdiction). A "[A]ncillary jurisdiction typically involves claims by a defending party haled into court against his will, or by another person whose rights might be irretrievably lost unless he could assert them in an ongoing action in a federal court." Owen Equipment & Erection Co. v. Kroger, 437 U. S. 365, 376 (1978). Ancillary jurisdiction may extend to claims having a factual and logical dependence on "the primary lawsuit," ibid., but that primary lawsuit must contain an independent basis for federal jurisdiction. The court must have jurisdiction over a case or controversy before it may assert jurisdiction over ancillary claims. See Mine Workers v. Gibbs, 383 U. S. 715, 725 (1966). In a subsequent lawsuit involving claims with no independent basis for jurisdiction, a federal court lacks the threshold jurisdictional power that exists when ancillary claims are asserted in the same proceeding as the claims conferring federal jurisdiction. See Kokkonen, supra, at 380-381; H. C. Cook Co. v. Beecher, 217 U. S. 497, 498-499 (1910). Consequently, claims alleged to be factually interdependent with and, hence, ancillary to claims brought in an earlier federal lawsuit will not support federal jurisdiction over a subsequent lawsuit. The basis of the doctrine of ancillary jurisdiction is the practical need "to protect legal rights or effectively to resolve an entire, logically entwined lawsuit." Kroger, 437 U. S., at 377. But once judgment was entered in the original ERISA suit, the ability to resolve simultaneously factually intertwined issues vanished. As in Kroger, "neither the convenience of litigants nor considerations of judicial economy" can justify the extension of ancillary jurisdiction over Thomas' claims in this subsequent proceeding. Ibid. In any event, there is insufficient factual dependence between the claims raised in Thomas' first and second suits to justify the extension of ancillary jurisdiction. Thomas' 356 factual allegations in this suit are independent from those asserted in the ERISA suit, which involved Peacock's and Tru-Tech's status as plan fiduciaries and their alleged wrongdoing in the administration of the plan. The facts relevant to this complaint are limited to allegations that Peacock shielded Tru-Tech's assets from the ERISA judgment long after Tru-Tech's plan had been terminated. The claims in these cases have littleor no factual or logical interdependence, and, under these circumstances, no greater efficiencies would be created by the exercise of federal jurisdiction over them. See Kokkonen, supra, at 380. B The focus of Thomas' argument is that his suit to extend liability for payment of the ERISA judgment from Tru-Tech to Peacock fell under the District Court's ancillary enforcement jurisdiction. We have reserved the use of ancillary jurisdiction in subsequent proceedings for the exercise of a federal court's inherent power to enforce its judgments. Without jurisdiction to enforce a judgment entered by a federal court, "the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution." Riggs v. Johnson County, 6 Wall. 166, 187 (1868). In defining that power, we have approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments including attachment, mandamus, garnishment, and the prejudgment avoidance of fraudulent conveyances. See, e. g., Mackey v. Lanier Collection Agency & Service, Inc., 486 U. S., at 834, n. 10 (garnishment); Swift & Co. Packers v. Compania Colombiana Del Caribe, S. A., 339 U. S. 684, 690 692 (1950) (prejudgment attachment of property); Dewey v. West Fairmont Gas Coal Co., 123 U. S. 329, 332-333 (1887) (prejudgment voidance of fraudulent transfers); Labette County Comm'rs v. United States ex rel. Moulton, 112 U. S. 357 217, 221-225 (1884) (mandamus to compel public officials in their official capacity to levy tax to enforce judgment against township); Krippendorf v. Hyde, 110 U. S. 276, 282-285 (1884) (prejudgment dispute over attached property); Riggs, supra, at 187-188 (mandamus to compel public officials in their official capacity to levy tax to enforce judgment against county).[6] Our recognition of these supplementary proceedings has not, however, extended beyond attempts to execute, or to guarantee eventual executability of, a federal judgment. We have never authorized the exercise of ancillary jurisdiction in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not already liable for that judgment. Indeed, we rejected an attempt to do so in H. C. Cook Co. v. Beecher, 217 U. S. 497 (1910). In Beecher, the plaintiff obtained a judgment in federal court against a corporation that had infringed its patent. When the plaintiff could not collect on the judgment, it sued the individual directors of the defendant corporation, alleging that, during the pendency of the original suit, they had authorized 358 continuing sales of the infringing product and knowingly permitted the corporation to become insolvent. We agreed with the Circuit Court's characterization of the suit as "an attempt to make the defendants answerable for the judgment already obtained" and affirmed the court's decision that the suit was not "ancillary to the judgment in the former suit." Id., at 498-499. Beecher governs this case and persuades us that Thomas' attempt to make Peacock answerable for the ERISA judgment is not ancillary to that judgment. Labette County Comm'rs and Riggs are not to the contrary. In those cases, we permitted a judgment creditor to mandamus county officials to force them to levy a tax for payment of an existing judgment. Labette County Comm'rs, supra, at 221-225; Riggs, supra, at 187-188. The order in each case merely required compliance with the existing judgment by the persons with authority to comply. We did not authorize the shifting of liability for payment of the judgment from the judgment debtor to the county officials, as Thomas attempts to do here. In determining the reach of the federal courts' ancillary jurisdiction, we have cautioned against the exercise of jurisdiction over proceedings that are "`entirely new and original,' " Krippendorf v. Hyde, supra, at 285 (quoting Minnesota Co. v. St. Paul Co., 2 Wall. 609, 633 (1865)), or where "the relief [sought is] of a different kind or on a different principle" than that of the prior decree. Dugas v. American Surety Co., 300 U. S. 414, 428 (1937). These principles suggest that ancillary jurisdiction could not properly be exercised in this case. This action is founded not only upon different facts than the ERISA suit, but also upon entirely new theories of liability. In this suit, Thomas alleged civil conspiracy and fraudulent transfer of Tru-Tech's assets, but, as we have noted, no substantive ERISA violation. The alleged wrongdoing in this case occurred after the ERISA judgment was entered, and Thomas' claimscivil conspiracy, fraudulent conveyance, and "veil piercing"all involved new 359 theories of liability not asserted in the ERISA suit. Other than the existence of the ERISA judgment itself, this suit has little connection to the ERISA case. This is a new action based on theories of relief that did not exist, and could not have existed, at the time the court entered judgment in the ERISA case. Ancillary enforcement jurisdiction is, at its core, a creature of necessity. See Kokkonen, 511 U. S., at 380; Riggs, 6 Wall., at 187. When a party has obtained a valid federal judgment, only extraordinary circumstances, if any, can justify ancillary jurisdiction over a subsequent suit like this. To protect and aid the collection of a federal judgment, the Federal Rules of Civil Procedure provide fast and effective mechanisms for execution.[7] In the event a stay is entered pending appeal, the Rules require the district court to ensure that the judgment creditor's position is secured, ordinarily by a supersedeas bond.[8] The Rules cannot guarantee payment of every federal judgment. But as long as they protect a judgment creditor's ability to execute on a judgment, the district court's authority is adequately preserved, and ancillary jurisdiction is not justified over a new lawsuit to impose liability for a judgment on a third party. Contrary to Thomas' suggestion otherwise, we think these procedural safeguards are sufficient to prevent wholesale fraud upon the district courts of the United States. 360 IV For these reasons, we hold that the District Court lacked jurisdiction over Thomas' subsequent suit. Accordingly, the judgment of the Court of Appeals is Reversed. Justice Stevens, dissenting. The conflict between the views of the judges on the Court of Appeals and the District Court, on the one hand, and those of my eight colleagues, on the other, demonstrates that this is not an easy case. I believe its outcome should be determined by a proper application of the principle, first announced by Chief Justice Marshall, that a federal court's jurisdiction "is not exhausted by the rendition of its judgment, but continues until that judgment shall be satisfied." Wayman v. Southard, 10 Wheat. 1, 23 (1825). In my opinion that jurisdiction encompasses a claim by a judgment creditor that a party in control of the judgment debtor has fraudulently exercised that control to defeat satisfaction of the judgment. In substance the Court so held in Riggs v. Johnson County, 6 Wall. 166 (1868), and in Labette County Comm'rs v. United States ex rel. Moulton, 112 U. S. 217 (1884). In each of those cases a judgment against the county was unsatisfied because the county commissioners refused to levy a tax to raise the funds needed to pay the judgment, and in each this Court held that the federal court had jurisdiction to compel the commissioners to take the action necessary to enable the county to satisfy the judgment. It is true, as the Court notes today, that the "order in each case merely required compliance with the existing judgment by the persons with authority to comply." Ante, at 358. But the Court fails to explain why the District Court would not have had jurisdiction to enter a comparable order in this caseone that would have directed petitioner to restore to the judgment 361 debtor the assets that he allegedly transferred to himself to prevent satisfaction of the judgment.[] It is true that the order that was actually entered against petitioner did more than thatit ordered him to satisfy the original judgment in full, rather than merely to restore the fraudulent transfers. For that reason, I agree that the relief was excessive and should be modified. Nevertheless, the Court's central holding that the District Court had no power to grant any relief against petitioner is inconsistent with Riggs and Labette. I am also persuaded that the Court's reliance on H. C. Cook Co. v. Beecher, 217 U. S. 497 (1910), is misplaced. The theory of the complaint against the directors of the judgment debtor in that case was that they were "joint trespassers," equally liable for the patent infringement. That theory was comparable to the claim against this petitioner that was asserted and rejected in the original ERISA action. It depended on proof that the directors' prejudgment conduct should subject them to the same liability as the judgment debtor. See id., 362 at 498. What is at issue now, however, is whether petitioner's postjudgment conduct which frustrated satisfaction of the judgment was subject to the continuing jurisdiction of the court that entered that judgment. To that question Beecher does not speak. In sum, I am persuaded that it is the reasoning in Riggs and Labette, rather than Beecher, that should resolve the jurisdictional issue. Accordingly, I respectfully dissent. NOTES [] Robert P. Davis and Kenneth S. Geller filed a brief for the National Association of Real Estate Investment Managers as amicus curiae urging reversal. Briefs of amici curiae urging affirmance were filed for the American Association of Retired Persons et al. by Steven S. Zaleznick, Mary Ellen Signorille, Jeffrey Lewis, and Ronald Dean; for the American Federation of Labor and Congress of Industrial Organizations by Virginia A. Seitz, David M. Silberman, and Laurence Gold; for the Bricklayers & Trowel Trades International Pension Fund by Ira R. Mitzner and Woody N. Peterson; for the Central States, Southeast and Southwest Areas Health and Welfare and Pension Fund by Thomas C. Nyhan, Terrence C. Craig, and James P. Condon; and for the National Coordinating Committee for Multiemployer Plans by Diana L. S. Peters. [1] Peacock's attorney was also named as a defendant in the suit, but the District Court rejected the claim against him. [2] Compare 39 F. 3d 493 (CA4 1994) (case below), Argento v. Melrose Park, 838 F. 2d 1483 (CA7 1988), Skevofilax v. Quigley, 810 F. 2d 378 (CA3) (en banc), cert. denied, 481 U. S. 1029 (1987), and Blackburn Truck Lines, Inc. v. Francis, 723 F. 2d 730 (CA9 1984), with Sandlin v. Corporate Interiors Inc., 972 F. 2d 1212 (CA10 1992), and Berry v. McLemore, 795 F. 2d 452 (CA5 1986). [3] The District Court in the original ERISA suit ruled that Peacock was not a fiduciary to Tru-Tech's plan. [4] This case is not at all likeAnderson v. Abbott, 321 U. S. 349 (1944), cited by Thomas' amici, in which the receiver of a federal bank, having obtained a judgment against the bank, then sued the bank's shareholders to hold them liable for the judgment. In Anderson, federal jurisdiction was founded upon a federal law, 12 U. S. C. §§ 63,64 (repealed), which specifically made shareholders of an under capitalized federal bank liable up to the par value of their stock, regardless of the amount actually invested. [5] Congress codified much of the common-law doctrine of ancillary jurisdiction as part of "supplemental jurisdiction" in 28 U. S. C. § 1367. [6] The United States, as amicus curiae for Thomas, suggests that the proceeding below was jurisdictionally indistinguishable from Swift & Co. Packers v. Compania Colombiana Del Caribe, S. A., 339 U. S. 684 (1950), Dewey v. West Fairmont Gas Coal Co., 123 U. S. 329 (1887), Labette County Comm'rs v. United States ex rel. Moulton, 112 U. S. 217 (1884), and Riggs v. Johnson County, 6 Wall. 166 (1868), because it was intended merely as a supplemental bill to preserve and force payment of the ERISA judgment by voiding fraudulent transfers of Tru-Tech's assets. Brief for United States as Amicus Curiae 9-18. We decline to address this argument, because, even if Thomas could have sought to force payment by mandamus or to void postjudgment transfers, neither Thomas nor the courts below characterized this suit that way. Indeed, Thomas expressly rejects that characterization of his lawsuit. Brief for Respondent 4 ("This action... is not one to collect a judgment, but one to establish liability on the part of the Petitioner") (emphasis in original); see id., at 11. In any event, the United States agrees that the alleged fraudulent transfers totaled no more than $80,000, far less than the judgment actually imposed on Peacock. Brief for United States as Amicus Curiae 3. [7] Rule 69(a), for instance, permits judgment creditors to use any execution method consistent with the practice and procedure of the State in which the district court sits. Rule 62(a) further protects judgment creditors by permitting execution on a judgment at any time more than 10 days after the judgment is entered. [8] The district court may only stay execution of the judgment pending the disposition of certain post-trial motions or appeal if the court provides for the security of the judgment creditor. Rule 62(b) (stay pending posttrial motions "on such conditions for the security of the adverse party as are proper"); Rule 62(d) (stay pending appeal "by giving a supersedeas bond"). [*] Both the Court of Appeals and the District Court acknowledged that respondent brought this action to preserve the initial Employee Retirement Income Security Act of 1974 (ERISA) judgment. See 39 F. 3d 493, 502 (CA4 1994) (describing action as "an equitable attempt to satisfy a previous judgment entered against a fiduciary"); Civ. Action No. 7:91 3843-21 (D. S. C., June 24, 1992), p. 5, App. to Pet. for Cert. 57a ("[T]he present action is an attempt to satisfy a former judgment properly rendered by the District Court"). Petitioner recognized the same. See Brief for Appellant in No. 92-2524 (CA4), p. 15 ("Plaintiff has... consistently characterized this lawsuit as an action for the collection of a judgment"). Although one passage in respondent's brief to this Court suggests that the suit was not a collection action, it is clear that respondent meant only to rebut the notion that the proceeding was wholly independent of the earlier suit. The remainder of the brief confirms the lower courts' understanding of the nature of the action, see Brief for Respondent 17-24, and respondent expressly stated the same at oral argument. See Tr. of Oral Arg. 26-27 (agreeing with the District Court's statement that the action before it was "an attempt to satisfy the former judgment").	INVALIDATED
723 F.2d 730	389 F.3d 1031	AR	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	EBEL, Circuit Judge. The plaintiff employee benefit plans obtained a judgment against Interstate Builders, Inc. for delinquent plan contributions under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461, and § 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185. When collection efforts failed, plaintiffs filed this action to enforce the judgment against defendant All Steel Construction Inc. as the alter-ego successor of Interstate. Following a trial to the bench, the district court found that All Steel was Interstate’s alter ego and thus liable for the unpaid judgment. All Steel appealed. We noted a potential deficiency in subject matter jurisdiction and had the parties brief the issue. We now hold that this judgment-enforcement action required its own jurisdictional basis independent of 1033 the federal character of the underlying judgment. Because no such jurisdictional basis appears, we vacate the district court’s judgment and remand with directions to dismiss the action. 1 Limits of Judgment-Enforcement Jurisdiction (Sandlin and Peacock) In Sandlin v. Corporate Interiors Inc., 972 F.2d 1212 (10th Cir.1992), this court relied on H.C. Cook Co. v. Beecher, 217 U.S. 497, 30 S.Ct. 601, 54 L.Ed. 855 (1910), to hold that “when postjudgment proceedings seek to hold nonparties liable for a judgment on a theory that requires proof on facts and theories significantly different from those underlying the judgment, an independent basis for federal jurisdiction must exist.” Sandlin, 972 F.2d at 1217. We then applied that principle to deny the existence of federal jurisdiction over various judgment-recovery efforts including the assertion of an alter-ego claim. Id. at 1217-18. Shortly thereafter, the Supreme Court reaffirmed H.C. Cook Co. in an ERISA case, holding that a plaintiff who had obtained a judgment against a corporate employer could not enforce the judgment in a second suit asserting a veil-piercing theory against a shareholder without an independent basis for federal subject matter jurisdiction. Peacock v. Thomas, 516 U.S. 349, 357-60, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996). The circuits had followed conflicting approaches to the question of jurisdiction in judgment-enforcement actions, and the Court specifically cited Sandlin as an example of the approach it upheld. Peacock, 516 U.S. at 352 n. 2, 116 S.Ct. 862. See generally Futura Dev. of P.R., Inc. v. Estado Libre Asociado de P.R., 144 F.3d 7, 10-11 (1st Cir.1998) (discussing Peacock and Sandlin in connection with subject matter jurisdiction over alter-ego claim asserted in judgment-enforcement action). Courts have recognized a number of analytical distinctions that clarify and delimit Peacock’s reach. If an alter-ego claim is asserted in conjunction with the underlying federal cause of action, the latter may provide the basis for ancillary jurisdiction over the alter-ego claim, obviating Peacock concerns; it is only when an alter-ego claim is asserted in a separate judgment-enforcement proceeding that Peacock requires an independent basis for federal jurisdiction. 2 Bd. of Trs., Sheet Metal Workers, Nat’l Pension Fund v. Elite Erectors, Inc., 212 F.3d 1031, 1037 (7th 1034 Cir.2000) (citing cases limiting Peacock to successive litigation); Ortolf v. Silver Bar Mines, Inc., 111 F.3d 85, 87 (9th Cir.1997). Peacock also is not implicated in actions to reach and collect assets of the judgment debtor held by a third party; it is only when the plaintiff seeks to hold the third party personally liable on the judgment that an independent jurisdictional basis is required. Epperson v. Entm’t Express, Inc., 242 F.3d 100, 106 (2d Cir.2001) (citing cases holding Peacock inapplicable to cases involving fraudulent conveyances). And, of course, in any judgment-enforcement action otherwise governed by Peacock there may in fact be an independent basis for federal jurisdiction. See, e.g., C.F. Trust, Inc. v. First Flight Ltd. P’ship, 306 F.3d 126, 133 (4th Cir.2002) (relying on diversity as independent jurisdictional basis for purposes of Peacock). Plaintiffs do not, however, invoke any of these clear-cut and circumscribed points here. Instead, they urge us to follow a categorical exception to Peacock adopted by the Seventh Circuit in the Elite Erectors case that, in our view, is both generally ill-conceived and specifically inconsistent with this court’s position in Sandlin. This categorical exception derives from a narrower and more nuanced analysis set out in Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 85 F.3d 1282 (7th Cir.1996). Central States drew a distinction between claims that posit an alter ego’s direct concurrent liability for an ERISA violation (where the defendant, often a parent corporation, exercised “common control” over fund obligations at the time of the violation, so that it is held liable for its own “part in the initial ERISA violation”) and claims that posit a retroactive or vicarious liability (where the defendant is traced to or associated with an employer in such a way that it is held to account for the employer’s violation). See id. at 1286. The former reflects “a specific claim for relief under ERISA” asserted directly against the alter ego, which does not implicate Peacock concerns; while the latter reflects “an attempt to use ancillary jurisdiction ‘to impose an obligation to pay an existing federal debt on a person not already liable for that judgment,’ ” which is precisely what Peacock holds must have its own jurisdictional basis independent of the federal character of the underlying ERISA judgment. Id. (quoting Peacock, 516 U.S. at 357, 116 S.Ct. 862). The Central States analysis is consistent with Peacock, which as the Seventh Circuit noted involved a veil-piercing claim falling squarely on the vicarious side of its direct-versus-vicarious liability distinction. Id. It is also reconcilable with our Sandlin decision. Sandlin’s rejection of alter ego-based jurisdiction was tempered by the qualification that we were not “attempting to decide all future cases, when the alter-ego contentions may be more intertwined with the merits of an underlying [federal] claim.” 972 F.2d at 1218. That qualification could easily be read to encompass the direct liability situation discussed in Central States, where the alter-ego allegations inherently link the defendant to the underlying ERISA violation. 3 1035 Plaintiffs urge us to go much further than that, however. They would have us follow the Seventh Circuit’s later expansion of Central States in the Elite Erectors case, which glossed over Central States’ functional distinction between direct liability based on common control and generic vicarious liability, bluntly presumed that all alter-ego claims involve direct liability, and categorically limited Peacock to veil-piercing claims. Elite Erectors, Inc., 212 F.3d at 1038. This extends Central States well beyond its rationale: if all alter-ego claims involve direct liability, even when they assert only that a successor must answer for the predecessor’s past violations, then the distinctive feature of direct liability underpinning Central States’ holding — that it turns on the alter ego’s direct participation in the underlying violation— has been lost. More concretely, the move from Central States to Elite Erectors put the Seventh Circuit squarely at odds with this circuit’s holding in Sandlin. It is also inconsistent with the application of Peacock in a number of other circuits, which have addressed the jurisdictional viability of judgment-enforcement efforts based on alter-ego claims without any suggestion that they should be treated differently than veil-piercing claims. See, e.g., C.F. Trust, Inc., 306 F.3d at 133; Epperson, 242 F.3d at 106; Futura Dev. of P.R., Inc., 144 F.3d at 10-12. Indeed, Elite Erectors appears to conflict with Peacock itself, insofar as the Supreme Court indicated that its holding, though specifically addressed to a veil-piercing claim, was broad enough to address the conflicting practices of several circuits, including ours in Sandlin, that had involved alter-ego claims. See Peacock, 516 U.S. at 352 n. 2, 116 S.Ct. 862 (citing, as examples of circuit conflict Court was resolving, Sandlin, which had rejected jurisdiction over alter-ego claim, and Blackburn Truck Lines, Inc. v. Francis, 723 F.2d 730, 731-32 (9th Cir.1984), which had affirmed jurisdiction over alter-ego claim); see also Futura Dev. of P. R., Inc., 144 F.3d at 11 (noting “Peacock’s discussion of other relevant circuit and Supreme Court case law confirms that its holding is as broad as dictated by its logic”). In sum, the jurisdictional principles set out in Sandlin and confirmed in Peacock govern here. No separate federal jurisdictional basis is needed when ERISA liability is asserted directly against a second entity based upon that second entity’s direct role in the ERISA violation. This principle applies regardless of whether ERISA liability is asserted upon the basis of an alter-ego or veil-piercing theory. On the other hand, if ERISA liability is asserted derivatively against a second entity that did not directly participate in the ERISA violation — as for example, where successor liability is asserted — then a separate basis for federal jurisdiction must be established. In short, the determinative factor is not whether ERISA liability is asserted against the second company based upon an alter-ego or veil-piercing theory; rather, the determinative factor is whether ERISA liability is asserted against the second company directly based on the actions of the second company or whether liability is asserted only derivatively or vicariously against the second entity based solely upon the relationship between the second entity and the initial ERISA employer. Application of Sandlin/Peacock Limits Plaintiffs’ complaint recites that they had recovered a judgment against Interstate and then alleges that, by virtue of All Steel’s recruitment of employees and use of facilities, equipment, and business operations all traceable to Interstate, “All Steel is the successor-in-interest and/or al 1036 ter ego of Interstate and is, therefore, liable to Plaintiffs for the amounts unpaid under the Judgment.” App. 3-4. There are no allegations that All Steel ever exercised any control over Interstate’s business, much less that All Steel so dominated Interstate’s operations during the time the ERISA obligation here arose that All Steel was directly liable for this ERISA obligation. (Even if plaintiffs had alleged such a theory at the outset, the facts regarding All Steel’s involvement proven at trial, which relate largely to the period after Interstate had ceased doing business, would clearly not have supported a direct ERISA liability against All Steel). In short, the case was pled and prosecuted as a garden-variety judgment-enforcement action based on a retroactive alter-ego claim. As such, it clearly falls within the scope of Sandlin and Peacock and requires its own basis for federal jurisdictional separate from the underlying ERISA judgment against Interstate, absent which it should have been dismissed. 4 Plaintiffs insist that federal jurisdiction over this action is preserved by the qualification in Sandlin regarding judgment-enforcement cases where “the alter ego contentions [are] more intertwined with the merits of an underlying claim.” Sandlin, 972 F.2d at 1218. But plaintiffs do not point to any alter-ego contentions that show All Steel’s direct entanglement in the pension fund liability reflected in the underlying federal judgment, which is the focus of the Sandlin qualification. Instead, they seize on a reference we made to merits/jurisdictional “intertwining” in a different situation involving an entirely distinct jurisdictional question and attempt to force it into the present context in such a way as to make Sandlin’s qualification swallow Sandlin’s express holding. This argument is meritless, but it requires some effort to see through the wordplay and expose the fallacy. The intertwining reference comes from Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976 (10th Cir.2002). In Trainor, the district court had dismissed a claim under the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 12111-17, because the defendant did not have fifteen employees. In considering whether the dispute over employee numbers fell under Fed.R.Civ.P. 12(b)(1) (dismissal for lack of subject matter jurisdiction) or Fed.R.Civ.P. 56 (summary judgment on merits), we held that the district court had properly followed Rule 56 procedure under the principle that “[w]hen subject matter jurisdiction is dependent upon the same statute which provides the substantive claim in the case, the jurisdictional claims and the merits are considered to be intertwined.” Trainor, 318 F.3d at 978 (quotation omitted). Without elaboration, plaintiffs insist that the quoted passage shows why their alter-ego claim against All Steel is necessarily intertwined with the ERISA judgment against Interstate for purposes of Sandlin. While the logical jump here is left vague, plaintiffs evidently equate the determination whether the defendant in Trainor had thirteen employees with the determination whether All Steel is Interstate’s alter ego, and then conclude that the latter must be intertwined with the merits of the ERISA claim for purposes of Sandlin. Once the tacit line of reasoning is fleshed out, the flaw in the argument becomes clear and it only highlights the deficiency in plaintiffs’ position. The rea *1037 son the jurisdiction and merits issues were intertwined in Trainor was because the fifteen-employee requirement (held by some courts to be jurisdictional) was an element of the ADA cause of action. But alter-ego status is not an element of an ERISA cause of action. Quite the contrary. It has been invoked here to hold All Steel responsible for the ERISA judgment against Interstate on a basis that, in Sandlin’s terms, “requires proof on facts and theories significantly different from those underlying the judgment.” Sandlin, 972 F.2d at 1217 (emphasis added). To ignore the “significantly different” nature of a vicarious alter-ego claim vis-a-vis the direct cause of action giving rise to the underlying federal judgment — indeed, going so far as to say that alter-ego status constitutes an element of the underlying cause of action — -would render Sandlin and Peacock meaningless here. There would be no such thing as a judgment-enforcement action based on alter-ego allegations, just many “direct” ERISA claims asserted against alter egos. 5 We have not overlooked Peacock’s open-ended caveat that “extraordinary circumstances” (thus far unspecified) might “justify ancillary jurisdiction over a subsequent [judgment-enforcement] suit like this.” 516 U.S. at 359, 116 S.Ct. 862. Certainly, ERISA protects important interests. See generally RTC v. Fin. Insts. Ret. Fund, 71 F.3d 1553, 1555 n. 2, 1556 (10th Cir.1995). And it is true that, assuming the accuracy of plaintiffs’ allegations, the employee benefit plans here have lost a significant source of funding for ERISA obligations owed by a defaulting employer. But to hold that this in itself suffices to create an “extraordinary circumstance” under Peacock would be to hold, in effect, that ERISA interests are so legally unique that they intrinsically authorize judgment-enforcement actions. That is something Peacock — an ERISA case itself — and its progeny clearly deny. Further, although not the route chosen by our plaintiffs, we note that other ERISA plaintiffs may have a straightforward means to avoid the jurisdictional problem identified in Peacock and Sandlin, provided the facts warrant it: they may join the alter-ego claim against the second company in the original ERISA suit against the defaulting employer. 6 Finally, we note that the operative deficiency here is only one of federal jurisdiction; nothing we have said would preclude the prosecution of an alter-ego claim in state court. The judgment entered by the district court is VACATED and the cause is REMANDED with directions to dismiss for lack of subject matter jurisdiction. 1. After examining the briefs and appellate record, this panel has determined unanimously to grant the parties’ request for a decision on the briefs without oral argument. See Fed. R.App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. 2. That is not to say that whenever a federal cause of action is asserted against one defendant it is always permissible to extend the resultant federal jurisdiction to other defendants through alter-ego or veil-piercing claims. The conditions for ancillary jurisdiction, now “supplemental jurisdiction” under 28 U.S.C. § 1367(a), must be met. But, without commenting on the result in any particular case, we note that it seems to be commonplace for federal courts to exercise jurisdiction over alter-ego or veil-piercing claims against additional defendants in conjunction with federal causes of action against primary defendants — often without hint of any jurisdictional issue. See, e.g., Trustees of the Nat'l Elevator Indus. Pension, Health Benefit & Educ. Funds v. Lutyk, 332 F.3d 188, 191 & n. 3 (3d Cir.2003) (ERISA); Worth v. Tyer, 276 F.3d 249, 259-60 (7th Cir.2001) (Title VII); Local 159, 342, 343 & 444 v. Nor-Cal Plumbing, Inc., 185 F.3d 978, 985 (9th Cir.1999) (LMRA); Mass. Carpenters Cent. Collection Agency v. Belmont Concrete Corp., 139 F.3d 304, 305, 308 (1st Cir.1998) (ERISA and LMRA). 3. Indeed, to read Sandlin’s "intertwining” reference in any other way, i.e., to suggest that judgment-enforcement jurisdiction could be based on factual overlap that did not also demonstrate the alter ego’s direct participation in the underlying violation, would appear to be precluded now by Peacock, which made it clear that mere factual interdependence per se, even of a degree sufficient for traditional ancillary jurisdiction, "will not support federal jurisdiction over a subsequent [judgment-enforcement] lawsuit.” Peacock, 516 U.S. at 355, 116 S.Ct. 862. 4. Throughout their supplemental brief, plaintiffs indiscriminately rely on cases in which ancillary alter-ego claims were jointly asserted with substantive federal claims. It should be clear from our discussion in footnote 2 above that these cases are inapposite to the judgment-enforcement question we address and resolve here. 5. For sake of simplicity, we have generally referred to plaintiffs' alter-ego claim in connection with ERISA. Plaintiffs also invoked the LMRA both in their underlying action against Interstate and here, but the reference to the LMRA does not add to or alter the analysis. As the general terms of Peacock's holding reflect, see 516 U.S. at 351, 116 S.Ct. 862 (rejecting judgment-enforcement ancillary jurisdiction not just for ERISA-derived claims but for any "new actions in which a federal judgment creditor seeks to impose liability for a money judgment on a person not otherwise liable for the judgment”), and Sandlin (an ADEA case) itself illustrates, there is nothing unique about ERISA in connection with the jurisdictional issue here. In short, the LMRA reference simply re-presents the same issue, turning on the same principles we have considered. See generally Local 159, 342, 343 & 444, 185 F.3d at 985. 6. Use of this means in any particular case would depend on justifying the exercise of ancillary or supplemental jurisdiction, as discussed in footnote 2 above.	INVALIDATED
723 F.2d 730	230 F.3d 489	C	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	LYNCH, Circuit Judge. This case presents a difficult question of the limits on the subject matter jurisdiction of the federal courts. At issue is whether a state, not ever subject to diversity jurisdiction, may be subjected to the ancillary enforcement jurisdiction of the federal courts on a theory that the judgment debtor in an action originally based on diversity is the alter ego of the state. We conclude that the state cannot be so subjected to federal court subject matter jurisdiction unless there is an independent basis for such jurisdiction. Compañía de Desarrollo Cooperativo (“CDC”), a public corporation created by the Commonwealth of Puerto Rico to foster housing cooperatives, entered into a multiparty agreement in 1978 to build a low income housing project, the Ciudad Cristiána project. Parties to that agreement included CDC, U.S.I. Properties Corp. (“USI”), a Delaware corporation, and MD Construction (“MD”), incorporated under the laws of Puerto Rico and the predecessor in interest to defendant-appellant Futura Development of Puerto Rico, Inc. (“Futura”). Largely due to CDC, that project was never completed and the private companies suffered heavy damages. More than a decade of litigation has ensued. In October 1983, after CDC filed suit against MD in Puerto Rico Superior Court, USI sued both MD and CDC in federal court under diversity jurisdiction for violating the agreements. MD filed a crossclaim against CDC, which in turn filed a crossclaim against MD and a counterclaim against USI. After a five week jury trial in 1987, a jury found that CDC had violated its contracts with MD (as well as with USI), and rejected CDC’s cross- and counterclaims, finding that CDC’s stated reasons for terminating the project were false. The jury awarded $12.3 million against CDC. This court affirmed. U.S.I. Properties Corp. v. M.D. Construction Co., 860 F.2d 1 (1988), cert. denied, sub nom Compañía de Desarrollo Cooperativo v. U.S.I. Properties Corp., 490 U.S. 1065, 109 S.Ct. 2064, 104 L.Ed.2d 629 (1989). Futura attempted to collect its judgment against CDC. Futura was unsuccessful because the Commonwealth of Puerto Rico had depleted CDC of its funds and assets so that CDC could not satisfy the judgment against it. Futura then filed a new federal court action to collect the judgment, this time directly against the Commonwealth, arguing that CDC was an alter ego of the Commonwealth and that the Commonwealth had waived its Eleventh Amendment immunity. The district court agreed with Futura in this second suit. This court vacated that judgment, holding there was no federal jurisdiction over this second action. Futura Development of Puerto Rico, Inc. v. Estado Libre Asociado de Puerto Rico, 144 F.3d 7 (1st Cir.1998) (“Futura II ”). And so, Futura tried again, this time filing the same alter ego claims against the Commonwealth, but now as a supplementary proceeding in the original action. Futura alleged that the federal court had ancillary enforcement jurisdiction and that CDC was an alter ego of the Commonwealth. The district court took jurisdiction over the postjudgment action but denied the claim. We hold that there is no federal enforcement jurisdiction over this claim and leave Futura to whatever remedies it may have against the Commonwealth in its own courts. Futura’s effort to establish liability against the Commonwealth exceeds the proper scope of federal enforcement jurisdiction absent some independent ground of federal jurisdiction over the claim. Federal enforcement jurisdiction does not extend so far as to allow enforce 493 ment proceedings to establish direct liability against the Commonwealth on an alter ego theory here, where the limitations on diversity jurisdiction would have prevented the Commonwealth from being named a defendant in the action originally. I. A detailed prior history of this litigation is set forth in our Futura II opinion. 144 F.3d at 8-9. To explain the issues on this appeal, it is useful to describe the development of the case since the original judgment. In the second suit, the district court found on summary judgment that CDC had been acting as an alter ego of the Commonwealth and held the Commonwealth accountable for payment of CDC’s $12 million judgment plus interest. See Futura Development of Puerto Rico, Inc. v. Estado Libre Asociado de Puerto Rico, 962 F.Supp. 248 (D.P.R.1997) (“Futura I”). As the alter ego finding sought by Futura depended on the “nature of the entity created by state law,” the district court first turned to the legal status of CDC. Id. at 252. Noting that the Supreme Court of Puerto Rico had remarked in the unpublished opinion, Cintron Ortiz v. Companía de Desarrollo Cooperativo, CE-92-575 (unpublished “sentencia,” June 8, 1994), that the enabling statute for CDC fails to define clearly “whether [CDC] is or isn’t an instrumentality of the Commonwealth,” the district court based its conclusion that CDC was an alter ego of the Commonwealth on the following findings: (1) the Commonwealth provided the principal source of CDC’s finances; (2) the Commonwealth acknowledged making additional special appropriations to enable CDC to pay its debts; (3) CDC’s financial statements refer to CDC as an agency of the Commonwealth; (4) CDC’s enabling statute provides that the CDC’s Finance Committee is composed of a Commonwealth agency administrator and four appointees of the Governor; (5) that agency administrator is also the president of CDC, and names CDC’s executive director subject to the Governor’s approval; (6) CDC’s accounting system was to be established in consultation with the Commonwealth’s Secretary of the Treasury, and CDC was to entrust all funds to a depository recognized for funds of the Government of the Commonwealth; (7) CDC’s property and activities were exempted from taxes; and (8) CDC is required to submit a financial statement and a transactional report to the Governor at the close of each fiscal year. Futura I, 962 F.Supp. at 253-54. Having determined that CDC was an alter ego of the Commonwealth, the district court turned to the question of whether the Commonwealth had waived its Eleventh Amendment immunity through the actions of CDC. Given that the Commonwealth controlled CDC’s daily operations before the original litigation over the Ciudad Cristiána project and provided ninety-seven percent of CDC’s income through legislative appropriations, the district court focused its waiver analysis on the critical question of whether at the lime of the original litigation, the Commonwealth “acted as though it were defending an agency and, consequently, its own coffers.” Id. at 255. In addition to CDC’s assertion of its own claim, the district court identified six findings in favor of waiver: (1) the litigation materials and documentation were in the control of the Commonwealth’s Secretary of Justice, not the CDC administrators; (2) in closing arguments CDC argued that any judgment against it would have to be paid with Puerto Rico tax dollars; (3) CDC’s counsel promised Futura that the Commonwealth would include payment of the judgment in its budget in order to deter Futura from attaching assets or requiring the posting of a supersedeas bond during the appellate process; (4) the appeal of the judgment to the First Circuit and consequently the Supreme Court was handled by the Secretary of Justice and paid for by the Commonwealth; (5) the Commonwealth engaged in “a pattern of conveniently allowing CDC to fall into insolvency by refusing to provide- the company with the 494 necessary and customary appropriations, thus letting CDC’s debts mount, wiping out its capital, and in effect, precluding the possibility of satisfying plaintiffs judgment”; and (6) the Commonwealth stripped the agency of its employees and transferred them to a complementary governmental agency. Id. at 255-56. In light of the Commonwealth’s support and control of CDC in maintaining its counterclaim, the district court concluded that the Commonwealth “simply cannot expect to act as CDC’s alter ego throughout the Ciudad Cristiána litigation in an effort to increase its own coffers, and hope that, when its plan boomerangs, this Court tolerates its efforts to distance itself from CDC by pleading and interposing Eleventh Amendment immunity.” Id. at 257. This court in Futura II, however, vacated that judgment, holding that the district court lacked jurisdiction as neither enforcement jurisdiction nor supplementary jurisdiction existed over the claim against the Commonwealth in this separate proceeding. This court first held that under Peacock v. Thomas, 516 U.S. 349, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996), the federal courts lacked enforcement jurisdiction over a separate proceeding to enforce a judgment where there was no independent basis for federal jurisdiction. Futura II, 144 F.3d. at 11-12. Second, this court rejected Futura’s efforts to append the claim to an action against Commonwealth officials under the federal courts’ supplementary jurisdiction in light of the different factual bases for the claims. Id. at 12-13. In so ruling, this court expressly declined to reach the substantive issues of whether CDC actually was an alter ego of the Commonwealth and whether the Commonwealth’s Eleventh Amendment immunity had been waived for this claim. Id. at 13 n. 6. Having been denied relief against the Commonwealth in a separate proceeding, Futura then filed a motion in the original action for proceedings on and in aid of the execution of the original judgment, seeking to hold the Commonwealth directly accountable for that judgment. Futura advanced two theories. First, Futura asserted the Commonwealth was liable as the judgment debtor of the original MD judgment under Fed.R.Civ.P. 69(a), which affords federal district courts the enforcement mechanisms available under state law. Under this^heory, Futura relies in the alternative on two Puerto Rico Rules of Civil Procedure, contending that under Rule 51.7, 1 the Commonwealth is a jointly-liable debtor who was not party to the original action, and that under Rule 59, 2 a declaratory judgment should issue that the Commonwealth is the party in interest in the original litigation and required to comply with the judgment. Secondly, Futura moved to substitute or join the Commonwealth in the original proceeding as successor in interest to CDC under Fed. R.Civ.P. 25(c). Importantly, the substantive claim that the Commonwealth was liable as an alter ego of CDC and thus a de facto party to the original litigation underlies both these efforts. CDC opposed Futura’s motion, asserting that the district court would not have had jurisdiction over the original action had the Commonwealth been a party, both because the Commonwealth (or its alter ego) is not subject to diversity jurisdiction and be 495 cause the Commonwealth enjoys Eleventh Amendment immunity from suit in the federal courts. Under the mistaken impression that this court in Futura II had ruled against Futu-ra’s alter ego claim on the merits, the district court denied Futura’s motion, holding that (1) Futura could not hold the Commonwealth liable as judgment debtor under Fed.R.Civ.P. 69(a) since meeting the requirements of either Puerto Rico rule required what the court took to be a precluded finding that CDC was the alter ego of the Commonwealth, and (2) the Commonwealth could not be substituted for CDC under Fed.R.Civ.P. 25(c) because that would render the corporate form of CDC a nullity and abrogate the immunity of the Commonwealth from suit in federal court. U.S.I. Properties Corp. v. M.D. Construction Co., 186 F.R.D. 255, 259-61 (D.P.R.1999). Futura now appeals. II. CDC urges this court to resolve this case on Eleventh Amendment grounds and dismiss the motion for lack of jurisdiction over the Commonwealth. 3 We need not address Eleventh Amendment issues where the matter may be disposed of in favor of the state (that is, the defendant alleged to be the state) more readily on other grounds. Parella v. Retirement Bd. of the Rhode Island Employee’s Retirement System, 173 F.3d 46, 54-57 (1st Cir.1999). In this case there are good reasons not to reach the Eleventh Amendment grounds. Futura’s contention that the Commonwealth waived its Eleventh Amendment immunity through the actions of its alter ego, CDC, in pursuing counterclaims against MD in federal court presents a difficult Eleventh Amendment issue: does a state voluntarily waive its Elevehth Amendment protection against suit in federal court when its alter ego invokes the jurisdiction of the federal court through counterclaims and cross-claims? Futura presents a more than colorable claim that in this case, the actions of CDC in the original action (in invoking the jurisdiction of the court by filing its counterclaims against both USI and MD 4 and the like) were sufficient to provide consent to suit in federal court on the part of the Commonwealth. See Gunter v. Atlantic Coast Line R. Co., 200 U.S. 273, 26 S.Ct. 252, 50 L.Ed. 477 (1906) (holding that South Carolina waived Eleventh Amendment immunity where county treasurers empowered to act on behalf of the state litigated state claims in federal court represented by the state attorney general); cf. College Savings Bank v. Florida Prepaid Postsecondary Education Expense Bd., 527 U.S. 666, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999) (raising the standard for finding waiver in another context, holding that states must unequivocally consent to suit even where Congress explicitly seeks to shape state behavior through coercive regulation). Given the complexities of this issue, resolving it properly might well require a remand for a hearing and resolution of questions of fact before a trial court. Instead, we refrain from resolving this complex question of Eleventh Amendment jurisprudence because of a prior question of statutory subject matter jurisdiction. 496 III. The doctrine of enforcement jurisdiction 5 is a judicial creation, born of the necessity that courts have the power to enforce their judgments. Federal courts have the ancillary enforcement jurisdiction necessary “to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees.” Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 380, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Without this ability to enforce judgements rendered, “[t]he judicial power would be incomplete, and entirely inadequate to the purposes for which it was intended.” Bank of the United States v. Halstead, 23 U.S. (10 Wheat.) 51, 53, 6 L.Ed. 264 (1825). Consequently “[t]he jurisdiction of a Court is not exhausted by the rendition of its judgment, but continues until that judgment shall be satisfied.” Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 23, 6 L.Ed. 253 (1825). See also Riggs v. Johnson County, 73 U.S. (6 Wall.) 166, 187, 18 L.Ed. 768 (1868) (“[I]f the power is conferred to render the judgment or enter the decree, it also includes the power to issue proper process to enforce such judgment or decree.”) (citation omitted). Hence, although federal courts are courts of limited jurisdiction, they often retain residual federal jurisdiction over postjudgment enforcement proceedings flowing from their original jurisdiction over the action. Ancillary enforcement jurisdiction, given its origins in the courts of equity, traditionally has an equitable and discretionary character. Cf. The Judicial Improvements Act of 1990, Pub.L. No. 101-650, § 310, 104 Stat. 5089, 5113-14 (1990), codified at 28 U.S.C. § 1367 (codifying the judicially-crafted common law of pendent and ancillary jurisdiction); 28 U.S.C. § 1367(d) (conferring discretion over exercise of supplementary jurisdiction where claim involves “novel or complex” state law issues or in cases in which the jurisdictionally insufficient claims predominate). The question of whether such jurisdiction should be exercised may well vary with the nature of the underlying basis for federal jurisdiction and the nature of the postjudgment claims made. See, e.g., Thomas, Head & Greisen Employees Trust v. Buster, 95 F.3d 1449, 1453-54 (9th Cir.1996) (making independent assessment of jurisdiction over supplemental proceedings involving new parties on the basis of the nature of the claims presented); Sandlin v. Corporate Interiors, Inc., 972 F.2d 1212, 1216-17 (10th Cir.1992) (assessing jurisdiction of the court over postjudgment supplemental proceedings on basis of the nature of the claims made). Where the postjudgment claim is simply a mode of execution designed to reach property of the judgment debtor in the hands of a third party, federal courts have often exercised enforcement jurisdiction. The principle that federal courts have jurisdiction over an ancillary action “to secure or preserve the fruits and advantages of a judgment or decree rendered,” whether in law or in equity, is well settled. See, e.g., Local Loan Co. v. Hunt, 292 U.S. 234, 239, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). Where the state procedural enforcement mechanisms incorporated by Rule 69(a) allow the court to reach assets of the judgment debtor in the hands of third parties in a continuation of the same action, such as garnishment or attachment, federal enforcement jurisdiction is clear. See, e.g., First National Bank v. Turnbull & Co., 83 U.S. (16 Wall.) 190, 21 L.Ed. 296 (1872) (dispute with third party over prop 497 erty levied by sheriff supplemental to original action); Pratt v. Albright, 9 F. 634 (C.C.E.D.Wis.1881) (postjudgment garnishment proceeding supplemental to original action). See also Peacock, 516 U.S. at 356-57, 116 S.Ct. 862 (listing cases allowing garnishment, attachment, voidance of fraudulent conveyances, and mandamus to demonstrate that enforcement jurisdiction encompasses “a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments”); S. Glenn, Note, Federal Supplemental Enforcement Jurisdiction, 42 S.C. L.Rev. 469, 489 n.139 (1991). 6 Federal courts have expressly recognized their ability to exercise jurisdiction over new parties in supplemental proceedings where those proceedings concerned property under the control of the federal court due to an existing judgment, even where those new parties are nondiverse. See Freeman v. Howe, 65 U.S. (24 How.) 450, 16 L.Ed. 749 (1860); Minnesota Co. v. Saint Paid Co., 69 U.S. (2 Wall.) 609, 17 L.Ed. 886 (1864); Gwin v. Breedlove, 43 U.S. (2 How.) 29, 35, 11 L.Ed. 167 (1844) (diversity not necessary for a writ of attachment incidental to execution of judgment). While the presence of a new party does not in itself relieve the court of jurisdiction, the enforcement proceeding must be a mere continuation of the prior proceeding and not an action based on new grounds. See Anglo-Florida Phosphate Co. v. McKibben, 65 F. 529 (5th Cir.1894). Insofar as such proceedings are a continuation of the original action, the federal court retains residual jurisdiction flowing from its original authority to render a judgment in the case. This extension of jurisdiction is necessary to ensure the court’s ability to enforce a judgment rendered against the judgment debtor. As the Court remarked in Peacock, ancillary enforcement jurisdiction is “at its core, a creature of necessity.” 516 U.S. at 359, 116 S.Ct. 862. Thus these proceedings can reach third parties so long as it is necessary to reach assets of the judgment debtor under the control of the third party in order to satisfy the original judgment and thereby guarantee its eventual executability. In many ways this case gives the appearance of fitting within this traditional paradigm of enforcement jurisdiction. After all, the claim is in part that the assets of CDC were in effect transferred from the judgment debtor — CDC—to a third party 7 — the Commonwealth — through mechanisms of depletion and nonpayment in order to evade the judgment. State postjudgment enforcement procedures, incorporated into federal procedure by Rule 69(a), classically encompass such fact patterns. And in colloquial terms, it could be thought that exercise of enforcement jurisdiction here simply protects the MD judgment. Futura draws an analogy to a situation where a judgment is entered against a corporate subsidiary and the judgment is 498 unenforcable because the corporate parent has looted the subsidiary. In such instance, suits or enforcement proceedings against the corporate parent to enforce the judgment have been permitted. See, e.g., Explosives Corp. of America v. Garlam Enterprises Corp., 817 F.2d 894 (1st Cir.1987) (holding parent corporation which controlled litigation on behalf of subsidiary bound by judgment); Pan America Match Inc. v. Sears, Robuck and Co., 454 F.2d 871 (1st Cir.1972) (holding parent company bound in subsequent action by res judicata effect of judgment against subsidiary). While it is true that one might envision Futura’s efforts to recover here as analogous to pursuing assets of GDC that were fraudulently transferred to the Commonwealth, Futura has opted not to so characterize its efforts, likely in recognition that there is an analogy but not a perfect fit. Rather, Futura has consistently characterized its efforts to enforce the MD judgment against the Commonwealth as an attempt to establish liability directly on the part of the Commonwealth as the alter ego of CDC. See, e.g., Peacock, 516 U.S. at 358, 116 S.Ct. 862 (distinguishing cases relied on by plaintiff Thomas because they, unlike Thomas, did not seek “the shifting of liability for payment of the judgment from the judgment debtor” to the new party). Federal courts have drawn a distinction between postjudgment proceedings that simply present a mode of execution to collect an existing judgment and proceedings that raise an independent controversy with a new party, attempting to shift liability, and it is here that Futura’s present claim founders. Where a postjudgment proceeding presents an attempt simply to collect a judgment duly rendered by a federal court, even if chasing after the assets of the judgment debtor now in the hands of a third party, the residual jurisdiction stemming from the court’s authority to render that judgment is sufficient to provide for federal jurisdiction over the post-judgment claim. See, e.g., Thomas, Head, 95 F.3d at 1454 (allowing plaintiff to disgorge from third parties the fraudulently conveyed assets of the judgment debtor because plaintiff is “not attempting to establish [the third parties’] liability for the original judgment”). However, where that postjudgment proceeding presents a new substantive theory to establish liability directly on the part of a new party, some independent ground is necessary to assume federal jurisdiction over the claim, since such a claim is no longer a mere continuation of the original action. See, e.g., id. at 1454 n. 7, citing Peacock, 516 U.S. at 356 n. 6, 116 S.Ct. 862; Futura II, 144 F.3d at 11 n. 2 (“[Enforcement jurisdiction] cannot extend to most cases that seek to assign liability for the judgment to a new party.”); Sandlin, 972 F.2d at 1217 (“[W]hen postjudgment proceedings seek to hold nonparties liable for a judgment on a theory that requires proof on facts and theories significantly different from those underlying the judgment, an independent basis for federal jurisdiction must exist.”). 8 These distinctions might strike 499 a metaphysical note for some, but they have been long honored by the law and have been recognized by the Supreme Court. Thus in Peacock, the Court rejected an argument by the amicus United States to the effect that Thomas’ veil-piercing claim fell under classic cases seeking to “force payment by mandamus” or to “void post-judgment transfers,” noting that “neither Thomas nor the courts below characterized this suit this way,” and that indeed “Thomas expressly rejects that characterization of his lawsuit.” 516 U.S. at 357 n. 6, 116 S.Ct. 862. Since Thomas sought “to establish liability” on the part of a third party and not simply “to collect a judgment,” the Court required some independent basis to assert federal jurisdiction over the claim. Id. See also Sandlin, 972 F.2d at 1217 (declining to assert enforcement jurisdiction over an alter ego claim against third party presented in supplemental post-judgment proceedings under Rule 69(a) where the factual predicate of the alter ego claim was substantially distinct from the facts proving the underlying claim and no independent basis for federal jurisdiction existed). In the present proceeding, Futura seeks to hold the Commonwealth accountable for the existing MD judgment as an alter ego of CDC. Like piercing the corporate veil, an alter ego claim presents a substantive theory seeking to establish liability on the part of a new party not otherwise liable. See Futura II, 144 F.3d at 12 (describing alter ego theory as “a substantive theory for imposing liability upon entities that would, on first blush, not be thought liable” and as requiring “a subsequent and distinct inquiry”). See also Sandlin, 972 F.2d at 1217-18 (holding "that federal enforcement jurisdiction does not reach alter ego claims unless sufficiently intertwined with the merits of the underlying action, as they involve “different legal theories”). Indeed, Futura has consistently characterized its plaim in this fashion. Since the alter ego argument offers a new substantive theory that seeks to establish liability directly, on the part of a third party, the residual federal jurisdiction from the original action does not flow to such a claim, and hence some independent ground for federal jurisdiction is necessary. 9 Here an independent basis in federal jurisdiction is lacking: the sole basis for federal jurisdiction over the original action was diversity, and diversity jurisdiction does not exist where a state is a party. As federal courts are courts of limited jurisdiction, they can act only where the Constitution and Congress endow them with some affirmative ground to do so. See Kokkonen, 511 U.S. at 377, 114 S.Ct. 1673. In particular, Congress has not empowered the federal courts to exercise diversity jurisdiction over the states. By the express terms of the statute, the diversity jurisdiction does not ever extend to the states, nor does it extend to Puerto Rico. See 28 U.S.C. § 1332; id. § 1332(d) (Puerto Rico treated as a “state” for purposes of the statute, and therefore not subject to diversity jurisdiction); Nieves v. University of Puerto Rico, 7 F.3d 270, 272 (1st Cir.1993). The rule that neither Puerto Rico nor a state is subject to diversity jurisdiction extends to their alter egos, as the alter ego of the state stands in the same position as the state for diversity 500 purposes. Moor v. Alameda County, 411 U.S: 693, 718, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973); University of Rhode Island v. AW. Chesterton Co., 2 F.3d 1200, 1202-03 (1st Cir.1993). Futura’s claim is not simply one to collect a judgment already rendered but rather one to newly establish liability directly on the part of a third party, the Commonwealth. In light of the lack of an independent basis for federal jurisdiction over that party in diversity, we conclude that there is no federal enforcement jurisdiction over this claim. 10 This conclusion accords with the general congressional policy against reaching states in diversity actions. An extension of federal enforcement jurisdiction to such cases would potentially provide a means to evade, in effect, such limitations on federal court jurisdiction. To permit the exercise of federal enforcement jurisdiction against the Commonwealth on a theory that the original defendant was a mere alter ego of the Commonwealth, and thereby to hold the Commonwealth the real party in interest, would violate these limitations on diversity jurisdiction. This is not a case where the Commonwealth is plainly a third party holding by happenstance the assets of the judgment debtor. Rather, Futura maintains that CDC was the alter ego of the Commonwealth all along. On that theory and in light of the congressional policy against making the states (or the Commonwealth) party to diversity actions, Fu-tura should not be able to reach the Commonwealth here. The analysis would be different if there were an independent jurisdictional base to bring in the Commonwealth. See Blackburn Truck Lines, Inc. v. Francis, 723 F.2d 730, 732-33 (9th Cir.1984) (allowing enforcement jurisdiction over alter ego claim but noting that federal jurisdiction would have existed had the new defendants been joined in the original suit). That is not the case. In fact, had CDC then been determined to be the alter ego of the Commonwealth, federal jurisdiction would not have existed over CDC at the outset of this action. To evade this outcome and hold.the Commonwealth liable now by asserting federal enforcement jurisdiction would undermine the limited nature of federal court jurisdiction and transgress, at least in spirit, the congressional policy against making states party to diversity actions. It is no answer to say, as Futura does, that diversity is to be assessed at the time the action is filed. Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991) (per curiam). 11 It is true that a 501 party later moving to a different domicile does not destroy previously established diversity. But that is a different problem than this. A state is never subject to diversity jurisdiction, unlike an individual. It is undisputed that there was diversity jurisdiction over the original action against CDC. The Commonwealth has denied that CDC is its alter ego, and Futura did not then make the claim. It would be an anomalous result if Futura could do through ancillary enforcement jurisdiction what it could not do through original jurisdiction: force Puerto Rico (or a state) to be a defendant in federal court based on diversity jurisdiction when Congress has determined states are simply not subject to diversity jurisdiction. To sum up, since Peacock, courts have allowed postjudgment actions to proceed against third parties where they seek to establish the control of the court over the assets of the judgment debtor in the hands of that third party, and involve the third party only incidentally. Those proceedings are different in kind from the alter ego theory advanced by Futura in this case, which by contrast seeks to hold the third party itself, the Commonwealth, directly accountable as the judgment debtor under a new substantive theory of liability. Absent some independent ground in federal jurisdiction, there is no federal enforcement jurisdiction over such a claim. IV. Because it is inappropriate for the federal courts to exercise ancillary enforcement jurisdiction over this matter, we vacate the district court’s findings that CDC was not an alter ego of the Commonwealth and that Puerto Rico Rules of Civil Procedure 51-7 and 59 do not allow for enforcement against the Commonwealth, and we order dismissal of Futura’s motion for supplemental proceedings in aid of execution of judgment for lack of federal jurisdiction. While the findings of the district court in this proceeding were at odds with the finding of the district court in Futura I that CDC was an alter ego of the Commonwealth, both opinions have been vacated, and hence neither have any preclusive weight. This leaves Futura free to pursue whatever remedies may be available in the courts of the Commonwealth of Puerto Rico. Under Puerto Rico’s saving clause, the statute of limitations has been tolled during the resolution of the questions of jurisdiction in the suits in federal court, as CDC conceded at oral argument. 31 L.P.R.A. § 5303. See Soto v. Chardon, 681 F.2d 42, 49 (1st Cir.1982) (“Under P.R. Laws Ann. tit. 31, § 5303, the limitations period against an action ceases to run when the action is instituted in court;, if the action is discontinued, the case law has held that the limitations period begins to run anew from that time. E.g., Feliciano v. Puerto Rico Aqueduct & Sewer Auth., 93 P.R.R. 638, 644 (1966); Heirs of Gorbea v. Potilla, 46 P.R.R. 279 (1934); De Jesus v. De Jesus, 37 P.R.R. 143 (1927).”). Our denial of jurisdiction over the supplemental proceedings leaves Futura no worse off than had it sought to establish liability directly against the Commonwealth as an alter ego of CDC in the first instance— that is, with an opportunity to pursue its cause in the Commonwealth courts. In Futura II, this court said the Commonwealth’s treatment of Futura “has been despicable,” and the Commonwealth has “cleverly used its sovereignty to shield itself from the fan consequences of its action,” 144 F.3d at 13-14. This court there described “the manifest injustice of the conduct of the government of the Commonwealth of Puerto Rico throughout this affair,” 144 F.3d at 14. Even manifest injustice, however, does not create federal court jurisdiction. If CDC pursues the matter, it will be up to the Commonwealth, 502 through its courts or legislature, to address the issue of that injustice. So ordered. 1: Puerto Rico Rule 51.7 provides in relevant pai't, When a judgment is recovered against one or more of several debtors, jointly liable for an obligation, those debtors who are not parties to the action may be summoned to show cause why they should not be bound by the judgment in the same manner as if they had been originally sued.... It shall not be necessary to file a new complaint.... [T]he judgment debtor... may assert any defense of fact and of law that may release him from liability. 2. Puerto Rico Rule 59 provides that when appropriate, "[t]he Court of First Instance shall have the power to declare rights, status and other legal relationship, even though another remedy is or may be instigated.... The declaration... shall have the force and effect of final judgments or resolutions.” 3. While the Supreme Court has reserved ruling on the immunity of the Commonwealth under the Eleventh Amendment, see Puerto Rico Aqueduct and Sewer Authority v. Metcalf & Eddy, Inc., 506 U.S. 139, 141 n. 1, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993), it is the settled law of this circuit that the Commonwealth enjoys Eleventh Amendment immunity from suit in federal court, see, e.g., Ramirez v. Puerto Rico Fire Serv., 715 F.2d 694, 697 (1st Cir.1983). Therefore, to hold the Commonwealth accountable for the MD judgment rendered in federal court, Futura must show that the Commonwealth has waived that immunity.. 4. CDC filed counter- and crossclaims against USI and MD respectively alleging that the properties were contaminated by mercury and seeking several million dollars in damages. These claims were expressly rejected by the jury in the original litigation. 5. Like Futura II, we use the phrase "enforcement jurisdiction” to refer to that portion of ancillary jurisdiction based in the inherent power of federal courts to exercise jurisdiction in order to enforce their judgments in certain situations where jurisdiction would otherwise be lacking. We do so both to maintain consistency and to avoid confusion arising from the relationship of ancillary and pendent jurisdiction. See Futura II, 144 F.3d at 9 n. 1. See also S. Glenn, Note, Federal Supplemental Enforcement Jurisdiction, 42 S.C. L.Rev. 469, 472 (1991). 6. Federal courts have also at times awarded monetary judgments against impecunious police officers and then allowed enforcement proceedings against municipalities which had contractual obligations to pay such judgments. Argento v. Village of Melrose Park, 838 F.2d 1483 (7th Cir.1988); Skevofilax v. Quigley, 810 F.2d 378 (3d Cir.1987). But cf. Berry v. McLemore, 795 F.2d 452 (5th Cir.1986). We do not decide whether such indemnification proceedings fall within enforcement jurisdiction. 7. We use the language of "third parties” without in any way implying an outcome to the alter ego question. The very theory of alter ego liability depends on there being two entities to start with. See, e.g., Brotherhood of Locomotive Engineers v. Springfield Terminal Ry. Co., 210 F.3d 18, 25 (1st Cir.2000) (piercing the corporate veil and thus disregarding corporate formalities entails determining that two apparently independent entities are in fact mere alter egos), petition for cert, filed (U.S. Oct. 10, 2000) (No. 00-569). In Futura II this court recognized that and referred to CDC and the Commonwealth as distinct “jural entities,” while not deciding the alter ego question. The district court erred in thinking that this reference to distinct jural entities resolved the alter ego issue. 8. Nor is it sufficient to rely on the incorporation of state procedures in Rule 69(a) to establish federal enforcement jurisdiction. State courts, as courts of general jurisdiction, are free to employ any enforcement mechanisms warranted by state law, even where those mechanisms allow liability to be established directly against a third party to the original action. However, the limited nature of federal jurisdiction in general confines the scope of enforcement jurisdiction as well. The incorporation of state enforcement procedures through Rule 69 is not alone sufficient to create federal jurisdiction over such enforcement proceedings. The fact that Rule 69(a) may (by way of slate law) afford procedural mechanisms for enforcing an existing federal judgment against a third party not otherwise liable does not obviate the need to establish the jurisdiction of the federal court over the supplemental proceeding. The Federal Rules of Civil Procedure can neither expand nor limit the jurisdiction of the federal courts, Fed.R.Civ.P. 82, and the issue of jurisdiction remains distinct from the question of procedure. See Sandlin, 972 F.2d at 1215 ("Rule 69 creates a procedural mechanism for exercising postjudgment enforcement when ancillary jurisdiction exists,... but can 499 not extend the scope of that jurisdiction.”) (citations omitted). 9. We do not answer the question of whether there is federal enforcement jurisdiction for any possible scenario involving an alter ego claim. We do not rule out the possibility that some alter ego claims will present sufficiently intertwined factual issues to warrant federal courts to assume pendent jurisdiction over the claims. However, this is not such a case. In this case, the factual bases of Futura’s alter ego claim are independent and substantially distinct from the facts relevant to establishing liability against CDC in the original action. In any event, any possible judicial economy from the simultaneous adjudication of interdependent facts vanished when the initial proceedings closed. 10. We are not persuaded by Futura’s efforts to distinguish this case from Peacock and Fu-tura II on the ground that this claim is brought in the context of a supplemental proceeding rather than a subsequent post-judgment action. Because it brings its motion for proceeding on and in aid of the execution of an existing judgment, Futura 'maintains that the court possesses “the threshold jurisdictional power that exists where ancillary claims are asserted in the same proceeding as the claims conferring federal jurisdiction” that was lacking in those cases. See Peacock, 516 U.S. at 355, 116 S.Ct. 862. However, the fact that the district court had a basis for asserting jurisdiction over the original matter only meets that threshold — it does not conclude the jurisdictional inquiry, as it is not a sufficient showing alone to justify the exercise of enforcement jurisdiction over any supplemental proceeding. The appropriateness of the exercise of federal jurisdiction must be shown for supplemental proceedings as well, particularly where they involve the imposition of obligations on new parties. The simple fact that the supplemental proceeding is brought as part of the same case' does not relieve the court from independent consideration of its authority to address the specific claims before it in the supplemental proceeding. See, e.g., Sandlin, 972 F.2d at 1216-17 (assessing jurisdiction of the court over postjudgment supplemental proceedings on basis of the nature of the claims made). 11. Nor does Futura’s reliance on Laird v. Chrysler, 92 F.R.D. 473 (D.Mass.1971), persuade us. Without deciding whether that case is correctly decided, Futura does not seek to add the Commonwealth as a new third party defendant (as the defendant in Laird sought to add the state of Rhode Island as a third party defendant) but rather con *501 tends that "CDC and the Commonwealth... are now, and have always been, one and the same party.” This contention that the Corn-monwealth is already party to the judgment renders Laird factually inapposite.	CRITICIZED_OR_QUESTIONED
723 F.2d 730	144 F.3d 7	AR, OR	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	TORRUELLA, Chief Judge. In an earlier proceeding, the predecessor of plaintiff Futura Development of Puerto Rico, Inc. (“Futura”) obtained a judgment against the Cooperative Development Company (“CDC”), a public corporation and instrumentality of the Commonwealth of Puerto Rico, in the amount of $12,266,000. See U.S.I. Properties Corp. v. M.D. Construction Co., 860 F.2d 1 (1st Cir.1988). After CDC failed to satisfy the judgment, Futura brought this suit seeking a determination that CDC was an alter ego of the Commonwealth of Puerto Rico, and that, as a de facto party to the earlier litigation, the Commonwealth was liable for the judgment. On this theory of recovery, Futura was awarded summary judgment. See Futura Devel. of P.R. v. Puerto Rico, 962 F.Supp. 248 (D.P.R.1997). Futura also brought six other claims against individual government employees under various causes of action, all of which were dismissed by the district court sua 9 sponte. See id. The parties cross-appealed to this court. We conclude that the district court acted without proper jurisdiction in awarding summary judgment to Futura on its alter ego theory and improperly dismissed the remaining claims against the individual defendants. Background On October 25, 1988, this court affirmed a district court judgment entered pursuant to a jury verdict against CDC, for $12,266,000. See U.S.I. Properties Corp. v. M.D. Construction Co., Inc., 860 F.2d 1 (1st Cir.1988). The jury found that CDC had unilaterally terminated a construction contract with M.D. Construction, predecessor in interest to Futura, which provided for the building of a low-income housing project called “Ciudad Cristiana.” The jury in that ease rejected CDC’s cross-claims alleging that the Ciudad Cristiana property was contaminated with mercury. Jurisdiction in that case was premised entirely upon diversity. See id. Now, almost ten years later, this court is faced with the current dispute over satisfaction of that judgment. CDC is a public corporation that was created by the Puerto Rico Legislative Assembly in order to develop housing cooperatives across Puerto Rico. See P.R. Laws Ann. Tit. 5, §§ 981 et seq. A majority of the CDC’s budget each year is provided by the Commonwealth. Since- the original litigation, the Commonwealth has engaged in a de facto liquidation of CDC in order to avoid satisfying the sizable judgment pending against it. Specifically, the Commonwealth has failed to provide for satisfaction of the judgment in CDC’s budgets, stripped CDC of its assets, transferred its employees, and replaced CDC in the organizational chart of Commonwealth agencies and public corporations. During its liquidation, CDC settled debts with some creditors, but not with Futura. CDC, insolvent and devoid of official responsibility, now exists in name only. Futura, frustrated by these tactics, brought this suit against the Commonwealth in federal court under the court’s enforcement jurisdiction. 1 Futura argues that the Commonwealth of Puerto Rico is liable for the original judgment because it was a de facto party to the original litigation. This assertion is supported not only by the generally close relationship between the Commonwealth and the CDC, but specifically by the fact that the Attorney General of Puerto Rico took over the original litigation for CDC. Furthermore, in its closing argument to the jury in that original litigation, CDC argued that any judgment against it would have to be paid with Puerto Rico tax dollars. The Commonwealth argues that, even if CDC were its “alter ego,” it retains Eleventh Amendment immunity from this suit in federal court. Despite its active participation in the defense of the original suit and use of the “tax dollars” argument with the jury, the Commonwealth asserts that it did not implicitly waive its immunity. The district court disagreed, awarding summary judgment in Futura’s favor on the first count, and dis 10 missing sua sponte Futura’s remaining claims against the individual defendants. See 962 F.Supp. at 257-58. Because we conclude that the district court acted without proper jurisdiction, we do not reach the questions raised regarding implicit waiver of Eleventh Amendment immunity. Analysis I. Enforcement Jurisdiction The first question to be resolved in this case is whether the district court properly exercised jurisdiction over Futura’s claim against the Commonwealth. The parties acknowledge that federal question jurisdiction is inapplicable to Futura’s alter ego claim, and that the Commonwealth of Puerto Rico is not subject to diversity jurisdiction. Cf. 28 U.S.C. § 1332(d) (Puerto Rico treated as a “state” for purposes of the statute, and therefore not subject to diversity jurisdiction); Nieves v. University of P.R., 7 F.3d 270, 272 (1st Cir.1993). Futura’s primary jurisdictional argument is that federal jurisdiction over the alter ego claim against the Commonwealth of Puerto Rico is premised upon federal enforcement jurisdiction. However, in actions such as this, where the district court had original jurisdiction founded solely on diversity jurisdiction, extending enforcement jurisdiction over a non-diverse party without sound reasons for doing so may represent an impermissible expansion of federal jurisdiction. At the same time, it is generally recognized that “without jurisdiction to enforce a judgment entered by a federal court, ‘the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution.’ ” Peacock v. Thomas, 516 U.S. 349, 356, 116 S.Ct. 862, 868, 133 L.Ed.2d 817 (1996) (quoting Riggs v. Johnson County, 6 Wall. 166, 187, 18 L.Ed. 768 (1868)). Futura argues that under the doctrine of enforcement jurisdiction, federal courts generally possess jurisdiction over new proceedings in which a federal- judgment creditor seeks to impose liability for a judgment on a person or entity not named in the original judgment, even where there is no independent basis for federal jurisdiction. However, Futura’s argument fails in light of recent Supreme Court doctrine. In Peacock, the Supreme Court explained that it had “never authorized the exercise of [enforcement] jurisdiction in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not already liable for that judgment.” Id. at 357, 116 S.Ct. at 868. In that case, Thomas, the plaintiff, had obtained a large ERISA class action judgment against his former employer, Tru-Tech, Inc. Instead of paying the judgment, Peacock, an officer and shareholder of Tru-Tech, settled Tru-Tech’s debts with other creditors, including himself, and ignored the debt owed to Thomas. After collection efforts proved unsuccessful, Thomas sued Peacock in federal court using a “veil-piercing” rationale. Despite the absence of an independent jurisdictional basis for the proceeding, the district and circuit courts agreed to exercise enforcement jurisdiction in piercing the corporate veil. The Supreme Court reversed, explaining that there was insufficient factual dependence between the claims raised in Thomas’ suits to justify the extension of enforcement jurisdiction. See id. at 354-55, 116 S.Ct. at 866-67. Through Peacock, the Court reaffirmed the doctrine that “[i]n a subsequent lawsuit involving claims with no independent basis for jurisdiction, a federal court lacks the threshold jurisdictional power that exists when ancillary claims are asserted in the same proceeding as the claims conferring federal jurisdiction.” Id. at 355, 116 S.Ct. at 867 (citing Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 380-81, 114 S.Ct. 1673, 1677, 128 L.Ed.2d 391 (1994); H.C. Cook Co. v. Beecher, 217 U.S. 497, 498-99, 30 S.Ct. 601, 601-02, 54 L.Ed. 855 (1910)). The Court reasoned that, while a proper exercise of enforcement jurisdiction will result in efficiencies which outweigh comity concerns, an exercise of enforcement jurisdiction over a factually independent proceeding has no practical benefit for judicial economy. See id. at 355-56, 116 S.Ct. at 867-68. Where a plaintiff plans to use the federal court to examine the defendant’s identity and finances, as Thomas did in his veil-piercing claim, the court is asked to delve into a new and séparate matter, and an independent 11 basis for jurisdiction is required. This situation is distinguishable from where a party uses a post-judgment proceeding to challenge or revisit an issue or determination made by the federal court in the original proceeding. Futura attempts to distinguish Peacock on two grounds. First, Futura argues that, under Peacock, enforcement jurisdiction will only be refused where the new defendant’s liability is premised upon that party’s actions which took place after the original judgment was rendered. According to Futura, the Commonwealth’s liability stems from its actions before and during the original litigation, so Peacock is inapposite. This nuanced interpretation misses the rationale of the case. Peacock holds that enforcement jurisdiction does not exist in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a new defendant whenever the new proceeding lacks factual dependence upon the old proceeding. Obviously, subsequent proceedings based upon defendant’s actions occurring after the original proceeding will necessarily be factually independent from the primary proceeding. 2 However, Peacock is broader than that. Extending enforcement jurisdiction to factually independent subsequent proceedings will not serve the purpose of judicial efficiency whether those proceedings premise liability upon pre- or post-judgment actions. Peacock does not limit itself, explicitly or implicitly, as Futura argues. Moreover, Peacock’s discussion of other relevant circuit and.Supreme Court case law confirms that its holding is as broad as dictated by its logic. The Peacock Court specifically declared that it had granted certiorari to resolve a split among the various federal courts of appeals. See id. at 352, 116 S.Ct. at 865-66, comparing Thomas v. Peacock, 39 F.3d 493 (4th Cir.1994); Argento v. Melrose Park, 838 F.2d 1483 (7th Cir.1988); Skevofilax v. Quigley, 810 F.2d 378 (3d Cir.1987) (en banc) and Blackburn Truck Lines, Inc. v. Francis, 723 F.2d 730 (9th Cir.1984) with Sandlin v. Corporate Interiors Inc., 972 F.2d 1212 (10th Cir.1992) and Berry v. McLemore, 795 F.2d 452 (5th Cir.1986). In both Sandlin and Berry, the two cases that Peacock ultimately supports, the circuit courts refused to exercise enforcement jurisdiction over factually independent subsequent proceedings where the new defendants’ liability was premised upon those parties’ actions before the original judgments were rendered. Furthermore, in H.C. Cook Co. v. Beecher, a 1910 case reaffirmed by the Court in Peacock, the Court held that enforcement jurisdiction would be refused to parties attempting to make new defendants answerable for an earlier judgment. Beecher also involved alleged liability on the part of new defendants based upon those defendants’ pre-judgment actions. See Beecher, 217 U.S. at 498-99, 30 S.Ct. at 601-02; Thomas v. Peacock, 39 F.3d 493, 500-01 (4th Cir.1994). The Peacock Court stated that Beecher was binding upon it. See 516 U.S. at 357-58, 116 S.Ct. at 868-69. Thus it is clear that Peacock’s holding is not limited to subsequent proceedings in which the new defendant’s liability is premised upon that party’s post-judgment actions. Futura’s other attempt to distinguish Peacock is futile as well. Futura claims that since the Commonwealth is the alter ego of CDC, the Commonwealth is not really a “new” defendant. According to this argument, whereas Peacock was not liable for the primary judgment until after the subsequent hearing, the Commonwealth was hable to Futura from the moment that the jury returned its verdict in the original proceeding. Thus, the viability of Futura’s argument depends entirely upon our ruling that, unlike a generic veil-piercing claim, which represents a substantive rule, of liability, an alter ego claim is a mere factual determination that identifies an original judgment debtor. Although we do not discount the possibility that some other alter ego claims can be so characterized, in this case, the Commonwealth and CDC are undeniably separate 12 jural entities, and CDC (but not the Commonwealth) was the original judgment debtor. See P.R. Laws Ann. tit. 5, § 981(d) (stating that the Commonwealth is not liable for the debts of CDC). It is clear, then, that this alter ego claim seeks to do more than simply identify the original judgment debtor. It cannot be denied that this case is separate from the original proceeding. Like the veil-piercing claim in Peacock, an alter ego claim involves an independent theory of liability under equity, complete with new evidence. See Note, Piercing the Corporate Law Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L.Rev. 853, 853 n. 1 (1982) (veil-piercing and alter ego claims are part of the same doctrine). 3 Although a judgment entered pursuant to such a finding can affect previously existing judgments and other debts, the claim requires a subsequent and distinct inquiry from the court. To adopt Futura’s argument, we would be forced to treat the corporate form of CDC as a complete nullity—to look through its legal identity to the party standing behind it—and to do so under the guise of making a factual determination necessary to determine our subject matter jurisdiction over this case. Cf. United States v. United Mine Workers, 330 U.S. 258, 292 n. 57, 67 S.Ct. 677, 695 n. 57, 91 L.Ed. 884 (1947). This would be an unwarranted expansion Of our jurisdiction. Alter ego/veil-piercing claims involve a substantive theory for imposing liability upon entities that would, on first blush, not be thought liable for a tort or on a contract. See, e.g., Resolution Trust Corp. v. Smith, 53 F.3d 72, 79-80 (5th Cir.1995); Thomas v. Peacock, 39 F.3d 493, 499 (4th Cir.1994), rev’d on other grounds, 516 U.S. 349, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996). Thus, the Commonwealth is in the same position as the defendants in Beecher and Sandlin, who had also been sued under alter ego rationales. See Sandlin, 972 F.2d at 1217-1218. As previously discussed, Peacock supports both cases, wherein the federal courts ultimately refused to extend enforcement jurisdiction. Thus, insofar as alter ego theories require factually independent proceedings, they will not subvert the rule of Peacock. This rule is determinative in this case. II. Supplemental Jurisdiction In the alternative, Futura argues that its alter ego claim is within the district court’s supplemental jurisdiction because that claim is so related to its civil rights claims against the individual defendants, claims over which the court undeniably has original jurisdiction, that it forms part of the same ease or controversy. See 28 U.S.C. § 1367. We do not find this argument persuasive. 4 Although its alter ego claim has pre- and post-judgment components, Futura carefully crafted the allegations in its alter ego claim to emphasize the pre-judgment relationship between the Commonwealth and CDC. It stressed the close ties between CDC and the government that existed before and during the original case. It did so because its only chance to penetrate Puerto Rico’s Eleventh Amendment immunity was to argue that the Commonwealth, through its behavior in the case, waived its immunity. Futura recognized that, were it to rely upon the Commonwealth’s post-judgment liquidation of CDC in its alter ego claim, Puerto Rico would have Eleventh Amendment immunity from the claim that would be virtually unassailable, as no waiver of such immunity can be inferred 13 from the Commonwealth’s post-judgment conduct. Futura’s alter ego claim simply cannot be saved by the argument that it forms part of the same case or controversy as the civil rights claims, all of which are premised upon post-judgment conduct. And even if we were to agree that there existed sufficient relatedness between Futura’s claims against the individual defendants and the post-judgment components of Futura’s alter ego claim to bring these components within our supplemental jurisdiction, the Eleventh Amendment would, for reasons already explained, render us powerless to grant Futura any relief against the Commonwealth. In any event, we do not find sufficient relatedness between these claims because there is no common nucleus of operative facts shared by both the civil rights claims and the alter ego claim. See BIW Deceived v. Local S6, Indus. Union of Marine and Shipbuilding Workers, 132 F.3d 824, 833 (1st Cir.1997) (federal courts may only assert supplemental jurisdiction under 28 U.S.C. § 1367 where the claims arise from the same “nucleus of operative facts”). The claims do not overlap in theory or chronology. The cases are sufficiently distinct to require an independent jurisdictional basis. Any holding to the contrary would be inconsistent with the jurisdictional requirements of section 1332, and thus in direct contravention of section 1367. 5 As the district court observed, the Commonwealth of Puerto Rico “stood behind CDC in filing an action of questionable merit in this Court, and when that backfired and resulted in an adverse judgment of $12.3 million, it sought to preclude collection of the same.” 962 F.Supp. at 257. Indeed the Commonwealth’s treatment of M.D. Construction/Futura throughout these proceedings has been despicable, and may result in hesitation by contractors to do business with public corporations funded by Puerto Rico, as well as other dire consequences for its financial reputation. However, federal courts are of limited jurisdiction, and may not weigh the equities of a case until jurisdiction has been established. See Hercules, 516 U.S. at 430, 116 S.Ct. at 989. In this case, Puerto Rico, like any state, enjoys the sovereign privilege not to be sued in federal court under diversity. Having concluded that neither enforcement nor supplemental jurisdiction exists over this suit, we must turn a blind eye to any perceived injustices delivered at the hands of the Puerto Rican government. 6 III. Sua Sponte Dismissal of Futura’s Other Claims After awarding summary judgment for Futura on the first cause of action, the district court dismissed the six remaining causes of action Futura had brought against individual defendants. Although the district court’s desire to dispose of these claims is understandable in light of its having provided for the full satisfaction of the original judgment through its award of summary judgment on the first cause of action, the sua sponte dismissal of these remaining claims was premature. Because we herein vacate the district court’s award of partial summary judgment, these remaining claims become even more potentially significant. This court has held that, in limited circumstances, sua sponte dismissals of corn- 14 plaints under Rule 12(b)(6) of the Federal Rules of Civil Procedure are appropriate. See Wyatt v. City of Boston, 35 F.3d 13, 14 (1st Cir.1994). However, such dismissals are erroneous unless the parties have been afforded notice and an opportunity to amend the complaint or otherwise respond. See id.; Street v. Fair, 918 F.2d 269, 272 (1st Cir.1990) (per curiam); Literature, Inc. v. Quinn, 482 F.2d 372, 374 (1st Cir.1973). In this case, Futura’s initial complaint contained four causes of action against individual defendants, each a government employee. The individuals were sued under the Equal Protection Clause, Due Process Clause, and for federal civil rights violations and tortious interference with contractual relationships under Puerto Rico law. These causes of action were improperly pled in the initial complaint because they contained insufficient factual allegations to establish a causal nexus between the named defendants’ conduct and the alleged violations of law. See 962 F.Supp. at 257. After receiving various motions to dismiss and a Magistrate’s Report and Recommendation that these claims be dismissed, the district court dismissed the claims without prejudice. Futura then filed an amended complaint, devoting sixty pages exclusively to detailed claims against the individual defendants. This amended complaint also contained two completely new claims under the Contracts Clause and Puerto Rican tort law. Without any notice to the parties in this ease, the district court dismissed with prejudice all causes of action against the individual defendants..The district court cursorily concluded that “the amended verified complaint does not... cure the defects of the original one [because it] fails to draw a nexus between the individual defendants and the government’s scheme to preclude payment of the judgment in his favor.” Id. at 258. The district court erred in dismissing these claims sua sponte without providing the parties with notice and an opportunity to respond. See Wyatt, 35 F.3d at 14. The amended complaint contained new causes of action and more specific allegations of fact. Futura reasonably believed that its amended complaint addressed the court’s initial concerns, and was entitled to address any new or continuing infirmities that the court perceived. 7 Accordingly, the dismissal of these claims is reversed, and they are remanded for further proceedings. Conclusion For the reasons stated herein, we vacate the district court opinion as to count one of the verified amended complaint and dismiss that count. We reverse the district court’s sua sponte dismissal of counts two through seven and remand those claims for further proceedings consistent with this opinion. Finally, we wish to note again the manifest injustice of the conduct of the government of the Commonwealth of Puerto Rico throughout this affair. It has cleverly used its sovereignty to shield itself from the fair consequences of its actions, and has been aided by recent Supreme Court doctrine. Peacock, however, is a relatively new case, and circuit courts are applying it differently. Cf. Matos v. Richard A. Nellis, Inc., 101 F.3d 1193, 1195 (7th Cir.1996) (remarking that after Peacock, it is “not altogether clear” in which types of federal litigation an independent ground of jurisdiction is necessary to pierce the corporate veil). As the doctrine of enforcement jurisdiction evolves, perhaps fewer unjust consequences will flow from it. This case might be well-served by the Supreme Court’s attention. No costs. 1. Plaintiffs argue that the district court has jurisdiction over this claim under the doctrine of ''ancillary jurisdiction” recognized in Dugas v. American Surety Co., 300 U.S. 414, 428, 57 S.Ct. 515, 521, 81 L.Ed. 720 (1937). In Dugas, the Court reaffirmed the inherent power of federal courts to exercise jurisdiction in order to enforce their judgments in certain situations where jurisdiction would otherwise be lacking. Cf. Root v. Woolworth, 150 U.S. 401, 410-412, 14 S.Ct. 136, 138-39, 37 L.Ed. 1123 (1893) (the first Supreme Court case brought under such jurisdiction). Throughout, we will refer to this type of jurisdiction as "enforcement jurisdiction.?’ We do so because the term “ancillary jurisdiction” is also used with reference to another common law concept of jurisdiction related to "pendent jurisdiction” whereby federal courts obtain jurisdiction over certain claims interposed by parties other than the plaintiff so as to avoid piecemeal litigation. See 28 U.S.C.A. § 1367, commentary (West 1993). While this other form of ancillary jurisdiction was joined with pendent jurisdiction and codified in 1990 under the rubric of "supplemental jurisdiction,” enforcement jurisdiction remains a creature of common.law. To prevent confusion, we will avoid references to ancillary jurisdiction wherever possible, referring instead to supplemental jurisdiction and enforcement jurisdiction. See Susan M. Glenn, Note, Federal Supplemental Enforcement Jurisdiction, 42 S.C.L.Rev. 469, 472 (1991) (urging that courts distinguish between the two forms of ancillaiy jurisdiction, adopt more precise terminology in these ■ cases, and analyze questions of enforcement jurisdiction without reference to supplemental jurisdiction doctrine). 2. Enforcement jurisdiction can extend to post-judgment conduct in cases where mandamus is sought to force compliance with an existing judgment. However, it cannot extend to most cases that seek to assign liability for the judgment to a new party. See Peacock, 516 U.S. at 358, 116 S.Ct. at 868-69 (citing Labette County Comm’rs v. United States ex rel. Moulton, 112 U.S. 217, 5 S.Ct. 108, 28 L.Ed. 698 (1884); Riggs, 6 Wall. (73 U.S.) 166, 18 L.Ed. 768). 3. Futura’s argument that an alter ego determination fundamentally differs from a generic veil-piercing is somewhat undermined by Futura’s own complaint, which declares that ”[t]he corporate entity [sic] of CDC must be disregarded and its veil pierced, and [the Commonwealth] be declared the alter ego of CDC.” 4. We note that Futura did not plead supplemental jurisdiction as an alternative basis for jurisdiction over its alter ego claim. Nor has plaintiff moved to amend the jurisdictional allegations in its complaint pursuant to 28 U.S.C. § 1653. There is a legitimate question as to whether Futura may preserve its judgment simply by suggesting an alternative jurisdictional theory in its brief. See Limerick v. Greenwald, 749 F.2d 97, 100 n. 2 (1st Cir.1984) (doubting the applicability of 28 U.S.C. § 1653 in similar circumstances). However, because we conclude that we may not exercise jurisdiction over Futura’s alter ego claim under 28 U.S.C. § 1367, we need not resolve this issue. 5. Recognizing the possibility that Peacock might govern this appeal, Futura argues that an appropriate remedy is not a dismissal of this case, but rather a remand to the district court with instructions to deem the first cause of action in this case a motion under P.R. R. Civ. P. 59 for a declaratory judgment that the Commonwealth is the party in interest in the original litigation and required to comply with the judgment. However, we cannot do so. Having determined that federal courts have no enforcement or supplemental jurisdiction over this proceeding, we similarly have no authority for a declaration along the lines suggested by Futura. See Hercules, Inc. v. United States, 516 U.S. 417, 430, 116 S.Ct. 981, 989, 134 L.Ed.2d 47 (1996) (federal courts are "constrained by our limited jurisdiction and may not entertain claims 'based merely on equitable considerations.' ”) (quoting United States v. Minnesota Mut. Inv. Co., 271 U.S. 212, 217-18, 46 S.Ct. 501, 503, 70 L.Ed. 911 (1926)). 6. Thus, we do not reach many of the substantive issues in this case, including whether CDC actually was an alter ego of the Commonwealth, whether the issue is precluded by a post-trial order in the earlier litigation, and whether Puerto Rico’s Eleventh Amendment immunity applies to this claim. 7. We note that, upon review, we are unable to determine how the amended verified complaint fails to draw a sufficient nexus between the defendants and the alleged wrongdoing. Without opining as to the ultimate survivability of these claims under Rule 12(b)(6), we expect that, on remand, the district court will provide Futura with more guidance as to the perceived failings in the amended complaint.	INVALIDATED
723 F.2d 730	39 F.3d 493	C, DW	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	Affirmed in part and vacated and remanded in part by published opinion. Judge RUSSELL wrote the opinion, in which Judge WIDENER and Senior Judge CHAPMAN joined. OPINION DONALD RUSSELL, Circuit Judge: Jack L. Thomas (“Thomas”), a former employee of Tru-Tech, Inc. (“Tru-Tech”), brought a suit under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., on behalf of a class of former Tru-Tech employees against Tru-Tech and D. Grant Peacock (“Peacock”), an officer and shareholder of Tru-Tech. The district court held for the plaintiff class as against Tru-Tech, but held Peacock not liable as a plan fiduciary. Thomas v. Tru-Tech, Inc., No. 87-2243-3, 1988 U.S.Dist. LEXIS 15929, 1988 WL 212511 (D.S.C. Nov. 28, 1988). On appeal, we affirmed the district court’s judgment in all respects. Thomas v. Tru-Tech, Inc., 900 F.2d 256 (4th Cir.1990) (unpublished disposition; full text reported at 1990 WL 48865). Thomas then brought suit, purportedly on behalf of the plaintiff class certified in the earlier suit,1 against Peacock, individually, and against Peacock’s attorney, Alan H. Finegold (“Finegold”), seeking to collect the earlier judgment. Among various theories for recovery, Thomas sought to pierce Tru-Tech’s corporate veil and reach Peacock. The district court rejected Thomas’ claim against Finegold, but allowed plaintiffs to recover as against Peacock based upon their veil-piercing theory. Thomas v. Peacock, No. 7:91-3843-21, 1992 U.S.Dist. LEXIS 18749 (D.S.C. Oct. 28, 1992). Peacock appeals. We affirm. Peacock also appeals the district court’s assessment of attorneys’ fees against him with respect to both litigations pursued by Thomas. We vacate the award of attorneys’ fees and remand for further proceedings. I. In August of 1987, Thomas, on behalf of a class of similarly situated former Tru-Tech employees, filed suit against Tru-Tech and Peacock seeking payment of benefits due under Tru-Tech’s pension plan (the “initial 496litigation”). The complaint raised numerous claims for relief, including breach of fiduciary duty under ERISA. The district court found Tru-Tech, but not Peacock, to be a plan fiduciary; it further found that Tru-Tech had breached its fiduciary duties. On appeal, we affirmed the district court in all respects.2 Thomas subsequently sought to execute judgment against Tru-Tech in Pennsylvania, but was unsuccessful. Thomas then brought the present suit against Peacock, individually, and against Peacock’s attorney, Finegold, on theories of civil conspiracy, fraudulent transfer of assets, and corporate veil-piercing under ERISA. The district court approved of plaintiffs’ attempt to pierce Tru-Tech’s corporate veil and determined that plaintiffs were entitled to collect.from Peacock their earlier judgment against Tru-Tech; the court otherwise rejected plaintiffs’ claims. Peacock appeals. II. In 1981, Rockwell International decided to sell the textile machinery parts manufacturing business of its Draper Division; this business was conducted at two plants, one in Marion, South Carolina, and the other in Beebe River, New Hampshire. A Delaware corporation named Tru-Tech was organized for the purpose of acquiring this business. Tru-Tech maintained an office in Spartan-burg, South Carolina; Bill Wileoek (“Wil-cock”) was appointed its president and chief executive officer. A partnership named Marion Limited Partners (“Marion LP”) was established for the purpose of purchasing the Marion, South Carolina, plant from Rockwell International and leasing it to Tru-Tech. Among the investors in Tru-Tech was appellant Peacock. Peacock was the sole stockholder and director of Peacock, Williams & Company (“PW & C”).3 Peacock was a CPA and a lawyer who also served as a partner in Marion LP. Marion LP’s sole general partner, however, was Wileoek. Despite high hopes, Tru-Tech quickly fell on hard times.4 When, by September of 1983, Tru-Tech had already lost a substantial sum of money, Wileoek was replaced by John H. Blackburn (“Blackburn”), previously Tru-Tech’s vice president of operations. When Tru-Tech’s board determined that it was not viable for Tru-Tech to continue in business, it became Blackburn’s responsibility to liquidate Tru-Tech’s assets. In 1985, Tru-Tech relocated its offices to space rented by PW & C in Pittsburgh, Pennsylvania. Timothy H. Williams (‘Williams”), PW & C’s president, assumed the role of Tru-Tech’s executive vice president, treasurer and secretary. From late 1986 through late 1988, PW & C billed Tru-Tech for incidentals such as telephone, travel, entertainment, legal, postal and office supply expenses. Peacock testified that, at that time: ‘We ha[d]n’t been keeping the accounting records... for Tru-Tech since it had no employees.” J.A. 345. By February of 1986, Tru-Tech had managed to sell all of its productive assets in 497South Carolina. Operations at the Beebe River Plant in New Hampshire ceased in June of 1986 and management sought to liquidate the assets at that plant to reduce Tru-Tech’s financial liabilities. Despite this effort, Tru-Tech’s negative net worth continued to increase from $893,676.00 on September 30, 1986, to $1,376,888.00 by September 30, 1990. As Tru-Tech’s troubles continued to mount, Peacock took it upon himself to “buy out” other investors who, purportedly, could less well withstand the impact of Tru-Tech’s financial downturn than could he. As a result, by 1987, Peacock controlled in excess of 70% of Tru-Tech’s stock. This domination continued until 1990,5 when, on Finegold’s advice, Peacock sold 724,980 shares to Williams and Blackburn for $200 in order to bring his holdings below the 50% mark. Moreover, from March 1988 until February 1990 and, effectively, until Tru-Tech’s final dissolution in May 1990, Peacock served as the company’s sole director. Peacock testified that, following the suspension of Tru-Tech’s operations, in July 1986, Blackburn was placed on PW & C’s payroll for the purpose of “wrapping-up Tru-Teeh’s affairs.” For this service and for the rent for a portion of PW & C’s office in Pittsburgh, PW & C billed Tru-Tech $10,000 each month; this liability eventually grew to more than $110,000. PW & C issued invoices to Tru-Tech which described the $10,000 a month charge as levied for the services rendered by Blackburn, an engineer by trade, as having been billed for “FINANCIAL CONSULTING SERVICES.” E.g., J.A. 443. This liability was not long maintained on PW & C’s books, however, since, according to an August 3, 1989, memorandum to Williams, “the management fee receivable of [approximately] $110,000 was written off in the year ended 1/31/87.” J.A. 593. Nevertheless, as described below, Tru-Tech receivables were subsequently transferred from Tru-Tech to PW & C and to other Peacock-affiliated entities, purportedly in consideration for this liability owed PW & C by Tru-Tech. On November 28,1988, as described above, the district court entered judgment in favor of the plaintiff class against Tru-Tech, which timely filed its notice of appeal, leaving Tru-Tech beset by numerous large liabilities, including the Thomas judgment, some $50,000 owed to PW & C and approximately $350,000 owed to Peacock individually. After discussions with Peacock concerning the Thomas judgment against Tru-Tech, Finegold, by letter dated March 2, 1989, advised Peacock: I see no reason for any payment with regard to the Thomas litigation unless and until the judgment becomes final and constitutes a Hen on real estate held for sale. As I understand the situation, the corporation owns no real estate in South CaroHna and the plaintiffs have made no effort to attach the corporation’s property in New Hampshire at this time. It remains quite desirable then, to effect the disposition, for acceptable consideration, of the New Hampshire realty before the plaintiffs attempt to reach it. You will need, nevertheless, to pay any legal fees owed to Tru-Tech, Inc.’s counsel in the Thomas case in order to keep them involved in the appeal process. J.A. 625 ¶ c. The letter goes on to suggest, as a means of “protect[ing] the [Tru-Tech] real estate against any claims in the Thomas case and to preserve some possibility of recovery of some portion of the amounts owed to you and your corporation,... an arrangement,” J.A. 625-26, under which a new corporation would be formed in New Hampshire for the purpose of assuming ownership of the Tru-Tech real estate. Finegold advised that “the arrangement suggested allows you and Peacock, Wilhams & Company to recover $130,-000 if the new corporation eventually succeeds in consummating the sale of the premises,” J.A. 626, subject to the proviso that “the possibility exists of treatment of the transfer as a voidable preference,” J.A. 626. Peacock and Finegold then held a meeting to discuss further the subject of the Tru-Tech judgment, “as a consequence of which,” J.A. 628, Finegold, in a March 13,1989 letter, 498identified for Peacock “the various matters on which we had settled as a strategy,” J.A. 628, including, in particular, the following: (3) The [Tru-Tech] corporation will refrain, for the time being, from payment of any obligations arising out of the Thomas litigation, pending further developments on this front. (7) The [Tru-Tech] corporation will, with the use of its receivables, pay down the amounts owed to Peacock, Williams & Company and to you, personally, in order to start running the one year period for avoidance of preferences to control persons in bankruptcy. J.A. 628. The “strategy” outlined in Finegold’s letters to Peacock was never fully implemented. Still, several questionable transactions were executed during this general time frame. We summarize them here. On April 30, 1988, a $31,804 Tru-Tech receivable from Marion LP was “netted on Tru-Tech’s books” so as to become a receivable of PW & C. J.A. 433. By authorization dated on October 31, 1988, Peacock, as sole director of Tru-Tech, transferred a $27,235.08 Tru-Tech receivable known as the “Uhlman note” to Finegold and Peacock’s wife as trustees of the D. Grant Peacock trust, the beneficiary of which is Peacock’s wife. In return for this transfer, Finegold claimed, by letter dated April 3, Í989, to have forwarded to Peacock checks payable to Tru-Tech for $27,235.08. The letter requests that Peacock furnish Finegold with “a schedule showing the application by Tru-Tech of the $27,235.08 paid, an application which, I assume, involves some favored creditors like Peacock, Williams & Company, Incorporated.” J.A. 618. Judge Traxler concluded “that there was either no consideration paid for the assignment of the Uhlman note on October 31, 1988, or the assignment was simply backdated to reflect that as the supposed date of transfer,” 1992 U.S.Dist. LEXIS 18749, at 12, and, further, “that the purpose of the sale of the Uhlman Note was to get enough cash into Tru-Tech to pay the $25,000 retainer to Greenville [counsel] for the purpose of handling the appeal of the Thomas judgment,” id.; October 31, 1988, the purported date of the sale, predates the entry of judgment in favor of plaintiffs in the original trial. At a March 6,1989, Tru-Tech board meeting. attended by Peacock, Finegold and Blackburn, Peacock agreed to pay $130,000 of Tru-Tech funds to PW & C. Peacock asserts that this was to repay PW & C for money paid to Blackburn to manage Tru-Tech’s affairs, even? though, prior to that date, the evidence showed that PW & C had “written off” that amount due. On a June 26, 1989, Tru-Tech pro forma balance sheet, Peacock made a handwritten note that a $47,000 Tru-Tech receivable known as the “Brodsky note” should be transferred to PW & C. Further, next to numerous balance sheet liability entries, including the entry “Judgment — Jack Thomas Case” as well as entries for interest thereon and estimated attorneys’ fees, is the handwritten word, “Forget.” J.A. 542. By unanimous consent order dated July 1, 1989, the Tru-Tech board of directors, of which Peacock was by then the sole member, approved the transfer of the Brodsky note to PW & C “for accounts payable owed by Tru-Tech to Peacock Williams.” J.A. 590. Blackburn, as Tru-Tech’s president, formally executed the transfer on October 20, 1989, “for consideration paid,” J.A. 588. On November 1, 1989, Tru-Tech assigned a $5,737.75 receivable from Marion LP to PW & C. On February 15,1990, Peacock resigned as a director of Tru-Tech. Yet, as late as May of that year, Peacock continued to sign cheeks, drawn on Tru-Tech’s bank accounts, for legal fees. = On April 26, 1990, Blackburn tendered his letter of resignation as Tru-Teeh’s president. Nevertheless, for some six months thereafter, Blackburn remained on PW & C’s payroll and continued to oversee the “wrapping up” of Tru-Tech’s affairs. On May 1,1990, Williams resigned as Tru-Teeh’s executive vice president, treasurer and secretary. Yet, on May 4, 1990, he 499authorized the assignment of a $5,000 mortgage from Tru-Teeh to PW & C. When, in 1990, the plaintiff class, by way of Pennsylvania counsel, served interrogatories on PW & C, Finegold, and Peacock and his wife, Finegold responded, by letter dated August 30, 1990: [A]s I understand the situation, Tru-Teeh, Inc.,... has discontinued its businesses, and disposed of all its fixed assets...; and all of its directors and officers with any detailed knowledge of the businesses and affairs of the corporation have resigned. As a practical matter, then, the corporation is defunct; and there is no one known to Grant Peacock or to me who has the authority and knowledge to prepare the answer demanded to the interrogatories propounded. J.A. 632. Based on the foregoing, the district court found that Peacock fáiled to observe the traditional corporate format and engaged in a “corporate strategy” with “the specific intent and purpose... [of] siphon[ing] off [Tra-Teeh’s] assets to favored creditors owned or controlled by Peacock and to defeat collection of the Thomas judgment.” 1992 U.S.Dist. LEXIS 18749, at 19. Peacock appeals. III. Peacock argues that this suit is one merely to collect an outstanding judgment and that, because ERISA is not thereby implicated, the district court lacked subject matter jurisdiction over this case.6 He also argues that, even if the district court properly exercised jurisdiction, it erred in applying a federal common law, as opposed to state law, standard for piercing the corporate veil. Proper evaluation of these contentions requires that we examine the nature of an attempt to pierce the corporate veil. As we explained in DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir.1976): [I]t is recognized that a corporation is an entity, separate and distinct from its officers and stockholders, and that its debts are not the individual indebtedness of its stockholders. This is expressed in the presumption that the corporation and its stockholders are separate and distinct.... But this concept of separate entity is merely a legal theory... and the courts “decline to recognize [it] whenever recognition of the corporate form would extend the principle of incorporation ‘beyond its legitimate purposes and [would] produce injustices or inequitable consequences.’” Id. at 683 (citation and footnote omitted) (quoting Krivo Indus. Supply Co. v. National Distillers and Chem. Corp., 483 F.2d 1098, 1106 (5th Cir.1973), modified, 490 F.2d 916 (1974)). “An attempt to pierce the corporate veil is not itself a cause of action but rather is a means of imposing liability on an underlying cause of action_” 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 41, at 603 (perm. ed. rev. vol. 1990).7 However, although an attempt to pierce the corporate veil is necessarily subsidiary to some primary cause of action, it is not simply an attempt to collect a preexisting liability against an entity already found liable under the relevant substantive law; it is, rather, an attempt to impose such a preexisting liability upon an entity not otherwise liable. See Sandlin v. Corporate Interiors Inc., 972 F.2d 1212, 1217 (10th Cir.1992) (in a “cause of action based upon the alter ego theory[,]... in theory the court is merely trying to identify the trae debtor on the judgment”). Thus, the doctrine of piercing the corporate veil is not a mere procedural rale relating to “how” a judgment is to be enforced, but is, rather, a substantive rule- of liability. See Craig v. Lake Asbestos of Quebec, Ltd., 843 F.2d 145, 149 (3d Cir.1988) (holding that, in diversity case, federal district court properly applied New Jersey substantive law of veil-piercing). Last, we note that “the doctrine of piercing the corporate 500veil is an equitable one.” 1 Fletcher, supra, § 41, at 603. IV. Peacock argues that, once the plaintiff class won its judgment against Tru-Tech, it became a judgment creditor, like any other. The district court, he argues, therefore lacked subject matter jurisdiction over Thomas’ attempt to pierce the corporate veil. We reject this argument. It is black letter law that the jurisdiction of a court is not exhausted by the rendition of the judgment, but continues until that judgment shall be satisfied.... Process subsequent to judgment is as essential to jurisdiction as process antecedent to judgment, else the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution. Riggs v. Johnson County, 73 U.S. (6 Wall.) 166, 187, 18 L.Ed. 768 (1867). We established above that an attempt to pierce the corporate veil is a matter of substantive law that determines whether a corporate shareholder can be held hable for a preexisting judgment entered against the corporation. An attempt to pierce the corporate veil, therefore, seeks to identify those parties against whom the judgment can be satisfied. Because identification of those parties who are hable is necessarily antecedent to procedural enforcement of the judgment against those parties, and because Riggs establishes that federal courts have “ancillary” jurisdiction over enforcement of judgments, it would seem that the federal courts’ “ancillary” jurisdiction would extend to the instant attempt to pierce the corporate veil. Before we leave the issue, however, we must assure ourselves that our conclusion is in accord with the Supreme Court’s holding in H.C. Cook Co. v. Beecher, 217 U.S. 497, 30 S.Ct. 601, 54 L.Ed. 855 (1910).8 There, a Connecticut corporate patentholder brought a patent infringement suit in federal court against another Connecticut corporation. During the pendency of the suit, the directors of the defendant corporation voted to continue sales in alleged violation of the plaintiff’s patent. Plaintiff proved the victor in the patent infringement case but was unable to collect from the defendant corporation, which was by then insolvent. Plaintiff then filed a second suit in federal court against the directors of the insolvent corporation. In its complaint, plaintiff alleged that the defendants voted to continue sales “kn[o]w[ing] that [insolvency] would be the result of a judgment against [their corporation in the first suit], but did the acts alleged for the purpose of increasing the value of their stock in the company, and of receiving the profits and dividends that might be received from the sale.” Id. at 498, 30 S.Ct. at 601-02. On plaintiffs appeal of the second suit, Justice Holmes, writing for the Court, rejected plaintiffs characterization of the suit as one to hold the directors jointly and severally liable with their corporation for their part in infringing plaintiffs patent, id., instead according plaintiffs complaint its “natural interpretation [as] an attempt to make the defendants answerable for the judgment already obtained,” id. The Court then sum501marily concluded that the ease “of course [did] not” fall within the federal court’s ancillary jurisdiction. Id. at 499, 30 S.Ct. at 602. The Court concluded: “[I]f the directors are under obligations by Connecticut to pay a judgment against their corporation, that is not a matter that can be litigated between citizens of the same State in the Circuit Court of the United States.” Id. Beecher is factually distinguishable from the case at bar. While the instant case involves allegations that Peacock deliberately engaged in improper transfers and improperly ignored corporate formalities with the specific purpose of evading the already-extent judgment against Tru-Tech, Beecher involved an allegation that corporate directors, acting within their legal capacity, voted to continue sales of a product which was the subject of a then-pending patent infringement suit. Beecher, however, does make clear that the mere fact that a “former judgment [provides] the foundation of [a subsequent] ease,” id., is insufficient, alone, to establish that the subsequent case falls within the federal court’s ancillary jurisdiction. In particular, where the subsequent action is truly “independent” of the former action and judgment, there is no ancillary jurisdiction. See Sandlin v. Corporate Interiors Inc., 972 F.2d 1212, 1217 (10th Cir.1992) (“We read Beecher as saying that when' postjudgment proceedings seek to hold nonparties liable for a judgment on a theory that requires proof on facts and theories significantly different from those underlying the judgment, an independent basis for federal jurisdiction must exist.”); Berry v. McLemore, 795 F.2d 452, 455 (5th Cir.1986) (“garnishment actions against third parties are construed as independent actions from the primary action which established the judgment debt” and, therefore,.the “court’s ancillary jurisdiction to enforce its judgment does not extend to these garnishment actions”).9 Without defining the precise contours of when a subsequent litigation is “independent” of a former litigation and judgment, we believe that Thomas’ attempt to pierce the corporate veil is not “independent” of the initial litigation herein. As noted above, an attempt to pierce the corporate veil is necessarily subsidiary to some primary cause of action. That Thomas opted to file a separate action to pierce Tru-Tech’s corporate veil is irrelevant: the court’s subject matter jurisdiction does not turn on whether Thomas pursued the procedurally proper route. Further, we do not believe that the possibility that Thomas may not have been able to pursue this litigation at the same time as the initial litigation should affect the fact that this is, at bottom, a proceeding the goal of which is to collect the judgment earlier obtained by the plaintiff class. Cf. Sandlin v. Corporate Interiors Inc., supra, 972 F.2d 1212;10 but cf. Blackburn Truck Lines, Inc. 502v. Francis, 723 F.2d 730 (9th Cir.1984)11. There is, in short, simply no practical reason to treat this litigation as separate from the initial litigation.12 Cf. Pineville Real Estate Operation Corp. v. Michael, 32 F.3d 88 (4th Cir.1994) (holding that there is no federal question jurisdiction over case where the plaintiff brought action against defendants who had, in an earlier ERISA case, obtained judgments against the plaintiff, seeking to enjoin state enforcement of the judgment liens obtained by defendants and where the only federal statute or rule relied upon in plaintiffs complaint was Fed.R.Civ.P. 54(b)). Peacock places heavy reliance upon the Supreme Court’s statement in Mackey v. Lanier Collection Agency & Service, 486 U.S. 825, 833, 108 S.Ct. 2182, 2187, 100 L.Ed.2d 836 (1988), that “ERISA does not provide an enforcement mechanism for collecting judgment won” in either actions brought against plans by purported beneficiaries or in actions brought by general creditors of the plan, see ERISA § 502, 29 U.S.C. § 1132. Peacock reads this statement out of context. The Mackey Court immediately proceeded to note that, while ERISA did not provide for an enforcement mechanism, where suit is filed in federal court, judgment enforcement is conducted pursuant to Federal Rule of Civil Procedure 69(a), which adopts state law for judgment enforcement mechanisms. 486 U.S. at 833-34, 108 S.Ct. at 2187-88. Thus, the mere fact that ERISA may not provide an explicit mechanism for judgment enforcement does not mean that ERISA does not provide jurisdiction for judgment enforcement. Therefore, even assuming, arguendo, that piercing the corporate veil is merely a method of judgment enforcement,13 Mackey does not undermine but, rather, supports the district court’s exercise of jurisdiction. Peacock also claims that the Supreme Court’s decision in Mertens v. Hewitt Associates, — U.S. -, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), establishes that the instant litigation against him was improperly maintained. We disagree. In Mertens, the Court held that ERISA provides for no action for monetary damages against nonfiduci-aries. The current attempt by plaintiffs is not, however, as discussed above, an independent action for monetary damages against a nonfiduciary, but an equitable attempt to satisfy a previous judgment entered against a fiduciary. We therefore conclude that jurisdiction was proper in the district court. V. Having determined that the court below properly exercised jurisdiction over Thomas’ claim, we now turn to whether the district court applied the proper legal stan503dard in adjudicating Thomas’ attempt to pierce Tru-Tech’s corporate veil.14 The district court relied upon a federal common law rule for piercing the corporate veil in EEISA cases. Peacock argues that the Supreme Court’s decision in Mackey forecloses the existence of a federal common law veil-piere-ing rule in ERISA actions. We disagree. The Mackey Court held that “ERISA does not provide an enforcement mechanism for collecting judgments won in” suits brought by plan beneficiaries, pursuant to ERISA § 502(a)(1)(B), (d), 29 U.S.C. § 1132(a)(1)(B), (d), against ERISA benefit plans. Even assuming, arguendo, that ERISA also does not provide an enforcement mechanism for collecting judgments won in suits brought by plan beneficiaries, pursuant to ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), such as the initial litigation won by plaintiffs,15 Mack-ey would only preclude a federal common law veil-piercing rule in ERISA actions to the extent that an attempt to pierce the corporate veil is merely an enforcement mechanism for collecting a judgment. It would be error, however, as we discuss above in Section III, to characterize the doctrine of piercing the corporate veil as a mere judgment enforcement mechanism. Because a rule of veil-piercing determines who is liable for breaches of ERISA fiduciary duties, we believe that ERISA preempts any state law of veil-piercing. See ERISA § 514(a), 29 U.S.C. § 1144(a); 1 Fletcher, supra, § 41.90, at 91 (Supp.1993) (“In disputes involving workers’ claims to ERISA benefits, a federal court may apply a federal common law standard of corporate separateness.”). Having concluded that the determination of whether to pierce the corporate veil in an ERISA action is made under federal law, we turn to what standard the federal veil-piercing rule adopts. See Phoenix Mut. Life ins. Co. v. Adams, 30 F.3d 554, 563-64 (4th Cir.1994). The First Circuit in Alman v. Danin, 801 F.2d 1, 3-4 (1st Cir.1986), explained: There is no litmus test in the federal courts governing when to disregard corporate form. The Supreme Court has, however, provided some guidance, stating that “the doctrine of corporate entity, recognized generally and for most purposes, will not be regarded when to do so would work fraud or injustice.” Taylor v. Standard Gas Co., 306 U.S. 307, 322, 59 S.Ct. 543, 550, 83 L.Ed. 669 (1939). The Court has further indicated that corporate form may not defeat overriding federal legislative policies. See First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 630, 103 S.Ct. 2591, 2602, 77 L.Ed.2d 46 (1983); Bangor Punta Operations, Inc. v. Bangor & Aroostook Railroad Co., 417 U.S. 703, 713, 94 S.Ct. 2578, 2584, 41 L.Ed.2d 418 (1974). This court has said, The general rule adopted in the federal cases is that “a corporate entity may be 504disregarded in the interests of public convenience, fairness and equity,” [citing Capital Telephone Co. v. FCC, 498 F.2d 734, 738 (D.C.Cir.1974) ]. In applying this rule, federal courts will look closely at the purpose of the federal statute to determine whether the statute places importance on the corporate form [citations omitted], an inquiry that usually gives less respect to the corporate form than does the strict common law alter ego doctrine.... Town of Brookline v. Gorsuch, 667 F.2d 215, 221 (1st Cir.1981). ERISA, the statute sought to be enforced here, cannot be said to attach great weight to corporate form. Indeed, deferring too readily to the corporate identity may run contrary to the explicit purposes of the Act. Congress enacted ERISA in part because many employees were being deprived of anticipated benefits, which not only reduced the financial resources of individual employees and their dependents but also undermined the stability of industrial relations generally. See 29 U.S.C. § 1001 (1982) (statement of congressional findings and declaration of policy); H.Rep. No. 807, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad. News 4639, 4670, 4676. Allowing the shareholders of a marginal corporation to invoke the corporate shield in circumstances where it is inequitable for them to do so and thereby avoid financial obligations to employee benefit plans, would seem to be precisely the type of conduct Congress would want to prevent. 801 F.2d at 3-4. Several other circuits have followed similar reasoning. Ellison v. Shenango Inc. Pension Bd. v. Snyder, 956 F.2d 1268, 1274-75 (3d Cir.1992); Janowski v. International Bhd. of Teamsters Local No. 710 Pension Fund, 673 F.2d 931, 941 (7th Cir.1982), vacated on other grounds, 463 U.S. 1222, 103 S.Ct. 3565, 77 L.Ed.2d 1406 (1983); see NLRB v. Greater Kansas City Roofing, 2 F.3d 1047, 1052 (10th Cir.1993) (interpreting federal rule to allow veil piercing only where “(i)... there [was] such unity of interest and lack of respect given to the separate identity of the corporation by its shareholders that the personalities and assets of the corporation and the individual are indistinct and (ii)... adherence to the corporate fiction [would] sanction a fraud, promote injustice, or lead to an evasion of legal obligations”). We, too, find this reasoning persuasive16 and, accordingly, adopt the liberal veil-piercing standard enunciated by the First Circuit in Alman for use in ERISA actions. As a 505consequence, we conclude that the district court applied the correct legal standard in evaluating the plaintiff class’ effort to pierce Tru-Tech’s corporate veil. VI.. Peacock next argues that, on the facts presented, the district court erred in conchiding that Tru-Tech’s corporate veil should be pierced. We disagree. The district court found, as matters of fact, that Peacock owned a controlling (and, at most relevant times, a complete) interest in Tru-Tech and, from March of 1988 until its liquidation, served as Tru-Tech’s sole director; that PW & C hired Blackburn to wind down Tru-Tech’s business and, in turn, billed Tru-Tech $10,000 a month for financial services, and also for incidental expenses; and that numerous transfers were effected among Tru-Tech, PW & C, Peacock and others without proper consideration or formalities. On the basis of these facts, and others set out above, the court further found that Peacock engaged in a “corporate strategy” with “the specific intent and purpose... [of] siphon[ing] off [Tru-Tech’s] assets to favored creditors owned or controlled by Peacock and to defeat collection of the Thomas judgment.” 1992 U.S. Dist. LEXIS 18749, at * 1?. On the record before us, we cannot characterize these findings, of fact as clearly erroneous. We also review the district court’s decision to pierce Tru-Teeh’s corporate veil under the clearly erroneous standard. DeWitt Truck Brokers, Inc., supra, 540 F.2d at 684; accord Laborers Clean-Up Contract Admin. Trust Fund v. Uriarte Clean-Up Serv., Inc., 736 F.2d 516, 523 (9th Cir.1984) (reviewing, under the clearly erroneous standard, the district court’s decision in an ERISA ease to pierce the corporate veil). Under that limited standard of review, the district court’s decision will not be disturbed. Peacock’s remaining arguments against the district court’s judgment regarding the imposition against him of the Tru-Tech ERISA liability established in the initial litigation are without merit. We consequently affirm the district court’s judgment in that regard. VII. Following the determination by the district court in the initial litigation that Tru-Tech was liable while Peacock was not, District Judge G. Ross Anderson, Jr., entered an order allowing plaintiffs to defer any motion for attorneys’ fees until final disposition of the initial litigation. Because of the appeal of the initial litigation and the subsequent attempt to pierce Tru-Tech’s corporate veil, such a motion was not made until the instant litigation was complete in the district court. At that time, District Judge William B. Trax-ler, Jr., referred the matter back to Judge Anderson for determination of fees arising out of the initial litigation. Judge Anderson applied the five-factor test enunciated in Reinking v. Philadelphia American Life Insurance Co., 910 F.2d 1210, 1217-18 (4th Cir.1990), to determine whether a fee award was appropriate, and, finding that one was, the twelve-factor test adopted in Barber v. Kimbrell’s, Inc., 577 F.2d 216, 226 & n. 28 (4th Cir.), cert. denied, 439 U.S. 934, 99 S.Ct. 329, 58 L.Ed.2d 330 (1978), to fix. the amount thereof. Ultimately, Judge Anderson decided that a fee of $123,181.25 was reasonable, along with costs of $13,103.60. Judge Trax-ler undertook a similar inquiry and analysis with respect to fees arising out of the veil-piercing litigation, concluding that $64,406.25 in attorneys’ fees and $4,490.91 in costs were due. Thus, a total of $205,182.01 in attorneys’ fees and expenses were. assessed against Peacock. This, we note as a preliminary matter, exceeds the total damages assessed in this case. Peacock argues both that it was inappropriate for the district court to award attorneys’ fees in this case and that, even if such an award was appropriate, the amount of the award was excessive. We reject Peacock’s first argument but find his second argument persuasive. In keeping with ERISA § 502(g)(l)’s explicit grant of discretion tó the district courts to award “a reasonable attorney’s fee,” 29 U.S.C. § 1132(g), we review the district court’s decision to award attorneys’ fees solely for abuse of discretion, Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1028 (4th Cir.1993) (en banc). Peacock argues that, because the initial litigation resulted in 506his exoneration, any award of attorneys’ fees is unjust here. The truly culpable party, Peacock suggests, is Tru-Tech. Because this argument ignores the district court’s finding, that Peacock was Tru-Tech’s alter ego and was, himself, culpable for siphoning off Tru-Teeh’s funds, we reject it and find no abuse of discretion in the district court’s decisions to award attorneys’ fees arising out of both stages of litigation in this case. Of far greater weight is Peacock’s challenge to the amount of the fee awards announced by the district judges. Factor eight of the procedure established in Barber v. Kimbrell’s, Inc. for fixing the amount of an attorneys’ fee award is “the amount in controversy and the results obtained.” 577 F.2d at 226 n. 28. This is “the most critical factor,” in such an analysis. Hensley v. Eckerhart, 461 U.S. 424, 436, 103 S.Ct. 1933, 1941, 76 L.Ed.2d 40 (1983). Yet, although the fee award for the initial litigation amounts to more than two-thirds of the total award resulting from that litigation, the district court, in its discussion of “the most critical factor” in the Barber analysis, focused on the result and the tenacity of the attorneys without mentioning the size of the proposed attorneys’ fee and costs award in comparison with the total damage award.17 A subsequent discussion in the district court’s opinion justifies the disproportionate award by citation to cases discussing fee awards in the context of civil rights actions, and by asserting that the policies underlying ERISA are equally strong. This justification is without basis in law. We think it safe to say, without belittling the important interests which ERISA serves to protect, that the federal civil rights laws provide more vital protections and vindicate far more important interests. Cf. Quesinberry, 987 F.2d at 1030 (noting Congress’ decision not to implement, in the ERISA context, “a mandatory fee shifting rule analogous to 42 U.S.C. § 1988”). As the Fifth Circuit has explained: The policies underlying ERISA are certainly important ones, but they simply do not rise to the level of assuring that all citizens are accorded their civil rights. Not only are the policies that [ERISA] is designed to enforce less compelling than those furthered by [the civil rights laws], but the need for attorneys’ fees as an enforcement incentive is less under ERISA than the... civil rights statutes. Plaintiffs suing under the [civil rights laws] are “private attorneys general” in the sense that they seek injunctive relief to vindicate important public rights. If such “plaintiffs were routinely forced to bear their own attorneys’ fees, few aggrieved parties would be in a position to advance the public interest by invoking the injunctive powers of the federal courts.” [Newman v. Biggie Park Enterprises, Inc., 390 U.S. 400, 402, 88 S.Ct. 964, 966, 19 L.Ed.2d 1263 (1968) ]. Plaintiffs under Title I of ERISA may be seeking injunctive relief for the benefit of all the participants and beneficiaries of a particular plan, but they may also be seeking damages on behalf of their plan or simply the recovery of benefits from the plan that are due them alone. Fiduciaries, moreover, may have a statutory obligation to bring ERISA suits. Thus, incentives in the form of attorneys’ fees are, on the whole, less necessary to insure that the statute is enforced. Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1265-66 (5th Cir.1980) (footnotes omitted); accord Ellison v. Shenango Inc. Pension Bd. v. Snyder, 956 F.2d 1268, 1274-75 (3d Cir.1992); Janowski v. International Bind, of Teamsters Local No. 710 Pension Fund, 673 F.2d 931, 941 (7th Cir.1982), vacated on other grounds, 463 U.S. 1222, 103 S.Ct. 3565, 77 L.Ed.2d 1406 (1983). We agree with the position taken by other circuits in this regard. We therefore vacate the attorneys’ fees determination entered by the district court with regard to the initial litigation.18 On remand, the district court should 507recalculate, in a manner consistent with this opinion, the amount of attorneys’ fees. With respect to the district court’s assessment of attorneys’ fees with regard to the instant attempt to pierce Tru-Tech’s corporate veil, Peacock claims that the district court erred in failing to address whether any portion of the total hours spent by the plaintiffs’ attorneys was devoted solely to plaintiffs’ case against Finegold, which, as opposed to plaintiffs’ case against Peacock, was not successful. We disagree. It is true that “no fees should be awarded for time spent on unsuccessful claims that were unrelated to successful ones.” Abshire v. Walls, 830 F.2d 1277, 1282 (4th Cir.1987). Where, however, the facts of an unsuccessful claim are “inextricably intertwined” with those of a successful claim, fees for total time spent are appropriately awarded because both claims required investigation of a “common core of facts.” Here, given Finegold’s relationship to Peacock and his role in Peacock’s and Tru-Tech’s transactions, and the nature of the claims raised against Finegold, we conclude that the facts underlying all of the plaintiffs’ claims in this litigation were “inextricably intertwined.” Peacock also raises several specific objections to the district court’s assessment of attorneys’ fees as to both phases of the litigation herein. First, Peacock cites numerous examples where the court, in assessing attorneys’ fees with respect to both phases of litigation, awarded fees to cover the presence of both of plaintiffs’ primary lawyers even though, Peacock claims, the presence of only one would have sufficed. See Goodwin v. Metis, 973 F.2d 378, 383-85 (4th Cir.1992). Second, Peacock claims that the district court awarded items of “cost” which do not fall within the definition of the term at 28 U.S.C. § 1920. Last, Peacock describes as excessive the time plaintiffs’ counsel claim to have spent in preparing their fee petitions for submission to the district court and in performing unspecified tasks since the victory against Peacock in the veil-piercing phase of this case. The district judges’ orders herein reveal no examination of the objections described above. While we acknowledge the great deference we afford district courts in assessing the proper amount of attorneys’ fees and costs, Goodwin, 973 F.2d at 385, where a party raises specific objections to particular fees or items of cost, we believe it appropriate for the district court, in the first instance, to address such objections and make appropriate factual finding in order that we might arrive at an informed review of the district court’s decision. See Joseph A. by Wolfe v. New Mexico Dep’t of Human Servs., 28 F.3d 1056, 1060-61 (10th Cir.1994). viil We affirm the district court’s judgment allowing the plaintiff class to pierce Tru-Tech’s corporate veil and recover the damages assessed in the initial litigation from Peacock. While we affirm the district court’s decision to allow the plaintiff class to recover the attorneys’ fees it incurred in maintaining both the initial litigation and the instant litigation, we vacate the amounts of attorneys’ fees and costs assessed by the district court and remand for recalculation consistent with this opinion. AFFIRMED IN PART AND VACATED AND REMANDED IN PART.. Thomas describes this suit as a continuation of the prior class action and, accordingly, asserts that this suit is also brought on behalf of the class. As discussed infra, Peacock disputes this assertion.. We summarized the facts underlying the initial litigation in our earlier opinion, see 1990 WL 48865, at l-2.. In fact, PW & C was first called D. Grant Peacock & Company, and then Peacock, Williams & Company; it subsequently reverted to its original name. For ease of reference, we refer to it throughout our opinion as "PW & C.”. The district court noted: The promoters and founders of Tru-Tech expected the business to derive substantial revenue primarily from two sources. First, they expected to continue supplying parts to Rockwell’s Draper Division which manufactured looms. Second, they believed that Tru-Tech had purchased the tooling for Draper parts and that they could sell these parts on the open market. Unfortunately, their expectations did not come to fruition and the business failed. Despite the general sluggishness in the textile industry at the time, the demise of Tru-Tech can be attributed to two events that occurred simultaneously. First, within six months of Tru-Tech’s purchase of Rockwell’s Draper parts manufacturing business, Rockwell sold its Draper Division to another group of investors who immediately reduced inventories, thus severely reducing orders Tru-Tech expected to fill. Second, the “new” Draper filed suit against Tru-Tech alleging that Draper, not Tru-Tech, had the tooling rights for Draper parts. It was determined subsequently that Draper had in fact retained these rights, and it was at this point that Tru-Tech’s potential for profit was eliminated. 1992 U.S.Dist. LEXIS 18749, at 3-4.. Although the stock certificates exhibit dates in 1987, they were not forwarded to Blackburn for his signature until 1990.. It is undisputed that there is no diversity of citizenship in this action, and that there is no basis for federal question jurisdiction other than the fact that the suit seeks to enforce a judgment obtained pursuant to ERISA.. We note that, at page 27 of his brief, Peacock, albeit in another context, relies upon this very excerpt from Professor Fletcher's treatise.. The Seventh Circuit in Argento v. Village of Melrose Park, 838 F.2d 1483, 1488 (7th Cir.1988), discounted the Justice Holmes' opinion in Beecher as a “case, decided over 75 years ago, [that] is three paragraphs long containing a conclusion, but virtually no discussion.” Further, noted that Court, “[i]t has rarely been cited as precedent.” Id. We are skeptical of the Seventh Circuit's notion that, as an inferior court, we may evade Supreme Court precedent on grounds of "desuetude.” Cf. United States v. Chase, 18 F.3d 1166, 1169 (4th Cir.1994) (“Although there has been little discussion of [Ball v. United States, 140 U.S. 118, 11 S.Ct. 761, 35 L.Ed. 377 (1891),] since it was decided in 1891, the Supreme Court and the Eighth Circuit, in deciding other issues, have recognized its continued vitality.”). Nor are we convinced, as was the Third Circuit in Skevofilax v. Quigley, 810 F.2d 378, 385 n. 5 (3d Cir.) (en banc), cert. denied, 481 U.S. 1029, 107 S.Ct. 1956, 95 L.Ed.2d 528 (1987), that "Justice Holmes probably intended the [Beecher ] opinion to be an interpretation of the... governing statute,” and that the possibility that Justice Holmes might have "intended his opinion to serve as a pronouncement on the constitutional limits of ancillary jurisdiction” should be dismissed because "he certainly kept that intention to himself, for it is nowhere mentioned in the opinion.” In any event, we may assume Beecher's continuing vitality, for the case is distinguishable on its facts from the case now before us.. We do not, by our citation of the Fifth Circuit's decision in Berry, mean to imply a holding that ■ garnishment actions against third parties are, in fact, "independent actions from the primary action which established the judgment debt”; that issue, of course, is not now before us.. In Sandlin, a successful age discrimination plaintiff sought to collect judgment against the owners of the debtor corporation, who were not parties to the initial age discrimination litigation, on an alter ego theory. The Tenth Circuit read Beecher, which it described as “[a] typically cryptic Justice Holmes opinion,” 972 F.2d at 1217, to say "that when postjudgment proceedings seek to hold nonparties liable for a judgment on a theory that requires proof on facts and theories significantly different from those underlying the judgment, an independent basis for federal jurisdiction must exist,” id. Purporting to apply that standard to the case before it, the court, “[without attempting to decide all future cases, when the alter ego contentions may be more intertwined with the merits of the underlying claim within the court’s primary jurisdiction, we hold the district. court properly dismissed the instant alter ego claims.” Id. at 1218. The court reached this conclusion on the grounds that the attempt to invoke the alter ego doctrine involved "significantly different factual proof, new parties, [and] prejudgment actions.” Id. By contrast, the court indicated that "[p]ursuing the new parties... on a successor theory" would be viable to the extent that plaintiff could allege "postjudgment transfers of [the corporate debtor's] property.” Id. (citing Christiansen v. Mechanical Contractors Bid Depository, 404 F.2d 324 (10th Cir.1968)). The Tenth Circuit’s holding in Sandlin is not inconsistent with, and, indeed, can be read to support, our conclusion herein. First, the case at bar involves primarily conduct by Peacock occurring after the judgment in the initial litigation was obtained. Moreover, to whatever extent the Tenth Circuit may properly have observed that, for jurisdiction to lie, "alter ego contentions [should] be [somewhat] intertwined with the merits of the underlying claim,” we note that the 502district court here found that Peacock engaged in a strategy with "the specific intent and purpose... [of! siphon[ing] off [Tru-Tech’s] assets to favored creditors owned or controlled by Peacock and to defeat collection of the Thomas judgment." 1992 U.S.Dist. LEXIS 18749, at 19..In Francis, the plaintiff, who was unable to collect upon default judgments it previously had obtained against two bankrupt corporations, brought suit against the three owners of both corporations, seeking to pierce the corporate veil. The court of appeals held that jurisdiction was proper in the district court. Reasoned the court: "In one sense this suit is an effort to enforce the initial default judgment; in another sense it is an effort to accomplish what a joinder might have provided.” Id. at 732. We do not believe that the Ninth Circuit’s reference to joinder has bearing here. This is because Peacock was in fact a party to the initial litigation, although not in the same capacity as he was in the phase of litigation now under review. Moreover, plaintiffs presumably could not successfully have pursued their veil-piercing claim because most of the actions which led the district court to its conclusion had then yet to occur. Nevertheless, we do not think that these differences warrant a different conclusion as to jurisdiction. Especially where, as here, a stockholder has deliberately manipulated corporate assets in order to frustrate the ability of one who holds a judgment against the corporation by virtue of federal law, we think it clear that the federal courts have jurisdiction to ensure that the federal judgment is ultimately collected. To the extent that the Ninth Circuit’s opinion in Francis suggests otherwise, we respectfully disagree. We would note that the Francis court made no mention of the Justice Holmes' opinion in Beecher.. For this reason, we reject Peacock’s challenge to the venue of the instant litigation, as well as his contention that the district court erred in failing to certify the plaintiff class for purposes of the instant litigation.. We, in fact, consider and reject this argument below.. Peacock argues that the doctrine of piercing the corporate veil has no place in ERISA actions at all. He argues that, wherever the corporate veil should be pierced so that a shareholder will be subject to the ERISA fiduciary liability of its corporation, ERISA, standing alone, should allow the shareholder to be sued as a fiduciary; piercing the corporate veil, he argues, adds nothing to ERISA, but "results [only] in an uncomfortable inconsistency: the imposition of liability on an individual who previously had been adjudged not to be a fiduciary and hence not to have any liability under ERISA's statutory scheme.” Appellant's Br. 23. We disagree. The tests for ERISA fiduciary liability and veil-piercing are not identical, especially where, as here, most of the activity leading to the conclusion of veil-piercing occurs after the activity pursuant to which the corporation is deemed to have breached its ERISA fiduciary duties. Peacock also argues that res judicata should bar Thomas' claim here. Thomas, Peacock argues, could and should have brought his piercing claim at the same time as his ERISA claim. The record does not provide the support necessary to this argument, however: most of the transactions relied upon by Judge Traxler in piercing the corporate veil did not occur until after the completion of the initial ERISA litigation.. ERISA § 502(a)(2) allows for “[a] civil action [to] be brought... by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title." 29 U.S.C. § 1132(a)(2). ERISA § 409, 29 U.S.C. § 1109, in turn, imposes liability upon plan fiduciaries who breach their fiduciary duties. Plaintiffs, in the initial litigation, were successful in establishing, pursuant to ERISA § 409, 29 U.S.C. § 1109, that Tru-Tech was a fiduciary of the benefit plan it had established, and that Tru-Tech had breached its fiduciary duties.. We note that this federal common law veil-piercing rule accords with our understanding of the South Carolina rule, as expounded in our opinion in DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir.1976). There, we explained that the "concept of [the corporation as a] separate entity is merely a legal theory... and the courts 'decline to recognize [it] whenever recognition of the corporate form would extend the principle of incorporation beyond its legitimate purposes and [would] produce injustices or inequitable consequences.' ” Id. at 683 (footnote omitted) (quoting Krivo Indus. Supply Co. v. National Distillers and Chem. Corp., 483 F.2d 1098, 1106 (5th Cir.1973), modified, 490 F.2d 916 (1974)). We proceeded to stress that "proof of plain fraud is not a necessary element in a finding to disregard the corporate entity,” id. at 684, and that "courts have experienced 'little difficulty' and have shown no hesitancy in applying what is described as the 'alter ego’ or 'instrumentality' theory in order to cast aside the corporate shield and to fasten liability on the individual stockholder,” id. at 685 (quoting Iron City Sand & Gravel Div. of McDonough Co. v. West Fork Towing Corp., 298 F.Supp. 1091, 1098 (N.D.W.Va.1969), rev'd on other grounds, 440 F.2d 958 (4th Cir.1971)). Thus, while the federal veil-piercing test may "usually give[ ] less respect to the corporate form than does the strict common law alter ego doctrine,” Town of Brookline, 667 F.2d at 221, the South Carolina doctrine of veil-piercing accords with the ERISA veil-piercing standard announced in Alman. Compare Perpetual Real Estate Servs., Inc. v. Micchaelson Properties, Inc., 974 F.2d 545, 549 (4th Cir.1992) (noting that the standard we set out in DeWitt is "not the law in Virginia,” which sets more stringent standards for piercing the corporate veil). In light of the foregoing, we observe that, to the extent that, "[w]hile the veil piercing inquiry in an ERISA case is... rooted in federal law, state law is not rendered completely irrelevant,” United Elec., Radio and Machine Workers of America v. 163 Pleasant Street Corp., 960 F.2d 1080, 1092 n. 12 (1st Cir.1992), and that, in "applying] federal substantive law,... we may look to state law for guidance,” Laborers CleanUp Contract Admin. Trust Fund v. Uriarte Clean-Up Serv., Inc., 736 F.2d 516, 523 (9th Cir.1984), the federal standard we apply accords with South Carolina veil-piercing law.. Nor did the district court discuss the size of the fee award in the context of another Barber factor, the attorneys' reasonable expectations at the outset of the litigation.. We also note that the district court, in assessing attorneys’ fees with respect to the initial litigation, made reference to plaintiffs' counsel’s success in piercing Tru-Tech’s corporate veil in the instant litigation. This was error. In proceeding under the "results obtained” factor in determining an appropriate fee award for the initial litigation, the district court should confine *507its consideration to the “results obtained" in that litigation.	CRITICIZED_OR_QUESTIONED
723 F.2d 730	751 F.Supp. 1158	D	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	OPINION AND ORDER EDELSTEIN, District Judge: Respondents move for judgment on the pleadings pursuant to Federal Rules of Civ 1159 il Procedure 9(b), 12(c), 12(h)(3), and for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the following reasons, respondents’ motion to dismiss the instant action for lack of subject matter jurisdiction is granted. I. BACKGROUND Petitioner, National Westminster Bank USA (“NatWest USA” or the “Bank”), has brought the instant action against respondents Calvin W.S. Cheng, et ah, to recover judgments entered against Soto Grande Shipping Corporation, S.A. (“Soto Grande”), and Y.C. Cheng, Calvin Cheng’s father, for approximately $1,967,858.36. The default judgments were signed by United States District Judge Edward Wein-feld of this Court and entered against Soto Grande on October 28, 1985 and against Y.C. Cheng on May 2, 1986. The instant action was filed against respondents in August of 1986. In May 1985, Y.C. Cheng approached NatWest USA for a loan to help him purchase a ship named the M.V. Pomona (“Pomona”) through a corporation owned by him, Soto Grande. NatWest USA loaned Y.C. Cheng and Soto Grande approximately $3,500,000 to finance the purchase of the Pomona. The loan was secured by a mortgage on the Pomona and was personally guaranteed by Y.C. Cheng. Y.C. Cheng owned ships through a number of different companies, each of which was formed for the sole purpose of being record owner of a single ship. Each company had borrowed money from lending institutions and the loans in each case were secured by mortgages and assignments of earnings of the respective ships. Petitioner alleges that the shares of many of these corporations were owned in the name of various members of the Cheng family, including respondent Calvin Cheng. Calvin Cheng and those companies held under the name of Calvin Cheng constitute the respondents in the instant action. Petitioner alleges that all the companies were run together as one business by Y.C. Cheng, who maintained direct control over the operations of the business, and that corporate formalities were disregarded and that funds of the various corporations were commingled. Petitioner further alleges that in 1982, Y.C. Cheng began to experiencé' financial difficulty due to the decline in the shipping industry and that Y.C. Cheng therefore entered into a scheme with his son Calvin Cheng whereby Y.C. Cheng would transfer ownership of the profitable ships in corporations under his name to corporations held under Calvin Cheng’s control. In September of 1985, loans on all the ships still owned by Y.C. Cheng were allowed to go into default and the various ships were arrested for nonpayment of crew wages, bunkers and port charges. The Pomona was one of these ships and was arrested and subsequently sold in the People’s Republic of. China to pay unpaid crew wages in the amount of approximately $750,000. Y.C. Cheng has allegedly disappeared. The petitioner has obtained default judgments against Y.C. Cheng and Soto Grande in the amount of $1,967,858.36 from this Court and petitioner alleges that these judgments remain unsatisfied. In the instant action, petitioner seeks an order and judgment against respondents under theories of fraudulent conveyance and piercing the corporate veil directing that petitioner is entitled to satisfy its judgments out of respondents’ assets. II. DISCUSSION In its petition, NatWest USA asserts federal jurisdiction under 28 U.S.C. § 1332, the equitable doctrine of ancillary subject matter jurisdiction, and Federal Rule of Civil Procedure 69(a). However, in its motion papers, NatWest relies solely on the theory of ancillary jurisdiction. In any event, no basis of subject matter jurisdiction exists for petitioner’s claims in the instant action. For there to be diversity jurisdiction under 28 U.S.C. § 1332, there must be “complete” diversity. State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 530, 87 S.Ct. 1199, 1203, 18 L.Ed.2d 270 (1967). In other words, all of the plaintiffs, or petitioners, must be of citizenship diverse 1160 to that of all defendants, or respondents. John Birch Soc. v. National Broadcasting Co., 377 F.2d 194, 197 (2d Cir.1967). In NatWest USA’s petition, NatWest USA states that its principal place of business is New York and alleges that respondent corporations have their principal places of business in New York. Pursuant to 28 U.S.C. § 1332(c)(1), a corporation is deemed to be a citizen of its state of incorporation and of the state where it has its principal place of business. Petitioner and all of the respondent corporations have the same citizenship. Therefore, the petitioner is not of diverse citizenship to that of all the respondents. Accordingly, there is no complete diversity and therefore there is no jurisdiction for the instant action under 28 U.S.C. § 1332. NatWest USA, however, relies for jurisdiction in its brief on the doctrine of ancillary jurisdiction. Under the doctrine of ancillary jurisdiction, a federal court is empowered to adjudicate ancillary claims involving state law without an independent basis of subject matter jurisdiction. Eagerton v. Valuations, Inc., 698 F.2d 1115, 1118 (11th Cir.1983). In order for a federal court to have ancillary jurisdiction of such a state claim, the state claim and the federal claim must arise from a common nucleus of operative facts. United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). Ancillary jurisdiction may be exercised to protect a judgment of a court through enforcement. Eagerton, supra, 698 F.2d at 1119. It is well settled that “jurisdiction of a court is not exhausted by the rendition of the judgment, but continues until the judgment is satisfied.... Process subsequent to judgment is as essential to jurisdiction as process antecedent to judgment, else the judicial power would be incomplete and entirely inadequate to the purpose to which it was conferred by the Constitution.” Riggs v. Johnson County, 73 U.S. (6 Wall.) 166, 187,18 L.Ed. 768 (1867). However, where a party seeks to invoke ancillary jurisdiction to protect a judgment of the court, there must be a transactional relationship “between the claims predicated on federal jurisdiction and the claims to be piggy-backed into the federal court.” Manway Construction Co., Inc. v. Housing Authority of the City of Hartford, et al., 711 F.2d 501, 504 (2d Cir.1983); See Berry v. McLemore, 795 F.2d 452, 455 (5th Cir.1986) (“post-judgment jurisdiction... is limited to those actions that a court may take in the same action”). Petitioner in the instant action has gotten default judgments against Y.C. Cheng and Soto Grande. Petitioner has brought the instant action against Calvin Cheng and various corporations held in his name to collect on the judgments entered against Y.C. Cheng and Soto Grande. Petitioner seeks to effectuate its judgment by proceeding under state law theories of fraudulent conveyance and piercing the corporate veil. This Court cannot exercise ancillary jurisdiction over the instant action. First, petitioner’s claims sound in state law. Second, petitioner and respondents are non-diverse parties. Petitioner could not have included respondents in the instant action in the previous action against Y.C. Cheng and Soto Grande because diversity would have been destroyed and there would have been no basis for federal jurisdiction. Therefore, if this Court were to exercise ancillary jurisdiction over the instant action, petitioner would be achieving indirectly through two separate actions that which he could not have achieved directly in one action. Third, petitioner’s theories of fraudulent conveyance and piercing the corporate veil are removed from the original breach of contract action against Y.C. Cheng and Soto Grande. Petitioner’s claims involve investigation into the facts of how the corporations at issue were run and involve legal issues of New York corporate law not related to Y.C. Cheng and Soto Grande’s failure to make loan payment^ to NatWest USA. Thus, there is no close)nexus as in Grimes v. Chrysler Motors Corp., 565 F.2d 841 (2d Cir.1977), where the Court of Appeals found that a district court had ancillary jurisdiction to *1161 supervise the distribution of a settlement which the district court had approved. The cases cited by petitioner to support this Court’s exercise of ancillary jurisdiction are inapposite to the instant action. First, petitioners cite a line of cases which hold that a district court may exercise ancillary jurisdiction for the limited purpose of hearing fee disputes and lien claims between litigants and their attorneys. See Petition of Rosenman Colin Freund Lewis & Cohen, 600 F.Supp. 527, 531 (S.D.N.Y.1984); Marrero v. Christiano, 575 F.Supp. 837, 839 (S.D.N.Y.1983); Application of Kamerman, 278 F.2d 411, 413 (2d Cir.1960). Second, petitioner relies on Blackburn Truck Lines, Inc. v. Francis, 723 F.2d 730 (9th Cir.1984), in which the Ninth Circuit held that the district court had jurisdiction over a separate action to enforce a previous judgment because the second suit was in one sense an attempt to enforce the previous judgment and because in another sense it was “an effort to accomplish what joinder could have provided.” Id. at 732. Finally, petitioner relies on the proposition that a court should exercise ancillary jurisdiction “when the core of facts supporting the original claim activates legal rights in favor of a party defendant that would otherwise remain dormant.” Eagerton, 698 F.2d at 1119. Petitioner in the instant action is not an attorney seeking fees. Further, petitioner could not have joined respondents in this action in the initial action because doing so would have destroyed diversity jurisdiction. Finally, petitioner is not a party defendant, and although petitioner claims that if this Court does not have jurisdiction over the present claims it will not be able to collect on its default judgments, petitioner has resort to the New York state courts. In its petition, petitioner asserts that this Court has jurisdiction under Federal Rule of Civil Procedure Rule 69(a). A Federal Rule of Civil Procedure, however, cannot expand the basis for subject matter jurisdiction of the district courts. Fed.R. Civ.P. 82; Manway, supra, 711 F.2d at 505. Accordingly, there is no subject matter jurisdiction over the instant action and therefore the instant action must be dismissed. III. CONCLUSION Respondents’ motion to dismiss for lack of subject matter jurisdiction is granted. SO ORDERED.	LIMITED_OR_DISTINGUISHED
723 F.2d 730	245 F.R.D. 213	D	Blackburn Truck Lines, Inc. v. Raymond J. Francis, an Individual Maria Francis, an Individual Crisp International, Inc., a Georgia Corporation	MEMORANDUM EDUARDO C. ROBRENO, District Judge. TABLE OF CONTENTS I. BACKGROUND 214 II. THIS COURT’S JURISDICTION...........................................215 A. A Court’s Lack of Subject Matter Jurisdiction Over a Case Is Proper Grounds for Vacatur Under Rule 60(b)(4)...............................215 B. A Motion Under Rule 60(b)(4) May Be Addressed to a Court in Which the Judgment Is Registered..........................................216 C. A Registering Court Has the Power to Vacate a Default Judgment Entered by a Rendering Court on the Basis that the Rendering Court Lacked Subject Matter Jurisdiction....................................220 D. This Court Will Consider Lakeside’s Rule 60(b)(4) Motion to Vacate the California Court’s Default Judgment as Void............................222 III. THE CALIFORNIA COURT’S JURISDICTION..............................223 A. Legal Standard.......................................................223 B. The California Court Lacked Subject Matter Jurisdiction to Enter the Default Judgment...................................................224 IV. CONCLUSION...........................................................225 This case presents the apparently previously unaddressed question of whether, after a plaintiff obtains a default judgment against a defendant in one jurisdiction and registers that judgment in another jurisdiction, the defendant is entitled to attack that judgment in the court in which it was registered on the grounds that the court that entered the judgment lacked subject matter jurisdiction over the case. The court that entered the judgment— here, the United States District Court for the Central District of California — is the “rendering court” (sometimes referred to as the “court of rendition”). The court in which the judgment is registered and sought to be enforced — here, the United States District Court for the Eastern District of Pennsylvania — is the “registering court” (sometimes referred to as the “court of registration”). Here, the Court must first decide whether a registering court is empowered to consider, under Federal Rule of Civil Procedure 60(b), a motion to void a default judgment entered by a rendering court on the basis that the rendering court lacked subject matter jurisdiction. The Court holds that a registering court has such authority and, in this case, should exercise that authority. The Court then examines the underlying question— whether the rendering court had subject matter jurisdiction over the case — and finds that subject matter jurisdiction was absent. As such, the Court will void the rendering court’s default judgment. I. BACKGROUND Plaintiff On Track Transportation, Inc., provided trucking and transport services for Defendant Lakeside Warehouse & Trucking Inc. According to On Track, Lakeside never paid On Track for the services provided. So, on June 13, 2005, On Track brought suit against Lakeside in the United States District Court for the Central District of California. 215On July 6, 2005, On Track filed a proof of service. Lakeside never made an appearance or filed an answer. On August 26, 2005, at On Track’s request, the Clerk for the Central District of California entered a default judgment against Lakeside in the amount of IM^l-OS.1 Approximately one year later, on August 18, 2006, On Track “registered” the judgment in this Court, the United States District Court for the Eastern District of Pennsylvania. Then, on February 12, 2007, On Track requested a writ of execution and, on March 6, 2007, the United States Marshal executed the writ on Fox Chase Bank, where Lakeside maintains a business account. Finally, on March 9, 2007, Lakeside filed the instant motion, seeking relief from judgment.2 II. THIS COURT’S JURISDICTION This Court has subject matter jurisdiction over this matter under 28 U.S.C. § 1963, which vests jurisdiction in district courts to register final judgments that have been entered in other federal courts. “A judgment so registered shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner.” Id, And Federal Rule of Civil Procedure 60(b) provides that a district court may reheve a party of a final judgment. Thus, this case turns on three interrelated questions. First, is a court’s lack of subject matter jurisdiction a proper basis for a Rule 60(b)(4) motion? Second, may a registering court entertain a Rule 60(b) motion to vacate a judgment, or must a motion under Rule 60(b) be made to the rendering court? Finally, drawing on the answers to the first two questions, may a registering court, under Rule 60(b), vacate the judgment of a rendering court because the rendering court lacked subject matter jurisdiction? A. A Court’s Lack of Subject Matter Jurisdiction Over a Case Is Proper Grounds for Vacatur Under Rule 60(b)ai Rule 60(b) provides that “[o]n motion and upon such terms as are just, the court may reheve a party... from a final judgment, order, or proceeding for the following reasons:... (4) the judgment is void----” Fed.R.Civ.P. 60(b)(4). A judgment entered by a court that lacks subject matter jurisdiction is void. See Gonzalez v. Crosby, 545 U.S. 524, 534, 125 S.Ct. 2641, 162 L.Ed.2d 480 (2005) (“Rule [60(b)] preserves parties’ opportunity to obtain vacatur of a judgment that is void for lack of subject-matter jurisdiction____”); Marshall v. Bd. of Educ., 575 F.2d 417, 422 (3d Cir.1978) (“A judgment may indeed be void, and therefore subject to rehef under [Rule] 60(b)(4), if the court that rendered it lacked jurisdiction of the subject matter____”); 11 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 2862 (2d ed.1995) [hereinafter Wright & Miller] (reporting that, under Rule 60(b)(4), a judgment is void “if the court that rendered it lacked jurisdiction of the subject matter”). In spite of the Rule’s permissive “may,” the law is settled that a court lacks discretion under clause (4): if jurisdiction was absent, the court must vacate the judgment as void. See Jordon v. Gilligan, 500 F.2d 701, 704 (6th Cir.1974) (“A void judgment is a legal nullity and a court considering a motion to vacate has no discretion in determining whether it shoxxld be set aside.”); Wright & Miller § 2862 (“There is no question of discretion on the part of the court when a motion is under Rule 60(b)(4).”). Indeed, “a court deciding a motion brought under Rule 21660(b)(4) ‘has no discretion because a judgment is either void or it is not.’ ” Fafel v. Dipaola, 399 F.3d 403, 409-10 (1st Cir.2005) (quoting Honneus v. Donovan, 691 F.2d 1, 2 (1st Cir.1982) (per curiam)). There is no time limit for moving to vacate a judgment as void under Rule 60(b)(4). “[N]o passage of time can transmute a nullity into a binding judgment, and hence there is no time limit for such a motion. It is true that the text of the rule dictates that the motion will be made within ‘a reasonable time.’ However,... there are no time limits with regards to a challenge to a void judgment because of its status as a nullity....” United States v. One Toshiba Color Television, 213 F.3d 147, 157 (3d Cir.2000) (internal citation omitted); see also Wright & Miller § 2866 (“Although Rule 60(b) purports to require all motions under it to be made within ‘a reasonable time,’ this limitation does not apply to a motion under clause (4) attacking a judgment as void. There is no time limit on a motion of that kind.”). Therefore, Lakeside may, one year after the default judgment was entered, move under Rule 60(b)(4) to vacate it as void for lack of subject matter jurisdiction. B. A Motion Under Rule 60(b)(1) May Be Addressed to a Court in Which the Judgment Is Registered. Motions under Rule 60(b)(4) usually are, perhaps rightfully so, addressed to the court that entered the judgment. A majority of the Circuits have held, though, that, at least in certain circumstances, a court in which a judgment is registered under § 1963 has the authority to hear a Rule 60(b)(4) motion attacking another court’s judgment. (The Third Circuit is silent on the issue.3) Five Circuits have held that there are at least some circumstances in which a registering court can hear a Rule 60(b)(4) motion. Only one Circuit, the Seventh, has held otherwise. Of course, whether the registering court should hear the motion is a different question, and one that is addressed in Section II.C, infra. The Second, Fifth, and Tenth Circuits have explicitly held that, under Rule 60(b)(4), a registering court may void a rendering court’s default judgment if the rendering court was without personal jurisdiction over the defendant. In Covington Industries, Inc. v. Resintex A.G., 629 F.2d 730, 732 (2d Cir.1980), the plaintiff obtained a default judgment against the defendant in the District of Georgia and then registered that judgment in the Eastern District of New York. The defendant moved under Rule 60(b)(4) in the New York court to vacate the Georgia default judgment on the basis that the Georgia court lacked personal jurisdiction. The district court granted the motion and vacated the judgment, and the Second Circuit affirmed. “When, in an enforcement proceeding, the validity of the judgment is questioned on [the ground of lack of jurisdiction], the enforcing court has the inherent power to void the judgment, whether the judgment was issued by a tribunal within the enforcing court’s domain or by a court of a foreign jurisdiction, unless inquiry into the matter is barred by the principles of res judicata.” Id. Although Rule 60(b)(4) motions are usually addressed to the rendering court, because that court is more familiar with the action, when a rendering court enters a default judgment, the registering court “seems as qualified [as the rendering court] to determine the jurisdiction of the rendering court, particularly when the latter is a federal court of coordinate authority.” Id. at 733. The Second Circuit noted that this position was in accord with Professor Moore’s view: “since by registering the judgment in a particular forum the creditor seeks to utilize the enforcement machinery of that district court[,] it is not unreasonable to hold that the 217latter court has the power to determine whether relief should be granted the judgment debtor under [Rule] 60(b).” Id. at 734 (quoting 7 Moore’s Federal Practice § 60.28(1), at 391-92 (2d ed.1979)). In Harper Macleod Solicitors v. Keaty & Keaty, 260 F.3d 389, 391 (5th Cir.2001),4 the plaintiff obtained a default judgment in the Southern District of Texas and then registered that judgment in the Eastern District of Louisiana. The defendant then moved the Louisiana court to vacate the judgment under Rule 60(b)(4), alleging that the judgment was void for lack of personal jurisdiction because service of process had been deficient. The district court granted the motion to vacate, and the Fifth Circuit affirmed, “joinfing] the majority of circuits and holding] that registering courts may use Rule 60(b)(4) to sustain jurisdictional challenges to default judgments issued by another district court.” Id. at 395. The court’s reasoning was as follows: Though judicial efficiency and comity among district courts often counsel a registering court to defer ruling on Rule 60(b) motions in favor of the rendering court, such deference is less appropriate when the challenged judgment was issued without the benefit of argument from one party and the basis for the 60(b) challenge is jurisdictional____[A] court of registration effectively can tell a rendering court not to enforce a default judgment when the defaulting defendant never appeared in the court of rendition and had a valid jurisdictional complaint. That one district court may exercise such authority over another is a necessary consequence of the established rule that a defendant may challenge a rendering court’s personal jurisdiction in a court in which enforcement of a default judgment is attempted. Such authority also reflects the federal system’s disdain for default judgments. Id. (internal citations omitted) (emphasis in original). In Morris ex rel. Rector v. Peterson, 759 F.2d 809 (10th Cir.1985), a legal malpractice action was brought in Colorado state court. The defendants removed the case to the Colorado federal court, on the basis of diversity, and then moved the Colorado federal court to transfer the action to the District of Kansas. Over the plaintiffs’ opposition, the motion was granted and the case was transferred to the Kansas court. The defendants then filed a motion for summary judgment, to which the plaintiffs never responded. The Kansas court granted the motion and issued a rule to show cause why attorneys’ fees should not be assessed against the plaintiffs. The plaintiffs did not respond to the rule to show cause or appear at the hearing, and the Kansas court assessed attorneys’ fees against the plaintiffs. The defendants then registered the certified judgment awarding them fees in the Colorado federal court. Finally, the plaintiffs moved the Colorado federal court to vacate the judgment under Rule 60(b)(4) on the basis that the Kansas court lacked personal jurisdiction over them. The Colorado district court held that it had the authority to hear the Rule 60(b)(4) motion and that the Kansas court lacked personal jurisdiction. Although the Tenth Circuit reversed on the factual question of whether the Kansas court had personal jurisdiction over the plaintiffs, it held, without discussion, that a court in which a judgment is registered may grant relief under Rule 60(b). Id. at 811. The Ninth Circuit has come to the same conclusion as the Second, Fifth, and Tenth (that a registering court has jurisdiction to entertain a Rule 60(b) motion attacking an underlying judgment), although its case was not premised on personal jurisdiction. Rather, in FDIC v. Aaronian, 93 F.3d 636 (9th Cir.1996),5 the defendant was able in the registering court to attack the rendering court’s judgment on the basis that the judgment was unconstitutional for lack of due process. The plaintiff had obtained a judg218ment in the Eastern District of Pennsylvania based on a contract’s cognovit actionem clause, which allows a holder of a note to obtain a judgment against the defaulting party without notice to the defaulting party. The defendant took no action in the Pennsylvania court, but, when the plaintiff registered the judgment in the Eastern District of California, the defendant moved under Rule 60(b)(4) to vacate the judgment on the grounds that it was unconstitutional for lack of due process. The Ninth Circuit held that the Rule 60(b) motion was properly before the California court. “A court of registration has jurisdiction to entertain motions challenging the underlying judgment.” Id. at 639. The First Circuit supports the view of the Second, Fifth, Ninth, and Tenth Circuits, but only in dicta. In Indian Head National Bank of Nashua v. Brunelle, 689 F.2d 245, 249 (1st Cir.1982),6 the plaintiff obtained a default judgment in the Eastern District of Pennsylvania and then sought to enforce that judgment in the District of New Hampshire. In the New Hampshire court, the defendant moved under Rule 60(b)(1) and (6) to vacate the default judgment on the basis that the default judgment was obtained because of the mistake of counsel (who had entered an appearance but then failed to plead). The New Hampshire court granted the motion, but the First Circuit reversed. It held that Rule 60(b) motions must be addressed to the rendering court: “The advisory committee notes to the 1946 amendment reflect an understanding that Rule 60(b) motion practice would be made in the court rendering judgment.” Id. at 248.7 A motion under Rule 60(b) should be made to the rendering court, because it is considered “ ‘a continuation of the litigation.’ Rule 60(b) motion practice, then, contemplates an exercise of supervisory power by the rendering court over the judgment it issued.” Id. at 249. However, the First Circuit identified two narrow exceptions to the rule that Rule 60(b) motions must be addressed to the rendering court.8 The first is when the Rule 60(b) motion is akin to an independent equitable action, which is expressly permitted by the Rule. See Fed.R.Civ.P. 60(b) (“This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment____”). Such is not the case here. This case is predicated on § 1963, not equity, and Lakeside has not invoked this Court’s equitable powers. The second exception to the general rule is for Rule 60(b)(4) challenges to default judgments on the basis that a rendering court lacked personal jurisdiction over the defendant. Thus, the First Circuit seems to be in accord with the Second, Fifth, and Tenth: a registering court can, under Rule 60(b)(4), vacate a rendering court’s default judgment for lack of personal jurisdiction. This is consistent with the view expressed by Wright & Miller: Relief under Rule 60(b) ordinarily is obtained by motion in the court that rendered the judgment. If a judgment obtained in one district has been registered in another district, as provided by Section 1963 of Title 28, it is possible that the court in the district of registration has jurisdiction to hear a Rule 60(b) motion. Indeed, several courts have ruled that it is proper for the registration court to entertain a Rule 60(b) motion when the basis for the motion is that the judgment is void for a lack of jurisdiction. But the rendering court ordinarily will be far more familiar with the case and with the circumstances that are said to provide grounds for relief from the judgment. Accordingly it is appropriate for the court in the district of 219registration to decline to pass on the motion for relief and to require the moving party to proceed in the court that gave judgment. Wright & Miller § 2865 (footnotes omitted). Indeed, Professor Moore concurs: “a void judgment may be collaterally attacked... in any subsequent state or federal action in which the judgment becomes relevant.” 12 Moore’s Federal Practice § 60.44 (emphasis added). The Seventh Circuit is alone in holding that only the rendering court has the power to entertain a Rule 60(b) motion. Bd. of Trs. v. Elite Erectors, Inc., 212 F.3d 1031 (7th Cir.2000).9 In Elite Erectors, the plaintiff obtained a default judgment in the Eastern District of Virginia and then registered the judgment in the Southern District of Indiana. The defendants then moved the Indiana court, under Rule 60(b)(4), to vacate the Virginia judgment on the grounds that the Virginia court lacked personal jurisdiction over them. The Indiana court granted the motion and annulled the Virginia court’s judgment. The Seventh Circuit reversed. “Could the Southern District of Indiana tell the Eastern District of Virginia that it may not enforce its own judgment if, for example, [the defendants] should have assets in Virginia? A judgment may be registered in many districts, and it would not make much sense to allow each of these districts to modify the judgment under Rule 60(b), potentially in different ways.” Id. at 1034 (internal citation omitted). The Seventh Circuit concluded that Rule 60(b) motions must be presented to the rendering court. Id. The court did provides two caveats, though. The first is obvious: by reason of the doctrine of collateral estoppel, the registering court cannot disturb any ruling that has been expressly litigated in the rendering court (such as whether the rendering court has subject matter or personal jurisdiction). This caveat is inapplicable to default judgments, which by their very nature mean that the rendering court never expressly made a ruling on jurisdiction. The second caveat is that a registering court can disregard the rendering court’s judgment, without formally vacating it, if the registering court were to find that the rendering court lacked jurisdiction. The Court agrees with the majority of Circuits and finds the Seventh Circuit’s position unworkable in practice. The Seventh Circuit does join the majority in holding that a registering court is free to find that the rendering court lacked jurisdiction. However, the Seventh Circuit differs on the remedy: while the other Circuits hold that the registering court can then vacate the judgment as void under Rule 60(b)(4), the Seventh Circuit holds that a registering court lacks this authority. Instead, the Seventh Circuit counsels that a registering court should simply disregard, or refuse to enforce, the judgment. This solution is impracticable. Once the litigants have a “full and fair opportunity” to litigate the jurisdiction issue before the registering court and the court makes a decision, that decision has preclusive effect. Jean Alexander Cosmetics, Inc. v. L’Oreal USA Inc., 458 F.3d 244, 249 (3d Cir.2006). The defendant could then move the rendering court to vacate the judgment on the basis 220that it lacked jurisdiction, using the decision of the registering court offensively. In other words, the Seventh Circuit’s solution leads to more time and expense for litigants and courts, the precise ills that § 1963 was designed to remedy. See Home Port Rentals, Inc. v. Int’l Yachting Group, Inc., 252 F.3d 399, 404 (5th Cir.2001) (“An express reason for Congress’s enacting § 1963 was ‘to spare creditors and debtors alike both the additional costs and harassment of further litigation ____’ ” (quoting S.Rep. No. 83-1917 (1954), reprinted in 1954 U.S.C.C.A.N. 3142)). In light of the Seventh Circuit’s concern that it would not “make much sense to allow each of these districts to modify the judgment under Rule 60(b),” it seems odd that the court would encourage registering courts to disregard judgments without formally vacating them. This Court believes that such a scheme is more fraught with opportunity for confusion than the majority position that a coordinate district court can vacate another court’s judgment. The Court concludes that the majority view is the more appropriate. While it may be preferable, for certain policy reasons, for a Rule 60(b)(4) motion to be put to the rendering court, a registering court nevertheless has the authority to entertain a Rule 60(b)(4) motion seeking to void a judgment of a rendering court. Therefore, there are some instances in which a registering court may entertain a Rule 60(b)(4) motion. C. A Registering Court Has the Power to Vacate a Default Judgment Entered by a Rendering Court on the Basis that the Rendering Court Lacked Subject Matter Jurisdiction. The Court has been unable to locate a case in which this question was squarely addressed. In ruling on a court’s powers under the registration statute, 28 U.S.C. § 1963, the Court begins, naturally, with the language of the statute: A judgment in an action for the recovery of money or property entered in any... district court... may be registered by filing a certified copy of the judgment in any other district... when the judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown----A judgment so registered shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner. 28 U.S.C. § 1963. Because the language of the statute provides that a judgment registered in a registering court “shall have the same effect as” a judgment entered by a rendering court, the prevailing view is that a registered judgment provides the equivalent of a “new” judgment in the registering court. See Stanford v. Utley, 341 F.2d 265, 268 (8th Cir.1965) (Blackmun, J.) (“We have concluded that § 1963 is more than ‘ministerial’ and is more than a mere procedural device for the collection of the foreign judgment. We feel that registration provides, so far as enforcement is concerned, the equivalent of a new judgment of the registration court.”). Under this view, § 1963 provides the registering court with the same inherent powers to enforce the judgment as possessed by the rendering court. Condaire, 286 F.3d at 357. Taken to the next logical step, if the registering court has the same powers as the rendering court to enforce the judgment, then it should also possess the same power to vacate the judgment under Rule 60(b)(4). Moreover, Congress’s purpose in enacting § 1963 supports the view that Congress intended for a registering court to have the same authority over a judgment as a rendering court does. Congress enacted § 1963 in order to simplify the process (for both litigants and courts) for enforcing judgments. Prior to § 1963 a judgment creditor had to file a new suit in the judicial district in which the judgment debtor had assets and then litigate the new suit and obtain a new judgment. Section 1963 was designed to streamline this process, allowing a judgment creditor to simply “register” the judgment in another judicial district, without having to relitigate it. Home Port Rentals, 252 F.3d at 404 (citing S.Rep. No. 83-1917 (1954), reprinted in 1954 U.S.C.C.A.N. 3142); see also 221Condaire, Inc. v. Allied Piping, Inc., 286 F.3d 353, 356 (6th Cir.2002) (“[Section] 1963 intends to provide the benefits of a local judgment on a foreign judgment without the expense of a second lawsuit.” (quoting Hanes Supply Co. v. Valley Evaporating Co., 261 F.2d 29, 30 (5th Cir.1958))). Courts that have addressed the issue of whether registering courts have the power to entertain Rule 60(b) motions have tended not to speak in absolutes. Instead of squarely deciding the question, most courts have simply stated that registering courts should defer to rendering courts. See, e.g., Fuhrman v. Livaditis, 611 F.2d 203, 205 (7th Cir.1979) (“[W]e do not conclude that a registering court presented with a motion for relief from judgment based on lack of personal jurisdiction must in every instance defer to the court which originally issued the judgment----”); Indian Head, 689 F.2d at 249 (“Courts of registration presented with Rule 60(b) motions have themselves shown a marked reluctance to entertain them, generally deferring to the rendering courts.”). The two reasons usually provided for this deference are (1) comity among the federal district courts and (2) judicial efficiency, because the rendering court is likely to be more familiar with the case. Indian Head, 689 F.2d at 249 (citing Fuhrman, 611 F.2d at 205). The latter reason is not relevant when a defendant makes a Rule 60(b)(4) motion in a registering court on the grounds that a default judgment entered by the rendering court is void: in entering a default judgment, the rendering court necessarily is relatively unfamiliar with the merits of the case. The only other reason asserted for this deference is to promote comity among the federal district courts. There is no issue with respect to one federal district court disturbing another court’s ruling on the issue of jurisdiction, because, under the principle of collateral estoppel, if the rendering court ruled on the issue of jurisdiction, then the registering court is precluded from examining the merits of that ruling. So the only aspect of comity that is touched upon is a federal district court’s interest in seeing its judgments enforced (and not vacated by a court of coordinate authority). This interest, however, must be balanced against the longstanding principle that “[a] defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding.” Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982). The defendant is free to challenge the rendering court’s judgment in a collateral proceeding; there is no constitutional or statutory requirement that such a collateral proceeding must also be before the rendering court. Indeed, a defendant might have several legitimate reasons for allowing a default judgment to be entered and then contesting the court’s jurisdiction: The defendant may believe that settlement is possible, may prefer to postpone the expenditure of her time and money until a later date, or may wish to contest jurisdiction in a forum closer to her assets. Since the plaintiff may move for the court to attach these assets, this wait and challenge approach may allow a defendant to appear in a forum closer to home, where the defendant has a more prominent presence and better access to choice legal counsel than she does in the forum of the issuing court. Ariel Waldman, Comment, Allocating the Burden of Proof in Rule 60(b) (í) Motions to Vacate a Default Judgment for Lack of Jurisdiction, 68 U. Chi. L.Rev. 521, 521 (2001). Finally, a litigant is usually entitled to the forum of his choosing, so long as venue is proper. Van Dusen v. Barrack, 376 U.S. 612, 633-34, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964). Perhaps because a defendant is permitted to suffer a default judgment and then collaterally attack the jurisdiction of the rendering court, four Circuits have explicitly allowed defendants to make Rule 60(b)(4) motions to registering courts on the basis that the rendering courts lacked personal jurisdiction. See Harper, 260 F.3d at 391; Morris, 759 F.2d at 811; Indian Head, 689 F.2d at 249; Covington, 629 F.2d at 732. But does this rationale also hold true for challenges based on subject matter jurisdiction? 222Judge (now Justice) Ginsburg would seem to think so: A defendant who knows of an action but believes the court lacks jurisdiction over his person or over the subject matter generally has an election. He may appear, raise the jurisdictional objection, and ultimately pursue it on direct appeal. If he so elects, he may not renew the jurisdictional objection in a collateral attack.... Alternatively, the defendant may refrain from appearing, thereby exposing himself to the risk of a default judgment. When enforcement of the default judgment is attempted, however, he may assert his jurisdictional objection. If he prevails on the objection, the default judgment will be vacated. If he loses on the jurisdictional issue, on the other hand, his day in court is normally over; as a consequence of deferring the jurisdictional challenge, he ordinarily forfeits his right to defend on the merits. Practical Concepts, Inc. v. Republic of Bol., 811 F.2d 1543, 1547 (D.C.Cir.1987) (internal citations omitted) (emphasis added). And this view is in accord with the Restatement (Second) of Judgments: “When the [defendant] knew about the action but perceived that the court lacked territorial or subject matter jurisdiction, he is given a right to ignore the proceeding at his own risk but to suffer no detriment if his assessment proves correct.” Restatement (Second) of Judgments § 65 cmt. b (emphasis added). On the other hand, the rationales underlying the requirements of personal and subject matter jurisdiction are quite different. Subject matter jurisdiction is rooted in the inherent power of the court. Federal district courts are courts of limited jurisdiction; they can hear cases only insofar as granted that power by Congress and Article III of Constitution. Insurance Corp. of Ireland, 456 U.S. at 702, 102 S.Ct. 2099. A defendant’s challenge to a court’s subject matter jurisdiction is not personal to that defendant; rather, this type of challenge is designed to alert the court that it does not have the power to decide the case. Id. Along this vein, a court’s lack of subject matter jurisdiction can be raised by any party (or the court sua sponte) at any stage of the litigation; even an appellate court can dismiss a case for lack of subject matter jurisdiction. Id. Indeed, subject matter jurisdiction cannot be waived. See id. (“[N]o action of the parties can confer subject-matter jurisdiction upon a federal court. Thus, the consent of the parties is irrelevant____”). Personal jurisdiction raises different concerns. It is rooted in the Due Process Clause of the Constitution. Id. A defendant’s due process rights would be violated if a court were to hear a case in which the court did not possess personal jurisdiction over the defendant. But, like other personal constitutional rights, a defendant may waive personal jurisdiction. Id. at 703, 102 S.Ct. 2099. In short, while the parties can bring themselves within the jurisdiction of the court (personal jurisdiction), the court must still assure itself that it is constitutionally and statutorily empowered to adjudicate the case (subject matter jurisdiction). In spite of these differences, though, the power of the registering court to entertain Rule 60(b)(4) challenges should be the same, whether the rendering court’s judgment is allegedly void because of a lack of subject matter or personal jurisdiction. This Court, as the registering court, has the authority to hear Lakeside’s Rule 60(b)(4) motion that the California court lacked subject matter jurisdiction over the case and therefore that the default judgment entered by the California court against Lakeside is void. D. This Court Will Consider Lakeside’s Rule 60(b) (b) Motion to Vacate the California Court’s Default Judgment as Void. This Court is aware of the policies generally favoring a rendering court to rule on a Rule 60(b)(4) motion and that this Court has the power to transfer the case to the Central District of California, 28 U.S.C. § 1404, or stay enforcement of the writ of execution until the California court resolves the issue of subject matter jurisdiction. See United States ex rel. Mosher Steel Co. v. Fluor Corp., 436 F.2d 383, 385 (2d Cir.1970) (“[T]he court of registration [has] discretion 223in appropriate circumstances to refer the parties to the court which rendered judgment.”). However, the efficient administration of justice is furthered by this Court deciding the issue.10 Judicial economy weighs in favor of this Court deciding the issue. There is a relatively small amount of money at issue (only $8500 remains subject to the writ of execution). And this Court is arguably more familiar with the case than is the California court, given that the parties have briefed the issues and appeared for oral argument here. Therefore, the Court will consider the merits of Lakeside’s Rule 60(b)(4) motion to vacate the California court’s judgment. III. THE CALIFORNIA COURT’S JURISDICTION Now that the Court has decided that is has jurisdiction to decide whether the Rule 60(b)(4) motion should be granted, it must look to the merits of the motion, namely whether the California court had subject matter jurisdiction. A. Legal Standard Normally, once a defendant moves to dismiss a case for lack of subject matter or personal jurisdiction, the plaintiff bears the burden of demonstrating that the court indeed has jurisdiction over the subject matter and the defendant. Provident Nat’l Bank v. Cal. Fed. Sav. & Loan Ass’n, 819 F.2d 434, 437 (3d Cir.1987) (“Once a jurisdictional defense has been raised, the plaintiff bears the burden of establishing with reasonable particularity sufficient contacts between the defendant and the forum state to support jurisdiction.”); Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir.1977) (“[Under Rule 12(b)(1),] the plaintiff [has] the burden of proof that [subject matter] jurisdiction does in fact exist.”). However, Rule 60 is silent, and the caselaw is unclear, on which party bears the burden after a judgment has been entered. The Second and Seventh Circuits have squarely placed the burden on the defendant. See Burda Media, Inc. v. Viertel, 417 F.3d 292, 299 (2d Cir.2005); Bally Export Corp. v. Balicar, Ltd., 804 F.2d 398, 401 (7th Cir. 1986) (“If the defendant, after receiving notice, chooses to let the case go to a default judgment, the defendant must then shoulder the burden of proof when the defendant decides to contest jurisdiction in a post-judgment rule 60(b)(4) motion.”). As the Second Circuit explained, “placing the burden on the defendant reflects ‘the concerns of comity among the district courts of the United States, the interest in resolving disputes in a single judicial proceeding, the interest of the plaintiff in the choice of forum, and the fear of prejudice against a plaintiff who, owing to delay, might in subsequent collateral proceedings no longer have evidence of personal jurisdiction that existed at the time of the underlying suit.’” Burda, 417 F.3d at 299 (quoting Miller v. Jones, 779 F.Supp. 207, 210-11 (D.Conn.1991)). Moreover, this Court has implied that the burden should remain on the defendant, providing in Whitehouse v. Rosenbluth Bros., 32 F.R.D. 247, 248 (E.D.Pa.1962), that the defendants had sixty days to submit evidence supporting their Rule 60(b) motion that the Florida federal court that had entered a judgment against them never had personal jurisdiction over them. While no Circuit has held otherwise, several district courts and at least one commentator have advocated leaving the burden on the plaintiff. See, e.g., Sterling Indus. Corp. v. Tel., Inc., 484 F.Supp. 1294, 1296 (W.D.Mich. 1980); Rockwell Int’l Corp. v. KND Corp., 83 F.R.D. 556, 559 n. 1 (N.D.Tex.1979); Waldman, supra, 68 U. Chi. L.Rev. at 536 (“Courts should... requir[e] that plaintiffs in Rule 60(b)(4) motions bear the burden of proving that the court issuing the default judgment had proper personal jurisdiction.”). Of course, these cases all turn on the question of personal jurisdiction, not subject matter jurisdiction. The Supreme Court’s jurisprudence strongly suggests that the plaintiff 224retains the burden of demonstrating subject matter jurisdiction. See McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936) (holding that the party asserting the federal court’s jurisdiction “must carry throughout the litigation the burden of showing that he is properly in court”). The Court need not decide this difficult issue at this juncture because, as will become clear from the discussion below, the question of whether the California court had subject matter jurisdiction is a clear one. The “well-pleaded complaint” rule requires that subject matter jurisdiction be clear from the face of the plaintiffs complaint. Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S. Cal., 463 U.S. 1, 9, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). Thus, for the California federal court to have had subject matter jurisdiction, On Track’s complaint must have established that the case “ar[o]se[] under” federal law. Id. at 10, 103 S.Ct. 2841. B. The California Court Lacked Subject Matter Jurisdiction to Enter the Default Judgment. In its complaint in the California court, On Track stated that subject matter jurisdiction was predicated on 28 U.S.C. § 1337(a), which provides in pertinent part that “[t]he district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies.” Notably, jurisdiction was not predicated on § 1331 (presumably because there was no federal question involved) or § 1332 (presumably because the amount in controversy, about $20,000, was far below the statutory threshold of $75,000). On Track contended in its complaint in California (and also contends here) that this action “aris[es] under an[] Act of Congress regulating commerce,” specifically the Interstate Commerce Act. Compl. ¶ 6. The complaint refers to “Subtitle IV of Title 49 U.S.C., Part B,” which “pertain[s] to the billing and collection of charges for transportation in interstate commerce.” Id. A cheek of the United States Code shows that 49 U.S.C., Subtitle IV, Part B is entitled “Motor Carriers, Water Carriers, Brokers, and Freight Forwarders,” and encompasses §§ 13101 to 14914. Beginning in 1935, the United States banned price competition among interstate motor carriers of freight. Munitions Carriers Conference, Inc. v. United States, 147 F.3d 1027, 1028 (D.C.Cir.1998) (citing Howe v. Allied Van Lines, Inc., 622 F.2d 1147, 1152-54 (3d Cir.1980)). Each carrier was required to file a tariff of its prices and conditions of carriage with the Interstate Commerce Commission (ICC). Id. (citing 49 U.S.C. § 10762(a)(1) (repealed 1995)). Each carrier was bound by its tariff: it could not charge a shipper any rate other than that specified in its tariff. Id. (citing 49 U.S.C. § 10761(a) (repealed 1995)). Prior to the industry’s deregulation in 1995, “federal jurisdiction unquestionably was present under 28 U.S.C. § 1337 in cases in which a carrier sought to recover unpaid freight charges from a shipper due under a filed tariff.” Transit Homes of Am. v. Homes of Legend, Inc., 173 F.Supp.2d 1185, 1189-90 (N.D.Ala.2001). A carrier was obligated to collect its full fee from each shipper, because “a carrier’s failure to recover unpaid charges due under a tariff from one shipper would be the equivalent of showing unlawful discrimination in rates,” in violation of the Interstate Commerce Act. Id. at 1191. During this period, the carrier’s claim was “predicated on the [filed] tariff.” Thurston Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460 U.S. 533, 535, 103 S.Ct. 1343, 75 L.Ed.2d 260 (1983) (per curiam). “The Interstate Commerce Act requires carrier to collect and consignee to pay all lawful charges duly prescribed by the tariff in respect of every shipment. Their duty and obligation grow out of and depend upon that act.” Id. at 534, 103 S.Ct. 1343 (quoting Louisville & Nashville R.R. Co. v. Rice, 247 U.S. 201, 202, 38 S.Ct. 429, 62 L.Ed. 1071 (1918)). Thurston, which held that federal jurisdiction was proper under § 1337 for a claim predicated on a tariff filed with the ICC, is thus inapplicable to “a claim where the carrier was not required to file a tariff for the transportation.” *225Henslin v. Roaasti Trucking Inc., 69 F.3d 995, 998 (9th Cir.1995). In 1995, Congress deregulated the industry and abolished the ICC. Munitions Carriers, 147 F.3d at 1028. Carriers are no longer required to file tariffs for the transportation of most goods. Id. (Carriers must still file tariffs for the transportation of household goods. Id. (citing 49 U.S.C. § 13704(a)(2)).) Moreover, a tariff filed with the Surface Transportation Board (STB), a successor to the ICC, has no legal effect unless the tariff is for the transportation of household goods. Transit Homes, 173 F.Supp.2d at 1190 (citing 49 U.S.C. § 13710(a)(4)). Therefore, after 1995, an interstate motor carrier of freight seeking to recover amounts due from a shipper can predicate federal jurisdiction under § 1337 only upon a tariff filed with the STB for the transportation of household goods. Cent. Transp. Int’l v. Sterling Seating, Inc., 356 F.Supp.2d 786, 791 (E.D.Mich.2005); Transit Homes, 173 F.Supp.2d at 1192. Other than in this narrow situation, a carrier’s action to recover amounts due from a shipper is simply a contract action. Indeed, in both Central Transport and Transit Homes, the courts found that they did not possess subject matter jurisdiction because the plaintiffs were not seeking amounts due under filed tariffs, but rather were seeking to recover for breached contracts. Central Transport, 356 F.Supp.2d at 791; Transit Homes, 173 F.Supp.2d at 1191. Here, On Track alleges that it is owed on its contract with Lakeside; conspicuously absent from the complaint is an allegation of a filed tariff or that On Track was transporting household goods. On Track ignores Central Transport and Transit Homes, two cases that this Court considers well-reasoned and persuasive, and instead focuses its attention on Blackburn Truck Lines, Inc. v. Francis, 723 F.2d 730 (9th Cir.1984), and Old Dominion Freight Line v. Allou Distributors, Inc., 86 F.Supp.2d 92 (E.D.N.Y.2000). On Track is not helped by Blackburn for the simple reason that Blackburn was decided in 1984, a decade before Congress abolished the ICC and deregulated the trucking industry. Similarly, Old Dominion is unhelpful because, while it was decided in 2000, after Congress’s deregulation of the industry, it relied for its holding on Thurston, the Supreme Court’s pre-deregulation case. Moreover, Old Dominion made no distinction because actions that sought to recover on a filed tariff (to which § 1337 applies) and those that did not seek to recover on a filed tariff (to which § 1337 is inapplicable). Finally, both Central Transport and Transit Homes expressly declined to follow Old Dominion. 356 F.Supp.2d at 790 n. 1, 173 F.Supp.2d at 1190 n. 2. Therefore, § 1337 did not provide the California court subject matter jurisdiction over the case. IV. CONCLUSION The District Court for the Central District of California lacked subject matter jurisdiction over On Track’s case. Therefore, Lakeside’s Rule 60(b)(4) motion to vacate the California court’s default judgment as void will be granted. An appropriate Order follows. ORDER AND NOW, this 22d day of August 2007, for the reasons stated in the accompanying Memorandum, it is hereby ORDERED that Defendant’s motion for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b) is GRANTED. It is further ORDERED that the default judgment entered in favor of Plaintiff and against Defendant by the Clerk of the United States District Court for the Central District of California, On Track Transportation, Inc. v. Lakeside Warehouse & Trucking Inc., Civil Action No. 05-4253 (docket number 10, filed August 26,2005), is VACATED. AND IT IS SO ORDERED.. The total includes principal of $13,766.76; prejudgment interest of $357.83; and costs of $256.49. It is unclear why the default judgment was only for $14,381.08, because On Track had stated in its complaint (and attached billing records for support) that the total principal due was $21,579.18.. On Track filed a response and Lakeside filed a reply brief, and then, at the Court’s direction, both parties filed supplemental briefs. At a hearing on the matter, the Court urged both parties to come to an amicable non-Court resolution, due to the relatively small amount of money at issue (the amount subject to the writ of execution is currently $8500). Both parties remained steadfast in their desire to have the Court issue a ruling.. In In re Universal Display & Sign Co., 541 F.2d 142 (3d Cir.1976), a bankruptcy trustee in the Northern District of California obtained a default judgment against certain Delaware defendants, who had made a special appearance in the California court to contest personal jurisdiction, but, after losing on their motion to dismiss, failed to otherwise appear or plead. When the trustee registered the judgment in the District of Delaware, the defendants moved under Rule 60(b)(4) to vacate the judgment. The Third Circuit noted that the trustee did not object "to the power of the transferee [or registering] court to entertain a Rule 60(b)(4) motion,” and therefore did not have occasion to address the issue. Id. at 143 n. 6.. The Third Circuit’s Judge Aldisert, who was sitting by designation on the Fifth Circuit, sat on the panel that unanimously decided Harper Macleod.. Sixteen years earlier, the Ninth Circuit stated in dicta that a Rule 60(b) motion must be presented to the court that entered the judgment. First Beverages, Inc. v. Royal Crown Cola Co., 612 F.2d 1164 (9th Cir.1980). Obviously, the more recent Ninth Circuit case on point is controlling.. The Third Circuit's Judge Rosenn, who was sitting by designation on the First Circuit, authored Indian Head.. The advisory committee notes provide: Two types of procedure to obtain relief from judgments are specified in the rules as it is proposed to amend them. One procedure is by motion in the court and in the action in which the judgment was rendered. The other procedure is by a new or independent action to obtain relief from a judgment, which action may or may not be begun in the court which rendered the judgment. Fed.R.Civ.P. 60 advisory committee note (1946).. Arguably, these "exceptions” are dicta, as there was no allegation that the "mistake of counsel" fit within one of the exceptions.. The Seventh Circuit incorrectly states that it is in the majority. Elite Erectors, 212 F.3d at 1034. It identifies Rector (Tenth Circuit) and Covington (Second Circuit) as the “minority view/' and states that Indian Head (First Circuit), First Beverages (Ninth Circuit), and Wright & Miller all support its position. While the First Circuit, in Indian Head, stated that Rule 60(b) motions should be made to the rendering court, it explained that there exist two situations in which a Rule 60(b) motion may be made to the registering court. And that passage of First Beverages cited by the Seventh Circuit as evidence that the Ninth Circuit is in accord with the Seventh is merely dicta; the Ninth Circuit felt free to ignore First Beverages (1980) when it held in Aaronian (1996) that a registering court could entertain a Rule 60(b) motion challenging the constitutionality of a rendering court's judgment. Finally, contrary to the Seventh Circuit's representation, Wright & Miller are actually in accord with the majority view. See Wright & Miller § 2865 ("If a judgment obtained in one district has been registered in another district, as provided by Section 1963 of Title 28, it is possible that the court in the district of registration has jurisdiction to hear a Rule 60(b) motion. Indeed, several courts have ruled that it is proper for the registration court to entertain a Rule 60(b) motion when the basis for the motion is that the judgment is void for a lack of jurisdiction.” (footnote omitted)).. On Track has not advocated that this Court should transfer the matter to the California court. See 28 U.S.C. § 1404(a).	LIMITED_OR_DISTINGUISHED
724 F.2d 789	397 F.3d 544	C, D	Brothers v. First Leasing	MANION, Circuit Judge. Brenda Laramore sued Ritchie Realty Management Company (“Ritchie”) claiming that Ritchie violated the Equal Credit Opportunity Act, 15 U.S.C. § 1691 (the “ECOA”) when it informed her that she could not apply to rent an apartment it managed because she received public assistance. The district court dismissed Laramore’s complaint on the ground that the rental of residential property is not a credit transaction covered by the ECOA. We affirm. I. Laramore receives federal assistance pursuant to Section Eight of the United States Housing Act, 42 U.S.C. § 1437f. “Section [Eight] is a federal program designed to assist the elderly, low income, and disabled pay rent for privately owned housing.” Allen v. Muriello, 217 F.3d 517, 518 (7th Cir.2000). The assistance generally comes in the form of a voucher (often called a “Section 8 Voucher”) that the recipient can use to pay a portion of their rent. In October 2002, Laramore began a search for a new apartment for herself and her four children. She found a prospective apartment in Chicago via a search on the Internet. On October 21, 2002, after viewing the apartment, Laramore telephoned Ritchie, the company responsible for managing the apartment, to request an application for a lease. The woman who took the call initially told Laramore that the apartment was available to rent. After Laramore informed her that she intended to use a Section 8 Voucher to pay a portion of the rent, however, the woman told Lara-more that the apartment was not available to persons using Section 8 Vouchers. On February 21, 2003, Laramore filed suit in the United States District Court for the Northern District of Illinois (Eastern Division). In her suit, Laramore claimed that Ritchie and others not party to this appeal (the apartment’s owners) violated the ECOA by denying her a rental application because she receives public assistance. Ritchie moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) on the ground that a rental application is not a credit transaction under the ECOA. The district court agreed with Ritchie and dismissed the suit. This appeal followed. II. We review de novo the dismissal of a complaint pursuant to Rule 12(b)(6). Cole v. U.S. Capital, 389 F.3d 719, 729 n. 10 (7th Cir.2004). “If the statute under which the plaintiff sued provides no relief in the circumstances alleged, the district court’s decision was appropriate.” Pawlowski v. N.E. Ill. Reg’l Commuter R.R. Corp., 186 F.3d 997, 1000 (7th Cir.1999). The ECOA makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction because all or part of the applicant’s income derives from any public as 546 sistance program.” 15 U.S.C. § 1691(a)(2). The ECOA is Title VII of the Consumer Credit Protection Act, 15 U.S.C. §§ 1601-1693r (the “CCPA”). A “creditor” is defined for the purposes of the ECOA as “any person who regularly extends, renews, or continues credit.” 15 U.S.C. § 1691a(e). “Credit” is, in turn, defined by the ECOA as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d). The question in this case, therefore, is whether Ritchie was acting as a creditor when it denied Laramore an application to rent the apartment she was interested in because the apartment was not available to persons receiving Section 8 Vouchers. As can be seen above, whether Ritchie was acting as a creditor is determined by whether Ritchie regularly extends credit. Put more clearly, Ritchie is a creditor if a residential lease amounts to the right of a lessee to defer payment of a debt for the purchase of property or services already purchased. The district court found that a residential lease was not an extension of credit because a lease is not a deferred payment of a debt, “but prepaid advancement ] of a debt for contemporaneous use.” Laramore v. Ritchie Realty Mgmt. Co., No. 03 C 1333, 2003 WL 22227148, at 1 (N.D.Ill. Sept.25, 2003). The district court also noted that the Federal Reserve Board (the “Board”) has stated that the ECOA should not be construed to cover lease transactions. Laramore argues that a residential lease is an extension of credit. Laramore argues, in effect, that a residential lease is an agreement for occupancy for a term (typically a year) and that the agreement creates a debt as of the time of the agreement and that the lessee pays off the debt over the period of the term. In other words, when the lessor and the lessee sign a lease, the transaction is complete — the lessee has the right to use the premises for the duration of the term of the agreement and the lessee is paying off the amount owed for the entire term on a month-bymonth basis. Another way of looking at it is that a tenant’s monthly payments are not for the month’s occupation of the apartment when the rent is paid (i.e., November’s rent) but instead, simply l/12th of the year’s rent. Courts that have considered whether leases are credit transactions are split. In Brothers v. First Leasing, 724 F.2d 789 (9th Cir.1984), the Ninth Circuit held the ECOA applies to consumer leases. 1 The court concluded that applying the ECOA to consumer leases “is essential to the accomplishment of the [CCPA’s] anti-discriminatory goals.” Id. at 794. The court did note that it was “unclear” that the ECOA, when first enacted, applied to consumer leases. Id. at 793. The court concluded, however, that amendments to the Truth in Lending Act, 15 U.S.C. §§ 1601-1666j (“TILA”), another title of the CCPA, extending TILA’s disclosure requirements 547 to consumer leases suggested that the same should be done to the ECOA. The Northern District of Illinois, in an unpublished decision, held that the ECOA applied to a lease transaction involving a mobile home. Ferguson v. Park City Mobile Homes, No. 89 C 1909, 1989 WL 111916, at 3 (N.D.Ill. Sept.18, 1989). The court, however, provided little analysis to support its decision. It did note that it did not follow the Ninth Circuit’s analysis in Brothers, but concluded that “the language of the ECOA is certainly broad enough to cover the lease of a mobile home lot.” Id. at 3. The court’s decision also appears to have been motivated, at least in part, by the poor performance by counsel opposed to applying the ECOA. Id. (“[The defendant] has cited no case authority whatever in bringing its motion to dismiss, and its argument is almost wholly conclusory with no analysis of the interplay between the statutory provisions.”). The Western District of Washington, relying on Brothers, has held that the ECOA applies to cellular phone service agreements. Williams v. AT & T Wireless Servs., Inc., 5 F.Supp.2d 1142, 1146-47 (W.D.Wash.1998). The court held that the application for a cell phone service agreement involved an application for credit. Id. The court determined that the agreement at issue gave the customer the right to use AT & T’s phone services and pay for those services later. Id. Other cases have held that leases are not subject to the ECOA. In Liberty Leasing v. Machamer, 6 F.Supp.2d 714 (S.D.Ohio 1998), the district court held that an equipment lease involving monthly payments was not a credit transaction because the lease involved a contemporaneous exchange of consideration — the lessee made monthly payments that allowed the lessee to continue to exercise its rights under the lease. Id. at 717. The Northern District of Illinois reached a similar conclusion in Head v. North Pier Apt. Tower, No. 02 C 5879, 2003 WL 22127885, at 3 (N.D.Ill. Sept.12, 2003). We find these cases persuasive. We hold that a typical 2 residential lease does not involve a credit transaction. The typical residential lease involves a contemporaneous exchange of consideration — the tenant pays rent to the landlord on the first of each month for the right to continue to occupy the premises for the coming month. A tenant’s responsibility to pay the total amount of rent due does not arise at the moment the lease is signed; instead a tenant has the responsibility to pay rent over roughly equal periods of the term of the lease. The rent paid each period is credited towards occupancy of the property for that period (i.e., rent paid November 1 is credited towards the right of a tenant to occupy the premises in November). As such, there is no deferral of a debt, the requirement for a transaction to be a credit transaction under the Act. We also find persuasive, at least insofar as residential leases are concerned, the conclusion of the Board that leases are not covered by the ECOA. Congress has delegated to the Board the authority to proscribe regulations concerning the Act. 15 U.S.C. 1691b(a)(1). In response, the Board promulgated Regulation B (12 C.F.R. Part 202). In a Supplementary *548 Information issued in November 1985, as part of a periodic review of Regulation B, the Board, responding to the Ninth Circuit’s decision in Brothers, stated “that the Ninth Circuit interpreted the ECOA’s definition of credit too broadly when it concluded in the Brothers case that the granting of a lease is an extension of credit.” 50 Fed.Reg. 48,018, 48,020. 3 The Board then concluded that “Congress did not intend the ECOA, which on its face applies only to credit transactions, to cover lease transactions unless the transaction results in a ‘credit sale’ as defined in the Truth In Lending Act and Regulation Z.” Id. III. The ECOA prohibits discrimination against those who receive public assistance when they enter into a credit transaction. Because, however, a residential lease is not a credit transaction as that term is defined in the ECOA, Ritchie’s refusal to provide Laramore with a rental application was not subject to the Act. The district court’s decision to dismiss Laramore’s complaint was appropriate and, therefore, that decision is AFFIRMED. 1. Because the Ninth Circuit’s decision in Brothers concerned consumer leases, a term defined for the purposes of that case as personal property, see Brothers, 724 F.2d at 792 n. 7, our decision in this case, as it is concerned with residential leases, is not in direct conflict and does not create, therefore, a split amongst the circuits. To our knowledge, this court is the only circuit court that has addressed the applicability of the ECOA to residential leases. Although as we discuss below, we find persuasive for our inquiry concerning residential leases the Board’s conclusion that the ECOA does not cover leases, we save for another day the question of whether the ECOA covers consumer leases. 2. We say the "typical” residential lease because, even though the terms of a residential lease are often constrained by state and local laws, we do not foreclose the possibility that the parties to such a lease may craft a lease that might, by its terms, come under the terms of the ECOA. For the purposes of this case, we are concerned only with leases that provide for the lease of residential property for a term and roughly equal rental payments are due to the landlord at the beginning of each month during that term. 3. The parties spend a considerable amount of space in their briefs debating the significance of this Supplementary Information. Lara-more argues that the Supplementary Information is entitled to no deference while Ritchie argues that the Supplementary Information is entitled to significant deference or, at the very least, it is persuasive guidance in construing the ECOA. We need not resolve this dispute, however. We are convinced that the ECOA by its terms, and without need to resort to administrative interpretations of the Act, does not cover residential leases. The Supplementary Information is, however, at the least, persuasive.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 789	389 F.3d 1284	D	Brothers v. First Leasing	Opinion for the court filed by Circuit Judge HENDERSON. KAREN LeCRAFT HENDERSON, Circuit Judge: Pat O’Donnell (O’Donnell) appeals the district court’s summary judgment in favor of appellees Mick’s at Pennsylvania Ave., Inc. (Mick’s) and Morton’s Restaurant Group, Inc. (Morton’s). Mick’s was the lessee of a restaurant property under a 15-year lease of which Morton’s was a limited guarantor. Mick’s subleased the property to BOD, Inc. (BOD) under a sublease signed by Pat O’Donnell and his then-wife Barbara O’Donnell on behalf of BOD. In addition, the O’Donnells both signed a guaranty agreement assuring BOD’s performance under the sublease. The district court concluded that the O’Donnells are liable under the guaranty for rents and sales taxes BOD owes Mick’s under the sublease. Having reviewed the district court’s judgment de novo, we affirm because, as the district court concluded, “there is no genuine issue as to any material fact” and the appellees are “entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); see Mick’s at Pennsylvania Ave., Inc. v. BOD, Inc., 99cv3073 (D.D.C.2003) (Summary J. Dec.). I. On December 12, 1997 the O’Donnells, on behalf of sublessee BOD, and Thomas J. Baldwin, Executive Vice President and Chief Financial Officer of sublessor Mick’s, signed the sublease for restaurant premises located at 2401 Pennsylvania Ave. N.W., Washington, DC. Under the sublease, which ran from December 15, 1997 to November 1, 2000, BOD was to pay monthly “basic rent” of $14,085.05 and “additional rent” consisting of operating costs, taxes, utility costs, insurance “and all other items of Additional Rent payable by the Subles-sor under the Lease.” Sublease at 2, § 3B. The sublease also provided for an initial three-month “Rent Concession Period,” for which BOD would be exempt from its basic rent payment obligations provided it complied with all other sublease terms. On the same day, both O’Donnells also signed the guaranty, agreeing to guarantee BOD’s performance under the sublease and to indemnify Mick’s for any losses arising from the sublease and BOD’s business operation. BOD opened a restaurant at the subleased location and operated it from about December 15, 1997 until March 1999, when BOD abandoned the premises and ceased paying rent. On November 17, 1999 Mick’s and Morton’s filed this action against BOD and each of the O’Donnells, alleging breach of the sublease by BOD and breach of the guaranty by the O’Donnells. 1 The complaint sought to recover unpaid rent under the sublease (both basic and additional) and sales taxes for the months of February and March 1999, which Mick’s had paid subject to reimbursement by BOD. In a memorandum opinion and order filed December 11, 2003 (Summary J. Dec.) the district court granted summary 1287 judgment in favor of Mick’s and Morton’s, ordering the O’Donnells and BOD to pay $131,710.70, 2 including four months’ basic rent ($56,340.20 for January to March 1998, the Rent Concession Period, and for March 1999, the final month of occupancy), additional rent in the form of operating costs ($53,160.72 for August 1998 to March 1999) and of trash removal and parking costs ($1,422.11 for March 1999) and sales tax reimbursements ($10,787.67 for February to March 1999). Pat O’Donnell timely appealed the district court’s judgment. 3 II. We address each of Pat O’Donnell’s arguments separately. A. Sales Taxes First, O’Donnell disputes the award of $10,787.67 reflecting sales taxes which Mick’s paid subject to reimbursement by BOD for the months of February and March 1999. O’Donnell asserts that, because BOD’s obligation to repay the funds arose under a side oral agreement separate from the sublease, he is not required to cover the tax advances under the guaranty. We disagree. The sublease expressly requires that BOD pay as part of its additional rent under the sublease “one hundred (100%) percent [sic] of all items of ‘Additional Rent’, as defined under Lease, which are payable by Sublessor under the Lease, including without limitation, ‘Operating Costs’, ‘Taxes’, as defined in the Lease, utility charges, insurance and all other items of Additional Rent payable by Sub-lessor under the Lease.” Sublease at 2, § 3B. The lease, in turn, requires that the tenant as Additional Rent, pay all business taxes, rates, duties, levies, assessments and/or license fees imposed in respect of any and every business conducted in, on or from the Leased Premises or in respect of the use or occupancy thereof, to the authorities having jurisdiction thereof promptly when the same shall become due and payable, and before the imposition of any fine or penalties. Lease at 25-26, § 11.02. We agree with the district court and the appellees that sales taxes plainly come within the broad category of “all business taxes, rates, duties, levies, assessments and/or license fees imposed in respect of every business conducted” by BOD at the leased premises. 4 BOD was therefore required to pay them as additional rent under the sublease. We further agree that the broad language of the guaranty obliged O’Donnell to reimburse the sales taxes Mick’s paid on BOD’s behalf. In the guaranty the O’Donnells undertook both generally to “promptly cure any default in any term covenant, or condition of the Sublease” (including default of BOD’s obligation to pay sales taxes) and, specifically, to “indemnify and hold harmless Mick’s... from and against any and all claims and liabilities, causes of action, and damages, 1288 including but not limited to, tax liabilities." Guaranty at 2, §§ 2, 3 (emphasis added). B. Concession Period Rent Next, O’Donnell challenges the award of rent for the initial three-month period, January to March 1998. The sublease provides: [P]rovided that Sublessee performs all other terms, covenants and conditions of this Sublease, then for the period commencing on the Commencement Date up through March 31, 1998 (“Rent Concession Period”), Sublessee shall not be obligated to pay Basic Rent to Sublessor hereunder. Sublease at 2, § 3A. The district court concluded that under this proviso the rent conceded during the initial three months (January to March 1998) later became due when BOD ceased operating its restaurant in March 1999 in breach of section 14 of the sublease which required that BOD “continuously operate its restaurant business in a first-class manner” during the sublease term which did not expire until November 2000. We agree with the district court’s interpretation of the unambiguous language of the quoted provision. O’Donnell does not dispute that BOD violated section 14 by abandoning the restaurant prematurely but contends this breach did not trigger liability for the conceded rent because the quoted proviso required only that the sublessee not breach other terms of the sublease during the Rent Concession Period and did not authorize retroactive rent obligations based on breaches after the period ends. We disagree. The proviso contained no limitation on which sublease terms must be performed or when in order to preserve the rent concession but broadly required performance of “all other terms, covenants and conditions” of the sublease, which language unambiguously includes the continuous operation rfequirement in section 14 (emphasis added). 5 C. Equal Credit Opportunity Act Third, O’Donnell resurrects the affirmative defenses, asserted summarily in his answer, of waiver/estoppel, unclean hands and in pari delicto, each one premised on his theory that the appellees violated the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq. (Act). We conclude that, under the undisputed facts, Mick’s did not violate the Act and that O’Donnell’s defenses therefore fail. The Equal Credit Opportunity Act provides in relevant part: It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction— (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);.... 15 U.S.C. § 1691(a). To implement this provision, the Federal Reserve Board has promulgated the following regulation: “[A] creditor shall not require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor’s standards of creditworthiness for the amount and terms of the credit requested.” 12 C.F.R. § 202.7(d)(1). O’Donnell claims the appel- 1289 lees violated the statute and the regulation by requiring O’Donnell to co-sign the sublease and the guaranty for his wife’s restaurant although O’Donnell was not himself a principal of BOD. We reject O’Donnell’s Equal Credit Opportunity Act claim for two reasons. First, under the Act the sublease is not a “credit instrument” subject to 12 C.F.R. § 202.7(d)(1). The Act defines “credit” as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment [sic] or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d) (emphasis added). Mick’s did not grant any credit right to BOD under the sublease but acted simply as a sublessor of the restaurant property entitled to receive monthly rent payments for the term of the sublease. 6 Further, neither Mick’s nor Morton’s falls within the Act’s definition of “creditor” as “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.” 15 U.S.C. § 1691a(e) (emphasis added). There is no evidence that either Mick’s or Morton’s, each of which is in the restaurant business, “regularly” extends or arranges credit, which, as an element of O’Donnell’s affirmative defenses, he must demonstrate on summary judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986) (“[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.”). Second, the assertion made before the district court and on appeal that O’Donnell was not a principal involved in BOD’s operations is at odds with O’Donnell’s own representations at the time he signed the sublease and the guaranty. The two documents variously characterize O’Donnell as one of BOD’s “principals,” Sublease at 5, § 7A, the “Sublessee,” id. at 9 (under O’Donnell’s signature), BOD’s “President” or “Vice President,” id. at 10 (in “Acknowledgements” by notaries public), one of BOD’s two “sole shareholders, directors and officers” and one “havfing] a material business interest in the Sublessor [sic],” Guaranty at 1. Having represented himself to Mick’s and Morton’s when he signed the sublease and the guaranty as an officer and shareholder of BOD in order to secure the sublease for BOD, O’Donnell is equitably estopped from claiming otherwise now to avoid liability under the guaranty. See First Am. Disc. Corp. v. Commodity Futures Trading Comm’n, 222 F.3d 1008, 1016 (D.C.Cir.2000) (“Under the doctrine of equitable estoppel, ‘a party with full knowledge of the facts, which accepts the benefits of a transaction, contract, statute, regulation, or order may not subsequently take an inconsistent position to avoid the corresponding obligations or effects.’ ” (quoting Kaneb Servs. v. FSLIC, 650 F.2d 78, 81 (5th Cir.1981))). 1290 D. Prior Breach of Lease Finally, O’Donnell claims any breach of his obligations under the sublease or the guaranty is excused because Mick’s itself first breached its implied obligation under the sublease to cooperate with BOD in transferring the restaurant’s liquor license into BOD’s name. O’Donnell contends that, by failing to pay taxes owed to the District of Columbia for a period preceding the sublease term, Mick’s impeded BOD’s ability to effect the transfer in breach of this implied obligation. We reject O’Donnell’s prior breach theory which, as the district court observed, rests on “an attenuated chain of events.” Summary J. Dee. at 5. It is true that the sublease required BOD to transfer the liquor license to its own name by May 31, 1998, after which time, if it had not, Mick’s had “the option, in its sole and absolute discretion, to cancel th[e] Sublease by sending written notice to Sublessee no later than June 7, 1998 in which event th[e] Sublease shall be can-celled.” Sublease at 4, § 5B. If no timely notice was sent, BOD was to continue its efforts to change the license name while retaining “the right to continue to operate under Sublessor’s Alcoholic Beverage License,” subject to Mick’s’ continuing option to cancel upon 30 days’ notice. Id. We find no breach, however, of any obligation on the part of Mick’s to assist in securing the license change. As BOD acknowledges, the sublease imposes no such express obligation on Mick’s. Further Mick’s took no affirmative step to prevent BOD from obtaining the license in its own name in breach of an implied obligation. 7 See R. A. Berner & Assocs. v. Haas & Haynie Corp., 663 F.2d 168, 177 n. 67 (D.C.Cir.1980) (“The prohibition against active interference is an implied contractual term.” (emphasis added; citing Karrick v. Rosslyn Steel & Cement Co., 25 F.2d 216, 217-18 (1928); Minmar Builders Inc. v. Beltway Excavators, Inc., 246 A.2d 784, 787 (D.C.App.1968); Matthew A. Welch & Sons, Inc. v. Bird, 193 A.2d 736, 738 (D.C.Mun.App.1963); Horlick v. Wright, 104 A.2d 825, 827 (D.C.Mun.App.1954))). * * * In light of our foregoing analyses, we conclude that additional discovery would not alter the undisputed material facts or the disposition of O’Donnell’s claims and that, therefore, the district court did not abuse its discretion in denying O’Donnell’s discovery request. See Paquin v. Fed. Nat’l Mortgage Ass’n, 119 F.3d 23, 28 (D.C.Cir.1997). Accordingly, for the reasons set forth above, we affirm the judgment of the district court. So ordered. 1. The complaint alleged diversity jurisdiction under 28 U.S.C. § 1332. 2. The appellees claim total damages of $121,710.70, Appellees’ Br. 5, rather than the $131,710.70 figure calculated and ordered by the district court, Summary J. Dec. at 1 & n.l. The district court made an arithmetic error and should amend its order to reflect the proper amount of $121,710.70. 3. Neither BOD, which defaulted in the district court, nor Barbara O'Donnell filed a notice of appeal. 4.O'Donnell argues that the sales tax is not a tax or fee upon the business vendor but upon the purchaser because, as this court has stated, ''[t]he legal incidence of the District of Columbia sales tax is on the purchaser,” United States v. District of Columbia, 669 F.2d 738, 744 (D.C.Cir.1981). Reply Br. 3-4. In the cited opinion the court also expressly states that "the sales tax is imposed on the vendor," 669 F.2d at 744 n. 9 (emphasis added; citing D.C.Code § 47-2602), in this case on restaurateur BOD. 5. O'Donnell argues for the first time in his reply brief that the Rent Concession Period proviso, as construed by the appellees and the district court, produces an unenforceable retroactive forfeiture. Reply Br. 5 (citing Red Sage Ltd. P’ship v. DESPA Deutsche Sparkassen Immobilien-Anlage-Gasellschaft mbH, 254 F.3d 1120, 1129 (D.C.Cir.2001)). Having failed to raise it earlier, O’Donnell has waived this argument. See Amgen, Inc. v. Smith, 357 F.3d 103, 117 (D.C.Cir.2004). 6. In contrast, Brothers v. First Leasing, 724 F.2d 789 (9th Cir.1984), cited by O’Donnell, involved a consumer automobile lease which the Ninth Circuit concluded fit within the Act’s definition of “credit transaction” because it required the consumer lessee to pay a fixed sum in equal installment payments at fixed intervals. See 724 F.2d at 793 n. 8. The court there based its holding on the premise that the anti-discrimination provisions of the Act apply to all transactions covered by the Consumer Leasing Act, 15 U.S.C. §§ 1667-1667e. See id. at 791-94. The reasoning in Brothers, therefore, has no application to a commercial real estate lease. 7. Nor did Mick's make any attempt to take advantage of the contractual consequence of BOD's failure to transfer the license by invoking section 5B to cancel the sublease. O'Donnell nonetheless claims that by failing to pay the taxes, and thereby preventing the license transfer, Mick's harmed BOD in two ways. First, O'Donnell points to the assertion in Barbara O'Donnell’s affidavit below that this failure "put BOD's restaurant in serious risk of being shut down by the D.C. Government,” Affidavit of Barbara O’Donnell at 2, ¶ 5, but this risk never materialized. Second, O'Donnell claims that "the lack of a liquor license required BOD to pay cash (COD) to alcoholic beverage distributors,” Reply Br. 8, but O'Donnell may not rely on this allegation first raised in his reply brief. Amgen, Inc. v. Smith, 357 F.3d at 117.	LIMITED_OR_DISTINGUISHED
724 F.2d 789	104 F. Supp. 3d 1012	D, DE	Brothers v. First Leasing	Order Granting Defendant’s Motion for Summary Judgment YVONNE GONZALEZ ROGERS, UNITED STATES DISTRICT COURT JUDGE Now before the Court is defendant Way-point Homes’ motion for summary judgment. Having carefully considered the papers submitted, the evidence of record, and the arguments of counsel, and for the reasons set forth below, the Court hereby Grants defendant’s motion for summary judgment. For the reasons set forth herein, the Court adopts the rationale of the Seventh Circuit, which holds that the Equal Credit Opportunity Act (“ECOA”) does not apply to typical residential leases, and declines plaintiffs invitation to extend Ninth Circuit authority to include such leases. I. Factual and Procedural Background On January 12, 2014, plaintiff LaTarra Ollie applied online to lease a home from Waypoint Homes, Inc. (“Waypoint”) in Lit-hia Springs, Georgia. (Dkt. No. 49-1, Declaration of Robert Yakominich (‘Yako-minich Decl.”) Ex C; Dkt. No. 50-2, Declaration of John Soumilas (“Soumilas Decl.”) Ex. 1.) At that point in time, Waypoint offered two types of residential leases: one for a term of one year, and another for a term of two years. (Yakomi-nich Decl. Exs. A and B.) These leases are identical in all respects material to the question before the Court. Both leases 1013reflect that they are Georgia residential leases. Waypoint processed Ollie’s application according to its procedure of using a third-party vendor, named On-Site. (Yakomi-nich Decl. ¶¶ 4, 5.) Under that procedure, an applicant seeking to lease a Waypoint property would visit Waypoint’s website and click on a link that says “Apply Now.” (Id. at ¶ 5.) That would then link to an application page on On-Site’s website where the applicant would complete an application. (Id.) On-Site would then run a credit report and placed the application and credit report into a file on its servers. (Id.) Waypoint could then access those documents for review. (Id.) If Waypoint decided to reject the applicant, it clicked a “decline” button for that applicant, and an “Adverse Action Notice” was automatically generated by On-Site. (Id.) Waypoint then printed that notice and copied a portion of it into an email to be sent to the applicant. (Id.) Ollie brought this class action under the ECOA, alleging that the form of adverse action notice she received from Waypoint upon denial of her rental lease application fails to comply with the requirements of the ECOA. (Dkt. No. 1.) Waypoint moved to dismiss the complaint on the basis that the ECOA does not apply to residential leases and that plaintiff had failed to allege any right to relief. The Court denied the motion to dismiss finding that plaintiff had stated a plausible claim in part because defendant had appeared to concede that its lease qualified as a “credit transaction” such that it was obligated to comply with the ECOA. (Dkt. No. 24.) Defendant then moved for reconsideration or, alternatively, certification for interlocutory appeal. (Dkt. Nos. 25, 26.) The Court denied the motion. (Dkt. No. 35.) In its order, the Court noted that although case law supported defendant’s contention that residential leases generally do not fall within the scope of the ECOA, the cases upon which defendants relied limited their holdings to “typical” residential leases and there remained a question as to whether the lease at issue in this action was of the same type contemplated by those cases. (Dkt. No. 35 at 2-3 (citing Laramore v. Ritchie, 397 F.3d 544 (7th Cir.2005); Portis v. River House Associates, L.P., 498 F.Supp.2d 746 (M.D.Pa.2007); Head v. North Pier Apartment Tower, 2003 WL 22127885 (N.D.Ill. Sept. 12 2003).) Because neither party had provided a copy of the lease or application that formed the basis for plaintiffs complaint, or requested judicial notice of any fact relating to the nature of the leasing arrangement, the Court determined that development of the factual record was necessary and that, construing the allegations in the complaint in plaintiffs favor, she had stated a claim. The Court further noted plaintiffs allegations that Waypoint characterized its decision as a credit transaction, as it allegedly “denied credit” to plaintiff. (See Dkt. No. 4.) Defendant now moves for summary judgment on plaintiffs sole claim on the grounds that the lease for which plaintiff applied constitutes a typical residential lease and, as such, does not constitute a “credit transaction” under the ECOA. On this full record, the Court agrees. II. Legal Standard Summary judgment is appropriate if, viewing the evidence and drawing all reasonable inferences in the light most favorable to the nonmoving party, there are no genuine disputed issues of material fact, and the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is “material” if it “might affect the outcome of the suit 1014under the governing law,” and a dispute as to a material fact is “genuine” if there is sufficient evidence for a reasonable trier of fact to decide in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Conclusory, speculative testimony in affidavits and moving papers is insufficient.to raise genuine issues of fact and defeat summary judgment. See Thornhill Publ’g Co. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.1979). Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir.1987). III. Discussion A. Legal Framework The ECOA is found in Title VII of the Consumer Credit Protection Act, 15 U.S.C. §§ 1601-1693r (1982). As originally passed in 1974, the ECOA prohibited discrimination by any creditor “against any applicant, with respect to any aspect of a credit transaction... on the basis of... sex or marital status.” 15 U.'S.C. § 1691(a)(1). Congress later amended the ECOA to add prohibitions against discrimination on the basis of race, color, religion, national origin, and age. Pub.L. No. 94-239, 90 Stat. 251 (1976). On its face, the ECOA applies to all “credit transactions.” Bros. v. First Leasing, 724 F.2d 789, 791 (9th Cir.1984). A “creditor” is defined for the purposes of the ECOA as “any person who regularly extends, renews, or continues Credit.” 15 U.S.C. § 1691a(e). “Credit” is, in turn, defined by'the ECOA as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d). B. Analysis The question before the Court is whether the lease Ollie was denied constitutes a “credit transaction” such that the ECOA applies. As stated above, the ECOA applies only to “credit transactions,” defined as “the right granted by a creditor to a debtor to defer a payment of debt or to incur debts and defer it's payment or to purchase property or services and defer payment therefor.” 15 U.S.C. §§ 1691a(d)-(e). Stated differently, Way-point would be a “creditor” if the residential lease at issue provides a lessee the right to defer payment of a debt for the purchase of property or services already purchased. See Laramore v. Ritchie Realty Mgmt. Co., 397 F.3d 544, 546 (7th Cir.2005). i. The Residential Lease is not a “Credit Transaction” The Court finds that the lease for which Ollie applied is a typical residential lease that does not constitute a “credit transaction” such that the ECOA applies. At the time Ollie applied to rent an apartment from Waypoint, the defendant offered two residential lease agreements in Georgia. One was for a length of one year, and the other was for a length of two years (Yako-minich Decl. Ex. A (“Lease 1”); Ex. B (“Lease 2”)). Both Waypoint leases do not represent credit transactions. The leases contemplate a contemporaneous exchange of payment at the beginning of each month in return for the lessee’s ability to use the property as a personal residence for that period. (Leasés 1 and 2 at 1.) Rent' is due at the beginning of each month, notably “with no grace period.” (Leases 1 and 2 at 2.) The tenant’s responsibility to pay rent arises at the beginning of each monthly period over the length of the lease. There is no deferral of a debt, and there is no credit transaction. 1015The Court recognizes that courts remain split on whether different types of leases constitute credit transactions. See Laramore, 397 F.3d at 546. However, with respect to residential leases, courts have consistently determined that such leases do not constitute credit transactions, Lara-more being the most prominent. Id.; Head v. North Pier Apartment Tower, 2003 WL 22127885, 8 (N.D.Ill. Sept. 12, 2003); Portis v. River House Associates, L.P., 498 F.Supp.2d 746, 750 (M.D.Pa.2007); but see Ferguson v. Park City Mobile Homes, No. 89-C-1901, 1989 WL 111916, 3 (N.D.Ill. Sept. 18, 1989) (finding that ECOA was “broad > enough” to cover lease of a mobile home lot, but providing little analysis and noting that counsel had failed to provide any case authority to limit the ECOA).- Plaintiff offers three arguments to suggest that the residential lease here qualifies as a credit transaction, none of which is persuasive. First, plaintiff contends that when the Waypoint lease is first signed, a resident agrees to pay all the monthly payments for the entire initial term and that the payments represent, in effect, installments on an outstanding debt. (See Dkt. No. 50 at 3-4; 9-10.) That argument, however, is belied by the evidence of record. As explained above, the lease language establishes that rental payments are due at the beginning of the period for the right to use the property for that same period. The fact that such arrangement may continue for a one-year or two-year term does not change the nature of the monthly transaction. Other courts agree, concluding that these residential leases do not create a debt for the entire term, but rather involve the contemporaneous exchange of consideration for a future use, month by month. See Laramore, 397 F.3d at 547; Head v. North Pier Apartment Tower, 2003 WL 22127885, 3 (N.D.Ill. Sept. 12, 2003). Moreover, the testimony of plaintiff’s 30(b)(6) witness, Mr. Yakominich, confirms that tenants to Waypoint’s leases are not obligated to pay the full amount of the lease from the outset. (Dkt. No. 52-1 at 7 (‘Yakominich Dep.”) at 60:21-61:8.) This statement is corroborated by the Lease Buy-Out Addendum, which applied to both Waypoint’s one-year and two-year leases. (Dkt. No. 52-1 at 18 (“Buy-Out Addendum”); Lease 1 at 38 (“The following checked attachments are applicable and attached hereto: [...] 2. Lease Buy-Out Addendum”); Lease 2 at 35 (same, except listing the Lease Buy-Out Addendum as attachment number 5).)1 Thus, plaintiffs argument fails as a factual matter. Summary judgment for Waypoint is appropriate on'this ground. Next, plaintiff claims that Waypoint’s references to “credit” or “creditworthiness” in the “Adverse Action Notice” or the leases themselves compel a finding that the lease constitutes a credit transaction. Plaintiff contends that,' at the very least, this evidence raises a genuine dispute of fact that preclude summary judgment. The Court disagrees.- The central question is whether the substance of the. transaction here constitutes a credit transaction as a matter of law. For the reasons 1016stated above, the Court finds that it does not. To hold that references to “credit” or “creditworthiness” render the lease agreement at issue here a “credit transaction” would “exalt form over substance.” See Shaumyan v. Sidetex Co., 900 F.2d 16, 19 (2d Cir.1990) (declining to find that “boilerplate” language in a disclaimer statement alone established a credit transaction to which the ECOA applied). Finally, plaintiff urges that Waypoint be held to be a creditor because it has represented that it is a creditor in unrelated bankruptcy proceedings. This argument suffers from two critical deficiencies. First, plaintiff offers no argument as to the legal import of this alleged representation. Plaintiffs counsel’s declaration states only that running a search for Waypoint Homes in a database of bankruptcy cases nationwide generates a list of nine different cases in which defendant allegedly held itself out as a creditor in a consumer bankruptcy. (Soumilas Deck at ¶ 13.) Second, plaintiff has failed to provide any evidence that such representations occurred in cases analogous to the one at bar. The Court declines to undertake independently a nationwide search for the same. Regardless, even construing plaintiffs bald assertion that Waypoint has declared itself a creditor in the bankruptcy context in a light most favorable to plaintiff, the assertion does not raise a genuine dispute about the nature of the lease transaction at issue in this case. As set forth above, the lease transaction at issue here is not a “credit transaction” as defined by the ECOA. Further, the circumstances surrounding Waypoint’s appearances in bankruptcy proceedings represent the atypical circumstance, even assuming it is related to the terms of the leases at issue here. Specifically, the Court notes that while plaintiff contends that Waypoint is a nationwide company and self-avowed “premier provider of single family rental homes in America,” she has only identified nine instances where Waypoint purportedly appeared as a creditor. This' evidence suggests that bankruptcy proceedings involving Way-point are not reflective of its ordinary residential leasing practices. ii. Brothers v. First Leasing Does Not Apply Replying principally on the Ninth Circuit’s decision in Brothers v. First Leasing, Ollie urges the Court to find that the residential lease here constitutes a credit transaction. 724 F.2d 789 (9th Cir.1984). In Brothers, the Ninth Circuit held that transactions covered by the Consumer Credit Protection Act (“CCPA”), specifically consumer leases, were subject to the ECOA. Id. at 795. Brothers, however, does not compel a finding in plaintiffs favor here. As an initial matter, in Brothers, the Ninth Circuit was considering consumer, not residential, leases. More importantly, the analytical framework the Ninth Circuit applied in reaching its holding in Brothers does not fit the facts of this case. There, the Ninth Circuit confronted the question of whether the ECOA applied to consumer leases that fell within the scope of the Consumer Leasing Act (“CLA”). 15 U.S.C. §§ 1667-1667e (1987). Both the ECOA and the CLA fall under the same broader statutory umbrella: the CCPA, which the Ninth Circuit recognized is “a comprehensive statute designed to protect consumers.” Id. at 791. It was on this “umbrella” foundation that the Ninth Circuit’s decision ultimately rested. In its analysis, the Ninth Circuit acknowledged both that the term “credit transaction” in the ECOA was literally broad enough to cover “consumer leases,” and yet, with respect to the CCPA, the legislative history suggested that consumer leases were not originally covered. See id. at 792-93. Thus court concluded (but 1017found no need to resolve) that it was “unclear whether the ECOA applied to consumer leases” before the CLA was made a part of the CCPA. Id. at 793. To resolve the potential conflict that arose after the CLA was made part of the CCPA, the court turned its analysis to whether one provision of the CCPA (ie., the ECOA) applied to another (the CLA), and if so, how. In order to answer this question, the court assessed the statutory structure and the legislative history of the CLA and ECOA. The court recognized the broad societal purposes of the ECOA and the importance of eradicating discrimination, particularly with respect to credit transactions. Having analyzed the statutory scheme as a whole, the Ninth Circuit concluded that the CCPA is “wholly inconsistent with the view” that the ECOA would not apply to the entire act. The court therefore concluded that Congress intended that the ECOA’s antidiscrimination provisions apply to all transactions covered by the Consumer Credit Protection Act. Id. at 795 (“We hold only that Congress intended to make the ECOA’s antidiscrim-ination provisions applicable to all transactions covered by the Consumer Credit Protection Act, whether those transactions were covered under the initial form of the Act or as a result of the subsequent amendments.”). The statutory interplay that led the Ninth Circuit to conclude that consumer leases covered by the CLA are also covered by the ECOA does not lend itself to the same conclusion with respect to residential leases. Plaintiff cites no provision of the CCPA relating to residential leases that occupies a similar position vis-a-vis the ECOA as does the CLA. In light of this, and the Ninth Circuit’s holding that Brothers pertains to consumer leases, the Court declines plaintiffs invitation to extend Brothers to residential leases.2 IV. Conclusion For the reasons set forth above, the Court finds that based on the evidence of record, there exists no genuine dispute that the ECOA does not apply, to the residential lease at issue in this case. Accordingly, defendant’s motion for summary judgment is Granted. The parties shall submit a proposed form of judgment to be entered by the Court no later than five days following the entry of this Order. IT IS SO ORDERED.. Plaintiff requests that the Court strike this evidence as having been improperly presented in the instant motion practice and as having been produced late. (Dkt. No. 53.) The Court denies plaintiff's request. The Court finds such evidence relevant to rebut an argument plaintiff made in her opposition papers, and therefore properly submitted in connection with plaintiff's reply. Furthermore, the fact that such information was belatedly produced did not prejudice plaintiff, where plaintiff was permitted to ask defendants' 30(b)(6) witness about this evidence and could have— but elected not to — reserve time and seek a follow-up deposition. No basis to strike this evidence exists.. So, too, does the Court decline to extend the logic of Brothers to residential leases based on the argument presented Judge Canby's dissent that such result is compelled by the Brothers court’s rationale. Brothers, 724 F.2d at 797 (Canby, J. dissenting). As stated above, the Court finds the Ninth Circuit's holding carefully limited to its own terms. Furthermore, although Brothers suggests that the ECOA’s coverage of “credit transactions” could be held to extend to a lease where a lessee is in fact responsible for the entire value of the lease term at the outset, 724 F.2d at 792 n. 8, as the Court has explained above, such is not the case here.	LIMITED_OR_DISTINGUISHED
