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https://www.courtlistener.com/api/rest/v3/opinions/1815229/ | 220 F.Supp. 217 (1963)
Dwight ARMSTRONG et al., Plaintiffs,
v.
The BOARD OF EDUCATION OF the CITY OF BIRMINGHAM, JEFFERSON COUNTY, ALABAMA, et al., Defendants.
Agnes NELSON and Oswald Nelson, Minors, etc., Plaintiffs
v.
The BOARD OF EDUCATION OF the CITY OF BIRMINGHAM, ALABAMA, et al., Defendants.
Civ. A. Nos. 9678, 10188.
United States District Court N. D. Alabama, S. D.
May 28, 1963.
W. L. Williams, Jr., Birmingham, Ala., and Ernest D. Jackson, Sr., Jacksonville, Fla., for plaintiffs.
*218 J. M. Breckenridge, City Atty., Cabaniss & Johnston, Joseph F. Johnston, Lange, Simpson, Robinson & Somerville, Reid B. Barnes and Ormond Somerville, Birmingham, Ala., for defendants.
LYNNE, District Judge.
When the Armstrong case (C.A. 9678) was called for trial on October 3, 1962, plaintiffs in the Nelson case (C.A. 10,188) moved for an order of consolidation or joint trial. Since it appeared that these actions involved common questions of law and fact the court entered an oral order consolidating them for purpose of trial only and expressly provided therein that all evidence offered and all objections thereto on any grounds made by any party would be deemed to have been offered and made in each case separately.
Resting jurisdiction upon 28 U.S.C.A. § 1343(3) and proceeding under 42 U.S. C.A. § 1983, plaintiffs in each case brought a class action against defendants essentially to enjoin them from continuing their policy, practice, custom and usage of operating a compulsory biracial school system in the City of Birmingham.
By stipulation of all counsel of record each case was submitted for the judgment of the court upon the prayer for final injunctive relief upon the pleadings and the proof. While written answers in behalf of defendants had not been filed in the Nelson case it was orally stated that their answers in the Armstrong case tendered all relevant issues except for the insistence that plaintiffs in the Nelson case had no standing to maintain their action for vindication of their individual rights or to represent a class.
Faced with this threshold question, the court directed that evidence first be offered relating to the status of the Nelson children, Agnes and Oswald, of the ages of sixteen and twelve, respectively. Consisting entirely of the testimony of their father, Reverend T. N. Nelson, careful consideration thereof results in the finding of the court that each of such children had departed Birmingham for Detroit several weeks before the filing of the complaint in their behalf; that throughout the trial they were living there with their sister and attending the public schools of Wayne County, Michigan, and that there is no reasonable probability of their return to Birmingham.
Since the father has no standing to sue for the deprivation of the civil rights of his children, Brown v. Board of Trustees of LaGrange Ind. Sch. Dist., 187 F.2d 20 (5th Cir. 1951) and the children, recognized as the real parties plaintiff, were not at the time of the filing of the complaint and are not now pupils in or affected by the public school system of Birmingham, it follows that neither has shown an injury to himself and that neither has standing to represent the class. McCabe v. Atchison, T. & S. F. Ry. Co., 235 U.S. 151, 35 S.Ct. 69, 59 L.Ed. 169 (1914); Doremus v. Board of Education, 342 U.S. 429, 432, 72 S.Ct. 394, 96 L.Ed. 475 (1952); Bailey v. Patterson, 369 U.S. 31, 82 S.Ct. 549, 7 L.Ed. 2d 512 (1962); Conley v. Gibson, 29 F.R.D. 519 (S.D.Texas, 1961).
Therefore, a separate order will be entered in the Nelson case vacating the consolidation and dismissing the action for plaintiffs' lack of standing to sue without prejudice, however, to their right to intervene or file a supplemental complaint in the Armstrong case in the event of the return of either to Birmingham, as will hereinafter more fully appear.
With respect to standing to complain, matters stand differently in the Armstrong case. Although it was stipulated at the trial that the Shuttlesworth children, Ruby Fredericka and Fred L. Jr., and Carolyn Nash are no longer in the Birmingham public school system and do not intend to return thereto, it is undisputed that the Armstrong children, Dwight, Denise, James, Jr. and Floyd, have continuously been and are presently enrolled in such system. They have an equitable right to maintain this suit as a class action.
Plaintiffs rely upon undisputed facts in the record which are reproduced in capsulated form. The white population of Birmingham is 205,620; the Negro, 135,627. There are 8 high schools designated *219 "White" with 409 teachers and 10,081 pupils; 5 high schools designated "Negro" with 278 teachers and 6,748 pupils; 50 elementary schools designated "White" with 781 teachers and 29,578 pupils; 42 elementary schools designated "Negro" with 697 teachers and 26,967 pupils. Never at any time has a Negro pupil been assigned or transferred to a school designated "White" or a white pupil to a school designated "Negro". Without exception white instructional personnel have been assigned only to schools designated "White" and Negro instructional personnel only to schools designated "Negro". White schools are located with reference to the concentration of white population and Negro schools with reference to the concentration of Negro population. There are overlappings in the geographical areas involved wherein there are white schools in closer proximity to the residences of Negro pupils than Negro schools. The reverse situation obtains with respect to white pupils. Notwithstanding, the custom, usage and practice historically followed, sanctioned and expected by Superintendent and Board to be followed presently, result in white pupils attending white schools and Negro pupils Negro schools.
To summarize, it graphically appears from the testimony of Dr. Theo R. Wright, Superintendent of Birmingham Public Schools, that he and the Birmingham Board of Education have operated a segregated school system based upon race in the past, are doing so now, and have formulated no plans to discontinue such an operation.
For their part, the real defendants, Superintendent and Board, advert to the allegation of the complaint that "the plaintiffs herein have not exhausted the administrative remedy [sic] provided by the Alabama School Placement Law"[1] and point to the uncontroverted evidence in this record that at no time has any Negro child, or anyone authorized to act in his behalf, applied for enrollment in or transfer to any school designated "White" and pursued the remedies afforded by such statute. Their reluctance to take the initiative in bringing about the integration of the public schools stems from something more than blind adherence to tradition. There is undisputed evidence in this record that there is a "very strong opposition" on the part of "citizens of all races" to the mixing of the different races in the schools. In addition, all witnesses who have been intimately associated with the operation of the local system over the period of many years expressed the opinion that indiscriminate mixing of the races would create many problems that would be detrimental to the interests of both groups, predicting the results of such a procedure by the use of adjectives ranging from "chaotic" to "catastrophic".
Charts, representing the results of Kuhlmann-Anderson Tests administered to pupils upon entering the first grade, California Mental Maturity Tests, Stanford Achievement Tests, and California Achievement Tests, all administered without reference to pending litigation, comparing the performances of white and Negro pupils in the same grade groups, were received in evidence as relevant to the contention of defendants that there are distinct differences in the average or mean mental abilities of the two groups which they are obliged to take into account in maintaining a sound educational program.
Of course the starting point in any school segregation case must be Brown v. Board of Education, 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954), the implementing decree of the court, Brown v. Board of Education, 349 U.S. 294, 75 S.Ct. 753, 99 L.Ed. 1083 (1955), and its reinterpretive opinion in Cooper v. Aaron, 358 U.S. 1, 78 S.Ct. 1401, 3 L.Ed. 2d 5, 19 (1958). The basic premise of the court was expressed in simple, uncomplicated language: "Separate educational facilities are inherently unequal." *220 From it there flowed freely and naturally the enunciation of the constitutional principle: "Therefore, we hold that the plaintiffs and others similarly situated for whom the actions have been brought are, by reason of the segregation complained of, deprived of the equal protection of the laws guaranteed by the Fourteenth Amendment." 347 U.S. at page 495, 74 S.Ct. at page 692.
Insofar as the opinions of experts in the fields of psychology and anthropology, in deposition, book and pamphlet form, may constitute an attack upon the major premise of the court, they are rejected out of hand. It would be supererogation to labor the obvious, that this court is bound by the opinions and judgments of the Supreme Court.
But the problem does not end there, for district courts have been invested with and are expected honestly and fairly to exercise discretion in the enormous task of desegregating public schools. The course which this court should follow was staked out in its opinion in Shuttlesworth v. Birmingham Board of Education, 162 F.Supp. 372, 384 (N.D. Ala.1958) wherein Judge Rives, as its organ, concluded with the pithy statement:
"All that has been said in this present opinion must be limited to the constitutionality of the law upon its face. The School Placement Law furnishes the legal machinery for an orderly administration of the public schools in a constitutional manner by the admission of qualified pupils upon a basis of individual merit without regard to their race or color.
We must presume that it will be so administered. If not, in some future proceeding it is possible that it may be declared unconstitutional in its application. The responsibility rests primarily upon the local school boards, but ultimately upon all of the people of the State."
The Supreme Court, on direct appeal, granted the motion to affirm and affirmed the judgment upon the limited grounds, quoted directly above, on which this court rested its decision. Shuttlesworth v. Birmingham Bd. of Education, 358 U.S. 101, 79 S.Ct. 221, 3 L.Ed.2d 145 (1958).
As this court sees it, the law of this case is that the Alabama School Placement Law "furnishes the legal machinery for an orderly administration of the public schools in a constitutional manner by the admission of qualified pupils upon a basis of individual merit without regard to their race or color". Under that law the initiative is with the individual pupil, or those authorized to act in his behalf, to apply for assignment or transfer. Before this court may grant injunctive relief, the administrative remedies provided therein must first have been exhausted.[2]
Although the Court of Appeals for the Fifth Circuit has on frequent occasions come to grips with school segregation problems and has been especially alert to strike down deviations by district courts from the constitutional norm of Brown in sometimes trenchant opinions delivered by able judges,[3] all of which have been carefully read and considered by this court, it has heretofore had no cause *221 to consider whether the Alabama Law has a permissible scope of operation in the desegregation of public schools.
On the other hand, the Court of Appeals for the Fourth Circuit has dealt frequently with the North Carolina Pupil Enrollment Act, strikingly parallel to the Alabama Law. In Carson v. Warlick, 238 F.2d 724 (4th Cir. 1956), cited with approval by this court in Shuttlesworth, the late, great Judge Parker, writing for the court, after holding that the North Carolina Act contained adequate standards, observed:
"Somebody must enroll the pupils in the schools. They cannot enroll themselves; and we can think of no one better qualified to undertake the task than the officials of the schools and the school boards having the schools in charge. It is to be presumed that these will obey the law, observe the standards prescribed by the legislature, and avoid the discrimination on account of race which the Constitution forbids. Not until they have been applied to and have failed to give relief should the courts be asked to interfere in school administration."
In an unbroken line of decisions[4] that court has continued to apply the doctrine of exhaustion of administrative remedies fairly and lawfully conducted. That is not to say that that court would tolerate a discriminatory application of the Act by refusing assignment or transfer to any school of any pupil because of his race or by requiring the applicant to submit to futile, burdensome or discriminatory administrative procedures.
Superintendent and Board have assured this court that discrete desegregation would be much less disruptive than massive integration. They insist that in implementation of the Alabama Law regulations[5] governing assignment and transfer of pupils in the City's public schools have been in effect since June, *222 1958, and that they stand ready to comply with the law when any individual sets the administrative machinery in motion. This court will not sanction discrimination by them in the name of the placement law but it is unwilling to grant injunctive relief until their good faith has been tested. If it should be demonstrated that it has been unconstitutionally applied, under the settled authorities the court would be compelled to order the submission of a desegregation plan for its approval.
Adequate time remains before the opening of the September, 1963, school term for the processing of applications for assignments or transfers in behalf of interested individuals. Jurisdiction of this action will be retained for the purpose of permitting the filing of such supplemental complaint, if any, as might be entitled to be presented, in case of any unconstitutional application of the Alabama School Placement Law against the plaintiffs, or others similarly situated, or of any other unconstitutional action on the part of defendants against them. The issues tendered by any supplemental complaint will be given a preferred setting on the docket of this court and will be heard on five days notice to defendants.
NOTES
[1] Code of Ala., tit. 52, § 61(1) et seq.
[2] The appeals to the courts provided by Section 9 of the Alabama School Placement Law are judicial, not administrative remedies. After administrative remedies before the school board have been exhausted, judicial remedies for denial of constitutional rights may be pursued at once in this court without pursuing state court remedies. Lane v. Wilson, 307 U. S. 268, 274, 59 S.Ct. 872, 83 L.Ed. 1281 (1939); Carson v. Warlick, 238 F.2d 724, 729 (4th Cir.1956).
[3] Brown v. Rippy, 233 F.2d 796 (5th Cir. 1956); Avery v. Wichita Falls Independent School Dist., 241 F.2d 230 (5th Cir. 1957); Orleans Parish School Board v. Bush, 242 F.2d 156 (5th Cir. 1957); Gibson v. Board of Public Instruction of Dade County, 246 F.2d 913 (5th Cir. 1957); Rippy v. Borders, 250 F.2d 690 (5th Cir. 1957); Gibson v. Board of Public Instruction of Dade County, Fla., 272 F.2d 763 (5th Cir. 1959); Boson v. Rippy, 275 F.2d 850 (5th Cir. 1960); Mannings v. Board of Public Instruction, 277 F.2d 370 (5th Cir. 1960); Boson v. Rippy, 285 F.2d 43 (5th Cir. 1960); Augustus v. Board of Public Instruction, 306 F.2d 862 (5th Cir. 1962); Bush v. Orleans Parish School Board, 308 F.2d 491 (5th Cir. 1962).
[4] Covington v. Edwards, 264 F.2d 780 (4th Cir. 1959); Holt v. Raleigh City Board of Education, 265 F.2d 95 (4th Cir. 1959); McCoy v. Greensboro City Board of Education, 283 F.2d 667 (4th Cir. 1960); Jeffers v. Whitley, 309 F.2d 621 (4th Cir. 1962); Wheeler v. Durham City Board of Education, 309 F.2d 630 (4th Cir. 1962).
[5] 1. Except as otherwise expressly provided by law and these regulations, and subject to supervision and review by the board, the City Superintendent of Schools shall exercise the authority and responsibility of the Board of Education of the City of Birmingham with respect to the assignment (including original and all other admissions to the school system), transfer and continuance of pupils among and within all public schools operated under the jurisdiction of the board.
2. The Superintendent shall have continuing authority to determine the particular public school to be attended by each child applying for assignment or transfer to the public schools. No child shall be entitled to be enrolled or entered in a public school until he has been assigned thereto by the superintendent or his duly authorized representative. All school assignments shall continue without change until or unless transfers are directed or approved by the superintendent or his duly authorized representative.
3. Applications for the assignment or transfer of pupils to particular schools shall be directed to the superintendent and shall be delivered to the school principal unless otherwise directed by the superintendent, on forms provided by the superintendent, who will keep supplies of such forms available at the offices of the board.
4. A separate application must be filed for each pupil desiring assignment or transfer to a particular school. Joint applications will not be received or considered.
5. Applications for assignment or transfer of pupils must be filled in completely and legibly in ink or typewriter and must be signed by both parents, if living, or the legal guardian of each child for whom application is made. In case of denial of an application notice thereof will be mailed to the parents or guardian, at the address shown on the application, which shall be deemed the final action of the board unless a hearing before the board is requested in writing within fifteen days from the date of mailing of such statement.
6. The superintendent may in his discretion require interviews with the child, the parents or guardian, or other persons and may conduct or cause to be conducted such examinations, tests and other investigations as he deems appropriate. In the absence of excuse satisfactory to the superintendent or the board, failure to appear for any requested examination, test or interview by the child or the parents or guardian will be deemed a withdrawal of the application.
7. The delivery of such forms shall not constitute a request for hearing by the board. If a hearing by the board is requested with respect to the superintendent's conclusion on an application, the parents or guardian will be given at least five days' written notice of the time and place of the hearing. The hearing will be begun within thirty days from the receipt by the board of the request, but the board may in its discretion postpone the hearing upon request. Failure of the parents or guardian to appear at the hearing will be deemed a withdrawal of the application.
8. Hearings may be conducted before the board, or before a committee of not less than three members thereof, or a member thereof, or such person as the board may designate as a hearing examiner as provided by law. Hearings will be held at such times and places as the board or its committee or hearing examiner may lawfully determine and may be adjourned from time to time for the convenience of parties, witnesses, or the board or hearing examiner; provided however that nothing herein shall preclude any applicant from filing a request for hearing in accordance with Section 7 of the Placement Act and the right to have such hearing held beginning with the time prescribed therein.
9. Unless postponement is requested by the parents or guardian, the board will notify them of its decision within twenty days after the conclusion of the hearing. Exceptions to the decision of the board may be filed, as allowed by law, within five days of notice of the board's decision, and the board shall meet within fifteen days of the receipt of the exceptions to consider the same. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1813820/ | 173 B.R. 467 (1994)
In re ADVANCED MINING SYSTEMS, INC., et al., Debtors.
Gary LUTIN and Certain Non-Debtor Affiliates of Debtors, Appellants-Petitioners,
v.
The UNITED STATES BANKRUPTCY COURT for the SOUTHERN DISTRICT OF NEW YORK, Respondents,
and
Advanced Mining Systems, Inc., et al., Debtors, and The Committee of Official Creditors of Advanced Mining Systems, et al., Debtors, Appellees-Respondents.
No. 94 Civ. 5744 (CSH).
United States District Court, S.D. New York.
October 5, 1994.
*468 Marc H. Rosenbaum, Sharfman, Shanman, Poret & Siviglia, P.C., New York City, for Gary Lutin.
Mark Broude, Arthur H. Amron, Schulte Roth & Zabel, New York City, for Official Committee of Unsecured Creditors.
Dennis J. Drebsky, Rogers & Wells, New York City, for Advanced Min. Systems, Inc.
HAIGHT, District Judge:
In this bankruptcy case, I am asked to stay proceedings in the Bankruptcy Court pending an appeal by Gary Lutin and certain non-debtor affiliates of the debtors (the "Affiliates") from an order of that Court dated June 3, 1994 (Blackshear, J.) expunging the Affiliate's administrative claim. The Affiliates base this requested relief on the All-Writs Statute, 28 U.S.C. § 1651, or in the alternative upon Bankruptcy Rule 8005. The debtors and the Committee of Creditors (the "Objectors") oppose the stay. I grant the stay under Rule 8005, and do not find it necessary to consider § 1651.
The standards for granting a stay pending an appeal in bankruptcy are summarized in In re de Kleinman, 150 B.R. 524, 528 (Bankr.S.D.N.Y.1993):
The standards for the grant of a stay pending appeal are the same as those governing the grant of an injunction. Sandra Cotton, Inc. v. Bank of New york, 64 B.R. 262, 263 (W.D.N.Y.1986), appeal dismissed, 87 B.R. 272 (W.D.N.Y.1988), In re Liggett, 118 B.R. 219, 221 (Bankr.S.D.N.Y. 1990). To obtain such relief, the movant must establish (1) the strong likelihood of success on the merits of the appeal; (2) that the movant will suffer irreparable injury if the state is denied; (3) that no substantial harm will be suffered by others if the stay is granted; and (4) what the harm to the public interest, if implicated, is. [In re Charles & Lillian] Brown's Hotel, 93 B.R. [49] at 53 [Bankr.S.D.N.Y. 1988]; Liggett, 118 B.R. at 221. All four criteria must be satisfied before relief under Rule 8005 will be granted. Brown's Hotel, 93 B.R. at 53.
In the case at bar the fourth factor is not important because the public interest is not meaningfully implicated. The second and third factors strongly favor a stay. In their briefs and arguments, counsel tend to treat these factors as the other side of the coin presented by the first factor: the likelihood of success on the merits of the appeal. Thus the Objectors say the Affiliates can suffer no prejudice from the denial of a stay because their underlying claim clearly has no merit. The Affiliates say the Objectors will suffer no prejudice from the granting of a stay because the assets involved clearly belong to them. These arguments, which cancel each other out, do not squarely address the issue, which focuses upon prejudice to either party during the interim between appeal and appellate decision, if a stay is granted or denied.
If a stay pending appeal is denied, the debtors' assets will be distributed without any reserve for the Affiliates' claim. That is the consequence of the Bankruptcy Court's subsequent order in September, which granted the Objectors' application to make a distribution to creditors without maintaining a *469 reserve for that claim. The inevitable result, which the Objectors cannot reasonably question, is that a denial of a stay would moot the appeal and deny the Affiliates any recovery. That is a quintessential form of prejudice to the Affiliates.
The Objectors' efforts to show prejudice to them if the stay is granted do not persuade. If the Affiliates' appeal is ultimately rejected, there will have been a delay in making certain payments to creditors, but the maintaining of a reserve in an interest-bearing account (a common arrangement of which the Bankruptcy Court is undoubtedly capable) offsets that prejudice, at least partially. It is said that undue delay might violate the schedule for consummation of the plan of reorganization. But there is no present reason to believe that Judge Blackshear would not grant extensions of time during the appellate process. It also appears from the motion papers that other matters, unrelated to that involved in the appeal, are delaying consummation of the plan. Any prejudice to the debtors and creditors if a stay is granted pales into insignificance in contrast to the prejudice the Affiliates would suffer if it is not.
I come, then, to the first factor: the likelihood of success on the merits of the appeal. Both parties contend that their position in this dispute is supported by a Settlement Agreement (the "Agreement") negotiated between them, and approved by the Bankruptcy Court on September 14, 1993. That Agreement purported to resolve a variety of disputes between the two sides, including the rights of the Affiliates to certain property in the Objectors' possession. At issue here is the Affiliates' rights to property collectively referred to as the Lease 4 Property.
The paragraphs of the Agreement upon which the parties rely are:
"(5) The Asset Transfer Agreement between SAT or SAM and the Debtor is approved by Court Order without opposition by Gary Lutin, SAT or SAM or the Non-debtor Affiliates and the Debtor's interests in Units or other assets are terminated.
(6) Debtors will, as soon as practicable, move to terminate all leases involving assets remaining with SAT after approval of the Asset Transfer Agreement;
(8) All claims by or against Debtor and the Non-debtor Affiliates or SAT will be extinguished and released."
The Affiliates claim that they purchased and leased the Lease 4 Property to the debtors, and that pursuant to Paragraph 5 of the Agreement, this property constituted "other assets" in which the debtors agreed to terminate their interest. Along those same lines, the Affiliates argue that pursuant to Paragraph 6 of the Agreement, the debtors were obligated to give up their rights in these assets, since they were the subject of a lease "involving assets remaining with SAT after approval of the Asset Transfer Agreement." Since the debtors failed to terminate the lease, the Affiliates filed their proof of claim in the Bankruptcy Court.
The Objectors claim that ownership of the Lease 4 Property was disputed prior to the consummation of the Agreement, and that any rights the Affiliates might have had in such property were waived by the "extinguished and released" language of Paragraph 8 of the Agreement.
The issue thus is whether the dispute regarding the Lease 4 Property was resolved by paragraphs 5 and 6, in favor of the Affiliates, or whether the dispute went unresolved, and was thus extinguished by the language of Paragraph 8, in favor of the Objectors.
As a starting point, I find that the Agreement at issue fails to resolve the current controversy. That Agreement clearly contemplated that some controversies between the parties had been settled, while others had not. It is not clear into which of these two categories the Affiliates' claim fell. Both parties admit that rights to the Lease 4 Property were in dispute prior to the consummation of the Agreement; that reveals little, however, about how that dispute was resolved, if at all, by the Agreement.
While the Objectors also rely on another document subsequently executed by the Affiliates, the Assignment Agreement, the Affiliates argue plausibly that this document only "ratifies" the Settlement Agreement, and adds nothing to it.
*470 On this record, I think the Affiliates have a more persuasive explanation of the chronology of events and their likely meaning. If there were evidence in the record indicative of serious grounds for disputing the Affiliates' ownership of the Lease 4 Property, the Objectors' position would merit greater credence.
Such evidence, however, cannot be found in the record. In addition to affidavits by Lutin, who has personal knowledge of the events, the Affiliates have presented evidence of a Board Resolution made by the debtors authorizing the Affiliates' acquisition and leasing of the Lease 4 Property to the debtors; a letter from the Affiliates to the debtors confirming the substance of the Board Resolution; a report by an Examiner appointed by the Bankruptcy Court confirming and describing the leasing of Lease 4 Property by the Affiliates to the debtors; and a letter from Met Life to the debtors confirming the existence of a lease arrangement between the debtors and the Affiliates.
In the face of this evidence, the Objectors state in their conclusory opposition papers, without any separate evidentiary support, that "the assets in question were, in fact, purchased by the Debtors and never transferred to SAT or any of the Affiliates. There was no lease for the Debtors to reject, and no assets to form the basis of any claim of ownership by the Affiliates."
This contention is obviously at odds with the record put forward by the Affiliates. Because the contention lacks any support or even explanation in the record, I am bound to give greater weight to the argument of the Affiliates. The evidence in the record tends to support the Affiliates' ownership of the Lease 4 Property and the leasing of such property to the debtors.[1] Given that finding, and the totality of the circumstances as reflected by the present record, I conclude that the Affiliates have established the requisite likelihood of success. At the very least, there is a substantial question going to the merits, worthy of litigation, and all other factors militate in favor of a stay.
The Affiliates' petition for a stay pending appeal is granted. I regard the Bankruptcy Court's September 1994 order as an implementation of the June order of expungement, and subsumed by it. Nonetheless, to satisfy any lingering jurisdictional question, the Affiliates are directed to file a notice of appeal from the September order within seven (7) days of the date of this order. The appeals will be consolidated.
SO ORDERED.
NOTES
[1] I do not think that the fact that the Affiliates have acknowledged a dispute as to the Lease 4 Property, prior to the consummation of the Settlement Agreement, has any bearing on the outcome. To acknowledge that another party's position is at odds with one's own is not an admission that one's own position is lacking in substance. The Objectors cannot establish that there are strong grounds for disagreement simply by professing that they in fact disagree. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1813621/ | 691 F.Supp. 1090 (1988)
William W. McLAURY, Plaintiff,
v.
DUFF AND PHELPS, INC., an Illinois corporation, Claire V. Hansen and Francis E. Jeffries, Defendants.
No. 84 C 4612.
United States District Court, N.D. Illinois, E.D.
May 13, 1988.
*1091 *1092 Thomas P. Ward, Thomas P. Ward Ltd., Chicago, Ill., for plaintiff.
Shelley Rice, Edward C. Fitzpatrick, C. Joseph Yast, Lord, Bissell & Brook, Chicago, Ill., for defendants.
MEMORANDUM OPINION AND ORDER
ANN C. WILLIAMS, District Judge.
On February 24, 1983, William McLaury sold to Duff and Phelps, Inc. his 800 shares of Duff and Phelps stock. Approximately ten months later, on December 31, 1983, McLaury, an employee for Duff and Phelps for thirty years, worked his last day for that corporation. In this case, McLaury charges that Duff and Phelps and certain of its officers intentionally failed to disclose to McLaury at the time of the sale material information regarding the possibility of a buyout of the corporation, made false statements regarding McLaury's obligations to the corporation and fired McLaury on the basis of his age. The purpose of this opinion is to address the defendants' pending motion for summary judgment on all five counts of McLaury's complaint. Before addressing the merits of that motion, the court believes a recitation of the undisputed facts is in order.
Duff and Phelps is an Illinois corporation engaged in the business of providing investment services. McLaury began working for Duff and Phelps in 1953 and accumulating stock in the company in 1966. McLaury held the stock pursuant to the company's Stock Restriction and Purchase Agreement ("Agreement") made May 10, 1967 and revised March 1, 1982. Paragraph 7 of the Agreement provides in relevant part as follows:
"Upon the termination of the employment with [Duff and Phelps] of any of the undersigned individuals for any reason, including resignation, discharge, death, disability or retirement, the individual whose employment is terminated shall sell to [Duff and Phelps], and [Duff and Phelps] shall buy, all shares of [Duff and Phelps] then owned by such individual or his estate."
Defendants' Exhibit ("DX") E. By 1982, McLaury had accumulated 800 of the outstanding 21,500 shares of Duff and Phelps stock.
In 1979, when McLaury was 65 years old, he met with the Chairman and Chief Executive Officer of Duff and Phelps, defendant Claire Hansen, to discuss McLaury's future with Duff and Phelps. McLaury and Hansen agreed at the meeting that effective January 1, 1980, McLaury would work four days per week at a reduced salary. Hansen told McLaury that Duff and Phelps *1093 wanted to buy McLaury's stock. The parties dispute whether Hansen definitively told McLaury at that time that McLaury's employment with the company would end by 1983. It is not disputed that the parties did not discuss the quality of McLaury's work on that occasion. Once in 1980 and once in 1981 Hansen again discussed with McLaury the possibility of a Duff and Phelps' purchase of McLaury's 800 shares. On each occasion that a sale was mentioned, McLaury rejected the idea.
At some point before June of 1982, Security Pacific Corporation became interested in the possibility of acquiring Duff and Phelps. See Plaintiff's Exhibit ("PX") 6. On July 12, 1982, the Vice-President of the Security Pacific Financial Services Division, Rory Wellings, wrote to Kenneth Bodenstein, Senior Vice-President and Director of Duff and Phelps, "to ascertain whether or not Duff and Phelps would be interested in Security Pacific Financial Services Division ("SPFSD") taking an equity position in [Duff and Phelps]." See PX 7. Wellings in that letter asked Bodenstein to put Wellings "in touch with the appropriate individual or individuals should an equity interest position be available for SPFSD in [Duff and Phelps]." See id. According to an SPFSD internal communication, Will Richeson, Chairman of the Board of Security Pacific Capital Markets Group, Inc., was in charge of reviewing Security Pacific's prospects of acquiring an interest in Duff and Phelps. See PX 10. Sometime after Duff and Phelps received the July 12, 1982 letter from Security Pacific, Hansen informed Richeson by phone that Duff and Phelps was not for sale. See Richeson Deposition ("Dep.") at 12. Subsequently, in October of 1982, Richeson and his associate Andy Thornburg met Hansen in San Diego at a conference they were attending. At that time Richeson again expressed his interest in Duff and Phelps. See id. at 13-16. At an unspecified time after the San Diego discussion, Hansen met again with Thornburg and others in New York. In another SPFSD internal communication dated December 6, 1982, Richeson wrote that he had met recently in Chicago with Hansen and others from Duff and Phelps. See PX 11. In that communication Richeson wrote that "Claire Hansen is willing to discuss the purchase of his company but not a minority interest in the company nor does he think an incentive agreement would work." See id.
The Board of Directors of Duff and Phelps met on November 30, 1982. The minutes of the meeting indicate that the Board discussed McLaury's continued employment and the repurchase of his stock. See PX 15. The minutes then provide as follows:
In view of the Corporation's intent to distribute in an orderly fashion the ownership of the Corporation among the new officers based on their ability to purchase those shares over a period of time, after discussion upon motion duly made, seconded and unanimously carried, the following Resolution was adopted;
RESOLVED that the Corporation shall buy all shares of common stock of the Corporation owned by Robert J. Smith (400 shares) and William W. McLaury (800 shares). The price to be paid for such shares shall be equal to the adjusted book value of the shares on December 31, 1982.
See id.; DX F. After the meeting of the Board, Hansen that same day went to McLaury's office and "advised him that it was necessary for him to sell his shares back to the corporation." Hansen Dep. (May 7, 1985) at 104. Hansen made a similar representation to McLaury in February of 1983. McLaury sold his shares to Duff and Phelps for book value on February 24, 1983. It is uncontested that at no time before the sale did anyone from Duff and Phelps tell McLaury that the corporation was up for sale or that negotiations with Security Pacific for such a sale were ongoing. McLaury worked the next ten months for Duff and Phelps. His last day was December 31, 1983.
During those ten months, acquisition discussions between Duff and Phelps and Security Pacific alternatively increased and decreased. In May of 1983, almost three months after McLaury sold his Duff and Phelps stock, Richeson contacted Hansen *1094 and mentioned the possibility of Security Pacific acquiring all of the stock of Duff and Phelps. Discussions continued in June and July of 1983, but were discontinued after August 11, 1983 at the instructions of Richeson's superior, Frank Cahouet. See Richeson Dep. at 70-71. Also on August 11, 1983, Hansen wrote Richeson a letter requesting the return of Duff and Phelps' confidential information. See DX H. Richeson wrote back on August 22, 1983 that he was "sorry that it does not appear that we can move forward as I was hopeful we could." See DX I.
Between August 11, 1983 and December 1, 1983, Duff and Phelps had no acquisition discussions with Security Pacific. On the latter date, Richeson told Hansen that Security Pacific was interested in opening discussions again. On January 6, 1984, Cahouet of Security Pacific sent Duff and Phelps a letter stating that Security Pacific intended to acquire Duff and Phelps. See DX J. After further negotiations, Duff and Phelps and Security Pacific signed an acquisition agreement dated March 23, 1984 which included a condition that the Board of Governors of the Federal Reserve approve of the agreement without conditions. See DX K. On January 9, 1985, Security Pacific announced the cancellation of the proposed acquisition because of conditions imposed on the transaction by the Federal Reserve Board.
On June 4, 1984, McLaury filed the instant five-count complaint against Duff and Phelps, Hansen and the Executive Vice-President of Duff and Phelps, Francis Jeffries. Count I alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder. See 17 C.F.R. § 240.10b-5. Specifically, Count I alleges that the defendants made certain false statements or omitted to state certain material facts necessary to make other statements not misleading. Those alleged false statements or material omissions include the following:
(1) In February of 1983, Hansen told McLaury that McLaury was required to sell his shares immediately because the Board of Directors had by resolution or other action required McLaury to sell his shares and that Hansen implied that this applied to all employees over 65 (Complaint ¶ 14 at 3);
(2) Hansen misrepresented the true value of the shares at the time of the sale (Complaint ¶ 29(d) at 6);
(3) The defendants failed to inform McLaury that promising negotiations of a buyout of Duff and Phelps were in progress (Complaint ¶ 29(e)(1) at 7);
(4) The defendants failed to inform McLaury that the price Security Pacific was willing to pay for each share was ten to thirty times the claimed book value (Complaint ¶ 29(e)(2) at 7);
(5) The defendants failed to inform McLaury that Duff and Phelps had terminated the employment of another employee but had permitted that employee to retain his shares (Complaint ¶ 29(e)(3) at 7).
Counts II through IV are pendent state claims alleging common-law fraud, willful and wanton fraud and breach of fiduciary duty. Count V charges that the defendants violated the Age Discrimination in Employment Act of 1967 ("ADEA"), 29 U.S.C. §§ 621-34 because the defendants fired McLaury because of his age and failed to post a notice prepared by the Equal Employment Opportunity Commission. See 29 U.S.C. § 627.
The defendants now move for an order of summary judgment on each of the five counts and raise numerous arguments in support. The court will address the arguments in a logical sequence.
I
Federal Securities Law Claims
A. Jurisdictional Requirements of Section 10(b)
The defendants preliminarily argue that no evidence exists to establish that the defendants used any means or instrumentality of interstate commerce in connection with the purchase of McLaury's stock. In support of this argument, the defendants *1095 point out that the conversations Hansen had with McLaury relating to that purchase all took place in person at the offices of Duff and Phelps, see PX 6, or over interoffice phone lines separate and distinct from the phone lines used to make outside calls. See Hansen Affidavit (September 17, 1986) (attached to the Defendants' Reply Memorandum). Moreover, McLaury signed over his shares in person at the Duff and Phelps offices and was paid in person by check. See PX 6.
Section 10(b) and Rule 10b-5 make it unlawful to engage in certain fraudulent activity in connection with the purchase or sale of a security only if done "by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange." 15 U.S.C. § 78j(b). It is not necessary that the fraud be committed during and through the actual use of the jurisdictional means; to be a violation of Section 10(b) and Rule 10b-5 it is sufficient if the jurisdictional means are used in connection with a fraudulent scheme. Gower v. Cohn, 643 F.2d 1146, 1152 (5th Cir.1981); Boone v. Baugh, 308 F.2d 711, 713 (8th Cir.1962); Errion v. Connell, 236 F.2d 447, 455 (9th Cir.1956); Miller v. Affiliated Fin. Corp., 600 F.Supp. 987, 992 (N.D.Ill.1984) (Shadur, J.). Although the aforementioned standard routinely is satisfied in securities cases such as this, in unusual circumstances courts have dismissed Section 10(b) claims for failing to satisfy the standard. See, e.g., Boone, 308 F.2d at 714. The burden is on McLaury to establish jurisdiction. See id. at 713.
The court agrees with McLaury that the clearance of the check Duff and Phelps used to pay him for his stock satisfies the jurisdictional requirement. The parties do not dispute that the clearance of a check from one state to another is sufficient for jurisdiction. See, e.g., Myzel v. Fields, 386 F.2d 718, 728 (8th Cir.1967). The defendants claim that because the checks involved in this case never left Illinois that this case is distinguishable. The system of clearing checks, however, is highly automated and integrated into the national banking system. Because our telephone system as a whole is integrated and an integral part of interstate commerce, courts consistently have held that even intrastate phone calls suffice to establish jurisdiction. See Gower, 643 F.2d at 1151-52; Myzel, 386 F.2d at 727-28; Miller, 600 F.Supp. at 992. For those same reasons, use of our system for clearing checks also should be considered use of an "instrumentality of interstate commerce" for purposes of Section 10(b).[1]Cf. Reyos v. United States, 431 F.2d 1337 (10th Cir.1970) (the court, without any reference to the check's interstate travel, concluded that the mere fact that a check was used supported jurisdictional finding), rev'd in part on other grounds sub nom. Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972), reh'g denied, 407 U.S. 916, 92 S.Ct. 2430, 32 L.Ed.2d 692 and 408 U.S. 931, 92 S.Ct. 2478, 33 L.Ed.2d 345 (1972); 4 A. Bromberg & L. Lowenfels, Securities Fraud & Commodities Fraud § 11.2 (533) at 246.9 (1975).
B. Security Pacific Negotiations
The defendants next argue that they did not and could not have concealed from the plaintiff on February 24, 1983 the existence of negotiations with Security Pacific for three reasons. First, there were no negotiations until several months later. Second, assuming the existence of negotiations, the defendants were not required to reveal the existence of the negotiations until the agreement in principle was reached on January 6, 1984. Third and finally, McLaury was not harmed by the concealment since Security Pacific eventually cancelled the transaction.
The court rejects the first argument. As this court's review of the undisputed *1096 facts revealed, Security Pacific and Duff and Phelps had some communications regarding a potential Security Pacific purchase of Duff and Phelps stock. Even though Hansen at one point in mid-1982 informed Richeson that Duff and Phelps was not for sale, subsequently Richeson again expressed his interest in Duff and Phelps, Hansen met with Thornburg and others in New York and Hansen informed Security Pacific that he was willing to discuss the purchase of Duff and Phelps.[2]
The Supreme Court recently rejected the defendants' second argument in Basic Inc. v. Levinson, ___ U.S. ___, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). The essence of the defendants' argument is that merger or acquisition discussions are not rendered "material" for purposes of Section 10(b) and Rule 10b-5 until the entities involved in the discussions reach an agreement in principle as to the price and structure of the transaction. See Greenfield v. Heublein, Inc., 742 F.2d 751, 757 (3rd Cir.1984), cert. denied, 469 U.S. 1215, 105 S.Ct. 1189, 84 L.Ed.2d 336 (1985). In Basic the Court refused to adopt the agreement-in-principle formulation and held that "[w]hether merger discussions in any particular case are material therefore depends on the facts." Basic Inc. v. Levinson, ___ U.S. ___, 108 S.Ct. 978, 986-87, 99 L.Ed.2d 194 (1988). The Court in Basic stated that merger negotiations are material to the extent that negotiations are "significant to the reasonable investor's trading decision."[3]Id. 108 S.Ct. at 985. Because of the significance of a buyout to a privately-held corporation such as Duff and Phelps, negotiations regarding a buyout become material at an earlier stage than negotiations concerning other transactions. Id. at 987 (quoting with approval Securities Exchange Comm'n v. Geon Indus., Inc., 531 F.2d 39, 47-48 (2d Cir.1976)). In making the materiality determination, the court can consider but is not limited to considering indicia of interest in the transaction at the highest corporate levels, the size of the two corporate entities involved and the potential premiums over market value.[4]Ibid.
*1097 The defendants' third argument also loses. They maintain that because Security Pacific did not acquire Duff and Phelps McLaury could not have been damaged by the defendants' alleged failure to inform him of an acquisition which never took place. The Seventh Circuit recently rejected this argument by Duff and Phelps in one of the other three cases brought by former Duff and Phelps shareholders. See Jordan v. Duff and Phelps, Inc., 815 F.2d 429, 440-42 (7th Cir.1987).[5]Accord Guy v. Duff and Phelps, Inc., 672 F.Supp. 1086, 1092 (N.D.Ill.1987) (Shadur, J.).
C. The Board of Directors Resolution
As for Hansen's statement to McLaury that the Board of Directors resolution made it "necessary" for McLaury to sell his shares back to Duff and Phelps, the defendants argue that Hansen did not make a misrepresentation because the Board's resolution in fact did require that McLaury sell back his shares. The text of the resolution, however, belies the defendants' factual claim. The resolution states that Duff and Phelps "shall buy" McLaury's shares, not that McLaury shall sell his shares. See PX 15; DX F. The resolution can be interpreted as an agreement to convince McLaury just as well as an agreement to order McLaury. After all, Duff and Phelps' use of "shall sell" in the Agreement indicates that the corporation knew precisely what to say in cases where it would be necessary for an employee to sell his shares back.[6]See DX E.
II
State Law Claims
The defendants also seek summary judgment on Counts II through IV, the state law counts. But in this regard the defendants rely on the same arguments this court has rejected for dismissal of the federal securities claims. Those arguments do not sound any better here.
III
Rescission
In his prayer for relief at the end of each of Counts I through IV, McLaury seeks damages or, in the alternative, a rescission. By phrasing his prayer in such a way, McLaury has clearly expressed a preference for the remedy of damages over rescission. In Jordan v. Duff and Phelps, Inc., 815 F.2d 429 (7th Cir.1987), the Seventh Circuit discussed the unfairness inherent in allowing the plaintiff "to shift all of the ordinary investment risk to the defendant(s)" by simultaneously pursuing both damages and rescission as alternative forms of relief. Jordan, 815 F.2d at 440. Accord Estate Counseling Serv., Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 303 F.2d 527, 531-32 (10th Cir.1962). In light of Jordan and McLaury's expressed preference for damages, the court strikes all claims for rescission from Counts I through IV.
IV
ADEA Claim
The defendants make a number of different attacks on Count V, McLaury's age discrimination claim. The first is that the ADEA claim is barred by the statute of limitations which is three years for willful *1098 violations. 29 U.S.C. § 626(c). The limitations period began to run the date McLaury knew or had reason to know that the defendants had made a final decision to fire him. See Chardon v. Fernandez, 454 U.S. 6, 7-8, 102 S.Ct. 28, 29, 70 L.Ed.2d 6 (1981); Delaware State College v. Ricks, 449 U.S. 250, 258, 101 S.Ct. 498, 504, 66 L.Ed.2d 431 (1980); Equal Employment Opportunity Comm'n v. Kimberly-Clark Corp., 531 F.Supp. 58, 61 (N.D.Ga.1981). Citing to McLaury's responses to interrogatories, see DX D, ¶¶ 2, 11(b), the defendants argue that McLaury admits that Hansen told McLaury in 1979 that McLaury would be allowed to work only through 1983. McLaury's specific interrogatory responses were as follows:
In 1979, before my 65th birthday in October, I had such a discussion with Claire V. Hansen. I do not recall anyone else being present. Mr. Hansen said I would have to relinquish my office of Treasurer, but was welcome to continue working as an analyst for four years....
Id. ¶ 2.
When Claire Hansen did speak with me in 1979 (the incident described in Response 2), he told me I could work as a Vice President after my 65th birthday through 1983.
Id. ¶ 11(b).
McLaury claims that he first learned of his termination in September of 1983. As for the 1979 conversation, McLaury submitted his own affidavit which in relevant part reads as follows:
During the summer of 1979, Mr. Claire V. Hansen discussed with me my continuing employment by Duff and Phelps after I reached my 65th birthday on October 14, 1979. I stated I wanted to continue working at least until I had completed 30 years with Duff and Phelps. Mr. Hansen did not disagree or propose a shorter period. At no time during this period did I agree that I would accept a termination at the end of 1983, nor was such termination date proposed. I have reviewed the "Response to Defendant's Third Set of Interrogatories", signed and sworn to by me on February 25, 1986. I reaffirm my Answer 11(a) and 11(b)....
McLaury Affidavit (August 11, 1986) at 1.
The court finds that a genuine issue of fact exists as to whether McLaury knew in 1979 that the defendants intended to terminate his employment with Duff and Phelps in 1983. Even if the court considers McLaury's interrogatory answers alone, those answers can be interpreted to mean that in 1979 McLaury believed he would be with Duff and Phelps at least through 1983. Those answers do not indicate unambiguously that McLaury believed in 1979 that 1983 would be his last year even if he desired to work longer. McLaury's affidavit does not change the equation.
The defendants also argue that the plaintiff cannot meet his burden of proving he was qualified for his job. The burden of persuading this court that the defendants discriminated against McLaury is McLaury's. Dale v. City of Chicago, 797 F.2d 458, 462-63 (7th Cir.1986), cert. denied, 479 U.S. 1066, 107 S.Ct. 954, 93 L.Ed.2d 1002 (1987). McLaury can meet that burden with either direct or circumstantial evidence. Ibid. Since it appears that McLaury has no direct evidence of age discrimination, he must rely on the analytic framework established by the Supreme Court in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973) for cases brought under the ADEA. Ibid. Under that framework, McLaury first must establish a prima facie case of discrimination by showing the following: (1) that he belongs to the protected class, (2) that his job performance had been sufficient to merit Duff and Phelps' legitimate expectations, (3) that he had been discharged in spite of his performance, and (4) that Duff and Phelps sought a replacement for him. Ibid. If McLaury establishes a prima facie case, the burden shifts to the defendants to articulate a legitimate, nondiscriminatory reason for the discharge. Ibid. If the defendants carry that burden, McLaury then must prove by a preponderance of evidence that the defendants' explanation is a mere pretext for discrimination. Ibid. See also Kier v. Commercial *1099 Union Ins. Co., 808 F.2d 1254, 1257 (7th Cir.1987). The defendants maintain that McLaury's ADEA claim cannot make it past first base because he cannot establish that he was qualified for his job. Citing the deposition testimony of McLaury's superiors, the defendants argue that the evidence clearly establishes that Duff and Phelps fired McLaury because of poor performance. See Cornish Dep. at 13-15; Stevens Dep. at 17, 20, 28-30, 79; Podrasky Dep. at 14-15, 29. The defendants further claim that McLaury's age did not come up when Duff and Phelps decided to make December 31, 1983 his last day. See Stevens Dep. at 92.
McLaury, however, provides adequate evidence to avoid summary judgment on Count V. McLaury asserts that while he was employed at Duff and Phelps, none of his supervisors ever expressed dissatisfaction with his work. See McLaury Interrogatory Answer ¶ 12. McLaury also maintains, and the defendants do not dispute, that he worked continuously for Duff and Phelps for 30 years and never failed to get his raises and bonuses.[7] Based solely on the duration of McLaury's stint with Duff and Phelps, the court finds that some evidence exists that McLaury's job performance was adequate to meet Duff and Phelps' expectations. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986) (in response to a claim of the absence of evidence on an element of his claim, the plaintiff must present significant probative evidence of that element to avoid summary judgment). Certainly if the jury credits McLaury's testimony that McLaury's supervisors never attacked his work product it is less likely that his poor job performance was the motive for the firing. Finally the supervisors' deposition testimony is arguably self-serving. Although McLaury's counsel had the chance to cross-examine those supervisors at the time of the depositions, the credibility of their testimony (particularly that relating to alleged conversations when only they were present) is peculiarly important and can best be measured by the fact-finder during the heat of a fair trial.[8]See 10A C. Wright, A. Miller & M.K. Kane, Federal Practice and Procedure: Civil § 2726, at 113-15 (1983).
The defendants also argue that, even if the plaintiff establishes a prima facie case, they have articulated a legitimate nondiscriminatory reason for firing him, i.e., his poor job performance. Of course that argument rests on the same factual premises which this court has already stated are still at issue. Hence, Count V survives that argument as well.
Finally, the plaintiff hints in his complaint that the defendants deprived him of a "privilege" of his employment because of his age in violation of 29 U.S.C. § 623(a). The "privilege" alluded to is employee ownership of Duff and Phelps stock. The sole basis for McLaury's claim that stock ownership is a privilege of employment is the Agreement. See PX 17-21. The Agreement, however, in no way makes stock ownership an employee privilege; instead, its purpose ostensibly is to create obligations for those Duff and Phelps employees who own stock. See id. Although this court, for reasons already given, cannot grant the defendants' motion for summary judgment on Count V, the court deems it established that stock ownership was not a "privilege" of employment with Duff and Phelps for purposes of 29 U.S.C. § 623(a). See Fed.R.Civ.P. 56(d).
*1100 Conclusion
The court denies the defendants' motion for summary judgment. The court further strikes the claims for rescission from Counts I through IV and deems as established that stock ownership was not a "privilege" of employment with Duff and Phelps for purposes of 29 U.S.C. § 623(a).
NOTES
[1] Congress intended the phrase "instrumentality of interstate commerce" to be broader than Section 17(a)'s "instruments of transportation or communication in interstate commerce." See Myzel, 386 F.2d at 727 n. 2; 15 U.S.C. § 77q(a). The court acknowledges that its ruling directly rejects Judge Shadur's oral analysis of this question in Guy v. Duff and Phelps, Inc., No. 84 C 2813, transcript at 5-7 (N.D.Ill. May 29, 1987).
[2] The evidence of Hansen's willingness is based on an SPSFD internal communication. See PX 11. Under Rule 56 of the Federal Rules of Civil Procedure, this court can consider evidence admissible or usable at trial. See 10A C. Wright, A. Miller & M.K. Kane, Federal Practice and Procedure: Civil § 2721, at 40 (1983). In their reply, the defendants did not object to the admissibility of PX 11. This court, however, interprets Rule 56(e) to require some independent analysis by the court regarding the authenticity of documents submitted pursuant to a summary judgment motion. Even though PX 11 is not a sworn or certified copy, PX 11 does contain a "prima facie aura of reliability;" therefore the court considered it. See Oglesby v. Coca-Cola Bottling Co. of Chicago/Wisconsin, 620 F.Supp. 1336, 1345 (N.D.Ill.1985) (Shadur, J.) (citing Olympic Ins. Co. v. H.D. Harrison, Inc., 418 F.2d 669, 670 (5th Cir.1969)). The statement relied on by McLaury in PX 11 is double hearsay an out of court statement of Richeson concerning what Hansen had said. Hansen's statement by itself is an admission of a party opponent. See Fed.R.Evid. 801(d)(2)(A). Richeson's out-of-court statement is much more troublesome for evidentiary purposes. But an argument can be made that PX 11 falls within the business records exception to the hearsay rule. See Contes v. Johnson & Johnson, 756 F.2d 524, 549 (7th Cir.1985) (disciplinary memoranda considered business records); Fed.R.Evid. 803(6). Since the defendants have made no objection and since the document is being offered to defend against a motion for summary judgment, for purposes of this motion only the court will treat PX 11 as admissible.
[3] The Basic Court expressly adopted for Section 10(b) and Rule 10b-5 the standard of materiality defined in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). Basic, Inc., 108 S.Ct. at 983.
[4] Having chosen to argue "no negotiations" and "agreement in principle," the defendants in their motion chose not to argue that the negotiations which did occur prior to February 23, 1983 were immaterial as a matter of law. [Although they allude to such an argument in their Response to Plaintiff's Supplemental Authority filed May 13, 1987, the court does not consider such arguments when the opposing party has had no chance to respond.] Given the factual nature of such an inquiry, this court believes it to be a rare case in which materiality can be resolved at the summary judgment stage. See TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450, 96 S.Ct. 2126, 2132-33, 48 L.Ed.2d 757 (1976) ("The determination requires delicate assessments of the inferences a `reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact."); James v. Gerber Prod. Co., 587 F.2d 324, 327 (6th Cir.1978). But see Michaels v. Michaels, 767 F.2d 1185, 1197 (7th Cir.1985) (withheld information was "immaterial as a matter of law"), cert. denied, 474 U.S. 1057, 106 S.Ct. 797, 88 L.Ed.2d 774 (1986).
[5] Jordan, however, might lead to other more complex arguments (yet to be made) on the damages question.
[6] In this court's prior opinion, the court ruled that based on the evidence then of record the court could not find that Hansen's statement to McLaury was merely a misrepresentation as to the legal effect of an instrument, specifically the Agreement. McLaury v. Duff and Phelps, Inc., No. 84 C 4612, slip op. at 5 (N.D.Ill. Oct. 31, 1985) (Williams, J.) [available on WESTLAW, 1985 WL 3605]. In this motion, the defendants chose not to pursue the argument that McLaury impliedly referred to the Agreement at the time of the statement. Consequently the court did not revisit that issue. The defendants have yet to raise the argument that Hansen's statement was a misrepresentation as to the legal effect of an act (as opposed to a written instrument) and that such a misrepresentation is not actionable; therefore the court expresses no view on that issue at this time.
[7] The plaintiff also attached to his response Duff and Phelps' written evaluations of his performance. See PX 50-61. He argues that none of them are critical of his performance and that his subjective ratings were average or better. But because those exhibits are not comprehensible standing alone, the court did not consider them when resolving the issues raised by the defendants' motion.
[8] The length of McLaury's employment with Duff and Phelps and his claim that no supervisor ever criticized his work make this case distinguishable from the one relied upon by the defendants, Kephart v. Institute of Gas Technology, 630 F.2d 1217 (7th Cir.1980), cert. denied, 450 U.S. 959, 101 S.Ct. 1418, 67 L.Ed.2d 383 (1981). In Kephart, the plaintiff had worked for the defendant less than three years and conceded that his work had been extensively criticized. See Kephart, 630 F.2d at 1221-23. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1087822/ | 317 U.S. 1 (1942)
EX PARTE QUIRIN ET AL.[1] AND
UNITED STATES EX REL. QUIRIN ET AL.
v.
COX, PROVOST MARSHAL.[2]
Nos. ___, ORIGINAL, Nos. 1-7.
Supreme Court of United States.
Argued July 29-30, 1942.
Decided July 31, 1942.
Decision filed, July 31, 1942.[3]
Full Opinion filed, October 29, 1942.[4]
MOTIONS FOR LEAVE TO FILE PETITIONS FOR WRITS OF HABEAS CORPUS.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA.
*11 Attorney General Biddle, with whom Judge Advocate General Myron C. Cramer, Assistant Solicitor General Cox, and Col. Erwin M. Treusch were on the brief, for respondent.
Per Curiam decision filed, July 31, 1942.[3]
*18 MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
These cases are brought here by petitioners' several applications for leave to file petitions for habeas corpus in this Court, and by their petitions for certiorari to review orders of the District Court for the District of Columbia, which denied their applications for leave to file petitions for habeas corpus in that court.
The question for decision is whether the detention of petitioners by respondent for trial by Military Commission, appointed by Order of the President of July 2, 1942, *19 on charges preferred against them purporting to set out their violations of the law of war and of the Articles of War, is in conformity to the laws and Constitution of the United States.
After denial of their applications by the District Court, 47 F. Supp. 431, petitioners asked leave to file petitions for habeas corpus in this Court. In view of the public importance of the questions raised by their petitions and of the duty which rests on the courts, in time of war as well as in time of peace, to preserve unimpaired the constitutional safeguards of civil liberty, and because in our opinion the public interest required that we consider and decide those questions without any avoidable delay, we directed that petitioners' applications be set down for full oral argument at a special term of this Court, convened on July 29, 1942. The applications for leave to file the petitions were presented in open court on that day and were heard on the petitions, the answers to them of respondent, a stipulation of facts by counsel, and the record of the testimony given before the Commission.
While the argument was proceeding before us, petitioners perfected their appeals from the orders of the District Court to the United States Court of Appeals for the District of Columbia and thereupon filed with this *20 Court petitions for certiorari to the Court of Appeals before judgment, pursuant to § 240 (a) of the Judicial Code, 28 U.S.C. § 347 (a). We granted certiorari before judgment for the reasons which moved us to convene the special term of Court. In accordance with the stipulation of counsel we treat the record, briefs and arguments in the habeas corpus proceedings in this Court as the record, briefs and arguments upon the writs of certiorari.
On July 31, 1942, after hearing argument of counsel and after full consideration of all questions raised, this Court affirmed the orders of the District Court and denied petitioners' applications for leave to file petitions for habeas corpus. By per curiam opinion we announced the decision of the Court, and that the full opinion in the causes would be prepared and filed with the Clerk.
The following facts appear from the petitions or are stipulated. Except as noted they are undisputed.
All the petitioners were born in Germany; all have lived in the United States. All returned to Germany between 1933 and 1941. All except petitioner Haupt are admittedly citizens of the German Reich, with which the United States is at war. Haupt came to this country with his parents when he was five years old; it is contended that he became a citizen of the United States by virtue of the naturalization of his parents during his minority and that he has not since lost his citizenship. The Government, however, takes the position that on attaining his majority he elected to maintain German allegiance and citizenship, or in any case that he has by his conduct renounced or abandoned his United States citizenship. See Perkins v. Elg, 307 U.S. 325, 334; United States ex rel. Rojak v. Marshall, 34 F.2d 219; United States ex rel. Scimeca v. Husband, 6 F.2d 957, 958; 8 U.S.C. § 801, and compare 8 U.S.C. § 808. For reasons presently to be stated we do not find it necessary to resolve these contentions.
*21 After the declaration of war between the United States and the German Reich, petitioners received training at a sabotage school near Berlin, Germany, where they were instructed in the use of explosives and in methods of secret writing. Thereafter petitioners, with a German citizen, Dasch, proceeded from Germany to a seaport in Occupied France, where petitioners Burger, Heinck and Quirin, together with Dasch, boarded a German submarine which proceeded across the Atlantic to Amagansett Beach on Long Island, New York. The four were there landed from the submarine in the hours of darkness, on or about June 13, 1942, carrying with them a supply of explosives, fuses, and incendiary and timing devices. While landing they wore German Marine Infantry uniforms or parts of uniforms. Immediately after landing they buried their uniforms and the other articles mentioned, and proceeded in civilian dress to New York City.
The remaining four petitioners at the same French port boarded another German submarine, which carried them across the Atlantic to Ponte Vedra Beach, Florida. On or about June 17, 1942, they came ashore during the hours of darkness, wearing caps of the German Marine Infantry and carrying with them a supply of explosives, fuses, and incendiary and timing devices. They immediately buried their caps and the other articles mentioned, and proceeded in civilian dress to Jacksonville, Florida, and thence to various points in the United States. All were taken into custody in New York or Chicago by agents of the Federal Bureau of Investigation. All had received instructions in Germany from an officer of the German High Command to destroy war industries and war facilities in the United States, for which they or their relatives in Germany were to receive salary payments from the German Government. They also had been paid by the German Government during their course of training at the sabotage school and had received substantial sums in *22 United States currency, which were in their possession when arrested. The currency had been handed to them by an officer of the German High Command, who had instructed them to wear their German uniforms while landing in the United States.[1]
The President, as President and Commander in Chief of the Army and Navy, by Order of July 2, 1942,[2] appointed a Military Commission and directed it to try petitioners for offenses against the law of war and the Articles of War, and prescribed regulations for the procedure on the trial and for review of the record of the trial and of any judgment or sentence of the Commission. On the same day, by Proclamation,[3] the President declared that "all persons who are subjects, citizens or residents of any nation at war with the United States or who give obedience to or act under the direction of any such nation, *23 and who during time of war enter or attempt to enter the United States . . . through coastal or boundary defenses, and are charged with committing or attempting or preparing to commit sabotage, espionage, hostile or warlike acts, or violations of the law of war, shall be subject to the law of war and to the jurisdiction of military tribunals."
The Proclamation also stated in terms that all such persons were denied access to the courts.
Pursuant to direction of the Attorney General, the Federal Bureau of Investigation surrendered custody of petitioners to respondent, Provost Marshal of the Military District of Washington, who was directed by the Secretary of War to receive and keep them in custody, and who thereafter held petitioners for trial before the Commission.
On July 3, 1942, the Judge Advocate General's Department of the Army prepared and lodged with the Commission the following charges against petitioners, supported by specifications:
1. Violation of the law of war.
2. Violation of Article 81 of the Articles of War, defining the offense of relieving or attempting to relieve, or corresponding with or giving intelligence to, the enemy.
3. Violation of Article 82, defining the offense of spying.
4. Conspiracy to commit the offenses alleged in charges 1, 2 and 3.
The Commission met on July 8, 1942, and proceeded with the trial, which continued in progress while the causes were pending in this Court. On July 27th, before petitioners' applications to the District Court, all the evidence for the prosecution and the defense had been taken by the Commission and the case had been closed except for arguments of counsel. It is conceded that ever since petitioners' arrest the state and federal courts in Florida, New York, and the District of Columbia, and in *24 the states in which each of the petitioners was arrested or detained, have been open and functioning normally.
While it is the usual procedure on an application for a writ of habeas corpus in the federal courts for the court to issue the writ and on the return to hear and dispose of the case, it may without issuing the writ consider and determine whether the facts alleged by the petition, if proved, would warrant discharge of the prisoner. Walker v. Johnston, 312 U.S. 275, 284. Presentation of the petition for judicial action is the institution of a suit. Hence denial by the district court of leave to file the petitions in these causes was the judicial determination of a case or controversy, reviewable on appeal to the Court of Appeals and reviewable here by certiorari. See Ex parte Milligan, 4 Wall. 2, 110-13; Betts v. Brady, 316 U.S. 455, 458-461.
Petitioners' main contention is that the President is without any statutory or constitutional authority to order the petitioners to be tried by military tribunal for offenses with which they are charged; that in consequence they are entitled to be tried in the civil courts with the safeguards, including trial by jury, which the Fifth and Sixth Amendments guarantee to all persons charged in such courts with criminal offenses. In any case it is urged that the President's Order, in prescribing the procedure of the Commission and the method for review of its findings and sentence, and the proceedings of the Commission under the Order, conflict with Articles of War adopted by Congress particularly Articles 38, 43, 46, 50 1/2 and 70 and are illegal and void.
The Government challenges each of these propositions. But regardless of their merits, it also insists that petitioners must be denied access to the courts, both because they are enemy aliens or have entered our territory as enemy belligerents, and because the President's Proclamation undertakes in terms to deny such access to the class of *25 persons defined by the Proclamation, which aptly describes the character and conduct of petitioners. It is urged that if they are enemy aliens or if the Proclamation has force, no court may afford the petitioners a hearing. But there is certainly nothing in the Proclamation to preclude access to the courts for determining its applicability to the particular case. And neither the Proclamation nor the fact that they are enemy aliens forecloses consideration by the courts of petitioners' contentions that the Constitution and laws of the United States constitutionally enacted forbid their trial by military commission. As announced in our per curiam opinion, we have resolved those questions by our conclusion that the Commission has jurisdiction to try the charge preferred against petitioners. There is therefore no occasion to decide contentions of the parties unrelated to this issue. We pass at once to the consideration of the basis of the Commission's authority.
We are not here concerned with any question of the guilt or innocence of petitioners.[4] Constitutional safeguards for the protection of all who are charged with offenses are not to be disregarded in order to inflict merited punishment on some who are guilty. Ex parte Milligan, supra, 119, 132; Tumey v. Ohio, 273 U.S. 510, 535; Hill v. Texas, 316 U.S. 400, 406. But the detention and trial of petitioners ordered by the President in the declared exercise of his powers as Commander in Chief of the Army in time of war and of grave public danger are not to be set aside by the courts without the clear conviction that they are in conflict with the Constitution or laws of Congress constitutionally enacted.
Congress and the President, like the courts, possess no power not derived from the Constitution. But one of *26 the objects of the Constitution, as declared by its preamble, is to "provide for the common defence." As a means to that end, the Constitution gives to Congress the power to "provide for the common Defence," Art. I, § 8, cl. 1; "To raise and support Armies," "To provide and maintain a Navy," Art. I, § 8, cl. 12, 13; and "To make Rules for the Government and Regulation of the land and naval Forces," Art. I, § 8, cl. 14. Congress is given authority "To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water," Art. I, § 8, cl. 11; and "To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations," Art. I, § 8, cl. 10. And finally, the Constitution authorizes Congress "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof." Art. I, § 8, cl. 18.
The Constitution confers on the President the "executive Power," Art. II, § 1, cl. 1, and imposes on him the duty to "take Care that the Laws be faithfully executed." Art. II, § 3. It makes him the Commander in Chief of the Army and Navy, Art. II, § 2, cl. 1, and empowers him to appoint and commission officers of the United States. Art. II, § 3, cl. 1.
The Constitution thus invests the President, as Commander in Chief, with the power to wage war which Congress has declared, and to carry into effect all laws passed by Congress for the conduct of war and for the government and regulation of the Armed Forces, and all laws defining and punishing offenses against the law of nations, including those which pertain to the conduct of war.
By the Articles of War, 10 U.S.C. §§ 1471-1593, Congress has provided rules for the government of the Army. It has provided for the trial and punishment, by courts *27 martial, of violations of the Articles by members of the armed forces and by specified classes of persons associated or serving with the Army. Arts. 1, 2. But the Articles also recognize the "military commission" appointed by military command as an appropriate tribunal for the trial and punishment of offenses against the law of war not ordinarily tried by court martial. See Arts. 12, 15. Articles 38 and 46 authorize the President, with certain limitations, to prescribe the procedure for military commissions. Articles 81 and 82 authorize trial, either by court martial or military commission, of those charged with relieving, harboring or corresponding with the enemy and those charged with spying. And Article 15 declares that "the provisions of these articles conferring jurisdiction upon courts martial shall not be construed as depriving military commissions . . . or other military tribunals of concurrent jurisdiction in respect of offenders or offenses that by statute or by the law of war may be triable by such military commissions . . . or other military tribunals." Article 2 includes among those persons subject to military law the personnel of our own military establishment. But this, as Article 12 provides, does not exclude from that class "any other person who by the law of war is subject to trial by military tribunals" and who under Article 12 may be tried by court martial or under Article 15 by military commission.
Similarly the Espionage Act of 1917, which authorizes trial in the district courts of certain offenses that tend to interfere with the prosecution of war, provides that nothing contained in the act "shall be deemed to limit the jurisdiction of the general courts-martial, military commissions, or naval courts-martial." 50 U.S.C. § 38.
From the very beginning of its history this Court has recognized and applied the law of war as including that part of the law of nations which prescribes, for the conduct *28 of war, the status, rights and duties of enemy nations as well as of enemy individuals.[5] By the Articles of War, and especially Article 15, Congress has explicitly provided, so far as it may constitutionally do so, that military tribunals shall have jurisdiction to try offenders or offenses against the law of war in appropriate cases. Congress, in addition to making rules for the government of our Armed Forces, has thus exercised its authority to define and punish offenses against the law of nations by sanctioning, within constitutional limitations, the jurisdiction of military commissions to try persons for offenses which, according to the rules and precepts of the law of nations, and more particularly the law of war, are cognizable by such tribunals. And the President, as Commander in Chief, by his Proclamation in time of war has invoked that law. By his Order creating the present Commission he has undertaken to exercise the authority conferred upon him by Congress, and also such authority as the Constitution itself gives the Commander in Chief, to direct the performance of those functions which may constitutionally be performed by the military arm of the nation in time of war.
An important incident to the conduct of war is the adoption of measures by the military command not only to repel and defeat the enemy, but to seize and subject to disciplinary measures those enemies who in their attempt to thwart or impede our military effort have violated the law *29 of war. It is unnecessary for present purposes to determine to what extent the President as Commander in Chief has constitutional power to create military commissions without the support of Congressional legislation. For here Congress has authorized trial of offenses against the law of war before such commissions. We are concerned only with the question whether it is within the constitutional power of the National Government to place petitioners upon trial before a military commission for the offenses with which they are charged. We must therefore first inquire whether any of the acts charged is an offense against the law of war cognizable before a military tribunal, and if so whether the Constitution prohibits the trial. We may assume that there are acts regarded in other countries, or by some writers on international law, as offenses against the law of war which would not be triable by military tribunal here, either because they are not recognized by our courts as violations of the law of war or because they are of that class of offenses constitutionally triable only by a jury. It was upon such grounds that the Court denied the right to proceed by military tribunal in Ex parte Milligan, supra. But as we shall show, these petitioners were charged with an offense against the law of war which the Constitution does not require to be tried by jury.
It is no objection that Congress in providing for the trial of such offenses has not itself undertaken to codify that branch of international law or to mark its precise boundaries, or to enumerate or define by statute all the acts which that law condemns. An Act of Congress punishing "the crime of piracy, as defined by the law of nations" is an appropriate exercise of its constitutional authority, Art. I, § 8, cl. 10, "to define and punish" the offense, since it has adopted by reference the sufficiently precise definition of international law. United States v. Smith, 5 Wheat. 153; see The Marianna Flora, 11 Wheat. 1, 40-41; *30 United States v. Brig Malek Adhel, 2 How. 210, 232; The Ambrose Light, 25 F. 408, 423-28; 18 U.S.C. § 481.[6] Similarly, by the reference in the 15th Article of War to "offenders or offenses that . . . by the law of war may be triable by such military commissions," Congress has incorporated by reference, as within the jurisdiction of military commissions, all offenses which are defined as such by the law of war (compare Dynes v. Hoover, 20 How. 65, 82), and which may constitutionally be included within that jurisdiction. Congress had the choice of crystallizing in permanent form and in minute detail every offense against the law of war, or of adopting the system of common law applied by military tribunals so far as it should be recognized and deemed applicable by the courts. It chose the latter course.
By universal agreement and practice, the law of war draws a distinction between the armed forces and the peaceful populations of belligerent nations[7] and also between *31 those who are lawful and unlawful combatants. Lawful combatants are subject to capture and detention as prisoners of war by opposing military forces. Unlawful combatants are likewise subject to capture and detention, but in addition they are subject to trial and punishment by military tribunals for acts which render their belligerency unlawful.[8] The spy who secretly and without uniform passes the military lines of a belligerent in time of war, seeking to gather military information and communicate it to the enemy, or an enemy combatant who without uniform comes secretly through the lines for the purpose of waging war by destruction of life or property, are familiar examples of belligerents who are generally deemed not to be entitled to the status of prisoners of war, but to be offenders against the law of war subject to trial and punishment by military tribunals. See Winthrop, Military Law, 2d ed., pp. 1196-97, 1219-21; Instructions for the Government of Armies of the United States in the Field, approved by the President, General Order No. 100, April 24, 1863, §§ IV and V.
Such was the practice of our own military authorities before the adoption of the Constitution,[9] and during the Mexican and Civil Wars.[10]
*32 Paragraph 83 of General Order No. 100 of April 24, 1863, directed that: "Scouts or single soldiers, if disguised in the dress of the country, or in the uniform of the army hostile to their own, employed in obtaining information, if found within or lurking about the lines of the captor, are treated as spies, and suffer death." And Paragraph *33 84, that "Armed prowlers, by whatever names they may be called, or persons of the enemy's territory, who steal within the lines of the hostile army, for the purpose of robbing, killing, or of destroying bridges, roads, or canals, or of robbing or destroying the mail, or of cutting the telegraph wires, are not entitled to the privileges of the prisoner of war."[11] These and related provisions have *34 been continued in substance by the Rules of Land Warfare promulgated by the War Department for the guidance of the Army. Rules of 1914, Par. 369-77; Rules of 1940, Par. 345-57. Paragraph 357 of the 1940 Rules provides that "All war crimes are subject to the death penalty, although a lesser penalty may be imposed." Paragraph 8 (1940) divides the enemy population into "armed forces" and "peaceful population," and Paragraph 9 names as distinguishing characteristics of lawful belligerents that they "carry arms openly" and "have a fixed distinctive emblem." Paragraph 348 declares that "persons who take up arms and commit hostilities" without having the means of identification prescribed for belligerents are punishable as "war criminals." Paragraph 351 provides that "men and bodies of men, who, without being lawful belligerents" "nevertheless commit hostile acts of any kind" are not entitled to the privileges of prisoners of war if captured and may be tried by military commission and punished by death or lesser punishment. And paragraph 352 provides that "armed prowlers . . . or persons of the enemy territory who steal within the lines of the hostile army for the purpose of robbing, killing, or of destroying bridges, roads, or canals, of robbing or destroying the mail, or of cutting the telegraph wires, are not entitled to be treated as prisoners of war." As is evident from reading these and related Paragraphs 345-347, the specified violations are intended to be only illustrative of the applicable principles of the common law of war, and not an exclusive enumeration of the punishable acts recognized as such by that law. The definition of lawful belligerents by Paragraph 9 is that adopted by Article 1, Annex to Hague Convention No. IV of October 18, 1907, to which the United States was a signatory and which was ratified by the Senate in 1909. 36 Stat. 2295. The preamble to the Convention declares:
*35 "Until a more complete code of the laws of war has been issued, the High Contracting Parties deem it expedient to declare that, in cases not included in the Regulations adopted by them, the inhabitants and the belligerents remain under the protection and the rule of the principles of the law of nations, as they result from the usages established among civilized peoples, from the laws of humanity, and the dictates of the public conscience."
Our Government, by thus defining lawful belligerents entitled to be treated as prisoners of war, has recognized that there is a class of unlawful belligerents not entitled to that privilege, including those who, though combatants, do not wear "fixed and distinctive emblems." And by Article 15 of the Articles of War Congress has made provision for their trial and punishment by military commission, according to "the law of war."
By a long course of practical administrative construction by its military authorities, our Government has likewise recognized that those who during time of war pass surreptitiously from enemy territory into our own, discarding their uniforms upon entry, for the commission of hostile acts involving destruction of life or property, have the status of unlawful combatants punishable as such by military commission. This precept of the law of war has been so recognized in practice both here and abroad, and has so generally been accepted as valid by authorities on international law[12] that we think it must be regarded as *36 a rule or principle of the law of war recognized by this Government by its enactment of the Fifteenth Article of War.
Specification 1 of the first charge is sufficient to charge all the petitioners with the offense of unlawful belligerency, trial of which is within the jurisdiction of the Commission, and the admitted facts affirmatively show that the charge is not merely colorable or without foundation.
Specification 1 states that petitioners, "being enemies of the United States and acting for . . . the German Reich, a belligerent enemy nation, secretly and covertly passed, in civilian dress, contrary to the law of war, through the military and naval lines and defenses of the United States . . . and went behind such lines, contrary to the law of war, in civilian dress. . . for the purpose of committing . . . hostile acts, and, in particular, to destroy certain war industries, war utilities and war materials within the United States."
This specification so plainly alleges violation of the law of war as to require but brief discussion of petitioners' contentions. As we have seen, entry upon our territory *37 in time of war by enemy belligerents, including those acting under the direction of the armed forces of the enemy, for the purpose of destroying property used or useful in prosecuting the war, is a hostile and warlike act. It subjects those who participate in it without uniform to the punishment prescribed by the law of war for unlawful belligerents. It is without significance that petitioners were not alleged to have borne conventional weapons or that their proposed hostile acts did not necessarily contemplate collision with the Armed Forces of the United States. Paragraphs 351 and 352 of the Rules of Land Warfare, already referred to, plainly contemplate that the hostile acts and purposes for which unlawful belligerents may be punished are not limited to assaults on the Armed Forces of the United States. Modern warfare is directed at the destruction of enemy war supplies and the implements of their production and transportation, quite as much as at the armed forces. Every consideration which makes the unlawful belligerent punishable is equally applicable whether his objective is the one or the other. The law of war cannot rightly treat those agents of enemy armies who enter our territory, armed with explosives intended for the destruction of war industries and supplies, as any the less belligerent enemies than are agents similarly entering for the purpose of destroying fortified places or our Armed Forces. By passing our boundaries for such purposes without uniform or other emblem signifying their belligerent status, or by discarding that means of identification after entry, such enemies become unlawful belligerents subject to trial and punishment.
Citizenship in the United States of an enemy belligerent does not relieve him from the consequences of a belligerency which is unlawful because in violation of the law of war. Citizens who associate themselves with the military arm of the enemy government, and with its aid, *38 guidance and direction enter this country bent on hostile acts, are enemy belligerents within the meaning of the Hague Convention and the law of war. Cf. Gates v. Goodloe, 101 U.S. 612, 615, 617-18. It is as an enemy belligerent that petitioner Haupt is charged with entering the United States, and unlawful belligerency is the gravamen of the offense of which he is accused.
Nor are petitioners any the less belligerents if, as they argue, they have not actually committed or attempted to commit any act of depredation or entered the theatre or zone of active military operations. The argument leaves out of account the nature of the offense which the Government charges and which the Act of Congress, by incorporating the law of war, punishes. It is that each petitioner, in circumstances which gave him the status of an enemy belligerent, passed our military and naval lines and defenses or went behind those lines, in civilian dress and with hostile purpose. The offense was complete when with that purpose they entered or, having so entered, they remained upon our territory in time of war without uniform or other appropriate means of identification. For that reason, even when committed by a citizen, the offense is distinct from the crime of treason defined in Article III, § 3 of the Constitution, since the absence of uniform essential to one is irrelevant to the other. Cf. Morgan v. Devine, 237 U.S. 632; Albrecht v. United States, 273 U.S. 1, 11-12.
But petitioners insist that, even if the offenses with which they are charged are offenses against the law of war, their trial is subject to the requirement of the Fifth Amendment that no person shall be held to answer for a capital or otherwise infamous crime unless on a presentment or indictment of a grand jury, and that such trials by Article III, § 2, and the Sixth Amendment must be by jury in a civil court. Before the Amendments, § 2 of Article *39 III, the Judiciary Article, had provided, "The Trial of all Crimes, except in Cases of Impeachment, shall be by Jury," and had directed that "such Trial shall be held in the State where the said Crimes shall have been committed."
Presentment by a grand jury and trial by a jury of the vicinage where the crime was committed were at the time of the adoption of the Constitution familiar parts of the machinery for criminal trials in the civil courts. But they were procedures unknown to military tribunals, which are not courts in the sense of the Judiciary Article, Ex parte Vallandigham, 1 Wall. 243; In re Vidal, 179 U.S. 126; cf. Williams v. United States, 289 U.S. 553, and which in the natural course of events are usually called upon to function under conditions precluding resort to such procedures. As this Court has often recognized, it was not the purpose or effect of § 2 of Article III, read in the light of the common law, to enlarge the then existing right to a jury trial. The object was to preserve unimpaired trial by jury in all those cases in which it had been recognized by the common law and in all cases of a like nature as they might arise in the future, District of Columbia v. Colts, 282 U.S. 63, but not to bring within the sweep of the guaranty those cases in which it was then well understood that a jury trial could not be demanded as of right.
The Fifth and Sixth Amendments, while guaranteeing the continuance of certain incidents of trial by jury which Article III, § 2 had left unmentioned, did not enlarge the right to jury trial as it had been established by that Article. Callan v. Wilson, 127 U.S. 540, 549. Hence petty offenses triable at common law without a jury may be tried without a jury in the federal courts, notwithstanding Article III, § 2, and the Fifth and Sixth Amendments. Schick v. United States, 195 U.S. 65; District of Columbia *40 v. Clawans, 300 U.S. 617. Trial by jury of criminal contempts may constitutionally be dispensed with in the federal courts in those cases in which they could be tried without a jury at common law. Ex parte Terry, 128 U.S. 289, 302-04; Savin, Petitioner, 131 U.S. 267, 277; In re Debs, 158 U.S. 564, 594-96; United States v. Shipp, 203 U.S. 563, 572; Blackmer v. United States, 284 U.S. 421, 440; Nye v. United States, 313 U.S. 33, 48; see United States v. Hudson and Goodwin, 7 Cranch 32, 34. Similarly, an action for debt to enforce a penalty inflicted by Congress is not subject to the constitutional restrictions upon criminal prosecutions. United States v. Zucker, 161 U.S. 475; United States v. Regan, 232 U.S. 37, and cases cited.
All these are instances of offenses committed against the United States, for which a penalty is imposed, but they are not deemed to be within Article III, § 2, or the provisions of the Fifth and Sixth Amendments relating to "crimes" and "criminal prosecutions." In the light of this long-continued and consistent interpretation we must conclude that § 2 of Article III and the Fifth and Sixth Amendments cannot be taken to have extended the right to demand a jury to trials by military commission, or to have required that offenses against the law of war not triable by jury at common law be tried only in the civil courts.
The fact that "cases arising in the land or naval forces" are excepted from the operation of the Amendments does not militate against this conclusion. Such cases are expressly excepted from the Fifth Amendment, and are deemed excepted by implication from the Sixth. Ex parte Milligan, supra, 123, 138-39. It is argued that the exception, which excludes from the Amendment cases arising in the armed forces, has also by implication extended its guaranty to all other cases; that since petitioners, not being members of the Armed Forces of the United States, are not within the exception, the Amendment operates to *41 give to them the right to a jury trial. But we think this argument misconceives both the scope of the Amendment and the purpose of the exception.
We may assume, without deciding, that a trial prosecuted before a military commission created by military authority is not one "arising in the land . . . forces," when the accused is not a member of or associated with those forces. But even so, the exception cannot be taken to affect those trials before military commissions which are neither within the exception nor within the provisions of Article III, § 2, whose guaranty the Amendments did not enlarge. No exception is necessary to exclude from the operation of these provisions cases never deemed to be within their terms. An express exception from Article III, § 2, and from the Fifth and Sixth Amendments, of trials of petty offenses and of criminal contempts has not been found necessary in order to preserve the traditional practice of trying those offenses without a jury. It is no more so in order to continue the practice of trying, before military tribunals without a jury, offenses committed by enemy belligerents against the law of war.
Section 2 of the Act of Congress of April 10, 1806, 2 Stat. 371, derived from the Resolution of the Continental Congress of August 21, 1776,[13] imposed the death penalty on alien spies "according to the law and usage of nations, by sentence of a general court martial." This enactment must be regarded as a contemporary construction of both Article III, § 2, and the Amendments as not foreclosing trial by military tribunals, without a jury, of offenses against the law of war committed by enemies not in or associated with our Armed Forces. It is a construction of the Constitution which has been followed since the founding of our Government, and is now continued in the 82nd Article of War. Such a construction is entitled to *42 the greatest respect. Stuart v. Laird, 1 Cranch 299, 309; Field v. Clark, 143 U.S. 649, 691; United States v. Curtiss-Wright Corp., 299 U.S. 304, 328. It has not hitherto been challenged, and, so far as we are advised, it has never been suggested in the very extensive literature of the subject that an alien spy, in time of war, could not be tried by military tribunal without a jury.[14]
*43 The exception from the Amendments of "cases arising in the land or naval forces" was not aimed at trials by military tribunals, without a jury, of such offenses against the law of war. Its objective was quite different to authorize the trial by court martial of the members of our Armed Forces for all that class of crimes which under the Fifth and Sixth Amendments might otherwise have been deemed triable in the civil courts. The cases mentioned in the exception are not restricted to those involving offenses against the law of war alone, but extend to trial of all offenses, including crimes which were of the class traditionally triable by jury at common law. Ex parte Mason, 105 U.S. 696; Kahn v. Anderson, 255 U.S. 1, 8-9; cf. Caldwell v. Parker, 252 U.S. 376.
*44 Since the Amendments, like § 2 of Article III, do not preclude all trials of offenses against the law of war by military commission without a jury when the offenders are aliens not members of our Armed Forces, it is plain that they present no greater obstacle to the trial in like manner of citizen enemies who have violated the law of war applicable to enemies. Under the original statute authorizing trial of alien spies by military tribunals, the offenders were outside the constitutional guaranty of trial by jury, not because they were aliens but only because they had violated the law of war by committing offenses constitutionally triable by military tribunal.
We cannot say that Congress in preparing the Fifth and Sixth Amendments intended to extend trial by jury to the cases of alien or citizen offenders against the law of war otherwise triable by military commission, while withholding it from members of our own armed forces charged with infractions of the Articles of War punishable by death. It is equally inadmissible to construe the Amendments *45 whose primary purpose was to continue unimpaired presentment by grand jury and trial by petit jury in all those cases in which they had been customary as either abolishing all trials by military tribunals, save those of the personnel of our own armed forces, or, what in effect comes to the same thing, as imposing on all such tribunals the necessity of proceeding against unlawful enemy belligerents only on presentment and trial by jury. We conclude that the Fifth and Sixth Amendments did not restrict whatever authority was conferred by the Constitution to try offenses against the law of war by military commission, and that petitioners, charged with such an offense not required to be tried by jury at common law, were lawfully placed on trial by the Commission without a jury.
Petitioners, and especially petitioner Haupt, stress the pronouncement of this Court in the Milligan case, supra, p. 121, that the law of war "can never be applied to citizens in states which have upheld the authority of the government, and where the courts are open and their process unobstructed." Elsewhere in its opinion, at pp. 118, 121-22 and 131, the Court was at pains to point out that Milligan, a citizen twenty years resident in Indiana, who had never been a resident of any of the states in rebellion, was not an enemy belligerent either entitled to the status of a prisoner of war or subject to the penalties imposed upon unlawful belligerents. We construe the Court's statement as to the inapplicability of the law of war to Milligan's case as having particular reference to the facts before it. From them the Court concluded that Milligan, not being a part of or associated with the armed forces of the enemy, was a non-belligerent, not subject to the law of war save as in circumstances found not there to be present, and not involved here martial law might be constitutionally established.
The Court's opinion is inapplicable to the case presented by the present record. We have no occasion now to define *46 with meticulous care the ultimate boundaries of the jurisdiction of military tribunals to try persons according to the law of war. It is enough that petitioners here, upon the conceded facts, were plainly within those boundaries, and were held in good faith for trial by military commission, charged with being enemies who, with the purpose of destroying war materials and utilities, entered, or after entry remained in, our territory without uniform an offense against the law of war. We hold only that those particular acts constitute an offense against the law of war which the Constitution authorizes to be tried by military commission.
Since the first specification of Charge I sets forth a violation of the law of war, we have no occasion to pass on the adequacy of the second specification of Charge I, or to construe the 81st and 82nd Articles of War for the purpose of ascertaining whether the specifications under Charges II and III allege violations of those Articles or whether if so construed they are constitutional. McNally v. Hill, 293 U.S. 131.
There remains the contention that the President's Order of July 2, 1942, so far as it lays down the procedure to be followed on the trial before the Commission and on the review of its findings and sentence, and the procedure in fact followed by the Commission, are in conflict with Articles of War 38, 43, 46, 50 1/2 and 70. Petitioners argue that their trial by the Commission, for offenses against the law of war and the 81st and 82nd Articles of War, by a procedure which Congress has prohibited would invalidate any conviction which could be obtained against them and renders their detention for trial likewise unlawful (see McClaughry v. Deming, 186 U.S. 49; United States v. Brown, 206 U.S. 240, 244; Runkle v. United States, 122 U.S. 543, 555-56; Dynes v. Hoover, 20 How. 65, 80-81); that the President's Order prescribes such an unlawful *47 procedure; and that the secrecy surrounding the trial and all proceedings before the Commission, as well as any review of its decision, will preclude a later opportunity to test the lawfulness of the detention.
Petitioners do not argue and we do not consider the question whether the President is compelled by the Articles of War to afford unlawful enemy belligerents a trial before subjecting them to disciplinary measures. Their contention is that, if Congress has authorized their trial by military commission upon the charges preferred violations of the law of war and the 81st and 82nd Articles of War it has by the Articles of War prescribed the procedure by which the trial is to be conducted; and that, since the President has ordered their trial for such offenses by military commission, they are entitled to claim the protection of the procedure which Congress has commanded shall be controlling.
We need not inquire whether Congress may restrict the power of the Commander in Chief to deal with enemy belligerents. For the Court is unanimous in its conclusion that the Articles in question could not at any stage of the proceedings afford any basis for issuing the writ. But a majority of the full Court are not agreed on the appropriate grounds for decision. Some members of the Court are of opinion that Congress did not intend the Articles of War to govern a Presidential military commission convened for the determination of questions relating to admitted enemy invaders, and that the context of the Articles makes clear that they should not be construed to apply in that class of cases. Others are of the view that even though this trial is subject to whatever provisions of the Articles of War Congress has in terms made applicable to "commissions" the particular Articles in question, rightly construed, do not foreclose the procedure prescribed by the President or that shown to have been employed *48 by the Commission, in a trial of offenses against the law of war and the 81st and 82nd Articles of War, by a military commission appointed by the President.
Accordingly, we conclude that Charge I, on which petitioners were detained for trial by the Military Commission, alleged an offense which the President is authorized to order tried by military commission; that his Order convening the Commission was a lawful order and that the Commission was lawfully constituted; that the petitioners were held in lawful custody and did not show cause for their discharge. It follows that the orders of the District Court should be affirmed, and that leave to file petitions for habeas corpus in this Court should be denied.
MR. JUSTICE MURPHY took no part in the consideration or decision of these cases.
The following is the per curiam opinion filed July 31, 1942:
PER CURIAM.
In these causes motions for leave to file petitions for habeas corpus were presented to the United States District Court for the District of Columbia, which entered orders denying the motions. Motions for leave to file petitions for habeas corpus were then presented to this Court, and the merits of the applications were fully argued at the Special Term of Court convened on July 29, 1942. Counsel for petitioners subsequently filed a notice of appeal from the order of the District Court to the United States Court of Appeals for the District of Columbia, and they have perfected their appeals to that court. They have presented to this Court petitions for writs of certiorari before judgment of the United States Court of Appeals for the District of Columbia, pursuant to 28 U.S.C. § 347 (a). The petitions are granted. In accordance with the stipulation between counsel for petitioners and for the respondent, the papers filed and argument had in connection with the applications for leave to file petitions for habeas corpus are made applicable to the certiorari proceedings.
The Court has fully considered the questions raised in these cases and thoroughly argued at the bar, and has reached its conclusion upon them. It now announces its decision and enters its judgment in each case, in advance of the preparation of a full opinion which necessarily will require a considerable period of time for its preparation and which, when prepared, will be filed with the Clerk.
The Court holds:
(1) That the charges preferred against petitioners on which they are being tried by military commission appointed by the order of the President of July 2, 1942, allege an offense or offenses which the President is authorized to order tried before a military commission.
(2) That the military commission was lawfully constituted.
(3) That petitioners are held in lawful custody for trial before the military commission, and have not shown cause for being discharged by writ of habeas corpus.
The motions for leave to file petitions for writs of habeas corpus are denied.
The orders of the District Court are affirmed. The mandates are directed to issue forthwith.
MR. JUSTICE MURPHY took no part in the consideration or decision of these cases.
NOTES
[1] No. ___, Original, Ex parte Richard Quirin; No. ___, Original, Ex parte Herbert Hans Haupt; No. ___, Original, Ex parte Edward John Kerling; No. ___, Original, Ex parte Ernest Peter Burger; No. ___, Original, Ex parte Heinrich Harm Heinck; No. ___, Original, Ex parte Werner Thiel; and No. ___, Original, Ex parte Hermann Otto Neubauer.
[2] No. 1, United States ex rel. Quirin v. Cox, Provost Marshal; No. 2, United States ex rel. Haupt v. Cox, Provost Marshal; No. 3, United States ex rel. Kerling v. Cox, Provost Marshal; No. 4, United States ex rel. Burger v. Cox, Provost Marshal; No. 5, United States ex rel. Heinck v. Cox, Provost Marshal; No. 6, United States ex rel. Thiel v. Cox, Provost Marshal; and No. 7, United States ex rel. Neubauer v. Cox, Provost Marshal.
[3] See footnote, post, p. 18.
[4] Post, p. 18.
[1] From June 12 to June 18, 1942, Amagansett Beach, New York, and Ponte Vedra Beach, Florida, were within the area designated as the Eastern Defense Command of the United States Army, and subject to the provisions of a proclamation dated May 16, 1942, issued by Lieutenant General Hugh A. Drum, United States Army, Commanding General, Eastern Defense Command (see 7 Federal Register 3830). On the night of June 12-13, 1942, the waters around Amagansett Beach, Long Island, were within the area comprising the Eastern Sea Frontier, pursuant to the orders issued by Admiral Ernest J. King, Commander in Chief of the United States Fleet and Chief of Naval Operations. On the night of June 16-17, 1942, the waters around Ponte Vedra Beach, Florida, were within the area comprising the Gulf Sea Frontier, pursuant to similar orders.
On the night of June 12-13, 1942, members of the United States Coast Guard, unarmed, maintained a beach patrol along the beaches surrounding Amagansett, Long Island, under written orders mentioning the purpose of detecting landings. On the night of June 17-18, 1942, the United States Army maintained a patrol of the beaches surrounding and including Ponte Vedra Beach, Florida, under written orders mentioning the purpose of detecting the landing of enemy agents from submarines.
[2] 7 Federal Register 5103.
[3] 7 Federal Register 5101.
[4] As appears from the stipulation, a defense offered before the Military Commission was that petitioners had had no intention to obey the orders given them by the officer of the German High Command.
[5] Talbot v. Janson, 3 Dall. 133, 153, 159-61; Talbot v. Seeman, 1 Cranch 1, 40-41; Maley v. Shattuck, 3 Cranch 458, 488; Fitzsimmons v. Newport Ins. Co., 4 Cranch 185, 199; The Rapid, 8 Cranch 155, 159-64; The St. Lawrence, 9 Cranch 120, 122; Thirty Hogsheads of Sugar v. Boyle, 9 Cranch 191, 197-98; The Anne, 3 Wheat. 435, 447-48; United States v. Reading, 18 How. 1, 10; Prize Cases, 2 Black 635, 666-67, 687; The Venice, 2 Wall. 258, 274; The William Bagaley, 5 Wall. 377; Miller v. United States, 11 Wall. 268; Coleman v. Tennessee, 97 U.S. 509, 517; United States v. Pacific Railroad, 120 U.S. 227, 233; Juragua Iron Co. v. United States, 212 U.S. 297.
[6] Compare 28 U.S.C. § 41 (17), conferring on the federal courts jurisdiction over suits brought by an alien for a tort "in violation of the laws of nations"; 28 U.S.C. § 341, conferring upon the Supreme Court such jurisdiction of suits against ambassadors as a court of law can have "consistently with the law of nations"; 28 U.S.C. § 462, regulating the issuance of habeas corpus where the prisoner claims some right, privilege or exemption under the order of a foreign state, "the validity and effect whereof depend upon the law of nations"; 15 U.S.C. §§ 606 (b) and 713 (b), authorizing certain loans to foreign governments, provided that "no such loans shall be made in violation of international law as interpreted by the Department of State."
[7] Hague Convention No. IV of October 18, 1907, 36 Stat. 2295, Article I of the Annex to which defines the persons to whom belligerent rights and duties attach, was signed by 44 nations. See also Great Britain, War Office, Manual of Military Law (1929) ch. xiv, §§ 17-19; German General Staff, Kriegsbrauch im Landkriege (1902) ch. 1; 7 Moore, Digest of International Law, § 1109; 2 Hyde, International Law (1922) § 653-54; 2 Oppenheim, International Law (6th ed. 1940) § 107; Bluntschli, Droit International (5th ed. tr. Lardy) §§ 531-32; 4 Calvo, Le Droit International Theorique et Pratique (5th ed. 1896) §§ 2034-35.
[8] Great Britain, War Office, Manual of Military Law, ch. xiv, §§ 445-451; Regolamento di Servizio in Guerra, § 133, 3 Leggi e Decreti del Regno d'Italia (1896) 3184; 7 Moore, Digest of International Law, § 1109; 2 Hyde, International Law, §§ 654, 652; 2 Halleck, International Law (4th ed. 1908) § 4; 2 Oppenheim, International Law, § 254; Hall, International Law, §§ 127, 135; Baty & Morgan, War, Its Conduct and Legal Results (1915) 172; Bluntschli, Droit International, §§ 570 bis.
[9] On September 29, 1780, Major John Andre, Adjutant-General to the British Army, was tried by a "Board of General Officers" appointed by General Washington, on a charge that he had come within the lines for an interview with General Benedict Arnold and had been captured while in disguise and travelling under an assumed name. The Board found that the facts charged were true, and that when captured Major Andre had in his possession papers containing intelligence for the enemy, and reported their conclusion that "Major Andre .. . ought to be considered as a Spy from the enemy, and that agreeably to the law and usage of nations . . . he ought to suffer death." Major Andre was hanged on October 2, 1780. Proceedings of a Board of General Officers Respecting Major John Andre, Sept. 29, 1780, printed at Philadelphia in 1780.
[10] During the Mexican War military commissions were created in a large number of instances for the trial of various offenses. See General Orders cited in 2 Winthrop, Military Law (2d ed. 1896) p. 1298, note 1.
During the Civil War the military commission was extensively used for the trial of offenses against the law of war. Among the more significant cases for present purposes are the following:
On May 22, 1865, T.E. Hogg and others were tried by a military commission, for "violations of the laws and usages of civilized war," the specifications charging that the accused "being commissioned, enrolled, enlisted or engaged" by the Confederate Government, came on board a United States merchant steamer in the port of Panama "in the guise of peaceful passengers" with the purpose of capturing the vessel and converting her into a Confederate cruiser. The Commission found the accused guilty and sentenced them to be hanged. The reviewing authority affirmed the judgments, writing an extensive opinion on the question whether violations of the law of war were alleged, but modified the sentences to imprisonment for life and for various periods of years. Dept. of the Pacific, G.O. No. 52, June 27, 1865.
On January 17, 1865, John Y. Beall was tried by a military commission for "violation of the laws of war." The opinion by the reviewing authority reveals that Beall, holding a commission in the Confederate Navy, came on board a merchant vessel at a Canadian port in civilian dress and, with associates, took possession of the vessel in Lake Erie; that, also in disguise, he unsuccessfully attempted to derail a train in New York State, and to obtain military information. His conviction by the Commission was affirmed on the ground that he was both a spy and a "guerrilla," and he was sentenced to be hanged. Dept. of the East, G.O. No. 14, Feb. 14, 1865.
On January 17, 1865, Robert C. Kennedy, a Captain of the Confederate Army, who was shown to have attempted, while in disguise, to set fire to the City of New York, and to have been seen in disguise in various parts of New York State, was convicted on charges of acting as a spy and violation of the law of war "in undertaking to carry on irregular and unlawful warfare." He was sentenced to be hanged, and the sentence was confirmed by the reviewing authority. Dept. of the East, G.O. No. 24, March 20, 1865.
On September 19, 1865, William Murphy, "a rebel emissary in the employ of and colleagued with rebel enemies," was convicted by a military commission of "violation of the laws and customs of war" for coming within the lines and burning a United States steamboat and other property. G.C.M.O. No. 107, April 18, 1866.
Soldiers and officers "now or late of the Confederate Army," were tried and convicted by military commission for "being secretly within the lines of the United States forces," James Hamilton, Dept. of the Ohio, G.O. No. 153, Sept. 18, 1863; for "recruiting men within the lines," Daniel Davis, G.O. No. 397, Dec. 18, 1863, and William F. Corbin and T.G. McGraw, G.O. No. 114, May 4, 1863; and for "lurking about the posts, quarters, fortifications and encampments of the armies of the United States," although not "as a spy," Augustus A. Williams, Middle Dept., G.O. No. 34, May 5, 1864. For other cases of violations of the law of war punished by military commissions during the Civil War, see 2 Winthrop, Military Laws and Precedents (2d ed. 1896) 1310-11.
[11] See also Paragraph 100: "A messenger or agent who attempts to steal through the territory occupied by the enemy, to further, in any manner, the interests of the enemy, if captured, is not entitled to the privileges of the prisoner of war, and may be dealt with according to the circumstances of the case."
Compare Paragraph 101.
[12] Great Britain, War Office, Manual of Military Law (1929) § 445, lists a large number of acts which, when committed within enemy lines by persons in civilian dress associated with or acting under the direction of enemy armed forces, are "war crimes." The list includes: "damage to railways, war material, telegraph, or other means of communication, in the interest of the enemy. . .." Section 449 states that all "war crimes" are punishable by death.
Authorities on International Law have regarded as war criminals such persons who pass through the lines for the purpose of (a) destroying bridges, war materials, communication facilities, etc.: 2 Oppenheim, International Law (6th ed. 1940) § 255; Spaight, Air Power and War Rights (1924) 283; Spaight, War Rights on Land (1911) 110; Phillipson, International Law and the Great War (1915) 208; Liszt, Das Volkerrecht (12 ed. 1925), § 58 (B) 4; (b) carrying messages secretly: Hall, International Law (8th ed. 1924) § 188; Spaight, War Rights on Land 215; 3 Merignhac, Droit Public International (1912) 296-97; Bluntschli, Droit International Codifie (5th ed. tr. Lardy) § 639; 4 Calvo, Le Droit International Theorique et Pratique (5th ed. 1896) § 2119; (c) any hostile act: 2 Winthrop, Military Law and Precedents, (2nd ed. 1896) 1224. Cf. Lieber, Guerrilla Parties (1862), 2 Miscellaneous Writings (1881) 288.
These authorities are unanimous in stating that a soldier in uniform who commits the acts mentioned would be entitled to treatment as a prisoner of war; it is the absence of uniform that renders the offender liable to trial for violation of the laws of war.
[13] See Morgan, Court-Martial Jurisdiction over Non-Military Persons under the Articles of War, 4 Minnesota L. Rev. 79, 107-09.
[14] In a number of cases during the Revolutionary War enemy spies were tried and convicted by military tribunals: (1) Major John Andre, Sept. 29, 1780, see note 9 supra. (2) Thomas Shanks was convicted by a "Board of General Officers" at Valley Forge on June 3, 1778, for "being a Spy in the Service of the Enemy," and sentenced to be hanged. 12 Writings of Washington (Bicentennial Comm'n ed.) 14. (3) Matthias Colbhart was convicted of "holding a Correspondence with the Enemy" and "living as a Spy among the Continental Troops" by a General Court Martial convened by order of Major General Putnam on Jan. 13, 1778; General Washington, the Commander in Chief, ordered the sentence of death to be executed, 12 Id. 449-50. (4) John Clawson, Ludwick Lasick, and William Hutchinson were convicted of "lurking as spies in the Vicinity of the Army of the United States" by a General Court Martial held on June 18, 1780. The death sentence was confirmed by the Commander in Chief. 19 Id. 23. (5) David Farnsworth and John Blair were convicted of "being found about the Encampment of the United States as Spies" by a Division General Court Martial held on Oct. 8, 1778 by order of Major General Gates. The death sentence was confirmed by the Commander in Chief. 13 Id. 139-40. (6) Joseph Bettys was convicted of being "a Spy for General Burgoyne" by coming secretly within the American lines, by a General Court Martial held on April 6, 1778 by order of Major General McDougall. The death sentence was confirmed by the Commander in Chief. 15 Id. 364. (7) Stephen Smith was convicted of "being a Spy" by a General Court Martial held on Jan. 6, 1778. The death sentence was confirmed by Major General McDougall. Ibid. (8) Nathaniel Aherly and Reuben Weeks, Loyalist soldiers, were sentenced to be hanged as spies. Proceedings of a General Court Martial Convened at West Point According to a General Order of Major General Arnold, Aug. 20-21, 1780 (National Archives, War Dept., Revolutionary War Records, MS No. 31521). (9) Jonathan Loveberry, a Loyalist soldier, was sentenced to be hanged as a spy. Proceedings of a General Court Martial Convened at the Request of Major General Arnold at the Township of Bedford, Aug. 30-31, 1780 (Id. MS No. 31523). He later escaped, 20 Writings of Washington 253n. (10) Daniel Taylor, a lieutenant in the British Army, was convicted as a spy by a general court martial convened on Oct. 14, 1777, by order of Brigadier General George Clinton, and was hanged. 2 Public Papers of George Clinton (1900) 443. (11) James Molesworth was convicted as a spy and sentenced to death by a general court martial held at Philadelphia, March 29, 1777; Congress confirmed the order of Major General Gates for the execution of the sentence. 7 Journals of the Continental Congress 210. See also cases of "M.A." and "D.C.," G.O. Headquarters of General Sullivan, Providence, R.I., July 24, 1778, reprinted in Niles, Principles and Acts of the Revolution (1822) 369; of Lieutenant Palmer, 9 Writings of Washington, 56n; of Daniel Strang, 6 Id. 497n; of Edward Hicks, 14 Id. 357; of John Mason and James Ogden, executed as spies near Trenton, N.J., on Jan. 10, 1781, mentioned in Hatch, Administration of the American Revolutionary Army (1904) 135 and Van Doren, Secret History of the American Revolution (1941) 410.
During the War of 1812, William Baker was convicted as a spy and sentenced to be hanged, by a general court martial presided over by Brigadier General Thomas A. Smith at Plattsburg, N.Y., on March 25, 1814. National Archives, War Dept., Judge Advocate General's Office, Records of Courts Martial, MS No. O-13. William Utley, tried as a spy by a court martial held at Plattsburg, March 3-5, 1814, was acquitted. Id., MS No. X-161. Elijah Clark was convicted as a spy, and sentenced to be hanged, by a general court martial held at Buffalo, N.Y., Aug. 5-8, 1812. He was ordered released by President Madison on the ground that he was an American citizen. Military Monitor, Vol. I, No. 23, Feb. 1, 1813, pp. 121-122; Maltby, Treatise on Courts Martial and Military Law (1813) 35-36.
In 1862 Congress amended the spy statute to include "all persons" instead of only aliens. 12 Stat. 339, 340; see also 12 Stat. 731, 737. For the legislative history, see Morgan, Court-Martial Jurisdiction over Non-Military Persons under the Articles of War, 4 Minnesota L. Rev. 79, 109-11. During the Civil War a number of Confederate officers and soldiers, found within the Union lines in disguise, were tried and convicted by military commission for being spies. Charles H. Clifford, G.O. No. 135, May 18, 1863; William S. Waller, G.O. No. 269, Aug. 4, 1863; Alfred Yates and George W. Casey, G.O. No. 382, Nov. 28, 1863; James R. Holton and James Taylor, G.C.M.O. No. 93, May 13, 1864; James McGregory, G.C.M.O. No. 152, June 4, 1864; E.S. Dodd, Dept. of Ohio, G.O. No. 3, Jan. 5, 1864. For other cases of spies tried by military commission, see 2 Winthrop, Military Law and Precedents, 1193 et seq. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1471349/ | 26 F.2d 148 (1927)
In re BISHOP.
District Court, W. D. Washington, N. D.
December 31, 1927.
John Speed Smith, District Director of Naturalization, of Seattle, Wash., for the United States.
NETERER, District Judge.
Naturalization is the act of adopting an alien and clothing him with the privileges of citizenship. Osborn Bank, 22 U. S. (9 Wheat.) 738-801, 6 L. Ed. 204. Congress has the power to effect naturalization by legislative act. Boyd v. Nebraska ex rel. Thayer, 143 U. S. 135, 12 S. Ct. 375, 36 L. Ed. 103; Elk v. Wilkins, 112 U. S. 94, 5 S. Ct. 41, 28 L. Ed. 643.
The political status of the applicant must be derived through the mother, and not *149 the stepfather. Weedin v. Mon Hin (C. C. A. 9th Circuit) 4 F.(2d) 533. The legal acceptance of the term "parent" does not include "stepfather." Marshall v. Macon Sash, Door & Lumber Co., 103 Ga. 725, 30 S. E. 571, 41 L. R. A. 211, 68 Am. St. Rep. 140.
Section 1994, R. S. (Act Feb. 10, 1855, amending Act April 14, 1802; Comp. St. § 3948), provides: "Any woman who is now or may hereafter be married to a citizen of the United States, and who might herself be lawfully naturalized, shall be deemed a citizen."
Section 2172, R. S. (Act April 14, 1802; 8 USCA § 7), provides that "children of persons who have been duly naturalized under any law of the United States * * * under the age of twenty-one years at the time of the naturalization of their parents, shall, * * * be considered as citizens thereof. * * *"
Act March 2, 1907, § 5 (8 USCA § 8), provides that "a child born without the United States of alien parents shall be deemed a citizen of the United States by virtue of the naturalization of or resumption of American citizenship by the parent: Provided, that such naturalization or resumption takes place during the minority of such child: And provided further, that the citizenship of such minor child shall begin at the time such minor child begins to reside permanently in the United States." This expression qualifies parents to confer citizenship upon minor children by the act of naturalization.
The mother, being qualified for citizenship and having married a citizen, became a naturalized citizen under the provisions of law, and thereby conferred citizenship upon her son. See Kelly v. Owen, 7 Wall. (74 U. S.) 496, 19 L. Ed. 283; also the decision of Justice Harlan in U. S. v. Kellar (C. C.) 13 F. 82; In re Graf (D. C.) 277 F. 969.
The expression, "resumption of American citizenship by the parent," has no application to the mother, as she never removed from the United States, and resumption was not necessary. The applicant, on entering the United States and establishing a permanent residence after the naturalization by marriage of his mother, became a citizen, and, being a citizen, could not expatriate himself by joining the Canadian Expeditionary Forces in May, 1917, because war was declared with Germany by the United States on April 6, 1917, and under the provisions of section 2, Act March 2, 1907 (8 USCA § 16), which provides that no American citizen shall be allowed to expatriate himself when this country is at war, applicant could not expatriate himself. See, also, In re Grant (D. C.) 289 F. 814.
Applicant is therefore a citizen of the United States, and the application to repatriate is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1500867/ | 416 F. Supp. 313 (1976)
UNITED STATES of America
v.
R. J. REYNOLDS TOBACCO COMPANY et al.
Civ. No. 1668-70.
United States District Court, D. New Jersey, Trial Division.
May 11, 1976.
*314 Donald Ferguson, U. S. Dept. of Justice, New York City, Jonathan L. Goldstein, U. S. Atty., by Andrew M. Higgins, Asst. U. S. *315 Atty., Newark, N. J., Thomas Bernstein, U. S. Dept. of Justice, New York City, for plaintiff.
Elmer J. Bennett, Newark, N. J., Guy Miller Struve, New York City, Clyde A. Szuch, Newark, N. J., Sanford M. Litvack, New York City, for defendants.
MEMORANDUM RULING
BIUNNO, District Judge.
By informal letter, plaintiff wrote the court to assert that the fees and expenses of the expert witness appointed by the Court, and no part thereof, are not properly chargeable to plaintiff (the United States) under Fed.Ev.Rule 706.
The position is that under the order of appointment, the expert's functions are not those of an expert witness, i. e., to testify on particular areas of specialized knowledge, but rather to assist the court in investigating and understanding the entire case. It is argued that Rule 706 is designed to improve the quality of testimony by experts selected by the parties, and that there is no suggestion in the Rule or the Advisory Committee notes that such appointments may be made for the purpose of expert assistance to the Court.
The conclusion from this reasoning is that the payment of the fees and expenses charged to plaintiff "would constitute an unauthorized expenditure of funds prohibited by 31 U.S.C. § 628."
Plaintiff has read too little of the Rules of Evidence, of the Advisory Committee notes, and of the vast literature (both primary and secondary authorities) on the subject of expert witnesses and their function. The court will make no attempt here to review those materials. Suffice it to say that they are thoroughly gathered and arranged by the pattern of the Federal Rules of Evidence in at least two widely available publications, Title 28, "Federal Rules of Evidence" (West, 1975), and "Rules of Evidence for United States Courts and Magistrates" (Lawyers Cooperative, 1975), provided as a separate volume for each of the publications "U.S. Code Service, Lawyers' Edition", "American Jurisprudence 2d", and "U.S. Supreme Court Digest, Lawyers' Edition".
As those materials will disclose, it is the very purpose of expert testimony to assist the trier of the facts (in this case, a court sitting without a jury) to understand, evaluate and decide the complex evidential materials in a case. This is such a case. See, Fed.Ev.R. 702.
Also, as provided by Fed.Ev.R. 703, there must be facts or data "in the particular case" upon which the expert opinion is based, and these must be those perceived (e. g., by a treating physician) or made known to him at or before trial; and while the expert may give his opinion without prior disclosure of underlying facts and data, he may be required "in any event" to disclose them on cross-examination, Fed. Ev.R. 705.
This brief set of references demonstrates the insubstantiality of the plaintiff's posture. The principles of Fed.Ev.R. 702, 703 and 705 apply to all expert witnesses, whether selected by the parties or appointed by the court. The only aspects that Fed.Ev.R. 706 deals with are appointment, compensation, disclosure of appointment and the right of the parties to call their own experts.
Suppose plaintiff engages an expert of its own, and on calling him as a witness the objection is made that he is not qualified, or that his testimony is unduly cumulative, or the like, and the court sustains the objection. The witness never testifies. Can plaintiff seriously contend that it could not compensate the witness for his services and expenses in preparing to testify, merely because of 31 U.S.C. § 628? Such a suggestion would be ridiculous.
The present case was filed more than 6 years ago. Ensuing proceedings and litigation elsewhere focused on the issue of jurisdiction. For whatever reasons, plaintiff either chose not to prepare for trial or acceded to such a request from defendants, but there was no stay in the cause. With the *316 jurisdictional issue resolved by other tribunals, this case is now active and unprepared. It must be moved and decided promptly. The appointment of the expert witness was the only way by which that might be achieved.
As the appointing order of February 19, 1976 indicates, it provides the instructions as to his duties for the "first phase" of his work, i. e., gathering and analyzing the facts and data on which one or more opinions may be based. A later order, before trial, will instruct him of his duties for testimony at trial.
Since part of the duties of the expert witness consists of obtaining facts and data from the parties, that aspect of his work is ancillary to the discovery process. Hence, refusal of plaintiff to pay its share of the fees and expenses of the expert may provide defendants with a basis for moving to dismiss the complaint under F.R.Civ.P. 37(b)(2)(C).
All who come before the court are equals in the eyes of the law. The United States, as plaintiff, has no special or different status than any other party. In fact, in its role as plaintiff, it carries the burden of persuasion.
The plaintiff's posture is without legal foundation. Fed.Ev.R. 706 became law by Act of Congress, P.L. 93-595, and the United States is bound by it as are all others. It will be expected to adhere to and comply with the court's orders for payment of compensation to the expert witness as they are issued from time to time. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1501199/ | 416 F. Supp. 954 (1976)
Barbara FOX and Alan M. Lerner et al.
v.
The UNITED STATES HOUSING AND URBAN DEVELOPMENT et al.
Civ. A. No. 75-445.
United States District Court, E. D. Pennsylvania.
June 24, 1976.
Paul A. Coghlan, Harold R. Berk, Community Legal Services, Philadelphia, Pa., for plaintiffs.
Walter S. Batty, Asst. U. S. Atty., Thomas D. Watkins, Redevelopment Authority, Philadelphia, Pa., for HUD.
James M. Penny, Asst. City Sol., Philadelphia, Pa., for City of Philadelphia.
MEMORANDUM AND ORDER
NEWCOMER, District Judge.
This suit concerns itself with the urban renewal activities of the Department of *955 Housing and Urban Development, the Redevelopment Authority of the City of Philadelphia, and the City of Philadelphia, in a residential area of center city Philadelphia known as Washington Square West. The complaint frames a class action brought by four subclasses of present and former residents of the Washington Square West, Unit 2, Urban Renewal Area. The complaint alleges that urban renewal activities have had the effect of driving low and moderate income persons, predominantly non-white, out of the project area, thereby transforming a formerly racially and economically integrated community into a predominantly white, affluent community. Plaintiffs contend that an important contributing factor to this process has been the violation by the defendants of relocation procedures mandated by federal statutes and regulations.[1]
Presently before the court is plaintiffs' motion for class certification under Fed.R. Civ.P. 23(a) and 23(b)(2). The motion will be granted, as to all four subclasses. Certification of subclass I raises legal and factual issues which require discussion.
Subclass I is defined as:
"Present residents (owners and renters) of the Washington Square West, Unit 2, Urban Renewal Area who are not now scheduled to be displaced through urban renewal activities, who do not qualify for federally assisted low or low-moderate income housing, but who have moved into the Project Area or remained in the Project Area understanding and relying on the fact that the Project Area was comprised of a diverse and integrated racial and ethnic mix of people and who desire and intend to live in such an area; this subclass is represented by plaintiffs Fox, Lerner and Teaford."
The representative plaintiffs for subclass I allege a cause of action under Title VIII of the Civil Rights Act of 1968, 42 U.S.C. § 3601, et seq. Their standing to bring an action under this section is being challenged. The defendants also contend that proposed subclass I does not satisfy the numerosity and typicality requirements of Rule 23. The basis of the numerosity objection is that the size of the class cannot be estimated because its members are to be identified by a vaguely defined state of mind,[2] and therefore it is impossible to know whether "the class is so numerous that joinder of all members is impracticable." Rule 23(a). On the issue of typicality, defendants urge that the proposed representatives of subclass I have interests adverse to other members of the subclass and of all three of the other subclasses.
STANDING
Defendants previously challenged this subclass on the grounds of standing in a motion to dismiss which was denied on June 26, 1975. We have allowed reconsideration of this issue because of the intervening Supreme Court decision in Warth v. Seldin, 422 U.S. 490, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975). The precise question for decision is whether Warth prevents plaintiffs from continuing to rely on Trafficante v. Metropolitan Life Insurance Co., 409 U.S. 205, 93 S. Ct. 364, 34 L. Ed. 2d 415 (1972) as a basis for standing. The plaintiffs in Trafficante were white tenants residing in an apartment complex. They were challenging alleged discrimination by the complex's owner against non-white persons seeking to become tenants there. The Court held that the plaintiffs suffered individualized injury[3] consisting of "the loss of *956 important benefits from interracial associations." Further, the Court stated that Title VIII of the Civil Rights Act of 1968, was intended by Congress to be a far-reaching attack on discriminatory practices in the housing market,[4] and concluded that the Act extended standing to the fullest extent of the scope of Article III of the Constitution.
Warth v. Seldin, supra, was a suit challenging alleged unconstitutional exclusionary zoning practices by Penfield, New York, a suburb of Rochester, New York. The Supreme Court denied standing to five putative plaintiffs (or groups of plaintiffs). Plaintiff Metro-Act of Rochester was a nonprofit association dedicated to promoting open housing. Nine percent of its members were Penfield residents. In its decision denying standing to the association, the Court noted that these plaintiffs had not pleaded or argued a violation of Title VIII. Furthermore, the Court grounded its decision on the prudential, judicially created limitations to standing, without in any way criticizing its holding in Trafficante that Congress intended for standing under Title VIII to extend so far as Article III of the Constitution allows. 422 U.S. 490, 95 S. Ct. 2197, 45 L.Ed.2d at 363-364. Implicit in the defendants' position is the argument that the prudential limitations on standing override Congressional intent (in passing Title VIII). Warth lends no support to this conclusion.
Moreover, Warth might be distinguished from the instant case on its facts. Throughout Warth, the Court stressed the attenuated nature of the cause and effect relationship that was said to connect the defendant's alleged unlawful practices to the plaintiffs' interests. It is particularly important that the association members who lived in Penfield were not alleging damage to their existing contractual or associational relationships, but that they were harmed by being denied the opportunity to form new relationships. 422 U.S. 490, 95 S. Ct. 2197, 45 L.Ed.2d at 364 n. 22.
In the instant case, subclass I plaintiffs allegedly have existing social relationships with persons in the other subclasses, and these relationships have been and are being damaged by defendants' allegedly unlawful conduct. If it were necessary for us to decide the question, we would be inclined to find that these allegations satisfied not only the constitutional limitations on standing, but also the prudential ones. But this much is clear, the allegation of damage to existing relationships satisfies the Article III requirement of individualized injury, and Trafficante eliminates any basis for challenging the standing of these plaintiffs on prudential grounds.
NUMEROSITY AND TYPICALITY
Because the defendants' objections to certification on the grounds of numerosity and typicality raised disputed questions of fact, the court held an evidentiary hearing. Defendants produced no testimony; they introduced two documents into evidence. Plaintiffs offered several witnesses, but only one (Alan Lerner, Esquire) was permitted to testify,[5] because plaintiffs had not given notice to defendants of the identity of their witnesses, even though this information had been requested in interrogatories.
Mr. Lerner's testimony may be summarized as follows. He is an attorney who lives in the Washington Square West Project Area. He and his wife moved from the Germantown section of Philadelphia into the project area in April, 1968, and they had a child afterwards. He was a renter until Fall, 1975, when he purchased a house in the project area. He now lives there with his family. Lerner was primarily interested in the project area because he wanted to live and raise his child in a *957 racially integrated area. Other factors which influenced his choice were the desirability of a center city location, and the "relative" inexpensiveness of sound housing in the project area, as compared to other center city areas.
For approximately six years Mr. Lerner has been an active member of the Washington Square West Project Area Committee. There are seventy-five to one hundred active members in the Committee. Since moving into the area Lerner has observed that buildings which housed large numbers of non-white, low income persons have been demolished, and that the former residents have had to move outside the project area because housing within their price range was not available in Washington Square West. Overall, he observed a sharp reduction in the proportion of non-white persons living in the project area. One of the main objectives of the Committee is to reverse the segregative trends in the neighborhood. Lerner estimated that he had heard at least one hundred project area residents express the view that the area should be racially integrated.
The cross examination was aimed at showing that Lerner had other motives for moving into the project area, aside from wanting an integrated community, and that he was financially benefited by the segregative trends. The increasing demand for housing in that area by relatively affluent persons, has caused property values to appreciate, including the value of Lerner's house. However, the defendants produced no evidence that Lerner has engaged in any commercially oriented real estate transactions in the project area. There is no reason to think that the appreciation in the value of his home will prevent him from vigorously representing the interests of persons who want to have an integrated community. This leads us to the same conclusion reached by the court in Muth v. Dechert, Price and Rhoads, 70 F.R.D. 602, at 604 (E.D.Pa.1976), where it found:
"We are not at all persuaded that there is any conflict of interest here, and even if one potentially exists, it is in no way ripe for resolution at this juncture by way of denying class certification."
In summary, the testimony shows that Subclass I includes a number of persons (at least 100) too numerous to be joined, and that there is no material conflict of interest between the representative plaintiffs and the members of any of the subclasses.
ORDER
AND NOW, to wit, this 24th day of June, 1976, upon consideration of the plaintiffs' motion for class action certification, the briefs submitted by the parties, and the findings of fact incorporated into the accompanying Memorandum Opinion, it is hereby Ordered that this action may proceed as a class action under Fed.R.Civ.P. 23(b)(2) with the following subclasses:
Subclass I
Present residents (owners and renters) of the Washington Square West, Unit 2, Urban Renewal Area who are not now scheduled to be displaced through urban renewal activities, who do not qualify for federally assisted low or low-moderate income housing, but who have moved into the Project Area or remained in the Project Area understanding and relying on the fact that the Project Area was comprised of a diverse and integrated racial and ethnic mix of people and who desire and intend to live in such an area; the subclass is represented by plaintiffs Fox, Lerner and Teaford.
Subclass II
All black persons who have been forced to move from their former residences in the Project Area as a result of urban renewal activities and who have had to relocate outside of the Project Area into areas of minority racial concentration and who qualify for federally assisted low or low-moderate income housing; this subclass is represented by plaintiffs Shelton, Dingle and Lipscomb.
Subclass III
All present and former tenant residents of the Project Area who have been temporarily *958 or permanently relocated into inadequate or substandard housing and/or without adequate relocation assistance in violation of the Housing Act of 1949 and/or The Uniform Relocation Act of 1970 and their constitutional rights to life and property; this subclass is represented by plaintiffs Malone, Levison, Hornickel and Callahan.
Subclass IV
All low-income tenant residents of the Project Area who are faced with imminent or eventual displacement from their residences without adequate relocation assistance or replacement housing being made available to them in violation of their rights under the Housing Act of 1940 and/or The Uniform Relocation Act of 1970; this subclass is represented by Plaintiff Richard Apfelbaum.
It is further Ordered:
1) The plaintiffs' motion to amend the complaint is GRANTED.
2) The motion of defendant Frank L. Rizzo for judgment on the pleadings is DENIED.
AND IT IS SO ORDERED.
NOTES
[1] The complaint alleges causes of action under 42 U.S.C. § 1441, et seq. and the regulations promulgated pursuant thereto; 42 U.S.C. § 4601, et seq. and the regulations promulgated pursuant thereto; 42 U.S.C. §§ 1981, 1982 and 1983; 42 U.S.C. § 3601, et seq.; 42 U.S.C. § 2000d et seq., and 5 U.S.C. § 551 et seq.
[2] Paraphrasing the complaint, the class members are persons who "desire and intend to live in [an integrated] area," and who have moved into the project area "relying on" the fact that it was such an area.
[3] The two-pronged test for standing established in Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970) requires a) "individualized injury," and b) that the injury be to interests that are within the "zone of interests" protected by the statute or doctrine which the defendant allegedly violated.
[4] For example, 42 U.S.C. § 3601 states that the policy of the Act is "to provide, within constitutional limitations, for fair housing throughout the United States."
[5] Mr. John Kromer testified for the limited purpose of introducing three letters into evidence. Having reserved our ruling on the admissibility of the letters until this time, we now rule that they are inadmissible. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1820129/ | 450 F. Supp. 308 (1978)
Arnold L. DAVIS, Plaintiff,
v.
David MATHEWS, Defendant.
Civ. No. S-76-325 TJM.
United States District Court, E. D. California.
January 13, 1978.
Opinion after Briefing March 20, 1978.
On Motion for Reconsideration May 17, 1978.
*309 Herman Sillas, U. S. Atty., Richard W. Nichols, Chief Asst. U. S. Atty., Sacramento, Cal., for defendant.
Frank A. Ury, Vallejo, Cal., for plaintiff.
MEMORANDUM
MacBRIDE, Chief Judge.
This complaint for review of decisions by the Appeals Council of the Social Security Administration and of the Administrative Law Judge denying plaintiff's application for disability benefits was filed on June 14, 1976. Plaintiff moved for remand to the Secretary of HEW and the Social Security *310 Administration on January 18, 1977, for further hearings on plaintiff's disability, his eligibility for benefits and the validity and propriety of the termination of his benefits. Defendant made a cross motion for summary judgment on February 8, 1977. On February 22, 1977, pursuant to 28 U.S.C. § 631 et seq., this court referred both motions to Magistrate Esther Mix for hearing. On July 27, 1977, Magistrate Mix filed Proposed Findings and Recommendations, recommending that defendant's motion for summary judgment be granted and plaintiff's motion for remand be denied. Plaintiff filed objections to the Proposed Findings and Recommendations on August 8, 1977.
Review of the magistrate's action is governed by 28 U.S.C. § 636(b)(1)(C) which provides in part:
A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made. A judge of the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate. The judge may also receive further evidence or recommit the matter to the magistrate with instructions.
This court must now undertake de novo review of the portions of the magistrate's findings and recommendations to which plaintiff has objected. Plaintiff urges that the Administrative Law Judge abused his discretion in permitting an "amateur" to testify as a vocational expert and that the magistrate erred in finding that there was no abuse of discretion. The testimony at issue was that plaintiff was qualified to perform work which existed in significant numbers in the region where plaintiff lives or in several regions of the country. If the plaintiff is, in fact, qualified to perform such work, then under 42 U.S.C. § 423(d)(2)(A), plaintiff is not disabled.
(1) Background
Plaintiff applied for disability benefits under 42 U.S.C. § 423 and for a period of disability under 42 U.S.C. § 416(i) on June 20, 1973. Section 416(i)(1) provides that the provisions of section 423(d)(2)(A) and (3) through (5) shall be applied to determine whether a person is under a disability for purposes of section 416(i). Section 423(d)(2)(A) provides in part:
an individual . . . shall be determined to be under a disability only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work. For purposes of the preceding sentence . . . "work which exists in the national economy" means work which exists in significant numbers either in the region where such individual lives or in several regions of the country.
Plaintiff testified at a hearing on June 12, 1974 before Hearing Examiner Donald S. Manion that he was born July 25, 1928 and had an eighth grade education. It appears that plaintiff was originally injured in a fall on the job in 1969; the injury to his knee required surgery and, although improved, he still suffers some impairment. In late 1972, plaintiff was injured in an automobile accident which caused contusions to his head and cervical strain. Headaches and neck pain from this accident have apparently continued to occur. Medical records in the file indicate that plaintiff is mildly retarded with an I.Q. of 76 and has suffered from a schizophrenic episode which required hospitalization in 1967.
The first decision of the Hearing Examiner on December 12, 1974 states:
while it is reasonable to infer that Mr. Davis may be precluded as a result of his complaints from again engaging in the type of construction labor which he described, it seems evident that he yet possesses the physical ability to resume work analogous to that which he pursued at the Benecia, California arsenal, viz., that *311 of light packaging, a vocation within his experience and mental capabilities that would not place undue stress upon those areas of his anatomy or physiology in connection with which he has continuing symptomatology.
The Hearing Examiner determined that plaintiff had
failed to furnish such evidence as would demonstrate by medically acceptable clinical and laboratory diagnostic techniques the existence in him of such a physical or mental impairment that would prevent him from engaging in all substantial gainful activity.
Plaintiff objected to the first decision of the Hearing Examiner and the Appeals Council vacated that decision on May 16, 1975. The Appeals Council decision states:
the record in this case does not contain sufficient information for a decision as to whether the claimant meets the requirements of the Act for purposes of establishing entitlement to a period of disability and to disability insurance benefits.
The Appeals Council remanded the case to the Hearing Examiner for additional evidence to be taken and for
the testimony of a vocational expert with respect to the types of work activity, if any, for which the claimant is qualified on the basis of his education, training, and work experience.
At the hearing on remand, the Hearing Examiner received in evidence a medical report on the plaintiff, a resume from Lewis G. Carpenter, Jr., and plaintiff's objection to Dr. Carpenter's testimony as a vocational expert. Dr. Carpenter had been requested to testify by the Hearing Examiner, and no other vocational expert testified. After the hearing, the Examiner accepted into evidence a letter from Dr. Lloyd Meadow, a Professor of Rehabilitation Counseling and a licensed psychologist in California.
On January 28, 1976, the Hearing Examiner decided for a second time that plaintiff was not entitled to disability benefits, based in large part on Dr. Carpenter's testimony. The decision states:
Dr. Carpenter expressed his professional expert opinion that an individual of claimant's age, education, vocational experience and impaired to the degree that Mr. Davis had been shown to be impaired could yet engage in substantial gainful activity in vegetable preparation, as a coilwinder in the electrical industries, as a hand packer, as a sorter or as an assembler.
Plaintiff sought review of this decision by the Appeals Council, renewing his objection to the use of Dr. Carpenter as a vocational expert. On May 10, 1976, the Appeals Council affirmed the decision of the Hearing Examiner.
(2) Dr. Carpenter's Qualifications
Dr. Carpenter's resume which appears in the record reveals that, as of October 29, 1970, he was a Senior Psychologist at Napa State Hospital where he had been employed since 1953. The following description of his duties in that position is in the resume:
Coordinator of industrial therapy program for hospital wide patient vocational placement and training. Development of integrated programs, maintain liaison between wards and hospital industries, devise training programs, develop training & employment opportunities with outside employers. Teaching psychiatric residents, student nurses, hospital program design and development. Consultant to special programs Hospital improvement Project, Voc. Rehab., Dept. Mental Hygiene. Diagnosis, treatment, research.
Dr. Carpenter's testimony reveals that he had received an A.B. and M.A. in psychology from Stanford University and a PhD in psychology from the University of California. He stated that he was employed as a psychologist at "Memphis (PHONETIC) State Hospital" where he had been employed since 1950. It appears that "Memphis" is an error and that Dr. Carpenter is employed at Napa State Hospital. Dr. Carpenter stated that his duties at the hospital involved being
in charge of the ward of perhaps 50 male, and female patients who are predominantlypredominantly have limitations, *312 mental or emotional fashion (PHONETIC), although they have a wide variety of physical problems as well. Directly I interview these individuals for diagnostic, and treatment purposes. I perform diagnostic, and therapeutic work with other patients throughout the hospital. I place individuals in hospital industrial settings from this ward, and from other wards. I mediate situations involving a necessity for training, vocational, and academic training for patients in the various facilities surrounding the area. This includes also on the job training for individuals who are suitable for being placed in job training outside the hospital. And also occasionally direct placement in job situations.
Until two years previously, Dr. Carpenter had been head of the industrial therapy program for the whole hospital. Dr. Carpenter defined "industrial therapy" as "patient involvement in hospital industries . . . which compare with those in a small community." These jobs include lawn and grounds work, kitchen work, janitorial work, painting, electrical and clerical work. Dr. Carpenter testified that he "[o]ccasionally, but not frequently," placed patients in jobs outside the hospital.
Prior to his employment at Napa State Hospital in 1950, Dr. Carpenter worked in two capacities for the Veterans Administration, first as a vocational advisor and then as a counselor. After that employment, he was an Instructor in Psychiatry at the University of California, San Francisco Medical School for three years. His testimony that his employment with the Napa State Hospital began in 1950 conflicts with his resume which places him at the Medical School until 1953. In any event, it appears that Dr. Carpenter had not been actively employed in vocational placement in the business community since the late 1940s.
Dr. Carpenter testified that he has been a vocational consultant for the Social Security Administration for six or eight years and that he had routinely "made inquiry as to the functional demands, both physical and mental of various types of occupations." He defined the word "routinely" to mean monthly:
Each month I inquire of certain industries, certain areas and I'm in frequent contact with the California Department of Employment Development. I receive printed information from that department on labor trends and specific labor situations. Similarly, I receive and study surveys which are published by the Social Security Administration. I visit industrial plants and hiring settings.
Under questioning by plaintiff's attorney, Dr. Carpenter stated that perhaps 20 percent of his present job involved placing patients in hospital job settings and that he had placed approximately ten patients in jobs outside the hospital in the preceding two years.
(3) Objections to Dr. Carpenter's Testimony as an Expert
Prior to the second hearing, plaintiff objected to Dr. Carpenter's testimony as an expert on the grounds that he "is not a currently trained and qualified Vocation Expert." This objection was renewed at the hearing; plaintiff's attorney stated:
I don't believe that Dr. Carpenter at the present time is actively engaged in vocational placement and though I don't question his qualifications for what he is doing and his qualifications in the past, I do think we're entitled at this procedure when we're determining what jobs are available in the national economy that my client can do and how his mental and other disabilities fit within those limitations to have the judgment of someone who is actively involved in doing the kind of placement that in this particular case would be asking Dr. Carpenter to speculate on.
Plaintiff brought this same objection before the Appeals Council after the Hearing Examiner decided that plaintiff was not disabled within the meaning of the Act, but the Appeals Council affirmed that decision. The objection has been raised before this court. Plaintiff contends that Dr. Carpenter is a "lay witness" and an "amateur."
*313 (4) Judicial Review
Judicial review of the administrative decision before the court is governed by 42 U.S.C. § 405(g) which provides in part:
The court shall have power to enter, upon the pleadings and transcript of the record, a judgment affirming, modifying, or reversing the decision of the Secretary, with or without remanding the cause for a rehearing. The findings of the Secretary as to any fact, if supported by substantial evidence, shall be conclusive . . . . The court . . . may, at any time, on good cause shown, order additional evidence to be taken before the Secretary . . . .
Under this standard, this court must deem the findings of fact concerning Dr. Carpenter's qualifications conclusive if those findings are supported by substantial evidence, looking to the record as a whole. The same substantial evidence test applies to the inferences and conclusions that may reasonably be drawn from the evidence. If there is conflicting evidence sufficient to support more than one conclusion, the court must affirm the administrative decision. Harvey v. Richardson, 451 F.2d 589 (9th Cir. 1971); Day v. Weinberger, 522 F.2d 1154 (9th Cir. 1975).
Although the substantial evidence test applies in this case to the facts, for example, Dr. Carpenter's education and past and present work experience, the conclusion that a person with his background is a qualified vocational expert is a conclusion of law, subject to a much broader review by this court. The administrative interpretation of the law is entitled to great weight, but it is not binding on this court. E. g., Conley v. Ribicoff, 294 F.2d 190 (9th Cir. 1961); Schoultz v. Weinberger, 375 F. Supp. 929 (E.D.Wis.1974).
The Bureau of Hearings and Appeals of the Social Security Administration has set forth the qualifications of vocational experts in its Handbook.[1] Plaintiff cites the Handbook and urges that Dr. Carpenter does not qualify under the requirements set forth. Defendant does not dispute that the portion of the Handbook cited by plaintiff defines the qualifications of a vocational expert for purposes of this case; instead, the defendant asserts that Dr. Carpenter does qualify. The Handbook definition appears to present general guidelines rather than firm specifications; for example, it does not specify the extent of the expert's education or the number of years experience in vocational counseling. As a general proposition, it appears that Dr. Carpenter satisfies the guidelines set forth in the Handbook; the question for review is whether his lack of recent frequent involvement in vocational placement outside a hospital setting makes him unqualified to serve as a vocational expert.
*314 The only case cited by plaintiff is Whitlatch v. Richardson, 471 F.2d 655 (6th Cir. 1972), reported in CCH Unemployment Ins. Rep. ¶ 12,429 (Aug. 4, 1976). The precedential value of this case is open to question because it is unpublished the Ninth Circuit forbids use of its unpublished decisions as precedent in other cases, and it may be that the Sixth Circuit does the same. Even if the case is considered as precedent, it affords plaintiff little assistance because the purported vocational expert was a university teacher "whose personal knowledge of particular jobs was limited to occasional field trips with students, [and] there was no evidence of the duration of these trips and no opportunity was afforded to observe the physical and other demands of the jobs over an extended period of time." In response to this case, defendant cites Wilcox v. Mathews, CCH Unemployment Ins.Rep. ¶ 14,694 (W.D.N.C. filed Mar. 24, 1976), in which the court found no merit in the argument that the vocational expert was unqualified, stating that the expert "is presently Director of Vocational Services at Charlotte Rehabilitation Hospital. This position principally involves the vocational evaluation, training, counseling, work adjustment, and job placement of physically disabled patients." Based on this evidence and the expert's undefined work experience and education, not described in the opinion, the court rejected the assertion that he was not qualified.
The Wilcox decision is not particularly helpful because it cites no authority for the decision that the expert was qualified. It must be noted that the expert in that case was apparently directly involved in frequent job placements, in contrast to the present case. Since the cases cited by the parties offered little guidance, this court made an effort to unearth relevant cases. That effort uncovered only Spaulding v. Califano, 427 F. Supp. 982, 986 n. 11 (W.D. Mo.1977), in which the court implicitly criticized the use of a witness whose expertise was "in the field of psychology and rehabilitation rather than in the vocational field." A number of cases mention the need for testimony from vocational experts, but no case on point could be found.
This court is not prepared to make a ruling on the motion based on the briefing before it. The parties should submit further briefs on the nature of the qualifications of vocational experts, the practice of the Social Security Administration in selecting experts, and the case law concerning qualification of experts either before the Social Security Administration or before other agencies. Any use of cases or practices relating to other agencies should be accompanied by an explanation why those cases or practices are suitable for analogy to this case.
Plaintiff's opening brief should be filed no later than February 6, 1978. Defendant should respond by February 27, 1978, and plaintiff's closing brief, if any, should be filed by March 6, 1978. This court will deem the matter submitted on the briefs.
IT IS SO ORDERED.
OPINION AFTER BRIEFING
Plaintiff filed this action for review of decisions by the Appeals Council of the Social Security Administration and of the Administrative Law Judge denying his application for disability benefits. Plaintiff moved for a remand to the Social Security Administration on January 18, 1977, and defendant made a cross-motion for summary judgment on February 8, 1977. Both motions were referred to Magistrate Mix on February 22, 1977, pursuant to 28 U.S.C. § 631 et seq. Magistrate Mix filed proposed findings and recommendations on July 27, 1977, recommending that defendant's motion for summary judgment be granted and that plaintiff's motion for a remand be denied. Plaintiff filed objections to the proposed findings and recommendations on August 8, 1977.
Plaintiff's objection is that the magistrate found that the Administrative Law Judge did not commit an abuse of discretion in having Dr. Lewis G. Carpenter, Jr., testify as a vocational expert. Plaintiff objected to the use of Dr. Carpenter prior to his testimony at the administrative hearing, *315 raised that objection as the basis for his motion to remand, and renews that objection before this court. Pursuant to section 636(b)(1)(C), this court must undertake a de novo review of the portions of the magistrate's proposed findings and recommendations to which objection is raised.
On January 13, 1978, this court issued a Memorandum ordering the parties to submit further briefs on the qualifications of vocational experts who testify before the Social Security Administration in hearings on eligibility for disability benefits. As noted in that Memorandum, the two cases cited by the parties and the one case found by the court offered little, if any, guidance on the standards applicable to selection of vocational experts. The parties have submitted further briefing as requested.
Plaintiff's opening brief cited several cases concerning experts qualified to testify in court. Although these cases do tend to demonstrate that qualified experts are those with current experience in the particular field of expertise, they are of little assistance in determining the standards for vocational experts before an administrative agency such as the Social Security Administration.
Defendant responded with an affidavit by Rosalyn C. Taylor, Chief of Section VI of the Civil Actions Branch of the Bureau of Hearings and Appeals of the Social Security Administration. Ms. Taylor states that Dr. Carpenter has been under contract with the Bureau of Hearings and Appeals since May 6, 1974 as a vocational expert. The particular expert selected to testify at a disability benefits hearing is chosen on a rotational basis from a list of those experts under contract who are available in the area of the particular hearing office. Ms. Taylor's affidavit states that vocational experts must meet stringent criteria to be placed under contract with the Bureau; these criteria were established by the Bureau "after consultation with key officials of the American Personnel and Guidance Association and the American Psychological Association in June 1962 and subsequent judicial experience." The criteria quoted in the affidavit are substantially the same as those appearing in section 1-87-12 of the Handbook of the Bureau.[1] The remainder of the affidavit concerns the protections against vocational experts who might lack impartiality and the general procedures for use of experts at the hearings.
Although the affidavit describes the criteria as requiring that the expert have "[c]urrent and extensive experience," no additional information is offered as to the definition of these terms. This question is central to this action because plaintiff admits that Dr. Carpenter may have been qualified in the past but asserts that he has not been actively involved in vocational placement for a number of years. For this reason, plaintiff urges that Dr. Carpenter cannot now be considered a qualified vocational expert. Plaintiff points out in his reply brief that Ms. Taylor's affidavit includes no statement as to updating and review of existing contracts to eliminate those who have ceased to qualify as experts.
*316 Examination of the record in this case reveals that Dr. Carpenter has not been actively involved on a regular basis in vocation placement in the business community since the late 1940s. Dr. Carpenter's position with the Napa State Hospital entails, among a number of other responsibilities, placement of certain patients in jobs within the hospital, including janitorial, kitchen and grounds work. In limited instances, Dr. Carpenter has placed patients in jobs outside the hospital; he testified that he had found such jobs for approximately ten patients in the last two years. This court recognizes the possibility that a person such as Dr. Carpenter, involved in placement of patients within the protected atmosphere of a state mental hospital, might become divorced from the realities of employment in the business community. Dr. Carpenter did testify that he was in "frequent" contact with the California Department of Employment Development and that he received the Department's printed information on labor trends and specific labor situations, as well as surveys published by the Social Security Administration. He also testified that he visited "industrial plants and hiring settings," although he offered no statement of the frequency or reasons for his visits.
The affidavit of Ms. Taylor states that the criteria for qualified vocational experts include both "[c]urrent and extensive experience in . . . rehabilitation counseling and placement particularly with adult handicapped clients having prior work experience" and "[w]ell rounded, up-to-date knowledge of, and experience with industrial and occupational trends and local labor market conditions." Based on the record, this court is of the opinion that Dr. Carpenter does not qualify as an expert with current and extensive experience and up-to-date knowledge. Although the decision of the Administrative Law Judge to use Dr. Carpenter as a vocational expert is entitled to be accorded deference in this court, that decision constituted an abuse of discretion under the circumstances of this case. Plaintiff objected to the use of Dr. Carpenter prior to his testimony, affording the Administrative Law Judge full opportunity to select another vocational expert from the list of available experts. Plaintiff has renewed that objection before the Appeals Council and before this court. Had plaintiff failed to make a prior objection, the result in this case might well be different. Under the circumstances, however, this court orders that the matter be remanded to the Secretary for a new hearing in accordance with this decision.
IT IS SO ORDERED.
ON MOTION FOR RECONSIDERATION
MacBRIDE, Chief Judge.
This case is before the court for decision on defendant's motion for reconsideration, pursuant to FRCP 52(b), 59(a), 59(e), 60(b)(1), and 60(b)(6). This is an action for review of decisions of Appeals Council of the Social Security Administration and of the Administrative Law Judge denying plaintiff's application for disability benefits. Plaintiff's motion for remand and defendant's motion for summary judgment were referred to Magistrate Mix pursuant to 28 U.S.C. § 631 et seq. The magistrate filed proposed findings and recommendations in July 1977, recommending that defendant's motion be granted and plaintiff's motion be denied. Plaintiff filed objections to the proposed findings and recommendations on August 8, 1977, and the matter came before this court for a de novo determination of the findings and recommendations to which objection was raised, pursuant to 28 U.S.C. § 636(b)(1)(C).
On January 13, 1978, after careful consideration of the briefs filed by the parties, the administrative record, and the other relevant documents, this court ordered additional briefing. Plaintiff's objection, raised initially in the administrative proceedings and renewed at each stage of the appeals process, was that the vocational expert, Dr. Lewis G. Carpenter, Jr., was not a qualified vocational expert. This court declared:
Although the substantial evidence test applies in this case to the facts, for example, Dr. Carpenter's education and past and present work experience, the conclusion *317 that a person with his background is a qualified vocational expert is a conclusion of law, subject to a much broader review by this court. The administrative interpretation of the law is entitled to great weight, but it is not binding on this court. E. g., Conley v. Ribicoff, 294 F.2d 190 (9th Cir. 1961); Schoultz v. Weinberger, 375 F. Supp. 929 (E.D.Wis.1974).
Memorandum of Jan. 13, 1978, at 8. As noted in that Memorandum, the cases cited by the parties and those found by the court provided little assistance in determining the standards for qualification of vocational experts who testify before the Social Security Administration. Because of the importance of the decision and the difficulty in finding relevant decisions by other courts, additional briefing was ordered.
The additional briefing by the parties reflected the dearth of law in this area. Plaintiff offered some cases on the qualification of experts to testify in a court trial; these cases agreed that current expertise is essential, but that a judge has relatively wide discretion in admitting or excluding expert testimony. Although plaintiff believed that an administrative law judge should not be accorded that breadth of discretion, plaintiff was unable to find support for that proposition. Defendant provided an affidavit by Rosalyn C. Taylor, Chief of Section VI of the Civil Actions Branch of the Bureau of Hearings and Appeals of the Social Security Administration. This affidavit stated that the criteria for qualified vocational experts include "[c]urrent and extensive experience in . . . rehabilitation counseling and placement" and "[w]ell rounded, up-to-date knowledge of, and experience with industrial and occupational trends and local labor market conditions."
Based on the evidence provided in the transcript of the hearing and in documents filed with the Social Security Administration and with the court, this court concluded that Dr. Carpenter did not qualify as a vocational expert with current and up-to-date knowledge. That decision was filed March 20, 1978. On March 30, 1978, defendant filed the motion for reconsideration presently before this court.
Defendant seeks amendment of this court's decision pursuant to FRCP 52(b), a new trial pursuant to FRCP 59(a), alteration or amendment of judgment pursuant to FRCP 59(e), and relief from judgment either pursuant to FRCP 60(b)(1) based on mistake, inadvertence, surprise, or other excusable neglect, or pursuant to FRCP 60(b)(6) based on other equitable reasons. Although based on a number of the Federal Rules of Civil Procedure, the motion essentially seeks reconsideration of the court's decision. The grounds for the motion are that the court's decision was made
without knowledge by counsel or the Court of the facts (1) that an identical challenge was made and rejected by United States District Judge Robert F. Peckham of the Northern District of California, (2) of Dr. Carpenter's resume of experience and background, and (3) that in at least two previous cases this court has itself sustained decisions of the Social Security Administration in which Dr. Carpenter testified as a vocational expert.
Various exhibits are attached to the motion: a 1977 resume of Dr. Carpenter, the decision in Kinzell v. Weinberger, CCH Unemployment Ins.Rep. ¶ 14,382 (N.D.Cal. 1975) (per Judge Peckham), the decision and judgment in Strang v. Weinberger, Civ. No. S-2665 (E.D.Cal. filed Feb. 5, 1975 and Feb. 10, 1975), and the decision and judgment in Tate v. Weinberger, Civ. No. S-74-577 (E.D.Cal. filed March 21, 1977). Thereafter, defendant filed a letter from Dr. Carpenter, dated April 18, 1978 and accompanying exhibits. Plaintiff filed opposition to the motion for reconsideration, urging that good cause for amendment of the order or relief from judgment had not been shown. In addition, plaintiff argues that the cases and other documents filed by defendant are not relevant and cannot provide grounds for alteration of this court's March 20, 1978 decision. The parties have submitted the motion on the briefs.
*318 The initial question before this court is whether to reconsider the March 20, 1978 decision. Defendant seeks reconsideration under a number of provisions in the Federal Rules of Civil Procedure, only some of which are really pertinent to the circumstances of this action. The motion is made first under FRCP 52(b) which provides in part:
Upon motion of a party made not later than 10 days after entry of judgment the court may amend its findings or make additional findings and may amend the judgment accordingly. The motion may be made with a motion for a new trial pursuant to Rule 59.
Motions under Rule 52(b) are primarily designed to correct findings of fact which are central to the ultimate decision; the Rule is not intended to serve as a vehicle for a rehearing. E. g., Evans, Inc. v. Tiffany & Co., 416 F. Supp. 224, 244 (N.D.Ill.1976); Minneapolis-Honeywell Regulator Co. v. Midwestern Instruments, Inc., 188 F. Supp. 248, 254 (N.D.Ill.1960), aff'd, 298 F.2d 36 (7th Cir. 1961), citing Heikkila v. Barber, 164 F. Supp. 587 (S.D.Cal.1958); 9 Wright & Miller, Federal Practice and Procedure § 2582.
Motions under Rule 52(b) are closely related to motions under Rule 59. Defendant herein also moves under Rule 59(a) and (e). Rule 59(a) provides in part:
A new trial may be granted to all or any of the parties and on all or part of the issues . . . in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States. On a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment.
Rule 59(e) simply provides: "A motion to alter or amend the judgment shall be served not later than 10 days after entry of the judgment." The circumstances of this action do not lend themselves to a motion under Rule 59. In non-jury cases, the Rule is designed for instances in which evidence has been admitted or excluded improperly, evidence has been newly-discovered, or improper actions of counsel have affected the outcome of the case. The Rule is intended for cases that have gone to trial, not cases decided on motions for summary judgment. See generally 11 Wright & Miller, Federal Practice and Procedure §§ 2805, 2808-09; 6A J. Moore, Federal Practice ¶¶ 59.05, 59.07, 59.12.
The motion for reconsideration is also brought under Rule 60(b)(1) and (6); the most appropriate provision under the circumstances of this case. The Rule provides in part:
On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; . . . or (6) any other reason justifying relief from the operation of the judgment.
Equitable principles govern the decisions under Rule 60(b). The policy of the law favoring decisions on the merits after full consideration of all relevant matters must be balanced against the policy in favor of achieving finality in litigation. Case law can be found to support either extreme of the balance, but in the final analysis the decision turns on the circumstances of the particular case. See generally 11 Wright & Miller, Federal Practice and Procedure §§ 2857-64.
Plaintiff argues that no good cause has been shown to justify reconsideration of this court's March 20, 1978 decision. The only justification for reconsideration offered by defendant is that this court reached that decision without knowledge of the three cases now provided by defendant and without examining Dr. Carpenter's newest resume. Two of the three cases were decided in 1975, including the decision by Judge Peckham on which defendant primarily relies. Thus, these cases were available to defendant on the three earlier opportunities *319 to research the qualification of vocational experts and brief the relevant cases; these opportunities arose when plaintiff moved for a remand, when plaintiff objected to the magistrate's proposed findings and recommendations, and when this court ordered additional briefing.
The questions presented by this appeal involved an area of the law on which few cases have commented, even tangentially, and on which the treatise writers have not expounded. For that reason, and only for that reason, this court has reluctantly decided to grant defendant's motion for reconsideration. This leniency is not to be taken as precedent for future cases. There is a real danger that granting reconsideration under the circumstances would encourage litigants to file inadequately researched points and authorities, await the court's decision, and then, if they find the decision unsatisfactory, seek reconsideration in light of the authorities that should have been presented to the court at the time of the original briefing. Such a practice would place an intolerable burden on the courts and prejudice those litigants who properly and adequately brief the questions at the time of the initial motion. Nonetheless, because of the court's desire to reach the right decision, reconsideration will be granted in this case.
Granting reconsideration does not, however, indicate that the court will reverse its prior decision, only that it will reconsider the decision in light of the authorities now cited by defendant. Certain of the evidence and authorities presented is clearly inadequate to justify reversal. Defendant cites two cases in which this court has sustained decisions of the Social Security Administration which were based in part on Dr. Carpenter's testimony: Strang v. Weinberger, supra, and Tate v. Weinberger, supra. The question of Dr. Carpenter's qualification as a vocational expert was not raised in either case, and this court's March 20, 1978 decision implicitly holds that the question is not one that the court would have raised sua sponte. Defendant also provided a copy of Dr. Carpenter's 1977 resume. This resume is substantially similar to his 1970 resume which was part of the administrative record considered by the court earlier. The only significant change is in the description of duties, which now states:
In charge of a ward of approximately 50 patients, both sexes, all ages, histories of mental illness or mental retardation or both, with frequent physical problems of all kinds. I assist in placing these in hospital industries, vocational and academic training programs inside and outside the hospital and in jobs outside the hospital. I perform diagnosis, treatment, teaching and research.
This resume statement does not describe the frequency of or depth of involvement in vocational placement outside the hospital setting. As noted in this court's earlier decisions, Dr. Carpenter testified at the hearing that he "[o]ccasionally, but not frequently," placed patients in jobs outside the hospital and that he had placed approximately ten patients in outside jobs in the preceding two years. The generality of the resume cannot offset the specific testimony given by Dr. Carpenter. In a reply brief, defendant offered a letter from Dr. Carpenter, stating in part that he had testified in approximately 600 hearings since 1963. Even if this letter were presented in the form of an affidavit so that it could be considered as evidence, testimony in administrative proceedings would not establish the "[c]urrent and extensive experience in . . . rehabilitation counseling and placement" or the "[w]ell rounded, up-to-date knowledge of, and experience with industrial and occupational trends and local labor market conditions" required for qualification as a vocational expert.
Defendant primarily relies on Judge Peckham's decision in Kinzell v. Weinberger, supra. The pertinent portion of that decision is as follows:
The plaintiff's second contention that the decision of the Secretary is not supported by substantial evidence is based upon the ground that there is no competent vocational testimony in the record to *320 support the conclusion that lighter work is available to the plaintiff. He argues that foundational evidence is lacking as to:
(1) whether any of the jobs mentioned existed in the national economy;
(2) the number of jobs available in such an industry;
(3) the basis for the "expert opinion" that such jobs mentioned existed in the national economy; and
(4) whether an individual with plaintiff's impairments would be hired by such employers.
Expert vocational testimony was given at the administrative hearing by Dr. Lewis G. Carpenter. Dr. Carpenter possesses a M.A. and a PhD in psychology from Stanford University and the University of California, respectively. At the time of the hearing, he had had 25 years experience with state and federal agencies in the counseling and placement of persons with vocational handicaps. Dr. Carpenter was called to give expert testimony in accordance with a contract which he executed with the Department of Health, Education and Welfare. Under questioning at the hearing by the administrative law judge, Dr. Carpenter testified as follows: . . .
A. Well I believe, uh, the claimant testified that in his opinion he could perform the ground work of a rigger which is the work he has done previously and I see no reason from the testimony and from the record that he could not do so. Similarly, to (sic) doing maintenance work around a facility such as a (sic) oil refinery would be within his capabilities within the assumption which you've given me. Other type of work which would fit the assumption you've made, would be flame cutter, hand burner, Now these exist in the hundreds in the bay area. Emphasis added.
Transcript at 42-43.
Dr. Carpenter appears to be well qualified to render such an opinion, and such testimony is frequently accepted by courts. Harvey v. Richardson, 451 F.2d 589 (9th Cir. 1971); Chavies v. Finch, 443 F.2d 356 (9th Cir. 1971); Kerner v. Celebrezze, 340 F.2d 736 (2d Cir. 1965), cert. denied, Kerner v. Gardner, 382 U.S. 861, 86 S. Ct. 121, 15 L. Ed. 2d 99 (1965).
It is not wholly clear from the decision whether plaintiff contended that Dr. Carpenter was not a qualified vocational expert or whether the contention was that his testimony was insufficient on the particular questions noted. Had the challenge been to his qualification as an expert, then one would expect that Judge Peckham would have discussed the standards for judicial review of such a challenge, that is, whether the substantial evidence test or the broader review appropriate to a conclusion of law applied. Assuming that the Kinzell plaintiff did challenge Dr. Carpenter's qualification, the decision is distinguishable from the instant case. There is no indication that any objection was raised to Dr. Carpenter's testimony at the administrative hearing; the plaintiff in Kinzell was acting in propria persona at the hearing. In the instant case, this court stressed the fact that plaintiff had objected to the use of Dr. Carpenter as a vocational expert prior to the administrative hearing, when another expert could have been selected with minimal inconvenience, and renewed that objection at each point in the appeals process. As this court stated in its March 20, 1978 decision: "Had plaintiff failed to make a prior objection, the result in this case might well be different." Finally, the statement in Kinzell that Dr. Carpenter "had had 25 years experience with state and federal agencies in the counseling and placement of persons with vocational handicaps" is not supported by the evidence before this court.
In accordance with the foregoing discussion, this court grants reconsideration of the March 20, 1978 Memorandum and, having reconsidered, declines to alter that decision.
IT IS SO ORDERED.
NOTES
[1] Section 1-87-12 of the Handbook, issued in May 1967, provides:
QUALIFICATIONS OF VOCATIONAL EXPERTS
A vocational expert is selected under criteria approved by eminent specialists in the field of vocational placement. Generally, they are counseling psychologists with extensive experience in vocational placement.
The following criteria have been considered in their selection:
(1) Knowledge and experience in:
(a) vocational counseling and placement, particularly, of the handicapped;
(b) the use of occupational materials developed for use in vocational counseling such as systemized occupational information, including occupational classifications, job descriptions, definitions and job families;
(c) the use and interpretation of psychological tests relating to occupation placement and adjustment;
(2) Ability to observe and evaluate personal characteristics, educational and vocational background, interests, physical and mental characteristics, and to interpret them in terms of their occupational significance;
(3) Well-rounded, up-to-date knowledge of, and experience with, industrial and occupational trends, labor market conditions and work settings; and
(4) Knowledge of the concept of transferability of skills in terms of related job family groupings.
The language of this section raises more questions than it answers. For example, the word "they" in the second sentence has as its antecedent the "eminent specialists" mentioned in the first sentence, yet one would expect the counseling psychologists described in the second sentence to be the vocational experts rather than the specialists who selected the criteria.
[1] Ms. Taylor's affidavit states that the criteria are as follows:
A. Current and extensive experience in
1. rehabilitation counseling and placement particularly with adult handicapped clients having prior work experience.
2. the use of occupational materials developed for vocational counseling, including information about the requirements of jobs such as duties, skills, physical demands, working conditions, and occupationally significant characteristics. A working knowledge of the Dictionary of Occupational Titles, Third Edition, 1965, and its two supplements is important.
3. the utilization of the concept of transferability of skills in terms of worker traits and functions.
B. Ability to evaluate age, education and prior work experience in light of residual functional capacities.
C. Well rounded, up-to-date knowledge of, and experience with industrial and occupational trends and local labor market conditions.
Insofar as these criteria vary from those in the Handbook, this court will rely on the criteria in the affidavit. The version of the Handbook provided by the parties was issued in May 1967 and has been, apparently, supplanted by the version of the criteria offered by Ms. Taylor. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1820209/ | 450 F. Supp. 1106 (1978)
Paul A. GUAY, Plaintiff,
v.
OZARK AIRLINES, INC., Defendant.
Civ. A. No. 76-3218-MA.
United States District Court, D. Massachusetts.
May 17, 1978.
As Amended June 7, 1978.
*1107 Edward F. Haber, Boston, Mass., for plaintiff.
Linda F. Smith, Thomas J. Sartory, Hale & Dorr, Boston, Mass., for defendant.
MEMORANDUM AND ORDER
MAZZONE, District Judge.
The plaintiff, Paul A. Guay, commenced this action in two counts on August 30, 1976. Count I alleges the breach of an implied employment contract that the plaintiff would not be terminated except for a poor job performance and after reasonable warnings and notice. The plaintiff contends he was terminated solely due to his hair length and not for poor job performance. Jurisdiction is invoked under 28 U.S.C. § 1332. Count II is brought pursuant to Title VII of the Civil Rights Act of *1108 1964 (42 U.S.C. § 2000e, et seq.), and alleges sex discrimination in that the defendant mandated different hair lengths for male and female employees. Jurisdiction in Count II is invoked under 28 U.S.C. § 1343(4).[1] Service upon Ozark Airlines was effected though the Secretary of the Commonwealth, the statutory agent for purposes of service of process for corporations "doing business" within the Commonwealth. Mass.Gen.Laws c. 223 § 37 and § 38. Such service, if valid under state law, is effective in this Court. F.R.Civ.P. 4(e), 4(d)(7).
The plaintiff is a male citizen of the Commonwealth of Massachusetts and the defendant, Ozark Airlines, Inc., is a corporation organized under the laws of Delaware with its principal place of business in the State of Missouri. The defendant is not a citizen of the Commonwealth of Massachusetts. The defendant has moved to dismiss this action pursuant to Rule 12(b) F.R. Civ.P. for lack of jurisdiction and insufficiency of process because the defendant is not doing business in the Commonwealth of Massachusetts.
The plaintiff has the burden of proving the facts necessary to establish this Court's jurisdiction under Mass.Gen.Laws c. 223 § 37 and § 38. KVOS Incorporated v. Associated Press, 299 U.S. 269, 57 S. Ct. 197, 81 L. Ed. 183 (1936); Aro Manufacturing Co. v. Automotive Body Research Corporation, 352 F.2d 400 (1st Cir., 1965).
G.L. c. 223 § 38 provides:
"In an action against a foreign corporation, except an insurance company, which has a usual place of business in the commonwealth, or, with or without such usual place of business, is engaged in or soliciting business in the commonwealth, permanently or temporarily, service may be had in accordance with the provisions of the preceding section [37] relative to service on domestic corporations in general." (Emphasis added)
The plaintiff argues four factors which, when considered cumulatively, sufficiently establish that Ozark Airlines does engage in or solicit business in the Commonwealth of Massachusetts. Those factors are: the defendant flies charter flights into and out of the Commonwealth of Massachusetts; the defendant maintained a bank account in the Commonwealth; the defendant caused tickets for travel on its flights to be sold in the Commonwealth of Massachusetts; and the defendant solicits business in the Commonwealth of Massachusetts through a toll-free "WATTS" number.
Dealing with these contentions seriatim, the Court finds the following facts:
(1) Charter flights.
During the years 1970-1976, Ozark Airlines flew a total of thirty-seven (37) charter flights in and out of Logan Airport in Boston. The great majority of these flights were chartered by professional sports teams. Five of those thirty-seven flights were from a single city to Boston and then a return to the city of origin. All of the contracts for all the charter flights were *1109 made outside of Massachusetts and were made with persons and entities that were residents of states other than Massachusetts. None of these charter flight contracts were made by or through a Massachusetts travel agency or any employee thereof. The defendant flew no scheduled flights into or out of Massachusetts during the years 1970-1976. In flying in and out of the Commonwealth on these charter flights, the defendant purchased fuel, and hired service facilities at the airport. It also paid landing fees at the airport. A total of $25,362.58 was spent in the years 1972-1976 for these various services.[2]
(2) Maintaining a bank account.
During the years 1973-1976, Ozark Airlines maintained a bank account at the New England Merchants Bank in Boston solely for the purpose of settling accounts. The balance sheet of the New England Merchants Bank which contains undisputed statistical data reflecting deposits, withdrawals and closing monthly balances during the years 1973-1976 shows the following:
Withdrawals Ending
Period Beg.Balance Deposits Balance
1973
1/2-1/15 18,526.69 17,434.42 28,000.00 7,961.11
1/16-1/31 7,961.11 15,248.15 11,000.00 12,209.26
2/1-2/28 12,209.26 26,997.70 22,000.00 17,206.96
3/1-3/30 17,206.96 34,883.15 32,011.80 20,078.31
4/1-4/30 20,078.31 30,163.14 39,000.00 11,241.45
5/1-5/31 11,241.45 10,242.94 15,185.93 6,298.46
6/1-6/30 6,298.46 1,238.66 6,284.63 1,252.49
7/1-7/31 1,252.49 5,509.43 2,575.76 4,186.16
8/1-8/31 4,186.16 40,353.34 26,042.72 18,496.78
9/1-9/30 18,496.78 27,012.98 40,000.00 5,509.76
10/1-10/31 5,509.76 41,198.21 29,000.00 17,707.97
11/1-11/30 17,707.97 49,554.16 43,058.75 24,203.38
12/1-12/31 24,203.38 37,531.91 54,000.00 7,735.29
1974
1/1-1/14 7,735.29 23,999.01 20,000.00 11,734.30
1/15-1/31 11,734.30 15,934.45 20,081.64 7,587.11
2/1-2/28 7,587.11 18,155.54 15,000.00 10,742.65
3/1-3/31 10,742.65 28,142.02 27,158.43 11,726.24
4/1-4/30 11,726.24 35,263.38 33,000.00 13,989.62
5/1-5/31 13,989.62 49,854.57 32,000.00 31,844.19
6/1-6/30 31,844.19 34,797.12 45,000.00 21,641.31
7/1-7/31 21,641.31 47,084.90 50,000.00 18,726.21
8/1-8/31 18,726.21 48,473.98 50,259.02 16,941.17
9/1-9/30 16,941.17 42,502.91 48,000.00 11,444.08
10/1-10/31 11,444.08 40,777.01 34,000.00 18,221.09
11/1-11/30 18,221.09 44,306.52 65,010.03 (2,482.42)
12/1-12/31 (2,482.42) 42,044.10 28,161.66 11,400.02
1975
1/1-1/10 11,400.02 10,253.85 16,000.00 5,653.87
1/11-1/31 5,653.87 17,333.93 13,093.89 9,893.91
2/1-2/28 9,893.91 29,021.34 14,092.33 24,822.92
3/1-3/31 24,822.92 44,188.22 59,122.07 9,889.07
4/1-4/30 9,889.07 38,679.24 37,000.00 11,568.31
5/1-5/30 11,568.31 40,135.88 44,263.64 7,440.55
6/1-6/30 7,440.55 56,405.90 50,000.00 13,846.45
7/1-7/31 13,846.45 58,016.14 58,000.00 13,862.59
8/1-8/31 13,862.59 51,151.51 51,000.00 14,014.10
*1110
9/1-9/30 14,014.10 41,853.69 46,000.00 9,867.79
10/1-10/31 9,867.79 60,382.29 27,000.00 43,250.08
11/1-11/30 43,250.08 31,043.44 57,745.37 16,548.15
12/1-12/31 16,548.15 57,876.68 59,000.00 15,424.83
1976
1/1-1/16 15,424.83 25,350.85 28,040.01 12,735.67
1/17-1/30 12,735.67 22,530.70 24,348.51 10,917.86
2/1-2/28 10,917.86 27,517.91 31,008.20 7,427.57
3/1-3/31 7,427.57 41,188.98 33,110.81 15,505.74
4/1-4/30 15,505.74 65,912.60 58,000.00 23,418.34
5/1-5/31 23,418.34 54,993.88 68,000.00 10,412.22
6/1-6/30 10,412.22 70,794.29 55,000.00 26,206.51
7/1-7/30 26,206.51 52,477.28 56,000.00 22,683.79
8/1-8/31 22,683.79 51,011.39 65,108.48 8,586.70
9/1-9/30 8,586.70 44,970.24 35,000.00 18,556.94
10/1-10/30 18,556.94 65,392.29 68,516.12 15,433.11
11/1-11/30 15,433.11 55,758.21 40,000.00 31,191.32
12/1-12/27 31,191.32 64,302.24 95,493.56 -0-
Deposits made into the New England Merchants Bank account reflect deposits made by independent travel agents in Rhode Island, Maine, New Hampshire, Vermont, Connecticut, New York, Pennsylvania, Ohio, New Jersey and Massachusetts, of revenue received by those agents (minus their commissions) from the sale of tickets for travel either exclusively on defendant's airline or for travel on defendant's airline (first leg) and subsequent travel on another airline. Any funds so deposited which are for travel on an airline other than the defendant's are reimbursed by the defendant at account settlements conducted at the Chase Manhattan Bank in New York.
(3) Causing tickets to be sold.
There are 15 independent, licensed travel agencies in Massachusetts which have plates issued by the defendant for the imprinting of tickets for travel on defendant's airline. The employees of these agencies are not agents of the defendant. A fixed percentage commission is paid to independent licensed travel agents of the Air Traffic Conference which sell tickets for space aboard flights on the defendant airline between points outside the Commonwealth of Massachusetts. There were, however, no authorized agents for the sale of tickets nor was there any agent employed by or through any office operated by Ozark. Ozark is not licensed to do business in Massachusetts, nor does it maintain any office, warehouse, plant, or employ any person or agent in the Commonwealth. It does not advertise or solicit any business in Massachusetts. It has no regular telephone listing and no mailing address in Massachusetts.
(4) The "WATTS" number.
The defendant has a "WATTS" or "800" area code number through which persons in Massachusetts can call without toll charges to make reservations and order tickets for travel on Ozark Airlines. It was acquired on January 12, 1972. The number can be obtained by calling toll-free information, not regular information. There is no telephone listing in either the white or yellow pages of the Boston telephone directory.
Federal jurisdiction under G.L. c. 223 §§ 37, 38 may be asserted over foreign corporations "in the manner prescribed by state law." Pulson v. American Rolling Mill Co., 170 F.2d 193 (1st Cir., 1948). Waltham Precision Instrument Co. v. McDonnell Air Corp., 310 F.2d 20 (1st Cir., 1962).[3] The history of Massachusetts law *1111 relative to the assertion of jurisdiction over foreign corporations has been conservative, initially because of constitutional restraints. Waltham Precision, supra. These due process fears, however, were substantially allayed by the Supreme Court in International Shoe v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945); McGee v. International Life Ins. Co., 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957). If a corporation exercises the privilege of conducting activities within the state, it enjoys the benefits and protection of the laws of that state. So the state can assert jurisdiction and the corporation has an obligation to respond to suits within that state. International Shoe, supra.
In Caso v. Lafayette Radio Electronics Corporation, 370 F.2d 707 (1st Cir., 1966) the First Circuit reviews Massachusetts law, first discussing two cases where personal jurisdiction was found. In both Wyshak v. Anaconda Copper Mining Co., 328 Mass. 219, 103 N.E.2d 230 (1952) and Jet Mfg. Co. v. Sanford Ink Co., 330 Mass. 173, 113 N.E.2d 252 (1953) service was made on a resident sales manager whose job it was to solicit business to promote good will, and to investigate complaints. Under those facts, the court held that jurisdiction was established. However, two factors were present in both cases that are not present here. First, the court specifically assumed that the cause of action arose out of business solicited in Massachusetts and the court also found that the activities amounted to more than "mere solicitation."
The Court said in Caso, supra:
"From these cases we derive two propositions about the Supreme Judicial Court's treatment of jurisdiction over foreign corporations: (a) despite the language of Mass.G.L. c. 223 § 38, and despite the court's intimations to the contrary, it has never extended jurisdiction over a corporation whose activities in the state amounted to no more than the constitutionally permissible `minimum contact' it has regularly found more than `mere solicitation'; (b) even when it has found solicitation plus some other activity, it has not extended jurisdiction when the cause of action did not arise out of the activities in Massachusetts. On the other hand, where the corporation's activities more closely approximated the regular conduct of a domestic corporation that is to say, where the defendant was clearly `doing business' in Massachusetts the court has allowed jurisdiction for a transitory cause of action. Trojan Eng'r Corp. v. Green Mountain Power Corp., 1936, 293 Mass. 377, 200 N.E. 117."
The Court then set out two conditions under which Massachusetts courts would assert jurisdiction over a foreign corporation served under § 38:
"(a) whenever the corporation's activities affect the commerce of Massachusetts substantially so that the state has an interest in regulating the general conduct of those activities (`doing business'), or (b) whenever the corporation's activities in Massachusetts have so affected the particular transaction at issue that it is appropriate to hear the claim in a Massachusetts court."[4]
Applying the facts set forth by the plaintiff to these two conditions this Court concludes that the contacts are not sufficient to establish personal jurisdiction over the defendant.[5]
*1112 The defendant derived revenue from the charter flights and the out of state flights booked by independent agents. The sale of tickets for travel outside Massachusetts is not "doing business." Philadelphia and Reading Railway v. McKibbin, 243 U.S. 264, 370 S. Ct. 280, 61 L. Ed. 2d 710 (1917); McManus v. Capital Airlines, 166 F. Supp. 301 (E.D.N.Y., 1958). The charter flights were isolated events and had minimal effect on Massachusetts commerce in its use of the airport facilities. In conjunction with these flights the defendant maintained a bank account which in itself alone is not doing business. Turner v. United Mineral Land Corp., 308 Mass. 531, 537, 33 N.E.2d 282 (1941).
The defendant purchased a "WATTS" line in order that toll-free calls could be made by persons wishing to charter or agents wishing to book persons on the defendant's airline. In Walsh v. National Seating Co., Inc., 411 F. Supp. 564 (D.Mass., 1976) the court found personal jurisdiction over the defendant, Motor Coach. Among the factors which the court found significant in establishing that the defendant was sufficiently involved in the business activity of the Commonwealth was the fact that the defendant maintained a regular phone listing which indicated that they held themselves out as providers of service and, as such, were soliciting business in the Commonwealth. There is no regular phone listing in the instant case. The only evidence before the Court regarding phone listings is that the defendant maintained a "WATTS" line. A "WATTS" line, while available through toll-free telephone information, exists primarily to allow a customer to make toll-free calls. The purpose is not to promote business in the same way as a regular phone listing. See Gardner v. Braniff International, 312 F. Supp. 844 (D.Conn., 1970).
The Court agrees with plaintiff's argument that the total of the defendant's activities must be considered to determine whether Massachusetts has an "interest" in regulating conduct because the corporation's activities "affect the commerce" of the Commonwealth. Taking the sum of these activities, the plaintiff falls short of showing that the defendant "purposefully [and intentionally] avails itself of the privilege of conducting business within the forum State, thus invoking the benefits and protection of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 1240, 2 L. Ed. 2d 1283 (1958). Policy considerations also dictate that out of state business should be encouraged to deal with people in Massachusetts by minimizing the burdens incident to such dealings.
The Court is mindful of the burden it places upon the plaintiff to press his claim in a foreign tribunal, but, under all the circumstances, this case is especially appropriate for that action.[6] Where contact is slight, jurisdiction may require some relationship between the cause of action and the foreign corporation's local activities. Walsh v. National Seating Co., Inc., supra. There is no such claim, nor does the Court discern any such relationship here.
Accordingly, the defendant's motion to dismiss for lack of jurisdiction is ALLOWED.
NOTES
[1] Title VII provides for an independent jurisdictional basis. That separate basis, 42 U.S.C. § 2000e-5(f)(3), provides that "[e]ach United States district court . . . shall have jurisdiction of actions brought under this subchapter." The section also provides for special venue in that 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." The facts suggest that the plaintiff could not meet these special venue restrictions which resulted in his pitching his jurisdiction on the more general § 1343(4) "[t]o recover damages or to secure equitable or other relief under any Act of Congress providing for the protection of civil rights . . .."
Jurisdiction in Count I is invoked pursuant to 28 U.S.C. § 1332, the diversity question, although it is clear that both counts are basically complaints of sex discrimination.
[2] The expense figures for 1970, 1971 were not available. The total income from all charter flights was $412,423.00, but an examination of the flights reveals that Boston was but one of many cities on the itinerary and an allocation of income among those cities would be almost impossible. In any event, revenue under these circumstances is irrelevant. Vencedor Manufacturing Co., Inc. v. Gougler Industries, 557 F.2d 886 (1st Cir., 1977).
[3] This is different than jurisdiction asserted under the Massachusetts long-arm statute, M.G.L. c. 223A. The long-arm statute permits a party to reach outside the state to gain jurisdiction over a foreign corporation, when a cause of action arises out of the defendants "minimum contacts" with the state.
[4] This condition has not been met on the face of the complaint. The plaintiff's claim does not appear to have the remotest contact with any of the corporation's activities within the Commonwealth. In fact, if the cause of action arose out of activities within the Commonwealth, jurisdiction could be predicated on the "long arm statute," G.L. c. 223a.
[5] The defendant contends that the question as to whether there were sufficient contacts is to be measured at the time of service of process citing Turner v. Mineral Lands Corp., 308 Mass. 531, 533, 33 N.E.2d 282 (1941). Recent authorities appear to consider the activities over a broader period of time. See, e. g., Walsh v. National Seating Company, Inc., 411 F. Supp. 564 (D.Mass., 1976). In the context of this decision the Court has considered the business activities of Ozark Airlines from 1970-1976 and not just at the time of service of process in 1976.
[6] See Footnote 1. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1821091/ | 300 F. Supp. 1169 (1969)
Alan EINHORN et al.
v.
John MAUS et al.
Civ. A. No. 69-1403.
United States District Court E. D. Pennsylvania.
June 27, 1969.
*1170 Wolf, Block, Schorr & Solis-Cohen, Judah I. Labovitz, Philadelphia, Pa., for plaintiffs.
Stefan, Timoney, Knox & Avrigian, Thomas J. Timoney, Ambler, Pa., for defendants.
OPINION
KRAFT, District Judge.
This is a civil rights action[1] brought by twelve minor plaintiffs and their parents to enjoin the defendant school officials from placing any notation upon the school record of any student who distributed literature or wore an arm band bearing the legend "HUMANIZE EDUCATION" at the graduation ceremonies of Springfield Township Senior High School on June 5, 1969.
Plaintiffs also seek to restrain defendants from communicating to any school, college, university, institution of higher learning or employer the fact that any student wore such an arm band or distributed such literature at the graduation ceremonies or that such students ignored an order of the school authorities not to engage in such activities.
Now before us is plaintiffs' motion for a preliminary injunction. At the hearing, the parties stipulated that for the purposes of this motion, the facts alleged in plaintiffs' complaint were to be taken as true. The Court approves the stipulation and adopts the allegations of fact in the complaint as its findings of fact.
At the hearing, the parties further stipulated that the only communication intended to be transmitted by defendants to the colleges and universities at which the minor plaintiffs hope to matriculate, respectively, in the fall is as follows:
This letter is submitted to supplement the information we have furnished concerning ______. He/she was one of 22 seniors who wore arm bands at our Commencement Exercises bearing the legend "Humanize Education"[2] as as indication of his/her concern regarding certain aspects of our educational program.
These students wore arm bands even though they had been requested not to wear any insignia which deviated from the formal graduation attire. There was no disorder at the Commencement Exercises.
Counsel for the plaintiffs, at the hearing, agreed, in response to a question from the Court, that, if the defendants simply communicated to any such school a true factual account of what occurred at the graduation exercises, without expression of opinion as to the lawfulness or propriety of the demonstration, no constitutional invasion of plaintiffs' rights would occur. The proposed letter, supra, was first exhibited to the plaintiffs and their counsel at the hearing.
Since this is a motion for preliminary injunction it is fundamental that plaintiffs, in order to prevail, must demonstrate the likelihood of immediate, irreparable harm flowing from the defendants' proposed conduct.
An expression of opinion by students through the medium of arm bands in an orderly demonstration is constitutionally protected and cannot be circumscribed. Tinker v. Des Moines Independent Community School District, 393 U.S. 503, 89 S. Ct. 733, 21 L. Ed. 2d 731 (Feb. 24, 1969).
The students here demonstrated in an orderly manner and simply publicized *1171 their views upon the humanizing of education by wearing arm bands. No disciplinary action whatsoever was taken by the school officials against the students, although they had been instructed not to deviate from the formal graduation attire.
We perceive no threatened irreparable harm flowing from the proposed letter nor have the plaintiffs offered any evidence to demonstrate any likelihood thereof. School officials have the right and, we think, a duty to record and to communicate true factual information about their students to institutions of higher learning, for the purpose of giving to the latter an accurate and complete picture of applicants for admission.
The contention that the defendant school officials may attempt to prevent succeeding graduates from expressing their views in graduation exercises in June, 1970 or thereafter does not warrant a grant now of extraordinary relief by this Court in the form of a preliminary injunction, since the action of the school officials alleged by plaintiffs to be anticipated does not pose a threat of immediate irreparable harm. What future graduating students may do or refrain from doing neither the Court nor the defendant school officials can forecast. When such student action or inaction becomes reasonably determinable we think, in light of the present suit, that the school officials then in charge will be guided in their actions by Tinker v. Des Moines Independent Community School District, supra, and any relevant interim decisions. If they fail so to do a remedy is not lacking.
The foregoing opinion embraces the Court's findings of fact and conclusions of law in compliance with Fed.R.Civ.P. 52(a).
ORDER
Now, this 27th day of June, 1969,
It is ordered that the plaintiffs' motion for a preliminary injunction be, and it is, denied.
NOTES
[1] 42 U.S.C.A. § 1983.
[2] The italicized portion was interlineated at the suggestion of the Court with the approval of the litigants and will not be given emphasis in the intended letter. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1821544/ | 772 F. Supp. 745 (1991)
ATLANTIC STATES LEGAL FOUNDATION, INC., Plaintiff,
v.
WHITING ROLL-UP DOOR MANUFACTURING CORP., Defendant.
No. CIV-90-1109S.
United States District Court, W.D. New York.
September 3, 1991.
Charles M. Tebutt, Allen, Lippes & Shonn, Buffalo, N.Y., James M. Hecker, of counsel to Environmental Action, Inc., The Natural Resources Defense Council, Public Interest Research Group of New Jersey, Inc., amici for plaintiff.
Jerrold S. Brown, Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo, N.Y., for defendant.
ORDER
SKRETNY, District Judge.
INTRODUCTION
Now before this Court is the motion of defendant Whiting Roll-Up Door Manufacturing Corp. ("defendant") to dismiss the Complaint for lack of subject matter jurisdiction and for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6), respectively. Alternatively, defendant moves for summary judgment pursuant to Fed.R.Civ.P. 56.
*746 This lawsuit is a citizen's enforcement action arising under the Emergency Planning and Community Right-To-Know Act ("EPCRA"), 42 U.S.C. §§ 11001 et seq.[1] In Counts One through Three of the Complaint, plaintiff Atlantic States Legal Foundation, Inc. ("plaintiff") alleges that the defendant has failed to submit timely certain hazardous chemical information to proper state and federal authorities pursuant to EPCRA's reporting provisions, §§ 311, 312 and 313, 42 U.S.C. § 11021, 11022, and 11023 ("§ 311" "§ 312" "§ 313"), respectively, for the 1987-1989 reporting years. With regard to §§ 311 and 312 compliance, the plaintiff concedes that as of the date of suit the defendant has filed all required information. However, the plaintiff maintains that EPCRA authorizes a citizen suit, such as this, to recover civil penalties for wholly past violations, that is, where the defendant has "come into" compliance with EPCRA's reporting provisions before the plaintiff commenced suit. With respect to § 313, the plaintiff contends that it has a good faith belief, as of the date it filed this lawsuit, that the defendant continues to be a nonreporter under that provision.
Plaintiff seeks the following relief: 1) a declaratory judgment regarding defendant's liability for failure to meet the reporting requirements under EPCRA; 2) pursuant to EPCRA § 325(c), 42 U.S.C. § 11045 ("§ 325"), civil penalties for violations of §§ 311-313 for the 1987-1989 reporting years; 3) permanent injunctive relief prohibiting further EPCRA violations; and 4) attorneys' fees and costs.
Moving to dismiss this lawsuit, the defendant argues that EPCRA does not afford citizens, such as plaintiff, a right to sue for wholly past violations. Since, according to the defendant, the evidence demonstrates defendant's compliance with all of EPCRA's reporting provisions before plaintiff filed this lawsuit, the defendant argues that this Court lacks jurisdiction of plaintiff's lawsuit. Because the thrust of the defendant's motion is that this Court lacks authority under EPCRA to hear plaintiff's claim, this Court shall treat the defendant's motion as one pursuant to Fed.R.Civ.P. 12(b)(1).
In support of its motion, the defendant submits a legal memorandum ("d. memo"); a reply memorandum, the affidavit of Paul Meosky, Esq. ("Meosky"); the affidavit of Michael Whiting with exhibits ("Whiting") and the affidavit of Jerrold S. Brown, Esq.
In opposition to the defendant's motion, the plaintiff submits a legal memorandum ("p. memo."); the affidavit of Charles Tebbutt, Esq. ("Tebbutt"); and the affidavit of James Keane ("Keane"). Also, on behalf of the plaintiff, the Natural Resources Defense Counsel, Environmental Action, Inc. and the Public Interest Research Group of New Jersey, Inc. have, with permission of this Court, submitted an Amicus Curiae brief.
In ruling on the defendant's motion, this Court has considered all these submissions and oral argument held on March 19, 1991.
Conclusion: For the reasons set forth below, this Court denies the defendant's motion to dismiss the Complaint.
EPCRA GENERALLY
A consultation of the entirety of EPCRA's provisions reveals that the statute has two central objectives: public access to centralized information, at a reasonably localized level, concerning hazardous chemicals used, produced or stored in the community and the use of this information to formulate and administer local emergency response plans in case of a hazardous chemical release.
To achieve these objectives, EPCRA contains three reporting provisions, §§ 311-313, which require owners or operators of a facility, as that term is defined at § 329(4), 42 U.S.C. § 11049(4), to submit certain specified information with respect to hazardous chemicals maintained at threshold levels to responsible state, local and, in the *747 case of § 313, federal authorities. Additionally, EPCRA §§ 301-305 provide for the formation of state and local emergency response commissions and planning committees designed to receive and collect this reported information, make the information available to the public, and develop emergency response plans should a chemical release occur.
In this lawsuit, the plaintiff alleges that the defendant has failed to meet EPCRA's reporting requirements. This Court will now address those requirements in greater detail.
A. EPCRA's Reporting Requirements
As noted above, EPCRA contains three provisions, §§ 311-313, which require an owner or operator of a facility to submit information concerning hazardous chemicals to state, local and sometimes federal officials.
§ 311(a)(1) provides that an owner or operator of any facility which is required to prepare a Material Safety Data Sheet ("MSDS") for a hazardous chemical under the Occupational Safety and Health Act ("OSHA") "... shall submit ..." a MSDS for each chemical to the State emergency response commission, a local emergency planning committee and the local fire department. Alternatively, instead of filing a MSDS, an owner or operator may file a list of chemicals ("List") for which OSHA requires the filing of a MSDS, along with other information required on the MSDS. With respect to an initial compliance date, § 311(d)(1) states:
(1) The initial material safety data sheet or list required under this section with respect to a hazardous chemical shall be provided before the later of
(A) 12 months after October 17, 1986, or
(B) 3 months after the owner or operator of a facility is required to prepare or have available a material safety data sheet for the chemical under the Occupational Safety and Health Act of 1970 ... and regulations promulgated under that Act.
Although § 311 does not require annual reporting, § 311(d)(2) requires a facility to update its MSDS or List to reflect "... significant new information concerning an aspect of a hazardous chemical...."
§ 312 provides that an owner or operator of a facility required by OSHA to prepare or have available a MSDS "... shall prepare and submit ..." an emergency and hazardous chemical inventory form ("Inventory Form") to the State emergency response commission, a local emergency planning committee and the local fire department. § 312(c) verifies that a hazardous chemical subject to § 312's reporting requirement is any hazardous chemical for which § 311 also requires the filing of a MSDS or List. § 312(a)(2) permits a facility to file an inventory form containing either Tier I information or Tier II information, as those terms are defined in § 312(d). With respect to an initial compliance date, § 312(a)(2) provides that the initial Tier I or Tier II Inventory Form "... shall be submitted on or before March 1, 1988, and annually thereafter on March 1, and shall contain data with respect to the preceding calendar year."
§ 313 requires completion of a Toxic Chemical Release Inventory Form, commonly known as the EPA Form R ("Form R"), for those chemicals which are included on the "List of Section 313 Chemicals," contained at 40 C.F.R. § 372.65. Facilities which release certain toxic chemicals must report total emissions of these toxic chemicals to the United States Environmental Protection Agency ("EPA") and to State officials. With respect to an initial compliance date, § 313(a) provides that the initial Form R "... shall be submitted to the Administrator and to an official or officials of the States designated by the Governor on or before July 1, 1988, and annually thereafter on July 1 and shall contain data reflecting releases during the preceding calendar year."
B. EPCRA Citizen Suit Enforcement & Civil Penalty Provisions
With respect to a citizen's right to sue an owner or operator for failure to meet EPCRA's reporting requirements, § 326, 42 U.S.C. § 11046 ("§ 326"), contains EPCRA's *748 citizen enforcement provision. § 326 provides:
(a) Authority to bring civil actions
(1) Citizen suits
Except as provided in subsection (e) of this section, any person may commence a civil action on his own behalf against the following:
(A) An owner or operator of a facility for failure to do any of the following:
(i) Submit a follow-up emergency notice under section 11004(c) of this title.
(ii) Submit a material safety data sheet or a list under section 11021(a) of this title.
(iii) Complete and submit an inventory form under section 11022(a) of this title containing tier I information as described in section 11022(d)(1) of this title unless such requirement does not apply by reason of the second sentence of section 11022(a)(2) of this title.
(iv) Complete and submit a toxic chemical release form under section 11023(a) of this title....
With respect to violations of EPCRA's reporting requirements § 326 must be read in conjunction with § 325, 42 U.S.C. § 11045 ("§ 325"), EPCRA's civil penalty provision. § 325(c) provides:
(1) Any person (other than a governmental entity) who violates any requirement of section 11022 or 11023 of this title, shall be liable to the United States for a civil penalty in an amount not to exceed $25,000 for each such violation.
(2) Any person (other than a governmental entity) who violates any requirement of section 11021 or 11043(b) of this title, and any person who fails to furnish to the Administrator information required under section 11042(a)(2) of this title shall be liable to the United States for a civil penalty in an amount not to exceed $10,000 for each such violation.
(3) Each day a violation described in paragraph (1) or (2) continues shall, for purposes of this subsection, constitute a separate violation.
(4) The Administrator may assess any civil penalty for which a person is liable under this subsection by administrative order or may bring an action to assess and collect the penalty in the United States district court for the district in which the person from whom the penalty is sought resides or in which such person's principal place of business is located.
With these provisions in mind, this Court now addresses the facts of this case.
FACTS
Plaintiff is a not-for-profit citizens environmental organization. (Complaint, ¶ 6; p. memo., p. 2). Defendant is an industrial facility located in Akron, New York engaged in the business of manufacturing roll-up and hinged doors. (Whiting, ¶ 2).
On May 25, 1990, defendant received a Notice Of Intent To Sue letter ("Notice Letter") dated May 15, 1990 from Charles Tebbutt, Esq. ("Tebbutt"), counsel for the plaintiff. The Notice Letter stated, in accordance with § 326(d), that upon expiration of sixty (60) days from the date of the letter, "... the Atlantic States Legal Foundation will file a civil action in federal district court ..." pursuant to the citizen suit provision contained in § 326(a). The Notice Letter identified alleged violations of EPCRA's reporting provisions, §§ 311, 312 and 313, as the reason for plaintiff's imminent suit. Specifically, the Notice Letter alleged that the defendant had
... failed to accurately complete and submit:
A. Material Safety Data Sheets by October 17, 1987 pursuant to Section 311 of EPCRA, 42 U.S.C. § 11021;
B. Emergency and Hazardous Chemical Inventory Forms by March 1, 1988, and annually thereafter, pursuant to Section 312 of EPCRA, 42 U.S.C. 11022; and
C. Toxic Chemical Release Forms (EPA Form Rs) by July 1, 1988, and annually *749 thereafter, pursuant to Section 313 of EPCRA, 42 U.S.C. 11023.
(Whiting, exh. A).
On July 16, 1990, Michael Whiting, a Vice-President of the defendant, mailed the following information for the 1989 reporting year to The New York State Emergency Response Commission and the Erie County Department of Emergency Services, hand delivering a copy to the Akron Fire Department: 1) a List of hazardous chemicals present in defendant's plant pursuant to § 311 (Whiting, ¶ 4(a) and exh. B thereto); and 2) Tier II Inventory Forms pursuant to § 312. (Whiting, ¶ 4(b) and exh. C thereto).
On July 20, 1990, Michael Whiting mailed to The New York State Emergency Response Commission and the Erie county Department of Emergency Services, hand delivering a copy to the Akron Fire Department, the same information for the 1987 and 1988 reporting years. (Whiting, ¶ 5 and exhs. D-G thereto).
On August 21, 1990, Michael Whiting mailed to The New York State Emergency Response Commission and the Erie county Department of Emergency Services, hand delivering a copy to the Akron Fire Department, a revised § 311 list and Tier Two Inventory Forms for the 1987-1989 reporting years. (Whiting, ¶ 6 and exh. H thereto).
On June 28, 1990, Michael Whiting mailed a Form R for the 1989 reporting year to the EPA EPCRA Reporting Center and the New York State Emergency Response Commission. (Whiting, ¶ 7 and exh. I thereto).
On July 25, 1990, Michael Whiting mailed a revised Form R for 1989 and Form Rs for the 1987 and 1988 reporting years, to the same entities. (Whiting, ¶ 8 and exhs. J-L thereto).
By letter dated August 22, 1990, Michael Whiting transmitted copies of the above referenced §§ 311, 312 and 313 filings to Tebbutt. (Whiting, ¶ 9 and exh. M thereto).
On October 30, 1990, plaintiff commenced this lawsuit.
DISCUSSION
A. EPCRA's Authorization Of Citizen Suits For Past Violations
The plaintiff does not dispute that the defendant submitted § 311 Lists and § 312 Inventory Forms for the 1987-1989 reporting years before plaintiff filed this lawsuit.[2] It is also undisputed that prior to receiving plaintiff's Notice Letter, the defendant failed to file the required information under §§ 311, 312 and 313. (Whiting ¶¶ 4-8; Tebbutt, ¶ 4).
Maintaining that EPCRA authorizes citizen suits for wholly past reporting violations, that is, for late filed reports which have been filed by the time of suit, plaintiff seeks, inter alia, civil penalties for the defendant's failure to report according to the initial compliance dates contained in §§ 311-313.
Defendant moves for dismissal based on this Court's lack of subject matter jurisdiction arguing that the Complaint alleges no continuing violations of EPCRA's reporting provisions. The defendant contends that EPCRA does not afford citizens the right to sue for failure to report under §§ 311-313 where the defendant has filed the required reports before the lawsuit is filed.
Thus this Court must decide this narrow issue: Does EPCRA authorize citizen suits for reporting violations which are not continuing at the time the lawsuit is filed. This is an issue of first impression. Having considered all arguments, based on the statute's plain language and the legislation's underlying purpose, which is well documented by its legislative history, this Court must conclude in the affirmative.
*750 Absent "... a clearly expressed legislative intention to the contrary," this Court must conclusively rely on the words of the statute." Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). Accordingly, since this Court locates no legislative intention to the contrary, it initially examines the plain language of EPCRA.
The plain language of EPCRA's reporting, enforcement and civil penalty provisions, when logically viewed together, compel a conclusion that EPCRA confers federal jurisdiction over citizen lawsuits for past violations.
As noted above, § 326(a)(1) authorizes citizen suits against an owner or operator for "... failure ..." to, inter alia, submit an MSDS or List pursuant to § 311; complete and submit an Inventory Form pursuant to § 312; or complete and submit a Form R pursuant to § 313. Sections 325(c)(1) and (2) authorize citizen suit civil penalties against "[a]ny person (other than a government entity) who violates any requirement ..." of §§ 311, 312 or 313. As also noted above, EPCRA's reporting provisions establish mandatory dates for initial compliance.[3]
It logically follows that these mandatory compliance dates must be considered to constitute §§ 311-313 "requirements" for purposes of the citizen suit civil penalty provision under § 325, as Congress' choice of the word "shall" in §§ 311-313 indicates.
In this case, it is undisputed that the defendant failed to report information pursuant to §§ 311-313 by the compliance dates therein. The defendant argues that as of the date plaintiff commenced this lawsuit, there was no "... failure to do the submissions required by the statute." (d. memo, p. 7). Defendant's interpretation of the statute is far too restrictive, however, for according to the statute's plain language, the compliance dates constitute requirements of the reporting provisions; the unequivocal language of §§ 311-313 requires initial reporting on dates certain. Thus, this Court cannot reconcile the defendant's interpretation with EPCRA's civil penalty provision which authorizes civil penalties against "[a]ny person ... who violates any requirement ..." of EPCRA's reporting provisions. § 325(c)(1) & (2).
Moreover, this Court's acceptance of the defendant's interpretation would render gratuitous the compliance dates for initial submissions which Congress placed in EPCRA's reporting provisions.
EPCRA's underlying purpose, well documented by its legislative history, supports the conclusion that citizens may sue for violations which no longer continue at time of suit.
The introductory statement contained in H.REP. NO. 99-253, to accompany H.R. 2817 which was by in large adopted by H.R. 2005, the bill ultimately passed by Congress, states:
COMMUNITY RIGHT TO KNOW
A program is established that will provide the public with important information on the hazardous chemicals in their communities. The program would require each owner or operator of a facility at which a hazardous chemical is produced, used, or stored to supply information on material safety date sheets (MSDS) about each hazardous chemical to state and local officials. The state and local officials, designated by the governor of each state, would make this information available to the public.
HOUSE COMMITTEE ON ENERGY AND COMMERCE, SUPERFUND AMENDMENTS OF 1986, H.REP. NO. 253, 99th Cong., 2d Sess. (1986) reprinted in 1986 *751 U.S.Code Cong. & Admin.News 2835, 2841. Similarly, the preamble to the Conference report describes the Senate and House versions of EPCRA as
... programs to provide the public with important information on the hazardous chemicals in their communities, and to establish emergency planning and notification requirements which would protect the public in the event of a release of hazardous chemicals.
H.CONF.REP. NO. 962, 99th Cong., 2d Sess. (1986), reprinted in 1986 U.S.Code Cong. & Admin.News 3276.
The required filing of the MSDS pursuant to § 311 is obviously a critical first step to achieving the intent of EPCRA, for without the filing of this information, state and local officials would have no way of receiving the necessary information regarding hazardous chemicals to make available to the public and to formulate an effective emergency response plan.[4] Thus, Congress was concerned that "[o]nce the material data sheets are developed, it is crucial that they may be made available to he public in the quickest, most efficient way possible." H.Rep. No. 253, 99th Cong., 2d Sess. (1986), reprinted in 1986 U.S.Code Cong. & Admin.News 2835, 2893.
The legislative history also demonstrates Congress' particular concern that hazardous chemical information be readily accessible at the community level. Accordingly, with respect to public availability to hazardous chemical information disseminated via the MSDS, H.REP. NO. 99-253 states:
... all population groups that are located in an area where they may come in contact with a hazardous chemical, whether it is because they are near a chemical manufacturing plant or a plant which uses the chemical, must have reasonable access to the information. This means that they should not have to travel a great distance to reach the nearest repository. Furthermore, the repository should be open at reasonable hours.
Id.
As these passages indicate, Congress designed the concept of the emergency response plan, which necessarily depends on accurate and current information, as a public safety measure in case of a hazardous chemical release. Thus, the legislative history often refers to protection of the public health and environment. See, e.g., H.REP. NO. 99-253 ("[e]ach Emergency Response Plan must be designed to protect public health and the environment in the event of a hazardous substance emergency....") (Id., 1986 U.S.Code Cong. & Admin.News at 2896).
As noted above, and as evident from these statements, EPCRA embodies two fundamental objectives: public access to information concerning hazardous chemicals in the community and use of this information to formulate and administer local emergency response plans in case of a hazardous chemical release. The relative achievement of these objectives, then, depends on accurate and current information. Via the reporting requirements contained in §§ 311-313, Congress has placed the burden on facility owners or operators to submit this information to appropriate officials who can then implement an emergency response plan. If owners or operators fail to comply with the reporting requirements, including the mandatory compliance dates, the development and success of emergency response plans would be seriously, if not critically, undercut, and the entire thrust of EPCRA could be defeated. To the extent owners and operators, such as the defendant, delay reporting beyond the compliance dates which Congress placed in §§ 311-313, the public has access to less information and emergency response plans are based on incomplete information. Moreover, the public has no mechanism to ensure the accuracy of information which is unreported. EPCRA provides that mechanism. Clearly, for all these reasons, to overlook EPCRA's reporting deadlines would subvert the objectives of EPCRA.
In support of its motion, the defendant relies on Gwaltney of Smithfield v. Chesapeake Bay Foundation, Inc., 484 U.S. 49, *752 108 S. Ct. 376, 98 L. Ed. 2d 306 (1987), where the Supreme Court held the citizen suit provision of the Clean Water Act, § 505(a), 33 U.S.C. § 1365(a) ("505(a)"), did not confer federal jurisdiction over citizen suits for wholly past violations.
In Gwaltney, the citizen suit provision of the Clean Water Act provided in relevant part that
... any citizen may commence a civil action on his own behalf
(1) against any person ... who is alleged to be in violation of (A) an effluent standard or limitation under this chapter or (B) an order issued by the Administrator or a State with respect to such a standard or limitation....
Id. 484 U.S. at 55, 108 S.Ct. at 380.
Examining the plain statutory language, the statutory scheme, and the statute's legislative history the Supreme Court concluded that the "... alleged to be in violation ..." language did not confer federal jurisdiction of citizen lawsuits for wholly past violations.
Initially the Court found that, although ambiguous, the "... to be in violation ..." clause contemplated a "... continuous or intermittent violation that is, a reasonable likelihood that a past polluter will continue to pollute in the future." Rejecting the argument that Congress committed a careless accident by incorporating this language and citing the Clean Air Act, 42 U.S.C. § 7604, as an example, the Court noted that Congress used "... identical language ..." in citizen suit provisions contained in other statutes which authorized only prospective relief. Id., 484 U.S. at 57, 108 S.Ct. at 381. The Court emphasized that "... the pervasive use of the present tense ..." throughout § 505 buttressed the conclusion that the provision contemplated only prospective application. Id., 484 U.S. at 59, 108 S.Ct. at 382.
Next, the Court found the Clean Water Act's notice provision irreconcilable with an interpretation that citizen suits may address wholly past violations. § 505(b)(1)(A) requires that citizens give 60 days notice of their intent to sue to the alleged violator, EPA Administrator and appropriate State officials. Since, pursuant to § 505(b)(1)(B), the commencement of an enforcement action by the Administrator or State within the 60 day notice period barred a citizen enforcement suit, the Court concluded, "... [i]t follows logically that the purpose of notice to the alleged violator is to give it an opportunity to bring itself into complete compliance with the [Clean Water] Act and thus likewise render unnecessary a citizen suit." Therefore, the Court said, if citizen suits could target solely past violations, the notice requirement to past violators "... becomes gratuitous." Id., 484 U.S. at 60, 108 S.Ct. at 382-83.
Lastly, the Court found that the legislative history of the Clean Water Act supported the conclusion that its citizen suit provision remained inapplicable to suits for past violations. Id., 484 U.S. at 61-63, 108 S.Ct. at 383-84.
However, this Court finds Gwaltney distinguishable from this case. The factors cited by the Supreme Court to support its holding that the Clean Water Act did not authorize citizen suits for wholly past violations are substantially diminished with respect to EPCRA in this case.
First, the plain language of EPCRA's citizen suit provision is different than its Clean Water Act counterpart. Section 326 authorizes citizen suits for an owner's or operator's "failure to" comply with EPCRA's reporting requirements, while § 505 authorizes citizen suits against a person "... who is alleged to be in violation ..." of certain provisions of the Clean Water Act. The natural reading of the EPCRA provision at least would seem to include past acts of noncompliance, while a natural reading of the Clean Water Act provision, as the Supreme Court has held, indicates that the statute contemplates only prospective relief. This reading of § 326, of course, is supported by viewing § 326 along with § 325 which authorizes civil penalties against "[a]ny person ... who violates any requirement ..." of EPCRA, including its reporting provisions which require initial submissions by dates certain.
Moreover, unlike § 505 of the Clean Water Act, EPCRA § 326 does not contain *753 "pervasive use of the present tense ..." which might indicate its restricted applicability to continuing or intermittent violations. In fact, the venue provision contained at § 326(b)(1) states that "[a]ny action under subsection (a) of this section against an owner or operator of a facility shall be brought in the district court for the district in which the alleged violation occurred."[5] Contrary to the defendant's interpretation, this clause arguably suggests that § 326 contemplates past violations.
Although § 326(d)(1)(2) contains a notice provision like that in the Clean Water Act before the Court in Gwaltney, since Gwaltney Congress has demonstrated that, in its view, such a notice provision is not irreconcilable with an authorization of suit for wholly past violations. Recently Congress amended the Clean Air Act citizen suit provision, 42 U.S.C. § 7604(a), to afford citizens the right to sue for past violations although Congress left a similar 60 day notice provision intact.[6] Therefore, the fact that Congress amended the Clean Air Act citizen suit provision to allow suits for past violations while simultaneously leaving the Clean Air Act's notice provision unchanged undercuts the importance of the Supreme Court's discussion in Gwaltney that Congress would not have placed such a notice provision in a statute where it also intended authorize citizen suits for past violations.
In sum, this Court holds that the plaintiff may bring a citizen enforcement action pursuant to § 326(a) to seek civil penalties for failure to comply with EPCRA's reporting provisions even though the plaintiff alleges no continuing violations at the time it commenced suit. Therefore, this Court must deny the defendant's motion to dismiss the Complaint for this Court's lack of subject matter jurisdiction.
B. Defendant's Alleged Continuing Violations
Finally, and wholly separate from the issue of past EPCRA violations, in its opposition to the defendant's motion, the plaintiff contends that the defendant continues to violate § 313 pendente lite. Plaintiff's evidence of alleged continuing non-compliance stems from a Freedom of Information Act ("FOIA") request which Tebbutt sent to the EPA, on December 21, 1990, regarding Form Rs filed by the defendant. The alleged unreported information encompasses the 1987 and 1988 reporting years. According to the EPA response dated January 16, 1991, no 1987 and 1988 § 313 reports were "found" as of the date of the response.
However, the defendant has submitted the following material evidence to this Court which conclusively establishes that it is engaging in no continuing violations of § 313: 1) copies of Form Rs for the 1987 and 1988 reporting years submitted by the defendant and received by an EPA official, including the receipt date of July 30, 1990 stamped by the EPA; and 2) a letter dated February 11, 1991 from the Chief of the EPA Public Data Branch stating that the EPA is updating the plaintiff's FOIA request to reflect the 1987 and 1988 Form R submissions. (Meosky, and exhs. A & B thereto).
This evidence conclusively establishes to this Court that the defendant is not engaging in continuing violations of § 313.
CONCLUSION
For the reasons set forth above, this Court denies the defendant's motion to dismiss the Complaint pursuant to Fed. R.Civ.P. 12(b)(1).
NOTES
[1] Enacted in 1986, EPCRA is Title III of the Superfund Amendments and Reauthorization Act ("SARA"), Pub.L. No. 99-499, 100 Stat. 1613.
[2] Plaintiff does dispute whether the defendant has submitted Form Rs pursuant to § 313 for the 1987 and 1988 reporting years, although the defendant contends that it did submit such Form Rs. This Court will separately address the defendant's submission of Form Rs below. However, for purposes of this discussion, this Court assumes, arguendo, that the defendant has submitted Form Rs for the 1987 and 1988 reporting years prior to the commencement of this lawsuit.
[3] As quoted in full above, § 311(d) provides that the initial MSDS be provided "... before the later of (A) 12 months after October 17, 1986, or (B) 3 months after the owner or operator of a facility is required to prepare or have available ..." a MSDS under OSHA. § 312(a)(2) provides that the initial Tier I or Tier II Inventory Form "... shall be submitted on or before March 1, 1988, and annually thereafter on March 1...." § 313(a) provides that the initial Form R "... shall be submitted ... on or before July 1, 1988, and annually thereafter on July 1...."
[4] The same concern holds true for the prompt filing of the Inventory Form pursuant to § 312.
[5] The Clean Water Act's venue provision states: "[a]ny action respecting a violation by a discharge of an effluent standard or limitation or an order respecting such standard or limitation may be brought under this section only in the judicial district in which such source is located." § 505(c)(1).
[6] By its own terms, the amendment does not take effect until 2 years after November 15, 1990. Pub.L. 101-549. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1821574/ | 81 B.R. 434 (1987)
In the Matter of the OVERLY-HAUTZ CO.
No. C83-853.
United States District Court, N.D. Ohio, E.D.
April 14, 1987.
*435 Richard A. Baumgart, Dettelback & Sicherman Co., L.P.A., Cleveland, Ohio, for Overly-Hautz Co.
William Neubert, Cleveland, Ohio, for Creditors Committee of Overly-Hautz Co.
MEMORANDUM AND ORDER
WHITE, District Judge.
In this bankruptcy action the United States appeals the decision of the bankruptcy court disallowing the supplemental proof of claim of the United States against the debtor, Overly-Hautz Company (OHC). The supplemental claim involved a proposed assessment for excise taxes under 26 U.S.C. § 4971(a) and (b) relating to funding deficiencies of the OHC Salaried Employees Pension Plan for the fiscal years ending October 31, 1981, December 31, 1981 and December 31, 1982. A hearing was held in bankruptcy court and the bankruptcy judge based his decision to disallow the supplemental proof of claim on stipulation of facts oral argument and briefs, 57 B.R. 932.
The parties stipulated the following facts. There is a tax dispute concerning the underfunding by OHC of its Salaried Employees Pension Plan for the tax years November 1, 1980 to October 31, 1981; November 1, 1981 to December 31, 1981; and January 1, 1982 to December 31, 1982. The funding deficiency amounted to Seventy One Thousand Two Hundred Six Dollars Ninety-eight cents ($71,206.98) for the first tax year, Three Thousand Nine Hundred Seventy Two Dollars and Sixty-two cents ($3,972.62) for the second tax year and Nineteen Thousand Eight Hundred Sixty Dollars and Eighty-five cents ($19,860.85) for the third tax year. The cumulative funding deficiency for the first tax year was Seventy One Thousand Two Hundred Sixty Dollars and Ninety Eight cents ($71,206.98), for the second tax year, Seventy Five Thousand One Hundred Seventy Nine Dollars and Sixty cents ($75,179.60), and Ninety Five Thousand Forty Dollars and Forty-five cents ($95,040.45) for the third tax year. OHC filed tax Forms 5500-R, Registration Statement of Employee Benefit Plan on August 12, 1982 for each tax year indicating a deficiency for each year. The Company filed a voluntary petition of bankruptcy under Chapter 11 of the Bankruptcy Code on April 28, 1983. The Attorney General of the United States, the Cleveland office of the Internal Revenue Service (IRS) and the United States Attorney for the Northern District of Ohio were on the Bankruptcy Court matrix and had actual knowledge of OHC's bankruptcy petition. On May 13, 1983 the bankruptcy court set a September 19, 1983 deadline for filing proofs of claim. The deadline was indicated in the Court's notice of the meeting of creditors under 11 U.S.C. § 341(a). The IRS received this notice. On August 26, 1983 the IRS filed a proof of claim with the bankruptcy court as to 1980-1983 corporate, withholding and FICA taxes. The IRS did not file a proof of claim prior to the September 19, 1983 filing deadline with respect to the funding deficiencies of the OHC Salaried Employees Pension Plan. On October 13, 1983, OHC filed a Form 5500-C, Return Report of Employee Benefit Plan, with the IRS for the third tax year. This form indicated a funding deficiency for the January 1, 1982 to December 31, 1982 tax year. The cumulative funding deficiency as of the end of the third tax year was Ninety Five Thousand Forty Dollars and Forty-five cents ($95.040.45). On February 15, 1985 the IRS sent a thirty (30) day letter informing OHC of its proposed *436 assessment for excise taxes under 26 U.S.C. § 4971(a) and (b) because of the funding deficiencies. On June 10, 1985 the IRS filed a proof of claim with the bankruptcy court for the excise taxes. The proof of claim and a letter accompanying it characterized the proof of claim as supplementing the proof of claim filed August 26, 1983. The amount set forth in the August 26, 1983 claim was totally offset against an overpayment of other taxes by OHC. This offset was indicated in a letter dated January 3, 1985. The August 26, 1983 claim related to corporate, withholding and FICA taxes and did not include penalty taxes in relationship to the OHC Salaried Employees' Pension Plan.
The bankruptcy court further found that the IRS letter of January 3, 1985 to the United States Attorney which was filed with the bankruptcy court and sent to the debtor states in part, "Our proof of Claim filed in the proceeding noted above has been closed. You may therefore discontinue further consideration of the claim." The IRS letter of June 10, 1985 states in part, "Our withdrawal letter dated January 3, 1985 was correct. However, the attached proof of claim supplements the original claim, which is paid." The President of OHC filed an affidavit indicating that after the bar date OHC relied on identity and quantity of claims on file in making decisions and assessments concerning sale of various assets. The supplemental claim filed June 10, 1985 sets forth the initial tax imposed under 26 U.S.C. § 4971(a) on the debtor's annual pension plan accumulated funding deficiency. It also includes additional taxes imposed under 26 U.S.C. § 4971(b) for the debtor's failure to timely cure the accumulated deficiency. The amounts have not yet been assessed.
The bankruptcy judge held that the IRS letter of January 3, 1985 to the bankruptcy court along with its letter of June 10, 1985 constituted a withdrawal of its timely proof of claim. The supplemental proof of claim filed after the bar date is untimely and since the original proof of claim was withdrawn it cannot be amended. The bankruptcy court also ruled in favor of the debtor on its alternative arguments.
The parties have raised the issue as to the appropriate review of the bankruptcy court's decision by the district court. 28 U.S.C. § 157(b)(1) allows a bankruptcy judge to hear and determine all cases under Title 11 and all core proceedings arising under Title 11 and allows the judge to enter appropriate orders and judgments subject to review under 28 U.S.C. § 158. Core proceedings include matters concerning the administration of the estate. 28 U.S.C. § 157(b)(2)(A). The case at bar involves the validity of a proof of claim which is important to the administration of the estate. The allowance or disallowance of a claim against the estate is defined as a core proceeding by 28 U.S.C. § 157(b)(2)(B).
28 U.S.C. § 158(c) provides that appeals of proceedings referred to in § 157 shall be taken in the same manner as appeals in civil proceedings are generally taken from the district courts. Rule 52(a) requires that findings of fact shall not be set aside unless clearly erroneous. Rule 52 says nothing about the standard of review for conclusions of law. Review of conclusions of law in bankruptcy cases is given a de novo standard. In Re Evans Products Co., 60 B.R. 863 (S.D.Fla.1986), In Re Tenna Corporation, 53 B.R. 493 (N.D.Ohio 1984), In Re Osborne, 42 B.R. 988 (W.D. Wisc.1984). This standard of review will be used in determining the issues raised on appeal by the United States.
The first issue raised by the appellant is whether the bankruptcy court erred in finding that the IRS's timely August 26, 1983 proof of claim was withdrawn thereby precluding any further proof of claim after the bar date.
Bankruptcy Rule 3006 provides in part: "A creditor may withdraw a claim as of right by filing a notice of withdrawal, except as provided in this rule". There is no specific form required in order to withdraw a claim. The letter of January 3, 1985 was intended to be a withdrawal. This was confirmed in the June 10, 1985 letter. The president of OHC had notice of the withdrawal of the claim and relied on this in making several business decisions.
*437 The letter of January 3, 1985 was never docketed. Appellant argues that failure to docket the letter requires the conclusion that it was not filed and cannot constitute a withdrawal of proof of claim under Rule 3006.
Filing is accomplished by delivery and receipt by the proper party. United States v. Lombardo, 241 U.S. 73, 36 S. Ct. 508, 60 L. Ed. 897 (1916), In Re Nimz Transportations, Inc., 505 F.2d 177 (7th Cir.1974). Rule 3002(b) provides that filing a proof of claim shall be in accordance with Rule 5005. Rule 3006 is silent as to the procedure needed to withdraw a proof of claim. Rule 5005 provides that proofs of claim and other papers required to be filed by these rules shall be filed with the Clerk of Courts. The judge of the court may permit papers to be filed with him, in which event he must note thereon the filing date and transmit the papers to the Clerk. Rule 5005(b) allows for errors in filing and states:
A paper intended to be filed but erroneously delivered to the trustee, the attorney for the trustee, a bankruptcy judge, a district judge, or the clerk of the district court shall, after the date of its receipt has been noted thereon, be transmitted forthwith to the clerk of the bankruptcy court. In the interest of justice, the court may order that the paper shall be deemed filed as of the date of its original delivery.
Thus filing is deemed complete when received by a bankruptcy judge. Although Rule 5003 requires that the bankruptcy clerk docket all activity in each case filing does not depend on whether the particular material was docketed. In In Re Kenitra, Inc., 53 B.R. 152 (Bankruptcy D.Ore.1985), the Court found that under Rule 5005(b) filing a proof of claim with the judge could reasonably be sufficient to apprise the Court of the existence of the claim. A proof of claim that was mailed to the Clerk and lost with no record of it having been filed was considered filed based on evidence by the attorney that he mailed the proof of claim to the court in In the Matter of Kero-Sun, Inc., 63 B.R. 50 (Bankruptcy D.Conn.1986). Rule 5005(b) contains the word "paper". There is no reason why "paper" should not pertain to withdrawal of a proof of claim as well as to the proof of claim.
The bankruptcy judge found that the Court received the January 3, 1985 letter of withdrawal and considered it filed. He had that authority under Rule 5005(b). Since the proof of claim was withdrawn by the filing of the January 3, 1985 letter and considering the contents of the June 10, 1985 letter and OHC's reliance on withdrawal, it must be concluded that no proof of claim existed that could be amended. See In Re E.O. Thompson's Sons, 123 F. 174 (E.D.Pa.1903).
The district court's ruling that the IRS's proof of claim was withdrawn thereby precluding any amendment thereto dispenses with the necessity to determine the alternative issues. The decision of the Bankruptcy Court IS AFFIRMED.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1822885/ | 96 B.R. 469 (1989)
In re DELAWARE AND HUDSON RAILWAY COMPANY, a Delaware corporation, Debtor.
Civ. A. No. 88-511 MMS.
United States District Court, D. Delaware.
January 24, 1989.
*470 Richard G. Elliott, Jr., of Richards, Layton & Finger, Wilmington, Del., for debtor.
Francis J. Murphy, of Ashby, McKelvie & Geddes, Wilmington, Del., Carmine J. Clemente, Deputy Com'r and Special Counsel, and Leona D. Jochnowitz, New York State Dept. of Transp., for New York State Dept. of Transp.
Eduard F. von Wettberg, III, Mary M. Johnston, and Joanne B. Wills, of Morris, James, Hitchens & Williams, Wilmington, Del.; of counsel: Stanley J. Samorajczyk, and Nora M. Everett, of Hazel, Thomas, Fiske, Beckhorn & Hanes, P.C., Fairfax, Va., for Francis P. Dicello, Trustee.
Jeffrey S. Goddess, of Saul, Ewing, Remick & Saul, Wilmington, Del., of counsel: John H. Broadley, David A. Handzo, and Thomas N. Griffin, of Jenner & Block, Washington, D.C., for Guilford Transp. Industries, Inc.
Janet K. DeCosta, of Highsaw & Mahoney, P.C., Washington, D.C., for RLEA.
James E. Patrick, of O'Connell & Aronowitz, P.C., Albany, N.Y., for Northeastern Industrial Park.
William H. Sudell, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for Mellon Bank.
Lynda S. Doud, of McClung, Peters and Simon, Albany, N.Y., for employees w/FELA claims.
G. Joseph King, U.S. Dept. of Transp., Washington, D.C.
Arthur L. Rosen, Troy, New York.
MURRAY M. SCHWARTZ, Chief Judge.
The New York State Department of Transportation ("NYSDOT") has appealed to this Court the order of the United States Bankruptcy Court for the District of Delaware refusing to transfer venue of the railroad reorganization case of the Delaware and Hudson Railway Company (the "D & H").[1] The trustee of the railroad, Francis P. Dicello ("Dicello") has moved to dismiss NYSDOT's appeal on two grounds: (1) the Bankruptcy Court's order denying transfer of venue is a nonappealable, interlocutory order; and (2) section 1164 of the Bankruptcy Code specifically prohibits appeal by a state commission having regulatory jurisdiction over the D & H.[2] For the reasons stated below, this Court will grant Dicello's motion to dismiss NYSDOT's appeal.
PROCEDURAL HISTORY
On June 20, 1988, the D & H filed a petition for Railroad Reorganization under Subchapter IV of Chapter 11 of the Bankruptcy Code in the United States District Court for the District of Delaware. On June 24, 1988, NYSDOT, a New York State commission having regulatory jurisdiction over the D & H, filed an "Order to Show Cause for Change of Venue to the Northern District of New York" pursuant to 28 U.S.C. § 1408, 28 U.S.C. § 1412 and Bankr. R. § 1014(a)(1)[3] which the Court treated as *471 a motion to change venue.[4] On June 27, 1988, Francis P. Dicello was appointed trustee of the D & H.
Following oral argument on August 11, 1988, Judge Balick denied NYSDOT's motion to transfer. 96 B.R. 467. In her decision from the bench Judge Balick carefully examined the factors important in determining whether transfer is appropriate. These include: the proximity of the court to interested parties, the location of the debtor's assets, the economics of administering the estate and the relative economic harm to the debtor and other interested parties. Judge Balick then concluded the movants did not show by a fair preponderance of the evidence that the transfer to the Northern District of New York would be in the best interest of justice or convenient to the parties. NYSDOT filed a Notice of Appeal dated August 19, 1988 and also filed a Motion with the Bankruptcy Court for a Limited Stay Pending Appeal of all proceedings involving the people of the State of New York and NYSDOT. In a Bench Decision and Order dated August 30, 1988, Judge Balick denied NYSDOT's Motion for a Limited Stay. Before the Court is NYSDOT's appeal of the Bankruptcy Court's denial of NYSDOT's motion to transfer venue.
BASIS OF APPELLATE JURISDICTION
The threshold issue is whether the Court can or should hear this appeal at the present time. The Court's jurisdiction to review orders of the Bankruptcy Court is governed by 28 U.S.C. § 158(a):
The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.
NYSDOT advances two arguments in support of its contention that this Court has jurisdiction pursuant to § 158(a) to hear its appeal: (1) that the denial of NYSDOT's motion to change venue is a final order under the collateral order doctrine, and (2) that, in the alternative, the Court should grant leave to appeal because the Bankruptcy Court's order is effectively unreviewable as to issues of law if an immediate appeal is not granted. Appellees argue that a motion to change venue is an interlocutory order and that NYSDOT should not be granted leave to appeal the order of the Bankruptcy Court.
Section 158(a) gives this Court jurisdiction to hear appeals from final orders of the Bankruptcy Court for the District of Delaware. A final order is one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment. Catlin v. United States, 324 U.S. 229, 65 S. Ct. 631, 89 L. Ed. 911 (1945). A transfer of venue order does not finally end the litigation, rather it merely involves "the selection or designation of the forum in which final decisions will be ultimately resolved." In re Dalton, 733 F.2d 710, 714 (10th Cir.1984), cert. dismissed, 469 U.S. 1185, 105 S. Ct. 947, 83 L. Ed. 2d 959 (1985). See 15 C. Wright, A. Miller & E. Cooper Federal Practice and Procedure § 3855 (1986 and 1987 Supp.) (entirely settled that order granting or denying motion to transfer is interlocutory and may not be reviewed on appeal until final judgment in action).
Since the Bankruptcy Court's order was not a final order, NYSDOT may only appeal as of right if the order is considered final under the collateral order doctrine exception. The collateral order doctrine of *472 Cohen v. Beneficial Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949), allows appeal from a narrow class of orders which are collateral to the litigation before there is a final judgment on the merits. See generally, 15 Wright at § 3911. This narrow class of orders are those that "finally determine claims of rights 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." Mitchell v. Forsyth, 472 U.S. 511, 105 S. Ct. 2806, 86 L. Ed. 2d 411 (1985). The effect of finding the Bankruptcy Court's order collateral to the merits of the litigation is that NYSDOT may proceed with its appeal as a matter of right. Otherwise, the appeal must be considered interlocutory and may proceed only with leave of the court.
For an order to be considered final under the collateral order doctrine it must meet three requirements. These are: (1) the order conclusively determines the disputed question; (2) the order resolves an important question completely separate from the merits of the action; and (3) the order must be effectively unreviewable on appeal from final judgment. Pacor, Inc. v. Higgins, 743 F.2d 984, 988 (3d Cir.1984) (noting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S. Ct. 2454, 2457, 57 L. Ed. 2d 351 (1978); First American Bank of New York v. Southwest Gloves, 64 B.R. 963 (D.Del.1986).
The Court of Appeals for the Third Circuit has held that orders granting or denying motions to transfer venue are not immediately appealable as collateral final orders. Nascone v. Spudnuts, Inc., 735 F.2d 763, 722 (3d Cir.1984). See also In re Dalton, 733 F.2d at 715 (federal appellate courts consistently refuse to rule interlocutory venue transfer orders part of Cohen collateral order exception). Although the Nascone decision was with reference to a transfer motion brought pursuant to 28 U.S.C. § 1404(b), the language of 28 U.S.C. § 1412 authorizing transfer of venue in bankruptcy actions is nearly identical. See In re Dalton, 733 F.2d at 715 n. 3 (authorities addressing appealability of transfer orders pursuant to § 1404(a) relevant to bankruptcy appeals since both sections contain identical language authorizing transfer for convenience of parties and in interest of justice).
NYSDOT, however, argues that its right to change venue would be irretrievably lost unless an immediate appeal is permitted. This argument is unpersuasive. A wrongly decided transfer motion can be asserted as grounds for error on appeal from final judgment and thus need not be appealed immediately as a collateral final order. Nascone, 735 F.2d at 772-73; see First American Bank, 64 B.R. at 966 (showing of injustice or inability to appeal rather than waste of substantial time and order required to fulfill narrow Cohen exception). Thus, a preliminary order regarding forum is not appealable under the collateral order doctrine even though "postponing review forces the would-be appellant to litigate in the forum he seeks to avoid, and creates the risk that the entire proceeding will be rendered nugatory." In re Dalton, 733 F.2d at 715 (quoting U.S. Tour Operators Association v. Trans World Airlines, 556 F.2d 126, 129 (2d Cir.1977)). Therefore, in order for this Court to have jurisdiction over NYSDOT's appeal, leave of the court is necessary.
In order to appeal from an interlocutory order, Section 158(a) requires the appellant to obtain leave of the court. Pursuant to Bank.R. 8003(c), the Court will treat NYSDOT's notice of appeal as a motion for leave to appeal. First American Bank of New York, 64 B.R. at 966; In re Nitec Paper Corp., 43 B.R. 492, 494 (S.D.N.Y. 1984).
Section 158(a) fails to provide criteria for determining when leave to appeal should be granted. This Court has held that it will apply by analogy the standards set forth in 28 U.S.C. § 1292(b) governing interlocutory appeals from district courts to the United States courts of appeals. Beckley Coal Mining Co. v. United Mine Workers, 98 B.R. 690, 692 (D.Del.1988); First American *473 Bank of New York, 64 B.R. at 966. See also In re American Reserve Corp., 71 B.R. 303 (N.D.Ill.1987); In re United States Press Intern., Inc., 60 B.R. 265 (D.Col.1986); In re Johns-Manville, 45 B.R. 833 (S.D.N.Y.1984); In the Matter of Caribbean Tubular Corp., 44 B.R. 283 (D.C.P.R.1984); 1 Collier on Bankruptcy 3.03[7][d][v] at 3.303-3.307 (15th ed. 1983).
A court shall entertain an appeal of an interlocutory judgment under § 1292(b) only where the appellant establishes exceptional circumstances justify a departure from the basic policy of postponing review until after the entry of final judgment. Coopers & Lybrand v. Livesay, 437 U.S. 463, 475, 98 S. Ct. 2454, 2461, 57 L. Ed. 2d 351 (1978); Beckley Coal, at 692; In re Johns-Manville, 47 B.R. 957, 960 (S.D.N.Y. 1985). Also, under section 1292(b) an interlocutory appeal will be granted only when the order at issue (1) involves a controlling question of law upon which there is (2) substantial grounds for difference of opinion and (3) when an immediate appeal from the order may materially advance the ultimate termination of the litigation. Id.
In the case before the Court, NYSDOT cannot meet the three requirements of § 1292(b). A "controlling question of law" is one which would be reversible error on final appeal. Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir.), cert. denied, 419 U.S. 885, 95 S. Ct. 152, 42 L. Ed. 2d 125 (1974). NYSDOT asserts that the Bankruptcy Judge's order involves a controlling question of law upon which there is substantial grounds for difference of opinion. The Bankruptcy Court stated in its opinion that "when venue is proper, debtor's choice of forum is entitled to great weight." The question of law, NYSDOT alleges, is the weight to be given the debtor's choice of forum where that forum is arguably not the debtor's "home turf." NYSDOT avers that the Bankruptcy Judge erred as a matter of law because the weight that should be given to the selection of venue by the debtor is greatly reduced where the forum selected is not its "home turf."
A close examination of the Bankruptcy Court's opinion does not support NYSDOT's assertion. Although the Court does make the statement that the debtor's choice of forum is entitled to great weight, it does not rely on this language in forming its conclusion that NYSDOT has not shown "by a fair preponderance of the evidence that transfer would be in the best interest of justice or convenience of the parties." Rather, it bases its decision to deny transfer upon a careful examination of the relevant facts and weighs them appropriately with respect to the interests of justice and the convenience of parties. The Bankruptcy Court in its discretion clearly considered the facts supporting a transfer but found them unpersuasive.
Similarly, there are no exceptional circumstances that justify the need for immediate review. NYSDOT asserts that because of budgetary restrictions it will be unable to fully participate in the litigation if venue remains in Delaware. This is not an exceptional circumstance justifying departure from the basic policy of postponing review. The decision of the Bankruptcy Judge was the result of the careful weighing of conflicting interests and equities based upon the particular circumstances of the case before her, including the financial restrictions of NYSDOT. In re Manville, 47 B.R. 955, 957 (S.D.N.Y.1985). Thus, appellate review of the Bankruptcy Court's order will have to await further disposition of the case below.[5]
*474 Therefore, for the reasons discussed above, NYSDOT's motion to appeal the venue order will be denied and Dicello's motion to dismiss the appeal will be granted.
NOTES
[1] On the motion below, NYSDOT's motion to transfer venue was joined by The Railway Labor Executives' Association, Peters & Simon (a New York law firm representing a number of D & H employees with claims under the Railway Labor Act), and Northeastern Industrial Park, Inc. (landlord to certain premises leased by the D & H). NYSDOT alone appeals to this Court the Bankruptcy Court's order.
[2] The following parties have also filed briefs in opposition to NYSDOT's appeal: (1) Guilford Transportation Industries, Inc., a creditor and sole shareholder of the D & H; (2) the D & H, the debtor herein.
[3] The operative change of venue provision is 28 U.S.C. § 1412 which provides:
A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.
Bankruptcy Rule 1014(a)(1) employs the same criteria as the statute.
If a petition is filed in a proper district, on timely motion of a party in interest, and after hearing on notice to the petitioners and other entities as directed by the court, the case may be transferred to any other district if the court determines that the transfer is in the interest of justice or for the convenience of the parties.
[4] NYSDOT's principal responsibility in its regulatory capacity is to oversee the development and maintenance of the State's rail system and the related issues of grade crossings, safety and improvements. Also, NYSDOT asserts it is a party-in-interest in the reorganization as a result of its creditor status from numerous maintenance and rehabilitation agreements entered between NYSDOT and the D & H.
[5] Because I have not granted leave of the court to hear appellant's appeal, I will not decide today whether the blanket prohibition of 11 U.S.C. § 1164 over appeals by state regulatory bodies includes the situation where that same regulatory body is also a party-in-interest pursuant to 11 U.S.C. § 1109(b). Similarly, Dicello's motion to strike portions of exhibits in NYSDOT's brief in opposition to Dicello's motion to dismiss is moot as the exhibits at issue are only relevant to the controversy under 11 U.S.C. § 1164.
Also, because I do not reach the merits of the appeal, it is not necessary for me to decide Dicello's motion to strike portions of the appendix to NYSDOT's brief on the merits of the appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1847111/ | 219 B.R. 513 (1998)
POWER FIVE, INC., Appellant,
v.
GENERAL MOTORS CORPORATION, Automotive Armature Co., Inc., and Joseph W. Hammes, Chapter 7 Trustee of Automotive Armature Co., Inc., Appellees.
In re AUTOMOTIVE ARMATURE CO., INC., Debtor.
No. IP 97-934 C B/S, Bankruptcy No. 91-13075 B-V-7A.
United States District Court, S.D. Indiana, Indianapolis Division.
March 30, 1998.
*514 James A. Knauer, Kroger Gardis & Regas, Indianapolis, IN, for Plaintiff.
Joseph W. Hammes, Chapter 7 Trustee, Edward Hopper, United States Trustee, Jerald I. Ancel, Sommer & Barnard, Indianapolis, IN, for Defendant.
ENTRY VACATING BANKRUPTCY COURT'S ORDER OVERRULING POWER FIVE, INC'S OBJECTION TO GENERAL MOTORS CORPORATION'S PROOF OF CLAIM
BARKER, Chief Judge.
Appellant Power Five, Inc. ("Power Five") appeals the Bankruptcy Court's decision to overrule its objection to a proof of claim filed by General Motors Corporation ("GM"). For the following reasons, the Bankruptcy Court's decision is VACATED and the case is REMANDED for actions consistent with this ruling.
I. BACKGROUND
This appeal involves Automotive Armature Co.'s ("Debtor") seven year old Chapter 7 bankruptcy case. Power Five and General Motors are both creditors of Debtor and both *515 have claims in this bankruptcy. GM filed an unsecured claim in 1992 and Power Five acquired an already filed claim from NBD, Inc. ("NBD") in 1997. Early in the bankruptcy, Debtor listed a contingent claim against GM in its schedule of assets. That claim, however, ultimately was abandoned by the Chapter 7 Trustee ("Trustee") in March 1995, with no objection from any parties in interest.
In December 1996, the Trustee notified Power Five's counsel of all the claims against Debtor, including GM's unsecured claim, and requested that Power Five notify him promptly if they had any objections to any of the claims. (Transcript of May 29, 1997 Hearing at p. 7.) The Trustee informed the Bankruptcy Court at a May 29, 1997 hearing that he received no response to this correspondence from Power Five. Id. Counsel for Power Five did not dispute that statement at the hearing, but now contends that it sent a letter dated May 14, 1997 to the Trustee, requesting that he object to the GM claim. Appellant Reply Brief at 7 n. 2.
On April 3, 1997, the Trustee filed three motions with the Bankruptcy Court, including: (1) Application for Attorney's Fees; (2) Application for Accountant's Fees; and, most relevant to this appeal, an (3) Application for Allowance and Disallowance of Claims. On April 10, 1997, the Bankruptcy Court sent notice to all parties in interest, including Power Five, of a May 29, 1997 hearing on the Trustee's three aforementioned motions. The notice provided:
NOTICE IS HEREBY GIVEN that a hearing will be held . . . to consider and act upon the following matters: 1) APPLICATION FOR ALLOWANCE OF CHAPTER 7 TRUSTEE COMMISSION AND FOR FINAL ALLOWANCE OF COMPENSATION OF GENERAL COUNSEL; 2) TRUSTEE'S APPLICATION FOR ALLOWANCE AND DISALLOWANCE OF CLAIMS; AND 3) APPLICATION FOR ALLOWANCE OF COMPENSATION OF ACCOUNTANT and to transact such other business as may properly come before the Court.
Appellant's Exhibit 4.
Power Five filed an objection to GM's unsecured claim on the morning of the May 29, 1997 hearing, alleging that the amount claimed by GM was not due and that there were offsetting debts owed to Debtor by GM. Appellant's Exhibit 4. Later that day, at the hearing, Power Five informed the Bankruptcy Court of its filed objection. Transcript at 4. Upon learning of Power Five's objection, the Bankruptcy Court elected to rule on the objection at that hearing, instead of setting it for a later hearing. Prior to ruling, however, the Bankruptcy Court addressed four issues pertaining to the objection.
First, the Trustee refreshed the Bankruptcy Court's recollection regarding its 1995 abandonment of Debtor's claim against GM. Transcript at 5. The Bankruptcy Court responded by expressing concern that the objection was an attempt to reopen the 1995 abandonment issue. Id. at 6. Power Five, however, immediately assured the court that its objection had no connection with the abandoned claim. Id. at 7. Power Five had also made it clear that its objection addressed not only offsetting debts, but the validity of the amounts owed to GM as well. Id. at 5. Following Power Five's assurances, the Bankruptcy Court did not examine the issue further.
Without prompting, Power Five then informed the Bankruptcy Court that it did not object sooner in order to afford the Trustee an opportunity to object to the GM claim himself. Id. at 7. The court did not respond to that comment. Id. Instead, it inquired as to the basis of Power Five's standing to object to GM's claim, to which Power Five replied that it had standing "[a]s a creditor." Id. at 7.
The Bankruptcy Court and the Trustee then had the following exchange:
MR. HAMMES (the Trustee): . . . Last December I mailed to [Power Five's counsel] the complete claims docket, including which included the GM claim, which I have not objected to, with a letter asking that he review with his clients and inform me promptly if there were any claims that they objected to being allowed in full as filed. I got no *516 response to that letter that I sent last year. . . .
THE COURT: All right. Yes, sir. So what do you suggest that we do?
MR. HAMMES: I suggest that the objection be overruled.
THE COURT: I'm going to overrule your objection. Okay? So you give me an order, okay?
Id. at 7-8. At no time during the hearing did the Bankruptcy Court examine the objection on the merits.[1] That same day, the Bankruptcy Court issued a written order summarily overruling Power Five's objection. Appellant's Exhibit 5.
II. STANDARD OF REVIEW
We review the bankruptcy court's conclusions of law de novo. Fed.R.Bankr.P. 8013; In Matter of Lifschultz Fast Freight, 132 F.3d 339, 343 (7th Cir.1997). However, the bankruptcy court's findings of fact are reviewed under a clearly erroneous standard. Id.; In re A-1 Paving and Contracting, Inc., 116 F.3d 242, 243 (7th Cir.1997).
III. DISCUSSION
Power Five appeals the Bankruptcy Court's decision to overrule Power Five's objection to GM's claim, contending that the "Bankruptcy Court err[ed] in overruling the objection . . . summarily and without notice to Power Five, Inc. (or to the claimant) that the matter would be heard." Brief of Appellant at 1.
Assuming that the Bankruptcy Court's decision to consider Power Five's objection at the May hearing was proper in the first place,[2] the Bankruptcy Court nevertheless erred in summarily overruling the objection. The Bankruptcy Court did not set forth any rationale for overruling Power Five's objection during the hearing or in its subsequent written order. The record of the May 29, 1997 hearing establishes that the Bankruptcy Court did not reach the merits of the objection prior to its ruling. Rather, it simply inquired into the procedural history, the timing of the objection, and Power Five's standing to raise such an objection. An examination of the record therefore fails to reveal a proper basis for the Bankruptcy Court's decision, requiring that this action be vacated and remanded for purposes of the Court addressing the substantive issues raised by the objection. Indeed, none of the reasons for the Bankruptcy Court's decision advanced by Appellees justifies the decision to overrule Power Five's objection, as we hereafter explain.[3]
1. Power Five Had Standing to Object
The Bankruptcy Court briefly inquired into Power Five's standing to object at the May 29th hearing. However, its query ended immediately after Power Five responded that it had standing "[a]s a creditor." Appellees contend that the Bankruptcy Court properly overruled the objection on standing grounds because Power Five was not a creditor of the Debtor's on May 29, 1997.
11 United States Code § 502 provides standing requirements for objectors in bankruptcy proceedings, allowing a "party in interest" *517 to object to a claim filed in the bankruptcy. Creditors of the debtor are parties in interest, within the meaning of Section 502. In re FBN Food Services, Inc., 82 F.3d 1387, 1391 (7th Cir.1996); In re Justice Oaks II, Ltd., 898 F.2d 1544, 1553 (11th Cir.1990). Therefore, if Power Five was one of Debtor's creditors on May 29, 1997, it had standing under Section 502.
Power Five became one of Debtor's creditors when it acquired the claim against Debtor from NBD. Appellees contend, however, that Fed.R.Bankr.P. 3001 did not recognize Power Five's acquisition of the NBD claim until approximately June 18, 1997, twenty days after Power Five filed its objection. Therefore, Appellees argue, Power Five lacked standing as a creditor at the time it filed its objection on May 29, 1997. Power Five rejoins that it had standing to object, even though the requirements of Rule 3001(e) may not have been satisfied on May 29th. We address these contentions in the following paragraphs:
On May 29, 1997, Power Five had filed a Notice of Transfer, informing the Bankruptcy Court that NBD had transferred its claim against Debtor to Power Five. Rule 3001(e) provides, however, that a minimum of twenty (20) days must pass after the clerk sends the notice of the transfer to the putative transferor before the bankruptcy court will treat the transfer as effective. Appellees argue that, since those twenty days had not passed as of May 29, 1997, Power Five was not a creditor when it filed its objection and therefore lacked standing to object.
Nonetheless, Power Five had standing to object to GM's claim on May 29, 1997 as a party in interest. Power Five's failure to satisfy the technical requirements of Fed. R.Bankr.P. 3001 does not deprive it of the opportunity to defend its pecuniary interest in the bankruptcy. See In re Sullivan Central Plaza I, Ltd., 935 F.2d 723, 726-27 (5th Cir.1991)(failure to comply with Fed. R.Bankr.P. 3001 did not deny holder of mortgage standing as party in interest in move to convert Chapter 11 case to Chapter 7 proceeding); In re Zaleha, 162 B.R. 309, 314 (Bankr.D.Idaho 1993)("failure to comply with Rule 3001(e)(2) does not, without more, deprive a party of standing as a party in interest"). Indeed, NBD would have little incentive to protect the interest of the transferred claim in the interim, since the parties had already executed the transfer. Thus, Power Five would have had to sit on its hands for twenty days following the transfer, lacking the ability to protect its claim. Such a result clearly would be unjust.
In re Rook Broadcasting of Idaho, Inc., 154 B.R. 970 (Bankr.D.Idaho 1993), involved this very issue. In that case, the transferee had filed a motion to transfer but the clerk neglected to send out the notice, thus the requirements of Fed.R.Bankr.P. 3001 went unsatisfied. Id. at 973. The bankruptcy court held that a transferee was not deprived of standing merely because the requirements of Fed.R.Bankr.P. 3001 had not been satisfied. Id. at 974. According to that court, the transferee had an interest and denying him status as a party in interest would be inequitable. Id. at 973.
Consistent with In re Rook Broadcasting, In re Sullivan Central, and In re Zaleha, we hold that Power Five had standing to object to GM's claim.
2. Power Five's Objection Was Timely under the Bankruptcy Rules
Appellees also contend that Power Five's objection was properly dismissed because it was not filed within 30 days of the hearing, in violation of Fed.R.Bankr.P. 3007. Power Five rejoins that an objection may be filed at any time and that the May hearing did not constitute a court-set deadline for objections.
The general rule requires that an objection to a proof of claim may be filed at any time. In re Kolstad, 928 F.2d 171, 174 (5th Cir.1991); In re Consolidated Pioneer Mortg., 178 B.R. 222, 225 (9th Cir. BAP 1995); In re Johnson, 139 B.R. 163, 171 (Bankr.E.D.Va.1992); 15 Colliers on Bankruptcy ¶ 3007.01[5]. The exception to this rule is when the Bankruptcy Court sets an express deadline for objections. In re Combined Metals Reduction Co., 557 F.2d 179, 202 (9th Cir.1977).
*518 Fed.R.Bankr.P. 3007 sets forth the procedure to be followed when an objection to a claim is made:
An objection to the allowance of a claim shall be in writing and filed. A copy of the objection with notice of the hearing thereon shall be mailed or otherwise delivered to the claimant, the debtor or debtor in possession and the trustee at least 30 days prior to the hearing.
Appellees contend that the Bankruptcy Court set the May hearing as a final hearing on all claim objections. Thus, under Rule 3007, Power Five was required to notify the Trustee, GM, and Debtor of its objection 30 days prior to the hearing. Its failure to do so, Appellees argue, resulted in the objection being deemed too late for the May hearing and, since that was the final hearing on all claim objections, the objection was properly dismissed.
Appellees' contention is unavailing. The Notice of Hearing issued by the bankruptcy clerk for the hearing did not set a deadline for objecting to the Applications filed by the Trustee. Nor did it purport to set a bar date by which objections to claims must be filed. In short, the hearing did not constitute a final opportunity to hear claim objections, which would have required any such objections to be filed 30 days in advance thereof. Once Power Five's objection was filed, the safest course under Rule 3007 would have been to set another hearing for the objection with 30 days' notice to GM, Debtor, and the Trustee. The Bankruptcy Court, however, opted not to take that route, ruling instead on Power Five's objection on the day it was filed, without any advance notice to GM, Debtor, or the Trustee. To the extent Rule 3007 was violated, it was not done by Power Five.
Appellees cite In re Lawler, 106 B.R. 943 (N.D.Tex.1989), in support of their contention that Power Five's objection was untimely under Rule 3007. In that case, the bankruptcy court issued an order on February 13, 1984, setting an April 3, 1984 hearing on "all remaining proofs of claims and objections." In Re Lawler, 75 B.R. 979, 982 (Bankr. N.D.Tex.1987). On April 3rd, the debtor filed an objection to one of creditor's claims, which the bankruptcy court overruled as providing insufficient notice, in violation of Rule 3007. Id. The District Court affirmed.
In re Lawler is a classic case of an objector who violated a court-set deadline. The bankruptcy court set the April 3rd hearing to dispose of "all remaining . . . objections," clearly setting a deadline for objections. The debtor was informed of the court's deadline, but nevertheless failed to file his objection more than thirty days prior to the hearing, as required by Rule 3007. Conversely, in the instant case, the bankruptcy court had not set the May hearing to dispose of all remaining objections. Nor did it ever suggest a deadline for filing objections. In re Lawler is therefore clearly inapplicable to our facts.
Accordingly, Power Five's objection to GM's claim must be deemed to have been timely filed under the Bankruptcy Rules.[4]
3. Objection Not Barred by Principles of Waiver, Laches or Equitable Estoppel
Appellees' next contention is that the Bankruptcy Court properly overruled Power Five's objection on the basis of waiver, laches or equitable estoppel, citing as evidence Power Five's failure to respond to the Trustee's correspondence inquiring whether Power Five intended to object. None of these equitable doctrines applies to the facts in this case, however.
*519 a) Neither Laches nor Waiver Barred Objection
"Waiver is an intentional abandonment or relinquishment of a known right or advantage which, but for such waiver, the party would have enjoyed." Caisse Nationale De Credit Agricole v. CBI Industries, 90 F.3d 1264, 1275 (7th Cir.1996) (citations omitted); K-Com Micrographics, Inc. v. Neighborhood Economic Development Corp., 159 B.R. 61, 66 (Bankr.D.D.C.1993). "Laches consists of two elements: (1) a lack of diligence by the plaintiff, and (2) prejudice resulting from the delay." Zelazny v. Lyng, 853 F.2d 540, 541 (7th Cir.1988); Smith v. City of Chicago, 769 F.2d 408, 410 (7th Cir. 1985). The mere passage of time cannot constitute laches. Smith, supra.
Power Five has the right to object to GM's claim. See In re Kolstad, 928 F.2d at 174. Appellees fail to establish that Power Five intended to give up that right or lacked diligence in asserting that right. Shortly after learning that the Trustee had no intention of objecting to GM's claim, Power Five filed its objection, (Transcript at 7), following the common practice of objecting to another creditor's claim only when the Trustee refuses to object. See In re Thompson, 965 F.2d 1136, 1147 (1st Cir.1992); Matter of Fox, 64 B.R. 148, 151 (Bankr.N.D.Ohio 1986). Power Five's failure to respond to the single request by the Trustee regarding whether it intended to object does not establish a lack of diligence in asserting an objection or an intention to waive the right to object. Furthermore, an earlier objection probably would have been invalid on standing grounds since Power Five acquired its interest in the bankruptcy close to the time it filed its objection.[5] The application of laches or waiver principles is unwarranted in this case.
b) Objection Not Barred by Equitable Estoppel
"An estoppel arises when one party has made a misleading representation to another party and the other has reasonably relied to his [or her] detriment on that representation." Black v. TIC Investment Corp., 900 F.2d 112, 115 (7th Cir.1990).
Appellees contend that GM was materially misled into not attending the May 29th hearing because of Power Five's failure to respond to the Trustee's correspondence inquiring whether Power Five intended to object. An application of estoppel principles is inappropriate to the facts here. First, there simply is no evidence that GM was privy to the correspondence between Power Five and the Trustee, thus no evidence of detrimental reliance by GM. Second, appellees fail to establish that Power Five was under a duty to respond to the Trustee's correspondence. Accordingly, equitable estoppel principles do not apply.
4. Objection Did Not Rely on Abandoned Claim
Finally, Appellees contend that Power Five's objection was properly overruled because it was based on a claim against GM that was abandoned in 1995. An examination of the record, however, reveals no support for that position.
First, the Bankruptcy Court never specifically determined that the objection and the abandoned claim were connected. In any event, Power Five stated at the hearing that the objection had no connection to the abandoned claim.
Second, even if part of the objection involved the abandoned claim, overruling of the entire objection was unwarranted. As explained during the hearing, Power Five's objection set forth two grounds for disallowing GM's claim: (1) the debt claimed by GM was not due, and (2) there were offsetting debts owed to Debtor by GM. Only the alleged offsetting debts were assigned as relating to the abandoned claim. Assuming the offset constituted an improper attempt to re-examine the abandoned claim, the debts claimed by GM were not involved. Overruling the entire objection, based on a claim of reliance on the abandoned claim, would obviously hit wide of the mark.
*520 IV. CONCLUSION
The Bankruptcy Court's order overruling Power Five's objection was summarily entered, for which no express rationale was provided. We have discussed the bases on which the Bankruptcy Court's decision might have been premised, but fail to uncover any proper rationale. Without knowing the reasons that the Bankruptcy Court overruled Power Five's objection, we are unable to evaluate further whether the objection should be sustained.
Remand is appropriate "if the findings and the record are not sufficient to enable us to be sure of the basis of the decision below." Tekkno Labs., Inc. v. Perales, 933 F.2d 1093, 1097 (2nd Cir.1991); see also Mid-American Waste Systems, Inc. v. City of Gary, Indiana, 49 F.3d 286, 293 (7th Cir.1995); In re 599 Consumer Electronics, Inc., 195 B.R. 244, 250 (S.D.N.Y.1996); In re Spangler, 56 B.R. 990, 991 (D.Md.1986)("If the findings of the Bankruptcy Court are made in conclusory fashion and the record below does not permit meaningful review, a remand by the district court for further proceedings may be in order"). Accordingly, the decision of the Bankruptcy Court is VACATED and REMANDED for further proceedings consistent with this Entry.
NOTES
[1] The record strongly suggests that, prior to the hearing, the Bankruptcy Court did not know of the objection, much less had the Bankruptcy Court reviewed it.
[2] Power Five contends that the Bankruptcy Court erred by even considering its objection at the May 29th hearing, maintaining that a hearing should not have been scheduled until at least 30 days after the objection was filed as required by Fed.R.Bankr.P. 3007. We do not reach this issue since we vacate the ruling on other grounds.
[3] GM moves to dismiss the appeal or, alternatively, intervene in the appeal, contending that it should have been named as an appellee because it was a party to the Bankruptcy Court's decision to overrule Power Five's objection to its claim. Indeed, GM's claim is at issue in this appeal and due process requires that GM be afforded the opportunity protect that claim. Therefore, GM's motion to intervene is GRANTED. The opportunity to intervene satisfies due process; thus GM's motion to dismiss is DENIED. GM has filed a brief in this appeal and it has been duly considered in this Entry. GM also seeks leave to file additional items with the Court to be included in the record on appeal. GM has included a list of those items, which the Court has reviewed. See GM's Exhibit F. However, none of the items listed relates to the conclusory manner in which the Bankruptcy Court overruled Power Five's objection. Therefore, it is unnecessary for GM to submit those additional items since our decision undoubtedly would be unaffected by them.
[4] Appellees also contend that the objection was properly overruled because Power Five served notice of the objection on GM's then-former counsel instead of its then-present counsel, in violation of Fed.R.Bankr.P. 3007. This contention is flawed. First, the notice requirements of Rule 3007 dictate that once an objection is filed, the Bankruptcy Clerk should send notice of that objection and a hearing on the objection to all interested parties. This did not happen in this case because the Bankruptcy Court opted to decide the objection on the day it was filed. Any failure by GM to receive notice of the objection resulted from the Bankruptcy Court's decision to rule on the objection immediately without notifying the parties in interest. Second, there is no indication that the Bankruptcy Court even knew that GM lacked notice of Power Five's objection at the time it overruled the objection. In fact, Power Five's failure to serve GM's then-present counsel was never discussed during the hearing.
[5] In fact, appellees argued earlier in their brief that Power Five filed its objection too early and, consequently, lacked standing to object when it did. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1847978/ | 56 B.R. 747 (1985)
In re Steven P. GIANAKAS, Condessa Del Mar Inc., and Hickory Properties, Inc., Debtors.
Steven P. GIANAKAS, Condessa Del Mar Inc., and Hickory Properties, Inc., Plaintiffs,
v.
The EXCHANGE NATIONAL BANK OF CHICAGO, Defendant.
No. 85 C 5852.
United States District Court, N.D. Illinois, E.D.
December 16, 1985.
*748 Jerome B. Meite, McDermott, Will & Emery, Chicago, Ill., for plaintiffs.
Ronald W. Hanson, Sidley & Austin, Chicago, Ill., Daniel L. Hughes, Hazel Crest, Ill., for defendant.
MEMORANDUM OPINION AND ORDER
ASPEN, District Judge:
This interlocutory bankruptcy appeal raises issues that only lawyers (or perhaps court administrators) would be interested in. Distilled of legal niceties and side issues, this case boils down to the following question: do parties who want to remove a bankruptcy case from state to federal court have to file their removal papers with the clerk of the district court or the clerk of the "bankruptcy court"?[1] In the context of this district, the question really reduces to whether such papers must be filed on the twentieth floor (where the district court clerk is) or twenty-second floor (home of the bankruptcy court clerk) of the Dirksen Federal Building. While it will become clear that this issue is not as trivial as it sounds at first, it is hardly monumental: we are not called upon here to decide whether Article III of the Constitution as constructed by the Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982), affected the power of the bankruptcy judge to hear the merits of this case. The parties seem to agree that this case could have been heard by a bankruptcy judge. They dispute whether the case got to the judge along the right path. For reasons stated below, we hold that it did, and thus we affirm the bankruptcy judge's decision on that point and remand for further proceedings.
A. Procedural Background
In 1981, plaintiffs ("Gianakis") filed petitions for relief with the bankruptcy court under Chapter 11 of the Bankruptcy Code. On March 1, 1983, the bankruptcy court confirmed the Gianakis Reorganization Plan, which included payment of about $1.6 million (including attorneys' fees and interest) to present defendant Exchange, a former creditor. On January 2, 1985, Gianakis sued Exchange in Cook County Circuit Court, apparently alleging that some of the money had been paid under duress, and that attorneys' fees and interest had been improperly calculated.
Gianakis served Exchange on January 9.[2] On February 8, Exchange filed a timely "Application for Removal" in the clerk's office for the bankruptcy court. Three months later, Gianakis moved the bankruptcy judge to remand the case to state court. He based his motion on 28 U.S.C. § 1452(a), which Congress had passed as part of its comprehensive overhaul of the bankruptcy system, titled the "Bankruptcy Amendments and Federal Judgeship Act of 1984," Pub.L. 98-353 (July 10, 1984) ("the 1984 Act"). That section says:
(a) A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.
28 U.S.C. § 1334, mentioned in § 1452(a), vests jurisdiction of bankruptcy matters in the district courts. Gianakis argued that Exchange's Removal Application did not give the bankruptcy judge jurisdiction, since it was not filed with "the district *749 court," but rather was filed with the "bankruptcy court." Gianakis relied on two recent cases, In Re Schuler, 45 B.R. 684 (Bankr.D.N.D.1985) and In Re Long, 43 B.R. 692 (Bankr.N.D.Ohio 1984), which both held that removal applications must be filed with the district court (i.e., that court's clerk) and that bankruptcy courts lack subject matter jurisdiction of cases removed directly to them via their own clerk's office. The bankruptcy judge in this case disagreed and orally denied the motion.[3] Gianakis then brought this interlocutory appeal.
B. Appealability
Before reaching the issue on appeal, we must decide whether an interlocutory appeal is proper here. Exchange has moved to dismiss the appeal, claiming it is not. We disagree and grant Gianakis leave to appeal.
Normally a district court will hear appeals only of "final judgments, orders, and decrees" of bankruptcy judges. 28 U.S.C. § 158. The bankruptcy judge's decision denying the motion to remand to state court is obviously not a "final" one. However, district courts have discretion to hear appeals of interlocutory orders. Id. While district courts should exercise this discretion sparingly, we think it important to hear this appeal. If Gianakis is correct on the merits, then bankruptcy judges in this district are commonly ruling in removed cases over which they have no jurisdiction.[4] Certainty and guidance are therefore needed in this area.
Exchange has not disputed this point, instead raising technical reasons for denying leave to appeal. Gianakis filed a timely notice of appeal on May 17, but did not file a motion for leave to appeal until June 14. Exchange argues that this runs afoul of Bankruptcy Rule 8001(b) which states in relevant part:
An appeal from an interlocutory . . . order . . . shall be taken by filing a notice of leave to appeal . . . accompanied by a motion for leave to appeal prepared in accordance with Rule 8003. . . .
Rule 8003(a) defines the form and content of the motion for leave to appeal. While the language of Rule 8001 appears mandatory, Rule 8003(c) makes clear that it is not, saying:
C. Appeal Improperly Taken Regarded as a Motion for Leave to Appeal. If a required motion for leave to appeal is not filed, but a notice of appeal is timely filed, the district court or bankruptcy appellate panel may grant leave to appeal or direct that a motion for leave be filed. The district court or the bankruptcy appellate panel may also deny leave to appeal but in so doing shall consider the notice of appeal as a motion for leave to appeal. . . .
Under Rule 8003(c), then, Gianakis did not waive its chance at an appeal by filing its motion late.
Exchange's second technical argument also lacks merit. It argues that 28 *750 U.S.C. § 1452(b)[5] precludes this appeal of the bankruptcy judge's denial of the motion to remand. But that section precludes review of remand decisions based on "equitable" grounds, made "under this subsection," that is, § 1452(b). Gianakis' motion to remand was made under § 1452(a). The denial of a remand was a legal decision about subject matter jurisdiction, not a discretionary equitable decision. Exchange's argument is therefore patently baseless.
In sum, then, we grant Gianakis' motion for leave to appeal and deny Exchange's motion to dismiss. We are thus ready to turn to the merits of the appeal.
C. The Merits
Enacted in the wake of Northern Pipeline, the 1984 Act reconstituted the system of bankruptcy administration and jurisdiction. Under the 1978 Act, the bankruptcy court, although an "adjunct" to the district court, was essentially an independent court with comprehensive jurisdiction over Title 11 cases. See 28 U.S.C. § 1471(c) (1982). District court jurisdiction was to be effectively limited to appeals of bankruptcy court decisions. 28 U.S.C. § 1334 (1982) (to have been effective April 1, 1984). The removal provision of that Act permitted removal from state court of certain cases "to the bankruptcy court." 28 U.S.C. § 1478(a) (1982). In contrast, the 1984 Act vests jurisdiction of Title 11 cases only in the district court. 1984 Act, § 101(a) (now codified at 28 U.S.C. § 1334). There is now no "bankruptcy court" as such, but rather "the bankruptcy judges . . . constitute a unit of the district court to be known as the bankruptcy court. . . ." 1984 Act, § 104(a) (emphasis added) (codified at 28 U.S.C. § 151). Under the new 28 U.S.C. § 157(a), bankruptcy judges may hear only those proceedings that district courts refer to them.[6] The new removal provision, quoted above at 3, now authorizes removal "to the district court."
Gianakis' argument is simple, and, at first glance, persuasive. New § 1452(a) in plain language allows removal to "the district court." No provision like § 1478 now exists which allows removal to "the bankruptcy court." Bankruptcy judges only acquire jurisdiction by reference. Thus, concludes Gianakis, the plain language and structure of the new Act compels removal initially to the district court and then referral to the bankruptcy "unit." The consequence for this case, argues Gianakis, is that the bankruptcy court did not have jurisdiction over the case since the removal application was filed with the clerk of the bankruptcy court, not the clerk of the district court. The proper procedure, he contends, would be to file papers with the district court clerk, who would then ship the papers to the bankruptcy clerk under the general referral order. As noted earlier, two bankruptcy judges in other districts have adopted Gianakis' construction of the 1984 Act.
While surely plausible, this reading of § 1452(a) is not a necessary one. Indeed, Gianakis' argument plants the seeds of a contrary (and more persuasive) argument. Both parties agree that the same Act that authorizes removal to "the district court" also defines the bankruptcy judges as a *751 "unit" of "the district court."[7]See 28 U.S.C. § 151. As such, the seemingly unequivocal reference in § 1452(a) to "the district court" is not so simple after all. A case is arguably removed to "the district court" when it is removed to a unit, a part of, the district court, that is, the bankruptcy court. Under this logic, removal papers are properly filed with the clerk of the bankruptcy court since that court is, in effect, a subset of the district court. This argument is enhanced in light of the canon of construction which teaches us to view the words and phrases of a statute in the context of the whole statute, not in isolation. See, e.g., Kokoszka v. Belford, 417 U.S. 642, 650, 94 S. Ct. 2431, 2436, 41 L. Ed. 2d 374 (1974); Brach v. Amoco Oil Co., 677 F.2d 1213, 1220 (7th Cir.1982). Thus, the words "the district court" in § 1452(a) must be read together with § 151's inclusion of bankruptcy judges in the district court apparatus.
The issue can thus be framed as follows: Gianakis' argument is that the words "to the district court" imply the corollary, "and not to the bankruptcy unit of the district court." Exchange's position is that "to the district court" implies the corollary, "including the bankruptcy `unit' of the district court, as defined in 28 U.S.C. §§ 151 and 157(a)."
Faced with the above ambiguity in the meaning of "the district court," we would normally look to the legislative history for evidence of legislative intent. But the history of the 1984 Act says nothing revealing about § 1452(a). There is no House or Senate Report. Only the opinions of a few members of each house are recorded, and these do not even mention § 1452(a). See 1984 U.S.Code Cong. & Adm.News 576. We are left then with only the tools at hand: the comparison of language and structure of the current Act and of the now defunct 1978 Act, our knowledge of the relevant history of bankruptcy reform and a dash of common sense.
We think Exchange's reading of § 1452(a) makes more sense than Gianakis' and would not frustrate congressional intent. Our conclusion flows from three premises. First, it is clear that by virtue of §§ 151, 157 and 1452(a), Congress intended that bankruptcy judge could hear cases removed from state court. Gianakis does not dispute this. It is also clear by definition that Congress re-created the bankruptcy court as a "unit" of the district court; it follows that the bankruptcy court clerk's office for this district is essentially an administrative unit of the entire district court apparatus. Finally, it is clear that in reacting to Northern Pipeline, Congress wanted to maintain continuity in the functioning of the bankruptcy system, while remaining faithful to the teachings of Northern Pipeline. Given these premises, the central issue can be restated: did Congress in enacting § 1452(a) intend to prohibit the new "bankruptcy court" concededly no more than a unit of the district court from receiving removal papers in a type of case previously referred to it by general order under § 157(a)? We think not. Placed in this light, Gianakis' argument is that Congress intended that removal papers be filed in a part of the district court where the case would not be heard, only to have the papers transferred to the part of the district court where it would be heard. Absent strong evidence of contrary intent, we *752 will not impute to Congress an intent to inject a meaningless step into a ministerial process.
We do not think that Congress would insert a meaningless step in its removal mechanism unless it felt that Northern Pipeline commanded it to do so. But Gianakis does not argue that this extra administrative step is somehow commanded by Article III as construed in Northern Pipeline. Nor do we think the teachings of Northern Pipeline demand such a step. Northern Pipeline basically held that the 1978 Act improperly vested Article III powers in non-Article III judges. The 1984 Act seeks to correct these jurisdictional defects. But the precise issue here really has nothing to do with Northern Pipeline. We therefore do not see the change from "to the bankruptcy court" in old § 1478 to "to the district court" in § 1452(a) as significant in the present context. The change is not a command to file removal papers with the district court's clerk and against filing such papers with the clerk of the bankruptcy unit of the district court. Rather, the wording change merely reflects the fact expressed in §§ 151 and 157 that the "bankruptcy court" as such no longer exists as a distinct jurisdictional entity, but is subsumed within "the district court" apparatus. Congress obviously would not authorize removal to a phantom court. At the same time, it could, and did, authorize removal to that "court," resurrected as a unit of the district court.[8]
If Gianakis were correct, absurd results would follow in different contexts as well. Should not, under his logic, the 1984 Act and the general referral order require that all bankruptcy papers be filed with the district court's clerk and not the bankruptcy court's clerk, and then have them referred? After all, § 1334 vests jurisdiction in the district court, not the bankruptcy court, which acquires its power only via referral. We think that so long as a general referral order is in place, this bizarre system obviously would not have been intended by Congress and was not intended by the referral order itself. Instead, we see § 157 and the referral order as generally authorizing the bankruptcy clerk's office to accept filings in species of cases which have already been referred by this general fiat. That is, the referral order and mechanism are essentially administrative: A class of cases is referred generally to the bankruptcy unit, whose own clerk's office accepts filings; but the scheme was clearly not set up to shuttle every individual paper and pleading from one clerk's office to the next.
Gianakis does not really dispute the practical absurdity of the scheme it endorses. Instead, it argues that, for better or worse, this is Congress' scheme, and it is up to Congress, not this Court, to work the kinks out of the system. If the meaning of "to the district court" unambiguously supported Gianakis, then we would have to obey Congress' orders, however absurd. But we have shown that these words are ambiguous, since the very same Act in which they appear also includes bankruptcy judges (and, derivatively, their clerk) as part of the district court. Given this ambiguity, the absurdity of the system Gianakis proposes is a relevant factor for us to consider as we try to determine legislative intent. In determining congressional intent, courts are loathe to conclude that Congress intended the absurd or bizarre. See, e.g., American Tobacco Co. v. Patterson, 456 U.S. 63, 71, 102 S. Ct. 1534, 1538, 71 L. Ed. 2d 748 (1982); United States v. Turkette, 452 U.S. 576, 580, 101 S. Ct. 2524, 2527, 69 L. Ed. 2d 246 (1981). We will not do so here.
The logic of the two cases Gianakis relies upon suffers from the same defect as does his reasoning. They implicitly assume that the words "to the district court" are clear, *753 and prohibit filings with the bankruptcy unit of that court. The Long case, for example, does an excellent statutory analysis in showing that § 1478 is no longer effective, giving way to § 1452(a). We agree fully with that court up to that point. See 43 B.R. 692-97. But for the reasons stated earlier, § 1452(a) does not prohibit filing with the bankruptcy unit of the district court if a general referral order is in place.[9]
D. Conclusion
The decision of the bankruptcy judge denying the motion to remand to state court is affirmed. In light of this ruling, we need not discuss the other issues the parties raise. The case is remanded to the bankruptcy judge for further proceedings. It is so ordered.
NOTES
[1] We use the words "bankruptcy court" somewhat loosely. As described later in this opinion, the bankruptcy court is no longer a distinct entity, but is a "unit" of the district court.
[2] All relevant events mentioned from here on happened in 1985. Thus, we will not use the year when we state dates.
[3] This is what the bankruptcy judge said:
Well, I'm going to deny that.
I think that at best, it's technically going back to the District Court and I'm sure it would be referred right back here from the District Court.
That Motion will be denied. (Transcript, 5/9/85, p. 10).
Although in the end, we affirm the result he reached, we do not endorse his summary methods. While a long opinion or even a written one was not necessarily required to refute the well-reasoned contrary (albeit, incorrect) published opinions by two other bankruptcy judges, some statement of statutory or legal analysis would have been helpful to this Court and was deserved by the parties. Merely calling Gianakis' position "technical" does not suffice. It obviously is technical, but the court's jurisdiction hinged on that technicality. A lot of time and money would have been wasted if the case had proceeded to the merits and the technicality turned out to have been what Congress intended.
[4] Upon inquiry by the Court, both the district and bankruptcy courts' clerk's offices reported that removal applications, as well as other bankruptcy papers, are being filed and received in the bankruptcy clerk's office. We take judicial notice of these functionings of our court administration.
[5] That section states:
(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground. An order entered under this subsection remanding a claim or cause of action, or a decision to not remand, is not reviewable by appeal or otherwise.
[6] The Chief Judge of this district entered a general referral order immediately after the President signed the 1984 Act. That order says:
The President having signed into law the Bankruptcy Amendments and Federal Judgeship Act of 1984, it is ordered as follows:
Section 157(a) Chapter 6 of Title 28 United States Code, states that "Each district court may provide that any and all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district."
In accordance with this provision it is the order of the court that all such cases and proceedings now pending in the bankruptcy court or hereinafter filed are so referred.
Gianakis does not contend that this case falls outside the scope of this general referral order.
[7] In a different context, one bankruptcy judge aptly describes the structure of the new system as follows:
I assume when the defendants state in their motion that "this court" lacks jurisdiction, it is referring to the bankruptcy court. However there really is no bankruptcy court except in name. The term "bankruptcy court" is solely a phrase that is applied to the bankruptcy judges for a district insofar as those judges together are a unit of the district court. 28 U.S.C. § 151. Thus while functionally there may appear to be a separate bankruptcy court, for jurisdiction purposes there is only one court, i.e., the district court. Making this distinction has some relevance to the defendants' motion since "this court", i.e., the district court, does have jurisdiction over the subject matter of this proceeding and that jurisdiction is constitutional. Thus dismissal obviously is not warranted.
In Re Northwest Cinema Corp., 49 B.R. 479, 13 B.C.D. 44, 44-45 (Bankr.D.Minn.1985).
[8] Mandating removal to "the district court" is consistent with the idea that referral is optional. If a district enacts no referral order, then cases obviously are removed "to the district court" itself, i.e., to its clerk's office. A referral order simply has the administrative effect of routing filings to a different unit of the district court, one authorized by § 157 and created by the referral order itself.
[9] It is unclear whether a general referral order was in effect in Long. The court there noted:
If BancOhio wishes this court to hear said action, then it must move the district court for an order referring said action to this court as provided for by 28 U.S.C. Section 157(c)(2).
43 B.R. at 697. It thus appears that no general § 157(a) referral order was in place there, as it is here. If not, our opinion is not necessarily inconsistent with Long's. If cases had to be referred one-by-one, then filings would have to be made with the district court clerk. One bankruptcy judge, in dictum, cites Long in this regard and suggests as we hold that if a general referral order is in place, direct filing with the bankruptcy court is proper. See In Re Kennedy, 48 B.R. 621, 623 n. 2 (Bankr.D.Ariz.1985). Of course, Schuler is directly opposed to this position, and we reject the holding in that case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1853053/ | 327 B.R. 561 (2005)
WESTMORELAND HUMAN OPPORTUNITIES, INC., Appellant,
v.
James R. WALSH, Trustee of the Bankruptcy Estate of Life Service Systems, Inc., Appellee.
Civ.A. No. 1999-1101
United States District Court, W.D. Pennsylvania.
July 29, 2005.
*562 *563 Terance O'Halloran, Greensburg, PA, Joseph S. Sisca, Office of the United States Trustee, Pittsburgh, PA, P. Matthew Sutko, Office of the General Counsel, Washington, DC, for Appellee.
Daniel B. Pagliari, Paletta & Pagliari, Lower Burrell, PA, for Appellant.
James R. Walsh, Spence, Custer, Saylor, Wolfe & Rose, Johnstown, PA, pro se.
MEMORANDUM OPINION and ORDER
GIBSON, District Judge.
This matter comes before the Court on Westmoreland Human Opportunities, Inc.'s (WHO/Appellant) appeal from the Order of the Bankruptcy Court dated June 20, 2002 entering judgment in favor of James R. Walsh, Trustee of the Bankruptcy Estate of Life Service Systems, Inc. (Appellee) against WHO in the amount of $135,653.00. The Court has jurisdiction over this appeal in accordance with 28 U.S.C. § 158(a)(1). Our review of the Bankruptcy Court's findings of fact is guided by the legal standard of "clearly erroneous" and the Bankruptcy Court's legal conclusions are subject to plenary review. J.P. Fyfe, Inc. of Florida v. Bradco Supply Corp., 891 F.2d 66, 69 (3rd Cir. 1989).
There exist four issues that are presented for the Court's review: 1) whether a fiduciary duty can arise among members of an unsecured creditors committee in connection with a transaction involving property that falls outside of the debtor's bankruptcy estate? and 2) whether such a fiduciary duty exists under the circumstances of this case where WHO, a member of the unsecured creditors committee, acted to take control of that property? 3) whether WHO breached that duty? and 4) whether the Bankruptcy Court awarded proper damages as a result of that breach? Each successive issue is addressed only if the prior issue has been answered in the affirmative.
Previously, the Court of Appeals remanded this Matter to this Court for the purpose of having this Court determine "whether a fiduciary obligation to Committee members can arise in connection with a transaction involving property that falls outside of the debtor's bankruptcy estate." Westmoreland Human Opportunities, Inc. v. Walsh, 246 F.3d 233, 257 (3rd Cir.2001). The Court of Appeals found that the previous analyses of the Bankruptcy Court and the District Court were incomplete in that these courts did not consider if a fiduciary duty exists between an unsecured creditors *564 committee member and the unsecured creditors committee when that committee member engages in a transaction involving debtor's property that is not part of the bankruptcy estate. Id. On remand, the Bankruptcy Court concluded that a fiduciary duty does exist between a committee member and an unsecured creditors committee in relation to that committee member's actions regarding a transaction involving debtor's property not considered part of the bankruptcy estate. Walsh v. Westmoreland Human Opportunities, Inc. (In re Life Service Systems, Inc., Debtor), 279 B.R. 504 (Bankr.W.D.Pa.2002) The appeal sub judice was filed on July 24, 2002; briefing was completed on September 17, 2002; and this appeal was assigned to this Court on October 27, 2003.
Because this Court does not find the Bankruptcy Court's findings of fact to be clearly erroneous in any way, such findings will be reproduced here for purposes of our plenary review of the Bankruptcy Court's conclusions of law:
Debtor Life Service Systems, Inc. and defendant WHO are non-profit corporations which operate various community and social services programs for residents of Westmoreland County, Pennsylvania.
Debtor endeavored in 1995 to provide transitional housing for homeless families residing in Westmoreland County while they sought permanent housing and learned necessary skills for living.
In April of 1995, debtor submitted a request to United States Department of Housing and Urban Development ("HUD") for a grant under the federal Supportive Housing Program. Recipients of such grants are selected through a time-consuming nationwide competitive process. See 42 U.S.C. § 11386(b). As part of the process, debtor was required to submit an application and project proposal providing detailed information concerning the proposed housing project, debtor's past experience in providing housing assistance, and a budget for the project. While there is an obvious cost to this submittal, no party has offered the details of same.
In its application, debtor requested funding in the amount of $1,326,925 to cover the cost of acquiring, rehabilitating, and operating two apartment buildings. The cost of providing supportive services offered at these sites and a five percent fee to cover debtor's administrative overhead were also included.
HUD advised debtor in August of 1995 that it had preliminarily approved debtor's request for funding in the exact amount requested. Final approval was contingent upon completion of an acceptable technical submission. Debtor did as required and in the process expended additional blocks of time and resources putting together a final submission that was acceptable to HUD.
On February 6, 1996, HUD gave final approval for a transitional housing project to be located at 49 Division Street in Greensburg, Pennsylvania. Several days later, debtor and HUD executed a formal grant agreement which obligated HUD to provide $1,326,925 for the Division Street property and which obligated debtor to administer the project at that site. The grant was for a term of three years and was subject to renewal.
Debtor purchased the Division Street property shortly after executing the agreement and began renovating it. The purchase price was $295,000.
As a precondition to receiving funds under the grant, debtor was required to obtain matching funds from others sources totaling $295,000. In addition to pledging $20,000 of its own money, debtor obtained pledges from Westmoreland *565 Housing Authority ($25,000), United Way ($100,000) and Richard K. Mellon Foundation ($150,000). Debtor used these matching funds to complete renovations.
Only a few months after entering into the above agreement with HUD, debtor began experiencing what has [sic] been termed "financial and administrative problems". Little or no detail was offered as to the nature of these "problems". In an effort to overcome these "problems", debtor entered into an agreement with WHO in September of 1996 whereby WHO was to provide management assistance to debtor. While serving in this capacity, WHO learned the intimate details of debtor's operations, including the specifics of the above grant agreement with HUD.
The relationship between debtor and WHO was short-lived. WHO abruptly terminated it in October of 1996, for reasons that are not clear.
After WHO pulled out, debtor retained Adelphoi, Inc., another non-profit organization operating in Westmoreland County, to manage debtor and to conduct its day-to-day operations. Pursuant to the terms of the agreement, all of debtor's board members resigned and were replaced by directors selected by Adelphoi.
On January 14, 1997, approximately two months after Adelphoi had taken over managing debtor's affairs, debtor filed a voluntary chapter 11 petition. The decision to do so was made by the newly-appointed board of directors Adelphoi had selected.
WHO was listed on the accompanying schedules as having a general unsecured claim for management services it had provided in September and October of 1996. Also listed as creditors were matching fund grantors Westmoreland County Housing Authority ($3,798), United Way ($57,631), and Richard K. Mellon Foundation ($22,825). It is the custom of debtors filing under chapter 11 of the Bankruptcy Code in this district to schedule assets that it considers are not assets of the bankruptcy estate for the purpose of completeness and for informational purposes. The theory behind this practice stems from the fact that the bankruptcy petition is executed under penalty of perjury and Rule 9011 and the Bankruptcy Bar is sensitive to the charge of impropriety. Debtor's interest in the supportive housing program grant was not listed on its schedules.
By the time of the bankruptcy filing, debtor had drawn down approximately $288,000 in grant funds.
An official committee of unsecured creditors was constituted shortly after the bankruptcy filing. A representative of WHO served on the committee until September of 1997, when it withdrew amid accusations of a conflict of interest. WHO apparently was sharing confidential information with third parties having an interest adverse to debtor's other unsecured creditors.
At the time of or shortly after debtor filed its bankruptcy petition, WHO and Adelphoi devised a scheme whereby they would divide the spoils of the supportive housing grant. Adelphoi would purchase the property located at 49 Division Street at a future sale to take place in this court. WHO would replace debtor as the supportive housing grantee and would house program participants at 49 Division Street.
The parties acted as if they could merely direct the actions of HUD and HUD would strictly follow those directions. As future events showed, in this instance they were correct.
*566 Two weeks after debtor filed its bankruptcy petition, HUD declared debtor to be in default of the provisions of the supportive housing grant. HUD informed debtor by letter dated January 28, 1997, that it was in default as a result of the bankruptcy filing. HUD asserted that debtor would receive no further grant disbursements and stated that the grant would be reactivated if debtor submitted a "workable plan". HUD further stated that it would cancel the remainder of the grant or might select someone else to administer it if a suitable plan was not proposed within thirty days.
Firmly under the control of the directors hand-picked by Adelphoi, debtor made no attempt during this thirty-day window of opportunity to submit a "workable plan" to HUD or to notify the members of the creditors' committee of HUD's letter.
Even though debtor did not respond within the thirty-day period, HUD did not terminate the grant or replace debtor at that time as the grantee. It instead sent another letter to debtor on March 4, 1997, inviting debtor to submit a "work-out plan for the continued implementation of the project".
As was the case with HUD's previous letter, debtor did not respond. Adelphoi's executive director instead sent a letter to HUD on March 17, 1997, directing that the supportive housing grant be reactivated. The letter stated that "our intentions are to transfer the property [located at 49 Division Street] to Adelphoi, Inc. The program will be run by Westmoreland Human Opportunities".
Without having to undergo the rigors of the complex application process through which debtor had gone to get the supportive housing grant, WHO was immediately "chosen" by HUD to replace debtor as the grantee. On May 27, 1997, HUD and WHO executed an "amendment" to the grant agreement which identified WHO as "successor to Life Systems Services, Inc." The property located at 49 Division Street was identified as a venue for the program.
WHO paid no consideration to the bankruptcy estate for the right to succeed debtor as the grantee. Moreover, neither debtor nor WHO notified the committee of unsecured creditors or the court of this "amendment".
Debtor brought a motion in August of 1997 to sell the property located at 49 Division Street to a non-profit entity known as Westmoreland CHODO. The fact that CHODO was an affiliate of and controlled by Adelphoi was not disclosed in the motion.
The committee, which had no knowledge of the above "amendment", objected to the sale. It argued that the sale should be linked with a court-approved assignment of the supportive housing grant to a third party to ensure that debtor's expenditure of funds on 49 Division Street did not give rise to a claim by HUD to recapture funds debtor had already expended on the property. The supportive housing grant required debtor to use the property for supportive housing for a period of twenty years. In the event it was not so used, any amounts debtor had expended on the property were to be returned to HUD.
The understanding between WHO and Adelphoi whereby Adelphoi would purchase 49 Division Street while WHO would take over the supportive housing grant and house eligible participants there came to nought when a third party outbid CHODO at the sale and purchased the property. WHO suddenly was not interested in dealing with this *567 third party and instead housed eligible participants at another location.
A motion to appoint a chapter 11 trustee was filed on October 27, 1997. Largely based upon recently divulged facts, the motion was granted on November 7, 1997.
Debtor's liquidating chapter 11 plan of reorganization subsequently was confirmed. The plan provided for payment in full to general unsecured creditors "to the extent funds are available". This qualifying phrase implied that general unsecured creditors would not necessarily be paid in full after all. They have not been paid in full to date and most likely never will be.
The chapter 11 trustee brought this adversary action against WHO on February 6, 1998. The complaint alleged that the supportive housing grant was property of debtor's bankruptcy estate and that WHO had breached its fiduciary duty to other unsecured creditors by replacing debtor as the program's grantee without first obtaining court approval. WHO responded that it had not breached its fiduciary duty because debtor's interest in the supportive housing grant was never property of the bankruptcy estate for purposes of the Bankruptcy Code.
The chapter 11 trustee also brought separate adversary actions against Adelphoi and debtor's directors whom Adelphoi had selected. Among other things, the chapter 11 trustee claimed that they had breached their fiduciary duty in connection with WHO's succession to the supportive housing grant. Both of these actions settled before going to trial.
Judgment in the amount of $135,653 was entered in this case in favor of the chapter 11 trustee after a trial. We found that debtor's interest in the supportive housing grant was property of the bankruptcy estate and that WHO had breached its fiduciary duty to fellow general unsecured creditors when it assumed debtor's rights under the supportive housing program grant.
WHO appealed the judgment to the district court, where it argued that we had erred in finding that debtor's interest in the grant was property of its bankruptcy estate. The District Court agreed with the finding and affirmed the judgment, whereupon WHO filed a timely appeal with the United States Court for the Third Circuit.
The Third Circuit reversed and remanded after determining that debtor's interest in the grant was not property of its bankruptcy estate. Westmoreland Human Opportunities v. Walsh, 246 F.3d 233, 241-256 (3rd Cir.2001). It concluded, however, that this determination did not fully "dispose of the merits" of this case. Remaining to be determined was the question whether WHO had breached its fiduciary duty to fellow general unsecured creditors when it assumed debtor's interest in the grant without so notifying the other members of the creditors' committee. 246 F.3d at 256-57.
Our analysis as well as that of the District Court, it concluded, was "incomplete" because neither court had considered whether a fiduciary obligation to fellow committee members "can arise in connection with a transaction that falls outside of the debtor's bankruptcy estate". 246 F.3d at 257. The Third Circuit declined to decide the question because neither this court nor the District Court had considered it in the first instance and because neither WHO nor the chapter 11 trustee had fairly raised the question on appeal. Id.
The Third Circuit instead remanded the matter to the District Court, which *568 in turn remanded it to this court for further proceedings to resolve the following issues: (1) whether a fiduciary obligation to fellow unsecured creditors can arise out of a transaction involving an item of property that does not qualify as property of the estate for purposes of the Bankruptcy Code; and (2) if it can so arise, whether WHO breached such a fiduciary duty based on the specific facts of this case. 246 F.3d at 258.
Walsh v. Westmoreland Human Opportunities, Inc., 279 B.R. 504, 506-509 (Bankr. W.D.Pa.2002).
The Bankruptcy Court on remand concluded that a fiduciary relationship among unsecured creditors committee members extends to transactions a committee member may engage in which concern property not considered part of the bankruptcy estate, and more specifically, that a breach of such fiduciary duty occurred in this case. The Court will now conduct a plenary review of the Bankruptcy Court's legal analysis and conclusions.
Starting with an understanding of the role of the unsecured creditors committee under Chapter Eleven bankruptcies, the Bankruptcy Court recognized that the question of the existence of a fiduciary duty between committee members regarding a transaction dealing with property of the debtor that falls outside of the debtor's bankruptcy estate (nonestate property) appeared to be one of first impression. Walsh v. Westmoreland Human Opportunities, 279 B.R. 504, 510 (Bankr.W.D.Pa. 2002). The Bankruptcy Court then proceeded to review the case of Citicorp Venture Capital, Ltd. v. Committee of Creditors Holding Unsecured Claims, 160 F.3d 982 (3rd Cir.1998) (hereinafter "CVC" in reference to the opinion and "CVC" used in reference to Citicorp Venture Capital Corporation as a party) because it found it instructive on this issue of whether a fiduciary duty arises with regard to nonestate property.
In CVC, a member of the board of directors of the debtor, Muqqadam, held an officer position at CVC; CVC held equity in the debtor's parent corporation. Walsh at 511. CVC purchased discounted notes of the debtor after the debtor filed its bankruptcy petition and thereby obtained a "`blocking' position in [the] debtor's reorganization." Walsh at 511. The Third Circuit concluded that even though Muqqadam purchased the discounted notes on behalf of CVC with the permission of the debtor and its shareholders, it did not disclose the opportunity for that purchase to the debtor's creditors prior to making the purchase. As a result, a breach of fiduciary duty occurred from CVC's actions in seizing a corporate opportunity without prior disclosure. On remand, the Bankruptcy Court found CVC significant for the fact that the notes at issue in CVC were not property of the bankruptcy estate ("estate") yet a violation of fiduciary duty still occurred for dealing with this nonestate property. Walsh at 512. The Bankruptcy Court reasoned that even though CVC conceded that a fiduciary relationship existed between itself/Muqqadam and the creditors, such a conclusion would have been reached by the Third Circuit in the absence of such a concession. Id. The court reasoned as such because CVC/Muqqadam was a representative on the creditors committee and Muqqadam also was a member of the debtor's board of directors and from such positions a fiduciary status existed; a fiduciary status did not exist from the fact that CVC/Muqqadam had any interest, legal or equitable, in the notes purchased after the petition's filing. Id. The Bankruptcy Court rejected WHO's argument to distinguish the case sub judice from CVC by the fact that the notes in CVC could have been bought by *569 the debtor in that case while the debtor in the case sub judice could not own the grant at issue here. Walsh at 513. The Bankruptcy Court's rejection of this argument is based upon the logic that the ability to own the property at issue is not relevant to a violation of the fiduciary duty because the actions taken by WHO, just like those of CVC, violated the fiduciary duty it owed to its fellow committee members. Id.
On remand, the Bankruptcy Court went on to conclude that WHO did violate its fiduciary duty as its actions benefitted itself and were damaging to the "general unsecured creditors" because those entities which had matched the grant from HUD filed general unsecured claims when the debtor was not reinstated with the grant. Walsh at 514. In turn, a larger unsecured creditor class results in each member of that class receiving less of a recovery. Id. The Bankruptcy Court concluded that its calculation of damages in its memorandum opinion of April 25, 1999 was correct and that the amount of $135,653 should be entered as the amount of judgment against WHO. Walsh at 515. According to the Bankruptcy Court on remand, this amount reflected $84,254 in unsecured claims by the "matching fund donors" and $51,399 of "administrative overhead payments" left within the grant funds at the point of WHO's assumption of the grant. Id.
The Court notes at the outset that for the majority of its opinion the Bankruptcy Court referred to the first issue on remand as one concerning whether a fiduciary obligation between unsecured creditors exists with regard to nonestate property although it had correctly noted the issue on remand prior to beginning its discussion. Walsh v. Westmoreland Human Opportunities, 279 B.R. 504, 509-513 (Bankr. W.D.Pa.2002). This Court understands the opinion of the Court of Appeals to frame the first issue on remand as being whether a member of the general unsecured creditors committee owes a fiduciary duty to other members of that committee in regard to its actions taken as to debtor's property that is not part of the debtor's bankruptcy estate. While it is true that the members of the committee are all unsecured creditors, the Court does not understand the remanded issues to concern the question of whether there exists a fiduciary duty between members of the general unsecured creditors committee because of their membership in that class of creditors. However, the Court finds that such misstatement of the issue in discussion did not affect the Bankruptcy Court's analysis.
WHO makes several arguments against the decision of the Bankruptcy Court. First, WHO argues that all of the parties were aware of the fact that WHO was succeeding the debtor in the HUD grant and that various facts support this contention; WHO claims it was following the direction of HUD with the understanding that the Bankruptcy Court did not need to approve WHO as the successor to the grant. Appellant's Brief, p. 11-13. The Court rejects these contentions as it was determined previously in this opinion that no clear error was found in the facts as determined by the Bankruptcy Court and therefore, the Court finds that notice of WHO's succession came to the committee in the fall of 1997, not Spring of 1997 as claimed by the Appellant.
WHO's second argument is that when property is not part of the debtor's bankruptcy estate under 11 U.S.C. § 541, a fiduciary duty cannot arise as to such property. Specifically, WHO argues that the Bankruptcy Court's reliance on CVC is misplaced because the property purchased in that case (promissory notes) was property *570 that the debtor could have made property of the estate pursuant to § 541 while the property at issue in the case sub judice, a HUD grant, could not be made property of the estate. WHO argues for an exception to such nonestate grants giving rise to a fiduciary duty as such an exception would be very narrow and noticeable to any unsecured creditors committee and further, the Bankruptcy Code does not control the ability of creditors to "transfer or receive non-estate property" according to the precedent of In re SPM Mfg. Corp., 984 F.2d 1305 (1st Cir.1993). Appellant's Brief, p. 14.
Carving out federal grants as an exception to the existence of a fiduciary duty where the property involved is like the one at issue serves no purpose under the Code, but only serves the purpose of facilitating WHO's avoidance of the judgment it must pay in this matter. To judicially countenance WHO's surreptitious activity would cut against the purpose of the fiduciary duty which exists among the committee members as well as the fiduciary duty which those committee members have to their constituents. To self-deal with assets of the debtor which are not part of the bankruptcy estate, the status of which can effect the amount of recovery of unsecured creditors because of the potential of adding members to the class of unsecured creditors as well as having the potential to prevent an increase of the assets of the estate, clearly affects the estate and the interests of the unsecured creditors. As for the precedent of SPM Mfg. Corp., 984 F.2d 1305, 1313 (1st Cir.1993) which recognized that "[t]he Code does not govern the rights of creditors to transfer or receive nonestate property" the property at issue in SPM was in fact proceeds of the liquidation of the debtor's assets that had been distributed by the Court. In accordance with the plan in SPM, priority status was given to the secured creditor, Citizens Sayings Bank (Citizens). After the disbursement order of the Court, Citizens attempted to effectuate a division of the proceeds which it received with general unsecured creditors.
SPM is inapposite to the case sub judice where the actions of WHO while it was a member of the unsecured creditors committee, were taken in order to obtain nonestate property that could have been obtained by the debtor except for the surreptitious actions of WHO's partner, Adelphoi, which controlled the debtor's board of directors and caused the debtor not to respond to HUD's offer to continue the grant under a new plan. Had the debtor chosen to respond to HUD's offer, the number of general unsecured creditors would have been fewer. This is because the matching grantors of the HUD grant joined in the bankruptcy action as unsecured creditors after the debtor did not continue with the HUD grant. This in turn resulted in more unsecured creditors which causes the recovery of each unsecured creditor to become less. Furthermore, the failure of the debtor to continue the grant resulted in a loss of direct income to the debtor, thereby lessening the amount of the estate. All of these consequences occurred as a result of WHO's actions prior to confirmation of a plan and a final decree.
In contrast, SPM concerned circumstances where a Chapter Eleven bankruptcy was converted into a Chapter Seven bankruptcy followed by an agreement that was operative after the distribution of proceeds to the secured creditor whereby the secured creditor agreed to terms with members of the unsecured creditors committee pursuant to which the secured creditor consented to distribute part of its recovery to the unsecured creditors. The SPM agreement concerned nonestate property because of the fact that distribution *571 had occurred under Chapter Seven bankruptcy. The First Circuit concluded that such action was permissible after distribution to the secured creditor because the monies distributed to the secured creditor were no longer part of the estate. The secured creditor could thereafter do what it wanted with the money it received without restriction of the Bankruptcy Code or court orders.
The case sub judice is different in many respects, particularly since it was not converted from Chapter Eleven bankruptcy to Chapter Seven bankruptcy and a plan had not been confirmed at the time WHO succeeded the debtor in the HUD grant.[1] A liquidating plan was subsequently confirmed months after WHO succeeded to the HUD grant. However, WHO's actions, in concert with Adelphoi, directly and indirectly affected the size of the class of unsecured creditors and the resulting distribution of proceeds under the liquidation plan. The action of Citizens, as the secured creditor in SPM, had no such effect on the size of the unsecured creditor class or on the amount of the recovery of each unsecured creditor as Citizens was entitled to all of the proceeds in satisfaction of its secured claim. Instead, Citizens chose to enter into an agreement to facilitate some recovery to the unsecured creditors by giving back proceeds under an agreement that would take effect upon Citizens taking possession of the secured proceeds. WHO's actions were much more self-serving in that its actions were taken before a plan was in place and it dealt with nonestate property in ways that adversely affected bankruptcy estate property and compounded the bankruptcy proceedings by preventing income from being infused into the estate by means of the continuation of the grant that was almost certain to occur; this conclusion concerning the continuation of the grant is based upon an understanding of HUD's practices and their specific communications to the debtor to work out a plan that would allow the grant to be continued. WHO's assumption of the grant in turn caused the debtor's matching creditors to file claims against the estate thereby becoming members of the class of unsecured creditors.
In the absence of prior disclosure to the members of the unsecured creditors committee and where their consent is not obtained, then when the actions of a member of the unsecured creditors committee in dealing with nonestate property cause a loss of income to the debtor or debtor in possession, a lower amount of recovery for its fellow general unsecured creditors, an increase in the size of the class of general unsecured creditors, or otherwise adversely affect the orderly and efficient resolution of the bankruptcy petition or satisfaction of claims that is not in accord with the interests and duties of the committee of general unsecured creditors, this Court finds that a breach of the fiduciary duty which that member owes to the committee of general unsecured creditors has been committed. The Court will now explore the basis and nature of such a fiduciary duty.
WHO's third argument is that the test applied to evaluate a usurpation of a corporate opportunity in the corporate law context cannot be applied to evaluate a breach of fiduciary duty between members of the unsecured creditors committee. In particular, WHO is referring to the application by the Bankruptcy Court of the test for breach of fiduciary duty found in the case of CVC. A review of CVC reveals the fiduciary duty at issue in that case was one *572 originating from an insider position with the debtor, i.e., a director of the debtor corporation. The Court understands WHO's argument and agrees that a fiduciary duty arising from one's position as a corporate director differs from the fiduciary duty arising as a result of membership on an unsecured creditors committee. However, the fiduciary duty in each of those situations is somewhat similar. While creditors may certainly continue to do business while serving as members of the unsecured creditors committee, their membership on the committee is not intended to provide them with inside information concerning property of the debtor to be used for personal gain, whether that inside information concerns property which is part of the estate or not. While the Court finds the CVC case instructive on this point, its analysis cannot be completely transposed to this case which concerns the duties of an unsecured creditors committee member. The Bankruptcy Court determined that in the absence of the stipulation that Muqqadam/CVC owed a fiduciary duty to the creditors, the CVC court would have recognized the existence of a fiduciary duty owed by Muqqadam/CVC by virtue of their position on the committee. The Court does not agree. The Court reads the CVC analysis of fiduciary duty as one based upon Muqqadam/CVC's position on the board of directors of the debtor, not the creditors committee. Treating the fiduciary duty applicable to corporate boards of directors to be equivalent to the fiduciary duty applicable to committees of unsecured creditors is unworkable. Such was pointed out in the case of Krafsur v. UOP, 196 B.R. 58, 73-75 (Bankr.W.D.Tex.1996). However, because the Court finds that a corporate fiduciary duty cannot be imposed in its entirety upon members of a creditors committee, that does not mean that a member of an unsecured creditors committee can act solely in its own self interest without any restriction resulting from the fiduciary duty which arises from being a member of that committee. While the Court does not agree entirely with the Bankruptcy Court in its application of CVC to the case sub judice, the Court does agree with its conclusion that a fiduciary duty was breached based on the following reasoning.
In Krafsur, the bankruptcy court evaluated an issue very similar to the issue which is present in the case sub judice, but in the context of a request for equitable subordination. Krafsur at 73-74. The court in Krafsur recognized that a creditors committee member has the dual role of "deal[ing] fairly with other creditor members of the represented class" while also concerning itself with its own interests of recovery and minimizing its loss in a bankruptcy proceeding. Krafsur at 74. The Krafsur court concluded that the application of the "corporate usurpation test" to committee members would result in a loss of creditors willing to serve on the committee as the test's application would increase the scrutiny of every decision of a committee member. Id. The Krafsur court went on to conclude that a breach of fiduciary duty, although the extent of the duty imposed was undefined by the court, did not occur as the challenged actions were taken based upon information secured independent of information obtained by the creditor through its membership on the committee. Krafsur at 74-75. The court found that the existence of a conflict between a member's duty to the committee and its ability to continue its own business should not always result in a finding of a breach of fiduciary duty and in instances of such conflict, a member's "duty to the committee" should not always supercede the member's interest in continuing its business and the opportunities presented *573 to it. Krafsur v. UOP, 196 B.R. 58, 75 (Bankr.W.D.Tex.1996).
It is clear that the unsecured creditors committee represents the unsecured creditors. To be effective in that representation, it is necessary for the committee to speak with one voice. To permit the committee members to serve their individual interests in a manner which is detrimental to other unsecured creditors would not only violate their established fiduciary duty to their constituents, the unsecured creditors, but also frustrate the purpose behind the committee's mandatory existence under the Bankruptcy Code. See 11 U.S.C. § 1102 (requiring U.S. Trustee to appoint committee). In essence, the existence of a fiduciary duty that exists on a "vertical" level between the many unsecured creditors and the members of the unsecured creditors committee cannot be effectuated and preserved if such a fiduciary duty does not also exist on a "horizontal" level among the members of that committee. The committee is empowered under the Bankruptcy Code to take certain actions for the benefit of the class of unsecured creditors that it represents: the power to hire counsel and other agents, investigate the financial state of the debtor, request the appointment of a trustee or examiner, file adversary proceedings under certain circumstances, and take part in the formulation of the reorganization plan. See 11 U.S.C. § 1103; In re Fugazy, 150 B.R. 103 (Bankr.S.D.N.Y.1993)(recognizing that a creditors committee may have an implied right to originate adversary proceedings in the interest of the debtor's estate). In addition, the committee members are entitled to immunity for their actions performed in their official capacity in accordance with the Bankruptcy Code. In re L.F. Rothschild Holdings, Inc., 163 B.R. 45 (S.D.N.Y.1994).
Reflection upon the fact that the members of the unsecured creditors committee are in fact selected from the class of unsecured creditors strengthens the rationale for the existence of a fiduciary relationship among the committee members as they are serving each other as well as the unsecured creditors not selected as members of the committee. See 11 U.S.C. § 1102(b)(1). See also In re ABC Automotive Products Corp., 210 B.R. 437, 441 (Bankr.E.D.Pa.1997)(recognizing the committee must act with "undivided loyalty for the benefit of all of the unsecured creditors."). This is not to say that the members of the committee (and unsecured creditors in general) are somehow precluded from acting in their respective financial interests related to the bankruptcy estate or from continuing their own business, but being a member of the committee is not a position given to an unsecured creditor for the primary purpose of furthering its own financial interests. See Matter of Enduro Stainless, Inc., 59 B.R. 603, 605 (Bankr. N.D.Ohio 1986). Membership on the committee is not intended to grant to the members a financial advantage or priority over their constituents. Good faith, trust and candor are essential to ensure that the work of the committee does not come to a standstill and is completed for the benefit of all unsecured creditors. On this basis, the Court believes that a fiduciary duty exists between all members of an unsecured creditors committee.
Therefore, the Court rejects the Bankruptcy Court's adoption of a fiduciary duty entirely identical to the fiduciary duty required of a corporate director and officer such as is found in CVC, and adopts the reasoning above as to the basis of a fiduciary duty among committee members. The Court analysis above is an attempt to further explain this fiduciary duty that was originally recognized by the Third Circuit in Walsh, 246 F.3d 233, 257 (3rd *574 Cir.2001)(citing In re PWS Holding Corp., 228 F.3d 224, 246 (3rd Cir.2000)) and based upon the grant of authority under 11 U.S.C. § 1103(c)(5) which grants a committee the power to "perform such other services as are in the interest of those represented." However, the Third Circuit in Walsh did not address the application of this fiduciary duty with regard to dealings by committee members with nonestate property. The Court feels it necessary to utilize our fiduciary duty analysis above to explain the boundaries of the fiduciary duty recognized by the Walsh Court in order to answer the central question that necessitated remand of this matter: was this fiduciary duty breached when WHO, a member of the unsecured creditors committee, assumed the debtor's interest in the nonestate property? See p. 569, supra. For purposes of this question, the Court need only address the limits and the reach of this fiduciary duty with respect to the property in question in the case sub judice. The Court finds that WHO's actions violated this fiduciary duty. The Court believes that notice and the opportunity to object to WHO's intentions were required to be given to the unsecured creditors committee, and to the debtor, due to its interest in the nonestate property, and that the approval of the Bankruptcy Court was required to be obtained prior to WHO's succession to the grant because of the impact of that action upon the interests of creditors in the Bankruptcy litigation.[2] The Court's reasoning for this conclusion is the effect that WHO's succession to the nonestate property had upon the recovery by the creditors in bankruptcy and the debtor's ability to rehabilitate itself. The fact that the property involved was nonestate property does not obviate the adverse impact and the creditors.
In particular, WHO's actions must be understood as one-half of the scheme it devised with Adelphoi, with each entity contributing separately to obtain the interest of the debtor in its operations of the housing program it developed pursuant to the HUD grant. The partnership between these two entities and their actions in concert resulted in WHO's breach of its fiduciary duty to the members of the unsecured creditors committee. Adelphoi's actions in ensuring the debtor would not respond to HUD's communications regarding a "workable plan" permitted WHO to propose its succession to the grant thereby ultimately allowing it to draw down funds from the grant. The debtor's "failure" to continue with the grant resulted in the addition of three unsecured creditors to that class of creditors thereby diluting possible recovery by all members of the unsecured creditor class.
WHO benefitted from the succession to the grant by receiving grant funds for which it did not have to compete; it also was not required to expend the substantial time and resources normally involved in such competition. Such funds *575 received by WHO, specifically the operating costs to be paid out under the grant, could have been added to the debtor's estate if WHO had not succeeded the debtor. WHO may argue that such actions were taken in pursuit of legitimate business interests on its part in that the property was not part of the debtor's estate, and while such a contention would be correct in certain circumstances, WHO's actions with that property were taken to the detriment of the debtor and WHO's fellow unsecured creditors while WHO was a member of the unsecured creditors committee. Being a member of the unsecured creditors committee, WHO owed a fiduciary duty to the committee members to inform them of the status of the HUD grant, its possibility of continuation under the debtor's control, its possibility to infuse cash into the debtor's estate and the possibility to avoid the filing of claims by three unsecured creditors by assisting the debtor in continuing with the HUD grant. WHO's intention to succeed the debtor in the HUD grant triggered the need to make such a disclosure, and made that disclosure mandatory, due to the existence of the fiduciary duty. Disclosure is required as a result of the existence of the previously discussed intracommittee fiduciary duty by the fact that the actions to be taken with nonestate property would affect the ability of the general unsecured creditors to recover on their claims. To ensure the committee fulfills its fiduciary duty to its class of creditors requires that the committee members be candid and deal fairly among each other. Without such openness between committee members, the committee becomes ineffectual in its representation of its constituents. Had WHO revealed its plan to succeed the debtor and sought permission of the committee, the committee as a whole, save WHO, could have determined if WHO's succession would benefit, not harm the estate and the committee's constituents, and under those circumstances succession may have been permitted by the Bankruptcy Court for an interested party in the Bankruptcy litigation.[3] Such a decision is for the committee and not one for an interested/conflicted committee member alone.
Moreover, had WHO not possessed the intent to partner with Adelphoi and succeed the debtor in the grant, but rather had learned of Adelphoi's scheme through other means, WHO's membership on the unsecured creditors committee should have caused it to bring that information to the attention of the committee as a whole so that the committee could take necessary actions, including possibly bringing an adversary action, to prevent the dilution of claims of the committee's constituents. Whether WHO would have an obligation to disclose under such a hypothetical situation as a result of a fiduciary duty is not an issue before the Court.[4]
Therefore, the Court concludes that the requirements of notice and opportunity to object must be given by a committee member to all of its fellow committee members when it seeks to deal with *576 nonestate property of the debtor where the dealings with such property could impact in any manner, negatively or positively, upon the recovery of the creditors in Bankruptcy. If the disinterested committee members approve the interested committee member's proposal for the nonestate property, approval of the bankruptcy court must be sought and obtained before the interested committee member may deal in the nonestate property. Should dealings with the nonestate property clearly have no potentiality to affect the recovery of creditors, approval of the committee and the court may be unnecessary while notice to the committee would appear to still be required in order for the disinterested committee members to conduct their own analysis of the effect of the interested member's actions; such is not an issue before the Court, so this matter need not be addressed further.
Finally, the Court will address WHO's fourth and fifth arguments together. These two arguments can be summarized as follows: WHO cannot be found liable even if a fiduciary duty is imposed upon it as a committee member because the committee knew of WHO's intent to acquire the grant, the lack of harm resulting from its succession to the grant and the absence of monetary damages from that succession. Appellant's Brief, pp. 17-21. The Court disagrees. As found previously, the committee was not aware of WHO's intent to succeed the debtor in the grant. In addition, contrary to WHO's argument, harm did result from WHO's succession. WHO claims that the sale of the debtor's real property at 49 Division Street for $304,000 could not have been "realized" if the debtor "retained the grant"; the claims for matching funds were a result of the debtor's default under the grant, but these claims are less than the $304,000 from the sale of the debtor's Division Street property. Appellant's Brief, p. 18. WHO also argues that its succession benefitted the estate because of WHO's payment of relocation claims filed in the bankruptcy action from the grant funds drawn down by WHO; and WHO's succession also permitted avoidance of the recapture by HUD of previously received funds given to the debtor because WHO's presence filled a void left by the debtor's failure to continue with the grant. Appellant's Brief, pp. 18-19, 20.
First, WHO's claim to credit for the infusion of $304,000 into the estate is misplaced; Adelphoi, its partner in the surreptitious succession of the debtor's grant, "contributed" the $304,000 to the estate by its actions in facilitating the court-approved sale of the Division Street property under its scheme with WHO. The Court determines that the actions of Adelphoi, which resulted in the infusion of $304,000 into the estate, cannot be attributed to WHO. Therefore, WHO's argument that its actions caused such an infusion of funds, while supportive of the factual conclusion that WHO and Adelphoi were conspiring, does not accurately describe the origin of the $304,000. WHO's actions played no direct part in the profit from the realty transaction. The actions of WHO did not benefit the estate, but damaged it. Had the debtor been permitted by its Adelphoi-elected board to continue with the grant, the recapture claim by HUD and general unsecured claims of the three matching grantors would have never materialized as a result of the filing of the bankruptcy petition. It is correct that the relocation claims would have had to have been paid by the debtor just as WHO paid such claims. However, the amount of $51,399, the amount allocated to WHO for administrative services under the grant (for which it did not expend substantial time and resources to acquire), would have been received by the debtor along with *577 further payments through draw downs from the grant monies for client services originally totaling $648,645 for the life of the grant. See Trustee's Exhibit 14, Transcript of 11/9/98 hearing. (Bankruptcy Docket No. 12).
In viewing what actually occurred, WHO's actions did prevent HUD's recapture of funds, provided for the payment of relocation claims from the grant monies, but resulted in three general unsecured claims totaling 4,254 being included in the claims made under the bankruptcy proceedings. This amount was a result of WHO's succession to the HUD grant and its decision thereafter not to continue the use of the grant funds for the Division Street location. Walsh v. Westmoreland Human Opportunities, Adversary No. 98-2082-BM, slip op. at 21 (Bankr.W.D.Pa. April 23, 1999)(Bankruptcy Docket No. 18). WHO's release of its own claim in the bankruptcy proceedings totaling $5,866.67 does not eliminate these three unsecured claims. See Appellant's Brief, p. 20. Therefore, WHO's actions resulted in a net increase in the amount of unsecured claims in the amount of $78,387.33. Had the debtor retained administration of the grant, even after its Adelphoi-controlled board's sale of the Division Street property, the debtor could have avoided the recapture claim, paid the relocation claims from grant monies, avoided the filing of the $84,254 in matching fund claims, and could have drawn down the $51,399 for administrative services while incurring the relatively small WHO claim of $5,866.67 for its administrative services previously preformed.[5]
The "bottom line" of each of the scenarios demonstrates the monetary damages resulting from WHO's succession to the grant as compared to the debtor's continuance as the grant administrator. Therefore, the amount of $51,399 which the Bankruptcy Court found to be damages in the case sub judice resulting from WHO's succession to the HUD grant is found by this Court to be the correct measure of damages as this money would have been paid to the debtor. However, the Court views the additional unsecured claims equaling $84,254 should have been treated differently by the Bankruptcy Court than the $51,399 in terms of assessing damages.
Specifically, the additional three unsecured claims amounting to 884,254 will result in a decrease in the amount of recovery ultimately obtained by the other members of the unsecured creditors class, however, the Court is without knowledge of the actual amount of that decrease. The addition of the three matching fund grantors as unsecured creditors clearly enlarged the membership of the unsecured creditors class, thus lowering the amount of recovery for each of the claims of the other unsecured creditors. Still, WHO never utilized the $84,254; it was spent by the debtor previously in its efforts to purchase the real estate and refurbish it in accordance with the HUD grant. Walsh v. Westmoreland Human Opportunities, Adversary No. 98-2082-BM, slip op. at 4 (Bankr.W.D.Pa. April 23, 1999)(Bankruptcy Docket No. 18); Walsh v. Westmoreland Human Opportunities, 279 B.R. 504, 507 (Bankr.W.D.Pa.2002). This is in contrast to WHO directly receiving $51,399 from the HUD grant. Clearly WHO received *578 and utilized the $51,399 for its benefit. Id. at 514. However, WHO did not receive the $84,254 and did not house individuals at the 49 Division Street property, the property upon which such money was expended, after it succeeded to the HUD grant. Id. at 508-509. Therefore, WHO's actions which resulted in three additional unsecured creditor claims being filed did not result in damages to the estate in the amount of those three claims. Rather, the Court views the damages resulting from WHO's actions, which added three more unsecured creditors (Westmoreland County Housing Authority, United Way, and the Richard K. Mellon Foundation) to the unsecured creditors class, as being the amount of reduction in recovery incurred by the other members of the unsecured creditors class resulting from the enlargement of that class by the addition of these three unsecured creditors. The Court is without knowledge as to what the actual amount of reduction in recovery is, therefore, this case will be remanded to the Bankruptcy Court for this determination.
AND NOW, this 29th day of July, 2005, in accordance with the foregoing Memorandum Opinion, IT IS HEREBY ORDERED THAT the Order of the Bankruptcy Court dated June 20, 2002 is AFFIRMED IN PART as to the Bankruptcy Court's determination that Westmoreland Human Opportunities, Inc. breached a fiduciary duty and as to the assessment of $51,399 in damages against Westmoreland Human Opportunities, Inc.; and REVERSED IN PART as to the assessment of $84,254 in damages against Westmoreland Human Opportunities, Inc.; and this matter is REMANDED to the Bankruptcy Court for a determination of the proper damages resulting from the breach of fiduciary duty by Westmoreland Human Opportunities, Inc. which caused Westmoreland County Housing Authority, United Way and Richard K. Mellon Foundation to become members of the general unsecured creditors class and thereby reduce the recovery allocated to the other members of that class.
NOTES
[1] With some exceptions, it is noted that confirmation of a plan effects a discharge of the debtor from debts incurred prior to the date of confirmation. 11 U.S.C. § 1141(d)(1).
[2] It is clear that HUD has control over determinations of amendments to their grants and succession to the grants by other entities, but to the extent that WHO's succession was undertaken without notice to the debtor and the unsecured creditors committee, which then would have had the opportunity to object, and approval sought from the Bankruptcy Court, WHO breached its fiduciary duty to its fellow unsecured creditors committee members. Had WHO given notice to the committee and the debtor and obtained court approval and then begun the process of succeeding the debtor in the HUD grant, the fiduciary duty would not have been breached. Of course, had HUD obtained solicitation from another entity not involved in the bankruptcy litigation and approved that entity's succession to the grant, the Bankruptcy Court would have had no power to stop such succession as the HUD grant is nonestate property.
[3] The Court believes that committee approval should be sought first under such a situation. If such approval is granted by the disinterested members of the committee, court approval should then be sought by the conflicted committee member. However, such procedure for ensuring compliance with the fiduciary duty the Court finds today is not directly presented as an issue before us and the Court does not wish to set forth any further proposals for compliance with this intracommittee fiduciary duty.
[4] Theoretically, under such a situation, a member of an unsecured creditors committee would take such action to disclose such information even in the absence of a fiduciary duty if only for the sake of its own interest in not having recovery under its claim diluted.
[5] The record indicates the new owner of the Division Street property was willing to continue the grant's operation at that address but WHO refused to continue at that location. There is nothing in the record to create doubt that the new owner would not have also wanted the grant to continue in that location had the debtor remained in charge of the grant administration. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1853061/ | 327 B.R. 554 (2005)
In re KAISER ALUMINUM CORP., et al., Debtors.
Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies, Appellants,
v.
Future Asbestos Claim Representative, Baron & Budd PC, Silber Pearlman, LLP, Official Committee of Asbestos Personal Injury Claimants, Brayton Purcell, Appellees.
In re The Flintkote Co., et al., Debtors.
London Market Insurance Companies, Appellant,
v.
Baron & Budd PC, Silber Pearlman LLP, Appellees.
Bankruptcy No. 02-10429-JKF, Bankruptcy No. 04-11300-JKF, Bankruptcy No. 04-12440-JKF, No. CIV. 04-1496-JJF, No. CIV. 04-1521-JJF.
United States District Court, D. Delaware.
July 28, 2005.
*555 *556 Robert T. Aulgur, Jr., Kristi J. Doughty, Whittington & Aulgur, Odessa, DE, Of Counsel: Phillip R. Matthews, Hancock, Rothert & Bunshoft, San Francisco, CA, Russell W. Roten, Katherine M. Windier, Peter B. Ackerman, Coudert Brothers LLP, Los Angeles, CA, Beverly Weiss Manne, Michael A. Shiner, Tucker Arensberg, P.C., Fred L. Alvarez, Mona M. Stone, David C. Butman, Lord, Bissell & Brook LLP, Chicago, IL, for Appellants, Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies.
Kathleen M. Miller, Smith, Katzenstein & Furlow, LLP, Wilmington, DE, Of Counsel: Alan B. Rich, Baron & Budd, P.C., Dallas, TX, for Baron & Budd, PC and Silber Pearlman, LLP (in appeal from the Kaiser Aluminum Order).
Daniel K. Hogan, The Hogan Firm, Wilmington, DE, Of Counsel: Sander L. Esserman, David A. Klingler, Stutzman, Bromberg, Esserman & Plifka, Dallas, TX, for Baron & Budd, PC and Silber Pearlman, LLP (in the appeal from the Flintkote Order).
*557 OPINION
FARNAN, District Judge.
Pending before the Court is an appeal from the October 22, 2004 and the October 25, 2004 Revised Orders Requiring Filing of Statements Pursuant to Fed. R. Bankr. P. 2019 (the "Revised 2019 Orders") issued by the United States Bankruptcy Court for the District of Delaware in the Flintkote Co., et al. ("Flintkote") and Kaiser Aluminum Corp., et al. ("Kaiser") bankruptcy cases. For the reasons discussed, the Court will affirm the October 22, 2004 and October 25, 2004 Revised 2019 Orders issued by the Bankruptcy Court.
I. PARTIES' CONTENTIONS
By their appeal, Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies ("Appellants") contend that the Bankruptcy Court erred in issuing Revised 2019 Orders in the Kaiser and Flintkote bankruptcies which (1) did not require law firms representing thousands of asbestos personal injury tort claimants in the underlying bankruptcy cases to file their powers of attorney or other empowering documents, and (2) made the information submitted pursuant to the Revised 2019 Orders unavailable on the public docket, except upon motion by a party and order of the Bankruptcy Court. Appellants contend that the Revised 2019 Orders are appealable as final orders or appealable under the collateral order doctrine, because the information sought in the Rule 2019 Orders has bearing upon the plan confirmation procedures and the ultimate fairness of the plan such that review should not be delayed. Appellants also contend that they have standing to bring this appeal. Appellants contend that they are "aggrieved persons" because the Revised 2019 Orders restrict their rights to access the information submitted under the Orders and require them to incur additional expenses to access the Rule 2019 information in the form of a motion before the Bankruptcy Court.
With respect to the substance of the Orders, Appellants contend that the Bankruptcy Court erred in permitting the law firms to file "exemplars" of their empowering documents rather than actual documents. Appellants also contend that the Bankruptcy Court failed to make any factual findings to justify sealing the documents submitted under the Revised 2019 Orders.
In response, Appellees contend that Appellants lack standing to be heard in this appeal, because they are not directly and pecuniarily aggrieved by any aspect of the Revised 2019 Orders. Appellees contend that any injury Appellants might suffer is contingent and speculative. Appellees also contend that Appellants' appeal is not ripe, because they have not moved for and been denied access to the Rule 2019 information by the Bankruptcy Court. With regard to the substance of the Rule 2019 Orders, Appellees' contend that the Bankruptcy Court properly applied Rule 2019 to adhere to the purpose of the Rule, while taking into consideration the complexities of mass tort-related reorganizations.
II. STANDARD OF REVIEW
The Court has jurisdiction to hear an appeal from the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). In undertaking a review of the issues on appeal, the Court applies a clearly erroneous standard to the Bankruptcy Court's findings of fact and a plenary standard to its legal conclusions. See Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir.1999). With mixed questions of law and fact, the Court must accept the Bankruptcy Court's finding of "historical or narrative facts unless clearly erroneous, but exercise[s] `plenary review *558 of the trial court's choice and interpretation of legal precepts and its application of those precepts to the historical facts.'" Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 642 (3d Cir.1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981)). The appellate responsibilities of the Court are further understood by the jurisdiction exercised by the Third Circuit, which focuses and reviews the Bankruptcy Court decision on a de novo basis in the first instance. In re Telegroup, 281 F.3d 133, 136 (3d Cir.2002).
III. DISCUSSION
Appellees have not challenged the finality of the Bankruptcy Court's Revised 2019 Orders. Nevertheless, the Court concludes that under the pragmatic application of the finality concept used in bankruptcy appeals it has jurisdiction to review the Rule 2019 Orders as final orders. As the District Court for the District of New Jersey recognized in Baron & Budd, PC v. Unsecured Asbestos Claimants Committee, 321 B.R. 147, 156 (D.N.J.2005), the information sought by Rule 2019 Orders has an impact on the plan confirmation procedures and the overall fairness of the plan such that it is practical to permit review of the Rule 2019 orders before creditors vote on the confirmation of a plan. Accordingly, the Court concludes that it has jurisdiction to review the Bankruptcy Court's Revised 2019 Orders.
A. Whether Appellants Have Standing To Maintain This Appeal
In the bankruptcy context, standing is limited to "persons aggrieved" by an order of the Bankruptcy Court. In re Combustion Engineering, 391 F.3d 190, 214 & n. 21 (3d Cir.2004). A person is considered aggrieved for purposes of standing if his or her "rights or interests are `directly and adversely' affected pecuniarily by an order or decree of the bankruptcy court." Id. Stated another way, the Appellants must show that the order of the Bankruptcy Court "`diminishes their property, increases their burdens or impairs their rights.'" Id. at 214 (citations omitted). Standing is viewed more restrictively in the bankruptcy context, because bankruptcy proceedings typically involve a myriad of parties who are indirectly affected by every order issued by the bankruptcy court. Id.; In re Fondiller, 707 F.2d 441, 443 (9th Cir.1983).
Applying these principles in the context of this case, the Court concludes that Appellants do not have standing to challenge the Bankruptcy Court's Revised Rule 2019 Orders. As Appellees point out, the Rule 2019 Orders have no effect, unless (1) a plan of reorganization is first conceived, approved by creditors and confirmed, and (2) payment is sought from the Appellants under the respective insurance policies they issued to the Debtors. Appellants direct the Court to Baron & Budd for the proposition that insurers have standing to challenge Rule 2019 orders; however, Baron & Budd involved a plan which was not insurance neutral. 321 B.R. at 159. In Combustion Engineering, the Third Circuit recognized that insurance neutral plans are possible, and that an insurer does not have standing to challenge such insurance neutral provisions of a plan. 391 F.3d at 218. In this case, plans have not yet been conceived, and therefore, any impact that the Revised Rule 2019 Orders may have on Appellants is contingent and speculative.
Appellants also contend that they suffer a current financial impact from the Revised Rule 2019 Orders, because they must file a motion in the Bankruptcy Court to gain access to the Rule 2019 information submitted. The Court is not persuaded *559 that this is the type of direct, pecuniary interest contemplated by the "aggrieved person" test. These incidental costs apply to anyone seeking access to the Rule 2019 information, and if this injury were enough, it would confer standing on anyone to challenge the Rule 2019 Orders. Accordingly, the Court is not persuaded that Appellants have standing to challenge the Rule 2019 Orders at this juncture.[1]
B. Whether The Bankruptcy Court Erred In Issuing Its Revised 2019 Orders
In the alternative, even if the Court concludes that Appellants have standing to challenge the Revised Rule 2019 Orders, the Court concludes that the Bankruptcy Court did not err in permitting exemplars to be filed or in restricting access to the Rule 2019 information.[2] Rule 2019 provides, in pertinent part,
In a . . . chapter 11 reorganization case . . . every entity . . . representing more than one creditor . . . shall file a verified statement setting forth (1) the name and address of the creditor . . .; (2) the nature and amount of the claim . . . and the time of acquisition thereof unless it is alleged to have been acquired more than one year prior to the filing of the petition; (3) a recital of the pertinent facts and circumstances in connection with the employment of the entity . . ., and (4) with reference to the time of the employment of the entity, . . . the amounts of claims or interests owned by the entity . . . the times when acquired, the amounts paid therefore, and any sales or other disposition thereof. The statement shall include a copy of the instrument, if any, whereby the entity . . . is empowered to act on behalf of creditors. . . .
The purpose of Rule 2019 is to ensure that plans of reorganization are negotiated and voted upon by people who are authorized to act on behalf of the real parties in interest. 9 Lawrence P. King, et al., Collier on Bankruptcy § 2019.05[2] (15th ed.2004). It has been recognized that Rule 2019 need not always be strictly applied. Collier on Bankruptcy, supra at § 2019.02, 2019.04[4].
In the Court's view, the Revised 2019 Orders issued by Judge Fitzgerald in this case comport with the requirements of Rule 2019, while taking into consideration the complexities of mass tort litigation. As Rule 2019(b) suggests, the operative portion of the agreements deposited under Rule 2019(a) are the representation provisions. Further, Rule 2019(b) vests the Bankruptcy Court with the discretion to determine whether there has been a failure to comply with the Rule 2019(a) requirements. See Fed. R. Bankr.P.2019(b). *560 Accordingly, the Court concludes that the Bankruptcy Court did not err in requiring exemplars to be filed under Rule 2019 and in concluding that such exemplars were sufficient to demonstrate compliance with Rule 2019.
In addition, the Court concludes that the Bankruptcy Court did not abuse its discretion in declining to post the Rule 2019 information on the electronic docket and making the Rule 2019 information available upon motion of a party and order of the Court. Section 107(a) of the Bankruptcy Code provides:
Except as provided in subsection (b) of this section, a paper filed in a case under this title and the dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge.
Although Section 107(a) evidences a strong desire by Congress to preserve the public's right to access judicial records, that right is not absolute. Video Software Dealers Assoc. v. Orion Pictures Corp. (In re Orion Pictures Corp.), 21 F.3d 24 (2d Cir. 1994). Courts have supervisory power over their records and files and may deny access to those records and files to prevent them from being used for an improper purpose. Nixon v. Warner Comm., Inc., 435 U.S. 589, 597-598, n. 8, 98 S. Ct. 1306, 55 L. Ed. 2d 570 (1978). In this case, the Bankruptcy Court did not seal the Rule 2019 information as Appellants contend, rather, the Bankruptcy Court is regulating access to the information because of privacy concerns related to the electronic case filing system. As Judge Fitzgerald explained in the Owens-Corning bankruptcy in which she entered a Rule 2019 order substantively identical to the Orders at issue here:
This order, in my view, does everything and probably more than it needs to do. It provides for protection of the parties' rights to ask us [for] this information by simply filing a motion with this Court telling me why you want it. And I don't think that's inappropriate. The problem that the Courts wrestle with with electronic case filing is just that. Everything gets spread on the public docket and that is not appropriate. That's not what the electronic case filing system was intended to do where privacy concerns are involved. It was intended to make access to relevant information more widely available to parties.
Docket No. 12968, In re Owens Corning, et al., Case Nos. 00-3837-3854(JFK) at 55 (emphasis added). In the Court's view, Judge Fitzgerald's Rule 2019 Orders strike the appropriate balance between maintaining the public's right to access the Rule 2019 information and ensuring that the information is not misused. Accordingly, the Court concludes that the Bankruptcy Court did not err in declining to post the Rule 2019 information on the electronic docket and in permitting access to that information by motion of the parties and order of the Court.
IV. CONCLUSION
For the reasons discussed, the Court will dismiss this appeal based on Appellants' lack of standing, and in the alternative, affirm the October 22, 2004 and October 25, 2004 Revised 2019 Orders issued by the Bankruptcy Court.
An appropriate Order will be entered.
FINAL ORDER
At Wilmington, this 28 day of July 2005, for the reasons set forth in the Opinion issued this date;
IT IS HEREBY ORDERED that:
1. The above-captioned appeal is DISMISSED.
*561 2. In the alternative, the October 22, 2004 and the October 25, 2004 Revised Orders Requiring Filing of Statements Pursuant to Fed. R. Bankr.P.2019 (the "Revised 2019 Orders") issued by the United States Bankruptcy Court for the District of Delaware in the Flintkote Co., et al. and Kaiser Aluminum Corp., et al. bankruptcy cases, respectively are AFFIRMED.
NOTES
[1] Appellees also contend that this matter is not ripe for adjudication, because Appellants have not moved for and been denied access to the Rule 2019 information. However, the Court is not persuaded that such a motion is a necessary prerequisite to the ripeness of this appeal, because Appellants have challenged that very procedure. Nevertheless, the Court also concludes that this matter is not ripe, because any injury suffered by Appellants is speculative. See e.g. Peachlum v. City of York, 333 F.3d 429 (3d Cir.2003) (requiring party to be genuinely aggrieved to establish ripeness).
[2] See IPSCO Steel (Alabama), Inc. v. Blaine Constr. Corp., 371 F.3d 150 (3d Cir.2004) (concluding that appellant lacked standing, but considering in the alternative the substantive issues raised); Wind River Multiple Use Advocates v. Espy, 85 F.3d 641, 1996 WL 223925 (10th Cir.1996) (collecting cases and recognizing that "[c]ourts routinely make alternative decisions on the merits while simultaneously holding that a plaintiff lacks standing to sue," because "[t]his practice is in the best interest of judicial economy and does not violate the case and controversy requirement of Article III of the United States Constitution"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1501589/ | 47 F.2d 743 (1931)
SACHS et al.
v.
HARTFORD ELECTRIC SUPPLY CO.
SAME
v.
SERVICE ELECTRICAL SUPPLY CO., Inc.
SAME
v.
UNION LIGHT CO.
Nos. 121-123.
Circuit Court of Appeals, Second Circuit.
January 19, 1931.
On Rehearing February 16, 1931.
*744 Oscar W. Jeffery and Harry G. Kimball, both of New York City, and S. J. Teller, of Hartford, Conn., for plaintiffs.
Walter F. Murray and Frank L. Zugelter, both of Cincinnati, Ohio, for defendants.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
L. HAND, Circuit Judge.
These three suits were tried and decided together, and the appeals were taken and argued at the same time. They concern three patents issued to Joseph Sachs, and all cover devices for housing electrical switches and fuses, and their wiring. The first was to keep inclosed against interference by unauthorized persons everything except the fuses which lead from an electrical meter to the fixtures which consume the current. These will at times blow out, and it is convenient that the customer shall have access to them, so that he may put in new ones. Everything else ought to be beyond his power to reach, both for his own safety, and because he might otherwise steal the current by by-passing the meter. The wires leading to the meter, their switches and the fuses which are often put there as well, are called the "service-side" of the installation; the wires leading from it, including the switches and fuses always put on this side, are called the "load-side."
The first patent disclosed a metal box which contained the "service-side" wires with knife-blade switches, which could be actuated from outside the box, fuses carried by the blades, and holes in the blades, expressly provided for use in testing the meter, of which more hereafter. These were housed in the upper part of the box which the meter surmounted. *745 A little more than midway down the box was a solid horizontal partition through which the "load-side" wires passed to the "load-side" switches, also knifeblades, carrying fuses on their blades, on which there were also terminal testing holes. When the front was open, the box thus presented two compartments unconnected, except where the "load-side" wires passed through the horizontal partition. Over the whole front the patentee placed a metal cover to be locked in place, which would keep out any one who did not have the key or break the seal, except that opposite the "load-side" fuses there were holes in the cover of substantially the same bore as the fuses, through which they passed and which made them available to the consumer in case of a blow-out. He could not, however, reach anything but these, and this was one object of the invention.
Meters must be tested and during the test the consumer must still be supplied with current. This is done by attaching a wire, called a "jumper," from a "service" to a "load-side" terminal, thus by-passing the meter. The test meter is then put into the circuit; for this it is necessary that there be a gap, which may be on the "load-side," and perhaps also on the "service-side" (Swallow & McCoy, 927,384), though this the plaintiff denies. As we have said, the patent discloses switches in both "service" and "load-side," whose movable blades carry fuses; in these blades there are the holes to which the "jumper" can be plugged, after which both switches can be opened without interruption of the circuit, with both fuses still in place for purposes of safety. The testing meter is, normally at any rate, inserted in the gap caused by opening the "load-side" switch. The disclosure thus provides specific means for testing.
Of the prior art we need consider only the patent to Wurdack, 1,041,398, his catalogue, and the so-called "Baltimore Use." Taking up the last first, we may dismiss it, since it was not a single housing containing the "load-side" fuses with the "load-side" switch and the "service-side" fuses. Again, it had no "service-side" switch at all, and while this may not have been necessary, the patent prescribed it and the defendant has seen fit to use it. If there was anything of merit in the invention, it consisted in assembling all the switches, fuses and wires into one compact housing. This had been tried several times before, and when Sachs succeeded, as he did, in producing a unitary device, portable as such, with all the necessary details, which gained a very extraordinary popularity, it seems to us that the testimony of the past overcomes any inherent doubts we might have, based upon the apparent ease and inevitability of the changes he made. We should have to disregard settled doctrines to treat the installation at Baltimore as an anticipation.
Wurdack's patent is closer, and with his catalogue, the nearest in the record. We have held catalogues to be printed publications within the statute, when their distribution is adequately proved, Jockmus v. Leviton, 28 F.(2d) 812; and while the evidence here leaves something to be desired, we are content to accept the catalogue as a reference. It disclosed a single housing with a cover which could be taken off, exposing the whole inside. In the cover was a door which the consumer might open, and which made accessible the "load-side" fuses, eight in number. It however also showed some of the terminals, and was not, like Sachs', confined to the fuses alone. This of itself would not have been important, as appears in our consideration of the third patent, but it was possible for a person, expert in such matters, to make attachment between a "load-side" and a "service-side" terminal and so by-pass the meter, stealing the current. This would have been a troublesome job, no doubt, and often unsuccessful, but the possibility was there, whose avoidance may well have had something to do with the success of the patent in suit. It is true that it would have been a simple thing to put a horizontal partition above the "load-side" fuses, which would have prevented access to the "service-side" terminals. However, we cannot judge an invention by the case with which the prior art may be changed, once the idea is conceived. It seems to us that the absence of the partition assumes importance if one considers the relative success of the two disclosures. Wurdack's housing was not accepted; Sachs' has gone into immense use.
Be this as it may, there was no provision for testing the meter in either Wurdack's patent or his catalogue. That it was possible to make a test with his device is probably true. Terminals could be found to which the "jumper" could be attached, and a gap could be made by the "service-side" switch in which a testing meter could be inserted. But there was no "load-side" switch for that purpose, and while we are not clear why it could not be inserted in the "service-side," the patent disclosed it in the other form, and the defendant has followed the disclosure. Wurdack's *746 invention did not therefore have any means for testing, but left this to the ingenuity of the trade. It does not appear that this was so obvious as to make the specific provision for it a mere redundancy, or a matter of convenience. Even so, no one had thought to do it before. It seems to us therefore that the earlier efforts which did not go so far, and the surprising success of the patent, ought to overcome any doubts arising from the apparent simplicity of the changes, at least against literal adoption such as the defendant's.
There remains the question of the disclaimers. Pending the suit the plaintiff filed a disclaimer to claims seven and ten, so as to exclude from them all but devices in which the "load-side" switch contained a fuse which should alone be accessible without opening the door. The figures showed this and the specifications described it in this way (page 1, lines 55-57; page 2, lines 53-58; page 3, lines 100-103; page 4, lines 53-62; lines 108-114). We doubt that the disclaimers were necessary at all; claims seven and ten in saying that the "service-side unit" was to be "inaccessible while permitting access to the fuse of the `load-side' unit" could by implication mean that the rest of the "load-side" was inaccessible. It is quite true that more than the fuses was shown to be accessible in some of the figures, but some, especially, of the language cited (e. g., lines 53-58; page 3, lines 100-103; page 4, lines 111-114), seems to indicate that one form was intended to prevent a customer from reaching anything but the fuse. When the specifications themselves distinguish between alternative forms, the patentee may disclaim one. Strause Gas Iron Co. v. Crane Co., 235 F. 126 (C. C. A. 2); Permutit Co. v. Harvey Laundry Co., 279 F. 713 (C. C. A. 2); Permutit Co. v. Wadham, 13 F.(2d) 454 (C. C. A. 6); Campbell Metal Window Corp. v. Pomeroy (D. C.) 300 F. 872.
The disclaimer to claim four adds another feature which appears to mean no more than that the "load-side" switch shall carry a fuse which is not disturbed by the movement of the blade. This was the only form shown in the drawings, and the switch was so described. It was disclosed as like the "service-side" switch (page 5, lines 31-36), and the "service-side" switches were to carry fuses on their blades (page 4, lines 127-128). The specifications in the passage cited do indeed say that other switches may be used, but the disclaimer goes no further than to limit the claim to the disclosure, abandoning any implied and undescribed scope. We think the patent valid and infringed and we affirm the decree below.
The next patent was for certain details of the mechanism within a housing for a switch and its fuses. It concerned the connection between a switch blade and a bail bar to throw the blade in and out, the bail being in turn moved by a handle outside the box. The bail bar was connected with the blade by a link of fibrous or other insulating material, but in such wise that the blade might have some side play, so as to accommodate itself for sure entrance into its clip to make the circuit. The specifications described the link as rigidly fixed to the blade with an open hook at its other end to engage the bail loosely, but they defined the invention vaguely as covering either a loose connection between link and bar, a loose connection between link and blade, or a loose connection at both ends of the link (page 2, lines 117-129). The main purpose seems to have been to avoid the familiar cross-head between several blades or links from such blades, which moved the blades together, and which allowed no relative movement between them. This apparently interfered, or was thought to interfere, with the proper seating of a blade if it did not exactly register with its clips. For this reason the blades were held independently and had each its own motion laterally.
There were a number of earlier efforts in the art of like kind. Hope's British patent, 4,397, of 1908, showed a slotted link pivoted on the blade, and by the slot loosely coupled to the handle which threw the switch. In Railing's British patent, 26,009, of 1910, the handle moved the blade at its own pivot, being attached to an axled block to which the blade was also attached, the block being loosely mounted upon the axle. In Wirt, 801,288, two switch blades were loosely connected by a cross-bar near their swinging end which allowed them some accommodation relatively, unlike a cross-head. In Levin, 1,370,656, the blade was loosely engaged near its pivot by a block which was attached to the handle. Each blade thus got independent lateral play to accommodate itself to its clips. Horton, 1,407,416, adds nothing to the rest.