724 F.2d 789	498 F. Supp. 2d 746	C	Brothers v. First Leasing	MEMORANDUM AND ORDER JOHN E. JONES III, District Judge. THE BACKGROUND OF THIS ORDER IS AS FOLLOWS: Pending before this Court is a Motion to Dismiss Counts IV and V of the Complaint Pursuant to Federal Rule of Civil Procedure 12(b) (6) (“the Motion”), filed by all Defendants 1 to this action on April 13, 747 2007. (Rec. Doc. 15). For the reasons that follow, the Motion will be granted. PROCEDURAL HISTORY: On October 30, 2006, Plaintiffs, John and Bernice Portis (“Mr. and Mrs. Portis,” respectively), initiated this action by filing a Complaint. (See Rec. Doc. 1). On April 13, 2007, Defendants filed the instant Motion. (Rec. Doc. 15). As the Motion has been fully briefed, it is ripe for disposition. STANDARD OF REVIEW: 2 In considering a motion to dismiss, a court must accept the veracity of a plaintiffs allegations. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); see also White v. Napoleon, 897 F.2d 103, 106 (3d Cir.1990). In Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996), our Court of Appeals for the Third Circuit added that in considering a motion to dismiss based on a failure to state a claim argument, a court should “not inquire whether the plaintiffs will ultimately prevail, only whether they are entitled to offer evidence to support their claims.” Furthermore, “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 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); see also District Council 47 v. Bradley, 795 F.2d 310 (3d Cir.1986). FACTUAL BACKGROUND: As is required by the standard of review applicable to the Motion, the following recitation of the facts is based on the averments in Plaintiffs’ Complaint and accepted as true only for the purposes of disposition of the instant Motion. (Rec. Doc. 1). On April 16, 2005, Mr. and Mrs. Portis (collectively, “Plaintiffs”), an African-American couple, drove a vehicle packed with personal and household items from Akron, Ohio to Harrisburg, Pennsylvania with the intention of locating and renting an apartment for Mrs. Portis. Mrs. Portis required an apartment in Harrisburg because she had recently been transferred from her federal employment in Ohio to a new job in Central Pennsylvania. After seeing a print ad or listing in a free publication, Plaintiffs went to Korman Communities, an apartment complex located at 2311 North Front Street in Harrisburg, and spoke with the General Manager, Mary Thompson (“Ms. Thompson”), about leasing an apartment in the complex. Plaintiffs were told that the terms of such a lease would not require any security deposit or other fees, but rather only payment of $585.00, the first month’s rent. Notably, these proposed terms were “part of frequently advertised rental terms for apartments at the Korman Communities, as this establishment frequently displays signs advertising this promotion,” such as signs “promoting ‘NO MOVE IN COSTS’.... ” (Rec. Doc. 1, ¶ 31, Exhs. A-E). In 748 their discussion, however, Ms. Thompson conditioned these terms as being “subject to approval of [Mrs. Portis’] rental application, which included a credit check.” Id. at ¶ 30. Next, Plaintiffs walked through sample apartments, and apparently upon finding them to be satisfactory, Mrs. Portis “then agreed to immediately rent a studio apartment in the building that supposedly would be available to her.” Id. at ¶ 29. Accordingly, Mrs. Portis completed and submitted her rental application, as well as two forms of photo identification — her Ohio driver’s license and her federal employee identification card. Ms. Thompson then left the couple “for the reported purpose of running a credit check” on Mrs. Portis. Id. at ¶ 33. However, when Ms. Thompson returned, she indicated that the credit check showed no credit history for Mrs. Portis and requested to run such a check on Mr. Portis, using identifying information such as his Social Security number. Although Plaintiffs were frustrated by the situation because each of them “had an established credit history and previously had financed the purchases of their homes, vehicles and other personal property during their marriage,” id. at ¶ 26, they provided Ms. Thompson the additional information on Mr. Portis in an attempt to finalize the rental process. Again, Ms. Thompson left the couple with the reported purpose of running a credit check, this time on Mr. Portis, and again, upon her return, Ms. Thompson advised Plaintiffs that the credit check showed no credit history. Plaintiffs then demanded that Ms. Thompson re-run the credit checks because they insisted that they each had an established credit history. Sometime later, Ms. Thompson claimed to have complied, ultimately advising Plaintiffs that she attempted to obtain a credit history on each Plaintiff twice, but that no such history was available for either of them. As an alternative, Ms. Thompson suggested that Plaintiffs provide her with specific account numbers, credit card information, and other information about their various creditors. However, Plaintiffs refused to provide such information. Thus, under an alleged pretext that no credit history was available for either Plaintiff, Ms. Thompson advised Plaintiffs that Mrs. Portis would now be required to pay a $585.00 security deposit and a 40% non-refundable move-in fee (approximately $234.00) to secure a lease. Feeling upset and as if they were being subjected to deliberate discrimination, Plaintiffs refused to agree to the changed terms of the rental agreement. Plaintiffs immediately demanded a copy of the completed rental application forms, but Ms. Thompson refused to so provide. Plaintiffs then demanded a letter confirming that Mrs. Portis attempted to lease an apartment, and Ms. Thompson provided the letter. Id. at Exh. F. In said letter, Ms. Thompson claims to have attempted to obtain a credit history through a company named First American Registry, Inc. In total, Plaintiffs spent more than three (3) hours at Korman Communities on April 16, 2005. Upon their departure from the apartment complex, it was too late in the day to view other possible apartments to rent, so they drove back to Ohio with their vehicle still packed. On April 23, 2005, Mrs. Portis completed a rental application and leased an apartment at Pennsylvania Place, located at 301 Market Street in Harrisburg. Said lease required a $300.00 security deposit and a monthly rent of $690.00. Notably, Pennsylvania Place also required a credit check of rental applicants, and via First Ameri 749 can Registry, Inc., they were able to confirm that Mrs. Portis had good credit. Later in spring of 2005, Plaintiffs contacted First American Registry, Inc., via telephone and thereafter in writing, to ascertain why their credit histories were not made available to Korman Communities on April 16, 2005. First American Registry, Inc. represented that neither Ms. Thompson nor any other employee of Defendants requested such histories, and that the only requests for Plaintiffs’ credit were made one week later by Pennsylvania Place. DISCUSSION: Plaintiffs’ Complaint contains five (5) Counts, all of which appear to be asserted against all three (3) Defendants to this action. Count I alleges violations of the Fair Housing Act (“FHA”), 42 U.S.C. § 3601, et seq.; Count II alleges violations of 42 U.S.C. § 1981 (“§ 1981”); Count III alleges violations of 42 U.S.C. § 1982 (“§ 1982”); Count IV alleges violations of the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. § 1691, et seq.; and Count V alleges violations of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. § 201-1, et seq. The instant Motion (doc. 15) seeks dismissal of only Counts IV and V of the Complaint. With respect to Count IV, Defendants argue that it fails to state a claim upon which relief may be granted because “the leasing of residential property does not constitute a credit transaction under ECOA.” (Rec. Doc. 16 at 5). As to Count V, Defendants assert that it similarly fails because “Plaintiffs did not purchase or lease any goods or services from Defendants, which is a prerequisite to a claim under the [UTP]CPL.” Id. at 12. In response, Plaintiffs contend that Counts IV and V should survive the instant Motion because they do not fail to state a claim. Taking Count IV first, Plaintiffs appear to offer two (2) primary and related arguments: 1) “whether the [ECOA] applies to residential leases is an issue of first impression” within the Third Circuit (doc. 20 at 6 (emphasis omitted)); and 2) because the applicable standard of review requires this Court to consider only the Complaint, too many questions remain for this Court to dismiss the claim at this early juncture. With respect to Count V, Plaintiffs assert that “Defendants[’] argument for a narrow, strict reading of the UTPCPL is inconsistent with the required liberal application of this remedial statute.” Id. at 10 (emphasis omitted). More specifically, Plaintiffs argue that “[i]t seems that Defendants wish the Court to add a little something to the statute that is just not there: a requirement that a person liable under the Act must be the very same person from whom the ultimate purchase or lease was made.” Id. at 14-15. Taking the Counts at issue in sequence, we begin our analysis with Count IV. We initially note that the text of the ECOA is the logical starting point in our consideration of the viability of Count IV. At its most fundamental level, the ECOA provides: It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction— (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. 15 U.S.C. § 1691(a). Thus, the definitions of the terms “creditor” and “credit transaction” are integral 750 to our inquiry. As the parties aptly note, although the ECOA contains a definitions provision, “credit transaction” is not among the defined terms. However, “credit” and “creditor” are defined, and their definitions provide some insight: “credit” denotes “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its [sic] payment or to purchase property or services and defer payment therefor;” “creditor” refers to “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.” 15 U.S.C. § 1691a(d)-(e). As the parties appear to agree, to date, neither the Supreme Court nor the Court of Appeals for the Third Circuit appears to have had an occasion to consider application of the above text to residential leases. (See Rec. Docs. 16 at 6; 20 at 6). Thus, the parties rely on persuasive authorities to support their respective positions as to the ECOA’s application here. 3 However, because this issue is one of first impression in this Circuit, we note that Congress’s findings and statement of the ECOA’s purpose also provide guidance as to resolution of the Motion. Said statement provides: The Congress finds that there is a need to insure that the various financial institutions and other firms engaged in the extensions of credit exercise their responsibility to make credit available with fairness, impartiality, and without discrimination on the basis of sex or marital status. Economic stabilization would be enhanced and competition among the various financial institutions and other firms engaged in the extension of credit would be strengthened by an absence of discrimination on the basis of sex or marital status, as well as by the informed use of credit which Congress has heretofore sought to promote. It is the purpose of this Act to require that financial institutions and other firms engaged in the extension of credit make that credit equally available to all creditworthy customers without regard to sex or marital status. Act Oct. 28, 1974, P.L. 93-495, Title V, § 502, 88 Stat. 1521. Cognizant of the relevant text of the ECOA and Congress’s statement, we turn to consideration of the case law addressing whether the ECOA applies to residential leases. Upon our review of the persuasive authorities cited by the parties on this point, we agree with the Seventh Circuit’s view that the ECOA does not apply to “typical” residential leases. See Laramore v. Ritchie Realty Mgmt. Co., 397 F.3d 544, 547 (7th Cir.2005). Moreover, based upon the averments contained in Plaintiffs’ Complaint, we see no reason to find that the lease which Plaintiffs sought was sufficiently extraordinary to render it within the ECOA. We agree with Laramore’s holding for several reasons. First, logically and structurally, it does not appear to us that this statute, which was “enacted to protect consumers from discrimination by financial institutions,” Midlantic National Bank v. Hansen, 48 F.3d 693, 699 (3d Cir.1995) (emphasis added), was intended to be used to prohibit discrimination by landlords. We so conclude because we find sound Laramore’s reasoning that “[t]he typical residential lease involves a contemporaneous exchange of consideration — the tenant pays rent to the landlord on the first of 751 each month for the right to continue to occupy the premises for the coming month.” 397 F.3d at 547 (emphasis added). Thus, generally speaking, residential leases are not credit transactions and landlords are not creditors under the ECOA. Second, we agree with Laramore’s acknowledgment of a regulation promulgated by the Board of Governors of the Federal Reserve Systems after the Ninth Circuit’s decision in Brothers v. First Leasing, 724 F.2d 789 (9th Cir.1984). Therein, the Board, empowered under the ECOA to “prescribe regulations to carry out the purposes of this title,” 15 U.S.C. § 1691b(a)(l), indicated “ ‘that the Ninth Circuit interpreted the ECOA’s definition of credit too broadly when it concluded in the Brothers case that the granting of a lease is an extension of credit.’ ” 4 Laramore, 397 F.3d at 548 (quoting 50 Fed. Reg. 48,018, 48,020). Such guidance from a body empowered to provided it by the ECOA is, at a minimum, persuasive. Third, we find that given the availability, and indeed invocation of, the FHA by Plaintiffs, any application of the ECOA to the instant circumstances would be dupli-cative and superfluous. 5 Particularly where Plaintiffs have pled another potentially viable ground for relief, we see no reason to adopt Plaintiffs’ tortured interpretation of the ECOA. Additionally, contrary to Plaintiffs’ argument, we find Laramore applicable to the instant circumstances given the averments in Plaintiffs’ Complaint, our sole source of information regarding said circumstances at this time. Specifically, the Complaint repeatedly alleges that Plaintiffs merely sought to rent an apartment. (See Rec. Doc. 1, ¶¶ 25, 27, 29, 36, 46, 65). We see no suggestion in Plaintiffs’ Complaint that they sought a lease containing any extraordinary terms or conditions that could render the lease a credit transaction under the ECOA. Finally, although Plaintiffs’ briefing on the instant Motion argues that Plaintiffs’ submission of credit applications brings this action within the ECOA, the Complaint itself references instead “credit check[s],” id. at ¶ 30 (emphasis added), and “rental application[s],” id. at ¶¶30, 32, 45 (emphasis added). In sum, we see no language in Plaintiffs’ Complaint, and, indeed, under the circumstances that appear to be present here, we can imagine none, which would lead us to consider the possibility that some sort of credit transaction either did or could have occurred. Accordingly, we will dismiss Count IV of the Complaint. Turning, then, to Count V, we begin our analysis once again with the text of the statute at issue, the UTPCPL. The UTPCPL prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.... ” 73 P.S. § 201-3. Should such unsavory practices be employed, the UTPCPL permits certain private and public actors to bring suit. See 73 P.S. §§ 201-9.2(a), 201-4. Specifically, private actions may be filed by “[a]ny person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, as a 752 result of the use or employment by any person of a method, act or practice declared unlawful by this act...,” 73 P.S. § 201-9.2(a) (emphasis added), and the Attorney General or a District Attorney may bring an action when he or she “has reason to believe that any person is using or is about to use any method, act or practice declared by... this act to be unlawful, and that proceedings would be in the public interest....” 73 P.S. § 201-4. As the parties recognize, the UTPCPL clearly permits private actors to bring suit only when they purchase or lease goods or services. Although it is well-established that the UTPCPL applies to residential leases, see, e.g., Commonwealth v. Monumental Properties, Inc., 459 Pa. 450, 329 A.2d 812, 820 (1974), the issue in this case is whether the UTPCPL permits a person who leased property from one entity to bring suit against another entity from which the person initially attempted to lease property. This is an issue of first impression in Pennsylvania courts, and thus, this Court must attempt to predict how the Pennsylvania Supreme Court would resolve it. See Gares v. Willingboro Township, 90 F.3d 720, 725 (3d Cir.1996) (indicating that in the absence of relevant state case law, federal courts are to predict how the state’s highest court would rule). Following our thorough review of the UTPCPL’s provisions, as well as the persuasive authorities interpreting them, we conclude that the UTPCPL does not permit Plaintiffs to sue Defendants under the instant circumstances. We so conclude for several reasons. First, although we recognize that the Pennsylvania Supreme Court characterized portions of the UTPCPL’s text as “expansive,” and noted that in accordance with legislative intent, they should be liberally construed, in reaching its determination that the UTPCPL applies to residential leases, see Monumental Properties, Inc., 329 A.2d at 817, we find unpersuasive Plaintiffs’ argument that liberal construction requires the outcome that they advocate. Indeed, our review of the relevant statutory provisions leads us to conclude that adoption of Plaintiffs’ position would require us not to liberally construe the statute, but to ignore its text. As noted above, when “[u]nfair methods of competition and unfair or deceptive acts or practices [are employed] in the conduct of any trade or commerce...,” 73 P.S. § 201-3, the UTPCPL permits a “person who purchases or leases goods or services... and thereby suffers any ascertainable loss of money or. property...” 73 P.S. § 201-9.2(a) (emphasis added), to file suit. Under the instant circumstances, we are in agreement with Defendants that “Plaintiffs did not suffer any loss as a result of their lease with Pennsylvania Place,” and, thus, “Plaintiffs are confusing the cause of their loss with the measure of their damages,” if any. 6 (Rec. Doc. 24 at 6). Second, we find telling the Pennsylvania legislature’s inclusion of a provision enabling the Attorney General or a District Attorney to file suit. Indeed, the presence of 73 P.S. § 201-4 appears to acknowledge a recognition by the legislature that circumstances may exist in which private actors are not permitted to bring suit under the UTPCPL. Further, the fact that a public actor may bring suit ensures that the UTPCPL’s purpose can be realized even in those circumstances in which private actors can not file suit. 753 Finally, we note that although we appreciate the abundant persuasive authorities cited by Plaintiffs on this issue, we find them inapposite here. For example, in Valley Forge Towers South Condominium v. Ron-Ike Foam Insulators, Inc., 393 Pa.Super. 339, 574 A.2d 641 (1990), the court permitted a UTPCPL claim by a condominium association to continue against a manufacturer of roofing materials because although the association had not contracted directly with the manufacturer, it had suffered losses as a result of contracting with the installer of the roofing materials and said contract provided for warranties on the roof by both companies. Thus, although Valley Forge may stand for the proposition that direct privity is not required under the UTPCPL, it does not stand for the proposition that a UTPCPL claim can stand against “a wholly unrelated party or one who is foreign to the purchase or lease transaction” (doc. 24 at 10) because in Valley Forge, the UTPCPL’s causation requirement was satisfied. Accordingly, we will also dismiss Count V of the Complaint. 7 NOW, THEREFORE, IT IS ORDERED THAT: 1. Defendants’ Motion to Dismiss Counts IV and V of the Complaint (doc. 15) is hereby GRANTED. 2. Counts IV and V of the Complaint (doc. 1) are hereby DISMISSED. 1. Defendants to this action are River House Associates, L.P., d/b/a Korman Communities, Inc., and Korman Communities; West Ritten-house Management Co., L.L.C., d/b/a Korman Communities, Inc., and Korman Communi *747 ties; and Mary Thompson, individually and as an authorized agent of Korman Communities. 2. We note that with respect to the standard of review, Plaintiffs assert that “[i]f a complaint is vulnerable to dismissal for failure to state a claim, a District Court must first permit the plaintiff a curative amendment.” (Rec. Doc. 20 at 5 (citing, e.g., Alston v. Parker, 363 F.3d 229, 235 (3d Cir.2004))). We disagree with any suggestion that upon the filing of Rule 12(b)(6) motions, this Court should sua sponte inform represented plaintiffs of the method(s) by which they can seek to amend their pleadings. Indeed, all three (3) of the cases that Plaintiffs cite in support of any such suggestion, including Alston, are distinguishable because they involved pro se plaintiffs. 3. We appreciate such citations and will discuss our views of them below. 4. Even assuming arguendo that reliance upon the regulation is unwarranted, Brothers is distinguishable from the instant action. Brothers is distinguishable because it considered the lease of an automobile, which is a "consumer lease” under the Consumer Leasing Act, 15 U.S.C. § 1667(1), as it involved the lease of a personal property. In contrast, the instant action involves a lease of real property. 5. As a matter of course, we express no opinion on the ultimate viability of Plaintiffs’ FHA claim. 6. To reiterate, we express no opinion on the viability of Plaintiffs’ remaining causes of action. 7. We note again that adoption of Plaintiffs’ strained interpretation of the statute at issue is particularly unpalatable where, as here, Plaintiffs' FHA claim has not been challenged in the instant Motion.	CRITICIZED_OR_QUESTIONED
724 F.2d 789	6 F. Supp. 2d 714	C, DW	Brothers v. First Leasing	OPINION AND ORDER MARBLEY, District Judge. INTRODUCTION This matter comes before the Court on Plaintiffs Motion for Summary Judgment (doc. 6). Plaintiff,.Liberty Leasing Company, filed this action against Defendant, Jenny Lin Machamer, seeking to recover on two guarantees executed by Defendant on behalf of her husband’s businesses. The Court has diversity jurisdiction over this matter pursuant to 28 U.S.C. § 1332. For the reasons set forth below, ■ Plaintiffs Motion for Summary Judgment is GRANTED. FACTUAL BACKGROUND Defendant’s husband, James E. Machamer (“Machamer”), was the president and sole shareholder of two companies, MTI of Den-beigh, Inc. (“Denbeigh”) and MTI at Kemp River, Inc. (“Kemp River”), engaged in the business of automotive service.. Starting in November, 1993, Machamer began negotiating with Plaintiff to lease commercial automotive service equipment for his companies. To demonstrate that he and his companies possessed the financial resources to meet the lease obligations, including sufficient assets as security for the equipment, Machamer presented Plaintiff with various personal financial information, such as tax returns and financial statements from his companies. Plaintiff reviewed Machamer’s information and determined that neither he nor his companies had adequate financial resources to meet the lease obligations and secure the equipment. Plaintiff determined that the only significant asset listed on Machamer’s personal financial statement was his personal residence, which was jointly owned by Ma-chamer and Defendant, his wife. Based on its determination, Plaintiff asked Machamer to provide personal guarantees of his assets, including the residence, to“secure the equipment leases. Plaintiff requested that Defendant also execute the guarantees because she was a joint owner of the personal residence and joint liability on the guarantees would be necessary to reach the residence in the event of a default. 716 On January 5, 1994, Defendant and Ma-chamer executed two unconditional personal guarantees as security for the Denbeigh and Kemp River equipment leases. Under the terms of the guarantees, Defendant and Ma-chamer agreed to “unconditionally guarantee... the full and prompt performance” of all obligations by the lessees, Denbeigh and Kemp River, and “payment when due of all sums presently and hereafter owing by [Den-beigh and Kemp River].... ” Furthermore, the guarantee agreements provided that all sums owed by the lessees would become “immediately due and payable” if the lessees defaulted, suspended business operations, or committed any act amounting to business failure. On January 18, 1994, Machamer and his companies entered into two equipment lease agreements with an intermediary party, Total Lease Concepts, who subsequently assigned its rights in the leases to Plaintiff. 1 Sometime in 1995, Denbeigh and Kemp River defaulted on the lease agreements by failing to make the payments due under the lease terms and ceasing to operate as businesses. As a result of the defaults, Plaintiff declared immediately due and payable all sums owed under the full terms of the leases. The outstanding amounts on the leases, approximately $181,871.87, are the subject matter of the Plaintiffs action. LEGAL ANALYSIS Standard For Summary Judgment Fed.R.Civ.P. 56(c) provides that summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” The movant has the burden of establishing that there are no genuine issues of material fact, which may be accomplished by demonstrating that the nonmoving party lacks evidence to support an essential element of its case. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Barnhart v. Pickrel, Schaeffer & Ebeling Co., L.P.A., 12 F.3d 1382, 1388-89 (6th Cir.1993). The nonmoving party must then present “significant probative evidence” to show that “there is [more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris Cos., Inc., 8 F.3d 335, 339-40 (6th Cir.1993). “[S]ummary judgment will not lie if the dispute is about a material fact that is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (Summary judgment appropriate where the evidence could not lead a trier of fact to find for the non-moving party). In evaluating such a motion, the evidence must be viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The mere existence of a scintilla of evidence in support of the non-moving party’s position will be insufficient; there must be evidence on which the jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 251, 106 S.Ct. 2505; Copeland v. Machulis, 57 F.3d 476, 479 (6th Cir.1995). The Equal Credit Opportunity Act as an Affirmative Defense to a Guaranty Obligation The Equal Credit Opportunity Act (“ECOA”) provides, in relevant part, “[i]t shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction... on the basis of... marital status.” 15 U.S.C. § 1691(a)(1). A creditor may not require the 717 signature of a credit applicant’s spouse, other than a joint application for credit, where the applicant qualifies independently under the creditor’s standards for creditworthiness. 12 C.F.R. § 202.7(a). Defendant argues that summary judgment against her is not appropriate because she has asserted ECOA as an affirmative defense to her guaranty obligations. Defendant alleges that Plaintiff required her to sign the guarantees despite the fact that her husband and his companies were independently creditworthy. Defendant further argues that, at a minimum, her husband’s independent creditworthiness is a genuine issue of material fact which precludes summary judgment. At issue is whether Plaintiff can assert ECOA as an affirmative defense under the theory that a commercial lease is “credit” as defined under ECOA. “Credit,” under ECOA, is defined as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d); 12 C.F.R. § 202.2© (definition of “credit” under related ECOA regulations as promulgated by the Board of Governors for the Federal Reserve System). The issue of whether a lease transaction constitutes “credit” under ECOA is most fairly determined by the terms of the leasing agreement, interpreted within the context of applicable state and federal law. The relevant inquiry is whether the incremental payments constitute a contemporaneous exchange of consideration for the possession of the leased goods. See, e.g., Brothers v. First Leasing, 724 F.2d 789, 798 (9th Cir.1984) (Canby, J., dissenting), cert. denied, 469 U.S, 832, 105 S.Ct. 121, 83 L.Ed.2d 63 (1984). Where the leasing agreement, or applicable law, provides for such a contemporaneous exchange, then the lessee cannot be said to “defer [the] payment of [a] debt” within the meaning of ECOA. 15 U.S.C. § 1691a(d); 12 C.F.R. § 202.2(j). In this case, the terms of the Denbeigh and Kemp River lease agreements provided for a contemporaneous exchange of consideration for the right of possession and use of the equipment. The lease agreements clearly provided that' the lessees, Denbeigh and Kemp River, were obligated to make monthly payments, referred to as “rent payments” in Paragraph Four, in exchange for the “quiet use and enjoy[ment]” of the equipment. Furthermore, the lessees were not obligated to pay the total lease amount in all circumstances under the lease agreements. Paragraph Fifteen of both agreements, which deal with Plaintiffs remedies in the event of a default by either of the lessees, provided that, upon default by the lessees, Plaintiff had the right to lease the equipment to another party in an effort to mitigate damages. If Plaintiff had done so, the lessees would have been liable only for “any accrued and unpaid rent” through the date that Plaintiff obtained possession of the equipment. Thus, it cannot be said, as a matter of law, that the lessees necessarily incurred a debt for which payment was deferred because, under at least one of the remedial' scenarios set forth in Paragraph Fifteen, the lessees’ financial obligation, or debt for the total lease price, would have been extinguished upon the surrender of possession of the equipment; i.e. the lessees’ financial obligation was contemporaneous with possession of the equipment. The Court’s holding and conclusion is buttressed not only by the terms of the lease agreements, but also by the provisions of the Uniform Commercial Code (“UCC”) governing commercial lease transactions, which has been adopted by both Ohio and Iowa. 2 As the comments to § 2A-529 of the UCC make clear, absent a lease term to the contrary, a lessor generally may not maintain an action for full unpaid rent unless the lessee maintains possession of the leased goods for that term. See Ohio Rev.Code § 1310.75 (Ohio version of § 2A-529); Iowa Code 718 § 554.13529 (Iowa version of § 2A-529). This requirement demonstrates that a lessee’s financial obligation for the total lease price under a lease agreement is concomitant with the lessee’s right to possess the leased good for that term. Thus, even in default, a lessee cannot be said to “defer the payment of a debt,” because the debt obligation is contemporaneous with the lessee’s possession. Defendant has neither argued nor adduced any evidence to demonstrate that the lease payments constituted a deferred payment of debt. Furthermore, Defendant has not established that the sum total of the lease payments constituted a “debt.” The Defendant takes the position that a commercial lease is a “debt” which involves “deferred payments.” The authority on this issue is sparse, as the Court was able to find only one case where a court held that a lease fell within the ECOA definition of “credit.” 3 In Brothers, supra, a plaintiff brought suit under ECOA against a car leasing company for requiring her husband to be included on a car lease application. The sole issue before the court was whether ECOA applied to consumer leases. Based on the fact that ECOA is part of the Consumer Credit Protection Act and related to the Consumer Leasing Act, the court held that ECOA applies to consumer leases. Brothers, 724 F.2d at 796. This narrow holding was premised on the court’s finding that the car lease was a credit transaction as defined in ECOA: The ECOA defines credit as' “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d) (1982). Under the terms of the lease that Brothers applied for, she would have been obligated to pay a total amount of $16,280.16. Payment of that debt would have been deferred, and [the plaintiff] would have been required to make 48 monthly installment payments of $339.17. Id. at 793 n. 8. This Court explicitly rejects the Brothers court holding that, as a matter of law, a lease obligation is “credit” as defined in ECOA. The Brothers court’s reasoning that the car leasing transaction was “credit” — because the defendant in that case would have granted the plaintiff the fight to “incur [a] debt[ ],” the obligation to pay the total lease amount, and “defer its payment” by requiring the total lease amount to be paid in installments — is inapposite to the express terms of the Denbeigh and Kemp River leases, which, as discussed- above, provided for remedial scenarios where the lessees’ financial obligation to Plaintiff was extinguished upon surrender of possession. Furthermore, the Court is persuaded by the cautionary words of Judge Canby’s dissent in Brothers regarding the.scope of the majority’s holding: The contention [that the car leasing transaction is a “credit transaction”] is not inherently illogical, but it proves too much. It means that every lease is a credit transaction within the meaning of the Equal Credit Opportunity Act. The majority’s actual holding is that the Equal Credit Opportunity Act applies to consumer lease transactions. Yet there is nothing in the majority’s rationale that confines the coverage of that Act to consumer lease transactions... The interpretation that effectuates the intent of Congress, I submit, is that “credit transactions” do not include leases, and that leases are not deferred debts but payments (normally in advance) for contemporaneous use. Id. at 797-98 (emphasis added) (footnote omitted). This Court also relies upon the 1985 Final Official Staff Interpretation issued by the Board of Governors for the Federal Reserve, the agency responsible for promulgating and enforcing the ECOA regulations. In that 719 Staff Interpretation, the Board of Governors expressly rejected the holding in Brothers that ECOA was enacted to encompass lease transactions. In issuing its interpretation of, and revisions to, Regulation B under ECOA, which includes one of the definitions of “credit,” 4 the Board of Governors said the following about the holding in Brothers: In the review of Regulation B, the Board also addressed the issue of whether to establish a uniform rule extending ECOA coverage to consumer leases. In Brothers v. First Leasing... the U.S. Court of Appeals for the Ninth Circuit held that consumer leases are defined by the Consumer Leasing Act are subject to the ECOA.... On policy grounds there is some support for a regulatory amendment to cover lease transactions. It seems inconsistent to allow lessors to consider marital status, sex, and other characteristics while creditors are prohibited from doing so. In addition, some lease transactions are similar in many ways to credit transactions; indeed, financing leases, or open-end leases, have been held to be functionally equivalent to credit. Nevertheless, the Board believes that the Ninth Circuit interpreted the ECOA’s definition of credit too broadly when it concluded in the Brothers ease that the granting of a lease is an extension of credit. The Congress has consistently viewed lease and credit transactions as distinct and mutually exclusive financial transactions and has treated them separately under the Consumer Credit Protection Act.... In light of those considerations, the Board has not applied Regulation B to leasing. 50 F.R. 48018, 48019-20 (citations omitted). 5 Indeed, it is well-established that an agency’s construction of its own regulations is entitled to substantial deference from the courts, Martin v. Occupational Safety and Health Review Commission, 499 U.S. 144, 150, 111 S.Ct. 1171, 113 L.Ed.2d 117 (1991); Lyng v. Payne, 476 U.S. 926, 939, 106 S.Ct. 2333, 90 L.Ed.2d 921 (1986); Wolpaw v. Commissioner of Internal Revenue, 47 F.3d 787, 790 (6th Cir.1995), and this Court accords deference to the Board of Governors in its interpretation of the ECOA regulations. As Judge Canby stated in his dissent in Brothers, the rationale of the majority tends to prove too much. Following the majority’s finding that lease payments are deferred payments of debt would arguably lead to the conclusion that any contract which involved installment payments would become “credit” under ECOA. That rationale, however, was expressly rejected in Shaumyan v. Sidetex Co., Inc., 900 F.2d 16 (2d Cir.1990). There, the defendant required one of the plaintiffs, Mrs. Shaumyan, to co-sign a home improvement contract with her husband. The contract provided that the plaintiffs would pay for the work in five (5) installments, the final payment coming due upon completion of the work. Plaintiffs sued to recover for damages from defendant under ECOA, alleging that the home improvement contract was a “credit transaction” under ECOA because the contract involved a debt with deferred payments. The Second Circuit rejected the plaintiffs’ argument and affirmed the district court’s grant of summary judgment. The court found that the incremental payment *720 schedule was not the equivalent of a deferred payment of a debt obligation, but rather incremental payments which “were substantially contemporaneous.with [the defendant’s] performance under the contract.” Shaumyan, 900 F.2d at 18. CONCLUSION For the foregoing reasons, the Court finds that the Denbeigh and Kemp River lease agreements are not “credit” within the scope of ECOA. Therefore, ECOA is hot applicable to the present matter, and does not constitute a valid affirmative defense to Plaintiffs claim. The Court hereby GRANTS Plaintiffs Motion for Summary Judgment. Judgment is rendered for Plaintiff on all claims. ■ IT IS SO ORDERED. 1. The leasing transaction actually took place through an intermediary party, Total Leasing Concepts, who subsequently assigned the lease rights to Plaintiff. By agreement of all parties, the leases were subject to the approval of Plaintiff prior to execution, and Plaintiff admits to determining that Machamer did not possess adequate financial resources to meet the lease obligations. Therefore, for the purposes of this analysis, Total Leasing Concepts' participation is irrelevant and we analyze the transaction as if it took place between Machamer, Defendant, and Plaintiff. 2. This is a diversity lawsuit governed by the substantive laws of Ohio. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). However, the leasing agreements provide that the laws of Iowa will govern interpretation of the lease provision where necessary. The laws of both states are in agreement that a lessee's obligation for rent payments is contemporaneous with a lessee's possession of the leased goods. 3. In Ferguson v. Park City Mobile Homes, 1989 WL 111916 (N.D.Ill.1989), the court denied defendant’s Motion to Dismiss, holding that the language of ECOA was broad enough to encompass a claim for a mobile home lease. However, the court in Ferguson failed to take into account the 1985 final rule by the Board of Governors for • the Federal Reserve which stated, unequivocally, that leases should not be considered under ECOA. For this reason, the Court does not find Ferguson to be persuasive authority. 4. The definition of "credit" under ECOA can be found in 15 U.S.C § 1691a(d) and 12 C.F.R § 202.2(1). Both definitions are substantively the same. 5. This Court is cognizant that the alleged discriminatory acts of Plaintiff are similar in nature to those prohibited by ECOA in credit transactions. In addition, the issue presented here is a difficult one because lease transactions seem to be a hybrid of both rental and credit transactions. See Board of Governors Final Official Staff Interpretation, 50 F.R. at 48020 ("[S]ome lease transactions are similar in many ways to credit transactions However, the overriding characteristic of a lease transaction is the contemporaneous exchange of consideration for possession and use, which is consistent with the Board of Governors’ interpretation that lease transactions are not within the scope of ECOA. The harshness of this ruling, as it relates to Defendant, has not escaped the Court. But no matter how desirable the result in Brothers, it is a result that only Congress cari achieve. This Court is bound by the language of the statute, and must show deference to the applicable regulations, and the official staff interpretations of those regulations.	CRITICIZED_OR_QUESTIONED
724 F.2d 789	2017 U.S. Dist. LEXIS 10636	DR, Q	Brothers v. First Leasing	OPINION & ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS (Dkt. 25) MARK A. GOLDSMITH, United States District Judge Plaintiff William Dorton filed his amended complaint against Defendants on June 6, 2016, alleging that Defendants violated the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq. (“ECOA”), when they communicated with Dorton regarding his application to lease a videogame system made at one of Defendant Kmart’s Detroit, Michigan, locations. See generally Am. Compl. (Dkt. 19).1 In lieu of an answer, Defendants filed a motion to dismiss on June 28, 2016, which makes alternative arguments that the complaint should be dismissed under Federal Rule of Civil Procedure 12(b)(1) and/or 12(b)(6) (Dkt. 25). The issues have been fully briefed, and a hearing was held on November 9, 2016. For the reasons set forth below, the Court grants Defendants’ motion to dismiss. I. BACKGROUND Defendant Kmart is a retail store that sells, among many other things, video-game systems. See Am. Compl. ¶¶ 24-25. Defendant WhyNot Leasing is a company “partnered with” Kmart, which offers alternative financing by providing Kmart customers “an option to purchase the product at the end of [a] lease term.” Id. ¶¶ 7, 13(a). Dorton is an individual who, on May 2, 2014, went to a Kmart location to purchase a videogame system. Id. ¶¶ 24-25. Because Dorton was unable to pay for the video-game system in full at that time, he sought to obtain the videogame system under Defendants’ “WhyNotLeaselt” program (the “Program”), id. ¶¶ 29-31, which permits a customer to lease the product for a term of months and, if he so chooses, to purchase the product at the end of the lease term, id. ¶ 13. As a first step in this process, Dorton furnished Defendants with his social security number; Kmart’s salesperson, however, told Dorton that someone else’s information was associated with that social security number. M. ¶¶ 33-34. The salesperson told Dorton that, as a result of the confusion surrounding the social security 615number, Dorton was not eligible for the Program. Id. ¶ 37. Dorton alleges that the salesperson did not provide him with the information necessary to identify the source of the inaccurate information concerning the social security number. Id. ¶ 42. However, Dorton does not allege that he requested any such information from the salesperson. See id. On June 3, 2014, Dorton claims that he sent Kmart a letter “pursuant to 15 U.S.C. § 1961(d),” requesting an “adverse action notice” and specific reasons for the “adverse action” taken. See Am. Compl. ¶ 44. As discussed fully below, when certain criteria are met, a creditor is required to issue these notices to a “credit applicant,” usually when the creditor denies that applicant’s application for credit. The only reply that Dorton received was a handwritten letter from Kmart stating that they were referring his request to the “lease company,” which Dorton identifies as Defendant WhyNot Leasing. Id. ¶¶ 45-47. II. STANDARD OF DECISION Subject-matter jurisdiction is always a “threshold determination,” American Telecom Co., L.L.C. v. Republic of Lebanon, 501 F.3d 534, 537 (6th Cir. 2007) (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 101, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)), and “may be raised at any stage in the proceedings,” Schultz v. General R.V. Center, 512 F.3d 754, 756 (6th Cir. 2008). “A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, in which case all allegations of the plaintiff must be considered as true, or it can attack the factual basis for jurisdiction, in which case the trial court must weigh the evidence and the plaintiff bears the burden of proving that jurisdiction exists.” DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004). “A facial attack on the subject-matter jurisdiction alleged in the complaint questions merely the sufficiency of the pleading.” Gentek Bldg. Products, Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). “If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.” Fed. R. Civ. P. 12(h)(3). In evaluating a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), “[cjourts must construe the complaint in the light most favorable to plaintiff, accept all well-pled factual allegations as true, and determine whether the complaint states a plausible claim for relief.” Albrecht v. Treon, 617 F.3d 890, 893 (6th Cir. 2010). To survive a motion to dismiss, a complaint must plead specific factual allegations, and not just legal conclusions, in support of each claim. Ashcroft v. Iqbal, 556 U.S. 662, 678-679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A court may consider exhibits attached to the complaint without converting the motion to one for summary judgment. Rondigo, L.L.C. v. Twp. of Richmond, 641 F.3d 673, 680-681 (6th Cir. 2011). III. ANALYSIS The ECOA exists to prevent discrimination by creditors against certain classes of credit applicants. See Mays v. Buckeye Rural Elec. Coop., 277 F.3d 873, 876 (6th Cir. 2002); 15 U.S.C. § 1691. As part of its scheme to create accountability for creditors’ decisions, the ECOA imposes certain notice obligations on creditors when they take “adverse action” against a credit applicant, which is typically a denial of credit. See id § 1691(d)(6) (defining “adverse action” as, inter alia, “a denial or revocation of credit”); id. § 1691(d)(2) (general notice requirements). For purposes of this motion, Defendants concede that they did not provide Dorton with an adverse action notice. See Defs. 616Mot. at 5. The parties’ dispute is twofold: (i) whether Defendants were required to provide Dorton with an adverse action notice; and (ii) if such notice was required, what that notice should have contained. Generally speaking, an adverse action notice must contain “a statement of reasons for such [adverse] action” that is “specific.” 15 U.S.C. §§ 1691(d)(2), (3). Dorton complains that he was harmed when Defendants did not comply with his request for an adverse action notice, see Am. Compl. ¶¶ 48^19; additionally, he argues that a proper “statement of reasons” includes “the information necessary to identify the source of the inaccurate information concerning his Social Security Number.” Id. ¶ 42. A. Subject-Matter Jurisdiction Defendants argue that this Court lacks subject-matter jurisdiction because Dorton lacks standing. See Defs. Mot. at 3-4; see also Fed. R. Civ. P. 12(b)(1). Specifically, Defendants claim that Dorton lacks standing because he has not alleged a “concrete and particularized” injury. Id. at 4 (citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-181, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000)). Defendants assert that, even after the complaint was amended, Dorton’s allegations of harm merely speculate that, had Defendants provided him with the requested adverse action notice, such notice “may have allowed him to correct his consumer reports and prevent future damage.” Id. at 4 (quoting Am. Compl. ¶ 48) (emphasis by Defendants). To allege sufficiently a concrete and particularized harm, say Defendants, Dorton at least had to claim that Defendants’ actions caused—not “may have caused”—his injury. Moreover, claim Defendants, even assuming that Dorton had alleged a non-speculative harm flowing from his inability to identify the “source” of the inaccurate information, this harm cannot be attributed to Defendants, because Defendants have no statutory duty to provide such information. Id. at 5-6. Assuming for the sake of argument that Defendants are “creditors” subject to the ECOA, Defendants claim that a creditor need only provide a “short, check-list statement” that “reasonably indicates the reasons for adverse action.” Id. at 6 (quoting O’Dowd v. S. Cent. Bell, 729 F.2d 347, 352 (5th Cir. 1984)). As Defendants interpret this requirement, it does not entitle Dorton to the “source of the reported reason for denial” under the statute. Id. (citing Anderson v. Capital One Bank, 224 F.R.D. 444, 447 (W.D. Wis. 2004)). Accordingly, say Defendants, Dorton lacks standing to claim he was injured by a failure to receive information to which, under their view of the statute, he was not entitled. Id. Dorton counters that he did allege a harm that meets Article Ill’s standing requirements. See PI. Resp. at 8-9.- Dorton says his injury was not speculative, because he alleged exactly what the statute prohibits—a failure to deliver a requested adverse action notice. See PI. Resp. at 7. For standing purposes, Dorton’s response fails to discuss his original claim that he suffered specific harm from the lack of “source” information, see id. at 7-11; instead, he focuses his argument on the fact that “Defendants were required to provide adverse action notices yet failed to do so when required,” M. at 7, notwithstanding the content of the notice. “[T]he ‘irreducible constitutional minimum’ of standing consists of three elements. The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, — U.S. -, 136 S.Ct. 1540, 6171547, 194 L.Ed.2d 635 (2016), as revised (May 24, 2016) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). “To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’ ” Id. at 1548 (quoting Lujan, 504 U.S. at 560, 112 S.Ct. 2130). Again, Defendants’ standing argument takes two forms: (i) that Dorton’s claimed injury flowing from a lack of “source” information was speculative; and (h) that, in any case, an adverse action notice did not have to contain “source” information. The parties’ dispute about the required contents of an adverse action notice, however, does not bear on standing; standing “in no way depends on the merits of the plaintiffs contention that particular conduct is illegal.” Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). “The fundamental aspect of standing is that it focuses on the party seeking to get his complaint before a federal court and not on the issues he wishes to have adjudicated.” Flast v. Cohen, 392 U.S. 83, 99, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968); see also Jenkins v. McKeithen, 395 U.S. 411, 423, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969) (“[T]he concept of standing focuses on the party seeking relief, rather than on the precise nature of the relief sought.”). The Supreme Court has stated: [T]he district court has jurisdiction if the right of the petitioners to recover under their complaint will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given another, unless the claim clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous. Dismissal for lack of subject-matter jurisdiction because of the inadequacy of the federal claim is proper only when the claim is so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (internal quotations and citations omitted) (emphasis added). Defendants’ argument concerning the proper contents of an adverse action notice is, fundamentally, a merits question about the meaning of the statute. See Defs. Mot. at 5-6. Defendants’ argument is that Dor-ton’s interpretation of the ECOA requires a notice that “goes beyond the statutory requirements,” and that he therefore lacks standing. Id. at 6. Dorton’s contention is that the ECOA does afford him a right to an adverse action notice that satisfies certain statutory criteria as he interprets them, and that he did not receive such a notice. This dispute poses a legal question that must be decided independently of the threshold standing question. Dorton, if he prevails on this legal issue, could find himself entitled to relief. Dorton does not lack standing simply because this Court might agree with Defendants’ interpretation of the scope of the ECOA. See Steel Co., 523 U.S. at 89, 118 S.Ct. 1003. Turning to Defendants’ argument about the speculative nature of Dorton’s claimed injury, Defendants are correct that Dor-ton’s complaint never conclusively alleges that the identity of the source of the information would have enabled him to fix the problem and avoid injury. Thus, it appears that Dorton has not shown how the “actual damages” allowed under Section 1691e(a) resulted from defendant’s violation of the ECOA. Defendants’ first motion to dismiss, which was mooted by Dorton’s 618amended complaint, made the point that Dorton’s injury-in-fact allegations were insufficient. See Defs. First Mot. to Dismiss at 4 (Dkt. 13). Yet, Dorton’s amended complaint merely claims that Defendants’ actions “deprived him of information which may have allowed him to correct his consumer reports.” Am. Compl. ¶ 48 (emphasis added); see also id. ¶ 41 (Dorton “anticipated” that an adverse action notice with source information would permit him to rectify the misinformation).2 Moreover, Dorton’s response to Defendants’ motion does not shore up his amended complaint’s shortcomings; in fact, the response appears to concede that Dorton can only show harm, if at all, under the cause of action for punitive damages, see PL Resp. at 8-9 (“the ECOA plainly provides for statutory punitive damages in the absence of ‘actual damages’ ”). Dorton has alleged, however, that Defendants failed to provide him with the notice to which he was entitled. See Am. Compl. ¶ 43. Although he apparently concedes that he has not pleaded any actual damages, Dorton argues that relief is still available under the portion of the ECOA permitting him to recover punitive damages. See PI. Resp. at 10; 15 U.S.C. § 1691e(b). This Court agrees; notwithstanding his failure to plead actual damages, Dorton has adequately pleaded a violation of the ECOA sufficient to confer standing by alleging Defendants’ total failure to provide him with an adverse action notice, the lack of which caused him an injury apart from a lack of “source” information. “The actual or threatened injury required by [Article] III may exist solely by virtue of statutes creating legal rights, the invasion of which creates standing.” Warth, 422 U.S. at 500, 95 S.Ct. 2197. Stated differently, “Congress... has the power to create new legal rights, and it generally has the authority to create a right of action whose only injury-in-fact involves the violation of that statutory right.” Carter v. Welles-Bowen Realty, Inc., 553 F.3d 979, 988 (6th Cir. 2009); see also Beaudry v. TeleCheck Servs., 579 F.3d 702, 705-707 (6th Cir. 2009). That said, “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article III standing requires a concrete injury even in the context of a statutory violation.” Spokeo, 136 S.Ct. at 1549. Defendants invoke Spokeo for their argument that Dorton lacks standing because he has not alleged a harm distinct from the denial of his procedural right to an adverse action notice under the ECOA. See Def. Mot. at 4; see also Notice of Supp. Authority (Dkt. 35). However, Dor-ton is not alleging that his rights were denied due to the type of “bare procedural violation” that “may result in no harm”— an allegation that Spokeo deemed insufficient to confer standing. See Spokeo, 136 S.Ct. at 1550. Here, we are faced with an allegation that Defendants completely failed to satisfy any of the ECOA’s notice requirements, coupled with a claim that this failure deprived Dorton of useful information to which he was entitled. See Am. Compl. ¶¶ 47-49. The injury to Dorton was complete upon the denial of the adverse action notice, notwithstanding whether receiving the notice would have avoided further, actual damages; the 619ECOA entitles a credit applicant to an adverse action notice for the applicant’s benefit, regardless of what the notice reveals. See Tyson v. Sterling Rental, Inc., 836 F.3d 571, 576-577 (6th Cir. 2016) (“the [ECOA’s] notice requirement is intended to provide consumers with a ‘valuable educational benefit’ and to allow for the correction of possible errors ‘[i]n those eases where the creditor may have acted on misinformation or inadequate information’ ”) (quoting S. Rep. No. 94-589, at 4 (1976)) (emphasis added). If true, Defendants’ failure caused a specific harm to Dorton by denying him access to material information about his creditworthiness and an opportunity to investigate whether this information was accurate.3 Dorton’s case more closely resembles Federal Election Commission v. Akins, 524 U.S. 11, 118 S.Ct. 1777, 141 L.Ed.2d 10 (1998). Akins concerned the Federal Election Campaign Act of 1971, which required organizations satisfying certain criteria to publicize information concerning their donors, as well as their campaign-related contributions and expenditures. Plaintiffs were “a group of voters” who challenged the Federal Election Commission’s refusal to require a certain lobbying entity (AI-PAC) to make disclosures under the statute. Id. at 13, 118 S.Ct. 1777. When the Commission challenged plaintiffs’ Article III standing, the Court stated: The “injury in fact” that respondents have suffered consists of their inability to obtain information—lists of AIPAC donors..., and campaign-related contributions and expenditures—that, on [plaintiffs]’ view of the law, the statute requires that AIPAC make public. There is no reason to doubt their claim that the information would help them (and others to whom they would communicate it) to evaluate candidates for public office, especially candidates who received assistance from AIPAC, and to evaluate the role that AIPAC’s financial assistance might play in a specific election. [Plaintiffs]’ injury consequently seems concrete and particular. Id. at 21. As in Akins, Dorton is Congress’s intended recipient of certain information. See Tyson, 836 F.3d at 576-577. And, like the plaintiffs in Akins, who did not allege more than a general inability to use the information denied to them (whatever that unknown information might reflect), Dorton met his burden of alleging that this information “would help” him achieve the purpose of the statute, he., “to assist him in understanding the reason for his denial,” Am. Compl. ¶ 49. By discounting the type of injury that Dorton claims to have suffered here, Defendants’ interpretation of an ECOA claim that is sufficient to confer Article III standing would require a claim of actual damages. But Defendants concede that “several courts” have stated that proof of actual damages is not required to succeed on an ECOA claim. See Defs. Mot. at 15 n.9 (“several courts have stated that proof of actual damages is not a prerequisite to recovery”). Defendants argue, however, that these cases are distinguishable be620cause “in each case the plaintiff actually pled some form of [actual] damages.” Id. (citing Stoyanovich v. Fine Art Capital LLC, 06-CIV-13158, 2007 WL 2363656, at 3 (S.D.N.Y. Aug. 17, 2007); Cherry v. Amoco Oil Co., 490 F.Supp. 1026, 1029 (N.D. Ga. 1980)). Defendants do not further elaborate on why this distinguishing fact is relevant, and the cases cited by Defendants do not actually identify the actual-damages pleadings as the reason why other damages (he., punitive damages) were available; they merely explain that, e.g., the ECOA “nowhere states that sustaining actual damages is a predicate for establishing liability under the statute.” Stoyanovich, 2007 WL 2363656, at 3; see also id. (actual damages are “not... an element of ECOA liability”). Nor can the Court conceive of a reason behind such a requirement. Rigidly requiring a plaintiff to plead actual damages to recover unrelated punitive damages would create a meaningless “magic-words” requirement to obtaining punitive damages. Moreover, the statute itself shows that an action for punitive damages can exist by itself: Section 1691e(d) provides for fees and costs “in the case of any successful action under subsection (a), (b), or (c) of this section.” (Emphasis added.) Subsection (a) is the subsection dealing with actual damages “sustained by” the credit applicant, while subsection (b) pertains solely to punitive damages and contains no requirement that a plaintiff “sustained” actual damages. Finally, the provision permitting punitive damages states that they are available “in addition to any actual damages,” see id. § 1691e(b) (emphasis added), rather than, for example, “in addition to the actual damages” shown. Nothing in the statute suggests actual damages must be alleged before a plaintiff can assert a claim for punitive damages.4 And, as described above, neither does standing jurisprudence. See also Cuellar-Aguilar v. Deggeller Attractions, Inc., 812 F.3d 614, 620-621 (8th Cir. 2015), reh’g denied (Feb. 10, 2016) (“where a federal statute provides ■for either statutory damages or actual damages, plaintiffs who fail to allege actual damages nonetheless [may] satisfy both the injury in fact and redressability requirements of Article III standing by suing for statutory damages” (emphasis added)). Defendant also claims that punitive damages under the ECOA “must be pleaded with specificity,” and that Dorton’s claim fails because his complaint does not mention punitive damages. Id. (citing Fed. R. Civ. P. 9(g) (“[I]f an item of special damage is claimed, it must be specifically stated.” (emphasis added))). Notably, the amended complaint does request all damages “as allowed by law.” See Am. Compl. ¶ 86(d). Defendants’ Rule 9 argument is unpersuasive. “Special damages,” as the term is used in Rule 9(g), are not the same as punitive damages. See Figgins v. Advance Am. Cash Advance Ctrs. of Michigan, Inc., 482 F.Supp.2d 861, 869-870 (E.D. Mich. 2007). Noting a paucity of authority within the Sixth Circuit, Figgins exhaustively reviewed case law from across the country and concluded, quite persuasively, that “special damages” under Rule 9(g) do not include punitive damages provided by statute. See id. Moreover, whether Defendants have the correct meaning of a court rule does not bear on 621standing. See Steel Co., 523 U.S. at 89, 118 S.Ct. 1003. Accordingly, Dorton has standing to pursue his ECOA claim, because he was denied the notice to which he was entitled and, as a result, he was denied the opportunity to investigate more meaningfully his true creditworthiness.5 B. Failure to State a Claim6 In the alternative to their standing arguments, Defendants allege that Dorton’s claim must be dismissed, for failing to state a claim upon which relief can be granted, under Federal Rule of Civil Procedure 12(b)(6). See Defs. Mot. at 8. In order to proceed with his ECOA claim, Dorton must have pleaded facts establishing a plausible claim as to all of the following: (i) Defendants are creditors, requiring them to comply with the ECOA; (ii) Dorton is a credit applicant, entitling him to the protections of the ECOA; (iii) Defendants’ refusal to proceed with Dorton’s application constituted an “adverse action” with respect to Dorton’s credit application; and (iv) 'Defendants failed to provide Dor-ton with an ECOA-compliant notice of its adverse action. See Madrigal v. Kline Oldsmobile, Inc., 423 F.3d 819, 822 (8th Cir. 2005). Defendant asserts that none of these things occurred. Defendants first argue that Dorton is not a credit “applicant” because he never actually completed an application for credit, and an adverse action cannot take place until the creditor received a “completed application” for credit. See Defs. Mot. at 10 (citing 15 U.S.C. § 1691(d)(1) (‘Within thirty days... after receipt of a completed application for credit, a creditor shall notify the applicant of its action on the application.”) (emphasis added)). The' ECOA defines a credit “applicant” as “any person who applies to a creditor directly for an extension... of credit.” 15 U.S.C. § 1691a(b). Section 1691(d)(1), however, merely sets forth a thirty-day deadline applicable to the creditor who does receive a “completed application for credit.” Presumably, this guards against a creditor improperly “denying” an application by failing to act on it at all. Contrary to the conclusion reached in case law cited by Defendants, see Scripter v. First State Bank Mortg. Co., LLC, No. 14-13461, 2015 WL 7756125, at 2 (E.D. Mich. Dec. 2, 2015), however, neither this statute nor the regulations state that a creditor cannot take “adverse action” until it receives a completed application for credit. In fact, the opposite is true: In the event that a creditor opts to take adverse.action before an application is completed (as alleged here), the regulations specifically state that “[a] creditor shall notify an applicant of action taken within... (ii) 30 days after taking adverse action on an incomplete application, unless notice is 622provided in accordance with paragraph (c) of this section.” 12 C.F.R. § 202.9(a)(1)(ii) (emphasis added). Moreover, the statute requires a creditor to supply an adverse action notice to “[e]ach applicant against whom adverse action is taken,” without reference to whether the applicant’s application was “complete.” 15 U.S.C. § 1691(d)(2); see also 12 C.F.R. § 202.2(f) (distinguishing between “application” and “completed application,” permitting inference that application can exist without being complete). Scripter—the only case cited by Defendants on this issue—failed to discuss any of this authority. 2015 WL 7756125, at 2-3. Accordingly, the Court rejects Defendants’ legal premise that a creditor only needs to provide an adverse action notice upon receipt of a completed application. See also Kirk v. Kelley Buick of Atlanta, Inc., 336 F.Supp.2d 1327, 1331—1333 (N.D. Ga. 2004) (discussing, at length, the adverse action notice requirements applicable to an incomplete application under 12 C.F.R. § 202.9). Defendants next allege that, notwithstanding the ‘completeness’ issue, Dorton’s application to lease the videogame system was not an application for “credit” subject to the ECOA, and that, by offering noncredit leases, Defendants were not acting as “creditors” covered by the ECOA. See Def. Mot. at 13. “The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d). Defendants claim that a lease application does not qualify as an application for credit “because it is a contemporaneous exchange of consideration for use of property,” rather than a deferred payment of the property’s purchase price. Defs. Mot. at 13-14. Dor-ton disagrees, arguing that it was a lease in name only; in fact, he was applying for a “monthly installment payment plan.” See Pl. Resp. at 16. Dorton does not make clear whether he is solely arguing that the Program was not, in fact, a lease, or if he is also arguing that, even if it was a lease, it was still covered by the ECOA. For the reasons stated below, as a preliminary matter, the Court concludes that the ECOA’s definition of credit does not cover the typical lease. The lion’s share of case law nationwide is in accord. See, e.g., Liberty Leasing Co. v. Machamer, 6 F.Supp.2d 714, 719 (S.D. Ohio 1998) (equipment lease not credit transaction under ECOA); Robinson v. Veneman, 124 Fed.Appx. 893, 896 (5th Cir. 2005) (possibility that lessor might eventually finance purchase does not create a credit transaction out of a lease under ECOA); Shaumyan v. Sidetex Co., Inc., 900 F.2d 16 (2d Cir. 1990) (incremental payments made as work progressed is not a credit transaction under ECOA); see also Laramore v. Ritchie Realty Mgmt. Co., 397 F.3d 544, 547 (7th Cir. 2005) (adopting reasoning in Ma-chamer for residential leases). There is one prominent exception to this trend. The case on which Dorton relies, Brothers v. First Leasing, 724 F.2d 789 (9th Cir. 1984) (2-1), cert. denied, 469 U.S. 832, 105 S.Ct. 121, 83 L.Ed.2d 63 (1984), held that an automobile lease was a “credit transaction” within the ambit of the ECOA. But Brothers has been widely questioned. Most importantly, the controlling agency interpretation of the ECOA expressly rejects the majority’s holding in Brothers, insofar as other circuits might be tempted to follow its reasoning, stating that “the Ninth Circuit interpreted the ECOA’s definition of credit too broadly when it concluded in the Brothers case that the granting of a lease is an extension of credit.” Equal Credit Opportunity, Revision of Regulation B, Official Staff Com623mentary, 1985 WL 126616, 50 Fed. Reg. 48018, 48019-20 (Nov. 20,1985).7 The Sixth Circuit explained in Bridgemill, 754 F.3d at 384, that the agency’s interpretation of the ECOA is entitled to deference if it “survives the two-step inquiry of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,” 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). At step one, this Court must ask whether Congress has directly addressed the precise question at issue; if so, Congress’ intent naturally overrides a contrary regulatory construction. Bridgemill, 754 F.3d at 384. But if Congress was silent or the statute is ambiguous on the issue at hand, then the question for this Court is whether the agency’s answer is based on a permissible construction of the statute. Id. The statute in question does not compel an interpretation that Congress has answered “the precise question at issue” in a way that is consistent with Brothers’ conclusion, ⅛ that typical leases are included in the ECOA’s definition of “credit” transactions. See Barney v. Holzer Clinic, Ltd., 110 F.3d 1207 (6th Cir. 1997) (parenthetically summarizing Brothers’ holding as “applying ECOA to consumer leases, despite evidence that Congress had rejected such an application”). In addition to the lack of any language in the ECOA expressly identifying leases, this fact is shown by the criticisms leveled at the Brothers majority’s holding, including those of the dissenting judge. See also Machamer, 6 F.Supp.2d at 719; Ralph J. Rohner, Leasing Consumer Goods: The Spotlight Shifts to the Uniform Consumer Leases Act, 35 CONN. L. REV. 647 (2003) (criticizing Brothers). Thus, even assuming that the statute is silent or ambiguous as to the issue at hand, the agency’s construction of the statute in resolving that issue is permissible. “In answering this question, [one] need not conclude that the agency construction was the1 only one it permissibly could have adopted to uphold the construction, or even the reading we would have reached if the question initially had arisen in a judicial proceeding.” Alliance for Cmty. Media v. F.C.C., 529 F.3d 763, 778 (6th Cir. 2008). In addition to the relative clarity of the Brothers dissent, and the Brothers majority’s status as an outlier, the text of the statute itself can be permissibly read to exclude the typical lease. Section 1691a defines “credit” as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. § 1691a(d) (emphasis added). “The hallmark of ‘credit’ under the ECOA is the right of one party to make deferred payment.” Riethman v. Berry, 287 F.3d 274, 277 (3d Cir. 2002). “The relevant inquiry is whether the incremental payments constitute a contemporaneous exchange of consideration for the possession of the leased goods. Where the leasing agreement, or applicable law, provides for such a contemporaneous exchange, then the lessee cannot be said to ‘defer the payment of a debt’ within the meaning of ECOA.” Machamer, 6 F.Supp.2d at 717. Simply put, a lease payment, as it is commonly structured, is not a “defer[red] payment of debt.”8 Rather, it is a payment made con624temporaneously with the use of the thing being leased; the lessee is never properly-considered “in debt” to the lessor. The agency’s construction of the ECOA, therefore, is permissible at the very least and must be given deference. Indeed, at least one court in this circuit has expressly declined to follow the Ninth Circuit’s interpretation of the ECOA and its regulations, citing the agency’s concerns. See id. at 719. And, although it was not central to the issue before it, the Sixth Circuit has voiced doubt as to Brothers. See Barney, 110 F.3d at 1213 (declining to sanction appellants because “[a] decision in favor of appellants would not be.the first time that a court of appeals had applied the ECOA to transactions that do not seem to be a credit transaction.” (citing Brothers, 724 F.2d at 796)); see also Shaumyan v. Sidetex Co., Inc., 900 F.2d 16 (2d Cir. 1990) (rejecting argument made in reliance on Brothers and holding that incremental payments made “substantially contemporaneous” with payee’s performance is not a credit transaction). Accordingly, this Court defers to the interpretation of the ECOA set forth by the agency charged with its enforcement and holds that, as a matter of law, the ECOA does not apply to a typical lease transaction. Having determined that an application for a lease does not trigger the ECOA’s adverse action notice requirements, one question remains: did the WhyNotLeaselt Program offer a contemporaneous exchange of property for consideration (i.e., a lease), or credit transactions? Both parties are able to highlight language in the Program’s promotional materials that seems to purport to label the Program as either a lease or a credit transaction.9 However, how the Program actually operates is dispositive. See Machamer, 6 F.Supp.2d at 717. The Program’s “Frequently Asked Questions” publication, attached to Dorton’s amended complaint as Exhibit 5, provides: [Q:] Is this a rent-to-own program? [A:] No, this is a leasing program. You make the payments and at the end of the minimum 5 month term you have the option to renew the lease, return the item or purchase the item in early buyout when eligible. We do NOT offer a 90 day same as cash option. [[Image here]] [Q:] Can I buy the merchandise if I decide to keep it? [A:] Yes! After the 5 period minimum term you may buy your merchandise for a portion of the remaining depreciated value of the item(s). Similarly, another advertisement for the Program, attached to Dorton’s amended complaint as Exhibit 6 (Dkt. 19-6), begins with the statement “Here’s how leasing works at Kmart” and provides: After making your first payment in the store, take [the product] home. You’ll 625make additional minimal payments that allow you to keep your items for the time period of your choice.... You decide what happens next! Lease it again with bi-weekly payments for 5 months or take advantage of our 30, 60, and 90-day early purchase option and own it for slightly more than the lease cost. Both of these exhibits prove that the Program does not offer “credit”; payments under the Program do not function as “deferred payment” of the item’s purchase price—because there is no purchase price. The lessee, by entering into the Program, has no obligation whatsoever to purchase the product, and, if he does nothing except make the minimum payments on the lease, he must eventually return the product to Defendants. This flatly contradicts Dorton’s interpretation that the Program amounts to “a monthly installment payment plan,” PL Resp. at 16. The lease payments are not deferred payments on the purchase of any property; rather, they are payments made as a “contemporaneous exchange of consideration for the right of possession and use of the equipment.” Machamer, 6 F.Supp. at 717 (emphasis added). Accordingly, an ECOA claim against Defendants, when founded upon the Program as it is described in Plaintiffs complaint, fails to state a claim upon which relief can be granted. IV. CONCLUSION For the reasons set forth above, Defendants’ motion to dismiss (Dkt. 25) is granted. Dorton’s action is dismissed with prejudice. A separate judgment will enter. SO ORDERED.. The amended complaint also alleged that Defendants violated the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. See Am. Compl. ¶ 1. However, Dorton has voluntarily dismissed this claim (Dkt. 33).. At one point, the amended complaint does assert that Dorton “suffered,” see Am. Compl. ¶ 38. However, this injury occurred because he was an "an identity theft victim,” id. not because of any act of Defendants.. This fact distinguishes the present case from Meyers v. Nicolet Restaurant of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016), which Defendants cited in a Notice of Supplemental Authority dated January 20, 2017. That case concerned a statute that provided statutory damages to those who receive a credit card receipt that is not properly redacted. There, standing was lacking because the plaintiff "discovered the violation immediately and nobody else ever saw the non-compliant receipt.” Id. at 727. In other words, the statute in Meyers was designed to prevent a very specific type of harm, which the facts showed could not have occurred. Here, on the other hand, Dorton was denied information meant to provide him with an educational benefit. See also n.5, infra.. Section 1691e(b) does list "the amount of actual damages awarded” as one of several "relevant factors” that the Court must consider in determining the amount of punitive damages to award. This, however, does not require that actual damages be alleged or suffered.. In light of the fact that Dorton’s claim can only proceed "by virtue of statutes creating legal rights, the invasion of which creates standing,” the Court declines to address Defendant’s argument that an adverse action notice does not need to include the “source information” that Dorton seeks. See Def. Mot. at 5, 16. In addition to alleging that his adverse action notice lacked “source information,” Dorton alleges that he requested an adverse action notice that contains "a specific statement of reasons for the adverse action taken,” Am. Compl. 1144, and that he received only an undated, handwritten response referring him to someone else, id. ¶ 45. Thus, even if an adverse action notice does not need to contain "source information,” it needs to contain information that Dorton alleged was lacking.. Although this Court lacks jurisdiction to consider Dorton’s claim for actual damages, it should be noted that the reasoning in this section would apply to Dorton’s claim for actual damages, had he adequately pleaded them.. The Board of Governors for the Federal Reserve, which authored this interpretation, was the predecessor to the Consumer Financial Protection Bureau, the agency currently charged with promulgating and enforcing regulations for the ECOA. See RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., LLC, 754 F.3d 380, 383 (6th Cir. 2014).. As the Seventh Circuit has noted, an arrangement labeled a "lease” could nonetheless be crafted such that it "might, by its *624terms, come under the terms of the ECOA.” Laramore, 397 F.3d at 547 n.2. For that reason, the Court will dissect the terms of the instant Program to see whether it is a typical lease, see infra, rather than rely solely on its rejection of Brothers.. For example, Defendant WhyNotLeasing advertises the Program as an option "for your purchase.” Am. Compl. at ¶ 9 (citing "Easy Terms,” Ex. 1 to Am. Compl. (Dkt. 19-2)). And, in marketing its services to potential retailers, WhyNotLeasing claims that retailers will "never lose a sale to bad credit again.” Id. at ¶ 11 (citing "For Dealers,” Ex. 3 to Am. Compl. (Dkt. 19-4)). On the other hand, Defendants can point to the name of the Program itself (i.e., "WhyNotLeaselt”), as well as its frequent use of the term "lease.” See Ex. 5 to Am. Compl. (Dkt. 19-5) (referring to customer's "first lease payment”).	CONFLICT_NOTED, CRITICIZED_OR_QUESTIONED
723 F.2d 1431	836 F.2d 1227	D	Rolando Lopez Chavez v. Immigration and Naturalization Service	FLETCHER, Circuit Judge: Petitioner Manuel Diaz Arteaga is a 24 year old native and citizen of El Salvador. At a deportation hearing in December 1984, Arteaga admitted that he had entered the United States without inspection in February 1984, in violation of 8 U.S.C. § 1251(a)(2). He conceded deportability and applied for political asylum in the United States. 1 At his deportation hearing, Arteaga testified about several different incidents. 2 The focal point of Arteaga’s claim of persecution is a visit a group of guerrillas paid to him at his house in August 1983. The guerrilla members, former friends of Ar-teaga, tried to get him to join them in the civil war against the government. When Arteaga refused, stating his intention to remain neutral, the guerrillas said to him: “Even if you don't come, we’ll get you.” Allegedly put in fear by this threat, Artea-ga left his mother and nine sisters and came to the United States. The immigration judge issued an oral decision denying withholding of deportation and asylum, and granted Arteaga thirty days in which to depart voluntarily. According to the immigration judge, the guerrillas “did not attempt to take him [into] custody or force him into the guerrilla movement,” but instead “tried to persuade him to voluntarily join the guerrillas.” The Board of Immigration Appeals (BIA, or Board) affirmed the decision of the immigration judge. DISCUSSION This court has jurisdiction to review the BIA’s decision pursuant to Section 242(a) of the Immigration and Nationality Act, 8 U.S.C. § 1252(a). The factual findings underlying the BIA’s decisions on granting or denying asylum and withholding of deportation are reviewed under the “substantial evidence” test. McMullen v. INS, 658 F.2d 1312 (9th Cir.1981). Questions of law, such as whether the BIA applied the appropriate legal standard, are reviewed de novo. Florez-De Solis v. INS, 796 F.2d 330, 333 (9th Cir.1986). 1. Asylum and Withholding Standards Because Arteaga conceded deportability, the government’s burden is satisfied, and Arteaga must show entitlement to relief from deportation. Estrada v. INS, 775 F.2d 1018, 1020 (9th Cir.1985). Arteaga contends that the BIA’s decision failed to distinguish the legal standards for withholding of deportation under § 243(h) and political asylum under § 208(a). Arteaga is entitled to mandatory withholding of deportation if his “life or freedom would be threatened in [El Salvador] on account of race, religion, nationality, membership in a particular social group, or political opinion.” 8 U.S.C. § 1253(h)(1). In INS v. Stevic, 467 U.S. 407, 430, 104 S.Ct. 2489, 2501, 81 L.Ed.2d 321 (1984), the Supreme Court held that “the ‘clear probability of persecution’ standard remains applicable to § 243(h) withholding of deportation claims.” The Court explained that under the clear probability standard “[t]he question... is whether it is more likely than 1229 not that the alien [will] be subject to persecution.” Id. at 424, 104 S.Ct. at 2498. Arteaga qualifies for a discretionary grant of asylum if he shows a “well-founded fear of persecution on account of race, religion, nationality, membership in a particular social group, or political opinion....” 8 U.S.C. §§ 1101(a)(42), 1158(a). The well-founded fear standard “play[s] no part” in the decision whether to withhold deportation, INS v. Cardoza-Fonseca, — U.S.-, 107 S.Ct. 1207, 1212, 94 L.Ed.2d 434 (1987), and “is in fact ‘more generous’ than the clear-probability test.” Bolanos-Hernandez v. INS, 767 F.2d 1277, 1282 (9th Cir.1984). See Hernandez-Ortiz v. INS, 777 F.2d 509, 514 (9th Cir.1985); Sarvia-Quintanilla v. INS, 767 F.2d 1387, 1393 (9th Cir.1985). In Cardoza-Fonseca, the Supreme Court concluded: Our analysis of the plain language of the Act, its symmetry with the United Nations Protocol, and its legislative history, lead inexorably to the conclusion that to show a “well-founded fear of persecution,” an alien need not prove that it is more likely than not that he or she will be persecuted in his or her home country. 107 S.Ct. at 1222. The Court pointed out that “[o]ne can certainly have a well-founded fear of an event happening when there is less than a 50% chance of the occurrence taking place.” Id. at 1213. The Court explained this by citing a hypothetical example in which a one-in-ten possibility of persecution would give rise to a “well-founded fear.” Id. This court has said that “our case law quite clearly establishes that the legal difference between ‘clear probability’ and ‘well-founded fear’ must be respected.” Rebollo-Jovel v. INS, 794 F.2d 441, 444 (9th Cir.1986). Accordingly, the BIA decision should make it apparent that the Board “appreciated the necessity of applying separate and discrete standards.” Vides-Vides v. INS, 783 F.2d 1463, 1468 (9th Cir.1986). The BIA has frequently resorted to catchall statements in its asylum decisions that a given petitioner has failed to meet the asylum standard “regardless of whether [petitioner’s] claim is assessed in terms of demonstrating a ‘clear probability,’ a ‘realistic likelihood,’ a ‘reasonable possibility,’ or a ‘good’ or ‘valid reason to fear’ persecution.” Corado Rodriguez v. INS, No. 85-7417, slip op. at 3267 (9th Cir. Mar. 14, 1988); see Vides-Vides, 783 F.2d at 1468; Rebollo-Jovel, 794 F.2d at 446; Cardoza-Fonseca, 767 F.2d 1448, 1450 (9th Cir.1985). Such a catchall analysis may fail to make clear that the BIA properly applied the discrete standards to withholding and asylum relief, respectively, particularly where the BIA makes reference to its decision in Matter of Acosta, Interim Dec. No. 2986 (BIA 1985). In Acosta, the BIA declared: It has been our position that as a practical matter the showing contemplated by the phrase “a well-founded fear” of persecution converges with the showing described by the phrase “a clear probability” of persecution.... Accordingly, we have not found a significant difference between the showings required for asylum and withholding of deportation. Acosta, slip op. at 2 (citations omitted). In Vides-Vides, supra, this court held that a BIA decision that “fails to state explicitly” that the asylum standard is “more generous” than the withholding standard is nevertheless sufficient if it, “read as a whole, reflects its recognition” of the distinctive standards. 783 F.2d at 1468. Significantly, Vides-Vides considered a BIA decision rendered prior to Acosta, and the court specifically left open the question of whether boiler-plate analysis was sufficient in post-Acosta cases: “In light of Acosta, it may be appropriate henceforth to require a more explicit statement from the BIA that, even were it to apply a more generous standard such as required in this circuit, it would still deny the asylum petition.” 783 F.2d at 1468 n. 3. This question was recently resolved in Corado Rodriguez v. INS, supra, which held that in post-Acosta cases the Board must be explicit that it is applying the more generous standard to the asylum claim. Slip op. at 3268-69. In Corado Rodriguez, the BIA had held that the petitioner’s asylum 1230 claim failed “regardless of whether her claim is assessed in terms of demonstrating a ‘clear probability/ a ‘realistic likelihood/ a ‘reasonable possibility/ or a ‘good’ or ‘valid reason to fear’ persecution.” Id. The court held that this “catchall” language failed to show that the Board had properly applied the “well-founded fear” standard, particularly where the Board reiterated its Acosta position and analyzed “well-founded fear” using terms used by the Ninth Circuit to define the stricter “clear probability” test. Id. at 3270. Our analysis of this issue must also be guided by the decision in Sanchez-Trujillo v. INS, 801 F.2d 1571 (9th Cir.1986). There, the court held that a post-Acosta decision by the BIA had adequately applied the “well-founded fear” standard. The BIA had “inartfully” chosen to make occasional use of the words “would be” or “will be” in its evaluation of the asylum claim, arguably suggesting that it had applied the stricter standard. 3 However, the court found that the doubt raised by the “occasional use of the words ‘would be’ or ‘will be’ ” was sufficiently clarified by the BIA’s lengthy quotation from Cardoza-Fonseca, 767 F.2d 1448, together with an explicit statement that it was bound by Ninth Circuit precedent. The BIA’s decision in the instant case states that Ninth Circuit precedent controls, 4 quotes from Cardoza-Fonseca, and holds that the petitioner “has not shown a clear probability of persecution under section 243(h) or a well-founded fear of persecution under section 208(a), as that standard is described in Cardoza-Fonseca v. INS....” This aspect of the BIA opinion resembles Sanchez-Trujillo. However, in the instant case the BIA also states that “the Board’s analysis of [the well-founded fear standard] is set forth in Matter of Acosta.” See Corado Rodriguez, slip op. at 3269 (BIA reiterated its position advanced in Acosta). By contrast, there is no indication in Sanchez-Trujillo that the Board there had cited Acosta as an authority. Moreover, the BIA opinion scrutinized in Sanchez-Trujillo made it apparent that the “inartfully chosen” words, when read in context, “merely stat[ed] that an objective basis must be shown for a well-founded fear.” 801 F.2d at 1579. If that is the case, the challenged language did not amount to a misapplication of the law. In the instant case, it cannot be said that the inartfully chosen words were subsumed under an essentially correct statement of the law. Instead, the BIA stated that Arteaga “failed to demonstrate that he as an individual would be singled-out and targeted for persecution” and bolstered this statement with citations to cases expounding or applying the “clear probability” standard. See INS v. Stevic, supra; Rejaie v. INS, 691 F.2d 139 (3d Cir.1982) (equating “clear probability” with “well-founded fear”); Matter of Acosta, supra 5 The BIA continued its legal analysis by stating that “there is no evidence that the respondent was ever persecuted or which suggests the likelihood that he will be if returned to El Salvador.” (Emphasis added). The word “likelihood,” too, indicates that the BIA was applying the stricter standard. Nowhere in the BIA’s legal analysis of the particular facts does it employ language indicative of the “more generous” well-founded fear test. The instant case is distinguished from Corado Rodriguez by only two elements. First, the BIA did not use the particular boiler-plate language cited in Corado Rod 1231 riguez. Second, the BIA cited and quoted from Cardoza-Fonseca and alluded to the “well-founded fear” standard. However, this court must “address questions relating to the standard applied [by the BIA] on a case-by-case basis, deciding each not on the basis of ‘certain magic words,’ but on the basis of what the Board actually did.” Corado Rodriguez, slip op. at 3269, quoting Rebollo-Jovel v. INS, 794 F.2d at 444. Thus, the boiler-plate statement employed by the BIA should not control, if it appears that the appropriate legal standard has not been applied but merely invoked as so many “magic words.” Here, the citation to controlling Ninth Circuit authority is set forth as black letter, but is framed by two citations to Acosta and a citation to a Third Circuit case squarely in conflict with Cardoza-Fonseca. See Rejaie v. INS, supra. In applying the facts to the law, the BIA decision uses language suggesting that the “clear probability” standard was applied. Notwithstanding its lip service to Cardoza-Fonseca, the BIA decision here fails to make explicit that the more generous standard was applied to the asylum claim. Corado Rodriguez, slip op. at 3269-70. We conclude that the case should be remanded to the BIA to enable it explicitly to apply the more generous well-founded fear standard. See id. at 3268-69. II. Eligibility for Asylum Under a proper application of the “well-founded fear” standard, the BIA’s finding that Arteaga is ineligible for asylum appears to be unsupported by substantial evidence. 6 The record shows, and the BIA found, that in August 1983 Arteaga was asked by members of the guerrillas to join them in their war effort against the government of El Salvador. Arteaga testified that he left El Salvador in January 1984 out of fear that the guerrillas would “take” him. In particular, Arteaga testified that he was visited at his house by guerrillas who knew him because they were former friends of his, and that they told him “even if you don’t come, we’ll get you.” The clear implication of this statement is a threat from the guerrillas that they would at some point return and forcibly conscript Arteaga if he did not join them voluntarily. Artea-ga’s testimony thus indicates that he had received a specific threat of conscription or kidnapping. 7 Because Arteaga has testified to a subjective fear, the remaining question is whether this one-time threat of conscription can give rise to a well-founded fear of persecution. The term “persecution” in section 208(a) encompasses “the infliction of suffering or harm upon those who differ [on the enumerated grounds of race, religion, nationality, membership in a particular social group, or political opinion] in a way regarded as offensive.” Cardoza-Fonseca v. INS, 767 F.2d 1448, 1452 (9th Cir.1985), aff'd — U.S. -, 107 S.Ct. 1207, 94 L.Ed. 2d 434 (1987). The threat of persecution need not come from the government, but may also come from groups, including anti-government guerrillas, which the government is “unwilling or unable to control.” McMullen v. INS, 658 F.2d 1312, 1315 & n. 2 (9th Cir.1981). Arteaga was threatened with kidnapping or conscription by the guerrillas if he did not agree to join them voluntarily. Artea-ga’s resistance to joining them voluntarily, which prompted the threat, reflected his non-support for the guerrilla cause and his adoption of a neutral position towards both sides in the Salvadoran civil war. The choice to remain neutral constitutes a political opinion. Bolanos-Hernandez, 767 F.2d at 1286-87. Because Arteaga’s neu 1232 tral political opinion precluded his voluntarily joining the guerrillas, the guerrillas would have had to kidnap him to get him into their ranks. Such a deprivation of liberty on account of political opinion would amount to persecution. 8 In light of this specific threat of persecution, the Board erred in finding that Artea-ga “presented no objective evidence which demonstrates that he as an individual would be singled-out and targeted for persecution or which supports his generalized assertions of persecution.” Both the immigration judge and the BIA relied, in part, on the fact that Arteaga was never actually seized by the guerrillas. But that fact is not dispositive, because “[persecution does not require an arrest.” Turcios v. INS, 821 F.2d 1396, 1402 (9th Cir.1987). It is true that this court has held that “[t]he general level of violence or danger from antigovemment forces does not establish a claim of persecution.” Mendez-Efrain v. INS, 813 F.2d 279, 282 (9th Cir.1987). However, Bolanos-Hernandez, 767 F.2d at 1285. Accordingly, we reject the contention that the specific threat against Arteaga by the guerrillas fails to distinguish Arteaga’s claim from a claim based on the generalized level of violence in the country. not once have we considered a specific threat against a petitioner insufficient because it reflected a general level of violence.... It should be obvious that the significance of a specific threat to an individual’s life or freedom is not lessened by the fact that the individual resides in a country where the lives and freedom of a large number of persons are threatened. The government’s suggestion that Arteaga’s claim is based on a desire to avoid military service mischaracterizes petitioner’s position. 9 While Arteaga stated that he did not wish to serve in the Salvadoran army, that testimony goes to his neutrality; it is not the basis for his persecution claim. This court has rejected persecution claims based on the threat of conscription into a national army (as distinct from punishment for conscientious objection to military service). See Kaveh-Haghigy v. INS, 783 F.2d 1321 (9th Cir.1986). Whatever justification exists for distinguishing between national military conscription and deprivations of freedom, such justification does not apply to actions of nongovernmental groups, which lack legitimate authority to raise armies by conscription. Forced recruitment by a revolutionary army is tantamount to kidnapping, and is therefore persecution. Because the BIA did not regard the guerrillas’ kidnapping threat against Arteaga as an individualized threat, it did not adequately evaluate “whether the group making the threat ha[d] the will or the ability to carry it out.” Bolanos, 767 F.2d at 1285-86. 10 The Supreme Court has sug 1233 gested that a one-in-ten chance of the feared event occurring would make the fear well-founded. Cardoza-Fonseca, 107 S.Ct. at 1213. A specific verbal threat by the guerrillas directed at an individual whose identity and residence are known to the guerrillas is sufficient to create a well-founded fear. However, a remand is appropriate in this case since, as noted above, the Board did not properly apply the well-founded fear standard. CONCLUSION The BIA erred by failing to distinguish between the applicable standards for withholding of deportation and political asylum. We remand this case to the BIA to allow it to apply the more generous well-founded fear standard to Arteaga’s asylum claim. 1. Jurisdiction over a request for asylum that is made after the institution of deportation proceedings lies with the immigration judge. 8 C.F.R. § 208.1 (1987). Such a request is also considered an application for withholding of deportation. 8 C.F.R. § 208.3(b) (1987). 2. In at least two instances, antigovernment guerrillas came to schools Arteaga was attending in order to recruit students and distribute propaganda. Arteaga also testified that his aunt and uncle had been driven out of the country by guerrillas several years before Arteaga left; that a national guardsman had come into Arteaga’s mother’s home and smashed her stove; that Arteaga had once attended an antigovernment demonstration; and that he had been put off a bus by guerrillas. 3. For example, the BIA stated that the petitioners had “not shown any special, individualized circumstances indicating that they have been or will be singled out for persecution." 801 F.2d at 1579 (emphasis added). This language is indicative of the "clear probability’ standard, which requires a showing of a "likelihood" of future persecution. See Bolanos-Hernandez, 767 F.2d at 1284. 4. The BIA decision was rendered before the Supreme Court’s Cardoza-Fonseca decision. 5. The BIA also cited Moghanian v. U.S. Dept. of Justice, 577 F.2d 141 (9th Cir.1978). That case was decided before the adoption of the Refugee Act of 1980, and has little, if any, applicability to the asylum standard under § 208(a). See Refugee Act of 1980, Pub.L. No. 96-212, 94 Stat. 102 (1980), amending Immigration and Nationality Act, 8 U.S.C. §§ 1101 et seq. 6. The BIA concluded that Arteaga has not shown that it is "more likely than not” that he would be subject to persecution and is therefore not entitled to withholding of deportation under § 243(h). This conclusion seems to be supported by substantial evidence. See, e.g., Garcia-Ramos v. INS, 775 F.2d 1370, 1373 (9th Cir.1985). 7. Where, as here, the Board and the immigration judge make no findings as to the credibility of the petitioner’s hearing testimony, the reviewing court must presume that the testimony was credible. Platero-Cortez v. INS, 804 F.2d 1127, 1131 (9th Cir.1986). 8. Lack of consent separates a willing traveler from a kidnap victim. It is Arteaga’s political opinion that set his will against joining the guerrillas, and it is the possibility that the guerrillas would overbear his will that constitutes the threat of persecution. Therefore, that persecution is "on account of political opinion.” It is not relevant that the guerrillas may have been interested in conscripting Arteaga to fill their ranks rather than to “punish” Arteaga’s neutrality. To find political persecution, all we need inquire of the guerrillas’ motive is whether that motive is political. See Florez-de Solis v. INS, 796 F.2d 330, 335 (9th Cir.1986). Clearly, forced recruitment into the war against the government is politically motivated. Cf. id. (possible retribution for unpaid financial debt not political). 9. The government also cites cases rejecting claims based on membership in the "social group” of young males of military age. See Sanchez-Trujillo v. INS, 801 F.2d 1571 (9th Cir.1986); Zepeda-Melendez v. INS, 741 F.2d 285 (9th Cir.1984); Chavez v. INS, 723 F.2d 1431 (9th Cir.1984). In these cases, the petitioners’ claims of persecution on account of group membership were unaccompanied by specific individual threats against them; in any event, they are inapposite to Arteaga’s claim of individual political persecution. 10.The BIA simply discounted the threat by observing, as did the immigration judge, that the guerrillas did not subsequently contact Arteaga between the time of the threat in August 1983 and Arteaga’s departure the following January. This fact is of limited persuasive value, however, given the course of developments in El Salvador at that time. It is well documented that the guerrillas began a forced recruitment drive in early 1984. See, e.g., "Salvadoran Reb 1233 els Begin to Conscript Civilians,” New York Times, July 5, 1984, at A3; America's Watch, Free Fire: A Report on Human Rights in El Salvador 54-57 (5th Supp.1984); see also U.S. Dept, of State, Country Reports on Human Rights Practices for 1984, at 512 (Joint Comm. Print 1985). These developments lend objective support to Arteaga’s fear of the guerrillas’ threat and suggest that he may have left the country in the nick of time.	LIMITED_OR_DISTINGUISHED
723 F.2d 1431	776 F.2d 1407	D	Rolando Lopez Chavez v. Immigration and Naturalization Service	TANG, Circuit Judge: Salvador Del Valle petitions for review of a deportation order from the Board of Immigration Appeals (BIA). Affirming the decision of the Immigration Judge (IJ), the BIA determined that petitioner had not established eligibility for withholding of deportation under section 243(h) of the Immigration and Nationality Act (INA), as amended by section 203(e) of the Refugee Act of 1980, 8 U.S.C. § 1253(h) (1982), or for political asylum under section 208(a) of the Refugee Act, 8 U.S.C. § 1158(a). For the reasons set forth below, we reverse the BIA’s denial of relief under section 243(h). Accordingly, we find Del Valle eligible for asylum under section 208(a) and remand to the BIA for a determination of whether to grant that relief. FACTUAL AND PROCEDURAL BACKGROUND Petitioner Del Valle is a native and citizen of El Salvador. He came to the United States in December, 1980. During the course of deportation proceedings in March, 1982, petitioner admitted entering the country in violation of section 241(a)(2) of the INA, 8 U.S.C. § 1251(a)(2), and conceded deportability on that basis. He then applied for political asylum under the provisions above. Petitioner presented the following evidence in support of his asylum claim: (1) In September, 1980, Del Valle received three notes and phone calls from a right wing group known as the Squadron of Death urging him to join them as informer. (Certified Administrative Record (AR) 206.) (2) Del Valle testified that on September 8, 1980, his second cousin, Douglas Roberto Ramos Duran, and two other individuals were kidnapped by five men in a white van. (AR 48.) His cousin was a close friend (id.) and lived next door to Del Valle. Soon thereafter Duran was found dead. (Id.) No group took responsibility for the death (AR 49), and Duran had not been involved with guerrilla activity (id.). Duran’s mother, Alva Duran Ramos, testified and corroborated this testimony. (See AR 73-75.) Petitioner also submitted a newspaper clipping (AR 183-84) and letters from El Salvador (AR 185-191) corroborating his cousin’s death. (3) After the cousin’s death, petitioner received “an invitation” to join the Squadron of Death (AR 49, 67), which he did not accept. (4) Del Valle testified that on December 2, 1980 around 10 p.m. he was followed home by four men dressed in civilian clothes. These men stopped him near his home and began firing guns into the air. (AR 50, 206.) His grandmother eventually called him inside. (AR 51, 206.) Approximately two hours later, fifteen men broke down the door of his apartment. (AR 51-51, 206.) The men carried machine guns (AR 206) and were clothed in military garb (AR 52, 206). One man asked another whether Del Valle was a member of the Popular Force of Liberation (FPL), a group associated with the guerrillas in El Salvador. (AR 206.) The second man responded affirmatively. (Id.) Del Valle’s hands were tied behind his back, he was hit in the stomach, and taken from his home. (AR 53, 206.) He was laid face down in a jeep and taken to the group’s “headquarters.” 1410 (AR 53-54, 206.) There he was blindfolded, interrogated, and beaten. (AR 54-55, 206.) He was questioned about involvement with the FLP, which he denied. (AR 54, 206.) Afterwards he was left alone for a while, and then transported by jeep to a place Del Valle describes as a police station. (AR 55-56, 206.) He spent the night there, and was then released the next day, with the help of a female friend. (AR 56.) The testimony of Alva Duran Ramos corroborates this story. (AR 75-76.) Del Valle also submitted letters from El Salvador which generally corroborate his capture on December 2, 1980. (See AR 185-191.) (5) Upon the advice of friends and family, petitioner left El Salvador two days after this incident. (AR 57, 207.) He did not obtain an exit visa from El Salvador. (AR 204A.) (6) In March, 1981, Del Valle’s nephew, Rafael Castillo Del Valle, was violently taken from his home. (AR 58, 207.) The nephew lived at Del Valle’s house. (AR 207.) The nephew has not been heard from since that incident. (AR 58, 207.) The nephew was not involved in guerrilla activity. This disappearance is corroborated by Alva Ramos’ testimony (AR 77), a newspaper clipping (AR 183-84), and letters from El Salvador (see AR 185-191). (7) Petitioner states that he has not been involved with guerrilla activity (AR 49), and that he wishes to remain politically neutral in the conflict in his country (AR 69). (8) Petitioner submitted evidence documenting the violent and unstable conditions of El Salvador at the time of his departure. (See AR 91-181.) Specifically, Del Valle presented documentation that individuals believed linked to groups opposed to the El Salvadoran government had “disappeared” or been murdered (AR 96) and that military force had been used to crush opposition movements (AR 96). Torture and death at the hands of paramilitary “security forces” is also documented. (See AR 99, 101, 103-105, 159). The IJ denied relief under both asylum sections. On appeal, the BIA found that petitioner’s statements were substantially corroborated such that it was satisfied that his allegations were true. Despite this credibility finding, the BIA affirmed the decision of the IJ, reasoning that the most likely explanation for Del Valle’s release was that the security forces were convinced that petitioner was not associated with opposition groups, and therefore it was not likely that petitioner would be persecuted if he returned. The BIA concluded that petitioner had not shown a “realistic likelihood” that he would be persecuted if returned to El Salvador. Del Valle challenges the foundational adequacy of the BIA’s findings. DISCUSSION I. Legal Framework Two code sections govern relief from deportation based on the threat of persecution. Section 243(h) of INA, 8 U.S.C. § 1253(h), requires the Attorney General to withhold deportation if an alien’s life or freedom would be threatened on account of race, religion, nationality, membership in a particular social group, or political opinion. Section 208(a) of the Refugee Act, 8 U.S.C. § 1158(a), provides for asylum for aliens with a well-founded fear of persecution. A. Section 243(h): The “Clear Probability” of Persecution Standard In order to be granted relief from deportation under section 243(h), 1 an alien must establish: 1411 (1) A likelihood of persecution; i.e., a threat to life or freedom. (2) Persecution by the government or by a group which the government is unable to control. (3) Persecution resulting from the petitioner’s political beliefs. (4) The petitioner is not a danger or a security risk to the United States. Zepeda-Melendez v. INS, 741 F.2d 285, 289 (9th Cir.1984). The alien bears the burden of showing a “clear probability” of persecution, INS v. Stevie, 467 U.S. 407, 104 S.Ct. 2489, 2496, 81 L.Ed.2d 321 (1984); Bolanos-Hernandez v. INS, 749 F.2d 1316, 1320 (9th Cir.1984), that is, “whether it is more likely than not that the alien would be subject to persecution,” Stevic, 104 S.Ct. at 2498; Bolanos, 749 F.2d at 1320. General evidence of widespread conditions of violence in a country is not in itself sufficient to establish a clear probability of persecution. Id. at 1323 (citing Zepeda-Melendez, 741 F.2d at 290). There must be some evidence that the applicant or those similarly-situated are at a greater risk than the general population, see id. at 1323, and the threat to the applicant is a serious one, id. at 1324. B. Section 208(a): The “Well-Founded Fear” of Persecution Standard In order to be eligible for relief under section 208(a), an applicant must show that he or she is a “refugee” within the meaning of section 201(a) of the Refugee Act, 8 U.S.C. § 1101(a)(42)(A). A refugee is a person who has a well-founded fear of persecution on account of race, religion, nationality, membership in a particular group, or political opinion. Id. If an alien qualifies as a refugee, the Attorney General has the discretion to grant asylum under section 208(a). 8 U.S.C. § 1158(a). See 8 C. F.R. § 208.8 (1985) for a list of factors governing the discretion. We have recently held that the well-founded fear standard is “more generous” than the clear probability standard. Bolanos-Hernandez, 749 F.2d at 1321. Thus, if an applicant establishes that he or she has met the clear probability standard, a fortiori he or she will have met the well-founded fear standard. Id. at 1322. More recently we have established that asylum applicants must present “specific facts” through objective evidence to prove either past persecution or “good reason” to fear future persecution in order to meet the well-founded fear standard. Cardoza-Fonseca v. INS, 767 F.2d 1448, 1453 (9th Cir.1985) (consolidated with Arguello-Salguera v. INS, No. 84-7593) (adopting evidentiary requirements of Carvajal-Munoz v. INS, 743 F.2d 562, 574 (7th Cir.1984)). Documentary evidence of past persecution or a threat of future persecution will usually suffice to meet the “objective component” of the evidence requirement. Cardoza-Fonseca, 767 F.2d at 1453. If documentary evidence is not available, the applicant’s testimony will suffice if it is credible, persuasive, and refers to “specific facts that give rise to an inference that the applicant has been or has a good reason to fear that he or she will be singled out for persecution.” Id. (quoting Carvajal-Munoz, 743 F.2d at 574). Likewise, the well-founded fear standard has a “subjective component” that requires an analysis of the applicant’s mental state. Id. at 1452; Bolanos-Hernandez, 749 F.2d at 1321. This component becomes relevant only after objective evidence suggesting a risk of persecution has been introduced. Cardoza-Fonseca, 767 F.2d at 1453. II. Standard of Review A. Section 243(h) Requests for asylum are to be considered on a case-by-case basis and require a review of the whole record. Zavala-Bonilla v. INS, 730 F.2d at 562, 565 (9th Cir.1984). Because Section 243(h) relief is not discretionary, we review the BIA’s denial of an application for a prohibition of deportation under a substantial evidence standard. Bolanos-Hernandez, 749 F.2d at 1412 1320 n. 8; Saballo-Cortez v. INS, 761 F.2d 1259, 1262 (9th Cir.1984). B. Section 208(c) The determination of whether an alien has a well-founded fear of persecution, and is therefore eligible for asylum under section 208(c), is based upon factual findings and accordingly is reviewed for substantial evidence. Bolanos-Hernandez, 749 F.2d at 1321, 1321 n. 9. The decision to grant or deny asylum under section 208(a) is then reviewed for an abuse of discretion. Id. at 1321 n. 9. III. Withholding of Deportation Under Section 243(h) 2 Petitioner first claims that the BIA’s denial of his request for withholding of deportation is not supported by substantial evidence. A. Likelihood of Persecution In deciding whether Del Valle had shown a clear probability of persecution, the BIA accepted Del Valle’s allegations as true, but concluded that Del Valle’s explanation that he was released because the security forces wanted to avoid responsibility for his disappearance was improbable. The BIA reasoned that since Del Valle’s interrogators had acted so conspicuously when they initially had stopped Del Valle in the street and then had broken into his home, it was unlikely that they were concerned with avoiding responsibility for his capture. The BIA concluded that the more likely explanation for petitioner’s release was that the security forces were satisfied that he was not a member of the opposition, and therefore it was unlikely that Del Valle would be subject to persecution upon his return. The BIA also concluded that petitioner had not shown that the circumstances relating to the killing of his cousin and disappearance of his nephew were related to his own situation. Accepting Del Valle’s version of the facts, 3 it is clear that the petitioner has presented specific evidence of persecution. See Chavez v. INS, 723 F.2d 1431, 1434 (9th Cir.1984). The question remains whether the BIA’s determination that it is unlikely that Del Valle will be persecuted if returned is supported by substantial evidence. The BIA’s conclusions, however, are based upon an inaccurate reading of the record and improper inferences, and thus we hold that those conclusions are not supported by substantial evidence. First, the BIA mischaracterizes Del Valle’s explanation for his release. In his affidavit, Del Valle stated that during the interrogation he was asked if anyone had witnessed his capture. (AR 206.) He answered affirmatively. (Id.) He also stated that his friends and family had told him to leave because the security forces had released him only to absolve themselves of responsibility for his disappearance. (AR 207.) In his testimony, Del Valle explained that a female friend of his had exercised some influence and helped gain his release. (AR 56, 63.) Alva Duran Ramos corroborated that event. (AR 75.) During cross-examination, Del Valle testified that he did not know the exact reason why he was released. (AR 63.) Therefore, Del Valle offered little to explain the fortuity of his release, and the record supports that his female friend helped secure his freedom. 1413 The BIA concluded that petitioner was released because the security forces were satisfied that he was not a member of opposition forces. However, there is no evidence in the record to support this reasoning. The security forces did not indicate to Del Valle or to his family that he was free of suspicion. 4 We cannot permit the BIA to infer that an applicant is unlikely to be persecuted solely on the basis that the applicant was released by his persecutors. This would lead to the absurd result of denying asylum to those who have actually experienced persecution and were fortunate enough to survive arrest or detention. “[W]hen allegations are specific and supported by evidentiary material, and the [BIA] denies eligibility for relief, it must give reasons for its decisions showing that it has properly considered the circumstances.” Santana-Figueroa v. INS, 644 F.2d 1354, 1357 (9th Cir.1981)(BIA’s denial of suspension of deportation reversed and remanded). In this case, the BIA’s conclusion that the security forces released Del Valle because they were satisfied that he was not part of the opposition is not based on substantial evidence, but upon conjecture. The IJ and BIA found the death and disappearance of Del Valle’s two relatives unrelated to the likelihood that he would be persecuted. It is true that, to the best of Del Valle’s knowledge, his relatives had not been a part of the opposition, and that his family had little information as to who had killed his relatives and why. Nonetheless, this evidence does suggest that his family has been particularly affected by the conditions in their country, see Chavez v. INS, 723 F.2d at 1434 (no evidence that asylum applicant’s family had been harassed since applicant’s departure from El Salvador indicates it is less likely that applicant will be subject to persecution upon his return); Sanchez v. INS, 707 F.2d 1523, 1527-28 (D.C.Cir.1983) (lack of evidence that applicant’s family had ever been interrogated, arrested, imprisoned or persecuted indicates it is unlikely applicant will be persecuted), and helps support Del Valle’s claim for asylum. Del Valle has afeo presented adequate documentation that a threat of persecution from “security forces” in El Salvador represents a serious one. Bolanos-Hernandez, 749 F.2d at 1324. B. Persecution Based Upon Political Belief In Bolanos-Hernandez, we recognized that the decision to remain neutral can be a decision of political conscience. 749 F.2d at 1324-25. In that case, Bolanos had severed past ties with right-wing organizations in El Salvador, and had then been asked by the guerrillas to join them. When he refused, he was threatened with death if he did not leave the country. In Argueta v. INS, 759 F.2d 1395 (9th Cir.1985), we held that the testimony of an asylum applicant before an IJ that he wished to remain politically neutral constituted an expression of political opinion. Id. at 1397. In that case, Argueta had been accused of being a member of the FPL and threatened with “disappearance” if he did not leave the country. In this case, Del Valle’s asylum application indicates that he was aware of the political conflict and instability in his country, and decided to continue his studies, amidst the violence, at the National University in San Salvador. (AR 205.) When the “Armed. Forces” took over the University, his studies ended, and he decided to work in his community organizing sports for young people. (Id.) The record indicates that he received three notes and phone calls from the Squadron of Death asking him to join as an informant, and that he failed to join. (AR 49, 67, 206.) 1414 We find that Del Valle has deliberately and consciously chosen to remain neutral. Del Valle has testified that he is neither of the right nor left and wishes to remain neutral. See Argueta, 759 F.2d at 1397. His actions in El Salvador bespeak his neutral convictions. Aware of the conflict in El Salvador, Del Valle chose a neutral course, and pursued studies and organizing sports within his community. When approached, on several occasions, by the Squadron of Death, he did not accept their invitation to join. Del Valle has therefore made a considered choice to take a neutral stance, Bolanos-Hernandez, 749 F.2d at 1325, 5 and, based upon his past persecution, is likely to be persecuted for maintaining his political neutrality if he returns. 6 IV. Asylum Under Section 208(a) Because we find that petitioner has established, by a clear probability, that it is likely that he will be persecuted if returned, he has also established that he has a well-founded fear of persecution, and is eligible for relief under section 208(a). Bolanos-Hernandez, 749 F.2d at 1322. We therefore remand to the BIA for a determination of whether to grant the requested relief in accordance with the factors listed in 8 C.F.R. § 208.8. CONCLUSION The BIA’s conclusion that Del Valle is not likely to be persecuted if returned is not supported by substantial evidence. Accordingly, the BIA’s denial of relief under section 243(h) is reversed. The BIA’s determination that he is not eligible for relief under section 208(a) is likewise reversed, and this claim remanded for a determination of whether to grant such relief. 1. Section 243(h)(1) provides in pertinent part: The Attorney General shall not deport or return any alien... to a country if the Attorney General determines that such alien’s life or freedom would be threatened in such country on account of race, religion, nationality, 1411 membership in a particular social group, bt^ political opinion. 2. In considering the four requirements for withholding of deportation, the government does not contend that Del Valle would not face persecution by a group which the El Salvadoran government is unable to control, or that petitioner is a security risk. See Zepeda-Melendez, 741 F.2d at 289. The record indicates that Del Valle meets these requirements for withholding of deportation, and accordingly we do not discuss them. 3. It is petitioner’s burden to demonstrate that his statements are credible. Saballo-Cortez, 761 F.2d at 1262. We agree with the BIA that petitioner's statements are credible. Petitioner’s testimony is consistent with the statements in his asylum application. Many of the specifics are corroborated by the testimony of Alva Duran Ramos. His capture is corroborated by letters from home. Newspaper clippings document the murder of his cousin and disappearance of his nephew. 4. The BIA noted that the security forces have not inquired as to Del Valle’s whereabouts since his departure and reasoned that this supports its conclusion that the security forces are satisfied that Del Valle is not a member of the opposition. However, there is no evidence in the record as to whether the security forces have or have not made such inquiries. 5. In Bolanos-Hernandez, we left open the question of whether, absent more, a refusal to join a particular side, constituted an expression of political opinion. 749 F.2d at 1326 n. 18. We now determine that, under this set of facts, Del Valle's refusal, in combination with his deliberate non-involvement prior to his refusal, does evidence such an opinion. 6. This situation contrasts with that in Chavez v. INS, in which the asylum applicant claimed that he would be persecuted because he was a young, urban male who had refused to take sides in the conflict in El Salvador. Because the applicant had not set forth any evidence that he in fact had reason to believe he would be persecuted for his refusal, his asylum claim failed. Chavez, 723 F.2d at 1434. Del Valle has produced specific evidence of past persecution which gives reason to believe he will be once again persecuted if he returns.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	492 U.S. 158	DW, O	Equal Employment Opportunity Commission v. Borden's, Inc.	492 U.S. 158 (1989) PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO v. BETTS No. 88-389. Supreme Court of United States. Argued March 28, 1989 Decided June 23, 1989 APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT 160 Andrew I. Sutter, Assistant Attorney General of Ohio, argued the cause for appellant. With him on the briefs were Anthony J. Celebrezze, Jr., Attorney General, and Nancy J. Miller. Robert F. Laufman argued the cause for appellee. With him on the brief was Alphonse A. Gerhardstein. 161 Christopher J. Wright argued the cause for the Equal Employment Opportunity Commission as amicus curiae urging affirmance. With him on the brief were Acting Solicitor General Bryson, Deputy Solicitor General Merrill, Charles A. Shanor, Gwendolyn Young Reams, and Harry F. Tepker, Jr.[] JUSTICE KENNEDY delivered the opinion of the Court. The Age Discrimination in Employment Act of 1967 (ADEA), 81 Stat. 602, as amended, 29 U. S. C. § 621 et seq. (1982 ed. and Supp. V), forbids arbitrary discrimination by public and private employers against employees on account of age. Under § 4(f)(2) of the Act, 29 U. S. C. § 623(f)(2), however, age-based employment decisions taken pursuant to the terms of "any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of" the Act, are exempt from the prohibitions of the ADEA. In the case before us, we must consider the meaning and scope of the § 4(f)(2) exemption. 162 I A In 1933, the State of Ohio established the Public Employees Retirement System of Ohio (PERS) to provide retirement benefits for state and local government employees. Public employers and employees covered by PERS make contributions to a fund maintained by PERS to pay benefits to covered employees. Under the PERS statutory scheme, two forms of monthly retirement benefits are available to public employees upon termination of their public employment. Age-and-service retirement benefits are paid to those employees who at the time of their retirement (1) have at least 5 years of service credit and are at least 60 years of age; (2) have 30 years of service credit; or (3) have 25 years of service credit and are at least 55 years of age. Ohio Rev. Code Ann. §§ 145.33, 145.34 (1984 and Supp. 1988). Disability retirement benefits are available to employees who suffer a permanent disability, have at least five years of total service credit, and are under the age of 60 at retirement. § 145.35. The requirement that disability retirees be under age 60 at the time of their retirement was included in the original PERS statute, and has remained unchanged since 1959. Employees who take disability retirement are treated as if they are on leave of absence for the first five years of their retirement. Should their medical conditions improve during that time, they are entitled to be rehired. § 145.39. Employees receiving age-and-service retirement, on the other hand, are not placed on leave of absence, but they are permitted to apply for full-time employment with any public employer covered by PERS after 18 months of retirement. Ohio Rev. Code Ann. § 145.381(C) (1984). Once an individual retires on either age-and-service or disability retirement benefits, he or she continues to receive that type of benefit throughout retirement, regardless of age. 163 B Appellee June M. Betts was hired by the Hamilton County Board of Mental Retardation and Developmental Disabilities as a speech pathologist in 1978. The board is a public agency, and its employees are covered by PERS. In 1984, because of medical problems, appellee became unable to perform her job adequately and was reassigned to a less demanding position. Appellee's medical condition continued to deteriorate, however, and by May 1985, when appellee was 61 years of age, her employer concluded that she was no longer able to perform adequately in any employment capacity. Appellee was given the choice of retiring or undergoing medical testing to determine whether she should be placed on unpaid medical leave. She chose to retire, an option which gave her eligibility for age-and-service retirement benefits from PERS. Because she was over 60 at the time of retirement, however, appellee was denied disability retirement benefits, despite her medical condition. Before 1976, the fact that appellee's age disqualified her for disability benefits would have had little practical significance, because the formula for calculating disability benefits was almost the same as the formula used to determine age-and-service benefits. In 1976, however, the PERS statutory scheme was amended to provide that disability retirement payments would in no event constitute less than 30 percent of the disability retiree's final average salary. Ohio Rev. Code Ann. § 145.36 (1984). No such floor applies in the case of employees receiving age-and-service retirement payments. The difference was of much significance in appellee's case: her age-and-service retirement benefits amount to $158.50 per month, but she would have received nearly twice that, some $355 per month, had she been permitted to take disability retirement instead. Appellee filed an age discrimination charge against PERS with the Equal Employment Opportunity Commission 164 (EEOC), and filed suit in the United States District Court for the Southern District of Ohio, claiming that PERS' refusal to grant her application for disability retirement benefits violated the ADEA. The District Court found that PERS' retirement scheme was discriminatory on its face, in that it denied disability retirement benefits to certain employees on account of their age. Betts v. Hamilton County Bd. of Mental Retardation, 631 F. Supp. 1198, 1202-1203 (1986). The court rejected PERS' reliance on § 4(f)(2) of the ADEA, which exempts from the Act's prohibitions certain actions taken in observance of "the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of [the Act]...." 29 U. S. C. § 623(f)(2). Relying on interpretive regulations promulgated by the EEOC, the District Court held that employee benefit plans qualify for the § 4(f)(2) exemption only if any age-related reductions in employee benefits are justified by the increased cost of providing those benefits to older employees. Because the PERS plan provided for a reduction in available benefits at age 60, a reduction not shown to be justified by considerations of increased cost, the court concluded that PERS' plan was not entitled to claim the protection of the § 4(f)(2) exemption. 631 F. Supp., at 1203-1204.[1] A divided panel of the Court of Appeals affirmed. Betts v. Hamilton County Bd. of Mental Retardation and Developmental Disabilities, 848 F. 2d 692 (CA6 1988). The majority agreed with the District Court that the § 4(f)(2) exemption is available only to those retirement plans that can provide age-related cost justifications or "a substantial business purpose" for any age-based reduction in benefits. Id., at 694. The 165 majority rejected PERS' reliance on United Air Lines, Inc. v. McMann, 434 U. S. 192 (1977), which held that retirement plans adopted prior to the enactment of the ADEA need not be justified by any business purpose, concluding that Congress had "expressly repudiated" this decision when it amended the ADEA in 1978. 848 F. 2d, at 694. Because PERS had failed to provide any evidence that its discrimination against older workers was justified by age-related cost considerations, the majority concluded that summary judgment was appropriate. Judge Wellford dissented. Nothing that PERS' plan was adopted long before enactment of the ADEA, he argued that under United Air Lines, Inc. v. McMann, supra, it could not be a "subterfuge to evade the purposes" of the Act. Judge Wellford rejected the EEOC's regulations requiring cost justifications for all age-based reductions in benefits, finding that nothing in the statute's language imposed such a requirement. We noted probable jurisdiction, 488 U. S. 907 (1988), and now reverse. II Under § 4(a)(1) of the ADEA, it is unlawful for an employer "to fail or refuse to hire or discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age." 29 U. S. C. § 623(a)(1). Notwithstanding this general prohibition, however, § 4(f)(2) of the ADEA provides that it is not unlawful for an employer "to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual, and no such... employee benefit plan shall require or permit 166 the involuntary retirement of any individual... because of the age of such individual." 29 U. S. C. § 623(f)(2). On its face, the PERS statutory scheme renders covered employees ineligible for disability retirement once they have attained age 60. Ohio Rev. Code Ann. § 145.35 (1984). PERS' refusal to grant appellee's application for disability benefits therefore qualifies as an action "to observe the terms of" the plan. All parties apparently concede, moreover, that PERS' plan is "bona fide," in that it " `exists and pays benefits.' " McMann, 434 U. S., at 194; see id., at 206-207 (WHITE, J., concurring in judgment). Finally, whatever the precise meaning of the phrase "any... employee benefit plan such as a retirement, pension, or insurance plan," see infra, at 173-175, it is apparent that a disability retirement plan falls squarely within that category. Cf. 29 CFR § 1625.10(f)(1)(ii) (1988). Accordingly, PERS is entitled to the protection of the § 4(f)(2) exemption unless its plan is "a subterfuge to evade the purposes of" the Act.[2] We first construed the meaning of "subterfuge" under § 4(f)(2) in United Air Lines, Inc. v. McMann, supra. In McMann, the employer's retirement plan required employees to retire at the age of 60. After being forced to retire by the terms of the plan, McMann sued under the ADEA, claiming that the forced retirement was a violation of the Act, and that the mandatory retirement provision was not protected by the § 4(f)(2) exemption because it was a subterfuge to evade the purposes of the Act.[3] We rejected both positions. 167 With respect to mandatory retirement, we found that the statutory language and legislative history provided no support for the proposition that Congress intended to forbid age-based mandatory retirement. Turning to the claim that the mandatory retirement provision was a "subterfuge to evade the purposes of" the Act, we rejected the conclusion of the court below that forced retirement on the basis of age must be deemed a subterfuge absent some business or economic purpose for the age-based distinction. Instead, we held that the term "subterfuge" must be given its ordinary meaning as "a scheme, plan, stratagem, or artifice of evasion." Id., at 203. Viewed in this light, the retirement plan at issue could not possibly be characterized as a subterfuge to evade the purposes of the Act, since it had been established in 1941, long before the Act was enacted. As we observed, "[t]o spell out an intent in 1941 to evade a statutory requirement not enacted until 1967 attributes, at the very least, a remarkable prescience to the employer. We reject any such per se rule requiring an employer to show an economic or business purpose in order to satisfy the subterfuge language of the Act." Ibid. As an initial matter, appellee asserts that McMann is no longer good law. She points out that in 1978, less than a year after McMann was decided, Congress amended § 4(f)(2) to overrule McMann's validation of mandatory retirement based on age. See Pub. L. 95-256, § 2(a), 92 Stat. 189. The result of that amendment was the addition of what now is the final clause of § 4(f)(2). The legislative history of the 1978 amendment contains various references to the definition of subterfuge, and according to appellee these reveal clear congressional intent to disapprove the reasoning of McMann. The Conference Committee Report on the 1978 amendment, for example, expressly discusses and rejects McMann, stating that "[p]lan provisions in effect prior to the date of enactment are not exempt under section 4(f)(2) by virtue of the fact that they 168 antedate the act or these amendments." H. R. Conf. Rep. No. 95-950, p. 8 (1978). See also 124 Cong. Rec. 7881 (1978) (remarks of Rep. Hawkins) ("The conferees specifically disagree with the Supreme Court's holding and reasoning in [McMann], particularly its conclusion that an employee benefit plan which discriminates on the basis of age is protected by section 4(f)(2) because it predates the enactment of the ADEA"); id., at 8219 (remarks of Sen. Javits); id., at 7888 (remarks of Rep. Waxman). PERS disputes appellee's interpretation of this legislative history, asserting that it refers only to benefit plans that permit involuntary retirement and not to the more general issue whether a pre-Act plan can be a subterfuge in other circumstances. We need not resolve this dispute, however. The 1978 amendment to the ADEA did not add a definition of the term "subterfuge" or modify the language of § 4(f)(2) in any way, other than by inserting the final clause forbidding mandatory retirement based on age. We have observed no more than one occasion that the interpretation given by one Congress (or a committee or Member thereof) to an earlier statute is of little assistance in discerning the meaning of that statute. See Weinberger v. Rossi, 456 U. S. 25, 35 (1982); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U. S. 102, 118, and n. 13 (1980); United States v. Southwestern Cable Co., 392 U. S. 157, 170 (1968); Rainwater v. United States, 356 U. S. 590, 593 (1958); see also McMann, supra, at 200, n. 7. Congress changed the specific result of McMann by adding a final clause to § 4(f)(2), but it did not change the controlling, general language of the statute. As Congress did not amend the relevant statutory language, we see no reason to depart from our holding in McMann that the term "subterfuge" is to be given its ordinary meaning, and that as a result an employee benefit plan adopted prior to enactment of the ADEA cannot be a subterfuge. See EEOC v. Cargill, Inc., 855 F. 2d 682, 686 (CA10 1988); EEOC v. County of Orange, 837 F. 2d 420, 422 (CA9 1988). 169 According to PERS, our reaffirmation of McMann should resolve this case. The PERS system was established by statute in 1933, and the rule that employees over age 60 may not qualify for disability retirement benefits has remained unchanged since 1959. The ADEA was not made applicable to the States until 1974. See Pub. L. 93-259, § 28(a)(2), 88 Stat. 74, codified at 29 U. S. C. § 630(b)(2). Since the age-60 requirement predates application of the ADEA to PERS, PERS argues that, under McMann, its plan cannot be a subterfuge to evade the purposes of the ADEA. While McMann remains of considerable relevance to our decision here, we reject the argument that it is dispositive. It is true that the age-60 rule was adopted before 1974, and is thus insulated under McMann from challenge as a subterfuge. The plan provision attacked by appellee, however, is the rule that disability retirees automatically receive a minimum of 30 percent of their final average salary upon retirement, while disabled employees who retire after age 60 do not. The 30 percent floor was not added to the plan until 1976, and to the extent this new rule increased the age-based disparity caused by the pre-Act age limitation, McMann does not insulate it from challenge. See EEOC v. Cargill, supra, at 686, n. 4; EEOC v. County of Orange, supra, at 423; EEOC v. Home Ins. Co., 672 F. 2d 252, 259, and n. 9 (CA2 1982). No "remarkable prescience" would have been required of PERS in 1976 for it to formulate the necessary intent to evade the ADEA, and thus the automatic rule of McMann is inapplicable. See 434 U. S., at 203. Accordingly, we must turn to an inquiry into the precise meaning of the § 4(f)(2) exemption in the context of post-Act plans. III Appellee and her amici say that § 4(f)(2) protects age-based distinctions in employee benefit plans only when justified by the increased cost of benefits for older workers. They cite an interpretive regulation promulgated by the Department 170 of Labor, the agency initially charged with enforcing the Act, in 1979. 44 Fed. Reg. 30658-30662 (1979), codified at 29 CFR § 860.120 (1980), redesignated 29 CFR § 1625.10 (1988). The regulation recites that the purpose of the exemption "is to permit age-based reductions in employee benefit plans where such reductions are justified by significant cost considerations," and that "benefit levels for older workers may be reduced to the extent necessary to achieve approximate equivalency in cost for older and younger workers." § 1625.10(a)(1). With respect to disability benefits in particular, the regulation provides that "[r]eductions on the basis of age in the level or duration of benefits available for disability are justifiable only on the basis of age-related cost considerations...." § 1625.10(f)(1)(ii). Under these provisions, employers may reduce the value of the benefits provided to older workers as necessary to equalize costs for workers of all ages, but they cannot exclude older workers from the coverage of their benefit plans altogether. The requirement that employers show a cost-based justification for age-related reductions in benefits appears nowhere in the statute itself. The EEOC as amicus contends that this rule can be drawn either from the statutory requirement that age-based distinctions in benefit plans not be a subterfuge to evade the purposes of the Act, or from the portion of § 4(f)(2) limiting its scope to actions taken pursuant to "any bona fide employee benefit plan such as a retirement, pension, or insurance plan." Brief for EEOC as Amicus Curiae 9-14. We consider these alternatives in turn. A The regulations define "subterfuge" as follows: "In general, a plan or plan provision which prescribes lower benefits for older employees on account of age is not a `subterfuge' within the meaning of section 4(f)(2), provided that the lower level of benefits is justified by age-related cost considerations." 29 CFR § 1625.10(d) (1988). Various lower courts 171 have accepted this definition. E. g., EEOC v. Mt. Lebanon, 842 F. 2d 1480, 1489 (CA3 1988); see also Cipriano v. Board of Education of North Tonawanda School Dist., 785 F. 2d 51, 57-58 (CA2 1986). As the analysis in McMann makes apparent, however, this approach to the definition of subterfuge cannot be squared with the plain language of the statute. Although McMann's holding, that pre-Act plans can never be a subterfuge, is not dispositive here, its reasoning is nonetheless controlling, for we stated in that case that "subterfuge" means "a scheme, plan, stratagem, or artifice of evasion," which, in the context of § 4(f)(2), connotes a specific "intent... to evade a statutory requirement." 434 U. S., at 203. The term thus includes a subjective element that the regulation's objective cost-justification requirement fails to acknowledge. Ignoring this inconsistency with the plain language of the statute, appellee and the EEOC suggest that the regulation represents a contemporaneous and consistent interpretation of the ADEA by the agencies responsible for the Act's enforcement and is therefore entitled to special deference. See EEOC v. Associated Dry Goods Corp., 449 U. S. 590, 600, n. 17 (1981); see also Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984). But, of course, no deference is due to agency interpretations at odds with the plain language of the statute itself. Even contemporaneous and longstanding agency interpretations must fall to the extent they conflict with statutory language. Contrary to the suggestion of the EEOC and appellee, moreover, the cost-justification requirement was not adopted contemporaneously with enactment of the ADEA. The cost-justification rule had its genesis in an interpretive bulletin issued by the Department of Labor in January 1969. 34 Fed. Reg. 322, 323, codified at 29 CFR § 860.120(a) (1970). To be sure, that regulation provided that plans which reduced benefits on the basis of age would "be considered in compliance with the statute" if the benefit reductions were justified 172 by age-related cost considerations, but it did not purport to exclude from the § 4(f)(2) exemption all plans that could not meet a cost-justification requirement.[4] Rather, this original version of the cost-justification rule was nothing more than a safe harbor, a nonexclusive objective test for employers to use in determining whether they could be certain of qualifying for the § 4(f)(2) exemption. It was not until 1979 that this regulatory safe harbor was transformed into the exclusive means of escaping classification as a subterfuge. Appellee and her amici rely in large part on the legislative history of the ADEA and the 1978 amendments. In view of our interpretation of the plain statutory language of the subterfuge requirement, however, this reliance on legislative history is misplaced. See Davis v. Michigan Dept. of Treasury, 489 U. S. 803, 808, n. 3 (1989); McMann, 434 U. S., at 199. The "subterfuge" exception to the § 4(f)(2) exemption cannot be limited in the manner suggested by the regulation. 173 B The second possible source of authority for the cost-justification rule is the statute's requirement that the § 4(f)(2) exemption be available only in the case of "any bona fide employee benefit plan such as a retirement, pension, or insurance plan." The EEOC argues, and some courts have held, that the phrase "such as a retirement, pension, or insurance plan" is intended to limit the protection of § 4(f)(2) to those plans which have a cost justification for all age-based differentials in benefits. See EEOC v. Westinghouse Electric Corp., 725 F. 2d 211, 224 (CA3 1983), cert. denied, 469 U. S. 820 (1984); EEOC v. Borden's, Inc., 724 F. 2d 1390, 1396 (CA9 1984). The argument is as follows: the types of plans listed in the statute share the common characteristic that the cost of the benefits they provide generally rises with the age of their beneficiaries. This common characteristic suggests that Congress intended the § 4(f)(2) exemption to cover only those plans in which costs rise with age. The obvious explanation for the limitation on the scope of § 4(f)(2), the argument continues, is that the purpose of the exemption is to permit employers to reduce overall benefits paid to older workers only to the extent necessary to equalize costs for older and younger workers. There are a number of difficulties with this explanation for the cost-justification requirement. Perhaps most obvious, it requires us to read a great deal into the language of this clause of § 4(f)(2), language that appears on its face to be nothing more than a listing of the general types of plans that fall within the category of "employee benefit plan." The statute's use of the phrase "any employee benefit plan" seems to imply a broad scope for the statutory exemption, and the "such as" clause suggests enumeration by way of example, not an exclusive listing. Nor is it by any means apparent 174 that the types of plans mentioned were intentionally selected because the cost to the employer of the benefits provided by these plans tends to increase with age. Indeed, many plans that fall within these categories do not share that particular attribute at all, defined-contribution pension plans perhaps being the most obvious example.[5] We find it quite difficult to believe that Congress would have chosen such a circuitous route to the result urged by appellee and the EEOC. The interpretation is weakened further by the fact that the regulation itself does not support it. According to 29 CFR § 1625.10(b) (1988), "[a]n `employee benefit plan' is a plan, such as a retirement, pension, or insurance plan, which provides employees with what are frequently referred to as `fringe benefits.' " This definition makes no mention of the limitation urged by the EEOC, and indeed seems sufficiently broad to encompass a wide variety of plans providing fringe benefits to employees, regardless of whether the cost of those benefits increases with age. The regulation's discussion of the cost-justification requirement is reserved for the subsection defining "subterfuge." § 1625.10(d).[6] Under these 175 circumstances, this aspect of the EEOC's argument is entitled to little, if any, deference. Cf. Bowen v. Georgetown University Hospital, 488 U. S. 204, 212-213 (1988). For these reasons, we conclude that the phrase "any bona fide employee benefit plan such as a retirement, pension, or insurance plan" cannot reasonably be limited to benefit plans in which all age-based reductions in benefits are justified by age-related cost considerations. Accordingly, the interpretive regulation construing § 4(f)(2) to include a cost-justification requirement is contrary to the plain language of the statute and is invalid. IV Having established that the EEOC's definition of subterfuge is invalid, we turn to the somewhat more difficult task of determining the precise meaning of the term as applied to post-Act plans. We begin, as always, with the language of the statute itself. The protection of § 4(f)(2) is unavailable to any employee benefit plan "which is a subterfuge to evade the purposes of" the Act. As set forth in § 2(b) of the ADEA, the purposes of 176 the Act are "to promote employment of older persons based on their ability rather than age; to prohibit arbitrary age discrimination in employment; to help employers and workers find ways of meeting problems arising from the impact of age on employment." 29 U. S. C. § 621(b). On the facts of this case, the only purpose that the PERS plan could be a "subterfuge to evade" is the goal of eliminating "arbitrary age discrimination in employment." As the presence of the various exemptions and affirmative defenses contained in § 4(f) illustrates, Congress recognized that not all age discrimination in employment is "arbitrary." In order to determine the type of age discrimination that Congress sought to eliminate as arbitrary, we must look for guidance to the substantive prohibitions of the Act itself, for these provide the best evidence of the nature of the evils Congress sought to eradicate. Indeed, our decision in McMann compels this approach, for it rejected the contention that the purposes of the Act can be distinguished from the Act itself: "The distinction relied on is untenable because the Act is the vehicle by which its purposes are expressed and carried out; it is difficult to conceive of a subterfuge to evade the one which does not also evade the other." 434 U. S., at 198. Accordingly, a post-Act plan cannot be a subterfuge to evade the ADEA's purpose of banning arbitrary age discrimination unless it discriminates in a manner forbidden by the substantive provisions of the Act. Section 4(a), the ADEA's primary enforcement mechanism against age discrimination by employers, forbids employers "(1) to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age; "(2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely 177 affect his status as an employee, because of such individual's age; or "(3) to reduce the wage rate of any employee in order to comply with this chapter." 29 U. S. C. § 623(a). The phrase "compensation, terms, conditions, or privileges of employment" in § 4(a)(1) can be read to encompass employee benefit plans of the type covered by § 4(f)(2). Such an interpretation, however, would in effect render the § 4(f) (2) exemption nugatory with respect to post-Act plans. Any benefit plan that by its terms mandated discrimination against older workers would also be facially irreconcilable with the prohibitions in § 4(a)(1) and, therefore, with the purposes of the Act itself. It is difficult to see how a plan provision that expressly mandates disparate treatment of older workers in a manner inconsistent with the purposes of the Act could be said not to be a subterfuge to evade those purposes, at least where the plan provision was adopted after enactment of the ADEA. On the other hand, if § 4(f)(2) is viewed as exempting the provisions of a bona fide benefit plan from the purview of the ADEA so long as the plan is not a method of discriminating in other, non-fringe-benefit aspects of the employment relationship, both statutory provisions can be given effect. This interpretation of the ADEA would reflect a congressional judgment that age-based restrictions in the employee benefit plans covered by § 4(f)(2) do not constitute the "arbitrary age discrimination in employment" that Congress sought to prohibit in enacting the ADEA. Instead, under this construction of the statute, Congress left the employee benefit battle for another day, and legislated only as to hiring and firing, wages and salaries, and other non-fringe-benefit terms and conditions of employment. To be sure, this construction of the words of the statute is not the only plausible one. But the alternative interpretation would eviscerate § 4(f)(2). As JUSTICE WHITE wrote in his separate concurrence in McMann, "[b]ecause all retirement 178 plans necessarily make distinctions based on age, I fail to see how the subterfuge language, which was included in the original version of the bill and was carried all the way through, could have been intended to impose a requirement which almost no retirement plan could meet." 434 U. S., at 207. Not surprisingly, the legislative history does not support such a self-defeating interpretation, but to the contrary shows that Congress envisioned a far broader role for the § 4(f)(2) exemption. When S. 830, the bill that was to become the ADEA, was originally proposed by the administration in January 1967, it contained no general exemption for benefit plans that differentiated in benefits based on age.[7] Senator Javits, one of the principal moving forces behind enactment of age discrimination legislation, generally favored the administration's bill, but believed that a broader exemption for employee benefit plans was needed. Accordingly, he proposed an amendment substantially along the lines of present-day § 4(f)(2). 113 Cong. Rec. 7077 (1967). One factor motivating Senator Javits' amendment was the concern that, absent some exemption for benefit plans, the Act might "actually encourage employers, faced with the necessity of paying greatly increased premiums, to look for excuses not to hire older workers when they might have done so under a law granting them a degree of flexibility with respect to such matters." Id., at 7076.[8] Reducing the cost of 179 hiring older workers was not the only purpose of the proposed amendment, however. Its goals were far more comprehensive. As Senator Javits put it, "the age discrimination law is not the proper place to fight" the battle of ensuring "adequate pension benefits for older workers," and § 4(f)(2) was therefore intended to be "a fairly broad exemption... for bona fide retirement and seniority systems." Ibid. Later, referring to the effect of his proposed amendment on the provisions of employee benefit plans, Senator Javits stated that "[i]f the older worker chooses to waive all of those provisions, then the older worker can obtain the benefits of this act...." Id., at 31255. And finally, in his individual views accompanying the Senate Report on S. 830, Senator Javits observed: "I believe the bill has also been improved by the adoption of language, based on an amendment which I had offered, exempting the observance of bona fide seniority systems and retirement, pension, or other employment benefit plans from its prohibitions." S. Rep. No. 723, 90th Cong., 1st Sess., 14 (1967) (emphasis added). Other Members of Congress expressed similar views. Senator Yarborough, the principal sponsor and floor manager of the administration bill, observed that § 4(f)(2), "when it refers to retirement, pension, or insurance plan,... means that a man who would not have been employed except for this law does not have to receive the benefits of the plan." 113 Cong. Rec. 31255 (1967). Indeed, at least one Congressman opposed the ADEA precisely because it permitted employers to exclude older employees from participation in benefit plans altogether when the terms of the plans mandated that result. Id., at 34745 (remarks of Rep. Smith). While the Committee Reports on the ADEA do not address the matter in any detail, they do state that § 4(f)(2) "serves to emphasize the primary purpose of the bill hiring of older workers by permitting employment without necessarily including such workers in employee benefit plans." S. Rep. No. 723, supra, at 4; H. R. Rep. No. 805, 90th 180 Cong., 1st Sess., 4 (1967). That explanation does not support a narrow reading of the § 4(f)(2) exemption. The Committee Reports, moreover, refute a reading of § 4(f)(2) that would limit its protection to pre-Act plans, for they make it clear that the exemption "applies to new and existing employee benefit plans, and to both the establishment and maintenance of such plans." S. Rep. No. 723, supra, at 4; H. R. Rep. No. 805, supra, at 4. In short, the legislative history confirms that the broader reading of § 4(f)(2) is the correct one, and that Congress intended to exempt employee benefit plans from the coverage of the Act except to the extent plans were used as a subterfuge for age discrimination in other aspects of the employment relation. While this result permits employers wide latitude in structuring employee benefit plans, it does not render the "not a subterfuge" proviso a dead letter. Any attempt to avoid the prohibitions of the Act by cloaking forbidden discrimination in the guise of age-based differentials in benefits will fall outside the § 4(f)(2) exemption. Examples of possible violations of this kind can be given. Under § 4(d) of the ADEA, for example, it is unlawful for an employer to discriminate against an employee who has "opposed any action made unlawful by" the Act or has participated in the filing of any age-discrimination complaints or litigation. Nothing in § 4(f)(2) would insulate from liability an employer who adopted a plan provision formulated to retaliate against such an employee. See 29 CFR § 1625.10(d)(5) (1988). Similarly, while § 4(f)(2) generally protects age-based reductions in fringe benefits, an employer's decision to reduce salaries for all employees while substantially increasing benefits for younger workers might give rise to an inference that the employer was in fact utilizing its benefits plan as a subterfuge for age-based discrimination in wages, an activity forbidden by § 4(a)(1). These examples are not exhaustive, but suffice to illustrate the not-insignificant protections provided to older employees by the subterfuge proviso in the § 4(f)(2) exemption. 181 V As construed above, § 4(f)(2) is not so much a defense to a charge of age discrimination as it is a description of the type of employer conduct that is prohibited in the employee benefit plan context. By requiring a showing of actual intent to discriminate in those aspects of the employment relationship protected by the provisions of the ADEA, § 4(f)(2) redefines the elements of a plaintiff's prima facie case instead of establishing a defense to what otherwise would be a violation of the Act. Thus, when an employee seeks to challenge a benefit plan provision as a subterfuge to evade the purposes of the Act, the employee bears the burden of proving that the discriminatory plan provision actually was intended to serve the purpose of discriminating in some non-fringe-benefit aspect of the employment relation. This result is supported by our longstanding interpretation of the analogous provision of Title VII, the statute from which "the prohibitions of the ADEA were derived in haec verba." Lorillard v. Pons, 434 U. S. 575, 584 (1978). Section 703(h) of Title VII states that "[n]otwithstanding any other provision of this subchapter, it shall not be an unlawful employment practice for an employer to apply different standards of compensation, or different terms, conditions, or privileges of employment pursuant to a bona fide seniority... system,... provided that such differences are not the result of an intention to discriminate because of race, color, religion, sex, or national origin...." 42 U. S. C. § 2000e-2(h). Despite the fact that § 703(h), like § 4(f)(2), appears on first reading to describe an affirmative defense, we have "regarded [§ 703(h)] not as a defense... but as a provision that itself `delineates which employment practices are illegal and thereby prohibited and which are not.' " Lorance v. AT&T Technologies, Inc., 490 U. S. 900, 908 (1989) (quoting Franks 182 v. Bowman Transportation Co., 424 U. S. 747, 758 (1976)). Although the use of the phrase "subterfuge to evade the purposes of [the Act]" in § 4(f)(2) renders the scope of its protection for employee benefit plans broader than the scope of the protection for seniority systems provided by § 703(h), the similar structure and purpose of the two provisions supports the conclusion that ADEA plaintiffs must bear the burden of showing subterfuge. Applying this structure to the facts here, it follows that PERS' disability retirement plan is the type of plan subject to the § 4(f)(2) exemption, and PERS' refusal to grant appellee's request for disability benefits was required by the terms of the plan. Because appellee has failed to meet her burden of proving that the reduction in benefits at age 60 was the result of an intent to discriminate in some non-fringe-benefit aspect of the employment relation, summary judgment for appellee was inappropriate. On remand, the District Court should give appellee an opportunity to demonstrate the existence of a genuine issue of material fact on this issue. See Celotex Corp. v. Catrett, 477 U. S. 317 (1986). The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion. It is so ordered. JUSTICE MARSHALL, with whom JUSTICE BRENNAN joins, dissenting. The majority today immunizes virtually all employee benefit programs from liability under the Age Discrimination in Employment Act of 1967 (ADEA or Act), 29 U. S. C. § 621 et seq. (1982 ed. and Supp. V). Henceforth, liability will not attach under the ADEA even if an employer is unable to put forth any justification for denying older workers the benefits younger ones receive, and indeed, even if his only reason for discriminating against older workers in benefits is his abject hostility to, or his unfounded stereotypes, of them. In reaching this surprising result, the majority casts aside the estimable 183 wisdom of all five Courts of Appeals to consider the ADEA's applicability to benefit programs, of the two federal agencies which have administered the Act, and of the Acting Solicitor General on behalf of the Equal Employment Opportunity Commission (EEOC) as amicus curiae, all of whom have concluded that it contravenes the text and history of the Act to immunize discrimination against older workers in benefit plans which is not justified by any business purpose. Agreeing with these authorities, and finding the majority's "plain language" interpretation impossibly tortured and antithetical to the ADEA's goal of eradicating baseless discrimination against older workers, I dissent. It is common ground that appellant Public Employees Retirement System of Ohio (PERS) discriminated against appellee June Betts on account of her age. Ante, at 163-165. Had Betts become disabled before, rather than after, turning 60, PERS would be paying her $355.02 a month in disability benefits for the rest of her life, more than double the $158.50 a month she is now entitled to collect. It is also common ground that PERS' facially discriminatory provision was enacted after the ADEA's passage in 1967, and therefore is subject to the Act's broad antidiscrimination command, § 4(a)(1), 29 U. S. C. § 623(a)(1), ante, at 169,[1] and that PERS is liable to Betts for the difference between the monthly sums noted above unless PERS' benefit plan falls within the § 4(f)(2) exemption, 29 U. S. C. § 623(f)(2). Ante, at 165-166. Finally, it is common ground that, based on PERS' refusal to offer any explanation for the age-specific benefits it provides, its disparate treatment of older employees lacked any business justification whatsoever; indeed, the cost to PERS of its disability plan varied not at all with an employee's age. Ante, 184 at 164-165.[2] For want of a better explanation, one is left to conclude that PERS denied benefits to those employees who became disabled after turning 60 solely because it wished to cut its overall disability outlays and that PERS viewed older workers as a convenient target for its budgetary belt tightening. This case thus presents the issue whether a benefit plan which arbitrarily imposes disparate burdens on older workers can claim succor under § 4(f)(2) from age discrimination liability. The majority arrives at the novel conclusion that the ADEA exempts from liability all discriminatory benefit programs, regardless of their justification, unless the discrimination implicates aspects of the employment relationship unrelated to the provision of benefits, and then only if the discrimination violates "the substantive provisions of the Act." Ante, at 176. The majority acknowledges that this reading shelters from the ADEA's purview all but a few hypothetical types of benefit plan age discrimination,[3] leaving older workers unprotected from baseless discrimination insofar as it affects the often considerable portion of overall compensation comprised by employee benefits. Ante, at 177, 181. The majority thus scuttles the heretofore consensus, and in my view correct, interpretation that the § 4(f)(2) exemption 185 is limited to those programs whose disparate treatment is justified by a plausible business purpose. To reach the result it does, the majority uses an interpretive methodology, purportedly one parsing § 4(f)(2)'s "plain language," which is so manipulative as virtually to invite the charge of result-orientation. Ordinarily, we ascertain the meaning of a statutory provision by looking to its text, and, if the statutory language is unclear, to its legislative history. Blum v. Stenson, 465 U. S. 886, 896 (1984). Where these barometers offer ambiguous guidance as to Congress' intent, we defer to the interpretations of the provision articulated by the agencies responsible for its enforcement, so long as these agency interpretations are "based on a permissible construction of the statute." Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 843 (1984); see also Bethesda Hospital Assn. v. Bowen, 485 U. S. 399, 403 (1988); K mart Corp. v. Cartier, Inc., 486 U. S. 281, 291 (1988). Eschewing this approach, the majority begins its analysis not by seeking to glean meaning from the statute, but by launching a no-holds-barred attack on the business purpose reading of § 4(f)(2). Ante, at 169-170. Disaggregating the sentence that is § 4(f)(2)[4] into two portions, the majority concludes that the business purpose test is irreconcilable with the "plain language" of the "subterfuge" portion, ante, at 170-172, and also cannot be inferred from the text of the portion enumerating types of employee benefit plans, ante, at 173-175. En route to interring the consensus interpretation of § 4(f)(2), the majority pauses not a moment on the provision's 186 purposes or legislative history. Only after burial, and almost by afterthought, does the majority attempt to come up with its own interpretation of the exemption, hastily proceeding to divine the capacious alternative reading outlined earlier. There are deep problems with the majority's interpretive methodology, chief among them its unwillingness to apply the same unforgiving textual analysis to its reading of the § 4(f)(2) exemption as it does to the consensus reading, and its selective use of legislative history to suggest that Congress contemplated the draconian interpretation of § 4(f)(2) the majority divines. A conventional analysis of § 4(f)(2) illuminates these methodological lapses, and yields a very different result. Beginning with the text, the only thing plain about § 4(f) (2)'s spare language is that it offers no explicit command as to what heuristic test those applying it should use. In dispatching the consensus reading, the majority makes much of the fact that "[t]he requirement that employers show a cost-based justification for age-related reductions in benefits appears nowhere in the statute itself." Ante, at 170. This truism, is, however, equally applicable to the complex construction the majority adopts, under which all but certain limited species of benefit plan discrimination are exempted from the ADEA, and under which the burden of proving nonexemption is shouldered by the ADEA plaintiff.[5] Indeed, 187 the fact that § 4(f)(2) enumerates various types of benefit programs eligible for exemption from the ADEA's nondiscrimination command but makes no mention of disability programs strongly undercuts the majority's assertion that the text compels exemption here. This is a case in which only so much blood can be squeezed from the textual stone, and in which one therefore must turn to other sources of statutory meaning. The structure of § 4(f)(2), on the other hand, provides considerable support for the business purpose interpretation. The majority views § 4(f)(2) as involving two separate clauses, with the first enumerating, for no apparent reason, three types of benefit plans, and the second, the "subterfuge" clause, making § 4(f)(2)'s exemption applicable except where a benefit plan is created with a "specific `intent... to evade' " the ADEA. Ante, at 171 (citation omitted). This reading has the perverse consequence of denying the § 4(f)(2) exemption only to subtle acts of discrimination effected through a stratagem or other artifice of discrimination, while leaving it intact for those age-based distinctions like PERS which, though arbitrary, are so brazenly discriminatory in disentitling older workers to benefits that they cannot possibly warrant the "subterfuge" characterization. It is difficult to believe that Congress, in passing the ADEA, intended to immunize acts of unabashed discrimination against older workers. A far more sensible structural interpretation regards the § 4(f)(2) sentence as a synthetic whole. Under this reading, the initial enumeration of "a retirement, pension, or insurance plan" serves a concrete purpose: it gives content to the ensuing word "subterfuge." All the enumerated benefit plans commonly indeed, almost invariably entail costs that rise with the age of the beneficiary; thus, an employer whose benefit plan treats older workers less favorably than 188 younger ones though spending the same amount on each employee, typically has a cost-based reason for doing so. By this reading, an employer with an economic justification cannot properly be viewed as having resorted to subterfuge to evade the ADEA's command against irrelevant age distinctions. Unlike the majority's artificial bifurcation of § 4(f)(2), this holistic interpretation does not excuse express acts of unjustified age discrimination like PERS', while punishing only evasive or subtle discrimination. Significantly, all the Courts of Appeals to consider § 4(f)(2) have concluded that the enumeration of benefit plans where age and cost generally correlate sheds considerable light on the scope of the exemption.[6] And once the possibility of this interpretation is admitted, the majority's sole ground for rejecting the business purpose interpretation that it clashes with the "plain language of the statute," ante, at 171 necessarily falls away. The majority's reliance on the text of the statute as a basis for rejecting the business purpose test is, finally, made puzzling in light of its concession that its "construction of the words of the statute is not the only plausible one." Ante, at 177. It is difficult to avoid the conclusion that the majority is using two different standards of textual analysis: the business purpose interpretation fails because the plain language 189 of the statute does not command it, but the majority's interpretation succeeds because the plain language of the statute does not preclude it. Given, then, that some ambiguity remains under any fair reading of § 4(f)(2)'s text and structure, it therefore is appropriate to consult its legislative history. This history convincingly supports the holistic reading and the business purpose interpretation derived therefrom. As initially introduced by Senator Ralph Yarborough in 1967, § 4(f)(2) did not recognize any circumstances that might authorize age discrimination in the provision of fringe benefits. Instead, it sheltered only the employer who "separate[s] involuntarily an employee under a retirement policy or system where such policy or system is not merely a subterfuge to evade the purposes of this Act." S. 830, 90th Cong., 1st Sess. (1967).[7] Several Senators, however, led by Senator Jacob Javits, urged that employers, in fashioning benefit programs, be allowed to consider cost differentials between benefits provided to older employees and those provided to younger ones. During Senate hearings on the bill which became the ADEA, Senator Javits criticized the initial version of § 4(f)(2), stating that that version did "not provide any flexibility in the amount of pension benefits payable to older workers depending on their age when hired." Age Discrimination in Employment: Hearings on S. 830 and S. 788 before the Subcommittee on Labor of the Senate Committee on Labor and Public Welfare, 90th Cong., 1st Sess., 27 (1967). Employers "faced with the necessity of paying greatly increased premiums," Senator Javits feared, might "look for excuses not 190 to hire older workers." Ibid. Senator George Smathers, a cosponsor of the initial bill, acknowledged in response that the bill would not permit employers to vary benefit levels to take into account the greater expense of providing some fringe benefits to older workers. Id., at 29-30. He proposed amending it to permit such variations. The following day, Senator Javits proposed, as a means of incorporating his and Senator Smathers' concerns, an amendment which incorporated essentially the present language enumerating specific types of benefit plans. 113 Cong. Rec. 7077 (1967). The Javits proposal, which was ultimately adopted and which underwent only peripheral changes before the Act's enactment, was designed to ensure, in its sponsor's words, that "an employer will not be compelled to afford older workers exactly the same pension, retirement, or insurance benefits as younger workers and thus employers will not, because of the often extremely high cost of providing certain types of benefits to older workers, actually be discouraged from hiring older workers." 113 Cong. Rec. 31254-31255 (1967) (emphasis added). The history of § 4(f)(2) militates in favor of the business purpose interpretation in several respects. First, it demonstrates that the sponsors of the exemption intended to protect benefit plans with economic justifications for treating older workers disparately, and did not intend categorically to immunize benefit plans from liability for unjustified discrimination. See FEA v. Algonquin SNG, Inc., 426 U. S. 548, 564 (1976) (statements of sponsors "deserv[e] to be accorded substantial weight in interpreting the statute").[8]191 Second, this history undercuts the majority's contention that the § 4(f)(2) term "subterfuge to evade the purposes of the Act" supports the broad exemption of benefit plans from coverage. That phrase predated the Javits amendment, and was part of the bill when it did not authorize any age-based discrimination in the provision of benefits. The language broadening the exemption must come instead from the enumeration language added at Senator Javits' behest, language most properly read to import only the business purpose test. Third, at no point during the debate on § 4(f)(2) did any legislator come even remotely close to endorsing the construction of § 4(f)(2) chosen by the majority. This silence is hardly surprising, given that an unqualified exemption contravenes Congress' overarching goal in passing the ADEA of protecting older workers against arbitrary discrimination. The business purpose test, on the other hand, advances this goal, playing the hardly radical role of ensuring that, where no justification exists for disparate age-based treatment, older workers are not saddled with burdens that should be shared by all workers or by their employer.[9] 192 Even if I did not strongly believe that the text and structure of the § 4(f)(2) exemption, as informed by its legislative history, limit the exemption to benefit plans whose discrimination against older workers rests on some business justification, I would still conclude that adoption of the business purpose test is mandated under Chevron's admonishment to defer to enforcement agencies' reasonable interpretations of ambiguous statutory provisions. See Western Air Lines, Inc. v. Criswell, 472 U. S. 400, 412 (1985) (deferring to Department of Labor and EEOC on interpretation of ADEA). Shortly after the ADEA's passage, the Department of Labor, which originally administered the Act, interpreted § 4(f)(2) to allow employers to discriminate on the basis of age in the provision of employee benefits, but only where providing such benefits was more expensive for older workers. See 29 CFR § 860.120(a) (1970). Where cost did not vary with age, the Department of Labor concluded, § 4(f)(2) did not exempt from ADEA scrutiny discriminatory benefit programs. See § 860.120(b) ("Not all employee benefit plans, but only those similar to the kind enumerated in section 4(f)(2) of the Act come within this provision," and thus profit-sharing and other plans lacking an economic basis for discriminating against older workers were not exempted by § 4(f)(2)); 34 Fed. Reg. 193 9709 (1969) (same).[10] The EEOC, to which responsibility for enforcing the ADEA was transferred in 1979, adopted in toto Labor's business purpose interpretation of § 4(f)(2). The EEOC's regulations state that § 4(f)(2)'s purpose "is to permit age-based reductions in employee benefit plans where such reductions are justified by significant cost considerations." 29 CFR § 1625.10(a)(1) (1988) (emphasis added).[11] The majority's derogation of this dual agency interpretation leaves one to wonder why, when important civil rights laws are at issue, the Court fails to adhere with consistency to its so often espoused policy of deferring to expert agency judgment on ambiguous statutory questions. See, e. g., General Electric 194 Co. v. Gilbert, 429 U. S. 125, 155-156 (1976) (BRENNAN, J., dissenting). The majority today puts aside conventional tools of statutory construction and, relying instead on artifice and invention, arrives at a draconian interpretation of the ADEA which Congress most assuredly did not contemplate, let alone share, in 1967, in 1978, or now. Because I cannot accept that it is the ADEA's command to give employers a free hand to fashion discriminatory benefit programs, I dissent. NOTES [*] Briefs of amici curiae urging reversal were filed for the Commonwealth of Pennsylvania et al. by LeRoy S. Zimmerman, Attorney General of Pennsylvania, Susan J. Forney, Senior Deputy Attorney General, and John G. Knorr III, Chief Deputy Attorney General, and by the Attorneys General for their respective States as follows: Grace Berg Schaible of Alaska, Joseph I. Lieberman of Connecticut, Warren Price III of Hawaii, Cary Edwards of New Jersey, Kenneth O. Eikenberry of Washington, and Charles G. Brown of West Virginia; for the Association of Private Pension and Welfare Plans by Paul J. Ondrasik, Jr.; for the Equal Employment Advisory Council by Robert E. Williams, Douglas S. McDowell, and Ann Elizabeth Reesman; and for the National Public Employers Labor Relations Association by Glen G. Nager and Andrew M. Kramer. Christopher G. Mackaronis and Cathy Ventrell-Monsees filed a brief for the American Association of Retired Persons as amicus curiae urging affirmance. John K. Van de Kamp, Attorney General of California, N. Eugene Hill, Assistant Attorney General, Henry G. Ullerich, Supervising Deputy Attorney General, and Silvia M. Diaz, Deputy Attorney General, filed a brief for the California State Teachers' Retirement System as amicus curiae. [1] The District Court also found that PERS' disability retirement plan was not covered by § 4(f)(2) because PERS' actions were not taken pursuant to the terms of the plan, and because the plan impermissibly permits or requires involuntary retirement on the basis of age. 631 F. Supp., at 1204-1205. [2] As a result of the 1978 amendments, § 4(f)(2) cannot be used to justify forced retirement on account of age. Appellee contends, and the District Court found, that appellee was forced to retire under the terms of PERS' plan, and that as a result § 4(f)(2) is unavailable to PERS. The Court of Appeals did not address this question, and we express no opinion on it, leaving its resolution to that court on remand. [3] When McMann was decided, § 4(f)(2) did not contain the final clause excluding from its protection benefit plans that "require or permit the involuntary retirement of any individual... because of the age of such individual." [4] As originally promulgated in January 1969, the regulation provided: "Section 4(f)(2) of the Act provides that it is not unlawful for an employer, employment agency, or labor organization `to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this Act, except that no such employee benefit plan shall excuse the failure to hire any individual....' Thus, an employer is not required to provide older workers who are otherwise protected by the law with the same pension, retirement or insurance benefits as he provides to younger workers, so long as any differential between them is in accordance with the terms of a bona fide benefit plan. For example, an employer may provide lesser amounts of insurance coverage under a group insurance plan to older workers than he does to younger workers, where the plan is not a subterfuge to evade the purposes of the Act. A retirement, pension or insurance plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred, in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of pension or retirement benefits, or insurance coverage." 29 CFR § 860.120(a) (1970). [5] A defined contribution plan is one in which "the employer's contribution is fixed and the employee receives whatever level of benefits the amount contributed on his behalf will provide." Alabama Power Co. v. Davis, 431 U. S. 581, 593, n. 18 (1977); see 29 U. S. C. § 1002(34). Under this type of plan, the cost of making contributions for any given employee is completely unrelated to that employee's age. The dissent therefore is quite wrong to suggest that these plans "commonly indeed, almost invariably entail costs that rise with the age of the beneficiary...." Post, at 187. [6] Regulations issued by the Department of Labor in 1969 did provide that "[n]to all employee benefit plans but only those similar to the kind enumerated in section 4(f)(2) of the Act come within this provision." 34 Fed. Reg. 9708, 9709 (1969), codified at 29 CFR § 860.120(b) (1970). Accordingly, the regulations suggested that "a profit-sharing plan as such would not appear to be within [the] terms" of § 4(f)(2). Ibid. According to the EEOC, this provision reflects the Department's conclusion that § 4(f)(2) "would not shield discrimination against older employees in the provision of profit-sharing benefits because the cost of providing those benefits does not increase as employees age." Brief for EEOC as Amicus Curiae 10-11 n. 4. Nothing in the regulation suggested, however, that the reason for the exclusion of profit-sharing plans was that such plans were not characterized by increasing costs with age. To the contrary, it seems clear that the Department of Labor viewed the § 4(f)(2) exemption as applicable to plans that served the purpose of retirement, pension, or insurance plans, regardless of whether the cost of the benefits provided by such plans rose with the age of their beneficiaries: "However, where it is the essential purpose of a plan financed from profits to provide retirement benefits for employees, the exception may apply. The `bona fides' of such plans will be considered on the basis of all the particular facts and circumstances." 29 CFR § 860.120(b) (1970). We express no opinion, of course, on the precise meaning of the phrase "any bona fide employee benefit plan such as a retirement, pension, or insurance plan." We hold only that it does not support the cost-justification requirement urged by appellee and the EEOC. [7] The administration bill's version of § 4(f)(2) provided that "[i]t shall not be unlawful for an employer, employment agency, or labor organization... to separate involuntarily an employee under a retirement policy or system where such policy or system is not merely a subterfuge to evade the purposes of this Act." 113 Cong. Rec. 2794 (1967). [8] Elsewhere, Senator Javits explained that under his version of § 4(f)(2) "an employer will not be compelled to afford older workers exactly the same pension, retirement, or insurance benefits as younger workers and thus employers will not, because of the often extremely high cost of providing certain types of benefits to older workers, actually be discouraged from hiring older workers." Id., at 31254-31255. [1] I agree with the majority that neither our decision in United Air Lines, Inc. v. McMann, 434 U. S. 192 (1977), involving a plan with a mandatory retirement provision adopted prior to the passage of the ADEA, nor Congress' 1978 amendment of § 4(f)(2) in response to McMann, controls this case. Ante, at 167-169. [2] It is no answer to surmise that providing disability benefits to an older worker costs more than providing equivalent benefits to a younger worker, as is typically the case with life insurance benefits. PERS, after all, provided full monthly benefits to employees over 60, so long as they had become disabled prior to attaining that age. The sole distinction PERS drew was based on an employee's age at disability, a factor that does not correlate with the cost to an employer of providing benefits. Indeed, insofar as an employer is concerned about the cumulative cost of providing benefits during the remaining life of a disabled employee, this concern militates in favor of older workers, whose predicted lifespans are shorter than those of younger workers. [3] For example, if an employer refuses to provide benefits to an older worker in retaliation for filing a claim under the ADEA, a claim challenging that refusal would be cognizable. Ante, at 180. [4] Section 4(f)(2) provides that it is not unlawful for an employer "to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual, and no such... employee benefit plan shall require or permit the involuntary retirement of any individual... because of the age of such individual." 29 U. S. C. § 623(f)(2). [5] The majority's holding that the employee bears the heavy burden of proving not only that a discriminatory benefit plan implicates nonbenefit aspects of employment, but also that it was intended to discriminate, strikes a further blow against the statutory rights of older workers. Ante, at 182. It is one thing for an employee to prove discrimination against older workers. It is considerably more difficult to prove that an employer undertook such discrimination with unlawful motives. In light of the severe evidentiary and practical obstacles, where discrimination in non-fringe-benefit aspects of the employment relationship has been proved, a more appropriate approach would place the burden on the employer to show that the discrimination was not born of improper intent. See Wards Cove Packing Co. v. Atonio, 490 U. S. 642, 668 (1989) (STEVENS, J., dissenting). [6] See Betts v. Hamilton County Bd. of Mental Retardation and Developmental Disabilities, 848 F. 2d 692 (CA6 1988) (case below); EEOC v. Mt. Lebanon, 842 F. 2d 1480 (CA3 1988); Karlen v. City Colleges of Chicago, 837 F. 2d 314 (CA7 1988); Cipriano v. Board of Ed. of North Tonawanda School Dist., 785 F. 2d 51 (CA2 1986); EEOC v. Westinghouse Elec. Corp., 725 F. 2d 211 (CA3 1983), cert. denied, 469 U. S. 820 (1984); EEOC v. Borden's, Inc., 724 F. 2d 1390 (CA9 1984). It is true that these courts took slightly divergent analytic paths to this common result: some have interpreted § 4(f)(2) ab initio and others have deferred to the EEOC's statutory reading to this effect; some have imputed the business purpose requirement to the term "subterfuge" and others have instead attributed it to § 4(f)(2) more generally. This divergence, however, in no way vitiates the significance of the Courts of Appeals' unanimity that the statute supports the business purpose requirement. [7] The narrow scope of this initial exemption may have reflected the fact that Congress was aware that employers at that time did not regard as a major concern the benefit-program costs associated with older workers. See, e. g., Report of the Secretary of Labor to the Congress Under Section 715 of the Civil Rights Act of 1964, The Older American Worker: Age Discrimination in Employment 16 (1965) ("Relatively few employers... cited the costs of providing pension and insurance benefits as significant barriers to employment of older persons"). [8] The majority attempts to appropriate Senator Javits by stringing together fragments of his comments on the Senate floor. The majority cites his statement that " `the age discrimination law is not the proper place to fight' the battle of ensuring `adequate pension benefits for older workers.' " Ante, at 179, quoting 113 Cong. Rec. 7076 (1967). But as the EEOC notes, this remark, read in proper context, does not suggest that "any type of discrimination in the provision of employee benefits should be permissible under the ADEA," but makes the more limited point that certain existing pension plans with lengthy vesting periods "should be changed by comprehensive pension legislation rather than by an age discrimination statute." Brief for EEOC as Amicus Curiae 17, n. 9 (emphasis added). Senator Javits eventually proposed, and won the enactment of, such legislation. See 29 U. S. C. § 1053 (1982 ed. and Supp. V). Similarly, Senator Javits' statement that amended § 4(f)(2) provides " `a fairly broad exemption... for bona fide retirement and seniority systems,' " ante, at 179, quoting 113 Cong. Rec. 7076 (1967), fully accords with the business purpose test. That test exempts from § 4(f)(2)'s coverage any act of age discrimination with some legitimate business basis leaving unprotected only the presumably narrow band of benefit programs, like PERS, which practice unjustified age discrimination. [9] That Congress viewed the § 4(f)(2) exemption as bounded by a business purpose requirement was, if anything, confirmed in 1978, when Congress added a clause in response to United Air Lines, Inc. v. McMann, 434 U. S. 192 (1977). In rejecting a claim that a plan adopted before the ADEA's enactment could be a subterfuge, McMann declined to hold that a "per se rule requir[ed] an employer to show an economic or business purpose in order to satisfy the subterfuge language of the Act." 434 U. S., at 203. This statement, referring only to pre-ADEA plans, left open the issue of a per se business purpose rule for discriminatory plan provisions adopted after the Act's passage. Reiterating the need for an economic justification for discrimination, Senator Javits stated during the 1978 debate: "The meaning of the exception, as I stated in [the 1967] colloquy with Senator Yarborough on the Senate floor, was that an `employer will not be compelled under this section to afford to older workers exactly the same pension, retirement, or insurance benefits as he affords to younger workers.' " 124 Cong. Rec. 8218 (1978). The Senator explained that "[w]elfare benefit levels for older workers may be reduced only to the extent necessary to achieve approximate equivalency in contributions for older and younger workers." Ibid. [10] The majority's dismissal of this administrative interpretation of § 4(f)(2) on the ground that it was not contemporaneously issued is disingenuous. In the majority's view, the Department of Labor initially articulated a broad "safe harbor" exemption for benefit programs, and only in 1979 revised its interpretation to adopt the business purpose test. Ante, at 171-172. The sole support the majority adduces for this proposition is the Department of Labor's 1969 regulation providing that age-related benefit reductions would be " `considered in compliance with the statute' " if cost justified. Ante, at 171, quoting 29 CFR § 860.120(a) (1970). This regulation does not demonstrate that Labor was applying a business purpose test, the majority suggests, apparently because the regulation failed explicitly to state the corollary proposition that non-cost-justified plans fall outside the statutory exemption. This tenuous reading fails to explain (1) why Labor saw a need to include the cost-justification qualification in its reading of the exemption; (2) why Labor stated that profit-sharing plans, lacking an economic basis for age discriminating, fall outside the exemption; and (3) why Labor, in its 1979 pronouncement, in no way suggested it was changing its construction of § 4(f)(2). [11] See also 29 CFR § 1625.10(a)(1) (1988) ("A benefit plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred, in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of benefits or insurance coverage"); § 1625.10(d) ("[A] plan or plan provision which prescribes lower benefits for older employees on account of age is not a `subterfuge' within the meaning of section 4(f)(2), provided that the lower level of benefits is justified by age-related cost considerations").	CRITICIZED_OR_QUESTIONED, INVALIDATED
724 F.2d 1390	371 F.3d 645	OR	Equal Employment Opportunity Commission v. Borden's, Inc.	371 F.3d 645 David ENLOW, Plaintiff-Appellant,v.SALEM-KEIZER YELLOW CAB CO., INC., an Oregon corporation, Defendant-Appellee. No. 02-35881. United States Court of Appeals, Ninth Circuit. Argued and Submitted November 4, 2003. Filed June 10, 2004. COPYRIGHT MATERIAL OMITTED John S. Razor, The Law Office of John S. Razor, Salem, OR, for plaintiff-appellant. Robert J. Custis, Kent Custis LLP, Portland, OR, for defendant-appellee. Appeal from the United States District Court for the District of Oregon; Donald C. Ashmanskas, Magistrate Judge, Presiding,* D.C. No. CV-00-01331-AS. Before: ALARCON, FERGUSON, and RAWLINSON, Circuit Judges. ALARCON, Circuit Judge: 1 David Enlow appeals from the order denying his motion for partial summary judgment regarding his Age Discrimination in Employment Act ("ADEA") claim, and the order granting Salem-Keizer Yellow Cab Co.'s ("Yellow Cab") cross-motion for summary judgment. Mr. Enlow contends that he was entitled to summary judgment because he presented direct evidence that Yellow Cab permanently discharged him solely because of his age. 2 We affirm the denial of his motion because we conclude that Yellow Cab presented sufficient evidence to raise a genuine issue of material fact regarding whether it terminated Mr. Enlow's employment temporarily without discriminatory intent. We reverse the order granting Yellow Cab's motion for summary judgment, however, because the district erred in concluding that Mr. Enlow failed to present prima facie evidence that Yellow Cab acted with a discriminatory motive or intent. 3 We analyze the legal questions raised in this appeal separately. In Part One, we explain why we conclude that the district court erred in granting Yellow Cab's motion for summary judgment. In Part Two, we consider whether Yellow Cab presented sufficient evidence in response to Mr. Enlow's motion for partial summary judgment to raise a genuine issue of material fact requiring that the parties have their day in court to determine which party should prevail. Facts and Procedural Background 4 Sometime prior to June 24, 1999, a representative from the Bell Anderson insurance agency in Tacoma, Washington contacted Yellow Cab to see if it would be interested in a new insurance product that could save Yellow Cab a significant amount of money on its annual insurance premiums. After considering the quoted premium, Yellow Cab decided to accept the new policy. It is undisputed that Yellow Cab purchased the insurance policy from Meadowbrook Insurance Group because the cost of its new product, Star Insurance, was more than $10,000 less than the amount Yellow Cab had paid previously to the Reliance Insurance Co. ("Reliance Insurance"). At the time Yellow Cab accepted the Star Insurance offer, it had no knowledge that the policy excluded coverage of employees younger than twenty-three or older than seventy years of age. 5 In order to obtain a business license to operate a "[v]ehicle for hire," the City of Salem, Oregon requires that a taxi cab company carry automobile liability insurance that covers each person employed as a "[t]axicab driver." Salem Revised Code, Title 3, Ch. 34.002(I), (j), 34.010(d). Yellow Cab's liability coverage under the Star Insurance policy was scheduled to take effect on June 25, 1999, the same date that its Reliance Insurance policy was due to expire. Yellow Cab paid $13,200 to Star Insurance, representing a 20% down payment on the new policy, and was scheduled to begin making monthly payments on that policy on July 1, 1999. 6 The City of Salem required Yellow Cab to inform it of the insurance it planned to use no later than June 25, 1999. Yellow Cab faced suspension of its business license on that date if it could not provide proof of insurance for each taxi cab driver in its employ.1 7 At 4:00 p.m. on June 24, 1999, a Star Insurance agent called Gary Anderson, Yellow Cab's Secretary/Treasurer, to inform him that its new policy did not cover employees younger than twenty-three or older than seventy years of age, and that Mr. Enlow was not eligible for insurance under the new policy because he was seventy-two years old. Prior to June 24, Yellow Cab had not received a copy of the Star Insurance policy, nor had it reviewed the Star Insurance policy's underwriting guidelines or restrictions. 8 After learning of the age limitation in the Star Insurance policy, Yellow Cab's personnel manager, Richard Haley, called Mr. Enlow into his office and discharged him. We discuss below the conflicting evidence presented by the parties regarding whether the termination of Mr. Enlow's employment was intended to be temporary or permanent, and whether Yellow Cab acted pursuant to a facially discriminatory employment practice to discharge employees over seventy years old. 9 Mr. Enlow filed a complaint in the district court on September 21, 2000 in which he alleged that Yellow Cab had violated the ADEA and Oregon Revised Statutes § 659.030(1)(a) (renumbered 659A.030(2)(a) in 2001), Oregon's parallel age discrimination statute. He prayed for front and back pay. 10 On May 18, 2001, Mr. Enlow filed a motion for partial summary judgment on this ADEA claim in which he argued that he had established "a prima facie case" of age discrimination under the ADEA by presenting evidence that he was seventy-two years old, had performed his job to his employer's satisfaction, and was discharged when his employer obtained less expensive automobile liability insurance that did not cover drivers over the age of seventy, while younger employees were retained. He maintained that he was entitled to prevail in the action because his age was the "but for" cause of his termination. 11 Yellow Cab filed a cross-motion for summary judgment on June 1, 2001 in which it argued that it was entitled to summary judgment because Mr. Enlow had not produced any evidence that Yellow Cab intended to discriminate against him based on his age. It stated: "For David Enlow to prevail, he must not only satisfy the prima facie requirements of an ADEA claim, but must produce evidence that Yellow Cab `intended' to discriminate against him because of his age." Yellow Cab maintained that because Mr. Enlow failed to allege or produce evidence of discriminatory motive, he could not prevail under a disparate treatment theory of liability. Yellow Cab asserted that Mr. Enlow failed to present any evidence that Yellow Cab acted with discriminatory animus, or that its proffered reasons for terminating his employment were merely a pretext for impermissible discrimination. 12 The district court denied Mr. Enlow's partial motion for summary judgment and granted Yellow Cab's motion for summary judgment on November 26, 2001. The district court held that Mr. Enlow "failed to provide evidence of a discriminatory motive [on] the part of the Defendant in the decision to terminate Plaintiff." Mr. Enlow filed a timely notice of appeal of the order granting Yellow Cab's cross-motion for summary judgment, and the order denying his motion for partial summary judgment.2 Part One 13 Mr. Enlow contends that the district court erred in granting Yellow Cab's motion for summary judgment. He maintains that he was not required to produce evidence that the proof relied upon by Yellow Cab to justify the termination of his employment was a pretext for impermissible discrimination. He argues that the familiar McDonnell Douglas burden-shifting analysis should not apply to this case because he presented direct evidence that Yellow Cab terminated his employment because of his age. 14 We review a district court's grant of summary judgment de novo. Frank v. United Airlines, Inc., 216 F.3d 845, 849 (9th Cir.2000). We may affirm the district court's order granting summary judgment on any basis that is supported in the record. San Jose Christian Coll. v. City of Morgan Hill, 360 F.3d 1024, 1030 (9th Cir.2004). 15 Under the ADEA, employers may not "fail or refuse to hire or... discharge any individual [who is at least forty years old] or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age." 29 U.S.C. § 623(a)(1). In Hazen Paper Co. v. Biggins, 507 U.S. 604, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993), the Supreme Court identified two theories of employment discrimination: disparate treatment and disparate impact. Id. at 609, 113 S.Ct. 1701 (citing Int'l Bhd. of Teamsters v. United States, 431 U.S. 324, 335-36 n. 15, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977)). In this appeal, Mr. Enlow relies solely on the disparate treatment theory of liability. 16 Disparate treatment is demonstrated when "`[t]he employer simply treats some people less favorably than others because of their race, color, religion [or other protected characteristics].'" Id. (second alteration in original) (quoting Teamsters, 431 U.S. at 335 n. 15, 97 S.Ct. 1843). More recently, the Court instructed that "`liability [in a disparate treatment claim] depends on whether the protected trait (under the ADEA, age) actually motivated the employer's decision.'" Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 141, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (emphasis added) (quoting Hazen, 507 U.S. at 610, 113 S.Ct. 1701). The Court held that "the plaintiff's age must have `actually played a role in [the employer's decisionmaking] process and had a determinative influence on the outcome.'" Id. (alteration in original) (quoting Hazen, 507 U.S. at 610, 113 S.Ct. 1701). 17 When a plaintiff alleges disparate treatment based on direct evidence in an ADEA claim, we do not apply the burden-shifting analysis set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973) in determining whether the evidence is sufficient to defeat a motion for summary judgment. In Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 105 S.Ct. 613, 83 L.Ed.2d 523 (1985), the Supreme Court instructed that "the McDonnell Douglas test is inapplicable where the plaintiff presents direct evidence of discrimination." Id. at 121, 105 S.Ct. 613; see also AARP v. Farmers Group, Inc., 943 F.2d 996, 1000 n. 7 (9th Cir.1991) (stating that "[o]rdinarily, however, when there is direct evidence of discrimination, such as when a provision[of a pension plan] is discriminatory on its face, the prima facie case analysis is inapplicable") Direct evidence, in the context of an ADEA claim, is defined as "`evidence of conduct or statements by persons involved in the decision-making process that may be viewed as directly reflecting the alleged discriminatory attitude... sufficient to permit the fact finder to infer that that attitude was more likely than not a motivating factor in the employer's decision.'" Walton v. McDonnell Douglas Corp., 167 F.3d 423, 426 (8th Cir.1999) (alteration in original, emphasis added) (quoting Radabaugh v. Zip Feed Mills, Inc., 997 F.2d 444, 449 (8th Cir.1993)). 18 The McDonnell Douglas formula applies under the ADEA where an employee must rely on circumstantial evidence that he or she was at least forty years old, met the requisite qualifications for the job, and was discharged while younger employees were retained. Reeves, 530 U.S. at 142, 120 S.Ct. 2097. It "creates a presumption that the employer unlawfully discriminated against the employee." Texas Dep't of Cmty. Affairs v. Burdine, 450 U.S. 248, 254, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981). Under McDonnell Douglas, if an employee presents prima facie circumstantial evidence of discrimination, the burden shifts to the employer to "`produc[e] evidence that the plaintiff was rejected, or someone else was preferred, for a legitimate, nondiscriminatory reason.'" Reeves, 530 U.S. at 142, 120 S.Ct. 2097 (alteration in original) (quoting Burdine, 450 U.S. at 254, 101 S.Ct. 1089). This burden-shifting scheme is designed to assure that the "`plaintiff [has] his day in court despite the unavailability of direct evidence.'" Trans World Airlines, 469 U.S. at 121, 105 S.Ct. 613 (alteration in original) (quoting Loeb v. Textron, Inc., 600 F.2d 1003, 1014 (1st Cir.1979)). 19 Mr. Enlow presented direct evidence that Yellow Cab permanently terminated his employment because he was seventy-two years old and the new insurance policy did not cover employees over the age of seventy. Thus, Mr. Enlow carried his "initial burden of offering evidence adequate to create an inference that an employment decision was based on a discriminatory criterion illegal under the Act." Teamsters, 431 U.S. at 358, 97 S.Ct. 1843. 20 [W]hen a plaintiff has established a prima facie inference of disparate treatment through direct or circumstantial evidence, he will necessarily have raised a genuine issue of material fact with respect to the legitimacy or bona fides of the employer's articulated reason for its employment decision.... When [the] evidence, direct or circumstantial, consists of more than the McDonnell Douglas presumption, a factual question will almost always exist with respect to any claim of a nondiscriminatory reason. The existence of this question of material fact will ordinarily preclude the granting of summary judgment. 21 Schnidrig v. Columbia Mach., Inc., 80 F.3d 1406, 1410 (9th Cir.1996) (alterations in original, first emphasis added, internal quotation marks omitted) (quoting Sischo-Nownejad v. Merced Cmty. Coll. Dist., 934 F.2d 1104, 1111 (9th Cir.1991)). 22 Yellow Cab presented evidence in opposition to Mr. Enlow's motion for partial summary judgment that the sole reason it temporarily terminated Mr. Enlow's employment was to prevent the City of Salem from closing its business doors because it lacked proof that each of its drivers was insured. In reviewing the district court's decision to grant Yellow Cab's motion for summary judgment, we must view the evidence in the light most favorable to Mr. Enlow. Coleman v. Quaker Oats Co., 232 F.3d 1271, 1287 (9th Cir.2000). 23 The district court granted Yellow Cab's motion for summary judgment because it concluded that Mr. Enlow failed to produce evidence that Yellow Cab had a discriminatory motive for terminating Mr. Enlow's employment. In reaching this conclusion, the district court erroneously applied the McDonnell Douglas burden-shifting analysis. Mr. Enlow presented direct evidence that would support an inference that his employment was terminated by an age discriminatory employment practice. Mr. Enlow relied on the direct evidence that his employment was terminated because the Star Insurance policy did not cover employees who were older than seventy years of age. This evidence was sufficient to support an inference that by terminating his employment after purchasing the Star Insurance policy, Yellow Cab adopted a practice of intentionally discriminating against employees over seventy years of age. By granting summary judgment in favor of Yellow Cab, the district court denied Mr. Enlow his day in court "`with respect to the legitimacy or bona fides of [Yellow Cab's] articulated reason for its employment decision.'" Sischo-Nownejad, 934 F.2d at 1111 (quoting Lowe v. City of Monrovia, 775 F.2d 998, 1009 (9th Cir.1985)). At trial, Mr. Enlow will bear the burden of persuading the trier of fact by a preponderance of the evidence that Yellow Cab's motive in terminating Mr. Enlow's employment was discriminatory. See Reeves, 530 U.S. at 143, 120 S.Ct. 2097 ("`The ultimate burden of persuading the trier of fact that the defendant intentionally discriminated against the plaintiff remains at all times with the plaintiff.'") (quoting Burdine, 450 U.S. at 253, 101 S.Ct. 1089). Part Two 24 Mr. Enlow also seeks reversal of the order denying his motion for partial summary judgment in his ADEA claim. He maintains that he is entitled to summary judgment without a trial because he has presented direct evidence that his employment was terminated because employees who are more than seventy years old are not covered under the Star Insurance policy. He requests that we instruct the district court to enter judgment in his favor. 25 It is undisputed that Yellow Cab did not purchase the Star Insurance policy in order to discriminate against employees younger than twenty-three and older than seventy years of age. In his supplemental brief to this court, Mr. Enlow concedes that Yellow Cab was not aware of the Star Insurance policy's discriminatory provision when it purchased it. Accordingly, Mr. Enlow's reliance on UAW v. Johnson Controls, Inc., 499 U.S. 187, 111 S.Ct. 1196, 113 L.Ed.2d 158 (1991) is misplaced. In Johnson Controls, the employer was aware of the discriminatory provision when it adopted an employment practice barring all women, except those whose infertility was medically documented, from jobs involving actual or potential lead exposure exceeding governmental standards. Id. at 198-99, 111 S.Ct. 1196. Yellow Cab's temporary discharge of Mr. Enlow was in reaction to an unanticipated exigent circumstance that threatened the suspension of its license to conduct business. 26 Likewise, City of Los Angeles Dept. of Water & Power v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978) is readily distinguishable. In Manhart, the Department of Water and Power knowingly and intentionally administered a retirement, disability and death-benefit program that required its female employees to make larger contributions to the pension fund than its male employees. Id. at 704, 98 S.Ct. 1370. The decision to adopt an employment practice that treated men differently from women was carefully calculated, "[b]ased on a study of mortality tables and [the Department's] own experience." Id. at 705, 98 S.Ct. 1370. Mr. Enlow has presented no evidence that establishes that Yellow Cab had any knowledge of the discriminatory provisions in the Star Insurance policy when it purchased the policy. Nor has Mr. Enlow presented any evidence that Yellow Cab deliberately adopted an employment practice or program in order to discriminate against persons over forty in violation of the ADEA. Thus, Mr. Enlow failed to establish, as required by the Supreme Court's more recent Hazen decision, that Yellow Cab "relied upon a formal, facially discriminatory policy requiring adverse treatment" of older employees when it purchased the Star Insurance policy. Hazen, 507 U.S. at 610, 113 S.Ct. 1701 (emphasis added) (explaining that Manhart presented a case of disparate treatment because the employer "relied" on a "formal" policy requiring discrimination). Mr. Enlow has not demonstrated that his age "actually motivated [his] employer's decision" to purchase a new insurance policy. Id. 27 In reviewing the denial of Mr. Enlow's motion for partial summary judgment, we must view the evidence in the light most favorable to Yellow Cab. Coleman, 232 F.3d at 1287. In response to Mr. Enlow's motion, Yellow Cab offered evidence of a legitimate, nondiscriminatory reason for temporarily terminating Mr. Enlow's employment. Mr. Haley alleged in his affidavit that "the only reason why Mr. Enlow was terminated was because the company made a switch in auto insurance carriers and the new carrier did not insure drivers under twenty-three years of age or over the age of seventy. The saving in annual premium expense was the only reason why Yellow Cab switched insurance." He also alleged that "[a]t no time did Yellow Cab search for an insurance carrier who did not insure older workers in order to terminate Mr. Enlow's position with the company." Mr. Haley further stated that: 28 Mr. Enlow was... a commissioned employee. He was paid a percentage of the fares he took in. All of his taxes and expenses were paid out of his share of the gross fares. Terminating Mr. Enlow did not have any direct economic benefit in that Yellow Cab did not experience a savings in unpaid salaries or benefits. Indeed, terminating a driver actually made Yellow Cab one more driver short. 29 Mr. Anderson alleged that Yellow Cab adopted the new Star Insurance policy without knowledge that it did not insure drivers over the age of seventy or under the age of twenty-three. He stated that Yellow Cab did not learn of the age limitation until 4:00 p.m., on the day before it was required to provide proof of insurance to the City of Salem or face the loss of its business license. Mr. Anderson declared that the possibility of renewing its old insurance policy "was no longer available" at the time Yellow Cab learned of the new policy's age limitation. 30 Yellow Cab also produced evidence that Mr. Haley had indicated to Mr. Enlow that the termination of his employment was only "temporary until coverage could be resolved or obtained." Immediately following Mr. Enlow's termination, Mr. Anderson made several phone calls on Mr. Enlow's behalf. "I personally called Cherry City cab company in order to find Mr. Enlow work while we sorted out the insurance coverage problem." Mr. Anderson was successful in securing a job interview for Mr. Enlow with the Blue Jay Cab Company. Mr. Enlow was hired to begin work with the Blue Jay Cab Company within a week of his termination from Yellow Cab. 31 Finally, Yellow Cab introduced evidence that after it discharged Mr. Enlow, Mr. Anderson spoke with representatives at Star Insurance to see if they would waive the age restriction in their policy so that Mr. Enlow could be reemployed. Mr. Anderson alleged: "I was able to talk the insurance carrier into considering Mr. Enlow for insurance if he would be willing to consider submitting to a medical check-up." Yellow Cab then presented Mr. Enlow with the option of taking a physical examination with the hope that Star Insurance would agree to insure Mr. Enlow on the basis of a clean bill of health. Mr. Anderson stated in his affidavit that "Mr. Enlow indicated that he would not agree to a physical and declined the offer to return to Yellow Cab." This evidence directly conflicts with Mr. Enlow's allegation that he was permanently terminated from his employment solely because of his age. 32 Viewed in the light most favorable to Yellow Cab, this evidence shows that it did not have an explicit facially discriminatory employment practice to terminate the employment of taxi cab drivers who were more than seventy years old. Instead, the evidence shows that Mr. Enlow was temporarily discharged to avoid termination of Yellow Cab's business license while it negotiated with Star Insurance to waive the age exclusion provisions in its policy. As a demonstration of its intent to protect Mr. Enlow's employment rights, Yellow Cab successfully obtained temporary employment for him with another cab company. Yellow Cab also obtained Star Insurance's tentative agreement to waive the age-based exclusion of coverage if Mr. Enlow would submit to a physical examination. Mr. Enlow rejected Star Insurance's willingness to consider waiving its age exclusion provisions if he could pass a physical examination. He also declined Yellow Cab's offer to reemploy him. The evidence offered by Yellow Cab presents a genuine issue of material fact regarding whether the termination of employment was temporary or permanent and whether Yellow Cab acted with discriminatory animus against employees over forty years of age. Accordingly, the district court did not err in denying Mr. Enlow's motion for partial summary judgment. Conclusion 33 We conclude that Mr. Enlow presented sufficient direct evidence to support an inference that Yellow Cab's decision to terminate his employment was motivated by discriminatory animus. For that reason, the district court erred in granting Yellow Cab's motion for summary judgment on the ground that Mr. Enlow failed to present evidence that Yellow Cab acted with discriminatory animus. 34 We also hold that Yellow Cab presented sufficient evidence to demonstrate that its temporary discharge of Mr. Enlow was without discriminatory intent, and was solely to avoid losing its business license based on the fact that all of its employees were not covered by automobile liability insurance. Mr. Enlow failed to present any evidence that Yellow Cab acted pursuant to an explicit facially discriminatory company practice to fire taxi cab drivers who were over seventy years of age. Thus, the district court did not err in denying Mr. Enlow's partial motion for summary judgment. Because there are genuine issues of material fact in dispute, we reject Mr. Enlow's request that we instruct the district court to grant his motion for summary judgment. 35 We VACATE the order granting Yellow Cab's motion for summary judgment and AFFIRM the order denying Mr. Enlow's motion for partial summary judgment. 36 Each side shall bear its own costs. Notes: * Pursuant to Rule 37(b) of the Fed.R.Civ.P., the parties consented to have a United States Magistrate Judge conduct any and all proceedings in this case 1 Salem Revised Code, Title 3, Ch. 30.124 requires as follows: Whenever any... policy of insurance is required in connection with any license required by this title, the maintenance thereof in full force and effect shall be a condition of the validity of any license issued under this chapter. Upon receiving information that such... insurance is, for any reason, no longer in full force and effect, the director shall summarily suspend such license. 2 On this appeal, Mr. Enlow has abandoned his state age discrimination claimSee Big Bear Lodging Ass'n v. Snow Summit, Inc., 182 F.3d 1096, 1105 (9th Cir.1999) ("Issues appealed but not briefed are deemed abandoned."). 37 FERGUSON, Circuit Judge, concurring in part and dissenting in part: 38 I concur in the majority's decision to vacate the grant of summary judgment in favor of defendant Salem-Keizer Yellow Cab. I dissent from the majority's denial of summary judgment to plaintiff David Enlow. The uncontested facts establish a violation of the Age Discrimination in Employment Act ("ADEA"). In ruling otherwise, the majority fundamentally misconstrues the discriminatory intent that must be shown in a case of facial discrimination. 39 Mr. Enlow, a 72-year-old cabdriver, was discharged from Yellow Cab because the company's new insurance policy did not cover drivers over 70. The majority remands this case for a fact finder to determine whether Yellow Cab acted with discriminatory animus. Yet there are no material facts in dispute. The only question to be resolved is whether, as a matter of law, the Age Discrimination in Employment Act ("ADEA") is violated where an employer terminates a 72-year-old employee because the company's chosen insurance policy does not cover drivers over 70. 40 The answer to that question must be yes. Where an employer intentionally uses age as a criterion for an employment decision, engaging in facial discrimination, it cannot be a defense that the employer sought only to save costs. Nor can the employer escape liability by claiming that exigent circumstances excused its actions. The ADEA prohibited age discrimination while carefully enumerating several exceptions to the rule. See 29 U.S.C. § 623(f). None of these exceptions applies here. The majority's implicit creation of a new exception for employment actions allegedly taken in good faith dilutes the protections Congress sought to provide for older workers. I. 41 Yellow Cab contends that Mr. Enlow did not establish the discriminatory intent required for an ADEA disparate treatment claim, as described by Hazen Paper Co. v. Biggins, 507 U.S. 604, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993). In that case, the Supreme Court held that an employer does not violate the ADEA by terminating an older employee in order to prevent his pension benefits from vesting, even if pension status is correlated with age. Id. at 611-12, 113 S.Ct. 1701. The Court reasoned that age and pension status are "analytically distinct," and noted that a younger employee who has worked for a particular employer his entire career might be closer to qualifying for pension benefits than an older employee newly hired. Id. at 611, 113 S.Ct. 1701. 42 Yellow Cab claims that here, too, it discharged Mr. Enlow based on a classification — insurability — that is analytically distinct from age. Unlike the situation in Hazen, however, there is not merely a correlation between age and qualification for insurance coverage, but absolute identification: Mr. Enlow did not qualify for Yellow Cab's new insurance policy because he was over 70, and as a result, the company fired him. The cab company acknowledged that but for Mr. Enlow's age, he would not have been discharged. Thus, Mr. Enlow meets Hazen's requirement that an employee show that age "actually played a role in [the employer's decision-making] process and had a determinative influence on the out-come." 507 U.S. at 610, 113 S.Ct. 1701. 43 Yellow Cab's attempt to separate out insurability from age is unavailing. In City of Los Angeles Dept. of Water & Power v. Manhart, the Supreme Court rejected the employer's argument that a plan requiring women to make larger monthly contributions to a pension plan than men was "based on the factor of longevity rather than sex." 435 U.S. 702, 712, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978). The Court stated: "It is plain... that any individual's life expectancy is based on a number of factors, of which sex is only one.... [O]ne cannot say that an actuarial distinction based entirely on sex is based on any other factor other than sex. Sex is exactly what it is based on." Id. at 712-13, 98 S.Ct. 1370 (internal citations omitted). Here, too, an individual's insurance risk is based on numerous factors, but Mr. Enlow's inability to qualify for insurance coverage was based solely on age. The cab company cannot splice out insurability from age where, as in Manhart, the proffered basis for its employment practice coincides absolutely with a protected trait. 44 Nor can Yellow Cab escape liability by shifting blame to the insurance carrier that established the coverage limits. The Supreme Court held more than twenty years ago that an employer violated Title VII where the retirement plans offered to its employees provided lower monthly benefits to women, even though the discriminatory conditions were supplied by private insurers. Ariz. Governing Comm. for Tax Deferred Annuity & Deferred Compensation Plans v. Norris, 463 U.S. 1073, 103 S.Ct. 3492, 77 L.Ed.2d 1236 (1983). The employer "cannot disclaim responsibility for the discriminatory features of the insurers' options," and violates Title VII "regardless of whether third parties are also involved in the discrimination." Id. at 1089, 103 S.Ct. 3492. Here, too, Yellow Cab is no less responsible for violating the ADEA because it did so in response to an insurance policy it selected from a third party. 45 Furthermore, even assuming that the company was not motivated by stigmatizing stereotypes of older workers, Yellow Cab has violated the ADEA. Hazen explains that "[i]t is the very essence of age discrimination for an older employee to be fired because the employer believes that productivity and competence decline with old age." 507 U.S. at 610, 113 S.Ct. 1701. Congress enacted the ADEA in order to address the concern that "older workers were being deprived of employment on the basis of inaccurate and stigmatizing stereotypes." Id. Hazen further stated that where an employer's decision is "wholly motivated by factors other than age," the problem presented by such stereotyping "disappears." Id. at 611, 113 S.Ct. 1701. 46 This interpretation of the ADEA's rationale, however, does not shield Yellow Cab. Precedent declares that in a case of facial discrimination, the explicit use of a protected trait as a criterion for the employer's action establishes discriminatory intent, regardless of the employer's subjective motivations. "Whether an employment practice involves disparate treatment through explicit facial discrimination does not depend on why the employer discriminates but rather on the explicit terms of the discrimination." Int'l Union, UAW v. Johnson Controls, Inc., 499 U.S. 187, 199, 111 S.Ct. 1196, 113 L.Ed.2d 158 (1991) (finding an employer's fetal-protection policy to be sex discrimination in violation of Title VII where it excluded women of child-bearing capacity from jobs exposing them to lead). There, the Supreme Court noted that "the absence of a malevolent motive does not convert a facially discriminatory policy into a neutral policy." Id. See also Frank v. United Airlines, Inc., 216 F.3d 845, 854 (9th Cir.2000) (reaffirming that "where a claim of discriminatory treatment is based upon a policy which on its face applies less favorably to one gender... a plaintiff need not otherwise establish the presence of discriminatory intent.") 47 The majority attempts to distinguish Johnson Controls, as well as Manhart, on the grounds that Yellow Cab was not aware of the insurance policy's age-based provision when it purchased it. That fact is simply irrelevant. The employer engaged in facial discrimination not when it purchased the policy, but when it terminated Mr. Enlow. In addition, the employment decision was not less offensive under Johnson Controls or Manhart because it only affected one individual, or because the discrimination was not announced in a formal, written policy. The crucial fact, in each case, is that the employer openly and explicitly relied on an impermissible classification, in this case age. 48 Although the principle that, in a case of facial discrimination, an employer's subjective motivations are not controlling, was originally announced in Title VII cases, this Court has applied that principle to claims under the ADEA. In Equal Employment Opportunity Comm'n v. Borden's, Inc., we stated that where a severance policy denied a benefit to workers 55 and older, no showing of the employer's ill will toward older people was required.1 724 F.2d 1390, 1393 (9th Cir.1984), overruled on other grounds in Pub. Employees Ret. Sys. of Ohio v. Betts, 492 U.S. 158, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989), superceded by revision to 29 U.S.C. §§ 621, 623. 49 Indeed, there is good reason to find discriminatory intent where an employer's decision or policy discriminates on its face: where differential treatment based on a protected trait is open and explicit, older workers are stigmatized on account of their age regardless of the employer's subjective motivations. Moreover, although there is no evidence that Yellow Cab itself espoused stereotypes of older workers, by dismissing Mr. Enlow because of an insurance policy that did not cover drivers over 70, it ratified the insurance company's categorical judgment that drivers over 70 were not competent. Whatever the rights of the insurance business to set coverage limits as it deems appropriate, Yellow Cab's termination of an older employee based on the new policy's age exclusion implicated the stigmatizing stereotypes to which Hazen refers. Mr. Enlow's dismissal falls squarely within the range of discriminatory employment actions that the ADEA sought to prevent.2 50 The majority seems to believe that to establish disparate treatment, Mr. Enlow must show that Yellow Cab acted in bad faith. The majority opinion recites at length Yellow Cab's claims that it found out that Mr. Enlow would not be insured only one day before it had to prove to the city of Salem that all its employees were covered. In the same vein, the opinion recounts that the cab company helped secure other employment for Mr. Enlow, and, according to Yellow Cab, offered to re-hire him if he took a physical exam.3 Even assuming the truth of these claims, the "emergency situation" facing the cab company was, at least in part, of its own making: it chose a new insurance carrier without ever bothering to look at a copy of the new policy's terms, and without verifying that all of its employees would be covered. It is also questionable whether requiring Mr. Enlow alone to submit to a physical exam as a condition of re-employment, solely because of his age, would itself violate the ADEA. 51 In the end, we need not judge whether Yellow Cab acted with ill will. Once discriminatory intent is established, as it is here, the plaintiff need not make an additional showing that the employer acted in bad faith. While an employer's good faith is relevant to a decision to impose liquidated damages, see Hazen, 507 U.S. at 614-617, 113 S.Ct. 1701, it does not exempt an employer from liability. To sympathize with Yellow Cab's predicament is one thing; to create a new "good faith" exception to the ADEA, where the statute already provides exceptions that protect employers' legitimate interests, is quite another. II. 52 One of these ADEA exceptions, in fact, was invoked by Yellow Cab and addressed by both parties in their motions for summary judgment. Yellow Cab asserted below that its employment decision fell within the ADEA exception for actions taken "where the differentiation is based on reasonable factors other than age." 29 U.S.C. § 623(f)(1). This affirmative defense, however, fails as a matter of law. Here, Yellow Cab differentiated Mr. Enlow from other drivers precisely because of his age — making the defense inapplicable. See EEOC v. Johnson & Higgins, Inc., 91 F.3d 1529, 1541 (2d Cir.1996) ("By its terms, the statute supplies an exception for `age-neutral' decisions based on other factors such as health or even education that might be correlated with age... not an exception for policies that explicitly but reasonably discriminate based on age."). Moreover, the Equal Employment Opportunity Commission ("EEOC") regulations interpreting the ADEA state that the "reasonable factors other than age" defense is unavailable where an "employment practice uses age as a limiting criterion." 29 C.F.R. § 1625.7(c). 53 The EEOC regulations also provide that a differentiation based on the average cost of employing older workers does not qualify under this exception. 29 C.F.R. § 1625.7(f). Citing that regulation, the Eleventh Circuit rejected a cost-savings defense in a case with almost identical facts as the case before us. In Tullis v. Lear School, Inc., 874 F.2d 1489 (11th Cir.1989), a private school fired a 66-year-old bus driver because its insurance carrier only covered drivers 65 or younger. The Eleventh Circuit ruled that the school's decision to dismiss the driver was based on his age, id. at 1490-91, and that the increased insurance cost for the school did not exempt it from complying with the ADEA. Id. at 1490. III. 54 Mr. Enlow's claim of age discrimination should be granted on summary judgment. There are no material facts for a trier of fact to determine. As a matter of law, the termination of an employee because he is older than the age limitation of his employer's insurance policy violates the ADEA, even if the employer chose that policy to save money. Had Yellow Cab terminated a female employee because its insurance policy did not cover women, or discharged an Asian employee because its insurance excluded Asians, we would surely have repudiated those actions. As certainly, Yellow Cab's decision to terminate a 72-year-old cabdriver because its new insurance excluded drivers over 70 deserves our censure. Anti-discrimination law would mean nothing if an employer could justify a facially discriminatory action by invoking its bottom line. Notes: 1 Borden's held that a policy that denied severance pay only to employees who were eligible for retirement constituted disparate treatment. 724 F.2d at 1393. While that holding may not survive Hazen, the Borden's analysis of the intent required in facial discrimination cases is still apt. Moreover, in a case decided after Hazen, the Third Circuit found a separate inquiry into an employer's subjective motivations unnecessary in a case of facial age discrimination. See DiBiase v. SmithKline Beecham Corp., 48 F.3d 719, 726 (3d Cir.1995). 2 In addition, by its own terms, the ADEA's purpose is to promote the employment of older persons based on their ability rather than their age. 29 U.S.C. § 621(b). Yellow Cab's own pleadings acknowledge that Mr. Enlow, a nineteen-year employee of the company, maintained solid job performance. Yellow Cab's supplemental brief to this Court reiterated that the cab company did not consider Mr. Enlow to be an unsafe driver. His dismissal in spite of his continued ability violates the spirit and the letter of the ADEA 3 The majority repeatedly states that according to Yellow Cab, the termination of Mr. Enlow was to be temporary. The opinion does not explain, however, why this would make a difference. The ADEA prohibits age discrimination "with respect to... compensation, terms, conditions, or privileges of employment...". 29 U.S.C. § 623(a)(1). It does not only prohibit "permanent" termination. Thus, although this fact is contested, it is not amaterial fact requiring us to remand the case.	INVALIDATED
724 F.2d 1390	258 F.3d 731	D, OR, Q	Equal Employment Opportunity Commission v. Borden's, Inc.	ROSS, Circuit Judge. Tom Cooney, Jr. and sixteen co-plaintiffs (appellants) appeal from the district court’s 1 grant of summary judgment in favor of Union Pacific Railroad Company (UP) on their disparate treatment claim under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634. We affirm. Background In 1996, the government approved the merger of UP and Southern Pacific Railroad (SP). Pursuant to the labor protective conditions of New York Dock Ry. v. United States, 609 F.2d 83 (2d Cir.1979), the railroads and the Transportation-Communications Union (the Union) entered into an agreement in order to accommodate SP clerical employees who wanted to transfer to UP’s Omaha, Nebraska facility. The agreement provided that UP would offer buyouts of up to $95,000 to its employees to the extent that the number of SP employees applying for positions in Omaha exceeded the number of available positions. UP’s Omaha clerical operations were divided into six zones. The agreement, as supplemented, provided that clerks with the greatest seniority in each zone received available buyouts within the zone. In past mergers, UP had offered buyouts on the basis of system-wide seniority, instead of zone-by-zone seniority. Appellants were accounting clerks in Zone 212, ranging in age from 58 to 62 years and in seniority from 27 to 42 years. In Zone 212, there were 42 buyout requests and five offers, but none to appellants, who continued to work at UP. In Zone 201, there were 51 buyout requests and 51 offers. In April 1999, appellants filed a complaint in the district court, alleging violations of the ADEA and state law. Appellants raised a disparate impact claim under the ADEA, asserting that the buyout program adversely impacted employees in Zone 212 who were 58 to 63 years old, while favoring younger employees in Zone 201 who were 40 to 56 years old. In September 1999, this court decided EEOC v. McDonnell Douglas Corp., 191 F.3d 948, 734 950 (8th Cir.1999), in which we refused to recognize disparate impact claims under the ADEA for subgroups of workers within the protected class of persons who are at least 40 years old. In December 1999, appellants amended their complaint to add a disparate treatment claim. The district court granted UP’s motion for summary judgment. The court held that appellants’ disparate impact case was foreclosed by EEOC v. McDonnell Douglas. The court further held that appellants had failed to establish a prima facie treatment case, reasoning that since appellants were still working at UP on the same terms and conditions, they had not suffered an adverse employment action. The court also declined to exercise supplemental jurisdiction over the state claim. Discussion We review the district court’s grant of summary judgment de novo. Spears v. Missouri Dep’t of Corr. & Human Res., 210 F.3d 850, 853 (8th Cir.2000). “Summary judgment is proper where the evidence, when viewed in the light most favorable to the nonmoving party, indicates that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law.” Id. Appellants do not challenge the district court’s grant of summary judgment on their disparate impact claim. However, they challenge the court’s grant of summary judgment on their disparate treatment claim, asserting they established a prima facie case. To establish a prima facie treatment case, among other things, appellants had to show that they suffered an adverse employment action. Breeding v. Arthur J. Gallagher & Co., 164 F.3d 1151, 1156 (8th Cir.1999). “An adverse employment action is a tangible change in working conditions that produces a material employment disadvantage.” Spears, 210 F.3d at 853. “Termination, reduction in pay or benefits, and changes in employment that significantly affect an employee’s future career prospects meet this standard.” Id. Appellants concede that “none of them left [UP] as a result” of the denial of their applications for buyouts. Bradford v. Norfolk Southern Corp., 54 F.3d 1412, 1420 (8th Cir.1995). Nor do they dispute that “they retained the same responsibilities and compensation.” Id. Rather, they argue they suffered an adverse employment action because the denial of their applications for buyouts resulted in “a significant change in benefits.” Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 761, 118 S.Ct. 2257, 141 L.Ed.2d 633 (1998). In the facts of this case, we disagree. This case is similar to Britt v. E.I. DuPont de Nemours & Co., 768 F.2d 593 (4th Cir.1985). In Britt, to facilitate a reduction in force, the employer instituted a voluntary severance program. The court held that a buyout under the program was “essentially simply a wage substitute intended to compensate an employee who gives up his [ ] right to work.” Id. at 594. The court observed that “[n]o employee, old or young, lost the right to work by virtue of the [voluntary] program.” Id. Such is also the case here. Appellants’ reliance on EEOC v. Westinghouse Elec. Corp., 725 F.2d 211 (3d Cir.1983), cert. denied, 469 U.S. 820, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984), and EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir. 1984), is misplaced. Those cases held that denials of severance benefits to retirement-eligible employees violated the ADEA. Here, severance benefits were awarded on the basis of location and seniority, not retirement eligibility. Moreover, those cases did not address the issue in this case of whether employees who were denied severance but retained their jobs had suffered an adverse employment 735 action. 2 As the court in Britt explained, the cases involved plant closings, and severance pay in connection with the closings was thought to be “a fringe benefit rather than compensation for not working.” Britt, 768 F.2d at 595. In contrast here, the buyout program was designed “to induce employees legally entitled to continue to work to forego that entitlement.” Id. Even if the buyouts can be characterized as benefits, we do not believe the denials caused appellants to suffer an adverse employment action. Appellants concede that after the denials they continued to work at UP under the same terms and conditions, with no loss of salary or benefits. See EEOC v. Sears Roebuck & Co., 883 F.Supp. 211, 214 (N.D.Ill.1995) (employees who declined voluntary severance pay and retained jobs under same terms and conditions had not suffered an adverse employment action). In any event, even if appellants had established a prima facie treatment case, summary judgment would be appropriate. If a plaintiff establishes a prima facie case, the burden shifts to the employer to articulate a legitimate reason for the adverse action. Evers v. Alliant Techsystems, Inc., 241 F.3d 948, 955 (8th Cir.2001) (citing McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973)). If the employer satisfies its burden, the plaintiff must set forth “evidence sufficient to raise a question of material fact as to whether [the employer’s] proffered reason was pretextual and to create a reasonable inference that age was a determinative factor in the adverse employment decision.” Id. (internal quotation omitted). “ ‘The ultimate question in every employment discrimination case involving a claim of disparate treatment is whether the plaintiff was the victim of intentional discrimination!,]’ ” and the plaintiff bears the burden of proof. Id. (quoting Reeves v. Sanderson Plumbing Prods. Inc., 530 U.S. 133, 152, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000)). 3 Appellants put forth no evidence raising a reasonable inference that UP’s reason for denying their applications for buyouts was pretextual and that age was a determinative factor in the denials. Indeed, in their complaint, appellants alleged that the buyouts were structured on the basis of zone-by-zone seniority “for union political purposes.” Even if true, the allegation would not support their disparate treatment claim. “[E]mployment decisions motivated by factors other than age (such as salary, seniority, or retirement eligibility), even when such factors correlate with age, do not constitute age discrimination.” McDonnell Douglas, 191 F.3d at 952. Contrary to appellants’ apparent belief, it is not unlawful for an *736 employer to make decisions based on favoritism or “even unsound business practices, as long as these decisions are not the result of discrimination based on an employee’s membership in a protected class.” Evers, 241 F.3d at 959 (internal quotation omitted). In other words, “a claim under the ADEA must be based on age discrimination rather than on... some other forms of discrimination.” Bradford, 54 F.3d at 1421. Thus, even if “things were cooked for Zone 201” because of union politics, as appellants allege, that does not show age discrimination. In this case, the only reasonable inference from the evidence is that appellants were not offered buyouts “because of the locations in which they work, not because of their ages.” Trenton v. Scott Paper Co., 832 F.2d 806, 811 (3d Cir.1987), cert. denied, 485 U.S. 1022, 108 S.Ct. 1576, 99 L.Ed.2d 891 (1988); see also Patterson v. Indep. Sch. Dist. # 709, 742 F.2d 465, 468-69 (8th Cir.1984) (fact that plaintiff could not take advantage of early retirement program did not vitiate legality of program). Although in the past UP had used system-wide seniority in awarding buyouts, the change to zone-by-zone seniority does not raise an inference that it discriminated on the basis of age in this buyout. See Evers, 241 F.3d at 959 (employer’s change in lay-off rating process failed to raise inference of age discrimination). “ A company’s exercise of its business judgment is not a proper subject for judicial oversight.’ ” Id. at 956 (quoting Regel v. K-Mart Corp., 190 F.3d 876, 880 (8th Cir.1999)). Nor does appellants’ statistical evidence concerning the impact of the zone-by-zone seniority approach raise an inference of intentional age discrimination. See id. at 958-59; see also Cardenas v. AT &T Corp., 245 F.3d 994, 1000 (8th Cir.2001) (statistics relevant to impact claim did not support treatment claim). By appellants’ own calculations, the average age of the employees in Zone 201 receiving buyouts was 54.5 years, and only one was under 40 years. We have considered appellants’ other arguments. Most relate to their failed impact claim, and none support their treatment claim. See id. at 1001. For example, appellants argue that options other than the zone-by-zone seniority in awarding the buyouts would have had a less adverse impact on them. Although this argument might have been relevant in support of their impact claim, see Evers, 241 F.3d at 953-54, it does nothing to show that UP intentionally discriminated on the basis of age in awarding the buyouts. Because appellants “entirely failed to meet [their] burden of showing that [they were] the victim[s] of intentional discrimination,” Cardenas, 245 F.3d at 1001, the district court did not err in granting UP’s motion for summary judgment. Accordingly, we affirm the district court’s judgment. 1. The Honorable Thomas M. Shanahan, United States District Judge for the District of Nebraska. 2. The cases held that because early retirement plans were not based on age-related cost factors they were not entitled to the safe haven of 29 U.S.C. § 623(f)(2), which, at the time, provided that a “bona fide employee benefit plan" was lawful unless it was a subterfuge to evade the ADEA. The holdings were overruled by Public Employees Ret. Sys. of Ohio v. Betts, 492 U.S. 158, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989). However, in 1990, Congress statutorily overruled Betts by amending § 623(f)(2) and adding § 630(1). See Erie County Retirees Ass'n v. County of Erie, 220 F.3d 193, 203-08 (3d Cir.2000) (discussion of 1990 ADEA amendments). Because neither party addresses the application of § 623(f)(2) to this case, neither do we. 3. Appellants misunderstand the Supreme Court’s decision in Reeves. In that case, the Court held that in certain circumstances a prima facie case, combined with sufficient evidence of pretext, may, but not necessarily, be sufficient evidence of intentional discrimination. 530 U.S. at 148, 120 S.Ct. 2097. In this case, Reeves is not implicated. Appellants neither established a prima facie case nor set forth evidence of pretext.	LIMITED_OR_DISTINGUISHED, INVALIDATED, CRITICIZED_OR_QUESTIONED