Of the claims in suit, 20 and 21 prescribed that the link should be fixed to the blade, and the disclaimer by the words, "rigidly and fixedly secured," added nothing except to claim fourteen. However, it was valid as to that claim, since the specifications had clearly disclosed alternative constructions, and the situation is like that as to the *747 first patent. In so far, however, as the disclaimer limited the claims to a bail bar which went across the blades, and to a link with an open end, we may assume, though we do not decide, that it was invalid, on the theory that these, though disclosed, are nowhere claimed in the specifications as a constituent part of the invention. However, we do not see that these limitations were in any sense necessary to escape the prior art. A disclaimer is to abandon some part of the invention of which the patentee is not "the first and original inventor." If he has claimed originally too much, so that the claims are invalid under the prior art, the part disclaimed must be clearly separate in the body of the specifications; if he wishes to recast the whole, he must go to a reissue. But there is no objection to his limiting a valid patent as his fears may dictate; that does not make valid what would be invalid without it. It is a timorous retreat from positions which he could have successfully maintained. We can therefore disregard all of the disclaimer except so much as was necessary to limit claim fourteen, and so much was valid.
The distinction between a link fixed to the blade and what the art had known is not indeed very great, but it was a hitherto unknown variant in a field where as we have seen there had been much experimenting. Whether it was useful or not we need not inquire; the defendant chooses to employ it. The trade has accepted it generously, and we see no reason why the inventor should not keep others out of the narrow confines to which he has withdrawn. The decree is reversed as to the second patent.
The third patent is for a housing for a fusible switch, the invention this time being in an automatic lock to keep the fuses inaccessible while the switch blades bridge their gap, and to allow the consumer to reach them, when they do not. Over the fuse opening in the cover, into which the fuses project, a smaller cover is hinged which must be closed to allow an outside handle that moves the inner bail bar to be swung into closing position. This handle crosses the whole box on the outside, sweeping across the fuse outlet. As the closing movement of the handle is from the hinged side of the cover, the cover when open blocks the passage of the handle, but when closed, allows it to pass above it, locking it in place and closing the switch at the same time. The fuse block completely fills the opening in the main cover.
The defendant's box is of different construction; the cover which gives access to the fuses slides in grooves on the inside of the front, and an inside bail bar, which moves the switches, stops its opening when the blades are swung into place. When the blades open, the bail bar is disengaged, and the consumer is free to slide the cover down and open the fuses for examination or replacement. In its manufacture the plaintiff has adopted this form, rather than the disclosure of the patent.
It seems to us that, if construed in the sense needed to cover the defendant's devices, the claims are invalid, though taken verbally they would serve. Kries' patent, 1,224,880, was for a box in which the fuses were in one compartment and the switches in another, separated by a solid partition. The switch handle locked the hinged cover over the fuses when the blades closed the circuits, but unlocked it when they did not. This is the defendant's operation. The plaintiff argues that the reference is not good, because the fuse block did not fill the opening through which the fuses projected, and this is true; but it does not seem to us invention to shape the main cover so as to expose only the fuses, or to make the fuse block fill the space. Cole, 1,135,358, showed a somewhat similar device in which the cover opened and closed the switch. It was quite different in mechanism, and we are aware that it is in general not enough to pick here and there from the art and so anticipate an invention. On the other hand the plaintiff is trying to push the disclosure beyond what Sachs described. Before giving it the needed scope, we must see how far the generic ideas were already known. Everything was in the art except the detail we have mentioned, and while it is always embarrassing to know when the new feature should prevail, there must come an end to what we can call invention merely because it is new. Exhibit 20, one of the supposed infringements, shows how the main cover itself can be depressed so as to cover all but the fuse outlets. It appears to us to make no difference whether the result is accomplished in that way, or by building the base block so that it fills the opening. These are alternatives optional with any designer.
Jessen's patent, 1,209,445, answers verbally better than Kries, barring the fact that it is the edge of the fuse block which "cooperates" with the cover. However, it was of quite another design and seems to us in *748 structure less like the defendant's switches than Kries. Hill, 1,373,656, is very like Kries except that it was possible to reach one terminal of the switch, which might be the live end. Again, we can see no invention in bringing forward the fuse block, so that the fuses fill the space, or in making the opening small enough to expose only them. These references at any rate struck close around the target, and while that is ordinarily rather proof of the aim of him who makes the hit, it may be relevant to limit the extent of his victory. We do not hold the patent invalid, but it seems to us too narrow to cover the defendant's boxes. The decree upon the third patent is affirmed.
We have not dealt with the defendant's argument that the first patent is for an "aggregation." Frankly, we are unable to attach a definite meaning to that word. The notion that the parts of an invention must co-operate is certainly very persisting in the patent law, and it must correspond to some underlying idea. So far as it means that the whole complex claimed must be a unit in use, each part of which shall be necessary to the common result, we can understand it. So far as it rests upon an implied reference to mechanics, that is, that each part must give or take a strain, it seems to us a false lead. The test is more practical than that, because inventions are to answer human needs, and the elements may be mechanically inert. The cooperation of the means necessary to create an invention is to be measured by the purpose to be fulfilled, not by the interaction of the parts. Each factor must indeed be a condition to that result, but the whole may be a mere assemblage; the co-operation between them all may be no more than their necessary presence in a unit which shall answer a single purpose. Therefore, we can find little advantage in a discussion of what is or what is not an "aggregation." In patents, as in other branches of the law, the question is of the interests involved; inventions depend upon whether more was required to fill the need than the routine ingenuity of the ordinary craftsman. Such a standard is no more of a will-o'-the-wisp than others which the law adopts, reasonable care, reasonable notice and the like; the effort is to fix that standard by recourse to average propensities, dispositions and capacities. Any attempt to define it in general terms has always proved illusory; it is best to abandon it.
The decree upon the first patent is affirmed; those upon the second are reversed; those upon the third are affirmed.
On Petition for Rehearing.
PER CURIAM.
On the merits we see nothing to add to what we have already said except as to Horton's patent, 1,407,416, which we dismissed by saying merely that it added nothing to the others. In February, 1915, Sachs had completed drawings of the invention which later appeared in patent No. 1,292,081, and these he put in proof. They bear the date, were properly authenticated, and are unimpeachable as evidence. They antedate Horton's application, which was filed on March 24, 1915, though Sachs' model was completed later. Indeed, his drawing of December, 1914, would probably have been enough alone. Unless Sachs unreasonably delayed the prosecution of his application, this proof was enough. Automatic, etc., Co. v. Pneumatic Scale Corporation, 166 F. 288 (C. C. A. 1). That is a matter which must be pleaded by special notice (U. S. Code Tit. 35, § 69 [35 USCA § 69]), and the answers do not contain anything of the sort. It has not been argued before us, and, so far as we can see, it was not mooted at the trial. We decline to consider it.
However, we did not dispose of the question of costs. Three suits were before us; No. 1911, against the Hartford Electric Supply Company on patent 1,292,081, and patent 1,301,175; No. 1912, against the Service Electrical Supply Company, on patent, 1,292,081, and patent 1,294,176; No. 1913, against the Union Light Company on patent 1,292,081, and patent 1,294,176. Pending the suits the plaintiff filed disclaimers in the District Court as to certain claims in 1,301,175 and 1,292,081, but not as to 1,294,176. The plaintiff succeeded in the District Court in No. 1911 as to 1,301,175, but failed as to 1,292,081, and was awarded no costs. Both sides appealed, and we have affirmed the decree as to 1,301,175, and reversed it as to 1,292,081. By the weight of authority, the plaintiff should be allowed its costs in this court. Kahn v. Starrels, 136 F. 597 (C. C. A. 3); Johnson v. Foos Mfg. Co., 141 F. 73, 89 (C. C. A. 6); Excelsior, etc., Co. v. Williamson, etc., Co., 269 F. 614, 619 (C. C. A. 6); Bankers' Utilities Co. v. Pac. Bank, 22 F.(2d) 680 (C. C. A. 9); Excelsior, etc., Co. v. Meyer, 36 F.(2d) 447, 450 (C. C. A. 7). The Third Circuit decided to the contrary in Novelty Glass Co. v. Brookfield, 172 F. 221, but without notice of its earlier decision in Kahn v. Starrels, supra. The situation may be different, when the disclaimer is made of a claim first held invalid upon appeal. *749 Liquid Carbonic Co. v. Gilchrist Co., 253 F. 54, 58, 59 (C. C. A. 7).
This seems to us in principle correct, because the plaintiff, having put itself in the District Court in a position to demand a decree upon both patents, was forced to prosecute its appeal as to patent 1,292,081, and defend the defendant's appeal as to patent 1,301,175, in order to secure and defend its rights. The claims in suit were free from invalidity after the disclaimer, though invalid when the suit was brought, because of the matter disclaimed. There is no reason why the mistake so corrected should any longer deprive it of re-imbursement for the necessary costs of maintaining its position; and the statute does not demand so much. We allow to it the costs in this court; it will take no costs in the District Court.
In No. 1912 the plaintiff succeeded on the appeal as to patent 1,292,081, but failed as to patent 1,294,176. There should therefore be no costs of this appeal. The defendant should have costs in the District Court; this because the plaintiff could not in any event have costs in that court as to patent 1,292,081, and because the defendant has succeeded as to patent 1,294,176. The plaintiff's success as to patent 1,292,081 should not offset the defendant's as to patent 1,294,176, in view of its commencement of the suit as to patent 1,292,081, at a time when strictly it was not entitled to sue upon that patent; the claims in suit being invalid without disclaimer.
The same disposition should be made of No. 1913.
Settle mandate in accordance with the foregoing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1503046/ | 366 F. Supp. 1395 (1973)
Renee TUNHEIM et al., Plaintiffs,
v.
Loretta BOWMAN, Individually and as Clerk of the Eighth Judicial District Court of Clark County, Nevada, et al., Defendants.
Civ. No. LV-2000.
United States District Court, D. Nevada.
November 29, 1973.
*1396 ORDER DISMISSING ACTION AS TO DEFENDANT BROWN
BRUCE R. THOMPSON, District Judge.
The case is before the Court on the motion of defendant Jay H. Brown, an attorney, to dismiss the action as to him. Inasmuch as in presenting and opposing the motion, the parties have relied on matters outside the Complaint, particularly the deposition of Jay H. Brown, the motion should be treated as one for summary judgment. Section 12(b), Federal Rules of Civil Procedure.
The motion to dismiss on behalf of defendant Brown is predicated on the contention that an attorney at law, acting in a professional capacity on behalf of his clients in enforcing the clients' presumed rights, does not incur liability under the Civil Rights Statutes if another's civil rights are violated pursuant to his advice. We conclude that the principle is properly to be applied in this case.
It should be recognized, first, that a private individual, availing himself of the provisions of an unconstitutional state statute, acts "under color of law" despite the fact that he benefits in no other way from State aid and that no State officer has participated in his utilization of the statute. Klim v. Jones, 315 F. Supp. 109, 114 (D.C.Cal.1970). The question here presented is whether that individual's attorney, representing him in litigation pursuant to the statute, also acts "under color of law."
The case of Brown v. Dunne, 409 F.2d 341 (7th Cir. 1969), involved a dispute over the property of an incompetent. Plaintiff Sarelas, claiming to have a power of attorney from the incompetent, and plaintiff Brown, a former nurse of the incompetent, challenged the actions of Nurse Vaseka and her attorneys in seizing and holding the incompetent's property pursuant to process issued by the Clerk of Cook County, Illinois, under the authority of the State's Administration of Estates Act. The plaintiffs brought an action under 42 U.S.C. § 1983 against the clerk, magistrate and judge of the state court and against Vaseka's attorneys, charging that the Administration of Estates Act was unconstitutional and charging that defendants' actions pursuant to the Act deprived plaintiffs of their constitutional rights "under color of law."
The Seventh Circuit affirmed the District Court's dismissal of the complaint against all defendants and held, with regard to the action against the attorneys, that those defendants "* * * under the facts alleged are lawyers who participated in the [state] Circuit Court in private litigation, and consequently are not state functionaries within the meaning of the Federal Civil Rights Act." Brown, supra, at 343-344. In the present case, as in Brown, the defendant is an attorney who represented a client in private litigation allegedly pursued to judgment by unconstitutional means. Although a private individual acting alone under an unconstitutional state statute acts "under color of law," Brown demonstrates that the individual's attorney representing him in litigation under that statute does not, based solely on that attorney-client relation, act "under color of law."
*1397 Brown represents the established position on this question. See: Meier v. State Farm Mut. Ins. Co., 356 F.2d 504 (7th Cir. 1966), cert. den. 385 U.S. 875, 87 S. Ct. 151, 17 L. Ed. 2d 102; Sarelas v. Porikos, 320 F.2d 827 (7th Cir. 1963), cert. den. 375 U.S. 985, 84 S. Ct. 519, 11 L. Ed. 2d 473; and Grubbs v. Slater, 144 F. Supp. 554 (D.C.Ky.1955). The Ninth Circuit has reached similar holdings in cases where prisoners have attacked the services of their defense attorneys in subsequent 1983 actions: Szijarto v. Legeman, 466 F.2d 864 (9th Cir. 1972), and Sinclair v. Spatocco, 452 F.2d 1213 (9th Cir. 1971).
What distinguishes the private individual who acts "under color of law" from his attorney who doesn't? According to Jones v. Jones, 410 F.2d 365 (7th Cir. 1969), this distinction rests on the fact that the individual employing the statute is a "party in interest" to the litigation and the attorney is not. Jones dismissed a 1983 action against attorneys who had represented the plaintiff's wife in allegedly unconstitutional litigation, holding that "lawyers who are not also parties in interest and are engaged in private litigation on behalf of clients do not act under color of state law within the meaning of 42 U.S.C. § 1983." Jones, supra, at 366. (Emphasis added.)
What is Brown's interest in the confession of judgment proceedings? Brown has an interest of some kind stemming from the fact that he is paid by the client for his services in the confession of judgment proceedings. It should also be noted that the debtor signing the confession of judgment agrees to pay a sum beyond the amount of his debt as attorney's fees if he defaults in his payments.
It is, nevertheless, well established that an attorney acquires no interest in litigation merely by reason of his receipt of fees for his services rendered therein. Clark v. United States, 57 F.2d 214 (W. D.Mo.1932):
"He [the attorney] is interested in it [the case] professionally, but in no sense as a party to it. He has no present pecuniary interest in the subject-matter. The fact that he has a right by contract to participate in the proceeds of any judgment that may be obtained does not make him in any true sense of the word a party in interest." Clark, supra, at 215-216. (Emphasis added.)
Clark makes reference to a decision of the Ninth Circuit reaching a conclusion contrary to its own. Chetkovich v. United States, 47 F.2d 894 (9th Cir. 1931), was a per curiam opinion limited to the holding that a party could not sue in forma pauperis if his attorney had a contingent fee interest in the cause of action unless the attorney also was a pauper unable to pay the costs of the action. Chetkovich was subsequently overruled in Deadrich v. United States, 67 F.2d 318, 319 (9th Cir. 1933).
But we are not here dealing with an attorney's interest so closely tied to litigation as in a contingent fee arrangement. The strongest link between Brown and the confession of judgment action is that the judgments require that the debtor pay the creditor an amount in compensation for the creditor's expenses in pursuing the judgment. This provision of damages belongs to the plaintiff-creditor, not his attorney:
"The right to attorneys' fees awarded as damages because incurred in litigation against third persons resulting from defendant's wrongful acts, belongs to the party, and not to his attorney. This rule is generally applicable in state as well as federal courts in any type of action in which such damages are awarded." Vol. 1, Speiser, Attorneys' Fees, § 13:5.
Plaintiffs outline other facts associating Brown with the confession of judgment actions:
1. Brown neither checked on CBC's procedures for getting debtors to agree *1398 to the confessions of judgment nor outlined for CBC what such procedures should include.
2. Brown never checked the confessions of judgment forwarded to him to determine whether they were based on valid assignments.
Plaintiffs cite no authority indicating that these allegations, if true, would give Brown an interest in the confession of judgment proceedings or otherwise render his actions "under color of law."
It may seem anomalous that an attorney, trained in the law, does not act "under color of law" when he participates in unconstitutional judicial procedures which damage another, while, at the same time, his client is chargeable with conduct under color of law, but, on reflection, the reason for the distinction is clear. Absent a direct interest of the attorney in the litigation, it is only the client who stands to profit from procedures in deprivation of another's civil rights, and it is appropriate that he should be held, in a proper case, to respond in damages. An attorney acting only in a professional capacity cannot be held to judge at his peril with respect to the decision of difficult questions which divide the courts and provoke debate among legal scholars.
The standard to be applied in assessing a motion to dismiss is whether there is, beyond doubt, no fact which plaintiff could prove entitling him to relief. York v. Story, 324 F.2d 450, 453 (9th Cir. 1963); Ouzts v. Maryland Nat's Ins. Co., 470 F.2d 790, 792 (9th Cir. 1972). Even under this strict standard, we conclude that plaintiffs present no facts which, if proved, would entitle them to relief against Brown. Accordingly, it hereby is ordered:
Summary judgment is hereby granted dismissing the action as to defendant Jay H. Brown. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1504053/ | 44 F.2d 184 (1930)
ZIP MFG. CO. et al.
v.
PEP MFG. CO.
No. 815.
District Court, D. Delaware.
October 24, 1930.
Ayres J. Stockly, of Wilmington, Del., and Edmund Rogers, of Cleveland, Ohio, for plaintiffs.
Ward & Gray, of Wilmington, Del., and Albert C. Nolte (of Moses & Nolte), of New York City (James N. Catlow, of New York City, on the brief), for defendant.
NIELDS, District Judge.
This is a motion by the defendant for an injunction staying the trial of this suit until arbitration of the issues involved has been had.
The bill of complaint charges the defendant with infringement of United States letters patent No. 1,353,197, for the manufacture and sale of a certain grinding compound, and prays the usual relief. On the filing of the bill the plaintiff filed a motion for a preliminary injunction with supporting affidavits. Before the hearing on this motion the defendant moved the court that proceedings in the suit be stayed pending arbitration of the issues involved, in accordance with the terms of a certain agreement in writing between the parties to this suit. This agreement embodies the terms of settlement of another and earlier patent suit involving the infringement by the defendant of the same patent which is the basis of the suit brought in this court. The arbitration provisions of the agreement are as follows:
"(10) It is expressly stipulated and agreed that Second Parties [plaintiffs in this suit] do not regard the grinding compound which First Party [defendant in this suit] is at present manufacturing and selling (a specimen of such compound in a sealed container to be at once furnished Second Parties by First Party) to be an infringement of the aforesaid Letters Patent No. 1,353,197, or any Letters Patent owned by Second Parties, or any of them, and that Second Parties will make no objection to the continued manufacture *185 and sale of such compound; furthermore, in case First Party should hereafter change its present non-infringing compound to one which Second Parties regard to be an infringement of a patent owned by them, or any of them, the question of validity and infringement shall be determined by arbitration, as hereinafter provided, and at the same time should infringement be held to have occurred, it shall be determined by the same arbitration what royalty shall be paid by First Party in lieu of profits or damages for the manufacture and sale of such compound, and First Party shall have the right to continue such manufacture upon condition that it account for and pay such royalty monthly thereafter."
"(11) In the event the parties hereto shall disagree as to any of the terms or the interpretation thereof, or the respective obligations of the parties hereunder, then such question shall, at the request of either party, be submitted to arbitration in accordance with the provisions of the now existing Statutes of the State of New York in such case made and provided."
This motion is made under section 3 of the United States Arbitration Act of 1925 (43 Stat. 883, 9 USCA § 3). The title of that act and sections 2 and 3 (9 USCA §§ 2, 3) read:
"An act to make valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts, maritime transactions, or commerce among the States or Territories or with foreign nations."
"§ 2. That a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."
"§ 3. That if any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."
Section 1 (9 USCA § 1), after defining the terms "maritime transactions" and "commerce," excepts from the operation of the act certain contracts of employment not pertinent to be here considered.
Section 2 (9 USCA § 2) describes the provisions and agreements for arbitration that may be enforced. Section 3 and sections 4 and 5 (9 USCA §§ 3-5) provide two steps for the enforcement of the provisions and agreements for arbitration described in section 2 of the act. Section 3 affords injunctive relief by empowering the court to stay the trial of an action brought in a court of the United States until arbitration has been had. The relief afforded under section 3 may be adequate, for, after such stay, the parties may perform their agreement to arbitrate. If not, further relief is afforded under the provisions of sections 4 and 5.
The Federal Arbitration Act was modeled after the New York Arbitration Act (Consol. Laws, c. 72). Section 5 of that act provides for a stay of proceedings brought in violation of the arbitration agreements described in section 2 of the act. In each statute section 2 describes the arbitration agreements that are enforceable by stay of proceedings and specific performance.
It is quite true that the word "issue" in section 3 contained in the phrase "any issue referable to arbitration" and "the issue involved in such suit" is not defined or qualified by other words in that section. However, the word "issue" in section 3 is used interchangeably with the word "controversy" in section 2. "Issue referable to arbitration" in section 3 is the "controversy" in section 2, which the parties have agreed to settle by arbitration. As "controversy" in section 2 is confined to issues arising in commerce or maritime transactions, the same limitation attaches to the word "issue" in section 3. It is an accepted rule of statutory construction that each section of an act is to be construed with every other section and all sections are to be considered parts of a connected whole, and harmonized, if possible, so as to give effect to the intention of the lawmakers. 25 Rawle C. L. 1009, § 248. I am satisfied that the "agreement in writing" for arbitration referred to in section 3 is limited by the provisions of section 2. In this suit the controversy arises out of the alleged infringement of a patent. The provision in the agreement of the parties dated March 16, 1929, "that the *186 question of validity and infringement shall be determined by arbitration," relates to a controversy involving neither commerce nor a maritime transaction, as defined in the act, and therefore is not enforceable under the Federal Arbitration Act.
The foregoing construction of the act is fortified by a consideration of the legislative history behind the statute and of the circumscribed class of disputes adapted to arbitration. The legislative history behind arbitration statutes and the character of the tribunal substituted for the courts clearly indicate that it was the intention of Congress that the Federal Arbitration Act should be confined to agreements for the arbitration of disputes arising in commerce and in maritime transactions. The federal statute was passed in response to a demand from commercial bodies. The sponsor of the bill submitted to Congress was the Committee on Commerce, Trade and Commercial Law of the American Bar Association. The tribunal substituted for the courts is primarily adapted to settle business disputes. In an article on the Federal Arbitration Law in 12 Virginia Law Review, 265, 281, Mr. J. H. Cohen, who for many years has taken an active part in advocating arbitration legislation in this country, says:
"Not all questions arising out of contracts ought to be arbitrated. It is a remedy peculiarly suited to the disposition of the ordinary disputes between merchants as to questions of fact quantity, quality, time of delivery, compliance with terms of payment, excuses for non-performance, and the like. It has a place also in the determination of the simpler questions of law the questions of law which arise out of these daily relations between merchants as to the passage of title, the existence of warranties, or the questions of law which are complementary to the questions of fact which we have just mentioned."
The determination of the status of a patent, its validity or invalidity, its infringement or noninfringement, is a matter that is inherently unsuited to the procedure of arbitration statutes.
Defendant suggests that the word "contracts" in the title of the act indicates that sections 3, 4, and 5 of the act are not confined to agreements to arbitrate controversies arising from commerce or maritime transactions as defined in sections 1 and 2. Section 2 of the bill (S-1005), as referred to the Committee on the Judiciary of the Senate, read as follows:
"Sec. 2. That a written provision in any contract or maritime transaction or transaction involving commerce to settle by arbitration any controversy thereafter arising between the parties out of such contract or transaction, or the refusal to perform in whole or in part thereof or an agreement in writing to submit to arbitration any existing controversy arising out of such a contract, transaction or refusal shall be valid, irrevocable and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract."
The Senate Committee struck out the word "contract," but made no change in the title of the act, and on May 14, 1924, reported section 2 in the amended form in which it was finally passed, viz.:
"Sec. 2. That a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy arising out of such a contract, transaction, or a refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at Law or in Equity for the revocation of any contract." (Senate Report No. 536, 68 Cong. 1 Sess.)
Whatever meaning attached to the word "contracts" in the title of the act was nullified when the word "contract" was eliminated, by way of amendment, from the body of the act.
The motion to stay proceedings will be denied, and the cause will proceed in the usual course on the merits. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1504066/ | 44 F.2d 410 (1930)
HOUCK
v.
GENERAL MOTORS ACCEPTANCE CORPORATION.
No. 6301.
District Court, W. D. Pennsylvania.
October 9, 1930.
Kountz & Fry, of Pittsburgh, Pa., for plaintiff.
Arthur B. Van Buskirk and Reed, Smith, Shaw & McClay, all of Pittsburgh, Pa., and John Thomas Smith, of New York City, for defendant.
GIBSON, District Judge.
The bankrupt was engaged as a dealer in automobiles in Allegheny county, this district. In 1929, it ordered seven automobiles from the Buick Motor Company of Flint, Mich. Pursuant to the order the Buick Motor Company shipped the automobiles by a common carrier to Pittsburgh, Pa., and forwarded a bill of lading therefor, with sight draft attached for 10 per cent. of the invoice price, to a bank in this county. At or about the same time the manufacturer, the Buick Motor Company, executed and delivered to the General Motors Acceptance Corporation, the defendant, a bill of sale for the automobiles. The sales company, the bankrupt, then went to the bank and paid the sight draft for the 10 per cent. of the invoice price, signed a promissory note to the order of the General Motors Acceptance Corporation for the remaining 90 per cent. of the invoice price, and executed a certain trust receipt which it delivered to the bank as agent for the General Motors Acceptance Corporation. The trust receipt was in the following form:
*411 "Trust Receipt.
"Received of General Motors Acceptance Corporation the Motor Vehicles described above.
"I (we) hereby acknowledge that said Motor Vehicles are the property of said General Motors Acceptance Corporation and agree to take and hold the same, at my (our) sole risk as to all loss or injury, for the purpose of storing said property; and I (we) hereby agree to keep said Motor Vehicles brand new and not to operate them for demonstrating or otherwise, except as may be necessary to drive said Motor Vehicles from freight depot or from above city to my (our) place of business with all due care at my (our) risk en route against all loss and damage to said Motor Vehicles, Persons or Property, and except as I (we) may be allowed by you in a special case to use the same for demonstrating upon our compliance with the conditions expressed in your instructions to us, and to return said Motor Vehicles to said General Motors Acceptance Corporation or its order upon demand; and pay and discharge all taxes, encumbrances and claims relative thereto. I (we) hereby agree not to sell, loan, deliver, pledge, mortgage, or otherwise dispose of said motor vehicles to any other person until after payment of amounts shown on Dealer's Record of Purchase and Release of like identification number herewith. I further agree that the deposit made by me (us), in connection with this transaction, may be applied for reimbursement for any expense incurred by General Motors Acceptance Corporation, in the event of breach of this Trust or repossession of said Motor Vehicles.
"It is further agreed that no one has authority to vary the terms of this Trust Receipt.
"Executed this ______ day of ______, 19__ at ______
"Witness ________ ________
(Dealer)
"By ___________
"(Official Title of Company)."
After payment of the sight draft, execution of the note, and delivery of the trust receipt, the bank delivered to the bankrupt the bill of lading covering the automobiles, which later were obtained by the bankrupt and taken to its salesroom. The promissory note and trust receipt were delivered by the bank to the General Motors Acceptance Corporation, which continued to hold the bill of sale for the cars. The cash representing 10 per cent. of the invoice price was paid upon the order of the defendant. On November 28, 1929, the defendant, General Motors Acceptance Corporation, took possession of four of the automobiles in question, and on January 28, 1930, took the other three cars. On February 8, 1930, the sales company filed its voluntary petition in bankruptcy as No. 15403 in bankruptcy of this court and has been adjudicated a bankrupt.
The instant suit has been brought by the trustee of the bankrupt to recover from the General Motors Acceptance Corporation the value of the seven automobiles. The plaintiff's statement asserts that the withdrawal of the automobiles from the bankrupt's possession constituted a voidable preference under the Bankruptcy Act, and that the trust receipt given by the bankrupt was invalid and did not secure title in the defendant as against the trustee. The defendant has filed a statutory demurrer to the statement of claim.
Irrespective of the interpretation and effect of the trust receipt in the instant case, it seems quite plain to us that the repossession of the automobiles by the defendant did not constitute a preference under section 60 of the Bankruptcy Act (11 USCA § 96). Plaintiff bases his claim to recover the value of the automobiles upon the ground of preference upon section 47a(2) of the Bankruptcy Act, 11 USCA § 75(a)(2), which in part provides: "Trustees shall respectively * * * as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied."
The trustee, plaintiff, contends that said section 47 empowers him, as standing in the shoes of an execution creditor, to maintain an action for the removal of goods within the four-month period. He cites Bank of North America v. Penn Motor Co., 235 Pa. 194, 83 A. 622, in support of his position. In that case the Supreme Court of Pennsylvania was dealing with a conditional sale agreement which had been recorded within the four-month period, and under which the vendor had undertaken to exercise its right of repossession shortly prior to the petition in bankruptcy. The court held that the trustee was given the power by section 47 to assert every right which a judgment creditor could have asserted during the four months immediately preceding the filing of the petition in bankruptcy. We are of opinion that we are precluded from accepting that interpretation of the section by the decision of the *412 United States Supreme Court in Bailey v. Baker Ice Machine Co., 239 U.S. 268, 36 S. Ct. 50, 60 L. Ed. 275. The contract of the instant case being made in Pennsylvania, we are required to accept the statutes and decisions of authoritative courts of this state in determining the status of the agreement either as a bailment or conditional sale; but our duty does not require us to follow a Pennsylvania court construction of a federal statute when that statute has been otherwise construed by the United States Supreme Court. The last-named court, in Bailey v. Baker Ice Machine Co., supra, specifically held that the trustee takes the status of a creditor holding a lien by legal or equitable process at the time when the petition in bankruptcy was filed, and not anterior thereto. In the last-mentioned case the Supreme Court was considering a conditional sale contract wherein the vendor reserved ownership pending the performance of the condition. It held that the rights of the trustee were no higher than those of the bankrupt, and that the resumption of possession on the part of the vendor was justified as between it and the bankrupt. In the instant case, whether the trust receipt be held to be a bailment, or a conditional sale requiring recordation, it seems plain that the defendant, as between it and the bankrupt, had the legal right under Pennsylvania law to take possession of the automobiles upon failure of the latter to comply with the terms of the agreement. Similar in point of decision to Bailey v. Baker Ice Machine Co. are Martin v. Commercial National Bank, 245 U.S. 513, 38 S. Ct. 176, 62 L. Ed. 441; Finance & Guaranty Co. v. Oppenhimer, 276 U.S. 10, 48 S. Ct. 209, 72 L. Ed. 443.
Our conclusion in this respect is not that reached by the trustee, who contends that the attempted reservation of title in the trust receipt is invalid and ineffective. He points to the fact that the bankrupt gave his notes for the amount of the value of the automobiles, as well as the trust receipt, and urges that such a requirement is inconsistent with retention of title in the defendant. The delivery of notes for deferred installments of the purchase price has been held not inconsistent with retention of title. See Bierce v. Hutchins, 205 U.S. 340, 27 S. Ct. 524, 51 L. Ed. 828; Bailey v. Baker Ice Machine Co., 239 U.S. 268, 36 S. Ct. 50, 60 L. Ed. 275. In support of his contention that the trust receipt is invalid as a reservation of title, the trustee has cited, inter alia, Root v. Acceptance Corp., 279 Pa. 55, 123 A. 650; Sterling Commercial Co. v. Smith, 291 Pa. 237, 139 A. 847, and Commonwealth v. Williams, 93 Pa. Super. Ct. 92. The facts in the first two cases cited are materially different from those of the instant case. In the latter, the bankrupt derived his possession from the defendant. In Root v. Acceptance Corp., the cars were in the possession of the dealer, who borrowed money from the acceptance company and gave therefor bills of sale and storage receipts for the cars, and took back a bailment lease for them. The dealer had title and possession from a third party, and gave the bill of sale without any change of possession. Very similar are the facts of Sterling Commercial Co. v. Smith. In that case the cars had been consigned directly to him. To take up a sight draft for the price of the cars the dealer borrowed the amount from the commercial company and executed a bill of sale to it and took back a bailment lease. The dealer later became a bankrupt and the commercial company instituted replevin proceedings to recover the cars. It was unsuccessful, as the original possession in the dealer had not been changed. In the instant case, it will be remembered, the dealer obtained possession from the defendant, who reserved title. The third case mentioned as cited by plaintiff, Commonwealth v. Williams, was decided by a divided court. The defendant, a dealer, had obtained automobiles in exactly the same manner as had the bankrupt in the instant case and had given substantially the same trust receipt for them. He sold an automobile to an innocent third person for value and converted the proceeds to his own use. Having been indicted for larceny by bailee under the Pennsylvania statute, the matter came before the superior court, a majority of whose members held that the defendant was not a bailee in the statutory sense. The opinion of the court expressly stated that the court was not concerned with the civil rights or remedies of the prosecutor against the defendant, but solely with the question whether a crime had been committed against the commonwealth. The case cannot be accepted as Pennsylvania law determining that the defendant had no right to take possession of the automobiles under the trust receipt in event of failure of the dealer to comply with its terms.
As opposed to the cases cited by the trustee, Brown Bros. v. Billington, 163 Pa. 76, 29 A. 904, 43 Am. St. Rep. 780, may be mentioned. The court had under consideration a trust receipt similar to that of the instant case. While holding the bicycles, subjects of the receipt, certain creditors of the dealer issued *413 executions. Upon sheriff's interpleader the Supreme Court sustained the title of the bank (which stands in same position as defendant in the instant case). This, it will be remembered, was while the goods were in the possession of the dealer, and not after possession had been resumed by the bankers.
Similar trust receipts have been held valid as reservations of title in the Circuit Court of Appeals for this Circuit. See Century Throwing Co. v. Muller, 197 F. 252; Roth v. Smith, 215 F. 82.
The same trust receipt as that before us was before the courts of the Northern District of New York (In re James, 30 F.(2d) 551) and the Court of Appeals for the Second Circuit in Re James, Inc., 30 F.(2d) 555. The only material variation from the instant case in point of fact is that the automobiles were in the possession of the trustee in bankruptcy and their possession was sought by the General Motors Acceptance Corporation by means of reclamation proceedings. The District Court held the trust receipts were conditional sales and void because not filed. This judgment was reversed by the Circuit Court of Appeals.
Judgment will be entered in favor of the defendant upon its statutory demurrer. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1504876/ | 664 F. Supp. 1558 (1986)
TECHNICON INSTRUMENTS CORP., Plaintiff,
v.
ALPKEM CORPORATION, Defendant.
Civ. No. 85-1564-PA.
United States District Court, D. Oregon.
September 11, 1986.
*1559 *1560 *1561 *1562 Paul R. Gary and Christopher H. Kent, Bullivant, Houser, Bailey, Hanna, Pendergrass, Hoffman, O'Connell & Goyak, Portland, Or., Eugene Moroz, Kurt E. Richter, William S. Feiler and Michael P. Dougherty, Morgan & Finnegan, New York City, for plaintiff.
George K. Meier, III, Hardy Myers, Paul S. Angello and Joseph D. Cohen, Stoel, Rives, Boley, Fraser & Wyse, Portland, Or., for defendant.
OPINION
PANNER, Chief Judge.
Plaintiff Technicon Instruments Corporation ("Technicon") brings this patent infringement action against defendant Alpkem Corporation ("Alpkem"). Plaintiff asserts that Alpkem's RFA-300 liquid analyzer infringes U.S. Patent No. 3,804,593 ('593). The '593 patent applies to continuous flow analysis of liquid samples. It issued April 16, 1974 to William J. Smythe and Morris H. Shamos as inventors. The patent application was filed May 25, 1964. Technicon, a New York corporation, is the assignee. I find for the defendant.
Alpkem denies that the RFA-300 infringes the '593 patent. It further contends that the '593 patent is invalid for the following reasons: (1) that Technicon, in prosecuting the '593 patent application, committed fraud or engaged in inequitable conduct by violating its duty of disclosure, set forth in 37 C.F.R. § 1.56(a) pursuant to 35 U.S.C. §§ 131 and 132; (2) the apparatus and methods described and claimed in the '593 patent are inoperative in violation of 35 U.S.C. § 101; and (3) the '593 patent's disclosures are inadequate or nonenabling or both, to allow a person of ordinary skill in the art to practice the alleged invention. Alpkem also asserts the defense of patent misuse and filed antitrust and unfair competition counterclaims. These claims were severed and stayed pending the trial of this phase of the action. The issue of Technicon's damages was also severed from this part of the trial.
A court trial was held. This opinion constitutes findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a). Alpkem's RFA-300 does not infringe the '593 patent. Although the apparatus and methods claims in the '593 patent were operative and useful at the time of the application, the patent is invalid because it did not contain adequate disclosure and because Technicon engaged in inequitable conduct in prosecuting the patent application.
FACTS
1. Background.
The '593 patent is entitled "Automatic Analysis Apparatus and Method." It is concerned with a method of analyzing samples called continuous flow analysis ("CFA"). The patent states that it especially relates to the analysis of substances in the blood and other body fluids. CFA involves drawing samples into a tube and mixing the sample with a reagent. The *1563 mixture changes color or intensity in relation to the amount of a known substance in the sample. It then flows through a flow cell where the change in color or intensity of each sample is measured by a colorimeter. The colorimeter output is recorded on a graph by a stylus.
Dr. Leonard Skeggs introduced the use of air bubbles to separate samples in the flowing stream in 1957. A key aspect of the Skeggs system is the division of each sample slug into many segments by intrasample air. This intrasample air is accurately and reliably pumped into the flowing stream. The air was then removed (debubbled) before the samples were passed to the flow cell for measurement. The Skeggs system incorporated a "wash" cycle between samples. It is a "wetted" system.
Dr. Skeggs obtained patents for many of his inventions. Technicon was the assignee of many of his patents and commercialized the Skeggs system as the AutoAnalyzer ("AA"). In 1957 this system became the first commercially available automatic CFA equipment.
The conventional art prior to the '593 patent was commercialized as the AA and later as the SMA. (A later version was called the "SMAC.") They operated as "wetted" systems. "Wetting" generally means the adherence of a liquid to the walls of a conduit. In a "wetted" CFA system the walls of the conduit which the sample flows through are "wetted" either by the sample or by added surfactants. This wetting forms a thin film on the conduit and helps create a smooth flow in the conduit. Wetted CFA systems require intrasample segmentation by bubbles to help minimize contamination. A wash is used between samples to cleanse the system and reduce intersample contamination.
In a wetted system, all measurements of all sample segments flowing through the conduit were recorded. It took a number of the segments flowing through the conduit to reach a "steady state" so clinicians feel comfortable measuring the sample reached. The segments flowing through the conduit before the steady state was reached were essentially used to wash the system. Because each segment was recorded, the recording on a wetted system generally was in the form of an S curve.
Contamination in a CFA system means the carryover or mixing of each sample segment with the liquid film left on the walls of the conduit by the previous sample. Sample segments passing through the conduit prior to reaching the steady state mix with the film from the previous sample. After a number of these segments have passed through the conduit, they cleanse it so that only the current sample is being measured.
The amount of contamination (or wash) in the wetted system presented problems for users of CFA systems. The contamination in the wetted system, the need for many intrasample bubbles and the consequent debubbling process slowed down analysis and limited the instrument's speed and precision. The wetted system also required relatively large quantities of samples and reagents.
2. Development of the '593.
Mr. Smythe began working as a researcher with Technicon in 1960. Dr. Shamos was hired as a scientific advisor to Technicon in 1964. The two men began working together in 1964. In October of 1961, Mr. Smythe theorized the debubbler might be contributing to the contamination of the system and that elimination of the debubbler would be helpful. In March 1964 they theorized that the real problem with wash in the conventional CFA system was with the flow cell and, more importantly, with the debubbling device. They filed the patent application in May 25, 1964. Following a number of amendments and rejections, including an appeal to the CCPA, the '593 patent issued on April 16, 1974.
The specification and preferred embodiment of the '593 patent describe a nonwetted system. In theory, a nonwetted system is one in which the conduits are made of material which is not wetted by either the sample segments or the segmentizing fluid. The film on the inside of the conduits between the sample segments that is present *1564 in a wetted system is missing and the output is a square wave form as opposed to the S curve that is generally seen in a wetted system.
The key difference between a wetted and nonwetted system is the presence or absence of film on the inside of the conduit which results in the characteristic difference in the output record. Although a totally nonwetted system exists in theory only, I find that wetted and nonwetted systems are based on significantly different principles of operation and involve fundamentally distinct methods and materials for performing CFA.
Because there is little or no contamination or film left in a nonwetted system, there is no need for the many intrasample segments to act as a wash as in the wetted system. The intersample bubbles in a nonwetted system are introduced at the sampler probe rather than by a pump as in a wetted system. Because of the need for many intrasample bubbles in a wetted system, the sample segments in the wetted system tend to be smaller than those in the nonwetted system.
3. Specification.
The '593 patent states that the primary object of the invention is to improve the precision of the analysis of the samples of liquid. It states that this object can be accomplished by using "as much as possible, liquid conduits, such as Teflon tubing, which have non-wetting surfaces...." '593 Patent, Col. 1. It goes on to state that "the sample liquid which is transmitted through the flow cell during the analysis operation ... has a volume at least as large and preferably larger than the volume of the flow cell, so that there is no air in the flow cell when the liquid analysis operation is being performed." Id. The specification goes on to state that it is unnecessary to remove the bubbles in the stream before the treated liquid goes through the flow cell, "since the segmentation of the liquid stream by air bubbles is such that a sufficient volume of the treated sample liquid is devoid of air bubbles...." Id. The specification states that another object of the invention is to provide both apparatus and method of analysis so that the measurement of the analysis of each sample is indicated "substantially instantaneously during the flow of the treated sample through the flow cell, to the extent that the recorder is able to provide such substantially instantaneous recording, so that the trace on the recorder chart has a square wave form." Id.
The specification shows some major differences between the prior wetted CFA systems and the system described in the specification: (1) the use of a conduit tubing such as Teflon, with a nonwetting surface; (2) sample segments as large as the flow cell; (3) the removal of the debubbler; and (4) instantaneous chart recording in a square wave form.
4. Preferred Embodiment.
The preferred embodiment of the '593 patent describes the best mode of the invention as operating in essentially the following manner.
An indexible table carries several liquid sample containers. A probe can be controlled to dip into the sample liquid and withdraw a portion of the sample into the conduit where suction is created by a peristaltic pump. The probe lifts from the sample and aspirates air, and then returns to the sample liquid and withdraws another sample. This is called "pecked" sampling. The sample which is drawn is referred to as a single sample segment. This "single" sample segment actually consists of a short leading segment followed by a longer following segment. In the preferred embodiment the conduits are made of Teflon.
While the sample liquid is being withdrawn, a reagent liquid is also drawn into the conduit. This reagent can flow either as a steady stream or as an air segmented stream. The reagent and sample streams are then combined to form a stream consisting of treated sample and air bubbles. This is where in the conventional wetted system the intrasample segments are pooled and then debubbled. However, in the invention, the stream of liquid treated sample and air bubbles are passed directly *1565 through the sight passageway of the flow cell of a colorimeter. Each sample which is to be measured has a volume at least equal to the sight passageway volume. In this way, the liquid can be measured without the presence of air bubbles which would interfere with the measurement. The chart recorder operation is interrupted when a bubble enters the flow cell so that the chart recording does not contain the bubble "artifact" attributable to the presence of air in the flow cell.
5. The RFA-300.
In about 1983, Alpkem hired Dr. Charles J. Patton, its current Director of Research and Development. He was responsible for the development of the RFA-300. Dr. Patton holds a B.A. in chemistry, an M.S. in analytical chemistry, and a Ph.D. in analytical chemistry. In about 1976, Dr. Patton became familiar with Technicon's SMAC instrument through the literature. He had never seen the '593 patent until about March 1984.
I find that the design of the RFA-300 is based on the performance of CFA in a wetted system. In the RFA-300 a pump and a sampler propel liquid samples alternately with wash solution through the withdrawal tube and conduit. The sample and wash solutions are separated from one another by small, intersample bubbles which are formed at the pump and withdrawal tubes. The reagent combines with the sample and this analytical stream is divided in intrasample segments by air bubbles. This intrasample air is introduced into the stream by the use of an air bar which pumps the air into the stream at precise intervals. The RFA-300 sampler draws a quantity of sample that can combine with about thirty segments of reagent. The resulting segments that consist of combined sample and reagent are basically the same length. There are typically thirty segments of each sample that flows through and are measured by the RFA-300. The intersample air bubbles originally introduced into the sample line do not affect the measurement of the sample because the bubbles are so small. The air is simply carried along through the entire operation of the system. The segmented sample stream flows directly through the flow cell. The intrasample air bubbles do not affect measurement of the sample only because each sample segment has a length equal to the volume of the flow cell.
The recorder receiving the detector signal data is never interrupted. The RFA-300 uses a bubble gating mechanism at the flow cell which electronically discriminates between air and liquid segments. The photodetector operates continuously and senses the presence of air bubbles in the flow cell. It only records part of the signal measure when the flow cell is completely filled with a liquid segment. The signal given for one sample segment resembles a square wave; however, the recorder trace for the entire sample, which includes about thirty intrasample segments and fifteen wash solution segments, generally rises (washes in), levels off (achieves steady state), and gradually falls (washes in). This results in a recording that appears to be similar to an S curve.
Technicon asserts that the "heart" of its invention is the removal of the debubbling step used in the prior art and notes that the RFA-300 does not use a debubbling device. Technicon therefore asserts that the absence of the debubbler alone shows that Alpkem's device is infringing. Technicon also asserts that other characteristics of the alleged infringing machine indicate that it infringes the '593 patent.
Technicon asserts that the RFA-300 includes the same basic elements mentioned in the preferred embodiment. Technicon notes that the RFA-300 uses wettable conduits but asserts that they were conventional at the time and that the patent covers both wetted and nonwetted systems. Alpkem asserts that the patent can only apply to a nonwetted system for reasons that will be discussed below and therefore asserts that it does not infringe the '593 patent.
Technicon asserts that the RFA-300 literally infringes the '593 patent because the RFA-300 uses an intermittently indexible sample table to sequentially present samples *1566 to an off-take probe. The probe dips in and out of the sample cup to withdraw a stream of liquid samples spaced apart by air segments. The RFA-300 also has a colorimeter which includes a flow cell with means for analyzing the liquid samples passing through the sight passageway. The stream of liquid samples in the RFA-300 passes through the sight passageway of the flow cell without debubbling and the RFA can use a liquid segmentizing fluid. Technicon asserts that these characteristics of the RFA-300 infringe claims six and seven of the patent.
Technicon also asserts that the RFA-300 infringes the patent because it uses the "pecked" sampling system of drawing more than one sample segment from each sample cup as defined in claims two, three, four, twelve, and thirteen. Technicon asserts that claims eight, nine, and ten are infringed because the RFA-300 uses a bubble gating circuit which holds the recorder stylus at its last position when a bubble is present in the flow cell sight passageway and is responsive only when the flow cell is completely filled.
I find the RFA-300 differs from the nonwetted system described in the '593 preferred embodiment in the following ways: (1) the RFA-300 uses surfactants; (2) the RFA-300 uses a wash between samples; (3) the RFA-300 divides the sample into many segments; (4) the RFA-300 uses an air bar; (5) the RFA-300 uses bubble gating at the flow cell; (6) the RFA-300 measures concentrations from many segments of wash and sample; and (7) the RFA-300 graph is not in square wave form.
DISCUSSION
A. Infringement.
The patent owner has the burden of showing by a preponderance of the evidence that the accused device infringes the patent. Hughes Aircraft Co. v. United States, 717 F.2d 1351, 1361 (Fed.Cir.1983).[1] In general a finding of infringement depends on whether the accused device falls within the scope of the asserted claims as properly interpreted. Kalman v. Kimberly-Clark Corp., 713 F.2d 760, 770 (Fed.Cir. 1983). The first step is to construe the patent and determine the scope of the claims. SRI International v. Matsushita Electric Corp., 775 F.2d 1107, 1118 (Fed. Cir.1985). In determining infringement the claims must be interpreted and then compared with the accused device. A claim is construed in the light of the claim language, the prior art, the prosecution history, and the specification. Id. at 1118. However, that the claims are interpreted in light of the specification does not mean that everything in the specification should be read into them. Id. at 1121.
A claim cannot be interpreted without going beyond the patent claims. Autogiro v. United States, 384 F.2d 391 (Ct.Cl.1967). In deriving the meaning of a claim, the court should inspect all useful documents and then reach the "felt meaning" of the claim. Id.
Technicon asserts that Alpkem infringes all of patent claims one through thirteen except for claim five. Only claims one, six, seven, ten, and eleven are independent claims.
1. The '593 Patent Claims.
When more than one claim is presented, the claims may be placed in dependent form, in which a claim may refer back to and further restrict a single preceding claim. Claims in dependent form shall be construed to include all the limitations of the claim incorporated by reference into the dependent claim. 37 C.F.R. § 1.75(c).
Claim one provides:
1. A method of automatic quantitative analysis of a plurality of liquid samples each disposed in a respective container, *1567 wherein said samples are off-taken by an off-take device and are transmitted successively as a flowing stream to an analytical device including a flow cell having a sight passageway, said method including:
for each sample container in succession, coupling said off-take device to such sample container, and in alternation therewith, to a source of an inert fluid immiscible with said liquid samples, thereby to take-off a segment of each of said liquid samples and intermediate segments of the inert fluid; transmitting said segments of the liquid samples and inert fluid as a flowing stream to said analytical device; and
passing said flowing stream including segments of both the liquid samples of inert fluid through the sight passageway of the flow cell, the volume of at least one homogeneous portion of each liquid sample being at least equal to the volume of the sight passageway of the flow cell.
Claim one teaches the measure of a segment of the sample. I find this claim can only be read as applying to the single sample segments in a nonwetted system.
Claim six provides:
6. Apparatus for the automatic quantitative analysis of a plurality of liquid samples each disposed in a respective container, comprising:
an indexible table for supporting said sample containers,
off-take means including an off-take tube coupled to a pump means,
means for intermittently indexing said table to sequentially present each of such containers to said off-take means,
means for inserting said off-take tube into a presented thereto container and alternatively exposing said off-take tube to the atmosphere;
whereby said pump means draws through said off-take tube a flowing stream of successive liquid samples spaced apart by intermediate segments of air;
colorimeters means including a flow cell having a sight passageway and associated means for analyzing liquid samples passing through the sight passageway of the flow cell; and
conduit means for passing the flowing stream of successive liquid samples spaced apart by intervening segments of air through the sight passageway of the flow cell.
Claim six is an apparatus claim which generally provides for the apparatus disclosed in the preferred embodiment. It eliminates the debubbler which would have been found in the conventional prior art. It also provides for the introduction of air only at the probe. Only the intersample air used in a nonwetted system can be introduced at the probe. It never speaks of drawing more than one segment or of dividing the segment after intake. Therefore I find that claim six teaches a nonwetted system.
Claim seven provides:
7. Apparatus for the automatic quantitative analysis of a plurality of liquid samples, said apparatus comprising:
a colorimeter including a flow cell having a sight passageway and an inlet and an outlet through which liquid samples are transmitted for the quantitative analysis thereof in respect to the same known ingredient in each sample, conduit means for the passage of the liquid samples through the sight passageway of said flow cell,
means for introducing a sample treating liquid and a segmentizing, inert, immiscible, fluid into said conduit and thereby forming in said conduit means at a location upstream of said flow cell a fluid stream containing segments of treated sample liquid spaced from each other in the direction of stream flow by intervening immiscible fluid segments,
said conduit means having an outlet connected to said inlet of said flow cell and devoid of other openings downstream of said upstream location to pass said fluid stream including treated liquid samples and said immiscible *1568 fluid segments through said sight passageway of said flow cell for analysis of said treated liquid samples with said accompanying cleansing of the sight passageway by said segmentizing fluid; and
means for measuring the optical density of said treated liquid samples passing through said sight passageway.
Claim seven teaches the separation of each sample from the next after intake with an "immiscible fluid" for that purpose. It never mentions dividing a segment after intake or drawing more than one segment. Therefore, I find that it only provides for the measurement of one sample segment.
Claim ten provides:
10. A method of automatic quantitative analysis of a plurality of liquid samples each disposed in a respective container, wherein said samples are off-taken by an off-take device and are transmitted successively as a flowing stream to an analytical device including a colorimeter having a flow cell with a sight passageway, said method including:
for each sample container in succession, coupling said off-take device to such sample container, and in alternation therewith, to a source of an inert gas immiscible with said liquid samples, thereby to off-take a segment of each of said liquid samples and intermediate segments of the inert gas;
transmitting said segments of the liquid samples and inert gas as a flowing stream to said analytical device;
passing said flowing stream including segments of both the liquid samples and inert gas through the sight passageway of the flow cell, the volume of at least one homogeneous portion of each liquid sample being at least equal to the volume of the sight passageway of the flow cell;
measuring the optical density of the liquid samples passing through the sight passageway of the flow cell; and interrupting the operation of said recorder except when said portion of each sample having a volume at least equal to the volume of the sight passageway of the flow cell is in the sight passageway.
Claim ten is a method claim that speaks of off-taking a segment of the sample. This shows, as in claim one, that the claim only applies to measurement of only a single sample segment, as in a nonwetting system. It also teaches the interruption of the operation of the recorder except when a part of each sample which has a volume at least equal to the sight passageway is in the passageway.
Claim eleven provides:
11. A method of automatic quantitative analysis of a plurality of liquid samples each disposed in a respective container, wherein said samples are off-taken by an off-device and are transmitted successively as a flowing stream to an analytical device including a flow cell having a sight passageway, said method including:
for each sample container in succession, coupling said off-take device to such sample container, and in alternation therewith, to a source of an inert gas immiscible with said liquid samples, thereby to off-take a segment of each of said liquid samples and intermediate segments of the inert gas;
transmitting said segments of the liquid samples and inert gas as a flowing stream to said analytical device;
passing said flowing stream including segments of both the liquid samples and inert gas through the sight passageway of the flow cell, the volume of at least one homogeneous portion of each liquid sample being at least equal to the volume of the sight passageway of the flow cell.
Claim eleven contains the same operative language as claim ten but omits the claims relating to the interruption of the recorder. It speaks of taking a segment of the liquid samples. This again shows that the claim only applies to the one sample segment, typical of a nonwetted system.
Claims two and three incorporate claim one by reference and thereby incorporate *1569 all the limitations of that claim. 37 C.F.R. § 1.75(c). They both must then incorporate the teaching of claim one that only one sample segment is withdrawn. In addition, claim two speaks of dividing the sample by the use of an inert fluid. Claim four is dependent on claim two and so also incorporates the claim one limit that only one sample segment is measured. Claim four also specifically speaks of dividing each sample into one leading segment of relatively short length and a following segment of relatively long length. This describes the nonwetted intersample segmentation used by the inventors.
Claim eight is dependent on claim seven. It also provides a means for interrupting the operation of the chart recorder except when the sight passageway is fully occupied by a treated liquid sample with a volume at least equal to the volume of the sight passageway.
Claim nine is dependent on claim six and contains the limitations contained in that claim. It also provides for the interruption of the chart recorder.
Claim twelve is dependent on claim eleven and contains the limitations contained in that claim. It provides for dividing each sample by further inclusion of inert gas introduced at the point of introduction of the liquid samples into the flowing stream. These appear to be the type of intrasample bubbles pumped into the flowing sample stream in the Skeggs wetted system.
Claim thirteen is dependent on claim twelve and provides for introducing air into the sample stream at the probe, which can only address the intersample bubbles used in a nonwetted system.
All of the independent claims can only be construed as applying to the nonwetted system invented by Mr. Smythe and Dr. Shamos. Claims one, six, seven, and ten teach the measurement of only one segment of a sample, of introducing air at the probe which will only produce the intersample segments used in a nonwetted system and will not produce the intrasample segments necessary for a wetted system. Claims ten and eleven teach of the interruption of the chart recorder when the flow cell is not filled with a volume of sample liquid. Claim seven teaches of the use of an immiscible fluid for separating the samples.
The RFA-300 uses the multiple sample segments and intrasample bubbles necessary in a wetted system. It operates as a wetted system and does not use an immiscible fluid for separating the samples. The RFA-300 chart recorder operates continuously and is not interrupted, unlike claims ten and eleven. Therefore, the RFA-300 does not literally infringe any of the independent claims of the '593 patent.
All of the dependent claims, with the exception of claim twelve, contain some of the limitations of the independent claims and either only apply to a nonwetted system or provide for operation of the recorder. Thus the RFA-300 does not infringe literally on any of those claims. However, claim twelve appears to teach the introduction of an inert gas into the flowing stream, much in the way that air is introduced in the RFA-300. Claim twelve reads on the RFA-300.
However, in determining the actual construction of the claim, I must examine the claim language in light of that language, the prior art, the prosecution history, and the specification to attempt to ascertain the "felt meaning" of the claims and any infringement.
2. The Development Of The '593 Patent.
Mr. Smythe kept detailed notebooks for his research and experimentation. Dr. Shamos also kept some notebooks concerning the development of the '593 patent. These notebooks provide an insight into how the patent developed.
On October 18, 1961 Mr. Smythe discussed removing the debubbler and passing air through the flow cell. A March 13, 1964 entry by Mr. Smythe states that it is apparent that the real problem is the flow cell and, most importantly, the debubbling device. The March 14, 1964 entry asks: "If the system is nonwetting, why not discard *1570 the use of the air except between samples?" Smythe recognized this was a departure from the norm. On March 23, 1964 the inner surface of a coil had become wet which made the experiment unstable. On April 11, 1964 the inventors were facing the problem of how to use a dialyzer (a necessary device for measuring blood samples that must be operated wetted) in the "conventional manner" and the rest of the system in the "new way."
The notebooks show that after March 1964 all single sample measurement segment streams were run in Teflon conduits at least until after the time of the patent application. The only exception was one experiment run on March 25, 1964 in which glass tubing was substituted for the Teflon. Dr. Shamos's notes for that date exclaim it is "clear that nonwetting theory is correct!"
I accept the opinion of Alpkem's expert Dr. Thiers that the glass was used only as a control, that the finding showed that the advantages of the nonwetted conduit system were lost with glass, that the wash was poorer, and that the typical nonsquare wave pattern of the wetted system was restored when glass was used. Dr. Thiers stated he believed the inventors ran a well-designed control experiment and found, as Dr. Shamos exclaimed, that the nonwetted system worked. The inventors went back experimenting with the nonwetted system.
Dr. Shamos was unable to explain that entry in any other way. He was given the opportunity to examine the notebooks and show the court other instances where he mentioned the bubble through flow cell or to point out any entry stating they had found the bubble through flow cell. He never did. Based on my review of Dr. Shamos's notebook and his failure to bring any such entries to my attention, I find there are no further entries in any notebook discussing the bubble through flow cell or exclaiming that the inventors had discovered the bubble through flow cell.
Mr. Smythe stated that, in his work with Dr. Shamos, they discovered that they could reduce the number of air bubbles in a nonwetting system and that this was a new revelation with very dramatic results in reducing the length of time it took to go from one sample to another.
Mr. Smythe and Dr. Shamos began working together on a nonwetting system and removing the debubbler in 1964. They brought Technicon's patent attorney to view the invention ten days after they decided to eliminate intrasample bubbles. By May 25, 1964 the patent application was filed. The inventors had performed only one control experiment during that time using a wetted system with glass. All of the other experiments during that time period were done with a nonwetted system with Teflon tubing.
Mr. Smythe had conceived of eliminating the debubbler as early as 1961. The only excitement shown in the notebooks in 1964 was regarding the nonwetting system. I find that until the patent application was filed, the inventors conceived of the basis of their invention as the nonwetted system which would then allow the elimination of the debubbler and increase the efficiency of the conventional CFA art.
3. Developments After The Filing Of The '593 Patent Application.
The patent application was filed soon after the discovery of the nonwetting system and elimination of the debubbler. However, soon after the filing the inventors experienced a number of problems with the nonwetted system. In a January 5, 1965 notebook entry Mr. Smythe wrote:
How much effort should be put into nonwettability? The only advantage that I even see of going to nonwetted surface is speed of analysis. There are disadvantages. Most important is the friction of the air to liquid surface. This means higher pressures, worse problems with surging.... One very worrisome thing is the requirement of extreme cleanliness. Coupled with this is the gradual wetting of surfaces that start off clean. All these problems spell a real effort and, if they could be solved will take six months of luck.
The problems encountered with the nonwetted system include:
*1571 (1) Unavailability of Teflon tubing of extreme smoothness and bore perfection and inability to maintain extreme cleanliness of the Teflon tubing;
(2) Inability to control the bubble pattern breakup or surging caused by friction of the stream on the unwetted walls;
(3) Inability to get proper phasing of the streams and proper proportioning;
(4) Inability to achieve proper phasing of the sampler with the recorder; and
(5) Inability to achieve proper flow cell design.
Some of these problems were solved by the issuance of separate patents as discussed below.[2]
a. Timing Of Recorder In Relation To Full Flow Cell (Bubble Gating).
The '593 patent discloses coordination between samples and the recorder to gain measurements of samples only when the flow cell is full of sample and free from air. The patent teaches that the colorimeter's power supply should be completely shut off when an air bubble enters the flow cell. The preferred embodiment of the '593 patent proposes that the flow be timed between the sampler and the flow cell. This required very careful timing, and I find that it would have required more accurate samplers than were available in 1964. Even with an accurate sampler, this procedure could only be useful with the inter-sample bubbles of a nonwetted system. It would not be helpful in a wetted system. This timing device would cause problems in a wetted system because of unanticipated changes in "dwell time" (the time taken for any sample to go from sample probe to flow cell).
The problems with this device were finally solved by Dr. Shamos, Mr. Smythe, and Gary Griffin when they filed the application for the 3,480,369 ('369) patent on February 21, 1966. The '369 patent issued on November 5, 1969 discloses an apparatus for deactivating the stylus when a gas segment begins to intersect the measuring light through the flow cell and for reactivating the stylus when the gas segment withdraws from the light beam.
I find the '369 patent was a necessary invention because there are so many intra-sample bubbles in a wetted system that it would be impossible to use the '593 patent timing device with a wetted system.
b. Proportioning.
The '593 patent calls for bubbles to be introduced at the sample probe. Bubbles introduced at the probe are generally too inaccurate to form the air bubbles required for the intrasample segmenting that is generally necessary in a wetted system. In the conventional system, this inaccuracy was not very important because the sample segments were pooled and averaged at the debubbler. However, the elimination of the debubbler made the accuracy of these intrasample bubbles more important.
To help solve this problem, Mr. Smythe developed the "air bar." The air bar proportions intrasample air so the segments are spaced more accurately. Mr. Smythe filed an application for the air bar patent on April 5, 1965. The patent issued as U.S. Patent No. 3,306,229 ('229) on February 28, 1967. I take judicial notice that this patent expired in 1984. See 35 U.S.C. § 154 (patent granted for 17 years).
c. Liquid Segmenting Agent Bubble Breakup And Surging.
Dr. Shamos and Mr. Smythe discovered that liquid silicone could be used as a segmenting medium with Teflon to gain needed smoothness and avoid bubble breakup and surging. With Technicon as their assignee, they filed an application for a continuation in part (CIP) of the '593 patent seeking to patent this use of liquid silicone. The CIP patent was applied for on April 14, 1966 and issued as U.S. Patent No. 3,484,170 ('170) on December 16, 1969. The '170 patent describes the liquid silicone as an intrasample segmenting medium which can *1572 be passed through the analytic instrument and which cleans the analytic instrument (the flow cell). The liquid silicone acts as a wetting agent with Teflon.
Liquid silicone helped solve surging and bubble breakup in a wetted system but not in a nonwetted system.
d. Flow Tube Design.
The '593 patent does not disclose a specific flow cell design. The standard flow cells used in the AA were glass flow cells. Glass flow cells are a problem in a nonwetted system because of the difference in surface free energy between the Teflon and the glass. The volume of the typical flow cell would be too large for an intra-sample sample segment in a wetted system to fill the flow cell. On August 28, 1964, Mr. Smythe and Dr. Shamos filed for a patent for a colorimeter flow cell. Technicon was the patent assignee. The patent issued on December 24, 1968 as U.S. Patent No. 3,428,053 ('053).
4. Prosecution History.
Alpkem asserts that the prosecution history shows that the '593 patent was limited to a nonwetted system measuring only one segment of each sample. Technicon asserts that any amendments to the claims broadened them and that the history supports its contention that the '593 patent applies to both wetted and nonwetted systems.
The original patent claims were filed on May 25, 1964. The applicants made a number of amendments to the claims prior to any patent office action.
On October 18, 1967 the examiner rejected claims thirty-one and thirty-two under 35 U.S.C. § 112 as lacking a clear basis. He also rejected claims one thru five, eight thru seventeen, nineteen thru twenty-three, and twenty-five thru thirty-three under 35 U.S.C. § 103 as unpatentable over the prior art. The examiner noted that the applicants had simply omitted the gas removal to obtain the obviously beneficial additional cleaning. The applicants amended in response to this rejection.
In 1969, the examiner rejected claims thirty-four thru thirty-six because of the use of the term "repeatedly" when describing the withdrawal of segments from the same sample. The examiner stated the term was too broad because the specification only mentioned two withdrawals from a sample container. A number of the other claims were rejected as being unpatentable over the prior art of Skeggs and Isreeli. Claims forty-one, forty-four, and forty-six were deemed patentable. These claims all deal with claims that the recorder is nonoperational until a sample having a volume at least equal to the volume of the sight passageway of the flow cell fills the cell.
In response to this rejection, the applicants again amended the claims in March 1969. They deleted "repeatedly and successively" from the description of how many times the off-take device dips into the sample container from claim thirty-four (now claim one). They also changed the original language providing that a "plurality of successive segments" of the sample be taken by the sampler to language providing that a "segment of each of said liquid samples" be taken by the sampler.
The original claim one in the 1964 application spoke of a leading and a trailing gas bubble with an intermediate volume of the sample free of the gas and at least equal to the volume of the flow cell with the sample flowing through nonwetted conduits. Clearly claim one had been conceived as involving a nonwetted system and a sample stream divided only by intersample bubbles. The term repeatedly had been added after Technicon was aware of the many problems with the nonwetted system and had filed for patents which would solve some of those problems.
Claim forty-two (now claim six) was also amended in 1969 by deleting "intermittently repeatedly" from the statement describing how many times the off-take tube is dipped into the container and by deleting the phrase "each such sample comprising a plurality of sample liquid segments spaced apart by intermediate segments of air" from a description of the sample stream. The description of the sample stream remaining *1573 in this claim is "a flowing stream of successive liquid samples spaced apart by intermediate segments of air."
Technicon asserts that these amendments actually broadened the scope of the claims. At trial it offered the testimony of Eugene Rzucidlo. Mr. Rzucidlo held many positions with the patent office, including the position of Examiner-In-Chief to the Board of Appeals from 1983-85. Mr. Rzucidlo testified that, in his opinion, the March 17, 1969 amendments broadened the scope of the claims to include measurement of both single segments and multiple segments of samples. Mr. Rzucidlo also testified that he interpreted the amendments as expanding the scope of the claims to cover both wetting and nonwetting systems.
I reject Mr. Rzucidlo's opinion and find the history of these claims shows that Technicon initially filed the '593 patent to cover only the nonwetted system without the debubbler. As it became more apparent that the nonwetted system could not work, it sought to expand the scope of the claims to cover both a wetted and a nonwetted system. When the examiner rejected the claims in January 1969 as being overly broad, Technicon acquiesced to the examiner's decision and amended the claims finally to cover only a nonwetted system. The prosecution history shows that the claims, as finally amended before the examiner, were limited to cover only a nonwetted system.
Technicon appealed this rejection to the Board of Appeals (the Board). It did not mention its '170 and '141 CIP patents to the Board. The Board's initial rejection of the patent on April 15, 1970 found that there was no means in the specification for introducing either fluids or a gas other than air into the stream. The Board also held that the term "inert fluid" used by the applicants encompassed materials which could adhere to the walls as well as liquid wetting agents, and that both would make the system inoperative. Technicon petitioned for reconsideration on May 15, 1970.
In its reconsideration brief before the Board, Technicon relied on the Kessler Patent No. 3,047,367 ('367) to indicate that there were immiscible liquids that could be used as a segmenting fluid in the '593 patent. The fluids disclosed as segmenting fluids in the Kessler '367 patent are mineral oil and isoamyl alcohol. Technicon did not disclose that these substances wet Teflon. Technicon also stated in its brief to the Board: "This is certainly a positive teaching that one would not employ, as a segmentizing medium, any material which would adhere to the walls of the conduits or sight passageway of the flow cell." The Board rejected Technicon's motion for reconsideration and Technicon appeals to the CCPA.
In In re Smythe, 480 F.2d 1376 (CCPA 1973), the CCPA reversed the decision of the Board of Appeals. The court described the functioning of the invention as one in which "leading segments of the liquid samples, which are arranged in duplicate, one following another, perform, along with the segmenting medium, a cleansing function and each following segment has a volume at least equal to that of the sight passageway." Id. at 1377.
The Court reversed the Board's rejection which had been based on the use of the word "inert fluid" to describe a segmenting medium. The court stated:
The use here of any particular "liquids" which would be inoperative, such as the examples given by the board colored materials, materials adherent to the walls of the sight tube, and liquid wetting agents would be predictably inoperative in the invention and thus would never be selected by one skilled in the art.
Id. at 1385.
Technicon did not inform the Court that liquid silicone, isoamyl alcohol, and mineral oil, the only possible choices of a liquid segmenting medium, all wet Teflon. The Court's reliance on Technicon's assertions that one skilled in the art would not choose a "wetting agent" as a segmenting medium clearly show that the court also construed the '593 patent as only covering claims for a nonwetted system.
I find that the claims, the specification, the preferred embodiment, the prosecution *1574 history, and other relevant facts lead to the conclusion that the '593 claims can only be construed as covering a nonwetted system. The RFA-300 is a wetted system. It functions on entirely different principles. It does not literally infringe the patent.
5. Continuation In Part Patents.
Title 35 of U.S.C. § 120 provides:
An application for patent for an invention disclosed in the manner provided by the first paragraph of section 112 of this title in an application previously filed in the United States or as provided by section 363 of this title, which is filed by an inventor or inventors named in the previously filed application shall have the same effect, as to such invention, as though filed on the date of the prior application, if filed before the patenting or abandonment of or termination of proceedings on the first application or on an application similarly entitled to the benefit of the filing date of the first application and if it contains or is amended to contain a specific reference to the earlier filed application.
A continuation in part application (CIP) is an application filed during the lifetime of an earlier application by the same applicant, repeating some substantial portion or all of the earlier application and adding matter not disclosed in the earlier case. Litton Systems, Inc. v. Whirlpool Corp., 728 F.2d 1423, 1437 (Fed.Cir.1984). A CIP application has the legal effect of, and is basically a term of art for, a patent application disclosing the newly added matter. Id. If a CIP adds new matter not inherent in the original to an application, it is not properly entitled to the filing date of the initial patent. Max Daetwyler Corp. v. Input Graphics, 608 F. Supp. 1549, 1557 (E.D.Pa.1985).
On April 14, 1966 Technicon filed a CIP patent of the '593 patent seeking to patent the use of liquid silicone as a segmentizing medium with Teflon to gain smoothness and avoid bubble breakup and surging. The silicone has this effect because it smooths and wets Teflon. The CIP issued on December 16, 1969 as U.S. Patent No. 3,484,170 ('170).
On May 17, 1967 Technicon filed a CIP application of the '170 CIP patent. This CIP issued on November 18, 1969 as U.S. Patent No. 3,479,141 ('141 CIP) patent. The '141 CIP patent states that its object is to provide a sample transport system where no or minimal contamination between the samples occurs, even when using a process like a dialyzer. The patent discloses that in the '141 CIP invention, silicone wets and adheres to the conduit while the liquid samples do not wet and adhere.
B. Doctrine Of Equivalents.
The doctrine of equivalents allows a patentee to proceed against the producer of a device if the device performs substantially the same function in substantially the same way to obtain the same result as the patented invention. Graver Manufacturing Co. v. Linde Co., 339 U.S. 605, 70 S. Ct. 854, 94 L. Ed. 1097 (1950). The purpose of the doctrine is to "temper unsparing logic and prevent an infringer from stealing the benefit of an invention." Id. at 608, 70 S.Ct. at 856. "The doctrine can also be applied against the patentee." Id. Where a device is so far changed in principle from a patented article that it performs the same or a similar function in a substantially different way but nevertheless falls within the literal words of the claim, the doctrine of equivalents may be used to restrict the claim and defeat the patentee's action for infringement. Id. at 609, 70 S.Ct. at 856. Equivalency must be determined against the context of the patent, the prior art, and the particular circumstances of the case. Id.
The doctrine of equivalents is a factual inquiry. SRI, 775 F.2d at 1124. Technicon has the burden of proving infringement by equivalents by a preponderance of the evidence. Lemelson v. United States, 752 F.2d 1538, 1547 (Fed.Cir.1985). Each element of a claim is material and essential and in order for a court to find infringement, plaintiff must show the presence of every element or its substantial equivalent in the accused device. Id. at *1575 1551. Even a device which accomplishes substantially the same thing in substantially the same way as a patented object does not necessarily infringe. The court must determine whether the file wrapper history precludes a finding of infringement, regardless of any similarity between the devices.
The law of infringement requires that the asserted claims be compared with the products or processes accused of infringement. Amstar Corp. v. Envirotech Corp., 730 F.2d 1476, 1481 (3rd Cir.1984). Modification by mere addition of elements or functions cannot avoid infringement. Id. at 1482. Technicon asserts that Alpkem's mere addition of extra bubbles to the sample stream cannot avoid a finding of infringement. Alpkem's addition of air bubbles to the sample stream is the mode of operation of the prior art. It indicates that Alpkem's RFA-300 operates on an entirely different principle, the wetted principle, than Technicon's nonwetted system. I find there is a fundamental difference between the two devices, not a mere cosmetic one of simply adding more air bubbles to the stream.
The doctrine of equivalents is subservient to file wrapper estoppel. The patentee may not claim anything that would contradict limitations expressed before the Patent Office. Hughes Aircraft, 717 F.2d at 1363, quoting Autogiro, supra at 1566. The range of equivalents covered by the doctrine is much broader in the case of a pioneer invention than in the case of an improvement patent in a crowded field of art. Hughes Aircraft, 717 F.2d at 1362.
The file wrapper history in the present case shows the inventors surrendered claims relating to a wetted system that measures multiple segments of a sample. See Discussion at p. 1572. The record shows that Technicon tried to expand its initial claims to include a wetted system with multiple segments of a sample. However, when that attempt failed, it again amended its claims to only cover a nonwetted system where only one sample segment is measured. Technicon is estopped from asserting that the '593 patent applies to a wetted system.
Taken as a whole, I find the RFA-300 is not the equivalent of the device described in the '593 patent. Many features of the RFA-300 differ from those disclosed in the '593 patent. The '593 discloses the use of nonwettable conduits and components as much as possible and the measurement of one segment of a sample, while the RFA-300 uses wettable conduits and components and numerous segments of a sample. The '593 patent does not teach the use of surfactants, of a wash cycle, of an air bar, or of bubble gating, while the RFA-300 employs all of these devices. The '593 patent discloses substantially instantaneous recording of the measurement with a square wave trace, while the RFA-300 employs extended measure of the segments which results in an S shaped curve.
The RFA-300 does perform substantially the same function as the '593, the measurement of samples by continuous flow analysis. However, the measurement is performed in a substantially different way. While they both do eventually measure the amount of various substances in the samples, they do in substantially different ways and achieve a dissimilar result. The RFA-300 is very different in principle from the '593 patent. Under the reverse doctrine of equivalents, I find the RFA-300 does not infringe the '593 patent.
C. Validity Of The Patent.
Alpkem asserts that the '593 patent is invalid for three reasons:
(1) It was obtained by fraud or inequitable conduct because Technicon breached its duty of disclosure during the patent prosecution;
(2) The invention claimed and disclosed by the '593 patent is not operable (the utility requirement); and
(3) The '593 patent inadequately discloses the claimed invention (the enablement requirement).
Technicon asserts that the patent is valid and that these defenses are meritless.
*1576 A patent is presumed to be valid. 35 U.S.C. § 282; see also Roper Corp. v. Litton Systems, Inc., 757 F.2d 1266, 1270 (Fed.Cir.1985). Alpkem must prove invalidity by clear and convincing evidence. Atlas Powder v. DuPont, 750 F.2d 1569, 1573 (Fed.Cir.1984).
1. Fraud Or Inequitable Conduct.
A patent applicant has a duty of disclosure pursuant to 37 C.F.R. § 1.56(a) which provides:
A duty of candor and good faith toward the Patent and Trademark Office rests on the inventor, on each attorney or agent who prepares or prosecutes the application.... All such individuals have a duty to disclose to the Office information they are aware of which is material to the examination of the application. Such information is material where there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.
Breach of the duty of disclosure is a reason for declaring a patent unenforceable under 35 U.S.C. §§ 131 and 132. See Buzzelli v. Minnesota Mining & Manufacturing Co., 521 F.2d 1162, 1166 (6th Cir. 1975).
A defendant must show materiality and intent. The court must then balance materiality and intent to determine whether inequitable conduct occurred. See Atlas Powder, 750 F.2d at 1578. Although Alpkem asserts Technicon engaged in fraud, inequitable conduct is a more appropriate phrase to describe the actions asserted here. Id. at 1577.
Materiality can be established by showing a "but for" causal relation, or a substantial likelihood that a reasonable examiner would have considered the omitted or false information important in deciding whether to allow the patent to issue. Atlas Powder, 750 F.2d at 1578. See also 37 C.F.R. § 1.56(a).
Intent need not be proven with direct evidence. Atlas Powder, 750 F.2d at 1578. It may be proven by showing acts the natural consequences of which are presumably intended by the actor. Gross negligence is sufficient for this proof. Id. Gross negligence occurs when the actor knew or should have known of the materiality of information. Id. Simple negligence, oversight, or an erroneous judgment made in good faith is not enough. Id. If inequitable conduct has occurred, the court must hold the patent claims unenforceable. Id.
Conduct which may make a patent unenforceable is broader than common law fraud. J.P. Stevens & Co., Inc. v. Lex Tex Ltd., Inc., 747 F.2d 1553, 1559 (Fed.Cir. 1984). If a court finds by clear and convincing evidence that inequitable conduct occurred, all the claims, not just the particular claims to which the inequitable conduct is directly connected, are unenforceable. Id.
Alpkem asserts that Technicon performed fraud on the Patent Office when it amended the patent application to attempt to cover both liquids and gases as segmenting mediums.
The patent specification discloses the use of only air or another gas as a segmenting medium. In a preliminary amendment of April 8, 1966, the applicants added the word fluid, which would encompass both liquids and gases, into its application to describe the segmenting medium.
In January 1968, the applicants introduced claim thirty-four (now claim one) and claims dependent on that claim. Claim thirty-four described the segmenting medium as an inert fluid. The examiner rejected claim thirty-four and dependent claims as not containing the necessary particularity. On April 15, 1970 the Board affirmed the examiner's rejection on three grounds:
(1) The specification failed to provide an antecedent basis for inert fluid;
(2) Additional structure was necessary to adapt the disclosed contribution to employ fluids other than air; and
(3) The term fluid was so broad it included inoperative fluids.
*1577 In its brief to the Board of Appeals, Technicon asserted that the prior art (the Kessler '367 patent) showed that liquid and gas are known segmenting medium. Technicon also asserted before the Board that it was unnecessary to describe obvious equivalents, that modification of the structure to use a liquid was within the range of one of ordinary skill that liquid and gas are directed equivalents.
I find that at the time it made the statements, Technicon knew, and did not disclose, that the Kessler art taught the use of liquid segmenting agents that are wetting to Teflon and would be inoperative in the nonwetted system.
In its brief before the CCPA, Technicon again argued that the Kessler prior art was aware that liquids and gases can be used as a segmenting medium and that their equivalency is evident. Technicon also argued that the specification teaches that one would not use a liquid which would adhere to the walls. But on May 25, 1964 there was no known liquid segmenting medium which would not wet Teflon. Based on Technicon's misrepresentations, the CCPA reversed the Board's rejection of the claims based on the use of the term inert fluid.
I find that a reasonable examiner would have considered these facts important in deciding whether to allow the patent application. These facts show the patent claims would be inoperable if a liquid were used as a segmenting medium. A reasonable examiner who received these facts even after the CCPA decision would have reopened prosecution and rejected the claims.
Technicon asserts that knowledge of the CIP patents ('170 and '141) was not important and there was no reason to disclose them. Technicon also notes that the '170 CIP application was examined by the same examiner, Mr. Scrovonek, who examined the '593 patent. Therefore it argues that the examiner was aware of the '170 patent. However, in determining inequitable conduct, the mere possibility that an examiner has knowledge of a prior patent is not sufficient. See J.P. Stevens, 747 F.2d 1553, 1565 (Fed.Cir.1984). If there is no evidence that the examiner actually recalled a previous patent, that knowledge cannot be implied. Id. In the present case there is no evidence that the examiner recalled the '170 patent application and Technicon cannot rely on this presumed knowledge to defeat an inequitable conduct claim.
Technicon now asserts that the term "wetting" only applies to a condition in which the liquid sample adheres to the walls of the conduit. It asserts that the patent does not state that the liquid segmenting medium must be nonwetting to the Teflon conduit and, therefore, asserts that the information contained in the CIP was not relevant to the pending '593 patent application. It asserts that Alpkem's assertions to the contrary comprise an argument that is "based on a house of cards."
However, as previously noted, in its brief to the CCPA to attempt to obtain the '593 patent, Technicon asserted:
This is certainly a positive teaching that one would not employ, as a segmentizing medium, any material which would adhere to the walls of the conduits or sight passageway of the flow cell. Such adherence would tend to cause contamination between successive liquid samples.
The CCPA, in discussing the Board's rejection of the application for the '593 patent, stated that the use of any liquid which would adhere to the walls as a segmenting medium would be predictably inoperative and would never be selected by one skilled in the art. In re Smythe, 480 F.2d at 1385.
The assertions made in the '141 CIP concerning the wetting properties of liquid silicone when used as a segmenting medium were direct contradiction to these assertions made by Technicon in its 1972 brief to the CCPA.
The facts not disclosed were clearly material. Technicon knew there were no liquids which could be used in a nonwetted system in the manner asserted in the '593 patent. After balancing the facts in this case, I find the evidence clear and convincing that Technicon engaged in inequitable *1578 conduct before the Board and the CCPA. Because of this inequitable conduct, the patent is unenforceable.
2. Enablement.
For a patent to be valid it must comply with the requirements of 35 U.S.C. § 112 which provides, in part:
The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention.
Section 112 disclosure requires a description that will allow someone familiar with the subject matter to reproduce and use the device or process without undue experimentation. Atlas Powder, 750 F.2d at 1569. The adequacy of the description and the level of knowledge required to make one "skilled in the art" are judged as of the date of filing of the patent application and are unaffected by later disclosures and advances in the art. Application of John P. Glass, 492 F.2d 1228, 1232 (CCPA 1974). The scope of the enablement provided to one of ordinary skill in the art by the disclosure must be commensurate with the scope of protection sought by the claims. Id.
If some experimentation is necessary to make and use the claimed invention, that does not preclude enablement. See Atlas Powder, 750 F.2d at 1576. However, the amount of experimentation required must not be unduly extensive. Id.
To comply with section 112 the description must be sufficient to allow someone with ordinary skill in the art to which it pertains or with which it is most clearly connected to practice the invention. The specification needs to describe the invention only in such detail as to enable a person skilled in the most relevant art to make and use it. In re Naquin, 398 F.2d 863, 866 (CCPA 1968). When an invention, in its different aspects, involves distinct arts, the specification is adequate when it enables those who have the best chance of being able to carry out the aspect related to their specialty. Id. If two distinct technologies are relevant to an invention, then the disclosure will be adequate if a person of ordinary skill in each of the two technologies could practice the invention from the disclosures. In re Brown, 477 F.2d 946, 950 (CCPA 1973). The person of ordinary skill in the field must be someone who is skilled in the design of the devices in question, not just in the use of the device. Omark Industries, Inc. v. Colonial Tool Co., 672 F.2d 362, 362 (3rd Cir.1982) (user of wood splitting wedge not skilled in art).
The determination of who is skilled in the relevant art is a case-by-case factual determination. In re Wilke, 314 F.2d 558, 565 (CCPA 1963). I find that one skilled in the relevant art for purposes of the '593 patent is one who has formal training in a field such as chemistry or physics, has knowledge of the theories of how CFA works and how such machines function. For those few areas of the CFA where mechanical or electrical engineering knowledge is necessary, one skilled in the art should have enough knowledge to know when to consult with an expert in that area.
Technicon asserts that Alpkem's experts, Drs. Thiers, Habig, and Walker, are skilled in the use of CFA apparatus but are amateurs in the field of CFA manufacture and design. Dr. Thiers holds bachelors, masters, and doctorate degrees in inorganic and analytical chemistry. Dr. Walker holds an M.D. degree and has had training in both pathology and clinical chemistry. Dr. Habig holds a bachelors degree in chemistry and a doctorate in analytical chemistry. They have all written articles on both the theoretical aspects of CFA and on the construction of CFA devices. All of them were working in the field of CFA by the mid-sixties and worked with the clinical aspects of analyzing patent samples and attempted to develop new devices to improve CFA. In their work together in trying to develop new devices for CFA analysis, Drs. Habig and Thiers worked with a team that included an electronic specialist, *1579 Lou Walters. The fact that Alpkem's experts retained clinical duties as well as conducting research into improving the CFA methodology and devices does not diminish their qualifications as persons of ordinary skill in both the use of and design of devices for CFA.
For its expert witness as to what one of ordinary skill in the art would be able to do or know at the time, Technicon offers Dr. Laessig who holds a bachelors degree in chemistry and a doctorate in analytical chemistry. Dr. Laessig has also built a CFA device, written articles about CFA, and directed a clinical chemistry lab.
Alpkem's experts have training and experience similar to Technicon's experts. All of the experts offered by both parties are very skilled in the art of developing CFA devices and can testify as to whether the '593 patent would be enabling to one of ordinary skill.
In 1978 Dr. Walker experimented with unwetted Teflon conduits and found the experience frustrating. He found that the theoretical advantage of nonwettability in reducing contamination could not be realized because of bubble breakup and violent surging in what should have been a steady flow of air and liquid segments. Dr. Walker stated that these problems were not generally known in the field at the time and that he gave up because he could find no way to stop the problem. Dr. Walker stated that a person of ordinary skill in 1964 would be unaware of an inert liquid segmenting medium nonwetting to Teflon. He stated that he is currently unaware of any liquid which is inert to and immiscible with aqueous samples and which is also nonwetting to Teflon for use in CFA and that no such liquid is generally known.
Dr. Habig and Dr. Thiers worked together with a team of researchers at Duke University to try and develop a CFA device containing the improvements contained in the '593 patent. They were not, however, aware of the patent at the time of their work. Dr. Habig joined Dr. Thiers's research in 1966. Both men stated that the device which they eventually built was the result of long, often frustrating, effort and that they then produced only an experimental device. Both Dr. Habig and Dr. Thiers stated that the disclosures in the '593 patent would not have shortened the effort and would, in fact, have misled the team. The Duke team encountered problems with finding a method of bubble-gating, finding a workable flow cell, changing the flow cell angle to avoid bubble hang up, and proportioning. Solving each of these problems took much time and experimentation on the part of the Duke team. Dr. Thiers also noted that the Duke team was unable to solve the problem of proportioning even with extensive experimentation until after he saw the inventors' patented air bar.
Between 1963 and 1965 Dr. Laessig constructed a CFA system which contained Teflon transmission lines but had eliminated the debubbler. His device also contained an electrochemical detector which developed a voltage signal that controlled the speed of a variable pump. He believes that the patent was enabling in 1964 and that one of ordinary skill in the CFA art could have designed and built the invention disclosed in the '593 patent without undue experimentation.
Some of the particular difficulties encountered by the inventors after the filing of the '593 patent application are discussed above. The problems with the bubble surging and breakup in Teflon conduits, proportioning of the sample and reagent, and the flow tube design will be discussed below as they relate to the enablement requirement.
Drs. Walker, Thiers, and Habig were unsuccessful in using nonwetted Teflon conduits. There is no liquid segmenting medium that does not wet Teflon. The '141 CIP teaches that liquid silicone wets Teflon conduits. Mineral oil and isoamyl alcohol also wet Teflon. In a nonwetted system there are problems with surging and bubble breakup because the air used as a segmenting medium causes a great deal of friction with the conduit walls. The invention of liquid silicone helped solve this problem in a wetted system, where this was not as much of a problem. However, it did not help this *1580 problem in the nonwetted system disclosed by the '593 patent. Presently there is no liquid segmenting fluid available which will not wet Teflon. Therefore, the '593 patent, even when read with the '170 and '141 CIP patents, could not teach one of ordinary skill in the art to use a nonwetted system, with either air or a liquid as a segmenting medium and avoid the problem of bubble breakup and surging.
If the '593 patent had disclosed a wetted system, the proportioning of the sample and the accuracy of the intrasample air bubbles would be very important. Dr. Thiers stated that, after extensive experimentation, he was only able to solve this problem after he saw the inventors' air bar. The air bar was patented in 1967.
To obtain a patent, 35 U.S.C. § 102 requires a showing that the invention was novel and nonobvious. While making this showing would not always negate enablement of a related patent, it is a probative element. In the present case, the air bar was essential to the operation of the '593 patent as a wetted system. The air bar patent shows that the air bar was nonobvious and the Duke team was able to invent an air bar only after seeing the patented air bar. These facts show that even if the '593 patent were to be interpreted to apply to a wetted system, one of ordinary skill in the art would have been unable to construct the device at that time.
Dr. Shamos noted that glass flow cells were a problem in a nonwetted system because of the difference in surface-free energy between the Teflon and the glass. After the '593 patent application was filed, Mr. Smythe and Dr. Shamos began using flow cells that were made of Teflon tubing, were straight and were shorter than the one used in the '593 patent. The optical path of the cell they eventually developed was much shorter than the '593 light path.
The flow cell in the '593 patent was meant to be the standard flow cell used on the AA. That flow cell would not work in a nonwetted system because of bubble hang up. The standard flow cell would not have worked in the wetted system because the volume would be too large for a sample in a wetted system to fill the flow cell. Either the size of the cell or of the intrasample segments used needed to be changed.
The '053 patent is some evidence that the design of the flow cell that would work in the invention disclosed in the '593 patent was not obvious. Dr. Thiers explained the numerous difficulties and extensive experimentation his team performed in trying to design a flow cell that would perform properly. The disclosure as to the flow cell design was not sufficient to allow one of ordinary skill in the art to design a workable flow cell.
All of the experts except Dr. Walker experimented for at least a period of two years before developing an experimental CFA device. Dr. Walker did not experiment for that period of time because he gave up before he actually built a device. The evidence is clear that the teachings of the '593 patent would not have assisted them. In fact, Drs. Habig and Thiers testified that the '593 patent teachings would have been misleading. I accept the testimony of Drs. Thiers, Habig, and Walker and find that the '593 patent does not meet the enabling requirement.
3. Utility.
Title 35 U.S.C. § 101 requires that any patentable invention be useful. The optimal operation of the invention is not required for a valid patent. Atlas Powder, 750 F.2d at 1577. If a properly claimed invention meets at least one stated objective, utility under section 101 is established. See Rytheon Co. v. Roper Corp., 724 F.2d 951, 958 (Fed.Cir.1983). If a court finds infringement of otherwise valid claims then a finding of utility as a matter of law is mandated. Id. at 959. Proof of utility is further supported if the claims have on their merits been met with commercial success. Id. There is a close relationship between the section 101 requirement of utility and the section 112 requirement of enablement. Chisum on Patents, § 7.03(6) at p. 40.6. If a claim fails to meet the utility requirement because it is not *1581 shown to be useful or operative, then it equally fails to meet the how-to aspect of the enabling requirement. See In re Fouche, 439 F.2d 1237 (CCPA 1971). However, the converse is not necessarily true, an invention may have great utility but the specification may fail to disclose adequately how to use it. Mowry v. Whitney, 81 U.S. 620 (14 Wall) 20 L. Ed. 860 (1871).
The utility of an invention must be determined as of the date of the invention. Banning v. Southwestern Bell Tel. Co., 384 F. Supp. 831 (S.D. Texas, 1974). A process is operative if it produces its intended result. In re Ruskin, 354 F.2d 395 (CCPA 1966). To be patentable a device must be useful and to be useful it must work. H. Brinton Co. v. Mishcon, 93 F.2d 445 (1938).
At trial Alpkem conceded that its argument on operability was not strong. The evidence shows that, at the time of the filing of the application, the inventors had built an embodiment which was operable and whose concepts would have great utility and usefulness in the industry. Shamos and Smythe, from the information in their notebooks, clearly had an embodiment that performed. That embodiment may not have been functioning well enough to be commercially valuable at that time, but it was useful both to the research and to the commercial use of the product. The patent is useful and is not invalid on the grounds that it is either inoperative or not useful.
CONCLUSION
The RFA-300 does not infringe Technicon's '593 patent either literally or under the doctrine of equivalents. The '593 patent is unenforceable because of inequitable conduct engaged in by Technicon before the Board of Patent Appeals. The '593 patent is invalid because it failed to disclose the invention sufficiently to enable a person of ordinary skill in the relevant art to build and operate the invention.
NOTES
[1] Under 28 U.S.C. § 1295(a)(1), the United States Court of Appeals for the Federal Circuit has exclusive jurisdiction over appeals from the United States District Courts in patent cases. Decisions of that court are binding on this court. The Court of Appeals for the Federal Circuit has adopted as binding precedent the holdings of the United States Court of Claims and the United States Court of Customs and Patent Appeals ("CCPA"). South Corporation v. United States, 690 F.2d 1368 (Fed.Cir.1982).
[2] Both parties presented testimony and opinions of qualified experts to aid in the examination of these complex issues. I find defendant's expert, Dr. Richard Thiers, to be most credible and knowledgeable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1904962/ | 8 F. Supp. 602 (1934)
In re FULLAGAR.
No. 22285.
District Court, W. D. New York.
November 7, 1934.
Backus & Backus, of Rochester, N. Y., for debtor.
Charles W. Kimball, of Penn Yan, N. Y. (William S. McGreevy, of Geneva, N. Y., of counsel), for objecting creditors.
KNIGHT, District Judge.
The above-named Roger B. Fullagar on September 26, 1934, filed in this court a petition setting forth that he is a farmer and desires to obtain the benefits of the bankruptcy law in so far as it permits him to obtain a compromise of his debts or an extension of the time of payment of such debts, if a compromise is not effected, all as authorized and provided in section 75 (s) of such act (11 USCA § 203 (s).
The schedules of debts included with the petition listed three debts, two of which were claimed to be secured by mortgages on real property of said petitioner, and the other of which was a promissory note in the amount of $359.
On the day such petition was filed, an order was issued out of this court directing Mary E. Watkins and Edward T. Watkins, as executors of the estate of Egbert C. Haines, deceased, to show cause before this court on October 8, 1934, why an action pending in the county court of Yates county, in which such executors were plaintiffs, and Howard S. Fullagar, Cora B. Fullagar, and Roger B. Fullagar were defendants, and which action was brought to foreclose a mortgage executed by said Howard S. Fullagar and Cora B. Fullagar to said Egbert C. Haines, should not be restrained. The mortgage on which said foreclosure action was brought was one of the mortgages aforesaid listed in the schedules here. There admittedly was due and unpaid on said mortgage the sum of $3,900 and interest from March 30, 1929. The other mortgage was given to one Mina S. Winship, and the amount due and unpaid thereon was $2,000, with interest from March 1, 1932. The foreclosure action aforesaid was commenced on September 1, 1934. On August 27, 1934, Howard S. Fullagar and Cora B. Fullagar conveyed all of the lands described in the mortgage, executed to Egbert C. Haines, to Roger B. Fullagar. On the same day these same parties conveyed to Roger B. Fullagar all of the lands included in the mortgage given to Mina S. Winship. The consideration for such conveyances is not shown in any of the papers in this proceeding or in the proofs submitted on this motion.
The executors aforesaid have appeared in opposition to the granting of an order restraining the prosecution of the said foreclosure action and ask that the proceedings herein for the relief of the alleged debtor be dismissed, on these grounds: (1) That petitioner is not a bona fide farmer within the purview and intent of the act; (2) that the proceedings herein have not been brought in good faith; (3) that subdivisions of section 75 (11 USCA § 203 (s) is unconstitutional as class legislation and as violating the Fifth Amendment to the Constitution of the United States.
Ordinarily, questions of fact would be presented which would require an examination of witnesses before the court. Here, however, the disputed questions of fact do *603 not affect the decision which must follow from the uncontradicted facts.
Petitioner did not assume the payment of the Haines mortgage. This mortgage was collateral to bonds given by Howard S. Fullagar and Cora B. Fullagar. Petitioner owned no real estate other than that conveyed to him on August 27, 1934. It appears, as stated in the affidavit of Howard S. Fullagar, that these conveyances were made "to place the said Roger B. Fullagar in a more favorable position to refinance on a composition under the Acts of Bankruptcy." It appears that Howard S. Fullagar is the owner of a very considerable amount of real estate, other than the lands conveyed by him, and that it is worth more than the obligations against it. Petitioner does not claim to own any farm equipment, except a small amount totally inadequate to operate the lands. It appears that petitioner's father, Howard S. Fullagar, handled all the proceeds from the lands in question and all lands now claimed to be owned by petitioner; that petitioner had worked for his father for years; and that since 1931 the father has paid petitioner $10 per week. The proofs submitted show that petitioner was a farm laborer and not a farmer within the contemplation of the act.
Waiving the question of the constitutionality of section 75 (s) (3) of the Bankruptcy Act (11 USCA § 203 (s) (3), it is beyond question that such act was passed for the benefit of bona fide farmers. It was enacted for relief of farmers embarrassed by debts which could not be immediately met. It never could have been intended to afford means whereby one able to meet his obligations as they mature could escape payment of such obligations by transferring property to another, the latter taking the benefit of the Bankruptcy Act in question. Laws are enacted to protect personal and property rights not to permit destroying them by the means adopted here. Here we have an illustration which discloses how purposes other than those intended by the act might be accomplished, if this petition were upheld. Fullagar, Sr., transferred real estate to Fullagar, Jr., to enable him to take the benefit of a law of which otherwise neither could take the benefit. Fullagar, Sr., gets released on his obligations under his bonds. Fullagar, Jr., has nothing to lose by the attempt to come within the provisions of the act, but he gets an extension or reduction of an indebtedness for the benefit of another.
It seems to the court that this petition was not filed in good faith, and that the alleged debtor is not a bona fide farmer within the contemplation of the act.
In view of the views hereinbefore expressed, it is thought to be unnecessary to pass upon the question of the constitutionality of section 75 (s), 11 USCA § 203 (s).
The petition herein should be dismissed and the motion for an order restraining the prosecution of the action in foreclosure denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1904638/ | 889 F. Supp. 396 (1995)
MTC ELECTRONIC TECHNOLOGIES CO., LTD., a Canadian corporation, Plaintiff,
v.
Miko LEUNG, et al., Defendants.
No. CV 94-6293 AAH (JRx).
United States District Court, C.D. California.
May 17, 1995.
*397 *398 Dale F. Kinsella, Jack G. Cairl, Jr., Cathleen Collins, Kinsella, Boesch, Fujikawa & Towle, Los Angeles, CA, for MTC Electronic Technology Co., Ltd.
Laurie D. Zelon, Richard W. Grime, Morrison & Foerster, Los Angeles, CA, for Meridian Securities Intern. Ltd.
DECISION AND ORDER DENYING DEFENDANT MERIDIAN'S MOTION TO DISMISS
HAUK, District Judge.
This matter came on regularly for hearing before this Court on April 10, 1995 before the *399 Honorable A. Andrew Hauk, United States District Judge. This Court has fully considered all legal points and authorities, and arguments and now makes and enters its DECISION and ORDER.
INTRODUCTION
Plaintiff, MTC Electronic Technologies Co., Ltd ("MTC"), a Canadian Corporation, has brought suit against Miko Leung, et al. under the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. ("'34 Act"). One of the defendants, Meridian Securities International Limited ("Meridian"), has moved this Court to dismiss the action against it based upon the following grounds:
(1) Lack of personal jurisdiction [Fed. R.Civ.P. 12(b)(2)];
(2) Forum non conveniens; and
(3) Failure to state a claim upon which relief can be granted [Fed.R.Civ.P. 12(b)(6) ].
Meridian is a brokerage house organized under the laws of Canada based in Toronto, Canada. Plaintiff and responding party, MTC, is also a Canadian corporation with its head office located in Richmond, British Columbia. MTC's stock is traded solely on the National Association of Securities Dealers Automated Quotations ("NASDAQ") Exchange, and over 90% of MTC's shareholders are U.S. residents.
MTC alleges in its First Amended Complaint that certain malfeasant executives, in violation of their fiduciary duties, fraudulently induced MTC into granting options to nonexistent electronic engineers to purchase its stock at one penny per share. These "engineers" were allegedly planning to introduce cellular phone technology to Mainland China. Taking these options, the malfeasant executives allegedly arranged to have hundreds of thousands of shares in MTC stock issued to the "engineers" and after issuance the malfeasant executives then affixed and indorsed signatures of the "engineers" on the back of each stock certificate. (First Amended Compl. ¶¶ 66,69). Based upon these allegedly fraudulent indorsements, the validity of the certificates were later guaranteed by Meridian and then sold on the NASDAQ Exchange, causing injury to MTC and hundreds of MTC's United States shareholders. MTC further alleges that Meridian knew or should have known that these shares had been fraudulently obtained, indorsed and negotiated for the benefit of defendants Miko and Sit Wa Leung and their co-conspirators, all to the detriment of MTC. Based upon these allegations, MTC asserts the following federal claim against Meridian: violation of section 10(b) of the '34 Act and Securities and Exchange Commission ("SEC") Rule 10b-5. In addition, MTC asserts the following supplemental state claims: fraud and deceit; breach of fiduciary duty; negligence; conversion; and equitable indemnification.
DISCUSSION
I. Meridian's Motion to Dismiss for Lack of Personal Jurisdiction
Meridian has moved to dismiss the First Amended Complaint on the grounds that Meridian is not subject to the exercise of personal jurisdiction by this Court. The issue is not the mode or adequacy of the service of process, but rather whether the Court can exercise any jurisdiction over the defendant at all.
The Court has exercised its discretion to receive evidence on this motion through declarations and discovery material. Data Disc, Inc. v. Systems Tech. Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir.1977). For purposes of this motion, this Court considers the pleadings, declarations and evidence in the light most favorable to plaintiff with all doubts resolved in plaintiff's favor. Metropolitan Life Insurance Co. v. Neaves, 912 F.2d 1062, 1064 n. 1 (9th Cir.1990). In order to defeat the instant motion, MTC need only make a prima facie showing that the Court may exercise personal jurisdiction over the defendant. Data Disc, Inc., supra, 557 F.2d at 1285.
Section 27 of the '34 Act, 15 U.S.C. § 78aa, as interpreted by the Ninth Circuit, provides that personal jurisdiction over a foreign defendant exists in any U.S. district court if the foreign defendant has minimum contacts anywhere within the United States. Securities Investor Protection Corp. v. Vigman, *400 764 F.2d 1309, 1316 (9th Cir.1985), rev'd on other grounds, sub nom. Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992); Cf. Semegen v. Weidner, 780 F.2d 727, 730 (9th Cir.1985); Washington Pub. Util. Group v. District Court, 843 F.2d 319, 328 (9th Cir.1987). As such, defendant need not have contacts with the particular state in which the federal court hearing the case is located.
It is a well settled rule of law that in evaluating whether a defendant has minimum contacts with the forum, the court will look at the quantity and nature of the defendant's contacts with the forum, their connection with the cause of action, and the interest of the forum in protecting its citizens. See 4 CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1067 (1994). The contacts cannot be accidental; the defendant must have "purposely availed" himself of the privilege of conducting activity in the forum. International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945). Personal jurisdiction is thus conferred if the defendant has minimum contacts with the forum and if warranted by fair play and substantial justice. Id. The following three-part test is applied to determine whether the defendant has "minimum contacts" with the forum:
1. The nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws.
2. The claim must be one which arises out of or results from the defendant's forum-related activities.
3. The exercise of jurisdiction must be reasonable.
Haisten v. Grass Valley Medical Reimbursement, 784 F.2d 1392, 1396-97 (9th Cir.1986). Further, the Supreme Court has ruled that within the rubric of "purposeful availment," jurisdiction may be exercised over a defendant whose only contact with the forum is the "purposeful direction" of a foreign act which has an effect in the forum. See, e.g., Calder v. Jones, 465 U.S. 783, 789, 104 S. Ct. 1482, 1486-87, 79 L. Ed. 2d 804 (1984).
Meridian argues that it has not purposefully directed its activities so as to have an effect in the United States. (Motion at 5). John Crane, Meridian's President, declares that Meridian did not "trade" the allegedly fraudulent share certificates, but instead acted "solely as the agent for [defendant] First Canada to clear and settle the trades on their behalf." (Crane Decl. ¶ 5). However, it appears that Meridian's involvement in the alleged stock fraud was more extensive than merely administering the trades. Specifically, on seven of the share certificates Meridian guaranteed the authenticity of the allegedly forged signatures, and on three of the certificates they verified that the registered holders and the persons who signed the share certificates were "one and the same." (Cairl Decl., Exhibits A & D). Thus, by certifying these share certificates Meridian purposefully rendered negotiable these shares of stock in the United States via the NASDAQ Exchange in New York. Therefore, in analyzing each of these acts individually and in toto, it appears that by rendering these fraudulent certificates negotiable, Meridian purposefully directed its activities so as to have an effect within the United States.
Additionally, under Haisten the claims asserted against the defendant must be ones which arise out of or result from the defendant's forum-related activities in order for this Court to exercise jurisdiction. Haisten, 784 F.2d at 1397. Here, MTC's claims against Meridian arise out of and result from Meridian's forum-related activities. (First Amended Compl. ¶¶ 40, 52, 107).
Moreover, this Court must ascertain whether it is reasonable for this Court to exercise its jurisdiction over Meridian. Haisten, 784 F.2d at 1397. According to the Supreme Court, "where a defendant who purposefully has directed his activities at forum residents seeks to defeat jurisdiction, he must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 *401 S.Ct. 2174, 2184-85, 85 L. Ed. 2d 528 (1985). Here, it is inconceivable that Meridian, a sophisticated brokerage house, did not know its actions would have effects reaching beyond the territorial boundaries of Canada. Instead, it is apparent that Meridian directed its activities at the United States and at those residents who were shareholders of MTC stock. Further, Meridian has failed to show that it would suffer any inconvenience from being forced to litigate in Los Angeles such that it would offend "traditional notions of fair play and substantial justice." International Shoe, 326 U.S. at 320, 66 S. Ct. at 160. Therefore, this Court's exercise of jurisdiction over Meridian is reasonable.
Meridian's efforts to bring itself within the Second Circuit's holding in Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2nd Cir.1975), cert. denied, sub nom. Bersch v. Arthur Andersen & Co., 423 U.S. 1018, 96 S. Ct. 453, 46 L. Ed. 2d 389 (1975), are unpersuasive. In Bersch, the Second Circuit declined to exercise personal jurisdiction over a Canadian company, finding that the company's involvement in the fraud, as well as its contacts with the United States were insufficient to confer personal jurisdiction. However, the Bersch decision is predicated upon facts that are distinguishable from those before this Court. Bersch involved the underwriting and sale of shares of stock "by a prospectus conforming to the laws of Canada and its provinces." Bersch, 519 F.2d at 980. All of the shares of stock in Bersch "were sold in Canada and none was sold to Americans resident there." Id. In the instant case, not only was the stock sold in the United States via the NASDAQ Exchange, but overwhelmingly the stock purchasers and others who were ultimately affected by the fraud were U.S. residents.
Therefore, the Court finds the following: Meridian purposefully directed its activities so as to have an effect within the United States, Plaintiff's claims arise out of and result from these forum-related activities, and the exercise of personal jurisdiction over Meridian is reasonable. As such, Meridian's motion to dismiss for lack of personal jurisdiction is DENIED.
II. Meridian's Motion to Dismiss for Forum Non Conveniens
Meridian, in moving to dismiss on the grounds of forum non conveniens, must show that there exists an adequate alternative forum and that the balance of private and public interest factors suggests that trial in the present forum chosen by plaintiff would be unnecessarily burdensome. See Lockman Foundation v. Evangelical Alliance Mission, 930 F.2d 764, 767 (9th Cir. 1991).
In this case, Meridian has not offered any facts to support its claim that a Canadian, or any other, forum could afford the plaintiff a remedy in this action. Further, Meridian has offered no evidence that either it or this Court would be unnecessarily burdened by defending the action here in Los Angeles. Meridian does not list a single witness who would have difficulty testifying in Los Angeles, nor any specific problems with producing the Canadian evidence in our Court. Moreover, the United States has a significant interest in having the case adjudicated in its own forum since the United States securities laws govern all securities fraud allegedly committed in transactions on the NASDAQ Exchange.
Accordingly, defendant's motion to dismiss on the grounds of forum non conveniens is DENIED.
III. Meridian's Motion to Dismiss For Failure to State a Claim
According to the United States Supreme Court, a complaint should not be dismissed for failure to state a claim for relief "unless it appears beyond a doubt that 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). Moreover, all allegations of the complaint should be construed favorably to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974). Applying these standards to MTC's complaint, the Court rules on this motion, taking up separately each claim for relief as follows:
*402 Claim 1 Federal Securities Fraud (§ 10(b) of the '34 Act and SEC Rule 10b-5)
Three essential elements must be adequately pleaded:
(a) conduct by the defendants proscribed by the rule;
(b) a purchase or sale of securities "in connection with" such proscribed conduct; and
(c) resultant damages to the plaintiff.
Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1485 (9th Cir.1991).
In its complaint MTC alleges all the requisite facts. First, MTC alleges that Meridian knowingly sold the fraudulently obtained shares, knowingly participated in the fraudulent sale of the shares, and knew or should have known that the shares were fraudulently issued and negotiated. (First Amended Compl. ¶¶ 22, 40, 52, 74). Second, MTC alleges that the sale of securities on the NASDAQ Exchange was done in connection with the alleged misconduct. (First Amended Compl. ¶ 107). Third, MTC alleges that it was injured as a result of a conspiracy, which included the alleged actions by Meridian. (First Amended Compl. ¶ 108).
The three essential elements are adequately pleaded. Therefore, Meridian's motion with respect to MTC's first claim for relief is DENIED.
Claim 4 Fraud and Deceit
MTC alleges that Meridian knowingly participated in the fraud by assisting Miko Leung and/or Sit Wa Leung in selling their fraudulently obtained shares. (First Amended Compl. ¶ 135-6). MTC further alleges that Meridian knew that Miko Leung and/or Sit Wa Leung were making false and misleading statements and failed to inform MTC of this information even though they had an obligation of disclosure. Id. This claim for relief is adequately pleaded and the Court DENIES Meridian's motion to dismiss this claim of fraud and deceit.
Claim 5 Breach of Fiduciary Duty
Meridian argues that as "clearing brokers" they cannot be liable for breach of fiduciary duty. (Motion at 28). Meridian's argument requires the Court to enter into a factual analysis. However, at this stage the Court must restrict its analysis to the four corners of the complaint and refrain from delving into factual matters. Since this court refuses to engage in a secular transubstantiation by transforming this motion into one for Summary Judgment, this inquiry will have to wait.
In contrast to Meridian's self-characterization as "clearing brokers," MTC alleges that Meridian is indeed an investment broker and therefore a fiduciary. MTC maintains that Meridian's fiduciary duty stems from the trust and confidence that MTC placed in Meridian as a result of Meridian's representations of experience and expertise in conducting the business affairs of MTC. (First Amended Compl. ¶ 140). Further, MTC alleges that as a result of these representations Meridian has obligated itself to use special skill and knowledge in carrying out its business. Id. As Plaintiff has adequately alleged a fiduciary relationship and breach thereof, this motion to dismiss is hereby DENIED.
Claim 6 Negligence
California tort law requires five essential elements to be pleaded in order to bring a cause of action for negligence: duty, breach, actual cause, proximate cause, and damages. Clarke v. Hoek, 174 Cal. App. 3d 208, 213, 219 Cal. Rptr. 845, 850 (1985).
MTC alleges that Meridian "owed a duty of care to MTC," that it breached its duty when it "failed to investigate the origin of the shares presented to them for sale by Miko and/or Sit Wa Leung" and that "as a direct and proximate result of the breach" MTC was harmed. (First Amended Compl. ¶ 145-48).
As such, this claim for relief has been adequately pleaded and the Court DENIES Meridian's motion to dismiss this claim of negligence.
Claim 7 Conversion
Conversion, under California law, is the wrongful interference with the dominion over ones ownership or right to property. *403 Jordan v. Talbot, 55 Cal. 2d 597, 610, 12 Cal. Rptr. 488, 495, 361 P.2d 20, 27 (1961). No physical taking is required; instead, any wrongful interference will suffice. Gruber v. Pacific States Savings & Loan Co., 13 Cal. 2d 144, 88 P.2d 137 (1939). Further, any unauthorized sale or transfer of another's property constitutes conversion. Cerra v. Blackstone, 172 Cal. App. 3d 604, 609, 218 Cal. Rptr. 15, 18 (1985).
MTC alleges the following: 1) that Meridian wrongfully exercised dominion and control over stock options and other assets of MTC; 2) that Meridian willfully and wrongfully disbursed and transferred MTC's funds without MTC's consent or authorization; 3) that Meridian conspired with other defendants to assist in the conversion of MTC's assets; and 4) that as a result of the wrongful interference MTC suffered damages. (First Amended Complaint ¶¶ 149-51).
As such, Plaintiff has adequately pleaded this claim, and the Court DENIES Meridian's motion to dismiss this claim of conversion.
Claim 11 Equitable Indemnification
If a party is compelled to pay damages or runs the risk of being compelled to pay damages to one who is wronged, which damages in good conscience should have been paid by the actual wrongdoer, then the party through equitable indemnification will have a cause of action against the wrongdoer for this liability in damages it has paid or owes to the plaintiff. Herrero v. Atkinson, 227 Cal. App. 2d 69, 74, 38 Cal. Rptr. 490, 495 (1964). This duty to indemnify arises since the actual wrongdoer should not be able to escape liability.
MTC alleges that Meridian was in a position to terminate the alleged fraud by either disclosing their knowledge of the fraud or by refusing to participate in its perpetration. (First Amended Complaint ¶ 167-68). MTC further alleges that as a result of Meridian's nonfeasance and/or misfeasance it is now exposed to the risk of costly and protracted shareholder actions. Id. Based upon these allegations, if sustained and realized, MTC would be entitled to indemnification. Therefore, the Court DENIES Meridian's motion to dismiss this claim for equitable indemnification.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1471080/ | 359 F. Supp. 925 (1973)
Harry N. HUSBANDS et al., Plaintiffs,
v.
COMMONWEALTH OF PENNSYLVANIA et al., Defendants.
Civ. A. No. 72-1254.
United States District Court, E. D. Pennsylvania.
May 22, 1973.
*926 Donald J. Orlowsky, ReDavid, Orlowsky & Natale, Media, Pa., for plaintiffs.
James R. Adams, Harrisburg, Pa., for Commonwealth of Pa., Pittenger, Deming Lewis and Pennsylvania State Board of Education.
Lewis B. Beatty, Jr., Butler, Beatty, Greer & Johnson, Media, Pa., for Lambert and Delaware County Intermediate Board of School Directors.
Melvin G. Levy, Levy & Levy, Chester, Pa., for Grosse and Interim Operating Committee for Administrative Unit No. 4.
Clement J. McGovern, Jr., Fronefield, deFuria & Petrikin, Chester, Pa., for Clarence Roberts and Interim Operating Committee for Administrative Unit No. 12.
OPINION AND ORDER
NEWCOMER, District Judge.
Presently before the Court is a motion to dismiss the complaint or to abstain filed by all the above captioned defendants except defendant, Franklin A. Yeager, President of Interim Operating Committee for Administrative Unit No. 5, and defendant, Interim Operating Committee for Administrative Unit No. *927 5. The instant action is brought under the Civil Rights Act of 1964, 42 U.S. C.A. § 1983, by parents individually and on behalf of their children attending public schools within three newly reorganized school districts in the County of Delaware, Commonwealth of Pennsylvania, i. e. Unit 4, Unit 5, and Unit 12. This action is also brought on behalf of all persons similarly situated. The plaintiffs charge that as a result of school district reorganization, they have been forced to attend schools within racially and economically segregated districts and they have been deprived of rights, privileges and immunities secured by the constitution and laws of the United States. Plaintiffs pray for an injunction, altering and revising, or ordering defendants to alter and revise the Delaware County School Reorganization Plan, declaratory relief as to the unconstitutionality of said plan in its present configuration, an injunction restraining the defendants from levying taxes without equalization of assessment ratios, and declaratory relief as to the unconstitutionality of public school financing which places substantial dependence upon local property taxes. The defendants have moved to dismiss the complaint or to abstain because (1) the plaintiffs' first cause of action fails to state a claim upon which relief can be granted, (2) the plaintiffs lack standing to raise the racial issues contained in the first cause of action, (3) there is no federal right to relief from "de facto" segregation, (4) the plaintiffs have failed to exhaust administrative remedies available under state law and thus should not have access to the Federal Courts, (5) the plaintiffs have failed to join necessary parties-defendant, (6) this Court is without proper jurisdiction to determine the merits of plaintiffs' fourth cause of action, (7) the action is barred by Res Judicata, (8) in the alternative, this Court should abstain, (9) the plaintiffs' complaint fails to allege any violation of any right, privilege, or immunity, protected or guaranteed by the Constitution or laws of the United States, (10) the plaintiffs' complaint fails to allege a Constitutionally prohibited state enforced system of racial segregation, (11) the plaintiffs' allegations of "economic discrimination" do not establish the violation of any right, privilege, or immunity protected by the Constitution or laws of the United States, and (12) the plaintiffs' complaint is barred by 28 U.S.C.A. § 1341.
On October 2, 1968, the Delaware County Board of School Directors, pursuant to Act 150 of 1968 (24 P.S. § 2400.1, et seq.) adopted a plan for reorganization of the school districts of Delaware County into 15 new districts. These new districts were reorganized as follows:
Administrative
Unit Municipalities
1 Radnor
2 Haverford
3 Upper Darby
Clifton Heights
Millbourne
4 Lansdowne
Aldan
E. Lansdowne
Darby
Colwyn
Yeadon
5 Collingdale
Sharon Hill
Folcroft
Darby Twp.
6 Glenolden
Prospect Park
Norwood
Tinicum
7 Ridley Twp.
Ridley Park
Eddystone
8 Springfield
Morton
9 Marple
Newtown
10 Edgmont
Middletown
Upper Providence
Media
11 Nether-Providence
Rose Valley
Rutlege
Swarthmore
12 Chester
Chester Twp.
Upland
13 Upper Chichester
Lower Chichester
Marcus Hook
Trainer
14 Parkside
Aston
Brookhaven
15 Concord
Bethel
Chester Heights
*928 The total population, percentage of negro population, total student population, negro student population, and percentage of negro students in those municipalities were as follows:
Administrative Total[*] %[*] Total[**] Negro[**] %
Unit Municipalities Population Negro Students Students Negro
1 Radnor 27,459 2.9(805) 4,351 149 3.4
2 Haverford 55,132 1.6(908) 7,813 152 1.9
3 Upper Darby 95,910 0.2(157)
Clifton Heights 8,348 0.1(10)
Millbourne 637 0 0
_______ ______ ___ ____
104,835 12,762 17 0.1
4 Lansdowne 14,090 3.2(453) |
Aldan 5,001 0.1(6) > 2,974 86 2.87
E. Lansdowne 3,186 0 0 |
Darby 13,729 14.0(1918) |
> 2,534 473 18.2
Colwyn 3,169 0.1(4) |
Yeadon 12,136 15.0(1816) 1,276 431 33.77
_______ ______ ___ _____
51,311 6,784 990 14.6
5 Collingdale 10,605 0.2(23) 1,923 0 0
Sharon Hill 7,464 1.3(94) 1,554 2 0.1
Folcroft 9,610 0.1(14) 1,529 0
Darby Twp. 13,198 30.1(3972) 1,792 1,284 71.59
_______ ______ _____ _____
40,877 6,798 1,286 18.91
6 Glenolden 8,697 0.4(35) |
Prospect Park 7,250 0.5(36) |
Norwood 7,229 0.2(17) >
Tinicum 4,906 0.4(19) |
_______ ______ ___ ____
28,082 5,028 7 0.1
7 Ridley Twp. 39,085 2.0(781) |
Ridley Park 9,025 0.1(8) >
Eddystone 2,706 0.2(5) |
_______ ______ ___ ____
50,816 9,549 215 2.2
8 Springfield 29,006 0.1(26)
Morton 2,602 26.7(695)
_______ ______ ___ ____
31,608 5,546 229 4.0
9 Marple 25,040 0.3(76)
Newtown 11,081 0.1(10)
_______ ______ ___ ____
36,121 7,635 23 0.3
10 Edgmont 1,368 0.5(7)
Middletown 12,878 2.4(305)
Upper Providence 9,234 2.8(258)
Media 6,444 14.7(947)
_______ ______ ___ ____
29,924 6,080 374 6.0
11 Nether-Prov. 13,644 5.2(715)
Rose Valley 821 0.2(2)
Rutlege 1,167 0.6(7)
Swarthmore 6,156 3.7(225)
_______ ______ ___ ____
21,788 4,814 266 5.5
12 Chester 56,331 45.2(25,469) 10,738 8,184 76.1
Chester Tw. 5,708 32.7(1,867) 820 464 56.5
Upland 3,930 0.6(24) 630 3 0.4
_______ ______ _____ ____
65,969 12,188 8,651 70.9
*929
13 Upper Chichester 11,414 7.9(897)
Lower Chichester 4,009 2.7(110)
Marcus Hook 3,041 2.5(76)
Trainer 2,336 3.8(88)
_______ ______ ___ ____
20,800 4,823 383 8.0
14 Parkside 2,343 0
Aston 13,704 0.4(49)
Brookhaven 7,370 0.5(35)
_______ ______ ___ ____
23,417 5,741 3 0.05
15 Concord 4,592 4.4(200)
Bethel 2,034 0
Chester Heights 1,277 2.5(15)
_______ ______ ___ ____
7,903 1,967 13 0.6
Delaware County Totals 596,102[***] 7.3 101,879 12,578 12.6
Under the reorganization plan, thirteen former school districts were reorganized into three new school districts, i. e. Unit 4, Unit 5, and Unit 12. These three units contained 80% of the entire black population of Delaware County, and 87% of the black student population of Delaware County. These units are allegedly composed of former school districts which had the poorest tax base in the County.
I. PLAINTIFFS' COMPLAINT DOES STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED
Several defendants in their motion to dismiss contend that the Complaint fails to state a claim upon which relief can be granted. A complaint need only set out a generalized statement of the facts which will give fair notice of the action. The Federal Rules of Civil Procedure do not require the claimant to plead in detail the facts upon which he bases his claim. Conley v. Gibson, 355 U.S. 41, 47-48, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957).
In considering a motion to dismiss for failure to state a claim under Rule 12(b)(6), a court will consider as admitted, viewing the same in the light most favorable to plaintiff, all facts contained in the complaint and every inference fairly deducible therefrom. MeloSonics Corporation v. Cropp, 342 F.2d 856, 858-859 (3rd Cir. 1965). A complaint should not be dismissed unless it appears to a certainty that the plaintiff would not be entitled to relief under any set of facts which could be proved in support of his claim. Frederick Hart & Co. v. Recordgraph Corp., 169 F.2d 580, 581 (3rd Cir. 1953); Jenkins v. McKeithen, 395 U.S. 411, 421-422, 89 S. Ct. 1843, 23 L. Ed. 2d 404 (1963).
A case brought under the Civil Rights Act of 1964 should not be dismissed at the pleading stage unless it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proved in support of his claim. Holmes v. New York Housing Authority, 398 F.2d 262, 265 (2d Cir. 1968), citing Barnes v. Merritt, 376 F.2d 8, 11 (5th Cir. 1967).
II. THE FIRST CAUSE OF ACTION ALLEGES THAT THE DELAWARE COUNTY PLAN OF SCHOOL REORGANIZATION CREATES SEVERE RACIAL IMBALANCE AND THE IMPLEMENTATION *930 OF SAID PLAN ALLEGEDLY CONSTITUTES DE JURE SEGREGATION AND IS THEREFORE ACTIONABLE UNDER 42 U.S.C.A. § 1983
Paragraphs 27 through 32 of the plaintiffs' Complaint set forth allegations which constitute a denial of the equal protection of the laws of the United States and a breach of 42 U.S.C.A. § 1983.[1] Paragraphs 27 through 32 read as follows:
27. Defendants by preparing and adopting plans for reorganization resulting in the formation of Administrative Units 4, 5, and 12 have encouraged and compelled the formation of racially identifiable school districts which contain blacks in separate schools and build upon and promote racial patterns.
28. Defendant State Board by approving defendant County Board's said plans for reorganization have encouraged and compelled the formation of school districts which concentrate and contain blacks in one school district and whites in the other school districts so as to create racially identifiable school districts.
29. Defendant County Board and Defendant State Board in establishing Administrative Units Nos. 4, 5 and 12 and the adjoining Administrative Units have erected Administrative Units not only to segregate Administrative Units Nos. 4, 5 and 12, but the adjoining Administrative Units as well.
30. The formation of Administrative Units Nos. 4, 5 and 12 encourages and fosters a population movement of whites out of such Administrative Units and promotes the containment of blacks within the area of such Administrative Units.
31. The actions of Defendants, especially in light of the available alternatives in establishing the above segregated and racially identifiable school districts are unconstitutional in that they are in violation of the equal protection clause of the Fourteenth Amendment to the United States Constitution, 42 U.S.C. §§ 1981, 1983 and are supported by no compelling state interest.
32. Because of the allegations described in paragraphs 7 to 31 inclusive of this cause of action, plaintiffs will suffer immediate and irreparable injury for which there is no adequate remedy at law.
In Stringer v. Dilger, 313 F.2d 536, 540 (1963), the Court held that "The statutory prerequisites to liability under 42 U.S.C. § 1983 are: (1) that the defendant act `under color of' state or local law, and (2) that the plaintiff be subjected to a `deprivation of any rights, privileges, or immunities secured by the Constitution and laws.'" There is no doubt that the defendants herein acted "under color of state law." The Complaint states that in adopting the plan, the Delaware County Board of School Directors acted pursuant to Act 150 of 1968 and that said plan was thereafter approved by the defendant, Pennsylvania State Board of Education. Nor do the defendants raise the objection that the requisite state action is here lacking. Rather, the defendants have raised the objection that plaintiffs have charged no more than de facto segregation and that such a claim does not entitle them to relief. To be sure, there is a well-worn distinction which the courts have drawn between de jure and de facto segregation. In Swann v. Charlotte-Mecklenberg, 402 U.S. 1, 91 S. Ct. 1267, 28 L. Ed. 2d 554 (1971), the United States *931 Supreme Court defined de facto segregation as that occurring "where racial imbalance exists in the schools but with no showing that this was brought about by discriminatory action of state authorities." The defendants seek to characterize the present case along these lines, yet the precedents from which they draw belie the comparison. In Spencer v. Kugler, 326 F. Supp. 1235 (D.N.J., 1971), which the defendants say is similar to the instant case, the Court passed on the constitutionality of N.J. 18A:8-1, which essentially stated that "Each municipality shall be a separate local school district . . . ." In upholding the statute, the Court said:
It is clear that these legislative enactments prescribe school district boundaries in conformity with municipal boundaries. This designation of school district zones is therefore based on the geographic limitations of the various municipalities throughout the State. Nowhere in the drawing of school district lines are considerations of race, creed, color or national origin made . . . any purported racial imbalance results from an imbalance in the population of that municipality-school district. Spencer, at 1240.
The defendants cite Bell v. School District of the City of Gary, Indiana, 324 F.2d 209 (7th Cir. 1963), which was based on similar facts. However, it is clear that the racial imbalance complained of in the instant case resulted not from geographic limitations nor from municipal boundaries. With the implementation of the Delaware County Plan, it is no longer relevant to speak in terms of municipality-school districts. We now are concerned with consolidated districts, which transcend municipal boundaries. Having shed the concept of the municipality-school district, the defendant's actions cannot be tested against the Spencer rationale. The defendants themselves formulated the boundaries of these school districts. Allegedly therefore, they effected consolidation in such a manner as to perpetuate existing patterns of segregation. The case of Keyes v. School District, 313 F. Supp. 61, 73 (D.Colo., 1970), enunciated the elements of de jure segregation as follows:
(1) The State, or more specifically, the school administration, must have taken some action with a purpose to segregate;
(2) This action must have in fact created or aggravated segregation at the school or schools in question;
(3) A current condition of segregation must exist; and
(4) There must be a causal connection between the acts of the school administration complained of and the current condition of segregation.
"In order to satisfy this element of purpose, the intent to segregate need not be the sole motive for a school district's action; it need only be one of several factors which motivated the school administration." Keyes, at 74. Moreover, such intent may be proved from the surrounding circumstances. In Keyes, the Court noted that the effect of the Board's various acts was merely to isolate and concentrate Negro students in those schools which were already segregated while maintaining the integrity of the white schools and concluded that "the School Board knew the consequences and intended or at least approved of the resultant racial concentrations." Keyes, at 65.
In the instant case it can hardly be contended that the Delaware County Board and Pennsylvania State Board were not aware of the racial composition of the constituent districts which they undertook to reorganize under Act 150. The standards for approval of administrative units promulgated by the State Board of Education clearly stated that race should not be a factor in determining unit boundaries. Yet the plan which resulted placed black districts together with other black districts and white districts with white districts. A startling illustration in connection with this allegation is the City of Chester and Chester Township. The City of Chester, *932 with a black student population of 76.1% was consolidated with Chester Township, which has a black student population of 56.5%. Adjacent Penn-Delco school district was left 100% white. Such massive disparities may indicate that race was a factor in the realignment. The plaintiffs argue that it is inconceivable that such a result could have been reached by random selection. Even under the strict test laid down in Keyes, supra, the intent to segregate might be inferred from the end resultfor the end result in Deleware County is arguably a system of segregated schools.
Other cases have held segregation actionable even in the absence of any plan or design to segregate.
Equal protection of the laws means more than merely the absence of governmental action designed to discriminate . . . we now firmly recognize that the arbitrary quality of thoughtlessness can be as disastrous and unfair to private rights and public interest as the perversity of a willful scheme. Norwalk CORE v. Norwalk Redevelopment Agency, 395 F.2d 920, 931 (2d Cir., 1968); Hobson v. Hansen, 269 F. Supp. 401, 497 (D.D.C. 1967).
The defendants state that they have not created segregated districts from integrated districts. The plaintiffs argue that having undertaken to realign the various school districts within the County, it was at the very least incumbent upon the defendants not to aggravate existing segregation. In Taylor v. Board of Education of City School District of New Rochelle, 294 F.2d 36, 39 (2d Cir., 1961) cert. denied, 368 U.S. 940, 82 S. Ct. 382, 7 L. Ed. 2d 339 (1961), the Supreme Court struck down school districting upon a finding that "the Board's acceleration of segregation at Lincoln [school] up to 1949 and its actions since then amounting to a perpetuation and a freezing in of this condition negate the argument that the present situation in Lincoln School is only the `chance' or `inevitable' result of applying a neighborhood school policy to a community where residential patterns show a racial imbalance. Rather they make it clear that the Board considered Lincoln as the `Negro' school and that district lines were drawn and retained so as to perpetuate this condition. In short, race was made the basis for school districting, with the purpose and effect of producing a substantially segregated school. This conduct clearly violates the Fourteenth Amendment. . . ."
The defendants object that "plaintiffs have averred, at best, segregation which exists innocently as a result of population and geography and not by virtue of state action." The plaintiffs contend that nowhere does segregation exist "innocently." Moreover, under the instant facts, segregation has allegedly been sanctioned and approved by the state. This Complaint, therefore, has thereby come within the purview of the Fourteenth Amendment and of 42 U.S.C.A. § 1983. As the Court stated in Brewer v. School Board of City of Norfolk, Virginia, 397 F.2d 37, 41 (4th Cir. 1968): "If residential racial discrimination exists, it is immaterial that it results from private action. The school board cannot build its exclusionary attendance area upon private racial discrimination. Assignment of pupils to neighborhood schools is a sound concept, but it cannot be approved if residence in a neighborhood is denied to Negro pupils solely on the ground of color."
Under these circumstances it is clear that the plaintiffs' first cause of action does state facts which constitute the essential elements of de jure segregation. They allege that the defendants did, purposefully or through gross thoughtlessness, so draft the reorganization as to perpetuate and compound existing imbalances and to give formal sanction thereto. The Fourteenth Amendment of the United States Constitution, as interpreted through the cases, mandates that this Court will sit to hear such charges:
The constant theme and thrust of every holding from Brown I to date is that state-enforced separation of the *933 races in public schools is discrimination that violates the Equal Protection Clause. The remedy commanded was to dismantle dual school systems. Swann v. Charlotte-Mecklenburg Board of Education, 402 U.S. 1, 91 S. Ct. 1267, 28 L. Ed. 2d 554 (1971).
III. THE PLAINTIFFS DO NOT LACK STANDING TO RAISE THE RACIAL ISSUES CONTAINED IN THE FIRST CAUSE OF ACTION
The defendants additionally contend that even if the first cause of action does state a claim upon which relief can be granted, still the plaintiffs lack standing to raise the racial issues contained therein. The defendants object on the basis that the plaintiffs are identified only by name and address, not race. The defendants argue that the plaintiffs are not themselves alleged to be blacks, and if, in fact, they are not blacks, they lack the requisite personal stake in the controversy. The plaintiffs' rebuttal to this argument is that even if the plaintiffs are not themselves black, it must be remembered that they are only named plaintiffs who purport to represent a class of citizens and taxpayers, black and white, in excess of 50,000. The plaintiffs' argument continues that if the propriety of the class is upheld, the requisite standing is present. With this statement, we do not agree. This Court recently held "It is a fundamental principle of law that a plaintiff must demonstrate injury to himself by the parties whom he sues before the plaintiff can successfully state a cause of action. This principle is found in Article III, Section 2, Clause 1 of the Constitution which restricts judicial power to `cases' and `controversies.'" (citations omitted) Weiner v. Bank of King of Prussia, 358 F. Supp. 684, 6 (E.D.Pa., 1973, Newcomer, J.). This Court further held that "A plaintiff may not use the procedural device of a class action to boot strap himself into standing he lacks under the express terms of the substantive law. It must be noted that the question of standing is totally separate and distinct from the question of plaintiff's right to represent a purported class under Rule 23. While standing to sue is an essential prerequisite to maintaining an action, whether in one's own right or as a representative of a class, the issues are not convertible. Standing to sue is an essential threshold which must be crossed before any determination as to class representation under Rule 23 can be made. Without standing, one cannot represent a class. . . ." Weiner v. Bank of King of Prussia, supra.
The plaintiffs concede the general proposition that to secure federal relief from a statute or other governmental action on the ground of unconstitutionality, it is necessary that the plaintiff allege that he has sustained or will sustain injury therefrom. Yet this Court would be mistaken were we to attempt to forge this rule of practice into an immutable legal axiom. The courts have been seen to relax the requirement of standing when the circumstances of the case so require. This is especially true in the area of civil rights. In Barrows v. Jackson, 346 U.S. 249, 73 S. Ct. 1031, 97 L. Ed. 1586 (1953), the court permitted a white plaintiff to assert a denial of the rights of black persons in defense to an action for breach of a restrictive covenant: "Under the peculiar circumstances of this case, we believe the reasons which underlie our rule denying standing to raise another's rights, which is only a rule of practice, are outweighed by the need to protect the fundamental rights which would be denied by permitting the damages action to be maintained." See also Sullivan v. Little Hunting Park, 396 U.S. 229, 90 S. Ct. 400, 24 L. Ed. 2d 386 (1969), wherein a white lessor of a membership interest in a community playground sued under 42 U.S.C.A. § 1982, the Fair Housing Title of the Civil Rights Act, and was expelled from the organization for advocating the rights of his black lessee. The court, in Sullivan, in overturning the expulsion, echoed the Barrows decision, in stating that "the white owner is at times *934 `the only effective adversary' of the unlawful restrictive covenant" 396 U.S. at 237, 90 S.Ct. at 404. Therefore, these plaintiffs are not precluded from bringing this suit, though the issues be raised by white plaintiffs in behalf of blacks who are not joined herein.
IV. THE SECOND CAUSE OF ACTION ALLEGES THAT THE DELAWARE COUNTY PLAN OF SCHOOL REORGANIZATION CREATES SEVERE ECONOMIC IMBALANCE, THUS DENYING PLAINTIFFS' EQUAL EDUCATIONAL OPPORTUNITIES, AND SUCH CONDUCT IS ACTIONABLE UNDER 42 U.S.C.A. 1983
Paragraphs 33 through and including 37 of plaintiffs' complaint allege that by preparation and adoption of the aforementioned plans for reorganization, the defendants have created educationally deprived school districts, which operate to deny plaintiffs' equal educational opportunities and are thus violative of the Equal Protection Clause. A cause of action is thereby stated. Even assuming we are dealing only with de facto segregation, still the defendants are under an absolute duty to provide equal educational opportunities to all students.
The present state of the law is that separate educational facilities (of the de facto variety) may be maintained, but a fundamental and absolute requisite is that these shall be equal. Once it is found that these separate facilities are unequal in the quality of education provided, there arises a substantial probability that a constitutional violation exists. This probability becomes more conclusive where minority groups are relegated to inferior schools. . . . Keyes, supra, 313 F.Supp. at 82.
While a school board may not be constitutionally required to integrate schools which become segregated because of the effect of housing patterns, where the schools are not integrated, the separate-but-equal doctrine will be rigorously applied to insure the equality of the black student's educational experience. Hawkins v. Town of Shaw, Mississippi, 437 F.2d 1286 (5th Cir. 1971).
V. THE FOURTH CAUSE OF ACTION ALLEGES THAT THE METHOD OF SCHOOL FINANCING EMPLOYED BY DEFENDANTS, WITH ITS SUBSTANTIAL DEPENDENCE ON LOCAL PROPERTY TAXES, CREATES INVIDIOUS DISCRIMINATION AND THIS METHOD OF SCHOOL TAXATION IS ACTIONABLE UNDER 42 U.S.C.A. § 1983
At the time the plaintiffs filed this case, i. e. June 27, 1972, and at the time the plaintiffs filed their brief in opposition to the motions to dismiss and abstain, i. e. February 2, 1973, the case of Rodriguez v. San Antonio Independent School District, 337 F. Supp. 280 (W.D. Texas 1971), had been appealed to the United States Supreme Court on June 6, 1972, under Docket No. 71-1332, 40 U.S.L.W. 3573. The Rodriguez case was argued before the United States Supreme Court on October 12, 1972, and decided on March 21, 1973. San Antonio Independent School District v. Rodriguez, 411 U.S. 1, 93 S. Ct. 1278, 36 L. Ed. 2d 16 (1973). The Supreme Court decision went against the plaintiff's contention in this instant case and held that the real estate financing system of school districts do not impinge on any fundamental rights since education is not a right afforded explicit or implicit protection under the Constitution, and since even assuming that some identifiable quantum of education was a Constitutionally protected prerequisite to the meaningful exercise of the right of free speech and the right to vote; nevertheless, the real estate tax system did not deny educational opportunities to any child, and there was no showing, in the Rodriguez case, that the system failed to provide an adequate education for all children. The United States Supreme Court further held that the traditional standard of review under the Equal Protection Clause, requiring a showing that *935 the state's action had a rational relationship to legitimate state purposes, was applicable particularly in view of the Court's traditional deference to state legislatures in the areas of fiscal and educational policies and local taxation, and in view of the great potential impact the Rodriguez case would have on the principles of federalism. Under the traditional equal protection test, the Texas financing system, an ad valorem tax by each school district on property within the district to supplement educational funds received by each district from the state, despite its conceded imperfections, rationally furthered a legitimate state purpose, and thus did not violate the equal protection clause, since the system, by its provision for state contributions to each district, assured a basic education for every child, while permitting and encouraging vital local participation and control of the school system through district taxation, and since the system, which was similar to systems employed in virtually every other state, was not the product of purposeful discrimination against any class, but instead was a responsible attempt to arrive at practical and workable solutions to educational problems.
Therefore, the defendants' motions to dismiss as they relate to the fourth cause of action of the plaintiffs' complaint will be granted.
VI. THIS COURT DOES HAVE JURISDICTION OVER THE SUBJECT MATTER OF THE THIRD CAUSE OF ACTION
The defendants raise the further objection that this Court lacks jurisdiction to decide the questions raised under the Third Cause of Action. The Third Cause of Action alleges that:
THIRD CAUSE OF ACTION
38. Defendants, Interim Operating Committees for Administrative Units 4, 5 and 12 have proposed a uniform tax millage rate to apply throughout each unit despite the fact that the assessment ratios applicable in the various component school districts are unequal.
39. Because of the lack of uniformity of assessment ratios in the Administrative Units in question, the levying of a uniform tax millage in each reorganized school district will result in the imposition of an arbitrary, discriminatory and unreasonable higher proportionate school real estate tax payment by plaintiffs and all similar plaintiffs. The repeal of Pennsylvania Act No. 154 of July 8, 1970 (24 P.S. § 6-672.1) as it applies to school districts covering more than one municipality removed the only available remedy for equalization of school taxes.
40. Because of the imposition of tax rates based on patently unequal assessment ratios, plaintiffs and all other similarly situated will be deprived of their right to equal protection of the laws under the 14th Amendment of the United States Constitution, all of which will cause plaintiffs to suffer immediate and irreparable injury for which there is no adequate remedy at law.
The defendants' objection is two pronged. First, the defendants contend that 28 U.S.C.A. § 1341 provides that "The district court shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." The defendants contend that such a plain, speedy, and efficient remedy is provided under Pennsylvania law, wherein an aggrieved taxpayer may petition for review and revision of his assessment, with a further right to appeal to the State Courts. However, it is obvious that nowhere in the administrative scheme is there provided a means by which a taxpayer may challenge the constitutionality of the tax itself. The Board of Assessment is neither equipped nor empowered to entertain such questions. The only remedy is with the courts. The defendants state that Pennsylvania has provided a system whereby a complaint by a taxpayer as to lack of *936 uniformity of property assessments will be reviewed by the County Board of Assessment and Revision of Taxes, then the Court of Common Pleas, and ultimately the Commonwealth Court. This Court notes that the Third Cause of Action is not founded in alleged discrepancies in individual assessments. Rather, the plaintiffs contend that assessment ratios vary largely among the various component districts within each unit. It is the application of a uniform millage rate upon these divergent assessment ratios which allegedly violates the Fourteenth Amendment. Plaintiffs pray not for a review of individual assessments, which would offer a piecemeal solution at best, but for the application of differential millage rates within each new unit, commensurate with the prevailing assessment ratios within each component district. The aforementioned administrative remedies do not comprehend the relief sought.
Secondly, the defendants alternatively urge that the Court lacks jurisdiction to hear the Third Cause of Action under 28 U.S.C.A. 2281:
An interlocutory or permanent injunction restraining the enforcement, operation or execution of any State statute by restraining the action of any officer of such State in the enforcement or execution of such statute or of any order made by an administrative board or commission acting under State statutes, shall not be granted by any district court or judge thereof upon the ground of unconstitutionality of such statute unless the application thereof is heard and determined by a district court of three judges under section 2284 of this title.
The plaintiffs' complaint makes no application for a three-judge court. The defendants argue that this is a fatal defect in the pleading. This issue was answered in Bell v. Waterfront Commission of New York Harbor, 279 F.2d 853 (2d Cir. 1960). The District Court in Bell had reasoned that since the plaintiff had made no application for a three-judge court under § 2281, that the court was without jurisdiction to pass upon the constitutionality of the Waterfront Commission Act. Bell v. Waterfront Comm., 183 F. Supp. 175 (D.C.1960). In overturning this aspect of the decision, the Circuit Court stated that "If, in fact, the complaint had set forth a substantial claim of `unconstitutionality' as used in § 2281, requiring adjudication by a court of three judges, the district judge would not have been warranted in dismissing because plaintiff had not applied for such a court." Bell, at 279 F.2d 856, 857.
§ 2284 directs that in any action `required by Act of Congress' to be so heard and determined, the district judge `on the filing of the application' shall immediately notify the chief judge of the circuit who shall then designate two other judges to serve as members of the court. The `application' referred to is `the application for injunction or other relief' described in the preceding sentence of § 2284(1), not an application for the convening of a court of three judges. This construction finds support in the statement of the Eighth Circuit that `there is no requirement in § 2284 that the applicant for the injunction must determine the need for a three-judge court and make request therefor.' Id., at 857, citing Aaron v. Cooper, 261 F.2d 97, 105 (8th Cir. 1958).
While the Court will not dismiss this complaint because of the plaintiffs' failure to request a three-judge court, the Court notes that the plaintiffs have prayed for an injunction to "restrain and enjoin the defendant, Interim Operating Committees, from levying any taxes without an equalization of assessment ratios." See plaintiffs' complaint, Section XIII, ¶ F. Therefore, this Court will make application to the Chief Judge of the Circuit for the designation of a three-judge court.
*937 VII. ALL PARTIES NECESSARY TO A DISPOSITION OF THE QUESTIONS RAISED HEREIN HAVE BEEN JOINED AS DEFENDANTS
The defendants contend that the complaint must be dismissed under Rule 19 (a) of the Federal Rules of Civil Procedure, for failure to join certain necessary parties. Under Rule 19(a):
A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.
For the reasons stated in VI supra, the plaintiffs believe that the County Board of Assessors is necessary neither as a party in interest, nor as a party without whose joinder complete relief is unavailable. The complaint does not seek equalization of assessment ratios by the County Board of Assessors. Rather, the complaint seeks the adjustment of tax millage rates in each community to compensate for the unequal assessment. This function lies within the province of the defendant school units and not with the County Board of Assessors.
The defendants, however, argue additionally that the relief requested by plaintiffs will affect school districts other than those comprising Units 4, 5 and 12, and that these are necessary parties under Federal Rule of Civil Procedure 19 (a)(2). The crucial question is whether these other school districts do, in fact, "claim an interest relating to the subject of the action." There is little doubt that these school districts may be affected by the results of this action. However, this does not mean that they necessarily have rights cognizable under Federal Rule of Civil Procedure 19(a)(2). The school district boundaries resulted solely from the plan which the plaintiffs in this action seek to invalidate. The districts played no direct role in their formation and they have no proprietary or possessory rights therein. Nor would the absence of these districts prevent this court from awarding complete relief under Federal Rule of Civil Procedure 19 (a)(1). The power to alter school district boundaries resides entirely with the Commonwealth of Pennsylvania, the Pennsylvania State Board of Education, and the Delaware County Intermediate Board of School Directors.
Moreover, Rule 24 of the Federal Rules of Civil Procedure would permit the other school districts to intervene if, in fact, they have sufficient interest in this action. The defendants, Clarence Roberts and Interim Operating Committee for Administrative Unit 12 raise the additional objection that plaintiffs have failed to join the Chester-Upland School District, which is the successor to the aforementioned defendants, having come into existence on July 1, 1972. The plaintiffs note this objection, and request leave to amend their complaint accordingly. Such leave will be granted.
VIII. THIS COURT WILL NOT ABSTAIN FROM DECIDING THE QUESTIONS RAISED THEREIN
The defendants urge that this case is suitable for the application of the abstention doctrine, under which the federal courts reserve discretion to abstain from exercising their jurisdiction where the circumstances so warrant. This is not, however, a proper case for abstention. As the court stated in Spencer, supra, 326 F.Supp. at 1238:
The power to abstain is one residing in the sound discretion of the Court. In a civil suit attacking a state *938 statute on federal constitutional grounds the federal court should hear and decide the case unless the statute is fairly subject to an interpretation which will avoid or modify the federal constitutional question. [citations omitted].
In Holmes v. New York City Housing Authority, 398 F.2d 262, 265-266 (2d Cir., 1968), the Court rejected the application of the doctrine of abstention specifically in an action brought under the Civil Rights Act:
At least in actions under the Civil Rights Act the power of a federal court to abstain from hearing and deciding the merits of claims properly brought before it is a closely restricted one which may be invoked only in a narrowly limited set of `special circumstances' . . . [citations omitted]. In enacting the predecessor to § 1983 Congress early established the federal courts as the primary forum for the vindication of federal rights, and imposed a duty upon them to give `due respect' to a suitor's choice of that forum. [citations omitted]. As a consequence it is now widely recognized that `cases involving vital questions of civil rights are the least likely candidates for abstention [citations omitted].'
A determination of the federal constitutional questions raised by the subject action is fundamental to the disposition thereof. Moreover, since this action is brought under the Civil Rights Act, a long line of authority would militate against the application of the doctrine of abstention in the absence of "special circumstances." No such special circumstances have been shown by the defendants to exist herein. By reason of the foregoing, the plaintiffs contend that this court should exercise its discretion to determine the merits of this cause. With this, we agree.
IX. THIS ACTION IS NOT BARRED BY RES JUDICATA
The defendants each devote considerable portions of their respective briefs to the discussion of res judicata as a bar to the instant action. This argument is premature. Federal Rule of Civil Procedure 12(b) provides as follows:
Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: (1) lack of jurisdiction over the subject matter, (2) lack of jurisdiction over the person, (3) improper venue, (4) insufficiency of process, (5) insufficiency of service of process, (6) failure to state a claim upon which relief can be granted, (7) failure to join a party under Rule 19.
Federal Rule of Civil Procedure 8(c) states:
In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence . . . res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense.
It is apparent under the rules that the plea of res judicata does not test the sufficiency of the pleadings but seeks to avoid a cause of action once stated. This conforms to common usage and practice. In order to make a determination as to the availability of res judicata, this court must necessarily look beyond the plaintiffs' pleadings to matters not of record herein. If the defendants contend that this action is barred by a prior adjudication on the merits, they will have ample opportunity to prove this contention later on.
The counsel for defendants, Clarence Roberts and Interim Operating Committee of Administrative Unit 12, however, has framed the res judicata argument in a context more befitting a motion to dismiss. These defendants maintain that the same issues raised in the instant action *939 were raised and decided in Cleary v. Dalton, No. 13358 of 1971, Delaware County, and this Court is without jurisdiction to review the decision of the Court of Common Pleas of Delaware County.
The plaintiffs argue that first of all it should be noted that this instant action, like Cleary, has been brought by parents, individually and on behalf of their children attending public schools within the three subject school districts. The named plaintiffs are allegedly different in each action, but assuming arguendo that they are rendered identical by virtue of the class action aspect of the complaint, the plaintiffs argue that a careful reading of Judge Bloom's opinion in Cleary, at 17, shows that Judge Bloom made no finding on the merits of plaintiffs' allegations of racial segregation. Regrettably, Judge Bloom's opinion was not included in the pleadings of this action, and therefore this Court is without the benefit of what he had to say. The plaintiffs allege that Judge Bloom held that the issue had been resolved by prior litigation, although the only question decided under these cases was that Act 150 is constitutional. Plaintiffs argue that they are entitled to a long overdue decision on the merits of the First Cause of Action. Furthermore, it is argued that the Cleary decision is devoid of any reference to economic segregation, alleged in the Second Cause of Action herein. In fact, so say the plaintiffs, no decision upon the merits of any of these allegations has ever been made in any action wherein these plaintiffs or those in priority with them were parties. Moreover, the defendant, Commonwealth of Pennsylvania, was not joined as a party defendant in the Cleary case. Therefore, argue the plaintiffs, this action can hardly be said to be tantamount to an appeal from the Court of Common Pleas of Delaware County.
The action herein is brought pursuant to 42 U.S.C.A. § 1983. Furthermore, the plaintiffs contend that counsel for the defendant, Delaware County Intermediate Board of School Directors, asserted in his brief in the Cleary case:
Plaintiffs have also pled and argued violations of the Federal Civil Rights Act. Such cause of action if there be one must necessarily be brought in the Federal Court which is given original jurisdiction in such matters, 28 U.S.C.A. § 1343(3) and (4), at 12.
The plaintiffs further point out that Judge Bloom in his opinion in Cleary, took the position that federal civil rights violations would have to be prosecuted in federal court. The plaintiffs argue that this was Judge Bloom's position because his opinion did not discuss any violations with reference to the Civil Rights Act.
The Court has decided to tread softly with reference to the plaintiffs' argument as to what is or is not in Judge Bloom's opinion, and what was or was not said by counsel for the Delaware County Intermediate Board of School Directors in his brief in the Cleary case. This Court believes it sufficient to say that the affirmative defense of res judicata should more properly be pled in a Rule 8 setting than in a Rule 12 setting. Therefore, this Court will not dismiss this action at this time, but rather will allow the res judicata defense to be raised at another, more proper stage of these proceedings.
X. CONCLUSION
The plaintiffs have pled several matters long ripe for adjudication. This Court possesses jurisdiction over the subject matter of the complaint, and each of plaintiffs' claims for relief are within the cognizance of this Court. Therefore, the Court will grant the defendants' motions to dismiss only as to Count IV of the complaint.
NOTES
[*] Taken from 1970 Census Reports
[**] Taken from "A Summary of Enrollments in Public Schools of Pennsylvania, Fall 1971"
[***] Does not include Birmingham and Thornbury Townships, which are Included in Chester County School Districts
[1] Title 42, U.S.C.A., Section 1983 provides:
"Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1471979/ | 924 F. Supp. 815 (1996)
Barbara WILLING, Plaintiff,
v.
LAKE ORION COMMUNITY SCHOOLS BOARD OF TRUSTEES, Oakland County Board of Canvassers, Lynn Allen, Leanne Bartley, Oakland County Prosecutor's Office, Building for a Better Education, Jill Bastian, and Larry Gruber, Jointly and Severally, Defendants.
Civil Action No. 95-40356.
United States District Court, E.D. Michigan, Southern Division.
May 6, 1996.
*816 Cheryl T. Bell, Thrun, Maatsch & Nordberg, P.C., Lansing, MI, Patrick J. Berardo, Lansing, MI, for Larry Gruber.
Barbara Willing, Lake Orion, MI, pro se.
Thomas P. Vincent, Christina L. Corl, Plunkett & Cooney, Detroit, MI, for Oakland County.
*817 ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND DENYING PLAINTIFF'S MOTION TO AMEND
GADOLA, District Judge.
Presently before this court are several motions relating to the plaintiff's September 26, 1995 complaint:
(1) defendants' motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(5) and 4(m), for the plaintiff's failure to obtain and serve a summons upon these defendants until January 25, 1996, one day after the 120 day period permitted under Rule 4(m).
(2) defendants' motion to dismiss pursuant to Rule 12(b)(6).
(3) defendants' (Oakland County Board of Canvassers, Oakland County Prosecutor's Office and Lynn Allen) motion for summary judgment pursuant to Rule 56.
(4) plaintiff's motion to amend complaint pursuant to Rule 15(a).
The factual background relevant to the determination of these motions is as follows. The plaintiff, Barbara Willing, acting in pro per, filed an action against the above named defendants, purportedly on behalf of all "registered voters of the Lake Orion Community Schools Election District," on September 26, 1995. (Complaint ¶ 1). It is difficult to ascertain from the complaint, but Willing appears to allege certain technical violations and/or "improprieties" occurring in two school elections in Lake Orion on September 26, 1994 and June 12, 1995, as well as two recounts occurring on October 13, 1994 and July 12, 1995. (Complaint ¶ 9). The first election was a bond election conducted by defendant Lake Orion Community Schools, and the second was a school board election also conducted by the Lake Orion Community Schools, in which Willing was a candidate.
Willing asserts that she brought these alleged violations of Michigan election law to the attention of officials in Oakland County, including the Oakland County Prosecutor's Office, the Oakland County Board of Canvassers, and Lynn Allen, the Oakland County Clerk. The Prosecutor's Office conducted an investigation of these allegations, pursuant to MCL § 168.940. That investigation uncovered some technical violations of Michigan election law, but the Prosecutor's Office declined to pursue criminal charges because it found: (1) that the criminal intent necessary to successfully prosecute under the election statute was lacking, and (2) that the technical violations had no impact on the final outcome of the elections.
Willing has brought this action, asserting federal question jurisdiction based upon violations of the Equal Protection Clause of the Constitution, Title 18 §§ 241 and 371, and 42 U.S.C. § 1985(2). Willing also alleges violations of the Fifteenth Amendment and the "Federal Right to Vote Act" (i.e. the Voting Rights Acts of 1964 and 1965, 42 U.S.C. §§ 1971 and 1973i(a)) against defendant Larry Gruber, the director of elections for the Lake Orion School District. In her complaint, Willing also asserts a myriad of state law claims, including violations of: (1) Michigan Election Laws, MCL § 168.733, (2) Article 2, § 4 of the Michigan Constitution, and (3) the Michigan Open Meetings Act, MCL § 15.261, as well as intentional infliction of emotional distress, slander and libel and failure to prosecute under MCL § 168.940. This court notes that many of these state law claims are not obvious from the face of the complaint. It was only through the motions and briefs submitted by the defendants that this court was able to make any sense out of Willing's complaint at all.
In response to the defendants' motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted, Willing has moved to amend her complaint pursuant to Rule 15(a). Willing has conceded that the claims under 18 U.S.C. §§ 241 and 371 are not viable and has moved to "remove" them from the complaint. She also asserts that her claims under 42 U.S.C. § 1985(2) "may be properly handled" under 42 U.S.C. § 1983 and § 1986. Because the plaintiff has failed to comply with Local Rule 15.1, which requires any party who moves to amend a pleading to "attach the proposed amended pleading to the motion," it will be necessary for this court to address each of the theories articulated in Willing's complaint and motion to amend in order to determine whether this *818 court should grant Willing leave to amend her September 26, 1995 complaint.
Federal Rule of Civil Procedure 15(a) provides that leave to amend a pleading "shall be freely given where justice so requires." In determining whether "justice so requires" this court to grant a motion for leave to amend, this court enjoys broad discretion. Hayden v. Ford Motor Company, 497 F.2d 1292, 1294 (6th Cir.1974). Although Rule 15(a) articulates a fairly liberal standard for amendment, it does not require this court to indulge futile amendments. DeLoach v. Woodley, 405 F.2d 496, 496-97 (6th Cir.1968); Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962). If a proposed amendment would not withstand a motion to dismiss, leave to amend should be denied. Keweenaw Bay Indian Community v. State of Michigan, 11 F.3d 1341, 1348 (6th Cir.1993). Given the generality of Willing's motion to amend, which also contains her response to the defendants' motions to dismiss, this court will evaluate seriatim the viability of each of the claims asserted by Willing in her September 26, 1995 complaint and her "proposed" amendments to that complaint under the standard of review for a 12(b)(6) motion.
Federal Rule of Civil Procedure 12(b)(6) authorizes the district courts to dismiss any complaint which fails "to state a claim upon which relief can be granted." Rule 12(b)(6) affords a defendant an opportunity to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true. Under this standard, a complaint should be dismissed only where it appears that the plaintiff can prove no set of facts in support of her claim which would entitle her to relief. Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). In applying this standard, the court must presume all factual allegations in the complaint as true and draw all reasonable inferences in favor of the non-moving party. Id. The court need not, however, accord the presumption of truthfulness to any legal conclusions, opinions or deductions, even if they are couched as factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 629 (9th Cir.1981); Mitchell v. Archibald & Kendall, Inc., 573 F.2d 429, 432 (7th Cir.1978); Sexton v. Barry, 233 F.2d 220, 223 (6th Cir.1956). Accordingly, to determine whether a complaint should be dismissed for failure to state a claim under Rule 12(b)(6), this court must examine the applicable substantive law and the facts alleged in the plaintiff's complaint.
Upon review of the submissions and the applicable authorities, this court has concluded that dismissal of Willing's complaint under Rule 12(b)(6) is warranted because that complaint fails to state any cognizable claims against any of the defendants. Willing's claim under 18 U.S.C. § 241 should be dismissed, because the law is clear that § 241 does not provide a basis for a civil liability. Watson v. Devlin, 167 F. Supp. 638, 640 (E.D.Mich.1958), aff'd 268 F.2d 211 (6th Cir. 1959); Agnew v. Compton, 239 F.2d 226, 230 (9th Cir.1956), cert den. 353 U.S. 959, 77 S. Ct. 868, 1 L. Ed. 2d 910 (1957). Entitled "Conspiracy Against Rights," section 241 provides for criminal penalties for conspiracies "to injure, oppress, threaten, or intimidate any inhabitant of any State, Territory, or District in the free exercise or enjoyment of any right or privilege secured to him by the Constitution of laws of the United States." It does not authorize a civil suit for damages.
Similarly, Willing's claim under 18 U.S.C. § 371, which provides criminal penalties for conspiracies "to commit any offense against the United States," must be dismissed because this statute does not create a civil cause of action. Rapoport v. Republic of Mexico, 619 F. Supp. 1476, 1480 (D.C.D.C. 1985); Fiorino v. Turner, 476 F. Supp. 962, 963 (D.Mass.1979); Milburn v. Blackfrica Promotions, Inc., 392 F. Supp. 434, 435 (S.D.N.Y.1974); Bryant v. Donnell, 239 F. Supp. 681, 685 (W.D.Tenn.1965). It also has nothing to do with this case.
Willing's claims under 42 U.S.C. § 1985 are also improper. Section 1985(2) creates a cause of action for damages against any individuals who conspire: (a) "to deter, by force, intimidation, or threat, any party or witness in any court of the United States from attending such court," or (b) "for the *819 purpose of impeding, hindering, obstructing, or defeating, in any manner, the due course of justice in any State or Territory, with the intent to deny any citizen the equal protection of the laws." The first part of § 1985(2) relates to conspiracies to interfere with the administration of justice in the federal courts, and is clearly inapplicable to this case. Was v. Young, 796 F. Supp. 1041, 1053 (E.D.Mich.1992); Rhodes v. Mabus, 676 F. Supp. 755, 760 (S.D.Miss.1987). The second part of § 1985(2) prohibits interference with the judicial enforcement of rights in state courts and requires proof of a conspiracy to deny equal protection motivated by racial or class-based invidiously discriminatory animus. Kush v. Rutledge, 460 U.S. 719, 722-24, 103 S. Ct. 1483, 1485-87, 75 L. Ed. 2d 413 (1983). Section 1985(2) was not designed to provide any relief to this plaintiff. Even if section 1985(2) applied to this situation, Willing would have failed to make a sufficient allegation of conspiracy to support such an action. Leon v. Federal Reserve Bank of Chicago, 823 F.2d 928, 930 (6th Cir.1987); Pillette v. Detroit Police Dept., 661 F. Supp. 1145, 1148 (E.D.Mich.1987); Porter v. Bainbridge, 405 F. Supp. 83, 91 (D.Ind.1975) (holding that an allegation of individual acts of several defendants taken collectively to allegedly violate rights does not support an action under § 1985(2)); Moss v. Perkins, 682 F. Supp. 395, 396 (N.D.Ill.1988) (concluding that, in the absence of specific evidence of conspiratorial agreement, the fact that defendants are associated in some manner cannot be used to prove existence of a conspiracy). Willing's section 1985(2) claim must be dismissed.
To the extent that Willing intended to bring her § 1985 action under paragraph (3) of that statute, her action would also fail, as claims under § 1985(3) require proof that the defendants' conduct was motivated by racial or class-based discriminatory animus. Griffin v. Breckenridge, 403 U.S. 88, 102-03, 91 S. Ct. 1790, 1798-99, 29 L. Ed. 2d 338 (1971); Azar v. Conley, 456 F.2d 1382, 1386 (6th Cir.1972). It is clear that Willing has no viable action under section 1985(2) or (3).
Similarly, Willing cannot maintain an action under 42 U.S.C. § 1986, because that provision only provides a cause of action for damages against any person who neglects to prevent the conspiracies described in section 1985. The existence of a conspiracy actionable under § 1985, therefore, is an indispensable prerequisite to a section 1986 claim. Selep v. City of Chicago, 842 F. Supp. 1068, 1071 (N.D.Ill.1993); Mahoney v. NOW, 681 F. Supp. 129, 135 (D.Conn.1987); Wagar v. Hasenkrug, 486 F. Supp. 47, 51 (D.Mont. 1980). Accordingly, dismissal of a § 1985 conspiracy claim ipso facto requires dismissal of a § 1986 claim. To the extent that Willing's motion to amend suggests that such a claim is warranted or forthcoming, it must be denied because such an amendment would be futile. Keweenaw Bay Indian Community, 11 F.3d at 1348.
Willing's Fifteenth Amendment claim against Larry Gruber is not discussed in her motion to amend. Review of the authorities demonstrates that this claim should be dismissed. The Fifteenth Amendment provides that "the right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude." It is clear from the language and from the authorities interpreting the Fifteenth Amendment, that proof of a racially discriminatory motivation is a necessary ingredient of a Fifteenth Amendment violation. Mobile v. Bolden, 446 U.S. 55, 62, 100 S. Ct. 1490, 1497, 64 L. Ed. 2d 47 (1980); Lucas v. Townsend, 967 F.2d 549, 551 (11th Cir.1992); Irby v. Virginia State Board of Elections, 889 F.2d 1352, 1356 (4th Cir.1989); Chisom v. Edwards, 839 F.2d 1056, 1064-65 (5th Cir.1988). Willing has made no allegations of any discriminatory purpose as required to state a claim for relief under the Fifteenth Amendment.
Willing's Fourteenth Amendment equal protection claims are similarly suspect. To successfully state a claim that the defendants' administration of state election laws deprived her of equal protection of the laws, Willing must prove that she was treated differently than similarly situated individuals based upon invidious, class-based discrimination. Nordlinger v. Hahn, 505 U.S. 1, 9-10, *820 112 S. Ct. 2326, 2331, 120 L.Ed.2d. 1, 12 (1992); Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 265-66, 97 S. Ct. 555, 563-64, 50 L. Ed. 2d 450 (1977). Specifically, Willing must show that the challenged law or conduct either classifies persons in terms of their ability to exercise a fundamental right or establishes a classification based upon race, national origin, alienage, illegitimacy, or gender. Willing has simply failed to adduce any facts to that effect. Indeed, not only has Willing failed to identify the existence of an invidious class, she has admitted that every registered voter in the Lake Orion Community School District was treated the same. Her complaint is purportedly brought on behalf of all "registered voters of the Lake Orion Community Schools Election District." (Complaint ¶ 1). Willing's equal protection claims must be dismissed.
Willing's claims against Larry Gruber under the federal Voting Rights Acts of 1964 and 1965, 42 U.S.C. §§ 1971 and 1973i are also not discussed in her motion to amend. Upon review of the language of § 1971 and the case law interpreting it, this court finds that section 1971 does not afford Willing a private right of action. Good v. Roy, 459 F. Supp. 403, 405 (D.Kan.1978) (refusing to imply a private right of action). Section 1971 is intended to prevent racial discrimination at the polls and is enforceable by the Attorney General, not by private citizens. 42 U.S.C. § 1971(c). Accordingly, Willing cannot state a claim against Larry Gruber under section 1971. Even if this court implied a private right of action, dismissal would be appropriate because the portion of section 1971 upon which Willing relies does not apply to the school board elections at issue in her complaint. Willing alleges that Gruber interfered with the elections and recounts by "intimidating, harassing and humiliating" the plaintiff(s). Section 1971(b) proscribes intimidation, threats and coercion in elections for "the office of the President, Vice President, presidential elector, Delegates or Commissioners from the Territories or possessions, at any general, special, or primary election held solely or in part for the purpose of selecting or electing any such candidate." By its unambiguous terms, section 1971 does not grant Willing a claim against Larry Gruber.
Similarly, Willing's claims against Larry Gruber fail to state a claim under 42 U.S.C. § 1973i. Section 1973i(a) prohibits any person acting under color of state law from failing or refusing "to permit any person to vote who is entitled to vote under any provision of this Act or is otherwise qualified to vote," or from "willfully refus[ing] to tabulate, count, and report such person's vote." Section 1973i(b) prohibits individuals acting under color of state law, or otherwise, from intimidating, threatening or coercing any individual for voting or attempting to vote. These sections are enforcement provisions of the Voting Rights Act's comprehensive scheme to eliminate racial discrimination in the conduct of public elections. Powell v. Power, 436 F.2d 84, 86-87 (2d Cir.1970) (declining an opportunity to convert the Voting Rights Act into "a general mandate in which Federal courts may correct election deficiencies of any sort."). Absent a claim of any racial or other intentional invidious discrimination, the Voting Rights Act does not provide Willing a remedy. Id. at 87. Willing's federal Voting Rights Act claims should be dismissed.
The only remaining claim that Willing proposes to assert in her motion to amend her complaint is a claim under 42 U.S.C. § 1983. Willing has not specified which federal constitutional or statutory provisions, other than the ones previously discussed, form the basis of her proposed section 1983 claim. Willing states only that her allegations "may be properly handled" under section 1983. To state a prima facie claim under section 1983, a plaintiff must establish that she was deprived of a right secured by the Constitution or by federal law and that she was subjected to this deprivation by a person acting under color of state authority. Searcy v. City of Dayton, 38 F.3d 282, 286 (6th Cir.1994). This court notes that section *821 1983 is not itself a source of substantive rights, but is rather a method for vindicating federal rights elsewhere conferred by those parts of the Constitution and federal statutes it describes. Baker v. McCollan, 443 U.S. 137, 140, 99 S. Ct. 2689, 2692, 61 L. Ed. 2d 433 (1979). Accordingly, any amendment to Willing's complaint asserting a claim under § 1983 based upon any of the federal rights previously considered in this discussion, would clearly be futile. Willing's motion to amend her complaint to assert a claim under section 1983 must be denied.
As the preceding discussion indicates, Willing has failed to assert federal claims upon which relief can be granted. Because there are no federal claims pending before this court, there is no basis for jurisdiction over the myriad of state law theories asserted in Willing's complaint. Willing's state law claims must be dismissed, as this court lacks the requisite jurisdiction over their subject matter. See 28 U.S.C. §§ 1331, 1332, 1367; Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806).
Because this court has determined that dismissal of Willing's complaint is warranted under Rule 12(b)(6), this court need not address the defendants' motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(5) and 4(m) for failure to timely serve. This court expresses no opinion about the merits of that motion and will deny it as moot.
ORDER
Therefore, it is hereby ORDERED that the defendants' motion to dismiss the plaintiff's September 26, 1995 complaint is GRANTED.
IT IS FURTHER ORDERED that the plaintiff's motion to amend her September 26, 1995 complaint pursuant to Federal Rule of Civil Procedure 15(a) is DENIED as futile.
IT IS FURTHER ORDERED that all of the federal claims asserted in the plaintiff's September 26, 1995 complaint are DISMISSED pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state claims upon which relief can be granted.
IT IS FURTHER ORDERED that all of the state law claims asserted in the plaintiff's September 26, 1995 complaint are DISMISSED without prejudice, as this court lacks jurisdiction over their subject matter.
IT IS FURTHER ORDERED that the defendants' motion to dismiss the plaintiff's September 26, 1995 complaint for failure to timely serve pursuant to Federal Rules of Civil Procedure 12(b)(5) and 4(m) is DENIED as moot.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1472020/ | 924 F. Supp. 593 (1996)
Terrance KNOWLES and Lawrence Ebner, Plaintiffs,
v.
The UNITED STATES COAST GUARD, the Council on Environmental Quality, the Advisory Council on Historic Preservation, and the United States Environmental Protection Agency, Defendants.
No. 96 Civ. 1018 (JFK).
United States District Court, S.D. New York.
May 8, 1996.
*594 *595 Antonia Levine, New York City, for Plaintiffs.
Mary Jo White, United States Attorney for the Southern District of New York, New York City (Daniel S. Alter, Asst. U.S. Atty., of counsel), for Defendants.
OPINION AND ORDER
KEENAN, District Judge:
Before the Court is Plaintiffs' motion for a preliminary injunction, pursuant to Fed. R.Civ.P. 65, seeking to bar the United States Coast Guard (the "Coast Guard") from proceeding with its plan to close its Support Center on Governors Island pending the Coast Guard's compliance with the National Environmental Policy Act of 1969 ("NEPA"), 83 Stat. 852, as amended, 42 U.S.C. § 4321 et seq. Also before the Court is Defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1), or in the alternative for summary judgment, on the ground of Plaintiffs' lack of standing. For the reasons set forth below, the Court denies Defendants' motion to dismiss for lack of subject matter jurisdiction, *596 grants Plaintiffs leave to amend the complaint to the extent set forth below, and denies Plaintiffs' motion for a preliminary injunction. The Court holds Defendants' motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative for summary judgment, in abeyance pending the receipt of supplemental memoranda of law.
FINDINGS OF FACT
Plaintiffs seek a preliminary injunction preventing the imminent departure of the Coast Guard from its Support Center on Governors Island. Plaintiffs claim that the Coast Guard, motivated by economic concerns, made the decision to abandon the island without taking the "hard look" at the environmental consequences of its decision required by NEPA. Plaintiffs specifically allege that the Coast Guard violated NEPA by issuing a Finding of No Significant Impact ("FONSI") based on an Environmental Assessment ("EA") of the effects of closing the Support Center. Plaintiffs contend that NEPA required the Coast Guard to prepare a more rigorous and comprehensive analysis of the effects of closure, known as an Environmental Impact Statement ("EIS"), before making its decision to close the Support Center. Because the Coast Guard plans to begin transferring major personnel and operational units from Governors Island on May 10, 1996, this matter has been dealt with on an expedited basis. The Court heard oral argument on May 1, 1996, and now makes the following findings of fact.
Governors Island[1]
Governors Island comprises approximately 175 acres in New York Harbor, just south of the borough of Manhattan and west of the borough of Brooklyn. During most of the last three centuries, the island has served as a military facility, first for the Department of the Army and, since 1966, for the Coast Guard. Because of its strategic location, the island has played roles in the Revolutionary War, the War of 1812, the Civil War, and World Wars I and II.
Governors Island has a rich and colorful history. In 1637, the Dutch West India Company purchased the island from Native Americans "for two ax heads, a bunch of string beads and some iron nails." Stefan Fatsis, Big-City Plans for a Tiny Island Village, Wall Street J., Mar. 29, 1996, at B12 (hereinafter "Big-City Plans"). Originally called "Pagganck" by Native Americans, the current name of the island derives from the early residence there of New Amsterdam's first governor, Wouter Van Twiller.
Governors Island has been put to diverse uses throughout its history, including use as a tobacco plantation (1639), a quarantine station for Palatine Germans (1710), a military station for American Revolutionary War troops (1776), a prison for Confederate Soldiers during the Civil War (1862), and a secure meeting place for important officials, including Ronald Reagan and Mikhail Gorbachev (1988). In 1913, the island also served as a depository for debris from the construction of the New York City subway system, which restored the island to its present size after erosion had dwindled it from 170 acres in the early 1600s to only 70 acres in 1900.
Governors Island retains numerous structural legacies of its military past. Two fortifications known as Fort Jay and Castle Williams, built in the late 1700s and early 1800s, respectively, still stand. In addition, the island's northern half was designated a National Historic Landmark District in 1985. More than sixty structures and elements have been designated as "contributing elements" of the National Historic Landmark.
Governors Island currently houses the Coast Guard's New York Support Center. The Support Center is the Coast Guard's largest facility in the world and serves as a base for approximately twenty-five Coast Guard command operations. The island has approximately 4,000 residents, 115 buildings, and recreation areas that include a parade ground that is also used as a nine-hole golf course.
*597 The Closure Process
Over the years, the Coast Guard has repeatedly considered closing the Support Center on Governors Island for budgetary reasons. Most recently, in 1989, and again in 1993 and 1994, the Coast Guard conducted formal studies to assess the operational and economic ramifications of closing the Support Center. The Coast Guard determined from the studies that it could save approximately $33 million per year by ceasing operations on Governors Island.
The Coast Guard thereafter hired a private environmental consulting firm to prepare an Environmental Assessment ("EA") to assess whether closure of the Support Center would have a significant environmental impact within the meaning of NEPA. In February 1995, the Coast Guard made a draft EA available to various agencies, organizations, and other potentially interested parties for public comment. The Coast Guard also published notice of the availability of the draft EA in the Governors Island Gazette.
In response to comments and criticisms it received, the Coast Guard revised the draft EA. In June 1995, the Coast Guard published notice of the availability of a final EA and a draft FONSI for comment in the Federal Register, the New York Daily News, and the Governors Island Gazette. The Coast Guard also mailed copies of the final EA and draft FONSI to approximately 60 agencies, organizations, and interested parties. After receiving and responding to further agency and public comment, Coast Guard officials signed the Governors Island FONSI on August 2, 1995. On October 16, 1995, the Coast Guard Commandant approved the plan to close the Support Center. As noted above, the first waves of relocation of personnel are scheduled to begin on May 10, 1996. The closing of operations on the base is to continue throughout the summer, with the final closing day expected to be at the end of August 1996. See Feb. 27 Hearing Tr. at 4.
The Instant Action
Plaintiffs commenced this lawsuit with the filing of a pro se complaint on February 9, 1996. At the time of the filing of the complaint, plaintiff Terrance Knowles was employed as an Environmental Protection Specialist to the Coast Guard on Governors Island.[2] Plaintiff Lawrence Ebner is a retired United States Army Lieutenant Colonel residing in Wethersfield, Connecticut. Plaintiffs bring claims against the Coast Guard, the Council on Environmental Quality, the Advisory Council on Historic Preservation, and the United States Environmental Protection Agency under NEPA, the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq., the National Historic Preservation Act ("NHPA"), 16 U.S.C. § 470 et seq., the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, the Civil Service Act of 1883 (the Pendleton Act), and various federal ethics regulations. Plaintiffs' motion for a preliminary injunction seeks to enjoin only the Coast Guard, although all Defendants oppose the motion. Plaintiffs seek injunctive relief solely under NEPA.[3]
Together with the filing of the pro se complaint on February 9, 1996, Plaintiffs moved by Order to Show Cause for a temporary restraining order and preliminary injunction. On the same day, United States District Judge Charles S. Haight, sitting in the Emergency Relief Part, Part I, denied Plaintiffs' request for a temporary restraining order, finding that Plaintiffs had made an insufficient showing of irreparable harm to warrant such relief. Judge Haight also scheduled a hearing on Plaintiffs' motion for a preliminary injunction to take place before United States District Judge Lewis A. Kaplan later that month. After an initial conference *598 before Judge Kaplan, and before the hearing could be held, the action was reassigned to the writer. Plaintiffs retained legal counsel during the pendency of this preliminary injunction motion, and thus no longer proceed pro se.
Plaintiffs are chiefly concerned with the impact closure will have on Governors Island's historic structures. They also express concern with the ultimate disposition of the island after the closure process is complete. Plaintiffs anticipate that the Coast Guard will "excess" the Island after the closure process is complete, setting the stage for public sale of Governors Island by the General Services Administration.
There is no question that there is an abundance of interest in the future of Governors Island. Already, the City of New York has established a task force on the future of the island. "Architects, developers, urban planners, civic leaders and government officials are [also reportedly] eying the island[,] [with] [i]deas ... rang[ing] from a gambling casino to one writer's fanciful Grateful Dead theme park. Other suggestions: high-rise apartments, a new city neighborhood, an educational institution, a corporate conference center." Big-City Plans, supra; see also Robin Pogrebin, Setting Sail with Yoga: `Om' Helps Ease Stress of Base's Closing, N.Y. Times, Mar. 30, 1996, at A2 ("With breath-taking views of Manhattan skyline and the Statue of Liberty, the island also represents one of the most prime pieces of real estate in New York City."); Robert Monroe, Governors Island Sale Tantalizes Developers: Coast Guard Plans to Close Base in 1998, Sun-Sentinel (Ft. Lauderdale), Oct. 22, 1995, at 6A ("Developer Donald Trump says the island is `great visually, great artistically and great for security' conjuring visions of a moated, high-rise community for the mega-rich.").[4]
While this action raises a multitude of issues of public concern, the Court addresses only two on the instant applications: first, whether Plaintiffs have standing to maintain this action and, second, whether Plaintiffs have established that preliminary injunctive relief is warranted. The Court examines each in turn below.
CONCLUSIONS OF LAW
I. Standing
The Court first confronts the threshold justiciability question of whether Plaintiffs have standing to maintain this action. Defendants have moved to dismiss, or in the alternative for summary judgment, on the ground that both Plaintiffs lack standing. Plaintiffs have each submitted an affidavit supplementing and elaborating upon the allegations of the complaint concerning their standing to bring this action. These affidavits are submitted (1) in support of the motion for a preliminary injunction, (2) in opposition to Defendants' motions, and (3) in support of a motion to amend the complaint should the court deem amendment necessary for Plaintiffs to establish standing. As discussed below, the Court finds that Ebner has standing to maintain this lawsuit and thus denies Defendants' Fed.R.Civ.P. 12(b)(1) motion to dismiss for lack of standing. The Court therefore need not reach the question of Knowles' standing. The Court also grants Plaintiffs leave to amend the complaint to allege additional facts relating to standing.
A. Legal Standards
The doctrine of standing involves both constitutional and prudential considerations. The constitutional basis for the standing requirement derives from Article III of the United States Constitution, which instructs that the judicial power extends only to "Cases" or "Controversies." The Supreme Court in Lujan v. Defenders of Wildlife, 504 U.S. 555, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992), articulated the Article III requirements for standing as follows:
First, the plaintiff must have suffered an "injury in fact" an invasion of a legally-protected interest which is (a) concrete and particularized and (b) "actual or imminent, not `conjectural' or `hypothetical[.]'" Second, there must be a causal connection *599 between the injury and the conduct complained of the injury has to be "fairly ... trace[able] to the challenged action of the defendant, and not ... th[e] result [of] the independent action of some third party not before the court." Third, it must be "likely," as opposed to merely "speculative," that the injury will be "redressed by a favorable decision."
Id., 504 U.S. at 560-61, 112 S.Ct. at 2136 (citations omitted).
Even if a plaintiff satisfies the constitutional requirements of standing, "`a court may nevertheless deny standing for prudential reasons.'" Comer v. Cisneros, 37 F.3d 775, 787 (2d Cir.1994) (quoting Lamont v. Woods, 948 F.2d 825, 829 (2d Cir.1991)). Prudential considerations, while not mandated by Article III, act as "rules of judicial `self-restraint.'" Sullivan v. Syracuse Housing Auth., 962 F.2d 1101, 1106 (2d Cir.1992). Prudential considerations
suggest that a plaintiff generally may not rest his claim on the legal rights of a third-party; that courts generally should refrain from adjudicating "abstract questions of wide public significance" which amount to "generalized grievances"; and that the interest asserted by the plaintiff should be "arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question."
Id. at 1106 (citations omitted).
This last prudential consideration, requiring that the plaintiff's injury fall within the "zone of interests" of the statute he or she seeks to enforce, in this case is mandated by the APA. Because NEPA does not provide a private right of action for violations of its provisions, plaintiffs proceeding under NEPA must establish standing under the APA. The APA confers a right to seek injunctive relief to those persons "adversely affected or aggrieved by [final] agency action within the meaning of a relevant statute." 5 U.S.C. § 702; see also 5 U.S.C. § 704 ("agency action" referred to in § 702 means "final agency action"). A plaintiff suing under the APA for a violation of NEPA is therefore required to establish, in addition to constitutional standing, that the injury allegedly suffered by him falls within the "zone of interests" that the statute was designed to protect. Lujan v. National Wildlife Federation, 497 U.S. 871, 883, 110 S. Ct. 3177, 3186, 111 L. Ed. 2d 695 (1990); see also Douglas County v. Babbitt, 48 F.3d 1495, 1499 (9th Cir.1995), cert. denied, ___ U.S. ___, 116 S. Ct. 698, 133 L. Ed. 2d 655 (1996); Sabine River Auth. v. United States Dep't of Interior, 951 F.2d 669, 675 (5th Cir.), cert. denied, 506 U.S. 823, 113 S. Ct. 75, 121 L. Ed. 2d 40 (1992).
NEPA was enacted "to promote efforts that will prevent or eliminate damage to the environment and biosphere and stimulate the health and welfare of man." 42 U.S.C. § 4321 (1988). NEPA's "zone of interests" has thus been construed to encompass claims for injury to the recreational use, aesthetics, or well-being of the human environment. National Wildlife Federation, 497 U.S. at 886, 110 S.Ct. at 3187 ("We have no doubt that `recreational use and aesthetic enjoyment' are among the sorts of interests those statutes were specifically designed to protect."); accord Sabine River Auth., 951 F.2d at 674 (citing Save Our Wetlands, Inc. v. Sands, 711 F.2d 634, 640 (5th Cir.1983)). Economic injury, by contrast, does not fall within NEPA's zone of interests. See Douglas County, 48 F.3d at 1499; Sabine River Auth, 951 F.2d at 676.
The burden of proof is on the plaintiff to establish the elements of standing. Board of Education v. New York State Teachers Retirement System, 60 F.3d 106, 109 (2d Cir.1995). The level of proof required to demonstrate standing increases as the litigation progresses.
At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we "presum[e] that general allegations embrace those specific facts that are necessary to support the claim[.]" In response to a summary judgment motion, however, the plaintiff can no longer rest on such "mere allegations," but must "set forth" by affidavit or other evidence "specific facts," Fed.Rule Civ.Proc. 56(e), which for purposes of the summary judgment motion will be taken to be true. *600 Defenders of Wildlife, 504 U.S. at 561, 112 S.Ct. at 2137.
B. Analysis
Defendants claim that both Plaintiffs lack the requisite "concrete interest" in this action to establish constitutional standing because they have no "geographical nexus" to Governors Island. Defendants also assert that Knowles' claims fall outside the "zone of interests" to be protected by NEPA. The Court first examines whether Mr. Ebner has standing to maintain this action.
The complaint avers the following facts relating to Ebner's standing. Ebner is a retired U.S. Army Lieutenant Colonel residing in Wethersfield, Connecticut. While in the Army, he served on Governors Island from 1959 until 1960, when the island was used as First Army Headquarters. Ebner is a member of several historical societies and authored "The Resolution on Governors Island," which was passed by the local Retired Officers Association Chapters in opposition to closure of the Support Center. Ebner claims that if the Coast Guard leaves Governors Island, he and other retirees and reservists "will suffer the impact of not having this military facility available." Compl. ¶ 34.
These allegations are plainly insufficient to establish standing. See New York State Teachers Retirement Sys., 60 F.3d at 109 (it is plaintiff's burden "`clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute'") (citation omitted). While the complaint describes the reasons for Ebner's interest in Governors Island, it fails to allege his actual use of the island, as required to establish standing under NEPA. National Wildlife Federation, 497 U.S. at 887-89, 110 S.Ct. at 3188-89 (finding that plaintiff claiming injury from federal action damaging environment must allege use of specific area affected by challenged activity). Nor does Ebner plead other facts upon which the Court could find that injury to Governors Island will somehow be "reflected" to Ebner where he currently resides a distance of approximately 100 miles from Governors Island. Cf. Defenders of Wildlife, 504 U.S. at 567 n. 3, 112 S.Ct. at 2140 n. 3 ("The dissent may be correct that the geographic remoteness of [plaintiffs] ... from [the site of the alleged injury] does not `necessarily' prevent ... a finding [of concrete injury] but it assuredly does so when no further facts have been brought forward ... showing that the impact ... will in some fashion be reflected [where plaintiffs are located]."); Kelley v. Selin, 42 F.3d 1501, 1509 (6th Cir.) (finding landowners "in close proximity" to nuclear plant had standing to challenge approval of spent fuel storage tank), cert. denied, ___ U.S. ___, 115 S. Ct. 2611, 132 L. Ed. 2d 855 (1995).
The Court finds, however, that the additional allegations in Ebner's affidavit, together with the representations of his counsel at the oral argument, rectify the factual deficiencies of the complaint and establish Ebner's standing. In the supplemental affidavit, Ebner describes his connection with Governors Island as follows:
My wife and I travel to New York City from Wethersfield as often as we can and can afford, lately at least three times a year. One of our major objectives and enjoyments is revisiting Governor's Island where we walk through the historic district, shop in the local military facilities and relax at an affordable location in a city we love.
Ebner Aff. ¶ 5. In addition, Plaintiffs' counsel represented at the argument that Ebner (who appeared in Court to observe the argument) was at that time staying on Governors Island and that he planned to return to the island on May 11 and 12. May 1 Hearing Transcript ("May 1 Tr.") at 7-8. Plaintiffs' counsel also referred to Ebner's history of visiting the island "over the years." Id. at 36.
The Court finds that these facts establish the necessary "concrete injury" to demonstrate that Ebner has a "personal stake" in the effects of closure of Governors Island. In addition, the prospect of injury to Ebner's aesthetic and recreational interest in the historical sites on Governors Island is within the zone of interests to be protected by NEPA. Because Plaintiffs drafted the complaint pro se, the Court grants Plaintiffs' motion to amend the complaint to allege additional facts relating to standing. See D'Agnillo *601 v. United States Dep't of Housing & Urban Development, 738 F. Supp. 1443, 1449 (S.D.N.Y.1990) (citing Haines v. Kerner, 404 U.S. 519, 520-21, 92 S. Ct. 594, 595-96, 30 L. Ed. 2d 652 (1972) (per curiam)), aff'd, 923 F.2d 17 (2d Cir.), cert. denied, 501 U.S. 1254, 111 S. Ct. 2898, 115 L. Ed. 2d 1062 (1991).
Although Defendants rely on the Supreme Court's decision in Defenders of Wildlife, 504 U.S. at 555, 112 S.Ct. at 2130, in arguing that Ebner lacks standing, the above facts distinguish Ebner from the plaintiffs seeking to establish standing in that action. The plaintiffs in Defenders of Wildlife, who were wildlife conservation and environmental organizations, contended that the Endangered Species Act of 1973 mandated that federal agencies consult with the Department of the Interior to ensure that their actions abroad did not destroy habitat of endangered species. Plaintiffs sought to establish standing through the affidavits of two members of Defenders of Wildlife, who had travelled to Egypt and Sri Lanka, respectively, and had observed endangered species in those countries. Both members, in their affidavits, described their past experiences viewing wildlife abroad and expressed the "hope" and "intent" to return to the countries they had visited in order to observe endangered species. The member who had visited Sri Lanka, when questioned at a subsequent deposition about her plans to return to that country, acknowledged that she had no present plans to return, stating "I don't know [when]. There is a civil war going on right now. I don't know. Not next year, I will say. In the future." Id. at 564, 112 S.Ct. at 2138.
The Court found that the members' affidavits failed to sufficiently allege "injury in fact" because "[p]ast exposure to illegal conduct does not in itself show a present case or controversy ... if unaccompanied by any continuing, present adverse effects." Id. at 564, 112 S.Ct. at 2138 (quotations omitted). The Court further opined that
the affiants' profession of an "inten[t]" to return to the places they had visited before where they will presumably, this time, be deprived of the opportunity to observe animals of the endangered species is simply not enough. Such "some day" intentions without any description of concrete plans, or indeed even any specification of when the some day will be do not support a finding of the "actual and imminent" injury that our cases require.
Id. The Court also noted that where the plaintiff's exposure to the injury is "at least partly within the plaintiff's own control," a "high degree of immediacy" is required, "so as to reduce the possibility of deciding a case in which no injury would have occurred at all." Id. at 564 n. 2, 112 S.Ct. at 2138 n. 2 (citations omitted).
In contrast to the plaintiffs in Defenders of Wildlife, Ebner has demonstrated that "he will soon expose himself to the injury." Id. (citations omitted). Ebner not only has regularly visited the island in the past, but he will also do so in the future. Indeed, he has even provided the Court with a date certain for his return. The Court is thus not presented, as was the Supreme Court in Defenders of Wildlife, with a nebulous plan to "some day" return to the island, but rather a concrete representation that Ebner's return is imminent. Ebner's plans to visit Governors Island on May 11 and 12 evidence the requisite "high degree of immediacy" of injury to demonstrate his personal stake in the outcome of this action.
The Court therefore denies Defendants' motion for summary judgment for Plaintiffs' lack of standing. The Court grants Ebner's motion to amend the complaint to assert the additional facts supporting standing. Because the Court finds that the proposed amendments to the complaint establish Ebner's standing, it need not reach the question of Knowles' standing. Bowen v. Kendrick, 487 U.S. 589, 620 n. 15, 108 S. Ct. 2562, 2580 n. 15, 101 L. Ed. 2d 520 (1988); Watt v. Energy Action Educational Foundation, 454 U.S. 151, 160, 102 S. Ct. 205, 212, 70 L. Ed. 2d 309 (1981).
II. Plaintiffs' Motion for a Preliminary Injunction
Plaintiffs claim that they meet the test for obtaining a preliminary injunction under Fed.R.Civ.P. 65 because they have demonstrated that they will be irreparably harmed *602 absent an injunction barring closure of the island and that they are likely to succeed on the merits of their claims. Defendants, in opposition, argue that Plaintiffs have failed to demonstrate either of those elements. Because the Court finds that Plaintiffs fail to demonstrate that they will suffer irreparable harm in the absence of injunctive relief, it denies the motion for a preliminary injunction.
A. Preliminary Injunction Standards
To obtain a preliminary injunction in this Circuit, the moving party generally has the burden of demonstrating "`(1) irreparable harm should the injunction not be granted, and (2) either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits and a balance of hardships tipping decidedly toward the party seeking injunctive relief.'" NAACP v. Town of East Haven, 70 F.3d 219, 223 (2d Cir.1995) (quoting Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir. 1991)). Where the movant seeks to enjoin governmental action "taken in the public interest pursuant to a statutory or regulatory scheme," the movant must meet its burden under the more stringent "likelihood of success" standard rather than "the less rigorous fair-ground-for-litigation standard." Plaza Health Labs., Inc. v. Perales, 878 F.2d 577, 580 (2d Cir.1989) (citing Union Carbide Agricultural Products Co. v. Costle, 632 F.2d 1014, 1018 (2d Cir.1980), cert. denied, 450 U.S. 996, 101 S. Ct. 1698, 68 L. Ed. 2d 196 (1981); Medical Society of the State of New York v. Toia, 560 F.2d 535, 538 (2d Cir. 1977)); accord Able v. United States, 44 F.3d 128, 131 (2d Cir.1995); L.S.S. Leasing Corp. v. United States General Services Admin., 579 F. Supp. 1565, 1568 (S.D.N.Y.1984) ("[W]here the public interest is involved, `more than a "fair ground for litigation" must be shown before the action will be stopped in its tracks by court order.'") (quoting Union Carbide, 632 F.2d at 1018).
The first element, irreparable harm, is the "single most important prerequisite for the issuance of a preliminary injunction." Reuters Ltd. v. United Press Int'l, Inc., 903 F.2d 904, 907 (2d Cir.1990). See also Town of East Haven, 70 F.3d at 224; USA Recycling, Inc. v. Town of Babylon, 66 F.3d 1272, 1295 (2d Cir.1995), cert. denied, ___ U.S. ___, 116 S. Ct. 1419, 134 L. Ed. 2d 544 (1996). The Second Circuit has described irreparable harm as injury that "is likely and imminent, not remote or speculative, and that ... is not capable of being fully remedied by money damages." Town of East Haven, 70 F.3d at 224 (citing Reuters Ltd., 903 F.2d at 907; Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 975 (2d Cir.1989)); accord Shapiro v. Cadman Towers, Inc., 51 F.3d 328, 332 (2d Cir.1995).
B. NEPA Standards
NEPA was designed with the ultimate goal of protecting the human environment by ensuring that federal agencies "carefully consider detailed information concerning significant environmental impacts." Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 349, 109 S. Ct. 1835, 104 L. Ed. 2d 351 (1989). It was also intended to "guarantee[] that the relevant information will be made available to the larger audience that may also play a role in both the decision-making process and the implementation of that decision." Id.
NEPA requires federal agencies to prepare what is known as an Environmental Impact Statement ("EIS") once the agency has determined that it is about to engage in "major Federal action[] significantly affecting the quality of the human environment." 42 U.S.C. § 4332(2)(C). To assist in determining whether a proposed federal action will have a "significant impact" on the environment, thus triggering the need to prepare a costly and time-consuming EIS, the regulations of the federal Council on Environmental Quality permit federal agencies to first make a preliminary "Environmental Assessment" ("EA"). 40 C.F.R. §§ 1501.3, 1501.4, 1508.9, 1508.27 (1995). "According to these regulations, the EA is a `concise' document that `briefly' discusses the relevant issues and either reaches a conclusion that preparation of an EIS is necessary or concludes with a `Finding of No Significant Impact' (called in environmental jargon, a `FONSI')." Sierra Club v. Marsh, 769 F.2d 868, 870 (1st *603 Cir.1985) (citing 40 C.F.R. §§ 1508.9, 1508.13).
Although NEPA is thus essentially a procedural statute, a plaintiff who is able to prove a federal agency's failure to abide by NEPA's requirements is not, per se, entitled to injunctive relief. In Town of Huntington v. Marsh, 884 F.2d 648, 651 (2d Cir.1989), cert. denied, 494 U.S. 1004, 110 S. Ct. 1296, 108 L. Ed. 2d 473 (1990), the Second Circuit, in an action brought pursuant, inter alia, to NEPA, held that "injunctive relief does not follow automatically upon a finding of statutory violations, including environmental violations." As with all preliminary injunctions, "a threat of irreparable injury must be proved, not assumed, and may not be postulated eo ipso on the basis of procedural violations of NEPA." Id. at 653. Plaintiffs who assert rights under NEPA are therefore required to demonstrate that if a preliminary injunction does not issue, they will suffer the imminent irreparable harm NEPA is designed to protect against: a significant adverse effect on the human environment. See D'Agnillo, 738 F.Supp. at 1456.
C. Analysis
Plaintiffs argue that they face irreparable harm in the form of "significant impacts" on Governors Island's historic structures if an injunction does not issue enjoining the Coast Guard from making further efforts to close the Support Center. Plaintiffs allege specifically that (1) the Coast Guard's failure to prepare an EIS for the Support Center's closure and its failure to assess the impacts of its decision to excess the island "has subjected the Island [specifically, the historical structures] to the risk of serious environmental harm during a substantial period of disuse"; and (2) the Coast Guard's failure "adequately to assess the impacts from the reasonably foreseeable consequences of its decision to close the Island, i.e. disposition/reuse ... giv[es] rise to the potential for significant impacts on the historic structures from future use." Pl. Mem. of Law at 14.[5] Thus, Plaintiffs base their claims of irreparable harm on potential injury to the historic buildings both immediately after closure of the Support Center and in "the future."
The precise question for the Court is whether Plaintiffs have demonstrated that closure of the island will result in immediate irreparable harm in the form of "significant adverse impact" upon Governors Island's historical structures. Cf. D'Agnillo v. Hill, No. 89 Civ. 5609, 1995 WL 110597, at *3 (S.D.N.Y. Mar. 15, 1995), aff'd, ___ F.3d ___, No. 95 Civ. 6133, 1996 WL 47993 (2d Cir. Feb. 2, 1996). The Court finds that they have not.
Plaintiffs ground their application on the Coast Guard's alleged failure to comply with NEPA by not preparing an EIS before deciding to close the Support Center. Assuming arguendo that the Coast Guard was in fact required to prepare an EIS but failed to do so, thus violating NEPA, Plaintiffs are not "automatically" entitled to injunctive relief. Town of Huntington, 884 F.2d at 651; Sierra Club v. Hennessy, 695 F.2d 643, 648 (2d Cir.1982) ("A violation of NEPA does not necessarily require a reflexive resort to the drastic remedy of an injunction."); D'Agnillo, 738 F.Supp. at 1456 (collecting cases). Even assuming a violation of NEPA, Plaintiffs are still required to demonstrate that the historic structures face "actual and imminent" irreparable harm in the absence of an injunction. See Tom Doherty Assocs., Inc. v. Saban Entertainment, Inc., 60 F.3d 27, 37 (2d Cir.1995); New York v. Nuclear Regulatory Comm'n, 550 F.2d 745, 755 (2d Cir. 1977).
Plaintiffs' only allegation of irreparable harm is that the historic structures on Governors Island will not receive the same degree of maintenance after the closure of the Support Center as they have been receiving while there has been a "living presence" on the island. May 1 Tr. at 6. There is, however, a fully executed "Programmatic Agreement" in place between the Coast Guard, the *604 General Services Administration, the Advisory Council on Historic Preservation, the New York State Historic Preservation Officer, the City of New York, and the National Trust for Historic Preservation that sets forth a plan for the care of the island's historic structures following closure of the Support Center. The Programmatic Agreement requires that the Coast Guard, after the closure of the Support Center, provide a facility maintenance staff of approximately 24 employees on the island to perform specific maintenance functions (detailed in the Programmatic Agreement) for both the historic and nonhistoric facilities there. The Programmatic Agreement also provides for a fire fighting staff of at least five career firefighters and a security staff of at least two roving security guards to be on duty on the island at all times.
Plaintiffs' counsel candidly acknowledged at oral argument that the Programmatic Agreement, which was executed after the preliminary injunction motion was fully briefed, went "a long way" toward alleviating Plaintiffs' concerns. Id. at 16. Plaintiffs also concede that the Programmatic Agreement has rendered their claims of irreparable harm premised on NHPA § 106 moot. Id. at 5.
The Court agrees with Plaintiffs' counsel's frank concession that the Programmatic Agreement reduces the risk of adverse impact on the historic structures post-closure. The Programmatic Agreement's detailed plan for the preservation of the island's historical structures after closure, even if it does not nullify the risks of harm to the structures, precludes the Court from finding that the closure presents any "actual" and "imminent" threat of irreparable harm to the historical structures.
To the extent that Plaintiffs raise the specter of irreparable harm flowing from the ultimate disposal of the island by the Coast Guard, its claims at this juncture are merely speculative. Regardless of the existence of an apparent plethora of parties interested in Governors Island, those parties will have access to the island only if and when the Coast Guard decides to "excess" the property and the GSA subsequently makes it available for sale. Counsel for the Coast Guard has now represented several times to the Court that no decisions have been made as to disposal of the island, nor are any negotiations in progress with respect to reuse of the island. Id. at 19-20. The Coast Guard has also represented both in its legal memorandum and at oral argument that "should the Coast Guard determine that it no longer needs the property [it] intends to prepare an EIS in connection with that disposition." Gov. Mem. in Opp. to Pl.'s Mot. for Prel. Inj. at 15; May 1, Tr. at 33.
In light of the above, it would be an abuse of discretion to issue an injunction based upon the mere prospect that the Coast Guard will at some future time dispose of Governors Island. As the Second Circuit has wisely warned, "[c]ourts have no business adjudicating the legality of non-events." National Wildlife Federation v. Goldschmidt, 677 F.2d 259, 263 (2d Cir.1982); see also Mobil Oil Corp. v. FTC, 562 F.2d 170, 173 (2d Cir.1977) ("NEPA does not intend that [an agency] may be indefinitely delayed in undertaking its statutory duties by controversy over an EIS concerning events which may never occur."). In addition, the Coast Guard's representation that it will address the environmental effects of disposal of the island by preparing an EIS if and when it decides to reuse or to sell the Island renders the Court unable to "assume that [the Coast Guard] will not comply with [its] NEPA obligations in [this] later stage of development." Conner v. Burford, 848 F.2d 1441, 1448 (9th Cir.1988) (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91 S. Ct. 814, 823, 28 L. Ed. 2d 136 (1971)), cert. denied, 489 U.S. 1012, 109 S. Ct. 1121, 103 L. Ed. 2d 184 (1989); see also Hill, 1995 WL 110597, at *3 (finding no irreparable harm from planned construction of housing where "plans for development remain on the drawing board [and] [c]onstruction is not close at hand"); Stand Together Against Decay, Inc. v. Board of Estimate, 690 F. Supp. 1192, 1198 (E.D.N.Y.1988) (declining to enjoin proposed condemnation of land where there would be a "time lag" between land acquisition and significant environmental change during which defendants were required to give notice to *605 ensure that change to the environment could be challenged if necessary); L.S.S. Leasing Corp., 579 F.Supp. at 1569 (finding no irreparable harm on motion for injunction based in part on NEPA seeking to enjoin proceeding with and planning for construction of building where building not scheduled for completion for two-and-a-half years).
The Court therefore finds that Plaintiffs fail to demonstrate the probability of irreparable harm in the absence of a preliminary injunction. Accordingly, the Court does not reach the question of likelihood of success on the merits. The motion for a preliminary injunction is denied.
CONCLUSION
For the reasons stated above, Plaintiffs' application for a preliminary injunction is denied for failure to make the requisite showing of irreparable harm. The Court also denies Defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and grants Plaintiffs' motion to amend the complaint to the extent specified. The merits of this action are the subject of Defendants' pending motion to dismiss, or in the alternative for summary judgment, a decision on which will be forthcoming after the parties submit supplemental memoranda of law.
SO ORDERED.
NOTES
[1] Except where otherwise indicated, the information in this section is taken from the Final EA for the Closure of Governors Island 2-3, 7, 65-68.
[2] Since filing this action, and in anticipation of the elimination of his position on Governors Island due to the Coast Guard's plans for closure of the Support Center, Mr. Knowles accepted a position with the Coast Guard in Virginia, where he now resides.
[3] Plaintiffs initially also sought injunctive relief based on the Coast Guard's alleged failure to comply with § 106 of the NHPA. They concede that this claim was rendered moot at least for purposes of the motion for a preliminary injunction by the signing of the Programmatic Agreement providing for post-closure maintenance of the historic buildings on Governors Island, as discussed infra.
[4] As the writer observed at oral argument, about all that has not been proposed as a future use for the island is housing the New York Yankees there should they leave their stadium in the Bronx.
[5] Although the pro se "affirmation" originally submitted by Plaintiffs in support of the Order to Show Cause for Preliminary Injunction and Temporary Restraining Order alleged several other types of irreparable harm, Plaintiffs' counsel presented no argument on those additional points in either Plaintiffs' legal memorandum or at the oral argument. Accordingly, the Court does not address those additional allegations of irreparable harm. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1472260/ | 314 F. Supp. 160 (1969)
UNITED STATES of America, By John N. MITCHELL, vice Ramsey Clark, Attorney General, Plaintiff,
v.
UNITED ASSOCIATION OF JOURNEYMEN AND APPRENTICES OF the PLUMBING AND PIPE FITTING INDUSTRY OF the UNITED STATES AND CANADA, PLUMBERS LOCAL UNION NO. 73, INDIANAPOLIS, INDIANA, Indianapolis Plumbers Joint Apprenticeship and Training Committee, Defendants.
No. IP 68-C-45.
United States District Court, S. D. Indiana, Indianapolis Division.
August 15, 1969.
*161 K. Edwin Applegate, U. S. Atty., Indianapolis, Ind., Patrick J. King, Gregory E. Fischbach, United States Department of Justice, Washington, D. C., for the Government.
Fillenwarth & Fillenwarth, Indianapolis, Ind., for defendant United Ass'n of Journeymen and Apprentices of Plumbing and Pipe Fitting Industry of United States and Canada, Plumbers Local Union No. 73, Indianapolis, Ind.
Baker & Daniels, Indianapolis, Ind., for defendant Indianapolis Plumbers Joint Apprenticeship and Training Committee.
MEMORANDUM OF DECISION
DILLIN, District Judge.
This cause having regularly come on for trial upon plaintiff's action against defendants Plumbers Local Union No. 73 of the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada (hereinafter Local 73) and Indianapolis Plumbers Joint Apprenticeship and Training Committee (hereinafter JAC), and the Court having heard the evidence and considered the briefs of the parties, now finds that it has jurisdiction herein, and further finds the following facts and states the following conclusions of law in the form of this memorandum of decision.
The action, commenced February 7, 1968, charges that the defendant Local 73 "has pursued and continued to pursue a policy and practice of discriminating against Negroes, on account of their race, with respect to employment opportunities in the plumbing trade within its jurisdiction." Plaintiff also alleges that the defendant JAC has pursued and continues to pursue "a policy and practice of discriminating against Negro applicants for admission to the apprenticeship program on account of their race." Such alleged acts are said to violate Title VII of the Civil Rights Act of 1964 (78 Stat. 253), Title VII, §§ 701-716; 42 U.S.C.A. §§ 2000e to 2000e-15, and particularly 78 Stat. 261, Title VII, § 707; 42 U.S.C.A. § 2000e-6.
Local 73 is a labor organization engaged in an industry affecting commerce within the meaning of 42 U.S.C. § 2000e(d), (e). JAC is a joint labor-management committee controlling apprenticeship within the meaning of 42 U.S.C. § 2000e-2(d). The Attorney General is authorized to institute this action. 42 U.S.C. § 2000e-6.
Local 73 is a labor organization consisting of an unincorporated association of members engaged in the plumbing construction industry in the State of Indiana in the following counties: Marion, Hancock, Shelby, Johnson, Morgan, Hamilton, Boone, Hendricks and Putnam (east of Road 43, except for territory on a five-mile radius from Courthouse), including Camp Atterbury. The Union's offices are in Indianapolis, Indiana.
According to the official 1960 census, of which the Court takes judicial notice, the total population of the territory of Local 73 was approximately 965,942 (estimating a population of 8,000 for the part of Putnam County described). Of this number, slightly over 100,000, or 10.35 per cent, were Negro, virtually all concentrated in Indianapolis. From January 1, 1960, until March 14, 1968, 1,725 persons worked in the jurisdiction of Local 73; none of them were Negro. Prior to July 1, 1968, no Negro had ever worked as a plumber for a Union contractor within the jurisdiction of Local 73. Membership of Local 73 on March 14, 1968, was 426, all white. At the same time, there were approximately 30 to 35 Negro plumbers in the City of Indianapolis, half of whom held licenses from the City as either master or journeymen plumbers.
Very few Negro plumbers ever applied for membership in Local 73. Those who did, both before and after July 2, 1965, the effective date of the Civil Rights Act of 1964, were stalled along on one pretext or another so that none ever appeared before the examining board for admission. The reputation of Local 73 *162 in the Negro community was that it was a "whites only" local, which effectively discouraged the Negro applicants from pursuing their applications vigorously, and also discouraged other Negro plumbers from applying in the first place.
Local 73 is a party to a collective bargaining agreement with 35 plumbing contractors, pursuant to which it has the exclusive right to refer applicants for employment as plumbers. Contractors are permitted to hire their own men if the local is unable to supply a request within 48 hours, but men so hired are then sent to the local for clearance. The local has not had enough members to meet the demand for many years, and has adopted three methods to meet the shortage: (1) it has advised the United Association of the availability of work in the Indianapolis area, and has utilized "travelers" (members of other United Association locals) who have entered its jurisdiction, (2) it has recruited non-union plumbers for referral and possible membership, and (3) it has issued work permits ("white cards") to workers without sufficient experience to qualify as journeymen. Of several hundred men so obtained since July 2, 1965, all were white until July, 1968, some months after the filing of this action. Prior to July, 1968, Negro plumbers were not told that they could work as "white card" men, nor referred to union contractors, nor recruited for membership in the local; the reverse was true of whites.
When Local 73 finally determined to admit Negro members in mid-1968, the action was so novel that it was thought necessary to make a minute to the effect that the local was to be integrated. This action created dissension on the part of some members, which persists, at least to some extent, at this time.
From the foregoing facts it is clear, and I find, that Local 73, from July 2, 1965, until after the date of filing this action, followed a policy and practice of refusing to refer Negro plumbers, of failing to recruit Negro plumbers for referral or membership on the same basis as white plumbers, and of refusing to accept Negroes as journeymen members.
Turning our attention to the Joint Apprenticeship and Training Committee we find that the JAC is a joint body of five representatives and one alternate from Local 73, and five representatives and one alternate from the Mechanical Contractors' Association of Central Indiana, Inc. (hereinafter MCA). It administers the apprenticeship program for the union and the MCA, establishes standards for the selection of candidates for the apprenticeship program, and determines which persons shall be admitted to the program. The purpose of the program is to train apprentices to become journeyman plumbers. After acceptance, apprentices are indentured to the JAC, and are enrolled in a five-year program involving on-the-job training and related classroom instruction.
Until after the filing of this action, only two Negro youths ever applied for the JAC program, and only one, Aaron Sayles, made his application after July 2, 1965. Neither was accepted. The first youth, Samuel Greene, who had a vocational certificate in plumbing from an Indianapolis high school, applied in 1961 and was told there was no vacancy. However, three months later JAC selected five white applicants to take the aptitude test, three of them having applied subsequent to Greene. All were accepted. Greene was never afforded the opportunity to take the test then or later. He was discriminated against because of his race. Sayles, however, was given the test in 1967, at which time it was administered by a nonpartisan agency. He failed it rather badly. His failure to be accepted by JAC may not be ascribed to discrimination.
Prior to July 2, 1965, it was the practice of the JAC to make marginal notations on virtually all of the applications of apprentice applicants indicating whether they were related to a union member or union contractor; or that they had no relatives in the union. In each year from 1960 through 1967, relatives *163 of union members have fared significantly better in gaining acceptance by JAC than those without such connections: Prior to 1965 virtually all apprentices were recommended either by a relative or a union contractor; in 1965, 1966, and 1967 approximately 80 per cent of all related applicants were accepted, but only approximately 50 per cent of those without relationship. Some of the discrepancy may be justified by the test scores, lower motivation of nonrelated applicants, and the like, but on the whole it is fair to say that nepotism has consistently played a part in the selection of apprentices.
Since Local 73 has no Negro members because of its long history of racial discrimination, the preferential treatment accorded related applicants restricts the opportunities of Negro applicants for the JAC program.
Local 73 has a formal agreement with the MCA to provide summer employment for students. This summer program is limited to sons of union members, hence denying Negroes the opportunity to gain JAC-approved work experience. The JAC takes this summer work experience into consideration when evaluating apprentice applicants. This practice likewise restricts the opportunities of Negro applicants for the JAC program, for obvious reasons.
Prior to 1967, the JAC took no steps to disseminate information concerning the apprenticeship program other than by word of mouth. Because there were no Negro members of the JAC, MCA or Local 73, the JAC's failure to disseminate information other than by word of mouth had the effect of preventing Negroes from obtaining information concerning the program. In 1967, 76 per cent of the apprentice applicants learned of the program through union members or union contractors. The local's discriminatory reputation in the Negro community coupled with the failure of the JAC to disseminate information concerning the program accounts for the small number of Negroes applying to the apprenticeship program.
Based upon the foregoing findings as to the JAC, I conclude that prior to the institution of this action, the JAC had a policy of excluding Negroes from the apprenticeship program.
Commencing in July, 1968, and continuing to date, Local 73 has made a substantial beginning in reversing its former intentional and illegal practices of racial discrimination. Three Negroes have now been admitted to membership in the local. Eight others are working for union contractors as "white card" holders, and presumably will be received into membership in the local at such time as they qualify. The qualifications for membership are reasonable, so long as they are applied in a nondiscriminatory manner. I do not agree with the Government that the requirement that an applicant have a journeyman's license from the City of Indianapolis should be waived as to Negro applicants. The City has an interest in the plumbing trade from the standpoint of the public health and safety, and I can hardly direct Local 73 to ignore a City ordinance in an action to which the City was not made a party.
The JAC has likewise made substantial progress in eliminating discrimination since this suit was filed. Specifically, it has adopted partially objective and reviewable procedures for the evaluation and selection of apprentice applicants which provide for the assignment of point values for the applicant's educational background, test results and work experience. An applicant may be awarded a maximum of 103 points for these factors. In addition, however, each member of the JAC can award a maximum of 25 points based on his impression of the applicant, the average being added into the applicant's final score. The basis for awarding points for the interview is subjective and non-reviewable, and is for such reason less than satisfactory. The JAC has also made a much more diligent effort to secure Negro applicants, with the result that four applied in 1968. (Of the four, three failed to follow through for reasons *164 of their own, and the other was accepted.)
Considering that reformation on the part of the defendants was delayed until well after the filing of this action, and that future officers of Local 73 and members of the JAC may not carry on with the present improved practices, particularly since the integration of Local 73 was by no means greeted by the hosannas of all of its membership, affirmative relief is necessary notwithstanding the improvement. Local 53 of Int. Ass'n of Heat & Frost I. & A. Wkrs. v. Vogler, 5 Cir., 1969, 407 F.2d 1047; Dobbins v. Local 212, International Bro. of Elec. Wkrs., S.D.Ohio, 1968, 292 F. Supp. 413; United States v. Louisiana, E.D.La., 1963, 225 F. Supp. 353, aff'd 1965, 380 U.S. 145, 85 S. Ct. 817, 13 L. Ed. 2d 709.
ORDER
It is therefore ordered, adjudged and decreed as follows:
1. Defendant United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, Plumbers Local Union No. 73, its officers, agents, employees, successors, and all persons in active concert or participation with any of them in the administration of Local 73 are permanently enjoined from engaging in any act or practice relating to employment opportunity which has the purpose or the effect of discriminating against any individual on the basis of race. They shall not exclude or expel any individual from membership, or limit, segregate or classify membership, or fail or refuse to refer an individual for employment, on the basis of race or in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee or as an applicant for employment because of such individual's race. They shall receive and process applications, admit members, affiliate with contractors, test, refer for employment, and otherwise administer all the affairs of defendant Local 73 without regard to race, and so as to insure that no individual is excluded from work opportunities on the basis of race.
MEMBERSHIP
2. Local 73 shall offer examinations for direct journeyman membership at least once every three months for the next two years whenever there are applicants for journeyman membership. Each applicant who meets the prerequisites for taking the examination shall be given at least one week's written notice of the date and place of the examination and the nature of the examination.
3. Local 73 shall continue to offer the journeyman examinations for membership used by the union during the year 1968. Such examination shall be administered orally to those applicants who are unable to read.
4. Local 73 shall admit applicants to membership who meet the prerequisites for taking the examination and successfully attain a passing grade on the examination and pay the necessary initiation fees for journeyman membership. No vote by membership or any constituent board of Local 73 shall be required prior to the admission of persons to membership during the next two years.
5. Local 73 shall not alter or change the employment or referral rights of an individual, based on the individual's failure to achieve a passing grade on the membership examination. The applicant shall be allowed to continue his present employment for a union contractor, if any, and shall be referred out on the same basis as if he had not taken the membership examination.
6. Local 73 shall prepare a brief statement of its admission requirements and procedures, copies of which shall be furnished to the United States, and all applicants for membership, and a copy of the same shall be prominently posted in Local 73's Union Hall.
7. Local 73 shall offer each of the Negro plumbers presently licensed by the City of Indianapolis, and who is not presently a member of the Local, the opportunity *165 to apply for journeyman membership in the union by personally contacting those persons and describing the benefits of union membership. The names and addresses of such individuals appear on Appendix A hereof. Further, any such Negro not desiring membership shall be offered referral out of the union on a nondiscriminatory basis as a "white card" holder. The same invitation shall be tendered to Wilbert L. Smith, 2125 Coil Street, Indianapolis, contingent on his obtaining a City license.
8. Local 73 shall maintain for two years after any examination complete records of the examination, including, but not limited to, all applications for membership, copies of all notices sent to applicants, copies of any replies received from applicants, and copies of the examination administered and answer sheets for the examination. Such records shall be made available for inspection and copying by plaintiff United States upon reasonable intervals during regularly scheduled business hours or at other mutually convenient times. Every three months, for the next two years, Local 73 shall report to the Court and the plaintiff United States the name, address, race and date of application of each applicant for membership, and the action taken with respect to him.
REFERRAL
9. Local 73 shall abide by the terms and conditions of the collective bargaining agreement dated June 10, 1968, and signed by Local 73 and the MCA in referring applicants for employment.
10. Local 73, for the next two years, shall refer all applicants for employment on a first-in first-out basis, regardless of union membership, or the passage of a union examination. Applicants shall be referred in the order that they appear in the referral register and shall be offered referrals to three contractors before they lose their position in the referral register.
11. Local 73 shall require all persons who enter its office to seek employment to sign the referral register. The referral register shall contain the name, date of registration and union affiliation, if any. The information so described above shall be recorded by each person who is an applicant for referral. Local 73 shall only refer those persons who have applied at the union office and signed the referral register.
12. Local 73 shall permit all persons who enter its office to seek employment to sign the referral register and file or update an application for employment during the normal working hours, whether or not any particular union official is present.
13. Local 73 shall require all persons who enter its office to seek employment, who are not members of Local 73, to complete and file with the union an application for employment. Such application shall contain at least the name, address, telephone number, race, age, union affiliation, if any, summary and explanation of plumbing experience of the applicant. The application shall then become a permanent part of the applicant's file, and shall be updated, if necessary, upon each subsequent request for referral by the applicant. The union shall refer only those persons who have on file such an application for employment.
14. Local 73 shall specifically note on the application the reason for refusal to refer any applicant and each applicant refused referral shall be specifically informed that he will not be referred by Local 73 and the reason that he will not be referred.
15. The union shall maintain a register called the Contractor's Register of all requests by contractors for employees. The register shall contain the name of the contractor, the date of the request, the number of employees requested, the special skills requested, if any, and the names, race, union affiliation, if any, dates of referral, and whether the persons referred were hired or refused employment by the contractor.
16. Local 73 shall prepare a brief statement of the operation of its referral *166 system, copies of which shall be furnished to the United States, all applicants for employment, and a copy of which shall be posted prominently within the offices of Local 73.
17. Local 73 shall advise the Indiana Employment Security Division of the requirements and procedures for referral, and shall request that they refer applicants to Local 73 for referral to union contractors. Local 73 shall advise the Indiana Employment Security Division on the first and 15th of each month of their expected manpower requirements.
18. Each 30 days, for the next two years, the defendant shall report to the plaintiff United States the number of applicants for referral by race, the number referred by race, and in the case of each Negro applicant not referred, his name, address and telephone number, and the reasons why he was not referred. Such records shall be made available for inspection and copying by plaintiff United States upon reasonable intervals during regularly scheduled business hours or at other mutually convenient times.
APPRENTICESHIP
19. Defendant Indianapolis Plumbers Joint Apprenticeship and Training Committee, its officers, agents, employees, successors, and all persons in active concert or participation with them in the administration of the apprenticeship program are permanently enjoined from engaging in any act or practice relating to employment opportunity which has the purpose or effect of discriminating against any individual on the basis of race. They shall receive applications, test, evaluate, select applicants, recruit, and otherwise administer the plumbing apprenticeship program without regard to the race of applicants and participants and so as to insure that no individual is subjected to racial discrimination in admission to or participation in the program.
20. The JAC shall continue to follow the standards for the selection of apprentices adopted by the Committee in 1968, and shall assign points based on the factors contained therein, except that the Committee shall amend their standards so as to provide no more than 15 per cent of the total possible number of points for the oral interview, and shall make the interview more objective by assigning maximum points to be awarded in each category set out in Standard 3(d), appearing on page 5 of the 1968 Standards.
21. If changes shall be necessitated in the standards, then the party desiring the change shall provide the Court and the opposing party with 30 days' notice that such changes are desired. Unless the opposing party files an objection to the proposed change within 15 days with this Court, the change may be put into effect. If agreement is not reached between the parties within five days after any such objection, the parties shall each file with the Court a memorandum setting forth the proposed change in the system and the reasons necessitating the change, or the reasons opposing the change, for direction as to whether such change shall be put into effect.
22. The defendant JAC shall take steps to apprise minority group youth residing in the jurisdiction of Local 73 of the qualifications and procedures for admission into the plumbing apprenticeship program. Specifically, the defendant JAC shall advertise for apprentice applicants in at least one local Negro newspaper, at least twice within 30 days, mail informational circulars, explaining application procedures to the guidance counselors of all high schools and junior high schools in Marion County, Indiana, including evening divisions, and to the organizations listed in Appendix B. These procedures shall be repeated in the spring of 1970 and 1971. In addition, such high schools and organizations should also be furnished with apprentice application forms with instructions that an applicant can complete it and mail it to the JAC. This same procedure shall be repeated in the spring of 1970 and 1971.
*167 23. A representative of the defendant JAC shall personally contact the appropriate persons at Crispus Attucks High School, Shortridge High School, George Washington High School, H. E. Wood High School and Arsenal Technical High School advising them of the Plumbers Joint Apprenticeship Committee program, and participate, if permitted to do so, in Career Day exercises and/or other programs designed to acquaint and interest high school and trade school students in the plumbing trade and the Joint Apprenticeship Committee program for the 1969, 1970 and 1971 apprenticeship classes.
24. The Committee shall file, in writing, a report of its activities, describing in detail the actions taken in conformity with paragraphs 22 and 23 of this order. In addition, the report shall state the number of persons who filed applications for the program during that time period and the names, addresses and telephone numbers of all Negro applicants. The reports shall be filed with the Court and submitted to the Department of Justice once every 60 days from the date of the entry of this order until the selection of the 1971 apprenticeship class.
25. The JAC shall maintain all records dealing with apprentice applicants for a two-year period, including an apprentice applicant log reflecting the name, race and date of birth of each applicant, and dates of completion of each step in the application procedure, and the disposition of each application.
26. The defendant JAC shall make available to the plaintiff at any and all reasonable times all records pertaining to the selection of apprentices.
OTHER
27. The United States shall be entitled to recover the costs of this action from the defendants.
28. This Court shall retain jurisdiction of this action for such further relief or modification of this order as may be required.
All of which is considered, ordered and adjudged this 15th day of August, 1969. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1475106/ | 106 U.S. 178 (____)
CLOUGH
v.
MANUFACTURING COMPANY.
Supreme Court of United States.
*179 Mr. Edward N. Dickerson and Mr. Roger H. Lyon for the appellant.
Mr. William Stanley and Mr. Stephen G. Clarke for the appellee.
MR. JUSTICE BLATCHFORD delivered the opinion of the court.
This suit was brought by the Gilbert & Barker Manufacturing Company against Theodore Clough to recover for the infringement of letters-patent granted to John F. Barker, July 26, 1870, for an "improvement in gas-burners." The specification of that patent and its claim are set forth at length in the opinion in Clough v. Barker, ante, p. 166. The answer of the defendant admits that he has made and sold gas-burners substantially like those described in the Barker patent. The principal defence he sets up in the answer is, that he invented the improvement patented to Barker, and obtained letters-patent therefor from the United States on the 14th of June, 1870, being the same patent on which the other suit in the case just cited was founded, and the specification of which is set forth at length in the opinion therein; that the burners which he has made and sold were made under and according to that patent; that he made and used said improvement in December, 1869, and applied for a patent for it Dec. 4, 1869, which was granted, being the said patent of June 14, 1870; that after he had invented and perfected said improvement, and had filed such application for a patent for it, he showed a sample of it to Barker, in May, 1870; and that Barker, thereupon, fraudulently intending to deprive him of the benefits of his invention, obtained a patent for it, being the said patent of July 26, 1870, the gas-burner patented by him being substantially like that previously patented by the defendant, in construction, mode of operation, and result, and being a mere mechanical equivalent therefor. No other anticipation of Barker's invention is set up in the answer. The decree of the court below was in favor of the plaintiff.
The claim of the Barker patent covers a gas-burner having these features: a pillar with holes therein around the circumference at its bottom, and an adjustable or movable surrounding *180 shell or tube, such shell, by being moved up or down, either closing or opening the holes, and thus stopping or permitting the flow of gas through the holes. The general principle of the burner, so far as regards supplying additional gas to the burner, through the holes and the surrounding tube, as the illuminating qualities of the gas become weaker, and as regards having a method of increasing or diminishing such supply by a valve-arrangement covering or uncovering the holes as required, is the same as that of the prior patent to Clough, the appellant, and which was the prior invention. It has been held by this court, in the other suit between the same parties, that a gas-burner made according to the description in the Barker patent infringes both of the claims of the Clough patent, the claim for the method of supplying the additional gas, and the claim for the application of a valve-arrangement to regulate the supply. But the point of the invention and patent of Barker is, that the surrounding shell or tube is so arranged that the screwing of such shell up or down causes it to act as a valve, on the outside of the pillar, to close or open the holes. As a consequence, the interior tubular valve of Clough is dispensed with, the burner is made in two pieces instead of three, is less expensive to make, and, moreover, in regulating the supply of gas, the shell alone revolves, and not the burner with it, as in Clough's burner, and so the flame always remains in one position. We think, from the evidence, that these modifications were new and useful, and sufficient in character to sustain a patent. The burner in the form patented by Barker appears to have superseded the burner in the form patented by Clough, and, after Barker had introduced his burner into use, Clough commenced making for market burners in the same form patented by Barker.
As to the claim that Clough made prior to Barker the form of burner covered by Barker's patent, the Circuit Court held that, the burden of proof being on the defendant to make out that allegation satisfactorily, the evidence fell short of showing clearly that Clough anticipated Barker as to that form of burner. Without discussing the evidence in detail, it is sufficient to say that we concur in that view. The burner of Clough which Barker saw before he made his burner was the *181 Clough burner which had the tubular valve in the inside of the burner-tube.
If the evidence as to the existence prior to the invention of Barker of other burners than that of Clough be considered, on the question of the novelty of the arrangement claimed by the Barker patent, it must be held that none of the prior forms of burner introduced in evidence anticipate the arrangement covered by the claim of the Barker patent.
Decree affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1504944/ | 664 F. Supp. 1533 (1987)
David C. WOLCOTT, Plaintiff,
v.
NATIONWIDE MUTUAL INSURANCE COMPANY, et al., Defendants.
No. C-2-84-854.
United States District Court, S.D. Ohio, E.D.
July 15, 1987.
On Motions to Alter and Amend Judgment August 12, 1987.
*1534 James W. Lewis, Brownfield, Bally & Goodman, Columbus, Ohio (Roderick R. McKelvie, Ashby, McKelvie & Geddes, Wilmington, Del., of counsel), for plaintiff.
Larry H. James, Crabbe, Brown, Jones, Potts & Schmidt, Columbus, Ohio, for defendants.
MEMORANDUM AND ORDER
GRAHAM, District Judge.
Plaintiff herein, David C. Wolcott, brings an action under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. to recover from defendants pension benefits allegedly owed to him and to obtain declaratory relief. Plaintiff has also asserted breach of contract claims based upon pendent and diversity jurisdiction. The controversy in the case centers around the terms of plaintiff's Agent's Agreement with Nationwide Insurance Companies, in particular those provisions *1535 dealing with the Agent's Security Compensation Plan, and whether the laws of ERISA govern the administration of that plan.
The parties are in basic agreement concerning the general history of the case. Plaintiff first became an agent of the defendant insurance companies in 1963. Except for a period of time between 1965 and 1967, when plaintiff was employed as a district manager for defendants, plaintiff remained a licensed agent of the defendants until April, 1982. The terms of the agency arrangement were governed by the Agent's Agreement entered into by plaintiff and defendants. This agreement was renewed and revised over the years of plaintiff's association with the defendant companies.
Under the terms of the agreement, plaintiff was a "captive agent" for the defendants, that is, he was authorized to sell only Nationwide Insurance policies unless he obtained the prior written consent of defendants to write a policy through another company. The agreement defined plaintiff's relationship with the company as that of an independent contractor, and he was paid a commission on his policy sales and renewals. Plaintiff operated his Nationwide agency under the name David C. Wolcott Agency from an office at 2601 Annand Drive, Wilmington, Delaware. Plaintiff's wife, Ruth Wolcott, and plaintiff's daughter, Theresa Hurka, were licensed through Nationwide and worked in plaintiff's office.
The Agent's Agreement also included the terms and conditions of the Agent's Security Compensation Plan. The plan contains two types of benefits, deferred compensation incentive credits and extended earnings. The plan terms include a forfeiture provision which states that the plan will not be liable to a beneficiary who engages in the solicitation or sale of insurance within a year after the termination of the Agent's Agreement and within a twenty-five mile radius of his business location at the time of cancellation.
Late in 1981, Ruth Wolcott and Theresa Hurka formed an insurance agency under the business names of Wolcott and Associates and Corporate Risk Specialists. This new agency solicited and wrote policies for insurance companies other than Nationwide. Corporate Risk Specialists shared office space with plaintiff's agency in the office condominium owned by plaintiff and his wife at 2601 Annand Drive, and the two agencies shared the same phone number. Ruth Wolcott and Theresa Hurka continued to perform some work for plaintiff's agency even after the formation of Corporate Risk Specialists. Ruth Wolcott also retained her subagent status with Nationwide.
In April of 1982, George and Kathryn Hart, clients of plaintiff's agency, were sent a letter by Corporate Risk Specialists, signed "Wolcott & Associates", advising them that their agency now represented additional major insurance companies. Enclosed with the letter, for their consideration, was a replacement policy placed with a company other than Nationwide. Finally, the letter thanked the Harts for their "past valued business" and the "loyalty and confidence you have displayed in dealing with our office over the years."
This letter came to the attention of the defendants and on April 29, 1982, the defendants notified plaintiff that they were immediately cancelling his Agent's Agreement. Plaintiff sought review of this decision with the Nationwide Agents Administrative Review Board, but the termination was affirmed. In May of 1982, plaintiff became associated with Corporate Risk Specialists at the site of his former Nationwide office, and wrote and solicited policies with other insurance companies from that time onward. Plaintiff inquired about his benefits under the Agent's Security Compensation Plan, and was advised by letter that his cancellation was "unqualified", that is, he was ineligible for benefits, because of his violation of the forfeiture clause.
On April 27, 1984, plaintiff filed the instant complaint. Both plaintiff and defendants have filed motions for summary judgment. Summary judgment procedures are governed by Rule 56, Fed.R.Civ.P. which provides:
*1536 The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact.
The evidence must be viewed in the light most favorable to the party opposing summary judgment. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). Summary judgment will not lie if the dispute about a material fact is genuine. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, ___, 106 S. Ct. 2505, 2509, 91 L. Ed. 2d 202 (1986). However, summary judgment is appropriate if the opposing party fails to make a showing sufficient to establish the existence of an element essential to that party's case. Celotex Corp. v. Catrett, 477 U.S. 317, ___, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986).
Plaintiff seeks to recover benefits by way of 29 U.S.C. § 1132(a), which provides that a participant or beneficiary of a pension plan may bring a civil action to recover benefits due him under the plan or to clarify his rights to future benefits under the terms of the plan. Plaintiff contends that the forfeiture provision in the Agent's Security Compensation Plan is invalid under ERISA. Plaintiff relies upon 29 U.S.C. § 1053(a) which provides that "an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age".
The first issue to be resolved is whether plaintiff is an "employee" within the terms of ERISA. The definition of "employee" found in 29 U.S.C. § 1002(2)(B)(6) states simply that "The term `employee' means any individual employed by an employer." This definition provides little insight into the problem. Therefore, courts have turned to other sources in determining whether an individual is an employee under ERISA.
The courts in Short v. Central States, Southeast and Southwest Areas Pension Fund, 729 F.2d 567 (8th Cir.1984) and Wardle v. Central States, Southeast and Southwest Areas Pension Fund, 627 F.2d 820 (7th Cir.1980) looked to traditional common law tests for determining whether an individual was an employee or an independent contractor in the pension plan context.
Additional guidance is provided by decisions of the United States Supreme Court interpreting the term "employee" as used in other regulatory legislation. Those decisions hold that the term "employee" is to be construed in light of the purpose of the statute, that is, the mischief to be corrected and the end to be attained. See e.g. United States v. Silk, 331 U.S. 704, 713, 67 S. Ct. 1463, 1468, 91 L. Ed. 1757 (1947); NLRB v. Hearst Publications, 322 U.S. 111, 64 S. Ct. 851, 88 L. Ed. 1170 (1944). Basically, the total situation must be considered in making this determination, and any one factor is not controlling. United States v. Silk, supra, 331 U.S. at 719, 67 S.Ct. at 1471.
Factors in making this determination include, but are not limited to: 1) the nature and degree of control retained by the employer; 2) the degree of supervision retained by the employer over the details of the work; 3) the extent to which services are an integral part of the employer's business or a distinct business; 4) the duration of the relationship; 5) who supplies the place or instrumentalities of work; 6) the method of payment; 7) the "employee's" opportunity for loss or profit; 8) the amount of initiative, skill, judgment or foresight required of the "employee" for the success of the enterprise; 9) the right to discharge; 10) whether the "employee" is engaged in a business apart from the business of the employer; 11) whether an "employee" can hire and control his own employees; and 12) whether the employer withholds taxes or pays social security for the "employee".
The court in Darden v. Nationwide Mutual Insurance Co., 796 F.2d 701 (4th Cir. 1986) formulated additional tests specifically directed toward the analysis of whether an individual is an employee for purposes of ERISA. These standards are as follows: 1) the "employee" must anticipate retirement benefits, or in other words, the employer must have taken some action that created a reasonable expectation on the *1537 "employee's" part that benefits would be paid in the future; 2) the "employee" must have relied on these expectations by remaining a substantial period of time with the employer and by foregoing other significant means of providing for his or her retirement; and 3) the "employee" must lack sufficient economic bargaining power to obtain contractual rights to nonforfeitable benefits. Id. at 706-707.
The circumstances relevant to the present case, as set forth in the Agent's Agreement and the affidavits and depositions on file, are basically undisputed and reveal no genuine issue of material fact. The Agent's Agreement states that plaintiff was an independent contractor. Plaintiff was required to arrange for his own office space and hire and control his own office employees. He was responsible for his own office expenses and for securing and keeping a license to sell insurance. He was paid on a commission basis rather than by salary except for his first two years as an agent. Thus, the amount of profit made by plaintiff depended largely upon his own skill, judgment and initiative. Plaintiff was free to exercise his own judgment as to the time and manner of sales. Agents such as plaintiff were not eligible to participate in defendants' employee pension or profit sharing plans and did not receive vacation or sick pay. The defendant companies did not withhold income taxes or pay social security taxes for agents such as plaintiff. Plaintiff was responsible for purchasing his own health insurance, although Nationwide offered a group policy which agents could opt to buy. Plaintiff prepared the income tax return for his agency as a business. Either party to the Agent's Agreement had a right to cancel at any time upon written notice.
The record further reveals that defendants provided forms to the agent which remained the property of the company. Plaintiff was listed in the yellow pages of the phone book as a Nationwide Agent and had a Nationwide sign outside his office. Defendants offered training sessions which agents were supposedly free to attend or not as they pleased. However, plaintiff's unrefuted statement in his deposition indicates that as a practical matter, the district manager would admonish him for not attending such meetings. Educational courses were paid for by the defendants. Agents were eligible to join defendants' employee credit union after two years. Failure to keep sales up could result in cancellation of the Agent's Agreement. The business of the agent, selling insurance, was an integral part of the defendants' business. Plaintiff was exclusively a Nationwide agent, and he had no business distinct from that of the defendants unless they authorized him to sell an insurance policy through other companies.
In regard to the additional factors set forth in Darden v. Nationwide Mutual Insurance Co., supra, the record reveals that defendants, by incorporating the Agent's Security Compensation Plan into the Agent's Agreement, created a reasonable expectation that benefits would be forthcoming in the future. Plaintiff relied on that expectation by remaining an agent for the defendants from 1963 to 1982 (excluding the period between 1965 and 1967 when he was a district manager for defendants). Plaintiff also maintained an individual retirement account in the form of a Keough Plan. Defendants' agents were advised to secure such individual plans for retirement. The record demonstrates that on those occasions when plaintiff objected to changes which were made in the terms of the Agent's Agreement, he was told to sign it as it was written or he did not have a contract, thus indicating little bargaining power on plaintiff's part.
Weighing the totality of the circumstances in the present case, the Court has reached the conclusion that plaintiff is a member of the class of people which Congress sought to protect in enacting ERISA, and that plaintiff is an employee for purposes of ERISA.
The next issue presented for resolution is whether the Agent's Security Compensation Plan is an employee pension plan for purposes of ERISA. An employee pension benefit plan is defined in 29 U.S.C. § 1002(2)(A) as
*1538 ... any plan, fund, or program which was heretofore or is hereafter established by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund or program (i) provides retirement income to employees, or
(ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.
The Agent's Security Compensation Plan is composed of two types of benefits, deferred compensation incentive credits and extended earnings. These two plans will be considered separately.
The deferred compensation feature of the plan, as set forth in paragraph 11 of the Agent's Agreement, is financed through contributions made by the defendants on the agent's behalf to a group annuity. The amount of the contribution is calculated based upon a percentage of the sales and renewal fees earned by the agent. Contributions to the agent's account commence upon the agent's completion of five years of service and continue until the agent reaches age sixty-five. The Deferred Compensation Plan incorporates the minimum vesting schedule set forth in 29 U.S.C. § 1053(a)(2)(C)(i). A plan participant may elect to receive early reduced deferred compensation benefits at any time upon or after reaching the age of fifty and is entitled to one hundred percent of the accrued benefits if payments commence at age sixty. Benefits are paid over a period of three to ten years or as a life annuity. The Court concludes that the Deferred Compensation Plan provides retirement income to employees and is an employee pension benefit plan under ERISA.
The Extended Earnings Plan establishes a benefit whereby an agent with at least five years of service whose agency agreement is terminated upon retirement, death or disability, or qualified cancellation for other reason, is entitled to a sum equal to the renewal service fees paid to the agent by the company for the last twelve calendar months immediately proceeding the cancellation of the agreement. The benefit is payable commencing sixty days following the termination of the Agent's Agreement, and payments are made over a period of three to ten years or as a life annuity depending upon the method of payment elected by the agent. The benefit is financed by decreasing for a period of two years the renewal commission rates of the agent who takes over the files of the departing agent. Payments do not depend upon the agent reaching a certain age.
The extended earnings benefit closely resembles the plan considered by the Fourth Circuit Court of Appeals in Fraver v. North Carolina Farm Bureau Mut. Ins. Co., 801 F.2d 675 (1986). The court in Fraver held that the contractual provisions in that case establishing termination benefits for insurance agents, under which departing agents received payments based upon renewal commissions, with no requirement for termination due to death, disability or retirement, did not constitute a pension plan within the meaning of 29 U.S.C. § 1002(2)(A); rather, those benefits were a form of final compensation in the nature of a buy-out. Id. at 678.
Plaintiff relies on 29 C.F.R. § 2510.32(b), which provides that an arrangement shall not be deemed to constitute a pension plan solely by reason of the payment of severance benefits upon termination if the payments are not contingent upon retirement, the total payment does not exceed an amount twice the employee's compensation for the preceding year and payments are completed within twenty-four months of termination. However, the regulation does not state that if payments are made over a period exceeding twenty-four months, the benefit plan is always a pension plan.
The Court is persuaded by the reasoning of the Fourth Circuit in Fraver. The extended earnings Plan in this case is not a pension plan within the provisions of ERISA.
The next question to be resolved is whether the above plans fall within the prohibition against forfeiture of benefits found in 29 U.S.C. § 1053(a). The Extended *1539 Earnings Plan is not a pension plan within the meaning of 29 U.S.C. § 1002(2)(A) and therefore the nonforfeiture provision does not apply to benefits under that plan. In addition, courts have noted that an employee only has a nonforfeitable right in his "accrued" benefits. The term "accrued benefits" means the individual's accrued benefit expressed in the form of an annual benefit commencing at normal retirement age. 29 U.S.C. § 1002(23)(A). Severance payments prior to normal retirement age are not "accrued" benefits and are therefore subject to forfeiture. Sutton v. Weirton Steel Div. of Nat'l Steel Corp., 724 F.2d 406 (4th Cir. 1983); United Electrical, Radio & Machine Workers of America v. Amcast Industrial Corp., 634 F. Supp. 1135 (S.D.Ohio 1986).
The Deferred Compensation Plan is a pension plan under ERISA. However, defendants argue that the nonforfeiture provision does not apply to that plan by reason of 29 U.S.C. § 1051(2), which states that the vesting requirements do not apply to a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.
Plaintiff states in his affidavit that the Deferred Compensation Plan is funded and that benefits accrue on an annual basis in a group annuity contract with Nationwide Life Insurance Company. Defendants maintain in their brief that the plan is not funded, but have presented no evidence to support their position, which they are required to do in the face of a motion for summary judgment. The court concludes that the plan is funded.
The parties have submitted figures on whether agents are a select group of highly compensated employees. Defendants have submitted evidence that the average amount of yearly earnings for agents is $52,022, whereas the average salary of other Nationwide employees is $20,000. Plaintiff counters with evidence that thirty-eight percent of an agent's earnings is required for business expenses, resulting in a net income of $32,250, and that Nationwide's employee retirement plan used the figure $29,700 as an average taxable wage base in 1980. Defendants do not dispute plaintiff's estimate of the percentage of an agent's commissions devoted to business expenses. Even accepting defendants' figures, the court does not feel that the agents here are a "select group" of "highly compensated employees" within the meaning of § 1051(2). Thus, the court concludes that the Deferred Compensation Plan is subject to the nonforfeiture provisions of § 1053(a).
However, this conclusion alone does not resolve the matter of whether plaintiff is immediately entitled to the payment of benefits. Section 1053(a) provides that an employee's right to his "normal retirement benefit is nonforfeitable upon the attainment of normal retirement age." The term "normal retirement age" means the earlier of 1) the time designated in the plan as the normal retirement age, or 2) the later of age sixty-five or the tenth anniversary of the participant's participation in the plan. 29 U.S.C. § 1002(24). The term "normal retirement benefit" means the greater of the early retirement benefit under the plan or the benefit under the plan commencing at normal retirement age.
In the present case, no age is specifically designated in the plan as a "normal retirement age". Since age sixty-five is later here than the tenth anniversary of plaintiff's participation in the plan, the normal retirement age for purposes of this case is sixty-five. The benefits payable at age sixty-five are greater than benefits payable at age fifty. Therefore, normal retirement benefits are those payable at age sixty-five.
Numerous courts have interpreted § 1053(a) as prohibiting forfeiture of benefits only after the participant has reached normal retirement age, and have held that an employee who has not yet reached normal retirement age fails to state a cause of action under ERISA. See Hurn v. Retirement Fund Trust, Plumbing & Heating Industry of Southern California, 460 F. Supp. 112 (C.D.Ca.1978), aff'd, 648 F.2d 1252 (9th Cir.1981); Capocci v. General *1540 Motors Corp., 444 F. Supp. 1306 (D.Ha. 1978); Riley v. Meba Pension Trust, 452 F. Supp. 117 (S.D.N.Y.1978); Fine v. Semet, 699 F.2d 1091 (11th Cir.1983); Chambless v. Masters, Mates & Pilots Pension Plan, 772 F.2d 1032 (2nd Cir.1985); Johnson v. Franco, 727 F.2d 442 (5th Cir.1984); Hernandez v. Southern Nevada Culinary & Bartenders Pension Trust, 662 F.2d 617 (9th Cir.1981).
The forfeiture provisions of § 1053(a) also protect only accrued benefits which are payable upon normal retirement age, not early retirement benefits. McBarron v. S & T Industries, Inc., 771 F.2d 94 (6th Cir.1985); Hoover v. Cumberland, Maryland Area Teamsters Pension Fund, 756 F.2d 977 (3rd Cir.1985); Sutton v. Weirton Steel Division of National Steel Corp., supra.
Plaintiff herein has not yet reached age sixty-five, and he does not currently state a cause of action under § 1053(a). Invocation by defendants of the forfeiture provision designed to preclude competition and their refusal to pay early retirement benefits does not violate § 1053(a). McBarron v. S & T Industries, Inc., supra; Morse v. Stanley, 732 F.2d 1139 (2nd Cir.1984); Fine v. Semet, supra. However, plaintiff has a vested interest in the Deferred Compensation Plan. When he reaches normal retirement age, defendants may no longer rely on the forfeiture clause to deny him benefits under the plan. Such forfeiture provisions are void to the extent that they reach vested interests protected by ERISA. Noell v. American Design, Inc., Profit Sharing Plan, 764 F.2d 827 (11th Cir.1985).
Plaintiff herein has also asserted a claim for breach of contract against the defendants for their refusal to pay benefits under the Agent's Security Compensation Plan portion of the Agent's Agreement.
Plaintiff has advanced no claim for damages resulting from the termination of the Agent's Agreement aside from his claim to benefits under the Agent's Security Compensation Plan. However, even if the complaint were construed as a general claim of wrongful termination, plaintiff would not prevail on that claim. The Agent's Agreement, paragraph nine, gave both parties to the Agreement the unqualified right to cancel the Agreement at any time upon notice to the other party. The good faith requirement contained in the Uniform Commercial Code does not apply to an insurance agent's contract such as this one. Cavanaugh v. Nationwide Mutual Ins. Co., 65 Ohio App. 2d 123, 416 N.E.2d 1059 (1976). See generally: Mers v. Dispatch Printing Co., 19 Ohio St. 3d 100, 483 N.E.2d 150 (1985); Fawcett v. G.C. Murphy & Co., 46 Ohio St. 2d 245, 348 N.E.2d 144 (1976) (right to terminate employment contract at will is absolute and not limited by principles protecting persons from acts done maliciously or in bad faith). Further, even if some good faith requirement applied to the cancellation of the Agent's Agreement, the record does not reveal that defendants acted in bad faith in cancelling the Agreement. Instead, the materials in the record demonstrate that defendants believed in good faith that plaintiff and/or his employees were engaging in competitive activities which were detrimental to defendants' interests and in violation of the Agent's Agreement.
The principal legal issue regarding the breach of contract claim is whether the forfeiture provision is valid and enforceable. Paragraph 11(e) of the Agent's Agreement provides:
Unless you have induced or attempted to induce, either directly or indirectly, policyholders to lapse, cancel, or replace any insurance contract in force with the Companies, the cancellation of this Agreement shall be a qualified cancellation for the purpose of this Agreement.
This clause relates to an agent's conduct prior to the cancellation of the Agreement. The materials in the record reveal that Mrs. Wolcott, while still employed as a solicitor by plaintiff's Nationwide agency, attempted to induce the Harts, Nationwide policyholders, to replace their Nationwide policy with another policy obtained through Corporate Risk Specialists. The affidavit of George Frink reveals that in consideration *1541 for Nationwide's certification of a solicitor under state law, agents are required to accept responsibility for the acts of their solicitors and to ensure that solicitors adhere to the exclusive representation requirement of Nationwide companies. Plaintiff was responsible for the conduct of his subagent and indirectly attempted to induce policyholders to replace their policy within the meaning of paragraph 11(e). Therefore, the cancellation of plaintiff's Agent's Agreement was unqualified.
After cancellation of the Agreement, the provisions of paragraph 11(f) become applicable. That part of the Agreement states:
All liability of the Companies for Agent's Security Compensation provided for in paragraph 11 and its subparagraphs shall cease and terminate in the event any one or more of the following shall occur:
(1) You either directly or indirectly, by and for yourself or as an agent for another, or through others as their agent, engage in or be licensed as an agent, solicitor, representative, or broker or in anyway be connected with the fire, casualty, health or life insurance business, within one year following cancellation within a 25 mile radius of your business location at that time; or
(2) You fail to return in good condition, within ten days, all materials, records, and supplies furnished to you by the Companies during the course of this Agreement, together with any copies thereof; or
(3) After cancellation of this Agreement, you directly or indirectly induce, attempt to induce, or assist anyone else in inducing or attempting to induce policyholders to lapse, cancel, or replace any insurance contract in force with the Companies; furnish any other person or organization with the name of any policyholder of the Companies so as to facilitate the solicitation by others of any policyholder for insurance or for any other purpose.
The depositions of plaintiff and his wife reveal that within a month of the cancellation of his Agent's Agreement, plaintiff had engaged in activity which fell within the provisions of paragraphs 11(f)(1) and (3). Plaintiff engaged in the insurance business within a year of the termination of his Agent's Agreement at the location of his former Nationwide office, and after termination he solicited or attempted to induce his Nationwide clients to replace their Nationwide policies with policies obtained through Corporate Risk Specialists. There is no genuine issue of material fact in that regard.
Cases interpreting Ohio law indicate that the forfeiture provision, particularly paragraph 11(f)(1), is valid. In Keller v. Graphic Systems of Akron, Inc., 422 F. Supp. 1005 (N.D.Ohio 1976), the court applied Ohio law and upheld a forfeiture of benefits for engaging in competitive conduct in violation of the plan terms. The court in that case noted the distinction between benefit plan forfeiture provisions and covenants not to compete in employment contracts.[1] Benefit plan forfeitures are usually upheld as valid. See e.g. Fraver v. North Carolina Farm Bureau Mut. Ins. Co., supra; Kezdi v. Nationwide Ins. Co., No. 35683, Eighth District Court of Appeals, Cuyahoga County, Ohio, decided August 11, 1977; Brodzinski v. Nationwide Mutual Ins. Co.., No. 36055, Eighth District Court of Appeals, Cuyahoga County, Ohio, decided August 18, 1977.
The forfeiture of post-termination commissions similar to the extended earnings benefits in this case was upheld in Bradley v. Pennsylvania Life Ins. Co., Case No. C-790508, decided January 14, 1981 by the Court of Appeals for the First Appellate District, Hamilton County, Ohio.
The court in Snarr v. Picker Corp., 29 Ohio App. 3d 254, 504 N.E.2d 1168 (1985) analyzed the validity of the forfeiture of pension benefits using the same criteria applied to test the reasonableness of a covenant *1542 not to compete. Those factors include:
"`[t]he absence or presence of limitations as to time and space, * * * whether the employee represents the sole contact with the customer; whether the employee is possessed with confidential information or trade secrets; whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition; whether the covenant seeks to stifle the inherent skill and experience of the employee; whether the benefit to the employer is disproportional to the detriment to the employee; whether the covenant operates as a bar to the employee's sole means of support; whether the employee's talent which the employer seeks to suppress was actually developed during the period of employment; and whether the forbidden employment is merely incidental to the main employment.'" Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 25, 325 N.E.2d 544, 547 (1975).
Paragraph 11(f)(1) in the present case contains reasonable limitations as to time and space. Plaintiff contacted his customers, and possessed records concerning policyholders and their policies. The forfeiture provision is aimed at unfair competition, such as soliciting Nationwide customers away from Nationwide using knowledge obtained as a Nationwide agent. The provision does not bar the agent's sole means of support, since he is free to work in the insurance field so long as he does so outside the twenty-five mile radius and one year limitations. The forbidden employment is integrally related to the main employment. The detriment to Nationwide from the competition created by a former agent outweighs the detriment to the agent posed by the loss of pension benefits, particularly since the relationship of trust between an individual agent and an insured can far exceed any loyalty on the part of the insured toward the insurance company. Plaintiff herein had accrued $54,109 in deferred compensation benefits as of 1980 and claimed $76,760 in extended earnings benefits. These amounts are not significant considering that an average career agent earned $52,022 in commissions for the year 1984 alone, and that the amount of commissions represents but a fraction of the actual dollar amount of sales by the agent.
The forfeiture provision in the present case was valid and enforceable and defendants did not breach the Agent's Agreement in denying plaintiff's benefit under the Agency's Security Compensation Plan. The forfeiture provision has a legitimate purpose particularly in regard to the extended earnings portion of the plan. Those extended earnings are financed out of the earnings of the agent who takes over the files of the previous agent, and if that previous agent engages in direct competition with the new agent, attempting to lure away his clients, the foundation of the extended earnings program may be severely damaged. Defendants are entitled to summary judgment on plaintiff's breach of contract claim.
In summary, defendants are awarded partial summary judgment on plaintiff's claims under ERISA. The Extended Earnings Plan is not a plan governed by 29 U.S.C. § 1053(a). Furthermore, plaintiff has not yet reached normal retirement age and therefore does not state a claim under § 1053(a) for deferred compensation benefits. However, pursuant to 29 U.S.C. § 1132, which permits a beneficiary to seek clarification of his rights under a pension plan, plaintiff is hereby awarded a declaratory judgment, as stated in the above opinion, holding that plaintiff will be entitled to full benefits under the Deferred Compensation Plan when he reaches age sixty-five. Defendants are awarded summary judgment on the breach of contract claim. Each party will bear his own costs. In light of the fact that defendants acted in good faith and in a legal manner in refusing payment of benefits at this time, and since the resolution of the present case turned primarily upon substantial questions of law litigated in good faith, not previously addressed in this circuit, plaintiff's request for attorneys fees under 29 U.S.C. § 1132(g) is hereby DENIED. See *1543 e.g. Firestone Tire & Rubber Co. v. Neusser, 810 F.2d 550 (6th Cir.1987).
The Clerk shall enter judgment in accordance with the Memorandum and Order.
It is so ORDERED.
ON MOTIONS TO ALTER AND AMEND JUDGMENT
Plaintiff and defendants have both filed motions under Fed.R.Civ.P. 59 to alter and amend the judgment issued in this case on July 15, 1987.
Defendants renew their argument that plaintiff is an independent contractor. They rely upon Harlow v. Nationwide Mutual Insurance Company, Case No. N-84-503, (D.Conn.), decided June 19, 1987, in which the district court found that the plaintiffs, Nationwide agents, were independent contractors. The court in Harlow advocated the use of the common law test for determining whether a person is an employee as well as examining the remedial purposes of ERISA, the test adopted by the court of appeals in Darden v. Nationwide Mutual Insurance Co., 796 F.2d 701 (4th Cir.1986).
This court, in arriving at its decision as to the nature of plaintiff's status, employed a "totality of the circumstances" test as suggested by the United States Supreme Court decisions concerning regulatory legislation. See e.g. United States v. Silk, 331 U.S. 704, 713, 67 S. Ct. 1463, 1468, 91 L. Ed. 1757 (1947). Thus, this court considered a variety of traditional common law factors in addition to the three part test employed in Darden. The determination of the status of any plaintiff as an employee or independent contractor under ERISA of necessity must rest on a case-by-case determination. The court, upon due consideration of the additional authorities and argument presented by defendants, adheres to its original finding that based upon all the circumstances in the present case, plaintiff was an "employee" for purposes of ERISA.
Defendants have also submitted an additional affidavit in support of their position that the Deferred Compensation Plan is not funded. The court adheres to its original determination that the plan is funded. However, even if this court were to find that the plan is unfunded, defendants have still failed to satisfy the second requirement of 29 U.S.C. § 1051(2) which mandates that the plan be maintained for the purpose of providing deferred compensation for a select group of highly compensated employees. Defendants' motion to amend the judgment is DENIED.
Plaintiff has also moved for an amended judgment under Rule 59. Plaintiff requests a declaratory judgment allowing him to elect to receive deferred compensation benefits before his attaining age sixty-five at his election, as well as a clarification of his rights under the plan upon his disability or death. Plaintiff relies upon 29 U.S.C. § 1056(a), which provides in relevant part:
Each pension plan shall provide that unless the participant otherwise elects, the payments of benefits under the plan to the participant shall begin not later than the 60th day after the latest of the close of the plan year in which
(1) the date on which the participant attains the earlier of age 65 or the normal retirement age specified under the plan,
(2) occurs the 10th anniversary of the year in which the participant commenced participation in the plan, or
(3) the participant terminates his service with the employer.
Plaintiff argues that by reason of the above provision, defendants are obligated to commence payment of benefits whenever he so elects. However, that is not the import of § 1056(a). That section was designed to protect a participant's right to benefits by establishing age sixty-five as the latest possible trigger date for payment of benefits, while leaving the employer free to set an earlier date under its ERISA plan. Morales v. Plaxall, 541 F. Supp. 1387 (E.D. N.Y.1982). That statute does not require an employer to pay benefits prior to an employee reaching normal retirement age. Fine v. Semet, 514 F. Supp. 34 (S.D.Fla. 1981). The election permitted by the statute refers to the employee's option to *1544 waive the age sixty-five starting date for benefits and postpone the payment of benefits to some later time. Plaintiff does not have the right to enforce payment of benefits prior to reaching age sixty-five.
Plaintiff has also requested a clarification of his rights under the Deferred Compensation Plan in the event of his death or disability prior to reaching age sixty-five.
Pursuant to ERISA, disability plans, even when drafted as sub-sections of a comprehensive pension plan, are exempt from the act's non-forfeiture provisions. McBarron v. S & T Industries, Inc., 771 F.2d 94, 97 (6th Cir.1985). Even if a plan participant has a vested right to his disability benefits, under ERISA payment of such benefits may be deferred until he or she reaches normal retirement age. Id. at 99. Here, defendants have the right to enforce the terms of the Agent's Agreement and are under no obligation under ERISA to pay disability benefits to plaintiff until he reaches age sixty-five.
The Deferred Compensation Plan provides for the payment of vested benefits to a surviving spouse or other designated beneficiary in the event of the death of the participating agent either before or after the agent's retirement. If the plan terms alone are considered, any obligation on the part of defendants to pay survivor benefits terminated upon plaintiff's violation of paragraphs 11(e) and (f) of the Agent's Agreement. Payment of survivor benefits must therefore be based upon some mandate contained in ERISA.
At the time of plaintiff's termination, a widow's entitlement to her husband's pension plan payments was derivative of her husband's rights, and did not arise until the plan participant became eligible for a pension. Hernandez v. Southern Nevada Culinary & Bartenders Pension Trust, 662 F.2d 617 (9th Cir.1981); Gabrielson v. Montgomery Ward & Co., 785 F.2d 762 (9th Cir.1986). The rights of surviving spouses under ERISA have since been enlarged. However, the modifications did not go into effect until after plaintiff's Agent's Agreement was terminated, and the changes are not retroactive in application. Gabrielson v. Montgomery Ward & Co., supra at 765.
Plaintiff's right to receive benefits is not protected from forfeiture under ERISA until he attains normal retirement age. His wife has no independent property rights in those benefits, and her claim to benefits is entirely dependent upon plaintiff's rights. Therefore, if plaintiff dies prior to attaining normal retirement age, his wife will not be entitled to any benefits under the Deferred Compensation Plan. However, once plaintiff reaches age sixty-five, his benefits will become non-forfeitable, and in the event that plaintiff dies after that date, but prior to receiving all the benefits to which he is entitled, the remainder will be payable to his spouse as beneficiary under the terms of the plan.
Plaintiff's motion to amend the judgment is therefore DENIED in part. Plaintiff's motion is GRANTED insofar as it requests additional clarification of his rights under ERISA pursuant to 29 U.S.C. § 1132, and the preceding paragraphs concerning those issues are hereby incorporated into and made a part of this court's judgment of July 15, 1987. Defendants' motion to amend the judgment is DENIED.
NOTES
[1] The Agent's Agreement in the present case contained such a covenant in paragraph 12 of the Agreement. However, that covenant did not apply to plaintiff, who first entered into an Agent's Agreement prior to July 1, 1969. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1478251/ | 143 F.2d 279 (1944)
HARRISS
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 6.
Circuit Court of Appeals, Second Circuit.
June 13, 1944.
Warner Pyne, of New York City, for petitioner.
Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, A. F. Prescott, and Irving I. Axelrod, Sp. Assts. to Atty. Gen., for Commissioner of Internal Revenue.
Before L. HAND, AUGUSTUS N. HAND, and FRANK, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
The petitioner, Robert M. Harriss, and his deceased wife Abbeline C. Harriss, filed joint tax returns for the years 1933 and 1934. The Tax Court held that there was a deficiency in income taxes on the part of Robert M. Harriss and his deceased wife of $31,759 for the year 1933 and $32,606.83 for the year 1934; and from the order to that effect Robert M. Harriss individually and as administrator of the estate of his wife, who died April 28, 1938, has appealed to this court. We think that the order of the Tax Court was right and should be affirmed.
The taxpayer claims that the Tax Court was in error as to three items involved in his income tax returns.
(1) In holding that a loss of $49,100.41 sustained by the taxpayer in 1933 upon the sale of his interest in a Texas farm was not deductible in full as a loss incurred in the ordinary course of business, but only to the extent of 12½% as a capital loss.
*280 (2) In holding that certain cotton futures transactions resulting in profits to the taxpayer of $36,373.50 in the year 1934 were taxable profits though they were not available as such and could not have been withdrawn in that year or until the year 1935.
(3) In holding that the taxpayer was not entitled to the deduction of a loss of $43,935.22 in the year 1934 sustained on an investment in a parcel of real property at Forest Hills, New York.
Since 1915, with the exception of an interval of two years, taxpayer was a partner in the firm of Harriss & Vose, New York City, engaged in the cotton business, both "spot" and futures. This firm also traded in other commodities. He formerly lived in Oklahoma and Texas and through the years since 1910 has made a number of purchases of improved and unimproved real estate there and in many other parts of the country. Some of these were sold shortly after their purchase, others were held for long periods of time and then sold and others are still owned by petitioner.
In 1920 the taxpayer and his four brothers purchased a farm in LaSalle County, Texas, at a cost of $234,402.15 which they owned in equal shares. Baylis Harriss, one of the brothers, was put in charge of the property. Shortly thereafter the brothers undertook the improvement and development of the tract, clearing part of the land for farming. Tenant houses were built, a commissary store was installed, a church was built and a manager's home erected. Many other improvements to the farm were made and the necessary equipment for its operation was purchased. The cost of all this was borne equally by the five brothers. The operation of the farm did not prove successful and in 1926, on the death of Baylis Harriss, it was leased to others. In 1933 the taxpayer sold his one-fifth interest to one of his brothers for $10,000, sustaining a loss of $49,100.41. Upon finding the above facts the Tax Court decided that the taxpayer's interest in the farm constituted a capital asset and his loss a capital loss and as such allowable only to the extent of 12½%. It is contended on his behalf that it was a loss "incurred in * * * business" and, therefore, deductible in full under Section 23 of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Acts, page 675.
Section 101 (c) of the Revenue Act of 1932, c. 209, 47 Stat. 169, 26 U.S.C.A. Int. Rev.Acts, page 505, defines capital loss and capital assets as follows:
"(2) `Capital loss' means deductible loss resulting from the sale or exchange of capital assets.
* * * * *
"(8) `Capital assets' means property held by the taxpayer for more than two years (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business. * * *"
Because the taxpayer acquired interests in some twenty-one other pieces of real estate in different parts of the country, between the years 1910 and 1936, completely disposed of ten of them and sold a part of the acreage of three of the remaining tracts, it is argued that he was in the business of buying and selling, rather than of merely investing in real estate. Many of the properties however were held for long periods of time, averaging a holding of about thirteen years in the case of all the properties. In our opinion the Tax Court was fully justified in concluding that these properties were not subjects of active trading, that they were not to be regarded as "held * * * primarily for sale in the course * * * of business" but, on the contrary, the purchases and sales were capital transactions. In respect to the taxpayer's interest in the Texas farm, with which we are concerned, he held it for about thirteen years before disposing of it and even then sold it to his brother so that it still remained a family investment. In other words, it was in every fair sense an investment, and not a mere current business activity in dealing in real estate. We think it was rightly held to be a capital asset and the loss finally incurred in liquidating it a loss deductible only as a capital loss. Phipps v. Commissioner, 2 Cir., 54 F.2d 469; United States v. Robinson, 5 Cir., 129 F.2d 297.
Whether property is purchased for sale in the course of business or for investment depends upon the number and the proximity of the purchases and sales to one another. A hope, when a purchase is made, that the property acquired may at some later time be sold at a profit, will not transmute a long time investment in land held by members *281 of a family as joint owners into a business of buying and selling real estate, or change a capital transaction into an ordinary business profit or loss.
In any event, the question whether the Texas farm was a capital asset was clearly one of fact and the findings of the Tax Court, which were supported by substantial evidence before it, are binding upon us, Dobson v. Commissioner, 321 U.S. 231, 64 S. Ct. 495, and must be affirmed.
The next claim by the taxpayer is that certain transactions in cotton futures found by the Tax Court to have resulted in profits of $36,373.50 in the year 1934 were not assessable as profits during that year inasmuch as under the agreement of the taxpayer and his coadventurers the final liquidation of their transactions in cotton futures did not occur until 1935.
This contention is based on the terms of the agreement between the taxpayer and his associates that their contracts for cotton futures in which the delivery date was to be during the year 1934 were to be succeeded by other contracts for a more distant delivery date in order that their speculations might continue for a longer period. Under the agreement and the custom of the cotton business there was to be a "switch" from one delivery date to another by means of a long sale of the contracts and the concurrent purchase of a similar number of contracts with delivery dates at a later period, the profit, if any, realized through the sale to remain with the broker as a guarantee of credit against the new purchases. As between the parties, the taxpayer and his associates could not withdraw the profits and were obliged to leave them with Harriss & Vose, the brokers who had guaranteed the accounts. The taxpayer testified in respect to these contracts for cotton futures as follows:
"As the delivery dates of these futures approached we had but three choices in accordance with the rules of the Exchange and customs of the business. One was to take delivery of that cotton, another was to liquidate and close out the account, and the third was what we call a switch, a transfer or postpone to a later delivery. That means that we would automatically sell the approaching delivery and buy the same amount and the same contract for deferred or postponed delivery so as to maintain our position in the market and not to sell out accounts and not to liquidate. For example, if you buy a hundred bales of July cotton, that means about May 25, one month before the option expires, that, according to the contract, you are to take physical delivery of that contract, unless you sell that cotton out, liquidate it, and you still have the third choice.
"Mr. Smith and I transferred them or switched them into more distant delivery, or postponed the delivery of the cotton. As the delivery date approached we would automatically and simultaneously sell the delivery that was approaching and buy a more distant delivery for the same amount, * * *."
The taxpayer seeks to have the foregoing arrangements treated as though they involved a mere extension of delivery of the cotton covered by the contracts, where as they in fact involved the actual sale of the contracts for cotton futures that were available in 1934 and a substitution of other contracts. It is clear that the associates in the joint enterprises for buying cotton futures could not by agreement prevent a profit which arose from the liquidation of the old contracts from being "realized" and "recognized" for tax purposes merely because they had stipulated to have the profit used to help finance a new purchase of cotton futures and, for that purpose, to remain as security with the brokers to whom they had guaranteed the accounts. That a taxpayer's proportionate share of profits accruing to a partnership or joint enterprise in which he holds an interest is realized for income tax purposes, irrespective of any contract he may have made, not to have it distributed and to have it employed for other purposes is implicit in the opinion of the Supreme Court relating to the undistributed share of a partner in net earnings, in which Justice Brandeis said: "The tax is * * * imposed upon the partner's proportionate share of the net income of the partnership, and the fact that it may not be currently distributable, whether by agreement of the parties or by operation of law, is not material." Heiner v. Mellon, 304 U.S. 271, 281, 58 S. Ct. 926, 931, 82 L. Ed. 1337.
The decisions in which credits from sales of stock allowed to be used by a broker as margin have been held taxable justify the result reached by the Tax Court in the case at bar. Baker v. Commissioner, 3 Cir., 81 F.2d 741; cf. Webb v. Commissioner, 2 Cir., 67 F.2d 859.
*282 The decision of the Fifth Circuit in Valley Waste Mills v. Page, 5 Cir., 115 F.2d 466, certiorari denied 312 U.S. 681, 61 S. Ct. 549, 85 L. Ed. 1120, is direct authority in support of the view we have taken and cannot be distinguished in principle from the case before us.
The taxpayer has sought to prevail by treating the original contracts for future deliveries of cotton as though they were continuing transactions with nothing added to them except an extension of their due dates. But the original contracts were in fact terminated and others substituted as required by the rules of the Exchange and according to the actual conduct of the business. In view of this we must regard the credit item of $36,373.50 as a part of the taxpayer's 1934 income.
The taxpayer's contention that he was entitled to claim a deductible loss in his income for 1934 to the amount of $43,935.22 upon his investment in stock of One and Three South William Street Building Corporation at Forest Hills, Long Island, is without merit. He and his brother purchased the property in order to realize a profit through its sale as an apartment site. He personally executed a collateral bond for $75,000 which was borrowed from the Brooklyn Trust Company and secured by a mortgage on the real estate. The brother also executed a collateral bond for $25,000 which was likewise borrowed from the Brooklyn Trust Company under a later loan and secured in the same way. They had equal interests in the stock of the corporation One and Three South William Street Building Corporation, but in 1934 the brother turned over his stock to the taxpayer as a gift after they had offered the mortgagee a deed of the property in payment of its loan which the latter was unwilling to accept. The taxpayer argues that this offer amounted to an abandonment of the premises; nevertheless he afterwards, in 1934, paid taxes and mortgage interest on the site and could hardly have abandoned a property which still remained as security for an indebtedness which he had personally guaranteed. He still had the most vital interest in having it applied by foreclosure or otherwise upon the obligation which he had guaranteed.
We see no basis for the contention that the taxpayer abandoned the premises. He had just obtained a decision from the New York Court of Appeals which freed the site from burdensome building restrictions and continued to pay interest and taxes during the very year in question. There is reason to suppose that the value of the property in 1934 was greater, rather than less, than in prior years. We hold that the deduction was properly disallowed.
For the above reasons the order of the Tax Court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1469980/ | 157 F.Supp. 313 (1957)
HARTMANN COAL MINING CO., Inc.,
v.
Carl L. HOKE and Joseph A. Hauptly, Individually and trading as Hoke & Hauptly.
Civ. A. No. 21024.
United States District Court E. D. Pennsylvania.
October 23, 1957.
*314 Walter Stein (of Berger & Gelman), Philadelphia, Pa., Donald B. Kipp, Newark, N. J., for plaintiff.
Edward W. Mullinix, Philadelphia, Pa., James J. Rattigan, Pottsville, Pa., for defendant.
GANEY, District Judge.
This matter is before us on defendants' motion to dismiss and plaintiff's motion for summary judgment in an action brought on July 11, 1956 to recover $10,875, the amount of an arbitration award obtained by Trader Horn Coal Co., Inc., a Pennsylvania corporation, against the defendants. The jurisdiction of this Court is invoked by reason of the diverse citizenship of the parties, plaintiff being a corporation organized under the laws of New Jersey, while the defendants are citizens of the Commonwealth of Pennsylvania.
One of the grounds for the motion to dismiss is that this Court, by virtue of 28 U.S.C. § 1359, does not have jurisdiction of the subject matter of the action here involved. That section provides: "A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." There is a duty on this Court, especially when its jurisdiction is challenged, to inquire into the alleged existence of facts upon which the jurisdiction of the Court has been invoked. Steinberg v. Toro, D.C.Puerto Rico 1951, 95 F.Supp. 791, 795.
On March 16, 1956, a board of three arbitrators unanimously approved an award in favor of Trader Horn Coal Co., Inc. ("Trader Horn"). Arbitration was had to settle a dispute under a strip-mine lease agreement between defendants and Trader Horn. Defendants refused to pay the award because they contended that there never was a valid existing lease agreement between them and Trader Horn. By a document dated April 26, 1956, Trader Horn purported to assign the award to plaintiff. The document stated that the assignment was being made in consideration of the sum of $1 and other good and valuable consideration. At a pre-trial deposition hearing, Waldemar Hartmann, president of plaintiff, stated that the assignment of the award was given in partial repayment of advances of money received by Trader Horn from plaintiff. Although he was unable to give the amount of the advancements and when they were given, Hartmann stated that they totaled over $10,000 and were given prior to 1955. He also stated that the assignment was made on the advice of plaintiff's attorney and accountant. When he was asked the reason they gave for advising such a transfer, he refused to answer on the ground that it would violate the privilege *315 of the attorney-client relationship. Hartmann owns all the stock of the plaintiff and Trader Horn, and the officers and directors of both corporations are the same.
Defendants' motion to dismiss places upon plaintiff the burden of showing that this Court has jurisdiction. McNutt v. General Motors Corp., 1936, 298 U.S. 178, 183-189, 56 S.Ct 780, 80 L.Ed. 1135. Plaintiff claims, however, that it has established the jurisdictional facts beyond any doubt by proof of the written assignment and the testimony of Hartmann concerning the consideration for the assignment at the pre-trial oral deposition hearing. We cannot agree with this claim even though it appears on the surface that the assignment was bona fide. It so happens that plaintiff's officers, agents and employees are the only people having knowledge of the facts relating to the assignment. The only way that defendants can impeach Hartmann's pre-trial deposition testimony is by their cross-examining Hartmann or plaintiff's other officers and agents. The fact that the officers and directors of plaintiff and Trader Horn are identical, and that Hartmann is the sole owner of the stock of both of these corporations, coupled with the manner in which Hartmann answered questions put to him at the oral deposition hearing gives one the impression that there is a strong likelihood that his testimony could be impeached at a trial. Under these circumstances, defendants should not be summarily cut off from their right to have a jury disbelieve Hartmann and find that Trader Horn never relinquished all rights and interest in the arbitration award, or that Trader Horn transferred the award to plaintiff for the sole purpose of being able, through the plaintiff, to bring an action on the award in a federal district court. See Steinberg v. Toro, supra, 95 F.Supp. at pages 797-798.
Defendants give as an additional reason for this Court's lack of jurisdiction the proposition that conformation and recovery of an arbitration award in Pennsylvania must be had in the proper court of common pleas of this State as required by the Arbitration Act of 1927, P.L. 381, as amended, 5 Pa.P.S. §§ 161-181. Such a proposition is not the law. The Act of 1927 is remedial only; proceedings under it are cumulative and non-exclusive. The Act did not do away with the right to bring suit to recover an arbitration award. Isaac v. Donegal & Conoy Mut. Fire Ins. Co., 1930, 301 Pa. 351, 152 A. 95; Goldstein v. International, etc., 1938, 328 Pa. 385, 394, 196 A. 43; Sukonik v. Shapiro, 1939, 333 Pa. 289, 5 A.2d 108; Lowengrup v. Meislin, 1954, 376 Pa. 463, 103 A.2d 405.
There is nothing in the record to indicate that the parties intended that arbitration was to proceed in conformity with the Act of 1927.[1] We must assume, in the absence of evidence to the contrary, that the aribitration award was one at common law.
Accordingly, decision on the motions will be withheld in order to give the plaintiff a chance to prove that this Court has jurisdiction, and the defendants an opportunity to cross-examine the officers of plaintiff and other witnesses which plaintiff may call to testify.
NOTES
[1] Covenant XI of the strip-mining lease, pursuant to which Trader Horn sought arbitration, provides in part as follows: "Any dispute or disagreement regarding the performance or interpretation of this agreement, or the removal, shipment and sale of strip-mine deposits shall, upon demand of either party, be submitted to a Board of Arbitrators, one of whom shall be selected by the First Party, and one by Second Party, and the third, a qualified Mining Engineer, by the two arbitrators as selected * * *. The determination of the majority of such Board of Arbitrators shall be final and binding upon the parties." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1478690/ | 808 F.Supp. 347 (1992)
FEDERAL INSURANCE COMPANY, Plaintiff,
v.
The MAY DEPARTMENT STORES COMPANY, Defendant.
No. 92 Civ. 3389 (LMM).
United States District Court, S.D. New York.
December 9, 1992.
*348 William R. Mait, of Mait, Wang & Simmons, New York City, for plaintiff, Federal Ins. Co.
Steven Skulnik, of Pavia & Harcourt, New York City, and David Israel, McGlinchey, Stafford, Cellini & Lang, New Orleans, LA, for defendant, The May Dept. Stores Co.
MEMORANDUM AND ORDER
McKENNA, District Judge.
By this Order, the Court decides a motion by defendant The May Department Stores Company ("Defendant" or "May") to dismiss plaintiff Federal Insurance Company's ("Plaintiff" or "Federal") declaratory judgment action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiff opposes Defendant's motion. For the reasons that appear below, Defendant's motion is granted.
Background
In February 1990, Plaintiff[1] issued to Defendant a Crime Insurance Policy, number 8085 69 85 H (the "Policy"). (Compl. ¶ 5.) "Included among the Insureds [under the Policy] was Lord & Taylor ... a division of the defendant." (Compl. ¶ 6.) Lord & Taylor was acquired by May in October 1986; previously Lord & Taylor had been a division of Associated Dry Goods Corporation. (Id.)
"On or about May 1, 1991, defendant submitted a proof of loss with documentation allegedly in support thereof, which was supplemented on or about November 14, 1991 and on or about February 10, 1992 making claim under the Policy." (Compl. ¶ 7.) May claims to have sustained losses of approximately $12 million due to a direct loss caused by theft by an employee, James Ricci ("Ricci"). May contends that Ricci accepted bribes from certain of Lord & Taylor's vendors
and by reason of allegedly having accepted such bribes continued to do business with those vendors instead of requiring *349 competitive bidding from vendors which would have resulted, according to defendant, in lower prices for the bags, boxes, and envelopes purchased by L & T during the period 1973 to approximately 1989 while Ricci was employed in L & T's purchasing department.
(Compl. ¶ 8.) Ricci's employment with Lord & Taylor allegedly ceased in early 1989.
"By letter dated April 20, 1992, May advised Federal that May planned to file suit by May 15, 1992 if Federal did not pay the claim." (Def's. Mem. at 1.) "By letter dated May 8, 1992, Federal declined May's claim." (Mait Aff. ¶ 3.) Federal, then, commenced this declaratory judgment action on May 11, 1992.
Discussion
Rule 12(b)(6) of the Federal Rules of Civil Procedure entitles a defendant to a judgment of dismissal where a complaint fails to state a claim upon which relief can be granted. The standard of review on a motion to dismiss is heavily weighted in favor of a plaintiff. The Court is required to read a complaint generously, drawing all reasonable inferences from the complainant's allegations. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 515, 92 S.Ct. 609, 614, 30 L.Ed.2d 642 (1972). "In ruling on a motion to dismiss for failure to state a claim upon which relief may be granted, the court is required to accept the material facts alleged in the complaint as true." Frasier v. General Electric Co., 930 F.2d 1004, 1007 (2d Cir. 1991). A defendant is entitled to dismissal pursuant to Rule 12(b)(6) only when the Court finds that "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).
The Declaratory Judgment Act provides that a court of the United States "may" declare the rights and other legal relations of any interested party seeking such a declaration. 28 U.S.C. § 2201(a) (1988). In Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620 (1942) (citation omitted), the Supreme Court stated that "[a]lthough the District Court had jurisdiction of the suit under the Federal Declaratory Judgment Act, it was under no compulsion to exercise that jurisdiction." See also Great American Insurance Co. v. Houston General Insurance Co., 735 F.Supp. 581, 584 (S.D.N.Y.1990). In that case, the Court noted that:
Where the law provides district courts with discretionary powers, the district courts should exercise that statutory authority with the same care and concern as they apply the principles of equity. The Court, thus, must look at more than just the mechanical application of the declaratory judgment standard. The Court must look at the litigation situation as a whole in determining whether it is appropriate for the Court to exercise its jurisdiction over the declaratory judgment action before it.
Id. at 585 (citation omitted). Considering the litigation situation as a whole, in light of the principles of equity, the Court concludes that it should not exercise its discretion to entertain Plaintiff's action for a declaratory judgment. Accordingly, the Complaint is dismissed.
"Declaratory judgment relief was intended to avoid precisely the accrual of avoidable damages to one not certain of his rights." Continental Casualty Co. v. Coastal Savings Bank, 977 F.2d 734, 738 (2d Cir.1992) (citation omitted). "Essentially, a declaratory relief action brings an issue before the court that otherwise might need to await a coercive action brought by the declaratory relief defendant." United States v. Doherty, 786 F.2d 491, 498 (2d Cir.1986) (quoting Mobil Oil Corp. v. Long Beach, 772 F.2d 534, 539 (9th Cir.1985)).
The Second Circuit has also held that when a "declaratory judgment action has been triggered by a notice letter, this equitable consideration may be a factor in the decision to allow the later filed action to proceed to judgment in the plaintiffs' chosen forum." Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 219 (2d Cir.1978), cert. denied, 440 U.S. 908, 99 S.Ct. 1215, 59 *350 L.Ed.2d 455 (1979); see also Sturge v. Diversified Transport Corp., 772 F.Supp. 183, 188 (S.D.N.Y.1991) (declaratory judgment, in case triggered by letter sent to underwriters notifying them of intention to file suit, would not clarify and settle legal relations between parties and would not terminate controversy). "The federal declaratory judgment is not a prize to the winner of a race to the courthouses." Perez v. Ledesma, 401 U.S. 82, 119 n. 12, 91 S.Ct. 674, 694 n. 12, 27 L.Ed.2d 701 (1971) (Brennan, J. dissenting). The Second Circuit seeks "to avoid acting as umpire on `race to the courthouse' disputes, stating merely that `apparent anticipation of litigation' is an `equitable consideration' and `may be a factor' in allowing a later filed action to proceed." Viacom International, Inc. v. Melvin Simon Productions, Inc., 774 F.Supp. 858, 867 (S.D.N.Y.1991) (citation omitted). The parties do not dispute that May threatened litigation if Federal did not honor its claim under the Policy.
While not directly relevant to the procedural posture of the instant case, both parties raise the "first filed" rule. The first filed rule provides that "`where an action is brought in one federal district court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action' ... unless `there are special circumstances which justify giving priority to the second.'" City of New York v. Exxon Corp., 932 F.2d 1020, 1025 (2d Cir.1991) (citations omitted). The first filed rule should not be applied mechanically. Sequa Capital Corp. v. Miller & Miller Auctioneers, Inc., No 92-3761, 1992 WL 204372, at *3, 1992 U.S.Dist. LEXIS 12281, at *8 (S.D.N.Y. Aug. 11, 1992). Of the special circumstances warranting exception to the first filed rule, "one such circumstance occurs when a party files suit seeking a declaratory judgment immediately after receiving notice of planned suit from the other party." Cooperative Centrale Raiffeisen-Boerenleen Bank v. Northwestern National Insurance Co, 778 F.Supp. 1274, 1278 (S.D.N.Y.1991). Departure from the first filed rule is warranted only after careful consideration of the particular circumstances of a given case taken as a whole.
On or about April 20, 1992, May wrote to Federal informing it that if it did not satisfy May's claim under the Policy by May 15, 1992, May planned to sue on the Policy. On or about May 11, 1992, this action was filed. Federal's conduct leads to the inference that its commencement of the action in this District is forum shopping. As stated in Great American Insurance:
The Declaratory Judgment Act was not designed to countenance such procedural manipulation of forums and actions. In fact, the misuse of the Declaratory Judgment Act to gain a procedural advantage and preempt the forum choice of the plaintiff in the coercive action militates in favor of dismissing the declaratory judgment action.
735 F.Supp. at 586 (citations omitted). Further, in a declaratory judgment action, which is the first filed action, a notice letter "is a factor weighing in favor of permitting the second action to take priority." Sharimalia Food Corp. v. Monarch Wine Co., No. 91-6691, 1992 WL 58308, at *3, 1992 U.S.Dist. LEXIS 3175, at *8 (S.D.N.Y. Mar. 16, 1992).
The Court notes, as an aside, that the action necessarily requires that the Policy itself be construed. The meaning of the Policy is at the heart of this case. Further, since resolution of the dispute will involve a construction of the Policy, it is significant to note that, absent a forum selection clause,[2] that construction will likely be undertaken under the laws of the State of Missouri.[3] That interpretation is a factor although not in itself a dispositive factor weighing in favor of dismissing the Complaint.
As another reason for allowing the dispute to proceed in New York, Plaintiff urges that the presence in this District of *351 numerous witnesses weighs in favor of the Court retaining jurisdiction. That assertion is not as persuasive as it seems. While several potential witnesses appear to be located in the New York area, others are located outside of the region. (Mait Aff. ¶¶ 7-9.) To the extent that it may become necessary to take depositions of witnesses who cannot, because of distance, be subpoenaed to appear at trial, their depositions may nevertheless be taken, wherever they may be located.
That there will be some inconvenience to Plaintiff in litigating in a state other than New Jersey, its principal place of business, is not in question. There would, of course, be equal inconvenience to Defendant in the present case if the dispute were to be litigated in New York, and its inconvenience must be considered as well.
Lastly, Plaintiff vigorously argues that May's failure to commence an action in some other jurisdiction precludes disposition of its motion in its favor. This argument is without merit. By bringing an anticipatory declaratory judgment action, Federal initially deprived May of its choice of forum. It was appropriate in the circumstances for May to await disposition of the present motion before commencing another action in a different forum.
Summary
For the foregoing reasons, Defendant's motion to dismiss the Complaint, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, is granted. Plaintiff's request for costs, including attorney's fees, is denied.
SO ORDERED.
NOTES
[1] Federal is an Indiana corporation with its principal place of business located in the State of New Jersey. (Compl. ¶ 1.) May is a New York corporation with its principal place of business located in the State of Missouri. (Compl. ¶ 2.)
[2] The Court is unaware of the presence of such a clause in the Policy.
[3] "Missouri [is] where the policy was issued and where premiums were paid." (Pl.'s Mem. at 18.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1472420/ | 314 F.Supp. 607 (1970)
UNITED STATES of America,
v.
Samuel F. MANARITE et al., Defendants.
No. 69 Cr. 747.
United States District Court, S. D. New York.
June 30, 1970.
*608 *609 Whitney North Seymour, Jr., U. S. Atty., Southern District of New York, New York City, for the United States; Stephen Scott, Special Atty., Dept. of Justice, New York City, of counsel.
James M. La Rossa, New York City, for Richard J. Portela and Carol Ann Portela.
Lipsitz, Green, Fahringer, Roll, Schuller & James, Buffalo, for Paul Wolf and Max Bornstein; Herald Price Fahringer, Buffalo, and Patrick M. Wall, New York City, of counsel.
OPINION
MacMAHON, District Judge.
Fifteen defendants are charged in a thirteen-count indictment with transporting obscene material in interstate commerce (18 U.S.C. § 1465), with aiding and abetting the transportation of obscene material in interstate commerce (18 U.S.C. § 2), and with conspiring to transport obscene material in interstate commerce (18 U.S.C. § 371).
Four defendants move to suppress evidence allegedly seized in violation of their constitutional rights. An evidentiary hearing was held on April 9, 1970. We will consider first defendants Wolf and Bornstein's motions to suppress.
I. Wolf and Bornstein's Motions to Suppress
Defendants Wolf and Bornstein challenge the constitutionality of seizures from defendant James Kelly's book store in Baltimore, Maryland, on June 25, 1969, and from Bornstein's truck and apparently from Richard Portela's car, from Carol Portela's person and from James Kelly's car, in Baltimore, Maryland, on July 12, 1969.
A. Seizures from Kelly's Book Store
Baltimore city detectives, on June 25, 1969 acting pursuant to a search warrant, seized from a book store owned by defendant James Kelly, 48 magazines, 16 rolls of film, 67 packages of photographs and 4 decks of playing cards.[1]
Defendants Wolf and Bornstein claim that the warrant authorizing this seizure did not sufficiently particularize the "obscene" material to be seized and that an adversary hearing was not held prior to seizing the material.
The requirement of particularity for a warrant authorizing the seizure of obscene material is a necessary protection for, and a corollary of, the Fourth Amendment's guarantee of freedom from unreasonable search and seizure and the First Amendment's right of free speech. The remedy for violation is suppression of any evidence seized as a result of the violation.[2]
*610 The requirement of an adversary hearing prior to seizing allegedly obscene material is completely derived from the First Amendment's right of free speech.[3] The remedy for violation of this requirement is not suppression but rather return of the seized material,[4] and defendants' motions to suppress on this ground are, therefore, improper.
The motions, however, are deficient on both First and Fourth Amendment grounds for an even more fundamental reason.
The First and Fourth Amendment rights allegedly violated by this seizure are personal rights. Only the actual victim of an invasion of these rights has standing to move to suppress.[5] This simply means that a defendant moving to suppress evidence on either of these two grounds must demonstrate that his own personal right to be free from an unreasonable search and seizure or his own personal right to free speech was violated.
Here, the material was seized from a book store owned by James Kelly. There is no evidence, nor is there even an allegation, that defendants Wolf or Bornstein had or have any proprietary interest in the book store or in the items seized.
Since the seizure did not invade defendants' rights of "privacy of person or premises," they lack standing on Fourth Amendment grounds to move to suppress this evidence.[6]
Defendants also lack standing to move to suppress on First Amendment grounds.
The general requirement of particularity in warrants is more strictly applied in situations involving the seizure of materials which arguably fall within the First Amendment's protection of free expression.[7] This is necessary to guard against an executing officer's seizing "protected expression," if he is not given some guidelines to direct his exercise of discretion.
Similarly, an adversary hearing is necessary prior to a "massive" seizure of material containing "speech" in order to protect against an interference, albeit temporary, with "protected expression."[8]
But, once again, as in the case of Fourth Amendment rights, only those persons who are victims of governmental interference with the right of free speech have standing to move for suppression.
Neither Wolf nor Bornstein were, however, exercising their right of free speech through the seized material. Their right to express themselves was in no sense invaded by this seizure.[9]
*611 Wolf and Bornstein's motion to suppress the evidence seized at Kelly's book store on June 25, 1969 is, therefore, denied.
B. The Arrests and Seizures on July 12, 1969
Wolf and Bornstein also move to suppress evidence seized on July 12, 1969 from Bornstein's truck, from Richard Portela's car, from Carol Ann Portela's person and from James Kelly's car.
Defendants Wolf and Bornstein claim that the arrests on July 12, 1969 were invalid because the officers lacked probable cause. They also claim that the arrests and subsequent searches violated the Fourth Amendment because the law enforcement officials had probable cause prior to the arrests and had sufficient time to obtain warrants but failed to do so. Finally, they claim that the seizures were without a warrant and a prior adversary hearing and were, therefore, unconstitutional.
Wolf fails to demonstrate that he has standing to challenge any of the arrests made on July 12, 1969 or to move to suppress any of the evidence seized at that time.[10] Bornstein has standing only to challenge the validity of his own arrest and to move to suppress the evidence seized from his truck.[11] Nevertheless, since the validity of all the arrests and seizures on July 12, 1969 depend on the application of the same legal principles to the same fact situation, we will determine whether any of the defendants' constitutional rights were violated by the arrests and seizures on July 12, 1969.
James Kelly, after the seizure at his book store, decided to cooperate with the Baltimore city police. He was directed by Lieutenant George R. Andrew of the Baltimore police to Agent Robert Noel of the Federal Bureau of Investigation.[12]
Kelly, on July 8 and 9, 1969, told Noel that he had purchased all the material seized from his book store from a Richie Portela.[13] Kelly called Noel at 2.00 A.M. on July 12, 1969 and said that Richard Portela had just been in his store and told him he was registered with his wife and children at the Holiday Inn under the assumed name of "Devito." Richie also told Kelly that he had the reels of film that Kelly wanted but "that things were hot in New York and that he had to have a kid drive the material down to Baltimore by truck." Kelly arranged to meet Portela at the Holiday Inn at 11:00 A.M. on that same morning of July 12 and agreed to purchase 240 reels of film.[14]
The story Kelly told Noel was, if reliable, more than sufficient to constitute probable cause to arrest. Kelly's reliability was not, however, conclusively established until only minutes before the actual arrest. Prior to that, Noel had only been able to corroborate some peripheral particulars of Kelly's story and the one solid incriminating fact, that Portela was registered at the Holiday Inn under the assumed name of "Devito," the same name Kelly had given Noel.[15] Noel also found out that Portela, upon checking in at the Holiday Inn, sought out another man registered under the name of "Max Miller," later identified as defendant Max Bornstein. Noel located in the parking lot a Ford truck bearing the license plates listed on Bornstein's motel registration card. Noel noticed inside the truck several 12" × 15" tan corrugated cardboard boxes, similar in size, shape, material and color to boxes which on previous occasions the Agent had found to contain 100 reels of obscene film.[16]
Nevertheless, Kelly's reliability did not become demonstrable until the law enforcement officials, themselves, observed the sale at the approximate time, *612 at the same place and involving the same people as previously described by Kelly.
The officers' observations of the transfer of cardboard boxes by Bornstein and Portela from Bornstein's truck to Portela's car, Portela's handling Bornstein some money and finally the transfer of these same boxes by Portela and Kelly from Portela's car to the trunk of Kelly's car[17] not only corroborated Kelly's statements to Noel, but in combination with Kelly's statement immediately prior to the arrest that the boxes contained film purchased from Portela, were more than sufficient to establish probable cause for the arrest.[18]
The arrest of Bornstein and the other defendants was therefore valid.
We turn to defendants' claim of delay in attempting to obtain a warrant.
The failure to obtain a warrant was reasonable in light of the fact that Noel did not learn of the prospective sale until 2:00 A.M. on a Saturday morning, only nine hours prior to its taking place. He had absolutely no facts which would justify to himself, or demonstrate to an impartial magistrate, Kelly's reliability. At this point, Noel certainly did not have probable cause to arrest.[19]
Noel spent the next few hours attempting to corroborate Kelly's story, but still the facts possessed by the officers prior to the on-the-scene observations were not sufficient to constitute probable cause. Their failure to attempt to obtain a search warrant did not, therefore, prejudice defendants.
Even if we were to assume that the officers had probable cause to arrest by the early morning hours of July 12, 1969, there are still no facts evidencing "deliberate or unreasonable delay."[20]
It was quite reasonable for the officers to be somewhat doubtful as to the legal effect of the facts they possessed and to want the opinion of a lawyer. The fact that it was a Saturday morning, that there was no clerical staff available to type the proper affidavits and the warrant itself, and that the nearest judge was a one and one-half hour round-trip away[21] are circumstances which demonstrate that the failure to obtain the warrant was not due to deliberate and unreasonable delay, but necessitated by the pressure of a deadline imposed by the defendants' arrangements and not by the officers' conduct.
Moreover, the validity of warrantless searches "turns upon reasonableness under the circumstances and not upon the practicality of procuring a search warrant since such warrant is not required."[22]
We turn, therefore, to determine the reasonableness of the searches and consequent seizures.
The search of Mrs. Portela's pocketbook is certainly justifiable as a limited search for concealed weapons.[23]
The remaining searches of Kelly's car, Portela's car and Bornstein's truck are reasonable under established Fourth Amendment principles.
Kelly's total cooperation with the police and F.B.I., his statement to Lieutenant Andrew immediately prior to his arrest that the films in his trunk were purchased from Portela, and his failure to move to suppress this evidence demonstrate his consent to the seizure.[24]
*613 The defendants do not dispute that both Portela and Bornstein, upon learning that Lieutenant Andrew intended to obtain a warrant, also consented to the search of the car and truck. Their consent is unequivocally and conclusively established by the uncontradicted evidence that Portela and Bornstein gave Andrew the keys to the car and truck.[25]
The fact that Andrew would have searched the cars and truck pursuant to a warrant, regardless of whether the defendants consented, does not, by any possible logical extension, render the defendants' consent involuntary.
Wolf and Bornstein finally move to suppress the evidence seized on July 12, 1969 because no adversary hearing was held prior to the seizure.
As we pointed out before, an adversary hearing prior to the seizure of a "massive" quantity of obscene material is required to guard against a seizure of "expression" protected by the First Amendment.[26] The evil is the substantiality of the interference with the First Amendment right to free expression and the reciprocal right to receive information. The corresponding remedy is, therefore, return of the material and not suppression of the material as evidence in a criminal trial.[27]
Defendants Wolf and Bornstein do not move for a return of the material, and we, therefore, need not decide whether the seizures were so "massive" as to require a prior adversary hearing.[28] Their motion to suppress on this ground is denied.
None of the searches and seizures involved in the arrests on July 12, 1969 in Baltimore, Maryland, violated the moving defendants' constitutional rights, and their motions to suppress the evidence obtained as a result of these searches are, therefore, denied.
We turn now to the Portelas' motion to suppress.
II. The Portelas' Motion to Suppress
Richard and Carol Ann Portela's challenge to the searches and seizures at their apartment is solely on the ground that the searches and consequent seizures were beyond the scope of a search incident to a lawful arrest, as recently defined by the United States Supreme Court in Chimel v. California.[29] They do not challenge the validity of the arrest warrant or of the arrest itself. Nor do they claim that the seizures constituted a "massive" seizure of "obscene" material requiring a prior adversary hearing.
The Supreme Court in Chimel strictly limited the scope of searches incident to lawful arrests. Such searches are limited to "a search of the arrestee's person and the area `within his immediate control'construing that phrase to mean the area from within which he might gain possession of a weapon or destructible evidence."[30]
The Chimel standard is applicable to searches that occur after June 23, 1969.[31] The searches and seizures that occurred at the Portela apartment took place on July 23, 1969, and thus *614 their validity is determined by applying Chimel.
All of the challenged searches involved seizures of evidence that actually were within an area from which either Richard Portela or Carol Ann Portela might gain possession of a weapon or destructible evidence.
Two address books, a paper bag containing reels of film, a bag containing 43 color photographs and a bag containing 165 slugs the size of a quarter were all seized at a time when Richard Portela was standing at the portable bar near the entrance to his living room. Portela was in the custody of one agent and later a second agent, but during this time he was not handcuffed or in any way physically restrained.
The two address books were lying on the surface of the bar within easy reach of Richard Portela, and the bag containing the reels of film was lying on the floor about two feet from him. The agent next to Portela could see that reels of film were in the bag, and when asked what was in the bag Portela replied "that is hard core stuff."[32]
The tear gas gun, the bag containing 43 color photographs and the bag containing 165 slugs were found on the first shelf of the inner portion of the bar. At the time they were seized, Portela was standing merely six inches from the surface of the bar and could have easily reached over the bar and grabbed any of these items.[33]
A box labelled "cartridges" and containing .32 caliber ammunition and a box containing a gun were found in the bedroom closet. At the time, Mrs. Portela had gone into the bedroom with an agent and a nurse employed by the F.B.I. in order to get a dress out of the closet. The agent informed Mrs. Portela that he would have to get the dress for her. She made no protest. Upon opening the closet door, he saw on the first shelf a box labelled "cartridges" and found that it contained .32 caliber ammunition. He then noticed a box lying on the floor of the closet, which he opened. The box contained a gun. The agent seized both the gun and the ammunition.[34]
Later on, when the agents were about to leave with the Portelas, John Monaghan, the agent in charge, asked Mrs Portela if she wanted a raincoat and she said she did. The agent then asked her where it was located and she told him in the closet.
Monaghan went over to the nearest closet located in the hallway entrance and upon opening the door noticed on the closet shelf a looseleaf folder bearing the initials "CVS." The initials were significant to Monaghan because a certain Louis Saks, who had a long history of arrests for various pornography offenses, owned "CVS" Color Sales.[35] Also in open view on the shelf was a brown manila envelope containing negatives of females in various acts of "sadism and masochism."[36]
Monaghan seized both the looseleaf book and the negatives.
Although the closets were not clearly areas from which Mrs. Portela could have reached for a weapon or evidence, they would certainly have become such areas if the agents had allowed her to open the closets herself. In fact, had they allowed her to open the closets herself, they would have been perfectly justified in thoroughly searching the closets before she actually reached in for her dress or raincoat.
Thus, in order to protect themselves, the nurse and the other law enforcement officials from the serious danger of Mrs. Portela seizing a weapon from the closets, it was necessary and reasonable for the agents to open the closet doors and take out a dress and raincoat for Mrs. Portela. In doing so, the various items seized were lying in plain view, and their seizure was justified under established *615 Fourth Amendment principles.[37]
The agents also seized several reels of film, some copies of Color Climax magazine, comic books, Western Union money order receipts and several notebooks from two end tables in the living room.
Agent Monaghan, when he stepped through the entrance hallway, noticed two men lying on two couches near the far left wall of the living room in front of the terrace entrance. One couch was against the wall and there were tables at both ends of this couch. The other couch was a few feet away and faced the couch against the wall. On top of one of the end tables (marked as "End Table No. 1") in plain view was a copy of the magazine "Color Climax."[38]
Agent Monaghan, after placing Richard Portela and Carol Ann Portela in the custody of other agents, walked over to the two couches and told both men to remain in their prone positions. The men were both wearing T-shirts and had apparently been sleeping on the couches in the Portela apartment. Neither Agent Monaghan nor any of the other law enforcement officials was able to identify the two men.
Monaghan directed the men to stand. They stood midway between the two couches, one standing about two feet from End Table No. 1 and the other about three feet from End Table No. 2. The men were facing Richard Portela, who was standing across the room from them, about six to twelve feet from the two end tables.[39]
At the time Monaghan searched End Table No. 1 and ordered the search of End Table No. 2, he had already been informed that a gun and a box of cartridges had been found on the premises.[40] The two as yet unidentified men were standing two to three feet from the two end tables. They were not handcuffed or restrained in any way, and no one was positioned between them and the end tables.
Both men had apparently been sleeping in the Portela apartment and were likely relatives or intimate friends of the Portelas. Since they were both in full view of Portela, who had already been placed under arrest, it would be reasonable for the agents to assume that if Portela had signalled the two unidentified men, they would have been able to reach over and draw a weapon out of the end tables.
Monaghan also observed that the end tables opened from the top, making it a lot easier for one of the men to reach in from the top and quickly draw out a weapon.
In short, it was entirely reasonable and absolutely necessary for the safety of the law enforcement officials to consider the two men as Portela's possible agents or accomplices, in effect as extensions of Portela's physical presence, constructively placing Portela within reach of the two end tables. Moreover, since a gun and ammunition had already been found in the apartment, it was not unlikely that other weapons would be secreted throughout the apartment. The discovery of the tear gas gun behind the bar demonstrates the reasonableness of this assumption.
The searches of, and seizures from, the end tables which were within the reach of the two unidentified men and therefore could be reasonably considered to be in the constructive reach of the arrested person, were properly incident to the lawful arrest as defined in Chimel.[41]
The agents' activities in the Portela apartment evidenced a scrupulous regard for the letter and spirit of the Chimel rule. The only searches were of areas *616 which could reasonably be considered to be areas from which the arrested persons or their extensions, the two unidentified men, could quickly reach for a weapon or destructible evidence.[42]
There was no search of any room which was not occupied by the Portelas. The agents did not search the kitchen or the second bedroom. In fact, they did not conduct a search of any area of the living room or the first bedroom which was not proximate to either the two Portelas or the unidentified men. This was a rigidly limited search. They did not tear the house apart in a general search for anything they could find.
They made a quick search of the bathroom before Mrs. Portela went in to change and a search of one of the living room chairs before Mr. Portela sat down, and neither of these searches resulted in seizures. Quite obviously these searches, as well as the others discussed above, evidenced a conscientious regard for Fourth Amendment principles.
The Portelas' motion to suppress the evidence seized in their apartment at the time of their arrests on July 23, 1969 is, in all respects, denied.
Accordingly, defendants Wolf and Bornstein's motions to suppress and the Portelas' motion to suppress are, in all respects, denied.
So ordered.
NOTES
[1] Transcript of evidentiary hearing held on April 9, 1970 (Tr.), p. 183.
[2] United States v. Marti, 421 F.2d 1263 (2d Cir. 1970). See Marcus v. Search Warrants, 367 U.S. 717, 81 S.Ct. 1708, 6 L.Ed.2d 1127 (1961).
[3] See Astro Cinema Corp. Inc. v. Mackell, 422 F.2d 293 (2d Cir. 1970); Bethview Amusement Corp. v. Cahn, 416 F.2d 410 (2d Cir. 1969).
[4] See Astro Cinema Corp. Inc. v. Mackell, supra, 422 F.2d at 296; United States v. Wild, 422 F.2d 34 (2d Cir. 1970).
[5] See McGowan v. Maryland, 366 U.S. 420, 429, 81 S.Ct. 1101, 6 L.Ed.2d 393 (1961); United States v. Raines, 362 U.S. 17, 22, 80 S.Ct. 519, 4 L.Ed.2d 524 (1960).
[6] Wong Sun v. United States, 371 U.S. 471, 492, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963). See also Alderman v. United States, 394 U.S. 165, 173, 89 S.Ct. 961, 22 L.Ed.2d 176 (1969); Jones v. United States, 362 U.S. 257, 261, 80 S.Ct. 725, 4 L.Ed.2d 697 (1960).
[7] Marcus v. Search Warrants, supra; United States v. Marti, supra.
[8] Astro Cinema Corp. Inc. v. Mackell, supra; Bethview Amusement Corp. v. Cahn, supra.
[9] This is not a case that falls into the exception that allows a party to raise the constitutional rights of a third party who has no effective way of presenting those rights to the court. See National Ass'n for the Advancement of Colored People v. Alabama ex rel. Patterson, 357 U.S. 449, 459-460, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958); Barrows v. Jackson, 346 U.S. 249, 257, 73 S.Ct. 1031, 97 L.Ed. 1586 (1953); C. Wright, Federal Courts § 13, at 39 (1963).
[10] See notes 5 and 6, supra, and accompanying text.
[11] Id.
[12] Tr. 193-194, 243.
[13] Tr. 193-194, 196-198.
[14] Tr. 198.
[15] Tr. 198-200.
[16] Tr. 199-200.
[17] Tr. 207-212, 249-253.
[18] See Draper v. United States, 358 U.S. 307, 79 S.Ct. 329, 3 L.Ed.2d 327 (1959); Smith v. United States, 123 U.S.App. D.C. 202, 358 F.2d 833 (1966), cert. denied, 386 U.S. 1008, 87 S.Ct. 1350, 18 L.Ed.2d 448 (1967).
[19] See Spinelli v. United States, 393 U.S. 410, 89 S.Ct. 584, 21 L.Ed.2d 637 (1969); Aguilar v. Texas, 378 U.S. 108, 84 S.Ct. 1509, 12 L.Ed.2d 723 (1964).
[20] Niro v. United States, 388 F.2d 535 (1st Cir. 1968).
[21] Tr. 204-205, 245-247.
[22] United States v. Mazzochi, 424 F.2d 49 (2d Cir., 1970).
[23] See Terry v. Ohio, 392 U.S. 1, 29, 88 S.Ct. 1868, 20 L.Ed.2d 889 (1968).
[24] Tr. 253.
[25] Tr. 256-257. See Amos v. United States, 255 U.S. 313, 41 S.Ct. 266, 65 L.Ed. 654 (1921); United States v. Sclafani, 265 F.2d 408 (2d Cir.), cert. denied, 360 U.S. 918, 79 S.Ct. 1436, 3 L. Ed.2d 1534 (1959).
[26] See Astro Cinema Corp. Inc. v. Mackell, supra; Bethview Amusement Corp. v. Cahn, supra.
[27] See Astro Cinema Corp. Inc. v. Mackell, supra, 422 F.2d at 296; United States v. Wild, supra.
[28] See Astro Cinema Corp. Inc. v. Mackell, supra.
[29] 395 U.S. 752, 89 S.Ct. 2034, 23 L.Ed. 2d 685 (1969).
[30] 395 U.S. at 763, 89 S.Ct. at 2040.
[31] United States v. Bennett, 415 F.2d 1113 (2d Cir. 1969).
[32] Tr. 127-129, 154-155.
[33] Tr. 154, 161, 166.
[34] Tr. 87.
[35] Tr. 27-29.
[36] Tr. 29.
[37] See Chimel v. California, 395 U.S. 752, 763, 89 S.Ct. 2034, 23 L.Ed.2d 685 (1969); Harris v. United States, 390 U.S. 234, 236, 88 S.Ct. 992, 19 L.Ed.2d 1067 (1968) (holding seizure of evidence in "plain view" reasonable under Fourth Amendment).
[38] Tr. 23.
[39] Tr. 90-91, 138, 157.
[40] Tr. 88-89.
[41] Chimel v. California, supra, 395 U.S. at 763, 89 S.Ct. 2034.
[42] Chimel v. California, supra, 395 U.S. at 763-764, 766, 89 S.Ct. 2034. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1820756/ | 300 F.Supp. 656 (1969)
ALLIED RESEARCH PRODUCTS, INC. (a Maryland corporation), Allied Research Products, Inc. (a Delaware corporation), and Amchem Products, Inc., Plaintiffs,
v.
HEATBATH CORPORATION and Berg Manufacturing and Sales Co., Defendants.
No. 65 C 337.
United States District Court N. D. Illinois, E. D.
April 2, 1969.
Hume, Clement, Hume & Lee, Chicago, Ill., George T. Mobille and Robert B. Murray, of Cushman, Darby & Cushman, Washington, D.C., Alfred C. Aurich and Thomas L. Cantrell, of Synnestvedt & Lechner, Philadelphia, Pa., for plaintiffs.
Pendleton, Neuman, Seibold & Williams, Chicago, Ill., Morgan, Finnegan, Durham & Pine, New York City, for defendants.
OPINION
PERRY, District Judge.
This court has heard evidence and oral argument in this case, the trial of which took 46 days. The court has now considered the voluminous transcripts of testimony and briefs of counsel for the parties. After a thorough consideration of all of the evidence and all of the law presented herein, the court has come to one conclusion: All of the controversy and consequent costs to the parties is primarily the consequence of a personal feud of longstanding between Harry Irvin, president of plaintiff, Allied Research Products, Inc. (hereinafter sometimes called "Allied"), and Ernest Walen, Jr., president of defendant, Heatbath Corporation (hereinafter sometimes called "Heatbath"). This dispute arose out of the competition between Allied and Heatbath years ago and continued throughout this litigation.
This court does not have before it the full evidence on the details of the origin of the dispute between Irvin and Walen and is not able to assess the blame for this dispute in exact proportions between the parties. However, the court has heard the testimony of both men in open court and has before it sufficient *657 evidence to form an opinion, and that opinion is that both share the blame in major proportions.
The court has considered the Findings of Fact and Conclusions of Law suggested by both counsel for the plaintiffs and the defendants and on this date has adopted those suggested by plaintiffs' counsel except as to certain modifications. Said Findings of Fact and Conclusions of Law, so modified, have this day been entered and, likewise, a final Judgment in accordance with said Findings of Fact and Conclusions of Law is being entered simultaneously herewith.
The court has found that the patent which is the subject of the suit herein is valid and has been and is being infringed by defendants, Heatbath Corporation and Berg Manufacturing and Sales Co. (hereinafter sometimes called "Berg").
From the evidence and law as this court views it, this is a patent that never should have been questioned. The infringement of the patent in suit by defendants was and is indefensible except on the ground that Allied and Amchem were guilty of discrimination against Heatbath by their action in refusing to grant a license thereon to said defendant while granting one to its competitor, Parker Rust Proof Co., which they in fact did as is set forth in the Findings of Fact entered herein.
On the other hand, plaintiffs Allied and Amchem had no right to refuse a license to Heatbath on the same terms as to Parker Rust Proof Co., a licensee of plaintiffs, as they in fact did, and solely because of a personal dispute between Harry Irvin and Ernest Walen, Jr., as this court has found in the Findings of Fact herein.
This court is conscious of the fact that other reasons which appeared valid were given; but the court reiterates that it is convinced the denial of a license to Heatbath by plaintiffs was solely because of the Irvin-Walen dispute. Defendant Heatbath was a competitor of plaintiffs and Parker Rust Proof Co. Heatbath was in every way qualified as a licensee. Refusal to grant Heatbath a license was unfair discrimination.
A patent must be presumed to be valid and no one has a right to make use of or to infringe such patent unless granted a license. Heatbath and Berg erred in making use of and infringing the patent in suit without judicial sanction pursuant to law. The defendants had a remedy against plaintiffs Allied and Amchem and that remedy was to bring a suit in equity to compel said plaintiffs to grant a license on the grounds of discrimination.
Public policy requires liberal use of a patent. An owner of a patent cannot assert his rights under the law and Constitution if such owner refuses to make use of a patent, or to license a patent so that it may be of use to the public, or refuses to license an applicant when it has already granted a license to the applicant's competitor.
Therefore, the plaintiffs and defendants herein both share to some extent the blame for the useless costs of this lawsuit. Defendants should bear the costs of a useless defense by virtue of their action in taking the law into their own hands, but defendants should not be required to pay plaintiffs' attorneys' fees. However, defendant Heatbath was entitled to be licensed by plaintiffs on the same royalty basis as plaintiffs were granting licenses to other manufacturers who were competing with plaintiffs and defendants.
The defendants should account to the plaintiffs upon the basis of royalties paid to plaintiffs by Parker Rust Proof Co., leaving the plaintiffs to determine between themselves how the proceeds shall be shared, if at all. The court has in its final judgment order made an appropriate appointment of a Special Master to take evidence and to recommend an accounting to the court as a basis for a money judgment for damages due to the plaintiffs herein. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2708733/ | NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted April 8, 2014
Decided April 10, 2014
Before
FRANK H. EASTERBROOK, Circuit Judge
ILANA DIAMOND ROVNER, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
No. 13‐3434
UNITED STATES OF AMERICA, Appeal from the United States District
Plaintiff‐Appellee, Court for the Western District of Wisconsin.
v. No. 3:13CR00062–01
DAVID A. ROEHL, Barbara B. Crabb,
Defendant‐Appellant. Judge.
O R D E R
While on probation in Wisconsin for possessing child pornography in violation
of state law, David Roehl was caught using a computer, which was prohibited by the
conditions of his release. Authorities searched the computer and found hundreds of
images of child pornography. Roehl’s state probation was revoked, and he was charged
in federal court with possessing visual images depicting, and produced using, minors
engaged in sexually explicit conduct. See 18 U.S.C. § 2252(a)(4).
Roehl pleaded guilty, and at sentencing the district court calculated a guidelines
imprisonment range of 130 to 162 months based on a total offense level of 28 and
criminal‐history category of V. But the court, guided by U.S.S.G. § 5K2.0(b)(2), accepted
No. 13‐3434 Page 2
Roehl’s argument that the offense level is exaggerated by the 2‐level upward
adjustment he received under U.S.S.G. § 2G2.2(b)(6) for using a computer, since most
child pornography crimes involve use of a computer. Without that increase, Roehl’s
imprisonment range would have been 120 to 137 months (the statutory minimum is 10
years because Roehl previously was convicted in Wisconsin of possessing child
pornography, see 18 U.S.C. § 2252(b)(2) (2006); WIS. STAT. § 948.12; United States v.
Osborne, 551 F.3d 718, 721 (7th Cir. 2009)). The district court sentenced him to 120
months to run consecutively to his undischarged term of imprisonment in Wisconsin.
Roehl filed a notice of appeal, but his newly appointed attorney has concluded
that the appeal is frivolous and moves to withdraw under Anders v. California, 386 U.S.
738, 744 (1967). Roehl has not responded to counsel’s submission. See CIR. R. 51(b).
Counsel has submitted a brief that explains the nature of the case and addresses the
issues that this kind of case might be expected to involve. Because this analysis appears
to be thorough, we limit our review to the subjects that counsel has discussed.
See United States v. Wagner, 103 F.3d 551, 553 (7th Cir. 1996). Roehl has told his attorney
that he does not want his guilty plea set aside, so counsel properly omits discussion
about the adequacy of the plea colloquy and the voluntariness of the plea. See United
States v. Knox, 287 F.3d 667, 670–71 (7th Cir. 2002).
Counsel has not identified any basis to disturb the district court’s application of
the sentencing guidelines. That leaves only the possibility of challenging the
reasonableness of Roehl’s prison sentence, but counsel properly concludes that any
argument would be frivolous. Ten years is the statutory minimum, see 18 U.S.C.
§ 2252(b)(2), and the district court lacked the authority to give him less, see United States
v. Zuno, 731 F.3d 718, 724 (7th Cir. 2013) (“A district court lacks discretion to impose a
sentence below the statutory mandatory minimum.”); United States v. Douglas, 569 F.3d
635, 636 (7th Cir. 2009) (same). Furthermore, a challenge to the consecutive nature of the
sentence would be frivolous since the guidelines recommend that a consecutive
sentence be imposed when the defendant was on probation at the time of the offense,
see U.S.S.G. § 5G1.3(c) cmt. n.3(C); United States v. Broadnax, 536 F.3d 695, 702 (7th Cir.
2008), and Roehl’s Wisconsin probation was revoked because of conduct reflected in the
federal indictment.
Accordingly, we GRANT counsel’s motion to withdraw and DISMISS the
appeal. | 01-03-2023 | 08-05-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/1480193/ | 29 F.Supp. 430 (1939)
KRAUS
v.
GENERAL MOTORS CORPORATION et al.
District Court, S. D. New York.
July 25, 1939.
*431 Edward E. Hoenig, of New York City, for plaintiff.
John Thomas Smith, of New York City, for defendant.
LEIBELL, District Judge.
Plaintiff in the above entitled action served a notice dated May 12, 1939, upon the defendants requesting them to admit the genuineness of, the truth of and the receipt by one of the defendants of a certain designated document. The defendants took no action in this regard. On July 18, 1939, a proposed order was submitted to me ex parte to direct that the genuineness of, the truth of and the receipt by the defendant of the said document be deemed admitted. I requested that notice be given the defendants and when this was done affidavits were submitted by the defendants in opposition to the proposed order. They contend that no time was designated in the notice within which the admissions or denials were to be made and, further, that there are no facts stated in the notice which they were requested to admit or deny.
The failure to designate a specific period does not render a notice pursuant to Rule 36, 28 U.S.C.A. following section 723c, defective. When no time is designated in the request, the sworn statement denying the matters of which admission is requested or setting forth the reasons why an admission or denial cannot be made must be served within ten days, unless the time is extended by the court upon motion. See Form 25 contained in Appendix to Rules wherein no provision for a specifically designated time-limit has been provided. Hence, I do not believe that the notice to admit was defective in this regard.
However, I am of the opinion that defendants' further objection is a substantial one. The notice requested the defendants to admit the genuineness of, the truth and the receipt by the defendant, AC Spark Plug Company of a certain letter and report. The defendants do admit the receipt and the genuineness of the document, but contend that said letter is a compound of statements of facts, self-serving declarations and opinions and that defendants should not be compelled to try and segregate the relevant facts therefrom and admit them. A perusal of the document reveals a sound basis for defendants' objection. Rule 36 has made a substantial change in procedure, placing the burden of affirmative action on the party upon whom the notice is served to avoid the admission rather than upon the party seeking the admission. Under the circumstances I am of the opinion that a request to admit should specifically set forth the relevant matters of fact on which an admission of truth is sought. The wording of Rule 36 (a) and Form 25 so indicate. See, also, Walsh v. Connecticut Mutual Life Ins. Co., D.C., 26 F.Supp. 566; McCrate v. Morgan Packing Co., D.C., 26 F.Supp. 812. The person called upon to make the admission should not be required to go through the document and assume the responsibility of determining what are "relevant matters of fact" and then decide what admissions he should make.
Accordingly, I am signing an order submitted by the plaintiff directing that the genuineness of and the receipt by the AC Spark Plug Company of the document be deemed admitted for the purposes of this action. However, I have stricken from the said order the provision relating to the truth of the facts contained in the said letter and report. The plaintiff should serve a request specifically designating the relevant facts which he seeks to have admitted as true. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1478946/ | 547 F. Supp. 147 (1982)
Richard BALFOUR, individually and trading as Newark Dental Supply Company and Newark Dental Supply Corporation
v.
Allan A. GUTSTEIN, D.D.S. and Dentalworks, Inc. and Dental Works Bethlehem, Inc. and William Sokolic and Dentalworks Easton, Inc. and Sam Rosenfeld and Bill Hollingshead and Dental Works Plymouth Meeting, Inc. and Joel Berger and Larry Levin.
Civ. A. No. 82-2127.
United States District Court, E. D. Pennsylvania.
September 16, 1982.
Gilbert Abramson, Philadelphia, Pa., for plaintiffs.
Richard D. Director, Allentown, Pa., for defendants.
MEMORANDUM AND ORDER
TROUTMAN, District Judge.
Defendants, all either dentists, corporations involved in the manufacture of dental equipment, or their principals, move for a stay or dismissal of the instant action which alleges generally breach of contract and tortious interference with contract rights.[1] They argue that notions of comity and the beneficial use of scarce judicial reasons compel the conclusion that this Court should refuse to adjudicate the matter because of the existence of a similar action now pending in state court. Plaintiffs vehemently contest the defendants' characterization of this action as a "dressed up" version of the state suit and urge that the instant motion represents a dilatory tactic interposed in bad faith and solely to delay. Hence, they assert that the motion is a "sham" pleading within the meaning of Fed.R.Civ.P. 11 and that sanctions in the form of counsel fees for the breach thereof are necessary. We conclude that defendants' motion to dismiss or to stay and plaintiffs' request for fees are both properly denied.
Defendants' motion to dismiss is predicated upon the theory that the pending state action is virtually identical to the one at bar, and that the lack of any substantial federal question warrants deferral to the state court. In support of their motion, defendants rely upon Will v. Calvert Fire Ins. Co., 437 U.S. 655, 98 S. Ct. 2552, 57 L. Ed. 2d 504 (1978) which reaffirmed the rule announced in Brillhart v. *148 Excess Ins. Co. of America, 316 U.S. 491, 492, 495, 62 S. Ct. 1173, 1174, 1175, 86 L. Ed. 1620 (1942) that it is "uneconomical" and "vexatious" for a "federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties". (emphasis added.) See, ACandS, Inc. v. Aetna Casualty and Surety Co., 544 F. Supp. 128 (E.D.Pa.1982) (finding that portions of a declaratory judgment action sufficiently parallel a pending state court action to compel partial dismissal thereof.) The cited cases do not, however, aid defendants in that each action sought a federal declaratory judgment. By contrast, plaintiffs at bar do not seek such relief.
Defendants also rely upon Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976) in support of their motion to dismiss. There, the Supreme Court held that the District Court had properly dismissed the action due to the pendency of a state suit. The Colorado River Water Conservation Dist. court grounded its holding in the "clear federal policy" evidenced in the McCarran Amendments that courts should seek to "avoid[] [the] piecemeal adjudication of water rights in a river system". Id. at 819, 96 S.Ct. at 1247. Since the court viewed the allocation of water rights as akin to the disposition of property, it concluded that the state court, which had first acquired control of the res, should be free to adjudicate the matter without the hinderance of a similar federal action also proceeding to judgment. In so holding, the court was concerned that any contrary conclusion could create "inconsistent dispositions of property". Colorado River Water Conservation Dist. v. U.S., 424 U.S. at 819, 96 S.Ct. at 1247. Clearly, however, the court did not retreat from the long established rule that abstention is an "extraordinary and narrow exception to the duty of the District Court to adjudicate a controversy properly before it". In fact, invocation of the doctrine is only justified under "exceptional circumstances". 424 U.S. at 813, 96 S.Ct. at 1244. See also, Zimmerman v. Pioneer Chain Saw Co., Inc., No. 82-1501, slip op. at 4-5 (E.D.Pa. August 2, 1982). Since we find no such "exceptional circumstances" at bar, we decline to dismiss the action.
We now turn to defendants' alternate argument that this action should be stayed. It is well settled that a court's ability to stay a pending action is "incidental" to its "inherent power", Landis v. North American Co., 299 U.S. 248, 57 S. Ct. 163, 81 L. Ed. 153 (1936) (Cardozo, J.), and that motions requesting such relief are committed to the court's "sound discretion". Bechtel v. Local 215, Laborers' International Union, 544 F.2d 1207, 1215 (3d Cir. 1976). Factors which courts consider in determining the propriety of a stay include principles of comity, the adequacy of relief available in the alternative forum, promotion of judicial efficiency, the identity of the parties and issues in the two actions, the likelihood of prompt disposition in the alternative forum, the convenience of the parties, counsel and witnesses and the possibility of prejudice if the stay is granted. See, Nigro v. Blumberg, 373 F. Supp. 1206 (E.D.Pa.1974).
Considerations of comity, the first factor, do not support defendants' application for a stay. In fact, the general rule between state and federal courts is that the "pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal Court having jurisdiction". Colorado River Water Conservation Dist. v. United States, 424 U.S. at 817, 96 S.Ct. at 1246, quoting, McClellan v. Carland, 217 U.S. 268, 282, 30 S. Ct. 501, 504, 54 L. Ed. 762 (1910). Principles of comity are not offended by concurrent federal and state adjudications of closely related issues. The danger of inconsistent results is here more illusory than real since res judicata may be properly invoked to guard against that possibility. Princess Lida v. Thompson, 305 U.S. 456, 466, 59 S. Ct. 275, 280, 83 L. Ed. 285 (1939); Sheetz v. Kares, 534 F. Supp. 278 (E.D.Pa.1982).
Defendants implicitly acknowledge that the second factor, adequacy of relief in the alternative forum, weighs against them. *149 They argue that to the extent the two suits are not co-extensive, plaintiffs may properly amend, and enlarge, the scope of their state court complaint. See, Pa.R.C.P. 1033 (providing for amendments to pleadings). This argument misses the mark. Our inquiry here must focus upon the breadth of, and the relationship between, the two complaints as they currently exist and whether the state forum provides plaintiffs with complete relief. We are not concerned with speculative possibilities concerning plaintiffs' ability to amend their state court complaint.
Promotion of judicial efficiency, the third factor, will not be fostered by a stay. We have already noted that the two actions are not co-extensive. Hence, even if we stayed this action and awaited judgment in the state court case, the parties would nevertheless be required to return to this forum and litigate those matters not previously decided. I. J. A., Inc. v. Marine Holdings, Inc., 524 F. Supp. 197, 199 (E.D.Pa.1981)
The identity of parties and issues in the two actions, the next factor which we consider, neither favors nor resists transfer. The parties in the two suits are essentially the same; this seemingly favors defendants. The disparity between the scope of the issues sought to be litigated in the two cases weighs in favor of plaintiffs. Accordingly, this factor is neutral.
There appears little likelihood of a prompt disposition in the alternative forum. This weighs in favor of plaintiffs. Indeed, defendants have represented that plaintiffs have virtually abandoned the state court litigation in that after defendants filed preliminary objections to the complaint "plaintiff has failed to further pursue" the matter. See, Defendants' Motion for Dismissal or Stay (Document 7) at 2. Where the alternative forum is neither near trial nor approaching judgment, a stay is unwarranted. Zimmerman v. Pioneer Chain Saw Co., Inc., No. 82-1501, slip op. at 3 (E.D.Pa. August 2, 1982).
In order to carry its burden on the final factor, the convenience of the parties, counsel and witnesses, movants must adduce a "pressing need or clear case of hardship or inequity". Groves v. Insurance Co. of North America, 433 F. Supp. 877, 885 (E.D. Pa.1977) (quotation omitted). They have not done so.
Accordingly, we conclude that upon consideration of all the factors, defendants' motion to stay or dismiss is properly denied. We also remain unconvinced that a violation of Fed.R.Civ.P. 11 has occurred; hence, we deny plaintiffs' motion thereunder. An appropriate order will issue.
NOTES
[1] Specifically, the five-count complaint alleges in Count I, a breach of an oral contract. Count II seeks damages for tortious interference with contract rights; Count III claims inducement to breach an oral contract. Count IV alleges a conspiracy regarding the breach of an oral contract and Count V seeks monies for goods delivered pursuant to an oral contract. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1479879/ | 18 F.2d 447 (1927)
NEWHALL et al.
v.
CASEY, Internal Revenue Collector.
No. 2677.
District Court, D. Massachusetts.
March 22, 1927.
Guy Newhall, of Lynn, Mass., for plaintiffs.
The U. S. Atty., and Marcus Morton, Jr., Asst. U. S. Atty., of Boston, Mass., for defendant.
BREWSTER, District Judge.
This is an action at law, brought by the executors of the estate of Gustavo Preston against the collector of internal revenue for this district, to recover certain estate tax assessed under the Revenue Act of 1916 amounting to $1,446.37, which the plaintiffs allege was unlawfully exacted.
The controversy arises over the fact that the taxing authorities insisted upon including in the gross estate of decedent the value at the time of his death of certain securities transferred by the decedent to his wife during his lifetime. It appears that between May 21, 1917, and June 1, 1918, the decedent transferred to his wife at various times government and municipal bonds of the face value of $32,000, which at the time of decedent's death were valued at $31,333.83. It is not claimed that these transfers were made in contemplation of death, and it cannot successfully be maintained that they constituted a part of the decedent's estate. U. S. v. Field, 255 U.S. 257, 41 S. Ct. 256, 65 L. Ed. 617, 18 A. L. R. 1461. But it is contended that, because of the peculiar Massachusetts doctrine governing gifts of personalty from husband to wife, which obtained at the time of the transfers, they are to be treated as transfers intended to take effect in possession and enjoyment after the death of the donor within the meaning of section 202 (b) of the Revenue Act of 1916 (Comp. St. § 6336½c).
It is undoubtedly true, as plaintiffs suggest, that as a matter of fact the donor fully intended to confer upon the wife complete possession and enjoyment in præsenti of the securities with all the attributes of ownership, and without any thought of revoking or recalling the gift. Whether the government may invoke the familiar presumption that one is presumed to know the law and to intend the natural consequences of his acts are questions which need not be seriously considered, because, in view of the opinion which I hold regarding the nature of the transfer, the actual intention of the testator becomes relatively unimportant.
At the time these transfers were made it was lawful in Massachusetts for a husband to make a gift of personal property to his wife, which after his decease would give her a valid title to the property against his heirs, providing there was actual delivery of the property to the wife and a retention of the custody by her, separate and distinct from the other property of her husband; but under the peculiar doctrine, which seems to have survived in Massachusetts longer than elsewhere, and which has since been abolished (G. L. c. 209, § 3), such a gift was deemed to be revocable by the husband at any time, and his creditors could reach it. Marshal v. Jaquith, 134 Mass. 138; Brown v. Brown, 174 Mass. 197, 54 N.E. 532, 75 Am. St. Rep. 292; Tucker v. Curtin (C. C. A.) 148 F. 929.
But until the gift had been revoked, or the property was needed to satisfy the husband's debts, the right of the wife to enjoy and possess the securities was complete. While it may be possible to find in the Massachusetts cases some warrant for asserting that the wife did not, until the death of the husband, possess all of the attributes of ownership, yet it cannot be disputed that the gift had taken effect in possession and enjoyment at the time of the transfer. The mere fact that by operation of law the gift might be revoked by the husband during his lifetime would not be sufficient, in my opinion, to bring the gift within section 202 (b), as a transfer intended to take effect in possession and enjoyment after death. Dexter v. Treas. and Rec. Gen., 243 Mass. 523, 137 N.E. 877; Hill v. Nichols (D. C. Mass. March 16, 1927) 18 F.(2d) 139. See, also, Vanderbilt v. Eidman, 196 U.S. 480, 25 S. Ct. 331, 49 L. Ed. 563.
I rule, therefore, that the value of these *448 securities so transferred to the wife was improperly included in the gross estate of the decedent, and that the plaintiff is entitled to recover the sum of $1,446.37, with interest from February 6, 1920. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1507669/ | 533 F. Supp. 678 (1981)
JEANWAY INDUSTRIES, INC. and Ibrahim Hadi, An Individual, Plaintiffs,
v.
KNUDSON MANUFACTURING COMPANY, INC., G. A. Knudson, Ltd. and Gary A. Knudson, Individually, Defendants.
CYCLONE SHOP, INC. and Ralph Baird, An Individual, Plaintiffs,
v.
JEANWAY INDUSTRIES, INC., Knudson Manufacturing Company, Inc., G. A. Knudson, Ltd. and Gary A. Knudson, Individually, Defendants.
Nos. 81-5084, 81-5089.
United States District Court, W. D. Arkansas, Fayetteville Division.
November 18, 1981.
*679 James F. Dickson, Putman, Gallman & Dickson, Fayetteville, Ark., for Jeanway Industries and Ibrahim Hadi.
Robert L. Jones, Jr., Jones, Gilbreath & Jones, Fort Smith, Ark., and Michael W. Anderson, White & Steele, Denver, Colo., for Knudson Mfg. et al.
E. J. Ball, Ball & Mourton, Fayetteville, Ark., for Cyclone Shop and Baird.
MEMORANDUM OPINION
WATERS, Chief Judge.
These are actions involving exclusive dealership contracts to sell building panel machines. There is a complete diversity or alienage citizenship and the amount in controversy exceeds $10,000.00. Both actions *680 are before the court on the motions to dismiss of Knudson Manufacturing Company, Inc., G. A. Knudson, Ltd. and Gary A. Knudson for lack of personal jurisdiction.
Solely for the purposes of ruling on the motions to dismiss, the court can summarize the facts as pleaded and as appear in affidavits.
Jeanway Industries, Inc., a plaintiff in 81-5084, and a defendant and cross-claimant in 81-5089, is a Nevada corporation whose principal place of business is in Arkansas. In 1975 it entered into a contract with defendant, Knudson Manufacturing Company, Inc. whereby Jeanway was granted the exclusive right to sell model P 120 building panel machines and improvements manufactured by Knudson Manufacturing, throughout the world except for the United States. Mr. Gary Knudson, a defendant in both actions, represented Knudson Manufacturing in the dealings between Jeanway and Knudson Manufacturing. Knudson Manufacturing Company is a Colorado corporation with its principal place of business in Colorado. Mr. Gary A. Knudson is a citizen and resident of Colorado.
In 1978 the exclusive sales contract was modified, reducing Jeanway's territory to approximately 13 Mid-Eastern countries and 5 Mid-Western states of which Arkansas was not one. In 1979, Jeanway granted Ibrahim Hadi a license to sell the Knudson building panel machines and improvements in the 13 Mid-Eastern countries. Mr. Ibrahim Hadi, a plaintiff in 81-5084, is a citizen and resident of Jordan. Jeanway also granted Ralph Baird the exclusive right to sell the machines in the 5 Mid-Western states of the United States. Ralph Baird, a plaintiff in 81-5089 is a citizen of Indiana. Mr. Baird, in turn, granted Cyclone Shop, Inc. the right to share in the sales of machines in Indiana, Kentucky, Michigan, Ohio, and Southern Illinois. The Cyclone Shop, Inc. is an Indiana corporation with its principal place of business in Indiana.
After the initial contract was entered into between Knudson Manufacturing and Jeanway, G. A. Knudson, Ltd. was formed to market the products manufactured by Knudson Manufacturing. G. A. Knudson, Ltd. is a Colorado corporation with its principal place of business in Colorado.