724 F.2d 1390	255 F.3d 1322	C	Equal Employment Opportunity Commission v. Borden's, Inc.	PUBLISH IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ELEVENTH CIRCUIT _______________ JULY 05, 2001 THOMAS K. KAHN CLERK No. 99-15306 _______________ D. C. Docket No. 95-00123 CV OC-10A WANDA L. ADAMS, LEO L. FLOYD, et al., Plaintiffs, Counter-defendants, Appellants, versus FLORIDA POWER CORP., FLORIDA PROGRESS CORPORATION, Defendants, Counter-claimants, Appellees. ______________________________ Appeal from the United States District Court for the Middle District of Florida ______________________________ (July 5, 2001) Before BIRCH, BARKETT and MAGILL, Circuit Judges. BIRCH, Circuit Judge: Honorable Frank J. Magill, U.S. Circuit Judge for the Eighth Circuit, sitting by designation. This case presents an issue of first impression in our circuit regarding whether a disparate impact theory of liability is available to plaintiffs suing for age discrimination under the Age Discrimination in Employment Act of 1967 (“ADEA”), 29 U.S.C. § 621 et seq. The district court ruled as a matter of law that disparate impact claims cannot be brought under the ADEA. Because the question presents a controlling issue of law in the case, and the judge opined that there were substantial grounds for disagreement over his decision, he certified the question to us pursuant to 28 U.S.C. § 1292(b).1 We exercise our discretion to take the case and AFFIRM. I. BACKGROUND Florida Power Corporation (“FPC”) operated as a publicly-regulated electric utility monopoly until 1992, when Congress opened the industry to competition through the Energy Policy Act of 1992, 106 Stat. 2776 (1992). Florida Progress Corporation is its parent corporation. Wanda Adams and several other plaintiffs (the “Adams class”) were terminated by FPC between 1992 and 1996, during a series of reorganizations the company states were necessary to maintain its 1 Our sister, in her concurring opinion, concludes that we overreach by deciding the question of whether disparate impact claims are cognizable under ADEA as a matter of law. She would find that the plaintiffs failed to adequately allege a disparate impact claim. This position is inconsistent with the posture of the case. The district court expressly made no findings of fact on the sufficiency of the allegations in the plaintiffs’ complaint. Indeed, because the district court certified only the question of law to us, a “pronouncement in the abstract” is required. 2 competitiveness in the newly deregulated market. Members of the Adams class sued FPC and its parent corporation claiming, inter alia, that FPC discriminated against them because of their age, in violation of the ADEA. In 1996, the district court conditionally certified a class of former FPC employees claiming age discrimination. In August 1999, the district court decertified the class and ruled as a matter of law that a disparate impact theory of liability is not available to plaintiffs bringing suit under the ADEA.2 Because there is some conflict among the circuits and we had not yet ruled on the availability of disparate impact claims under the ADEA, the district court certified the question to us pursuant to 28 U.S.C. § 1292(b).3 The court was careful to note that he made no findings of fact or assessment of whether the Adams class could produce evidence sufficient to state a claim for disparate impact. Accordingly, the sole question 2 The court also found that the plaintiffs’ disparate treatment claims were not sufficiently similar to support proceeding as a class. Accordingly, the court held that the Adams class members would each have to pursue their individual remedies separately. 3 The district court’s Order of Certification states the following: [W]hether I am right or wrong in ruling that the disparate impact theory of liability is unavailable to these Plaintiffs is a critical issue that ought to be resolved with finality before the Court can reasonably proceed with the management of this litigation toward trial... The controlling question of law is whether the “disparate impact” theory or method of proving liability is applicable to claims brought under the [ADEA]. R3-312, at 2-3 (internal citations omitted). 3 before us is whether, as a matter of law, disparate impact claims may be brought under the ADEA. II. DISCUSSION We review the district court’s interpretation of a statute de novo. United States v. Prosperi, 201 F.3d 1335, 1342 (11th Cir. 2000). As with any question of statutory interpretation, we begin by examining the text to determine whether its meaning is clear. “In construing a statute we must begin, and often should end as well, with the language of the statute itself.” Merritt v. Dillard Paper Co., 120 F.3d 1181, 1185 (11th Cir. 1997). “Where the language Congress chose to express its intent is clear and unambiguous, that is as far as we go to ascertain its intent because we must presume that Congress said what it meant and meant what it said.” United States v. Steele, 147 F.3d 1316, 1318 (11th Cir. 1998) (en banc), cert. denied, 528 U.S. 933, 120 S. Ct. 335 (1999). The language of the ADEA closely parallels that of Title VII. See Lorillard v. Pons, 434 U.S. 575, 584, 98 S. Ct. 866, 872 (1978) (noting that “the prohibitions of the ADEA were derived in haec verba from Title VII.”) In fact, the sections forbidding discrimination are almost identical. Compare 29 U.S.C. § 623(a)(1) (ADEA) with 42 U.S.C. § 2000e-2(a)(1) (Title VII). The Supreme Court has held that Title VII supports a cause of action for employment discrimination based on a 4 disparate impact theory.4 See Griggs v. Duke Power Co., 401 U.S. 424, 431, 91 S. Ct. 849, 853 (1971). Several circuits have relied on the holding in Griggs to find that, because the language of the ADEA parallels Title VII, disparate impact claims also should be allowed under the ADEA. See Geller v. Markham, 635 F.2d 1027, 1032 (2d Cir. 1980); Smith v. City of Des Moines, 99 F.3d 1466, 1469-70 (8th Cir. 1996); E.E.O.C. v. Bordens, Inc., 724 F.2d 1390, 1394-95 (9th Cir. 1984). In a case involving liquidated damages under the ADEA, the Supreme Court explicitly left open the question of “whether a disparate impact theory of liability is available under the ADEA.” Hazen Paper Co. v. Biggins, 507 U.S. 604, 610, 113 S. Ct. 1701, 1706 (1993). The Second, Eighth, and Ninth Circuits have read Hazen literally and continue to allow disparate impact claims. See Criley v. Delta Airlines, Inc., 119 F.3d 102, 105 (2d Cir. 1997) (per curiam); Lewis v. Aerospace Cmty. Credit Union, 114 F.3d 745, 750 (8th Cir. 1997); Frank v. United Airlines, Inc., 216 F.3d 845, 856 (9th Cir. 2000); E.E.O.C. v. Local 350, 998 F.2d 641, 648 n.2 (9th Cir. 1993). 4 A disparate impact claim is one that “involve[s] 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.” Hazen Paper Co. v. Biggins, 507 U.S. 604, 609, 113 S. Ct. 1701, 1705 (1993) (quoting Teamsters v. United States, 431 U.S. 324, 335- 36 n. 15, 97 S. Ct. 1843, 1855 n. 15 (1977)). 5 In contrast, the First, Third, Sixth, Seventh, and Tenth Circuits have questioned the viability of disparate impact claims under the ADEA post-Hazen.5 See Mullin v. Raytheon Co., 164 F.3d 696, 700-01 (1st Cir.), cert. denied, 528 U.S. 811, 120 S. Ct. 44 (1999); E.E.O.C. v. Francis W. Parker School, 41 F.3d 1073, 1076-77 (7th Cir. 1994); Ellis v. United Airlines, Inc., 73 F.3d 999, 1006-07 (10th Cir. 1996); DiBiase v. Smithkline Beecham Corp., 48 F.3d 719, 732 (3d Cir. 1995); Lyon v. Ohio Educ. Ass’n and Prof’l Staff Union, 53 F.3d 135, 139 n.5 (6th Cir. 1995). These cases rely on language in Hazen and other factors that suggest that disparate impact claims are not viable under the ADEA. First, courts that question the viability of a disparate impact claim under the ADEA note that the text of the ADEA differs from Title VII in an important respect. Section 623(f)(1) of the ADEA explicitly provides that an employer may “take any action otherwise prohibited... where the differentiation is based on reasonable factors other than age.” 29 U.S.C. § 623(f)(1). The First Circuit has reasoned that if the exception contained in section 623(f)(1) is not understood to preclude disparate impact liability, it becomes nothing more than a bromide to the effect that “only age discrimination is age discrimination.” Such a circular construction would fly in the teeth of the well-settled canon [of statutory construction]. 5 The Fourth, Fifth, and D.C. Circuits have not addressed this issue. 6 Mullin, 164 F.3d at 702. In addition, the language of § 623(f)(1) is similar to language found in the Equal Pay Act. Section 206(d)(1) of the Equal Pay Act provides that wage discrimination on the basis of gender is prohibited, unless the wage “differential [is] based on any other factor other than sex.” 29 U.S.C. § 206(d)(1)(iv). “The Supreme Court [has] interpreted section 206(d)(1) of the Equal Pay Act to preclude disparate impact claims.” Ellis, 73 F.3d at 1008 (citing County of Washington, Ore. v. Gunther, 452 U.S. 161, 170-71, 101 S. Ct. 2242, 2248-49 (1981)); Mullin, 164 F.3d at 702 (drawing same comparison).6 The text of the ADEA is sufficiently distinguishable from Title VII as to raise doubts about extending the disparate impact theory of liability to ADEA cases. Turning to the legislative history, the Mullin and Ellis courts note that the ADEA was enacted after the Secretary of Labor issued a report on age discrimination. Mullin, 164 F.3d at 702-03; Ellis, 73 F.3d at 1008. The report, 6 We note that the ADEA requires that the “other factor” be a reasonable one, while the Equal Pay Act finds “any other factor” acceptable. Compare 29 U.S.C. § 623(f)(1) with 29 U.S.C. § 206(d)(1)(iv). It could be argued that this difference distinguishes the ADEA from the Equal Pay Act, and supports the inference that the reasonableness requirement refers to the business necessity justification that, in Title VII cases, can be used to defend an employment qualification that has a disparate impact on employees in the protected class. In light of the differences between the ADEA and Title VII discussed herein, we decline to draw such an inference. 7 entitled The Older American Worker: Age Discrimination in Employment (1965), recommended that Congress ban arbitrary discrimination, such as disparate treatment based on stereotypical perceptions of the elderly, but that factors affecting older workers, such as policies with disparate impact, be addressed in alternative ways. Ellis, 73 F.3d at 1008. Thus, the history of the ADEA differs from the legislative history of Title VII, which the Supreme Court in Griggs relied on to find a cause of action for disparate impact. See Griggs, 401 U.S. at 432, 91 S. Ct. at 854 (discussing the history of amendments to the bill and noting that for Title VII, Congress specifically “placed on the employer the burden of showing that any given requirement must have a manifest relationship to the employment in question.”). Finally, while the Hazen Court left open the question of whether a disparate impact claim can be brought under the ADEA, language in the opinion suggests that it cannot. First, the Court noted that “[d]isparate treatment... captures the essence of what Congress sought to prohibit in the ADEA.” Hazen, 507 U.S. at 610, 113 S. Ct. at 1706. In addition, the Court reiterated that, in making employment decisions, the use of factors correlated with age, such as pension status, did not rely on “inaccurate and stigmatizing stereotypes” and was acceptable. Id. at 611, 113 S. Ct. at 1706-07. That position is inconsistent with the 8 viability of a disparate impact theory of liability, which requires no demonstration of intent, but relies instead on the very correlation between the factor used and the age of those employees harmed by the employment decision to prove liability. III. CONCLUSION The Second, Eighth, and Ninth Circuits allow disparate impact claims under the ADEA. The First, Third, Sixth, Seventh, and Tenth do not. We find the reasoning of the Tenth Circuit in Ellis and the First Circuit in Mullin persuasive. Accordingly, we find that disparate impact claims may not be brought under the ADEA, and AFFIRM. 9 BARKETT, Circuit Judge, specially concurring: I would affirm the district court’s ruling in this case, but for reasons other than the one relied upon by the district court.1 I do not believe the complaint here pleads a disparate impact claim sufficient to qualify for class certification. Thus, because I find that plaintiffs have sufficiently alleged only that they suffered disparate treatment, and the district court’s denial of certification on the disparate treatment claim is not at issue on this appeal, I believe it is unnecessary and premature to address the question of whether disparate impact claims are cognizable under the ADEA. I think it especially unwise because this question does not lend itself to a pronouncement in the abstract. The decision as to whether a disparate impact claim is available in an age discrimination case should be made on a case specific basis rather than on an overreliance on decontextualized language from the Supreme Court’s decision in Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993). The purposes of the ADEA, the Supreme Court’s treatment of the issue in Hazen Paper, and consideration of the various views of our sister courts, lead me to conclude that disparate impact can be 1 We may affirm the district court’s decision for reasons different than those stated by the district court. See Sec. & Exch. Comm’n v. Chenery Corp., 318 U.S. 80, 88 (1943) (stating that the decision of the lower court must be affirmed if the result is correct even though the lower court relied upon a wrong ground or gave a wrong reason); see also Turlington v. Atlanta Gas Light Co., 135 F.3d 1428, 1434 (11th Cir. 1998). 10 pled and proved in an appropriate case under the ADEA, and that it cannot be said as a matter of law that this theory of recovery can never be used in an age discrimination case. First of all, the purpose of the ADEA, like the purpose of Title VII and the ADA, is to eradicate employment discrimination based on the stigmatizing stereotypes of age, race, gender or disability. Disparate impact claims provide an avenue for members of protected classes to prove that discrimination occurred in the workplace when proof of motive is difficult or unavailable. Beginning with Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971), the Supreme Court recognized that although discriminatory intent could be hidden, even from the decisionmaker himself, its effects in the workplace could not. Thus, Title VII “proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation.” Id. at 431. Accordingly, the Supreme Court interpreted Title VII to permit a member of a protected group to challenge facially neutral employment practices that perpetuate inequality by disproportionately burdening a protected class. However, pleading a disparate impact case only gets you into the courthouse. An employer in every statutory context can defend a disparate impact 11 case by citing a legitimate business necessity for the neutral policy at issue.2 Thus, in those cases where it can be shown that the decision causing the disparate impact was based on business necessity, the claim will be defeated.3 Disparate impact is not an easy theory to plead and prove in any context. I believe that it is probably a more difficult claim to make under the ADEA than in a race or gender context because the impact of neutral policies which fall disproportionately on class members protected by the ADEA can be proven to be related to legitimate business reasons in more instances than those which might impact other protected groups. See Hazen Paper, 507 U.S. at 610-11. The majority, however, concludes that disparate impact claims are simply not viable because Section 623(f)(1) of the ADEA specifically exempts a decision based on factors other than age, notwithstanding its similarity to Title VII. 29 2 Title VII requires an employer to demonstrate that the challenged practice is a job related business necessity. 42 U.S.C. § 2000e-2(k)(1)(A)(i). The ADA defines discrimination as including the use of “selection criteria that screen out or tend to screen out an individual with a disability or a class of individuals with disabilities” unless such criteria are “shown to be job-related for the position in question and [are] consistent with business necessity.” 42 U.S.C. § 12112(b)(6). 3 See, e.g., Belk v. Southwestern Bell Telephone Co., 194 F.3d 946, 951 (8th Cir. 1999) (employer in ADA suit could raise business necessity defense to plaintiff’s claim that employer’s physical performance test has a disparate impact); Davis v. City of Dallas, 777 F.2d 203, 208 (5th Cir. 1985) (finding that city’s requirement that applicants for police officer must have completed 45 semester hours of college credit with at least C average at accredited college or university, must not have history of recent or excessive marijuana use, and must not have been convicted of more than three hazardous traffic violations in preceding 12 months, were job related). 12 U.S.C. § 623(f)(1). But, as noted, in every statutory discrimination case, a decision based upon legitimate business necessity will never support a claim for liability. Griggs itself recognized and repeatedly emphasized that disparate impact is a basis for relief only if the practice in question is not founded on “business necessity,” or lacks “a manifest relationship to the employment.” Id. at 431. Section 623(f)(1) of the ADEA adds nothing new. Therefore, Section 623(f)(1) of the ADEA should not be interpreted as anything more than a statutory description of the business necessity defense. In fact, the EEOC interpretive guidelines, which are entitled to judicial deference,4 suggest that the “reasonable factors” defense in the ADEA works in tandem with the business necessity defense in the disparate impact analysis. These guidelines indicate that an employer may raise a “reasonable factors” defense to justify employment practices that “have an adverse impact on individuals within the protected age group.” See 29 C.F.R. § 1625.7(d) (1999).5 In light of the 4 Edwards v. Shalala, 64 F.3d 601, 606 (11th Cir. 1995) (“‘An agency’s interpretation of an ambiguous provision within a statute it is authorized to implement is entitled to judicial deference.’”) (quoting Jones v. Runyon, 32 F.3d 1454, 1457-58 (10th Cir. 1994)); see also Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 696-98 (1991); Chevron USA, Inc v. Natural Resources Defense Council,467 U.S. 837, 866 (1984). 5 EEOC guidelines interpret the “reasonable factor other than age” defense as limited only to factors justifiable as a “business necessity”: (d) When an employment practice, including a test, is claimed as a basis for different treatment of employees or applicants for 13 parallels between the substantive provisions of the ADEA and Title VII, and in light of the fact that Congress has amended the ADEA several times but has never explicitly excluded disparate impact claims,6 a reasonable interpretation of Section employment on the grounds that it is a “factor other than” age, and such a practice has an adverse impact on individuals within the protected age group, it can only be justified as a business necessity. Tests which are asserted as “reasonable factors other than age” will be scrutinized in accordance with the standards set forth at Part 1607 of this Title. (e) When the exception of “a reasonable factor other than age” is raised against an individual claim of discriminatory treatment, the employer bears the burden of showing that the “reasonable factor other than age” exists factually. (f) A differentiation based on the average cost of employing older employees as a group is unlawful except with respect to employee benefit plants which qualify for the section 4(f) (2) exception to the Act. 29 C.F.R. § 1625.7 (2000). 6 After the Griggs decision, several courts extended disparate impact analysis to the ADEA. See, e.g., Leftwich v. Harris-Stowe State College, 702 F.2d 686, 690 (8th Cir. 1983); Geller v. Markham, 635 F.2d 1027 (2nd Cir. 1980); United Independent Flight Officers, Inc. v. United Air Lines, Inc., 572 F.Supp. 1494, 1505 (N.D. Ill. 1983). Congress has amended the ADEA several times since Griggs. See e.g., Age Discrimination in Employment Amendments of 1986, Pub. L. No. 99-592, 100 Stat. 3342 (1986); Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509, § 9201, 100 Stat. 1874, 1973-75 (1986); Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, § 9201(b), 100 Stat. 82, 171 (1986); Older Americans Act Amendments of 1984, Pub. L. No. 98-459, § 802, 98 Stat. 1792 (1984). None of the amendments have limited or prohibited disparate impact analysis. See also EEOC v. Governor Mifflin Sch. Dist., 623 F.Supp. 734, 740-41 (E.D.Pa 1985) (analyzing amendments to the ADEA and finding no prohibition against disparate impact claims). “Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change.” Lorillard v. Pons, 434 U.S. 575, 580 (1978). 14 623(f)(1) is that it codifies the business necessity exception to disparate impact claims. I am unpersuaded by the majority’s conclusion that the the Supreme Court’s determination that a similar provision in the Equal Pay Act (“EPA”) precludes disparate impact claims. See County of Washington, Ore. v. Gunther, 452 U.S. 161, 170-71 (1981). There are several problems with analogizing from the EPA to the ADEA. First, this case concerns the substantive provisions of the ADEA, which have been recognized to share common substantive provisions as Title VII, and not the remedial provisions of the ADEA which are similar to the remedial provisions of the EPA. Wallace v. Dunn Construction Co., 62 F.3d 374, 378 (11th Cir. 1995). Second, Section 206(d)(1) of the EPA permits discrepancies in wages paid to male and female workers for “any other factors other than sex.” 29 U.S.C. § 206(d)(1)(iv). The EPA thus merely requires the employer to provide a neutral explanation for any disparity in pay. The EPA’s broad defense for employers ensures that the Act targets only intentional purposeful discrimination.7 In 7 See Gunther, 452 U.S. at 170 (noting that in comparison to Title VII, which permits disparate impact claims, the Equal Pay Act “was designed differently, to confine the application of the Act to wage differentials attributable to sex discrimination.... Equal Pay Act litigation, therefore, has been structured to permit employers to defend against charges of discrimination where their pay differentials are based on a bona fide use of ‘other factors other than sex.’”); Varner v. Illinois State University, 226 F.3d 927, 934 (7th Cir. 2000) (“By providing a broad exemption from liability under the Equal Pay Act for any employer who can provide a neutral explanation for a disparity in pay, Congress has effectively targeted employers who intentionally 15 contrast, under section 623(f)(1) of the ADEA, the employer must demonstrate the reasonableness of the neutral factor. The ADEA’s narrow limitation of liability ensures that the Act reaches all arbitrary age discrimination. Furthermore, I disagree with the majority’s interpretation of Hazen Paper as precluding disparate impact claims under the ADEA. The Court in Hazen Paper took great care to say explicitly that that decision should not be read to address a disparate impact case: “[W]e have never decided whether a disparate impact theory of liability is available under the ADEA, and we need not do so here.” Hazen Paper, 570 U.S. at 610. In Hazen Paper, the neutral policy at issue was the termination of an employee who was close to vesting under his pension plan. As the Court recognized, the policy could have affected “older” and “younger” workers alike. The crucial fact underlying the Supreme Court’s decision in Hazen Paper was that Hazen Paper decided to fire the plaintiff on the basis of his pension status which, under the company’s policy, was based on years of service, not age. The Court explained that “an employee’s age is analytically distinct from his years of service.” Id. at 611. An employee who is younger than 40, and therefore outside the class of older workers as defined by the ADEA, see 29 U.S.C. § 631(a), may have worked for a discriminate against women.”). 16 particular employer his entire career, while an older worker may have been newly hired. Because age and years of service are analytically distinct, an employer can take account of one while ignoring the other, and thus it is incorrect to say that a decision based on years of service is necessarily “age based.” Id. Accordingly, the claimant could not prevail when he was fired on this basis, even though he was 62 years old. The Court held that the motivation to avoid the vesting of pension benefits was insufficient to state a disparate treatment claim under the ADEA because the evidence did not show that Hazen Paper’s decision was based on the plaintiff’s age. Id. (“When the employer’s decision is wholly motivated by factors other than age, the problem of inaccurate and stigmatizing stereotypes disappears. This is true even if the motivating factor is correlated with age, as pension status typically is.”). However, the Court also made clear that: We do not preclude the possibility that an employer who targets employees with a particular pension status on the assumption that these employees are likely to be older thereby engages in age discrimination. Pension status may be a proxy for age, not in the sense that the ADEA makes the two factors equivalent, but in the sense that the employer may suppose a correlation between the two factors and act accordingly. Id. at 612-13 (citation omitted). Thus, the Court did not rule out the possibility that an employer’s purported reliance on an age-proxy could reflect the type of 17 “inaccurate and denigrating generalization about age” that the ADEA was designed to prohibit. Id. at 612. For example, there is nothing in Hazen Paper that addresses a disparate impact challenge to an employer’s insurance policy which might provide coverage for health problems affecting young employees, but exclude coverage for health problems affecting older employees (for example, a policy which covered braces but not dentures, or a policy generally covering progressive, neurodegenerative diseases except for Alzheimer’s disease). See also Arnett v. California Public Employees Retirement System, 179 F.3d 690 (9th Cir.1999), vacated and remanded on other grounds, 528 U.S. 1111 (2000) (plaintiffs’ claim that employer’s disability benefits program which discriminated on the basis of potential years of service, rather than actual years of service, adversely affected older workers stated a valid claim of disparate impact under the ADEA). Furthermore, the Court explicitly stated that it did not consider a situation in which the employee’s pension status is based on age, rather than years of service: [W]e do not consider the special case where an employee is about to vest in pension benefits as a result of his age, rather than years of service and the employer fires the employee in order to prevent vesting. Hazen Paper, 570 U.S. at 613 (citation omitted). 18 Finally, the majority is of the view that the legislative history of the ADEA suggests it was not enacted to address disparate impact claims, citing the report commissioned from the Secretary of Labor, The Older American Worker: Age Discrimination in Employment (1965). The report recommended that Congress prohibit “arbitrary discrimination,” but that factors which “affect older workers” be addressed through programmatic measures to improve opportunities for older workers. Id. at 21-25. That report differentiated between what it termed “arbitrary discrimination” based on age and problems resulting from factors that “affect older workers more strongly, as a group, than they do younger employees.” Id. at 5, 11. The majority concludes that this precludes disparate impact claims because these are claims that only address “factors that affect older workers more strongly,” not arbitrary discrimination. But this begs the question. The very question disparate impact analysis seeks to answer is whether the challenged policy that disproportionately impacts older workers is derived from a reasonable business judgment or whether the policy is the result of arbitrary discrimination. Claimants should have the opportunity to prove it when it is the latter. 19	CRITICIZED_OR_QUESTIONED
724 F.2d 1390	164 F.3d 696	NF	Equal Employment Opportunity Commission v. Borden's, Inc.	SELYA, Circuit Judge. Plaintiff-appellant William Mullin sued his employer, defendant-appellee Raytheon Company, contending that his demotion (and a concomitant reduction in remuneration) constituted age discrimination in contravention of both the federal Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634, and the Massachusetts Anti-Discrimination Act, Mass. Gen. Laws ch. 151B, § 4(1B), (Chapter 151B). The district court granted Raytheon’s motion for summary judgment on all counts. See Mullin v. Raytheon Co., 2 F.Supp.2d 165 (D.Mass.1998). Mullin’s appeal raises, inter alia, a question of first impression in this circuit as to the viability of “disparate impact” claims in age discrimination eases. We conclude that such claims are not cognizable under either federal or state law. I. BACKGROUND Consistent with the summary judgment standard, we recount the material facts in the manner most congenial to the appellant’s theory of the case, accepting his (properly documented) version of genuinely disputed facts and drawing all reasonable inferences in his favor. See Coyne v. Taber Partners I, 53 F.3d 454, 457 (1st Cir.1995); Garside v. Oseo Drug, Inc., 895 F.2d 46, 48 (1st Cir.1990). Raytheon assigns salaried employees a labor grade on a numeric scale that ranges from 4 to 18. Each grade corresponds to a different (successively higher) earnings bracket. Prior to filing this action, the appellant worked for Raytheon for some twenty-nine years. He steadily climbed the corporate lattice. In 1979, he achieved a grade of 15 and became manager of manufacturing operations for Raytheon’s Andover (Massachusetts) plant — a position in which he supervised more than 2,000 employees. At that 698 point, his upward progression ceased. Although he retained a grade 15 classification until 1995, his duties changed and his authority gradually contracted. In 1984, Raytheon transferred Mullin to its Lowell (Massachusetts) plant, where he became a second-shift manager, supervising some 400 employees. Beginning in 1989, the company informally assigned him to the role of trouble-shooter and transferred him from area to area, according to need. In 1994, Raytheon designated him as the manager of the Gyro and Motorwind Work Centers at the Lowell plant — a position in which he oversaw fewer than 100 subordinates. Over the years, Raytheon’s principal business has been the manufacture of military ordnance. When the Cold War ended and Congress slashed the Defense Department’s procurement budget, the volume of work potentially available to Raytheon decreased proportionately. In an effort to adjust to these economic realities, Raytheon inaugurated major structural changes. Among other steps, it closed the Lowell plant and one in Manchester, New Hampshire, and folded the operations previously performed at those locations into its Andover plant. In the process, Raytheon relocated the appellant and his department to Andover. In addition to plant closings and consolidations, the retrenchment produced a significant number of layoffs and reassignments. It also included a wage freeze, during which Raytheon assayed the commensurability of upper-level salaried employees’ assigned labor grades and actual responsibilities. The company evaluated each position in light of criteria such as the complexity of the work undertaken, the number of employees supervised, and the financial responsibility inherent in the job. In the appellant’s case, it deemed his grade (15) inconsistent with his duties and downgraded him to level 12 — an action that, under established corporate policy, required a downward compensation adjustment to bring him within the salary range that corresponded to his new classification. 1 Claiming that age discrimination prompted this demotion, the appellant sued. His complaint, grounded in both federal question jurisdiction, 28 U.S.C. § 1331, and diversity jurisdiction, 28 U.S.C. § 1332 — Mullin is a citizen of New Hampshire and Raytheon is a Delaware corporation with its principal place of business in Massachusetts' — set out four statements of claim: two for disparate treatment (one under the ADEA and one under Chapter 151B) and two for disparate impact (one under the ADEA and one under Chapter 151B). After a period of discovery, Ray-theon moved for brevis disposition and the district court obliged. See Mullin, 2 F.Supp.2d at 175. This appeal ensued. II. ANALYSIS Summary judgment is a device that “has proven its usefulness as a means of avoiding full-dress trials in unwinnable cases, thereby freeing courts to utilize scarce judicial resources in more beneficial ways.” Mesnick v. General Elec. Co., 950 F.2d 816, 822 (1st Cir.1991). Its essential role is “to pierce the boilerplate of the pleadings and assay the parties’ proof in order to determine whether trial is actually required.” Wynne v. Tufts Univ. Sch. of Med., 976 F.2d 791, 794 (1st Cir.1992). The mechanics of the device are familiar, see, e.g., Garside, 895 F.2d at 48, and do not warrant exegetic description here. For present purposes, it suffices to note that summary judgment should be 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). In determining whether these criteria have been satisfied, we, like the trial court, “must view the entire record in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party’s favor.” Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.1990). With this brief preface, we turn to the appellant’s asseverational array. In the process, we review the lower court’s decision de novo. See Garside, 895 F.2d at 48. 699 A. Disparate Treatment — ADEA and Chapter 1S1B Claims. The tripartite burden-shifting regime conceived by the Supreme Court for use in Title VII cases, see St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502, 506-11, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993); Texas Dep’t of Community Affairs v. Burdine, 450 U.S. 248, 252-56, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981); McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-05, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973), applies to disparate treatment claims under the ADEA and Chapter 151B. See, e.g., Mesnick, 950 F.2d at 823 (ADEA); Whalen v. Nynex Info. Resources Co., 419 Mass. 792, 795, 647 N.E.2d 716, 718 (1995) (Chapter 151B). The parties concede that the appellant proffered a prima facie case and that Raytheon, by citing the cuts in defense spending, the attendant need to downsize, and the outcome of the personnel reevaluation, articulated a legitimate, non-diseriminatory explanation both for restructuring and for demoting the appellant. Thus, the contest here revolves around the third step of the McDonnell Douglas pavane. For purposes of Mullin’s ADEA-based disparate treatment claim, we must therefore concentrate on whether he adduced enough evidence to create a trialworthy question both as to the employer’s alleged motivation (animus based on age) and as to the pretextuality of its explanation for the adverse employment action. See Mesnick, 950 F.2d at 823; Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8-9 (1st Cir.1990). The appellant’s burden under Chapter 151B is somewhat less onerous. While federal law requires a showing of pretext plus age animus, the Massachusetts courts appear, at the third step of the pavane, to require a claimant to show only pretext. See Blare v. Husky Injection Molding Sys. Boston, Inc., 419 Mass. 437, 444-46, 646 N.E.2d 111, 116-17 (1995). 2 The difference between the federal “pretext-plus” standard and the Massachusetts “pretext-only” standard, though sometimes significant, is irrelevant in this case. The district court determined that the appellant failed to raise a genuine issue as to either pretext or age animus, see Mullin, 2 F.Supp.2d at 172, and, since we agree with the former determination, the appellant’s disparate treatment claims fail under either standard. We need not tarry. Raytheon advanced a strong, objectively verifiable set of reasons for consolidating operations, restructuring its work force, and downgrading Mul-lin: significant revenue loss stemming from massive Defense Department cutbacks, culminating in a reevaluation of all upper-echelon salaried employees. The appellant points to nothing that casts doubt upon the legitimacy of this reason, nor does he proffer any substantial evidence that would permit a rational jury to find that Raytheon rigged the restructuring in a fashion designed to ensure that the appellant’s labor grade and/or compensation level would be reduced unfairly. The district court painstakingly analyzed all the appellant’s submissions in this regard, see id. at 169-71, and it would be pleonastic to rehearse that discussion here.- We content ourselves with saying that, after having carefully sifted the record, we uphold the lower court’s disposition of the disparate treatment claims for essentially the reasons elucidated in its rescript. See Lawton v. State Mut. Life Assur. Co. of Am., 101 F.3d 218, 220 (1st Cir.1996) (counseling appellate courts not to wax longiloquent when a trial court has resolved a claim correctly and explained its rationale in a well-reasoned re-script); In re San Juan Dupont Plaza Hotel Fire Litig., 989 F.2d 36, 38 (1st Cir.1993) (similar). B. Disparate Impact — ADEA. The linchpin of a disparate treatment claim is proof of the employer’s discriminatory motive. See International Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n. 15, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977). Not so a claim of disparate impact: that type of claim is predicated not on proof of inten 700 tional discrimination, but, rather, on proof that the employer utilizes “employment practices that are facially neutral in their treatment of different groups but... in fact fall more harshly on one group than another and cannot be justified by business necessity.” Id. Although the district court skirted the question whether a disparate impact cause of action lies under the ADEA, see Mullin, 2 F.Supp.2d at 174-75, we take a more direct route. See Mesnick, 950 F.2d at 822 (“An appellate panel is not restricted to the district court’s reasoning but can affirm a summary judgment on any independently sufficient ground.”). We begin by focusing on the statutory language. See Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985). In pertinent part, the ADEA makes it unlawful for an employer “to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” 29 U.S.C. § 623(a)(1). A commonsense reading of this statement strongly suggests that the statute includes a requirement of intentional discrimination. See Ellis v. United Airlines, Inc., 73 F.3d 999, 1007 (10th Cir.1996) (“It would be a stretch to read the phrase ‘because of such individual’s age’ to prohibit incidental and unintentional discrimination that resulted because of employment decisions which were made for reasons other than age.”) (emphasis in original). However, Title VII contains parallel language, 3 and the Supreme Court concluded almost three decades ago that such language encompassed a theory of liability based on disparate impact. See Chiggs v. Duke Power Co., 401 U.S. 424, 431, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971) (holding that Title VII “proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation”). The question, then, is whether the ADEA, despite the apparent linguistic inhos-pitability, also should be read to encompass disparate impact claims. Congress enacted the ADEA in 1967. Pri- or to 1993, several courts ruled that the ADEA permitted the maintenance of disparate impact claims. See, e.g., Finnegan v. Trans World Airlines, Inc., 967 F.2d 1161, 1163 (7th Cir.1992); Maresco v. Evans Chemetics, 964 F.2d 106, 115 (2d Cir.1992); EEOC v. Borden’s, Inc., 724 F.2d 1390, 1394-95 (9th Cir.1984); Leftwich v. Harris-Stowe State Coll., 702 F.2d 686, 690 (8th Cir.1983). All of these courts simply assumed that Chiggs had settled the issue. The tectonic plates shifted when the Court decided an ADEA ease, Hazen Paper Co. v. Biggins, 507 U.S. 604, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993). Although Hazen Paper involved disparate treatment rather than disparate impact, see id. at 610, 113 S.Ct. 1701, language in the majority and concurring opinions caused lower courts to rethink the viability of disparate impact doctrine in the ADEA context. Writing for a unanimous Court in Hazen Paper, Justice O’Connor declared that “[disparate treatment... captures the essence of what Congress sought to prohibit in the ADEA.” Id. at 610, 113 S.Ct. 1701. Congress passed the ADEA due to “its concern that older workers were being deprived of employment on the basis of inaccurate and stigmatizing stereotypes.” Id. Consequently, the rationale that undergirds the statute is inapposite in instances where the employment decision is “wholly motivated by factors other than age,... even if the motivating factor is correlated with age.” Id. at 611, 113 S.Ct. 1701. This analysis is telling. Since disparate impact claims encompass the precise scenario that Justice O’Connor describes — disparate impact assigns liability when employment 701 practices are grounded in factors other than the statutorily protected characteristic (say, age), yet fall more harshly on individuals within the protected group (say, older persons) — the inescapable implication of her statements is that the imposition of disparate impact liability would not address the evils that Congress was attempting to purge when it enacted the ADEA. Equally as important, Justice O’Connor’s exposition of the purposes underpinning the ADEA sets that statute apart from Title VII (and, thus, effectively distinguishes Griggs). Congress enacted Title VII in an effort to equalize employment opportunities for individuals whose employment prospects had been dimmed by past discriminatory practices. See Griggs, 401 U.S. at 429-30, 91 S.Ct. 849. Neutral, nonessential employment policies that diserimi-natorily impact protected groups would, if transposed onto such an uneven baseline, exacerbate the preexisting imbalance and countervail the core purpose of Title VII. Hence, the Court had ample reason to construe the language of Title VII to bar such practices, when not justified by an actual business necessity. See id. at 431, 91 S.Ct. 849. By contrast, age-based discrimination correlates with contemporaneous employment-related conditions, not past discriminatory practices. See Hazen Paper, 507 U.S. at 610-12, 113 S.Ct. 1701; Massachusetts Bd. of Retirement v. Murgia, 427 U.S. 307, 313, 96 S.Ct. 2562, 49 L.Ed.2d 520 (1976). The aging process is inevitable, and Congress was not trying to dissolve those naturally occurring relationships through the medium of the ADEA, but, rather, aimed to protect older workers against the disparate treatment that resulted from stereotyping them as less productive and therefore less valuable members of the work force because of their advancing years. This divergence in purpose between Title VII and the ADEA counsels convincingly against mechanistic adherence to Griggs in the ADEA milieu. The concurring opinion in Hazen Paper lends further support to this conclusion. In it, Justice Kennedy wrote for himself and two other Justices to underscore that “nothing in the Court’s opinion should be read as incorporating in the ADEA context the so-called ‘disparate impact’ theory of Title VII.” Hazen Paper, 507 U.S. at 618, 113 S.Ct. 1701 (Kennedy, J. concurring). “[Tjhere are,” he wrote, “substantial arguments that it is improper to carry over disparate impact analysis from Title VII to the ADEA.” Id. Other courts also find the arguments to which Justice Kennedy referred compelling. Since 1993, a majority of the courts of appeals that have addressed the question have held that the ADEA does not recognize causes of action premised on disparate impact. See Ellis, 73 F.3d at 1007; Lyon v. Ohio Educ. Ass’n, Prof'l Staff Union, 53 F.3d 135, 138-39 (6th Cir.1995); EEOC v. Francis W. Parker Sch., 41 F.3d 1073, 1077 (7th Cir.1994). The two courts of appeals that have held to the contrary have done so in reliance on pre-Hazen Paper precedents and the law of the circuit doctrine. See District Council 37 v. New York City Dep’t of Parks & Recreation, 113 F.3d 347, 351 (2d Cir.1997) (relying on Maresco, 964 F.2d 106); Houghton v. SIPCO, Inc., 38 F.3d 953, 958-59 (8th Cir.1994) (assuming, without any discernible analysis or citation, the availability of disparate impact theory, presumably in light of Leftwich, 702 F.2d 686). 4 Three additional considerations persuade us that the majority view is correct, that Hazen Paper foretells the future, that Griggs is inapposite in the ADEA context, and that proof of intentional discrimination is a prerequisite to liability under the ADEA. We touch briefly on each consideration. 1. Text and Structure. A critical asymmetry in the texts of the ADEA and Title VII counsels convincingly against recognizing a disparate impact cause of action under the former statute. The ADEA stipulates that “[ijt shall not be unlawful for an employer... to take any action otherwise prohibited... where the differentiation is based on 702 reasonable factors other than age.” 29 U.S.C. § 623(f)(1). This proviso permits employers to utilize factors other than age as grounds for employment-related decisions that differentially impact members of the protected class (individuals between the ages of 40 and 69). When this exception is read with the ADEA’s general prohibition against age-based discrimination, the resulting construction follows: it shall be unlawful to “discriminate against any individual... because of such individual’s age,” except when “based on... factors other than age.” Thus, if the exception contained in section 623(f)(1) is not understood to preclude disparate impact liability, it becomes nothing more than a bromide to the effect that “only age discrimination is age discrimination.” Such a circular construction would fly in the teeth of the well-settled canon that “[a]ll words and provisions of statutes are intended to have meaning and are to be given effect, and no construction should be adopted which would render statutory words or phrases meaningless, redundant or superfluous.” United States v. Ven-Fuel, Inc., 758 F.2d 741, 751-52 (1st Cir.1985). The Supreme Court’s treatment of similar language in the Equal Pay Act is instructive on this front. In County of Washington v. Gunther, 452 U.S. 161, 101 S.Ct. 2242, 68 L.Ed.2d 751 (1981), the Court addressed 42 U.S.C. § 2000e-2(h), a statute that exempts wage differentials between men and women “authorized by the provisions of section 206(d) of Title 29” from Title VII’s general prohibition against gender-based discrimination. Section 206(d), in turn, covers four types of situations, one of which parallels the exemption found in ADEA § 623(f)(1). Distilled, this provision allows payment of differential wages to men and women “based on any other factor other than sex.” 29 U.S.C. § 206(d)(l)(iv). For analytic purposes, the Court juxtaposed this limitation on Equal Pay Act liability with Title VII’s broadly inclusive prohibition against gender-based discrimination and commented that the limiting language worked to “confine the application of the Act to wage differentials attributable to sex discrimination.” Gunther, 452 U.S. at 170, 101 S.Ct. 2242. For that reason, the Justices concluded that the Equal Pay Act “has been structured to permit employers to defend against charges of discrimination where their pay differentials are based on a bona fide use of ‘other factors other than sex’.” Id.; see also City of Los Angeles v. Manhart, 435 U.S. 702, 710 n. 20, 713 n. 24, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978) (reasoning that the Equal Pay Act’s “other factors other than sex” exception precludes liability based on disparities caused by independent factors). This statement suggests quite forcefully that the exception eliminates disparate impact from the armamentarium of weapons available to plaintiffs under the Equal Pay Act and, correspondingly, confines the scope of liability to instances of intentional discrimination, that is, to instances of disparate treatment. We believe that the exception found in ADEA § 623(f)(1) effects a similar limitation on the type of claims that are permitted under the ADEA, and that any alternative conclusion would be untenable. When the ADEA’s general prohibition and the statutory exception are read in pari materia, as a unified whole, the prohibition forbids disparate treatment based on age and the exception authorizes disparate impact. Thus, Professor Laycock’s commentary, made in the Equal Pay Act context, applies equally to the ADEA: “The prohibition and the exception appear identical. The sentence is incomprehensible unless the prohibition forbids disparate treatment and the exception authorizes disparate impact.” Douglas Laycock, Continuing Violations, Disparate Impact in Compensation, and Other Title VII Issues, 49 L. & Contemp. Prob. 53, 55 (1986). 5 2. Legislative History. The legislative history of the ADEA provides added support for interpreting it independent of Title VII in regard to disparate impact claims. When enacted, Title VII included a provision requiring the Secretary of Labor to conduct a 703 detailed study on the causes and effects of age discrimination. See Pub.L. No. 88-352, § 715, 78 Stat. 265 (1964). The resulting report, entitled The Older American Worker: Age Discrimination in Employment (1965) ( the Report), served as a principal impetus for the ADEA. See Ellis, 73 F.3d at 1008. The Report remarked the need for legislation to combat stereotyping and to rectify the perception that older persons cannot do particular jobs. See Report at 6-11, 21-22. Conversely, it found “no evidence of prejudice based on dislike or intolerance of the older worker.” Id. at 6. Inasmuch as disparate impact theory is designed to combat invidious prejudice that is entirely unrelated to an ability to perform the job, see Griggs, 401 U.S. at 429-32, 91 S.Ct. 849, the Report’s findings suggest that the theory has no utility in age discrimination cases. The Report also distinguished between “arbitrary discrimination” based on age (disparate treatment) and other institutional arrangements that have a disproportionate effect on older workers (disparate impact). Report at 21-25. It recommended that arbitrary discrimination be statutorily prohibited, but that systemic disadvantages incidentally afflicting older workers be addressed through educational programs and institutional restructuring. See id.; see also Ellis, 73 F.3d at 1008. The Report thus segregated the appropriate remedies for disparate treatment from those for disparate impact. A fair reading of the ADEA — the statute that followed hard on the heels of the Report — indicates that Congress gave effect to this dichotomy by proscribing only intentional discrimination in age cases (while requiring the Secretary to study and develop education and research programs to lessen the negative employment effects that attend the aging process). See 29 U.S.C. §§ 622-623; see also Ellis, 73 F.3d at 1008. 3. The 1991 Amendments. The third factor that persuades us not to emulate the G?iggs approach to Title VII in the ADEA context concerns more- recent legislative developments. In 1991, Congress amended Title VII to provide explicitly for causes of action based upon disparate impact. See Pub.L. No. 102-166, § 105, 105 Stat. 1071, 1074-75 (1991). It simultaneously amended the ADEA in myriad respects, see, e.g., id. at § 115, 105 Stat. at 1079, but it did not create a corresponding disparate impact cause of action. We are mindful that courts ordinarily should tread slowly in premising statutory construction on the action (or inaction) of subsequent Congresses. See Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 306, 108 S.Ct. 1145, 99 L.Ed.2d 316 (1988). Still, what transpires in a later legislative session sometimes constitutes a useful source of guidance in statutory interpretation cases, see, e.g., Andrus v. Shell Oil Co., 446 U.S. 657, 666 n. 8, 100 S.Ct. 1932, 64 L.Ed.2d 593 (1980); Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 596, 100 S.Ct. 800, 63 L.Ed.2d 36 (1980); United States v. O’Neil, 11 F.3d 292, 300 (1st Cir.1993); Liberty Mut. Ins. Co. v. Commercial Union Ins. Co., 978 F.2d 750, 755 n. 7 (1st Cir.1992), and we think that the circumstances at hand invite the application of that doctrine. Congress’ insertion of an express provision for a disparate impact cause of action in Title VII renders the absence of such a provision in the ADEA — which was undergoing revision at the same time by the same committees and in the same bill — highly significant. See Richerson v. Jones, 551 F.2d 918, 927-28 (3d Cir.1977); cf. General Elec. Co. v. Southern Constr. Co., 383 F.2d 135, 138 n. 4 (5th Cir.1967). In sum, we have largely analogous statutes that diverge structurally on a discrete but important point. Coupled with the other factors we have discussed, this divergence helps to persuade us that Congress never intended to make a disparate impact cause of action available under the ADEA. We fully agree with the Sixth Circuit’s assessment: “The ADEA was not intended to protect older workers from the often harsh economic realities of common business decisions and the hardships associated with corporate reorganizations, downsizing, plant closings and relo-cations.” Allen v. Diebold, Inc., 33 F.3d 674, 677 (6th Cir.1994). To say more on this point would be supererogatory. For the foregoing reasons, we join those courts of appeals which have held that 704 the ADEA does not impose liability under a theory of disparate impact. We therefore affirm the district court’s entry of summary judgment for Raytheon on the appellant’s federal disparate impact claim. C. Disparate Impact — Chapter 151B. We are left with the appellant’s state-law disparate impact claim. The able district judge noted that Massachusetts has yet to determine whether disparate impact is actionable in age discrimination cases, but disposed of the claim on another ground. See Mullin, 2 F.Supp.2d at 175. Consistent with our earlier approach, we address the threshold question. The appellant disagrees that the viability of disparate impact theory in age discrimination cases remains unsettled under state law. He notes that Massachusetts outlaws many types of discrimination by means of a single, comprehensive statute (Chapter 151B) and that the Massachusetts Supreme Judicial Court (SJC) has recognized a disparate impact cause of action with respect to one group protected by that statute. See Cox v. New Engl. Tel. & Tel. Co., 414 Mass. 375, 385, 607 N.E.2d 1035, 1041 (1993) (discussing handicap discrimination). Building on this foundation, the appellant reasons that Chapter 151B makes a disparate impact theory available to all groups who fall within its protective carapace. Although this construct possesses a certain superficial appeal, it cannot withstand scrutiny. Chapter 151B is divided into several sections and subsections, and the structure of the statutory scheme itself suggests that separate provisions within Chapter 151B are to be interpreted independently. Age, for example, is treated separately within the Chapter 151B taxonomy. See Mass. Gen. Laws ch. 151B, § 4(1B). 6 This is especially significant because, when the legislature amended Chapter 151B in 1984, it moved age (which previously had been grouped alongside race, color, religion, national origin, sex and ancestry) from within the compass of section 4(1) and placed it in a separate, newly crafted statutory niche, section 4(1B). 7 See An Act Relative to the Dismissal of Certain Persons from Employment or the Refusal to Employ Such Persons Due to Age, 1984 Mass. Acts 631, 632-33. This structural redesign constitutes potent evidence that the legislature meant the two provisions to be distinct and interpreted independently of one another. Were this not so, there would have been no need to split section 4(1) in two. The appellant’s hypothesis that the Massachusetts courts have cleared disparate impact for use in all instances arising under Chapter 151B (including age discrimination) is flawed in another respect as well; it not only overlooks the structure of the statutory scheme, but also misreads the case law. As stated, the hypothesis rests upon three SJC decisions. One is Cox, to which we soon shall return. Neither of the other two is persuasive authority on the point. School Comm. of Braintree v. MCAD, 377 Mass. 424, 386 N.E.2d 1251 (1979), was a disparate treatment case that involved gender discrimination. The SJC mentioned disparate treatment and disparate impact as available theories of liability. See id. at 429, 386 N.E.2d at 1254. There is no indication that the court intended this passing mention to encompass age discrimination. In point of fact, the court referred specifically to race, color, religion, sex, and national origin (all protected groups under section 4(1)), but never mentioned age. See id. at 428, 386 N.E.2d at 1254. The appellant’s next case, Lynn Teachers Union v. MCAD, 406 Mass. 515, 549 N.E.2d 705 97 (1990), also concerned a disparate treatment sex discrimination claim. The SJC stated in dictum that “[a] prima facie case of employment discrimination can be based on a theory of disparate impact or disparate treatment.” Id. at 526, 549 N.E.2d at 103. This dictum is unhelpful for present purposes. The court’s focus was on the proper scope of section 4(17)(a), a provision of Chapter 151B that exempts “bona fide seniority systems” from the general proscription of Chapter 151B. Relying in part on the fact that section 4(17)(a) had been introduced into Chapter 151B by way of the 1984 amendments, see 1984 Mass. Acts 631-33, the court held that the legislature had not intended “to screen bona fide seniority systems from the scrutiny of all of the Commonwealth’s antidiscrimi-nation laws.” Lynn Teachers, 406 Mass, at 525, 549 N.E.2d at 103. Rather, section 4(17)(a) was directed only to age discrimination claims. See id. Thus, Lynn Teachers contradicts Muffin’s hypothesis in two critical aspects: it exemplifies that all forms of discrimination proscribed by Chapter 151B ought not to be lumped together for interpretive purposes; and it illustrates the special way in which the SJC approaches age discrimination. Against this backdrop, we find the approach taken by the SJC in Cox to be instructive. Cox dealt with Chapter 151B in the context of a handicap discrimination claim. Like age discrimination, handicap discrimination is governed by a separate provision within Chapter 151B. See supra note 6. Recognizing that Cox presented a question of first impression, the SJC stated that it would look for guidance to the federal courts’ treatment of handicap discrimination under section 504 of the Rehabilitation Act of 1973, 29 U.S.C. § 794. See Cox, 414 Mass, at 382, 607 N.E.2d at 1039. Declaring that there was “no reason to construe the Commonwealth’s law differently” than its federal counterpart, the SJC then followed federal precedents holding disparate impact actionable under section 504. See id. at 390, 607 N.E.2d at 1043-44; see also Alexander v. Choate, 469 U.S. 287, 297 n. 17, 105 S.Ct. 712, 83 L.Ed.2d 661 (1985) (collecting federal cases). Cox epitomizes the SJC’s general approach in such matters, see, e.g., White v. University of Mass, at Boston, 410 Mass. 553, 557, 574 N.E.2d 356, 358 (1991) (“The analysis of a discrimination claim is essentially the same under the State and Federal statutes.”), and thus offers a window on the SJC’s handling of Chapter 151B. It confirms our intuition that the SJC will interpret separate provisions of the statute independently. Moreover, Cox also shows that, when confronted with employment discrimination claims of novel impression, the SJC tends to rely on federal court interpretations of analogous federal statutes. Accord Vasys v. Metropolitan Dist. Comm’n, 387 Mass. 51, 54, 438 N.E.2d 836, 839 (1982) (“When the Legislature, in enacting a statute, adopts the language of a Federal statute, we will ordinarily construe the Massachusetts statute in accordance with the construction given the cognate Federal statute by the Federal courts.”); Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 611, 405 N.E.2d 106, 108 (1980) (similar). We rule, therefore, that Cox, fairly read, does not justify an inference that the SJC, by recognizing disparate impact claims in terms of handicap discrimination, intended to transplant the theory into the age discrimination milieu. It follows that the SJC has not yet staked out a position in regard to the viability of age discrimination claims grounded in disparate impact. Because state law is inscrutable in this regard, 8 “it becomes our duty to vaticinate how the state’s highest tribunal would resolve matters.” Moores v. Greenberg, 834 F.2d 1105, 1107 (1st Cir.1987). In that process, “we may seek inspiration from... analogous state court decisions.” Kathios v. General Motors Corp., 862 F.2d 944, 949 (1st Cir.1988). Here, we adopt the Cox court’s approach. The Massachusetts age discrimination prohibition and the federal age discrimination prohibition are substantially identical, compare Mass. Gen. Laws, eh. 151B, § 4(1B), unth 29 706 U.S.C. § 623(a)(1), and, as said, the public policy concerns implicated by age discrimination are distinct from the concerns created by other forms of discrimination. Under these circumstances, we conclude that, when faced with the question, the SJC likely will look to the federal courts’ interpretation of the ÁDEA and hold that an age discrimination claim cannot be grounded solely on a theory of disparate impact. Accordingly, we sustain the district court’s rejection of the appellant’s remaining claim. 9 III. CONCLUSION We need go no further. Concluding, as we do, that the lower court appropriately granted summary judgment in Raytheon’s favor on all four of Mullin’s statements of claim, we affirm the judgment below'. Affirmed. 1. Raytheon phased in the pay cut, reducing the appellant's salary by 10% in October 1995, and scheduling another 10% reduction to take place six months thereafter. The second cut never materialized because Mullin took a medical leave. 2. This conclusion assumes, favorably to the appellant, that Blare remains good law. But cf. McMillan v. Massachusetts Soc’y for the Prevention of Cruelty to Animals, 140 F.3d 288, 312 (1st 700 Cir.1998) (opinion on order denying rehearing en banc). 3. Tille VII makes it unlawful for an employer: (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex or national origin; or (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin. 42 U.S.C. § 2000e-2(a)(l)-(2). 4. In Mangold v. California Pub. Util. Comm’n, 67 F.3d 1470, 1474 (9th Cir.1995) (dictum), the Ninth Circuit expressed doubts as to the continued vitality of its pre-Hazen Paper ADEA disparate impact jurisprudence, but implied that its earlier decision still may be the law of the circuit. 5. We hasten to add that, since Title VII contains no comparable exception, this difference in the statutory schemes further distinguishes Griggs. 6. So, too, is handicap discrimination. See Mass. Gen. Laws ch. 151B, § 4(16). This fact tends to limit the long reach that the appellant attaches to Cox. 7. In pertinent part, the amended version of section 4(1) prohibits discrimination by a private-sector employer "in compensation or in terms, conditions or privileges of employment” on account "of the race, color, religious creed, national origin, sex, sexual orientation,... or ancestry of any individual,” subject, however, to an exception for actions "based upon a bona fide occupational qualification.” In contrast, section 4(1 B) prohibits such employers from discriminating "in compensation or. in terms, conditions or privileges of employment,” on account "of the age of any individual,” unless the employer’s action is "based upon a bona fide occupational qualification.” 8. We have researched the reported decisions of the Massachusetts Appeals Court and find them unhelpful on the question. 9. We may, perhaps, be conservative in our interpretation of state law, but the plaintiff, who chose to prosecute a state-law cause of action in a federal forum, had no right to anticipate that we would be more adventurous. See, e.g., Porter v. Nutter, 913 F.2d 37, 41 (1st Cir.1990); Kassel v. Gannett Co., 875 F.2d 935, 950 (1st Cir.1989).	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	49 F.3d 75	OR	Equal Employment Opportunity Commission v. Borden's, Inc.	JACOBS, Circuit Judge, dissenting: I respectfully dissent. The majority frames the issue as “whether, by adopting the Air National Guard’s (the “Guard”) mandatory age-60 retirement policy as a term of employment,” the Division violated the ADEA. Having framed the issue in that way, the majority has little trouble concluding that the Division’s policy is facially discriminatory. I do not see the issue in terms of an adoption by reference of the Guard’s retirement policy. Nor do I think that the Division’s termination policy is “inextricably linked” to age. I would therefore consider the Division’s policy within the McDonnell Douglas framework. So considered, the Division’s policy handily withstands challenge under the ADEA, as United States Magistrate Judge Ralph Smith concluded in his admirable, unpublished opinion. The majority opinion sets forth the section of the Division’s military regulations that fixes a retirement age of 60. State of New York Div. of Military and Naval Affairs, Military Reg. No. 7 (MR-7), § 8-3(a) (1981). At oral argument, however, the Division assert81ed — and Johnson’s counsel did not dispute— that this was a ease of termination, not retirement, and that the retirement section of its regulations therefore was not invoked in terminating Johnson. Instead, Johnson was terminated pursuant to another section of MR-7, which provides that, if an “employee, occupying a position which required active status as a member of the Organized Militia, i.e., Air Base Security Guard positions, loses such status, under any circumstances,” he may be terminated. State of New York Division of Military and Naval Affairs, Military Regulation No. 7 § 6 — 2(h)(1)(f) (emphasis added). This is the only regulation implicated in this ease; and it is facially neutral, as neutral as the policy it serves and implements: that civilian security guards posted at the Stratton Air National Guard Base maintain active status in the Guard. The ADEA is- concerned with the role that age plays in the employer’s decision to terminate. See Hazen Paper Co. v. Biggins, — U.S. -, -, 113 S.Ct. 1701, 1706, 123 L.Ed.2d 338 (1993) (“a disparate treatment claim cannot succeed unless the employee’s protected trait actually played a role in that process and had a determinative influence on the outcome”). The majority concludes that “Johnson was fired, in short, because the State incorporated the military’s, mandatory retirement age into the terms of employment....” I conclude that Johnson was fired because — and only because — he no longer was an active member of the Guard. The reason he lost that status is immaterial, since it played no part in the actual decision to terminate his employment. The majority opinion concludes that the Division’s policy is facially discriminatory because “[a]ge and termination are inextricably linked,” and draws an analogy to the facial discrimination in Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v. Norris, 463. U.S. 1073, 103 S.Ct. 3492, 77 L.Ed.2d 1236 (1983). There is no doubt that Johnson was terminated in accordance with a regulation whose effect will often correlate with age, and that the Division’s policy invites scrutiny under the ADEA. However, the correlation is not one-to-one and is not of the Norris variety. In Norris, the State offered annuity benefits through insurance companies that relied oh actuarial tables to pay lower benefits to all women. Thus an' entire protected class of employees suffered discrimination in job benefits; it was held that the State could not defend'on the ground that the differential was-the doing of the insurers. In this case, the Division’s policy operates in a neutral way: not everyone who attains age 60 is terminated; not everyone who is terminated has attained age 60. Any employee who loses active Guard status is subject to termination, regardless of age, race or sex, and regardless of the reason for separation from the military. The only distinction that kicks in at age 60 is that an employee who ceases to be a member of the militia solely by virtue of turning 60 is eligible for a waiver, providing for retention of individuals who have at least ten years continuous service in the •Guard and the Division. Such a policy, which merely correlates with age, is subject to.analysis within the burden-shifting framework of McDonnell Douglas. The opinion of magistrate judge Smith does what McDonnell Douglas requires; and thereby demonstrates the non-discriminatory purpose and effect of the Division’s policy and Johnson’s termination. If that opinion were published, I would say little more. Since it’is unpublished, I will set forth the key points of the analysis. The first step is to determine whether the plaintiff has presented a prima facie ease of discrimination. See Stetson v. NYNEX Serv. Co., 995 F.2d 355, 359 (2d Cir.1993). Although that is disputable, the Division has not disputed it, and the burden therefore shifts to the defendant “to rebut the presumption of discrimination by producing evidence that the plaintiff was.[terminated].., for a legitimate, nondiscriminatory reason.” Texas Dep’t of Community Affairs v. Burdine, 450 U.S. 248, 254, 101 S.Ct. 1089, 1094, 67 L.Ed.2d 207 (1981). The Division offered the following reasons for the “dual status” requirement, as summarized by the magistrate judge. First, “the- training requirements for that position can be met through participation in National Guard training.” Johnson v. State of New York, Dkt. No. 92-CV-643, Slip Op. at 8-9 (March 24, 1994). Second, “Air Base Security 82Guards are armed with sidearms and work inside military air bases providing security for aircraft and related equipment. Thus, specialized training is required which is facilitated by their Guard membership.” Id. at 9. The magistrate judge referenced two letters in the- record that supported this argument that training was the primary reason for the dual-status requirement. Finally, the dual-status requirement assures “that Air Base Security Guards are uniformed personnel, who are familiar with military protocol and terminology and with the equipment they are to protect... [and] that in the event their unit is activated, the Air Base Security Guards are available to accompany their unit and the aircraft they are responsible for protecting.” Id. at 10 (citing Ridgway v. Aldrige, 709 F.Supp. 265, 270 (D.Mass.1989)). In- my view, this more than satisfies the Division’s burden under the second prong of the McDonnell Douglas analysis. These non-discriminatory considerations have a direct and plausible bearing on the training and function of the employees, as well as on the costs of assuring readiness. Air base security guards serve under the general management of an Air National Guard security officer, and perform such duties as armed patrols, security protection of facilities under applicable directives of the- Department of Defense, the Air Force, and the Air National Guard, as well as various armed response functions. In addition, these security guards inspect weapons and ammunition vaults, and perform the security measures necessary to secure the combat potential of their Guard units against sabotage and attack. There is, therefore, a close kinship in function and duties between air base security guards and national guardsmen. The quasi-military nature of these -security. guards ought to engender a high level of deference from a court. “[I]t is difficult to conceive of an area of governmental activity in which the courts have less competence. The complex subtle, and professional decisions as to the 'composition-, training, equipping, and control of a military force are essentially professional military judgments, subject always to civilian control of the Legislative and Executive branches. The ultimate responsibility for these decisions is appropriately vested in branches of the government which are periodically subject to electoral accountability.” Gilligan v. Morgan, 413 U.S. 1, 10, 93 S.Ct. 2440, 2446, 37 L.Ed.2d 407 (1973). Having correctly concluded that the Division adequately rebutted the presumption of discrimination, the magistrate judge considered the final factor: whether the plaintiff had met his ultimate burden of persuasion, by proving both that the reasons given by the division were a “pretext” and that he was the victim of intentional discrimination. See id. — U.S. at-, 113 S.Ct. at 2747-48. Magistrate Judge Smith concluded: [Defendants correctly contend that while plaintiffs arguments may very well raise questions as to whether the dual status requirement is the best means of assuring that Air Base Security Guards are properly trained, he has failed to demonstrate that the primary purpose of the policy— facilitation of training — is pretextual. More fundamentally, he. has failed to adduce any evidence that the dual status requirement was in fact adopted by [the Division] in an effort to discriminate against- older employees. The Supreme Court has noted that in its view, “ ‘pretext’ means ‘pretext for discrimination.’” St. Mary’s, — U.S. at-, 113 S.Ct. at 2752. Slip Op. at 15. The magistrate judge then moved on to consider whether Johnson had provided any evidence that “the true motivation for the policy is discriminatory animus against older employees on the basis of age.” Id. The ten-year service waiver provision, adopted as part of the collective bargaining agreement, refutes the idea that the dual-service provision was a retirement provision in disguise. Theodore D. Chrimes III, the man who negotiated the 10-year service waiver provision on behalf of the Division, testified at deposition that the dual-status requirement was not “ ‘intended nor does it have any relationship to retirement.’ ” Id. Donald J. Kelly, who signed the agreement for this provision on behalf of the employees’ union, admitted in an affidavit that “ ‘[t]here was absolutely no discussion regarding a [Division] employee’s being honorably discharged because of age or that [the Division] was adopting the mili*83tary’s mandatory retirement age.’ ” Id. at 16. After rejecting various arguments put forward by Johnson, the magistrate judge concluded that “plaintiffs termination was based on a factor that was only empirically related to age.” He pointed out that, under the 1988 collective bargaining agreement (creating the waiver of dual-status for employees with at least 10 years of service), Air Base Security Guards who reach 60 years of age could continue in their posts while, “if a 28-year old Air Base Security Guard were to resign from the Guard after just four years of service, or even after almost eight years like plaintiff, the.dual status policy would mandate the loss of his State job.” The magistrate judge properly concluded that Johnson failed to demonstrate either pretext or discriminatory intent. For this reason, he held that the Division would be granted summary judgment.. The McDonnell Douglas analysis illuminates a root distinction between Norris and Johnson’s claim here. In Norris, the challenged practice had nothing to do with job performance or qualification. Here, the challenged practice serves the employer’s mission directly and significantly. Employers frequently seek to hire people who have and can maintain a status conferred by some other agency (certified teachers, off-duty police, licensed pilots), where that status serves as an imprimatur of training, character, or necessary physical or mental condition. The ADEA does not outlaw such considerations. The job-related character of the dual-status requirement can be demonstrated by considering the effect of abandoning it. Over time, an increasing proportion of the civilian security detail at that base would consist of people who are not active members 'of the Guard. If the Guard is then activated for foreign, war-time duty, few civilian security guards may be available to accompany the unit to its destination. Officials responsible for the air base may start to wonder whether the security mission can be accomplished by civilian employees.	INVALIDATED
724 F.2d 1390	41 F.3d 1073	D	Equal Employment Opportunity Commission v. Borden's, Inc.	41 F.3d 1073 66 Fair Empl.Prac.Cas. (BNA) 85, 65 Empl.Prac. Dec. P 43,301,63 USLW 2265, 96 Ed. Law Rep. 77 EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff-Appellant,v.FRANCIS W. PARKER SCHOOL, Defendant-Appellee. No. 93-3395. United States Court of Appeals,Seventh Circuit. Argued April 20, 1994.Decided Oct. 21, 1994.Rehearing and Suggestion for RehearingEn Banc Denied Nov. 18, 1994.* Gail S. Coleman (argued), E.E.O.C., Office of Gen. Counsel, Washington, DC, Sharon A. Seeley, John C. Hendrickson, Gordon Waldron, E.E.O.C., Chicago, IL, for plaintiff-appellant. Don Sampen (argued), Gayle M. Meadors, Charles L. Michod, Jr., Martin, Craig, Chester & Sonnenschein, Chicago, IL, for defendant-appellee. Steven S. Zaleznick, Cathy Ventrell-Monsees, Thomas W. Osborne, American Ass'n of Retired Persons, Washington, DC, for American Ass'n of Retired Persons, amicus curiae. Before BAUER, and CUDAHY, Circuit Judges, and GRANT, District Judge.** BAUER, Circuit Judge. 1 The United States Equal Employment Opportunity Commission ("EEOC") brought an action against the Francis W. Parker School ("Parker") alleging that in its 1989 hiring of a drama teacher, the school violated the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. Secs. 621-634. The district court granted summary judgment in favor of Parker. We affirm. I. 2 Parker is a private primary and secondary school located in Chicago's Lincoln Park area. The principal of the school has ultimate authority as to decisions on hiring and firing of teachers. Incumbent teachers' salaries are determined by a twenty-two-step system which links salary to work experience. As a matter of policy, Parker has also used the step system to determine the salaries it will pay new teachers by crediting them for prior teaching experience they have had elsewhere. 3 When a teacher left Parker's drama department in the fall of 1988, Paul Druzinsky, the head of the department, was asked to search for a replacement. Because of fiscal constraints, Parker's principal, John Cotton, told Druzinsky that the position would pay an annual salary of no more than $28,000. The list of candidates was narrowed to three, all of whom were interviewed between March 14 and March 24 of 1989. On March 27, Parker hired Nancy Bishop as the school's new full-time drama teacher. Bishop had at the time a year of experience and was to start at an annual salary of $22,000. 4 In the meantime, on March 13, after Druzinsky had announced the three finalists for the position, one of Parker's music teachers asked Druzinsky if he would review the resume of a drama teacher named Harold Johnson. Johnson was sixty-three years old and claimed to have thirty years of experience. Druzinsky called Johnson a week later to inform him that he would not be hired. One of the reasons given for the decision was that Johnson qualified for a salary higher than Parker could afford. Druzinsky claims that he also told Johnson that he was not considered for the position because Druzinsky had received Johnson's resume after the search process was over and the final candidates had been chosen. Johnson denies that Druzinsky ever mentioned this. 5 On Johnson's behalf, the EEOC filed this lawsuit alleging that Parker's conduct constituted disparate treatment and disparate impact in violation of the ADEA. Parker's first motion for summary judgment was denied on August 27, 1992. In light of the Supreme Court's decision in Hazen Paper Co. v. Biggins, --- U.S. ----, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993), Parker requested that the court reconsider its ruling. The court granted the request, and on June 14, 1993, granted Parker's motion for summary judgment on the EEOC's disparate treatment claim. Parker followed up with a motion for summary judgment on the EEOC's disparate impact claim, and again relying on Hazen Paper, the court granted this motion. The EEOC appeals only the decision on its claim of disparate impact. II. 6 We review a decision granting summary judgment de novo. Doe v. Allied Signal Inc., 925 F.2d 1007, 1008 (7th Cir.1991). Summary judgment is appropriate when the record, viewed in a light most favorable to the nonmoving party, reveals that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). 7 Drafters of the ADEA relied to a large extent on the language of Title VII of the Civil Rights Act of 1964. 42 U.S.C. Sec. 2000e. As a result, "disparate treatment" and "disparate impact," terms traditionally used to describe theories of relief under Title VII have been incorporated into the ADEA lexicon. The theories can briefly be described as follows. 8 Disparate treatment occurs when an employee is treated less favorably simply because of race, color, sex, national origin, or in our case, age. This is the most obvious form of discrimination. To be successful on this type of claim, proof of discriminatory motive is critical. International Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n. 15, 97 S.Ct. 1843, 1854 n. 15, 52 L.Ed.2d 396 (1977). 9 Disparate impact is the result of more subtle practices, which on their face are neutral in their treatment of different groups but which in fact fall more harshly on one group than another. No proof of discriminatory motive is necessary, but if the practice is found to be justified by business necessity, the claim will fail. The EEOC claims that due to the statistically significant relationship between age and work experience, by setting a low maximum salary limit, Parker excluded a disproportionate percentage of applicants over the age of forty from consideration for the teaching position.1 Because no business justification was offered in defense of this policy, the EEOC concludes that Parker's process in hiring a new drama teacher violated the dictates of the ADEA. 10 We begin our analysis with a brief discussion of the Supreme Court's decision in Hazen Paper. Walter Biggins, a sixty-two year old technical director for the Hazen Paper Company was fired from his position in 1986. Hazen Paper's pension liability vested after an employee completed ten years of service. Biggins's pension benefits would have vested had he worked a few more weeks. As an alternative to his release, Hazen Paper offered to retain Biggins as a consultant, a position which would not have allowed Biggins's pension benefits to vest. Biggins brought an ERISA and ADEA claim against Hazen Paper. The jury held in his favor on both counts, and the Court of Appeals affirmed both findings of liability. The Supreme Court granted certiorari to decide whether discharge of an employee motivated by the employer's desire to avoid the vesting of pension benefits is sufficient to state a disparate treatment claim under the ADEA. Hazen Paper, --- U.S. at ----, 113 S.Ct. at 1704. Because the evidence did not show that Hazen Paper's decision was based on Biggins's age, the Court held that his disparate treatment claim was deficient. Id. at ----, 113 S.Ct. at 1708. 11 Hazen Paper was, by its own terms, a disparate treatment case only. Id. at ----, 113 S.Ct. at 1706. Nevertheless, the Court's examination of the ADEA is instructive here. Critical to the Court's analysis was its belief that inaccurate stereotyping of the elderly was, "the essence of what Congress sought to prohibit in the ADEA." Id. The ADEA "requires the employer to ignore an employee's age... it does not specify further characteristics that an employer must also ignore." Id. at ----, 113 S.Ct. at 1707. Hence, when an employer denies a worker an employment opportunity based on the belief that older employees are less efficient or less productive, the ADEA provides the worker with a cause of action. On the other hand, "[w]hen the employer's decision is wholly motivated by factors other than age, the problem of inaccurate and stigmatizing stereotypes disappears. This is true even if the motivating factor is correlated with age, as pension status typically is." Id. at ----, 113 S.Ct. at 1706. Nevertheless, "[b]ecause age and years of service are analytically distinct, an employer can take account of one while ignoring the other, and thus it is incorrect to say that a decision based on years of service is necessarily 'age-based.' " Id. at ----, 113 S.Ct. at 1707. 12 Because the decision to fire Biggins was not based on misperceptions about the competence of older workers, Hazen Paper did not violate the ADEA. The Court's discussion makes clear that the ADEA prevents employers from using age as a criterion for employment decisions. On the other hand, decisions based on criteria which merely tend to affect workers over the age of forty more adversely than workers under forty are not prohibited. Anderson v. Baxter Healthcare Corp., 13 F.3d 1120 (7th Cir.1993). 13 Our reading of Hazen Paper and the ADEA is supported by subsection (f) which reads: 14 It shall not be unlawful for an employer, employment agency or labor organization-- 15 (1) to take any action otherwise prohibited under subsection [ ] (a),... of this section where age is a bona fide occupational qualification reasonably necessary to the normal operation of the particular business, or where the differentiation is based on reasonable factors other than age. 16 29 U.S.C. Sec. 623(f). 17 The exception for differentiation based on "reasonable factors other than age" is particularly noteworthy. It suggests that decisions which are made for reasons independent of age but which happen to correlate with age are not actionable under the ADEA. Anderson v. Baxter Healthcare Corp., 13 F.3d 1120 (7th Cir.1993); Metz v. Transit Mix, Inc., 828 F.2d 1202, 1220 (7th Cir.1987) (Easterbrook, J., dissenting). A similar provision in the Equal Pay Act which permits discrepancies in wages paid to male and female workers for "factors other than sex," has been construed to preclude disparate impact claims. County of Washington v. Gunther, 452 U.S. 161, 170-71, 101 S.Ct. 2242, 2248-49, 68 L.Ed.2d 751 (1981). A sensible interpretation of this provision is that it is further evidence of the ADEA's focus on eliminating decisions made based on stereotypes about age. 18 Our dissenting colleague insists that the EEOC's claim can be reconciled with the Court's decision in Hazen Paper. In his view, disparate impact theory is designed to bring scrutiny on actions which, although not invidiously discriminatory, might perhaps be the product of unconscious or lingering stereotypes. In this case, however, this approach is of limited applicability. 19 Perhaps most problematic is Judge Cudahy's reliance on Title VII jurisprudence which, though not unprecedented, see, e.g., Geller v. Markham, 635 F.2d 1027 (2d Cir.1980); Leftwich v. Harris-Stowe State College, 702 F.2d 686 (8th Cir.1983); E.E.O.C. v. Borden's, Inc., 724 F.2d 1390 (9th Cir.1984), seems inappropriate on the facts of this case. He concludes that because Title VII's prohibitions mirror those of the ADEA and Title VII permits disparate impact relief, "similar acceptance in ADEA cases" is required. 20 In the relevant statutory provisions, however, Title VII and the ADEA differ in a significant way. Subsection (2) of Title VII's prohibitions, which was the basis for the Supreme Court's holding in Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971) (holding that Title VII allows claims based on disparate impact), proscribes any actions by employers which "limit, segregate, or classify [their] employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin." 42 U.S.C. Sec. 2000e-2(a)(2) (emphasis added). The "mirror" provision in the ADEA omits from its coverage, "applicants for employment."2 In light of the ADEA's nearly verbatim adoption of Title VII language, the exclusion of job applicants from subsection (2) of the ADEA is noteworthy. Hence, while the dissent may find our decision creates a "practical difficulty," it is a result dictated by the statute itself. 21 Moreover, disparate impact theory does not relieve the EEOC of its obligation to prove the error of the employer's ways. Parker's policy of linking wages to experience is an economically defensible and reasonable means of determining salaries. This is borne out by the ADEA's "safe harbor" provision which permits an employer to "observe the terms of a bona fide seniority system... which is not a subterfuge to evade the purposes of [the ADEA's prohibitions]." 29 U.S.C. Sec. 623(f)(2). Though years of service may be age-correlative, Hazen Paper holds that "it is incorrect to say that a decision based on years of service is necessarily age-based," unless the plaintiff can demonstrate that the reason given was a pretext for a stereo-type-based rationale. Hazen Paper, --- U.S. at ----, 113 S.Ct. at 1707. 22 Ultimately, the EEOC must show that Parker's rationale is pretextual and that the salary system is predicated on some stereotype, conscious or unconscious. Otherwise, summary judgment in favor of Parker is proper. Anderson v. Baxter Healthcare Corp., 13 F.3d 1120, 1126 (7th Cir.1994). The EEOC has not alleged how Parker's salary system might be a subterfuge for the belief that older teachers are less effective than younger teachers. The EEOC contends only that Parker's system disproportionately affects older applicants. As the district court held, this statistical correlation alone is insufficient to sustain a finding of ADEA liability. For these reasons, the decision of the lower court granting summary judgment in favor of Parker is 23 AFFIRMED. 24 CUDAHY, Circuit Judge, dissenting. 25 The majority affirms the district court's grant of summary judgment on the apparent theory that Hazen Paper Co. v. Biggins, --- U.S. ----, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993), precludes the use of the disparate impact theory of liability under the ADEA. The disparate impact theory as applied here would concern the school's employment policy in refusing to depart from its practice of raising salaries for years of experience even when an older and more experienced teacher is willing to work for less. Such a policy disproportionately burdens older workers. I say "apparent theory" because the majority stops ever so slightly short of announcing this conclusion with perfect clarity. But that is the unmistakable import of the majority approach. 26 The majority's analysis begins with the premise that the decision not to hire Johnson was not based on misperceptions about the competence of older workers. If this characterization is accurate, then the majority is correct in saying that Hazen Paper precludes ADEA liability. My difficulty with the majority's approach is that its analysis begins with its conclusion: that the decision to pass Johnson by had nothing to do with stereotypical views of older workers. But, as I understand the use of disparate impact analysis in the age discrimination context, one of its important purposes is to answer this very question. Hence, disparate impact analysis should be allowed to proceed to determine whether the refusal to hire did really arise from stereotypical views of older workers. Not to do so is to say that "overqualified" (i.e. overage) music teachers need not apply. I. 27 Metz v. Transit Mix, Inc., 828 F.2d 1202 (7th Cir.1987), held that employers violate the ADEA when they make employment decisions based on factors that correlate with age in an obvious manner, like salary, the proximity of pension benefits' vesting or gray hair. The Supreme Court's recent opinion in Hazen Paper, --- U.S. ----, 113 S.Ct. 1701, rejects part of that framework. Hazen Paper focuses the scrutiny of the ADEA on discrimination on the basis of age qua age. The ADEA's purpose under Hazen Paper is to prohibit discrimination against older workers "on the basis of inaccurate and stigmatizing stereotypes." Id. at ----, 113 S.Ct. at 1706. An "employer cannot rely on age as a proxy for an employee's remaining characteristics, such as productivity, but must instead focus on those factors directly." Id. 28 So where an employer is in fact motivated by a desire to reduce salaries, it is permissible to fire higher-paid older workers and replace them with younger ones who will work for less. And perhaps if the employer actually has an aversion to gray hair, she can make her employment decisions accordingly. But, even so, Hazen Paper does not spell the end of the ADEA. It remains unlawful to invoke pretextually an ostensibly neutral factor that tends to correlate with age, while actually laboring under forbidden "inaccurate and stigmatizing stereotypes." Id. at ---- - ----, 113 S.Ct. at 1706-07 ("We do not preclude the possibility that an employer who targets employees with a particular pension status on the assumption that these employees are likely to be older thereby engages in age discrimination." Id. at ----, 113 S.Ct. at 1707). 29 All of this tells us about the underlying theory of ADEA liability, not the method of proof. Even before Hazen Paper there was substantial disagreement about the permissibility of premising ADEA liability on a showing of disparate impact. See Markham v. Geller, 451 U.S. 945, 101 S.Ct. 2028, 68 L.Ed.2d 332 (1981) (Rehnquist, J., dissenting from denial of certiorari).1 And while the three concurring justices in Hazen Paper believed that "there are substantial arguments that it is improper to carry over disparate impact analysis from Title VII to the ADEA," --- U.S. at ----, 113 S.Ct. at 1710 (Kennedy, J., concurring), there is no suggestion that Hazen Paper itself answers the question.2 30 So the question presented by this appeal is whether a plaintiff may endeavor to prove that an employer discriminated on the basis of age qua age by implementing a particular employment practice that disproportionately burdens older workers. II. 31 The answer to that question depends mostly on what one thinks are the purposes of disparate impact liability. Implicit in the majority's approach is the view that employers are held liable under a disparate impact theory even where the practice or policy they have implemented isn't really discriminatory. As I have indicated, the employment policy at issue in this case is the school's refusal to depart from its policy of escalating salaries in relation to years of experience, where an older and more experienced teacher is willing to work for less. 32 The majority says that "there is no allegation that Francis Parker's salary system is a subterfuge for its belief that older teachers are less effective than younger teachers." But it would not appear to me that such a conscious and invidious scheme would need to be alleged in order to state a claim under the ADEA. 33 The basic prohibition of the ADEA makes it unlawful to "discriminate against any individual... because of such individual's age." ADEA Sec. 4(a)(1), 29 U.S.C. Sec. 623(a). This language mirrors the anti-discrimination provision of Title VII.3 In the Title VII context, the disparate impact method of proving "discrimination... because of [membership in a protected class]" is well-established (codified, in fact, by the Civil Rights Act of 1991). See Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). 34 The Griggs disparate impact method recognizes that not all discrimination is apparent and overt. It is sometimes subtle and hidden. It is at times hidden even from the decisionmaker herself, reflecting perhaps subconscious predilections and stereotypes. See Charles Lawrence. The disparate impact method therefore requires employers to determine which of their employment practices and policies burden a protected class in a disproportionate way. 35 But such practices need not necessarily be abandoned. They are nonetheless permissible, despite their disparate impact, where they are supported by a "business necessity." The point of that defense is to rebut the inference of discrimination (even unconscious discrimination) that the disparate impact tends to demonstrate. If business necessity is shown, we can assume that the practice in question was established because of that necessity, not merely as a product of stereotyping. 36 Of course, in the equal protection context the requirements for proving discrimination are far stricter. There, Washington v. Davis, 426 U.S. 229, 96 S.Ct. 2040, 48 L.Ed.2d 597 (1976), requires precisely the sort of smoking gun evidence of conscious discriminatory motive and purpose that Griggs' more layered approach obviates.4 Today's majority essentially holds ADEA plaintiffs to a Washington v. Davis standard. I see no reason for such a departure. III. 37 The majority offers two reasons for its result. The first comes from ADEA Sec. 4(f)(1), 29 U.S.C. Sec. 623(f)(1). That provision provides an affirmative defense to employers for actions taken "where... the differentiation is based on reasonable factors other than age." Judge Easterbrook, dissenting in Metz, suggested that this language precluded the availability of disparate impact liability in ADEA cases. Metz, 828 F.2d at 1212-13. And today's majority agrees. 38 But it seems to me that the disparate impact method already provides a defense for factors that are determined to be based on reasonable factors other than age--the business necessity defense. While as a general matter, it is true that we ought to interpret statutes to avoid rendering language superfluous, it seems clear to me that Sec. 4(f)(1) simply codifies the business necessity defense. It does not preclude the availability of disparate impact liability. 39 The second reason the majority offers to support its conclusion is the Supreme Court's decision in Hazen Paper. But I believe that the disparate impact theory of liability is designed as a means to detect employment decisions that reflect "inaccurate and stigmatizing stereotypes," --- U.S. at ----, 113 S.Ct. at 1706. This is precisely the determination that Hazen Paper says the ADEA is intended to outlaw. I do not believe its use is in any way incompatible with ADEA liability. The basic practical difficulty with the majority's result is that it provides an opportunity for employers to exclude older applicants from lower-level jobs simply by declaring the applicants "overage" (i.e. entitled to earn an excessive salary for the job they seek.). * The Honorable Joel M. Flaum and the Honorable Ilana D. Rovner took no part in the consideration of this petition ** The Honorable Robert A. Grant, United States District Judge for the Northern District of Indiana, is sitting by designation 1 In the words of the EEOC's expert, Dr. Marc Bendick, Jr., "job applicants age 40 and older would be precluded from hiring at a rate 4.2 times the rate applicable to counterpart applicants aged less than 40." 2 The ADEA provision reads in relevant part: It shall be unlawful for an employer-- (2) to limit, segregate, or classify employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's age. 29 U.S.C. Sec. 623(a). 1 "The courts and the EEOC have indicated that the impact analysis of Griggs v. Duke Power Co. is applicable to the ADEA." Mack A. Player, Employment Discrimination Law, Sec. 6.10, at 525 (1988). See Geller v. Markham, 635 F.2d 1027 (2d Cir.1980), cert. denied, 451 U.S. 945, 101 S.Ct. 2028, 68 L.Ed.2d 332 (1981); Maresco v. Evans Chemetics, 964 F.2d 106, 115 (2d Cir.1992); EEOC v. Westinghouse Electric Corp., 725 F.2d 211 (3d Cir.1983), cert. denied, 469 U.S. 820, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984); Abbott v. Federal Forge, Inc., 912 F.2d 867, 872 (6th Cir.1990); Wooden v. Board of Educ., 931 F.2d 376, 379 (6th Cir.1991); Leftwich v. Harris-Stowe State College, 702 F.2d 686 (8th Cir.1983); EEOC v. Borden's Inc., 724 F.2d 1390 (9th Cir.1984); Shutt v. Sandoz Crop Protection Corp., 934 F.2d 186, 188 (9th Cir.1991); Allison v. Western Union Tel. Co., 680 F.2d 1318 (11th Cir.1982); Mac-Pherson v. University of Montevallo, 922 F.2d 766, 770-71 (11th Cir.1991) 2 Commentators on the subject have also offered divergent views. See Note, Age Discrimination and the Disparate Impact Doctrine, 34 Stan.L.Rev. 837 (1982) (theory unavailable); Note, Disparate Impact and the Age Discrimination in Employment Act, 68 Minn.L.Rev. 1038 (1984) (theory available); Steven J. Kaminshine, The Cost of Older Workers, Disparate Impact, and the Age Discrimination in Employment Act, 42 Fla.L.Rev. 229 (1990) (purporting to offer "a more balanced approach") 3 The majority takes issue with the suggested parallel between Title VII and the ADEA. As noted in footnotes 1 and 2, this parallel cannot be characterized as novel. Title VII's appeal as persuasive authority in ADEA cases is not altered by the fact that the present case deals with "applicants" for employment. Whether or not subsection (2) of the unlawful practices section excludes applicants for employment is not as self-evident as the majority maintains. 29 U.S.C. Sec. 623(a)(2). See Geller, 635 F.2d 1027 (2d Cir.1980) (recognizing a disparate impact claim under the ADEA for an applicant in a position parallel to that of Johnson). There is also a good argument for the availability of disparate impact analysis under subsection (1). 29 U.S.C. Sec. 623(a)(1). See Colby v. J.C. Penney Co., Inc., 811 F.2d 1119, 1127 (7th Cir.1987) (holding that plaintiff had stated a valid disparate impact claim under subsection (1) of Title VII's unlawful practices section, 42 U.S.C. Sec. 2000-e-2) 4 An exception, however, is recognized for jury selection challenges. The "impact-inference" standard applicable in that setting, see Casteneda v. Partida, is functionally indistinguishable from the type of disparate impact analysis set out in Griggs	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	959 F.2d 216	OR	Equal Employment Opportunity Commission v. Borden's, Inc.	RONEY, Senior Circuit Judge: This case questions the proper venue of an age discrimination claim against a Government agency. Since there is no venue provision in the Age Discrimination in Employment Act itself, we hold that the general venue statute applies and that venue of this case was in the Middle District of Florida where the plaintiff lives. In so doing, we reject the Government’s argument and the district court’s decision that the venue provision of Title VII of the Civil Rights Act should be read into the age discrimination statute. Thus, we reverse the judgment of dismissal for lack of venue and remand to the district court for further proceedings. Eugene M. Rebar was a civilian employee of the United States Army in Germany. He asserts a cause of action under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 633a and 5 U.S.C. 217§§ 7702 and 7703, alleging age discrimination when he was terminated from that employment. The merits of his cause of action are not before this Court, only the issue of proper venue. Representing himself, Rebar initially filed a complaint in the United States District Court for the District of Columbia. That court dismissed the case on the Government’s motion, holding that the general venue statute, 28 U.S.C. § 1391(e), applied in federal ADEA actions and consequently venue did not lie in the District of Columbia. Rebar v. Huston, No. 88-0134 at 2-3 (D.D.C. Aug. 18, 1988). Thereafter, Rebar filed this case in the Middle District of Florida asserting jurisdiction under that provision of the general venue statute which permits an action against an employee, officer or agency of the United States to be brought in the judicial district where “the plaintiff resides if no real property is involved in the action.” The Secretary of the Army and other Government employees are defendants in this action, there is no real property involved, and the plaintiff resides in the Middle District of Florida. The defendants admit that this is the proper venue of this case if the general venue statute applies.1 The district court held, however, that the motion of the defendants to dismiss for improper venue should be granted because, “pursuant to 42 U.S.C. § 2000(e)-5(F)(3) [2000e-5(f)] [the venue provision for Title VII actions], it appears that venue of this action should be in the Eastern District of Virginia.” It must be conceded that the Middle District of Florida is not the proper venue for this action if the Title VII venue provisions are applicable.2 The Government argues that the venue provision applicable to federal employees under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-5(f)(3), should be applied to federal sector ADEA actions because of the similarity in the language and purpose of the ADEA and Title VII, the legislative history of the ADEA, and the need for national uniformity in the law of federal employment. Although the arguments are strong as to why Congress should provide the same venue provisions for age discrimination as are provided for race, sex, religion and other Title VII discrimination cases, there seems to be no precedent for a federal court to simply disregard the general venue statute which by its legislative terms applies when a statute contains no indepen218dent venue provision,3 and to effectively amend the ADEA to include a venue provision which Congress did not enact. The Government readily admits that there is no direct precedent for the district court’s decision in this case. Other district courts which have considered the issue have gone the other way.4 The Government cites as analogous Del-Costello v. International Brotherhood of Teamsters, 462 U.S. 151, 158, 103 S.Ct. 2281, 2287, 76 L.Ed.2d 476 (1983), which held that the courts must “borrow” a suitable limitations period from another source when there is no federal statute of limitations applicable. Likewise, in Oscar Mayer & Co. v. Evans, 441 U.S. 750, 756, 99 S.Ct. 2066, 2071, 60 L.Ed.2d 609 (1979), and Lehman v. Nakshian, 453 U.S. 156, 101 S.Ct. 2698, 69 L.Ed.2d 548 (1981), the procedural provisions were imported into ADEA from Title VII where there was no general statute governing the particular procedures. In this case, however, there is a general venue statute which governs if a cause of action is created by a special statute without any special venue provision. Gulf Research & Dev. Co. v. Schlumberger Well Surveying Corp., 92 F.Supp. 16 (D.Cal.1950). So it is with the lower court decisions which have been carefully researched and cited by the Government.5 In none of 219these cases was there a general statute which covered the subject and which would have to be disregarded in order to use the specific provisions of Title VII. The legislative history of the ADEA does indeed raise a serious question as to why Congress would not provide the same venue provisions for ADEA as Title VII.6 In enacting the venue provision of Title VII, Congress has demonstrated that it knows how to provide a specific venue provision when it so intends. See Lehman v. Nakshian, 453 U.S. 156, 162, 101 S.Ct. 2698, 2702, 69 L.Ed.2d 548 (1981). If Congress’ failure to include a similar provision in the ADEA was simply an oversight, Congress is the governmental body that should correct it, not the Courts. Thus we hold that the general venue provisions for federal employee actions against the Government control unless the act creating the cause of action provides otherwise. The Government argues that it is entitled to judgment because the statute of limitations bars Rebar’s claim, and because Re-bar failed to exhaust his administrative remedies. We express no view as to either argument, or on any other aspect of the merits of plaintiff’s claim. We simply hold that venue was proper in the Middle District of Florida and remand for such further proceedings as are appropriately within the jurisdiction of the district court. REVERSED and REMANDED.. 28 U.S.C. § 1391(e) reads: A civil action in which a defendant is an officer or employee of the United States or any agency thereof acting in his official capacity or under color of legal authority, or an agency of the United States, or the United States, may, except as otherwise provided by law, be brought in any judicial district in which (1) a defendant in the action resides, (2) a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) the plaintiff resides if no real property is involved in the action. Additional persons may be joined as parties to any such action in accordance with the Federal Rules of Civil Procedure and with such other venue requirements as would be applicable if the United States or one of its officers, employees, or agencies were not a party. The summons and complaint in such an action shall be served as provided by the Federal Rules of Civil Procedure except that the delivery of the summons and complaint to the officer or agency as required by the rules may be made by certified mail beyond the territorial limits of the district in which the action is brought.. 42 U.S.C. § 2000e-5(f)(3) provides: Each United States district court and each United States court of a place subject to the jurisdiction of the United States shall have jurisdiction of actions brought under this sub-chapter. Such an action may be brought in any judicial district in the State in which the unlawful employment practice is alleged to have been committed, in the judicial district in which the employment records relevant to such practice are maintained and administered, or in the judicial district in which the aggrieved person would have worked but for the alleged unlawful employment practice, but if the respondent is not found within any such district, such an action may be brought within the judicial district in which the respondent has his principal office. For purposes of sections 1404 and 1406 of Title 28, the judicial district in which the respondent has his principal office shall in all cases be considered a district in which the action might have been brought.. The general venue statute controls "except as otherwise provided by law.” 28 U.S.C. § 1391(e).. Although several District of Columbia district courts have applied the general venue statute to federal ADEA actions, the Court of Appeals for the District of Columbia has never ruled on the issue. See Archuleta v. Sullivan, 725 F.Supp. 602 (D.D.C.1989); Sweet v. Dept. of Health & Human Services, 42 Fair Empl.Prac.Cas. (BNA) 470, 1986 WL 15149 (D.D.C.1986) (citing Quinn v. Bowmar Publishing Co., 445 F.Supp. 780 (D.Md.1978), which applied 28 U.S.C. § 1391(e) to an ADEA action without discussion). But see Hill v. Secretary, HHS, 39 Fair Empl.Prac.Cas. (BNA) 607, 1985 WL 5627 (D.D.C.1985) (Title VII and ADEA action properly brought under special Title VII venue provision); Longworth v. National Supermarkets, Inc., 41 Fair Empl. Prac.Cas. (BNA) 30, 1986 WL 8711 (E.D.Mo.1986) (applying, without discussion, Title VII venue provision to action brought by private employee under Title VII and ADEA).. Baker v. Sears, Roebuck & Co., 903 F.2d 1515, 1519 (11th Cir.1990) (applying a modified version of the Title VII prima facie case to ADEA actions); Honeycutt v. Long, 861 F.2d 1346, 1349 (5th Cir.1988) (appropriate defendant to be sued under ADEA is same person as under Title VII); Romain v. Shear, 799 F.2d 1416, 1418 (9th Cir.1986), cert. denied, 481 U.S. 1050, 107 S.Ct. 2183, 95 L.Ed.2d 840 (1987) (ADEA action is subject to Title VII 30-day limit in which to name proper defendant); Ellis v. United States Postal Service, 784 F.2d 835, 838 (7th Cir.1986) (proper defendant under ADEA is same person as under Title VII); Duffy v. Wheeling Pittsburgh Steel Corp., 738 F.2d 1393, 1395 (3d Cir.), cert. denied, 469 U.S. 1087, 105 S.Ct. 592, 83 L.Ed.2d 702 (1984) (Title VII standard for prima facie case applies to ADEA actions); EEOC v. Borden's Inc., 724 F.2d 1390, 1393 (9th Cir.1984) (same) overruled on other grounds, Public Employees Retirement System of Ohio v. Betts, 492 U.S. 158, 173-75, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989) (see American Ass’n of Retired Persons v. Farmers Group, Inc., 943 F.2d 996, 1004 (9th Cir.1991)); Anderson v. Savage Laboratories, Inc., 675 F.2d 1221, 1224-25 (11th Cir.1982) (decisions arising under Title VII applying the “work rule" test held to be precedent for claims arising under ADEA); Johnson v. Lehman, 679 F.2d 918, 922 (D.C.Cir.1982) (Title VII principles regarding prima facie standard apply to ADEA actions); Coke v. General Adjustment Bureau, Inc., 640 F.2d 584, 587 (5th Cir.1981) (en banc) (Title VII cases involving the almost identical 180-day filing requirement have value as precedent for cases under the ADEA involving same issue); Loeb v. Textron, Inc., 600 F.2d. 1003, 1010 (1st Cir.1979) (principles behind McDonnell Douglas prima facie formulation are applicable in ADEA cases as in Title VII cases); Attwell v. Granger, 748 F.Supp. 866, 873 (N.D.Ga.1990) (Title VII provisions for identifying the proper defendant apply to ADEA actions, even though the language of ADEA suggests otherwise); Lavery v. Marsh, 727 F.Supp. 728 (D.Mass.1989), (applying 30-day statute of limitations of Title VII to ADEA actions) aff’d, 918 F.2d 1022, 1024 (1st Cir.1990); Caraway v. Postmaster General, 678 F.Supp. 125, 128 (D.Md.1988) (30-day limitation period of Title VII does apply to ADEA actions, but not where EEOC had informed claimant that he had 6 years to file civil action); Healy v. United States Postal Service, 677 F.Supp. 1284, 1289 (E.D.N.Y.1987) (applying 30-day limitations period of Title VII to ADEA claim); Ramachandran v. United States Postal Service, 43 Fair Empl.Prac.Cas. (BNA) 1759, 1760, 1987 WL 47762 (C.D.Cal.1987) (Title VII provisions regarding proper defendant and 30-day limitations period apply to ADEA actions), aff’d, 848 F.2d 1243 (9th Cir.1988), cert. denied, 489 U.S. 1082, 109 S.Ct. 1538, 103 L.Ed.2d 843 (1989); Svenson v. Thomas, 607 F.Supp. 1004, 1006 (D.D.C.1985) (same); Gillispie v. Helms, 559 F.Supp. 40, 41-42 (W.D.Mo.1983) (proper defen219dant under ADEA is same person as under Title VII). But see Bornholdt v. Brady, 869 F.2d 57, 62 (2d Cir.1989) (Title VII 30-day limitations period for suits against government not applicable to ADEA); Lubniewski v. Lehman, 891 F.2d 216, 220-21 (9th Cir.1989) (federal employee ADEA action not subject to Title VII 30-day limit in which to name head of agency as defendant).. Senator Bentsen, the principal proponent of the amendments extending ADEA coverage to federal employees, stated as follows; The committee bill, which incorporates my amendment, would bring Federal employees under the coverage of a law specifically directed at the overall problem and give some focus to other remedies which simply have not done the job. The measures used to protect federal employees would be substantially similar to those incorporated in [Title VII] which expanded the authority of the Equal Employment Opportunity Commission. 118 Cong.Rec. 24,397 (1972).	INVALIDATED
724 F.2d 1390	943 F.2d 996	OR	Equal Employment Opportunity Commission v. Borden's, Inc.	FERNANDEZ, Circuit Judge: Farmers Group, Inc., its affiliated companies, its pension plan trust, and its profit sharing trust (Farmers) appeal the district court’s grant of summary judgment in favor of American Association of Retired Persons (AARP), and a number of current or former employees of Farmers, all of whom are over age 65 (individual appel-lees). The district court determined that Farmers willfully violated the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621, et seq., because it denied profit sharing contributions and forfeiture allocations and pension plan credits to employees over the age of 65. The court also held that denying profit sharing contributions and forfeiture allocations and actuarial increases to pension plan benefits to these employees violated the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq. Farmers also challenges the district court’s denial of Farmers’ motion to dismiss the complaint as to those appellees who joined the action after the Equal Employment Opportunity Commission (EEOC) filed a complaint against Farmers challenging the profit sharing plan provisions. Further, Farmers challenges the district court’s determination of damages. We affirm. BACKGROUND FACTS At the time of filing the complaint, the individual appellees were former and current employees of Farmers. Each worked beyond the age of 65. They and AARP (appellees) claimed that Farmers had violat999ed the ADEA, ERISA and various state statutes because it had denied pension plan credits and profit sharing contributions and forfeiture allocations to employees over the age of 65 from January 1, 1979 and was continuing to do so.1 Farmers has had a profit sharing plan and a pension plan in place since long before the enactment of the ADEA in 1967 and ERISA in 1974. The plans have been modified a number of times since their inception. The specific amendments relevant to this action will be discussed in detail in later portions of this opinion. Farmers’ profit sharing plan allocates company contributions to a fund in which each employee who meets the time of service and minimum age requirements set forth in the plan is permitted to participate. The plan is a defined contribution plan, rather than a defined benefit plan.2 Each employee’s individual account receives allocations based on a percentage of that person’s earnings. In addition to direct contributions, the plan provides that forfeitures3 are redistributed among vested employee accounts. Employees automatically receive a 20% distribution of their profit sharing account every year after full vesting, unless they irrevocably elect to leave the balance in their account until retirement.4 Over 90% of employees elect to receive the annual distribution, rather than defer receipt until retirement. The challenged provision of the profit sharing plan provided: A Participant who remains on the payroll of any of the Companies after normal retirement date shall not be credited with contributions provided by Article III nor be credited for forfeitures under Article VI. The plan also prohibited the distribution of account balances to employees aged 65 and older until actual retirement. The plaintiffs challenged the pension plan provision which provided that employees who continued to work after reaching age 65 would not receive additional service or salary credits for purposes of calculating their monthly retirement benefit.5 An employee was not permitted to begin collecting retirement benefits until actual retirement, and no actuarial increase was provided for the period during which the employee continued to work. Farmers sought dismissal of the claims of the 24 plaintiffs who opted into the suit after the EEOC filed an action alleging that Farmers’ profit sharing plan violated the ADEA. It also sought dismissal of the state law claims, arguing that they were preempted by ERISA. The district court denied Farmers’ motions. All parties moved for summary judgment. On September 22, 1988, the district court granted appellees’ motion for summary judgment on liability under the ADEA and ERISA. See American Ass’n of Retired Persons v. Farmers Group, Inc., 700 F.Supp. 1052 (C.D.Cal.1988). After the Supreme Court decision in P.E.R.S. v. Betts, 492 U.S. 158, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989), the district court reconsidered its earlier rulings, issued an amended statement of uncontroverted facts and conclusions of law, and again found Farmers liable. The district court later granted 1000appellees’ motion for summary judgment on the issue of damages. Farmers timely appealed. JURISDICTION AND STANDARD OF REVIEW The district court had jurisdiction under 29 U.S.C. § 626(c)(1), and 29 U.S.C. § 1132(e)(1). We have jurisdiction under 28 U.S.C. § 1291. We review the district court’s grant of summary judgment de novo. E.E.O.C. v. County of Orange, 837 F.2d 420, 421 (9th Cir.1988). “We must determine, viewing the evidence in the light most favorable to the nonmoving party..., whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law.” Id. DISCUSSION A. The ADEA Claims. The district court held that Farmers’ denial of contributions and forfeiture allocations with respect to the profit sharing plan, and its denial of pension plan accruals violated the ADEA. It further held that the purpose of the plan provisions was to discourage people from working past the age of 65, and that each plan was a subterfuge to evade the purposes of the ADEA. The court found that each plan discriminated against employees who continued to work past age 65 in a non-fringe benefit aspect of their employment. The court further held that the profit sharing plan was a subterfuge because it decreased the compensation of employees over age 65. Section 4(a)(1) of the ADEA makes it illegal for an employer “to fail or refuse to hire or to discharge any [protected] individual or otherwise discriminate against any [protected] individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age_” 29 U.S.C. § 623(a)(1). However, the statute further provides in section 4(f)(2) that it “shall not be unlawful for an employer... to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter....” 29 U.S.C. § 623(f)(2). The Supreme Court has held that section 4(f)(2) requires a plaintiff to prove that a discriminatory provision “was intended to serve the purpose of discriminating in some non-fringe-benefit aspect of the employment relation.” Betts, 492 U.S. at 181, 109 S.Ct. at 2868.6 It thus modifies the elements of a plaintiff’s prima facie case, id., by requiring that the plaintiff at least raise an inference of discriminatory intent at the outset.7 Thus, in addition to showing that a challenged plan provision is discriminatory on its face, the plaintiff must offer evidence sufficient to raise an inference that the employer adopted the provision in an attempt to avoid the prohibitions of the ADEA. If a plan is not an “employee benefit plan” within the meaning of section 4(f)(2), the plaintiff need not show that the challenged provision is a subterfuge. The Supreme Court has not determined “the precise meaning of the phrase ‘any bona fide employee benefit plan such as a retire1001ment, pension, or insurance plan.’ ” Betts, 492 U.S. at 174 n. 6, 109 S.Ct. at 2865 n. 6. But, the Court has held that the phrase could not be limited to “plans in which all age-based reductions in benefits are justified by age-related cost considerations.”8 Id. at 175, 109 S.Ct. at 2865. With these general rules in mind, we consider Farmers’ pension and profit sharing plans in turn. 1. The Pension Plan. The uncontroverted facts show that the explicit pension plan provisions denying accruals of service and salary credits to employees over age 65 were first adopted on August 4, 1978. The 1976 version of the plan did not include any such provisions. Section 5.8 of that plan did contemplate the possibility of continued employment past age 65, since it provided that if an employee continued employment after the normal retirement age [65], payment of retirement benefits would not be postponed. There was no provision to increase that pension while the person continued to work. The 1978 amendments explicitly changed section 5.8 to provide that no benefit would be paid to a continuing or reemployed employee. They also precluded any actuarial increases in the interim between age 65 and actual retirement. Farmers’ argument that the plan provisions merely continued in effect its prior practice is unavailing with respect to this plan, since it contradicts the plan’s own provisions. Concededly, Farmers required employees to retire at age 65. Thus, as a practical matter, few or none of its employees had worked while receiving a pension. But the plan did not preclude that possibility if an employee did work beyond normal retirement age, for that was clearly contemplated by the provision allowing simultaneous employment and collection of retirement benefits prior to 1978. In response to the ADEA amendments in 1978, Farmers held numerous internal discussions regarding possible changes to the pension and profit sharing plans. Appel-lees offered evidence, including the deposition testimony of Farmers’ Vice-President of Personnel, David Darvin, to the effect that in the course of those discussions, Farmers considered employee morale. Darvin believed that younger employees’ morale might be negatively affected if employees over 65 received the same profit sharing and pension contributions and credits, because younger employees’ “career growth and promotional opportunities are limited by others who stay on.” There was similar testimony from Rocco DiFonso, who, until at least 1981, was Chairman of the Committee which served as the profit sharing plan administrator. One of the appellees, Virginia Gould, submitted a declaration stating that she was told by a personnel specialist and a personnel manager that Farmers cut off profit sharing and pension benefits at age 65 “because we want you to quit.”9 While Farmers grumbles about the strength of the evidence, it did not place conflicting evidence before the district court at the time of the summary judgment motion. When Farmers amended the plan to preclude pension payments, actuarial increases, and credits, the concatenation of those provisions constituted a substantial change in the plan as it had theretofore existed. Thus, even though the plan itself existed prior to the enactment of the ADEA, the challenged provisions were adopted afterward, and were not automatically exempt from scrutiny under section 4(f)(2). Betts, 492 U.S. at 169, 109 S.Ct. at 2862. The provisions discriminate on their face 1002against employees over age 65. Their adoption after the ADEA was enacted, together with the evidence discussed above, raises an inference of discriminatory intent. Farmers asserts that the amendments were necessary to comply with ERISA. However, the specific denial of post-65 service credits was not necessary to comply with ERISA — the plan needed only to define “service hours” and other relevant terms; there was no need to define them so as to discriminate against employees over age 65. See ERISA § 402 (establishment of plan); 29 U.S.C. § 1102 (same); ERISA §§ 202, 1011 (minimum participation standards); 26 U.S.C. § 410 (same); 29 U.S.C. § 1052 (same). Farmers offers no legitimate, non-discriminatory reason for the denial of post-65 service and salary credits and its change in policy with respect to employment past age 65 and simultaneous collection of retirement benefits. Rather, the evidence supports a determination that, as a business policy, Farmers wanted to get rid of older workers and that the pension plan change was one way to help accomplish that goal. Whatever some might think about the efficacy of that policy from a business efficiency standpoint, our society has set its face against it. It is no longer permitted by law. The district court was justified in finding that the plan amendments were a subterfuge to evade the ADEA. Summary judgment was appropriate on this issue. 2. The Profit Sharing Plan. The district court determined that Section 7.4 of the Profit Sharing Plan, which specifies that employees who continue to work after age 65 will not receive contributions or forfeitures, did not exist prior to 1976. The court further found that Farmers modified section 7.4 in 1982 to permit a lump sum distribution of a participant’s account at age 65 no matter when the employee retired. The previous version of 7.4 did not permit distribution of the account until an employee actually retired. While as a technical matter, section 7.4 did not exist prior to 1976, the profit sharing plan did previously contain another section which specified that an employee who “remains on the payroll... after... normal retirement age [65] shall [not] continue as a Participant, or become a Participant in the Plan.” This provision or its equivalent existed in the plan from at least December 1965. Thus, it predated the ADEA. The 1976 modifications had the effect of making employees age 65 and over “participants” in the plan, but denied them credits for contributions and forfeitures. Prior to 1976, those employees were not participants and only participants received credit for contributions and forfeitures. Thus, the 1976 plan changed the definition of the term “participant” — before 1976, all “participants” received allocations of contributions and forfeitures, but some classes of employees were excluded as participants. After 1976, all employees who met the minimum employment term and age were “participants,” but the plan divided the employee participants into two classes — those under age 65 and those over age 65. However, the effect of the 1976 amendment was not different from earlier provisions of the plan. We recognize at the outset that the profit sharing plan’s denial of contributions and forfeiture allocations to employees over 65 did not violate the ADEA when the plan was amended in 1976 to change the definition of participant, even if that amendment was made with discriminatory intent. Until the ADEA was amended in 1978, it only applied to persons under age 65. See 29 U.S.C. § 631(a) (1967) (“The prohibitions in this chapter shall be limited to individuals who are at least 40 years of age but less than 65 years of age”). The 1978 amendment extended the ADEA protections to persons under age 70, and also prohibited mandatory retirement of persons under age 7010, even if called for by a bona fide 1003employee benefit plan. 29 U.S.C. § 631(a); 29 U.S.C. § 623(f)(2). Farmers’ Profit Sharing Plan is a hybrid. It has aspects of both a retirement plan and immediate compensation. The way the plan is structured and treated by Farmers’ employees, it provides immediate compensation once an employee has been with the company for five years.11 To that extent, while the plan may for some purposes be an “employee benefit plan,” it is wages, too. It is designed to compensate for work actually performed by an employee rather than as a reward for longevity. Cf Raypole v. Chemi-Trol Chemical Co., Inc., 754 F.2d 169, 172-75 (6th Cir.1985) (distinguishing between retirement and deferred compensation profit sharing plans under Vietnam Era Veterans’ Readjustment Assistance Act and deciding that plan in question was, as a whole, one for compensation). See also E.E.O.C. v. Westinghouse Elec. Corp., 925 F.2d 619, 626 (3d Cir.1991). In that sense, Farmers’ profit sharing plan is not an employee benefit plan under section 4(f)(2), unless all wages are treated as “employee benefits,” which can hardly be the meaning of the statute. As such, at the very least the plan does not wholly fall within the section 4(f)(2) exception. Cf. 29 C.F.R. § 860.120(b) (1970) (former Department of Labor regulation suggesting that profit sharing plans not within section 4(f)(2) exception unless essential purpose is to provide retirement benefits). As a result, when the 1978 amendment to the ADEA became effective on January 1, 1979, the profit sharing plan began to violate the ADEA by denying wages to employees over age 65, solely on the basis of age. Just as Farmers could no longer compel its employees to retire at age 65, it could no longer reduce their compensation at age 65, even if such a result was permissible before 1979. That reduction discriminates in a “non-fringe-benefit aspect of the employment relation.” Betts, 492 U.S. at 181, 109 S.Ct. at 2868. Farmers offered no evidence of a legitimate, non-discriminatory reason for the payment of lower compensation to employees over age 65. Indeed, as we have already pointed out, the evidence was quite to the contrary. The provision is a per se violation of the ADEA. Thurston, 469 U.S. at 121, 105 S.Ct. at 621. Farmers has earnestly argued that the profit sharing plan is really a retirement plan which falls within the section 4(f)(2) exemption. It does, certainly, have something of that aspect, because a continuing employee cannot draw down the whole of an account at any time.12 No matter how small the account gets, eighty percent is still left after the employee exercises the withdrawal right.13 However, to the extent that the profit sharing plan is also a retirement plan, then we hold that it must be considered to be part of an integrated retirement package offered by Farmers to its employees. In fact, Farmers itself characterized the two plans as a “retirement program” when it sought summary judg1004ment before the district court. The pension plan was first adopted in 1943, and in 1948 the additional retirement benefits of the profit sharing plan were made available to employees. Working together the two plans gave the employees three things that ordinary wages alone did not give them: an increase in salary after five years, a defined benefit retirement plan, and, in part, a defined contribution retirement plan. Cf. E.E.O.C. v. Borden’s Inc., 724 F.2d 1390, 1396-97 (9th Cir.1984), overruled on other grounds, Betts, 492 U.S. at 173-75, 109 S.Ct. at 2864-65; 29 C.F.R. § 860.120(f)(2) (1979) (discussing “benefit package” approach to compliance with section 4(f)(2) to permit reductions in some benefits offset by increase or no change in other benefits, but stating that such an approach is not applicable to retirement plans, at least as to offsetting retirement and non-retirement benefits). In other words, to the extent that the profit sharing plan is a retirement plan, it supplements14 and complements the pension plan so that a change in one plan substantially affects the individual employee’s entire retirement package. We must assume that an employee would review that whole package when determining what benefits would be available upon retirement. It goes without saying that an employer, like Farmers, treats benefits in a similar fashion. That is to say, a person contemplating his benefits from the company would, as no doubt intended, consider his retirement benefits to be a mixture of the benefits provided by these two plans. Viewing the plans as an integrated retirement package, we conclude that the 1978 amendment to the pension plan worked a significant change in Farmers’ retirement package. We are bolstered in this conclusion by the fact that Farmers, in response to ERISA and the ADEA, considered both plans together and decided to do what it could to force people to retire at its chosen retirement age. It made the entire benefits package as undesirable as possible for persons over age 65. It had already done so as far as the profit sharing plan component was concerned; it completed the task by changing the pension plan component in 1978. We would thus blink at reality if we held that Farmers could isolate the plans from one another in an attempt to avoid liability, simply because Farmers did not specifically change the profit sharing plan in 1978. It is clear that the discrimination against older employees from 1978 forward was carried out by the operation of both plans together. Thus, the profit sharing plan is not insulated from challenge simply because similar provisions existed in plans which predated the ADEA’s application to those over 65 years of age. See Robinson v. County of Fresno, 882 F.2d 444 (9th Cir.1989). See also, United Air Lines, Inc. v. McMann, 434 U.S. 192, 203, 98 S.Ct. 444, 450, 54 L.Ed.2d 402 (1977). Farmers now contends that there was no intent to force or encourage employees over age 65 to retire. Yet it offered nothing to contradict the testimony of its own employees that Farmers was motivated by its concern that younger employees would lack advancement opportunities if more older employees stayed on. And Farmers has not offered any other plausible reason — or any non-discriminatory reason at all — for its policy of denying credits for contributions and allocations to employees over age 65. There was no showing that provision of those benefits would have imposed additional costs on Farmers.15 In the face of 1005direct evidence of discrimination and discriminatory intent, Farmers has failed to offer evidence of a legitimate, non-discriminatory reason for the challenged provisions. The provisions discriminate in a “non-fringe-benefit aspect of the employment relation,” Betts, 492 U.S. at 181, 109 S.Ct. at 2868, by discouraging persons over age 65 from remaining in Farmers’ employ. The district court did not err in concluding that they were a subterfuge to evade the purposes of the act. B. Willfulness Under The ADEA. An employer’s violation of the ADEA is willful where the “ ‘employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the ADEA.’ ” Thurston, 469 U.S. at 128, 105 S.Ct. at 625. There is no question that the ADEA prohibited a wage differential based solely on the age of the employee. In addition, though the law surrounding the propriety of Farmers’ profit sharing plan provisions might have been somewhat unsettled, the Department of Labor had issued a regulation to the effect that most profit sharing plans were not included within the purview of section 4(f)(2). 29 C.F.R. § 860.120(b) (1970). Moreover, even though section 4(f)(2) was determined not to be a “cost-justification” rule by the Betts Court, that does not mean that a provision which was adopted as a subterfuge would be permissible under the ADEA. The district court’s finding of willfulness is justified. Farmers sought legal advice about the legality of the challenged provisions. Its in-house and outside attorneys advised it that the provisions were not authorized under the ADEA or the Department of Labor interpretation. But most importantly, the evidence shows that Farmers, without waiting to get the legal advice it sought, made a decision in 1978 to continue the provisions in effect, and even to enhance their bite by taking away benefits in the other part of the retirement package — the pension plan. In addition, Farmers intended to discriminate against older employees by the provisions of its plans. Its attempt to secure legal advice to justify, in a post hoc manner, its decision in no way suggests that the ADEA violation was not willful. It only bespeaks an attempt to obtain comfort for a course of conduct already decided upon. When that comfort was slow in coming, Farmers did not deviate from its predecided course. This satisfies the “reckless disregard” standard of Thurston, not because the law was entirely clear, but because Farmers acted without bothering to find out what the law required. C. The Joinder of Additional Appellees. Farmers contends that many of the individual appellees should be excluded from recovery because they joined the litigation at too late a date. We disagree. The ADEA permits enforcement by an action filed by or on behalf of aggrieved employees. 29 U.S.C. § 626(b). Section 626(b) provides that the procedures of 29 U.S.C. § 216(b) and (c), inter alia, shall be used to enforce the provisions of the ADEA. Section 216(b) provides as follows: An action to recover the liability prescribed... may be maintained against any employer... in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.... The right provided by this subsection to bring an action by or on behalf of any employee and the right of any employee to become a party plaintiff to any such action shall terminate upon the filing of a complaint by the [EEOC] in an action... in which (1) restraint is sought of any further delay in the payment of unpaid... compensation.... Id. See also 29 U.S.C. § 216(c) (employee’s right to become party to private action terminates when Secretary [EEOC] brings action for recovery of unpaid amounts); 29 1006U.S.C. § 626(b) and (c) (right to bring action terminates upon EEOC’s commencement of action to enforce the right of employee under ADEA). Under these statutes, the right of the additional parties to become plaintiffs, at least as to the claim that the profit sharing plan provisions violated the ADEA16, would have terminated when the EEOC filed its action on September 30, 1986, if the EEOC had sought recovery of the amounts owed to them by Farmers. However, the EEOC’s initial complaint sought only injunctive relief. Though the complaint purports to sue on behalf of the class of employees to which the individual appel-lees belong, it neither sought damages for lost benefits on their behalf, nor named any employee on whose behalf relief was or would be sought. It was not until October 20, 1987 that the EEOC sought to amend its complaint to request that Farmers’ employees be awarded damages for the lost benefits caused by Farmers’ unlawful policy. At that time it, in apparent recognition of the propriety of what had occurred in this action, failed to name the individual appellees, save two who were inadvertently named in the EEOC amendments. We hold that the EEOC, by filing an action seeking only injunctive relief, did not foreclose injured employees from joining in an ongoing lawsuit which sought relief that the EEOC chose not to pursue. We recognize that Congress wished to give the EEOC primary enforcement power under the ADEA. See E.E.O.C. v. Pan American World Airways, Inc., 897 F.2d 1499, 1607 (9th Cir.), cert. denied, — U.S. -, 111 S.Ct. 55, 112 L.Ed.2d 31 (1990). That, however, does not require us to conclude that Congress intended to preclude private litigants from seeking damages when the EEOC has, in effect, eschewed doing so. Pan American does not require a different result. While at first glance its broad language might seem to foreclose the result we reach here, that case involved individuals seeking to intervene in an action brought by the EEOC because their right to damages from their former employer arising out of the same wrongful conduct was being terminated in the suit. The individuals had not taken advantage of opportunities to be included in the EEOC action. They were not seeking relief different from that sought by the EEOC. Furthermore, they sought to interfere with the EEOC’s handling of the litigation it had brought and settled. In the case at hand, the EEOC quite clearly coordinated its later brought action with that of the appellees. In fact, it submitted an amicus brief to us in which it urged the merits of appellees action. At no point did it assert that its dominant role in the enforcement of the ADEA was being undermined by this action. Rather, this case shows a commendable coordination, of efforts. The district court’s decision to permit additional plaintiffs to opt into the private suit after the EEOC filing was not in error. D. Damages. The ADEA permits the court to grant “such legal or equitable relief as may be appropriate to effectuate the purposes of this chapter, including without limitation judgments... enforcing the liability for amounts” of unpaid wages and benefits. 29 U.S.C. § 626(b). The statute does not purport to limit an employee to having an account properly credited (equitable relief) rather than receiving a damage award (legal relief). The statute also authorizes liquidated damages awards for willful violations. Farmers contends that the district court erred when it awarded liquidated damages to three plaintiffs who had not yet withdrawn any amounts from their profit sharing plans. Farmers contends that liquidated damages awards are only to be applied to “pecuniary loss” suffered by the employee. It cites Brown v. M & M/Mars, 883 F.2d 505, 515 (7th Cir.1989) for this proposition. In Brown, the court held that an employee could not receive liquidated 1007damages for pension benefits which he had not lost.17 To the extent that the profit sharing plan here is part of compensation, Farmers’ argument fails. Farmers would be liable for liquidated damages just as if it had not paid wages to the employees. To the extent that the profit sharing plan is part of the retirement package, the district court’s judgment in this respect should also stand. The fortuitous fact that the employees chose not to withdraw the fully vested amounts in their profit sharing plans at the time they were eligible to do so does not relieve Farmers of liability for its willful violation of the ADEA. Unlike the employer in Brown, Farmers has not pledged to make the proper credits to the individual appellees’ accounts. The district court was not asked to order Farmers to do so, but instead was asked to award damages. It exercised its discretion to do so, and its award of liquidated damages to appellees was not an abuse of discretion. Farmers also contends that the district court erred in awarding the previously retired appellees the present value of future pension losses rather than ordering Farmers to adjust their pension payments on a monthly basis.18 The district court’s order was entirely proper. See Kelly v. American Standard, Inc., 640 F.2d 974, 986 n. 20 (9th Cir.1981); Loeb v. Textron, Inc., 600 F.2d 1003, 1021 (1st Cir.1979), disapproved on other grounds, Thurston, 469 U.S. at 126 n. 19, 105 S.Ct. at 624 n. 19. CONCLUSION Over the many years since the ADEA was first enacted, Farmers has been resolute in its opposition to the policies and purposes that animated that legislation. It embraced every opportunity to restrict benefits for older workers and ultimately went too far. As a result, it violated the ADEA by depriving older workers of the benefits to which they would otherwise have been entitled and by doing so for the purpose of driving them into retirement.19 Therefore, despite Farmers’ jeremiads and febrile arguments it must now make the individual appellees whole. AFFIRMED.. The district court awarded damages from January 1, 1979 to June 1, 1990. Unless otherwise specifically stated, all references to the plan provisions and to actions of the parties refer to this period.. In a defined contribution plan, the employer contribution is fixed or determined by a formula and benefits are based on the contribution of the employer. A defined benefit plan is one in which the contributions to be made are calculated to achieve a specific benefit at a time certain in the future.. Forfeitures occur when employees leave the company prior to full vesting. Until the employee has been a plan participant for five years, his account is not fully vested. Upon termination, the unvested portion is forfeited for redistribution among the remaining employee accounts.. The plan provides for a hardship exception to this election, in the event of financial need.. This provision affected an older employee’s benefit because the benefit was calculated by using an individual’s average monthly compensation and his years of credited service (up to 35 years). Therefore, if an employee worked past age 65, his retirement benefit would not increase even if his salary during the last five years or his years of service increased.. The Court explicitly held that section 4(f)(2) did not "establish] ] a defense to what otherwise would be a violation of the Act.” Betts, 492 U.S. at 181, 109 S.Ct. at 2868. Cf. Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 124-25, 105 S.Ct. 613, 623, 83 L.Ed.2d 523 (1985) (characterizing sections 4(f)(1) and 4(f)(2) as affirmative defenses to liability). Appellees argue for the first time on appeal that Betts should not be applied retroactively. We conclude that Betts should apply retroactively. Retroactivity will clearly further the operation of the rule of Betts, and there do not appear to be substantial inequitable results from retroactive application here. See Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 355, 30 L.Ed.2d 296 (1971); Austin v. City of Bisbee, 855 F.2d 1429, 1432 (9th Cir.1988). In addition, this circuit has previously applied Betts retroactively. See Robinson v. County of Fresno, 882 F.2d 444, 445 (9th Cir.1989) (applying Betts without considering its retroactivity under Chevron Oil).. Ordinarily, however, when there is direct evidence of discrimination, such as when a provision is discriminatory on its face, the prima facie case analysis is inapplicable. Thurston, 469 U.S. at 121, 105 S.Ct. at 621-22.. Congress has since declared a contrary rule for the future. See 29 U.S.C. § 623(f)(2), as amended October 16, 1990.. At the time of the cross-motions for summary judgment, there was no dispute regarding the declaration of Virginia Gould. Farmers did not submit declarations contradicting Gould’s statement until it moved for reconsideration in light of Betts. Nothing in the record indicates that the district court agreed to reconsider summary judgment on the basis of evidence which Farmers could have produced earlier but did not. It reconsidered its grant of summary judgment only because of new legal precedent. Even if Gould’s evidence were not considered, an inference of discriminatory intent was raised by the other evidence.. In 1986, Congress deleted the upper age limit for the class of persons protected by the ADEA. It now protects all persons age 40 and over. 29 U.S.C. § 631(a). Under both the 1978 and 1986 versions of the ADEA, mandatory retirement is permitted for executives who are entitled to a 1003certain level of pension and other post-retirement benefits. 29 U.S.C. § 631(c)..Under the plan, an employee was eligible to receive 20% of his account balance, as of December 31st, 120 days after his fifth December 31st as a plan participant, and 20% of the account balance each year thereafter, unless he irrevocably elected to defer receipt until retirement. The account balance as of any given December 31st included the amounts actually in the account as of that date, adjusted by all charges and allocations for that calendar year, including those which were not required to be made by Farmers until it filed its tax returns for that year. Thus, the employee received almost immediate distribution of 20% of the amounts added to his account that year. In this respect, the plan operated much like a year end bonus program.. Under the plan in effect in 1979, employees who were leaving to open a Farmers’ agency could take the whole vested part of their account out in a lump sum. Others who terminated were paid the balance of their accounts in five equal annual payments after termination. In 1985, the plan was amended so that all employees who terminate employment (for reasons other than death, disability or retirement) receive the whole of their account balances over a five year period. This also undercuts the retirement aspect of the profit sharing plan.. This, of course, assumes that some economic disaster has not greatly reduced values between December 31 and the end of the 120 day period.. Assuming that the profit sharing plan is a retirement plan, under the 1979 Labor Department regulations, the plan would have been considered a "supplemental” defined contribution plan because Farmers also maintains a defined benefit plan (the pension plan). 29 C.F.R. § 860.120(f)(iv)(B)(l). These regulations provided that an employer could cease contributions to a defined contribution plan which was not a supplemental plan, but stated that the provisions did not apply to supplementary plans. Id. The provisions also stated that an employer could not allocate forfeitures less favorably on the basis of age, regardless of whether a defined contribution plan was supplemental or not. 29 C.F.R. § 860.120(f)(iv)(B)(2).. We recognize Betts’ holding that an employer need not prove cost justification in order to avoid a finding of subterfuge. 492 U.S. at 175, 109 S.Ct. at 2865. However, Betts did not make cost totally irrelevant to the inquiry. Certainly there is nothing in this record to suggest that *1005Farmers' decision was driven by mere cost considerations rather than considerations of a more malevolent sort,. The EEOC action alleged only that the profit sharing plan violated the ADEA. It did not request any relief with respect to the pension plan.. Brown had not lost any pension benefits because he had asked to be reinstated to employment and the court had ordered his reinstatement. The employer had represented to the court that upon Brown’s reinstatement, it would fully credit his pension plan as if he had continued working. Thus, at Brown’s retirement, he would receive the same pension as if he had not been unlawfully fired. 883 F.2d at 514-15.. All appellees who had not retired as of December 1, 1988 were to have their pension benefits adjusted pursuant to changes in the law and the pension plan..The district court found that Farmers had also violated ERISA. We do not decide that issue, since it was simply an alternate ground for the district court’s decision, a decision which was fully supported by its ADEA determination. Appellees also made claims under state law. The district court did not found Farmers’ liability upon those state law claims, and no cross-appeal was taken by the appellees. Thus, that issue is not properly before us.	INVALIDATED
724 F.2d 1390	896 F.2d 463	IOR	Equal Employment Opportunity Commission v. Borden's, Inc.	JOHN P. MOORE, Circuit Judge. In this case, the Mobil Oil Corporation and one of its former employees, Porter Mitchell, dispute whether changes which Mobil made in its employee benefit plan violated the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634, and the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461. At trial, Mr. Mitchell succeeded on his age-discrimination and ERISA claims. Mobil challenges the results below, claiming that Mr. Mitchell did not meet his burden of proof on the age-discrimination claim and that he did not have standing to seek relief under ERISA. We agree with Mobil and reverse. I. FACTS Until 1977, Mobil provided retirement benefits only in the form of an annuity. In 1977, Mobil added a “lump-sum option” to its retirement plan, the terms of which, for the purposes of this case, appear in the Retirement Plan of Mobil Oil Corporation as of January 1, 1984 (the Plan). Under the Plan, an employee could elect to receive a lump-sum payment which had the same equivalent actuarial value, discounted at 5%, as the annuity. In the case of early retirement, the Plan reduced the lump-sum payment by 5% for each year of retirement prior to the age of sixty. To qualify for the lump-sum option, an employee had to elect this option prior to retirement; had to be over fifty-five; and, at the date of his retirement, had to have a net worth of at least $250,000 or an accumulated lump sum in excess of $250,000. In February 1984, Mobil amended the lump-sum option. It raised the discount rate prospectively from 5% to 9.5% and increased the eligibility threshold from $250,000 to $450,000. It also linked the new threshold to the Consumer Price Index (CPI), projecting a rise in the threshold to correlate with a rise in the CPI. These changes, however, would not take effect until at least six months after Mobil announced them, pending approval by the IRS. The delayed effective date gave employees who were eligible for the lump-sum payment under the old criteria, but who might not meet the new threshold, the opportunity to decide whether to retire and take the lump sum or to continue working and accumulating more pension benefits with the possibility that they might not accumulate sufficient additional benefits to meet the new threshold requirement at the date of their retirement. Porter Mitchell was one of Mobil’s employees who had to make such a choice. He was fifty-six at the time Mobil amended the eligibility criteria for the lump-sum option and had elected to take this option instead of the annuity. He was clearly eligible for the lump-sum option under the $250,000 threshold but was uncertain whether he would be able to meet the $450,000 threshold since it could rise, prior to his retirement, with changes in the CPI. This choice was important to Mr. Mitchell because at the time he was making it, the market interest rate was over 9%. As a result, his lump sum, discounted at 5%, was worth approximately 140% more than his annuity. At trial, Mr. Mitchell claimed that by forcing him to make this choice, Mobil had willfully violated the ADEA since it had, in effect, constructively discharged him because of his age. He also claimed that Mobil had breached its fiduciary duties under ERISA and that it had violated ERISA’s anti-cutback provision, 29 U.S.C. § 1054(g), by retroactively limiting his right to the lump-sum option, an accrued benefit. The age-discrimination and ERISA claims were tried jointly before a jury, though, the trial court reserved for itself a decision on the ERISA claims. The jury returned a verdict in favor of Mr. Mitchell, awarding $405,962.76 in back-pay damages; $86,000 as compensation for the 20% reduction in Mr. Mitchell's lump-sum benefit; and, $96,740.82 in front-pay damages. Because the jury found that Mobil’s violation of the ADEA was willful, the trial court awarded Mr. Mitchell $405,-962.76 in liquidated damages as well. The court rejected Mr. Mitchell’s claim for prejudgment interest on his ADEA claim. The trial court also ruled in favor of Mr. Mitch467ell on his ERISA claims, awarding him $588,703.58 in compensatory damages and $405,962.76 in liquidated damages. Mobil appeals both the jury’s verdict and the trial court’s judgment. Mr. Mitchell cross-appeals the trial court’s measure of damages. II. THE ADEA CLAIM A. MR. MITCHELL’S PRIMA FACIE CASE The ADEA prohibits an employer from “discharg[ing] any individual or otherwise discriminatpng] against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” 29 U.S.C. § 623(a)(1). To establish a prima facie ease of age discrimination by constructive discharge, an employee must prove that his “employer by its illegal discriminatory acts has made working conditions so difficult that a reasonable person in the employee’s position would feel compelled to resign.” Derr v. Gulf Oil Corp., 796 F.2d 340, 344 (10th Cir.1986). An employee who claims that an offer of early retirement constitutes age discrimination by constructive discharge can meet this burden by demonstrating that the offer “sufficiently alters the status quo that each choice facing the employee makes him worse off” and that if he refuses the offer and decides to stay, his employer will treat him less favorably than other employees because of his age. Bodnar v. Synpol, Inc., 843 F.2d 190, 193 (5th Cir.), cert. denied, - U.S. -, 109 S.Ct. 260, 102 L.Ed.2d 248 (1988). An early retirement program which requires an employee to make the difficult choice between retirement with the receipt of previously unavailable incentives -and continued work under the same conditions, however, does not result in constructive discharge because the employee is no worse off whichever option the employee chooses. Henn v. Nat’l Geographic Soc’y, 819 F.2d 824 (7th Cir.), cert. denied, 484 U.S. 964, 108 S.Ct. 454, 98 L.Ed.2d 394 (1987); Schuler v. Polaroid Corp., 848 F.2d 276 (1st Cir.1988). Mobil claims that since Mr. Mitchell did not establish a prima facie case of age discrimination by constructive discharge, the trial court erred in rejecting its motion for a directed verdict on the ADEA claim. We will reverse the trial court’s denial of a motion for a directed verdict only if, viewed in the light most favorable to the nonmov-ing party, the evidence and all reasonable inferences to be drawn therefrom point but one way, in favor of the moving party. Zimmerman v. First Federal Sav. & Loan Ass’n, 848 F.2d 1047, 1051 (10th Cir.1988). Mobil first contends that the trial court erred in denying its motion for a directed verdict because Derr precludes recovery for violations of the ADEA absent a showing that an employer subjected its employee to difficult or intolerable working conditions. 796 F.2d at 344. Mr. Mitchell himself admitted at trial that his working conditions were not unpleasant, that he was well regarded by his superiors, and that he enjoyed his work at Mobil. The fact that Mr. Mitchell was happy at Mobil and worked harmoniously with his colleagues and superiors, however, does not preclude a finding that Mobil’s offer of early retirement constituted age discrimination by constructive discharge. The relevant question in this case is whether Mobil’s amendment of the Plan forced Mr. Mitchell, and similarly situated employees, to choose between two options both of which would leave him worse off than the status quo. Mobil contends that it did not confront Mr. Mitchell with such a choice. Instead, it gave him an extra benefit unavailable to employees under the age of fifty-five, the choice to elect the lump-sum option at the $250,000 threshold. Mobil’s argument is disingenuous. Its program, unlike that in Henn, 819 F.2d at 826, did not give Mr. Mitchell a choice between the receipt of a previously unavailable early retirement incentive and the continuation of work under the status quo which preceded the offer of early retirement. Instead, Mobil created a choice between two options either of which would leave Mr. Mitchell worse off than he had been prior to the change in the Plan. 468One choice would permit Mr. Mitchell to retire by February 1, 1985, at the age of fifty-six, and receive the lump-sum option under the old eligibility criteria. Prior to Mobil’s amending the Plan, however, Mr. Mitchell could have worked until the age of sixty-five and still remain eligible for the lump-sum option under the old criteria. The other choice would permit Mr. Mitchell to continue working, but whereas prior to the Plan’s amendment he could be certain to qualify for the lump-sum option, now, because Mobil had increased the threshold and linked it to the CPI, he would have to requalify for this benefit for which he had already become eligible at the age of fifty-five. Moreover, he would never be certain that he could achieve the potentially increasing threshold by retirement age. As Mobil points out, to establish a prima facie case of age discrimination by constructive discharge, Mr. Mitchell had to prove not only that Mobil confronted him with a choice between two evils but also that Mobil would have treated him and other older employees less favorably, because of their age, had they remained on the job. Mobil asserts that since all employees were subject to the new eligibility criteria, Mr. Mitchell cannot demonstrate that the amendment of the Plan adversely affected him because of his age. Like Mr. Mitchell, employees under the age of fifty-five who had accumulated pension benefits in excess of $250,000, but less than $450,-000, or who had a net worth of between $250,000 and $450,000, also lost the opportunity to obtain the lump-sum benefit under the old criteria. Indeed, for this group of employees that opportunity was irretrievably lost, whereas Mr. Mitchell could still take advantage of it if he chose to retire prior to February 1, 1985. Mobil’s argument ignores the Plan’s requirement that an employee be over the age of fifty-five before he can qualify for the lump-sum benefit. Although Mobil’s employees who were under age fifty-five at the time Mobil amended the eligibility criteria might have expected to obtain the lump-sum benefit, none of them qualified for it at that time; consequently, only employees over the age of fifty-five who had already qualified to receive the lump-sum benefit, like Mr. Mitchell, would have to requalify for it under the new eligibility criteria if they decided to stay on the job. Since Mr. Mitchell did establish, as a matter of law, that he had been constructively discharged because of his age, the trial court properly denied Mobil’s motion for a directed verdict. B. THE JURY CHARGE ON MR. MITCHELL’S PRIMA FACIE CASE This court will find reversible error in a trial court’s jury instructions only if we have substantial doubt whether the instructions, taken together, properly guided the jury in its deliberations. Lutz v. Weld County School Dist. No. 6, 784 F.2d 340, 341 (10th Cir.1986). The paradigmatic instruction on the element of intolerability in a constructive discharge case is “whether the employer by its illegal discriminatory acts has made working conditions so difficult that a reasonable person in the employee’s position would feel compelled to resign.” Derr, 796 F.2d at 344. A trial court should, however, tailor this instruction to fit the facts of the case. See Paolillo v. Dresser Indus., Inc., 865 F.2d 37, 40 (2d Cir.1989).1 Mobil contends that the trial court made two errors in its constructive discharge instructions. First, the court did not require the jury to find, as stated in Derr, that Mr. Mitchell’s working conditions were intolerable or difficult. Instead, the court instructed the jury that it could find constructive discharge by forced retirement if “a reasonable person would also have felt compelled to retire under the circumstances with which Mr. Mitchell was faced in 1984 and 1985.” We have no doubt that this instruction properly guided the jury in its 469deliberations. An instruction patterned after the Derr paradigm is particularly apt in cases where an employee, who is a member of a protected class, claims that an employer forced the employee to resign by creating on-the-job conditions directed specifically at that employee. It is less suitable where, as here, an employee claims that the employer’s offer of early retirement constitutes age discrimination by constructive discharge. The instruction given takes this distinction into account and is, therefore, properly tailored to the facts of the case. Mobil also assigns as error the trial court’s failure to require the jury to find a link between the choice which Mobil imposed upon Mr. Mitchell by amending the Plan and Mr. Mitchell’s age. It specifically objects to the following instruction: [T]o take early retirement constitutes constructive discharge, one, if the decision is induced by withholding or reducing or threatening to withhold or reduce benefits from those who choose not to retire, or, two, if each choice facing the employee as a result of the change in the threshold provisions of the retirement plan leaves him worse off than before.2 Mobil ignores, however, the trial court’s preliminary instruction that Mr. Mitchell “must prove that Mobil’s specific employment practices or policies adversely affected people in his age group at a substantially higher rate than they affected those in younger age groups.” Since these instructions, taken together, properly state the law governing this case, we reject Mobil’s claim that the trial court improperly instructed the jury. C. RETROACTIVE APPLICATION OF PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO v. BETTS After trial and after Mr. Mitchell filed his Reply Brief, the Supreme Court decided Public Employees Retirement Sys. of Ohio v. Betts, - U.S. -, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989), which redefined the elements of a prima facie case of age discrimination based on changes in an employer’s benefits plan by reinterpreting § 4(f)(2) of the ADEA, 29 U.S.C. § 623(f)(2). That section exempts from liability under the ADEA any employer who “observe[s] the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of” the ADEA. Pri- or to Betts, this court and several other courts of appeal held that an employer had the burden of establishing as an affirmative defense that its early retirement program fell within the exemption of § 4(f)(2) by proving that (1) its plan was bona fide; (2) its actions were in observance of the terms of the plan; and, (3) its plan was not a subterfuge to evade the purposes of the Act. EEOC v. Cargill, Inc., 855 F.2d 682, 684 n. 2 (10th Cir.1988); EEOC v. Westinghouse Elec. Corp., 725 F.2d 211, 223 (3d Cir.1983), cert. denied, 469 U.S. 820, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984); Karlen v. City Colleges of Chicago, 837 F.2d 314, 318 (7th Cir.), cert. denied, 486 U.S. 1044, 108 S.Ct. 2038, 100 L.Ed.2d 622 (1988). An employer could disprove subterfuge by showing a cost-based justification for age-related reductions in benefits. See Karlen, 837 F.2d at 319; EEOC v. City of Mt. Lebanon, 842 F.2d 1480, 1492 (3d Cir.1988); 29 C.F.R. § 860.120(a)(1), (d)(1)-(3) (1980), redesignated 29 C.F.R. § 1625.10(a)(1), (d)(1)-(3) (1988). The Betts court implicitly overruled this prior case law. It held that § 4(f)(2) is not an affirmative defense which the employer has the burden of prov470ing, but rather part of the plaintiffs prima facie case. 109 S.Ct. at 2868. Under Betts, an employee who claims that his employer’s benefits program violates the ADEA bears the burden of proving subterfuge by showing “that the discriminatory plan provision actually was intended to serve the purpose of discriminating in some nonfringe-benefit aspect of the employment relationship,” such as hiring and firing or wages and salaries. Id. We must now determine whether, as Mobil contends, Betts should be retroactively applied to this case. Our determination whether to apply Betts retroactively requires the weighing of three factors: (1) whether Betts “establishes] a new principle of law, either by overruling clear past precedent on which litigants may have relied... or by deciding an issue of first impression whose resolütion was not clearly foreshadowed”; (2) whether, after looking at the prior history of the Betts rule and at its purpose and effect, “retrospective operation will further or retard its operation”; and, (3) whether retroactive application of the Betts rule would be inequitable. Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 355-56, 30 L.Ed.2d 296 (1971) (citations omitted). Each factor need not compel prospective application. Jones v. Consolidated Freightways Corp., 776 F.2d 1458, 1460 (10th Cir.1985). Where, for example, a decision “ ‘could produce substantial inequitable results if applied retroactively, there is ample basis... for avoiding the “injustice or hardship” by a holding of non-retroactivity.’ ” Chevron, 404 U.S. at 107, 92 S.Ct. at 355 (quoting Cipriano v. City of Houma, 395 U.S. 701, 706, 89 S.Ct. 1897, 1900, 23 L.Ed.2d 647 (1969) (per curiam)). Betts clearly established a new principle of law by transforming what had been an affirmative defense into an element of an employee’s prima facie case. Prior to Betts, every circuit which addressed the applicability of § 4(f)(2) to claims of age discrimination in employee benefit programs viewed it as an affirmative defense. Potenze v. New York Shipping Ass’n, Inc., 804 F.2d 235, 237 (2d Cir.1986), cert. denied, 481 U.S. 1029, 107 S.Ct. 1955, 95 L.Ed.2d 528 (1987); EEOC v. City of Mt. Lebanon, 842 F.2d 1480, 1488 (3d Cir.1988); Crosland v. Charlotte Eye, Ear and Throat Hosp., 686 F.2d 208, 211 (4th Cir. 1982); Betts v. Hamilton County Bd. of Mental Retardation and Developmental Disabilities, 848 F.2d 692, 694-95 (6th Cir.1988), rev’d sub nom. Public Employees Retirement Sys. of Ohio v. Betts, — U.S. -, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989); Karlen v. City Colleges of Chicago, 837 F.2d 314, 318 (7th Cir.), cert. denied, 486 U.S. 1044, 108 S.Ct. 2038, 100 L.Ed.2d 622 (1988); EEOC v. Borden’s, Inc., 724 F.2d 1390, 1395 (9th Cir.1984); EEOC v. Cargill, Inc., 855 F.2d 682, 684 (10th Cir.1988). None even considered that § 4(f)(2) established an element of plaintiff’s prima facie case. This Chevron factor, therefore, strongly favors nonretro-active application of Betts. Retroactive application of Betts in this case would not further the purpose behind its new interpretation of § 4(f)(2): to exempt “the provisions of a bona fide benefit plan from the purview of the ADEA so long as the plan is not a method of discriminating in other, nonfringe-benefit aspects of the employment relationship.” 109 S.Ct. at 2866. Mr. Mitchell asserts that Mobil constructively discharged him because of his age by manipulating the availability of the lump-sum benefit. In other words, Mr. Mitchell claims that Mobil used its benefit plan to discriinate against him in a nonfr-inge-benefit aspect of the employment relationship. His claim is exactly the type from which the Betts court did not intend to insulate employers. Retroactively applying Betts, however, would, in effect, insulate Mobil from Mr. Mitchell’s claim because Mr. Mitchell did not present as part of his prima facie case evidence of Mobil’s intent to use the amendment of the lump-sum provision to discriminate against him in a nonfringe-benefit aspect of the employment relationship. The second Chevron factor, therefore, also weighs against retroactive application of Betts. Considerations of equity also undercut Mobil’s contention that Betts should be applied retroactively. Mobil first mentioned 471§ 4(f)(2) in its Reply Brief, filed just over two weeks after Betts was decided. Despite the fact that § 4(f)(2) was available to Mobil as an affirmative defense prior to Betts, Mobil did not plead that defense in its Answer or in its Answer to the Amended Complaint. Not surprisingly, Mr. Mitchell presented no evidence at trial on the applicability of § 4(f)(2) to his claims, nor did Mobil. Since this case proceeded for over three years prior to Mobil’s filing its Reply Brief — through discovery, trial, and initial briefing on appeal — without any mention of § 4(f)(2) as an affirmative defense for Mobil, it would work a grave injustice for us to hold that Betts applies retroactively.3 This result is one which we must avoid. D. MOBIL’S BUSINESS JUSTIFICATION AND MR. MITCHELL’S CLAIM OF PRETEXT If an employee establishes his prima facie case of age discrimination by constructive discharge, the employer then has the opportunity to rebut the presumption of discrimination by producing evidence of a legitimate, nondiscriminatory business reason for its conduct. EEOC v. University of Oklahoma, 774 F.2d 999, 1002 (10th Cir.1985), cert, denied, 475 U.S. 1120, 106 S.Ct. 1637, 90 L.Ed.2d 183 (1986); Connecticut v. Teal, 457 U.S. 440, 446-47, 102 S.Ct. 2525, 2530-31, 73 L.Ed.2d 130 (1982). To prevail, the employee must then prove that the employer’s proffered justification is “a mere pretext for discrimination.” Teal, 457 U.S. at 447, 102 S.Ct. at 2530. The employee can establish pretext “by showing that the employer’s proffered explanation is unworthy of credence.” University of Oklahoma, 774 F.2d at 1002. Mobil claims that since it forwarded a legitimate business justification and Mr. Mitchell failed to prove that it was a pretext, the trial court erred in denying its motion for a directed verdict. We will reverse the trial court’s denial of a motion for a directed verdict only if, viewed in the light most favorable to the nonmoving party, the evidence and all reasonable inferences to be drawn therefrom point but one way, in favor of the moving party. Zimmerman, 848 F.2d at 1051. Alternatively, Mobil claims that the evidence was insufficient to support the jury’s finding in favor of Mr. Mitchell on this issue. We will uphold the jury's verdict unless it is clearly erroneous, or there is a lack of evidence to support it. Colorado Coal Furnace Distribs. v. Prill Mfg., 605 F.2d 499, 502 (10th Cir. 1979). At trial, Mr. Mitchell claimed that Mobil’s raising the eligibility threshold for the lump sum from $250,000 to $450,000 and linking it to the CPI combined with its delaying for six months the effective date of these changes forced him to choose early retirement, resulting in age discrimination by constructive discharge. Mobil introduced evidence to justify both of these amendments to the Plan. It claimed that because inflation had eroded the real dollar value of the $250,000 threshold, which had been set in 1977, the number of employees who were eligible for, and taking advan472tage of, the lump-sum option had increased dramatically, creating a serious drain on Mobil’s pension fund. By increasing the threshold to $450,000 and linking it to the CPI, Mobil would both restore the threshold to the equivalent of its original level in 1977 dollars and protect it from future erosion by inflation. These changes in turn would stop the drain on Mobil’s pension plan resulting from the overutilization of the lump-sum option. Mobil claimed that it delayed the effective date of these changes, rather than implementing them immediately, out of fairness to its employees. The six-month notice period would give Mobil employees an adequate transition period to consider their choice rather than simply pulling the rug out from under them. It would also give retiring employees, who were earning their peak salaries, six months to accrue additional pension benefits since Mobil calculated these benefits based on a retiring employee’s highest average salary over a period of thirty-six months. At trial, Mr. Mitchell asserted that these justifications were unworthy of credence. He contended that Mobil amended the Plan in the manner it did to force the retirement of older Mobil employees who would become redundant as a result of an impending merger with Superior Oil Company. Mr. Mitchell asserted that Mobil needed to force these employees into early retirement to avoid large severance payments which the merger agreement required it to make to Superior employees laid off as a result of the merger. Mobil could achieve this objective only by combining an increase in the threshold with a notice period during which employees would be forced to retire early to obtain the lump-sum benefit. Mr. Mitchell contends that several circumstances which he proved support his claim of pretext. In September 1983, mid-level Mobil executives began considering alternatives to the $250,000 threshold. In mid-December, the Mobil executive primarily responsible for changes to the Plan informed his superior — the Vice President for Employee Relations, who was also a member of the Executive Committee of Mobil’s Board of Directors — that an increase in the threshold would require notice to employees and a transition plan to control the accelerated retirements, of employees eligible for the lump sum. On January 9, 1984, the Executive Committee requested the Vice President for Employee Relations to continue the evaluation of an increase in the threshold and directed him to incorporate into future proposals for change a reasonable transition period between the announcement of the increased threshold and its effective date during which employees could take advantage of the old eligibility criteria. On February 9, 1984, Mobil’s Executive Committee adopted the increase in the threshold to $450,000 and linked it to the CPI. It also decided to give employees at least six months’ notice of this change so they could retire and obtain the lump sum under the old eligibility requirements. The Executive Committee recognized that the announcement of an increase in the threshold approximately six months prior to the effective date of the change would lead to the early retirement of between 1000 and 1300 employees. One week prior to its February 9 meeting, the Executive Committee reviewed “at length”4 the possibility of a merger with Superior and authorized Mobil’s President to proceed with negotiations. Mr. Mitchell contends that because the Executive Committee reviewed the opportunity to merge with Superior at length on February 2, 1984, one can reasonably infer that the Executive Committee knew about the redundancy problem which would result from the merger prior to January 9, 1984, when it directed the Vice President for Employee Relations to incorporate a notice period into any future proposals for changes to the Plan. Mr. Mitchell produced no evidence to support this inference, however, and the 473record does not otherwise indicate any link between Mobil’s merger with Superior and the Executive Committee’s decision at its January 9 meeting to incorporate a notice period into any future changes in the Plan. In fact, the evidence points the other way since the Executive Committee adopted the transition period just one week after it authorized Mobil’s President to negotiate with Superior and over one month before Mobil and Superior signed the merger agreement. The inference which Mr. Mitchell asks us to draw, therefore, is not a reasonable one, and his claim of pretext must fail. See Sunward Cory. v. Dun & Bradstreet, Inc., 811 F.2d 511, 521 (10th Cir.1987) (quoting Tose v. First Pennsylvania Bank, N.A., 648 F.2d 879, 895 (3d Cir.), cert. denied, 454 U.S. 893, 102 S.Ct. 390, 70 L.Ed.2d 208 (1981)) (“An inference is reasonable where ‘there is a reasonable probability that the conclusion flows from the proven facts.’ ”) Since Mr. Mitchell did not meet his burden of production on the issue of pretext, the onerous effects of the changes in the plan notwithstanding, we reverse the trial court’s denial of Mobil’s motion for a directed verdict. Because we hold that Mobil did not violate the ADEA, we need not review Mr. Mitchell’s cross-appeal on issues relating to the measure of damages. III. THE ERISA CLAIMS At trial, Mr. Mitchell claimed that Mobil’s amendments to the Plan violated both § 204(g) of ERISA, 29 U.S.C. § 1054(g), which prohibits employers from reducing the accrued benefits of participants in a benefit plan, and § 510 of ERISA, 29 U.S.C. § 1140, which prohibits an employer from discriminating against a participant “for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.” Mr. Mitchell also claimed that Mobil breached its duty as the fiduciary of the Plan by amending the Plan in the manner that it did. After determining that Mr. Mitchell met ERISA’s requirements for standing, the district court held in his favor on all of his ERISA claims and awarded him $588,703.58 in compensatory damages and $405,962.76 in liquidated damages. Mobil challenges the district court’s conclusion that Mr. Mitchell had standing as well as its holdings in his favor. Since Mobil’s appeal involves pure questions of law, our review of the trial court’s holdings is de novo. Sage v. Automation, Inc. Pension Plan and Trust, 845 F.2d 885, 890 (10th Cir.1988). ERISA and its legislative history emphasize Congress’s intent to provide those protected by the Act “ready access to the federal courts,” 29 U.S.C. § 1001(b), and liberal remedies. See S.Rep. No. 127, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4838, 4871;5 H.R.Rep. No. 533, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4647.6 Although the Act has a broad remedial purpose, only participants, beneficiaries, and fiduciaries of an employee benefit plan may avail themselves of its protections. 29 U.S.C. § 1132(a). This limitation on the group of potential claimants is necessary to avoid the creation of uncertainties about an employer’s obligations under ERISA and to prevent the imposition of “great costs on pension plans for no legislative purpose.” 474Saladino v. I.L.G.W.U. Nat’l Retirement Fund, 754 F.2d 473, 476 (2d Cir.1985). ERISA defines a “participant” as “any employee or former employee of an employer... who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer.” 29 U.S.C. § 1002(7). This definition includes “former employees who ‘have... a reasonable expectation of returning to covered employment’ or who have ‘a colorable claim’ to vested benefits.” Firestone Tire and Rubber Co. v. Bruch, — U.S. -, 109 S.Ct. 948, 958, 103 L.Ed.2d 80 (1989) (quoting Kuntz v. Reese, 785 F.2d 1410, 1411 (9th Cir.) (per curiam), cert. denied, 479 U.S. 916, 107 S.Ct. 318, 93 L.Ed.2d 291 (1986)). It excludes, however, former employees who have received a lump-sum payment of all their vested benefits because “these erstwhile participants have already received the full extent of their benefits and are no longer eligible to receive future payments.” Joseph v. New Orleans Electrical Pension & Retirement Plan, 754 F.2d 628, 630 (5th Cir.), cert. denied, 474 U.S. 1006, 106 S.Ct. 526, 88 L.Ed.2d 458 (1985). These claimants seek a damage award, not vested benefits improperly withheld. Kuntz, 785 F.2d at 1411. The fact that an employee takes his lump sum under protest does not preserve his standing as long as an employer properly pays out all the vested benefits owed to the employee. Yancy v. American Petrofina, Inc., 768 F.2d 707, 708-09 (5th Cir.1985). Mobil claims that the trial court erred in granting Mr. Mitchell standing because he has never had a reasonable expectation of returning to covered employment, nor does he have a colorable claim to vested benefits. We agree. After Mr. Mitchell retired on January 1, 1985, he received all of his vested pension benefits in a single lump sum. Although he filed a protest under Mobil’s internal procedures, he did not claim that Mobil had improperly withheld vested benefits. He also did not make such a claim in his complaint, nor did he seek reinstatement. Instead, he claimed that Mobil’s violation of ERISA entitled him to additional benefits which he would have received had Mobil’s amendments to the Plan not compelled him to retire at fifty-six, rather than sixty. Since these benefits had not yet vested, Mr. Mitchell could not have a colorable claim to vested benefits, but only a claim for compensatory damages. Furthermore, Mr. Mitchell never sought reinstatement; therefore, he also could not have a reasonable expectation of returning to covered employment. Because Mr. Mitchell failed to prove that he was still a participant in the Plan, it is inescapable that he did not have standing to seek enforcement of his ERISA claims. The trial court’s holding that Mr. Mitchell is entitled to recover under ERISA, therefore, must be reversed. For the foregoing reasons, we REVERSE the judgments of the district court.. Indeed, trial judges should always avoid verbatim adoption of language from appellate opinions to formulate instructions. That which is meaningful to those with a legal education is often lost upon others; therefore, a carefully crafted instruction always is tailored to fit the case in language non-lawyers will comprehend.. The Association of Private Pension and Welfare Plans, as amicus curiae, asserts that the first alternative in this jury charge would effectively outlaw voluntary early retirement programs by prohibiting employers from offering special incentives that will not be available to those who choose to remain employed. Read out of context, the jury charge does support this interpretation which would misstate the law. When the jury instructions are read as a whole, however, the trial court’s reference to the "withholding or reducing or threatening to withhold or reduce benefits from those who choose not to retire” clearly addresses those situations in which the employer uses a stick, the reduction or withholding of benefits to which the employee was entitled prior to the offer of early retirement, to force employees to accept an offer of early retirement.. In Robinson v. County of Fresno, 882 F.2d 444 (9th Cir.1989), the Ninth Circuit applied Betts retroactively without resorting to the Chevron inquiry. In that case, Mr. Robinson, an employee of the County of Fresno, claimed that a modification to the County's retirement plan violated the ADEA because it resulted in his receiving a smaller pension than other retirees who were younger at the time of hiring. Id. at 445. The Ninth Circuit affirmed the district court’s granting of the County’s motion for summary judgment because Mr. Robinson had not established, as Betts requires, that the county intended the modification to the plan to discriminate against him in an aspect of the employment relationship unrelated to fringe benefits. Id. at 447. We believe that even if the Ninth Circuit had applied the Chevron test, the result would have been the same. Robinson, nonetheless, is distinguishable from this case. Mr. Robinson did not assert, as Mr. Mitchell does, that the modification to the County's plan discriminated against him in a nonfringe-benefit aspect of the employment relationship such as hiring and firing or wages and salaries. A refusal to apply Betts retroactively, therefore, would have retarded the purpose behind that decision. In addition, since Robinson was only at the summary judgment stage at the time Betts was decided, applying Betts retroactively would not result in the high degree of injustice which retroactive application would cause in this case.. See "Excerpt from Minutes of Executive Committee Meeting held on Thursday, February 2, 1984.” (Addendum to Brief of Mobil Oil Corporation, Plaintiffs Exhibit 177). The term "at length” is not defined in the minutes, and we find no other description in the record indicating the length of the review or what it entailed.. This report of the Senate Labor and Public Welfare Committee states: The enforcement provisions [of ERISA] have been designed specifically to provide both the Secretary [of Labor] and participants and beneficiaries with broad remedies for redressing or preventing violations of the [Act].... The intent of the Committee is to provide the full range of legal and equitable remedies available in both state and federal courts and to remove jurisdictional and procedural obstacles which in the past appear to have hampered effective enforcement of fiduciary responsibilities under state law or recovery of benefits due participants. (Emphasis added.). This report of the House Committee on Education and Labor states: [T]he Committee recognizes the absolute need that safeguards for plan participants be sufficiently adequate and effective to prevent the numerous inequities to workers under plans which [inequities] have resulted in tragic hardship to so many. (Emphasis added.)	INVALIDATED
724 F.2d 1390	882 F.2d 444	DR, Q	Equal Employment Opportunity Commission v. Borden's, Inc.	SCHROEDER, Circuit Judge: Paul Robinson, a retiree from employment with the County of Fresno in California, appeals the district court’s grant of summary judgment dismissing his claim against the County for age discrimination in violation of the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634 (1982 & Supp. V 1987). We must analyze the case in light of the Supreme Court’s recent holding in Public Employees Retirement Sys. v. Betts, — U.S.-, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989). The ADEA prohibits age-based discrimination with respect to an employee’s compensation, terms, conditions or privileges of employment, including retirement benefits, on account of age. 29 U.S.C. § 623(a). The ADEA exempts from scrutiny a bona fide employee benefit plan, such as a retirement plan, even though the plan is age discriminatory, so long as it is not a “subterfuge to evade the purposes of the Act.” 29 U.S.C. § 623(f)(2). The Fresno County retirement plan was first created in 1947, and thus predates ADEA. However, it has since been modified legislatively by Fresno County in various respects. The modification challenged in this suit occurred in 1975, when the County, by resolution of the Board of Supervisors, adopted a new formula for computing service and disability retirement benefits.1 Robinson does not contest the validity of most of the Fresno County pension plan. This is because most of the provisions of the Fresno County plan, even if age discriminatory, could not be considered a “subterfuge” within the meaning of the Act, as they were placed into effect before the ADEA was enacted and applied to the states. See United Air Lines, Inc. v. McMann, 434 U.S. 192, 203, 98 S.Ct. 444, 450, 54 L.Ed.2d 402 (1977); EEOC v. County of Orange, 837 F.2d 420, 422 (9th Cir.1988). Robinson does challenge the 1975 change in formula, however, because under it he receives a lower benefit amount than other retirees who were younger at the time of hiring. McMann cannot insulate the 1975 change from challenge, because the change occurred after enactment and application to the states of the ADEA. See Betts, — U.S. at-, 109 S.Ct. at 2862. Under the formula, workers who retire at a later age are granted lesser benefits than workers with the same amount of service who retire at an earlier age.2 It is this aspect of the 446formula that Robinson objects to as age discriminatory. He claims the formula change is an age discriminatory “subterfuge” that puts the new retirement plan outside the ADEA's good faith exemption provision. After his demand for increased benefits was denied, Robinson brought this suit against the County, claiming age discrimination in violation of the ADEA. After discovery, both sides moved for summary judgment. The district court granted summary judgment in favor of the County on the ground that as a bona fide preexisting pension plan the entire Fresno County plan was exempt from ADEA scrutiny. Robinson timely appeals, asking that we focus on the discriminatory effect of the formula change because the county adopted it after the ADEA became applicable. Robinson contends and the County concedes that there are no economic or cost considerations justifying the change in formula. Robinson argues for that reason that the modification must be regarded as a “subterfuge.” The United States Supreme Court has recently dealt with similar issues in considering the meaning and scope of the subterfuge exemption contained in 29 U.S.C. § 623(f)(2). See Betts, — U.S.-, 109 S.Ct. 2854. The Court had before it, as we have before us, a post-ADEA modification to a preexisting plan. The Court held that McMann did not insulate the modified provision from review. Id. at-, 109 S.Ct. at 2862. The Court went on, however, to reject the position advocated by the EEOC, that a provision which has a discriminatory effect should be regarded as a “subterfuge” unless justified by increased costs or other economic considerations. The Court expressly rejected the provisions of 29 C.F.R. § 1625.10 (1988), in which the EEOC adopted such a definition. Id. at- -, 109 S.Ct. at 2862-64. The Court reversed the Sixth Circuit’s ruling in Betts v. Hamilton County Bd. of Mental Retardation and Dev’l Disabilities, 848 F.2d 692 (6th Cir.1988), and expressly disapproved the reasoning of cases from two circuits which required cost-based justification before exempting a plan from ADEA scrutiny, EEOC v. Westinghouse Elec. Corp., 725 F.2d 211 (3d Cir.1983), cert. denied, 469 U.S. 820, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984), and EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir.1984). See Betts, — U.S. at-, 109 S.Ct. at 2864. The Court’s reasoning implicitly overrules the decisions of two other circuits, Karlen v. City Colleges of Chicago, 837 F.2d 314 (7th Cir.1988) and Cipriano v. Board of Educ., 785 F.2d 51 (2d Cir.1986). See Betts, — U.S. at-n. 6, 109 S.Ct. at 2872 n. 6 (Marshall, J., dissenting). Betts requires that “when an employee seeks to challenge a benefit plan provision as a subterfuge to evade the purposes of the [ADEA], the employee [must] bear[] the burden of proving that the discriminatory plan provision actually was intended to serve the purpose of discriminating in some nonfringe-benefit aspect of the employment relation.” Betts, — U.S. at-, 109 S.Ct. at 2868. To prove that a modification to a benefits plan is a subterfuge, a plaintiff must show that the employer’s intent in making the modification relates “to hiring and firing, wages and salaries, [or] other nonfringe-benefit terms and conditions of employment.” Id. at -, 109 S.Ct. at 2866. Examples supporting a successful claim of subterfuge would possibly include the reduction of an employee’s benefits in retaliation for that employee bringing age discrimination complaints or litigation against the employer, or the reduction of all employees’ salaries simultaneous with a 447substantial increase in benefits for younger workers at the expense of older workers. Id. at-, 109 S.Ct. at 2868. Robinson has not shown that the change in benefits formula demonstrates an intent to discriminate in any nonfringe-benefits area. Accordingly, he has not demonstrated that the Fresno County retirement plan is a “subterfuge” within the meaning of the statute. The exemption provision for bona fide benefit plans, 29 U.S.C. § 623(f)(2), therefore exempts the County’s retirement plan from ADEA scrutiny. The judgment of the district court is AFFIRMED.. Fresno County amended its pension plan to adopt Cal.Gov.Code § 31676.12 and replace previously adopted Cal.Gov.Code § 31676, thereby changing the formula for computation of standard service retirement benefits. The County’s adoption of section 31676.12 for standard retirement benefits automatically changed its formula for non-service-connected disability benefits from the formula given in Cal.Gov.Code § 31727 to a modified formula given in Cal.Gov. Code § 31727.1.. The section 31727 formula previously used by Fresno County would have provided, in Robinson’s case, for benefits equal to “90 percent of one-sixtieth of his final compensation multi*446plied by the number of years of service which would be creditable to him were his service to continue until attainment by him of age 65_” The new formula in section 31727.1 provides for benefits to Robinson equal to "90 percent of one-fiftieth of his final compensation multiplied by the number of years of service which would be creditable to him were his service to continue until attainment by him of age 62_” The change increased the multiplier from one-sixtieth to one-fiftieth, tending to increase all pension benefits. At the same time, however, the change reduced the statutory computation age from 65 to 62, reducing by three the number of statutory service years that are multiplied by the final compensation amount, which tends to decrease benefits.	CONFLICT_NOTED, CRITICIZED_OR_QUESTIONED
724 F.2d 1390	785 F.2d 51	D	Equal Employment Opportunity Commission v. Borden's, Inc.	FRIENDLY, Circuit Judge: This is an appeal from an order of the District Court for the Western District of New York granting summary judgment in favor of defendants in an action under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634, brought by two former teachers in the North Tonawanda City School System against the Board of Education of the City School District of the City of North Tonawanda, New York (the Board) and the North Tonawanda United Teachers (the Union). The complaint was directed at a provision of a collective bargaining agreement between the defendants effective July 1, 1980, through June 30, 1983 (sometimes hereafter “the incentive plan”), which offered retirement incentives 1 to members of the bargaining unit between the ages of 55 and 60 who retired effective between July 1 and February 1 in any of the three years of the agreement and had completed 20 years of service under the New York State Teachers Retirement System. These payments were in addition to the benefits otherwise payable upon early retirement. Unfortunately, because of the premature stage at which the decision below was rendered, the record does not include the terms of the underlying retirement plan in effect in the school system. We assume, based on the reference in the collective bargaining agreement and on statements in defendants’ briefs, Brief for Appellee Board at 8; Brief for Appellee Union at 14, that the school system subscribed to the retirement plan in effect under the New York State Teachers’ Retirement System (NYSTRS), N.Y.Educ. Law §§ 501-535 (McKinney 1969 & Supp. 1984). Plaintiffs were 61 years old on July 1, 1980, and thus ineligible for the incentive plan by its terms.2 They retired on June 30,1981, when they were over 61 years old. On May 23, 1981, shortly before their retirement, contending that depriving them of the incentives because of their age violated the ADEA, plaintiffs filed complaints with the Equal Employment Opportunity Commission (EEOC), which is alleged to have sent a letter of violation to the defendants on April 27, 1982. Thereafter the EEOC attempted to conciliate plaintiffs’ claim but commenced no formal action on plaintiffs’ behalf. Plaintiffs then commenced this action on January 24, 1984, each claiming as damages the $10,000 she would have been entitled to receive under Option B if the incentive plan had applied to her at the time of her retirement, in addition to punitive damages based on the allegedly wilful nature of the violation, attorney’s fees, costs, and other appropriate relief. The Board filed an answer, containing ten “affirmative defenses.” None of these was the provision in § 4(f)(2) of the ADEA, 29 U.S.C. § 623(f)(2), which was to become the basis for the decision below. The Union filed a motion to dismiss the complaint on various grounds, including that it failed to state a claim upon which relief can be granted, which the district court appears to have treated as having been filed on behalf of the Board as well. The asserted failure to state a claim was premised on § 4(f)(2), which provides that it shall not be unlawful for an employer, employment agency, or labor organization to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pen53sion, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual, and no such seniority system or employee benefit plan shall require or permit the involuntary retirement of any individual specified by section 631(a) of this title because of the age of such individual[.] After oral argument some months later the court entered an order stating that upon the present record the court was unable to grant the defendants’ motion to dismiss and that it was unable to treat the motion as one for summary judgment, since the defendants had failed to provide the court with affidavits accompanied by a copy of the collective bargaining agreement. The order directed the defendants to file an affidavit to which such a copy was attached, with the averments restricted to the authenticity of the agreement; plaintiffs’ response, if any, was to be similarly limited. The Union filed an affidavit apparently complying with the court’s direction; the docket entries recite that plaintiffs filed an affidavit in opposition but this is not in the record before us. After several months the judge rendered an opinion granting summary judgment in favor of the defendants in reliance on § 4(f)(2). Stressing the voluntary nature of the incentive plan, he found that the plan attacked by the plaintiffs was a bona fide retirement plan within § 4(f)(2) and that there was “nothing in this record to indicate that this plan is a subterfuge to evade the purposes of the act.” After citing Mason v. Lister, 562 F.2d 343 (5 Cir.1977), and Patterson v. Independent School District # 709, 742 F.2d 465 (8 Cir.1984), he went on to say: Congress meant to protect older individuals against forced discharge and barriers blocking employment opportunities when it enacted the ADEA. At the same time, Congress meant to preserve incentives for early voluntary retirement, recognizing that they are useful and necessary devices which employers can use to manage their work forces. The plan at issue here is consistent with both objectives. No reference was made to our statement in EEOC v. Home Insurance Company, 672 F.2d 252, 257 (2 Cir.1982), that the burden of proving absence of subterfuge for the purposes of the § 4(f)(2) defense is on the defendants. Plaintiffs appealed. Their initial brief, of six pages, was perfunctory. A more helpful brief in support of their position was filed by the American Association of Retired Persons as amicus curiae. Briefs were filed by the Board and the Union as appellees, and by the New York State School Boards Association as amicus curiae urging affirmance. The case was submitted without oral argument. DISCUSSION Decision here is rendered difficult because of the peculiar posture in which the case comes to us. While the district court went through the form of converting the Union’s Rule 12(b)(6) motion into one for summary judgment, the limitations which it imposed on the affidavits of both parties prevented them from having a “reasonable opportunity to present all material made pertinent to such a motion by Rule 56,” as Rule 12(b)(6) requires. Cf. Beacon Enterprises, Inc. v. Menzies, 715 F.2d 757, 767 (2 Cir.1983). The practical effect was the same as if plaintiffs had amended their complaint to append the collective bargaining agreement and defendants had moved to dismiss the case under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. For purposes of our discussion, we shall treat the case as if it had been decided in this way. It is undisputed that, if it were not for § 4(f)(2), the incentive plan would run afoul of § 4(a)(1) of the ADEA, 29 U.S.C. § 623(a)(1), which makes it unlawful for an employer to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privi54leges of employment, because of such individual’s age. Appellants offer two principal arguments to explain why the incentive plan does not come within § 4(f)(2). They contend that defendants have failed to sustain the burden of showing that it was a “bona fide employee benefit plan such as a retirement, pension, or insurance plan” and that, if the first argument fails, defendants have failed to sustain the burden of showing that it was not a subterfuge to evade the purposes of the ADEA. We see no merit in appellants’ first contention. On its face the incentive plan is a “bona fide employee benefit plan” in the sense that employees benefited and substantial benefits were paid to employees who were covered by it, see United Air Lines, Inc. v. McMann, 434 U.S. 192, 194, 98 S.Ct. 444, 446, 54 L.Ed.2d 402 (1977); EEOC v. Home Insurance Co., supra, 672 F.2d at 257. Apart from the fact that the phrase “such as a retirement, pension, or insurance plan” provides illustrations rather than limitations, Brennan v. Taft Broadcasting Co., 500 F.2d 212, 215 (5 Cir.1974); Patterson v. Independent School District #709, supra, 742 F.2d at 466-67; EEOC v. Westinghouse Electric Corp., 725 F.2d 211, 224 (3 Cir.1983), cert. denied, — U.S. -, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984), we see no reason to doubt that the incentive plan, when read as a supplement to an underlying general retirement plan, was a “retirement” plan for the purposes of § 4(f)(2). Appellants would limit the statutory language to plans in which age-based benefit reductions are justified by actuarially significant cost reductions, referring to the interpretation of § 4(f)(2) at 29 C.F.R. § 860.120(a)(1), issued by the Department of Labor shortly before its functions in enforcing the ADEA were transferred to the EEOC effective July 1, 1979.3 The actual language of the interpretation reads in relevant part: The legislative history of [§ 4(f)(2) ] indicates that its purpose is to permit age-based reductions in employee benefit plans where such reductions are justified by significant cost considerations. Accordingly, section 4(f)(2) does not apply, for example, to paid vacations and uninsured paid sick leave, since reductions in these benefits would not be justified by significant cost considerations. Where employee benefit plans do meet the criteria in section 4(f)(2), benefit levels for older workers may be reduced to the extent necessary to achieve approximate equivalency in cost for older and younger workers. A benefit plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred, in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of benefits or insurance coverage. Since section 4(f)(2) is an exception from the general non-discrimination provisions of the Act, the burden is on the one seeking to invoke the exception to show that every element has been clearly and unmistakably met. The exception must be narrowly construed. The language does not assist appellants. The interpretation says nothing to the effect that “cost considerations” must be actuarially based. The phrase “cost considerations” was used, as the interpretation states, to rule out from the scope of § 4(f)(2) plans that would curtail or reduce such benefits as “paid vacations and uninsured paid sick leave” for older workers, since reduction in these benefits would not be justified by significant cost considerations. Significant cost considerations are often involved, however, in designing incentives for older employees voluntarily to leave the workforce because those who continue working beyond a certain age will often 55draw a salary that is significantly higher than the periodic payments obtainable under a pension plan. Since the employer’s goal in offering early retirement incentives is often to save expenses by reducing the size of the workforce, it is only reasonable for the employer to offer more to those employees who choose to leave at a younger age, saving the employer more years of continued full salary, than to those who remain in the workforce and do not confer on the employer the sought-after benefit. Cf Britt v. E.I. DuPont de Nemours & Co., 768 F.2d 593 (4 Cir.1985) (no ADEA violation by employer in conditioning eligibility for payments under voluntary reduction in force program on willingness to defer pension benefits; plaintiffs not entitled “both to retirement benefits and the wage substitute of severance pay”). An additional incentive for early retirement is generally no more repugnant to the purpose of § 4(f)(2), which is in part to permit employers to offer compensation to older workers who choose to exit the workforce, than any more traditional retirement plan contemplated by that section. For the purpose of determining whether a plan is a “bona fide employee benefit plan” within the meaning of § 4(f)(2), it is immaterial that a more nicely tailored plan would have provided in Option B for a bonus starting at higher than $10,000 and gradually tapering off, with perhaps some small amounts continuing beyond 60. The way the plan is structured affects only whether it might be a subterfuge to evade the purposes of the Act, not whether it qualifies generically for the shelter of § 4(f)(2). Appellants seek to buttress their argument with three decisions of other circuits. Alford v. City of Lubbock, 664 F.2d 1263 (5 Cir.), cert. denied, 456 U.S. 975, 102 S.Ct. 2239, 72 L.Ed.2d 848 (1982); EEOC v. Westinghouse Electric Corp., supra, 725 F.2d 211; and EEOC v. Borden’s Inc., 724 F.2d 1390 (9 Cir.1984). Each of these cases is distinguishable, however, because the fringe benefits that were tied by the employer to the retirement plans could in no way be considered to be functionally related to those plans, as is the case with the incentive plan here. In Alford, the defendant city had a retirement policy that required employees to retire at the age of 65,4 and that made employees eligible for retirement benefits only if they had been employed for 15 years or more. Accordingly, in order to save administrative costs from needlessly collecting and refunding plan contributions to ineligible employees, no employee hired after his fiftieth birthday would be allowed to participate in the retirement plan. The city also had a policy, however, of paying all employees who retired under the plan for accumulated but unused sick leave up to a total of 90 days. Two employees who had been ineligible for the retirement plan but were forced to retire at age 65 brought suit claiming that they were impermissibly discriminated against by virtue of being denied retirement benefits altogether and also because they were denied the accumulated sick leave pay afforded other employees who were eligible for the retirement plan. The court upheld the provision denying retirement benefits to employees hired after their fiftieth birthdays as a legitimate age-related-cost-justified restriction, entirely in accord with congressional intent in enacting § 4(f)(2), 664 F.2d at 1269-71, but struck down the denial of the sick-leave benefits to the plaintiffs because this was not the type of plan entitled to protection under § 4(f)(2) and because the sick-leave policy formed no part of the pension plan, id. at 1271-72. Although eligibility for the accrued sick pay was conditioned on eligibility for retirement benefits, this was insufficient to shield the sick-pay policy because the condition was “functionally irrelevant to any ‘retirement, pension, or insurance plan,’ ” id. at 1272, and thus was indistinguishable from any other fringe benefit that might be offered to employees but would fall outside § 4(f)(2). 56Alford is inapposite to this case because the North Tonawanda incentive plan was functionally related to the underlying retirement plan. There is nothing inconsistent with the ADEA in offering older employees compensation for leaving the workforce, as is plain from the fact that retirement plans are included within the protection of § 4(f)(2). Because the special incentive simply increases that compensation and, like benefits available under the underlying retirement plan, is a quid pro quo for leaving the workforce after a certain age and number of years of service, it must be viewed functionally as part of that plan. Cf EEOC v. Fox Point-Bayside School District, 772 F.2d 1294, 1301 (7 Cir.1985) (rejecting EEOC’s argument that provision in collective bargaining agreement was not part of a statutory retirement plan for the purposes of § 4(f)(2) simply because the terms were not incorporated into one document). By providing an enhanced inducement for employees to retire early, the incentive plan furthers the legitimate purpose behind such a plan. The sick-pay policy in Alford, however, had nothing to do with retirement itself, but was a reward for past conduct — staying healthy and on the job — which was equally valuable to the employer regardless of the employee’s age or length of service. Age, or retirement eligibility, was completely unrelated to the purpose of the challenged benefit. Westinghouse and Borden’s are inapposite for reasons similar to Alford. In Westinghouse, the provision under attack was a provision in a layoff benefit plan (LIB Plan) in effect at plants that were being closed by the employer, under which benefits were denied to those laid-off employees who were eligible for early retirement. The court concluded that there was no age-related cost factor on the face of the LIB Plan which justifie[d] Westinghouse’s actions____ [T]he fact that the LIB Plan [was] tied to Westinghouse’s Pension Plan [did] not negate the fact that it [was] more analogous to a ‘fringe benefit’ than to the types of employee benefit plans covered under [§]4(f)(2). 725 F.2d 224-25. The only reason for distinguishing between younger employees and those who were denied the benefits was that the latter had early retirement benefits as an option to fall back on in the absence of the layoff benefits, whereas the younger employees would have had nothing. But, as in Alford, “[t]he LIB Plan,... [was] functionally independent of the Pension Plan,” and “[t]he mere fact that the benefits available to employees under the Pension Plan were to be considered when determining eligibility for LIB... [did] not merge the two plans into a single ‘coordinated benefit plan’ ” for the purposes of § 4(f)(2). Id. at 225. Borden’s is distinguishable on the same grounds. It involved a severance pay plan for the closing of a plant under which employees eligible for early retirement were ineligible for the severance pay. The court found that this “one-time, ad hoc cash payment” was simply unrelated to the kind of “on-going benefit schemes” that were intended to be protected under § 4(f)(2). 724 F.2d at 1396. More nearly apposite is one of the cases cited by the district court, Patterson v. Independent School District # 709, supra, 742 F.2d 465. There the Eighth Circuit upheld a special early retirement incentive bonus, in conjunction with a retirement plan which had a normal retirement age of 65, under which a teacher could receive a lump-sum payment of $10,000 for choosing to retire at age 55, diminished by $500 for each year over 55 until age 60, and by $1500 for each year over 60. This had the result that teachers who retired over 65, including the 67-year-old plaintiff, received nothing under the incentive. The court had little trouble in finding that the plan was of a type that “qualifies for approval under § [4](f)(2).” It found that in order to overcome the incentive for teachers to continue to work until normal retirement age, the plan “would furnish an incentive for teachers to trigger or activate the general pension plan at an earlier age, by holding out the ‘carrot’ of ‘an early retirement incentive... ’ if eligible for... retirement at 55.” Id. at 467-68. 57We reach a different conclusion with respect to appellants’ alternative argument, that defendants did not bear their burden of showing that the incentive plan was “not a subterfuge to evade the purposes of” the ADEA sufficiently to justify dismissal of the complaint without a trial. Here some history is in order. As originally enacted, § 4(2)(f) did not contain what is now the final clause: and no such seniority system or employee benefit plan shall require or permit the involuntary retirement of any individual specified by section 631(a) of this title because of the age of such individual. In United Air Lines, Inc. v. McMann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402 (1977), the Court, dealing with a plan long antedating the ADEA, held that the section, as it then stood, permitted plans compelling retirements before the age of 65 unless the plan was a subterfuge to evade the purposes of the Act.5 The Court, speaking through the Chief Justice, gave the subterfuge phrase a quite restrictive meaning. It said, 434 U.S. at 203, 98 S.Ct. at 450, that: In ordinary parlance, and in dictionary definitions as well, a subterfuge is a scheme, plan, stratagem, or artifice of evasion. In the context of this statute, “subterfuge” must be given its ordinary meaning and we must assume Congress intended it in that sense. So read, a plan established in 1941, if bona fide, as is conceded here, cannot be a subterfuge to evade an Act passed 26 years later. To spell out an intent in 1941 to evade a statutory requirement not enacted until 1967 attributes, at the very least, a remarkable prescience to the employer. We reject any such per se rule requiring an employer to show an economic or business purpose in order to satisfy the subterfuge language of the Act.6 The Court did not determine who had the burden of proof on the question whether the plan was not a subterfuge in cases in which the plan post-dated the passage of the Act. We dealt with that question in EEOC v. Home Insurance Company, 672 F.2d 252 (1982). This concerned a 1974 amendment to Home’s retirement plan which lowered both the normal retirement age7 and the mandatory retirement age from 65 to 62. The EEOC’s attack was leveled at the lowering of the mandatory retirement age, which it contended to have been a subterfuge to evade the purposes of the ADEA. This court, speaking through Judge Kearse, began its discussion by holding that an employer relying on § 4(f)(2) had the burden of establishing the three elements of that defense, namely (1) there must be a bona fide (retirement) plan, (2) the action must have been taken in observance of its terms, and (3) the retirement plan must not have been a subterfuge to evade the purposes of the ADEA. 672 F.2d at 257. It then held that the mere fact that a plan is bona fide in the sense that it paid substantial retirement benefits does not establish that it is not a subterfuge, id. at 260, a conclusion which the statutory language makes rather clear. The opinion said of McMann: The ruling in McMann does not purport to relieve all employers of all obligation 58to prove economic or business purposes in order to disprove subterfuge. Rather, the thrust of McMann is that where the plan is bona fide, in that it pays substantial benefits, and where the action taken is in observance of its terms, the employer can meet its burden of proving that the plan is not a subterfuge simply by showing that it was established long before the ADEA was enacted. Where, however, the pertinent terms of the plan were adopted after the ADEA was enacted, this avenue of disproving subterfuge is simply not open. Proof by the employer of non-age-based reasons will then be required. Id. at 258-59. The court concluded that Home had not established sufficient “valid business reasons” for lowering the mandatory retirement age to have justified the grant of summary judgment in its favor. Home would clearly require reversal here, where the defendants submitted nothing to satisfy their burden, were it not for the fact that the incentive plan here at issue, conformably with the 1978 amendment, did not compel plaintiffs to take early retirement. It can be argued with some force that this distinction renders Home inapplicable. As Judge Kearse said, 672 F.2d at 261, “Forcing an employee to retire at a given age is hardly the same as merely permitting him to do so. Only the forced retirements are under attack.” Moreover, the subterfuge provision came into the ADEA in a portion of the administration bill which dealt solely with compulsory retirement, see note 5 supra. Finally, it is rather hard to give content to the concept of “subterfuge” when that term is applied to a plan for voluntary action, there is no claim that the option was illusory, and the complaint is made, not by employees who claim that they were tricked by the option into prematurely leaving the workforce, but rather by employees who protest at having been excluded from the option. Beyond this, 29 C.F.R. § 1625.9(f) of the interpretive regulations issued by the EEOC, to which enforcement of the ADEA was transferred from the Department of Labor in 1979, provides in part: Neither section 4(f)(2) nor any other provision of the Act makes it unlawful for a plan to permit individuals to elect early retirement at a specified age at their own option. Without further guidance from the EEOC, however, we hesitate to go so far as practically to read the subterfuge clause out of the statute in regard to voluntary early retirement plans, as the district court did. When Congress amended the ADEA in 1978 to ban mandatory retirement plans of the sort at issue in McMann and Home, it left the subterfuge language in the statute; the statute still requires the employer to show something more than that the plan was a bona fide plan. Although 29 C.F.R. § 1625.9(f) approves of early retirement plans generally, its focus seems to have been on the traditional plan under which an employee can retire early for a significantly reduced pension, and it does not necessarily go so far as to approve of all early retirement plans, regardless of how their incentives may be structured. Most important of all are the regulations promulgated by the Department of Labor on May 25, 1979, contained at 29 C.F.R. § 860.120, interpreting § 4(f)(2), which are still held to be applicable pending the EEOC’s promulgation of its own regulations, see 29 C.F.R. § 1625.10. These regulations, enacted after the 1978 amendments went into effect, clearly assume that the “subterfuge” requirement has continued vitality, and seem to put a fairly heavy burden on the employer to justify any age-based distinctions in employee benefit plans on the basis of “age-related cost justifications.” While we would not wish to be understood as endorsing every detail of the regulations, we cannot simply disregard them. All that we now decide is that even in the case of voluntary early retirement plans the employer — and also here the union — must come up with some evidence that the plan is not a subterfuge to evade the purposes of the ADEA by showing a legitimate business reason for structuring the plan as it did. *59The authorities cited by the district court are not to the contrary. In Patterson v. Independent School District # 709, supra, 742 F.2d at 466, apart from the more carefully tailored nature of the plan which we have described above, plaintiff did not contend that defendants’ action constituted a subterfuge. Mason v. Lister, supra, 562 F.2d 343, involved an attack on a voluntary retirement plan linked to a major reduction in force at a federal agency, § 5 U.S.C. § 8336(d)(2). The attack was by a worker who had not yet attained the floor for access to the early retirement option, and such a floor is inherent in any age-based retirement plan within the purview of § 4(f)(2). We would not wish our decision here to be read as a disapproval of voluntary early retirement plans in general or of this plan in particular. The evidence of business reasons required to show that a voluntary early retirement plan is not a subterfuge would almost necessarily be less than what was required to make such a showing in the case of a mandatory plan. Here the older worker is not being deprived of continuation at his job or of pension benefits. He is being deprived only of the same opportunity to receive a bonus for early retirement as is accorded workers in the age bracket just below him. We decline to speculate on the precise contours of that showing in light of the extremely scant record before us and without initial consideration by the district court. On the remand we are directing, the district court should seek the assistance of the EEOC, whether as an intervenor or amicus curiae; perhaps before the case is heard, that agency, after the lapse of seven years, may have issued its own guidelines with respect to the meaning of subterfuge as applied to the ADEA as amended in 1978, or with respect to the permissible means of structuring voluntary retirement plans. See EEOC Issues First Opinion Letter Since Taking Over Program in 1979, [Jan.-June] Pens.Rep. (BNA) No. 1, at 3 (Jan. 2, 1984) (EEOC source indicates agency shortly intends to address “question of the legality of early retirement incentive programs.”). The summary judgment dismissing the complaint is reversed and the cause is remanded for further proceedings consistent with this opinion.. The incentives consisted of two options. Under Option A the Board would pay the cost of Blue Cross/Blue Shield and Major Medical Insurance until the retiree reached the age of 65 at the same level as was accorded to regular staff members, and also $2000 plus $50 for each complete year of service beyond 20 years. Under Option B the Board would pay a lump sum of $10,000.. The Board asserts that a "window” provision entitled plaintiffs to the incentives if they retired by June 30, 1980, and that the plaintiffs failed to take advantage of the window provision. The alleged "window provision" is not in the record, however, and we would not find it material to our decision if it were, since appellants' claim is not that they were denied the opportunity ever to participate in the incentive, but that they were denied the opportunity to do so on the date they ultimately chose to retire.. The EEOC has not issued its own general interpretations governing the types of plans that fall within § 4(f)(2), but it has characterized those of the Department of Labor as "currently applicable,” see 29 C.F.R. § 1625.10.. The Alford case was not governed by the 1978 amendments, later discussed, which raised the age at which retirement could be compelled from 65 to 70 and limited § 4(f)(2) to voluntary retirement plans.. The "subterfuge" language had appeared in the version of § 4(f)(2) contained in the original administration bill, which provided: It shall not be unlawful for an employer... to separate involuntarily an employee under a retirement policy or system where such policy or system is not merely a subterfuge to evade the purposes of this Act.... S. 830, 90th Cong., 1st Sess. § 4(f)(2), 113 Cong. Rec. 2794 (1967); see McMann, 434 U.S. at 199 n. 6, 98 S.Ct. at 448 n. 6.. Justice Stewart, concurring, would have placed decision of the "subterfuge” issue solely on the ground that the plan long antedated the Act, 434 U.S. at 204, 98 S.Ct. at 450; Justice White, concurring, thought that this consideration deserved no weight, id. at 204-05, 98 S.Ct. at 450-51; Justices Marshall and Brennan dissented in an opinion by the former, id. at 208, 98 S.Ct. at 453.. This means the age at which an employee can retire and receive full pension benefits without actuarial reduction.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	772 F.2d 1294	D	Equal Employment Opportunity Commission v. Borden's, Inc.	CUDAHY, Circuit Judge. Grace Dummert taught for the defendant Fox Point-Bayside School District (the “School District”) for about thirty years, from approximately 1948 until she was forced to retire in 1979. The Equal Employment Opportunity Commission (the “EEOC”) brought this action under sections 16(c) and 17 of the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. §§ 216(c) and 217, alleging that the School District had forced Mrs. Dummert to retire from her job as a teacher because of her age in violation of the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”), 29 U.S.C. § 621 et seq. See 29 U.S.C. § 626(b). The parties filed cross motions for summary judgment as to liability. The district court, Hon. Myron L. Gordon, granted the Commission’s motion and pursuant to an agreement of the parties referred the case to a magistrate for a determination of relief. The issue of whether the School District’s action constituted a willful violation of the ADEA was tried to a jury, whose verdict in favor of the Commission is not challenged on appeal. The remaining issues were tried to the court. 1296 Both parties have appealed. The only issues we need consider are whether the delay provision of the amendment to section 4(f)(2) of the ADEA, 29 U.S.C. § 623(f)(2), effected by section 2 of the Age Discrimination in Employment Act Amendments of 1978, Pub.L. No. 95-256, 92 Stat. 189 (the “1978 Amendments Act”), is applicable, and, if so, whether the School District is protected by the former section 4(f)(2) of the ADEA as interpreted in United Air Lines, Inc. v. McMann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402 (1977). We conclude that the delay provision is applicable and that the School District’s action is protected, and so reverse the district court. I. The facts underlying the parties’ motions for summary judgment are undisputed, and we adopt the district court’s formulation of them: Mrs. Grace Dummert, an elementary school teacher in the defendant school district for a number of years, reached the age of 65 on June 22, 1979. Several months prior to that date, Mrs. Dummert received a letter from Dellmont Lind-bloom, superintendent of the school district, informing her that her teaching contract would probably not be renewed for the following school year. The basis of the superintendent’s letter was the collectively bargained agreement between the school district and the Fox Point-Bayside Education Association, the union representing Mrs. Dummert and other teachers in area schools. Section 5.3.2 of the agreement contained the following provision: “Tenure rights shall cease and any teacher shall be retired by the School Board at the end of the school year during which such teacher has attained his 65th birthday.” Mr. Lindbloom’s letter, dated February 26, 1979, also informed Mrs. Dummert of her right to a conference with the school board on this matter. Mrs. Dummert did not want to retire at age 65, and she immediately requested a conference. Prior to receiving Mr. Lindbloom’s letter, Mrs. Dummert had become aware of the school district’s intention to retire her, and she had contacted her association representative, Patrick Connolly, for assistance. On behalf of Mrs. Dummert, Mr. Connolly had written to the president of the school district, informing him that Mrs. Dummert did not wish to retire. In addition, Mr. Connolly had stated that the education association believed section 5.3.2 to be illegal, void, and unenforceable in light of the Age Discrimination in Employment Act and offered to release the defendant from its obligation to abide by that section of the agreement. On the day following Mrs. Dummert’s request for a conference regarding the non-renewal of her contract, a somewhat unfavorable evaluation was made of Mrs. Dummert by the principal of the school in which she taught. Several weeks later, Mrs. Dummert received final notice of the defendant’s decision not to renew her teaching contract. Superintendent Lindbloom, the author of the notification letter, referred to her “relative level of teaching performance” as a significant factor in the board’s decision and informed her of her right to request a hearing on the matter. In response to a letter from Mrs. Dummert, Mr. Lind-bloom subsequently wrote to clarify his earlier letter, stating that the defendant’s decision not to renew Mrs. Dum-mert’s contract was based only on section 5.3.2, not on her performance. The defendant has retained this position throughout all further proceedings, and no other basis for Mrs. Dummert’s termination is considered here. At the hearing held by the school district on April 10, 1979, on the issue of Mrs. Dummert’s retirement, the inquiry was limited to whether Mrs. Dummert fell within the mandatory retirement provision of the collective bargaining agreement. No presentation was permitted on the question of the legality of section 5.3.2 or on the defendant’s decision not to 1297 waive that provision as requested by the education association. After the hearing, the school board decided to retire Mrs. Dummert based solely on her age and so advised her in a letter dated April 11, 1979. The Age Discrimination in Employment Act applies to individuals who are between 40 and 70 years of age, 29 U.S.C. § 631(a), and makes it unlawful for an employer to: “... discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age....” 29 U.S.C. § 623(a)(1). The defendant concedes that the plaintiff has established a prima facie case of age discrimination, but argues that liability is precluded by the delayed effective date of the 1978 amendments to the ADEA. The issue before the court is whether, at the time the defendant retired Mrs. Dum-mert, section 623(f)(2) of Title 29, United States Code, was applicable in its original form or whether the 1978 amendments applied. Dist.Ct.Op. at 1-3 (May 5, 1982). II. Prior to the 1978 Amendments Act, the ADEA prohibited discrimination against employees between forty and sixty-five, but in section 4(f)(2), 29 U.S.C. § 623(f)(2) (1975), provided: (f) It shall not be unlawful for an employer, employment agency, or labor organization— (2) to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this [Act], except that no such employee benefit plan shall excuse the failure to hire any individual. In United Air Lines, Inc. v. McMann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402 (1977), the Supreme Court interpreted this provision as permitting forced retirement of an employee under 65 pursuant to a mandatory retirement provision of a bona fide retirement plan. On April 6, 1978, Congress enacted the 1978 Amendments Act, Pub.L. No. 95-256, 92 Stat. 189, effectively overruling McMann. See Graczyk v. United Steelworkers of America, 763 F.2d 256, 258 (7th Cir.1985). Section 3(a) of the 1978 Amendments Act amended section 12 of the ADEA, 29 U.S.C. § 631, to raise the age of protection from 65 to 70 years. This amendment became effective on January 1,1979, prior to Mrs. Dummert’s forced retirement. In addition, section 4(f)(2) of the ADEA, 29 U.S.C. § 623(f)(2), was amended so as to overrule McMann. As amended by section 2(a) of the 1978 Amendments Act, section 4(f)(2) provides: (f) It shall not be unlawful for an employer, employment agency, or labor organization— (2) to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this [Act], except that no such employee benefit plan shall excuse the failure to hire any individual, and no such seniority system or employee benefit plan shall require or permit the involuntary retirement of any individual specified by section 631(a) of this title because of the age of such individual. 29 U.S.C. § 623(f)(2) (emphasis supplied). The italicized portion is that added by the 1978 Amendments Act. The effective date of the amendment to section 4(f)(2) of the ADEA is set out in section 2(b) of the 1978 Amendments Act (the “delay provision”), which provides: The amendment made by subsection (a) of this section [amending section 4(f)(2), 29 U.S.C. § 623(f)(2), to overrule McMann ] shall take effect on the date of enactment of this Act [April 6, 1978], except that, in the case of employees covered by a collective bargaining agree 1298 ment which is in effect on September 1, 1977, which was entered into by a labor organization (as defined by section 6(d)(4) of the Fair Labor Standards Act of 1938 [29 U.S.C. § 206(d)(4)]), and which would otherwise be prohibited by the amendment made by section 3(a) of this Act [amending ADEA § 12, 29 U.S.C. § 631, to raise the age of protection from 65 to 70], the amendment made by subsection (a) of this section shall take effect upon the termination of such agreement or on January 1, 1980, whichever occurs first. 1978 Amendments Act § 2(b), 92 Stat. at 189; see Graczyk, 763 F.2d at 258. If the delay provision is not applicable here, then both the extension of the protected age and the overruling of McMann effected by the 1978 Amendments Act would be applicable. Since Mrs. Dummert was less than 70 and was forced to retire because of her age, the School District would have violated the ADEA, even if the forced retirement was pursuant to an otherwise valid retirement plan. Under these circumstances the EEOC would be entitled to summary judgment, and the School District concedes as much. If the delay provision does apply, Mrs. Dummert is still a protected employee, and the School District will be liable unless its action is permissible under the old section 4(f)(2) as interpreted in McMann. III. The delay provision (section 2(b) of the 1978 Amendments Act) imposes three requirements which must be met in order for a collective bargaining agreement to be such that it will delay the effective date of the amendment overruling McMann. As this court has recently stated, the collective bargaining agreement “must be (1) ‘in effect on September 1,1977,’ (2) ‘entered into by a labor organization,’ and (3) ‘otherwise prohibited by the amendment’ of 29 U.S.C. § 631.” Graczyk, 763 F.2d at 261 (quoting § 2(b)) (emphasis omitted); see also id. at 261 n. 6; EEOC v. United Air Lines, Inc., 755 F.2d 94, 95-97 (7th Cir.1985). With respect to the first requirement, at the time that Mrs. Dummert was forced to retire, the School District and the teachers’ association were parties to a collective bargaining agreement. That agreement, pursuant to which Mrs. Dummert was forced to retire, was in effect from July 1, 1977, through June 30, 1979. (Letter of March 30, 1979, from Mrs. Dummert accompanying original employment discrimination complaint. See Record Items 7 & 8.) The second requirement is also satisfied, for the Fox Point-Bayside Education Association is a “labor organization” as defined in section 6(d)(4) of the Fair Labor Standards Act of 1938, 29 U.S.C. § 206(d)(4). 1 Third, the agreement (or perhaps more properly the actions it authorizes) would otherwise be prohibited by the amendment of 29 U.S.C. § 631. That amendment raised the age of protection from 65 to 70, effective January 1, 1979. Pursuant to a contract provision mandating retirement at 65, Mrs. Dummert was forced to resign in the spring of 1979 because she had reached the age of 65. This would have been permissible prior to the amendments extending the age of protection and overruling McMann because ADEA protection stopped at 65, but because it forces the employee to retire before age 70 it would be prohibited by the amended section 631 but for McMann, and so is “otherwise prohibited by the amendment” of that section. See EEOC v. United Air Lines, Inc., 755 F.2d at 96-97. 2 1299 We conclude that the delay provision applies to the 1977-79 agreement between the School District and the Education Association. Therefore we must determine if the provision pursuant to which Mrs. Dummert was forcibly retired satisfies the pre-amendment section 4(f)(2), as interpreted by McMann and its progeny. IV. In order to establish a defense under the old section 4(f)(2), the School District “must demonstrate the existence of three elements: (1) the [School District] must have been observing the terms (2) of a bona fide retirement plan (3) which is not a subterfuge to evade the purposes of the ADEA.” Smart v. Porter Paint Co., 630 F.2d 490, 493 (7th Cir.1980) (citing, inter alia, McMann). See EEOC v. Westinghouse Electric Corp., 725 F.2d 211, 223 (3d Cir.), cert. denied, — U.S.-, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984); Gonsalves v. Caterpillar Tractor Co., 634 F.2d 1065, 1066 (7th Cir.1980), cert. denied, 451 U.S. 920, 101 S.Ct. 1999, 68 L.Ed.2d 312 (1981). Cf. EEOC v. Borden’s Inc., 724 F.2d 1390, 1395 & n. 3 (9th Cir.1984). The district court held, in effect, that the School District had not been observing the terms of a retirement plan, and so granted summary judgment for the EEOC. 3 1300 Until 1982 the terms of employment of Wisconsin public school teachers were governed in part by the State Teachers Retirement System, Wis.Stats. ch. 42 (1979-80), repealed by 1981 Wis.Laws ch. 96 § 33 (effective January 1, 1982). The State Teachers Retirement System (the “STRS”) was basically a defined-contribution plan for providing retirement and disability benefits to teachers in Wisconsin. The statute set the types of benefits available for a member, and the contributions to be made for him or her. The contributions took two forms. First, the teacher and the state each made a required contribution equal to a certain percentage of the teacher’s compensation. § 42.40. Second, the teacher or any person on his or her behalf (which we presume would include a school board) could make additional contributions to the teacher’s account. § 42.40(3). Further, the employer could agree to pay the teacher’s required contribution. § 42.40(9). The STRS also provided that normal retirement was to be at 65, § 42.245(2)(b)2.a., and from 1980 on, permitted an employer “under policies established or agreed to by the employer” to require a teacher to retire at age 65 (unless prohibited by federal law). § 42.531 (added by 1979 Wis.Laws, ch. 221). 4 The statute required that all collective bargaining agreements specify that they were subject to the STRS. § 42.42(1). The STRS clearly contemplated that certain of its provisions (e.g. who was to make a teacher’s required contribution or whether there was to be any additional contribution) were to be subject to collective bargaining. See Joint School District No. 1 v. United States, 577 F.2d 1089, 1090-91 (7th Cir.1978); 59 Op.Atty.Gen.Wis. 186 (1970). It also explicitly recognized the duty of a school board to collectively bargain over certain aspects of the STRS. § 42.-245(2)(bm). The Attorney General of Wisconsin has issued an opinion stating that school boards have authority to include in teacher contracts retirement plans supplemental to those provided by statute, including early retirement in exchange for increased compensation, and that such are proper subjects of collective bargaining. 63 Op.Att’y Gen.Wis. 16 (1974). The 1977-79 collective bargaining agreement between the school district and the teachers’ association contained numerous provisions relating to retirement. It provided that the Board would pay a certain proportion of the required contribution to the STRS. § 6.6.3. It provided for continuing life insurance coverage after retirement, § 6.6.1, and also for continued health plan coverage after retirement, § 6.6.2. The agreement also provided for teacher purchase of tax sheltered annuities. § 6.7. Finally, the agreement provided a voluntary early retirement plan, § 6.6.4, and, of 1301 course, for mandatory retirement at age 65, § 5.3.2. The School District argues that the employee benefit plan in regard to retirement in effect in the spring of 1979 was the comprehensive package made up of both the STRS and the provisions of the 1977-79 Agreement. Since the mandatory retirement provision was part of the comprehensive plan and was collectively bargained, the School District concludes that forced retirement pursuant to the provision is protected by section 4(f)(2) and McMann. We agree. The argument of the EEOC, that the STRS retirement plan and the collectively bargained agreement were separate and independent, and so forced retirement pursuant to the latter was not pursuant to the former and is therefore not protected by section 4(f)(2), is not persuasive. The EEOC contends that the collective bargaining agreement was not “part of the state retirement plan in any meaningful sense.” EEOC Response Br. at 8. Whether or not this statement is true, or itself even meaningful, it certainly begs the question. Obviously a collective bargaining agreement cannot incorporate itself into (or amend) a statute. But one can supplement a statutory retirement scheme, both by determining who pays required contributions and by covering subjects not covered in the statutory framework. If so, then the retirement plan under which the teachers are employed is made up of both the statutorily and contractually based provisions. Our prior decisions do not require that, for the plan to afford protection to the employer under section 4(f)(2), all portions of the plan be incorporated into one document. See Graczyk, 763 F.2d at 257 n. 1 & 260 n. 6. Nor do we believe the mandatory retirement provision can be said to be “peripheral” or “marginally related” to the STRS portion of the plan. A provision for mandatory retirement is by its very nature central to a retirement plan. A prospective teacher considering offers of employment from two school districts certainly would not consider such a provision peripheral to an evaluation of the retirement plans offered by the two districts. Cf. Sexton v. Beatrice Foods Co., 630 F.2d 478, 483, 489 (7th Cir.1980). We also cannot ascribe any weight to the fact that the mandatory retirement provision is located in Article V (“Conditions of Employment,” in section 5.3 titled “Tenure Rights”) rather than in Article YI (“Salary and Benefits,” in section 6.6 titled “Teacher Retirement”) of the collective bargaining agreement. Section 5.3.2 is captioned “Retirement” and so labeled in the table of contents of the agreement. The provision states that tenure ceases and the teacher will be retired at age 65. Certainly it could have been located in Article VI, or divided into two sections, one in each article, but the present location is just as logical as those alternatives. Further, the provision is not hidden away but clearly labeled and located in one of the obvious places one would look for a provision regarding how long one would be able to teach. See Sexton v. Beatrice Foods Co., 630 F.2d at 483, 489. 5 The district court found the “most significant factor” to be that the STRS was not collectively bargained. But that is irrelevant, because neither section 4(f)(2) nor McMann require that the employee benefit plan be collectively bargained. See Alford v. City of Lubbock, Texas, 664 F.2d 1263, 1267-71 (5th Cir.) (forced retirement without pension benefits pursuant to Texas Municipal Retirement System, Tex.Rev.Civ.StatAnn. art. 6243h, § VII(l)(a) (Vernon 1970 & Supp.1980-1981), not a violation of § 4(f)(2)), cert. denied, 456 U.S. 975, 102 S.Ct. 2239, 72 L.Ed.2d 848 (1982). See also Patterson v. Independent School District 1302 No. 709, 742 F.2d 465 (8th Cir.1984) (voluntary early retirement plan which reduced benefits to older teachers, set up by Minnesota statute and also by collective bargaining agreement, was bona fide employee benefit plan and exempt under § 4(f)(2)). Further, the fact that the STRS was not collectively bargained is not relevant to whether section 5.3.2 was collectively bargained (it clearly was) nor does it help determine whether the STRS alone makes up the retirement plan under which the School District’s teachers worked. The EEOC’s reliance on EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir.1984); EEOC v. Westinghouse Electric Corp., 725 F.2d 211 (3d Cir.), cert. denied, — U.S. -, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984); and Alford v. City of Lubbock, Texas, 664 F.2d 1263, 1271-72 (5th Cir.), cert. denied, 456 U.S. 975, 102 S.Ct. 2239, 72 L.Ed.2d 848 (1982), is misplaced. In those cases the employer attempted to base its denial of benefits such as severance pay, layoff pay and the cash value of accrued vacation or sick days on the fact that the employee was also eligible for forced retirement (or had been forced to retire). The courts reasoned that because the costs of these benefits bore no relation to the age of the employee they were not part of a plan which was of the type which section 4(f)(2) insulated. EEOC v. Borden’s, Inc., 724 F.2d at 1396; EEOC v. Westinghouse Electric Corp., 725 F.2d at 224-25; Alford v. City of Lubbock, 664 F.2d at 1271-73. These cases do not hold that a mandatory retirement provision is separate from a retirement plan, and the reasoning they employ does not help in analyzing that question. Indeed, since the cost of employing someone and providing insurance and retirement benefits can vary with the age of the employee, the reasoning of these cases indicates that the provision is of the type that was meant to be protected. We agree that as an exception to a remedial statute section 4(f)(2) is to be construed narrowly, and that the burden is on the School District to establish the exception. Sexton v. Beatrice Foods Co., 630 F.2d at 486. See Monroe v. United Air Lines, Inc., 736 F.2d 394, 408 (7th Cir.1984), ce rt. denied, — U.S.-, 105 S.Ct. 1356, 1357, 84 L.Ed.2d 378 (1985). Cf. Graczyk, 763 F.2d at 262-63 (quoted supra in n. 3). However, that presumption should not lead us to take a skewed view of the retirement plan before us or to ignore the “maximum deference” Congress intended to give to collectively bargained contracts even though they contained mandatory retirement provisions. See supra at n. 3; Graczyk, 763 F.2d at 262-63. We conclude that the School District has established that it was observing the terms of its retirement plan when it forced Mrs. Dummert to retire. The other two elements of the McMann test need not delay us long. A plan is said to be “bona fide” so long as it pays substantial benefits. EEOC v. Borden’s, Inc., 724 F.2d at 1395; Smart v. Porter Paint Co., 630 F.2d at 494; see Gonsalves v. Caterpillar Tractor Co., 634 F.2d at 1066; accord United Air Lines, Inc. v. McMann, 434 U.S. at 194 & n. 2, 203. It is obvious from the face of the STRS and the collective bargaining agreement that the retirement plan for the School District's teachers pays substantial benefits and so is a “bona fide” plan. The EEOC does not argue otherwise. We also believe that the plan is not a subterfuge for avoiding the requirements of the ADEA. A plan which was adopted prior to 1967, the date of the ADEA, is presumptively not a subterfuge to avoid the act’s requirements. Gonsalves v. Caterpillar Tractor Co., 634 F.2d at 1066; see McMann, 434 U.S. at 203; Smart v. Porter Paint Co., 630 F.2d at 495. Apparently the mandatory retirement provision was in existence since 1967 at the latest. School Dist.Br. at 14. 6 - At the least, the EEOC 1303 does not argue otherwise. But even if the provision was first adopted in the collective bargaining agreement before us, we believe it would be presumptively valid. In McMann the Supreme Court reasoned that since the plan there was adopted long before the ADEA was enacted, the plan could not have been an attempt to evade the Act. McMann, 434 U.S. at 203; see Smart v. Porter Paint Co., 630 F.2d at 495. Here, at the time the collective bargaining agreement was entered (1977) the mandatory retirement provision did not violate the ADEA because that act did not protect 65 year old workers. It was only a year later, after the 1978 Amendments Act was passed raising the age of protection to 70, that a provision for mandatory retirement at 65 could be a subterfuge to avoid the requirements of the ADEA. Since the provision was adopted before the 1978 Amendments Act — indeed, before the cut off date provided by Congress in the delay provi sion 7 — we believe that it is presumptively not a subterfuge to evade the requirements of the ADEA. V. We conclude that the preamendment version of section 4(f)(2) applies to this case, and that the School District has established that it observed the terms of a bona fide retirement plan that was not a subterfuge when it forced Mrs. Dummert to retire. Therefore its action is protected by section 4(f)(2), and summary judgment for the School District on liability should have been granted. Because of our conclusion on lia.-bility, we need not consider any of the other issues raised by the cross appeals, all of which concern the conduct of the damages trial and the calculation of damages. We express no opinion on any of those issues. For the above reasons, the order of the district court granting the EEOC’s motion for summary judgment on liability and denying the School District’s motion for summary judgment on liability is Reversed. Costs are awarded to the School District in both appeals. 1. A labor organization is defined as "any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.” 29 U.S.C. § 206(d)(4). 2. The delay provision does not apply to plans which were made illegal only by the overruling of McMann, that is, plans which required retirement at an age earlier than 65. For such plans the amendment became effective on the date of enactment of the 1978 Amendments Act, April 6, 1978. The delay provision provides that for plans which require retirement at an age between 65 and 69 but which do not satisfy the 1299 three requirements, the effective date of the amendment will be January 1, 1979, the same date the amendment raising the age of protection became effective. 3. The district court’s actual chain of reasoning was a bit more complicated, for it held specifically that the delay provision was not applicable, and so the amendment overruling McMann applied to this case. Dist.Ct.Op. at 5-7. The district court reasoned that the delay provision applied "only where a retirement plan contained within an appropriate collective bargaining agreement requires or permits involuntary retirement.” Id. at 6 (emphasis added). The court based its reading of the delay provision on a passage in the legislative history and the structure of the 1978 Amendments Act. Id. at 5-6. See S.Rep. No. 493, 95th Cong., 2d Sess. 11, reprinted in 1978 U.S.Code Cong. & Ad.News 504, 514. The court determined that the retirement plan was not contained in the collective bargaining agreement. It believed that the statutory State Teachers Retirement System (see text infra ) was the whole applicable retirement plan, and that the STRS was not included in the collective bargaining agreement. Since the retirement plan was not “contained within the collective bargaining agreement” (pursuant to section 5.3.2 of which Mrs. Dummert was forced to retire) the district court held that the delay provision was not applicable. We do not believe this is a correct analysis of the delay provision. The Senate Report does state that the delay provision applies to "mandatory retirement policies at ages 65 through 69 in employee benefit plans and seniority systems contained in collectively bargained agreements in effect on September 1, 1977,” and that the "postponed effective date would only apply to pension plans which were negotiated as a part of a collective bargaining agreement.” S.Rep. No. 493, 95th Cong., 2d Sess. 11, reprinted in 1978 U.S.Code Cong. & Ad.News 504, 514 (emphasis added). But the Senate Report also states that the purpose of the delay provision is to "provide the maximum deference to” contracts negotiated between management and labor. Id. The House Conference Report states that the Senate delay provision applies to mandatory retirement pursuant to "bona fide employee benefit plans or seniority systems provided by collective bargaining agreements in effect on September 1, 1977.” H.R.Conf.Rep. No. 950, 95th Cong., 2d Sess. 8, reprinted in 1978 U.S.Code Cong. & Ad.News 528, 529 (emphasis added). The actual delay provision, however, does not include either the reference to employee benefit plans or seniority systems or the “contained within” or "provided by” language, and its language is both clear and unambiguous. See supra at 1297-1298. The district court, in its interpretation of the delay provision, also relied on the presumption that exceptions to broad remedial statutes must be narrowly construed. Dist.Ct.Op. at 6. We have recently considered this argument: It could, of course, be argued that the ADEA is a "remedial” provision and, therefore, that any exception, including that of § 2(b), must be narrowly construed. As a general matter, the ADEA may benefit from the presumptions associated with a "remedial” statute. This characterization, however, does not invest the Act with a sort of talismanic quality so that all other canons of statutory construction will be disregarded. Indeed, in this particular case, where Congress sought to extend “maximum deference” to collective-bargaining agreements, the force of the presumptions in favor of such agreements at least equals, and perhaps overwhelms, the force of the presumptions associated with a "remedial” statute. Stated in another manner, a narrow construction of the § 2(b) exemption is inconsistent with the express desire of the legislature to accord highly deferential treatment to labor agreements. 1300 Thus, in view of the language of § 2(b) and the strong legislative expressions of the need to accord "maximum deference” to collective-bargaining agreements, we conclude that Congress intended that any doubtful situation be resolved in favor of upholding such agreements. Absent an explicit declaration from Congress to the contrary, we cannot impute to the legislature an intent in § 2(b) to disregard terms such as those under consideration that are the legitimate result of the collective-bargaining process. Indeed, this court acknowledged in EEOC v. County of Calumet, 686 F.2d 1249, 1257 (7th Cir.1982), Congress’s recognition that "valuable consideration is sometimes given in collective bargaining for concessions which may be prohibited under the ADEA,” and that Congress took account of the possible loss of bargain in § 2(b). Graczyk, 763 F.2d at 262-63 (citations and footnote omitted). However, the district court did focus on the crucial issue of whether section 5.3.2 was part of the retirement plan of the Fox Point-Bayside School District. The EEOC argues that in effect the district court merely compressed the two stages of the analysis, for the district court’s "contained within” approach to the delay provision issue is substantially equivalent to the “observing the terms of a retirement plan” element of the McMann analysis. EEOC Responsive Br. at 7. We agree that the district court was in effect on the right track, though not that it reached the right result. 4. The prior version of § 42.531 specified that teachers "in the classified service of the state” would be retired at the end of the month in which they turned 65 unless the appointing officer, board, or commission authorized in writing for the teacher to continue. Wis.Stats. § 42.531 (1977). 5. Even if we were to accept the argument that its location shows that § 5.3.2 was not part of the retirement plan, it is not clear this would help the EEOC. Section 4(f)(2) allows employers to act pursuant to seniority systems as well as pursuant to employee benefit plans such as retirement plans. Tenure is a form of seniority (though only a two-valued system of seniority) and thus by retiring Mrs. Dummert pursuant to § 5.3.2, the School District would appear to be "observing] the terms of a bona fide seniority system,” and so protected by § 4(f)(2). 6. The School District cites us to its brief below in support of summary judgment, which is not included in the record before us. Nor has the School District, by neglecting to include a complete copy of the collective bargaining agreement, made our task easier. A party should *1303 take care to make sure that everything we might need to rely upon to find support for its position is included in the record. 7. Indeed, Congress recognized that collectively bargained agreements in effect on September 1, 1977, "were negotiated in good faith.” S.Rep. No. 493, 95th Cong., 2d Sess. 11, reprinted in 1978 U.S.Code Cong. & Ad.News 504, 514.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	768 F.2d 593	D	Equal Employment Opportunity Commission v. Borden's, Inc.	JAMES DICKSON PHILLIPS, Circuit Judge: This is an appeal by certain pension-eligible employees of DuPont de Nemours & Co. (DuPont) from a judgment dismissing their action under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 621, et seq. The issue is whether conditioning the availability of a general severance pay program for these claimants upon their acceptance of a deferral of pension benefits violated their rights under the 594ADEA. We agree with the district court that it did not, and we affirm. I In order to facilitate a reduction in the work force at its Martinsville, Virginia plant, DuPont instituted a so-called Voluntary Reduction of Force (VROF) program. Designed to preserve jobs for younger employees with little seniority while at the same time fully honoring vested seniority and lay-off rights,1 the program offered severance pay based upon seniority as an inducement to voluntary retirements. As originally set up, the VROF program was not offered at all to pension-eligible employees, that is, employees over the age of fifty with fifteen years of work experience with DuPont. When the local union raised the issue, DuPont modified the program to extend it to pension-eligibles, but on the condition that they accept a deferral of certain pension benefits that otherwise would be received upon their leaving DuPont’s employment. A group of pension-eligible employees (Barker) filed suit against DuPont and the local union under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 623(a). They claimed that DuPont violated the Act by conditioning pension-eligible employees’ participation in the VROF program on acceptance of deferral of pension benefits. And they claimed that the union violated § 623(c)(3) of the Act by causing DuPont to discriminate on the basis of age. Specifically, the claims were that the VROF severance pay program represents a benefit or privilege of employment within the meaning of § 623(a) of the ADEA and that discrimination on the basis of pension eligibility is equivalent to discrimination on the basis of age. The district court granted summary judgment for DuPont and the union, finding that as a matter of law § 623(f)(2) immunized any discrimination on the basis of age in this case because the VROF was a bona fide seniority system.2 We affirm, but on the alternative basis that, as a matter of law, DuPont’s actions did not constitute discrimination on the basis of age. We therefore do not reach the issue of whether DuPont would have a valid § 623(f)(2) defense. II The purpose of the VROF program was to offer employees a substitute, in the form of severance pay, that would compensate them for giving up their right to keep their jobs under the layoff provisions of the collective bargaining agreement. Since the program was wholly voluntary, only those workers who valued the severance pay at least as highly as the right to continue work would take advantage of the program. We hold simply that no discrimination within contemplation of the ADEA resulted to pension-eligible employees by virtue of the condition imposed for their eligibility to participate in the VROF program. No older employees have lost their jobs or been deprived of any benefit of employment in a discriminatory manner under the program. No employee, old or young, lost the right to work by virtue of the VROF program, because all employees had a choice of whether to take the severance pay option. Nor do payments under the VROF program represent a fringe benefit; they are essentially simply a wage substitute intended to compensate an employee who gives up his contract right to work. Barker relies primarily on EEOC v. Westinghouse Electric Corp., 725 F.2d 211 (3d Cir.1983); and EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir.1984), both of which 595found that denial of severance pay and layoff income benefits to employees eligible for retirement benefits upon plant closings violated the ADEA. Barker’s claim is readily distinguishable from the claims raised in those cases.3 When an employer gives severance pay or related benefits to employees as part of a plant closing, no relationship exists between the value of the job given up and the value of the benefit. Severance pay in that context is an arbitrarily determined amount that can be thought of as a fringe benefit rather than compensation for not working. In contrast, DuPont’s severance pay offer was designed exclusively to induce employees legally entitled to continue to work to forego that entitlement. The payments here therefore represented compensation for giving up the right to earn wages. As such, they are properly viewed as a wage substitute, not as a fringe benefit. Our characterization of the severance pay under DuPont’s VROF as a wage substitute is crucial, for it makes clear that what Barker was seeking in district court was the right both to retirement benefits and the wage substitute of severance pay. Barker’s claim of discriminatory treatment fails because the receipt of retirement benefits under DuPont’s program is founded upon termination of wage earning by the employee. As we view the matter, the modified VROF program simply made the continued earning of wages by those who declined severance pay and the acceptance of severance pay by those who chose the option of not continuing to earn wages functional equivalents for the critical purpose of determining the accrual date of retirement benefits. Taking the severance pay option amounted in effect to additional wage earning necessitating the deferral of pension benefits in exactly the same way that continuing to work would necessitate deferral. Hence, we find that DuPont did not truly require pension-eligible employees to give up anything of value not also required of others in its operation of the VROF program. Giving pension-eligible employees the choice of participating in the VROF gave them the additional option given to all other employees of giving up the right to work for severance pay. They did not lose their right to work or their right to retire immediately with full pension benefits. The fact that such employees had to accept deferral of pension benefits if they chose the VROF option simply reflects the fact that voluntarily accepting severance pay for giving up the right to work is functionally equivalent to additional wage earning.4 We therefore conclude that no discrimination on account of age — or on any account —resulted. On this basis, we affirm the judgment of the district court. AFFIRMED.. Under the terms of the collective bargaining agreement, DuPont must lay off employees with the least seniority first.. Section 623(f) provides: It shall not be unlawful for an employer... (2) to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual, and no such seniority system or employee benefit plan shall require or permit the involuntary retirement of any individual specified by section 631(a) of this title because of the age of such individual.. We do not express an opinion regarding the validity of the reasoning in 'Westinghouse and Borden's.. In Patterson v. Independent School District # 709, 742 F.2d 465, 468 (8th Cir.1984), the court held that a voluntary early retirement program that gave decreasing benefits as the employee approached age 65 was protected under 29 U.S.C. § 623(f)(2), see supra n. 2, because it did not give the employer the power to forcibly retire older workers. We do not reach the issue of whether all bona fide voluntary retirement systems are protected under § 623(f)(2), but we note that the Patterson court found the sliding scale of diminishing benefits to be justified since its purpose was to encourage voluntary early retirement. Patterson, 742 F.2d at 469. The court recognized that, as in this case, the severance payments for giving up the contract right to work represented compensation. Since a younger worker gives up the right to work for a longer period of time, the sliding scale of diminishing benefits was appropriate, and instead of representing discrimination on the basis of age, simply reflected the reality that the younger worker deserved more wage-substitute pay than an older worker closer to retirement age. The result in Patterson is consistent with our distinction between wage-substitute types of severance pay found in voluntary termination programs and arbitrarily fixed severance payments made as part of involuntary work termination programs.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	741 F.2d 975	D	Equal Employment Opportunity Commission v. Borden's, Inc.	PELL, Circuit Judge. Defendant-appellee Federal National Mortgage Association (FNMA) dismissed appellant Cletus Parker after a sweeping staff reorganization eliminated twenty-three positions at FNMA’s Chicago office. Parker brought this suit against his former employer alleging that FNMA’s decision whom to dismiss was discriminatorily motivated in violation of the Age Discrimination in Employment Act, 29 U.S.C. §§ 621-634 (ADEA). The district court, 567 F.Supp. 265, entered summary judgment in favor of FNMA, and Parker appeals maintaining that trial was necessary to resolve disputed factual issues. At issue on appeal is whether the submissions of the parties give rise to a reasonable inference of discriminatory motive. I. FACTS The undisputed facts in this case are complex, but for purposes of deciding the narrow issue on appeal, we may distill them to an essential few.' FNMA is a publicly held United States corporation with its headquarters in Washington, D.C., and regional offices in Philadelphia, Dallas, Los Angeles, Atlanta, and Chicago. The corporation purchases mortgages from primary lenders and services the discounted obligations. Our principal concern is with the Chicago office, where six divisions of FNMA operated until 1981. One of these divisions, the Project Mortgage Division, serviced mortgages on multi-unit properties such as hospitals, nursing homes, and apartment buildings. Prior to 1981, the Project Mortgage Division comprised four servicing teams and one purchasing team. 977 Each team consisted of one Senior Loan Representative (SLR), who supervised the team, one Loan Representative, one or more Loan Technicians, one Secretary, and one or more Clerks. In 1981, Parker (age 62) was one of the five SLR’s in the Project Mortgage Division, the others being Thomas Monico (age 31), Meredith Wright (age 55), Craig Bromann (age 31), and Robert Harén (age 57, SLR for the purchasing team). Since at least 1978, Parker’s supervisor Howard Morton annually evaluated Parker and summarized his opinions in a formal document called an “Employee Performance and Development Review.” Parker received marks of “excellent” and “superior” in all seven evaluation categories, but he never received a mark of “exceptional,” the highest possible evaluation. Morton also praised Parker for his technical abilities in accounting and auditing. The only consistently negative comment about Parker was that he had a somewhat autocratic personality and had difficulty “inter-fac[ing] with subordinates.” Morton also wrote formal evaluations of Monico, who received marks of “excellent,” “superior,” and, not infrequently, “exceptional.” In 1978, Morton entered the following description of Monico on the Employee Performance and Development Review: “This is one of the younger members of the Regional staff who, with the others, comprise [sic] a strong asset base that portends well for the Corporation.” In 1978, FNMA officials in Washington directed the Chicago regional office to reduce the number of Project Mortgage' service teams from four to two. The Washington office ordered the reduction because the economic recession of the late 1970’s had reduced the number of mortgage obligations lenders desired to discount. The task of selecting whom to retain as supervisors of the remaining two teams fell to Morton. Morton selected Monico and Wright because, in his words, “Mr. Moni-co’s job performance had always been consistently rated as superior,... [and] I felt that Mr. Wright’s performance and qualifications were better than the other two Senior Loan Representatives.” Rather than dismiss Parker and Bromann, Morton elected to retain them as SLR’s on the remaining two servicing teams. Their positions, however, were designated “overfill,” and Morton contemplated that Parker and Bro-mann would be placed in other positions within the Chicago office as soon as vacancies occurred through the normal course of attrition. In November 1981, a more pervasive change came to the Chicago regional office. FNMA officials in Washington decided that the Atlanta and Los Angeles regional offices should service project mortgages from all regions of the nation. The Chicago office transferred its loan portfolio to Los Angeles and Atlanta, and it consolidated its Project Mortgage Division into one new division called the Production and Loan Administrative Division. The consolidation resulted in the elimination of twenty-three positions in the Chicago office, eighteen of which were to come from the former Project Mortgage Division. The task of deciding whom to retain fell to Morton, once again, and to four other FNMA regional officials. Under the new Chicago organizational structure, there would be one SLR position for the purchasing of mortgages, and that position went to Harén, who had supervised the purchasing of mortgages for the Project Mortgage Division. There would also be a new position, called Manager, Loan Administration, and Monico was designated to fill that position because, in Morton’s words, Monico’s record showed “prior superior qualifications and performance.” The Marketing Division required two new SLR’s, and Wright and Bromann were placed in those positions because they had expressed interest in the area and had favorable interviews for the positions. Eight other members of the Project Mortgage Division whose positions were eliminated were transferred to other positions within the Chicago office. In some of those eight cases, the transferred members of the Project Mortgage Division forced another employee out of the transferee position. The bumping process was utilized when the 978 transferred employee was considered better qualified than the incumbent in the transferee position. Eight members of the Project Mortgage Division for whom there was no transferee position were terminated. Parker and Virginia O’Rourke (age 59, Project Mortgage Loan Representative) were dismissed. Bumping was considered in the case of Parker, but all the employees in the loan representative positions, the work classification beneath SLR, were considered better qualified for those positions than was Parker. Morton stated he did not consider transferring Parker to the next lower rank, loan technician, because that would have entailed a $20,000 reduction in salary and he doubted Parker would have accepted such a change. In December 1981, Morton met with Parker and informed him that he could inquire on Parker’s behalf into a transfer for Parker to the Atlanta regional office, which perhaps needed an additional SLR. Morton in fact obtained approval for Parker’s transfer to Atlanta, but Parker decided to decline the transfer for three reasons. First, he did not want to sell his house at the time because selling prices were depressed. Second, the transfer would require Parker’s wife to give up her current position. Third, Parker had no guarantee that his new job in Atlanta would be a permanent one. Parker thus went into involuntary early retirement. As an early retiree, he received a smaller pension from FNMA than the one he would have received had he remained an employee until the customary retirement age. After exhausting his administrative remedies, Parker brought this suit in August 1982 alleging age discrimination under the ADEA. Following extensive pretrial discovery and the submission of depositions, affidavits, and other documentary evidence to the district court, FNMA moved for summary judgment. Judge Shadur granted FNMA's motion, reasoning that Parker had failed to show the court he was prepared to present evidence at trial that would demonstrate that FNMA discriminated against him because of his age. Judge Shadur acknowledged that summary judgment often is inappropriate when the case turns on an issue of motive and intent, but he held that summary judgment was provident in this case because “plaintiff has no indications of motive and intent supportive of his position to put on the scales for weighing.” II. DISCUSSION Section 623(a) of the ADEA, as codified, makes it unlawful for an employer “to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” 29 U.S.C. § 623(a). [Emphasis added.] Thus, an employer does not violate the ADEA merely by discharging an employee whose age falls within the protected category. Rather, an employer incurs liability under Section 623(a) only if he discharges or otherwise discriminates against an employee “because of” the employee’s age. In cases brought under the ADEA, this court has applied the method of showing causation established in McDonnell Douglas v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). See Monroe v. EEOC, 736 F.2d 394 at 402-403 (7th Cir. 1984); Golomb v. Prudential Insurance Co., 688 F.2d 547, 550 (7th Cir. 1982). Cf. Mason v. Continental Illinois National Bank, 704 F.2d 361, 365-66 (7th Cir.1983). Under the McDonnell Douglas method: 979 Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 252-53, 101 S.Ct. 1089, 1093, 67 L.Ed.2d 207 (1981) (citations omitted). As we stated in Monroe, “The McDonnell Douglas method of proof is simply a commonsense method of proving [discrimination]____ Plaintiff, in essence, must eliminate [the proffered] legitimate reason for the employer’s action to establish that the employer was motivated by an illegitimate reason.” Monroe, supra, at 403. 978 [T]he plaintiff [first] 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. 979 Had the case at bar gone to trial, there is little doubt the proceeding would have focused on the third element of the McDonnell Douglas formula. Parker would have had little difficulty establishing a prima facie ease as defined in McDonnell Douglas. FNMA is an employer within the meaning of the ADEA, and Parker’s age in 1981 placed him within the class protected by the ADEA. See 29 U.S.C. §§ 630, 631. The submissions of the parties show Parker was a competent and respected member of the supervisory staff at FNMA. He consistently received good, although not top marks from his evaluators, and he was frequently commended for his technical proficiency. It is plain that Parker was a qualified candidate for the position of Manager, Load Administration, the position Monico filled, and for the position of SLR in the Marketing and Purchasing Divisions, the positions which Wright, Bromann, and Harén filled. As a supervisor for many years, Parker was also qualified to perform the duties of a Loan Representative, a position subordinate to that of SLR. The fact that Parker was not given the positions which Monico, Wright, Bromann, and Harén filled, and the fact that Parker was not allowed to “bump” a Loan Representative, would therefore complete a prima facie case of discrimination under the ADEA. See McDonnell Douglas, supra, 411 U.S. at 802, 93 S.Ct. at 1824. It is also plain that FNMA could “articulate some legitimate, nondiscriminatory reason” for its decision to favor other employees over Parker. The elimination of Parker’s position and the transferring of employees among the FNMA divisions came about because, of a general contraction in the mortgage banking industry and because the Washington headquarters of FNMA ordered the centralization of project mortgage services. Although Parker’s superiors considered him competent, his ratings were not outstanding, and his superiors from time to time criticized him for not being personable, ordinarily a shortcoming for one in a supervisory position. In January 1981, Morton favored Monico and Wright based upon their qualifications and performance. In November 1981, Morton and other regional officials selected Monico to fill the supervisory position in the new division. Morton had consistently given Monico evaluation marks in the highest possible category. Harén, Wright, and Bromann were likewise considered better qualified for the positions they filled. Har-én was familiar with mortgage purchasing and had performed well as SLR in the purchasing team. Wright and Bromann had previously expressed interest in urban affairs and community development, two areas of expertise that they could utilize as SLR’s in the Marketing Division. Finally, Morton rejected bumping in Parker’s case because the incumbent Loan Representatives had superior qualifications. Although some of the Loan Representatives had evaluation marks one level below those of Parker, none manifested Parker’s perceived inability to be personable. Thus, pivotal at trial would have been the determination whether the reasons offered by FNMA for favoring others over Parker were not the real grounds for FNMA’s action but rather a mere pretext for age discrimination. Summary judgment is an effective mechanism for preempting trial where there is no disputed issue of material fact. “The very mission of the summary judgment procedure is to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.” Fed.R. Civ.P. 56, Notes of Advisory Committee on Rules. In the instant case, it was incumbent on Parker to show the court he would produce some evidence at trial which could establish that the nondiscriminatory rea 980 sons articulated by FNMA were pretextual. We cannot conceive that Parker could have produced an explicit statement from his superiors at FNMA to the effect that age was a determining factor in their decision, nor does the law require Parker to do so. An aggrieved party such as Parker can survive a motion for summary judgment simply by producing circumstantial evidence from which a trier of fact can reasonably infer that age was a determining factor in the employment decision. See Kephart v. Institute of Gas Technology, 630 F.2d 1217, 1222-25 (7th Cir.1980), cert, denied, 450 U.S. 959, 101 S.Ct. 1418, 67 L.Ed.2d 383 (1981). Once the plaintiff presents the court with some evidence that his employer harbored the prohibited motive, summary judgment for the defendant is inappropriate because there is a disputed fact material to the ease. The district court may not resolve the factual issue, it must merely identify it and await the full presentation of evidence at trial for resolution. Parker submitted to the district court evidence from which he claims one can reasonably infer that age was a determining factor in FNMA’s employment decision. Judge Shadur ruled, however, that the evidence submitted did not give rise to such an inference. After, carefully reviewing the submitted evidence, we affirm Judge Shadur’s ruling. Parker claims discriminatory motive is evidenced by Morton’s comment written on the bottom of Monico’s 1978 Employee Performance and Development Review: “This is one of the younger members of the Regional staff who, with the others, comprise a strong asset base that portends well for the Corporation.” This comment, written three years prior to the 1981 reorganization of FNMA’s regional office in Chicago, is on its face a neutral statement. It merely describes one of Monico’s characteristics, namely that he is young. The comment does not indicate that Monico is considered better because he is young or that he would have received lesser praise had he been older. Although one could read into Morton's statement favoritism towards younger employees, that is a strained interpretation particularly in view of Monico’s established superior credentials. The district court is not required to evaluate every conceivable inference which can be drawn from evidentiary matter, but only reasonable ones. If Morton’s.statement were the only evidence Parker produced at trial, FNMA could successfully move for a directed verdict. Parker’s hope was that he could elicit an incriminating statement from Morton upon cross-examination at trial, but a plaintiff should not be allowed to proceed with a case on the mere hope that trial would produce the evidence he was unable to garner at the stage of summary judgment. See Kephart, supra, at 1224. Parker also claims discriminatory motive can be inferred from “statistical evidence.” First, Parker maintains that on his employment level, the level of SLR, he was the only employee terminated. This fact, however, does not give rise to a reasonable inference of discriminatory motive. There were twelve SLR’s in the Chicago regional office prior to the reorganization in 1981. Six SLR’s whom FNMA retained in Chicago were in the protected class under the ADEA. Thus, the fact that Parker was terminated is hardly statistical evidence of discriminatory intent. Second, Parker packages his statistics differently and maintains that at the Loan Representative level, where there were also twelve employees, three of the four terminated employees were in the protected age group. The problem with Parker’s statistical evidence is that it lacks sufficient breadth to be trustworthy. See Soria v. Ozinga Brothers, Inc., 704 F.2d 990, 994-97 (7th Cir.1983). A small change in the underlying raw data would result in dramatic statistical fluctuations. See Contreras v. City of Los Angeles, 656 F.2d 1267 (9th Cir.1981), cert, denied, 455 U.S. 1021, 102 S.Ct. 1719, 72 L.Ed.2d 140 (1982). The small sample size employed by Parker as well as the selective manner of categorization prevent Parker’s “statistical evidence” *981 from giving rise to a reasonable inference of discriminatory motive. This case came to Judge Shadur following extensive pretrial discovery. The submissions of the parties reveal that the decision to terminate some employees at FNMA’s regional office in Chicago was taken because of a contraction in the mortgage banking industry and a centralization plan designed by FNMA officials in Washington. Those responsible for individual employment decisions explained their choices by the relative strengths and weaknesses of their staff members. Decisions such as these will always involve a number of subjective factors, and disappointed candidates cannot expect a federal judge to intervene simply in the hope that he or she will evaluate the factors differently. The ADEA only requires the intervention of the federal judiciary when age is a determining factor in the decision. Through pretrial discovery, Parker had the opportunity to show age was a determining factor by obtaining evidence from which one could reasonably infer that the legitimate, nondiscriminatory reason articulated by his superiors was pretextual. Parker failed to show the court that he could present such evidence at trial. In a case such as this, where trial would be a fruitless endeavor, a grant of summary judgment must be upheld. The district court also granted summary judgment on Count II of Parker’s complaint, which alleged that FNMA discriminated against Parker when it denied him severance pay on the basis of his status as “retired.” As we read the record, however, the decision whether to be retired or laid off was made by Parker. Hence, this case is not analogous to EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir.1984), where the Ninth Circuit held that older employees who had no choice but to give up severance pay had a valid claim under the ADEA. We accordingly Affirm the district court’s grant of summary judgment as to the entire complaint.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	392 F. Supp. 2d 1274	D	Equal Employment Opportunity Commission v. Borden's, Inc.	OPINION AND ORDER 1 JOYNER, United States Magistrate Judge. Defendant has moved to dismiss Plaintiffs first and second causes of action. Plaintiff has moved to amend Plaintiffs complaint. The motions were referred to the United States Magistrate Judge for decision, and the parties consented. Defendant’s motion to dismiss Plaintiffs first and second cause of action is granted in part and denied in part as further detailed in this Order. [Docket No. 6-1], Plaintiffs motion to amend the complaint is granted. [Docket No. 21-1]. I. FACTS AND PROCEDURAL BACKGROUND Plaintiff has been employed by Defendant for over 24 years and was 70 years old at the time that she filed her lawsuit. Plaintiff is an employee in the Human Resources Department. Defendant restructured the Human Resources Department, and offered severance packages to at least one employee in the Human Resources Department. Defendant asserts that that individual’s job was eliminated and the severance was offered because of the elimination of the job. Plaintiff acknowledges that the individual no longer works for Defendant. Plaintiff alleges age discrimination because Defendant (1) restructured Plaintiffs job resulting in significantly different responsibilities and in less favorable treatment, and (2) Defendant refused to consider Plaintiffs request for retirement with a severance package. [Docket No. 1-1], Plaintiffs Complaint, ¶ 4. Plaintiff complains that Plaintiff was subjected to disparate treatment in violation of the law because Defendant failed to offer Plaintiff a severance package although Defendant offered other employees severance packages. Plaintiff additionally maintains that Plaintiffs job was changed resulting in a tangible employment action and that Plaintiff was treated less favorably than other workers not in Plaintiffs protected class. 1277 II. MOTION TO DISMISS ADEA CLAIM A. Failure to Offer Severance is Not An Adverse Employment Action Defendant moves to dismiss arguing that Plaintiff is seeking to expand employment law by making an employer liable for deciding not to fire an employee. Defendant asserts Plaintiff has not alleged an adverse employment action, and that a decision to retain an employee, rather than offer an employee severance, is not actionable. Plaintiff maintains that this is not an action brought because Defendant failed to fire Plaintiff. Plaintiff asserts that Plaintiff is the only individual who was treated in a manner differently from other individuals and the only employee who did not receive the opportunity to resign with a severance package. 2 In Jones v. Reliant Energy-ARKLA, 336 F.3d 689, 692 (8th Cir.2003), the Eighth Circuit Court of Appeals addressed whether the failure to offer a severance package can constitute an adverse employment action. Jones, an African-American was hired in 1990 by ARELA. ARKLA was later purchased by Reliant and reorganized. As part of the reorganization, Reliant closed the office where Jones was located. Jones, prior to the closing of the office, was trained as a “Training Champion” and began traveling to several locations with an assignment in Monticello beginning in March 2000. In June 2001, Jones requested and received a permanent position at Reliant’s Pine Bluff Warehouse. Jones, at the time of the action, continued her employment with Reliant. A different individual, a Caucasion, also worked at Pine Bluff until it closed in April 1999. This individual was transferred to Little Rock, and later terminated when the position to which she transferred was eliminated. The terminated individual received a lump sum severance. Jones disputed that the other individual’s position was transferred. Jones asserted that the position was relocated, and that Jones was discriminated against because she was not given the option of accepting a severance package rather than relocating. The Eighth Circuit Court of Appeals upheld the district court’s grant of summary judgment to the Defendant. To establish a prima facie case of disparate treatment in a race discrimination claim, the plaintiff must show (1) she is within the protected class, (2) she was qualified to perform her job; (3) she suffered an adverse employment action, and (4) non-members of her class, e.g., white employees, were treated differently- “An adverse employment action is a tangible change in working conditions that produces a material employment disadvantage.” “Termination, reduction in pay or benefits, and changes in employment that significantly affect an employee’s future career prospects meet this standard.” Jones does not argue she suffered a reduction in responsibilities or pay. Nor does she argue relocations constitutes an adverse employment action. Instead, Jones contends she suffered an adverse employment action because she was not permitted to take advantage of a benefit provided by Reliant, ie., severance pay. We disagree. We have previously declined to find an employer’s failure to give severance benefits constitutes an adverse employment 1278 action. In Cooney v. Union Pacific R.R Co., 258 F.3d 731, 733-34 (8th Cir.2001), the plaintiffs were a group of railroad employees who applied for but were refused a buyout/severance package. The plaintiffs were not selected for the buyouVseverance program and each of them continued to work for the company at the same rate of pay and with the same level of responsibilities. The plaintiffs sued arguing the company’s process for selecting participants for the buyout violated the Age in Employment Discrimination Act of 1967. The plaintiffs argued the buyout program or severance package was a benefit, and the company’s refusal to award those benefits constituted an adverse employment action. On appeal, this court held that employees who are denied severance but retain their jobs have not suffered an adverse employment action. “Even if the buyouts can be characterized as benefits, we do not believe the denials caused appellants to suffer an adverse employment action.” An employee claiming discrimination in a severance pay case “may make out a prima facie case of employment discrimination by showing... she was subject to an adverse employment action involving severance pay....” Jones contends Reliant’s refusal to offer her the option of severance versus transfer resulted in an adverse employment action. An employer’s failure to award severance benefits, however, is not an adverse employment action. Nor is an employer’s decision to transfer an employee an adverse employment action. Consequently, the failure to give an employee the option of choosing between two non-adverse employment actions — in other words, the employer’s decision to make the choice itself — cannot transform the outcome into an adverse employment action. We recognize Jones would have preferred termination with severance instead of transfer. We will not, however, interfere with Reliant’s decision to maintain Jones’s employment even if it offered other employees a choice. Any other holding would lead to the absurd result that Jones suffered an adverse employment action because she was not fired. Jones, 336 F.3d at 691-92 (citations omitted, emphasis added). See also 1 Fair Employment Practices § 2:286, HRS-FEP (July 2005) (adverse employment action not established by failure to award severance benefits); Cooney v. Union Pac. R.R. Co., 258 F.3d 731, 733-34 (8th Cir.2001) (employees denied severance and retained have not suffered adverse employment action); Walter E. McDonald v. ExxonMobil Chemical Co., 2002 WL 47973, 2002 U.S. Dist. LEXIS 1250 (Jan. 9, 2002 S.D. Tex.) (“Refusing to fire an employee is not an adverse employment action as that term has traditionally been understood.”). Plaintiff refers the Court to two eases in which denial of severance pay was found to have adverse employment consequences. In each of the cases relied upon by Plaintiff, the individual asserting a cause of action was terminated. In McGuinness v. Lincoln Hall, 263 F.3d 49 (2nd Cir.2001), plaintiff, a white woman, was terminated two days prior to the termination of plaintiffs colleague, a black man. Plaintiff alleged that she was offered a less desirable severance (less money) than her colleague. The court found that the plaintiff had alleged a prima facie case. McGuinness is obviously different from the case currently before the Court. In McGuinness, the plaintiff was terminated and was paid a substantially lower amount of money in her severance than a colleague who was of a different gender and was terminated within two days of plaintiff. The plaintiff in McGuinness obviously suffered an adverse employment action because her job 1279 was terminated. She also alleged a prima facie case of discrimination. The other case relied upon by Plaintiff is also easily distinguished from the case presently before the Court. In Equal Employment Opportunity Commission v. Borden’s Inc., 724 F.2d 1390 (9th Cir.1984), Borden closed its plant; fired its employees, and paid severance to all employees except those eligible for retirement. Sixteen employees were eligible for retirement and none received severance pay. The court held that the denial of severance pay to a group of individuals because of their age was purposeful discrimination. Plaintiff characterizes this case as important because it illustrates that the loss of severance benefits constitutes an adverse employment action. However, all of the employees in Borden were fired and those who were over age 55 were denied severance. This is an obvious adverse employment action. By contrast, Plaintiff was not fired, and was not entitled to severance because she continued her employment. Plaintiff would have preferred retirement and a severance package. However, what Plaintiff would have preferred does not automatically translate into an objective adverse employment action. Plaintiff remains employed. Plaintiff is not entitled to severance unless she is terminated. Plaintiff has not suffered an adverse employment action by the continuation of her employment. The Court concludes that Plaintiff has not suffered an adverse employment action and cannot maintain an action based upon Defendant’s failure to terminate Plaintiff and offer Plaintiff severance. B. Plaintiff Has Sufficiently Alleged Particular Adverse Consequences of Continued Employment Plaintiff asserts, in her complaint, that the “restructuring of Plaintiffs job constitutes a tangible employment action with significantly different responsibilities. In assigning and modifying the Plaintiffs job, she was treated less favorably than others in her class.” See [Docket No. 1-1], Plaintiffs Complaint, ¶ 20. Plaintiff asserts that her job was substantially modified and she was subjected to disparate treatment because of her age. Defendant moves to dismiss Plaintiffs complaint asserting that a mere inconvenience or alteration of job responsibilities is not an adverse employment action. The cases relied upon by the parties were all decided at the summary judgment stage. Sanchez v. Denver Public Schools, 164 F.3d 527 (10th Cir.1998) (appeal to Tenth Circuit Court of Appeals from summary judgment for school district); Annett v. University of Kansas, 371 F.3d 1233 (10th Cir.2004) (adverse employment action not limited to loss of wages or benefits, but must carry “a significant risk of humiliation, damage to reputation, and a concomitant harm to future employment prospects”); McCrary v. Aurora, 57 Fed.Appx. 362 (10th Cir.2003). See also Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 118 S.Ct. 2257, 141 L.Ed.2d 633 (1998). To survive a motion to dismiss, a plaintiff must allege a cause of action. In Sanchez, relied upon by Defendant, the Tenth Circuit Court of Appeals addressed a cause of action for adverse employment action. The Tenth Circuit liberally defines the phrase “adverse employment action.” See Gunnell v. Utah Valley State College, 152 F.3d 1253, 1264 (10th Cir.1998); Jeffries v. Kansas, 147 F.3d 1220, 1232 (10th Cir.1998). Such actions are not simply limited to monetary losses in the form of wages or benefits. See Berry v. Stevinson Chevrolet, 74 F.3d 980, 986-87 (10th Cir.1996). Instead, we take “a 1280 case-by-case approach,” examining the unique factors relevant to the situation at hand. Jeffries, 147 F.3d at 1232. Nevertheless, we will not consider “a mere inconvenience or an alteration of job responsibilities” to be an adverse employment action. Crady v. Liberty Nat'l Bank & Trust Co., 993 F.2d 132, 136 (7th Cir.1993); see also Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, [761], 118 S.Ct. 2257, 2268, 141 L.Ed.2d 633 (1998) (conduct is adverse employment action if it “constitutes a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits”); Spring v. Sheboygan Area Sch. Dist., 865 F.2d 883, 886 (7th Cir.1989) (principal’s change in assignment was not an adverse employment action despite her increased commute and belief that the public perceived the transfer “as a ‘nudge towards retirement’ ”). Sanchez v. Denver Public Schools, 164 F.3d 527, 532 (10th Cir.1998). Plaintiff alleges that the restructuring of her job constituted a tangible employment action leaving Plaintiff with significantly different job responsibilities and assigning and modifying her job responsibilities. Defendant asserts that the change was not tangible. Plaintiff has made the bare bones allegations sufficient to allege a cause of action, and sufficient to survive a motion to dismiss. Defendant’s claim that the asserted “tangible” change is insufficient is more appropriate at a motion for summary judgment stage. Plaintiff is permitted to proceed with her ADEA claim on the theory of tangible employment action due to the restructuring of her job and job duties. Plaintiff is not permitted to proceed with her action based on failure to pay severance. III. MOTION TO DISMISS NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS Defendant asserts that Oklahoma does not recognize the negligent infliction of emotional distress as an independent tort, but that it is actually the tort of negligence. Defendant also asserts that Plaintiff has failed to plead damages and that damages are a necessary element of the cause of action. Defendant notes that Plaintiff may recover for mental anguish caused by physical suffering, or mental anguish which inflicts physical suffering— but not mental anguish that is only mental dámages. In her Complaint, Plaintiff alleges that she has suffered emotional trauma because of certain actions on the part of Defendant. Plaintiff alleges no physical damages. The cases referenced by both parties explain that the negligent infliction of emotional distress is not an independent tort in Oklahoma, and that the Plaintiff must first allege and prove the elements of a tort— duty, breach, and injury resulting from the breach. Oklahoma courts say that negligent infliction of emotional distress is not an independent tort, but is in effect the tort of negligence. A Plaintiff therefore cannot proceed on a negligent infliction of emotional distress theory of liability separate from negligence, and the traditional elements of duty, breach of duty, causation, and damages apply.... In Oklahoma, damages for mental anguish are recoverable only if they are “produced by, connected with or the result of physical suffering or injury to the person enduring the mental anguish.” This means that “[u]pon proper proof, the Plaintiff may recover for mental anguish where it is caused by physical suffering and may also recover for men 1281 tal anguish which inflicts physical suffering.” Wilson v. Muckala, 303 F.3d 1207, 1213 (10th Cir.2002) citations omitted. Plaintiff refers to Atchley v. Nordam Group, Inc., 180 F.3d 1143 (10th Cir.1999), as supporting Plaintiffs argument that the damages alleged by Plaintiff (emotional distress, embarrassment and humiliation) are sufficient. In Atchley, the Court does not, in detail discuss the underlying allegations, but does note that the Defendant “conceded [that] plaintiffs testimony alone may serve as evidence of emotional distress....” Atchley, 180 F.3d at 1149. Contrary to this case, the Defendant in this action challenges Plaintiffs assertion of damages. Plaintiff alleges a cause of action for negligent infliction of emotional distress, asserting that she suffered emotional distress, embarrassment, and humiliation. The Court concludes that as pled in the Complaint, Plaintiff has not sufficiently plead a cause of action under Oklahoma law. In the motion by Plaintiff to file an amended complaint, Plaintiff has articulated more specific damages. Plaintiff asserts that Plaintiff suffers sleeplessness, nausea, headaches, intestinal problems and other physical problems. The Court is simultaneously granting Plaintiff the right to amend to allege a cause of action. The Court concludes, based on the arguments of the parties at this stage of the litigation, that Plaintiffs cause of action for negligent infliction of emotional distress, as presented in the amended complaint, may proceed. See Wilson, 303 F.3d at 1213 (“Oklahoma law obligated Ms. Wilson to provide proof of some physical injury, whether incurred contemporaneously with her emotional injury, or whether as a direct consequence of her emotional injury. The Hospital’s claim that there is no evidence that Ms. Wilson suffered any physical harm is not quite true. Some evidence came from her treating psychiatrist, who testified that following Ms. Wilson’s resignation from the Hospital, she described increased feelings of humiliation, intimidation, very very strong subjective unpleasant feelings, as well as... increasing depression. She had difficulty sleeping, crying, sad, gained weight, lost interest in working, felt not safe working as a nurse.... ”). 3 IV. PLAINTIFF’S MOTION TO FILE AN AMENDED COMPLAINT Plaintiff has moved to amend her complaint to add claims which Plaintiff asserts was authorized for the first time by Lanman v. Johnson County, Kansas, 393 F.3d 1151 (10th Cir.2004). Defendant opposes the motion asserting it is not timely and that it is futile. Initially, Defendant asserts that the motion to amend is untimely and will result in undue prejudice to Defendant. The Court is not persuaded by this argument and will not deny the amendment based upon the unspecified prejudice referenced by Defendant. With respect to Plaintiffs hostile work environment claim, Defendant asserts that the proposed amendment is futile because Plaintiff failed to appropriately exhaust her administrative remedies which is a prerequisite to bringing an employment discrimination claim. Defendant notes the “crucial inquiry is whether the claims set forth in the civil complaint fall within the scope of the investigation that 1282 could reasonably be expected to grow out of the EEOC charges.” Harrell v. Spangler, 957 F.Supp. 1215, 1219-20 (D.Kan.1997). See also Brown v. Hartshorne Public School District, 864 F.2d 680 (10th Cir.1988) (“[W]hen an employee seeks judicial relief for incidents not listed in his original charge to the EEOC, the judicial complaint nevertheless may encompass any discrimination like or reasonably related to the allegations of the EEOC charge, including new acts occurring during the pendency of the charge before the EEOC.”) citations omitted. Plaintiffs proposed amended complaint alleges a hostile work environment, created by Defendant in an effort to “force” Plaintiff to retire. Plaintiff submitted to the EEOC an “Account of Work Situation” and additionally completed a “Charge of Discrimination.” See Exhibit A to Plaintiffs Brief, [Docket No. 23-1], and Exhibit A to Defendant’s Brief, [Docket No. 22-1], In her Charge of Discrimination, Plaintiff noted that she had requested severance but was denied, had been denied promotions, had received smaller salary increases, and was paid less than other male employees. [Docket No. 22-2], Exhibit A. Plaintiff additionally indicated that she believed that she had been discriminated against because of her age in violation of the Age Discrimination in Employment Act of 1967. In a document titled “Account of Work Situation” which Plaintiff maintains was submitted to the EEOC, Plaintiff notes that her job duties were substantially changed by Defendant and that she had been “effectively sidelined.” Plaintiffs submissions to the EEOC appear sufficient to have included either as an area that would have been investigated or as reasonably related to her initial allegations to permit the amendment sought by Plaintiff. Defendant additionally asserts that the Court should deny Plaintiff leave to amend to include a “disparate impact” theory of age discrimination. Defendant focuses on futility and timeliness. The Court has previously discussed futility with respect to the hostile work environment claim and the same conclusion applies with regard to the disparate impact claim. Defendant additionally notes, however, that Plaintiff has failed to identify any policy or procedure that “result[s] in the illegal disparate impact treatment of the Plaintiff because of her age.” [Docket No. 21-2], Exhibit “A” at 4. Defendant asserts that it is impossible to ascertain from Plaintiffs complaint what policy or procedure resulted in the alleged disparate impact or how the policy or procedure affected Plaintiff. The Court agrees and concludes that Plaintiffs proposed amended complaint has not sufficiently articulated a disparate impact claim. The complaint must be sufficient to apprise Defendant of the clam that Plaintiff is asserting. See Smith v. City of Jackson, Miss., — U.S. -, 125 S.Ct. 1536, 1544, 161 L.Ed.2d 410 (2005) (“[I]t is not enough to simply allege that there is a disparate impact on workers, or point to a generalized policy that leads to such an impact. Rather, the employee is “ ‘responsible for isolating and identifying the specific employment practices that are allegedly responsible for any observed statistical disparities.’ ” ”) (citations omitted, emphasis in original). The Court concludes that Plaintiff has not sufficiently articulated a disparate impact claim. V. CONCLUSION Plaintiffs claim under the ADEA may proceed with respect to Plaintiffs theory that she was discriminated against because Plaintiffs job was substantially modified resulting in a tangible employment action and that Plaintiff was subjected to a hostile work environment. Plaintiff has not *1283 sufficiently plead a claim that Plaintiff was discriminated against due to the denial of her severance or based on disparate impact. Plaintiffs ADEA claim based upon severance and disparate impact are dismissed. Plaintiffs motion to amend her complaint is granted, and Plaintiff may file her amended complaint which was attached to Plaintiffs motion to file first amended complaint. Plaintiff may not proceed on her severance claim and her disparate impact claim, which are hereby dismissed. IT IS SO ORDERED.. This Order is entered in accordance with 28 U.S.C. § 636(c) and pursuant to the parties' Consent to Proceed Before United States Magistrate Judge. 2. Defendant disputes these facts, but for the purpose of a motion to dismiss, the Court will presume the facts as true. 3. Defendant, in Defendant’s response to Plaintiff's motion to amend, notes that the trial court is to play a gatekeeping role in determining whether alleged conduct is sufficiently extreme or outrageous. The Court concludes that the gatekeeping described by Defendant is better left for the summary judgment stage.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	893 F. Supp. 927	OR	Equal Employment Opportunity Commission v. Borden's, Inc.	ORDER GRANTING DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT TAYLOR, District Judge. The Equal Employment Opportunity Commission brought this age discrimination suit against a school district and the union representing the district’s teachers. The defendants negotiated a salary structure that gives higher pay to teachers with greater experience. The district prefers to hire inexperienced teachers to minimize its payroll costs. Plaintiff contends this policy disparately affects older job applicants and violates the Age Discrimination in Employment Act. These motions raise three issues of first impression in this circuit: (1) whether the 11th Amendment bars federal-court suits against states under the Age Discrimination in Employment Act (“ADEA”); (2) whether the ADEA permits an employer to prefer job applicants who command lower salaries if the preference disparately affects older applicants; and (3) whether a union-negotiated seniority system that gives new employees credit for prior experience violates the ADEA by making older, more experienced applicants more expensive and therefore less desirable to the employer. 929 The Court finds the 11th Amendment does not bar suits against states under the ADEA However, the Court GRANTS summary judgment to the school district and the union because the school district is justified in preferring to hire lower-salaried applicants, and the collective bargaining agreement does not violate the ADEA. I. BACKGROUND Plaintiff EEOC filed this suit under the ADEA on behalf of a class of teachers older than 40. Defendants are the Newport Mesa Unified School District and the Newport Mesa Federation of Teachers. The District and the Union agreed to a salary table that determines teacher’s salaries according to their qualifications (i.e., educational background) and experience. A teacher’s starting salary is set by his or her qualifications and is increased as the teacher accrues years of experience. Newly hired teachers who have taught in other districts are given credit for up to six years of outside experience and therefore command higher salaries than teachers with similar qualifications but no experience. The District prefers to hire less experienced teachers to reduce payroll costs and stay within its budget. In the summer of 1991, 42-year-old Marilyn Weinman applied for a position as a kindergarten teacher. She had more experience than any other applicant, and her master’s degree placed her in the highest qualifications column. The principal recommended she be hired, but the District’s Director of Human Resources rejected the recommendation because of the District’s financial condition and budgetary constraints. He decided it would be more prudent to hire an applicant with less experience and fewer qualifications and a consequently lower starting salary. Weinman’s starting salary, had she been hired, would have been a little more than $44,000. The person hired instead received a starting salary of about $82,000. The EEOC contends the District’s policy of hiring less experienced teachers violates the ADEA because it disparately affects older applicants. Both Defendants move for summary judgment on several grounds. The EEOC cross-moves for summary adjudication that Defendants’ business necessity defenses fail as a matter of law and there is an age-neutral alternative that will meet the District’s cost-cutting needs. II. DISCUSSION A. The 11th Amendment The District is a “state” for 11th Amendment purposes and is therefore generally immune from federal court suits. Belanger v. Madera Unified Sch. Dist., 963 F.2d 248, 254 (9th Cir.1992), cert. denied, — U.S. -, 113 S.Ct. 1280, 122 L.Ed.2d 674 (1993). When Congress legislates pursuant to the authority granted by Section 5 of the 14th Amendment, 1 however, it may abrogate state immunity from federal suits. Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238, 105 S.Ct. 3142, 3145, 87 L.Ed.2d 171 (1985). To override the states’ 11th Amendment immunity, Congress must express its intent to do so in “unmistakable” statutory language. Id. at 243, 105 S.Ct. at 3148. The Ninth Circuit has not yet considered whether the ADEA subjects the states to federal suits. Congress, through the definition of “employer” in the ADEA, expressed its intention to abrogate the states’ 11th Amendment immunity. Employers who violate the ADEA are subject to a variety of legal and equitable remedies. See 29 U.S.C. § 626(b). “Employers” include:... a State... and any agency or instrumentality of a State____ 29 U.S.C. § 630(b). The Courts of Appeals that have considered the issue appear to be unanimous in concluding the ADEA subjects the states to federal suit. Ramirez v. Puerto Rico Fire Serv., 715 F.2d 694, 701 (1st Cir. 1983); Davidson v. Board of Gov. of State Coll. & Univ., 920 F.2d 441, 443 (7th Cir. 1990); Hurd v. Pittsburg State Univ., 29 F.3d 564, 565 (10th Cir.), cert. denied, — U.S. -, 115 S.Ct. 321, 130 L.Ed.2d 282 (1994). The Ninth Circuit has held similar 930 language in the Fair Labor Standards Act abrogates 11th Amendment immunity. Hale v. Arizona, 993 F.2d 1387, 1391 (9th Cir.) (en banc), cert. denied, — U.S. -, 114 S.Ct. 386, 126 L.Ed.2d 335 (1993). For these reasons, the District is subject to federal court suit under the ADEA. B. Disparate impact theory under the ADEA An ADEA plaintiff may proceed under either a “disparate treatment” or a “disparate impact” theory. EEOC v. Local 350, Plumbers and Pipefitters, 998 F.2d 641, 648 n. 2 (9th Cir.1992) (as amended 1993). Defendants contend Local 350 is no longer good law after Hazen Paper Co. v. Biggins, — U.S. -, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993) (no disparate treatment where employer terminated employee to prevent pension rights from vesting), and EEOC v. Francis W. Parker Sch., 41 F.3d 1073 (7th Cir. 1994), cert. denied, — U.S.-, 115 S.Ct. 2577, 132 L.Ed.2d 828 (1995) (concluding that, under Hazen Paper’s reasoning, no disparate impact theory can exist under ADEA). This contention is incorrect. In Hazen Paper, the Supreme Court specifically declined to decide whether a disparate impact theory was available under the ADEA. — U.S. at-, 113 S.Ct. at 1706. After Hazen Paper, a Ninth Circuit panel amended Local 350 to say the disparate impact theory survived. 998 F.2d at 648 n. 2. Because no later Supreme Court or Ninth Circuit ease has held otherwise, this Court is bound to follow Local 350 and permit the EEOC to proceed under a disparate impact theory. The disparate impact theory is available to job applicants as well as employees. Defendants argue even if § 4(a)(2) of the ADEA, 29 U.S.C. § 623(a)(2), does allow for a disparate impact theory, it does not protect job applicants. See Parker, 41 F.3d at 1077-78 (so holding). Their argument fails because § 4(a)(1) both allows for a disparate impact theory and protects job applicants. Undisturbed Ninth Circuit authority holds a disparate impact theory can be maintained under § 4(a)(1). EEOC v. Borden’s Inc., 724 F.2d 1390, 1394-95 (9th Cir.1984), overruled on other grounds, Public Employees Ret. Sys. of Ohio v. Betts, 492 U.S. 158, 173-75, 109 S.Ct. 2854, 2864-66, 106 L.Ed.2d 134 (1989). The statute’s language protects applicants: It shall be unlawful for an employer to fail or refuse to hire [any individual] because of such individual’s age. 29 U.S.C. § 623(a)(1). Thus, in this circuit, an applicant can state an ADEA claim by alleging a hiring practice disparately affects a protected class. As many as three steps may be involved in establishing disparate impact liability under the ADEA. Rose v. Wells Fargo & Co., 902 F.2d 1417, 1424 (9th Cir.1990). First, the plaintiff must identify a practice of the employer and show it has a disparate effect on a protected class. If the plaintiff establishes a prima facie case, the employer may, among other options, show the practice is justified under the terms of the statute. Finally, if the employer justifies the practice as a business necessity, the plaintiff may prevail by showing an alternative practice would serve the same business purpose without the discriminatory effect. 2 Because the EEOC has not completed discovery, it cannot now show the required disparate impact. All parties assume for the sake of these motions that the EEOC will eventually be able to establish a prima facie 931 ease. Defendants seek summary judgment, contending that, even if the EEOC does establish a prima facie case, the challenged practices are justified as business necessities. The EEOC asks for summary adjudication that the business necessity defense fails as a matter of law or is overcome by a less discriminatory alternative. C. Taking potential salary into consideration The District justifies its practice by its need to minimize payroll costs and cites § 4(f)(1) of the ADEA, which permits an employer to act “based on reasonable factors other than age.” 29 U.S.C. § 623(f)(1). The EEOC contends this justification is inadequate because an applicant’s potential salary is not a “reasonable factor other than age.” The Ninth Circuit has not decided the question. See Haydon v. Rand Corp., 605 F.2d 453, 455 (9th Cir.1979) (declining to decide when employer may make decisions based on employees’ relative costs). This Court declines to follow out-of-eircuit authority suggesting cost is not a “reasonable factor other than age.” Neither of the cases cited by the EEOC is convincing. In one, a school district adopted a policy of hiring only teachers with fewer than six years’ experience. Geller v. Markham, 635 F.2d 1027, 1030 (2nd Cir.1980), cert. denied, 451 U.S. 945, 101 S.Ct. 2028, 68 L.Ed.2d 332 (1981). In the other, a college reduced the number of tenured faculty positions in favor of nontenured positions. Leftwich v. Harris-Stowe St. Coll, 702 F.2d 686, 689 (8th Cir.1983). 3 Both policies disparately affected older job applicants, both were justified as cost-saving measures, and both were struck down. Both courts relied heavily on the Department of Labor’s interpretation of the ADEA: It should also be made clear that a general assertion that the average cost of employing older workers as a group is higher than the average cost of employing younger workers as a group will not be recognized as a differentiation under the terms and provisions of the Act, unless one of the other statutory exceptions applies. To classify or group employees on the basis of age for the purpose of comparing costs, or for any other purpose, necessarily rests on the assumption that the age factor alone may be used to justify a differentiation— an assumption plainly contrary to the terms of the Act and the purpose of Congress in enacting it. Differentials so based would serve only to perpetuate and promote the very discrimination at which the Act is directed. 29 C.F.R. § 860.103(h) (1979), cited in Geller, 635 F.2d at 1034; Leftwich, 702 F.2d at 692. The Geller and Leftwich courts’ reliance on this regulation is difficult to justify, since it does not apply to disparate impact cases. See Markham v. Geller, 451 U.S. 945, 948, 101 S.Ct. 2028, 2030, 68 L.Ed.2d 332 (1981) (Rehnquist, J., dissenting from denial of certiorari). The regulation applies only to policies that classify employees or applicants on the basis of age. The first sentence says an employer cannot justify its action on the basis of a generalization about older employees. The second sentence explicitly applies to classifications based on age and says an employer may not assume age correlates with undesirable characteristics. The final sentence simply, and correctly, states why the practices described in the first two sentences are illegal: the core purpose of the ADEA is to prevent employers from acting on the basis of stereotypes or generalizations about older workers. The current version 4 of the regulation shows more clearly that it applies only to employers who justify their actions by generalizations about older workers: A differentiation based on the average cost of employing older employees as a group is unlawful except with respect to employee benefit plans which qualify for the section 4(f)(2) exception to the Act. 29 C.F.R. § 1625.7(f) (1994) (emphasis added); see also 29 C.F.R. § 1620.22 (1994) (sim 932 ilar interpretation of analogous clause in Equal Pay Act). There is no evidence the District’s hiring decisions are based on the average cost of employing older teachers. Weinman was not rejected because older teachers generally have higher salaries. She was rejected because she would have cost more than the person who was hired. Granting the EEOC’s regulatory interpretation due deference, the regulation simply does not apply to this case. Insofar as Getter and Leftwich suggest otherwise, the Court must respectfully disagree. Nor could the regulation be rewritten to apply to this and other disparate impact cases by prohibiting reliance on cost as a justification. The plain language of the statute shows an employer may take cost into account in at least some circumstances. Cost is a factor other than age, and it would be unrealistic to suggest cost could never be a reasonable basis for a businessperson’s actions. The question is not whether cost can be taken into account, but when. The issue is what the employer must show to establish the justification. The EEOC, in both its briefs and its regulations, see 29 C.F.R. § 1625.7(d), suggests the reasonable factor clause requires the same standards of proof as the business necessity justification of Title VIL As a matter of statutory construction, this interpretation seems unlikely. The Supreme Court and the Ninth Circuit have found the disparate impact theory, including the business necessity defense, in the Title VII analogues to §§ 4(a)(1) and 4(a)(2) of the ADEA. If the defense is already provided by those sections, the reasonable factor clause as interpreted by the EEOC would be surplusage. The reasonable factor clause is not found in Title VII, which suggests Congress intended employers to have more leeway in considering factors that disparately affect older workers under the ADEA than factors that disparately affect classes protected under Title VII. Finally, Congress recently codified and altered the disparate impact test in Title VII, see 42 U.S.C. § 2000e-2(k), but did not similarly amend the ADEA, so the two texts are even less susceptible of identical interpretation than before. See Finnegan v. Trans World Airlines, Inc., 967 F.2d 1161, 1163 (7th Cir.1992) (declining to reach effect of Title VII amendments on ADEA). More fundamental is the problem of applying the concept of business necessity to an employer’s consideration of an applicant’s salary. In a for-profit enterprise, the essence of employment decisions is whether an employee’s salary is justified by that employee’s productivity. Even a public entity like the District, so long as its budget is finite, must base its hiring decisions on whether an applicant’s cost is justified by the applicant’s value. Thus, all employers must consider an applicant’s potential salary when making hiring choices: Decisions based on the relation between the value of the employee’s work and the pay he receives for it are scarcely arbitrary; to the contrary, they are essential in every business. This is individualized decisionmaking, the opposite of the rote and pointless tests the Supreme Court had in mind in Griggs [v. Duke Power Co., 401 U.S. 424 [91 S.Ct. 849, 28 L.Ed.2d 158] (1971)]. Metz v. Transit Mix, Inc., 828 F.2d 1202, 1217 (7th Cir.1987) (Easterbrook, J., dissenting) (emphasis in original). Because a policy of considering the potential salaries of two competing applicants is “based on [a] reasonable factor[ ] other than age,” it is permissible under § 4(f)(1) of the ADEA. This is not to say an employer can always escape liability simply by reciting such a policy. Where salary acts as a proxy for age, consideration of salary may be no different from direct consideration of age. See Local 350, 998 F.2d at 646-47 (policy applying to pension recipients is age-based where retiree must be at least 55 to receive pension). Nor may the “policy” be used as a pretext 5 to cover up an illicit motive. More 933 over, as the EEOC’s regulations state, it is illegal to forego a case-by-case analysis and discriminate against older applicants as a class based on their average salary. Finally, a disparate impact claim can survive the employer’s reliance on a reasonable non-age cost factor if the claimant proves there is a less discriminatory means of achieving the same cost savings. D. Less discriminatory alternative The EEOC proposes a policy that, it contends, would achieve the same cost savings while eliminating the disparate effect: rather than rejecting applicants like Weinman, the District could offer them jobs at a lower salary. Weinman says she would have accepted the same salary the hired employee received, allowing the District to hire her at the same cost. Therefore, says the EEOC, it has overcome the District’s cost-reduction justification. See Metz, 828 F.2d at 1208 (senior employee’s high salary not a nondiscriminatory basis for firing him where he was not offered option of taking pay cut). The collective bargaining agreement, however, requires the District to pay new teachers according to the bargained-for salary scale and forbids it to negotiate individual arrangements. The EEOC has therefore impleaded the Union, contending the collective bargaining agreement violates the ADEA and must be amended. Section 4(f)(2)(A) of the ADEA shields the collective bargaining agreement from the EEOC’s attack. That section permits employers and unions to take any action otherwise prohibited... to observe the terms of a bona fide seniority system that is not intended to evade the purposes of this chapter____ 29 U.S.C. § 623(f)(2)(A). Even if a seniority system has a disparate effect on a protected class, the system can be attacked only by showing it was created with a discriminatory intent. Cook v. Pan Am. World Airways, Inc., 771 F.2d 635, 644 (2nd Cir.1985), cert. denied, 474 U.S. 1109, 106 S.Ct. 895, 88 L.Ed.2d 929 (1986), overruled on other grounds, Lorance v. AT & T Tech., Inc., 490 U.S. 900, 109 S.Ct. 2261, 104 L.Ed.2d 961 (1989). Because the EEOC relies solely on a disparate impact theory in this case, the issue is whether the challenged practice is a “term” of a bona fide seniority system. Although there is almost no authority construing this provision of the ADEA, the Supreme Court’s interpretation of the analogous section of Title VII leads the Court to resolve this issue in favor of the District and the Union. The EEOC must concede the salary table is a seniority system. Within each qualifications column, salaries are mechanically determined by how many years of service a teacher has. The explicit connection between length of employment and salary is perhaps the paradigm of a seniority system. The EEOC takes no issue with teachers advancing through the steps of the table—once they have been hired. What the EEOC does challenge is the mandatory initial placement of new teachers with three or more years of experience at steps two or three of the table. 6 The Su 934 preme Court, construing § 703(h) of Title VII, strongly suggested in dicta that the initial placement of workers in a seniority scale is part of a “seniority system”: In order for any seniority system to operate at all, it has to contain ancillary rules that accomplish certain necessary functions, but which may not be directly related to length of employment. For instance, every seniority system must include rules that delineate how and when the seniority time clock begins ticking---- Every seniority system must also have rules that define which passages of time will “count” towards the accrual of seniority and which will not____ Rules that serve these necessary purposes do not fall outside § 703(h) simply because they do not, in and of themselves, operate on the basis of some factor involving the passage of time. California Brewers Ass’n v. Bryant, 444 U.S. 598, 607-08, 100 S.Ct. 814, 820, 63 L.Ed.2d 55 (1980) (footnotes omitted). The Supreme Court provided the following example: [A] collective bargaining agreement could specify that an employee begins to accumulate seniority rights at the time he commences employment with the company, at the time he commences employment mthin the industry, at the time he begins performing a particular job function, or only after a probationary period of employment. Id. at 607 n. 17, 100 S.Ct. at 820 n. 17 (emphasis added). In enacting § 4(f)(2), Congress protected the discretion of employers and unions to select which of these options, if any, to use. The Union and the District weighed their options and, in the process of negotiation, chose to give newly hired teachers limited seniority credit for outside experience. Management and labor are free to establish a seniority system appropriate to their particular situation through collective bargaining, see id. at 608, 100 S.Ct. at 820, and crediting employees for experience gained under a different employer can be a legitimate provision of that system. The Union apparently decided to decrease experienced teachers’ chances of finding a job in order to increase the salaries of those who do find jobs. The EEOC believes experienced applicants would be better off if the Union had made a different decision. The ADEA, however, leaves that decision to the Union and the District, not the EEOC or the Court. III. DISPOSITION The Court has jurisdiction over all parties and the subject matter, in part because Congress has abrogated states’ 11th Amendment immunity for ADEA cases. On the merits, both Defendants are entitled to summary judgment on the strength of their business necessity defenses, as the EEOC has failed to establish a less discriminatory alternative. Summary judgment is GRANTED to both Defendants. 1. "Congress shall have power to enforce, by appropriate legislation, the provisions of this article.” 2. This procedure is structurally similar to the three-step process for disparate treatment claims. The two should not be confused, however, because they differ substantially in purpose and content. The disparate treatment test sets out burdens of production each side must meet to survive summary judgment, while the disparate impact test establishes burdens of proof on substantive claims and defenses. The nature of the prima facie showings are quite different. Perhaps most important to the litigants, both the plaintiff's burden in establishing a prima facie case and the employer's burden in establishing business necessity are considerably heavier than the analogous parts of the disparate treatment process. Compare St. Mary’s Honor Center v. Hicks, -U.S. -, ---, 113 S.Ct. 2742, 2746-50, 125 L.Ed.2d 407 (1993) (describing disparate treatment test and characterizing prima facie test as "minimal'’ and employer's response as mere burden of production) with Rose, 902 F.2d at 1424-25 (describing disparate impact test and closely scrutinizing plaintiff's prima facie showing). 3. But see EEOC v. Atlantic Comm. Sch. Dist., 879 F.2d 434, 437 (8th Cir.1989) (declining to apply Leftwich to hiring). 4. The EEOC promulgated the current regulation after replacing the Department of Labor as the enforcing agency. 5. The EEOC contends there is a genuine issue of material fact whether the District’s stated justification is a pretext. The EEOC points to evidence showing the District could have employed Weinman at her projected $44,000 salary without breaking its budget and says a reasonable jury could conclude the District’s Director of Human Resources was incorrect when he testified at his 933 deposition that the District faced "financial ruin." Whether the District believed it would be financially ruined if it hired Weinman or merely wanted to save $12,000 for use elsewhere, however, there is no dispute that the District's motivation was cost. The EEOC also relies on the Director’s admission that he could not recall rejecting any other applicant recommended by a principal because of the applicant's high salary. Even if the District has not applied its policy consistently, there is no reason to believe from this record that its failure to hire Weinman was based on her age or any factor other than her high salary. Indeed, if a jury found Weinman was the only applicant ever to be rejected because of the policy, the EEOC could not establish a prima facie case of disparate impact, and this class action suit would be meritless. 6. Teachers with fewer than three complete years of experience are in step one. After three years, a teacher advances to step two, and moves on to step three after six years. Newly hired teachers are given credit for up to six years of outside experience, so they can enter no higher than step three. For purposes of these motions, the Court assumes the EEOC will be able to demonstrate, as part of its prima facie case, that credit for outside experience causes a disparate impact. It is interesting to note, however, that while experience might correlate strongly with age, an applicant's training is a far more significant factor in 934 determining potential salary. The greatest possible difference in salary in any qualifications column between an applicant with no experience and one with six or more years of experience is a little more than five percent. The potential gaps between applicants of different qualifications levels are much larger. For example, of the $12,-088 difference between the salaries commanded by Weinman and the person who was hired, no more than $2,187 is attributable to Weinman’s greater experience. The remainder—nearly $10,000—is caused by Weinman's being in the highest qualifications column, while the person hired was in the middle of the table. These facts point to a practical weakness in the EEOC's proposed less discriminatory alternative. If the District had been able to offer Weinman a step one salary for her level of qualifications, she still would have commanded a salary almost $10,000 greater than that given to the other applicant. To equalize the salaries, Weinman would also have to have been placed, presumably permanently, in an inappropriate qualifications column. While giving up credit for outside experience can be seen as a minor adjustment to the step system, placing teachers in arbitrary qualifications columns irrespective of their training would destroy the basis of the salary table.	INVALIDATED
724 F.2d 1390	869 F. Supp. 767	OR	Equal Employment Opportunity Commission v. Borden's, Inc.	MEMORANDUM OF DECISION AND ORDER McNAMEE, District Judge. INTRODUCTION In 1987, Defendant California Micro Devices [hereinafter “CMD”] took over a Tempe, Arizona facility previously owned and operated by GTE. GTE had employed William R. Spillane at the time of the takeover, and CMD kept Mr. Spillane on as an equipment maintenance technician. In March of 1989, Mr. Spillane left CMD to work for Motorola. He returned to CMD in November, 1989 after he was contacted by a former CMD co-worker who explained to Spillane that CMD needed someone with his skills. At the time Spillane rejoined CMD, he told his supervisor that he thought he would work until August, 1991 when he might retire. After that conversation, Spillane did not have any further discussions about his retirement plans with his supervisor or anyone else in CMD management. On April 15, 1991, Spillane was laid off by CMD. This layoff occurred approximately four months before the date that Spillane had indicated a year and a half earlier that he might retire. Spillane was sixty-two years of age when he was laid off. This suit arises out of Spillane’s and the EEOC’s contention that CMD laid off Spillane in violation of the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq. [hereinafter “ADEA”]. STANDARD OF REVIEW Summary judgment is appropriate when the movant shows “there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.Pro. 56(c). “One of the principal purposes of the summary judgment rules is to isolate and dispose of factually unsupported claims.” Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The disputed fact(s) must be material. Id. Substantive law determines which facts are material. “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The dispute must also be genuine. A dispute about a material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Id. at 248, 106 S.Ct. at 2510. There is no issue for trial unless there is sufficient evidence favoring the non-moving party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Id. at 249-50, 106. S.Ct. at 2511. In a civil case, the question is: 770 whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evidence in support of the plaintiffs position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. Id. at 252, 106 S.Ct. at 2512. The moving party who has the burden of proof on the issue at trial must establish all of the essential elements of the claim or defense for the court to find that the moving party is entitled to judgment as a matter of law. Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir.1986); Calderone v. United States, 799 F.2d 254, 259 (6th Cir.1986); of. High Tech Gays v. Defense Indus. Sec. Clearance Office, 895 F.2d 563 (9th Cir.1990) (discussing moving party’s differing burdens when it bears burden of persuasion at trial, and when the non-moving party bears the burden of persuasion at trial). However, the moving party need not disprove matters on which the opponent has the burden of proof at trial. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. Thus, summary judgment is proper if the non-moving party fails to make a showing sufficient to establish the existence of an essential element of his case on which it will bear the burden of proof at trial. Id. For the purposes of this motion, the Court construes all the facts in the light most favorable to the Plaintiff as the non-moving party. 10A Wright, Miller, & Kane, Federal Practice & Procedure: Civil 2d § 2727 (1983) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Calnetics Corp. v. Volkswagen of Am., Inc., 532 F.2d 674 (9th Cir.), cert. denied, 429 U.S. 940, 97 S.Ct. 355, 50 L.Ed.2d 309 (1976)). DISCUSSION There is some dispute as to the actual reason for Spillane’s layoff. Defendant CMD asserts: CMD claims that it selected Spillane for layoff because he was less versatile than other employees, which would not be discrimination as a matter of law. In contrast, the EEOC claims that CMD selected Spillane for layoff because he has expressed his plans to retire in a few months. For the purposes of this Motion, CMD has conceded the EEOC’s claim and abandoned its articulated reason for selection. Defendant’s Reply Memorandum at 7-8. The Court interprets this to mean that CMD has adopted the position, at least for this Motion, that Spillane was selected for layoff because of a prior expressed intent to retire. It is against this backdrop that the Court begins its analysis of CMD’s argument that Plaintiffs claims under the ADEA fail because selecting an employee for layoff because he expresses an intent to leave the company, even if by retirement, is not age discrimination as a matter of law. A. CMD’s Argument based on Hazen In support of its argument, Defendant asserts that while the ADEA forbids an employer to discriminate against any individual “because of such individual’s age,” 29 U.S.C. § 623(a)(1), the ADEA also provides that it is not unlawful to take any action prohibited under section 623(a) “where the differentiation is based on reasonable factors other than age.” 29 U.S.C. § 623(f)(1)- From this, CMD asserts that since Spillane’s layoff was based upon his impending absence from the company due to retirement, and thus not based on his age, their decision to layoff Spillane falls within section 623(f)(1), and is therefore not age discrimination as a matter of law. The primary case Defendant relies upon in support of its proposition that a layoff based on an employer’s belief that an employee may soon retire is not age discrimination is Hazen Paper Co. v. Biggins, — U.S.-, 113 S.Ct. 1701, 123 L.Ed.2d 338 (1993). An examination of Hazen, however, demonstrates that Defendant has overstated the holding of the case. In Hazen, the employer fired Mr. Biggins when he was sixty-two years of age and within a few weeks of having his pension vest. Defendant argues that the Supreme Court reversed the judgment of the First Circuit Court of Appeals which upheld a jury verdict in Mr. Biggins’ favor. The Supreme Court, however, vacated the Circuit Court’s opinion and remanded the ease for further 771 proceedings to determine whether there was sufficient evidence to support an ADEA violation. In so doing, the Supreme Court did not hold that the termination of Mr. Biggins was not a violation of ADEA, but rather determined the record before the Supreme Court was insufficient to determine the ultimate question. On remand, the First Circuit determined Mr. Biggins had met his burden, and affirmed the verdict in his favor on the ADEA claim. See Biggins v. Hazen Paper Co., 1993.WL 406515 (1st Cir.1993). 1 B. The. Current Status of Disparate Treatment ADEA Cases Hazen analyzed the disparate treatment theory that is available under the plain language of the ADEA. 2 See Hazen, — U.S. at-, 113 S.Ct. at 1706. In a disparate treatment case, liability depends upon whether the plaintiffs age actually motivated the employer’s decision. Id. “Whatever the employer’s decision making process, a disparate treatment claim cannot succeed unless [age] actually played a role in that process and had a determinative influence on the outcome.” Id. Hence, under the ADEA, an employer cannot rely on age as a proxy for an employee’s characteristics, but rather mandates that employees be evaluated on their merits. Id. The problem presented by Hazen, however, was not one of pure age discrimination based on “the sort animus motivating some other forms of discrimination.” Id. Instead, the vesting of Mr. Biggins’ pension was based on the number of years of his service to the company, not his age. Thus, an employee who had begun work with the company at age twenty-one would be vested in pension benefits after ten years of service. The termination of such a employee at age thirty-one, just a few weeks before the pension benefits were to vest, would not violate the ADEA. 3 On the other hand, a sixty-one year old employee who is discharged after one year on the job might have a valid ADEA claim, while not implicating any pensions rights at all. The Supreme Court therefore reasoned that age and years of service were analytically distinct. As such, an employer could take into account one factor while ignoring the other. Id. C. Hazen’s Applicability to the Present Case Given the facts in Hazen, the present case is factually distinguishable. Hazen made it clear that the ADEA does not prohibit employment decisions made “on the basis of a factor, such as an employee’s, pension status or seniority, that is empirically correlated with age.” Id. at-, 113 S.Ct. at 1705. Hazen did not, however, “preclude the possibility that an employer who targets employees with a particular pension status on the assumption that these employees are likely to be older [might] thereby engage[ ] in age discrimination.” Id. at -, 113 S.Ct. at 1707. It is undisputed that Mr. Spillane was sixty-two and the oldest employee in his department when he was discharged from CMD. His previously stated intent to retire was based upon his age, not his years of service at CMD. This case therefore presents issues that Hazen did not address. There are, however, Ninth Circuit opinions that are instructive on the present case. D. Retirement Status vs. Age Under the ADEA In EEOC v. Borden’s Inc., the Ninth Circuit held that employment decisions based on retirement status may be violative of the ADEA. Borden, 724 F.2d 1390, 1393-95 (9th Cir.1984), overruled, in part, on other grounds by Public Employees Retirement System of Ohio v. Betts, 492 U.S. 158, 109 772 S.Ct. 2854, 106 L.Ed.2d 134 (1989). 4 In Borden, the defendant corporation closed its Phoenix, Arizona plant and laid off almost all of the employees. Most of the discharged employees received severance pay under the provisions of Borden’s severance pay policy. The policy provided, though, that employees eligible for retirement were not entitled to severance pay. Eligibility for retirement came at age fifty-five and after ten years of service with Borden. In the suit filed by the EEOC on behalf of fifteen Borden workers over the age of fifty-five, the plaintiffs alleged that Borden’s policy of denying severance pay to employees eligible for retirement discriminated on the basis of age. In holding the policy violated the ADEA, the Ninth Circuit said: Borden... argue[s] that the severance policy distinguished employees on the basis of their retirement status, and not solely because of age. But this fact does not suffice to defeat a claim of disparate treatment under the ADEA. We have twice held that an employer discriminates “because of’ age whenever age is a “but for” cause of discrimination. • * * # * * We hold that even though retireable employees were eligible for pension and insurance benefits, this fact is not a “reasonable factor other than age” justifying the denial of severance pay” [within the meaning of 29 U.S.C. § 623(f)(1) ]. Id. at 1393-94 (citations omitted). The decision in Borden was reaffirmed in the recent case of EEOC v. Local 350, Plumbers & Pipefitters, 982 F.2d 1305 (9th Cir.1992), amended & superseded, 998 F.2d 641 (9th Cir.1992). In Local 350, the defendant union operated a hiring hall. It refused to allow a retired member to seek employment through the hall while the member received pension benefits. To retire, a union member had to be fifty-five years of age or older. The Ninth Circuit reversed the district court’s grant of summary judgment in favor of the union and held that the union’s policy violated the ADEA because the union impermissibly used retirement status as a proxy for age. Local 350, 998 F.2d at 646. 5 Under [the Borden ] analysis, Local 350’s policy discriminates on the basis of age. On its face, it discriminates only against retired employees; however, only employees 55 or older are eligible to retire. There is thus a very close connection between age and the factor on which discrimination is based. Local 350 argues that the policy is not discriminatory because the “but for” cause of discrimination is not the retiree’s age, but his voluntary decision to retire and remain retired. This argument is unavailing. First, as Borden suggests, we are unwilling to draw so fine a line when determining causation. * * * * * * Thus, Local 350’s policy violates Section 623(c)(2) because it refuses to refer certain employees for work on the basis of a factor very closely related to age. Id. at 646. The Court is aware that both the decision in Borden and the initial decision in Local 350 were issued before the Supreme Court’s ruling in Hazen. The amended Local 350 decision, however, was issued after the Circuit Court was petitioned by the union for a rehearing based upon Hazen. The Ninth Circuit denied reconsideration of its denial of rehearing, stating “[w]e perceive no conflict between Hazen and our decision in this ease.” Id. at 648 n. 2. The Circuit Court cited Hazen for the proposition that factors closely related to age may form the basis of a valid ADEA claim if used as a proxy for age. Id. 773 CMD attempts to distinguish Borden and Local 350 by arguing that the present case does not deal with “some notion of theoretical retirement ‘eligibility.’” Defendant’s Reply Brief at 5. This begs the question. It is precisely due to Mr. Spillane’s age that he had contemplated retirement in the first place. CMD states “the admitted rationale that CMD used to select Spillane — that it did not want to lay off someone else and then have to replace Spillane later anyway — would apply to any person planning to leave the company, regardless of that person’s age.” Defendant’s Reply Brief at 7. CMD’s attempt to diminish the role that Mr. Spillane’s age may have played in CMD’s decision-making process, however, presents an issue of fact that cannot be resolved on summary judgment. E. The Law Applied to the Present Case In explaining what constitutes the factual basis for an ADEA claim, the Supreme Court stated: The employer may have relied upon a formal, facially discriminatory policy requiring adverse treatment of employees with that trait. Or the employer may have been motivated by the protected trait on an ad hoc, informal basis. Whatever the employer’s decision-making process, a disparate treatment claim cannot succeed unless the employee’s protected trait actually played a role in that process, and had a determinative influence on the outcome. Hazen, — U.S. at-, 113 S.Ct. at 1706. Whether Mr. Spillane’s age “actually played a role... and had a determinative influence on” CMD’s decision to lay off Spillane is a genuine issue of material fact which precludes summary judgment on Plaintiffs ADEA claim. Id. A jury is entitled to hear the evidence and decide this question of fact for itself. F. Prima Facie Case Because Borden and Local 350 refute the Defendant’s contention that even if the facts are as alleged by Plaintiff, then there is no age discrimination as a matter of law, the relevant inquiry then shifts to whether Plaintiff has produced sufficient evidence to support Mr. Spillane’s claim for age discrimination. See Hazen, — U.S. at-, 113 S.Ct. at 1707 (citing the Title VII framework set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973), as the governing framework for ADEA cases); Cassino v. Reichhold Chem., 817 F.2d 1338, 1343 (9th Cirl987) (adapting to ADEA claims the McDonnell test for determining race discrimination under Title VII), cert. denied, 484 U.S. 1047, 108 S.Ct. 785, 98 L.Ed.2d 870 (1988). The Court finds that the EEOC has met this burden. The undisputed facts establish that Mr. Spillane was sixty-two and the oldest employee in his department when he was laid off. Mr. Spillane was performing his duties at least in a satisfactory manner, often receiving outstanding performance reviews. CMD laid him off while retaining younger employees with less or comparable qualifications than those possessed by Mr. Spillane. Plaintiff has therefore set forth sufficient facts to establish a prima facie case of discrimination under McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973). See, e.g., Washington v. Garrett, 10 F.3d 1421, 1433 (9th Cir.1993); Douglas v. Anderson, 656 F.2d 528, 532-33 (9th Cir.1981). Once a prima facie case of discrimination is established, the burden of production shifts to CMD as the Defendant to articulate a legitimate, nondiscriminatory reason for its action. Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 255, 101 S.Ct. 1089, 1094-95, 67 L.Ed.2d 207 (1981). The EEOC must then prove the articulated reason is pretextual either by showing that discriminatory reason more likely motivated the employer or by showing that the employer’s proffered explanation is unworthy of credence. Id. at 256, 101 S.Ct. at 1095. The factfinder’s disbelief of the reasons put forward by the defendant (particularly if disbelief is accompanied by a suspicion of mendacity) may, together with the elements of the prima facie case, suffice to show intentional discrimination. Thus, rejection of the employer’s proffered reasons will permit the trier of fact to infer the 774 ultimate fact of intentional discrimination, and... upon such rejection, no additional proof of discrimination is required. St. Mary’s Honor Center v. Hicks, — U.S. -,-, 113 S.Ct. 2742, 2749, 125 L.Ed.2d 407 (1993) (emphasis in original; internal quotations and citations omitted). Defendant contends that CMD selected Spillane for layoff because a year and a half before the actual layoff, Mr. Spillane had expressed an intention to retire from CMD in what would have been four months after the time the layoff actually occurred. CMD explains that it was Spillane’s impending absence, and not his age, that cause his selection for layoff. CMD argues that it made more sense to lay off Spillane, since they believed he was leaving CMD soon anyway, than to lay off someone else and then have to replace Spillane four months later. Pursuant to Borden and Local 350, Plaintiff counters that CMD’s action was impermissibly based on Mr. Spillane’s age vis-a-vis his retirement status. They assert that no one ever confirmed with Mr. Spillane that he might retire despite the fact that his comment to that effect was made nearly a year and a half before the layoff. Thus, Plaintiff asserts, CMD acted on its assumption that, given Mr. Spillane’s age, he would be retiring soon. Spillane further explains that if anyone had asked him about retirement, he would have explained that he did not plan to retire due to financial constraints retirement would have placed upon him at the time. Given the parties’ respective positions, there are genuine issues of material fact that must be decided by a finder of fact. Because a factfinder “is entitled to infer discrimination from [a] plaintiffs proof of a prima facie case and showing of pretext without anything more, there will always be a question for the factfinder... [as to] whether the employer’s explanation for its action is true. Such questions cannot be resolved on summary judgment.” Washington v. Garrett, 10 F.3d 1421, 1433 (9th Cir.1993). Defendant’s Motion for Summary Judgment must therefore be denied. CONCLUSION AND ORDER For the reasons set forth above, IT IS ORDERED that Defendant California Micro Devices Corporation’s Motion for Summary Judgment is hereby DENIED. IT IS FURTHER ORDERED that the oral argument on Defendant’s Motion for Summary Judgment previously scheduled for 2:00 p.m. on June 20,1994 is hereby VACATED. 1. The First Circuit’s decision on remand also took into account the Supreme Court's subsequent decision in St. Mary's Honor Center v. Hicks,-U.S.-, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993), discussed below in this Memorandum Opinion. 2. The Supreme Court has "never decided whether a disparate impact theory of liability” is also a valid basis for a cognizable ADEA claim. See Hazen, -U.S. at-, 113 S.Ct. at 1706. 3. Such a termination would, however, implicate the Employee Retirement Income Security Act ("ERISA"), codified as amended 29 U.S.C. §§ 1001 et seq., just as the Hazen termination implicated ERISA. See Hazen,-U.S. at-, 113 S.Ct. at 1707. 4. Public Law 101-433 provides: "The Congress finds that, as a result of the decision of the Supreme Court in [Betts}, legislative action is necessary to restore the original congressional intent in passing and amended the ADEA." Thus, Betts has been superseded by statute. See, e.g., EEOC v. Westinghouse Elec. Corp., 925 F.2d 619 (3d Cir.1991). 5. At this juncture, the Court notes that both Borden and Local 350 refute Defendant’s claim that unless a motivating factor is based upon an inaccurate or stigmatizing stereotype, then there can be no discrimination as a matter of law.	INVALIDATED
724 F.2d 1390	839 F. Supp. 708	D	Equal Employment Opportunity Commission v. Borden's, Inc.	ORDER GRANTING SUMMARY JUDGMENT FOR. DEFENDANT DENYING SUMMARY JUDGMENT FOR PLAINTIFF AND DENYING LEAVE TO AMEND WHYTE, District Judge. Plaintiff John Felde (“Felde” or “plaintiff’) and defendant City of San Jose’s (“the City”) motions for summary judgment and Felde’s motion for leave to amend his complaint were heard on December 10, 1993. The court has read the moving and responding papers as well as the papers submitted by intervenors the International Association of Firefighters, Local 230 (“IAF”) and the San Jose Police Officers’ Association (“SJPOA”) and heard the oral argument of counsel. Good cause appearing therefor, the. City’s motion for summary judgment is granted, and Felde’s motion for summary judgment is denied. Felde’s motion to amend is also denied. I. Background Felde, a former Deputy Chief of the San Jose Fire Department, filed thé instant action to challenge the legality of the method used by the City of San Jose to determine plaintiffs reimbursement for unused accumulated sick leave when plaintiff retired. Plaintiff contends that the City’s current practice, which differentiates between employees retiring on a regular • service basis and those retiring on a disabled basis, violates the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq. (“ADA”). Plaintiff retired from the San Jose Fire Department on January -7, 1993, on service-connected disability basis. Because plaintiff did so, he received a sick leave payout of only 80% of 1200.hours even though he had accumulated a greater amount of unused sick leave. This' calculation was pursuant to Resolution No. 51871, as amendéd by an agreement between the City, the IAF and the SJPOA. Another resolution, Resolution No. 64214, adopted by the City on December 8, 1992, provides, in part, for payment to retirees for 100% of their accrued, unused sick leave if the retiree has accumulated over a minimum amount of unused sick leave, has over a certain amount of service in the retirement system, and retires on a regular, service basis. The City admits that it adopted this resolution to encourage disability qualified police officers and firefighters to continue working until they reach retirement age. Except for the fact that plaintiff retired on a disability basis, he qualifies for a full payout of his unused sick leave under this resolution. Two of plaintiffs fellow Deputy Chiefs retired on the same day he did. Because plaintiffs colleagues retired on a non-disability basis, their sick leave was calculated pursuant to Resolution No. 64214 and they received 100% of their accrued, unused sick leave. It is undisputed that under these two ordinances plaintiff received a proportionally smaller payout for unused sick leave when he retired on a disability basis than similarly-situated individuals who did not retire on a disability basis. It is also undisputed, however, that plaintiff could have retired on a regular service basis and that, prior to retirement, Felde was aware of both that fact and that Resolution No. 64214 applied to his position. Felde contends that the City’s differentiation between disability and non-disability retirement benefits constitutes a violation of the ADA on its face and seeks, among other relief, payment for his uncompensated accumulated sick leave. Both plaintiff and defendant have moved for summary judgment. On October 8, 1993, this court granted the motions to intervene of IAF and SJPOA. 710 Both- IAF and SJPOA have filed briefs in support of the' City’s motion for summary judgment. II. Legal Standards for Siimmary Judgment Under Fed.R.Civ.Pro. 56(c), summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” The entry of summary judgment is mandated, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on' which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). III. Analysis of Discrimination Claim Plaintiff argues that the City’s scheme violates the ADA as set forth in 42 U.S.C. §§ 12112(a)-(b). Section 12112(a) provides: No covered entity shall discriminate against a qualified individual with a disability because of the disability of such individual in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment. Pursuant to § 12112(b), discrimination under subsection (a) includes: (1) limiting, segregating, or classifying a job applicant or employee in a way that adversely, affects the opportunities or status of such applicant or employee because of the disability of such applicant or employee;. (2) participating in a contractual or other arrangement or relationship that has the effect of subjecting a covered entity’s applicant or employee to the discrimination prohibited by this subchapter... (3) utilizing standards, criteria, or methods of administration—.. (A) that have the effect of discrimination on the basis of disability; Plaintiff argues that the City’s scheme discriminated against him because when he retired on a disabled basis, as he was entitled to do, he did not receive a full payout of his unused sick leave pay. Therefore, plaintiff claims the City has violated the ADA. The City counterargues that, because it is undisputed that plaintiff could have retired on a service basis and obtained a full payout of his unused sick leave, the scheme cannot be considered discriminatory under the ADA. The interpretive guidance provided by the Equal Employment Opportunity Commission (“EEOC”) on Title I of the ADA indicates that benefits reduction's adopted for discriminatory reasons are in violation of the regulations prohibiting discrimination under this statute. See 29 C.F.R. Pt. 1630 App., § 1630.5 at 412 (1993). The EEOC guidelines refer to Alexander v. Choate, 469 U.S. 287, 105 S.Ct. 712, 83 L.Ed.2d 661 (1985), a case decided under the Rehabilitation Act of 1973 (29 U.S.C. § 794) on this point. The Choate court rejected the notion that all disparate-impact showings constituted prima facia showings of discrimination under the Rehabilitation Act. 469 U.S. at 299, 105 S.Ct. at 719. To constitute discrimination, the grantee of a benefit must deny an otherwise' qualified handicapped individual equal and meaningful access to a benefit offered by that grantee. Id. at 306, 105 S.Ct. at 722. Here, is it undisputed that plaintiff had access to the benefit he now seeks, but decided to retire on a disability basis. Accordingly, the City’s actions are not discriminatory under the ADA. See also Britt v. E.I. DuPont de Nemours & Co., Inc., 768 F.2d 593, 595 (4th Cir.1985) (program requiring deferral of pension benefits by pension-eligible employees to receive severance pay for voluntary retirement did not violate Age Discrimination in Employment Act where participation in the program was voluntary). Plaintiff argues that he did not really have the option to choose.service retirement because by choosing service retirement he would have had to forego special tax advantages available only to the disabled. This 711 argument misses the point. The ADA protects disabled individuals from being discriminated against because they are disabled.’ It, therefore, requires an employer to treat qualified disabled and nohdisabled workers equally-in terms of the conditions and privileges of employment. The ADA does not, however, require employers to somehow compensate a disabled worker for his or her disability. In reality, plaintiff is seeking special rathér than simply nondiscriminatory treatment. The City’s failure to provide him with such special treatment does not violate the ADA. All of the cases plaintiff cites to support his-position involve situations where a plaintiff was being excluded from a program that offered benefits that the plaintiff wanted. See e.g. Arizona Governing Committee v. Norris, 463 U.S. 1073, 103 S.Ct. 3492, 77 L.Ed.2d 1236 (1983) (women excluded from receiving same annuity benefits as men); EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir.1984); City of Los Angeles v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978). The City’s program did not exclude Felde. Certainly, there may be ways of encouraging disabled -firefighters to work to service retirement age and also pay them 100% of their unused sick leave. However, whether or not a better plan might exist is not the issue before this court. The ’ question is whether or not the plan that does exist discriminates against plaintiff. The court holds that it does not. IV. Leave to Amend Plaintiff also seeks leave to amend his complaint to add a cause of action under Title II of the ADA. Federal Rule of Civil Procedure 15 governs amendments and states that “leave shall be freely given when justice so requires.” However, in the exercise of its discretion, a district court- may properly consider “the delay in the desired amendment, the fact that there was a pending summary judgment motion, and the futility of most of the proposed claims.” Schlacter-Jones v. General Telephone, 936 F.2d 435, 443 (9th Cir.1991). Felde argues that granting him leave to amend his complaint would not prejudice the City and notes that the City has agreed to such an amendment in a related case. Both these arguments fail to address the fact that the City has a pending dispositive motion before this court. To add a cause of action at this point would delay without sufficient justification the final resolution of this case. “The timing of the motion, after the parties •had conducted discovery and a pending summary judgment motion had been fully briefed, weighs heavily against allowing leave.” Schlacter-Jones, 936 F.2d at 443. Moreover, Felde has not offered a persuasive explanation for wishing to add a new legal theory based’ on the same facts’ at this late date. Finally, and most importantly, allowing Felde to add a cause of action under Title II of the ADA would be futile in light of the court’s reason for granting the City’s summary judgment motion- Although Titles I and II are not identical, they both require the plaintiff to demonstrate discrimination. The court granted summary judgment in favor of the City because Felde had failed to show any discrimination. Therefore, granting plaintiff leave to amend would be futile. V. Order Good cause appearing therefor, Felde’s motion for summary judgment is- denied and the City’s motion for summary judgment is granted. Felders motion for.leave to amend is denied.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	738 F. Supp. 118	D	Equal Employment Opportunity Commission v. Borden's, Inc.	OPINION AND ORDER CONBOY, District Judge: Plaintiff Marion T. Gabarczyk brought this action against defendants the Board of Education of the City School District of Poughkeepsie (“the Board”) and the Poughkeepsie Public School Teachers Association (“PPSTA”), alleging that defendants discriminated against her on the basis of her age in violation of the Age Discrimination in Employment Act of 1967 (“ADEA” or “Act”), 29 U.S.C. §§ 621 et seq. (1976), and that the PPSTA violated its duty of fair representation to her, pursuant to Section 301 of the Labor Management Relations Act of 1947 (“LMRA”), 29 U.S.C. § 185. 120 BACKGROUND In June, 1985, at the age of 61 and with 21 years of credited service, Gabarczyk retired from teaching in the City of Pough-keepsie School District (“School District”). While she was employed with the School District, the terms and conditions of her employment and certain retirement benefits were determined by collective bargaining agreements negotiated between the Board and the PPSTA. When Gabarczyk retired, the collective bargaining agreement in effect covered the years from July 1, 1983 to June 30, 1986. Under this agreement, “the 1983-86 agreement,” defendants offered an incentive to retire to teachers 55 years of age, with 15 or more years of credited service at retirement. The retirement incentive, set forth in Article XIII of the 1983-86 agreement, provides: Section 1. All unit members who during the term of this Agreement will reach the age of fifty-five and have 15 or more years of credited service, upon retirement, shall be entitled to a retirement incentive, of 75% of their last year’s salary provided that notice of retirement is given in writing at least six months in advance of the retirement dates provided below. Plaintiffs Memorandum in Support of Summary Judgment (“Pltf.Mem.”), PX 12 at 22-23. Because Gabarczyk was older than 55 and had more than 15 years of service when she retired, she was denied the retirement incentive. As defendants point out, if Gabarczyk had retired in 1980-81, she would have been eligible to receive the retirement incentive benefit provided in the 1980-83 collective bargaining agreement (“1980-83 agreement”), the first agreement to provide such a benefit. Pursuant to the 1980-83 agreement, “[a]ll unit members who are or will become 55 years of age or older and have or will have 15 years of credited serviced [sic] on or before June 30, 1981, shall be entitled to a retirement incentive of 75% of their last year’s salary_” Pltf.Mem., PX 9 at 22. Thus, all teachers who were 55 or older and who had 15 or more years of credited service had a one-time opportunity to receive the retirement incentive, provided they retired by June 30, 1981. This “window of opportunity” was eliminated from the 1983-86 agreement; otherwise, little incentive to retire early would have been presented to teachers, as the incentive would effectively have become a retirement bonus. Gabarczyk initially elected to retire in 1981, and receive the retirement incentive payment under the 1980-81 agreement. Memorandum of Law in Support of Defendant, Board of Education of the City School District of Poughkeepsie’s Cross-Motion for Summary Judgment (“Board Mem.”), DX B. However, by letter dated January 14, 1981, Gabarczyk withdrew her resignation. Id., DX C. At the time, Gabarczyk was informed by James B. Clarke, Jr., then Associate Superintendent of the Board, that she would no longer be eligible for the 1980-83 retirement incentive, although it is not clear whether she was told she would be ineligible for all future retirement incentives. Deposition of Marion T. Gabarczyk, taken on September 7, 1988 (“Gabarczyk Dep.”) at 91-93. When Gabarczyk retired in 1985, and sought to receive the incentive payment under the 1983-86 agreement, Clarke informed her, by letter dated January 31, 1985, that she was “not entitled to the retirement incentive” because The only time the window was open for employees over 55 years of age and with more than 15 years of credited service to receive the retirement incentive was at its inception with retirement no later than June 1981. You will remember that you had decided to retire at that time and then withdrew your notice of retirement on January 14, 1981. Board Mem., DX F. Because she was denied the retirement incentive benefit under the 1983-86 agreement, Gabarczyk contends that, in negotiating and implementing the retirement incentive, the defendants discriminated against her based on age, in violation of Section 4(a) of the ADEA, 29 U.S.C. § 623(a). Under Section 4(a)(1) of the ADEA, it is unlawful for an employer “to fail or refuse to hire or discharge any individual or other 121 wise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” 29 U.S.C. § 623(a)(1). Gabarezyk also contends that the PPSTA violated its duty, pursuant to Section 301 of the LMRA, to represent her fairly, both in negotiating the terms of the 1983-86 agreement, and in pursuing her grievance against the Board. Defendants respond that the retirement incentive benefit is protected under Section 4(f)(2) of the ADEA, which provides that it is not unlawful for an employer to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual, and no such... employee benefit plan shall require or permit the involuntary retirement of any individual... because of the age of such individual. 29 U.S.C. § 623(f)(2). Defendants also contend that Gabarczyk’s cause of action is barred by the statute of limitations, arguing that Gabarczyk’s claim accrued when she was assertedly informed, in 1981, that she would no longer be eligible for any future retirement incentive benefits. In addition, the PPSTA claims that it did not breach its duty of fair representation, either in negotiating the 1983-86 agreement or in representing Gabarczyk’s grievance. In the alternative, the PPSTA argues that, because monetary damages against the PPSTA are not available to Gabarezyk under the ADEA, Gabarczyk’s claims against the PPSTA should be dismissed, at least to the extent that Gabarezyk seeks monetary damages from the PPSTA. Both sides have moved for summary judgment. While these motions were sub judice, the Supreme Court handed down its decision in Public Employees Retirement System of Ohio v. Betts, — U.S.-, 109 S.Ct. 2854, 106 L.Ed.2d 134 (1989). We directed the parties to submit supplemental briefs on the impact of Betts on this action. As part of her response, Gabarezyk moved to hold the matter in abeyance pending the outcome of Congressional action in response to Betts. For the reasons stated below, we decline to hold the matter in abeyance, and grant summary judgment in favor of the defendants. DISCUSSION I. Motion to Hold the Matter in Abeyance Pointing out that legislation has been introduced in Congress to overturn Betts, Gabarezyk suggests that we hold this action in abeyance, pending the outcome of legislative action. As far as we are aware, no legislation has reached the floor of Congress. Moreover, the issues involved are exceedingly complex, making it impossible to predict the outcome of Congressional action. “Even if legislative action does come some day, it is even less certain that the Congress would choose to retroactively apply it to prior situations or to any case pending at the time of the Betts decision.” EEOC v. Bethlehem Steel Corp., 727 F.Supp. 952, 955 (E.D.Pa.1990) (footnote omitted). As one judge has asked, How long are we to wait before giving the defendants the judgment they are clearly entitled to? 5 years, 50 years? Would not the concept of finality in the American system of justice be rendered meaningless if we are going to delay entering judgment because of future actions that a legislative body might take. We might sooner wait for the end of the world to finally terminate litigation. Id. In light of the uncertainty of the nature and timing of Congressional action, we decline to hold this action in abeyance. See Warren v. Oil, Chemical and Atomic Workers, Union —Industry Pension Fund, 729 F.Supp. 563 (E.D.Mich.1989) (declining to hold matter in abeyance pending outcome of legislative effort to overturn Betts). II. Motion to Dismiss for Lack of Timeliness Defendants argue that Gabarczyk’s suit is barred by the statute of limitations. Section 7(e)(1) of the ADEA, 29 U.S.C. 122 § 626(e)(1), explicitly adopts the statute of limitation provisions of the Portal-to-Portal Act, 29 U.S.C. § 255(a) (1982). Thus, assuming that a claim has been timely filed with the Equal Employment Opportunity Commission (EEOC), an action for non-willful discrimination must be brought within two years of the alleged discriminatory act, and for willful discrimination, within three years of the act. The Board and the PPSTA argue that, because Gabarczyk knew of her inability to receive retirement incentive benefits in January of 1981, she had to file her complaint by January of 1984. Since she filed her complaint on December 18, 1986, defendants argue that Gabarczyk’s complaint is time-barred. We disagree. As Gabarczyk contends, her claim did not accrue until June 30, 1985, when she was denied the retirement incentive benefit under the 1983-86 agreement. Gabarczyk did not necessarily know, in 1981, of her ineligibility for the benefit plan under the 1983-86 agreement; she may have assumed that she was simply disqualified under the 1980-83 agreement. Moreover, whether or not defendants provided all teachers 55 or over, with 15 or more years of service, a “window of opportunity” under the 1980-83 agreement within which to retire and receive the benefit is “not material to our decision” because Ga-barczyk’s “claim is not that [she was] denied the opportunity ever to participate in the incentive, but that [she was] denied the opportunity to do so on the date [she] ultimately chose to retire.” Cipriano v. Board of Educ. of the City School Dist. of the City of North Tonawanda, 785 F.2d 51, 52, n. 2 (2d Cir.1986) (Friendly, J.). Accordingly, we focus on defendants’ denial of the incentive to Gabarczyk under the 1983-86 agreement. Because Gabarczyk challenged the defendants’ denial of the retirement incentive by filing suit on December 18, 1986, well within two years from the date of the alleged violation of the ADEA on June 30, 1985, her complaint was timely filed. III. Cross-Motions for Summary Judgment As noted earlier, defendants argue that the retirement incentive plan in the 1983-86 agreement is exempt from scrutiny under the ADEA because it falls within Section 4(f)(2)’s exception for a “bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of” the ADEA. 29 U.S.C. § 623(f). Prior to the Supreme Court’s decision in Betts, the employer had the burden of proving, as an affirmative defense to an age discrimination claim, that the incentive plan was a bona fide employee benefit plan, and not a subterfuge to evade the purposes of the Act. See, e.g., Cipriano, 785 F.2d at 57 (quoting EEOC v. Home Ins. Co., 672 F.2d 252, 257 (2d Cir.1982)). However, in Betts, the Court held that the burden falls on the employee to establish, as part of its prima facie case, “subterfuge to evade the purposes of” the ADEA. Betts, 109 S.Ct. at 2868. Defendants move for summary judgment, on the ground that Gabarczyk has not met her “burden of proving that the discriminatory plan provision actually was intended to serve the purpose of discriminating in some nonfringe-benefit aspect of the employment relation.” Id. It is undeniable that the retirement incentive benefit in the 1983-86 agreement does not discriminate in “some nonfringe-benefit aspect” of the employment relation, such as “hiring and firing, wages and salaries, and other nonfringe-benefit terms and conditions of employment.” Id. at 2866. As the Supreme Court explained in Betts, “Congress intended to exempt employee benefit plans from the coverage of the Act except to the extent plans were used as a subterfuge for age discrimination in other aspects of the employment relation.” Id. at 2867. Thus, unless the employee benefit plan has the purpose and effect of retaliating against employees who have filed age discrimination claims, or of discriminating among employees in terms of salaries, hiring practices, or other nonfringe-benefit areas, a bona fide retirement plan which makes age-based distinctions does not violate the ADEA. See Robinson v. County of Fresno, 882 F.2d 444, 447 (9th Cir.1989) 123 (upholding dismissal of ADEA claim because plaintiff had not shown that “change in benefits formula demonstrates an intent to discriminate in any nonfringe-benefits area”). Nevertheless, Gabarczyk argues that the defendants cannot benefit from the Section 4(f)(2) exception because defendants were not (1) acting in observance of (2) a bona fide employee benefit plan. See EEOC v. Home Ins. Co., 672 F.2d at 257 (listing elements of Section 4(f)(2) exception); EEOC v. Chrysler Corp., 729 F.Supp. 1002, 1007 (S.D.N.Y.1990) (same). Neither of these arguments is persuasive. First, Gabarczyk contends that defendants did not observe the terms of the 1983-86 agreement because defendants as-sertedly granted the retirement incentive benefit to several other teachers who should have been ineligible. The fact that defendants may have granted the incentive to one teacher improperly, however, is not relevant or material here, because defendants applied the terms of the 1983-86 agreement with respect to Gabarczyk, who under no interpretation of the agreement was eligible for the retirement incentive benefit. The issue before us is whether the defendants observed the terms of the retirement incentive plan with respect to Gabarczyk, not to other teachers. The cases cited by Gabarczyk are not to the contrary. See Sexton v. Beatrice Foods Co., 630 F.2d 478 (7th Cir.1980) (focussing on defendant’s actions with respect to plaintiff to determine whether defendant observed terms of pension plan); Hannan v. Chrysler Motors Corp., 443 F.Supp. 802 (E.D.Mich.1978) (same). 1 Because the defendants’ action in denying Gabarczyk the retirement incentive payment was obviously “taken in observance of [the 1983-86 agreement’s] terms,” EEOC v. Home Ins. Co., 672 F.2d at 257, as required by Section 4(f)(2), we find that defendants were observing the terms of the 1983-86 agreement. Even if defendants’ actions with respect to other teachers were relevant, the facts upon which Gabarczyk relies do not raise an issue of fact precluding summary judgment. In her papers, Gabarczyk identifies four teachers who she asserts were given the benefit in circumstances similar to hers. She points to one teacher who allegedly received the benefit although she retired at age 62 with 31 years of service. Pltf.Mem. at 17. As defendants explain, this teacher should not have been identified as receiving the benefit, as she never received it. See Affidavit of Joan Brandow, sworn to on November 14, 1988, Till 4-6. Gabarczyk also names two teachers who received the retirement incentive at age 56, with 19 and 21 years of service, respectively, and one teacher who received it at age 57 with 16 years of service. Pltf.Mem. at 17. According to Gabarczyk, these teachers were only eligible for the retirement incentive in the year before they retired, because, by the express terms of the 1983-86 agreement, “[n]o teacher over the age of fifty-five in any given school year shall be eligible for the Retirement Incentive except for the school year during which such teacher achieves the fifteenth year of credited service.” Id., PX 12 at 23, § 4. The two 56 year-old teachers, however, were eligible for the retirement incentive because they reached the age of 55, al 124 ready having 15 or more years of credited service, “during the term of [the] Agreement,” Pltf.Mem., PX 12 at 22, § 1. Although it appears that the third teacher received the benefit improperly, in the year after she was apparently eligible for it, the records before us suggest that this was an administrative aberration. Indeed, of the teachers who received the retirement incentive under the 1983-86 agreement, see PItf. Mem., PX 23, Gabarczyk is only able to point to one teacher who assertedly received the benefit improperly. All other ineligible teachers, including Gabarczyk, were denied the benefit. That defendants may have improperly granted the benefit to one teacher, while denying it to Gabarczyk and all others who were ineligible, does not suggest that the defendants did not “observe” the terms of the 1983-86 agreement, within the meaning of Section 4(f)(2). Nor does it preclude summary judgment, for no reasonable jury could find, based on what was in all likelihood a single administrative error, that defendants did not observe the terms of the agreement. See Anderson v. Liberty Lobby, 477 U.S. 242, 250-51, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Second, Gabarczyk argues that the retirement incentive benefit is not a bona fide employee benefit plan, relying on Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987). In Fort Halifax, the Court, interpreting the Employee Retirement Income Security Act (ERISA), held that “ERISA’s preemption provision [29 U.S.C. § 1144(a)] does not refer to state laws relating to ‘employee benefits,’ but to ‘employee benefit plans.’ ” 107 S.Ct. at 2215 (emphasis in original). Gabarczyk urges us to adopt this distinction between plans and benefits, so that the retirement incentive payment does not qualify as a “plan.” The definition of “employee benefit plan” in Fort Halifax is derived from the legislative intent behind ERISA: Congress intended preemption to afford employers the advantages of a uniform set of administrative procedures governed by a single set of regulations. This concern only arises, however, with respect to benefits whose provision by nature requires an ongoing administrative program to meet the employer’s obligation. Id. at 2217. Accordingly, the Supreme Court held that a one-time severance payment provision is not an “employee benefit plan” for ERISA purposes. Id. at 2220. As one judge in this district has observed, “Fort Halifax’s holding that Congress did not intend to have ERISA preempt local regulation of severance payments, does not necessarily mean that Congress did intend to have ADEA regulate severance payments.” EEOC v. Chrysler, 729 F.Supp. at 1008 (Patterson, J.). Similarly, the definition of an employee benefit plan under ERISA is not necessarily applicable to whether the ADEA applies to one-time retirement incentive payments under a collective bargaining agreement, such as the one in question here. “Whether a payment scheme constitutes an ERISA plan is premised upon concerns for administrative integrity and uniform administrative procedures. Those concerns are irrelevant to ADEA, enacted seven years before ERISA. See Betts, 109 S.Ct. at 2866 (Congress did not address issues concerning regulation of employee benefits in ADEA at all).” Id. Accordingly, the definition of “employee benefit plan” applicable to ERISA is not binding here. In any event, the retirement incentive payment at issue here is part of the Pough-keepsie School District’s overall retirement plan. Unlike the fringe benefits at issue in Alford v. City of Lubbock, 664 F.2d 1263 (5th Cir.), cert. denied, 456 U.S. 975, 102 S.Ct. 2239, 72 L.Ed.2d 848 (1982), EEOC v. Westinghouse Elec. Corp., 725 F.2d 211 (3d Cir.1983), and EEOC v. Borden’s Inc., 724 F.2d 1390 (9th Cir.1984), the cases upon which Gabarczyk relies, the retirement incentive here is functionally connected to a retirement plan, the New York State Teachers’ Retirement System. Indeed, the retirement incentive benefit under the 1983-86 agreement is similar to the fringe benefit plan at issue in Cipriano, 785 F.2d at 52. In that case, distinguishing Alford, Westinghouse, and Borden’s, Judge 125 Friendly determined that the defendants’ retirement incentive plan, which was also a supplement to the New York State Teachers’ Retirement System, qualified as an employee benefit plan. Id. at 55. Here, as in Cipriano, “[b]ecause the special incentive simply increases [the] compensation [to older employees for leaving the workforce] and, like benefits available under the underlying retirement plan, is a quid pro quo for leaving the workforce after a certain age and number of years of service, it must be viewed functionally as part of that plan.” Id. at 56. Accordingly, we find that the retirement incentive benefit is a bona fide employee benefit plan. 2 Because, as we have determined, see supra at page 122, the plan is not a subterfuge to evade the purposes of the ADEA, the plan qualifies for the Section 4(f)(2) exemption, and the defendants are entitled to summary judgment on Gabarczyk’s discrimination claims. 3 Finally, the PPSTA moves for summary judgment on Gabarczyk’s claims of violations of the duty of fair representation. Rather than addressing the PPSTA’s legal arguments and factual assertions in support of this motion, Gabarczyk simply states that “defendant Union’s argument that it is entitled to summary judgment on plaintiff’s claim of the breach of fair representation must... fail [because] [Resolution of this claim is intricately tied to plaintiff’s ADEA claim.” Plaintiff’s Reply and Opposition to Defendants’ Cross-Motions for Summary Judgment (“Pltf. Reply Mem.”) at 25. We agree, to the extent that Gabarczyk’s claim against the PPSTA for violation of the duty of fair representation falls along with her claims against the PPSTA of age discrimination. Because the PPSTA is not liable to Gabarczyk under the ADEA for age discrimination, the PPSTA did not violate any duty to Gabarczyk to represent her, either in negotiating the agreement or in pursuing Gabarczyk’s claims of age discrimination. In any event, Gabarczyk does not dispute any facts or address any arguments set forth by the PPSTA in support of its motion for summary judgment on the fair representation claims. Accordingly, the PPSTA is entitled to summary judgment on these claims. 4 CONCLUSION Gabarczyk’s motion to hold this action in abeyance is denied. Defendants’ motions for summary judgment are granted, and the complaint is dismissed. The Clerk of the Court is directed to enter judgment in accordance with this Order. SO ORDERED. 1. In Hannan, the defendant, Chrysler Motors, reduced its work force and, pursuant to the provisions of a salaried employees pension plan which allowed Chrysler to select arbitrarily employees for early retirement, compelled all employees 55 years of age and over, including the plaintiff, to accept retirement, rather than temporary layoff. 443 F.Supp. at 803. In contrast, defendants here did not arbitrarily or discrimi-natorily deny anyone, including Gabarczyk, the benefit; they only inadvertently granted (assuming the grant was improper) the benefit to one apparently ineligible teacher, as discussed in the text immediately following. Moreover, the district court’s reasoning in Hannan has been called into question. As the district court noted in Slusher v. Hercules, Inc., 532 F.Supp. 753 (W.D.Va.1982), before Section 4(f) was amended to exclude mandatory retirement from its coverage, if an employer’s action in involuntarily retiring an employee was pursuant to the terms of its plan, which was bona fide and not a subterfuge, then the employer did not violate the ADEA, despite the discretion afforded the employer. Id. at 762 (citations omitted). Thus, Hannan is of limited, if any, precedential value. 2. The parties do not dispute that the plan satisfies the criterion for "bona fide” set forth in Cipriano, 785 F.2d at 54, that is, that the plan must exist and pay substantial benefits to employees covered by it. 3. Because we find that defendants are protected by Section 4(f)(2), we need not address the PPSTA’s claim that Gabarczyk may not recover monetary damages from the PPSTA, although the PPSTA is correct. Under the ADEA, monetary damages, including liquidated damages and back pay, are not recoverable against a labor union. Air Line Pilots Ass’n, Int'l v. Trans World Airlines, Inc., 713 F.2d 940, 957 (2d Cir.1983), aff’d in part, rev’d in part on other grounds, sub nom. Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 105 S.Ct. 613, 83 L.Ed.2d 523 (1985). 4.Even if Gabarczyk provided factual and legal support for her claims against the PPSTA, it does not appear that she would be entitled to any relief from the PPSTA. According to Ga-barczyk, she would be entitled to an award of backpay, and "an award of attorneys’ fees and costs, and appropriate injunctive relief banning the continued use of the discriminatory incentive provision." Pltf.Reply Mem. at 24. As we have observed, an award of backpay against the PPSTA is not available to Gabarczyk. See supra, footnote 3. In addition, Gabarczyk did not ask for injunctive relief in her complaint; nor would she be entitled to any,.as the defendants have not violated the ADEA. Finally, Gabarc-zyk does not cite any statutes or cases in support of her claim for attorneys’ fees and costs.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	701 F. Supp. 296	D	Equal Employment Opportunity Commission v. Borden's, Inc.	OPINION FRANCIS J. BOYLE, Chief Judge. The fifty-four Plaintiffs in this action seek damages approximating $1,300,000 from their former employer, Fulflex, Inc., the Defendant, contending that they were discriminated against on the basis of their age. The Defendant Fulflex, Inc. until March 1, 1986 manufactured elastic which was used to make golf balls in Bristol, Rhode Island. On that date Fulflex ceased doing business and practically all of its employees at the Bristol plant were terminated at or before that date. The termination precipitated this litigation. Beginning in 1961 Fulflex established a pension plan which provided benefits to the employee at the time of retirement and the amount of which was dependent on the length of service and the earnings level of the employee. It is funded entirely by the employer, Fulflex. In 1966, in addition to the pension plan, a separation pay agreement was negotiated in the collective bargaining process with Local 474 United Rubber Cork, Linoleum, and Plastic Workers of America AFL-CIO. In 1974 the provision in the separation pay agreement with respect to forfeiture was changed. Language was added that provided that if ERISA is interpreted in such a manner that it is impossible to effectuate the pension forfeiture provision contained in paragraph 4 of the agreement there shall be deducted from the separation payment due any employee an amount which represents the then present value of such employee’s vested accrued benefit under “The Fulflex, Inc. Pension Plan.” The separation pay agreement in effect at the time of the plant closing is the agreement of October 1, 1983. It in part reads: There shall be deducted from the separation payment due any employee an amount which represents the then present value of such employee’s vested accrued benefit under “The Fulflex, Inc. Pension Plan.” An employee, upon acceptance of a separation payment, shall be deemed to have terminated his seniority with the Company and shall be deemed to have forfeited any and all insurance or other rights (except vested pension rights) under any employee benefit plan, financed by or to which the Company has contributed as an employer, provided, however, that retired employees shall retain whatever rights they may have under the employee’s benefit program set forth in the applicable collective bargaining agreement. Because the present value of a vested pension which was payable to employees upon attaining age 65 is more valuable to an older person than a younger person, the deduction of the present value of future pension rights reduced the separation pay of older employees to a greater extent than younger employees with similar terms of employment. The result which followed was that employees with comparable periods of employment and similar wages under the age of 40 tended to receive a larger percentage of their separation pay than employees over the age of 40. This result the Plaintiffs contend is a violation of the Age Discrimination in Employment Act (ADEA). 1 The Defendant replies that 299 this plan does not violate the ADEA because the total benefits paid to employees upon the plant’s closing did not disfavor older workers. The Defendant also argues that the Separation Pay Agreement was a “bona fide employee benefit plan” within the meaning of § 4(f)(2) of the ADEA. 2 Plaintiffs proceed on both disparate treatment and disparate impact theories. A disparate treatment theory requires a showing of purposeful or intentional discrimination, while a disparate impact theory requires proof that a facially neutral practice has a significant discriminatory impact on older employees. Holt v. Gamewell Corp., 797 F.2d 36, 37 (1st Cir.1986). Under either theory, Plaintiffs must show that they were denied a benefit because of their age. This they failed to do. First, this is not a situation in which employees were eligible for certain benefits and then had their vested rights taken away because of their age. The Plaintiffs were entitled only to the separation pay calculated with the formula set forth in the existing collective bargaining agreement. In that formula, their separation pay was a function of their vested pension rights. In some cases, this resulted in employees receiving no separation pay at all. Yet these employees did not have their separation pay taken away; rather, the employees were not entitled to the separation pay in the first instance. The issue then becomes whether the plan itself, the collective bargaining agreement’s relationship between separation pay and vested pension rights, somehow violates the ADEA. Plaintiffs rely on a number of cases to support that proposition, including E.E.O.C. v. Borden’s Inc., 724 F.2d 1390 (9th Cir.1984), E.E.O.C. v. Westinghouse Elec. Corp., 725 F.2d 211 (3d Cir.), cert. denied, 469 U.S. 820, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984), and E.E.O.C. v. Great Atlantic and Pacific Tea Co., 618 F.Supp. 115 (N.D.Ohio 1985). But see Patterson v. Independent School Dist., 742 F.2d 465, 467 n. 3 (8th Cir.1984) (stating that the Borden’s decision is “questionable”). These cases are distinguishable and are therefore unpersuasive. In this case, the pension plan and separation pay agreements are part of a single coordinated benefit plan. They stem from the same package of rights. The pension plan and separation pay agreement have been contained together in the collective bargaining agreement since 1966 (prior to the ADEA’s enaction). The 1983 collective bargaining agreement in effect at the time of the closing included both plans; in fact, a single document contained both plans. Although there are separate signature blocks for each agreement, the separation pay agreement and pension agreement were signed on the same day. There was no evidence that the agreements were signed in anticipation of an imminent closing. The cases Plaintiffs cite rest on the finding that the separation pay (whether termed “layoff income and benefits” or “severance pay”) was a separate and distinct benefit from the pension plan and not part of a coordinated package of benefits. See Borden’s, 724 F.2d at 1396 (facts indicate that severance pay policy was not “an integral part of its retirement and pension package”); Westinghouse, 725 F.2d at 225 (layoff income and benefit plan “is functionally independent of the Pension Plan”); Great Atlantic and Pacific Tea Co., 618 F.Supp. at 122 (“severance pay plan was not part and parcel of a total, integrated benefit package”). In Borden’s, for example, the severance pay policy was negotiated one month before the closing, as an 300 addendum to a pre-existing collective bargaining agreement. 724 F.2d at 1391. The pension and severance pay plans were embodied in different documents. Id. at 1396. Similarly, in Great Atlantic and Pacific Tea Co., the court noted that the severance pay and pension agreements were not adopted at the same time and were not contained in the same document. 618 F.Supp. at 122 & n. 9. As mentioned earlier, the Fulflex Collective Bargaining Agreement signed on October 1, 1983 contained both the separation pay plan and pension agreement in a single document. Cf. E.E.O.C. v. Firestone Tire & Rubber Co., 650 F.Supp. 1561, 1569 (W.D.Tenn.1987) (concluding that “severance award is part of a coordinated pension scheme”). Because the Court finds that the separation pay agreement is part and parcel of a total benefit package, the relevant inquiry thus becomes whether older employees were treated less favorably than younger employees in terms of the total benefits they received or will receive as a result of the plant’s closing. The evidence supports the finding that the value of the total benefits received by similarly situated older employees is at least equal to and in some instances exceeds the value of the total benefits received by similarly situated younger employees. 3 The difference between the benefits is one of timing: the younger employees have already received the separation pay while the older employees must wait for future disbursements from the pension fund. The present value of the future pension payments, however, for some older employees with equivalent terms of employment is greater than the present value of the lump sum separation payment. Moreover, the present value of a future pension for an older employee is greater than the present value of a future pension for a younger employee because the older employee has a greater chance to attain the pension age. This is an actuarial fact, not discrimination. Cf. Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v. Norris, 463 U.S. 1073, 103 S.Ct. 3492, 77 L.Ed.2d 1236 (1983) (retirement benefits discriminating on basis of gender violates Title VII); City of Los Angeles Dept. of Water and Power v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978) (contributions to pension fund on basis of gender violates Title VII). Although Manhart and Norris invalidated the use of single sex actuarial tables in certain benefit schemes, the principles underlying those cases are inapplicable in this situation. First, it is doubtful that Congress intended the ADEA to prohibit employers from using actuarial data in all separation pay and pensions benefits plans. At the most, Congress intended to prohibit employers from classifying on the basis of age “for the purpose of imposing a greater burden or denying an equal benefit because of a characteristic statistically identifiable with the group but empirically false in many individual cases.” Norris, 463 U.S. at 1108, 103 S.Ct. at 3511 (O’Connor, J., concurring) (citing Manhart, 435 U.S. at 301 708-10, 98 S.Ct. at 1375-76). In this case, however, the combined present value of the older employees’ separation pay and vested pension rights at least equals the present value of the younger employees’ separation pay and pension rights. Thus, because the Court finds that the separation pay agreement and the pension plan are part of the same package of benefits, Fulflex has not imposed any additional burden on its older employees nor has it denied them equal benefits. Accordingly, Plaintiffs have not shown that they have been deprived of a benefit because of their age. Plaintiffs have therefore failed to establish a prima facie case of age discrimination under either a disparate treatment or disparate impact theory. Assuming arguendo that Plaintiffs had established a prima facie case of age discrimination, the Defendant would then have the burden of establishing that the separation pay agreement fell within the “bona fide employee benefit program” exception under 29 U.S.C. § 623(f)(2). E.E.O.C. v. State of Maine, 644 F.Supp. 223, 225 (D.Me.1986), aff'd mem., 823 F.2d 542 (1st Cir.1987). In order to prove that the exception is applicable, Defendant must show: (1) that the agreement is a “plan” covered by § 623(f)(2); (2) that Fulflex “observed” the plan; (3) that the plan was “bona fide” and (4) that the plan was not a subterfuge to evade the ADEA’s purposes. See id. at 225-26. Under the facts of this case, Defendant has established that the separation pay agreement does fall under the auspices of § 632(f)(2). No question exists as to Fulflex’s compliance with the separation pay agreement; the agreement was therefore “observed.” See Patterson, 742 F.2d at 466. Moreover, the agreement was clearly “bona fide.” “Bona fide” simply means that the agreement “ ‘exists and pays benefits.’ ” State of Maine, 644 F.Supp. at 226 (quoting United Air Lines, Inc. v. McMann, 434 U.S. 192, 194, 98 S.Ct. 444, 446, 54 L.Ed.2d 402 (1977)). The Maine court noted that Congress’s 1978 amendments to the ADEA “left undisturbed the McMann court’s interpretation of the terms ‘bona fide’ and ‘subterfuge.’” Id. Thus, the issues are narrowed to whether the separation pay agreement is a plan covered by the section and whether it is subterfuge. Section 623(f)(2) exempts from the ADEA’s coverage certain employee benefit plans, “such as a retirement, pension, or insurance plan.” 29 U.S.C. § 623(f)(2). The use of the language “such as” is descriptive rather than exclusive. Plaintiffs argue that the separation pay agreement, when examined by itself, is not similar to retirement, pension, or insurance plans. Based on the finding, however, that the separation pay agreement and pension plan are parts of a single coordinated benefit plan, that contention is not persuasive. Cf. Firestone, 650 F.Supp at 1569 (rejecting assumption that “severance award is a benefit that can be separately evaluated”); Patterson, 742 F.2d at 467 n. 3 (noting that severance pay may be an integrated feature of a retirement plan). Accordingly, the separation pay agreement, when considered in conjunction with the pension plan, is a plan covered by § 623(f)(2). The final issue is whether the separation pay agreement is a subterfuge designed to evade the ADEA’s purposes. Under McMann, subterfuge is defined as “a scheme, plan, stratagem, or artifice of evasion.” 434 U.S. at 203, 98 S.Ct. at 450. That interpretation remains intact despite ■Congress’s 1978 amendments. See State of Maine, 644 F.Supp. at 226. Congress stated that the ADEA’s purposes are:... to promote employment of older persons based on their ability rather than age; to prohibit arbitrary age discrimination in employment; to help employers and workers find ways of meeting problems arising from the impact of age on employment. 302 29 U.S.C. § 621(b). Defendant has suggested three reasons to justify the pension offset provision in the separation pay agreement: the 1974 amendments ensured that the benefit scheme complied with ERISA, prevented pension-eligible employees from being penalized by ERISA compliance, and equalized the value of the “cash out” option for all employees. 4 Although Plaintiffs contest the validity of these justifications, they are sufficient to dispel the spectre of subterfuge. The separation pay agreement does not discourage the hiring of older employees. Ironically, Plaintiffs’ position would frustrate the ADEA’s purposes. Plaintiffs essentially seek approximately $1,300,000 in severance pay. Were Plaintiffs successful, the value of the total benefits received by older employees would outweigh by an even greater extent the value of the total benefits younger employees received. Older and similarly situated employees would receive a real windfall as compared to the benefits of younger employees. Such a result would surely discourage employers from hiring costlier older employees. ORDERED, that judgment will enter for the Defendant, with costs. SO ORDERED. 1. The statute provides that: It shall be unlawful for an employer— (1) to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age; (2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his *299 status as an employee, because of such individual’s age; or (3) to reduce the wage rate of any employee in order to comply with this chapter. 29 U.S.C. § 623(a). 2. That provision in pertinent part states that: It shall not be unlawful for an employer... (2) to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter.... 29 U.S.C. § 623(f)(2). 3. See, e.g., Exhibit 26 to the Joint Stipulation of Facts (separation payroll and pension benefits). At least eight of the 54 Plaintiffs received no separation pay supporting the conclusion that younger employees with similar terms of employment and wages received less than those older employees. For example, Anthony Des-manas was 58 years old at the time of the plant's closing and had worked at Fulflex for 4.17 years. The value of Mr. Desmanas’ vested pension benefit was $5,398.65. Under the separation pay formula, he received no separation pay. Accordingly, the present value of Mr. Des-mañas' total benefits was $5,398.65. K. Raposa and J. Amaral, age 26 and 29 at the time of the closing, also had worked at Fulflex for 4.17 years. Ms. Raposa, Mr. Amaral, and Mr. Desmañas were apparently similarly situated with respect to average wages; the initial calculations of separation pay, from which pension benefits were subtracted, were $1,128.60, $1,391.85, and $1,152.90 respectively. Under the separation pay formula, Ms. Raposa received $928.55 and Mr: Amaral received $1,133.81. The present value of their pensions were $200.05 and $258.04. Therefore, the present value of Ms. Raposa’s total benefits was $1,128.60 and Mr. Amaral’s was $1,391.85. This is significantly less than the present value of Mr. Desmañas’ total benefits. 4. Defendant also argues that because the separation pay agreement was adopted in 1966, prior to the ADEA’s enaction in 1967, it need not “show an economic or business purpose in order to satisfy the subterfuge language of the Act.” McMann, 434 U.S. at 203, 98 S.Ct. at 450 (footnote omitted). Significant modifications to the agreement subsequent to the ADEA’s en-action may convert the plan into a subterfuge, however. E.E.O.C. v. County of Orange, 837 F.2d 420, 423 (9th Cir.1988).	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	700 F. Supp. 1199	D	Equal Employment Opportunity Commission v. Borden's, Inc.	CURTIN, Chief Judge. This case is before the court on remand from the Second Circuit, Cipriano v. Board of Education of the City School District of the City of North Tonawanda, New York, 785 F.2d 51 (2d Cir.1986), reversing this court’s order dated April 2, 1985 (Item 17), which granted summary judgment in favor of defendants in an action under the Age Discrimination in Employment Act [ADEA], 29 U.S.C. §§ 621-634. Plaintiffs now move for summary 1201 judgment on their claims (Item 46; see also Item 57), and defendants cross-move for summary judgment on their affirmative defenses (Items 51, 53). 1 The Equal Employment Opportunity Commission [EEOC] and the American Association of Retired Persons [AARP] have filed briefs, and have appeared before the court, as amicus curiae (Items 35, 36, 40, 52, 55). The principal question for the court on remand is whether defendants have made a showing, sufficient to withstand plaintiffs’ summary judgment motion, that the age-based exclusion of plaintiffs from defendants’ voluntary early retirement incentive plan was based on legitimate business reasons and therefore was not a subterfuge to evade the purposes of the ADEA. 785 F.2d at 58; see 29 U.S.C. § 623(f)(2). Factual and Procedural History In order to decide the motions now before it, it will be necessary for the court to set forth the undisputed facts and procedural history of the case in some detail. Plaintiff Sarah M. Cipriano was employed as a teacher in the North Tonawanda City School System by defendant Board of Education of the City School District of the City of North Tonawanda (the Board) from September, 1945, until her retirement at age 65 in June, 1981, a total of 36 years. Jeune M. Miller was employed as a teacher in the same school system from 1939 through 1943 and from 1961 until her retirement at age 65 in June, 1981, a total of 24 years. Both plaintiffs were subject to the terms of a collective bargaining agreement negotiated between the Board and the Union. That agreement, effective July 1, 1980 through June 30, 1983, contained a provision offering voluntary retirement incentives to members of the bargaining unit “between the ages of 55 and 60 who retired effective between July 1 and February 1 in any of the three years of the agreement and had completed 20 years of service under the New York State Teachers Retirement System.” 785 F.2d at 52. Such employees could elect either of two options. Under Option A, the Board agreed to reimburse retirees for health insurance premiums until the retiree reached age 65, and to pay a lump sum of $2,000 plus $50 for each additional year of service beyond 20 years. Under Option B, the Board would pay the retiree a lump sum of $10,000. Since both plaintiffs had passed their 61st birthday before July 1, 1980, they were ineligible for participation in this incentive plan. 2 Plaintiffs commenced this action on January 24, 1984, against both the Board and the Union, alleging that the retirement incentive plan negotiated by those defendants discriminated against plaintiffs because of their age in violation of the ADEA. Item 1, ¶¶5, 8-11, 13. Each claimed as damages the $10,000 she would have received under Option B of the plan, if the incentive plan had applied to her at the time of her retirement, as well as punitive damages based on the defendants’ allegedly willful violation of the ADEA, injunc-tive relief nullifying the retirement incentive plan, attorney’s fees, costs, and other appropriate relief. Item l. 3 1202 In its order granting summary judgment for defendants, this court found that the retirement incentive plan was consistent with the objectives of the ADEA, was a bona fide employment benefit plan under § 4(f)(2) of that act, 4 and was not adopted as a subterfuge to evade the purposes of the ADEA. Item 17, pp. 2-3. On appeal, the Second Circuit found that defendants had, as movants for summary judgment, satisfactorily sustained the burden of showing that the incentive plan was a bona fide retirement plan for the purposes of § 4(f)(2), 785 F.2d at 54, but reversed and remanded because “defendants did not bear their burden of showing that the incentive plan was ‘not a subterfuge to evade the purposes of’ the ADEA sufficiently to justify dismissal of the complaint without a trial.” Id. at 57. The court made it clear that it was neither endorsing nor condemning the particular incentive plan at issue, or voluntary retirement plans in general. Id. at 59. Subsequent to the remand, the parties engaged in discovery consisting primarily of the depositions of plaintiffs (Item 28), the depositions of Harry H. Beno (Superintendent of Schools, North Tonawanda City School District) and Calvin H. Cornwell (Teacher (retired), North Tonawanda City School District) (Item 39), and the deposition of James Rooney (Chief Labor Negotiator, Board of Education of the City School District of the City of North Tonawanda). 5 Defendants have also filed answers to plaintiffs’ interrogatories (Items 29, 31). It is primarily on the basis of information adduced as a result of this limited discovery that plaintiffs make their present motion for summary judgment. Summary of the Arguments In support of their motion, plaintiffs contend that the depositions and interrogato-ríes in the record provide uncontroverted evidence leading to but one conclusion— that defendants’ motives for adopting the incentive plan were admittedly discriminatory and, when coupled with a per se violation of the ADEA as already found by the Second Circuit, require the entry of summary judgment in plaintiffs’ favor. Item 46, pp. 15-18. According to plaintiffs, the Beno and Rooney depositions clearly demonstrate that the Board’s exclusive motive in implementing the early retirement incentive was to save money by replacing older, higher paid teachers with younger, entry level employees. Plaintiffs contend that the Union’s economic motive for adopting the plan — i.e., to preserve the jobs of younger teachers by offering older teachers financial encouragement to retire early —was discriminatory as well, as evidenced by the Rooney and Cornwell depositions. Plaintiffs also contend that there is no rational business justification for excluding teachers over age 60 from the plan (id., pp. 18-23), and that defendants cannot, nor will they be able to at trial, demonstrate any correlation between age and the cost of the challenged plan so as to “shelter in the safe harbor of section 4(f)(2).” Karlen v. City Colleges of Chicago, 837 F.2d 314, 319 (7th Cir.), cert. denied sub nom. Cook Co. College Local 1600 v. City Colleges of Chicago, — U.S. -, 108 S.Ct. 2038, 100 L.Ed.2d 622 (1988); see Item 46, pp. 24-29. Additionally, plaintiffs contend that the defendants’ violation of the ADEA was “willful,” thereby entitling plaintiffs to punitive and liquidated damages and costs. Item 46, pp. 12-13. In opposition, the Board argues that granting plaintiffs’ summary judgment motion would deny it the opportunity afforded by the Second Circuit to factually establish 1203 its affirmative defense under § 4(f)(2). According to the Board, the significant cost considerations that factored into the decision to adopt the early retirement incentive plan clearly represent the type of “legitimate business reasons” required by the ADEA. Item 51, pp. 2-6. The Board further contends that since the plan at issue here provided retirement incentive only to those employees between the ages of 55-GO, and no incentive (as opposed to a lesser incentive) was offered to those over the age of 60, the plan did not run afoul of the major purpose of the ADEA, which is to discourage the removal of older persons from the workforce. Id., pp. 7-8. Finally, the Board contends that plaintiffs’ deposition references are insufficient to establish discriminatory motive, and that the question of “willfullness” is properly one for the jury. Id., pp. 6-7. The Union’s argument is somewhat more complicated, at least in a procedural sense. First, the Union renews its motion under Fed.R.Civ.P. 15, filed July 6, 1987 (Item 33), to amend its answer to include affirmative defenses based on the applicable statute of limitations and principles of waiver and estoppel. See Item 61, pp. 4-5. With regard to those defenses, the Union contends that the action against it was not timely filed, since plaintiffs knew or should have known of the alleged discriminatory act more than two years before the commencement of the action (Item 53, pp. 18-29); that the complaint should be dismissed since plaintiffs failed to comply with the procedural requirements of the ADEA {Id., pp. 30-31); and that plaintiffs should be estopped from claiming a violation of their rights under the ADEA since they never formally applied for the retirement incentive. Id., pp. 32-33. Second, the Union contends that plaintiffs may not recover money damages against it, since such relief is available only against employers. Id., pp. 15-17. Third, the Union claims that there is a question, yet unresolved by the Supreme Court, as to whether the conduct complained of — i.e., participation in lawful collective bargaining activity — is within the purview of the ADEA. Id., pp. 34-35. Finally, the Union contends that there is sufficient evidence in the record to support its affirmative defense under § 4(f)(2) that it had a legitimate business-based reason for agreeing to the plan. Id., pp. 36-38. As amicus, the EEOC takes the position that plaintiffs are entitled to summary judgment on their ADEA claims since, solely because of their age, they were never given the opportunity to participate in the early retirement plan. Item 55, pp. 3-6. The EEOC also contends that the defendants’ violation of the ADEA was “willful” since they acted in reckless disregard of that Act’s provisions by failing to take affirmative steps to resolve concerns about the incentive plan’s discriminatory effect. Id., pp. 6-7. Finally, adopting a somewhat “solomonic” position, the EEOC urges that the defendants are entitled to a judgment declaring that the incentive plan, as it presently stands, is lawful since it is justified by legitimate age-related cost considerations and, as long as the plan provides a “window” period to allow all employees (including those over 60) to participate, should not be found to be a subterfuge to evade the purposes of the ADEA. Id., pp. 8-12. 6 According to the EEOC, since plaintiffs were never offered that “window” period, summary judgment should be entered on their ADEA claims. The position of amicus AARP adds a further twist to the arguments presented here. 7 According to AARP, the Second Circuit’s finding in Cipriano that the challenged retirement incentive was a bona fide 1204 employee benefit plan for the purposes of § 4(f)(2), 785 F.2d at 54, must be re-examined by this court in light of the subsequent Supreme Court decision in Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), which held that a “one-time lump sum payment triggered by a single event,” id. 107 S.Ct. at 2218, is not an “employee benefit plan.” Item 40, pp. 9-13. AARP also contends that, even if the plan is of the type protected by § 4(f)(2), under the “equal benefit or equal cost” standard embodied in consistent administrative interpretations of that section, the plan is a subterfuge to evade the purposes of the ADEA. Id. at pp. 13-23; 35-37. AARP further contends that the EEOC’s “new” position on voluntary early retirement incentive plans, set forth at pp. 26-29 of its original amicus curiae brief (Item 36) and elaborated upon at oral argument, is contrary to the Commission’s own regulations and thus not entitled to any deference. Item 40, pp. 23-35. Discussion Section 4(a)(1) of the ADEA makes it unlawful for an employer to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age. 29 U.S.C. § 623(a)(1). The ADEA has three stated purposes: (1) to promote employment of older persons based on their ability rather than their age; (2) to prohibit arbitrary age discrimination in employment; and (3) to help employers and workers find ways of meeting problems arising from the impact of age on employment. 29 U.S.C. § 621(b). In its remand order, the Second Circuit made it clear that unless the defendants can meet their burden of establishing the statutory affirmative defense of § 4(f)(2) {see note 4, infra), the voluntary early retirement incentive plan at issue here “would run afoul of § 4(a)(1)”. 785 F.2d at 53. The 4(f)(2) defense has three elements: (1) there must be a bona fide (retirement) plan, (2) the action must have been taken in observance of its terms, and (3) the retirement plan must not have been a subterfuge to evade the purposes of the ADEA. EEOC v. Home Insurance Co., 672 F.2d 252, 257 (2d Cir.1982). With regard to the first element, the Second Circuit found that the challenged plan, on its face, is a “bona fide employee benefit plan” in the sense that employees benefited and substantial benefits were paid to employees who were covered by it____ [W]e see no reason to doubt that the incentive plan, when read as a supplement to an underlying general retirement plan, was a “retirement” plan for the purposes of § 4(f)(2). 785 F.2d at 54. Plaintiffs, through amicus AARP, now argue that this holding must be reexamined in light of the intervening Supreme Court decision in Fort Halifax. According to plaintiffs, the holding in Fort Halifax is clear that a one-time lump-sum cash payment (such as the incentive at issue here) triggered by a single event (such as the plaintiffs’ retirement) does not constitute an “employee benefit plan” within the meaning of § 4(f)(2), and thus defendants should not be allowed to avail themselves of the § 4(f)(2) defense. Plaintiffs also cite EEOC v. Borden’s Inc., 724 F.2d 1390 (9th Cir.1984); EEOC v. Westinghouse Electric Corp., 725 F.2d 211 (3d Cir.1983), cert. denied, 469 U.S. 820, 105 S.Ct. 92, 83 L.Ed.2d 38 (1984); and Alford v. City of Lubbock, 664 F.2d 1263 (5th Cir.), cert. denied, 456 U.S. 975, 102 S.Ct. 2239, 72 L.Ed.2d 848 (1982), as support for their argument. Fort Halifax involved an employer’s challenge under the Employee Retirement Income Security Act [ERISA] to a Maine state statute requiring employers to provide a one-time severance payment to employees in the event of a plant closing. In finding that the state law was not preempted by ERISA, and that the employer was thus liable for severance pay due to the closing of one of its plants, the Court held that the one-time severance payments triggered by a single event did not constitute 1205 an employee benefit plan so as to invoke the protections of ERISA. Noting the basic difference between a “benefit” and a “plan,” the Court examined the Congressional intent behind ERISA’s preemption provision and found that the major concern in affording employers “the advantages of a uniform set of administrative procedures governed by a single set of regulations... only arises... with respect to benefits whose provision by nature requires an ongoing administrative program to meet the employer’s obligation.” 107 S.Ct. at 2217. The requirement of a one-time lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer’s obli-gation____ To do little more than write a check hardly constitutes the operation of a benefit plan. Once this single event is over, the employer has no further responsibility. The theoretical possibility of a one-time obligation in the future simply creates no need for an ongoing administrative program for processing claims and paying benefits. Id. at 2218. In the instant case, however, defendant’s retirement incentive involves more than simply a “one-time lump-sum payment triggered by a single event”. With the exception of the two plaintiffs, the incentive is offered to all employees who pass through the 55-60 age bracket, and thus is a continuing (rather than onetime) benefit triggered by each employee’s voluntary election of the plan (rather than by a single event affecting all employees simultaneously). 8 Moreover, defendants’ plan provides the early retiree with a choice of either (A) continued medical benefits until age 65 combined with a $2,000 lump-sum payment, plus $50 for each year of service over 20 years, or (B) a $10,000 lump-sum payment. Therefore, unlike the employer in Fort Halifax which, upon the closing of one of its plants, was faced with the statutory duty to “write a check” covering all displaced employees, the employer in the instant case is under a continuing obligation which places “periodic demands on its assets that create a need for financial coordination and control.” Id. With regard to the other cases cited by plaintiffs, the court agrees with the thorough analysis undertaken by the Second Circuit in its remand order which found that each of the “plans” at issue in the Borden’s, Westinghouse and Alford cases involved fringe benefits that were somehow tied by the employer to the underlying retirement plans, and “could in no way be considered to be functionally related to those plans”. 785 F.2d at 55. The incentive plan at issue here, however, increases the compensation available to the employee under the underlying retirement plan in return for leaving the workforce at an earlier age. Since the incentive “is a quid pro quo for leaving the workforce after a certain age and number of years of service, it must be viewed functionally as part of” the underlying retirement plan. Id. at 56. Accordingly, upon reconsideration of the requirements of § 4(f)(2) in light of the Fort Halifax decision (and the other authorities cited by plaintiffs), the court finds that the early retirement incentive plan at issue here is a bona fide plan for the purposes of establishing a § 4(f)(2) defense, and that the action complained of — i.e., offering the incentive to younger workers but not to plaintiffs — was taken in observance of the terms of that plan. The focus of the court’s inquiry on the pending motions and cross-motions for summary judgment now becomes whether defendants have established element (3) of the Home Insurance test, namely that the retirement plan must not have been a subterfuge to evade the purposes of the act. Defendants’ task of disproving subterfuge is a difficult one considering the relative lack of guidance from the courts, Congress, or the EEOC 9 with regard to the 1206 type of plan challenged by plaintiffs here. Some courts have held that, in general, an employer’s adoption of a voluntary early retirement plan does not in itself create a prima facie case of age discrimination, see Bodnar v. Synpol, Inc., 843 F.2d 190, 192 (5th Cir.1988), and that such plans are indeed beneficial to the employee. Henn v. National Geographic Society, 819 F.2d 824, 826 (7th Cir.1987). 10 In making a determination as to whether the plaintiff has established a prima facie case, the courts are guided by the principles embodied in the relevant EEOC regulations which, as they currently stand, provide that [njeither section 4(f)(2) nor any other provision of the [ADEA] makes it unlawful for a plan to permit individuals to elect early retirement at a specified age at their own option. Nor is it unlawful for a plan to require early retirement for reasons other than age. 29 C.F.R. § 1625.9(d) (1988). It is undisputed in the instant case, and the Second Circuit so found, that the incentive plan adopted by defendants excluded plaintiffs because of their age, and thus plaintiffs have established a prima facie case requiring defendants to satisfy § 4(f)(2). The purpose of § 4(f)(2) “is to permit age-based reductions in employee benefit plans where such reductions are justified by significant cost considerations.” 29 C.F.R. § 1625.10(a)(1). Those regulations further provide: (a)(1)... Where employee benefit plans do meet the criteria in section 4(f)(2), benefit levels for older workers may be reduced to the extent necessary to achieve approximate equivalency in cost for older and younger workers. A benefit plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred, in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of benefits or insurance coverage— (d) “Subterfuge.”... In general, a plan or plan provision which prescribes lower benefits for older employees on account of age is not a “subterfuge” within the meaning of section 4(f)(2), provided that the lower level of benefits is justified by age-related cost considera-tions____ (1) Cost data-general. Cost data used in justification of a benefit plan which provides lower benefits to older employees on account of age must be valid and reasonable. This standard is met where an employer has cost data which show the actual cost to it of providing the particular benefit (or benefits) in question over a representative period of years____ 29 C.F.R. § 1625.10(a)(1), (d), (d)(1) (1987). The regulations further state that any cost comparisons and adjustments made under § 4(f)(2) must be done on a “benefit-by-benefit” basis, which calls for adjustments to be made “in the amount or level of a specific form of benefit for a specific event or contingency”, 29 C.F.R. § 1625.10(d)(2)®, or on a “benefit package” basis, which 1207 allows for aggregate cost comparisons to be made only if “not used to reduce the cost to the employer or the favorability to the employees of overall employee benefits for older employees.” 29 C.F.R. § 1625.10(d)(2)(ii). Finally, § 1625.10(d)(3) provides that: Cost comparisons and adjustments under section 4(f)(2) may be made on the basis of age brackets of up to 5 years. Thus a particular benefit may be reduced for employees of any age within the protected age group by an amount no greater than that which could be justified by the additional cost to provide them with the same level of the benefit as younger employees within a specified five-year age group immediately preceding theirs. 29 C.F.R. § 1625(d)(3). Noting the “continued vitality” of these regulations, 785 F.2d at 58, and the “fairly heavy burden” these regulations impose on the employer, id., the Second Circuit, in remanding, has provided this court some limited further guidance with regard to the concept of “subterfuge” when that term is applied to voluntary, as opposed to involuntary, participation in an early retirement incentive plan. While we would not wish to be understood as endorsing every detail of the regulations, we cannot simply disregard them. All that we now decide is that even in the case of voluntary early retirement plans the employer — and also here the union — must come up with some evidence that the plan is not a subterfuge to evade the purposes of the ADEA by showing a legitimate business reason for structuring the plan as it did.... The evidence of business reasons required to show that a voluntary early retirement plan is not a subterfuge would almost necessarily be less than what was required to make such a showing in the case of a mandatory plan. Id. at 58-59. Following the Second Circuit’s directive, id. at 59, this court granted the application of the EEOC to participate in the case as amicus curiae so as to determine the current status of the interpretive regulations and guidelines with respect to the permissible means of structuring voluntary retirement plans. Item 37. As outlined in its submissions to the court, the EEOC views the regulations, as well as the legislative history underlying the enactment and amendment of the ADEA, as generally allowing employers to provide lower benefits to older workers only where the cost of providing the benefit increases with age. Item 36, p. 25; see 29 C.F.R. § 1625.10(a)(1), (d)(l)-(3); see also Karlen, 837 F.2d at 319 (where employer uses age as basis for varying retirement benefits, he must prove a close correlation between age and cost to benefit from § 4(f)(2)); Borden’s, 724 F.2d at 1396 (§ 4(f)(2) enacted to encourage the hiring of older workers by relieving employers of the duty to provide them with equal benefits — where equal benefits would be more costly for older workers). This principle is commonly referred to as the “equal benefit or equal cost” rule. 11 See Item 40, pp. 14, 18. The EEOC now argues that this principle should not be automatically applied as the exclusive test for proving the absence of subterfuge in early retirement plans, and especially should not be applied to such plans as the one at issue here where the incentive, and the choice, to retire early is 1208 “truly voluntary”. Item 36, p. 28-34. According to the EEOC, the employer’s burden to demonstrate a legitimate business reason for enacting a voluntary early retirement incentive plan will be most effectively met where the specific age limitations are based on and reasonably supported by some objectively measured assessment of increasing cost and/or declining benefit to the employer in providing retirement incentives. For example, a cost/benefit analysis might consider such factors as the anticipated working life of employees relative to “normal” or expected retirement age, and cost of the retirement inducement versus payroll savings to be potentially realized by the employer. Id. at 33 (footnote omitted). Thus, pending formal rulemaking (see note 6 infra), the EEOC has provided the court with valuable guidance as to the showing required by a defendant attempting to legitimate a voluntary early retirement incentive plan under § 4(f)(2). It must be reiterated here that the EEOC urges the court to approve the defendants’ plan as it currently applies to the teachers affected, not as it applied to plaintiffs when enacted or when plaintiffs retired. As plaintiffs and amicus AARP point out, the analysis adopted by the EEOC is at odds with several cases which have specifically rejected the type of age-based assumptions about economic savings and anticipated work life urged as relevant considerations under § 4(f)(2) by defendants and the EEOC here. In Geller v. Markham, 635 F.2d 1027 (2d Cir.1980), cert. denied, 451 U.S. 945, 101 S.Ct. 2028, 68 L.Ed.2d 332 (1981), the Second Circuit held that a discriminatory hiring policy which excluded teachers with more than five years of experience could not be justified by economic considerations. 635 F.2d at 1034; see also Marshall v. Arlene Knitwear, Inc., 454 F.Supp. 715, 728 (E.D.N.Y.1978) (Where economic savings and expectation of longer future service are directly related to employee’s age, it is a violation of ADEA to discharge the employee for those reasons). In so holding, the Court specifically approved the then-current EEOC regulation establishing that a general assertion that the average cost of employing older workers as a group is higher than the average cost of employing younger workers as a group will not be recognized as a differentiation under the terms and provisions of the [ADEA], unless one of the other statutory exceptions applies. 29 C.F.R. § 860.103(h) (1979). That section was amended in 1981 to provide that: A differentiation based on the average cost of employing older employees as a group is unlawful except with respect to employee benefit plans which qualify for the section 4(f)(2) exception to the [ADEA], 29 C.F.R. § 1625.7(f) (1988). AARP would have the court read this current regulation, and the cases cited above, to stand for the proposition that a retirement plan cannot be justified on the basis of cost savings to the employer unless that plan otherwise qualifies under § 4(f)(2). In light of the guidance provided by the EEOC, however, as well as distinguishing factors evident in the Getter and Arlene Knitwear cases, the court refuses to adopt such a restrictive reading. Neither Getter nor Arlene Knitwear involved voluntary retirement incentive plans, nor did they involve the § 4(f)(2) defense. Therefore, for the purposes of deciding the motions now before it, the court will consider evidence of economic savings as relevant to the defendants’ attempt to show legitimate business reasons for structuring the challenged plan as they did. From the Board’s perspective, the reason the age 55-60 limitation was adopted “was a desire to have a real ‘incentive’, as opposed to a bonus. The incentive was intended to encourage teachers within that age group to retire sooner than they might otherwise have done, allowing hiring and retention of younger personnel at cost savings.” Item 29, p. 9 (Board’s Answer to Plaintiffs’ Interrogatory # 7); see also Item 46, p. 2 (Plaintiffs’ Statement of Material Facts Not In Dispute, ¶ 7). The cost savings anticipated by the Board was the 1209 difference between the salary of an older, more senior teacher (approximately $25,000 per year at the time the plan was adopted) and the salary of a less experienced teacher at the entry level (approximately $10,000). Item 46, pp. 2-3. In other words, while paying the $10,000 incentive to a 60 year-old teacher would cost the Board $10,000, it might have the immediate result of saving the Board $5,000 since it would reduce the payroll by $15,000 (the difference between a salary of $25,000 and a salary of $10,000), minus the cost of the incentive ($10,000). The savings would be even greater on a long-term basis as the cost of the incentive payment becomes factored into the payroll savings as time goes by. From the Union’s perspective, the incentive plan was agreed to as a means of retaining jobs by avoiding the layoff of younger, less senior teachers. Id., p. 3; Item 39 (Cornwell Deposition), pp. 125-26. There is little doubt that such reasons would be insufficient under § 4(f)(2) if the adoption of the plan resulted in the involuntary retirement or discriminatory hiring of any employee. However, no such claims are made in the instant case. The record is convincing that any retirement by an employee covered under the plan was, and would be, completely voluntary. The court views this as an important distinction which warrants application of the principles urged here by the EEOC. From an employer’s standpoint, the very purpose of offering an early retirement incentive is to afford the employer the opportunity to effect potentially substantial payroll savings without inequitably altering its employment relationship with its workers. Thus, legitimate incentive plans may provide a less harmful method than layoffs for implementing workforce reductions and corporate layoffs while allowing the employer to save more per employee by eliminating higher paid senior positions or replacing the retired workers with lower-paid workers. See McMorrow, Retirement and, Worker Choice: Incentives to Retire and the Age Discrimination in Employment Act, 29 B.C.L.Rev. 347, 366 (1988). At the same time, such incentives undeniably provide a desirable additional option for the employee who may wish to “retire, receive the value of the package, and either take a new job (increasing his income) or enjoy new leisure. He may also elect to keep working and forfeit the package.” Henn, 819 F.2d at 826. Furthermore, absent a maximum age limit (here, age 60), the incentive aspect of any such plan would be largely, if not entirely, negated since all employees would ostensibly become eligible for the plan’s benefits upon reaching the triggering age. Thus, the “incentive” would be transformed into a “bonus,” resulting in a new employment-related cost to the employer without any concomitant benefit. Under such circumstances, there would be neither an incentive for the employee to retire early, since that employee would eventually receive the enhanced benefit in any event, nor an incentive for the employer to offer the plan, since no payroll savings would result. In light of these considerations, it appears to the court that granting plaintiffs’ request for injunctive relief in the instant case, thereby declaring defendants’ plan unlawful as it applies to all teachers in the North Tonawanda School System, would not benefit any of the parties to this lawsuit, and may result in the removal as a general matter of an important and valuable employment option for other employers and employees who may desire to implement or choose similar incentive plans. As mentioned above, the critical element in such a plan is “voluntariness.” As the Second Circuit has stated, “accepting early retirement is a major decision with far-reaching impact on the lives of the workers and we emphasize that the decision must be voluntarily made.” Paolillo v. Dresser Industries, Inc., 821 F.2d 81, 84 (2d Cir.1987). Thus, any such plan must be carefully tailored to give all workers a chance to make that decision without arbitrarily discriminating against any worker, or group of workers, solely because of age. With these important considerations in mind, the court now finds that an employer may lawfully offer an early retirement incentive plan under § 4(f)(2) of the ADEA provided that (1) all retirement eligible employees are afforded an opportunity to vol 1210 untarily participate in the plan, and (2) there is a legitimate business reason for structuring the plan with specific age limitations. Therefore, under this court’s interpretation of the relevant regulations, and in light of the guidance provided by the EEOC as to the application of those regulations to voluntary early retirement incentive plans, the court also finds (with respect to the general validity of the challenged plan) that the justifications offered by defendants in the instant case for structuring the plan the way they did constitute legitimate business reasons under § 4(f)(2) of the ADEA. Plaintiffs (and AARP) argue that such a finding would be at odds with the result reached by the Seventh Circuit in the Kar-len case. In reversing the district court’s entry of summary judgment in favor of defendants on a challenge to a voluntary early retirement plan which offered retirement incentives to persons between the ages of 55 and 69, but which substantially reduced the incentive for those who chose to retire at age 65 or later, the Seventh Circuit found that: Nothing in the [ADEA] forbids an employer to vary employee benefits according to cost to the employer; and if, because older workers cost more, the result of the employer’s economizing efforts is disadvantageous to older workers, that is simply how the cookie crumbles____ But where, as in the present case, the employer uses age — not cost, or years of service, or salary — as the basis for varying retirement benefits, he had better be able to prove a close correlation between age and cost if he wants to shelter in the safe harbor of section 4(f)(2). 837 F.2d at 319 (citing 29 U.S.C. § 1625.10(a)(1), (d)(l)-(3)). According to plaintiffs, the Seventh Circuit has thereby adopted the “equal benefit or equal cost” rule as the exclusive means of determining subterfuge in an analysis of voluntary early retirement plans under § 4(f)(2). My reading of Karlen, however, indicates that case is, on the whole, supportive of the type of plan at issue here. As discussed above, defendants’ plan is not keyed to age but to the cost of keeping older workers (age 60 and over) on the payroll, and the cost-savings figures provided by defendants sufficiently demonstrate the legitimacy of their “economizing efforts.” The plan objected to in Karlen used age 65 as the cutoff point for offering greatly reduced benefits, and no figures were provided to show why the benefits varied with age rather than length of service, or “why the big drop at age 65”. More simply stated, the plan in Karlen discriminated against those within the group eligible for early retirement but over age 65, while the plan in the instant case offers the same incentive to all employees (with the notable exception of plaintiffs) who reach the age of 55. 12 An employer making such an offer should not be required to demonstrate the same “close correlation between age and cost” demanded of the employer in Karlen in order to take advantage of the shelter provided by § 4(f)(2). While Karlen may therefore be read to support the type of retirement incentive plan at issue here, there are several additional distinguishing factors which suggest that this court should not require the same result as that reached by the Seventh Circuit. That court based its holding, at least in part, on the finding that the defendants in that case adopted their retirement plan “[t]o withhold benefits from older persons in order to induce them to retire”, 837 F.2d at 320, thus attempting “by indirection to reinstitute what was so long the age-65 mandatory retirement norm.” Id. There is no persuasive evidence of “inducement,” as opposed to “incentive,” in the record before the court in the instant case to indicate that defendants intended their plan to operate as a substitute for involuntary retirement. Moreover, Karlen is factually distinguishable on the basis that the plain 1211 tiffs in that case were offered, and declined, the early retirement benefits and then brought suit claiming that they were, in effect, being punished for their decision. In the instant case, the plaintiffs’ challenge is based on the fact that they were never given the opportunity to participate in the plan since they were both over 60 years old at the time the plan was first offered. Finally, and not insignificantly, the Karlen court’s apparent adoption of the “equal benefit or equal cost” approach was reached without the benefit of the views presented to this court by the EEOC and the AARP. Accordingly, the court now finds that plaintiffs have not met their summary judgment burden with respect to the general invalidity of defendants’ early retirement plan under the ADEA and its interpretive regulations. Aside from the question of the plan’s application to plaintiffs, defendants have sufficiently discharged their burden of demonstrating that no genuine issue of material fact exists as to whether they had legitimate business reasons for structuring the incentive plan the way they did. Accordingly, plaintiffs’ motion for summary judgment declaring defendants’ plan unlawful as a general matter is denied, and defendants’ cross-motion for summary judgment with respect to the general validity of its voluntary early retirement incentive plan is granted. The crucial problem remains, however, that the individual plaintiffs were never given the opportunity to retire “under the plan” since they were both beyond the age-60 limitation at the time the cash incentive was first offered. See Item 52, pp. 5-6. Therefore, it cannot be said that the plan was “truly voluntary” with respect to plaintiffs. Further, it cannot be disputed that the defendants neither provided any incentive benefits nor incurred any costs for such benefits on behalf of plaintiffs. Thus, the only basis for denying plaintiffs’ participation in the incentive plan was the fact that plaintiffs were over age 60, and “would be retiring anyway.” Item 39, p. 97. Since the critical element of “voluntariness” was not satisfied, and since the fact that plaintiffs would eventually retire at some point in their careers is not the type of legitimate business reason contemplated by the Second Circuit in its remand order, plaintiffs were thus arbitrarily discriminated against solely because of their age in violation of the ADEA, and none of the reasons given by defendants and discussed above, economic or otherwise, are sufficient to establish a § 4(f)(2) defense to that discrimination. 13 The court’s review of the summary judgment record before it, therefore, indicates that defendants’ retirement incentive plan was adopted as a subterfuge to evade the purposes of the ADEA with respect to plaintiffs Sarah M. Cipriano and Jeune M. Miller. Moreover, the depositions, answers to interrogatories, and affidavits submitted indicate that defendants’ discriminatory conduct toward plaintiffs was “willful” since defendants “ ‘knew or showed reckless disregard for the matter of whether its conduct was prohibited by the ADEA.’ ” Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 128, 105 S.Ct. 613, 625, 83 L.Ed.2d 523 (1985) (quoting Airline Pilots Ass’n v. Trans World Airlines, 713 F.2d 940, 956 (2d Cir.1983)). The undisputed facts show that, while concerns as to the discriminatory effect of the age-60 limitation were raised by the Union during the negotiations that resulted in the adoption of the challenged plan, attorneys for the Union and the Board did not conduct any investigation into the ADEA implications, or other potential legal ramifications, of the plan. See Plaintiffs’ Statement of Material Facts (Item 46), UK 16-19. Further 1212 more, defendants’ negotiators rejected a proposed “grandfather clause” which would have provided a one-year “window” period during which teachers who were already over age 60 could have voluntarily participated in the plan. Id.; see also Exh. I, p. 3, ¶ 3, attached to Item 46. Under these circumstances, any violation stemming from the defendants’ adoption of the plan is clearly the result of a deliberate and willful, as opposed to merely unknowing or negligent, act on the part of defendants. The Union argues that further factfind-ing is required before a determination of willfulness can be made. Item 53, p. 23. According to the Union, its chief negotiator expressed his concerns over the legality of the incentive plan, but was limited in the extent of his bargaining power not only by the “take it or leave it” approach presented by the Board but also by New York State law. Id., pp. 23-24. The Union further argues that it conducted negotiations within the framework of age discrimination law as it existed at the time, since the prevailing legal opinion in 1980 was that the type of plan at issue was not a violation of the ADEA. Id., pp. 24-28. These arguments do not change the fact, sufficiently demonstrated by the record, that defendants (as represented by their collective bargaining agents) had knowledge of the plan’s potential discriminatory effect on plaintiffs. The pressures faced by the Union’s negotiator, statutory or otherwise, were not unlike those faced by all participants in the collective bargaining process, and the record does not indicate the existence of any special factors which might require a different result here. The Union knew that its actions might have ADEA ramifications, but adopted the plan anyway. It could have conducted a legal investigation long before negotiations ever began in an attempt to structure a plan which would have provided for proper treatment of the two plaintiffs. Furthermore, regardless of the overall validity of the plan in the context of existing ADEA law, the result is inescapable that the plan denied Ms. Cipriano and Ms. Miller the same retirement incentive that was offered to younger teachers solely because those individuals were over the age of 60. The plan thus discriminated against plaintiffs in violation of the ADEA and, as discussed above, no legitimate business reason has been demonstrated to bring the plan within the protection of § 4(f)(2). The two cases cited by the Union in support of its “willfulness” argument do not require a different result. The “plan” upheld by the court in Mason v. Lister, 562 F.2d 343 (5th Cir.1977), was actually a statutory provision that allowed all federal employees with over 25 years of service, or over 50 years old and with over 20 years of service, to voluntarily retire during a “reduction in force” [RIF] period in return for an annuity. 14 The early retirement provision did not have a maximum cutoff age, and thus the court was not faced with the question of whether excluding certain employees because of their age is permissible under the ADEA. The other case, Patterson v. Independent School District No. 709, 742 F.2d 465 (8th Cir.1984), similarly offered an early retirement incentive to all employees, albeit on a sliding scale. The plan at issue in Patterson was provided by a Minnesota state statute which held out a “carrot” of $10,000 for early retirement at age 55, reduced by $500 for each year over age 55 until 60, and by $1,500 for each year over age 60. Id. at 467-68. In the instant case, no “carrot” at all was ever offered to plaintiffs for the sole reason that they were over the maximum cutoff age at the time the plan was adopted. Plaintiffs have thus met their summary judgment burden establishing that defendants’ conduct with respect to plaintiffs amounted to knowing or reckless disregard of the ADEA’s prohibition against age-based employment discrimination, and plaintiffs are thus entitled to liquidated damages pursuant to 29 U.S.C. § 626(b). 1213 Under the caselaw in the Second Circuit interpreting the remedies available under the ADEA, monetary damages, including liquidated damages and back pay, are not recoverable against a labor union. Air Line Pilots Ass’n v. Trans World Airlines, 713 F.2d 940, 957 (2d Cir.1983), reversed on other grounds sub nom. TWA v. Thurston, 469 U.S. 111, 105 S.Ct. 613, 83 L.Ed.2d 523 (1985). Therefore, injunctive relief is the only relief available against the union, and the court has today entered summary judgment against plaintiffs on their request for injunctive relief. Accordingly, there being no cause of action left against the Union upon which relief may be granted, plaintiffs’ complaint against the Union is dismissed in all respects. Having so held, the court need not reach the statute of limitations and estoppel questions raised by the Union in its cross-motion for summary judgment and in its motion to amend its answer. Conclusion Accordingly, plaintiffs’ motion for summary judgment is denied with respect to its request for injunctive relief. Defendants’ cross motions for summary judgment are granted with respect to the general validity of their early retirement incentive plan as it currently stands. The union’s motion for summary judgment dismissing the complaint against it is granted for the reasons set forth above. Defendants’ motions are denied in all other respects. Plaintiffs’ motion for summary judgment is granted with respect to the application of defendants’ early retirement plan as to them. Plaintiffs are directed to prepare a proposed judgment and present it to the court for settlement on December 15, 1988, at 9 a.m. The parties are directed to attempt to settle on an appropriate amount for attorneys’ fees. If this cannot be done, plaintiffs shall file an affidavit in support of their application by December 15. So ordered. 1. During oral argument before the court on July 15, 1988, counsel for the Board asked the court to consider its brief in opposition to plaintiffs motion as a cross-motion for summary judgment. See Item 61, pp. 98-103. 2. On May 23, 1981, shortly before their retirement, plaintiffs filed complaints with the EEOC alleging that the incentive plan constituted age discrimination in violation of the ADEA. The EEOC is alleged to have sent a letter of violation to defendants on April 27, 1982, and, since that date, to have attempted to conciliate plaintiffs’ claim without commencing formal action on plaintiffs’behalf. Item 1, ¶¶ 11-15; see also 785 F.2d at 52. 3.The complaint originally named the North To-nawanda Teachers Association [NTTA] as a defendant, but was amended to substitute the Union. Item 10. On March 1, 1984, the NTTA filed a motion to dismiss the complaint on various grounds. Item 5. As noted by the Court of Appeals, 785 F.2d at 52, this motion was treated by this court as having been filed on behalf of the Union and the Board, and was eventually converted to a motion for summary judgment. The Board filed its answer to plaintiffs’ complaint on March 5, 1984, raising ten affirmative defenses. Item 7. On April 25, 1986, subsequent to remand, the Union filed its answer (Item 23), and has moved to amend its answer to include additional affirmative defenses. Item 33. 4. § 4(f)(2), 29 U.S.C. § 623(f)(2), provides in relevant part: It shall not be unlawful for an employer... (2) to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual, and no such seniority system or employee benefit plan shall require or permit the involuntary retirement of any individual specified by section 631(a) of this title because of the age of such individual!)] 5. The deposition of Mr. Rooney has not been filed with the court, but relevant excerpts of that deposition have been provided by the parties in their briefs. 6. At oral argument on July 15, 1988, counsel for the EEOC presented to the court an advance notice of proposed rulemaking, dated July 7, 1988, as evidence of the EEOC’s efforts to deal with the question of the legality of early retirement plans under the ADEA. Such eventual rulemaking will presumably embody the position advanced by the EEOC before this court. 7. AARP’s brief (Item 40), as well as the initial brief of the EEOC (Item 36) was submitted prior to the filing of plaintiffs’ motion for summary judgment, but the views presented therein are illuminating and fully consistent with the court’s task at this procedural juncture. At oral argument, counsel for AARP appeared on behalf of plaintiffs as well as in his amicus capacity. 8. See Exh. F, pp. 56-57, and Exh. V, pp. 60-61, attached to Item 46. As those exhibits reveal, defendants’ plan has remained in effect, virtually unchanged, since its adoption in 1980. 9. Effective July 1, 1979, Congress transferred enforcement authority over the ADEA from the Department of Labor [DOL] to the EEOC. See Reorg. Plan No. 1 of 1978, 3 C.F.R. § 312 (1978), reprinted in 92 Stat. 3781 (1978). The relevant DOL regulations, originally promulgated at 29 1206 C.F.R. § 860.120 (1970), were continued in effect unchanged by the EEOC in 1979, 44 Fed. Reg. 37974 (June 29, 1979), and were recently recodified at 29 C.F.R. § 1625.10, 52 Fed.Reg. 23811 (June 25, 1987). See Item 36, p. 23 n. 17; Item 40, p. 20 n. 17. 10. The discussion in Henn centers around the Second Circuit’s opinion in Paolillo v. Dresser Indus., Inc., 813 F.2d 583 (2d Cir.1987), withdrawn and substituted on rehearing, 821 F.2d 81 (2d Cir.1987). In its original opinion in the Paolillo case, the Second Circuit found that an employer's offering an incentive retirement plan constituted a prima facie violation of the ADEA, and much of Judge Easterbrook’s opinion in Henn was devoted to an explanation of why Paolillo was wrong. The Second Circuit panel, however, subsequently withdrew its original Paolillo opinion and issued a new opinion, written by Chief Judge Feinberg, which held only that the particular plan before it, as implemented, raised a factual question as to whether the retiring employees had acted voluntarily in accepting the terms of the plan. 821 F.2d at 84. Were it not for the shortness of time given to plaintiffs within which to make their decisions whether to accept early retirement benefits (two of the plaintiffs were given three days, and one of the plaintiffs was given one day), the plan at issue in Paolillo would most likely have been approved. 11. The DOL regulations promulgated shortly after the ADEA was enacted articulated the "equal benefit or equal cost” principle as follows: Thus, an employer is not required to provide older workers who are otherwise protected by the law with the same pension, retirement or insurance benefits as he provides to younger workers, so long as any differential between them is in accordance with the terms of a bona fide benefit plan. For example, an employer may provide lesser amounts of insurance coverage under a group insurance plan to older workers than he does to younger workers, where the plan is not a subterfuge to evade the purposes of the Act. A retirement, pension, or insurance plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred, in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of pension or retirement benefits, or insurance coverage. 29 C.F.R. § 860.120(a) (1970); compare with 29 C.F.R. § 1625.10(a)(1) (1987). 12. The court in Karlen distinguished the holding in Henn, 819 F.2d 824, on the basis that the plan at issue in Henn offered a severance bonus to all employees over age 55 if they elected to retire within two months after the offer was made. Similarly, the plan at issue here in effect offers an incentive to all employees (except plaintiffs) over the age of 55, but gives those employees five years (rather than two months) to accept the incentive and retire early. 13. With regard to the Union’s argument that the ADEA does not apply to the provisions of a lawfully negotiated collective bargaining agreement (see Item 53, pp. 34-35), the Supreme Court has held that employers and unions cannot bargain away employees’ rights to be free from employment discrimination. Alexander v. Gardner-Denver Co., 415 U.S. 36, 51-52, 94 S.Ct. 1011, 1021-22, 39 L.Ed.2d 147 (1974). While Alexander was decided under Title VII, the holding of that case has been extended to actions under the ADEA as well. See U.S.E.E.O.C. v. County of Calumet, 686 F.2d 1249, 1256 (7th Cir.1982). 14. The statute provided, in relevant part: An employee who is separated from the service... voluntarily, during a period when the agency in which he is employed is undergoing a major reduction in force,... after completing 25 years of service or after becoming 50 years of age and completing 20 years of service is entitled to an annuity. 5 U.S.C. § 8336(d)(2) (1977 Supp.), quoted in 562 F.2d at 345.	LIMITED_OR_DISTINGUISHED
724 F.2d 1390	650 F. Supp. 1561	D	Equal Employment Opportunity Commission v. Borden's, Inc.	ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT McRae, District Judge. The plaintiff, the Equal Employment Opportunity Commission (EEOC), and the defendants, the Firestone Tire & Rubber Company (Firestone), the International Union of United Rubber, Cork, Linoleum & Plastic Workers of America, AFL-CIO, and Local 186, International Union of the United Rubber, Cork, Linoleum & Plastic Workers of America (Unions), are before the Court on Motions for Summary Judgment. The parties, in addition to supporting affidavits and exhibits, have submitted joint stipulations of facts. This case is one of alleged age discrimination arising from the failure of Firestone to pay a severance award to those employees entitled to a pension when it closed its Memphis plant on March 18, 1983. Background Firestone and its Unions have heretofore agreed that Firestone would fund all promised pension and pension-related benefits on a sound actuarial basis through a pension trust. The pension and pension-related benefits that Firestone has been required to fund in its pension trust are set forth in the Master Pension and Insurance Plan for Hourly-Rated Employees (P & I Plan). The P & I Plan at issue in this case grew out of the P & I Plan first adopted in 1950. Between 1950 and 1982, the Union repeatedly demanded that Firestone expand the class of employees entitled to distributions from the pension trust — periodic or lump sum, with the latter initially being denominated “severance awards.” Over this period, Firestone agreed to some, but not all, of these demands. The P & I Plan in effect from May 1, 1982, to April 20, 1985, and applicable to the Memphis facility at the time of its closure, provided that: In the event of a Plant Closure____ (i) An Employee who then has 25 or more years of credited service... shall be eligible for an immediate pension (the provisions of Paragraph 5, Article IV notwithstanding____ (ii) An Employee who then shall have attained age 55 and completed 5 or more years of credited service shall be eligible for a pension... [and] the early retirement reduction because of age pursuant to Paragraph 2 of Article V shall not be applicable. (iii) The Employer will pay a severance award determined in accordance with Paragraph 11(a) of this Article VII (but no other benefit) to an Employee who is released from employment as a result thereof, provided such Employee has 5 or more years of credited Service and is ineligible for a pension. (iv) An employee who is eligible for a deferred vested pension... but ineligible for any other pension... may elect to receive, in lieu of such deferred vested pension[,] a special distribution determined in accordance with Paragraph ll(b)(i) of this Article. On July 15, 1982, Firestone advised the Union that the Memphis plant was in a “distressed” situation, and on August 17, 1982, Firestone announced that it would close the plant. Production operations ceased at the Memphis plant on March 18, 1983. However, approximately one hundred employees volunteered to stay on in a plant closure clean-up crew and thus worked beyond the March 18, 1983 closure date. At the time of their lay-offs, voluntary or involuntary, employees became entitled to withdraw the monies previously set aside for them in the pension trust — as provided by the P & I Plan. Employees with 25 or 1564 more years of service received immediate unreduced monthly pensions and extended life and health insurance benefits for life, regardless of age. Employees age 55 and over with at least five years of service received the same immediate unreduced pension and insurance entitlements. Employees under age 55 with ten to twenty-four years of service received deferred vested pensions (and the option to receive “special distributions” instead), with no extended life or health insurance benefits. Employees under age 55 with five, but less than ten, years of service received “severance awards,” with no extended life or health insurance benefits. Finally, regardless of age, employees with less than five years of service received no monies from the pension trust and no extended life or health insurance benefits in the closure. In the P & I Plan, the fact that an employee was “eligible for a pension” did not mean that the employee was “eligible for retirement.” An employee with ten or more years of service was “eligible for a pension,” and an employee became “eligible for retirement” when he reached the age of 55. Discussion On July 30, 1985, the EEOC filed suit against Firestone and its Unions alleging that they had violated the Age Discrimination in Employment Act of 1967 (ADEA) by observing the terms of their collectively bargained P & I Plan in the 1982-83 closure of Firestone’s manufacturing plant in Memphis. The EEOC contends that the failure to pay a severance award to the affected parties was based either on an expressed policy not to pay employees age 55 or over with at least five years of service or an implied policy of not paying employees in the protected age group with twenty-five or more years of service. The EEOC is of the belief that the decision as to who was to be deprived of severance pay was determined with explicit reference to age and thus constituted a per se violation of the ADEA. Firestone responds by arguing that the EEOC is statutorily estopped from bringing this action; that EEOC cannot establish a prima facie case of unlawful age discrimination; that EEOC is barred, because of the ADEA’s exemption for bona fide employee benefit plans, from challenging the severance award provision of the P & I Plan; and that EEOC is time barred from bringing this action. This Court will address only three issues in granting defendant’s Motion for Summary Judgment. The first issue to be considered is whether the EEOC is barred by the statute of limitations from bringing this cause of action. The second issue to be decided is whether the EEOC can establish a prima facie case of unlawful age discrimination if the older hourly employees at the Memphis plant were not treated adversely. The final issue that the Court will address is whether Firestone is entitled to the bona fide employee benefit plan defense. A common theme will run through the discussion of each of these topics. That theme is whether the severance award under challenge is in fact merely a minimum pension benefit from the trust fund or severance pay as that term has commonly been understood. Black’s Law Dictionary defines severance pay as “[P]ayment by an employer to an employee beyond his wages on termination of his employment.” Firestone asserts that: [u]nlike ordinary “separation” or “termination” pay, which many employers pay out of their cash drawers to replace the income employees terminated in plant closures have lost, the “severance awards” that Firestone paid in the Memphis plant closure were minimum pension trust distributions which, pursuant to the terms of the P & I Plan, had already been partially funded in the pension trust. (Affidavit of Paul A. Gerwirtz at pp. 10-11). The EEOC has not submitted any evidence that would lead this Court to believe that Firestone’s severance award was 1565 not in fact a minimum pension trust distribution and therefore not severance pay at all. Statute of Limitations Section 7(e) of the ADEA, 29 U.S.C. § 626(e), incorporates Section 6(a) of the Portal to Portal Act of 1947, 29 U.S.C. § 255(a), which in turn provides that: “every such action shall be forever barred unless commenced within two years after the cause of action accrued, except that a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued.” The EEOC filed this action on July 30, 1985, which is more than two years after the Memphis plant closed on March 18, 1983. The EEOC argues that the statute of limitation was tolled for 117 days, starting with its March 29, 1985 letter of violation and ending with its July 24, 1985 phone call indicating that further conciliation was pointless. Assuming that the EEOC’s position is correct, this action was effectively commenced on April 5, 1985, which is still more than two years after the Memphis plant closed. A cause of action accrues when the allegedly unlawful employment practice takes place and the alleged discriminatees are notified of it. See Chardon v. Fernandez, 454 U.S. 6, 8, 102 S.Ct. 28, 29, 70 L.Ed.2d 6 (1981). Thus, when an employer makes an allegedly discriminatory employment decision, the cause of action accrues on the date that the affected individuals first learn of it — even if the “eventual loss of [employment benefits] — d[oes] not occur until later.” Delaware State College v. Ricks, 449 U.S. 250, 258, 101 S.Ct. 498, 504, 66 L.Ed.2d 431 (1980). In this case, the discriminatory practice that the EEOC is challenging is the denial of severance pay to several hundred employees because of their eligibility for a pension in the closure of the Memphis plant. Since Firestone had advised each employee of the benefits he or she would receive and had made those benefits available to all, the cause of which the EEOC complains had clearly accrued by the March 18,1983 closure date. See EEOC v. Westinghouse Electric Corp., 725 F.2d 211, 219-20 (3rd Cir.1983). The fact that approximately 100 employees joined a plant closure team and worked beyond the plant closure date does not extend the time within which a suit must be filed. See Chardon, 454 U.S. at 8, 102 S.Ct. at 29. The fact that Firestone terminated these employees at a later date is only an “inevitable but neutral consequence” of the decision which the EEOC is challenging. See Delaware State College, 449 U.S. at 257-58, 101 S.Ct. at 503-04. Accordingly, this cause of action accrued on the March 28, 1983 closure date when the decision was final and Firestone was legally obligated to provide all employees with their P & I Plan benefits on or before that date. Therefore, this suit can be considered timely filed only if Firestone willfully violated the ADEA, thereby bringing the three-year statute of limitations into plan. Willfulness is relevant in the ADEA in two areas: extending the statute of limitations to three years and imposing liquidated damages on the defendant. 29 U.S.C. §§ 255(a) and 626(b). With respect to the question of liquidated damages, the Supreme Court has defined willful as whether “the employer... knew or showed reckless disregard for the matter of whether its conduct was prohibited by the ADEA.” Trans World Airlines v. Thurston, 469 U.S. 111, 105 S.Ct. 613, 624, 83 L.Ed.2d 523 (1985), Williams v. Caterpillar Tractor Company, 770 F.2d 47, 50 (6th Cir.1985) (The Sixth Circuit has not addressed the issue of the appropriate standard of willfulness with respect to extending the statute of limitations under the ADEA). The competing standard, which was rejected by the Thurston court, was that m: employer’s action should be considered willful if done knowingly and intentionally while aware that the ADEA was “in the picture.” See Coleman v. Jiffy June 1566 Farms, Inc. 458 F.2d 1139, 1142 (5th Cir.1971). The Supreme Court concluded that Congress intended to create a two-tiered liability scheme. Normal damages were to be imposed for violation of the Act, and if an employer’s action could be characterized as willful, liquidated damages would be imposed also. Because employers are required to post ADEA notices, they could rarely plead that they did not know that ADEA was “in the picture.” This broad definition of willfulness would make the imposition of liquidated damages the norm. The Supreme Court held that such a broad standard would frustrate the statutory scheme and, with respect to liquidated damages, insisted that a more restrictive meaning be given to willful conduct which required a showing of knowing violation or reckless disregard of the terms of the ADEA. Thurston, 105 S.Ct. at 625. Several circuit courts, in the aftermath of Thurston, have considered the question of what should be the standard of willfulness for statute of limitations purposes and have concluded that the “in the picture” standard is still appropriate. Donovan v. Bel-loc Diner, Inc., 780 F.2d 1113 (4th Cir.1985); Secretary of Labor v. Daylight Dairy Products, Inc., 779 F.2d 784 (1st Cir.1985). The Thurston court had left this question open by observing that “[e]ven if the ‘in the picture’ standard were appropriate for the statute of limitations, the same standard should not govern a provision dealing with liquidated damages.” Thurston, 105 S.Ct. at 625. These circuit courts justified applying the “in the picture” standard because “quite different purposes [are] intended to be served by the limitations and liquidated damages provisions: the latter to punish, the former merely to extend the period of restitutionary recovery____” Donovan at 1117. In addition, public policy demands that “[b]ecause the Act is remedial legislation, we construe it in favor of coverage of the employee.” Daylight Dairy Products, Inc. at 789. This reasoning was convincingly rejected by the Seventh Circuit in Walton v. United Consumers Club, Inc., 786 F.2d 303, 308-12 (7th Cir.1986). The distinction made between liquidated damages and extending the statute of limitations based on the punitive nature of one but not the other was shown to be unpersuasive. “[P]unitive-ness is in the eye of the beholder; both § 6(a) and § 16(b) increase the plaintiff’s recovery, and neither plaintiff nor defendant is apt to draw so neat a distinction about the source and reason for an extra dollar of compensation.” Walton at 309. The public policy argument was similarly undercut when the court noted that “the direction of the change... does not tell us how far the change was to go. Legislation is a compromise. Every statute has a stopping point.” Id. at 311. The Walton court instead focused on the structure of the ADEA and determined that Congress intended to create a two-tiered limitation period with two years being the norm and three years applied only if an employer’s conduct could be characterized as willful. The broad “in the picture” standard would destroy this two-tiered system for the same reasons identified by the Thurston court when it considered the question of liquidated damages. Walton at 310-11. Therefore, this Court rejects the EEOC’s argument that the appropriate standard of willfulness for statute of limitations purposes is the “in the picture” standard. Instead, the EEOC must show that Firestone knowingly violated or acted in reckless disregard of the ADEA in order to classify the defendant’s actions as willful, thereby implicating the three-year statute of limitations. As this Court will discuss when it considers whether the EEOC has alleged a prima facie case of age discrimination, it is not credible to assume that Firestone could have been on notice that the payment of a minimum pension benefit (called a severance award) to some employees while oth 1567 ers received a more valuable pension benefit could have constituted a violation of the ADEA, let alone a willful violation. Therefore, the Court finds that Firestone’s actions in paying a severance award to some but not all employees cannot be considered a willful violation of the ADEA, and that the suit, effectively filed on April 5, 1985, is time barred because of a failure by the EEOC to abide by the two-year statute of limitations. Prima Facie Case Under ADEA The provision of the ADEA that EEOC contends Firestone has violated reads: (а) Employer Practices It shall be unlawful for an employer — (1) to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age____ 29 U.S.C. § 623(a)(1). To prevail on a claim under the ADEA, the plaintiff must first establish a prima facie case of age discrimination. In order to state a prima facie case of age discrimination, the EEOC must show both that Firestone treated employees in the protected age group adversely and that they did so because of those employees’ ages. See Ridenour v. Lawson County, 791 F.2d 52, 55 (6th Cir.1986). This Court will reach only the question of whether the employees in the protected age group were treated adversely. The Court does not express an opinion on whether the EEOC has carried its burden of showing that Firestone allegedly discriminated on the basis of age. Firestone contends that when the P & I Plan is viewed as a whole, it is apparent that members of the protected age group received greater overall benefits. The most valuable benefit, immediate unreduced monthly pensions for life, are available only if an employee has 25 years of service or is over 55 and has 5 or more years of service to the company. The less valuable deferred vested pension (with the special distribution option) is open to those employees under age 55 with between 10 and 24 years of service. The least valuable benefit, the severance award, is payable only to those employees under age 55 with between 5 and 9 years of service. Each pension benefit is funded and payable through the pension trust. Specifically, the severance award is a minimum distribution from the pension fund which was not designed to replace the lost income resulting from lay-off, but rather to replace the pensions that Firestone had started funding for these employees. (Affidavit of Paul A. Gewirtz at p. 11). The EEOC has presented no evidence to rebut Firestone’s contention that the severance award was merely a minimum pension benefit forming one part of a fully integrated pension plan. The EEOC has simply assumed that Firestone’s severance award is functionally identical to severance pay. Once this assumption is made, the EEOC’s theory of the case makes sense, but once this assumption is rebutted, its theory of the case fails. The EEOC cites four cases to support its proposition that Firestone’s failure to pay a severance award to those employees eligible for a pension is a violation of the ADEA. EEOC v. Westinghouse Elec. Corp., 725 F.2d 211 (3rd Cir.1984); EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir.1984); EEOC v. Great Atlantic and Pacific Tea Co., 618 F.Supp. 115 (D.C.Ohio 1985); EEOC v. Curtiss-Wright Corp., 40 FEP Cases 666 (D.C.N.J.1982). The Court will examine each case in turn and demonstrate that if Firestone’s severance award is considered to be a minimum pension benefit integrated into a coordinated pension plan, then no violation of the ADEA is possible under the authority expressed in these cases. In Westinghouse Elec. Corp., the EEOC challenged the legality of the company’s Layoff Income Benefit (LIB) Plan. Westinghouse limited participation in the LIB to those employees who were laid off through no fault of their own, had completed two years of service, and were not eligible for early retirement (age 55 and a year in 1568 service requirement). The EEOC charged that this plan, which excluded employees 55 years or older from LIB payments, violated the ADEA. Westinghouse Elec. Corp. at 214-15. The Westinghouse court, however, specifically found that the LIB plan was “functionally independent of the Pension plan” and would not be considered part of a “single ‘coordinated benefit plan.’ ” Id. at 225. Two basic factors serve to distinguish the case at bar from the factual situation in Westinghouse. First, Firestone contends that its severance award is a minimum pension benefit and was not intended to be a lay-off income benefit. Secondly, Firestone contends that its severance award is an integral part of its pension plan while a similar claim on behalf of the LIB plan was advanced by Westinghouse but rejected by the court. Because the Court accepts Firestone’s contentions, which are amply supported by the evidence, Westinghouse is not persuasive authority in support of the EEOC’s allegations. In EEOC v. Borden’s, Inc., the court found that the company’s policy of making severance pay available only to those employees who were not entitled to retirement (age 55 with at least 10 years of service) was in violation of the ADEA. The facts surrounding the closure of Borden’s dairy plant and the adoption of the severance pay plan serve to distinguish this case from the factual situation of the case herein. Borden’s closed its dairy plant on December 31, 1979. In November of 1979, the company and its union negotiated an addendum to the collective bargaining agreement to create the severance pay plan. Borden’s at 1391. The collective bargaining agreements were only loosely integrated with the pension, retirement, and insurance plans, which were embodied in different documents. Id. at 1396. Under these facts, the Borden’s court found that the severance pay policy was merely a “simple fringe benefit” and not “an integral part of a complex benefit scheme.” Id. at 1396-97. Firestone, however, contends that its severance award has been an integral part of its pension benefit scheme since 1955, and has been the subject of intensive collective bargaining for over thirty years. In plant closure situations, Firestone argues that its severance award cannot be looked at in isolation because it is only one part of a coordinated plan to distribute benefits from the pension trust to its eligible employees. Fundamentally, Firestone is of the opinion that its severance award is simply not comparable in purpose or source of funding to the severance pay at issue in Borden’s. The Court agrees. The EEOC has simply not submitted any evidence to rebut Firestone’s contentions. As a result, the Borden’s case is not persuasive authority on the facts that are before this Court. Similarly, in EEOC v. Great Atlantic and Pacific Tea Co., the court found that “[notwithstanding the defendant’s claim the evidence is clear that the severance pay plan was not part and parcel of a total, integrated package.” Id. at 122. The court based its conclusion on the grounds that the severance and pension plans were adopted separately, contained in different documents, and the only correlation between the two plans was that eligibility for early retirement precluded eligibility for severance pay. Id. As has been stated before, Firestone’s severance award has been a part of its pension plan since 1955, has been included in the plant closure provisions since 1976, has been bargained for and is contained in the same document, and is an integral part of a coordinated plan. Great Atlantic and Pacific Tea Co. is simply not convincing precedent on the facts of this case. Finally, in EEOC v. Curtiss-Wright Corp., the court ruled that a severance pay policy that excluded those employees eligible for a pension (age 65 and a year in service requirement) was in violation of the ADEA. Id. at 667. The court did not discuss the question of whether the company’s severance and pension policies were so interrelated that they should be considered as one. Since that is the question this 1569 Court must answer, Curtiss-Wright Corp. is not helpful authority. The end result of this case-by-case analysis is to help the Court determine whether the entire plant closure benefit scheme or just the severance award should be considered in deciding if Firestone’s P & I Plan impacted adversely on members of the protected age group. The Court concludes that Firestone’s severance award is part of a coordinated pension scheme and is, in fact, merely a minimum pension benefit designed to refund to those employees not eligible for a pension some of the money that had already been set aside for them in the pension trust. Therefore, looking at the P & I Plan as a whole, it is apparent that members of the protected age group were provided with greater overall benefits than younger employees and that there was no adverse treatment. Accord, Dorsh v. L.B. Foster Co., 782 F.2d 1421, 1427-28 (7th Cir.1986). The EEOC has not been able to make out a prima facie case of age discrimination because it has not been able to show that members of the protected age group were treated adversely, thereby justifying summary judgment in favor of the defendants. Bona Fide Pension Plan The ADEA provides an affirmative defense that permits an employer to observe the terms of... any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual [or involuntary retirement on account of age]. 29 U.S.C. § 623(f)(2). To qualify for an exemption under this section, Firestone’s severance award policy must be the sort of “plan” covered by this section, must be “bona fide” which has been held to mean no more than that the plan exists and pays substantial benefits, Marshall v. Hawaiian Telephone Co., 575 F.2d 763, 766 (9th Cir.1978), and Firestone must have observed the plan, and the plan must not be a subterfuge to evade the purposes of the act. See Borden’s at 1395. The question of whether Firestone’s plant closure provisions should be considered part of a bona fide plan thereby creating an affirmative defense is broadly similar to the question of whether the severance award or the plant closure section as a whole should be considered in determining if the plan impacted adversely on employees in the protected age group. The EEOC does not question that the P & I Plan is a plan within the meaning of § 623(f)(2) or that Firestone faithfully executed the plan when it closed its Memphis facility. The EEOC does contend that the plant closure provisions should not be considered as being a part of a bona fide plan, and if included in the plan that these provisions are a subterfuge for evading the ADEA. Again, the underlying assumption of the EEOC is that Firestone’s severance award is a benefit that can be separately evaluated apart from the other methods of distributing benefits from the pension trust in the event of a plant closure. The existence of this assumption can be demonstrated by analyzing two of the major objections the EEOC has presented to Firestone’s claim that it is entitled to the “bona fide plan” defense. The EEOC contends that the severance pay policy at issue here is a form of earned compensation wholly unrelated to age and is not the type of plan that Congress meant to exempt. Firestone allegedly cannot cut the costs of this plan by denying severance payments to older workers. However, if Firestone’s severance award is considered to be a minimum pension distribution to those employees not eligible for a pension, but for whom monies had been set aside for them in the trust, then it would not make sense to characterize such a payment as severance pay or to consider that benefit independently from the other pension benefits. Additionally, Firestone has shown that funding for its severance award is based on *1570 the ages of its employees even though the amount of the benefit is independent of age. (Affidavit of Paul A. Gerwirtz at pp. 5-6). Finally, the EEOC argues that this plan is a subterfuge because everyone over forty was denied severance pay. Again, this contention is based on the assumption that Firestone’s severance award is a benefit that can be looked at separately from the other plant closure benefits. Conclusion The Court cannot ignore the fact that every employee who was denied a severance award received a more valuable benefit in the form of a deferred vested pension or an immediate unreduced pension (if any benefit was received at all). Also, the Court finds credible Firestone’s unrebutted statement that the severance award was merely a minimum pension distribution from the pension trust designed to return to the employee the pension that Firestone had started funding. (Affidavit of Paul A. Gerwirtz at p. 11). This case, in fact, is not about severance pay at all, the arguments of the EEOC notwithstanding. The Court finds: (1) that Firestone could not anticipate that the ADEA would be violated by its P & I Plan and did not willfully violate the Act; (2) that the P & I Plan did not impact adversely on a protected age group; and (3) that the P & I Plan is a bona fide pension plan within the meaning of § 623(f)(2). As a result, the EEOC has failed to timely bring this suit, has failed to state a prima facie case of age discrimination, and Firestone has successfully shown that it is entitled to the bona fide plan defense. Therefore the defendant’s Motion for Summary Judgment is hereby granted. IT IS SO ORDERED.	LIMITED_OR_DISTINGUISHED
723 F.2d 707	701 F. Supp. 66	D	Garter-Bare Company, an Unincorporated Association (A Limited Partnership), and Knut L. Bjorn-Larsen, and v. Munsingwear Inc., a Corporation	OPINION AND ORDER CONBOY, District Judge: This case has been the subject of complex and protracted procedural and substantive argument since its inception in 1986. This Court issued a lengthy opinion and order granting partial summary judgment upon and dismissal of some of the plaintiffs’ claims on April 25, 1988 and issued a brief supplemental opinion thereto on May 4, 1988. 685 F.Supp. 354. Familiarity with those decisions is assumed. A motion for reargument is now before the Court, made by the Zola plaintiffs who seeks to persuade the Court to reverse its April 25, 1988 decision that for purposes of the statute of limitations, they had constructive notice of the complained of fraud as of June 13, 1984. A motion for reargument made by defendant Wagner is also now before the Court, who seeks to persuade the Court to reverse its April 25, 1988 decision that the single viable claim made in the complaint against him is not time-barred. A motion to dismiss the first cause of action in plaintiffs’ newly filed second amended complaint and for rule 11 sanctions made by the defendant Gordon is also now before the Court. Finally, a motion to consolidate a recently filed related case with this action, made by plaintiffs, is also before the Court. I. Zolas’ motion Plaintiffs’ essential argument is that their receipt of the IRS report in issue was not sufficient notice, as a matter of law, to put them on constructive notice of the defendants’ fraud. They argue this is a question for the jury. The argument, distilled from plaintiffs’ affidavits and memorandum is that other courts have held, in effect, that where (as here) there is an explanation (other than fraud) for the event..., the District Court may not grant summary judgment on the ba 68 sis that plaintiff should have been aware of possible fraud.... In the instant case, whether there is constructive notice of fraud from the devaluation of a movie because of allegedly limited destribution [sic] to art theaters is a question for the jury- The first case plaintiffs cite is Garter-Bare Co. v. Munsingwear, Inc., 723 F.2d 707 (9th Cir.), cert. denied, 469 U.S. 980, 105 S.Ct. 381, 83 L.Ed.2d 316 (1984). There, the parties had agreed to a three-phase program for the commercial application of a process for a garterless device for supporting women’s hosiery developed by the general partner of the plaintiff company, Knut Bjourn-Larsen. The original contract was extended twice. The defendant then cancelled the contract. Later, plaintiff Larsen viewed an advertisement by the defendant and suspected they were using his patented product. The court reversed a finding of summary judgment that Larsen’s discussion with an attorney concerning his rights constituted constructive notice of a fraud claim. Id. at 713. The court emphasized that the only topics Larsen and the attorney then considered were the plaintiffs’ contract and patent rights. Id. The dissenting opinion, which this Court finds persuasive, asserted that “[i]t is knowledge of facts, not precise legal theories, that triggers inquiry and the running of the statute [of limitations].” Id. at 718 (Ely, J., dissenting in part) (emphasis in original). Plaintiffs attempt to minimize the IRS report by stating that it based its conclusion as to the film’s worth on expert opinion that was demonstrably erroneous as to the potential distribution of the film (that the film would only play in “art” movie houses). This ignores the critical fact that the plaintiffs had demanded from Gordon assurances in the form of expert certification on the cost of the film. They claim they would not have entered the partnership without such assurances, which they in fact received. For similar reasons, the other cases cited by plaintiffs are distinguishable and unavailing. In both Barrett v. United States, 689 F.2d 324 (2d Cir.1982) cert. denied, 462 U.S. 1131, 103 S.Ct. 3111, 77 L.Ed.2d 1366 (1983) and Richards v. Mileski, 662 F.2d 65 (D.C.Cir.1981), the plaintiffs had legitimate reasons to believe that other reasonable explanations existed for the events on which they sued, and no reasons to believe otherwise. See Barrett, 689 F.2d at 329 (reasonable for decedent’s estate to assume malpractice caused death rather than government’s negligent creation, supervision, and administration of program of involuntary chemical experimentation on humans); Richards, 662 F.2d at 68 (reasonable for plaintiff to assume that false charge of homosexuality resulted from misleading of honest government agents by an informer they would have reasons to believe, rather than from agents’ knowing inclusion of false information from known unreliable informer); see also Ware v. United States, 626 F.2d 1278, 1284 (5th Cir.1980) (statute of limitations tolled until plaintiff learned his healthy cattle had been slaughtered because of government misdiagnosis; he had right to rely on government test results, and “had no reason to suspect that the government was mistaken in its diagnosis”). In contrast to these cases, plaintiffs here possessed a critical fact, the Gordon letter of September 17, 1975, which created a duty of inquire. Accordingly, upon reargument, the Court adheres to its ruling of April 25, 1988 as supplemented on May 4,1988 and the relief sought by plaintiffs in their motion for reversal or modification of those rulings is denied. II. Wagner’s motion Defendant Wagner makes what counsel denominates as three arguments; in substance, they are two. First, Wagner claims that the four-year statute of limitations began to run no later than 1976 because the complaint does not attribute any conduct to Wagner after that year. He insists that since Wagner did not have a fiduciary relationship with the plaintiffs, as Gordon did, the principles of equitable tolling do not apply. 69 This argument is unavailing. The principle of equitable tolling “is read into every federal statute of limitation.” Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1946) (Frankfurter, J.). The presence or absence of a fiduciary relationship has no bearing on the applicability of the principle. Rather, it is a factor in determining the length of the period of tolling. The principle of equitable tolling applies to RICO claims. The statute of limitations begins to run “when the plaintiff ‘knows or has reason to know’ of the injury that is the basis of the action.” Cullen v. Margiotta, 811 F.2d 698, 703-04, 724-25 (2d Cir.) (quoting Pauk v. Board of Trustees, 654 F.2d 856, 859 (2d Cir.1981), cert. denied, 455 U.S. 1000, 102 S.Ct. 1631, 71 L.Ed.2d 866 (1982)), cert. denied, — U.S. -, 107 S.Ct. 3266, 97 L.Ed.2d 764 (1987). As Wagner argued in his memorandum in support of his original motion to dismiss, the “plaintiffs in no way ever dealt with defendant Wagner.” How, then, could they be expected to know Wagner had injured them before they knew Gordon had injured them? In his second argument, Wagner cites cases for the proposition that the tolling period ceases at the time Wagner was indicted, or, at the latest, when the was convicted. If notice is found on the latter date, the plaintiffs’ RICO claim is time-barred, as Wagner was convicted on May 25, 1982. The cases Wagner cites do not definitively require this result. Rather, those cases support the proposition that sufficient public notoriety may end the tolling period. For example, in Berry Petroleum Co. v. Adams & Peck, 518 F.2d 402 (2d Cir.1975), a securities fraud class action, the American Stock Exchange suspended trading in shares of the malefactor corporation. Ten days later, the Securities Exchange Commission suspended trading in the corporation’s shares on the over-the-counter market. A different class action lawsuit was filed less than thirty days after the SEC acted. The Second Circuit stated that “[sjince th[e] plaintiffs [who filed the other lawsuit] discovered the fraud, there is not doubt that the fraud was discoverable” by a particular date, thereby barring prosecution of Berry Petroleum Co. Id. at 410. Similarly, in Korwek v. Hunt, 646 F.Supp. 953 (S.D.N.Y.1986) (Lasker, J.), aff'd, 827 F.2d 874 (2d Cir.), reh’g denied, 827 F.2d 874 (2d Cir.1987), the court stated that “[t]he filing of lawsuits by private parties has been held in this circuit to put plaintiffs on notice of their potential claims.” Id. at 958 (citing Berry Petroleum Co.). The court also pointed to “public investigations including hearings before congressional committees,” reports issued by the Commodities Futures Trading Commission, and “substantial media coverage of the events which form the basis for plaintiffs’ claim.” Id. at 958-59. The analogy Wagner attempts to draw between other private lawsuits and a criminal prosecution is not wholly convincing. The government has resources not available to private parties, and is in the business of ferreting out criminal activity. That something is known to the government does not argue for the proposition that it is known to other private parties. Wagner does draw direct support from a footnote in Hunt, where Judge Lasker explained the holding of another case: “[T]he statute of limitations in Clark [v. United States, 481 F.Supp. 1086 (S.D.N.Y.1979), appeal dismissed, 624 F.2d 3 (2d Cir.1980) ], was held to be tolled until the date a criminal indictment of several of the defendants was filed.” 646 F.Supp. at 959 n. 4. Upon close inspection, though, it is apparent that in Clark the plaintiffs contended that they knew of their claims only when the indictment was filed, and not sooner. The court accepted this statement of fact as true for purposes of the defendants’ motion to dismiss. Id. at 1095-96. The court noted that one of the defendants, John Mitchell, did not deny that the plaintiffs did not know of the surveillance conducted against them by the government until March 1977, when the first indictment was filed. Id. at 1095 n. 8. Thus, the court did not hold as a matter of law that 70 the filing of an indictment automatically ends a tolling period. The last case Wagner relies on is La Porte Construction Co. v. Bayshore National Bank, 805 F.2d 1254 (5th Cir.1986). There, the court stated that the conviction of a bank president and vice-president for embezzling funds from different accounts at the bank, although the conviction was not based on crimes committed against the plaintiffs’ accounts, “should have put [plaintiffs]’ [sic] on notice that something was wrong.” Id. at 1256. However, the court actually held only that the statute of limitations did not start until, “at the latest,” some short, but indefinite, time after the bank sued the plaintiff company, alleging that the plaintiff benefitted from the plaintiff company vice-president’s embezzlement scheme. Id. at 1255, 1256. It is arguable, therefore that the convictions alone perhaps may not suffice to establish constructive notice against the plaintiffs herein. The cases Wagner cites, however, support the argument that “public knowledge” is a sufficient basis on which to impute knowledge to the plaintiffs. At the oral argument of this motion, the Court invited Wagner’s counsel to submit supplementary evidence of the media coverage of Gordon’s and Zola’s indictment and conviction. Counsel’s letters and attachments sent to the Court and dated June 16, July 28 and August 3, 1988 establish that the New York Times, the New York Daily News and the Gannett Westchester Newspapers all carried on July 9, 1981 prominent and detailed accounts of the federal indictment in Manhattan of Gordon and Wagner, explicitly named, in connection with tax fraud arising out of their operation of tax shelters involving motion picture properties. The Daily News account actually mentioned The Romantic Englishwoman, the specific film in which these plaintiffs invested. On May 27, 1982 New York News-day, the New York Post, and the New York Daily News, and on May 28, 1982 the Wall Street Journal all carried prominent and detailed accounts of the conviction of Gordon and Wagner, and two others who had played prominent roles in the tax shelter operation. It is not disputed that within a ten month period from July 9, 1981 to May 27, 1982 the defendants’ indictment and conviction were in general circulation in the press, in six area newspapers, two of which are national newspapers. Furthermore, plaintiffs Ralph and Paul Zola have admitted in depositions that they regularly read The New York Times and have occasionally read The Wall Street Journal. Publicity on a less significant scale than this has been held to be an adequate predicate for imputing constructive knowledge to fraud claimants and starting the running of a statute of limitation. Gluck v. Amicor Inc., 487 F.Supp. 608 (S.D.N.Y.1980). Accordingly, the Court concludes that plaintiffs had constructive knowledge of the asserted fraud more than four years prior to June 18, 1986, the date on which the suit herein was filed. As the only claim against defendant Wagner, the sixth cause of action based upon RICO, therefore is time-barred, Defendant Wagner is granted summary judgment on this claim. III. Gordon’s motion Defendant Gordon seeks dismissal of the first cause of action in the second amended complaint, which asserts that defendants converted and appropriated to their own use partnership assets. The Court had in its April 25, 1988 opinion and order dismissed the claim because the status of the partnership had not been pleaded, which the Court held was a necessary predicate for properly pleading a claim of misappropriation of partnership assets. The amended claim asserts that “the partnership business has been concluded,” Second Amended Complaint, p. 2, para. 10. This is sufficient, as a matter of pleading, to sustain the cause of action as one of misappropriation, and defeat the motion to dismiss for failure to state a claim upon which relief can be granted. As with much else in the submissions of counsel in this case, the papers on this motion are not so disciplined, focused, thor 71 ough or sufficiently attentive to theory and authority. In fact, counsel treat this motion as if it were for summary judgment. They then proceed to submit hearsay, personal invective and self-serving affidavits that leave more questions unanswered than answered. On this dubious and inadequate record, it is clear that summary judgment on the claim is not warranted. Whether Arlington Properties has ceased to conduct partnership business is a material issue of fact very much in dispute. Accordingly, Gordon’s motion herein, is denied. His motion for sanctions made in connection with this motion, is also denied. Counsel for both sides may wish to inform themselves of the Court’s sanctions ruling in Burger v. Health Insurance Plan, 684 F.Supp. 46 (S.D.N.Y.1988), before proceeding further in this action. IV. Consolidation motion There appearing to be no opposition to plaintiffs’ motion to consolidate Zola, et al. v. Glantz, 88 Civ. 4036 (KC) with this action, and as consolidation will serve the interests of justice, the motion is granted. SO ORDERED.	LIMITED_OR_DISTINGUISHED