On July 28, 1981, Jeanway Industries and Ibrahim Hadi commenced an action in this court seeking compensatory and punitive damages and temporary injunctive relief on the grounds that the defendants, Knudson, were maliciously interfering in the business relations of Jeanway and Hadi, by selling and attempting to sell building panel machines in the Mid-East in violation of the exclusive sales agreement between Knudson and Jeanway. The Honorable Paul X Williams granted plaintiffs a temporary restraining order, which expired at the end of ten (10) days. No other injunctive relief has been given plaintiffs.
On July 31, 1981, the Cyclone Shop, Inc., and Ralph Baird, commenced an action in this court against Jeanway and the defendants, Knudson, seeking compensatory and punitive damages and injunctive relief on the grounds that the Knudsons have interfered with plaintiffs' exclusive right to sell the building panel machines in Indiana, Ohio, Kentucky, Michigan, and Southern Illinois.
Service of process was had on the defendants, Knudson, in Colorado by certified mail with return receipt. The defendants, Knudson, have moved to dismiss on the grounds that this court has no personal jurisdiction over them, as they never committed any of the acts enumerated in the Arkansas long-arm statute to subject themselves to extra-state service of process from Arkansas courts.
Ark.Stat.Ann. 27-2502 C.1.(a) provides in part as follows:
"1. A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a (cause of action) (claim for relief) arising from the person's
(a) transacting any business in this state;
(d) causing tortious injury in this state by an act or omission outside this state *681 if he regularly does or solicits business, or engages in any other persistent course of conduct in this state or derives substantial revenue from goods consumed or services used in this state;
2. When jurisdiction over a person is based solely upon this section, only a (cause of action) (claim for relief) arising from acts enumerated in this section may be asserted against him."
"Whether a state long-arm statute applies in any particular case is a question of state law." Caesar's World, Inc. v. Spencer Foods, Inc., 498 F.2d 1176, 1179 (8th Cir. 1974). Under Arkansas law, "the plaintiff has the burden of proving that a non-resident defendant has sufficient contacts with Arkansas to be sued in personam." Hawes Firearms Co. v. Roberts, 263 Ark. 510, 512, 565 S.W.2d 620 (1978). However, the non-resident defendant filing a motion to dismiss or quash, "has the burden of going forward and offering proof to sustain the allegations (of no jurisdiction)" Ibid. at 513, 565 S.W.2d 620.
The defendants, Knudson, have not tendered any affidavits in support of their motion to dismiss, but we hold that even though plaintiffs' affidavits remain uncontradicted, three of the plaintiffs have not made out a prima facie showing of personal jurisdiction over the defendants, Knudson.
The affidavit of Rufus Hopf, president of the Cyclone Shop, provides in part as follows:
"12. From 1975 to the present date, defendants, (hereinafter referred to as Knudson), Knudson Manufacturing Company, Inc., Gary A. Knudson and G. A. Knudson, Ltd., have continuously solicited orders for the P-120 building panel machines from Jeanway in Springdale, Washington County, Arkansas.
13. Defendants Knudson have sent representatives to Washington County, Arkansas, to discuss both the Jeanway-Knudson contract and the Jeanway-Cyclone-Baird contract.
14. From 1975 to the present date, defendants Knudson have continuously mailed correspondence and made telephone calls to Washington County, Arkansas, for the purpose of discussing the Jeanway-Knudson contract and the Jeanway-Cyclone-Baird contract.
15. From 1975 to the present date, defendants Knudson have sold the P-120 building panel machines to Jeanway Industries, Inc., in Springdale, Arkansas.
16. Defendants Knudson have received substantial revenue from the sale of the P-120 building panel machines to Jeanway Industries, Inc., in Springdale, Arkansas.
17. Plaintiffs (citizens and residents of Indiana, non-residents of Arkansas) have placed orders for the P-120 building panel machines in Springdale, Arkansas, pursuant to their contract entered into with defendant, Jeanway Industries, Inc., in Springdale, Washington County, Arkansas.
18. From 1975 to the present date, defendants Knudson have shipped spare parts for the P-120 building panel machines to Springdale, Washington County, Arkansas, for use by defendant, Jeanway, and shipment to plaintiffs, Cyclone Shop, Inc., and Ralph Baird, for their exclusive territory.
19. From 1979 to the current date, plaintiffs have lost substantial revenues in Springdale, Washington County, Arkansas, due to the interference of defendants Knudson with the Jeanway-Cyclone-Baird contract and through the breach by defendants of the Jeanway-Knudson contract.
20. On at least one occasion in 1981, the defendants, Gary A. Knudson and/or G. A. Knudson, Ltd., has sold a building panel machine in Laymon, Ohio, for $90,000.00 to be exported by the purchaser to Saudi Arabia."
The Cyclone Shop and Ralph Baird contend that their extrastate service of process on the defendants-Knudson in case No. 81-5089 is authorized by Ark.Stats. Ann. 27-2502 C.1.(d) "causing tortious injury within this state by an act or omission outside the state ....". We disagree. The Cyclone Shop and Ralph Baird are located *682 in Indiana, from where they sell Knudson building panel machines in Indiana, Ohio, Kentucky, Michigan and Southern Illinois. They complain of the Knudsons for tortiously interfering with their exclusive right to market the machines in the 5 Mid-Western states. The situs of the tort and the situs of the tortious injury to the Cyclone Shop and Ralph Baird is not Arkansas, but Indiana. The only connection the Cyclone Shop and Ralph Baird have with Arkansas is Jeanway, the alleged holder of the exclusive marketing rights from Knudson, and the place where Jeanway contracted with the Cyclone Shop and Baird, to give them the right to sell the machines in the 5 Mid-Western states. As the Cyclone Shop and Ralph Baird did not suffer a tortious injury within Arkansas, Ark.Stat.Ann. 27-2502 C.1.(d) does not authorize extrastate service of process on the defendants Knudson in Cyclone Shop v. Jeanway, 81-5089. As the Arkansas long-arm statute does not authorize extrastate service on the defendants Knudson in case no. 81-5089, the motion to dismiss of defendant Knudsons must be granted. It is only when state law authorizes long-arm service that the court must analyze whether or not the exercise of such jurisdiction would offend due process. See, Hutson v. Fehr Bros., Inc., 584 F.2d 833, 835 (8th Cir. 1978) ("whether the Arkansas long-arm statute authorizes the exercise of jurisdiction over Weissenfels and, if so, whether the ... exercise would violate the due process clause ...."). See, also, Leflar, American Conflicts of Law 3rd ed. p. 67 "(the) Uniform Act ... prescribes the scope of long-arm service as authorized in most states, though it does not go quite as far as the due process clause would permit.")
We point out that Cyclone Shop and Ralph Baird, plaintiffs in 81-5089, do not contend jurisdiction exists under Ark.Stat. Ann. 27-2502 C.1.(a) "transacting any business in this state" or subsection (b) "contracting to supply services or things in this state." The plaintiffs recognize that subsection (a) and (b) would be inapplicable because plaintiffs' cause of action against the Knudsons does not "arise from Knudsons doing anything within the State of Arkansas." Plaintiffs' cause of action against the Knudsons arises from the Knudsons' actions in Indiana, Ohio, Michigan, Kentucky, and Illinois. The Knudsons' relationship with Jeanway, whose principal place of business is in Arkansas, is merely antecedent to the alleged tort. See, Krone v. AMI, Inc., 367 F. Supp. 1141 (E.D.Ark. 1973).
The same analysis applies to the claim of Ibrahim Hadi in case no. 81-5084. Mr. Hadi lives in Jordan, where he sells Knudson building panel machines in 13 Mid-Eastern countries. Mr. Hadi asserts his exclusive right to sell the machines derives from a contract between him and Jeanway and that Jeanway's right derives from an agreement between Knudson and Jeanway. To the extent Mr. Hadi has suffered a tortious injury by the acts of the defendants Knudson, the injury has not been suffered in Arkansas, but where Mr. Hadi lives and works in the Mid-East. As it cannot be said Mr. Hadi's cause of action against Knudson arises from Knudson's having caused Mr. Hadi tortious injury within Arkansas, extrastate service of process cannot be upheld on Mr. Hadi's cause of action under Ark.Stat.Ann. 27-2502 C.1.(d). Mr. Hadi's cause of action against the Knudsons also does not arise from the Knudsons' transacting any business in Arkansas. Any business which the Knudsons transacted in Arkansas was with Jeanway and was merely antecedent to Mr. Hadi's cause of action.
A more difficult question is presented by the cause of action of Jeanway against the Knudsons. The affidavit of Lewis Nichols, vice president of Jeanway, provides in part as follows:
"8. In 1975, plaintiff, Jeanway Industries, Inc., entered into a contract with defendant, Gary A. Knudson and defendant Knudson Manufacturing Company, Inc., whereby Jeanway was granted the exclusive rights to the sale of the P-120 building panel machines in the world except for the USA which, by agreement was reduced in 1978 to exclusivity in the *683 countries of Lebanon, Syria, Iraq, Yemen, Iran, Saudi Arabia, Jordan, Kuwait, Watar, Bahrein, Oman, Abudhabi and the remaining United Arab Emirates.
9. After Jeanway entered into the contract with the defendants Gary A. Knudson and Knudson Manufacturing Company, Inc., Jeanway entered into another contract with plaintiff, Ibrahim Hadi, whereby Hadi would have the exclusive distributorship for the P-120 building panel machines in the above referenced foreign countries. In order for Jeanway to fulfill the covenants of the Jeanway-Hadi contract, it is imperative that defendants comply with the terms and conditions of the Jeanway-Knudson contract.
10. Beginning in 1979, defendants, Gary A. Knudson, Knudson Manufacturing Company, and G. A. Knudson, Ltd., sent sales representatives into Jeanway's exclusive Mid-Eastern territory and sold P-120 building panel machines.
11. By soliciting orders and selling P-120 building panel machines in Jeanway's exclusive Middle East territory, plaintiffs, Jeanway and Hadi, suffered loss of revenue in the amount of one million, forty-six thousand, seven hundred and eighty-three dollars ($1,046,783.00).
12. From 1975 to the current date, defendants have continuously solicited, by mail and by telephone, orders for the P-120 building machines from Jeanway in Springdale, Washington County, Arkansas.
13. Defendants have regularly sent representatives to Washington County, Arkansas, to discuss both the Jeanway-Knudson contract and the Jeanway-Hadi contract during the years 1975 to date.
14. From 1975 to the present date, defendants have continuously mailed correspondence and made telephone calls to Washington County, Arkansas, for the purpose of reviewing and modifying the Jeanway-Knudson contract and the Hadi-Jeanway contract.
15. From 1975 to the present date, defendants have sold the P-120 building panel machines to Jeanway in Springdale, Arkansas.
16. Defendants have received substantial revenue from the sale of the P-120 building panel machines to Jeanway Industries in Springdale, Arkansas, but have subsequently intentionally interfered with the resale of many of the same machines in the foreign countries set out herein, with substantial resulting monetary damages to both plaintiffs.
17. Plaintiff, Hadi, has placed orders for the P-120 building panel machines in Springdale, Arkansas, pursuant to his contract entered into with plaintiff, Jeanway Industries, Inc., in Springdale, Washington County, Arkansas.
18. From 1975 to the present date, defendants have shipped spare parts for the P-120 building panel machines to Springdale, Washington County, Arkansas, for use by plaintiff, Jeanway, and shipment to the Mid-East to plaintiff, Hadi, and derived substantial revenue therefrom."
The defendants Knudson contend that Jeanway's cause of action against them is in fact one for breach of contract, not for tortious interference. Defendants point out that as the contract between them and Jeanway was not negotiated, consummated or to be performed within Arkansas, Jeanway's action for breach of contract cannot be said to have arisen from any business transacted within Arkansas, (Ark.Stat.Ann. 27-2502 C.1.(a)) or from contracting to supply services or things in this state (subsection C.1.(b)). See, Rogers Joyce v. Paoli Steel, 491 F. Supp. 1095 (E.D.Ark.1980). If the contract was breached, it was breached by the acts of Knudson in Ohio, Indiana, Michigan, Kentucky, Illinois, or the 13 Mid-Eastern countries, not by any act or omission of Knudson within Arkansas. We reiterate that the Jeanway-Knudson contract was not negotiated, consummated, to be performed, or breached within Arkansas.
To support his claim of personal jurisdiction, Jeanway relies on Ark.Stat.Ann. 27-2502 C.1.(d), which authorizes extrastate service as to causes of action arising for the *684 defendant's "causing tortious injury in this state by an act or omission outside this state if he regularly does or solicits business or engages in any persistent course of conduct in this state or derives substantial revenues or goods consumed or services used in this state."
Arkansas recognizes the tort of malicious and willful interference with contractual rights and relationships of another which contains four essential elements. Mason v. Funderburk, 247 Ark. 521, 446 S.W.2d 543 (1969); Lane v. Chowning, 610 F.2d 1385, 1389 (8th Cir. 1979); Bishop v. Tice, 622 F.2d 349 (8th Cir. 1980). We point out that Jeanway's action is not one for breach of contract; it claims the defendants Knudson interfered not with the contract between Jeanway and Knudson, but with the contracts between Jeanway and Hadi and Jeanway and Baird.
It would be error for this court to dismiss Jeanway's claim for contractual interference at this stage of the proceedings and to hold that Jeanway's only remedy against Knudson was for breach of the Jeanway-Knudson contract.
As Jeanway has pleaded that it was the victim of tortious interference, the situs of the tort is Arkansas. The tortious injury occurred in Arkansas, where Jeanway felt the impact of the "act or omission" outside Arkansas.
Ark.Stat.Ann. 27-2502 C.1.(d) only authorizes extrastate service for a defendant's having caused tortious injury within the state by acts or omissions elsewhere if other criteria are also met, "if (the defendant) regularly does or solicits business or engages in any other persistent course of conduct in this state or derives substantial revenue from goods consumed or services used in this state."
In his affidavit, Lewis Nichols, avers that for the last six years defendants Knudson have solicited orders from Jeanway in Springdale, and have received substantial revenues from sales of building machines to Jeanway in Arkansas. These averments are uncontroverted by the defendants Knudson. We therefore find that the Knudsons committed sufficient acts within Arkansas to subject themselves to extrastate service of process under Ark.Stat.Ann. 27-2502 C.1.(d).
Having held that the Arkansas long-arm statute authorizes personal jurisdiction over defendants Knudson, we must inquire whether the exercise of that jurisdiction would violate the due process clause. Unlike the situations presented in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980), and Hutson v. Fehr Bros., 584 F.2d 833 (8th Cir. 1978), the defendants in the case at bar have carried on activities with Jeanway in Arkansas for a substantial period of time by soliciting sales from and to Jeanway. The Knudsons entered into contracts with Jeanway from which they derived benefits due in part to the protections afforded by Arkansas law. It does not offend traditional notions of fair-play and substantial justice to require the Knudsons to defend against Jeanway's cause of action in Arkansas. Knudson's associations with Arkansas through Jeanway were not merely fortuitous. The persistent relationship with Jeanway which included sales to Jeanway in Arkansas, when considered in light of the alleged tortious injury occurring in Arkansas, is sufficient to satisfy the requirements of due process.
Separate orders will be entered in accord with this opinion. The causes of action of Cyclone Shop and Ralph Baird in case no. 81-5089 against the defendants Knudson will be dismissed, leaving the claim against Jeanway. Mr. Ibrahim Hadi's cause of action against the defendants Knudson in case no. 81-5084 will be dismissed. Jeanway Industries' cause of action against the defendant Knudson in 81-5084 will not be dismissed. As Mr. Hadi's cause of action against the Knudsons is separate and distinct from Jeanway's, it is proper for the court to dismiss the claim of Mr. Hadi without dismissing that of Jeanway. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1479522/ | 547 F.Supp. 850 (1982)
DEMIT OF VENEZUELA, C. A., a Foreign Corporation, and Nora Vasquez, Plaintiffs,
v.
ELECTRONIC WATER SYSTEMS, INC., a Florida Corporation, and Miguel Fava Brigante, a/k/a Miguel Fava, Defendants.
No. 80-1228-Civ-WMH.
United States District Court, S. D. Florida, Miami Division.
September 30, 1982.
John Kearns, Miami, Fla., for plaintiffs.
Mark A. LeVine, Miami, Fla., for defendants.
MEMORANDUM OPINION
HOEVELER, District Judge.
On May 23, 1980, Demit of Venezuela, C.A. (Demit), a Foreign Corporation, and Nora Vasquez filed this action against Electronic Water Conditioners, Inc. (EWC), a Florida Corporation and its President Miguel Fava Brigante, a/k/a Miguel Fava (Fava) alleging that the Defendants misappropriated the Plaintiff's trade secret. As a result, the Plaintiffs sought an injunction to halt future use of Plaintiff's confidential information and damages for its unauthorized use.
After considering the record in this cause and the evidence and testimony presented during a bench trial, this Court reaches the following findings of fact and conclusions of law.
*851 I. BACKGROUND
From September 1970 to April 1974, Miguel Fava was employed by Demit of Venezuela as a salesman for their electronic water treatment systems. Throughout this period, Jose Vasquez Arias (Vasquez), the founder of Demit, acted as the company's chief executive officer and supervised the manufacture of all Demit equipment.
At the same time, Mr. Fava traveled extensively throughout South America marketing Demit products. As his tenure with the firm grew, however, he became more active in all facets of Demit's operation including the manufacture of Demit water treatment devices. Ultimately, Mr. Fava was promoted to the position of Vice President for marketing and was given substantial responsibility for Demit's planning and operations.
The mainstay of the Demit product line was a electro-mechanical device known as the "Demit Electromagnetic Preventer & Scale Preventer" (Electromagnetic Preventer). This device was invented by Mr. Vasquez who refined the product over a period of twenty years. Its main purpose was to remove from water any minerals which could eventually cause scaling in boilers and pipes.
The Electromagnetic Preventer essentially consisted of two parts. The first section contained a electric control box which transformed alternating current to direct current. The second section consisted of a steel box which contained a chemically treated impeller through which a electromagnetic field was generated.
These elements were combined to operate under the theory that mineralized water, when forced through a electromagnetically charged chamber, would be separated from its water borne minerals thus eliminating the major cause of boiler scale.
Although other electronic water treatment devices employed similar principles to remove minerals from water, Demit's exact water treatment method was unique and thus formed the basis of the company's numerous Venezuelan, Colombian and Spanish patents. Moreover, the exact chemicals and method used to treat the Demit impeller was a trade secret which the company claims heightened the effectiveness of their product and distinguished it from those of their competitors. Consequently, Mr. Vasquez never revealed the exact chemical formula he used to treat his impellers until shortly before his death in 1980. At that time, he only disclosed the secret information to his daughter, Plaintiff Nora Vasquez.
While Mr. Fava was employed by Demit, he aided Mr. Vasquez in the firm's manufacturing operation and, after a period of time was entrusted to purchase the chemicals used in the impeller treatment process. Although Mr. Vasquez may never have explicitly told his employee that he was being given the formula to Demit's secret process, Mr. Fava was often given a list of chemicals to purchase as well as the amount of chemicals required for impeller treatment.
By April 1974, Mr. Fava and the Vasquez family differed over Mr. Fava's use of company funds. As a result, Mr. Fava was asked to leave Demit. Pursuant to his severance, the parties executed a "dissolution agreement" which included a financial settlement as well as Mr. Fava's agreement not to manufacture water treatment equipment or use or reveal any of Demit's confidential information.
In July 1974, however, Mr. Fava moved to Florida where he incorporated the Defendant company Electronic Water Systems, Inc. and began production of the Electro-Mag water treatment device. The Electro-Mag utilized the same basic principles as the Demit Electromagnetic Preventer and incorporated similar working parts including, the Plaintiff's allege, an impeller treated with Mr. Vasquez's secret formula. Since 1974, EWS has been producing and marketing its own water treatment device and, according to its 1979 Federal Income Tax Return, posted gross earnings of $285,898.
II. FINDINGS OF FACT AND CONCLUSIONS OF LAW
a) Defining the Trade Secret
As a general rule "A trade secret is protected against illegal appropriation and *852 commercial use by a competitor". University Computing, Co. v. Lykes-Youngstown, Corp., 504 F.2d 518 (5th Cir. 1974) at 534. In order to define what actually constitutes a "trade secret", however, Florida Federal Courts have looked to the definition presented in Section 757 of the Restatement of Torts (1939). Consequently, in Keystone Plastics, Inc. v. C. & P. Plastics, Inc., 340 F.Supp. 55 (S.D.Fla.1972), aff'd 506 F.2d 960 (5th Cir. 1974) Judge King defined a "trade secret" as:
"Any formula, pattern, device or compilation of information which is used on (sic) one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." See Restatement of Torts, Section 757, Comment (b) (1939).
While the Fifth Circuit stated that the Restatement for the most part merely requires that "... the parties view the process or device as secret and that the secret be revealed in confidence ..." University Computing, supra at 534 quoting from Water Services, Inc. v. Tesco Chemicals, 410 F.2d 163 (5th Cir. 1969), the Keystone Court also applied the six part test outlined in Comment (b) of Section 757 and prescribed by the Seventh Circuit in Forest Laboratories v. Pillsbury, Co., 452 F.2d 621 (7th Cir. 1971) which further defined "trade secrets" as:
"information (1) is used in one's business, (2) which gives him an opportunity to obtain an advantage over competitors who do not know or use it, (3) which is secret, i.e., not common knowledge of the trade, (4) which is maintained in secrecy by the owner, (5) which is of value to a competitor, and (6) which was acquired at some expense to or effort by its owner." Keystone Plastics, at 74
In this case, the Plaintiff has the burden of showing that a trade secret exists and based on the evidence as presented, this Court concludes that the chemical formula Mr. Vasquez devised to treat Demit impellers did indeed constitute a legally protectable trade secret as described in either of the aforementioned tests.
There was no evidence to show that Demit used the Vasquez formula outside of its normal course of business nor did any party argue that Demit's impeller treatments were common to the trade or resulted from any source other than Mr. Vasquez's own years of research and development. The Defendants merely claimed that the Plaintiffs failed to show that the Vasquez chemical formula had any beneficial value thus failing to satisfy the second and fifth segments of the Keystone test.
The Defendants assert that the chemical formula invented by Mr. Vasquez could not constitute a "trade secret" since a trade secret must have beneficial value in order to give the owner an opportunity to obtain an advantage over its competitors. Although this Court may take issue with what the Defendant may view as beneficial, we are not upon called to render such an opinion since the Plaintiffs produced persuasive testimony showing that their treatment had beneficial value.
At trial Defendants argued that the chemical formula Demit used to treat its impellers was worthless and had no effect on the Electronic Preventer's electromagnetic properties. Plaintiffs, however, presented credible testimony to the effect that the Vasquez formula aided the electromagnetic properties of their product and that the chemically treated impeller was an indispensable element for its operation.
As a result, this Court concludes that the chemical formula used by Demit did indeed have value and gave its product a distinct advantage over competing water treatment systems. Therefore, Demit possessed a legally protected trade secret.
b) Liability for Misappropriation of Trade Secret
While this Court is satisfied that Mr. Vasquez's chemical formula was a legally protected trade secret, the Plaintiffs must also show that the Defendants' "... disclosure or use constitutes a breach of confidence reposed in him by the (owner of the secret) in disclosing the secret to him," [Section *853 757, Restatement of Torts, (emphasis added)] in order to hold the Defendants liable for its unauthorized use. After considering the record, evidence and trial testimony presented in this case, the Court finds the Plaintiff's position most persuasive and thus holds Defendants liable for misappropriation of the Plaintiff's trade secret.
Defendant Fava was employed by Mr. Vasquez and Demit for approximately four years. During that time he gained Mr. Vasquez's trust to the point where his employer regularly sent him to purchase the chemicals he required for his secret formula. Moreover, the Defendant himself testified that Mr. Vasquez often handed him lists containing the amount needed of each ingredient. While Mr. Fava contends that he was never specifically told that he was being given Demit's trade secret, a man of Mr. Fava's intelligence (as evidenced by his educational background and numerous patent applications) could easily have surmised Mr. Vasquez's formula especially when it was undisputed that Mr. Fava was the only person entrusted to purchase Demit's chemicals. Therefore, Mr. Fava had clear access to the trade secret.
However this Court finds that Plaintiff also presented a compelling case regarding Defendant's use of the Demit trade secret and found the overall testimony of the Plaintiff's witnesses most persuasive. Mr. Fava claimed that he could not be liable for misappropriating Demit's trade secret because EWS did not use any special chemicals to treat Electro-Mag impellers. In support of his position, Defendant produced an employee who testified that Mr. Fava merely dipped his impellers in used motor oil. The Court, however, heard credible testimony from Plaintiff's expert witness who stated that it was extremely improbable that the chemicals which appeared in tests on the Defendant's impeller, would be present on an impeller that was simply treated with used motor oil. Moreover, a second Plaintiff's expert testified that a impeller that was simply treated with motor oil would not produce the electromagnetic charge necessary for the operation of the Defendant's water treatment system.
In weighing this testimony, the Court also considered a number of facts presented in the record. It was uncontested, for example, that Mr. Fava left Demit's employ under less than amicable circumstances. The Plaintiffs presented credible testimony showing that the Defendant was asked to resign after a dispute concerning his use of company funds. While Mr. Fava's dissolution agreement contained detailed provisions regarding settlement of his financial involvement in Demit, the agreement also recognized Mr. Fava's former status as a trusted employee and thus attempted to prevent the Defendant from using any information he may have obtained while he was employed by Demit. Although this Court will not rule on the merits of the parties dissolution agreement, the Court notes that Mr. Fava incorporated his electronic water treatment business no more than three months following his resignation from Demit.
In addition, the Defendant's loan application to the Small Business Administration (SBA) and applications to the U. S. Patent Office, contained documents which implied that Mr. Fava possessed degrees in engineering a fact contradicted at trial. Moreover, this Court found that there were significant differences between the financial statements Mr. Fava submitted to the SBA and those he submitted to the Internal Revenue Service. Finally, documents submitted by the parties show substantial outstanding court judgments against the Defendant.
Therefore, after considering all of this evidence, this Court finds the Plaintiff's testimony and arguments more compelling and thus concludes that the Defendants not only engaged in the unauthorized use of the Plaintiff's trade secret but also is liable for damages resulting from their misappropriation.
c) Damages
Now that the Court has concluded that the Defendant has misappropriated the Plaintiff's trade secret, we come to the *854 question of damages. As the Fifth Circuit stated in University Computing, supra, existing case law indicates that the standard for measuring damages is a flexible one. While fashioning a remedy in this type of case may be difficult, however, mere uncertainty should not preclude Plaintiff's recovery. The Fifth Circuit went on to outline a number of methods for computing damage awards in trade secret cases including assessments based on the misappropriation's benefit to the Defendant as well as the misappropriation's effect on the Plaintiff's profits.
Because of the paucity of usable evidence presented by the parties on the question of damages, the Court finds it especially difficult to measure actual damages using either approach. The Court, however, finds that here it is more logical to fashion a remedy based on a fair assessment of the trade secret's benefit to the Defendant since his financial records provide an indication of the trade secret's value or at least its use. In doing so, the Court finds that the "reasonable royalty" standard described in the University Computing case (Id. at 538) provides the most fair and equitable method of assessing damages.
In pre-trial discovery the Defendant denied keeping certain periodic financial records which may have provided greater insight into the trade secret's value to the Defendants. While the Defendant's income tax returns offer little help beyond suggesting that the Defendant operated a minimally successful business, the reasonably stated mandate of the Fifth Circuit compels a fashioning of damages where there has been a misappropriation. I find, under the circumstances presented by the evidence in this case, that a reasonable royalty of $5000 per year should be awarded to the Plaintiffs for unauthorized use of its trade secret and that the award should cover each of the years from 1975 to 1981.
Since the Plaintiff has also sought injunctive relief to halt Defendant's unauthorized use of its trade secret, it is further ordered that the Defendants shall forthwith cease using the Vasquez chemical formula to treat any part of its electronic water treatment device or any other water treatment equipment under the Defendant's control.
FINAL JUDGMENT
THIS CAUSE having come before the Court for trial and the Court having heard arguments of counsel and the issues being duly tried, it is
ORDERED AND ADJUDGED that final judgment be and it is hereby entered in favor of the plaintiff, Demit of Venezuela, C.A., a foreign corporation, and Nora Vasquez, and against the defendants, Electronic Water Systems, Inc., a Florida corporation, and Miguel Fava Brigante a/k/a Miguel Fava, in the amount of Five Thousand and 00/100 Dollars ($5,000.00) for each of the years from 1975 to 1981, for which sum let execution issue. Costs which are proper shall be taxed by separate motion and order. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4555598/ | Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:07 AM CDT
- 683 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
REO Enterprises, LLC, a Nebraska limited
liability company, appellee, v. Village of
Dorchester, a Nebraska political
subdivision, appellant, and
Ange Lara, appellee.
___ N.W.2d ___
Filed August 7, 2020. No. S-18-970.
1. Ordinances. Interpretation of a municipal ordinance is a question
of law.
2. Constitutional Law: Ordinances. The constitutionality of an ordinance
presents a question of law.
3. Judgments: Appeal and Error. An appellate court independently
reviews questions of law decided by a lower court.
4. Equal Protection. Equal protection requires the government to treat
similarly situated people alike.
5. ____. Equal protection does not forbid classifications; it simply keeps
governmental decisionmakers from treating differently persons who are
in all relevant respects alike.
6. ____. When a classification created by governmental action does not
jeopardize the exercise of a fundamental right or categorize because of
an inherently suspect characteristic, equal protection requires only that
the classification rationally further a legitimate state interest.
7. Constitutional Law: Ordinances: Presumptions. Courts begin with
a presumption of validity when passing upon the constitutionality of
an ordinance.
8. Equal Protection: Proof. Under the rational basis test, whether an equal
protection claim challenges a statute or some other government act or
decision, the burden is upon the challenging party to eliminate any rea-
sonably conceivable state of facts that could provide a rational basis for
the classification.
9. Equal Protection. The rational basis test, which is the most relaxed and
tolerant form of judicial scrutiny of equal protection claims, is satisfied
- 684 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
as long as (1) there is a plausible policy reason for the classification,
(2) the legislative facts on which the classification is based may ratio-
nally have been considered to be true by the governmental decision-
maker, and (3) the relationship of the classification to its goal is not so
attenuated as to render the distinction arbitrary or irrational.
10. Equal Protection: Records. In equal protection claims, where the
record does not contain information regarding the adoption of an ordi-
nance, statute, or other governmental action, courts analyze the underly-
ing legislative facts the governmental entity alleged to have considered
when such basis is clearly apparent.
11. Equal Protection: Ordinances: Proof. The burden is upon a party chal-
lenging an ordinance under an equal protection claim to eliminate any
reasonably conceivable state of facts that could provide a rational basis
for the classification.
12. Equal Protection: Legislature: Intent. Social and economic measures
violate equal protection only when the varying treatment of different
groups or persons is so unrelated to the achievement of any legitimate
purposes that a court can only conclude that the Legislature’s actions
were irrational.
13. Equal Protection. The rational basis test does not require a govern-
mental entity to choose a specific course of action to address its legiti-
mate interest.
14. Appeal and Error. An appellate court will not consider an issue on
appeal that was not passed upon by the trial court.
15. Constitutional Law: Appeal and Error. A constitutional issue not
presented to or passed upon by the trial court is not appropriate for con-
sideration on appeal.
Appeal from the District Court for Saline County: Vicky
L. Johnson, Judge. Reversed and remanded for further
proceedings.
Kelly R. Hoffschneider, of Hoffschneider Law, P.C., L.L.O.,
for appellant.
Gregory C. Damman, of Blevens & Damman, for appellee
REO Enterprises, LLC.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
- 685 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
Funke, J.
The Village of Dorchester, Nebraska (Dorchester), appeals
the district court’s order granting summary judgment for REO
Enterprises, LLC (REO). In its order, the district court declared
Dorchester’s ordinance No. 684 unconstitutional because it
treated tenants and owners of property differently when apply-
ing for utility services by requiring tenants to obtain a land-
lord’s written guarantee that the landlord would pay any unpaid
utility charges for the rented property. Dorchester claims that
the district court erred in this declaration and that ordinance
No. 684 does not violate the Equal Protection Clauses of the
U.S. and Nebraska Constitutions. For the reasons set forth
herein, we reverse the judgment and remand the cause to the
district court for further proceedings.
BACKGROUND
REO is a Nebraska limited liability company which owns
residential rental property in Dorchester. Prior to May 1, 2017,
tenants who leased REO’s property applied for utility services
with Dorchester, paid a deposit, and received water, sewer, and
electrical services.
On May 1, 2017, Dorchester’s village board passed ordi-
nance No. 684 mandating the use of village utility services and
setting forth terms for billing, collection of bills, and discon-
tinuance of service. As relevant to the instant case, “Section
3-002: Consumer’s Application; Service Deposit” provides:
A. Every person or persons desiring utility services
must make application therefor to the Village clerk, who
shall require the applicant to make a service deposit and
tap fees for water and sewer service in such amounts as
set by resolution by the Village Board and placed on file
at the Village office. . . . Utility services shall not be sup-
plied to any house or private service pipe except upon the
order of the utilities superintendent.
B. Before a tenant’s utility application will be accepted,
the landlord shall be required to sign an owner’s consent
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Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
form and agree to pay all unpaid utility charges for his
or her property.
In July 2017, Ange Lara entered into a lease agreement with
REO for the rental of REO’s Dorchester property. Pursuant
to this agreement, Lara contacted Dorchester’s village clerk
to apply for utility services and paid a $250 deposit with this
application. At that time, Lara was informed that there was a
prior, unpaid utility bill associated with a prior renter of the
property and that she would not receive the services until this
bill was paid and REO signed a form titled “Owner’s Consent
and Guaranty of Payment for Unpaid Utility Charges for
Rental Property.”
Lara told a representative of REO about her interaction
with the village clerk. An REO representative then contacted
representatives of Dorchester and was informed of ordinance
No. 684 and its requirement that REO sign the “Guaranty”
before Lara could receive utility services for the property. The
village clerk also reiterated the requirement that the prior ten-
ant’s past-due bill be paid. REO responded to these require-
ments by asserting that ordinance No. 684 is invalid and that it
would not sign the “Guaranty.”
Due to this noncompliance, Dorchester refused to provide
Lara utility services at the property in Lara’s name. However,
Dorchester did begin to provide services to the property
through an account set up in an REO representative’s name. At
the time of this action, Dorchester had retained Lara’s deposit
and was continuing to provide utility services for the property,
still occupied and leased by Lara, through the REO representa-
tive’s account.
In October 2017, REO filed a complaint seeking that the
district court declare ordinance No. 684 void and unenforce-
able and order Dorchester to pay REO’s attorney fees and court
costs. REO alleged four claims as follows: (1) Ordinance No.
684 violated the Equal Protection Clauses of article 1, § 3,
of the Nebraska Constitution and the 14th Amendment to the
U.S. Constitution; (2) ordinance No. 684 violated the Equal
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Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
Credit Opportunity Act 1; (3) ordinance No. 684 violated the
special legislation provision of article 3, § 18, of the Nebraska
Constitution; and (4) ordinance No. 684 violated Nebraska’s
Uniform Residential Landlord and Tenant Act. 2
Dorchester filed an answer which claimed, in part, that
REO’s complaint failed to state a claim upon which relief
could be granted and that REO’s claims were barred in whole
or in part by the doctrine of unclean hands, laches, waiver,
and estoppel.
In May 2016, REO filed a motion for summary judgment
claiming there were no genuine issues of material fact and it
was entitled to judgment as a matter of law. Dorchester, in turn,
also filed a motion for summary judgment, agreeing there were
no genuine issues of material fact and claiming it was entitled
to judgment as a matter of law.
Following a hearing, the district court entered summary
judgment for REO and overruled Dorchester’s motion. In its
order, the court analyzed REO’s claim that ordinance No. 684
violated the Equal Protection Clauses. First, the court found
that residential tenants and owners of Dorchester property were
similarly situated under ordinance No. 684 for equal protection
purposes. The court noted that by requiring a landlord to be a
cosigner to a tenant’s utility obligations, but not requiring a
residential owner to obtain a third-party cosigner, ordinance
No. 684 treated tenants and owners differently. The court then
found there was not a rational relationship between the dif-
ference in treatment and Dorchester’s interest in collecting
unpaid bills from tenants. Specifically, the court reasoned that
Dorchester’s policy was applied to tenants irrespective of their
creditworthiness and ability to pay without taking into account
the tenants’ security deposits and the ability of Dorchester
to impose liens on the rented property or provide other rem-
edies to meet Dorchester’s offered goal. Thus, the court
determined ordinance No. 684 unconstitutionally violated the
1
15 U.S.C. § 1691 et seq. (2012).
2
Neb. Rev. Stat. §§ 76-1401 to 76-1449 (Reissue 2018).
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Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
Equal Protection Clauses and, because it found this claim dis-
positive, did not discuss REO’s remaining claims.
ASSIGNMENT OF ERROR
Dorchester assigns, consolidated and restated, that the
district court erred by finding that ordinance No. 684 vio-
lated the Equal Protection Clauses of the U.S. and Nebraska
Constitutions.
STANDARD OF REVIEW
[1-3] Interpretation of a municipal ordinance is a question of
law. 3 Similarly, the constitutionality of an ordinance presents
a question of law. 4 An appellate court independently reviews
questions of law decided by a lower court. 5
ANALYSIS
Equal Protection
[4-6] The Nebraska Constitution and the U.S. Constitution
have identical requirements for equal protection challenges. 6
Equal protection requires the government to treat similarly sit-
uated people alike. 7 It does not forbid classifications; it simply
keeps governmental decisionmakers from treating differently
persons who are in all relevant respects alike. 8 When a clas-
sification created by governmental action does not jeopardize
the exercise of a fundamental right or categorize because of
an inherently suspect characteristic, equal protection requires
only that the classification rationally further a legitimate
state interest. 9
3
Wilkison v. City of Arapahoe, 302 Neb. 968, 926 N.W.2d 441 (2019).
4
Dowd Grain Co. v. County of Sarpy, 291 Neb. 620, 867 N.W.2d 599
(2015).
5
Wilkison, supra note 3; Dowd Grain Co., supra note 4.
6
Lingenfelter v. Lower Elkhorn NRD, 294 Neb. 46, 881 N.W.2d 892 (2016).
7
Id.
8
Id.
9
Id.
- 689 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
Ordinance No. 684 creates two classifications relevant to the
instant action: (1) residential tenants and (2) residential owners.
REO does not claim, and the district court did not find, that
tenants are a suspect class or that ordinance No. 684’s differ-
ence in treatment affected a fundamental right. Additionally, we
have not held that a specific application and collection structure
for payment of utility services by tenants and landowners is a
fundamental right. As such, and because the interests at issue
are economic, we apply the rational basis test. 10
[7-9] This court begins with a presumption of validity
when passing upon the constitutionality of an ordinance. 11
Accordingly, under the rational basis test, whether an equal
protection claim challenges a statute or some other government
act or decision, the burden is upon the challenging party to
eliminate any reasonably conceivable state of facts that could
provide a rational basis for the classification. 12 The rational
basis test, which is the most relaxed and tolerant form of judi-
cial scrutiny of equal protection claims, is satisfied as long
as (1) there is a plausible policy reason for the classification,
(2) the legislative facts on which the classification is based
may rationally have been considered to be true by the govern-
mental decisionmaker, and (3) the relationship of the classifica-
tion to its goal is not so attenuated as to render the distinction
arbitrary or irrational. 13
In this three-part analysis, we first consider the policy reason
for the classification. 14 Under ordinance No. 684, Dorchester
requires residential tenants to provide written guarantees
from their landlords but does not require similar third-party
guarantees for residential owners. In requiring the written
10
See id.
11
DeCoste v. City of Wahoo, 255 Neb. 266, 583 N.W.2d 595 (1998).
12
State v. Montoya, 304 Neb. 96, 933 N.W.2d 558 (2019); Lingenfelter,
supra note 6.
13
See Lingenfelter, supra note 6.
14
Id.
- 690 -
Nebraska Supreme Court Advance Sheets
306 Nebraska Reports
REO ENTERS. v. VILLAGE OF DORCHESTER
Cite as 306 Neb. 683
guarantee, Dorchester claims it has a legitimate interest in
maintaining a financially stable municipal utility by collect-
ing from tenants who abscond without paying their bills
when those bills are in excess of the tenant’s security deposit.
Dorchester argues that requiring a landlord’s guarantee
“‘remind[s] each landlord owner of its obligations and liabil-
ity to . . . Dorchester and will further the goal of collection
by reducing the possibility that . . . Dorchester will be faced
with the administrative expenses associated with repeatedly
resorting to cumbersome and expensive foreclosure or collec-
tion proceedings.’” 15
A village has the statutory authority to make and enforce
all necessary rules and regulations in the use of its system of
waterworks or water supply and the use of the water from such
system. 16 Along with charges for the use of a village’s sewer
system, 17 a village has the power to assess and collect from
its inhabitants rates for the use and benefit of water used or
supplied to them which includes the authority to enforce liens
upon the real estate where the water and sewer system are used
or supplied. 18 A village also has the authority to contract to
furnish electricity to any person or corporation. 19
Pursuant to its authority to provide and charge for utility
services, Dorchester has a legitimate interest in ensuring col-
lection of accounts for these services. By requiring a landlord
to guarantee any unpaid utility charges not paid by the tenant,
Dorchester increases the likelihood that it will be able to col-
lect payment for services with minimal additional collection
costs even if the tenants move away and collection efforts
from the tenants are unsuccessful. Such guarantee involves a
third party who is tied to real estate located within Dorchester
15
Brief for appellant at 13.
16
See Neb. Rev. Stat. § 17-537 (Cum. Supp. 2016).
17
See Neb. Rev. Stat. § 17-925.02 (Cum. Supp. 2016).
18
See Neb. Rev. Stat. § 17-538 (Cum. Supp. 2016).
19
See Neb. Rev. Stat. § 17-901 (Reissue 2012).
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and against whom collection may be more easily pursued.
This consideration does not equally apply when determining
whether to require a third-party guarantee from a residential
landowner where the utility customer owns the land at issue
and cannot as easily avoid his or her obligations without aban-
doning the property to its creditors. We find ensuring payment
for utility services is a plausible policy reason for the classifi-
cations requiring landlords’ guarantees for tenants but not for
residential owners.
[10] We next consider whether the legislative facts on which
the classification is based may rationally have been considered
to be true. 20 Where, as here, the record does not contain infor-
mation regarding the adoption of an ordinance, statute, or other
governmental action, we have analyzed the underlying legisla-
tive facts the governmental entity alleged to have considered
when such basis is clearly apparent. 21
Dorchester claims by requiring a landlord guarantee for ten-
ants and not requiring a third-party guarantee for residential
owners, it was recognizing that tenants are less likely to be
creditworthy than owners and that collection from tenants who
moved away is more difficult than from owners who are tied
to the property within the village. In support of these alleged
facts, Dorchester provided an affidavit from Dorchester’s vil-
lage clerk and treasurer. She explained that “[i]n the past,
[Dorchester] spent substantial resources in trying to locate
former residential tenant utilities customers that . . . left town
with unpaid utility account obligations” and “collections agen-
cies would be used to collect these unpaid utilities accounts
[and] charge 50% of the amount collected.” She also described
that there remains an unpaid utility bill on REO’s property in
the previous tenant’s name and that the location of the previous
tenant is unknown.
REO argues the affidavit should be viewed with skepticism
in that it was conclusory and self-serving and failed to include
20
Lingenfelter, supra note 6.
21
See id.
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specific information supporting its conclusion. REO contends
that there is no evidence that Dorchester ever conducted a
study or analysis of utility bill payment tendencies in order to
establish that tenants were any more likely than property own-
ers to fail to pay utility bills and, if so, at what level. REO’s
argument is based upon the proposition that Dorchester had a
burden to offer evidence in support of its alleged policy reason
for the classification.
We first note the court granted summary judgment in favor
of REO, and as such, Dorchester is entitled to have the evi-
dence viewed in its most favorable light and have all reason-
able inferences deducible from the evidence. 22
[11] Additionally, as stated above, the burden is upon REO
as a party challenging the ordinance to eliminate any reason-
ably conceivable state of facts that could provide a rational
basis for the classification. 23 The U.S. Supreme Court has
explained, “A State . . . has no obligation to produce evidence
to sustain the rationality of a statutory classification.” 24 The
Court further explained, “‘[A] legislative choice is not sub-
ject to courtroom factfinding and may be based on rational
speculation unsupported by evidence or empirical data.’” 25
Contrary to REO’s argument, Dorchester was not required
to present evidence to support the classification under ordi-
nance No. 684, and instead, REO had the duty to disprove
Dorchester’s alleged factual basis or establish the facts were
not reasonably conceivable.
As the district court correctly noted, individual residen-
tial tenants and owners are not intrinsically with or without
creditworthiness. However, other jurisdictions have recognized
22
See JB & Assocs. v. Nebraska Cancer Coalition, 303 Neb. 855, 932
N.W.2d 71 (2019).
23
See, Montoya, supra note 12; Lingenfelter, supra note 6.
24
Heller v. Doe, 509 U.S. 312, 320, 113 S. Ct. 2637, 125 L. Ed. 2d 257
(1993).
25
Id.
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an increased likelihood that an individual who rents a prop-
erty may have less available reachable assets and resources
than an owner who may have applied for and acquired debt to
buy the property or had enough resources to buy the property
outright. 26 When analyzing the underlying facts Dorchester
relied on in enacting ordinance No. 684, the question is not
whether such assertion is correct but whether it may rationally
have been considered to be true. 27 Accordingly, the inherent
increased likelihood of a tenant’s lack of creditworthiness com-
pared to a residential owners’ creditworthiness is an appropri-
ate consideration.
Even more compelling is Dorchester’s allegation that admin-
istrative and collection costs associated with unpaid utility bills
are more likely to increase when seeking payment for services
provided to tenants versus residential owners. Tenants are con-
nected to the property through a lease agreement which means
their connection with that property ceases when they are no
longer acting under the agreement. Dorchester noted in the vil-
lage clerk’s affidavit that, in the past, this lack of continuing
connection with the property can result in Dorchester’s spend-
ing “substantial resources” in trying to locate the tenant to col-
lect on unpaid services.
REO argues that Dorchester does not define “substantial
resources” expended to locate and collect from tenants in con-
trast to residential owners. However, evidence of a study and
a precise comparison is unnecessary to support Dorchester’s
conclusion. 28 Residential owners own the property until they
sell, abandon, or are removed. Dorchester, therefore, has a
static source to contact and pursue collection from residential
owners. It is rational to conclude that the costs associated
26
See, Midkiff v. Adams County Reg. Water District, 409 F.3d 758 (6th Cir.
2005); DiMassimo v. City of Clearwater, 805 F.2d 1536 (11th Cir. 1986);
Chatham v. Jackson, 613 F.2d 73 (5th Cir. 1980).
27
See, Montoya, supra note 12; Lingenfelter, supra note 6.
28
See id. See, also, Heller, supra note 24.
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with locating a residential landowner is likely to be less than
locating a previous tenant.
Finally, we must consider whether the relationship of the
classification to its goal is so attenuated as to render the dis-
tinction arbitrary or irrational. 29
[12] The village clerk’s affidavit claims Dorchester has
expended substantial resources in pursuing collection of unpaid
utility accounts from tenants who have moved away, including
costs associated with locating the tenants and collection agen-
cies. Landlord guarantees help to ensure that Dorchester can
minimize these costs because the landlords are more directly
tied to property within Dorchester and the guarantees provide
another party to account for the amounts due. Such a third-party
guarantee does not equally apply to residential owners who do
not have a landlord third-party relationship and are already tied
to the serviced property. Social and economic measures violate
equal protection only when the varying treatment of different
groups or persons is so unrelated to the achievement of any
legitimate purposes that a court can only conclude that the
Legislature’s actions were irrational. 30 Here, we find ordinance
No. 684’s treatment of tenants and residential owners was suf-
ficiently related to Dorchester’s stated purpose so as not to
render the distinction arbitrary or irrational.
In DeCoste v. City of Wahoo, 31 the city enacted an ordi-
nance which authorized collection of landfill management
fees from city residents by adding the fees to the electri-
cal bills of “‘all appropriate electrical customers.’” Because
some city residents such as those within units of multiple-unit
apartment complexes did not have individual electrical meters
and electrical bills, a number of these residents did not have
to pay the landfill management fees. 32 We determined this
29
See Lingenfelter, supra note 6.
30
Citizens for Eq. Ed. v. Lyons-Decatur Sch. Dist., 274 Neb. 278, 739
N.W.2d 742 (2007).
31
DeCoste, supra note 11, 255 Neb. at 271, 583 N.W.2d at 599.
32
Id.
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difference in treatment violated equal protection because the
classifications did not rationally relate to the city’s objec-
tive of funding its landfill management. 33 We reasoned that
whether or not a residence had an electrical meter did not
relate to landfill management and was wholly irrelevant to the
city’s stated objective. 34
The ordinance at issue in DeCoste is different than the land-
lord guarantee requirement under ordinance No. 684, which
directly relates to Dorchester’s objective. Dorchester provides
utility services to properties and charges for the services.
Ordinance No. 684 requires that the property owners of the
residences who are provided the services, including landlords
and residential owners, agree to the responsibility for payment
of these utility charges. Having a landlord guarantee increases
the likelihood that these bills are paid.
REO argues the landlord guarantee requires a landlord to
agree to cover unpaid bills for services the landlord will not
receive. REO also claims allowing Dorchester to require a
landlord guarantee would have far-reaching negative implica-
tions and allow municipalities and power districts to require
similar guarantees for rented farmland, industrial land, and
commercial land which could greatly increase the potential
liability of those landlords.
This argument ignores the fact that a landlord receives a
benefit from the property’s having access to and use of utility
services in that a property which has access to utilities and in
which this access is reliable and consistent has an increased
property value. 35 The statutory scheme also assumes a property
owner is a relevant party to the availability and use of utilities
at a property in permitting the imposition of a lien against the
owner’s property when a tenant fails to pay. 36 Finally, whether
33
See id.
34
Id.
35
See Chatham, supra note 26.
36
See, § 17-925.02; § 17-538.
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ordinance No. 684 may influence other municipalities and
power districts to require landlord guarantees which may have
their own expanded implications is immaterial to the question
of whether Dorchester’s landlord guarantee requirement fur-
thers the legitimate interest of ensuring collection of accounts
for the provision of utility services to Dorchester residents.
REO also argues Dorchester “is already adequately protected
by its ability to require the tenant to make a deposit . . . to cover
the last month’s bill and to place a lien on the property for any
amounts that remain unpaid for water and sewer services after
application of the deposit.” 37 REO contends Dorchester can
further limit its potential risk of nonpayment over the deposit
amount by promptly shutting off utility services when a tenant
fails to pay.
[13] While Dorchester may have had alternate avenues to
address its goal of ensuring payment of utility bills through
higher security deposits and collecting from liens imposed on
properties, the rational basis test does not require a govern-
mental entity to choose a specific course of action to address
its legitimate interest. REO has pointed to no authority under
a rational basis review that would require a municipality to
choose an individual means of pursuing its legitimate interest.
Instead, the question remains whether the classification ratio-
nally furthers a legitimate state interest. 38
We find DiMassimo v. City of Clearwater 39 instructive.
There, the 11th Circuit evaluated a requirement that a landlord
join in a tenant’s application for utilities and found the require-
ment was obviously related to the city’s legitimate purpose of
maintaining a financially stable municipal utility. The court
explained that “a landowner, whose property is readily subject
to liens and foreclosure may be rationally presumed to be more
readily held to account as the ultimate guarantor of the bills
37
Brief for appellee at 18.
38
See Lingenfelter, supra note 6.
39
DiMassimo, supra note 26.
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than a tenant who may freely abandon the lease, leaving behind
only his outstanding debts.” 40 In addressing the plaintiff’s
argument that the city already had adequate protection through
liens and the ability to require greater security deposits, the
court stated:
Requiring a landlord’s joinder in the application for utili-
ties serves to remind each owner of his obligations and
liability to the City and therefore, furthers the goal of
collection by reducing the possibility that the City will
be faced with the administrative expenses of repeatedly
resorting to cumbersome and expensive foreclosure pro-
ceedings. A financial deposit sufficient to provide the City
with the same degree of security would indeed be burden-
some to any potential tenant. 41
REO cites Golden v. City of Columbus 42 and O’Neal v. City
of Seattle 43 for the proposition that classifications and dispar
ate treatment of tenants and owners is not rationally related
to a municipality’s interest in collecting unpaid utility debts.
However, these cases are distinguishable because they involve
whether a municipality could require a tenant to pay a previ-
ous, unpaid utility bill for the initiation and continuation of
service even though the tenant had not received the previous
service and had no previous relationship with the property. 44
In Golden, the Sixth Circuit analyzed a city policy where,
after a tenant moved into a property which was already receiv-
ing water services, the city would terminate the services if
the landlord owed for a prior tenant’s water usage. 45 The city
would inform the tenant that water services would only recom-
mence once the landlord satisfied that debt. The Golden court
40
Id. at 1541.
41
Id. at 1542.
42
Golden v. City of Columbus, 404 F.3d 950 (6th Cir. 2005).
43
O’Neal v. City of Seattle, 66 F.3d 1064 (9th Cir. 1995).
44
Golden, supra note 42; O’Neal, supra note 43.
45
Golden, supra note 42.
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analyzed the equal protection claim solely with regard to the
city policy’s irrationally differential treatment of tenants whose
landlords owed the city for water service and other tenants
whose landlords did not have such debt. The court found the
policy violated equal protection because it treated tenants who
moved into properties and whose owners were encumbered
with preexisting utility debts differently from properties that
were not. 46 The court expressed no opinion regarding the pol
icy’s differential treatment of landlords and tenants. 47 It is note-
worthy that the court left undisturbed the city’s requirements
that a tenant obtain a landlord’s consent prior to receiving
utility services and that a property owner is liable for unpaid
utility bills of a tenant. 48
Similarly, in O’Neal, the Ninth Circuit analyzed a city pol-
icy of refusing to provide water service to new tenants when
there is a balance due for prior water service to the premises. 49
The O’Neal court also found the policy treated tenants differ-
ently based upon whether the properties were encumbered with
preexisting utility debts. The court determined that this scheme
was divorced from the reality of legal accountability for the
debt because the person directly penalized by the scheme
was not the debtor but an innocent third party with whom the
debtor contracted.
Requiring a tenant to pay previous, unpaid utility bills to
initiate or continue service where the tenant was not a party to
those services nor connected to the property is different from
Dorchester’s requirement that a tenant obtain the landlord’s
guarantee prior to the initiation of service. Unlike the tenants
in Golden and O’Neal, landlords are connected to the property
for which the utilities are being provided and, as discussed,
receive a benefit from the availability and use of utilities at
46
Id. See, also, O’Neal, supra note 43.
47
Golden, supra note 42. See, also, Midkiff, supra note 26.
48
Golden, supra note 42.
49
O’Neal, supra note 43.
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their property. Landlords have agency in minimizing their risk
by choosing a creditworthy tenant, mandating in the lease that
the tenant promptly pay all utility bills, and terminating the
lease should the tenant fail in that duty.
On this third consideration, we find Dorchester’s goal of
ensuring the collection of utility accounts through a cost-
effective means is sufficiently related to, and not too attenuated
from, ordinance No. 684’s requirement that a residential tenant
obtain a landlord’s guarantee of payment while not requiring a
residential owner to obtain a third-party guarantee.
In consideration of all of the above, we find that ensuring
collection of utility bills was a plausible policy reason for
requiring tenants to obtain landlord guarantees but not requir-
ing residential owners to obtain third-party guarantees. We
further find that this classification was based on facts which
Dorchester could rationally have considered to be true and
that the classification was sufficiently related to the goal of
ensuring payment of utility bills so as not to render the treat-
ment arbitrary or irrational. Accordingly, ordinance No. 684’s
requirement that a residential tenant obtain a landlord’s guar-
antee for initiating utility services does not violate the Equal
Protection Clauses of the U.S. and Nebraska Constitutions and
the district court erred.
Additional Claims
Even though the district court declined to address REO’s
remaining claims, REO asks that we address them on appeal,
which claims include whether ordinance No. 684 violated
the Equal Credit Opportunity Act; violated article 3, § 18, of
the Nebraska Constitution; and violated Nebraska’s Uniform
Residential Landlord and Tenant Act.
[14,15] An appellate court will not consider an issue on
appeal that was not passed upon by the trial court. 50 As to
constitutional claims specifically, we have held that a con-
stitutional issue not presented to or passed upon by the trial
50
Siedlik v. Nissen, 303 Neb. 784, 931 N.W.2d 439 (2019).
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court is not appropriate for consideration on appeal. 51 Based
upon these established rules and REO’s failure to cross-appeal,
we decline to address REO’s remaining claims on appeal and
remand this cause to the district court for further consideration
of the remaining claims.
CONCLUSION
Because the requirement under ordinance No. 684 that ten-
ants must obtain a landlord guarantee in order to initiate utility
services did not violate the Equal Protection Clauses of the
U.S. and Nebraska Constitutions, we reverse the judgment of
the district court and remand the cause for further proceedings
to consider the remaining claims.
Reversed and remanded for
further proceedings.
51
Capitol City Telephone v. Nebraska Dept. of Rev., 264 Neb. 515, 650
N.W.2d 467 (2002). | 01-03-2023 | 08-14-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/1478862/ | 547 F.Supp. 692 (1982)
NABISCO BRANDS, INC. and Nabisco, Inc., Plaintiffs,
v.
The QUAKER OATS COMPANY, Defendant.
Civ. A. No. 82-2934.
United States District Court, D. New Jersey.
September 20, 1982.
*693 *694 Hannoch, Weisman, Stern, Besser, Berkowitz & Kinney, P. C. by Joseph J. Fleischman, Newark, N.J., Taggart & Colucci by Frank J. Colucci, Jeanne T. Fennell, Marius J. Jason, and Susan Progoff, Gary H. Fechter, New York City, for plaintiffs.
Mattson, Madden & Polito by Andrew S. Polito, Newark, N.J., Howrey & Simon by John S. Kingdon, and Doris E. Long, Washington, D.C., Michael T. Welch, Chicago, Ill., for defendant.
OPINION
SAROKIN, District Judge.
STATEMENT OF FACTS
Plaintiffs, Nabisco Brands Inc. and Nabisco (hereinafter "Nabisco"), instituted this action against defendant, The Quaker Oats Company (hereinafter "Quaker"), alleging trademark infringement and unfair competition. Nabisco contends that Quaker has infringed its registered trademark CREAM OF WHEAT ® by manufacturing and marketing Quaker CREAMY WHEAT and that the manufacturing and marketing of such product constitutes unfair competition. Nabisco seeks a temporary restraining order pursuant to Fed.R.Civ.P. 65.
Substantially all of the facts are undisputed and neither party requested an evidentiary hearing in connection with the application for a temporary restraining order.
A. NABISCO
Plaintiff Nabisco Brands Inc. was formed in July 1981 with the merger of Standard Brands Inc. and Nabisco Inc. Nabisco Brands Inc. is the exclusive user of the trademark CREAM OF WHEAT. Nabisco Inc. is the owner of the CREAM OF WHEAT trademark registered in the United States Patent Office and Trademark Office beginning in January of 1900. The registration was renewed in 1926, 1927 and in 1940.
Nabisco Inc., originally known as The National Biscuit Company, has been in the business of manufacturing, marketing and distributing grocery food products since 1898. In 1962 Nabisco Inc. purchased the Cream of Wheat Corporation, which had been marketing CREAM OF WHEAT, an enriched farina, since 1895. CREAM OF WHEAT cereal has been advertised extensively without interruption since that time. Sales of CREAM OF WHEAT cereal have been extensive.
As set forth in the affidavit of the controller of the Grocery Products Division of plaintiff, sales of CREAM OF WHEAT have increased from $17,900,000 in 1969 to $45,000,000 in 1981. Substantial advertising and promotional expenditures for CREAM OF WHEAT have been made over the years; these expenditures have increased from $1,400,000 in 1969 to $3,500,000 in 1981. During that entire period such expenditures were no less than $800,000, and averaged in the $1,000,000-$2,000,000 range. Due to the foregoing advertising, marketing and sales CREAM OF WHEAT has become extremely well-known.
The earliest use of the trademark CREAM OF WHEAT also dates back to 1895. One of the earliest advertisements appeared in the October 1896 issue of the Ladies Home Journal. Since then the advertisements have appeared in all of the major magazines, many of which were prepared by well-known painters or illustrators. *695 The court has examined all of the advertisements submitted and they indeed do portray a unique and continuous advertising campaign. A great deal of the advertising has become a recognized art form.
The advertising has also reflected the various changes in the product and in the packaging, but the packaging has maintained a certain consistency, certainly over the last decade. With the advent of television plaintiff has engaged in extensive advertising on numerous popular television programs.
B. QUAKER OATS
Quaker Oats is the largest selling cereal, hot and cold combined, in the United States. From time to time in the past Quaker has attempted to compete with an enriched farina without much success. Nabisco's CREAM OF WHEAT has continued to be the largest selling brand of enriched farina in the United States. A fifty-two week survey conducted by Selling Area Marketing Inc. ending July 23, 1982 found that CREAM OF WHEAT had a 92.5 per cent dollar share of the farina and enriched farina market. Defendant does not contest plaintiff's dominance of the marketplace.
What has prompted the present litigation is the plan of Quaker to manufacture, distribute and sell its product entitled CREAMY WHEAT, an enriched farina. Production of said product began at Quaker's manufacturing facilities on August 23, 1982. Distribution and marketing has begun and it is anticipated that retail stores will begin selling the product on or about October 1 and thereafter in time for the "cereal season." It should be noted that the trademark "Quaker" and the characterization of the "Quaker Man" in pilgrim dress are also extremely old and strong trademarks.
C. COMPARISON OF THE TRADEMARKS AND TRADE DRESS OF THE TWO PRODUCTS
To begin with, it is to proclaim the obvious to say that CREAM OF WHEAT and CREAMY WHEAT are similar, if not identical. Three letters separate them. The similarity approaches identity when the words are spoken rather than seen. Defendant came as close to duplication of the name that it could without utilizing the name itself. Defendant contends that the words "cream of wheat" were originally devised to denote the high quality of the product, i.e., the "cream of the crop" and were not meant to describe the texture of the product. Defendant contends that in contrast, the description "Creamy Wheat" connotes a characteristic of the product indicating that it has a consistency or appearance of a creamlike product. Furthermore, it is undisputed that there are other products on the market called Cream of Rice, Cream of Oats and Cream of Rye.
In addition to the near identity of the product name, plaintiffs claim that defendant's trade dress is confusingly similar to that of plaintiffs'. Plaintiffs point to the following:
a. Quaker's packaging displays CREAMY WHEAT on the front, side and back panels.
b. The front panel prominently displays the statement "COSTS LESS than other CREAMY WHEATS."
c. On the back panel the following appears: "The familiar taste and texture is similar to CREAM OF WHEAT and other creamy wheat cereals you've always loved, but is now yours at a surprising savings."
d. A legend on the back panel bears the inscription "CREAM OF WHEAT ® is a registered trademark of Nabisco Brands, Inc." (Counsel for both parties concede that such disclosure is not mandated by any applicable law.)
e. A comparison of the 28 oz. package of CREAMY WHEAT farina with Nabisco's 28 oz. package of CREAM OF WHEAT enriched farina (Exhibit Q) demonstrates that both packages have dark red backgrounds and use the colors blue, yellow and white.
f. The word "quick" appears directly above CREAMY WHEAT as it does above the trademark CREAM OF WHEAT and *696 both CREAMY WHEAT and CREAM OF WHEAT appear on the bottom half of their respective packages followed by the words "enriched farina."
g. Each package features a picture of a bowl of cereal and the portrayal of a man in the top portion of the package.
Defendant Quaker, on the other hand, emphasizes the dissimilarities between the trade dress and packaging of their product as compared to that of Nabisco:
a. There is no similarity between the men portrayed in the respective packages: The world-famous Quaker pilgrim figure is approximately one inch tall and appears in the upper left-hand corner of the Quaker package and Nabisco's famous chef is approximately three to four inches tall and is centered in the top half of the Nabisco box.
b. The Quaker pilgrim is pictured in close association with the company name Quaker, which appears fourteen times on the package.
c. Although both packages depict a bowl of cereal, which is not uncommon, the bowl of cereal on the Nabisco package is very small, particularly in comparison to the figure of the chef. The bowl of the cereal on the Quaker package dominates the entire front of the package and displays the creamy-like appearance and consistency of the product.
d. The small bowl on the Nabisco package is a stylized drawing viewed from the side without the contents being visible, whereas the large bowl on the Quaker package is viewed from above, is photographically realistic and the contents of the bowl are displayed.
e. The type faces of CREAM OF WHEAT and Quaker CREAMY WHEAT consist of different type styles and colors.
f. The comparison made with CREAM OF WHEAT and other creamy wheats emphasizes the difference rather than the similarity between the two products.
DISCUSSION OF THE LAW
A party seeking temporary and preliminary injunctive relief must show both that it will suffer irreparable harm if the restraining relief is denied and that the moving party is likely to succeed at the ultimate trial on the merits of its claim. Doran v. Salem Inn, Inc., 422 U.S. 922, 931, 95 S.Ct. 2561, 2567, 45 L.Ed.2d 648 (1975). In determining whether the requested restraints are necessary, the court must examine whether the plaintiffs' alleged injury is imminent, Ammond v. McGahn, 532 F.2d 325, 329 (3d Cir. 1976), and must also give careful consideration to the interests of both sides. Doran, 422 U.S. at 931, 95 S.Ct. at 2567.
There can be little doubt that if the plaintiffs are entitled to the protection which they seek, they will be irreparably injured if temporary injunctive relief is not granted. Plaintiffs and their predecessors have been selling CREAM OF WHEAT cereal since 1895. The court has set forth the extensive sales and advertising and the substantial commercial success which plaintiffs have enjoyed. The hot cereal selling season is about to commence and defendant is in the process of manufacturing and distributing its product to eventually reach the retail stores on or about October 1, 1982. Therefore, if plaintiffs are likely to succeed on the merits, the court has little difficulty in concluding that plaintiffs will be irreparably injured absent some immediate action by the court to forestall defendant's entry into the marketplace. Obviously if the trademark of plaintiffs is valid and entitled to protection, such value will be substantially eroded by the defendant's entry into the marketplace.
To some extent, it would be simple to calculate plaintiffs' financial losses by reference to defendant's actual sales of its CREAMY WHEAT cereal. However, the damage to the CREAM OF WHEAT trademark, assuming its validity, and the reputation of plaintiffs, is not subject to such ready calculation. Judge Learned Hand, considering an analogous situation, eloquently commented on the irreparable nature of injuries suffered from trademark violations:
*697 His mark is the authentic seal; by it he vouches for the good which bears it; it carries name for good or ill. If another uses it, he borrows the owner's reputation, whose quality no longer lies within his control. This is an injury, even though the borrower does not tarnish it, or divert any sales by its use; for a reputation, like a face, is the symbol of its possessor and creator, and another can use it only as a mask. And so it has come to be recognized that, unless the borrower's use is so foreign to the owner's as to insure against any identification of the two, it is unlawful.
Yale Electric Corporation v. Robertson, 26 F.2d 972, 974 (2d Cir. 1928). Because the court finds that if plaintiffs' claim is meritorious, plaintiffs will suffer injury, the court must address the underlying merits of this action to determine whether it is likely that plaintiffs will prevail at trial.
Plaintiffs assert two claims in this action: one for trademark infringement and one for unfair competition. Although there are similarities in the proofs required for both claims, the claim for trademark infringement is narrower than that for unfair competition. International Order of Job's Daughters v. Lindeburg and Company, 633 F.2d 912, 915 (9th Cir. 1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981). Trademark infringement is really a subspecies of the broadly defined business tort of unfair competition. Id. The essential element of a trade-mark "is the exclusive right of its owner to use a word or device to distinguish his product." Jean Patou, Inc. v. Jacqueline Cochran, Inc., 201 F.Supp. 861, 863 (S.D.N.Y.1962), aff'd, 312 F.2d 125 (2d Cir. 1963). A claim of unfair competition, on the other hand, "considers the total physical image given by the product and its name together. Thus unfair competition exists if the total impression of package, size, shape, color, design and name upon the consumer will lead him to confuse the origin of the product." Id. The claims for trademark infringement and unfair competition will each be considered separately.
TRADEMARK INFRINGEMENT
Because CREAM OF WHEAT is a registered trademark, it is prima facie evidence of plaintiffs' "exclusive right to use the registered mark in commerce." 15 U.S.C. § 1115(a). The registration of the mark, however, does not preclude "an opposing party from proving any legal or equitable defense or defect which might have been asserted if such mark had not been registered. Id. A defendant satisfies its burden of proof with respect to a defective registration by proving the defect by a preponderance of the evidence. Keebler Company v. Rovira Biscuit Corporation, 624 F.2d 366, 373 (1st Cir. 1980).
A mark's eligibility for trademark status and the degree of protection afforded to words and terms may be divided into four classes. In ascending order the classes are: (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful. Educational Development Corporation v. Economy Company, 562 F.2d 26, 28 (10th Cir. 1977). Arbitrary or fanciful terms are commonly designated as "strong" marks. Field Enterprises Educational Corp. v. Cove Industries, Inc., 297 F.Supp. 989 (E.D.N.Y. 1969). These marks "bear so little relation to the product they identify that they are considered entitled to protection against all users." Id. at 994. At the opposite end of the spectrum are generic terms. A generic term does not distinguish the goods of one producer from the goods of others. Keebler Company v. Rovira Biscuit Corp., 624 F.2d 366, 374 (1st Cir. 1980). Instead, the term, either by definition or through common use "has come to be understood as referring to the genus of which the particular product is a species." Id. Aspirin, Bayer Co. v. United Drug Co., 272 F. 505 (D.C.N.Y.1921), Escalator, Haughton Elevator Co. v. Seeberger, 85 U.S. Pat. Qtly. 80 (Comm'r Patents 1950), Cellophane, Du Pont Cellophane Co. v. Waxed Products Co., 85 F.2d 75 (2d Cir.), cert. denied, 299 U.S. 601, 57 S.Ct. 194, 81 L.Ed. 443 (1936), and Cola, Coca Cola Co. v. Snow Crest Beverages, 162 F.2d 280 (1st Cir.), cert. denied, 332 U.S. 809, 68 S.Ct. 110, *698 92 L.Ed. 386 (1947), are examples of terms which have acquired generic meaning. All of these terms have in common one thing: in the minds of the public the words are primarily associated with a product rather than a producer. Kellogg Co. v. Biscuit Co., 305 U.S. 111, 120, 59 S.Ct. 109, 114, 83 L.Ed. 73 (1938).
Close to the generic end of the spectrum are descriptive words. These words directly "convey to the buyer the ingredients, qualities, or characteristics of the product." Educational Development Corporation v. Economy Company, 562 F.2d 26, 29 (10th Cir. 1977). When used in their primary sense, descriptive terms cannot be registered as trademarks. Field Enterprises Educational Corp. v. Cove Industries, Inc., 297 F.Supp. 989 (E.D.N.Y.1969). If, however, the descriptive term acquires secondary meaning, that is, the public identifies the term with the product's source of origin, the term is then valid as a trademark. Id. Suggestive terms fall in between fanciful and descriptive terms. Educational Development Corporation v. Economy Company, 562 F.2d 26 (10th Cir. 1977). The suggestive class was judicially created to fill the need for protection of marks which were neither exactly descriptive or fanciful. Id. at 29. These terms require the buyer to use "thought, imagination, or perception to connect the mark with the goods." Id.
The court must determine where, on the spectrum described above, Nabisco's product, CREAM OF WHEAT, is likely to fall. Defendant contends that CREAM OF WHEAT is descriptive because the term consists of two common nouns, both of which describe the ingredients and characteristics of the product. Webster's Third New International Dictionary defines "wheat" as a "cereal grain that yields a fine white flour." "Cream" is defined as indicating high quality such as "cream of the crop." Defendant points to the fact that several of Nabisco's exhibits refer to CREAM OF WHEAT as being composed of the quality part of the wheat or the cream of the wheat. Defendant also emphasizes that there are other products on the market such as Cream of Rice, Cream of Rye and Cream of Oats, and that, therefore, a narrow scope of protection should be afforded to plaintiffs' trademark. The court agrees that, at trial, defendant will likely be able to prove that CREAM OF WHEAT is a descriptive term. This, however, does not conclude the inquiry. Merely because the term is descriptive does not render it unworthy of protection. Rather, the court must examine whether the mark, though likely descriptive, has acquired secondary meaning. On this issue, the court believes plaintiffs will prevail.
To acquire secondary meaning, a term must be identified by consumers with a particular source. Id. Such meaning is generally established through extensive advertising. Scott Paper Co. v. Scott's Liquid Gold, Inc., 589 F.2d 1225 (3d Cir. 1978). If secondary meaning is proven, competitors can be prevented from using a similar mark. Id. at 1228. The purpose of this rule "is to minimize confusion of the public as to the origin of the product and to avoid diversion of customers misled by a similar mark." Id. CREAM OF WHEAT has been extensively advertised for almost 100 years. Since Nabisco purchased the CREAM OF WHEAT mark in 1962, it has expended substantial amounts to keep the product in the public's eye. The court therefore concludes that it is likely that at trial plaintiffs will be able to show that CREAM OF WHEAT, though a descriptive mark, has acquired secondary meaning.
Although CREAM OF WHEAT has likely acquired secondary meaning, the court must still determine whether consumers are likely to be confused by defendant's mark, CREAMY WHEAT. Likelihood of confusion "is the key and common element of both infringement and unfair competition claims." Purolator, Inc. v. EFRA Distributors, Inc., 524 F.Supp. 471, 475 (D.P.R.1981). Such confusion exists "when consumers viewing the mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a single *699 mark." Scott Paper Co. v. Scott's Liquid Gold, Inc., 589 F.2d 1225, 1229 (3d Cir. 1978). In assessing likelihood of confusion, courts have commonly looked to the following factors:
the similarity of the marks; the similarity of the goods; the relationship between the parties' channels of trade; the relationship between the parties' advertising; the classes of prospective purchasers; evidence of actual confusion; the defendant's intent in adopting its mark; and the strength of the plaintiff's mark.
Pignons S.A. de Mecanique de Precision v. Polaroid Corporation, 657 F.2d 482, 487 (1st Cir. 1981).
Applying these criteria to the case at bar leads the court to conclude that it is unlikely that plaintiff will be able to demonstrate consumer confusion at trial. It is true that both plaintiffs and defendant manufacture cereal. It is also true that the products of both companies will likely compete for the same consumers through the same channels of distribution. In addition, the names of both products sound and look very much alike. However, it cannot be denied that CREAM OF WHEAT is not a strong mark and might even be generic. Therefore, at best, the mark is entitled to limited protection. This is especially true because there are other products on the market, such as Cream of Rice, Cream of Rye, and Cream of Oats, all of which are consumer foods. The existence of these marks dilutes the protection to be given to plaintiffs' mark. Cf. Clarke v. K-Mart, 473 F.Supp. 1299, 1303 (W.D.Pa.1979). Furthermore, the court finds that defendant will likely succeed in demonstrating that its mark, CREAMY WHEAT, uses the word "cream" in the primary descriptive sense to denote a product, soft and smooth like cream, and resembling cream in nature, color, and appearance. See Creamette Co. v. Conlin, 191 F.2d 108, 112 (5th Cir. 1951), cert. denied, 342 U.S. 945 (1952). Therefore, even considering the presumption of similarity which operates against defendants in trademark matters, Florence Manufacturing Company v. J. C. Dowd & Co., 178 F. 73, 75 (2d Cir. 1910), the court is unable to conclude that plaintiffs will likely prevail at trial and thus is unable to grant the relief sought.
UNFAIR COMPETITION
As noted previously, in considering whether confusion exists with respect to the claim for unfair competition, the consumer's impression of defendant's package, size, shape, color, design, and name, will result in confusion about the origin of the product. Jean Patou, Inc. v. Jacqueline Cochran, Inc., 201 F.Supp. 861 (S.D.N.Y.1962), aff'd, 312 F.2d 125 (2d Cir. 1963). It would be naive not to recognize that Quaker intends to meet Nabisco head-on in the marketplace and compete with it in the sale of CREAM OF WHEAT with Quaker's CREAMY WHEAT. Furthermore, the similarity in packaging is not a coincidence but is another effort by defendant to engage in such competition. However, there is little likelihood that plaintiffs will succeed in proving ultimately that the consuming public will think that Quaker CREAMY WHEAT is a product of Nabisco. Although at this juncture it may reasonably be argued that consumers associate CREAM OF WHEAT either with Nabisco or a single source, albeit unknown, there is no reasonable probability that such consumers would buy defendant's product believing that it was plaintiffs'.
Again dealing with the matter realistically, such products are most often displayed, if not side-by-side, within proximity of each other so as to afford to the consumer the opportunity for comparison. Defendant's product has conspicuous and numerous references to Quaker and the well-known symbol of the Quaker man on the package.
In addition, there is a clear distinction between the Quaker pilgrim and the Nabisco chef. The court is satisfied that the differences enunciated by the defendant set forth above are more significant than the similarities urged by plaintiffs.
*700 For the foregoing reasons, the motion for a temporary restraining order and preliminary injunction is denied.[1]
NOTES
[1] Plaintiffs' counsel conceded that it would rely upon the papers already submitted in connection with its application for a preliminary injunction. Although defendant declined to make such concession, the court assumes that defendant will now do so in view of the court's ruling. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1480318/ | 137 F. Supp. 455 (1956)
M. J. GOLDEN & COMPANY, Inc., Plaintiff,
v.
PITTSBURGH BREWING CO., Inc., Defendant.
Civ. A. No. 12932.
United States District Court W. D. Pennsylvania.
January 31, 1956.
*456 Norman Landy, Pittsburgh, Pa., for plaintiff.
J. N. Poffinberger, Pittsburgh, Pa., for defendant.
McILVAINE, District Judge.
In this case M. J. Golden & Company, Inc., a Pennsylvania corporation having its principal office in Pittsburgh, Pennsylvania, brought suit against the Pittsburgh Brewing Company, Inc., alleging an infringement by the defendant of its copyright.
It appeared that in 1948, the defendant desired to obtain point of sale material and entered into discussions with the plaintiff to supply same. Mr. Wilbur Sutherland, an agent of defendant, advised the plaintiff of the defendant's wishes and as a result the plaintiff through its employees did research work in order to develop a plaque which would reflect the dress and character of the period around the year, 1861. An employee of the plaintiff, Mr. Edmund Golden, did most of the actual sketching to conform to the desires of the defendant and, as a result, a three dimensional reproduction was made. Thereafter, a plaque containing two figures was copyrighted by the plaintiff. The relationship between plaintiff and defendant was that of purchaser and supplier.
It appears that in January, 1951, the defendant having used the two figure plaque copyrighted by the plaintiff desired to obtain a successor plaque in order to tie in with the advertising they were doing on radio and television, that is a Gay Nineties type quartet. As a result they wanted a revision of the former plaque so as to incorporate two more figures. The plaintiff made a four figured plaque which was very similar to the previous two figured plaque. This four figured plaque was also copyrighted by the plaintiff. Many of these plaster plaques were supplied by the plaintiff to the defendant for use in its advertising.
One of the copyrighted plaques was introduced into evidence as plaintiff's Exhibit D. The defendant admitted that it submitted one of these to Timely Products Company for the purpose of having them make a plaque similar to it for them. (Record page 68). This was sometime around September, 1953. This plaque bore notice of plaintiff's copyright. It appears that the defendant in September, 1953, requested Timely Products to make a plastic plaque. Between September, 1953, and December 9, 1953, Timely Products made a sketch of the Golden plaster plaque, plaintiff's Exhibit D, which defendant approved and which defendant ordered Timely Products to make. The plaintiff's Exhibit E is one of the Timely plaques. These plaques were not received by the defendant until May, 1954. However, there is no question that this plaque, Exhibit E, made by Timely Products at defendant's request is a copy of plaintiff's Exhibit D which plaintiff had copyrighted, nor is there any doubt that a sketch of plaintiff's Exhibit D was made at defendant's request between September and December, 1953. While the sketch was not introduced into evidence it is obvious that it was a copy of plaintiff's copyrighted plaque Exhibit D. The defendant did order 7500 pieces from Timely Products that were made in accordance with the sketch made by Timely and which sketch was undoubtedly a two dimensional copy of plaintiff's three dimensional plaque.
On January 15, 1954, the plaintiff sold the assets of its business, including its copyright, to one Herbert F. Farmer. *457 The copyright in question was sold to Farmer on this date. Thereafter, Farmer assigned the copyright to Ace Lamp & Novelty Company who subsequently assigned it to Pittsburgh Brewing Company, defendant herein.
The question as we see it is whether there was any infringement of plaintiff's copyright at the time it owned same. It appears that even though there has been a sale of the copyright this does not prevent the owner at the time of the alleged infringement from suing for previous damages it alleges to have sustained while it was the owner. Kriger v. MacFadden Publications, Inc., D.C. S.D.N.Y.1941, 43 F. Supp. 170. In order to sustain an action for infringement of a copyright, a substantial copy of the whole or a material part of copyrighted material must be reproduced. Mathews Conveyer Co. v. Palmer-Bee Co., 6 Cir., 1943, 135 F.2d 73. A copyright for an engraving can be infringed by reproducing a copy of it by photographic process. Rossiter v. Hall, 1866, Fed.Cas.No.12,082. It also appears that if a photograph of a copyrighted piece of sculpture is made, same would be a copy of the copyrighted piece and if made without authority from the proprietor of the copyright it would be an infringement thereof. Bracken v. Rosenthal, C.C., 151 F. 136. It has been held that there can be an infringement by making a three dimensional doll of a two dimensional copyrighted cartoon. Fleischer Studios, Inc., v. Ralph A. Freundlich, Inc., 2 Cir., 1934, 73 F.2d 276.
In this case the sketch made by Timely Products at the request of the defendant and from which the defendant ordered Timely to make a plastic plaque infringed the plaintiff's copyright. While the actual sketch was not introduced into evidence it was not disputed that it was made and that it was a copy of plaintiff's copyrighted plaque. This infringed the plaintiff's copyright.
In this case, there has been no showing of the actual damages suffered by plaintiff, and in such case the plaintiff then is entitled to be compensated under Title 17, § 101(b) of the United States Code, which section provides that the Court may allow such damages as shall appear to be just and in its discretion may allow amounts therein stated. Markham v. A. E. Borden Co., Inc., 1 Cir., 1953, 206 F.2d 199.
It appears to the Court that there should be awarded to the plaintiff statutory damages in the sum of $1000, and attorneys' fees in the sum of $300, plus costs of the action.
This opinion shall serve as the Court's findings of fact and conclusions of law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1480687/ | 141 F. Supp. 388 (1955)
Frank DRLIK, Libellant,
v.
IMPERIAL OIL LIMITED, Respondent (American Ship Building Company, Inc., Impleaded Respondent.)
No. 3548.
United States District Court N. D. Ohio.
January 17, 1955.
*389 J. Harold Traverse, Cleveland, Ohio, and Edward Hagerty, of Miller, Hagerty & Shoemaker, Toledo, Ohio, for libellant.
Lucian Y. Ray and H. W. D. Kilgour, of McCreary, Hinslea & Ray, Cleveland, Ohio, for respondent.
McAlister Marshall and Robert B. Preston, Jr., of Arter, Hadden, Wykoff & VanDuzer, Cleveland, Ohio, for impleaded respondent.
CONNELL, District Judge.
We will first thank all counsel for their courtesy, their preparation and zeal, fairness and expedition throughout.
As to the injury sustained by Frank Drlik, Libellant, on August 8, 1952, and the question of responsibility or liability therefor the Court finds as follows:
That at the time and place in question, in preparing for undocking respondent's vessel, Imperial Leduc, after the completion of some months of repairs thereon, the libellant Drlik along with two other members of a dock gang of three, of which he was in charge, sustained severe injuries as the result of the tightening of a wire rope or cable of which he then had hold.
That the tightening of same was caused by the turning on of a winch engine on the deck of such vessel by its operator Pether, respondent's employee, who applied the power which tightened said wire rope at a time when he, Pether, could not see the point at which such force was to be applied, and when respondent had no employee as watchman at its rail to apprise Pether of the safety or danger of such move.
The Court finds that at the time and place in question there were four or five lines to shore attached to the winch engines of such vessel. That Drlik and two other dockmen were assigned to handle the line attached to winch engine number 5 operated by Pether. That other dock crews were to handle other lines, all under the supervision of docking foreman Cosmo, an employee of the American Ship Building Company, the impleaded respondent. That in order to get the vessel out of the dry dock, other activities *390 had first been accomplished, water had been let in, the ship was afloat, and the immediate object sought to be accomplished was the movement of the ship a short distance aft into the river so that a tug could then assist it without being endangered by its proximity to any part of such dock. That such first movement of the ship was to be attained by moving cables from spiles to which they were already attached to spiles closer to the river, whereupon the drawing taut of such cables would accomplish such result. That such ship was twelve feet from each side of such dry dock and that such movement was required to be so made as to prevent contact with same and so as to keep it in a safe position through the synchronized application of force through such four or five wire ropes and the withdrawal of such force therefrom.
The Court finds that Drlik and his two companions, working some eight or ten feet from the edge of such dock, had moved the cable from one bollard or button to another towards the aft end of the ship; that the deck of the ship was some fifteen feet higher than the dock; that Drlik worked to the left of his companions and between them and the ship; that such three men moved approximately 100 or 120 feet in the direction of the river while moving such cable; that his companions handled the "eye" end of the cable which was to be placed over the spile while Drlik handled the slack part of the cable between his companions and the ship.
That during this movement along the dock, this movement of 100 or 120 feet, the slack of the cable hanging over the edge of the dock became caught several times on the ends of the railroad ties or the corners of the ends of such ties extending over the edge of such dock; that Drlik reached down on each occasion to extricate the cable from such tie; that just as his companions dropped the "eye" over the spile and while Drlik was in a stooped position with both hands on such cable and just after such last extrication of the cable, the cable became taut with great force and threw Drlik around, above, and down to such railroad tracks resulting in the injuries of which he complains.
The Court finds that throughout this earlier undocking activity Drlik had worked on the port side of such ship during the process of letting water into the dry dock, closing the gate, opening its valves, etc. That before water was let in, the boat crew had tightened the ship's lines; that the process took one and a half hours during which time no dock man was on such ship. That there were some 31 members of the crew including some of its officers aboard. That there was no watchman assigned by the ship at the rail at the time of the happening here in question. That after the gate was tied up, Drlik's orders from his superior were, along with two companions, to "go on the middle line, which then was tight".
The Court finds that these three men moved such cable off its original spile in accordance with a signal or indication first given by a blonde person at the ship's rail who has not been specifically identified; that the tightening of the cable set the ship in some motion; that its winch operator, Pether, had gone from the winch engine on the starboard side of the ship to its port side where Drlik and his companions were working and had done so four or five times and had made his own observations visually for the purpose of determining and that he did so determine when to apply and when to release the force and tension on such cable. That he went a considerable distance these four or five times from the rail at a point fifteen feet above the dock to his winch engine on the opposite side of the ship.
The Court further finds that the final application of force through such cable while Drlik held it and which resulted in Drlik's injuries was made by winch operator Pether without any signal from the dock so to do or from Pether to the dock that he so intended, and solely on Pether's observation as made the last time he was at the rail before returning *391 to the winch engine for the application of power which resulted in Drlik's injury.
The Court further finds that it has been the invariable practice of respondent to post watchmen at its rail before operating winch engines and while operating winch engines whenever its own crew has in the past handled the shore end of the cable.
The Court further finds that the failure of the officers of the ship to post a watchman at the rail or to give warning to the dock crew in any form was the proximate and direct cause of libellant's injuries and but for which this never would have happened. That its ship's officers had a clear duty to post such watchmen at such rail for such purpose; that the winch operator had a clear duty not to operate its winch without a watchman posted at such rail; that such failure on the part of respondent constitutes unseaworthiness of the vessel and negligence and created for libellant an unsafe place in which to work.
The Court further finds that during the movement of the cable some 100 or 120 feet aft and while Pether had had the dock gang under some observation while he had been several times at the rail, the resiliency or slack in the cable had caused it on at least two occasions to foul and catch upon the ends of the railroad ties, so that Drlik's attention was necessarily engaged in its extrication, which required his constant visual attention to the cable itself, and which distracted from any opportunity on his part to watch the rail of the ship whose deck was fifteen feet above the dock on which he worked. That while Pether claims that all was well with the cable and with the dock gang when he, Pether, last left the rail to return to the winch engine, the Court nevertheless finds that the application of force through the cable was very close to the dropping of the "eye" in point of time over the spile, and the Court therefore finds that Pether's application of force through the cable, caused by turning on the winch engine, was not made as the result of any observation of Pether that the "eye" of the cable was safely and successfully over the spile and that the tightening of the cable could be done in safety. The Court finds that Pether's application of such force under such conditions deprived Drlik of a safe place in which to work; and that the posting of a watchman would have given the ship and its operator Pether notice that the cable had caught on a tie and that Drlik was in a position of great danger while in the process of extricating the cable and would thus have prevented his injuries. The Court further finds that it would have been physically impossible for Pether to have seen the dock or this dock gang from the point at which he applied the force after he had walked back to the winch engine from the rail on this last occasion.
The Court finds no assumption of risk on the part of libellant. He could not see who or what was on the deck above him. His task was to watch the cable. It was the task of a watchman at the rail to have watched and protected both the dock gang and the ship.
The Court therefore finds that respondent's claim that libellant or his direct employer, impleaded respondent, had exercised or attempted to exercise some control over the ship or some supervision over its operator is not tenable. The Court finds that such impleaded respondent had a contractual duty to assist respondent in this undocking operation by providing a dock gang on the shore end of its lines. The Court finds that impleaded respondent discharged that duty to so assist respondent by supplying Foreman Cosmo and a dock gang on the shore end of each of its lines, but that neither Cosmo nor any member of his dock gang assigned to the five lines attached to the spiling on the dock had any authority over such ship or responsibility for any of the crew members of same.
We can not find that to "assist" another on the shore end of a line or at the shore end of one out of five lines means *392 to so supersede him in authority as to manage, supervise and control the ship at the other end of that same line.
We find the claim of respondent that it merely followed the dock hand's orders in moving its ship, or in turning on its power is not well taken. As between differing claims and different testimony we must consider all the evidence in the case and what the probabilities were herein. The claim of the respondent that there was no purpose whatsoever in turning on its power is highly improbable. If no purpose, why turn it on at all?
We find that the first mate had ordered the operator of this winch engine to stand by the same. It is highly probable that he did so. It is also highly probable that any next or other orders such operator would follow would necessarily have to come from some officer of the ship, for the safe movement of this magnificent 641 foot tanker out of that dry dock was highly important to all.
That Pether made his own observations as to what was going on on the dock is highly probable for he had no watchman at the rail to see for him. That he made his own decision as to when to apply the power is highly probable for both men on the dock say that Pether was given no signal from the shore; in fact, all dock men were very busy with the cable up to practically the instant of its having been tightened. None of them would have had time to signal had they so desired. But Pether had decided what to do when he was last at the rail and in a sense blindly he had already applied the power. It is highly improbable that any signal was given from shore. It is highly improbable that any was expected or depended on. It is highly improbable that Pether was taking orders from any one but his own officers. This decision and action was Pether's alone. His own officers had failed to post a watchman at the rail, so Pether acted in the dark.
The price list which was part of the contract between the respondent and the impleaded respondent herein relates that "necessary help ashore furnished without charge". We can not find that "necessary help ashore" can possibly be tantamount to supervision, management, or control. We find no negligence or assumption of risk on the part of this libellant. We find impleaded respondent not here responsible or liable to libellant on any theory of negligence. We find the respondent alone liable in damages to libellant herein.
Now, there is here a claim of indemnifying contract. The respondent has here said, in effect, that if it is herein liable at all then the liability should carry over to the respondent which it impleaded, namely, The American Ship Building Company. It says it made a contract with The American Ship Building Company, which agreed to save it harmless from such action as within.
We find that the contract between the respondent and the impleaded respondent consisted of two letters between them under dates of January 18, 1952 and January 21, 1952 including a certain printed price list. The work of the repairs due to explosion was done on a price list basis as of that time and speed of repairs was essential because the ship had been and was bound to be out of commission for some time.
The Court finds that the sending of a document by respondent to the impleaded respondent, which document is called "Specifications" and which was sent as of March 27, 1952, under which respondent now claims it is herein entitled to indemnification by impleaded respondent is of no legal efficacy. It is in blank, it was never signed, no consideration passed for it, it is verbose with language inapplicable to this situation, it was never in contemplation between the parties, never written or talked about. The President of The American Ship Building Company, impleaded respondent, never saw it until he saw it in this Court room. The respondent after having sent same to impleaded respondent never asked impleaded respondent *393 what it thought about such specifications and The American Ship Building Company never told them what it thought. It was completely ignored throughout. It certainly never constituted any mutual agreement between these parties to do anything. The testimony seems to be that a mistaken form was sent. However, it had no connection with or reference to the work then being done and we believe and hold that as a matter of law, legally, it is an absolute nullity.
From all the evidence in the case the Court finds that Frank Drlik has been totally and permanently disabled as far as being a dock hand goes and as far as being hireable is concerned. Men of his age and the physical incapacities and impairments from which he now suffers and the disturbed balance from which he now suffers are not wanted as employees anywhere. They are simply not hireable. They are unemployable. If at his age he had health he might have great difficulty getting a job under the conditions which now obtain throughout this country. But nevertheless we do consider him totally and permanently incapacitated from being employable or employed. We can not expect that employers will invent jobs to fit the particular kind of physical incapacities from which this man suffers as the result of this injury.
He had been thirty-seven years at this work. His employer seems to respect him as a personality. His employer has been fair and kind to him. But his employer cannot hire him. The employer considers him permanently and totally disabled and has treated him as such. Their doctors say that that is so. All doctors for both sides agree as to the sincerity and cooperation of Drlik. Respondent's doctor says that his labyrinthian vertigo is due to the injury. There seems to be no question of his ear trouble, his dizziness, his instability, and the constant danger of his suffering therefrom.
There are two medical divergencies of consequence in the case. Drlik testified he was unconscious twelve or thirteen hours and the doctor at the hospital to which he was taken said that he had talked, he believed, a half hour or three-quarters of an hour after his estimate of when the injury took place. The other divergency is that respondent's doctor, Dr. Nosik, believes that certain new medicines might help one of the conditions from which he suffers while other doctors did not so believe.
Now, we get down to what he should be paid because he should be paid in advance, discounted, allowing for all the reasonable probabilities in the case, assuming he will never work again and that he will live the average length of life. His loss is based on two things, as you all know and as you have argued herein, the first of which is the loss of earnings and the second of which is the pain and suffering. Each subject requires consideration.
He is now sixty-four. He was then sixty-two. He has been out of work two and a half years. His counsel averaged up five different computations on expectancy of life which seems both reasonable and probable to the Court. His average of 14.02 years of expectancy seems fair. Drlik's last year was one in which he was paid for his work the sum of $4,530. I will assume the two and a half years which have since elapsed would have been as good for him. We did produce in 1953 and 1954, one hundred ninety nine million tons of steel which should have caused whatever work Drlik or others would have done in that yard to have averaged up as well as the preceding year.
At the rate of $4,530 for two and a half years he would have already suffered a loss, as had been mentioned, of $11,250.00. The discount basis of $9.25 for each dollar as was suggested by his counsel as a matter of mathematics I accept, but the yearly average to which it is to be applied must be changed from the amount which we already have used for 1952, '53, and '54 for the two and a half years involved. One must take a reasonable and probable average and I believe in view of the fact that men decline even during the expectancy, that *394 the taking of the average of the preceding years will have been fair to all and that was $3,538.89, and we will call it for our purposes $3,600 which times the $9.25 equals a total of $33,300. So that for his loss of earnings it will be our finding and ultimate judgment that he should be here reimbursed in the sum total of those two sums of $11,250 plus $33,300 which is $44,550.
Now, we will consider pain and suffering. And as counsel for respondent said, we can not put X dollars on each fracture. We can not put a dollar sign on each particular pain or a particular day or date. But in attempting to figure out what these probabilities are and trying to guage a thing it is worth considering that one wouldn't himself sustain what this man sustained that first month for a thousand dollars a minute, if he had a choice. Granted that he had no choice and that it happened and that we are trying to make him whole again, it is my belief that a figure for his first month of great misery and suffering in the amount for which he should be compensated for that month, which figure I believe is not too generous at $100 a day for such misery would be $3,000 for his first month. And I believe for the second month $50 a day or $1,500; and for the next four months $20 a day for what he underwent, for what he had undergone before he left the hospital or $2,400 down to the time he came home on a cane. I believe in the intervening two years that the pain and discomfort and irritation and irritability and constant fear of dizzy spells and frequency of having them, particularly in view of instability which seems to be constant and annoying with him, I believe in these intervening two years his pain and suffering should entitle him to compensation at the rate of $100 a month or $2,400. I see no prospect from all that I have seen and from all the evidence in the case and from the medical testimony, from observation of the man, looking at the man, I see no prospect of his ever being in any other condition than the one he is in. I think for the balance of his time he ought to be paid $100 a month or $1,200 a year discounted times the $9.25 figure which comes to a total of $10,100. Therefore I will find for him damages herein for his loss of earnings in the sum of $44,550 for such loss of wages past and prospective for the rest of his prospective life, and $19,400 for his pain and suffering past, during his particularly bad six months, during the past two years and for the rest of his life of $19,400, or a total of $64,950. I will ask counsel please to prepare copies of what I have herein had to say and please prepare an entry accordingly with exceptions to all who choose to make them.
Mr. Ray: That amount adds to $63,000, your Honor.
The Court: If it does, that is what it should be. You are right. Pardon me, gentlemen. $63,950 instead of $64,000. I added wrongly. Anything further, gentlemen?
Mr. Traverse: We will prepare, your Honor, the findings of fact and conclusions of law in accordance with the Court's request.
The Court: All right, gentlemen. That is all. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1485661/ | 944 F. Supp. 695 (1996)
Fred HILL, President/Treasurer, on Behalf of PLEASANT GREEN ENTERPRISES, INC., d/b/a Demert & Dougherty, Inc., Plaintiff,
v.
Paul MATON, Yasar Samarah, Maurice S.C. Fisher, and James Korloff, Defendants.
LOCAL 100-A, UNITED FOOD & COMMERCIAL WORKERS INTERNATIONAL UNION AFL-CIO, and Evelyn Erickson, Matthew Murphy, Carl Marks, Dennis Jiacomo, Tamara Biros and Sherry Togliatti, Individually on their own behalf and on behalf of the class consisting of all production employees of Demert & Dougherty, Intervenors,
v.
PLEASANT GREEN ENTERPRISES, INC., Yasar Samarah, and Maurice S.C. Fisher, Cross-Defendants,
and
Manufacturing Consolidations, Inc., an Illinois corporation, United Consolidations, Inc., an Illinois corporation, Demert & Dougherty, Inc., a Nevada Corporation, Doe & Roe, Inc., the unknown corporate alter egos of Cross-Defendants Samarah and/or Fisher, and DeMert & Dougherty Union Health Plan, an employee benefit plan, Third-Party Defendants.
No. 96 C 7167.
United States District Court, N.D. Illinois, Eastern Division.
November 20, 1996.
*696 H. Nasif Mahmoud, McKinney, Wills & Mahmoud, Chicago, IL, for Fred Hill, plaintiff.
Adam Bourgeois, Sr., Bourgeois and Wolf, Chicago, IL, for Paul Maton, Yasar Samarah, Maurice S.C. Fisher, James Korloff, Manufacturing Consolidations, Inc., United Consolidations, Inc., Doe Inc., Roe Inc., DeMert & Dougherty Union Health Plan.
MEMORANDUM OPINION AND ORDER
ALESIA, District Judge.
This matter is before the Court on United Food & Commercial Workers International Union's motion to remand. For the reasons discussed hereafter, the motion is granted in part and denied in part.
I. BACKGROUND[1]
In October of 1996, Fred Hill, President and Treasurer of Pleasant Green Enterprises ("Pleasant Green"), brought an action in the Illinois state court against Paul Maton, Yasar Samarah, Maurice S.C. Fisher, and James Korloff. At the heart of the matter is, apparently, a dispute as to either the ownership of an Illinois corporation called DeMert and Dougherty, Inc. ("D & D Illinois"), or the ownership of assets purchased from the bankruptcy estate of D & D Illinois. The case also appears to concern the authority of *697 Maton, Samarah, Fisher, and Korloff to act for D & D Illinois.
Pleasant Green, acting through its sole officer Hill, filed a complaint requesting a preliminary injunction. Maton, Samarah, Fisher, and Korloff filed an answer to the complaint. United Food & Commercial Workers International Union ("the Union"), the Union which represents the employees of D & D Illinois, was apparently allowed to "participate informally" whatever that means in the matter. Shortly thereafter, the state court permitted the Union to intervene.
Next, the Union, as an intervenor in the state court, filed a four-count complaint naming Pleasant Green, Samarah, and Fisher as cross-defendants and Manufacturing Consolidations, Inc., United Consolidations, Inc., Demert & Dougherty, Inc. of Nevada ("D & D Nevada"), Doe & Roe Inc., and DeMert and Dougherty Union Health Plan as third-party defendants. In count I, the Union seeks a declaratory judgment as to the owner of D & D Illinois; count II alleges a violation of the Labor-Management Relations Act ("LMRA"), 29 U.S.C. § 185, based on a breach of the collective bargaining agreement; count III alleges a violation of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., for failing to pay health benefits; and count IV alleges a violation of the Illinois Uniform Fraudulent Transfer Act, 740 I.L.C.S. 160/1, et seq., against Samarah and Fisher.
Since the Union's intervenor complaint seeks relief based on federal law the LMRA and ERISA the listed "cross-defendants" and "third-party defendants," with the exception of Pleasant Green, removed the entire matter to this Court, including the initial ownership/authority dispute between Hill/Pleasant Green and Maton, Samarah, Fisher, and Korloff.[2]
The Union filed a motion to remand.
II. DISCUSSION
The Union seeks to remand the entire matter i.e., the initial ownership/authority dispute between Hill/Pleasant Green and Maton, Samarah, Fisher, and Korloff and the Union's intervenor complaint based on two grounds: (1) removal cannot be predicated on its intervenor complaint and (2) Pleasant Green, a cross-defendant in its intervenor complaint, did not consent to the removal.[3] The Court will address each argument in turn.
A. The Union's Intervenor Complaint
The Union argues that the determination as to whether a case is removable must be based solely on the allegations of the plaintiff's complaint, subsequent filings being irrelevant. The Union claims that the pertinent complaint that the Court is limited to reviewing in making its remand decision is that which was filed by Hill/Pleasant Green in the initial D & D Illinois ownership/authority action that complaint contains no basis for removal. And, because the removing parties are predicating removal based on the Union's intervenor complaint a subsequent filing in the state court action to the Hill/Pleasant Green complaint the Union argues that this matter must be remanded.
The Court disagrees.
The Court is aware that, generally speaking, federal jurisdiction depends on the allegations of the plaintiff's complaint, rather than on issues that come later. See Thomas v. Shelton, 740 F.2d 478, 482 (7th Cir.1984). The Court is also aware that generally only a voluntary act on the part of the plaintiff can form the basis of removal and intervention by a party with a federal cause of action generally cannot serve as a basis for removal. See Smith v. St. Luke's Hosp., 480 F. Supp. 58, 61 (D.S.D.1979); Holloway v. Gamble-Skogmo Inc., 274 F. Supp. 321, 322-23 (N.D.Ill.1967); Lauf v. Nelson, 246 F. Supp. 307, 310-11 (D.Mo.1965). Based on the Court's interpretation of the pleadings, however, *698 the Court does not believe that the general legal maxims regarding removal will be infringed.
To begin, the Court does not understand why the state court permitted the Union to intervene in this matter by filing a complaint. As discussed, the initial action between Hill/Pleasant Green and Maton, Samarah, Fisher, and Korloff, involved a dispute as to the ownership of either D & D Illinois or the assets purchased from D & D Illinois' bankruptcy estate and the authority of the individual named defendants to act for D & D Illinois.
The Union, admittedly, has no direct interest in that action. The Union apparently wants to know who has the authority to bind D & D Illinois so it knows who to deal with. That's fine, but why was the Union permitted to file a complaint in the very same action against numerous defendants (listed as "cross-defendants" and "third-party defendants") raising issues completely unrelated to the initial ownership/authority dispute between Hill/Pleasant Green and Maton, Samarah, Fisher, and Korloff?
The initial Hill/Pleasant Green complaint and the Union's intervenor complaint are two separate, independent, "unrelated" cases. Accordingly, for purposes of determining jurisdiction, the Court will split the single state court action and treat it as two independent cases.[4] Treating the Union's intervenor complaint as a separate and distinct civil action means that the Union should be characterized as a "plaintiff" and the "cross-defendants" and "third-party defendants" should be characterized as "defendants." Additionally, splitting this matter into two separate civil actions means that the Court will respect the legal maxims associated with removal jurisdiction, i.e., jurisdiction depends on the allegations in the plaintiff's complaint here, the Union's complaint rather than on issues that come later.
Because the Union's complaint raises questions of federal law, the Court will retain jurisdiction over it assuming, as discussed below, that it was properly removed to this Court. The ownership/authority dispute between Hill/Pleasant Green and Maton, Samarah, Fisher, and Korloff, however, will be remanded.
B. Consent to Removal
Next, the Union argues that even if removal can be based on its intervenor complaint, Pleasant Green listed as a "cross-defendant," but realigned by the Court as a "defendant" did not consent or join in the removal, thus, the matter should be remanded.[5] The removing parties argue that Pleasant Green is a nominal defendant, thus, its joinder or consent is irrelevant. The Court agrees.
"A petition for removal fails unless all defendants join it." Roe v. O'Donohue, 38 F.3d 298, 301 (7th Cir.1994). If, however, the non-joining defendant is a nominal party, joinder is unnecessary. Id. "A defendant is nominal if there is no reasonable basis for predicting that it will be held liable." Shaw v. Dow Brands, Inc., 994 F.2d 364, 369 (7th Cir.1993). Based on the allegations in the Union's complaint, the Court does not understand how Pleasant Green could be held liable.
Count I seeks a declaratory judgment as to the owner of D & D Illinois. As noted, however, the Union admittedly has no direct interest in determining the owner of D & D Illinois. In fact, the Union would not even be a party in the resolution of that dispute. Accordingly, at this stage of the litigation, since the Union has no stake in the ownership *699 determination, it is highly unlikely that the Court would allow the declaratory judgment action to proceed. See Government Suppliers Consol. Serv. v. Bayh, 975 F.2d 1267, 1274 (7th Cir.1992), cert. denied, 506 U.S. 1053, 113 S. Ct. 977, 122 L. Ed. 2d 131 (1993).
Count II is a claim under the LMRA for breach of the collective bargaining agreement and count III is brought under ERISA for failing to pay health care benefits. The complaint, however, provides no factual basis as to how Pleasant Green, a separate entity, could be liable for breach of a collective bargaining agreement entered into by D & D Illinois, see Plumbers' Pension Fund v. Niedrich, 891 F.2d 1297, 1299 n. 8 (7th Cir. 1989) ("[P]ersons who are not parties to a collective bargaining agreement cannot be sued under the LMRA."), cert. denied, 495 U.S. 930, 110 S. Ct. 2169, 109 L. Ed. 2d 499 (1990), or how Pleasant Green could be held liable under ERISA for D & D Illinois' failure to pay certain benefits.
The complaint states that Pleasant Green has an "interest" in D & D Illinois. Presumably, this means an ownership interest, i.e., Pleasant Green is a shareholder of D & D Illinois. If so, the complaint fails to provide a factual basis for imposing liability on a shareholder for the breaches and debts of the corporation D & D Illinois.[6] In one of the pleadings, the Union stated that Pleasant Green could be liable for breaching the collective bargaining agreement under a "successor employer" theory, but the complaint provides no factual support for such a theory. See Chicago Dist. Council of Carpenters Pension Fund v. G & A Installations, Inc., No. 95 C 6524, 1996 WL 66098 *34 (N.D.Ill. Feb. 8, 1996).
Count IV is a fraud claim brought against only Samarah and Fisher; thus, that count cannot provide the basis for liability against Pleasant Green either.
In summary, based on the allegations in the Union's complaint, the Court does not understand how Pleasant Green could possibly be held liable. Accordingly, the Court concludes that Pleasant Green is a nominal defendant; thus, its joinder is unnecessary for removal purposes.
III. CONCLUSION
Based on the preceding analysis, the Court remands the ownership/authority action commenced by Hill/Pleasant Green against Maton, Samarah, Fisher, and Korloff, but retains jurisdiction over the Union's complaint.
NOTES
[1] The facts prior to the removal of this matter to this Court are not entirely clear. The Court will do its best to summarize its understanding of the proceedings in the state court.
[2] The Union disputes whether the removing defendants could act on behalf of D & D Nevada. As will be shown, the issue is irrelevant to the Court's decision.
[3] The Union had a third ground: because the removing defendants filed a motion to dismiss its intervenor complaint in state court, they waived their right to remove the matter to federal court. The Union, however, conceded that its third argument is a loser in the Seventh Circuit. See Rothner v. City of Chicago, 879 F.2d 1402 (7th Cir.1989).
[4] It is clear that for purposes of the removal statute the court may disregard state law labels and state law procedures and realign the parties in conformity with their substantive interests in the matter. See Application of County Collector of Winnebago County, 96 F.3d 890, 895 n. 6 (7th Cir.1996); In re Texas Eastern Transmission Corp. PCB Contamination Ins. Coverage Litig., 15 F.3d 1230, 1240 n. 10 (3d Cir.), cert. denied, ___ U.S. ___, 115 S. Ct. 291, 130 L. Ed. 2d 206 (1994). The Court, however, could not locate an analogous situation, i.e., one in which the court "realigned" or "split" the removed matter into two separate cases. Regardless, the Court does not believe that it must treat this matter as one civil action merely because the state court decided to proceed in that manner.
[5] The Union also argues that D & D Nevada did not join. The analysis applicable to Pleasant Green applies with equal force to D & D Nevada.
[6] There is no allegation that Pleasant Green is the alter ego of D & D Illinois, nor is there an allegation that D & D Illinois' corporate veil should be pierced as to particular shareholders. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1486816/ | 2 F.2d 170 (1924)
HOWARD
v.
UNITED STATES.
No. 767.
District Court, E. D. Kentucky, at Catlettsburg.
October 3, 1924.
J. B. Adamson, of Ashland, Ky., for plaintiff.
Sawyer A. Smith, U. S. Atty., of Covington, Ky., for the United States.
COCHRAN, District Judge.
This cause is before me for judgment. It is an action on a contract of insurance entered into under the War Risk Insurance Act (Comp. St. §§ 514a et seq.) for $10,000. It is based on section 13 of that act, as added by Act Oct. 6, 1917, § 2 (Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 514kk), which authorizes the beneficiary in such a contract to bring an action against the United States thereon, "in the event of disagreement" between the Bureau of War Risk Insurance and himself as to his claim, in the district in which he resides. The plaintiff is the beneficiary named in the contract in suit and resides in Magoffin county in this district. The insured was a bastard. He was born July 4, 1894, was inducted into the service May 27, 1918, contracted for the insurance June 3, 1918, and died of disease whilst in the army, October 5, 1918. When born, his mother's name was Margaret Gibson. He first went by the name of Lacy Gibson, but, at the time of his induction, he went by the name of Lacy Howard. He had so gone for a number of years prior thereto. In his application for the contract, he gave plaintiff's relationship to him as that of father.
In the spring of 1919, plaintiff filed with the bureau a claim to this insurance. The basis of this claim was that he was named as beneficiary in the contract, and that he was the father of the deceased soldier. The mother also asserted a claim thereto, denying that plaintiff was the father of her son. The bureau caused the matter to be investigated by a field examiner, who reported, September 6, 1919, adversely to plaintiff, and, on November 25, 1919, the director found that plaintiff was not the father of the insured, and therefore not entitled to the insurance, and that the mother was. *171 From that time until the bringing of this action the monthly installments due under the contract were paid to her. Upon the bringing thereof all payments thereunder ceased. After such finding and decision, plaintiff sought to have the case reopened by the bureau, and set up, as an additional ground for the allowance of his claim, that for more than one year prior to the induction of the insured he had stood in loco parentis to him. It was reopened and referred to another field examiner, who reported March 25, 1920, favorably to plaintiff's claim. He said in his report:
"After spending five days in Magoffin county, interviewing disinterested parties and summing up the evidence in general, I find that it is the knowledge of all the best citizens that the said Calla Howard stood in loco parentis for one year prior to Lacy Howard's entry into military service. It is also common knowledge in the immediate vicinity that Calla Howard is the illegitimate father of Lacy Howard."
On April 30, 1920, an associate counsel of the bureau, in writing, reviewed the evidence and advised the bureau that plaintiff had not sustained his claim. He said that "there was not sufficient proof in the record to show who is the father of Lacy Howard." And as to plaintiff's claim that he had stood in loco parentis to the insured for such period of time he said that it must be rejected, because he did not claim "to have stood in this relation to Lacy until 1916, when he was over the age of 21." It does not seem that, since the filing of such report and the giving of such opinion, the director has taken any further action on the claim. There is nothing in the record to indicate that he has, other than the payment of the installments, until the bringing of this action. The allegation of the petition is that plaintiff made application to the bureau for payment of the insurance to him, but that it "refused to entertain such claim, or to make any payment" to him, but had been and was making payments thereof to the mother. The answer denied that the bureau had refused to entertain the claim. The mother was permitted to intervene herein, and in her pleading she admits that plaintiff's application was refused by the ruling of the bureau, and she was held to be entitled to the insurance, and payments had been made to her until the institution of this action when they were stopped.
In brief of plaintiff's counsel it is said that there was "nothing in the record to indicate that the bureau ever passed upon the contents and recommendations" in the second examiner's report, and that "it was perhaps true very probably true that it was overlooked in the thousands of claims pending before the bureau at that time." In this state of the record it is extremely doubtful whether this court has jurisdiction of this action. The only basis upon which it can have jurisdiction is that there has been "a disagreement" between the bureau and plaintiff. The petition should have alleged in so many words that there had been, if such was the petitioner's contention, so as to show on its face jurisdiction. It is not entirely certain that what is alleged is the equivalent of this. But, if it is, it is possible to say that the bureau has never taken any final action in the case. I hesitate, because of this, to proceed further. But as, in the consideration of the case, I have reached certain conclusions concerning it, I have thought best to state them and my reasons therefor.
The insured, by naming plaintiff as the beneficiary, indicated that it was his desire that plaintiff should have the insurance contracted for. This desire is calculated to create a bias in favor of sustaining his claim. But it cannot be sustained, unless under the law and the evidence introduced before me he is entitled thereto, on the basis either that he was the insured's father, or for as much as a year prior to the induction had stood in loco parentis to the insured. I do not find it necessary to weigh the evidence and determine whether plaintiff was in fact the father of the insured. The evidence is uncontradicted that from 1916, which was after the insured had come of age, until his induction, he had made his home with plaintiff. He did not stay there all the time. Probably for the most of the time he was away working for others, and whilst so doing he boarded elsewhere and seemingly received his wages. But, off and on, he returned to plaintiff's home, and always looked upon it as his home. Plaintiff's wife did his washing, and at times he did some work for plaintiff. He passed in the neighborhood as plaintiff's son. Plaintiff's family consisted of his wife and nine children. The insured called plaintiff father possibly the word he used was "Pap" and plaintiff's children brother and sister. After he went into the army he wrote to the plaintiff, to one of plaintiff's daughters, and to one or two of his sons. He addressed plaintiff as "my dear father," and concluded with the words, "With lots of love, your son, Lacy." The letter to the daughter was addressed, "Dear Sister and All," and concluded *172 with the words, "From your Bro., Lacy H." The letters to the sons were addressed, "Dear Bro.," and concluded with the words, "Your Bro., Lacy Howard."
These letters, from their contents, as well as from what is quoted therefrom, indicate real affection for plaintiff and his children, though, in weighing them, it is to be taken into consideration that he did not write them himself, but had another write them for him. He could not write. He had never gone to school. It is possible, therefore, that the words of endearment which they contain represent, to a certain extent, the personality of the amanuensis. Such, then, in addition to plaintiff's testimony that he had intercourse with the insured's mother, and she had told him that he was his father, the testimony of a witness that insured's mother had told her that plaintiff was the father of the insured, the testimony of several witnesses that the insured resembled plaintiff and his children, and the fact that he went by the name of Lacy Howard, made up substantially plaintiff's case under the evidence introduced before me. It makes a strong case for plaintiff. It is difficult to account for the insured's action, except on the ground that his mother had told him that plaintiff was his father, and for plaintiff's action, except on the basis that he had had intercourse with the insured's mother, and she had told him that he was the father of the insured.
On the other hand, a strong case was made against plaintiff being the father of the insured. His mother had had two illegitimate children before his birth. Plaintiff did not claim to be the father of either of them. She testified that the father of the first was named Blankenship, and of the other Allen Farler, who she also testified was the father of the insured, and who afterwards married her sister. Farler testified that he had had intercourse with her, and understood that he was the father of both of the two last children. After their birth the mother married Noah Collins, a negro by whom she had six children. It would seem that she had negro blood in her. Her mother was a white woman, but her father was looked upon as having negro blood in him, though it is possible that the color in him was due to Indian and not negro blood. The evidence as to this was very vague and unsatisfactory. There was no indication of negro blood in the insured. He was tall and good looking. He made his home with his mother and her husband until he was 13 years old. Before going to live with plaintiff, he lived with two second cousins of plaintiff, first with Grover Howard, for about a year, and then with Charles Howard, his brother, for the rest of the time. These Howards did not live in the same neighborhood as plaintiff. They lived about six miles from him. It was during the time that he lived with Charles Howard that he first took the name of Lacy Howard.
According to plaintiff's testimony he never saw the insured until he was 7 or 8 years of age, and never manifested any interest in him before he made his home with him other than, when he was about 12 or 14 years of age, to buy a pie for him at a pie supper. He was never at plaintiff's home before then, except possibly one night when he was about 17 or 18 years of age. There was no evidence that, before the insured made his home with plaintiff, he claimed to be the son of plaintiff, or that he passed as plaintiff's son. My construction of plaintiff's evidence, as to his being known as plaintiff's son, relates to the time after he made his home with plaintiff. At that time, if not before, he had become ashamed of his mother, not so much, perhaps, on account of the looseness of her character, as because of her having married a negro. He resented the name of Gibson being applied to him, or any reference to his connection with her. It was his aim and his desire to turn his back on his past. Possibly there was something in this to account for his conduct after he made his home with plaintiff.
In addition to the foregoing, as a part of the case against plaintiff, is to be considered the testimony of Benjamin Salyers and his wife, neighbors of plaintiff and on friendly terms with him, whose reputation was not attacked, and who were apparently truthful, that they were with plaintiff at the post office when he received the contract of insurance, which had been mailed to him, and that he then said to Salyers: "I am a rich man. Lacy has made me a policy of $10,000. Just as well made it to you, for he ain't no more mine than he is yours." That he had made this statement was not squarely denied by plaintiff. The most he would say, when he was asked about it on cross-examination, and he was asked several times, was that he had no recollection of making it. In rebuttal, however, he did testify that he did not make such statement, but it was only as the result of prodding and after first testifying, "Not to *173 my recollection," when asked as to whether he had made it.
In view of the evidence bearing on the question, it is difficult to determine what is the truth as to the matter. The credibility of most of the important witnesses is affected by interest. It has been assumed that the burden was on plaintiff to establish that he was the father of the insured, but, in view of the statement of the insured, in his application, and his making him beneficiary, this is not entirely certain. I do not, however, feel called upon to determine the question as to where the burden as to this matter lays, or as to the truth about the plaintiff being the father of the insured, because, in my opinion, plaintiff, under the law, could not be made a beneficiary of the contract of insurance, even though he may have been the insured's father. An illegitimate father could not be so made.
By section 402 of the War Risk Insurance Act, as added by Act Oct. 6, 1917, § 2 (Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 514uuu), it is provided:
"The insurance shall be payable only to a spouse, child, grandchild, parent, brother, or sister."
And by section 22, as added by Act Oct. 6, 1917, § 2, and amended by Act Dec. 24, 1919, §§ 2-4 (Comp. St. Ann. Supp. 1923, § 514mmm), it is provided:
"(4) The term `parent' includes a father, mother, grandfather, grandmother, father through adoption, mother through adoption, stepfather, and stepmother, either of the person in the service or of the spouse.
"(4a) The terms `father' and `mother' include stepfathers and stepmothers, fathers and mothers through adoption, and persons who have stood in loco parentis to a member of the military or naval forces at any time prior to his enlistment or induction for a period of not less than one year."
The word "parent" is broad enough to cover an illegitimate parent, and the word "father" is broad enough to cover an illegitimate father. The question is whether those words, as used here, have this broad meaning, or only the narrower one of legitimate parent and legitimate father. In statutory construction it seems to be the rule to give those words the narrower meaning, unless there is something in the statute to indicate otherwise.
The case of Dickinson v. Railway Co., 2 Hurl. & C. 735, was an action brought on what was known as "Lord Campbell's Act." It provided "that every such action shall be for the benefit of the wife, husband, parent and children of the person whose death shall have been caused." It was held that an illegitimate child could not maintain such an action. Pollock, C. P., said:
"But, beyond all doubt, in the construction of the act of parliament, the word `child' means legitimate child only."
The case of Marshall v. Wabash Railroad Co., 120 Mo. 275, 25 S.W. 179, was an action brought to recover damages for the death of another under the wrongful death statute of that state. The provision was that, if deceased was a minor, the "father and mother" might join in a suit to recover, each to have an equal interest in the judgment, and that, "if either of them be dead, then by the survivor." It was held that the father of an illegitimate child did not come within the meaning of the act, and could not maintain the action.
The case of Harkins v. Railroad Co., 15 Phila. 286, involved the wrongful death statute of Pennsylvania. It enacted that the persons entitled to recover should be "the husband, widow, children or parents of the deceased and no other relatives." It was held that the statute did not give any one the right to recover for the death of an illegitimate child. The court said that "the words `husband, widow, children, or parents of the deceased, and no other relative,' had in view the family relation as constituted and recognized by law, and that it was not intended to extend the benefits of the act to persons not falling within the legal definition of the enumerated relationships."
The case of Appeal of Gibson, 154 Mass. 378, 28 N.E. 296, involved the Massachusetts statute regulating the adoption of children. It required notice of the proceeding to be given to the parents. It was held that it was not necessary to give notice to the father of a bastard. It was said:
"We think that the word `parent' as there used has its legal signification, and is intended to designate only the lawful father or the mother. There is no reason why the Legislature should confer upon the father the right to notice in such cases. He has no right to the custody of the child, * * * or control of its estate. He is at most a putative father in reputation only, but not in law."
The case of McDonald v. Pittsburgh, etc., Ry. Co., 144 Ind. 459, 43 N.E. 447, 32 L. R. A. 309, 55 Am. St. Rep. 185, involved the *174 wrongful death statute of Indiana, which provided that a father might maintain an action for the death of a child. It was held that the father of a bastard, whom his mother had abandoned and he had taken custody of, had no right of action for his death under this statute.
Apart from this general rule in the construction of statutes, there are indications in the War Risk Insurance Act that it was not intended that the father of a bastard should be a beneficiary of a contract of insurance procured by him. The first of the possible beneficiaries provided for in section 402 is "a spouse." There is no such thing as an illegitimate spouse. Other possible beneficiaries provided for, either in the main clause in section 402, or in the subordinate clause in section 22, defining the word "parents" in the former, can have reference only to those having a legitimate connection with the insured.
In the definition in section 22 of the word "child," in the main clause it is made to include "an illegitimate child" under certain conditions. This shows that illegitimate relations to the insured were had in mind, but in the definition of a father it was not provided that it should include an illegitimate father. My conclusion, therefore, is that plaintiff is not entitled to judgment on the ground that he is the illegitimate father of the insured, even if that be the case.
Is he entitled thereto, then, on the ground that, for as much as one year prior to the induction of the insured into the service, he stood in loco parentis to the insured? He did not, unless it is possible for one to stand in loco parentis to an adult. It is not claimed that plaintiff so stood before the insured came to make his home with him, which was in 1916, when he was 22 years of age. Is it possible for one to stand in loco parentis to an adult? The phrase, "stand in loco parentis," is a legal one. It represents a definite legal conception, and it must be taken that, as used in the War Insurance Act, it is used in this sense and none other. There is no indication of looseness anywhere in the act in its specification of possible beneficiaries of a contract of insurance authorized by it. As stated, an illegitimate child may be beneficiary, but he must have been "acknowledged in writing signed by" the father, or the latter must have been "judicially ordered or decreed to contribute" to his support, or must have been "judicially decreed to be the putative father." An adopted child may, but he must have been "legally adopted;" and a stepchild may, but he must have been a "member of the man's household."
There is therefore no room for looseness in determining who is meant by the phrase "have stood in loco parentis." Sir Wm. Grant, M. R., in Wetherby v. Dixon, 19 Ves. 407-412, said that a person standing in loco parentis is one "assuming the parental character or discharging parental duties." In Ex parte Pye, 18 Ves. 140-154, Lord Eldon said that he was one "meaning to put himself in loco parentis in the situation of the person described as the lawful father of the child." Lord Cottenham in the case of Powys v. Mansfield, 3 M. & C. 359, 368, said: "No doubt the authorities leave in some obscurity the question as to what is to be considered as meant by the expression, universally adopted, of one in loco parentis." He said that Lord Eldon's definition was one which "I readily adopt, not only because it proceeds from his high authority, but because it seems to me to embrace all that is necessary to work out and carry into effect the object and meaning of the rule." He said further concerning it that "it must be considered as applicable to those parental offices and duties to which the subject in question has reference, namely, to the office and duty of the parent to make provision for the child. The office and duties of a parent are infinitely various, some having no connection whatever with making provision for a child; and it would be most illogical, from the mere exercise of any of such offices or duties by one not the father, to infer an intention in such person to assume also the duty of providing for the child. The relative situation of the friend and of the father may make this unnecessary and the other benefits most essential."
As to Sir Wm. Grant's definition, he said that it "may not seem to differ much from Lord Eldon's but it wants that which, to my mind, constitutes the principal value of Lord Eldon's definition, namely, the referring to the intention rather than the act of the party." The Vice Chancellor whose ruling was reversed had said that he "must be a person who has so acted towards the child as that he has thereby imposed upon himself a moral obligation to provide for it, and that the designation will not hold where the child has a father with whom it resides and by whom it is maintained."
Concerning this Lord Cottenham said:
"This seems to infer that the locus parentis assumed by the stranger must have reference *175 to the pecuniary wants of the child, and that Lord Eldon's definition is to be so understood, and so far I agree with it; but I think the other circumstances required are not necessary to work out the principle of the rule, or to effectuate its object."
He concluded with this statement:
"The rule, both as applied to a father and to one in loco parentis, is founded upon the presumed intention. A father is supposed to intend to do what he is in duty bound to do, namely, to provide for his child according to his means. So one who has assumed that part of the office of a father is supposed to intend to do what he has assumed to himself the office of doing. If the assumption of the character be established, the same inference and presumption must follow. They having so acted towards a child as to raise a moral obligation to provide for it affords a stronger inference in favor of the fact of the assumption of the character; and the child having a father with whom it resides, and by whom it is maintained, affords some inference against it, but neither are conclusive."
In that case a rich bachelor had a brother, who had six daughters, and who was in rather straitened circumstances. The daughters lived with their parents. He provided for his nieces through their father; i. e., he supplied the latter with means to provide for them, and with which he did provide for them. He made a will in which he bequeathed to each of the five, other than the eldest, £10,000, he having theretofore settled that amount on her. Shortly afterwards the third daughter married, and he settled upon her that amount. The question was whether this settlement was an ademption of the legacy. It was held that it was, on the ground that the testator had stood in loco parentis as to his nieces, and there was, therefore, a presumption against double portions, which presumption was not repelled, but supported by the evidence. I gather from this decision that the essential thing to bring about the relation of standing in loco parentis to a child is that one should intend to put himself in that position by performing the parental duty of providing for the child. It is not brought about by the performance of any other duty of the parent to his child short of this. It is not essential that the child be a member of his family, or that he provide for the child directly. The child may live with its parents, and the provision may be made indirectly; i. e., through the parents.
Nor is it essential that he should exercise any of the rights of the parent, such as custody, control, services, or earnings. It is not even essential that he be entitled to exercise any of such rights. The matter is thus put in the headnote of that case:
"The proper definition of a person in loco parentis to a child is a person who means to put himself in the situation of the lawful father of the child, with reference to the father's office and duty of making a provision for the child."
This definition is adopted in 31 C. J. p. 358, note 77 (a), where in reference to the phrase "in loco parentis" it is said:
"When used to designate a person it means (1) one who means to put himself in the situation of a lawful father to the child, with reference to the office and duty of making provision for the child; * * * (2) one assuming the parental character and discharging the parental duties."
Decisions are cited in support of each definition here given. One may therefore be said to stand in loco parentis to a child when he acts the part of a lawful father in performing the duty of providing for him, intending thereby to take his place in this particular. To bring about such relationship or status it is not essential that he act the part of the parent in any other particular. It is essential only that he act such part in this particular. That he act this part, and no more, is required. In so acting, so intending, he performs a parental duty and assumes the parental character. This requirement is definite and certain, and is capable of ready application in any given case. In it there is no looseness or sentimentalism.
Such being the case, it would seem to follow that one cannot stand in loco parentis to another to whom his lawful father, if he has one, does not owe the duty of making provision for him. Where there is no duty of making provision, there can be no performance of such duty. There may be provision, but it is not in performance of a duty to make it. Hence one cannot stand in loco parentis to an adult. A parent does not owe the duty of making provision for his adult child. In 20 Rawle C. L. p. 586, it is said:
"The general rules of the law of parent and child being based on the child's incapacity, both natural and legal, and its consequent need of protection and care, apply only while the child is under the age of majority. This is a fundamental principle, that lies at the very foundation of society, *176 and was intended to support and maintain the exercise of parental authority in the family and the home, and to guard and protect the children of the family until their minds should become sufficiently cultivated and their judgment sufficiently matured to enable them to act for themselves. The precise limit of time is fixed by law, and it cannot, in any case, be either enlarged or diminished by evidence, however cogent, or by argument, however persuasive."
An exception to this is then noted in these words:
"But where a child is of weak body or mind, unable to care for himself after coming of age, and remains unmarried and living in the father's home, it has been held that the parental rights and duties remain practically unchanged. The father's duty to support the child continues as before. He is still entitled to receive the child's services and wages, and the child follows any change of settlement of the father like a minor child."
Another qualification may be brought about by a statute for the relief of paupers and indigent persons. Concerning such statutes, this is said in 20 Rawle C. L. 1, 587:
"Naturally the first obligation under such statutes rests on the children of a needy parent, and on the parents of a needy son or daughter. This duty differs radically from the duty of support of a minor child by its parents."
The whole matter is thus put in 29 Cyc. p. 1612:
"In the absence of statute, a parent is under no legal obligation to support an adult child, but the legal liability for the support of the child ceases when it reaches the age of majority, unless the child is in such a feeble and dependent condition, physically or mentally, as to be unable to support itself."
It would seem that this obligation ceases, as well to a female child as to a male child, notwithstanding she may be said to belong to the weaker sex. This may be inferred from the rule in seduction cases, where the daughter is over 21. In Webb's Pollock on Torts, p. 278, in a note, it is said:
"Where the daughter was more than 21 years of age, the American courts agree with the English courts in holding that there must exist some kind of service; but the slightest acts have been held to constitute the relation of master and servant in such a case."
The reasoning I have indulged in then comes to this: One person cannot stand in loco parentis to another person who is an adult male and not incapacitated, either mentally or physically, from providing for himself. I am strengthened in this conclusion by the fact that, so far as my research goes, I have been unable to find a case arising prior to the enactment of the provision in the War Risk Insurance Act, here involved, where it was held that one person stood in such relation to such another person. It has, however, been so held recently in the case of Meisner v. United States (D. C.) 295 F. 866, which, like this, arose under the War Risk Insurance Act. That act provides in section 22 that the words "brother" and "sister," designated as possible beneficiaries in section 402, include the children of a person who, for a period of not less than one year prior to the enlistment or induction of the soldier, stood in loco parentis to him. There the beneficiary was the daughter of a person whom she claimed had so stood in relation to the soldier. He had no relations known to himself, and was a wanderer, sick, friendless, and penniless. In this condition he was taken into the home of her parents, who lived on a farm, and given shelter, food, and medical attention. He was over 24 years of age at this time. He recovered from his illness and continued to so make his home as a member of the family until he enlisted over two years afterwards. He was looked upon as a member of the family, and he so looked upon himself. He ate at the same table with the other members thereof and worked about the farm. There was no agreement for wages or other compensation for his services, but he was given what he needed in the way of clothing, necessaries and spending money. He treated and spoke of her father and mother as his father and mother, and they treated and spoke of him as their son. He treated and spoke of the claimant as sister, and she treated and spoke of him as brother. Such was the testimony on behalf of the claimant. In the application for the contract of insurance, however, he described her as his cousin.
The ground of the decision may be taken to be that it was thought that a parent owes duties of a substantial character to his adult child, even though he may not be incapacitated, either mentally or physically, and that without reference to any statute imposing them upon him, which duties the father of the soldier would have owed to *177 him had he been living, and the beneficiary's father had performed for more than a year prior to the enlistment, thereby putting himself in the place of such father It was made in the light of the definitions of the phrase "in loco parentis" given in Cyc. and Black's Law Dictionary, which were quoted, both of which recognize that in order to bring about such relation it is essential that there be an assumption of the duties of a parent. And it was said:
"No sound reason appears why a person may not assume a parental relation toward an adult as well as toward a minor. The responsibilities and obligations may be fewer, but substantial ones remain."
Just what substantial responsibilities and obligations on the part of a parent toward an adult child were had in mind does not appear. It does not appear that it was had in mind that there is a duty on the part of a parent to provide for his adult child, the assumption of which we have found to be the essential thing to bring about the relation in question. And the definitions quoted from Cyc. and Black are deficient in that they do not recognize that the thing which is essential to bring about such a relation is the assumption of such duty. The definitions are too general and include things whch are not essential. According to Cyc. a person standing in loco parentis is "one who has put himself in the situation of a lawful parent by assuming the obligations incident to the personal relation without going through the formalities necessary to a legal adoption," and such assumption "is a question of intention." According to Black, he is one who is "charged, fictitiously, with a parent's rights, duties, and responsibilities." Neither one of these authorities has anything to do with the question as to whether a parent is under obligation to his adult child, and, if so, to what extent. I do not understand that the thought that the soldier was the subject of substantial parental responsibilities and obligations was based on the idea that the soldier was incapacitated mentally or physically to provide for himself. When taken in, he was a vagabond, sick, friendless, and penniless. But it was not long before he was put on his feet.
Two considerations were appealed to as enforcing the right of the claimant to the insurance. One was that claimant's father, under the Missouri statute, in which state the case arose, could have adopted the soldier. It seems to have been thought that there was some connection between the status of standing in loco parentis and that of an adoptive father; i. e., that where there can be an adoption there can be a standing in loco parentis, the only difference being that, in the one case, there must be legal formalities to bring about the status, whereas, in the other case, no such formalities are necessary. Some encouragement to this view seems to be given by the definition of the phrase "in loco parentis" in Cyc. above quoted. It was said:
"If an adult is a legal subject of adoption, which formally establishes the relationship of parent and child, and if one who assumes the obligations incidental to the parental relation, and takes the place of a parent without going through the formalities necessary to a legal adoption, stands in loco parentis to another, why should age condition the nature of the relationship?"
It does not seem to me that there is any connection whatever between the two relationships. There is no reason, so far as I can see, why it should be held that, in every case where the adoptive relation can be brought about, the in loco parentis relation can be also. The one status is a creature of statute. It could not be brought about at common law. The other exists only under the common law. Formality in a sense is equally essential to bring about the relationship in each instance. In the one case it is that which is required by the statute. In the other it is that the party who is to acquire the parental position shall assume the parental duty of making provision for the child. Each has a different purpose in view. The one is to make the adoptive child the heir at law of the adoptive father. No such result follows from the relationship of in loco parentis. Nor is it the universal rule that adults may be adopted. In some states, as in this state, it is clear that it is the intent of the statute that adults may be adopted. And in some states, as in Missouri, the word "child" in the adoption statute is construed to include adults as well as infants. But in other jurisdictions it is otherwise. In 31 Rawle C. L. p. 596, it is said:
"The person to be adopted is frequently designated in the statute authorizing the proceeding as a minor child, and in such case, of course, no question of the adoption of an adult can arise. But in the absence of such a statutory provision, the circumstance that the statute used the word `child' is not necessarily conclusive in favor of the position that only a minor can be adopted under it. Since that word has two generally *178 understood meanings, one signifying minority, and the other relationship, and by some courts it has been held that, in a statute relating to adoption, the word has reference to a relational status, and that consequently, under such a statute, and in the absence of any provision to the contrary, an adult may be adopted. And the adoption of adults has been expressly recognized as valid in at least one jurisdiction by statutory provision. But by other courts the circumstance that the statute authorizing the proceeding used the word `child' has been held to confine the right of adoption to minors."
In this state the statute, though it authorizes the adoption of adults, conceives that the parental relation is brought about by the adoption proceeding only in case of minors. The Kentucky statute is in these words:
"Sec. 2071. Any person twenty-one years of age, may, by petition filed in the circuit court of the county of his residence, state, in substance, that he is desirous of adopting a person, and making him capable of inheriting as heir at law of such petitioner; and said court shall have authority to make an order declaring such person heir at law of such petitioner, and as such, capable of inheriting as though such person were the child of such petitioner; but no such order shall be made if the petitioner be a married man or woman unless the husband or wife join in the petition.
"Sec. 2072. Said court shall have authority, by consent of the parents, or either of them, if one be dead, to give the petitioner the parental control of such adopted person, if an infant; and said petitioner shall be under the same responsibilities as if the person so adopted were his own child."
The other consideration referred to is that there is indication in the War Risk Insurance Act itself that it was contemplated that one might stand in loco parentis to an adult. It is said:
"The word `children' when used irrespective of parentage, may denote that class of persons under the age of 21 years of age as distinguished from adults; but its ordinary meaning with respect to parentage is sons and daughters of whatever age. It is frequently so used with reference to those who stand in the place of parents and have assumed the parental relation. Congress evidently had this relationship in mind when it provided that the provisions, 4a and 5a should apply to persons `who have stood in loco parentis to a member of the military forces at any time prior to his enlistment or induction for a period of not less than one year.' The provision contains no limitation as to age. It was open to any member of the military or naval forces."
I can see no such indication therein. If there is any indication at all, it would seem to be the other way; i. e., that it is only as to a minor that one can stand in loco parentis. It is true that the statute does not in so many words refer to age. But if one can stand in loco parentis only to a minor, the statute can only have a minor in contemplation. It was not necessary that there should be any reference to age. It will be noted that the statute looks to the past, and not to the present. It is those who have stood in such place, and not those who then stand therein, to which its verbiage relates. The bulk of the soldiers were adults. None but adults were covered by the Selective Draft Act.[1] Though minors over 16 could enlist, it could only be with the consent of parents or guardians. If it is conceivable that an adult male, to whom another stood in loco parentis, assuming that to be possible, would be a desirable or acceptable soldier, and hence that he was within the purview of the statute, why did it look to such relation as existing in the past, and not at the time of enlistment or induction? Where such standing existed at the time of enlistment or induction, there would seem not to be as much reason for requiring that it should have existed for as much as a year as where it had existed some time in the past. If it then existed, though it had not existed for that length of time, it might be permanent in character and calling for as much, if not more, consideration than if it had existed so long. If, however, it was a relation that had existed in the past, when the soldier was a minor, there was greater reason for requiring that it should have existed for as much as a year.
I feel constrained, therefore, to hold that it is not possible for a person to stand in loco parentis to an adult who is not mentally or physically incapacitated, and that therefore the plaintiff did not stand in such relation to the insured soldier.
It follows that the action must be dismissed.
NOTES
[1] Comp. St. 1918, Comp. St. Ann. Supp. 1919, §§ 2044a-2044k. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1487867/ | 17 F.2d 193 (1927)
YOUNG & JONES
v.
HIAWATHA GIN & MFG. CO. and five other cases.
No. 417.
District Court, S. D. Mississippi. W. D.
January 22, 1927.
R. B. Anderson, of Port Gibson, Miss., and Brunini & Hirsh, of Vicksburg, Miss., for plaintiffs.
Watkins, Watkins & Eager, of Jackson, Miss., for defendant.
HOLMES, District Judge.
The court has before it for consideration six separate motions to remand to the state court six suits at law filed by six different plaintiffs in the circuit court of Caliborne county, Miss., which have been removed here on petition of the Hiawatha Gin & Manufacturing Company, the identical defendant in each case. The amounts involved run from $210, the alleged value of 2 bales of cotton destroyed by fire, to $2,900, the value claimed for 29 bales so destroyed, as alleged, by the negligence of the defendant, while said cotton was stored in a public warehouse operated by the defendant.
From the identical declarations of the plaintiffs we find that on the 5th and 6th of October, 1925, the defendant was engaged in the business of operating a warehouse, known as a United States bonded warehouse, and licensed under the United States Warehouse Act (Comp. St. § 8747¾ et seq.) to store cotton and collect charges therefor; that plaintiffs delivered cotton to defendant and received the following receipt for each bale:
"The one bale of cotton described herein, stored in the above-named warehouse, for which this receipt is issued subject to the United States Warehouse Act, the regulations for cotton warehouses thereunder, and the terms of this contract."
The declaration then contains the following allegation:
"And plaintiffs further aver that, upon delivery to defendant of said cotton as aforesaid, the said defendant then and there agreed that it would safely keep and take care of the said cotton, and that it would be guilty of no negligence in the storing and keeping of the same, and it then and there became and was the duty of the defendant safely to store and *194 keep the said cotton, and to refrain from acts of negligence in the storage and preservation of said cotton, but, notwithstanding said duty respecting said cotton so owed by the defendant, defendant negligently suffered the same to be destroyed by fire on the 11th day of October, 1925; that such negligence consisted in the following acts, to wit:"
Six specific acts of negligence are alleged: (1) Not having sufficient watchmen; (2) failure of such watchmen as were left to attend to their proper duties; (3) failure to remove a portion of the cotton after fire was discovered; (4) failure to maintain a proper sprinkling apparatus and sufficient water protection; (5) storing cotton so as to close exits; (6) maintaining a wire fence, which prevented removal of cotton.
The contention of the defendant in support of jurisdiction in this court is that the suits arise under a law regulating commerce. If this is true, under paragraph 8 of section 24 of the Judicial Code (Comp. St. § 991) the District Court has original jurisdiction, regardless of the amounts in controversy, and therefore the motions should be overruled.
In order to determine whether the cases so arise that is, whether they grow out of federal legislation we must look to the allegations of the plaintiffs' own declarations, which are the same in all the cases. If such an inspection reveals a clear and substantial suit or controversy over the validity, construction, or effect of a law regulating commerce, which will be defeated or sustained, according to the construction given such law, then it may be fairly said that the suits arise under a law regulating commerce. Osborn v. Bank of United States, 9 Wheat. 738-822, 6 L. Ed. 204; Gold Washing & Water Company v. Keyes, 96 U. S. 199-201, 24 L. Ed. 656; Tennessee v. Davis, 100 U.S. 257, 25 L. Ed. 648; White v. Greenhow, 114 U.S. 307, 5 S. Ct. 923, 962, 29 L. Ed. 199; Railroad Company v. Mississippi, 102 U.S. 135-139, 26 L. Ed. 96; Patton v. Brady, 184 U. S. 608-611, 22 S. Ct. 493, 46 L. Ed. 713; Macon Grocery Company v. Atlantic Coast Line, 215 U.S. 501, 506, 30 S. Ct. 184, 54 L. Ed. 300; First National Bank v. Williams, 252 U.S. 504, 40 S. Ct. 372, 64 L. Ed. 690.
If the plaintiff in good faith sets up a federal question as a basis of his claim, then this court has jurisdiction. It is immaterial that other questions are also involved. New Orleans, M. & T. R. R. Co. v. Mississippi, 102 U.S. 135, 26 L. Ed. 96. Neither does it make any difference that in the end the case is determined upon some other issue. City R. Co. v. Citizens' St. R. Co., 166 U.S. 557, 562, 17 S. Ct. 653, 41 L. Ed. 1114.
"If the plaintiff really makes a substantial claim under an act of Congress, there is jurisdiction, whether the claim ultimately be held good or bad. Thus in Vicksburg Waterworks Co. v. Vicksburg, 185 U.S. 65, 68 [22 S. Ct. 585, 46 L. Ed. 808], it was pointed out that, while the certificate inquired whether a federal question was involved upon the pleadings, and while the counsel had argued the merits of the case, the function of this court `is restricted to the inquiry whether, upon the allegations of the bill of complaint, assuming them to be true in point of fact, a federal question is disclosed, so as to give the circuit court jurisdiction in a suit between citizens of the same state.'" The Fair v. Kohler Die Co., 228 U.S. 25, 26, 33 S. Ct. 410, 412 (57 L. Ed. 716).
In Southern Railway Company v. Prescott, 240 U.S. 632, 36 S. Ct. 469, 60 L. Ed. 836, it is said that the question as to responsibility under a bill of lading issued with reference to an interstate shipment is none the less a federal one because it must be resolved by the application of general principles of the common law. In Davis v. Wallace, 257 U.S. 478, 42 S. Ct. 164, 66 L. Ed. 325, it is held that, where a federal court takes jurisdiction on account of the presence of a federal question, it may rest its judgment upon any law, state or federal, which will enable it to dispose effectually of the case.
In Lewis on Removal, p. 207, the rule is announced that: "If the same facts show a right of action created or given by a state law, as well as one arising under a law of the United States, it is for the court to determine under which statute the action is maintainable, if at all, and if one construction of the federal statute would sustain, and another construction would defeat, a recovery under that statute, the action would be one arising under a law of the United States, and therefore of federal cognizance."
That the United States Warehouse Act is one regulating commerce is not denied, nor is its constitutionality assailed. It is contended that the plaintiffs do not rely upon it, but upon the common law. This position, in my judgment, cannot be upheld. The defendant is sued in its federal character and under its federal function. The warehouse is an instrument of interstate commerce. The plaintiffs have entered into contractual relations with such a warehouse, and accepted a receipt which provides that the cotton described therein is stored subject to the United States Warehouse Act and the regulations for cotton warehouses thereunder. Among these regulations is section 4, which provides that the warehouseman shall exercise such care in regard *195 to cotton in his custody as a reasonably careful owner would exercise under the same circumstances and conditions.
That the defendant was operating a United States bonded warehouse, under said act, was a fact deemed sufficiently material to be alleged in the declarations; that the receipt issued for said cotton contains a provision that it was issued "subject to the United States Warehouse Act, the regulations for cotton warehouses thereunder, and the terms of this contract," also appears as Exhibit A to the complaint. By alleging these facts the plaintiffs invoked the legal principles of federal law applicable thereto. It is not necessary to plead the law, or any other matter of which the court takes judicial notice. No allegation has been suggested which plaintiffs might have added to strengthen their right to recover under the federal Warehouse Act. By changing the name of the court, the declarations might have been filed originally in this court.
It is claimed that there is nothing in the declarations to show that the cotton was intended for interstate shipment; but there is nothing to show the contrary, and the court takes judicial notice that nearly all cotton produced in this state finds its way into interstate commerce. Furthermore, this particular cotton was actually stored as Congress contemplated, and by section 14 of the act (Comp. St. § 8747¾g) it is provided that "any person who deposits agricultural products for storage in a warehouse licensed under this act shall be deemed to have deposited the same subject to the terms of this act and the rules and regulations prescribed hereunder." Section 7 of the act (Comp. St. § 8747¾cc) provides that any person injured by the breach of any obligation to secure which a bond is given shall be entitled to sue in any court of competent jurisdiction to recover damages sustained by such breach.
Section 21 (Comp. St. § 8747¾jj) makes it the duty of the warehouseman, in the absence of a lawful excuse, to deliver the products stored, for which receipt is issued, upon demand. Section 29 (Comp. St. § 8747¾mm) provides that nothing in the act shall conflict with state laws or impair the operation thereof. A number of rules and regulations were issued by the Secretary of Agriculture under the act, including section 4, above mentioned.
The inescapable federal question presented by the declarations is: What legal duty rests upon a warehouse, licensed and bonded under the United States Warehouse Act, with reference to storing and caring for cotton; that is to say, what acts constitute negligence? In the event of a demurrer to the declarations, denying that the things complained of constituted negligence, we should have to look first to the act, and construe it, to pass upon the demurrer. We would have to decide what efficacy should be given to section 4 of the regulations under the act. The fact that there might be liability at common law, or under state statute, as plaintiffs contend, which the Warehouse Act does not take away, does not alter the case.
The plaintiffs had the option to sue either in a state or federal court. Galveston, H. & S. A. Ry. Co. v. Wallace, 223 U.S. 481, 32 S. Ct. 205, 56 L. Ed. 516. But, in case of suit in the state court, the defendant may remove to the federal court, the action involving the construction of a federal statute. There is no special inhibition against removal in the United States Warehouse Act, such as is in the Employers' Liability Act (Comp. St. §§ 8657-8665) and the Safety Appliance Act (Comp. St. § 8605 et seq.).
The intention to deprive a litigant of the right to remove a case, otherwise removable, cannot be presumed, but must be evidenced by the use of appropriate language. It is immaterial what rights the plaintiffs have at common law or by state statute. It is sufficient that Congress, by the enactment of the Warehouse Act, has given the positive sanction of federal law to rights acquired by depositing cotton or other agricultural products in accordance with the terms of the act and regulations promulgated under it. Any case involving the enforcement of those rights arises under the laws of the United States regulating commerce.
Plaintiffs in argument and briefs invoke the benefit only of the common law. But the facts set forth in the declarations may be sufficient to permit them to recover at common law, under the Mississippi statute fixing liability of warehousemen, or under the United States Warehouse Act, accordingly as this court shall construe the one or the other, or all, in their favor. In looking to the plaintiffs' own statements to determine jurisdiction, we find the facts sufficiently alleged, if not traversed, to request the court to give judgment in favor of the plaintiffs under the common law, the Mississippi statute, and the Warehouse Act. When these considerations are supplemented with the presumption in section 14 of the act that the cotton was stored subject to its terms and regulation 4 thereunder, which was reiterated in the receipt given for each bale of cotton, all of which facts appear on the face of the plaintiffs' own *196 statement of the case, we do not think it permissible for the plaintiffs to stand in the argument solely upon their common-law rights.
Accordingly the motions to remand may be overruled. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1488023/ | 17 F.2d 621 (1927)
FIRST NAT. BANK OF MEDFORD, OR.,
v.
STEWART FRUIT CO.
No. 1642.
District Court, N. D. California, S. D.
February 19, 1927.
*622 Irvine P. Aten, of Fresno, Cal., for Hasegawa Co.
Knight, Boland & Christin, of San Francisco, Cal., for receiver.
KERRIGAN, District Judge.
On March 2, 1926, the First National Bank of Medford, Or., a simple contract creditor of the Stewart Fruit Company, filed a bill in equity stating that the Stewart Fruit Company was unable to pay its obligations as they matured, and that its assets were in danger of being dissipated by forced sales, if a receiver were not appointed for the benefit of all creditors. On the same day the Stewart Fruit Company filed its answer, admitting the allegations of the bill, and consenting to the appointment of a receiver. The receiver was appointed by this court.
The Hasegawa Company, also a simple contract creditor, has not participated in any of the proceedings under the receivership, and has at all times refused to accept receiver's certificates, or in any way to take part in the attempts made by the receiver to settle claims against the Stewart Fruit Company. This company instituted an action in the state court to recover the sums due it from the Stewart Fruit Company, and, on December 9, 1926, a judgment was entered in the sum of $2,577.50 and costs. On the same day the Hasegawa Company ordered the sheriff of Fresno county to levy execution on certain property of the Stewart Fruit Company located in that county.
Subsequently a temporary restraining order issued from this court, restraining the sheriff from proceeding further under this levy. The sheriff's return on the order to show cause sets up the defense that the order appointing the receiver was void. The same question has been raised by Hasegawa Company by a motion to revoke the appointment of the receiver.
There are therefore two matters before the court at this time: First, the creditor's motion to revoke the receivership; and, second, the receiver's motion for a preliminary injunction against the sheriff of Fresno county.
The Hasegawa Company urges that the appointment of the receiver was void, because the bill upon which he was appointed lacked equity, being an attempt by a simple contract creditor, without lien on any assets of the Stewart Fruit Company, to enforce a purely legal right arising out of contract in equity. It contends that the consent to the appointment of the receiver by the Stewart Fruit Company in no way enlarged the equity jurisdiction of the court. Assuming that the appointment of the receiver is in fact void, the Hasegawa Company relies upon its right as a judgment creditor to appear and secure the revocation of the appointment of the receiver on motion, and without intervention or other formal appearance in the action in which the receiver was appointed.
It is true that a simple contract creditor cannot have a receiver appointed to take possession of the assets of an individual debtor. 1 Tardy's Smith on Receivers, 649. It is also true that such a creditor cannot have a receiver of corporation assets appointed, when the corporation resists such appointment. Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371, 14 S. Ct. 127, 37 L. Ed. 1113; Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 43 S. Ct. 454, 67 L. Ed. 763. But where a corporation, sued by a bill like that in the present case, answers, admitting the facts pleaded, and consenting to the appointment of the receiver, or otherwise waives the defense of nonconsent, the court has jurisdiction to appoint a receiver. Matter of Reisenberg, 208 U.S. 90, 28 S. Ct. 219, 52 L. Ed. 403.
The case last cited concerned the Metropolitan Railway system of New York, and the Hasegawa Company seeks to distinguish it on that ground from the present case, arguing that the rule applies to public service corporations only, on account of the public interest involved. The courts do not make this distinction, however; the following being cases where a receiver of a private corporation was appointed upon a bill filed by a simple contract creditor, the corporation consenting: Harkin v. Brundage (C. C. A.) 13 F.(2d) 617; McAtamney v. Commonwealth Hotel Construction Corp. (D. C.) 296 F. 500; Guaranty Trust Co. v. International Steam Pump Co. (C. C. A.) 231 F. 594; Cincinnati Equipment Co. v. Degnan (C. C. A.) 184 F. 834. In the following cases private corporations had consented to the appointment *623 of a receiver and afterwards contended that the appointment was void. They were not permitted to prevail. Yaryan Naval Stores v. B. Borchardt Co. (C. C. A.) 217 F. 758; Walker v. United States Light & Heating Co. (D. C.) 220 F. 393. On the authority of these cases the appointment of the receiver in the present case was valid. The Hasegawa Company must be denied its motion for the revocation of the appointment of the receiver.
In the course of the argument several criticisms of the conduct of this receivership were offered, notably as to the receiver's failure to account, and as to the allowance of certain fees. As the Hasegawa Company is a creditor, and interested in the receivership for this reason, it may bring these matters before this court by the proper proceeding, if it so desires.
It should be said in passing that, in the interest of the creditors in such receiverships, the usual practice of allowing fees only upon noticed hearing in open court will be strictly followed by this court. Indeed, counsel in these receivership matters should be extremely careful to avoid the appearance of overzealousness to secure and exercise control, and should give notice of all proceedings, especially of the original bill, to all persons interested, wherever it is at all possible. Only extreme emergency should excuse failure to do so. Harkin v. Brundage (C. C. A.) 13 F.(2d) 617.
Since the appointment of the receiver in the present case was valid, and since the motion to revoke the receiver's appointment must fail, the defense against the preliminary injunction, restraining the sheriff of Fresno county from proceeding further with the levy of execution on the Hasegawa judgment, fails also. The motion for a preliminary injunction will be granted. Davis v. Seneca Falls Mfg. Co. (D. C.) 8 F.(2d) 546, Quinn v. Bancroft-Jones Corporation (D. C.) 12 F.(2d) 958.
Let the orders be entered in accordance with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1488220/ | 453 F. Supp. 881 (1978)
John R. FISHER, Jr., Plaintiff,
v.
BOARD OF SELECTMEN OF the TOWN OF NANTUCKET et al., Defendants.
Civ. A. No. 78-1234-C.
United States District Court, D. Massachusetts.
July 28, 1978.
Arthur I. Reade, Jr., Boston, Mass., for plaintiff.
Charles A. Goglia, Jr., Weston, Mass., for defendants.
OPINION
CAFFREY, Chief Judge.
This is a complaint for declaratory judgment and injunctive relief brought by plaintiff, a citizen of Pennsylvania, against the members of the Board of Selectmen of the Town of Nantucket, individually and in their official capacities. The Nantucket building inspector is also a party defendant in his individual and official capacity. Plaintiff alleges that on November 21, 1977 he entered into a lease for certain land in Nantucket for use for moped rentals. He also alleges that he has an investment in excess of $35,000 in said business. A moped is alleged to be a motorized bicycle.
Plaintiff says that his place of business was opened for the rental of mopeds to the public on May 26, 1978 and that on May 30, 1978 he was served with a letter from Norman *882 W. Chaleki, who is both building inspector and zoning officer of the Town of Nantucket. The letter advised plaintiff that he needed a special permit to operate a garage for the storage, repair and servicing of motor vehicles, in default of which he was in violation of Nantucket Zoning By-Law IV-C. The letter further advised plaintiff that a special permit was needed by reasons of the requirements of Town of Nantucket Zoning By-Law IV-C-II-(12), which requires a special permit for "Rental or sale of bicycles, motorcycles, motorskooters, mopeds, and similar motorized transports or means of conveyances."
Plaintiff claims that the enforcement of this By-Law will violate a variety of rights secured to him by 42 U.S.C.A. §§ 1983 and 1985.
The Court took a view of plaintiff's premises as well as the premises of approximately half a dozen other businesses engaged in moped and bicycle renting on Nantucket, and then heard arguments of counsel with respect to the issuance of a temporary restraining order. The matter was also briefed by counsel and is presently before the Court on plaintiff's application for and defendants' opposition to the granting of injunctive relief.
During the view and during the oral argument held in the Superior Courthouse on Nantucket, no disclosure was made to the Court that John R. Fisher, Jr., the plaintiff herein, was not, in fact, the operator of a moped business. The true identity of the operator of the moped business became a part of the record of this case only when the Court received defendants' brief on July 13, 1978. Appended to that brief was a certified copy of the Articles of Organization of a Massachusetts corporation, Sea Trip Mopeds, Inc. From those corporate documents, it appears that John R. Fisher, Jr., is not an officer or director but John R. Fisher, III, is president, treasurer and a member of the board of directors of Sea Trip Mopeds, Inc. The other directors are Adrian Fisher, Andrew Fisher and Alison Beth Fisher, who also serves as clerk of the corporation. Also appended to defendants' brief is a photostatic copy of a printed rental form made up to run between Sea Trip Mopeds, Inc., and individual members of the public who rent mopeds. From the foregoing, it is clear that the actual party in interest herein is a Massachusetts corporation, not John R. Fisher, Jr., whose only relationship to that corporation appears on the present state of the record to be the fact that he is the father of John R. Fisher, III, its president and treasurer.
At the hearing held in Nantucket, pleadings were made part of this record from three separate cases filed in the Superior Court for Nantucket by Burns Three, Inc., Alden's Bicycle Shop, Inc., and Nantucket Bike Shop, Inc., against the Board of Selectmen. These three corporations are competitors of Sea Trip Mopeds, Inc., and their cases raised the precise issue of state law involved in this case, i. e., the validity of Section IV of the Nantucket Zoning By-Law. Also made a part of this record was an opinion of Judge Linscott handed down in Burns Three, Inc., which opinion was also incorporated by reference in the ruling on Alden's Bicycle Shop, Inc. Briefly stated, Judge Linscott ruled that the Zoning By-Laws were valid and that moped operators could properly be required to obtain the special permit. It was stipulated that an appeal is now pending from Judge Linscott's ruling.
It is well-settled law in this Circuit and elsewhere that in order to obtain preliminary injunctive relief the plaintiff must establish a probability of success on the merits and the probability that he will suffer irreparable harm unless the injunction is granted. See Garzaro v. University of Puerto Rico, 575 F.2d 335 (1st Cir. 1978); Tuxworth v. Froehlke, 449 F.2d 763, 764 (1st Cir. 1971); Automatic Radio Mfg. Co. v. Ford Motor Co., 390 F.2d 113, 115-16 (1st Cir.), cert. denied, 391 U.S. 914, 88 S. Ct. 1807, 20 L. Ed. 2d 653 (1968). I rule that John R. Fisher, Jr., has not shown a reasonable probability of success on the merits in view of the disclosure that he is not the operator of the business of renting mopeds and in view of the fact that his claimed *883 denial of various and sundry rights appears to be without factual basis, in light of the disclosure that a Massachusetts corporation, not a resident of Pennsylvania, is the true operator of the moped business involved. I further rule that plaintiff has failed to prove irreparable harm. It is well-settled that harm which can be adequately compensated by money damages is not "irreparable." See, e. g., Teledyne Industries, Inc. v. Windmere Products, Inc., 433 F. Supp. 710 (D.C.Fla.1977). Plaintiff's complaint and his supporting affidavits allege no injury which could not, if plaintiff subsequently prevailed on the merits in this case, be adequately redressed by monetary relief.
An additional reason why injunctive relief should not be granted is the fact that this appears to be a case which clearly can and will be ultimately resolved solely on the basis of the state court's decision of a controlling issue of state law. It is a classical case for abstention by a federal court until the pending litigation in related state court cases raising the identical issue is resolved. See Railroad Commission of Texas v. Pullman Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941). I particularly note the Supreme Court's observation in Pullman that "[f]ew public interests have a higher claim upon the discretion of a federal chancellor than the avoidance of needless friction with state policies" particularly when that "policy relates to . . . the final authority of a state court to interpret doubtful regulatory laws of the state . . .." Id. at 500, 61 S.Ct. at 645. See also Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971); Kaiser Steel Corp. v. W. S. Ranch Company, 391 U.S. 593, 88 S. Ct. 1753, 20 L. Ed. 2d 835 (1968).
Accordingly, an Order will be entered denying the motion for a temporary restraining order. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1489034/ | 51 F.2d 840 (1931)
MARTIN
v.
FIRST NAT. BANK OF RUSH CITY.
No. 2045.
District Court, D. Minnesota, Third Division.
August 10, 1931.
*841 R. C. Andrews, of Minneapolis, Minn., for plaintiff.
S. B. Wennerberg, of Center City, Minn., and George H. Sullivan, of Stillwater, Minn., for defendant.
NORDBYE, District Judge.
The above-entitled matter came on for trial before the undersigned, one of the judges of the above-named court, without a jury, at Duluth, Minn., on the 7th day of May, 1931; R. C. Andrews of Lindstrom, Minn., appearing in behalf of the plaintiff, and S. B. Wennerberg, Center City, Minn., and George H. Sullivan, Stillwater, Minn., appearing in behalf of the defendant. The court having heard the evidence adduced at said trial, and upon all the files and records herein and the arguments and briefs submitted to said court, makes the following findings of fact and conclusions of law.
Findings of Fact.
I. That Peter J. Engberg, above named, is the duly appointed, qualified, and acting guardian of the estate of Ernest L. Martin, incompetent, and that letters of guardianship upon said estate were duly issued to him on January 25, 1928, by the probate court in and for the county of Chisago and state of Minnesota.
II. That defendant, the First National Bank of Rush City, a corporation (hereinafter called the Bank), is a national banking association under the laws of the United States of America.
III. That plaintiff, Ernest L. Martin, was duly adjudged incompetent by said probate court of Chisago county on December 9, 1919, and was duly committed to the State Hospital for the Insane at Rochester in said state, and was later transferred to the United States Hospital for Disabled Veterans at St. Cloud, Minn., where he is now in confinement.
IV. That thereafter, and on the 7th day of April, 1920, one G. M. Ericson was appointed special guardian of the estate of said Ernest L. Martin, incompetent, by the probate court aforesaid, and during all the times hereinafter mentioned, and until January 4, 1928, said G. M. Ericson having qualified as such guardian continued to act as such, and to have custody and possession of the estate, property, and money of said incompetent, and at the time of his appointment as special guardian of plaintiff's estate, said G. M. Ericson was a stockholder and director, and the cashier of said defendant Bank, and was later made a vice president of said Bank, and during all of the time that said G. M. Ericson was acting as special guardian of plaintiff's estate, and in possession of the same and plaintiff's property and money, said G. M. Ericson was the principal managing officer of defendant Bank, and was directly and solely in charge of the affairs and daily business of said Bank.
V. That subsequent to his appointment as such special guardian, the said Ericson opened an account with said Bank for the deposit therein of plaintiff's money and credits, his account being known and designated on the records of said Bank as an account with "Estate of Ernest L. Martin, Incompetent." That of the money and credits coming into the hands of Ericson in his capacity as special guardian of plaintiff's estate, being the property of plaintiff, the sum of $7,843.64 was paid by the government of the United States to plaintiff on account of a compensable injury suffered by him while in the army and service of the United States, and the sum of $4,600 was paid by the government of the United States to plaintiff on account of his policy of insurance with said government. That all of the payments made to plaintiff by the government of the United States and coming into the hands of said Ericson as special guardian were made by check drawn on the Treasurer of the United States and deposited by the said Ericson in said Bank and credited to said trust account hereinbefore mentioned.
VI. That said Bank had actual knowledge that all of the funds coming into the hands of Ericson as special guardian of plaintiff's estate, and the deposits to the credit of plaintiff's said account, were held in trust for plaintiff and that the said Ericson as special guardian had no authority to withdraw any part of the deposit to plaintiff's credit except in the ordinary and usual manner of withdrawing funds from accounts in a depository bank and only for such purposes as were authorized *842 by law and the purposes of said guardianship.
VII. That the St. Croix Valley Land & Loan Company (hereinafter referred to as the Land Company) is a corporation organized and existing under the laws of the state of Minnesota, and that during all the times herein mentioned, the said G. M. Ericson was stockholder and director of said Land Company and its principal manager and executive officer. That the said Land Company was also a depositor of said Bank and carried a checking account therein to which deposits were credited from time to time in favor of said Land Company.
VIII. That said G. M. Ericson was also a depositor in said Bank in his individual capacity and carried a checking account therein during all the times herein mentioned.
IX. That both Ericson and the Land Company during the times herein mentioned were in financial straits, and during this period Ericson habitually made overdrafts on his checking account. Such overdrafts were customarily permitted by said Bank, and the Bank customarily and regularly made loans by way of overdrafts to said Ericson without objection by the other officers or directors of said Bank.
X. That on May 10, 1921, less than a year after said Ericson became custodian of the fund belonging to plaintiff, he drew out of said fund the sum of $1,200 by way of a debit slip on said account, and credited $400 thereof to his own personal account and $800 to the account of the Land Company. That on February 4, 1922, Ericson's personal account was overdrawn in the sum of $597.66, and on said date the said Ericson drew by debit slip from plaintiff's account the sum of $700 and by credit slip credited to his personal account the sum so drawn in order to cover the overdraft that existed there. That on March 24, 1923, an overdraft of $1,005.24 existed in Ericson's personal account, and on said date he drew by debit slip on plaintiff's account the sum of $500, and of the sum so withdrawn, the sum of $388.34 was credited to Ericson's personal account to apply on the overdraft that existed there. On August 11, 1923, $500 was withdrawn from the plaintiff's account; $381.71 of the amount so withdrawn was applied on an overdraft that existed in Ericson's account in the sum of $381.71. On August 16, 1923, there was an overdraft in the account of the Land Company in the sum of $54.63, and said Ericson caused a debit slip to be drawn on plaintiff's account in the sum of $1,500 and by credit slip credited the Land Company's account in the amount so drawn. Thereafter a large number of withdrawals were made by Ericson from the plaintiff's account and deposited in his personal account to cover his overdrafts or to increase the funds in his own personal account. A considerable number of withdrawals and deposits were made by debit and credit slips, but the use of debit slips in connection with withdrawals from plaintiff's account was not limited to misappropriation of the funds in the estate. Many legitimate claims against this estate were paid by this method; that is, Ericson would draw a debit slip against the estate funds and pay a legitimate bill with cash of the Bank and thereafter credit the cash account with the amount debited against plaintiff's account.
XI. That in the latter part of 1925, the Land Company was in dire financial circumstances and had no funds with which to pay checks drawn on its account in the defendant Bank. That for some period of time in the years 1925 and 1926, checks of the Land Company aggregating $418 drawn on the defendant Bank were carried as cash items by the bookkeeper at the suggestion of said Ericson, and then on March 2, 1926, with the intent on his part and on the part of the Land Company to misappropriate the same, Ericson ordered the bookkeeper to charge these checks to the account of the plaintiff herein and thereafter such charge was accordingly made.
XII. That between May 10, 1921, and May 29, 1926, with the intent to misappropriate the same for his use and for the purpose of paying indebtedness due the Bank by way of overdrafts, the said Ericson withdrew the sum of $7,775 from plaintiff's account. That $5,475 of said sum was credited to Ericson's personal account and $2,300 was credited to the account of the Land Company. That $2,928.28 of said sum so withdrawn was applied in payment of overdrafts due the defendant Bank from Ericson and the Land Company, and of the said sum of $7,775 so withdrawn, the sum of $6,575 was deposited to the credit of Ericson's personal account and to the credit of the Land Company subsequent to and including February 4, 1922, when the first application of trust funds was made to the payment of overdrafts.
That attached to and made a part of these findings of fact, with the same force and effect as if set forth in full herein, is a statement *843 referred to during the trial as "Plaintiff's Exhibit G,"[1] which sets forth the dates and amounts and the application of the various withdrawals made by the said Ericson between May 10, 1921, and May 29, 1926.
XIII. That the said Ericson had no authority as guardian to withdraw any sum from plaintiff's said account except for purposes permitted by law and for the ordinary and usual purposes of his trust. That all of said withdrawals were made by said Ericson while acting as the sole and exclusive officer in charge of defendant Bank and the sole and only officer or agent of the defendant having any knowledge thereof. That all of the said withdrawals and unauthorized debits were wrongful and unlawful diversions and misappropriations of trust funds belonging to plaintiff, and in repaying to the Bank the overdrafts hereinbefore mentioned, Ericson acted as the agent for the defendant Bank and within the scope and course of his employment with said Bank, and the knowledge of said Ericson as said agent is imputed to the said Bank.
XIV. That the defendant Bank knew that the money deposited to plaintiff's credit constituted a trust fund for plaintiff, and defendant Bank knew on February 4, 1922, by and through its agent, Ericson, that the funds of plaintiff were being diverted for the purpose of satisfying indebtedness to the Bank by way of overdrafts, and the Bank knowingly received trust funds on that date for unlawful purposes. That notwithstanding the breach of trust committed by its agent and the knowledge thereof by the Bank on said date, the said Bank permitted said Ericson to remain in full charge of said Bank and to remain as custodian of said trust funds, and thereafter received from the said trust funds the sum of $2,330.62 to apply on indebtedness due it from the said Ericson and the said Land Company.
XV. That during all the times herein mentioned, the said Ericson was financially embarrassed and frequently overdrew his account with the Bank, all of which was known to the Bank, and on several occasions during this period, the bank examiners in the course of their duty criticized the frequent overdrafts of said Ericson and admonished the Bank to remedy this situation.
XVI. That by the exercise of reasonable care and diligence the Bank knew or should have known on February 4, 1922, that the said Ericson intended to misappropriate plaintiff's funds and convert the same to his own use and the use of the Land Company, but instead of taking reasonable measures to prevent further misuse of the trust funds intrusted to its care, the said Bank became a participant in the misappropriation and profited thereby, and aided and assisted said Ericson in carrying out his scheme for the use of trust funds for unlawful purposes.
*844 XVII. That the said Ericson and the Land Company are now and for a long time have been insolvent, and no part of the funds so embezzled by the said Ericson, as hereinbefore stated, has been returned to or received by the plaintiff. That the defendant Bank became insolvent on June 4, 1927, and on said date the Comptroller of the Currency appointed a receiver of said Bank and ever since that time has been and now is in receivership.
XVIII. That plaintiff never filed any claim with the receiver before the commencement of this suit, but defendant at no time recognized the validity of plaintiff's claim, and any demand or presentation of a formal claim to the defendant or its receiver would have been an idle procedure.
XIX. That on account of the facts hereinbefore stated, the defendant is liable to the plaintiff for the sum of $6,575, which was misappropriated by the said Ericson on and after February 4, 1922, and is liable in the further sum of $418, which represents the amount of the Land Company checks which were wrongfully debited to plaintiff's account by the said Ericson.
Conclusions of Law.
1. That the court has jurisdiction of the parties to the suit and the subject-matter thereof.
2. That plaintiff have judgment against defendant in the sum of $6,993, with interest on the sum of $418 from March 2, 1926, at the rate of 6 per cent. per annum, and on the sum of $6,575 at the rate of 6 per cent. per annum from the date of the misappropriation of the various withdrawals, as follows:
Interest on $700 from February 4, 1922.
Interest on $500 from March 24, 1923.
Interest on $500 from August 11, 1923.
Interest on $1,500 from August 16, 1923.
Interest on $500 from September 29, 1923.
Interest on $700 from December 8, 1923.
Interest on $100 from March 19, 1924.
Interest on $100 from April 14, 1924.
Interest on $150 from May 21, 1924.
Interest on $300 from September 23, 1924.
Interest on $300 from November 19, 1924.
Interest on $200 from January 12, 1925.
Interest on $250 from May 4, 1925.
Interest on $200 from November 13, 1925.
Interest on $300 from January 4, 1926.
Interest on $275 from May 29, 1926.
-together with his costs and disbursements herein.
Let judgment be entered accordingly.
Memorandum.
There can be no serious contention that the Bank is not liable for the actual amounts it received from plaintiff's account in the repayment of the overdrafts in Ericson's and the Land Company's accounts. Ericson, its cashier, of course knew that trust funds were being used to pay an indebtedness due the Bank by way of overdrafts. The Bank, through its cashier, knowingly permitted trust funds to be diverted and used in paying debts occasioned by overdrafts. It must be required to restore to the trust fund the amounts that it received in this manner.
It is my opinion, however, that not only is the Bank liable for the actual sums it received in repayment of these overdrafts, but in addition is responsible to plaintiff for all moneys diverted and misappropriated by Ericson on and after February 4, 1922, which is the date that the first overdraft was paid with trust funds. This date marks the time when the Bank became aware of the perfidy of its cashier and it became in possession of information as to his breach of trust which required it to protect its incompetent depositor from further loss.
The Bank knew that plaintiff's account consisted of trust funds. This account was carried as the "Estate of Ernest L. Martin" for nearly six years. The character of this account and the way in which it was carried gave to the Bank sufficient notice to indicate that these funds did not belong to Ericson. The Bank knew, or should have known, that the funds in the hands of a guardian are in his custody in trust and that such funds must be used in the ordinary and usual course of the administration of the estate and in furtherance of its object. Allen v. Puritan Trust Co., 211 Mass. 409, 97 N.E. 916, 919, L. R. A. 1915C, 518; Sternberg v. Blaine, 179 Ark. 448, 17 S.W.(2d) 286; Rodgers v. Bankers Nat. Bank (1930) 179 Minn. 197, 229 N.W. 90.
Volume 3 Minn. Dunnell's Digest, 419, Guardian and Ward Section, 4107 F: "Interest of guardian in property of ward A guardian has no title or personal interest in the property of his ward, but only a naked authority not coupled with an interest. The legal as well as the beneficial title to both real and personal property remains in the ward. The guardian has a right to the possession of both forms of property, but only for the purpose of his trust and for the use and benefit of the ward. His possession is the possession of the ward. He holds the possession merely as the officer of the court *845 appointing him and subject to its orders in relation thereto."
It is well settled that a guardian has no authority to make a loan to himself. Sowers v. Pollock (1923) 112 Kan. 599, 212 P. 103, 30 A. L. R. 458 and note; In re Bates' Guardianship (1918) 70 Okl. 321, 174 P. 743; Fidelity & Deposit Co. v. Freud (1911) 115 Md. 29, 80 A. 603.
Unquestionably Ericson had a perfect right to maintain an account with the Bank as guardian even though he was sole manager and executive officer of the Bank. In disbursing the funds of the estate he would act as representative of himself and not of the Bank. When an officer of a bank deals with the bank on his own account, the knowledge of the officer is not generally imputed to the bank.
The Bank had a right to rely on the presumption that as a fiduciary Ericson would act lawfully and within the scope of his authority. A banking institution should not be required to supervise and scrutinize the various withdrawals made by a depositor that has an account in a trust capacity. The exigencies of modern banking business would justify no other rule. But a bank is not without responsibility to its depositors. It cannot become a party to a breach of trust, nor countenance a diversion of trust funds by lending its facilities to the aid thereof. It cannot sit by supinely after it has received notice that its depositor is misappropriating the funds of the beneficiary, or permit or acquiesce in the embezzlement of funds that to its knowledge belong to a trust estate.
The defendant's position is that Ericson was engaged in a personal scheme to defraud; that the other bank officials were innocent of any wrongdoing and had no personal knowledge of his breach of trust. Defendant earnestly contends that the knowledge of its cashier cannot be imputed to it and cites the generally recognized rule: "That knowledge of an agent, actually concealed from his principal, while the agent is dealing with the principal on his own account, is not to be imputed to the principal, even though the agent, assuming to act as such, did whatever was done on the part of the principal in the transaction with himself, if disclosure of the matter concealed would have had a tendency to defeat his purposes." Bank of Overton v. Thompson (C. C. A.) 118 F. 798, 801. The principle contended for by the defendant is not applicable to the facts of this case. On February 4, 1922, Ericson, within the scope of his authority as the sole manager and executive officer and the only official representing the Bank in the transaction, accepted and retained trust funds to pay indebtedness due the Bank by the way of an overdraft. Thereby the act of Ericson became the act of the Bank and the knowledge of Ericson became the knowledge of the Bank.
The Bank was apparently a one man institution. The directors left the entire management of the Bank to Ericson. They paid very little attention to its affairs and evidently permitted Ericson to carry on his scheme to defraud for a period of four years without any other official being personally cognizant of his duplicity. The use of debit and credit slips by Ericson in disbursing funds on this account is indicative of his control. The directors, however, had received direct information that Ericson was in financial straits, and that he was frequently overdrawn in his account. Ericson's conduct in this regard must have been quite flagrant to cause the bank examiners in their several reports to refer to his habit of overdrawing his account. It would seem that any reasonable supervision on the part of the officials of the Bank would have disclosed the misuse of trust funds. The other employees of the Bank were evidently dominated by Ericson and knowingly assisted him in the diversion of trust funds. It was the bookkeeper on Ericson's order that made the various bank entries regarding the transfer of trust funds and the charge of $418 of Land Company's checks to plaintiff's account.
The Bank was put on its guard when this account was opened. It knew that Ericson was not the owner of these funds. A guardian does not have title to his ward's funds. He is merely the custodian thereof. Notwithstanding this knowledge and its duty to its depositor, the plaintiff herein, the Bank placed Ericson in complete charge of the banking institution and permitted him to be the only bank official that was connected with the handling of this trust account for a period of four years.
Overdrafts as a practical matter are loans from a bank to a depositor. The loans of Ericson and the Land Company were repaid with trust funds. The Bank received and retained the benefits of Ericson's acts in taking care of the various overdrafts and cannot not now be heard to say that it accepts the acts of its cashier in part but not in their entirety. If it accepts the advantages of the acts, it also must accept the disadvantages. It was neither Ericson, the guardian, nor Ericson, the individual, that acted on February *846 4, 1922, when the overdraft of $597.65 was repaid to the Bank by the use of a debit slip of $700 on plaintiff's account. It was neither Ericson, the individual, nor Ericson, the guardian, that provided for the payment of $418 of Land Company's checks with the funds of the plaintiff. The act of Ericson in applying trust funds to the payment of overdrafts was the act of Ericson, the cashier. It thereby became the act of the Bank, and the Bank thereby received actual knowledge and positive information of the breach of the trust. Instead of taking steps to protect the funds intrusted to its care, it became a privy to the defalcation. It participated in the fruits of Ericson's peculations and permitted him to remain in full charge of its banking institution. It will be presumed to have known that debit slips were being used by its cashier to divert trust funds through unauthorized channels. The act of Ericson in proceeding to transfer trust funds by way of debit and credit slips was scarcely the act of an ordinary depositor that had custody of trust funds. The Bank permitted Ericson to continue as cashier notwithstanding its attention had been called by the bank examiners to the frequent overdrafts and when it knew that such overdrafts were being paid with trust funds. It permitted Ericson to withdraw some $6,575 from plaintiff's account over a period of four years, and of that sum nearly $3,000 was actually received and retained by the Bank to satisfy an indebtedness to the Bank brought about by the overdrafts of its cashier and the Land Company. Exemption from liability will not be granted to the Bank under such circumstances. Knobley Mountain, etc., Co. v. People's Bank (1925) 99 W. Va. 438, 129 S.E. 474, 476, 48 A. L. R. 459; Holden v. New York, etc., Bank (1878) 72 N.Y. 286.
In the case of Knobley Mountain, etc., Co. v. Peoples' Bank, supra, the cashier of the bank, Leps, was also the treasurer of the plaintiff corporation with the authority to draw checks in the plaintiff's name. He drew checks and placed them to the credit of his own and his brother's account, which were at the time heavily overdrawn. In reversing the decision of the lower court, the court held that the bank could not disclaim knowledge of the fact that these sums paid on overdrafts did not belong to the debtors, and stated: "Cases may arise in which the knowledge of its sole executive should not be impressed upon the corporation, but the plain facts in this case forbid the bank such immunity. The accounts of Leps and his brother had become heavily overdrawn. These overdrafts constituted debts due the bank. Admitting as true the contention of the bank that the bank paid the checks in question, and then plaintiff's treasurer stole from the plaintiff the money obtained therewith these facts do not exculpate the bank. In settlement of the overdrafts, the bank's cashier accepted this so-called stolen money which he knew was not the money of Leps or his brother, but which he knew was money embezzled from the Orchard Company. It was to the interest of the bank to have these overdrafts adjusted; but the bank may not close its eyes to the fact that these payments were made with money which the debtors had no right to use and its cashier no right to receive. In attempting to avail itself of the acts of its cashier to its advantage, the bank becomes subject to those to its disadvantage. * * *"
In Solway State Bank v. School District (1930) 179 Minn. 423, 229 N.W. 568, the court said:
"* * * A corporation is chargeable with knowledge of facts known to its officers transacting its business. There is an exception to this rule when the particular officer representing the bank is himself adversely interested. The exception is without application, however, where the interested officer is the sole representative of the corporation in the transaction. In such case his knowledge is the knowledge of the corporation. * * *
"As indicated in the previous opinion herein, Smith was the only bank official who gave any attention to the affairs of the bank. We need not discuss the evidence in detail. It is sufficient to say that Smith mixed defendant's funds which were in his hands in trust, he being its treasurer, with his own, by depositing the same in his personal account. He thereafter checked out thousands of dollars and turned the same over to the bank to pay his debts to the bank. In turn he took defendant's warrants which were carried in the bank's note pouch as assets and exhibited them to the school officers as vouchers for his disbursements. There were many irregular transactions wherein he was the sole representative of the bank. Under the rule stated, the bank must be held chargeable with his knowledge he knew all.
"The court found as a fact that when the bank closed, Smith's account therein was overdrawn, and an amount therein, rightfully belonging to defendant and exceeding the sum of all the orders involved, had been knowingly misappropriated by Smith and the bank to the payment of his checks and other *847 items so drawn for his individual purposes. The finding is that the bank had full knowledge, that it acquiesced, connived, and participated in the misappropriation and got the money. Such finding, which is supported by the evidence, spells liability."
If I am correct in determining that on February 4, 1922, when the defendant accepted trust funds for its own purpose, that the Bank in law became aware of the diversion of trust funds and the breach of trust, it necessarily follows that thereafter the Bank is subject to the well-recognized principle of law that: "* * * All persons knowingly participating in, or aiding in, committing a breach of trust, or in the misapplication of trust funds, are equally liable with the trustee to make good the fund by returning it to the trust estate." 26 Rawle C. L. 1322, Trusts, § 183.
There are many decisions in both state and federal courts that sustain the views expressed herein. U. S. Fidelity, etc., Co. v. U. S. National Bank (1916) 80 Or. 361, 157 P. 155, L. R. A. 1916E, 610; Fidelity & Deposit Co. of Maryland v. Farmers' Bank (C. C. A.) 44 F.(2d) 11, 16; Bischoff v. Yorkville Bank, 218 N.Y. 106, 112 N.E. 759, L. R. A. 1916F, 1059; Lowndes v. City National Bank (1909) 82 Conn. 8, 72 A. 150, 22 L. R. A. (N. S.) 408; Miami County Bank v. State (1916) 61 Ind. App. 360, 112 N.E. 40; United States Fidelity, etc., Co. v. People's Bank (1913) 127 Tenn. 720, 157 S.W. 414, 415; Blanton v. First National Bank (1918) 136 Ark. 441, 206 S.W. 745; Brovan v. Kyle (1917) 166 Wis. 347, 165 N.W. 382; United States Fidelity, etc., Co. v. Adoue & Lobit (1911) 104 Tex. 379, 137 S.W. 648, 138 S.W. 383, 37 L. R. A. (N. S.) 409, Ann. Cas. 1914B, 667, and note; Harris & Co. v. Chipman (C. C. A. 8, 1907) 156 F. 929; Oklahoma State Bank v. Galion, etc., Co. (C. C. A. 8, 1925) 4 F.(2d) 337; Farmers' Loan & Trust Co. v. Fidelity Trust Co. (C. C. A. 9, 1898) 86 F. 541; Havana Central R. Co. v. Central Trust Co. (C. C. A. 2, 1913) 204 F. 546, 547, L. R. A. 1915B, 715.
In Allen v. Puritan Trust Co., supra, it is stated: "The principle governing the defendant's liability is that a banker who knows that a fund on deposit with him is a trust fund cannot appropriate that fund for his private benefit, or where charged with notice of the conversion join in assisting others to appropriate it for their private benefit, without being liable to refund the money if the appropriation is a breach of the trust."
In U. S. Fidelity, etc., Co. v. People's Bank, supra, the court said: "* * * We do not wish to be understood as holding that a bank is in general liable for the acts of trustees who deposit money with them. If the money is deposited to the trustee's credit as such, and his checks are drawn on this fund in his character of trustee, or guardian, as the case may be, the bank need look no further. It is not responsible for his administration of the fund, unless it knows, or in some special transaction has good reason to believe, that he is misappropriating the fund. It would be out of all reason to impose such responsibility on banks. The special case we have before us, and to which we confine this opinion, is one wherein the bank knowingly united with the guardian or trustee in a misappropriation of the fund, by crediting it to the individual account of such trustee or guardian."
In the case of Fidelity & Deposit Co. of Maryland v. Farmers' Bank, supra, the court speaking through Judge Booth, approved the language used in the Bischoff v. Yorkville Bank, supra. The Bischoff Case concerned the peculations of one Poggenburg. He was an executor of an estate and deposited the funds of the estate to his individual account by checks drawn upon another bank. The checks that were deposited were signed by him in the name of the estate. Later on he paid from such deposits, which consisted wholly of trust funds, a personal indebtedness to the bank of deposit. The bank was held liable not only for the sum so paid but also for subsequent withdrawals. The statement in the Bischoff Case which was approved in the Fidelity & Deposit Co. of Maryland v. Farmers' Bank, supra, reads as follows:
"A bank does not become privy to a misappropriation by merely paying or honoring the checks of a depositor drawn upon his individual account in which there are, in the knowledge of the bank, credits created by deposits of trust funds. The law does not require the bank, under such facts, to assume the hazard of correctly reading in each check the purpose of the drawer, or, being ignorant of the purpose, to dishonor the check. The presumption is, and after the deposits are made remains until annulled by adequate notice or knowledge, that the depositor would preserve or lawfully apply the trust funds. The contract, arising by implication of law, from a general deposit of moneys in a bank is, that the bank will, whenever required, pay the moneys in such sums and to such persons *848 as the depositor shall direct and designate. Although the depositor is drawing checks which the bank may surmise or suspect are for his personal benefit, it is bound to presume, in the absence of adequate notice to the contrary, that they are properly and lawfully drawn. Adequate notice may come from circumstances which reasonably support the sole inference that a misappropriation is intended, as well as directly. * * *
"In the present case Poggenburg paid to the defendant, as his creditor, on June 3, 1908, the sum of $765 from his account with the defendant. The finding of the trial court, supported by the evidence, is that the account at that time was constituted wholly from the trust funds. At that time and through the transaction the defendant knew that Poggenburg had appropriated $765 of those funds for his private benefit. The presumption that he would not thus violate his duty and lawful right that he would apply the moneys to their proper purposes under the will then ceased to exist. There was absolute proof in the possession of the defendant to the contrary. The defendant had no longer the right to assume that in paying the checks of Poggenburg it was paying the executor's moneys to the executor and not to Poggenburg, the individual, or that Poggenburg would use the moneys lawfully. It had knowledge of such facts as would reasonably cause it to think and believe that Poggenburg was using the moneys of the executor for his individual advantage and purposes. Those facts indicated that the payment to it was not an isolated incident; they indicated, rather, that it was within a method or system. Having such knowledge, it was under the duty to make reasonable inquiry and endeavor to prevent a diversion. Having such knowledge, it was charged by the law to take the reasonable steps or action essential to keep it from paying to Poggenburg as his own the moneys which were not his and were the executor's, and was bound by the information which it could have obtained if an inquiry on its part had been pushed until the truth had been ascertained."
The charge of $418 made upon the trust account by the deposit of the unpaid Land Company's checks is concededly a liability of the Bank. U. S. Fidelity, etc., v. U. S. National Bank, supra; Lowndes v. City National Bank, supra.
In Cory, etc., Corp. v. Old (C. C. A. Va. 1928) 23 F.(2d) 803, 810, the court said: "Of course, a bank has no right to charge one man's check to the account of another without the permission of the other; and it is clear that a bank should not charge the personal checks of an agent to the account of his principal without authorization of the principal."
Plaintiff is entitled to interest on the various amounts misappropriated from the date of their diversion. Oklahoma State Bank v. Galion, etc., Co., supra; White v. Knox (1884) 111 U.S. 784, 4 S. Ct. 686, 28 L. Ed. 603; People's National Bank v. Payne (C. C. A. 8, 1928) 26 F.(2d) 208.
Some contention was made upon the trial that plaintiff's action should be dismissed because he had never filed a claim with the receiver. There is no merit in this position. A presentation of a claim to a national bank receiver is not prerequisite to a suit thereon. Plaintiff as a judgment creditor will participate with the other general creditors in any dividends declared by the insolvent bank. Schulenberg v. Norton (C. C. A.) 49 F.(2d) 578.
The facts of the case before the court might justify a finding that the Bank is liable to plaintiff not only for the withdrawals from plaintiff's account on and after February 4, 1922, but in addition for the first diversion of trust funds on May 10, 1921. Ericson was the sole executive officer connected with the transaction from its inception. There are authorities that apparently recognize a liability of a bank under such circumstances. However, it is the court's opinion that the better rule to follow in the case at bar is to hold the Bank to strict accountability beginning February 4, 1922, when it accepted through its agent trust funds for illegal purposes. It was to the interest of the Bank that the overdrafts be paid; naturally the Bank intrusted to its managing agent the collection of all indebtedness due the Bank, and it cannot be successfully maintained that Ericson was acting in any personal capacity or as a guardian when he saw to it that debts due the Bank were taken care of.
Let this memorandum be made a part of the foregoing findings of fact and conclusions of law.
NOTES
[1] Plaintiff's Exhibit G
Total Amount Deps'd
to both accounts since
Date of Withdrawal Amount Withdrawn Amount Credited Amount Credited Overdraft in Overdraft in Total Amount Total Amt. Deposited date of first withdrawal
from Plaintiff's from Plaintiff's to Ericson's to Acct. of Ericson's Acct. of Applied in Pmt. in connection & application of
Account Account Account Land Co. Account Land Co. of Overdrafts with O'drft Overdraft
1 2 3 4 5 6 7 8 9
May 10-21 $1,200 00 $ 400 00 $ 800 00 - - - - -
Feb. 4-22 700 00 700 00 - $ 597 66 - $ 597 66 $ 700 00 $ 700 00
Mar. 24-23 500 00 500 00 - 1,005 24 - 388 34 500 00 500 00
Aug. 11-23 500 00 500 00 - 381 71 - 381 71 500 00 500 00
Aug. 16-23 1,500 00 - 1,500 00 - 54 63 54 63 1,500 00 1,500 00
Sept. 29-23 500 00 500 00 - 129 98 - 129 98 500 00 500 00
Dec. 8-23 700 00 700 00 - 508 37 - 508 37 700 00 700 00
Mar. 19-24 100 00 100 00 - 55 16 - 55 16 100 00 100 00
Apr. 14-24 100 00 100 00 - - - - - 100 00
May 21-24 150 00 150 00 - 147 76 - 147 76 150 00 150 00
Sept. 23-24 300 00 300 00 - 586 73 - 153 23 300 00 300 00
Nov. 19-24 300 00 300 00 - 168 48 - 168 48 300 00 300 00
Jan. 12-25 200 00 200 00 - 257 64 - 105 03 200 00 200 00
May 4-25 250 00 250 00 - 152 60 - 152 60 250 00 250 00
Nov. 13-25 200 00 200 00 - 85 33 - 85 33 200 00 200 00
Jan. 4-26 300 00 300 00 - - - - - 300 00
May 29-26 275 00 275 00 - - - - - 275 00
_________ _________ _________ ________ ________ _________ _________ _________
$7,775 00 $5,475 00 $2,300 00 --- --- $2,928 28 $5,900 00 $6,575 00 | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1489867/ | 45 F.2d 627 (1930)
UNITED STATES
v.
BLICH.
No. 3079.
District Court, D. Wyoming.
November 21, 1930.
Albert D. Walton, U. S. Atty., and T. Paul Wilcox, Asst. U. S. Atty., both of Cheyenne, Wyo.
Matson & Swainson, of Cheyenne, Wyo., and C. W. Axtell, of Thermopolis, Wyo., for defendant.
KENNEDY, District Judge.
The above-entitled cause, an indictment for violation of the National Prohibition Act (27 USCA), is before the court upon a motion to suppress evidence filed and entertained prior to the case being set for trial, said motion being based upon an alleged unreasonable search and seizure in connection with the transportation of intoxicating liquor.
The facts have been presented upon the affidavit of the defendant and one other in his behalf for the movant and by the affidavit of one federal prohibition agent and the oral testimony of another on behalf of the United States. A summary of the evidence, at least as to the controlling features, is that the two federal prohibition agents received what one agent says in his affidavit was reliable information, and what the agent who testified orally designates as the advice of a reliable informant, that the defendant at a certain time would be making delivery of intoxicating liquor at a certain designated place on the evening in question; that this information was received between 4 and 5 o'clock in the afternoon of the day when such transportation was to take place; that such information was received in Thermopolis, Wyo., which was approximately 35 miles from the designated spot; and that the designated time of transportation was to approximately between 7 and 8 o'clock. The officers thereupon proceeded to this place, discovered the defendant with his wife and children driving a Ford car, passed him by, and afterwards stopped on the roadside awaiting the approach of defendant's car. When it did so approach it was stopped by the officers and an inquiry made as to whether whisky was being transported. Upon a denial of such transportation by the defendant, the officers testify that they discovered upon looking into the automobile a stone jug projecting from a rent in the gunny sack which surrounded it and upon which one of the children sat, and detected an odor of whisky, whereupon the defendant was placed under arrest and the jug of whisky and car confiscated by the officers. The agent who testified orally stated that he had formerly been a police officer in the city of Casper, and that the defendant had been convicted in the police court of that city of violation of the liquor ordinances, although the witness did not testify as to what form of violation was involved in such conviction.
The element around which the principal point in this case revolves relates to the refusal *628 of the prohibition agent while on the stand to reveal the name of his informant who had advised him of the proposed transportation by defendant, upon the ground that it was contrary to the rules of the Department to reveal the name of an informant. Thereupon counsel for the defendant moved to strike out the testimony of the agent concerning the alleged information so furnished, upon the ground that it was insufficient in law to sustain the contention that the search and seizure was made upon probable cause. The witness retired from the stand under the authority of the court and consulted with the district attorney and the Deputy Federal Prohibition Administrator, and the district attorney thereupon announced that, in view of the rule of the Department respecting the disclosure of the name of an informant, they would elect not to have the witness testify as to the identity of such informant. At this point, upon renewal of the motion to strike that portion of the testimony, the court announced that it would not be stricken, but would be considered in the analysis of the entire evidence in the case, as to whether or not such evidence was sufficient to establish a probable cause for the search and seizure.
It is plain, under the pronouncement of the Supreme Court in the case of Carroll v. United States, 267 U.S. 132, 45 S. Ct. 280, 69 L. Ed. 543, 39 A. L. R. 790, that the search and seizure of an automobile without a warrant is justified under some circumstances, but that the doctrine is limited in its scope. In view of the strong dissenting opinion in that case, it would appear that the question was a controversial one among the justices of the high court. Mr. Justice Taft, after discussing various decisions of the Supreme Court construing the Search and Seizure Amendment, at page 149 of 267 U. S., 45 S. Ct. 280, 283, of the Carroll Case, uses the following language:
"In none of the cases cited is there any ruling as to the validity under the Fourth Amendment of a seizure without a warrant of contraband goods in the course of transportation and subject to forfeiture or destruction.
"On reason and authority the true rule is that if the search and seizure without a warrant are made upon probable cause, that is, upon a belief, reasonably arising out of circumstances known to the seizing officer, that an automobile or other vehicle contains that which by law is subject to seizure and destruction, the search and seizure are valid. The Fourth Amendment is to be construed in the light of what was deemed an unreasonable search and seizure when it was adopted, and in a manner which will conserve public interests as well as the interests and rights of individual citizens."
The learned justice, however, indicates strongly that the doctrine of allowing search and seizure of automobiles along the public highways without a warrant ought to be considerably restricted for the protection of the great traveling public, as is suggested by his language on page 153, 154 of 267 U. S., 45 S. Ct. 280, 285, as follows:
"Having thus established that contraband goods concealed and illegally transported in an automobile or other vehicle may be searched for without a warrant, we come now to consider under what circumstances such search may be made. It would be intolerable and unreasonable if a prohibition agent were authorized to stop every automobile on the chance of finding liquor, and thus subject all persons lawfully using the highways to the inconvenience and indignity of such a search. Travelers may be so stopped in crossing an international boundary because of national self-protection reasonably requiring one entering the country to identify himself as entitled to come in, and his belongings as effects which may be lawfully brought in. But those lawfully within the country, entitled to use the public highways, have a right to free passage without interruption or search unless there is known to a competent official, authorized to search, probable cause for believing that their vehicles are carrying contraband or illegal merchandise."
A fair analysis of the Carroll Case simply amounts to this, that upon probable cause an automobile may be searched and seized upon a public highway for liquor transportation by proper authorities without a search warrant, but that every case must rest upon its own bottom and be controlled by its own facts and circumstances as to the sufficiency of the probable cause.
As I view the testimony in this case, the showing of probable cause must rest upon two circumstances: First, that the defendant had previously been convicted in the municipal court in Casper for the violation of liquor ordinances; and, second, that the agents had been informed by a reliable person, whom they believed, that the transportation was to take place at a certain time and place. All other circumstances surrounding the transaction were more or less incidental, and those following the stopping of the defendant's car *629 upon the highway could have but little bearing upon the question.
As to the first point concerning the testimony of the agent that the defendant had been convicted in a police court of a violation of a city ordinance, it could have but little weight, as it was not contended that the violation in any way concerned transportation. In passing, it may be noted that the information coming to the officers in the Carroll Case, in which the search and seizure of a car was involved, did carry with it the element of a prior knowledge of transportation.
We then come to discuss that feature of the case which involves the refusal of the officer to give the name of his informant. Counsel have cited no cases upon the exact point, although there is language in the case of United States v. Allen (D. C.) 16 F.(2d) 320, and Emite v. United States (C. C. A.) 15 F.(2d) 623, which would indicate that such an element might enter into the consideration of the court in the determination of whether or not a probable cause existed. There may be two sides to this question. The court has no quarrel with the Prohibition Department in its policy of guarding and keeping secret the name of an informant, with the idea of being thereby better enabled to enforce the Prohibition Law. The only question here is as to whether or not, when the matter is presented to a court for the purpose of seeking a determination of whether, under all the circumstances, there was probable cause, this element of those circumstances may remain undisclosed. It is scarcely an answer to the proposition that an agent testifies that his informant was a reliable person, and that he believed the information so given, unless the court sitting in judgment may have the right to determine whether, under all the circumstances, such information was reliable and the agent was justified in having such belief. A belief must or should rest upon a substantial basis. It is not a question of impugning the motives or doubting the honest belief of the agent in regard to the information which he may have received. It is simply requiring the witness to sustain his motives and his beliefs by all the evidence at his command. It is conceivable that a prohibition agent in the earnestness and eagerness of performing his duty might adopt very shadowy leads. But what is of greater consequence is that an ill-intentioned person might give an officer information which would in many instances lead to humiliation and vexation of the innocent automobile driver upon the public highway, and yet, with the failure to disclose the name of his informant, the prohibition agent would be safely ensconced behind his blanket testimony that he was informed by a reliable person.
The Carroll Case strongly intimates that the procedure of searching automobiles for liquor violations upon public highways is only permissible when a search warrant cannot be obtained on account of the moving nature of the vehicle. I believe that the probable cause in such a case ought to be such as might be established in a competent tribunal as the basis for a search warrant, otherwise the mental action of the officer amounts to no more than a suspicion, which is admittedly under the Carroll Case and many other cases not sufficient for a search and seizure without warrant. If the officers who in this case made the search and seizure had proceeded upon their information to secure a search warrant (for which counsel for defendant in this contend they had ample time), it would have clearly been obligatory upon them to produce the evidence of the party who purported to know of the transportation about to be carried out, otherwise the attempt to secure the warrant would have been upon mere information and belief, which the courts hold to be insufficient. I will not go so far as to say that the testimony of the informer upon a hearing of this kind must be presented to establish the probable cause, but I am of the opinion that the only safe rule to adopt will be to require officers who presume to make search and seizures of automobiles on the public highway, without warrant, to disclose every element which goes to make up their case of probable cause, and that this rule reasonably includes the source of their information, so that the court may determine whether or not under all the circumstances a case of probable cause has been established, and perhaps as well to restrict informers to a sincerity of purpose.
Of course, it is well established that the so-called successful result of an unlawful search and seizure has no bearing upon its legality and cannot be considered.
The rule laid down in the Carroll Case, as found in the language of the prevailing opinion, is manifestly one which should not be unduly extended, and, comparing the facts in that case with the facts in the case at bar, I am of the opinion that the probable cause here has not been sufficiently established to sustain the search and seizure.
*630 The motion to suppress will therefore be sustained, and an order will be entered suppressing the evidence in said case and reserving to the plaintiff proper exceptions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1490869/ | 638 F. Supp. 1173 (1986)
Martha McADAMS, Plaintiff,
v.
ELI LILLY AND COMPANY, a foreign corporation, Defendant.
No. 77 C 4174.
United States District Court, N.D. Illinois, E.D.
July 11, 1986.
*1174 John M. Lamont, Thompson & Lamont and Reid, Ochsenschlager, Murphy & Hupp, Aurora, Ill., for plaintiff.
Richard C. Bartelt and Anne G. Kimball, Wildman, Harrold, Allen & Dixon, Chicago, Ill., Lane D. Bauer and Patrick McLarney, Shook, Hardy & Bacon, Kansas City, Mo., for defendant.
MEMORANDUM OPINION AND ORDER
DUFF, District Judge.
Plaintiff Martha McAdams alleges that her mother ingested diethylstilbestrol ("DES"), manufactured by the defendant Eli Lilly and Company ("Lilly"), while she was pregnant and that plaintiff was injured as a result. This matter is before the court on plaintiff's motion for reconsideration of Judge Marshall's December 14, 1983 ruling which granted defendant's motion in limine "to exclude evidence of the risk to plaintiff of invasive cancer, cancer in situ, dysplasia and other squamous cell problems."
In her motion, plaintiff relies in part on the deposition of Dr. Hillabrand, that was not available to Judge Marshall at the time of his ruling. According to Dr. Hillabrand, plaintiff's reproductive system is marked by anatomical deformities described as "vaginal hood" and "coxcomb cervix". The following labels have also been placed on plaintiff's condition: mosaicism, dysplasia, leukoplasia and adenosis.[1] In sum, plaintiff suffers a "premalignant disease" which will have to be carefully monitored. This disease may not develop any further or it could progress into cancerous stages.
Judge Marshall ruled that plaintiff would not be allowed to present evidence that women who were exposed to DES in utero are more likely to develop cancer. Judge Marshall found that the medical evidence of the increased risk of cancer to DES-exposed women did not establish a probability that plaintiff would develop cancer and that, under Illinois law applicable in this diversity action, plaintiff could not introduce evidence that there is a greater risk *1175 that she will develop cancer as a result of her exposure to DES.
Since Judge Marshall's ruling, some courts have made the distinction between recovery for the increased likelihood of developing cancer in the future, and recovery for the fear of cancer which accompanies a present physical injury. These courts have admitted evidence of the increased risk of cancer to prove the reasonableness of plaintiff's fear. Hagerty v. L. & L. Marine Services, Inc., 788 F.2d 315 (5th Cir.1986); Wetherill v. University of Chicago, 565 F. Supp. 1553 (N.D.Ill.1983).
No Illinois court, however, has decided whether a plaintiff with a physical injury may recover for the fear of cancer which accompanies that injury. Further, the boundaries of emotional distress law in Illinois are not clearly mapped. A thorough exploration of the territory is therefore necessary to determine how an Illinois court would rule on this issue.
Illinois courts have long struggled to establish a standard which allows recovery for a genuine emotional injury, but excludes frivolous claims based on "slight hurts which are the price of a complex society," Knierim v. Izzo, 22 Ill. 2d 73, 85, 174 N.E.2d 157 (1961). The Illinois Supreme Court in 1872 upheld an instruction allowing damages for pain and suffering accompanying physical injury. The court stated:
[W]e can not readily understand how there can be pain without mental suffering. It is a mental emotion arising from a physical injury. It is the mind that either feels or takes cognizance of physical pain, and hence there is mental anguish or suffering inseparable from bodily injury, unless the mind is overpowered and consciousness is destroyed. The mental anguish which would not be proper to be considered is where it is not connected with the bodily injury, but was caused by some mental conception not arising from the physical injury.
The Indianapolis & St. Louis Railroad Company v. Stables, 62 Ill. 313, 320-21 (1872).
In Braun v. Craven, 175 Ill. 401, 51 N.E. 657 (1898), the Illinois Supreme Court denied recovery where plaintiff did not suffer a direct physical injury, but sought compensation for the shock to her nervous system and physical injury caused by the defendant's verbal assault on her. The court concluded that the injury was not a foreseeable consequence of the defendant's conduct. The court analogized the case before it to a hypothetical in which a "nervous person" experienced shock and physical injury as a result of the blasting of a train whistle. In characterizing such an injury as too remote, the court recognized that damages should not be awarded for day-to-day assaults on the psyche.
Illinois courts have thus allowed recovery for mental suffering when it accompanies a direct physical injury, reasoning that the presence of a physical injury supports the genuineness of the claim for mental injury. In applying the physical impact rule, Illinois courts have gone beyond merely compensating the pain which is registered in the brain, as discussed in Stables, and allow recovery for mental anguish "related" to a bodily injury. In Horan v. Klein's-Sheridan, Inc., 62 Ill.App.2d 455, 211 N.E.2d 116 (3d Dist.1965), plaintiff was burned and lost her hair when her hairdresser misapplied a permanent wave solution. The court allowed recovery for mental pain which was related to the physical injury, including recovery for plaintiff's marred physical appearance.
In 1961, the Illinois Supreme Court recognized an exception to the physical impact rule, and held that emotional distress damages are recoverable when the defendant's conduct is calculated to cause severe emotional distress to a person of ordinary sensibilities. Knierim v. Izzo, 22 Ill. 2d 73, 174 N.E.2d 157 (1961). The court discussed critically the concerns that have been cited since Braun in limiting recovery for emotional distress: (1) mental disturbance cannot be measured in terms of money; (2) mental distress is too intangible for the law to deal with it; (3) mental consequences vary greatly with the individual; and (4) to *1176 allow recovery for emotional distress would open the door to fictitious claims.
The court found that these concerns were, to a certain extent, unjustified since jurors are able to place monetary values on many of life's intangibles and can, using their own experiences and medical science, determine whether the defendant's conduct caused a severe emotional disturbance in the plaintiff. The court concluded, however, that the concerns did justify limiting emotional distress damages to those cases where plaintiff can establish that the defendant's conduct was outrageous. The court stated that:
It has not been suggested that every emotional upset should constitute a basis of an action. Indiscriminate allowance of actions for mental anguish would encourage neurotic overreactions to trivial hurts, and the law should aim to toughen the psyche of the citizen rather than pamper it. But a line can be drawn between the slight hurts which are the price of a complex society and the severe mental disturbances inflicted by intentional actions wholly lacking in social utility.
22 Ill. 2d 73, 174 N.E.2d 157.
In drawing the line between slight hurts and severe mental disturbances, earlier courts found that the presence of a physical injury satisfied those concerns discussed in Knierim. The Knierim court also intended to keep frivolous claims from the jury and therefore limited recovery for emotional distress to intentional tort cases where the plaintiff can establish that the defendant's conduct was outrageous.[2]
In Rickey v. C.T.A., 98 Ill. 2d 546, 75 Ill. Dec. 211, 457 N.E.2d 1 (1983), the Illinois Supreme Court again drew the line between slight hurts and serious mental injury, with an eye to the policies listed in Knierim. In Rickey, the court considered "whether a bystander who did not suffer physical injury or impact at the time of the occurrence may recover damages for emotional distress which resulted from witnessing an injury to his brother caused by the defendants' negligence." 98 Ill.2d at 549, 75 Ill. Dec. 211, 457 N.E.2d 1.
The eight-year-old plaintiff in Rickey was descending on a subway escalator with his five-year-old brother when part of his brother's clothing became entangled in the escalator and choked him, leaving him in a comatose condition. Plaintiff sought damages for the mental anguish and fear he suffered while watching his brother suffocate. Plaintiff did not sustain any physical injury and could not have recovered under the physical impact rule.
The Illinois appellate court refused to follow the physical impact requirement and instead applied the rule of Dillon v. Legg, 68 Cal. 2d 728, 739, 69 Cal. Rptr. 72, 441 P.2d 912 (1968). The appellate court sustained a cause of action for emotional distress based on the three Dillon factors:
First, the minor plaintiff was located near the scene of the accident. Second, his injuries allegedly resulted from a direct emotional impact caused by the sensory and contemporaneous observance of the accident, as contrasted with learning of the accident from others after its occurrence. Third, the plaintiff and victim were closely related.
Rickey v. C.T.A., 101 Ill.App.3d 439, 442, 57 Ill. Dec. 46, 428 N.E.2d 596 (1st Dist.).[3]
*1177 The Illinois Supreme Court considered this standard "too vaguely defined to serve as a yardstick for courts to apply, and one that is excessively broad in that it would permit recovery for emotional disturbance alone." In rejecting the Dillon rule, the Court cited the concerns set forth in Knierim.
The Illinois Supreme Court substituted the zone of physical danger rule. Under this rule, a bystander who has not suffered a direct physical injury may recover if he was "in such proximity to the accident in which the direct victim was physically injured that there was a high risk to him of physical impact." In addition, the bystander must show a physical injury or illness resulting from the emotional distress. 98 Ill.2d at 555, 75 Ill. Dec. 211, 457 N.E.2d 1.
It has been argued that the Illinois Supreme Court discarded the physical impact rule and intended the zone of danger rule to be applied in all cases where plaintiff seeks to recover for mental suffering. These arguments rely chiefly on a single word in the opinion: "substitute". In its ruling, the Court said "[T]he standard that we substitute for the one requiring contemporaneous physical injury or impact is the standard which has been adopted in the majority of jurisdictions where this question of recovery by a bystander for emotional distress has been examined. [citations omitted] That standard has been described as the zone-of-physical-danger rule." 98 Ill.2d at 546, 75 Ill. Dec. 211, 457 N.E.2d 1.
While the word "substitute" does suggest the replacement of the physical impact rule with the zone of danger rule, the opinion can be sensibly interpreted as intending that substitution only in bystander cases. The facts of Rickey are those of a typical bystander case and the court uses the word "bystander" throughout the opinion. In particular, the court expressly puts the issue and the holding in the context of bystander recovery. 98 Ill.2d at 549 and 555, 75 Ill. Dec. 211, 457 N.E.2d 1.
The court did criticize the "formal" application of the physical impact requirement as where it was satisfied by "a slight jolt or jar" or "dust in eye". In this discussion, however, the court does not say that the physical impact rule should never be considered. Rather the Court says that "the question of recovery for emotional distress caused by another's negligence should not be determined solely on whether there was a contemporaneous physical impact upon the plaintiff." 98 Ill.2d at 546, 75 Ill. Dec. 211, 457 N.E.2d 1. (Emphasis added.)
Thus, the Rickey opinion can be interpreted as aritculating a zone of danger exception to the physical impact requirement, which is applicable only when a plaintiff seeks recovery for the emotional distress caused by witnessing an injury to a third party. One panel of the Illinois appellate court has so characterized the ruling. In Siemieniec v. Lutheran General Hospital, 134 Ill.App.3d 823, 830, 89 Ill. Dec. 484, 480 N.E.2d 1227 (1st Dist.1985), appeal docketed, No. 62251 (Ill. argued May 22, 1986), the court described the Rickey ruling as follows:
[C]ase law historically has barred recovery for negligent infliction of emotional distress unless there was a contemporaneous physical impact or injury suffered by the plaintiff.... There is a limited exception to this `impact rule' recently recognized by our Supreme Court ... wherein a bystander who is in a zone of physical danger and who, because of the defendant's negligence has unreasonable fear for his own safety is given a right of action for physical injury or illness resulting from emotional distress.
In Lewis v. Westinghouse Electric Corp., 139 Ill.App.3d 634, 94 Ill. Dec. 194, 487 N.E.2d 1071 (1st Dist.1985), however, a separate panel of the Illinois appellate court interpreted Rickey as signaling the abandonment of the physical impact rule and the establishment of the zone of danger rule for all cases, even where the direct victim seeks emotional distress damages. Justice Linn in dissent, however, stated that the requirements of Rickey should be applied only in bystander cases.
*1178 In Lewis, as in other Illinois cases which appear at first blush to apply Rickey with a broad stroke,[4] there was no direct impact to the plaintiff's body. In these cases, the physical impact rule could not be satisfied and the issue for the court was whether the plaintiff fit within the bystander exception enunciated in Rickey.
The Lewis plaintiff was stuck in a stalled CHA elevator for forty minutes but no physical force was exerted on her. Being stuck in an elevator in 1983 is akin to being blasted by a train whistle in 1898 both fit the Knierim category of "slight hurts which are the price of a complex society."
Having considered a century of Illinois emotional distress law, this court must determine how an Illinois court would rule if it were to consider whether Mrs. McAdams should be allowed to present evidence of her fear of developing cancer. This court believes that an Illinois court would apply the physical impact rule and not the zone of danger exception because this is not a bystander case. The constant theme from Braun through Rickey and its progeny is that Illinois courts will compensate genuine mental suffering by applying a rule which also sifts out frivolous claims. If plaintiff establishes a physical injury caused by DES exposure, such a physical injury will sufficiently establish the genuineness of plaintiff's mental injury to allow a jury to consider compensating her for her reasonable fear of developing cancer.
It would be unreasonable for this court to ignore the logic of this position and blindly apply the zone of danger rule. The requirements of the Rickey zone of danger rule, fashioned for a bystander case, cannot be applied here without contortions. If Mrs. McAdams proves a reasonable fear of cancer which is causally linked to her mother's ingestion of DES, is she in the zone of danger now because she reasonably fears for her life? Must she show that she was in the zone of danger when she was in her mother's womb? Must she then establish a physical illness stemming from her fear of getting cancer, in addition to the physical injury already described? These questions illustrate the absurdity of applying the bystander rule to a case where the direct victim is seeking recovery for emotional distress which is reasonably related to a physical injury.
This court is convinced that an Illinois court would apply the physical impact rule and allow plaintiff to recover for mental suffering which accompanies her physical injury. Under the physical impact rule, plaintiff may recover for mental anguish related to a bodily injury. Carlinville National Bank v. Rhoades, 63 Ill.App.3d 502, 503, 20 Ill. Dec. 386, 380 N.E.2d 63 (4th Dist.1978); Horan v. Klein's-Sheridan, Inc., 62 Ill.App.2d 455, 211 N.E.2d 116 (3d Dist.1965). If Mrs. McAdams can establish a bodily injury caused by her in utero exposure to DES, she should be allowed to ask the jury to compensate her for the emotional distress that is related to her physical condition.[5]
Judge Marshall's ruling is therefore modified to allow plaintiff to introduce evidence of the increased risk of cancer for the limited purpose of establishing a reasonable fear accompanying her present physical injury.
IT IS SO ORDERED.
NOTES
[1] According to the medical evidence, this condition is frequently misdiagnosed as cancer. In fact, in 1975 plaintiff was diagnosed as having cancer. Judge Marshall considered that Lilly was not responsible for this misdiagnosis. Yet, if Lilly is responsible for plaintiff's condition, and it was not unreasonable for her physician to diagnose that condition as cancer, then it would seem that Lilly would also be responsible for the anguish which that diagnosis may have produced. Since the parties have not yet argued this point, however, the court reserves ruling on the admissibility of the 1975 misdiagnosis of cancer.
[2] In Knierim, the defendant threatened to murder the plaintiff's husband and carried out that threat.
[3] The California Supreme Court has subsequently modified the Dillon rule and said that the test for emotional distress damages is whether such damages are reasonably forseeable. Molien v. Kaiser Foundation Hospitals, 27 Cal. 3d 916, 167 Cal. Rptr. 831, 616 P.2d 813 (1980). In Molien, the court stated that the factors enunciated in Dillon were guidelines to be used in determining forseeability in bystander cases. The court reasoned that it was inappropriate to apply these factors unless the plaintiff seeks recovery for the pain of witnessing injury to a third person. While California has been considered the pioneer in emotional distress law, the application of traditional tort principles of foreseeability to the issue of emotional distress damages has an early precedent in Illinois. See Braun v. Craven, 175 Ill. 401, 51 N.E. 657 (1898), discussed supra at 4.
[4] Goldberg v. Ruskin, 128 Ill.App.3d 1029, 84 Ill. Dec. 1, 471 N.E.2d 530 (1st Dist.1984); Rahn v. Gerdts, 119 Ill.App.3d 781, 74 Ill. Dec. 378, 455 N.E.2d 807; and Siemiemiec.
[5] For these reasons, Woodill v. Parke Davis, 58 Ill.App.3d 349, 15 Ill. Dec. 900, 374 N.E.2d 683 (1st Dist.1978), and Rahn v. Gerdts, 119 Ill. App. 3d 781, 74 Ill. Dec. 378, 455 N.E.2d 807 (3d Dist.1983), rejecting a cause of action for emotional distress based on strict liability are inapplicable. In both cases the plaintiff did not sustain any physical injury. Here, if plaintiff recovers for her physical injury under strict products liability, she should also recover for the mental anguish which stems from that injury. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1491430/ | 818 F. Supp. 647 (1993)
Diane CUCCHI, Plaintiff,
v.
NEW YORK CITY OFF-TRACK BETTING CORPORATION, Hazel Dukes as President of the New York City Off-Track Betting Corporation, and Edward Lewis as Chairman of the Board of Directors of the New York City Off-Track Betting Corporation, Defendants.
No. 91 Civ. 5624 (KC).
United States District Court, S.D. New York.
April 15, 1993.
*648 *649 John R. Olsen, Olsen & Brown, New York City, for plaintiff.
Hillary Weisman, Asst. Corp. Counsel, New York City, for defendants.
ORDER
CONBOY, District Judge:
Plaintiff and defendants have both moved for partial summary judgment. For the reasons that follow, plaintiff's motion is denied, and defendant's motion is granted in part, and denied in part.[1]
I. Breach of Contract
Plaintiff claims that defendants violated express and implied contracts of employment between plaintiff and defendants when defendants terminated plaintiff. We disagree.
"It is [well] settled law in New York that, absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at-will, terminable at any time by either party." Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 514 N.Y.S.2d 209, 211, 506 N.E.2d 919, 921 (1987). However, New York courts have recognized that in certain limited circumstances, when an employer has expressly agreed to limit its termination rights, the employer may no longer terminate the employee at-will. Id. 514 N.Y.S.2d at 212, 506 N.E.2d at 922; see Weiner v. McGraw Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441 (1982). When ascertaining whether an employer has expressly agreed to limit its termination rights, courts must look at the totality of the circumstances. See Gorrill v. Icelandair/Flugleidir, 761 F.2d 847, 852-53 (2d Cir. 1985).
In the case before us, the plaintiff asserts a number of bases for her claim that defendant's expressly limited their right to fire plaintiff at-will. First, plaintiff points to the OTB Corporate Policy and Procedures Manual ("OTB Manual"). Second, plaintiff points to OTB's Uniform Rules of Discipline. Third, plaintiff claims that certain statutes, rules, and regulations which, inter alia, limit the right of employers to fire their employees, have been incorporated into plaintiff's alleged employment contract. Fourth, plaintiff points to her employment application which states that OTB is an equal opportunity employer. Finally, plaintiff asserts that defendants induced plaintiff to leave her previous employment by making certain oral assurances to her.
*650 As far as the OTB manual is concerned, the manual nowhere limits the right of OTB to fire an employee. Although the "Separation from Employment" chapter of the OTB manual lists four types of separation (resignation, discharge for cause, layoff and retirement), that language as a matter of law cannot be construed as excluding other grounds for termination because it does not expressly do so. See Novinger v. Eden Park Health Services, Inc., 167 A.D.2d 590, 563 N.Y.S.2d 219, 220-21 (1990); Marvin v. Kent Nursing Home, 153 A.D.2d 553, 544 N.Y.S.2d 210, 211-12 (1989); Gmora v. State Farm Mutual Automobile Insurance Co., 709 F. Supp. 337, 341 (E.D.N.Y.1989), aff'd mem, 888 F.2d 1376 (2d Cir.1989). Moreover, plaintiff admits that she did not rely on the OTB manual before being hired, see Plaintiff's Brief in Opposition to Defendants Motion for Partial Summary Judgment at 14, and this admission is fatal for her contractual claim based on the OTB manual. See Novinger, 563 N.Y.S.2d at 221.
Plaintiff's reliance on OTB's Uniform Rules of Discipline is also misplaced. Even assuming that the Uniform Rules of Discipline were applicable to plaintiff, the rules are, on their face, silent about any limitation on OTB's reasons for termination. However, citing the deposition testimony of former OTB President Howard Giordano, plaintiff asserts that a letter that Giordano inserted in the Uniform Rules of Discipline connotes that OTB employees can only be fired for cause. See Plaintiff's Memo Submitted with Exhibit 56 at 2. Even assuming that Giordano attempted to convey that message in the letter, we do not find that the letter stated with sufficient clarity and explicitness that OTB employees could only be terminated for cause. Therefore, we believe that that language, as a matter of law, cannot be construed as excluding other grounds for termination, see Novinger v. Eden Park Health Services, Inc., 167 A.D.2d 590, 563 N.Y.S.2d 219, 220-21 (1990); Marvin v. Kent Nursing Home, 153 A.D.2d 553, 544 N.Y.S.2d 210, 211-12 (1989); Gmora v. State Farm Mutual Automobile Insurance Co., 709 F. Supp. 337, 341 (E.D.N.Y.1989), aff'd mem, 888 F.2d 1376 (2d Cir.1989), and we conclude that the Uniform Rules of Discipline were not an express limitation on the rights of the defendants to fire plaintiff at-will.
Third, plaintiff claims that because "a contract [is] deemed to include in its terms all rights conferred upon the parties by the laws of the state [where the contract was made]," N.C. Feed Co. v. Board of Governors of the Federal Reserve System, 473 F.2d 1210, 1215 (2d Cir.), cert. denied, 414 U.S. 827, 94 S. Ct. 48, 38 L. Ed. 2d 61 (1973); accord Doleman v. United States Trust Co., 2 N.Y.2d 110, 157 N.Y.S.2d 537, 542, 138 N.E.2d 784, 789 (1956), certain statutes, regulations, and rules, such as the New York Anti-Discrimination Laws, are incorporated into her purported employment contract. Apparently, plaintiff maintains that defendants' violation of those statutes is a basis for a breach of contract action against the defendants. We disagree. Plaintiff's reasoning is flawed because an at-will employment arrangement is not contractual and does not create an employment contract. See Ingle v. Glamore Motor Sales, Inc., 73 N.Y.2d 183, 538 N.Y.S.2d 771, 774, 535 N.E.2d 1311 (1989) (stating that at-will employees discussed in two previous Court of Appeals Cases did not have a contractual arrangement with their employers); Dickstein v. Del Laboratories, Inc., 145 A.D.2d 408, 535 N.Y.S.2d 92, 94 (1988) (implicitly holding that in employment at-will cases there exists no contract); 3A Corbin On Contracts § 674 at 124-25 (Supp.1992) ("A `contract' terminable at-will by either party without further obligation or right flowing to either is repugnant to the term `contract' itself, which carries with it implications of performance and duty, [and] expectations based on promises."). Since there existed no contract in which to incorporate the statutes, rules, and regulations cited by the plaintiff, her breach of contract claim based on these statutes, rules, and regulations must fail.[2] Moreover, even *651 assuming that at-will employment is contractual, we have found no New York cases in which a terminated at-will employee sued its employer under a breach of contract theory based on violations of statutes, rules, and regulations by the employer.[3]
Plaintiff's assertion that the OTB by-laws limit the right of the defendants to terminate plaintiff is also meritless. The only written document that plaintiff appears to claim that she saw before accepting her job was the OTB'S Uniform Rules of Discipline. See Cucchi Aff. ¶ 26-¶ 33.[4] Plaintiff never alleges that she relied on the OTB by-laws before she decided to accept the Inspector General job with OTB, and plaintiff's failure to establish pre-hiring reliance on the by-laws is fatal to her contract claim based on the by-laws. See Novinger v. Eden Park Health Services, Inc., 167 A.D.2d 590, 563 N.Y.S.2d 219, 221 (1990). Moreover, the only portion of the by-laws that arguably might apply to plaintiff, merely states that the executive staff are to be "appointed by the Board of Directors to serve at the will of the Board of Directors." Ex. A to Elaissen Aff., Art. (IV, § 2(D)). However, because the by-laws do not state explicitly that this is the exclusive way that executive staff can be fired, it cannot, as a matter of law, be read to preclude other methods of termination. See Marvin v. Kent Nursing Home, 153 A.D.2d 553, 544 N.Y.S.2d 210, 211 (1989).
Plaintiff also contends that because the top of the first page of her OTB employment application stated that OTB is an equal opportunity employer, plaintiff had a contractual right not to be fired because of her sex. We disagree. We do not believe that this statement is a sufficiently express limitation on defendants right to fire plaintiff so as to allow plaintiff to sue defendants under a breach of contract theory. Therefore, even if OTB did fire plaintiff for discriminatory reasons, that firing does not constitute a breach of contract.[5]
Plaintiff's final contract argument is that defendants orally assured her that only the OTB Board of Directors could fire plaintiff, that no retaliation would be taken against plaintiff for plaintiff's investigatory work, that no retaliation would be taken against her for reporting wrongdoing, that OTB was an equal opportunity employer with maternity leave benefits, that the OTB Uniform Rules of Discipline were mandatory and binding, and that plaintiff would not be considered management. Plaintiff asserts that she left her previous employment and came to work for OTB based on these oral assurances.
First of all, it is important to note that none of the alleged oral promises state that plaintiff could only be fired for cause. Indeed, *652 none of these promises create an expectation of continued employment. Therefore, these promises did not alter plaintiff's at-will status.
Moreover, while an employer's oral assurances only to fire an employee for just cause are a significant factor a court must take into consideration in determining whether the employer intended alter the employee's at-will status, an employer's oral assurances that induce a person to work for the employer are not by themselves sufficient evidence of an express agreement to alter the employees at-will status. See Paolucci v. Adult Retardates Center, Inc., 182 A.D.2d 681, 582 N.Y.S.2d 452, 453 (1992) (oral assurances made to the plaintiff were not sufficient "to limit the defendant's right to discharge the plaintiff at any time for any reason."); Diskin v. Consolidated Edison Co. of New York, Inc., 135 A.D.2d 775, 522 N.Y.S.2d 888, 890 (1987) (oral assurances that the plaintiff could only be dismissed for cause were not sufficient to limit the defendant's right to terminate the plaintiff at will); Kotick v. Desai, 123 A.D.2d 744, 507 N.Y.S.2d 217, 219 (1986) ("allegation that the [employer] promised [the employee] a `permanent position to last as long as the plaintiff was physically capable', is insufficient [to alter the employee's at-will status]"); Hill v. Westchester Aeronautical Corp., 112 A.D.2d 977, 492 N.Y.S.2d 789, 791 (1985) ("plaintiff's bald assertion that defendants [] promised to not fire him except upon just cause, and that he relied on that promise, are insufficient to [alter plaintiff's at-will status.]"); Gould v. Community Health Plan of Suffolk, Inc., 99 A.D.2d 479, 470 N.Y.S.2d 415, 417 (1984) ("Plaintiff's vague allegations about the nature of the optometry practice he surrendered in exchange for the position he accepted with CHPS, and his further allegations about being advised he could have the job as long as he wanted it, and that he would receive security from CHPS' personnel policies, are insufficient [evidence that defendants altered plaintiff's at-will status.]"); Gross v. Goldome, 1988 WL 90913, *3-*4 (W.D.N.Y.1988) (plaintiff who left previous employment on the basis of oral assurances by the defendant that plaintiff could be fired from his new job only for just cause did not establish that plaintiff was anything other than an at-will employee); See also Sabetay, 514 N.Y.S.2d at 212, 506 N.E.2d at 922 (discussing Weiner and stating that "the express agreement between th[e] parties limiting the [Weiner] employer's otherwise unfettered right to terminate its employees" consisted of "the language in the [employer's] handbook, coupled with the reference to the handbook in the employment application;" The oral assurance the employer made to the employee was not the express agreement relied on by the Court but was only one of four significant factors supporting the employee's breach of contract claim.).
We do not believe that the Second Circuit's decision in Ohanian v. Avis Rent A Car System, Inc., 779 F.2d 101 (2d Cir.1985) mandates a different result. In Avis, the plaintiff's only evidence that the defendant expressly promised to fire him only for just cause, was evidence of the defendant's oral assurances to the plaintiff that the plaintiff's employment with the company was secure "unless [the plaintiff] screwed up badly." Id. at 104, 109. These assurances induced the plaintiff to relocate to become the head of the defendant's Northeast region. The Second Circuit held that the evidence of the oral assurances was a sufficient basis for the jury's determination that the defendant had explicitly limited its right to terminate the plaintiff at will, and that the defendant could only fire the plaintiff for cause. Id; see also Sivel v. Readers Digest, Inc., 677 F. Supp. 183, 186-87 (S.D.N.Y.1988) (citing Avis and holding that evidence that the plaintiff relied on the defendant's oral assurances that the defendant could terminate the plaintiff only if the plaintiff made a serious mistake, was sufficient to alter the plaintiff's at-will status).
We believe that the Second Circuit's holding in Avis is distinguishable from the present case. First of all, the defendant in Avis essentially orally promised the plaintiff that the defendant would fire the plaintiff only for just cause. However, as noted above, none of defendants' oral promises to plaintiff in the case before us guaranteed plaintiff that she could only be fired for just cause. See, supra.
*653 Moreover, we believe that the Second Circuit's holding in Avis has been undercut by the subsequent New York Court of Appeal's decision in Sabetay. As we noted above, the New York Court of Appeals in Sabetay discussed its prior holding in Weiner. The Sabetay Court stated that the express agreement that altered the plaintiff's at-will status in Weiner was an employee handbook, and that the oral assurance of for-cause status was but one of four significant factors supporting the employee's breach of contract claim. Therefore, we are of the opinion that after Sabetay, oral assurances alone are not enough to alter an employee's at-will status.
Furthermore, even if the New York Court of Appeals had not decided Sabetay, we might be inclined to believe that the Second Circuit's decision in Avis is inapposite to the case before us. It is well settled in this Circuit "that the decision of an intermediate state court on a question of state law is binding on us unless we find persuasive evidence that the highest state court would reach a different conclusion." Entron, Inc. v. Affiliated FM Insurance Co., 749 F.2d 127, 132 (2d Cir.1984); accord Deeper Life Christian Fellowship, Inc. v. Sobol, 948 F.2d 79, 84 (2d Cir.1991). All of the Appellate Division cases, that our research has uncovered and that were decided after the Avis decision, hold that oral assurances that an employer will only terminate an employee for cause are not a sufficient basis for finding that the employer has expressly agreed to limit its right to fire an employee at will. See Paolucci v. Adult Retardates Center, Inc., 182 A.D.2d 681, 582 N.Y.S.2d 452, 453 (1992); Diskin v. Consolidated Edison Co. of New York, Inc., 135 A.D.2d 775, 522 N.Y.S.2d 888, 890 (1987); Kotick v. Desai, 123 A.D.2d 744, 507 N.Y.S.2d 217, 219 (1986). Given the evolution of New York case law since the Avis decision, we believe that the New York Court of Appeals would now hold that an employer's oral assurances about termination that induce a person to become an employee of that employer, are not a sufficient basis for a jury to conclude that the employer expressly agreed to limit his right to fire the employee at will. Therefore, plaintiff's breach of contract claim based on these oral assurances must fail.[6]
In sum, we conclude that plaintiff was an at-will employee, and we therefore grant defendants' motion for summary judgment on plaintiff's contract claims.[7]
II. Due Process Claims
a. Property Interest
The Second Circuit has made clear that "[i]n the employment context, a property interest arises only where the state is barred, whether by statute or contract, from terminating (or not renewing) the employment relationship without cause." S & D Maintenance Co. v. Goldin, 844 F.2d 962, 967 (2d Cir.1988). In the instant case, none of the statutes cited by plaintiff bar defendant from terminating defendant without cause. Moreover, as we have determined, defendant was not contractually bound to fire plaintiff only for cause. Therefore, plaintiff's contention that defendants deprived plaintiff of her "property" without due process of law when defendants fired plaintiff is meritless. See Bishop v. Wood, 426 U.S. 341, 342-47, 96 S. Ct. 2074, 2076-79, 48 L. Ed. 2d 684 (1976) (an at-will government employee has no property interest in his or her job); Angrisani v. City of New York, 639 F. Supp. 1326, *654 1332-33 (E.D.N.Y.1986) (same); Bykofsky v. Hess, 107 A.D.2d 779, 484 N.Y.S.2d 839, 842 (same, discussing the Federal and New York Constitutions), aff'd, 65 N.Y.2d 730, 492 N.Y.S.2d 29, 481 N.E.2d 569, cert. denied, 474 U.S. 995, 106 S. Ct. 408, 88 L. Ed. 2d 358 (1985).[8]
Plaintiff further contends that defendants deprived plaintiff of property without due process of law because the defendants did not follow their own procedural regulations when they fired plaintiff.[9] Even assuming that defendants failed to follow there own procedures when they fired plaintiff, plaintiff's due process claim based on that failure is without merit. "[T]he mere fact that [OTB] has promulgated procedural rules by which to make retention decisions does not by itself create a constitutionally cognizable property interest in continued employment in [OTB]." Navas v. Gonzalez Vales, 752 F.2d 765, 768 (1st Cir.1985). "A regulation creates a property interest in a job only if it explicitly or implicitly gives rise to an entitlement to continued employment." Id. In the instant case, none of the alleged procedures which plaintiff claims that the defendants violated "explicitly or implicitly gives rise to an entitlement to continued employment." Id. Therefore, plaintiff's due process claim based on defendants' alleged violation of its procedural rules must fail.
Citing Vitarelli v. Seaton, 359 U.S. 535, 540, 79 S. Ct. 968, 973, 3 L. Ed. 2d 1012 (1959), plaintiff contends that if a government agency promulgates procedures, and then fires an employee without following those procedures, the agency has taken the employee's property without due process of law. We disagree. The Supreme Court has made clear that its holdings in cases similar to Vitarelli merely "enunciate principles of federal administrative law rather than of constitutional law binding upon the States." Board of Curators of the University of Missouri v. Horowitz, 435 U.S. 78, 92 n. 8, 98 S. Ct. 948, 956 n. 8, 55 L. Ed. 2d 124 (1978). Indeed, courts since Horowitz have held that nonfederal agencies that promulgate procedures which do not create a right to continued employment, cannot be sued for violating due process when they fire an employee in violation of these procedures. See Weinstein v. University of Illinois, 811 F.2d 1091, 1097 (7th Cir.1987); Hogue v. Clinton, 791 F.2d 1318, 1324 (8th Cir.), cert. denied, 479 U.S. 1008, 107 S. Ct. 648, 93 L. Ed. 2d 704 (1986); Navas, 752 F.2d at 768; see also Lieberman v. Gant, 474 F. Supp. 848, 858-59 (D.Conn.1979) (Public university that failed to follow its own procedures when it denied a professor tenure did not violate due process because of that failure), aff'd, 630 F.2d 60 (2d Cir.1980). Thus, even assuming that defendants failed to follow their own procedures when they fired plaintiff, this failure did not deprive plaintiff of property without due process of law.[10]
In sum, defendants' motion for summary judgment on plaintiff's property interest claim is granted, and plaintiff's cross motion on this issue is denied.
b. Liberty Interest
Plaintiff contends that defendants deprived her of her liberty interest in her reputation when defendants fired her.
*655 "A government employee's liberty interest is implicated where the government dismisses him [or her] based on charges `that might seriously damage his [or her] standing and associations in his [or her] community' or that might impose `on him [or her] a stigma or other disability that foreclose[s] his [or her] freedom to take advantage of other employment opportunities.'" Brandt v. Board of Cooperative Educational Services, 820 F.2d 41, 43 (2d Cir.1987) (quoting Board of Regents v. Roth, 408 U.S. 564, 573, 92 S. Ct. 2701, 2707, 33 L. Ed. 2d 548 (1972)). In Roth, the Supreme Court made clear that the stigma necessary to implicate a liberty interest must be "something more than the inevitable disadvantage when a person `simply is not rehired in one job but remains as free as before to seek another.'" Capers v. Long Island Railroad, 429 F. Supp. 1359, 1368 (S.D.N.Y.) (quoting Roth, 408 U.S. at 575, 92 S.Ct. at 2708), aff'd sub nom., Harris v. Long Island Railroad, 573 F.2d 1291 (2d Cir.1977). "Mere proof ... that [a terminated employee's] record of nonretention in one job, taken alone, might make him somewhat less attractive to some other employers would hardly establish the kind of foreclosure of opportunities amounting to a deprivation of `liberty.'" Roth 408 U.S. at 574 n. 13, 92 S.Ct. at 270 n. 13.
In the case before us, the record is uncontradicted that when defendants fired plaintiff, they did not tell her that she was being fired as a result of misconduct or any wrongdoing on her part. See Cucchi Dep. at 82, 134. Moreover, plaintiff has not alleged that defendants ever asserted at any other time that they fired plaintiff because of misconduct or wrongdoing on her part. The only reason defendants ever gave plaintiff for plaintiff's discharge was "ongoing changes within OTB." Ex. A. to DeLeon Aff., Letter from Edward Lewis to Plaintiff.
Plaintiff contends that OTB employees were responsible for reporting to the New York Post stigmatizing information that became the basis of an October 15, 1990 New York Post article. However, plaintiff's reliance on this article as a foundation for her liberty interest claim is misplaced. We find nothing in the article to be stigmatizing, let alone stigmatizing enough to implicate plaintiff's liberty interest in her reputation. None of plaintiff's other assertions of stigmatization have merit.
Because plaintiff has presented no evidence of stigmatization, other than the consequence that results from simply being fired, defendant's motion for summary judgment on plaintiff's liberty interest claim is granted, and plaintiff's cross-motion on this issue is denied.[11]
III. Plaintiff's Right to Privacy
Plaintiff claims that because the October 15, 1990 New York Post article reported that plaintiff was home on maternity leave when she was fired, and because OTB employees were responsible for the article, defendants violated her right to privacy. We disagree. One of the factors that a court must consider when determining whether the publication of certain information about a person violates that person's right to privacy is the nature of the information divulged. See Soucie v. County of Monroe, 736 F. Supp. 33, 36 (W.D.N.Y.1990). Indeed, the Supreme Court's seminal opinion in this area seems to indicate that the information must be "personal in character and embarrassing or harmful if disclosed" in order to implicate the constitutional right to privacy. See Whalen v. Roe, 429 U.S. 589, 605, 97 S. Ct. 869, 879, 51 L. Ed. 2d 64 (1977). We do not believe that plaintiff's pregnancy status was sufficiently "personal in character and embarrassing or harmful if disclosed" such that its publication *656 violated plaintiff's privacy rights. Accordingly, plaintiff's privacy argument must fail.
IV. New York Civil Service Law 75-b
Cucchi claims that defendants violated New York State Civil Service Law 75-b ("the Whistleblower Statute") when they fired her in retaliation for her reporting suspected wrongdoing by Hazel Dukes to the Department of Investigation and to the Inspector General of the Human Resources Administration.
Defendants contend that the Whistleblower Statute only protects public employees who report misconduct that has actually taken place. Defendants assert that because no misconduct occurred in this case, plaintiff is not protected under the Whistleblower Statute. We disagree. We believe that even assuming that no misconduct took place in this case, plaintiff may still fall under the Whistleblower Statute's protections.
The New York Legislature passed the Whistleblower Statute to, inter alia, "mak[e] it easier for an employee to report suspected abuse." Hanley v. New York State Executive Dept. Division for Youth, 182 A.D.2d 317, 589 N.Y.S.2d 366, 368 (1992) (emphasis added). Indeed, in Governor Cuomo's Approval Memorandum about the Whistleblower Statute, he made clear that "the employee need not be right that a violation has in fact occurred but is protected if the employee reasonably believed that a violation had occurred." McKinney's 1986 Session Laws of New York at 3215; see Whistleblower Statute § 75-b(2)(a)(ii). Thus, the question in this case becomes, was it reasonable for the plaintiff to believe that Ms. Dukes committed an act which constituted "improper governmental action" within the meaning of the Whistleblower Statute? Given the factual record in this case, and reading the record in the light most favorable to the plaintiff, we cannot conclude that it was unreasonable for Cucchi to report her suspicions about Ms. Dukes to the Department of Investigation and the Inspector General of the Human Resources administration. Therefore, defendants motion for summary judgment on plaintiff's Whistleblower claim is denied.[12]
V. Intentional and Negligent Infliction of Emotional Distress
Plaintiff's tenth claim for relief alleges that OTB "has intentionally and negligently inflicted emotional distress upon plaintiff." A cause of action for negligent infliction of emotional distress arises only in unique circumstances, when a defendant owes a special duty only to plaintiff, see Kelly v. Chase Manhattan Bank, 717 F. Supp. 227, 235 (S.D.N.Y.1989), or where there is proof of a traumatic event that caused the plaintiff to fear for her own safety. See Ford v. Village Imports, Ltd., 92 A.D.2d 717, 461 N.Y.S.2d 108, 108 (1983). The termination of an employee does not give rise to a claim for negligent infliction of emotional distress because a corporation owes the same duties to all employees. Kelly, 717 F.Supp. at 235. In the instant case, plaintiff maintains that there existed a special relationship between the plaintiff and the defendant because plaintiff was home on maternity leave when she was fired. However, that relationship is not unique to plaintiff as maternity leave is apparently available to other OTB employees. Therefore, we find plaintiff's argument with respect to a special relationship with OTB to be meritless.
In sum, reading the record in light most favorable to the plaintiff, we conclude that she has failed under New York Law to satisfy the requirements of a negligent infliction of emotional distress claim. Accordingly, defendants' motion for summary judgment on plaintiff's negligent infliction of emotional distress claim is granted.
*657 Plaintiff's intentional infliction of emotional distress claim also fails to withstand defendants' motion for summary judgment. To satisfy the standard for intentional infliction of emotional distress, a plaintiff must describe conduct "`so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.'" Murphy v. American Home Prod. Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 236, 448 N.E.2d 86 (1983) (quoting Rest. Second Torts § 46(1), comment d. The plaintiff in Murphy alleged that he was fired because of his age and because he had reported management improprieties. "[W]hen he returned the next day for his belongings, he was placed under guard, barred from saying goodbye to his colleagues, told that his belongings had been taken from his desk (allegedly by breaking the lock) and publicly escorted out of the building; two weeks later, when he came as directed, to collect his possessions, he was summarily ordered out of the building, and his possessions dumped on the street beside him." 112 Misc. 2d 507, 447 N.Y.S.2d 218, 219 (opinion below). Despite these facts, the Court of Appeals held that the plaintiff did not state a claim for intentional infliction of emotional distress.
In the case before us, plaintiff's allegations of outrageous behavior amount to the following: 1) she was fired soon after having a child; 2) that an article about her intention to sue OTB appeared in a newspaper; and 3) that she was fired for retaliatory and discriminatory reasons in violation of various state and federal laws. Even assuming all of these allegations are true, they do not begin to approach the strict standard of outrageous behavior that is needed to prove an intentional infliction of emotional distress claim under New York law. See Murphy, supra; Hoheb v. Pathology Associates, 146 A.D.2d 919, 536 N.Y.S.2d 894, 896 (1989); Martin v. Citibank, 762 F.2d 212, 220 (2d Cir.1985). Accordingly, defendants' motion for summary judgment on plaintiff's intentional infliction of emotional distress claim is granted.
VI. Defamation
Plaintiff has indicated that she does not oppose defendants' motion for summary judgment on her defamation claim. See Plaintiff's Memorandum in Opposition to Defendants' Motion to Dismiss at 2. Accordingly, defendants' motion for summary judgment on this claim is granted.
VII. Ultra Vires Claim
In her twelfth claim for relief, plaintiff asserts that defendants acted ultra vires when they terminated plaintiff's employment without official board of directors' action. Plaintiff claims that by firing plaintiff without Board action, defendants violated "the statutes of the State of New York relating to corporations."[13] In her brief in opposition to defendants' motion for partial summary judgment, plaintiff denominates her twelfth claim as one for promissory estoppel. Whether plaintiff's twelfth cause of action is making an ultra vires claim or a promissory estoppel claim, defendants' motion for summary judgment on plaintiff's twelfth claim for relief must be granted.
Plaintiff has not stated in her complaint or in her briefs the New York Statutes upon which she is relying for her ultra vires claim. The most relevant New York statute seems to be N.Y. Bus. Corp. Law § 203 (McKinney 1986). However, any reliance on this statute by plaintiff must fail because the statute only permits a right of action by a shareholder of a corporation, "by or in the right of the corporation to procure a judgment in its favor against an incumbent or former officer director of the corporation for loss or damage due to his unauthorized act," and by the attorney-general. Id.[14] Because plaintiff is not a shareholder of OTB, is not suing on *658 behalf of OTB, and is not the attorney-general, plaintiff's ultra vires claim must fail. See Jaffe Plumbing & Heating Co. v. Brooklyn Union Gas Co., 51 Misc. 2d 1083, 275 N.Y.S.2d 24, 28 (1966), aff'd, 29 A.D.2d 1051, 1052, 290 N.Y.S.2d 1022 (1968), aff'd, 26 N.Y.2d 851, 309 N.Y.S.2d 597, 258 N.E.2d 93 (1970); 711 Kings Highway Corp. v. F.I.M.'s Marine Repair Service, Inc., 51 Misc. 2d 373, 273 N.Y.S.2d 299, 300-01 (1966).
Plaintiff asserts that she left her previous job and joined OTB in reliance upon Sarah Jo Hamilton's promise that plaintiff could only be fired by the OTB Board of Directors.[15] Plaintiff therefore contends that OTB is promisorily estopped from firing plaintiff in a manner that violates Sarah Jo Hamilton's promise. We disagree.
First of all, plaintiff never raised a promissory estoppel claim in her complaint. For this reason alone, defendants' motion for summary judgment on this claim should be granted.
Moreover, under New York law, "the doctrine of promissory estoppel is properly reserved for that limited class of cases where `the circumstances are such as to render it unconscionable to deny' the promise upon which the plaintiff has relied." Philo Smith & Co. v. Uslife Corp., 554 F.2d 34, 36 (2d Cir.1977) (quoting 3 Williston on Contracts § 533A, at 801 (3d ed. 1960) (emphasis added in the Philo opinion). "[I]t has been consistently held that a change of job or residence, by itself, is not sufficient to trigger invocation of the promissory estoppel doctrine." Cunnison v. Richardson Greenshields Securities, Inc., 107 A.D.2d 50, 485 N.Y.S.2d 272, 275 (1985); accord Ginsberg v. Fairfield-Noble Corp., 81 A.D.2d 318, 440 N.Y.S.2d 222, 225 (1981). Moreover, "[t]he choice to forego current employment because of rosy promises" does not render the circumstances so unconscionable that the plaintiff may assert promissory estoppel. Ginsberg, 440 N.Y.S.2d at 225. Therefore, plaintiff's mere assertion that she left her previous job in reliance on Sarah Jo Hamilton's promise that plaintiff could only be fired by the Board of Director's, is insufficient to allow plaintiff to utilize promissory estoppel. Accordingly, defendants' motion for summary judgment on plaintiff's promissory estoppel claim is granted.
Conclusion
Defendants' motion for summary judgment on plaintiff's contract claim, due process claim, privacy claim, defamation claim, intentional and negligent infliction of emotional distress claims, ultra vires claim, and promissory estoppel claim is granted. Defendants' motion for summary judgment on plaintiff's Whistleblower Statute claim is denied. Plaintiff's cross motion for partial summary judgment is denied in its entirety.[16]
SO ORDERED.
NOTES
[1] Plaintiff contends that defendants have failed to submit to this Court a rule 3(g) statement in response to plaintiff's cross-motion. For the purposes of plaintiff's cross-motion, we will refer to defendants' 3(g) statement that defendants submitted with their motion for partial summary judgment.
[2] Wieder v. Skala, 80 N.Y.2d 628, 593 N.Y.S.2d 752, 609 N.E.2d 105 (1992), which permitted a breach of contract action by an attorney who was an at-will employee and was fired for forcing his law firm to report disciplinary violations of the attorney's fellow associate, is not to the contrary. In Skala, the New York Court of Appeals pointed out that "by insisting that plaintiff disregard DR 1-103(A) defendants were not only making it impossible for plaintiff to fulfill his professional obligations but placing him in the position of having to choose between continued employment and his own potential suspension and disbarment." Id. 593 N.Y.S.2d at 756, 609 N.E.2d at 109. The Court noted that the only basis of the relationship between the plaintiff in Skala and the defendant was the practice of law, and that
[i]ntrinsic to this relationship, of course, was the unstated but essential compact that in conducting the firm's legal practice both plaintiff and the firm would do so in compliance with the prevailing rules of conduct and ethical standards of the profession. Insisting that as an associate in their employ plaintiff must act unethically and in violation of one of the primary professional rules amounted to nothing less than a frustration of the only legitimate purpose of the employment relationship.
Id. In the case before us, no such pressure was placed on the plaintiff, and therefore no implied-in-law obligation was breached by the defendants when they fired plaintiff.
[3] Of course, plaintiff may still be able to sue defendants under those statutes that create independents right of action.
[4] Though Cucchi's deposition could be read to imply that Cucchi read the OTB manual before she accepted the job of Inspector general at OTB, see Cucchi Dep. at 14, later on in her deposition she states that she first saw the OTB manual "within a week or two of [her] taking the job." See Cucchi Dep. at 29. In addition, in Plaintiff's Memorandum in Opposition to Defendants' Motion for Summary Judgment, plaintiff concedes that she did not rely on the OTB manual before accepting the Inspector General job at OTB. See Plaintiff's memorandum in Opposition to Defendants' Motion for Summary Judgment at 14; Cucchi Aff. ¶ 48.
[5] However, as noted previously, plaintiff may still be able to sue defendants under anti-discrimination statutes.
[6] We do not believe that even when considered along with the "equal opportunity employment" statement on plaintiff's employment application, defendants' oral assurance that defendant was an equal opportunity employer is sufficient to limit defendants' right to fire plaintiff at will.
[7] Leonelli v. Pennwalt Corp., 887 F.2d 1195 (2d Cir.1989) does not require a different result. Leonelli involved the right of a discharged at-will employee to recover benefits his employers promised him, while the instant case involves the right of the defendants to fire the plaintiff. Nowhere in Leonelli did the Second Circuit suggest that the employer's promise of benefits to the employee interfered with the right of the employer to fire its employee at-will. Indeed, the Second Circuit summarized its holding by stating that "[a]lthough an employer has an unquestioned right to discharge [an at will employee], it still must take special pains not to act in such a way as to cause its employee to lose those benefits to which he may otherwise have been entitled." Id. at 1196 (emphasis added). Therefore, we do not believe that the holding of Leonelli is applicable in this case.
[8] We note that at his deposition, Howard Giordano, a former OTB president, testified that the only permissible basis for employment termination was for cause, i.e., misconduct. See Deposition of Howard Giordano at 107-08. However, even assuming that in practice OTB only fired its employees for cause, plaintiff has failed to establish that she was contractually entitled to the continuation of this policy. Thus, plaintiff's reliance on this policy to create a property interest in her job must fail.
[9] For example, plaintiff complains that defendants violated OTB procedures because plaintiff was not permitted to appeal her termination.
[10] We have found no cases in which New York courts specifically have held that the New York State constitution's due process clause mandates state or city agency's to follow their own procedures when they fire their employees. However, the New York Court of Appeals seems to have indicated that as far as liberty and property interests are concerned, New York will follow the federal rule. See generally Economico v. Village of Pelham, 50 N.Y.2d 120, 428 N.Y.S.2d 213, 405 N.E.2d 694 (1980) (discussing liberty and property interests under the federal and New York State constitutions). Therefore, we hold that the due process clause of the New York State constitution does not require state or city agency's to follow their own procedures when they fire their employees.
[11] We have found no cases in which New York courts have held that the New York State constitution provides greater safeguards than does the federal constitution to protect a person's liberty interest in his or her reputation. However, as we noted above, the New York Court of Appeals seems to have indicated that as far as liberty and property interests are concerned, New York will follow the federal rule. See generally Economico v. Village of Pelham, 50 N.Y.2d 120, 428 N.Y.S.2d 213, 405 N.E.2d 694 (1980) (discussing liberty and property interests under the federal and New York State constitutions). Therefore, we hold that the due process clause of the New York State constitution does not provide greater safeguards than does the federal constitution to protect a person's liberty interest in his or her reputation.
[12] Cucchi claims that the defendants violated her free speech rights when they fired her in retaliation for her reporting suspected wrongdoing to the Department of Investigation and the Inspector General of the Human Resources Administration. While plaintiff's claim may state a cause of action, see Vasbinder v. Ambach, 926 F.2d 1333, 1339-40 (2d Cir.1991); Rookard v. Health & Hospitals Corp., 710 F.2d 41, 46-47 (2d Cir.1983), it is not the subject of defendants' summary judgement motion. Accordingly, we will not address further in this opinion plaintiff's free speech argument.
[13] In her twelfth claim for relief, plaintiff once again charges that defendants are guilty of breach of contract. That charge is meritless, as discussed supra.
[14] See also N.Y. Banking law § 9-a (McKinney 1990) (discussing the ultra vires defense in the banking context); N.Y. Not-For-Profit Corporation Law § 203 (McKinney 1970) (discussing the defense of ultra-vires in the not-for-profit corporation context).
[15] Sarah Jo Hamilton was OTB's General Counsel at the time OTB hired plaintiff.
[16] Citing Austin v. Board of Higher Education, 5 N.Y.2d 430, 186 N.Y.S.2d 1, 158 N.E.2d 681 (1959), defendants contend, in an April 9, 1993 letter, that all of the plaintiff's state law claims must be dismissed. Specifically, defendants assert that because the exclusive remedy for plaintiff's wrongful termination claim was an Article 78 proceeding, and because plaintiff did not seek redress by means of Article 78, all of plaintiff's state law claims must be dismissed. To support their position, defendants point to Judge Miriam Cederbaum's oral decision from the bench in Katz v. New York City Off-Track Betting Corp., et al., 91 Civ. 8027(MGC), in which she dismissed various state law claims under the authority of Austin.
Defendants' current motion for summary judgment only addresses some of the state law claims that plaintiff asserted in her complaint. Therefore, we will deem defendants' April 9, 1993 letter as only addressing those claims.
In our decision detailed above, the only portion of defendants' summary judgment motion we denied was the portion that dealt with plaintiff's whistleblower claim. Because the New York State Legislature has created a special statutory scheme under which public employees can bring a cause of action when they believe that they are being fired for whistleblowing, we do not believe that Article 78 is the exclusive remedy for a discharged public employee in whistleblower cases. Accordingly, we do not believe that Austin is apposite to this case.
We observe that in her decision, Judge Cederbaum did not address the question of whether a whistleblower claim of a public employee could be dismissed under the reasoning of Austin. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1494688/ | 391 F. Supp. 806 (1975)
Thomas Lewis GREEN, Jr.
v.
Honorable Judge Ernest W. BALLOU et al (two cases).
Thomas Lewis GREEN, Jr.
v.
Sheriff Norman SPRINKLE et al.
Thomas Lewis GREEN, Jr.
v.
Gilbert W. HAITH et al.
Civ. A. Nos. 74-C-229-R, 74-C-236-R, 74-C-241-R and 75-C-2-R.
United States District Court, W. D. Virginia, Roanoke Division.
January 30, 1975.
*807 Gilbert W. Haith, Asst. Atty. Gen., Richmond, Va., for respondents.
OPINION and JUDGMENT
DALTON, District Judge.
Thomas Lewis Green, Jr. has filed several actions against various state officials. He is being detained pursuant to judgments of the Circuit Court for the City of Roanoke which on March 22, 1973 convicted Green on two separate counts of forgery and uttering. Green entered a plea of guilty to all the charges and was sentenced to two years in the penitentiary on each charge, the sentence to run consecutively. The sentences were suspended for a period of five years and he was placed on probation. On July 17, 1974, the probation was revoked and he was ordered to serve the total four year term. The reason for this revocation was Green's arrest and conviction for Grand Larceny as well as his failure to observe the conditions of probation.
Green asserts in his complaints many grounds for relief. Although his complaints are unclear and at times illegible, this court has considered them as motions for injunctive and monetary relief pursuant to 42 U.S.C. § 1983. Jurisdiction vests in this court under 28 U.S.C. § 1343.
Green's first contention seems to relate to his need for a transcript of his state court proceedings. It is unclear of which state court proceedings he is seeking a transcript. However, since Green's counsel has been furnished with a copy of the transcript of the probation revocation hearing for an appeal to the Virginia Supreme Court, which is presently pending, Green has made no showing of need. With respect to other proceedings, Green has made no showing of need other than his desire to inspect the transcript. Such a showing is inadequate. Green further states that his lawyer will not allow him to inspect the trial transcript in the lawyer's possession. Although this court believes that a lawyer should afford a client such an opportunity, there is no constitutional deprivation suffered in the absence of such an opportunity. As an embellishment of this claim, Green asserts inadequate representation of counsel at the hearing. Since such a claim is cognizable only in a habeas corpus proceeding and since plaintiff has yet to exhaust his state court remedies, his appeal to the Virginia Supreme Court is currently pending, this court cannot presently consider this claim.
Green next contends that the state courts are resisting this court's order that all state court records be forwarded to this court. This is clearly without merit, as this court is presently in receipt of such records.
Green also contends that he has been transferred from Roanoke City Jail to the Botetourt County Jail in retaliation for his filing complaints in this court. Green is presently temporarily housed in Botetourt Jail awaiting transfer to the Virginia State Penitentiary where he will serve the remainder of his sentences for felony convictions. Although this court takes an extremely dim view of any efforts by state officials to obstruct a prisoner's access to the courts, it cannot say that such a transfer from one jail to another, both temporary, until transfer to the penitentiary, was retaliatory; or if such a transfer was in fact motivated by Green's filing of writs, such action did not inure to the injury of Green or have such a deterrent effect upon filing complaints as to be cognizable as a claim in this court.
*808 Green also wishes an explanation of why mail is not delivered or sent out on weekends at the Roanoke City Jail. The answer to this question will not come from this court as it has no interest in resolving such issues. There is no allegation that Green has been denied access to the mail or that his mail is being censored. His inquiry relates to an area of administrative detail in which this court has neither authority or desire to act.
Green received sentences on two separate convictions to run consecutively. He requests that this court require such sentences to run concurrently. Whether sentences are to run consecutively or concurrently is within the discretion of the trial judge. This court has no power to review this decision unless in violation of some constitutional prescription. No such violation appears present in this case and this relief must be denied.
Green also wishes this court to order the state trial court to replace his present court-appointed counsel with counsel of his own choice. Such a decision is within the discretion of the state court and not this court. This court, therefore, has no such authority and this relief must also be denied.
Green asserts several attacks upon his state court proceedings, including attacks upon the sufficiency of evidence, the truthfulness of statements made by witnesses, and the voluntariness of his guilty plea. These matters are properly considered only in a habeas corpus proceeding and therefore cannot be considered until Green has exhausted his state court remedies.
For the above reasons, these cases are dismissed. The plaintiff is advised that he may appeal his decision to the United States Court of Appeals for the Fourth Circuit by filing with this court a notice of appeal within thirty (30) days from the date of this judgment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1495580/ | 869 F. Supp. 362 (1994)
ROPER HOSPITAL, INC., Plaintiff,
v.
UNITED STATES of America and Joseph Freeman, Jr., Defendants.
Civ. A. No. 2:94-617-22.
United States District Court, D. South Carolina, Charleston Division.
November 17, 1994.
*363 *364 John Kevin Crout, Charleston, SC, for plaintiff.
John H. Douglas, Asst. U.S. Atty., Charleston, SC, for the U.S.
Joseph Freeman, Jr., pro se.
ORDER
CURRIE, District Judge.
This action, brought by a hospital that rendered medical services to Defendant Joseph Freeman, Jr., seeks to recover those costs against the United States of America (hereinafter "the Government"), by and through the Office of Personnel Management (hereinafter "OPM"), and Mr. Freeman. The Complaint asserts causes of action against the Government for denial of administrative remedy, breach of contract, and negligence under the Federal Tort Claims Act, 28 U.S.C. §§ 2671 et seq. Jurisdiction is based on 28 U.S.C. § 1346(b). The matter is before the court on the Government's Motion to Dismiss and on Plaintiff's Motion for Summary Judgment or, in the Alternative, for Sanctions.
The parties extensively briefed the present issues. The court heard oral argument twice on the Government's Motion to Dismiss. At the first argument on June 24, 1994, counsel for Plaintiff and the Government appeared, as well as Mr. Freeman, pro se. At the conclusion of that hearing, the court gave the parties leave to file additional memoranda on issues related to the claim under the Federal Tort Claims Act. The court also advised the parties at that hearing that the Government's Motion to Dismiss would be treated as a Motion for Summary Judgment because of the inclusion of several materials outside the pleadings. Plaintiff and the Government submitted additional memoranda, which they argued before the court on October 21, 1994. The court also heard argument on Plaintiff's Motion for Summary Judgment at the October hearing.[1] The court has thus fully reviewed and considered the parties' arguments and the applicable law. For the reasons given below, the court grants the Government's Motion to Dismiss, which is converted to a Motion for Summary Judgment, and grants Plaintiff's Motion for Summary Judgment.
I. FACTS
The following facts are based on the complete record before the court, including the pleadings, discovery materials, briefs and attachments to the briefs. All inferences are drawn in favor of the non-moving party.
Mr. Freeman, formerly a nonpay on-call status federal employee of the Charleston Naval Shipyard, was terminated from his employment at the Shipyard, effective January 26, 1991. He received a SF 2810-Notice of Change in Health Benefits Enrollment, dated February 13, 1991, from his employing office informing him that his medical insurance enrollment in the Mail Handlers Benefit Plan was also terminated January 26, 1991. *365 Freeman received a temporary thirty-one day extension of medical insurance coverage, pursuant to 5 C.F.R. § 890.401, which expired on February 26, 1991.[2] The following day Freeman was admitted to Plaintiff Roper Hospital, Inc. (hereinafter "the Hospital"), where he incurred total expenses of $24,951.40. At the time of Freeman's admission, the Hospital sought to confirm coverage with Mail Handlers Benefit Plan. An employee of Mail Handlers told Plaintiff that Mr. Freeman had insurance. The reason that Mail Handlers was unaware of Mr. Freeman's benefits termination effective February 27, 1991, is that OPM did not give Mail Handlers notification of Freeman's termination until March 8, 1991. Ultimately, therefore, Mail Handlers refused to provide coverage, claiming that the thirty-one day temporary coverage had lapsed prior to Mr. Freeman's hospital admission.
Subsequent to Mail Handler's denial of coverage, the Hospital, acting pursuant to Mr. Freeman's assignment to it of all his rights and benefits under the policy, sought to avail itself of OPM's claims review procedure. By letter of August 12, 1993, counsel for the Hospital wrote a letter to OPM addressed to "Insurance Review Division, Retirement and Insurance Group, Post Office Box 436, Washington, DC 20044," in which counsel requested administrative review of the denial. Exh. J, Plaintiff's Memo in Opposition to Def's Motion to Dismiss. The letter also set out counsel's belief that OPM had been negligent in failing to give timely notice of termination of Freeman's Mail Handlers' benefits, and enclosed a Standard Form 95, the type prescribed for making administrative claims under the Federal Tort Claims Act, and addendum with the letter. Because the correct address for making a Federal Tort Claims Act administrative claim would have been, "Office of General Counsel, OPM, 1900 E. Street, NW, Washington, DC 20415," the Hospital's Form 95 was incorrectly addressed. When it was received by the Retirement and Insurance Group at OPM, it was treated simply as a request for review of insurance coverage and not as any type of administrative claim under the Federal Tort Claims Act. The Retirement and Insurance Group returned Plaintiff's submission on August 19, 1993, on the grounds that administrative review was granted only to enrollees, and it did not consider Plaintiff an enrollee (Exh. K, Plaintiff's Memo in Opposition to Def's Motion to Dismiss).
Plaintiff's Complaint, filed February 25, 1994, against the United States and Mr. Freeman, seeks judgment in the amount of $24,951.40 for the medical expenses, as well as attorneys fees and costs. The first cause of action, against the Government and styled "Denial of Administrative Remedy and Denial of Due Process," alleges that OPM denied administrative review to Plaintiff by denying Plaintiff the right to appear before OPM and pursue the claim. Damages are sought in the amount of the medical expenses. The second cause of action, which is against the Government and is based on Plaintiff's asserted third party beneficiary status, is for breach of contract and seeks monetary damages in the preceding amount. Plaintiff's third cause of action based on negligence of the Government alleges OPM was negligent in failing to give timely notice of the termination of plan coverage to Mail Handlers. Plaintiff asserts that the plan administrator, OPM, undertook the duty to verify coverage in a reasonable and prudent manner, and that this duty was breached by OPM's failure to give timely notice of the termination. Plaintiff seeks monetary damages for the breach. The last cause of action for breach of contract against Mr. Freeman alleges that he guaranteed payment of all his medical bills and that Plaintiff has not been paid even after making due demand. Monetary damages in the amount of $24,951.40 are sought.
Defendant Freeman answered on March 25, 1994. His answer asserts that it was never his intent to defraud Plaintiff, or obtain services knowing he had no coverage. He contends that he was mistaken concerning the calculation of the thirty-one day extension *366 of coverage, and further asserts he would have gone to the Veteran's Administration Hospital, where he has coverage, if he had not relied on Mail Handlers' erroneous verification of coverage. His answer concludes by asserting, "[t]his entire matter has been an awful mistake, and I hope this Court will not hold me accountable." (Freeman Answer, Para. 12).
The Government did not answer the Complaint, but elected to file a Motion to Dismiss pursuant to Rules 12(b)(1) and (6), Fed. R.Civ.P. As noted above, because of the parties' attachment of various matters beyond the pleadings, that motion will be treated as a Motion for Summary Judgment. Subsequent to the first oral argument, the Hospital moved for summary judgment against Mr. Freeman based on his failure to respond to certain Requests for Admission.
II. SUMMARY JUDGMENT STANDARD
The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view the evidence before it and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 82 S. Ct. 993, 8 L. Ed. 2d 176 (1962). When the defendant is the moving party and the plaintiff has the ultimate burden of proof on an issue, the defendant must identify the parts of the record that demonstrate the plaintiff lacks sufficient evidence. The nonmoving party, here Plaintiff, and Mr. Freeman, must then go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
III. GOVERNMENT'S MOTION FOR SUMMARY JUDGMENT
As to the three causes of action asserted against it, the Government contends this court lacks subject matter jurisdiction over the claims, pursuant to Rule 12(b)(1), Fed. R.Civ.P.
The United States is immune from suit except insofar as it consents to suit by act of Congress. Broughton Lumber Co. v. Yeutter, 939 F.2d 1547 (Fed.Cir.1991). Any limitations Congress places on a waiver of sovereign immunity, such as the court in which a litigant may proceed, are binding and preclude a litigant from proceeding in any other manner. In re Nofziger, 938 F.2d 1397 (D.C.Cir.1991). For cases seeking money damages against the United States based upon a statute or the Constitution, Congress has waived immunity in the district courts only for claims below ten thousand dollars. 28 U.S.C. § 1346(a)(2). Claims above ten thousand dollars must be pursued in the United States Court of Federal Claims. 28 U.S.C. § 1491.
The Government argues the court must dismiss the first two causes of action because they seek monetary damages in excess of ten thousand dollars. Plaintiff contends that the first two causes of action are really claims under the Federal Employees Health Benefits Act, 5 U.S.C. §§ 8901 et seq., and that concurrent jurisdiction exists in district court to hear such claims, 5 U.S.C. § 8912. Plaintiff's argument ignores the undisputed fact that Mr. Freeman's coverage had lapsed at the time of his hospitalization and that, therefore, the claim is not one within the parameters of the Act. See 5 C.F.R. § 890.401(c)(5) (individual who fails to request conversion to an individual policy within 31 days after receiving notice of the right to convert is deemed to have declined the right to convert).
The first and second causes of action seek monetary damages in excess of ten thousand dollars based on OPM's alleged wrongful denial of administrative review and breach of contract. The court finds those claims subject to the requirement of 28 U.S.C. § 1491 that they be brought in the Court of Federal Claims. Accordingly, this court may not entertain such claims, and must order their dismissal. Universal Mortgage Corp. v. Derwinski, 937 F.2d 1276 (7th Cir.1991).
As to the third cause of action based on the Federal Tort Claims Act (hereinafter "FTCA"), the Government contends this court lacks subject matter jurisdiction because: *367 (1) Plaintiff failed to file a timely or appropriate administrative claim as required by the FTCA; and (2) the type of claim asserted by Plaintiff is within an enumerated exception to the FTCA known as the "misrepresentation exception," and that therefore the claim is outside the scope of the FTCA's limited waiver of sovereign immunity.
"A tort claim against the United States shall be forever barred unless it is presented in writing to the appropriate Federal agency within two years after such claim accrues ..." 28 U.S.C. § 2401(b). A tort claim accrues at the time of injury or as soon as the claimant is in possession of sufficient facts that a prudent person would make inquiry into the responsibility therefor. United States v. Kubrick, 444 U.S. 111, 100 S. Ct. 352, 62 L. Ed. 2d 259 (1979). In the present case, the Hospital was on notice that coverage had been denied in March 1991. Accordingly, the Form 95 and accompanying letter dated August 12, 1993, even if considered an effective administrative claim, were not filed timely and, therefore, Plaintiff's FTCA claim is barred by the two-year statute of limitations.
In addition, any administrative claim in excess of $1,000 must be filed with OPM's Office of General Counsel. 5 C.F.R. § 177.102(b). General Counsel's authority to adjudicate and settle claims is stated in 5 C.F.R. § 177.106(a). The Declaration of Gloria Clark, paralegal specialist in the Ethics, FOIA and Torts Division of the Office of General Counsel of OPM, states that after a thorough search she found no evidence of such claim being filed. (Attachment, Govt's Motion for Summary Judgment). The reason, of course, that Ms. Clark found no evidence of such claim is because the claim was not submitted to the correct authority as specified in the C.F.R. The claim was misdirected to an inappropriate division of OPM at another address and was further couched in terms of a review of denial of insurance coverage, rather than an administrative claim under the FTCA.
Failure to file an appropriate administrative claim deprives this court of jurisdiction. GAF Corp. v. United States, 818 F.2d 901, 904 (D.C.Cir.1987); see also 28 U.S.C. § 2675(a) (no FTCA claim can be brought unless claimant shall have first presented the claim "to the appropriate Federal agency and his claim shall have been finally denied by the agency in writing ..."). The court concludes the Hospital's mailing did not satisfy the statutory requirements.
Moreover, the court concludes that even if the August 12, 1993, letter and Form 95 were considered an effective and timely filed claim, the misrepresentation exception to the FTCA would bar this claim. An exception to the FTCA provides that, "the provisions of this chapter and section 1346(b) of this title shall not apply to (h) Any claim arising out of ... misrepresentation ..." 28 U.S.C. § 2680. The misrepresentation exception deprives courts of jurisdiction over tort claims based on a plaintiff's reliance on governmental misinformation or failure to communicate correct information. Block v. Neal, 460 U.S. 289, 297, 103 S. Ct. 1089, 1093, 75 L. Ed. 2d 67 (1983); United States v. Neustadt, 366 U.S. 696, 705-06, 81 S. Ct. 1294, 1299-300, 6 L. Ed. 2d 614 (1961). The misrepresentation exception bars those claims in which the plaintiff has alleged no injury separate or independent of its reliance on an erroneous governmental representation.
In Bon Secours St. Francis Xavier Hospital v. United States, C.A. No. 2:XX-XXX-XX, order filed Nov. 1, 1993, OPM was alleged to have failed to timely notify the insurance carrier that the patient had changed to a different carrier. The first carrier, like Mail Handlers in the instant case, erroneously verified coverage with the hospital, but later refused to pay the charges based on lack of insurance coverage. Judge Norton, reviewing the hospital's Complaint and concluding that the gravamen of it was the alleged injury resulting from the governmental misrepresentation, held that the misrepresentation exception in 28 U.S.C. § 2680(h) mandated dismissal of the FTCA claim.
Similarly, in the present case, the wrong of which Plaintiff complains stems solely from the alleged governmental misrepresentation. Plaintiff's Complaint asserts:
*368 That the plan administrator breached its duty to the Plaintiff, Roper Hospital, by representing that the participant was eligible for benefits and that benefits were available, when, in fact, this representation was false.
Complaint, Para. 41. Because the sole injury suffered by the Hospital arose from its reliance on advice provided by a federal employee, Plaintiff's claim is governed by the misrepresentation exception and must be dismissed. Office of Personnel Management v. Richmond, 496 U.S. 414, 110 S. Ct. 2465, 110 L. Ed. 2d 387 (1990).
The court is not persuaded by Plaintiff's argument that the gravamen of the Complaint is negligence by OPM in failing to notify Mail Handlers promptly of Freeman's lapse of coverage, and not a misrepresentation on their part. Plaintiff points out that it was the carrier, not the government, that misrepresented that coverage was in place. Plaintiff cites a provision of the Federal Personnel Manual Supplement 890-1, March 10, 1989, Subchapter S19-2, which provides that OPM should direct notices of health benefits changes "on a daily or weekly basis."
Plaintiff's efforts to couch the Complaint in terms of an omission to act by OPM, rather than a governmental misrepresentation, are insufficient to overcome the broad prohibition against claims "arising out of ... misrepresentation." OPM's asserted negligent failure to notify Mail Handlers promptly would have produced no injury and not been the subject of a claim were it not for the fact of the alleged misrepresentation that culminated in approving Mr. Freeman's hospital admission. In essence, the Hospital's theory of recovery is that OPM's failure to speak when it had a duty to do so led to the Mail Handlers' misrepresentation. Such a claim "arises out of" a misrepresentation because that is the critical focus or wrong about which Plaintiff complains. The court thus concludes that the FTCA claim may not be pursued.
IV. HOSPITAL'S MOTION FOR SUMMARY JUDGMENT
On April 7, 1994, Plaintiff served Mr. Freeman with Interrogatories, Request for Production, and Request for Admissions. Mr. Freeman failed to respond to such discovery, and the court, on May 31, 1994, granted the Hospital's Motion to Compel Discovery and ordered Mr. Freeman to respond within ten days of the date of the order. On June 23, 1994, the Hospital served a copy of the order upon Mr. Freeman via certified mail. To date, Mr. Freeman has not responded to the court's order or discovery requests. The Requests for Admission asked Mr. Freeman:
1. Do you admit that Joseph Freeman, Jr. was admitted to Roper Hospital on or about February 27, 1991, and received treatment?
2. Do you admit that Joseph Freeman, Jr. incurred medical expenses at the Plaintiff's facility in the amount of $24,951.40 for treatment rendered?
3. Do you admit that Joseph Freeman, Jr. received a bill from Roper Hospital in the amount of $24,951.40 and that Defendant Joseph Freeman, Jr. has not made payment to Roper Hospital on this account?
As noted above, the court went to some length to accommodate Mr. Freeman in filing an opposition to the Hospital's Motion for Summary Judgment. Mr. Freeman's sworn letter, filed November 9, 1994, asserts that he feels it is unfair to hold him responsible for the hospital bill as he had full coverage at the Veteran's Administration and he would not have stayed at Roper had he not been misinformed of coverage.
The court is sympathetic to Mr. Freeman's current position, which results from a series of mistakes by the Government, the Mail Handlers, and the Hospital. However, as a matter of law, these matters do not abrogate his underlying obligation to the Hospital for medical expenses. Mr. Freeman executed the "Conditions of Treatment and/or Services" document on February 27, 1991, at the time of his hospital admission. (Exh. F, Plaintiff's Memo in Opposition to Govt's Motion for Summary Judgment). By signing the agreement, Mr. Freeman agreed to remain ultimately responsible for payment of the claim. If Mr. Freeman believed that his medical bill should have been covered by a *369 plan participating in the Federal Employees Health Benefit Plan, it was incumbent on him to seek OPM review. The record discloses that he never attempted such review.
Pursuant to Rule 36, Fed.R.Civ.P., the Requests for Admission are deemed admitted if not admitted or denied in writing within thirty days. The above record demonstrates that no material issue of fact exists as to Mr. Freeman's obligation on the hospital bill. Accordingly, the Hospital's Motion for Summary Judgment is granted, in the amount of $24,951.40, against Mr. Freeman.
CONCLUSION
IT IS THEREFORE ORDERED that the Government's Motion to Dismiss, treated as a Motion for Summary Judgment, is granted;
IT IS FURTHER ORDERED that the Hospital's Motion for Summary Judgment is granted.
IT IS SO ORDERED.
NOTES
[1] Mr. Freeman, pro se, did not appear at the October 21, 1994, hearing. Although notice of the hearing was sent on October 14, 1991, via certified mail to his home address, he had not signed for and received the certified mail package by the hearing date. He did, however, appear at the Clerk's Office in Charleston the following Monday, October 24, 1994, and was informed that the hearing had taken place on October 21, 1994. He was also informed that he needed to file any response to Plaintiff's Motion for Summary Judgment no later than October 28, 1994. On October 27, 1994, Mr. Freeman signed for and accepted the certified mail notice of the October 21, 1994, hearing. However, he did not file any written response by the first October 28, 1994 deadline.
The Clerk's Office, at the court's direction, subsequently contacted Mr. Freeman by telephone on November 8, 1994, and advised him that any response he wished the court to consider must be filed no later than 5 p.m. on November 9, 1994. He subsequently filed a letter dated November 9, 1994, which the court has now considered. Accordingly, the court concludes the matters discussed below are ripe for determination.
[2] Freeman had an opportunity to convert the policy so that he could continue coverage. Although he mailed a letter to Mail Handlers dated February 25, 1991, requesting further information on conversion, he never responded to Mail Handlers' March 25, 1991, correspondence containing a conversion application. Accordingly, he failed to request conversion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1497741/ | 14 F.2d 323 (1926)
In re SHEINMAN.
No. 7805.
District Court, E. D. Pennsylvania.
July 30, 1926.
*324 J. Howard Reber, of Philadelphia, Pa., for trustee.
George W. Coles, U. S. Atty., and Claude Olwen Lanciano, Asst. U. S. Atty., both of Philadelphia, Pa., for the United States.
THOMPSON, District Judge.
The collector of internal revenue, on behalf of the United States, filed with the referee a proof of debt for income taxes under the Revenue Acts of 1918 and 1921 for the following amounts: For the taxable year 1919, $15,778.27; for 1920, $10,000.84; and for 1921, $1,647.94 a total of $27,427.05, with interest from January 17, 1924, at 1 per cent. per month, until paid. The trustee duly filed objections to the allowance of the claim, and after hearing, at which testimony was taken, the referee made an order disallowing the claim. The matter comes before the court upon a certificate for review of the referee's order.
The petition in bankruptcy was filed June 3, 1922, and adjudication entered August 10, 1922. The bankrupt had filed an income tax return for the year 1919, stating his net taxable income as $22,620.01, and the tax thereon $2,361.60, was paid by him. He had also filed income tax returns for the years 1920 and 1921, setting forth that his net taxable income was below the statutory requirements and no tax was due. The collector assessed the additional taxes on May 20, 1924, after the petition in bankruptcy was filed.
It appears from the testimony taken before the referee that the assessment was arrived at by the following method: The Statistical Department of the Bureau of Internal Revenue has found that the average net profits of those engaged in the business in which the bankrupt was engaged, based on their gross annual sales, was as follows: For the year 1919, 6.51 per cent.; for 1920, 6.51 per cent.; for 1921, 5.46 per cent.
The revenue agent, who computed the extra assessments, ascertained from the books of the bankrupt the amount of his gross sales for the respective years, and multiplied that by the average percentage applicable to such year, from the information derived from the figures of the Statistical Department. As the agent who made the assessment was no longer in the service, his figures were interpreted by an agent still in the service. The method of computation followed is claimed to be under the authority granted the Commissioner of Internal Revenue by section 212 (b) of the Revenue Act of 1918 (Comp. St. § 6336 1/8f) and section 212 of the Revenue Act of 1921 (Comp. St. § 6336 1/8f), providing as follows:
"The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income."
Section 64 (a) of the Bankruptcy Act (Comp. St. § 9648), making taxes preferred claims, provides that a trustee shall be credited with the amounts paid therefor upon filing receipts of the proper public officers, and that "in case any question arises as to the amount or legality of any such tax the same shall be heard and determined by the court."
The effect of this provision is that, where a claim for income taxes is made against a bankrupt estate, the ordinary rules of procedure governing collection of taxes against individuals, such as appeal or claim for abatement, and payment of the tax under protest, with the only remedy against their enforced payment a suit instituted for their recovery, do not apply to a trustee in bankruptcy. The purpose of the Bankruptcy Act is that the bankrupt estate shall be promptly wound up, and ordinary procedure would delay its final settlement. In re Wenatchee Heights Orchard Corporation (D. C.) 212 F. 787; In re Anderson (D. C.) 275 F. 397; affirmed (C. C. A.) 279 F. 525; In re Fisher Corporation (D. C.) 229 F. 316. And any question which arises as to the amount or legality of taxes must be heard and determined by the court with a view to ascertaining the amount really due. In re Williams Oil Corporation (D. C.) 265 F. 401.
The court is therefore not concluded by the findings of the taxing authorities. New Jersey v. Anderson, 203 U.S. 483, 27 S. Ct. 137, 51 L. Ed. 284. The question to be determined, then, is whether the evidence upon which the taxes were attempted to be assessed is such as to show a lawful imposition of taxes in the amount claimed or in any amount. The so-called regulations of the Commissioner providing for the average *325 percentage method are not regulations in the sense in which the term is ordinarily applied. They are not regulations adopted with the approval of the Secretary of the Treasury and published as such for the information of the taxpaying public. They are more in the nature of instructions to the officers of the revenue, for their guidance in determining or attempting to determine taxable income, where the amount cannot be determined from the books and records of the taxpayer or by other evidence.
The district attorney contends that the method employed by the Revenue Bureau was justified under section 212 (b) of the Revenue Act of 1918 and section 212 of the Revenue Act of 1921, cited above. It is contended that the method of accounting employed by Sheinman did not clearly reflect his income, and that therefore the computation may be made upon any basis and in any manner which, in the opinion of the Commissioner, does clearly reflect the income. But I do not find that it is sufficiently shown in the case that the reason for not computing the income from the bankrupt's books is that they would not have clearly reflected his income. It is shown that the revenue agent who undertook to examine his books was, as found by the master, given access to all of the records of the bankrupt and remained about 1½ days, when he left. He stated before leaving that, inasmuch as there was such a volume of books there, he was going to base his report for assessment on the amount of sales, according to the sales records which were there. What information he could have obtained from the books, excepting the gross sales, was not shown at the hearing.
The ascertainment of the amount of the net taxable income of the taxpayer is the ascertainment of a fact. Real facts, and not bookkeeping entries, give rise to income. Books of account are no more than evidential. They are neither indispensable nor conclusive. Doyle v. Mitchell, 247 U.S. 179, 38 S. Ct. 467, 62 L. Ed. 1054; Southern Pacific Railroad v. Muenter, 260 F. 837, 171 Cow. C. A. 563; Douglas v. Edwards (C. C. A.) 298 F. 229. Baldwin Locomotive Works v. McCoach, 221 F. 59, 136 Cow. C. A. 660.
But this does not mean that the return of income should not be made in accordance with the taxpayer's books, for ordinarily the books are evidential in reflecting the facts. But income includes only the receipt of actual cash or its equivalent, and the courts, in the absence of a clear direction to the contrary, construe a revenue law in accordance with an intention to reach actual income. United States v. Schillinger, Fed. Cas. No. 16,228, 14 Blatch. 71.
The decisions under the Excise Tax Law and under the Income Tax Law are uniform to the effect that the government cannot base a claim for taxes on mere bookkeeping. Forty Fort Coal Company v. Kirkendall (D. C.) 233 F. 704; Industrial Trust Co. v. Walsh (D. C.) 222 F. 437; Baldwin Locomotive Works v. McCoach, supra.
The method employed by the Revenue Bureau in the instant case was derived from the book accounts of other persons, and does not show what the real income of the bankrupt was during the years in question. It is not as determinative of that fact as bookkeeping entries of the bankrupt himself would be, nor is it supported by any extrinsic facts produced in evidence. What was done was to find what other taxables had returned as their net incomes, or what the Bureau had found were the incomes of such taxables, and to take an average based on ratio of the return of income of such other persons to their gross sales, and then to find as a fact that such average represented the actual income of the bankrupt. This was not the ascertainment of a fact, but merely the exposition of a theory.
The Board of Tax Appeals has upheld this method in the Appeal of Daniel Welch, 2 B. T. A. 364. In that case, there were apparently withholding of books, intentional misleading entries in the books, and a failure to include the closing inventory upon audit, which were not explained upon the appeal. There were no extraordinary circumstances in the instant case. I doubt if evidence, based upon mere speculation or theory, such as was adopted here, would be admissible as evidence of the fact sought to be determined by the referee in any court.
My conclusion is that the referee was right in disallowing the claim, and his order, therefore, is affirmed, and the petition for review dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1480126/ | 29 F.Supp. 673 (1939)
FOX et al.
v.
HOUSE et al. (UNITED STATES, Intervener).
No. 49.
District Court, E. D. Oklahoma.
October 13, 1939.
*674 Milam M. King, of Checotah, Okl., and Harry B. Parris, of Eufaula, Okl., for plaintiffs.
Gotwals, Killey & Gibson, of Muskogee, Okl., for defendants.
C. A. Summers, U. S. Dist. Atty., and Charles N. Champion, Asst. U. S. Dist. Atty., both of Muskogee, Okl., for the United States.
RICE, District Judge.
This is a suit begun by the plaintiffs as heirs at law of Eastman Richard, deceased, *675 for an accounting. It was begun in the District Court of Muskogee County, State of Oklahoma, against the defendant H. G. House. Notice of the suit was served upon the Superintendent for the Five Civilized Tribes as provided in the Act of Congress approved April 12, 1926, 44 Stat. 239. Upon request of the Secretary of the Interior it was removed by the intervener, United States of America, to this court. A bill of intervention was filed by the United States of America. After the filing of the bill of intervention the plaintiffs and the intervener gave notice to the defendants and their attorneys that on a certain date they would take depositions of the president, cashier and certain other officers, agents and employees of the First National Bank & Trust Company of Muskogee, Oklahoma. This notice having been given prior to the filing of an answer application was made to the court for permission to take the depositions as required by Rule 26(a) Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. After the application to take the depositions was made, and before a hearing thereon, the plaintiffs and intervener, under the provisions of Rule 45(d) (1), made application to the court for a subpoena duces tecum directed to the First National Bank & Trust Company, a corporation, and such of its officers, agents and employees as are designated therein, requiring the production and inspection of certain documents as follows:
"To produce and to permit plaintiffs and their attorney, and intervener, by its officers and agents, to inspect and to copy each and any of the following documents, insofar as they relate to and are connected with and grow out of the business and fiduciary association and relationship between H. G. House and Eastman Richard and the estate of said Eastman Richard, deceased:
"(a) The individual ledger accounts of H. G. House, personal account, H. G. House, Agency Account, H. G. House, Agent for Eastman Richard, and H. G. House in any other title or capacity; and of Eastman Richard, and the Estate of Eastman Richard, deceased, covering the period from June 1924 to the present date:
"(b) The deposit tickets for the above accounts for the same period:
"(c) The cash letters for the same period reflecting the transmittal to correspondent bank and clearing houses of any and all checks deposited to the above accounts:
"(d) And any and all records and correspondence relating to said accounts."
Thereafter the defendants filed what is designated "Motion for an order for the protection of parties and deponents." One part of this motion might properly be designated as applying for an order protecting the parties and deponents. The remainder of the motion might more properly be designated an objection to the granting of the order. The defendants advance two major objections to the taking of the depositions and issuance of the order for subpoena duces tecum, (1) that this court is without jurisdiction to hear and determine this action; (2) that this being an accounting action the depositions should not be taken nor the order for subpoena duces tecum issued prior to a determination of the right of the plaintiffs to an accounting.
The taking of the depositions and action upon the motion for order to issue subpoena duces tecum were withheld by the court until a decision on the question of jurisdiction, it being the view of the court that the Rules of Civil Procedure do not contemplate the taking of depositions for discovery purposes in a pending action until the court's jurisdiction is determined. The intervener thereafter filed an amended bill of intervention and the court has since decided that it has jurisdiction to hear and determine this cause. This disposes of the first major objection of the defendants. In the meantime the defendants have filed an answer and the case is at issue.
There remains for disposition the second major objection of the defendants, to-wit: that the order for the subpoena duces tecum should not issue and the depositions should not be taken prior to a determination by the court that the plaintiffs are entitled to an accounting. Insofar as the taking of the depositions is concerned, an answer having been filed, it is no longer necessary for plaintiffs and intervener to have an order of court authorizing the taking of depositions. But an order of court is necessary for the subpoena duces tecum sought by the plaintiffs and intervener. Rule 45(d) (1). It appears that the information sought by means of the subpoena duces tecum is a very material part of the information sought by the depositions, *676 and for that reason the ruling on the motion is important.
In construing Rule 45(d) (1) due consideration should be given to Rules 26, 30 and 34. It must be remembered that the rules under consideration are comparatively new in Federal Procedure. If we think in terms of prior procedure the contention of the defendant has much merit. But if we start with the proposition that these rules were enacted for the purpose of simplifying procedure and getting rid of technicalities; that it is their purpose to provide a just, speedy and inexpensive determination of a law suit, we must come to the conclusion that the rules providing for the taking of depositions for discovery purposes should not be restricted at their inception by orders of court attempting to prescribe and define the activities of parties in their proper use. The underlying purpose of the rules was expressed by Chief Justice Hughes speaking before the Annual Meeting of the American Law Institute, prior to their adoption, when he said: "It is manifest that the goal we seek is a simplified practice which will strip procedure of unnecessary forms, technicalities and distinctions, and permit the advance of causes to the decision of their merits with a minimum of procedural encumbrances." See Laverett v. Continental Briar Pipe Co., Inc., D.C.N.Y., 25 F.Supp. 80. The courts have been practically unanimous in attempting to achieve this purpose in interpreting the rules.
The objection now under consideration does not go to the right of plaintiffs and intervener to take the deposition or to inspect and copy the documentary evidence sought by the subpoena duces tecum. It merely seeks to delay the taking of the deposition and inspection of the documentary evidence until the court has first heard the evidence on the question of the right of plaintiffs to an accounting and has determined that the plaintiffs are entitled to an accounting. The court is not able to say at this time that the information and evidence sought is not such as plaintiffs and intervener are entitled to to enable them to prepare for trial upon the issue of a right to an accounting. One of the purposes of the rules of discovery is to enable any party to obtain information, as well as evidence, that will aid in preparation for trial. Preparation for trial means preparation on all phases of the case. If there is to be a speedy disposition of the case this preparation should begin in the early stages and should not be by piecemeal. Although in an accounting action the court must first determine that plaintiffs are entitled to an accounting there is no reason why the proceedings should stop to enable the parties to prepare for the actual accounting. Neither is there any good reason why a plaintiff should be deprived of otherwise available information on the accounting feature until the right has been established. He should be permitted to ascertain if an accounting would be worth while. It would avail him but little to establish his right and then discover that his work and victory has no reward. The work of the court would be wasted if after the right to an accounting has been decreed, the plaintiff discovered that the actual accounting would be fruitless and would then ask to dismiss the proceeding or permit it to go by default. The parties should be permitted to proceed in their own way under proper limitations to prepare for trial upon all the issues in the case. Under the rules they are entitled to proceed as soon as jurisdiction has been obtained over any defendant or over property which is the subject of the action. Rule 26(a). Of course this procedure has its limitations but until such time as it is apparent that the purpose is unreasonably to annoy, embarrass or oppress the deponent or a party to the action and that the proceeding is in bad faith a liberal interpretation of the rules requires that the court refrain from attempting to limit the parties.
The First National Bank & Trust Company has joined the defendant House in this motion and one objection is that the issuance of the subpoena duces tecum will impose a hardship upon said bank and will be oppressive for the following reasons: "The period of time mentioned therein is approximately fifteen years, during which time many hundreds of deposit tickets in the various accounts were filed with said bank; that all of the records for the years in question, save and except those that are current, have been placed in storage; that the storage has been moved several times and that it would require many weeks work on the part of one or more of the experienced employees of the bank to secure the deposit tickets called for in the subpoena; that it is impracticable to make use of any person other than an experienced employee for such purpose; that the bank is prohibited by law from permitting any *677 employee to work more than the number of hours prescribed by the present Wage and Hour law, and that to secure such information it would be necessary to take from its working force one or more experienced employee and to hire other and additional help for the purpose of taking the place of the one so selected; that in the event the order for the issuance of such subpoena is made, proper provision should be made for the reimbursement of the expense occasioned to such bank by reason thereof."
Rule 45(b) provides that upon motion the court may quash a subpoena issued by the Clerk for the reasons that it is unreasonable and oppressive or may condition denial of the motion upon the advancement by the person in whose behalf the subpoena is issued of the reasonable cost of producing the books, papers, or documents. It is the court's opinion that the same conditions are applicable to a subpoena duces tecum sought under the provisions of Rule 45(d) (1).
No issue has been taken by the plaintiffs and the intervener as to the work and time required by someone in the employ of the bank in searching out and producing those instruments and papers designated in the subpoena. The bank is not a party to this action. It is merely the custodian of certain papers and documents sought by the plaintiffs and intervener. A compliance with the order of the court, under the showing made by the bank, would require employment of additional help or seriously interrupt its regular employees in the performance of their duties.
The order will issue only on the condition that the plaintiffs or the intervener, or both, advance to the bank the reasonable cost for producing the papers, books and documents desired.
The bank has stated in its motion that certain letters requested are not in its possession. That they have been destroyed. The subpoena should not issue requiring the production of the documents which the bank does not have, for the obvious reason that it would be impossible for the bank to comply with the order.
It is the opinion of the court that the plaintiffs and intervener may proceed with the taking of these depositions at any time they desire, and that the order for the subpoena duces tecum issue upon condition and subject to the limitations set out in this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1488439/ | 954 F.Supp. 401 (1996)
UNITED STATES of America
v.
Paul E. LOWE, Defendant.
Criminal No. 95-10404-PBS.
United States District Court, D. Massachusetts.
December 6, 1996.
As Corrected January 16, 1997.
*402 Peter Parker, Federal Defender's Office, Boston, MA, for defendant Paul E. Lowe.
Paula J. DeGiacomo, Despena F. Billings, United States Attorney's Office, Boston, MA, for U.S.
MEMORANDUM AND ORDER
SARIS, District Judge.
I. Introduction
This memorandum addresses a challenge to the admissibility of DNA profiling evidence in a criminal trial. On November 8, 1996, Defendant Paul Lowe was convicted of carjacking, in violation of 18 U.S.C. § 2119, kidnapping, in violation of 18 U.S.C. § 1201(a), and forcible transportation of another for criminal sexual activity, in violation of 18 U.S.C. § 2422(a). Prior to trial, pursuant to Fed.R.Evid. 702, 901 and 403, defendant Lowe had filed a motion to exclude evidence that his DNA profile matches the DNA samples in the rape kit of the alleged victim, her clothing, and in her car. Lowe raised essentially three challenges to the government's proffered evidence.
First, Lowe claimed that a new protocol employed by the Federal Bureau of Investigation ("FBI") in generating DNA profiles from forensic samples in this case via a method known as Restriction Fragment Length Polymorphism ("RFLP") analysis is not sufficiently reliable to be admissible. Chemiluminescence along with three other changes to the FBI's RFLP protocol were introduced in October of 1995, and were officially adopted in June of 1996. The other changes challenged here are (1) the elimination of ethidium bromide, (2) use of longer gels, and (3) use of new sizing ladders. Specifically, he alleged that the FBI's adoption of chemiluminescent probes and these other changes in the RFLP typing procedure has yet to undergo adequate scientific validation, rigorous peer review, or acceptance by the relevant scientific community. He also challenged the FBI's practice of comparing DNA profiles generated by the chemiluminescent protocol with databases generated under the old protocol, which used radioactive isotopes in determining population frequency.
Second, Lowe challenged the admissibility of DNA profiles obtained with a typing procedure known as polymerase chain reaction ("PCR") analysis,[1] on grounds that two of three PCR tests conductedthe Polymarker and D1S80have not been adequately validated through scientific testing and the peer review process, and are not generally accepted.
Third, with respect to RFLP and PCR, he further claimed the reliability of the FBI's results cannot be ascertained because the FBI's DNA Unit fails to compile, or make any effort to calculate, laboratory error rates, and because of inadequate proficiency testing.
After due consideration for each of the factors flagged in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), governing the admissibility of scientific evidence, and *403 after four days of extensive evidentiary hearings, on July 30 and September 6, 13 and 17, 1996 the Court DENIED Lowe's motion and sets forth the findings of fact and conclusions of law below.
II. Background
A. The Crime
At trial, the government introduced evidence of the following. Lowe assisted a young woman ("K.") whose car was stuck in a snowbank at the end of her driveway after a snowstorm, in Lowell, Massachusetts. He then forced her to let him in, and drove her to New Hampshire where, in the front passenger seat of the car, he forced her to perform oral sex on him and raped her vaginally. He then drove her in her car back to Lowell, Massachusetts, where he left her, after stealing her jewelry.
The primary defense was consent. Upon arrest, defendant admitted to the police to having sexual intercourse with the woman in an apartment, but insisted that she consented.[2] At trial, defendant claimed K. had a motive to fabricate that her consensual sexual conduct was a rape because of an abusive relationship with her boyfriend.
B. The Forensic Samples
K. told the government she drove to her boyfriend's house and was taken to the hospital later that day, where a rape kit was administered and blood and hair samples taken. Her clothing, an overcoat, and a towel she had used at her boyfriend's house to wipe her vaginal area were collected for forensic examination and analysis. Hair and other biological samples were also collected from both the passenger and driver sides of her automobile. In particular, a swab of human fluid was taken from inside the driver's side window. Upon Lowe's arrest, the blue jeans he was wearing were seized. By order of this Court, Lowe provided blood and hair samples to the government as well as items of his clothing. The FBI's DNA Analysis Unit subjected the forensic samples, along with the known biological samples provided by K. and Lowe, to either RFLP or PCR DNA analysis, and concluded that Lowe's DNA profile is "consistent" with certain of the forensic samples. Corresponding probabilities that this could be of pure coincidence were calculated.[3] The RFLP analysis yielded a match probability of 1 in 11 billion for the Caucasian population. The PCR analysis yielded a figure of one in 810,000 for the same population. Lowe does not dispute his classification as Caucasian, and does not present this Court with any evidence that he belongs to a sub-population (i.e., Swedish).
C. The hearing
During the evidentiary hearing, the Government relied on the testimony of Alan M. Giusti, a forensic examiner at the FBI's DNA Analysis Unit, Scientific Analysis Section ("DNA Unit"), who performed the DNA analyses in this case, and Dr. Martin L. Tracey, a biologist with an expertise in DNA and population genetics. The defendant relied on testimony of Dr. Dan E. Krane, an assistant professor in the Department of Biological Sciences at Wright State University in Ohio. Cited extensively is a Report of the National Research Council, The Evaluation of Forensic DNA Evidence 0-3 (1996) (prepublication copy) [hereinafter "1996 NRC Rep."] which both the government and the defendant agree is an authoritative work in the field.
III. Scientific Background For DNA Profiling
A. A Primer
Human cells contain a nucleus. Within each nucleus there are 46 chromosomes, 23 inherited from each parent. Each chromosome is constructed of deoxyribonucleic acid, or DNA, which "contains the coded information that provides the genetic blueprint" for each individual. United States v. Jakobetz, 955 F.2d 786, 791 (2d Cir.), cert. denied, 506 U.S. 834, 113 S.Ct. 104, 121 L.Ed.2d 63 (1992). Within each human being, the "cells *404 from various tissues, such as blood, hair, skin, and semen, have the same DNA content and therefore provide the same forensic information." 1996 NRC Rep. at 0-3.[4] With the exception of identical twins, the precise configuration of DNA differs from person to person, however, resulting in the physical uniqueness of each individual and the usefulness of DNA typing for the purposes of identification. Id.
The physical structure of DNA resembles "a twisted rope ladder with stiff wooden steps." Id. at 2-2. The sides of the ladder are composed of phosphate and sugar molecules, while each rung is composed of a pair of organic compounds called bases. There are four kinds of bases: adenine ("A"), guanine ("G"), cytosine ("C") and thymine ("T"). Id. Because of their chemical composition, T always pairs with A, and G with C. Id. This strict pairing rule means that the order, or sequence, of bases on one side of the DNA ladder will determine the sequence of the other side. Id.; Jakobetz, 955 F.2d at 791. See Appendix A.
The entire order, or sequence, of base pairs observed in the DNA ladder of a particular individual is the genetic code of that individual. 1996 NRC Rep. at O-4. [Giusti Aff., ¶ 24] A gene is a portion of DNA comprised of anywhere from a few thousand to tens of thousands of base pairs, the specific sequence of which serves as an encoded formula for producing the various proteins that make up the human body, and the particular features of individual human beings, such as blood type, eye color, etc. Id.
B. Variable Number of Tandem Repeats ("VNTR's")
Other fragments of DNA have no known function, but display varying numbers of repeats of a recognizable core sequence of base pairs, known as Variable Numbers of Tandem Repeats ("VNTRs"). Id. at O-6. The position that a gene or other DNA fragment occupies on the DNA ladder is called its "locus." Id. at O-4. At a given locus, sequences that vary in the number of repeats from individual to individual are known as "alleles." Id. at 2-6. Certain loci are particularly useful for forensic analysis because they are highly polymorphic, that is, they have a very large number of alleles, which can be identified by both their core sequence, or distinct order of As, Ts, Cs, and Gs, and their length, or exact number of repeats of each sequence. Id. at O-6. [Giusti Aff. ¶ 27].
When several polymorphic loci are analyzed at once, the possible genetic variability becomes enormous, id., reducing the likelihood that two different DNA samples so analyzed would "match" were the donor of each not the same individual. Mr. Giusti compares VNTRs to boxcars on a train. For example, at a particular locus a sequence such as GTGAGCTT-TTAGTAAAG may repeat itself 70 times or as many as 450 times depending on the individual. Giusti Aff. ¶ 36. Because the number of VNTRs varies from individual to individual, the length of the polymorphic fragments varies commensurately. RFLP analysis measures and compares the length of fragments.
C. Polymorphisms
There are two types of polymorphisms of interest in DNA profiling: length and sequence. Length polymorphisms, or VNTRs, as mentioned, are differences in the length of a particular allele, measured in terms of the number of repeats of a simple core sequence of base pairs. Sequence polymorphisms are differences in the actual sequence of base pairs between alleles found at a particular locus. Id. ¶ 27.
The FBI conducts two different types of tests on DNA that compare biological samples from a known source and forensic samples to determine the likelihood that the two samples originated from the same source. RFLP analysis is designed to detect and measure fragment length variations at a number of different polymorphic regions on the DNA molecule. See 1996 NRC Rep. at 2-9. See also Jakobetz, 955 F.2d at 792.
The PCR procedure is used to analyze bits of DNA too small to be suitable for RFLP analysis, and is generally used to detect and *405 compare specific base-pair sequences. To do this, the PCR protocol requires that the DNA segments be replicated through a process of separation of the DNA strands, and isolation and amplification of the target sequence. See 1996 NRC Rep. at 2-11.
The D1S80 test is a hybrid of the PCR and RFLP methodologies. It detects fragment length polymorphisms in much the same way as RFLP analysis, once the target DNA fragment has been isolated and amplified through the PCR procedure.
PCR, like RFLP, cannot make an absolute identification, but instead generates either an absolute exclusion or an indication that the samples tested are "consistent" with each other, which then requires a further calculation to estimate the probability that a random match would obtain if the samples were not from the same individual. [Giusti Aff. ¶ 153-155.] Both processes are described in greater detail below.
D. RFLP Analysis
RFLP analysis is a widely-accepted and scientifically validated method of forensic DNA testing, which has never been rejected as unreliable in any state or federal court. See 1996 NRC Rep. at 6-9 ("To the best of our knowledge, no state or federal court has held that VNTR profiling [i.e., RFLP analysis] is inadmissible on the grounds that it is not scientifically accepted or sound."). A brief description of the RFLP process (also referred to as VNTR typing) follows. See also Jakobetz, 955 F.2d at 792-93; United States v. Bonds, 12 F.3d 540, 550-51 (6th Cir.1993); 1996 NRC Rep. at 2-6 to 2-11.
First, DNA is extracted from the biological source material and placed in a solution. The DNA solution is then tested to determine whether enough DNA is present in the sample for RFLP analysis to proceed. 1996 NRC Rep. at 2-7.
Second, a restriction enzyme is applied to a biological sample containing DNA which chemically cuts the DNA into small fragments for analysis. Id. The restriction enzyme is designed to recognize a particular DNA sequence and cut the strand at that point. 1996 NRC Rep. at 2-7. The FBI utilizes an enzyme known as Hae III, which recognizes the base sequence GGCC and cuts the DNA between the G and C wherever that sequence is found. Giusti Aff. ¶ 34.
Third, the resulting DNA fragments are placed in "lanes" on a chemical gel to which an electric current is applied. DNA has a net negative charge, and because opposite charges attract, a positive field is applied at one end of the gel. Giusti Aff. ¶ 38. Standard DNA fragments are also run in several lanes of the gel for the purpose of sizing the sample fragments, much like a ruler, and are typically referred to as "sizing ladders" or "markers." In this phase, called gel electrophoresis, the DNA fragments migrate through the gel at different speeds according to their size. When the current is stopped, the shorter fragments will have travelled through the gel farther than the longer fragments. At this point, the fragments are invisible. Id. See Appendix B.
Fourth, the DNA strands are chemically denatured, or "unzipped," separating the ladder of base pairs into two single strands. A process called Southern blotting is then used to transfer the single-stranded fragments from the gel to a nylon membrane, where they occupy the same position as they did on the gel. Id.
Fifth, during a process called hybridization, a single-stranded probe of manufactured DNA having a known sequence of base pairs is applied to the denatured DNA on the membrane. The probe will attach to the corresponding sequence of bases present in the denatured strand on the membrane (A to T & C to G) to recreate the double helix. The probe will attach to as many repeats of that particular sequence as are present in the samples on the membrane. (Giusti test., Tr-1, p. 25) Any remaining probe that does not attach to the target DNA sequence is chemically washed away, 1996 NRC Rep. at 2-7, so that the process can be repeated for different VNTR loci. G. Aff. ¶ 51.
Under the FBI's old protocol, the probes utilized for hybridization contained radioactive atoms. When the membranes are placed on a piece of x-ray film, emissions from the radioactive probe acted as a "flare" to expose the film at locations on the membrane where *406 the probe adhered to the target VNTR in the sample. Id. The resulting image, called an autorad, or autoradiographs, contains dark bands corresponding to the position of the fragments on the membrane, which reveals the distance they travelled through the gel, and thus their relative lengths. The bands appear in columns, with each column corresponding to certain forensic DNA samples and known samples of DNA from a particular person, such as the alleged perpetrator and/or victim, as well as control samples and "blanks" included for quality control purposes (discussed infra). Usually, there are two bands per column because there are two fragments of different length at each locus tested (i.e., one inherited from each parent). Giusti Aff. ¶ 55. See Appendix C.
The position of the bands on the membrane indicate the length of the VNTR segment relative to the bands of the sizing ladder, and can be expressed as an approximate number of base pairs. This process, known as autoradiography, is typically repeated for four to six loci or more,[5] and takes several days for each locus tested. The entire process can thus consume several weeks or months, and presents both health hazards and problems of radioactive waste disposal. Id. at 2-9, 2-11.
E. Genetic Matching
The sixth stage involves comparative analysis of the known and forensic samples to determine whether or not they could have originated from the same source. This requires first that the several columns of bands be compared visually. Bands that appear at the same position along the length of the membrane as other bands pictorially represent VNTR fragments of the same length. If the bands from a forensic sample do not appear to occupy the same position as the bands from a known DNA donor, the latter may immediately be excluded as the source of the forensic sample. If they do appear visually to occupy the same position, then the known sample is consistent with the forensic sample; however, a more refined analysis is performed using a computer to determine whether there is a "match." The computer determines the approximate size of fragments producing the observed bands by comparing them against the sizing ladders. Because there is some inevitable degree of measurement imprecision that does not permit for exact measurement of fragment length, the FBI has adopted a +/-2.5% window which allows a match to be declared "if the [length, or size] difference between the fragments being compared is 5% or less of the mean (or average) of the size of the two fragments being compared." [Giusti Aff. ¶ 58]. See Jakobetz, 955 F.2d at 793.
F. The Fixed Bin System of Matching
The final step in the RFLP process involves statistical analysis of the significance of such a "match," using what is known as the "fixed bin" system. Statistical analysis is employed to determine the frequency at which a given DNA profile appears in a given population, in order to generate a figure representing the probability that a "match" would occur if the known and forensic samples were not from the same individual, i.e., the likelihood of a coincidental match. Using autoradiography, the FBI has developed databases for this purpose for four populations: Caucasian, Black, Hispanic, and Native American,[6] which contain information about the frequency with which fragment sizes appear in these general populations.
For statistical purposes, fragment sizes prevalent in the database populations are grouped in "bins," with upper and lower boundaries corresponding to a range of base pairs (e.g., a hypothetical bin might have boundaries from XXXX-XXXX base pairs). The range of fragment sizes within each bin display a particular frequency with which they appear in the populations listed above. Under its old protocol using autoradiography, the FBI would assign a "matching" DNA fragment to the bin with the highest population frequency within 5% (i.e., +/-2.5%) of *407 its measured value, in order to take account of known measurement imprecision and reach a more conservative (i.e., favorable to the defendant) statistical estimate than it would otherwise reach. [G. Aff. ¶ 70-77]. See Jakobetz, 955 F.2d at 793-94; 1996 NRC Rep. at 5-18 to 5-20. This is known as the "uncertainty window," id. at O-11, or "bin search window."
G. The Frequency Estimate
Finally, an overall statistical estimate is produced that purports to show the incidence at which a person with the same DNA features would be expected to appear in the database populations against which the fragments were compared. The 1996 NRC Report defines random-match probability as follows:
Suppose that a DNA sample from a crime scene and one from a suspect are compared, and the two profiles match at every locus tested. Either the suspect left the DNA or someone else did. We want to evaluate the probability of finding this profile in the "someone else" case. That person is assumed to be a random member of the population of possible suspects. So we calculate the frequency of the profile in the most relevant population or populations. The frequency can be called the random-match probability, and it can be regarded as an estimate of the answer to the question: What is the probability that a person other than the suspect randomly selected from the population, will have this profile? The smaller that probability, the greater the likelihood that the two DNA samples came from the same person.
1996 NRC Rep. at 5-3. See United States v. Chischilly, 30 F.3d 1144, 1157 (9th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 946, 130 L.Ed.2d 890 (1995).
This DNA "profile" is arrived at using a mathematical calculation known as the "product rule." 1996 NRC Rep. at O-20. Once the "matches" have been sorted and binned, the resulting population frequency figures for each of the alleles analyzed are multiplied together, generating an overall "match probability" figure that is more reflective of the expected population frequency for the genetic sample tested than the frequency figure for any single allele alone.[7]
The validity of the product rule in this context depends upon the assumption that the alleles analyzed are statistically independent (i.e., the presence of a fragment of particular length does not result in it being more or less likely that another fragment of a particular length also will appear in that DNA sample). See 1996 NRC Rep. at O-20. See also Cauthron, 846 P.2d at 513. The statistical independence of alleles within a particular locus is known as Hardy-Weinberg equilibrium; statistical independence across loci is known as linkage equilibrium. See 1996 NRC Rep. at O-19.
H. The Confidence Interval
The NRC has advocated a final conservative measure to deal with the statistical uncertainty inherent in an analysis of this sort: it is "safe to assume that the uncertainty of a profile frequency calculated by our procedures from adequate databases (at least several hundred persons) is less than a factor of about 10 in either direction." Id. at O-20.
We conclude that, when several loci are used, the probability of a coincidental match is very small and that properly calculated match probabilities are correct within a factor of about 10 either way.
Id. at O-27. This "ten × factor" is also referred to as a "confidence interval." Both the government and defense experts agree that this NRC proposal fairly eliminates concerns about uncertainties in the binning process. Earlier concerns about allelic independence led to the interim adoption of a modification to the product rule known as the "ceiling principle." This modification was merely a temporary conservative measure adopted to allow for the continued admission of DNA evidence derived through use of the product rule until the debate *408 about population substructure could be resolved. See Id. at O-21. As the interim principle was roundly criticized as arbitrary and unscientific, see 1996 NRC Rep. at O-27, the 10 × factor, or confidence interval, is now generally regarded as a suitable alternative for dealing with the uncertainty that underlies the statistical approach utilized in DNA analysis.[8]See also id. at O-26-27.
I. October 1995 Changes to FBI Protocol
In October of 1995 the FBI introduced a new protocol for RFLP testing procedures which included: (1) elimination of autoradiography in favor of a detection system using chemiluminescencethat is, the radioactive molecules were replaced by luminescent ones to expose the film and thus mark the relative positions of the DNA fragments on the nylon membrane, (2) elimination of ethidium bromide from the gel, (3) use of a "longer" gel, and (4) reliance on a different sizing ladder for visual comparison of the lumigraphs. This new protocol was used in generating the DNA profiles at issue in this case. In every other respect, however, the procedures outlined above were followed.
1. Chemiluminescence
Research efforts on the suitability of chemiluminescence as a substitute for the more expensive, time-consuming and hazardous radioactive technique used in RFLP analysis began at the FBI in 1993. In October of 1995, after internal validation studies had been satisfactorily performed, the technique was formally approved for forensic use. In November, 1995, the FBI's DNA Unit discontinued use of autoradiography in forensic casework altogether. (Giusti Aff. ¶ 95-96).
The change to chemiluminescent detection involves only the hybridization stage of RFLP analysis. Probes bonded with alkaline phosphatase are used rather than radio-active probes. Once the probe bonds with the DNA fragments on the nylon membrane, the membrane is saturated with a chemiluminescent substrate that causes the probes to emit light. As with autoradiography, X-ray film is then placed over the saturated membrane and left to develop. Unlike autoradiography, which can take several weeks to complete and creates problems with radioactive waste disposal and potential health risks to lab technicians, chemiluminescence may be performed quickly and safely. The resulting product, a lumigraph, closely resembles an autorad, and is then visually compared, measured and statistically analyzed according to the same procedures detailed above. (Giusti Aff. ¶ 52-53). Chemiluminescence is a better detection method because it produces a crisper, clearer image than the autoradiographs.
2. Other Changes to the Protocol
In conjunction with its switch to chemiluminescence, the FBI also began using a "longer" gel in the electrophoresis stage, which resulted in better separation of the larger pieces of DNA; discontinued use of ethidium bromide (a carcinogen) in the gel; and introduced different sizing markers (or ladders) more suitable for sizing bands illuminated by lumigraphs than those that had been used for sizing bands on the autorads.
J. Polymerase Chain Reaction Analysis ("PCR")
PCR analysis is an alternative means of analyzing and comparing forensic DNA samples with samples of known origin. The process is important for forensics because it permits DNA profiling of samples containing much smaller quantities of DNAsuch as saliva on a cigarette buttthat cannot be tested via the RFLP method, and because test results are available far more rapidly. *409 1996 NRC Rep. at 2-13. [Giusti test., Day 2]. Indeed, defendants in criminal cases have been known to be as interested in securing its use in this context as prosecutors. See People v. McSherry, 14 Cal.Rptr.2d 630 (Cal.App. 2 Dist.1992) rev. denied, Mar. 19, 1993 (unpublished opinion); Commonwealth v. Francis, 436 Pa.Super. 456, 648 A.2d 49 (1994); Commonwealth v. Curnin, 409 Mass. 218, 222, 565 N.E.2d 440 (1991).
With the PCR process, particular short segments of DNA are copied millions of times, in a process similar to that by which DNA duplicates itself naturally.[9] 1996 NRC Rep. at O-16, 2-11. "PCR is like a genetic photocopy machine," that "mimics DNA's self-replicating properties to make up to millions of copies of the original DNA sample in only a few hours." State v. Moeller, 548 N.W.2d 465, 480 (S.D.1996) (citation omitted). The amplification process is relatively simple, can be quickly carried out in the laboratory, often within 24 hours, is suitable for analyzing degraded DNA, and permits analysis of very small forensic samples that are not amenable to RFLP testing. 1996 NRC Rep. at 2-11. [Giusti Aff. ¶ 146(b)]. Moreover, most PCR tests permit exact identification of each allele at a particular locus, eliminating the measurement imprecision of RFLP, and hence the need for statistical analysis involving matching and binning of VNTR length measurements. 1996 NRC Rep. at 2-11.
After the target segment is replicated, different analyses are performed depending on the locus being probed. There are three loci tested in this case: (1) the DQA1; (2) the Polymarker loci; and (3) the D1S80. For the DQA1 and the five Polymarker ("PM") loci, dot blots are created by the use of DNA probes designed to detect particular sequence variations in the amplified portions of these DNA segments, which permits visual comparison of the sequences of six different gene fragments, and determination of DNA type(s) that are present in a sample. [Giusti Aff. ¶ 141 and 150]. For the D1S80 locus, a process of gel electrophoresis similar in principle to that used in RFLP analysis is performed, and comparisons based on length variations are made between the samples. [Giusti Aff. ¶ 150].
For all three markers, if there is no visual "match" between the depictions of the known and unknown DNA fragments, or if results are inconclusive, an exclusion is declared and the analysis is complete. If, on the other hand, a visual correlation appears, the analysis requires a second step involving statistical determination of "the significance of the matching types obtained." [Giusti Aff. ¶ 141]. As with RFLP analysis, statistical analysis is performed on the PCR test results based upon population databases compiled for the particular markers tested (Caucasian, Black, Southeastern and Southwestern Hispanic).[10] The probability of a *410 random match for a particular sequence is estimated from the frequency that sequence appears in each database. 1996 NRC Rep. at O-23-26. [Giusti Aff. ¶ 155]
PCR analysis is less useful as a tool for positive identification if performed on a single locus because the variation between individuals at a single marker is not very great. For example, about 7% of the population at large has the same DQA type, 1996 NRC Rep. at O-16, which is useful information for quickly clearing a wrongly accused person, but does not itself give particularly strong evidence for positive identification. However, the likelihood that two individuals will share the same sequence and length polymorphisms across several unrelated loci drops dramatically, and very small population frequencies may be calculated. Id. at 6-11 and n. 35. [Giusti test., dir. and cross, Days 2-3]. Therefore forensic PCR analysis is typically conducted across multiple loci and the product rule, applied to the alleles measured in RFLP analysis, is also applied here: the frequency or "match probability" for each locus tested in a particular sample is multiplied together to generate an overall probability that this particular genetic profile will occur in the database populations. Id. at O-20. The same confidence interval discussed in connection with RFLP analysis is then applied to express this overall match probability as a range that could vary by a factor of ten in either direction.
One disadvantage of the PCR method is that the procedure is particularly susceptible to sample contamination, which could confound interpretation of the results and lead to a possibly erroneous conclusion. Id. O-16. Second, because there is less variation between individuals in the make-up of alleles within each of the small segments amenable to the PCR process, more loci must be tested to produce the same degree of discrimination among individuals as the RFLP method generates. Id. This in turn requires that the markers chosen for analysis be "independent," i.e., that they are not associated with disease-causing genes, id. at O-16, genes that influence mate selection (such as height), id. at O-19, or each other. [Giusti test., dir. and cross, Days 2-3]. However, "[t]hese are all problems that can be minimized by proper choice of markers and by care and good technique." Id. at O-16.
IV. Discussion
A. Standard For Admissibility of Scientific Evidence
Under the Federal Rules of Evidence, "the trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589, 113 S.Ct. 2786, 2795, 125 L.Ed.2d 469 (1993). Under Rule 702,[11] the standard of evidentiary reliability for scientific evidence is "based upon scientific validity." Id. at 590 and n. 9, 113 S.Ct. at 2795 and n. 9. Daubert requires that a court considering the admissibility of expert scientific testimony under Rule 702 must make "a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue." Id. at 592-93, 113 S.Ct. at 2796.
Although the Court in Daubert deliberately avoided prescribing a definitive test, id. at 593, 113 S.Ct. at 2796-97, it did outline several non-exclusive factors for consideration in making this assessment. "A key question" is whether the theory, principle or scientific technique has been empirically tested. Id. A "pertinent consideration" is whether it "has been subjected to peer review and publication." Id. Publication, but one element of peer review, is "not a sine qua non of admissibility," and "does not necessarily correlate with reliability." Id. Additionally, a court "ordinarily should consider the known *411 or potential rate of error," id. at 594, 113 S.Ct. at 2797, and the "existence and maintenance of standards controlling the technique's operation." Id. Finally, general acceptance can have a bearing on admissibility, but a reliability assessment "does not require ... explicit identification of a relevant scientific community and an express determination of a particular degree of acceptance within that community." Id. (internal quotation and citation omitted). The goal of this "flexible" inquiry is to establish "the scientific validityand thus the evidentiary relevance and reliabilityof the principles that underlie a proposed submission." Id. at 594-95, 113 S.Ct. at 2797. Ultimately, the Court must also be "mindful" of the "danger of unfair prejudice, confusion of the issues, or [potential for] misleading the jury." Id. at 595, 113 S.Ct. at 2798 (quoting Rule 403).
B. Admissibility of RFLP Analysis in Federal Court
In determining whether RFLP analysis of forensic DNA evidence for identification purposes satisfies Daubert, this Court fortunately does not write on a clean gel. Although the First Circuit has not yet addressed the issue, most federal courts considering the question have held that RFLP analysis satisfies the standards elucidated above. See United States v. Davis, 40 F.3d 1069, 1074-76 (10th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1387, 131 L.Ed.2d 239 and cert. denied, ___ U.S. ___, 115 S.Ct. 1806, 131 L.Ed.2d 732 (1995); United States v. Chischilly, 30 F.3d 1144, 1152-58 (9th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 946, 130 L.Ed.2d 890 (1995); United States v. Bonds, 12 F.3d 540, 550-68 (6th Cir.1993); United States v. Martinez, 3 F.3d 1191, 1195-98 (8th Cir.1993), cert. denied, 510 U.S. 1062, 114 S.Ct. 734, 126 L.Ed.2d 697 (1994); Jakobetz, 955 F.2d 786 (2d Cir.1992) (admitting evidence under pre-Daubert standard approximating Daubert's flexible analysis); United States v. Coronado-Cervantes, 912 F.Supp. 497 (D.N.M.1996). The Massachusetts Supreme Judicial Court has reached the same conclusion. See Commonwealth v. Lanigan, 419 Mass. 15, 641 N.E.2d 1342 (1994) (adopting Daubert under Massachusetts law and admitting RFLP test results in criminal case). Based on this solid phalanx of state and federal caselaw, the 1996 NRC report and the evidence at the Daubert hearing, this Court concludes that the RFLP methodology is reliable. Indeed, defense counsel did not launch a challenge to RFLP methodology generally, but focused on the specific changes to the FBI protocol.
1. Chemiluminescence and the FBI's New Protocol
Although the RFLP profiling procedure has been widely accepted and scientifically validated under Daubert, the use of chemiluminescence rather than autoradiography in the detection phase of forensic analysis is relatively new. As of this writing, no court, state or federal, has considered whether the use of chemiluminescent detection in RFLP analysis is scientifically valid, and therefore, admissible. Thus, this question is one of first impression.
Lowe argues that the substitution of chemiluminescence and the other protocol changes introduced to the FBI's RFLP analysis in October of 1995 are significant enough to require Daubert analysis for admissibility. He urges the Court to find the new protocol wanting under Daubert, particularly with respect to the use of chemiluminescence, because the FBI did not do adequate validation studies prior to implementation, has not published or otherwise submitted for peer review the one comprehensive study that it did conduct (the Headquarters Study), and cannot demonstrate that chemiluminescence is generally accepted. Lowe also urges as an additional ground for exclusion the FBI's alleged failure to document, compile and compute laboratory error rates for its RFLP procedure.
The Government disputes that the switch to chemiluminescence should occasion a full-blown Daubert analysis, as, in its view, it is simply a safer, cleaner and better technique for viewing band lengths, and has absolutely no effect on the validity of the overall methodology. It argues that the other changes are simply incidental to the move away from autoradiography, and bring the FBI's RFLP protocol more in line with the *412 rest of the forensics community. Pursuant to Fed.R.Evid. 104, 702 and 703, regardless of who wins this semantic debate, this Court must conduct a threshold evaluation of the new protocol to ensure reliability. While the protocol may not rise to the heights of a new scientific "methodology," the Daubert factors are helpful in determining its reliability.
a. Testing
Testing of chemiluminescence for clinical use with RFLP began in the early 1990s, and the results of these tests have been peer-reviewed and published. Gov. Exh. 9. The FBI has been a pioneer in expanding the use of chemiluminescence from a clinical to a forensic setting. The FBI conducted two validation studies on chemiluminescence, one of which has been published in the peer-reviewed literature (Quantico Study), and the other presented orally at the 1996 annual meeting of the American Academy of Forensic Sciences (Headquarters Study). Both showed that chemiluminescent detection results in population frequency figures substantially similar to those obtained with radioactive detection.
The FBI's Quantico study compared visual "match" results obtained with chemiluminescent RFLP analysis on non-forensic, or "pristine," DNA samples to those obtained with autoradiography, using the same match criterion, and concluded that chemiluminescence-based procedures "are sufficiently similar to existing procedures, so that there would be minimal disruption in laboratory protocol due to the introduction of the [new] procedures." Giusti, A. and Budowle, B., A Chemiluminescence-Based Detection System for Human DNA Quantitation and Restriction Fragment Length Polymorphism (RFLP) Analysis, 5 Applied and Theoretical Electrophoresis 89-98 (1995) (Gov.Exh. 2).[12] Both Mr. Giusti and Dr. Tracey testified credibly that the same band length information, with equal or better sensitivity, was exposed using lumigraphs as was obtained using autorads. (See Appendix A).
The Headquarters Studynot yet published compared computer-generated band length measurements and statistical population frequencies obtained using chemiluminescence, as well as the three other protocol changes challenged here, on 113 casework samples upon which RFLP analysis under the old protocol had been performed. Although there was "excellent" agreement between autoradiography and chemiluminescence for band length measurement, the FBI did find some "overstatement" of fragment values of one to two percent using lumigraphs, as compared to autorads, particularly with larger fragments (those in excess of ten thousand base pairs). However, 97% of the population frequency results obtained with chemiluminescence were within 3% of the frequencies obtained with radiography, and those results that displayed a greater than 3% difference were for VNTRs containing more than 10,000 base-pairs, found at two particular loci (markers D1S7 and D4S139).
Although fragment length values obtained from lumigraphs and autorads could vary, the FBI argues that any variance was not significant with respect to the reliability of the FBI's RFLP methodology using the new protocol in determining band length. Giusti pointed out that there is a greater degree of measurement imprecision for larger fragments regardless of the detection method used, and that for these two loci RFLP analysis can display variations in excess of 5% on samples from the same individual. Thus, he does not attribute measurement imprecision for large fragments to the method of detection. The FBI does not generally rely on fragment measurements for VNTRs greater than 10,000 base-pairs for forensic analysis because measurement imprecision for DNA fragments of such size is expected under any methodology.
Second, the Headquarters Study also found that the corresponding population frequencies generated from the fixed-bin stage of the analysis, or DNA profiles, varied somewhat when chemiluminescent detection was substituted for autoradiography. Specifically, *413 about 50% of the population frequencies obtained under the new protocol were statistically the same, about 25% were less rare, and about 25% were more rare than those obtained under the old protocol (but "not by more than a factor of two," i.e., one in a million versus one in 500,000). [Giusti dir., Day 2] The FBI concluded, however, that if the bin search window was doubled from +/-2.5% to +/-5%, then the population frequency profiles obtained under a chemiluminescence-based analysis were never more rare than those generated using radioactive detection. [Giusti test., Day 3, G. Aff. ¶ 100].
With the expanded bin search window, a DNA fragment is assigned the band measurement bin having the highest population frequency within a ten, rather than five, percent range of its band length measurement. Mr. Giusti testified that doubling the range within which to search for a higher population frequency, always operates conservatively in the defendant's favor. Dr. Tracey confirmed that the expanded bin search window would "absolutely" account for any variation and assure that use of a chemiluminescent system would never result in a profile more prejudicial to a defendant than the old system.
After an opportunity for discovery of the government's test results, Defendant's expert, Dr. Krane, did not dispute that lumigraphs display the same band length information with equal or greater clarity than autorads. He questioned the FBI's claimed similarity between the computer-generated band length measurements from the chemiluminescent and radioactive RFLP procedures, by testifying, contrary to Mr. Giusti, that in his comparison of the FBI's data[13] he observed that the band measurements from lumigraphs were consistently less than those obtained from autorads on the same samples, although "not by very much." He was unable to conclude, however, that the reliability of the FBI's RFLP analysis was significantly compromised by this observed effect. He further conceded that the FBI's expanded bin search window would "probably" take account of any systemic bias he had perceived "quite easily," although he expressed a desire to see further statistical validation of the FBI's data.
Based on the testimony of Giusti, Tracey and Krane, the Court concludes that the other protocol changes do not affect the admissibility of the RFLP test results so along as the expanded bin search window is used. With respect to the elimination of ethidium bromide, the FBI's new protocol brings it in line with the procedures used by most other forensic scientific laboratories. See Exh. 19A. Although DNA fragments might not move as quickly through a gel containing ethidium bromide as they would through a gel without it, the elimination has no significant effect on the measurement precision of the system because all of the DNA run through the gel, including the sizing ladders used for measurement, is affected equally. With regard to the use of a longer gel, the FBI's validation study confirms that this change would have no significant impact on the analysis of alleles with less than 10,000 base pairs. According to Tracey and Giusti, these changes would not affect any visual matches although they could affect the computer calculation by two to three percent. According to Tracey, the expanded binning window to determine frequency would accommodate any such variation.
The new sizing ladders were designed exactly the same way as the old, but are more appropriate for use with lumigraphs; "fragment length is known as absolutely from one ladder to another." Furthermore, the new sizing ladders were part of the FBI's published validation study involving chemiluminescence, Gov. Exh. 2, as well as the Headquarters Study that was presented at the American Academy of Forensic Sciences, both of which demonstrated that the changes had no significant impact on the reliability of the RFLP process. (See Ex. 19A). All of the protocol changes were encompassed by the Headquarters Study, which served to validate the entirety of the new protocol.
*414 b. Peer Review
The use of luminescent molecules has been published in peer reviewed litigation. The FBI's Quantico Study concluded that chemiluminescence could be substituted for autoradiography in RFLP analysis with improvements in resolution, quality control, versatility and robustness, as well as considerable reductions in time, cost and hazard, and without any loss of sensitivity. It was published in Applied and Theoretical Electrophoresis, a peer-reviewed periodical, in December of 1995, although it was submitted for publication, and thus to the peer-review process, almost one year earlier. (Gov.Exh. 2).
The Headquarters Study, focusing on variation in band length measurements and statistical profiles, and the data concluding that an expanded bin search window is appropriate as a conservative measure, has not been published in a peer review publication. However, the data, results and conclusions of the Headquarters Study were presented at a February 1996 meeting of the American Academy of Forensic Science, which is considered part of the peer review process.
The Army independently conducted and published in a peer-reviewed periodical a validation study for chemiluminescence similar to the FBI's Headquarters Study, and also concluded that there is no significant difference between the use of lumigraphs and autorads in RFLP analysis. Johnson, E. and Katowski, T.M., Chemiluminescent Detection of RFLP Patterns in Forensic DNA Analysis, 41 Journal of Forensic Sciences 569 (1996) (Exh. 6) (concluding that the chemiluminiscent detection system is well suited to use in forensic casework).[14]
c. General Acceptance By Forensic Community
Chemiluminescence is widely accepted in the forensic scientific community. Validation studies have been conducted by both major British forensic law enforcement laboratories (including Scotland Yard) and by two leading commercial manufacturers of RFLP forensic testing kits in America, Cellmark Diagnostics and Lifecodes Corporation. All of these laboratories switched from autoradiography to chemiluminescence prior to the FBI's decision to do so. Chemiluminescence is also used the U.S. Army and Spain. The 1996 NRC Report comments that "some laboratories are beginning to use luminescent molecules as labels on their probes." 1996 NRC Rep. at 2-11. Finally, a national consortium of forensic labs (TWGDAM) reports that an August 1996 survey it conducted revealed that 38% of forensic labs responding currently use chemiluminescent detection in RFLP DNA analysis, and a total of 71% will be using it by February of 1997. (Gov.Exh. 7).
d. Error Rate and Laboratory Standards
Daubert suggests that "known or potential error rate" in the performance of a particular scientific technique should "ordinarily" be considered in the process of determining admissibility. 509 U.S. at 594, 113 S.Ct. at 2797.
The FBI does not compute a systemic laboratory error rate. Giusti contends this is because the FBI has controls in place that are designed to catch and correct errors when they occur, thus preventing systemic error from becoming established at any particular "rate." Lowe insists[15] that Daubert does not give the FBI laboratory the sanguinity of claiming that it is error free, and that even if the FBI catches all of its errors and prevents them from recurring, he has the right to know how often such errors occur. Lowe challenges both the reliability of the evidence per se, and the fairness (i.e., prejudice) of presenting it to the jury without also including an error rate calculation to enable the jury to fairly weigh its probativeness.
*415 With respect to reliability, Lowe has cited no federal cases, and the Court can locate none, that have excluded DNA evidence on account of a theoretical rate of error alone. There is no evidence that the switch to chemiluminescence somehow involves any greater risk of laboratory error. The FBI's validation studies show to the contrary.
To the extent Lowe argues that match probability should only be admitted when laboratory error rate can also be disclosed, the Court heard persuasive testimony from Dr. Tracey that formulaic error "rates" can in fact be misleadingly high, and also present problems of confusing the jury. According to the NRC:
Some commentators have argued that the probability of a laboratory error leading to a reported match for samples from different individuals should be estimated and combined with the probability of randomly drawing a matching profile from the population. ... We believe this approach to be ill advised. It is difficult to arrive at a meaningful and accurate estimate of the risk of such laboratory errors.
1996 NRC Rep. at O-17 (Emphasis added). The NRC instead emphasizes the importance of conforming to established protocol for quality control, id. at 3-11, and recommends that "high quality standards" be followed, "such as those defined by TWGDAM and the DNA Advisory Board." Id. at 3-12.
The DNA Identification Act of 1994, 42 U.S.C. § 14131(a) ("the Act") established the DNA Advisory Board for the purpose of overseeing the setting of national DNA criteria for quality assurance and proficiency tests to be applied to various types of DNA analyses used by forensic laboratories. See 1996 NRC Rep. at 3-11. TWGDAM stands for the Technical Working Group on DNA Analysis Methods, to which the FBI laboratory belongs. The FBI is required to follow the TWGDAM quality assurance guidelines until the FBI Director has acted upon recommendation of the DNA Advisory Group. 42 U.S.C. § 14131(a)(4).