722 F.2d 1471	146 F.3d 242	D	George Day Construction Co., Inc. v. United Brotherhood of Carpenters and Joiners of America, Local 354	DENNIS, Circuit Judge: This arbitration-related case arises from an original dispute over whether General Motors Corporation (“GMC”), as a lessee, owes its lessor, Pamela Equities Corporation (“PEC”), damages for failure to return leased premises in good condition. The parties agree that the original dispute is subject to arbitration under an arbitration clause in the lease contract; and that PEC timely called for arbitration of the original dispute and appointed its arbitrator. This appeal involves further disputes over (1) whether GMC waived its right to appoint its arbitrator by its failure to name him within the period allowed by the arbitration clause so that arbitration must proceed before PEC’s arbitrator and an umpire selected by him; and (2) whether GMC and PEC 245 agreed to submit that dispute regarding the appointment of the GMC arbitrator and the composition of the arbitration panel to PEC’s arbitrator for arbitration. I. BACKGROUND This ease arises under an arbitration clause in a lease agreement between appellant-lessee GMC and appellee-lessor PEC. 1 Article VIII of the lease, entitled “Arbitration,” sets forth the scope of the parties’ agreement to arbitrate: In case any differences arise between the Lessor and the Lessee regarding the true meaning and intent of any of the terms and provisions of this lease or if any dispute should arise between them regarding the performance or nonperformance by either of them of any of the terms, covenants and conditions hereof, or if any claim is made by either of them that the other is in default by reason of the non-performance of any act provided for hereunder, then, and in any of such events, the matter in dispute, whether the same be the performance of an act, the forbearance of an act, or the payment of money, shall be submitted to arbitration.... Section 8.01 of the arbitration provision establishes the method of selecting arbitrators: (a) The party desiring arbitration shall notify the other party, specifying the dispute and appointing an individual as its arbitrator. Within fifteen (15) days thereafter the other party shall appoint an individual as its arbitrator and shall notify the original party thereof, and failing to appoint such an arbitrator, such party shall be bound by the determination of the arbitrator appointed by the party demanding arbitration, both as to the selection of an umpire and the award to be made in the arbitration proceedings; (b) The arbitrators so appointed by each of the parties, or if the party against whom arbitration is demanded shall fail to appoint an arbitrator, then the arbitrator appointed by the party demanding arbitration, shall within ten (10) days thereafter appoint a disinterested individual who shall act as umpire; In October 1994, GMC notified PEC that it intended to terminate the lease effective August 31,1995. Thereafter, the parties had an on-going dispute concerning GMC’s liability for alleged damage to the leased premises. On August 28, 1996, in accordance with the notice requirements of the lease, PEC sent duplicate certified letters to GMC’s unnamed “Executive in Charge of Real Estate,” and to G.E. Gilliken (“Gilliken”), the GMC property manager who had been negotiating the lease dispute with PEC. After describing in detail the nature of the dispute (also required by the terms of the lease), in the last paragraph of the letter, PEC advised GMC that it was electing to settle the dispute through arbitration, and that it had selected as its arbitrator Stephen H. Kupperman (“Kupperman”). On August 30,1996, an unknown GMC representative signed a return receipt acknowledging receipt of PEC’s arbitration demand letter. However, Gilliken was on vacation when GMC received the letter, and he did not see the letter until he returned to work on September 18,1996. By letter of September 25, 1996, GMC’s attorney, Andrew S. Conway (“Conway”), notified PEC that CMC had appointed Judge George N. Bashara, Jr. (“Bashara”) as its arbitrator. On October 2, 1996, PEC’s arbitrator, Kupperman, wrote GMC that it had waived its right to appoint an arbitrator because GMC had not done so within the requisite fifteen days. Therefore, Kupperman said, he would appoint an umpire pursuant to the arbitration clause and proceed with arbitration. In this letter, Kupperman specifically requested that GMC inform him whether it disagreed with his “understanding” that GMC had waived its right by not appointing its arbitrator timely. Kupperman appointed as the “disinterested” umpire Campbell C. Hutchinson (“Hutchinson”), his own law partner. On October 24, 1996, by letter to Kupper-man, Conway made a “formal request” that 246 GMC’s appointment of Bashara as the second arbitrator be honored on the grounds that: (1) the nine-day period of delay was insignificant under the circumstances; (2) PEC’s request for arbitration did not satisfy the lease’s notice requirements; and (3) PEC suffered no palpable prejudice resulting from the delay. In this letter to PEC’s arbitrator, GMC’s counsel “respectfully requested] the arbitrator to recognize” the selection of Bashara, closing the letter with the phrase “Respectfully submitted.” In November 1996, Kupperman advised Conway by letter that he had reviewed GMC’s “submissions” regarding the selection of a second arbitrator and had concluded that GMC’s attempt to appoint Bashara was untimely, was not permitted under the lease, and that the arbitration would proceed with Kupperman as the single arbitrator and Hutchinson as the umpire. In December 1996, GMC filed a Motion to Appoint Arbitrators and a Disinterested Umpire pursuant to the pre-arbitration provisions of the Federal Arbitration Act, 9 U.S.C. §§ 4 and 5. In its motion, GMC asked the district court for an order compelling the arbitration to proceed in “a fair and impartial manner,” and allowing GMC’s arbitrator to serve on the panel, along with a disinterested umpire to be selected by the two party-appointed arbitrators. The district court denied GMC’s motion, finding that GMC had impliedly agreed to submit to Kupperman the issue of whether GMC’s appointment of its arbitrator was valid. The court also found that GMC had waived its right to judicial review of Kupperman’s decision by not expressly reserving this right. Finally, addressing the merits of Kupperman’s decision, the court concluded that it was reasonable and should not be upset. Thereafter, the district court granted GMC’s motion to stay the arbitration pending disposition of this appeal. II. STANDARD OF REVIEW A court of appeals’ review of a district court decision upholding an arbitration decision on the ground that the parties agreed to submit their dispute to arbitration should proceed like review of any other district court decision finding an agreement between parties, i.e., accepting findings of fact that are not “clearly erroneous” but deciding questions of law de novo. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 1925-26, 131 L.Ed.2d 985 (1995); F.C. Schaffer & Assocs., Inc. v. Demech Contractors, Ltd., 101 F.3d 40, 43 (5th Cir.1996). III. GENERAL PRINCIPLES Arbitration is the reference of a particular dispute to an impartial third person chosen by the parties to a dispute who agree, in advance, to abide by the arbitrator’s award issued after a hearing at which both parties have an opportunity to be heard. Rodolphe J.A. de Seife, Practice Guide § 3.02, in Gabriel M. WilneR, 2 Domke On Commercial Arbitration (Rev. ed. 1997) (citing Blaok’s Law Dictionary (5th ed. 1979); The Plain Language Law Dictionary (Rothenberg, ed. 1981); DICTIONARY of Law (Coughlin, ed. 1982); Britton, The Arbitration Guide, (1982)). See also La.Civ.Code art. 3099. Parties may agree to the submission to arbitration of existing controversies without any previous contract to do so. Executone Info. Systems, Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir.1994). Parties may also agree upon the use of arbitration at the commencement of a contractual relationship to settle future disputes by including an arbitration clause in their contract. 1 Domke, supra § 1:01, at 2. When the parties have entered a contract to arbitrate future disputes, the scope of authority of the arbitrator is not always controlled by that contract alone. Piggly Wiggly Operators’ Warehouse, Inc. v. Piggly Wiggly Operators’ Warehouse Independent Truck Drivers Union, 611 F.2d 580, 583 (5th Cir.1980). The arbitration contract is in essence a promise to arbitrate a category of future disagreements. Id. When such a dispute arises, in order for arbitration to actually proceed, the parties must supplement the contract with an agreement defining the issue to be submitted to the arbitrator(s) and by explicitly giving the arbitrators) authority to act. Id. 247 When the parties to a disagreement have not entered a pre-dispute arbitration contract, in order for arbitration to take place, they must agree to submit their existing controversy to the arbitrator(s), named by the parties or persons authorized to do so by them, for binding arbitration. 1 Domke, supra § 1.01, at 1-2; Tom Cakbonneau, CASES AND MATERIALS ON COMMERCIAL ARBITRATION 17 (1997). Consequently, voluntary arbitration cannot occur, regardless of whether the parties have entered a pre-dispute contract to arbitrate, unless the parties to the dispute enter a post-dispute agreement to submit the dispute as defined by them to the particular arbitrator(s) they name or authorize to be designated. Piggly Wiggly, 611 F.2d at 583. Unless required by statute, a person who is not a party to a pre-dispute contract to arbitrate cannot be compelled to submit a dispute to arbitration. United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960). A party to a contract to arbitrate prospective disputes, however, may be compelled by a court to submit a post-contract dispute to arbitration if the arbitration contract requires him to do so. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 1241, 84 L.Ed.2d 158 (1985); Federal Arbitration Act, 9 U.S.C.A. § 4 (West 1970). Whether the contract so requires is a question of contract interpretation for the courts, unless the parties have clearly and unmistakably agreed that even that issue shall be submitted to binding arbitration. Piggly Wiggly, 611 F.2d at 583-84 (citing Warrior & Gulf, 363 U.S. at 583 n. 7, 80 S.Ct. at 1353 n. 7). As the Supreme Court, in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), recently stated: “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” Id. at 944, 115 S.Ct. at 1924 (quoting AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986)). Thus, the Court explained, “the law treats silence or ambiguity about the question ‘who (primarily) should decide arbitrability’ differently from the way it treats silence or ambiguity about the question ‘whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement!;.]’ ” Id. at 944-45, 115 S.Ct. at 1924-25. IV. DISCUSSION In the district court, GMC moved to compel PEC to submit their original dispute over GMC’s alleged breach of the lease contract to arbitration by a three-member arbitration panel, composed of an arbitrator named by each party and a disinterested umpire selected by the arbitrators. In support of its motion, GMC argued, in effect, that PEC unjustifiably had refused to arbitrate under the contract by denying the authority of GMC’s arbitrator and demanding that GMC submit the original issue to the PEC arbitrator, Kupperman, and an umpire named by him. GMC contended that it had not waived its right under the contract by appointing Judge Bashara as its arbitrator nine days late because PEC did not give GMC adequate notice, and GMC’s slight delay was inadvertent and not prejudicial to PEC. GMC relies on court decisions concluding that one party has not waived its right to a three-member arbitration panel when a time-specific waiver clause had expired under such circumstances. See, e.g., Texas E. Transmission Corp. v. Barnard, 285 F.2d 536 (6th Cir.1960); New England Reinsurance Corp. v. Tennessee Ins. Co., 780 F.Supp. 73 (D.Mass.1991); Compania Portorafti Commercial, S.A. v. Kaiser Int’l Corp., 616 F.Supp. 236 (S.D.N.Y.1985); Trade Arbed, Inc. v. S/S Ellispontos, 482 F.Supp. 991 (S.D.Tex.1980). PEC opposed GMC’s motion, contending that the parties had agreed to submit to Kupperman, PEC’s arbitrator, their dispute over the appointment of GMC’s arbitrator and the composition of the arbitration panel. Accordingly, PEC contended, GMC was bound by Kupperman’s decisions that GMC had submitted the composition of arbitration panel issue to him for decision, that GMC had acted untimely, thereby waiving its right to appoint an arbitrator, and that the parties 248 must proceed to arbitrate the original breach of lease dispute before a two-member arbitration panel, i.e., Kupperman and the umpire selected by him. In the alternative, PEC urged the court to decide the merits of the waiver issue in its favor, relying on court cases holding that similar arbitration contract clauses should be enforced as written to require forfeiture of a party’s arbitrator appointment for untimeliness. See, e.g., Universal Reinsurance Corp. v. Allstate Ins. Co., 16 F.3d 125 (7th Cir.1993); City of Aurora, Colo. v. Classic Syndicate, Inc., 946 F.Supp. 601 (N.D.Ill.1996); Evanston Ins. Co. v. Gerling Global Reinsurance Corp., No. 90 C 3919, 1990 WL 141442 (N.D.Ill. Sept. 24, 1990). The district court found that the parties had submitted to Kupperman their dispute over the composition of the arbitration panel and deferentially upheld as “eminently reasonable” Kupperman’s arbitral decision to proceed with arbitration before himself and his selected umpire. GMC appealed. The district court stayed arbitration pending GMC’s appeal. In this court, the parties present essentially the same arguments that they did in the district court. We conclude that GMC’s appeal raises two questions: (1) whether GMC agreed to submit to Kupperman, the PEC arbitrator, the question of GMC’s alleged waiver of its right to appoint an arbitrator so that arbitration must proceed before a- two-member panel consisting of Kupperman and his selected umpire; and, if not, (2) whether that dispute should be decided on the merits by the courts or is, instead, a dispute, separate from the original dispute, that is arbitra-ble under the arbitration contract, so that each party should be afforded an opportunity to choose whether to have it submitted to a separate three-member arbitration panel or to waive the right to arbitrate that issue and submit it to the district court for decision. (1) The question of whether an arbitrator has the power to arbitrate a dispute depends on whether the parties to the dispute agreed to submit the question to that arbitrator for decision. If the dispute includes an issue as to the scope of the arbitrator’s authority, courts should not assume or conclude that the parties agreed to submit the question of the scope of the arbitrator’s own authority to that arbitrator unless there is “clear and unmistakable evidence” that they did so. These principles, including the “clear and unmistakable evidence” standard, are derived from First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924,131 L.Ed.2d 985 (1995), and its progenitors, viz., AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). First Options was a case in which the parties to the pertinent dispute had not entered a contract to arbitrate future controversies, whereas in AT & T and Warrior & Gulf the parties had confected predispute arbitration agreements. From the salient features of the cases, and the Court’s observations, we conclude that the “clear and unmistakable evidence” standard applies whenever one party to a dispute contends that the other party agreed to submit to an arbitrator the question of whether that arbitrator has been authorized to- resolve the merits of their dispute, regardless of whether the parties have entered a pre-dispute arbitration contract.' For example, in First Options, the Court articulated the basic principle that “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” 514 U.S. at 944, 115 S.Ct. at 1924 (citing AT & T, 475 U.S. at 649, 106 S.Ct. at 1418; Warrior & Gulf, 363 U.S. at 583 n. 7, 80 S.Ct. at 1353 n. 7). In this respect, the' Court indicated, the law creates a presumption that the parties did- not agree to submit any question as to the arbitrator’s own power to that very same arbitrator. Id. Consequently, any silence, ambiguity or doubts about this question should be resolved in favor of concluding that the parties did not agree to submit the issue to the arbitrator. Id. at 944-45, 115 S.Ct. at 1924-25. 249 The Court, in First Options, explained the underlying reasons for the presumption against an arbitrator having the power to decide the scope of his own power: [T]he “who (primarily) should decide arbi-trability” question [] is rather arcane. A party often might not focus upon that question or upon the significance of having arbitrators decide the scope of their own powers. And, given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, one can understand why courts might hesitate to interpret silence or ambiguity on the “who should decide arbitrability” point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide. Id. at 945, 115 S.Ct. at 1925 (internal citations omitted). These principles are not new. [T]he question of arbitrability — whether a[n]... agreement creates a duty for the parties to arbitrate the particular grievance — is undeniably an issue for judicial determination. Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator. AT & T, 475 U.S. at 649, 106 S.Ct. at 1418. In an earlier arbitration decision, the( Supreme Court declared: [T]he question of arbitrability is for the courts to decide. Where the assertion by the claimant is that the parties excluded from court determination not merely the decision of the merits of the grievance but also the question of its arbitrability, vesting power to make both decisions in the arbitrator, the claimant must bear the burden of a clear demonstration of that purpose. Warrior & Gulf, 863 U.S. at 588 n. 7, 80 S.Ct. at 1353 n. 7 (internal citation omitted). The Court’s holdings and observations demonstrate that when a party to a dispute contends that he and the other disputant agreed to submit to a third person the question of whether that arbitrator had authority to arbitrate their dispute, that party must bear the burden of demonstrating clearly and unmistakably that the parties agreed to have the arbitrator decide that threshold question of arbitrability. On the record before us, PEC cannot show that GMC clearly and unmistakably agreed to submit to Kupperman the dispute over GMC’s appointment of its arbitrator and the composition of the arbitration panel, thus granting Kupperman authority to determine the scope of his own arbitral powers. The arbitration clause in the lease contract does not clearly and unmistakably grant Kupperman the authority to decide the scope of his own powers. PEC correctly does not so contend but, instead, relies on correspondence and conduct of the parties to show that they agreed to submit to Kupperman the questions relating to the arbitrators’ powers. This evidence is filled with doubts, created by silence and ambiguities, which must be resolved against finding an agreement by GMC to submit to Kupperman the questions as to the existence and scope of the arbitrators’ powers. PEC relies primarily on a letter from one of GMC’s attorneys to Kupperman dated October 24, 1996 making a “formal request to honor the selection by GM to appoint as a second arbitrator, Judge George N. Bashara, Jr.” After stating the facts and contract provisions that he believed required the recognition of Judge Bashara as the second arbitrator, the attorney closed as follows: In conclusion, GM respectfully requests the arbitrator to recognize the selection by GM of Judge Bashara as a duly appointed arbitrator in this matter because the period of the delay is insignificant coupled with the facts and circumstances surrounding the delay, because the request for arbitration failed to meet the notice requirements of the Lease, and because there has been no palpable prejudice suffered by PE. Respectfully submitted, Andrew S. Conway Further, PEC points to the fact that GMC did not expressly state that it objected to 250 Kupperman deciding the questions bearing on the authority of the arbitrators and the composition of the panel or expressly reserve its right to judicial review of Kupperman’s decision. On the other hand, at the hearing on GMC’s motion, Kupperman admitted that GMC never conceded its right to judicially challenge Kupperman’s assertion of exclusive arbitral powers. In fact, Kupperman testified that Conway, GMC’s counsel, never told him that GMC agreed to be bound by Kup-perman’s decision on the question of the timeliness of GMC’s appointment of Bashara. Kupperman also admitted that he always assumed that GMC would be opposed to his serving as the sole arbitrator of their dispute. None of GMC’s correspondence actually states that it agreed for Kupperman to act as a single arbitrator or that it was submitting the dispute to him. None of GMC’s actions and correspondence clearly and unambiguously indicate an intention to submit any dispute to Kupperman for arbitration. They reasonably may be interpreted as GMC’s attempt amicably to persuade Kupperman and PEC, who appointed him, that they should in good faith recognize Bashara as the second arbitrator to facilitate the parties’ fair and expeditious arbitration of their original dispute before a three-member panel. “[M]erely arguing the arbitrability issue to an arbitrator does not indicate a clear willingness to arbitrate that issue, i.e., a willingness to be effectively bound by the arbitrator’s decision on that point.” First Options, 514 U.S. at 946, 115 S.Ct. at 1925. Conway’s use of the terms “arbitrator,” “respectfully submitted” and “formally requests” in correspondence with Kupperman may reasonably be interpreted to be expressions of courtesy and respect toward Kupperman as one potential member of a three-member arbitration panel rather than as language of arbitral submission of a question to him as the sole arbitrator. The use of such terms does not constitute clear and unmistakable evidence of GMC’s agreement to grant Kupperman the authority to decide whether GMC waived its right to appoint an arbitrator and thereby grant Kupperman the exclusive power to act as arbitrator in selecting an umpire and arbitrating the original breach of lease dispute. Accordingly, we conclude that the evidence is insufficient to support a finding that GMC clearly and unmistakably agreed to submit to Kupperman the question of the scope of his own power as arbitrator. Consequently, we set aside Kupperman’s decisions and vacate the district court’s ruling insofar as it upholds them. The district court reached the opposite conclusion because it did not apply the First Options presumption against the finding of an agreement to arbitrate arbitral authority or, in other words, the First Options requirement that such agreements be proved by clear and unmistakable evidence. The district court, in effect, reversed the presumption, finding that GMC consented to submit the issue of timeliness to Kupperman on the basis of merely ambiguous evidence, viz., Conway’s discussion of a briefing schedule with Kupperman, the lack of an express reservation of GMC’s right to seek judicial review of the timeliness issue, the lack of express objection to Kupperman as a sole arbitrator, and the language and tone of Conway’s October 24 letter, which the court found reflected deference to Kupperman as a decision maker. Because all of the evidence as a whole does not clearly and unmistakably demonstrate an agreement to submit the dispute over arbitral powers to Kupperman as sole arbitrator, GMC’s failure to expressly object or reserve a right to judicial review is consistent with its lack of consent to such arbitration in the first place. The district court may have been misled by its reliance on George Day Constr. Co. v. United Bhd. of Carpenters and Joiners, 722 F.2d 1471 (9th Cir.1984), which stands principally for the proposition that a claimant may not voluntarily submit his claim to arbitration, await the outcome, and, if the decision is unfavorable, then challenge the authority of the arbitrator to act. The George Day case is not an appropriate precedent for use in deciding the present case for several reasons. In George Day, the crucial issue was not whether the employer had submitted the question of arbitral authority to the arbitra 251 tor but whether, after doing so, it had reserved that question for judicial determination. The George Day court summarily found that “the merits of the dispute along with the question of jurisdiction were fully addressed by the parties during the arbitration proceeding and, at its conclusion, the entire controversy was submitted to the arbitrator for decision.” Id. at 1475. George Day was decided before First Options clearly articulated the principle that an agreement to submit the question of arbitral authority to the arbitrator must be demonstrated by “clear and unmistakable evidence.” Because George Day does not set forth in great detail the evidence from which it concluded that the employer “by conduct evinced clearly its intent to allow the arbitrator to decide not only the merits of the dispute but also the question of arbitrability[,]” id., we cannot determine whether the same result should have been reached under the First Options “clear and unmistakable evidence” standard. Evidently, however, the evidence tending to show George Day’s intention to submit the arbitral authority issue to the arbitrator was much stronger and less ambiguous than any evidence that GMC intended to do so. In any event, First Options and not George Day governs the decision of the present case. (2) Although the district court should not have upheld Kupperman’s arbitral decision, this does not necessarily mean that the district court or this court should immediately proceed to decide whether GMC’s appointment of an arbitrator was timely and whether arbitration of the original dispute should proceed before a two- or three-member arbitration panel. The dispute between the parties involving the authority vel non of GMC’s arbitrator and the scope of authority of PEC’s arbitrator is a separate dispute that is arbitrable under the parties’ pre-dispute arbitration contract, provided that no arbitrator is called upon to decide the scope or existence of his or her own arbitral authority. Because arbitration is favored by public policy and the courts as a means of removing disputes from litigation, Hartford Lloyd’s Ins. Co. v. Teachworth, 898 F.2d 1058, 1061 (5th Cir.1990); Seaboard Coast Line R.R. v. National Rail Passenger Corp., 554 F.2d 657, 660 (5th Cir.1977), we conclude that the parties should be allowed to either arbitrate that dispute before a new arbitration panel or waive their rights to such arbitration and resort to the courts. The parties’ arbitration contract clause provides, in pertinent part, that if any dispute should arise between the parties regarding the performance or nonperformance by either of them of any of the terms, con-venants and conditions of the agreement, or if any claim is made by either of them that the other is in default by reason of the nonperformance of any act provided for in the agreement, then the matter in dispute shall be submitted to arbitration. The question of arbitrability is to be decided by the court on the basis of the contract entered into by the parties. Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir.1984). A presumption of arbitrability exists requiring that whenever the scope of an arbitration clause is fairly debatable or reasonably in doubt, the court should decide the question of construction in favor of arbitration. MarLen of La., Inc. v. Parsons-Gilbane, 773 F.2d 633, 635-36 (5th Cir.1985) (citing Warrior & Gulf, 363 U.S. at 583, 80 S.Ct. at 1353). The weight of this presumption is heavy: “[Arbitration should not be denied ‘unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation that could cover the dispute at issue.’ ” Id. at 636 (quoting Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979)). Applying these principles, we conclude that the parties’ arbitration clause is reasonably susceptible to the interpretation that their dispute is arbitrable before a separate panel of arbitrators who are not called upon to decide the existence or scope of their own arbitral powers. 2 See, e.g., Carter v. Cathe 252 dral Ave. Coop., Inc., 658 A.2d 1047, 1050 (D.C.App.1995) (holding that the trial court correctly determined that the issue whether a tenant waived its right to have its rent dispute resolved before a three-member arbitration panel by failing to name its arbitrator within the stipulated period is an issue to be resolved by a panel of three arbitrators). The resolution of this dispute by a separate three-member arbitration panel is consistent with the parties’ agreement and the policy favoring arbitration. Because the new arbitrators will not be called upon to decide the scope of their own powers, we need not find that the arbitration clause clearly and unmistakably authorizes arbitration of the dispute before a separate panel. It is only required that we find, as we do, that the arbitration clause reasonably encompasses the dispute and authorizes its submission to a separate panel of arbitrators appointed in accordance with the parties’ contract. Accordingly, under the terms of the arbitration contract, each party should be given an opportunity to institute an independent, new arbitration proceeding to resolve this separate dispute. On the other hand, if the parties should choose in the interest of time and efficiency to waive their rights to arbitrate this separate dispute and submit the questions involving the authority of GMC’s arbitrator and the scope of authority of PEC’s arbitrator to the district court for decision, we see no impediment to their doing so. For the reasons assigned, the district court’s judgment is VACATED, but its STAY ORDER IS MAINTAINED staying the arbitration proceedings pending the district court’s further orders. The case is REMANDED to the district court for further proceedings in accordance with this opinion. 1. Although not a party to the original 1955 lease agreement with GMC, PEC became lessor, by assignment from the original lessor, Massachusetts Mutual Life Insurance Company. 2. The parties’ controversy involving the existence or scope of their arbitrators’ authority is a genuine, good faith dispute. It depends ultimately upon the question of whether an untimely appointment of an arbitrator under an arbitration contract clause such as the one in the present *252 case causes the party who acted tardily to forfeit his right to appoint an arbitrator. This is a question upon which reasonable judicial minds have reached conflicting conclusions under varying circumstances. Compare Universal Reinsurance Corp. v. Allstate Ins. Co., 16 F.3d 125 (7th Cir.1993) with Texas E. Transmission Corp. v. Barnard, 285 F.2d 536 (6th Cir.1960).	LIMITED_OR_DISTINGUISHED
722 F.2d 1471	898 F.2d 1136	D	George Day Construction Co., Inc. v. United Brotherhood of Carpenters and Joiners of America, Local 354	MILBURN, Circuit Judge. Plaintiff-appellant Vic Wertz Distributing Company appeals the district court’s summary judgment enforcing an arbitration award for Teamsters Local 1038 and dismissing Wertz’s action challenging the arbitration award. For the reasons that follow, we affirm. I. On November 1,1983, Local 1038 entered into a collective bargaining agreement with the Macomb County Beer Distributors, a multi-employer association of which Wertz was a member. The collective bargaining agreement was to expire on May 1, 1987, and in February 1987, Local 1038 entered into negotiations for a successor agreement with the Downriver, Detroit, Oakland, and Macomb Beer Distributors Association (“DDOM”), the successor multi-employer association of which Wertz was a member. The parties were unable to reach a new agreement by May 1, and agreed to continue negotiations and extend the 1983-87 agreement, subject to the right of either party to revoke the extension upon forty-eight hours written notice to the other party. The extended agreement expired on May 29, 1987, after DDOM gave the required notice to Local 1038. On June 1, 1987, DDOM implemented its final offer, and on June 3, 1987, the membership of Local 1038 rejected the final offer. On June 5, 1987, DDOM members began a lockout of their employees, which continued until August 17, 1987, when a new collective bargaining agreement was ratified. Under the 1983-87 agreement, employees with twenty-three years of credited service were entitled to seven weeks paid vacation.1 On October 17, 1987, Wertz gave written notice to two of its employees, Bernard Thomas and Charles Darling, that they would receive only six weeks paid vacation under the new agreement. On October 20 and 21, 1987, Thomas and Darling filed grievances claiming that they were entitled to the seventh week of paid vacation because they arrived at their twenty-third anniversary dates in June 1987, prior to the effective date of the new agreement. 1138On July 7, 1988, a hearing on the grievances was held before an arbitrator. The parties presented evidence and testimony on the issue of arbitrability and on the merits of the grievances. Local 1038 argued that both grievants became eligible for a seventh week of paid vacation prior to expiration of the 1983-87 agreement by satisfying Section 8.8 of the agreement, which requires an employee to work forty-two or more days to “earn credit for a year of service for vacation purposes.” Wertz argued that the grievances were not arbi-trable because the 1983-87 agreement had expired and because the grievances were not timely filed. Furthermore, Wertz asserted that even if the grievances were arbitrable, the 1983-87 agreement expired prior to the grievants’ attaining vested rights in a seventh week of paid vacation. On October 10, 1988, the arbitrator issued his opinion and award, finding that the grievances were arbitrable, and that Thomas and Darling were entitled to the seventh week of paid vacation. The arbitrator concluded that the broad grievance and arbitration language of the 1983-87 agreement made the grievances arbitrable. The arbitrator also found that the grievances were timely filed because the event which created the claimed grievances occurred on October 17, 1987, when Wertz notified the grievants that they would not be entitled to the seventh week of paid vacation, and the grievances were filed within seven days “of the event which created the claimed grievance,” as required by Section 17.2 of the agreement.2 Regarding entitlement to the seventh week of vacation, the arbitrator observed “that little more than the work requirement for vacation credit is clearly set forth as a vacation eligibility requirement.” Arbitrator’s Opinion and Award at 18. However, the arbitrator also noted “that length of paid vacation is stated on the basis of years of credited service.” Id. The arbitrator concluded “that Section 8.1(a) is ambiguous as to the point where years of credited service and length of paid vacation intersect.” Id. Relying on the contract construction principle that forfeitures should be avoided where possible, the arbitrator determined that the grievants were entitled to the seventh week of paid vacation in 1987. Id. at 19-20. Wertz filed the present action on November 15, 1988, seeking to vacate the arbitrator’s award, alleging that the arbitrator exceeded his authority by finding the grievances arbitrable and that the award disregarded the express language of the collective bargaining agreement. On December 8, 1988, Local 1038 filed its answer and a counterclaim for enforcement of the arbitration award. On January 17,1989, Wertz moved for summary judgment, and on February 21, 1989, Local 1038 filed a cross-motion for summary judgment and a request for sanctions pursuant to Federal Rule of Civil Procedure 11. On April 20, 1989, after hearing oral argument, the district judge rendered a decision from the bench denying Wertz’s motion for summary judgment and granting Local 1038’s cross-motion for enforcement of the award, but he did not address the request for Rule 11 sanctions. A judgment was entered on May 5, 1989, dismissing Wertz’s action and granting Local 1038’s counterclaim for enforcement of the award. This timely appeal followed, and Local 1038 has filed a motion for double costs and sanctions pursuant to Federal Rule of Appellate Procedure 38. The principal issues on appeal are (1) whether the grievances are arbitrable, (2) whether the arbitration award draws its essence from the collective bargaining agreement, and (3) whether double costs and sanctions pursuant to Rule 38 should be imposed. II. Summary judgment is appropriate where “there is no genuine issue as to any materi1139al fact... and the moving party is entitled to a judgment as a matter of law.” Fed.R. Civ.P. 56. We review a grant of summary judgment de novo, Pinney Dock & Transport Co. v. Penn Cent. Corp., 838 F.2d 1445, 1472 (6th Cir.), cert. denied, — U.S. -, 109 S.Ct. 196, 102 L.Ed.2d 166 (1988), viewing all facts and inferences drawn therefrom in the light most favorable to the nonmoving party. 60 Ivy Street Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir.1987). Because the facts in this case are undisputed, one of the parties is entitled to judgment as a matter of law. Eberhard Foods, Inc. v. Handy, 868 F.2d 890, 891 (6th Cir.1989). A. The first issue we must address is what standard of review applies to an arbitrator’s decision on arbitrability. The Supreme Court has held that [t]he question of arbitrability — whether a collective-bargaining agreement creates a duty for the parties to arbitrate the particular grievance — is undeniably an issue for judicial determination. Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator. AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986). However, in the present case, the arbitrator has already rendered an opinion on the issue of arbitrability, and in Knollwood Cemetery v. United Steelworkers, 789 F.2d 367, 369 (6th Cir.1986) (per curiam), we held that an arbitrator’s decision on the issue of arbitra-bility was not subject to independent judicial review. In Knollwood, the parties entered into an agreement to arbitrate, and we rejected the appellant’s argument for an independent ruling on the arbitrability issue, holding that “the scope of the arbitrator’s authority is itself a question of contract interpretation that the parties have delegated to the arbitrator.” Id. (quoting W.R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 765, 103 S.Ct. 2177, 2183, 76 L.Ed.2d 298 (1983)). We added that “the presumption of authority that attaches to an arbitrator’s award applies with equal force to his decision that his award is within the submission.” Id. (quoting Johnston Boiler Co. v. Local Lodge No. 893, 753 F.2d 40, 43 (6th Cir.1985)). Because Knollwood was decided prior to the Supreme Court’s ruling in AT & T Technologies, we must determine if Knollwood remains good precedent. The ruling in AT & T Technologies that the issue of arbitrability is one for the courts and not the arbitrator merely restated a principle set forth by the Supreme Court in the Steelworkers Trilogy3 Thus, the principle of judicial determination of arbitrability was well established prior to our decision in Knollwood. See John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47, 84 S.Ct. 909, 912-13, 11 L.Ed.2d 898 (1964); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 82 S.Ct. 1318, 1320, 8 L.Ed.2d 462 (1962), overruled in part on other grounds, Boys Markets, Inc. v. Retail Clerk’s Union, Local 770, 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199 (1970). In another ease decided prior to AT & T Technologies, the Ninth Circuit noted the settled principle that courts usually decide the issue of arbitrability, yet it rendered a decision consistent with our ruling in Knollwood. See George Day Const. Co. v. United Bhd. of Carpenters, 722 F.2d 1471, 1474-76 (9th Cir.1984). In George Day, the parties addressed both the question of arbitrability and the merits of the dispute during the arbitration proceeding, and they submitted the entire controversy to the arbitrator for decision. Id. at 1475. The court concluded that the employer impliedly consented to the arbitrator’s deciding the question of arbitrability, and the court held that the arbitrator’s 1140decision on arbitrability was subject only to the deferential standard of review applied when reviewing the merits of an arbitration award. Id. at 1476. The ruling in George Day has been reaffirmed subsequent to the Supreme Court’s decision in AT & T Technologies. See Brotherhood of Teamsters Local No. 70 v. Interstate Distrib. Co., 832 F.2d 507, 510 (9th Cir.1987). In Local No. 70, the court observed that “[ujnder AT & T Technologies, the parties to a collective bargaining agreement are free to provide that an arbitrator shall decide the question whether they agreed to arbitrate a dispute_” Id. The court concluded that its decision in George Day was consistent with the ruling in AT & T Technologies because “where the parties ‘clearly and unmistakably provide otherwise,’ the general rule that courts must decide the question [of arbitrability] does not apply.” Id. Moreover, in another case decided after AT & T Technologies, the Third Circuit rendered a decision consistent with the rulings in Knollwood and George Day. In Pennsylvania Power Co. v. Local Union No. 272, 886 F.2d 46, 48 (3d Cir.1989), the parties submitted to arbitration both the issue of arbitrability and the merits of the grievance, and the court held: In considering the propriety of the arbitrator’s decision on arbitrability... our review is subject to the same highly deferential standard we employ in reviewing arbitrators’ rulings on the merits. We will not vacate an arbitrator’s arbitrability decision unless it cannot rationally be derived from the collective bargaining agreement. Id. Knollwood, George Day, and Pennsylvania Power are distinguishable from the typical case in which the issue of arbitrability arises because in these cases the parties submitted the issue of arbitrability to the arbitrator rather than reserving the question for initial determination by the court. The issue of arbitrability is typically raised initially in the district court by an action to compel or enjoin arbitration. George Day, 722 F.2d at 1476. “The question of arbitra-bility ‘is for the courts to decide,’ only because it is necessary for the courts to decide, when a party resists arbitration, whether the parties have agreed to submit the contested issue to an arbitrator for decision; this determination logically precedes the arbitration itself.” United Steelworkers v. Timken Co., 717 F.2d 1008, 1012 (6th Cir.1983). In the present case, the parties submitted the issue of arbitrability to the arbitrator rather than reserving the question for initial determination by the court. Agreement to have the arbitrator decide the issue of arbitrability “may be implied from the conduct of the parties in the arbitration setting.” George Day, 722 F.2d at 1475. Because the parties “clearly and unmistakably” submitted the issue of arbitrability to the arbitrator without reservation, we will review the arbitrator’s decision on arbitrability under the same deferential standard employed when reviewing an arbitrator’s ruling on the merits. Therefore, the arbitrator’s decision on arbitrability will be affirmed “unless it fails to ‘draw its essence from the collective bargaining agreement.’ ” Eberhard Foods, Inc. v. Handy, 868 F.2d 890, 891 (6th Cir.1989). The arbitrator’s decision on arbitrability draws its essence from the collective bargaining agreement. The arbitrator first noted the Supreme Court’s holding in Nolde Bros., Inc. v. Local 358, Bakery & Confectionary Workers Union, 430 U.S. 243, 97 S.Ct. 1067, 51 L.Ed.2d 300 (1977), that the obligation to arbitrate can survive the termination of a collective bargaining agreement and that a presumption of arbitrability applies unless negated expressly or by clear implication by the terms of the contract. The agreement in Nolde provided that “ ‘any grievance’ arising between the parties was subject to binding arbitration.” Id. at 245, 97 S.Ct. at 1068. The arbitrator compared the provision in Nolde with the language in section 18.1 of the 1983-87 agreement and concluded the arbi1141tration provisions were sufficiently similar to make the holding in Nolde applicable. Section 18.1 makes “[a]ll differences or misunderstandings” subject to grievance procedures and arbitration.4 Thus, the arbitrator concluded “it can fairly be said that the parties adopted broad grievance and arbitration language with the understanding that the effect would be to allow the assertion of claims based on substantive rights in the contract, even though the claim might be asserted following contract expiration.” Arbitrator’s Opinion and Award at 14. The arbitrator also addressed Wertz’s challenge to the timeliness of the grievances, and he concluded that the grievants complied with the contract by filing the grievances within seven days of the event which created the claimed grievance; i.e., notification by Wertz on October 17, 1987, that Thomas and Darling would not receive a seventh week of paid vacation. The arbitrator’s decision clearly resulted from his construction and interpretation of the collective bargaining agreement. “The arbitrator may not ignore the plain language of the contract; but the parties having authorized the arbitrator to give meaning to the language of the agreement, a court should not reject an award on the ground that the arbitrator misread the contract.” United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 371, 98 L.Ed.2d 286 (1987). “[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.” Id. Because the arbitrator was at least “arguably construing” the contract, his decision on arbitrability does draw its essence from the collective bargaining agreement, and we agree with his decision. B. Wertz next challenges the arbitrator’s award, arguing that it fails to draw its essence from the collective bargaining agreement. “The standard of review in arbitration cases is narrow.” Eberhard Foods, 868 F.2d at 891. “As long as the arbitrator’s award ‘draws its essence from the collective bargaining agreement,’ and is not merely ‘his own brand of industrial justice,’ the award is legitimate.” Misco, 108 S.Ct. at 370 (quoting Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S.Ct. 1358, 1361, 4 L.Ed.2d 1424 (1960)). “The courts are not authorized to reconsider the merits of an award even though the parties may allege that the award rests on errors of fact or on misinterpretation of the contract.” Id. In support of his challenge to the arbitrator’s award, Wertz cites Cement Divisions, National Gypsum Co. v. United Steelworkers, 793 F.2d 759, 766 (6th Cir.1986), in which we held: An award fails to derive its essence from the agreement when (1) an award conflicts with express terms of the collective bargaining agreement; (2) an award imposes additional requirements that are not expressly provided in the agreement; (3) an award is without rational support or cannot be rationally derived from the terms of the agreement; and (4) an award is based on general considerations of fairness and equity instead of the precise terms of the agreement. Id. (citations omitted). Wertz argues that the arbitrator’s award fails to derive its essence from the agreement in all four ways identified in National Gypsum. Wertz asserts that the award conflicts with express terms of the agreement, and that the arbitrator completely disregarded unambiguous language in the agreement which mandated a contrary result. Wertz 1142contends that while an arbitrator “may construe ambiguous contract language, he is without authority to disregard or modify plain and unambiguous provisions.” Detroit Coil v. International Ass’n of Machinists & Aerospace Workers, 594 F.2d 575, 579 (6th Cir.), cert. denied, 444 U.S. 840, 100 S.Ct. 79, 62 L.Ed.2d 52 (1979). Wertz argues that the arbitrator created an ambiguity where none existed and disregarded unambiguous language in Article 8 of the agreement which would have resolved the manufactured ambiguity. See Morgan Serv., Inc. v. Local 323, Chicago & Cent. States Joint Bd., 724 F.2d 1217 (6th Cir.1984); Grand Rapids Die Casting Corp. v. Local Union No. 159, UAW, 684 F.2d 413 (6th Cir.1982); Timken Co. v. Local Union No. 1123, United Steelworkers, 482 F.2d 1012 (6th Cir.1973). Specifically, Wertz maintains that the arbitrator ignored Sections 8.3, 8.6, 8.7 and 8.8.5 Wertz argues that these sections unambiguously establish that entitlement to a seventh week of paid vacation is conditioned upon reaching the end of the vacation year; i.e., the twenty-third anniversary date. Wertz notes that the term “vacation year” appears in several subsections of Article 8, further establishing that reaching the end of the vacation year is a condition precedent to determination of credited service for vacation benefits. Because neither grievant reached his twenty-third anniversary date prior to expiration of the 1983-87 agreement, Wertz argues that the condition precedent to eligibility was not satisfied and the grievants have no vested interest in a seventh week of vacation benefits. Wertz also argues that the award fails to draw its essence from the agreement because it is based on general considerations of fairness and equity rather than on the precise terms of the agreement. Wertz cites Local 342, UAW v. T.R.W., Inc., 402 F.2d 727 (6th Cir.1968), cert. denied, 395 U.S. 910, 89 S.Ct. 1742, 23 L.Ed.2d 223 (1969), in which we vacated an award because the arbitrator imposed a procedural requirement, on grounds of fundamental fairness, which was not contained in the agreement. Wertz asserts that the arbitrator’s decision in this case was based upon policies and prejudices external to the contract, as evidenced by the final sentence of the arbitrator’s opinion, in which he stated, “It appears clear that in the case at bar, denial of these grievances would work a greater hardship on the two involved employees, than would the granting of the grievances burden the Company.” Arbitrator’s Opinion and Award at 19. The arbitrator’s discussion of the merits focused primarily on only three provisions of Article 8. The arbitrator identified section 8.1(a) and section 8.6 as relevant provisions for consideration, and he also discussed the forty-two day work requirement for vacation credit found in section 8.8. The arbitrator observed “that little more than the work requirement for vacation credit is clearly set forth as a vacation eligibility requirement.” Arbitrator’s Opinion and Award at 18. The arbitrator also noted that “length of paid vacation is stated on the basis of years of credited service.” Id. He then concluded “that Section 8.1(a) is ambiguous as to the point where years of credited service and length of paid vacation intersect.” Id. Although the arbitrator did not identify and discuss each provision in Article 8, it does not appear that he disregarded plain and unambiguous provisions which would mandate a contrary result. The cases cited by Wertz in which an arbitrator’s award was vacated because he disregarded clear and unambiguous language are distinguishable because the provisions identified by Wertz are not so clear and unambiguous. See Grand Rapids, 684 F.2d at 415-16 (arbitrator’s decision vacated where it was based upon his disapproval of the disciplinary procedures in the collective bargaining agreement). No provision of Article 8 clearly requires an employee to reach his twenty-third anniversary date prior to having vested rights in a seventh week of paid 1143vacation. Wertz’s argument for consideration of other subsections in Article 8 amounts to a request for reinterpretation of the agreement, which we cannot do. Enterprise Wheel, 363 U.S. at 599, 80 S.Ct. at 1362. Although we might reach a different result were we to interpret the agreement, the arbitrator’s opinion reveals he was “arguably construing” the agreement. See Misco, 108 S.Ct. at 371. The final sentence of the arbitrator’s opinion could give the impression that the “award is based on general considerations of fairness and equity instead of the precise terms of the agreement.” National Gypsum, 793 F.2d at 766. However, when the arbitrator’s opinion on the merits is viewed in its entirety, this case is distinguishable from the award vacated in Local 342. In the present case, unlike Local 342, the arbitrator did not ignore plain language in the agreement, nor did he impose additional requirements not contained in the agreement. See Local 120 v. Brooks Foundry, Inc., 892 F.2d 1283, 1288 (6th Cir.1990). Rather, the arbitrator confronted two persuasive interpretations of the agreement, and he applied a rule of contract construction to conclude that the employees were entitled to the seventh week of vacation. Wertz argues that application of this contract construction principle was erroneous because the employees had no vested rights to forfeit. However, the ultimate issue before the arbitrator was whether the vacation benefit vested under the 1983-87 agreement. The arbitrator noted Wertz’s position that a seventh week of vacation benefits vested only if the employees met the precondition of their twenty-third anniversary dates prior to expiration of the 1983-87 agreement. However, the arbitrator concluded that only the forty-two day work requirement of Section 8.8 was “clearly set forth as a vacation eligibility requirement.” Arbitrator’s Opinion and Award at 18. Thus, the arbitrator apparently concluded that the seventh week of vacation benefits vested upon satisfaction of Section 8.8, and he rejected Wertz’s argument for an additional precondition by applying the contract construction principle that forfeitures should be avoided. Although the arbitrator’s opinion is somewhat ambiguous, that is no basis for vacating the award. “The Supreme Court has made it clear... that reviewing courts are not to vacate awards merely because an arbitrator’s reasoning could be interpreted in several ways, one of which would lead to the conclusion that the award does not draw its essence from the contract.” Industrial Mut. Ass’n v. Amalgamated Workers, Local 383, 725 F.2d 406, 410 (6th Cir.1984). In Enterprise Wheel, the Supreme Court held, “A mere ambiguity in the opinion accompanying an award, which permits the inference that the arbitrator may have exceeded his authority, is not a reason for refusing to enforce the award.” Enterprise Wheel, 363 U.S. at 598, 80 S.Ct. at 1361. Thus, the final sentence of the arbitrator’s opinion does not establish that the arbitrator dispensed his own brand of industrial justice. The opinion, read in its entirety, reveals an award which draws its essence from the agreement. C. Local 1038 has filed a motion for double costs and sanctions pursuant to Federal Rule of Appellate Procedure 38, which provides, “If a court of appeals shall determine that an appeal is frivolous, it may award just damages and single or double costs to the appellee.” We have held that an appeal is frivolous “if it is obviously without merit and is prosecuted for delay, harassment, or other improper purposes.” Dallo v. INS, 765 F.2d 581, 589 (6th Cir.1985). Local 1038’s motion for sanctions and double costs asserts that Wertz’s appeal is without justification under established law. Local 1038 argues that the appeal is frivolous in part because the Supreme Court has impressed “upon potential litigants the fact that barring exceptional circumstanc*1144es, one cannot prevail in an action to vacate an arbitration award.” Appellee’s Brief at 33 (emphasis in original). Local 1038 contends that the Supreme Court’s decision in Misco is directly dispositive of Wertz’s arguments on appeal and that Wertz’s failure to cite Misco demonstrates that the appeal is frivolous. Local 1038 primarily relies upon Hill v. Norfolk & Western R.R., 814 F.2d 1192, 1200, 1203 (7th Cir.1987), in which the court, on its own initiative, imposed sanctions under Rule 38 in an action challenging an arbitration board’s decision. In Hill, the appellant misrepresented the standard of judicial review of arbitration decisions, and the court imposed sanctions for the frivolous appeal despite the presence of one claim with “at least colorable merit.” Id. at 1200. This case is not one appropriate for imposition of Rule 38 sanctions. Wertz has acknowledged the limited scope of judicial review of arbitration decisions, and it has presented its argument for vacating the award within the narrow scope of review. Wertz’s failure to cite Misco does not make this appeal frivolous because Misco is not directly dispositive of the issues presented on appeal. Because this appeal has legal basis and is not “obviously without merit,” Local 1038’s motion for sanctions is denied. III. Accordingly, for the foregoing reasons, the district court’s award of summary judgment is AFFIRMED.. Article 8 of the 1983-87 collective bargaining agreement provides in relevant part: 8.1(a) Employees of the Delivery and Non Delivery divisions of the Delivery Department covered by this Agreement shall receive paid vacations to the extent earned, as follows: Years of Credited Service Length of Paid Vacation Granted if Fully Earned One One Week Two Two Weeks Five Three Weeks Eight Four Weeks Twelve Five Weeks Nineteen Six Weeks Twenty-Three Seven Weeks 8.3 An employee shall be entitled to his full vacation in accordance with the above schedule for each vacation year in which he earns twelve (12) months of credits for vacation pay. 8.6 An employee’s vacation year shall begin on the anniversary of the date on which his seniority begins. 8.7 Years of Credited Service for Vacation Purposes. An employee shall be credited with one year of service for vacation purposes at the end of his vacation year in which he completes one hundred and thirty (130) straight time days (Monday through Friday) of work from his seniority date as shown by the employer's records. 8.8 Subsequently, an employee shall earn credit for a year of service for vacation purposes for each of his vacation years in which he works forty-two (42) or more straight time days (Monday through Friday). No credit shall be earned for any vacation year in which less than forty-two (42) straight time days (Monday through Friday) are worked.. Section 17.2 provides: The grievance shall be presented to his supervisor within seven (7) calendar days of the event which created the claimed grievance, except that any disciplinary action, including discharge, shall be deemed final unless a written grievance is presented to the employer or his authorized representative within three (3) working days from the time notice of such disciplinary action is given.. Steelworkers v. American Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960); Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); and Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960).. Section 18.1 provides: All differences or misunderstandings which may arise shall be settled between the employer and the local union by regular grievance procedure, and if no adjustment satisfactory to both parties can be reached in this way, then the matter shall be settled by a Board of Arbitration constituted as hereinafter provided. When mutually agreed upon, disagreements over contract interpretation may be submitted to arbitration. A grievance by the union will not be required.. See footnote 1 for the text of these sections.	LIMITED_OR_DISTINGUISHED
722 F.2d 1471	795 F.2d 1400	D	George Day Construction Co., Inc. v. United Brotherhood of Carpenters and Joiners of America, Local 354	795 F.2d 1400 122 L.R.R.M. (BNA) 2993, 55 USLW 2087,105 Lab.Cas. P 12,012 CHAUFFEURS, TEAMSTERS AND HELPERS, LOCAL UNION 238, Appellant,v.C.R.S.T., INC. (sic), Appellee. No. 85-1301. United States Court of Appeals,Eighth Circuit. Submitted May 13, 1986.Decided July 16, 1986. Neil A. Barrick, Des Moines, Iowa, for appellant. Robert E. Konchar, Cedar Rapids, Iowa, for appellee. Before LAY, Chief Judge, HEANEY, ROSS, HENLEY, Senior Circuit Judge, and McMILLIAN, ARNOLD, JOHN R. GIBSON, FAGG, BOWMAN, WOLLMAN and MAGILL, Circuit Judges, en banc. HENLEY, Senior Circuit Judge. 1 Chauffeurs, Teamsters and Helpers, Local Union 238 (Union) sued CRST, Inc. (CRST) in Iowa State District Court based on 29 U.S.C. Sec. 185(a) because of its refusal to arbitrate a grievance filed by Jerry Ottaway, an employee and Union member. The case was removed by defendant's motion to the United States District Court for the Northern District of Iowa1 pursuant to 28 U.S.C. Sec. 1441. CRST then filed a motion for summary judgment. The district court granted this motion finding that no collective bargaining agreement requiring arbitration was in existence when the discharge occurred. 2 On appeal, a panel of this court reversed. Chauffeurs, Teamsters and Helpers, Local Union 238 v. C.R.S.T., Inc., 780 F.2d 379 (8th Cir.1985). It determined that while summary judgment was proper because no genuine issue of fact remained, the district court erred in its resolution of the merits. Id. at 381. The panel found that a unilateral schedule of wages and hours implemented by CRST after an impasse had been reached contained ambiguous terms concerning grievance procedures, thereby demonstrating an intention to continue arbitrating grievances. Id. at 383-84. The district court was instructed to enter judgment for the Union and require Ottaway's grievance to be submitted to arbitration. Id. at 384. 3 CRST sought rehearing en banc, arguing that there is no duty to arbitrate because the events surrounding Ottaway's grievance occurred over a year after the expiration of the agreement, and that its unilateral schedule was limited in its wording and did not create an extension of any contractual duty to arbitrate a claim of wrongful discharge. 4 On rehearing en banc we now hold that the judgment of the district court should be affirmed. 5 From July 1, 1979 to June 30, 1982 CRST employed drivers under a collective bargaining agreement between it and the Union. The parties undertook to negotiate a new contract but were unable to agree on its terms. In December, 1982 CRST notified its employees that an impasse had been reached and that it was unilaterally implementing a schedule of wages, hours and working conditions consistent with its final offer to the Union. 6 In July, 1983 Ottaway was terminated by appellee following an accident for which CRST determined he was responsible. He claimed to have been discharged without just cause and then submitted a grievance to the Union which pursued the matter according to the procedures prescribed in the expired agreement. CRST, however, refused to arbitrate the grievance maintaining that no agreement containing such a requirement was in effect between the parties. 7 In the affidavits submitted with its motion for summary judgment, CRST established that: (1) there was no agreement between the parties as to how to handle grievances after the expiration of the collective bargaining agreement; (2) during the negotiations both sides proposed grievance procedures which were different from those in the expired agreement; (3) the December, 1982 schedule did not include a grievance procedure although it did provide for seniority disputes to be resolved through such a procedure; and (4) CRST had rejected all attempts by the Union to arbitrate grievances. 8 The Union's resistance to this motion did not include any affidavits contradicting these statements. Rather, in its reply appellant asserted that the existence of a grievance procedure could be inferred because CRST's unilateral schedule allowed for resolving seniority disputes in this manner and without a grievance procedure this language would be superfluous. Moreover, as no procedure had been settled upon by the parties, the Union alleged that the procedures in the expired agreement remained in force. 9 On appeal, it is suggested that presence of a grievance procedure can be inferred because CRST's unilateral schedule of wages was consistent with the Company's final offer, and it can be assumed that a grievance procedure was a part of the last offer. 10 We have been tempted to consider the question whether the grievance procedure in the Company's final offer would be an appropriate method of resolving Ottaway's dispute. However, at oral argument we were assured that no such issue was raised before the district court, that the record does not disclose what the procedure is,2 and that resort to such procedure was not to be considered an issue before this court. Accordingly, we shall not dwell upon it further. We are left then with the question whether the grievance procedure of the expired contract applied to Ottaway's discharge. 11 In determining whether summary judgment should issue, the facts and inferences from these facts are viewed in a light most favorable to the non-moving party and the burden is placed on the moving party to establish that no genuine issue as to a material fact remains and that the case may be decided as a matter of law. Fed.R.Civ.P. 56(c); Fields v. Gander, 734 F.2d 1313, 1314 (8th Cir.1984); Shearer v. Homestake Mining Co., 727 F.2d 707, 709 (8th Cir.1984); Snyder v. United States, 717 F.2d 1193, 1195 (8th Cir.1983). However, once the moving party has met this burden, the non-moving party may not rest on the allegations in its pleadings but by affidavit and other evidence must set forth specific facts showing that a genuine issue of fact remains. Fed.R.Civ.P. 56(e); Buford v. Tremayne, 747 F.2d 445, 447 (8th Cir.1984); Bouta v. American Federation of State, County & Municipal Employees, 746 F.2d 453, 454 (8th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1764, 84 L.Ed.2d 825 (1985). 12 Appellant has not set forth any evidence which would contradict the facts as established by CRST. The inferences the Union seeks to raise do not in our view demonstrate a genuine issue of evidentiary fact, but rather point up the ultimate issues which must be resolved in interpreting the agreements and actions of the parties. Therefore, the district court properly decided this case as a matter of law. 13 This case deals with two somewhat conflicting principles. One is the proposition that the duty to arbitrate a dispute must arise from a contract and no one may be forced to arbitrate outside of an express agreement to do so. United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960). The other is the federal labor policy which favors settling disputes through arbitration. Id. at 582-83, 80 S.Ct. at 1352-53. 14 These policies were dealt with in Nolde Bros. v. Local 358, Bakery and Confectionery Workers Union, 430 U.S. 243, 255, 97 S.Ct. 1067, 1074, 51 L.Ed.2d 300 (1977), where the Court held that the right to arbitrate a severance pay dispute survived the expiration of the collective bargaining agreement. In Nolde the agreement expired while negotiations were ongoing. Approximately one month later the Union served notice that it was cancelling the agreement. Four days after the termination of the contract Nolde closed its plant and refused to give the severance pay required in the collective bargaining agreement. The Court found that the dispute, "although arising after the expiration of the collective-bargaining contract, clearly arises under that contract." Id. at 249, 97 S.Ct. at 1071 (emphasis in the original). It also stated the presumption that arbitration provisions are intended to survive the expiration of collective bargaining agreements. Id. at 255, 97 S.Ct. at 1074. This is based on the policy favoring arbitration and the rationale that the arguments in support of arbitration do not end with the agreement. Id. In order for this presumption to be terminated it "must be negated expressly or by clear implication." Id. 15 A panel of this court has recently had an opportunity to interpret Nolde in Garland Coal & Mining Co. v. United Mine Workers, 778 F.2d 1297, 1301 (8th Cir.1985). There, focusing on the presumption of arbitrability, we found that it had been negated by clear implication based on the contract language and acts of the parties. Id. This focus is inappropriate here, however, because while the parties in Garland did not dispute that the grievances arose under the expired agreement, id. at 1301 n. 7, here CRST vehemently contests this issue. Therefore, before we limit our examination to the Nolde presumption, we must first determine whether the disputed right arose under the collective bargaining agreement. See International Brotherhood of Electrical Workers v. Nanco Electric, Inc., 790 F.2d 59, 61 (8th Cir.1986) (per curiam). 16 How to apply the narrow holding of Nolde and its broad presumption has created some confusion among courts in determining the arbitrability of post-expiration grievances. See County of Ottawa v. Jaklinski, 423 Mich. 1, 377 N.W.2d 668, 674-75 (1985). However, all of the courts appear to require that for a right to arbitration to exist the grievance must either involve rights which to some degree have vested or accrued during the life of the contract and merely ripened after termination, or relate to events which have occurred at least in part while the agreement was still in effect. See Glover Bottled Gas Corp. v. Local Union No. 282, International Brotherhood of Teamsters, 711 F.2d 479, 482 (2d Cir.1983) (discharge of employees arbitrable where all acts leading to discharge occurred before termination of contract); O'Connor Co. v. Carpenters Local Union No. 1408, 702 F.2d 824, 825 (9th Cir.1983) (use of nonunion employees on job site after termination of contract is not arbitrable);3 Diamond Glass Corp. v. Glass Warehouse Workers and Paint Handlers Local Union 206, 682 F.2d 301, 303-04 (2d Cir.1982) (arbitration not required where union failed to state facts showing dispute related to rights arising from contract); Federated Metals Corp. v. United Steelworkers, 648 F.2d 856, 861 (3d Cir.) (dealt with pension plan rights), cert. denied, 454 U.S. 1031, 102 S.Ct. 567, 70 L.Ed.2d 474 (1981); United Steelworkers v. Fort Pitt Steel Casting Division-Conval-Penn, Inc., 635 F.2d 1071, 1075, 1079 (3d Cir.1980) (dealt with severance pay, vacation pay, life insurance coverage and pension plan rights), cert. denied, 451 U.S. 985, 101 S.Ct. 2319, 68 L.Ed.2d 843 (1981); cf. Teamsters Local Union 688 v. John J. Meier Co., 718 F.2d 286 (8th Cir.1983) (employees entitled to vacation pay because eligibility requirements met before expiration of agreement). 17 The disputed right here, the right to be discharged for just cause, is dissimilar to the rights found arbitrable above such as severance pay and vacation pay, because it cannot be worked towards or accumulated over time. See Jaklinski, 423 Mich. at 25-27, 377 N.W.2d at 679. Rather, it is strictly a creature of the collective bargaining agreement and its life as a matter of contract does not extend beyond contract expiration. 18 Also, the facts here do not reveal any events which occurred prior to contract termination. The accident which resulted in Ottaway's discharge occurred after the termination of the agreement and nothing relates the dispute back to events which occurred during the time of the contract. 19 We conclude that the right involved here did not arise under the contract, thereby making the Nolde presumption inapplicable. 20 Moreover, the passage of more than one year between the expiration of the contract and the employee's discharge also makes application of the Nolde presumption of doubtful propriety. The Court in Nolde limited its holding by stating that "we need not speculate as to the arbitrability of post-termination contractual claims which, unlike the one presently before us, are not asserted within a reasonable time after the contract's expiration." Nolde, 430 U.S. at 255 n. 8, 97 S.Ct. at 1074 n. 8. To find that this grievance "arises under the contract," id. at 249, 97 S.Ct. at 1071, would give these words a much broader meaning than we believe the Nolde Court ever intended. This interpretation "would mean that parties to a collective-bargaining agreement would be presumed to intend that any dispute arising between them years or even decades after the expiration of the agreement would be arbitrable." Local 703, International Brotherhood of Teamsters v. Kennicott, 771 F.2d 300, 303 (7th Cir.1985). 21 We also believe a duty to arbitrate the present dispute under the old contract machinery cannot be found from CRST's unilateral schedule of wages and hours. The schedule's mention of a grievance procedure to determine seniority rights cannot be interpreted as allowing for arbitration of all disputes, but rather should be read as a clear statement showing explicitly how far CRST intended arbitration to reach. If CRST had intended arbitration to reach further, it would have so stated in the schedule. 22 In support of its position the Union refers to Taft Broadcasting Co. v. NLRB, 441 F.2d 1382 (8th Cir.1971). In Taft, after the termination of a prior agreement, the employer sent the union a letter stating that the terms of employment, including grievance procedures, as set out in a draft agreement would be in effect until the union had an opportunity to negotiate any changes. Id. at 1383-84. In that case we held that this letter gave rise to an interim agreement to arbitrate grievances. Id. at 1385. No such interim agreement can be found here, however, as CRST's unilateral schedule does not broadly agree to arbitrate all controversies but rather only disputes concerning seniority. 23 As the disputed right did not arise under the expired agreement or occur within a reasonable time after its termination, and because CRST's unilateral schedule does not allow for grievance procedures except in the limited circumstances involving seniority rights, we conclude that Ottaway's discharge is not arbitrable. 24 Accordingly, the judgment of the district court is affirmed. 25 LAY, Chief Judge, dissenting, with whom HEANEY, Circuit Judge, concurs. 26 I dissent. I. 27 Although I agree that once impasse in negotiations has been reached, an employer has the right to unilaterally institute terms and conditions of employment and in doing so is not bound to those contained in the expired agreement, the majority's analysis completely ignores the principle that an employer may act unilaterally after impasse only if its action is reasonably comprehended within its preimpasse bargaining proposals. United Steelworkers of America, AFL-CIO v. Fort Pitt Steel Casting Division-Conval-Penn, Inc., 635 F.2d 1071, 1078 (3rd Cir.1980) (citing NLRB v. Crompton-Highland Mills, Inc., 337 U.S. 217, 69 S.Ct. 960, 93 L.Ed. 1320 (1949) ). 28 Despite an employer's right to act unilaterally after impasse, it is clear that the working conditions which have characterized an employment relationship do not cease to exist on the date a collective bargaining agreement terminates. This court emphasized in Richardson v. Communication Workers of America, 443 F.2d 974, 978 (8th Cir.1971), cert. denied, 414 U.S. 818, 94 S.Ct. 38, 38 L.Ed.2d 50 (1973), that 29 the collective bargaining agreement is not an ordinary contract but rather, in a sense, agglomerates a variety of rights and methodology relating to the employer, the union, and the employees. 30 * * * 31 * * * 32 The expiration date of a bargaining contract does not place the employee in jeopardy of losing his job at the termination of the agreement. In fact one of the very incentives to union representation is job security. The employee, the union which represents him, the company which employs him, each contemplate [sic] a "subsisting" contractual relationship for an indefinite period of time. Cox, The Legal Nature of Collective Bargaining Agreements, 57 Mich.L.Rev. 1 (1958). Note, 61 Column.L.Rev. 1363 (1961) [sic]. 33 * * * 34 * * * 35 The collective bargaining agreement in addition recognizes seniority rights, which * * * affect vacation pay, severance pay, pension rights and the expectancy not to be laid off during slack periods of work. It has been recognized that many of these rights may survive the termination of the agreement. 36 Richardson, 443 F.2d at 978-79 (citations omitted). The dispute involved here, whether an employee may be discharged without "just cause," raises a continuing right vested under the contract as was the right to severance pay in Nolde Brothers, Inc. v. Local No. 358, Bakery and Confectionery Workers Union, AFL-CIO, 430 U.S. 243, 97 S.Ct. 1067, 51 L.Ed.2d 300 (1977). To hold otherwise, as the majority does, relegates all employees upon termination of the collective bargaining agreement to a status of mere employment at will. No decision of which I am aware has ever suggested such a rule until now.II. 37 However, there are even more persuasive reasons why this grievance should be submitted to grievance procedures. The undisputed facts of this case are distinguishable from cases which involve only the question of what terms and conditions survive an expired collective bargaining agreement after impasse. Here, CRST unilaterally implemented a schedule of wages, hours, and other terms and conditions of employment "consistent with its final offer." Though the unilateral schedule described no detailed grievance procedure, the schedule did provide: Section 2. Seniority List 38 * * * 39 * * * 40 Protest to any employee's seniority date or position on the list must be made in writing to the employer within thirty (30) calendar days after such seniority date or position first appears, and if no protests are timely made, the dates and positions posted shall be deemed correct. Any such protest which is timely made may be submitted to the grievance procedure. (our emphasis). 41 In construing "the grievance procedure," we find instructive our reasoning in Taft Broadcasting Co., WDAF AM-FM-TV v. NLRB, 441 F.2d 1382 (8th Cir.1971) In Taft, a draft collective bargaining agreement remained unsigned by the Union due to bargaining discrepancies in the version presented to it for execution. The employer then sent a letter to the union advising that it intended to unilaterally implement wages, hours, and other terms and conditions of employment as set forth in the draft agreement, and would continue handling grievances that arose in the future in accordance with the procedure set forth in the draft. When the union later filed a grievance on behalf of an employee discharged after this unilateral imposition of working conditions, the employer refused to arbitrate on the grounds that the duty to arbitrate arises only out of a contract and that no executed contract between the employer and the union existed. This court disagreed, noting that the NLRB had found the employer's letter to be an interim agreement in which the ambiguous terms regarding arbitration were to be construed against the employer as the drafter of the agreement. Taft, 441 F.2d at 1384. 42 The district court in its memorandum order granting summary judgment to CRST did recognize that CRST's unilateral schedule could be seen to constitute a contract between CRST and the Union. However, in reaching its conclusion that the only grievable matters under the schedule are seniority dates and positions the district court, now joined by the majority, failed to apply the principle of judicial construction of labor contracts as articulated in Taft that ambiguities in contract provisions are to be construed against the drafter, with all reasonable doubts as to interpretation resolved in favor of the other party. See Taft, 441 F.2d at 1384; cf. Ross v. Royal Globe Insurance Co., 612 F.2d 379, 381 (8th Cir.1980) (given possible conflicting interpretations of a contract provision, the district court should adopt the construction which most favors the party who had no part in preparing the contract).1 43 Whatever CRST's intent, the schedule's silence as to the submission of other issues besides seniority to the grievance procedure rendered the schedule ambiguous and compels the conclusion that the unilateral schedule did not preempt Ottaway's discharge from being subject to grievance procedures. Cf. Johnson Controls, Inc. v. City of Cedar Rapids, Iowa, 713 F.2d 370, 375 (8th Cir.1983) (court's function in construing a contract is to determine the parties' intent from what is said and not from what they meant to say); see also Minot Builders Supply Association v. Teamsters Local 123, 703 F.2d 324, 327-28 (8th Cir.1983) (discharge was arbitrable where collective bargaining agreement did not state explicitly that discharges are not subject to arbitration; doubts regarding arbitrability should be resolved in favor of coverage). It seems clear from CRST's own reference to "the grievance procedure" in the unilateral schedule that CRST intended to retain a grievance procedure in its continuing relationship with the Union and the employees. The schedule nowhere expressly rejected the use of grievance procedures for issues other than seniority. It should be borne in mind here that while the exact grievance and arbitration procedures proposed by the Union and CRST during contract negotiations differed, the inclusion of a grievance procedure in the final contract was itself never questioned. As in Taft, CRST's unilateral schedule operates as an interim agreement retaining a grievance procedure for the resolution of disputes regarding terms and conditions of employment. This is especially true in a situation where impasse has been reached and the employer has unilaterally instituted a set of wages, hours and other working conditions purportedly consistent with a "final offer." This court has previously found that a grievance or arbitration procedure is a term or condition of employment, NLRB v. Independent Stave Co., Diversified Industries Division, 591 F.2d 443, 446 (8th Cir.1979), cert. denied, 444 U.S. 829, 100 S.Ct. 55, 62 L.Ed.2d 37 (1979) (citing Taft Broadcasting Co., WDAF AM-FM-TV v. NLRB, 441 F.2d 1382 (8th Cir.1971) ). 44 The record is replete with references to the grievance procedure proposals advanced by both parties during negotiations. For example, the August 31, 1984 affidavit of Lawrence B. Pollard, a Director of Industrial Relations for CRST during the period in question, states that "proposals by the company spelled out grievance machinery which only included final and binding arbitration. [The union proposed a different procedure.] Neither grievance procedure was the same as that contained in the expired collective bargaining contract." Undisputedly, CRST's offer was never limited to a grievance mechanism applicable only to seniority issues. Contrary to the history of bargaining between the parties, the majority approves implementation of a grievance procedure limited to arbitration only of seniority rights which was not only not comprehended within CRST's preimpasse bargaining proposals but totally contrary to the earlier collective bargaining agreement. This holding has no support in any case law of which I am aware; the majority cites no authority in support of its unprecedented analysis. 45 CRST plainly created a duty to submit disputes arising under the interim schedule regarding terms and conditions of employment to a grievance procedure by its representation that it was implementing working conditions consistent with its final offer to the Union. This conclusion is reinforced by the Supreme Court's observation that: 46 [t]he contracting parties' confidence in the arbitration process and an arbitrator's presumed special competence in matters concerning bargaining agreements does not terminate with the contract. Nor would their interest in obtaining a prompt and inexpensive resolution of their disputes by an expert tribunal. Hence, there is little reason to construe this contract to mean that the parties intended their contractual duty to submit grievances and claims arising under the contract to terminate immediately on the termination of the contract; the alternative remedy of a lawsuit is the very remedy the arbitration clause was designed to avoid. 47 Nolde, 430 U.S. at 254, 97 S.Ct. at 1073. CRST's reference to a grievance procedure indicates that at the time CRST implemented the unilateral schedule it contemplated that, for at least an interim period, employer-employee friction over working conditions would be resolved by a method of dispute resolution other than lawsuits. 48 This construction does not interfere with CRST's right to act unilaterally after bargaining has reached an impasse, but merely holds CRST to the reasonable meaning of an ambiguous term it chose to incorporate in its unilateral schedule. The majority's analysis glosses over the fact that CRSTdid not refer in its unilateral schedule to a grievance procedure applicable only to seniority, but to "the" grievance procedure, application of which outside of seniority disputes was ambiguous. Rather than being the "clear statement showing explicitly how far CRST intended arbitration to reach" which the majority describes, the unilateral schedule's language is precisely the sort which should be construed against CRST as the drafter. For the majority to revise CRST's imprecise drafting by rewriting the unilateral schedule to mean what CRST now wishes it said crosses the bounds of appropriate appellate review and is contrary to the principles of labor law previously articulated by both this court and the Supreme Court. 49 Judicial application of legal principles often results in philosophical disagreement with the decision which precedent requires; judicial officers nevertheless must strive to uniformly apply the law as it exists. 50 For the reasons set forth above, I dissent. 51 HEANEY, Circuit Judge, dissenting, with whom LAY, Chief Judge, concurs. 52 The majority opinion is well written and logical. The problem is that it ignores the facts and is inconsistent with Chief Justice Burger's opinion in Nolde. 53 The majority fails to note that prior to impasse CRST made a final offer which contained a proposed grievance and arbitration procedure and continued protection against discharge without just cause. When the union rejected the final offer, CRST informed its employees that an impasse had been reached in negotiations and that it intended to implement the final offer. It posted a notice stating: "Since negotiations have reached an impasse and the prior collective bargaining agreement has expired, the Company will place into effect wages, hours and other working conditions consistent with its final offer."1 (Emphasis added.) ("December 23, 1982 Notice to All Over-The-Road Employees," by Lawrence B. Pollard, Director of Industrial Relations.) 54 Under these circumstances, as a matter of simple contract law, CRST remained obligated to continue in effect the grievance and arbitration procedure contained in its final offer. The company's statement unequivocally led its employees to believe that these critical protections would continue and that CRST's proposal was preferable to a strike. See Richardson v. Communications Workers of America, 443 F.2d 974, 978 (8th Cir.1971), cert. denied, 414 U.S. 818, 94 S.Ct. 38, 38 L.Ed.2d 50 (1973) (So long as employees continue to be represented by a union, the working conditions which have characterized an employment relationship, including the right to protection from wrongful discharge, do not necessarily cease to exist on the date of contract expiration.). When its employees remained on the job, CRST's posted notice and final offer became a binding unilateral contract. 55 Even if this explicit language had not been contained in the company's final offer and its published statement that the conditions set forth in the final offer would prevail, the Supreme Court's opinion in Nolde would require a result different than that reached by the majority. As the Court stated: 56 The parties must be deemed to have been conscious of this policy [of favoring arbitration of labor disputes] when they agree to resolve their contractual differences through arbitration. Consequently, the parties' failure to exclude from arbitrability contract disputes arising after termination, far from manifesting an intent to have arbitration obligations cease with the agreement, affords a basis for concluding that they intended to arbitrate all grievances arising out of the contractual relationship. In short, where the dispute is over a provision of the expired agreement, the presumptions favoring arbitrability must be negated expressly or by clear implication. [Emphasis added.] 57 430 U.S. at 255, 97 S.Ct. at 1074. 58 Here, although this principle was clearly established in 1976, the 1979 agreement between CRST and the union does not indicate expressly or by clear implication that grievances arising after termination will not be arbitrable. Nor is there any other evidence in the record which negates the Nolde presumption. 59 The majority reaches the conclusion that Nolde is inapplicable by adopting an oblique accrual theory which was advocated by the two dissenters in Nolde and rejected by the seven-justice majority. The dissent in Nolde argued that "the right in dispute, though claimed to arise under the contract, ripened only after the contract had expired and the employment relationship had terminated." 430 U.S. at 258, 97 S.Ct. at 1075. The majority stated that, "However, it is clear that, whatever the outcome, the resolution of that claim hinges on the interpretation ultimately given the contract clause providing for severance pay. The dispute, therefore, although arising after the expiration of the collective bargaining contract, clearly arises under that contract." Id. at 249, 97 S.Ct. at 1071. In other words, when the dispute concerns the interpretation to be given a provision of an expired agreement, the dispute arises under the contract and there is a strong presumption of continuing arbitrability. 60 Here, the dispute is over the wrongful discharge provisions of the expired collective bargaining agreement. Section three of CRST's unilaterally implemented employment contract, entitled "Loss of Seniority" states: SECTION 3. LOSS OF SENIORITY 61 Seniority shall be terminated and the employer-employee relationship shall be severed by any of the following: 62 1. Discharge. 63 2. Voluntary quit. 64 3. Three (3) year layoff without regaining full-time status. 65 4. Unauthorized absence for three (3) successive scheduled work days. 66 5. Failure to make himself available for work at the end of ten (10) days after notice of recall is mailed to his last known address. A copy of the notice of recall shall be sent to the union. 67 6. Failure to obtain or comply with leave of absence provisions as set forth in this agreement. 68 7. Refusal to accept instructions given by a proper supervisor of the Company and/or to perform any work assignment unless it will affect his health or safety. 69 This section suggests that CRST's employees were still protected against discharge without cause as specified under the expired collective bargaining agreement, and CRST never contended in any of the documents in the record or at oral argument, that its employees are now "employees at will." Indeed, it only discharged Jerry Ottaway after determining, on its own accord, that he was guilty of "reckless driving." Recognizing the serious nature of this charge and its promise to continue protection against wrongful discharge, CRST, at one point, agreed to submit this dispute to arbitration, something totally unnecessary if it believed that it could discharge employees without cause and without submitting the dispute to arbitration. 70 The meaning, then, of "discharge" under the unilateral contract can only be determined by looking back to the 1979 collective bargaining agreement's provision on protection from discharge without cause or by looking at the wrongful discharge provisions of CRST's final offer. Indeed, one of CRST's briefs before the trial court states that the underlying dispute is over whether "one of its [employees] was wrongfully discharged from his employment by CRST in violation of the terms of a collective bargaining agreement which had expired." Because, as the majority held in Nolde, "the resolution of that claim hinges on the interpretation ultimately given the contract clause [on discharge without cause], * * * [t]he dispute, * * * although arising after the expiration of the collective bargaining contract, clearly arises under that contract." Id. 71 Accordingly, the majority's theory is wrong on the facts and on the law. Most importantly, it fails to discuss how CRST's posted promise became a unilateral contract to abide by the grievance procedure. In any event, the Court should apply the Nolde presumption, and, once this is done, it becomes apparent that CRST did not meet its obligation to make clear that post-expiration grievances were no longer arbitrable. CRST could easily have added such a statement to its notice to its employees which alleged that "other working conditions" would continue in effect. However, it did not do so. Indeed, CRST did not make clear its intention not to abide by its "final offer" and its arbitration and wrongful discharge provisions until it decided to discharge Jerry Ottaway. 72 The majority opinion not only is contrary to Nolde, but it also allows CRST to be deceptive in its employment policies. Additionally, it skews our labor law policy of allowing the parties to settle their differences on the economic battlefield, after their respective positions have been made clear. Finally, because the Ottaway wrongful discharge dispute will in any event be justiciable in federal district court under Section 301 of the Labor-Management Relations Act, 29 U.S.C. Sec. 185, the majority opinion simply defers resolution of the dispute to a more costly, inconvenient, and time consuming forum. 73 WOLLMAN, Circuit Judge, dissenting. 74 I join in Part II of Chief Judge LAY's dissent. 1 The Honorable Edward J. McManus, now United States Senior District Judge, Northern District of Iowa 2 We know that there was a dispute over grievance and arbitration procedures to be included in a new contract and that such dispute had not been resolved when impasse in negotiations was reached 3 O'Connor could be seen to be limited by George Day Constr. v. United Bhd. of Carpenters and Joiners, 722 F.2d 1471 (9th Cir.1984), which found a duty to arbitrate a grievance (use of nonunion subcontractors on two job sites) where the dispute arose after expiration of the collective bargaining agreement but before an impasse was reached. George Day can be distinguished, however, because there the court held that the employer, by arguing its position in front of an arbitrator before filing suit, had impliedly consented to the arbitrator deciding both the arbitrability question and the merits of the case. Id. at 1475 1 This court has also stated, in the context of interpreting the terms of an ERISA plan, that "where one of the parties draws a contract and the other * * * cannot vary the terms, the burden is upon the party drawing the contract to make the meaning plain." Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1354 (8th Cir.1980) (citations omitted) 1 CRST then distributed a schedule of wages and hours, which contained a reference to "the grievance procedure." The majority contends that this reference applies only to seniority disputes. However, it should be noted that the unilateral contract's provisions on employee discharges also are placed under the heading, "Loss of Seniority." Moreover, the schedule nowhere states or implies that there would no longer be a grievance procedure, or protection from discharge without cause	LIMITED_OR_DISTINGUISHED
722 F.2d 1471	34 Cal. App. 4th 1085	D	George Day Construction Co., Inc. v. United Brotherhood of Carpenters and Joiners of America, Local 354	Opinion VARTABEDIAN, J. This is an appeal from a judgment confirming an arbitration award. Appellants primarily contend that arbitration should not have been compelled in the first instance and that the arbitrator failed to disclose certain conflicts of interest. We reverse the judgment and remand the matter to superior court for further proceedings consistent with this opinion. Facts and Procedural History The Underlying Controversy. The merits of the underlying controversy are not before us in this appeal. (Moncharsh v. Hetty & Blase (1992) 3 Cal.4th 1,11 [10 Cal.Rptr.2d 183, 832 P.2d 899].) Accordingly, we only briefly summarize the rather complex facts. Appellants are interrelated corporations that, in various combinations, contracted with respondents to buy and lease certain machines and equipment essential to the operation of a tomato paste processing plant. The total sale/lease price exceeded $1.5 million. The plant never reached its production goals and appellants closed the plant during its first season of operation. They sold the plant at a substantial loss. They then sued respondents in Fresno County Superior Court for more than $10 million in compensatory and exemplary damages. The Arbitration. The sales and lease contracts contained arbitration clauses. Respondents moved in the superior court for an order staying appellants’ lawsuit and 1091 compelling arbitration of the dispute. Appellants contested this motion. The motion was granted. The arbitration was to be conducted through the American Arbitration Association (AAA). Pursuant to a list of potential arbitrators submitted by AAA, the parties agreed to the appointment of a single arbitrator, John Peterson, a Fresno attorney. The arbitration was bifurcated. The liability portion began on January 6, 1992. The arbitrator issued an interim award in favor of respondents on May 22, 1992. He issued a final award in favor of respondents in the amount of $587,425, plus costs and attorney fees in an unspecified amount, on March 31, 1993. The award was served by mail on the parties on April 6, 1993. After additional submissions by the parties, the arbitrator on May 6, 1993, issued a supplemental award of $1,412,953.75 for respondents’ attorney fees and $696,747.45 as costs. The Controversy About the Arbitrator’s Neutrality. Respondents were represented in the initial superior court proceedings by McCormick, Barstow, Sheppard, Wayte & Carruth, a Fresno law firm (McCormick). Attached to their petition to compel arbitration was a copy of a demand for arbitration filed with AAA. That document named as respondents’ attorneys Craig M. White and Michael Dockterman of Chicago, Illinois. White and Dockterman are with the Chicago law firm of Wildman, Harrold, Allen & Dixon (Wildman). With one important exception, the Wildman firm, not McCormick, appeared for respondents in the arbitration. When the matter returned to superior court after the arbitration, both McCormick and Wildman appeared for respondents. After Peterson issued his interim award in favor of respondents, appellants requested that Peterson disclose all past and present relationships with the McCormick firm. Eventually, Peterson did so. The relationships included a number of referrals of legal business to Peterson and his firm from McCormick in the ordinary course of business. These did not involve any financial relationship between the two firms. Peterson also disclosed that in 1984 he had been retained by McCormick as an expert witness in a legal malpractice case McCormick was defending on behalf of another Fresno law firm. In addition, Peterson disclosed that in November of 1991 and December of 1991 he had been retained by McCormick as an expert witness in two other legal malpractice cases in which McCormick represented law firm defendants. He was still involved in the 1991 cases at the time of the disclosure. In November 1991, attorneys from McCormick tried to have a subpoena issued by the superior court for the production of documents by a third party 1092 involved in construction of appellants’ tomato processing plant. The superior court declined to issue the subpoena; it instructed respondents to seek the subpoena from the arbitrator. This gave rise, on December 2, 1991, to the only appearance in the arbitration by a McCormick attorney. On that date, Attorney John T. Savmoch of McCormick mailed to Peterson a three-page letter on McCormick letterhead. The letter referenced the pending arbitration and requested issuance of a subpoena on behalf of respondents, explaining in detail the importance of the requested materials to respondents’ arbitration presentation. The letter included the following statement: “By this letter, the attorneys for Alfa-Laval respectfully request that a records only deposition subpoena be served upon L&A Engineering, Inc. for the following documents....” Peterson granted the request for subpoena by means of a letter from Peterson to McCormick, together with joint addressees Wildman, appellants’ attorney, and the attorney for L&A Engineering. 1 Peterson disclosed his role as an expert witness for McCormick on July 9, 1992, and, in greater detail, on July 15, 1992. Based on this relationship and the referrals of cases to Peterson and his firm by McCormick, appellants requested appointment of a new arbitrator by letter to AAA dated July 21, 1992. AAA, after soliciting input from respondents and Peterson, declined on August 4,1992, to disqualify Peterson. The AAA decision did not contain a statement of reasons. Appellants sought relief in the superior court and by petition for extraordinary writ in this court. All of appellants’ efforts were unsuccessful. Peterson presided over the damages portion of the arbitration beginning February 22, 1993. Postarbitration Proceedings in Superior Court. Appellants renewed their petition to vacate the arbitrator’s award on April 21, 1993, noticing a hearing for May 28, 1993, in superior court. They alleged Peterson’s various connections with McCormick created a reasonable impression of possible bias on Peterson’s part. Respondents petitioned to affirm the award. Both parties submitted declarations of various attorneys. The parties also relied on Peterson’s letter of July 9, 1992, in which he states: “In the past, when I have arbitrated a matter involving a party represented by the McCormick, Barstow firm, I have advised the American Arbitration 1093 Association that I have been on McCormick, Barstow’s referral list. I would have done so in this case had I believed that McCormick, Barstow represented Alfa-Laval in the arbitration, or in any other capacity. "... I knew in April 1991 that McCormick, Barstow had represented Alfa-Laval in the Superior Court action. To the best of my knowledge then, and since then, McCormick, Barstow was not to be, and was not, involved in the arbitration.” The trial court conducted a law and motion hearing on the petitions to vacate and to confirm the award. The court determined that AAA’s disposition of appellants’ request for Peterson’s disqualification was subject to only the limited judicial review available for factual and legal determinations of the arbitrator. In accordance with that standard, the court determined AAA’s resolution of the conflict issue was a “plausible interpretation of the law and facts and was rendered with a minimum standard of fair dealing.” Secondarily, the court concluded that appellants and their attorney had sufficient information before Peterson was selected as arbitrator about Peterson’s relationship with McCormick to place upon appellants a duty of inquiry concerning these relationships; by failing to inquire in a timely manner, appellants waived objection to both types of relationships, the business referrals and the expert witness employment. The court dismissed appellants’ petition to vacate the arbitrator’s award and granted respondents’ petition to confirm the award, including attorney fees and costs, with interest from the date of the award through entry of judgment. Judgment was entered on July 16, 1993. The total judgment was for $2,732,477.51, plus costs of the superior court proceedings. Appellants filed a timely notice of appeal on September 14, 1993. Discussion The parties impliedly agree that this case is governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (the Act). (See 9 U.S.C. § 2 [the Act covers arbitration arising from a “written provision in... a contract evidencing a transaction involving (interstate) commerce....”].) “Generally, under the Act,, arbitration is strongly favored, and ‘any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration....’ [Citations.]” (Rice v. Dean Witter Reynolds, Inc. (1991) 235 Cal.App.3d 1016, 1023 [1 Cal.Rptr.2d 265].) The Act, however, provides that an arbitration clause is not enforceable if “grounds as exist at law or in equity for the revocation of any contract” permit relief from the arbitration clause. (9 U.S.C. § 2; see Code Civ. Proc., 1094 § 1281.) We will turn first, therefore, to appellants’ contention that such grounds exist and that the trial court impermissibly compelled arbitration of the present dispute. After concluding that arbitration was properly ordered, we will address appellants’ contention that the business relationships between Peterson and McCormick created a reasonable appearance of bias. We will conclude with a brief discussion of appellants’ remaining points on appeal. I. Prearbitration Issues: Was the Order for Arbitration Proper? Appellants contend the trial court erred in ordering arbitration of their claims against respondents. Appellants argue they were entitled to judicial resolution of the disputes because the arbitration clauses in the contracts were void: “[Fjraud permeated the entire contracts, including their arbitration provisions. The fraud was directed ‘not only to the contracts as a whole, but to the agreements to arbitrate as well.’ ” The fraud alleged by appellants is set forth in the complaint and in declarations by appellants’ representatives who negotiated the contracts. These documents allege that critical representations made as to-the performance and maintenance requirements of certain machines were false. They allege the representations were intended to induce, and did induce, appellants to enter into the contracts to buy and lease the machines. The complaint then states: “The false representations went not only to the contracts as a whole, but to the agreements to arbitrate, as well. Plaintiffs were led to believe by defendants that plaintiffs had to agree to arbitration as a sine qua non for acquisition of the equipment, bags and filling machines.” Neither the complaint nor the declarations allege that this latter representation by respondents, i.e., that there could be no contract without an arbitration clause, was false. 2 It has long been established that fraud of the sort alleged by appellants does not prevent enforcement of an arbitration clause in a contract, even though the contract as a whole might be revocable due to the fraud. The seminal case is Prima Paint v. Flood & Conklin (1967) 388 U.S. 395 [18 L.Ed.2d 1270, 87 S.Ct. 1801]. In that case, defendant sold plaintiff a paint manufacturing business. Collateral to the sales contract, plaintiff entered into another contract retaining defendant as a business consultant. The consulting 1095 contract contained an arbitration clause. (388 U.S. at pp. 397-398 [18 L.Ed.2d at pp. 1273-1274].) When a dispute arose under the contract, plaintiff sued in federal district court for rescission on the basis of fraud. Plaintiff contended defendant had falsely represented that it was not insolvent. (388 U.S. at p. 398 [18 L.Ed.2d at p. 1274].) Defendant petitioned the court to compel arbitration of the dispute. The federal district court granted the petition and the Court of Appeals affirmed. (Id. at pp. 399-400 [18 L.Ed.2d at pp. 1274-1275].) The issue before the Supreme Court was whether under the Act the enforceability of the arbitration clause depended on the validity of the contract containing the arbitration clause, that is, whether the plaintiff was entitled to a judicial determination of its claim for rescission, or whether that was an issue for the arbitrator. (388 U.S. at p. 402 [18 L.Ed.2d at pp. 1276-1277].) The court concluded: “[I]f the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the ‘making’ of the agreement to arbitrate—the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the-inducement of the contract generally.” (Id. at pp. 403-404 [18 L.Ed.2d at p. 1277], fn. omitted; see also Moses H. Cone Hospital v. Mercury Const. Corp. (1983) 460 U.S. 1, 22-23, fn. 27 [74 L.Ed.2d 765, 784, 103 S.Ct. 927]; Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 322 [197 Cal.Rptr. 581, 673 P.2d 251] [adopting same standard under Code Civ. Proc., § 1280 et seq.].) Appellants contend they have satisfied the requirement for judicial determination of their right to rescind the contracts: “The Federal Arbitration Act also requires that, in the face of allegations that fraud induced the arbitration agreement, the parties are entitled to have a jury decide whether a valid agreement to arbitrate exists.” This contention is mistaken. The allegations in the present case are the same as in Prima Paint, supra, 388 U.S. 395, namely, that the contracts generally were a result of respondents’ fraud. There is no allegation whatsoever that appellants were fraudulently induced to enter into the arbitration agreements in any way different from the way they were induced to pay money or make other agreements under the contracts. The only fraud alleged is as to the contracts generally. The present case is wholly different from the cases appellants cite in which the issue of fraud was judicially determined. In some of those cases, the plaintiff did not know he or she was entering into a contract at all, or did not know it contained an arbitration clause. (See Strotz v. Dean Witter Reynolds, Inc. (1990) 223 Cal.App.3d 208, 217-218 [272 Cal.Rptr. 680] [“plaintiff has alleged that defendants deceived her as to the nature and 1096 effect of the documents”]; Ford v. Shearson Lehman American Express, Inc. (1986) 180 Cal.App.3d 1011, 1028-1029 [225 Cal.Rptr. 895]; Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1977) 67 Cal.App.3d 19, 30, 32 [136 Cal.Rptr. 378]; see also Rice v. Dean Witter Reynolds, Inc., supra, 235 Cal.App.3d at pp. 1024-1025. 3 ) In the other case appellants cite, Green v. Mt. Diablo Hospital Dist. (1989) 207 Cal.App.3d 63, 71 [254 Cal.Rptr. 689], plaintiff alleged the contract in question was illegal and that the pervasive illegality eviscerated the arbitration clause. (See id. at p. 73.) In the present case, there is no allegation appellants did not know what they were signing, that they signed under duress, or that the contracts were illegal. Instead, the allegations show that in order to secure a competitive advantage in the tomato paste industry, appellants agreed to buy and lease respondents’ machines and to arbitrate disputes with respondents. Whether the purchase, lease and arbitration agreements were fraudulently induced was a question properly determined by arbitration. (Lynch v. Cruttenden & Co., supra, 18 Cal.App.4th at p. 810.) II. Postarbitration Issues. A. Waiver of the Arbitrator’s Alleged Conflict of Interest. Appellants learned the full extent of Peterson’s contacts with McCormick after they lost the liability portion of the arbitration. At that time, appellants sought disqualification of Peterson and appointment of a new arbitrator. They sought this relief from the AAA, the trial court, this court (by writ petition) and, finally, by renewed petition in the trial court to vacate the final arbitration award. Appellants’ requests were denied. Appellants now raise the conflict of interest issue on this appeal. Respondents contend that, as the trial court found, appellants waived this issue when they initially accepted Peterson as the arbitrator without any inquiry concerning his contact with McCormick. In some measure, we agree with respondents. Substantial evidence supports the trial court’s finding that one of appellants had timely knowledge that Peterson’s firm received business referrals from McCormick. There is nothing in Peterson’s subsequent disclosures that indicates the more recent referrals were different in kind or frequency from the pattern of referrals of 1097 which appellants were generally aware. As to those matters, appellants selected Peterson as arbitrator without seeking further disclosure. This waived appellants’ objection to Peterson based on his failure to disclose business referrals. (Health Services Management Corp. v. Hughes (7th Cir. 1992) 975 F.2d 1253, 1262-1263.) When we turn to the expert witness relationship, however, we must agree with appellants that the trial court erred as a matter of law. No substantial evidence supports a finding that appellants waived this basis for Peterson’s disqualification. Common sense and experience tell us there is a vast difference between a relationship six years dormant, about which appellants knew, and a current and thriving relationship, about which appellants knew nothing prior to the arbitration. The relationship about which appellants knew was much the same as the relationship between the arbitrator and the party in Merit Ins. Co. v. Leatherby Ins. Co. (7th Cir. 1983) 714 F.2d 673. In that case, 14 years before the arbitration, the arbitrator had been a subordinate employee of the president of one of the parties to the arbitration, when both men had worked for a different insurance company. (Id. at p. 680.) The arbitrator failed to disclose that information. In rejecting a subsequent motion to vacate the arbitration award, the court concluded, “And when a former employee sits in judgment on a former employer there is no presumption that he will be biased in favor of the former employer; he may well be prejudiced against him.” (Ibid.) So, too, in the present case. Appellants may well have concluded that the isolated nature of Peterson’s previous experience as a witness for McCormick may have left him slightly bitter about that firm, or at least devoid of positive feelings. He was, after all, never again asked to serve as an expert witness for McCormick, as far as appellants knew. By contrast, the new engagements, coming just a few weeks before the commencement of the arbitration, established a current monetary connection between Peterson and McCormick. Such a relationship, as a matter both of perception and of reality, is wholly different from the 1984 employment about which appellants had knowledge. We conclude the earlier service as an expert witness did not put appellants on notice there might be a current relationship with McCormick; appellants were entitled to rely on Peterson’s duty to disclose. (See Betz v. Pankow (1993) 16 Cal.App.4th 931, 937 [20 Cal.Rptr.2d 841]; cf. Betz v. Pankow (1995) 31 Cal.App.4th 1503 [38 Cal.Rptr.2d 107] [duty to investigate for conflicts is narrower than duty to disclose known conflicts]; San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Elec. Co. (1972) 28 Cal.App.3d 556, 569 [104 Cal.Rptr. 733] [same].) 1098 As a practical matter, of course, appellants had no choice but to rely on Peterson for voluntary disclosure. Even if appellants had assumed the obligation to inquire about current employment by McCormick at the time of Peterson’s appointment as arbitrator, Peterson would have answered truthfully that there was no such employment. The employment arose months later, in circumstances appellants could not reasonably have anticipated when they agreed to Peterson as the arbitrator. This practical view of the matter—that the conflict information is usually known only to the arbitrator and the opposing party—has led to a consistent line of cases holding that the arbitrator has a duty to disclose potential conflicts of interest. (See Commonwealth Corp. v. Casualty Co. (1968) 393 U.S. 145, 149 [21 L.Ed.2d 301, 304-305, 89 S.Ct. 337]; 4 Kaiser Foundation Hospitals, Inc. v. Superior Court (1993) 19 Cal.App.4th 513, 517 [23 Cal.Rptr.2d 431]; Wheeler v. St. Joseph Hospital (1976) 63 Cal.App.3d 345, 371 [133 Cal.Rptr. 775, 84 A.L.R.3d 343]; Johnston v. Security Ins. Co. (1970) 6 Cal.App.3d 839, 842 [86 Cal.Rptr. 133].) While “the consequences of such a failure [to disclose] may be overcome if the pertinent facts are actually revealed, or otherwise become known, to the parties in some other fashion” (Kaiser Foundation Hospitals, supra, at p. 517), the outdated and ambiguous information appellants possessed about Peterson’s service as an expert witness did not adequately supplant the duty to disclose in this case. (See ibid.) In summary, appellants knew the essence of one basis for objection to Peterson’s qualifications as arbitrator, namely, the referral of cases between Peterson and McCormick in the ordinary course of business. Accordingly, that objection was waived by the failure to pursue it prior to Peterson’s appointment as arbitrator. (Health Services Management Corp. v. Hughes, supra, 975 F.2d 1253 at pp. 1262-1263; see Ray Wilson Co. v. Anaheim Memorial Hospital Assn. (1985) 166 Cal.App.3d 1081, 1089-1090 [213 Cal.Rptr. 62].) The objection based on Peterson’s enlistment by McCormick as an expert witness in November and December of 1991, however, was not waived. (Kaiser Foundation Hospitals, Inc. v. Superior Court, supra, 19 Cal.App.4th at p. 517.) Our discussion of the ramifications of Peterson’s relationship with McCormick will address only that latter relationship. B. The AAA Determination and the Standard of Judicial Review. Rule 19 of AAA Rules of Commercial Arbitration provides: “Disclosure and Challenge Procedure—Any person appointed as neutral arbitrator shall disclose to the AAA any circumstance likely to affect impartiality, including any bias or any financial or personal interest in the result of the arbitration or 1099 any past or present relationship with the parties or their counsel. Upon receipt of such information from the arbitrator or another source, the AAA shall communicate the information to the parties and, if it deems it appropriate to do so, to the arbitrator and others. Upon objection of a party to the continued service of a neutral arbitrator, the AAA shall determine whether the arbitrator should be disqualified and shall inform the parties of its decision, which shall be conclusive.” In the present case, appellants “object[ed]... to the continued service” of the arbitrator and the AAA “determine[d] whether the arbitrator should be disqualified.” It determined Peterson was not disqualified to conduct the arbitration. The next issue we address is the standard for judicial review of that determination. Respondents assert, and the trial court agreed, that the determination of arbitrator bias was entitled to the same degree of finality that is afforded any other issue submitted for determination by an arbitrator. Respondents therefore contend the AAA decision on this issue must be upheld if it “represents a ‘plausible interpretation’ of the law and fact and was reached in accordance with a ‘minimum standard of fair dealing.’ ” Appellants contend the trial court should have reviewed the issue of arbitrator bias de novo. Moncharsh v. Hetty & Blase, supra, 3 Cal.4th at page 11, was decided under the California Arbitration Act. However, in an extended section entitled “The General Rule of Arbitral Finality,” the Supreme Court relied upon cases arising under the Federal Arbitration Act as the basis for its discussion and conclusions. The court’s analysis in Moncharsh provides a useful starting point for our discussion. “Thus, both because it vindicates the intentions of the parties that the award be final, and because an arbitrator is not ordinarily constrained to decide according to the rule of law, it is the general rule that, ‘The merits of the controversy between the parties are not subject to judicial review.’... “Thus, it is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law. In reaffirming this general rule, we recognize there is a risk that the arbitrator will make a mistake. That risk, however, is acceptable for two reasons. First, by voluntarily submitting to arbitration, the parties have agreed to bear that risk in return for a quick, inexpensive, and conclusive resolution to their dispute.... “A second reason why we tolerate the risk of an erroneous decision is because the Legislature has reduced the risk to the parties of such a decision 1100 by providing for judicial review in circumstances involving serious problems with the award itself, or with the fairness of the arbitration process. [Citing to Code Civ. Proc., § 1286.2, subds. (a)-(c).]” (3 Cal.4th at pp. 11-12, italics added.) A similar theme is apparent in Commonwealth Corp. There, the majority opinion emphasizes the importance of a neutral and detached arbitrator, since arbitrators “have completely free rein to decide the law as well as the facts and are not subject to appellate review.” (Commonwealth Corp. v. Casualty Co., supra, 393 U.S. at p. 149 [21 L.Ed.2d at p. 305].) 5 Our research and that of the parties has unearthed but two cases directly addressing the issue of finality of the arbitration administrator’s determination of disqualification. Neither is helpful. In Van Syoc v. Walter (1992) 259 N.J.Super. 337 [613 A.2d 490], the Appellate Division of the Superior Court, without discussion or citation of relevant authority, applied the following standard of review: “The trial judge’s conclusion that plaintiffs had failed to show that the AAA did not, as a matter of law, act arbitrarily or capriciously is fully supported by the record.” (Id. at p. 492.) In Freeport Constr. Co. v. Star Forge, Inc. (1978) 61 Ill.App.3d 999 [19 Ill.Dec. 57, 378 N.E.2d 558, 560], the court held that the state arbitration statute, which used the same language about arbitrator bias as the Act, required de novo consideration of a bias claim. However, the court noted that the AAA rules in question, those for the construction industry, did not assert the finality of any AAA determination on disqualification. Nor do we find helpful the cases engaging in limited judicial review of arbitration decisions that respondents say are analogous to a disqualification determination. Many of respondents’ cases, such as Orion Pictures v. Writers Guild of America (9th Cir. 1991) 946 F.2d 722, are labor relations cases arising under the federal Labor Management Relations Act (LMRA) (29 U.S.C. § 185). The issue in those cases is whether the parties have presented an arbitrable issue. The LMRA permits this prearbitration determination to be made by a federal district court or by the arbitrator, at the parties’ election. (See George Day Const. Co., Inc. v. United Broth, of Carpenters 1101 (9th Cir. 1984) 722 F.2d 1471, 1474-1475.) The cases merely stand for the proposition that a party which elects one forum will not be permitted to turn to the alternative forum later in the proceedings for a de novo determination of arbitrability. (Id. at p. 1475.) The Federal Arbitration Act contains no such provision for an election by the parties to have a court determine issues of arbitrator bias before or during an arbitration proceeding; accordingly, the labor law cases on the question of arbitrability are distinguishable. The nonlabor case upon which respondents rely is Aerojet-General Corp. v. American Arbitration Ass’n (9th Cir. 1973) 478 F.2d 248, 252. There, the arbitration rules provided that AAA would choose the venue for arbitration if the parties could not agree. Plaintiff disagreed with AAA’s choice of New York, and sued in federal district court in California for an injunction against the New York arbitration. On appeal from an order granting the preliminary injunction, the Court of Appeals reversed. First, the court noted that the case before it concerned interlocutory judicial intervention in the arbitration. Such interlocutory review was to be available, “if at all, only in extreme cases.” (478 F.2d at p. 251.) The court also noted: “It was part of the arbitration agreement that the AAA could select a locale for the arbitration if the parties failed to agree on one.... When the parties to a contract agree that a factual determination is to be made by a neutral third party that determination is upheld in the absence of fraud or gross mistake as would necessarily imply bad faith.” (478 F.2d at p. 252, fn. 5.) However, the court also distinguished questions of arbitrator bias from the venue question before it: “An arbitration award must be upheld unless it be shown that there was partiality on the part of an arbitrator [citing Commonwealth Coatings Corp. v. Continental Casualty Co., supra, 393 U.S. 145], or that the arbitrator exceeded his authority [citation], or that the award was rendered in ‘manifest disregard of the law.’ ” (Aerojet-General Corp. v. American Arbitration Ass’n, supra, 478 F.2d at p. 252.) 6 We perceive that arbitrator bias is a fundamentally different question from venue. The AAA has no vested interest in issues of venue. However, in the 1102 present case AAA’s agent or employee may have been the cause of a significant waste of time and money for the parties to the arbitration, if he failed in his duty to disclose and had to be removed from the arbitration. At the very least, removal of the arbitrator could involve thorny issues about who was to pay for the arbitrator’s time up to his removal from the case. It must be remembered that, even though state and federal policy favors private arbitration and the AAA is certainly a respected forum for such arbitration, AAA nevertheless is a business enterprise “in competition not only with other private arbitration services but with the courts in providing —in the case of private services, selling—an attractive form of dispute settlement. It may set its standards as high or as low as it thinks its customers want.” (Merit Ins. Co. v. Leatherby Ins. Co., supra, 714 F.2d at p. 681.) We cannot ignore the fact that AAA has its own vested interest in a midarbitration declaration of arbitrator disqualification, an interest AAA does not have in such issues as venue and arbitration procedures. In light of the explicit statutory authorization of judicial determination of “evident prejudice” of arbitrators as interpreted in Commonwealth Corp. v. Casualty Co., supra, 393 U.S. 145, we hold that a trial court considering a petition to confirm or vacate an arbitration award is required to determine, de novo, whether the circumstances disclose a reasonable impression of arbitrator bias, when that issue is properly raised by a party to the arbitration. The trial court in the present case reached the opposite conclusion, favoring limited review of the AAA decision on the issue of appearance of bias. Accordingly, we find it necessary to remand this matter to the trial court for “an evidentiary hearing [at which] the full extent and nature of the relationships at issue may be ascertained.” (Sanko S.S. Co., Ltd. v. Cook Industries, Inc. (2d Cir. 1973) 495 F.2d 1260, 1263.) 7 C. Did the Arbitrator Have a Duty to Disclose His Employment as McCormick’s Expert Witness? This is a nondisclosure case. It is not a case in which actual bias is alleged. Accordingly, its resolution is guided by Commonwealth Corp. v. Casualty Co., supra, 393 U.S. 145. The majority opinion in that case states: “[The Act shows] a desire of Congress to provide not merely for any arbitration but for an impartial one. It is true that petitioner does not charge before us that the third arbitrator was actually guilty of fraud or bias in 1103 deciding this case, and we have no reason, apart from the undisclosed business relationship, to suspect him of any improper motives. But neither this arbitrator nor the prime contractor gave to petitioner even an intimation of the close financial relations that had existed between them for a period of years. We have no doubt that if a litigant could show that a foreman of a jury or a judge in a court of justice had, unknown to the litigant, any such relationship, the judgment would be subject to challenge.... [W]e can see no basis for refusing to find the same concept in the broad statutory language that governs arbitration proceedings and provides that an award can be set aside on the basis of ‘evident partiality’ or the use of ‘undue means.’... We can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias.” (Id. at pp. 147-149 [21 L.Ed.2d at pp. 304-305], italics added; see also Overseas Private Inv. Corp. v. Anaconda Co., supra, 418 F.Supp. at p. 110.) After a thorough review of the cases interpreting Commonwealth Corp., the Ninth Circuit Court of Appeals recently summarized the current state of the law in nondisclosure cases: “Other courts facing the same issue have held that ‘evident partiality’ is present when undisclosed facts show ‘a reasonable impression of partiality.’ ” (Schmitz v. Zilveti (9th Cir. 1994) 20 F.3d 1043, 1046.) “ ‘Reasonable impression of partiality’... is the best expression of the Commonwealth [Corp.] court’s holding.” (Id. at p. 1047.) As phrased by the California Court of Appeal, an arbitrator is “under a legal duty to ‘disclose to the parties any dealings that might create an impression of possible bias’ ” (Johnston v. Security Ins. Co., supra, 6 Cal.App.3d at pp. 843-844; see also Betz v. Panko, supra, 16 Cal.App.4th at p. 936.) The parties acknowledge that the foregoing standard establishes the duty of an arbitrator to disclose his business relationships to AAA and to the parties. Similarly, both parties impliedly acknowledge that if McCormick had participated in the arbitration hearing on behalf of respondents, nondisclosure of the expert witness relationship would have created a reasonable impression of partiality. 8 (See Wheeler v. St. Joseph Hospital, supra, 63 Cal.App.3d 345 [physician arbitrator had served as medical expert witness for the attorneys for a party to the arbitration; award for that party vacated].) The fundamental point of disagreement between the parties arises from McCormick’s more limited representation of respondents. The record is clear that McCormick litigated against appellants and their arbitration attorneys in the trial court, both before and after the court directed 1104 the matter to arbitration. The record is also clear that McCormick did not conduct the arbitration hearing on behalf of respondents; that was Wild-man’s job. Yet the record is also clear that, on December 2, 1991, John T. Savmoch of McCormick mailed to Peterson a three-page letter on McCormick letterhead. The letter referenced the pending arbitration and requested issuance of a subpoena on behalf of respondents. This letter did not make reference to any limitation on McCormick’s representation of respondents. Instead, it discussed matters of strategy and preparation for the arbitration hearings. The letter concludes: “By this letter, the attorneys for Alfa-Laval respectfully request that a records only deposition subpoena be served upon L&A Engineering, Inc. for the following documents....” Respondents have not directed our attention to a substitution of counsel or any other prearbitration document that informs the arbitrator McCormick no longer represented respondents. It does appear from the record on appeal, however, that McCormick was not on the arbitrator’s mailing list for subsequent correspondence in the arbitration. Peterson apparently received and reviewed the December 2, 1991, letter. A response to the letter, over Peterson’s signature, was directed to the McCormick attorney, as well as to the other relevant persons, including attorneys at Wildman. There is no express representation in Peterson’s disclosure letters that he did not see the December 2, 1991, letter. Yet, if Peterson did review the December 2 letter, there is no explanation in the record for his repeated representation that he was unaware of McCormick’s representation of respondents. And, if Peterson did review the letter and his response to it, there is no explanation how he knew prior to the hearing itself on January 6, 1992 (i.e., during the time when disclosure would have been required), that McCormick would not be participating. (See Peterson letter, excerpted at p. 1093, ante.) On remand, the trial court will be required to determine what Peterson knew and when he knew it. The court will then be required to make a de novo determination of whether the circumstances give rise to a reasonable impression of possible bias. The question before the court will not be, as in most cases, whether the relationship between the arbitrator and the attorneys is substantial enough to raise questions. (Cf. Banwait v. Hernandez (1988) 205 Cal.App.3d 823, 830-831 [252 Cal.Rptr. 647].) It is. (Wheeler v. St. Joseph Hospital, supra, 63 Cal.App.3d at p. 372.) Instead, the question is whether the relationship between the attorneys and the party to the arbitration is substantial enough to create a reasonable impression of possible bias on the part of the arbitrator. 1105 D. Did the Arbitrator Have Jurisdiction to Award Attorney Fees and Costs? Appellants contend the arbitrator did not have jurisdiction to award attorney fees and costs. As to both items, appellants contend the award was made more than 30 days after the matter was submitted to the arbitrator for decision. Since the submission established a time within which the arbitration would be concluded by final award, appellants argue that the arbitrator’s jurisdiction expired on that date. 9 As respondents argue, however, the fundamental fallacy in appellants’ argument is that costs and fees were awarded in the initial award, entered well within the 30-day jurisdictional period. The final award provides, “Alfa-Laval Food and Dairy Co., a division of Alfa-Laval, Inc., is awarded its attorneys’ fees and costs of suit, as against Helm Concentrates, Inc., and Britz, Inc., to be made by supplemental award following receipt and analysis of supporting declaration(s) from attorneys for Alfa-Laval Food and Dairy Co.” Appellants rely on Code of Civil Procedure section 1283.8, 10 and cases applying predecessor versions of that section (see, e.g., Librascope, Inc. v. Precision Lodge No. 1600, Internat. Assn, of Machinists (1961) 189 Cal.App.2d 71, 76-77 [10 Cal.Rptr. 795]), for the proposition that the 30-day award requirement is jurisdictional. Assuming that the procedural requirements of the California Arbitration Act contained in the Code of Civil Procedure govern these proceedings (see Volt Info. Sciences, Inc. v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 476-478 [103 L.Ed.2d 488, 498-500, 109 S.Ct. 1248]), the defect in the award—i.e., failing to establish an exact dollar amount for the award of fees and costs—is at most a defect in the 1106 form of the award. Pursuant to Code of Civil Procedure section 1284 (incorporating Code Civ. Proc., § 1286.6, subd. (c)), the arbitrator retained jurisdiction to correct the form of the award for 30 days after the final award was served on the parties. The date of service was no earlier than April 6, 1992. Accordingly, the May 6, 1992, “supplemental order” was a timely modification of the final order, correcting the form of the attorney fees and costs award. E. Did the Trial Court Err in Awarding Prejudgment Interest? Finally, appellants contend the trial court erred in awarding prejudgment interest, asserting three separate reasons. We will address each argument briefly. First, appellants claim the court erred in awarding such interest because it was not demanded in the petition to confirm the award. However, it is well established that, in a contested action, prejudgment interest may be awarded, if the plaintiff is entitled to it, even though the complaint contains no prayer for interest. (Sears, Roebuck & Co. v. Blade (1956) 139 Cal.App.2d 580 [294 P.2d 140].) “The rationale of these cases is the simple proposition that in a contested action on a money claim which can be made certain by calculation, the matter of interest for the withholding of the money is ‘embraced within the issue’ (Code Civ. Proc., § 580) and the appropriate interest may be allowed even though not prayed for....” (Id. at p. 596.) We can see no reason to distinguish between the award of interest on a complaint and on a petition to confirm an arbitration award. Appellants’ second contention is that respondents’ claims were unliquidated—indeed, they were the subject of the “hotly disputed” arbitration, as appellants phrase it—and therefore could not be the subject of an interest award under Civil Code section 3287. That section provides, in part: “Every person who is entitled to recover damages certain,... and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day [with certain exceptions not relevant here].” Interest was awarded not upon the unliquidated contract claims, as appellants contend, however, but solely upon the arbitration award from the date of the award. As of the date of the award, respondents were entitled to “recover damages certain” through entry of judgment confirming the award. (9 U.S.C. § 9; see Code Civ. Proc., §§ 1286, 1287.4.) Third, appellants argue, as to attorney fees and costs, the award of prejudgment interest thereon “pile[s] ‘damages’ (interest) on top of other 1107 ‘damages’ (attorneys’ fees and costs) which were themselves awarded on Alfa-Laval’s modest breach of contract damage claim.” This argument again misconceives the subject of the superior court petition. The petition was not for an award of damages and attorney fees on the original contracts. That underlying dispute was the subject of the arbitration, and had been concluded by the time of the superior court petition to confirm the award. The arbitration award itself resulted in a new and fixed liability (see Code Civ. Proc., § 1287.6). Regardless of the individual elements that comprised that liability, respondents were entitled to payment of the fixed sum upon issuance of the award. The arbitration award was the contractual equivalent of a judgment in respondents’ favor. In the context of a judicial judgment, it is clear that interest after judgment accrues as to the entire award, including attorney fees. (See 8 Witkin, Cal. Procedure (3d ed. 1985) Enforcement of Judgments, § 40(d), p. 58.) The prejudgment interest awarded respondents served the same purpose here. Although the interest was prejudicial judgment,” it was post-“contractual judgment.” Any result that denied respondents this postaward interest would punish them for using arbitration instead of the court system to resolve their dispute with appellants. Disposition The judgment is reversed and the matter is remanded to the trial court. The trial court shall conduct an evidentiary hearing on appellants’ petition to vacate the arbitrator’s award and respondents’ petition to confirm the award. The issues at such evidentiary hearing shall be limited to the following: (1) whether the nature of the relationship between the McCormick firm and respondents, as known to the arbitrator prior to the issuance of the arbitrator’s interim award, gives rise to evident partiality of the arbitrator based upon failure of the arbitrator to disclose to appellants his expert witness relationship with the McCormick firm; and (2) if so, whether the consequences of that failure to disclose are overcome by evidence presented on remand that the pertinent facts of evident partiality 11 were actually and timely revealed to or otherwise became known by appellants such that appellants have waived any right to complain about the arbitrator’s failure to disclose. 12 If the court finds “evident partiality” and that such has not 1108 been overcome by evidence of waiver, then arbitration proceedings shall commence anew. If the court finds to the contrary, the judgment shall be reinstated. Appellants are awarded their costs on appeal. Ardaiz, P. J., and Harris, J., concurred. A petition for a rehearing was denied June 6, 1995, and the opinion was modified to read as printed above. Respondents’ petition for review by the Supreme Court was denied August 10, 1995. 1 Appellants’ motion to augment record on appeal, filed July 19, 1994, is denied. Appellants’ request for judicial notice (Mar. 24, 1995) and respondents’ motion to augment record on appeal (Mar. 28, 1995) are granted. 2 For the first time, in appellants’ reply brief, there is the statement that appellants were “told that, to obtain the Alfa-Laval system and Alfa-Laval’s expertise, it had to agree to arbitration. [Record cite to declarations.] Indeed, these statements were as false as AlfaLaval’s earlier statements that its equipment was highly reliable....” (Italics added.) There is no record citation for this latter claim, and the citation to the opening brief is to a discussion of the representations about the machines, not about the necessity of agreeing to an arbitration clause. 3 One recent case, citing all of the foregoing cases in support of its conclusion, stated: “California cases are unanimous in holding that Prima Paint does not require arbitration where, as alleged here, the plaintiffs were so deceived they did not understand they were contracting.” (Lynch v. Cruttenden & Co. (1993) 18 Cal.App.4th 802, 811 [22 Cal.Rptr.2d 636].) 4 Also cited as Commonwealth Coatings Corp. v. Continental Casualty Co. 5 Even in those federal courts that have taken the narrowest possible view of the grounds for disqualification under the Act, there is still an emphasis on independent review of the issue of arbitrator bias and appearance of bias. Thus in Merit Ins. Co. v. Leatherby Ins. Co., supra, 714 F.2d 673, 680, the court wrote: “Although we have great respect for the Commercial Arbitration Rules and the [AAA] Code of Ethics for Arbitrators, they are not the proper starting point for an inquiry into an award’s validity under section 10 of the [federal act]. The arbitration rules and code do not have the force of law.” 6 Similarly, in Bernard, v. Hemisphere Hotel Management (1983) 16 Mass.App. 261 [450 N.E.2d 1084], the issue was not appearance of bias, but rather the arbitrator’s fitness for the position. After the arbitration commenced, it became known the neutral arbitrator on a three-man panel was a convicted felon who had misspelled his name on his biography to hide that fact. On appeal from a trial court order directing the AAA to handle disqualification proceedings in a certain manner, the appellate court wrote that the matter of arbitrator qualifications should be left to AAA with very limited judicial review. The court then stated that, by contrast to the issue of qualifications, “[p]artiality of a neutral arbitrator, however, is one of several post-award issues over which courts have power of decision by statute.” (Id. at p. 1086.) 7 We decline respondents’ invitation to make our own de novo review of the “appearance of bias” issue. For reasons described below, resolution of this issue in respondents’ favor requires a determination of credibility of witnesses particularly appropriate to a trial court proceeding. (See Overseas Private Inv. Corp. v. Anaconda Co. (D.D.C. 1976) 418 F.Supp. 107, 110-111.) 8 Respondents’ agreement on this point is, of course, qualified by their contention that appellants waived this claim by failing to act on their knowledge concerning Peterson’s earlier employment as an expert witness. 9 Secondarily, appellants argue that the arbitration clause of the contract did not mention “costs,” and “There is consequently no support in the parties’ agreements for an award of costs to Alfa-Laval.” This issue was conclusively resolved against appellants by the Supreme Court’s decision in Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 383 [36 Cal.Rptr.2d 581, 885 P.2d 994], decided after briefing in the present case was completed. Advanced Micro Devices held that arbitrators “enjoy the authority to fashion relief they consider just and fair under the circumstances existing at the time of the arbitration, so long as the remedy may be rationally derived from the contract and the breach.” (9 Cal.4th at p. 383.) Since costs would be awarded to the prevailing party under Code of Civil Procedure section 1032 if this matter had proceeded to superior court trial, such an award is clearly related to the full compensation of respondents for appellants’ breach of the contracts, even if the precise costs awarded by the arbitrator could not have been awarded by a court. 10 Section 1283.8 provides: “The award shall be made within the time fixed therefor by the agreement or, if not so fixed, within such time as the court orders on petition of a party to the arbitration. The parties to the arbitration may extend the time either before or after the expiration thereof. A party to the arbitration waives the objection that an award was not made within the time required unless he gives the arbitrators written notice of his objection prior to the service of a signed copy of the award on him.” 11 That is, the nature and extent of the relationship between the arbitrator and the McCormick firm. 12 As respondents correctly raise in their petition for rehearing, their efforts to present waiver evidence in the earlier superior court proceedings became moot when that court dismissed appellants’ petition to vacate. We thus find it appropriate to allow, on remand, *1108 presentation of evidence of appellants’ knowledge, limited to what appellants and their counsel knew during the narrow time frame from December 2, 1991, when the McCormick firm appeared in the arbitration at a time when Peterson was currently engaged as an expert witness by McCormick, and issuance of the interim award on May 22, 1992, the time frame during which, on the facts presented, appellants’ failure to act on such knowledge may be the basis for finding waiver.	LIMITED_OR_DISTINGUISHED
723 F.2d 1440	631 F.3d 652	C, CID	Hawaiian Electric Co. v. United States Environmental Protection Agency	OPINION OF THE COURT AMBRO, Circuit Judge. The Environmental Protection Agency (“EPA”) issued a letter opining that facili 654 ties operated by Ocean County Landfill Corporation (“OCLC”) and Manchester Renewal Power Holdings (“MRPC”) were under common control for the purposes of air emissions permitting. In this petition for review, OCLC challenges that determination under subsection 307(b)(1) of the Clean Air Act. See 42 U.S.C. § 7607(b) (providing for judicial review of any “final action” by the EPA). The EPA moved to dismiss for lack of subject matter jurisdiction. We now grant that motion. I. Background Under Title V of the Clean Air Act, certain stationary sources of air pollution must obtain federal operating permits. See generally 42 U.S.C. §§ 7661-7661f. Although a federal requirement, Title V permitting programs are administered and enforced primarily by state and local air permitting authorities, though EPA oversight continues. See 42 U.S.C. § 7661a(d)(l). That is the case in New Jersey, where the New Jersey Department of Environmental Protection (“NJDEP”) acts as the statewide Title V permitting authority. See 40 C.F.R. § 70, App. A. OCLC owns and operates a municipal solid waste landfill in Ocean County, New Jersey. MRPC operates a gas-to-energy facility on adjacent property. Currently, each entity operates under its own Title V permit. MRPC’s permit expired in 2004, and it sought renewal. In March 2005, the NJDEP issued a draft permit for public comment. Three months later, the EPA notified the NJDEP that there appeared to be a common control relationship between OCLC’s landfill and MRPC’s gas-to-energy facility, and requested a common control determination from the State. 1 When the State failed to take action, the EPA formally objected to the draft permit. Subsequently, the NJDEP requested the EPA’s assistance in making the determination. Over the next several years, with substantial input from OCLC and MRPC, the EPA assisted the NJDEP in conducting the common control analysis. This process culminated on May 11, 2009, when the EPA sent a letter to both entities advising them that the process had been concluded, and that it had found OCLC and MRPC to be under common control. 2 The letter indicated that the EPA “ren 655 der[ed] the determination as final,” and would require the existing Title V permits to be “reopened and reissued to both companies as a single source.” The EPA also noted that it had “directed NJDEP to proceed with permit modification, as required, to reflect the single source status of [OCLC] and [MRPC] operations,” although the NJDEP has yet to take any action. Under New Jersey’s application shield law, OCLC and MRPC will continue to operate under the conditions imposed by their expired permits until NJDEP issues a new permit. 3 N.J. Admin. Code § 7:27-22.8. II. Discussion Pursuant to 42 U.S.C. § 7607(b)(1), we have jurisdiction over “any... final action of the Administrator.” Thus, the question before us is whether the EPA’s common control determination is “final action” within the meaning of the statute. “As a general matter, two conditions must be satisfied for agency action to be ‘final’: First, the action must mark the ‘consummation’ of the agency’s decision-making process... — it must not be of a merely tentative or interlocutory nature. And second, the action must be one by which ‘rights or obligations have been determined,’ or from which ‘legal consequences will flow’.... ” Bennett v. Spear, 520 U.S. 154, 177-78, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (internal citations omitted). We review the following factors to determine whether an agency action is final: 1) whether the decision represents the agency’s definitive position on the question; 2) whether the decision has the status of law with the expectation of immediate compliance; 3) whether the decision has immediate impact on the day-to-day operations of the party seeking review; 4) whether the decision involves a pure question of law that does not require further factual development; and 5) whether immediate judicial review would speed enforcement of the relevant act. Univ. of Med. & Dentistry of N.J. v. Corrigan, 347 F.3d 57, 69 (3d Cir.2003) (citations omitted). OCLC argues that the EPA’s common control determination is final agency action because the EPA, in its letter of May 11, 2009, described its decision as “final” and required immediate enforcement of its decision by demanding that OCLC and MRPC’s existing permits be “reopened and reissued to both companies as a single source.” We disagree. First, although the EPA described its decision as “final,” it reasonably explains this comment to be in reference to the four-year-long process of making its common control determination. EPA’s letter is not “final” in the sense required for judicial review under 42 U.S.C. § 7607(b)(1) because the letter was only one, intermediate, step in the permitting process. Before a new permit governing OCLC and MRPC will issue, the NJDEP must provide the parties and the EPA with notice and an opportunity to comment on any draft permit. See 42 U.S.C. §§ 7661a(b)(6), 7661d(a). The EPA will also have an opportunity to object formally to the draft permit, and, if the NJDEP declines to address the EPA’s objections, to take over the permitting process from the State. See 42 U.S.C. § 7661d(b)-(c). There is no way to know in advance whether the final permit that results from that 656 process will incorporate the common control determination that OCLC seeks to challenge here. Thus, a new permit, not intermediate decisions, will mark the “consummation” of the agency’s decisionmaking process. Second, the EPA’s decision does not contemplate immediate compliance. Although the EPA has directed the NJDEP to accept its determination and begin a new permitting process, the NJDEP has yet to do either formally. OCLC contends that the NJDEP has agreed to rely on the EPA’s decision, but this is also not dispositive. See, e.g., Hindes v. FDIC, 137 F.3d 148, 163 (3d Cir.1998) (“[W]here a state actor relies upon a federal agency’s notice, the state action does not convert the notice into a final agency act under the APA.”). Additionally, OCLC will continue to operate under the terms of its existing permits until a new permit issues. Therefore, and third, the EPA’s decision has no effect on OCLC’s day-to-day operations. Fourth, the question of the validity of the EPA’s common control determination is not purely a legal one: our ability to decide the issue would benefit greatly from additional facts, most importantly the terms of a new permit and whether and/or how it will harm OCLC and, perhaps, how the new permit affects MRPC, which is not a party to OCLC’s petition for review. Finally, our immediate review would not speed enforcement of the Clean Air Act. To the contrary, it would delay further the permitting process. In sum, the EPA’s common control decision simply is not final agency action, which will only occur when a new permit issues. The text of the statute bolsters our conclusion. Specifically, 42 U.S.C. § 7661d(c) provides that “[n]o [EPA] objection shall be subject to judicial review until the Administrator takes final action to issue or deny a permit under this subsection.” Although OCLC correctly points out that the EPA’s May 11, 2009 common control determination was not itself a formal EPA “objection” to a draft permit, it arose out of, and directly relates to, EPA’s formal objection to the NJDEP’s draft permit for MRPC. We therefore regard § 7661d(c) as indicating Congress’s intent to subject those objections to judicial review only after the EPA’s issuance or denial of a permit. By contrast, the statutory provision on which OCLC seeks to rely, 42 U.S.C. § 7661d(b)(2), plainly does not apply here. That section provides for immediate judicial review when the EPA denies a third party’s petition requesting that the EPA object to a draft permit. In this case, OCLC has not petitioned the EPA to object to a draft permit; instead, it effectively has asked EPA to withdraw its objection to the NJDEP’s draft permit for MRPC. Several other Courts of Appeals have reached the same conclusion in similar circumstances. In Public Service Company of Colorado v. EPA, the Court of Appeals for the Tenth Circuit held that two EPA letters, which set forth the agency’s common control determination as to certain facilities, were not final action. 225 F.3d 1144 (10th Cir.2000). The Court dismissed the challenge for lack of jurisdiction, holding that the EPA’s opinion letters “in no way mark the consummation of its decision-making process, which cannot occur before the [Colorado Department of Public Health and Environment] has acted on the permit application.” Id. at 1147. The Court went on to note that the letters “do not determine any rights or obligations of [the Public Service Company] or any other entity; nor do legal consequences flow from these letters.” Id. at 1148 (citing Christensen v. Harris Cnty., 529 U.S. 576, 657 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) (“[Statutory] interpretations such as those in [agency] opinion letters... lack the force of law....”)). OCLC attempts to distinguish Public Service Company on grounds that the EPA letters in that ease neither stated that the agency’s determination was final nor directed the State to enforce the determination. OCLC argues further that the state permitting agency retained authority to decide that the facilities at issue were not under common control, and thus the EPA letters were more like “tentative recommendations.” Id. at 1147. These arguments do not persuade us. First, as discussed above, the EPA’s characterization of its decision as “final” is not dispositive. Moreover, although the EPA has directed the NJDEP to reopen the permitting process, the latter retains the authority to decline or delay adopting the determination and set the terms of the new permit. In addition, as the Tenth Circuit opined, “[e]ven if the [State] accedes to the EPA’s opinion... and denies the... permit, the opinion letters still would not constitute the consummation of EPA’s decision-making process.” Id. at 1148. Here, as in that case, once the NJDEP issues a permit, OCLC will be entitled to challenge it in state court, and the “EPA might well be convinced by a decision rendered in state court” to reverse itself on the common control decision. Id. The reasoning of the Court of Appeals for the Seventh Circuit in American Paper Institute, Inc. v. EPA also applies here. 882 F.2d 287 (7th Cir.1989). In that case, the American Paper Institute sought judicial review of a policy statement drafted by EPA Region V. The Seventh Circuit Court dismissed the petition for lack of jurisdiction, stating that Region V does not demand that any firm change its conduct now.... Every permit holder may proceed under the authority of its existing permit---- If states heed [Region V’s] suggestions to the detriment of paper mills, review is possible in state court. If states propose a course of action inconsistent with Region V’s wishes, the Administrator may overrule Region V. If the Administrator adopts Region V’s position and a permit is turned down, modified, or rescinded, review will be available in state or federal court. That review, on a full record, will disclose the EPA’s final position, as applied to the plant in question. Id. at 289. Similarly, here, if the NJDEP adopts the EPA’s determination and issues a permit that OCLC believes to be to its detriment, OCLC may seek review in state court. If the NJDEP refuses to adopt the EPA’s determination, the Administrator may overrule that decision, and review will be available in state or federal court. See Appalachian Energy Group v. EPA, 33 F.3d 319 (4th Cir.1994) (dismissing for lack of jurisdiction a challenge to a memo in which the EPA opined that a permit would be required for certain storm water discharges from construction activities because, among other reasons, the EPA had not issued or denied a permit); City of San Diego v. Whitman, 242 F.3d 1097 (9th Cir.2001) (dismissing San Diego’s challenge to an EPA letter — opining that the Oceans Pollution Reduction Act would apply to the City’s pollution discharge permit renewal — because agency action would not be final until the completion of the permit appeals process). The cases cited by OCLC are distinguishable. For example, in Star Enterprise v. EPA, both parties conceded that the determination at issue (that certain regulations promulgated under the Clean Air Act applied to gas turbines in an electrical power plant) was final agency action. *658 235 F.3d 139, 146 n. 9 (3d Cir.2000). Likewise, in Hawaiian Electric Company v. EPA, the agency determined that Hawaiian Electric Company’s proposed change to higher sulfur fuel would be a “major modification” that would trigger a permitting process. 723 F.2d 1440, 1441 (9th Cir.1984). Consistent with the EPA’s position in that case, the Court of Appeals for the Ninth Circuit held that the determination was final and reviewable because it represented “EPA’s final statement on the legal issues” and had immediate legal consequences — namely, that the company had to obtain a permit before switching fuels. Id. at 1442. Clearly, the situation here is different, as OCLC must obtain a permit regardless of the EPA’s determination on the issue of common control. 4 In sum, the EPA determination at issue here, an interlocutory decision in the larger permitting process, “defies characterization... as ‘final action’ from which an appeal may be taken.... ” Public Serv. Co., 225 F.3d at 1149. III. Conclusion For these reasons, the EPA’s common control determination is not “final action” within the meaning of 42 U.S.C. § 7607(b). Therefore, we lack jurisdiction to hear OCLC’s petition for review, and grant the motion to dismiss it. 1. Two or more stationary sources of air pollution may be considered a single source for air pollution permitting purposes if they are "located within a contiguous area and under common control.” 42 U.S.C. § 7661(2). The phrase "common control” is not defined in the statute, but, elsewhere in its regulations, the EPA has defined it as "the power to direct or cause the direction of the management and policies of a person or organization, whether by ownership of stock, voting rights, by contract, or otherwise.” 40 C.F.R. § 66.3(f) (setting forth when penalties may be imposed on a source that fails to meet a deadline or make an upgrade). 2. The EPA presumes that two entities are under common control when one operator locates on the property of another. JA 10. Because the OCLC and MRPC facilities are both located on property owned by OCLC’s corporate parent, the Atlantic Pier Company, Inc. ("APC"), the EPA employed the presumption. Id. In its letter of May 11, 2009, the EPA also pointed to the elaborate contractual relationships connecting the two entities and articulated the following (non-exhaustive) list of factors in support of its determination of common control: (1) APC retains control over some stock in MRPC’s subsidiary, Ocean Energy Holdings ("OEC”), that APC sold to MRPC; (2) MRPC depends on OCLC as its only source of fuel; (3) MRPC and OEC are not allowed to sell or transfer gas to another entity without written consent from a subsidiary of APC; and (4) the entities have a financial interest in each other (i.e., MRPC shares tax credits with APC). 3. We use the singular only for convenience, as we realize the theoretical possibility of new, but separate, permits. 4. We also question whether Hawaiian Electric was correctly decided, as it seems to be at odds with FTC v. Standard Oil Company, 449 U.S. 232, 242, 101 S.Ct. 488, 66 L.Ed.2d 416 (1980), in which the Supreme Court held that regulatory proceedings before an agency are "different in kind and legal effect from the burdens attending what heretofore has been considered to be final agency action.” Along the same lines, a more recent decision of the Court of Appeals for the Ninth Circuit suggests that "costs of statutory compliance,” such as the costs of undergoing permitting proceedings, must be borne by the private party and do not render an agency decision "final” for purposes of judicial review. Fairbanks N. Star Borough v. U.S. Army Corps of Eng’rs, 543 F.3d 586, 596 n. 11 (9th Cir.2008) (contrasting Hecla Mining Co. v. EPA, 12 F.3d 164 (9th Cir.1993) (holding that EPA action initiating permitting proceedings was not final agency action), with Hawaiian Electric).	CRITICIZED_OR_QUESTIONED
723 F.2d 1440	225 F.3d 1144	D	Hawaiian Electric Co. v. United States Environmental Protection Agency	MURPHY, Circuit Judge. I. INTRODUCTION The Environmental Protection Agency (“EPA”) issued two letters opining that a proposed new power plant and an existing plant owned by Public Service Company of Colorado (“PSCo”) will constitute a “single source” of air emissions for purposes of air emissions permitting. Pursuant to 42 U.S.C. § 7607(b), PSCo brought this appeal to challenge the EPA’s determination. The EPA then moved this court to dismiss PSCo’s appeal for lack of subject matter jurisdiction, arguing the opinion letters, do not constitute “final action” as required by § 7607(b). This court grants the EPA’s motion and dismisses the appeal. 1 II. BACKGROUND Under the federal Clean Air Act, any major emitting facility, which includes stationary sources of air pollutants, located in an area of the country which has already achieved the national ambient air quality standards must obtain a prevention of serious deterioration (“PSD”) permit prior to beginning initial construction or making certain modifications to an existing facility. See 42 U.S.C. §§ 7471; 7407(d)(l)(A)(ii); 7475(a)(1); 7410(a)(2)(C), (D); 7479(1), (2)(C); 7411(a)(2), (3), (4). Pursuant to rules and regulations promulgated by the EPA, the state of Colorado, rather than the EPA itself, is the permitting authority for almost all stationary sources within Colorado. See 40 C.F.R. §§ 52.02, 52.820; 51 Fed.Reg. 81,125 (1986). The Colorado Department of Public Health and Environment (“CDPHE”) has thus promulgated its own regulations governing the applicability and requirements for a PSD permit. See Colorado Air Quality Control Commission (“CAQCC”) Regulation No. 3, Parts A & B. In November of 1998, KN Power Company (“KN Power”) applied to the CDPHE for a PSD permit for the construction of a new power-generating plant (the “Front Range facility”) in Fort Lupton, Colorado. The Front Range facility was to be constructed by Front Range Energy Associates, LLC (“Front Range”), a joint venture formed by two companies, Quixx Mountain Holdings, LLC (“Quixx”) and FR Holdings, LLC. Quixx is a subsidiary of Quixx Corporation, which is a subsidiary of New Century Energies, Inc. (“New Century”) and FR Holdings is a subsidiary of KN Power. In April of 1999, PSCo, which owns and operates an existing power-generating facility also in Fort Lupton (the “PSCo facility”), entered into a power-supply agreement (the “Agreement”) with Front Range. Pursuant to the Agreement, Front Range would construct and operate the Front Range facility near the PSCo facility and PSCo would purchase the entire electric power and energy output from the Front Range facility. Moreover, the Front Range facility would be interconnected with the PSCo electric system. PSCo, like Quixx, is a subsidiary of New Century. Also in April, KN Power withdrew its PSD permit application and instead applied for a “minor source permit,” ostensibly because the Front Range facility would operate only during peak electricity demand periods and thus emit less than 250 tons of nitrogen dioxide and carbon monoxide per year. See 42 U.S.C. § 7479(1) 1146 (providing that certain types of stationary sources lacking the potential to emit 250 tons or more per year of an air pollutant do not qualify as “major emitting facilities”). After reviewing the minor source permit application and the attendant files, the CDPHE became concerned that the Front Range facility and the PSCo facility were, in part, under common ownership and that the two facilities would be co-managed. The CDPHE, therefore, questioned whether the Front Range facility would merely be a modification to the existing PSCo facility such that together they would actually constitute a single stationary source or major emitting facility, thus requiring a PSD permit prior to construction. See id. §§ 7479(2)(C), 7411(a)(2), (4); 40 C.F.R. § 51.166(b)(2)®, (23)®; 51.166(i)-(r). Under both federal and Colorado law, if the new Front Range facility and the existing PSCo facility (1) belong to the same industrial grouping, (2) are located on contiguous or adjacent property, and (3) are under common control, they constitute a single stationary source. See 42 U.S.C. § 7411(a)(3); 40 C.F.R. § 51.166(b)(6); CAQCC Regulation No. 3, Part A § I.B.59. If the two facilities constitute a single stationary source, construction of the Front Range facility would therefore be deemed a major modification to an existing major emitting facility, triggering the PSD permit requirement. See 40 C.F.R. § 51.166(b)(2)®, (23)®; id. § 51.166®-(r). The CDPHE indicated that the two facilities “clearly” met the first two elements of the definition of a single stationary source and it was unsure as to whether the third element of common control was also present. The CDPHE thus solicited the EPA’s opinion about whether the two facilities would constitute a single source. On October 1, 1999, in response to the CDPHE’s inquiry, the EPA sent a letter to the CDPHE “outlin[ing] [its] views” on whether the proposed Front Range facility and the existing PSCo facility would constitute a single source. The letter stated, “it is our interpretation of the PSD regulations that the [Front Range facility] and existing PSCo generating facility constitute a single source” and that the Front Range facility, “if constructed as proposed, would be a major modification of this major source and therefore, is subject to the requirement to obtain a PSD permit.” In the letter, the EPA reasoned that both the control vested in PSCo over the Front Range facility by the power supply agreement and New Century’s common ownership interests in both facilities demonstrated common control over the two facilities. After PSCo requested the EPA to reconsider its determination, the EPA sent a second letter on November 12, 1999 to the Associate General Counsel for New Century briefly reconfirming its earlier opinion. To this date, the CDPHE has neither granted nor denied the minor source permit. III. DISCUSSION In appealing the opinion rendered in the two EPA letters, PSCo contends this court has jurisdiction over that appeal pursuant to 42 U.S.C. § 7607(b). The parties agree that the relevant portion of § 7607(b) provides, A petition for review of the [EPA] Administrator’s action in approving or promulgating any implementation plan under section 7410 of this title or section 7411(d) of this title, any order under section 7411(j) of this title, under section 7412 of this title,[ ] under section 7419 of this title, or under section 7420 of this title, or his action under section 1857c-10(c)(2)(A), (B), or (C) of this title... or under regulations thereunder, or revising regulations for enhanced monitoring and compliance certification programs under section 7414(a)(3) of this title, or any other final action of the Administrator under this chapter (including any denial or disapproval by the Administrator under subchapter I of this chapter) which is locally or regionally applicable may be filed only in the United States Court of Appeals for the appropriate circuit. 1147 Id. § 7607(b)(l)(emphasis added). On EPA’s motion to dismiss, the question before this court is whether the two EPA letters constitute “final action” within the meaning of § 7607(b)(1). In Harrison v. PPG Industries, Inc., the United States Supreme Court considered the meaning of the words “any other final action” within § 7607(b)(1). See 446 U.S. 578, 586, 100 S.Ct. 1889, 64 L.Ed.2d 525 (1980). The parties in Harrison, however, agreed that the challenged EPA action constituted “ ‘final action’ as that term is understood in the context of the Administrative Procedure Act [ (‘APA’) ] and other provisions of federal law.” Id. The Court, therefore, was left to construe only the words “any other.” See id. at 586-94, 100 S.Ct. 1889. The holding in Harrison that § 7607(b)(1) conferred jurisdiction on the court of appeals over the challenged EPA action is thus inapposite to the instant case. Nonetheless, the Court’s acceptance of the parties’ agreement that the challenged action was a “final action” within the meaning of the APA counsels this court to look to interpretations of the term “final action” under the APA when construing that same term under § 7607(b)(1). 2 See id. at 586, 100 S.Ct. 1889. In resolving whether a particular agency action is final under the APA, this court recently stated, “we look to whether [the action’s] impact is direct and immediate, whether the action marks the consummation of the agency’s decisionmaking process, and whether the action is one by which rights or obligations have been determined, or from which legal consequences will flow.” Colorado Farm Bureau Fed’n v. United States Forest Serv., 220 F.3d 1171, 1172 (10th Cir.2000) (citations and quotations omitted). Application of these three factors in the instant case leads to the conclusion that the two EPA opinion letters do not constitute final action by the EPA. The impact of the letters is neither direct nor immediate, particularly as it concerns PSCo. In Franklin v. Massachusetts, the Court indicated that the direct and immediate impact factor addresses “whether [the agency action] is one that will directly affect the parties.” 505 U.S. 788, 797, 112 S.Ct. 2767, 120 L.Ed.2d 636 (1992)(emphasis added). Because PSCo is not even the company seeking a permit to build the Front Range facility, the EPA’s opinion concerning the type of permit required for the construction of that facility does not directly impact PSCo. At most, the EPA’s opinion letters could potentially cause an indirect impact upon PSCo, if the letters create delay in the construction of the Front Range facility which in turn inhibits Front Range from meeting its obligations to PSCo under the Agreement. 3 The EPA letters do not even cause a direct and immediate impact upon KN Power, the company actually seeking a permit to build the Front Range facility, because it is the CDPHE as the permitting agency, and not the EPA, which will initially determine whether a minor source permit or a PSD permit is required. Although the EPA ultimately could overturn any decision rendered by the CDPHE, the opinion expressed in the two letters “serves more like a tentative recommendation than a final and binding determination.” Id. at 798, 112 S.Ct. 2767; see 42 U.S.C. §§ 7413(a)(5), 7661d(b)(l). Moreover, the two EPA opinion letters in no way mark the consummation of its decision-making process, which cannot occur before the CDPHE has acted on the permit application. As mentioned above, it is the CDPHE which first ascertains whether the Front Range facility may be constructed with merely a minor source 1148 permit or whether the PSD permit is required. See 40 C.F.R. §§ 52.02, 52.320; 51 Fed.Reg. 31,125 (1986). If the CDPHE issues a minor source permit, the EPA could then step in and take some enforcement action against the state or against Front Range or it could veto the permit issued. See 42 U.S.C. §§ 7413(a)(5), 7661d(b)(l). The EPA could also alter its opinion after the CDPHE has issued the minor source permit and allow construction of the Front Range facility to proceed under that permit. The EPA, however, cannot act until the CDPHE does, and the CDPHE has yet to act on the minor source permit application. Even if the CDPHE accedes to the EPA’s opinion as stated in the two letters and denies the minor source permit, the opinion letters still would not constitute the consummation of the EPA’s decision-making process. Under Colorado law, KN Power would be entitled to a review by the Air Quality Control Commission of the CDPHE’s denial of the minor source permit. See Colo.Rev.Stat. §§ 25-7-114.5(8), -03(7). If the Air Quality Control Commission upheld the CDPHE’s determination, KN Power could still seek judicial review in state court. See id. § 25-7-120. The EPA might well be convinced by a decision rendered in state court or by the Air Quality Control Commission that construction of the Front Range facility does not trigger PSD permit requirements. The two letters issued well before this state process has even begun, therefore, do not mark the consummation of the EPA’s decision-making process. Finally, the two opinion letters do not determine any rights or obligations of PSCo or any other entity; nor do legal consequences flow from these letters. See Christensen v. Harris County, — U.S. -, 120 S.Ct. 1655, 1662, 146 L.Ed.2d 621 (2000) (“[Statutory] interpretations such as those in [agency] opinion letters... lack the force of law....”). In arguing to the contrary, PSCo contends that a draft of the October 1 letter which was earlier sent to the CDPHE did determine Colorado’s obligation to deny the minor source permit and require a PSD permit when it stated the following: “If Colorado issues the signed [minor source] permit to the applicant, the State will not be acting in compliance with requirements of the Act relating to the construction and modification of new sources. EPA Region VIII is considering what action to take to prevent such noncompliance.... ” PSCo contends that in this statement, the EPA overtly threatened enforcement action against Colorado, thus placing upon the CDPHE a legal obligation to deny the minor source permit. The nature of this letter as a mere draft and the deletion of this purported threat from the finalized version of the letter sent on October 1, however, suggest that the EPA had not definitively determined the obligations of the state of Colorado when it sent the October 1 letter. The October 1 letter itself began with far more temperate language, stating “this letter outlines the [EPA’s] views,” and it never ordered the state or any other party to take any particular action. 4 In arguing further that legal consequences flow from the EPA letters, PSCo relies on the Ninth Circuit decision in Hawaiian Electric Co. v. United States Environmental Protection Agency, 723 F.2d 1440, 1442 (9th Cir.1984). In Hawaiian Electric, the Ninth Circuit concluded an EPA determination that a PSD permit was required before a power plant could switch to a higher sulfur fuel constituted final agency action under § 7607(b)(1). See id. 1149 at 1441-42. The Ninth Circuit reasoned, “although the [EPA’s] application of the major modification definition is an interim step in the PSD permitting process, it has immediate legal consequences, i.e., the requirement of PSD review.” Id. at 1442. Admittedly, the major modification determination in Hawaiian Electric is very similar to the opinion expressed in the two EPA letters in the instant case. The legal consequence of the EPA’s determination in Hawaiian Electric that PSD review was required, however, does not similarly flow from the EPA opinion letters here. Unlike in Hawaiian Electric, the EPA is not the permitting authority in the state of Colorado. See id. at 1441. As discussed above, the two EPA opinion letters do not obligate the CDPHE to subject the Front Range facility construction project to PSD review; the CDPHE can instead choose to issue a minor source permit, and only then can the EPA take action to require PSD review. Hawaiian Electric, therefore, is distinguishable. In sum, the nature of both the permitting process in Colorado and the EPA letters themselves defies characterization of those letters as “final action” from which an appeal may be taken under 42 U.S.C. § 7607(b)(1). IV. CONCLUSION Because PSCo’s appeal pursuant to 42 U.S.C. § 7607(b) fails to challenge a “final action” by the EPA, this court DISMISSES the appeal for want of subject matter jurisdiction. 1. The Colorado Association of Commerce and Industry and the Edison Electric Institute filed motions to become amici curiae in this appeál. Because their briefs only address the merits of PSCo's appeal and this court does not reach the merits, we deny both motions. 2. Consistent with this approach, both the EPA and PSCo rely on decisions construing the words "final action” within the APA. 3. Because this court dismisses PSCo’s appeal for lack of subject matter jurisdiction under 42 U.S.C. § 7607(b), we need not resolve the separate question whether PSCo has standing to pursue its challenge to the EPA’s determination. 4. PSCo's failure to ask this court for any specific relief, other than a reversal of the EPA’s determination in its opinion letters, perhaps reveals a tacit admission that the EPA has yet to impose any affirmative obligations upon or declare any rights of PSCo or other involved entities. This court would violate Article Ill’s prohibition against advisory opinions were it to do that which PSCo requests, i.e., issue a mere statement that the EPA's interpretation and application of the law was incorrect without ordering some related relief. See generally United States v. Burlington N. R.R. Co., 200 F.3d 679, 699 (10th Cir.1999).	LIMITED_OR_DISTINGUISHED
727 F.2d 823	993 F. Supp. 743	D	R. Dean Hollins v. Kaiser Foundation Hospitals, the Permanente Medical Group, and Kaiser Foundation Health Plan	ORDER VACATING HEARING DATE; GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT CHESNEY, District Judge. Plaintiff was fired from his job of 19 years after he signed a statement admitting drug use. He filed a complaint for breach of contract in state court, which was removed to this Court on the ground that the terms of his employment were governed by a collective bargaining agreement (“CBA”). Now before the Court is the motion of defendant to dismiss or, in the alternative, for summary judgment. The Court deems this matter appropriate for determination upon the papers filed in support of and in opposition to the motion. Accordingly, the hearing set for November 21,1997, is hereby VACATED. FACTS/PROCEDURAL HISTORY On April 30, 1997, plaintiff Brian O’Sullivan (“O’Sullivan”) filed a breach of contract complaint against his former employer, defendant Longview Fibre Company (“Long-view”) in Alameda County Superior Court. O’Sullivan alleges that hé worked for Long-view for over nineteen'years under an implied-in-fact contract that O’Sullivan would not be fired except for good cause. •' According to O’Sullivan, on June 20, 1995, he was “instructed to attend, an interview, which turned out to be an interrogation about drug use.” After being intimidated, O’Sullivan signed a statement admitting that he used drugs. He was thereupon fired. Plaintiff contends that by terminating him, Longview breached the implied-in-fact agreement because: (1) There was no evidence of daily use while at work; (2) Plaintiff incurred no accidents; (3) There was no adverse publicity; (4) No prior disciplinary history; (5) The discharge was not consistent with a co-policy; and (6) other employees were not so treated. (Complaint p. 3). Longview was served with the summons and complaint on September 8, 1997. (Notice of Removal 1:23-26). On October 3, 1997, Longview removed the case to this Court on the ground that O’Sullivan’s claim was preempted by § 301 of the Labor-Management Relations Act (“LMRA”), 29 U.S.C. § 185. Filed with the Notice of Removal was a copy of a collective bargaining agreement (“CBA”) covering the period June 17, 1995 through June 16,1999. (Arkell Deck in Supp. of Notice of Removal, Ex. 1). On October 10, 1997, Longview filed a motion to dismiss for failure to state a claim or, in the alternative, for summary judgment, 745 noticed for hearing on November 21, 1997. O’Sullivan filed a late opposition to the motion on November 5, 1997, and Longview filed a late reply on November 14, 1997. DISCUSSION Longview contends that O’Sullivan’s breach of contract claim must be dismissed because (1) he failed tó exhaust his remedies under’ the CBA; and, even if this failure is excused (2) he failed to file the instant breach of contract claim within the six-month statute of limitations period applicable under the LMRA. I. Legal Standard A. Motion to Dismiss — Rule 12(b)(6) A motion to dismiss under Rule 12(b)(6) cannot be granted unless “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept. 901 F.2d 696, 699 (9th Cir.1988). Generally, a court may not consider materials beyond the pleadings in ruling on a motion to dismiss. Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.1989). However, material which is properly submitted as part of the complaint may be considered. Id. In addition, a court may consider documents whose contents are specifically alleged in a complaint, and whose authenticity no party questions, even though the documents are not physically attached to the pleading. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994). Finally, the Court may take judicial notice of matters of public record outside the pleadings. MGIC Indemnity Corp. v. Weisman, 803 F.2d 500, 504. (9th Cir.1986). In this case, Longview requests that the Court consider (1) the CBA, which Longview filed with its Notice of Removal, and (2) the declaration of R.B. Arkell, Vice President of Industrial Relations and General Counsel of Longview. Since neither piece of evidence was attached or specifically referred to in O’Sullivan’s complaint, the Court must construe Longview’s motion as one for summary judgment. B. Motion for Summary Judgment— Rule 56 Rule 56(e) of the Federal Rules of Civil Procedure provides that a court may grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” The Supreme Court’s 1986 “trilogy” of Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), requires that a party seeking summary judgment show the absence of a genuine issue of material fact. The moving party need not produce admissible evidence showing the absence of a genuine issue of material fact when the nonmoving party has the burden of proof, but may discharge its burden simply by pointing out that there is an absence of evidence to support the nonmoving party’s case. Celotex, 477 U.S. at 324-25, 106 S.Ct. at 2553-54. Once the moving party has done so, 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 (quoting Fed.R.Civ.P. 56(c)). “When the moving party has carried its burden under Rule 56(e), its opponent must do more than simply show that there is some metaphysical. doubt as to the material facts.” Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356. “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Liberty Lobby, 477 U.S. at 249-50, 106 S.Ct. at 2511 (citations omitted). When determining whether there is a genuine issue for trial, “inferences 746 to be drawn from the underlying facts... must be viewed-in the light most favorable to the party opposing the motion.” Matsushita, 475 U.S. at 587,106 S.Ct. at 1356 (citation omitted). II. Analysis A. LMRA Preemption Section 30Í of LMRA provides: Suits for violation of contracts between, an employer and a labor organization representing employees in an industry affecting commerce as defined in this chapter, or between any such labor organizations, may be brought in any district court of the United States having jurisdiction over.the parties, without respect to' the amount in controversy or without regard to the citizenship of the parties. 29 U.S.C. § 185(a). As interpreted by the courts, § 301 confers jurisdiction on the federal courts over controversies involving collective bargaining agreements, and, in addition, “authorizes the courts to fashion ‘a body of federal law for the enforcement of these collective bargaining agreements.’ ” United Steelworkers, of America v. Rawson, 495 U.S. 362, 368, 110 S.Ct. 1904, 1909, 109 L.Ed.2d 362 (1990) {quoting Textile Workers v. Lincoln Mills of Alabama, 353 U.S. 448, 451, 77 S.Ct. 912, 915, 1 L.Ed.2d 972 (1957)). The comprehensive body of law thereby created is designed to guarantee the smooth functioning of the voluntary collective bargaining process and the preservation of industrial peace. Teamsters v. Lucas Flour Co., 369 U.S. 95, 103-104, 82 S.Ct. 571, 576-77, 7 L.Ed.2d 593 (1962). “Although the language of § 301 is limited to suits for violation of contracts, it has been construed quite broadly to cover most state-law actions that require interpretation of labor agreements.” Builders & Contractors, Inc. v. Local 302 International Brotherhood of Electrical Workers, et al., 109 F.3d 1353, 1356 (9th Cir.1997) (internal quotations omitted). Where the suit requires interpretation of a labor agreement, § 301 “converts an ordinary state law complaint into a federal claim” and empowers the defendant to remove the action to federal court. Id. “State law is thus ‘pre-empted’ by § 301 in that only the federal law fashioned by the courts under § 301 governs the interpretation and application of collective-bargaining agreements.” United Steelworkers, 495 U.S. at 368, 110 S.Ct. at 1909. On the other hand, where a state law-based claim does not require interpretation of a collective bargaining agreement, it is not preempted by federal law. Beals v. Kiewit Pacific Co., Inc., 114 F.3d 892, 895 (9th Cir.1997); Contract Services Network, Inc. v. Aubry, 62 F.3d 294, 299 (9th Cir.1995). Longview asserts, correctly, that O’Sullivan’s breach of contract claim is preempted because the terms of his employment, and the conditions under which he could be terminated, were governed by the CBA. Specifically, the CBA provides: Discharge or suspension of an Employee (not including a temporary suspension pending consideration of discharge) shall be based on just and sufficient cause with full explanation given to the Employee in writing. Proven violations as set forth in the Company’s Substance Abuse Policy and Plant Rules, currently in effect or as may hereafter be revised, constitute “just and sufficient cause” for the purpose of this provision. (Arkell Decl. in Supp. of Removal, Ex. 1 (CBA § 138 Pa. 576, 21 A. 1)). Where as here an employee’s claim is that he was terminated without good cause, and where the employee’s claim does not implicate public' policy, the claim is preempted. See Young v. Anthony’s Fish Grottos, Inc., 830 F.2d 993, 997, 1001-1002 (9th Cir.1987); see also Schlacter-Jones v. General Telephone, 936 F.2d 435, 439-40 (9th Cir.1991) (where drug testing policy was contemplated by or part of CBA, plaintiffs claim that she was terminated without good cause after testing positive for drugs was preempted). In an attempt to avoid the conclusion of preemption, O’Sullivan recharacterizes his claim. He asserts that “the underling [sic] issue which is the basis of plaintiffs complaint is not whether or not there was just and sufficient cause for his discharge, but whether or not he was afforded the same 747 treatment as other employees who had signed statements under coereement [sic] or tested positive for drug use.” (Opp.5:15-18). O’Sullivan’s attempt must fad. His complaint does not allege that Longview discriminated against him in violation of California’s fair employment laws, but that Longview terminated him without good cause since there was no evidence that he had used drugs at the workplace or had been performing his work in a dangerous manner. If a court were to address this claim on its merits, the court would be required to examine and interpret the CBA and the Substance Abuse Policy then in effect. O’Sullivan next argues that his claim is not preempted by the LMRA because he was not able to take full advantage of the grievance procedure established by the CBA O’Sullivan declares that two days after he was terminated, he sent a letter to his shop steward complaining of his termination. (O’Sullivan Deck ¶ 9). 1 According to O’Sullivan, the steward took no action, responding that the grievance was “too late” and that it would be “futile” to pursue it. (O’Sullivan Deck ¶ 10). “About a month later,” he received a letter from his union stating that the union did not intend to pursue O’Sullivan’s grievance further. (O’Sullivan Deck ¶ 10). It is true that “[discharged employees who lack access to the grievance procedure under the collective bargaining agreement cannot state a claim for breach of the collective bargaining agreement, and federal courts therefore lack jurisdiction over their section 301 claims.” Young, 830 F.2d at 998 n. 2 (citing Hollins v. Kaiser Foundation Hospitals, 727 F.2d 823, 825 (9th Cir.1984)). This rule, however, applies where the employees are precluded by the CBA from resorting to the grievance procedure. See Hollins, 727 F.2d at 824-25 (federal court had no jurisdiction over probationary employee’s claim for breach of CBA where CBA provided that during probation period, employee could be discharged without recourse to grievance procedure). Here, O’Sullivan did not lack access to the grievance procedure; thus the jurisdictional rule set forth in Young and Hollins is inapplicable. For the foregoing reasons, O’Sullivan’s cause of action for breach of contract is preempted by the LMRA. B. Exhaustion of Grievances. Longview contends that O’Sullivan’s claim must be dismissed because he failed to exhaust the CBA grievance procedures. 2 According to R.B. Arkell, Vice President of Industrial Relations and General Counsel of Longview Fibre Company, “[w]ithin 15 days of his discharge as required by the collective bargaining agreement, the Graphic Communications Union District Council No. 2 filed a grievance on O’Sullivan’s behalf but did not pursue the grievance any further.” (Arkell Deck in Supp. of Motion ¶ 4). “An employee seeking a remedy for an alleged breach of the collective-bargaining agreement between his union and employer must attempt to exhaust any exclusive grievance and arbitration procedures before he may maintain a suit against his union or employer----” Clayton v. International Union, United Automobile, Aerospace and Agricultural Implement Workers or America, 451 U.S. 679, 681, 101 S.Ct. 2088, 2091, 68 L.Ed.2d 538 (1981). The attempt need not result in a complete exhaustion of the grievance procedure, however. The employee is excused from complete exhaustion “if the union breaches its duty of fair representation.” Herman v. United Brotherhood of Carpenters, 60 F.3d 1375, 1380 (9th Cir. 1995); accord Croston v. Burlington Northern Railroad Company, 999 F.2d 381, 386 (9th Cir.1993) (applying rule to claim under Railway Labor Act). Breach of the union’s duty of fair representation is shown where “the union arbitrarily ignores a meritorious 748 grievance or processes it in a perfunctory-fashion.” Herman, 60 F.3d at 1380. Where, on summary judgment, an employee raises a triable issue that his “grievance was facially meritorious” and that “the failure to process [the] grievance results not from an exercise of good faith judgment but rather an egregious disregard for the rights of union members,” his claim will not be dismissed for failure to exhaust. Id. at 1380-81. O’Sullivan has submitted as evidence his own declaration stating that although he timely submitted his grievance to his steward, his steward told him that it was “too late.” (O’Sullivan Decl. ¶ 10). This is evidence, albeit not strong evidence, that the union ignored O’Sullivan’s grievance or processed it in a perfunctory manner. As to the substance of the grievance, O’Sullivan declares that after he was coerced into signing a statement that he smoked marijuana on á lunch break, he was fired. (O’Sullivan Decl. ¶ 6). O’Sullivan does not state that the statement he signed was untrue, or that under the CBA and Longview’s Substance Abuse Policy, he could be fired only for smoking marijuana while actively working. Thus, the Court has before it no evidence that O’Sullivan’s. claim was meritorious. Accordingly, Longview is entitled to' summary judgment on the ground that O’Sullivan has failed to exhaust the grievance procedure. C. Statute of Limitations Assuming for the sake of argument that O’Sullivan has presented a triable issue that he is excused from the exhaustion requirements because of the union’s breach of its duty of representation, Longview asserts that, in addition, O’Sullivan failed timely to file his action in court. Section 301 of the LMRA, 15 U.S.C. § 185, contains no statute of limitations. Thus, courts are forced to borrow statutes of limitations from elsewhere. DelCostello v. International Brotherhood of Teamsters, 462 U.S. 151, 154, 103 S.Ct. 2281, 2285, 76 L.Ed.2d 476 (1983). In DelCostello, the Supreme Court held that in suits alleging that an employer breached a provision of a CBA and that the union breached its duty of fair representation by mishandling the ensuing grievance and arbitration proceedings, the six-month statute of limitations contained in § 10(b) of the National Labor Relations Act, 29 U.S.C. § 160(b), governs both the claim against the employer and the claim against the union. Id. at 154, 165, 103 S.Ct. at 2281, 2291. The Court distinguished “a straightforward breach-of-contract suit under § 301” brought against an employer, which would be governed by the state’s statute of limitations for breach of contract, from a “hybrid” claim against the employer and the union. Id. at 165,103 S.Ct. at 2291. In the latter ease, the breach of contract and fair representation claims are “inextricably interdependent.” Id. “To prevail against either the company or the Union,... [employee-plaintiffs] must not only show that their discharge was contrary to the contract, but must also carry the burden of demonstrating breach of duty by the Union.” The six-month statute of limitations for hybrid claims applies to LMRApreempted state law causes of action, and to eases where the employee chooses to name only the employer as a defendant. Stallcop v. Kaiser Foundation Hospitals, 820 F.2d 1044, 1046, 1049 (9th Cir.1987). Id. (alternations in original, internal quotations omitted). In this ease, although O’Sullivan chose to sue only Longview and not the union, the case is a “hybrid” for the reasons discussed in the exhaustion section, II.B., above. Accordingly, the six-month statue of limitations applies. Because O’Sullivan filed his complaint more than 20 months after he learned that the union would not pursue his grievance, (O’Sullivan Decl. ¶¶ 7-11; Complaint p. 1), his claim is time barred. CONCLUSION For the foregoing reasons, the Court GRANTS Longview’s motion for summary judgment. The Clerk shall close the file. IT IS SO ORDERED. 1. See footnote 2, infra. Pursuant to the CBA, "Step I" of the grievance procedure involves the employee, the employee’s immediate supervisor, and the employee's steward. (Arkell Deck in Supp. of Removal, Ex. 1 (CBA § 27 B)). 2. Grievances are adjusted initially through a three-step process. The union or a union- official is involved in each step. If the steps do not result in a settlement of the grievance, the dispute may be moved to arbitration, and ultimately to court. (See Arkell Deck in Supp. of Notice of Removal, Ex. 1 (CBA §§ 27-28)).	LIMITED_OR_DISTINGUISHED
727 F.2d 823	437 Mich. 441	D	R. Dean Hollins v. Kaiser Foundation Hospitals, the Permanente Medical Group, and Kaiser Foundation Health Plan	437 Mich. 441 (1991) 473 N.W.2d 249 AMALGAMATED TRANSIT UNION, LOCAL 1564, AFL-CIO v. SOUTHEASTERN MICHIGAN TRANSPORTATION AUTHORITY Docket No. 85589, (Calendar No. 5). Supreme Court of Michigan. Argued October 2, 1990. Decided July 15, 1991. Sachs, Nunn, Kates, Kadushin, O'Hare, Helveston & Waldman, P.C. (by Theodore Sachs and I. Mark Steckloff), for the plaintiff. Dickinson, Wright, Moon, Van Dusen & Freeman (by John Corbett O'Meara, Thomas G. Kienbaum, and Theodore R. Opperwall) for the defendant. BOYLE, J. This action arises under MCL 423.210(1)(e); MSA 17.455(10)(1)(e) of the public employment relations act. Amalgamated Transit Union has charged that the Southeastern Michigan Transit Authority (now the Suburban Mobility Authority for Regional Transportation) committed an unfair labor practice by unilaterally altering a term or condition of employment, specifically the disciplinary scheme applicable to probationary employees. We affirm the decision of the Court of Appeals, which upheld the conclusion of the Michigan Employment Relations Commission that SEMTA did engage in an unfair labor practice by unilaterally altering the disciplinary policy it applied to probationary employees. I In 1975, the parties drew up a letter of understanding specifying penalties for an operator's failure to appear for work at the scheduled time and place. This letter was substantially incorporated in the 1977 contract between the parties as article 445 37, § 1, providing a seven-step "Miss-Outs" procedure.[1] The 1977 contract also contained the following provision regarding probationary employees: All new OPERATORS coming within the scope of this Agreement shall be on probation for a period of ninety (90) calendar days from the date they complete their training requirements. Such probationary period shall constitute a trial period during which the AUTHORITY judges the ability, competency, fitness, and other qualifications of new OPERATORS to do the work for which they were employed.... During such probationary period, the AUTHORITY may discharge the OPERATOR at any time and its right to do so shall not be questioned by the UNION; nor shall the UNION assert or present any grievance on behalf of any such new OPERATOR. The above provisions of article 6, §§ 1-2, of the 1977 contract were also contained in the 1974-77 contract between the parties; however, the earlier contract provided that both the union and SEMTA were to judge the qualifications and fitness of probationary employees.[2] 446 The evidence presented at the hearing in this matter showed that SEMTA generally applied the provisions of article 37, § 1 to probationary employees. In July or August of 1979, SEMTA altered this practice and began applying a new "miss" policy to probationary employees. Union officers met with members of SEMTA management to protest this change. On August 15, 1979, SEMTA posted the new policy whereby probationary employees would be automatically terminated from employment after only four misses. The union filed the instant unfair labor practice charge on February 12, 1980. Upon a motion by SEMTA, the MERC stayed its proceedings pending the conclusion of the arbitration proceedings. After considering the terms of the contract as well as the practices of the parties, the arbitrator initially found that article 37, § 1 of the 1977-80 collective bargaining agreement, specifying a seven-step disciplinary scheme for "misses," did apply to probationary employees, and "that [article 6, § 2] does not prevent the Union from questioning disciplinary action, including discharge, by SEMTA of probationary employees for engaging in miss-outs, or the presentation of grievances by the Union on behalf of such operators in such circumstances." 447 On appeal, the circuit court again examined the contract, particularly articles 6 and 37, and concluded that the miss policy applicable to probationary employees was not subject to arbitration. The court's analysis turned on the article 6 provision that SEMTA was to judge the "ability, competency, fitness, and other qualifications" of probationary employees. Any contract provision relating to the "ability, competency, fitness, and other qualifications" of probationary employees, the court concluded, was not subject to arbitration.[3] The court found that misses failure to appear at the scheduled time and place related to the qualifications of probationary employees. The court thus found that the arbitrator lacked jurisdiction and granted summary disposition in favor of SEMTA. The Court of Appeals affirmed the decision of the circuit court on somewhat different grounds. Relying on the language of article 6, § 2 and article 10, § 1, the Court of Appeals concluded that the contract dispute was not arbitrable: Article 6, § 2 of the collective-bargaining agreement between plaintiff and defendant states that the union will not assert or present any grievance on behalf of any probationary employee. Article 10, § 1 of the agreement defines a grievance as any matter involving the interpretation or application of the terms of the agreement and any dispute concerning the suspension or discharge of an employee. Under these articles, defendant is prohibited 448 from bringing a grievance to arbitration if it concerns a probationary employee. Because defendant was prohibited from bringing the grievance to arbitration by a specific clause of the collective-bargaining agreement, we can say with positive assurance that the arbitration clause did not cover this agreement. [116 Mich App 154, 158; 321 NW2d 876 (1982).] The union did not appeal the Court of Appeals determination. With arbitration thus concluded, the MERC proceedings relating to the union's unfair labor practice charges resumed. In a decision and recommended order, the hearing referee rejected SEMTA'S argument that the circuit court's order granting SEMTA summary disposition was res judicata regarding the matters raised in the unfair labor practices charge. The hearing officer reasoned that since the instant charge alleged statutory issues and not merely a contract violation, it raised issues which were not and could not have been resolved in the arbitration proceedings. She concluded next that the application of the miss policy contained in article 37 of the parties' collective bargaining agreement to probationary employees became a term or condition of employment which could not be altered unilaterally. The hearing officer viewed the crux of the dispute as being whether article 6, § 2 of the collective bargaining agreement waived the union's right to bargain over changes in the disciplinary policy applicable to probationary employees and concluded that the union did not waive such right. The Michigan Employment Relations Commission affirmed the decision of the hearing officer. 1987 MERC Lab Op 721. The MERC agreed that SEMTA'S consistent application of the seven-step miss procedure set forth in article 37, § 1 had rendered the procedure a term or condition of 449 employment for probationary employees. The MERC cast the waiver question as "whether [SEMTA'S] practice should be regarded as subservient to Article 6, and the duty to bargain over changes in the practice waived, or whether the existence of the practice served to limit the grant of broad discretion contained in Article 6 to the extent of requiring [SEMTA] to give notice to and bargain with [the union] before changing this policy." Id. at 730. The MERC concluded that the latter was the case, emphasizing the stringent standard applied to the waiver of statutory rights. The MERC also rejected SEMTA'S argument that the prior circuit court and the Court of Appeals determinations in the arbitration proceedings estopped consideration of the union's charge of unfair labor practices. The Court of Appeals affirmed the commission's decision, Amalgamated Transit Union v Southeastern Michigan Transportation Authority, unpublished opinion per curiam of the Court of Appeals, decided February 10, 1989 (Docket No. 103428). This Court granted leave to appeal in an order issued April 16, 1990. 434 Mich 900 (1990). Appellant has raised three issues for this Court's consideration: 1) whether the doctrine of collateral estoppel precludes the union from asserting the instant unfair labor practice charge, 2) whether the MERC erred when it concluded that the seven-step miss procedure had become a term or condition of employment for probationary employees, and 3) whether the MERC erred in finding that the union did not waive its statutory right to bargain over such term or condition of employment. II The PERA imposes a duty to negotiate in good faith over mandatory subjects of bargaining which persists during the life of the collective bargaining 450 agreement. MCL 423.215; MSA 17.455(15).[4] Thus, while the parties may by contract agree to grant the right to take unilateral action, it is well established that neither party may take unilateral action on such a subject unless it either has satisfied the statutory obligation or has been freed from it. NLRB v C & C Plywood Corp, 385 US 421; 87 S Ct 559; 17 L Ed 2d 486 (1967). Our review of the commission's decision is circumscribed by the statutory mandate that factual findings of the commission are conclusive if supported by competent, material, and substantial evidence on the record considered as a whole. MCL 423.216(e); MSA 17.455(16)(e), Const 1963, art 6, § 28. Review of factual findings of the commission must be undertaken with sensitivity, and due deference must be accorded to administrative expertise. Reviewing courts should not invade the exclusive fact-finding province of administrative agencies by displacing an agency's choice between two reasonably differing views of the evidence. MERC v Detroit Symphony Orchestra, 393 Mich 116, 124; 223 NW2d 283 (1974). Legal rulings of administrative agencies are not given the deference accorded factual findings. Legal rulings of an administrative agency are set aside if they are in violation of the constitution or a statute, or affected by a substantial and material error of law. MCL 24.306(1)(a), (f); MSA 3.560(206)(1)(a), (f). Southfield Police Officers Ass'n v Southfield, 433 Mich 168; 445 NW2d 98 (1989). III Thus we turn to the first issue on appeal. SEMTA 451 argues that the issue now cast as an unfair labor practice in violation of the PERA presents the same factual question that was resolved in the earlier arbitration proceedings. Collateral estoppel applies to preclude relitigation of issues actually determined by final judgment and essential to the judgment in a prior action between the parties. Senior Accountants v Detroit, 399 Mich 449, 459; 249 NW2d 121 (1976). 1 Restatement Judgments, 2d, § 27, p 250. In order for collateral estoppel to apply, the issue must be identical to that determined in the prior action. NAACP v Detroit Police Officers Ass'n, 821 F2d 328, 330 (CA 6, 1987). SEMTA characterizes the dispositive issue determined in the prior action as the finding "that `misses' for probationary operators related to their `qualifications' as judged by SEMTA under Article 6, and that Article 37's seven-step procedure simply did not apply to probationary operators." (Emphasis in the original.) Assuming that the circuit court did in some sense resolve what SEMTA generally refers to as the "Article 37 versus Article 6" issue, it did so as a matter of contractual interpretation. The question of contract interpretation which was decided in arbitration is not identical to the statutory issue in this case.[5] It is true that this action is based upon the same events that underlay the earlier arbitration proceedings, specifically SEMTA'S application of a four-step disciplinary procedure to probationary employees beginning in July or August, 1979. But as this Court recognized in Bay City Schools v Bay City Ed Ass'n, 425 Mich 426, 452 430; 390 NW2d 159 (1986), contractual and statutory claims, even when based on the same controversy, generally involve different factual and legal issues.[6] The determination whether SEMTA engaged in an unfair labor practice prohibited by the PERA requires inquiries beyond interpretation of articles 6 and 37 of the collective bargaining agreement. The hearing officer and the MERC were required to determine whether the application of the seven-step miss procedure to probationary employees had become a term or condition of employment by virtue of its consistent application to probationary employees.[7] A determination that article 37 of the collective bargaining agreement did not apply to probationary employees would not settle the question whether the application of the seven-step miss procedure had become a term or condition of employment which, pursuant to the PERA, could not be unilaterally altered absent impasse or waiver. In connection with the unfair labor practice charge upon which this case is based, the hearing officer and the MERC both considered whether article 6 constituted a waiver of the union's statutory right to negotiate over changes in disciplinary policy. Because this question must be answered by application of the stringent standard 453 for waiver of statutory rights,[8] the issue is not the same as that settled in the prior action. We disagree with SEMTA'S contention that the applicability of article 37 to probationary employees was a necessary predicate for the circuit court or the Court of Appeals determinations. By deciding that the union could not bring a grievance on behalf of probationary employees, the courts did not, and were not required to, determine whether article 37 applied to such employees. A decision on the question of arbitrability does not decide the merits of the underlying claim. AT&T Technologies, Inc v Communications Workers of America, 475 US 643; 106 S Ct 1415; 89 L Ed 2d 648 (1986). Finally, assuming that the circuit court actually decided that article 37 was applicable to probationary employees, we conclude that the circuit court's decision was not a final judgment for purposes of collateral estoppel. The Court of Appeals, affirming the circuit court's summary disposition, decided only that article 6, § 2 precluded the union from asserting any grievance on behalf of probationary employees. Because the rationale used by the circuit court was never reached by the Court of Appeals, the circuit court's judgment is not given conclusive effect: A judgment affirmed on appeal has conclusive effect, but if the appellate court affirms on grounds that differ from those relied upon by the lower court, the conclusiveness of the judgment as res judicata and as collateral estoppel are governed by the appellate decision. Thus if the trial court rests its judgment on two grounds, each of which is independently adequate to support it, the judgment is conclusive as to both; but i[f] the appellate court affirms on one ground without passing on the other, the second ground is no longer conclusively 454 established under the collateral estoppel doctrine. [1B Moore, Federal Practice, ¶ 0.416(2), p 518.] Having concluded that collateral estoppel does not bar the instant action, we turn to the merits of the appeal. IV The next question is whether SEMTA'S application of the seven-step miss procedure to probationary employees became a term or condition of employment so that it could not be unilaterally altered absent impasse or waiver.[9] A past practice which does not derive from the parties' collective bargaining agreement may become a term or condition of employment which is binding on the parties.[10] The creation of a term or condition of employment by past practice is premised in part upon mutuality; the binding nature of such a practice is justified by the parties' tacit agreement 455 that the practice would continue.[11] The nature of a practice, its duration, and the reasonable expectations of the parties may justify its attaining the status of a "term or condition of employment."[12] The inquiry whether a past practice has given rise to a term or condition of employment is not limited to the consideration of the consistency and duration of the practice itself. Whether the parties have bargained regarding the subject or dealt with it in their collective bargaining agreement are also relevant considerations. In finding that there was substantial evidence in support of a board finding that a Christmas bonus had become a term or condition of employment, the United States Circuit Court of Appeals for the First District in Isla Verde Hotel Corp v NLRB, 702 F2d 268 (CA 1, 1983), considered not only the past practice of paying bonuses, but also the bargaining relationship of the parties which had included discussions about bonus payments. Id. at 271. In Office & Professional Employees Int'l Union v NLRB, 136 US App DC 12; 419 F2d 314 (1969), the court considered "past practice" not only in terms of the consistent use of unit employees to perform audits, but also took note that the union had bargained on the matter in the past, and that discussions had resulted in no contractual provision on the subject. Id. at 19.[13] 456 SEMTA argues in the instant case that the requisite element of agreement that the practice of applying the terms of article 37 to probationary employees would continue was not present because SEMTA used article 37 merely as a "guide" for probationary employees, consistent with its discretionary rights under article 6.[14] Thus, SEMTA argues, the seven-step procedure did not become a term or condition of employment because SEMTA, pursuant to article 6, § 1, retained discretion to discharge probationary employees. When a practice 457 is consistent with discretion conferred upon an employer by contract, but is not required by contract, a factual question is presented regarding the existence of the mutuality necessary for a binding past practice. While the existence of a management-rights clause would be evidence that the mutuality upon which a "past practice" term or condition of employment must be based is not present, it is not determinative of the question. Thus, in NLRB v Merill & Ring, Inc, 731 F2d 605, 608 (CA 9, 1984), the court concluded that a "uniform past practice and policy" that employees summoned for jury service were not required to report for work in the morning before jury duty had become a term or condition of employment, notwithstanding the employer's claim that this practice was affirmatively permitted by a clause in the contract. Similarly, in Trenton v Trenton Fire Fighters, 166 Mich App 285, 289-290, 295; 420 NW2d 188 (1988), the Court of Appeals upheld the MERC'S conclusion that the fire department's "long-standing policy" regarding minimum manpower requirements established a term or condition of employment, notwithstanding the arbitrator's conclusion in prior proceedings that the contract management-rights clause reserving the employer's right to control "operations" permitted a change in manpower requirements. The relevance of a contractual provision or other policy of employer discretion to the question whether a term or condition of employment has arisen from past practice was recognized in Battle Creek Fire Dep't v Organization of Supervisory Personnel, 1989 MERC Lab Op 726, where the union charged that the city committed an unfair labor practice when it unilaterally began assigning overtime work previously performed by battalion 458 chiefs to persons outside the bargaining unit. The commission found no evidence of "the mutuality necessary for a binding past practice," noting specifically that the contract had been changed to remove the requirement that overtime be assigned to battalion chiefs, instead making the practice permissive. Id. at 736. Similarly in AFSCME v Detroit Transportation Dep't, 1989 MERC Lab Op 30, the MERC declined to find a past practice constituting a term or condition of employment where, pursuant to express written policy, the employer retained the option to deviate from the alleged "past practice."[15] The approaches of the federal courts, of the Michigan Court of Appeals, and of the commission reveal that the existence of a term or condition of employment is a factual matter. While the existence of a contractual clause granting management discretion to engage in a particular practice 459 may be evidence that the mutuality required for a binding "past practice" is lacking, Battle Creek, supra, it does not preclude the creation of a "term or condition of employment." The courts must examine all pertinent evidence, including the specificity of the reservation, the practices of the parties, the policies of the employer, and the bargaining history to determine whether a term or condition of employment is established. In this case, the existence of a contractual clause reserving SEMTA'S right to judge the "ability, competency, fitness, and other qualifications" of probationary employees and to discharge at any time provides some evidence against the conclusion that a term or condition of employment was created. However, the evidence is not so strong as it was in Detroit Transportation Dep't, for example, where the written policy specifically permitted the annual readjustment of the disciplinary "triggers." The evidentiary weight of the management-rights clause is counterbalanced by the highly consistent manner in which the seven-step disciplinary procedure was applied to probationary employees. A review of the exhibits admitted before the hearing officer reveals that at least ninety percent of probationary employees disciplined before August, 1979, were disciplined consistent with the seven-step procedure in article 37. Significantly, most of the violation records make express reference to article 37. At the hearing, two SEMTA operators testified that in their initial training, which immediately preceded the probationary period, they received literature summarizing the seven-step miss procedure. The union introduced as an exhibit a booklet which had been compiled for distribution to probationary employees. That 460 booklet contained a page headed "Article 37 Miss-Outs" and stated the provisions of article 37. We find the MERC'S conclusion that the application of the provisions of article 37 to probationary employees had become a term or condition of employment to be supported by competent, material, and substantial evidence on the record. The commission's view that the application of the seven-step procedure to probationary employees became a term or condition of employment is clearly a reasonable view of the evidence, and one which should not be displaced by this Court. V Thus we turn to the final issue raised by SEMTA and conclude that the commission's finding that the union did not waive its right to bargain over the disciplinary policy applied to probationary employees was not erroneous and was supported by competent, material, and substantial evidence on the whole record. The waiver of statutorily protected rights in a contractual provision should not be inferred unless the undertaking is "explicitly stated"; such a waiver must be "clear and unmistakable." Metropolitan Edison Co v NLRB, 460 US 693, 708; 103 S Ct 1467; 75 L Ed 2d 387 (1983). In applying this standard, the NLRB has looked for evidence of an actual intent to waive a bargaining right: In order for contract language to effect a waiver of bargaining rights, it must be "clear and unmistakable." In assessing that question, the Board considers the bargaining history of the contract language and the parties' interpretation of the language. Where an employer relies on contract language as a purported waiver to establish its right to change terms and conditions of employment 461 not contained in the contract unilaterally, the Board requires evidence that the matter in issue was "fully discussed and consciously explored during negotiations and the union must have consciously yielded or clearly and unmistakably waived its interest in the matter." [1 Morris, Developing Labor Law (2d ed, 5th supp), ch 13, pp 332-333.] The "clear and unmistakable" standard is applied by the MERC, as well as our Court of Appeals. See Lansing Fire Fighters v Lansing, 133 Mich App 56; 349 NW2d 253 (1984); Kent Co Ed Ass'n v Cedar Springs, 157 Mich App 59, 66; 403 NW2d 494 (1987); Westland Fire Fighters Ass'n v Westland, 1987 MERC Lab Op 793, 801; Royal Oak Police Officers Ass'n v Royal Oak, 1988 MERC Lab Op 605, 611. The MERC frequently looks for an "explicit" waiver as well. See Roseville Fire Fighters Ass'n v Roseville, 1982 MERC Lab Op 1377, 1386 (clear and explicit waiver is required, absent past practice or other evidence of explicit intent to waive a bargaining right); Teamsters Union v Mt Clemens, 1986 MERC Lab Op 30, 33. The MERC'S conclusions regarding whether the union clearly and unmistakably waived its right to bargain over a specific matter is typically reviewed as a factual finding. See Kent Co Ed Ass'n, supra at 66; Mid-Michigan Ed Ass'n v St Charles, 150 Mich App 763, 771; 389 NW2d 482 (1986) (a management-rights clause was not a sufficiently clear and explicit waiver when viewed in the context of the parties' past practice). See also Int'l Union v NLRB, 802 F2d 969, 973 (CA 7, 1986). We cannot dispute the commission's finding that the management-rights clause did not represent a clear and unmistakable waiver of the duty to bargain before altering the disciplinary procedure applicable to probationary employees. 462 We consider first the language of article 6, § 1 providing that SEMTA "judges the ability, competency, fitness, and other qualifications of new operators to do the work for which they were employed." This wording is not so unequivocal as to justify this Court's overturning the commission's conclusion that the union did not clearly and unmistakably waive the right to bargain over changes in disciplinary policy with respect to probationers. The MERC, as well as the NLRB, typically look for a waiver of the duty to bargain about a specific subject. The degree of specificity which will indicate an intent to waive a statutory bargaining right is illustrated in NLRB v United Technologies Corp, 884 F2d 1569, 1574 (CA 2, 1989), where the court considered whether a contractual management-rights clause constituted a waiver of the union's right to bargain concerning a change in the company's progressive discipline policy. The contractual clause reserved management's right "`to make and apply rules and regulations for production, discipline, efficiency, and safety.'" On the basis of this language and additional contractual language specifically granting the employer the right "`to discharge or otherwise discipline any employee for just cause,'" the court found a waiver of union's right to negotiate over disciplinary policy. By contrast, the NLRB in Dearborn Country Club & Hotel Employees, 298 NLRB ___; 134 LRRM 1211 (1990), found that the language of a management-rights clause was not sufficiently specific to constitute a waiver of the union's right to bargain over changes in an established practice of offering over-time first to full-time employees. The board found the contractual clause reserving the employer's right "to arrange its work schedules, to designate 463 days off, and to fix hours worked by employees," "lacking in specific authorizations to make the change in question." The board distinguished the clause held to constitute a waiver in United Technologies, supra, noting its specific reference "to the creation and application of rules and regulations for discipline." In Spring Lake Ed Ass'n v Spring Lake Schools, 1988 MERC Lab Op 362, the commission found no waiver of the union's right to bargain over a change in the content of the form used to evaluate teachers, despite a contractual clause reserving management's right to hire teachers and to "`determine their qualifications and the conditions for their continued employment....'" The MERC noted the absence of explicit reference to the evaluation instrument. The MERC also reviewed the parties' bargaining history, which did not reveal an intent by the union to waive its right to bargain over the evaluation form. Id. at 366. The contract in this case is lacking the specificity which would indicate that the union "consciously yielded" its right to negotiate concerning the discipline applied to probationary employees.[16] Article 6, § 1 of the agreement contains no mention of the employer's right to discipline probationary employees. While the right to discipline, not referenced in the contract, is certainly closely related to the employer's judgment of ability, competency, fitness, and "other qualifications," which right is contractually reserved, it is not the same matter. We conclude that the management-rights clause contained in article 6, § 1 of the contract 464 between the parties is not sufficiently specific to demonstrate that the union clearly and unmistakably waived its right to bargain over changes in the disciplinary policies applied to probationary employees.[17] SEMTA also relies on the "sweepingly broad" language of article 6, § 2 which provided that SEMTA could discharge a probationary employee "at any time and its right to do so shall not be questioned by the union; nor shall the union assert or present any grievance on behalf of any such new operator." We accept the commission's conclusion that this language did not clearly and explicitly waive the union's right to bargain over changes in the disciplinary policy applied to probationary employees. Article 6, § 2 refers to discharge, but not to discipline. Nor has SEMTA cited any evidence which would indicate an actual intent by the union to relinquish the statutory right to negotiate concerning the disciplinary scheme applicable to probationary employees. SEMTA contends that article 6, § 2's broad language providing that the union will not "question" the discharge of probationary employees would be rendered meaningless if interpreted only as a waiver of the right to grieve since article 6, § 2 expressly provides that the union shall not "assert or present any grievance" on behalf of probationary operators.[18] However, the record supports the 465 union's contention that article 6, § 2 contemplated only the waiver of the union's right to grieve on behalf of probationers. In 1980, the ambiguous language of article 6, § 2 was changed to provide that a probationary operator "may be discharged by the Authority without such discharge being subject to grievance."[19] Union representative Phillip Don Leo testified that Daniel Morrill, SEMTA Director of Operations, indicated that this change only clarified what was intended in the 1977-80 contract. That intent, Leo stated, was that the union was able to file grievances for probationary employees relating to actions short of discharge, but not including discharge. According to Leo, the 1980 negotiations involved no discussion about the union's right to go to the MERC or any other agency on behalf of probationary employees, focusing solely on grievance matters. In view of this testimony, it appears unlikely that the language of the 1977 contract was intended to waive the union's statutory right to negotiate concerning the discipline imposed on probationary employees. We conclude that the commission's findings were supported by competent, substantial, and material evidence. CONCLUSION The MERC and the Court of Appeals correctly 466 found that the instant unfair labor practice charge was not precluded by the prior decisions of the circuit court and Court of Appeals concerning the arbitrability of the parties' contractual dispute. We affirm the commission's finding that the parties' consistent practice with respect to the discipline of probationary employees gave rise to a term or condition of employment, as supported by competent, material, and substantial evidence on the whole record. We also affirm the commission's finding that the management-rights clauses contained in articles 6, § 1 and 6, § 2 did not constitute a "clear and unmistakable" waiver of the union's right to negotiate concerning the disciplinary policy applicable to probationary employees. The decision of the Court of Appeals is affirmed. CAVANAGH, C.J., and LEVIN, J., concurred with BOYLE, J. BRICKLEY, J. (dissenting). I agree with the majority that collateral estoppel (issue preclusion) does not foreclose this appeal. However, because I believe that the litigation below did not adequately resolve the question whether the employer's conduct created through practice a term of employment unamenable to unilateral change, I respectfully dissent. Labor law has long prohibited an employer from unilaterally changing a term or condition of employment embracing a mandatory subject of bargaining. NLRB v Katz, 369 US 736; 82 S Ct 230; 8 L Ed 2d 230 (1962). A unilateral change by an employer violates the duty to bargain and thus contravenes "[o]ne of the primary purposes of the Act [designed to] promote the peaceful settlement of industrial disputes by subjecting labor-management controversies to the mediatory influence of 467 negotiation [in awareness that] refusals to confer and negotiate had been one of the most prolific causes of industrial strife." Fibreboard Paper Products Corp v NLRB, 379 US 203, 211; 85 S Ct 398; 13 L Ed 2d 233 (1964). In the instant case, however, the employer did not violate the duty to bargain over a term or condition. The union and the employer did in fact bargain to vest an unconditional right of the employer to discharge probationary employees.[1] The employer's exercise of discretion in establishing an orderly and fair disciplinary procedure for probationary employees short of discharge did not comprise a unilateral change of a material term or condition under the facts presented. Rather, it constituted an exercise of an agreed-upon provision of the collective bargaining agreement. Unilateral change of term or condition cases generally appear in two factual configurations. In the first configuration, the contract/collective bargaining agreement is silent or ambiguous with respect to the alleged term or condition created by a past practice. However, the fact that the contract does not explicitly allow a term or condition is of no practical import, since "[the] statutory duty to bargain is independent of any obligation the employer may incur under [the] contract." Road Sprinkler Fitters Local Union v NLRB, 219 468 US App DC 228, 233; 676 F2d 826 (1982). Thus, for example, an employer that consistently provides Christmas bonuses to employees, and then rescinds those bonuses without bargaining may commit an unfair labor practice. NLRB v Nello Pistoresi & Son, Inc, 500 F2d 399 (CA 9, 1974). In the second configuration, the contract may explicitly allow or prohibit a particular practice. Even so, courts have found that a consistent policy or practice contrary to the contractual provision may yet ripen into a term or condition which if unilaterally changed initiates an unfair labor practice violation. Thus, in Mid-Michigan Ed Ass'n v St Charles Community Schools, 150 Mich App 763, 767, 769; 389 NW2d 482 (1986), the Court of Appeals held that "the [employer's] past practice of providing health care benefits, although contrary to the contract provision, constituted a term of employment which could not be unilaterally changed." The Court reasoned that "[b]ecause the district instituted the practice and permitted it to continue, knowing that it was contrary to the contract, the district cannot now rely on the contractual language to unilaterally change the practice." The Employment Relations Commission relied on St Charles in concluding that in the instant case "[w]hile the broad language of Article 6 gave [the employer] discretion to discharge probationary employees, it did not give [the employer] the explicit right to change a disciplinary policy which constituted an established term or condition of employment without giving [the union] notice and an opportunity to demand bargaining." 1987 MERC Lab Op 721, 730. This statement, of course, begs the question. The obvious answer is that the language of article 6 did give the employer the discretion to discharge probationary employees, 469 and the appropriate question is having been given that discretion in very clear and unmistakable language, is the rule relating to unilateral change of a term or condition applicable? The instant case is distinguishable both from case in which the contract does not refer to the alleged term or condition created by past practice and cases in which a contractual provision conflicts with an established term or condition. Here, the parties bargained, and the resulting bargain provided the employer unfettered discretion to establish any policy to discharge probationary employees during the probationary period, or no policy at all. In exercise of that discretion, the employer chose to utilize the seven-step procedure of article 37 for failure to report for duty, and apparently did so in a fairly consistent manner. However, under the analysis of the MERC, as adopted by the majority, an employer confronts a Hobson's choice. Either an employer could establish no policy regarding discharge, and discharge probationers for the first infraction, or the employer could strive for perfect inconsistency in meting discipline to probationers. Only these courses would avoid the establishment of a uniform past practice and prevent an obligation to bargain over what had previously been bargained. Under the analysis of the MERC and the majority, an employer that bargains for and obtains discretion to act independently relinquishes that discretion the moment it exercises discretion in a consistent fashion. If the employer exercises bargained-for discretion in an arbitrary and inconsistent manner, the creation of a term or condition through practice does not arise. In the instant case, the employer did not act contrary to the collective bargaining agreement, but in accordance with its terms. Under these circumstances, it cannot 470 be said that the employer's conduct created a term or condition of employment. Such an analysis frustrates the preeminent goal of fostering peaceful and orderly collective bargaining. The majority states that "while the parties may by contract agree to grant the right to take unilateral action, it is well established that neither party may take unilateral action on such a subject unless it either has satisfied the statutory obligation or has been freed from it." Ante, p 450, citing NLRB v C & C Plywood Corp, 385 US 421; 87 S Ct 559; 17 L Ed 2d 486 (1967). If that were a correct reading of the Plywood Court, it would be the end of the matter. I read the case differently, however, and, in fact, believe that it supports the opposite conclusion. In Plywood, a classified wage scale had been agreed upon in the contract, and management had reserved the right to give premium pay to some employees. It subsequently attempted to give such premium pay to a class of employees, and the union brought an unfair labor practice petition. In granting the petition, the NLRB ruled that "the union had not ceded power to the employer unilaterally to change the wage system as it had." Id. at 425. The Supreme Court said, "In refusing to enforce the Board's order, the Court of Appeals did not decide that the premium pay provision of the labor agreement had been misinterpreted by the Board." Id. (Emphasis added.) Because the United States Supreme Court accepted the factual finding of the meaning of the contract, it reversed the decision of the United States Court of Appeals and reinstated the decision of the NLRB. In doing so, the United States Supreme Court further stated, But in this case the Board has not construed a labor agreement to determine the extent of the 471 contractual rights which were given the union by the employer. It has not imposed its own view of what the terms and conditions of the labor agreement should be.... The Board's interpretation went only so far as was necessary to determine that the union did not agree to give up these statutory safeguards. Thus, the Board, in necessarily construing a labor agreement to decide this unfair labor practice case, has not exceeded the jurisdiction laid out for it by Congress. [Id. at 428. Emphasis added.] It seems to be implicit in this NLRB case before the Supreme Court that if the contract had specifically given the employer the discretion to give this premium pay in the manner in which it did, it would not have had to bargain before instituting the premium pay. The Supreme Court seemed to think that that was the controlling factor. Plywood clearly suggests that the MERC should have made a determination of whether or not the employer was changing its seven-step procedure to a four-step procedure pursuant to the contract. The hearing referee's conclusion, affirmed by the MERC, about the meaning of article 6 is as follows: In my view, the contract language here simply removed Respondent's obligation to demonstrate, with respect to discharged probationary employees, that the discharges were fair and in accord with established policies. [1987 MERC Lab Op 737.] The specific language of article 6 by any fair and objective reading does not permit such a watering down of its obvious intent. The parties in this case vested in the employer the sole authority to establish how and under what conditions probationary employees could be discharged. No violation of the duty to bargain 472 exists under these facts because the parties bargained over the terms, and the employer's conduct clearly is consistent with the bargain. Even under the mutuality analysis applied by the majority, it cannot be said that the employer's conduct created a reasonable expectation that the probationers were entitled to the seven-step procedure for failure to report for duty. The rule requiring compulsory bargaining over terms created by past practice is designed to foster collective bargaining and ought not be distorted to obliterate a term of a contract that results from the process of collective bargaining. Such a result places the cart before the horse, or, better stated, allows the end to serve the means. For these reasons, I respectfully dissent. I would hold that an exercise of a practice that is clearly pursuant to, consistent with, and in fulfillment of a term or terms of a collective bargaining agreement does not become a term or condition of employment apart from the collective bargaining agreement that requires midterm bargaining. I would reverse the decision of the Court of Appeals and remand the case to the MERC for the application of this standard to the case at hand. GRIFFIN, J., concurred with BRICKLEY, J. RILEY and MALLETT, JJ., took no part in the decision of this case. NOTES [1] each failure to report for duty at the proper time and place, an OPERATOR will be charged with a miss. Discipline for misses will be as follows: A. First miss written warning. B. Second miss without sixty (60) days free of misses since the last miss one (1) day violation. C. Third miss without sixty (60) days free of misses since the last miss three (3) days violation. D. Fourth miss without sixty (60) days free of misses since the last miss one (1) day suspension. E. Fifth miss without sixty (60) days free of misses since the last miss three (3) days suspension. F. Sixth miss without sixty (60) days free of misses since the last miss seven (7) days suspension. G. Seventh miss without sixty (60) days free of misses since the last miss dismissal. [2] Article 5 of the 1974-77 contract provided: All new EMPLOYEES coming within the scope of this Agreement shall be on probation for a period of sixty (60) days from the date they complete their training requirements and report to an assigned station designated by the AUTHORITY, ready for work. Such probationary period shall constitute a trial period during which the AUTHORITY and the UNION are to judge the ability, competency, fitness, and other qualifications of new EMPLOYEES to do the work for which they were employed. During such probationary period, the AUTHORITY may discharge the EMPLOYEE at any time and its right to do so shall not be questioned by the UNION; nor shall the UNION assert or present any grievance on behalf of any such new EMPLOYEE because of any matter or occurrence whatsoever falling within such probationary period. [3] The court contrasted "vested" rights or interests granted probationers by contract, which it found were plainly intended to be enforceable. The court viewed these as interests which were "an award of compensation," such as free passes to travel on SEMTA buses, or medical benefits. The circuit judge gave effect to article 6, § 1 by distinguishing between "vested" rights of probationers relating to benefits or compensation, and other contract provisions relating to the ability, competence, fitness or other qualifications of probationary employees. [4] The statute requires bargaining with respect to "wages, hours, and other terms and conditions of employment." Subjects falling within the scope of this phrase are known as mandatory subjects of bargaining, Detroit Police Officers Ass'n v Detroit, 391 Mich 44, 54; 214 NW2d 803 (1974). [5] The MERC expressly noted that the applicability or nonapplicability of article 37 was not at issue. 1987 MERC Lab Op at 729, n 1. [6] The strict holding in Bay City Schools was that the pendency of unfair labor practices in the Michigan Employment Relations Commission does not preclude arbitration of a contract claim arising from the same controversy. Because of the procedural stance of that case, the Court was not faced with the dilemma which might occur if the factual findings in arbitration conflicted with those made in an unfair labor practice case on the basis of the same incidents. Nor are we faced with that dilemma here, where the circuit court and Court of Appeals decisions were limited to the arbitrability of the asserted grievance, see pp 452-454. [7] SEMTA does not dispute that discipline in general is a mandatory subject of bargaining. Rules governing attendance and setting forth disciplinary policies constitute a mandatory subject of bargaining, Pontiac Police Officers Ass'n v Pontiac (After Remand), 397 Mich 674, 681; 246 NW2d 831 (1976). [8] See pp 460-465. [9] In Pontiac Police Ass'n, n 7 supra at 677, this Court decided that disciplinary procedures fall within the scope of "`other terms and conditions of employment'" and are a mandatory subject of bargaining. [10] See Mid-Michigan Ed Ass'n v St Charles Community Schools, 150 Mich App 763, 768; 389 NW2d 482 (1986) (the practice of allowing teachers with employed spouses to coordinate health care benefits became a term or condition of employment although not required by contract [for further discussion see n 14]); Plymouth Fire Fighters Ass'n v Plymouth, 156 Mich App 220; 401 NW2d 281 (1986) (the city's practice of using fire fighters for "first response" ambulance work, an area not covered by contract, was a term or condition of employment); Westland v Westland Firefighters Ass'n, 1988 MERC Lab Op 853 (the practice of paying mileage to overtime employees required to travel to different locations for the rest of the shift, a matter not covered by the contract, was a term or condition of employment; the practice of basing overtime pay for union business on time reported by a union officer also became a term or condition of employment by virtue of past practice); Mid-Michigan Ed Ass'n v Lake Fenton Community Schools, 1988 MERC Lab Op 178 (the employer's past practice of providing long-term disability benefits not subject to offset, although not required by contract, had become a term or condition of employment). [11] This principle is explicitly stated in two recent decisions of the commission: "To be binding, a past practice must rest on the tacit consent of both parties to the continuation of the practice." AFSCME v Detroit Transportation Dep't, 1989 MERC Lab Op 30, 35, see also Battle Creek Fire Dep't v Organization of Supervisory Personnel, 1989 MERC Lab Op 726, 735-736. [12] For example, in NLRB v Nello Pistoresi & Son, Inc, 500 F2d 399, 400 (CA 9, 1974), the court, considering whether Christmas bonuses were protected terms or conditions of employment, stated that bonuses "are considered wages if they are of such a fixed nature and have been paid over a sufficient length of time to have become a reasonable expectation of the employees and, therefore, part of their anticipated remuneration." [13] We have located a lone federal circuit case taking the position that "[i]n the face of... established practice, the contract is only relevant to the extent that it may indicate the union's waiver of its right to bargain." Road Sprinkler Fitters Local Union v NLRB, 219 US App DC 228, 233; 676 F2d 826 (1982). Curiously, the court cited Office & Professional Employees Int'l Union, supra, where the court considered not only the bargaining history but the absence of a contractual provision regarding audits or auditors before concluding that the consistent use of unit employees to perform audits had become a term or condition of employment, id. at 19. The two other cases cited in Road Sprinkler Fitters for the statement that the contract is only relevant to the issue of waiver, Rose Arbor Manor v Retail Clerks Union, 242 NLRB 795 (1979), and NLRB v Sweet Lumber Co, 515 F2d 785 (CA 10, 1975), cert den 423 US 986 (1975), do analyze management-rights clauses within the analytical framework of waiver. However, they do not limit the relevance of the contract to that question, nor is such a limitation required or suggested by the analyses. [14] SEMTA would thus distinguish this case from St Charles, supra, which it apparently accepts as standing for the proposition that a practice which is contrary to a contractual term may give rise to a term or condition of employment. However, as the MERC pointed out on the remand initially ordered in St Charles, the practice of providing coordinated benefits to married teachers was not contrary to contractual provision; rather, the contract did not require such benefits but did not forbid them either. The MERC thus treated the situation as presenting the question whether a term or condition had arisen with regard to a practice not covered by the contract. 1985 MERC Lab Op 721, 723. In the Court of Appeals, the panel's characterization of the practice as contrary to contract appeared to relate to the Court's reasoning that the employer, having instituted such practice, could not rely on the contract to unilaterally alter the practice. Thus, the result was in the nature of a waiver of the waiver defense. 150 Mich App 769. We are not faced today with a practice that is "contrary" to contract, and we do not pass on the correctness of the rule, for which St Charles has been cited, that a practice contrary to contract may establish a term or condition of employment. [15] In Detroit Transportation Dep't, the union charged that the transportation department had committed an unfair labor practice by unilaterally altering the "triggers" for various levels of discipline. The City of Detroit had a written policy specifying "triggers," defined by the number of hours a DOT operator had been absent in a one-year period, which would dictate what level of the six-step disciplinary procedure would be applied to a particular employee. Pursuant to the written policy, the "triggers" were to be set by reference to the average absences of the city's DOT employees in the previous year. Thus, for example, step 3 discipline would be "triggered" by fifty percent of average absences; step 4 discipline would be "triggered" by one hundred percent of average absences. Id. at 32. Despite its express reservation of the right to adjust the "triggers" each year on the basis of actual absences, DOT did not do so for seven years. Relying on St Charles, supra, the union contended that the city's "past practice" of failing to readjust the "triggers" created a term or condition of employment which could not be unilaterally altered. Id. at 33. The commission rejected this theory. First, the commission distinguished St Charles, noting that there was no conflict between the failure to readjust and the language of the policy, which allowed, but did not require, readjustment. The commission opined that merely refraining from action does not establish a "past practice" precluding future action, and found no evidence that the city had consented to the elimination of its express option contained in the written policy to readjust the "triggers" for disciplinary action. Id. at 35. [16] However, to the extent that the Court of Appeals would require express reference to the "duty to bargain," "unfair labor practices," or the use of the word "waiver" in order to effect a valid waiver of the statutory bargaining right, it is in error. Clear and unmistakable is a high standard, but it does not require the use of key words to waive the statutory bargaining right. [17] Hollins v Kaiser Foundation Hosps, 727 F2d 823 (CA 9, 1984), cited by SEMTA as containing contract provisions "virtually identical" to those at issue here, is distinguishable in one crucial regard. Hollins was a breach of contract action, not a statutorily based unfair labor practice claim. The stringent "clear and unmistakable" standard for waiver, thus, was not applicable in that case. [18] such probationary period, the AUTHORITY may discharge the OPERATOR at any time and its right to do so shall not be questioned by the UNION; nor shall the UNION assert or present any grievance on behalf of any such new OPERATOR. [19] The 1980-83 version of article 6, § 2 was read into the record in its entirety at the hearing before the hearing referee: "During such probationary period, the operator may be represented by the Union in matters regarding wages and hours. However, during such period, the operator may be discharged by the Authority without such discharge being subject to a grievance. The Authority agrees to provide the Union with a written statement setting forth the reasons for discharge." [1] Article 6, §§ 1-2, of the contract provided: All new OPERATORS coming within the scope of this Agreement shall be on probation for a period of ninety (90) calendar days from the date they complete their training requirements. Such probationary period shall constitute a trial period during which the AUTHORITY judges the ability, competency, fitness, and other qualifications of new OPERATORS to do the work for which they were employed.... During such probationary period, the AUTHORITY may discharge the OPERATOR at any time and its right to do so shall not be questioned by the UNION; nor shall the UNION assert or present any grievance on behalf of any such new OPERATOR.	LIMITED_OR_DISTINGUISHED
723 F.2d 737	424 F.3d 864	D	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	THOMAS, Circuit Judge: In this appeal, we are presented with the question of whether a bankruptcy court has subject matter jurisdiction to enter a money judgment in a nondis-chargeability adversary proceeding where the underlying debt has been reduced to judgment in state court. We conclude that it may and affirm the decision of the Ninth Circuit Bankruptcy Appellate Panel (“BAP”). I In 1988, Sokoloff, as trustee of Camelot Medical Group, Inc., Profit Sharing Plan, obtained a judgment against Sasson on a cross-complaint for breach of a promissory note. A California Superior Court entered judgment against Sasson for $120,000, plus accrued interest and statutory costs. Before Sokoloff could enforce the judgment, Sasson filed a motion for reconsideration and obtained a stay of enforcement pending determination of the motion for reconsideration. The stay was granted subject to the condition that Sasson “not dissipate any assets except in the normal course of business.” While the stay was in place and without informing the court of his actions, Sasson dissipated the majority of his assets through dissolution proceedings with his wife, purchase of a new property, creation of encumbrance on that property and ultimately by payment to other creditors. The court denied Sas-son’s motion for reconsideration, and Soko-loff recorded an abstract of judgment. At that point, however, the judgment was un-collectible. Subsequently, Sasson filed a voluntary petition for relief under Chapter 7 of the 867 Bankruptcy Code, 11 U.S.C. §§ 301, 701-784 in the Northern District of California. His bankruptcy schedule did not mention Sasson’s recent transfer of assets. Soko-loff then filed a complaint seeking a determination of nondischargeability of the state court judgment under 11 U.S.C. § 523(a)(6) and a denial of discharge under 11 U.S.C. § 727(a)(2). 1 The bankruptcy court rejected the § 727(a)(2) claim, but found that Sasson’s transfer of assets in violation of the state court stay constituted a willful and malicious injury under § 523(a)(6). The court entered a judgment for $148,142.46 plus costs and accruing interest. Sasson filed an appeal of this decision, but later dismissed it. Subsequently, both Sasson’s bankruptcy and the adversary proceeding were closed by the bankruptcy court. Sokoloff continued to pursue collection remedies in bankruptcy court. Sokoloff filed a notice of the judgment lien and recorded an abstract of judgment. Soko-loff then obtained a Writ of Execution to the United States Marshal and instructed the Marshal to levy on Sasson’s wages. Sasson filed a claim of exemption, which the court granted in part. In 2001, Sokoloff renewed the 1991 Judgment. The bankruptcy court issued an Abstract of Judgment for $239,160.42 on July 9, 2001, which was then recorded. Subsequently, the bankruptcy court granted Sasson’s ex-parte motion to reopen his Chapter 7 proceedings for sixty days. Sasson then filed a motion pursuant to Federal Rule of Civil Procedure 60(b) to vacate the 1991 money judgment and to quash the 2001 abstract of judgment. In his motion, Sasson argued that the bankruptcy court lacked subject matter jurisdiction to enter a new federal money judgment and therefore the renewal of judgment and abstract of judgment were void ab initio. The bankruptcy court denied the motion after a hearing. Sasson filed a notice of appeal, which was referred to the BAP. The BAP affirmed the bankruptcy court, holding that the bankruptcy court had jurisdiction both to enter the 1991 judgment of nondischargeability and to determine the amount of damages caused by Sasson’s postjudgment conduct. Sokoloff timely appealed the BAP decision. We review both the bankruptcy court’s and the BAP’s interpretation of the Bankruptcy Code de novo. Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp. (In re Debbie Reynolds Hotel & Casino, Inc.), 255 F.3d 1061, 1065 (9th Cir.2001). We review a ruling on a motion to set aside a judgment as void de novo “because the question of the validity of a judgment is a legal one.” Export Group v. Reef Indus., 54 F.3d 1466, 1469 (9th Cir.1995). We review the scope of the exercise of equitable power de novo, Graves v. Myrvang (In re Myrvang), 232 F.3d 1116, 1124 (9th Cir.2000), and the exercise of equitable power for an abuse of discretion, id. at 1121. II The bankruptcy court had jurisdiction to enter a money judgment in the adversary proceeding. We have long held that “the Bankruptcy Court has jurisdiction to enter 868 a monetary judgment on a disputed state law claim in the course of making a determination that a debt is nondischargeable.” Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1016 (9th Cir.1997). A Our holding in Kennedy was firmly grounded. Under the original 1898 Bankruptcy Act, Pub.L. No. 55-171, 30 Stat. 544 (repealed 1978) (as amended through date of repeal) (“1898 Bankruptcy Act”), bankruptcy courts were considered to have equitable jurisdiction to issue orders in aid of a nondisehargeability determination. Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 78 L.Ed. 1230 (1934); see also Pepper v. Litton, 308 U.S. 295, 304, 60 S.Ct. 238, 84 L.Ed. 281 (1939) (“[F]or many purposes courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity.” (internal quotation marks omitted)). In 1970, Congress codified the power of bankruptcy courts, in the exercise of their power to declare debts nondischargeable, to “determine the remaining issues, render judgment, and make all orders necessary for the enforcement thereof.” 1898 Bankruptcy Act § 17(c)(3). When Congress enacted the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (“Bankruptcy Code” or “Code”), Congress removed specific jurisdictional language in favor of a general broad jurisdictional grant. However, in doing so, it clearly intended to incorporate the specific pre-Code jurisdiction of the bankruptcy courts. 2 In addition, the Bankruptcy Code specifically provides that: The 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 preclue 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) (emphasis added). Thus, the bankruptcy court clearly has the power under the Bankruptcy Code to determine whether a debt is nondischargeable, to “determine the remaining issues, render judgment, and make all orders necessary for the enforcement thereof,” and to “issue any order, process, or judgment that is necessary or appropriate in carrying out” the order of nondisehargeability. In addition to continuation of the bankruptcy court’s pre-Code jurisdiction and the specific grant of new powers, the Bankruptcy Code provided for the exercise of “original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). A bankruptcy court’s “related to” jurisdiction is very broad, “including nearly every matter directly or indirectly related to the bankruptcy.” Mann v. Alexander Dawson (In re Mann), 907 F.2d 923, 926 n. 4 (9th 869 Cir.1990). The bankruptcy court’s “related to” jurisdiction granted by the Bankruptcy Code derives directly from the Bankruptcy Clause, which grants Congress the power “[t]o establish... uniform Laws on the subject of Bankruptcies throughout the United States.” U.S. Const., art. 1, § 8. Congress expanded the Bankruptcy Court’s Article I jurisdiction by granting federal district courts with “original and exclusive jurisdiction of all cases under title 11.” 28 U.S.C. § 1334(a). Thus, at present, the bankruptcy court’s “related to” jurisdiction also includes the district court’s supplemental jurisdiction pursuant to 28 U.S.C. § 1367 “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 under Article III of the United States Constitution.” See Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1195 (9th Cir.2005); Sec. Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 n. 5 (9th Cir.1997). Even the discharge of a debtor does not automatically deprive the federal courts of jurisdiction over a claim “related to” the bankruptcy. See Kieslich v. United States (In re Kieslich), 258 F.3d 968, 971 (9th Cir.2001). Indeed, we have held that a bankruptcy court’s “related to” jurisdiction includes post-confirmation jurisdiction over state court actions such as breach of contract, breach of convenant of good faith and fair dealing, and fraud when those claims have a “close nexus” to the bankruptcy proceeding. In re Pegasus Gold Corp., 394 F.3d at 1194; see also Celotex Corp. v. Edwards, 514 U.S. 300, 309, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). We have also held that bankruptcy courts have post-discharge jurisdiction to enjoin collection actions, even if those actions occur in another country. Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 996 (9th Cir.1998). In addition, bankruptcy courts retain their traditional equitable powers under the Bankruptcy Code. Johnson v. Home State Bank, 501 U.S. 78, 88, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (per curiam) (“[T]he bankruptcy court retains its broad equitable power to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Code.”) (quotation marks omitted). As the Supreme Court has instructed, when a creditor files a claim in bankruptcy, “the creditor triggers the process of ‘allowance and disallowance of claims,’ thereby subjecting himself to the bankruptcy court’s equitable power.” Langenkamp v. Culp, 498 U.S. 42, 44, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 58-59, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989)). The bankruptcy court’s equitable power is not unfettered; it must be exercised to carry out the provisions of the Bankruptcy Code. Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir.2003). However, we have recognized that “a bankruptcy court is a court of equity and should invoke equitable principles and doctrines, refusing to do so only where their application would be ‘inconsistent’ with the Bankruptcy Code.” Beaty v. Selinger (In re Beaty), 306 F.3d 914, 922 (9th Cir.2002) (citing In re Myrvang, 232 F.3d at 1124). “Bankruptcy Courts have exclusive jurisdiction over nondischargeability actions brought pursuant to 11 U.S.C. § 523(a)(2), (4), (6) and (15).” Rein v. Providian Fin. Corp., 270 F.3d 895, 904 (9th Cir.2001). This is a dischargeability action brought pursuant to 11 U.S.C. § 523(a)(6). As we reasoned in Kennedy: “If it is acknowledged as beyond question that a complaint to determine dis- 870 chargeability of a debt is exclusively within the equitable jurisdiction of the bankruptcy court, then it must follow that the bankruptcy court may also render a money judgment in an amount certain without the assistance of a jury. This is true not merely because equitable jurisdiction attaches to the entire cause of action but more importantly because it is impossible to separate the determination of dischargeability function from the function of fixing the amount of the nondischargeable debt.” Kennedy, 108 F.3d at 1017-18 (quoting Snyder v. Devitt (In re Devitt), 126 B.R. 212, 215 (Bankr.D.Md.1991)). Our sister circuits have reached similar conclusions. Porges v. Gruntal & Co. (In re Porges), 44 F.3d 159, 165 (2d Cir.1995); Longo v. McLaren (In re McLaren), 3 F.3d 958, 965-66 (6th Cir.1993); N.I.S. Corp. v. Hallaban (In re Hallahan), 936 F.2d 1496, 1507-08 (7th Cir.1991). Given the text and history of the Bankruptcy Code and the bankruptcy court’s inherent equitable powers, it is clear, as we held in Kennedy, that bankruptcy courts have jurisdiction and power to enter money judgments in adjudicating nondischargeability adversary proceedings. B Sasson attempts to distinguish Kennedy from this case because Kennedy involved an unliquidated claim. Kennedy made no such distinction, and there is no principled jurisdictional distinction to be drawn. There is nothing in the text of the Bankruptcy Code or its history that contains a jurisdictional exception for debts that have been liquidated to judgment. To hold otherwise would be to deprive the bankruptcy court of its exclusive jurisdiction over bankruptcy discharge pursuant to 11 U.S.C. § 523(a). As the Supreme Court has noted, “[sjince 1970[ ], the issue of nondischargeability has been a matter of federal law governed by the terms of the Bankruptcy Code.” Grogan v. Garner, 498 U.S. 279, 284, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (citing Brown v. Felsen, 442 U.S. 127, 129-30, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979)). The Bankruptcy Code provides that bankruptcy courts “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105. Notably, it does not contain an additional clause stating “except when the debt has been liquidated to judgment.” The debtor invoked bankruptcy court subject matter and in personam jurisdiction by filing a voluntary petition in bankruptcy. With the commencement of the case, the bankruptcy court acquired exclusive in rem jurisdiction over all the debt- or’s legal or equitable interests in property wherever located and by whomever held. 28 U.S.C. § 1334(e); Commodity Futures Trading Comm’n v. Co Petro Mktg. Group, Inc., 700 F.2d 1279, 1282 (9th Cir.1983). By filing a proof of claim, the creditor in this ease became subject to the bankruptcy court’s in personam jurisdiction, and the limitations of the Bankruptcy Code. In re Simon, 153 F.3d at 997. The parties were clearly subject to both subject matter and in personam jurisdiction of the bankruptcy court. The fact that a debt has been previously liquidated to judgment does not deprive the bankruptcy court of jurisdiction, nor of any of its statutory and equitable power. It may, as we shall discuss in Part II.D, have an effect on the form of relief that the bankruptcy court grants in nondis-chargeability proceedings. However, it does not alter the Kennedy jurisdictional analysis. The existence of a state court judgment does not deprive the bankruptcy court of the statutory power to enter a new judgment of nondischargeability. 871 C Sasson argues that the Rooker-Feldman doctrine 3 alters this jurisdictional analysis. However, the Rooker-Feldman doctrine did not deprive the bankruptcy court of jurisdiction to enter the money judgment in the nondischargeability adversary proceeding. The Rooker-Feldman doctrine is based on the statutory proposition that federal district courts are courts of original, not appellate, jurisdiction. See 28 U.S.C. §§ 1331, 1332. Therefore, federal district courts have “no authority to review the final determinations of a state court in judicial proceed ings.” Worldwide Church of God v. McNair, 805 F.2d 888, 890 (9th Cir.1986). Only the Supreme Court has original jurisdiction to review “[f]inal judgments or decrees rendered by the highest court of a State in which a decision could be had.” 28 U.S.C. § 1257(a). As the Supreme Court has recently explained, the Rooker-Feldman doctrine “is confined to cases of the kind from which the doctrine acquired its name: cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus., — U.S. -, -, 125 S.Ct. 1517, 1521-22, 161 L.Ed.2d 454 (2005). Application of the Rooker-Feldman doctrine in bankruptcy is limited by the separate jurisdictional statutes that govern federal bankruptcy law. Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1079 (9th Cir.2000) (en banc). The Rooker-Feldman doctrine has little or no application to bankruptcy proceedings that invoke substantive rights under the Bankruptcy Code or that, by their nature, could arise only in the context of a federal bankruptcy case. Id. at 1081. In the exercise of federal bankruptcy power, bankruptcy courts may avoid state judgments in core bankruptcy proceedings, see, e.g., 11 U.S.C. §§ 544, 547, 548, 549, may modify judgments, see, e.g., 11 U.S.C. §§ 1129, 1325, and, of primary importance in this context, may discharge them, see, e.g., 11 U.S.C. §§ 727, 1141, 1328. The Rooker-Feldman doctrine has no application here. Sasson is not seeking to have the bankruptcy court review the merits of the state court judgment; rather, he is attempting to prevent the bankruptcy court from giving effect to the state court judgment. Likewise, the creditor is not seeking modification of the state court judgment; it is attempting to save the judgment from bankruptcy discharge. In entering judgment, the bankruptcy court was exercising its exclusive statutory power to determine whether a debt is dis-chargeable in a bankruptcy case. See 11 U.S.C. §§ 523(a)(6), 727(a)(2). Actions seeking a determination of nondischarge-ability are core bankruptcy proceedings, see 28 U.S.C. § 157(b)(2)(I), and are not subject to the Rooker-Feldman doctrine. See Gruntz, 202 F.3d at 1081-82. The Rooker-Feldman doctrine did not deprive the bankruptcy court of jurisdiction to enter the money judgment in this case. 872 D Sasson also argues that the bankruptcy court lacked jurisdiction to enter a money judgment by operation of the full faith and credit statute, 28 U.S.C. § 1738, and the doctrines of res judicata and collateral estoppel. Unlike the Rooker-Feld-man doctrine, these doctrines do not affect the jurisdiction of federal courts. See, e.g., EEOC v. Children’s Hosp. Med. Ctr. of N. Cal., 719 F.2d 1426, 1430 (9th Cir.1983) (en banc) (“[R]es judicata is an affirmative defense under the rules of civil procedure. Fed.R.Civ.P. 8(c). It is not a jurisdictional doctrine.”). Moreover, central to the operation of the bankruptcy courts is the idea that the debtor’s debts, including debts liquidated to judgments, may be modified and discharged. See, e.g., 11 U.S.C. §§ 544, 547, 548, 549, 727, 1129, 1141, 1325, 1328. In short, “[f]inal judgments in state courts are not necessarily preclusive in United States bankruptcy courts.” Gruntz, 202 F.3d at 1079. Thus, we must reject Sasson’s argument that the doctrines of full faith and credit, res judicata, and collateral estoppel deprive the bankruptcy court of the jurisdiction to enter a money judgment in a discharge order involving liquidated debts. This does not, of course, mean that the preclusion doctrines do not have any bearing on federal bankruptcy discharge proceedings. The Supreme Court has stated that “collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a).” Grogan, 498 U.S. at 284 n. 11, 111 S.Ct. 654. Further, we have held that “[t]he full faith and credit requirement of § 1738 compels a bankruptcy court in a § 523(a)(2)(A) nondischargeability proceeding to give collateral estoppel effect to a prior state court judgment.” Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 801 (9th Cir.1995) (per curiam). 4 In the bankruptcy discharge context, this means that “[i]f, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of [§ 523], then collateral estoppel, in the absence of countervailing statutory policy, would bar reliti-gation of those issues in the bankruptcy court.” Brown, 442 U.S. at 139 n. 10, 99 S.Ct. 2205. The classic example of the proper use of issue preclusion in discharge proceeding is when the amount of the debt has been determined by the state court and reduced to judgment. In that event, if there are no new issues, the bankruptcy court should ordinarily decline to allow the parties to relitigate the debt amount and should give the state court judgment as to the amount of preclusive effect. Comer v. Comer (In re Comer), 723 F.2d 737, 740 (9th Cir.1984). For the same reason, we have held that if the issue of fraud had 873 been litigated in state court, the state court judgment would preclude relitigation of the same issue by the bankruptcy court in discharge proceedings. Nourbakhsh, 67 F.3d at 801. Thus, the doctrines of preclusion play an important part in discharge-ability proceedings by preventing the relit-igation of factual and legal issues already determined by other courts. However, a preexisting judgment does not have preclusive effect on the bankruptcy court’s determination of dischargeability. The Supreme Court firmly rejected such an idea in Broion, specifically holding that “the bankruptcy court is not confined to a review of the judgment and record in the prior state-court proceedings when considering the dischargeability of respondent’s debt.” Brown, 442 U.S. at 138-39, 99 S.Ct. 2205. We explained this analytical distinction in Comer: Res judicata should not be applied to bar a claim by a party in bankruptcy proceedings, nor should a bankruptcy judge rely solely on state court judgments when determining the nature of a debt for purposes of dischargeability, if doing so would prohibit the bankruptcy court from exercising its exclusive jurisdiction to determine dischargeability. In re Comer, 723 F.2d at 740. As we explained in Comer, determination of the amount of the debt by the state court did not impact the dischargeability decision: In the present case, applying res judica-ta to bar the bankruptcy court from looking behind the default judgment to determine the actual amount of the obligation would not preclude the exercise of the bankruptcy court’s exclusive jurisdiction to determine the nature of the subject debt for purposes of discharge-ability. Id. In Comer, because the state court judgment involved the “extent of [the debt- or’s] obligation..., not the nature of that debt,” it was not relevant to the bankruptcy court’s exercise of its power to determine the dischargeability of a debt; therefore, we concluded that the bankruptcy court properly gave preclusive effect to the prior judgment. Id. In this case, the parties were not relit-igating the merits of the state court judgment in the nondischargeability proceeding. The adversary proceeding was based on Sasson’s “willful and malicious” post-judgment conduct, not on the contractual breach that formed the basis of the state court judgment. Thus, the parties were litigating a different claim in the nondis-chargeability proceeding in bankruptcy, which was not precluded by the state court contract claim judgment. Id. Indeed, the creditor was not seeking to upend the state court judgment; rather, he simply was attempting to enforce it by defending against the discharge of the debt in bankruptcy. The bankruptcy court did not redetermine the amount of the state court debt; the court relied upon the state court determination. Thus, the various preclusion doctrines did not operate to prevent the bankruptcy court from entering a judgment of nondischargeability in this case. See Diamond, 285 F.3d at 829. The bankruptcy court’s actions throughout the adversary proceedings were entirely consistent with the law of issue preclusion as we have applied it to bankruptcy discharge. The only remaining question, then, is whether the various doctrines of issue preclusion prevented the bankruptcy court from enforcing its dischargeability determination by including a money judgment in its resolution of the adversary proceeding. They clearly do not. As the Supreme Court has held, affording full faith and credit to a judgment does not 874 require a court to “adopt the practices of [the jurisdiction that granted the judgment] regarding the time, manner, and mechanisms for enforcing judgments.” Baker ex rel. Thomas v. General Motors Corp., 522 U.S. 222, 235, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998). As the Supreme Court explained, “[enforcement measures do not travel with the sister state judgment as preclusive effects do; such measures remain subject to the evenhanded control of forum law.” Id. (citing McElmoyle ex rel. Bailey v. Cohen, 13 Pet. 312, 325, 10 L.Ed. 177 (1839) (holding that judgment may be enforced only as “laws [of enforcing forum] may permit”) and Restatement (Second) of Conflict of Laws § 99 (1969) (“The local law of the forum determines the methods by which a judgment of another state is enforced.”)). In sum, none of the doctrines of issue preclusion dictate how a bankruptcy court may choose to enforce its determination of nondischargeability. That is a question reserved to the bankruptcy courts in the exercise of their broad equitable powers in bankruptcy. In so doing, as we have discussed, bankruptcy courts are authorized by statute to issue “any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 28 U.S.C. § 105. In addition, the bankruptcy court may use its inherent equitable power to fashion relief, so long as the remedy is consistent with the objee-fives of the Bankruptcy Code. In re Saxman, 325 F.3d at 1174. Thus, as a matter of law, a prior judgment does not preclude a bankruptcy court from exercising its power to determine how best to enforce its own dischargeability order. The bankruptcy court here, therefore, had the authority to enter a money judgment in conjunction with its nondischargeability order. “It does not follow, however, that the court was bound to exercise its authority. And it probably would not and should not have done so except under unusual circumstances such as here exist.” Hunt, 292 U.S. at 241, 54 5.Ct. 695. The existence of a prior judgment may introduce some prudential concerns, such as comity, that a bankruptcy court should take into consideration in fashioning relief. See Smith v. Lachter (In re Smith), 242 B.R. 694 (B.A.P. 9th Cir.1999) (noting that the filing of a new money judgment is not necessary when there is an existing effective state court judgment); Gertsch v. Johnson & Johnson Fin. Corp. (In re Gertsch), 237 B.R. 160 (B.A.P. 9th Cir.1999) (discussing the potential confusion and complication caused by the entry of multiple judgments). 5 Although important considerations, these prudential concerns do not affect the jurisdiction and the power of the bankruptcy court to enter a new money judgment as part of declaring a debt nondischargeable. 6 875 Rather, these prudential issues are best committed to the judgment of the bankruptcy court, subject to review for abuse of discretion. In re Myrvang, 232 F.3d at 1121. In examining prudential considerations, we must also remembér that “[t]he Supreme Court found that the overriding purpose of § 523 is to protect victims of fraud.” Muegler v. Bening, 413 F.3d 980, 983 (9th Cir.2005) (citing Cohen v. de la Cruz, 523 U.S. 213, 222-23, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998)). Thus, a bankruptcy court does not act outside the purposes of the Bankruptcy Code by providing victims of fraud an additional means of enforcing a nondischargeability judgment in an appropriate case. Applying these principles to the case at hand, we conclude that the bankruptcy court acted well within its discretion in entering the new money judgment. Several circumstances rendered the bankruptcy court’s entry of a new money judgment necessary and appropriate. The creditor obtained a state court judgment, which proved uncollectible at the time. When the creditor commenced further collection proceedings, the debtor filed bankruptcy. Based on the debtor’s post-state judgment behavior, the bankruptcy court concluded that the debt was nondischargeable because the debtor had engaged in fraud. The court entered a money judgment as part of the judgment of nondisehargeability. The debtor did not object, but waited until the creditor had allowed the state court judgment to lapse in favor of the discharge judgment. When the discharge judgment was renewed, the debtor then sought to prevent the bankruptcy court from issuing an enforcement order that would give effect to the prior state judgment, arguing that the lapsed state court judgment precluded it. However, as the BAP found, the debtor had engaged in “wilful and malicious behavior” in rendering the initial state court judgment uncol-lectible. The debtor in this case is clearly attempting to manipulate both the federal and state court systems to avoid paying the debt, which the bankruptcy court has found nondischargeable. Given the history of the case, the bankruptcy court’s action in entering a new money judgment and renewing the judgment was entirely proper. Sasson would turn the law of preclusion on its head by having us hold that the existence of a lapsed underlying state court judgment precludes enforcement of that judgment in federal court. He would have us hold that we can only uphold a creditor’s right to full faith and credit of a state court judgment by denying the creditor the right to enforce the judgment. In this context, the doctrines of full faith and credit, collateral estoppel, and res judicata do not apply to prevent a bankruptcy court from entering a money judgment when ruling on the dischargeability of the underlying debt in the exercise of its equitable power. Ill For all of these reasons, we conclude that the court did not err in declining to award relief pursuant to Rule 60(b)(4). Under Federal Rule of Civil Procedure 60(b), a court may relieve a party from judgment for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence; (3) fraud or other misconduct; (4) a void judgment; (5) a satisfied or discharged judgment; or (6) any other reason justifying relief from operation of judgment. Sasson contends that he is entitled to relief because the judgment entered by the bankruptcy court was void. A “ ‘judgment is not void merely because it is erroneous.’ ” Ministry of Def. & Support for the Armed Forces v. Cubic Def. Sys., 385 876 F.3d 1206, 1225 (9th Cir.2004) (quoting United States v. Holtzman, 762 F.2d 720, 724 (9th Cir.1985)), petition for cert. filed, 73 U.S.L.W. 3498 (Feb. 11, 2005). We have consistently held that a “final judgment is ‘void’ for purposes of Rule 60(b)(4) only if the court that considered it lacked jurisdiction, either as to the subject matter of the dispute or over the parties to be bound, or acted in a manner inconsistent with due process of law.” United States v. Berke, 170 F.3d 882, 883 (9th Cir.1999) (emphasis added); Cubic Def. Sys., 385 F.3d at 1226 (“A judgment is void only if the issuing court lacked subject-matter jurisdiction over the action or if the judgment was otherwise entered in violation of due process.”). Given that the bankruptcy court acted well within its jurisdiction and authority in entering the money judgment in the first instance, the judgment was not void. The court was entirely correct in declining to grant relief under Rule 60(b). AFFIRMED. 1. Under 11 U.S.C. § 523(a)(6) of the Bankruptcy Code, any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity” shall not be dischargeable in bankruptcy. Under 11 U.S.C. § 727(a)(2), a debtor may not obtain a discharge if "the debtor, with intent to hinder, delay, or defraud a creditor... has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed... property of the debtor, within one year before the date of the filing of the petition.” 11 U.S.C. § 727(a)(2). 2. The jurisdiction of bankruptcy courts under the Bankruptcy Code was to include "items that the bankruptcy courts are now able to bear [sic] under [the 1898] Act § 2a,” including "determination of dischargeability of debts [and] liquidation of non-dischargeable debts.” H.R.Rep. No. 95-595, at 446, 49 (1977) (footnote referencing 1898 Act § 17c omitted), reprinted in 1978 U.S.C.C.A.N. 5963, 6401, 6010; see also id. at 363 (noting that "the comprehensive grant of jurisdiction prescribed in proposed [statute]... is adequate to cover the full jurisdiction that the bankruptcy courts have today over dischargeability and related issues under Bankruptcy Act § 17c”), reprinted in 1978 U.S.C.C.A.N. at 6319; S.Rep. No. 95-989, at 77 (1978) (same), reprinted in 1978 U.S.C.C.A.N. 5787, 5863. 3. The doctrine takes its name from Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). Rooker held that federal statutory jurisdiction over direct appeals from state courts lies exclusively in the Supreme Court and is beyond the original jurisdiction of federal district courts. 263 U.S. at 415-16, 44 S.Ct. 149. Feldman held that this jurisdictional bar extends to particular claims that are "inextricably intertwined” with those a state court has already decided. 460 U.S. at 486-87, 103 S.Ct. 1303. 4. "In determining whether a party should be estopped from relitigating an issue decided in a prior state court action, the bankruptcy court must look to that state’s law of collateral estoppel.” Diamond v. Kolcum (In re Diamond), 285 F.3d 822, 826 (citing Nourbakhsh, 67 F.3d at 800). Thus, we have held: Under California law, collateral estoppel only applies if certain threshold requirements are met: 'First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.’ Cal-Micro, Inc. v. Cantrell, (In re Cantrell), 329 F.3d 1119, 1123 (9th Cir.2003) (quoting Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.2001)). 5. We interpret Smith and Gertsch as involving prudential considerations. To the extent that these cases may be construed as holding that bankruptcy courts have no jurisdiction or authority to enter a money judgment on a liquidated claim, we must respectfully disagree. We also disagree with the approach taken by the Fourth Circuit in Heckert v. Dotson (In re Heckert), 272 F.3d 253, 257 (4th Cir.2001). In our opinion, Heckert did not give sufficient consideration and deference to bankruptcy court’s broad equitable powers to fashion relief. 6. Many of the prudential considerations involved in the entry of multiple judgments can be addressed in the original state forum. For example, in California, the rule as to multiple judgments is that, if a party receives multiple judgments on a single claim, that party can have just one satisfaction. See Textron Financial Corp. v. National Union Fire Ins. Co. of Pittsburgh, 118 Cal.App.4th 1061, 1078, 13 Cal.Rptr.3d 586 (Cal.Ct.App.2004); McCall v. Four Star Music Co., 51 Cal.App.4th 1394, 1398, 59 Cal.Rptr.2d 829 (Cal.Ct.App.1996).	LIMITED_OR_DISTINGUISHED
723 F.2d 737	186 B.R. 67	C, NF	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	MEMORANDUM OPINION DOUGLAS 0. TICE, Bankruptcy Judge. Plaintiff brought this adversary proceeding by complaint to except a prepetition state court judgment against debtor from discharge pursuant to 11 U.S.C. § 523(a)(6). Plaintiff now moves the court on the basis of res judicata to grant summary judgment to fix the amount of the debt in the same amount as plaintiffs judgment, i.e., $25,-000.00 compensatory damages and $50,000.00 punitive damages. Plaintiffs state court judgment was rendered by default. This court finds that neither res judicata nor collateral estoppel are applicable to this dischargeability proceeding, and the motion for summary judgment will therefore be denied. Facts The facts are drawn primarily from the complaint and memoranda of the parties’ counsel. On January 1, 1991, plaintiff, a police officer, allegedly suffered an injury as a result of his attempted arrest of debtor. Subsequently, plaintiff sued debtor for damages in a Virginia state court, claiming he had been assaulted and injured by debtor. Debtor was duly served with process but failed to file an answer or to otherwise respond. After giving notice to debtor, plaintiff moved in the state court lawsuit for a default judgment on the complaint and later presented evidence ex parte as to damages. As a result, plaintiff obtained a judgment against debtor by default in the amount of $25,000.00 compensatory damages and $50,000.00 punitive damages. The state court entered the default judgment on April 8, 1993. Debtor did not appeal, and he has taken no action under state law to collaterally attack the judgment. Shortly after the judgment became final, plaintiff commenced post-judgment collection proceedings during which debtor was represented by counsel. Debtor filed the instant chapter 7 case on June 1, 1994. Discussion And Conclusions Plaintiffs motion for summary judgment asks the court to fix the debt in this dischargeability adversary proceeding in the amount of the state court judgment, based upon the doctrine of res judicata. Plaintiff does not assert that any other element of § 523(a)(6) is established by his prepetition default judgment. I find that neither res judicata nor collateral estoppel apply here, and plaintiffs motion must be denied. 69 The doctrine of res judicata bars relitigation in a second suit involving the same parties based on the same cause of action if the court in the first suit issued a judgment on the merits. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979). A separate though similar doctrine, collateral estoppel (also known as issue preclusion), applies where the second action between the same parties is upon a different cause of action. See 50 C.J.S. Judgments § 706, note 92, pp. 163-64 (1947). Under collateral estoppel, the prior judgment “precludes relitigation of issues actually litigated and necessary to the outcome of the first action.” Parklane Hosiery Co. v. Shore, 439 U.S. at 326, 99 S.Ct. at 649, see also Combs v. Richardson, 838 F.2d 112, 114 (4th Cir.1988). Thus, the difference between res judi-cata and collateral estoppel is that res judica-ta forecloses all issues that could have been litigated previously, while “collateral estoppel treats as final only those questions actually and necessarily decided in a prior suit.” Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767 (1979). In Broum v. Felsen, the Supreme Court held that prebankruptcy state court judgments are not to be given res judicata effect in ensuing bankruptcy dischargeability litigation. 1 Br own v. Felsen, 442 U.S. at 127, 99 S.Ct. at 2207. And although in Broum v. Felsen, the Court declined to rule on the applicability under the same circumstance of collateral estoppel, it is now accepted by numerous decisions that collateral estoppel or issue preclusion may apply in the later discharge context. See Grogan v. Garner, 498 U.S. 279, 284-85 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991); M & M Transmissions, Inc. v. Raynor (In re Raynor), 922 F.2d 1146, 1148-49 (4th Cir.1991); Combs, 838 F.2d at 114-15; Spilman v. Harley, 656 F.2d 224, 226-27 (6th Cir.1981). As stated above, collateral estoppel applies only as to issues “actually litigated” in the initial case. The Raynor decision has made it clear that in bankruptcy discharge litigation in this circuit the actual litigation requirement prevents the application of collateral estoppel to issues decided by default in the earlier case. In re Raynor, 922 F.2d at 1149. 2 Although Raynor did not raise the specific issue of the default judgment amount, the court categorically barred collateral estoppel of issues adjudged by default. I therefore find the ruling leaves no room for an exception as to damages. 3 See also Mitchell v. Kirby (In re Kirby), 167 B.R. 91 (Bankr.E.D.Ky.1994); Hamilton Bank v. Morrison (In re Morrison), 119 B.R. 135 (Bankr.E.D.Tenn.1990); Watson v. Buhay (In re Buhay), 77 B.R. 561 (Bankr.W.D.Tex.1987); but see Pizza Palace, Inc. v. Stiles (In re Stiles), 118 B.R. 81, 86 (Bankr.W.D.Tenn.1990); contra Comer v. Comer (In re Comer), 723 F.2d 737 (9th Cir.1984); North Tel, Inc. v. Brandl (In re Brandl), 179 B.R. 620 (Bankr.D.Minn.1995); Roesing v. Moccio (In re Moccio), 41 B.R. 268 (Bankr.D.N.J.1984). Plaintiffs argument for summary judgment relies primarily upon the Ninth Circuit holding in In re Comer, 723 F.2d at 737, that a plaintiffs prepetition default judgment for alimony and child support was preclusive on the issue of damages in the bankruptcy dis- 70 changeability case. Of course, Comer is not binding on this court as it is completely at odds with the holding of the Fourth Circuit in Raynor. An order denying plaintiffs motion for summary judgment has been entered. 1.Some decisions gloss over the distinction between res judicata and collateral estoppel. For the rationale that collateral estoppel rather than res judicata applies in bankruptcy discharge litigation, the Supreme Court in Brown v. Felsen emphasized that the bankruptcy court has exclusive jurisdiction to determine certain discharge issues. Brown v. Felsen, 442 U.S. at 136-39, 99 S.Ct. at 2211-13; see also Spilman v. Harley, 656 F.2d 224, 226-27 (6th Cir.1981). However, as another basis for the holding in Brown v. Felsen, it is also implicit in the opinion that the Supreme Court considered bankruptcy discharge litigation as involving a different cause of action from a state court lawsuit to reduce a claim to judgment. Brown v. Felsen, 442 U.S. at 134-35, 99 S.Ct. at 2211. 2. For a full discussion of the underlying common law basis for the Fourth Circuit's Raynor holding, see Restatement (Second) Judgments § 27 (1982); see also In re Raynor, 922 F.2d at 1149; Doctrine of Res Judicata as Applied to Default Judgments, 77 A.L.R.2d 1410, 1423-24 (1961). 3. I note, however, that a default judgment may be res judicata for other bankruptcy purposes, such as the amount of a creditor's proof of claim. See Credit Alliance Corp. v. Williams, 851 F.2d 119 (4th Cir.1988); In re Buhay, 77 B.R. at 566.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
723 F.2d 737	104 B.R. 22	D	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	MEMORANDUM OPINION AND ORDER KENT LINDQUIST, Chief Judge. I Statement of Proceedings On November 29, 1985, Joseph Gellen-beck and Terry Gellenbeck (hereinafter: “Plaintiffs”) filed their Adversarial Complaint and Objection to Discharge in Bankruptcy before this Court. The complaint prays that a certain state court judgment entered in favor of the Plaintiffs and against the Defendant in the Lake Superior 25 Court, Civil Division, sitting in Gary, Indiana, under cause no. 577-1330, captioned “Joseph Gellenbeck and Terry Gel-lenbeck versus Tomsic Construction Company and Tomsic & Son Builders, Inc.; Tomsic Construction Company and Tomsic & Son Builders, Inc. versus Joseph Gellen-beck and Terry Gellenbeck”, on the 2nd day of August, 1982 which awarded compensatory damages in the sum of $25,-979.02 to the Plaintiffs along with punitive damages in the sum of $25,979.02 to the Plaintiffs be determined nondischargeable pursuant to 11 U.S.C. § 523(a)(2) and § 523(a)(6) and that the general discharge of the Defendant be denied pursuant to 11 U.S.C. § 727 based upon the judgment entered in the state court. The specific portion of § 727 upon which the Plaintiffs rely was not specified by the Plaintiffs. On January 2, 1986, the Defendant filed his answer asserting that the Defendant disputes the findings of facts and conclusions of law submitted to the state court, which at the time of the motion were not yet approved by the state court, and that even if approved by the state court the proposed findings and conclusions, which present the facts in a most favorable manner to the Plaintiffs as matter of law create a dis-chargeable debt pursuant to § 727. The Defendant’s amended motion for summary judgment admits that the proposed findings of fact and conclusions of law were in fact signed by the state court judge and that the judgment was in fact entered after a trial on the merits rather than by default. The Defendant further asserts in his supporting memorandum that pursuant to Indiana law an award of punitive damages in a breach of contract action is not permitted unless fraud is proven by clear and convincing evidence, citing Traveler’s Indemnity Co. v. Armstrong, 442 N.E.2d 349 (Ind.S.Ct.1982) and Canada Dry Corp. v. Nehi Beverage Co., 723 F.2d 512 (7th Cir.1983). The Defendant then filed a motion for summary judgment on January 21, 1986 which was amended on February 10, 1986. After one extension, and an amendment to the motion for summary judgment on March 10, 1986, the Plaintiffs filed a Memorandum In Opposition To The Motion For Summary Judgment. Attached to the Plaintiffs’ memo was a copy of the August 2, 1982 state court judgment which recites that by order of the Supreme Court of Indiana, (said order being undesignated), the findings of facts and conclusions of law submitted by the Plaintiff were adopted and incorporated by reference into the judgment by the state court. Fifty Nine (59) findings of fact were made by the state court. Findings Numbered Fifty Seven (57) and Fifty Eight (58) states as follows: 57. That the defendant, Robert Tomsic, d/b/a Tomsic Construction Company and/or Tomsic and Sons Builders, Inc. materially misrepresented the value of allowances made and failed to set forth based upon their experience and expertise, the true cost of constructing the single family dwelling for the Gellen-becks. 58. That the defendant, Robert Tomsic, and/or Tomsic and Sons Construction Company, Inc. is liable to the plaintiffs, Gellenbecks, for the their actual damages and in addition thereto are entitled to damages for aggravation and punitive damages as a result of their willful and wanton refusal to transfer and complete the sale of real estate as provided in the contract of July 6, 1976. The Court also made twenty (20) conclusions of law. Conclusions of law thirteen, (13), fifteen (15), sixteen (16) and eighteen (18) state as follows: 13. The circumstances giving color to a wrongful act may be considered as bearing on the measure of damages and where the elements of aggravation are present, greater damages may be awarded. 15. That the defendant, Robert Tomsic, d/b/a Tomsic Construction Company and/or Tomsic and Son Builders, Inc. aggravated the damages of the plaintiff, by refusing plaintiffs tender and by refusing to grant possession of the home upon payment of all monies claimed, subject only to the deposit of the disputed moneies (sic) in escrow or with the court. 16. That as a result of the plaintiffs attempt to mitigate and the defendants 26 aggravation, the plaintiffs are entitled to special and punitive damages as prayed for in their complaint. 18. That Robert Tomsic, d/b/a Tomsic Construction Company and/or Tomsic and Sons Construction Company, Inc. maintains the expertise and experience in the construction of single family dwellings having constructed four hundred to six hundred single family dwellings and as a result thereof is charged with having the knowledge and familiarity of the industry and is or should be familiar with respective costs, practices, trades and expenses and as a result thereof, deliberately and/or carelessly and negligently underestimated or mistated (sic) variance allowances as set forth in the contract of July 6,1976 and as a result thereof is not to charge overages therefore as extras. The Plaintiffs noted that the Defendant in his Motion for Summary Judgment misstated the records that the Plaintiffs’ findings of fact and conclusions of law were not adopted by the state court in that the state court’s judgment of August 2, 1982, expressly adopted and incorporated the Plaintiffs’ proposed findings of fact and conclusions of law. The Court judicially notes that this clearly appears to be the case based upon the copy of the judgment and proposed findings of fact and conclusions of law attached to both the Plaintiffs’ complaint and the Plaintiffs’ memorandum in opposition to Motion for Summary Judgment. The Plaintiffs further noted in said memo that the case was fully tried on the merits by a bench trial on May 16th and 17th and August 29th, 30th and 31st, 1978, that the Defendant’s Motion to correct errors filed by the Defendant on September 29, 1982, was denied by the state court on June 21, 1984, and that no appeal was taken by the Defendant therefrom. (Exhibits “C” and “D” to Plaintiffs’ memorandum in opposition to motion for summary judgment). The Plaintiffs assert that the Indiana Supreme Court first allowed punitive damages for fraud arising out of a consumer contract where the conduct of a party in breaching his contract also independently establishes the elements of common law tort in the case of F.D. Borkholder Co. Inc. v. Sandock, 274 Ind. 612, 413 N.E.2d 567 (Ind.App.1980). See also, Art Hill Ford v. Callander, 423 N.E.2d 601 (Ind.1981). The Plaintiffs also pointed out that the Seventh Circuit Court of Appeals in J. Yanan Associates Inc. v. Integrity Ins. Co., 771 F.2d 1025 (7th Cir.1985) in discussing the issue of the allowance of punitive damages for breach of contract stated that Indiana is practically, alone among the states in allowing punitive damages for breach of contract. Simultaneously, the Plaintiffs moved for summary judgment based upon the state court judgment noted above. On March 31, 1986, the Defendant filed his Defendant’s Reply Brief In Opposition To Plaintiff’s Motion For Summary Judgment. The Defendant asserts therein that the F.D. Borkholder Co., and Art Hill cases cited by the Plaintiff as to punitive damages both apply the standard of proof of a fair preponderance of the evidence and are prior to the Travelers case which enunciated the clear and convincing standard before punitive damages can be awarded. The Defendant also cites the case of Continental Casualty Company v. Howard, 775 F.2d 876 (7th Cir.1985) for the proposition that in applying the clear and convincing standard, punitive damages should not be awarded where the evidence is based only on allegations of fraud and malice. This mattér appears to arise from a contract between the Plaintiffs and Defendant for the construction of the home. Pursuant to that contract, the Defendant was to construct and sell a single family dwelling and lot to the Plaintiffs for a set sum. At some point, it is alleged that the contract was breached precipitating a state court action. The state court action apparently was very involved. It appears that a judgment was entered in a lower court, subsequently reversed on some grounds by the Supreme Court of the State of Indiana, reheard by a different trial court which subsequently entered the judgment noted above. The Defendant sought to have that 27 judgment corrected through state court procedures. The court declined to correct its judgment. Subsequently, the Defendant then filed bankruptcy before this Court. The Plaintiffs have now brought this action to determine the dischargeability of the debt based upon the state court judgment. II Conclusions of Law No objections were made by the parties to the jurisdiction of this Court and the Court finds this is a core proceeding pursuant to 28 U.S.C. § 157. A. Defendant’s Motion For Summary Judgment. We first address the Defendant’s Motion for Summary Judgment. We note at the outset that no affidavits were submitted with the motion for summary judgment. It appears that the Defendant is maintaining that he should be accorded summary judgment as a matter of law and that there are no issues of fact pending, but merely questions of law. The Defendant appears to maintain that there are three basis for awarding of summary judgment. The first is that punitive damage awards are not available for contract actions. Secondly, that “mere aggravation, from which punitive damages were awarded to Plaintiffs in a prior judgment, does not fall within the exceptions to a discharge in bankruptcy.” Third, that the Debtor can void any judgment entered by a previous court and therefore, the debt is dischargeable. At the outset we will note some general principles regarding summary judgment which are applicable not only to Defendant’s Motion for Summary Judgment but also to Plaintiff’s Motion. The party moving for summary judgment has the burden of establishing there is no genuine issue of material fact. Egger v. Phillips, 710 F.2d 292, 296 (7th Cir.1983). It is not the function of the trial court upon a motion for summary judgment to try an issue of fact, if a factual question is presented, but the primary determination is whether there is an issue of fact to be tried, and any doubt as to the existence of a material fact must be resolved against the party moving for summary judgment. Hawkins v. Frick Reid Supply Corp., 154 F.2d 88 (5th Cir.1946). Such a motion is to be liberally construed in favor of the party opposing the motion. Purity Cheese Co. v. Frank Ryser Co., 153 F.2d 88 (7th Cir.1946). On a motion for a summary judgment under Fed.R.Civ.P. 56(c), inferences to be drawn from the underlying facts contained in such materials as affidavits, attached exhibits, and depositions must be viewed in a light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). However, such inferences must be reasonable or legitimate. 9 Wright, Miller and Kane, Federal Practice and Procedure, § 2528 at nn. 15, 18. They may not be based on speculation or conjecture. Id. at § 2528, n. 19. Only where one inference can be reasonably drawn from undisputed eviden-tiary facts is summary judgment proper. Empire Electronics Co. v. United States, 311 F.2d 175 (2nd Cir.1962). The burden is on the moving party for summary judgment to establish the lack of triable issue of fact, and all doubts are resolved against him. Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438 (2nd Cir.1980). Although Fed.R.Civ.P. 56(e) does not allow a party to rest upon mere allegations or denials of his pleadings when his adversary moves for summary judgment, Rule 56 does not relieve the movant of his initial burden to establish absence of genuine issue of material facts and showing judgment is warranted as a matter of law. Boazman v. Economics Laboratory, Inc., 537 F.2d 210 (5th Cir.1976). Any reasonable doubt regarding the existence of disputed facts should be resolved against the movant. Fitzsimmons v. Best, 528 F.2d 692, 694 (7th Cir.1976). If, however, the movant carries his initial burden to show, on the basis of ad 28 missible evidence adduced from persons with personal knowledge of the facts that there is no genuine issue as to any material fact, then the opposing party may not defeat the motion by relying on contentions of its pleadings but must produce significant probative evidence to support its position. United States v. Pen-R-Books, Inc., 538 F.2d 519 (2nd Cir.1976). Summary judgment is proper where the issues of a case involve no more than the application of legal principles to undisputed facts. Majors Furniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538 (3rd Cir.1979); Fitzsimmons v. Greater St. Louis Sports Enterprises, Inc., 63 F.R.D. 620 (D.C.Ill.1974). The first basis for summary judgment, is that under Indiana law punitive damages are not awardable in contract actions. However the essence of Defendant’s argument is that the evidence adduced in the state court failed to meet the clear and convincing standard necessary for the awarding of punitive damages. In Defendant’s memorandum, he states: “The Plaintiffs failed to establish fraud by clear and convincing evidence and therefore were not entitled to punitive damages.” Defendant’s Memorandum In Support of Motion for Summary Judgment, p. 2. We also note that Defendant apparently concedes that punitive damages may be awarded in a contract action where a tort or other specific factors are shown by clear and convincing evidence. This is in fact a true statement of Indiana law as set out by the Indiana Supreme Court in Traveler’s Indemnity Co. vs. Armstrong, 442 N.E.2d 349, 362 (1982). The Plaintiffs may have been entitled to punitive damages in the state court action if the evidence introduced proved one of the exceptions to the general rule by clear and convincing evidence. Therefore, the Defendant’s Motion for Summary Judgment necessarily asks us to review the evidence relied upon by the state court. We are not an appeals court. We assume that Defendant is well aware of his appeal rights in the state court. The evidence may or may not exist to uphold an award of punitive damages based upon a standard of proof of clear and convincing evidence as is required by this Court. However, the Defendant has failed to put forward any evidence whatsoever to support his Motion for Summary Judgment. Therefore, at this time we will deny the motion for summary judgment as it relies upon this ground. The Defendant’s second ground must also be denied. Defendant argues that his actions amount to nothing more than “mere aggravation”. Defendant further argues that as a matter of law mere aggravation does not rise to the level of an exception to discharge under 11 U.S.C. § 523 or 11 U.S.C. § 727. However, it is not necessary for us to reach the issue of whether mere aggravation is sufficient to create exception to discharge. Rather, we must stop short of that determination. Again, Defendant has requested that we review evidence not in front of this court at this time. In his Motion for Summary Judgment, the Defendant has not submitted any transcript of any evidence, any affidavits, or other evidence other than his bald assertions within his Memorandum that would support his allegations that his conduct was “mere aggravation”. The question of whether the actions were “mere aggravation” appears to be a question of fact as opposed to a question of law. Therefore, it is the Defendant’s burden to come forward with evidence that there is no material issue of fact regarding his conduct and that as a matter of law his conduct as determined by the state court did not fall within the purview of 11 U.S.C. § 523(a)(2) or (6). No such evidence has been forthcoming. We therefore deny the Defendant’s Motion for Summary Judgment on his second ground. We turn now to the third ground. Defendant apparently argues that the judgment lien may be avoided in bankruptcy and therefore cannot form the basis of a nondischargeable debt. The argument is at best vague and unclear to this Court. However, we will address it briefly. 29 Defendant is mistaken in his assertion that the fact that a “judgment lien” may be voided also renders the underlying judgment null and void. The judgment debt continues to exist until discharged in bankruptcy. The avoidance of a judgment lien under 11 U.S.C. § 522(f) merely voids the lien created by the judgment. It has no effect on the underlying judgment debt. We therefore deny the motion for summary judgment based upon the third ground alleged by the Defendant. We therefore find no basis to award summary judgment to the Defendant. The Defendant has not favored this Court with any evidence supporting his arguments under summary judgment. Further, we do not agree with the Defendant that he is entitled to summary judgment as a matter of law and that there are no material issues of fact outstanding. It would appear to this Court that there are evidentiary issues outstanding. Whether or not the issues are truly issues of fact or maybe resolved by affidavit is a question that we cannot answer at this time due to Defendant’s failure to submit the proper documents with his Motion for Summary Judgment. We therefore deny Defendant’s Motion for Summary Judgment. B. Plaintiff’s Motion for Summary Judgment We turn now to Plaintiff's Motion for Summary Judgment. We note that its basis is that the Defendant should be denied discharge pursuant 11 U.S.C. § 523(a)(2), 11 U.S.C. § 523(a)(6), 11 U.S.C. § 523(c) and 11 U.S.C. § 727. The motion for summary judgment is based upon a state court judgment noted above and entered by a state court after a full trial on the merits. 11 U.S.C. § 523(c) grants to the bankruptcy court exclusive jurisdiction to determine whether or not a debt is non-dis-chargeable under sections 523(a)(2), (4) and (6) of the Bankruptcy Code. The bankruptcy courts have struggled with the applicability of the doctrines of res judicata or claim preclusion and collateral estoppel or issue preclusion as to a state court judgment vis-a-vis the clear congressional intent that exclusive jurisdiction vests in the bankruptcy court to determine the dischargeability of a debt, when one party to the state court judgment asserts in an adversary proceeding filed in the bankruptcy court under 11 U.S.C. § 523(c), that the prior state judgment between precludes further litigation or obviates further litigation in the bankruptcy court on the issue of its non-dischargeability. The phrases “res judicata ” and “collateral estoppel” have been assigned a variety of meanings by the courts in many different contexts and their use has often resulted in only increasing the confusion as to when these doctrines are properly applicable. Accordingly, this Court will not use these terms but will use the term “claim preclusion” in lieu of “res judicata ” and the term “issue preclusion” in lieu of the term “collateral estoppel”. 2 30 The reader should thus also be aware that many of the decisions referred to herein do not make reference to the preclusion terminology, but use the terms res judicata and collateral estoppel and thus these variances in terminology must be kept in mind in analyzing these cases. The general principles of claim preclusion and issue preclusion and their purposes should be first noted. These doctrines serve a multitude of purposes. They encourage reliance upon judicial decisions by preventing inconsistent decisions; they conserve the resources of the Courts and the litigants; they promote comity between the state and federal courts; and, they ensure judicial finality. See, Ferrell, The Preclusive Effect of State Court Decisions in Bankruptcy, First Installment, 58 Amer.Bankr.L.R. 349, 351 (1984). One frequently quoted definition of the basic Rule of Claim Preclusion is.from the United States Supreme Court’s opinion in Commissioner v. Sunnen: The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” Cromwell v. County of Sac, 94 U.S. 351, 352 [24 L.Ed. 195]... [1876]. The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment. Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948). As opposed to claim preclusion, issue preclusion prevents litigation by parties to a previous action of issues that have been “actually and necessarily determined by a court of competent jurisdiction_” Montana v. United States, 440 U.S. 147, 154, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1977). As the Supreme Court noted in Southern Pacific Railroad Company v. United States: The general principle announced in numerous cases is that a right, question, or fact distinctly put in issue and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed in a subsequent suit between the same parties or their privies; and, even if the second suit is for a different cause of action, the right, question, or fact once so determined must, as between the same parties or their privies, be taken as conclusively established, so long as the judgment in the first suit remains unmodified. Southern Pacific Railroad Co. v. United States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897). The Restatement (Second) of Judgments defines issue preclusion in the following terms: When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim. Restatement (Second) of Judgments, § 27 (1982). Thus, issue preclusion is more limited than claim preclusion as issue preclusion only applies to individual legal and factual issues and not to an entire cause of action. In the context of prior state court judgments and their non-dischargeability in bankruptcy, the Supreme Court in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), has spoken as to claim preclusion or res judicata and denied claim preclusion effect to state court judgments in bankruptcy dischargeability litigation. The issue in Brown v. Felsen, supra, was whether the bankruptcy court could consider evidence extrinsic to the judgment and record of a prior state court action to re 31 cover monies when determining whether an indebtedness previously reduced to judgment was dischargeable under 11 U.S.C. § 35 of the Act (now 11 U.S.C. § 523(a)(2)(A)). The State Court suit was settled by stipulation and neither the stipulation nor the judgment set out the cause of action upon which the bankrupt’s liability was based. The creditor sought to establish that the debtor’s judgment debt to him was nondischargeable since the debt was allegedly the product of fraud and malicious conversion. The Debtor-bankrupt argued that the prior state court proceeding did not result in a finding of fraud, and contested that res judicata barred re-litigation of the nature of his debt. The Court held that the doctrine of res judicata does not prevent a bankruptcy court from going behind a state court judgment to determine whether a debt is non-discharge-able. The Court held that Congress intended the bankruptcy court resolve these types of dischargeability issues and that by limiting the application of claims preclusion, the bankruptcy court would weigh the evidence and make the final determination as to whether the Debtor committed fraud or conversion. Id., 442 U.S. at 138, 99 S.Ct. at 2212, 60 L.Ed.2d at 775. The Brown Court stated that if res judi-cata were to apply, it would force the consolidation of claims in the state court which would “undercut a statutory policy of resolving § 17 questions in bankruptcy court, and would force state courts to decide these questions at a stage when they are not directly in issue and neither party has a full incentive to litigate them.” Id., 442 U.S. at 134, 99 S.Ct. at 2211, 60 L.Ed.2d at 773. The Court also stated that, “neither the interests served by res judicata, the process of orderly adjudication in state court, nor the policies of the Bankruptcy Act would be well served by foreclosing the petitioner from submitting evidence to prove his case.” Id., 442 U.S. at 132, 99 S.Ct. at 2210, 60 L.Ed.2d at 772. The Brown Court also made the following commentary on the 1970 Amendments to Section 17: If a state court should expressly rule on § 17 questions, then giving finality to those rulings would undercut Congress’ intention to commit § 17 issues to the jurisdiction of the bankruptcy court. The 1970 amendments eliminated post-bankruptcy state court collection suits as a means of resolving certain § 17 dis-chargeability questions. In those suits, creditors had taken advantage of debtors who were unable to retain counsel because bankruptcy had stripped them of their assets. Congress’ primary purpose was to stop that abuse. A secondary purpose, however, was to take these § 17 claims away from state courts that seldom dealt with the federal bankruptcy laws and to give those claims to the bankruptcy court so that it could develop expertise in handling them. By the express terms of the Constitution, bankruptcy law is federal law, U.S. Const., Art. I, § 8, cl. 4, and the Senate Report accompanying the amendment described the bankruptcy court’s jurisdiction over these § 17 claims as “exclusive.” S.Rep. No. 91-1173, p. 2 (1970). While Congress did not expressly confront the problem created by prebankruptcy state-court adjudications, it would be inconsistent with the philosophy of the 1970 amendments to adopt a policy of res judicata which takes these § 17 questions away from bankruptcy courts and forces them back into state courts. See In re McMillan, 579 F.2d 289, 293 (CA3 1978); In re Houtman, 568 F.2d 651, 654 (CA9 1978); In re Pigge, 539 F.2d [369] at 371; 1 D. Cowans, Bankruptcy Law and Practice § 253, p. 298 (1978). Compare 1A J. Moore, J. Mulder, & R. Oglebay, Collier on Bankruptcy ¶ 17.16[6], p. 1650.1 n. 50 (14th ed. 1978) (1970 Act), with id., 1117.16[4], p. 1643 (prior state law). Id., 442 U.S. at 135-37, 99 S.Ct. at 2111-12, 60 L.Ed.2d at 774-75. The Courts have consistently applied the holding in the Brown case in dischargeability proceedings under 11 U.S.C. § 523(c). See, e.g., Carey Lumber Co. v. Bell, 615 F.2d 370 (5th Cir.1980); In re Goodman, 25 B.R. 932 (Bankr.N.D.Ill.1982); In re Spector, 22 B.R. 226 (Bankr.N.D.N.Y. 32 1982); In re Dohm, 19 B.R. 134 (Bankr.N.D.Ill.1982). It should be noted that the Brown case, did not involve the issue of whether issue preclusion or collateral estoppel effect should be given to a prior state court judgment by the bankruptcy court in the non-dischargeability context but the Court indicated that collateral estoppel could be applicable leaving the question open. As the Court stated: This case concerns res judicata only, and not the narrower principle of collateral estoppel. Whereas res judicata forecloses all that which might have been litigated previously, collateral estoppel treats as final only those questions actually and necessarily decided in a prior suit. Montana v. United States, 440 U.S. 147, 153, 59 L.Ed.2d 210, 99 S.Ct. 970 [973] (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 58 L.Ed.2d 552, 99 S.Ct. 645 [649 n. 5] (1979); Cromwell v. County of Sac, [4 Otto 351], 94 U.S. 351, 352-353, 24 L.Ed. 195 (1877). Id, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of §17, then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court. (Emphasis added). Brown v. Felsen, 442 U.S. at 139 n. 10, 99 S.Ct. at 2213 n. 10, 60 L.Ed.2d at 776 n. 10. To resolve this issue a close analysis of the United States Constitution, the Bankruptcy Code and the Full Faith and Credit Statute, 28 U.S.C. § 1738, is required. Article I, § 8, Cl. 4 of the United States Constitution mandates that Congress establish “uniform laws on the subject of Bankruptcy throughout the United States.” Congress chose to implement that clause by enacting 11 U.S.C. § 523(c) which grants to the bankruptcy court exclusive jurisdiction over exceptions to discharge based on 11 U.S.C. § 523(a)(2) (false representations, false pretenses and actual fraud); § 523(a)(4) (fraud or defalcation in a fiduciary capacity, embezzlement or larceny); and, § 523(a)(6) (willful or malicious injury to another entity). This exclusive jurisdiction was originally vested in the bankruptcy courts by the 1970 amendments to the Bankruptcy Act of 1898 then in effect. The 1898 Act and its amendments were superseded by the Bankruptcy Act of 1978, which basically did not change the previous law. The purposes in granting exclusive jurisdiction were to ensure consistency of application of federal law that would be obtained by having judges with expertise in bankruptcy law pass on dischargeability questions and to further the bankruptcy “fresh start” policy by protecting debtors against harassing law suits initiated by creditors after bankruptcy and -to perhaps protect unwitting waivers of the debtor’s discharge. For a discussion of the historical background and purpose of § 523(c) and its predecessor, see, Ferrell, The Preclusive Effect of State Court Decisions in Bankruptcy, Second Installment, 59 Amer.Bankr.L.J. 55, 56-59 (1985). In addition the Full Faith and Credit Clause of the United States Constitution, Art. IY, § 1, was implemented by 28 U.S.C. § 1738, the relevant portions of which provide as follows: The... judicial proceedings of any court of any state... shall have the same full faith and credit in every court within the United States and its territories and possessions as they have by law or usage in the courts of such state. The Supreme Court in examining the “full faith and credit clause” and 28 U.S.C. § 1738 has stated, “a federal court must give to a state court judgment the same preclusive effect as would be given that judgment under the law of the state in which the judgment was rendered”. Migra v. Warren City School District Board of Education, 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56, 63 (1984). See also, Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); McDonald v. West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984); Kremer v. Chemi 33 cal Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). In Marrese the Court noted: The preclusive effect of a state court judgment in a subsequent federal lawsuit generally is determined by the full faith and credit statute, which provides that state judicial proceedings, “shall have the same full faith and credit in every court within the United States... as they have by law or usage in the courts of such State... from which they are taken.” 28 U.S.C. § 1738. This statute directs a federal court to refer to the preclusion law of the State in which judgment was rendered. Marrese v. Academy of Orthopaedic Surgeons, 470 U.S. at 380, 105 S.Ct. 1327, 1331-32, 84 L.Ed.2d 274. However, the determination of state issue preclusion rules is a very difficult and complicated matter and as the Chief Justice in his concurring opinion in Marrese, stated: [N]o guidance is given as to how the District Court should proceed if it finds state law silent or indeterminate on the claim preclusion question. The Court’s refusal to acknowledge this potential problem appears to stem from a belief that the jurisdictional competency requirement of res judicata doctrine will dispose of most cases like this. Id. 105 S.Ct. at 1336. The Supreme Court in Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415, 66 L.Ed.2d 308, 314 (1980), indicated that only a clear congressional intent contrary to 28 U.S.C. § 1738 will permit a federal court to deny the preclusive effect of a state court judgment. In Kremer v. Chemical Construction Corp., 456 U.S. 461, 467, 102 S.Ct. at 1890, 72 L.Ed.2d at 271, supra, the Supreme Court stated, “an exception to § 1738 will not be recognized unless a later statute contains an express or implied partial repeal... Repeals by implication are not favored.” The Court gave as an example of clear intent the federal habeas corpus statute, 28 U.S.C. § 2254. The Court in Kremer also stated, “§ 1738 does not allow federal courts to employ their own rules of res judicata in determining the effect of state judgments. Rather, it goes beyond the common law and commands a federal court to accept rules chosen by the state from which the judgment is taken”, Id., 456 U.S. at 481, 102 S.Ct. at 1898, 72 L.Ed.2d at 280. It appears however, that the general rules as set out above have been ignored by the federal courts in bankruptcy cases relating to the issue of nondischargeability and the effect of prior state litigation. “Instead the bankruptcy courts have applied federally developed rules of issue preclusion often without acknowledgment of the customary practice.” Ferrell, The Preclu-sive Effect of State Court Decisions in Bankruptcy, First installment, 58 Amer. Bankr.LJ. 349, 357 (1985). The general test most frequently applied by the bankruptcy courts is found in In re Ross, 602 F.2d 604, 5 BCD 700 (3rd Cir.1979). Ross sets out a four point test before the doctrine of issue preclusion or collateral estoppel can bar the relitigation of a dischargeability issue. This test is as follows: 1. The issue sought to be precluded must be the same as that in the prior action; 2. The issue must have been actually litigated; 3. The issue must have been determined by a valid and final judgment; and 4. The determination must have been essential to the judgment. Id. 602 F.2d at 608. The Court in Ross held that the Bankruptcy Court must carefully review the record in the prior case and hold a hearing at which the parties have an opportunity to present evidence to determine whether these standards have been met. This test is similar to the one set out in Restatement (Second) of Judgments § 27 (1982). There are minor differences in this federal test among the various circuits, but the Ross criteria appears to be the most frequently utilized. See, e.g., Spilman v. Harley, 656 F.2d 224 (6th Cir.1981); In re 34 Carothers, 22 B.R. 114,119 (Bankr.D.Minn.1982); United States Life Title. Ins. Co. v. Dohm, 19 B.R. 134, 137 (N.D.Ill.1982); In re Supple, 14 B.R. 898, 899 (Bankr.D.Conn.1981). The most difficult part of the test is the “identity of issue” requirement, as the Court in In re Supple stated: [a] bankruptcy court cannot give collateral estoppel effect to- a prior state court adjudication if the issue before the bankruptcy court differs from the issue which was before the, state court. The standards employed by the state court in reaching its decision must comport with federal standards. To insure such an identity of standards, a bankruptcy court must scrutinize the entire record of the state court proceedings. Id. at 904. It should also be noted that the party seeking to assert collateral estoppel has the burden of proving all the requisites for its application. Spilman v. Harley, 656 F.2d 224, 229, supra, In re Spector, 22 B.R. 226, 231 (N.D.N.Y.1982). Any reasonable doubt as to what should be decided should be resolved against using it as es-toppel. Id. The Seventh Circuit has not addressed the application of the doctrine of issue preclusion to bankruptcy cases as it relates to the issue preclusion effect of a state court judgment in a subsequent nondischarge-ability proceeding as of the date of this opinion. There are numerous difficulties in giving the finding of fact of a state court judgment issue preclusive effect in a bankruptcy court dischargeability proceeding. First, the standard of proof may be different. The bankruptcy courts generally, including this Court, require that the plaintiffs prove his case by clear and convincing evidence when asserting a debt is not dischargeable pursuant to 11 U.S.C. § 523(a)(2), (4) and (6). See, In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985) where the Seventh Circuit Court of Appeals held that a party objecting to dischargeability based on fraud must establish each element of the claim by clear and convincing evidence. This higher and more exacting standard of proof is also applicable in proceeding under 11 U.S.C. § 523(a)(4) for fraud or defalcation in a fiduciary capacity, embezzlement or larceny or 11 U.S.C. § 523(a)(6) for willful and malicious injury to person or property. See, e.g., In re DeRosa, 20 B.R. 307, 311, NN.3 & 4 (Bankr.S.D.N.Y.1982). This is a higher standard of proof than a fair preponderance of evidence normally applied by the state court, and it is not always clear what standard the state court has in fact applied. The case law in Indiana generally, as to the standard of proof in civil actions for intentional torts, such as fraud or conversion, is that the claimant has the burden of proof and the right to prevail must be shown by a fair preponderance of the evidence rather than the higher standard of clear and convincing evidence required in a bankruptcy setting. See, e.g., Grissom v. Moran, 154 Ind.App. 419, 290 N.E.2d 119, Reh’rg Denied 154 Ind.App. 432, 292 N.E.2d 627 (Ind.App.1972) (fraud action); Bissell v. Wert, 35 Ind. 54 (Ind.1871) (conversion). However, the Indiana Courts have recently added an exception to the above general rule. In the Travelers Indemnity Company v. Armstrong, 442 N.E.2d 349, 362, 363 (Ind.1982), the Indiana Supreme Court held that proof by clear and convincing evidence is required when punitive damages are sought. This case involved an action by an insured versus an insurer on an insurance policy. The Court noted that: [pjunitive damages should not be allowable upon evidence that is merely consistent with the hypothesis of malice, fraud, gross negligence or oppressiveness. Rather some evidence should be required that is inconsistent with the hypothesis that the tortious conduct was the result of a mistake of law or fact, honest error of judgment, over-zealousness, mere negligence or other such noniniquitous human failing...'. The propriety of the clear and convincing evidence standard is particularly evident in contract cases, because the 35 breach itself for whatever reason, will almost invariably be regarded by the complaining party as oppressive, if not outright fraudulent. Id. This standard of proof in awarding punitive damages was extended by the Indiana Court of Appeals, Fourth District, in the case of Orkin Exterminating Co. v. Traina, 461 N.E.2d 693, 697-698 (Ind.App. 4th Dist.1984), where the Court held that the clear and convincing standard of proof also applied to “all punitive damage cases whether they are tortious breach of contract or pure tort cases.” Id. at 698. The Court stated: To be substantial and of probative value as to a punitive damages award, the evidence must be clear and convincing, that is, there must be some evidence (a) of malice, fraud, gross negligence or oppressive conduct mingled in the breach in tortious breach of contract cases or of malicious, reckless or willful and wanton misconduct in pure tort cases, and (b) the tortious conduct is inconsistent with a hypothesis of mere negligence, mistake of law or fact, over-zealousness, or other noniniquitous human failing. Id. at 698. The Indiana Supreme Court on petition to transfer in the Orkin case reversed on other grounds but agreed with the holding of the Court of Appeals as to the standard of proof in assessing punitive damages in tort cases and stated as follows: The Court of Appeals was correct in determining that the Armstrong clear and convincing evidence rule applies in pure tort cases as well as in those rare breach of contract cases where it is clear that the breach contained “elements that enable the court to regard them as falling within the field of tort or as closely analogous thereto,... Orkin Exterminator Co., Inc. v. Traina, 486 N.E.2d 1019, 1021 (Ind.1986). Accordingly, if an Indiana State Court in entering a money judgment awards punitive damages, that court is theoretically compelled by Indiana Law pursuant to the Armstrong and Orkin cases, supra, to find that the prevailing party has submitted clear and convincing evidence to justify such an award. Thus, the standard as to the burden of proof to be applied by the state court would be the same as is required by the bankruptcy court in making a finding of a subsidiary ultimate fact in a nondis-chargeability proceeding. As a consequence, if such a fact issue were actually litigated and necessarily decided in the state court and the court applied the higher standard of proof of clear and convincing evidence rather than that of by a fair preponderance of the evidence and awarded punitive damages those findings of fact could have issue preclusive (collateral es-toppel) effect in the bankruptcy proceeding. However, as can be seen from the discussion below regarding the various differences between Indiana and Federal Bankruptcy Law as to fraud, conversion, etc., the mere fact that the state court applied the standard of clear and convincing evidence and awarded punitive damages does not mean that the findings of fact necessarily include findings of fact that the conversion was “willful and malicious” as required by § 523(a)(6) or that the fraud was actual or positive as required by § 523(a)(2)(A). It is noted that the Indiana Appellate Court cases of F.D. Borkholder Co., Inc. and Art Hill Ford, supra, cited by the Plaintiff for the proposition that punitive damages are allowable in certain contract actions do not set forth the standard of proof to be applied by the trial court if punitive damages are assessed, although, the F.D. Borkholder Court does state, “We believe that there is cogent and convincing proof that the Borkholder firm engaged in intentional wrongful acts_” F.D. Borkholder Co., Inc. v. Sandock, 413 N.E.2d 567, 571, supra. It was not until the Or-kin and Travelers cases that the Indiana Appellate Courts required the higher standard of proof of clear and convincing evidence as opposed to one of a fair preponderance of the evidence before punitive damages could be awarded. The Orkin and Travelers cases were decided after the 36 state court judgment in question was entered. Further, the findings of fact and the conclusions of law of the state court do not state what standard of proof the Court applied. The Court’s conclusion of law number sixteen (16) merely states that, “as a result of the Plaintiffs’ attempt to mitigate and the Defendant’s aggravation, the Plaintiffs’ are entitled to specific and punitive damages as prayed for in their complaint.” The elements of the state cause of action such as fraud or conversion may be different than those necessary to have a claim be determined as nondischargeable pursuant to 11 U.S.C. § 523(c). As pointed out by the Court in In re Rainey, 1 B.R. 569, 570 (Bankr.D.Ore.1979): This Court is permitted — and indeed may be required — to look behind a lower court judgment in determining discharge-ability. In re Houtman, 568 F.2d 651 (9th Cir.1978); Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767, 5 B.C.D. 226 (1979); In re Stokke, No. B71-3601 (B.Ct.Oregon 1972). Underlying considerations for discharge in bankruptcy are different from those for common law negligence and intentional torts; inquiries and findings necessary for the two types of actions frequently may differ. See Brown v. Felsen, supra 99 S.Ct. at 2213, 5 B.C.D. at 229-30. Id. It has been repeatedly held that whether a debt is dischargeable in bankruptcy is a question of federal law and state law is not applicable. See, Matter of Pappas, 661 F.2d 82 (7th Cir.1981). Although this was an Act case interpreting the predecessor to 11 U.S.C. § 523(a)(2) (11 U.S.C. § 35(a)(2)), there have been only slight changes between the Act and the Code and the foregoing statement continues to correctly state which law is applicable under the 1978 Code. See, Birmingham Trust National Bank v. Case, 755 F.2d 1474 (11th Cir.1985), where it was held that because of the negligible differences, case law under the Act serves as a useful guide under the 1978 Code. Other courts construing the 1978 Code have consistently held that the question of whether a debt is dischargeable in bankruptcy is one of federal law. See, e.g., In re Marini, 28 B.R. 262, 264 (Bankr.E.D.N.Y.1983); In re Tapp, 16 B.R. 315 (Bankr.D.Alaska 1981); In re Sadwin, 15 B.R. 884, 886 (D.CtM.D.Fla.1981); In re Liberati, 11 B.R. 54 (Bankr.E.D.Pa.1981). While the case at bar involves an allegation that the debt is nondischargeable based on willful and malicious injury pursuant to 11 U.S.C. § 523(a)(6), rather than fraud pursuant to 11 U.S.C. § 523(a)(2) the above statement that nondischargeability is based on federal law is equally applicable. The statutory elements that need to be proven under § 523(a)(2), (4) and (6) and the federal case law construing the same will often not be the same as is necessary to assess liability in the state court based on the same set of facts. For instance, while a debtor may be liable in damages for a mere technical conversion in the state court, § 523(a)(6) expressly requires that such a conversion be both “willful and malicious” in order for a debt to be held nondischargeable. Compare, Noble v. Moistner, 180 Ind.App. 414, 388 N.E.2d 620, 621 (4th Dist.1979), where conversion is defined as the “appropriation of property of another to the party's own use and benefit, or in its destruction, or in exercising dominion over it, in exclusion and definance of the rights of the owner or lawful possessor, or in withholding it from his possession, under a claim and title inconsistent with the owner’s.” The application of this definition is clearly not sufficient in a nondischargeability proceeding under § 523(a)(6) in which the claimant must show conjunctively that the actions of the debtor were “willful and malicious” and where a mere technical conversion may be dischargeable, where it is not shown the same was willful and malicious. See, e.g., Matter of Conner, 59 B.R. 594, 596 (Bankr.W.D.Mo.1986). See also, 3 Collier on Bankruptcy 1Í 523.16 (pp 511-514) (L. King 15th Ed.), where it discusses the fact that the 1978 Code overruled many previous Act cases holding various degrees of recklessness as being willful and mali 37 cious and that a deliberate and intentional act is necessary. The same can be said of a state fraud action. In Indiana, the claimant can prove that the fraud is either actual or constructive. Under Indiana law “constructive fraud” is fraud that arises by operation of law from conduct, which if sanctioned by law, would secure an unconscionable advantage. Whiteco Properties, Inc. v. Thielbar, 467 N.E.2d 433 (Ind.App. 3rd Dist.1984); See also, Abdulrahim v. Gene B. Glick Co., Inc., 612 F.Supp. 256 (N.D.Ind.1985); Crook v. Shearson Loeb Rhoades, Inc., 591 F.Supp. 40 (N.D.Ind.1983). This is to be compared with the clear legislative intent of the provisions of § 523(a)(2)(A). The relevant legislative statements are as follows: [t]hus, under section 523(a)(2)(A) a creditor must prove that the debt was obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insiders financial condition. Subpara-graph (A) is intended to codify current case law e.g., Neal v. Clark, 95 U.S. 704 [, 24 L.Ed. 586] (1887), which interprets “fraud” to mean actual or positive fraud rather than fraud implied in law. Sub-paragraph (A) is mutually exclusive from subparagraph (B). Subparagraph (B) pertains to the so-called false financial statement.... 124 Cong.Rec. HI1095-96 (Daily Ed. Sept. 28, 1978); S17412 (Daily Ed. Oct. 6, 1978). Reprinted in 4 Norton Bankruptcy Law and Practice, Annotated Legislative History, § 523, page 397 (Callaghan and Company, 1983). The Courts have consistently held in construing § 523(a)(2)(A) that there must be proof of positive fraud and this involves showing that the acts which constitute fraud involved moral turpitude or an intentional wrong; and fraud implied in law which does not require a showing of bad faith or immorality is insufficient. See, e.g., In re Gilman, 31 B.R. 927, 929 (Bankr.S.D.Fla.1983); In re Slutzky, 22 B.R. 270, 271 (Bankr.E.D.Mich.1982); In re Montbleau, 13 B.R. 47, 48 (Bankr.D.Mass.1981); In re Byrd, 9 B.R. 357, 359 (Bankr.D.C.1981); In re McAdams, 11 B.R. 153, 155 (Bankr.D.Vt.1980). Thus, from the mere fact that a state fraud or conversion case is fully tried on its merits and judgment entered, it does not follow that the Court’s finding of fact in such a case (assuming that Court used the clear and convincing evidence standard discussed above) would collaterally estop or operate as issue preclusion in a subsequent nondischargeability proceeding in the Bankruptcy Court as for example, the evidence might show, that although the court found fraud the finding of fraud may have really been a finding of constructive fraud or fraud implied-in-law as opposed to actual or positive fraud or that the finding of conversion was really based on a technical conversion or gross negligence which would be dischargeable in the bankruptcy proceeding. This Court has examined the various positions taken by the courts regarding issue preclusion in. the context of bankruptcy nondischargeability proceedings. Lower Courts before and after Brown have approached the issue in various ways. A leading pre-Brown case was in In re Houtman, 568 F.2d 651, 3 B.C.D. 1403 (9th Cir.1978). There the Court held that collateral estoppel may not be applied in determining the dischargeability of debts, and the bankruptcy court must consider all relevant evidence, including state court proceedings. The Court stated: The 1970 Amendments to the Bankruptcy Act imposed upon the bankruptcy courts the exclusive jurisdiction to determine dischargeability. As we read those Amendments there is no room for the application of the technical doctrine of collateral estoppel in determining the nondischargeability of debts described in section 17(a)(2), (4), and (8) of the Bankruptcy Act. In re Houtman, 568 F.2d 651, 3 B.C.D. at 1404. The Houtman Court added 568 F.2d at 653 n. 2, 3 B.C.D. at 1404, n. 2 as follows: 38 We acknowledge that a grant of exclusive jurisdiction to federal courts does not automatically preclude the application of the doctrine of collateral estoppel. Becher v. Contoure Laboratories, 279 U.S. 388, 49 S.Ct. 356, 73 L.Ed. 752 (1928); cf. Clark v. Watchie, 513 F.2d 994 (9th Cir.), cert. denied, 423 U.S. 841, 96 S.Ct. 72, 46 L.Ed.2d 60 (1975). However, we believe that collateral estoppel is inappropriate when “a new determination is warranted... by factors relating to the allocation of jurisdiction between [the two courts].” Restatement 2d of Judgments § 68.1(c) [TentDraft No. 4, 1977]; cf. Lyons v. Westinghouse Electric Corp., 222 F.2d 184 (2d Cir.), cert. denied, 350 U.S. 825, 76 S.Ct. 52, 100 L.Ed. 737 (1955) (refusal to give collateral estoppel effect to state court finding of no antitrust violation because of need for “an untrammeled jurisdiction of the federal courts.” Id. at 189). Congress, in enacting the 1970 Amendments to the Bankruptcy Act, felt that One of the strongest arguments in support of the bill is that;... a single court, to wit, the bankruptcy court, will be able to pass upon the question of dischargeability of a particular claim and it will be able to develop an expertise in resolving the problems in particular cases.... Since this is a Federal statute, the Federal courts necessarily have the final word as to the meaning of any term contained therein. S.Rep. No. 91-1173, 91st Cong., 2d Sess. (1970) at 9. To give collateral estoppel effect to prior state court factual findings would impair the exercise of the expertise of the bankruptcy court. The determination of nondischargeability should remain an exclusive function of the bankruptcy court unimpeded by the refinements of collateral estoppel by state court judgments. The Houtman decision was followed in In re Rahm, 641 F.2d 755, 757 (9th Cir.1981) ce rt. denied sub nom. Gregg v. Rahm, 454 U.S. 860, 102 S.Ct. 313, 70 L.Ed.2d 157 without directly citing Hout-man where the Court held a prior state judgment has no collateral estoppel force on a bankruptcy court considering dis-chargeability unless both parties agree to rest their case on that judgment. The Court went on to state that at most, a prior judgment establishes a prima facie case of nondischargeability which the bankrupt is entitled to refute on the basis of all relevant evidence, citing Matter of Easier, 611 F.2d 308, 309 (9th Cir.1979) which held that in an ordinary case a prior state judgment would not be res judicata or have collateral estoppel effect in a bankruptcy court, because bankruptcy courts have exclusive jurisdiction to determine dischargeability. See also, In re Daley, 776 F.2d 834, 838 (9th Cir.1985) cert, denied sub. nom. Daley v. Frank, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). There the Court held that the doctrine of issue preclusion did not bar creditors from relitigating the issue of nondischargeability based on fraud where a dismissal with prejudice was entered by stipulation in that the fraud claims were never actually litigated and the creditors obtained judgment on their contract claims only. The United States Bankruptcy Appellate Panel of the Ninth Circuit in the case of In re DiNoto, 46 B.R. 489, 491 (B.A.P. 9th Cir.1984) in citing Easier and Houtman, supra, held that where the bankruptcy court has exclusive jurisdiction in actions to determine dischargeability, state judgments are not res judicata and do not have collateral estoppel effect because of the Bankruptcy Court’s exclusive jurisdiction. The Court went on to state that the foregoing rule applies to stipulated judgments as well as those that result from a trial. This Court also believes that the DiNoto Court also correctly distinguished the holding of the Ninth Circuit Court of Appeals in In re Comer, 723 F.2d 737 (9th Cir.1984) which held that a state court determination of the amount of liability can be binding in a dischargeability action in that Comer involved state spousal and child support judgments. The Comer Court held that the litigant had full incentive to litigate and did fully litigate the issue in the state 39 court. Secondly, the Comer Court noted that the amount in controversy, i.e. the issue of damages, would be identical under both state law and bankruptcy discharge-ability law as compared to a fraud action which may have a different measure of damages or require a different quantum of proof. The DiNoto Court also correctly noted a third grounds for distinguishing Comer, i.e. that as opposed to discharge-ability proceedings under § 523(c) where the bankruptcy court has exclusive jurisdiction, it is generally recognized that state courts have concurrent jurisdiction with the bankruptcy courts over dischargeability proceedings arising under § 523(a)(5) relating to family support. In re DiNoto, 46 B.R. 489, 491 N. 1, supra, accord: Goss v. Goss, 722 F.2d 599 (10th Cir.1983). The Fifth Circuit in the case of Carey Lumber Company v. Bell, 615 F.2d 370, 377 (5th Cir.1980), held that a bankruptcy court, when faced with a nondischargeability claim evidenced by a state court judgment, is not barred by res judicata or collateral estoppel from conducting appellate inquiry into the character and ultimately the dischargeability of the debt citing In re Houtman, supra. The Carey Court went on to hold that when a bankruptcy judge is presented with a state court consent judgment which contained rather detailed recitations of findings of fact which closely paralleled the language of the Bankruptcy Act’s dischargeability exception for fraud, the bankruptcy judge properly considered those judgments in connection with a motion for summary judgment. Thus the Carey Court treated the state court judgment as evidence, and thus of less weight than the Houtman Court which indicated that the state court judgment established a prima facie case. Turning to the case at bar, the Court specifically notes that although the state court’s finding of fact No. Fifty Eight (58) makes a conclusory finding the Defendant is liable for actual damages and in addition thereto the Plaintiffs were entitled to punitive damages as a result of a willful and wanton refusal to complete the sale of the real estate as promised by the contract of July 6, 1976, there, are no specific findings of ultimate or operative facts relating to actual or positive fraud by the Defendant nor that the Defendant willfully and maliciously injured the Plaintiffs or their property. In the state court’s conclusions of law number Sixteen (16), the court concluded that as a result of the Plaintiffs’ attempt to mitigate and the Defendant’s aggravation, the Plaintiffs were entitled to special or punitive damages. This is not sufficient. These findings of fact and conclusions of law do not indicate the standard of proof applied by the state court was that of clear and convincing evidence as required by this court nor do they indicate that all of the elements necessary to find nondis-chargeability under § 523(a)(2) and (a)(6) were actually and necessarily litigated by the parties as discussed above. See, e.g., In re Axvig, 68 B.R. 910 (Bankr.D.N.Dak.1987) and In re Peoni, 67 B.R. 288 (Bankr.S.D.Ind.1986) cf. In re Maxwell, 51 B.R. 244 (Bankr.S.D.Ind.1983), where the state court had awarded punitive damages. There the Bankruptcy Court assumed the state court judge used the clear and convincing standard of proof, and gave collateral estoppel effect to the state court judgment. The Court can make no such assumption here for the reasons discussed above, i.e. the standard of proof announced in the Armstrong and Orkin cases supra, was after the state court judgment in question. The court thus concludes that the proper procedure for the Court to employ when the issues have been actually and necessarily litigated on the merits in the state court is to order the party who is attempting to assert collateral estoppel or issue preclusion to file certified copies of the pleadings, a transcript of the relevant evidence, and the judgment with the bankruptcy court in the dischargeability proceeding. The Court will consider those matters as evidence in the bankruptcy proceeding, carefully review the same and decide what issues, if any, should be given collateral estoppel or issue preclusion effect based on whether the state court applied the requisite standard of proof and elements of the cause, and whether the 40 relevant issues were actually and necessarily litigated, and then hold a trial as to those remaining issues that must be actually and necessarily litigated in the dis-chargeability proceeding. See, Matter of Life Science Church of River Park, 34 B.R. 529 (Bankr.N.D.Ind.1983). It is therefore, ORDERED, that Defendant’s Motion for Summary Judgment is DENIED and it is further ORDERED, that the Plaintiffs’ Motion for Summary Judgment is DENIED and it is further ORDERED, that the Plaintiffs file in this adversary proceeding a certified copy of all relevant pleadings, a transcript of the relevant evidence submitted at the trial, and a copy of the state court judgment upon which they are relying for the Courts review as to whether said evidence should be given issue preclusion effect in this adversary proceeding or advise the Court in writing that they do not wish to rely on the doctrine of collateral estoppel or issue preclusion within 30 days from the date of entry of this Order. 2 As set forth in the Supreme Court’s decision in Migra v. Warren City School District Board of Education, 465 U.S. 75, 77, n. 1, 104 S.Ct. 892, 894 n. 1, 79 L.Ed.2d 56 (1984): "The preclusive effects of former adjudication are discussed in varying and, at times, seemingly conflicting terminology, attributable to the evolution of preclusion concepts over the years. These effects are referred to collectively by most commentators as the doctrine of ‘res judi-cata ’. Res judicata is often analyzed further to consist of two preclusion concepts: ‘issue preclusion’ and 'claim preclusion’. Issue preclusion refers to the effects of a judgment in foreclosing relitigation of a matter that has been litigated and decided. This effect also is referred to as direct or collateral estoppel. Claim preclusion refers to the effect of a judgment in foreclosing litigation of a matter that never has been litigated, because of a determination that it should have been advanced in an earlier suit. Claim preclusion therefore encompasses the law of merger and bar. This Court on more than one occasion has used the term ‘res judica-ta' in a narrow sense, so as to exclude issue preclusion or collateral estoppel. When using that formulation, ‘res judicata ’, becomes virtually synonomous with ‘claim preclusion.’ In order to avoid confusion resulting from the two uses of 'res judicata ’, this opinion uses the term 'claim preclusion’ to refer to the preclusive effect of a judgment in foreclosing relitigation of matters that should have been raised in an earlier suit.” (Citations omitted). In the subsequent case of Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 1329 n. 1, 84 L.Ed.2d 274 (1985), the Supreme court continued the same use of this terminology: "In this opinion, we used the term ‘claim preclusion’ to refer to 'res judicata ’ in a *30 narrow sense, i.e., the preclusive effect of a judgment in foreclosing litigation of matters that should have been raised in an earlier suit. In contrast, we used the term ‘issue preclusion’ to refer to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided.”	LIMITED_OR_DISTINGUISHED
723 F.2d 737	104 B.R. 8	D	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	MEMORANDUM OPINION AND ORDER 1 I Statement of Proceedings On April 12, 1985, the Plaintiffs filed their complaint versus the Defendant in the above adversary proceeding praying that a certain order or judgment entered in favor of the Plaintiffs versus the Defendant in the Lake Superior Court, Room Two, under Cause No. 79-138 captioned “In the Matter of the Estate of Edward Schubert, Deceased”, on November 15, 1984 in the sum of $5,250.00 in compensatory damages and $3,000.00 in punitive damages be determined to be non-dischargeable pursuant to 11 U.S.C. § 523(a)(6), and also praying for attorney’s fees and interest. On May 15, 1985, the Defendant filed an answer and pursuant to order of this Court on July 30, 1985, a pre-trial conference was held on August 29, 1985. The parties stipulated that the state court order (judgment) was entered after a trial on the merits and thus there is a threshold legal issue to be resolved as to' whether the state court order or judgment should have one of the following effects upon this dischargeability proceeding: 1) The doctrine of res judicata or claim preclusion as to the issue of non-dischargeability should be applied and no further evidence need be taken by this Court to render its judgment based on the state court judgment; 2) The state court judgment is not res judicata as to the issue of non-dis-chargeability but the doctrine of collateral estoppel or issue preclusion should apply and this court should base its conclusions of law as to non-dischargeability solely on the record and findings of fact in the state court proceedings; 3) This Court should deny res judicata (claim preclusion) and collateral estoppel (issue preclusion) effect to the order or judgment and relitigate all of the factual issues raised in the state court; or, 4) This Court may take additional evidence in this adversary proceeding and based on its findings of fact as to that evidence together with giving the findings of facts and the record in the state court judgment evidentiary rather than collateral estoppel status, reach its legal conclusions as to whether the underlying debt is non-dischargeable. The parties briefed the issue, Plaintiff filing its brief on September 30, 1985, the Defendant filing its brief on November 29, 1985, and the Plaintiff filing its reply brief on December 9, 1985. 10 II Findings of Fact The state court order or judgment upon which the Plaintiffs base their nondis-chargeability complaint made the following findings of fact: 1. That Edward Schubert (hereinafter: “decedent”) died March 27, 1979 having owned certain real estate (hereinafter: “property”). 2. That subsequently thereto, pursuant to court order the property was sold to decedent’s nephew and his wife, and an order was entered approving the report of sale on October 5, 1979. 3. That on October 30, 1979, the Defendant filed his petition for specific performance of a contract to sell said property with the decedent. 4. That there was no credible evidence that decedent had entered into any such contract with the Defendant; that, the document admitted into evidence by the Defendant purporting to be an agreement between himself and the decedent did not bear the decedent’s signature; and, that the testimony of two óf the Defendant’s witnesses that testified the decedent acknowledged the sale was not credible. 5. That the Defendant caused a survey of the property to be made which was dated May 30, 1978. 6. That some time on or about the date of the survey the Defendant, by his own admission, began filling in the property with fill of any kind, much of which consisted of large chunks of cement, asphalt and debris. The Court in its conclusions of law found that neither the document nor the parol evidence submitted by the Defendant satisfied the Indiana Statute of Frauds (I.C. 32-2-1-1 et seq.), and therefore the Court adjudged that the Defendant as petitioner take nothing by his petition and that the Plaintiffs herein (defendants in the state action) recover from the Defendant on their counter-claims the sum of $5,250.00 in compensatory damages and $3,000.00 in punitive damages but denied any award of attorney’s fees. A copy of the counterclaim was not submitted by the parties. No indication was given as to how the damages were computed by the state court. Ill Conclusions of Law No objections were made by the parties to the jurisdiction of this court and the Court finds this is a core proceeding pursuant to 28 U.S.C. § 157. 11 U.S.C. § 523(c) grants to the bankruptcy court exclusive jurisdiction to determine whether or not a debt is non-dis-chargeable under sections 523(a)(2), (4) and (6) of the Bankruptcy Code. The bankruptcy courts have struggled with the applicability of the doctrines of res judicata or claim preclusion and collateral estoppel or issue preclusion as to a state court judgment vis-a-vis the clear congressional intent that exclusive jurisdiction vests in the bankruptcy court to determine the dischargeability of a debt, when one party to the state court judgment asserts in an adversary proceeding filed in the bankruptcy court under 11 U.S.C. § 523(c), that the prior state judgment between the parties precludes further litigation or obviates further litigation in the bankruptcy court on the issue of its non-dischargeability- The phrases “res judicata” and “collateral estoppel” have been assigned a variety of meanings by the courts in many different contexts and their use has often resulted in only increasing the confusion as to when these doctrines are properly applicable. Accordingly, this Court will not use these terms but will use the term “claim preclusion” in lieu of “res judicata” and the term “issue preclusion” in lieu of the term “collateral estoppel”. 2 11 The reader should thus also be aware that many of the decisions referred to herein do not make reference to the preclusion terminology, but use the terms res judicata and collateral estoppel and thus these variances in terminology must be kept in mind in analyzing these cases. The general principles of claim preclusion and issue preclusion and their purposes should be first noted. These doctrines serve a multitude of purposes. They encourage reliance upon judicial decisions by preventing inconsistent decisions; they conserve the resources of the Courts and the litigants; they promote comity between the state and federal courts; and, they ensure judicial finality. See, Ferrell, The Preclusive Effect of State Court Decisions in Bankruptcy, First Installment, 58 Amer.Bankr.L.R. 349, 351 (1984). One frequently quoted definition of the basic Rule of Claim Preclusion is from the United States Supreme Court’s opinion in Commissioner v. Sunnen: The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” Cromwell v. County of Sac, 94 U.S. 351, 352 [, 24 L.Ed. 195]... [1876]. The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment. Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948). As opposed to claim preclusion, issue preclusion prevents litigation by parties to a previous action of issues that have been “actually and necessarily determined by a court of competent jurisdiction_” Montana v. United States, 440 U.S. 147, 154, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1977). As the Supreme Court noted in Southern Pacific Railroad Company v. United States: The general principle announced in numerous cases is that a right, question, or fact distinctly put in issue and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed in a subsequent suit between the same parties or their privies; and, even if the second suit is for a different cause of action, the right, question, or fact once so determined must, as between the same parties or their privies, be taken as conclusively established, so long as the judgment in the first suit remains unmodified. Southern Pacific Railroad Co. v. United States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897). The Restatement (Second) of Judgments defines issue preclusion in the following terms: 12 When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim. Restatement (Second) of Judgments, § 27 (1982). Thus, issue preclusion is more limited than claim preclusion as issue preclusion only applies to individual legal and factual issues and not to an entire cause of action. In the context of prior state court judgments and their non-dischargeability in bankruptcy, the Supreme Court in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), has spoken as to claim preclusion or res judicata and denied claim preclusion effect to state court judgments in bankruptcy dischargeability litigation. The issue in Brown v. Felsen, supra, was whether the bankruptcy court could consider evidence extrinstic to the judgment and record of a prior state court action to recover monies when determining whether an indebtedness previously reduced to judgment was dischargeable under 11 U.S.C. § 35 of the Act (now 11 U.S.C. § 523(a)(2)(A)). The State Court suit was settled by stipulation and neither the stipulation nor the judgment set out the cause of action upon which the bankrupt’s liability was based. The creditor sought to establish that the debtor’s judgment debt to him was nondischargeable since the debt was allegedly the product of fraud and malicious conversion. The Debtor-bankrupt argued that the prior state court proceeding did not result in a finding of fraud, and contested that res judicata barred re-litigation of the nature of his debt. The Court held that the doctrine of res judicata does not prevent a bankruptcy court from going behind a state court judgment to determine whether a debt is non-discharge-able. The Court held that Congress intended the bankruptcy court resolve these types of dischargeability issues and that by limiting the application of claims preclusion, the bankruptcy court would weigh the evidence and make the final determination as to whether the Debtor committed fraud or conversion. Id. 442 U.S. at 138, 99 S.Ct. at 2212, 60 L.Ed.2d at 775. The Brown Court stated that if res judi-cata were to apply, it would force the consolidation of claims in the state court which would “undercut a statutory policy of resolving § 17 questions in bankruptcy court, and would force state courts to decide these questions at a stage when they are not directly in issue and neither party has a full incentive to litigate them.” Id., 442 U.S. at 134, 99 S.Ct. at 2211, 60 L.Ed.2d at 773. The Court also stated that, “neither the interests served by res judicata, the process of orderly adjudication in state court, nor the policies of the Bankruptcy Act would be well served by foreclosing the petitioner from submitting evidence to prove his case.” Id., 442 U.S. at 132, 99 S.Ct. at 2210, 60 L.Ed.2d at 772. The Brown Court also made the following commentary on the 1970 Amendments to Section 17: If a state court should expressly rule on § 17 questions, then giving finality to those rulings would undercut Congress’ intention to commit § 17 issues to the jurisdiction of the bankruptcy court. The 1970 amendments eliminated post-bankruptcy state court collection suits as a means of resolving certain § 17 dis-chargeability questions. In those suits, creditors had taken advantage of debtors who were unable to retain counsel because bankruptcy had stripped them of their assets. Congress’ primary purpose was to stop that abuse. A secondary purpose, however, was to take these § 17 claims away from state courts that seldom dealt with the federal bankruptcy laws and to give those claims to the bankruptcy court so that it could develop expertise in handling them. By the express terms of the Constitution, bankruptcy law is federal law, U.S. Const., Art. I, § 8, cl. 4, and the Senate Report accompanying the amendment described the bankruptcy court’s jurisdiction over these § 17 claims as “exclusive.” S.Rep. No. 91-1173, p. 2 (1970). While Congress did not expressly confront the problem created by prebankruptcy state-court ad 13 judications, it would be inconsistent with the philosophy of the 1970 amendments to adopt a policy of res judicata which takes these § 17 questions away from bankruptcy courts and forces them back into state courts. See In re McMillan, 579 F.2d 289, 293 (CA3 1978); In re Houtman, 568 F.2d 651, 654 (CA9 1978); In re Pigge, 539 F.2d, at [369] 371 [CA4 1976]; 1 D. Cowans, Bankruptcy Law and Practice § 253, p. 298 (1978). Compare 1A J. Moore, J. Mulder, & R. Ogle-bay, Collier on Bankruptcy 1117.16[6], p. 1650.1 n. 50 (14th ed. 1978) (1970 Act), with id,., ¶ 17.16[4], p. 1643 (prior state law). Id., 442 U.S. at 135-137, 99 S.Ct. at 2211-22, 60 L.Ed.2d at 774-75. The Courts have consistently applied the holding in the Brown case in dischargeability proceedings under 11 U.S.C. § 523(c). See, e.g., In re Johnson, 691 F.2d 249 (6th Cir.1982); Carey Lumber Co. v. Bell, 615 F.2d 370 (5th Cir.1980); In re Goodman, 25 B.R. 932 (Bankr.N.D.Ill.1982); In re Spector, 22 B.R. 226 (Bankr.ND.N.Y.1982); In re Dohm, 19 B.R. 134 (Bankr.N.D.Ill.1982). It should be noted that the Brown ease, did not involve the issue of whether issue preclusion or collateral estoppel effect should be given to a prior state court judgment by the bankruptcy court in the non-dischargeability context but the Court indicated that collateral estoppel could be applicable leaving the question open. As the Court stated: This case concerns res judicata only, and not the narrower principle of collateral estoppel. Whereas res judicata forecloses all that which might have been litigated previously, collateral estoppel treats as final only those questions actually and necessarily decided in a prior suit. Montana v. United States, 440 U.S. 147, 153, 59 L.Ed.2d 210, 99 S.Ct. 970 [973] (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 58 L.Ed.2d 552, 99 S.Ct. 645 [649 n. 5] (1979); Cromwell v. County of Sac, [4 Otto 351], 94 U.S. 351, 352-353, 24 L.Ed. 195 (1877). If, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of §17, then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court. (Emphasis added). Brown v. Felsen, 442 U.S. at 139 n. 10, 99 S.Ct. at 2213 n. 10, 60 L.Ed.2d at 776 n. 10. To resolve this issue a close analysis of the United States Constitution, the Bankruptcy Code and the Full Faith and Credit Statute, 28 U.S.C. § 1738, is required. Article I, § 8, cl. 4 of the United States Constitution mandates that Congress establish “uniform laws on the subject of Bankruptcy throughout the United States.” Congress chose to implement that clause by enacting 11 U.S.C. § 523(c) which grants to the bankruptcy court exclusive jurisdiction over exceptions to discharge based on 11 U.S.C. § 523(a)(2) (false representations, false pretenses and actual fraud); § 523(a)(4) (fraud or defalcation in a fiduciary capacity, embezzlement or larceny); and, § 523(a)(6) (willful or malicious injury to another entity). This exclusive jurisdiction was originally vested in the bankruptcy courts by the 1970 amendments to the Bankruptcy Act of 1898 then in effect. The 1898 Act and its amendments were superseded by the Bankruptcy Act of 1978, which basically did not change the previous law. The purposes in granting exclusive jurisdiction were to ensure consistency of application of federal law that would be obtained by having judges with expertise in bankruptcy law pass on dischargeability questions and to further the bankruptcy “fresh start” policy by protecting debtors against harassing law suits initiated by creditors after bankruptcy and to perhaps protect unwitting waivers of the debtor’s discharge. For a discussion of the historical background and purpose of § 523(c) and its predecessor, see, Ferrell, The Preclusive Effect of State Court Decisions in Bankruptcy, Second Installment, 59 Amer.Bankr.LJ. 55, 56-59 (1985). 14 In addition, the Full Faith and Credit Clause of the United States Constitution, Art. IV, § 1, was implemented by 28 U.S.C. § 1738, the relevant portions of which provide as follows: The... judicial proceedings of any court of any state... shall have the same full faith and credit in every court within the United States and its territories and possessions as they have by law or usage in the courts of such state. The Supreme Court in examining the “full faith and credit clause” and 28 U.S.C. § 1738 has stated, “a federal court must give to a state court judgment the same preclusive effect as would be given that judgment under the law of the state in which the judgment was rendered”. Migra v. Warren City School District Board of Education, 465 U.S. 75, 896 104 S.Ct. 892, 896, 79 L.Ed.2d 56, 63 (1984). See also, Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); McDonald v. West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984); Kremer v. Chemical Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). In Marrese the Court noted: The preclusive effect of a state court judgment in a subsequent federal lawsuit generally is determined by the full faith and credit statute, which provides that state judicial proceedings, “shall have the same full faith and credit in every court within the United States... as they have by law or usage in the courts of such State... from which they are taken.” 28 U.S.C. § 1738. This statute directs a federal court to refer to the preclusion law of the State in which judgment was rendered. Marrese v. Academy of Orthopaedic Surgeons, 470 U.S. 373 at 380, 105 S.Ct. 1327 at 1331-32, 84 L.Ed.2d 274 at 281. However, the determination of state issue preclusion rules is a very difficult and complicated matter and as the Chief Justice in his concurring opinion in Marrese, stated: [N]o guidance is given as to how the District Court should proceed if it finds state law silent or indeterminate on the claim preclusion question. The Court’s refusal to acknowledge this poténtial problem appears to stem from a belief that the jurisdictional competency requirement of res judicata doctrine will dispose of most cases like this. Id. 105 S.Ct. at 1336 The Supreme Court in Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415, 66 L.Ed.2d 308, 314 (1980), indicated that only a clear congressional intent contrary to 28 U.S.C. § 1738 will permit a federal court to deny the preclusive effect of a state court judgment. In Kremer v. Chemical Construction Corp., 456 U.S. 461, 467, 102 S.Ct. at 1890, 72 L.Ed.2d at 271, the Supreme Court stated, “an exception to § 1738 will not be recognized unless a later statute contains an express or implied partial repeal... Repeals by implication are not favored.” The Court gave as an example of clear intent the federal habeas corpus statute, 28 U.S.C. § 2254. The Court in Kremer also stated, “§ 1738 does not allow federal courts to employ their own rules of res judicata in determining the effect of state judgments. Rather, it goes beyond the common law and commands a federal court to accept rules chosen by the state from which the judgment is taken”, Id. 456 U.S. at 481, 102 S.Ct. at 1898, 72 L.Ed.2d at 280. It appears however, that the general rules as set out above have been ignored by the federal courts in bankruptcy cases relating to the issue of nondischargeability and the effect of prior state litigation. “Instead the bankruptcy courts have applied federally developed rules of issue preclusion often without acknowledgment of the customary practice,” Ferrell, The Preclu-sive Effect of State Court Decisions in Bankruptcy, First installment, 58 Amer. Bankr.L.J. 349, 357 (1985). The general test most frequently applied by the bankruptcy courts is found in In re Ross, 602 F.2d 604, 5 B.C.D. 700 (3rd Cir.1979). Ross sets out a four point test before the doctrine of issue preclusion or collateral estoppel can bar the relitigation 15 of a dischargeability issue. This test is as follows: 1. The issue sought to be precluded must be the same as that in the prior action; 2. The issue must have been actually litigated; 3. The issue must have been determined by a valid and final judgment; and 4. The determination must have been essential to the judgment. Id. 602 F.2d at 608. The Court in Ross held that the Bankruptcy Court must carefully review the record in the prior case and hold a hearing at which the parties have an opportunity to present evidence to determine whether these standards have been met. This test is similar to the one set out in Restatement (Second) of Judgments § 27 (1982). There are minor differences in this federal test among the various circuits, but the Ross criteria appears to be the most frequently utilized. See, e.g., Spilman v. Harley, 656 F.2d 224 (6th Cir.1981); In re Carothers, 22 B.R. 114, 119 (Bankr.D.Minn.1982); United States Life Title Ins. Co. v. Dohm, 19 B.R. 134, 137 (N.D.Ill.1982); In re Supple, 14 B.R. 898, 899 (Bankr.D.Conn.1981). The most difficult part of the test is the “identity of issue” requirement, as the Court in In re Supple stated: [a] bankruptcy court cannot give collateral estoppel effect to a prior state court adjudication if the issue before the bankruptcy court differs from the issue which was before the state court. The standards employed by the state court in reaching its decision must comport with federal standards. To insure such an identity of standards, a bankruptcy court must scrutinize the entire record of the state court proceedings. Id. at 904. It should also be noted that the party seeking to assert collateral estoppel has the burden of proving all the requisites for its application. Spilman v. Harley, 656 F.2d 224, 229, supra, In re Spector, 22 B.R. 226, 231 (N.D.N.Y.1982). Any reasonable doubt as to what should be decided should be resolved against using it as estoppel. Id. The Seventh Circuit has not addressed the application of the doctrine of collateral estoppel to bankruptcy cases as it relates to the issue preclusion effect of a state court judgment in a subsequent nondis-chargeability proceeding as of the date of this opinion. There are numerous difficulties in giving the findings of fact of a state court judgment issue preclusive effect in a bankruptcy court dischargeability proceeding. First, the standard of proof may be different. The bankruptcy courts generally, including this Court, require that the plaintiffs prove his case by clear and convincing evidence when asserting a debt is not dis-chargeable pursuant to 11 U.S.C. § 523(a)(2), (4) and (6). See, In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985) where the Seventh Circuit Court of Appeals held that a party objecting to dischargeability based on fraud must establish each element of the claim by clear and convincing evidence. This higher and more exacting standard of proof is also applicable in a proceeding under 11 U.S.C. § 523(a)(4) for fraud or defalcation in a fiduciary capacity, embezzlement or larceny or 11 U.S.C. § 523(a)(6) for willful and malicious injury to person or property. See, e.g., In re DeRosa, 20 B.R. 307, 311, NN. 3 & 4 (Bankr.S.D.N.Y.1982). This is a higher standard of proof than a fair preponderance of evidence normally applied by the state court, and it is not always clear what standard the state court has in fact applied. The case law in Indiana generally, as to the standard of proof in civil actions for intentional torts, such as fraud or conversion, is that the claimant has the burden of proof and the right to prevail must be shown by a fair preponderance of the evidence rather than the higher standard of clear and convincing evidence required in a bankruptcy setting. See, e.g., Grissom v. Moran, 154 Ind.App. 419, 290 N.E.2d 119, Reh’rg Denied 154 Ind.App. 432, 292 N.E.2d 627 (1972) (fraud action); Bissell v. Wert, 35 Ind. 54 (Ind.1871) (conversion). 16 However, the Indiana Courts have recently added an exception to the above general rule. In the Travelers Indemnity Company v. Armstrong, 442 N.E.2d 349, 362, 363 (Ind.1982), the Indiana Supreme Court held that proof by clear and convincing evidence is required when punitive damages are sought. This case involved an action by an insured versus an insured on an insurance policy. The Court noted that: [p]unitive damages should not be allowable upon evidence that is merely consistent with the hypothesis of malice, fraud, gross negligence or oppressiveness. Rather some evidence should be required that is inconsistent with the hypothesis that the tortious conduct was the result of a mistake of law or fact, honest error of judgment, over-zealousness, mere negligence or other such noniniquitous human failing.... The propriety of the clear and convincing evidence standard is particularly evident in contract cases, because the breach itself for whatever reason, will almost invariably be regarded by the complaining party as oppressive, if not outright fraudulent. Id. This standard of proof in awarding punitive damages was extended by the Indiana Court of Appeals, Fourth District, in the case of Orkin Exterminating Co. v. Traina, 461 N.E.2d 693, 697-698 (Ind.App.4th Dist.1984), where the Court held that the clear and convincing standard of proof also applied to “all punitive damage cases whether they are tortious breach of contract or pure tort cases.” Id. at 698. The Court stated: To be substantial arid of probative value as to a punitive damages award, the evidence must be clear and convincing, that is, there must be some evidence (a) of malice, fraud, gross negligence or oppressive conduct mingled in the breach in tortious breach of contract cases or of malicious, reckless or wilful and wanton misconduct in pure tort cases, and (b) the tortious conduct is inconsistent with a hypothesis of mere negligence, mistake of law or fact, over-zealousness, or other noniniquitous human failing. Id. at 698. The Indiana Supreme Court on petition to transfer in the Orkin case reversed on other grounds but agreed with the holding of the Court of Appeals as to the standard of proof in assessing punitive damages in tort cases and stated as follows: The Court of Appeals was correct in determining that the Armstrong clear and convincing evidence rule applies in pure tort cases as well as in those rare breach of contract cases where it is clear that the breach contained “elements that enable the court to regard them as falling within the field of tort or as closely analogous thereto,... Orkin Exterminator Co., Inc. v. Traina, 486 N.E.2d 1019, 1021 (Ind.1986). Accordingly, if an Indiana State Court in entering a money judgment awards punitive damages, that court is theoretically compelled by Indiana Law pursuant to the Armstrong and Orkin cases, supra, to find that the prevailing party has submitted clear and convincing evidence to justify such an award. Thus, the standard as to the burden of proof to be applied by the state court would be the same as is required by the bankruptcy court in making a finding of a subsidary ultimate fact in a nondischarge-ability proceeding. As a consequence, if such a fact issue were actually litigated and necessarily decided in the state court and the court applied the higher standard of proof of clear and convincing evidence rather than that of by a fair preponderance of the evidence and awarded punitive damages those findings of fact could have issue preclusive (collateral estoppel) effect in the bankruptcy proceeding. However, as can be seen from the discussion below regarding the various differences between Indiana and Federal Bankruptcy Law as to fraud, conversion, etc., the mere fact that the state court applied the standard of clear and convincing evidence and awarded punitive damages does not mean that the findings of fact necessarily include findings of fact that the conversion was “wilful and 17 malicious” as required by § 523(a)(6) or that the fraud was actual or positive as required by § 523(a)(2)(A). The elements of the state cause of action such as fraud or conversion may be different than those necessary to have a claim be determined as nondischargeable pursuant to 11 U.S.C. § 523(c). As pointed out by the Court in In re Rainey, 1 B.R. 569, 570 (Bankr.D.Ore.1979): This Court is permitted — and indeed may be required — to look behind a lower court judgment in determining discharge-ability. In re Houtman, 568 F.2d 651 (9th Cir.1978); Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767, 5 B.C.D. 226 (1979); In re Stokke, No. B71-3601 (B.Ct.Oregon 1972). Underlying considerations for discharge in bankruptcy are different from those for common law negligence and intentional torts; inquiries and findings necessary for the two types of actions frequently may differ. See Brown v. Felsen, supra 99 S.Ct. at 2213, 5 B.C.D. at 229-30. It has been repeatedly held that whether a debt is dischargeable in bankruptcy is a question of federal law and state law is not applicable. See, Matter of Pappas, 661 F.2d 82 (7th Cir.1981). Although this was an Act case interpreting the predecessor to 11 U.S.C. § 523(a)(2) (11 U.S.C. § 35(a)(2)), there have been only slight changes between the Act and the Code and the foregoing statement continues to correctly state which law is applicable under the 1978 Code. See, Birmingham Trust National Bank v. Case, 755 F.2d 1474 (11th Cir.1985), where it was held that because of the negligible differences, case law under the Act serves as a useful guide under the 1978 Code. Other courts construing the 1978 Code have consistently held that the question of whether a debt is dischargeable in bankruptcy is one of federal law. See, e.g,, In re Marini, 28 B.R. 262, 264 (Bankr.E.D.N.Y.1983); In re Tapp, 16 B.R. 315 (Bankr.D.Alaska 1981); In re Sadwin, 15 B.R. 884, 886 (D.M.D.Fla.1981); In re Liberate 11 B.R. 54 (Bankr.E.D.Pa.1981). While the case at bar involves an allegation that the debt is nondischargeable based on wilful and malicious injury pursuant to 11 U.S.C. § 523(a)(6), rather than fraud pursuant to 11 U.S.C. § 523(a)(2) the above statement that nondischargeability is based on federal law is equally applicable. The statutory elements that need to be proven under § 523(a)(2), (4) and (6) and the federal case law construing the same will often not be the same as is necessary to assess liability in the state court based on the same set of facts. For instance, while a debtor may be liable in damages for a mere technical conversion in the state court, § 523(a)(6) expressly requires that such a conversion be both “wilful and malicious” in order for a debt to be held nondis-chargeable. Compare, Noble v. Moistner, 180 Ind.App. 414, 388 N.E.2d 620, 621 (Ind.App.4th Dist.1979), where conversion is defined as the “ ‘appropriation of property of another to the party’s own use and benefit, or in its destruction, or in exercising dominion over it, in exclusion and defiance of the rights of the owner or lawful possessor, or in withholding it from his possession, under a claim and title inconsistent with the owner’s.’ ” The application of this definition is clearly not sufficient in a nondischargeability proceeding under § 523(a)(6) in which the claimant must show conjunctively that the actions of the debtor were “intentional and malicious” and where a mere technical conversion may be dischargeable, where it is not shown the same was wilful and malicious. See, e.g., Matter of Conner, 59 B.R. 594, 596 (Bankr.W.D.Mo.1986). See also, 3 Collier on Bankruptcy 11523.16 (pp. 511-514) (L. King 15th Ed.), where it discusses the fact that the 1978 Code overruled many previous Act cases holding various degrees of recklessness as being wilful and malicious and that a deliberate and intentional act is necessary. The same can be said of a state fraud action. In Indiana, the claimant can prove that the fraud is either actual or constructive. Under Indiana law “constructive fraud” is fraud that arises by operation of law from conduct, which if sanctioned by law, would secure an unconscionable advantage. Whiteco Properties, Inc. v. 18 Theilbar, 467 N.E.2d 433 (Ind.App.3rd Dist.1984); See also, Abdulrahim v. Gene B. Glick Co., Inc., 612 F.Supp. 256 (N.D.Ind.1985); Crook v. Shearson Loeb Rhoades, Inc., 591 F.Supp. 40 (N.D.Ind.1983). This is to be compared with the clear legislative intent of the provisions of § 523(a)(2)(A). The relevant legislative statements are as follows: [t]hus, under section 523(a)(2)(A) a creditor must prove that the debt was obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insiders financial condition. Subpara-graph (A) is intended to codify current case law e.g., Neal v. Clark, 95 U.S. 704 [, 24 L.Ed. 586] (1887), which interprets “fraud” to mean actual or positive fraud rather than fraud implied in law. Sub-paragraph (A) is mutually exclusive from subparagraph (B). Subparagraph (B) pertains to the so-called false financial statement.... 124 Cong.Rec. H11095-96 (Daily Ed. Sept. 28, 1978); S17412 (Daily Ed. Oct. 6, 1978). Reprinted in 4 Norton Bankruptcy Law and Practice, Annotated Legislative History, § 523, page 397 (Callaghan and Company, 1983). The Courts have consistently held in construing § 523(a)(2)(A) that there must be proof of positive fraud and this involves showing that the acts which constitute fraud involved moral turpitude or an intentional wrong; and fraud implied in law which does not require a showing of bad faith or immorality is insufficient. See, e.g., In re Gilman, 31 B.R. 927, 929 (Bankr.S.D.Fla.1983); In re Slutzky, 22 B.R. 270, 271 (Bankr.E.D.Mich.1982); In re Montbleau, 13 B.R. 47, 48 (Bankr.D.Mass.1981); In re Byrd, 9 B.R. 357, 359 (Bankr.D.C.1981); In re McAdams, 11 B.R. 153, 155 (Bankr.D.Vt.1980). Thus, from the mere fact that a state fraud or conversion case is fully tried on its merits and judgment entered, it does not follow that the Court’s finding of fact in such a case (assuming that Court used the clear and convincing evidence standard discussed above) would collaterally estop or operate as issue preclusion in a subsequent nondischargeability proceeding in the Bankruptcy Court as for example, the evidence might show, that although the court found fraud the finding of fraud may have really been a finding of constructive fraud or fraud implied-in-law as opposed to actual or constructive fraud or that the finding of conversion was really based on a technical conversion or gross negligence which would be dischargeable in the bankruptcy proceeding. This Court has examined the various positions taken by the courts regarding issue preclusion in the context of bankruptcy nondischargeability proceedings. Lower Courts before and after Brown have approached the issue in various ways. A leading pre-Brown case was in In re Houtman, 568 F.2d 651, 3 B.C.D. 1403 (9th Cir.1978). There the Court held that collateral estoppel may not be applied in determining the dischargeability of debts, and the bankruptcy court must consider all relevant evidence, including state court proceedings. The Court stated: The 1970 Amendments to the Bankruptcy Act imposed upon the bankruptcy courts the exclusive jurisdiction to determine dischargeability. As we read those Amendments there is no room for the application of the technical doctrine of collateral estoppel in determining the nondischargeability of debts described in section 17(a)(2), (4), and (8) of the Bankruptcy Act. In re Houtman, 568 F.2d at 653, 3 B.C.D. at 1404. The Houtman Court added at 568 F.2d at 653 N. 2, 3 B.C.D. at 1404, N. 2 as follows: We acknowledge that a grant of exclusive jurisdiction to federal courts does not automatically preclude the application of the doctrine of collateral estoppel. Becher v. Contoure Laboratories, 279 U.S. 388, 49 S.Ct. 356, 73 L.Ed. 752 (1928); cf. Clark v. Watchie, 513 F.2d 994 (9th Cir.), cert. denied, 423 U.S. 841, 96 S.Ct. 72, 46 L.Ed.2d 60 (1975). However, we believe that collateral estoppel 19 is inappropriate when “a new determination is warranted... by factors relating to the allocation of jurisdiction between [the two courts].” Restatement 2d of Judgments § 68.1(c) [Tent. Draft No. 4, 1977]; cf. Lyons v. Westinghouse Electric Corp., 222 F.2d 184 (2d Cir.), cert denied, 350 U.S. 825, 76 S.Ct. 52, 100 L.Ed. 737 (1955) (refusal to give collateral estoppel effect to state court finding of no antitrust violation because of need for “an untrammeled jurisdiction of the federal courts.” Id. [222 F.2d] at 189). Congress, in enacting the 1970 Amendments to the Bankruptcy Act, felt that One of the strongest arguments in support of the bill is that,... a single court, to wit, the bankruptcy court, will be able to pass upon the question of dischargeability of a particular claim and it will be able to develop an expertise in resolving the problems in particular cases.... Since this is a Federal statute, the Federal courts necessarily have the final word as to the meaning of any term contained therein. S.Rep. No. 91-1173, 91st Cong., 2d Sess. (1970) at 9. To give collateral estoppel effect to prior state court factual findings would impair the exercise of the expertise of the bankruptcy court. The determination of nondischargeability should remain an exclusive function of the bankruptcy court unimpeded by the refinements of collateral estoppel by state court judgments. The Houtman decision was followed in In re Rohm, 641 F.2d 755, 757 (9th Cir.1981) ce rt. denied sub. nom. Gregg v. Rahm, 454 U.S. 860, 102 S.Ct. 313, 70 L.Ed.2d 157 without directly citing Hout-man where the Court held a prior state judgment has no collateral estoppel force on a bankruptcy court considering dis-chargeability unless both parties agree to rest their case on that judgment. The Court went on to state that at most, a prior judgment establishes a prima facie case of nondischargeability which the bankrupt is entitled to refute on the basis of all relevant evidence, citing Matter of Easier, 611 F.2d 308, 309 (9th Cir.1979) which held that in an ordinary case a prior state judgment would not be res judicata or have collateral estoppel effect in a bankruptcy court, because bankruptcy courts have exclusive jurisdiction to determine discharge-ability. See also, In re Daley, 776 F.2d 834, 838 (9th Cir.1985), cert. denied sub. nom., Daley v. Frank, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). There the Court held that the doctrine of issue preclusion did not bar creditors from relit-igating the issue of nondischargeability based on fraud where a dismissal with prejudice was entered by stipulation in that the fraud claims were never actually litigated and the creditors obtained judgment on their contract claims only. The United States Bankruptcy Appellate Panel of the Ninth Circuit in the case of In re DiNoto, 46 B.R. 489, 491 (B.A.P. 9th Cir.1984) in citing Easier and Houtman, supra, held that where the bankruptcy court has exclusive jurisdiction in actions to determine dischargeability, state judgments are not res judicata and do not have collateral estoppel effect because of the Bankruptcy Court’s exclusive jurisdiction. The Court went on to state that the foregoing rule applies to stipulated judgments as well as those that result from a trial. This Court also believes that the DiNoto Court also correctly distinguished the holding of the Ninth Circuit Court of Appeals in In re Comer, 723 F.2d 737 (9th Cir.1984) which held that a state court determination of the amount of liability can be binding in a dischargeability action in that Comer involved state spousal and child support judgments. The Comer Court held that the litigant had full incentive to litigate and did fully litigate the issue in the state court. Secondly, the Comer Court noted that the amount in controversy, i.e. the issue of damages, would be identical under both state law and bankruptcy discharge-ability law as compared to a fraud action which may have a different measure of damages or require a different quantum of proof. The DiNoto Court also correctly noted a third grounds for distinguishing Comer, i.e. that as opposed to discharge- 20 ability proceedings under § 523(c) where the bankruptcy court has exclusive jurisdiction, it is generally recognized that state courts have concurrent jurisdiction with the bankruptcy courts over dischargeability proceedings arising under § 523(a)(5) relating to family support. In re DiNoto, 46 B.R. 489, 491 N. 1, supra, accord: Goss v. Goss, 722 F.2d 599 (10th Cir.1983). The Fifth Circuit in the case of Carey Lumber Company v. Bell, 615 F.2d 370, 377 (5th Cir.1980), held that a bankrupted court, when faced with a nondischargeability claim evidenced by a state court judgment, is not barred by res judicata or collateral estoppel from conducting appellate inquiry into the character and ultimately the dischargeability of the debt citing In re Houtman, supra. The Carey Court went on to hold that when a bankruptcy judge is presented with a state court consent judgment which contained rather detailed recitations of findings of fact which closely paralleled the language of the Bankruptcy Act’s dischargeability exception for fraud, the bankruptcy judge properly considered those judgments in connection with a motion for summary judgment. Thus the Carey Court treated the state court judgment as evidence, and thus of less weight than the Houtman Court which indicated that the state court judgment established a prima facie case. The Court notes that there are three types of state court judgments that can be entered and which either party may attempt to assert as forming a basis for issue preclusion or collateral estoppel in the bankruptcy dischargeability proceeding. These are 1) Default judgment or confession of judgment; 2) Stipulated or agreed judgment; 3) Judgment by the Court after an actual trial litigating the merits. As to a default or confessed judgment or an agreed or stipulated judgment, the courts have been rather uniform in denying not only claim preclusion effect but also issue preclusion effect to such a judgment in the bankruptcy court. The issue to be precluded must be actually and necessarily litigated in order for issue preclusion to apply. Not only is there no actual or necessary litigation on the issues in these types of judgments, they are frequently entered into for reasons other than the merits of the case. Defendants often lack sufficient financial incentive or adequate financial support to even answer claims brought against them, and they are quite often not aware of the grounds for nondis-chargeability and thus have little incentive to defend these cases in the state court. For Discussion, see, Fenrell The Preclusive Effect of State Court Decisions in Bankruptcy, First Installment, 58 Amer.Bankr. L.R. 349, 364 (1984). For example in, In re Shuler, 722 F.2d 1253, 1257 (5th Cir.1984), cert. denied sub nom. Harold V. Simpson & Co. v. Shuler, 469 U.S. 817, 105 S.Ct. 85, 83 L.Ed.2d 32, the Court held that the bankruptcy court did not error in failing to give collateral estoppel effect to a state court default judgment in that the judgment did not contain detailed facts sufficient as findings to meet the federal test of nondischargeability. (The Court at page 1257, footnote 6 carefully noted however, that since the judgment could not have been accorded collateral estoppel effect, the Court did not reach the issue of whether a state default judgment meets the “actually litigated test” for collateral estoppel purposes in bankruptcy dischargeability determinations). See also, Matter of Poston, 735 F.2d 866 (5th Cir.1984), cert. denied sub nom. Patino’s Inc. v. Poston, 469 U.S. 1086, 105 S.Ct. 591, 83 L.Ed.2d 700, where the Court held that a prior state court default judgment in favor of a creditor which stated that the debt was incurred by fraud did not have collateral estoppel effect in a subsequent bankruptcy dischargeability proceeding when the default judgment did not contain sufficient detailed facts to allow the bankruptcy court to ascertain a specific basis for the conclusory allegations of fraud. (The Court at footnote 3 at page 870 did note that as in Shuler it was not expressly ruling on the question of whether a default judgment meets the actually litigated test for collateral estoppel). The Court in Spilman v. Hurley, 656 F.2d 224, 228 (6th Cir.1981), was more conclusive on the issue preclusion or collateral 21 estoppel effect of a prior state court judgment and stated: Collateral estoppel requires that the precise issue in the later proceedings have been raised in the prior proceeding, that the issue was actually litigated, and that the determination was necessary to the outcome. See Ross, supra, 602 F.2d at 608; Merrill, supra, 594 F.2d at 1067; Harrison v. Bloomfield Building Industries, Inc., 435 F.2d 1192, 1195 (6th Cir.1970).... If the important issues were not actually litigated in the prior proceeding, as is the case with a default judgment, then collateral estoppel does not bar relitigation in the bankruptcy court. See Commonwealth of Massachusetts v. Hale, 618 F.2d 143, 146 (1st Cir.1980); Matter of McMillan, 579 F.2d 289, 293 (3d Cir.1978); Pigge, supra, 539 F.2d at 373; In re Cooney, 8 B.R. 96, 98-99 (Bkrtcy.W.D.Ky.1980); In re Richards, 7 B.R. 711, 714 (Bkrtcy.S.D.Fla.1980); In re Ashley, 5 B.R. 262, 264 (Bkrtcy.E.D. Tenn.1980); In re McKenna, 4 B.R. 160, 162 (Bkrtcy.N.D.Ill.1980); Matter of Mallory, 1 B.R. 201, 202 (Bkrtcy.N.D.Ga.1979). Thus, before applying the doctrine of collateral estoppel, the bankruptcy court must determine if the issue was actually litigated and was necessary to the decision in the state court. To do this, the bankruptcy court should look at the entire record of the state proceeding, not just the judgment, see Herman, supra, 6 B.R. at 357; National Homes, supra, 336 F.Supp. at 648; Webster, supra, 1 B.R. at 63, or hold a hearing if necessary, see Ross, supra, 602 F.2d at 608. (Emphasis supplied). The Tenth Circuit Court of Appeals in Matter of Lombard, 739 F.2d 499 (10th Cir.1984) also denied collateral estoppel effect to a state court default judgment in that a necessary issue to nondischargeability for fraud was never actually litigated in the state court. The Third Circuit Court of Appeals in Matter of McMillan, 579 F.2d 289, 292 (3rd Cir.1978), held that where bankrupts did not “actually litigate” a state case in which the creditor obtained a default judgment on the grounds of fraud, not even facts that were necessary to the judgment could collaterally estop the bankrupts from litigating the same issues in a dischargeability proceeding in the bankruptcy court. Numerous bankruptcy courts have declined to give issue preclusion effect to a state default, judgments or confessed judgments. See, Matter of Wintrow, 57 B.R. 695 (Bankr.S.D.Ohio W.D.1986); In re Bishop, 55 B.R. 687, 689 (Bankr.W.D.Ky.1985); In re Davis, 47 B.R. 599, 601-602 (Bankr.S.D.Fla.1985); In re Goodman, 25 B.R. 932, 936-939 (Bankr.N.D.Ill.1982); Matter of Poss, 23 B.R. 487, 489 (Bankr.E.D.Wis.1982); In re Bursh, 14 B.R. 702, 705 (Bankr.D.Ariz.1981); In re Peterson, 9 B.R. 835, 836 (Bankr.D.Nev.1981). Based on the foregoing analysis this Court concludes that any confessed, default or agreed judgment that is entered in the state court is not entitled to either res judicata (claims preclusion) or collateral estoppel (issue preclusion) effect in any dischargeability proceedings subsequently held in the bankruptcy court as to those proceedings arising under § 523(a)(2), (4) and (6), pursuant to § 523(c) i.e., those proceedings designated in § 523(c) in which the bankruptcy court is given exclusive rather than concurrent jurisdiction to determine nondischargeability. This is true regardless of what the collateral estoppel or issue preclusion effect a state court default judgment has in the State of Indiana. As discussed above, the overriding federal policy of exclusivity and uniformity sought to be achieved by § 523(c), together with the varying standards of proof, variations in the necessary elements of the state cause versus the bankruptcy proceeding and the fact that the relevant issues are never actually and necessarily litigated all lead the Court to this conclusion. Although, the case sub judice is not one relating to a default judgment, the Court feels compelled to interject this holding as it necessarily becomes part of the over all analysis the Court was compelled to make to determine the issue of the applicability 22 of collateral estoppel when certain issues of fact and law are necessarily and actually decided on the merits in the state court. Turning to the case at bar, the Court concludes that the proper procedure for the Court to employ when the issues have been actually and necessarily litigated on the merits in the state court is to order the party who is attempting to assert collateral estoppel or claim preclusion to file certified copies of the pleadings, a transcript of the evidence, and the judgment with the bankruptcy court in the discharge-ability proceeding. The Court will consider those matters as evidence in the bankruptcy proceeding, carefully review the same and decide what issues, if any, should be given collateral estoppel or issue preclusion effect based on whether the state court proceeding applied the requisite standard of proof and elements of the cause and the relevant issue was actually and necessarily litigated, and then hold a trial as to those remaining issues that must be actually and necessarily litigated in the dischargeability proceeding. See, Matter of Life Science Church of River Park, 34 B.R. 529 (Bankr.N.D.Ind.1983). It is therefore, ORDERED, that the Plaintiffs file in this adversary proceeding a certified copy of all relevant pleadings, a transcript of the evidence submitted at the trial, and a copy of the state court judgment upon which they are relying or advise the Court in writing that they do not wish to rely on the doctrine of collateral estoppel or claim preclusion within 30 days from the date of entry of this Order. 1. This Order constitutes the Court’s Finding of Fact and Conclusions of Law pursuant to Fed.R. Civ.P. 52 as made applicable by Bankruptcy Rule 9014 and 7052. 2. As set forth in the Supreme Court's decision in Migra v. Warren City School District Board of Education, 465 U.S. 75, 77, n. 1, 104 S.Ct. 892, 894 n. 1, 79 L.Ed.2d 56 (1984): "The preclusive effects of former adjudication are discussed in varying and, at times, seemingly conflicting terminology, attributable to the evolution of preclusion concepts over the years. These effects 11 are referred to collectively by most commentators as the doctrine of ‘res judicata’. Res judica-ta is often analyzed further to consist of two preclusion concepts: 'issue preclusion’ and ‘claim preclusion’. Issue preclusion refers to the effects of a judgment in foreclosing relit-igation of a matter that has been litigated and decided. This effect also is referred to as direct or collateral estoppel. Claim preclusion refers to the effect of a judgment in foreclosing litigation of a matter that never has been litigated, because of a determination that it should have been advanced in an earlier suit. Claim preclusion therefore encompasses the law of merger and bar. This Court on more than one occasion has used the term ‘res judicata’ in a narrow sense, so as to, exclude issue preclusion or collateral estoppel. When using that formulation, ‘res judicata’, becomes virtually synonomous with ‘claim preclusion.’ In order to avoid confusion resulting from the two uses of ‘res judica-ta’, this opinion uses the term ‘claim preclusion’ to refer to the preclusive effect of a judgment in foreclosing relitigation of matters that should have been raised in an earlier suit.” (Citations omitted). In the subsequent case of Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 1329 n. 1, 84 L.Ed.2d 274 (1985), the Supreme court continued the same use of this terminology: "In this opinion, we used the term ‘claim preclusion’ to refer to 'res judicata’ in a narrow sense, i.e., the preclusive effect of a judgment in foreclosing ‘litigation of matters that should have been raised in an earlier suit. In contrast, we used the term ‘issue preclusion’ to refer to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided.”	LIMITED_OR_DISTINGUISHED
723 F.2d 737	79 B.R. 1016	NF	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	MEMORANDUM DECISION ROBERT D. MARTIN, Chief Judge. On February 12, 1983, William Wagner struck Conrad Molldrem in the head four times with an iron bar. As a result of his injuries Conrad died. Wagner was prosecuted for first degree murder but was acquitted. In 1985, the plaintiffs herein, Conrad’s widow, Carol, his estate, and his medical insurer Blue Cross/Blue Shield brought a wrongful death suit against Wagner in Circuit Court for Grant County. The case resulted in a special jury verdict finding Wagner had committed a battery upon Conrad. The jury awarded the estate $37,945.64, Carol $275,000.00, and Blue Cross/Blue Shield $35,944.19. The jury awards were confirmed by the trial court in judgments entered on April 22, 1985. 1017 Shortly after the verdict was rendered, Wagner gave mortgages on his farm to his brother and the law firm that had represented him in the Grant County suit. Later he assigned milk income from his farm and half the proceeds from the sale of some commercial property to his wife. The mortgages and the judgments exceeded Wagner’s net worth. In addition, the milk assignment dealt away his major source of income. In order to set aside the mortgages and assignments as preferences the judgment creditors filed an involuntary petition under chapter 7 on May 21, 1985. See In re Wagner, 808 F.2d 542 (7th Cir.1986). This case is now before the court on the plaintiffs’ motion for a summary judgment holding Wagner’s debts to the plaintiffs nondischargeable. Plaintiffs allege that the Grant County judgments constitute debts for willful and malicious injury within section 523(a)(6) of the Bankruptcy Code. Plaintiffs argue that the willfulness and malice of the injury were actually litigated and necessarily decided by the jury which found Wagner had committed battery and that Wagner is collaterally estopped from relitigating any issue under section 523(a)(6). In support of their motion, plaintiffs have submitted briefs, a certified copy of the special verdict and judgment, an affidavit from counsel and relevant portions of the trial transcript. In opposition to the motion Wagner has filed an affidavit of counsel and a brief. Wagner admits a debt is owed to the plaintiffs but contends that collateral estoppel is inapplicable in this case. The initial question is whether the application of collateral estoppel is appropriate in a dischargeability determination pursuant to section 523(a)(6). If the doctrine may be applied, it must then be determined whether the necessary prerequisites for the application of collateral estoppel have been met in this case. Until recently this has been an unsettled area of the law. Even the prior decisions of this court appear to be inconsistent. 1 The difficulty is largely due to dicta in the Supreme Court decision of Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). In Brown, the court held that res judicata did not apply in dischargeability determinations pursuant to sections 523(a)(2), (4) and (6) 2 given the Congressional grant to the bankruptcy court of exclusive jurisdiction over dischargeability determinations. The Court, however, expressly reserved ruling on the application of the narrower principle of collateral es-toppel in the dischargeability context. In footnote 10, the Court expressed its view on collateral estoppel: This ease concerns res judicata only, and not the narrower principle of collateral estoppel. Whereas res judicata forecloses all that which might have been litigated previously, collateral estoppel treats as final only those questions actually and necessarily decided in a prior suit. Montana v. United States, 440 U.S. 147, 153 [99 S.Ct. 970, 973, 59 L.Ed.2d 210] (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5 [99 S.Ct. 645, 649 n. 5, 59 L.Ed.2d 645] (1979); Cromwell v. County of Sac, 94 U.S. [4 Otto] 351, 352-353 [24 L.Ed. 195] (1877). If, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of § 17, then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court. Because respondent does not contend that the state litigation actually and necessarily decided either fraud or any other 1018 question against petitioner, we need not and therefore do not decide whether a bankruptcy court adjudicating a § 17 question should give collateral-estoppel effect to a prior state judgment. In another context, the Court has held that a bankruptcy court should give collateral-estoppel effect to a prior decision. Heiser v. Woodruff, 327 U.S. 726, 736 [66 S.Ct. 853, 857, 90 L.Ed. 970] (1946). The 1970 amendments to the Bankruptcy Act, however, have been interpreted by some commentators to permit a contrary result. See 1A J. Moore, J. Mulder, & R. Oglebay, Collier on Bankruptcy § 17.16[6], p. 1650.2 (14th ed. 1978); Countryman, The New Dischargeability Law, 45 Am.Bankr.L.J. 1, 49-50 (1971). But see 1 D. Cowans, Bankruptcy Law and Practice § 253 (1978). Brown, 442 U.S. at 139, n. 10, 99 S.Ct. at 2213, n. 10. Lower courts have split over their interpretation of this footnote. Some courts, such as the Sixth Circuit in its Spilman decision, have concluded: applying collateral estoppel is logically consistent with the Supreme Court’s decision in Brown and the exclusive jurisdiction of bankruptcy courts while at the same time encouraging judicial economy. The determination whether or not a certain debt is dischargeable is a legal conclusion based upon the facts in the case. The bankruptcy court has exclusive jurisdiction to make that legal conclusion. It must apply the statute to the facts and decide to discharge or not. Therefore, res judicata does not apply to prevent litigation of every issue which might have been covered in a state court proceeding on the debt. However, that Congress intended the bankruptcy court to determine the final result — dischargeability or not — does not require the bankruptcy court to redetermine all the underlying facts. Spilman v. Harley, 656 F.2d 224, 227 (6th Cir.1981). Other courts, notably the Ninth Circuit, have concluded that the exclusive jurisdictional grant to bankruptcy courts erected a barrier to the application of collateral es-toppel. The Ninth Circuit first articulated its analysis in In re Houtman, 568 F.2d 651 (9th Cir.1978), a pre-Brown case. The court stated: The 1970 Amendments to the Bankruptcy Act imposed upon the bankruptcy courts the exclusive jurisdiction to determine dischargeability. As we read those Amendments there is no room for the application of the technical doctrine of collateral estoppel in determining the nondischargeability of debts described in section 17(a)(2), (4), and (8) of the Bankruptcy Act. 2... In re Houtman at 653. The Ninth Circuit has adhered to the Houtman analysis even after Brown. See In re Rahm, 641 F.2d 755, 757 (9th Cir.1981), cert, denied 454 U.S. 860, 102 S.Ct. 313, 70 L.Ed.2d 157 (1981); Derish v. San Mateo-Burlingame Bd. of Realtors, 724 F.2d 1347 (9th Cir.1983); In re Comer, 723 F.2d 737 (9th Cir.1984); In re Harck, 70 B.R. 118 (9th Cir. BAP, 1987). Until last month the Seventh Circuit had not addressed the issue. But in its decision in Klingman v. Levinson, 831 F.2d 1292 (7th Cir.1987) our circuit has aligned itself with the Sixth Circuit by adopting the Spil-man approach and stating: Where a state court determines factual questions using the same standards as the bankruptcy court would use, collateral estoppel should be applied to promote judicial economy by encouraging the parties to present their strongest arguments.... Thus, if the requirements for applying collateral estoppel have been satisfied, then that doctrine should apply to bar relitigation of an issue determined by a state court. Id. at 1295. In addition to Klingman, this court is cognizant of a recent line of Supreme 1019 Court cases in which the court has re-examined the interplay between a grant of federal jurisdiction and preclusion principles. The analysis has centered on 28 U.S.C. § 1738 which provides in part: The judicial proceedings of any court of any state... shall have the same full faith and credit in every court within the United States and its territories and possession as they have by law or usage in the courts of such state. In In re Byard, 47 B.R. 700 (Bankr.M.D.Tenn.1985), a comprehensive opinion analyzing these developments, Judge Lundin explained the current state of the law as follows: The principles of ‘full faith and credit’ under § 1738 have undergone intensive re-examination and clarification in several recent Supreme Court opinions. The rule as stated by the Supreme Court is that ‘a federal court must give to a state court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.’ Migra v. Warren City School District Board of Education, 465 U.S. 75, [81], 104 S.Ct. 892, 896, 79 L.Ed.2d 56, 63 (1984). See also Marrese v. American Academy of Orthopaedic Surgeons, [470] U.S. [373], 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); McDonald v. West Branch, [466] U.S. [284], 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984); Kremer v. Chemical Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). In Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415, 66 L.Ed.2d 308, 314 (1980), the Supreme Court indicated that only a clear Congressional intent to contravene § 1738 will permit a federal court to deny the preclusive effect of a state court judgment. [[Image here]] For purposes of claim preclusion only, in Brown v. Felsen, 442 U.S. 127, 138, 99 S.Ct. 2205, 2212, 60 L.Ed.2d 767 (1979) the Supreme Court found sufficient congressional intent to deny res judicata effect to state court judgments in dis-chargeability litigation. This conclusion is acknowledged ii not restated by the Supreme Court in Marrese. See U.S. at [386], 105 S.Ct. at 1334. The Supreme Court in Brown reserved, however, the question whether issue preclusion remained possible in dischargeability litigation. Id. at 701-02. See also, In re Eadie, 51 B.R. 890 (Bankr.E.D.Mich.1985) (adopting the Byard analysis). As Byard further acknowledges, the rules of application of section 1738 seem to have been ignored by most bankruptcy courts. “Instead the bankruptcy courts have applied federally developed rules of issue preclusion often without acknowledgment of the customary practice.” Byard, 47 B.R. at 703, citing Ferriell, The Preclu-sive Effect of State Court Decisions in Bankruptcy (First Installment), 58 Am. Bankr.L.J. 349 (Fall 1984). A recent Supreme Court case addressing the application of section 1738 is Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). Marrese dictates that federal courts must determine a preclusive effect of a state court judgment under a two-part test. First, it is necessary to examine state preclusion law in determining the preclusive effect of a state court judgment. “Only if state law indicates that a particular claim or issue would be barred” is it necessary to move to the second part of the test — whether an exception to section 1738 should apply. Marrese, 470 U.S. at 386, 105 S.Ct. at 1335. To determine the application of collateral estoppel to this case we must first determine what preclusive effect, if any, Wisconsin courts would give to the Grant County judgment. Then, if Wisconsin would grant preclusive effect to the judgment, we must see whether any exemption to section 1738 applies. Under Wisconsin law four basic requirements must be satisfied before collateral estoppel can be applied: 1. The prior judgment must be valid and final on its merits; 2. There must be identity of issues; 1020 3. There must be identity or privity of parties; 3 4. The issues in the prior action asked to be invoked must have been actually litigated and necessarily determined. See Ryan, Collateral Estoppel in the Wisconsin Courts, 55 Wisconsin Bar Bulletin 31 (Jan. 1982). See also Kunzelman v. Thompson, 799 F.2d 1172, 1176 (7th Cir.1986). The sole element disputed in the present case is whether there is an identity of issues. That element is identical under Wisconsin or federal law, and the result in this case is also identical under either standard. In order to satisfy the identity of issues requirement the paramount considerations and the burdens of proof must be the same in both proceedings. In State ex rel. Flowers v. H & SS Department, 81 Wis.2d 376, 260 N.W.2d 727 (1978) the Supreme Court of Wisconsin explained that “[t]he second proceeding must involve... the same bundle of legal principles that contributed to the rendering of the first judgment.” Flowers, 81 Wis.2d at 387, 260 N.W.2d 727, citing C.I.R. v. Sunnen, 333 U.S. 591, 602, 68 S.Ct. 715, 721, 92 L.Ed. 898 (1948). Neither party has seriously disputed that the paramount considerations in both proceedings are the same. Section 523(a)(6) provides: (а) A discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt— (б) for willful and malicious injury by the debtor to another entity or to the property of another entity. Under section 523(a)(6), an injury may be malicious “if it was wrongful and without just cause or excessive, even in the absence of personal hatred, spite or ill-will. The word ‘willful’ means ‘deliberate or intentional,’ a deliberate and intentional act which necessarily leads to injury.” 3 Collier on Bankruptcy ¶ 523.16[1] (15th ed. 1983) (footnote omitted). The general rule is that “liabilities arising from assault and battery are generally considered as founded upon a willful and malicious injury and therefore within the exception.” Id. See also, In re Pitner, 696 F.2d 447 (6th Cir.1982). In addition, in the Grant County action the jury was instructed pursuant to Wis. JI-civil-2005 (Adapted) which provides in relevant part: A battery is the unlawful and intentional use of force and violence upon the person of another, resulting in the infliction of physical harm to such other. The use of force or violence in any degree upon the person of another is unlawful when no permission for the bodily contact has been given by the person upon whom such force or violence has been committed. An essential element of a battery is that the use of force or violence upon the person of another must have been intentional, that is, consciously directed at the person of such other by the one charged with the commission of a battery. One who through carelessness or negligence inflicts physical harm upon another without an intent to invade the person of another or to cause bodily contact with such other is not guilty of battery. The necessary elements of a battery, all of which must be found to have existed before you may find that a battery has been committed, are these: (1) An unlawful use of force or violence upon another. (2) The intentional direction of such force or violence at the person of another. (3) The sustaining of bodily harm by the person against whom such force or violence is directed. As the jury instructions standards indicate, the paramount considerations in the Grant County action and a dischargeability determination pursuant to section 523(a)(6) are virtually identical. 1021 The defendant has questioned whether the state court burden of proof is the same as the burden of proof in a dischargeability proceeding. The jury in the state court action was held to a standard of “clear and convincing evidence” in reaching its determination of battery, which is the same burden as is applied under 11 U.S.C. § 523(a)(6). 4 However, the damages were determined using a lesser standard. 5 Damages are a necessary element of liability in a tort claim. 6 That difference in the burden of proof does not destroy the identity of issues in this case. Under section 523(a)(6) the nature of the act gives rise to nondischargeability, not the amount of damages resulting from the act. In Coen v. Zick, 458 F.2d 326 (9th Cir.1972), the Ninth Circuit addressed the question of the scope of dischargeability pursuant to the predecessor to section 523(a)(6). 7 The court concluded that the exception to discharge hinges upon the nature of the act which gave rise to the liability rather than upon the nature of the liability. In In re Adams, 761 F.2d 1422 (1985) the Ninth Circuit explained the Coen holding as follows: The statutory exception which measures nondischargeability is ‘... for liabilities... willful or malicious injuries to the person or property of another....’ The exception is measured by the nature of the act, i.e., whether it was one which caused willful and malicious injuries. All liabilities resulting therefrom are nondischargeable. One liability is limited to actual compensation.... But for this type of conduct, yet another liability may be incurred if the jury under prior instructions sees fit to award it. That is for punitive damages. Both types of liability are within the statute as 'liabilities' for ‘willful or malicious injuries to the person or property of another.’ Id. at 329-30 (emphasis added). There is no evidence in the legislative history underlying either section 523(a)(6) or section 523(a)(9) that suggests that Congress intended to limit the scope of nondischargeability to punitive damages. We therefore see no reason to depart from the rule articulated in Coen. In re Adams, at 1427-28. The jury found that Wagner, by committing a battery, inflicted a willful and malicious injury upon Conrad. Because the nature of Wagner’s act was determined using a standard of proof that comports with the clear and convincing standard required for dischargeability proceedings, there is an identity of issues between the first and second proceedings. The second step of the Marrese analysis would require this court to determine whether an implied or express repealer to section 1738 existed. In Marrese, the court stated that “[rjesolution of this question will depend on the particular federal statute as well as the nature of the claim or issue involved in the subsequent federal action. Our previous decisions indicate that the primary consideration must be the intent of Congress.” Marrese, 470 U.S. at 386,105 S.Ct. at 1335. The Supreme Court has acknowledged the implied repealer in Brown, but only as far as claim preclusion or res judicata. The trend has been for the Supreme Court to take a restrictive and narrow view of the implied or express re-pealer to section 1738. 8 The Seventh Circuit apparently adopted that narrow view in making its ruling in Klingman without 1022 comment or finding regarding implied re-pealer. At least one commentator who has exhaustively reviewed collateral estoppel in a dischargeability proceeding pursuant to sections 523(a)(2), (4), and (6) has suggested a balancing of policy considerations between preclusion and exclusive federal jurisdiction. 9 See Ferriell at 68-69. The policy considerations behind collateral estoppel are judicial economy, promoting reliance on judicial decisions, finality, and strengthening comity interests between federal and state courts. These interests have been affirmed by the Seventh Circuit in Kling-man. See at 1018. The policy in favor of exclusive federal jurisdiction is founded on the desire for uniformity and certainty of decisions by experienced courts. “[W]here the policies behind preclusion are furthered by reliance on the existing judgment, and where the policies supporting exclusive jurisdiction have no application, relitigation should not be permitted.” Ferriell at 69. In this case federal policies favoring exclusive federal jurisdiction would not be curtailed if collateral estoppel were to be applied. This is not a case where the state court has no experience dealing with the issues involved. State courts regularly deal with battery and wrongful death suits. The case was vigorously litigated for eleven days on legal standards that are essentially identical to those of the federal courts. The risk of inconsistent lines of precedent or idiosyncratic results is nil. Furthermore, the bankruptcy petition in this case was filed, not by Wagner, but by his creditors. This raises an unique concern in that: Involuntary petitions are frequently filed to prevent the debtor from dissipating its assets or to enable the petitioning creditor to equalize their position vis-a-vis other creditors. Viewed in this light, the renewed hostilities, although initiated by the creditor, are merely a legitimate step in a collection process following judgment. It would be unfair to prevent a creditor from asserting the effect of a previously obtained judgment in a bankruptcy proceeding initiated, in part, to effectuate that judgment. Ferriell at 72, n. 308. The requirements for the application of collateral estoppel to the present case have been met. The issue of the willfulness and malice of the injury to Conrad was thoroughly litigated. The verdict, based on jury instructions which are essentially identical to the standards required in section 523(a)(6), found that a battery had been committed. There is no doubt that Wagner’s actions on February 12, 1983, constituted a willful and malicious injury to Conrad. Thus, Wagner is barred from relit-igating that issue in this forum. Summary judgment is available only when the record shows 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. See Fed.R.Civ.P. 56, (Bankruptcy Rule 7056). The moving party has the burden of establishing the lack of a genuine issue of material fact. Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir.1984) citing Korf v. Ball State University, 726 F.2d 1222, 1226 (7th Cir.1984). See also In re LaCasse, 28 B.R. 214 (Bankr.D.Minn.1983). All inferences drawn from underlying affidavits and exhibits must be viewed in the light most favorable to the party opposing the motion. If the moving party *1023 fails to meet its burden, the motion must be denied. Id. Applying this standard to the present record, the plaintiffs’ have met their burden of establishing the absence of any genuine issue of material fact. Therefore, plaintiffs’ motion for summary judgment is granted. 10 1. Compare In re Trewyn, 12 B.R. 543 (Bankr.W.D.Wis.1981) and In re Brink, 27 B.R. 377 (Bankr.W.D.Wis.1983) (declining to apply collateral estoppel in dischargeability proceedings under section 523(a)(2)(A)) with In re Weber, 81 B.R. 482 (Bankr.W.D.Wis.1986) (applying collateral estoppel in dischargeability proceeding). 2. Sections 17a(2), (4) and (8) under the Bankruptcy Act of 1898. In Brown, the court was specifically dealing with sections 17a(2) and (4). The reasoning clearly applies to 17a(8), the third statutory provision subject to the exclusive jurisdiction of the bankruptcy court. 2 We acknowledge that a grant of exclusive jurisdiction to federal courts does not automatically preclude the application of the doctrine of collateral estoppel, [cites omitted]. However, we believe that collateral estoppel is inappropriate when 'a new determination is warranted... by factors relating to the allocation of jurisdiction between [the two courts].’ [cites omitted]. 3. This requirement is discarded under the federal test for collateral estoppel. See Klingman. It has also undergone serious, if not total, erosion in Wisconsin. In any event, the requirement is unquestionably met in this case. 4. See Trewyn, 12 B.R. at 546. 5. The burden of proof on Question 4, regarding punitive damages, was "to satisfy or convince... to a reasonable certainty by evidence which is clear, satisfactory and convincing that punitive damages should be awarded.” Record at 1864-1865. Thus, it appears a clear and convincing standard was used on this damages question. 6. See Schicker v. Leick, 40 Wis.2d 295, 299, 162 N.W.2d 66 (1968) and Associates Financial Services Co. v. Hornik, 114 Wis.2d 163, 167, 336 N.W.2d 395 (1983). 7. Section 17 (11 U.S.C. § 35). 8. See Allen v. McCurry, 449 U.S. 90, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980); Kremer v. Chemical Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). 9. This is the final step in an elaborate test propounded by Ferriell, In the first step, the bankruptcy court would look at the preclusive effect of the judgment under the law of the state that rendered the judgment. If it had preclusive effect, the second step would be to apply federally developed principles of issue preclusion. Ferriell states that: Such an approach would not conflict with the full faith and credit statute since the grant of exclusive jurisdiction in section 524(c) can be interpreted as a limited exception to the legislative full faith and credit requirement. By honoring state rules of preclusion, as long as they do not exceed federal principles, the exception is limited in the narrowest possible scope. Ferriell at 69 (footnotes omitted). The approach is interesting, but for our purposes only the policy balancing is relevant. 10. In their motion for summary judgment the plaintiffs requested attorneys’ fees pursuant to Bankruptcy Rule 9011 (Rule 11 of the Federal Rules of Civil Procedure). The parties did not brief this issue. Rule 11 contains two grounds for sanctions: the "frivolousness clause” and the improper purpose clause.” See Brown v. Federation of State Medical Boards of the United States, 830 F.2d 1429, 1435 (7th Cir.1987). The standard for imposing sanctions under Rule 11 requires an objective determination of whether conduct was reasonable under the circumstances. Id. at 1434. Applying this standard to Wagner’s conduct it is clear that the standard has not been met. The purpose of Rule 11 is "to impose costs on the careless or reckless lawyer.” Id. at 1437. The actions of Wagner were within the bounds of reasonable conduct. This court had two pri- or decisions indicating collateral estoppel was inappropriate in a dischargeability proceeding. Clearly, Wagner’s opposition to the summary judgment was reasonable under the circumstance. Therefore, the prayer for relief must be denied.	LIMITED_OR_DISTINGUISHED
723 F.2d 737	46 B.R. 489	D	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	ABRAHAMS, Bankruptcy Judge. This is an appeal from a judgment that the debtor’s obligation on a stipulated judgment debt is dischargeable. We affirm. The plaintiffs sold the debtor a business, Tax Control Bureau, Inc. The debtor pledged all of the stock of the business to the plaintiffs as security for the sale price. When the debtor failed to pay the purchase price as agreed, the plaintiffs sued in the state court, alleging five causes of action. The case was settled before trial by a stipulation providing that a judgment would be entered pursuant to the fourth cause of action and that $20,000 would represent damages. In the present proceeding to determine dischargeability, the issue before the trial court was whether that judgment debt should be excepted from discharge under 11 U.S.C. section 523(a)(2), (4) or (6). The plaintiffs argued that the fourth cause of action constituted an action for fraud and for defalcation while acting in a fiduciary capacity. They further argued that the doctrine of res judicata applied. It is unclear from the transcript what the debtor’s position on the res judicata issue was, but the court stated at the hearing that res judicata was not applicable to this type of dischargeability proceeding. The parties submitted the case on the question whether the judgment was res judicata, and the court allowed the parties to file additional authorities. In rendering its decision, the court examined the stipulation for judgment as well as the fourth cause of action as alleged in the superior court complaint. It found, based on its reading of the complaint, that: at the time the defendant transferred the assets and customer goodwill of Tax Control Bureau, Inc. to another company, Tax Control Bureau, Inc. had a negative net worth. In other words, the capital stock that was pledged to plaintiffs to secure the purchase price was worthless. The court then concluded that because the stock was worthless the plaintiffs had not 491shown that they had been damaged and the plaintiffs had therefore failed to prove a necessary element of their complaint. The court thus ignored the state court judgment and the parties’ earlier stipulation that there was $20,000 in damages. ';/ DISCUSSION The appellants argue here that the trial judge was precluded from reexamining the issue of damages. They base their position on California state law holding that a stipulation for judgment, as any other judgment, is conclusive and that the principle of res judicata applies under Avery v. Avery, 10 Cal.App.3d 525, 89 Cal.Rptr. 195, 196 (1970). The Rule in this circuit has been to the contrary. Where the bankruptcy court has exclusive jurisdiction in actions to determine dischargeability, state judgments are not res judicata and do not have collateral estoppel effect because of the bankruptcy court’s exclusive jurisdiction. Matter of Rosier, 611 F.2d 308 (9th Cir. 1979), citing In re Houtman, 568 F.2d 651 (9th Cir.1978). See, Bankruptcy Act of 1898, as amended § 17(c)(2) and 11 U.S.C. § 523(c). We believe this rule must apply to stipulated judgments as well as those that result from a trial. If both parties had rested their cases in the bankruptcy court on the earlier judgment, the bankruptcy court could treat issues as collaterally estopped. Matter of Easier, supra at 310. In the instant case, however, there is no showing that the debt- or chose to rest his case on the prior judgment. Although in one instance the debtor seemed to rely on res judicata, later, the debtor refused to stipulate to submitting the case on the basis of the earlier judgment. Instead, he asked to go forward with an evidentiary hearing. In a recent decision, the Ninth Circuit has held that a state court determination of the amount of liability can be binding in a dischargeability action. In re Comer, 723 F.2d 737 (9th Cir.1984). Comer involved state spousal and child support judgments. The circuit court reasoned that the Hout-Wian and Easier rule of exclusive jurisdiction was only necessary as to the nature of tfee debt and not its extent. The court also held that the policy of the Supreme Court decision in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), would not be violated by giving res judicata effect to only the amount of an earlier judgment. We hold that this reasoning of Comer is not applicable to our case for two reasons. First, in Comer the court was concerned with a litigant “who has had full incentive to litigate, and who has fully litigated, an issue in state court.” 723 F.2d at 740. This reasoning assumes that the issues as' to damages would be identical under both the state law and dischargeability law. The issues as to the amount would surely be identical in support cases. In cases such as fraud, however, the issues may differ drastically. State law may allow a different measure of damages from section 523(a); e.g., state law may allow benefit of bargain damages in some instances. See 4 Witkin, Summary of California Law (8th ed.) §§ 908, 908A. A different quantum of proof may be required under state law, e.g., compare Liodas v. Sahadi, 19 Cal.3d 278, 137 Cal.Rptr. 635, 562 P.2d 316 (1977) with Love v. Menick, 341 F.2d 680 (9th Cir.1956). The state law of “fraud” may be less demanding than section 523(a)(2) (e.g., Wright v. Lubinko, 515 F.2d 280 (9th Cir., 1975)), so that a lesser amount of damages would be appropriate for the more restricted liability recognized by section 523(a). A second reason for distinguishing Comer is that the fact of damage or injury is an essential element of liability in fraud and other tort cases. It is not merely a measure of the extent of liability as in support obligations.1 492We therefore hold that neither res judica-ta nor collateral estoppel applied to the instant case and that the bankruptcy judge was free to make his own determinations on the facts and issues relevant to dis-chargeability. The judgment is hereby AFFIRMED.. There is also a third possible basis for distinguishing Comer. That case assumes that bankruptcy courts have exclusive jurisdiction to determine the family support exception to discharge of 11 U.S.C. section 523(a)(5). Apparently, counsel had failed to advise the court of the generally recognized view that state courts have concurrent jurisdiction with bankruptcy courts *492over that type of dischargeability proceeding. 3 Collier on Bankruptcy (15th ed.1983) ¶ 523.-15[6]; compare 28 U.S.C. § 1471(b) with 11 U.S.C. § 523(c). If this view is correct, the Houtman-Kasler rule does not apply to family support obligations and there can be collateral estoppel or res judicata on all issues. Because there is exclusive jurisdiction for the section 523(a)(2), (4) and (6) exceptions concerned in the instant case, the Houtman-Kasler rule would govern the issues in our case.	LIMITED_OR_DISTINGUISHED
723 F.2d 737	313 S.W.3d 114	C, NF	In Re Richard Arthur Comer, Debtor. Elaine F. Comer v. Richard Arthur Comer	Opinion of the Court by Justice ABRAMSON. Sunbeam Corporation appeals from a 2009 Order of the Court of Appeals denying its petition for a writ to compel its dismissal from a wrongful death action. Agreeing with the Court of Appeals that Sunbeam has failed to establish its entitlement to extraordinary relief, we affirm. RELEVANT FACTS Sunbeam Corporation (now known as American Products, Inc., but referred to in these proceedings by its former name) is one of several defendants in a wrongful death suit now proceeding in the Hancock Circuit Court. The wrongful death action is being pursued by Sherry McGlenon and Terry Parker, the real parties in interest who are co-executors of the estate of their father, Leon Fischer. Fischer died from lung-related mesothelioma, and the executors allege that he contracted that disease as a result of being exposed to asbestos fibers during the course of his career as a maintenance worker, including during his work for National Aluminum in Hawes-ville, Kentucky. At National Aluminum, allegedly, Fischer was exposed to asbestos-containing furnaces supplied by Sunbeam or a predecessor in interest. Sunbeam moved to be dismissed from the executors’ suit on the ground that its 2002 reorganization under the bankruptcy laws discharged any claim that Fischer may have had against it. When the trial court indicated that it would deny the motion to dismiss, Sunbeam added to its motion a contention that jurisdiction over claims bearing on its discharge was lodged exclusively in the bankruptcy court and accordingly that the Hancock Circuit Court lacked jurisdiction to proceed. By order entered April 23, 2009, the trial court denied the motion to dismiss, whereupon Sunbeam moved the Court of Appeals for a writ compelling the dismissal. The Court of Appeals denied extraordinary relief and explained that in its view the trial court was acting within its jurisdiction over wrongful death cases and that otherwise Sunbeam had an adequate remedy by appeal from the trial court’s alleged error in not giving effect to Sunbeam’s discharge. Pursuant to CR 76.36(7)(a), Sunbeam now appeals from the Court of Appeals’ decision, and reiterates its contentions that only the bankruptcy court has jurisdiction to construe its discharge and that it will suffer irreparable injury if not given immediate relief from the trial court’s erroneous refusal to give effect to Sunbeam’s discharge. Although our reasoning differs slightly from that of the Court of Appeals, we agree that the writ was properly denied and so affirm that Court’s Order. ANALYSIS Sunbeam asserts, correctly, that it is not, as the Court of Appeals apparently believed, attacking the trial court’s jurisdiction to entertain wrongful death cases. It is attacking rather the court’s jurisdiction to construe Sunbeam’s bankruptcy discharge, a subject matter, according to Sunbeam, reserved exclusively for bankruptcy courts. Sunbeam, however, has read the bankruptcy court’s exclusive jurisdiction too broadly. While it is true 116 that state courts lack jurisdiction to modify or to grant relief from a bankruptcy court’s discharge injunction, they retain, with a few exceptions not pertinent here, concurrent jurisdiction under 28 U.S.C. § 1334(b) “to construe the discharge and determine whether a particular debt is or is not within the discharge.” In re Pavelich, 229 B.R. 777, 783 (B.A.P. 9th Cir. 1999). See also, In re Stabler, 418 B.R. 764, 770 (8th Cir. BAP 2009) (with a few exceptions, “state courts have concurrent jurisdiction to determine the dischargeability of a debt,” as well as “whether [certain debts] constituted post-petition debts outside the penumbra of the discharge and discharge injunction.”); In re Hamilton, 540 F.3d 367, 373 (6th Cir.2008) (“[s]tate courts have unbridled authority to determine the dischargeability of debts” but an incorrect interpretation that effectively modifies the discharge order is ineffective.); In re McGhan, 288 F.3d 1172 (9th Cir.2002) (approving of Pavelich, supra); In re Lenke, 249 B.R. 1 (Bankr.D.Ariz. 2000) (“ ‘[T]he bankruptcy court’s jurisdiction [to determine that a debt has been discharged] is concurrent with that of the appropriate local court.’ ”) (brackets in original; quoting from 1A Collier On Bankruptcy § 17.28A at 1739 (14th ed. 1978)); In re Honeycutt, 228 B.R. 428, 430 (Bankr.E.D.Ark.1998) (With a few exceptions, “state courts have concurrent jurisdiction with the bankruptcy court to determine the dischargeability of debts.”). In Herring v. Texaco, Inc., 161 Wash.2d 189, 165 P.3d 4 (2007), the Supreme Court of Washington had before it a ease, like this one, in which the defendant’s Chapter 11 bankruptcy discharge was alleged to bar an asbestos-related wrongful death claim. The plaintiff maintained that the decedent’s claim had not been discharged, and the Court, noting its authority to address the issue, explained that “[s]tate courts have concurrent jurisdiction with federal bankruptcy courts over dis-chargeability issues.... While state courts lack the power to modify or dissolve an order, we do have the power to determine its applicability when discharge is raised as a defense to a state cause of action filed in state court.” Id. at 7-8 (citations omitted). We agree. Here, the executors are not asking the trial court to exempt Fischer’s claim from Sunbeam’s discharge. They assert rather that Fischer’s claim was not discharged, on the ground, apparently, that Sunbeam did not comply with requirements for bringing asbestos claims within the discharge. The merits of that assertion are not before us. We are concerned only with whether the trial court has jurisdiction to entertain it, and as the cases cited above make clear, it does. Against this conclusion, Sunbeam cites three cases in support of its contention that only the bankruptcy court has jurisdiction to consider the dischargeability of a debt. Two of them, Matter of Halpern, 50 B.R. 260 (Bankr.N.D.Ga.1985), affd 810 F.2d 1061 (11th Cir.1987), and Matter of Moccio, 41 B.R. 268 (Bankr.D.N.J.1984) address claims that fall within exceptions to the general rule of concurrent state court jurisdiction. Those exceptions do not apply here. In the third, In re Comer, 723 F.2d 737, 740 (9th Cir.1984), the Court noted that “the 1970 Amendments to the Bankruptcy Act... imposed exclusive jurisdiction upon the bankruptcy courts to determine dischargeability.” The Comer Court did not address 28 U.S.C. § 1334, which divides jurisdiction between bankruptcy and state courts under the current Bankruptcy Code. To the extent that Comer might be construed as authority for the proposition that bankruptcy courts have exclusive jurisdiction to determine dis-chargeability under current law, we find it 117 unpersuasive in light of the more recent United States Court of Appeals for the Ninth Circuit authority cited above, McGhan, which is to the contrary. Finally, Sunbeam contends that even if the trial court is acting within its jurisdiction, a writ should still issue because the trial court is acting erroneously “and there exists no adequate remedy by appeal or otherwise and great injustice and irreparable injury will result if the petition is not granted.” Estate of Cline v. Weddle, 250 S.W.3d 330, 334 (Ky.2008) (reiterating the narrow grounds upon which a writ of prohibition or mandamus may be granted); Cox v. Braden, 266 S.W.3d 792 (Ky.2008) (writs are disfavored and are to be granted only in extraordinary circumstances). Where the trial court is acting within its jurisdiction, “a showing of no adequate remedy by appeal is ‘an absolute prerequisite’ to obtaining a writ for extraordinary relief.” Estate of Cline, 250 S.W.3d at 335 (quoting The Independent Order of Foresters v. Chauvin, 175 S.W.3d 610 (Ky.2005)). Sunbeam claims that it lacks an adequate remedy by appeal “because without relief from the lower court’s erroneous denial of its motion to dismiss, it will be forced to prepare for and defend itself before a court that lacks jurisdiction on a matter that has already been discharged in bankruptcy.” As explained above, however, the trial court has jurisdiction to consider whether the executors’ claim has been discharged. Otherwise, as correctly noted by the Court of Appeals, under our law the ordinary expense of litigation does not render an appeal inadequate. Estate of Cline, 250 S.W.3d at 335 (citing Chau-vin ). Sunbeam’s resort to foreign authority for a different rule is not persuasive. Finally, Sunbeam’s unsupported assertion that the executors’ claim is being pursued in bad faith is equally unpersuasive as a basis for extraordinary relief. CONCLUSION In sum, although for reasons slightly different than those relied upon by the Court of Appeals, we agree with that Court that the trial court has jurisdiction to consider the dischargeability of the executors’ claim against Sunbeam and that Sunbeam has an adequate remedy by appeal should it desire review of the trial court’s rulings on that question. Accordingly, we affirm the July 9, 2009 Order of the Court of Appeals denying Sunbeam’s petition for a writ. All sitting. All concur.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
722 F.2d 1448	197 Cal.App.3d 638	NF	Tri-State Livestock Credit Corp. v. Ellsworth (In re Ellsworth)	Opinion STONE (W. A.), J. * Statement of the Case Appellant, Amstar Corporation (Amstar), appeals from a money judgment rendered against it in an action for conversion of crop proceeds. The case presents a number of novel issues in California involving the interplay 643 of sections 9306, 9307 and 9318 of the California Uniform Commercial Code. 1 We are called upon to determine two main issues. The first is whether a secured creditor’s implied authorization of sale of collateral relinquishes the creditor’s security interest in collateral proceeds. We hold that the creditor’s security interest in the proceeds continues where the creditor does not waive its interest by conduct or by the language of the sales contract. The second issue is whether a claim based upon equitable principles of unjust enrichment can, in certain circumstances, supersede the rights of a secured creditor whose interest is fully perfected. We hold that such an equitable claim prevails in this case. Statement of the Facts Producers Cotton Oil Company (Producers) financed Cecil Borboa’s farm operations for crop years 1976 through 1981. It was Producers’s practice to take a security interest in all crops that it financed and send a notice to the crop buyers informing them of that interest. The notice reserved Producers’s security interest in each crop and its proceeds. The assignment stated that no setoff or deductions were to be made by the buyer. Producers loaned Borboa $2,042,710.28 for his various farming operations and received a promissory note dated January 13, 1981. Borboa also signed a security agreement and financing statement in Producers’s favor which covered all his crops and the proceeds therefrom. The financing statement was duly filed, and the parties agree that Producers had a perfected security interest before any crop sale. The terms of the security agreement required Borboa to obtain written consent from Producers to sell his sugar beets. However, in 1979, 1980 and 1981 Borboa contracted to sell his beets to Amstar without written authority from Producers. Borboa dealt with Frank Hunt, a field man for Spreckles Sugar Division of Amstar. Hunt knew that Producers financed Borboa, and he assumed Producers held a security interest in Borboa’s crops. Borboa informed William O’Hare, Producers’s gin manager, he had agreed to sell his beets to Amstar and gave copies of the sales contracts to O’Hare. The contracts stated, and both Borboa and O’Hare were aware, Amstar would deduct from the sales price amounts for seed, dirt haul, curly 644 top virus assessment and California Beet Growers Association dues. Harvesting costs were not specified as deductions. When O’Hare was informed of the crop sale, he sent Producers’s assignment of crop proceeds to Amstar. Amstar responded by attaching a conditional acceptance, the condition being that Amstar would honor the assignment subject to deductions for indebtedness of the grower, and returned it to Producers. Producers did not respond to the assignment modification, either by acceptance or rejection. In 1979 and 1980, Borboa hired O. L. Williams to harvest his sugar beet crop. Williams billed Borboa, and Borboa presented the bills to Producers for payment. A portion of the 1980 bill in the amount of $10,000 was not paid, however, because of insufficient funds. O’Hare told Borboa he would try to pay the bill in 1981 out of 1981 crop proceeds. Since Williams was not paid in full for the 1980 harvest, he wanted assurance of payment for 1981. Borboa agreed with Williams the cost of the 1981 harvest as well as the $10,000 unpaid from the 1980 harvest would be paid from the income of the 1981 crops. On October 13, 1981, Borboa requested Amstar pay Williams. Amstar told Borboa it would pay Williams if Producers agreed to that arrangement. Borboa never spoke with anyone at Producers regarding the payment to Williams. However, O’Hare was in the field during harvest time and knew Williams was performing harvesting services. He neither inquired about nor objected to the operation. Amstar’s usual procedure when a grower made such a request was to obtain a subordination from the entity which had the assignment of proceeds. Normally money would not be paid to another party until a signed subordination agreement was received from the secured party. Amstar employees Norman Rianda, the agricultural superintendent, and Michael Bozzini, the agricultural accounts manager, knew Amstar would require a subordination agreement from Producers before Amstar could pay Williams. Bozzini sent a subordination request to Producers but, inadvertently, a copy of the request was not filed in Amstar’s grower ledger to notify others that a request had been sent out. Usually, Producers funneled subordination requests to O’Hare, to be forwarded to the main office. O’Hare did not recall receiving the subordination request from Amstar, but Mr. Veaco, Producers’s corporate secretary, testified Producers had received the request and placed it in Borboa’s file without making a response. Producers generally denied requests for' subordination. 645 After Amstar sent out the subordination request, Mr. Cushin, a clerical level employee of Amstar, sent a check for $80,600 to Williams on October 30, 1981. The check was paid from net beet credits which had been earned by Borboa’s delivery of beets to Amstar to that date. Amstar admitted releasing the check was a “complete breach” of its normal policies and practice because it had notice of the assignment to Producers and had not obtained a subordination. Because Amstar had paid for harvesting, Borboa did not present a bill for that cost to Producers in 1981. O’Hare took no action to determine why no bill was sent despite the fact previous years’ harvest bills had been paid by Producers because Borboa was a “very resourceful person” and could find ways to get work done. At harvest time, O’Hare had projected that Borboa’s crop revenues would not be sufficient to repay the loan. In January 1982, supervisory personnel at Amstar discovered Williams had been paid from crop proceeds. Amstar requested Williams submit harvest bills and return payment in excess of the actual cost of harvesting and hauling. Williams submitted a bill for $53,336.35, including $43,336.35 for harvesting the 1981 crop and $10,000 still owing for the 1980 harvest. Williams returned $27,263.65, the difference between his bill and the $80,600 he was paid in October. Borboa’s 1981 sugar beet crop yielded proceeds of $231,108.76. Amstar remitted $166,019.38 to Producers after deducting $5,129.24 for beet seed, $6,623.49 for “standard deductions” and $53,336.65 for harvesting expenses paid to Williams. In spring 1982 Producers demanded Amstar pay the amounts deducted from the 1981 crop proceeds. Amstar refused. Producers brought an action against Amstar claiming the deductions violated its security interest and constituted conversion of the proceeds. The court concluded Amstar converted Producers’s proceeds to the extent it withheld sums paid to Williams, and Amstar was not entitled to offset those expenses on an unjust enrichment theory. I Producers’s Authorization of Sale of Collateral Did Not Affect Its Security Interest in Sale Proceeds—Section 9306 A. Producers Authorized the Sale of the Sugar Beet Crop. The security agreement protecting Producers’s interest in the collateral provides the standard prohibition against sale without written consent, 646 by providing in paragraph 3: “That the collateral shall not... be sold... without the prior written consent of the secured party....” Section 9306, subdivision (2) states, except where the code provides otherwise, “... a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.” (Italics added.) This court held in Central Cal. Equip. Co. v. Dolk Tractor Co. (1978) 78 Cal.App.3d 855 [144 Cal.Rptr. 367] that in the face of a security agreement which prohibits sale of collateral without written consent, evidence sufficient to sustain a finding of implied consent under the “or otherwise” language of section 9306, subdivision (2) must be clear and be based on prior conduct. “... [W]hen a security agreement expressly prohibits the disposition of collateral without the written consent of the secured party, in order for a court to find an authorization permitting disposition free of the security interest within the meaning of section 9306, subdivision (2), there must either be actual prior or subsequent consent in writing by the secured creditor manifesting a purpose to authorize the disposition free of the security interest. Mere acquiescence is insufficient. While we interpret ‘or otherwise’ in section 9306, subdivision (2), to permit an implied agreement, we believe that such an implied agreement should be found with extreme hesitancy and should generally be limited to the situation of a prior course of dealing with the debtor permitting disposition. The issue is a question of fact, but the trial court should carefully consider the written prohibition against disposition found in the security agreement as an important factor in the factual determination and should determine the matter in favor of the written prohibition unless such conclusion is unreasonable under the circumstances....” (Id. at p. 862.) The trial court determined Producers impliedly authorized the crop sale by the prior dealing between it and Borboa and by its past conduct in failing to require written consent. Borboa sold his sugar beets for crop years 1979, 1980 and 1981 to Amstar without the written consent of Producers. Producers’s Mr. O’Hare was aware of the sales and received copies of the sales contracts from Borboa. O’Hare never required Borboa to obtain written consent to sell his sugar beets or any of his crops, other than cotton, nor did he ever object to the crop sales. The parties’ course of dealing established that Producers acquiesced to and impliedly authorized the 1981 crop sale to 647 Amstar. The court’s findings on this issue are well supported by the evidence. The sufficiency of the evidence to support a finding is reviewed under the substantial evidence test. The trial court’s decision is sustained if any substantial evidence supports the judgment. (Ellison v. Ventura Port District (1978) 80 Cal.App.3d 574, 581 [145 Cal.Rptr. 665].) The appellate court must accept as true all evidence tending to establish the correctness of the finding made, taking into account, as well, all reasonable inferences which lead to the same conclusion, and resolving all conflicts in favor of the finding. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614 [122 Cal.Rptr. 79, 536 P.2d 479].) B. Producers Relinquished Its Security Interest in the Sugar Beet Crop. Because Producers impliedly authorized the sale of the sugar beets by Borboa to Amstar, Producers lost its security interest in the specific collateral. Section 9306, subdivision (2) provides a security interest continues in collateral notwithstanding sale “unless the disposition was authorized by the secured party in the security agreement or otherwise.” Since we have determined that Producers, by its past conduct, authorized the sale, it necessarily follows that Producers lost its lien on the collateral upon completion of the sale to Amstar. C. The Monies Paid to Williams by Amstar Were a Portion of the “Proceeds” of the Sugar Beet Sale. Critical to a discussion of the issues raised by Amstar is a determination whether the $53,336.35 paid by Amstar to Williams constituted proceeds of the sugar beet sale, as defined in section 9306, subdivision (1), which reads: “ ‘Proceeds’ includes whatever is received upon the sale... of collateral....” Amstar contends that the key word is “received,” and since Borboa did not receive these particular funds, they were not proceeds. Two lines of cases appear to have developed on this issue, one holding that “proceeds” means proceeds in the hands of the debtor, the other holding that “proceeds” includes an account arising when the right to payment accrues. In support of its contention, Amstar cites Terra Western Corp. v. Berry & Co. (1980) 207 Neb. 28 [295 N.W.2d 693]; First Interstate Bank v. Arizona 648 Agrochemical (Colo.App. 1986) 731 P.2d 746; and Graves Equipment, Inc. v. M. DeMatteo Const. (1986) 397 Mass. 110 [489 N.E.2d 1010], While none of these authorities is directly on point, a brief review of each is helpful. In Terra Western Corp. v. Berry & Co., supra, 207 Neb. 28, one Temme executed a crop note and security agreement to Farmers Agricultural Credit Corporation, which later assigned the note to Terra. The collateral included all crops as well as proceeds of sale, exchange or disposition of the crops. In addition, Temme agreed to keep the crops insured, which he did by contract of insurance with Alliance. The crop was destroyed by hail, and Alliance paid Temme’s claim. Terra sued Alliance and Berry, its agent, for conversion. The case was decided on the pleadings. There was no allegation that the contract of insurance between Temme and Alliance contained a loss payable clause in favor of Terra, no allegation that Alliance or Berry had actual notice of Terra’s crop lien, and no allegation that Alliance paid the claim with knowledge of Temme’s contractual agreement to insure the crops. With these circumstances the court notes, under pre-Uniform Commercial Code law, the insurer has no liability to the lienholder once the claim has been paid. Prior to payment of the claim the lienholder has an equitable action to impress its lien upon the proceeds. The question before the court was whether Nebraska’s version of Uniform Commercial Code section 9-306 changed this result. It held section 9-306, subdivision (1) requires the proceeds to be received by the mortgagor before the lien attaches. The insurer does not receive the proceeds; it pays money which becomes proceeds when received by the owner. First Interstate Bank v. Arizona Agrochemical, supra, 731 P.2d 746, is perhaps closest factually to the case under consideration. Baumgardner, a farmer, obtained financing from the bank and gave as collateral his crops and equipment, in which the bank had a perfected security interest. Agrochemical, a creditor of Baumgardner, obtained judgment against him and recorded its lien against the debtor’s town home. Thereafter, the bank obtained judgment against Baumgardner. Without the bank’s consent, Baumgardner sold some of his encumbered farm equipment, for which he was paid cash. With that cash he paid off Agrochemical and received a satisfaction of judgment. When the bank learned of the sale of equipment and payoff, it required Baumgardner to record his satisfaction of judgment and took a deed to the town home. The bank then sued Agrochemical to recover the proceeds it received from Baumgardner which he received from the sale of collateral. 649 The court held for Agrochemical. In framing the question to be decided, it said: “At issue here is whether the phrase ‘received by the debtor’ in § 4-9-306(2) modifies only the phrase ‘including collections’ or if it modifies the phrase ‘identifiable proceeds’ as well. If it modifies identifiable proceeds, also at issue is whether the security interest continues in identifiable proceeds received by the debtor once the proceeds leave the debtor’s hands or whether it continues only in identifiable proceeds in the hands of the debtor.” (731 P.2d at p. 748.) The court adopted the latter interpretation on both issues, holding that “received by the debtor” refers to “identifiable proceeds” and that there is no security interest in proceeds after they have left the debtor’s hands. The last foreign state case which Amstar relies on is Graves Equipment, Inc. v. M. DeMatteo Const., supra, 397 Mass. 110 [489 N.E.2d. 1010]. There the court ruled that a general contractor could retain monies it held by virtue of its claim against a subcontractor when the subcontractor had assigned his right to receive those monies to a third party creditor. The case turns not on Uniform Commercial Code section 9-306 and the definition of proceeds, but upon the interpretation of Uniform Commercial Code section 9-318 and the ability of the debtor to assert the defenses it had against the assignor in a suit by the assignee. Authorities in other states reaching the opposite conclusion are best exemplified by Baker Production Cr. Ass’n v. Long Creek Meat Co., Inc. (1973) 266 Ore. 643 [513 P.2d 1129]. There, Deer Creek Cattle Feeders financed its operation through Baker, and gave to Baker a security agreement covering current and after-acquired livestock and proceeds from the sale of livestock. Deer Creek sold its cattle to Long Creek Meat Co., which issued checks in payment directly to Baker. Long Creek was financed by a line of credit from First State Bank. Long Creek slaughtered the cattle and sold the carcasses to Coast Packing. Coast paid for the carcasses by issuing checks to First State Bank, which then applied the funds to the preexisting debt account of Long Creek. When Long Creek fell behind on its obligations to First State Bank, the bank stopped honoring Long Creek’s checks to Baker. However, the bank continued to receive checks from Coast and applied them on Long Creek’s account. Baker brought suit against Long Creek, Coast, and First State Bank. The issue important to the present case is whether the monies paid by Coast to the bank were “proceeds” within the meaning of Oregon law, Oregon 650 Revised Statutes 79.3060(1). 2 The court rejected the argument that those funds were not proceeds because they were not received by Long Creek. It found that the Coast checks which were paid to the bank were proceeds subject to the Baker security interest, even though they were paid to the bank rather than to the seller or debtor. In so holding, the Baker court noted Farnum v. C. J. Merrill, Inc. (Me. 1970) 264 A.2d 150: “‘We find nothing to support Receiver’s contention that the words “whatever is received” in line one of 9-306(1) means “whatever is received by debtor.” Paragraph (1) does not impose that limitation and the fact that paragraph (2) expressly includes collections received by debtor, argues that the proceeds in paragraph (1) has an independent meaning broad enough to include receipts by a receiver.... We are satisfied that paragraph (1) is to be read: “ ‘Proceeds’ ” include whatever is received by anyone.’ ” (Baker Production Cr. Ass’n v. Long Creek Meat Co., Inc., supra, 513 P.2d 1129, 1132-1133.) California courts have never directly addressed the issue now before us. Several courts have, however, held that the term “proceeds” should be interpreted broadly. (See Johanson Transportation Service v. Rich Pik’d Rite, Inc. (1985) 164 Cal.App.3d 583 [210 Cal.Rptr. 433]; In the Matter of Munger (9th Cir. 1974) 495 F.2d 511.) Imperial NH3 v. Central Valley Feed Yards, Inc. (1977) 70 Cal.App.3d 513 [139 Cal.Rptr. 8] likewise defines the term “proceeds” to include more than simply monies received by the debtor. While the facts vary somewhat from those we are considering, they bear mentioning briefly. Nale, a farmer, was financed by Wells Fargo Bank, which took a security agreement in Nale’s crops, but not the proceeds. Thereafter, Nale became indebted to Imperial for products he had purchased. In order to protect itself, Imperial received a security agreement in the crops and proceeds. Without plaintiff’s knowledge, Nale obtained advances from Central Valley Feed, and in return he delivered his crops to Central Valley, which would credit Nale’s account as they were received. As soon as Imperial discovered that Nale was delivering his crops to Central Valley, rather than selling them as he had previously done in the ordinary course of business, it notified Central Valley of its secured position in the sale proceeds. On the question whether the account that arose upon delivery of the crops constituted proceeds, the court held: “... ‘proceeds’ includes ‘the account arising when the right to payment is earned under a contract of rights.’ (Cal. U. Com. Code, § 9306, subd. (1).) 651 Upon delivery of the hay to [buyer], an account in favor of [debtor/seller] arose. This account was subject to [creditor’s] lien on the ‘proceeds’ and could not be ‘oifset’ by [buyer] in derogation of [creditor’s] rights....” (Id. at p. 520.) Consistent with the California authorities which give a broad interpretation to the term “proceeds,” we hold that the crop monies held by Amstar as consideration for the purchase of Borboa’s sugar beets were proceeds within the meaning of section 9306, subdivision (1). The account that was thus created became proceeds regardless of the fact that none of the funds would be paid to Borboa. D. Producers’s Authorization for the Crop Sale Did Not Relinquish Its Security Interest in the Proceeds. Even though, by the terms of section 9306, subdivision (2), Producers lost its secured position in the crop, the question remains whether its authorization to sell likewise relinquished its interest in the proceeds. Again, California courts appear not to have determined this issue. Courts in other jurisdictions have scrutinized the secured creditor’s position surrounding an implied sale not authorized in the security agreement to determine if the creditor has relinquished its lien in the proceeds of sale. Generally the courts follow one of three approaches. Some courts have found waiver of a security interest in both the collateral and proceeds. The 10th Circuit Court of Appeals reached this conclusion in First Nat. Bank, etc. v. Iowa Beef Processors (10th Cir. 1980) 626 F.2d 764. Even though the bank conditioned its consent to sale of cattle on receipt of the proceeds of sale, failure of the condition did not prevent consent from cutting off the bank’s security interest under the Oklahoma’s version of Uniform Commercial Code section 9-306, subdivision (2). The bank consented to the debtor’s sale of the cattle in his own name “provided” he remit the proceeds by his own check to the bank. The court rejected that condition because the bank made performance of the debtor’s duty to remit proceeds a prerequisite to releasing the third party good faith buyer from liability, something the buyer had no control over. (See also Parkersburg State Bank v. Swift Ind. Packing Co. (8th Cir. 1985) 764 F.2d 512 and Peoples Nat. Bank and Trust v. Excel Corp. (1985) 236 Kan. 687 [695 P.2d 444]—creditor’s consent for debtor to sell collateral and receive proceeds contrary to the terms of the security agreement was a waiver of creditor’s security interest.) In a second line of cases, other courts have refused to find a waiver of the security interest in collateral or proceeds where the sales transaction did not 652 meet a condition set forth in the implied sales authorization by the secured party. In In re Ellsworth (9th Cir. 1984) 722 F.2d 1448, the court held where the course of dealing was that when the debtor sold cattle it obtained cash and paid the secured creditor, at which time the creditor released its security interest in the cattle sold, the creditor’s security interest was not cut off when the debtor sold cattle to a third party who did not pay for the cattle. The court stated: “We find it difficult to say that the course of dealing requires that Tri-State’s [secured party] security interest must be deemed to have been released in such a case. In cases where Tri-State was paid, its security interest in the sold cattle was satisfied, and it therefore was released. To apply such a ‘course of dealing’ to a case in which Tri-State was not paid is to defeat the security interest in the very situation in which it was designed to protect Tri-State. That is what [Uniform Commercial Code section 9-306, subdivision (2)] is about.” (Id. at pp. 1450-1451.) Finally, a third line of cases has held that a creditor’s course of dealing, which impliedly authorized a sale of the collateral, resulted in the creditor losing its security interest in the collateral but not in the proceeds. Rudio v. Yellowstone Merchandising Corp. (1982) 200 Mont. 537 [652 P.2d 1163], stated Uniform Commercial Code section 9-306, subdivision (2) reserves the right to proceeds notwithstanding the creditor’s authorization to sell the collateral. Whether the sale was authorized determines only the secured party’s right to obtain possession of the collateral after the sale. It in no manner affects his interest in the retained proceeds as against competing creditors. (Id. at pp. 1168-1169.) In Humboldt Trust & Sav. Bank v. Entler (Iowa App. 1984) 349 N.W.2d 778, the court held the creditor’s past course of dealing impliedly authorized sale of crop collateral, thus, the creditor lost its security interest in the crops. However, the course of dealing upon which the creditor relied also included the debtor’s remittance of the proceeds. Under those facts, the creditor did not waive its security interest in the proceeds. (Id. at pp. 781-782, 783. See also Aberdeen Prod. Credit v. Redfield Livestock (S.D. 1985) 379 N.W.2d 829, 832, where the security agreement covered proceeds and a proper financing statement perfected the creditor’s interest in the proceeds. Even assuming the creditor consented to the sales, the security interest in identifiable proceeds was retained.) In analyzing Producers’s interest, the trial court followed the third line of cases and found it authorized the sale of Borboa’s sugar beets to Amstar. Thus, Amstar took the crop free of Producers’s security interest. However, Producers’s acquiescence in the sale was conditioned on the security interest continuing in the proceeds, and no waiver or relinquishment of the security interest in the sugar beet proceeds occurred. 653 We agree with that conclusion. Enabling the buyer to take the collateral free of the security interest when the secured party authorizes the sale protects the buyer and promotes one of the underlying purposes of the California Uniform Commercial Code, to simplify and clarify the law governing commercial transactions. (§ 1102, subd. (1).) On the other hand, we see no logical reason why the secured party need forfeit its security interest in the proceeds. Producers’s security interest, duly perfected, gave notice to all the world, including Amstar, that it claimed an interest in the crop proceeds. In addition, Producers directly notified Amstar of its interest and committed no act which would lead Amstar to believe that it had relinquished its interest in the proceeds. Unlike the secured creditors in First Nat. Bank, etc. v. Iowa Beef Processors, supra, 626 F.2d 764, Parkersburg State Bank v. Swift Ind. Packing Co., supra, 764 F.2d 512 and Peoples Nat. Bank and Trust v. Excel Corp., supra, 695 P.2d 444, Producers did not authorize Amstar to pay Borboa directly. Producers’s assignment required Amstar to remit all proceeds to Producers. No injustice results where the party liable controls fulfillment of the condition. (Moffat Cty. State Bank v. Producers Livestock Mktg. (D.Colo. 1984) 598 F.Supp. 1562, 1568.) II Amstar Was Not a Buyer in the Ordinary Course of Business—Section 9307 Amstar next contends that it took the crop and proceeds free of Producers’s security interest under section 9307, subdivision (1), 3 because Amstar was a buyer in ordinary course of business. Section 9307, subdivision (1) states: “A buyer in ordinary course of business (subdivision (9) of Section 1201) takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.” Section 1201, subdivision (9) defines “buyer in ordinary course of business” as one who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind.” Read together the sections provide the buyer takes free of the security interest if he merely knows there is a security interest which covers the 654 goods, but takes subject to the security interest if he knows the sale is in violation of some term in the security agreement not waived by the words or conduct of the secured party. (Cal. Law Revision Com. com., 23C West’s Ann. Cal. U. Com. Code, § 9307 (1988 pocket pt.) p. 138.) The trial court found Amstar was not entitled to buyer in ordinary course protection. Amstar bought the crop without actual knowledge Borboa’s sale to Amstar violated the security agreement’s requirement of written consent for sale. But Amstar personnel knew without a signed subordination agreement the payment of crop proceeds to Williams violated Producers’s security interest in those proceeds. Amstar submits there is insufficient evidence its personnel had actual knowledge payment to Williams was a violation of the security agreement. In support of its position, it points out Bozzini testified he did not know Borboa had a security agreement and did not know who provided his financing. He requested subordination only because it was a corporate policy. Frank Hunt testified he knew Producers financed Borboa but did not know any of the terms of the agreement. The record demonstrates ample evidence to support the court’s finding. Amstar personnel understood Producers had a continuing assignment in Borboa’s 1981 crop proceeds. When the clerical employee of Amstar advanced Williams $80,600 as payment for the 1980 and 1981 harvesting costs, both Bozzini and Hunt knew Amstar could not pay Williams without obtaining a subordination agreement because Producers had a superior interest in the proceeds. In addition to the court’s finding that Amstar knew payment to Williams was in violation of Producers’s interest, another reason can be found why Amstar was not a buyer in the ordinary course of business. Of the total amount paid to Williams, $10,000 was for the prior year’s harvesting. No new value was given. In United States v. Handy and Harman (9th Cir. 1984) 750 F.2d 777, the court, applying California law, held that a buyer in ordinary course does not take free of a security interest in collateral when he fails to give new value for the collateral. The code requires the buyer in ordinary course to give new value in exchange for the goods in order to protect the position of the financier. The financier is protected because his security interest in the inventory will attach to the new value, the proceeds. If the rule were otherwise, and the buyer who received the goods in satisfaction of a preexisting debt were permitted to keep them free of security interests, the effect would be to enable an unsecured creditor—the buyer—to bootstrap himself into 655 priority over the secured creditor who looks to the goods for security. (Id. at p. 782.) Amstar did not qualify as a buyer in ordinary course of business regarding the $10,000 payment to Williams for the preexisting debt from the 1980 harvest. Ill Producers’s Rights to the Crop Proceeds Paid to Williams Were Not Limited by the Terms of the Amstar-Borboa Sales Contract—Section 9318 A. Amstar’s Claim for the Harvesting Costs Did Not Arise Out of the Sales Contract. Under section 9318, subdivision (l)(a), the terms of the contract to which the assignee is subject include all claims arising out of the contract between the assignor and the account debtor. Section 9318, subdivision (1) reads: “(1) Unless an account debtor has made an enforceable agreement not to assert defenses or claims arising out of a sale as provided in Section 9206 the rights of an assignee are subject to [fl] (a) All the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom;...” The assignee in this case, Producers, stands in the same position as the assignor, Borboa, in relation to crop proceeds. (James Talcott, Inc. v. H. Corenzwit & Co. (1978) 76 N.J. 305 [387 A.2d 350, 352].) The sugar beet sales contract allows various “standard” deductions for waste, dirt hauling, curly top virus control and California Beet Growers Association dues. The contract also provided Amstar would provide beet seed to Borboa at a given price. In addition, Amstar could deduct “any indebtedness to the company from Grower of whatever character and whether incurred or accruing prior or subsequent to notice to the Company of Grower’s assignment of any proceeds thereunder.” The court allowed the standard deductions and those made for seed under section 9318, subdivision (1) because both were contemplated in the contract. It disallowed the deduction for harvesting costs because that claim arose independent of the sales contract and did not accrue before Amstar was notified of the assignment. Amstar contends the payment to Williams was deductible because it was an indebtedness of Borboa to Amstar and was addressed under paragraph 4 of the sales agreement. Amstar’s argument is without merit. The contract 656 entered into between Borboa and Williams did not create a “claim arising out of the [beet sale] contract.” The harvesting contract was made more than three months after the sales contracts were signed. It involved subject matter and a third party claim not included in the sales contract. Borboa’s agreement to pay Williams was, in effect, a personal debt of Borboa which Amstar agreed to pay for him. As a general rule, a debtor will not be discharged from his obligations by performance rendered to the assignor after notice of the assignment. (Jones v. Martin (1953) 41 Cal.2d 23, 27-28 [256 P.2d 905].) And a purchaser of secured collateral cannot offset personal debts of the seller against the proceeds of sale owing to the secured party absent the secured party’s acquiescence. (First Nat. Bank, etc. v. Iowa Beef Processors, supra, 626 F.2d 764, 769.) Bank Leumi Tr. Co., etc. v. Collins Sale Serv. (1979) 47 N.Y.2d 888 [419 N.Y.S.2d 474, 393 N.E.2d 468] is instructive. Plaintiff Bank Leumi was the assignee of the accounts receivable of Precision Graphics, Inc. Seseo Design, Inc., was the account debtor of Precision. Precision was indebted to a third party, Collins Sale Service, Inc. Precision, Seseo and Collins agreed that Sesco’s debt to Precision, in which Bank Leumi had a security interest, would be used to pay off Precision’s debt to Collins. The result of the agreement was to decrease the bank’s security with an agreement to which the bank was not a party. The New York Court of Appeal, analyzing the facts under Uniform Commercial Code section 9-318, subdivision (l)(a), held that the arrangement was a collateral agreement which could not be set off against the bank’s security interest. (Id. at pp. 469-470.) Applying that reasoning to the facts of this case, section 9318 subjects the security interest of the assignor only to those claims or defenses the account debtor has against the assignor. Williams was not the account debtor. Amstar cannot transfer Williams’s claim to itself and thereby convert an unsecured claim to an authorized setoff under section 9318. B. The Claim of Williams Arose After Amstar Was Notified of Producers’s Assignment. The agreement to pay Williams did not create a claim which arose out of the sales contract, thus it must be analyzed under section 9318, subdivision (l)(b) which provides: “Unless an account debtor has made an enforceable agreement not to assert defenses or claims arising out of a sale as provided in Section 9206 the rights of an assignee are subject to [fl] [1J] (b) Any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment.” 657 If the account debtor has claims against the assignor which arise independently of the contract, the assignee is subject to all such claims which accrue before, and free of all those which accrue after, the account debtor is notified of the assignment. (Cal. Law Revision Com. com., 23C West’s Ann. Cal. U. Com. Code, § 9318 (1988 pocket pt.) p. 149.) The record supports the trial court’s finding that Amstar had constructive and actual notice that the proceeds of Borboa’s sugar beet crop were assigned to Producers before all crops were delivered and before Amstar agreed to pay Williams out of the proceeds. Accordingly, section 9318, subdivision (l)(b) does not permit Amstar to claim the harvesting payments to Williams as an offset against the proceeds of Borboa’s 1981 sugar beet crop. C. Precode Law. Amstar submits the precode case of Fricker v. Uddo & Taormina Co. (1957) 48 Cal.2d 696 [312 P.2d 1085], authorizes payment to Williams. The California Supreme Court held that any assignment of monies to become due under an executory contract is subject to advances which are necessary for the assignor to perform his contract. This holding created an exception to the general rule the rights of an assignee, including his rights in a fund to become due to the assignor, cannot be destroyed by payments made by the debtor to the assignor after notice of the assignment. (Id. at p. 701.) The Fricker rule is no longer the law in California. Imperial NH3 v. Central Valley Feed Yards, Inc., supra, 70 Cal.App.3d 513 [139 Cal.Rptr. 8], held when a creditor holds a security interest in the goods of a debtor/seller, an advance for operating expenses from the buyer of the secured goods to the seller constituted an unsecured debt which could not be offset against the buyer’s promise to pay the total purchase price of the crop to the creditor. “An unsecured creditor should not prevail over a prior secured creditor simply because he purchased the collateral (Cal. U. Com. Code, § 9201). Since an unperfected security interest is subordinate to a prior perfected security interest (Cal. U. Com. Code, § 9312, subd. (5)), it follows that an unsecured creditor is subordinate to a creditor having a perfected security interest....” (Id. at p. 520.) D. Modification of the Sale Contract. Amstar further contends that if section 9318, subdivision (l)(a) did not authorize the deductions, they were permitted by a good faith 658 modification of the sugar beet sales contract pursuant to section 9318, subdivision (2). Section 9318, subdivision (2) provides: “(2) So far as the right to payment or a part thereof under an assigned contract has not been fully earned by performance, and notwithstanding notification of the assignment, any modification of or substitution for the contract made in good faith and in accordance with reasonable commercial standards is effective against the assignee unless the account debtor has otherwise agreed but the assignee acquires corresponding rights under the modified or substituted contract....” The agreement to pay Williams was reached before all crops were delivered to Amstar and was timely under the section. However, the evidence does not support Amstar’s claim that the modification was made in good faith 4 and in accordance with reasonable commercial standards. Amstar had notice of Producers’s security interest in Borboa’s 1981 beet crop proceeds and Producers’s right to the proceeds by virtue of the continuing assignment. Amstar understood that it had to request the subordination of the Producers’s assignment in order to pay the proceeds to another party. In addition, Amstar admitted that paying Williams was a breach of its internal policies. Nevertheless, as the result of an error by a clerical employee of Amstar, and without Producers’s knowledge, Amstar paid Williams from the crop proceeds and refused to tender payment to Producers. In effect, Amstar attempted to shift the consequence of its mistake to Producers in derogation of Producers’s security interest in the proceeds. The facts do not merit a finding of good faith and commercial reasonableness. IV Producers Was Unjustly Enriched Aside from the effect of the application of the California Uniform Commercial Code to the transaction, the facts present a classic case for establishing an implied in law contract, or quasi-contract, between Producers and Amstar which would allow Amstar to retain $43,336.35 for harvesting costs it paid to Williams. • Amstar advanced the costs, albeit mistakenly, so that the sugar beet crop could be harvested in a timely manner. Producers’s gin manager knew the 659 crop was being harvested and made no inquiry of Borboa about how those costs were to be paid. Because the crop was harvested, Producers benefitted by receipt of the net proceeds of sale. Thus, the facts satisfy the requirement that a recipient of services performed either requested or acquiesced in them (Young v. Bruere (1926) 78 Cal.App. 127 [248 P. 301]), and the requirement that the party to be charged with payment for a service received a benefit (Palmer v. Gregg (1967) 65 Cal.2d 657 [56 Cal.Rptr. 97, 422 P.2d 985]). In Young v. Bruere, supra, 78 Cal.App. 127, an attorney performed services the client had not requested but to which he had acquiesced. The services were rendered in connection with certain estate property in which defendants were jointly interested. Defendants took an active part in conferences and court proceedings, consulted with the attorney about the matter at various stages and expressly agreed to negotiate for a compromise. The court found the circumstances were such that the client might reasonably know that he would be expected to pay for the service. In Palmer v. Gregg, supra, 65 Cal.2d 657, plaintiff moved from her home in Palm Springs to Los Angeles at the request of decedent in order to care for decedent during the last 10 months of his life. After decedent’s death, plaintiff filed suit against the estate for certain expenditures she had made, basing her claim on a quantum meruit, or quasi-contractual, theory. At issue before the Supreme Court was the propriety of the award by the trial court of $517.04 for gardening services for plaintiff’s Palm Springs home while she was tending to decedent and his estate. It held that the award for gardening services was improper because they were not a benefit received by decedent. “The measure of recovery in quantum meruit is the reasonable value of the services rendered, provided they were of direct benefit to the defendant. [Citations.]... The facts of the present case suggest no exception to the general rule: plaintiff’s personal gardening expenses conferred no direct benefit on decedent, and accordingly cannot be recovered in this action.” (Palmer v. Gregg, supra, at pp. 660-661.) Under the common law equitable doctrine of implied in law or quasi-contract, therefore, Amstar had the right to recover from Producers the costs of the 1981 harvest by way of offset. The issue then becomes whether a claim based upon principles of unjust enrichment prevails over a claim based upon a properly perfected security interest pursuant to article 9 of the California Uniform Commercial Code. Producers directs us to subdivisions (1) and (2) of section 1102, which provide in part: “(1) This code shall be liberally construed and applied to promote its underlying purposes and policies. 660 “(2) Underlying purposes and policies of this code are [fl] (a) To simplify, clarify and modernize the law governing commercial transactions; [i[] (b) To permit the continued expansion of commercial practices through custom, usage and agreement of the parties; Amstar, on the other hand, points to section 1103, which states: “Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.” Producers contends that in order to give stability and predictability to commercial transactions, the priorities dictated by article 9 must prevail over equitable principles that might otherwise apply. Amstar counters that article 9 does not displace or prohibit the application of equitable principles, and to allow retention of the funds by Amstar as against Producers, who acquiesced in the harvesting and benefitted from it, does not render the California Üniform Commercial Code priorities uncertain, but rather leads to a fair result under these particular facts. Resolution of this conflict appears never to have been addressed by the California courts. Nor does the California Uniform Commercial Code itself provide an answer. We agree with the position of Amstar and hold that when a party possessing a security interest in a crop and its proceeds has knowledge of and acquiesces in expenditures made which are necessary to the development of the crop, and ultimately benefits from the expenditures, a party who, through mistake, pays such costs without first obtaining subordination, is entitled to recover. In this case, that recovery is limited to the 1981 harvesting cost, $43,336.35. V Producers 's Assertions of Error Producers did not appeal. However, it asserts the trial court erred on two points: first, in concluding that the sale of the collateral to Amstar was authorized and second, in finding that the standard deductions and deductions for beet seed were properly taken. Code of Civil Procedure section 906 provides: “... The respondent, or party in whose favor the judgment was given, may, without appealing from 661 such judgment, request the reviewing court to and it may review any of the foregoing matters for the purpose of determining whether or not the appellant was prejudiced by the error or errors upon which he relies for reversal or modification of the judgment from which the appeal is taken. The provisions of this section do not authorize the reviewing court to review any decision or order from which an appeal might have been taken.” Accordingly, we decline to consider issues raised by any portion of the statement of decision which are contended by respondent to have been erroneously decided, but which have not been brought to this court by way of appeal. The judgment is reversed and the cause remanded to entry of judgment consistent with this opinion. Appellant to recover costs on appeal. Woolpert, Acting P. J., and Ballantyne, J., concurred. Respondent’s petition for review by the Supreme Court was denied March 23, 1988. Assigned by the Chairperson of the Judicial Council. 1 All references are to the California Uniform Commercial Code unless otherwise noted. 2 Oregon Revised Statutes 79.3060(1) provided: “ ‘Proceeds’ includes whatever is received when collateral or proceeds is sold, exchanged, collected or otherwise disposed of.” 3 California Uniform Commercial Code section 9307, subdivision (1), unlike Uniform Commercial Code section 9-307, subdivision (1), does not exclude purchases of farm products from its coverage, so in California a buyer in ordinary course may take farm products free of security interest created by his seller. 4 Good faith means “honesty in fact in the conduct or transaction concerned.” (§ 1201, subd. (19).)	LIMITED_OR_DISTINGUISHED
724 F.2d 798	838 F.2d 405	D, Q	Matthews v. Transamerica Financial Services	LOGAN, Circuit Judge. Russell Fred Billings and Julia Darlene Billings (debtors) appeal the order of the district court, 63 B.R. 717, affirming the 406bankruptcy court’s denial of their motion pursuant to 11 U.S.C. § 522(f) to avoid a lien held by Avco Colorado Industrial Bank (creditor), and affirming the bankruptcy court’s denial of confirmation of debtors’ Chapter 13 plan. The sole issue on appeal is whether the refinancing of a purchase money loan, by which the old note and security agreement were cancelled and replaced by a new note and security agreement, extinguished creditor’s purchase money security interest in debtors’ collateral, so that debtors may now avoid the lien and claim the collateral as exempt household goods.1 Debtors purchased furniture on credit from Factory Outlet Store, giving Factory a purchase money security interest in the furniture. Factory then assigned the obligation to creditor. Thereafter, at the request of debtors, who apparently were having trouble making the payments, creditor refinanced the obligation, reducing debtors’ monthly installment payments from $105.50 to $58.00. The parties cancelled the old note and substituted therefor a new note and security agreement; this note extended the time for repayment and increased the interest rate. The back of the loan application stated that creditor would retain the purchase money security interest. Creditor took no additional collateral as security and loaned only an additional $9.67 to debtors.2 Debtors made one payment under the new schedule and then filed for bankruptcy. They then moved, pursuant to 11 U.S. C. § 522(f), to avoid creditor’s lien on the furniture. Creditor objected to this avoidance, and to confirmation of the Chapter 13 plan, arguing that the goods were still secured by a purchase money security interest. After a hearing, the bankruptcy court found that debtors had not satisfied their burden of establishing that the parties intended the subsequent note to extinguish the original debt and purchase money security interest. The court rejected debtors’ legal argument that refinancing automatically extinguishes a purchase money security interest. Accordingly, the court denied the motion to avoid the lien pursuant to § 522(f) and denied confirmation of the debtors’ plan. On appeal, the district court affirmed. Section 522(f) of the Bankruptcy Code provides in part: “Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled... if such lien is... a nonpossessory, nonpurchase-money security interest in any... household furnishings [or] household goods....” 11 U.S.C. § 552(f). Therefore, if the security interest held by creditor retains its status as a purchase money security interest despite the refinancing, then debtors may not avoid the security interest under § 522(f). The Bankruptcy Code does not define “purchase money security interest.” For this definition, the courts have uniformly looked to the law of the state in which the security interest is created. See, e.g., Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797, 800 (3d Cir.1984); In re Manuel (Roberts Furniture Co. v. Pierce), 507 F.2d 990, 992-93 (5th Cir.1975). The Colorado Uniform Commercial Code defines “purchase money security interest” as follows: 407“A security interest is a ‘purchase money security interest’ to the extent that it is: (a) Taken or retained by the seller of the collateral to secure all or part of its price; or (b) Taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.” Colo.Rev.Stat. § 4-9-107. This definition does not address the effect of refinancing on a purchase money security interest, and the Colorado state courts have not squarely faced the issue. In a different context, the Colorado Supreme Court has stated the general rule that: “the parties may, by giving a new note for an old one, thereby extinguish the original debt. Whether or not they do so depends upon various circumstances and their intent.” Haley v. Austin, 74 Colo. 571, 223 P. 43, 45 (1924). From it we extrapolate the principle that under Colorado law the intent of the parties determines whether a refinanced debt will retain its purchase money character. Other circuits, applying the same Uniform Commercial Code (U.C.C.) provisions of other states, have considered directly the effect of refinancing on a purchase money security interest. These circuits have come to differing conclusions. Some hold that refinancing a purchase money loan by paying off the old loan and extending a new one automatically extinguishes the purchase money character of the original loan. See Dominion Bank of Cumberlands v. Nuckolls, 780 F.2d 408, 413 (4th Cir.1985); In re Matthews (Matthews v. Transamerica Financial Services), 724 F.2d 798, 800 (9th Cir.1984) (per curiam); In re Manuel, 507 F.2d at 993. Others hold that the purchase money status of a loan may survive refinancing. See Pristas, 742 F.2d at 801-02; First National Bank & Trust Co. v. Daniel, 701 F.2d 141, 142 (11th Cir.1983) (per curiam). The Tenth Circuit has not ruled on this issue. Courts holding that refinancing automatically extinguishes the purchase money character of an obligation create an easily applied, bright line rule. To reach this result, they have relied on one or both of two rationales. Some have reasoned that a purchase money security interest simply cannot exist when collateral secures more than its purchase price. See, e.g., In re Manuel, 507 F.2d at 993 (“the purchase money security interest cannot exceed the price of what is purchased in the transaction wherein the security interest is created, if the vendor is to be protected despite the absence of filing”); In re Norrell (W.S. Badcock Corp. v. Banks), 426 F.Supp. 435, 436 (M.D.Ga.1977); In re Krulik (McLemore v. Simpson County Bank), 6 B.R. 443, 445-47 (Bankr.M.D.Tenn.1980); In re Mulcahy (Mulcahy v. Indianapolis Morris Plan Corp.), 3 B.R. 454, 457 (Bankr.S.D.Ind.1980). Cf. Southtrust Bank of Alabama v. Borg-Warner Acceptance Corp., 760 F.2d 1240, 1242-43 (11th Cir.1985) (purchase money lender’s exercise of after-acquired property and future advance clauses in security agreements transformed purchase money security interest into ordinary security interest). Other courts view the refinancing transaction as creating a new loan to pay off an “antecedent debt.” The Official Commentary to the U.C.C. states that security interests for antecedent debts cannot be purchase money security interests: “When a purchase money interest is claimed by a secured party who is not a seller, he must of course have given present consideration. This Section therefore provides that the purchase money party must be one who gives value ‘by making advances or incurring an obligation:’ the quoted language excludes from the purchase money category any security interest taken as security for or in satisfaction of a pre-existing claim or antecedent debt.” U.C.C. § 9-107, Comment 2. Courts relying upon this approach include Matthews, 724 F.2d at 800-01; Nuckolls, 780 F.2d at 413; In re Faughn, 69 B.R. 18, 20-21 (Bankr.E.D.Mo.1986); and Rosen v. Associates Financial Services Co., 17 B.R. 436, 437 (D.S.C.1982). Some courts rely upon both rationales. See, e.g., In re Jones, 5 B.R. 655, 656-57 (Bankr.M.D.N.C.1980). 408The problem with the first rationale— that the purchase money security interest cannot exist when collateral secures more than its purchase price — is that it ignores the precise wording of the Uniform Commercial Code. Section 9-107 of the U.C.C. provides that a security interest is a purchase money security interest “to the extent that” the loan enables the debtor to purchase new property. This language would be meaningless if an obligation could never be considered only partly a purchase money debt. See Pristas, 742 F.2d at 801; Geist v. Converse County Bank, 79 B.R. 939, 942 (D.Wyo.1987); In re Russell (Russell v. Associates Financial Services Co. of Oklahoma, Inc.), 29 B.R. 270, 273 (Bankr.W.D.Okla.1983); Stevens v. Associates Financial Services, 24 B.R. 536, 538 (Bankr.D.Colo.1982); In re Conn (Associates Finance v. Conn), 16 B.R. 454, 456-57 (Bankr.W.D.Ky.1982); In re Linklater (Bond’s Jewelers, Inc. v. Linklater), 48 B.R. 916, 919 (Bankr.D.Nev.1985); McLaughlin, “Add On” Clauses in Equipment Purchase Money Financing: Too Much of a Good Thing, 49 Fordham L.Rev. 661, 691-92 (1981); Note, Preserving the Purchase Money Status of Refinanced or Commingled Purchase Money Debt, 35 Stan.L.Rev. 1133,1151-53 (1983). See also In re Matthews, 724 F.2d at 800 n. 3 (“[w]e do not reach the debtors’ alternate contention that collateral cannot secure more than its own value without destroying the purchase money security interest. The weight of authority appears to be against the debtors on this point.”). As the Third Circuit recently stated: “By overlooking that phrase [‘to the extent’], the ‘transformation’ courts adopt an unduly narrow view of the purchase-money security device. Their reasoning is inconsistent with the Commercial Code, which gives favored treatment to those financing arrangements on the theory they are beneficial both to buyers and sellers. By contrast, acceptance of the ‘dual-status’ rule, with its pro tanto preservation of purchase-money security interests, is more in harmony with the Code. Tolerance of ‘add-on’ debt and collateral provisions, properly applied, carries out the approbation for purchase-money security arrangements and simplifies repeat transactions between the same buyer and seller. Moreover, this approach has the positive consequence of a larger number of sales, and the net effect is no more detrimental to the buyer than if a number of purchases had been made from different vendors.” Pristas, 742 F.2d at 801. The problem with the second “transformation” rationale — that refinancing by canceling an old note and issuing a new note always constitutes payment of an “antecedent debt” as that term is used in Comment 2 to § 9-107 of the U.C.C. — is that it ignores the possibility that the refinancing merely renewed the debt, rather than creating a new debt. Certainly the prior debt could be satisfied and a new debt created by a novation extinguishing the old purchase money loan. But this should not occur automatically with every amended or renewed note. In First National Bank & Trust Co. v. Daniel, 701 F.2d 141 (11th Cir.1983) (per curiam), the Eleventh Circuit, applying Georgia law, held that a new note issued to refinance a debt did not constitute a novation. The issue in Daniel was whether refinancing extinguished a note and security interest executed before enactment of the Bankruptcy Code and created a separate and distinct obligation and security interest attaching after the Code’s enactment date. This determination was necessary because, in United States v. Security Industrial Bank, 459 U.S. 70, 103 S.Ct. 407, 74 L.Ed.2d 235 (1982), the Supreme Court held that liens could be avoided under § 522(f) only if they attached after the Code was enacted. The court in Daniel held that a new note which merely extended the payment period and which was col-lateralized by the same property did not constitute a novation under Georgia law; therefore, such a renewal note executed after the Code went into effect did not 409create a lien eligible for avoidance under § 522(f). 701 F.2d at 142.3 District and bankruptcy courts in this circuit, applying their understanding of the laws of most states in our circuit, have rejected the “transformation” rationale, and have held that refinancing does not automatically transform a purchase money security interest. In In re Gibson, 16 B.R. 257 (Bankr.D.Kan.1981), the court addressed the same issue decided in Daniel, and followed Kansas precedent holding that refinancing a note does not automatically extinguish the original note and security interest. See id. at 263. The Gibson court reasoned that because “the paying of the old note by execution of a renewal note is generally just a bookkeeping procedure,” id. at 262, such a transaction would not extinguish the original note or security agreement unless the parties intended for the prior debt to be satisfied and a new debt created. Id. at 264. Decisions in Wyoming, Colorado and Oklahoma have reached the same results. See Geist v. Converse County Bank, 79 B.R. 939 (D.Wyo.1987); Stevens v. Associates Financial Services, 24 B.R. 536, 538-39 (Bankr.D.Colo.1982), and In re Russell (Russell v. Associates Fin. Services Co. of Oklahoma), 29 B.R. 270, 272-74 (Bankr.W.D.Okla.1983). Cf. Schreiber v. Colt, 80 F.2d 511 (10th Cir.1935) (refinancing of chattel mortgage four months before bankruptcy did not constitute a voidable preference, as under Colorado law the refinancing did not create a “new mortgage... independent of the prior mortgage”). Contra, In re Carnes (Cashion Community Bank v. Carnes), 8 B.R. 599 (Bankr.W.D.Okla.1981). We agree with and affirm the view stated in these opinions. The basic problem with the automatic “transformation” rule is that it discourages creditors who have purchase money security interests from helping their debtors work out of financial problems without bankruptcy and without surrendering the collateral securing the debt. See Pristas, 742 F.2d at 801; Gibson, 16 B.R. at 265. The instant case is an excellent example. These debtors apparently needed lower monthly payments on their debt. In a “transformation” jurisdiction the creditor could not cooperate without giving up its right to protect its security if debtors filed bankruptcy. Perhaps it could allow debtors to be in partial default without a new note. But that informal arrangement has problems for both debtors and creditor: the defaulting debtors would be subject to foreclosure on their goods at any time; the creditor, if a bank carrying past due loans, would have problems with bank regulators and may be deemed to have agreed to a novation, even without a new note. In the unlikely event that debtors are aware of the “transformation” rule, they would have an incentive to renegotiate or renew in order to invalidate the purchase money lien. We note that debtors here made only one payment on the new note before filing for bankruptcy and seeking to set aside the lien.4 The legislative history of § 522(f) is not inconsistent with our conclusion. That history indicates that Congress sought to prevent creditors from overreaching by obtain*410ing and attaching liens on household possessions already owned by the debtor which could otherwise be exempt from bankruptcy: “Frequently, creditors lending money to a consumer debtor take a security interest in all of the debtor’s belongings, and obtain a waiver by the debtor of his exemptions. In most of these cases, the debtor is unaware of the consequences of the form he signs.... The exemption provision allows the debtor, after bankruptcy has been filed... to undo the consequences of a contract of adhesion, signed in ignorance, by permitting the invalidation of nonpur-chase money security interests in household goods. Such security interests have too often been used by over-reaching creditors. The bill eliminates any unfair advantage creditors have.” H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 127, reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5963, 6088. When the debtor refinances a purchase money loan, the policy supporting the § 522(f) exemption does not apply. The purchase money security interest is in newly purchased goods, not previously owned goods. When a debt secured by a purchase money security interest is refinanced, and the identical collateral remains as security for the refinanced debt, then neither the debt nor the security has changed its essential character. Thus, a creditor who renegotiates a purchase money loan is not committing the type of overreaching that § 522(f) aims to prevent. The transformation rule not only results in the automatic invalidation of liens under § 522(f), but it also has broader ramifications as to Article 9 priorities: “[I]n states where no filing is necessary to perfect a purchase money security interest in consumer goods, the creditor who did not file and later loses purchase money status becomes unperfected, see U.C.C. § 9-302, and loses in a priority dispute to other secured creditors who perfected, see U.C.C. § 9-312(5), and to the trustee in bankruptcy. See 11 U.S.C. § 544.... [I]n states such as Kansas where filing is required to perfect purchase money security interests in consumer goods, Kan.Stat.Ann. § 84-9-302 (Supp. 1980), and in all other situations where filing is necessary to perfect, a creditor who obtained the ‘super priority’ status offered under U.C.C. § 9-312(3) and § 9-312(4) will lose that priority. Therefore the second effect [of the transformation rule] is to jumble priorities among creditors....” Gibson, 16 B.R. at 265. Thus, our conclusion that refinancing of a purchase money loan does not automatically extinguish the creditor’s purchase money security interest in the debtor’s collateral comports with the scheme of the UCC. The bankruptcy court in the instant case found that the parties did not intend the new note to extinguish the original debt and security interest. That is also obvious from the renewal note itself and the security interest. The identical collateral remained, almost no new money was advanced, and the document stated specifically an intent to continue the purchase money security interest. Applying a clearly erroneous standard of review, as we must, see In re Mullet (First Bank of Colorado Springs v. Mullet), 817 F.2d 677, 678 (10th Cir.1987), we uphold the bankruptcy and district court’s decision that the debtors could not avoid the creditor’s interest under § 522(f). The judgment of the United States District Court for the District of Colorado is AFFIRMED.. After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R. App.P. 34(a); 10th Cir.R. 34.1.8 and 27.1.2. The cause is therefore ordered submitted without oral argument.. Immediately before refinancing, debtors owed $1087.86 on the first note. After refinancing, debtors owed an additional $103.28: $89.61 for credit life and accident and health insurance, $4.00 for a filing fee, and $9.67 for cash advanced to debtors. Creditor does not claim a purchase money security interest in this addition to principal. The bankruptcy and district courts treated the $1087.86 owing at the time of refinancing as the total purchase money debt, and they applied the one $58 payment made on the new note as reducing the purchase money obligation to $1029.58. Neither party challenges this treatment.. When a security interest exists pursuant to a security agreement that does not cover future advances, courts have faced the question whether refinancing the original loan constitutes a future advance. In Mid-Eastern Electronics, Inc. v. First National Bank of Southern Maryland, 455 F.2d 141, 144-45 (4th Cir.1970) (Maryland law), and In re Cantrill Construction Co. (Commercial Bank of Middlesboro, Kentucky v. Carter), 418 F.2d 705, 707-09 (6th Cir.1969) (Kentucky law), cert. denied, 397 U.S. 990, 90 S.Ct. 1124, 25 L.Ed.2d 398 (1970), the courts held that refinancing did not extinguish the original obligation and create a new one. Thus, the refinancing did not constitute a "future advance,” and the original security interest survived.. A change in interest rate on a renewal, as here, does not require finding the original obligation is extinguished. See In re Cantrill Construction Co. (Commercial Bank of Middlesboro, Kentucky v. Carter), 418 F.2d 705, 707 (6th Cir.1969), cert. denied, 397 U.S. 990, 90 S.Ct. 1124, 25 L.Ed.2d 398 (1970). Interest fluctuations are normal, especially in these days of widely vacillating rates. An increase in rates does not imply unlawful overreaching by the creditor when debtors have the right to continue the old rates simply by making their payments instead of refinancing.	LIMITED_OR_DISTINGUISHED, CRITICIZED_OR_QUESTIONED