The Act addresses the issue of "blind external proficiency tests" defined as "a test that is presented to a forensic laboratory through a second agency and appears to the analysts to involve routine evidence". By September 13, 1995, the Director of the National Institute of Justice ("NIJ") was required to certify to the House and Senate Committees on the Judiciary that by September 13, 1996 a "blind external proficiency testing program for DNA analysis" would be made available to public and private laboratories, that it was already readily available, or that it was not feasible to have blind external testing for DNA forensic analyses. There is no evidence before this Court as to whether the report was filed. According to the 1996 NRC report, the desirability of requiring blind external testing is still being studied by the NIJ.
Lowe has not argued, and the Court has no independent reason to believe, that the TWGDAM guidelines were not adhered to in this case,[16] or that any national standards have been violated. FBI technicians routinely undergo (twice per year), and have routinely passed internally and externally administered proficiency testing, both open and blind, with respect to RFLN testing. Giusti himself has undergone two open and one blind proficiency test involving the new FBI protocol using chemiluminescence, and has received information from the FBI Quality Control Unit that he correctly matched all samples in the test.[17] No federal or state cases of which this Court is aware suggest that adherence to protocol has been a problem at the FBI. Compare People v. Castro, 144 Misc.2d 956, 974-77, 545 N.Y.S.2d 985, 996-98 (Sup.Ct.1989) (private lab failed to comply with its own guidelines); State v. Schwartz, 447 N.W.2d 422, 428 (Minn.1989) (private lab did not comply with TWGDAM guidelines).
*416 According to the NRC, "[a] wrongly accused person's best insurance against the possibility of being falsely incriminated is the opportunity to have the testing repeated. Such an opportunity should be provided whenever possible." 1996 NRC Rep. at 3-11. Lowe was provided with split samples and such an opportunity to test them himself in this case.
e. Conclusion
Based on the foregoing, the Court concludes that: (1) the chemiluminescent detection procedure can be and has been adequately tested, and has been sufficiently validated and accepted by the relevant scientific community for forensic use in RFLP analysis; (2) the other protocol changes have had no significant impact on the reliability of the FBI's RFLP procedures; (3) the FBI's expansion of the bin search window for lumigraph measurements yields a more conservative DNA profile than the old approach and accommodates for any measurement variations caused by the new detection method; and (4) in the absence of any evidence that the FBI laboratory failed to adhere to required Quality Control protocol in this or other cases, lack of an ascertainable laboratory error rate for the use of chemiluminescence in the RFLP process does not weigh against admission of the evidence, but could impact its weight. In light of this, and the fact that the RFLP process itself has already been admitted under Daubert in numerous federal cases, the Court concludes that the RFLP test results under the new protocol are admissible.
C. PCR Analysis
Lowe does not challenge the reliability of PCR methodology in general. The PCR process for DNA amplification and analysis generally, and its advantages for detection of genetic variation in the forensic context, have been the subject of numerous scientific papers in the peer-reviewed scientific literature. [G. Aff. ¶ 145-148]. The FBI began investigating the forensic capacity of the PCR methodology for various loci in late 1988, and testing the technique for forensic use in 1989. [Giusti test., Day 2]. The FBI began using the PCR process for forensic casework with the DQA1 marker in April of 1992, added the PM loci in August of 1994, and the D1S80 locus in October of 1995. The 1996 NRC Report points out "PCR-based typing is widely and increasingly used in forensic DNA laboratories in this country and abroad." (P. 2-11).
Although no federal court has yet examined PCR methodology under Daubert, courts in at least sixteen states, as well as the U.S. Air Force Court of Criminal Appeals, have admitted the results of PCR testing under either a Daubert- or Frye-type analysis. See Harmon v. State, 908 P.2d 434, 438-42 (Alaska Ct.App.1995) (allowing unspecified PCR test under Frye); Seritt v. State, 647 So.2d 1 (Ala.Ct.Cr.App.1994) (allowing DQA test under Frye); People v. Morganti, 43 Cal.App.4th 643, 50 Cal.Rptr.2d 837, 849-55 (1996) (allowing DQA test under Frye); Redding v. State, 219 Ga.App. 182, 464 S.E.2d 824 (1995) (allowing DQA and D1S80 under Daubert variant); State v. Hill, 257 Kan. 774, 895 P.2d 1238, 1246-47 (1995) (allowing DQA test under Daubert variant); State v. Spencer, 663 So.2d 271, 275-75 (La. Ct.App.1995) (allowing unspecified PCR test under Frye); People v. Lee, 212 Mich.App. 228, 537 N.W.2d 233, 251 (1995), appeal denied, ___ Mich. ___, 554 N.W.2d 12 (1996) (allowing DQA test under Frye); State v. Grayson, No. K2-94-1298, 1994 WL 670312, at *1-5 (Minn.Dist.Ct. Nov. 8, 1994) (unpublished) (allowing DQA test under Frye and Daubert); State v. Moore, 268 Mont. 20, 885 P.2d 457, 467-68, 474-75 (1994) (allowing DQA test under Daubert); State v. Williams, 252 N.J.Super. 369, 599 A.2d 960, 966-67 (Law Div.1991) (allowing DQA test under Frye); People v. Morales, ___ A.D.2d ___, 643 N.Y.S.2d 217, 218-19 (1996) (allowing DQA and Polymarker tests under Frye); State v. Penton, No. 9-91-25, 1993 WL 102507, at *4-5 (Ohio Ct.App. Apr. 7, 1993) (unpublished) (allowing DQA test under Daubert variant); State v. Lyons, 324 Or. 256, 924 P.2d 802 (1996) (allowing DQA test under Daubert variant); State v. Moeller, 548 N.W.2d 465, 479-83 (S.D.1996) (allowing DQA test under Daubert); State v. Begley, No. O1C01-9411-CR-00381, 1996 WL 12152, at *5-7 (Tenn.Crim.App. Jan. 11, 1996) (unpublished) (allowing unspecified PCR test *417 under statute modelled on Rule 702); Campbell v. State, 910 S.W.2d 475, 478 (Tex.Crim. App.1995) (en banc) (allowing DQA test under Daubert), cert. denied, ___ U.S. ___, 116 S.Ct. 1430, 134 L.Ed.2d 552 (1996); Spencer v. Commonwealth, 240 Va. 78, 393 S.E.2d 609, 620-21 (allowing DQA test under Daubert variant), cert. denied, 498 U.S. 908, 111 S.Ct. 281, 112 L.Ed.2d 235 (1990); State v. Gentry, 125 Wash.2d 570, 888 P.2d 1105, 1117-18 (en banc) (allowing DQA test under Frye), cert. denied, ___ U.S. ___, 116 S.Ct. 131, 133 L.Ed.2d 79 (1995); United States v. Thomas, 43 M.J. 626, 633-634 (1995) (allowing Amp-FLP PCR marker test under Daubert). But see State v. Carter, 246 Neb. 953, 524 N.W.2d 763 (1994) (excluding DQA test results on ground that statistical evidence and analysis flawed). In all of the above cases admitting PCR-based testing, the courts held that the methodology had been sufficiently scientifically validated as reliable and/or was generally accepted among forensic scientists for the results to be admitted at trial.
Lowe challenges the FBI's PCR analysis for the following reasons: (1) the Polymarker and D1S80 tests have not been scientifically validated or generally accepted;[18] (2) "independence" between the three loci has not been adequately demonstrated to permit use of the product rule to combine their results; (3) the Government has not demonstrated that the FBI has adequate controls in place to account for the susceptibility of the PCR methodology to contamination where the FBI refuses to seek outside accreditation; and (4) the FBI has failed to establish laboratory error rates for any of the PCR tests it performs. The Court addresses each argument in turn.
1. Scientific Validity of Polymarker and D1S80 Tests
While conceding that the DQA1 test has been widely accepted by the forensic community, Lowe maintains that the Polymarker and D1S80 tests are simply too new for their reliability to have been determined through a peer-review process. At least one state court has admitted results of the Polymarker test, see Morales, 643 N.Y.S.2d at 217, and at least one has admitted the results of D1S80 testing.[19]See Redding, 464 S.E.2d at 824 (affirming acceptance of D1S80 tests administered by one lab and rejection, for reasons that are unclear, of PCR tests administered by another).
The challenged Polymarker and D1S80 tests conducted in this case have been validated for forensic DNA analysis. (G. Aff. ¶ 152; Gov. exh. 13-16). See 1996 NRC Rep. at 2-13; G. Aff. ¶ 165 (citing published studies validating all three of the PCR-based DNA typing methods employed by the FBI). The FBI's validation and population studies covered all three of the PCR marker tests employed in this case and showed their reliability under forensic conditions (robustness). All were submitted to and published in peer-reviewed scientific literature, and no evidence was presented to this Court questioning either the reliability of the studies, or of the test procedures themselves. The 1996 NRC Report states that the technology utilized in various types of PCR tests, including those challenged here, "is thoroughly sound and ... the results are highly reproducible when appropriate quality-control methods ar followed." 1996 NRC Rep. at O-16. It refers to PCR-based DNA testing as "widely and increasingly used in forensic DNA laboratories in this country and abroad," id. at 2-11, and specifically cites the Polymarker loci testing system as "widely used." Id. at 2-13. *418 It notes that D1S80 is "increasingly used," and that it has been validated both for robustness to environmental insults and for independence from other alleles. Id. at 4-31. At least one private forensic laboratory has also extensively used the D1S80 locus (Docket No. 123).
The defense expert Dr. Krane describes the AMP-FLP[20] D1S80 locus as "a novel application which shows great promise" but expresses concerns that the publication of the validation studies in peer-reviewed literature has coincided with the implementation of the methodology with insufficient time for scientific scrutiny by the forensic community. The government retorts that twelve peer-reviewed publications on D1S80 authored within and from outside the FBI demonstrate its reliability and point out the absence of any articles to the contrary.
Based on the favorable description by the National Research Council's Commission on Forensic DNA Science, the peer-reviewed studies, the expert testimony at the Daubert hearing, and the lack of any scientific evidence disputing the reliability of the PCR methodology at any of the three loci, the Court finds that the PCR methodology passes Daubert muster with respect to the DNA profiling at the Polymarker and D1S80 loci. The relative lack of experience with the D1S80 loci testing system (as contrasted with the other loci) may affect the weight of the evidence, but the government has demonstrated that the methodology is reliable.
2. Independence of the Loci and the Product Rule
Lowe's second challenge to the PCR test results involves the use of the product rule to combine the results of all three PCR tests to a single population frequency figure. The validity of using the product rule in this context depends upon the independence, or lack of association between the alleles or loci examined.
The FBI's validation studies demonstrate that there is "little evidence for association of the alleles between the loci" covered by the three PCR tests, including the D1S80. Budowle, B. et al., Validation and Population Studies of the Loci LDLR, GYPA, HBGG, D7S8, AND Gc (PM loci), and HLA-DQα Using a Multiplex Amplification and Typing Procedure 40 Journal of Forensic Sciences 45 (Jan. 1995). The peer-reviewed FBI study pointed out that "the data support that for the seven PCR-based loci the populations meet expectations of independence ..." Id. at 49-50. (Gov.Exh. 13). Finally, it concluded that, just like for the multiple allele profiles obtained in RFLP analysis, "valid estimates of a multiple locus profile frequency can be derived for identity testing purposes using the product rule...." Id. at 53.
Defendant relies on Dr. Tracey's prior testimony in another court proceeding that the test used by the FBI to determine independence between the DQ-Alpha, Polymarker and D1S80 loci was incapable of detecting a deviation of independence of up to thirty percent. Lowe's expert, Dr. Krane, testified that there was some evidence for association, "little as it is," and that this was enough to undermine the reliability of using the product rule to combine the results of these tests, because the validity of the product rule depends upon the assumption that there is no association. He went on to testify, though, that the confidence interval, or 10 × factor, would take account of the evidence of association he could discern in the FBI's data, at least for estimates at or below one in 500 million. Dr. Tracey agreed that the 10 × factor proposed by the NRC was conservative enough to account for any undetected association between the PCR loci, and that this conclusion is consistent with the view of the NRC. See 1996 NRC Rep. at O-20. While the theoretical possibility of an association may be as high as thirty percent, there is no actual evidence of any dependence sufficient to undermine the reliability of the product rule. Thus, while the possible association *419 between the loci may be fodder for cross-examination, there is sufficient reliability for admissibility.
3. FBI's Laboratory Standards
Lowe's final challenge centers on the alleged failure of the FBI's DNA Unit to estimate error rates for its PCR-based procedures, and to maintain adequate and ascertainable laboratory standards to control the particular problem of contamination associated with PCR-based DNA analysis.
a. Contamination
Lowe contends, and the Government does not dispute, that the amplification process renders PCR-based DNA analysis particularly susceptible to contamination, which could affect the reliability of results obtained. He raises concerns about both "cross contamination," involving the contamination of one sample by another during handling before, during or after DNA extraction, and "carryover contamination," which can occur when matter from previous PCR tests remains on or around the laboratory area utilized in the process, contaminating any future samples tested. He contends that the FBI's failure to seek and obtain outside accreditation means there is "essentially no assurance that the FBI lab is free from the very real dangers of contamination," (Doc. # 117 at pp. 11-12) and is therefore fatal to the reliability of the FBI's PCR procedures.
While there is a documented risk that amplification of contaminated DNA could lead to false positives and negatives, 1996 NRC Rep. at 2-12, the NRC has suggested laboratory methods that mitigate this concern. Id. at 3-7 to 3-9. Because "contamination control is a high priority" at the FBI's DNA Unit, the FBI has implemented a series of controls designed to prevent contamination of PCR samples once they reach the FBI laboratory,[21] which conforms to the guidelines adopted by TWGDAM, and is consistent with the precautions recommended by the NRC. [Giusti Aff. ¶ 158-164]. Again, Lowe introduced no evidence that the FBI was not in compliance with its statutory obligation to follow these guidelines, either generally, or with respect to the particular PCR tests conducted in this case.
b. Error Rate
The crux of Lowe's challenge here seems to be that the FBI's failure to undergo blind proficiency testing for its PCR-based tests prior to beginning to utilize them in casework impugns their reliability under Daubert. Citing the earlier 1992 NRC Report, he maintains that blind testing is "essential" to implementation of a new methodology for DNA analysis, and that because neither the D1S80 or Polymarker tests underwent such trials, their results should not be admitted. (Doc. # 117, pp. 6-7) He also raises again in this context the FBI's lack of outside accreditation.
FBI's DNA Unit requires its examiners to undergo regular proficiency testing two times per year. As of the evidentiary hearing in this case, FBI lab technicians had undergone a total of 48 "open" proficiency tests using PCR procedures since PCR was first introduced in 1994. All 48 were conducted for the DQA1 marker test, 24 of the exams covered Polymarker, and 12 covered D1S80. Twenty-six of these proficiency tests were administered internally, by the FBI's Quality Control Unit, a separate division from the DNA Unit, and 22 have been administered *420 externally, by Cellmark Diagnostics.[22]
Although "blind" proficiency tests are conducted for the FBI's RFLP process, no blind tests are conducted for its PCR process. The 1992 NRC report stressed:
Most important, there is no substitute for rigorous proficiency testing via blind trials. Such proficiency testing constitutes scientific confirmation that a laboratory's implementation of a method is valid not only in theory, but also in practice. No laboratory should let its results with a new DNA typing method be used in court, unless it has undergone such proficiency testing via blind trials.
1992 NRC Report at 5.
The 1996 version of the NRC report takes a softer approach:
In open proficiency tests, the analyst knows that a test is being conducted. In blind proficiency tests, the analyst does not know that a test is being conducted. A blind test is therefore more likely to detect such errors as might occur in routine operational However, the logistics of constructing fully blind proficiency tests [to ensure the laboratory will not suspect that it is being tested] are formidable. The "evidence" samples have to be submitted through an investigative agency so as to mimic a real case, and unless that is done very convincingly, a laboratory might well suspect it is being tested. Whichever kind of test is used, the results are reported and, if errors are made, needed corrective action is taken.
1996 NRC Rep. at 0-17. TWGDAM specifies only that DNA examiners undergo two open proficiency tests per year, and that the results, including corrective action taken, be documented. Id. at 3-4. TWGDAM recommends one full blind proficiency test per laboratory per year if such a program can be implemented.[23]Id. The FBI lab claims it is in compliance with TWGDAM requirements, but acknowledges it does not follow the recommendation for blind proficiency testing.
Although the FBI's explanation of why blind testing is not feasible for PCR testing but is feasible for RFLP testing is not persuasive, the lack of such testing is not determinative of admissibility. See United States v. Bonds, 12 F.3d at 560 (allowing FBI DNA profiling evidence although the "deficiencies in calculating the rate of error and the failure to conduct extensive blind proficiency tests are troubling."). The potential for and significance of contamination, the adequacy of proficiency testing, accreditation, and the significance of whether a laboratory estimates error rates all concern the issue of quality control. Absent evidence demonstrating that the particular quality control procedures followed by the FBI laboratory violated a statute, regulation or a generally accepted industry requirement, these issues impact the weight of the evidence rather than its admissibility. See Lee, 537 N.W.2d at 254 (while accreditation is desirable, its absence "should not bar the admissibility of PCR-produced DNA evidence"); Russell, 882 P.2d at 766 (same); Moore, 885 P.2d at 475 (contamination can occur with virtually any physical evidence, and thus goes to weight, not admissibility); Lyons, 924 P.2d at 813. ("The potential for contamination may present an open field for cross-examination or may be addressed through the testimony of defense experts ... [but] does not mean that the PCR method itself is inappropriate for forensic use."); Commonwealth v. Teixeira, 40 Mass.App.Ct. 236, 240, 662 N.E.2d 726 (1996), review denied, 422 Mass. 1107, 664 N.E.2d 1197 (weaknesses in laboratory's proficiency testing go to weight of DNA evidence, not its admissibility); Commonwealth v. Clark, Mass.Sup.Ct. slip op. (May 1996) (Brady, Patrick J.) (unpublished) ("The concept of error rate does not yet have such a firm, fixed meaning in the forensic testing community that the absence of a procedure to establish it is a fatal flaw to the admission *421 of the evidence.") See also 1996 NRC Rep. at 6-12 ("Most courts have decided that [criticisms about contamination potential of forensic PCR analysis] are pertinent to assessing the weight of the evidence but do not warrant the wholesale exclusion of PCR-based tests.") (footnotes omitted).
In sum, the Court is satisfied that the Government has established the scientific validity, and thus the evidentiary reliability, of the tests and techniques employed in the PCR-based DNA analysis conducted in this case, as required by Daubert.
ORDER
Based on the foregoing reasons, it is hereby ORDERED:
1. Lowe's motion to exclude the results of RFLP DNA analysis conducted by the FBI in this case (Docket No. 104) is DENIED.
2. Lowe's motion to exclude the results of PCR DNA testing conducted by the FBI in this case (Docket No. 117) is DENIED.
*422 APPENDIX A
*423 APPENDIX B
*424 APPENDIX C
NOTES
[1] The three PCR-based tests employed in this case were the Polymarker, D1S80, and the DQ-alpha test, referred to here as DQA1.
[2] As it turns out, the government never offered the defendant's admission as evidence, and the defendant did not testify.
[3] The samples were split so that the defense would have an opportunity to subject them independently to forensic DNA testing. Lowe has declined to inform the Court of the results, if any, of his independent analysis.
[4] This second report is designed to address certain questions left unanswered and controversies generated by the first NRC report. See National Research Council, DNA Technology in Forensic Science (1992).
[5] In this case, the FBI used six probes. Giusti Aff. ¶ 89.
[6] Each of the first three contain DNA profiles of 500 to 700 samples. The Native American database contains approximately 200 samples. Giusti Aff. ¶ 73.
[7] For example, if the probabilities of finding alleles A, B and C in the population is 1 in 10, 1 in 5, and 1 and 20, respectively, the product rule principle dictates that only 1 in 1000 persons will match all 3 (1/10 × 1/5 × 1/20 = 1/1000). See State v. Cauthron, 120 Wash.2d 879, 846 P.2d 502, 513 (1993) (en banc).
[8] Although the confidence interval was a battle-ground in the Daubert hearing, defendant did not cross-examine the expert on the 10 × factor, the ceiling principle or the artificial cap the FBI testified it used in its statistical analysis at trial. At side bar, the Court specifically flagged the failure of the defendant to object when Mr. Giusti did not testify as to the 10 × factor. Nonetheless, the testimony of the government expert went in without objection on this point. As the primary theory of defense was consent, not identity, this strategic decision made sense. Indeed, a challenge to the identity of the alleged assailant was not a feasible theory of defense as defendant was arrested with K.'s jewelry on. The Court refused to exclude the evidence pursuant to Fed.R.Evid. 403 as it was probative not only on the issue of identity but also on the location of the alleged rape. Its probative value was not substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury.
[9] Amplification occurs through the following three-step process:
First, each double-stranded segment is separated into two strands by heating. Second, these single-stranded segments are hybridized with primers, short DNA segments (20-30 nucleotides [i.e., base pairs] in length) that complement and define the target sequence to be amplified. Third, in the presence of the enzyme DNA polymerase, and the four nucleotide building blocks (A, C, G, and T), each primer serves as the starting point for the replication of the target sequence. A copy of the complement of each of the separated strands is made, so that there are two double-stranded DNA segments. This three-step cycle is repeated, usually 20-35 times. The two strands produce four copies; the four, eight copies; and so on until the number of copies of the original DNA is enormous.
1996 NRC Rep. at 2-11; Giusti Aff. ¶ 150. See also Spencer v. Commonwealth, 240 Va. 78, 393 S.E.2d 609, 620, cert. denied, 498 U.S. 908, 111 S.Ct. 281, 112 L.Ed.2d 235 (1990) (detailing PCR process).
[10] The number of donors in the databases assembled for PCR analysis are smaller than those created for RFLP. The RFLP databases are based upon data from between 500 to 700 persons, with the exception of the Native American database, which rests on data from some 200 persons. [Giusti Aff. ¶ 73]. In contrast, the databases for DQA1 and PM consist of data from 298 Caucasians, 338 Blacks, 164 Southwestern Hispanics, and 265 Southeastern Hispanics; databases for D1S80 consist of 718 Caucasians, 606 Blacks, 247 Southeastern Hispanics and 162 Southwestern Hispanics. [Id. ¶ 155]. Lowe suggested at one point during the hearing that the PCR databases were too small for frequency estimates premised upon them to be reliable. However, the government's experts testified, and Lowe's expert did not dispute, that a database of several hundred individuals is sufficient. See 1996 NRC Rep. at 0-20. The Polymarker and D1S80 databases for the Caucasian population were culled from 298 and 718 persons, respectively.
[11] Rule 702 provides:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.
[12] This peer-reviewed publication concerned just chemiluminescence, not the entire new protocol, which includes the other three changes.
[13] Dr. Krane examined the results of both open and blind proficiency tests performed by Mr. Giusti, as well as the data from the Headquarters study on the 113 casework samples.
[14] The Army study did not conclude that an expanded bin search window was necessary because it did not demonstrate any statistically significant differences in the measurements obtained with chemiluminescence. Mr. Giusti testified during the hearing that the expanded window was a conservative measure that might not prove necessary in the long run.
[15] After discovery, Lowe does not argue, and elicited no testimony tending to suggest, that an error was committed in the testing procedures conducted in this case.
[16] Defendant did introduce in camera documents regarding alleged deficiencies in the proficiency testing at the time the population databases were complied. I find that these hearsay allegations were insufficient to undercut the reliability of the population studies.
[17] The known DNA sample (K562), run as a control along with every forensic analysis performed in the DNA Unit, was designed to serve the purpose of catching errors if and when they occur during an actual forensic test.
[18] He does not challenge the DQA1 test on this ground.
[19] The results of both the Polymarker and D1S80 tests administered in connection with several criminal cases consolidated for evidentiary hearings were recently rejected by a comprehensive unpublished opinion of Massachusetts Superior Court Judge Moriarty, who relied on the testimony of Dr. Budowle, the FBI witness, on September 18, 1995, that the Polymarker technique, although reliable, had only been in use for about a year, and that the D1S80 test had just been started for casework in the FBI. The ruling is now being considered by the Supreme Judicial Court on interlocutory appeal by the Commonwealth. See Commonwealth v. Sok, Mass.Sup.Ct. No. 92-10979 at 194. At the hearings before me which concluded on September 17, 1996, the FBI had the benefit of an additional year of use of these PCR testing systems.
[20] "AMP-FLP" is the designation for the PCR system test on fragment length polymorphisms because the VNTR at the particular locus is amenable to amplification and analysis. The FBI has tested and rejected the AMP-FLP test on another locus, "APOB." See generally United States v. Thomas, 43 M.J. at 633 (allowing the results of the PCP-AMP-FLP test in the APOB region conducted by a German laboratory).
[21] These include:
(1) Known ("K") samples are always processed separately from unknown ("Q") samples;
(2) DNA is extracted in a separate biological containment room that is isolated from the area where samples are stored;
(3) Amplification of extracted samples is performed in yet another biologically contained lab room separated from the extraction facility;
(4) Lab technicians are prohibited from working in both rooms on the same day;
(5) Every sample is processed together with a known control sample, labelled K562, the results of which should be the same in every test run;
(6) Every sample is also processed together with a "blank" sample, containing no DNA, which will pick up and display any DNA contamination present.
If any indication of contamination appears in either the blank or K562 samples run in a particular test, Mr. Giusti testified that FBI protocol requires that the results be discarded.
[22] Until recently the FBI's Quality Control Unit, a separate division from the DNA Unit, administered and evaluated the proficiency testing for the lab. Now the FBI contracts with Cellmark to conduct proficiency testing and evaluate the results for the DNA Unit.
[23] Because the TWGDAM guidelines have not been submitted as an exhibit, the Court does not have the precise wording. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1498251/ | 645 F.Supp.2d 841 (2007)
NATURAL RESOURCES DEFENSE COUNCIL, INC., et al., Plaintiffs,
v.
Donald C. WINTER, Secretary of the Navy, et al., Defendants.
No. 8:07-cv-00335-FMC-FMOx.
United States District Court, C.D. California.
August 7, 2007.
*844 Alan J. Heinrich, Gregory Alan Fayer, Richard B. Kendall, Irell & Manella, Los Angeles, CA, Andrew Elsas Wetzler, Cara *845 Ann Horowitz, Joel R. Reynolds, Natural Resources Defense Council, Santa Monica, CA, for Plaintiffs.
Assistant U.S. Attorney SACV, Santa Ana BranchCivil Div., Santa Ana, CA, Charles R. Shockey, A.U.S.A. Office of the U.S. Attorney, Guillermo Montero, Luther L. Hajek, U.S. Department of Justice, Washington, DC, Michael R. Eitel, U.S. Department of Justice, Environment and Natural Resources DivisionWildlife Section, Denver, CO, George S. Cardona, A.U.S.A.Office of U.S. Attorney, Los Angeles, CA, for Defendants.
ORDER DENYING DEFENDANTS' MOTION TO DISMISS OR STAY AND GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION
FLORENCE-MARIE COOPER, Judge.
This matter is before the Court on Defendants' Motion to Dismiss or Stay (docket no. 14) and Plaintiffs' Motion for Preliminary Injunction (docket no. 21), filed June 22, 2007. The Court has read and considered the moving, opposition, and reply documents submitted in connection with these motions. The matter was heard on August 6, 2007, at which time the parties were in receipt of the Court's Tentative Order. For the reasons and in the manner set forth below, the Court hereby GRANTS IN PART AND DENIES IN PART Plaintiffs' Motion for Preliminary Injunction and DENIES Defendants' Motion to Dismiss or Stay.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
This litigation arises out of the United States Navy's proposed use of mid-frequency active (MFA) sonar, a tool that has proven far more effective at detecting modern quiet-running diesel electric submarines than passive sonar. (Decl. of Capt. Martin May (May Decl.) ¶¶ 8-10.) MFA sonar, which generates underwater sound at extreme pressure levels, has the unfortunate side effect of harming marine life, up to and including causing death. (See, e.g., Decl. of Thomas Jefferson (Jefferson Decl.) ¶ 4 and sources cited therein.) The Navy plans to use MFA sonar during fourteen large-scale training exercises (involving various ships, submarines, amphibious vehicles, rotary and fixed-wing aircraft, and live ordinance) off the coast of southern California between February 2007 and January 2009. (Decl. of Luther Hajek (Hajek Decl.), Ex. 1 at 2-1 to 2-24.) The Navy's own Environmental Assessment (EA) reports that these activities, comprised of Composite Training Unit Exercises (COMPTUEX) and Joint Task Force Exercises (JTFEX), will result in approximately 170,000 "takes"[1] of marine mammals. (Id. at 4-46 to 4-47.) These takes are predominantly "Level B harassment exposures," in which marine mammals would be subjected to sound levels of between 170 and 195 decibels,[2] but also include approximately 8,000 exposures powerful enough to cause a temporary threshold shift in the affected mammals' sense of hearing and an additional 466 *846 instances of permanent injury to beaked and ziphiid whales. (Id.)
Despite these findings, the Navy concluded that its JTFEX and COMPTUEX exercises in the Southern California Operating Area (SOCAL) would not cause a significant impact on the environment and on that basis decided that the National Environmental Policy Act (NEPA) did not require it to prepare an Environmental Impact Statement (EIS). In addition, the Navy determined that the use of MFA sonar would not affect natural resources in California's coastal zone and therefore submitted a "consistency determination" (CD) to the California Coastal Commission (CCC) for the exercises that did not take the planned use of MFA sonar into account. It also refused to adopt the mitigation measures the CCC subsequently determined were necessary for the Navy's actions to comply with the California Coastal Management Program (CCMP). (See Decl. of Cara Horowitz (Horowitz Decl.), Ex. 67 at 9.)
On March 22, 2007, Plaintiffs, five environmental protection groups and Jean-Michel Cousteau, filed this action against Defendants, which include the United States Department of the Navy and the National Marine Fisheries Service (NMFS), seeking declaratory and injunctive relief for Defendants' violations of NEPA, the Endangered Species Act (ESA), the Administrative Procedures Act (APA), and the Coastal Zone Management Act (CZMA). On June 22, 2007, Plaintiffs moved for a preliminary injunction enjoining the Navy's use of MFA sonar during the SOCAL exercises "until the Navy adopts mitigation measures that would substantially lessen the likelihood of serious injury and death to marine life." That same day, Defendants filed a Motion to Dismiss or Stay.
DISCUSSION
I. Defendants' Motion to Dismiss or Stay
Defendants have asked the Court, "for purposes of judicial economy," to exercise its inherent power to manage its docket by dismissing this action, which it argues is duplicative of Natural Res. Def. Council v. Winter, CV 05-7513 FMC (FMOx) (hereinafter NRDC I), or staying the action pending resolution of NRDC I and California Coastal Comm'n v. U.S. Dep't of the Navy, CV 07-1899 FMC (FMOx). The Court finds that the instant case does not constitute "vexatious litigation," as Defendants argue, and declines to exercise its broad discretion in the service of judicial economy by dismissing or staying this subsequently filed action that involves additional parties, asserts new legal claims, and is premised on new factual developments, particularly where a dismissal or stay would likely preclude any review of the claims on their merits until after completion of the challenged activities, which Plaintiffs contend will cause irreparable harm. Accordingly, the Court denies Defendants' Motion to Dismiss or Stay.
II. Plaintiffs' Motion for Preliminary Injunction
Plaintiffs have asked the Court to issue a preliminary injunction prohibiting the Navy from using MFA sonar during the remaining eleven SOCAL exercises. "A preliminary injunction may issue when the moving party demonstrates either `(1) a combination of probable success on the merits and the possibility of irreparable harm; or (2) that serious questions are raised and the balance of hardships tips in its favor.'" Faith Ctr. Church Evangelistic Ministries v. Glover, 480 F.3d 891, 906 (9th Cir.2007) (quoting A & M Records v. Napster, Inc., 239 F.3d 1004, *847 1013 (9th Cir.2001)); see also Cmty. House, Inc. v. City of Boise, 468 F.3d 1118, 1123 (9th Cir.2006). "These two options represent extremes on a single continuum: `the less certain the district court is of the likelihood of success on the merits, the more plaintiffs must convince the district court that the public interest and balance of hardships tip in their favor.'" Lands Council v. Martin, 479 F.3d 636, 639 (9th Cir.2007) (quoting Sw. Voter Registration Educ. Project v. Shelley, 344 F.3d 914, 918 (9th Cir.2003)) (en banc) (per curiam); see also A & M Records, 239 F.3d at 1013 (criteria form a "sliding scale" whereby the required degree of harm increases as the likelihood of success decreases); United States v. Nutri-cology, Inc., 982 F.2d 394, 398 (9th Cir.1992) (same).
A. Probability of Success on the Merits
Plaintiffs allege that Defendants (1) failed to prepare a required EIS, (2) failed to prepare an adequate Environmental Assessment, (3) failed to submit a consistency determination that included all federal activities that would affect California's coastal zone to the CCC for consistency review, (4) failed to carry out federal activities that affect California's coastal zone in a manner consistent with the CCMP, and (5) failed to prepare an adequate Biological Opinion (BiOp) and Incidental Take Statement (ITS). Having reviewed the voluminous evidence the parties have presented, the Court finds that Plaintiffs have demonstrated a probability of success on the merits of their first four causes of action, for violations of NEPA, the APA, and the CZMA, but not their fifth cause of action, for violation of the ESA.
1. The National Environmental Policy Act (NEPA)
Plaintiffs contend that Defendants violated NEPA by (a) failing to prepare an EIS despite the potential for the challenged exercises to have a significant impact on the environment and (b) by failing to prepare an adequate EA that considered the cumulative impacts of, and all reasonable alternatives to, the proposed actions.
In 1970, Congress passed the National Environmental Policy Act and declared "a national policy which will encourage productive and enjoyable harmony between man and his environment." 42 U.S.C. § 4321. The purpose of NEPA was "to promote efforts which will prevent or eliminate damage to the environment," as well as "to enrich the understanding of the ecological systems and natural resources important to the Nation." Id. NEPA does not contain any substantive requirements that dictate a particular result; instead, NEPA is aimed at ensuring agencies make informed decisions and "contemplate the environmental impacts of [their] actions." Idaho Sporting Congress v. Thomas, 137 F.3d 1146, 1149 (9th Cir. 1998); Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 349, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989) (concluding that NEPA "ensures that the agency, in reaching its decision, will have available, and will carefully consider, detailed information concerning significant environmental impacts; it also guarantees that the relevant information will be made available to the larger audience that may also play a role in both the decisionmaking process and the implementation of that decision.").
In addition to aiding internal agency decisionmaking, preparation and publication of an EIS "also serves a larger informational role. It gives the public the assurance that the agency has indeed considered environmental concerns in its decisionmaking process, and, perhaps more significantly, provides a springboard for public comment." Robertson, 490 U.S. at *848 349, 109 S.Ct. 1835 (internal quotations and citations omitted).
In pursuit of these goals, NEPA mandates the preparation of an EIS for all proposed "major Federal actions significantly affecting the quality of the human environment." 42 U.S.C. § 4332(2)(C). The Ninth Circuit has interpreted this provision as requiring agencies to prepare an EIS "where there are substantial questions about whether a project may cause significant degradation of the human environment." Native Ecosystems Council v. United States Forest Serv., 428 F.3d 1233, 1239 (9th Cir.2005) (emphasis in original). As the preparation of an EIS can be a costly and time-consuming process, agencies first complete an EA. 40 C.F.R. § 1508.9. If, based on this assessment, the agency concludes that the proposed actions will not significantly affect the environment, it may issue a "Finding of No Significant Impact" (FONSI) and forego completion of an EIS. Bob Marshall Alliance v. Hodel, 852 F.2d 1223, 1225 (9th Cir.1988); 40 C.F.R. § 1508.13. Agencies must complete an EA and, as necessary, an EIS before reaching a final decision or making an "irreversible and irretrievable commitment of the availability of resources." Environmental Defense Fund, Inc. v. Andrus, 596 F.2d 848, 852 (9th Cir.1979).
Defendants insist that they were not required to prepare an EIS, and that their issuance of a FONSI was proper, because the SOCAL exercises will not cause a significant impact on marine life. In the Ninth Circuit, courts reviewing an agency's decision not to prepare an EIS under NEPA "employ an arbitrary and capricious standard that requires [them] to determine whether the agency has taken a `hard look' at the consequences of its actions, based its decision on a consideration of the relevant factors, and provided a convincing statement of reasons to explain why a project's impacts are insignificant." Native Ecosystems Council v. U.S. Forest Service, 428 F.3d 1233, 1239 (9th Cir.2005) (internal quotations and citations omitted). To prevail on a claim that an agency "violated its statutory duty to prepare an EIS, a plaintiff need not show that significant effects will in fact occur. It is enough for the plaintiff to raise substantial questions whether a project may have a significant effect on the environment." Blue Mts. Biodiversity Project v. Blackwood, 161 F.3d 1208, 1212 (9th Cir.1998) (internal quotations and citations omitted).
The Court finds that Plaintiffs have raised substantial questions as to whether the SOCAL exercises will have a significant impact on the environment. Mass strandings of several species of whales following naval exercises have been documented in the Bahamas, the Canary Islands, Hawaii, North Carolina, Japan, Greece, Spain, Taiwan, the Madeira archipelago, and the U.S. Virgin Islands. (See generally, Horowitz Decl. Exs. 1-16.) Following comprehensive studies of these events, the International Whaling Commission's Scientific Committee concluded that "[t]he weight of accumulated evidence now associates mid-frequency, military sonar with atypical beaked whale mass strandings. This evidence is very convincing and appears overwhelming." (Horowitz Decl., Ex. 1, Annex K at 9.) A study sponsored by the Navy's own Office of Naval Research similarly concluded, "the evidence of sonar causation is, in our opinion, completely convincing and that therefore there is a serious issue of how best to avoid / minimize future beaching events." (Horowitz Decl., Ex. 17 at 1 (concluding that a lack of understanding regarding the damage mechanism precluded modifications to the sonar waveform as a mitigation strategy and proposing alternative mitigation measures).)
*849 Defendants argue that the circumstances in each of these numerous other stranding events are unique and distinguishable from what will occur in southern California. Defendants note that they have been conducting naval exercises while using MFA sonar in the SOCAL range for thirty years and that there have been no strandings "alleged to be related to the Navy's use of MFA sonar," and that it simply "defies reason to argue that there have been adverse impacts that have gone unnoticed all that time." The Court disagrees.
First, in light of how challenging it is to detect even the presence of deep diving beaked whales and other cetaceans particularly vulnerable to MFA sonar, a lack of documented evidence of the disturbance, injury, or even death of marine mammals in a particular geographic area does little to prove that MFA sonar never caused such adverse effects. Indeed, in its 2006 U.S. Pacific Marine Mammal Stock Assessment, the National Oceanic and Atmospheric Administration (NOAA) noted in its discussion of mortalities caused by anthropogenic noise, such as MFA sonar, that "[s]uch injuries or mortalities would rarely be documented, due to the remote nature of many of these activities and the low probability that an injured or dead beaked whale would strand." (Horowitz Decl., Ex 46 at 151 (emphasis added).)
Second, the Navy's own EA predicts that the SOCAL exercises will disturb or injure nearly thirty species of marine mammals, including endangered and threatened species. As discussed above, the Navy's report concludes that its actions will result in approximately 170,000 instances of Level B harassment, including 8,000 temporary threshold shift (TTS) exposures and 466 cases of permanent injury to beaked and ziphiid whales. (Hajek Decl., Ex. 1 at 4-46 to 4-47.) The predicted permanent injury of 436 Cuvier's beaked whales is especially significant in light of NOAA's estimate that there are as few as 1,211 such whales remaining off the entire U.S. west-coast. The EA also predicts 710 "takes," including twenty-eight TTS exposures, of blue whales, fin whales, humpback whales, sei whales, and sperm whalesall of which are endangered species.
Boxed in by its own findings, the Navy has argued that its environmental assessment, on which it based its decision not to prepare an EIS, is methodologically flawed and inaccurate. Defendants contend that the EA makes a number of assumptions that led it to overestimate the amount of harm the SOCAL exercises will cause, including: (1) marine mammals are uniformly distributed over the SOCAL range, (2) marine mammals have omni-directional hearing, (3) marine mammals would be exposed to the maximum sound intensity level based on their horizontal distance from its source, and (4) that marine mammals will not dive or exhibit other avoidance behavior.
The Court is simply not equipped to evaluate the merits of these contentions. It is not the place of lawyers or the Court to conduct a de novo review of the scientific conclusions of an agency, in this case revising the total number of takes and injuries by altering the underlying assumptions to the scientific study, and on that basis finding the SOCAL exercises will not have a significant impact on the environment. The Court has no basis with which to judge how and to what extent changing any of the challenged assumptions would impact the Navy's prior conclusions.
Moreover, it is not even clear that the assumptions necessarily led to an over estimation of the number of takes. For example, if marine mammals were not, in fact, uniformly distributed over the SOCAL *850 range, and instead were concentrated in the area where the exercises took place, even more marine mammals would be harassed or injured than the EA predicts. In addition, rapid diving and avoidance behavior prompted by the use of MFA sonar has been associated with injuries such as hemorrhaging around the brain, ears, kidneys, and acoustic fats, acute spongiotic changes in the central nervous system, and gas/fat emboli and lesions in the liver, lungs, and other vital organs. (Decl. of Sentiel Rommel ¶ 7.) Failure to take such avoidance behavior into account may therefore also have led the Navy to underestimate the number of takes that would occur.
Finally, Plaintiffs argue that Defendants' EA has additional methodological deficiencies, such as using highly trained, captive animals desensitized to anthropogenic noise to determine the sound level thresholds for harassment and injury, that lead it to "grossly underestimate] both the volume and severity of likely impacts on marine life." Although the number of takes listed in the EA are simply predictions, and may over or underestimate the actual harm that will occur, the Court is satisfied that the agency "made a reasoned decision based on its evaluation of the evidence." Earth Island Inst. v. United States Forest Serv., 351 F.3d 1291, 1301 (9th Cir.2003) ("Because analysis of scientific data requires a high level of technical expertise, courts must defer to the informed discretion of the responsible federal agencies."); Marsh v. Ore. Natural Res. Council, Inc., 490 U.S. 360, 378, 109 S.Ct. 1851, 104 L.Ed.2d 377 (1989) ("When specialists express conflicting views, an agency must have discretion to rely on the reasonable opinions of its own experts, even if a court may find contrary views more persuasive.").
Based on the studies establishing a scientific consensus on the correlation between the use of MFA sonar and mass whale strandings, the evidence indicating MFA sonar disrupts activities critical to marine mammals' survival, such as food foraging and mating, and the conclusions of the Navy's own scientific study that the SOCAL exercises will cause 170,000 Level B harassment exposures and 466 permanent injuries to marine mammals, including five endangered species, the Court finds that Plaintiffs have raised substantial questions as to whether the SOCAL exercises will have a significant impact on the environment. Plaintiffs have therefore demonstrated a probability of success on their claim that the Navy's failure to prepare an environmental impact statement was arbitrary and capricious and in violation of NEPA and the APA.
The Court further finds that Plaintiffs have demonstrated a probability of success on their claims that Defendants' proposed mitigation measures were inadequate. An agency may avoid the requirement to prepare an EIS by adopting mitigation measures sufficient to eliminate any substantial questions over the potential for significant impact on the environment. National Parks & Conservation Ass'n, 241 F.3d at 733-34. ("In evaluating the sufficiency of mitigation measures, we consider whether they constitute an adequate buffer against the negative impacts that may result from the authorized activity. Specifically, we examine whether the mitigation measures will render such impacts so minor as to not warrant an EIS."). The mitigation measures Defendants have proposed in the instant case are far from sufficient to obviate the need for an EIS. Ironically, Defendants have actually reduced their mitigation efforts and adopted measures even less protective than those the Court previously found insufficient. (See CV 06-4131 FMC (FMOx), July 3, 2006, Temporary Restraining Order and *851 July 5, 2006, Order Denying Defendants' Ex Parte Applications.) The Navy has eliminated (1) its provisions requiring power-downs during surface ducting conditions (when sound travels greater distances), at night and in other low visibility conditions (when whales that would be affected are more difficult to see); (2) the twelve nautical mile coastal buffer zone, and (3) additional protection measures during "chokepoint" exercises.
What few mitigation measures remain continue to be ineffective. A "safety zone" of 1,000 yards, for example, does little to mitigate the impact of MFA sonar's effect on beaked whales where sound levels may not dissipate to sublethal levels for 5,000 meters. (See Horowitz Decl., Ex. 59 (acoustic energy map); Decl. of Linda Weilgart (noting mortality may occur at levels between 170-184 dB and as low as 150-155 dB); Decl. of Edward Parsons (Parsons Decl.) ¶ 17 (noting that sound can travel hundreds of miles under water).) The presence of visual monitors looking for whales is likewise of little value where beaked whales, which are the most susceptible to injury from MFA sonar, are regularly submerged in deep dives that last as long as sixty minutes. (Parsons Decl. ¶ 10; Horowitz Decl., Ex. 44 (study finding a 5 percent chance under ideal conditions of observing the presence of beaked whales close to a vessel, and a 0 percent chance of detecting a beaked whale at 1 kilometer using 7x binoculars).)
Plaintiffs have also demonstrated a probability of success on their claims that Defendants violated NEPA because their EA failed to consider reasonable alternatives or cumulative impacts. The Ninth Circuit has concluded that, in furtherance of NEPA's goal "that federal agencies infuse in project planning a thorough consideration of environmental values," federal agencies must sufficiently study, develop, and describe alternatives as part of the "environmental decisionmaking process." Bob Marshall Alliance v. Hodel, 852 F.2d 1223, 1228 (9th Cir.1988) (internal quotations and citations omitted). The environmental decisionmaking planning process requires the Navy to give "full and meaningful consideration" to reasonable alternatives. Natural Resources Defense Council v. Evans, 279 F.Supp.2d 1129, 1165-66 (N.D.Cal.2003); see also National Parks & Conservation Ass'n v. Babbitt, 241 F.3d 722, 733 (9th Cir.2001) ("... repeated generic statement that the effects are unknown does not constitute the requisite `hard look' mandated by the statute if preparation of an EIS is to be avoided").
As the Ninth Circuit has explained:
consideration of alternatives is critical to the goals of NEPA even where a proposed action does not trigger the EIS process. This is reflected in the structure of the statute: while an EIS must also include alternatives to the proposed action, 42 U.S.C. § 4332(2)(C)(iii)(1982), the consideration of alternatives requirement is contained in a separate subsection of the statute and therefore constitutes an independent requirement. See id. § 4332(2)(E). The language and effect of the two subsections also indicate that the consideration of alternatives requirement is of wider scope than the EIS requirement.
Bob Marshall Alliance v. Hodel, 852 F.2d 1223, 1228-29 (9th Cir.1988).
It does not appear that Defendants adequately considered reasonable alternative mitigation measures, such as those proposed by the CCC, used by allies such as Australia during exercises employing MFA sonar, or even those the Navy itself employed during RIMPAC 2006. (See Hajek Decl., Ex. 1 at 5-5 to 5-8 (succinctly dismissing ten proposals with little analysis and failing to discuss other alternatives).) Defendants also failed to *852 consider any geographical alternatives, and its conclusory single sentence argument that the SOCAL range is "uniquely situated to support these exercises" is insufficient to show that any alternatives would have been unreasonable, making consideration unnecessary. `Ilio'ulaokalani Coalition v. Rumsfeld, 464 F.3d 1083, 1100-01 (9th Cir.2006) (holding that Army violated NEPA by failing to consider a location other than Hawaii for transformation of an army brigade despite stated strategic importance of area and evidence that action was "critical for the training of soldiers in conditions that would arise in expected combat situations.").
Finally, Defendants failed to adequately consider the cumulative impacts of the SOCAL exercises. Despite the EA's conclusion that the SOCAL exercises will cause 8,000 TTS exposures and 466 instances of permanent injury, and evidence that the Navy regularly conducts unit level exercises using MFA sonar in the region, in one paragraph the EA dismissed the potential for cumulative impacts and concluded that the SOCAL exercises "would not have any significant contribution to the cumulative effects on marine mammals" based on the use of mitigation measures the Court has already found ineffectual. Although it is possible that the EA's findings could have been supported by further study and modeling incorporating the proposed mitigation measures, the EA's conclusion is unsupported by the assessment's current findings and model, and the failure to study and analyze the potential for such cumulative impacts in light of those findings renders the EA fatally inadequate. See Klamath-Siskiyou Wildlands Ctr. v. BLM, 387 F.3d 989, 994 (9th Cir.2004) ("A proper consideration of the cumulative impacts of a project requires some quantified or detailed information; general statements about possible effects and some risk do not constitute a hard look absent a justification regarding why more definitive information could not be provided. The analysis must be more than perfunctory; it must provide a useful analysis of the cumulative impacts of past, present, and future projects." (internal quotations and citations omitted)).
2. The Coastal Zone Management Act (CZMA)
Plaintiffs contend that Secretary of the Navy Donald Winter and the United States Department of the Navy (Navy Defendants) violated the CZMA by submitting a CD to the CCC for the SOCAL exercises that did not take the planned use of MFA sonar into account and by failing to adopt the mitigation measures the CCC subsequently determined were necessary for the Navy's actions to comply with the CCMP. The CZMA requires that "[e]ach federal agency activity within or outside the coastal zone that affects any land or water use or natural resource of the coastal zone shall be carried out in a manner which is consistent to the maximum extent practicable with the enforceable policies of approved state management programs." 16 U.S.C. § 1456(c)(1). Under the CZMA, agencies must comply with "the enforceable policies of management programs unless full consistency is prohibited by existing law applicable to the Federal agency." 15 C.F.R. § 930.32(a)(1). Agencies must also submit a CD "for all Federal agency activities affecting any coastal use or resource" to the applicable state agency. 15 C.F.R. 930.34. Although the CZMA lacks a citizen suit provision, judicial review of agency compliance is available pursuant to the APA. See, e.g., Friends of Earth v. United States Navy, 841 F.2d 927, 936 (9th Cir. 1988); 5 U.S.C. §§ 701-06. The burden of demonstrating maximum consistency practicable with the CCMP rests with the Navy. California Coastal Comm'n v. United *853 States, 5 F.Supp.2d 1106, 1112 (S.D.Cal. 1998).
The Navy Defendants argue that they were not required to analyze or discuss the proposed use of MFA sonar in the CD they submitted to the CCC because the MFA sonar use would not affect any coastal resources. For the reasons that Defendants' determination that the SOCAL exercises would not have a significant impact on the environment was arbitrary and capricious, as discussed above, the Court finds that the Navy Defendants' determination that the use of MFA sonar in the SOCAL range would not affect any of California's coastal resources was similarly arbitrary and capricious and in violation of the APA.
The Navy Defendants have raised a number of additional arguments in support of their decision under the CZMA, none of which the Court finds persuasive. First, they contend that because the exercises will take place at least five nautical miles from shore, and often at least twelve nautical miles from shore, and because California's coastal zone extends only three nautical miles from shore, that there will be no impact on coastal resources. However, as discussed above, MFA sonar can affect marine mammals, designated as coastal resources by statute, from miles away. (See, e.g., Parsons Decl. ¶ 17) (noting that "these military exercises may ensonify coastal waters, even though exercises may be conducted outside the coastal zone.") Moreover, consistency review is triggered regardless of where the harm occurs if it affects coastal resources, which include marine mammals that are periodically within the coastal zone. 16 U.S.C. § 1456(c)(1)(A) ("Each Federal agency activity within or outside the coastal zone that affects any land or water use or natural resource of the coastal zone shall be carried out in a manner which is consistent to the maximum extent practicable with the enforceable policies of approved State management programs.") (emphasis added); California v. Norton, 311 F.3d 1162, 1172 (9th Cir.2002) (requiring consistency review of offshore oil leases where seismic surveys outside the coastal zone may permanently injure marine mammals); Jefferson Decl. ¶ 6 ("Most of the species regularly found in the exercise area may be expected to occur there within 3 nautical miles of shore, either exclusively as in the case of the coastal bottlenose dolphin or as part of their range").
Second, the Navy Defendants argue that temporary harassment of marine mammals is insufficient to constitute an "activity . . . that affects" a natural resource because it does not cause injury. Even if this were true, Defendants' own EA predicts the use of MFA sonar during the SOCAL exercises will cause 466 instances of permanent injury to beaked and ziphiid whales.
Third, the Navy Defendants insist that a consistency determination need not discuss an activity unless it will have a measurable impact on the "populations of marine mammals," and that, because there "have been no systematic declines in any marine mammal populations during the decades of MFA sonar use by the Navy," it was justified in not discussing its proposed use of MFA sonar. The Court has already addressed Defendants' "lack of documented population decline" argument in its discussion of Plaintiffs' NEPA claims, and it has even less force here where the burden rests on the Navy Defendants to demonstrate compliance. In addition, as the Ninth Circuit established in California v. Norton, federal activities "that may permanently injure marine mammals" affect coastal resources and require a consistency determination; an impact on entire populations is not required. 311 F.3d at 1172 n. 5. Moreover, Plaintiffs have presented evidence that the use of MFA sonar *854 can detrimentally impact entire populations of species, given its potential to disrupt feeding and mating as well as damaging marine mammals' primary sense. (Parsons Decl. ¶¶ 7-9) (concluding that "there is significant potential for population-level effects from individual JTFEX and COMPTUEX exercises" and that even displacement from non-injurious, relatively low energy level sonic harassment "could have population-level effects, particularly if the displacement coincides with seasonal breeding or foraging.").
Finally, the Navy Defendants argue that the mitigation measures the CCC required the Navy to employ during the SOCAL exercises in order to comply with the CCMP are not, in fact, required in order for the Navy to comply with the CCMP. They argue that the mitigation measures the Navy and NMFS have developed are sufficient "to maintain healthy populations of marine mammals in SOCAL." (Opp'n 23:14-15.) Defendants' proposed mitigation measures are woefully inadequate and ineffectual, as discussed above, and Defendants have failed to establish that the CCC's proposed mitigation measures are either unnecessary or not required under the CCMP. Accordingly, the Court finds that Plaintiffs have demonstrated a probability of succeeding on the merits of their claims under the CZMA.
3. The Endangered Species Act (ESA)
Plaintiffs' fifth cause of action, against the National Marine Fisheries Service, Assistant Administrator for Fisheries William Hogarth, Administrator of the National Oceanographic and Atmospheric Administration Vice Admiral Conrad Lautenbacher Jr., and Secretary of the Department of Commerce Carlos Gutierrez (collectively NMFS Defendants), alleges that the NMFS Defendants failed to prepare an adequate Biological Opinion (BiOp) and Incidental Take Statement (ITS) in violation of the ESA and APA. Although courts have vacated BiOps and ITSs that contained "structural flaws," the Court is satisfied that the NMFS Defendants in this case met their statutory obligation to "use the best scientific and commercial data available." 16 U.S.C. § 1536(a)(2); Nat'l Wildlife Fed'n v. Nat'l Marine Fisheries Serv., 481 F.3d 1224, 1239 (9th Cir.2007) (upholding a finding that NMFS violated the ESA where, "[a]t its core, the 2004 BiOp amounted to little more than an analytical slight [sic] of hand, manipulating the variables to achieve a `no jeopardy' finding. Statistically speaking, using the 2004 BiOp's analytical framework, the dead fish were really alive. The ESA requires a more realistic, common sense examination.").
Plaintiffs argue that NMFS's BiOp and ITS did not "use the best scientific and commercial data available" because they relied on the Navy's flawed acoustic models and adopted the Navy's exposure thresholds from its EA to determine the number of takes. As discussed above, the Court is satisfied with the methodology and conclusions employed by the agency experts in reaching their conclusions as to the number of takes. It does not find that there are any "structural flaws" in the BiOp or ITS, and, as Defendants note, NMFS properly considered the vast universe of available data on the impact of MFA sonar.
Plaintiffs also argue that NMFS's analysis of acoustic impacts on endangered and threatened fish species were inadequate and that NMFS failed to consider cumulative impacts. The Court disagrees. Having carefully reviewed the BiOp and ITS, it finds that these issues were properly considered and, unlike the conclusory findings regarding cumulative impacts in the Navy's EA, sufficiently analyzed. Accordingly, the Court finds that Plaintiffs have failed to demonstrate a probability of success *855 on their claim against the NMFS Defendants for violation of the ESA and APA.
B. Possibility of Irreparable Harm
Plaintiffs have demonstrated that MFA sonar can injure and kill marine mammals, as well as cause population-affecting levels of disruption. Defendants' own study concludes that the SOCAL exercises in particular will cause widespread harm to nearly thirty species of marine mammals, including five species of endangered whales, and may cause permanent injury and death.
Where, as here, plaintiffs demonstrate a strong likelihood of prevailing on the merits of their claims, injunctive relief is appropriate where there is a "possibility of irreparable harm." Faith Ctr. Church Evangelistic Ministries v. Glover, 480 F.3d 891, 906 (9th Cir.2007); Earth Island Inst. v. United States Forest Serv., 442 F.3d 1147, 1159 (9th Cir.2006); Cmty. House, Inc. v. City of Boise, 468 F.3d 1118, 1123 (9th Cir.2006). The Supreme Court has held that, "[e]nvironmental injury, by its nature, can seldom be adequately remedied by money damages and is often permanent or at least of long duration, i.e., irreparable. If such injury is sufficiently likely, therefore, the balance of harms will usually favor the issuance of an injunction to protect the environment." Amoco Prod. Co. v. Vill. of Gambell, 480 U.S. 531, 545, 107 S.Ct. 1396, 94 L.Ed.2d 542 (1987); see also Save Our Sonoran, Inc. v. Flowers, 408 F.3d 1113, 1125 (9th Cir.2005).
From the numerous scientific studies, declarations, reports, and other evidence before the Court, Plaintiffs have established to a near certainty that use of MFA sonar during the planned SOCAL exercises will cause irreparable harm to the environment and Plaintiffs' standing declarants. The Court is also satisfied that the balance of hardships tips in favor of granting an injunction, as the harm to the environment, Plaintiffs, and public interest outweighs the harm that Defendants would incur if prevented from using MFA sonar, absent the use of effective mitigation measures, during a subset of their regular activities in one part of one state for a limited period. Accordingly, the Court grants Plaintiffs' requested relief and enjoins Defendants' use of MFA sonar during the remaining SOCAL exercises.
CONCLUSION
For the foregoing reasons, the Court hereby DENIES Defendants' Motion to Dismiss or Stay (docket no. 14). In addition, Defendants' request during oral argument for a stay of the requested injunctive relief pending appeal is DENIED.
The Court GRANTS Plaintiffs' Motion for Preliminary Injunction (docket no. 21) as to Plaintiffs' first four causes of action, for violations of NEPA, the CZMA, and the APA, and DENIES Plaintiffs' Motion as to Plaintiffs' fifth cause of action for violation of the ESA and the APA.
Defendants are hereby enjoined from using MFA sonar during the fourteen challenged COMPTUEX and JTFEX exercises planned in the SOCAL range through January 2009.
IT IS SO ORDERED.
NOTES
[1] The term "take," as defined in the Endangered Species Act, means "to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct." 16 U.S.C. § 1532(19).
[2] Decibels are a logarithmic measurement, such that an increase of 10 dB is equivalent to a tenfold increase in acoustic energy. To put these sound levels in perspective, OSHA requires hearing protection to be used where workers are exposed to a sound level of 90 dB for eight hours or 110 dB for as little as thirty minutes. 29 C.F.R. § 1910.95(a). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1522317/ | 217 F.Supp. 511 (1963)
Walter W. SIMS
v.
MARINE CATERING SERVICE, INC.
v.
The CALIFORNIA COMPANY.
No. 5458.
United States District Court D. Louisiana.
May 14, 1963.
*512 Jack C. Benjamin, (Kierr & Gainsburgh, New Orleans, La.,) for plaintiff.
Leon D. Hubert, Jr., (Hubert & Baldwin, New Orleans, La.,) for respondent.
Robert B. Acomb, Jr., (Jones, Walker, Waechter, Poitevent, Cartere & Denegre, New Orleans, La.,) for respondent-impleaded.
FRANK B. ELLIS, District Judge.
Faced with the mandate of The Osceola, 189 U.S. 158, 23 S.Ct. 483, 47 L.Ed. 760, "That the vessel and her owners are liable, in case a seaman falls sick, or is wounded, in the service of the ship, to the extent of his maintenance and cure, and to his wages, at least so long as the voyage is continued", Id. at page 175, 23 S.Ct. at page 487, this Court is faced with a problem peculiar to Louisiana's offshore oil development activity and must assess liability for maintenance and cure benefits upon either the shipowner (respondent-impleaded) or upon the employer (respondent). The following facts give rise to this litigation.
Respondent-impleaded, California Company, hereafter referred to as California, contracted with Loffland Brothers Company, hereafter referred to as Loffland, to develop mineral resources beneath a lease to surface rights owned by California some fourteen miles southwest of Grande Isle, Louisiana, in the Gulf of Mexico. California was to provide the vessel M/V S 22, Coast Guard Registration # 268772, to be used as a quarterboat for employees of organizations connected with the oil development activity. Loffland contracted with Marine Catering, to perform "household duties" aboard the M/V S22. At the bottom of this chain of command was the libellant, Walter W. Sims, Z 1116278, employed by Marine Catering as a messman aboard the M/V S 22.
Libellant first went aboard the M/V S 22 on May 11, 1961, and was injured, as admitted by respondent, on May 23, 1962. On May 29, 1962, he was given a master's certificate of service and forthwith reported to Doctor G. M. Perry of Galliano, Louisiana, which physician referred libellant, a resident of Osyka, Mississippi, to Dr. W. A. Hiatt and Beacham Memorial Hospital in Magnolia, Mississippi, located about ten miles from Osyka.
On July 3, 1962, libellant was referred to Dr. Walter H. Brent of New Orleans, La. The diagnosis by Dr. Brent was a "mild compression fracture of T-8 vertebrae." On July 26, 1962, libellant was referred to Dr. G. Gernon Brown of New Orleans by a Mr. W. Bigner, an adjuster for Marine Catering's Insurer, Great American Insurance Company, his diagnosis reflecting "evidence of a fracture on the 9th dorsal vertebrae."
During the interim respondent's insurer paid libellant the sum of $35.00[1] per week under the provisions of the Louisiana Workmen's Compensation Act, these payments being terminated on July 28, 1962. On August 9, 1962, libellant's attorney received the following communication from respondent's insurer:
"In view of the fact that you have elected to proceed in behalf of the claimant under the Jones Act, we will continue to pay Mr. Walter W. Sims $35.00 per week through your office during his disability. The determination of the remedy under which such payments are made is a question of fact. We do not agree necessarily that the Jones Act or the Maritime Law are involved."
On September 14, 1962, libellant was notified by the Beacham Memorial Hospital that Marine Catering "says they are not responsible for this claim any longer" and tendered their invoice in the amount of $144.85.
A series of demand letters to the respondent and its insurer resulted in a negative response and on October 11, 1962, libellant instituted this action against his employer seeking maintenance and cure. Respondent filed a 56th *513 Rule petition against California alleging that "California was the owner of the vessel involved and the fact that its own employees were navigating the vessel and the fact that Sims, libellant herein, was performing duties directly related to the navigation of the M/V S 22, brought about a situation which, under the Admiralty Rules concerning liability for maintenance and cure, made California responsible to libellant Sims for such maintenance and cure."
This controversy is brought to the Court's immediate attention by virtue of libellant's motion for summary judgment under the 58th Admiralty Rule[2] asserting that "there is no genuine issue as to any material fact relevant to libellant's uncontradicted right to receive accrued and current maintenance from respondent herein." Respondent moved for summary judgment against respondent-impleaded on grounds that respondent-impleaded is responsible for maintenance and cure.
There is adequate proof of material fact in the record for this court to make a determination as to libellant's status and the rights flowing to him from that status. Any further proof would be redundant.
The first question of material fact is whether or not the M/V S 22 was a vessel. The Court holds as a matter of fact that an 1800 horsepower "oil screw", 311.7 feet long, with a 50-foot beam and a 21.6 foot draft, of 3144 gross tons and 2609 net tons, is, in fact, a vessel.[3]
One of the most lucid and forward-looking dissertations on the question of vessel vel non is this brief passage from Saylor v. Taylor, 4 Cir. 1896, 77 F. 476.
"At first blush it would seem a stretch of the rule to hold a dredge and her accompanying scows to belong in the same class with ocean steamships. The idea of commerce does not come into the mind primarily in connection with such craft; but, when it is borne in mind that they are constructed to move upon the water, and nowhere else, and that, while thus moving upon the water, they are subject to all the rules that govern other water craft as to lights, collisions, etc., it will be seen that they have that mobility and capacity to navigate which are recognized as the prime elements in determining the subjects of maritime liens [for seamen's wages]. And so it seems a stretch of the imagination to class the deckhands of a mud dredge in the quiet waters of a Potomac creek with the bold and skillful mariners who breast the angry waves of the Atlantic; but such and so far-reaching are the principles which underlie the jurisdiction of the courts of admiralty that they adapt themselves to all the new kinds of property and new sets of operatives and new conditions which are brought into existence in the progress of the world." Id. at pages 478, 479.
*514 The next question of material fact is whether, or not libellant was a member of the crew of that vessel. The record indicates that libellant began his tour of duty as a messman in the Steward's Department on May 11, 1961, as per the Master's Certificate, and left the service of the vessel after the injury. The purpose of the motorvessel was to be used as a "quarterboat" and libellant's duties as a messman "contributed to the function of the vessel or to the accomplishment of its mission." Offshore Company v. Robison, 5 Cir. 1959, 266 F. 2d 769, 779. The Court finds as a matter of fact that he was a member of the crew of the M/V S 22 and, until his injury, permanently attached thereto.[4]
The next question of material fact is whether or not libellant sustained his injuries in the service of the ship. This quaere is answered in the affirmative when considered in the light of the Master's Certificate, first reports of accident, medical reports and respondent's admission that "libellant suffered an injury on May 23, 1962" when "employed by respondent * * * and assigned by respondent to the Steward's Department on the M/V S 22."
Thus the issues resolve themselves into questions of law, not fact, and properly subject to summary adjudication.
The Court is of the opinion that libellant is entitled to accrued maintenance, cure, damages for failure to pay maintenance and cure and attorney's fees. We come now to the all-important question of from whom is such due and owing?
Respondent Marine Catering urges the mandate and/or admonition of The Osceola, supra, upon us asserting that the shipowner, respondent-impleaded California, is primarily responsible for maintenance and cure. Respondent-impleaded California alleges that since there was no employment between it and libellant, there is no relationship between the parties upon which the Court can impose an obligation to pay maintenance and cure. The logic of respondent and that of respondent-impleaded would compel a finding that libellant was owed maintenance and cure.
Throughout the centuries the laws of the various nations from the Middle Ages to the present time have consistently stressed that the seaman was entitled to the remedy of maintenance and cure when sick or injured "while in the service of the ship,"[5] and that the obligation to be cured at the ship's expense was co-extensive with the service of the ship.[6]
The matter was finally laid to rest in 1902 in The Osceola, supra, holding that the ship and her owners are liable for maintenance and cure. However, in the sixty-one years since The Osceola the Court has stressed the employment aspect and the duty of paying maintenance and cure as incidental to the employer-employee relationship, as illustrated below.
"The duty to make such provision [for maintenance and cure] is imposed by the law itself as one annexed to the employment." Cortes v. Baltimore Insular Line, 1932, 287 U.S. 367, 371, 53 S.Ct. 173, 174, 77 L.Ed. 368. "The duty, which arises from the contract of employment, * * * does not rest upon negligence or culpability on the part of the owner *515 or master, * * * nor is it restricted to those cases where the seaman's employment is the cause of the injury." Calmer S. S. Corp. v. Taylor, 1937, 303 U.S. 525, 527, 58 S.Ct. 651, 652, 82 L.Ed. 993. "In its origin, maintenance and cure must be taken as an incident to the status of the seaman in the employment of his ship." O'Donnell v. Great Lakes Dredge & Dock Company, 1942, 318 U.S. 36, 42, 63 S.Ct. 488, 491, 87 L.Ed. 596. "In the United States this obligation has been recognized consistently as an implied provision in contracts of marine employment. Created thus with the contract of employment, the liability, * * * in no sense is predicated on the fault or negligence of the shipowner. Whether by traditional standards he is or is not responsible for the injury or sickness, he is liable for the expense of curing it as an incident to the marine employer-employee relationship." Aguilar v. Standard Oil Company, 1942, 318 U.S. 724, 730, 63 S.Ct. 930, 933, 87 L.Ed. 1107.
This brings us, chronologically, to Fink v. Shephard S. S. Company, 1948, 337 U.S. 810, 69 S.Ct. 1330, 93 L.Ed. 1709. This case was a consolidation of Number 360, Fink v. Shephard S. S. Company, supra, and Number 420, Gaynor v. Agwilines, Inc., 337 U.S. 810, 69 S.Ct. 1330, 93 L.Ed. 1709, in the October Term of 1948. Number 430, Gaynor v. Agwilines, Inc., is of particular interest in the present controversy and determinative of the outcome.
Gaynor signed on aboard the S/S Christopher Gadsden in 1945, after the Clarification Act of 1943[7]. The vessel was owned by the United States, operated by the War Shipping Administration and managed by Agwilines, Inc., as agent. Gaynor went ashore when the vessel was in Charleston, S. C., and was injured. He instituted an action against Agwilines, Inc., for wages and maintenance and cure. The District Court dismissed, 76 F.Supp. 617, the Court of Appeals for the Third Circuit affirmed, 169 F.2d 612, and the Supreme Court affirmed.
Mr. Justice Reed preceded the delivery of the majority opinion of the court with this brief preamble: "These two cases [Fink and Gaynor] raise issues which, as the facts set out below indicate, are controlled by our decision in Cosmopolitan Shipping Co. v. McAllister, ante, [337 U.S.] p. 783, [69 S.Ct. 1317, 93 L.Ed. 1692, decided this day," Id. 337 U.S. at page 811, 69 S.Ct. at page 1331], and used the following language in determining liability for maintenance and cure:
"Although this case involves the right to wages and maintenance and cure, whereas McAllister and Fink concern damages for negligent injury, the reasoning and decisions in those cases are dispositive here. This is so because the right to maintenance and cure is `annexed to the employment,' Cortes v. Baltimore Insular Line, 287 U.S. 367, 371 [53 S.Ct. 173, 77 L.Ed. 368]; see The Osceola, 189 U.S. 158 [23 S.Ct. 483, 47 L.Ed. 760]; is `an incident of the marine employer-employee relationship,' Aguilar v. Standard Oil Co., 318 U.S. 724, 730 [63 S.Ct. 930, 87 L.Ed. 1107]; 1 Benedict, Admiralty (Sixth edition 1940) 61, 253; and because only the owner or the owner pro hac vice of a vessel is liable for wages, which also stem from the contract of employment. Shilman v. United States [2 Cir.], 164 F.2d, 649,; The John E. Berwind [2 Cir.], 56 F.2d 13; Everett v. United States [9 Cir.], 284 F. *516 203; Cox v. Lykes Brothers, 237 N.Y. 376, 383, 143 N.E. 226, 228-229. Thus liability for wages and maintenance and cure depends upon the same relationship that is required to support an action for negligent injury." Id. 337 U.S. at page 815, 69 S.Ct. at page 1333. (Italics supplied)
Thus it appears that the "vessel and her owners" rule of The Osceola is not exclusive in that only the owner may be held liable for maintenance and cure, regardless of by whom the seaman is employed. That case dealt with the traditional, historic relationship of shipowner-seaman. Subsequent developments led the Courts to hold persons other than the owner liable for wages[8], stressing the marine employer-employee relationship which led, perforce, to emphasizing employer liability for maintenance and cure.[9]
The last exposition into the problem of liability for maintenance and cure was the directive in Fink v. Shephard Steamship Company, supra, that the "relationship that is required to support an action for negligent injury"[10] is determinative of liability for wages and maintenance and cure. The Court must therefore explore that relationship which is required to support an action for negligent injury.
Operating under the mandate of The Osceola, supra, admiralty courts were powerless to grant a seaman a cause of action for negligence, absent unseaworthiness under the maritime law.[11] The Merchant Marine Act of 1920[12], commonly known as the Jones Act, filled this void with a remedy at law for damages with a right to trial by jury. It was "welfare legislation [creating] new rights in seamen for damages arising from maritime torts."[13] Its literal language and that of the Federal Employers Liability Act[14] incorporated into it[15] all indicate that the Jones Act is a negligence statute and that damages may be recovered only for negligence.[16]
The express terms of the Act[17] and the recent cases interpreting same[18]*517 are indicative that the employer-employee relationship only will support an action for negligent injury and that rule is dispositive of the question of liability for wages and maintenance and cure[19], i. e. the relation requisite to liability for maintenance and cure is the employer employee relationship.
Consequently the Court has no alternative but to grant libellant's motion for summary judgment and hold respondent Marine Catering Service, Inc., the employer, liable for maintenance at the rate of $8.00 per day, calculated from the date libellant left the service of the vessel, and cure, both payable until such time as libellant will reach "maximum cure", Farrell v. United States, 336 U.S. 511, 69 S.Ct. 707, 93 L.Ed. 850, respondent to be given credit for payments made under the State Workmen's Compensation Act. The Court holds that acceptance of the State Workmen's Compensation benefits by libellant has in no way prejudiced his rights to claim maintenance and cure in this Court. The Constitutional grant of admiralty jurisdiction to this Court[20] exists, among other reasons, for the protection of seamen "who are its wards"[21], and the acceptance of a landman's remedy cannot prejudice a seaman's subsequent demand for a greater right, a more ancient right and the most sacred right ever afforded men of labor.
We come now to the element of damages.
It is an uncontroverted fact that the libellant was a 53-year old male whose only source of income was his earnings; that since his maintenance payments were discontinued he has had to borrow money from family and friends and has drawn upon his savings to support himself and his family. The fact that libellant could have drawn $35.00 per week under the State Workmen's Compensation Act, and did not do so, even though it would not have prejudiced his claim for maintenance and cure in the slightest, will only serve as a mitigation of damages, which the Court assesses at $300.00, The Iroquois, 194 U.S. 240, 24 S.Ct. 640, 48 L.Ed. 955; Cortes v. Baltimore Insular Line, supra; Vaughn v. Atkinson, 369 U.S. 527, 82 S.Ct. 997, 8 L.Ed. 2d 88. At this juncture it may be well to point out that no reasonable excuse has been presented for ceasing payment of libellant's medical expenses, a statutory obligation under the State Workmen's Compensation Act and implied in the maritime contract of employment under the general maritime law.
The Court will also assess attorney's fees in the amount of $200.00, Vaughn v. Atkinson, supra.
There being no just cause of delay in the entry of a final judgment, as to respondent Marine Catering Service, Inc., the Court will order that judgment be entered in favor of Walter W. Sims, against Marine Catering Service, Inc., as outlined above.
The motion by respondent against respondent-impleaded will be denied.
Decree accordingly.
NOTES
[1] The statutory weekly compensation benefits under the Louisiana Workmen's Compensation Statute, LSA-Revised Statutes, Title 23, Section 1202.
[2] Admiralty Rule 58, 28 U.S.C.
[3] "The word `vessel' includes every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water." 1 U.S.C. § 3. "It is true that the terms `ships' and `vessels' are used in a very broad sense, to include all navigable structures intended for transportation," Cope v. Vallette Dry Dock Company, 119 U.S. 625, 629, 7 S.Ct. 336, 337, 30 L.Ed. 501, as evidenced by the following nonexclusive list of "special purpose structures" Offshore Company v. Robison, 5 Cir. 1959, 266 F.2d 769, 776, 75 A.L.R. 2d 1296, which have been held to be vessels: a large dredging barge without motive power, City of Los Angeles v. United Dredging Company, 9 Cir. 1926, 14 F.2d 364, Kibadeaux v. Standard Dredging Company, 5 Cir. 1936, 81 F.2d 670; a craft on which cargo was stored during the winter after closing of navigation, In re Great Lakes Transit Corporation, 6 Cir. 1933, 63 F.2d 849; scows, Ellis v. United States, 1907, 206 U.S. 246, 27 S. Ct. 600, 51 L.Ed. 1047; pile drivers and steam dredges, George Leary Construction Company v. Matson, 4 Cir. 1921, 272 F. 461; and racing yachts, United States v. Holmes, 6 Cir. 1900, 104 F. 884.
[4] "Hence it is that in all times and in all countries those who are employed upon a vessel in any capacity, however humble, and whose labor contributes in any degree, however slight to the accomplishment of the main object in which the vessel is engaged, are clothed by the law with the legal rights of mariners, `no matter what may be their sex, character, station, or profession.' Ben.Adm. § 241." Saylor v. Taylor, supra, 77 F. at page 479. "The word `crew' does not have an absolutely unvarying legal significance," South Chicago Company Coal & Dock Company v. Bassett, 1939, 309 U.S. 251, 258, 60 S.Ct. 544, 548, 84 L.Ed. 732.
[5] The Laws of Oleron, Arts. VI, VII; The Laws of Wisbuy, Art. XVIII; The Laws of the Hanse Towns, Art. XXXIX; The Marine Ordinances of Louis XIV, Book Fourth, Art. XI; The Bouker No. 2, 2 Cir. 1917, 241 F. 831. Reed v. Canfield, 1832, Fed.Cas.No.11641.
[6] Reed v. Canfield, supra.
[7] 50 U.S.C.Appendix § 1291. This act extended the remedies available to seamen on private owned American vessels to seamen employed on United States vessels "as employees of the United States through the War Shipping Administration." It thus gave effect to a congressional purpose to treat seamen employed through the War Shipping Administration as "merchant seamen" and not as "public vessel seamen" Cosmopolitan Shipping Company v. McAllister, 337 U.S. 783, 792, 69 S.Ct. 1317, 93 L.Ed. 1692; Johansen v. United States, 343 U.S. 427, 434, 72 S.Ct. 849, 96 L.Ed. 1051.
[8] See Everett v. United States, 9 Cir. 1922, 284 F. 203; The John Berwind, 2 Cir. 1932, 56 F.2d 13; and Shilman v. United States, 2 Cir. 1947, 164 F.2d 649, all cited with approval, Fink v. Shephard Steamship Company, supra, 337 U.S. at page 815, 69 S.Ct. at page 1333.
[9] It should be noted that the courts have historically referred to the rights to "wages and maintenance and cure" as a package benefit for seamen. It has never been contemplated that the benefits are severable, wages due and owing from one person and maintenance and cure from another.
[10] Fink v. Shephard Steamship Company, supra, 337 U.S. at page 815, 69 S.Ct. at page 1333.
[11] "3. That all the members of the crew, except perhaps the master, are, as between themselves, fellow servants, and hence seamen cannot recover for injuries sustained through the negligence of another member of the crew beyond the expense of their maintenance and cure.
"4. That the seaman is not allowed to recover an indemnity for the negligence of the master, or any member of the crew, but is entitled to maintenance and cure, whether the injuries were received by negligence or accident." The Osceola, supra, 189 U.S. at page 175, 23 S.Ct. at page 487.
[12] 46 U.S.C. § 688.
[13] Cosmopolitan Shipping Company v. McAllister, supra, 337 U.S. at page 790, 69 S.Ct. at page 1321.
[14] 46 U.S.C. § 51 et seq.
[15] 45 U.S.C. § 51. "Every common carrier by railroad * * * shall be liable in damages to any person suffering injury while he is employed by such carrier * * * for such injury * * * resulting in whole or in part from the negligence of any of the officers, agents, or employees of such carrier, * * *."
[16] DeZon v. American President Lines, 1943, 318 U.S. 660, 671, 63 S.Ct. 814, 87 L.Ed. 1065; Jamison v. Encarnacion, 1929, 281 U.S. 635, 639, 50 S.Ct. 440, 74 L.Ed. 1082.
[17] The grant of jurisdiction to federal district courts incorporated into the act indicate that the person, firm or corporation responsive to the complaint is the employer. "Jurisdiction in such actions shall be under the court of the district in which the defendant employer resides * * *." 46 U.S.C. § 688.
[18] "Yet this Court may not disregard the plain and rational meaning of employment and employer to furnish a seaman a cause of action against one completely outside the broadest lines or definitions of employment or employer. We have no doubt that, under the Jones Act, only one person, firm, or corporation can be sued as employer." Cosmopolitan Shipping Company v. McAllister, supra, 337 U.S. at page 791, 69 S.Ct. at page 1321.
[19] Also see Gilmore & Black, The Law of Admiralty, Chapter VI, Sect. 6-7, Page 256, "Since the right [to maintenance and cure] arises out of the employment relationship the employer is the person liable."
[20] U.S.Constitution, Article III, Section 2; 28 U.S.C. § 1333.
[21] Robertson v. Baldwin, 1896, 165 U.S. 275, 17 S.Ct. 326, 41 L.Ed. 715. "The ancient characterization of seamen as `wards of admiralty' is even more accurate now than it was formerly." Id. at page 287, 17 S.Ct. at page 331. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1512334/ | 502 F.Supp. 340 (1980)
Levi BUNION
v.
ALLSTATE INSURANCE CO.
Civ. A. No. 78-1774.
United States District Court, E. D. Pennsylvania.
November 21, 1980.
Matthew D. Carrafiello, Philadelphia, Pa., for plaintiff.
Peter Neeson, Philadelphia, Pa., for defendant.
MEMORANDUM AND ORDER
GILES, District Judge.
This is a diversity action arising from an accident in 1976 in which plaintiff's car was allegedly rear-ended by another car, causing injuries to his chest, back, and internal organs. Defendant has now filed two motions, one for reconsideration of a denial of a prior motion for partial summary judgment and the other in limine as to the admission as evidence at trial the fact that plaintiff was involved in prior accidents.
The Motion for Reconsideration
This motion poses the question whether an automobile owner covered by Pennsylvania no-fault insurance may recover punitive damages from his insurer in a basic contract action for payment of a claim. Count I of the complaint demands payment of medical expenses and lost wages. Count II demands punitive damages for alleged malicious refusal to pay the claims.
In September 1979, defendant moved for partial summary judgment on the ground that Pennsylvania law does not allow recovery of punitive damages from a no-fault insurer. Judge Ditter, to whom this case *341 then was assigned, denied the motion, apparently on the basis of the holding in Armour v. Concord Mutual Insurance Co., 9 Pa.D. & C.3d 120, 123-24 (C.P.1979). Subsequent to that denial, the state intermediate appellate court held that punitive damages are not recoverable from a no-fault insurer. Smith v. Harleysville Insurance Co., 418 A.2d 705, 1979 (Pa.Super.Ct.1980), petition for allowance of appeal filed, March 24, 1980. On the basis of Smith, defendant has moved for reconsideration of the motion. Plaintiff agrees with defendant's description of the holding in Smith, but urges that this court not follow it. He argues that the issue of recovery of punitive damages has not been ruled on by the state's highest court, and that Smith was decided only by a panel rather than by the Superior Court en banc.
Under the Rules of Decision Act, 28 U.S.C. § 152, and Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), state law controls in diversity cases. The United States Supreme Court has long ruled that in determining state law when the highest court of the state has not spoken, "an intermediate appellate state court... is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967) (quoting West v. AT&T Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1949)) (Bosch Court's emphasis). Therefore, plaintiff's argument that Smith not be followed because it was decided by an intermediate court amounts to but a plea that this court somehow overrule or ignore the dictates of Bosch. Plaintiff's argument that Smith be disregarded because it was a panel decision does not amount to "persuasive data."
Further, it must be noted that subsequent to Smith, a different four-judge panel reached the identical result in Gurnick v. Government Employees Insurance Co., 420 A.2d 620 1979 (Pa.Super.Ct.1980). (Judge Hoffman dissented on the ground that the issue was not appealable, inter alia, on the ground that "because this case presents the same issue as Smith, there is no need to reaffirm that decision." Id. dissent, n.5.)
There being no genuine issue as to any material fact, this court adopts Judge McGlynn's post-Smith analysis in Allen v. Mic Life Insurance Co., No. 80-116, slip op. at 3 (E.D.Pa. May 2, 1980) (dismissing claims for punitive damages), and the holding that "[s]uch clear pronouncements of the law by Pennsylvania courts mandate dismissal" of the punitive damage claim. See Mazzula v. Monarch Life Insurance Co., 487 F.Supp. 1299 (E.D.Pa.1980). See also Bochner v. Quitman, No. 79-2532 (E.D.Pa. July 29, 1980) (order dismissing exemplary damage claim). For these reasons, defendant's motion for partial summary judgment is granted.
The Motion to Admit Evidence
Defendant also moves to admit as evidence at time of trial facts relating to other accidents involving plaintiff. Such evidence would be proferred in an effort to show that plaintiff is "claim-minded." Defendant alleges that plaintiff has made claims in seven other accidents in the last nine years. Three accidents were falls in plaintiff's house occurring in 1971. One was a rear-end collision in 1974. The remaining incidents occurred in 1972, 1977, and 1979. The details of these three incidents are unclear, but apparently one of these was yet another vehicular accident.
Defendant asserts that, as in the present case, plaintiff was the only eyewitness to four of the incidents-the home falls and the 1974 rear-end collision-and also that, as here, there is no police report for the 1974 accident.
Plaintiff counters that this proferred evidence does not show a pattern of similar claims. In particular, he states that there were several other eyewitnesses to the prior rear-end collision which involved circumstances significantly different from those in this action. Finally, plaintiff argues that such evidence would be irrelevant and prejudicial.
*342 In order to rule that evidence is admissible, this court must find that its probative value is not substantially outweighed by the danger of unfair prejudice. Fed.R.Evid. 403. The admissibility of evidence of claim-mindedness has been the subject of considerable cogent discussion. See McCormick's Handbook of the Law of Evidence § 196 (E. Cleary ed. 1972) [hereinafter cited as McCormick]; also see 3A J. Wigmore, Evidence § 963 (Chadbourn ed. 1970); Annot., 69 A.L.R.2d 593 (1960).
Where it has been proved that a party brought previous claims which were similar in nature and fraudulent, most courts have admitted the evidence of the former claims on the ground that it is strongly relevant to falsity of the current claim. McCormick, supra, § 196 at 466. Here, inasmuch as there is no proof by defendants that the plaintiff's other claims were fraudulent, defendant's evidence does not fall within an accepted exception for proven false claims.
At the other end of the spectrum, evidence tending to show that a party is a chronic personal-injury claimant generally has been excluded because its slight probative value has been deemed outweighed by the danger of prejudice. Id. In this case, the probative value of any evidence cannot be ascertained presently because defendant has described some of the claims in no greater detail than "automobile or home related accidents." Here, defendant has not shown sufficient similarity between plaintiff's prior claims and the current one to warrant any inference of fraud.
There are the middle ground situations where there has been a showing of repeated similar claims. Id. 466-67. Such evidence may be relevant due to improbability of chance repetitions of similar accidents to the same person. Simultaneously, however, such evidence may be prejudicial to litigants who may be accident prone or otherwise innocent of fraud. McCormick suggests that "the judge, balancing in his discretion probative value against prejudice, should admit the evidence only when the proponent has produced or will produce other evidence of fraud." Id. 467. In this case, defendant offers no such corroborative evidence. Furthermore, the balancing of relevancy against prejudice is impeded, and indeed precluded, by the lack of detail and clarity as to exactly what evidence defendant intends to introduce and the purpose for which it is offered. Defendant has neither identified which depositions or other testimony he wishes to introduce, nor identified any similarity among the accidents or injuries, nor made an offer of proof of fraud, nor stated whether the evidence will be introduced as part of his case-in-chief, on rebuttal, or on cross-examination.
In the case upon which defendant places primary reliance, the evidence of similar accidents or fraud was admitted on cross-examination for the purpose of impeaching the witness. Mintz v. Premier Cab Association, 127 F.2d 744, 744 (D.C.Cir.1942). Other cases cited by defendant show that the evidence of similar accidents or fraud was either introduced on cross-examination, was introduced by plaintiff, or was admitted for impeachment purposes or as tending to show that injury had been caused by prior accidents as opposed to direct proof of fraud. See Atkinson v. Atchinson, Topeka & Santa Fe Railway, 197 F.2d 244, 245-46 (10th Cir. 1952) (evidence was elicited on cross-examination, was admitted as tending to impeach plaintiff's testimony of particular careful driving habits); Manes v. Dowling, 375 A.2d 221, 223-24 (D.C.1977) (evidence introduced by plaintiff, admitted as relevant to the nature and extent of injuries); Evans v. Greyhound Corp., 200 A.2d 194, 196 (D.C.1964) (evidence admitted on cross-examination).
Here, in the absence of a clear showing of the existence of probative and admissible evidence, the motion in limine is denied.
An appropriate Order follows.
ORDER
AND NOW, this 21st day of November, 1980, it is hereby ORDERED that:
1. The Order dismissing defendant's Motion for Summary Judgment, filed September *343 18, 1979, is VACATED and defendant's Motion for Partial Summary Judgment is GRANTED.
2. Defendant's Motion in Limine to Admit the Use of Certain Items of Evidence During Trial, filed June 25, 1980, is DENIED.
3. On or before November 24, 1980, each party shall file requests for jury instructions (in duplicate), proposed special interrogatories addressed to the jury, and memoranda on all contested legal issues.
JUDGMENT
AND NOW, this 21st day of November, 1980, it is hereby ORDERED that as to Count II, only, of plaintiff's complaint, judgment is entered in favor of defendant, Allstate Insurance Co., and against plaintiff, Levi Bunion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1500613/ | 416 F. Supp. 429 (1976)
Enoch DICKINSON, Jr., individually, and on behalf of others similarly situated as a Class, Plaintiffs,
v.
Jim FRENCH et al., Defendants.
Civ. A. No. 76-166P.
United States District Court, S. D. Alabama, S. D.
June 9, 1976.
*430 Enoch Dickinson, Jr., pro se.
*431 No appearance for defendants.
OPINION
DANIEL HOLCOMBE THOMAS, Senior District Judge.
This civil rights action brought pursuant to 42 U.S.C. §§ 1983, 1985(2), (3)[1] is before the Court on motions to proceed as a class, for leave to proceed in forma pauperis and on an affidavit of recuse[2] filed by the plaintiff, Enoch Dickinson, Jr., individually and on behalf of others similarly situated as a class.[3] In the above-styled action, Dickinson brings suit against a federal marshal, a federal deputy marshal, a federal district judge and two private citizens, alleging that a "conspiracy" existed between the defendants giving rise to this cause of action.
The facts surrounding this suit may be briefly capsulated as follows: On November 23, 1973, Dickinson was found guilty of ten counts of mail fraud in violation of 18 U.S.C. § 1341 and was sentenced to imprisonment for a period of five years on each count to run concurrently.[4] The conviction was affirmed on appeal in United States v. Dickinson, 496 F.2d 876 (C.A. 5 1974). Presently, Dickinson is incarcerated in the United States Penitentiary in Leavenworth, Kansas. As a result of his conviction Dickinson has instituted this law suit against the defendants.
In paragraph 11 of the "statement of the facts" Dickinson asserts that Jim French, a United States Marshal, Frank Daffin, Deputy United States Marshal and Virgil Pittman, United States District Judge "devised a scheme which created an environmental atmosphere of bias and prejudice by creating the conditions which existed during plaintiff's trial in November of 1973." Plaintiff further asserts that "said scheme caused the jury people and prosecution witnesses to become intimately associated with each other, and allowing the jury people to obtain knowledge of the facts in the trials before the trials ever began. . . ." In paragraph 12 of the "Statement of the Facts" Dickinson alleges that witnesses Robert L. Bulger and Harry M. Oakley "while waiting in the courtroom and hallways to discuss the merits of the plaintiffs trials in the presence of the jury people, and knowing that they were prosecuting witnesses and knowing that the jury people were to serve on the trials of the plaintiffs, and such action created bias and prejudice in the jury people (sic) minds. . . ." Dickinson alleges that he and other members of the class have sustained damages in the amount of $20,000.00 for loss of employment and $1,000,000.00 for illegal imprisonment.[5]
*432 In initiating this civil action, Dickinson has filed an application to proceed in forma pauperis as provided by 28 U.S.C. § 1915. Admittedly, Section 1915(a) of Title 28 permits the commencement of a civil action without the prepayment of fees and costs of security thereof "by a person who makes affidavit that he is unable to pay such costs or give security therefor. . ." However, the Court has broad discretion to consider the separate question, under 28 U.S.C. § 1915(d) whether the complaint should be dismissed as "frivolous or malicious." Section 1915(d) provides:
The court may request an attorney to represent any such person unable to employ counsel and may dismiss the case if the allegation of poverty is untrue, or is satisfied that the action is frivolous or malicious. (Emphasis added)
Accordingly, under Section 1915(d), the Court may dismiss an in forma pauperis action "if satisfied that the action is frivolous or malicious." Moreover, a dismissal under that section is appropriate when the plaintiff is engaged in repetitive litigation concerning issues already determined, Duhart v. Carlson, 469 F.2d 471, 473 (C.A. 10 1972), cert. denied, 410 U.S. 958, 93 S. Ct. 1431, 35 L. Ed. 2d 1692 (1973), and when the allegations of the complaint are beyond credulity. Jones v. Bales, 58 F.R.D. 453, 463-464 (N.D.Ga.1972), aff'd 480 F.2d 805 (C.A. 5 1973).
The plaintiff and his complaints are no strangers to this Court.[6] Moreover, upon reviewing a number of complaints filed by the plaintiff in other federal district courts throughout the country, it appears without contradiction that Dickinson has instituted a practice of filing civil suits against the prosecution witnesses who testified at his trial in November of 1973.[7]
*433 Although pro se pleadings must be liberally read, especially in the context of civil rights suits, the Court is of the opinion that a determination must be made at this juncture whether the claim made by Dickinson is patently frivolous. Notwithstanding the relax standards for pro se pleadings where the allegations contained in the plaintiff's complaint are nothing more than conclusions and could not under any circumstances be classified as "facts" which would entitle the plaintiff to relief, the Court may properly dismiss the complaint. Dailey v. Barrow, 280 F. Supp. 187, 188 (W.D.Mich., 1968); See McGuire v. Todd, 198 F.2d 60, 63 (C.A. 5 1952).
In Jones v. Bales, 58 F.R.D. 453 (N.D.Ga.1972) aff'd 480 F.2d 805 (C.A. 5 1973), a convicted felon brought a civil rights action for damages. The court in dismissing the action as frivolous under 28 U.S.C. § 1915(d) stated:
There are compelling reasons for allowing courts broader dismissal powers in forma pauperis suits especially damage suits brought by convicted prisoners than in other cases. Persons proceeding in forma pauperis are immune from imposition of costs if they are unsuccessful; and because of their poverty, they are practically immune from later tort actions for `malicious prosecution' or abuse of process. Thus indigents, unlike other litigants, approach the courts in a context where they have nothing to loose and everything to gain. The temptation to file complaints that contain facts which cannot be proved is obviously stronger in such a situation. For convicted prisoners with much idle time and free paper, ink, law books, and mailing privileges the temptation is especially strong.
Id. at 463.
As previously stated, plaintiff seeks damages and injunctive relief against a federal judge, two federal marshals and two lay witnesses. It is well settled that a judge, one of the named defendants in this action, is properly cloaked with judicial immunity. Pierson v. Ray, 386 U.S. 547, 87 S. Ct. 1213, 18 L. Ed. 288 (1967), Bradley v. Fisher, 13 Wall. 335, 20 L. Ed. 646 (1871).[8] Accordingly, the plaintiff is barred from suing the above-named defendant on the matters complained of herein. Moreover, plaintiff asserts a cause of action under 42 U.S.C. §§ 1985, 1986 against a federal marshal and federal deputy marshal. It has been held that Sections 1985 and 1986 of Title 42 do not allow relief against the actions of federal officers acting under color of federal law. Williams v. Halperin, 360 F. Supp. 554, 556 (S.D.N.Y.1973).
Plaintiff in alleging a conspiracy to deprive him of equal protection of the law seeks to invoke 42 U.S.C. § 1985(3) which provides a right of action for damages. However, in order to come within this statute, plaintiff should allege "facts amounting to intentional and purposeful discrimination to the plaintiffs individually or as members of a class." Norton v. McShane, 332 F.2d 855, 863 (C.A. 5 1964). Applying this standard to the complaint sub judice, the Court is of the opinion that the complaint fails to state a claim under 42 U.S.C. § 1985(3), in that plaintiff has failed to *434 allege any facts that would show that the alleged conspirators were motivated by a racial or otherwise class-based discriminatory animus. Accordingly, the Court concludes that the necessary elements for a cause of action under 42 U.S.C. § 1985(3) are lacking.
Finally, as to the plaintiff's claim against the defendant lay witnesses. As previously stated, this Court is aware of the factual background as to the plaintiff's claim. Dickinson has unsuccessfully filed civil actions against these two defendants in other federal courts.[9] In addition, the plaintiff has filed a series of complaints against prosecution witnesses who testified at his trial in November of 1973. Besides the civil actions against defendants Oakley and Bulger in this court and in other federal district courts, Dickinson has instituted suits against the following witnesses and/or their employers: William L. Hurst (Rainforest Products Co.), Kenneth S. Hale (Hillcrest Publications), Edward Duvall (Seth & Jud), Albert Oldham, James B. Stice, Wanda Sells (Sports Marine Products Co.), R. E. Shelton (Greenland Studios). Moreover, the plaintiff has brought civil actions against two government witnesses, William L. Roane and Gerard S. Parent who testified at his trial and even filed suit against an Alabama state employee, James E. Wiggins, who notarized a document which was used against the plaintiff during his trial.[10] Dickinson has not only sued the above-named individuals in the federal district courts where they reside, but has continually named these same witnesses in civil actions initiated in other federal courts throughout the country.
After careful consideration of the plaintiff's claim, the Court is of the opinion that dismissal under 28 U.S.C. § 1915(d) is appropriate. To continually allow a convicted felon to file complaint after complaint against prosecution witnesses, who must then seek legal assistance at their own expense, could well cause lay witnesses to be reluctant to testify in criminal cases because of the real possibility of having to defend law suits brought by a convicted felon after that person is confined to a penal institution. Witnesses must be permitted to testify without fear of being sued or having to defend civil damage suits. In the instant case, witnesses Oakley and Bulger testified for the government in Dickinson's trial for mail fraud. Shortly thereafter, these witnesses were sued by Dickinson. Although these actions were dismissed the defendants, especially Oakley, incurred considerable legal expenses. Subsequently, defendants Oakley and Bulger are sued in this court and their names continue to appear in other complaints that the plaintiff has filed. The Court is of the opinion that repeated suits brought by a felon, such as Dickinson, against lay witnesses could eventually lead to a material interference with the administration of justice in criminal cases in this country.
Accordingly, this Court after considering the plaintiff's pleadings, and in order to spare the defendant lay witnesses the continued expense and inconvenience of answering a frivolous complaint, ORDERS that the complaint be, and hereby is, DISMISSED pursuant to 28 U.S.C. § 1915(d), prior to the issuance of process. It is FURTHER ORDERED, ADJUDGED and DECREED that each and every claim is dismissed as to the defendants, Jim French, Frank Daffin, Virgil Pittman, Robert L. Bulger and Harry M. Oakley. Having DENIED plaintiff's motion to proceed in forma pauperis, resolution of the motion to proceed as a class is rendered unnecessary.
NOTES
[1] Plaintiff's complaint further alleges jurisdiction under 28 U.S.C. § 1361; 18 U.S.C. § 4086; 28 U.S.C. § 2241(c)(1),(2)(3); 28 U.S.C. §§ 2201, 2202; 28 U.S.C. § 2401; 28 U.S.C. § 1343(1), (2), (4) and 28 U.S.C. § 1331.
[2] In his affidavit for recuse, Dickinson seeks to have Chief Judge Virgil Pittman and District Judge Brevard Hand recuse themselves from consideration of this complaint. On April 5, 1976, by agreement of Judges Pittman and Hand, the above-styled cause was assigned to the docket of Judge Daniel H. Thomas thereby rendering resolution of the plaintiff's motion unnecessary.
[3] Named in the motion to proceed as a class are "Noble Beasely, Willie James and all others who were summoned to court for a criminal trial during the month of November 1973 as a class, convicted and sentenced to the custody of the Attorney General of the United States."
[4] During the trial the defendant was found guilty of criminal contempt for misbehavior in the courtroom for which he received three consecutive sentences of imprisonment of two weeks, one month and one month respectively.
[5] Among other things the plaintiffs claim "permanent damages in the amount of $50.00 per week for the remainder of plaintiffs' lives to compensate for the lingering injustice plaintiffs shall suffer as a consequence of the illegal imprisonment. Moreover, the plaintiffs seek this Court to enter an order granting:
(1) A declaratory judgment that all of the plaintiffs convictions are illegal;
(2) A declaratory judgment that the defendants acts, practices, policies of conducting criminal trials in the type of situation described in this complaint was unconstitutional.
(3) A permanent injunction which prohibits the defendants, their successors in office, agents and employees, and all other persons in active concert and participation with them from enforcing the illegal judgments of the convictions against all plaintiffs.
(4) An order to compel defendants, their agents and all other persons acting with them directly and indirectly or on their behalf to carry out their duty of correcting the injustice described herein."
[6] Dickinson has been and continues to be an avid litigator. Of the total of thirty docketed cases filed thus far, of which one is still pending, the plaintiff has apparently never been successful in a case in which he was opposed. Plaintiff's lack of success is relevant to consideration of his chances of ultimate success in the case at bar. See Cruz v. Beto, 405 U.S. 319, 329, 92 S. Ct. 1079, 31 L. Ed. 2d 263 (1972) (Rehnquist, J., dissenting).
In the federal district court for the Southern District of Alabama, Dickinson has filed the following Civil Actions: C.A. 76-166-P, C.A. 75-113-P, C.A. 75-63-P, C.A. 75-62-P, C.A. 74-547-P, C.A. 74-278-P, C.A. 74-184-P, C.A. 74-55-H, C.A. 74-1-P, C.A. 6977-72-P, C.A. 6825-71-P, C.A. 6771-71-P, C.A. 6596-71-P, C.A. 6562-71-P, C.A. 6471-71-T, C.A. 6447-71-P, C.A. 6210-70-P, C.A. 6111-70-P, C.A. 5677-69, C.A. 5650-69, C.A. 5419-69, C.A. 5796-69, C.A. 5303-69, C.A. 5132-68-P, C.A. 5090-68-P, C.A. 4990-68-P, C.A. 4768-67-P, C.A. 4721-67-P, C.A. 4561-67, C.A. 4470-67, C.A. 3534-64.
[7] Having examined the list of prosecution witnesses that testified in the Dickinson trial there can be no dispute that the plaintiff has initiated a series of law suits against the prosecution witnesses and their employers. Set forth are docketed civil actions filed by the plaintiff in federal district courts which have come about as a result of Dickinson's mail fraud conviction:
(a) Enoch Dickinson, Jr. v. Harry & David (R. L. Bulger), Civil Action No. 74-357 (D.Oregon). Order of dismissal with prejudice was entered against the plaintiff on April 3, 1975.
(b) Enoch Dickinson, Jr. v. Rainforest Products Co. (William L. Hurst), Civil Action No. 74-356 (D.Oregon). Order of dismissal with prejudice filed on April 3, 1975, and entered against the plaintiff on April 7, 1975.
(c) Enoch Dickinson, Jr. v. Hillcrest Publications Division of Hale Enterprises (Kenneth S. Hale), Civil Action No. 74-98-Y (N.D.Ohio, Youngstown Div.). Order entered March 13, 1975, granting plaintiff's motion for voluntary dismissal.
(d) Enoch Dickinson, Jr. v. Seth & Jud (Edward DuVall), Civil Action No. 74-1289-T (D.Mass.). Pending
(e) Enoch Dickinson, Jr. v. Gerard F. Parent and William L. Roane, Civil Action No. 75-730-AM (E.D.Va., Alexandria Div.). Order entered October 30, 1975, granting plaintiff's motion for voluntary dismissal.
(f) Enoch Dickinson, Jr. v. Sports Marine Products Co. (Albert Oldham), Civil Action No. 74-50 (N.D.Fla.). Transferred to S.D.Fla. June 4, 1974, as Civil Action No. C-74-743-CIV JLK (S.D.Fla.). Order entered January 20, 1975, granting plaintiff's motion for voluntary dismissal.
(g) Enoch Dickinson, Jr. v. Oakley Specialities (Harry M. Oakley), Civil Action No. 74-71373 (E.D.Mich.). Order entered January 24, 1975, dismissing the action on motion of the plaintiff.
(h) Enoch Dickinson, Jr. v. Sports Marine Products, by and through their agents, Albert Oldham, James B. Stice and Wanda Sells, Civil Action No. 75-C-1668 (N.D.Ill.). Order entered October 16, 1975, dismissing the plaintiff's complaint.
(i) Enoch Dickinson, Jr. v. Earthquake City Music Co., Civil Action No. 74-0770 (N.D.Cal.). Order entered July 12, 1974, dismissing complaint and denying plaintiff leave to proceed in forma pauperis.
(j) Enoch Dickinson, Jr. v. R. E. Sheldon (Greenland Studios), Civil Action No. 74-333 (S.D.Fla.). Order entered May 31, 1974, dismissing complaint.
(k) Enoch Dickinson, Jr. v. James E. Wiggins, Civil Action No. 74-332-A (N.D.Ga.). Order entered February 27, 1974, dismissing complaint.
(l) Enoch Dickinson, Jr. v. Attorney General of the United States, Civil Action No. 75-1308-A (N.D.Ga., Atlanta Div.). Judgment entered in favor of respondents December 11, 1975.
(m) Enoch Dickinson, Jr. v. The Lamp Crafters, Civil Action No. not assigned (N.D.Ga.). Order entered May 23, 1974, denying plaintiff's motion to proceed in forma pauperis.
[8] The immunity of a judge for acts within his jurisdiction has roots extending to the earliest days of the common law. See Floyd v. Barker, 13 Coke 23 (1608); Yates v. Lansing, 5 Johns. 282 (N.Y.1810).
[9] Enoch Dickinson, Jr. v. Harry & David (R. L. Bulger), C.A. No. 74-357 (D.Oregon); Enoch Dickinson, Jr. v. Oakley Specialities (Harry M. Oakley), C.A. No. 74-71373 (E.D.Mich.).
[10] See note 7 supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1510897/ | 258 F. Supp. 673 (1966)
VALLEY LOAN ASSOCIATION, Plaintiff,
v.
UNITED STATES of America, Defendant.
Civ. A. No. 9410.
United States District Court D. Colorado.
September 22, 1966.
*674 Stanley L. Drexler, Denver, Colo., for plaintiff.
Lawrence M. Henry, U. S. Atty., for Dist. of Colorado, and Lawrence E. Doxsee, Tax Division, Dept. of Justice, for defendant.
MEMORANDUM OPINION AND ORDER
OLIN HATFIELD CHILSON, District Judge.
This is an action for the refund of corporate federal income taxes assessed upon the plaintiff corporation and paid by it for the years 1960, 1961 and 1962.
The plaintiff claims exemption from corporate income taxes for the years in question under subchapter S of the 1954 Internal Revenue Code (§§ 1371-1377).
Subchapter S of the 1954 Internal Revenue Code (§§ 1371 and 1377) was enacted
"to permit shareholders in small business corporations, in lieu of payment of the corporate tax, to elect to be taxed directly on the corporation's earnings * * *"
(See Senate Committee Report 85th Congress 2d Session Senate Report No. 1983 (1958) U.S. Congressional and Administrative News, p. 4791).
§ 1372(a) of subchapter S provides
"* * * any small business corporation may elect * * * not to be subject * * *."
to the corporate tax.
§ 1372(e) (5) of subchapter S denies this right of election to those small business corporations whose gross receipts from dividends, interest, etc., exceed 20% of the corporation's total gross receipts.
The defendant pursuant to this section denied the plaintiff's claim to exemption on the ground that its income from interest exceeded 20% of the plaintiff's total gross receipts for the years involved.
The principal business activity of the plaintiff during the years in question was the financing of retail installment sales of consumer goods by loans and the purchase of retail installment sales contracts. The defendant in arriving at its denial of the plaintiff's claim for exemption *675 excluded from plaintiff's gross receipts the amounts received by the plaintiff for repayment of these loans and purchase contracts. In support of its position the defendant points to Treasury Regulation 1.1372-4(b) (5) (ii) which provides that the term "gross receipts" does not "include amounts received * * * as a repayment of a loan * * *"
If the payments to plaintiff of its loans and installment sales contracts are not properly includible in computing the gross receipts of the plaintiff, the interest income of the plaintiff exceeds 20% of its total gross receipts in each of the years in question, and in that event the plaintiff was not entitled to the exemption claimed.
If, however, these payments were properly includible in computing the gross receipts of the plaintiff, the interest income of the plaintiff did not exceed 20% of the plaintiff's total gross receipts during each of the years involved, and in that event the plaintiff is entitled to the exemption and the refund of the taxes paid by it.
The facts essential to a determination of the question involved are largely stipulated and are not in dispute.
During the years in question the plaintiff was principally engaged in the business of financing retail installment sales of consumer goods. It also operated an insurance agency and engaged in some other minor activities.
The financing activities were divided into three categories; one, the purchase and rediscounting of retail installment contracts pursuant to Chapter 121, Article 2 C.R.S. (Colo.Rev.St.) 1963; second, the making of loans of $1,500 or less repayable in installments pursuant to Chapter 73, Article 3 C.R.S.1963; third, the making of loans over $1,500 repayable in installments pursuant to Chapter 73, Article 2 C.R.S.1963. The latter two activities were carried on by virtue of licenses issued by the State of Colorado and all three categories were conducted under state regulation. The contracts and the loans were secured by the goods purchased.
With reference to retail installment contracts, plaintiff purchased the contracts from the retail dealer at a discount and then rediscounted the contracts to the First National Bank of Lamar, Colorado or the First National Bank of Pueblo.
With regard to the loans mentioned above, the plaintiff ordinarily negotiated the notes to the same two banks at a discount. However, as to both the installment contracts and the notes, the plaintiff was required to furnish the banks security in addition to the purchased goods. In the case of the Lamar Bank the additional security was the maintenance of a reserve at the Lamar Bank equal to 10% of the unpaid balances, and in the case of the Pueblo Bank, by furnishing the bank with notes aggregating 125% or more of the unpaid balances. The banks required the plaintiff to agree to re-acquire any contract or note if it had been delinquent for a specified length of time.
The debtors were required to make the payments on the contracts and the notes to the plaintiff. The plaintiff in turn remitted the payments to the respective banks until the bank had been paid the amount due it.
A small amount of the contracts and loans were not discounted or negotiated to either of the two banks, but was retained by the plaintiff.
The installment payments received included both principal and interest. It is the principal repayments which the defendant contends are not includible in gross receipts.
There is nothing in subchapter S which specifically excludes from gross receipts the amount received for repayment of such loans.
It is obvious that if the defendant's position is correct, finance or loan companies are excluded from the benefits of subchapter S for their gross receipts under the defendant's theory are for all *676 practical purposes limited to receipts of interest.
We find nothing in subchapter S or in its legislative history that indicates that congress had any such intent. The act itself indicates that congress intended § 1372(e) (5) to apply only to personal holding company income, for that is the subheading of that particular section. Since 1938 loan companies engaging in activities similar to those of the plaintiff have been excluded by congress from the definition of a personal holding company (see Title 26 U.S.C. § 542 and the legislative history therein.) In the court's opinion the section as written indicates no intent to exclude loan and finance companies from the benefits of subchapter S.
Since subchapter S does not expressly or by implication exclude from gross receipts the repayments of the principal of the plaintiff's loans and installment contracts, the court concludes that Treasury Regulation 1372-4 insofar as the defendant construes it to exclude from gross receipts the repayment of the loans made and installment contracts acquired by the plaintiff in the ordinary course of its loan business is contrary to the congressional act and congressional intent as evidenced by the act and is therefore invalid as applied to the plaintiff's operations. Commissioner of Internal Revenue v. Netcher, 7 Cir., 143 F.2d 484, cert. denied 323 U.S. 759, 65 S. Ct. 92, 89 L. Ed. 607, (1944).
The court finds that the gross receipts of the plaintiff for each of the years 1960, 1961 and 1962 derived from royalties, rents, dividends, interest, annuities and the gain on sales or exchanges of stocks or securities was less than 20% of the total gross receipts of the plaintiff for each of said years. In making this finding the court determines that there should be included as a part of the plaintiff's gross receipts the commissions received by plaintiff on the insurance premiums directly billed by the insurance companies to the insureds and the full amount of the premiums collected by the plaintiff under its authorized billing of insureds.
The plaintiff is entitled to judgment for refund of the income taxes paid by it for the years 1960, 1961 and 1962, and interest thereon as provided by law.
It is ordered that counsel for the parties shall compute the amount of the judgment in accordance with these findings and prepare and submit to the court the proper form of order for entry of judgment for the plaintiff. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1511246/ | 939 F. Supp. 639 (1996)
GENENTECH, INC., Plaintiff,
v.
The REGENTS OF the UNIVERSITY OF CALIFORNIA, Defendant.
Nos. MDL Docket No. 912, IP-90-1679-C-D/G.
United States District Court, S.D. Indiana, Indianapolis Division.
September 27, 1996.
*640 Gerald P. Dodson, Emily A. Evans, Arnold, White & Durkee, Menlo Park, CA, Susan B. Tabler, Ice Miller Donadio & Ryan, Indianapolis, IN, for University of California.
John E. Kidd, Maurice N. Ross, Rogers & Wells, New York City, Hugh E. Reynolds, Jr., David T. Kasper, Locke, Reynolds, Boyd & Weisell, Indianapolis, IN, for Genentech, Inc.
Entry Granting UC's Motion to Dismiss for Lack of Jurisdiction Based on the Eleventh Amendment
DILLIN, District Judge.
This cause comes before the Court on UC's motion to dismiss for lack of jurisdiction based on the Eleventh Amendment. For the following reasons, UC's motion is GRANTED.
Background
The present action is one of six cases consolidated in this Court for pretrial proceedings by the Judicial Panel on Multidistrict Litigation. See In re Recombinant DNA Technology Patent and Contract Litig., Docket No. 912 (J.P.M.L. Feb. 19, 1992), aff'd, In re Regents of the Univ. of Cal., 964 F.2d 1128 (Fed.Cir.1992); In re Recombinant DNA Technology Patent and Contract Litig., Docket No. 912 (J.P.M.L. Oct. 1, 1993). The consolidated cases arose out of various research arrangements and license agreements among the Regents of the University of California (UC), Genentech, Inc. (Genentech) and Eli Lilly and Company (Lilly). The instant case is the only one of the consolidated actions remaining actively litigated.[1]
Genentech initiated the present action on August 6, 1990, in this Court by filing a complaint for a declaratory judgment that UC's United States Patent Number 4,363,877 (the '877 patent) is invalid, unenforceable and noninfringed. On the following day, UC filed a patent infringement action against Genentech in the Northern District of California, claiming that Genentech willfully infringes the '877 patent. On August 27, 1990, Genentech amended its Complaint in this Court, and the Amended Complaint not only sought a declaratory judgment, but also lodged antitrust and pendent state law claims against both UC and Lilly.
UC objected to this Court's jurisdiction over it, and on September 21, 1990, filed a motion to dismiss based on, inter alia, Eleventh Amendment immunity. In a February 4, 1991, Entry, Judge Larry McKinney found that UC was an instrumentality of the State of California and, hence, UC's actions were entitled to the protection of the Eleventh Amendment. See Order on Motion to Dismiss as to the Regents of the University of California, Cause Number IP-90-1679-C (S.D.Ind. Feb. 4, 1991). Furthermore, the *641 district court determined that dismissal would be appropriate even without consideration of the Eleventh Amendment. Specifically, the court cited Seventh Circuit precedent holding that a declaratory judgment suit should be dismissed if that suit was filed in anticipation of an infringement suit. Id. (citing Tempco Elec. Heater Corp. v. Omega Eng'g, Inc., 819 F.2d 746 (7th Cir.1987)). According to the court, "Genentech filed this declaratory judgment suit because it knew UC was about to file an infringement suit, and in fact did file the suit one day later." Id. at 7. Consequently, the court concluded, dismissal of Genentech's declaratory judgment action was proper.
Genentech appealed the district court's dismissal of UC, and on July 1, 1993, UC again was made a party to this action when the Federal Circuit held that dismissal of UC was improper. Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931 (Fed.Cir.1993), cert. denied, 510 U.S. 1140, 114 S. Ct. 1126, 127 L. Ed. 2d 434 (1994). First, the Federal Circuit declined to apply the Tempco Electric rule to patent actions, reasoning that
[s]uch a rule would automatically grant the patentee the choice of forum, whether the patentee had sought or sought to avoid judicial resolution of the controversy. This shift of relationship between litigants is contrary to the purpose of the Declaratory Judgment Act to enable a person caught in controversy to obtain resolution of the dispute, instead of being forced to await the initiative of the antagonist.
Id. at 937 (citation omitted). The court stated its preference for adherence to the general rule in which the forum of the first-filed case is favored, absent sound reasons for deviating from that rule. Because dismissal of UC was not grounded on such reasons, the court concluded, dismissal of it was improper.
Next, the court turned to discuss the district court's finding that UC was immune from suit by the United States Constitution's Eleventh Amendment. The Federal Circuit preliminarily noted that
[t]he district court treated the University as an arm of the state, with the same immunity as one of the United States. Although Genentech states that it does not concede this point, it was not placed at issue and for the purposes of this appeal the University position is accepted.
Id. The court then determined that the legislation enacted on October 28, 1992 35 U.S.C. § 271(h) and 35 U.S.C. § 296 effectively abrogated state immunity vis-a-vis all violations under the patent statute with respect to a state-owned patent. The court concluded that this abrogation "necessarily includes permitting the states to be a defendant in a suit asserting that the patent is in violation of the law." Id. at 943.
Finally, the Federal Circuit determined that Genentech's declaratory judgment action required UC to "bring its charges of patent infringement against Genentech or be forever barred from doing so." Id. at 947. Additionally, the court stated that if UC did respond to the declaratory judgment suit with patent infringement charges, Genentech then could defend against that charge and also could "bring compulsory counterclaims that are suitable for recoupment of damages that may be assessed against it." Id. at 948. In its October 22, 1993, answer to Genentech's Amended Complaint, UC lodged a number of defenses, including reassertion of Eleventh Amendment immunity. Moreover, UC asserted a patent infringement counterclaim. Subsequently, the issues in the above-captioned case have been reduced to: 1) Genentech's claim that the '877 patent is invalid, noninfringed and unenforceable; 2) UC's counterclaim for patent infringement; and 3) Genentech's claim that UC breached its third party beneficiary obligations to Genentech.
On April 29, 1996, UC filed the motion presently under consideration. According to UC, new case law indicates that the Eleventh Amendment precludes Genentech's declaratory judgment action and, hence, UC advances, dismissal is required. Notably, the case law on which UC focuses was not decided until 1996 more than two years after the Federal Circuit determined that UC, even though an arm of the state, properly was a party to this action.
Discussion
UC contends that the United States Supreme Court's recent decision in Seminole *642 Tribe of Florida v. Florida, ___ U.S. ___, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996), dictates dismissal of the declaratory judgment action Genentech filed against it in this Court. According to UC, Seminole Tribe clearly illustrates that Congress had no power to abrogate UC's immunity from such a declaratory judgment action. Genentech admits in its opposition brief that the Seminole Tribe opinion "contains some rather sweeping language concerning Article I of the Constitution"; Genentech suggests, however, that the Patent and Copyright Clause[2] and the Fourteenth Amendment[3] of the Constitution provided Congress with the power necessary to abrogate the states' Eleventh Amendment immunity. Alternatively, Genentech argues that UC, by its conduct, has waived its immunity from suit. Notably, Genentech does not counter UC's position that UC is an arm of the state and, as such, is entitled to Eleventh Amendment immunity.[4]
The Court in Seminole Tribe considered a federal statute that reportedly had been enacted pursuant to Congress' power under the Indian Commerce Clause of the United States Constitution, Article I, Section 8, Clause 3. The petitioner in Seminole Tribe argued that in Pennsylvania v. Union Gas, 491 U.S. 1, 109 S. Ct. 2273, 105 L. Ed. 2d 1 (1989), the Court already had determined, in the context of the Interstate Commerce Clause, that Article I of the Constitution provides Congress with the necessary power to abrogate a state's Eleventh Amendment immunity. The Seminole Tribe Court agreed with the petitioner that "the plurality opinion in Union Gas allows no principled distinction in favor of the States to be drawn between the Indian Commerce Clause and the Interstate Commerce Clause." Seminole Tribe, ___ U.S. at ___, 116 S.Ct. at 1127, 134 L.Ed.2d at 271.
After determining that the Indian Commerce Clause and the Interstate Commerce Clause were indistinguishable for purposes of its discussion, the Court then held that Union Gas had been incorrectly decided and overruled it. The Court reasoned that when Union Gas was decided, the Eleventh Amendment already was well understood to limit the federal courts' jurisdiction under Article III. The Court
... reconfirm[ed] that the background principle of state sovereign immunity embodied in the Eleventh Amendment is not so ephemeral as to dissipate when the subject of the suit is an area, like the regulation of Indian commerce, that is under the exclusive control of the Federal Government. Even when the Constitution vests in Congress complete lawmaking authority *643 over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States. The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.
Seminole Tribe, ___ U.S. at ____ - ____, 116 S.Ct. at 1131-32, 134 L.Ed.2d at 276-77.
Hence, presently, if the federal statutes through which Congress abrogated the states' sovereign immunity as it relates to the patent laws 35 U.S.C. §§ 271(h), 296 were enacted pursuant only to Article I, then this Court lacks Article III jurisdiction over Genentech's declaratory judgment action.[5] Genentech, however, contends that Congress relied not only on its power under the Commerce Clause, but also relied on its power under the Fourteenth Amendment. To support this argument, Genentech focuses on the legislative history of the Patent and Plant Variety Protection Remedy Clarification Act (the Act), Pub.L. No. 102-560, 106 Stat. 4230 (1992). In its report pertaining to the Act, the Senate Committee stated:
Finally, the bill is justified as an acceptable method of enforcing the provisions of the fourteenth amendment. The court in Lemelson v. Ampex Corp.[, 372 F. Supp. 708 (N.D.Ill.1974)] recognized that a patent is a form of property, holding that a right to compensation exists for patent infringement. Additionally, because courts have continually recognized patent rights as property, the fourteenth amendment prohibits a State from depriving a person of property without due process of law. The same holds true in the area of trademarks. Furthermore, the fourteenth amendment gives Congress the authority to enforce this right. S. 758 and S. 759 represent a valid extension of Congress' right to protect the property rights of patent and trademark holders.
Patent and Plant Variety Protection Remedy Clarification Act, S.Rep. No. 102-280, 102d Cong., 2d Sess. 8 (1992), reprinted in 1992 U.S.C.C.A.N. 3087, 3094.
Genentech argues that patents are property; that section one of the Fourteenth Amendment prevents states from depriving persons of property without due process of law; and that section five of the Fourteenth Amendment grants Congress the power to enforce the provisions of the Fourteenth Amendment. Consequently, Genentech submits, Congress rightfully drew from its Fourteenth Amendment power when it amended the patent laws and thereby abrogated the states' sovereign immunity from patent suits.
We agree with Genentech that Congress drew in part from its Fourteenth Amendment power when it amended the statutes in issue. The Court, however, believes that the language of the Fourteenth Amendment, itself, limits Congress' power as it applies to the instant case. Specifically, the Fourteenth Amendment prohibits a State from depriving any person of life, liberty, or property without due process of law. If Genentech were the owner of the '877 patent and Genentech were suing UC for infringement of that patent, the Fourteenth Amendment would provide Congress with the power necessary to abrogate UC's immunity. As Genentech claims, a patent is a protectable property right and to permit the State to infringe that property right without redress for the patent owner would deprive that owner of property without due process of law.
This scenario, however, is not before us. Rather, UC is the patent owner, and Genentech has commenced a declaratory judgment action against UC. Consequently, Genentech has no property right in the subject patent. Moreover, Genentech has no protectable property right of which it is has been deprived without due process of law. According to UC, Genentech is infringing the '877 patent in its manufacture of certain substances. Genentech is free to manufacture said substances until UC not only lodges an infringement action, but also secures either injunctive relief or final judgment in its favor. In either event, Genentech will have *644 gotten due process of law before a deprivation occurs. Hence, we do not believe the statutory amendments in issue can be interpreted under the Fourteenth Amendment to abrogate UC's sovereign immunity. We believe that doing so would require that we apply the subject statutes in an unconstitutional manner.
Finally, we turn to discuss Genentech's argument that UC has waived its Eleventh Amendment immunity. The Supreme Court has determined that a sovereign's immunity may be waived, and thereby a state may consent to suit against it in federal court. Pennhurst State Sch. & Hosp., 465 U.S. 89, 99, 104 S. Ct. 900, 907, 79 L. Ed. 2d 67 (1984). That consent, however, must be expressed unambiguously. Id. (Citation omitted).
Our reluctance to infer that a State's immunity from suit in the federal courts has been negated stems from recognition of the vital role of the doctrine of sovereign immunity in our federal system. A State's constitutional interest in immunity encompasses not merely whether it may be sued, but where it may be sued.
Id. (Emphasis in original).
In the context of Congressional abrogation of sovereign immunity, the Supreme Court has stated that
"abrogation of sovereign immunity upsets `the fundamental constitutional balance between the Federal Government and the States,'" Dellmuth v. Muth, 491 U.S. 223, 227 [109 S. Ct. 2397, 2400, 105 L. Ed. 2d 181] (1989) (quoting Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238 [105 S. Ct. 3142, 3145-46, 87 L. Ed. 2d 171] (1985)), and because States are unable directly to remedy a judicial misapprehension of that abrogation, the Court has adopted a particularly strict standard to evaluate claims that Congress has abrogated the States' sovereign immunity.
Port Authority Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 305, 110 S. Ct. 1868, 1872, 109 L. Ed. 2d 264 (1990) (citation omitted). The Port Authority Court stated that the same strict standard is applicable in determining whether a State has waived its Eleventh Amendment immunity. Hence, in order to conclude that such waiver has occurred, the sovereign's intention to waive its immunity must be unmistakably clear. Id.; see also Welch v. Department of Highways & Public Transp., 483 U.S. 468, 473, 107 S. Ct. 2941, 2946, 97 L. Ed. 2d 389 (1987). ("`[B]ecause constructive consent' is not a doctrine commonly associated with the surrender of constitutional rights," Edelman v. Jordan, 415 U.S. 651, 673, 94 S. Ct. 1347, 1361, 39 L. Ed. 2d 662 (1974), the Court will find waiver by the State "only where stated `by the most express language or by such overwhelming implications from the text as [will] leave no room for any other reasonable construction.'" Id. (quoting Murray v. Wilson Distilling Co., 213 U.S. 151, 171, 29 S. Ct. 458, 464-65, 53 L. Ed. 742 (1909)).
In the instant case, Genentech contends that the following events illustrate that UC has waived its sovereign immunity: UC obtained a federal patent; UC granted an exclusive license to Lilly, permitting Lilly to demand that UC sue Genentech in federal court; Lilly subsequently demanded that UC sue Genentech; and in response to Lilly's demand, UC accused Genentech of infringing the '877 patent and threatened suit. As previously stated, Genentech filed the instant declaratory judgment action one day before UC filed its infringement suit in the district court for the Northern District of California.
Preliminarily, we acknowledge Genentech's concern about the exclusivity of federal jurisdiction over patent cases. Specifically, Genentech observes that "[t]o hold that UC's conduct does not waive its immunity would give UC the right possessed by no other patent owner to acquire patents and threaten infringement litigation in federal court of its own choosing without fear that a declaratory judgment action could be brought against it."[6] Genentech's Opp'n at 13. Although *645 Genentech's observation is correct, we do not believe such concern affords much support in this arena given that our focus must be on the State's consent to suit. To weigh heavily Genentech's concern, we would have to find that UC's decision to secure a patent is clear evidence that UC consented to suit in federal court. We are unpersuaded that procurement of a patent is evidence of consent to suit, let alone clear evidence of consent.
Likewise, we fail to see how UC's grant of an exclusive license to Lilly could tend to prove that UC consented to be sued in federal court. According to Genentech, the agreement between UC and Lilly stipulates that UC must sue infringers in federal court upon Lilly's demand. Hence, when UC allegedly responded to Lilly's demand by filing suit in federal court against Genentech, UC undoubtedly consented to such suit. However, we are unconvinced that an agreement requiring UC to bring a suit in federal court upon demand, without more, should be interpreted as consent to be sued.
Similarly, we are unpersuaded that UC's alleged infringement accusations and threats of suit against Genentech are sufficient to constitute an unambiguous expression of UC's consent to suit in a federal forum. An alternate reasonable construction of UC's alleged accusations and threats, for example, would be that UC believed such threats alone would prompt Genentech to halt what UC describes as infringing activities. Genentech apparently believes the Court should weigh the fact that UC filed suit in California a day after Genentech did so in Indiana as after-the-fact consent to be sued. Hence, the issue would become whether a state can consent to an earlier suit against it in a distant federal court by later filing its own action in a federal court located within its boundaries. Genentech points to no authority in support of this form of waiver, nor has the Court located any such authority.
Present case law indicates that a state potentially can waive its immunity in the context of a case filed by another person or entity. See Vecchione v. Wohlgemuth, 558 F.2d 150, 159 (3rd Cir.), cert. denied, 434 U.S. 943, 98 S. Ct. 439, 54 L. Ed. 2d 304 (1977) (finding waiver where state did not assert immunity until almost a year after its time to appeal order had expired); but see In re Department of Energy Stripper Well Exemption Litig., 956 F.2d 282, 286 (Temp.Emer.Ct.App.1992) (noting that federal courts have applied a tough standard for finding an implied waiver of Eleventh Amendment immunity, and holding that New Mexico's intervention in suit in order to claim a portion of funds for its citizens did not waive its immunity), and Silver v. Baggiano, 804 F.2d 1211, 1214 (11th Cir.1986) (holding that removal of suit to federal court by state officials did not constitute consent because removing officials did not have authority to consent). A state also can waive its immunity within the context of a state statute or state constitution. Micomonaco v. State of Wash., 45 F.3d 316, 319 (9th Cir.1995). This Court is not inclined to extend the current case law on waiver to include the conduct in issue in the instant case.[7]
When the Federal Circuit upheld the decision of the Judicial Panel on Multidistrict Litigation to consolidate pretrial proceedings of the above-captioned and related actions, it concluded that the Panel's "order does not force unconsented suit upon [UC], but simply coordinates pretrial proceedings, in the interest of efficiency." In re Regents of the Univ. of Cal., 964 F.2d at 1134. Clearly, the Federal Circuit found that coordinating discovery in this Court without UC's consent did not violate the principles of sovereign immunity. In today's decision, however, we go beyond the issue of discovery. As explained supra, we are persuaded that UC has not consented to the initiation of cause number IP-90-1679-C in this Court.
*646 On March 22, 1994, we enjoined further prosecution of cause number IP-92-0223-C, reasoning that IP-90-1679-C was the mirror image of IP-92-0223-C and was the first of the two cases filed. See supra n. 1. In light of today's decision, we sua sponte remove the stay of prosecution earlier entered in IP-92-0223-C which renders IP-92-0223-C the only actively litigated case of the six cases consolidated in this court. We have at the same time requested the Judicial Panel to remand IP-92-0223-C to the Northern District of California for trial. Notably, because the two cases are mirror images, the discovery that has taken place in IP-90-1679-C fully is applicable to IP-92-0223-C.
In summary, based on the strict standard applicable to the issue of consent, and guided by case law and by the United States Constitution, we conclude that dismissal of UC from this action is proper. Hence, for the foregoing reasons, we grant UC's motion to dismiss cause number IP-90-1679-C for lack of jurisdiction and lift our March 22, 1994, stay of prosecution in cause number IP-92-0223-C.
NOTES
[1] A settlement between Lilly and Genentech resulted in the resolution of cause numbers IP-88-1463-C, IP-87-0219-C and IP-93-1340-C, as well as the elimination of Lilly's and Genentech's claims against one another in the present case. See Order, Cause Numbers IP-87-0219-C, IP-88-1463-C, IP-93-1340-C, IP-90-1679-C and IP-92-0223-C (S.D.Ind. Jan. 13, 1995) (orders entered pursuant to Lilly and Genentech's stipulations of dismissal).
Moreover, this Court earlier enjoined further prosecution of cause number IP-92-0223-C in favor of IP-90-1679-C, the mirror image of IP-92-0223-C and the first of the two cases filed. See Entry Denying Genentech's Motion to Amend Its Answer and Counterclaims and Enjoining Further Prosecution of IP-92-0223-C, Cause Number IP-92-0223-C (S.D.Ind. March 22, 1994).
Finally, on December 11, 1995, this Court issued a Memorandum of Opinion and Judgment following a bench trial of cause number IP-92-0224-C. See Memorandum of Opinion, Cause Number IP-92-0224-C-D/G (S.D.Ind. Dec. 11, 1995), and Judgment, Cause Number IP-92-0224-C-D/G (S.D.Ind. Dec. 11, 1995).
In light of the foregoing activity, only those claims between Genentech and UC in cause number IP-90-1679-C actively remain litigated.
[2] Article 1, Section 8, Clause 8 of the United States Constitution provides that Congress shall have the power
To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.
[3] The Fourteenth Amendment to the United States Constitution provides, in relevant part:
Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of the citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
. . . . .
Section 5. The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article.
[4] As noted, supra, in the text, Judge McKinney previously deemed UC an arm of the state, and for purposes of the appellate decision stemming from Judge McKinney's Entry, the Federal Circuit assumed UC was an arm of the state. In a November 18, 1994, Entry, the undersigned determined that Parker immunity insulated UC from antitrust liability. See Entry Granting in Part and Denying in Part Genentech's Motion for Leave to Further Amend Its Amended Complaint; Granting in Part and Denying in Part UC's Motion to Dismiss Counts II-VIII of Genentech's Amended Complaint; and Reinstating Genentech's § 1 Sherman Act Claim Against Lilly at 10-17, Cause Number IP-90-1679-C (S.D.Ind. Nov. 18, 1994). In that Entry, we determined that Parker immunity was available to UC because the state statutes in issue not only contemplated the subject acts, but also authorized the anticompetitive conduct. Id.
[5] An unconsenting state is immune from a suit regardless of the nature of the relief sought. Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 100, 104 S. Ct. 900, 907-08, 79 L. Ed. 2d 67 (1984). In fact, the Seminole Tribe plaintiff sought nonmonetary relief.
[6] This same argument has been offered and rejected in the context of whether Congress, by employing certain statutory language, intended to abrogate Eleventh Amendment immunity. See, e.g., Chew v. California, 893 F.2d 331 (Fed. Cir.) (holding that "the exclusivity of a congressional power or the exclusiveness of the federal court remedy has not been relied upon as grounds or support for abrogation.") (Citation omitted.), cert. denied, 498 U.S. 810, 111 S. Ct. 44, 112 L. Ed. 2d 20 (1990).
[7] We note that UC sought no affirmative relief in the context of the instant case until the Federal Circuit directed that UC either had to plead its infringement claim or be forever barred from doing so. See supra ___ - ___. Subsequently, UC reasserted its Eleventh Amendment defense and lodged an infringement claim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1512415/ | 502 F. Supp. 1108 (1980)
David A. KINDEM, Plaintiff,
v.
CITY OF ALAMEDA, a municipal corporation, Defendant.
No. C-78-2982 SW.
United States District Court, N. D. California.
November 11, 1980.
*1109 *1110 Kenneth Hecht, Penny Nakatsu, Chris Redburn, San Francisco, Cal., Bernice Lapow, Legal Aid Society of Alameda County, Oakland, Cal., for plaintiff.
Carter Stroud, City Atty., Alameda, Cal., for defendant City of Alameda.
MEMORANDUM OF DECISION AND ORDER
SPENCER WILLIAMS, District Judge.
In 1968, plaintiff David A. Kindem was convicted as a minor under the Federal Youth Corrections Act, 18 U.S.C. §§ 5001-37, of felony violation of the now repealed federal marijuana importation tax laws, formerly codified at 26 U.S.C. § 4755. One decade later, plaintiff was fired from his job as a janitor with defendant City of Alameda ("the City") when his ten-year-old conviction was brought to the attention of his superiors. Plaintiff brought the present action under the Civil Rights Act of 1871, 42 U.S.C. § 1983, to challenge the constitutionality of the City's long-standing written ban against municipal employment of exfelons. He claims the dismissal violated due process and equal protection rights secured to him by the United States Constitution.[1]
After the initial pleadings were filed, the parties filed cross-motions for summary judgment. Following oral argument on the matter, the court determined no material issues of fact were in dispute and summary judgment in favor of plaintiff was granted. The City was ordered to reinstate plaintiff and was enjoined from enforcing the offending portion of the City Charter. The court reserved for later decision the question of plaintiff's entitlement to backpay, but now rules he is entitled to such compensation in the amount of $9,433.90. Finally, pursuant to 42 U.S.C. § 1988, the court awards plaintiff's counsel a reasonable attorney's fee, in the amount of $7541.00.
By this Memorandum of Decision and Order, the court expresses the reasons for granting plaintiff's motion for summary judgment and the reasons for awarding backpay and for setting attorney's fees at $7541.00, and reduces to written form the rulings on backpay and attorney's fees.
I.
PLAINTIFF'S SUMMARY JUDGMENT MOTION
A. Factual Background
The facts may be stated quite briefly. In September, 1977, plaintiff began work as a janitor for the City of Alameda under its CETA employment program. Shortly after the job began, plaintiff was requested to undergo a standard security check. At that time, plaintiff informed his immediate superiors about his 1968 felony conviction.[2] Section 22-4 of the City Charter provides: "No person who shall have been convicted of a felony ... shall ever hold any office or position of employment in the service of the City." Plaintiff's CETA director therefore contacted the City Attorney for an opinion on whether this section applied to plaintiff. Five and a half month later, plaintiff was told the policy applied to all felony convictions and all jobs. On March 2, 1978, plaintiff received a letter from the City Manager informing him his employment would terminate *1111 in one week. The letter stressed the fact the dismissal was no reflection on plaintiff or the work he had performed. In fact, the City Manager made it clear the City had been very pleased with plaintiff's work and attitude towards his job, and even reported receipt of several unsolicited calls from citizens commending plaintiff's work. The sole reason given for plaintiff's dismissal was the City's absolute prohibition against hiring ex-felons.
B. Legal Analysis
The issue on the merits presented by plaintiff's action is not the wisdom of the City's policy, though many undoubtedly would find serious fault with it. Rather, the issue is whether the policy violates equal protection and due process rights protected by the Constitution. For although the court is sensitive to the need of local governments to fashion and implement employment policies without the fear of constant judicial intermeddling, the court also recognizes that local administrators and lawmakers, as well as the local electorate, sometimes do enact and implement policies which may transgress individual constitutional rights. Thus, although the City has a legitimate interest in securing a competent, trustworthy workforce, and ordinarily may do so by discriminating among applicants in a manner calculated to ensure only the most qualified are hired, it is subject to the same constitutional limitations applicable to governmental action at other levels.
The Supreme Court has rejected the idea that public employment is a "privilege" and therefore exempted from constitutional limitations. When the decisions or policies made regarding public employment involve impermissible discrimination or impair or deny certain protected rights, an individual applicant or employee properly may appeal to the courts for redress. Plaintiff's complaint raises important questions, questions meriting review of the City's policy.
1. Equal Protection
The City does not dispute plaintiff's claim that the questioned practice operates to the severe detriment of a distinct class of individuals. The policy is not directed at all applicants equally. Instead, the Charter provision singles out a particular group and totally bars them from municipal employment. Such classifications are subject to examination under the limitations imposed on local governments by the Equal Protection Clause of the fourteenth amendment.[3]
Analysis must begin with a determination of the applicable standard of review. A challenged classification is subjected to strict scrutiny only when a fundamental right is impaired or a suspect class is disadvantaged.[4] Public employment is not considered a fundamental right,[5] and ex-felons are not thought to constitute a suspect class.[6] Therefore, the City's policy must be tested according to a standard less rigorous than that employed when strictly scrutinizing a classification.
The rational basis test is a highly deferential standard of review. Under it, a court will not intercede on behalf of a discriminated class member unless it finds that the questioned classification is not rationally related to a legitimate state interest. Despite this low threshold, the court finds enforcement of the challenged City Charter section violated plaintiff's rights to equal protection of the laws. The court is unconvinced that the across-the-board ban on hiring ex-felons is reasonably related to any legitimate state goal. Because of this conclusion, it is not necessary to consider the *1112 possible application of some intermediate level of review.
The City unquestionably has a legitimate interest in hiring qualified, competent and trustworthy employees, and in employing persons who will inspire the public's confidence. But it has not been demonstrated that the sole fact of a single prior felony conviction renders an individual unfit for public employment, regardless of the type of crime committed or the type of job sought. This is not to say that a prior felony conviction can never be a factor in public employment decisions. It is reasonable to assume, for example, that a prior conviction might be highly relevant or properly determinative with respect to hiring decisions involving certain sensitive jobs.[7] It may also be reasonable to assume that convictions for certain crimes may indicate that an individual is unfit for any future municipal employment. But the City's policy is not tailored along any lines to conform to what might be considered legitimate government interests.[8]
Plaintiff's case illustrates but one way in which the City's policy is arbitrary and unreasonable. Clearly, plaintiff's ten-year-old youth conviction has little if any bearing on his ability to perform as a janitor for the City, and the City admits as much in its dismissal letter. Individual examples of inequitable hardships are rarely adequate to support the overturning of a classification on grounds of arbitrariness, but plaintiff's situation can hardly be considered a unique result of the full enforcement of the City's policy. Employment is denied to individuals, like plaintiff, who were convicted of felonies bearing no relationship whatsoever to the individual's honesty or his ability to work. Thus, whereas a felony tax evader is denied a janitorship, a person with a known proclivity for violence or thievery, even a person actually convicted of misdemeanor assault or theft, is not automatically precluded from the job although his personal traits and even his previous misdemeanor convictions might reasonably be considered related to the opportunities and temptations presented by a janitorship. The distinction thus drawn between ex-felons and nonfelons is not rationally related to any legitimate state interests.
Similar bans on employment of distinct groups have been overturned by courts in numerous other instances.[9] Even statutes which have tried to relate ex-felon status to a particular job have, on occasion, been struck down.[10] Cases cited by the City in defense of the Charter's classification scheme each involved a close nexus between the felony involved and the particular job sought, and are therefore inapposite.[11] The recent Supreme Court decision in New York City Transit Authority v. Beazer, 440 U.S. 568, 99 S. Ct. 1355, 59 L. Ed. 2d 587 (1979), also cited by the City, is distinguishable on a number of grounds: (1) the regulation in Beazer, which prohibited employment of all drug addicts by the Transit Authority, was not, itself, under attack, just its application to individuals who had successfully undergone *1113 a year of methadone treatment, and the Court was thus faced with nothing more than a request to fine tune the regulatory classification; (2) the regulation itself was based on a legitimate concern for public safety and efficient operation of the system; and (3) the classification only covered current users of methadone, so that a person was not necessarily forever barred from employment with the System since eligibility returned once he was no longer using methadone.
The permanent and automatic disability which the City Charter makes out of a felony conviction, without any attempt to fit the classification to the legitimate governmental interests implicated in municipal employment decisions, amounts to a violation of the Equal Protection Clause.
2. Due Process
Plaintiff's contention under the Due Process Clause of the fourteenth amendment is that he has been denied substantive due process. In response, the City has argued plaintiff had no liberty or property interest impaired, and therefore could suffer no deprivation of substantive due process.
The substantive aspect of due process protects individuals from arbitrary or irrational action on the part of the state. Whether one must plead deprivation or impairment of a property interest to have standing to challenge governmental action as arbitrary remains an unsettled question. The First and Fifth Circuits have decided the fourteenth amendment provides an independent right to demand that government act in a nonarbitrary manner at all times, regardless of the presence or absence of a property or liberty interest.[12] The majority of appellate courts which have considered the question have, however, agreed with then Circuit Judge and now Justice John Paul Stevens, who concluded the "absence of any claim by the plaintiff that an interest in property or liberty has been impaired is a fatal defect in [a] substantive due process argument."[13] It is not necessary for this court to express an opinion on this difficult legal question, though, for plaintiff's termination did involve impairment of a constitutionally recognized liberty interest.
Plaintiff was not fired because of incompetence or an inability to get along with coworkers.[14] The sole reason given for the termination was plaintiff's earlier conviction. In spite of the praise given plaintiff's performance in the termination letter, the circumstances of plaintiff's firing and the reason given for the action call into question plaintiff's fitness for employment, particularly with respect to the important traits of honesty, loyalty and morality. Coupled with the stigma is plaintiff's absolute foreclosure from working for the City in which he resides. In these circumstances, a liberty interest has been impaired.[15]
When a liberty interest is impaired by the arbitrary action of government, the constitutional guarantee of due process has been violated. As discussed above during consideration of plaintiff's equal protection claim, the classification which resulted in his termination is legally irrational, as it is not sufficiently keyed to any legitimate *1114 state interests. The impairment of plaintiff's liberty interest pursuant to such a policy violated his substantive due process rights.
Before leaving the subject of substantive due process, brief treatment should be given another of plaintiff's arguments. Is it an unconstitutional deprivation of substantive due process for the City to erect an irrebuttable presumption against a person's fitness for employment on the basis of a past felony conviction, especially where the fact of the felony conviction may not reflect at all upon any of the qualifications the person would need to perform satisfactorily on the job? A long line of Supreme Court cases has invalidated irrebuttable presumptions denying persons important interests,[16] but the doctrine has been called into question and its current status is unclear.[17] The fear is that the irrebuttable presumption analysis has the potential for riding roughshod over a tremendous number of state classifications. On the other hand, it may be that, properly employed, the irrebuttable presumption analysis does not represent an ever-expanding universe, for the Supreme Court has applied it only where the private interests are very important and the governmental interests can be promoted without much difficulty in an individualized evaluation process. If such a limited irrebuttable presumption analysis survives, a strong argument can be made that its application to this case would be another route to a finding that substantive due process has been denied.[18] Since such a finding is already reached by examination of the absence of a rational connection between the classification scheme and the legitimate state interests, the court declines plaintiff's invitation to measure Section 22-4 against any irrebuttable presumption test.
C. Remedy
In order to remedy the constitutional violations suffered by plaintiff, the City was ordered to reinstate him with full seniority rights and benefits. In addition, the City was ordered to make plaintiff whole for lost compensation, but upon reconsideration, the court decided an important issue requiring further briefing and study existed with respect to the City's possible limited immunity from damages awards under 42 U.S.C. § 1983.[19]
Because the offending Charter provision was found unconstitutional on its face as well as applied, the court prohibited the City from making employment decisions based on Section 22-4. Subsequently, though, the City requested the court to narrow its ruling. The first sentence of Section 22-4 provides, "Any person convicted of a felony or misconduct in office shall forfeit his office or position of employment." Upon the City's representation that this sentence refers only to wrongful conduct after the person has assumed municipal employment, the court removed it from the case. Plaintiff's conduct subjecting him to the ban on employment occurred many years before he was hired, so the first sentence has no application to his situation. Whether commission of a felony while employed by the City justifies automatic dismissal is a different question which need not be answered in the context of this case.
The second sentence of Section 22-4 applies not only to persons "convicted of a felony," but also to persons guilty of "misconduct in office."[20] Neither party addressed *1115 the propriety of invalidating the second sentence with respect to persons guilty of misconduct in office, but the court has determined that its order shall not encompass this language. Plaintiff himself was not guilty of any misconduct in office, and although many of the same questions regarding imposition of an automatic disqualification based on past conduct which were relevant in this case might also be important considerations when judging the constitutionality of the "misconduct in office" portion of the section, there may be other reasons why such a prohibition might be justified which were not relevant to the ban on hiring ex-felons. The court therefore expresses no opinion on the constitutionality of the policy with respect to persons guilty of past misconduct in office.
II.
BACKPAY
Defendant opposed plaintiff's request for an award of backpay by arguing it was entitled to immunity under 42 U.S.C. § 1983. The exact contours of such an immunity, and even the existence of any immunity at all, were considered by the court to be important and complicated questions with possibly far-reaching implications. While plaintiff's request was pending before this court, the Supreme Court issued its opinion in Owen v. City of Independence, 445 U.S. 622, 100 S. Ct. 1398, 63 L. Ed. 2d 673 (1980), in which it held municipalities enjoyed no immunity from damages awarded pursuant to section 1983. Owen provides a definitive answer to the questions presented by plaintiff's request in the instant action. Inasmuch as the court has previously established that the proper amount of any backpay award in this case would be $9,433.90, that sum shall be paid to plaintiff.
III.
ATTORNEY'S FEES
The Civil Rights Attorney's Fees Awards Act of 1976, 42 U.S.C. § 1988, permits the court to award attorney's fees to the prevailing party in a civil rights case such as this one. There is no question who prevailed in this action, and the City does not contest plaintiff's right to an attorney's fees award. The appropriate size of a reasonable attorney's fee in this case, however, is a very hotly contested matter. Plaintiff has requested compensation for 183.15 hours of attorney time, and seeks an award equal to $22,452.00. Defendant, though not suggesting any specific dollar amount, has vigorously objected to the award plaintiff requests and goes so far as to suggest that an award of $5,000.00 might be excessive.
In setting a reasonable attorney's fee under section 1988, the court is guided by the criteria enumerated in the well known case of Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974).[21] In applying those criteria, the court first considers the hours worked, establishes an appropriate hourly wage, calculates a base or "lodestar" attorney's fee, and then adjusts the fee, if adjustment is called for, either up or down to reach the ultimate award.
A. Hours Worked
Plaintiff reports three attorneys worked on his case, Penny Nakatsu the lead attorney, Kenneth Hecht the director of the Employment Law Center, and Bernice Lapow. Plaintiff claims 125.8 hours for Nakatsu, 15.8 hours for Hecht, and 41.55 hours for Lapow. The court has decided certain hours claimed will not be allowed, and has found the appropriateness of certain other hours claimed to be questionable.
Plaintiff seeks compensation for 41.2 hours of time allegedly spent by attorney Nakatsu between March 21 and May 25, 1978 processing his claim at the administrative level with the Department of Labor. The nature of these proceedings has not been made clear to the court. In fact, the court is aware of no reference to administrative hearings being made in this case *1116 prior to the filing of plaintiff's motion for attorney's fees. It does not appear why administrative remedies were pursued, what was accomplished at that stage, or why attorney time spent in that endeavor should be compensated. The breakdown of time spent in prelitigation efforts is anything but detailed, and the court has no way of judging whether time was spent on unnecessary, frivolous or duplicative activity which should not be compensated at normal rates for attorneys. The failure to be more specific is of particular concern regarding administrative proceedings which, unlike the actual litigation of this case, took place outside the direct observation and participation of this court. Therefore, without reaching the question of plaintiff's legal right to any fees award for prelitigation administrative proceedings, the court has determined not to award compensation for the 41.2 hours claimed for Nakatsu's work on plaintiff's behalf at that level.
Plaintiff claims .5 hour of compensable time was expended by attorney Lapow preparing the affidavit she filed in connection with the fees motion itself. Plaintiff has not cited any law justifying such an award, and the court is not aware of any authority which would persuade it to do so. Therefore, .5 hour of the time claimed for attorney Lapow shall be disallowed.
Nakatsu's affidavit alleges two hours of compensable time for a court appearance on August 23, 1979 and two more hours on August 24, 1979. There were, however, no court appearances on either of those days, and the four hours claimed are disallowed accordingly.
In addition to the hours the court has decided to disallow, the court must raise questions about the necessity for many of the other hours claimed. For example, Hecht's affidavit shows one hour devoted to preparing Nakatsu, an attorney with five and a half years' experience, for a status conference. Nakatsu's affidavit also lists that hour of consultation, and Nakatsu and Lapow each list an hour to attend the conference. Yet, the only matters discussed at the conference were the possible need for narrowing the court's original order invalidating Section 22-4 and selection of a further hearing date. It is surprising, to say the least, that three attorneys "bring[ing] almost three decades of legal experience in civil rights litigation to bear on this case"[22] were required to expend four hours on such relatively routine affairs. Plaintiff, however, would have the court compensate his attorneys with fees in excess of $500.00 for these efforts.
As another example, plaintiff claims 2.3 hours for Nakatsu and 2.0 hours for Hecht in preparing his Memorandum in Opposition to Defendant's Motion to Set Aside Order and in Support of an Award of Back Pay. That Memorandum is no more than four and a half pages long including the half-page caption, is partially devoted to simple procedural arguments under the Local Rules of this court, discusses but two cases in opposition to defendant's motion, and devotes only one page to the complex issue of possible municipal immunity from damages under section 1983 which eventually became the subject of the lengthy Supreme Court decision in Owen. Due to the inadequacy of the treatment of the issue of municipal immunity, the court had to request further briefing and conduct a further hearing. Yet, plaintiff seeks to have his attorneys awarded $576.00 for preparing this short, simple and insufficient document.
There are other instances of claimed hours which indicate considerable inefficiency and likely duplication of effort, but it would serve no useful purpose to detail them here. Though the court has the power to disallow compensation for time spent unnecessarily by plaintiff's attorneys, the better way to handle the matter in this case is to accept the total number of hours claimed, but consider the apparent inefficiency when determining a possible multiplier.
B. Lodestar Fee
Based on fees allegedly commanded by other attorneys of equivalent experience, *1117 expertise and reputation in this community in cases of similar difficulty and contingency, plaintiff seeks compensation for Hecht at $100.00 per hour, and for Nakatsu and Lapow at $80.00 per hour. The court is willing to accept these figures as comparable to hourly rates charged and allowed in similar cases in this district.
C. Multiplier
Plaintiff argues the difficulty of the legal issues presented by this case, the risk of this litigation, the dispatch with which the case was brought to a successful resolution, and the quality of his attorneys' work justifies applying a multiplier of 1.5 to the lodestar fee. The court agrees a multiplier should be applied, but concludes it should be a reverse multiplier reducing the amount actually awarded from the lodestar figure.
It is true, the constitutional issues involved in this case were not particularly easy or straightforward. Plaintiff's lawyers, though, are specialists in this area of the law, and it would be inappropriate to apply a multiplier based on any but unusually difficult legal questions. The only issue of such complexity was the question of possible municipal immunity from damages awards under 42 U.S.C. § 1983. As discussed above, plaintiff's attorneys' initial treatment of this issue was wholly inadequate. Subsequent filings on the point were considerably more helpful, but not sufficiently so that the court is persuaded to extend special credit for having to tackle this novel and, at the time, unsettled question.
The risk of litigation cannot be considered exceedingly great. The Charter provision was plainly unconstitutional, and, additionally, plaintiff's case presented one of the most sympathetic set of facts imaginable: a janitor so good the City actually received unsolicited letters of praise, but fired him anyway because its Charter left no choice even though his felony conviction was ten years old and had resulted from his prosecution as a minor under a now-repealed federal tax statute.
The completeness of plaintiff's victory does not merit a multiplier. Once Section 22-4 was found unconstitutional, plaintiff's reinstatement became the obvious remedy. As for the eventual award of back pay, the Supreme Court in Owen and not plaintiff's briefing was responsible. This case was indeed handled with relative speed by the attorneys, but as there were no material facts at issue, an early resolution was not unusual. In fact, defendant's motion to dismiss or for summary judgment was on file before plaintiff moved for any immediate relief. The speed with which the municipal immunity issue was resolved might have been increased had plaintiff's attorneys prepared briefs more commensurate with the importance of the issue involved.
Finally, the most compelling factor is the quality of the work done by plaintiff's attorneys. The level of skill necessary to prosecute this action did not, in this court's opinion, require $100.00 and $80.00 per hour lawyers to spend over 138 hours.[23] The only conclusion the court is able to draw is that plaintiff's attorneys were either seriously inefficient or simply enjoyed working on the rather interesting constitutional questions raised by this action. Either way, it would be unfair to tax defendant with the cost, at the prevailing rate, for all the hours spent on this case.
The court has scrutinized plaintiff's supporting papers very carefully. With the relevant factors set forth by Johnson in mind, the court has concluded that application of a reverse multiplier of one third would result in an attorney's fee that is fair and reasonable.
D. Calculation of the Award
Total hours allowed at the lodestar rate of $100.00 amount to 15.8, the hours claimed for Hecht. Total hours allowed at the lodestar rate of $80.00 per hour amount to 121.65, 80.6 for Nakatsu and 41.05 for Lapow. The lodestar fee equals $11,632.00. *1118 The award, rounded to the nearest dollar, shall therefore be $7541.00.[24]
IT IS SO ORDERED.
NOTES
[1] Plaintiff also claims rights under the California Constitution were violated. Since federal law principles prove dispositive, the state constitutional issues need not be reached. They were, in any event, largely ignored by the parties.
[2] There is, in fact, some dispute about the timing and propriety of the manner in which plaintiff informed his employers that he had been convicted of a felony. Plaintiff claims he was told when applying for the job that he need not list his youth offense conviction on the application form. Defendant points out that the job application form did not disclose the conviction, and has argued falsification as a possible alternate grounds for dismissal. This dispute is not relevant, however, because all are agreed the reason plaintiff was fired was the rule set forth in the Charter, and that plaintiff's failure to list his conviction on his initial application was not considered when he was terminated.
[3] New York Transit Authority v. Beazer, 440 U.S. 568, 587-88, 99 S. Ct. 1355, 1366, 59 L. Ed. 2d 587 (1979); Monell v. New York City Dep't of Social Services, 436 U.S. 658, 690, 98 S. Ct. 2018, 2035, 56 L. Ed. 2d 611 (1978).
[4] Massachusetts Bd. of Retirement v. Murgia, 427 U.S. 307, 312, 96 S. Ct. 2562, 2566, 49 L. Ed. 2d 520 (1976).
[5] Massachusetts Bd. of Retirement v. Murgia, 427 U.S. 307, 313, 96 S. Ct. 2562, 2566-67, 49 L. Ed. 2d 520 (1976).
[6] Miller v. Carter, 547 F.2d 1314, 1321 (7th Cir. 1977), aff'd, 434 U.S. 356, 98 S. Ct. 786, 54 L. Ed. 2d 603 (1977) (per curiam); Upshaw v. McNamara, 435 F.2d 1188, 1190 (1st Cir. 1970).
[7] See, e. g., Upshaw v. McNamara, 435 F.2d 1188, 1190 (1st Cir. 1970) (state law prohibiting appointment of felons to police force); Carlyle v. Sitterson, 438 F. Supp. 956, 963 (D.N.C.1975) (dismissal of fireman based on previous arson conviction).
[8] Cf. Butts v. Nichols, 381 F. Supp. 573, 580-82 (S.D.la.1974) (three-judge district court) (discussing a similar across-the-board "felon ban").
[9] E. g., Thompson v. Gallagher, 489 F.2d 443 (5th Cir. 1973) (veterans with less than an honorable discharge); Scott v. Macy, 349 F.2d 182 (D.C.Cir.1965) (homosexuals); Davis v. Bucher, 451 F. Supp. 791 (E.D.Penn.1978) (ex-drug addicts); Duran v. City of Tampa, 430 F. Supp. 75 (N.D.Fla.1977) (epileptics); Butts v. Nichols, 381 F. Supp. 573 (S.D.la.1974) (three-judge district court) (felons).
[10] Miller v. Carter, 547 F.2d 1314 (7th Cir. 1977), aff'd, 434 U.S. 356, 98 S. Ct. 786, 54 L. Ed. 2d 603 (1977) (per curiam) (invalidating Chicago ordinance barring individuals convicted of certain offenses from obtaining public chauffeur's licenses); Smith v. Fussenich, 440 F. Supp. 1077 (D.Conn.1977) (invalidating a state statute which barred ex-felons from registering to work as private detectives or security guards).
[11] Upshaw v. McNamara, 435 F.2d 1188, 1190 (1st Cir. 1970); Carlyle v. Sitterson, 438 F. Supp. 956 (D.N.C.1975); Olson v. Murphy, 428 F. Supp. 1057 (W.D.Penn.1977).
[12] Thompson v. Gallagher, 489 F.2d 443, 446-47 (5th Cir. 1974); Drown v. Portsmouth School Dist., 451 F.2d 1106, 1108 (1st Cir. 1971).
[13] Jeffries v. Turkey Run Consolidated School Dist., 492 F.2d 1, 4 (7th Cir. 1974). Accord, Clark v. Whiting, 607 F.2d 634, 641 n. 17 (4th Cir. 1976); Sullivan v. Brown, 544 F.2d 279, 282 (6th Cir. 1976); Weathers v. West Yuma County School Dist. R-J-I, 530 F.2d 1335, 1340-41 (10th Cir. 1976); Buhr v. Buffalo Public School Dist. No. 38, 509 F.2d 1196, 1202-03 (8th Cir. 1974).
[14] See Stretten v. Wadsworth Hospital, 537 F.2d 361, 365-66 (9th Cir. 1976).
[15] In reaching this legal conclusion, the court has considered and been guided by, among others, the following important or well reasoned due process cases: Paul v. Davis, 424 U.S. 693, 96 S. Ct. 1155, 47 L. Ed. 2d 405 (1976); Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972); Larry v. Lawler, 605 F.2d 954 (7th Cir. 1979); Stretten v. Wadsworth Hospital, 537 F.2d 361 (9th Cir. 1976).
[16] Turner v. Dep't of Employment Security, 423 U.S. 44, 96 S. Ct. 249, 46 L. Ed. 2d 181 (1975); Cleveland Bd. of Education v. LaFleur, 414 U.S. 632, 94 S. Ct. 791, 39 L. Ed. 2d 52 (1974); Vlandis v. Kline, 412 U.S. 441, 93 S. Ct. 2230, 37 L. Ed. 2d 63 (1973); Stanley v. Illinois, 405 U.S. 645, 92 S. Ct. 1208, 31 L. Ed. 2d 551 (1972); Bell v. Burson, 402 U.S. 535, 91 S. Ct. 1586, 29 L. Ed. 2d 90 (1971).
[17] See deLaurier v. San Diego Unified School Dist., 588 F.2d 674, 683 n. 16 (9th Cir. 1978).
[18] Cf. Miller v. Carter, 547 F.2d 1314, 1327-28 (7th Cir. 1977) (Campbell, J., concurring).
[19] See section II of this opinion.
[20] The City's interpretation of the phrase "in office" is that it modifies only "misconduct" and not "felony." Thus, any felony conviction would disqualify a person from employment with the City of Alameda, not just felonies connected with a person's government employment.
[21] See Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 69-70 (9th Cir. 1975).
[22] Plaintiff's Memorandum in Support of Motion for Attorney's Fees at 6, lines 17 18.
[23] Of the 183.15 hours claimed, the court has disallowed 45.7 in section III(A) above.
[24] At a hearing held in this matter September 24, 1980, the court announced the award of attorney's fees would be $7755.00. This figure was the product of an erroneous calculation, and should be disregarded. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1512833/ | 502 F. Supp. 2d 1224 (2007)
Sedric Lyndell MOORE, Plaintiff,
v.
MIAMI-DADE COUNTY, Anthony Corbin, and in his official capacity as a police officer of Miami-Dade county, Kenneth Newry, individually and in his official capacity as security officer of Miami-Dade County, Defendants.
No. 06-22705-CIV.
United States District Court, S.D. Florida.
July 18, 2007.
*1225 *1226 *1227 John Dennis Golden, Golden & Grimes LLP, Miami, FL, for Plaintiff.
Bernard Pastor, Miami, FL, for Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS; DISMISSING COMPLAINT WITHOUT PREJUDICE WITH LEAVE TO AMEND
ALAN S. GOLD, District Judge.
This cause came before the Court on Defendants' Motion to Dismiss [DE 5], filed November 20, 2006. Having reviewed the Motion, Response, and Reply, I grant Defendants' Motion to Dismiss. However, I dismiss Plaintiffs Complaint without prejudice, with leave to amend.
I. Factual Background
The following facts from the First Amended Complaint are assumed to be true for purposes of evaluating the Motion to Dismiss. Plaintiff Sedric Moore ("Moore"), was employed as a longshoreman at the Port of Miami-Dade County. (First Am. Compl. ¶ 9). On April 23, 2003, Moore reported to work at approximately 6:30 a.m. (Id. ¶ 10). Moore attempted to enter the port security gate, while in his vehicle, but was unable enter because his security card did not work. (Id.). Defendant Kenneth Newry ("Newry") was employed by the Port of Miami-Dade County as a security guard, and was working at the gate that morning. (Id. ¶ 11). After Moore's ID card did not work, Newry did not allow Moore entry, and took possession' of Moore's ID card. (Id.). Newry instructed Moore to return to the ID office. (Id.). Moore then informed Newry that he had recently been issued a new ID card and had been having problems with it, and requested that Newry verify his eligibility to enter. (Id. ¶ 12). The Complaint is not entirely clear as to what happened next, but it appears that Newry took several of Moore's personal belongings along with the ID card. (Id. ¶ 13). Plaintiff then requested that his personal belongings be returned to him, and after an exchange of words, Officer Newry returned his personal belongings. (Id. ¶ 14). Newry instructed Moore again to return to the ID card office. (Id.).
Thereafter, Moore telephoned Ms. Frances Ladson of the ID card office to explain the situation, and was instructed to return to the gate and request to speak with Sgt. Gonzalez of the Miami-Dade Police Department for assistance. (Id. ¶ 15). Moore approached the gate in his vehicle at approximately 6:45 a.m., and was instructed by Newry to exit the entryway. (Id. ¶ 17). When Moore explained that he needed to speak with Sgt. Gonzalez, Newry replied that he did not care. (Id.). Moore then pulled his car forward, and exited the vehicle. (Id. ¶ 18). At that *1228 time, Newry left his guard booth and charged Moore and struck him with his chest. (Id. ¶ 19). Moore tried to leave; however, Newry struck him a second time to which he responded by attempting to wrestle Newry to the ground. (Id. ¶ 20). During the altercation, Newry struck Moore about the head with his radio. (Id. ¶ 21). At that point, Miami-Dade Police officer Fiston arrived on the scene and ordered that Moore be taken into custody. (Id.). Moore was taken into custody, strip searched, charged, and treated at Jackson Memorial Hospital for his injuries. (Id. ¶ 22). He was released at 9:00 p.m. that evening. (Id.).
A criminal action was filed by Defendant Miami Dade Police officer Anthony Corbin ("Corbin") against Moore. (Id. ¶ 23). The case was ultimately dismissed by the State Attorney's Office. (Id.).
Moore has filed a four-count Complaint. In Count I, Plaintiff asserts a false arrest claim, and seeks a civil remedy pursuant to 42 U.S.C. § 1983 against Miami-Dade County, Port Security Officer Newry, and Officer Corbin. (Id. ¶¶ 24-29). In Count II, Plaintiff asserts a state law claim for false imprisonment against Miami-Dade County, Port Security Officer Newry, and Officer Corbin. (Id. ¶¶ 30-33). In Count III, Plaintiff asserts a state law claim for malicious prosecution against Miami-Dade County, Port Security Officer Newry, and Officer Corbin. (Id. ¶¶ 34-36). In Count IV, Plaintiff asserts a state law claim for battery against Miami-Dade County, Port Security Officer Newry, and Officer Corbin. (Id. ¶¶ 37-39).
Defendants have moved collectively to dismiss Plaintiffs Complaint on various grounds, set forth below.
II. Standard of Review
As the Supreme Court recently held in Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007), a complaint must be dismissed pursuant to Fed.R.Civ.P. (12)(b)(6) for failure to state a claim upon which relief can be granted if it does not plead "enough facts to state a claim to relief that is plausible on its face." (rejecting the traditional 12(b)(6) standard set forth in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). Although a plaintiff need not state in detail the facts upon which he bases his claim, "Rule 8(a)(2) still requires a `showing', rather than a blanket assertion, of entitlement to relief." Bell Atlantic, 127 S.Ct. at 1965, n. 3 (2007). In other words, a plaintiff's pleading obligation requires "more than mere labels and conclusions." Id. at 1964-65; See also Pafumi v. Davidson, No. 05-61679-CIV, 2007 WL 1729969 at *2 (S.D.Fla. Jun. 14, 2007).
The previous standard that there be "no set of facts" before a motion to dismiss is granted has thus been abrogated in favor of one that requires a pleading to be "plausible on its face." Id. at 1968, 1974 (discussing Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). In order to survive a motion to dismiss, the plaintiff must have "nudged [his or her] claims across the line from conceivable to plausible." Id. at 1974.
While the Eleventh Circuit has yet to speak on the Bell Atlantic standard and the breadth of its holding, other circuits have had the opportunity to apply it. See In re Ocwen Loan Servicing, LLC Mortgage Servicing Litigation, 491 F.3d 638, 649 (7th Cir.2007) (explaining that a district court should now determine "whether the complaint contains `enough factual matter (taken as true)' to provide the minimum notice of the plaintiffs' claim that the Court believes a defendant is entitled to."); Marrero-Gutierrez v. Molina, 491 F.3d 1, 9-10 (1st Cir.2007) (applying the Bell Atlantic Standard to a claim of political discrimination); Iqbal v. Hasty, 490 F.3d 143, 157 (2nd Cir.2007) ("we believe the [U.S. *1229 Supreme]. Court is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible "plausible standard." "); White v. Ockey, ___ Fed. Appx. ___, ___, No. 06-4245, 2007 WL 1600483 at *3 (10th Cir. Jun. 5, 2007) (holding that plaintiffs claim failed to allege enough facts to state a claim under Fair Housing Act).