724 F.2d 798	369 B.R. 564	D, DE	Matthews v. Transamerica Financial Services	OPINION AND ORDER ON OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN MARILYN MORGAN, Bankruptcy Judge. Introduction Wells Fargo Financial Acceptance (WFFA) objects to confirmation of Leticia 566 Acaya’s proposed chapter 13 plan. At issue is whether the negative equity from Acaya’s trade-in vehicle should be treated as purchase money for the purposes of the hanging paragraph of § 1325(a) or whether the entire transaction has been transformed, entirely losing its purchase money status, or whether the dual status rule is applicable in California. Factual Background The facts are undisputed. Leticia Acaya purchased a 2005 Chevrolet Cavalier vehicle for $9,288 for her personal use on June 15, 2005, which is fewer than 910 days before the petition date in this case. Aca-ya financed the purchase of the Cavalier with a loan from the dealer, executing a Motor Vehicle Contract & Security Agreement. The amount financed included the following: Purchase price of vehicle $ 9,288.00 Document fees 45.00 Optional service contract 2,495.00 GAP insurance 600.00 License fees 135.00 California tire fees 8.75 Sales tax 676.64 Smog certificate 8.00 Subtotal $13,256.39 To facilitate the purchase, Acaya traded in her 2003 Ford Taurus, receiving a $7,000 trade-in value. At the time, she had a remaining balance of $13,683 on her loan for the Taurus. The dealer rolled into the new loan the negative equity of $6,683, which is the difference between the outstanding balance on the Ford Taurus loan and that vehicle’s trade-in value. The end result was that Acaya financed a total of $19,939.39 at an annual percentage rate of fourteen and one-half percent, payable over sixty months in installments of $440.15. The dealer subsequently assigned the Motor Vehicle Contract & Security Agreement to WFFA. Acaya commenced this chapter 13 case on September 7, 2006. As of the petition date, the net payoff under the agreement with WFFA was $17,099.89. WFFA filed a proof of claim on September 12, asserting a secured claim in that amount. Acaya proposes to pay WFFA’s secured claim based on a mid-range Kelly Blue Book value of $9,757 at seven percent interest, with the balance of its claim to be treated as unsecured. Unsecured creditors will receive no dividend. WFFA objects to the proposed treatment of its claim under the plan, asserting that it is entitled to repayment of the full contract balance. It further contends that if the court concludes that the purchase money obligation does not include the negative equity in the trade-in vehicle, the court should adopt the dual status rule, rejecting the transformation rule, and find that the secured creditor has a purchase money security interest to the extent the debt was incurred to enable Acaya to acquire the new vehicle. Legal Discussion Prior to October 17, 2005, the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), debtors could bifurcate claims into secured and unsecured portions pursuant to 11 U.S.C. § 506(a). To the extent the claim was undersecured, the debtor could pay that portion as an unsecured claim. This is commonly referred to as “cramdown.” However, under BAPCPA, a provision was added to the end of § 1325(a)(9) that prevents the bifurcation of certain claims. This unnumbered provision, referred to as the “hanging paragraph,” provides: For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day preceding the date of the filing 567 of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debt- or, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.... In order to avoid cramdown, four conditions must be satisfied: (1) the creditor has a purchase money security interest; (2) the debt was incurred within 910 days preceding the filing of the petition; (3) the collateral for the debt is a motor vehicle; and (4) the motor vehicle was acquired for the personal use of the debtor. The only requirement that is in dispute is whether WFFA has a purchase money security interest. A purchase money security interest is “an exceptional category in the statutory scheme that affords priority” over other creditors. Matthews v. Transamerica Financial Services (In re Matthews), 724 F.2d 798, 801 (9th Cir.1984). Because the Bankruptcy Code does not define what constitutes a purchase money security interest, courts uniformly refer to state law to make the determination. Billings v. Avco Colorado Industrial Bank (In re Billings), 838 F.2d 405, 406 (10th Cir. 1988); Pristas v. Landaus of Plymouth, Inc. (In re Pristas), 742 F.2d 797, 800 (3rd Cir.1984). The Uniform Commercial Code as adopted in California provides in pertinent part: (a) In this section: (1) “Purchase money collateral” means goods or software that secures a purchase money obligation incurred with respect to that collateral. (2) “Purchase money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used. (b) A security interest in goods is a purchase money security interest as follows: (1) To the extent that the goods are purchase money collateral with respect to that security interest.... Cal. U. Com.Code § 9103. Section 9103 of the California Uniform Commercial Code (UCC) defines a “purchase money security interest” by reference to “purchase money collateral,” which in turn incorporates the term “purchase money obligation.” A “purchase money obligation” is defined by reference to the “price” of the collateral or the “value given” to enable the debtor to acquire rights in the collateral. The term “price,” however, is not defined in the section. The official comment to the section amplifies the definitions by making clear that additional charges are included in the terms “purchase money obligation,” “price,” and “value given.” It provides: [T]he definition of “purchase-money obligation,” the “price” of collateral or the “value given to enable” includes obligations for expenses incurred in connection with acquiring rights in the collateral, sales taxes, duties, finance charges, interest, freight charges, costs of storage in transit, demurrage, administrative charges, expenses of collection and enforcement, attorneys’ fees, and other similar obligations. The concept of “purchase-money security interest” requires a close nexus between the acquisition of the collateral and the secured obligation. (Emphasis added.) Cal. U. Com.Code § 9103, com. 3. However, the comment does not specify whether the negative equity in a trade-in is included in these terms. 568 WFFA asserts that because § 2981(e) of the California Automobile Sales Finance Act (ASFA) defines “cash price” to include the negative equity in a trade-in vehicle, the term “price” as used in California UCC § 9103(a)(2) similarly includes negative equity. ASFA § 2981(e) provides: As used on this chapter, unless the context otherwise requires: (e) “Cash price” means the amount for which the seller would sell and transfer to the buyer unqualified title to the motor vehicle described in the conditional sale contract, if the property were sold for cash at the seller’s place of business on the date the contract is executed, and shall include taxes to the extent imposed on the cash sale and the cash price of accessories or services related to the sale, including, but not limited to, delivery, installation, alterations, modifications, improvements, document preparation fees, a service contract, a vehicle contract cancellation option agreement, and payment of a prior credit or lease balance remaining on property being traded in. Cal. Civ.Code § 2981(e)(emphasis added). WFFA relies on In re Graupner; a case with similar facts that was decided under Georgia law. In that case, the bankruptcy court read the Georgia UCC definition of purchase money obligation in pari materia with the provisions of the Georgia Motor Vehicle Sales Finance Act, which, like ASFA § 2981(e), includes in the cash sale price any amount paid on a trade-in vehicle. In re Graupner, 356 B.R. 907, 922-23 (Bkrtcy.M.D.Ga.2006). Notably, § 9201(b) of the California UCC provides that a transaction subject to division 9 is also subject to the provisions of the ASFA, stating: (b) A transaction subject to this division [9 of the California Uniform Commercial Code] is subject to... the Automobile Sales Finance Act, Chapter 2b (commencing with Section 2981) of Title 14 of Part 4 of Division 3 of the Civil Code.... Cal. Com.Code § 9201(b). See also Bank of America v. Lallana, 19 Cal.4th 203, 77 Cal.Rptr.2d 910, 960 P.2d 1133 (1998)(sell-er must comply with notice provisions of both division 9 of the California UCC and the Rees-Levering Motor Vehicle Sales and Finance Act, the predecessor to the ASFA, as a prerequisite for collection of deficiency judgment). However, it is unclear whether “cash price” as defined in the ASFA is synonymous with “price of the collateral” as used in California UCC § 9103. In determining how the California UCC and the ASFA interrelate for purposes of defining a purchase money security interest, federal courts interpreting state laws apply state rules of statutory construction. Neilson v. Chang (In re First T.D. & Inv., Inc.), 253 F.3d 520, 527 (9th Cir.2001). California Code of Civil Procedure § 1859 provides that “[i]n the construction of a statute the intention of the Legislature... is to be pursued, if possible.” The California Supreme Court has declared that the “ultimate task” in statutory interpretation “is to ascertain the legislature’s intent.” People v. Massie, 19 Cal.4th 550, 569, 79 Cal.Rptr.2d 816, 967 P.2d 29, 41 (1998), cert. denied, 526 U.S. 1113, 119 S.Ct. 1759, 143 L.Ed.2d 790 (1999). Neilson v. Chang, 253 F.3d at 527. Still, the California Supreme Court has also noted that, where not ambiguous, the words of a statute provide the' most reliable indication of legislative intent. Pacific Gas & Elec. Co. v. County of Stanislaus, 16 Cal.4th 1143, 1152, 69 Cal.Rptr.2d 329, 947 P.2d 291, 297 (1997). California UCC § 9103(a)(2) by its terms defines a “purchase money obli 569 gation” by reference to “value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.” These words are ambiguous in the context of the issue presented by the hanging paragraph, which issue was certainly not contemplated by the California legislature. The Court of Appeals for the Ninth Circuit examined similar language in former § 9107. Matthews, 724 F.2d at 801. Matthews involved a refinance of purchase money debt secured by household goods. The court held that the refinance destroyed the purchase money character entirely because the proceeds of the new loan were not used to acquire rights in the collateral. The court stated: Purchase money security... affords priority to its holder over other creditors... only if the security is given for the precise purpose as defined in the statute. And we should not lose sight of the fact that the lender chooses the form. Id. The California legislature enacted the ASFA to provide protection for the unsophisticated motor vehicle consumer. Cerra v. Blackstone, 172 Cal.App.3d 604, 608, 218 Cal.Rptr. 15 (6th Dist.1985); Hernandez v. Atlantic Finance Co., 105 Cal. App.3d 65, 69, 164 Cal.Rptr. 279 (2nd Dist. 1980); Final Report of the Assembly Interim Committee on Finance and Insurance, 15 Assembly Interim Committee Reports No. 24 (1961) (quoted in The Rees-Levering Motor Vehicle Sales and Finance Act, 10 UCLA L.Rev. 125, 127 (1962). The ASFA serves to protect motor vehicle purchasers from abusive selling practices and excessive charges by requiring full disclosure of all items of cost. Stasher v. Harger-Haldeman, 58 Cal.2d 23, 29, 22 Cal.Rptr. 657, 372 P.2d 649 (1962); Thompson v. 10,000 RV Sales, Inc., 130 Cal.App.4th 950, 966, 31 Cal. Rptr.3d 18 (4th Dist.2005); Hernandez, 105 Cal.App.3d at 69, 164 Cal.Rptr, 279. In particular, the California legislature amended the ASFA in 1999 to revise the definition of “cash price” and the requirements for itemizing the amount financed “to clarify how a creditor deals with the financing of the vehicle.... ” Thompson v. 10,000 RV Sales, 130 Cal.App.4th at 977, 31 Cal.Rptr.3d 18 (quoting Analysis of Sen. Bill No. 1092, Sen. Comm. on Judiciary (1999-2000 Reg. Sess.), as amended April. 27,1999, p. 2)). In particular, the bill requires: (1) an itemized disclosure of the agreed value of the property being traded in, the prior credit or lease balance owing on the traded in property, the net agreed value, any deferred down payment, the amount of any rebate, the remaining amount to be paid as a downpayment, and the total downpayment; and (2) a separate itemization of any prior credit of lease balance that is being financed in the new transaction.... Apparently, it was a common practice for automobile dealers to disclose a negative number on the “downpayment” fine in circumstances involving a negative equity trade in, and then to increase the “total amount financed” of the newly financed vehicle by a like sum. However,... this practice confused consumers, who, when looking over the itemization sheet, believed that a negative number on the downpayment line should reduce the total amount financed rather than increase it. Under the revised staff commentary to Regulation Z, a zero, not a negative number, is now required to appear on the “downpayment” line, unless there is also a cash payment involved. In addition, any prior credit or lease balance remaining in the property being traded-in is now required to be separately fisted 570 as a positive figure in the “itemization of amount financed.” Analysis of Sen. Bill No. 1092, Assembly Comm, on Judiciary (1999-2000 Reg. Sess.). The amendment conforms to federal Regulation Z, which authorizes the financing of prior credit balances on trade-in vehicles so long as the amount financed is clearly and separately itemized, and is consistent with the ASFA’s remedial purpose of protecting consumers from inaccurate and unfair credit practices through full and honest disclosures. Thompson v. 10,000 RV Sales, 130 Cal.App.4th at 977-78, 31 Cal.Rptr.3d 18. The legislative history of the ASFA makes plain that the ASFA is a consumer protection statute that imposes disclosure requirements on dealers and is not helpful in determining what constitutes a purchase money security interest under the California UCC. Importantly, the prefatory statement to ASFA § 2981(e) qualifies the application of the definition of “cash price” by providing “unless the context otherwise requires,” a qualification that invites consideration of the context. There is no indication in the statute or the legislative history that the 1999 amendment to “cash price” was intended to effect a departure from the traditional understanding of a purchase money security interest. As other courts have noted, rolling up negative equity into a new loan does not “enable” most vehicle purchases. In re Westfall, 365 B.R. 755 (Bankr. N.D.Ohio2007); In re Price, 363 B.R. 734 (Bankr.E.D.N.C.2007); In re Peaslee, 358 B.R. 545 (Bankr.W.D.N.Y.2006). I conclude that the amount used to pay the negative equity does not constitute part of the price of the collateral or value given to acquire rights in the collateral as contemplated in California UCC § 9103(a)(2). Because financing the negative equity in a trade-in vehicle does not give rise to a purchase money security interest, the hanging paragraph does not apply to this portion of WFFA’s secured claim. Once a transaction is determined to be partially purchase money and partially nonpurchase money, California UCC § 9103(h) leaves to the court’s discretion whether to apply the dual status rule or the transformation rule to the treatment of the secured claim. Although the Ninth Circuit in Matthews adopted a position equivalent to the transformation rule, the facts in Matthews provided no basis for adoption of the dual status rule. Under the dual status rule, adopted in Pristas, a security interest is a purchase money security interest only to the extent it secures the purchase price of the collateral, even if it secures other items. The inclusion of a nonpurchase money component does not destroy the purchase money character. The rationale is derived from former § 9-107 of the UCC, which provided that a security interest is a purchase money security interest “to the extent” it is taken or retained to secure all or part of its price. Pristas, 742 F.2d at 800-01. It supports a policy of encouraging refinancing under circumstances where the creditor has the burden of demonstrating the extent to which a security interest retains its purchase money character, benefitting both buyer and seller by facilitating the sale of consumer goods. Borg-Warner Acceptance Corp. v. Tascosa Nat’l Bank, 784 S.W.2d 129, 135 (Tex.App.1990). Under the transformation rule, recognized in Southtrust Bank of Alabama Nat’l Ass’n v. Borg-Warner Acceptance Corp., 760 F.2d 1240, 1242-43 (11th Cir. 1985), the inclusion of a nonpurchase money component transforms the entire claim and destroys the purchase money character. There is no longer a “pure” purchase money security interest. Pristas, 142 F.2d at 800. The policy underlying the trans 571 formation rule as applied in consumer goods cases is to prevent overreaching creditors from retaining title to all items covered under a consolidation contract until the last item purchased is paid for. Borg-Warner Acceptance Corp. v. Tascosa Nat’l Bank, 784 S.W.2d at 134-35. In the context of the hanging paragraph, courts that have rejected the dual status rule and applied the transformation rule have found that the circumstances of the loan documentation made it impossible to allocate the secured claim between the negative equity and the purchase money obligation. See Price, 363 B.R. 734; Peaslee, 358 B.R. 545. In this case, however, the ASFA imposes such stringent requirements upon California automobile dealers for disclosure and itemization of costs that the portion of the secured debt attributable to the purchase price of the vehicle is easily traceable. In light of the traceability, I adopt the dual status rule for determination of the treatment of WFFA’s claim. I reserve the issue of allocation of payments pending further briefing. Conclusion The consumer protection purposes of ASFA suggest that ASFA’s definition of “cash price” should not be incorporated into the California UCC for purposes of determining a purchase money security interest. Consequently, WFFA’s purchase money security interest does not include amounts used to pay the negative equity in a trade-in vehicle. Instead, the dual status rule provides an appropriate tool in determining the extent of WFFA’s purchase money security interest. For these reasons, the objection of WFFA to confirmation of the debtor’s plan is sustained. Aca-ya may file an amended plan consistent with this decision. Good cause appearing, IT IS SO ORDERED.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	307 B.R. 684	DE	Matthews v. Transamerica Financial Services	ORDER AFFIRMING BANKRUPTCY COURT’S JUDGMENT IN FAVOR OF EDUCATIONAL CREDIT MANAGEMENT CORPORATION TIMLIN, District Judge. Appellant Laura Ann Levernier (“Lev-ernier”) appeals the judgment by the United States Bankruptcy Court for the Central District of California in favor of Appellee Educational Credit Management Corporation (“ECMC”) against Levernier. I. Background 1 In 1983, Levernier began a full time course of study at Life Chiropractic West (“Life Chiropractic”). She took out four student loans from Wells Fargo Bank totaling $17,500, and four loans from the Health Education Assistance Loan Program (“HEAL”) totaling $18,157, to complete her education. Levernier graduated from the program in 1986. Between 1986 and 1997, she made partial payments on her student loans while attempting to es 686 tablish a chiropractic practice. In October 1994, Levernier successfully consolidated her Wells Fargo Loans through the Student Loan Marketing Association (“Sallie Mae”). Sallie Mae’s consolidation loan was subsequently assigned to the Educational Credit Management Corporation (“ECMC”). After unsuccessful attempts to start a chiropractic business and stints as a food server, cocktail waitress, and hostess, Lev-ernier filed a chapter 7 bankruptcy petition on July 9, 1997. She received her discharge on November 3, 1997. After reopening her case, she filed a complaint to determine the dischargeability of her ECMC consolidation loan on April 15, 1998. On July 15, 1999, Levernier filed a motion for judgment on the pleadings contending that the ECMC loan was not an educational loan within the meaning of 11 U.S.C. § 523(a)(8) (“Section 523(a)(8)”). This motion was denied by the bankruptcy court on September 8, 1999. On February 8, 2001, the bankruptcy court, after an evidentiary hearing, ordered judgment for ECMC, finding that Levernier had not made a showing of undue hardship in order to discharge her ECMC loan under Section 523(a)(8)(B). Levernier appeals the judgment in favor of ECMC, including the interlocutory order denying her motion for judgment on the pleadings. II. Analysis The jurisdiction of a federal district court to entertain an appeal from a bankruptcy court is governed.by 28 U.S.C. § 158(a), which provides in pertinent part. “The district courts of the United States shall have jurisdiction to hear appeals (1) from final judgments, orders, and decrees,... and (3) with leave of the court, from other interlocutory orders and decrees.” This court reviews a bankruptcy court’s conclusions of law de novo. Siriani v. Northwestern Nat’l Ins. Co., 967 F.2d 302, 303-04 (9th Cir.1992). Findings of fact are reviewed for clear error. See id. The bankruptcy court’s choice of remedies is reviewed for an abuse of' discretion, since it has broad equitable remedial powers. In re Goldberg, 168 B.R. 382, 384 (9th Cir. BAP 1994). Under this standard, “a reviewing court cannot reverse 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.” In re Sunnymead Shopping Ctr. Co., 178 B.R. 809, 814 (9th Cir. BAP 1995) (citing Goldberg, 168 B.R. at 384). 2 A. Whether a consolidation loan is an educational loan for purposes of § 523(a)(8) Levernier contends on appeal that her ECMC consolidated loan is not an “educational loan” for purposes of § 523(a)(8) and is therefore not to be considered non dischargeable under that section. She asserts that her consolidation loan is not educational in nature because the proceeds were not used for educational purposes, but rather to pay off pre-existing educational loan debts. She also characterizes her consolidation loan as a refinance loan and because California law holds that the refinance of a loan used to purchase real estate alters the loan’s character as a purchase money loan, see Matthews v. Transamerica Fin. Servs. (In re Matthews), 724 F.2d 798, 800 (9th Cir. 1984), the consolidation of Levernier’s edu 687 cational loan similarly alters its educational character. In response, ECMC points to the wide body of caselaw in support of the proposition that consolidation loans related to preexisting educational loans are educational loans within the meaning of § 523(a)(8). The District Court for the Eastern District of Michigan addressed this exact issue in United Student Aid Funds v. Flint, 238 B.R. 676 (E.D.Mich.1999), finding that consolidated loans are educational loans and are therefore not dischargeable under § 523(a)(8). ECMC also relies on the extensive body of caselaw discussing when consolidation loans triggered the former statute of limitations under § 523(a)(8) as further evidence that these loans are educational loans. The court agrees with ECMC that the consolidated loan obtained by Levernier is an educational loan within the meaning of § 523(a)(8) and that it therefore is not dischargeable under this section. First, consolidation loans regarding pre-existing educational loans have an educational purpose. They are issued under the Higher Education Act and are used to pay off educational debts. See Flint, supra at 677-78 (“[c]ourts have reasoned that a consolidation loan is ‘for an educational purpose’ because the loan was issued under the Higher Education Act”), Hiatt v. Indiana State Student Assistance Com’n, 36 F.3d 21, 24 (7th Cir.1994) (“a consolidation loan... is in fact a second government guaranteed student loan debt”). Levernier’s contention that the ECMC loan was not used for educational purposes but rather to pay off an educational debt is unpersuasive. As the court noted in In re Cobb, 196 B.R. 34, 38 (Bankr.E.D.Va.1996): [T]he original loan was admittedly for educational purposes. The consolidation loan served to pay off and alter the terms of the initial education loan and thus created a new obligation relative to the reason for the debt. The essential purpose of the consolidation was the repayment and restructuring of a debt incurred to pay the costs of higher education. Second, a number of courts have determined that the consolidation of educational loans triggered the former statute of limitations period under § 523(a)(8)(A) anew. 3 See Hiatt, 36 F.3d at 25 (finding that the nondischargeability period begins on the date the consolidation loan first becomes due and concluding that such a loan is “an education loan within the meaning of section 523(a)(8)(A)”), Cobb, 196 B.R. at 37 (finding that “the consolidation loan, which is in essence a second government guaranteed student loan, is collectible for at least seven years before it is dischargeable”). These conclusions necessarily rest on the presumption that consolidation loans are educational loans within the meaning of § 523(a)(8). See Flint, supra at 679. Third, the court does not agree with Levernier that the plain language of § 523(a)(8) with no specific reference to consolidation loans reflects Congressional intent to exclude such loans from its scope of coverage. In interpreting a statutory provision, courts are not “guided by a single sentence or member of a sentence, but... [by] the provisions of the whole law, and to its object and policy.” Hiatt, 36 F.3d at 23 (quoting Kelly v. Robinson, 479 U.S. 36, 43, 107 S.Ct. 353, 357, 93 L.Ed.2d 216 (1986)). “The plain language of the statute will not control, therefore, if it 688 yields ‘a result demonstrably at odds with the intentions of its drafters’ ” Id. (quoting United States v. Ron Pair Enters., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989)). In enacting and amending § 523(a)(8), Congress expressed a strong policy in favor of student loan repayment. See Flint, supra at 679. This policy does not favor an interpretation that exempts initial educational loans but not subsequent consolidation loans related to the pre-existing educational loans from dis-chargeability as provided in Section under § 523(a)(8). In responding to the argument that Congress would have specifically exempted consolidated loans from dis-chargeability if it so intended, the Flint court noted, “[t]hat is too narrow a perspective. Courts have applied § 523(a)(8) even when the loan was not used to confer an educational benefit on the borrower.” Id. at 681, (citing In re Hawkins, 139 B.R. 651, 652 (Bankr.N.D.Ohio.1991)). For similar reasons, this court agrees with the bankruptcy court that Levernier’s ECMC loan is an educational loan within the meaning of § 523(a)(8). B. Undue Hardship Levernier contends that even if this court finds that a consolidation loan is an educational loan within the meaning of § 523(a)(8), she will suffer undue hardship if the loan is not discharged and, therefore, she is entitled to the exception to nondischargeability as provided in Section 523(a)(8)(B). The Ninth Circuit has adopted a three-part test from the Second Circuit 4 governing the determination of undue hardship. See United Student Aid Funds, Inc. v. Pena, 155 F.3d 1108, 1112 (9th Cir.1998). Under this test, Levernier must prove by a preponderance of the evidence that she meets all of the following criteria: 1) that she cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans, 2) that additional circumstances indicate that her financial situation is likely to persist for a significant portion of the repayment period, and 3) that she has made a good faith effort to repay her loans. Id., citing Brunner, 831 F.2d at 396. Because the bankruptcy court based its finding of no undue hardship exclusively on the first factor, the court will focus on this factor as well. “The first prong of the Brunner analysis requires more than a showing of tight finances.” In re Faish, 72 F.3d 298, 306 (3rd Cir.1995). “The proper inquiry is ‘whether it would be unconscionable to require [the debtor] to take any available steps to earn more income or to reduce her expenses.’ ” In re Shankwiler, 208 B.R. 701, 705 (Bankr.C.D.Cal.1997) (quoting Faish, 72 F.3d at 307). Levernier asserts that because her monthly expenses exceed her monthly income by $255.73, she cannot afford monthly payments to ECMC of approximately $256.31. 5 On the other hand, the bankruptcy court found that because certain of Levernier’s expenditures were excessive, she could make the ECMC payments while maintaining a minimal standard of living for herself. In particular, the court found that: 1) Levernier could reduce her $900 rental payments by living in a less expensive area and/or by sharing an apartment with a roommate, 2) Levernier had purchased a brand new Subaru Forester for $26,000, which, although financed by her mother at a comparatively low rate of interest, had increased her 689 automobile insurance and her annual DMV charge, and 3) Levernier could reduce or eliminate such monthly expenses as FasT-rak, 24-hour Fitness, cable television, tax preparation services, vitamins, and long distance calls. This court reviews the bankruptcy court’s findings of fact for clear error. See Siriani v. Northwestern Nat’l Ins. Co., 967 F.2d 302, 303-04 (9th Cir.1992). Under this standard, the court finds no reason to disturb the bankruptcy court’s findings that Levernier could appropriately reduce certain expenditures and make her ECMC payments without falling below a minimal standard of living. In In re Faish, the Third Circuit found that a single woman with an eleven year old son who received no child support and who had an annual income of $27,000 could afford to make a monthly payment of nearly $300. Levernier has no dependents and an annual income of approximately $31,085.28. Although she has certain expenses that the debtor in Faish apparently did not have, such as monthly car payments, the bankruptcy court has already found that these payments are excessive. Levernier cannot show that all of her monthly expenses are necessary to maintain a minimal standard of living for herself. Levernier’s reliance on Peel v. Sallie-Mae Servicing-Heal Loan, 240 B.R. 387 (Bankr.N.D.Cal.1999) is unpersuasive. In Peel, the Bankruptcy Court for the Northern District of California found that the debtor could not maintain a minimal standard of living and pay off his $635 ECMC loan, therefore meeting the first requirement of Brunner. However, the debtor in Peel spent only $750 a month for a basement apartment without a kitchen, $40 a month on phone calls, and $81 a month on automobile insurance. Although he budgeted $190 more a month on automobile maintenance than Levernier, this is still $220 less than Levernier’s monthly automobile payments. Moreover, both the HEAL loans and ECMC loans at issue in Peel were significantly higher than Lever-nier’s. In short, there is nothing in Peel to indicate that Levernier could not make her ECMC payments and maintain a minimal standard of living under the first prong of the Brunner test. Because the bankruptcy court’s finding that Levernier has not met the first requirement is not clear error, the court need not address the remaining two factors under Brunner. The court therefore concludes that Levernier has not made a showing by a preponderance of the evidence of undue hardship that would except her ECMC loan from non-dischargeability under § 523(a)(8). III. DISPOSITION ACCORDINGLY, IT IS ORDERED THAT The bankruptcy court’s Judgment is AFFIRMED. 1. This background is based on the materials constituting the record on appeal. 2. Both Levernier and ECMC agree that this reviewing Court should apply the de novo standard of review regarding the issues on appeal. The Court will do so. 3. Prior to 1990, educational loans that had first become due more than 5 years before the filing of a bankruptcy petition were not excepted from discharge. In 1990, this period was extended to 7 years. In 19,98, it was eliminated altogether, reflecting a renewed congressional intent to facilitate loan repayment. See Flint, supra at 681. 4. Brunner v. New York Higher Educ. Services, 831 F.2d 395, 396 (2d Cir.1987). 5. ECMC asserts that under a graduated repayment schedule, Levernier could reduce her monthly payments to $234.64.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	267 B.R. 614	C, D	Matthews v. Transamerica Financial Services	ORDER RE MOTION TO AVOID LIEN AND MOTION TO DETERMINE VALUE OF LIEN AND DETERMINATION OF SECURED STATUS OF FIRST SOUTHEAST BANK AS TO CERTAIN PERSONAL PROPERTY PAUL J. KILBURG, Chief Judge. The matter before the Court is Debtors’ Motion to Avoid Lien and Motion to Determine Value of Lien and Determination of Secured Status of First Southeast Bank as to Certain Personal Property. Debtors Michael McAllister and Pamela McAllister are represented by Attorney Lewis Chur-buck. Creditor First Southeast Bank, Harmony, Minnesota is represented by attorneys Gary W. Koch, Michael S. Dove, and Timothy A. Murphy. The parties submitted stipulated facts and briefs for the Court’s consideration. The matter was submitted as of June 26, 2001. STATEMENT OF THE CASE Michael and Pamela McAllister (Debtors) bring this action to have the Court determine the priority of two creditor’s security interests in an auger, planter, and trailer (hereafter “farm equipment”) currently in Debtors’ possession. This is a core proceeding pursuant to 28 U.S.C. § 157.(b)(2)(K). First Southeast Bank contests the validity of Ag Services’ purchase-money security interest and asserts that its prior perfection of its security interest gives it priority status over the farm equipment. Debtors assert that Ag Services has a purchase-money security interest and therefore a superpriority over the Bank’s security interest. The Bank stipulates that Ag Services provided funds for Debtors’ purchase of the farm equipment. It contends Ag Services lost its purchase-money security interest due to the contents of its security agreement or, alternatively, that Ag Services’ security interest in the farm equipment never attained purchase-money security interest status. Debtors filed a Motion to Determine Value of Lien and Determination of Secured Status of First Southeast Bank as to Certain Personal Property on April 20, 2001. The amount of Ag Services’ secured claim is approximately $20,000. The amount of the Bank’s secured claim at the time of filing was $219,938.10. The value of the farm equipment is approximately $6000. FACTS In May 1985, Debtors executed a security agreement in favor of the Bank, granting it a security interest in all equipment owned and hereafter acquired. The Bank filed a Financing Statement with the Iowa Secretary of State on May 28, 1985. Proper continuances have been filed until present time. Debtors and Ag Services of America entered into an Agricultural Security Agreement for the production of crops on January 16, 1998. Besides a security interest in the crops, Debtors granted Ag Services a security interest in “All of Debtors’ equipment and motorized vehicles and/or trailers, whether or not required to be licensed or registered, whether now owned or hereafter acquired, including but not limited to machinery and tools, together with all accessories, parts, accessions 618 and repairs or hereafter attached or affixed thereto. Includes but not limited to items listed below.” Ag Services’ security agreement with Debtors contained a future advances clause. The record does not contain evidence as to the amount of principal, the interest rate or the repayment due date for the crop production loan. Ag Services perfected its security interest by filing a financing statement January 23, 1998. It filed a amendment to the original financing statement January 11, 1999, to replace the legal description of the land upon which the crops were produced and to replace the equipment list. Debtors executed a promissory note with Ag Services raising the principal balance to $112,000 on November 22, 1999. The interest rate was 21.0% with principal balance and accrued interest payable on or before January 15, 2001. The November 22 promissory note contains the clause “The security agreement(s) by which this note is secured include, but are not limited to, security agreements(s), mortgages or deeds of trust dated January 16, 1998.” The parties stipulate that Ag Services advanced funds which enabled Debtors to purchase an auger in November 1999 and a planter and trailer in January 2000. The current value of the auger is $2500. The current value of the planter and trailer is $3500. On December 14, 2000, Debtors executed a promissory note with Ag Services increasing the principal balance to $119,000. This note is on the same form and contains the same “secured by” clause as the November 22, 1999 note. The note contains an interest rate of 21.0%, with the principal balance and accrued interest payable on or before January 15, 2002. PRIORITY — FIRST TO FILE This dispute focuses on the conflicting rights of secured creditors First Southeast Bank and Ag Services. Article 9 of the Uniform Commercial Code, set forth in Iowa Code chapter 554, governs the attachment and perfection of security interests in goods. Iowa Code sec. 554.9203(1) provides that “a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless: (1) the collateral is in the possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral...; (2) value has been given; and (3) the debtor has rights in the collateral.” Iowa Code § 554.9203(1) (1999). 1 A security interest is perfected when it has attached and a financing statement has been filed or the security interest is otherwise perfected. Iowa Code §§ 554.9303(1), 554.9302(1). “If such steps are taken before the security interest attaches, it is perfected at the time when it attaches.” Iowa Code § 554.9303(1). The term “attached” is used to describe the point at which property becomes subject to a security interest. Iowa Code § 554.9303 comment 1. Where the funds are delivered by the lender for the specific purpose of purchasing equipment that is described in a prior, perfected financing statement between the parties, that security interest is a purchase-money security interest when and to the extent the funds are so used. Iowa Code § 554.9107(b); section 554.9204 619 comment 2; John Deere Co. v. Production Credit Ass’n, 686 S.W.2d 904, 907 (Tenn. Ct.App.1984). Ag Services’ earlier-filed financing statement perfects the subsequent security agreements. Deutz-Allis Credit Corp. v. Lynch Farms, Inc., 387 N.W.2d 593, 595 (Iowa 1986). The filed financing statement gives notice to other creditors that Ag Services may claim a security interest in Debtors’ equipment. Article 9 is a notice filing system. When a conflict exists between secured creditors, the general rule provides that between creditors who perfected their security interests in the same collateral by filing a financing statement, the first in time to file their security interest has priority. Iowa Code § 554.9312(5). Iowa Code sec. 554.9312 governs the priority of security interests in the same collateral. Citizens Savs. Bank v. Miller, 515 N.W.2d 7, 9 (Iowa 1994). In this case both parties have perfected their security interests by filing financing statements. It is undisputed that, unless Ag Services has a purchase-money security interest, the Bank is entitled to priority under this section. PURCHASE-MONEY SECURITY INTEREST The paramount exception to the first-to-file rule is the superpriority arising from a purchase-money security interest (PMSI). By definition, a security interest is a “purchase-money security interest” to the extent that it is “taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.” Iowa Code § 554.9107(b). The Iowa Supreme Court simply describes a PMSI as “a secured loan for the price of new collateral.” Farmers Co-op. Elev. Co. v. Union State Bank, 409 N.W.2d 178, 180 (Iowa 1987). Debtors claim that Ag Services has a PMSI and, therefore, Iowa Code section 554.9312(4) controls the priority of the conflicting security interests. Section 554.9312(4) provides that a purchase-money security interest in collateral has priority if it was perfected at the time the debtor receives possession of the collateral or within twenty days thereafter. Iowa Code § 544.9107(b). Debtors must establish Ag Services’ superpriority status. In re Relpak Corp., 25 B.R. 148, 152-53 (Bankr.E.D.N.Y.1982). TRANSFORMATION RULE Some courts have held that purchase-money security interests are transformed into ordinary security interests under certain circumstances. This doctrine, known as the “Transformation Rule”, is applied in cases involving the financing of collateral where the indebtedness has been refinanced, where the security agreement contains after-acquired property and cross-collateralization clauses and where the collateral secures later indebtedness through future advances clauses. Borg-Warner Acceptance Corp. v. Tascosa Nat’l Bank, 784 S.W.2d 129,134 (Tex.Ct.App.1990). There is a split of authority on whether refinancing through renewal or consolidation causes a purchase-money lender to lose its superpriority status. Some courts apply the transformation rule where a PMSI is automatically “transformed” into a nonpurchase-money security interest when the proceeds.of refinancing are used to satisfy the original debt. In re Matthews, 724 F.2d 798, 800 (9th Cir.1984) (creditor sacrificed its PMSI when it made the “decision to issue a new loan, and, in its own words, to ‘pay net balance due’ on the old loan, rather than to extend the payments on the old loan”). This line of cases holds that the resulting lien on the purchased goods no longer qualifies as a 620 PMSI under section 9-107 because after refinancing, the collateral secures an antecedent debt rather than a debt for purchase of the collateral or, in the case of a renewal note consolidating debt or advancing new funds, secures more than its purchase price. In re Short, 170 B.R. 128, 132-33 (Bankr.S.D.Ill.1994). The refinancing does not “enable” the debtor to acquire rights in the collateral and is therefore a nonpurchase-money security interest. Matthews, 724 F.2d at 800; see also In re Keeton, 161 B.R. 410, 411 (Bankr.S.D.Ohio 1993). Other courts hold that the PMSI status is lost if a security interest collateralizes any other debt in addition to the purchase-money debt. In re Manuel, 507 F.2d 990 (5th Cir.1975) (seller lost PMSI as to previously purchased items when cross-collat-eralized and consolidated with loan to purchase TV; court declined to rule whether TV lost its PMSI); In re Norrell, 426 F.Supp. 435 (M.D.Ga.1977) (invalidating the purchase-money aspect of the security agreement even as to merchandise comprising the immediate transaction). In Norrell, the seller used an “add on” clause in an attempt to reserve a security interest in the items purchased plus “any subsequent purchases... added to this contract while there is a balance due thereon.” Norrell, 426 F.Supp. at 436. The court held that the seller did not retain a PMSI because the “loan” to debt- or was secured by property other than the collateral for which the funds had been advanced. Id. Some courts have determined that the mere inclusion of an after-acquired property or future advances clause in the security agreement transforms a PMSI into an ordinary security interest. Compare Sowthtrust Bank v. Borg-Warner Acceptance Corp., 760 F.2d 1240, 1243 (11th Cir.1985) (finance company’s exercise of the after-acquired property and future advances clauses in its security agreement converted its PMSI into an ordinary security interest leaving unanswered whether mere inclusion of the clauses causes the PMSI to convert into a nonpurchase-money security interest), and In re Jones, 5 B.R. 655, 657 (Bankr.M.D.N.C.1980) (presence of a future advances clause in the underlying security agreement was enough to extinguish the PMSI character of the security interest), with In re Griffin, 9 B.R. 880, 881 (Bankr.N.D.Ga.1981) (holding that the PMSI status had not been destroyed by the inclusion of future advances clause). DUAL STATUS More recent opinions conclude that a security interest may have a “dual status.” In re Leftwich, 174 B.R. 54, 58 (Bankr.W.D.Va.1994); Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797, 800-01 (3d Cir.1984); In re Billings, 838 F.2d 405, 409 (10th Cir.1988). A security interest may be partially purchase-money and partially nonpurchase-money. E.g., Short, 170 B.R. at 133. That is, a creditor may retain a PMSI in goods that also secure later purchases to the extent that the PMSI in the original items secures only the unpaid part of their own price. Dual status is premised on the language of Uniform Commercial Code section 9-107 which provides that a lien is a PMSI “to the extent” that it is taken to secure the purchase price of collateral. Id. Refinancing does not automatically destroy the purchase-money aspect of the lien. Id. Debtors cite John Deere Co. v. Production Credit Ass’n, 686 S.W.2d 904 (Tenn.Ct.App.1984), for the proposition that the inclusion of future advances and after-acquired property clauses does not cause a PMSI to lose its superpriority status. In that case John Deere argued that PCA did not have a PMSI because its prior security 621 agreement contained after-acquired and future advance clauses. Id. at 905. The court held that PCA held a PMSI up to the amount of the value it gave for the purchase of the combine. Id. at 907. It concluded that a lender can be a purchase-money lender irrespective of the terms of its security agreement, to the extent that its PMSI claim is limited to the funds that it can prove were used to purchase the collateral. Id. The Bank does not cite any Iowa cases. It cites the Court to 68A Am.Jur.2d Secured Transactions § 847 (1998) as authority for application of the “transformation rule”. The American Jurisprudence is not binding authority. It merely notes that “it has been contended” that in some jurisdictions inclusion of future advances and after-acquired property clauses could cause a PMSI to lose its priority or “at least giv[e] it a dual nature, divided between the purchase-money and other portions of the financing.” Id. It is the conclusion of this Court that the “dual status” doctrine is properly applied in this case. Application of this doctrine allows the inclusion of after-acquired and future advances clauses. See In re Hassebroek, 136 B.R. 527, 530 (Bankr.N.D.Iowa 1991) (determination of whether consolidation causes creditor to lose its PMSI status). “Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment.” Iowa Code § 554.9204(3). Section 554.9204 comment 5 reveals that after-acquired property and future advance clauses were meant to be a useful tool in commercial finance and harsh restrictions should not be placed on their use. In re Estate of Simpson, 403 N.W.2d 791, 792 (Iowa 1987). This court’s application of the “dual status” doctrine is consistent with recent case law. Courts in this Circuit, like Iowa, apply the “dual status” doctrine. See In re Hemingson, 84 B.R. 604, 606 (Bankr.D.Minn.1988); In re Win-Vent, Inc., 217 B.R. 803, 811-12 (Bankr.W.D.Mo.1997), aff'd, 217 B.R. 798 (W.D.Mo.1997); In re Wiegert, 145 B.R. 621, 623 (Bankr.D.Neb.1991). The new Article 9 revision adopts the dual status doctrine. Revised U.C.C. section 9 — 103(f) (2001) provides that “[A] purchase-money security interest does not lose its status as such, even if: (1) the purchase-money collateral also secures an obligation that is not a purchase-money obligation; (2) collateral that is not purchase-money collateral also secures the purchase-money obligation; or (3) the purchase-money obligation has been renewed, refinanced, consolidated, or restructured.” REFINANCING Although inclusion of future advances and after-acquired property clauses does not transform a PMSI into a nonpurchase-money security interest, refinancing may cause a creditor to lose its PMSI status. In re Butler, No. 86 01651C, 1987 WL 46571, at 1 (Bankr.N.D.Iowa, May 28, 1987). The Bank does not raise this issue. However, the Court feels it appropriate to review the record to determine whether the 1999 and the 2000 promissory notes cause Ag Services to lose its PMSI in the contested equipment. Refinancing occurs when an existing note is renewed and new credit is extended. Butler, 1987 WL 46571 at 2. Common characteristics of refinancing include: 1) an extension in the time of payment, 2) a consolidation of notes, and 3) an extension of new credit with or without additional security. Id. at 2. Refinancing a loan can be determined to be (1) a renewal of the original purchase-money obligation, in which case the PMSI survives, or (2) a novation which extinguishes 622 the purchase-money character of the loan. Short, 170 B.R. at 134. A novation occurs when the “purpose of the note was to pay off the original note, an antecedent debt.” Eitzen’s Estate v. Lauman, 231 Iowa 1169, 3 N.W.2d 546, 550 (Iowa 1942). Article 9 does not address the effect of refinancing or consolidation on PMSI status. Determining whether Ag Services’ third security agreement extinguishes the PMSI on the collateral purchased under the second security agreement depends on a court determination of whether the second and third notes represent a novation. Butler, 1987 WL 46571, at 2. This court has addressed the issue. Compare In re Averhoff, 18 B.R. 198 (Bankr.N.D.Iowa 1982) (novation found where each subsequent note advanced new money, increased debtor’s payments, provided additional collateral for security, and introduced a new security agreement for each renewal), with In re Fricke, No. L9101056W, slip op. at 5 (Bankr.N.D.Iowa. Oct. 22, 1991) (novation not found even though debt was not perfected until consolidation of three notes), and Butler, 1987 WL 46571 (intent to extinguish the original security agreement and substitute the new ones for the antecedent debt was not proven). The primary consideration of whether refinancing constitutes a novation is the “intent” of the parties. Butler, 1987 WL 46571, at 3. Various factors are considered to determine whether the parties intend a novation. They include: (1) whether new money was advanced to the debtors, (2) whether the amount of the monthly payments increased, (3) whether a new security agreement was introduced, and (4) whether additional collateral was provided to secure the creditor’s security interest. Hassebroek, 136 B.R. at 530. A novation is not presumed. Id. The greater the degree of change in the obligation, the more likely a novation will be found. Short, 170 B.R. at 134. “Tolerance of ‘add-on’ debt and collateral provisions, properly applied, carries out the approbation for purchase-money security arrangements and simplifies repeat transactions between the same buyer and [lender].” Hemingson, 84 B.R. at 607. It is the conclusion of this Court that the subsequent promissory notes executed by Ag Services and Debtors were intended as “add on” transactions extending the loan limit. The advances were not made with the intent of paying off the earlier debt. Execution of each subsequent promissory note did not precipitate execution of a new security agreement which was meant to substitute for the pri- or security agreements. Butler, 1987 WL 46571 at 3. The promissory notes, dated November 22, 1999 and December 14, 2000, establish that the prior security agreement was to remain in effect by inclusion of the clause: “The security agreements) by which this note is secured include, but are not limited to, security agreements(s), mortgages or deeds of trust dated January 16,1998.” The promissory notes do not evidence a new beginning but rather a continuance of a prior agreement. The 21.0% interest rate is consistent in both the November of 1999 and December of 2000 agreements. Without evidence to the contrary as to the repayment date for the original loan, the Court concludes that the January 15, 2001 repayment date, set as the repayment date in the November 22, 1999 security agreement and extended one year by the December 14, 2000 security agreement, correlates to the repayment date set in the January 16,1998 loan. It is clear from the record that the advances had no effect on monthly payments. The phrase: “Said principal and accrued interest to be due 623 and payable in full on or before” indicates repayment in one lump sum. The Bank has the burden to establish that each subsequent agreement represents a novation. Butler, 1987 WL 46571, at 8. This Court concludes that the subsequently executed promissory notes do not extinguish the prior security agreement but rather represent “add ons” to the total amount of principal Debtors could borrow. DESCRIPTION OF COLLATERAL In addition to its theory concerning the superpriority status of Ag Services, the Bank argues an alternative theory. It asserts that Ag Services never had a PMSI because its security agreement does not specifically describe the collateral for which it claims a PMSI. One of the formal requirements of a valid security agreement is that it must contain a description of the collateral. Iowa Code § 554.9203(l)(a). Iowa Code section 554.9110 provides: “any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described.” Security agreements, and thus promissory notes, are not intended to give notice to third parties but rather provide evidence of an agreement and serve a statute of frauds function as between the creditor and debtor. First State Bank v. Shirley Ag Servs., Inc., 417 N.W.2d 448, 451 (Iowa 1987); In re Product Design & Fabrication, 182 B.R. 803, 806 (Bankr.N.D.Iowa 1994). The test of sufficiency of the description of collateral in a security agreement is that the description must make possible the identification of the thing described. First State Bank v. Waychus, 183 N.W.2d 728, 730 (Iowa 1971). Advances may be secured by reference to a perfected security agreement that contains a future advance clause if the purchase was of the same type of collateral identified in the perfected security agreement. Simpson, 403 N.W.2d at 793 (note secured by real estate mortgage was not secured by future advances clause in perfected security agreement where neither note nor mortgage referred to prior agreement). Collateral may be described by means of incorporation by reference to other identifiable documents that describe the collateral. In re Nickerson & Nickerson, Inc., 452 F.2d 56 (8th Cir.1971); Product Design, 182 B.R. at 806. The January 16, 1998 security agreement includes future advances and after-acquired property clauses. The advances made by Ag Services, under the November 22, 1999 and the December 14, 2000 promissory notes refer to and are secured by the prior security agreement perfected January 16, 1998. The January 16, 1998 security agreement adequately describes the disputed equipment. In describing after-acquired property in security agreements, general descriptions must be accepted. In re Sunberg, 35 B.R. 777, 782 (Bankr.S.D.Iowa 1983), aff'd, 729 F.2d 561 (8th Cir.1984). The auger, planter, and trailer are within the category of collateral secured by the January 16, 1998 security agreement. The January 16, 1998 agreement is an Agricultural Security Agreement that secures an interest in property “now owned or hereafter acquired, including but not limited to machinery and tools.” EXTENT OF PURCHASE-MONEY SECURITY INTEREST The remaining issue is to determine the extent of Ag Services’ PMSI. The difficulty with the dual status rule lies in determining how payments have been allocated and what portion of the debt is 624 purchase-money. E.g., Hassebroek, 136 B.R. at 531. If that allocation can be made, the PMSI does not convert to an ordinary security interest. In re Slay, 8 B.R. 355, 358 (Bankr.E.D.Tenn.1980). If the security agreement is silent as to how payments are to be allocated, some courts look to state law for a formula while others impose a judicial “first-in first-out” rule, or “FIFO”. Pristas, 742 F.2d at 801. Iowa follows the first-in first-out method. In re Butler, 1987 WL 46571, at 2 (Bankr.N.D.Iowa, May 28, 1987); Hassebroek, 136 B.R. at 531. Other states in the Eighth Circuit also follow the first-in first-out method. In re Hemingson, 84 B.R. 604, 606-07 (Bankr.D.Minn.1988); In re Wiegert, 145 B.R. 621, 623 (Bankr.D.Neb.1991). The burden is on Debtors to provide evidence that will allow the Court to trace their payments to Ag Services. Short, 170 B.R. at 135. The FIFO method allocates payments first to the unpaid amount of the oldest purchase and then sequentially to the remaining debts in the order in which they were incurred, retaining a valid PMSI in items which have not been paid in full. Wiegert, 145 B.R. at 623-22. The purchase price includes the cost of the item and any financing charges and sales taxes attributable to that item. Short, 170 B.R. at 136. A general security interest is retained in the paid-in-full collateral. Id. The Bank stipulates that Ag Services provided funds for the three pieces of equipment. This obviates the need for Debtors to provide evidence which demonstrates that they received funds from Ag Services which they in fact used to purchase the farm equipment. However, the record is insufficient to determine what portion of Ag Services’ $20,000 claim originally represented purchase-money and what portion of the funds retain PMSI status. Using the FIFO method to allocate payments, it is possible that some of the equipment for which Ag Services originally had a PMSI, has been paid in full. Once the purchase price of a particular item has been fully paid, the security interest in that item becomes a nonpurchase-money security interest. ShoH, 170 B.R. at 136. CONCLUSION Iowa follows the dual status doctrine for purchase-money security interests. Under Iowa law, the inclusion of after-acquired property and future advances clauses in security agreements, does not “transform” a PMSI into a general security interest. Ag Services’ PMSI in the equipment arose from the promissory notes referring back to the January 16, 1998 security agreement for which a financing statement was filed with the Secretary of the State on January 23,1998. The record is insufficient for the Court to determine what, if any, equipment has been paid in full and what debts are accounted for in Ag Services’ $20,000 claim. An additional hearing is necessary to allow Debtors an opportunity to provide sufficient evidence to allow the Court to make the required calculations. If Debtors are unable to sustain this burden, insufficient payment records could result in a loss of all purchase-money security interests. WHEREFORE, the Court concludes that the dual status doctrine applies in this case. FURTHER, Ag Services’ PMSI was created by promissory notes referring back to the January 16, 1998 security agreement which was perfected by filing a financing statement. FURTHER, an additional evidentiary hearing is necessary to determine the extent of the PMSI. 625 FURTHER, this shall be determined by application of the FIFO method as set out in this opinion. FURTHER, the burden is upon Debtors to provide sufficient payment data to establish Ag Services’ PMSI. FURTHER, a scheduling conference shall be set by separate order. 1. Revised Iowa Code ch. 554, effective July 1, 2001, does not affect an action, case, or proceeding commenced before the Act takes effect. Iowa Code sec. 554.9702(c) (2001). All operative matters in this controversy occurred prior to the effective date of the new Article 9, and are, therefore, controlled by Article 9 in effect prior to July 1, 2001.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 798	259 B.R. 163	D	Matthews v. Transamerica Financial Services	ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT JAMES R. GRUBE, Bankruptcy Judge. I. INTRODUCTION Plaintiff Fleet. Capital Corporation (“Fleet”) and defendant Sutherland Presses (“Sutherland”) filed cross-motions for summary judgment in the above-entitled adversary proceeding, involving a priority dispute between the parties’ competing security interests in the debtor’s collateral. For reasons discussed below, the Court denies Sutherland’s motion for summary judgment and grants summary judgment in favor of Fleet. II. BACKGROUND On September 26, 1997, debtor Enterprise Industries, Inc. (“Enterprise”) executed a purchase order for a 550 ton press (“the press”) from Sutherland. Four days later, on September 30, 1997, Enterprise and Sutherland entered into a Sales Agreement for the purchase of the press in the amount of $987,991.26. Under the terms of the sales agreement, Enterprise was to make a 30% down payment ($296,-397.83) upon placement of the order, a 60% second payment ($592,794.76) due upon proof of shipment from the factory, and a 10% final payment ($98,799.12) due upon start-up or 60 days from the bill of lading, whichever occurred first. The Sales Agreement also required a signed UCC-1 financing statement, and stated in pertinent part: “Sutherland Presses acting as Exclusive Agent on behalf of the Supplier retains ownership of Subject Goods until payment has been made in full for the goods for the protection of the Supplier.” The sales transaction was styled as a “turn-key package,” under which Sutherland was obliged to deliver the press, along with all accessories necessary for the press’s operation, at a location designated by Enterprise. Upon delivery, Sutherland was also responsible for testing and training of Enterprise’s employees in the operation of the press. On October 1, 1997, Enterprise made the $296,397.83 down payment on the press via wire transfer to Sutherland. Five months later, on March 2, 1998, Enterprise, along with parent company TMCI, executed a Loan and Security Agreement (“Loan Agreement”), together with a Secured Promissory Note, with Fleet. The Loan Agreement provided in relevant part that Fleet would provide Enterprise with a $25 million revolving credit loan to finance the purchase of equipment for use in Enterprise’s business. Fleet secured this loan by taking a comprehensive security interest or “blanket lien” in substantially all of the assets of Enterprise and TMCI, including after-acquired property. One day later, on March 3, 1998, Fleet perfected its security interest by filing a UCC-1 financing statement with the California Secretary of State. The UCC-1 described Fleet’s collateral as including Enterprise’s “equipment.” As reflected in the bill of lading, the press was shipped from Sutherland’s operations in Japan on March 17, 1998, bound 165 for Enterprise’s operations in California. Later that same month, on March 25,1998, Fleet, on behalf of Enterprise, paid the second installment on the press in the amount of $592,794.76. Fleet made this payment via wire transfer from Fleet’s account directly to Sutherland’s. Approximately one and a half months later, and some eight months after entering into the Sales Agreement to purchase the press, on May 13, 1998 Sutherland perfected its security interest in the press by filing a UCC-1 financing statement with the California Secretary of State. When the press arrived in the United States, Enterprise did not take delivery immediately. Instead, Sutherland hired Triple-E Machinery Moving, Inc. (“Triple-E”) to store and later deliver the press. Enterprise, however, directed where and when the press was ultimately delivered. Triple-E delivered the press to Enterprise between May 27 and 28 of 1998. Joe Santiago of Enterprise acknowledged installation of the press in a signed Sutherland Press Acceptance Sheet dated June 19,1998. The final installment amount of $98,799.12 was never paid. Enterprise filed a voluntary Chapter 11 petition on January 29, 1999, and the press was later sold along with substantially all of the debtor’s assets to Serra Corporation for $3,700,000. The fair market value of the press at the time of its sale was approximately $400,000. III. ISSUE PRESENTED The sole issue before the Court is whether Fleet or Sutherland acquired first priority position with regard to the collateral in issue, i.e., the press. This determination turns on whether Fleet acquired a purchase money security interest in the press, which in turn depends on whether Fleet, through its payment of the second installment in the amount of $592,794.76, enabled the debtor to acquire some “rights” in the press as that term is used in California Commercial Code § 9107(b). 1 IY. STANDARD FOR SUMMARY JUDGMENT Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, provides that the Court shall render judgment for the moving party “... if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” In the present matter, the parties have filed cross-motions for summary judgment, along with a stipulated set of undisputed facts. As there are no material facts in dispute, the Court is able to render judgment as a matter of law. V. DISCUSSION Secured creditors Sutherland and Fleet are in dispute over their respective rights to approximately $100,000 in proceeds from the sale of the press. 2 If Sutherland’s security interest takes priority over Fleet’s security interest, Sutherland will recover its third installment payment of $98,799.12 3 from the $400,000 in proceeds attributable to the sale of the press, with the balance going to pay down the $592,794.76 owed to Fleet on the second 166 installment payment. If, on the other hand, Fleet’s security interest has first priority, then Fleet will take the entire $400,000 in proceeds in partial satisfaction of the debt owed to it, while the entire amount of Sutherland’s third installment payment will be relegated to treatment as an unsecured claim. It is undisputed that both Sutherland and Fleet have perfected security interests in the press, as both filed UCC-1 financing statements describing the collateral in issue with the California Secretary of State as required by §§ 9302(1) and 9401(1)(c). 4 It is likewise undisputed that Sutherland’s perfected security interest is a “purchase money security interest” pursuant to § 9107(a), as Sutherland was the seller of the collateral and retained a security interest in the unpaid balance of the press. 5 As stated above, the point of contention is whether Fleet or Sutherland has first priority position. Rules of Priority under § 9312 Section 9312 sets forth the rules for determining priorities between conflicting security interests in the same collateral. In the typical case of two “garden variety,” i.e., non-purchase money, secured creditors, § 9312(5)(a) provides that the first to file its financing statement (and thereby perfect its security interest) has priority. 6 However, if one secured creditor has a “purchase money security interest,” that creditor can take priority over a competing non-purchase money secured creditor who was first to file, provided that the purchase money secured creditor files its financing statement “at the time the debtor receives possession of the collateral or within 20 days thereafter.” § 9312(4) 7 Still another twist occurs where two purchase money secured creditors compete for priority in the same collateral. In such an instance courts and commentators agree that § 9312(4) is inapplicable. Instead, the provisions of § 9312(5)(a) control and the first purchase money secured creditor to file has priority. See, e.g., Womack v. Newman Fixture Co., 27 Ark. App. 117, 785 S.W.2d 226, 228-29 (1990) (“[S]ince both the Bank and Newman had purchase money security interests, perfected by the filing of financing statements, section (4), supra, does not tell us which purchase money security interest had priority, but under the provisions of section (5)... it would appear to go to the party who first filed a financing statement....”); John Deere Co. v. Production Credit Ass’n of Murfreesboro, 686 S.W.2d 904, 907-08 (Tenn.App.1984); 4 White & Sumners, Uniform Commercial Code [4th ed.1995], § 33-5 at 335 (“If Bank lends the down payment, seller lends the rest and each file within ten days, both (and therefore neither) are ‘entitled to the special priority’ in subsection (4). Although one might argue that such creditors should share pro rata and neither receive priority, 167 we believe that the proper rule is to go to the subsection (5) residuary clause and award priority to the winner there”) In this case, Fleet filed its financing statement on March 3, 1998, more than two months before Sutherland’s filing date of May 13, 1998. Sutherland, however, was a purchase money secured creditor and filed its financing statement approximately two weeks before Enterprise received the press. Therefore, if Fleet does not hold a purchase money security interest in the press, Sutherland takes first priority under the terms of § 9312(4). If, on the other hand, Fleet does hold a purchase money security interest in the press, then Fleet will take first priority pursuant to § 9312(5)(a), since it filed first. Determination of priority, therefore, hinges on whether Fleet holds a purchase money security interest. Definition of “purchase money security interest” under § 9107(b) As discussed above, § 9107(b) enables a third party financier to a purchase transaction, such as Fleet, to acquire a purchase money security interest in specific collateral where “by making advances or incurring an obligation [the third party financier] gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.” As White & Sumners elaborate: Subsection (b) of 9-107 allows for less familiar but equally important transactions, as where a lender agrees to lend money to a debtor so that it may, for example, buy a new line of merchandise or purchase some new equipment. To ensure that the pearly gates leading to a purchase money lender’s Valhalla are not opened too wide, the drafters have made 9-107(b) rather narrow. First, the lender must have given “value” by making advances or incurring an obligation.... Second, the value must have been “to enable the debtor acquire rights in or the use of collateral,” and third, such value must have been “in fact so used.” 4 White & Sumners, Uniform Commercial Code [4th ed.1995], § 33-5 at 324-325. “Rights in the Collateral” It is undisputed that Fleet meets the first and third requirements of § 9107(b), as written records reflect that Fleet wired $592,794.76 directly from its account to Sutherland’s in satisfaction of the second installment due on the press. Rather, the dispute lies in § 9107(b)’s second requirement — whether by paying the second installment on behalf of Enterprise Fleet “enabled” the debtor to acquire some “rights in the collateral.” Although the statute does not provide guidance as to how broadly the “enabling” requirement may be construed, White & Sumners provide the following explanation: “If the loan transaction appears to be closely allied to the purchase transaction, that should suffice. The evident intent of paragraph (b) is to free the purchase-money concept from artificial limitations; rigid adherence to particular formalities in sequences should not be required.” A court must still determine whether the loan and purchase transactions are “closely allied. ” 4 White & Sumners, supra at 326 (emphasis added), quoting 2 G. Gilmore, Security Interests in Personal Property 782 (1965). Sutherland contends that Fleet’s payment was not “closely allied” with the purchase transaction in issue. Specifically, under Sutherland’s rationale, the debtor “purchased” the press and thereby acquired all available “rights” in the collateral at the moment the debtor made the down payment on the press. Therefore, Sutherland argues, since Fleet’s payment did not enable the debtor to acquire any additional “rights” in the press, Fleet did not acquire a purchase money security interest. Sutherland cites a number of cases in support of this argument. See e.g., The Grange Co. v. McCabe, 26 Cal.App.2d 597, 80 P.2d 135 (1938); North Platte State Bank v. Production Credit Ass’n, 189 Neb. 44, 200 N.W.2d 1, 6 (1972); In re Mat 168 thews, 724 F.2d 798 (9th Cir.1984); General Electric Capital Commercial Auto. Fin. v. General Motors Acceptance Corp., 246 A.D.2d 41, 48-49, 675 N.Y.S.2d 626 (1998); Thet Mah & Associates, Inc. v. First Bank of North Dakota (NA), Minot, 336 N.W.2d 134 (N.D.1983). However, no case the Court is aware of supports this “all or nothing” argument. That is to say, no case cited stands for the proposition that a debtor can only acquire rights in a piece of collateral one time during a purchase transaction, effectively precluding another lender from acquiring a purchase money security interest in the same collateral. Evidently, this question is not a common one because typical purchase transactions, like the ones in the cases cited by Sutherland, are relatively uncomplicated and transpire over a brief period of time. Hence, due to the brevity and simplicity of the “typical” purchase transaction, a debt- or will often acquire all available “rights” in collateral all at once or within the space of a few hours or days. Consequently, defining the specific points in time at which a debtor acquires different rights in a piece of collateral is unnecessary to determine priority. The North Platte case is illustrative of this point. In that case the debtor, a rancher, received an operating loan from Production Credit Association (“PCA”) to fund the purchase of livestock. In return, the parties executed a security agreement with an after-acquired property clause covering all of the debtor’s livestock, which PCA perfected by filing a financing statement. Some months later the debtor entered into a transaction to purchase 79 pregnant Angus heifers, to be paid for with a loan from North Platte State Bank (“Bank”). The debtor ordered and received the heifers in November of 1968, but the Bank did not advance the funds to pay the seller until two months later, in January of 1969. Soon thereafter the Bank filed a financing statement to perfect its security interest. The Bank argued that it had a purchase money security interest in the heifers pursuant to § 9-107(b) and, consequently, under § 9-312(4) its security interest took priority over PCA’s blanket lien notwithstanding that PCA filed its financing statement first. The Nebraska Supreme Court disagreed, explaining that upon delivery the debtor acquired both possession of and title to the heifers. As a result, the Court held that although “[t]he money advanced by the Bank [two months later] enabled [the debtor] to pay the price to Seller for the cows.... it was not used by [the debtor] to acquire any rights in the cows because he already had all the possible rights in the cows he could have with both possession and title.” 8 200 N.W.2d at 6. The debtor in North Platte acquired all rights in the heifers through execution of a simple purchase transaction. Hence, there were no remaining “rights” for the debtor to acquire once the Bank finally advanced funds for payment of the heifers. The other cases on which Sutherland relies similarly deal with uncomplicated, straightforward purchase transactions where the debtors acquire rights in the collateral in short order. See, e.g., In re Matthews, supra at 800 (Lender providing refinancing loan did not acquire purchase money security interest in consumer debtors’ piano and stereo where debtors “already owned” and had possession of the goods); General Electric Capital Commercial Automotive Finance, Inc. v. Spartan Motors, Ltd., supra at 632 (Debtor auto dealer purchased and received possession of two Mercedes automobiles; two days later, commercial lender acquired purchase money security interest in vehicles after reimbursing debtor for purchase price, since reimbursement transaction was eom- *169 mon in the trade and “closely allied” with purchase price); Thet Mah & Associates, Inc. v. First Bank of North Dakota (NA), Minot, supra at 139 (Both bank and fixture company acquired purchase money security interests in debtor’s restaurant equipment at the same time — when the equipment was installed in the debtor’s restaurant.) However, in contrast to the “typical” purchase scenario outlined in North Platte and the other cases cited, the purchase transaction in this case was comparatively long in duration and complex. It transpired in three distinct stages separated by several months, with various performance requirements placed on both parties at each stage. Thus, due to the structure of the transaction, Enterprise acquired different “rights” in the press at each successive stage. In particular, as of the “second stage” of the purchase transaction, when Fleet wired the second installment to Sutherland, Enterprise had not acquired all possible rights in the press. Under the terms of the Sales Agreement, Enterprise’s payment of the first installment ($296,397.26) did no more than obligate Sutherland to prepare the press for shipment from its factory in Japan. Hence, with this first payment Enterprise acquired (if anything) only a bare right to shipment of the press; it did not acquire possession of, title to, or any other apparent right in the press until after Fleet wired the second installment to Sutherland. 9 A detailed examination of the second stage of the purchase transaction supports this analysis. The second installment ($592,794.76) represented 60% of the purchase price, and was “due upon proof of shipment from [the] factory.” Evidently, the transaction was structured in this manner to provide Sutherland with a measure of protection, guaranteeing that it would receive 90% of the purchase price prior to delivery. If Fleet had not paid the second installment, it is doubtful Sutherland would have permitted Enterprise to take delivery of the million dollar press while 70% of the purchase price remained outstanding (and Enterprise was in default under the terms of the contract). Fleet’s payment of the second installment therefore enabled Enterprise to obtain delivery of the press, which in turn endowed Enterprise with the “rights” of both possession and title in the press. 10 Fulfillment of the second installment payment was key to Enterprise’s obtaining possession of and title to the press. Accordingly, Fleet’s payment enabled Enterprise to obtain “rights” in the press and was “closely allied” with the purchase transaction. VI. CONCLUSION Fleet’s payment of the second installment enabled Enterprise to acquire “rights” in the press, thereby providing Fleet with a purchase money security interest in the press under the terms of § 9107(b). Furthermore, since Fleet perfected its purchase money security interest first, it takes priority over Sutherland’s purchase money security interest pursuant to § 9312(5)(a). Accordingly, the Court grants summary judgment in favor of Fleet; Sutherland’s cross-motion for summary judgment is denied. 1. Unless otherwise indicated, all statutory references are to Division 9 of the California Commercial Code (Secured Transactions), § 9101 et seq. 2. Section 9306(2) provides: ''[A] security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds...." 3.According to the parties' set of stipulated facts, the total owed to Sutherland on the third installment, including interest, is now $113,454.79. 4. Section 9302(1) provides: "A financing statement must be filed to perfect all security interests except the following....” [None of the exceptions apply to this case.] Section 9401(l)(c) provides: "The proper place to file in order to perfect a security interest is as follows... (c) In all other cases, in the office of the Secretary of State.” [Subsections (a) and (b) do not apply to this case, as they apply to consumer goods and crops, timber and minerals, respectively.] 5. Section 9107(a) provides: "A security interest is a ‘purchase money security interest' to the extent that it is (a) Taken or retained by the seller of the collateral to secure all or part of its price....” 6. Section 9312(5)(a) provides: "Conflicting security interests rank according to priority in time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.” 7. The full text of § 9312(4) is as follows: "A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter.” 8. It is noteworthy that the North Platte court's holding alludes to the possibility of a third party lender enabling a debtor to acquire "rights” in collateral where the debtor has not already acquired all available rights. 9. California Commercial Code § 2401(2) provides: Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading. As the sales agreement contained no provision for passage of title, title passed to Enterprise upon delivery, which did not occur prior to shipment from Japan. 10. Title passed to Enterprise upon delivery of the press. See FN 8, supra.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	244 B.R. 458	D	Matthews v. Transamerica Financial Services	460 OPINION JOHN E. RYAN, Bankruptcy Judge. I. INTRODUCTION On April 20, 1998, Laura A. Levernier (“Debtor”) filed a complaint (the “Complaint”) to determine the dischargeability of a consolidation loan (the “Consolidation Loan”) pursuant to 11 U.S.C. § 523(a)(8) 1 against the Student Loan Marketing Association (“Sallie Mae”) and the United States Department of Health and Human Services. On July 15, 1999, Debtor filed a motion for judgment on the pleadings (the “Motion”), contending in the alternative that (1) the Consolidation Loan is not a student loan covered by § 523(a)(8) and (2) the seven-year period of nondischargeability is calculated from the dates the original student loans first came due and not the date the Consolidation Loan first came due. After a hearing on the Motion, I took the matter under submission. II. JURISDICTION I have jurisdiction over this adversary proceeding under 28 U.S.C. § 157(b)(1). This is a core proceeding under the Bankruptcy Code, as defined in 28 U.S.C. § 157(b) (2) (I). III.STATEMENT OF FACTS In September 1983, Debtor began a full-time course of study at Life Chiropractic West (“Life Chiropractic”) to become a chiropractor. While at Life Chiropractic, Debtor took out four student loans from Wells Fargo Bank (the “Student Loans”) that were guaranteed by the California Student Aid Commission (“CSAC”), which is a guaranty agency 2 within the scope of the Higher Education Act of 1965. 3 The dates and principal amounts of the Student Loans are as follows: Date Amount September 6,1983 $ 2,500. February 29,1984 $ 2,500. November 28,1984 $ 2,500. August 26,1985 $ 2,500. Total: $17,500. On June 24, 1994, Debtor executed a Sallie Mae applieation/promissory note (the “Note”) for a loan to consolidate 4 the Student Loans. On October 27, 1994, Debtor’s application for the Consolidation Loan was approved, and $22,695.57 was applied to pay off the Student Loans. On July 9, 1997, Debtor filed her chapter 7 bankruptcy petition. Debtor listed in her schedules debt owed to Sallie Mae in the amount of $25,240.88. On November 3. 1997, Debtor received her discharge. After reopening her case, Debtor filed the Motion. The Motion contended in the alternative that (1) the Consolidation Loan is not a loan received for an educational benefit and is therefore not within the scope of § 523(a)(8) and (2) the Consolidation Loan is dischargeable under § 523(a)(8)(A) because repayment of the Student Loans commenced in January 1988, which makes the indebtedness over seven years old. 5 461 After a hearing on the Motion, I took the matter under submission. IV. DISCUSSION A party may bring a motion for judgment on the pleadings after the pleadings are closed, but within such time as not to delay the trial. See Fed.R.Cxv.P. 12(c) (incorporated by Fed.R.BaNKR.P. 7012). A judgment on the pleadings is proper when, taking all the allegations contained in the pleadings as true, the moving party is entitled to judgment as a matter of law. See Nelson v. City of Irvine, 143 F.3d 1196, 1200 (9th Cir.1998) (citation omitted). The first issue is whether the Consolidation Loan is an educational loan for purposes of § 523(a)(8). The second issue is whether the seven-year period after which a loan would be dischargeable under § 523(a)(8)(A) runs from the date that repayment of the Consolidation Loan first became due or the date that repayment of the Student Loans first became due. A. A Consolidation Loan Is an Educational Loan Under § 528(a)(8). Debtor contends in the Motion that the Consolidation Loan is not a loan received for an educational benefit. As support, she relies on two cases for the general proposition that a refinancing agreement changes the legal character of the loan. See Matthews v. Transamerica Fin. Servs., 724 F.2d 798, 800 n. 3 (9th Cir.1984); Union Bank v. Wendland, 126 Cal.Rptr. 549, 557, 54 Cal.App.3d 393, 405 (1976). Thus, she contends that the Consolidation Loan is not within the scope of § 523(a)(8). I disagree. Because Debtor filed her petition in 1997, the version of § 523 that was in effect at that time applies to the Complaint. 6 At the time Debtor filed her petition, § 523(a)(8)(A) provided that: A discharge under § 727... does not discharge an individual debtor from any debt— (8) for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship, or stipend, unless— (A) such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition. 11 U.S.C. § 523(a)(8)(A) (1994). First, the plain language of the statute supports the view that a consolidation loan is an educational loan within the scope of § 523(a)(8) because it is an obligation incurred to repay funds received as an educational benefit. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (stating that “[t]he plain meaning of legislation should be conclusive, except in the rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.”) (citation and internal quotation marks omitted). Also, “[i]n expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.” Offshore Logistics, Inc. v. Tallentire, 477 U.S. 207, 222, 106 S.Ct. 2485, 91 L.Ed.2d 174 (1986) (citations omitted). Section 523(a)(8) was enacted to 462 maintain the credibility and stability of the student loan program and to assure future generations of students a viable loan program. See Cobb v. United Student Aid Funds, Inc. (In re Cobb), 196 B.R. 34, 37 (Bankr.E.D.Va.1996) (noting that Congress enacted § 523 to contribute to “the continued credibility and stability of the student loan program which would in turn ensure its viability”). Furthermore, strong policy reasons support the view that Congress intended § 523(a)(8) to apply to a consolidation loan. Generally, the Code seeks to provide a debtor with a fresh start after bankruptcy. See Apte v. Japra (In re Apte), 96 F.3d 1319, 1322 (9th Cir.1996) (citing Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)). However, for various public policy reasons that outweigh a debtor’s need for a fresh start, Congress excepts from discharge certain obligations, including student loans under various government-sponsored educational programs. See Andrews Univ. v. Merchant (In re Merchant), 958 F.2d 738, 740 (6th Cir.1992). Indeed, § 523(a)(8) specifically carries out this congressional policy by preventing debtors from discharging their student loans in bankruptcy. See Santa Fe Med. Servs., Inc. v. Segal (In re Segal), 57 F.3d 342, 348 (3d Cir.1996). It is also axiomatic that treating consolidation loans outside the scope of § 523(a)(8) will likely end the consolidation loan program or cause such loans to be unnecessarily expensive as lenders seek to offset the risk of a discharge in bankruptcy. This result would certainly run counter to Congress’s intent to preserve educational funding from a bankruptcy discharge. See S.Rep. No. 96-230 (1979), reprinted in 1979 U.S.C.C.A.N. 936. Additionally, a consolidation loan is an integral part of the entire student loan program and should receive equal protection from discharge in bankruptcy. When Debtor consolidated the Student Loans, she did not change the underlying character of the funding that she received. Here, by paying off the Student Loans with the Consolidation Loan, Sallie Mae, in accordance with the consolidated loan program, substituted its funds for the funds Debtor previously received for an educational purpose. These funds were restricted for that sole use. Debtor had no right to use these funds for other purposes. See 20 U.S.C. § 1078-3. Thus, the character of the Consolidation Loan remains strictly educational. In effect, the Student Loans have been replaced by the Consolidation Loan, which benefitted Debtor by making it easier for her to pay off her educational loans. This was all done to provide Debtor with an educational opportunity, while preserving these funding resources for others with similar needs. Lastly, allowing borrowers to discharge their student loans by merely obtaining a consolidation loan contravenes the clear congressional mandate requiring repayment of student loans. See Saburah v. United States Dep’t of Educ. (In re Saburah), 136 B.R. 246, 251 (Bankr.C.D.Cal.1992) (noting that without upholding the goals of § 523(a)(8), a student could simply obtain a consolidation loan and file for bankruptcy to have the debt discharged). Other courts considering this issue have held that consolidation loans are within the scope of § 523(a)(8). In Shaffer v. United Student Aid Funds, Inc., 237 B.R. 617 (Bankr.N.D.Tex.1999), the court concluded that a federally-insured consolidation loan made under 20 U.S.C. § 1078-3 is an educational loan within the scope of § 523(a)(8). Id. at 621. The court reached its decision based on the policy considerations behind the student loan program and § 523(a)(8) and the overwhelming majority of other courts holding that a consolidation loan is an educational loan within the meaning of § 523(a)(8). Id.; see also Hiatt v. Indiana State Student Assistance Comm., 36 F.3d 21, 24 (7th Cir.1994) (noting that a consolidation loan is in fact a second guaranteed student 463 loan debt); Powers v. Southwest Student Servs. Corp. (In re Powers), 235 B.R. 894, 897 (Bankr.W.D.Mo.1999) (finding that “[t]here is no dispute that the consolidation loan... is an educational loan that falls within the coverage of [§ 523(a)(8)].”); Martin v. Great Lakes Higher Educ. Corp., 137 B.R. 770, 772 (Bankr.W.D.Mo.1992) (finding that a consolidation loan under the Higher Education Act is an educational loan for purposes of § 523(a)(8)); United Student Aid Funds v. Flint (In re Flint), 238 B.R. 676, 681 (E.D.Mich.1999) (finding that the character of a consolidation loan was made and used for educational purposes) (hereinafter “Flint II ”). Interestingly, no case law directly supports Debtor’s position. Debtor cites to Flint v. United Student Aid Funds (In re Flint), 231 B.R. 611 (Bankr.E.D.Mich.1999), but the holding in this case was reversed on appeal in Flint II. In Flint II, the district court held that a loan taken by the debtor to pay off her preexisting student loans was an educational loan that was not dischargeable under § 523(a)(8). See Flint II, 238 B.R. at 681. Debtor also cites two cases for the general proposition that a refinancing agreement changes the legal character of a loan. See Matthews, 724 F.2d at 800 n. 3; Union Bank, 126 Cal.Rptr. at 557, 54 Cal.App.3d 393 at 405. In Matthews, the Ninth Circuit held that the original purchase-money character of a security interest in household goods was destroyed by a subsequent refinancing of that agreement. Therefore, it held that the debtor could avoid the lien pursuant to § 522®. This case, however, deals with an entirely different section of the Code. Additionally, the previously discussed public policy reasons for holding student and consolidation loans nondis-chargeable do not apply in the § 522(f) context. In Union Bank, the California court of appeals discussed a California statute that accords a purchase-money home loan protection under the anti-deficiency statute unless the homeowner has refinanced that loan. Again, this case is distinguishable from the student loan situation and the policy reasons behind § 523(a)(8). Therefore, based on (1) a clear reading of the statutory language, (2) the legislative history, (3) policy considerations, and (4) the overwhelming case authority, I hold that as a matter of law, the Consolidation Loan is an educational loan for purposes of § 523(a)(8). Therefore, the Consolidation Loan is nondischargeable under § 523(a)(8)(A) unless the seven-year period has expired. B. The SeverAYear Period Set Forth in § 523(a)(8)(A) Is Measured from the Date the Consolidation Loan First Became Due. Debtor alleges in the Motion that the Consolidation Loan is dischargeable because the Student Loans first became due in January 1988, more than seven years before Debtor filed her bankruptcy petition. The version of § 523(a)(8)(A) in effect when Debtor filed her petition provided that a student loan was nondis-chargeable unless “such loan first became due more than seven years... before the date of the filing of the petition.” 11 U.S.C. § 523(a)(8)(A) (1994). Relying on the plain language of § 523(a)(8)(A), the Seventh Circuit held that the nondischargeability period commences on the date the consolidation loan first became due. See Hiatt, 36 F.3d at 25. In reaching its decision, the court reasoned that because proceeds from a consolidation loan satisfy a borrower’s existing student loans, the new and distinct consolidation loan is the loan Congress intended to be within the scope of § 523(a)(8)(A). Id. at 23. In determining whether the seven-year period begins to run on the date the original loans came due or the date the consolidated loan first became due, it is clear from a plain reading of § 523(a)(8)(A) that Congress meant “such loan” to be the loan that a debtor seeks to have dis 464 charged. See 11 U.S.C. § 523(a)(8)(A). Here, it is the Consolidation Loan that Debtor seeks to have discharged. Further, the overwhelming majority of courts addressing this issue have found that the time period under which a student loan is not dischargeable begins anew on the date that repayment of the consolidation loan first became due. See Rudnicki v. Southern College of Optometry (In re Rudnicki), 228 B.R. 179, 181 (6th Cir. BAP 1999) (finding that the relevant date for purposes of determining dischargeability is the date when the consolidated loan first became due); Mattingly v. New Jersey Higher Educ. Assistance Auth. (In re Mattingly), 226 B.R. 583, 585 (Bankr.W.D.Ky.1998) (holding that the plain language of § 523(a)(8)(A) requires that the relevant date for purposes of determining dischargeability is the date when the consolidated loan first became due) (citations omitted); Meeker v. Educational Credit Management Corp. (In re Meeker), 225 B.R. 910, 912 (Bankr.N.D.Ohio 1998) (collecting cases that hold a consolidation loan resets the seven-year clock); In re Sabu-rah, 136 B.R. at 253 (concluding as a matter of law that the seven-year period under § 523(a)(8)(A) begins on the date the consolidated loan first became due). On July 9, 1997, Debtor filed her bankruptcy petition. Although it is unclear when the Consolidation Loan first became due, in order to be dischargeable, repayment of the Consolidation Loan would have had to commence on or before July 8, 1990. Because Debtor did not even execute the Note until June 24, 1994, the seven-year requirement clearly has not been satisfied. Therefore, because the repayment period for the Consolidation Loan is calculated from the date the Consolidation Loan first became due, the seven-year requirement set forth in § 523(a)(8)(A) has not been satisfied, and the Consolidation Loan is nondischargeable under § 523(a)(8)(A). V. CONCLUSION Based on the plain language of § 523(a)(8), the legislative history, public policy considerations, and the prevalent case law, the Consolidation Loan is an educational loan within the scope of § 523(a)(8). Also, based on the plain language of § 523(a)(8)(A) and the outstanding case law, the seven-year period commenced from the date that repayment of the Consolidated Loan first became due. Because seven years have not lapsed since the Consolidation Loan first became due, the Consolidation Loan is nondischargeable under § 523(a)(8)(A). This opinion shall constitute my findings of fact and conclusions of law. 1. Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330. All rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036. 2. The Higher Education Act of 1965 defines a guaranty agency as any state or private nonprofit organization that has agreed with the Secretary of Education to administer a loan guaranty under the federal student loan program. See 20 U.S.C. § 1085Q). 3. The Higher Education Act provides for the federal student loan program and specifies Sallie Mae as an eligible lender for federal consolidation loans. See 20 U.S.C. § 1078-3. 4. Consolidating student loans entails taking out a single new loan to repay in full existing student loans. See 20 U.S.C. § 1078-3 (describing loan consolidation program). 5. Upon Debtor filing the Motion, Sallie Mae submitted a claim to CSAC for payment on the Note. When CSAC paid the claim, it became the owner and holder of the Note. On June 22, 1998, CSAC executed a blanket letter of assignment to Educational Manage 461 ment Corporation (“ECMC”). ECMC then filed a motion to intervene as a defendant. 6. Effective October 7, 1998, 11 U.S.C. § 523(a)(8)(A) was repealed to eliminate the discharge of a student loan that first became due more than seven years prior to filing of a bankruptcy petition. See Higher Education Amendments of 1998, Pub.L. No. 105-244, § 971, 112 Stat. 1581, 1837 (1998).	LIMITED_OR_DISTINGUISHED
724 F.2d 798	174 B.R. 54	C, NF	Matthews v. Transamerica Financial Services	MEMORANDUM OPINION WILLIAM E. ANDERSON, Bankruptcy Judge. Before the court is an objection filed by Schewel Furniture Company, Inc. (Schewel) to confirmation of the chapter 13 plan of debtor Dorothy E. Leftwieh. FACTS The debtor has purchased a number of items of furniture from Schewel pursuant to installment sale agreements over the past few years. The earliest relevant contracts are two dated October 14, 1991. One indicates that the debtor financed the purchase of a washer, dryer, carpeting and extended warranties for a cash price, including sales tax, of $1,267.59. She was charged $167.51 for life and property insurance and refinanced an existing debt of $656.82 for installment purchases made previously. The contract provided for an annual interest rate of 24.9 percent, granted Schewel a purchase money security interest in the items purchased, and provided for retention of Schew-el’s purchase money security interest in previously purchased goods. Pursuant to a second October 14, 1991 contract containing the same terms, the debt- or also purchased a sofa and a wing chair for a cash price, including tax, of $1,332.38. After adding this amount to the previous total and including the finance charges, the debtor owed Schewel a total of $4,085.20 as of October 14, 1991 which was to be paid in 28 monthly installments of $145.90 beginning on November 20, 1991. On October 23, 1992 the debtor refinanced her account with Schewel. All of the terms of the new contract were the same as the October 14, 1991 contracts except that it called for 23 monthly installment payments of $121.12. By contract dated March 16, 1993, the debtor purchased a china unit, a comer unit, a hall tree and floral arrangement from Schewel for a cash price including tax of $1,050.23. The terms were the same as in the prior contracts. After paying $250.00 down, the debtor owed Schewel a total of $3,541.44, including finance charges, which was to be paid in 24 monthly installment payments of $147.56. The debtor apparently did not sign the original of this contract although she did sign the copy which accompanied the delivery of the items purchased. On March 20,1993, the debtor purchased a wing chair for $156.75. The unpaid balance was again consolidated with the net unpaid balance from the previous contracts. The contract terms remained the same. The debtor filed a chapter 13 bankruptcy petition and plan on October 6, 1993. On Schedule D filed with her petition, she listed a $2,900.00 debt owed to Schewel Furniture of which $2,450.00 was shown as unsecured. She also indicated that Schewel had a lien on a sofa, chair, washer, and dryer, and that the collateral had a market value of $450.00. On the Statement of Intention filed with the petition, the debtor stated that she intended to retain the sofa, chair, washer, and dryer and reaffirm her obligations regarding those 56 items. The debtor claimed no exemptions on Schedule C. In her chapter 13 plan which she filed with her petition, the debtor listed the $2900.00 debt to Schewel and stated that she intended to pay in full only the value of the collateral, which she listed as $450.00, and that the balance would be treated as an unsecured debt. The plan also provided that “[djebtor is aware of the condition of the collateral and knows its value. On the Plan filing date, the property has the value set forth below. The value is based upon disposition of said property in a commercially reasonable manner.” On October 8, 1993, a notice of the commencement of the debtor’s bankruptcy case was mailed to the creditors and a one page summary of her chapter 13 plan was enclosed. The summary indicated that unsecured creditors would be paid 30% of their allowed claims and stated that the chapter 13 trustee would pay Schewel as a secured creditor $450.00 as the fair market value of the sofa, chair, washer and dryer which was the collateral for the debt. 1 The notice provided that objections to confirmation of the plan should be filed five days prior to the November 19, 1993 confirmation date. On October 25, 1993 Schewel filed an objection to confirmation of the debtor’s plan, stating that the balance owed to it as of October 1, 1993 was $2,936.17, that the value of the collateral was at least $1,425.00, not $450.00, and that the plan did not provide for the payment of interest on the secured portion of the debt. Schewel suggested that the proper rate of interest should be the contract rate of 24.93%. Attached to the objection were copies of Schewel’s consumer credit contracts with the debtor which are described above. On November 10, 1993, the chapter 13 trustee filed a report recommending that the plan be confirmed as originally filed subject to resolving Schewel’s objection regarding the value of the collateral. On November 16, 1993, however, the debtor filed an amended plan which stated that: Sehewels, which is secured by a wing back chair, shall be paid by the chapter 13 trustee $150.00 at an interest rate of 10% over a 12 month period. The confirmation hearing on the debtor’s plan was held on November 18,1993. Counsel for Schewel and the debtor appeared and argued. The court reserved its decision after the hearing pending the submission of memoranda of law. DISCUSSION Schewel argues that it holds a purchase money security interest in all of the items which the debtor purchased except for the dryer and carpet purchased on October 14, 1991, which have been paid for in full. If Schewel is correct, in order for the debtor’s chapter 13 plan to be confirmed it must provide either for the payment of the present value of Schewel’s claim to the extent it is secured by the debtor’s property or for the surrender of the collateral to Schewel. See 11 U.S.C. §§ 506(a) and 1325(a)(5)(B)(ii). The debtor argues that Schewel is not the holder of a purchase money security interest in any of the collateral except perhaps the wing chair purchased on March 20, 1993. This is so in her view because each time the unpaid balance of a new purchase was consolidated with that of previous purchases, Sehewel’s security interest became a nonpur-chase money security interest. Because it is necessary to file a financing statement in order to perfect a nonpurchase money security interest, 2 and since none was filed, the 57 debtor asserts that Schewel is actually unsecured. Alternatively, the debtor argues that even if combining purchase money debt with non-purchase money does not destroy purchase money security interest status, Schewel is nevertheless unsecured except for an interest in the chair purchased on March 20, 1993: She claims this is so because shé did not sign the March 16,' 1993 contract. Since the March 16th contract replaced all her previous contracts, her failure to sign destroyed any possible Schewel security interests in the previously purchased property. The debtor asserts that she is entitled to keep the chair purchased on March 20th in which Schewel does have a purchase money security interest because she proposes to pay its full value under her amended chapter 13 plan. A Does Schewel have a purchase money security interest in any of the debtor’s property? Although the term “security interest” is defined in the Bankruptcy Code as a “lien created by an agreement,” the Code does not define purchase money security interest. See 11 U.S.C. § 101(51). That term is defined, however, in Section 9-107 of the Uniform Commercial Code which states that: [A] security interest is a “purchase money security interest” to the extent that it is (a) taken or retained by seller of the collateral to secure all or part of its price; or (b) taken by a person who by making ad-vanees or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. See, e.g., Va.Code § 8.9-107. Section 9-204 of the U.C.C. also expressly permits a creditor to include both an after-acquired property clause and a future advances clause in a security agreement. 3 The U.C.C. says nothing, though, about whether a seller retains a purchase money security interest in the original collateral when such a clause is exercised or in any other instance when debt created by the purchase of property is refinanced or consolidated with debt incurred in other transactions. Schewel argues that Va.Code § 8.9-204.1, 4 by implication if not directly, creates a safe harbor for retaining purchase money security interest status. Section 8.9-204.1, which by its terms applies only to sales of consumer goods, allows sellers to take a security interest only in the goods sold. In doing so it creates an exception to the general rule that security interests can be created by agreement in any property belonging to a debtor. Section 8.9-204.1 further provides that when a seller sells and takes a security interest in consumer goods, and where the unpaid debts from two or more sales of consumer goods are consolidated into a single debt and the new debt remains secured by the goods sold, the payments must be applied in a certain manner., If the terms of a security interest subject to § 8.9-204.1 do not comply with the 58 terms of the statute, the interest is void. See In re Penny, 15 B.R. 124, 126 (Bankr.E.D.Va.1981). Section 8.9-204.1 does not expressly provide that the interest which is protected by compliance with its provisions is necessarily a purchase money security interest as defined in Va.Code § 8.9-107(a). However, nothing in § 8.9-204.1 indicates that refinancing a consumer purchase precludes retaining a purchase money security interest and the fact that Virginia enacted the provision as part of Article 9 of the U.C.C. supports a finding that a refinancing or consolidation does not automatically destroy an existing purchase money security interest. Numerous courts, particularly since the Bankruptcy Code became effective in 1978, 5 have considered whether a security interest loses its purchase money status when a secured party consolidates or refinances the debt pursuant to which the interest was originally created. 6 Some, adopting what has come to be called the “transformation” rule, hold that the refinancing or consolidation automatically extinguishes the purchase money character of the original loan. The rationale for the transformation rule is that a single security interest cannot secure both purchase money and nonpurchase money debt. Therefore, consolidating or combining purchase money debt with nonpurchase money debt, transforms it into nonpurchase money debt. See, e.g., In re Manuel, 507 F.2d 990, 993-94 (5th Cir.1975) (“the purchase money security interest cannot exceed the price of what is purchased in the transaction wherein the security interest is created”). Some courts applying the transformation rule apparently hold that even inclusion of an after-acquired property or future advances clause in a security agreement converts a purchase money security interest into an ordinary security interest. See Southtrust Bank of Ala. v. Borg-Warner Acceptance Corp., 760 F.2d 1240 (11th Cir.1985). A similar result is reached by other courts which hold that a refinancing of a purchase money security interest constitutes a novation or new loan, thereby destroying purchase money status instead of simply changing the terms of the original loan. See, e.g., In re Matthews, 724 F.2d 798, 800-01 (9th Cir.1984) (refinancing transaction in effect viewed as a novation, as if a new loan was created to pay off an “antecedent debt”). The novation theory is sometimes viewed as simply another rationale for the transformation rule but, unlike the per se nature of the transformation rule which applies whenever purchase money debt is combined with non-purchase money debt, a novation need not be found if a refinancing can be characterized as an extension or modification of the original loan or if the parties agree that there will be no novation. 7 Courts in many of the more recent opinions hold that a security interest can in fact have a “dual-status.” Under this theory a single security interest can secure both purchase money and nonpurchase money debt as long as it is possible to distinguish the part of the debt which is purchase money from the part that is not, and to allocate payments accordingly. See, e.g., Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797, 800-01 (3rd Cir.1984); In re Billings, 838 F.2d 405, 409 (10th Cir.1988) and In re Ionosphere Clubs, Inc., 123 B.R. 166, 171-73 (S.D.N.Y.1991). The “dual-status” rule is derived from the language in Uniform Commercial Code § 9-107 which states that a security interest is a purchase money security interest “to the extent” that it is taken or retained by the seller of the collateral to secure all or part of its price. See, Pristas at 800-01. 59 Still other courts purport not to adopt the transformation, novation, or dual status theory and hold that the intent of the parties determines whether a refinanced debt will retain its purchase money character. See, e.g., In re Adoptante, 140 B.R. 940 (Bankr.D.R.I.1992) and Stevens v. Associates Financial Services, 24 B.R. 536 (Bankr.D.Colo.1982). Although this court agrees with the Third and Tenth Circuits that the dual status theory comports best with the language and underlying intent of both Article Nine of the U.C.C. and the Bankruptcy Code, the Fourth Circuit in Dominion Bank of the Cumberlands, NA v. Nuckolls, 780 F.2d 408 (4th Cir.1985), used a different approach. In Nuckolls, debtors used the proceeds from separate $2500 and $3500 bank loans to purchase restaurant equipment and inventory. A few months later, before they made any payments on the loans, they received another $7094.07 loan from the same bank. The proceeds from the latter loan were used to pay off the previous two loans and to provide the debtors with $1000 in cash. The debtors executed an agreement securing the November loan pledging the earlier purchased equipment, inventory, accounts receivable, and cash. Subsequently, in the debtors’ bankruptcy proceeding, the bank argued that it held a purchase money security interest in the collateral. The Fourth Circuit disagreed and held that for purposes of 11 U.S.C. § 522(f)(2) 8 the bank did not hold a purchase money lien because its security interest: secures a loan made to refinance a preexisting debt — not to acquire collateral. The “refinancing or consolidating [sic] loans by paying off the old loan and extending a new one extinguishes the purchase money character of the original loan because the proceeds of the new loan are not used to acquire rights in the collateral.” Id. at 413. As authority, In re Matthews, supra, at 800; Rosen v. Associates Financial Services, 17 B.R. 436, 437 (D.S.C.1982); In re Jones, 5 B.R. 655 (Bankr.M.D.N.C.1980) and U.C.C. § 9-107(b), Official Comment 2 9 are cited. Although the Nuckolls opinion does not refer to either the novation or transformation theory, it appears from the language used and the holdings of the cases cited that the court was adopting a novation approach to determining in which instances a loan refinancing or consolidation transaction destroyed purchase money security status. 10 60 Interestingly, however, although Nuckolls arose in Virginia, the Fourth Circuit does not refer to Virginia novation law (nor did the Jones opinion refer to North Carolina law in determining whether a novation had occurred). There are apparently no cases decided using Virginia law which post-date Nuckolls. Under Virginia law “[a] novation is a substitution by mutual agreement of one debtor for another or one creditor for another, whereby the old debt is extinguished, or the substitution of a new valid obligation for an existing one, which is thereby extinguished.” Dillenberg v. Thott, 217 Va. 433, 229 S.E.2d 866, 868 (1976). In order for a novation to occur, all parties involved in a transaction must be shown to have clearly and definitely intended to effect one. See, e.g., Gullette v. Federal Deposit Insurance Corporation, 231 Va. 486, 344 S.E.2d 920, 922 (1986). Even the fact that a promissory note is stamped “paid by renewal” is not sufficient to circumstantially establish a novation. Id. 344 S.E.2d at 922-23. The facts in Nuckolls are distinguishable from the facts in the matter before this court. There is no evidence that the parties to the transactions at issue in this case intended that each refinancing constitute a no-vation of previous agreement(s). To the contrary, paragraph 4(b) of each agreement states that... in consideration of the refinancing or adjustment of payments due on prior contracts, Debtor agrees that the security interests granted in said prior contracts shall remain in full force and effect and in the case of consumer goods, payments made as set forth on the reverse side hereof shall be applied at the option of Secured Party either (a) in the order in which sales were made, or (b) in the same proportion as the original debts arising from the various sales bear to one another and to the extent the indebtedness is so paid security interests in consumer goods sold will terminate. In the case of items of consumer goods purchased on the same day, the lowest priced items shall be deemed first paid for. This court therefore finds that the transactions at issue in this case did not constitute novations of the prior transactions. This, and the fact that the Installment Sale and Security Agreement used by Schewel provided for the debtor’s payments to be applied to the loan balance in accordance with the provisions of Va.Code § 8.9-204.1, means that Schewel retained a purchase money security interest in all of the property in which it claims such an interest. The debtor disagrees and argues that this court should follow the decision of the Bankruptcy Court for the Eastern District of Virginia in In re Penny, supra, citing that court’s statement that “[w]hen items which were previously purchased and covered by an earlier purchase security interest are consolidated into a new purchase money security and stand as security for the purchase price of items subsequently purchased, the instrument is no longer a purchase money security instrument,....” Id. at 127. This court declines to follow Penny for several reasons. First, the quoted language is dictum. In Penny the lender failed to comply with the provisions of Va.Code § 8.9-204.1, thereby making its security interest void. The court’s subsequent discussion of whether the security interest was a purchase money or nonpurchase money interest was therefore irrelevant. This court disagrees with the Penny opinion to the extent that it indicates that the lender could have preserved a non-purchase money security interest by filing a financing statement, even though it did not comply with Va.Code § 8.9-204.1. Second, Penny was decided before Nuckolls and cites non-Virginia cases in support of the quoted 61 proposition not relied upon by the Fourth Circuit. B. Does the fact that the debtor did not sign the original of the March 16, 1993 contract destroy Schewel’s security interest in the items purchased on and prior to that date? The debtor argues that regardless of whether the security interest retained by Schewel after refinancing would otherwise be entitled to purchase money status, the fact that her signature does not appear on the original March 16, 1993 contract destroyed Schewel’s interest in all items purchased on or before that date. The debtor does not deny that she purchased and retains the merchandise shown on the March 16, 1993 contract. Nor does she dispute Schewel’s assertions that the failure to obtain her signature on the original copy of the contract was inadvertent, that she did sign the delivery copy, and that she intends to keep the furniture purchased pursuant to the March 16, 1993 contract. Pursuant to Va.Code § 8.9-203(1), 11 the debtor must sign a security agreement in order for it to be enforceable unless the creditor retains possession of the collateral. This provision serves an evidentiary function, minimizing the possibility of a future dispute about the terms of the security agreement. See, e.g., Whitmore & Arnold, Inc. v. Lucquet, 233 Va. 106, 353 S.E.2d 764, 766 (1987) and In re Mann, 318 F.Supp. 32, 35 (W.D.Va.1970). There is no dispute in this case regarding either the terms of the security agreement, the property intended to serve as collateral, or the intent of the debtor to be bound. Schewel argues that given that the debtor does not dispute any relevant fact regarding her purchases and the intent of the parties, the fact that she signed the delivery copy of the March 16, 1993 contract is sufficient to meet the signing requirement of Va.Code § 8.9-203(l)(a). There are no Virginia cases directly on point. Most cases dealing with the signing requirement in Virginia and elsewhere involve security agreements that are signed, but not by the party against whose property the hen is asserted. 12 There are, however, two cases from other jurisdictions which support Schewel’s position. In In re Wiegert, 145 B.R. 621, 18 U.C.C.Rep.Serv.2d 1240 (Bankr.D.Neb.1991), the court held that even though a debtor did not sign a Sears Charge Security Agreement, Sears nevertheless had a valid security interest because the debtor signed a sales slip which contained the essential terms of a security agreement. 13 Similarly, in In re Ziluck, 139 B.R. 44 (S.D.Fla.1992), the District Court, reversing the Bankruptcy Court, held that a debtor’s signature on the front of a lender’s credit card application directly below a statement providing that he had read the lender’s security agreement and agreed to its terms was sufficient to comply with the signature requirement of U.C.C. § 9-203(l)(a) even though the debtor did not sign the security agreement itself, which was on the back of the application and did not contain a blank for 62 signing. In both eases it appears that all parties agreed that the parties intended to create a purchase money security interest. Similarly, given the circumstances in this ease, this court finds that the debtor’s signature on the delivery copy of the installment sale and security agreement satisfies the signature requirement of Va.Code § 8.9-203(l)(a). C. Can the debtor’s amended chapter 13 plan be confirmed? Because Schewel has a purchase money security interest in property owned by the debtor, her amended chapter 13 plan cannot be confirmed over Schewel’s objection. The plan must either provide for the surrender of the property or, pursuant to 11 U.S.C. §§ 506(a) and 1325(a)(5)(B)(ii), provide for the payment of the value of any allowed secured portion of Sehewel’s claim. In its objection to the debtor’s original chapter 13 plan, Schewel states that if the property subject to the purchase money security interest is retained, the debtor will need to pay interest on the allowed secured claim in order to comply with § 1325(a)(5)(B)(ii). Schewel then proposes that a proper discount rate of interest would be the.24.93% that is provided for in the installment sale and security agreements which it entered into with the debtor. The Fourth Circuit has addressed the question of how to determine an appropriate rate of interest for purposes of § 1325(a)(5)(B) in United Carolina Bank v. Hall, 993 F.2d 1126, 1130-31 (4th Cir.1993). While that decision indicates that as a matter of equity the contract rate of interest is the highest rate that should be used, the opinion does not automatically justify use of the contract rate for purposes of § 1325(a)(5)(B). CONCLUSION Neither the relevant provisions of Article Nine of the Uniform Commercial Code nor those of the Bankruptcy Code require or even suggest adoption of a per se rule that combining purchase money with nonpurchase money debt always destroys a purchase money security interest. Although this court finds particularly persuasive the many decisions which adopt what is called the dual status theory and hold that purchase money status should be preserved to the extent that the collateral secures its own purchase price and that a proper method for allocating payments is provided, the Fourth Circuit has indicated that whether a purchase money security interest survives a refinancing or consolidation depends upon whether the transaction constitutes a novation. The parties in this case did not intend that each transaction they entered into constituted a novation of their prior transactions. It is clear that they intended that Schewel retain a security interest in all of property purchased to the extent of its purchase price. For these reasons, and because the installment sale and security agreement used by Schewel provides a method of allocating payments that complies with the requirements of Va.Code § 8.9-204.1, Schewel holds a valid purchase money security interest in part of the property which the debtor purchased from it. The fact that the debtor signed only a delivery copy of the March 16, 1993 installment sale and security agreement does not change this result. An order will therefore be entered sustaining the objection made by Schewel to confirmation of the debtor’s amended chapter 13 plan. 1. In In re Linkous, 990 F.2d 160, 162-63 (4th Cir.1993), the Fourth Circuit held that pursuant to 11 U.S.C. § 506(a) and Federal Rule of Bankruptcy Procedure 3012, notice should be given to the affected creditor when the debtor intends to "reevaluate the secured claims pursuant to § 506(a).” The court also cited In re Calvert, 907 F.2d 1069, 1072 (11th Cir.1990), in which the Eleventh Circuit held that while a § 506(a) valuation hearing may be held in conjunction with a confirmation hearing, "[mjere notice that the bankruptcy court will hold a confirmation hearing on a proposed bankruptcy plan, without inclusion of notice specifically directed at the security valuation process, does not satisfy the requirement of Rule 3012." 2. Va.Code § 8.9-302 provides that it is necessary to file a financing statement in order to perfect all security interests except for certain listed exceptions. Among the exceptions is a purchase 57 money security interest in consumer goods. See Va.Code § 8.9-302(l)(d). 3. See, e.g., Va.Code § 8.9-204. 4. Va.Code § 8.9-204.1 provides in relevant part as follows: § 8.9-204.1. Security interests in consumer goods, (a) Notwithstanding any other provision of the law to the contrary, a seller mayp take a security interest only in goods sold; provided, however, this section shall apply only to the sale of consumer goods as defined in § 8.9-109(1). Where the unpaid debts from two or more sales of consumer goods are consolidated into one debt payable on a single schedule of payments, and the consolidated debt is secured by security interests in the consumer goods sold, the payments made by the debtor under the consolidated schedule may be applied to the payment of the debts arising from the sales either (1) in the order in which the sales were made, starting with the first sale, or (2) in the same proportion as the original debts arising from the various sales bear to one another. To the extent debts are paid according to this section, security interests in the consumer goods will terminate as the debt originally incurred with respect to each item is paid. [[Image here]] (c) A security interest created in violation of this section is void. No state other than Virginia includes a provision like Va.Code § 8.9-204.1 in Article 9 of its version of the U.C.C. Such provisions are more often found in Installment Sales Acts such as the Pennsylvania Goods and Services Installment Sales Act, PA.STAT.ANN. tit. 69, §§ 1101-2303 or the North Carolina Installment Sales Act, N.C.GEN.STAT. § 25A-1, et al. 5. The question of whether refinancing or consolidating loan destroys a purchase money security interest usually arises in bankruptcy in actions to avoid liens pursuant to 11 U.S.C. § 522(f)(2). That provision gives a debtor the right to avoid a nonpossessory, nonpurchase-money security interest in certain household and other goods if the lien impairs an exemption to which the debtor would otherwise be entitled under § 522(b). 6. See, R, Lloyd, “Refinancing Purchase Money Security Interests,” 53 Tenn.L.Rev. 1, 48-63 (1985) and “Consolidated and Refinanced Purchase Money Loans under the Bankruptcy Code and the Uniform Commercial Code,” 45 Cons. Fin.L.Q.Rep. 69 (Winter, 1991) in which the cases and the reasoning underlying them are carefully analyzed. 7. See, R. Lloyd, 45 Cons.Fin.L.Q.Rep. 69, 72 (Winter 1991). 8. No case or commentator has suggested that a special or different definition of purchase money security interest should be used for purposes of § 522(f)(2). It should be noted, however, that one of the arguments sometimes made in favor of adopting the dual status rule is that it better reflects the policy underlying § 522(f)(2) of preventing creditors from overreaching by obtaining and attaching liens on household possessions already owned by a debtor which could otherwise be exempt from bankruptcy while at the same time not eliminating security interests in newly purchased items. See, e.g., Billings, supra, at 409-10. 9. Official Comment 2 of U.C.C. § 9-107 provides as follows: 2. When a purchase money interest is claimed by a secured party who is not a seller, he must of course have given present consideration. This section therefore provides that the purchase money party must be one who gives value “by making advances or incurring an obligation”: the quoted language excludes from the purchase money category any security interest taken as security for or in satisfaction of a preexisting claim or antecedent debt. Arguably this comment has nothing to do with secured parties who are sellers but instead applies only to third party financiers who must give present consideration in order to obtain purchase money security interest status. Construing this provision to prevent the retention of purchase money security interests changes the traditional rule that conditional sales and purchase money chattel mortgages are valid even though they secure other debt. It seems unlikely that the U.C.C. drafters would have made such an important change in the existing law in such an indirect manner. See R. Lloyd, "Refinancing Purchase Money Security Interests,” 53 Tenn. L.Rev. 1, 56, at note 234. 10.In Jones, which the Ninth Circuit in Matthews called the seminal case in the area, the Bankruptcy Court discussed what has come to be called the transformation rule, but stated that it was not relying on cases decided using that theory. Instead the court, without stating source of the law it was applying, held in effect held that a novation had occurred in which an old debt was paid off and a new nonpurchase money debt substituted for it. Rosen relied upon Jones and expressly declined to follow In re Slay, 8 B.R. 355 (Bankr.E.D.Tenn. *60 1980), one of the earliest “dual status” cases, even though the court found Slay “defensible from an equitable standpoint.” Rosen, at 437-38. Although the Ninth Circuit in Matthews does not specifically state that a novation occurred, it seems clear that the holding is based on that theory, the court stating at p. 801 that "[t]he argument that, trader California law, novation does not occur without the express intent of the parties is not helpful to Transamerica, but rather supports our conclusion.” The court also appears to reject the transformation theory in footnote 3 and does not expressly address the "dual status” rule. 11.Va.Code § 8.9-203 provides in relevant part as follows: § 8.9-203. Attachment and enforceability of security interest; proceeds, formal requisites.— (1)... [a] security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless (a) the collateral is in the possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral and in addition, when the security interest covers crops growing or to be grown or timber to be cut, a description of the land concerned; and (b) value has been given; and (c) the debtor has rights in the collateral. (2) A security agreement attaches when it becomes enforceable against the debtor with respect to the collateral. Attachment occurs as soon as all of the events specified in subsection (1) of this section have taken place unless explicit agreement postpones the time of attaching. (3)... 12. See, e.g., Q.T., Inc. v. Thomas Russell & Co., 9 U.C.C. Reporting Serv.2d 433 (E.D.Va.1989), rev'g In re Q.T., Inc., 99 B.R. 310 (Bankr.E.D.Va.1989), in which the court held that a security agreement signed by an individual was binding upon a corporation which he subsequently formed. 13. The court also held that Sears' security interest did not lose its purchase money status even though subsequent purchases were made on the account.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 798	172 B.R. 572	NF	Matthews v. Transamerica Financial Services	OPINION AND ORDER DENYING MOTION TO AVOID LIEN WALTER J. KRASNIEWSKI, Bankruptcy Judge. This matter is before the Court upon Michael and Kelly Krueger’s (“Debtors”) motion to avoid a lien held by City Loan Financial Services (“CLFS”) in certain furniture (the “Furniture”) acquired with the proceeds of a loan obtained from CLFS. The Court finds that the Debtors’ motion is not well taken and should be denied. FACTS The Debtors filed a petition under chapter 7 of title 11 in 1994. The parties have stipulated as to the facts presented to the Court. On or about March 29, 1993, the Debtors purchased the Furniture from Value City Furniture and gave the seller a purchase money security interest in the Furniture. The loan contract (the “Loan”) was immediately assigned to CLFS. On or about June 10, 1993, the Loan was refinanced by CLFS (the “Refinancing”). At the time of the Refinancing, the payoff amount on the Loan was $1,557.00 which included interest that was earned but unpaid in the amount of $28.27. In extending the Refinancing, CLFS advanced an additional $1,000.00 to the Debtors. A security agreement contained in the promissory note for the Refinancing granted CLFS a security interest in the Furniture. See Exhibit 3. The Furniture was listed under the heading “items purchased with the proceeds of a prior credit transaction and now owned by the borrowers”. The parties agree that the Furniture represents household goods held primarily for personal family or household use. CLFS’ lien is a non-possessory lien, having been perfected by CLFS’ filing of a financing statement with the Lucas County Recorder’s Office on June 16, 1993. The Debtors made payments to CLFS subsequent to the Refinancing in the amounts of $93.27, $100.00, and $60.00 on July 25, 1993, September 30; 1993 and October 28, 1993, respectively. The value of the Furniture at the time of the Refinancing totaled $1,147.98, as set forth in the loan documents evidencing the Refinancing. See Exhibit 3. DISCUSSION Applicable Statute Section 522(f) of title 11 provides that: [njotwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—... (2) a nonpossessory, nonpurchase-money security interest in any— (A) household furnishings, household goods... that are held primarily for the personal family, or household use of the debtor[J The determination of whether CLFS’ security interest in the Furniture retains its purchase money character subsequent to the Refinancing is controlled by Ohio Revised Code § 1309.05. See Holland v. Associates Finance (In re Holland), 16 B.R. 83, 84-85 (Bankr.N.D.Ohio 1981). 574 As noted by the parties in their briefs, the courts which have interpreted analogous provisions of the Uniform Commercial Code have split as to whether a lender’s nonpos-sessory purchase money security interest survives a refinancing of a debtor’s obligation to the lender. Compare Billings v. Avco Colorado Indus. Bank (In re Billings), 838 F.2d 405 (10th Cir.1988) (finding that refinancing of purchase money loan on furniture did not destroy creditor’s purchase money security interest under Colorado law); Pristas v. Landaus of Plymouth, Inc. (In re Pristas), 742 F.2d 797 (3rd Cir.1984) (creditor’s purchase money security interest was not destroyed upon refinancing under Pennsylvania law); First Nat’l Bank & Trust Co. v. Daniel, 701 F.2d 141 (11th Cir.1983) (Per curiam) (refinancing of purchase money loan on office equipment and law books did not destroy creditor’s purchase money security interest under Georgia law); with Dominion Bank of the Cumberlands, NA v. Nuckolls, 780 F.2d 408, 413 (4th Cir.1985) (refinancing extinguished purchase money character of original loan); Matthews v. Transamerica Financial Services (In re Matthews), 724 F.2d 798 (9th Cir.1984) (Per curiam) (finding that refinancing of loan extinguished purchase money character of loan); In re Keeton, 161 B.R. 410 (Bankr.S.D.Ohio 1993) (refinancing of loan extinguished purchase money security interest in water softener under Ohio law). This Court has previously held that a lender’s security interest retained its purchase money character after the debtors refinanced their obligation to the lender in a case where no additional funds were advanced to the debtors and no additional collateral was granted to the lender when the debtors refinanced the debt. In re Holland, 16 B.R. at 83. This Court noted in Holland, that: [i]t is well settled in Ohio that renewals of notes, or changes in the form of the evidence of a precedent debt, do not create a new debt, unless it is expressly agreed between the parties, (citations omitted). The presumption is that it is a conditional, not an absolute, payment of the obligation, (citations omitted). In re Holland, 16 B.R. at 87-88. There is no evidence that the Refinancing represented a payment, satisfaction or discharge of the Loan. Therefore, the Refinancing did not extinguish CLFS’ purchase money security interest in the Furniture. C.f. In re Johnson, 101 B.R. 280, 282 (Bankr.W.D.Okl.1989) (creditor retained purchase money security interest after refinancing loan and was secured to the extent of lesser of value of collateral or amount of refinanced loan), aff'd, 113 B.R. 44 (W.D.Okl.1989); In re Parsley, 104 B.R. 72 (Bankr.S.D.Ind.1988) (creditor retained purchase money security interest in case where debtor refinanced and cross-collateralized debt to the extent that debtor had not paid original purchase price for household goods). The fact that the interest rate contained in the Refinancing differs from the interest rate contained in the Loan cannot be viewed as persuasive evidence of an intent to extinguish CLFS’ purchase money security interest. See In re Georgia, 22 B.R. 31 (Bankr.S.D.Ohio 1982) (change in interest rate not determinative as to intent to terminate original obligation) (citing Cantrill Construction v. Carter, 418 F.2d 705, 707 (6th Cir.1969), cert. denied, 397 U.S. 990, 90 S.Ct. 1124, 25 L.Ed.2d 398 (1970)); see also In re Billings, 838 F.2d at 409 n. 4 (citing Cantrill for the proposition that a change in interest rate upon refinancing does not extinguish original obligation). Moreover, the fact that CLFS provided the Debtors with an additional $1,000.00 advance in extending the Refinancing does not compel a finding that the Refinancing extinguished the purchase money character of CLFS’ security interest. See In re Conn, 16 B.R. 454 (Bankr.W.D.Ky.1982) (fact that cash advances extended to debtor in refinancing loan did not destroy purchase money character of security interest under Kentucky law). The fact that the Refinancing included finance charges incurred by the Debtors on the Loan, provided for a longer term of repayment than the Loan, and provided for increased monthly payments does not represent strong support for the Debtors’ position that the Refinancing extinguished CLFS’ purchase money security interest. Significantly, the Refinancing was entered into on June 10,1993, less than three months 575 subsequent to the date of the Loan. This fact militates against a finding that CLFS intended to surrender its purchase money security interest in the Furniture. C.f. In re Short, 170 B.R. 128, 135 (Bankr.S.D.Ill.1994) (finding that it was “unlikely” that parties intended to extinguish lender’s purchase money security interest where entire purchase price of collateral remained unpaid at time of refinancing). Further, in view of the fact that the Refinancing specifically contemplated CLFS’ retention of a security interest in the Furniture, the Court cannot conclude that the parties intended to extinguish CLFS’ purchase money security interest in the Furniture. C.f. In re Short, 170 B.R. at 135 (parties’ reference in loan documents for refinancing to lender’s “continued purchase money interest” in collateral evinced intent not to extinguish purchase money security interest). Therefore, CLFS’ security interest retains its purchase money character to the extent of $1,303.73, the payoff balance of the Loan at the time of the Refinancing less subsequent payments made by the Debtors. In light of the foregoing, it is therefore ORDERED that the Debtors’ motion to avoid CLFS’ lien on the Furniture be, and it hereby is, denied.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	170 B.R. 128	C, NF	Matthews v. Transamerica Financial Services	OPINION KENNETH J. MEYERS, Bankruptcy Judge. Debtors Robert and Dawn Short seek to avoid the hen of American General Finance, Inc. (“American”) as a nonpossessory, non-purchase money security interest impairing an exemption claimed by them in household goods. See 11 U.S.C. § 522(f)(2). American objects that its hen is a purchase money security interest not subject to avoidance under § 522(f)(2) and that its hen retained this status even though the original note granting such interest was consohdated with another obhgation of the debtors, with the goods in question serving as cohateral for the entire amount. The debtors respond that this refinancing destroyed the purchase money character of American’s hen and that the hen, therefore, may be avoided under § 522(f)(2). The facts are undisputed. On June 20, 1992, the debtors entered into a retail installment contract with Anderson Warehouse Furniture for the purchase of bedroom furniture. Under the contract, no interest was charged for one year and no payments were due until June 20, 1993, at which time the entire balance of $2,880.00 became due. The contract, which granted a security interest in the bedroom furniture purchased by the debtors, was assigned to American on the 132 date it was signed. The debtors made no payments under this contract. On July 16, 1993, the debtors executed a note with American in which they consolidated the June 20 contract obligation with another note to American for $3,642.33 dated June 22, 1992. The July 16 note in the amount of $7,337.30 provided funds to pay off the June 20 and June 22 notes, with the remaining balance applied to pay credit life and disability insurance premiums. The July 16 note, providing for an interest rate of 21.90%, was to be paid in monthly installments, with the final payment due in July 1997. A disclosure statement accompanying the note described the collateral for the July 16 note as a “continued purchase money interest” in the debtors’ bedroom furniture and, on a separate line, listed numerous other recreational and household items owned by the debtors. There was no indication that these latter items served as collateral for the June 22 note or that American had a purchase money security interest in them. The debtors made one payment under the July 16 note of $248.38 and a partial payment of $146.00. On January 4, 1994, the debtors filed their Chapter 7 bankruptcy petition. The debtors then moved to avoid American’s hen on household goods, including the bedroom furniture, under § 622(f)(2). DISCUSSION Section 522(f)(2) allows a debtor to avoid the fixing of a hen on property that would otherwise be exempt if such hen is a nonpos-sessory, nonpurchase money security interest. 1 The Bankruptcy Code does not define “purchase money security interest” or specify how a hen’s purchase money status is affected by refinancing or consohdation with other debt. Reference must be had, therefore, to the state law definition of “purchase money security interest” in § 9-107 of the Uniform Commercial Code. See Pristas v. Landaus of Plymouth, Inc. (In re Pristas), 742 F.2d 797, 800 (3d Cir.1984). That section provides: A security interest is a “purchase money security interest” to the extent that it is (a) taken or retained by the seller of the cohateral to secure ah or part of its price; or (b) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in... cohateral.... 810 ILCS 5/9-107 (emphasis added). Under this definition, a seller obtains a purchase money security interest by retaining a security interest in goods sold. A financing agency, such as American in the present case, obtains a purchase money security interest when it advances money to the seher and takes back an assignment of chattel paper. See Uniform Commercial Code, § 9-107, cmt. 1 (1993); Raymond B. Cheek, The Transformation Rule under § 522 of the Bankruptcy Code of 1978, 84 Mich.L.Rev. 109, 126 n. 104 (1985) (hereinafter Cheek, Transformation Rule). In this case, American clearly had a purchase money security interest in the debtors’ bedroom furniture when it accepted an assignment of the debtors’ contract on these goods. Debtors contend that this interest was canceled when their original note of Juné 20 was consolidated with other indebtedness and the note was paid by renewal. American argues, however, that its purchase money lien survived despite this refinancing and that it retained a nonavoidable purchase money security interest in the debtors’ bedroom furniture to the extent of the balance remaining on the original note for purchase of the collateral. There is a split of authority among the circuits concerning whether a purchase money security interest is extinguished when the original purchase money loan is refi 133 nanced through renewal or consolidation with another obligation. One line of cases holds that a purchase money security interest is automatically “transformed” into a nonpur-chase money interest when the proceeds of a renewal note are used to satisfy the original note. See Matthews v. Transamerica Financial Services (In re Matthews), 724 F.2d 798, 800 (9th Cir.1984); Dominion Bank of Cumberlands v. Nuckolls, 780 F.2d 408, 413 (4th Cir.1985); In re Keeton, 161 B.R. 410, 411 (Bankr.S.D.Ohio 1993); Hipps v. Landmark Financial Services of Georgia, Inc. (In re Hipps), 89 B.R. 264, 265 (Bankr.N.D.Ga.1988); In re Faughn, 69 B.R. 18, 20-21 (Bankr.E.D.Mo.1986). Because the collateral now secures an antecedent debt rather than a debt for purchase of the collateral or, in the case of a renewal note consolidating debt or advancing new funds, secures more than its purchase price, these courts hold that the resulting lien on the purchased goods no longer qualifies as a “purchase money security interest” under § 9-107. Following such refinancing, then, the lien may be avoided in its entirety under § 522(f)(2). The second line of cases, rejecting the “all or nothing” approach of the transformation rule, holds that a lien may be partially purchase-money and partially nonpurehase-money and that the purchase money aspect of a lien is not automatically destroyed by refinancing or consolidation with other debt. See Billings v. Avco Colorado Industrial Bank (In re Billings), 838 F.2d 405, 409 (10th Cir.1988); Pristas, 742 F.2d at 801; Geist v. Converse County Bank (In re Geist), 79 B.R. 939, 941 (D.Wyo.1987); In re Hemingson, 84 B.R. 604 (Bankr.D.Minn.1988); In re Parsley, 104 B.R. 72, 75 (Bankr.S.D.Ind.1988). This view, referred to as the “dual status” rule, is premised on the language of § 9-107, which provides that a lien is a purchase money security interest “to the extent” that it is taken to secure the purchase price of collateral. Accordingly, the purchase money security interest taken under the original note is preserved to the extent of the balance remaining unpaid on the original purchase money loan. See Russell v. Associates Financial Services Co. (In re Russell), 29 B.R. 270, 273-74 (Bankr.W.D.Okla.1983). Courts adopting the “dual status” rule note that it gives effect to the substance of the refinancing transaction. Though in form the original note is canceled, its balance is absorbed into the refinancing loan. To the extent of that balance, the purchase money security interest taken under the original note likewise survives, because what is owed on the original note is not eliminated[;] it is merely transferred to, and increased in amount by, another obligation. The refinancing changes the character of neither the balance due under the first loan nor the security interest taken under it. Associates Finance v. Conn (In re Conn), 16 B.R. 454, 459 (Bankr.W.D.Ky.1982); see Russell, 29 B.R. at 273. The difficulty with the dual status rule lies in determining the extent of the purchase money interest remaining after refinancing. See Pristas, 742 F.2d at 801; Coomer v. Barclays American Financial, Inc. (In re Coomer), 8 B.R. 351, 353-54 (Bankr.E.D.Tenn.1980). When a purchase money loan has been consolidated with non-purchase money debt and payments have ensued, some method of applying payments between the purchase money and nonpur-chase money portions of the refinanced loan is necessary so that the purchase money collateral secures only its own price and does not remain as collateral for the entire obligation. See Mulcahy v. Indianapolis Morris Plan (In re Mulcahy), 3 B.R. 454, 457 (Bankr.S.D.Ind.1980). This problem has led some courts to find that purchase money status is forfeited if no method of allocation has been supplied, either by the parties’ contract or by statute. See Coomer, 8 B.R. at 355; Mulcahy, 3 B.R. at 457; cf. Pristas, 742 F.2d at 802 (apportionment formula supplied by statute); Matter of Weigert, 145 B.R. 621, 623 (Bankr.D.Neb.1991) (parties’ agreement provided allocation formula). Other courts have adopted a judicial “first in, first out” method of allocation, under which payments are applied sequentially to purchase money debts in the order in which they were incurred. See In re Clark, 156 B.R. 693, 695 (Bankr.S.D.Fla.1993); Parsley, 104 B.R. at 75; Matter of Weinbrenner, 53 B.R. 571, 134 579-80 (Bankr.W.D.Wis.1985); Conn, 16 B.R. at 458; In re Gibson, 16 B.R. 257, 267-68 (Bankr.D.Kan.1981); see generally Bernard A. Burk, Preserving the Purchase Money Status of Refinanced or Commingled Purchase Money Debt, 35 Stan.L.Rev. 1133, 1144-46 (1983) (hereinafter Burk, Preserving Purchase Money Status). Having considered the rationales for both the “automatic transformation” and “dual status” rules, this Court finds that the dual status rule more closely adheres to the statutory language of § 9-107 while effectuating the policy behind § 522(f)(2). The “to the extent” language of § 9-107 clearly contemplates that a lien may be partially purchase money and partially nonpurchase money, depending on the circumstances of its creation. Thus, if a lender makes two separate loans — one for the purchase of goods, the other a cash advance — and retains a security interest in the purchased goods for both loans, the resulting lien is both purchase money (for the outstanding balance of the purchase money loan) and nonpurchase money (for the amount remaining on the cash advance loan). No reason appears why the purchase money character of the first loan should disappear if the two loans are later consolidated, so long as the amounts attributable to the two loans may be separated. See Check, Transformation Rule, at 128. Section 522(f)(2), moreover, with its distinction between purchase money and nonpurchase money liens, was designed to permit debtors to avoid liens attached to household goods already owned by them rather than liens on collateral purchased with the money advanced. See Russell, at 274. Congress limited this avoidance option to nonpurehase money interests in order to protect those lenders whose credit enabled the debtor to acquire the collateral in the first place. Check, Transformation Rule, at 127. When a purchase money loan is refinanced, the creditor is not committing the type of overreaching that § 522(f)(2) aims to prevent, as the purchased goods remain as collateral for the loan. Thus, application of the dual status rule, with its recognition of the continued existence of the creditor’s purchase money interest after refinancing, preserves the legislative balance between debtors’ and creditors’ rights in exempt property that is the purpose of § 522(f)(2). See id.; In re Billings, 838 F.2d at 409-10. Courts in the Seventh Circuit have not embraced either the transformation or the dual status rule but have, for the most part, taken a case by case approach which examines whether the debtor’s obligation has been so changed by the refinanced loan that the resulting lien can no longer be characterized as a purchase money security interest. 2 See In re Hatfield, 117 B.R. 387, 389-90 (Bankr.C.D.Ill.1990) (quoting from In re Hills, No. 86-72037, slip op. at 4-5 (Bankr.C.D.Ill. July 29, 1987)); In re Gayhart, 33 B.R. 699, 700-01 (Bankr.N.D.Ill.1983); Matter of Weinbrenner, 53 B.R. at 579-81; Johnson v. Richardson (Matter of Richardson), 47 B.R. 113, 117 (Bankr.W.D.Wis.1985); but see In re Parsley, 104 B.R. at 75 (applying “dual status” rule). Under this approach, a refinanced loan is determined to be either a renewal of the original purchase money obligation, in which case the purchase money lien survives, or a novation, which extinguishes the purchase money character of the loan, depending upon the degree of change in terms and obligation between the two loans. See Hatfield, 117 B.R. at 390 (“the greater the degree of change in obligation..., the more likely a novation will be found”). While the “middle of the road” approach of these courts lacks the certainty of a well-defined rule such as the transformation or dual status rule, this approach is not surprising given the diversity of fact situations presented in cases examining the purchase money character of refinanced loans. In the case of a simple refinancing that merely extends the repayment period of a loan — with a reduction in the amount of monthly payments and the same interest rate and security, strict application of the automatic transformation rule works an obvious 135 injustice to the lender who has acted to benefit the borrower. See Gayhart, 33 B.R. at 700-01; Hatfield, 117 B.R. at 390. At the other end of the spectrum, when a purchase money loan is refinanced for new consideration and the second note involves different security and terms, this change may be seen to evidence the parties’ intent to enter into a new obligation that cannot be characterized as a purchase money loan. See Hills, slip op. at 5 (refinanced note involving fresh advance of funds constituted a novation). Thus, courts that employ a case by case approach attempt to give effect to the parties’ intent as derived from the facts of a particular transaction. The facts of this case support a finding that American retained a purchase money lien on the debtors’ bedroom furniture under either the dual status rule of the Tenth and Third Circuits or the case by case approach of bankruptcy courts in this circuit. As noted above, the problem under the dual status rule is allocating payments between the purchase money and nonpurchase money aspects of a loan following consolidation in order to determine the extent to which the purchase money lien survives refinancing. The problem under the ease by case approach is to determine whether the facts evidence the parties’ intent to continue the purchase money character of the original loan. In this case, the debtors had made no payments on the original purchase money loan of June 20 at the time they agreed to consolidate this obligation with another, non-purchase money note of June 22. Since the entire purchase price of the collateral remained unpaid, it is unlikely the parties intended to extinguish the debtors’ obligation under the first note or to change its character. Rather, the purchase money note of June 20, a no-interest note with one annual payment, was essentially “extended” by the consolidation note of July 16 to allow for monthly payments at a commensurately high interest rate. Thus, the July 16 note merely enabled the debtors to pay the original purchase price of the bedroom furniture over a longer period of time. Despite the change in interest rate and repayment terms, the purchase money character of the loan had not become blurred by repeated refinancings, see Slay v. Pioneer Credit Co. (In re Slay), 8 B.R. 355, 358 (Bankr.E.D.Tenn.1980) (“at some point the number of transactions between the lender and the debtor destroys any claim that the debt is part purchase money”), and the essential character of American’s interest in the purchase money collateral remained intact. The parties’ intent to continue the purchase money character of American’s lien following consolidation was specifically stated in the documentation for the July 16 note, in which the security was described as a “continued purchase money interest” in the debtors’ bedroom furniture. Cf. In re Billings, 838 F.2d at 109 (loan document expressly stating intent to continue the purchase money security interest showed parties did not intend to extinguish the original debt and security interest). While such a statement would not be sufficient, of itself, to preserve purchase money status upon refinancing, it adds weight to the Court’s conclusion that the parties considered the new note to be a continuation of the debtors’ original purchase money obligation. This statement of intent distinguishes the present case from In re Hills, in which the court found a novation based on the fact that the parties’ note consolidating a purchase money obligation with nonpurchase money debt did not identify the purchased goods as collateral and stated that the creditor was “not being given a ‘security interest in the goods or property being purchased.’ ” Hills, slip op. at 1. Based on the parties’ express statement of intent in this ease and the fact that no payments had been made on the original purchase money loan at the time of refinancing, the Court finds that the parties intended to continue the purchase money status of American’s lien in the July 16 note consolidating debt. The problem of determining the extent of American’s purchase money lien following consolidation is complicated only slightly by the fact that the debtors made one monthly payment and a partial payment on the consolidated note before their bankruptcy filing. If the debtors had made no payments at all, the purchase money portion of the consolidated debt would be the amount 136 owing on the purchase money debt at the time of the consolidation. See In re Slay, 8 B.R. at 358. The Slay court, noting the difficulty of apportioning payments between the purchase money and nonpurchase money parts of a consolidated loan, ruled that normally a creditor’s purchase money status is forfeited upon consolidation with nonpur-chase money debt. However, the court found an exception to this general rule based on the fact that the debtors in Slay had made no payments following consolidation. Id. It would be ironic if the debtors’ payments here of $248.38 and $146.00 on a note that included $2,880.00 in purchase money debt would cause American’s lien to lose its purchase money status completely. Neither the parties’ contract nor an applicable statute provides a method for allocating payments between the purchase money and non-purchase money portions of the consolidated debt. 3 However, courts of equity are peculiarly suited to the task of allocating payments, see In re Weinbrenner, 53 B.R. at 580 (citing Luksus v. United Pacific Insurance Co., 452 F.2d 207, 209 (7th Cir.1971)), and have, in other contexts, supplied an allocation method when the parties failed to do so. See Burk, Preserving Purchase Money Status, at 1160, 1163 n. 107 (creditor’s burden to prove security interest extends only to production of facts and documents necessary to application of tracing rule). Therefore, in the absence of contractual or legislative direction, the Court will allocate the debtors’ payments to determine the amount still owing on the purchase money debt — and, hence, the extent of American’s purchase money lien — following consolidation. See In re Conn, 16 B.R., at 458. Under the “first in, first out” allocation method employed by most courts, payments are deemed applied to the oldest debts first, with the result that purchase money liens are paid off in the order in which the goods are purchased. See Parsley, 104 B.R. at 74; Conn, 16 B.R. at 458. 4 Once the purchase price of an item has been paid, any security interest remaining in it becomes a nonpurchase money security interest and is avoidable under § 522(f)(2). The purchase price includes the cost of the item and any financing charges and sales taxes attributable to that item. Parsley; see Burk, Preserving Purchase Money Status, at 1178 (charges that would be considered part of the purchase money obligation of the original sale are accorded similar status after refinancing). In this case, there were no financing charges on the June 20 purchase money loan, as it was interest-free for the one-year term of the loan. 5 The $2,880.00 amount of the loan presumably included sales taxes on the purchase of the bedroom furniture. Accordingly, the debtors’ payments of $248.38 and $146.00 will be applied to reduce the unpaid purchase price of $2,880.00, resulting in a continued purchase money lien on the bedroom furniture of $2,485.62. The debtors’ 137 motion to avoid lien is granted to the extent of American’s remaining nonpurchase money hen on this furniture. 1. Section 522(f)(2) provides in pertinent part: (f) [T]he debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled... if such lien is— (2) a nonpossessory, nonpurchase-money security interest in any— (A) household furnishings... that are held primarily for the personal, family, or household use of the debtor.... 11 U.S.C. § 522(f)(2). 2. The Seventh Circuit Court of Appeals has not yet ruled on the issue of retention of purchase money status following refinancing. 3. The Illinois Retail Installment Sales Act provides a method of applying payments when two or more sales contracts have been consolidated. See 815 ILCS 405/22 (1993). This provision applies only to a "seller,” which does not include an assignee such as American in this case. See 815 ILCS 405/2.4. 4. While this method seems more suited to situations involving consolidation of multiple purchase money transactions rather than consolidation, as here, of purchase money with nonpur-chase money debt, the cases do not make a distinction between these situations. Cf. Clark, 156 B.R. at 695 (first in, first out method applied to consolidation of purchase money and nonpur-chase money debt); Conn, 16 B.R. at 457-59 (same). It may be more appropriate in the latter instance to apply payments to the purchase money debt first, so that a creditor would be prohibited from allocating any repayment to nonpur-chase money debt until all the purchase money debt is paid. See Burk, Preserving Purchase Money Status, at 1175. In this case, however, the result would be the same, as the debtors' June 20 purchase money obligation predated their non-purchase money debt of June 22. 5.American has not argued that its purchase money lien following refinancing includes a proportionate amount of the interest and insurance charges attributable to the $2,880.00 purchase money balance. See Burk, Preserving Purchase Money Status, at 1178 n. 150 (purchase money lien following refinancing should include added finance charges that enable debtors to keep their collateral as well as insurance premiums that serve to guarantee the debtors' obligation). Accordingly, the Court makes no determination in this regard.	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 798	156 B.R. 693	C, NF	Matthews v. Transamerica Financial Services	ORDER AND MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART DEBTOR’S VERIFIED MOTION TO AVOID LIEN ROBERT A. MARK, Bankruptcy Judge. Debtor seeks an order under § 522(f)(2)(A) of the Bankruptcy Code 694 avoiding a lien against certain household goods including a stereo system that was originally financed by a purchase money security agreement. The security interest is held by Norwest Financial Florida, Inc. (“Norwest”). The issue before the Court is whether a refinancing in which Norwest loaned additional money and took a security interest in additional collateral transformed the original purchase money security interest in the stereo into a non-purchase money security interest avoidable under § 522(f). The Court concludes that the lien is avoidable only against the additional goods pledged as part of the refinancing but not avoidable in the stereo system which retained its “purchase money” status. FACTS On May 10, 1990, the Debtor purchased a stereo system from The Sound Shack, paying $126.08 down and financing the $900.00 balance of the purchase price. The financed portion was secured by a purchase money security interest. The Sound Shack assigned the security interest to Norwest on May 14, 1990. On July 17, 1990, Norwest refinanced the loan, providing $1,511.15 in total financing. The Debtor received $166.79 from the loan proceeds with the remainder designated for payment to third parties and to Norwest including $277.37 to a department store and $899.76 designated as the balance due on the original loan on the stereo. The Security Agreement executed as part of the refinancing, described the collateral as “Purchase money security interest on sales contract from Sound Shack: 1 Adcom GFA555 Power Amp. and 1 Adcom GTP400 Pre-Amp. Tuner, 1 ski equipment, 4 clarinets, 3 paintings, 1 stamp collection, 1 typewriter.” The additional collateral was owned by the Debtor on the refinancing date, not acquired from the loan funds. The Debtor filed her Chapter 7 petition on May 22, 1992. According to her schedules, the loan balance as of the filing date was $800.00. Norwest presented no evidence disputing this amount. DISCUSSION The Debtor seeks to avoid Norwest’s lien pursuant to § 522(f)(2)(A), which provides: (f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is— (2) a nonpossessory, nonpurchase-money security interest in any— (A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. The collateral, including the stereo, are clearly household goods or property within the statutory description ’ in § 522(f)(2)(A). There is also no question that Norwest held a non-avoidable purchase money security interest in the stereo equipment under the original financing. 1 Finally, it is without dispute that Norwest’s lien impairs an exemption to which the Debtor would be otherwise entitled under § 522(b) and Article X, Section 4(a)(2) of the Florida Constitution. The question for decision is whether the purchase money security interest in the stereo was transformed into an avoidable non-purchase money security interest upon the refinancing in July, 1990. Courts are split on the effect of a refinancing and there is no binding 11th Circuit authority. Several courts apply the so-called transformation rule and hold that the lender loses its purchase money security interest when the original loan is refinanced, particularly when the loan amount is increased and additional collateral is giv 695 en. See Mathews v. Transamerica Financial Services (In re Mathews), 724 F.2d 798 (9th Cir.1984); Hipps v. Landmark Financial Services of Georgia, Inc. (In re Hipps) 89 B.R. 264 (Bankr.N.D.Ga.1988); ITT Financial Services (In re Franklin), 75 B.R. 268 (Bankr.M.D.Ga.1986). These courts conclude that a refinancing constitutes a novation of the original contract and payment of an antecedent debt thereby transforming the security interest into a non-purchase money security interest avoidable under § 522(f). Other courts adopt a dual status approach when a refinancing includes other collateral and allow the purchase money security interest to remain on the originally financed property. Billings v. Avco Colorado Industrial Bank (In re Billings), 838 F.2d 405 (10th Cir.1988); Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797 (3d Cir.1984); In re Johnson, 101 B.R. 280 (Bankr.W.D.Okl.1989); In re Parsley, 104 B.R. 72 (Bankr.S.D.Ind.1988); In re Hemingson, 84 B.R. 604 (Bankr.D.Minn.1988). This Court agrees with the holding and reasoning in the “dual status” cases. The legislative history of § 522(f) indicates that this section was designed to allow debtors to avoid security interests in already owned, used household goods since such security interests were often used oppressively by over-reaching creditors. H.R.Rep. No. 95-595, 95th Cong., 2nd Sess. 127, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6088. This policy is not served by applying the transformation rule in a refinancing case. As explained by the Tenth Circuit in Billings, When a debt secured by a purchase money security interest is refinanced, and the identical collateral remains as security for the refinanced debt, then neither the debt nor the security has changed its essential character. Thus, a creditor who renegotiates a purchase money loan is not committing the type of overreaching that § 522(f) aims to prevent. In re Billings, 838 F.2d at 410. This Court also agrees with the Tenth Circuit’s concern that the “transformation” rule could have a chilling effect on consumer credit since it could discourage creditors holding purchase money security interests from helping their debtors work out their problems through a refinancing. If a refinancing destroys the purchase money character of the original collateral, a creditor runs a substantial risk in refinancing any borrower who may file a bankruptcy petition. See Billings, 838 F.2d at 409; Pristas, 742 F.2d at 801. Applying the “dual status” approach to the facts in this case, the Court finds that Norwest retains its lien on the originally financed stereo. Norwest’s lien against the additional collateral pledged in the refinancing agreement is avoided. One issue remains — the amount of the lien on the stereo equipment. To determine the amount, the Court must decide how to apply the approximately $711 in payments made by the Debtor on the refinanced loan before she filed her bankruptcy petition. Absent any provision in the loan documents allocating payments, this Court will follow those courts that apply the judicial first-in first-out methodology. See e.g. In re Gibson, 16 B.R. 257, 269-270 (Bankr.D.Kansas 1981). As applied here, the $711 in payments will be applied to the stereo equipment which was originally financed. Since the portion of the refinancing attributable to the stereo was $899, the portion of the remaining debt attributable to and secured by the stereo equipment is $188. Therefore, it is— ORDERED as follows: 1. Debtor’s motion is granted in part and Norwest’s security interest is avoided on the ski equipment, clarinets, paintings, stamp collection and typewriter described in the July 17, 1990 Security Agreement. 2. Debtor’s motion is denied to the extent Debtor seeks to avoid Norwest’s lien on the stereo equipment described in the July 17, 1990 Security Agreement. That lien is deemed to be a purchase money security interest securing a remaining claim in the amount of $188.00. DONE AND ORDERED. 1. Sound Shack’s assignment of the original security interest to Norwest did not effect its purchase money character. See Matter of Keller 29 B.R. 91 (Bankr.M.D.Fla.1983) (assignment of installment contract for purchase of furniture did not destroy the purchase money character of the original security interest).	CRITICIZED_OR_QUESTIONED, LIMITED_OR_DISTINGUISHED
724 F.2d 798	117 B.R. 387	NF	Matthews v. Transamerica Financial Services	OPINION WILLIAM V. ALTENBERGER, Bankruptcy Judge. This matter is before the Court on the Motion for Relief from the Automatic Stay filed by VISCO FINANCE (VISCO) and the objection by VISCO to the Statement of Intention filed by the Debtors, DAVID and CHRISTINE HATFIELD (HATFIELDS) along with the HATFIELDS’ counterclaim alleging a Truth-in-Lending violation. Both parties have filed motions for summary judgment. In June, 1988, VISCO financed the HAT-FIELDS’ purchase of certain bedroom furnishings, taking a purchase money security interest. In September, 1989, after a default by the HATFIELDS, and at their request, VISCO refinanced the loan. VIS-CO retained the security interest in the bedroom furnishings. No additional collateral was taken and no additional funds were advanced. The amount of the monthly payments were reduced from $96.95 to $79.25. The HATFIELDS filed a Chapter 7 bankruptcy petition on January 24, 1990. The Statement of Intention filed by the HATFIELDS indicated that VISCO’s lien would be avoided pursuant to Section 522(f) of the Bankruptcy Code. VISCO objected thereto, claiming that its security interest in the bedroom furnishings was a purchase money security interest and thus not subject to avoidance. VISCO also filed a motion for relief from the automatic stay in order to foreclose its security interest in the bedroom furnishings. In response to the motion, the HATFIELDS claimed that VISCO lost its purchase money security interest when the loan was refinanced. The HATFIELDS also alleged a violation of the Federal Truth In Lending Act, 15 U.S.C. Section 1638(a)(9). VISCO answered the counterclaim, asserting (1) that this Court was without jurisdiction to entertain it, and (2) that it properly disclosed its security interest at the time of the refinancing. 1 Cross motions for summary 389 judgment were filed. Two issues are presented for the Court’s determination: (1) whether the renewal of the 1988 loan destroyed the purchase-money character of VISCO’s security interest; and (2) whether the disclosure made by VISCO complied with Section 1638(a)(9) of the Truth In Lending Act. There is a split in authority on the issue of whether a creditor loses its purchase money security interest when the original loan is refinanced. See In re Gillie, 96 B.R. 689 (Bkrtcy.N.D.Tex.1989). As the court in Gillie noted, courts from the 1st, 4th, 5th, 6th, 8th, 9th and 11th Circuits have held that a renewal extinguishes the purchase money character of a security interest. Courts from the 3rd, 8th, 9th and 10th Circuits have reached a contrary result. While the 7th Circuit Court of Appeals has not ruled on the issue, Judge Lessen, Chief Bankruptcy Judge for this District, has, and this Court agrees with his decision. See In re Hills, Case No. 86-72037 (July 29, 1987) (unpublished). Judge Lessen stated: The courts addressing this issue have basically split into two opposing camps, those following the “Transformation Rule” and those following the “dual status” rule. The Transformation Rule holds that the purchase-money character of a security interest is extinguished when the proceeds of a renewal note are used to satisfy the original note. The leading case espousing this rule is In re Matthews, 724 F.2d 798 (9th Cir.1984). In Matthews, the debtor purchased a piano with funds borrowed from the loan company. A year later, the loan was refinanced, the prior obligation paid off, insurance payments made, and the debtors received some new cash. The debtors subsequently filed bankruptcy and challenged the creditor’s interest. The Ninth Circuit held that the loan company’s purchase-money security interest was defeated. Relying on Sec. 9-107 of the UCC, and the official UCC commentary, the Court determined that any obligation incurred in order to satisfy an antecedent debt did not qualify as a purchase-money security interest under either the UCC or the Bankruptcy Code. The opposing view is represented by the “dual status” or “dual personality” rule, which holds that the presence of a nonpurchase-money security interest does not destroy the purchase-money aspect of the loan. In other words, the dual status rule makes it possible for a creditor to have a hybrid security interest which is in part purchase-money and in part nonpurchase-money. The leading exponent of this rule is Pristas v. Landaus Plymouth, Inc., 742 F.2d 797 (3rd Cir.1984). The Pristas court criticized the Transformation Rule as misguided because it fails to consider the “to the extent language” of Sec. 9-107 of the Uniform Commercial Code. The court found that a “purchase-money security interest in a quantity of goods can remain such ‘to the extent’ it secures the price of that item, even though it may also secure the payment of other articles.” 742 F.2d at 801. The court further stated: Tolerance of “add-on” debt and collateral provisions, properly applied, carries out the approbation for purchase-money security arrangements and simplifies repeat transactions between the same buyer and seller. Id. at 801. The court, however, limited its holding to those cases in which a determination can be made as to how much of the debtor’s obligation is alloca-ble to the secured goods and how much is not. The courts in this Circuit which have discussed this issue have not adopted the Transformation Rule or the dual status rule. In re Gayhart, 33 B.R. 699 (Bankr.N.D.Ill.1983); Matter of Richardson, 47 B.R. 113 (Bankr.W.D.Wis.1985); 390 In re Mulcahy, 3 B.R. 454 (Bankr.S.D.Ind.1980). The courts view a strict application of the Transformation Rule as working “unintended and inequitable results” including the result of discouraging creditors from refinancing consumer loans. In re Gayhart, supra, 33 B.R. at 700-01. The problem with the dual status rule is the difficulty of determining when any one item is paid off and released from the security agreement. In re Mulcahy, supra, 3 B.R. at 457. Thus, the courts have taken a case by case approach which examines whether the refinancing agreement can be characterized as merely a renewal of the original obligation or as a novation. A renewal allows the purchase-money character of the security to survive. A novation, on the other hand, extinguishes the purchase-money character of the loan. The Gayhart court stated the test for delineating between a novation and a renewal in the “degree to which the original obligation of the debtor has changed and, to some extent, on any additional consideration which was conveyed by the debtor to the creditor.” 33 B.R. at 700. The greater degree of change in obligation or increase in obligation, the more likely a novation will be found. Id. The Court believes this middle-of-the-road approach is the proper test.... (Citations omitted). Applying that test to the facts of the present case, this Court finds that the purchase-money character of YISCO’s security interest survives the refinancing. The only changes involved in the refinanced note were an extended payment period and a small reduction in the amount of the monthly payments. The security for the two notes remained the same, as did the interest rate. The most significant factor is that no additional funds were advanced. The HATFIELDS have counterclaimed, alleging that VISCO violated Section 128(a)(9) of the Truth in Lending Act, 15 U.S.C. Section 1638(a)(9), which requires a creditor to disclose the fact that the creditor has or will acquire a security interest in the property which is purchased as a part of the credit transaction or in other property identified by item or type. The Disclosure Statement given to the HATFIELDS at the time the loan was refinanced provided that VISCO was taking a security interest in “the goods being purchased.” The HATFIELDS argue that the disclosure is not accurate, as the bedroom furnishings were purchased in June, 1988, and not when the loan was refinanced. They claim that it is irrelevant whether or not VISCO actually had a purchase money security interest. VISCO relies on Regulation Z, 12 C.F.R. Section 226.18(m), 2 which provides for the disclosure of the following: (m) Security interest. The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type. Noting that the Official Staff Commentary states that a general identification is sufficient “[w]hen the collateral is the item purchased as part of, or with the proceeds of, the credit transaction,” VISCO argues that its disclosure was proper. VISCO asserts it would be an anomalous result for the Court to find that it had a purchase money security interest for purposes of lien avoidance under the Bankruptcy Code but not for purposes of disclosure under the Truth in Lending Act. Neither party cited any authority and this appears to be a case of first impression. Contrary to VISCO’s assertion, it is not an anomalous result to find a purchase money security interest exists for purposes of the Bankruptcy Code, but not for Truth in Lending purposes. The Bankruptcy Code and Truth in Lending have different goals. The goal of the Bankruptcy Code is to establish a procedure for the liquidation of assets and discharge of debts, and in the process, establish substantive rights be 391 tween creditors and debtors. On the other hand, the goal of Truth in Lending is disclosure, telling the common consumer the terms of the credit transaction. It is to be construed liberally in favor of the consumer and strictly enforced because its purpose is to protect consumers. In re Underwood, 66 B.R. 656 (Bkrtcy.W.D.Va.1986). The adequacy of the disclosure is viewed, not through the eyes of a sophisticated creditor, but through the eyes of the common consumer. Edmondson v. Allen-Russell Ford, Inc., 577 F.2d 291 (5th Cir.1978). The disclosure is not made upon the creditor’s understanding of what was occurring but on a layman’s understanding. As the goal of the Bankruptcy Code and the Truth in Lending Act are different, it is appropriate to come to different results as to the meaning of “purchase money security interest” if those results are required to reach a correct result under the Bankruptcy Code and the Truth in Lending Act. This approach is consistent with the District Court’s decision in In re Dingledine, 118 B.R. 631 (J. Mihm, May 31, 1989). The Truth in Lending Act is highly technical and strict compliance is required. VISCO having access to the loan file and being a sophisticated lender, knew the HATFIELDS were giving a security interest in the bedroom furnishings they purchased fifteen months earlier. But the HATFIELDS may or may not have remembered the specifics of the earlier transaction, and it is not unreasonable to expect VISCO to disclose to the HATFIELDS what occurred fifteen months earlier by listing the bedroom furnishings rather than making a general reference to “goods being purchased”. Meaningful disclosure is achieved by VISCO telling the debtors the specific items of furniture that were subject to the security interest at the time of the refinance rather than relying on the HATFIELDS’ memory of what transpired at the time of the original loan some fifteen months earlier. This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. See written Order. ORDER For the reasons set forth in an Opinion filed this day, IT IS ORDERED that: 1. VISCO FINANCE’S Motion for Relief from the Automatic Stay is hereby GRANTED; 2. The first counterclaim filed by the HATFIELDS is DENIED; 3. VISCO FINANCE’S objection to the HATFIELDS’ Statement of Intention is ALLOWED.. 4. The second counterclaim filed by the HATFIELDS is ALLOWED and judgment be entered in favor of the HATFIELDS and against VISCO FINANCE, for $1,000.00, reasonable attorney fees, and costs. 1. Although VISCO raised the issue of this Court’s jurisdiction over the HATFIELDS' coun 389 terclaim in its answer to that counterclaim, it failed to address the issue in its motion for summary judgment. VISCO is quite correct that an action alleging violations of the Truth in Lending Act is a non-core proceeding. Barber v. USA Financial Services, Inc., Adv. No. 86-8397 (J. Altenberger, April 13, 1987). Nonetheless, by failing to pursue that issue, VISCO will be regarded as consenting to the rendering of a final judgment by this Court. 2. The Truth in Lending Regulations, Regulation Z, can be found at 12 C.F.R., Section 226.18; 15 U.S.C.A., following Section 1700.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	116 B.R. 42	NF	Matthews v. Transamerica Financial Services	43 MEMORANDUM OPINION JUDITH K. FITZGERALD, Bankruptcy Judge. Before the court is a Motion to Avoid Lien filed by Debtor to which a Response coupled with a Motion to Terminate Automatic Stay were filed on behalf of American General Consumer Discount Company (hereinafter AGCDC). On April 17, 1984, the Debtor borrowed the sum of $7,700.00 at 17% per annum from the Kayak Manufacturing Company to finance the purchase of a Kayak swimming pool. The loan was to be repaid in 84 monthly installments of $157.36 beginning on June 30, 1984. Kayak Manufacturing Company assigned the loan and the Security Agreement to Finance One of West Virginia, a predecessor of the AGCDC. On November 10,1988, Debtor requested additional funds. The account balance was $4,299.17 when AGCDC refinanced the loan, provided Debtor with a cash advance of approximately $500.00 and generated another security agreement. The first security agreement was marked paid and returned to the Debtor. The goods listed on the second security agreement were various nonpurchase-money household items which were not in AGCDC’s possession. The Kayak pool was not listed. The loan was financed at 26.66% per annum over a period of 60 months. The Debtor wishes to avoid AGCDC’s lien in the household items and AGCDC requests relief from the automatic stay so that it may take possession of the pool. Debtor contends that AGCDC lost its security interest in the pool by refinancing. Thus, Debtor asserts, AGCDC is an unsecured creditor and is not entitled to relief from stay. The issue is whether refinancing a purchase-money loan by issuing new loan documents destroys the purchase-money nature of the original security interest when the collateral for the first loan is not reid-entified as security for the second. We turn for guidance to Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797 (3d Cir.1984). Pristas held that Pennsylvania law permits the retention of the purchase-money security interest after the consolidation and refinancing of several loans to the extent that the interest was taken or retained by the seller to secure all or part of the price of the collateral. The court in Pristas expressly rejected the analysis of other circuits which have adopted the “transformation rule” which provides that refinancing transforms a purchase-money security interest into a non-purchase money security interest. See Matthews v. Transamerica Financial Services, 724 F.2d 798 (9th Cir.1984). The Pristas court reasoned that this view was unduly narrow and inconsistent with the Uniform Commercial Code. Pristas sets forth the law as applicable in this case. In following Pristas the court in In re Schwartz, 52 B.R. 314 (Bankr.E.D.Pa. 1985), held that a purchase-money security interest does not lose its character as such for purposes of lien avoidance under 11 U.S.C. § 522(f) of the Bankruptcy Code even when the debtor and creditor effect a novation of the loan agreement. The court stated: “Even granting that a novation has been implemented to cancel the original loan document creating the purchase-money security interest and to generate a new security agreement, such a novation does not nullify the purchase money aspect of the original transaction.” 52 B.R. at 316. A novation is the acceptance of a new promise for a previously existing claim. Gordon Brothers v. Kelley, 92 Pa. Super.Ct. 485 (1928). The essential elements of a novation are the displacement and extinction of a prior contract, the substitution of a new contract, the consent of the parties, and the validity of the new contract. Jones v. Commonwealth Casualty Company, 255 Pa. 566, 100 A. 450 (1917). The most common type of novation is that involving the substitution of a new debtor, however, that element is not required. The agreement may be one between the original parties who have changed the nature of the obligation. The court finds that the latter is the type of novation involved in the present case. The parties have not changed but AGCDC extended an additional amount of money over a shorter term at a higher 44 interest rate. For the additional sum, AGCDC obtained an additional security interest-in household goods. However, nothing was done to destroy the original purchase money security interest in the pool. Based on the foregoing, the court finds that AGCDC is a secured creditor and is entitled to relief from the automatic stay insofar as it maintains a purchase-money security interest in the Kayak pool. The court further finds that the Debtor is entitled to avoid the lien of AGCDC in other household items listed on the second Security Agreement insofar as the lien is a non-possessory, nonpurchase-money security interest in household goods held by the Debt- or for personal use and impairs an exemption to which the Debtor is entitled. An appropriate order will be entered. ORDER And now, to-wit, this 2nd day of July, 1990, for the reasons set forth in the foregoing Memorandum Opinion, it is ORDERED that Debtor’s Motion to Avoid Lien is granted in part and denied in part. Regarding the household items, the Motion is granted. Regarding the Kayak pool, the motion is denied. It is FURTHER ORDERED that American General Consumer Discount Company’s Motion to Terminate Automatic Stay regarding the Kayak swimming pool is GRANTED.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	84 B.R. 604	NF	Matthews v. Transamerica Financial Services	MEMORANDUM ORDER NANCY C. DREHER, Bankruptcy Judge. This matter came on for hearing before the undersigned on February 18, 1988, on the Debtors’ motion, pursuant to 11 U.S.C. § 522(f), to avoid the lien of Farmers Home Administration (“FmHA”) on certain of the Debtors’ farm machinery, equipment, and a vehicle to the extent the lien would otherwise impair their allowed exemptions. Timothy D. Clements appeared on behalf of the Debtors; Roylene A. Champeaux appeared on behalf of FmHA. Based upon all the records and files herein and upon arguments of counsel, the court makes the following Memorandum Order. FACTS In this chapter 7 bankruptcy case, Debtors, William F. Hemingson and Connie J. Hemingson (“Debtors”), filed a schedule B-4 in which they claimed 19 pieces of machinery, equipment and certain vehicles valued at $9,300 as exempt. Before the court now is Debtors’ motion, pursuant to 11 U.S.C. § 522(f), to avoid liens on this 605 property. Included claimed as exempt are the following pieces of equipment and machinery and a vehicle on which the FmHA claims a purchase money security interest: (1) N.H. #512 manure spreader ($400), (2) Allis Chalmers baler ($700), (3) 1965 Owatonna Swather SP ($500), (4) milking equipment (but not a bulk tank) ($500); and (5) a 1965 AC tractor with duals ($2,000). within the items The facts are undisputed. FmHA’s first advance to the Debtors was made on June 2, 1981, at which time debtors obtained a $70,000 operating loan from FmHA. Certain of the proceeds from this initial loan were used to purchase the manure spreader, baler, swather, and milking equipment which are in issue here and the balance was used to refinance bank debt and to pay initial operating expenses of the farm. On April 7, 1982, FmHA made an additional $13,000 advance to the Debtors. Debtors used the loan proceeds from this second advance to purchase dairy cows and for annual operating expenses. At the time of the second advance, the first loan was consolidated with the original operating loan, leaving a balance owing of $83,689.01. On June 22, 1983, FmHA made a third advance, this one in the sum of $5,000, some portion of which was used to purchase the 1965 AC tractor in issue here. Again, this advance was consolidated with the previous operating loans to provide for an outstanding principal balance of $94,797.04. Finally, on February 5, 1985, the operating loan of $94,794.04 was rescheduled with a 25% debt set aside. The debt set aside provided that up to 25% of Debtors’ FmHA debt could be placed in a noninterest accrual status for five years. The new principal balance on the operating loan was $101,-125.96, tl\|e loan balance increase being due to accrued interest. 1 In connection with this series of advances on the operating loan, Debtors provided FmHA with an original Security Agreement dated June 2, 1981 and revised Security Agreements dated April 2, 1982; June 8, 1983; July 19, 1984; and July 8, 1986. The Security Agreements contain essentially the same language and reflect that the operating loan was at all times secured by a first lien on crops, livestock, livestock products, farm and other equipment and inventory. The only changes made from time to time in the collateral securing the operating loan reflected additions or deletions of specific items of machinery as they were purchased or sold. An original financing statement was filed by FmHA on June 2, 1981 and was amended and continued May 30,1986. The promissory notes, if any, evidencing the several advances by the FmHA were not offered in evidence by either party. At all times the amount owed on the operating loan vastly exceeded the claimed value of the manure spreader, baler, swather, milking equipment and tractor. DISCUSSION Debtors argue that FmHA’s lien on the five pieces of farm machinery and equipment in dispute is a nonpossessory, nonpur-chase money security interest. While Debtors concede that FmHA had a purchase money security interest in the manure spreader, baler, swather, and milking equipment as a result of the June 1981 loan transaction and a purchase money security interest in the tractor arising out of the June 1983 advance, they assert that the FmHA lost its purchase money status when it refinanced the original operating loan and consolidated subsequent loans in 1982 and 1983 and, when in 1985, the FmHA rescheduled the debt with a set aside. Therefore, the Debtors claim the lien is avoidable because it impairs an exemption debtors are entitled to under 11 U.S.C. § 522(f). Section 522(f) provides in pertinent part: (f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien 606 impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is— * * * * * * (2) a nonpossessory, nonpurchase money security interest in any— * * * * * * (B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; [[Image here]] Id. In order to avoid a lien under section 522(f), the Debtors must prove the following elements: 1. That the debtor has an interest in the property in question; 2. That the creditor’s lien impairs an exemption of the property to which the debtor would have been entitled under 11 U.S.C. § 522(b), in the absence of the lien. 3. That the lien is a nonpossessory, non-purchase money security interest in the property; and 4. That the lien attaches to goods in either of the specific categories set forth in §§ 522(f)(2)(A), 522(f)(2)(B) or 522(f)(2)(C). In re Psick, 61 B.R. 308, 312 (Bktcy.D.Minn.1985). The only element at issue in this case is the third; elements one, two and four are not questioned. Because the Bankruptcy Code does not define “purchase money security interest”, courts have uniformly looked to the law of the state in which the security interest was created for direction on the question. E.g., Billings v. AVCO Colorado Industrial Bank (In re Billings), 838 F.2d 405 (10th Cir.1988); Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797, 800 (3rd Cir.1984). The Minnesota Uniform Commercial Code defines “purchase money security interest” as follows: A security interest is a “purchase money security interest” to the extent that it is (a) taken or retained by the seller of the collateral to secure all or part of its price; or (b) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. Minn.Stat. § 336.9-107 (1986). The effect of refinancing or consolidating a purchase money security interest is not addressed by this definition and the Minnesota state courts have not confronted this issue. Other state courts have generally held that refinancing a purchase money mortgage does not destroy its purchase money status. E.g., Powers v. Pence, 20 Wyo. 327, 123 P. 925, 932-33 (1925). See Wrightman v. National Bank of Riverton, 610 P.2d 1001, 1005 (Wyo.1981). Cf. Haley v. Austin, 74 Colo. 571, 223 P. 43, 45 (1924) (intent of the parties determines whether a refinanced debt will retain its purchase money character). The federal courts that have considered directly the effect on a purchase money security interest of refinancing or consolidation are not in agreement, and the Circuits are split. Some hold that refinancing a purchase money loan by paying off the old loan and extending a new one automatically extinguishes the purchase money character of the original loan. See Dominion Bank of Cumberlands v. Nuckolls, 780 F.2d 408, 413 (4th Cir.1985); Matthews v. Transamerica Financial Services (In re Matthews), 724 F.2d 798, 800 (9th Cir.1984); Roberts Furniture Co. v. Pierce (In re Manuel), 507 F.2d 990, 993 (5th Cir.1975). Cf. Southtrust Bank of Alabama v. Borg-Warner Acceptance Corp., 760 F.2d 1240, 1243, reh’g denied, 774 F.2d 1179 (11th Cir.1985) (purchase money lender’s exercise of after acquired property and further advance clauses transformed purchase money security interest to non-purchase money status). The preceding courts adopt what is called the “transformation rule.” Those courts reason that refinancing transforms a purchase money security interest into a non-purchase money security interest because the refinancing does not enable the debtor to acquire rights in the collateral. Courts rejecting the transformation doctrine reason that a security interest can have a “dual status” and thus a refinancing or an advance of additional funds does 607 not destroy the purchase money aspect of the security interest. See Billings, 838 F.2d at 409-10; Pristas, 742 F.2d at 801-02; First National Bank & Trust Co. v. Daniel, 701 F.2d 141, 142 (11th Cir.1983); Geist v. Converse County Bank, 79 B.R. 939, 942 (D.Wyo.1987) (purchase money security interest after refinancing is preserved to the extent the balance remaining on the original loan is transferred to the renewal note); Russell v. Associates Financial Services Co. of Oklahoma, Inc. (In re Russell), 29 B.R. 270, 274 (Bktcy.W. D.Okla.1983); Holland v. Associates Finance (In re Holland), 16 B.R. 83, 87-88 (Bktcy.N.D.Ohio 1981). Under the “dual status” rule, a lender’s refinancing by renewal does not destroy its previously obtained purchase money security interest. Geist, 79 B.R. at 942. The Eighth Circuit has not ruled on this issue. This court accepts the “dual status” rule because it gives credence to the Uniform Commercial Code. Section 9-107 states that a security interest is a purchase money security interest to the extent that it is taken by one making a loan that enables a debtor to acquire rights in the collateral. The courts that follow the transformation rule merely exalt form over substance. Geist, 79 B.R. at 942. As stated by the Third Circuit: The “transformation rule” is misguided because it fails to consider the import of the critical language in section 9-107— “to the extent.” By overlooking that phrase, the “transformation” courts adopt an unduly narrow view of the purchase-money security device. Their reasoning is inconsistent with the Commercial Code, which gives favored treatment to those financing arrangements on the theory they are beneficial both to buyers and sellers. By contrast, acceptance of the “dual status” rule, with its pro tanto preservation of purchase-money security interests, is more in harmony with the Code. Tolerance of “add-on” debt and collateral provisions, properly applied, carries out the approbation for purchase-money security arrangements and simplifies repeat transactions between the same buyer and seller. Pristas, 742 F.2d at 801. Debtors argue In re Psick, 61 B.R. 308 (Bktcy.D.Minn.1985) controls in this case because it states “renewals and executions of new security agreements constitute novations which convert the original purchase money security interests to non-purchase money security interests. Id. at 312. Psick is distinguishable from this case because its holding is predicated upon the concept of a novation. A novation is dependent upon the intent of all parties to extinguish the old obligation and create a new obligation. Zweibahmer v. Farmers Home Administration (In re Zweibahmer), 25 B.R. 453, 457 n. 11 (Bktcy.N.D.Iowa 1982). Nothing in the record or arguments of counsel indicates it was the intent of both parties to extinguish the original operating loan and create a new one. Moreover, to the extent the Psick decision adopts the transformation rule, I disagree. Another decision in this district, not cited by the parties, but cited in Psick is also not applicable. See In re Slechta, BKY 3-84-1456, slip op. at 3-4 (Bktcy.D.Minn. June 26, 1985) [available on Westlaw, 1985 WL 17579]. In Slechta the loan documents specifically and clearly provided that later advances, coupled with a new Security Agreement, were to amend and replace any earlier loan agreements outstanding between the parties so that no further reference to such earlier agreements was necessary. Thus, Slechta was a case wherein the clear intention of the parties was to execute a subsequent loan and security agreement constituting a novation of earlier notes. To the contrary, in this case there is no language in FmHA’s Security Agreements which demonstrates an intention to extinguish the original operating loan by novation as a result of executing a new loan agreement or refinancing the existing agreement. And, as previously noted, to the extent notes and new notes were written, and might have contained such evidence, they were not offered in evidence. This court’s conclusion that refinancing of a purchase money loan does not auto 608 matically extinguish the creditor’s purchase money security interest in the debt- or’s collateral requires that the Debtors’ motion be denied. When a debt secured by a purchase money security interest is refinanced, and the collateral remains as security for the refinanced debt, and as in this case where additional funds were advanced to purchase new collateral and the amount of the outstanding debt at all times exceeded the value of the collateral purchased with the original advance, neither the debt nor the security interest has necessarily changed its essential character. Thus a creditor who renegotiates a purchase money loan by refinancing or advancing funds for new purchases is not committing the type of overreaching section 522(f) aims to prevent or violating the policy against overreaching which spawned the transformation decisions. The dual status rule is sensitive to the policy concerns of section 522(f) and section 9-107 of the Uniform Commercial Code, and supportive of a public policy encouraging refinancing under circumstances such as those applicable here, in that the creditor has the burden of demonstrating the extent to which a security interest retains purchase money status. See Geist, 79 B.R. at 943. In this case, FmHA has clearly met its burden. ORDER Based on the foregoing, IT IS HEREBY ORDERED THAT: Debtors have failed to establish that FmHA’s security interest in Debtors’ collateral is a nonpossessory, non-purchase-money security interest, and Debtors’ motion is, therefore, denied. 1. On May 8, 1984, FmHA made an advance in the amount of $9,060.00 to Debtors to refinance existing bank debt with the loan secured by the same chattel property as the operating loan. This loan was not consolidated with the operating loan, however, because the funding came from an emergency source.	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724 F.2d 798	63 B.R. 717	NF	Matthews v. Transamerica Financial Services	MEMORANDUM OPINION AND ORDER ARRAJ, District Judge. This matter is before the Court on an appeal from a decision of the United States Bankruptcy Court for the District of Colorado, Patricia A. Clark, Judge, denying Appellants’ motion to avoid a lien pursuant to 11 U.S.C. § 522(f), and denying confirmation of Appellants’ Chapter 13 plan. The sole determinative issue is whether the refinancing of Appellants’ obligation under a previous transaction creating a purchase money security interest destroyed the purchase money character of that interest, thereby subjecting it to avoidance under § 522(f). BACKGROUND On July 14, 1984, the Appellants (Debtors) purchased certain household goods on credit from Factory Outlet Store. These purchases were secured by a purchase money security interest. This obligation was subsequently assigned to Avco Colorado Industrial Bank (Avco), the respondent. On May 2?, 1985, at Appellants’ request, Avco refinanced the obligation under the prior transaction so that the monthly installments owed to Avco would be smaller in amount. Under the refinancing arrangement the old note and security agreement were can-celled and a new note and security agreement were executed. On the back of the loan application, Avco stated that it was to keep the purchase money security interest. No additional collateral was taken as security, and except for $9.67, no additional sums of money were paid to the Appellants. This refinancing arrangement lowered the Appellants’ monthly payments from $105.50 per month to $58.00 per month. The Appellants made one payment under the new arrangement, then filed a Chapter 13 Bankruptcy on October 29, 1985. The Appellants also filed a motion to avoid Avco’s lien on the above-mentioned household goods pursuant to 11 U.S.C. § 522(f). As grounds for avoidance, the Appellants urged the Bankruptcy Court to adopt the Transformation Rule of Matthews v. Transamerica Financial Services (In re Matthews), 724 F.2d 798 (9th Cir.1984), which held that refinancing by paying off the old loan and extending a new one extinguishes the loan’s purchase money character, thereby subjecting it to avoidance under § 522(f). Avco filed an objec 719 tion to the avoidance of the lien on the basis that Appellant’s household goods were still secured by a purchase money security agreement and therefore their lien could not be avoided under § 522(f). Avco also contended that since the lien could not be avoided, and since the plan did not deal with its secured claim, under 11 U.S.C. § 1325(a)(5)(B) the plan could not be confirmed. A hearing on this matter was held in the United States Bankruptcy Court for the District of Colorado on January 30, 1986. At the conclusion of this hearing, Bankruptcy Judge Patricia A. Clark rejected application of the “Transformation Rule” in favor of determining the purchase money character of the transaction from all the surrounding circumstances, including the intent of the parties. Judge Clark then found that Appellants had not satisfied their burden of establishing that the parties intended the subsequent note to extinguish the original debt and purchase money security interest. Therefore, Judge Clark denied the motion to avoid the lien pursuant to § 522(f), and denied confirmation of Appellants’ Chapter 13 plan. Appellants then filed this appeal. DISCUSSION The standard of review at the District Court level is whether the findings of the Bankruptcy Judge are clearly erroneous. White House Decorating Company, Inc., v. Eckles (In re White House Decorating Company, Inc.) 607 F.2d 907, 910 (10th Cir.1979). For the reasons set forth below, this Court holds that the findings of the Bankruptcy Judge are not clearly erroneous, and therefore affirms the order of the Bankruptcy Court. Appellants’ contention is that the refinancing should have the effect of destroying the purchase money character of Avco’s security interest, thereby subjecting it to avoidance under § 522(f). Although this question has previously been addressed by several courts, disagreement still exists as to the appropriate resolution. See Matthews v. Transamerica Financial Services (In re Matthews), 724 F.2d 798 (9th Cir.1984); (adopting the “Transformation Rule:” that refinancing by paying off the old loan and extending a new one extinguishes its purchase money character); In re Stevens, 24 B.R. 536 (Bkrtcy.D.Colo.1982); (adopting the rule that the purchase money character is to be determined from all the surrounding circumstances). This issue has never been decided by the 10th Circuit. Once purchase money status is lost, a consumer debtor in bankruptcy may be able to avoid the security interest under 11 U.S.C. § 522(f), which states: (f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is— (1) a judicial lien; or (2) a nonpossessory, nonpurchase-mon-ey security interest in any— (A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor; The legislative history of § 522(f) indicates its purpose: Frequently, creditors lending money to a consumer debtor take a security interest in all of the debtor’s belongings, and obtain a waiver by the debtor of his exemptions. In most of these cases, the debtor is unaware of the consequences of the form he signs. # * * * * The exemption provision allows the debt- or, after bankruptcy has been filed... to undo the consequences of a contract of adhesion, signed in ignorance, by permitting the invalidation of nonpurchase money security interests in household goods. Such security interests have too often been used by over-reaching creditors. 720 The bill eliminates any unfair advantage creditors have. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 127 (1977), U.S.Code Cong, and Admin. News 1978, pp. 5787, 6088. Clearly, Congress enacted § 522(f) to allow the consumer debtor to avoid security interests in their already owned, used household goods. In re Gibson, 16 B.R. 257, 266 (Bkrtcy.D.Kan.1981). Congress did not intend a debtor to avoid a lien which he granted in order to purchase the property in the first’instance. In re Russell, 29 B.R. 270, 274 (Bkrtcy.W.D.Okla.1983); In re Moore, 33 B.R. 72, 74 (Bkrtcy.D.Ore.1983). The Bankruptcy Act does not define “purchase money security interest.” Therefore, the Court must look to Colorado law. Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797, 800 (3rd Cir.1984). Colo.Rev.Stat. § 4-9-107 (1973) defines purchase money security interest as follows: A security interest is a “purchase money, security interest” to the extent that it is: (a) taken or retained by the seller of the collateral to secure all or part of its price; or (b) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. (Emphasis added). Those cases which have adopted the “Transformation Rule” have done so based on an interpretation of Uniform Commercial Code Comment 2 to § 9-107. In Colorado this Comment provides: When a purchase money interest is claimed by a secured party who is not a seller, he must of course have given present consideration. This Section therefore provides that the purchase money party must be one who gives value “by making advances or incurring an obligation”: the quoted language excludes from the purchase money category any security interest taken as security for or in satisfaction of a pre-existing claim or antecedent debt. These cases have held that Comment 2 implies the exclusion from the purchase money category of any security interest which secures more than the collateral’s own price. This Court does not read Comment 2 as substantially altering § 9-107, which does not require that an item secure only its purchase price. In re Stevens, 24 B.R. 536, 538 (Bkrtcy.D.Colo.1982). The only way “to the extent” can be given meaning is to find that a secured debt may be split into two parts, a purchase money part constituting so much of the debt as represents the price of the collateral, and a nonpurchase money part constituting the “add on” debt. In re Russell, supra at 273; In re Gibson, supra at 267. The “Transformation Rule” is misguided because it fails to consider the import of the critical language of § 9-107— “to the extent.” By overlooking that phrase, these cases adopt an unduly narrow view of the purchase money security device. Their reasoning is inconsistent with the Commercial Code, which gives favored treatment to purchase money security interests on the theory that they are beneficial to both buyers and sellers. Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797, 801 (3rd Cir.1984). This Court agrees with the Bankruptcy Court that application of the “Transformation Rule” to this case would work unintended and inequitable results. Here, the only added obligation incurred by the Appellants is an increased interest rate, and the only added burden on Avco is an extended payment period. The Bankruptcy Judge found that these changes were intended only to reduce the monthly payments, and were solely for the convenience of the Appellants. Application of the rule would therefore result in an act in the nature of a favor by the creditor costing that creditor his purchase money security interest in his collateral. Indeed, applying this rule would yield the undesirable result of discouraging creditors from refinancing consumer loans. In re Gayhart, 33 B.R. 699, 701 (Bkrtcy.N.D.Ill.1983). 721 Therefore, this Court affirms the Bankruptcy Court’s rejection of the “Transformation Rule,” and its decision to look to all the facts of this particular transaction to determine whether the purchase money character of the transaction has been retained. In re Stevens, supra at 538. This approach is consistent with the Uniform Commercial Code, and avoids the improper use of § 522(f) by consumer debtors to avoid purchase money liens. See In re Gibson, supra at 266. In the present case, the Bankruptcy Judge found no evidence that the parties intended the May 29, 1985, note to be a payment, satisfaction, or discharge of the debt evidenced by the note of July 14,1985. Such an agreement, if one existed, would have effected a novation wherein the original debt was extinguished and a new note taken in substitution. In re Holland, 16 B.R. 83, 88 (Bkrtcy.N.D.Ohio 1981). A new note given in lieu of an existing note between the same parties and for the same indebtedness, even at a higher rate of interest and due at a later date, is not given for a new consideration, and, therefore, does not constitute a novation. First National Bank and Trust Company v. Daniel, 701 F.2d 141, 142 (11th Cir.1983) [(quoting Citizens & Southern National Bank v. Scheider, 139 Ga.App. 475, 228 S.E.2d 611 (1976)]. As the Bankruptcy Judge found, to accept the Appellants’ contention that the refinancing constituted a new and distinct loan would be to ignore the substance of the refinancing transaction. Though in form the original note was cancelled, its entire balance was absorbed into the refinancing loan. To the extent of that balance, the purchase money security interest also survives, because what is owed under the original note is not cancelled, but merely transferred to, the new note. Consequently, the refinancing changes neither the character of the balance due under the first loan nor the security interest taken under it. In re Russell, supra. Therefore, the Court holds that the Bankruptcy Court’s finding that Avco has a purchase money security interest in the collateral to the extent of the balance owed on the original note of $1,087.58, less $58.00 for the one payment made under the new note, for a total of $1,029.58, is not clearly erroneous. The Court further finds that the Bankruptcy Court’s decision not to confirm the Appellants’ Chapter 13 plan is not clearly erroneous. Accordingly, it is ORDERED that the order entered by Bankruptcy Judge Clark on February 10, 1986, is AFFIRMED.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	52 B.R. 314	NF	Matthews v. Transamerica Financial Services	OPINION EMIL F. GOLDHABER, Chief Judge: The matter on point is whether a purchase-money security interest loses its character as such for purposes of lien avoidance under 11 U.S.C. § 522(f) of the Bankruptcy Code (“the Code”), when the debtor and the creditor effect a novation of the loan agreement. Based largely on binding authority from the Court of Appeals, we conclude that the novation does not destroy the purchase-money nature of the security interest. We outline the facts of this controversy as follows: 1 The debtors purchased certain household goods on credit from Silo, Inc. (“Silo”), and in exchange it is undisputed that the debtors granted Silo a purchase-money security interest in those goods. The note and the security interest were subsequently assigned by Silo to Credi-thrift of America, Inc. (“Credithrift”). Cre-dithrift and the debtors thereafter refinanced the loan whereby new loan documents were generated, a new security agreement was signed and “fresh cash” given to the debtors. By this act of refinancing the parties intended a novation of the earlier loan contract by the new one. Under chapter 7 of the Code the debtors then filed a petition for relief in which they claim as exempt the goods purchased from Silo. In order to avoid Credithrift’s encumbrance on this property, the debtor filed a motion to avoid said lien under § 522(f). Under § 522(f) of the Code a debtor may avoid a lien on his property to the extent that such lien impairs his exemptions if the lien is: “(1) a judicial lien; or (2) a nonpos-sessory, nonpurchase-money security interest in any — (A) household goods-” The sole question for consideration under the above provision is whether the security interest retained its purchase-money nature. The Pennsylvania Uniform Commercial Code defines a purchase-money security interest as follows: § 9107. Definition: “purchase money security interest” A security interest is a “purchase money security interest” to the extent that it is: (1) taken or retained by the seller of the collateral to secure all or part of its price; or (2) taken by a person who by making advances or incurring an obligation 316 gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used. 13 Pa.Cons.Stat. § 9107 (Purdon 1984). The fact that a purchase-money security interest was assigned to one other than the original financer does not cause the security interest to lose its purchase-money status, since the assignee is subrogated to the rights of the assignor. The debtors do not contend otherwise. Thus, Credithrift stands in the same stead as did Silo previously. We now confront the question of whether a refinancing or novation of a previously issued loan causes a transformation of the supporting purchase-money security interest into a nonpurchase-money one. On this point the United States Court of Appeals for the Third Circuit has recently spoken. Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797 (3d Cir.1984). In Pristas the Court of Appeals affirmed a well reasoned decision by our colleague on the bankruptcy bench, The Honorable Thomas C. Gibbons, that the consolidation and refinancing of several loans underlying a purchase-money security interest did not destroy the purchase-money character of the security interest “to the extent that” the interest was “taken or retained by the seller of the collateral to secure all or part of its price.” Id.; § 9107. The Court of Appeals stated: The issue presented here has been addressed by a number of bankruptcy courts with varying results. Some have adopted the “transformation rule,” which holds that if an item of collateral purports to secure not only its own purchase price but also that of other items, the security interest that existed before the “add on” procedures is transformed into nonpurchase-money status. Other courts have differed, holding that a security interest can have a “dual status” and that the presence of a non-purchase-money security interest does not destroy the purchase-money aspect. We believe that the latter view is correct. The “transformation rule” is misguided because it fails to consider the import of the critical language in section 9-107- “to the extent.” By overlooking that phrase, the “transformation” courts adopt an unduly narrow view of the purchase-money security device. Their reasoning is inconsistent with the Commercial Code, which gives favored treatment to those financing arrangements on the theory they are beneficial both to buyers and sellers. By contrast, acceptance of the “dual-status” rule, with its pro tanto preservation of purchase-money security interests, is more in harmony with the Code. Tolerance of “add-on” debt and collateral provisions, properly applied, carries out the approbation for purchase-money security arrangements and simplifies repeat transactions between the same buyer and seller. Although not precisely on point, Fedders Financial Corporation v. Chiarelli Brothers, 221 Pa.Super. 224, 289 A.2d 169 (1972), is an indication that the Pennsylvania courts follow a similarly generous reading of section 9-107. Pristas, 742 F.2d at 800-01. The debtors attempt to distinguish the facts in Pristas with their situation in which they assert that Credithrift and they effected a novation of the loan. A novation is defined as the acceptance of a new promise for a previously existing one. Gordon Bros. v. Kelley, 92 Pa.Super. 485 (1928). The essential elements of a novation are the displacement and extinction of a prior contract, the substitution of a new contract, the consent of the parties, and the validity of the new contract. Jones v. Com. Casualty Co., 255 Pa. 566, 100 A. 450 (1917). Even granting that a novation has been implemented to cancel the original loan document creating the purchase-money security interest and to generate a new security agreement, such a novation does not nullify the purchase money aspect of 317 the original transaction. Although no mention of the term “novation” is found in the opinion on Pristas, such an action apparently took place, yet the Court of Appeals held that the purchase-money character of the transaction was preserved. In sum, we find specious the debtors’ attempt to distinguish the essential facts of the instant case with those of Pristas. The debtors’ position is supportable by numerous cases which they cite, one of which issued from the Court of Appeals of the Ninth Circuit. Mathews v. Transamerica Financial Services, 724 F.2d 798 (9th Cir.1984). Although Mathews and the numerous other cases provide a tenable basis for the debtors’ stance, they are in direct conflict with Pristas. We are, of course, bound by Pristas. In accordance with the above discussion we will enter an order denying the debtors’ motion for lien avoidance under § 522(f). 1. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.	LIMITED_OR_DISTINGUISHED
724 F.2d 798	48 B.R. 916	D	Matthews v. Transamerica Financial Services	MEMORANDUM DECISION ROBERT CLIVE JONES, Bankruptcy Judge. Plaintiff, Bond’s Jewelers, Inc. (Bond), brought this adversary proceeding against the debtor, Todd W. Linklater, to determine the dischargeability of a debt under 11 U.S.C. § 523(a)(6) (Bankruptcy Code). The Court must determine whether a perfected purchase money security interest in consumer goods was lost when two or more retail installment contracts were consolidated. The Court must then decide whether the debtor’s sale of those consumer goods and conversion of the proceeds was willful and malicious and, thus, nondischargeable under Code § 523(a)(6). 918 On May 10, 1982, Bond sold the debtor several items of jewelry by retail installment contract. Under the terms of the contract, Bond retained title to each item until the full purchase price of the respective item was paid. In addition, the contract provided that: All add-on purchase balances will be added to the buyers existing contract in accordance with the terms thereof. Payments on any add-on consolidation balance will be allocated to sales as they occurred and security interest of seller is released with respect to any goods paid for. The debtor then executed a security agreement and financing statement covering the items purchased. Neither the security agreement, nor the financing statement was filed of record. On October 21,1982, the debtor returned and received credit for one of the items purchased on May 10. The debtor also purchased two additional items of jewelry under a retail installment contract. The language from the May 10 contract, quoted above, is also contained in the October 21 contract. The two contracts were then consolidated for accounting purposes, the balance of the May 10 contract being added to the October 21 contract. Again, the debtor executed a security agreement and financing statement, neither of which was filed. The debtor has not made any payments on the consolidated October 21 contract. In addition, the debtor sold the jewelry and subsequently filed his bankruptcy petition. Bond contends that it holds a perfected purchase money security interest in the consumer goods purchased on May 10 and on October 21. Bond argues that the debt- or sold the goods in contravention of the security interest and converted the proceeds and, therefore, the debt should not be discharged. The debtor contends that the purchase money security interest in the goods purchased on May 10 was lost when the respective contracts were consolidated on October 21. The debtor argues that after consolidation, the items purchased on May 10 secured not only their own price, but also the price of the items purchased on October 21. Therefore, Bond’s security interest in the consumer goods purchased on May 10 became a non-purchase money security interest. Since no financing statement was filed, Bond’s security interest in the consumer goods was unperfected, and thus, avoidable under Code § 522(f)(2)(A). The debtor concludes that Bond had no perfected purchase money security interest in the jewelry when it was sold and, thus, was effectively an unsecured creditor. Therefore, Bond was not injured by the debtor’s sale of the jewelry. The Bankruptcy Code does not define the term “purchase money security interest”. Therefore, the Court must look to state law for a definition. The Nevada Uniform Commercial Code (U.C.C.) states that “A security interest is a ‘purchase money security interest’ to the extent that it is taken or retained by the seller of the collateral to secure all or part of its price.” N.R.S. 104.9107(1). It is not necessary to file a financing statement to perfect a purchase money security interest in consumer goods. N.R.S. 104.9302(l)(d). “Consumer goods” are goods used or bought primarily for personal, family or household purposes. N.R.S. 104.9109(1). Bond and the debtor agree that jewelry is a consumer good. The parties also agree that Bond had a perfected purchase money security interest in the jewelry purchased on May 10. However, the parties dispute, and the Court must decide, whether a perfected purchase money security interest in consumer goods is lost when two or more retail installment contracts are consolidated. A number of courts have decided this issue, and two “rules” have emerged: the “transformation rule” and the “dual status rule”. The transformation rule states that if collateral secures its own purchase price as well as the purchase price of other goods, the purchase money security interest existing prior to the “add on” contract 919 is transformed into a nonpurchase money security interest. See In re Pristas, 742 F.2d 797, 800 (3d Cir.1984). The transformation rule, however, is typically applied in cases where neither the consolidated contract, nor state statute, allocates payments between the various debts. The policy underlying the transformation rule is to prevent over-reaching creditors from retaining title to all items covered under the consolidated contract until the last item purchased is paid for. See In re Manuel, 507 F.2d 990, 992 (5th Cir.1975); In re Norrell, 426 F.Supp. 435, 436 (M.D.Ga.1977); In re Kelley, 17 B.R. 770, 772 (Bkrtcy.E.D.Tenn. 1982); In re Krulik, 6 B.R. 443, 446 (Bkrtcy.M.D.Tenn.1980). The dual status rule states that the existence of a nonpurchase money security interest in goods does not terminate a purchase money security interest in those goods, to the extent that the collateral continues to secure its own price. See In re Pristas, supra, at 801; In re Moore, 33 B.R. 72, 74 (Bkrtcy.D.Ore.1983); In re Breakiron, 32 B.R. 400 (Bkrtcy.W.D.Pa.1983); In re Gibson, 16 B.R. 257, 269 (Bkrtcy.D.Kan.1981). The rationale behind the dual status rule comes from the language of U.C.C. § 9-107, which allows a purchase money security interest in goods “to the extent” that it secures the purchase price of the goods. The policies underlying U.C.C. § 9-107 are to encourage security agreements that benefit both buyer and seller, and to facilitate the sales of consumer goods. See In re Pristas, supra, at 801; In re Gibson, supra, at 267-68. The policies underlying both the dual status rule and the transformation rule are served when the dual status rule is properly applied. Application of the dual status rule requires the court to determine the extent to which goods secure their own purchase price and the extent to which those goods secure other purchases. In re Pristas, supra, at 801; In re Gibson, supra, at 268-69. If the allocation can be made, the purchase money security interest will remain intact to the extent that the collateral continues to secure its own price. Purchase money security interests that secure other goods will be deemed nonpur-chase money only to the extent that they secure the other goods. The allocation of payments between the various purchases may be made by agreement, mandated by statute, or provided by the court. In re Gibson, supra, at 269. One method of allocation that serves the policies of both the transformation rule and the dual status rule is the “first-in first-out” (FIFO) method. A FIFO system assigns the payments to debts as they occurred chronologically. Older debts are the first paid. A FIFO system allows a seller to retain a purchase money security interest in an item until the purchase price is fully paid. The FIFO system also prevents creditors from retaining title to, or a purchase money security interest in, goods for which the purchaser has completely paid. See J. White & R. Summers, Uniform Commercial Code § 23-7, at 922-23. In this case, the language of the contract provides a FIFO method of allocation. The contract states that payments will be “allocated to sales as they occurred and security interest of seller is released with respect to any goods paid for.” Since the contract allocates the payment equitably under a FIFO system, the Court holds that the Nevada Uniform Commercial Code permits a seller to retain a purchase money security interest in goods that also secure later purchases, to the extent that they secure their own purchase price. The purchase money security interest in the jewelry is not avoidable under 11 U.S.C. § 522(f)(2)(A). The case of In re Matthews, 724 F.2d 798 (9th Cir.1984), is not applicable here. The Matthews decision addressed the issue of whether a purchase money security interest in household goods is lost when the debt giving rise to the security interest is refinanced. In Matthews, the refinancing loan was given to pay off the existing loan, to pay insurance, and advance money to the debtor, not to purchase goods. The Mat *920 thews Court concluded that the purchase money security interest was lost and that the lien would be avoided under § 522(f)(2). In the present case, however, the earlier debt and security interest were not paid off or extinguished in the later transaction. Rather, the two loans were consolidated for accounting purposes, with a clear allocation of the payments to the respective purchases using the FIFO method. The debtor retained the right to a release of the security interest in the earlier purchase upon payment of the earlier debt. The Court must now determine whether the debt is nondischargeable. Code section 523(a)(6) states that “A discharge under § 727... does not discharge an individual debtor from any debt... (6) for willful and malicious injury by the debtor to another entity or to the property of another entity.” The term “willful and malicious”, as used in § 523(a)(6), does not necessarily mean ill will, spite, or personal hatred. An act injuring the property interests of another is willful and malicious for § 523(a)(6) purposes if it is without knowledge or consent, intentional, and unjustified or unexcused. See In re Singleton, 37 B.R. 787, 792 (Bkrtcy.D.Nev.1984); Matter of Graham, 7 B.R. 5, 7 (Bkrtcy.D.Nev.1980). When a debtor intentionally and knowingly sells collateral without the knowledge or consent of the secured creditor, the sale constitutes a willful and malicious act. The debt which the collateral secured then becomes nondischargeable under § 523(a)(6). See In re Cardillo, 39 B.R. 548, 551 (Bkrtcy.D.Mass.1984); In re Thomas, 36 B.R. 851, 853 (Bkrtcy.W.D.Ky. 1984); In re Clark, 30 B.R. 685, 687 (Bkrtcy.W.D.Ok.1983); In re Howard 6 B.R. 256, 258 (Bkrtcy.M.D.Fla.1980). In this case, the debtor was aware of Bond’s security interest in the jewelry. Nevertheless, the debtor sold it intentionally and without the creditor’s knowledge or consent causing injury to Bond’s interest in the jewelry. The debt, therefore, is nondis-chargeable. The foregoing shall constitute findings and conclusions. Plaintiff shall submit a form of judgment for entry by the Court.	LIMITED_OR_DISTINGUISHED
724 F.2d 1368	592 F. Supp. 1173	C	International Philanthropic Hospital Foundation v. Heckler	MEMORANDUM MERHIGE, District Judge. This is a civil action brought pursuant to 42 U.S.C. § 1395oo (f) to review a final decision of the Secretary of the United States Department of Health & Human Services (“the Secretary”). The plaintiffs are Virginia hospitals who are approved providers of hospital services under Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. Title XVIII establishes a federally-funded health insurance program for the elderly and disabled known as Medicare. Under Part A of the Medicare program, approved hospitals receive reimbursement directly from the program for services that they provide to such beneficiaries. In this action a group of provider hospitals challenge one aspect of the formula that Medicare uses to determine the amount of reimbursement due to them. The challenged aspect of the formula involves the method of accounting for pa 1175 tients in a hospital’s labor/delivery room area at the time the daily census of patients is taken. The complaint alleges that in 1976 the Secretary promulgated a new policy on accounting for such patients, in the form of Section 2345 of the Provider Reimbursement Manual (HIM-15). The hospitals claim that the policy unfairly dilutes the amount of their reimbursement, and they challenge its issuance on both procedural and substantive grounds. The Court’s jurisdiction over this challenge is premised on 42 U.S.C. § 1395oo (f)(1). 1 The matter is before the Court on cross-motions for summary judgment. The parties have fully briefed and argued the motions, and there are no genuine issues as to any material facts. Accordingly, the matter is now ripe for disposition. Substantive Background The Medicare statute fixes the amount of reimbursement for provider hospitals at “the lesser of (A) the reasonable cost of such services____ or (B) the customary charges with respect to such services...” 42 U.S.C. § 1395f(b)(1). The statute specifies that “the reasonable cost of any services shall be the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included, in determining such costs____” 42 U.S.C. § 1395x(v)(1)(A). The statute goes on to state guidelines to aid the Secretary in prescribing regulations on reasonable cost, in part, as follows:... the Secretary shall consider, among other things, the principles generally applied by national organizations____ Such regulations may provide for determination of the costs of service on a per diem, per unit, per capita, or other basis, may provide for using different methods in different circumstances, may provide for the use of estimates of costs of particular items or services____ Such regulations shall... take into account both direct and indirect costs of providers of services (excluding therefrom any such costs, including standby costs, which are determined... to be unnecessary in the efficient delivery of services...) in order that... the necessary costs of efficiently delivering covered services to individuals covered by [Medicare] will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by [Medicare] 42 U.S.C. § 1395x(v)(l)(A). The statute leaves to the regulations the method of prescribing formulas for reimbursement. The regulations divide hospital costs into three groups and provide separate reimbursement formulas for each; the three groups are the costs of routine services, costs for services in intensive care type units, and costs for ancillary services (such as X-ray). 42 C.F.R. § 405.452(b)(1). 2 “Routine services” are “the regular room, dietary, and nursing services, minor medical and surgical supplies, and the use of equipment and facilities for which a separate charge is not customarily made.” 42 C.F.R. § 405.452(d)(2). “Ancillary services” are “the services for which charges are 1176 customarily made in addition to routine services.” 42 C.F.R. § 405.452(d)(3). Intensive care type units are defined with detailed criteria not relevant here. 42 C.F.R. § 405.452(d)(10). The amounts reimbursable in each of these three categories of costs are computed separately and then added together to yield the hospital’s total reimbursement amount. Only the formula for reimbursing routine service costs is involved in this dispute. That formula may be summarized as follows: See 42 C.F.R. § 405.452(b)(1)(i) and (d)(7). Quite simply, the first equation in the calculation determines the average per diem cost for routine services, which the regulations define as “the amount computed by dividing the total allowable inpatient cost for routine services (excluding the cost of services provided in intensive care units... as well as nursery costs) by the total number of inpatient days of care (excluding days of care in intensive care units... and newborn days) rendered by the provider in the accounting period.” 42 C.F.R. § 405.-452(d)(7). In the second equation the average cost per diem is multiplied by the number of days of care provided to Medicare beneficiaries during the accounting period, which yields the total amount of reimbursement due for routine services. The regulations do not further define “inpatient day,” which is the denominator in the first equation and the focus of this dispute, in connection with the reimbursement formula for routine services. However, the same term is defined in a regulation dealing with another aspect of reimbursement determination 3 as “a day of care rendered to any inpatient” except for newborns or persons in an intensive care type inpatient hospital unit. 42 C.F.R. § 405.430(b)(5). Additional guidance on reimbursement methods is found in the manuals that the Secretary issues to interpret the reimbursement regulations. Section 2202.8 of HIM-15 itemizes the categories of services that are to be treated as ancillary rather than routine services. Labor/delivery room services are to be treated as ancillary, which means that the costs of the labor/delivery rooms themselves are grouped with other ancillary care costs and are recouped from Medicare where appropriate in accordance with the Medicare ancillary care cost formula. The hospitals do not dispute the treatment of the labor/delivery room area as an ancillary care area. Section 216.1 of Hospital Insurance Manual-10 (HIM-10) sets out the method for determining the “number of inpatient days of care” statistic (both the total and the number attributable to Medicare beneficiaries). The statistic is to be determined by an actual headcount of patients, to be conducted each night at midnight, the so-called “census-taking hour.” This much the hospitals also do not dispute. A question arises under the reimbursement rules discussed, supra, as to which patients should be included in the midnight headcount, to wit: If a patient is not physi 1177 cally located in a routine care area at the census hour, but is instead at that time located in an ancillary care area, should the patient be included in the count of patients for the routine services formula? If the answer is “yes” generally, should an exception be made for patients in the labor/delivery room ancillary care area? Before 1976, the Secretary’s position on this issue as applied to patients in the labor/delivery room area was unclear. From 1976 to the present, the Secretary’s position has been and is that patients in all ancillary care areas at the census hour, including those in the labor/delivery area, must be included in the count. HIM-10 § 216.1 states this proposition generally for all ancillary care areas, and HIM-15 § 2345, which was issued in 1976, clarifies it specifically with regard to patients in the labor/delivery room area. The plaintiffs challenge the policy embodied in HIM-15 § 2345, questioning the appropriateness of the Secretary’s position as applied to patients in the labor/delivery room area. While the plaintiffs’ arguments need not be fleshed out in detail at this point, a brief explanation of the essence of their challenge should hopefully put this background information in focus. As the plaintiffs see it, the effect of HIM-15 § 2345 is that labor/delivery room patients must be included in the denominator of the first equation, which challenges average cost per diem for routine services, even though the attendant labor/delivery room costs are not included in the numerator of the equation. This computation method, the plaintiffs contend, unfairly dilutes their reimbursement for routine services, because when the denominator in the first equation goes up without a comparable increase in the numerator, the average cost per diem statistic goes down. When the lower average cost per diem statistic is plugged into the second equation in the reimbursement formula, the total reimbursement goes down as well. 4 The Secretary agrees that under the policy labor/delivery room patients must be counted in the denominator and, because labor/delivery room services are ancillary rather than routine,' labor/delivery room costs must be excluded from the numerator. However, the Secretary does not agree that this computation method unfairly dilutes reimbursement as the plaintiffs contend. The Court notes that implicit in plaintiffs’ argument is a factual assumption 1178 which, although uncontested should be, for conceptual purposes, made explicit here. The assumption is that virtually no labor/delivery room patients are Medicare beneficiaries. If Medicare beneficiaries were as numerous proportionately among labor/delivery room patients as they are in the total routine care hospital population, then the inclusion of labor/delivery room patients in the routine care headcount would have no effect on the hospital’s ultimate reimbursement. This can be seen as follows: while inclusion of labor/delivery patients would decrease the average cost per diem statistic just as the plaintiffs say, it also would increase the multiplier in the second equation (the “number of inpatient days of care rendered to Medicare beneficiaries”) by the number of inpatient days of care provided to Medicare patients in the labor/delivery room area. So, in the second equation of the reimbursement formula, the average cost per diem statistic would decrease, but the “inpatient days of care to Medicare beneficiaries” statistic would increase. The two changes would cancel each other out exactly, if Medicare patients were proportionately as numerous among the labor/delivery room patients as in the routine care hospital population at large. 5 As a practical matter, all parties acknowledge that Medicare beneficiaries are indeed not as plentiful among labor/delivery room patients as in the hospital at large. It is rare (although not unheard of or impossible) that a Medicare beneficiary is a woman of child-bearing capacity. However, plaintiffs’ occasional suggestions that their argument is not dependent on this fact, and that this fact merely exacerbates the problem, are incorrect: absent this fact, plaintiffs’ complaint loses much viability. Procedural Background Medicare reimbursement to a given hospital is determined annually on the basis of a cost report that the hospital prepares. The hospital files the report with a so-called “fiscal intermediary,” which audits the report and adjusts it, if necessary, to ensure compliance with the Medicare manuals and regulations. 42 U.S.C. § 1395h. If the hospital is not satisfied with the amount of reimbursement that the intermediary determines is due, the hospital may appeal the intermediary’s determination to the Provider Reimbursement Review Board (“the Board”), which has the power to affirm, modify, or reverse the intermediary’s determination. 42 U.S.C. § 1395oo(a) and (d). A decision of the Board becomes final unless the Secretary reverses or modifies it within sixty (60) days, which she may do on her own motion. 42 U.S.C. § 1395oo(f). The hospital may then seek judicial review of an adverse decision of the Board or the Secretary in accordance with the provisions of the Administrative Procedure Act, 5 U.S.C. § 551 et seq. 42 U.S.C. § 1395oo(f). 1179 In this case, the intermediary required the plaintiff hospitals, over their objections, 6 to comply with HIM-15 § 2345 in computing their average cost per diem for routine services. Because they were thereby forced to include labor/delivery patients in their headcount, the hospitals’ computed average cost per diem was less than it otherwise would have been and they consequently were entitled to less Medicare reimbursement than they would otherwise have received. The hospitals appealed the intermediary’s determination to the Board. The Board in a 3-1 decision reversed the determination on the merits, 7 finding that the policy embodied in HIM-15 § 2345 would improperly dilute the hospitals’ reimbursement. The Secretary, through her designee the Deputy Administrator of the Health Care Financing Administration (HCFA), then reversed the Board, upholding HIM-15 § 2345. This appeal followed. Discussion The hospitals argue that the Secretary’s policy on labor/delivery days violates the Medicare statutes and regulations; constitutes on uncompensated taking of their property without due process of law; and is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or “unsupported by substantial evidence.” 5 U.S.C. § 701 et seq. They also argue that the challenged policy represents a substantive change in Medicare policy that should not have been made without the notice-and-comment rulemaking safeguards of 5 U.S.C. § 553. Procedural Challenge The Secretary acknowledges that she did not follow formal notice-and-comment rule-making procedures in issuing HIM-15 § 2345, but she contends that there was no need for her to do so because the rule is merely interpretive. The Secretary may not avoid formal notice-and-comment by characterizing a regulatory change as a mere “clarification” or “interpretation," Fairfax Nursing Center, Inc. v. Califano, 590 F.2d 1297, 1301 (4th Cir.1979). The Court is satisfied, however, that she has not attempted to do any such thing here. The regulations set out a detailed reimbursement formula that turns on, but does not define, the term “inpatient days.” While the term appears to be self-explanatory, and it could reasonably be construed to have the meaning the Secretary now gives it, questions could and did arise concerning its application. The Secretary answered those questions by giving an interpretation of the term in manual provisions HIM-15 § 2345 and HIM-10 § 216.1. “The [manuals] expressly [provide] that [they] do not have the force of regulations. Therefore, [they] need not have been promulgated in accordance with the standard notice and comment procedure, [citations omitted].” Fairfax Nursing Center v. Califano, 590 F.2d at 1301. Even under the test the plaintiffs suggest for distinguishing substantive from interpretive rules, Continental Oil Co. v. Burns, 317 F.Supp. 194, 197 (D.Del.1970), the Court is satisfied that the contested manual provisions are interpretive. They are neither complex nor pervasive; they do not work a drastic change in existing law; they are not retroactive; and compliance engenders no practical difficulties of the sort the Continental Oil court envisioned. Substantive Challenge A. Standard of Review The Court must set aside an agency action found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or unsupported by 1180 substantial evidence. 5 U.S.C. § 706. The plaintiffs acknowledge that this is the applicable general standard, but they suggest that less deference than usual is due to the agency’s interpretive policy challenged here. The Fourth Circuit Court of Appeals has addressed the governing standard for interpretive rules in unambiguous as terms: “An agency’s interpretation of its own regulations should be accepted by the courts unless it is shown to be unreasonable or inconsistent with statutory authority, [citations omitted.]” Fairfax Nursing Center v. Califano, 590 F.2d at 1301. The plaintiffs suggest that less deference is due the policy challenged here because, they assert, the agency’s interpretations on the issue have been far from consistent. “Varying decrees of deference are accorded to administrative interpretations, based on such factors as the timing and consistency of the agency’s position, and the nature of its expertise.” Batterton v. Francis, 432 U.S. 416, 425 n. 9, 97 S.Ct. 2399, 2405 n. 9, 53 L.Ed.2d 448 (1977); General Electric Co. v. Gilbert, 429 U.S. 125, 141-142, 97 S.Ct. 401, 410-411, 50 L.Ed.2d 343 (1976); Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566, 100 S.Ct. 790, 797, 63 L.Ed.2d 22 (1980). Medicare had no policy on labor/delivery room days before 1972; the issue apparently did not come to its attention before then. In October of 1972, the Blue Cross Association raised the issue in comments it submitted regarding a proposed new cost reporting form and accompanying instructions: Since the specific cost of labor rooms is excluded, [from total routine service costs] it would be inappropriate to further dilute the inpatient routine per diem cost by including labor room days in total adult days. We therefore recommend... excluding] all labor room days from total inpatient days____ 8 The Medicare Bureau apparently simply incorporated this suggestion in the final instructions issued in November, 1972: “If the provider maintains records of Labor Room days they should not be included in any of the inpatient day counts used for cost apportionment of routine services____” 9 This interpretation of “inpatient days” appears directly contrary to the Secretary’s present interpretation, although the record reflects at least some ambiguity: the instruction may have been intended only to prevent double-counting of labor/delivery room days by hospitals that kept a separate count of labor/delivery room days, in addition to their routine services count. 10 In any event, the record does not indicate that the November 1972 instructions represented the considered judgment of the agency on the issue at the time. The agency shortly became aware that the November 1972 instruction was being interpreted to justify excluding patients in the labor/delivery room areas from the inpatient headcounts altogether, and in 1974 the agency set out to develop and clarify its position on the issue. It made some efforts to communicate its policy in 1974 and 1975, but the Secretary concedes that the policy was not finally clarified until July and August, 1976, when interpretive bulletins issued to intermediaries mandated the inclusion of labor/delivery room days in the inpatient headcounts. The plaintiffs have not satisfied the Court that this history evidences significant prior inconsistent interpretations from the agency. Cf. Northwest Hospital, Inc. v. Hospital Service Corp., 687 F.2d 985, 991 (7th Cir.1982). The agency simply did not address the problem until November, 1972, and even then it apparently did not consider and resolve it in any deliberate fashion. Less than two years thereafter, when the agency became aware of how the 1972 instructions were being interpreted, the agency went to work on developing and 1181 communicating a clear policy, which it accomplished by 1976. In the circumstances, the confusion and/or inconsistency in the pre-1976 period indicates only that the agency had not at that time formulated and expressed an informed judgment on the matter; it does not detract from the persuasiveness of the agency’s informed judgment arrived at in 1976. This is not a case where the agency changed a long-established interpretation in response to changes in circumstances or information that made a prior interpretation more costly or difficult for the agency. The Court is satisfied that the Secretary has consistently adhered to the policy embodied in HIM-15 § 2345 from the time the agency’s expertise was first focused on the problem to the present. The contrary resolution of this issue in St. Mary of Nazareth v. Schweiker, 718 F.2d 459, 463-465 (D.C.Cir.1983) is not persuasive. Inconsistency in an agency’s interpretations is not talismanic. It is relevant only insofar as it suggests that the agency’s present interpretation is not based on a special “body of experience and informed judgment” that courts otherwise should properly turn to for guidance. General Electric Co. v. Gilbert, 429 U.S. at 142, 97 S.Ct. at 411. In General Electric, the agency’s general counsel had formally issued an opinion letter, in response to a request, taking a flatly contradictory position from that which the agency adopted 4 years later. Id. On those facts, the existence of the earlier opposite position undercut the persuasiveness of the later position by suggesting that the agency’s “informed judgment” could go both ways on the issue. 11 In our case, the agency's pre-1976 judgment was both unclear and uninformed, and it consequently takes little from the weight of the agency’s 1976 judgment. This is especially so in light of the fact that the agency has much expertise relevant to this problem, both in general accounting and in hospital cost reporting procedures. See Batterton v. Francis, 432 U.S. at 425 n. 9, 97 S.Ct. at 2405 n. 9. B. Statutory Principles The plaintiffs argue that the Secretary’s policy violates the statutory principles that reimbursement be based on costs “actually incurred” and that Medicare costs not be shifted to non-Medicare parties. 42 U.S.C. § 1395x(v)(l)(A). The policy, they argue, in effect apportions routine service costs to patients who are in the labor/delivery room area at the census hour, even though those patients are not actually incurring any routine service costs. The hospitals acknowledge that the census hour serves as an approximation for a 24-hour period of care. But, they argue, not only are the labor/delivery room patients not receiving routine services at the census hour, most of them have not received any routine services in the preceding 24 hours either, since most maternity patients are admitted directly to the labor/delivery room area without first occupying a routine service bed. Up to 30% of the census hour labor/delivery room patients will not even receive routine services in the 24-hour period after the census hour, because for one reason or another they will be discharged from the hospital straight from the labor/delivery area. The hospitals acknowledge, however, that a solid majority of the labor/ delivery room patients will receive routine care on the day following the census hour, because the norm is for a patient to be transferred to a routine care bed after giving birth. The length of stay in the labor/delivery room area is typically around 10 hours. Administrative Record, p. 805. The Secretary, through the Deputy Administrator of HCFA, found on a number of grounds that patients in labor/delivery area do actually incur routine service costs. First, some hospitals — at least 13 of the 22 1182 plaintiff hospitals in this case — 12 formally admit a labor/delivery room patient to a routine care bed and make a routine care room assignment or reservation for her while she is in the labor/delivery room area. Thus, in some sense such a patient “incurs” the cost of the empty routine care bed being held for her. Even with hospitals that do not follow this procedure, the labor/delivery room patients incur “standby” routine service costs in the sense that the hospitals must insure that routine beds are available for them as necessary. The Medicare regulations expressly authorize the inclusion of normal standby costs as costs “actually incurred.” 42 C.F.R. § 405.451(c)(3). The plaintiffs argue that the standby costs that the hospital incurs on behalf of labor/delivery room patients should be treated just as are standby costs for patients that come to routine care areas from outside the hospital, which would mean that the other patients receiving routine services would absorb the costs. While the procedure the plaintiffs recommend would be reasonable, it is equally as reasonable to allocate those standby costs, as the Secretary has done here, to the patients who necessitate them, especially if those patients can be identified. The choice between the alternatives is for the Secretary, not the Courts, to make. Second, wherever a patient is located in the hospital at the census hour, he or she incurs a portion of the hospital’s “general and administrative costs” — administrators’ salaries, malpractice insurance, etc. Depending on the hospitals’ billing procedures, but especially if the hospital formally admits or assigns the labor/delivery room patient to a routine care area when she arrives at the hospital, her share of the general administrative costs would be added into the total routine services costs. 13 If Medicare apportioned to such a patient only her share of the costs accumulated in the labor/delivery ancillary care area, then no portion of general and administrative costs would be apportioned to her, and other patients — including Medicare patients— would be bearing her share of those costs. The Court notes that the dissenter on the Provider Reimbursement Review Board relied on this latter argument in determining that he would generally uphold the Secretary’s policy, but concluded that the policy could only fairly be applied to those hospitals that actually used such admission practices. 14 The Court rejects the latter solution, inter alia because the Secretary has a valid interest in fixing a consistent industry-wide rule. The Court is satisfied from the two grounds heretofore discussed that patients in a hospital’s labor/delivery room area do actually incur some routine service costs and consequently that apportioning to them some share of those costs does not violate the principle of allocating costs as they are “actually incurred.” The Deputy Administrator relied heavily on a third ground as well. According to a common industry practice that has been incorporated in the Medicare manuals, 15 an inpatient’s day of admission counts as an inpatient day, but his or her day of discharge does not. The justification underlying this practice is as follows: Neither the day of admission nor the day of discharge is a full day, but if the two are added together and the patient is charged for only one of them, then on average the patient will be fairly charged for the care received. A patient admitted and discharged all in one day is counted as having received one full day of care. The fact that the standard practice is to charge only for the admission day rather than only for the discharge day is an arbitrary choice that ordinarily would have no practical consequences. However, a labor/delivery room patient’s admission day 1183 is usually in the labor/delivery room area, whereas her discharge day is usually in a routine care area. If she is not counted as a routine care inpatient while she is in the labor/delivery room area, then the cost of her discharge day in the routine care area would not be allocated to her in any way. Consequently, the other routine care patients including Medicare patients, would end up bearing the costs of her discharge day. St. Mary of Nazareth rejected this argument, reasoning apparently that the day on which the labor/delivery room patient is transferred to a routine care area would be counted as an admission day, just as if the patient had come to the routine care area from outside the hospital. 718 F.2d at 470. The Deputy Administrator of HCFA apparently assumed the opposite, i.e. that the transfer day would not be treated as an admission day. 16 There is no evidence in the record to resolve this essentially factual question. The Deputy Administrator’s assumption seems more likely reliable, if only because the St. Mary of Nazareth reasoning would imply that labor/delivery room patients are in effect outpatients until they are transferred, a claim the plaintiffs have not made. Nevertheless, because the issue cannot be resolved on this record, and because its resolution is not necessary to the Court’s disposition of the-case, the Court declines to place any weight on this proffered ground for the Deputy Administrator’s decision. The plaintiffs also argue that the Secretary’s policy violates the statutory principle that Medicare reimbursement methods be consistent with the standardized definitions and reporting practices widely accepted in the hospital industry. The short answer to this argument is that the statute requires only that the Secretary consider industry standards; she is not required to adopt them. 42 U.S.C. § 1395x(v)(1)(A). See also 42 C.F.R. § 405.406(a). In any event, the Court is satisfied that the Secretary’s policy is not inconsistent with any widely accepted practice in this area. The policies of the 22 hospitals involved in this case suggest that if there is any widely accepted practice in this area, it supports the Secretary. A majority of the hospitals (15 of 22) charge their labor/delivery room patients for a routine care room, which is in effect exactly what the Secretary’s policy does. Thirteen of the 22 formally admit such patients to a routine care bed, and 14 of the 22 make a routine care room assignment or reservation for them. 17 In light of these facts, the plaintiffs’ reliance on certain American Hospital Association standards is particularly unpersuasive. Additionally, the standard they rely on is susceptible of various interpretations and is by no means unambiguously contrary to the Secretary’s policy. The hospitals argue that their charging practices have no logical relevance to the proper interpretation of the Medicare statutes and regulations. The Court disagrees. In addition to the maxim in 42 U.S.C. § 1395)c(v)(l)(A) that the Secretary is to consider “principals generally applied by national organizations,” the regulations explicitly incorporate customary charging practices as the key to defining both routine and ancillary services: routine services are those “for which a separate charge is not customarily made,” whereas ancillary services are those “for which charges are customarily made in addition to routine services.” 42 C.F.R. § 405.452(d). C. Accord with Regulations The Court is satisfied that the Secretary’s interpretive policy is consistent with and finds support in the Medicare regulations, setting out the applicable reimbursement formulas. The regulations’ definition of ancillary services — “the services for which charges are customarily made in addition to routine services” — would be hard to square with a reimburseihent scheme in which a patient could be treated as receiv 1184 ing only ancillary services — ancillary services are in addition to routine services. 42 § C.F.R. § 452(d)(3). Indeed, the entire regulatory scheme, and the use of the word “inpatient” itself, suggests that all patients other than outpatients — and newborns who are treated differently for obvious reasons — must be counted, consequently all patients must be counted either in routine services or in intensive care type services. The regulations simply do not leave room for creation of additional categories beyond the three — ancillary, routine, and intensive care — set out in the regulations. The Deputy Administrator looked for guidance to the definition of “inpatient day” contained in 42 C.F.R. § 405.430(b)(5). That definition supports the Secretary’s position that labor/delivery room days should be included as inpatient days. While the plaintiffs correctly point out that § 405.-430(b)(5) is part of a regulation not directly relevant to the issue at hand, they offer no reason why the purposes of § 405.430 would require a different definition of the term than would the purposes of § 405.452, which is the controlling regulation here. The regulations appear to be dealing with similar topics, and consequently the Deputy Administrator’s use of § 405.430(b)(5) as guidance appears justified. Plaintiff’s argument, which St. Mary of Nazareth adopted, 718 F.2d at 467, that borrowing the definition from § 405.430 would lead to ridiculous consequences in some circumstances is not persuasive. This reductio ad absurdum argument can be negated simply by giving the regulation a reasonable, common-sense, limiting construction so as to avoid the problem suggested. D. Arbitrary and Capricious Test; Reasonableness The Secretary argues that the policy embodied in HIM-15 § 2345 is a reasonable attempt to fix a consistent policy for all ancillary care areas. Patients in the surgery area at the census hour are clearly still routing care inpatients, she argues, and logically must be included in the patient count. HIM-15 § 2345 simply applies the same rule to patients in the labor/delivery room area as is applied to those in other ancillary care areas. The plaintiffs argue that this approach ignores stark differences between the labor/delivery room area and other ancillary care areas. However, most of the differences they cite— e.g. few patients are located in ancillary care areas other than labor/delivery at midnight, and the biologically based underrepresentation of Medicare beneficiaries among labor/delivery patients is not replicated in other labor delivery areas — are differences without legal significance for the problem at hand, except that they point out why the plaintiffs are complaining only about the labor/delivery room patients. This argument reduces to a claim that the Secretary’s accounting method is too gross an approximation and should be more finely tuned so as to take into account differences amongst the ancillary care areas. The Medicare statute, however, expressly empowers the Secretary to use rough estimates. 42 U.S.C. § 1395x(v)(1)(A). St. Mary of Nazareth recognizes that “averaging is a tolerable method when there is... some reason to believe that the premises for its use actually obtain.” 718 F.2d at 473. The conclusion, supra, that labor/delivery room patients do actually incur some routine service costs supplies sufficient reason to believe the premises for the use of averaging actually obtained here. The Secretary’s policy relies on an averaging theory that assumes, for the purposes of calculating the average cost per diem of routine services, that all patients (including labor/delivery room patients) incur roughly the same amount of routine services costs per day. This assumption obviously will not be true in individual cases. In particular, although labor/delivery room patients do actually incur some routine service costs, they probably incur less than other routine service patients. The Secretary’s assumption, however, is that other distortions weigh against this one, and the “extreme divergences from the mean balance out.” 718 F.2d at 471. 1185 The Court is satisfied that this is not an unreasonable assumption. There are a number of stages of the accounting process at which counter-balancing distortions could exist. The labor/delivery room patients might, for instance, incur more than an average amount of routine service costs after their transfer to a routine care area. Or some other group of patients amongst which Medicare beneficiaries are underrepresented might incur more than its proportionate share of routine costs. Or patients in ancillary care areas other than the labor/delivery room area at the census hour might include an overrepresentation of Medicare patients, thus offsetting the underrepresentation in the labor/delivery room area. The Secretary has suggested in her briefs that she may have evidence that would support one or more of these possibilities, but she has not attempted to prove any of them on the current record. The Court is satisfied that she need not make such proof. So long as labor/delivery room patients incur some routine service costs, the Secretary is justified in including them as routine service patients and in relying on the averaging process to work out any difference in the amount of such costs incurred by different groups amongst the routine service patients. The plaintiffs have not attempted to demonstrate that the averaging process is not serving its purpose here. Instead they attempt — unsuccessfully—to shift the burden on this point to the Secretary. This Court recently adjudicated a dispute between a group of Medicare provider hospitáis and the Secretary over a newly promulgated regulation on reimbursement for malpractice insurance. Alexandria Hospitals v. Heckler, 586 F.Supp. 581 (E.D.Va.1984). In that case, it was the Secretary who sought to single out a particular cost from the averaging process, allegedly because it was so disproportionately incurred by non-Medicare patients that the averaging process would be distorted if the cost was not treated separately. The Court held the Secretary to the burden of proving that the imbalance of which she complained was not cancelled out by other countervailing imbalances. Slip Op. at p. 588. The same approach dictates that the plaintiffs bear the comparable burden in the circumstances presented here, at least in the absence of an established Medicare or industry practice of singling out the cost in question. 18 The plaintiffs have not met that burden. E. Constitutional Requirements The hospitals have not argued their constitutional claims at any length in their briefs. Particularly in light of the fact that the policy in question has not been applied retroactively, the Court is satisfied that the constitutional challenge is wholly without merit. See Fairfax Hospital Association v. Califano, 585 F.2d 602, 606 (4th Cir. 1979); see also Fairfax Nursing Center v. Califano, 590 F.2d at 1302. Conclusion The Secretary has fixed a consistent interpretive rule applicable to patients in all ancillary care areas at the census hour, and 1186 her rule is consistent with the regulations and statutes it purports to interpret. The rule appears reasonable and neither arbitrary nor capricious, and the plaintiffs have not demonstrated that it distorts their ultimate reimbursement. Accordingly, the Secretary’s policy will be upheld. The Court is aware that a number of courts in addition to St. Mary of Nazareth, supra, have upheld the plaintiffs’ challenge to HIM-15 § 2345. Beth Isreal Hospital v. Heckler, 734 F.2d 90 (1st Cir.1984); Baylor University Medical Center v. Heckler, 730 F.2d 391 (5th Cir.1984); International Philanthropic Hospital Association v. Heckler, 724 F.2d 1368 (9th Cir.1984); Community Hospital of Roanoke Valley v. Heckler, 588 F.Supp. 674 (W.D.Va.1984); Johnson County Memorial Hospital v. Heckler, 572 F.Supp. 1538 (S.D.Ind.1983); Central DuPage Hospital v. Schweiker, 4 MEDICARE & MEDICAID GUIDE (CCH) ¶ 33,451 (N.D.Ill. Oct. 19, 1983). The only precedent upholding the Secretary’s position is University of Tennessee v. U.S. Dep’t of Health and Human Services, 573 F.Supp. 795 (E.D.Tenn.1983), remanded to Sec’y for additional evidence per agreement of parties, 737 F.2d 579 (6th Cir. 1984). With the single exception of Johnson County, supra, the opinions holding for the plaintiffs have simply adopted the reasoning of St. Mary of Nazareth, with little or no elaboration. The Court is of the opinion that the key difference between the approach that this Court has utilized and that taken in St. Mary of Nazareth lies in the amount of deference given to the Secretary’s judgment on the matter. St. Mary of Nazareth’s evaluation of the history of HIM-15 § 2345 led that Court to treat the policy with a suspicion that this Court respectfully suggests is not justified. Although there are other differences between the conclusions reached herein and in St. Mary of Nazareth, some of which are addressed supra, they in all likelihood would not have led to different results absent the different approaches on the deference issue. The Court is satisfied that the Secretary’s policy should be upheld. An appropriate order will issue. ORDER For the reasons stated in the memorandum this day filed and deeming it proper so to do, it is ADJUDGED and ORDERED as follows: Plaintiffs’ motion for summary judgment be and the same is hereby denied. Defendant’s motion for summary judgment be and the same is hereby granted, and defendant stands dismissed without cost. 1. The Secretary challenges the jurisdiction of the Court to entertain the claims of certain of the plaintiff hospitals, on the ground that they waived their objections by failing to raise them properly at all stages of the administrative review process. The Court recently resolved a similar claim against the Secretary in Alexandria Hospitals v. Heckler, 586 F.Supp. 581 (E.D.Va.1984). However, the conclusion of Alexandria Hospitals depends to an extent on exactly what steps the hospitals took or failed to take in the administrative process, so the ruling could not be applied to this case without some analysis of the relevant procedural facts herein. The Court has determined that such an analysis and indeed any resolution of this jurisdictional issue is unnecessary in light of the Court's conclusion infra on the merits. 2. All citations to the Code of Federal Regulations are to the 1981 C.F.R. Edition. The 1981 regulations, which have been amended since that time, are controlling for purposes of this case. 3. 42 C.F.R. § 405.430 is a regulation concerning the “inpatient routine nursing salary cost differential,” which allows providers to be reimbursed an additional amount for salary costs for nursing services to certain patients — aged, pediatric, and maternity patients — whose care requires above-average nursing costs. "Inpatient day” is defined for use in the formula that fixes the amount of the additional reimbursement. 4. The argument may be clarified by an example. Assume the following: Total routine service costs = $10,000 Total routine inpatient days of care, excluding labor/delivery room days = 100 Labor/delivery room days of care = 5 Medicare Beneficiary days of care = 40 If labor/delivery room days are excluded from the inpatient count as plaintiffs argue it should be, the reimbursement formula would yield the following: Alternatively, the Secretary's interpretation of the reimbursement formula would yield the following: Thus, on these hypothetical facts the hospital stands to lose almost $200 per accounting peri *1178 od if the Secretary’s interpretation is upheld. 5. In the example used in n. 4, supra, it was assumed that 40 of the 100 inpatients receiving routine care, or 40%, were Medicare beneficiaries. It also was implicitly assumed that none of the labor/delivery room patients were also Medicare beneficiaries, and hence that none of the labor/delivery room days were also Medicare beneficiary days. If we assume instead that Medicare beneficiaries comprise 40% of the labor/delivery room patients as well as 40% of other routine patients, then there would be 40% X 5 = 2 labor/delivery room patients who were also Medicare beneficiaries. Then the Secretary's interpretation of the reimbursement formula would yield the following: With these assumptions the hospitals’ total reimbursement for routine patient care is the same under the Secretary’s interpretation as it is under the plaintiffs’. 6. Actually, certain of the plaintiff hospitals made no objection to the fiscal intermediary, although they did attempt to object in an appeal to the Provider Reimbursement Review Board. See n. 1 supra and n. 7 infra. 7. The Board found for the Secretary on the jurisdictional issue raised as to certain of the plaintiff hospitals and consequently declined to entertain the appeals from those hospitals. Because of its resolution of the merits, the Court sees no need to review the Board’s determination or the jurisdictional issue. See n. 1 supra. 8. See St. Mary of Nazareth v. Schweiker, 718 F.2d 459, 464 (D.C.Cir.1983). 9. Id. 10. See Administrative Record ("R.”), at 977. 11. Even on the General Electric facts the agency’s interpretation merited some degree of deference: "In short, while we do not wholly discount the weight to he given the 1977 guideline, it does not receive high marks____’’ 429 U.S. at 143, 97 S.Ct. at 411 (emphasis added). 12. R. 99-100. 13. See Dissenting Opinion of Richard A. Dudgeon to Provider Reimbursement Review Board Decision, April 20, 1983, R. 90-91. 14. id. 15. See HIM-10 § 216.1. 16. R. 7. 17. R. 99-100. 18. The St. Mary of Nazareth court also noticed the similarity between the position of the hospitals in the labor/delivery room dispute and that of the Secretary in the malpractice insurance dispute, but that court used the similarity to bolster its conclusion that the Secretary’s plea for averaging should be rejected in the labor/delivery room dispute: Averaging was abandoned with regard to malpractice costs to avoid Medicare's bearing a disproportionate share of those costs. We see no reason to believe averaging should be any more sacrosanct here. 718 F.2d at 473. The St. Mary of Nazareth court did not have the benefit of the numerous, recent district court opinions that have rejected the Secretary’s position in the malpractice dispute and have reinstated the averaging principle that the Secretary had attempted to abandon there. See Alexandria Hospitals, supra; Bedford County Memorial Hospital v. Heckler, 583 F.Supp. 367 (W.D.Va.1984) and cases cited therein. In this Court’s view, St. Mary of Nazareth was right that the Secretary’s positions on the two disputes were inconsistent but wrong on which of her two positions should be rejected.	CRITICIZED_OR_QUESTIONED
724 F.2d 831	746 F.3d 418	D	Eddie G. Javor v. United States	OPINION RAWLINSON, Circuit Judge: Petitioner-Appellant Roger Murray (Roger) appeals the district court’s denial of his petition for habeas corpus challenging the death sentence imposed following his convictions for murder and armed robbery. I. BACKGROUND 1 Dean Morrison (Morrison), age 65, and Jacqueline Appelhans (Appelhans), age 60, operated a store and restaurant in Grasshopper Junction, a rural area outside Kingman, Arizona. See State v. Murray, 184 Ariz. 9, 906 P.2d 542, 553 (1995). On May 14, 1991, between 8:30 and 9:00 a.m., an acquaintance discovered the bodies of Morrison and Appelhans lying face down, in their bathrobes, after being shot multiple times in the head. See id. at 558-54. At the crime scene, a revolver was found on the couch and a.22 caliber semiauto 424 matic rifle was leaning against the wall. See id. at 554. Near the bodies were various.22 and.38 caliber bullets, as well as shotgun pellets. See id. Two weeks after the crime, Morrison’s sister found a.25 caliber bullet in the pantry. See id. In the living room, drawers were pulled out and the contents scattered. See id. The bedrooms and kitchen were also ransacked. See id. A.303 rifle was on a bed and $172 was on a desk chair. See id. Morrison’s wallet containing $800 was undisturbed in his pants pocket. See id. The drawer from the cash register in the store had been removed, and the gas register was left on. See id. Morrison’s glasses, a flashlight, and a set of keys were found on the patio of the store. See id. In addition, three live.38 caliber bullets were found near the gas pumps. See id. Detective Lent of the Mohave County Sheriffs Department and another officer found and noted four sets of footprints, other than those of the investigating officers and the acquaintance who discovered the bodies. See id. Two sets of footprints belonged to the victims, a third set was made by tennis shoes, and the fourth set by western boots. See id. A different set of three footprints were made by the tennis shoes, the western boots, and Morrison’s slippers. See id. Morrison’s footprints indicated resistance by him. See id. At the time of their arrest, Roger was wearing tennis shoes and Robert was wearing western boots, both of which were consistent with the footprints analyzed at the crime scene. See id. at 553-54. Morrison’s autopsy revealed that he had suffered a shotgun blast that shattered his skull. See id. He also suffered two gunshot wounds from a large caliber pistol. See id. at 554-55. A.38 caliber bullet was recovered from the back of his neck and large caliber buckshot was removed from his head. See id. at 555. Found next to Morrison was a fired.38 caliber bullet. See id. Morrison had lacerations and abrasions on his face, elbow, forearm, knee, and thigh. See id. The autopsy revealed that these injuries occurred at approximately the same time as the gunshot wounds. See id. Appelhans was shot with at least three different guns. See id. A shotgun blast shattered her head. See id. Two.38 caliber slugs were removed from her skull. See id. She also suffered.22 caliber wounds that entered at the back of the neck and exited her face. See id. Aspiration hemorrhaging in her lungs indicated a lapse of time between the initial gunshot and death. See id. The shotgun blast was definitely lethal, and the.38 caliber bullets were also a possible cause of death. See id. Before the bodies were discovered, police officers found one of Morrison’s tow trucks abandoned on Interstate 40 westbound near Kingman, Arizona. See id. at 553. Roger and Robert were arrested on unrelated charges on Interstate 40 eastbound near Holbrook, Arizona. See id. The brothers were driving a Ford sedan with Alabama license plates. See id. at 554. When an officer attempted to stop the vehicle, the brothers fled, driving in excess of eighty-five miles per hour. See id. During their flight, the brothers breached a manned and armed roadblock. See id. The brothers stopped only after their vehicle ran off the road into a wash that impeded further progress. See id. Robert, the driver, threw a.38 revolver containing four bullets from the car. See id. Roger discarded a loaded.25 semiautomatic pistol. See id. Additionally, Robert had two spent shotgun shell casings in his pants pocket. See id. A loaded twelve gauge sawed-off shotgun and shotgun shells were discovered inside the car. See id. A checkered cush 425 ion cover that matched the cushion on Morrison’s couch contained rolled coins stamped “Dean’s Enterprises, Grasshopper Junction, Kingman, Arizona, 86401.” Id. A blue pillow case contained approximately $1400 in coin rolls and $3300 in cash. See id. Gloves and a hotel receipt were also in the vehicle. See id. Records from the hotel indicated that the brothers had listed a Ford sedan, the description of which matched the vehicle they were driving at the time of their arrest, on the hotel registration card. See id. Officers retrieved from the sedan an atlas with circles around the locations of two rural establishments, the Oasis and Grasshopper Junction, which were not otherwise indicated on the map. See id. Keys found in Robert’s pants pocket were later identified as the keys to a pickup truck on Morrison’s property. See id. A scanner and connecting knob in the sedan fit an empty bracket in the abandoned tow truck. See id. It was determined that the casings found at the crime scene and in Robert’s pocket were fired from the guns possessed by Roger and Robert. See id. at 555. Human blood and tissue were found on Robert’s shirt, on Roger’s pants, and on the cushion cover. See id. The blood on Roger’s pants could have come from either victim or from Robert, but not from Roger. See id. The blood on Robert’s shirt was consistent with that of either victim, but not with the blood of Roger or Robert. See id. The blood on the cushion cover could have come from Appelhans, but not from Morrison or the Murrays. See id. No DNA tests were conducted. See id. The brothers were indicted for the first degree murders of Morrison and Appelhans and for the armed robbery of Morrison. See id. A jury convicted them of all charges. See id. The first degree murder verdicts were unanimous for both premeditated murder and felony murder. See id. After separate sentencing hearings, the trial court found that the state had proven three aggravating circumstances as to each defendant: the murders were committed for pecuniary gain, as defined in A.R.S. § 13 — 703(F)(5); 2 the murders were especially heinous, cruel or depraved, as provided in § 13 — 708(F)(6); 3 and the defendants committed multiple homicides, as described in § 13-703(F)(8). 4 See id. Finding the mitigation evidence insufficient to outweigh the aggravating circumstances, the trial court denied leniency for both defendants and imposed a sentence of death. See id. The Arizona Supreme Court affirmed the convictions and sentences. See id. A. Direct Appeal — Robert and Roger On October 26, 1995, the Arizona Supreme Court affirmed the convictions and sentences. See id. at 553. On direct ap 426 peal, the brothers raised five issues: (1) jury selection; (2) pretrial motions; (3) evidentiary issues; (4) motion for acquittal; and (5) special verdict form. See id. at 555-65. Roger raised five additional trial issues: (1) jury sequestration; (2) jury instructions; (3) request for mistrial; (4) prosecutorial misconduct; and (5) visitation of the crime scene. See id. at 565-69. In addition, Roger raised three sentencing issues: (1) objective standards and prosecutorial discretion; (2) independent review; and (3) aggravating factors. See id. at 569-71. Roger also raised issues related to the following statutory mitigation factors: (1) capacity to appreciate wrongfulness of conduct or conform conduct to requirements of the law, (2) relatively minor participation; (3) age; (4) duress; and (5) no reasonable foreseeability that his conduct would create a grave risk of death. See id. at 573-77. The Arizona Supreme Court also addressed the following nonstatutory mitigation factors that Roger raised during trial: (6) dysfunctional childhood and family relations; (7) medical treatment; (8) remorse; (9) drug and alcohol use; and (10) mental health. See id. at 577-78. For the first time on direct appeal Roger urged as mitigation factors: (11) education; (12) residual or lingering doubt; (13) felony murder instruction; and (14) cooperation. See id. at 578. 1. Jury Selection The original master jury list used was composed of a one-and-a-half-year-old driver’s license list in violation of Arizona law. See id. at 555. Just days before trial was scheduled to begin, the trial court ordered that a new jury list be created using both the old driver’s license list and a list of registered voters. See id. The jury commissioner advised the trial court that the new list would generate adequate potential jurors by the date of trial, even though the deadline to respond was beyond the date trial was scheduled to begin. See id. Robert and Roger argued that (1) the truncated time to respond to the jury questionnaire resulted in fewer potential jurors from more remote portions of the county; and (2) the one-and-a-half-year-old driver’s license list resulted in fewer young prospective jurors. See id. Robert and Roger contended that these infirmities denied them a jury of their peers because they hailed from a small, rural area in Alabama and were young at the time of trial. See id. at 555-56. The Arizona Supreme Court concluded that Robert and Roger failed to establish the lack of a fair and impartial jury or prejudice. See id. The brothers failed to show that they were denied the right to have jurors selected from a fair cross-section of the community, or systematic exclusion of any discrete segment of the community. See id. at 556. The court noted that “failure to follow statutory procedures is harmless, absent some separate showing of prejudice or discrimination....” Id. The brothers also contended that the jury commissioner’s use of standardless exclusions violated their constitutional rights. See id. However, the Arizona Supreme Court determined that the jury commissioner, within her discretion, excused and notified potential jurors in accordance with state law. See id. at 557. The court concluded that the brothers were not denied their right to a jury drawn from a fair cross-section of the community, because the criteria used were neutral and did not “constitute systematic exclusion.” Id. (citation omitted). Finally, Robert and Roger asserted a Batson 5 violation when the prosecution 427 used peremptory challenges to dismiss the only two Hispanic potential jurors. See id. at 557-58. The Arizona Supreme Court rejected the Batson challenge, concluding that the trial court’s acceptance of the prosecutor’s race-neutral explanation for striking the Hispanic jurors was not an abuse of discretion. See id. 2. Pretrial Motions a.Severance The Arizona Supreme Court concluded that the trial court did not abuse its discretion in declining to sever the brothers’ cases. See id. at 558. The court noted that “joint trials, are the rule rather than the exception.... ” Id. (citation omitted). The court also pointed out that the crimes were so intertwined that it would have been virtually impossible to sever the evidence, because the evidence implicated the brothers equally. See id. The jury questionnaire screened out prospective jurors who would have trouble segmenting the evidence, and the trial court instructed the jury to consider the evidence separately against each defendant. Under these circumstances, the Arizona Supreme Court found no prejudice. See id. b.Change of Venue The Arizona Supreme Court determined that Robert and Roger failed to prove presumed or actual prejudice based on the denial of their request for a change of venue due to pretrial publicity. See id. at 559. The Court emphasized that the brothers failed to show any pretrial publicity that was so outrageous that the trial was “utterly corrupted.” Id. (citation omitted). Any security measures were largely effectuated when jurors were unlikely to be present. See id. Only prospective jurors who pledged to decide the case solely on the evidence were empaneled, and empaneled jurors were repeatedly admonished to avoid media coverage. See id. After reviewing this record, the Arizona Supreme Court affirmed the trial court’s denial of the requested venue change. See id. c.Hybrid Representation After noting that there is no right to hybrid representation (some combination of self-representation and counsel), the Arizona Supreme Court held that the trial court acted within its discretion when it denied the brothers’ requests for hybrid representation in the absence of irreconcilable conflict or incompetent counsel. See id. at 560. d.Library Access Citing Bounds v. Smith, 430 U.S. 817, 97 S.Ct. 1491, 52 L.Ed.2d 72 (1977), the Arizona Supreme Court held that because the brothers were provided with counsel throughout the proceedings, their constitutional right to access the court was afforded, regardless of whether they were able to personally access legal materials. See id. at 561. 3. Evidentiary Issues The brothers challenged the admissibility of crime scene photographs and footprint comparisons, and argued that the court improperly prevented them from impeaching a witness. See id. at 561-64. The Arizona Supreme Court determined that the challenged photographs were relevant to the case and were not unduly inflammatory. See id. at 561-62. The court also rejected the challenge to footprint comparisons made by a detective, holding that the trial court did not abuse its discretion in qualifying the detective as an expert where the detective had extensive tracking experience in criminal investigations and had previously been qualified as an expert in state and federal court. 428 See id. at 562-63. Any issue of proper methodology “went to the weight rather than admissibility.” Id. at 563 (citation omitted). Finally, the brothers contended that the trial court impermissibly precluded impeachment of the detective who testified regarding the footprint evidence. See id. at 563-64. During cross-examination, the detective admitted that he had previously lied under oath. See id. at 563. After hearing argument in chambers, the trial court determined that the relevant extrinsic evidence of the detective’s truthfulness (or lack thereof) was minimally probative, but far outweighed by its prejudicial and confusing nature. See id. The trial court was of the view that admission of the extrinsic evidence to impeach the detective would essentially result in the trial of a collateral matter. See id. at 563-64. The Arizona Supreme Court concluded that the trial court did not abuse its discretion in applying the Arizona Rules of Evidence. See id. at 564. 4. Motion for Acquittal Robert and Roger moved for acquittal, arguing that there was not substantial evidence to support a conviction. See id. at 564. The Arizona Supreme Court concluded that there was substantial evidence supporting the robbery and felony murder convictions, including signs of a struggle, to establish that the defendants used force to rob the victims. See id. The court also clarified that the prosecution did not need to establish that Roger killed or intended to kill to prove felony murder under Arizona law. See id. at 564-65. Rather, the prosecution need only establish that a principal or accomplice attempted to commit or committed a robbery and a person was killed during the commission of and in furtherance of the robbery. See id. at 565. Further, the court affirmed the existence of substantial evidence supporting the convictions for first-degree murder, namely evidence establishing that Robert and Roger were present at the crime scene and participated in the crimes, including evidence from the crime scene found on the brothers and the execution-style murders. See id. Finally, the Arizona Supreme Court held that the trial court issued a special verdict that was in the record, as required by law, although not specifically titled “Special Verdict.” Id. B. Direct Appeal — (Trial Issues) 1. Jury Sequestration Although the trial court denied Roger’s motion to sequester the jury, the jury was repeatedly admonished to avoid media coverage. See id. at 566. Roger failed to assert or establish that the jurors failed to follow the trial court’s admonitions. See id. The Arizona Supreme Court concluded that the trial court did not abuse its discretion when it denied the sequestration request. See id. 2. Willits Jury Instruction 6 The Arizona Supreme Court concluded that the evidence Roger asserted that the state failed to preserve, such as the types of shoes worn by others at the crime scene and fast-food remnants, would not have tended to exonerate him. See id. Therefore, the trial court acted within its discretion when it denied the requested Willits instruction. See id. 429 3.Intoxication Instruction Roger asserted that he was entitled to an intoxication instruction, because on the night of the murders, he and Robert had been drinking at a local bar. See id. However, the manager of the bar testified that the brothers were “handling themselves very well.” Id. In view of the trial court’s finding that there was no evidence that alcohol consumption affected the brothers’ “ability to think, function, or form intent,” the Arizona Supreme Court concluded that Roger failed to meet his burden of showing that consumption of alcohol negated an element of the crime. Id. at 566-67 (citations omitted). 4.Second-Degree Murder/Lesser Included Offense Instruction The Arizona Supreme Court explained that an instruction on second-degree murder would pertain, if at all, only to the premeditated murder count and only if supported by the evidence. See id. at 567. Due to the substantial evidence of premeditation in the record, the Arizona Supreme Court agreed with the trial court that an instruction on second-degree murder was contraindicated because the jury could have only rationally drawn the inference that Robert and Roger premeditated the murders. See id. 5.Request for a Mistrial Roger’s request for a mistrial stemmed from witness statements referring directly or indirectly to his in-custody status. See id. at 567. The Arizona Supreme Court concluded that the jurors were already aware that the brothers had been arrested and were in custody at some point prior to trial. The court ruled that such knowledge was not prejudicial and did not deprive the brothers of their right to a presumption of innocence. See id. at 568. 6.Prosecutorial Misconduct Roger alleged the following instances of misconduct: (1) A detective’s joking about the Federal Bureau of Investigations [FBI] while testifying. The objection to the FBI comment was sustained based on irrelevance and the jury was instructed to disregard it. (2) Discussion by officers in the courthouse library that defendants were using the “fecal defense”-throwing up anything and hoping something sticks. The trial court thoroughly probed this issue and concluded that there had been no discussion of the evidence and that the jurors were unlikely to have heard the discussion. (3) The prosecutor’s alleged joking with a witness in front of the jury about whether a bartender at the Temple Bar had gone fishing in Mexico. Defendant waived this issue for failure to object at trial. See State v. White, 115 Ariz. 199, 564 P.2d 888, 892 (1977). (4) The prosecutor’s joking with someone while on a cigarette break about being subpoenaed, while two jurors stood nearby. The prosecutor himself brought the incident to the court’s attention; neither defendant objected [n]or moved for a mistrial in the trial court. Thus, defendant waived this issue. (5) In closing argument, the prosecutor’s referring to defendants as “the boys from Alabama.” Defendant waived this issue by failing to object at trial. See State v. Hankins, 141 Ariz. 217, 686 P.2d 740, 747 (1984). (6) The prosecutor’s stating that a.25 caliber bullet found on the premises had been fired by one of the brothers. The argument was permissible because a ballistics expert found that the bullet 430 matched the pistol Roger threw from the car. (7) Reference in dosing argument by the state to defendants feeling a “sick excitement” in committing the murders. The trial court cautioned the prosecutor and the prosecutor made no more such references. Id. The Arizona Supreme Court determined that the prosecutor’s conduct did not negatively influence the trial because Roger failed to establish that the prosecutor’s actions affected the jury’s verdict in any way. See id. 7. Visitation of the Crime Scene The Arizona Supreme Court determined that the trial court did not abuse its discretion by denying Roger’s request to revisit the crime scene. See id. at 569. On the fourth day of trial, more than a year after the crime was committed, Roger filed a motion to revisit the crime scene. See id. (citing Ariz. R.Crim. P. 15.1(e)). The trial court denied the motion because Roger had failed to show a substantial need for the second inspection. See id. Roger’s attorney had previously examined the crime scene with investigators, and the attorney and investigators were still available. 'Additionally, the crime scene had been cleaned. See id. C. Direct Appeal — (Sentencing Issues) 1. Objective Standards and Prosecutorial Discretion The Arizona Supreme Court noted that Roger’s arguments regarding the alleged lack of objective standards for imposing the death penalty and the broad discretion afforded the prosecution in seeking the death penalty had been rejected in previous cases. See id. (citing State v. Salazar, 173 Ariz. 399, 844 P.2d 566, 578 (1992) (in banc); State v. Correll, 148 Ariz. 468, 715 P.2d 721, 737 (1986) (in banc); State v. Harding, 137 Ariz. 278, 670 P.2d 383, 397 (1983) (in banc)). 1. Independent Review The Arizona Supreme Court explained that it conducts an independent review of death sentences for error, determines whether the aggravating circumstances were proven beyond a reasonable doubt, considers mitigating circumstances, and weighs the aggravating factors and the mitigating circumstances anew to decide whether leniency is warranted. See id. 3. Aggravating Factors Roger challenged all three of the following aggravating factors found by the trial court: A. Defendant committed the offense as consideration for the receipt, or in expectation of the receipt, of anything of pecuniary value. A.R.S. § 13-703(F)(5). B. Defendant committed the offense in an especially heinous, cruel, or depraved manner. A.R.S. § 13-703(F)(6). C. Defendant has been convicted of one or more other homicides which were committed during the commission of the offense. A.R.S. § 13-703(F)(8). Id. The Arizona Supreme Court concluded that there was substantial evidence to establish that Roger committed the crime for pecuniary gain, i.e., that there was financial motivation. See id. Among other evidence, a number of items, including cash were taken. See id. at 569-70. The record also supported a finding that the crimes were especially heinous, cruel, or depraved. See id. at 570. The victims were kidnapped at gunpoint, were taken by surprise, and were aware of their imminent demise. See id. The signs of strug 431 gle and fear, e.g., Appelhans clutching Morrison’s arm, established mental anguish as well as pain and suffering. See id. Finally, the elderly, helpless victims were subjected to gratuitous violence and the murders were senseless. See id. at 571. 4. Multiple Murders Citing its precedent, the Arizona Supreme Court rejected Roger’s argument that double jeopardy foreclosed application of the multiple homicide aggravating factor where the murders were part of the same criminal offense. See id. (citing State v. Greenway, 170 Ariz. 155, 823 P.2d 22, 34-35 (1991) (in banc)). 5. Mitigating Circumstances The Arizona Supreme Court reviewed and addressed the following mitigating circumstances presented by Roger: a.Capacity to Appreciate Wrongfulness of Conduct or Conform Conduct to Requirements of the Law After discussing Roger’s juvenile problems, head injuries, hyperactivity, and substance abuse, the Arizona Supreme Court determined that Roger failed to establish that these factors, either individually or in combination, affected his capacity to appreciate the wrongfulness of his conduct or to confirm his conduct to the requirements of the law. See id. at 573-76. b.Relatively Minor Participation Roger asserted that Robert’s jailhouse letters to him, in which Robert admitted participating in the killing of Morrison and Appelhans, exculpated him. Roger also referenced the lack of evidence establishing that he fired any of the guns. See id. at 576. The Arizona Supreme Court disagreed, referencing evidence at trial implicating both Robert and Roger, including footprint evidence, the fact that both defendants were armed when captured, and the fact that the victims suffered numerous bullet wounds from different weapons. See id. Additionally, the Court noted that Robert’s jailhouse letters did not “indicate the role Roger did or did not play.” Id. The Court determined that Roger failed to prove by a preponderance of the evidence that his role in the crimes was minor. See id. c.Age — (Twenty Years Old) The Arizona Supreme Court rejected Roger’s reliance on his relative youth as a mitigating factor. The Court reasoned that Roger’s intelligence, previous criminal history, experience with law enforcement, the extent of his involvement with the crimes, and the deliberate nature of the murders militated against concluding that the commission of the crimes was due to a lack of maturity. See id. at 576-77. In sum, Roger failed to prove “how his age impaired his judgment in committing the crimes.” Id. at 577 (citation omitted). d.Duress The Arizona Supreme Court concluded that Roger was not under duress from Robert and had failed to show that his desire to please his brother rose to the level of duress. See id. e.No Reasonable Foreseeability that Conduct Would Create a Grave Risk of Death According to the Arizona Supreme Court, Roger’s asserted immaturity, dependent personality, and idolizing of his brother, even if true, would not negate the foreseeability that use of guns to commit a robbery would create a grave risk of death. See id. 432 f.Dysfunctional Childhood and Family Relations Although Roger established that his childhood was dysfunctional, the Arizona Supreme Court concluded that “[a] difficult family background alone is not a mitigating circumstance.” Id. (citation omitted). The court held that “[fjamily background is a mitigating circumstance only if a defendant can show that something in that background had an effect or impact on his behavior that was beyond the defendant’s control.” Id. (citation omitted). In sum, the court concluded that the fact of Roger’s dysfunctional childhood was not a mitigating circumstance because “he fail[ed] to show how [his] background impacted his behavior at Grasshopper Junction.” Id. g.Medical Problems The Arizona Supreme Court found “nothing mitigating in connection with [Roger’s] claimed alleged medical problems as a child.” Id. at 578. h.Remorse The Arizona Supreme Court concluded that Roger failed to establish that he was remorseful, noting specifically Roger’s letter to the trial judge, written just prior to the aggravation/mitigation hearings, that denied responsibility for the crimes. See id. i.Drug and Alcohol Use The Arizona Supreme Court found that Roger’s alcohol and drug use were not mitigating because the substance abuse was self-reported and largely uncorroborated, and because the physical activity at the crime was inconsistent with sensory impairment. See id. j.Mental Health The Arizona Supreme Court determined that Roger’s mental health issues, including hyperactivity and potentially other mental disorders, were entitled to “some nonstatutory mitigating weight.” Id. However, the court concluded that Roger “failfed] to prove that he suffer[ed] from brain damage.” Id. k.Education The Arizona Supreme Court rejected Roger’s argument that because he became a paralegal despite having dropped out of high school, he was able to “reside within our society and abide by the rules...” Id. The Court noted that Roger’s accomplishments did not prevent commission of the heinous crimes against Morrison and Ap-pelhans. See id. l. Residual or Lingering Doubt The Arizona Supreme Court concluded that there was no lingering doubt regarding Roger’s actual participation in the crime. Id. m. Felony Murder Instruction The Arizona Supreme Court explained that a felony murder instruction “can only be mitigating where there is some doubt regarding defendant’s specific intent to kill....” Id. (citation omitted). Because there was a premeditation finding, Roger’s specific intent was not in doubt. See id. n.Cooperation Roger complained that the trial court failed to take his cooperation into consideration. See id. Roger relied on the fact that he refrained from shooting the police officer who apprehended him. See id. The Arizona Supreme Court held that refraining from killing one more person cannot possibly demonstrate cooperation as a mitigating factor. See id. 433 6. Weighing Aggravation and Mitigation The Arizona Supreme Court described the “very detailed special verdicts” completed by the trial court and concluded that the record reflected careful consideration of all the evidence and careful weighing of the mitigating and aggravating factors. See id. at 579. 7. State’s Rebuttal Evidence Roger contended that the trial court improperly allowed the admission of evidence supporting the aggravating factors after the defense had rested its mitigation case. See id. However, the Arizona Supreme Court concluded that the state was entitled to call witnesses to rebut the mitigation evidence presented by Roger. See id. Regardless, the Arizona Supreme Court determined that the trial court had carefully reviewed the mitigating evidence, and “[t]here [wa]s no suggestion in the record that the [trial] judge considered the rebuttal evidence in connection with anything but mitigation.” Id. D. Post-Conviction Proceedings Following his unsuccessful direct appeal, Roger filed a petition for post-conviction relief (PCR). Roger asserted that he had a genuine and irreconcilable conflict with his trial counsel and the trial court’s refusal to appoint new trial counsel was an abuse of discretion that effectively denied Roger’s right to counsel. Roger also advanced ineffective assistance of counsel (IAC) claims alleging: (1) trial counsel’s sleeping during substantial portions of the trial; (2) trial counsel’s failure to present the testimony of Jack Potts, M.D. at the mitigation hearing; (3) trial counsel’s failure to obtain neurological or neuropsycho-logical evaluations of Roger prior to sentencing; (4) trial counsel’s failure to call an exculpatory witness; (5) trial counsel’s ignorance of rehabilitation as a mitigating factor; (6) trial counsel’s failure to properly pursue a discovery violation by the prosecution; (7) trial counsel’s failure to properly discredit the detective who provided footprint testimony; and (8) trial counsel’s calling of witnesses who were prejudicial to the defense. Roger’s remaining claims challenged the trial court’s construction of nonstatutory mitigating evidence and the constitutionality of Arizona’s death penalty system. Following a hearing pursuant to Rule 32 of the Arizona Rules of Criminal Procedure, the PCR court set an evidentiary hearing for the claims asserting ineffective assistance of counsel for sleeping and for failing to obtain a neurological or neurop-sychological examination. The balance of the claims were deemed precluded or were summarily rejected. The PCR court appointed a psychologist and neuropsychologist to evaluate Roger prior to the evidentiary hearing. Following the evidentiary hearing, the PCR court denied relief on the IAC claim asserting that counsel slept throughout major portions of the trial. 7 The Arizona Supreme Court summarily denied Roger’s subsequent petition for review, except as to Roger’s claim that he was entitled to a jury determination of the aggravating factors. Review of that claim was consolidated with the claims of other similarly situated inmates, and relief was denied. See State v. Towery, 204 Ariz. 386, 64 P.3d 828 (2003) (en banc). Roger 434 filed a petition for writ of certiorari to the United States Supreme Court, which he later withdrew. Roger then filed a habeas petition in the federal district court. E. Federal Habeas Petition The fifty-six claims in Roger’s federal habeas petition largely mirrored those raised in Roger’s direct appeal. See Murray, 906 P.2d at 553-78. Roger voluntarily withdrew the following nine claims as duplicative: • Claim 48 (trial court’s failure to file a written special verdict); • Claim 47 (IAC — failure to obtain neurological and neuropsychological evaluation); • Claim 49 (IAC — failure to follow-up on objection to disclosure violations); • Claim 50 (IAC — -failure to discredit footprint expert); • Claim 51 (IAC — called witnesses prejudicial to defense); • Claim 52 (denial of sentencing jury); • Claim 54 (arbitrary imposition of the death penalty); • Claim 55 (cruel and unusual punishment); and • Claim 56 (nondeterrence of execution). The district court dismissed the following claims as procedurally barred: • Claim 8 (footprint evidence); • Claim 9 (impeachment of footprint expert); • Claim 20 (viability of aggravating factors); • Claim 21 (application of aggravating factors); • Claim 23 (lack of funding for additional experts); • Claim 24 (unconstitutionality of death penalty); • Claim 25 (unconstitutionality of death penalty); • Claim 26 (unfair balancing of aggravating and mitigating factors); • Claim 27 (vagueness of heinous, cruel or depraved aggravating factor); • Claim 28 (lack of meaningful review of sentence); • Claim 29 (limitation on nonstatutory mitigation evidence); • Claim 30 (IAC — failure to impeach footprint expert); • Claim 31 (IAC — failure to move for severance); • Claim 32 (IAC — failure to secure experts); • Claim 33 (IAC — failure to prepare for Aggravation/Mitigation Hearing); • Claim 35 (violation of rights under International Law); • Claim 36 (physical and psychological torture during execution); • Claim 39 (improper consideration of evidence regarding aggravating factors); • Claim 44 (irreconcilable conflict with attorney); • Claim 46 (IAC — failure to call mental health expert); and • Claim 53 (failure to channel sentencing discretion). District Court Discussion of Claims on the Merits Claim 1 — Change of Venue The district court determined that the Arizona Supreme Court’s decision denying relief was not contrary to or an unreasonable application of Supreme Court precedent, nor was it based on an unreasonable determination of the facts. The district court referenced the two types of prejudice resulting from pretrial publicity-presumed prejudice and actual prejudice. Because Roger did not argue actual preju 435 dice, the district court focused on presumed prejudice, albeit noting that the Arizona Supreme Court’s decision rejecting actual prejudice was not contrary to or an unreasonable application of Supreme Court precedent. The district court acknowledged that presumed prejudice is established when pretrial publicity utterly corrupts the trial atmosphere or incites a public passion that makes a fair trial unlikely. While the district court recognized that this case garnered significant media attention, it determined that the nature of the press coverage was not unduly pervasive or inflammatory. Rather, the media reports were factual recitations of the crime and the ensuing criminal proceedings. The district court therefore concluded that the Arizona Supreme Court did not unreasonably apply clearly established federal law in rejecting Roger’s claim of presumed prejudice, and that the state court’s decision was not based on an unreasonable determination of the facts. Claim 2 — Jury Sequestration The district court noted that because there is no constitutional right to jury sequestration, to obtain habeas relief, Roger was required to show that he was prejudiced by the failure to sequester the jury. The occurrences referenced by Roger to support his claim of prejudice included the security measures in effect during trial, negative comments made by police officers outside the courtroom, a conversation involving the prosecutor that may have been overheard by two jurors, and the attendance at trial of a juror’s spouse. The district court relied on the evidence presented to the state trial court that no jurors were exposed to the officers’ comments, that the jurors were admonished to disregard any comments by the prosecutor during the break, and that the juror and his spouse did not discuss the case. Because the state court’s determination that Roger failed to establish prejudice withstood AEDPA review, the district court denied habeas relief on this claim. Claim 3 — Severance The state court’s conclusion that Roger failed to establish prejudice from the joint trial, the district court held, was not based on an unreasonable application of clearly established federal law or an unreasonable determination of the facts. There was no indication that the defenses were antagonistic or mutually exclusive. Neither brother testified and no inculpatory statements were introduced. The nature and effect of the overwhelming evidence, which was admissible against both brothers, would not have changed if the trial were severed. The district court thus concluded that this claim was without merit, and denied relief. Claim 4 — Jury Selection Process The district court rejected this claim because Roger failed to demonstrate that young people or persons living in rural areas are distinctive groups as is required to establish underrepresentation or exclusion of a cognizable group from the jury selection process. The Arizona Supreme Court had rejected this claim on the basis of Duren v. Missouri, 439 U.S. 357, 99 S.Ct. 664, 58 L.Ed.2d 579 (1979). Because Roger could not show that either Duren or any other clearly established Supreme Court authority recognized young people or people living in rural areas as distinctive groups for fair-cross section purposes, the district court concluded that the state court had not unreasonably applied clearly established federal law. 8 436 Claim 5 — Fair Cross-Section/Equal Protection The district court determined that, as with Claim 4, the Arizona Supreme Court did not unreasonably apply United States Supreme Court precedent by concluding that Roger failed to establish that a distinctive group was improperly excluded from the jury pool. Claim 6 — Batson The state court’s determination that the prosecutor’s reasons for striking each of the challenged jurors were race-neutral, the district court concluded, was valid under AEDPA. One juror was excused due to the state’s criminal investigation of her relatives and the other juror was excused because the prosecutor knew the juror socially and was concerned that he might be too willing to agree to avoid discord. The district court determined that the Arizona Supreme Court neither unreasonably applied Batson nor based its decision on an unreasonable determination of the facts in the record. Claim 7 — Revisiting the Crime Scene The district court determined that Roger did not establish prejudice due to the trial court’s denial of his request to revisit the crime scene more than a year after the crime was committed and after the crime scene had been cleaned. The district court concluded that Roger failed to show that the evidence sought was material or that the verdict would have been different, particularly in view of the overwhelming evidence of guilt. The district court denied relief on this claim, affirming the state court’s determination under AEDPA. Claim 10 — Hybrid Representation The district court concluded that the Arizona Supreme Court’s decision denying Roger’s hybrid representation claim was not contrary to or an unreasonable application of Supreme Court precedent. Roger did not assert that the state court’s ruling violated his constitutional rights in any particular fashion. Additionally, the district court observed that Roger failed to cite any clearly established law supporting his claim of entitlement to hybrid representation. The district court denied relief on this claim. Claim 11 — Gruesome Photographs The district court found that Roger was not prejudiced by the photographs of the victims and of the crime scene that were admitted into evidence. The court reasoned that even if the pictures were improperly admitted, the error was not prejudicial and did not rise to the level of a due process violation because the evidence against Roger was overwhelming. The district court denied relief, concluding that the state court’s determination was neither contrary to, nor an unreasonable application of, clearly established federal law. Claim 12 — Prosecutorial Misconduct The district court determined that a detective’s joking about the FBI while testifying, when viewed in the context of the entire proceedings, “was innocuous and could have had no effect on the fairness of the trial,” particularly since the jury was instructed to disregard the offending comments. The district court also determined that the prosecutor’s statement during closing argument tying the.25 caliber shell found at the crime scene to Roger was a permissible inference that the prosecutor was allowed to draw based on the evidence. Regarding the prosecutor’s reference to the brothers as the “boys from Alabama” during closing argument, the district court determined that the “prose 437 cutor’s use of this rhetorical device did not carry the connotations [Roger] ascribe[d] to it and did not deprive him of a fair trial.” Finally, the district court determined that the comments made by the prosecution “that the defendants experienced a ‘sick excitement’ and ‘some sick crazy high’ ” as they committed the crimes did not result in a due process violation. The trial court neutralized any inappropriateness by instructing the jury not to be influenced by passion or prejudice, and that statements of counsel are not evidence. The district court denied relief because it determined that the Arizona Supreme Court did not unreasonably apply clearly established federal law holding that inappropriate remarks must infect the trial with unfairness to warrant reversal. Claim 13 — Reference to In-Custody Status Roger objected and moved for a mistrial after reference was made to blood being drawn from Roger by a “nurse in jail.” Another reference was made to the fact that Roger’s clothing was taken while he was in custody. The trial court sustained the objection to the testimony regarding blood being drawn and struck the answer. Roger’s motion for a mistrial was denied. The district court agreed with the state court that these isolated references to Roger’s in-custody status did not warrant a mistrial. The district court concluded that relief was not warranted under Estelle v. Williams, 425 U.S. 501, 96 S.Ct. 1691, 48 L.Ed.2d 126 (1976), and Roger cited no Supreme Court case supporting the proposition that the mere mention of the fact that a defendant is in custody constitutes a due process violation. Accordingly, the district court denied relief on this claim under AEDPA. Claim 14 — Sufficiency of Evidence Roger challenged the sufficiency of evidence supporting his armed robbery and felony murder convictions. The district court found that the state court did not unreasonably apply clearly established federal law, Jackson v. Virginia, 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979), in concluding that a rational factfinder could determine from the evidence that Roger committed armed robbery and that the deaths of the victims occurred during the course of or in furtherance of the armed robbery. Nor was the state court’s conclusion an unreasonable determination of the facts, given the use of several weapons, evidence of a struggle, and the fact that property was taken. The district court, therefore, denied relief on this claim. Claim 15 — Jury Instruction Addressing the State’s Failure to Preserve Evidence Roger alleged that the trial court violated his rights by failing to give a jury instruction regarding the state’s failure to preserve evidence. The district court opined that Roger had failed to establish that the officers who conducted the investigation acted in bad faith with respect to gathering, preserving, and analyzing the evidence. The witnesses for the state all gave credible explanations for the methods used to gather and preserve evidence, showing at most negligence on the part of investigators. More importantly, Roger failed to establish that the exculpatory nature of any unpreserved evidence was apparent before it was destroyed, or that the evidence was material. Because the state court did not unreasonably apply clearly established federal law in rejecting this claim, see California v. Trombetta, 467 U.S. 479, 488, 104 S.Ct. 2528, 81 L.Ed.2d 413 (1984), the district court denied relief under AEDPA. 438 Claim 16 — Intoxication Instruction The district court determined that Roger was not denied a fair trial when the trial court declined to give an intoxication instruction to the jury. The trial court found, and the Arizona Supreme Court affirmed, that Roger was drinking at a bar prior to the murders, but that there was no evidence that he was in fact intoxicated. Reviewing the state court decision under AEDPA, the district court presumed that finding to be correct and concluded that Roger had not overcome that presumption of correctness with clear and convincing evidence. The district court thus denied this claim. Claim 17 — Lesser Included Offense Instruction The district court found that the state court properly applied Supreme Court precedent, Hopper v. Evans, 456 U.S. 605, 611, 102 S.Ct. 2049, 72 L.Ed.2d 367 (1982), in concluding that there was insufficient evidence in the record to persuade a rational factfinder that Roger committed second degree murder rather than first degree murder, thereby necessitating a lesser included offense jury instruction. The district court also noted that the evidence of premeditation was overwhelming.. Claim 18 — Unconstitutionality of Arizona’s Felony Murder Statute The district court determined that there is no clearly established federal law holding that a felony murder statute must include lesser offenses. Citing Hopkins v. Reeves, 524 U.S. 88, 96-97, 118 S.Ct. 1895, 141 L.Ed.2d 76 (1998), the district court determined that Supreme Court precedent was to the contrary. 9 The district court denied this claim. Claim 19 — Unconstitutionality of Sentence Imposition by Judge Under State Law The district court denied this claim as foreclosed by Schriro v. Summerlin, 542 U.S. 348, 358, 124 S.Ct. 2519, 159 L.Ed.2d 442 (2004), which held that the Supreme Court’s decision in Ring v. Arizona, 536 U.S. 584, 122 S.Ct. 2428, 153 L.Ed.2d 556 (2002), requiring jury sentencing in capital cases, was not retroactive. Claim 22 — Double Jeopardy Roger took the position that applying the aggravator for multiple victims subjected him to double jeopardy. The district court explained that Roger was not being punished twice for the same crime. Rather, there were two crimes, two convictions, and two sentences. Citing Poland v. Arizona, 476 U.S. 147, 156, 106 S.Ct. 1749, 90 L.Ed.2d 123 (1986), and Lowenfield v. Phelps, 484 U.S. 231, 244-46, 108 S.Ct. 546, 98 L.Ed.2d 568 (1988), the district court clarified that statutory aggravating factors are not offenses for double jeopardy purposes, but are used to guide the jury in determining an appropriate sentence in capital cases. The district court concluded that the Arizona Supreme Court’s decision on this issue was not contrary to or an unreasonable application of clearly established federal law on double jeopardy. Claim 34 — Lack of Legitimate Penological Purpose Served by Delayed Execution The district court denied this claim as a matter of law because the United States Supreme Court has not determined that a lengthy incarceration prior to execution constitutes cruel or unusual punishment. The district court also observed that sever 439 al circuit courts, including the Ninth Circuit, have held that prolonged incarceration prior to execution does not violate the Eighth Amendment. See, e.g., McKenzie v. Day, 57 F.3d 1493, 1493-94 (9th Cir. 1995) (en banc). Claim 37 — Incompetence at Time of Execution Roger asserted that he would be incompetent at the anticipated time of execution. The district court dismissed this claim without prejudice as premature, with consent of the parties. Claim 38 — Access to the Law Library The district court found that the Arizona Supreme Court did not unreasonably apply clearly established federal law when it decided that Roger was provided adequate assistance from persons trained in the law, satisfying his constitutional right of access to the courts. The district court ruled that the state court’s ruling was consistent with Bounds, 430 U.S. at 828, 97 S.Ct. 1491, which held that constitutional access to the courts is satisfied by access to a law library or adequate assistance from a person trained in the law. Claims 40/41 — Statutory and NonStatu-tory Mitigation Evidence Outweighing Aggravating Factors The district court dismissed the portion of these claims asserting violations of the Fifth, Sixth, and Seventh Amendments as procedurally barred. The district court also denied relief on the portion of Roger’s claim asserting under the Eighth and Fourteenth Amendments, that the sentencing court failed to properly weigh aggravating and mitigating factors. The district court determined that this was an asserted error of state law, and thus no federal habeas relief was available. See Estelle v. McGuire, 502 U.S. 62, 67-68, 112 S.Ct. 475,116 L.Ed.2d 385 (1991). Claim 42 — Unconstitutional Breadth of Prosecution’s Discretion to Seek the Death Penalty The district court denied this claim because no clearly established Supreme Court precedent requires that a state provide specific standards instructing a sentencing court or jury regarding how to weigh aggravating and mitigating evidence. See Ortiz v. Stewart, 149 F.3d 923, 944 (9th Cir.1998) (citing Zant v. Stephens, 462 U.S. 862, 880, 103 S.Ct. 2733, 77 L.Ed.2d 235 (1983) for the proposition that the United States Constitution requires only that a state provide procedures to guide the sentencer’s discretion generally). In addition, the district court noted that we rejected this very argument in Smith v. Stewart, 140 F.3d 1263, 1272 (9th Cir. 1998). Claim 45 — Ineffective Assistance of Counsel — (sleeping through significant portions of the trial) The district court determined, in light of the evidence presented in the state court proceedings, that the state court did not rely on an unreasonable determination of facts in rejecting Roger’s allegation that his counsel slept throughout a significant portion of the trial and thus was constitutionally ineffective. Only Roger testified that he actually observed his lawyer sleeping, and multiple other witnesses testified that they did not see the lawyer asleep and that he was active and zealously involved in Roger’s defense. Additionally, the district court noted testimony from Roger’s lawyer and from co-counsel that Roger did not complain about his lawyer falling asleep in court. The district court also rejected Roger’s argument that he did not receive a fair hearing because the trial court judge was a key witness and also the presiding judge for the PCR proceedings. The district court relied on Gerlaugh v. Stewart, 129 440 F.3d 1027, 1036 (9th Cir.1997), where we held that a trial court judge may also preside over post-conviction proceedings. The district court denied this claim. Claim 48 — Ineffective Assistance of Counsel — (failure to present exculpatory witness) The PCR court concluded that Robert’s counsel was not ineffective when attempting to locate the alleged exculpatory witness. The district court determined that even if Roger’s counsel was ineffective in failing to present that same witness, the outcome of the trial would have been the same. The proposed exculpatory testimony that the victim was seen with three other men on the night of the murder would not have overcome the insurmountable inculpatory evidence. Because Roger could not establish prejudice in any event, the state court’s determination was not contrary to clearly established federal law, see Strickland v. Washington, 466 U.S. 668, 687-88, 104 S.Ct. 2062, 80 L.Ed.2d 674 (1984). The district court declined to issue a Certifícate of Appealability (COA) after denying Roger’s petition. Roger subsequently filed a timely appeal, and we issued a COA for the following claims: • Claim 1 — denial of requested change of venue; • Claim 5 — denial of fair cross-section in the jury venire; • Claim 6 — Batson violation; • Claim 7 — denial of request to inspect the crime scene; • Claim 16 — omission of voluntary intoxication instruction; • Claim 17 — denial of a lesser included offense instruction; • Claim 26 — failure to consider mitigating evidence; • Claim 44 — denial of request to replace counsel due to irreconcilable conflict; • Claim 45 — ineffective assistance of counsel (IAC) due to counsel’s inattentiveness; and • Claim 48 — IAC due to counsel’s failure to present exculpatory witness. II. STANDARDS OF REVIEW We review de novo a district court’s denial of a habeas petition. See Fairbank v. Ayers, 650 F.3d 1243, 1250 (9th Cir.2011), as amended. Because Roger filed his petition for a writ of habeas corpus after April 24, 1996, the Antiterrorism and Effective Death Penalty Act (AEDPA) applies. See Valer-io v. Crawford, 306 F.3d 742, 763 (9th Cir.2002) (en banc). Under AEDPA, we are barred from granting relief unless the state court decision: “(1) was contrary to clearly established federal law as determined by the Supreme Court, (2) involved an unreasonable application of such law, or (3)... was based on an unreasonable determination of the facts in light of the record before the state court.” Fairbank, 650 F.3d at 1251 (citation and internal quotation marks omitted). A state court’s decision is contrary to clearly established federal law if its decision contradicts the governing law articulated by the Supreme Court or reaches a result different than that reached by the Supreme Court on materially indistinguishable facts.. See Terry Williams v. Taylor, 529 U.S. 362, 405-06, 120 S.Ct. 1495, 146 L.Ed.2d 389 (2000). A state court’s decision is an unreasonable application of clearly established federal law when the state court identifies the correct legal rule, but applies it to a new set of facts in a way that is objectively unreasonable. See id. at 407, 120 S.Ct. 1495. 441 “Clearly established federal law means the governing legal principle or principles set forth by the Supreme Court at the time the state court renders its decision.” Xiong v. Felker, 681 F.Sd 1067, 1073 (9th Cir.2012) (citation omitted). Although “circuit court precedent may be persuasive in determining what law is clearly established and whether a state court applied that law unreasonably^]” Stanley v. Cullen, 633 F.3d 852, 859 (9th Cir.2011) (citation omitted), our determination of clearly-established law under AED-PA must ultimately rest on a Supreme Court holding, not on dicta that we have interpreted in circuit decisions. See Carey v. Musladin, 549 U.S. 70, 74, 77, 127 S.Ct. 649, 166 L.Ed.2d 482 (2006); see also Wright v. Van Patten, 552 U.S. 120, 125-26, 128 S.Ct. 743, 169 L.Ed.2d 583 (2008) (reiterating that a Supreme Court case must have “squarely address[ed]” a certain issue and given a “clear answer” regarding the applicable legal rule to create “clearly established federal law for AEDPA purposes”). Under AEDPA, we review the “last reasoned decision” from the state court, which means that when the final state court decision contains no reasoning, we may look to the last decision from the state court that provides a reasoned explanation of the issue. See Shackleford v. Hubbard, 234 F.3d 1072, 1079 n. 2 (9th Cir.2000). In circumstances where no decision from the state court articulates its underlying reasoning, “the habeas petitioner’s burden still must be met by showing there was no reasonable basis for the state court to deny relief....” Harrington v. Richter, - U.S.-, 131 S.Ct. 770, 784, 178 L.Ed.2d 624 (2011); see also Johnson v. Williams, - U.S.-, 133 S.Ct. 1088, 1096, 185 L.Ed.2d 105 (2013). In determining whether a petition has met this burden, we “must determine what arguments or theories supported or... could have supported [] the state court’s decision;” and then assess “whether it is possible fairminded jurists could disagree that those arguments or theories are inconsistent with the holding in a prior decision of [the Supreme Court].... ” Richter, 131 S.Ct. at 786 (citation omitted). Accordingly, “when the state court does not supply reasoning for its decision, we are instructed to engage in an independent review of the record and ascertain whether the state court’s decision was objectively unreasonable.” Walker v. Martel, 709 F.3d 925, 939 (9th Cir.2013) (citation and internal quotation marks omitted). “Crucially, this is not a de novo review of the constitutional question. Rather, even a strong case for relief does not mean the state court’s contrary conclusion was unreasonable.” Id. (citations and internal quotation marks omitted). Finally, so long as we are reviewing a petitioner’s claim under AEDPA, our review is limited to the facts before the state court and the petitioner is not entitled to an evidentiary hearing in federal court. See Cullen v. Pinholster, - U.S. -, 131 S.Ct. 1388, 1398, 179 L.Ed.2d 557 (2011). III. DISCUSSION (Issues Raised in Federal Appeal) A. Claim One&emdash;Denial of Requested Change of Yenue Roger argues that the denial of his change of venue motion violated his due process right to a fair trial. He contends that there was a barrage of pretrial publicity that was false and prejudicial. He also asserts that there is a heightened obligation to change venue in capital cases. The Sixth Amendment guarantees a defendant’s right to trial before an impartial jury. See Skilling v. United 442 States, 561 U.S. 358, 130 S.Ct. 2896, 2912-13, 177 L.Ed.2d 619 (2010). When an impartial jury cannot be empaneled due to pretrial publicity, a change of venue at the request of the defendant is appropriate to prevent violation of the defendant’s due process right to a fair trial. See id. at 2913. To support a change of venue request, the defendant must establish either presumed or actual prejudice. See id. at 2907. The Supreme Court has explained that a court may presume prejudice only when the “trial atmosphere [is] utterly corrupted by press coverage,” Dobbert v. Florida, 432 U.S. 282, 303, 97 S.Ct. 2290, 53 L.Ed.2d 344 (1977) (citing Murphy v. Florida, 421 U.S. 794, 798, 95 S.Ct. 2031, 44 L.Ed.2d 589 (1975)), or when “a wave of public passion... ma[kes] a fair trial unlikely by the jury...” Patton v. Yount, 467 U.S. 1025, 1040, 104 S.Ct. 2885, 81 L.Ed.2d 847 (1984) (internal quotation marks omitted). Juror exposure to news reports of a crime — even “pervasive, adverse publicity” — is not enough alone to trigger a presumption of prejudice to the defendant’s due process rights. Skilling, 130 S.Ct. at 2916 (describing the “vivid, unforgettable” and “blatantly prejudicial” information at issue in the handful of cases in which the Supreme Court has presumed prejudice as a result of pretrial publicity) (citing Rideau v. Louisiana, 373 U.S. 723, 83 S.Ct. 1417, 10 L.Ed.2d 663 (1963); Estes v. Texas, 381 U.S. 532, 85 S.Ct. 1628, 14 L.Ed.2d 543 (1965); Sheppard v. Maxwell, 384 U.S. 333, 86 S.Ct. 1507, 16 L.Ed.2d 600 (1966)). Rather, a presumption of prejudice “attends only the extreme case.” Id. at 2915. In the alternative, a defendant may establish the existence of actual prejudice if, during voir dire, potential jurors who have been exposed to pretrial publicity express bias or hostility toward the defendant that cannot be cast aside. Id. at 2918 & n. 20 (citing Mu’Min v. Virginia, 500 U.S. 415, 427, 111 S.Ct. 1899, 114 L.Ed.2d 493 (1991)). The reviewing court must give deference to the trial court’s assessment of the impartiality of potential jurors, since that assessment “is ordinarily influenced by a host of facts impossible to fully capture in the record...” Skilling, 130 S.Ct. at 2918; see also Mu’Min, 500 U.S. at 427, 111 S.Ct. 1899. (“The judge of that court sits in the locale where the publicity is said to have had its effect and brings to his evaluation of any such claim his own perception of the depth and extent of news stories that might influence a ju-ror_”). The last reasoned state court decision addressing the pretrial publicity issue was the Supreme Court of Arizona opinion. See Murray, 906 P.2d at 559. The state supreme court held that Roger failed to demonstrate media attention so extreme that prejudice could be presumed. See id. Roger introduced several newspaper articles and presented two witnesses, a news director and the defense investigator, to establish presumed prejudice. The newspaper articles were primarily factual descriptions of the crime and the court proceedings. Roger highlights two newspaper articles and a photograph to support his argument. The articles’ captions were “Two Alabama Brothers Are Arraigned for Brutal Slayings” and “Murray Brothers Are Suspects in Crime Spree.” The referenced photograph depicted Robert and Roger standing near a transport van. The text below the photograph stated that at least eight law enforcement officers escorted the brothers, and that two armed officers were stationed on nearby rooftops. The witnesses testified that people in the area were aware through news reports of the brothers and of the crimes commit 443 ted, and that some members of the community had expressed the view that the brothers were guilty. After considering the evidence presented, the state court concluded that Roger failed to specify “what pretrial publicity was so outrageous,” as to create an atmosphere that was “utterly corrupted.” Murray, 906 P.2d at 559 (citation omitted) (emphasis in the original). Nor was the court convinced that the security measures implemented for trial “ereat[ed] a contaminated atmosphere,” warranting a presumption of prejudice. Id. Finally, the court found that no actual prejudice was shown. Although some of the prospective jurors were aware of the crime generally, potential juror bias was probed extensively in the jury questionnaire and during voir dire. See id. Any prospective juror who failed to convince the court that he could be objective despite the pretrial publicity was not allowed to remain on the jury panel. See id. Once seated, jurors were repeatedly admonished to avoid media coverage of the trial proceedings. See id. After reviewing this record, the Arizona Supreme Court affirmed the trial court’s denial of the requested venue change. See id. Roger relies on Coleman v. Kemp, 778 F.2d 1487 (11th Cir.1985) and Daniels v. Woodford, 428 F.3d 1181 (9th Cir.2005) to support his argument that the state court’s decision was unreasonable. As the Supreme Court has made clear, however, simply because a state court decision is inconsistent with circuit precedent does not mean that it is an unreasonable application of clearly established federal law “as determined by the Supreme Court.” Richter, 131 S.Ct. at 784 (quoting 28 U.S.C. § 2254); see also Marshall v. Rodgers, — U.S. -, 133 S.Ct. 1446, 1450-51, 185 L.Ed.2d 540 (2013). Thus, our circuit precedent is only relevant to the extent that, “in accordance with [our] usual law-of-the circuit procedures,... [we] ha[ve] already held that the particular point in issue is clearly established by Supreme Court precedent...” Marshall, 133 S.Ct. at 1450 (citations omitted). “[We] may not canvass circuit decisions to determine whether a particular rule of law is so widely accepted among the Federal Circuits that it would, if presented to th[e] [Supreme] Court be accepted as correct....” Id. at 1451 (citations omitted). Therefore, Roger’s argument that his case is similar to the presumed prejudice determinations in Coleman and Daniels, see Coleman, 778 F.2d at 1537-38, Daniels, 428 F.3d at 1211, is inapposite to our analysis on habeas review. Our precedent does, however, require that we “conduct an independent review of news reports about the case.” Daniels, 428 F.3d at 1210 (citation omitted). An independent review of the record reveals that Roger presented a number of newspaper articles to the state court. The bulk of the pretrial articles were published months prior to trial. And it is important to note that not all of these articles are from Mohave County, or are even about Roger. Some of the articles, particularly the editorials, were about the death penalty in general. It appears that this is because, around the time of Roger’s trial, Arizona was preparing to execute a man for the first time since 1963. This situation created interest, leading people to question whether the death penalty should be supported by society in general. In fact, some of the editorials actually questioned whether the death penalty is appropriate. One editorial stated that killers should be put six feet under, but the statement was a general one, not directed toward Roger, neither assuming his guilt, nor calling for his punishment. Only two editorials actually referenced Roger. One referred to “the Murray brothers” being represented by Frank Dickey. The editorial continued 444 by criticizing Mr. Dickey’s personal views concerning the death penalty. The other was a letter to the editor praising the judicial system for denying the defense motion to suppress evidence obtained after a license plate check by an Arizona DPS officer resulted in the Murrays’ apprehension. The letter was anything but inflammatory toward Roger, again not even referring to him by name, but as one of the Murray brothers. The vast majority of the articles submitted by Roger reported only facts, relaying information regarding what happened at trial on particular days. One article, that ran long before trial, mentioned that the victims were shot “execution style” and that an elderly woman had also been attacked by the brothers in Alabama. The problem with relying on this article is that it ran in an Alabama newspaper, thousands of miles from the trial venue. An article describing the brothers as suspects in a crime spree did run in the Kingman, Arizona, newspaper over a year before the trial. The article detailed allegations of a robbery and assault against an elderly woman in Alabama. Finally, as mentioned by Roger, a newspaper ran an article about the venue hearing, including a picture of the brothers being escorted to the jail and a description of armed officers “perched on rooftops” overlooking them. Roger also proffered evidence of radio publicity. David Hawkins, the news and sports director for various local radio stations, testified that the radio stations’ transmission areas covered the bulk of the residents in Mohave County. Mr. Hawkins brought to court copies of the vast majority of the stories that had been broadcast on the radio. He testified that the community was “upset with what happened to the victims in this case, and they are curious about the outcome of this particular-not this particular proceeding, but the whole of this case.” Mr. Hawkins further testified that he had heard some expressed opinions that the defendants were guilty, although he had only spoken to a “couple dozen” members of the community — -mostly people in legal circles, reporters and social acquaintances. Of the fifty-seven stories Mr. Hawkins brought to court, some mentioned that the brothers were connected to a robbery/assault in Alabama, that they might be linked to murders in California and New Mexico, and that the murders were committed “execution style.” Overall, however, the radio news reports were brief and factual in nature. Finally, John Freeman, a defense investigator, testified that he had spoken to a number of people about the case who thought the brothers were guilty and should “get a quick trial.” We conclude that the Arizona Supreme Court’s determination that prejudice could not be presumed was not contrary to or an unreasonable application of Supreme Court precedent, and while it does not impact our AEDPA inquiry, we note that the ruling was consistent with Coleman and Daniels as well. The publicity surrounding Roger’s trial fell far short of the “utterly corrupted” trial environment that existed in Rideau, Estes, and Sheppard, the three cases the Supreme Court described in Skilling as establishing the threshold for presumed prejudice due to pretrial publicity. Skilling, 130 S.Ct. at 2913-14. In Rideau, the defendant’s confession was broadcast on television three times, and two-thirds of the local community saw or heard the broadcast. See 373 U.S. at 724-26, 83 S.Ct. 1417. In Estes, there was extensive media presence in the courtroom, including microphones, television cameras, and photographers; these facts combined with 445 the live telecast and rebroadcast of a pretrial hearing, led the Court to conclude that such intrusion was inherently prejudicial. See 381 U.S. at 550-51, 85 S.Ct. 1628. Finally, in Sheppard, news articles emphasized that the defendant’s extramarital affairs were a motive for the crime, characterized the defendant as a liar, and described incriminating evidence and discrepancies in defendant’s statements. See 384 U.S. at 340-41, 86 S.Ct. 1507. Likewise, in both Coleman and Daniels, an onslaught of inflammatory publicity resulted in a denial of due process. See Coleman, 778 F.2d at 1538-39; see also Daniels, 428 F.3d at 1212. For example, in Coleman, we emphasized comments on the evidence from law enforcement officials, derogatory descriptions of the defendants, remarks from potential defense attorneys seeking to avoid appointment, and editorials expressing the appropriateness of the death penalty. See Coleman, 778 F.2d at 1539-40. By contrast, news coverage of the crimes committed by the Murray brothers was almost invariably fact-based. There was no inflammatory barrage of information that would be inadmissible at trial. Rather, the news reports focused on relaying mainly evidence presented at trial. These news reports do not come anywhere close to the kind of “vivid, unforgettable” and “blatantly prejudicial” atmosphere that occurred in Rideau, Estes, and Sheppard. Skilling, 130 S.Ct. at 2916-17. Roger seeks to avoid this conclusion by arguing that the legal standard for prejudice is somehow lower in capital cases, contending that there is a “heightened obligation to be particularly serious to the need for change of venue for capital cases.” But Supreme Court precedent provides no support for this proposition. In Ddbbert, to illustrate, the Court expressly applied Murphy in upholding the petitioner’s death sentence. See Dobbert, 432 U.S. at 302, 97 S.Ct. 2290. The Court has not since departed from that standard. Roger also notes that Murphy sets forth a “totality of the circumstances” test for whether media coverage has “utterly corrupted” the trial, and that the Arizona Supreme Court therefore erred in holding that Roger fell short of the standard because he “failed to show what pretrial publicity was so outrageous.” That is, Roger believes that he was subjected to too high a bar, in that he should not have been required to cite specific instances of outrageous publicity. But the Arizona Supreme Court cited and considered the evidence that Roger advanced, and simply found that because none of the evidence was individually problematic, it would be impossible to conclude that the totality of circumstances had “utterly corrupted” the trial as described in Murphy. Murray, 906 P.2d at 559. This conclusion was not contrary to or an unreasonable application of clearly established federal law, as summarized most recently in Skilling. In addition, we conclude that the Arizona Supreme Court’s determination that no actual prejudice was shown was not contrary to or an unreasonable application of Supreme Court precedent. See Mu’Min, 500 U.S. at 429-30, 111 S.Ct. 1899. Although some of the prospective jurors were aware of the crime generally, potential juror bias was probed extensively in the jury questionnaire and during voir dire. See Murray, 906 P.2d at 559. Any prospective juror who failed to convince the court that he could be objective despite the pretrial publicity was not allowed to remain on the jury panel. See id. Once seated, jurors were repeatedly admonished to avoid media coverage of the trial proceedings. See id. After reviewing this record, the Arizona Supreme Court af 446 firmed the trial court’s denial of the requested venue change. See id. Our independent review of the voir dire record reveals that of the seventy-seven potential jurors, only one indicated that she had previously formed an opinion regarding the case. That potential juror stated: “Being people were arrested, I automatically thought guilty.” That same juror indicated that it would be difficult for her to overcome her opinion of guilt based upon the arrest of an individual. That juror was excused by the trial judge, and only two other potential jurors mentioned that they had opinions about the circumstances of the crime. The one potential juror’s opinion concerned the horrible nature of the crime, not the guilt or innocence of Roger, while the other potential juror’s opinion was regarding how a crime like this could happen, not the guilt or innocence of Roger. Both indicated that they could set aside their opinions and be fair and impartial. The record indicates that no other potential juror had extensive knowledge of the case; indeed, some even stated that they had never heard of the case. We therefore conclude that the Arizona Supreme Court’s determination that Roger did not establish either presumed or actual prejudice was neither contrary to nor an unreasonable application of Supreme Court precedent. B. Claim Five — Denial of Fair Cross-Section of the Community in the Jury Venire. Roger contends that the jury commissioner purposely excluded jurors who stated that it was contrary to their Christian beliefs to sit in judgment of others. According to Roger, this purposeful exclusion violated his rights under the Sixth Amendment (the Fair Cross-Section Doctrine) and the Equal Protection Clause of the Fourteenth Amendment. 10 On direct appeal, Roger argued that the Sixth and Fourteenth Amendments had been violated because the jury list was composed of an out-of-date driver’s license list and did not include voter registration lists. Moreover, Roger asserted that even after the jury list was corrected, because the deadline for returning jury questionnaires was after the date the jury would be picked, potential jurors from rural areas were likely to be underrepresented. Finally, Roger argued that because the state notified jurors to present themselves for service by telephone, its procedures systematically excluded individuals who could not afford telephones. Roger contended that these failures resulted in the exclusion of young people, poor people, and those hailing from rural areas, thereby depriving the brothers of a jury of their peers who were most likely to “understand” them, since the brothers were young, poor, and from rural Alabama. The Arizona Supreme Court thoroughly dealt with the issues raised by Roger on direct appeal, holding that under Duren and relevant precedent of its own, Roger failed to show that young, poor, or rural people were a “distinctive” group for fair cross-section purposes. Murray, 906 P.2d at 556-57. Roger has again raised a fair cross-section claim before us, but for good reason, makes no argument challenging the decision actually rendered by the Arizona Supreme Court. On federal habeas review, Roger now raises only the exclusion of Christians as the basis for his Sixth Amendment fair cross-section argument and Fourteenth Amendment equal protee 447 tion argument. Although Roger made fair cross-section and equal protection arguments before the Arizona Supreme Court, he did not mention the exclusion of Christians as a basis for these claims. Before us, the claim asserting exclusion of Christians is brand new. We are unable to grant federal habeas relief when a petitioner has failed to exhaust his claim in state court. See 28 U.S.C. § 2254(b)(1)(A). The exhaustion requirement affords state courts the “opportunity to pass upon and correct alleged violations of its prisoners’ federal rights.... ” Picard v. Connor, 404 U.S. 270, 275, 92 S.Ct. 509, 30 L.Ed.2d 438 (1971) (citation and internal quotation marks omitted); see also Baldwin v. Reese, 541 U.S. 27, 29, 124 S.Ct. 1347, 158 L.Ed.2d 64 (2004). To satisfy the exhaustion requirement, a petitioner “must ‘fairly present’ his claim in each appropriate state court (including a state supreme court with powers of discretionary review... ”), Baldwin, 541 U.S. at 29, 124 S.Ct. 1347 (citations omitted). The purpose of the fair presentation doctrine “is to prevent unnecessary conflict between courts equally bound to guard and protect rights secured by the Constitution.” Picard, 404 U.S. at 275,* 92 S.Ct. 509 (citation and internal quotation marks omitted). However, “[t]he rule would serve no purpose if it could be satisfied by raising one claim in the state courts and another in the federal courts.” Id. at 276, 92 S.Ct. 509. “Only if the state courts have had the first opportunity to hear the claim sought to be vindicated in a federal habeas proceeding does it make sense to speak of the exhaustion of state remedies. Accordingly, [the Supreme Court] ha[s] required a state prisoner to present the state courts with the same claim he urges upon the federal courts.” Id. (citations omitted) (emphasis added). Here, Roger never provided the Arizona Supreme Court with the opportunity to determine whether the exclusion of Christians violated his Sixth or Fourteenth Amendment rights. Like the state court in Picard, the Arizona Supreme Court had no “opportunity to apply controlling legal principles to the facts bearing upon (his) constitutional claim.” Id. at 277, 92 S.Ct. 509 (citation omitted). As in Picard, we cannot fault the Arizona Supreme Court for “failing also to consider sua sponte” whether the exclusion of Christians might have violated Roger’s constitutional rights. Id. Roger’s argument before the Arizona Supreme Court contained no mention of Christians being excluded from the jury pool. Thus, we cannot say that Roger’s current fair cross-section/equal protection claim predicated on the exclusion of Christians is the “substantial equivalent” of his claim before the state court targeting the exclusion of young people, poor people, and those from rural areas. Id. at 278, 92 S.Ct. 509. This claim, then, is unexhausted and procedurally defaulted. See Ariz. R.Crim. P. 32.2(a); see also Poland v. Stewart, 169 F.3d 573, 578 (9th Cir.1999). Even if this claim were not unex-hausted and procedurally defaulted, it is without merit. See 28 U.S.C. § 2254(b)(2) (providing that “[a]n application for a writ of habeas corpus may be denied on the merits, notwithstanding the failure of the applicant to exhaust the remedies available in the courts of the State”); see also Bell v. Cone, 543 U.S. 447, 451 & n. 3, 125 S.Ct. 847, 160 L.Ed.2d 881 (2005) (applying § 2254(b)(2) to reach on the merits a petitioner’s unexhausted but meritless claim). The only evidence in the record regarding the exclusion of Christians is the following colloquy: [Prosecutor]: And do you [jury commissioner] excuse anybody because they 448 state any particular religious denomination? [Jury Commissioner]: Only one group, and I wish&emdash;I don’t remember. Seventh Day Adventists or Jehova’s [sic] Witnesses have stated on their questionnaire and sent copies, I mean a page out of their Bible that it is against their religious beliefs to sit in judgment of anyone. And only if they request it. To establish the lack of a fair cross-section of the community, a defendant must demonstrate that: (1) the group alleged to be excluded is a distinctive one in the community; (2) representation of this group in the jury venires is not fair and reasonable in relation to the number of such persons in the community; and (3) this underrepresentation is due to systematic exclusion of the group in the jury-selection process. See Berghuis v. Smith, 559 U.S. 314, 130 S.Ct. 1382, 1392, 176 L.Ed.2d 249 (2010) (citing Duren, 439 U.S. at 364, 99 S.Ct. 664). An equal protection violation arises if a jury selection process resulted in a substantial underrepresentation of an identifiable group. See Castaneda v. Partida, 430 U.S. 482, 494, 97 S.Ct. 1272, 51 L.Ed.2d 498 (1977). First, there must be identification of a group that is recognizable, distinctive, and singled out for different treatment under the laws as written or applied. See id. Second, there must be a showing that the distinctive class was proportionately underrepresented over a significant period of time. See id. Finally, there must be evidence that the juror selection process was susceptible to abuse or was not neutral. See id. Only after this prima facie showing is made must the state defend its jury selection process. See id. Roger does not identify any Supreme Court precedent that would require the state to interrogate the individuals who revealed that it was against their religious beliefs to serve on a jury, and would require the jurors to re-confirm their ability to set aside their beliefs and apply the governing law. To the extent Roger advances a claim of error in rejecting this argument, the claim is meritless. As for the Sixth Amendment claim, Roger has failed to show any systematic exclusion of a distinct group. In fact, Roger has not shown that any Christians were excluded. Moreover, the jury commissioner testified that members of specific religious denominations are excluded only if they request exclusion based on their particular religious beliefs. This practice does not constitute systematic exclusion. Likewise, Roger’s equal protection claim fails because the jury commissioner did not disclose that any specific religious denomination, or Christians, are singled out for disparate treatment. The evidence only supports the conclusion that individuals are excluded if exclusion is specifically requested due to religious beliefs. By no stretch of the imagination does this meager evidence satisfy the required showings of systematic exclusion and disparate treatment. Thus, even if Roger’s claim were not procedurally defaulted, we would conclude that the Arizona Supreme Court’s decision denying Roger’s fair cross-section/equal protection claim was not contrary to or an unreasonable application of Supreme Court precedent. C. Claim Six&emdash;Batson Violation Roger contends that the state violated Batson when it dismissed the only two Hispanic potential jurors from the jury venire. For the reasons set forth in Robert Murray v. Schriro, No. 08-99008, Slip. Op. pp. 27-42, 745 F.3d 984, 2014 WL 997716 (9th Cir. March 17, 2014), we affirm the 449 district court’s denial of Roger’s Batson claim. D. Claim Seven — Denial of Request to Inspect the Crime Scene Citing United States v. Valenzuela-Bernal, 458 U.S. 858, 102 S.Ct. 3440, 73 L.Ed.2d 1193 (1982), Roger argues that the trial court denied him due process by denying his new investigator access to the crime scene for inspection. Additionally, Roger asserts that the Supreme Court of Arizona’s ruling “is not entitled to any deference,” because it did not address his federal constitutional claims and relied only on state law. Roger’s arguments are unpersuasive. The last reasoned decision addressing the inspection due process claim is the decision of the Supreme Court of Arizona denying relief. The state court found that Roger failed to support the purported necessity of viewing the crime scene for a second time. See Murray, 906 P.2d at 569. The United States Supreme Court has instructed that evidence sought by a defendant must be material. See United States v. Bagley, 473 U.S. 667, 682, 105 S.Ct. 3375, 87 L.Ed.2d 481 (1985). Merely showing that access to evidence was denied does not establish a constitutional violation. See Valenzuela-Bemal, 458 U.S. at 867, 102 S.Ct. 3440. The defendant must make a plausible argument that the evidence sought is “both material and favorable to his defense,” id., and not “merely cumulative” to other evidence. Id. at 873, 102 S.Ct. 3440 (footnote reference omitted). Evidence is material in the constitutional sense if there is a “reasonable likelihood” that it “could have affected the judgment of the trier of fact” if it had been made available to the defense. Id. at 874, 102 S.Ct. 3440. Roger’s lead counsel and his investigator inspected the crime scene shortly after the crime was committed and approximately a year prior to his trial. See Murray, 906 P.2d at 569. Co-counsel from the same public defender’s office and an additional investigator were subsequently assigned to Roger’s defense team. See id. However, neither the new attorney nor the new investigator visited the crime scene prior to trial. See id. During trial, defense counsel requested an opportunity to revisit the crime scene. See id. The trial court denied the request. See id. The Arizona Supreme Court affirmed the trial court’s finding that Roger failed to establish the need for a second inspection. See id. The state court decision was not contrary to Valenzuela-Bemal. In Valenzuela-Bemal the Court explained that a defendant only has a right to evidence that is “relevant and material” to his defense. Valenzuelar-Bernal, 458 U.S. at 867, 102 S.Ct. 3440. Roger failed to show how inspection of the crime scene a year later, and after the scene had been cleaned, see Murray, 906 P.2d at 569, would uncover evidence that was “relevant and material” to his defense. Valenzuelar-Bernal, 458 U.S. at 867, 102 S.Ct. 3440. The Arizona Supreme Court’s decision was not contrary to or an unreasonable application of Supreme Court precedent. See id. at 874, 102 S.Ct. 3440 (holding that there was no constitutional violation in similar circumstances). Roger also contends that because the Arizona Supreme Court did not address his federal due process claim, no AEDPA deference is warranted on this issue. However, as stated, even if the state court does not analyze a claim, we nevertheless review the state court decision with deference to the state court’s denial of relief. See Johnson, 133 S.Ct. at 1094; see also Cunningham v. Wong, 704 450 F.3d 1143, 1153 (9th Cir.2013). In the same vein, if a state court does not explicitly state the reason for denying a claim, we presume that the state court adjudicated the claim on its merits. See Richter, 131 S.Ct. at 784-85. Although this presumption “may be overcome when there is reason to think some other explanation for the state court’s decision is more likely,” id. at 785, Roger does not suggest any such reason. When a state court determines a federal claim without discussing federal precedent, AEDPA deference to the state court’s decision remains, and it is still “the habeas petitioner’s burden” to show “there was no reasonable basis for the state court to deny relief....” Id. at 784. Although the Arizona Supreme Court did not explicitly address Roger’s federal constitutional claim, it provided adequate reasoning based on state law to affirm the trial court’s ruling denying Roger’s motion to revisit the crime scene. See Murray, 906 P.2d at 569. Notably, in his brief to the Arizona Supreme Court, Roger cited Valenzuelar-Bemal, a case he characterized as incorporating “constitutionally guaranteed access to evidence.” See Johnson, 133 S.Ct. at 1099 (referring to the defendant’s brief to determine that the federal claim was addressed). Moreover, in denying Roger’s claim, the Arizona Supreme Court cited Arizona Rule of Criminal Procedure 15.1(e), which governs the circumstances under which a trial court may grant additional disclosure requests by the defendant. See Murray, 906 P.2d at 569. As in Johnson, it is “difficult to imagine” the Arizona Supreme Court “announcing an interpretation of’ Rule 15.1(e) “that it believed to be less protective than” the Fourteenth Amendment, “as any such interpretation would provide no guidance to state trial judges bound to follow both state and federal law.” Johnson, 133 S.Ct. at 1098. And, as we have already explained, it is apparent that “neither the reasoning nor the result of the state-court decision contradicts” the Supreme Court’s rule in Valenzuela-Bemal. Early v. Packer, 537 U.S. 3, 8, 123 S.Ct. 362, 154 L.Ed.2d 263 (2002). Thus, the Arizona Supreme Court addressed Roger’s Sixth Amendment claim when it denied relief on Roger’s challenge to the denial of the requested inspection, and its determination was not contrary to or an unreasonable application of clearly established federal law. See Johnson, 133 S.Ct. at 1099. E. Claim Sixteen — Omission of Voluntary Intoxication Instruction Citing Dunckhurst v. Deeds, 859 F.2d 110 (9th Cir.1988), Roger contends that failure of the trial court to give a voluntary intoxication instruction, violated his due process right to a fair trial. Both defendants requested an intoxication instruction, which the trial court denied, reasoning that the defendants “ha[d not] made out any credible evidence on intoxication.” Roger’s reliance on Dunckhurst is misplaced. Dunckhurst is a pre-AEDPA case relying on our precedent developed during direct appeal of criminal convictions. See 859 F.2d at 114 (citing United States v. Lesina, 833 F.2d 156 (9th Cir.1987)). Once again, our circuit precedent is only relevant to the extent that “in accordance with [our] usual law-of-the-circuit procedures,... [we] ha[ve] already held that the particular point in issue is clearly established by Supreme Court precedent...” Marshall, 133 S.Ct. at 1450 (citations omitted). Dunckhurst does not purport to determine that a particular rule is clearly established federal law under Supreme Court precedent. Consequently, Dunck-hurst is inapposite to our analysis on federal habeas review. 451 The Arizona Supreme Court provided the last reasoned decision for this claim, affirming the trial court's conclusion that Roger had failed to establish that the alcohol he allegedly consumed affected his “ability to think, function, or form intent.” Murray, 906 P.2d at 566. The Arizona Supreme Court explained, that under A.R.S. § 13-503 11 (1992), a voluntary intoxication instruction “should be given only when the record supports such an instruction.... ” Id. at 566-67 (citation omitted). A mere showing of alcohol consumption alone is inadequate to require giving an intoxication instruction. See id. at 567. The defendant must also establish that the effect of the alcohol negated an element of the crime. See id. The court determined that Roger had failed to meet this burden. See id. Due process does not require the jury to be instructed regarding the defendant’s intoxication at the time of the crime. See Montana v. Egelhoff, 518 U.S. 37, 51, 56, 116 S.Ct. 2013, 135 L.Ed.2d 361 (1996). But, where a state has decided that a party is entitled to an intoxication instruction, a failure to so instruct the jury is reviewed to determine if the error has “so infected the entire trial that the resulting conviction violates due process.... ” Estelle, 502 U.S. at 72, 112 S.Ct. 475 (citations omitted). As the Arizona Supreme Court noted in its decision on direct appeal, “[a] party is entitled to an instruction on any theory reasonably supported by evidence. An intoxication instruction should be given only when the record supports such an instruction.” State v. LaG-rand, 152 Ariz. 483, 733 P.2d 1066, 1070 (1987) (citations omitted); see also Murray, 906 P.2d at 566-67. Roger faces a particularly heavy burden in seeking to establish a due process violation because a jury instruction was omitted rather than erroneously given. “An omission, or an incomplete instruction, is less likely to be prejudicial than a misstatement of the law-” Henderson v. Kibbe, 431 U.S. 145, 155, 97 S.Ct. 1730, 52 L.Ed.2d 203 (1977). As the Arizona Supreme Court noted, Roger did present evidence that he had been drinking on the night of the crime. See 906 P.2d at 566. Roger’s counsel stated that “[t]he jury, from the evidence before it, could perhaps determine that the defendants over the period of time they had been drinking, did become intoxicated.... ” The prosecutor responded that “the State doesn’t believe there’s any evidence of intoxication. The only direct testimony on that was a person at the bar... that said they did not appear to be intoxicated or under the influence.... ” Based on this evidence, the trial court&emdash;and the Arizona Supreme Court&emdash;found that: [Murray had not] made out any credible evidence on intoxication. The fact that the defendants were drinking isn’t-there’s no testimony as to what effect that had on their ability to think or their abilities to function or to form the intent involved, and I will not give an instruction on intoxication. Roger has only argued that the trial court did not consider certain facts in making its determination that he had failed to show that he was intoxicated. 452 Raw speculation aside, Roger presents no evidence that tends to call into question the trial court’s factual determination that Roger had not proven that his drinking on the night of the crime — the only evidence that could be established — had a substantial effect on him such that he lacked the requisite intent. Based on our review of the record, we agree that the evidence did not support Roger’s voluntary intoxication defense. Therefore, the Arizona Supreme Court’s denial of Roger’s claim that the trial court’s omission of the intoxication instruction constituted a due process violation was not contrary to. or an unreasonable application of federal law as established by the Supreme Court. See Estelle, 502 U.S. at 72, 112 S.Ct. 475; see also Mathews v. United States, 485 U.S. 58, 63, 108 S.Ct. 883, 99 L.Ed.2d 54 (1988) (explaining that a defendant is only entitled to an instruction on a defense theory supported by the evidence). F. Claim Seventeen — Denial of a Lesser Included Offense Instruction Roger argues that the trial court denied him due process when it denied the defendants’ request to instruct the jury on second degree murder as a lesser included offense. Relatedly, Roger also asserts that the trial court’s decision contravened Enmund v. Florida, 458 U.S. 782, 102 S.Ct. 3368, 73 L.Ed.2d 1140 (1982) and Tison v. Arizona, 481 U.S. 137, 107 S.Ct. 1676, 95 L.Ed.2d 127 (1987), by imposing the death penalty when Roger did not intend to take a life or intend that lethal force be used. The last reasoned decision addressing this issue is the Arizona Supreme Court’s denial of relief, explaining that a lesser included offense instruction is warranted only if supported by the evidence. See Murray, 906 P.2d at 567. The court reasoned that an instruction on second degree murder would only apply to premeditated murder, but not to felony murder, which was the crime of conviction. See id. In addition, the crime of second degree murder is characterized by evidence of lack of premeditation and deliberation. See id. The Arizona Supreme Court adopted the trial court’s determination — considering that the victims were forced to lie on the carpet and were shot in the back of the head with different weapons, the only rational inference was that the murders were deliberate and premeditated, thereby precluding a verdict of second degree murder. 12 See id. “[D]ue process requires that a lesser included offense instruction be given only when the evidence warrants such an instruction.... ” Hopper v. Evans, 456 U.S. 605, 611, 102 S.Ct. 2049, 72 L.Ed.2d 367 (1982) (citing Beck v. Alabama, 447 U.S. 625, 100 S.Ct. 2382, 65 L.Ed.2d 392 (1980)). The element the Court in Beck found essential to a fair trial was not simply a lesser included offense instruction in the abstract, but the enhanced rationality and reliability the existence of the instruction introduced into the jury’s deliberations. Where no lesser included 453 offense exists, a lesser included, offense instruction detracts from, rather than enhances, the rationality of the process. Beck does not require that result. Spa-zicmo v. Florida, 468 U.S. 447, 455, 104 S.Ct. 3154, 82 L.Ed.2d 340 (1984). In Arizona, “[t]o determine whether there is sufficient evidence to require the giving of a lesser included offense instruction, the test is whether the jury could rationally fail to find the distinguished element of the greater offense.... ” State v. Krone, 182 Ariz. 319, 897 P.2d 621, 625 (1995) (in banc) (quoting State v. Detrich, 178 Ariz. 380, 873 P.2d 1302,1305 (1994) (internal quotation marks omitted)). The Arizona rule comports with the federal rule and therefore does not offend constitutional standards. See Hopper, 456 U.S. at 612, 102 S.Ct. 2049 (“The federal rule is that a lesser included offense instruction should be given if the evidence would permit a jury rationally to find a defendant guilty of the lesser offense and acquit him of the greater.”) (citation, alteration, and internal quotation marks omitted). Thus, the Arizona Supreme Court’s reliance on this rule was not contrary to or an unreasonable application of clearly established federal law. 13 Moreover, at trial, the judge directly asked what evidence supported an instruction that the offense could have been something other than first-degree murder. Roger’s counsel could not point to any actual evidence suggesting anything other than premeditation. Rather, counsel responded that “we cannot look into the jury’s mind and determine whether or not they are going to find premeditation or not....” In turn, the prosecutor stated: Here what we have are repeated gunshots on a helpless couple laying on the floor. Somebody is guilty of premeditated murder. The defendants can argue it’s not them certainly, but the way the victims died can only be premeditated. There’s no way that you can look at that set of facts and say that is not premeditated, looking at the analysis under Lamb. Based on the record, the trial court ruled: Well, if based on the physical evidence, I don’t see how it can be anything other than first degree murder. It may not be the defendants, that’s for the jury to decide. The whole defense is based on other things other than the actual death of the victims. It’s either first degree murder or it’s nothing. And in essence, I agree with the State. So, I will not give second degree murder as a lesser. The Arizona Supreme Court agreed: “Defendants had the victims lie on the carpet of their living room and proceeded to shoot each of them with different weapons in the back of the head. The only inference that a jury rationally could have drawn was that defendants premeditated.” Murray, 906 P.2d at 567 (citation omitted). Roger argues that the Arizona Supreme Court’s decision is contrary to Enmund and Tison. In Enmund, the defendant participated in a robbery that ultimately resulted in murder, although the defendant did not murder anyone or intend for anyone to be killed. See 458 U.S. at 798, 102 S.Ct. 3368. The United States Supreme Court noted that “the Florida Supreme 454 Court held that the record supported no more than the inference that Enmund was the person in the car by the side of the road at the time of the killings, waiting to help the robbers escape.... ” Id. at 788, 102 S.Ct. 3368. There was no evidence in Enmund that the defendant actively participated in the murders or was present when the victims were murdered. See id. Based solely on those facts, the Supreme Court held that the imposition of a death sentence upon a defendant who did not kill or intend to kill the victims violated the Eighth Amendment. See id. at 801, 102 S.Ct. 3368. But on the other hand, as the Supreme Court clarified several years later, “major participation in the felony committed, combined with reckless indifference to human life, is sufficient to satisfy the Enmund culpability requirement” for when the death penalty may be imposed. Tison, 481 U.S. at 151-52, 158, 107 S.Ct. 1676 (so holding where two brothers brought “an arsenal of lethal weapons” into an Arizona prison with the intent to arm convicted murderers and help them escape, “participated fully in the kidnapping and robbery and watched the killing”). Unlike the facts in Enmund, and similar to those in Tison, the Arizona Supreme Court found that the physical evidence substantiated Roger’s involvement as an active participant. See Murray, 906 P.2d at 567. When apprehended, Roger had blood on his clothes which was not his, but which could have come from either victim. See id. at 555. Roger also discarded a loaded.25 caliber gun immediately prior to his arrest, which was consistent with the fired.25 caliber shell found at the crime scene. Roger’s footprints were left at the crime scene, see id. at 554, and the brothers possessed items stolen from Grasshopper Junction, including rolled coins stamped with the name and location of the store, and a cushion cover from the couch that contained blood and tissue from Applehans. See id. at 554-55. This and additional evidence tending to show that Roger intended to take life, or intended that lethal force be used, support much more than a mere inference that Roger was just a person in a car waiting to help the actual robbers escape. Therefore, the Arizona Supreme Court’s ruling that this record did not warrant a lesser included offense instruction was not contrary to or an unreasonable application of Supreme Court precedent. G. Claim Twenty-Six — Failure to Appropriately Consider Mitigating Evidence Roger argues that the trial court erroneously determined that his dysfunctional childhood could not be considered as an independent mitigation factor. Specifically, Roger asserts that the state court misapplied Eddings v. Oklahoma, 455 U.S. 104, 115, 102 S.Ct. 869, 71 L.Ed.2d 1 (1982), and its progeny by requiring a nexus between the mitigation evidence and commission of the crimes. Stated differently, Roger contends that the Arizona court required Roger to demonstrate that the childhood experiences offered in mitigation contributed to his commission of the crimes. The state counters that Roger did not raise this issue before the state court, and as a result, it is procedurally barred. However, Roger raised this issue in his direct appeal when he argued that the trial court failed to objectively consider his mitigation evidence. The Arizona Supreme Court rejected Roger’s claim, finding that the sentencing court reviewed all of the mitigating evidence, but deemed it insufficient to outweigh the aggravating factors. See Murray, 906 P.2d at 578-79. Roger now renews his argument that the Arizona 455 Supreme Court unconstitutionally applied the causal nexus test. Roger relies on the portion of the Arizona Supreme Court’s decision addressing the trial court’s finding that Roger’s childhood was dysfunctional, and concluding that “he fail[ed] to show how this background impacted his behavior at Grasshopper Junction.” Murray, 906 P.2d at 577. Citing Styers v. Schriro, 547 F.3d 1026 (9th Cir.2008), Roger contends that the Arizona Supreme Court’s analysis of the trial court’s weighing is contrary to United States Supreme Court authority from Smith v. Texas, 543 U.S. 37, 125 S.Ct. 400, 160 L.Ed.2d 303 (2004), and related cases. Under clearly established Supreme Court authority, a state court may not treat mitigating evidence of a defendant’s character or background “as irrelevant or nonmitigating as a matter of law” simply because it does not have a causal connection to the crime. Towery v. Ryan, 673 F.3d 933, 946 (9th Cir.2012) (per curiam); see also Penry v. Lynaugh, 492 U.S. 302, 318, 109 S.Ct. 2934, 106 L.Ed.2d 256 (1989) (citing Eddings, 455 U.S. at 114, 102 S.Ct. 869 and holding that a state cannot, “consistent with the Eighth and Fourteenth Amendments, prevent the sen-tencer from considering and giving effect to evidence relevant to the defendant’s background or character or to the circumstances of the offense that mitigate against imposing the death penalty”), abrogated on other grounds by Atkins v. Virginia, 536 U.S. 304, 122 S.Ct. 2242, 153 L.Ed.2d 335 (2002). On the other hand, the sentencer may consider “causal nexus... as a factor in determining the weight or significance of mitigating evidence....” Lopez v. Ryan, 630 F.3d 1198, 1204 (9th Cir.2011) (citing Eddings, 455 U.S. at 114-15, 102 S.Ct. 869) (footnote reference omitted). In determining whether the state court used a causal nexus analysis as an impermissible screening mechanism or as a permissible weighing tool, we must presume the latter “[a]bsent a clear indication in the record” that the state court “violated Ed-dings’s constitutional mandates.” Schad v. Ryan, 671 F.3d 708, 724 (9th Cir.2011), as amended (citing Bell, 543 U.S. at 455, 125 S.Ct. 847); see also Poyson v. Ryan, No. 10-99005, 743 F.3d 1185,1197-98, 2013 WL 5943403, at 11 (9th Cir. Nov. 7, 2013), as amended (denying relief on a causal nexus claim when ambiguity existed regarding “whether the [state] court considered the absence of a causal nexus as a permissible weighing mechanism..., or as an unconstitutional screening mechanism”). This presumption applies not only when we are drawing inferences from a state court’s silence, but also when we are interpreting a state court’s ambiguous statement. See Woodford v. Visciotti, 537 U.S. 19, 22-24, 123 S.Ct. 357, 154 L.Ed.2d 279 (2002). The cases Murray relies on, Smith and Styers, are consistent with these principles. The Supreme Court in Smith rejected the causal nexus requirement between a petitioner’s mitigation factors and the crime. See Smith, 543 U.S. at 45, 125 S.Ct. 400 (focusing on whether the factfinder “consider[ed] and g[a]ve effect to a defendant’s mitigation evidence in imposing sentence”) (citations, alterations and internal quotation marks omitted). In Styers, we similarly held that the state court’s application of the causal nexus test to mitigating evidence was “contrary to the constitutional requirement that all relevant mitigating evidence be considered by the sentencing body....” Styers, 547 F.3d at 1035 (citing Smith, 543 U.S. at 45, 125 S.Ct. 400). After closely reviewing the record, the Arizona Supreme Court found that the trial court considered all of the mitigating evidence and explained in painstaking detail in special verdicts why the mitigating 456 evidence did not outweigh the aggravating factors. See Murray, 906 P.2d at 571-79 (discussing the mitigation evidence). Roger’s claim that the trial court failed to properly weigh his mitigating evidence is not supported by the record. See id. The Arizona Supreme Court, in reviewing the trial court’s weighing of mitigating and aggravating factors, discussed in detail Roger’s claim that he was a troubled youth, citing information regarding his confinement in a juvenile detention center. See id. at 574. The court acknowledged that a counselor at the detention center identified Roger’s need of help to manage his anger and emotional issues. See id. The court noted that a sociologist testified during his sentencing hearing that Roger’s problems as a youth stemmed from neglect at home and by government officials. See id. However, the court also discussed that the sociologist testified that Roger knew killing was wrong. See id. Additionally, the court noted that Roger suffered from head injuries and was diagnosed with attention deficit/hyperactivity disorder. See id. at 574-75. Further, the court discussed Roger’s use of alcohol and illicit drugs. See id. at 575-76. Nevertheless, the court concluded that although his dysfunctional childhood, head injuries, hyperactivity, and alcohol/drug use were mitigating factors, these factors had negligible mitigating force because Roger did not show how they affected his behavior on the night of the murders. See id. at 577. Taken in the full context of the Arizona Supreme Court’s exhaustive analysis, there is no “clear indication in the record,” Schad, 671 F.3d at 724, that its statement that Roger “fail[ed] to show how this [family] background impacted his behavior at Grasshopper Junction,” Murray, 906 P.2d at 577, amounted to an impermissible screening mechanism under Eddings. See Lopez, 630 F.3d at 1204 (emphasizing that “we must look to what the record actually says” and that where “the state court made clear that it considered all the mitigating evidence and found it wanting,” we cannot “infer unconstitutional reasoning”). Even if we assume the Arizona Supreme Court did commit causal nexus error with respect to Roger’s troubled childhood, the error was harmless and we would still deny his claim for relief. See Stokley v. Ryan, 705 F.3d 401, 404 (9th Cir.2012) (quoting Brecht v. Abrahamson, 507 U.S. 619, 623, 113 S.Ct. 1710, 123 L.Ed.2d 353 (1993)) (explaining that a nonstructural error requires reversal only if it “had substantial and injurious effect or influence in determining the... verdict”). Under Stokley, where the appellate court reviews all of the mitigating and aggravating factors individually, and confirms the trial court’s determination that there are no grounds substantial enough to warrant leniency, the appellate court’s Eddings error with respect to a relatively minor mitigating factor does not create a “reasonable likelihood that, but for a failure to fully consider [that factor], the [state] courts would have come to a different conclusion....” 705 F.3d at 405 (citation omitted). Thus, in Stokley we concluded that the Arizona Supreme Court’s Eddings error, if any, with respect to family history or good behavior while imprisoned, was harmless. See id. Here, as in Stokley, after “reviewing] and discussing] each of the aggravating and mitigating factors individually,” id. at 404, the Arizona Supreme Court agreed with the trial court that Roger’s mitigation evidence was minimal “at best” and that there was certainly “no mitigating evidence sufficiently substantial to call for leniency....” Murray, 906 P.2d at 579. Therefore, any Eddings error with respect to the effect of Roger’s troubled childhood does not raise a reason 457 able likelihood that fuller consideration of that relatively minor factor would have led the Arizona courts to reach a different conclusion. In other words, Roger “cannot demonstrate actual prejudice because he has not shown that the error, if any, had a substantial and injurious impact on the verdict....” Stokley, 705 F.3d at 404. In sum, the Arizona Supreme Court’s decision was not contrary to or an unreasonable application of Supreme Court precedent, because the record reflects that the sentencing court, as the factfinder, employed the causal nexus test as a permissible means of weighing the entirety of Murray’s mitigation evidence prior to imposing his sentence. See Bell, 543 U.S. at 455, 125 S.Ct. 847. Even if there were a causal nexus error under Eddings, Roger cannot establish prejudice and we must deny his claim for relief in any event. See Stokley, 705 F.3d at 404 (citing Brecht, 507 U.S. at 623,113 S.Ct. 1710). H. Claim Forty-Four — Denial of Request to Replace Counsel Due to Irreconcilable Conflict Roger asserts that his Sixth Amendment right to counsel was violated because of an irreconcilable conflict with his counsel. Roger argues that his claim is not procedurally barred, because he raised the issue to the Arizona Supreme Court and in his PCR petition. The state counters that this issue is procedurally barred as determined in the PCR court’s decision dated January 10, 2000. We need not resolve this procedural point, because to the extent Roger argues that his claim may be resurrected under Martinez, habeas relief is not warranted. Roger might be entitled to a remand under Martinez if he could establish that his PCR counsel was ineffective for failing to raise the irreconcilable conflict asserted by Roger, and that the underlying IAC claim is “substantial.” Sexton v. Cozner, 679 F.3d 1150, 1157 (9th Cir.2012), as amended. We examine the record to determine whether Roger has made the required showing of ineffectiveness of PCR counsel. See id. To do so, Roger must establish that his trial counsel’s performance was deficient and that he was prejudiced as a result. See id.; see also Strickland, 466 U.S. at 687, 104 S.Ct. 2052 (articulating standard for ineffective assistance of counsel claim). To demonstrate that the performance by PCR counsel was deficient, Roger must show that counsel’s failure to raise the underlying IAC claim did not “fall[] within the wide range of reasonable professional assistance” and “overcome the presumption that, under the circumstances, the challenged action might be considered sound trial strategy....” Strickland, 466 U.S. at 689, 104 S.Ct. 2052 (citation and internal quotation marks omitted). Prejudice is shown by evidence of a “reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different. A reasonable probability is a probability sufficient to undermine confidence in the outcome.” Id. at 694, 104 S.Ct. 2052. Here, Roger would have to establish that the outcome of his PCR proceedings would have been different. If there is a failure of proof on either prong, habeas relief is not warranted. See Gentry v. Sinclair, 705 F.3d 884, 899 (9th Cir.2013), as amended. A defendant’s disagreement with trial counsel’s strategy does not constitute deficient performance on the part of trial counsel. See Strickland, 466 U.S. at 689-91, 104 S.Ct. 2052; see also Raley v. Ylst, 470 F.3d 792, 799 (9th Cir.2006). Additionally, to demonstrate an irreconcilable conflict, Roger must establish that there was a complete breakdown of communication that substantially interfered with the attorney-client relationship. See United States v. Men 458 dez-Sanchez, 568 F.3d 935, 943 (9th Cir. 2009). At the hearing held in response to Roger’s request to terminate his attorneys, Roger confirmed his wish to end his relationship with his attorneys due to a conflict of interest. Roger’s trial counsel explained to the court that there was an irreconcilable difference of opinion regarding the strategy for the penalty phase proceedings. The trial court ultimately granted Roger’s motion to represent himself and allowed an attorney from the public defender’s office to remain as advisory counsel. One week later, Roger filed a motion requesting appointed counsel. Counsel from the public defender’s office informed the trial court that an ethical conflict remained due to the office’s representation of Roger and another client with an adverse interest who was to testify in response to a prospective witness for Robert’s case. Counsel also reminded the court about the conflict between counsel and Roger regarding strategy for the penalty phase. Counsel suggested to the court that another attorney represent Roger. The court reviewed the suggestion and reappointed counsel from the public defender’s office, with Roger agreeing. The conflict presented to the trial court by Roger concerned strategy for the penalty phase. This issue implicates attorney strategy rather than irreconcilable conflict. Thus, Roger failed to establish that his claim of irreconcilable conflict was of sufficient merit to substantiate a claim of ineffective assistance of counsel. 14 See Sexton, 679 F.3d at 1156-57 (explaining that a defendant cannot establish that counsel’s performance fell below an objective standard of reasonableness when the only disagreement concerned strategy); cf. Daniels v. Woodford, 428 F.3d 1181, 1199-1200 (9th Cir.2005) (recognizing an irreconcilable conflict where there was a complete lack of communication between attorney and client). Roger failed to establish that the conflict between his counsel and him was indeed irreconcilable. See Mendez-Sanchez, 563 F.3d at 943 (noting that defendant’s relationship with counsel did not rise to the level of irreconcilable conflict when the conflict was generated from defendant’s general unreasonableness). Therefore, the PCR counsel’s performance was not deficient. Because Roger did not establish that his conflict with counsel was irreconcilable, his ineffective assistance of counsel claim lacks sufficient merit to warrant a Martinez remand. 15 See Sexton, 679 F.3d at 1156-57 (noting that an IAC claim must be substantial to warrant a Martinez remand and that disagreement regarding strategy does not constitute ineffectiveness of counsel); but see Detrich v. Ryan, 740 F.3d 1237, 1248 (9th Cir.2013) (W. Fletch 459 er, J., plurality) (explaining that in most cases, Martinez motions should be remanded to the district court for a decision in the first instance). I. Claim Forty-Five — Ineffective Assistance of Trial Counsel Due to Counsel’s Inattentiveness Roger contends that he was denied the effective assistance of counsel, because his counsel slept during substantial portions of his trial. Roger further asserts that his evidentiary hearing regarding this issue violated due process, because the judge presiding at his trial was also the presiding judge at his PCR hearing. The Sixth Amendment guarantees the accused the “right to the effective assistance of counsel.” United States v. Cronic, 466 U.S. 648, 655-56, 104 S.Ct. 2039, 80 L.Ed.2d 657 (1984). The Supreme Court “has concluded that the assistance of counsel is among those ‘constitutional rights so basic to a fair trial that their infraction can never be treated as harmless error.’ ” Holloway v. Arkansas, 435 U.S. 475, 489, 98 S.Ct. 1173, 55 L.Ed.2d 426 (1978) (citing Chapman v. California, 386 U.S. 18, 23, 87 S.Ct. 824, 17 L.Edüd 705 (1967)). Moreover, “when a defendant is deprived of the presence and assistance of his attorney, either throughout the prosecution or during a critical stage in, at least, the prosecution of a capital offense, reversal is automatic.” Id. (citations omitted). We have held that when counsel sleeps through a substantial portion of a trial, his client has been deprived of effective legal assistance, resulting in inherent prejudice. See Javor v. United States, 12A F.2d 831, 833-34 (9th Cir.1984). Roger relies solely on our decision in Javor to support his claim. Nevertheless, Roger’s reliance on Javor is misplaced. Javor is a pre-AEDPA case that was crafting a rule from existing Supreme Court precedent. See id. We reiterate that our circuit precedent is only relevant to the extent that, “in accordance with [our] usual law-of-the circuit procedures,... [we] ha[ve] already held that the particular point in issue is clearly established by Supreme Court precedent....” Marshall, 133 S.Ct. at 1450 (citations omitted). As such, Javor is inapposite to our analysis on federal habeas review. The last reasoned state court decision addressing this claim was the PCR court’s order dated March 21, 2002. After a two-day hearing including witness testimony, the PCR court concluded that Roger’s counsel did not actually sleep during the trial. Robert’s trial counsel testified that Roger’s trial counsel had a reputation for “dozing off’ in court. She stated that she personally observed Roger’s counsel “in a posture that lookfed] like he’s asleep.” However, she admitted that she was not sure at times whether he was dozing or just listening with his eyes closed. Robert’s counsel did not contemporaneously inform the trial court of her observations. A former juror testified that she vaguely remembered Roger’s lawyer nodding off during the trial. During cross-examination, she conceded that Roger’s counsel did not close his eyes for long periods of time, and that she would have informed a bailiff if Roger’s counsel had been asleep for significant portions of the trial. Roger’s appellate counsel testified that Roger specifically told her that his trial counsel appeared to doze during trial. She also mentioned that she did not raise the issue of Roger’s trial counsel sleeping, because it was not part of the record on direct appeal. Roger’s trial counsel testified that he remembered Roger complaining about him sleeping during jail visits, but not during trial. He did not remember sleeping during the trial. The PCR court directly questioned Roger’s trial counsel, asking 460 explicitly whether he slept during the trial. In reply, Roger’s counsel stated: “Your Honor, quite frankly, I can’t say. I wouldn’t be the one to really know that. I don’t think I did, but there is a possibility I did. But it would have been basically just a few seconds more than anything else. A cat nap type thing.” He did not admit to sleeping. The PCR court then recalled on the record that Roger’s trial counsel appeared generally to be “fired up” during the cases he had tried before the judge. Trial counsel agreed that he indeed was typically “fired up” for his cases and that he had “tried to give [Roger’s trial] more because of the importance of it.” Roger testified that he observed his trial counsel asleep first at the jail and then almost daily during trial. During the testimony of Detective Lent, the footprint expert, Roger observed his trial counsel asleep for four to five minutes. Roger also observed his trial counsel sleeping during the medical examiner’s testimony. Roger remembered his trial counsel sleeping through other witnesses as well. Roger recalled that he informed his other trial counsel and his appellate counsel about his observations. Roger did not inform the trial court about his observations. During cross-examination, the state reviewed the trial transcript with Roger, specifically emphasizing witness testimony where Roger had testified that his counsel was asleep. The state consistently established that Roger’s trial counsel was engaged during the witness testimony that Roger previously associated with his counsel’s sleeping. Roger admitted during cross-examination that he did not specify in his affidavit precisely when his trial counsel was sleeping. The prosecutor testified that Roger’s trial counsel appeared engaged and active during trial. The prosecutor observed Roger’s trial counsel listening with his eyes closed. According to the prosecutor, Roger’s trial counsel had a habit of closing his eyes when he was thinking, and he would nod occasionally, but when a response was required he would seamlessly open his eyes and respond appropriately, appearing to be completely engaged. Neither the bailiff nor the investigator remembered Roger’s trial counsel sleeping during the trial. The same was true for co-counsel. Co-counsel did not observe Roger kicking his trial counsel or trial counsel falling asleep during trial. Neither did co-counsel recall Roger speaking to him about trial counsel falling asleep during trial. After oral argument and after reviewing briefs from both counsel, the PCR court entered a minute order denying relief. The PCR court acknowledged that Robert’s trial counsel and a former juror testified to observing Roger’s trial counsel sleeping during portions of the trial. However, the PCR court noted that other witnesses and the trial-transcript undermined this testimony. The PCR court found that the trial transcript reflected that Roger’s trial counsel was “actively engaged in the trial.” The PCR court credited the testimony of trial counsel that he did not recall sleeping during the trial. In addition, the PCR court found the testimony of the prosecutor, the investigator, and the bailiff more credible. Each of these three witnesses denied ever seeing Roger’s trial counsel asleep during the trial. The PCR court was also persuaded by co-counsel’s testimony that Roger never complained to co-counsel about trial counsel sleeping. We cannot conclude that the PCR court’s rejection of Roger’s claim was based on an unreasonable determination of the facts. See 28 U.S.C. § 2254(d)(2). In 461 deed, the record of the trial proceedings confirms the reasonableness of the PCR court’s finding that Roger’s counsel was not asleep during the trial. Most telling was the state’s demonstration from the transcripts that counsel was actively questioning witnesses and objecting to testimony at times when Roger accused counsel of being asleep. See Hibbler v. Benedetti, 693 F.3d 1140, 1148-50 (9th Cir.2012) (concluding, after reviewing the evidence presented in state court, that the state court’s determination was not unreasonable). Because Roger’s Strickland claim hinges on the fact that his counsel slept through substantial portions of trial, which the record does not support, we conclude that the state court did not unreasonably apply clearly established Supreme Court precedent. We affirm the district court’s denial of relief on this claim. The Arizona Supreme Court’s rejection of Roger’s claim that he was denied a full and fair hearing also was not contrary to, or an unreasonable application of clearly established Supreme Court precedent. We have stated that “[i]t has long been regarded as normal and proper for a judge to sit in the same case upon its remand, and to sit in successive trials involving the same defendant....” Gerlaugh v. Stewart, 129 F.3d 1027, 1036 (9th Cir. 1997) (quoting Liteky v. United States, 510 U.S. 540, 551, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994)). There must be more than “the false assumption that trial judges are not capable of doing what the law requires” to justify the requirement that a different judge hear subsequent proceedings. Id. The Supreme Court has also recognized that “knowledge (and the resulting attitudes) that a judge properly acquired in an earlier proceeding [is] not... ‘extrajudicial’.... [T]rial rulings have a judicial expression rather than a judicial source. They may well be based upon extrajudicial knowledge or motives.... ” Liteky, 510 U.S. at 545, 114 S.Ct. 1147 (citations omitted) (emphases in the original). The judge who presides at a trial may, upon completion of the evidence, be exceedingly ill disposed towards the defendant, who has been shown to be a thoroughly reprehensible person. But the judge is not thereby recusable for bias or prejudice, since his knowledge and the opinion it produced were properly and necessarily acquired in the course of the proceedings, and are indeed sometimes (as in a bench trial) necessary to completion of the judge’s task. As Judge Jerome Frank pithily put it: “Impartiality is not gullibility. Disinterestedness does not mean child-like innocence. If the judge did not form judgments of the actors in those court-house dramas called trials, he could never render decisions.” Also not subject to deprecatory characterization as “bias” or “prejudice” are opinions held by judges as a result of what they learned in earlier proceedings. It has long been regarded as normal and proper for a judge to sit in the same case upon its remand, and to sit in successive trials involving the same defendant. Id. at 550-51, 114 S.Ct. 1147 (citations omitted). Roger has not identified any Supreme Court case holding that a defendant is deprived of due process when the trial judge presides over post-conviction proceedings. Rather, the opposite is true. See id.; see also Cook v. Ryan, 688 F.3d 598, 612 (9th Cir.2012) (noting that the trial judge was “ideally situated” to make an assessment of the facts when resolving post-conviction issues) (quoting Schriro v. Landrigan, 550 U.S. 465, 476, 127 S.Ct. 1933, 167 L.Ed.2d 836 (2007)). The distinction is plain. As a fact witness, the judge 462 would be seeking to persuade the finder of fact to a certain view of the evidence. As the presiding jurist, the judge is the fact-finder, with absolutely no incentive to shade the facts one way or the other. See, e.g., Fed.R.Evid. 605 (providing that the presiding judge may not testify as a witness in the trial over which he presides); see also United States v. Berber-Tinoco, 510 F.3d 1083, 1091 (9th Cir.2007) (holding that a trial court judge is not a competent witness to factual matters in a case over which he presides). No similar conundrum exists when the trial judge presides over post-conviction proceedings. In the post-conviction proceedings, the judge functions as a reviewer of the trial proceedings rather than as a chronicler of the facts. As the Supreme Court has explained, the trial judge’s unique knowledge of the trial court proceedings renders him “ideally situated” to review the trial court proceedings. Landrigan, 550 U.S. at 476, 127 S.Ct. 1933. Roger’s due process rights were honored in full. Serving as an adjudicator rather than as a witness, the PCR court determined that Roger’s claim lacked merit. In this case, the only evidence that Roger puts forward is that the judge stated: “I guess I have to tell you I remember some things about this trial very well... and I — I never saw [Roger’s trial counsel] asleep.” Roger relies upon this statement to demonstrate that the trial judge “was a key and biased witness who did not testify but ruled on the motions while his own observations were not subject to cross-examination.” It is important to consider the trial judge’s full comments: Well, I guess-I guess I have to tell you I remember some things about this trial very well. And one was that [Roger’s trial counsel] was very aggressive, very emphatic and — but of course you know — and I — I never saw him asleep. But, you know, I guess I’ll let you have an opportunity to show me that he was sleeping during substantial portions of the trial because we have the Affidavits that say he was. But I have to tell you, I’m skeptical about that because I remember how aggressive he was — aggressively he argued when we were off the record, and even when we were on the record, the objections in the case. So, I guess I’ll set that — that one I think probably should be set for an evidentia-ry hearing, because you know, it’s — it’s certainly not something that was on the record and certainly not something that I noticed. So number four we’ll set for evidentiary hearing. Read in the context of the judge’s full statement, Roger’s claim is unfounded. The judge stated that his recollection was that Roger’s trial counsel was very aggressive and involved and that he had no memory of Roger’s trial counsel sleeping. Rather than merely denying the claim based upon his own recollection, however, the judge elected to hold an evidentiary hearing because “we have the Affidavits that he was [sleeping].” This situation is no different from a situation where a judge retains unexpressed recollections of trial matters and presides over an ensuing evi-dentiary hearing. In that vein, the judge’s articulated skepticism does not provide a basis for Roger’s claim of judicial bias because the judge’s “knowledge and the opinion it produced were properly and necessarily acquired in the course of the proceedings...” Liteky, 510 U.S. at 551, 114 S.Ct. 1147. Therefore, the Arizona Supreme Court’s rejection of Roger’s Sixth Amendment claim of judicial bias was not contrary to or an unreasonable application of clearly established Supreme Court precedent. Finally, Roger asserts that he is entitled to an evidentiary hearing to develop this 463 claim. However, because we review Roger’s claim under § 2254(d) rather than de novo, Supreme Court precedent bars him from receiving an evidentiary hearing. See Pinholster, 131 S.Ct. at 1398 (directing that habeas claims under AEDPA be resolved on the record before the state court). J. Claim Forty-Eight-Ineffective Assistance of Trial Counsel Based on Counsel’s Failure to Present an Exculpatory Witness Roger contends that his counsel was ineffective because he “never bothered to interview [a] critical witness.... ” According to Roger, the witness, John Anthony (Anthony) was located by Robert’s attorney’s investigator approximately one week before trial. Roger complains that despite the discovery of this critical witness, his trial counsel failed to interview the witness, depose him, call him to testify, or request a continuance. Roger asserts that his trial counsel had “no strategic reason for not calling [the witness] directly.” Failure to call this witness, Roger argues, resulted in the absence of evidence tending to implicate others and suggesting that he was not present at the scene of the crime. Roger maintains that any reasonable attorney would have called this witness. The state PCR court’s denial of this claim did not provide a reasoned explanation. See Richter, 131 S.Ct. at 784 (recognizing that AEDPA “does not require that there be an opinion from the state court explaining the state court’s reasoning....’) (citations omitted).” We can, however, look through to the evidentiary hearing and oral argument during which the PCR judge articulated the reasons for his later summary reiteration of his previous decision denying Robert’s identical claim. In this situation, “ ‘whe[re] the state court does not supply reasoning for its decision,’ we are instructed to engage in an ‘independent review of the record’ and ascertain whether the state court’s decision was ‘objectively unreasonable.’ ” Walker, 709 F.3d at 939 (quoting Delgado v. Lewis, 223 F.3d 976, 982 (9th Cir.2000)). “Crucially, this is not a de novo review of the constitutional question. Rather, ‘even a strong case for relief does not mean the state court’s contrary conclusion was unreasonable.” Id. (citations omitted). Through an evidentiary hearing on Robert’s identical claim, the PCR court learned that Anthony, the allegedly exculpatory witness, purportedly witnessed a blue car parked outside the Grasshopper Junction store on the same night as the murders. Anthony informed the prosecution’s investigator that he thought he saw the victim Morrison with three men, none of whom resembled Robert. 16 Anthony’s testimony would have supported the defense’s theory of the case, that Roger and Robert happened to be at Grasshopper Junction, but did not commit the murders. Robert’s trial counsel informed the court that neither she nor her investigator were able to contact Anthony, which is why he was never called as a witness. Although her investigator discovered that Anthony was in a Veterans Administration treatment center in California, the investigator was never able to make contact with Anthony. The PCR court found that Robert’s trial counsel had investigated the exculpatory witness to the best of her ability. The PCR judge stated: “We don’t have any proof that the witness would have said what’s in the report. We still haven’t found the witness.” The PCR judge recalled that, as trial judge, he would not have granted a continuance for further 464 investigation, and had to believe that both Robert’s trial counsel and Roger’s trial counsel were still trying to find Anthony through the end of the case. The PCR court found that Robert’s counsel was not deficient in her performance, and that even if she were deficient, the outcome of the trial would not have changed. At the oral argument of Roger’s identical claim, the PCR judge indicated that he had already heard and considered evidence from Robert regarding this exact claim, resulting in denial of Robert’s claim. The judge explained that he denied Robert’s identical claim because the evidence had established that the witness was unavail-, able-he could not be located. And, even if he had been located just prior to trial, counsel could not have “gotten him [to court] as a witness.” This evidence before the state court “was sufficient to resolve the factual question” whether Roger’s counsel performed deficiently, and thus the PCR court’s failure to hold an evidentiary hearing on the issue did not “render its factfinding process unreasonable,” Hibbler, 693 F.3d at 1147. Because Roger did not demonstrate that his trial counsel had performed deficiently, the PCR court’s rejection of Roger’s claim was not contrary to established Supreme Court precedent. See Strickland, 466 U.S. at 687, 104 S.Ct. 2052. Before us, Roger argues that the trial judge erred by not holding a separate evidentiary hearing before resolving his identical claim. However, Roger failed to adduce any evidence raising a question regarding the actual availability of the witness, or regarding a lack of diligence by his. counsel in attempting to locate the witness. Roger merely stated: [My] position is that any reasonably effective criminal defense lawyer would have seen that he was a crucial witness at trial, would have located him, would have found him, would have subpoenaed him, would have had him in court and would have had him testify. [Trial counsel] didn’t do any of those things, period. Absolutely no evidence was presented to the PCR court to substantiate Roger’s assertions. Only speculation was offered. Specifically, Roger asked for funds so he could: find Mr. Anthony nine years after the fact so [he could] present Mr. Anthony to [the PCR court] so that [the PCR court could] live and in color hear Mr. Anthony, hear his testimony, evaluate his credibility, and then make a determination whether if called by an effective counsel Mr. Anthony could have made a difference. After considering Roger’s speculative proffer, the PCR judge had no reason to hold another evidentiary hearing, especially in view of the PCR judge’s recognition that “there’s absolutely no proof at all that [Anthony] was available for the trial.” Critical to the PCR judge’s decision was the fact that “even if [Roger’s counsel] was incompetent, it would not have made a difference as far as the verdict was concerned. So it would not have made a difference.... ” Thus, it fairly appears that the judge found the evidence of guilt so overwhelming that any testimony Anthony could have given would not have resulted in a different verdict. In other words, Roger could not establish Strickland prejudice. Ultimately, after evaluating the evidence presented during Robert’s eviden-tiary hearing and Roger’s failure to proffer any further relevant evidence, the PCR court summarily denied Roger’s claim of ineffective assistance of counsel. The district court denied Roger’s request for an evidentiary hearing, and agreed with the factual findings made by the state court. The district court correct 465 ly denied a federal evidentiary hearing because federal habeas review is limited to the record before the state court. See Pinholster, 131 S.Ct. at 1398-1400. Viewing that record, the district court explained that to grant habeas relief, the reviewer would have to find that the jury would have believed the defense’s theory that Robert and Roger burglarized the victims’ store and home after finding the victims already dead. In support of this theory, Roger relied on Anthony’s statement regarding the three men he observed at the store who did not resemble Robert and Roger and who drove a different car; a statement from Angela Anthony that she heard a man threaten one of the victims the day prior to the murders; and proffered testimony from an unidentified witness that Robert and Roger were elsewhere when the three men were spotted at the store. Roger relies most heavily on the statement of John Anthony as the basis for his IAC claim. The state court determined that Roger’s counsel was not ineffective in this respect, and the state court’s determination was not contrary to, or an unreasonable application of, Strickland or other Supreme Court precedent. To establish ineffective assistance of counsel the petitioner must hurdle an extremely high bar. See Richter, 131 S.Ct. at 788. Strickland provides the legal standard for assessing a claim of ineffective assistance of counsel on habeas review. See 466 U.S. at 685-87, 104 S.Ct. 2052. First, the defendant must show that counsel’s performance was deficient. This requires showing that counsel made errors so serious that counsel was not functioning as the “counsel” guaranteed the defendant by the Sixth Amendment. Second, the defendant must show that the deficient performance prejudiced the defense. This requires showing that counsel’s errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable. Unless a defendant makes both showings, it cannot be said that the conviction or death sentence resulted from a breakdown in the adversary process that renders the result unreliable. Id. at 687,104 S.Ct. 2052. To meet the first prong “the defendant must show that counsel’s representation fell below an objective standard of reasonableness.” Id. at 688, 104 S.Ct. 2052. This inquiry is “highly deferential.” Id. at 689,104 S.Ct. 2052; see also Richter, 131 S.Ct. at 788. When Strickland’s standards are coupled with the provisions of AEDPA, review is “doubly deferential.” Richter, 131 S.Ct. at 788. “[Cjounsel has a duty to make reasonable investigations or to make a reasonable decision that makes particular investigations unnecessary....” Strickland, 466 U.S. at 691,104 S.Ct. 2052. Reasonableness is viewed as of the time of the conduct and against the background of the facts of the case. See Rompilla v. Beard, 545 U.S. 374, 381, 125 S.Ct. 2456, 162 L.Ed.2d 360 (2005). The duty to investigate does not require “defense lawyers to scour the globe on the off chance something will turn up; reasonably diligent counsel may draw a line when they have good reason to think further investigation would be a waste.... ” Id. at 383, 125 S.Ct. 2456 (citations omitted). The second prong requires the defendant to “show that there is a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different. A reasonable probability is a probability sufficient to undermine confidence in the outcome.” Strickland, 466 U.S. at 694, 104 S.Ct. 2052. The question for a reviewing court applying Strickland together with the § 2254(d) overlay is whether there is a “reasonable 466 argument that counsel satisfied Strickland’s deferential standard,” such that the state court’s rejection of the IAC claim was not an unreasonable application of Strickland. Richter, 131 S.Ct. at 788. Relief is warranted only if no reasonable jurist could disagree that the state court erred. See Pinholster, 131 S.Ct. at 1402. Even on de novo review, Roger’s IAC claim falters on both prongs of the Strickland standard. Counsel was not deficient, and Roger suffered no Strickland prejudice. As discussed, the PCR court held an evidentiary hearing before resolving Robert’s IAC claim predicated on his counsel’s failure to produce John Anthony as a witness. The record reflects that the exculpatory witness was not available and that Robert’s counsel made a reasonable effort to locate and present the witness. Counsel’s performance was not deficient in view of her reasonable investigatory efforts. See Rompilla, 545 U.S. at 382-83, 125 S.Ct. 2456. We also agree with the district court that the overwhelming evidence of guilt forecloses any credible argument that the outcome of the trial would have been affected by the proffered exculpatory evidence. To acquit Robert and Roger, the jury would have had to believe that the brothers found the victims already dead and got the victims blood on their clothes while burglarizing the store and the residence. This scenario, by the way, was totally inconsistent with the facts that the male victim’s wallet containing $800 was left undisturbed in his pants pocket, and that $172 was found on a chair. The implausibility of the proffered exculpatory version of events and the strength of the inculpatory evidence both bolster the state court’s finding under the doubly deferential AEDPA review applicable to IAC claims. See Richter, 131 S.Ct. at 787-88. Because even under de novo review the state court’s denial of Roger’s IAC claim that parroted Robert’s claim was not contrary to or an unreasonable application of Strickland, Roger’s claim fails. See id. IV. SUMMARY We agree with the district court’s conclusion that Roger was not entitled to ha-beas relief on any of the certified claims because the state court’s rejection of these claims was not contrary to or an unreasonable application of AEDPA. Even though this sensational, small-town murder understandably generated substantial media coverage, the state court’s decision that the coverage was not constitutionally prejudicial was not contrary to or an unreasonable application of Supreme Court precedent. Similarly, the state court’s rejection of Roger’s challenge to the jury venire was not contrary to or an unreasonable application of Supreme Court precedent. Acceptance of the prosecutor’s race-neutral explanations for the exercise of his peremptory challenges was not contrary to or an unreasonable application of Batson. Because the Supreme Court has eschewed claims predicated on the unavailability of immaterial evidence, the state court’s denial of Roger’s belated request to inspect a sanitized crime scene was also not contrary to, or an unreasonable application of, Supreme Court precedent. The evidence in the record did not support Roger’s request for jury instructions on voluntary intoxication and second degree murder. The state court’s denial of relief was consistent with Supreme Court precedent. As the Arizona Supreme Court detailed, the sentencing court meticulously weighed the mitigating circumstances against the aggravating factors before imposing a death sentence. Its determination was not contrary to or an unreasonable application of Supreme Court precedent. 467 The Arizona Supreme Court’s decisions denying relief on the claims of ineffective assistance of counsel were not contrary to or an unreasonable application of Strickland, particularly in view of the double deference applicable to AEDPA claims of ineffective assistance of counsel. The district court correctly resolved the claims on the evidence presented to the state courts. No cognizable Martinez claim was asserted. We affirm the denial of habeas relief as to all certified claims. AFFIRMED. 1. The facts are taken from the opinion of the Supreme Court of Arizona. See State v. Mur ray, 184 Ariz. 9, 906 P.2d 542 (1995) (in banc). 2. A.R.S. § 13 — 703(F)(5) (1992) provided: Aggravating circumstances to be considered shall be the following: (5) The defendant committed the offense as consideration for the receipt, or in expectation of the receipt, of anything of pecuniary value. 3. A.R.S. § 13-703(F)(6) (1992) provided: Aggravating circumstances to be considered shall be the following: (6) The defendant committed the offense in an especially heinous, cruel or depraved manner. 4.A.R.S. § 13-703(F)(8) (1992) provided: Aggravating circumstances to be considered shall be the following: (8) The defendant has been convicted of one or more other homicides, as defined in § 13-1101, which were committed during the commission of the offense. 5. Batson v. Kentucky, 476 U.S. 79, 106 S.Ct. 1712, 90 L.Ed.2d 69 (1986). 6. State v. Willits, 96 Ariz. 184, 393 P.2d 274, 276, 279 (1964) (in banc), requires a jury instruction when the state destroys material evidence that would allow the jury to infer that the facts implicated by the material evidence are against the state’s interest. 7. After being examined by the court appointed psychologists, Roger notified the PCR court that he did not intend to rely on those experts. Subsequently, the State filed a motion to dismiss Roger's IAC claim for trial counsel’s failure to obtain a neurological or neuropsychological examination, which the PCR court granted. 8. In Duren, the United States Supreme Court held that a defendant in a criminal case has a Sixth Amendment right to a jury pool that constitutes a fair cross-section of the commu 436 nity. See Duren, 439 U.S. at 359-60, 99 S.Ct. 664. This constitutional right is violated only if a distinctive group is excluded from jury service. See id. at 364, 99 S.Ct. 664. 9. In Hopkins, the United States Supreme Court held that there is no requirement to give an instruction for second degree murder when the defendant is charged with capital felony murder, unless second degree murder is a lesser included offense of felony murder under state law. 524 U.S. at 94-97, 118 S.Ct. 1895. ■ 10. The district court found that Roger did not raise the Fifth and Eighth Amendment aspects of this claim in state court, rendering those aspects of the claim procedurally barred. We agree. 11. A.R.S. § 13-503 (1992) provided: No act committed by a person while in a state of voluntary intoxication is less criminal by reason of his having been in such condition, but when the actual existence of the culpable mental state of intentionally or with the intent to is a necessary element to constitute any particular species or degree of offense, the jury may take into consideration the fact that the accused was intoxicated at the time in determining the culpable mental state with which he committed the act. 12. A.R.S. § 1104 (1992) provided in pertinent part: A. A person commits second degree murder if without premeditation: 1.Such person intentionally causes the death of another person; or 2. Knowing that his conduct will cause death or serious physical injury, such person causes the death of another person; or 3. Under circumstances manifesting extreme indifference to human life, such person recklessly engages in conduct which creates a grave risk of death and thereby causes the death of another person. 13. Roger also argues that "[i]f the jury had been given the intoxication instruction and they had found [his] intoxication negated the specific intent necessary for a conviction of first degree premeditated murder, then the jury could have found [him] guilty of second degree murder....” As we stated above, the record did not support an intoxication instruction, so this argument is unavailing; the evidence also did not warrant a second-degree murder instruction based on intoxication. 14. The Arizona Supreme Court interpreted this issue as a request for hybrid representation and ruled that the trial court did not abuse its discretion when it denied Roger's request. See Murray, 906 P.2d at 560-61. Although its conclusion was couched in the context of hybrid representation, the Arizona Supreme Court addressed Roger's assertion of irreconcilable differences and affirmed the trial court's reappointment of counsel from the public defender’s office. See id. 15. In the alternative, Roger contends that the district court erred in not addressing his motion to amend his petition to include this claim. Roger relies on the Second Circuit's decision in Littlejohn v. Artuz, 271 F.3d 360 (2d Cir.2001). However, Littlejohn is not binding precedent in this circuit. More importantly, any failure to address Roger’s request for leave to amend was harmless in view of the lack of merit to his claim. See Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (noting that denial of leave to amend is appropriate if amendment would be futile). 16. This is the same exculpatory witness to whom Roger refers.	LIMITED_OR_DISTINGUISHED
724 F.2d 831	497 F.3d 757	D	Eddie G. Javor v. United States	CUDAHY, Circuit Judge. The petitioner, Derryle S. McDowell, was convicted of sexual assault, kidnapping and armed robbery and was sentenced to 200 years in prison. At trial, McDowell’s trial counsel had him testify in a narrative form rather than lead him through a question and answer format. In considering McDowell’s post-conviction motion, the Wisconsin Supreme Court applied Strickland v. Washington, 466 U.S. 668, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984), and determined that McDowell’s trial counsel’s decision to have McDowell testify in a narrative format without knowing that he would testify untruthfully and without no 759 tifying McDowell of his decision to do so was deficient, but still denied relief finding no prejudice. The federal district court also denied the petition, holding, in part, that the Wisconsin Supreme Court’s decision to apply Strickland, instead of presuming prejudice under United States v. Cronic, 466 U.S. 648, 104 S.Ct. 2039, 80 L.Ed.2d 657 (1984), was not contrary to clearly established federal law. We agree and affirm the denial of McDowell’s petition. I. Background On April 21, 1997, an 18-year-old woman was sexually assaulted by two men near a building at 4720 West Burleigh Street in Milwaukee. After the assault, the victim spat ejaculate onto the ground. Although the victim could not identify her attackers, the State based its case against the defendant Derryle McDowell on evidence collected from the victim’s body, clothing and the scene. Namely, the police recovered a sample of the victim’s saliva mixed with semen containing McDowell’s DNA. This appeal primarily concerns McDowell’s testimony at trial. On the third day of trial, after the State had rested, McDowell’s counsel, Attorney Ronald Langford, expressed reservations to the court about his ability to effectively proceed as counsel and asked to withdraw. Specifically, he implied that his concerns related to the possibility that McDowell would testify untruthfully. The trial court advised Attorney Langford of two options: (1) he could recommend to McDowell that he not testify if his intended account was untrue, or (2) take the “middle ground” by calling McDowell to testify in narrative form. (R. 74 at 6-7.) Attorney Langford’s request to withdraw from the case was denied. After a short break, Attorney Langford informed the court that: Judge, I have no reason to believe in light of what Mr. McDowell has told me that he will not get up there and testify as to the truth. Therefore when he takes the stand I will be asking him questions, specific questions with respect to his testimony before this jury. (R. 74 at 12.) Attorney Langford then gave his opening statement, in which he told the jury that McDowell would testify that he never assaulted the victim and that the area where the crime took place was behind the building where his father lived. Counsel further explained that McDowell had been in the area the night before the assault, had oral sex with his girlfriend and had ejaculated, which would account for his semen’s being found at the scene. After Attorney Langford completed his opening statement, McDowell took the stand. Shortly thereafter, while McDowell was still on the stand, Attorney Langford received a note from the public defender’s office which stated: “Tyroler [an appellate attorney in the Office of the State Public Defender] says go with narrative. Tell that to the client. It must be by narrative.” (R. 79 at 78.) McDowell’s counsel began his examination in the question and answer format, asking three questions about McDowell’s age and residence. He then stated, “Mr. McDowell, I want you to look at this jury and tell this jury about the events of April 20 and 21 of 1997. Take your time and speak loudly and clearly, please.” (R. 74 at 20.) The court, apparently confused by this change of plans, called a sidebar conference, after which the court instructed the jury not to consider the opening statements or closing statements of counsel as evidence and directed McDowell’s counsel to restate the question. Attorney Lang-ford said, “Again, Mr. McDowell, take your time and tell this jury what you would like for them to know regarding the allegations against you beginning with where you were and what you were doing on April 20, 760 1997, through the early morning hours of April 21, 1997. Proceed, please.” (R. 74 at 22.) In brief, McDowell testified that he and his girlfriend, Sunshine, “fooled around” and had oral sex behind his father’s apartment the evening of April 20, 1997. His father caught them in the alley and became angry. He and his father eventually drove Sunshine home, returned to the house later that evening and went to bed. McDowell claims that some key facts were missing from his account which could have been solicited in a question and answer format. The jury ultimately found McDowell guilty of one count of armed robbery, one count of kidnapping and five counts of first degree sexual assault with the use of a weapon. He was sentenced to 200 years in prison and forty years of probation. McDowell filed a post-conviction motion in the circuit court claiming ineffective assistance of counsel. The circuit court held a Machner hearing to determine the validity of McDowell’s claim. 1 At the hearing, Attorney Langford testified that he initially believed that McDowell was lying about this sexual activity with his girlfriend. He noted inconsistencies between their accounts, the fact that McDowell introduced this theory of defense only after learning about the DNA evidence and also recounted a conversation with McDowell in which McDowell told him, “I’ll say what I need [to] say to help myself out and if I have to say something untruthful!,] I’ll say that.” (R. 79 at 109.) In preparation for McDowell’s taking the stand, Attorney Langford testified that he warned McDowell that he might need to testify in a narrative form and, if he did, that McDowell should testify to everything he would want the jury to know because it would be his only opportunity. Attorney Langford also testified that he had intended to lead McDowell through questions, but that his plan later changed when he received the note from the public defender’s office. Attorney Langford conceded that he did so without advising McDowell of the change and without having personally concluded that McDowell intended to lie. The circuit court denied McDowell’s petition, finding that McDowell’s counsel had reacted in a way that best preserved his client’s rights and discharged his own ethical responsibilities, and that the outcome of the trial would not have been different in light of the DNA evidence if McDowell had testified instead in a question and answer format. See State v. McDowell, 266 Wis.2d 599, 669 N.W.2d 204, 217 (Ct.App.2003). The Wisconsin Court of Appeals affirmed the circuit court’s denial of McDowell’s petition; however, the court of appeals, unlike the circuit court, found Attorney Langford’s performance to be deficient because he did not know that McDowell would testify untruthfully when he switched to a form of narrative testimony and failed to inform McDowell of the change of plans. Id. at 227. Regardless, the court of appeals, like the circuit court, did not find McDowell to have been prejudiced by this error. Id. at 229-30. The Wisconsin Supreme Court affirmed the denial of McDowell’s petition on the same ground as that of the court of appeals. State v. McDowell, 272 Wis.2d 488, 681 N.W.2d 500, 505 (2004). McDowell then filed a petition for writ of habeas corpus in the Eastern District of Wisconsin. The district court denied the petition finding that the Wisconsin Supreme Court’s determination that McDo 761 well was not prejudiced by his trial counsel’s performance was not contrary to, nor an unreasonable application of, clearly established federal law as determined by the Supreme Court of the United States. McDowell v. Kingston, No. 05-C-0498, 2006 WL 2289304, at 1 (E.D.Wis. Aug. 8, 2006). The district court certified the following question for our review: Were the state court decisions rejecting petitioner’s Sixth Amendment ineffective assistance of counsel claim contrary to clearly established federal law within the meaning of 28 U.S.C. § 2254(d)? (R. 28 at 2.) In other words, we consider in the present case whether the Wisconsin Supreme Court’s decision to apply Strickland, which requires a showing of prejudice, instead of Cronic, where prejudice is presumed, was contrary to clearly established federal law. II. Discussion The Antiterrorism and Effective Death Penalty Act of 1996 (“AEDPA”) governs our review of McDowell’s petition for writ of habeas corpus. Relevant for this review, a federal court can grant relief only if the state court’s decision: (1) was “contrary to... clearly established Federal law, as determined by the Supreme Court of the United States”; or (2) “involved an unreasonable application of... clearly established Federal law, as determined by the Supreme Court of the United States.” 28 U.S.C. § 2254(d)(1). A state court’s decision is “contrary to” clearly established federal law if the state court either “applies a rule that contradicts the governing law” set forth by the Supreme Court or decides a case differently than the Supreme Court has on materially indistinguishable facts. Williams v. Taylor, 529 U.S. 362, 405, 120 S.Ct. 1495, 146 L.Ed.2d 389 (2000). When the claim falls under the “contrary to” clause, the federal court will review the state court decision independently to determine what the clearly established federal law is and whether the state court decision is contrary to that precedent. Id. at 378-79, 120 S.Ct. 1495. On appeal, McDowell argues that the Wisconsin Supreme Court erroneously applied Strickland and instead should have presumed prejudice under Cronic. He raises two grounds in support of this contention. First, the petitioner claims Attorney Langford’s failure to lead him through question and answers during his testimony constituted a denial of counsel at a critical stage of the trial or, alternatively, that Attorney Langford’s failure constituted an abandonment of McDowell’s defense. Second, McDowell argues that Attorney Lang-ford suffered a conflict of interest between his duty of loyalty to his client and his duty to comply with the directions in the note from the public defender’s office. Generally, claims of ineffective assistance of counsel are evaluated under a two-prong analysis announced in Strickland. Under Strickland, a claimant must prove (1) that his attorney’s performance fell below an objective standard of reasonableness and (2) that the attorney’s deficient performance prejudiced the defendant such that “there is a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different.” 466 U.S. 668, 690, 694, 104 S.Ct. 2052, 80 L.Ed.2d 674. Decided the same day as Strickland, the Court in Cronic held that in “circumstances that are so likely to prejudice the accused that the cost of litigating their effect in a particular case is unjustified,” prejudice will be presumed. 466 U.S. 648, 658, 104 S.Ct. 2039, 80 L.Ed.2d 657. The Court defined three exceptions to Strickland where it is appropriate for a court to presume prejudice: (1) where there is a “complete denial of counsel” or denial at a “critical stage” of the litigation; (2) where counsel “entirely fails to subject 762 the prosecution’s case to meaningful adversarial testing”; and (3) where “although counsel is available to assist the accused during trial, the likelihood that any lawyer, even a fully competent one, could provide effective assistance is [very] small.” 466 U.S. at 659-60, 104 S.Ct. 2039; see also Miller v. Martin, 481 F.3d 468, 472 (7th Cir.2007). The Court has subsequently recognized Cronic as a “narrow exception” to Strickland, Florida v. Nixon, 543 U.S. 175, 190, 125 S.Ct. 551, 160 L.Ed.2d 565 (2004). A. Denial of Counsel at a Critical Stage The petitioner’s first argument — • that we should presume prejudice because he was actually or constructively denied counsel at a critical stage of the litigation — fails to satisfy the requirements of Cronic’s first category. The Supreme Court has consistently limited the presumption of prejudice to cases where counsel is physically absent at a critical stage. 2 See Penson v. Ohio, 488 U.S. 75, 88, 109 S.Ct. 346, 102 L.Ed.2d 300 (1988) (applying Cronic where defense counsel erroneously moved to dismiss any appeal leaving the petitioner “completely without representation during the appeals court’s actual deci-sional process”); White v. Maryland, 373 U.S. 59, 60, 83 S.Ct. 1050, 10 L.Ed.2d 193 (1963) (presuming prejudice where defendant pleaded guilty at a preliminary hearing before he was appointed counsel); Hamilton v. Alabama, 368 U.S. 52, 54-55, 82 S.Ct. 157, 7 L.Ed.2d 114 (1961) (presuming prejudice where defendant was completely without counsel when he pleaded guilty to a capital charge and irrevocably waived other pleas); see also Siverson v. O’Leary, 764 F.2d 1208, 1217 (7th Cir.1985) (applying a presumption of prejudice where the defendant’s trial counsel was absent during jury deliberations and at the return of the verdicts). Here, counsel was physically present at all stages of the litigation, including during McDowell’s testimony, and therefore, we cannot hold that McDowell was actually denied counsel. Moreover, McDowell has failed to present any authority from the United States Supreme Court indicating that his testimony, isolated from the rest of his defense, constitutes a critical stage of the litigation. Cf. Penson, 488 U.S. at 88, 109 S.Ct. 346 (holding that an appeal constitutes a critical stage); White, 373 U.S. at 60, 83 S.Ct. 1050 (holding that a “preliminary hearing” where the defendant was allowed to enter a plea constitutes a critical stage); Hamilton, 368 U.S. at 54, 82 S.Ct. 157 (holding that an arraignment was a critical stage of the proceedings because available defenses may be irretrievably lost). The petitioner relies heavily on our decision in Van Patten v. Deppisch, 434 F.3d 1038 (7th Cir.2006) for support of his argument that prejudice should be presumed because McDowell was denied counsel at a critical stage in the proceeding. 3 In Van 763 Patten, we held that the Wisconsin appellate court acted contrary to clearly established Supreme Court precedent in applying Strickland instead of Cronic where petitioner’s counsel participated via a conference call at the plea hearing. Id. at 1043. McDowell compares Van Patten to his circumstances here in urging that, by switching to a narrative format, Attorney Langford became “absent” in a way similar to the trial counsel in Van Patten. But, this analogy fails. In Van Patten, we placed tremendous emphasis on the fact that counsel was physically absent from the proceedings. We explained: He could not turn to his lawyer for private legal advice, to clear up misunderstandings, to seek reassurance, or to discuss any last minute misgivings. Listening over an audio connection, counsel could not detect and respond to cues from his client’s demeanor that might have indicated he did not understand certain aspects of the proceeding, or that he was changing his mind. Id. Here, McDowell’s counsel was physically present at all stages of the litigation. He informed McDowell of the possibility of narrative testimony before he took the stand and instructed him to tell the jury everything he would want them to know. Moreover, whereas there is substantial precedent indicating that a plea hearing is a “critical stage” of the litigation (see, e.g., White, 373 U.S. at 60, 83 S.Ct. 1050), as already discussed, McDowell has failed to point to any authority from the Supreme Court indicating that the defendant’s testimony itself constitutes a critical stage. 4 Thus, the petitioner has failed to demonstrate that he was denied counsel at a critical stage of the proceedings and, therefore, his claim fails to fit within the first Cronic category. B. Failure to Subject Prosecution’s Case to Meaningful Adversarial Testing We also cannot presume prejudice under the second Cronic category- — -where counsel “entirely fails to subject the prosecution’s case to meaningful adversarial testing” — because Attorney Langford’s deficient representation was not a complete failure. In Bell v. Cone, 535 U.S. 685, 697-98, 122 S.Ct. 1843, 152 L.Ed.2d 914 (2002), the Court clarified what constitutes an “entire failure” by drawing a clear distinction between a failure to oppose the prosecution throughout an entire proceeding and a failure to do so at specific points, concluding that a failure at specific points will not trigger a presumption of prejudice. Id.', see also United States v. Morrison, 946 F.2d 484, 500 n. 3 (7th Cir.1991). McDowell claims that by switching to a narrative form, Attorney Langford effectively abandoned his defense, rendering him “constructively absent” from the proceedings. The type of failure McDowell asserts is more properly characterized as a failure at a specific point in the litigation rather than a complete failure of the type necessary to trigger a presumption of prejudice under the second category. The record indicates that Attorney Langford did subject the prosecution’s case to adversarial testing. He cross-examined witnesses. He gave an opening statement in which he presented McDowell’s defense. Additionally, Attorney Langford testified that he warned McDowell prior to his taking the stand that he might have to testify in 764 narrative form and advised him as to what that testimony should entail. “I made it clear to him that once you start talking, make sure you say everything you want to say. You are going to get [only] one kick at the cat.” (R. 79 at 116.) Attorney Lang-ford also guided McDowell into his narrative testimony by instructing him to “look at this jury and tell this jury about the events of April 20 and April 21 of 1997. Take your time and speak loudly and clearly, please.” (R. 74 at 20.) Attorney Langford also gave a closing statement, in which he questioned the State’s DNA evidence and reaffirmed McDowell’s defense. To be clear, we do not question the Wisconsin Supreme Court’s determination that Attorney Langford’s decision to have McDowell testify in a narrative form was deficient representation since Attorney Langford did not know McDowell would testify untruthfully and did not inform McDowell of the switch in plans. Nonetheless, an isolated mistake, like the one found here, does not constitute a “complete failure to subject the prosecution’s case to adversarial testing,” nor does it render an attorney “constructively absent” from the proceedings. Cf. Van Patten, 434 F.3d at 1044 (applying Cronic, but noting that the defendant “does not allege, for example, that his attorney botched his defense through bad legal judgments, or misinformed him of the ramifications of his plea”). Patrasso v. Nelson, 121 F.3d 297 (7th Cir.1997) further supports this result. In Patrasso, in which the defendant’s counsel gave no opening argument, asked the defendant only one question during his testimony, conducted “perfunctory” cross-examination of witnesses and, in response to the court’s urging, gave only a two-sentence closing statement, we declined to presume prejudice under the second Cronic category. Id. at 299. We concluded that “Patrasso had an attorney and the attorney did take some action on his behalf.” Id. at 302. Attorney Langford’s performance in the present case clearly surpasses in quality that of the trial counsel’s in Patrasso. Since we did not apply Cronic in that ease, we certainly cannot in the present one. Because Langford’s failure was only at a specific point in the litigation and was not a wholesale failure, McDowell’s claim fails under the second Cronic category. We will not evaluate his claim under the third category, which concerns circumstances in which no attorney could provide effective assistance of counsel, because McDowell does not assert any such structural errors in his petition. C. Conflict of Interest McDowell also argues that the Wisconsin Supreme Court should have presumed prejudice because Attorney Lang-ford suffered a conflict of interest between his “duty of loyalty to his client and the duty of adhering to the pressures of that established by the note that was passed to trial counsel at a critical stage of the jury trial.” (Petitioner’s Reply Br. at 6.) In Cuyler v. Sullivan, 446 U.S. 335, 338, 100 S.Ct. 1708, 64 L.Ed.2d 333 (1980), the defendant alleged ineffective assistance resulting from a “conflict of interest” because his lawyers also represented his co-defendants. The Court held that a presumption of prejudice is appropriate “where an attorney has labored on behalf of a defendant while harboring a conflict of interest.” Id. at 349-50, 100 S.Ct. 1708. A “conflict of interest” is defined as a conflict between a duty of loyalty to a client and a private interest or a conflict between a duty of loyalty owed to one client and the duty owed to another in a multiple representation situation as in Cuyler. See Black’s Law Dictionary 295 (7th ed.1999). But, the conflict alleged in the present case is not the kind of conflict 765 at issue in Cuyler. Rather, the alleged conflict Attorney Langford experienced between his duty of loyalty to McDowell and his “duty of adhering to the pressures of that established by the note” is better described as a problem of determining the appropriate ethical course. In Nix v. Whiteside, 475 U.S. 157, 176, 106 S.Ct. 988, 89 L.Ed.2d 123 (1986), which McDowell also cites but fails to cite in full, the Court specifically noted that a presumption of prejudice is not appropriate for conflicts like the one alleged in the present case, explaining that the “ ‘conflict’... imposed on the attorney by the client’s proposal to commit the crime of fabricating testimony... is not remotely the kind of conflict of interests dealt with in Cuyler v. Sullivan.” The Wisconsin Supreme Court correctly noted, “[t]o equate these divided loyalties in [Cuyler ] with the potential divided loyalties here misses the mark.” State v. McDowell, 681 N.W.2d at 516. Attorney Langford may have experienced a conflict, but not a conflict of interest warranting a presumption of prejudice pursuant to Cuyler. In conclusion, we hold that the Wisconsin Supreme Court’s determination to apply Strickland, instead of presuming prejudice under Cronic, was not contrary to clearly established federal law. McDowell was not denied counsel at a critical stage of the litigation since Attorney Langford was present throughout the proceedings. Attorney Langford did subject the prosecution’s case to “meaningful adversarial testing” and therefore his failure was not a “complete failure.” Finally, Attorney Langford’s alleged conflict between his duty of loyalty to McDowell and his “duty of adhering to the pressures of that established by the note” is not the type of conflict which warrants a presumption of prejudice under Cuyler. III. Conclusion For the foregoing reasons, we AffiRM the district court’s denial of McDowell’s petition for writ of habeas corpus. 1. Under State v. Machner, 92 Wis.2d 797, 285 N.W.2d 905 (Ct.App.1979), a hearing may be held when a criminal defendant’s trial counsel is challenged for allegedly providing ineffective assistance. At the hearing, the trial counsel testifies to his or her reasoning on the challenged action or inaction. Id. at 908-09. 2. There are some cases, typically involving sleeping or unconscious lawyers, where courts have presumed prejudice even though counsel was technically physically present. See Burdine v. Johnson, 262 F.3d 336, 341 (5th Cir.2001); Tippins v. Walker, 77 F.3d 682, 686 (2d Cir.1996); Javor v. United States, 724 F.2d 831, 833 (9th Cir.1984). But, the alleged "absence” of Attorney Langford is distinguishable from these cases. Arguments concerning constructive denial of counsel are best considered under Cronic s second category — where counsel has "entirely failed to subject the prosecution's case to meaningful adversarial testing.” 3. The Supreme Court vacated our judgment in Van Patten and remanded for reconsideration in light of Carey v. Musladin, - U.S. -, 127 S.Ct. 649, 166 L.Ed.2d 482 (2006). Schmidt v. Van Patten, - U.S. -, 127 S.Ct. 1120, 166 L.Ed.2d 888 (2007). After reconsideration, we recently reinstated the judgment. Van Patten v. Endicott, 489 F.3d 827 (7th Cir.2007). 4. Van Patten can further be distinguished from the present case. The court in Van Patten also indicated that allowing counsel to appear via phone was an error involving a small likelihood of ability to provide effective assistance (of the sort covered by the third Cronic category), while here the petitioner does not claim a similar structural error. 434 F.3d at 1043.	LIMITED_OR_DISTINGUISHED
724 F.2d 831	231 F.3d 950	D	Eddie G. Javor v. United States	231 F.3d 950 (5th Cir. 2000) CALVIN JEROLD BURDINE, Petitioner-Appellee,v.GARY L. JOHNSON, DIRECTOR, TEXAS DEPARTMENT OF CRIMINAL JUSTICE, INSTITUTIONAL DIVISION, Respondent-Appellant. No. 99-21034 UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT October 27, 2000 Appeal from the United States District Court for the Southern District of Texas Before JONES, BARKSDALE, and BENAVIDES, Circuit Judges. RHESA HAWKINS BARKSDALE, Circuit Judge: 1 The linchpin to this appeal is whether, under the Sixth Amendment, prejudice must be presumed when appointed defense counsel sleeps during unidentified portions of a capital murder trial. The State contests the district court's application of that presumption in granting habeas relief to Calvin Jerold Burdine, convicted for capital murder and sentenced to death in Texas. We VACATE and REMAND. I. 2 Burdine's January 1984 conviction and sentence were for the 1983 robbery and murder of Wise. Burdine was represented at trial -- and, at his request, on direct appeal -- by court-appointed counsel, Joe Cannon. The trial evidence included a police officer's testimony that Burdine, while in custody in California following his arrest ten days after the murder, confessed that, after unsuccessfully trying to smother and then beat Wise to death, McCreight, Burdine's 17-year-old companion, stabbed Wise, and then Burdine did so. 3 Cannon's theory of defense was: Burdine did not intend to kill Wise; McCreight was the instigator of the robbery and murder. Cannon sought to portray Burdine, who, at the time of the murder, had not completely recovered from surgery in which a lung had been removed, as too weak to have participated in the murder and as a victim of Wise, an older man who took advantage of him. (Burdine and Wise had had a homosexual relationship.) 4 Burdine testified at the guilt-innocence phase of trial, admitting his participation in the robbery, but denying he stabbed Wise. At the punishment phase, outside the presence of the jury and against Cannon's advice, Burdine declined to testify. Immediately thereafter, in the presence of the jury, Cannon asked Burdine if he wished "to take the stand and plead for [his] life". Before being interrupted by the trial judge, Burdine responded to Cannon: "No, sir, they didn't listen to me the first time, I don't see --". 5 On direct appeal, the Texas Court of Criminal Appeals affirmed the conviction and sentence. Burdine v. State, 719 S.W.2d 309 (Tex. Crim. App. 1986). The Supreme Court denied certiorari in March 1987. Burdine v. Texas, 480 U.S. 940 (1987). 6 Represented by new counsel, Burdine filed his first state habeas application in July 1987, asserting, inter alia, numerous bases for ineffective assistance of counsel. A supplemental application was filed in March 1988. That September, the state trial court conducted a three-day evidentiary hearing. Six years later, in June 1994, the trial court recommended relief being denied. Ex parte Burdine, Cause No. 37944-A (183rd Dist. Ct. Harris County, Texas, 29 June 1994). Accepting that recommendation, the Texas Court of Criminal Appeals denied relief that December. Ex parte Burdine, Writ No. 16,725-02 (Tex. Crim. App. 12 Dec. 1994). 7 Burdine filed a second state habeas application later that month, nearly 11 years after trial, claiming for the first time denial of assistance of counsel because Cannon repeatedly dozed and/or slept at trial. The state trial court conducted an evidentiary hearing in February 1995. That April, it recommended relief being granted, finding that Cannon slept during portions of the trial, and concluding that such conduct was presumptively prejudicial. Ex parte Burdine, Cause No. 37944-B (183rd Dist. Ct. Harris County, Texas, 3 April 1995). But, the Texas Court of Criminal Appeals denied relief, holding that, although the trial court's findings of fact were supported by the record, Burdine was not entitled to relief because he had not demonstrated prejudice. Ex parte Burdine, 901 S.W.2d 456 (Tex. Crim. App.), cert. denied, 515 U.S. 1107 (1995). 8 Later that same month, April 1995, Burdine sought federal habeas relief, presenting ten claims. They included numerous alleged instances of ineffective assistance of counsel, as well as the claim that prejudice should be presumed because Cannon slept during substantial portions of a critical stage of trial. In September 1999, the district court granted relief on the prejudice presumed for sleeping during trial claim, without addressing the remaining claims. Burdine v. Johnson, 66 F. Supp. 2d 854 (S.D. Tex. 1999). II. 9 For the two-prong test for ineffective assistance of counsel vel non (deficient performance and resulting prejudice), the State concedes the correctness of the state habeas court's factual finding that Cannon slept during trial, thereby rendering deficient performance. But, it challenges presuming prejudice, because, under the circumstances of this case, that constitutes a "new rule", not available to Burdine on collateral review. Alternatively, it maintains that the presumption is inapplicable in a case such as this, involving deficient performance within an otherwise adversarial trial. It contends also that the district court erred by failing to apply harmless error analysis. (The State's contention that the judgment is erroneous if interpreted to bar retrial is moot; the order has not been so interpreted.) 10 "In considering a claim for federal habeas relief, we review the district court's factual findings for clear error and its legal conclusions de novo." Childress v. Johnson, 103 F.3d 1221, 1224 (5th Cir. 1997). Because Burdine filed his federal application prior to enactment of the Anti-Terrorism and Effective Death Penalty Act of 1996 (AEDPA), its standards for reviewing the state court's decision are not applicable. E.g., Perillo v. Johnson, 205 F.3d 775, 793 (5th Cir. 2000). "When applying the pre-AEDPA standard to ineffective assistance of counsel claims, this Court has held that whether counsel was deficient, and whether the deficiency, if any, prejudiced the petitioner... are legal conclusions which both the district court and this Court review de novo." Moore v. Johnson, 194 F.3d 586, 603-04 (5th Cir. 1999). 11 On the other hand, "[t]he state court's subsidiary findings of specific historical facts and state court credibility determinations are... entitled to a presumption of correctness under [pre-AEDPA] § 2254(d)". Id. at 604. Therefore, as the State concedes, we are bound by the state habeas court's finding that Cannon slept during trial, even though he testified at the state habeas evidentiary hearing that he had not slept; that, instead, he often kept his eyes closed and might nod his head while thinking or concentrating, and that it was possible for someone observing him to think he was sleeping. 12 Whether the nonretroactivity principle of Teague v. Lane, 489 U.S. 288 (1989), precludes Burdine from benefitting from the claimed prejudice-presumption is a question of law reviewed de novo. See United States v. Shunk, 113 F.3d 31, 34 (5th Cir. 1997) (§ 2255). A. 13 According to Burdine, Cannon's repeated sleeping, for significant periods of time, constituted a constructive denial of assistance of counsel at a critical stage of the proceedings, requiring presuming prejudice. The State contends that Burdine seeks the benefit of a new rule, not in effect when his conviction became final, which, under Teague and its progeny, is not available to him retroactively. 14 Teague's retroactivity principle "prevents a federal court from granting habeas relief to a state prisoner based on a rule announced after his conviction and sentence became final", unless certain narrow exceptions apply. Caspari v. Bohlen, 510 U.S. 383, 389 (1994) (emphasis in original). "In determining whether a state prisoner is entitled to habeas relief, a federal court should apply Teague by proceeding in three steps." Id. at 390. 15 First, we must determine when [Burdine's] conviction and sentence became final for Teague purposes.... Second, we must "survey the legal landscape as it then existed and determine whether a state court considering the defendant's claim at the time his conviction became final would have felt compelled by existingprecedent to conclude that the rule he seeks was required by the Constitution."... Third, if we determine that [Burdine] seeks the benefit of a new rule, we must consider whether "that rule falls within... the... narrow exceptions to the nonretroactivity principle." 16 Fisher v. Texas, 169 F.3d 295, 305 (5th Cir. 1999) (quoting Caspari, 510 U.S. at 390). 1. 17 Burdine's conviction became final in 1987, when the Supreme Court denied certiorari. With respect to the second Teague step, "[u]nless reasonable jurists hearing [Burdine's] claim at the time his conviction became final would have felt compelled by existing precedent to rule in his favor, we are barred from doing so now". Fisher, 169 F.3d at 305 (internal quotation marks and citation omitted). 18 In 1932, the Supreme Court held that a capital defendant has a constitutional right to "the guiding hand of counsel at every step in the proceedings against him". Powell v. Alabama, 287 U.S. 45, 69 (1932). In this regard, the Court held subsequently that showing prejudice was not necessary when the defendant was denied counsel at arraignment, a critical stage of the proceedings, because certain defenses were lost if not then pled. Hamilton v. Alabama, 368 U.S. 52, 53-55 (1961). Similarly, a defendant was denied assistance of counsel when the trial judge, pursuant to state statute, denied defense counsel the opportunity to be heard in summation at a bench trial, despite the fact there was no way to know whether argument might have affected the outcome of trial. Herring v. New York, 422 U.S. 853, 864-65 (1975). And, shortly thereafter, the Court reversed a decision that defendant's failure to claim prejudice was fatal to his Sixth Amendment claim, and concluded that a court order preventing him from consulting with his counsel during a 17-hour overnight recess between defendant's direct and cross-examination deprived him of assistance of counsel. Geders v. United States, 425 U.S. 80, 82, 91 (1976). 19 The well-known standards for ineffective assistance claims were established in 1984 in Strickland v. Washington, 466 U.S. 668 (1984), and United States v. Cronic, 466 U.S. 648 (1984). Under Strickland, "the defendant must show that counsel's performance was deficient" -- "counsel made errors so serious [he] was not functioning as the 'counsel' guaranteed the defendant by the Sixth Amendment". Strickland, 466 U.S. at 687. In addition, the defendant "must show that the deficient performance prejudiced the defense" -- "counsel's errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable". Id. For this prejudice prong, "[t]he defendant must show that there is a reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different". Id. at 694. "A reasonable probability is a probability sufficient to undermine confidence in the outcome." Id. 20 Strickland observed that, "[i]n certain Sixth Amendment contexts, prejudice is presumed". Id. at 692 (emphasis added). Such contexts were described as "[a]ctual or constructive denial of the assistance of counsel altogether" and "various kinds of state interference with counsel's assistance". Id. "Prejudice in these circumstances is so likely that case-by-case inquiry into prejudice is not worth the cost." Id. "[S]uch circumstances involve impairments of the Sixth Amendment right that are easy to identify and, for that reason and because the prosecution is directly responsible, easy for the government to prevent". Id. "[A] similar, though more limited, presumption of prejudice"applies "when counsel is burdened by an actual conflict of interest". Id. 21 Cronic, decided the same day as Strickland, held a presumption of prejudice unwarranted under the circumstances of that case (young lawyer with real estate practice appointed to represent defendant and allowed only 25 days for pretrial preparation in complex mail fraud prosecution). Cronic, 466 U.S. at 666. But, as it had in Strickland, the Court observed "[t]here are... circumstances... so likely to prejudice the accused that the cost of litigating their effect in a particular case is unjustified". Cronic, 466 U.S. at 658. Such circumstances include: (1) "the complete denial of counsel", id. at 659; (2) where "counsel entirely fails to subject the prosecution's case to meaningful adversarial testing", id.; (3) "when counsel was either totally absent, or prevented from assisting the accused during a critical stage of the proceeding", id. at 659 n.25 (citing, inter alia, Geders, Herring, and Hamilton; emphasis added); and (4) "when counsel labors under an actual conflict of interest", id. at 662 n.31. But, "[a]part from circumstances of that magnitude,... there is generally no basis for finding a Sixth Amendment violation unless the accused can show how specific errors of counsel undermined the reliability of the finding of guilt". Id. at 659 n.26 (emphasis added). 22 Burdine contends that the third circumstance (absent during critical stage) described in Cronic, and cases cited therein, such as Geders, Herring, and Hamilton, dictated the result reached by the district court here, because each involved the denial of assistance of counsel at a single "critical stage" of the proceedings, rather than the complete denial of assistance of counsel during an entire trial. Burdine maintains that a sole defense counsel's pattern of repeatedly sleeping for a significant amount of time during both phases of a capital murder trial unquestionably amounts to the denial of assistance of counsel during such a stage of trial. 23 Geders, Herring, and Hamilton did not involve circumstances analogous to Burdine's. Instead, in each, the government was responsible for the denial of counsel. See Geders, 425 U.S. at 82 (court order); Herring, 422 U.S. at 864-65 (state statute); Hamilton, 368 U.S. at 53 (no counsel appointed for arraignment). Obviously, the State was not responsible for Cannon's sleeping; indeed, the trial judge and prosecutor testified at the state evidentiary hearing that they did not observe him doing so. 24 Of course, "[t]he fact that the accused can attribute a deficiency in his representation to a source external to trial counsel does not make it any more or less likely that he received the type of trial envisioned by the Sixth Amendment, nor does it justify reversal of his conviction absent an actual effect on the trial process or the likelihood of such an effect". Cronic, 466 U.S. at 662 n.31. Nevertheless, that the denial of counsel in Geders, Herring, and Hamilton was government-instigated serves to distinguish those cases from Burdine's. And, because the government was not responsible for Cannon's sleeping, such conduct was not "easy for [it] to prevent". Strickland, 466 U.S. at 692. 25 Moreover, the stage of the proceeding at which counsel was denied in Geders, Herring, and Hamilton, was easily identifiable. See Geders, 425 U.S. at 82 (overnight recess); Herring, 422 U.S. at 864-65 (closing argument); Hamilton, 368 U.S. at 53 (arraignment). In contrast, as discussed infra, it is impossible to identify the portions of trial during which Cannon slept. Accordingly, Burdine's claim does not "involve impairments of the Sixth Amendment right that are easy to identify". Strickland, 466 U.S. at 692. 26 Burdine contends that Javor v. United States, 724 F.2d 831 (9th Cir. 1984), supports a conclusion that his claim is encompassed by the critical stage circumstance described in Cronic. Javor was cited in Justice Brennan's concurring opinion in Strickland, 466 U.S. at 703 n.2, as an example of a case in which counsel's incompetence was so serious that it equated with constructive denial of counsel. Javor held prejudice was inherent where counsel slept through a substantial portion of trial. Javor, 724 F.2d at 833. 27 In 1987, when Burdine's conviction became final, Texas courts would not have felt compelled to apply Javor. Cf. Magouirk v. Phillips, 144 F.3d 348, 361 (5th Cir. 1998) ("state courts are not bound by Fifth Circuit precedent when making a determination of federal law"). Moreover, neither Cronic nor the majority opinion in Strickland cited Javor as an example of denial of counsel at a critical stage. Accordingly, Burdine seeks a new rule within the meaning of Teague. Therefore, unless his claim meets one of the narrow exceptions to the Teague nonretroactivity principle, we are barred from considering it. 2. 28 "Teague provides that a new constitutional rule can apply retroactively on federal collateral review only if the new rule (1) puts certain kinds of primary, private conduct beyond the power of the criminal law-making authority to proscribe or (2) is a rule of procedure that is implicit in the concept of ordered liberty." Fisher, 169 F.3d at 306 (internal quotation marks and citation omitted). As discussed infra, our court has recently utilized a third narrow exception. 29 a. 30 Burdine seeks, inter alia, shelter within the second exception, "reserved for watershed rules of criminal procedure that implicate the fundamental fairness and accuracy of the proceeding". Id. He asserts that both elements of that exception -- fairness and accuracy -- are violated when a capital defendant is denied assistance of counsel during a significant portion of trial. 31 Under the circumstances of this case, including the claim not being presented until nearly 11 years after trial, and the impossibility of identifying the portions of trial during which Cannon slept, it is not necessary to create a new rule of presumptive prejudice in order to promote fundamental fairness and ensure an accurate determination of guilt or innocence or punishment. Those goals can be achieved satisfactorily -- and with far greater assurance of accuracy -- through analysis under the Strickland prejudice test. See Tippins v. Walker, 77 F.3d 682, 686 (2d Cir. 1996) ("Ordinarily, episodes of inattention or slumber are perfectly amenable to analysis under the Strickland prejudice test."). That is especially true here, where Burdine, who sat beside Cannon throughout trial, has neither stated in an affidavit nor testified that he observed Cannon sleeping, and where the witnesses' testimony at the evidentiary hearing, regarding the amount of sleeping and when it occurred, cannot be corroborated by reviewing the trial transcript. 32 b. 33 Burdine also claims an exception to Teague for claimed constitutional rights susceptible of vindication only on habeas review, asserting that his ineffective assistance claims could not be raised on direct appeal because he was represented by the same counsel who slept during his trial (even though Burdine requested that Cannon represent him on appeal) and because, in any event, the claim required development of facts outside the trial record. Following oral argument in the case at hand, our court, in Jackson v. Johnson, 217 F.3d 360, 364 (5th Cir. 2000), utilized a somewhat similar third, quite narrow Teague exception. 34 Jackson's Texas state court conviction for aggravated assault was affirmed on direct appeal by the Texas intermediate appellate court. Jackson neither filed a timely motion for rehearing with that court nor sought discretionary review by the Texas Court of Criminal Appeals. Id. at 363. On habeas review, Jackson claimed his attorney rendered ineffective assistance by failing to timely file a motion for rehearing with the intermediate appellate court. Id. at 361, 363. 35 Our court concluded that a holding that an "opportunity to file a motion for rehearing should be considered the last step in [Jackson's] first appeal of right... would surely create a new rule of constitutional law" under Teague. Id. at 363-64. But, it held that Jackson's claim satisfied "a third narrow exception to Teague, heretofore unrecognized by the courts". Id. at 364 (emphasis added). "When an alleged constitutional right is susceptible of vindication only on habeas review, application of Teague to bar full consideration of the claim would effectively foreclose any opportunity for the right ever to be recognized." Id. 36 Arguably, the right asserted by Jackson was one that could never be raised on direct appeal. Id. at 364. In any event, the holding in Jackson must be limited to the facts in that case. That holding has obvious, wide-ranging implications concerning the limits mandated by Teague for habeas review. The exception utilized in Jackson cannot be allowed to swallow the rule announced in Teague. How the Jackson holding will come into play must be decided on a case-by-case basis. 37 Regardless of Jackson's reach, the right asserted by Burdine would not seem to fall within the very narrow category utilized in Jackson. Restated, the exception utilized in Jackson would not seem to cover Burdine's assertion that his claim could not have been raised on direct appeal. 38 Burdine asserts it could not have been so raised, because he was represented on appeal by the same counsel who slept during his trial. Burdine should have noted such conduct and not have requested that Cannon represent him on appeal. While we do not hold that such request, on this record, constitutes a waiver of Burdine's ineffective assistance claim regarding Cannon's sleeping, we are troubled, to say the least, by wide-ranging abuses that can result where, as here, a criminal defendant sits next to counsel during trial; makes no mention then of counsel sleeping during trial; requests that the same counsel represent him on direct appeal; and then, over ten years after trial, claims ineffective assistance because counsel slept during trial, despite defendant never, by affidavit or testimony, stating under oath that counsel engaged in such conduct. Cannon is not the only person in this case who slept; Burdine slumbered as well -- on his rights. 39 Burdine contends, alternatively, that, on direct appeal, he could not have asserted the claim now at issue, because it required development of facts outside the trial record. But, Burdine, who sat next to counsel throughout trial, could have brought counsel's sleeping to the attention of the trial court during trial, which may, at the very least, have allowed development of the facts at that time. Along this line, perhaps counsel's sleeping could have been the basis for a new trial. 40 In this regard, we are quite hampered in our analysis and in reaching a conclusion as to this claimed exception because the State, in its reply brief, does not address the possible options -- such as seeking a new trial -- that may have been available to Burdine. Instead, it maintains that Burdine's claim must be considered under the Strickland test. 41 In sum, it appears that Burdine's claim is not one that could never be raised on direct appeal under any circumstances. In other words, the alleged constitutional right he claims does not appear to be one that "is susceptible of vindication only on habeas review". Jackson, 217 F.3d at 364 (emphasis added). 42 Accordingly, it would seem that Burdine's claim does not fall within the quite narrow Teague exception utilized in Jackson. But, out of an abundance of caution, we will assume that it does and, therefore, address the merits of his claim. B. 43 Regarding the usual deficient performance and prejudice prongs necessary for showing ineffective assistance, see Strickland, 466 U.S. at 687, 694, Burdine contends that a constructive denial of counsel occurs when defense counsel sleeps during portions of a capital murder trial, warranting a presumption of prejudice. The State maintains that the circumstances of this case, as discussed infra, require showing prejudice. 44 As discussed, the Court has articulated three reasons for presuming, rather than requiring proof of, prejudice in cases involving the actual or constructive denial of counsel: (1) "[p]rejudice in these circumstances is so likely that case-by-case inquiry into prejudice is not worth the cost", Strickland, 466 U.S. at 692; (2) "such circumstances involve impairments of the Sixth Amendment right that are easy to identify", id.; and (3) such circumstances are "easy for the government to prevent" because "the prosecution is directly responsible". Id.; Cronic, 466 U.S. at 658. 45 In the light of the circumstances of this case, none of those justifications supports presuming prejudice. First, neither the prosecutor nor the trial judge (nor Burdine) was aware of Cannon's sleeping; accordingly, such conduct could not have been easily prevented by the State. 46 Second, the claim was not raised until over ten years after trial, after it was first raised by another death row inmate. Therefore, a determination of precisely when counsel slept has been rendered impossible due to the passage of time and the lack of any indication in the trial transcript, as discussed infra, as to when the conduct occurred. Nor can it be determined from the witnesses' testimony at the state evidentiary hearing. Accordingly, it is impossible to determine whether, for example, counsel slept during the presentation of crucial, inculpatory evidence, or during the introduction of unobjectionable, uncontested evidence. 47 Finally, for circumstances where, as here, counsel sleeps for unidentified portions of a trial, prejudice is not so likely that case-by-case inquiry into prejudice is not worth the cost. "[O]nce it is necessary to examine the trial record in order to evaluate counsel's particular errors, resort to a per se presumption is no longer justified by the wish to avoid the cost of case-by-case litigation." Scarpa v. Dubois, 38 F.3d 1, 14 (1st Cir. 1994) (refusing to presume prejudice where defense counsel's argument effectively conceded the only disputed elements of the charged crimes), cert. denied, 513 U.S. 1129 (1995). 48 [T]here are real dangers in presuming prejudice merely from a lack of alertness. Prolonged inattention during stretches of a long trial (by sleep, preoccupation or otherwise), particularly during periods concerned with... uncontested issues, or matters peripheral to a particular defendant, may be quantitatively substantial but without consequence. At such times, even alert and resourceful counsel cannot affect the proceedings to a client's advantage. 49 Tippins, 77 F.3d at 686 (emphasis added). Tippins observed, however, that prejudice becomes "'inherent' at some point, 'because unconscious or sleeping counsel is equivalent to no counsel at all'". Id. (quoting Javor, 724 F.2d at 834). The court concluded "that Tippins suffered prejudice, by presumption or otherwise, if his counsel was repeatedly unconscious at trial for periods of time in which defendant's interests were at stake". Id. at 687. 50 For many cases in which prejudice has been presumed, the circumstances justifying that presumption are clearly discernible. See, e.g., Geders, 425 U.S. at 91 (court prevented defendant from consulting with counsel during overnight recess between defendant's direct and cross-examination); Hamilton, 368 U.S. at 55 (defendant denied counsel at arraignment); Hughes v. Booker, 220 F.3d 346, 352 (5th Cir. 2000) (attorney withdrew from representation of defendant on appeal without filing sufficient brief); United States v. Russell, 205 F.3d 768, 770-72 (5th Cir. 2000) (testimony implicating defendant in conspiracy presented during counsel's two-day absence due to illness); Blankenship v. Johnson, 118 F.3d 312, 317 (5th Cir. 1997) (appointed counsel did "nothing whatsoever" on state-requested discretionary appeal).1 51 Moreover, the presumptive prejudice exception to Strickland is a very narrow one. See Childress, 103 F.3d at 1229 ("constructive denial of counsel as described in Cronic affords only a narrow exception to the requirement that prejudice must be proved"); Craker v. McCotter, 805 F.2d 538, 542 (5th Cir. 1986) ("A constructive denial of counsel occurs... in only a very narrow spectrum of cases where the circumstances leading to counsel's ineffectiveness are so egregious that the defendant was in effect denied any meaningful assistance at all." (internal quotation marks and citation omitted)); Hollenback v. United States, 987 F.2d 1272, 1275 (7th Cir. 1993) ("cases in which an inherently prejudicial constructive absence of counsel has been found involve particularly egregious conduct that is the functional equivalent of actual absence of counsel"). 52 Prejudice has not been presumed for claims of denial of effective assistance of counsel due to counsel's alleged impairment because of alcohol, drug use, or a mental condition. See, e.g., Burnett v. Collins, 982 F.2d 922, 928-30 (5th Cir. 1993) (alcohol abuse); Berry v. King, 765 F.2d 451, 454 (5th Cir. 1985) (addiction to illegal drugs), cert. denied, 476 U.S. 1164 (1986); Buckelew v. United States, 575 F.2d 515, 521 (5th Cir. 1978) (poor health); Dows v. Wood, 211 F.3d 480, 485-86 (9th Cir.) (Alzheimer's disease), cert. denied, ___ U.S. ___, 121 S.Ct. 254, ___ L.Ed.2d ___ (2000); Smith v. Ylst, 826 F.2d 872, 875-76 (9th Cir. 1987) (mental illness), cert. denied, 488 U.S. 829 (1988); Hernandez v. Wainwright, 634 F. Supp. 241, 245 (S.D. Fla. 1986) (intoxication during trial), aff'd, 813 F.2d 409 (11th Cir. 1987). 53 Javor and Tippins do not fit comfortably within that framework. Nevertheless,both are distinguishable from the circumstances at hand. In Javor, there was evidence that defense counsel was asleep during a substantial portion of trial; counsel failed to participate when evidence against the defendant was being presented; counsel had stated to counsel for a co-defendant that he had missed some of the testimony; other counsel often "nudged" and "kicked" counsel to awaken him; and the judge was at times concerned about counsel's inattentiveness. Javor, 724 F.2d at 833- 34. In Tippins, there was evidence that Tippins' counsel slept every day of the trial, including during the testimony of a critical prosecution witness and during damaging testimony by a co-defendant; and the sleeping was noticed by both the trial judge and prosecutor, as well as jurors and witnesses, some of whom even heard him snoring. Tippins, 77 F.3d at 687-89. 54 In contrast, Cannon's sleeping was not nearly so obvious. As stated, the record does not permit identification of the portions of trial during which Cannon slept. We are, therefore, unable to determine if he slept, for example, during the presentation of uncontested, unobjectionable exhibits or testimony. Moreover, as noted, Cannon's sleeping, although noticed by the court reporter and several jurors, went unnoticed by the trial judge and prosecutor, and apparently even by Burdine, who sat next to Cannon throughout trial, but has never stated by affidavit or testified that he observed Cannon sleeping or dozing during trial. In fact, at the conclusion of trial, as also noted, Burdine requested that Cannon be appointed to represent him on appeal. 55 Burdine contends that presentation of any evidence against a criminal defendant in a capital murder trial is at a "critical stage" of the proceeding. Our court recently rejected a claim that the taking of any evidence at trial in the absence of counsel is prejudicial per se under Cronic, noting that it "does not so hold" and declining to fashion such a rule. Russell, 205 F.3d at 771. See also Vines v. United States, 28 F.3d 1123, 1128 (11th Cir. 1994) (rejecting defendant's contention that the taking of evidence is necessarily a critical stage of trial and declining to presume prejudice when no evidence directly inculpating defendant was presented while counsel was temporarily absent). 56 Although "Cronic does not provide significant guidance on which parts of trial are considered 'critical'", it provides some guidance for determining whether the absence of counsel is at such a stage: 57 First, there must be a denial of such significance that it makes the adversary process itself unreliable.... Second, the Cronic court makes clear that "only when surrounding circumstances justify a presumption of ineffectiveness can a Sixth Amendment claim be sufficient without inquiry into counsel's actual performance at trial." 58 Russell, 205 F.3d at 771 (quoting Cronic, 466 U.S. at 662 (emphasis in original)). Our court concluded that Russell's counsel was absent during a "critical stage" where, during that absence, the Government presented evidence implicating several of his co-conspirators, although not directly implicating Russell. Id. at 770-72. Our court explained that, under such circumstances, "[t]he adversary process becomes unreliable when no attorney is present to keep the taint of conspiracy from spreading to the client". Id. at 772. But, as noted, unlike in Russell, where the evidence presented during counsel's absence was easily identifiable, we cannot determine from the trial transcript or witness testimony at the state evidentiary hearing what evidence was being presented, or other activity was taking place, while counsel slept. 59 Voir dire took seven days. The balance of the trial lasted six: three for presentation of evidence in the guilt-innocence phase; one during which the jury was charged, closing arguments were made, and the jury reached its verdict for that phase; one for presentation of evidence inthe punishment phase; and one during which the jury was charged, closing arguments were made, and the jury reached its verdict for that phase. 60 Strickland, the jury foreman, testified at the state habeas evidentiary hearing that: on several occasions Cannon appeared to "nod off" or "doze"; he noticed the dozing "more than two, but maybe not more than five times"; the dozing occurred during the guilt-innocence phase, typically in the afternoon, after the lunch recess, when witnesses were being questioned or other evidence was being presented; and the observed episodes were 30 seconds or less in length. 61 Davis, another juror, testified at the hearing that she noticed Cannon repeatedly falling asleep during "quite a bit" of the guilt-innocence phase, especially during the afternoon of the second and third days of testimony. 62 Another juror, Engelhardt, testified that, on five or ten occasions, covering both phases of trial, he noticed Cannon "nodding" or "dozing"; and, on one occasion, Cannon had his eyes closed and his head bowed for at least ten minutes. But, Engelhardt could not remember what was occurring at the time of the incidents or whether they were in the morning or afternoon. 63 Berry, a court clerk assigned to assist the trial judge, testified that she witnessed Cannon sleeping "a lot" and "for long periods of time" during questioning of witnesses; the longest instance was at least ten minutes; and there were "lots of incidents" when Cannon dozed for shorter periods. 64 As discussed below, an obvious possible critical stage would be the ten-minute period, or periods, during which, according to two witnesses, Cannon slept; but, as noted, that period, or those periods, cannot be tied to a particular point during the trial. Examining the trial transcript and minutes in conjunction with the above-described testimony, we simply are unable to determine when Cannon slept, much less whether he did so during the presentation of contested, inculpatory evidence. Burdine conceded this at oral argument. 65 The presentation of evidence commenced at 10:50 a.m. on Monday, 23 January 1984. The State's first witness, a homicide detective, testified about his investigation of the murder and the discovery of the victim's body. Direct examination was completed when the court recessed at noon for lunch, and covers pages 27-80 of the transcript. The transcript and minutes reflect the following activity involving Cannon during that direct examination: he objected (page 43); the jury retired while the court reporter marked 34 exhibits (pages 45-46); Cannon requested time to examine photographs and, at 11:22 a.m., made objections, outside the presence of the jury, to some of the exhibits (pages 50-53); the jury returned at 11:29 a.m. (page 54); Cannon objected (pages 69-70); and Cannon questioned the witness on voir dire (pages 73-79). 66 Trial resumed at 1:30 p.m., Cannon's cross-examination of the homicide detective covering pages 83-90 of the transcript. The State's redirect is at pages 90-98, with Cannon speaking on the record at 91, 92, 95, and 97. Cannon's recross is at 99-101; further redirect, at 101-02. 67 The State's next witness, the medical examiner, testified regarding the victim's wounds and cause of death. For the direct examination, which covers pages 103-19, Cannon objected at 109 and 118; his cross-examination covers pages 119-23. The State's redirect covers 123-29, interrupted at 126-27 by a bench conference requested by Cannon. Cannon conducted recross at page 130. A bench conference outside the hearing of the court reporter was conducted at page 131. 68 The State's final witness for the first day of testimony was a detective, who testified regarding tracing the victim's stolen gun. The direct examination coverspages 131-37; Cannon's cross, 137-38. After the jury was excused for the day (2:57 p.m.), the trial judge began a hearing on the admissibility of Burdine's confession. 69 The State's presentation of evidence resumed at 10:17 a.m. on Tuesday, 24 January, following completion of the admissibility hearing. The State's first witness was the manager of the pawn shop where, following the murder, Burdine pawned a ring. Direct examination covers pages 204-10; cross-examination, 210-12. 70 The next witness on this second day of testimony, a bank security administrator, authenticated a tape showing Burdine, following the murder, withdrawing money from an automatic teller machine. Direct examination covers pages 212-19, and includes showing the tape to the jury. At page 216, Cannon stated he had no objection to the tape; at 220, no questions for that witness. 71 The State's next witness was an automatic teller machine coordinator for a credit union where, following the murder, Burdine withdrew money from the victim's account. The direct examination covers pages 220-23. At 223, Cannon stated he had no questions for the witness, and a bench conference was conducted outside the hearing of the court reporter. At pages 224 and 226, Cannon stated that he had no objections to the tape of the ATM transaction. 72 The State's next witness was the owner of the California shop where, following the murder, Burdine sold the victim's gun. The direct examination covers pages 226-36, interrupted by Cannon's objections at 229 and 235. At 236, Cannon stated he had no questions for the witness. At 237, a bench conference was conducted outside the hearing of the court reporter. 73 The State recalled its first witness from the first day of testimony, the homicide detective. He testified about Burdine's custodial statement in California. Direct examination was conducted until the court recessed for lunch at 11:53 a.m. (page 257), and continued when trial resumed at 1:48 p.m.; it covers pages 237-63. For the pre-noon-recess testimony, covering 237-57, the record reflects activity by Cannon at 255 and 256; following the recess, at 259-60 and 262. Cannon's cross-examination appears at 264-75. The State's redirect, at 276-81, was interrupted by an objection by Cannon (page 278). Cannon's recross covers 281-83. 74 The State's next witness, a receptionist at the security service where both the victim and Burdine worked, testified regarding Burdine's use of an alias during that employment. Direct examination covers pages 283-90; at 287, Cannon stated he had no objection to an exhibit. His cross-examination covers 291-92. 75 The next witness was the California detective who arrested Burdine. Direct examination covers pages 293-302. Cannon requested a bench conference, and the court was in recess from 2:46 p.m. until 3:24 p.m. Cannon cross-examined the witness on page 304, after which another bench conference was conducted. 76 The final witness for the second day of testimony was the victim's roommate, who testified about his relationships with the victim and Burdine, his discovery of the victim's body, and various items of property taken in the robbery. Direct examination covers 305-37, interrupted by one objection by Cannon at 316. 77 During that direct examination, and at the request of a juror, court was in recess from 4:05 p.m. until 4:16 p.m. Thereafter, Cannon cross-examined the witness at pages 337-49. The State's redirect covers pages 349-52; Cannon's recross, 353-54. After the State rested at 4:31 p.m., the jury was excused for the day. 78 On Wednesday, 25 January, the third day of testimony, Cannon moved for an instructed verdict (judgment of acquittal) outside the presence of the jury. At 10:17 a.m., when the jury was brought into thecourtroom, the State re-opened to offer exhibits, and again rested. 79 Burdine testified on direct examination at pages 363-418. His cross-examination, at 419-90, was interrupted by a bench conference, at page 485, and the noon recess, which lasted from 12:38 p.m. until 2:20 p.m. Only the last five pages of the State's cross-examination were conducted following the recess. Cannon conducted redirect of Burdine at pages 491-95. Burdine rested at 2:33 p.m. 80 In rebuttal, the State called another detective, who testified regarding Burdine's custodial statement in California. The State's direct examination covers pages 496-512, interrupted by objections by Cannon at 504, 507, and 508-09. Cannon's cross-examination covers 513-15. Following a very brief redirect examination by the State, Cannon requested a bench conference (pages 517-18), which lasted from 2:56 until 3:12 p.m., following which the State rested. Cannon then called one additional witness on behalf of Burdine. After both sides rested at 3:15 p.m., the jury was excused for the day. 81 The next day of trial (after three days of testimony) began at 10:50 a.m. on Thursday, 26 January. After the charge was read to the jury, the State presented its initial closing argument from 11:02 until 11:37 a.m. Cannon presented closing argument from 11:37 a.m. until 12:07 p.m.; and the State presented its final closing argument from 12:07 until 12:15 p.m., following which the jury retired to deliberate. The jury returned a guilty verdict at 2:10 p.m. and court recessed for the day. 82 Punishment phase proceedings began at 10:30 a.m. the next day, Friday, 27 January. The State presented the testimony of four witnesses between 10:30 and 11:05 a.m., covering pages 607-36, and then rested. The record reflects activity by Cannon at 608, 609, 616, 618, 621, 622-23, 624, 625-26, 626, 627, 629, 631, and 635-36. Following a recess, court reconvened at 11:28 a.m., at which time Burdine rested without presenting any evidence. Court was recessed until the following Monday. 83 On Monday, 30 January, proceedings commenced at 10:40 a.m., when the punishment phase charge was read to the jury. The State presented its initial argument from 10:45 until 11:15 a.m.; Cannon, 11:15 until 11:44 a.m.; and the State, 11:44 until 11:53 a.m. The jury retired to deliberate and reach a verdict on punishment. 84 As reflected in this detailed examination of the trial transcript, there are very few long stretches of transcript in which no activity by Cannon is reflected. Portions of the transcript reflecting no such activity involve the presentation of contested, inculpatory evidence, as well as uncontested testimony and exhibits, where Cannon's attentive participation was irrelevant to the quality of Burdine's defense. 85 For example, during direct examination of the first witness for the State, the prosecution introduced 31 crime scene photographs and questioned the witness about each one individually. Although the record reflects no activity by Cannon at 55-65, he had already examined the photographs outside the presence of the jury; he had objections to only six of the photographs; and the court had already overruled those objections. 86 Following the lunch recess on the second day of trial, the prosecution introduced 46 photographs of property recovered after Burdine's arrest, and questioned the detective about whether each photograph accurately depicted the items found. Those photographs were admitted into evidence without objection. The prosecutor questioned the victim's roommate about much of that same photographic evidence. 87 Another period during which no activity is reflected for Cannon was during the State's cross-examination of Burdine. As noted, for the 72 pages of cross, only five follow the lunch recess, when counsel's sleeping might be more likely. As also noted, Cannon's defense strategy was thatthe acts of violence were committed by the other actor; and that the victim had taken advantage of Burdine in the homosexual relationship, by depositing Burdine's pay checks into his (the victim's) account and spending Burdine's money, and by attempting to persuade Burdine to prostitute himself. 88 Obviously, a great number of trial strategy considerations, including frequency of objections during cross-examination, are at play when a criminal defendant elects to testify, especially, on the facts in this case, with Burdine admitting being present at the murder. For example, Cannon did not object when, on cross, Burdine was asked about a possible characteristic of a homosexual relationship; this decision was arguably consistent with his defense strategy. Moreover, to have objected at certain points might have caused the jury to feel Cannon was trying to prevent Burdine from presenting relevant information; on the other hand, Cannon's not objecting might have been understood by the jury as showing Burdine had nothing to hide. Deciding whether to object is, in many instances, simply a classic example of trial strategy. 89 In the light of these examples, it is possible that unobjectionable evidence (or evidence which Cannon was already anticipating) may have been introduced while Cannon slept, without having any substantial effect on the reliability or fairness of Burdine's trial. But, Burdine essentially asks us to assume that Cannon slept during the portions of the proceedings for which the transcript reflects no activity by him. In the light of the foregoing discussion and the rather vague testimony of the witnesses at the state habeas evidentiary hearing regarding when Cannon slept, it would be inappropriate for us to engage in such speculation. In sum, on this record, we cannot determine whether Cannon slept during a "critical stage" of Burdine's trial. 90 Because of the different circumstances presented by Burdine's claim, we need not decide whether, if presented with circumstances analogous to those in Javor and Tippins, it would be appropriate to presume prejudice. Instead, we hold that, under the above described circumstances, presumptive prejudice is not warranted. 91 Of course, our rejecting Burdine's presumptive prejudice claim should not be understood as condoning sleeping by defense counsel during a capital murder trial (or any other trial, for that matter). Again, we hold only that, under the specific circumstances of this case, in which it is impossible to determine -- instead, only to speculate -- that counsel's sleeping was at a critical stage of the trial, prejudice cannot be presumed; the Strickland prejudice analysis is adequate to safeguard the Sixth Amendment guarantee of effective assistance of counsel. C. 92 The State maintains that the district court's application of a prejudice presumption conflicts with Brecht v. Abrahamson, 507 U.S. 619, 631 (1993) (on collateral review, trial error requires reversal only if it had a "substantial and injurious effect or influence in determining the jury's verdict" (internal quotation marks and citation omitted)). In the light of our reversal of the presumption of prejudice, and remand for analysis under Strickland, it is not necessary to address this contention. 93 Nevertheless, in our supervisory role, we simply acknowledge that our court has rejected such a contention, holding that, once it is determined a constructive denial of counsel has occurred, and prejudice is presumed, it is inappropriate to apply harmless error analysis. Barrientes v. Johnson, 221 F.3d 741, 756 (5th Cir. 2000) (Brecht harmless error analysis unnecessary when inquiry for habeas claim requires application of "reasonable probability" standard, such as for Strickland claims (citing Kyles v. Whitley, 514 U.S. 419, 435-36, 115 S.Ct. 1555, 131 L.Ed.2d 490(1995)); Hughes v. Booker, 220 F.3d at 353 (once court determines that defendant has been constructively denied counsel, harmless error analysis is unnecessary). Cf. Murphy v. Puckett, 893 F.2d 94, 96 (5th Cir. 1990) (Chapman harmless error analysis inapplicable where habeas petitioner has shown that prejudice, as defined in Strickland, resulted from counsel's deficient representation). III. 94 For the foregoing reasons, the habeas relief is VACATED, and this case is REMANDED to the district court for further proceedings. VACATED and REMANDED NOTES: 1 For additional instances of such presumed prejudice, see Harris v. Day, 226 F.3d 361, 362 (5th Cir. 2000) (counsel on direct appeal filed "errors patent" brief and subsequently withdrew, filing brief that failed to mention any arguable issues); Childress, 103 F.3d at 1231-32 (defense counsel appointed solely to execute defendant's waiver of jury trial and performed no other service for defendant); United States v. Taylor, 933 F.2d 307, 312 (5th Cir.) (court denied defendant's request to withdraw waiver of counsel and defendant assisted by standby counsel at sentencing), cert. denied, 502 U.S. 883 (1991); United States v. Patterson, 215 F.3d 776, 785-86 (7th Cir. 2000) (counsel was absent multiple days of trial at which defendant was accused of conspiring with other defendants); Frazer v. United States, 18 F.3d 778, 783 (9th Cir. 1994) (appointed counsel called defendant "stupid nigger son of a bitch" and threatened to provide substandard performance if defendant chose to exercise right to trial); United States v. Swanson, 943 F.2d 1070, 1071-74 (9th Cir. 1991) (during closing argument, counsel conceded no reasonable doubt existed as to only factual issues in dispute); Harding v. Davis, 878 F.2d 1341, 1345 (11th Cir. 1989) (counsel failed to object when trial court directed verdict against defendant); Siverson v. O'Leary, 764 F.2d 1208, 1217 (7th Cir. 1985) (counsel absent during jury deliberations and return of verdict); Martin v. Rose, 744 F.2d 1245, 1250-51 (6th Cir. 1984) (counsel refused to participate in trial because believed erroneously such participation would waive pretrial motions or render their denial harmless error). BENAVIDES, Circuit Judge, dissenting: 95 We have a state court finding that counsel slept "during portions of [Calvin Burdine's capital murder] trial on the merits, in particular during the guilt-innocence phase when the State's solo prosecutor was questioning witnesses and presenting evidence." Although the Texas Court of Criminal Appeals rejected Burdine's habeas application, it found that the trial court's findings (i.e., "defense counsel repeatedly dozed and/or actually slept during substantial portions of [Burdine's] capital murder trial") were supported by the record. Additionally, the State concedes that we are bound by those findings of fact. 96 It is well established that a defendant "requires the guiding hand of counsel at every step in the proceedings against him." Powell v. Alabama, 287 U.S. 45, 69, 53 S.Ct. 55, 64 (1932). I conclude that being represented by counsel who slept through substantial portions of a client's capital murder trial violates the Sixth Amendment right to counsel, and, thus, Burdine should be entitled to a new trial with the benefit of counsel who does not sleep during substantial portions of his trial. In my opinion, it shocks the conscience that a defendant could be sentenced to death under the circumstances surrounding counsel's representation of Burdine. I. RETROACTIVITY ANALYSIS 97 I disagree with the majority's conclusion that Burdine's claim creates a new rule under Teague v. Lane, 489 U.S. 288, 310, 109 S.Ct. 1060, 1075 (1989). Although the majority believes that Burdine's case does not fall within an exception to Teague, it nonetheless assumes that it does and addresses the merits of Burdine's claim. 98 I, on the other hand, am convinced that granting relief on Burdine's claim does not require announcing a new constitutional rule of criminal procedure. With respect to the merits of the claim, I believe that the undisputed state court findings warrant presuming prejudice without delving into counsel's actual performance at trial. 99 In Teague, a plurality of the Supreme Court espoused Justice Harlan's view of retroactivity that a new rule would not be applied on collateral review to cases that became final prior to the announcement of the new rule. Acknowledging that the task of determining whether a case announces a new rule is often difficult, the plurality expressly did not "attempt to define the spectrum of what may or may not constitute a new rule" for purposes of retroactivity. Teague, 489 U.S. at 301, 109 S.Ct. at 1070. Generally speaking, however, a case announces a new rule if it breaks new ground or imposes a heretofore new obligation on the States or the federal government. Id. In other words, if the result was not dictated by precedent existing at the time the petitioner's conviction became final, such a case announces a new rule. 100 Shortly thereafter, the plurality's retroactivity analysis became part of the holding in Penry v. Lynaugh, 492 U.S. 316, 109 S.Ct. 2934 (1989). The analysis in Penry is instructive with respect to what constitutes a new rule under Teague. Penry claimed thatthe jury was unable to fully consider and give effect to mitigating evidence of his mental retardation and childhood abuse when it answered the three statutory special issues at sentencing in violation of the Eighth Amendment. Penry did not make a facial challenge to the Texas death penalty statute. Of course, prior to Penry, the Supreme Court had upheld the statute against a facial, Eighth Amendment challenge in Jurek v. Texas, 428 U.S. 262, 96 S.Ct. 2950 (1976). 101 Instead, Penry claimed that, "on the facts of [his] case, the jury was unable to fully consider and give effect to the mitigating evidence... in answering the three special issues." 492 U.S. at 315, 109 S.Ct. at 2945 (emphasis added). The Supreme Court opined that such a claim for relief did not impose a new obligation on Texas. "Rather, Penry simply asks the State to fulfill the assurance upon which Jurek was based: namely, that the special issues would be interpreted broadly enough to permit the sentencer to consider all of the relevant mitigating evidence a defendant might present in imposing sentence." Id. 102 In the case at bar, I believe that Teague does not bar Burdine's claim for relief because it is simply a request to enforce his Sixth Amendment right to have effective assistance of counsel at every critical stage of his capital murder trial.1 Burdine's claim is that, on the facts of his case, he was denied counsel. 103 Prior to Burdine's conviction becoming final, the Supreme Court held that, to prevail on an ineffective assistance of counsel claim, a petitioner must demonstrate that counsel's performance was deficient and that the deficient performance prejudiced the defense. Strickland v. Washington, 466 U.S. 668, 104 S.Ct. 2052 (1984). However, the same day the Supreme Court decided Strickland, it also decided United States v. Cronic, 466 U.S. 656, 104 S.Ct. 2039 (1984). In Cronic, the Supreme Court opined that "in some cases the performance of counsel may be so inadequate that, in effect, no assistance of counsel is provided. Clearly, in such cases, the defendant's Sixth Amendment right to have Assistance of Counsel is denied." 466 U.S. 656, 104 S.Ct. at 2044 n.11 (internal quotation marks and citation omitted). The Supreme Court explained that although the petitioner generally bears the burden of demonstrating a constitutional violation, there are "circumstances that are so likely to prejudice the accused that the cost of litigating their effect in a particular case is unjustified." Id. at 658, 104 S.Ct. at 2046. Stating what it termed obvious, the Court explained that a complete denial of counsel would warrant a presumption of prejudice. Id. at 659, 104 S.Ct. at 2046. Because our system of justice deems essential the assistance of counsel, "a trial is unfair if the accused is denied counsel at a critical stage of his trial." Id. Likewise, "if counsel entirely fails to subject the prosecution's case to meaningful adversarial testing, then there has been a denial of Sixth Amendment rights that makes the adversary process itself presumptively unreliable." Id. The Court explained that "only when surrounding circumstances justify a presumption of ineffectiveness can a Sixth Amendment claim be sufficient without inquiry into counsel's actual performance at trial." Id. at 662, 104 S.Ct. at 2048. Ultimately, in Cronic, the Supreme Court held the circumstances of the case (inexperienced counsel was given only 25 days to prepare for trial on complex mail fraud charges) did not warrant presuming prejudice.2 104 The rule I glean from Cronic is that we must look to the circumstances surrounding counsel's representation (or lack thereof) to determine whether a presumption of prejudice is warranted. That is the rule I believe should be applied to Burdine's case. Such a rule by its nature requires a case-by-case determination. As Justice O'Connor has opined, "[i]f a proffered factual distinction between the case under consideration and pre-existing precedent does not change the force with which the precedent's underlying principle applies, the distinction is not meaningful, and any deviation from precedent is not reasonable." Wright v. West, 505 U.S. 277, 304, 112 S.Ct. 2482, 2497 (1992) (O'Connor, J., concurring). Because Cronic was decided prior to Burdine's conviction becoming final, Teague poses no bar to applying the rule in Cronic.3 105 We recently applied Cronic to an appeal from a 28 U.S.C. § 2255. See United States v. Russell, 205 F.3d 768 (5th Cir. 2000). In that case, Russell, along with 16 codefendants, was on trial for conspiracy to possess drugs and conspiracy to launder money. Several days into the trial, Russell's counsel fell ill and was absent for two days before returning to trial. An attorney for a codefendant represented to the court that he had Russell's permission to represent Russell that one day. The district court neither apprised Russell of his rights nor made any inquiries of Russell on or off the record. We stated that it was unclear whether the district court accepted counsel's attempt to offer to represent Russell. Russell, 205 F.3d at 769-71. Thus, we concluded that Russell did not have counsel and did not waive his right to counsel for the two days in question. After instructing the government that no evidence directly relating to Russell be presented during counsel's absence, the court allowed the trial to continue. 106 On appeal from the denial of his section 2255 motion, Russell urged this Court to hold that the taking of any evidence at trial in the absence of counsel warrants a presumption of prejudice under Cronic. We disagreed. Id. at 771. Instead, we recognized Cronic held that because the guiding hand of counsel is essential, "`a trial is unfair if the accused is denied counsel at a critical stage of his trial.'" Id. (quoting Cronic, 466 U.S. at 658, 104 S.Ct. at 2047). We further opined that although Cronic did not provide much guidance with respect to what parts of a trial are "critical," it did make clear the following: 107 First, there must be a denial of such significance that it makes the adversary process itself unreliable. [Cronic, 466U.S. at 659, 104 S.Ct. at 2047]. Second, the Cronic court makes clear that "only when surrounding circumstances justify a presumption of ineffectiveness can a Sixth Amendment claim be sufficient without inquiry into counsel's actual performance at trial." 108 205 F.3d at 771 (quoting Cronic, 466 U.S. at 662, 104 S.Ct. at 2048). We concluded that the adversary process was unreliable because counsel was not "present to keep the taint of conspiracy from spreading to the client." Id. at 772. Thus, we held that counsel's absence was at a critical stage of the trial and presumed prejudice. 109 Here, the majority attempts to distinguish Russell on the basis that the evidence presented during the absence of counsel in that case was easily identifiable, but in this case, "we cannot determine from the trial transcript or witness testimony at the state evidentiary hearing what evidence was being presented, or other activity was taking place, while counsel slept." Maj. op. at 25. In Burdine's case we have a state court finding that counsel slept "during portions of [Burdine's] trial on the merits, in particular during the guilt-innocence phase when the State's solo prosecutor was questioning witnesses and presenting evidence." Although we may not specifically know what evidence was being presented while counsel was slumbering, we know that it was being presented by the State against Burdine. In Russell, pursuant to the district court's instruction, the government was presenting evidence that directly related to his co-conspirators, not Russell. I recognize, as we did in Russell, that evidence against co-conspirators "inferentially increased the taint of guilt of Russell." 205 F.3d at 772. Nonetheless, certainly the evidence presented while counsel slept at Burdine's trial at the very least inferentially increased the taint of Burdine's guilt because he was the only defendant on trial. Indeed, it is arguably a more egregious Sixth Amendment violation to have counsel sleeping while evidence is presented against his client than to have counsel physically absent while evidence is presented against his client's coconspirators. 110 In the instant case, I believe the state court findings with respect to counsel sleeping during trial demonstrate a denial of such significance that the adversary process was rendered unreliable. These factual findings justify a presumption of prejudice without delving into counsel's actual performance at trial.4 111 In other words, I do not believe that Teague bars the claim to the extent Burdine argues he is entitled to a presumption of prejudice because counsel slept during trial such that there was a denial of counsel at a critical stage of his trial. Thus, the question is whether Burdine's claim rises to this level. II. CONSTRUCTIVE DENIAL OF COUNSEL 112 Both the majority and the State purport to accept the state trial court's findings that defense counsel slept during substantial portions of Burdine's trial.5 Nevertheless,both the majority and the State painstakingly conduct a page-by-page review of the trial record in an apparent attempt to demonstrate that counsel was awake during significant portions of the trial.6 Indeed, after chronicling the activity at trial, the majority states that "there are very few long stretches of transcript in which no activity by Cannon is reflected." Maj. op. at 32 (emphasis in original). The majority further states that "[p]ortions of the transcript reflecting no such activity involve the presentation of contested, inculpatory evidence, as well as uncontested testimony and exhibits, where Cannon's attentive participation was irrelevant to the quality of Burdine's defense." Id. I simply cannot agree with the majority's statement that counsel's attentive participation during the admission of evidence against a defendant on trial for capital murder was irrelevant to the quality of Burdine's defense. Additionally, the majority speculates regarding whether some of counsel's silence was attributable to any number of trial strategy considerations. Id. at 31. I believe such speculation is inappropriate because, as recognized by the Second Circuit, "the buried assumption in our Strickland cases is that counsel is present and conscious to exercise judgment, calculation and instinct, for better or worse. But that is an assumption we cannot make when counsel is unconscious at critical times." Tippins v. Walker, 77 F.3d 682, 687 (2d Cir. 1996). 113 To me, once we have accepted as presumptively correct the state court's finding that counsel slept "during portions of [Burdine's] trial on the merits, in particular during the guilt-innocence phase when the State's solo prosecutor was questioning witnesses and presenting evidence," there is no need to attempt to further scrutinize the record. See Javor v. United States, 724 F.2d 831, 834 (9th Cir. 1984) (holding that "[w]hen a defendant's attorney is asleep during a substantial portion of his trial, the defendant has not received the legal assistance necessary to defend his interests at trial" and thus, prejudice must be presumed).7 The factual findings made during Burdine's state habeas proceedings demonstrate that there was a denial ofsuch significance that it made the adversary process unreliable, and, thus, a presumption of prejudice is warranted.8 Thus, based on the state court's findings that have been accepted by all as presumptively correct, I would affirm the district court's grant of federal habeas corpus relief, vacate the capital murder conviction, and allow the State to retry Burdine. Notes: 1 Cf. Bousley v. United States, 523 U.S. 614, 620, 118 S.Ct. 1604, 1610 (1998) (rejecting the argument that the petitioner's claim that his guilty plea was not knowing and intelligent was barred by Teague in part because "[t]here is surely nothing new about this principle...."). 2 The State urges that the instant claim requires a new rule because in Cronic, the Court did not presume prejudice. Thus, the State argues, the language in Cronic with respect to presuming prejudice is dictum. However, the Court noted that it had "uniformly found constitutional error without any showing of prejudice when counsel was either totally absent, or prevented from assisting the accused during a critical stage of the proceeding." Cronic, 466 U.S. at 659 n.25, 104 S.Ct. at 2047 n.25 (citations omitted). Moreover, prior to Burdine's conviction becoming final, we recognized the law was "well settled that a criminal defendant is entitled to counsel at every stage of a criminal proceeding where substantial rights are involved." Davis v. Estelle, 529 F.2d 437, 439 (5th Cir. 1976) (citing Gideon v. Wainwright, 372 U.S. 335, 83 S.Ct. 792 (1963)). 3 The State argues that the district court erred in relying on "Cronic's reference to the `denial' of counsel at a critical stage" because the Supreme Court "limited this language to denials of counsel that were attributable to the State or to the total failure of counsel to participate in the trial." No presumption of prejudice is warranted, posits the State, because there was neither a total failure to participate nor was the State responsible for Cannon's sleeping during portions of Burdine's trial. Although at first blush some of the language in Cronic appears to support the proposition that the State must be responsible for denying the presence of counsel at a critical stage of the trial, further reading of the opinion dispels that view. Specifically, the Court noted that the "fact that the accused can attribute a deficiency in his representation to a source external to trial counsel does not make it any more or less likely that he received the type of trial envisioned by the Sixth Amendment, nor does it justify reversal of his conviction absent an actual effect on the trial process or the likelihood of such an effect." Cronic, 466 U.S. at 662 n.31, 104 S.Ct. at 2048 n.31. 4 The majority takes pains to point out that Burdine failed to raise this claim until nearly eleven years after his trial. I am unsure of the relevance of this fact with respect to our analysis of the claim inasmuch as the state habeas court reached the merits of it and imposed no procedural bar to our addressing it. Also, the majority stresses that Burdine requested that Cannon represent him on direct appeal. Maj. op. at 14. I believe this fact is irrelevant in light of the Supreme Court edict that "we attach no weight to either [the defendant's] expression of satisfaction with counsel's performance at the time of his trial, or to his later expression of dissatisfaction." Cronic, 466 U.S. at 657, 104 S.Ct. at 2046. 5 The state court set forth the following evidence supporting his finding: Three members of the jury [Daniel Strickland, Myra Young Davis, and Craig Englehardt] and the clerk of the court [Rose Marie Berry] testified that they witnessed defense counsel repeatedly "nod off" or doze during the trial. All three jurors and the clerk testified that they saw Cannon's head repeatedly "bob" or "nod" in a manner that is peculiar to a person who is in the process of falling asleep; according to all the witnesses, this happened on more than one day of the trial, typically in the afternoon. Two of three jurors... and the clerk testified that on at least one occasion they watched defense counsel's head actually tilt down to his chest for a significant period of time, which gave the unmistakable impression that he was actually sleeping; Juror Engelhardt and the clerk, Berry, estimated that defense counsel's head rested against his chest for at least 10 minutes on one particular occasion during trial. Berry saw defense... counsel's head rest against his chest on other occasions shorter than 10 minutes. Both Berry and Juror Davis stated that they continuously watched defense counsel for long periods of time and it was clear that he either was in the process of dozing off or was actually sleeping. The Court finds the most compelling witness was the former clerk of court, Rose Marie Berry. In addition to being credible and having no motive to misrepresent the truth, Berry had the best opportunity of any participant at trial to observe defense counsel during trial, as her testimony and Defense Exhibit #1A demonstrates, she was approximately 10-12 feet... from defense counsel. Unlike the trial judge, prosecutor, and jurors, Berry was not required to pay attention to witnesses who were testifying; indeed, from her vantage point, she could not even see the witnesses. Berry adamantly testified that she watched defense counsel continuously during the periods she observed him sleeping. (footnotes omitted)(brackets in original). 6 I would note that simply because counsel orally responded when addressed during trial does not necessarily indicate that he had been awake and attentive immediately prior to the exchange on the record. At the 1995 state habeas evidentiary hearing, two witnesses testified that, on different occasions during trial, counsel was awakened when the trial court or the prosecutor addressed him. Also, on occasion, Cannon's response was somewhat delayed because he had been asleep immediately prior to being addressed. 7 See also Tippins, 77 F.3d 682 (presuming prejudice based on evidence that defense counsel was asleep for numerous extended periods during testimony of witnesses). 8 As the majority provides, the State's claim that the district court's application of a presumption of prejudice conflicts with Brecht v. Abrahamson, 507 U.S. 619, 631 (1993), is without merit. See Hughes v. Booker, 220 F.3d 346, 353 (5th Cir. 2000) (explaining that once we determine that defendant has been constructively denied counsel, any harmless error analysis is unnecessary).	LIMITED_OR_DISTINGUISHED

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