In determining whether to grant a motion to dismiss, the court must accept all the factual allegations in the complaint as true and evaluate all inferences derived from those facts in the light most favorable to the plaintiff. Hoffend v. Villa, 261 F.3d 1148, 1150 (11th Cir.2001). Moreover, I reiterate that Fed.R.Civ.P. 12(b) prohibits me from looking beyond the "four corners" of Plaintiff's First Amended Complaint or considering any additional allegations Plaintiff included in his Response.[1]
Furthermore, when a governmental official, sued individually, asserts qualified immunity as is the case here, controlling Eleventh Circuit precedent imposes a "heightened pleading" standard for the complaint instead of the minimal notice pleading required by Rule 8. A dismissal motion grounded on the defendant's qualified immunity requires the court to accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Dalrymple v. Reno, 334 F.3d 991, 994-995 (11th Cir.2003). Only "well-pleaded facts" and "reasonable inferences drawn from those facts" should be accepted. Oladeinde v. City of Birmingham, 963 F.2d 1481, 1485 (11th Cir. 1992). "[U]nsupported conclusions of law or of mixed fact and law have long been recognized not to prevent a Rule 12(b)(6) dismissal." Marsh v. Butler County, 268 F.3d 1014, 1036 n. 16 (11th Cir.2001). The motion should be granted if the complaint fails to allege the violation of a clearly established constitutional right. Dalrymple, 334 F.3d at 995. With the foregoing standard in mind, I will consider Defendant's Motion to Dismiss the First Amended Complaint.
III. Legal Analysis
Defendants argue seven points in support of their Motion to Dismiss: (1) the County cannot be liable under 42 U.S.C. section 1983; (2) Officers Corbin and Newry are entitled to qualified immunity; (3) the County is entitled to sovereign immunity for Counts II, III, and IV; (4) Plaintiff fails to properly state a claim for malicious prosecution; (5) Plaintiff cannot maintain an action against the officers in their official capacity; (6) Plaintiff is not entitled to attorney's fees for Counts II through IV; and (7) Plaintiff has failed to state a claim under the First Amendment. I will address each argument in turn.
A. County liability under 42 U.S.C. section 1983
Count I names the County as a defendant for alleged violations of Plaintiff's constitutional rights pursuant to 42 U.S.C. section 1983.[2] Defendants argue that this count must be dismissed for the following reasons:
1. The County cannot be liable under a theory of respondeat superior.
"The Supreme Court has placed strict limitations on [local government] liability under § 1983." Tennant v. Florida, 111 F. Supp. 2d 1326, 1331 (S.D.Fla.2000). *1230 For example, local governments may not be found liable under section 1983 merely because its agents or employees have caused a constitutional injury. Monell v. Dep't of Soc. Servs., 436 U.S. 658, 691, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978) ("[W]e conclude that a municipality cannot be held liable solely because it employs a tortfeasor-or, in other words, a municipality cannot be held liable under § 1983 on a respondeat superior theory."); City of Canton v. Harris, 489 U.S. 378, 385, 109 S. Ct. 1197, 103 L. Ed. 2d 412 (1989) ("Respondeat superior or vicarious liability will not attach under section 1983."); Grech v. Clayton County, 335 F.3d 1326, 1329 (11th Cir.2003) ("A county's liability under section 1983 may not be based on the doctrine of respondeat superior.").
Defendants argue that in his Complaint Moore attempts to impermissibly impose liability on the County based on the alleged actions of its employees. In his response, Moore ignores the weight of authority cited in Defendants' Motion to Dismiss regarding the prohibition of municipal liability based on a theory of respondeat superior.
As Defendants correctly point out, Moore is alleging liability based solely on the fact that the county employs officers Newry and Corbin, which is clearly a claim of respondeat superior liability. It is well established that the County cannot be liable under section 1983 merely because its agents or employees have caused a constitutional injury. See Monell, 436 U.S. at 691, 98 S. Ct. 2018; See also Grech v. Clayton County, 335 F.3d 1326, 1329 (11th Cir.2003). Insofar as Plaintiff's language in the Amended Complaint asserts that the County is "responsible" for its employees' actions, this is not enough to state a claim against the County pursuant to section 1983.
2. Plaintiff fails to identify any County official or unofficial acts or policy.
A county may be liable under section 1983 only if the plaintiff's injury was inflicted pursuant to an "official policy" of the county. Monell, 436 U.S. at 694, 98 S. Ct. 2018; Greek 335 F.3d at 1329; Cagle v. Sutherland, 334 F.3d 980, 986 (11th Cir.2003); Tittle v. Jefferson County Comm'n., 10 F.3d 1535, 1540 (11th Cir.1994) ("Counties may be liable for violations of constitutional rights only when such violations occur as a result of an official county policy.").[3]
A party may establish that such a policy exists by proving either "(1) an officially promulgated county policy or (2) an unofficial custom or practice of the county shown through repeated acts of a final policymaker for the county." Grech, 335 F.3d at 1329. "Because a county rarely will have an officially-adopted policy of permitting a particular constitutional violation," most plaintiffs must prove that their injuries were the result of an unofficial custom or practice. Id. at 1330. "Under either avenue, a plaintiff must (1) show that the local governmental entity, here the county, has authority and responsibility over the governmental function in issue and (2) must identify those officials who speak with final policymaking authority for that local governmental entity concerning the act alleged to have caused the particular constitutional violation in issue." Id.[4]
*1231 In order to establish section 1983 liability against a county based on an unofficial custom or practice, "a plaintiff must establish a widespread practice that, although not authorized by written law or express municipal policy, is so permanent and well settled as to constitute a custom or usage with the force of law." Brown v. City of Fort Lauderdale, 923 F.2d 1474, 1481 (11th Cir.1991). Accordingly, "a municipality's failure to correct the constitutionally offensive actions of its employees can rise to the level of a custom or policy (1) if the municipality tacitly authorizes these actions or (2) displays deliberate indifference towards, the misconduct." Griffin v. City of Opa-Locka, 261 F.3d 1295, 1308 (11th Cir.2001) (quoting Brooks v. Scheib, 813 F.2d 1191, 1193 (11th Cir. 1987)). Further, where a plaintiff seeks to establish that a county policy worked a constitutional deprivation through a "custom or practice" in which the county was deliberately indifferent to constitutional violations, a plaintiff must show that the county had subjective knowledge of a risk of serious harm and consciously disregarded that risk. Cagle v. Sutherland, 334 F.3d 980, 985 (11th Cir.2003) (quoting McElligott v. Foley, 182 F.3d 1248, 1255 (11th Cir.1999)). In other words, the practice must be "so pervasive as to be the functional equivalent of a formal policy." Grech, 335 F.3d at 1330 n. 6. This type of widespread practice is "deemed authorized by the policymaking officials because they must have known about it but failed to stop it." Id. "[R]andom acts or isolated incidents are insufficient to establish a custom or policy." Depew v. City of St. Marys, 787 F.2d 1496, 1499 (11th Cir.1986).
As Defendants correctly point out, Plaintiff has not alleged any official or unofficial custom or policy. Plaintiff merely alleges as follows:
Miami Dade County's Chief of Police and police supervisors, were at all time material hereto, supervisors of the police officers involved in the subject incident and therefore, responsible for the training, supervision, and conduct of Defendant. (First Am. Compl. ¶ 7).
and that
Miami-Dade County, through the actions of its Port Security Officer Newry, Miami-Dade Police Officer Anthony Corbin and his supervisors, falsely arrested and detained the Plaintiff for the charges filed against the Plaintiff without any reasonable or probable cause or good faith for the charges filed against the Plaintiff whatsoever. (First Am. Compl. ¶ 30).
Defendants argue that Plaintiff fails to allege or identify any officially promulgated County policy that led to Plaintiff's injury. Specifically, Defendants argue that Plaintiff fails to identify any County ordinance, resolution, or administrative order, or anything else that would otherwise establish an official County policy.
Moreover, Defendants argue that Plaintiff failed to allege that there is an unofficial County custom or practice that caused the alleged constitutional violation. As explained above, under this avenue, Plaintiff *1232 must allege and prove (i) an unofficial practice; through repeated acts; iii) of a final policymaker of the County; iv) that is permanent and well settled; v) about which the County's final policymakers knew and failed to stop. Defendants argue that Plaintiff failed to allege any act or unconstitutional policy employed by a final policymaker (the Board or Manager) of the County. Further, Defendants note that the Complaint is utterly devoid of any references to a "widespread practice." Finally, Defendants argue that Plaintiff failed to allege that the County's final policy makers had any subjective knowledge of any risks or problems with any County policy, or that they demonstrated "deliberate indifference" to the risks of these problems and failed to take any action.
In response to Defendants' Motion to Dismiss, Moore argues that while he has not proven that such a custom or policy exists, that proof is necessary only to succeed at trial, and is not required to survive a 12(b)(6) motion. Moore's argument is unavailing because he has failed to even allege such a policy or custom, and while he need not prove anything at this stage in the litigation, he must make allegations sufficient to state a cause of action against the County. As correctly pointed out by Defendants, Moore fails to identify and allege an officially promulgated County policy, particularly one that permits a constitutional violation. Moreover, Plaintiff fails to identify an unofficial custom or practice of the County, shown through repeated acts, of a final policymaker, that caused Plaintiff's alleged constitutional deprivation. Nowhere in the Complaint does the Plaintiff allege that the County's final policymakers knew and failed to stop an unofficial custom or practice, as required by law to maintain a section 1983 claim against the County. Single, isolated incidents simply do not suffice under Monell and its progeny to impose municipal liability. Because he has not pled any facts sufficient to state a claim under section 1983, Moore's claims against the County must be dismissed.[5]
B. Qualified Immunity as to Officers Corbin and Newry.
As noted above, when a governmental official who is sued individually asserts qualified immunity, as is the case here, Eleventh Circuit precedent imposes a heightened pleading standard for the complaint instead of Rule 8's minimal notice pleading. Gonzalez v. Reno, 325 F.3d 1228, 1235 (11th Cir.2003) ("In examining the factual allegations in a Complaint, we must keep in mind the heightened pleading requirements for civil rights cases . . . [M]ore than mere conclusory notice pleading is required."). The complaint must allege the relevant facts "with some specificity." Id. (citing GJR Investments, Inc. v. County of Escambia, 132 F.3d 1359, 1367 (11th Cir.1998)). "[A] Complaint will be dismissed as insufficient where the allegations it contains are vague and conclusory." Id. (quoting Fullman v. Graddick, 739 F.2d 553, 556-57).
The defense of qualified immunity protects officials performing discretionary functions from liability "where their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Gold v. City of Miami, 121 F.3d 1442, 1445 (11th Cir.1997) (quoting Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 73 L. Ed. 2d 396 (1982)). To be entitled to qualified immunity, "the public official must show that he was acting within *1233 the scope of his discretionary authority at the time the allegedly wrongful acts occurred." Durruthy v. Pastor, 351 F.3d 1080, 1087 (11th Cir.2003) (citing Lee v. Ferraro, 284 F.3d 1188, 1194 (11th Cir. 2002)). In this case, it is not disputed that during the periods alleged in the Complaint, Officers Corbin and Newry were on duty on behalf of the MDPD and were acting within the course and scope of their authority as police officers. (First Am. Compl. ¶ 8).
Once it is established that the officers were acting within their discretionary authority, "the burden shifts to the plaintiff to show that qualified immunity is not appropriate." Durruthy, F.3d at 1087 (quoting Lee, 284 F.3d at 1194). The United States Supreme Court has set forth a two part test to determine whether a plaintiff has alleged facts sufficient to defeat qualified immunity. "The threshold inquiry . . . is whether [the] plaintiff's allegations, if true, establish a constitutional violation." Hope v. Pelzer, 536 U.S. 730, 736, 122 S. Ct. 2508, 153 L. Ed. 2d 666 (2002); Saucier v. Katz, 533 U.S. 194, 201, 121 S. Ct. 2151, 150 L. Ed. 2d 272 (2001). "If no constitutional right would have been violated were the allegations established, there is no necessity for further inquiries concerning qualified immunity." Saucier, 533 U.S. at 201, 121 S. Ct. 2151.
However, "[i]f a constitutional right would have been violated under the plaintiffs version of facts, "the next, sequential step is to ask whether the right was clearly established."" Vinyard v. Wilson, 311 F.3d 1340, 1346 (11th Cir. 2002) (quoting Saucier, 533 U.S. at 201, 121 S. Ct. 2151).[6] In Saucier, the Supreme Court stated that the relevant query is whether it "would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted." Id. at 201, 121 S. Ct. 2151.[7] In Hope v. Pelzer, 536 U.S. at 741, 122 S. Ct. 2508, the Supreme Court refined the Saucier query, holding that the "salient question . . . is whether the state of law . . . gave [the officers] fair warning that their alleged treatment [of the plaintiff] was unconstitutional".
In the context of qualified immunity defenses, the law requires the evaluation of only the four corners of the Complaint in ruling on the Defendants' Motions to Dismiss. See St. George v. Pinellas County, 285 F.3d 1334, 1337 (11th Cir.2002). As Defendants correctly point out, the Complaint is utterly devoid of any facts regarding Officer Corbin's conduct. Plaintiff merely alleges that Officer Corbin arrived at the scene and ordered Plaintiff to be placed in custody and that Officer Corbin filed a criminal action against Plaintiff. (First Am. Compl. ¶¶ 21,23). *1234 Additionally, in the context of the False Arrest Claim against Defendants, Plaintiff makes a bare allegation that Officer Corbin arrested Plaintiff "without probable cause and with malicious intent." (First Am. Compl. ¶ 28). The Eleventh Circuit has established that an officer receives qualified immunity from suit under section 1983 as long as he possessed "arguable probable cause" for the arrest. See Jones v. Cannon, 174 F.3d 1271, 1283 n. 3 (11th Cir.1999) ("Arguable probable cause, not the higher standard of actual probable cause governs the qualified immunity inquiry"). Nevertheless, I need not address the "arguable probable cause" issue because in light of the heightened pleading standard, such bare and conclusory allegations are insufficient to establish that Officer Corbin's actions resulted in a constitutional violation of a clearly established right. Accordingly, Plaintiff has not met his burden and Officer Corbin is entitled to qualified immunity.
Moreover, Defendants argue that because Moore does not plead that Officer Newry arrested Plaintiff, he is also entitled to qualified immunity. In response, Plaintiff merely states that he is at a loss why Defendant would be raising the qualified immunity argument at the Motion to Dismiss stage. Eleventh Circuit precedent clearly dictates that qualified immunity should be resolved at the earliest possible stage of litigation because it "is `an entitlement not to stand trial or face the other burdens of litigation.'" Gonzalez, 325 F.3d at 1233 (citations omitted).
In making the decision whether Officer Newry is entitled to qualified immunity, I must continue to take into account the heightened pleading standard. As stated above, under the doctrine of qualified immunity, government officials performing discretionary functions are immune not just from liability, but from suit, unless the conduct which is the basis for the suit violates a clearly established statutory or constitutional rights of which a reasonable person would have known. Plaintiff alleges no facts in his First Amended Complaint and offers no authority in his Response to the Motion to Dismiss establishing that any reasonable officer in Officer Newry's position would have known that his or her conduct violated federal law. Further, Plaintiff does not plead that Officer Newry arrested Plaintiff; instead, he merely alleges that Defendants "cause[d] Plaintiff to be arrested and unlawfully deprived him of his liberty and his constitutional rights." (First Am. Compl. ¶ 28). Plaintiff provides a list of constitutional violations, including Fourth, Fifth, and Fourteenth Amendment violations, without elaboration and without differentiating between the various defendants. Thus, even if I were to find that a constitutional violation occurred, Moore has not met the heightened pleading requirement by failing to allege sufficient facts to establish that his purported constitutional rights were clearly established by case law or otherwise. Therefore, Moore has failed to overcome Officer Newry's qualified immunity defense, and his claims against him pursuant to section 1983 must also be dismissed.[8]
C. The County is entitled to sovereign immunity for Counts II, III and IV.
The doctrine of sovereign immunity provides that the County, as a political subdivision of the State of Florida, is immune from suit except in those circumstances where the State has given its consent *1235 to be sued. See Cauley v. City of Jacksonville, 403 So. 2d 379, 381 (Fla.1981) ("Thus the general rule was that state governments, their agencies, and their subdivisions could not be sued in state courts without state consent"). In 1973, Florida gave its consent to be sued in tort actions through the enactment of Florida Statute § 768.28. The State, however, waived its sovereign immunity from liability for torts "only to the extent specified in this [statute]," Fla. Stat. § 768.28(1) (2004), and thus set out limitations to suits against the State of Florida and its political subdivisions, such as Miami-Dade County.
One such limitation is that in any case involving the actions of a county employee, either the county or the employee can be held liable, but not both. Fla. Stat. § 768.28(2) & (9)(a); McGhee v. Volusia County, 679 So. 2d 729, 733 (Fla.1996) ("In any given situation either the agency can be held liable under Florida law, or the employee, but not both"). Furthermore, the general rule is that the State may be held liable for the acts of its employees, unless "such [an] act or omission was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property." Fla. Stat. § 768.28(9)(a); See also McGhee, 679 So.2d at 733.
Accordingly, Florida courts have routinely held that a governmental entity may not be held liable where its employee's actions were malicious, in bad faith, or showed reckless and wanton disregard for human rights, safety, or property. See, e.g. City of Fort Lauderdale v. Todaro, 632 So. 2d 655, 656-58 (Fla. 4th DCA 1994) (reversing verdict against city where jury found employee acted with willful disregard for safety); Willis v. Dade County Sch. Bd., 411 So. 2d 245, 246 (Fla. 3d DCA 1982) (affirming trial court's dismissal of complaint that alleged "malicious" assault and battery).
Defendants argue that the County is entitled to sovereign immunity for Counts II through IV for the following reasons: (1) in Count II, Plaintiff specifically alleged that the officers' actions were "wickedly, willfully, wanton and maliciously done," (First Am. Compl. ¶ 31); (2) in Count III, Plaintiff alleges that the Defendants acted "maliciously," (First Am. Compl. ¶ 35); (3) in Count IV, Plaintiff alleges that Officer Newry used "deadly and unnecessary force," (First Am. Compl. ¶ 38). In response, without providing any analysis or legal authority, Moore argues that the County's immunity has been waived for the state law claims. Further, Moore seems to argue that the issue of whether an officer acted maliciously requires a factual analysis, and should be resolved at trial.
In Willis, the plaintiff sued the Dade County School Board asserting that one of the County's physical education teachers maliciously assaulted and battered the plaintiff, causing her injury. The trial court dismissed the amended complaint for failure to state a cause of action. The appellate court upheld the dismissal based on sovereign immunity grounds because the amended complaint expressly alleged a "malicious assault and battery." See Willis, 411 So.2d at 246. Thus, given Moore's express allegations of malicious, wanton, or willful conduct by the County's employees, I find that the County is not liable under § 768.28(9) of the Florida Statutes, and is therefore entitled to sovereign immunity on all state law claims.
D. The officers are entitled to sovereign immunity.
With respect to waiver of sovereign immunity in tort actions, Florida Statute § 768.28(9)(a) states in relevant part:
*1236 No officer, employee, or agent of the state or of any of its subdivisions shall be held personally liable in tort or named as a party defendant in any action for any injury or damage suffered as a result of Any act, event, or omission of action in the scope of her or his employment or function, unless such officer, employee, or agent acted in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights; safety, or property.
Fla. Stat. § 768.28(9)(a).
Moreover, as stated above, in any case involving the actions Of a county employee, either the county or the employee can be held liable, but not both. Id. Defendants argue that insofar as Plaintiff is alleging that Officers Newry and Corbin were acting within the scope of their employment, and not acting with malice, then all state law claims against them must be dismissed because they are protected by sovereign immunity. In response, Moore, again without any legal analysis, asserts that both Florida's Fourth District Court of Appeals and the United States Supreme Court have held that the Officers are not protected by state sovereign immunity.
To abrogate state immunity, Plaintiff must plead that the Officers "acted in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property." Fla. Stat. § 768.28(9). Thus, Plaintiffs allegations in Counts II through IV, which state that the Officers acted maliciously and with unnecessary force are enough to defeat the Officers' entitlement to sovereign immunity. Nevertheless, "a federal court should consider and weigh in each case, and at every stage of the litigation, the values of judicial economy, convenience, fairness, and comity in order to decide whether to exercise jurisdiction over a case brought in that court involving pendant state-law claims." Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350, 108 S. Ct. 614, 98 L. Ed. 2d 720 (1988).
With the Complaint as it stands, I cannot determine whether federal jurisdiction exists in this case. Therefore, pending Plaintiffs filing of an Amended Complaint, I cannot determine whether there is a basis for supplemental jurisdiction over the state law claims set out in Counts II through IV, and thus, I decline to address them at this time.
IV. Conclusion
As stated above, Count I of Plaintiff's First Amended Complaint, which alleged civil rights violations under 42 U.S.C. section 1983 is dismissed without prejudice, and the only causes of action remaining are state law claims of false imprisonment, malicious prosecution, and battery. Absent an independent basis for federal jurisdiction, the state law claims can only be maintained through the district court's discretion to exercise supplemental jurisdiction. 28 U.S.C. § 1367(c)(3). As explained, pending Plaintiff's filing of an Amended Complaint, I decline to address the state law claims at this time. Furthermore, I find it unnecessary to address the remaining arguments outlined by Defendants in their Motion to Dismiss: Plaintiff fails to properly state a claim for malicious prosecution; Plaintiff cannot maintain an action against the officers in their official capacity; Plaintiff is not entitled to attorney's fees for Counts II through IV; and Plaintiff has failed to state a claim under the first Amendment.
Accordingly, it is hereby ORDERED and ADJUDGED that:
1. Defendants' Motion to Dismiss the First Amended Complaint [DE 5] is GRANTED.
2. Plaintiff's Complaint is DISMISSED WITHOUT PREJUDICE.
*1237 3. Plaintiff may file an Amended Complaint within 20 days.
NOTES
[1] Plaintiff has alleged additional facts in his Response [DE 7] filed on November 30, 2007, which this court declines to address.
[2] Violations of section 1983 occur when a person suffers the deprivation of rights secured by the U.S. Constitution and federal laws inflicted by one acting "under color of any state statute, ordinance, regulation, custom, or usage of any State or Territory of the District of Columbia." 42 U.S.C. § 1983.
[3] "This `official policy' requirement [is] intended to distinguish acts of the municipality from acts of employees of the municipality, and thereby make clear that municipal liability is limited to action for which the municipality is actually responsible." Grech, 335 F.3d at 1329 (quoting Pembaur v. City of Cincinnati, 475 U.S. 469, 479-80, 106 S. Ct. 1292, 89 L. Ed. 2d 452 (1986)).
[4] "The final policy making authority for Miami-Dade County rests solely with the Board of County Commissioners or the County Manager." Wilson v. Miami-Dade, No. 04-23250, 2005 WL 3597737 at *8-*10 (S.D.Fla. Oct. 11, 2005) (Moore, J.) (granting motion to dismiss based on failure to plead that the Board or Manager were responsible for the alleged violations and holding that only the Board or Manager, and not the Director of the Police Department, could be final policymaker for the County); Buzzi v. Gomez, 62 F. Supp. 2d 1344, 1359-1360 (S.D.Fla.1999) (Gold, J.) (finding that the MDPD Director was not the, final policymaker for the County). Determining whether an official possesses final policymaking authority is a question of law for the court to decide. See Jett v. Dallas Independent School Dist., 491 U.S. 701, 737, 109 S. Ct. 2702, 105 L. Ed. 2d 598 (1989).
[5] This court finds it appropriate to dismiss Moore's claim against the County without prejudice, affording Moore the opportunity to amend his pleadings to state a cause of action against the County, if such facts exist.
[6] Put another way, first the Court must consider "in the light most favorable to the party asserting the injury, do the facts alleged show the officer's conduct violated a constitutional right?" Saucier, 533 U.S. at 201, 121 S. Ct. 2151. If, in doing this, the Court finds that no constitutional right was violated, the inquiry ends there and the Defendant is entitled to qualified immunity. If the facts disclose a constitutional violation, however, the Court then must ask whether, at the time the violation occurred, "every objectively reasonable police officer would have realized the acts violated already clearly established federal law." Garrett v. Athens-Clarke Co., 378 F.3d 1274, 1278-79 (11th Cir.2004).
[7] To determine the propriety of qualified immunity, the government official's conduct is evaluated under an "objective legal reasonableness" standard. Koch v. Rugg, 221 F.3d 1283, 1295 (11th Cir.2000) (citations omitted). The official's subjective intent is irrelevant to the inquiry. Id. Under the "objective legal reasonableness" standard, a government official performing discretionary functions is protected if "a reasonable official could have believed his or her conduct to be lawful in light of clearly established law and the information possessed by the official at the time the conduct occurred." Hardin v. Hayes, 957 F.2d 845, 848 (11th Cir.1992).
[8] The claims against the Officers, pursuant to 42 U.S.C. § 1983, will be dismissed without prejudice, such that Moore may amend his pleadings to state a cause of action against the them, if such facts exist. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1513130/ | 425 F. Supp. 955 (1976)
Richard LUCAS et al., Plaintiffs,
v.
Joseph WASSER, Individually and as Sheriff of Sullivan County, et al., Defendants.
No. 76 Civ. 1057 (HFW).
United States District Court, S. D. New York.
August 26, 1976.
*956 Michael J. Goldberg, David L. Posner, Mid-Hudson Valley Legal Services Project (Monroe County Legal Assistance Corp.), Monticello, N.Y., and Daan Braverman, Greater Up-State Law Project, Monroe County Legal Assistance Corp., Rochester, N.Y., for plaintiffs.
Louis J. Lefkowitz, Atty. Gen. of N.Y., by Jules E. Orenstein, Asst. Atty. Gen., New York City, for defendants Commissioners of the New York State Commissions of Correction.
OPINION
WERKER, District Judge.
This is a suit brought on behalf of all pre-trial detainees at the Sullivan County Jail (hereinafter "SCJ") seeking declaratory and injunctive relief under 42 U.S.C. § 1983, based on the conditions under which they are so confined. Plaintiffs claim that the jail conditions at the SCJ violate the first, sixth, eighth, ninth and fourteenth amendments of the United States Constitution. The conditions complained of include unduly repressive confinement practices, inhumane confinement, enforced idleness, inadequate medical care, and inadequate visiting privileges and facilities. Plaintiffs further allege the unconstitutionality of limitations on access to the courts through restrictions on visits, correspondence and telephone calls to and from attorneys and excessively limited access to an inadequate law library. Additional sources of complaint include restrictions on letter-writing and the perusal of inmate mail, both incoming and outbound, limitations on acquiring personal property, inadequate diet and a lack of sanitary procedures in the preparation and service of food. Plaintiffs allege that restrictions on access to literature, arbitrary and capricious imposition of punishment for disciplinary infractions, and lack of an effective grievance procedure also violate their constitutional rights. Amongst their other contentions plaintiffs claim that the equal protection clause of the fourteenth amendment is violated because they are *957 subjected to more punitive and oppressive conditions than are convicted felons in the state.
Sued as defendants are Joseph Wasser and William Forsbach, the sheriff and undersheriff of Sullivan County, Isidore Greenberg, the Sullivan County Jail physician, the members of the Sullivan County Board of Supervisors, Herman Schwartz, Acting Chariman of the New York State Commission of Correction (hereinafter the "Commission"), and Eugene Le Fevre and Dorothy Wadsworth, Acting Commissioners of the Commission, and the Commission itself. The nomination of Herman Schwartz[1] and the Acting Commissioners has not been affirmed by the New York State Senate.
The motion for consideration by the court is a motion to dismiss for lack of jurisdiction over the subject matter and failure to state a claim upon which relief can be granted under Rules 12(b)(1) and 12(b)(6) respectively of the Federal Rules of Civil Procedure, brought by counsel for Herman Schwartz, Eugene Le Fevre and Dorothy Wadsworth (hereinafter the "State defendants").
The motion to dismiss is based on the contention that the issues raised in this case are non-justiciable. The State defendants' argument has three branches. First, the State defendants raise an issue of "ripeness," arising out of the fact that the composition of the Commission has not yet been determined. As a result, what position the ultimate Commission and Chairman of the Commission are likely to take with respect to this action is uncertain. The State defendants also contend that the issues of the case are moot as to the State defendants named in the complaint since they are no longer either Chairman or acting members of the Commission. The second branch of the motion is based on the fact that Article 3 of the Correction Law, N.Y. Correction Law § 40 et seq. (McKinney 1962), as amended, N.Y. Correction Law § 40 et seq (McKinney Supp. 1975) has recently been amended conferring greater powers on and increasing the function of the Commission. The State defendants urge that this court exercise equitable restraint and refrain from granting the injunctive relief requested since the State defendants may exercise their additional powers and thereby negate the need for seeking relief in federal court and also because there has been no adjudication of the issues of this case in a state court. The third contention made by the State defendants is that the complaint fails to specifically charge the State defendants with any violation of the plaintiffs' civil rights and that there is no causal link between plaintiffs' claims and the State defendants' actions. They contend also that at most any deficiency in their conduct would amount only to a statutory violation or a violation of the state constitution rather than a violation of any of plaintiffs' federal constitutional rights.
Uncertainty in the Composition of the Commission
The possible ultimate composition of the Commission and the uncertainty in its position with regard to this suit does not properly raise a basis for a motion to dismiss. The plaintiffs have alleged that their rights are presently being violated. The fact that the Commission may align itself with the plaintiffs is a purely hypothetical possibility. The actions of the Commission as it is presently constituted are alleged to violate plaintiffs' constitutional rights at the present time. This is sufficient to state a cause of action. The eventual Commission would be free at any time in the future to enter into a consent judgment with the plaintiffs if it so chose. The fact that the parties presently named no longer hold their positions does not moot the case. A substitution of the new parties would take place automatically under the Federal Rules of Civil Procedure, Rule 25(d).
*958 The fact that the powers of the Commission have been newly expanded under the new statute does not make this case an appropriate one for the exercise of the doctrine of abstention. Abstention is appropriate only where a state law is uncertain and where a state tribunal is the only authoritative source of construction. Wisconsin v. Constantineau, 400 U.S. 433, 438, 91 S. Ct. 507, 27 L. Ed. 2d 515 (1971). The new Article 3 of the Correction Law, although somewhat extensive, is not ambiguous or uncertain. Because its details are carefully drafted it is susceptible of interpretation and construction by a federal court.
Effective on September 8, 1975, the statute created the State Commission of Correction (formerly the Commission of Correction) and endowed it with the power to advise the governor regarding the development of programs for the improvement of the administration and delivery of services to correctional facilities. N.Y. Correction Law § 45(1) (McKinney Supp. 1975). By contrast, the former statute stated in the following general terms that the Commission was to "[a]dvise the officers of [institutions for the detention of sane adults charged with or convicted of a crime and subject to the control of the commissioner of correction] in the performance of their official duties." N.Y. Correction Law § 46(2) (McKinney 1968), as amended, N.Y. Correction Law § 45(2) (McKinney Supp. 1975). The Commission is presently required to promulgate procedures to effectively investigate grievances and conditions affecting inmates of local correctional facilities and to review grievances referred to it by the commission of correctional services.[2] This is to include but not be limited to the receipt of written complaints, interviewing of persons and on site monitoring of complaints. This subsection further provides that the Commission is to place members of its staff as monitors in local correction facilities which present "an imminent danger to the health, safety or security of the inmates or employees of such correctional facility . . ." N.Y. Correction Law § 45(7) (McKinney Supp. 1975). Moreover, the Commission is required to establish and operate a training program of personnel employed by correctional facilities except where particular correctional facilities operate such training programs of an equal or better quality than that of the Commission and those personnel thus trained possess sufficient qualification for the care of persons confined in correctional facilities. N.Y. Correction Law § 45(9) (McKinney Supp. 1975). Whereas the erstwhile Commission was directed merely to collect statistical information concerning accounting matters and the numbers and conditions of inmates in institutions, the statute now requires that the information be acquired and research be undertaken with respect to the "administration, programs, effectiveness and coordination of correctional facilities," and that this information be disseminated. N.Y. Correction Law § 45(11) (McKinney Supp. 1975). The former statute required merely that the commission "[s]ecure the best sanitary conditions of the buildings and grounds of all such institutions, and protect and preserve the health of the inmates." N.Y. Correction Law § 46(5) (McKinney 1968). The new statute further elaborates on this duty by requiring the appraisal of the management of correctional facilities with specific regard to safety, security, health, sanitary conditions, rehabilitative programs, disturbance and fire prevention and control preparedness and the adherence to regulations governing the rights of inmates. N.Y. Correction Law § 45(3) (McKinney Supp. 1975). New Article 3 further provides for the institution of a "correction medical review board," whose function is to investigate and review the *959 circumstances surrounding the death of an inmate at a correctional facility, and to investigate and report to the Commission the nature of the medical care delivered to inmates of correctional facilities. N.Y. Correction Law § 47 (McKinney Supp. 1975). The new law authorizes the Commission to issue and enforce subpoenas and subpoenas duces tecum as well as to administer oaths and examine persons under oath in seeking information necessary for the carrying out of the Commission's functions and duties. N.Y. Correction Law § 46(1), (2) (McKinney Supp. 1975). While under the former statute the power of the Commission to enforce rules or regulations was restricted to the power to close a non-complying facility, the new statute, while preserving that power, provides that the Commission can notify a person in charge of a facility of violations of rules or regulations and direct compliance. Upon the failure of such a person to comply, the Commission can apply to the New York State Supreme Court for an order directing compliance. A failure to comply with such an order is punishable by contempt. N.Y. Correction Law § 46(3) (McKinney Supp. 1975).
The basic policy behind the doctrine of abstention, a doctrine of extraordinary application, is the avoidance of needless friction in state-federal relations. County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 79 S. Ct. 1060, 3 L. Ed. 2d 1163 (1959). In Railroad Commission v. Pullman Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941), the Supreme Court enunciated the policy behind the doctrine of abstention. The Supreme Court, reviewing the history of cases in which the Court considered the public consequences of granting equitable relief, stated:
"These cases reflect a doctrine of abstention appropriate to our federal system whereby the federal courts, `exercising a wise discretion,' restrain their authority because of `scrupulous regard for the rightful independence of the state governments' and for the smooth working of the federal judiciary. See Cavanaugh v. Looney, 248 U.S. 453, 457, 39 S. Ct. 142, 143, 63 L. Ed. 354; Di Giovanni v. Camden Ins. Assn., 296 U.S. 64, 73, 56 S. Ct. 1, 5, 80 L. Ed. 47. This use of equitable powers is a contribution of the courts in furthering the harmonious relation between state and federal authority without the need of rigorous congressional restriction of those powers." Id. at 501, 61 S.Ct. at 645.
Considerations of federal-state relations which might otherwise call for abstention by a federal court must give way in this instance where a possible violation of plaintiffs' federal constitutional rights is a dominant concern. The central issue here is the standard which must be maintained for the detention of pretrial detainees in a county facility consistent with the Constitution and whether or not that standard is being maintained. Essentially this is a question of the requirements of the due process and equal protection clauses of the fourteenth amendment. Any factual questions attendant thereto can as well be resolved by a federal court as by a state court.
In McRedmond v. Wilson, 533 F.2d 757 (2d Cir. 1976), the Second Circuit recently found that the district court had improperly invoked the doctrine of abstention. The case arose out of a constitutional challenge to the New York State policy of placing persons adjudicated as Persons in Need of Supervision in allegedly constitutionally inadequate training schools located at great distances from their homes. The Second Circuit there indicated that:
"Resolution of that issue does not turn upon construction of any unclear state statute or statutory scheme controlling the extent of treatment to be accorded PINS, the interpretation of which might avoid or modify the federal constitutional issue. The relevant state statute is § 255 of the Family Court Act, which assures PINS of such `care, protection and assistance as will best enhance their welfare.' This statute has twice been construed by the New York Court of Appeals as entitling PINS as a matter of `due process' to adequate treatment. See Lavette M. v. Corporation Counsel of the City of New *960 York, 35 N.Y.2d 136, 359 N.Y.S.2d 20, 316 N.E.2d 314 (1974); Matter of Ellery C. v. Redlich, 32 N.Y.2d 588, 347 N.Y.S.2d 51, 300 N.E.2d 424 (1973). Application of the key statutory clause does not require intricate or penetrating statutory interpretation best left to the state. On the contrary, the right to treatment, as New York's highest court has indicated in its interpretation of the statute, is subject to basic constitutional due process principles, of which the state courts are not the final expositors. Indeed, as the New York Court of Appeals recognized, the question is one of fact rather than of statutory interpretation. The court must, on the record before it in a particular case, determine whether PINS are being provided with an adequate program of supervision and treatment that will furnish certain essential components, including counseling, therapy, education and diagnosis, as distinguished from `mere custodial care.' If not, `a serious question of due process is raised.' In re Lavette, supra, 35 N.Y.2d at 142, 359 N.Y.S.2d at 24, 316 N.E.2d at 317. We have no reason to believe that the federal court is any less equipped to engage in this factual inquiry than is its counterpart at the state level. Id. at 762.
Although an interpretation by a state court of the new statute is lacking here, as indicated previously the state statutory scheme is clear and is capable of interpretation by a federal court. In all other respects this case is directly analogous to McRedmond. The issue is one essentially of fact rather than statutory interpretation, that is whether pretrial detainees are being confined in accordance with the standards of the due process and equal protection clauses. As noted in McRedmond, supra at 762, federal courts routinely hear challenges to the conditions under which inmates are held:
Indeed, § 1983 challenges to the constitutionality of institutional treatment of inmates, including juveniles and mental patients, are now routinely heard by federal courts, see O'Connor v. Donaldson, supra [422 U.S. 563, 95 S. Ct. 2486, 45 L. Ed. 2d 396]; Nelson v. Heyne, 491 F.2d 352 (7th Cir.), cert. denied, 417 U.S. 976, 94 S. Ct. 3183, 41 L. Ed. 2d 1146 (1974); Morales v. Turman,383 F. Supp. 53 (E.D.Tex.1974); Martarella v. Kelley, 349 F. Supp. 575 (S.D.N.Y.1972); Inmates of Boys' Training School v. Affleck, 346 F. Supp. 1354 (D.R.I.1972); Lollis v. Department of Social Services, 322 F. Supp. 473 (S.D.N.Y. 1970), even though, as here, similar challenges might have been asserted in state forums by relying upon state due process provisions or statutes promising in general terms `care,' `treatment,' and the like." Id. at 762.
Thus, even though suit might have been brought in state court, this does not present a sufficient reason for this court to abstain here. As was McRedmond, this case is distinguishable from Reid v. Board of Education, 453 F.2d 238 (2d Cir. 1971) in which the Second Circuit felt abstention to be appropriate. Reid involved a suit by the parents of brain-injured children who alleged that the New York school system had violated their children's constitutional rights by failing to screen applicants for special classes within a reasonable time and by failing to provide such classes for all eligible children. There a federal constitutional determination would be obviated, the Second Circuit thought, by a decision under state law as to whether or not state statutory and state constitutional provisions with regard to the furnishing of facilities for the treatment of the handicapped and the maintenance of schooling for children had been violated. Said the court,
"Under these circumstances, where a decision under state law might obviate the necessity of a federal constitutional determination, but the state law is unclear and a federal adjudication under the court's pendent jurisdiction would thrust the federal courts into a sensitive area of state administration, the federal courts should abstain." Id. at 240.
The claim here, that pretrial detainees are being deprived of their liberty in an unconstitutional *961 fashion is distinguishable from that made in Reid in that it is of a much more fundamental nature than the claim in Reid to a right to special classes for brain-injured children. The plaintiffs, pretrial detainees, are subject to a severe restriction on their liberty. Although the federal courts are not unmindful of the importance of maintaining smooth federal-state relations, the assertion of federal constitutional claims in the context of this case here impels intervention by the federal courts. Jones v. Metzger, 456 F.2d 854 (6th Cir. 1972). It has not been unusual for federal courts to direct the implementation of plans to correct unconstitutional conditions in local prisons. Rhem v. Malcolm, 507 F.2d 333 (2d Cir. 1974); McRedmond v. Wilson, supra at 762. As the United States Supreme Court stated in response to an argument in favor of abstention in Procunier v. Martinez, 416 U.S. 396, 405-406, 94 S. Ct. 1800, 1807, 40 L. Ed. 2d 224 (1974), a suit involving a challenge to the constitutionality of a prison regulation concerning prisoner mail:
"But a policy of judicial restraint cannot encompass any failure to take cognizance of valid constitutional claims whether arising in a federal or state institution. When a prison regulation or practice offends a fundamental constitutional guarantee, federal courts will discharge their duty to protect constitutional rights."
Carey v. Sugar, 425 U.S. 73, 96 S. Ct. 1208, 47 L. Ed. 2d 587 (1976) (per curiam), cited by the State defendants, does not advance their argument in favor of abstention. Carey dealt with the constitutionality of New York's prejudgment attachment statute. Since the Supreme Court felt a constitutional construction of the statute were possible if interpreted to require a preliminary hearing on the merits of the plaintiff's claim, it directed abstention from a decision on the issue until the statute could be reviewed by the New York courts. That ruling has no applicability to the facts of this case where no ambiguity in the statute requires preliminary construction by a state court.
Contrary to the argument of the State defendants, there is an actual case or controversy here. In Rizzo v. Goode, 423 U.S. 362, 96 S. Ct. 598, 46 L. Ed. 2d 561 (1976), cited by the State defendants, the Supreme Court found lacking the article III case or controversy requirement in a suit under 42 U.S.C. § 1983 because of the remoteness of the alleged injury. The claimed injury in the suit which concerned police practices in the city of Philadelphia related to the potential conduct of unspecified policemen towards the plaintiffs because of any particular police officer's perception of departmental disciplinary procedures. By contrast, the alleged injury here is an immediate and concrete injury, not a hypothetical one. There is no question but that an actual case or controversy is presented to this court for determination. See also O'Shea v. Littleton, 414 U.S. 488, 94 S. Ct. 669, 38 L. Ed. 2d 674 (1974); Evans v. Lynn, 537 F.2d 571 (2d Cir. 1976).
Allegations in the Complaint Directed at the State Defendants
The State defendants' third contention is that they have not been charged with a violation of plaintiffs' civil rights and that only local officials are so charged. An examination of the allegations in the complaint reveals that this contention is without basis. For example, plaintiffs allege the failure of defendants to create a grievance procedure for prisoner complaints. This duty is specifically delegated to the Commission under N.Y. Correction Law § 45 (4) (McKinney Supp. 1975). Allegations of unhealthy conditions in the SCJ relate directly to the Commission which is specifically charged with the duty of inspecting and appraising jail facilities with regard to matters of health. N.Y. Correction Law § 45(3) (McKinney Supp. 1975). These allegations amount to more than mere violations of statutory rights but rise to the level of impingements on federal constitutional rights. Inmates of Suffolk County Jail v. Eisenstadt, 494 F.2d 1196 (1st Cir.), cert. denied, 419 U.S. 977, 95 S. Ct. 239, 42 L. Ed. 2d 189 (1974). The joining of the *962 State defendants is essential if the plaintiffs are to obtain complete relief in light of the duties and functions which are reserved to the Commission. Build of Buffalo, Inc. v. Sedita, 441 F.2d 284 (2d Cir. 1971). The State defendants share the responsibility for the proper operation of the SCJ.[3]Inmates of Suffolk County Jail v. Eisenstadt, supra. Unlike the situation in Rizzo v. Goode, supra, there is a direct causal link between the injury plaintiffs allege and the State defendants whose duties directly affect the conditions to which plaintiffs are subjected.
For the above reasons, the State defendants' motion to dismiss is hereby denied.
SO ORDERED.
NOTES
[1] An article in the July 29, 1976 edition of the New York Law Journal, p. 2., col. 2, indicated that Governor Carey had nominated Rev. Stephen Chinlund to be Chairman of the State Commission of Correction. Reverend Chinlund's nomination had not yet been confirmed by the New York State Senate.
[2] The contemplated regulations with regard to grievance procedures have been promulgated with respect to state institutions but have not yet been promulgated for county institutions. Administrative Guidelines for the Inmate Grievance Procedures (unpublished). However, the new minimum standard regulations required by § 45(6) of the new New York Correction law (McKinney Supp. 1975) have been promulgated as of June 24, 1976 and will be effective as of October 1, 1976.
[3] The importance of the Commission to the correctional system of the State is demonstrated by the following excerpt from the Governor's Memorandum # 89-# 91 1975 New York State Legislative Annual (1975):
"The purpose of these bills is to establish a full-time and vigorous watchdog organization to oversee the performance of the State and local correctional system and to create a mechanism for the fair resolution of grievances in correctional institutions. . . .
The State of New York, with over 400 State and local correctional facilities, has one of the largest correctional systems in the country. It is of utmost importance that there be some independent and effective oversight of the operations of this system to assure the public that its performance meets or exceeds acceptable standards, that its practices are consistent with the goals of our criminal justice system and that the rights and responsibilities of inmates and correctional personnel are recognized and respected.
This bill provides for a three-man full-time Commission to oversee the operations of State and local correctional facilities, to formulate programs for the improvement of the correctional system and to create a system for the investigation and resolution of grievances in local correctional facilities. The valuable concept of citizen's input in overseeing the performance of the correctional system, which underlies the present Commission of Correction, has not been abandoned, although its limitations have been recognized. This bill places a full-time Commissioner in charge of the part-time citizen's policy and complaint review council and provides funds for an adequate supportive staff to assist the council in the performance of its duties. Unlike the present Commission, where ultimate responsibility resided with part-time members, this bill squarely places that responsibility upon the full-time Commission. The part-time council members are available to assist the Commission in fulfilling its responsibilities with respect to local correctional facilities and to provide for input from the community in the oversight and policymaking functions of the Commission." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1513515/ | 425 F. Supp. 22 (1977)
SID BERK, INC., Plaintiff,
v.
UNIROYAL, INC., Defendant.
No. 76-1674-(AAH).
United States District Court, C. D. California.
January 3, 1977.
*23 Loeb & Loeb by Robert A. Holtzman (Fulton Brylawsky, J. Michael Cleary, Washington, D.C. and Gerald A. Weinstein, Encino, Cal., on the briefs), having appeared for plaintiff and Harvey E. Bumgardner, Jr., New York City.
Rutan & Tucker by Bruce R. Corbett, Santa Ana, Cal. (Garvin F. Shallenberger, Santa Ana, Cal., and Arthur, Dry & Kalish, New York City, on the briefs), having appeared for defendant.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER ON MOTION FOR A PRELIMINARY INJUNCTION DENYING PRELIMINARY INJUNCTION
HAUK, District Judge.
Plaintiff's motion for a preliminary injunction is denied in its entirety.
Pursuant to Rule 52(a), F.R.Civ.Proc. and Rule 7(a) of the Rules of the United States District Court for the Central District of California, this Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
The Parties To The Action
1. Plaintiff, Sid Berk, Inc. ("Berk" hereinafter), a corporation of the State of California having its principal place of business in Los Angeles, California, adopted its present corporate name in or about 1967 and embarked upon the objective of selling dress quality women's high fashion shoes *24 exclusively to leading department stores throughout the nation.
2. According to Berk, it has sold about 500,000 pairs, or approximately 55,000 pairs per year, on the average, of the shoes in question here since this effort was begun. Berk states that the pertinent women's high fashion shoes have been sold through certain department stores and have been advertised in every one of the fifty states of this country. It has never sold golf or other athletic shoes.
3. Berk states that, except for its first year of pertinent sales, its sales have always exceeded $1,000,000 per annum, but admits that the projected retail proceeds of its sales during this era only approximated $12,000,000.
4. The officers of Berk are Sid Berk, president, Seymour Fabrick, vice-president and William Gibson, secretary-treasurer. The sole stockholders of Berk are Sid Berk and Seymour Fabrick.
5. Defendant, Uniroyal, Inc. ("Uniroyal" hereinafter) is a major American corporation (incorporated in New Jersey and having its principal place of business in Middlebury, Connecticut) which is engaged in the manufacture and sale of a wide range of diversified products including a complete line of golf products for golfers, male and female.
6. Over the years, Uniroyal has established a widely recognized position in Royal ® golf products and states that it has expended approximately $20,000,000 in the promotion of the Royal ® line of golf products.
7. Uniroyal's well-known Royal ® line of golf products (including its Royal ® Daisy women's golf shoes) has always been sold exclusively to golf pro-shops and not to department stores.
Berk's Pertinent Trade Practices
8. On July 3, 1967, Berk adopted as a trademark a device consisting of the word "DAISY" in block capital letters with a seven petal fanciful flower design superimposed on the "A" (sometimes hereinafter "the shoe device").
9. Since 1967 and up to the present time the shoe device has appeared stamped in gold on the sock liners of approximately seventy percent of the high fashion shoes sold by Berk. The other shoes sold by Berk have borne diverse trademarks usually related to the customer involved (e. g. "MISS BERGDORF").
10. Berk's shoes bearing the shoe device are packaged in orange boxes having black lids and bearing on the lid the word "DAISY" in white block capital letters with an eight petal white and orange fanciful flower design superimposed on the "A" (hereinafter "the box device"). An eight petal white and black fanciful flower design appears on one end of the Berk box.
11. None of the shoes sold by Berk have ever borne fanciful flower designs except as part of the shoe device on the sockliner.
12. In September, 1967, Berk applied to the Patent Office for registration of the shoe device on the Principal Register.
13. In October, 1967, the Patent Office rejected Berk's application on the ground that the shoe device as applied to ladies' shoes so resembled a prior registered trademark for women's shorts, pants, blouses, skirts, coats and suits as to be likely to cause confusion, mistake or deception. The cited prior mark was a device consisting of the words "Daisy's Originals of Miami" in varying letter form with a fanciful flower design superimposed on the "D".
14. In order to persuade the Patent Office to grant registration Berk argued that:
a. the fanciful flower design of the cited prior mark had a different appearance from the fanciful flower design of Berk's shoe device;
b. the "word DAISY has been registered as a trademark for many classes of goods and has, therefore, acquired no significance in the public mind identifying it with any particular product";
c. the respective devices were used on non-competing goods;
*25 d. the respective marks differed significantly in appearance and sound; and that
e. the respective goods of Berk and the prior registrant were sold in different stores or, at least, in different departments of the same store.
15. Apparently persuaded by these arguments, the Patent Office granted registration to Berk's shoe device (sometimes hereinafter the "registered mark") on February 27, 1968, as Registration No. 845,069. Thereafter, Berk's sock liners bore the ® symbol next to the shoe device. Evidence proffered by Berk indicates that it has continuously used the registered mark on ladies shoes in the United States since 1967. The box device having the eight petal flower design continued to be printed without an ® symbol.
16. On July 20, 1973, Berk's registered mark was accorded incontestability status by the Patent Office.
17. Berk estimates that it has spent in excess of $350,000 over the years to advertise its shoes bearing the registered mark. Virtually all of this advertising has been "cooperative advertising" wherein a customer of Berk independently prepares and runs the advertisement in local newspapers and bills Berk for a percentage of the cost (usually one-half). Provided that the advertisement makes some reference to Berk or uses the word "daisy" somewhere in its copy, Berk pays its share of the cost. For this reason, Berk asserts that the total amount spent on advertising shoes bearing the registered trademark by Berk and its customers has been about $700,000. The only media advertising other than the said newspaper advertising done by Berk has been in trade magazines directed solely to those persons connected with the shoe business.
18. The vast majority of the advertisements presented to this Court by Berk to support its position on this motion prominently identify the illustrated footwear with the name of the store and make reference to the word "daisy" in a comparatively de-emphasized manner.
Uniroyal's Pertinent Trade Practices
19. For many years, and beginning many years prior to plaintiff's obtaining its registered mark, Uniroyal has sold complete lines of golfing equipment for men and for women. Uniroyal's golf equipment lines have included balls, clubs, bags, shoes, rainwear and umbrellas.
20. Uniroyal first registered the trademark "ROYAL" for golf products in 1921 and has used this trademark for golf products continuously ever since. The mark "ROYAL" had been identified with Uniroyal (formerly U.S. Rubber) on other lines of goods at much earlier dates.
21. To golfers, the mark "ROYAL" has always been associated with Uniroyal.
22. As in most of the industry, Uniroyal's women's line of golf equipment until recently was treated as an adjunct to the larger selling men's line. It was scattered throughout Uniroyal's golfing catalog, women's clubs being shown on the last page of men's clubs, women's shoes being shown on the last page of men's shoes, and so on with other items in the women's golf line.
23. In approximately 19701971, a California company called Axaline was selling a brightly colored putter called the "daisy" which was especially designed (in several different colors) to appeal to the woman golfer. Despite sales of some 25,000 putters per year, Axaline had financial difficulties and asked Uniroyal to incorporate the daisy putter into Uniroyal's women's golf line. Uniroyal agreed.
24. In the first year of selling the now ROYAL DAISY putter Uniroyal sold more women's putters than it ever had in any prior year.
25. In 1973 Uniroyal adopted a new merchandising approach with respect to its women's golf line. All Uniroyal women's golf equipment was to be color coordinated in several attractive colors intended to have feminine appeal, the entire women's golf line was gathered together in a separate part of Uniroyal's catalog, an eight petal fanciful flower design was added to each *26 item of the line and the entire line was named ROYAL DAISY after the commercially successful putter.
26. For its newly redesigned and repackaged women's golf line Uniroyal deliberately chose to add the word "daisy" to its famous ROYAL golf trademark because daisy, like the bright feminine colors simultaneously adopted, is a meaningful word in common use which is connotative or suggestive of femininity, lightness, freshness and delicacy. The same approach had worked well in the preceding pilot year for the ROYAL DAISY putter.
27. Uniroyal first presented its complete Royal Daisy women's golf line in its 1974 catalog which was published in September, 1973. The ROYAL DAISY golf line now includes golf balls, golf clubs, putters, golf bags, golf shoes, golf gloves, rainwear, umbrellas and jackets.
28. Uniroyal's ROYAL DAISY golf shoes each feature one or more eight petal fanciful flower design(s) on one or both shoes of a pair. On one model of ROYAL DAISY golf shoes the words "Royal ® Daisy" are stamped in gold on the sock liner of the shoe. On all other models the words "Royal ® Plus" appear instead. All models of ROYAL DAISY golf shoes are sold with tags attached on which the words "Royal ® Daisy" appear.
29. Neither the word "daisy" alone nor the word "daisy" with a fanciful flower design superimposed on any part thereof appears on any ROYAL DAISY golf shoe or any tag attached thereto.
30. The boxes for the entire ROYAL DAISY line of golf equipment all have the same decorative motif and trade identification. The box for ROYAL DAISY golf shoes is typical. It is light green in color with dark green lettering. On the top of the box there are seven white and yellow eight petal fanciful flower designs and the words "Royal ® Daisy". On one end of the box there are five white and yellow eight petal fanciful flower designs, the words "Royal ® Daisy Golf Shoes" and the "UNIROYAL" trademark.
31. Neither the word "daisy" alone nor the word "daisy" in contact with a fanciful flower design appears on the ROYAL DAISY golf shoe boxes.
32. Uniroyal estimates that it has spent approximately $20,000,000 in advertising ROYAL ® golf products of which, the records reflect, in excess of $5,000,000 was spent in the five most recent years. Uniroyal states that it has spent approximately $800,000 in the three most recent years specifically for advertising its ROYAL DAISY line of women's golf products.
33. Uniroyal's advertising for its ROYAL DAISY golf line appears primarily in vertical sports magazines having nationwide circulation (e. g. "Golf Digest"). Although some minor usages of the word daisy alone may appear in the copy of some advertisements, all of the advertisements are quite clearly and prominently directed to the promotion of ROYAL ® DAISY as a trademark for Uniroyal's women's golf line. ROYAL DAISY golf shoes have not been advertised separately. They have always been advertised together with other items of the Royal golf line.
The Controversy Between The Parties
34. In early 1976 Berk first learned of the existence of Uniroyal's ROYAL DAISY golf line (including women's golf shoes). The discovery was made by Mr. Gibson, Berk's secretary-treasurer who is a golfer. Mr. Gibson had received a gift subscription to a golf magazine for Christmas and noticed a ROYAL DAISY advertisement in an early 1976 issue of the magazine. Prior to this lucky accident, Berk had heard nothing of ROYAL DAISY golf shoes through its normal business activities and trade channels.
35. Berk, through its attorneys, wrote to Uniroyal demanding inter alia, that Uniroyal desist from use of the mark ROYAL DAISY on its women's golf shoes and from using eight petal fanciful flower designs on its women's golf shoes and shoe boxes. Uniroyal, by its attorneys, refused to comply. Further correspondence having proved *27 ineffective to resolve the dispute, plaintiff brought this suit on May 25, 1976.
36. The complaint herein charges Uniroyal with infringement of Berk's registered mark, seeks declaratory relief to the effect that Berk has common law trademark rights to the word "daisy" alone and to fanciful flower designs having any number of petals alone, charges Uniroyal with infringement of such common law marks and contains additional counts for false representation of quality of goods, for state unfair competition and for state trademark dilution. The complaint seeks damages and an injunction. The answer denied the material allegations of the complaint and raised numerous affirmative defenses. Uniroyal's counterclaim against Berk seeks declaratory relief, damages and an injunction. Berk has denied the material allegations of the counterclaim.
37. On July 12, 1976, Berk brought this motion for a preliminary injunction against use by Uniroyal of Berk's registered mark, the word "daisy" either alone or in combination with other words or symbols (e.g. "ROYAL DAISY"), or a fanciful multipetaled flower design either alone or in combination with other words or symbols. The use sought to be enjoined included any use connected with the advertising, promotion or sale of women's golf shoes.
38. The moving papers contend that Berk has adequately demonstrated that:
a. Berk will probably succeed on the merits of the action;
b. Berk will suffer irreparable harm pendente lite if the preliminary injunction does not issue; and
c. the balance of the equities between the parties favors issuance of the injunction.
Uniroyal, in its answering papers on the motion, disputes each of Berk's aforementioned contentions and contends additionally that the drastic remedy of a preliminary injunction should be granted only in extraordinary circumstances not present here and that the intended effect of the relief sought by the motion is not to preserve the status quo but rather to fundamentally alter the positions of the parties.
The Effect of The Preliminary Injunction Sought by Berk Would Be To Alter The Status of The Parties
39. Granting the relief requested by Berk would seriously disrupt an established line of goods on which defendant has spent hundreds of thousands of dollars in advertising and three years of effort developing good will. Essentially the Court would have to require Uniroyal to stop selling women's golf shoes until the names could be changed, to withdraw catalogs and advertising already in existence and to create a gap in an otherwise unified line of goods.
Berk Has Not Established A Likelihood Of Success On The Merits
40. There is no evidence that defendant has ever used plaintiff's exact registered mark in any manner.
41. The style of writing and usage of plaintiff's registered mark and defendant's marks are entirely different; the only similarity between the two marks is that they both use the word "daisy." Defendant's trade mark includes a name for which extensive secondary meaning has been built in the golf field and which clearly identifies Uniroyal as the source of the goods.
42. The word "daisy" is a meaningful word in common usage. It is connotative and suggestive of lightness, freshness and femininity when used with products designed for women. The word "daisy" has already been diluted by its common usage. There is a Daisy Footwear, Inc. in Patterson, New Jersey. It was in business several years before plaintiff began business. Numerous other companies selling or manufacturing shoes are either named "Daisy" or sell products named "Daisy". Further, the word "daisy" has been registered numerous times for other items of women's apparel and for unrelated items. A review of business names across the country show "daisy" has been used innumerable times in all varieties of businesses, a great many of which are directed to a feminine clientele. Defendant *28 itself made women's rainboots called Rainy Daisies in the late 1950s.
43. Plaintiff has not shown sufficiently that the word "daisy" has actually acquired secondary meaning in the minds of the consuming public in plaintiff's favor.
44. Fanciful flowers alone are commonly used decorations on all manner goods. They have a high frequency of usage for feminine goods because they are connotative and suggestive of femininity.
45. Plaintiff has not shown sufficiently that a fanciful flower of any nature has acquired any actual secondary meaning in the minds of the consumers in plaintiff's favor.
46. The ROYAL DAISY golf shoes of defendant do not compete with plaintiff's shoes. The usage and physical appearance of plaintiff's product and defendant's ROYAL DAISY golf shoes are extremely dissimilar. The only thing in common between plaintiff's products and defendant's ROYAL DAISY golf shoes is the fact that they are both aimed at the feet of approximately half of the adult population of the United States.
47. There is no evidence of actual confusion whatsoever between plaintiff's products and defendant's ROYAL DAISY golf shoes.
48. "Royal ®", "ROYAL DAISY" and "Royal ® Daisy" have acquired secondary meaning to consumers of golf equipment denoting defendant as the source of the respective golf products.
49. There is no evidence of bad faith of defendant in adopting ROYAL DAISY as a name for its women's golf shoes. Defendant has presented evidence, which would negate any inference of bad faith, that the name for the shoes was adopted as the extension of an existing trade usage and as part of a unified line of women's golfing equipment.
There Has Been No Showing Of Irreparable Injury
50. There is no evidence that defendant's usage has had any effect whatsoever on plaintiff's registered mark or on its products or on its reputation whatsoever. In spite of defendant's continued usage for over three years, plaintiff learned of it entirely by accident. There has been no showing that the denial of the preliminary injunction and the continuance of the defendant's complained of practices would cause any injury to plaintiff whatsoever, much less an irreparable injury.
51. Plaintiff has suffered no monetary damages to date whatsoever.
52. Plaintiff and defendant manufacture different types of products. Plaintiff's product is a leather high fashion shoe, usually not meant for heavy usage. Defendant's product is a synthetic golf shoe specially designed to be waterproof and yet lightweight and flexible for heavy usage. The products cannot be compared in terms of quality because of their difference design and function but there has been no evidence presented which demonstrates that defendant's golf shoe is not as good quality for its purpose as plaintiff's high fashion shoe is for its purpose.
The Balance Of Equities Favors Defendant
53. Granting plaintiff's requested relief would effectively disrupt defendant's established golfing business, require recall of substantial amounts of advertising material and products and probably put defendant out of the business of selling women's golf shoes. It would destroy a major selling point of defendant's Royal Daisy women's golf line, to wit, color coordination and common identification of the products. It would change the status quo existing for over three years. Denying plaintiff's requested relief will have no effect on plaintiff or defendant whatsoever and will preserve the existing status quo.
CONCLUSIONS OF LAW
1. A preliminary injunction is an extraordinary and drastic remedy to be granted as an exception rather than as the rule. State of Texas v. Seatrain International, *29 S.A., 518 F.2d 175, 179 (5th Cir. 1975); Asher v. Laird, 154 U.S.App.D.C. 249, 475 F.2d 360, 362 (1973). It is the discretionary exercise by the court of a very far-reaching power, "never to be indulged in except in a case clearly demanding it." Warner Bros. Pictures v. Gittone, 110 F.2d 292, 293 (3rd Cir. 1940).
2. The existence of any debate or doubts on the record as to the merits of the claim or the power of the court to act will ordinarily bar the granting of a preliminary injunction. Fowler v. United States, 258 F. Supp. 638, 644 (C.D.Cal.1966).
3. The function of a preliminary injunction is to preserve the status quo pending a determination of the action on the merits, King v. Saddleback Junior College District, 425 F.2d 426, 427 (9th Cir. 1970), and not to alter the pre-existing status of the parties fundamentally. Warner Bros. Pictures v. Gittone, 110 F.2d 292, 293 (3rd Cir. 1940). The "status quo" is the last uncontested status which preceded the pending controversy. Westinghouse Electric Corp. v. Free Sewing Mach. Co., 256 F.2d 806, 808 (7th Cir. 1958); Warner Bros., supra, at 293.
4. Because the declaratory relief sought by the motion, if granted, would fundamentally alter the status of the parties and because the injunction sought would enjoin status quo practices which have been peacefully pursued for more than three years, the provisional remedy of preliminary injunction is not appropriate in this case regardless of the movant's showing on the other factors affecting the grant of the remedy.
5. Even where a preliminary injunction, if granted, will serve the appropriate purpose of maintaining the status quo of the parties pendente lite, this drastic remedy should not be granted unless the movant has clearly carried the burden of persuasion concerning the existence and application of the four prerequisites to such relief. These are: (1) a substantial likelihood that the movant will eventually prevail on the merits; (2) a showing that the movant will suffer irreparable injury unless the injunction issues; (3) proof that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the party opposed; and, where a public interest is involved, (4) a showing that the injunction, if issued, would not be adverse to the public interest. Friends of the Earth, Inc. v. Coleman, 518 F.2d 323, 327 (9th Cir. 1975); State of Texas v. Seatrain International, S.A., 518 F.2d 175, 179 (5th Cir. 1975); Asher v. Laird, 154 U.S. App.D.C. 249, 475 F.2d 360, 362 (1973); Charlie's Girls, Inc. v. Revlon, Inc., 483 F.2d 953, 954 (2d Cir. 1973).
6. In view of the facts that there has been no clear showing on the record presently before this Court that Uniroyal has infringed or will infringe the only trademark for which the movant, Berk, has shown a clear right to protection, it cannot be said that Berk has met its burden of proving its likelihood of ultimate success on the merits.
7. Infringement and unfair competition in this area both turn on whether there is a likelihood of confusion between the defendant's mark and plaintiff's mark. Paul Sachs Originals Co. v. Sachs, 325 F.2d 212, 214 (9th Cir. 1963).
8. In determining whether there is a likelihood of confusion the court should consider the following factors: "`the area of concurrent sale; the extent to which the goods are related; the extent of which the mark and the alleged infringing name are similar; the "strength" or novelty of the plaintiff's mark; evidence of bad faith or intention of the defendant in selecting and using the alleged infringing name; and, evidence of actual confusion.'" Paul Sachs Originals Co. v. Sachs, supra, at p. 214.
9. Since plaintiff sells exclusively to department stores and defendant sells exclusively to golf "pro" shops, there is no area of concurrent sale within the meaning of Sachs, supra.
10. The extent to which the relevant goods of plaintiff and defendant are related is extremely slight.
*30 11. The similarity between the plaintiff's and defendant's marks is extremely slight.
12. Although the precise registered mark of plaintiff may be strong, there is no evidence whatsoever that defendant ever used plaintiff's registered mark. If plaintiff had any rights in the word "daisy" alone, it would be a weak mark because it is a meaningful word in common usage and plaintiff's manner of usage would be so as to take advantage of the positive connotative or suggestive aspects of the word applicable to women's goods, such as lightness, freshness and femininity. J. B. Williams Company, Inc. v. Le Conté Cosmetics, Inc., 523 F.2d 187, 192. (9th Cir. 1975). In the words of Esquire, Inc. v. Esquire Slipper Manufacturing Co., 243 F.2d 540, 543 (1st Cir. 1957), "daisy" as applied to women's goods is "an already diluted name."
13. There is no evidence of bad faith or intent of the defendant in selecting and using the alleged infringing name.
14. There is no evidence of actual confusion.
15. There is no likelihood of confusion between plaintiff's usage of its registered mark and defendant's usage of ROYAL DAISY, the word daisy, and fanciful flower designs.
16. Plaintiff has not sustained its burden of showing that it will suffer irreparable injury if the preliminary injunction is not granted.
17. Plaintiff has not sustained its burden of showing that the equities balance in favor of granting a preliminary injunction.
18. Plaintiff's registered mark being incontestable is irrelevant because there is no evidence that the registered mark was infringed and because incontestability can be used only defensively to protect a registered mark against attack and cannot be used offensively to attack an allegedly infringing mark and obtain relief in favor of the allegedly infringed mark. Tillamook County Creamery Assn. v. Tillamook Cheese and Dairy Assn., 345 F.2d 158, 163 (9th Cir. 1965); John Morrell & Co. v. Reliable Packing Co., 295 F.2d 314 (7th Cir. 1961).
19. For a person to obtain common law rights to protect a trade name it is necessary to show that the name has acquired a secondary meaning in the minds of the purchasers in favor of that person, associating the trade name with that person. Stork Restaurant v. Sahati, 166 F.2d 348, 352 (9th Cir. 1948). Plaintiff has not established that it has rights of protection of the word "daisy" alone or a fanciful flower alone.
20. Even if plaintiff had rights in the word "daisy" alone or the fanciful flower alone the marks and rights to protect them would be weak because "daisy" is a meaningful word in common usage and the fanciful flower is a common decoration. Further, plaintiff's manner of usage would be so as to take advantage of the positive connotative or suggestive aspects of the word "daisy" applicable to women's goods, such as lightness, freshness and femininity and the fanciful flower having similar connotations. J. B. Williams Company, Inc. v. Le Conté Cosmetics, Inc., 523 F.2d 187, 192. (9th Cir. 1975). In the words of Esquire, Inc. v. Esquire Slipper Manufacturing Co., 243 F.2d 540, 543 (1st Cir. 1957), "daisy" as applied to women's goods is "an already diluted name." Such a weak mark would be entitled to much less protection than would a strong mark. J. B. Williams Company, Inc., supra, at p. 192; Esquire, Inc., supra, at p. 543. Thus, even if plaintiff had any rights in the word "daisy" or the fanciful flower decoration alone, its protectability would be limited to "high fashion" shoes sold to department stores.
21. Plaintiff is not entitled to a preliminary injunction. However, all of the aforesaid findings of fact, conclusions of law and order are made without prejudice to any of the parties in finally determining the issues herein on the merits. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1514270/ | 623 F. Supp. 1294 (1985)
ST. JUDE MEDICAL, INC., Plaintiff,
v.
INTERMEDICS, INC. and CarboMedics, Inc., Defendants.
Civ. No. 4-84-267.
United States District Court, D. Minnesota, Fourth Division.
August 14, 1985.
*1295 *1296 MEMORANDUM OPINION AND ORDER
DIANA E. MURPHY, District Judge.
Before the court is a renewed motion by defendants CarboMedics, Inc. (CarboMedics) and Intermedics, Inc. (Intermedics) for summary judgment on the first and second causes of action in plaintiff St. Jude Medical Inc.'s (St. Jude's) amended complaint, or in its proposed second amended complaint.[1] Also before the court, are defendants' objections to the June 12, 1985 Report and Recommendation of Special Master Morris M. Sherman.
The procedural background of this dispute has been previously set out in the court's various opinions and will only be repeated here as it pertains to the antitrust claims. In a Memorandum Opinion and Order, dated April 3, 1985, the court denied defendants' motion to dismiss St. Jude's first and second causes of action, finding that they sufficiently alleged antitrust violations. At the same time, the court dismissed the third and fourth causes of action without prejudice. By Memorandum Opinion and Order dated May 8, 1985, the court denied without prejudice defendants' summary judgment motion on the first and second causes of action in St. Jude's amended complaint. The court found that summary judgment was inappropriate *1297 where discovery was incomplete. The court also stated that material issues of fact remained and that differing inferences might be drawn from the undisputed facts.
Discovery has now been essentially completed and trial is rapidly approaching. The court has carefully considered all the arguments and submissions of counsel but will forego a lengthy written discussion in order to render a prompt decision.
Discussion
I. Motion for Summary Judgment
A. First Cause of Action
In renewing their attack on the Section 2 Sherman Act claims in St. Jude's first cause of action,[2] defendants claim that St. Jude's allegations of exclusionary practices lack factual support. They also claim that CarboMedics' refusal to sell carbon-coated components was a proper exercise of its right to protect its patents. St. Jude responds that substantial evidence exists to support each of its allegations. It also contends that CarboMedics' stated reason for termination of supply enforcement of patents was a pretext and that it acted to squelch a promising competitor. Moreover, it argues that purity of motive cannot justify defendants' conduct if anticompetitive effects of that conduct are established.
The court has carefully scrutinized the parties' arguments concerning each § 2 Sherman Act allegation in St. Jude's proposed second amended complaint. Viewing the facts in a light most favorable to St. Jude and giving it the benefit of all reasonable inferences, as the court is required to do upon a motion for summary judgment, the court finds that genuine issues of material fact remain on each allegation. Even if defendants acted only to enforce CarboMedics' patents, an unresolved factual issue remains as to whether their conduct has foreclosed competition in an unnecessarily restrictive way. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., ___ U.S. ___, 105 S. Ct. 2847, 86 L. Ed. 2d 467, 1985-2 Trade Cas. (CCH) ¶ 66,653 (1985); Paschall v. Kansas City Star Co., 727 F.2d 692, 696 (8th Cir.), cert. denied, ___ U.S. ___, 105 S. Ct. 222, 83 L. Ed. 2d 152 (1984). And, as noted in the court's previous opinion, the evidence concerning CarboMedics' motivation for the supply cutoff is not such that only one reasonable conclusion may be drawn. Summary judgment is inappropriate when differing inferences may be drawn from the undisputed facts. See Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674, 684 (9th Cir.), cert. denied, 429 U.S. 940, 97 S. Ct. 355, 50 L. Ed. 2d 309 (1976).
Defendants also contend that St. Jude's allegations of Section 1 Sherman Act violations and Section 3 Clayton Act violations should be dismissed because the agreements in subparagraphs 21(b) and (c) did not cause the requisite anti-competitive effects.[3] St. Jude counters that the anti-competitive effects were substantial since it and other heart valve manufacturers were foreclosed from other potential suppliers of carbon-coated components. The court finds that issues of material fact remain as to these claims also.
B. Second Cause of Action
St. Jude's second cause of action in its proposed second amended complaint alleges that CarboMedics has attempted to extend its monopoly in pyrolytic carbon-coated components to the market for prosthetic *1298 heart valves, bi-leaflet valves, and cardiac pacemakers in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. It also alleges that CarboMedics has further violated Section 2 by attempting to monopolize interstate and foreign commerce of prosthetic and bi-leaflet heart valves, and has conspired with Intermedics, Hemex Scientific, Inc. (Hemex), G.R. Chambers, R.C. Chambers, and Bokros to monopolize interstate and foreign commerce of such valves.
1. Monopoly Extension
Defendants urge the court to reconsider its previous ruling that the monopoly extension doctrine or leveraging offense is a distinct offense under § 2 of the Sherman Act. They argue that the language of § 2 does not support the existence of a separate monopoly extension violation and that neither the United States Supreme Court nor the Eighth Circuit have ever specifically embraced such a distinct doctrine. St. Jude, on the other hand, cites and discusses various cases holding that the use of monopoly power in one market to gain an advantage, but not necessarily a monopoly, in another market, is a violation of § 2.
Substantial questions exist as to whether leveraging, as described in Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S. Ct. 1061, 62 L. Ed. 2d 783 (1980), is an independent § 2 offense separate from monopolization and attempted monopolization.[4] The court need not reexamine its previous discussion or conclusively decide this issue at the present time, however, because even assuming that leveraging is a distinct § 2 offense, the record shows, as a matter of law, that defendants did not gain an unwarranted competitive advantage in the leveraged markets. It is undisputed that neither CarboMedics nor Intermedics has any share of the world-wide market for prosthetic heart valves. Moreover, according to figures submitted by St. Jude, Hemex only captured 3% of the world-wide market for prosthetic heart valves in 1984.[5]
Similarly, St. Jude has not shown the requisite competitive impact on the cardiac pacemaker market. While the monopoly extension claim is based on gaining an advantage, and not necessarily a monopoly, in another market, courts have required that plaintiffs define not only the market in which monopoly power is allegedly held, but also the separate markets in which the leveraging has allegedly taken place. See M.A.P. Oil Co., Inc. v. Texaco, Inc., 691 F.2d 1303, 1305-1308 (9th Cir.1982); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S. Ct. 1061, 62 L. Ed. 2d 783 (1980); Grason Elec. v. Sacramento Mun. Util. Dist., 571 F. Supp. 1504 (E.D.Ca.1983). St. Jude has submitted no data which defines the pacemaker market; rather, it claims that proof of elimination by Intermedics of a potential competitor suffices. The court cannot agree. To amount to an unwarranted competitive advantage, the conduct must have an effect greater than its effect upon the plaintiff's business. See, e.g., Gough v. Rossmoor Corp., 585 F.2d 381, 386 (9th Cir.1978), cert. denied, 440 U.S. 936, 99 S. Ct. 1280, 59 L. Ed. 2d 494 (1979); Grason Elec. v. Sacramento Mun. Util. Dist., 571 F. Supp. 1504 (E.D.Ca.1983). The antitrust laws after all, "were enacted for the protection of competition, not competitors...." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S. Ct. 690, 50 L. Ed. 2d 70 (1977). Accordingly, this claim must be dismissed.
2. Attempt to Monopolize
Defendants once again refer to the prosthetic heart valve market to attack St. *1299 Jude's claim of attempted monopolization. They state that the undisputed facts demonstrate that St. Jude will be unable to show a dangerous probability of success, a necessary element of an attempt to monopolize. St. Jude, by contrast, asserts that monopoly power is defined not only by market share, but also by structural features of the relevant market such as nature and existence of entry barriers, potential competitors, and so forth. It asserts that CarboMedics has absolute control over the necessary components and thus a dangerous probability of achieving monopoly power.
It is settled law within this circuit that proof of a dangerous probability of success must include a showing of the relevant product and geographic market. United States v. Empire Gas-Co., 537 F.2d 296 (8th Cir.1976), cert. denied, 429 U.S. 1122, 97 S. Ct. 1158, 51 L. Ed. 2d 572 (1977). Where the defendant does not control a substantial share of the relevant market, the claim is unlikely to succeed. See, e.g., id. (50% market share does not establish dangerous probability of success even though conduct reflected a specific intent to monopolize); Richter Concrete Corp. v. Hilltop Concrete Corp., 691 F.2d 818 (6th Cir.1982) (declining market shares from 40% to 30% does not prove dangerous probability of success). In the instant case, as mentioned above, it is undisputed that defendants have no present position in either the alleged bi-leaflet or prosthetic heart valve market. At most, Hemex represents 3% of the world-wide prosthetic heart valve market and does not yet have the Food and Drug Administration's (FDA) approval to market valves in the United States. Under these circumstances, a dangerous probability of success has not been demonstrated, and the allegations of an attempt to monopolize must be dismissed as a matter of law.
3. Conspiracy to Monopolize
Defendants argue that their lack of a significant market share bears on St. Jude's allegations of a conspiracy to monopolize as well. They maintain that the requisite intent to monopolize cannot be established when the market share in the markets which are the subject of the conspiracy is so small. Moreover, they assert that the facts established in discovery do not support the claim of conspiracy. St. Jude, of course, takes exception to these assertions.
The gravamen of a conspiracy to monopolize is the agreement to commit an illegal act. American Tobacco Co. v. United States, 328 U.S. 781, 66 S. Ct. 1125, 90 L. Ed. 1575 (1946). The performance of some overt act in furtherance of the conspiracy is a necessary element, as is the specific intent to monopolize. Id. Specific intent to achieve monopoly power may be inferred from conduct. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 104 S. Ct. 1464, 79 L. Ed. 2d 775 (1984). Unlike an attempt to monopolize, plaintiff is not required to establish a dangerous probability of success in the relevant market to prove a conspiracy to monopolize. American Tobacco Co. v. United States, 328 U.S. 781, 66 S. Ct. 1125, 90 L. Ed. 1575 (1946).[6]
In addition, certain legal tenets are applicable in conspiracy cases. In general, officers and employees of a single firm are legally incapable of conspiring among themselves or with their firm pursuant to Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S. Ct. 2731, 81 L. Ed. 2d 628 (1984). If corporate officers or employees act in their own interests, however, they may be legally capable of conspiring with their employers. See, e.g., Tunis Bros. Co. v. Ford Motor Co., 763 F.2d 1482, 1985-1 Trade Cas. ¶ 66,633 at pp. 66,133-66,136 (3d Cir.1985). Moreover, a conspiracy between corporations might arise if the directors, officers, representatives, *1300 or other employees are working for two or more entities. See, e.g., Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S. Ct. 971, 95 L. Ed. 1199 (1951).
Keeping these principles of law in mind and viewing the facts in a light most favorable to St. Jude, the court finds that material issues of fact remain on the conspiracy claims. Summary judgment is therefore inappropriate on the allegations in St. Jude's proposed second amended complaint which bear on the conspiracy claims.
II. Objections to the Amended Complaint
Many of CarboMedics' objections to the Report and Recommendation of the Special Master, dated June 12, 1985, relate to the cardiac pacemaker claims and are now moot. After carefully considering the Special Master's Report and the parties' arguments concerning the other areas of amendment in its de novo determination, the court concludes that defendants will suffer no prejudice by permitting the proposed amendments.[7] The proposed amendments have already been the subject of extensive discovery and many merely restate factual allegations found in St. Jude's first amended complaint. The master's Report and Recommendation is hereby adopted, with the exception of that part which relates to the cardiac pacemaker market.
ORDER
Accordingly, based on the above and all the files, records, and proceedings herein, and upon the court's de novo determination of the record concerning amendment to which objection has been made,
IT IS HEREBY ORDERED that
1. The motion of CarboMedics, Inc. and Intermedics, Inc. for summary judgment is granted with respect to the allegations contained in the second cause of action in St. Jude's Medical Inc.'s proposed second amended complaint setting forth an attempt to monopolize the bi-leaflet and prosthetic heart valve markets and a monopoly extension claim. These allegations are dismissed. In all other respects, the motion for summary judgment is denied.
2. St. Jude Medical, Inc. may file those portions of its proposed second amended complaint are not affected by the above summary judgment ruling.
NOTES
[1] On May 3, 1985, St. Jude moved for leave to file a second amended complaint. By Stipulation and Order dated May 17, 1985, St. Jude's motion was referred to Special Master Morris M. Sherman. By Order dated June 12, 1985, the Special Master recommended that St. Jude be allowed to amend its complaint to add a claim that 1) CarboMedics used its monopoly in carbon-coated components to force St. Jude out of the pacemaker market; 2) CarboMedics' discriminatory pricing in favor of Hemex violates the antitrust laws; 3) principals of CarboMedics, Hemex, and Intermedics individually conspired to monopolize; and 4) facts previously alleged in the seventh and eighth causes of action violate Texas and/or Canadian law. The defendants objected to the master's report and the parties have filed additional materials. In their motion for summary judgment, defendants have focused on the allegations of the proposed second amended complaint.
[2] St. Jude's first cause of action in its proposed second amended complaint alleges monopolization and restraint of trade of the pyrolytic carbon-coated components market in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1 and § 2, and Section 3 of the Clayton Act, 15 U.S.C. § 14. This proposed amendment differs very little from its first amended complaint. Paragraph 21(g) concerning discrimination by CarboMedics in favor of Hemex is new, as is ¶ 23(c) which alleges that the result of CarboMedics' actions has been to prevent St. Jude or others from developing an alternative source of pyrolytic carbon-coated heart valve components.
[3] Subparagraphs 21(b) and (c) are the only allegations in St. Jude's proposed second amended complaint which purport to state Section 1 Sherman Act or Section 3 Clayton Act violations.
[4] Although the court in its Memorandum Opinion and Order dated April 3, 1985 denied defendants' Fed.R.Civ.P. 12 motion, the court noted that the doctrine of leveraging had received substantial academic criticism.
[5] St. Jude has failed to demonstrate that the bi-leaflet heart valve market should be considered a separate submarket of the prosthetic heart valve market. No showing has been made that the two products are not reasonably interchangeable for antitrust purposes.
[6] A defendants' market power has been deemed by some courts to be relevant in determining whether the defendant possessed the specific intent to monopolize. See, e.g., Bowen v. New York News, Inc., 522 F.2d 1242, 1258 (2d Cir. 1975), cert. denied, 425 U.S. 936, 96 S. Ct. 1667, 48 L. Ed. 2d 177 (1976).
[7] These amendments concern the price discrimination claim, paragraph 21(g), the addition of individuals to the conspiracy allegations, and the allegations of violations of Texas or Canadian law. CarboMedics also made an objection under Fed.R.Civ.P. 8. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1516819/ | 916 F. Supp. 1395 (1996)
Daniel IOVIN, Plaintiff,
v.
NORTHWESTERN MEMORIAL HOSPITAL, an Illinois corporation, Defendant.
No. 94 C 4773.
United States District Court, N.D. Illinois, Eastern Division.
March 5, 1996.
*1396 *1397 *1398 Gerald A. Goldman, Arthur R. Ehrlich, Jonathan C. Goldman, Law Offices of Gerald A. Goldman, Chartered, Chicago, IL, for Daniel Iovin.
Paul F. Gleeson, Randall Marc Lending, Vedder, Price, Kaufman & Kammholz, Chicago, IL, for Northwestern Memorial Hospital, an Illinois Corporation.
MEMORANDUM OPINION AND ORDER
CASTILLO, District Judge.
Plaintiff Daniel Iovin ("Iovin") sues defendant Northwestern Memorial Hospital ("NMH"), alleging national-origin discrimination in violation of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq. NMH's motion for summary judgment is presently before the Court. For the reasons set forth below, the motion is *1399 granted and this action is dismissed with prejudice.
RELEVANT FACTS
The following undisputed facts are gleaned from the parties' respective Local General Rule 12 statements of material facts and accompanying exhibits.[1] Iovin was born in Arad, Romania in 1957 and immigrated to the United States in 1980. (Def.'s Facts ¶¶ 7, 8). On April 12, 1993, he was hired as a senior systems analyst in NMH's Information Services Department ("IS") at an annual starting salary of $47,000. (Id. ¶¶ 1, 20). NMH is an academic medical center and is an Illinois corporation. (Id. ¶ 2). Iovin was initially interviewed and hired for the position by Debra Barford, manager of application systems in the IS department, and Leslie Purdy, director of application systems. (Id. ¶ 22). At the time that they made the decision to hire Iovin, both Barford and Purdy knew that he was of foreign descent. Barford specifically knew that he was Romanian. (Id. ¶ 23). In an affidavit submitted in opposition to NMH's motion, Iovin acknowledges that both Barford and Purdy were aware that he was of foreign descent, he adds, however, "My national origin was of great significance to them. I was hired to be the scapegoat for all problems that arose under Barford. I was hired by them because the fact that I was foreign made me more susceptible to manipulation." (Iovin Aff. ¶ 17).[2] Iovin also testified during his deposition that one reason Barford hired him may have been to get even with another employee (Scott Leslie) because she knew that Leslie did not like immigrants. (Def.'s Facts ¶¶ 58, 67); (Iovin Dep. at 565-66).
We shall detail Iovin's allegations momentarily; however, to provide a flavor of the nature of Iovin's charges, we note here that Iovin's complaint and submissions in opposition *1400 to NMH's motion for summary judgment essentially allege that various employees at NMH Iovin specifically identifies approximately 14 employees and others engaged in a widespread conspiracy of discrimination against him. For example, among the individuals believed by Iovin to be embroiled in the conspiracy against him include: his two supervisors, co-workers, lower-level employees, the director of NMH's employee assistance program, the head of NMH's employee health services, his HMO physician, and his treating psychiatrist. Iovin contends that these individuals along with several accomplices who attempted to "cover up" the conspiracy, discriminated against him based on his national origin by creating a hostile work environment.[3] As just noted, Iovin claims that the very reason behind his supervisor's decision to hire him was to discriminate against him based on his national origin by assigning him to work with a co-worker who hated immigrants. (Def.'s Facts ¶ 58). Moreover, Iovin contends that the hostile work environment to which he was subjected was created and maintained by the conduct of such NMH employees as Nan Burgess, the head of NMH's employee health services, who contributed to the conspiracy of discrimination against him by not paying attention to him when he sought health services, by the tone and manner in which she spoke to him, and by throwing away his blood and stool specimens. (Def.'s Facts ¶ 168). Iovin also contends that Rick Derer, an independent consultant working with the IS department discriminated against him by asking such questions as "Hey Dan, how's it going, what's going on, how about that project" and by trying to "cover up" the discrimination that was taking place. (Id. ¶ 193). Finally, Iovin believes that the physicians he has seen are involved in the conspiracy by virtue of the fact that they have not treated him fairly or by trying to show that his health had been degrading severely.[4] (Id. ¶ 199-203).
Iovin was assigned to work under Debra Barford ("Barford"), Manager of Application Systems, and her supervisor, Leslie Purdy ("Purdy"), a Director of Application Systems. (Def.'s Facts ¶¶ 20, 21). Both Barford and Purdy interviewed Iovin for the position of senior systems analyst. (Def.'s Facts ¶ 22). Central to his complaint, is the allegation that he was hired as a management trainee in a management-track position in the IS department at NMH. (Iovin Aff. ¶¶ 15, 16). Other than Iovin's testimony to this effect there is no evidence in the record to corroborate this contention. The NMH job advertisement to which Iovin responded, Iovin's offer of employment letter from NMH, and NMH's job description for a senior systems analyst are all devoid of any references to management training or that the position was a management-track position. (Def.'s Facts ¶¶ 32, 33). Moreover, NMH's assertion that the IS department does not have management trainees or management-track career positions is not controverted by Iovin. (Id. ¶ 39).[5] Iovin's assertion that he was hired into a management trainee position derives from his preemployment interview with Barford during which he related to her that he had an offer from another employer where he was told that he would be made a manager within 3 to 5 years. Iovin contends that Barford remarked "something to the effect of `we will do it much quicker than that.'" (Iovin Aff. ¶ 15) However, in his *1401 deposition testimony, Iovin admitted that Barford never promised or guaranteed to make him a manager before 3 to 5 years.[6] (Iovin Dep. 205, 210). At most, Iovin's deposition testimony indicates that Barford indicated that her goals involved having Iovin help her with her administrative and managerial duties as soon as possible and that this was simply an objective that she was shooting for. (Id.) Similarly, in his follow-up interview with Purdy, Iovin admitted that Purdy never specifically stated to him that he was being hired for a management-track position or that he was a management trainee. (Id. 226-27).
Iovin was initially assigned to work on a number of projects, including two projects aimed at automating and updating NMH's billing process and forms (respectively known as the Electronic Data Interchange ["EDI"] project and the Universal Billing form project ["UB 92"]). (Def.'s Facts ¶¶ 24, 25). Both the EDI and the UB 92 projects were on the mainframe, which was an entirely new program for Iovin, whose computer experience dealt almost exclusively with mini-computers. (Def.'s Facts ¶¶ 17, 18, 26). Iovin devoted a good amount of time to learning the new programs and received several vendor demonstrations relating to the EDI project. (Def.'s Facts ¶ 79). Nevertheless, Iovin contends that his progress was impeded because the reference manuals he was given were outdated and obsolete. (Iovin Aff. ¶ 26).[7]
An element of Iovin's discrimination claim is that Barford did not provide him with the training and supervision that she indicated she would supply. Iovin contends that Barford promised she would provide such training in conjunction with her "promise" that he would be on a management-track position and in view of the fact that his prior experience was primarily with mini-computers. (See Iovin Aff. ¶¶ 16, 25). Iovin maintains that instead of training him, Barford ignored him, claiming she was busy although she spent much of her time "chatting" with other employees. Iovin also maintains that Barford avoided him but went out of her way to speak to others. (Id. ¶ 23). In regard to Barford's availability to train Iovin, NMH notes, and Iovin does not controvert, that in June, 1993, NMH laid off several employees. Although Iovin himself was not laid off, six additional IS employees were assigned to Barford. (Def.'s Facts ¶ 72). As a result, Iovin spent less training time with Barford who occasionally directed him to other individuals for technical assistance. (Def.'s Facts ¶ 74).[8] Iovin does not controvert that after this influx of additional employees, the time Barford had to spend with any of the people under her was very limited. (Id. ¶ 72). In his deposition, Iovin testified that he was provided "positive assistance" from several co-workers, including technical and procedural assistance and questions about the EDI project. (Def.'s Facts ¶ 75; Iovin Dep. at 469-70). Although he does not dispute that others assisted him, in his affidavit, Iovin states that he only received a total of approximately six hours of training from his co-workers and that most of this time was consumed by efforts to straighten out a faulty software program that had been installed on his computer. (Iovin Aff. ¶ 24). Iovin admits that at Barford's suggestion, Iovin attended several seminars (one of which related to the UB 92 project) and received several vendor demonstrations relating to the EDI project. (Def.'s Facts ¶¶ 77-79). As one instance of discrimination, Iovin specifically cites the fact that he was *1402 not permitted to attend a particular EDI seminar in May of 1993. The parties dispute the reason why Iovin was not permitted to attend this seminar. Barford and Purdy assert that they denied Iovin's request to attend based on budgetary constraints. (See Barford Aff. ¶ 19; Purdy Aff. ¶ 6). Barford also believed that Iovin could obtain the same information from the vendor demonstrations. (Barford Aff. ¶ 19). Iovin maintains that Barford specifically told him that money was not the reason that he was denied the EDI training. (Iovin Aff. ¶ 27). Iovin also notes that in the past two non-Romanian employees were permitted to attend the EDI training. (Pl.'s Facts ¶ 88).
Iovin asserts that Barford discriminated against him in myriad ways other than her failure to train him. Indeed, he testified that "everything Barford did ... was discrimination. Everything she said, everything she didn't say, everything she implied, everything she did or didn't do was discrimination." (Iovin Dep. at 780). According to Iovin, the fact that Barford hired him was predicated on a discriminatory intent viz., so that Barford could subject Scott Leslie to work with an immigrant and so that Barford could scapegoat Iovin. (Iovin Aff. ¶ 17; Iovin in Dep. 565-66). Iovin also contends that Barford harassed him based on his national origin by "manipulating" him[9] and by once claiming that he did not understand "plain English." (Def.'s Facts ¶¶ 59, 60; Pl.'s Add'l Facts ¶ 6). And, Iovin complains that he was required to do more photocopying than anyone else. (Pl.'s Facts ¶ 100).
On October 27, 1993, Barford and Purdy met with Iovin. NMH characterizes the meeting as a six month review, whereas Iovin states that it was "supposed to be an initial PMP meeting where they would discuss the goals for the plaintiff." (Def.'s Facts ¶ 114; Pl.'s Facts ¶ 114). In any event, there is no dispute that this meeting took place. At the meeting, Iovin was advised that he was being removed from the EDI and UB 92 projects and being reassigned to a laboratory support project where he was familiar with the system and software package. (Def.'s Facts ¶¶ 116, 129).[10] The reassignment did not affect Iovin's compensation, benefits, or job title. (Def.'s Facts ¶ 136). Iovin was advised that he was being removed from the projects for the following reasons: (1) to help him cope and recover from illness by relieving some stress; (2) because he was not up to speed on technical issues; and (3) because he didn't have friends. (Id. ¶ 131).
Iovin believes that he was removed from the projects because he was being scapegoated and as a product of discriminatory animus. (Pl.'s Facts ¶¶ 131, 132). Nevertheless, even before he received his six-month review, Iovin knew his performance was lacking with regard to the EDI and UB 92 projects. In a memo to Barford dated October 12, 1993, Iovin admitted his shortcomings with respect to the projects. (Iovin Dep. at 946). Likewise, in his deposition, Iovin admitted that Barford's assessment that he was "not up to speed on technical issues" necessary for the EDI and UB 92 projects was valid. (Def.'s Facts ¶ 121; Iovin Dep. at 671). Likewise, prior to his removal from the projects, Iovin agreed with Barford's five specific complaints about his performance. (Iovin Dep. at 946). These criticisms included the following: (1) he did not know the TSO environment; (2) it had taken him too long to learn the Timeline product; (3) he had a limited understanding of the terminology necessary for these projects; (4) his technical knowledge and experience on the mainframe and with the various *1403 software packages he was expected to use such as TSO, Panvalet and CICS were limited and therefore he had to "depend greatly on others:" and (5) he had difficulty in properly maintaining Gant Charts/spreadsheets for the UB 92 project. (Def.'s Facts ¶ 118; Iovin Dep. at 946-47).
Some of Iovin's more egregious allegations of discrimination concern a co-worker named Scott Leslie ("Leslie"). Soon after Iovin began working at NMH, Leslie allegedly began harassing Iovin by making generally derogatory remarks to Iovin. Two of Leslie's remarks specifically referred to Iovin's national origin. (Def.'s Facts ¶¶ 42, 43). First, on or about September 2, 1993, Leslie said to Iovin, "I don't like immigrants and I'm against immigrants. I'm against a lot of warm bodies that they keep bringing here from other countries while at the same time there are a lot of qualified U.S. citizens and Americans who are laid off and lose their jobs because of warm bodies who accept being paid dirt cheap." (Iovin Dep. at 315). The second allegedly derogatory remark made by Leslie occurred on October 27, 1993, prior to Iovin's performance review that day. (Iovin Dep. at 631). Iovin testified that he overheard Leslie state to several co-workers: "I don't understand these things there is a friend of mine who was telling me about these immigrants." Iovin testified that Leslie then "generally ... got into saying about how ... immigrants are coming to this country and accept dirt pay and take away the jobs from well qualified and educated Americans, and he concluded by saying something about NAFTA." (Iovin Dep. at 632).[11]
On September 22, 1993, Iovin met with Krista Bremberg and Shawn Williams of NMH's Human Resources Department and told them that he was unhappy with his job situation. Iovin complained not about Leslie's conduct, but rather about his supervisor Barford whom he felt was "making the rounds and not talking to [him] but to everybody else on the team." (Iovin Dep. at 573). Iovin specifically admits that he did not advise Bremberg and Williams that Leslie had made a remark about immigrants and explains that this was because they never asked. (Pl.'s Facts ¶ 149). Bremberg and Williams asked Iovin if he wanted to switch managers, Iovin replied that he hadn't thought about it. (Def.'s Facts ¶¶ 149, 150; Iovin Dep. at 579).
Although Iovin testified that he had complained about derogatory remarks regarding immigrants to several people (including Purdy, human resource personnel, and to nurses), Iovin testified that he did not divulge Leslie's name or any of the specifies until October 27, 1993, during his meeting with Barford and Purdy.[12] (Iovin Dep. at 323, 567). After listening to Iovin's complaint, Purdy responded by telling Iovin that "we don't tolerate that kind of stuff around here. I'm sorry." (Iovin Dep. at 641-42). Purdy then instructed Iovin that if he "should ever hear such comments again to let her know." (Id.). On either the same day or the next, Purdy met with Scott Leslie and advised him that a co-worker had made a complaint to management alleging that he had been making unfriendly remarks about immigrants and advised him to cease from such conduct immediately. (Def.'s Facts ¶ 44). On November 3, 1993, Barford met with Leslie and issued him a written warning stating:
Recently, another member of the Application Support Team has made written allegations to Human Resources and IS Management that they have been subject to *1404 harassment from you by repeated remarks you have made, both to this person and to others in this person's presence. The remarks have been described as ethnic slurs. This person has also alleged that you have repeatedly referred to their technical abilities in a denigrating manner on an ongoing basis.
NMH policies protect all employees in the workplace against discrimination and harassment in any form on the basis of national origin, religion, gender, or any other personal attributes. All allegations of this sort are taken seriously as a possible violation of this policy. You are hereby advised that, if these allegations are correct, any and all activity of this sort on your part will not be tolerated and must stop immediately. Any further allegations of the type of behavior will result in suspension pending investigation and, if substantiated, will be grounds for immediate termination of your employment.
(Def.'s Facts ¶ 46).[13] Moreover, NMH began an investigation into Iovin's allegations against Leslie. However, it was never completed due to Iovin's subsequent leave of absence on November 12, 1993, and eventual termination from NMH. (Barford Aff. ¶ 39).
One final allegation concerning discriminatory conduct bears mention. Iovin complains that on November 2, 1993, Barford requested him to submit himself for an employee health examination. (Def.'s Facts ¶ 139). Barford attested that NMH encourages its managers to request an employee health evaluation for employees who are not functioning effectively and who appear ill. (Id. ¶ 140). She requested Iovin to submit to a health exam because (1) he was continuing to take a lot of time off while showing little improvement; (2) the quality of his work was deteriorating greatly and his participation in meetings was becoming less productive; (3) he was focussing on insignificant points and becoming confused; (4) he had published minutes to a meeting that were disorganized and inaccurate; (5) his inability to concentrate and his discussions regarding his stress had taken away significant time from other employees; (6) another employee had expressed concern about Iovin's health; (7) Iovin had requested to work at home because the stress of working in the office was affecting him greatly. (Barford Aff. ¶ 42). In the past, Barford requested a non-Romanian employee to submit for a health examination.[14] (Id. ¶ 141).
DISCUSSION
Summary Judgment Standards
Summary judgment is proper only if 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(c). A genuine issue for trial exists only when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). Materiality[15] is determined by assessing whether the fact in dispute, if proven, would satisfy a legal element under the theory alleged or otherwise affect the outcome of the case. Id. at 247, 106 S.Ct. at 2509. The court must view all evidence in a light most favorable to the nonmoving party, Sample v. Aldi Inc., 61 F.3d 544, 546 (7th Cir.1995), and draw all inferences in the nonmovant's favor. Santiago v. Lane, 894 F.2d 218, 221 (7th Cir.1990). However, if the evidence is merely colorable, or is not significantly *1405 probative or merely raises "some metaphysical doubt as to the material facts," summary judgment may be granted. Liberty Lobby, 477 U.S. 242, 249-50, 106 S. Ct. 2505, 2510-11, 91 L. Ed. 2d 202 (1986); Flip Side Productions, Inc. v. Jam Productions, Ltd., 843 F.2d 1024, 1032 (7th Cir.), cert. denied, 488 U.S. 909, 109 S. Ct. 261, 102 L. Ed. 2d 249 (1988). In making its determination, the court's sole function is to determine whether sufficient evidence exists to support a verdict in the nonmovant's favor. Credibility determinations, weighing evidence, and drawing reasonable inferences are jury functions, not those of a judge when deciding a motion for summary judgment. Liberty Lobby, 477 U.S. at 255, 106 S.Ct. at 2513. Finally, we note that mere conclusory assertions, unsupported by specific facts, made in affidavits opposing a motion for summary judgment are not sufficient to defeat a proper motion for summary judgment. See Lujan v. National Wildlife Fed'n, 497 U.S. 871, 888, 110 S. Ct. 3177, 3188, 111 L. Ed. 2d 695 (1990) ("The object of [Rule 56(e)] is not to replace conclusory allegations of the complaint or answer with conclusory allegations of an affidavit.") First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985) ("Conclusory statements in affidavits opposing a motion for summary judgment are not sufficient to raise a genuine issue of material fact").
1. Iovin's Disparate Treatment Claims
Iovin maintains that he was discriminated against on the basis of his national origin when NMH denied him training, gave him low performance ratings, and removed him from projects. See Pl.'s Resp. at 6. In this regard Iovin purports to state a disparate treatment claim. Iovin's ultimate burden with respect to this claim is to establish that NMH intentionally discriminated against him on the basis of his national origin. To satisfy this burden, Iovin has two options: (1) he may present direct evidence of discrimination such as a direct acknowledgment of discriminatory intent, or (2) he may present circumstantial evidence of discrimination. Troupe v. May Dept. Stores Co., 20 F.3d 734, 736 (7th Cir.1994). Perhaps the most common method of proving employment discrimination circumstantially is through resort to the indirect, burden-shifting method of proof articulated in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973).[16]
Under the McDonnell Douglas approach, the plaintiff may establish a prima facie case of discrimination by demonstrating that he or she: (1) is a member of a protected class; (2) is qualified for the job in question or is meeting the legitimate expectations of the employer; (3) suffered an adverse employment action; and (4) the employer treated similarly situated persons not in the protected class more favorably. See, e.g., Bratton v. Roadway Package Sys., Inc., 77 F.3d 168, 175 (7th Cir.1996); EEOC v. Our Lady of the Resurrection Med. Ctr., 77 F.3d 145, 148 (7th Cir.1996); Taylor v. Canteen Corp., 69 F.3d 773, 779 (7th Cir.1995); Sample v. Aldi Inc., 61 F.3d 544, 548 (7th Cir. 1995). If the plaintiff succeeds in making a prima facie showing of discrimination, a rebuttable presumption of discrimination arises and the burden of production shifts to the defendant to articulate a legitimate, nondiscriminatory justification for its action. Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 254, 101 S. Ct. 1089, 1094, 67 L. Ed. 2d 207 (1981); Our Lady, 77 F.3d at 148; Sample, 61 F.3d at 547. To meet this burden, the defendant must produce evidence "which, taken as true, would permit the conclusion that there was a nondiscriminatory reason for the adverse action." St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 509, 113 S. Ct. 2742, 2748, 125 L. Ed. 2d 407 (1993). If the defendant articulates such a justification, the presumption drops out of the case and the burden shifts back to the plaintiff to *1406 prove that the proffered reasons were a pretext for discrimination. Burdine, 450 U.S. at 256, 101 S.Ct. at 1095. Pretext may be shown by establishing one of the following: (1) the defendant employer's explanation had no basis in fact; or (2) the explanation was not the "real" reason; or (3) the reason stated was insufficient to warrant the adverse employment action. Collier v. Budd Co., 66 F.3d 886, 892 (7th Cir.1995). The plaintiff always retains the ultimate burden of proving that he or she was the victim of intentional discrimination. Hicks, 509 U.S. at 506-07, 113 S.Ct. at 2747.
Iovin's evidentiary showing with respect to his disparate treatment claims is insufficient and NMH is entitled to judgment as a matter of law on those claims. We shall consider his disparate treatment claims individually.
1. Iovin's Removal from Certain Projects
Iovin complains that he was discriminated against on the basis of national origin when Barford and Purdy removed him from the EDI project and the UB 92 project. As a threshold matter, it is far from clear that this allegation can support a Title VII claim. There is no evidence in the record that Iovin was entitled to work on any particular project. The record reflects that he was hired into a position, not a project. And, the decision to place him on one or another project rested in the discretion of his supervisors. Furthermore, when Iovin was removed from the EDI and UB 92 projects and transferred to the lab support project, his compensation, benefits, and job title remained unchanged. (Def.'s Facts ¶ 136). As the Seventh Circuit has explained in the context of the ADEA, while employment actions that fall short of actual termination may be actionable, a plaintiff "does not establish a prima facie case by showing only that a job transfer would cause ... altered job responsibilities." Flaherty v. Gas Research Institute, 31 F.3d 451, 456 (7th Cir.1994). The court continued, "the ADEA prohibits age discrimination, `not changes in duties or job conditions that cause no materially significant disadvantage to an older employee.'" Id. (quoting Crady v. Liberty Nat'l Bank and Trust Co., 993 F.2d 132, 136 (7th Cir.1993)). Iovin's allegations concerning his removal from the EDI and UB 92 projects fall squarely within the scope of this language. Although the Flaherty court emphasized that "an employer does not insulate itself from liability for discrimination simply by offering a transfer at the same salary and benefits," id. at 456-57, the instant record is completely devoid of any evidence suggesting that Iovin's transfer to the lab support project was predicated on discriminatory animus and reflected an effort to marginalize or isolate him.
More importantly, even if Iovin's transfer is deemed to constitute an actionable employment decision, the record firmly establishes that Iovin cannot establish a prima facie case of discrimination. In particular, he cannot establish that he was meeting the legitimate expectations of his employer in view of his admissions that virtually all of Barford's criticisms of his performance on the EDI and UB 92 projects were "valid" and "fair," Pl.'s Facts ¶ 119, and that he had "shortcomings" in each of the areas Barford had criticized him, id. ¶ 120, and that he was not "up to speed on the technical issues," id. ¶ 121.[17] Nor has Iovin made any showing that non-Romanian employees, similarly situated in terms of their performance were retained on projects. Accordingly, we find that Iovin has failed to establish a prima facie showing of national origin discrimination based on his removal from the EDI and UB 92 projects.
We also note at this juncture that the same decision-makers that hired Iovin (Barford and Purdy) are the decision-makers that are alleged to have discriminated against Iovin by taking him off the EDI and UB 92 projects. The Seventh Circuit has noted on several occasions that where the same decision-maker that hired the plaintiff is also alleged to be the discriminator, an inference of nondiscrimination arises. See EEOC v. Our Lady of the Resurrection Med. Ctr., 77 F.3d 145 (7th Cir.1996) (noting that the "same hirer/firer inference has strong *1407 presumptive value"); see also Rand v. CF Indus., Inc., 42 F.3d 1139 (7th Cir.1994) (noting in an age discrimination case that, where the plaintiff was hired and fired by the same person within a 2 year period, "[i]t seems rather suspect to claim that the company that hired him at 47 had suddenly developed an aversion to older people two years later.") (internal quotation marks omitted). Here Iovin maintains that Barford hired him and almost immediately began discriminating against him. Under the facts of this case, the Court must take into consideration the "same hirer/firer inference" in evaluating Iovin's claims of discrimination.
2. Failure to train
Iovin also complains that he was discriminated against on the basis of national origin when he was denied permission to attend an EDI training seminar in May of 1993, which would have been approximately one month after he was hired. At the outset, the Court notes again that it has grave doubts that this claim even presents an actionable Title VII claim. As Magistrate Judge Rosemond recently stated in Berggruen v. Caterpillar, Inc., 1995 U.S. Dist. Lexis 1870, *16 (N.D.Ill. February 15, 1995), adopted in part and rejected in part, 1995 WL 382500 (N.D.Ill.1995) (Castillo, J.), "[e]mployers are not required to grant every employee's request for training." Certainly, there may be cases in which access to training opportunities is so intimately interconnected with promotional opportunities that a failure to provide access to training opportunities is tantamount to a failure to provide advancement opportunities. But, the record does not indicate that this case falls in that category. Rather, Iovin complains about the denial of his request to attend a specific training seminar early in the course of his employment and there is no evidence in the record suggesting that Iovin's failure to attend this seminar was a significant factor in his ultimate job performance at NMH. Additionally, the record reveals that Iovin was given the opportunity to attend several other training seminars and vendor demonstrations. Pl.'s Facts ¶ 77-79.
In any event, once again Iovin is unable to establish a prima facie case of discrimination. Iovin has adduced no evidence indicating that similarly situated employees, not in the protected class, were treated more favorably with respect to their ability to attend training seminars. In an effort to establish a prima facie showing, Iovin attests that two non-Romanian employees (Bill Walton and Jerry Susmarski) had both been allowed to attend the same seminar that he was denied permission to attend. Iovin Aff. ¶ 27. However, the record reflects that Walton left NMH approximately 4 months before Iovin started working there and couldn't possibly have attended the May 1993 seminar. (See Def.'s Facts, Ex. K). Similarly, Jerry Susmarski attested that neither he nor Walton attended the May 1993 EDI seminar. (Susmarski Aff. ¶ 4).[18] Moreover, Susmarski's affidavit indicates that in May of 1993 he would have been employed at NMH for approximately 15 years. In sharp contrast, Iovin would have been employed approximately one month. Plainly, the continuing education opportunities that an employer might make available to a fifteen year veteran may legitimately differ from those made available to a one-month employee. Put in the language of the prima facie showing, Iovin has presented absolutely no evidence that Walton and Susmarski were similarly situated employees. Finally, Iovin has presented absolutely no evidence that Barford's reason for denying Iovin's request viz., that the seminar was unnecessary because Iovin could get the same information directly from the EDI vendor was a pretext for discrimination.
Although it not entirely clear from Iovin's submissions, Iovin may also be claiming that Barford discriminated against him more generally with respect to training by failing to give him the time and attention she allegedly promised him pursuant to her alleged *1408 promise to put Iovin into a management track position. This theme pervades Iovin's submissions to the Court. However, the extent, if any, to which Iovin relies on this as the basis for his disparate treatment claim is unclear. Nevertheless, we will address it here because extended discussion of this claim is unnecessary. Simply put, there is no probative evidence in the record that Barford treated Iovin any worse in this regard than any other employee. Regardless of what Barford may or may not have promised Iovin, the only relevant inquiry under Title VII is whether Barford intentionally discriminated against Iovin on the basis of his national origin. Thus, while Barford may have fallen short of providing Iovin with the training that she promised him, that is not particularly illuminating as to the real inquiry. Absent evidence that Barford treated non-Romanian employees more favorably with respect to giving them training and assistance, Iovin simply cannot prevail on a Title VII claim. Although Iovin maintains that Barford "spent much of her time in her office chatting away with Laverne Kocal, Susan Geraty and others," (Pl.'s Fact ¶ 23), the only evidence bearing on whether Barford afforded non-Romanians a greater amount of personal training, is his remark that "Barford spent a lot of time giving specific instructions to Susan Geraty (non-Romanian) even though Geraty was not on Barford's team." (Id. ¶ 25). This lone assertion is insufficient to raise a genuine issue of material fact as to whether Barford treated non-Romanians more favorably.
The uncontroverted record in this case is that shortly after Iovin was hired, there was a layoff and restructuring that Iovin survived. The restructuring resulted in additional employees being assigned to work under Barford. She also inherited additional duties and, as a result, the time she had to spend with the individuals reporting to her was very limited. Iovin admits this fact. (Pl.'s Facts ¶¶ 72, 73). On occasion, Barford directed Iovin to other individuals for assistance. (Id. ¶ 74). And, although he now minimizes their assistance, Iovin does not dispute that he was assisted by several of his co-workers. (Iovin Dep. at 469-71; Pl.'s Facts ¶ 75; Iovin Aff. ¶ 24). Most significantly, there is not a shred of probative evidence that Barford provided a greater amount of training to the non-Romanian employees working under her. The fact that she may have spent a lot of time giving specific instructions to an employee who did not even work under her simply is not probative as to whether Iovin was receiving less supervisory training or assistance than his co-workers. Indeed, if Barford was spending her time with an employee who was not from her own team, all of the employees on her team (Romanian and non-Romanian) were equally deprived of her accessibility. In short, this Court has neither the inclination nor the authority to sit over Barford's shoulder instructing her how to spend her time so long as we are satisfied that she is not impermissibly discriminating against those she oversees. For all of these reasons, NMH is entitled to judgment as a matter of law on Iovin's claim that Barford failed to provide training to Iovin.
Iovin also contends that Barford's action in requesting him to submit to a health examination was motivated by discriminatory animus. However, the record is clear that Iovin was manifesting signs of stress, including requesting to work at home because the stress of working in the office was affecting him greatly. Def.'s Facts ¶ 142. Iovin has made no showing to rebut NMH's legitimate, nondiscriminatory justification for asking him to submit to an examination. And, Iovin does not controvert the fact that NMH encourages its managers to request an employee health evaluation for employees who are not functioning effectively and who appear ill. Accordingly, NMH is entitled to judgment as a matter of law on Iovin's Title VII claim to the extent that it is predicated on Barford's request that he submit to an examination.
Finally, we expressly note that although for purposes of comprehensiveness we have separately reviewed each of Iovin's claims of discriminatory treatment, the Court's evaluation of Iovin's claims does not change when all of the claims are evaluated together. This is especially true in light of the Court's application of the "hirer/firer inference" of nondiscrimination to the facts of this case. Accordingly, NMH is granted summary *1409 judgment with respect to Iovin's disparate treatment claims.
2. Hostile Work Environment
Iovin also purports to assert a hostile work environment claim. As the Supreme Court recognized in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 106 S. Ct. 2399, 91 L. Ed. 2d 49 (1986), Title VII claims are not limited to economic discrimination, but rather Title VII "strike[s] at the entire spectrum of disparate treatment of men and women in employment, which includes requiring people to work in a discriminatorily hostile or abusive environment." Id. at 64, 106 S.Ct. at 2404. While Meritor involved sexual harassment, the doctrine applies equally to claims of harassment based on race, religion, or national origin. Harris v. Forklift Sys., Inc., 510 U.S. 17, ___ _ ___, 114 S. Ct. 367, 370-71, 126 L. Ed. 2d 295 (1993). Allegedly harassing conduct is actionable under Title VII where "the conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment." Meritor, 477 U.S. at 64, 106 S.Ct. at 2404. Iovin maintains that he was subject to a hostile work environment based on Barford's failure to train him as promised, the fact that she ignored him and made him do an inordinate amount of copying, her comment about his inability to understand plain English, and the fact that she removed him from the EDI and UB 92 projects. Additionally, Iovin claims that Scott Leslie contributed to the hostile environment and that NMH did nothing about it even though he complained.
In considering Iovin's hostile work environment claim, the Court must first consider whether Iovin was subjected to such hostile, intimidating or degrading behavior as to adversely affect the conditions under which he worked. In answering this question, it is important to remember that not all conduct that is offensive can be characterized as harassment in violation of Title VII. Rather, it is only "[w]hen the workplace is so permeated with `discriminatory intimidation, ridicule, and insult,' that is `sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment,' that Title VII is violated." Harris, 510 U.S. at ___, 114 S.Ct. at 370 (quoting Meritor, 477 U.S. at 65, 67, 106 S.Ct. at 2404, 2405).
Determining whether an environment is "hostile" is not, and cannot be, a mathematically precise test. Harris, ___ U.S. at ___, 114 S.Ct. at 371. As the Seventh Circuit recently noted: "To determine whether the plaintiff's work environment is hostile within the meaning of Title VII, we consider a variety of factors, including `the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee's work performance.'" Saxton v. American Tel. & Tel. Co., 10 F.3d 526, 534 (7th Cir.1993) (quoting Harris, 510 U.S. at ___, 114 S.Ct. at 371 (1993)). The inquiry focuses on the totality of the circumstances and no single factor is required or determinative. Id. Finally, in judging the nature of the conduct at issue, both an objective and subjective standard is used. In other words, the court considers both the actual impact on the plaintiff as a result of the conduct as well as the impact such conduct would have on a reasonable person in the plaintiff's position. As the Court in Harris stated:
Conduct that is not severe or pervasive enough to create an objectively hostile or abusive work environment an environment that a reasonable person would find hostile or abusive is beyond Title VII's purview. Likewise, if the victim does not subjectively perceive the environment to be abusive, the conduct has not actually altered the conditions of the victim's employment, and there is not a Title VII violation.
Harris, 510 U.S. at ___, 114 S.Ct. at 370. With these standards in mind, we turn to consider Iovin's hostile work environment claims.
Insofar as Iovin's claims are based on Barford's alleged conduct, we will not repeat the ground we have already covered, suffice it to say that the record is devoid of any probative evidence to support the conclusion that any of Barford's conduct was motivated by discriminatory *1410 animus. We pause here to add a few additional comments more appropriate to Iovin's hostile environment claims. First, with respect to Iovin's claims regarding Barford's treatment of him, it is important to note that Iovin has testified (and admitted in his 12(N) statement) that Barford "manipulated" everybody, including "her entire team." (Pl.'s Facts ¶¶ 61-66). Thus, by Iovin's own account Barford's conduct was not directed solely at him, and thus his charge of national origin discrimination is completely undermined. Additionally, Iovin's alleged inability to receive direct training from Barford, while perhaps frustrating, cannot be considered sufficient to constitute a hostile work environment. See Saxton, 10 F.3d at 535 (supervisor's inaccessibility, condescension, impatience, and teasing not harassment). With regard to Iovin's allegation that he was required to do a disproportionate amount of copying in comparison to other employees, Iovin offers no evidence as to the amount of copying other co-employees were required to do. Moreover, it is evident that it was not an irregular task to spend some time copying documents. In Iovin's case, during his seven months of employment with NMH he copied in total three to four documents of 400 to 500 pages each; two documents of 200 pages and a dozen shorter documents. (Def.'s Facts ¶ 101). This Court finds that this required copying task was not so severe as to constitute a hostile work environment.
Iovin also points to two comments made by Barford as evidence of her discriminatory animus. In the first, Barford accused Iovin of not understanding plain English; in the second, Barford allegedly told him, "Why don't you go back where you came from if you don't like it here." (Iovin Dep. at 562). Even if the Court reads these comments in the light most favorable to Iovin as reflecting national origin animus,[19] they cannot support a hostile environment claim because Barford's alleged conduct, when viewed in its totality, does not rise to a sufficient level of severity or pervasiveness to objectively alter Iovin's conditions of employment. "`[M]ere utterance of an ... epithet which engenders offensive feelings in an employee,' does not sufficiently affect conditions of employment to implicate Title VII." Harris, ___ U.S. at ___, 114 S.Ct. at 370 (quoting Meritor, 477 U.S. at 67, 106 S.Ct. at 2405).
The most serious conduct raised by Iovin as evidence of a hostile work environment consists of derogatory remarks about immigrants as well as generally rude conduct by Scott Leslie, a co-employee. Leslie's alleged remarks are extremely troubling and offensive to most informed citizens in our cherished country of immigrants. However, in order for NMH to be liable for the discriminatory conduct by a co-worker, Iovin must demonstrate that NMH's response or lack thereof to Leslie's harassing behavior was negligent. Carr v. Allison Gas Turbine Div., General Motors Corp., 32 F.3d 1007, 1009 (7th Cir.1994); Guess v. Bethlehem Steel Corp., 913 F.2d 463, 465 (7th Cir.1990). NMH argues that it took prompt remedial action to remedy Scott Leslie's conduct once it learned of the situation. We agree.
Iovin's own testimony establishes that although he was aware of NMH's policy against discrimination and harassment, he *1411 did not specifically inform his immediate supervisor, Barford, that Leslie had made derogatory remarks to him until October 27, 1993.[20] Once informed of Leslie's alleged comments, Purdy told Iovin that "we don't tolerate that kind of thing here, not at NMH." Purdy then met with Scott Leslie and advised him that a co-worker had complained to management that he had been making unfriendly remarks about immigrants and warned him that, if true, such conduct was inappropriate and must cease immediately. (Purdy Aff. ¶ 11). On November 3, 1993, Barford met with Leslie and issued a written warning to him that explicitly detailed NMH's policy against discrimination and harassment and warned Leslie that such conduct was grounds for immediate termination. A few days after Iovin's complaint, on November 3, 1993, Iovin's work station was moved away from that of Leslie. Under these facts, there is no basis upon which a jury could conclude that NMH did not take prompt and appropriate measures to remedy Leslie's conduct once it received proper notice of that conduct. Accordingly, a reasonable factfinder could not find NMH liable for Leslie's alleged harassment of Iovin.
The Court has closely reviewed all of Iovin's evidence concerning the conduct to which he was allegedly subjected. Based on its review of the evidence, the Court concludes that a reasonable factfinder could not find that Iovin's working conditions constituted an objectively hostile or abusive work environment. Accordingly, NMH is entitled to judgment as a matter of law on Iovin's hostile work environment claims.
CONCLUSION
This Court does not doubt that Mr. Iovin subjectively believes that he has been the subject of discriminatory animus in the work-place. However, such a subjective belief, without much more does not entitle Mr. Iovin to a jury trial on his claims. The strongest evidence of discrimination offered by Mr. Iovin is the hostile statements by his co-worker Scott Leslie. These statements, however, as noted herein do not automatically bind NMH.
Based on the Court's careful review of the record in this case, we conclude that a reasonable factfinder could not return a verdict in Mr. Iovin's favor on either his disparate treatment claim or his national origin harassment claim. Accordingly, NMH's motion for summary judgment is granted and this case is dismissed with prejudice, both sides to bear their own costs.
NOTES
[1] Local Rule 12(M)(3) requires a party moving for summary judgment to file "a statement of material facts as to which the moving party contends there is no genuine issue." The movant's statement must contain "specific references to affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth." NMH's statement shall be cited herein as "Def.'s Facts ¶ ___." Similarly, Local Rule 12(N)(3)(a) requires the non-moving party to file a concise response to the movant's statement including, in the case of any disagreement, specific references to supporting materials. Iovin's response shall be cited as "Pl.'s Facts ¶ ___." Pursuant to Local Rule 12(N)(3)(b), the nonmoving party may also submit a statement of "additional facts that require the denial of summary judgment," with respect to which the movant, in turn, may respond. Iovin's statement of additional facts shall be cited as "Pl.'s Add'l Facts ¶ ___" and NMH's response shall be cited as "Def.'s Resp. Add'l Facts ¶ ___." All properly supported material facts set forth in either party's statement (i.e., Def.'s Facts or Pl.'s Add'l Facts) are deemed admitted unless properly controverted by the statement of the opposing party. Local Rule 12(M) and 12(N)(3)(b); see also Flaherty v. Gas Research Inst., 31 F.3d 451, 453 (7th Cir.1994); Waldridge v. American Hoechst Corp., 24 F.3d 918, 921-22 (7th Cir.1994); Stewart v. McGinnis, 5 F.3d 1031 (7th Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1075, 127 L. Ed. 2d 393 (1994). Moreover, the mere denial of a particular fact without "specific references to the affidavits, parts of the record, and other supporting materials" that allegedly establish a factual dispute is insufficient; and, where a factual assertion is met with such a naked denial the fact may be deemed admitted. Flaherty, 31 F.3d at 453. Throughout his 12(N) response, Iovin cites solely to his own affidavit. The affidavit frequently contradicts Iovin's own earlier sworn deposition testimony in what appears to be an attempt to retract or explain away earlier statements. It is well-settled in this circuit that a party cannot "thwart the purpose of Rule 56 by creating issues of fact through affidavits that contradict their own depositions." Darnell v. Target Stores, 16 F.3d 174, 177 (7th Cir.1994) (quoting Miller v. A.H. Robins Co., 766 F.2d 1102, 1105 (7th Cir.1985)); accord Russell v. Acme-Evans Co., ADM, 51 F.3d 64, 67-68 (7th Cir.1995); Babrocky v. Jewel Food Co., 773 F.2d 857, 861 (7th Cir.1985). Where depositions and affidavits conflict, the affidavit is to be disregarded unless it is demonstrable that the deposition testimony was mistaken. Russell, 51 F.3d at 67-68. Similarly, neither a statement in an affidavit that is highly unlikely considering the earlier testimony, Unterreiner v. Volkswagen of Am. Inc., 8 F.3d 1206, 1210 (7th Cir.1993), nor an affidavit consisting of "bald assertions, entirely lacking in any recounting of specific facts such as required by Fed.R.Civ.P. 56(e)," Babrocky, 773 F.2d at 861, will create a triable issue of fact. Id.
[2] This statement is a prototypic example of the "bald assertions, entirely lacking in any recounting of specific facts", Babrocky, 773 F.2d at 861, that pervade Iovin's affidavit. The Court will not pause throughout the opinion to note every instance of an unsupported factual assertion. Rather, we simply reiterate here that such assertions are insufficient to raise a genuine issue of material fact. Id.
[3] In view of the magnitude of deposition testimony and the multitude of accusations of discriminatory conduct contained therein, the Court shall not attempt to detail in this opinion each and every incident that Iovin mentioned during his deposition. However, in rendering its judgment, the Court has fully considered all of the evidence presented to the Court.
[4] NMH has introduced some of Iovin's mental health records into the record in this case in order, inter alia, to demonstrate that Iovin is paranoid and delusional. Indeed there is some support for this contention in the record. However, because it is unnecessary for purposes of resolving the present motion to delve into Iovin's psychiatric history, we need not detail the contents of those records.
[5] Iovin's attempts to deny the statement by asserting that he was a management trainee in a management-track position. This is, of course, wholly insufficient.
[6] Thus, Iovin's assertion in his 12(N) statement that "the agreement to provide him with training to become a manager was orally promised by Barford at the Plaintiff's interview," (Pl.'s Facts ¶ 32) is flatly inconsistent with his earlier sworn deposition testimony.
[7] There is no evidence in the record as to whether the manuals Iovin received were any different from those issued to other employees in the IS department.
[8] Barford still engaged in some training of Iovin as is evidenced by a September, 1993, weekly status report to Barford, in which Iovin stated, "Debbie, thanks for taking the time last week (on September 1) to explain and clarify several things to me, related to procedures and policies particular to NMH. Your cooperation in this matter is greatly appreciated." (Pl.'s Ex. 23).
[9] Iovin testified that while Barford manipulated "everybody," including her entire team, only her manipulative conduct towards him constituted discrimination. (Def.'s Facts ¶¶ 59, 61; Iovin Dep. at 782).
[10] Barford attests that at this meeting she also advised Iovin that his work performance overall, and particularly with respect to his work on the EDI and UB 92 projects, was "unacceptable." (Def.'s Facts ¶ 114; Barford Aff. ¶ 28). On a performance review form, Barford rated Iovin's performance as "unacceptable" in 11 out of 15 categories. (Def.'s Facts ¶ 115; Barford Aff. ¶ 28, Ex. C). Iovin maintains that he was never advised of these ratings and that he never received any documentation regarding the ratings. (Pl.'s Facts. ¶ 114). Iovin has made no effort, however, to controvert Barford's assertion that she rated his performance as she says she did or that such ratings accurately reflected her appraisal of Iovin's performance.
[11] In addition to the foregoing comments regarding national origin, Iovin claims that Leslie also "expressed his feelings about why I shouldn't really be [at NMH]." (Iovin Dep. at 327). On September 21, 1993, Iovin claims that Leslie laughed at him, implied that he was stupid and asked him why he was still working at NMH. (Pl.'s Add'l Facts ¶ 4). Iovin claims that Leslie's harassment also consisted of comments such as "Why are you wasting your time here?"; comments suggesting that Iovin was not "productive," suggesting that he was being overpaid, and suggesting that he was stupid and comments making "an inference" that Iovin was "dead wood." (Def.'s Facts ¶ 51). Leslie also allegedly told Iovin that he earned his pay by putting fresh paper in the printer. (Pl.'s Add'l Facts ¶ 2). In his deposition, Iovin also testified that Leslie did not acknowledge his greetings in the morning and generally looked down on him. (Iovin Dep. at 440, 568).
[12] Iovin testified that the reason he did not divulge Leslie's name to management was because no one ever asked. (Iovin Dep. at 323).
[13] Additionally, Shawn Williams, NMH's former human resources consultant, met individually with Scott Leslie and advised him that if he was making derogatory comments about immigrants, his behavior was inappropriate and his conduct should cease immediately. (Def.'s Facts at 47). In his deposition testimony, Iovin stated that he believes that the Human Resources personnel, namely Williams and Bremberg, discriminated against him based on his national origin by not doing anything to remedy his situation. (Def.'s Facts ¶ 146; Iovin Dep. at 592-97).
[14] Iovin notes that this employee was drinking on the job, was often visibly intoxicated, and threatened to kill himself and Leslie Purdy. (Pl.'s Facts ¶ 141).
[15] "The substantive law will identify 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." Liberty Lobby, 477 U.S. at 247, 106 S.Ct. at 2509. Factual disputes that are irrelevant or unnecessary are not material. Id.
[16] As explained in Troupe, other methods of proving discrimination circumstantially include presenting evidence of "suspicious timing, ambiguous statements oral or written, behavior towards or comments directed at other employees in the protected group, and other bits and pieces from which an inference of discriminatory intent might be drawn," 20 F.3d at 736, and presenting evidence "whether or not rigorously statistical, that employees similarly situated to the plaintiff ... received systematically better treatment." Id.
[17] In view of Iovin's admissions concerning his performance, we also conclude that NMH is entitled to summary judgment on Iovin's claim that NMH discriminated against him by giving him low performance ratings. Accordingly, the Court shall discuss this claim no further.
[18] Even if Iovin's affidavit is construed as stating that at some point in the past, Walton and Susmarski were permitted to attend an EDI seminar whereas he was not, Iovin has still not met his burden. Susmarski's affidavit reveals that the EDI seminar that he attended in 1992 was a one-day seminar unlike the May 1993 seminar which was a three-day seminar. Thus, Iovin is asking the Court to compare apples and oranges.
[19] In this regard the Court notes that Barford made the "plain English" comment on September 29, 1993, after reminding Iovin of a meeting he was scheduled to attend. Iovin claims Barford remarked to him, "See, even from this incident I can tell you can't concentrate and you don't understand plain English." It is far from clear that the comment reflects any national origin animus. The expression "Don't you understand plain English" is about as common a reproach for one's failure to follow directions as there is in the vernacular. And, few people would seriously maintain that it reflects national origin animus. However, for purposes of deciding this motion we shall grant Iovin the benefit of the doubt. However, we do note that in the disparate treatment context, the Seventh Circuit has stated that "[r]emarks at work that are based on stereotypes of an individual's national origin do not invariably prove that national origin played a part in an employment decision; the plaintiff must show that the [employer] relied on this impermissible criterion in making its decision." Hong v. Children's Memorial Hosp., 993 F.2d 1257, 1265 (7th Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1372, 128 L. Ed. 2d 48 (1994). In the instant case, there is no evidence connecting the alleged comments to any employment decisions and they are, at best, regarded as stray remarks, which do not, standing alone, create a triable issue.
[20] Iovin tries to raise a genuine issue of material fact by asserting that he complained of discriminatory conduct as early as April of 1993. However, the undisputed record is that Iovin never specifically identified who was harassing him until October of 1993 and we decline to hold that an employee puts his employer on adequate notice by simply complaining that he is being subjected to discriminatory conduct by some unspecified coworker. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1517117/ | 733 F. Supp. 1215 (1989)
UNITED STATES of America, Plaintiff,
v.
CONSERVATION CHEMICAL COMPANY OF ILLINOIS, et al., Defendants.
Civ. No. H86-9.
United States District Court, N.D. Indiana, Hammond Division.
November 6, 1989.
*1216 Andrew B. Baker, Asst. U.S. Atty., Hammond, Ind., F. Henry Habicht, II, Asst. Atty. Gen., Land & Natural Resources Div., Mark E. Grummer and William R. Sierks, Environmental Enforcement Section, Land & Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., and Mary L. Fulghum, Jonathan McPhee and Catherine Nichols, Asst. Regional Counsel, U.S. E.P.A., Region V, Chicago, Ill., for plaintiff.
Louis M. Rundio, Jr. and Stephen P. Krchma, McDermott, Will & Emery, Chicago, Ill., and David C. Jensen and Maureen Johns Grimmer, Eichhorn, Eichhorn & Link, Hammond, Ind., for defendants.
ORDER
MOODY, District Judge.
This matter is before the court on United States' Motion for Partial Summary Judgment on the Issue of Liability Against Defendants Conservation Chemical Company of Illinois and Norman B. Hjersted, filed December 31, 1986. Defendants Conservation Chemical Company of Illinois ("CCCI") and Norman B. Hjersted ("Hjersted") responded on January 21, 1987, and plaintiff *1217 United States filed its reply on February 9, 1987.
Background
The United States filed this suit under Sections 3008(a) and (g) of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. § 6928(a) and 6928(g), alleging that numerous violations of RCRA occurred at a hazardous waste treatment, storage, and disposal facility in Gary, Indiana (the "Gary facility") operated by CCCI and Hjersted, CCCI's president and principal shareholder. Defendants have conducted waste treatment, storage, and disposal activities at the Gary Facility continuously since approximately 1970. The facility was in operation on November 18, 1980, when the RCRA regulations at issue in this case became effective. The Gary facility attained "interim status" under RCRA, which allowed defendants to continue operating, but also made them subject to certain RCRA regulations. Defendants continued their hazardous waste activities until mid-December, 1985, when they halted operations at the request of the Environmental Protection Agency.
In this action, the United States seeks a court order requiring defendants to close the Gary facility in accordance with the closure and post-closure requirements of RCRA and to comply with certain additional RCRA regulations. In addition, the United States seeks civil penalties for defendants' alleged failure to submit and implement adequate closure and post-closure plans, and for alleged violations of certain RCRA interim status regulations. The United States seeks, by the instant motion, to obtain a ruling on the issue of liability only, leaving the issue of remedies for later trial.
Statutory and Regulatory Scheme
The court has already set out in great detail the statutory and regulatory scheme which governs this action. See United States v. Conservation Chemical Co. of Illinois, 660 F. Supp. 1236 (N.D.Ind.1987). Rather than repeat that entire explanation, the court will merely summarize it here.
Congress passed the Resource Conservation and Recovery Act, 42 U.S.C. § 6901-6991, in 1976. Section 3004(a) of RCRA, 42 U.S.C. § 6924(a), requires the Administrator (of the EPA) to "promulgate regulations establishing such performance standards, applicable to owners and operators of facilities for the treatment, storage, or disposal of hazardous wastes ... as may be necessary to protect human health and the environment." RCRA § 3005(a), 42 U.S.C. § 6925(a), further requires the Administrator to promulgate regulations requiring owners or operators of existing hazardous waste treatment, storage, or disposal facilities to obtain a RCRA operating permit.
The regulatory scheme as promulgated provides for hazardous waste facilities in existence on the effective date of RCRA to file a Part A application giving certain minimal information about the facility. If the Part A application is found to be sufficient, the facility is granted "interim status" and is "treated as having been issued a permit." 42 U.S.C. § 6925(e); 40 C.F.R. § 270.70. During its period of interim status the facility must comply with operating standards set out at 40 C.F.R. Part 265.
Following its achievement of interim status, the facility must file a Part B application, providing much more detailed information than was required for the Part A application. Under the 1984 amendments to RCRA, a facility that had been granted interim status before November 8, 1984 will have that status terminated on November 9, 1985, should the facility fail to apply for a final determination regarding the issuance of a permit pursuant to 42 U.S.C. § 6925(c) (Part B application) before November 9, 1985, and to certify that it is in compliance with all applicable groundwater monitoring and financial responsibility requirements. 42 U.S.C. § 6925(e)(2) (as amended by P.L. No. 98-616, 98 Stat. 3221).
Section 3006 of RCRA, 42 U.S.C. § 6926, provides that a state may obtain federal authorization to administer the RCRA hazardous waste program in that state. On January 31, 1986, the U.S. EPA granted to the State of Indiana final authorization under *1218 Section 3006(c) of RCRA to carry out the RCRA hazardous waste management program in Indiana. 51 Fed.Reg. 3953. The Indiana regulations are codified at 320 Indiana Administrative Code ("ICA") Article 4.1, and many are identical to the corresponding federal regulations.
Under the Indiana regulatory scheme, the owner or operator of a hazardous waste facility must submit closure and post-closure plans as a part of the Part B permit application, 320 IAC 4.1-34-5(b)(13). In addition, the owner or operator must submit a current closure plan at least 180 days before the date closure is expected to begin, and must submit two copies of the plan within fifteen days after the facility loses interim status. 320 IAC 4.1-21-3(c).
Standard of Review
Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, admissions and affidavits "show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Flip Side Productions, Inc. v. Jam Productions, Ltd., 843 F.2d 1024, 1031 (7th Cir.), cert. denied, ___ U.S. ___, 109 S. Ct. 261, 102 L. Ed. 2d 249 (1988). The court must view the record and any reasonable inferences which may be drawn from it in the light most favorable to the non-moving party. P.H. Glatfelter Co. v. Voith, Inc., 784 F.2d 770, 774 (7th Cir.1986). Furthermore, "[w]hen a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986).
Findings of Fact
Defendant CCCI is a corporation organized under the laws of the State of Missouri and doing business in the State of Indiana. CCCI purchased the Gary facility, located at 6500 Industrial Highway, Gary, Indiana, in 1968. Since 1968, CCCI has owned and operated an industrial waste treatment, storage, and disposal facility at the Gary site.
Defendant Norman B. Hjersted, an individual, is the president, chairman of the board of directors, treasurer, and principal shareholder (owning more than 90% of the stock) of CCCI. He was an incorporator of CCCI, and has been its president since its incorporation in 1968. He has been on the board of directors since the date of incorporation as well. Hjersted received a salary for his work with CCCI, while officers who do not contribute to the day-to-day running of the company have not been paid a salary. Hjersted has a degree in chemical engineering, and has been in the industrial waste treatment business for over 27 years.
Hjersted considers himself to be the person in charge at the Gary facility and is responsible for environmental compliance there. His approval is required for major expenditures; plant managers must clear with him all expenditures in excess of approximately $750.00, except for the purchase of raw materials. He is a member of a group that he claims makes many of the management decisions, and he executes documents on behalf of the company as its president. Hjersted is familiar with and designed, either wholly or in large part, the treatment processes at the Gary facility whereby ferrous chloride is converted to ferric chloride.
Between 1968 and 1974, Hjersted was present at the Gary facility on between one half and two thirds of the working days. After moving his residence to Missouri in 1975, he visited the Gary facility every month. Beginning around late 1984 to 1985 his visits slowed to once every three months. He telephoned the plant manager of the Gary facility nearly every day, however, to discuss operations, production, *1219 leaks, and other problems. He gave direct instructions at various times to move materials and wastes from one treatment or storage unit to another at the Gary facility.
The Gary facility, which is about four acres in size, has been used by CCCI to store, treat, and transport hazardous waste CCCI since November 19, 1980. One hazardous waste that CCCI has stored and treated at the Gary facility is spent pickle liquor.
CCCI submitted Part A of its RCRA hazardous waste permit application on November 18, 1980. Although ordered by the EPA to submit Part B of its permit application by June 20, 1984, CCCI submitted its Part B permit application on July 13, 1984. U.S. EPA notified CCCI of deficiencies in that Part B application by letter dated January 30, 1985. CCCI submitted a revised Part B permit application on May 14, 1985. Hjersted personally reviewed and signed Parts A and B of CCCI's permit applications. The closure plan submitted with each of the Part B permit applications was rejected as deficient, and CCCI did not resubmit two copies of its closure plan or modified closure plan to the State of Indiana or to U.S. EPA within fifteen days after November 8, 1985.
The revised Part B application indicates there is one surface impoundment at the Gary facility, which will be referred to as "Basin 19" in this order. While the parties dispute what materials were placed into Basin 19 it is undisputed that Basin 19 contained material that was, in one way or another, derived from spent pickle liquor.[1] CCCI's Part B permit application indicated that the material in Basin 19 was tested and found to have a pH of 1.8,[2] indicating a high level of acidity.
Theodore Warner, an environmental scientist with the Indiana State Board of Health, inspected the Gary facility on August 29, 1984 and on March 25 and 29, 1985. He observed the following violations:
a. Pursuant to 320 IAC [4.1-41-6(d)] (40 CFR 265.15(d)), the owner or operator shall record inspections in an inspection log. Based on my observations, CCCI has not recorded daily inspections of the areas subject to spills in an inspection log.
b. Pursuant to 320 IAC [4.1-18-3(e)] (40 CFR 265.52(e)), the contingency plan shall include a list of all equipment at the facility, location of equipment, physical description of each item on the list, and a brief outline of its capabilities. Based on my review of the plan, CCCI has not included a brief outline of the capabilities of all emergency equipment in the contingency plan.
c. Pursuant to 320 IAC [4.1-19-4(b)] (40 CFR 265.73(b)(1)), the operating record shall contain a description and the quantity of each hazardous waste received and the method(s) and date(s) of each waste's treatment, storage, or disposal at the facility as required by Appendix I of 40 CFR 265. Based on my review of the record, CCCI has not provided a description and the quantity of each hazardous waste received and the method(s) and date(s) of each waste's treatment, storage, or disposal at the facility as required by Appendix I in operating record.
d. Pursuant to 320 IAC [4.1-16-5(b)] (40 CFR 265.14(b)), security measures shall include 24-hour surveillance or an artificial or natural barrier around the facility with a means *1220 to control entry. Based on my observations, CCCI has not provided security measures which include 24-hour surveillance or an artificial or natural barrier around the facility with a means to control entry. There is no controlled entry at the facility and the fence is in bad repair.
e. Pursuant to 320 IAC [4.1-17(2)] (40 CFR 265.31), the owner or operator shall manage hazardous wastes to prevent fire, explosion, or release of hazardous waste or hazardous waste constituents on premises which could threaten human health or the environment. Based on my observations, there is evidence of the release of hazardous waste or hazardous waste constituents on premises which could threaten human health or the environment. This release occurred when the surface impoundments were allowed to overflow.
f. Pursuant to IC 13-7-4-1(c), no person shall deposit any contaminants upon the land in such place and manner which creates, or which would create a pollution hazard. Based on my observations, CCCI has deposited contaminants upon the land. This deposition is a result of the overflow of the surface impoundment, and the spillage from tank number 19 which is leaking, and the spillage which has occurred in the general operating area.
g. Pursuant to 320 IAC [4.1-15-7(b) and (j)] (40 CFR 265.56(b) and (j)), whenever there is a release of hazardous waste, the emergency coordinator must immediately identify the character, exact source, amount, and the real extent of any released materials. Based on my observations, CCCI has not identified the spilled material at the facility.
h. Pursuant to 320 IAC [4.1-25-2,-3] (40 CFR 265.222), a minimum of 60 cm. (two feet) of freeboard shall be maintained in the surface impoundment. Based on my observations, CCCI has not maintained a minimum of 60 cm. (two feet) of freeboard in the hazardous waste surface impoundment.
i. Pursuant to 320 IAC [4.1-25-4] (40 CFR 265.223), earthen dikes shall have a protective cover. Based on my observations, CCCI has not provided a protective cover for earthen dikes at the surface impoundments.
j. Pursuant to 320 IAC [4.1-20-1 through 20-5] (40 CFR 265.90 [through 265.94]), the owner or operator of a surface impoundment which is used to manage hazardous waste must implement a groundwater monitoring program capable of determining the facility's impact on the qualify of groundwater in the uppermost aquifer underlying the facility. Based on my observations, CCCI has not implemented a groundwater monitoring program for the surface impoundments.
Many of the tanks on the facility were leaking and there is overall evidence of substantial spills or releases of tank and surface impoundment contents onto the ground both on and off the facility.
Furthermore, defendants admit the Gary facility does not have a RCRA groundwater monitoring system, nor has it certified compliance with the RCRA groundwater monitoring and financial assurance requirements as of November 8, 1985.
Discussion
Elements of Liability
The United States sets out (and defendants do not dispute) that the following elements must be proved for liability to attach under Section 3008(a) of RCRA, 42 U.S.C. § 6928(a):
1. That the defendants are "persons" as defined in Section 1004(15) of RCRA, 42 U.S.C. § 6903(15);
2. that the defendants are "operators" of the Gary Facility within the meaning of 320 IAC 4.1-1-7;
3. that the Gary facility is a hazardous waste treatment, storage, or disposal *1221 facility which is subject to RCRA; and
4. that the defendants failed to comply with RCRA requirements applicable to operators of the Gary facility.
Of the above elements, there is no dispute that both Hjersted and CCCI are "persons" as defined in Section 1004(15) of RCRA, 42 U.S.C. § 6903(15).[3] There is also no dispute that CCCI is an "operator" of the Gary facility.[4] Finally, there is no dispute that the Gary facility is a hazardous waste treatment, storage, or disposal facility which is subject to RCRA.[5] The parties do dispute, however, whether defendant Hjersted may be personally liable under RCRA as an "operator" or otherwise; the applicability of certain RCRA-inspired regulations to the facility; and whether any violations occurred regarding the applicable requirements.
The issues to be resolved with respect to this motion, then, are (1) whether defendant Hjersted is an "operator" of the Gary facility as defined in 320 IAC 4.1-1-7 (or whether he may be liable under RCRA even if he is not an operator); (2) what regulations are applicable to the Gary facility; and (3) whether the applicable regulations were violated.
(1) Defendant Hjersted's Liability
The United States argues that defendant Hjersted, as president, chairman, treasurer, principal shareholder, and person in authority at CCCI, should be held personally liable for such violations of RCRA as may be proved in this case. Defendants argue in response that Hjersted may not be held personally liable unless he is an "operator" of the Gary facility as that term is defined in 320 IAC 4.1-1-7. Because "operator" is defined in that regulation as "the person responsible for the overall operation of a facility," (emphasis added), defendants claim that there can be only one operator of a facility, and that CCCI, not Hjersted, is the operator of the Gary facility.
The court notes first that it has already found that Hjersted, as a corporate officer of CCCI, may be held liable under RCRA regardless of whether he himself qualifies as an "operator," as long as he was actively involved in the alleged violative activity. See United States v. Conservation Chemical Co. of Illinois, 660 F. Supp. 1236, 12 (N.D.Ind.1987); accord United States v. Northeastern Pharmaceutical & Chemical Co., 810 F.2d 726, 745 (8th Cir.1986) ("[i]mposing liability upon only the corporation, but not those corporate officers and employees who actually make corporate decisions, would be inconsistent with Congress' intent to impose liability upon the persons who are involved in the handling and disposal of hazardous substances.")
As for potential liability as an "operator" of the Gary facility, a recent decision issuing from this district has established that a hazardous waste facility may indeed have more than one operator for RCRA purposes, despite the apparent limitations of the definitional language.[6]United States v. Environmental Waste Control, Inc., 698 F. Supp. 1422, 1429 (N.D. Ind.1988). According to Judge Miller's decision in Environmental Waste Control, operator liability may be imposed pursuant *1222 to § 3008(g) of RCRA, 42 U.S.C. § 6928, on actively-involved responsible corporate officials as well as on the corporation itself. Id. This finding is consistent with other courts' interpretations of Congress' general statutory scheme for liability in the regulation of hazardous wastes. See e.g., United States v. Northeastern Pharmaceutical & Chemical Co., supra (applying to RCRA § 7003(a), 42 U.S.C. 6973(a)); United States v. Conservation Chemical Co., 628 F. Supp. 391 (W.D.Mo.1985) (applying to CERCLA § 107(a), 42 U.S.C. § 9607(a)). The court concludes, consistent with the above-cited cases, that both Hjersted and CCCI may be liable under RCRA as operators of the Gary facility.
In considering whether the government has established that Hjersted is in fact liable as an operator of the Gary facility, or as a corporate official actively involved in RCRA violative activity, the court looks to the uncontroverted facts that Hjersted is the president, chairman of the board, treasurer, and principal shareholder of CCCI (owning more than 90% of the outstanding stock); that the only other officers or directorsAttorney Denver Vold and Hjersted's son, Lawrence Hjerstedplay a significantly smaller role in running the corporation than Hjersted does; that Hjersted designed, either wholly or in large part, the treatment processes for the conversion of ferrous chloride to ferric chloride at the Gary facility; that Hjersted visited the facility on between one-half and two-thirds of the working days until he moved to Missouri in 1975, after which he visited the facility on a monthly basis and later on a tri-monthly basis; that even after he moved away, Hjersted talked to the plant manager nearly every day on the telephone discussing any leaks or spills that occurred, as well as other aspects of the facility's operation and production; and that Hjersted was concededly responsible for environmental compliance at the Gary facility.
Although Hjersted asserts by affidavit that CCCI was managed by a group or committee which operated by consensus, and that many decisions were made directly by plant managers rather than by himself, these facts do not controvert the fact that Hjersted was actively involved in the operations of the Gary facility and that he was ultimately responsible for environmental compliance there. Taken in conjunction with his status as corporate officer and director and his overwhelming control of the outstanding stock, the court believes it supplies a sufficient basis for finding that Hjersted is personally liable for such of the alleged violations as may be proved in this case, whether as an actively-involved corporate official or as an operator of the Gary facility.[7]
(2) Applicability of RCRA Regulations
Defendants challenge the applicability of certain RCRA regulations to the Gary Facility on two grounds: (a) No material (hazardous or otherwise) was placed into two of the four basins at the Gary facility after the effective date of the hazardous waste regulations, so those regulations do not apply to those two basins; and (b) most, if not all, of the regulations which were allegedly violated apply only if the Gary facility contains a "land disposal unit" and defendants deny that any of the basins at CCCI's Gary facility are land disposal units.
(a) Application of RCRA to Pre-RCRA Activities
The court notes first that plaintiff United States has limited its motion for partial summary judgment on the issue of land disposal units (basins into which hazardous wastes have been placed) to a single basinBasin 19. This is not one of the basins defendants claim has received no material after the effective date of the regulations. Because defendants' argument goes only to basins not addressed by the United *1223 States, it would seem to be irrelevant to the instant motion. However, because the issue will ultimately need to be resolved whether the instant motion is granted or denied, the court will address it at this time.
It is well-established that much of RCRA authorizes only prospective relief. Gwaltney v. Chesapeake Bay Found., 484 U.S. 49, 108 S. Ct. 376, 381 n. 2, 98 L. Ed. 2d 306 (1987); United States v. Northeastern Pharmaceutical & Chemical Co., 810 F.2d 726 (8th Cir.1986); Lutz v. Chromatex, Inc., 718 F. Supp. 413, 424 (M.D.Pa.1989). Even where only prospective application of the statute is contemplated, however, current or continuing violations may be addressed despite the fact that they may have originated in activities occurring before the effective date of the statute. See e.g., United States v. Northeastern Pharmaceutical & Chemical Co., supra, United States v. Price, 523 F. Supp. 1055 (D.N.J. 1981). Thus, although the actual disposal of hazardous waste into a land disposal unit is not a violation of RCRA if the disposal occurred before the material was established by regulation to be a hazardous waste, see Chemical Waste Management, Inc. v. U.S. EPA, 869 F.2d 1526, 1531 (D.C. Cir.1989), the current storage of that hazardous waste in the land disposal unit may subject the owner or operator of the facility to RCRA liability if the storage is carried out in violation of one or more of the RCRA regulations. See generally United States v. Price, 523 F.Supp. at 1069-74; see also United States v. Northeastern Pharmaceutical & Chemical Co., 810 F.2d at 741-42. Even if material is not listed as hazardous at the time it is placed into a storage unit, "[h]azardous waste listings are retroactive, so that once a particular waste is listed, all wastes meeting that description are hazardous wastes no matter when disposed." Chemical Waste Management, Inc. v. U.S. EPA, 869 F.2d at 1530-31 (quoting 53 Fed.Reg. 31, 147 (Aug. 17, 1988)).
In sum, the fact that no material was placed in certain basins after the effective date of the applicable regulations does not, in itself, absolve defendants of liability with respect to those basins if the basins, after that effective date, still contained hazardous wastes placed there previously. Whether liability exists regarding the two basins at issue, or whether any potential relief order may encompass those two basins, of course, must await further proceedings.
(b) Land Disposal Units or Facility
Although RCRA does not define "land disposal facility", Section 3004(k) of RCRA, 42 U.S.C. § 6924(k) defines the term "land disposal" to include "any placement of such hazardous waste in a landfill, surface impoundment, waste pile,...." (emphasis added). Thus, a facility that contains a surface impoundment used for disposal, treatment, or storage of hazardous wastes is a "land disposal facility" within the meaning of Section 3005(e)(2) of RCRA, 42 U.S.C. § 6925(e)(2). See United States v. T & S Brass and Bronze Works, Inc., 681 F. Supp. 314, 320 (D.S.C.1988).
CCCI's Part A permit application and Part B permit application both indicate that there is a surface impoundment at the Gary Facility. Although there are four basins at the Gary facility over which the parties have been in dispute at various times during the course of this litigation, the United States has concentrated on the Basin 19 area for purposes of this summary judgment motion.
The government asserts that spent pickle liquor, a "listed"[8] hazardous waste, was placed in Basin 19, thereby qualifying Basin 19 as a land disposal unit under RCRA section 3004(k), 42 U.S.C. § 6924(k). Defendants argue in response that the Indiana Hazardous Waste rules exclude pickle liquor which is recycled for use in water treatment facilities, and CCCI reused the pickle liquor it purchased to produce waste water treatment products. Defendants *1224 are apparently basing their argument on 320 IAC 4.1-6(a)(1)(i) (40 C.F.R. § 261.6(a)(3)(i)), which exempts from much of the hazardous waste regulatory scheme "a spent pickle liquor which is reused in wastewater treatment at a facility holding a National Pollutant Discharge Elimination System (NPDES) permit, or is being accumulated, stored, or physically, chemically, or biologically treated before such reuse." Nowhere do defendants so much as allege, much less support with affidavits or other documentation, that either CCCI or any facility which purchased the recycled spent pickle liquor from CCCI for wastewater treatment purposes held a NPDES permit. Furthermore, 320 IAC 4.1-3-6(a)(1)(i) on its face covers only the spent pickle liquor which is or will be reused for wastewater treatment. It does not expressly extend to cover either spills that are not reused or waste generated by the treatments of the pickle liquor, such as the material allegedly disposed of in Basin 19. Accordingly, the court finds that 320 IAC 4.1-3-6(a)(1)(i) (40 C.F.R. § 261.6(a)(3)(i)) is inapplicable to the material in Basin 19 in this case.
Defendants offer three more interrelated arguments in response to the United States' assertion that Basin 19 is a land disposal unit: (1) the material put into Basin 19 was not pickle liquor or hazardous waste at all, but rather was a non-hazardous product that had been made from, or was a byproduct of, chemically treated or neutralized pickle liquor; (2) even if some of the material could be considered waste, it was not "listed" waste, but "characteristic" waste, which is no longer classified as hazardous waste once it has been treated (as the material in basin 19 purportedly was) so that the characteristic is no longer exhibited; and (3) a statement in one of CCCI's permit applications characterizing the liquid in Basin 19 as hazardous due to a low pH was apparently incorrect. (Defendants assert a metal tank which has been stored in Basin 19 "for several years" has not been corroded away like it would have been had the pH indeed been 1.8 as the permit stated.)
Although defendants dispute that actual pickle liquor was placed in Basin 19, there is no dispute that whatever the material was, it was derived in some way from spent pickle liquor. Spent pickle liquor is defined as a hazardous waste because it is found in the list of hazardous wastes in both federal and State of Indiana regulations. See 40 C.F.R. § 261.30(a); § 261.32, Haz. Waste No. K062; 320 IAC 4.1-6-1(a); 4.1-6-3, Haz. Waste No. K062. According to the regulatory scheme, "hazardous waste will remain a hazardous waste." 320 IAC 4.1-3-3(c)(i). Paragraph (d)(2) of 320 IAC 4.1-3-3 allows an exception to paragraph (c) if "[i]n the case of a waste which is a listed waste in 320 IAC 4.1-6, contains a waste listed in 320 IAC 4.1-6, or is derived from a waste listed in 320 IAC 4.1-6, it also has been excluded from paragraph (c) pursuant to 320 IAC 4.1-1." Thus, a "listed" hazardous waste, as well as anything derived from a "listed" hazardous waste, remains hazardous unless it is exempted pursuant to 320 IAC 4.1-1.
320 IAC 4.1-1 provides for petitions for delisting pursuant to 40 C.F.R. §§ 260-20 and 260.22. See 320 IAC 4.1-1-4. Under 40 C.F.R. §§ 260.20 and 260.22, the party seeking to have any particular material "delisted"i.e., exempted from hazardous waste regulation at a particular facilitymust file a petition requesting such action. No such petition was filed by CCCI for the Gary facility. Thus, any material derived from spent pickle liquor at that facility is still classified as hazardous according to the regulatory scheme.
Defendants argue, however, that the material placed in Basin 19 was not a "listed" hazardous waste at all, but only a "characteristic" waste, and as such, is only hazardous if it exhibits one or more characteristics of hazardous waste: ignitabiity, corrosivity, reactivity, or EP toxicity. See 320 IAC 4.1-5-1 et seq.; 40 C.F.R. § 261.20 et seq. It appears defendants base their claim that the material was a "characteristic" waste on 320 IAC 4.4-3-3(c) which provides in pertinent part:
(ii) The following solid wastes are not hazardous even though they are generated *1225 from the treatment, storage, or disposal of a hazardous waste, unless they exhibit one or more of the characteristics of hazardous waste: (A) Waste pickle liquor sludge generated by lime stabilization of spent pickle liquor from the iron and steel industry.
320 IAC 4.4-3-3(C)(2)(ii); 40 C.F.R. § 261.3(b)(2)(ii). Defendants assert this exemption applies to the material placed in Basin 19 because that material is derived from the lime stabilization treatment of spent pickle liquor purchased from the iron and steel industry.
Although the language of the regulation itself is ambiguous the entry in the Federal Register beginning at 49 Fed.Reg. 23284 makes it abundantly clear that 40 C.F.R. § 261.3(b)(2)(ii), from which the Indiana regulation was copied verbatim, applies only to sludge generated within the iron and steel industry itself, not to sludge generated at other treatment facilities from pickle liquor which came from the iron and steel industry.[9] Because CCCI is not an iron or steel producing or processing facility, 320 IAC 4.1-3-3(c)(2)(ii) (and the parallel 40 C.F.R. § 261.3(b)(2)(ii)) does not apply to reclassify any sludge generated at its facility from "listed" waste to "characteristic" waste.
In sum, the court concludes that the material placed in Basin 19 was "listed" waste, not "characteristic" waste, and thus was classified as hazardous because it was never "delisted."
However, even if the court were to conclude the waste in Basin 19 was indeed "characteristic"i.e., was not hazardous unless it displayed one of the characteristics of hazardous wastethe court finds that at least one characteristic was demonstrated to be present at one time in Basin 19. According to CCCI's own Part B permit application, which was indisputably reviewed and signed by Hjersted on behalf of CCCI, the pH in Basin 19 was tested and found to be 1.8. The relevant regulations provide that an aqueous solid waste exhibits the characteristic of corrosivity if it is properly tested and found to have a pH less than or equal to 2. 320 IAC 4.1-5-3(a)(1); 40 C.F.R. § 261.22(a)(1). Thus, the material in Basin 19 was demonstrated on at least one occasion to have met the requirement for being hazardous, even if classified as "characteristic" waste.
Defendants counter with a repudiation of the Part B permit application, stating that the 1.8 pH must not be accurate since a metal tank left in Basin 19 for several years did not show significant deterioration as it would have if it had been immersed for that period of time in a liquid having a 1.8 pH. The fact that circumstantial evidence may show the pH could not have been consistently low over a period of years, however, does not controvert the fact that on at least one occasion, the pH was that low. If other non-acidic materials were later placed into the basin, diluting the acid and raising the pH to non-corrosive levels, that does not change the fact that for at least a time Basin 19 contained corrosive characteristic wastehazardous wastebringing it within the definition of land disposal facility.
In conclusion, the undisputed facts, however they are characterized, establish that Basin 19 contained material classified as hazardous under 320 IAC 4.1-3-3; 40 C.F.R. § 261.3. CCCI's Gary Facility was therefore a land disposal facility, bringing it within the coverage of the RCRA regulations *1226 governing such land disposal facilities.
(3) RCRA Violations
The United States asserts two separate types of violations occurred at CCCI's Gary facility: failure to file "acceptable" closure plans in a timely fashion as required by 320 IAC 4.1-21-3(c), and failure to fulfill numerous specific interim status requirements. In response, defendants argue that there is no regulatory requirement that closure plans be "acceptable" when submitted, and that most of the allegedly-violated interim status requirements are inapplicable because they apply only to land disposal units, of which there are none at CCCI's Gary facility.
(a) Closure Plans
The United States points out that defendants have stipulated that the Gary facility has been subject to the RCRA "interim status" regulations since November 19, 1980, a fact which defendants do not dispute. The interim status regulations require that the owner or operator of a hazardous waste facility submit closure and post-closure plans to the Technical Secretary at least 180 days before the date closure is expected to begin, and no later than fifteen days after termination of interim status. 320 IAC 4.1-21-3(c); see also generally 320 IAC 4.1-21-1 et seq. Plaintiff United States argues that defendants never submitted "proper" or "acceptable" closure or post-closure plans, either with their Part B permit application or within fifteen days after purportedly losing interim status. Defendants respond that they did submit plans with the Part B permit application, and that although those plans were found to be deficient, the regulations do not impose any requirement that the plans be "acceptable" at the time they are first submitted.
(i) "Acceptability" Requirement
The court notes that the general requirements for the contents of the "final" (i.e.Part B) permit application mandate only that "[a] copy of the closure plan and where applicable, the post-closure plan required by 320 IAC 4.1-46-3 and 320 IAC 4.1-49-5" be included with the application. 320 IAC 4.1-34-5(13). The words "proper" and "acceptable" do not appear in the regulation. Furthermore, as defendants point out, 320 IAC 4.1-21-3(d) provides that "[t]he Technical Secretary will approve, modify, or disapprove the plan within 90 days of its receipt. If the Technical Secretary does not approve the plan, the owner or operator must modify the plan or submit a new plan for approval within 30 days."[10] In other words, the regulations contemplate the possibility that closure plans may not be perfect or "acceptable" when first submitted, and provide a procedure for curing any deficiencies that may exist in those plans.
The fact that the words "proper" or "acceptable" or their equivalent do not appear in the regulations, combined with the existence of a regulatory scheme for the curing of any deficiencies in the closure plans as originally submitted, suggest that an initial failure to submit an "acceptable" closure plan is not necessarily a per se violation of the RCRA-inspired regulations. On the other hand, if there is no standard of acceptability implied by the scheme at all, it would provide a gaping loophole through which recalcitrant violators could bypass the regulations with impunity. By filing nothing but grossly deficient closure plans, violators could stave off closure, as well as enforcement proceedings indefinitely, or at least escape any civil penalties, solely because closure plans were filed, however deficient those plans may be.
The court believes neither extremetotal lack of an acceptability requirement or a strict requirement of acceptability on first submissionis appropriate. The court hesitates to find a defendant subject to liability under RCRA if an initial closure plan fails to meet all criteria but is in substantial compliance with most of the regulations, *1227 especially if the deficiencies, once pointed out, are largely cured in a second timely submission pursuant to 320 IAC 4.1-21-3(d). On the other hand, the court believes a defendant who submits a plan that is so grossly deficient as to be virtually uncorrectable, and who fails at least substantially to cure the deficiencies in a second plan submitted under 320 IAC 4.1-21-3(d), should properly be subject to liability in a RCRA enforcement proceeding. While the court hesitates to create a bright line test out of whole cloth, the court believes the regulatory scheme set out in 320 IAC 4.1-21-3(d) provides sufficient guidance to approximate a standard for which liability should attach. 320 IAC 4.1-21-3(d) permits the owner or operator of a hazardous waste facility two chances to submit "acceptable" closure plans, and allows the Technical Secretary to modify the second plan before it is finally accepted. It would follow that a closure plan which has not reached the point of being acceptable by its second submission, even with such modifications as the Technical Secretary is able to supply, should be considered violative of the RCRA regulatory scheme. Of course, failure to submit a plan at all by a mandatory deadline is clearly a violation.
(ii) Whether Defendants Violated the "Acceptable" Closure Plan Requirement
It is undisputed that CCCI was ordered to submit Part B of its RCRA permit application no later than June 20, 1984, and that CCCI, in fact, submitted its Part B application on July 13, 1984. CCCI was notified of the deficiencies in the application by a letter dated January 30, 1985. The deficiencies included:
Incomplete and inadequate closure plan with respect to (1) the container storage areas, (2) the tanks, discharge control equipment, and discharge confinement structures, and (3) the waste piles, surface impoundments, and proposed incinerator. Inadequate post-closure plan for the waste pile and surface impoundments.
CCCI submitted a revised Part B permit application on May 14, 1985, which the United States asserts was deficient as well. The United States points to the transcript of an EPA environmental protection specialist's testimony at the preliminary injunction hearing in this case to demonstrate some of the deficiencies in the second closure plan.[11] According to the specialist, Sally K. Swanson, the sampling and analysis in CCCI's plan was insufficient to determine the extent of contamination at the Gary facility or the quantity of contaminated material that should be removed; the proposal for decontaminating storage tanks did not appear to be adequate; the plan was vague as to precisely what wastes were to be decontaminated, removed, or required closure; it did not address a "worst case situation"; it only partially addressed two alleged surface impoundmentsthe pie basin and basin 19and it did not address at all the area around tank 20 or the off-site basin, which the EPA asserts are both surface impoundments requiring closure.
The file in this case also contains a copy of the Indiana Department of Environmental Management's second completeness and preliminary technical review of a closure plan submitted by CCCI on May 23, 1986. See Supplemental Memorandum of the United States concerning Defendant's second Motion to Dismiss, filed February 11, 1987. This document lists some fifty specific deficiencies, 35 of which are found under the heading of "closure plans." Although some of the deficiencies listed are clearly de minimis (see e.g., #25 "This subsection should be separate from the tank storage section or the section should be retitled."), other deficiencies are just as clearly basic and major. (See, e.g. # 29 "CCCI proposes to use fill material for the clay cap that has a minimum particle size of three inches. This is grossly inappropriate for a cap designed to keep water from infiltrating into the surface impoundments."). Although this document was *1228 dated eight days after defendants submitted their response to the instant motion for summary judgment, thus giving defendants no opportunity to controvert the facts cited in the document, the court notes that defendants never argued that their closure plans were in fact "proper" or "acceptable" in the first place, and never attempted to controvert the deficiencies set out by the United States in its original motion for summary judgment and supporting documentation. Defendants' sole argument against liability on the issue of its failure to submit an "acceptable" closure plan was its argument that the regulations do not impose even an implied acceptability requirement in the first place, an argument which this court rejects.
In sum, because the court finds there is an implied requirement that a closure plan be substantially acceptable once it has been reviewed, rejected, and resubmitted, and because defendants have not controverted the United States' submissions establishing that CCCI has failed, after at least two tries, to submit a closure plan that is even close to being acceptable, the court finds defendants liable for failing to submit a substantially acceptable closure plan in a timely fashion.
Defendants also challenge the closure plan violations allegation that no "acceptable" closure plan was submitted within fifteen days of its loss of interim status as required by 320 IAC 4.1-21-3(C) on the ground that section 3005(e)(2) of RCRA, 42 U.S.C. § 6925(e)(2)the statute which the United States asserts deprived CCCI of its interim status on November 8, 1985only applies to land disposal facilities, and no land disposal units are present at CCCI's Gary facility. As noted above, however, the court found that there was indeed at least one land disposal unit at the Gary Facility.
In order to maintain interim status, CCCI was required to submit to the EPA a statement certifying compliance with RCRA groundwater monitoring and financial responsibility requirements at the Gary land disposal facility, see Section 3005(e)(2) of RCRA, 42 U.S.C. § 6925(e)(2), and defendant concede that "if there is a land disposal unit at [the Gary] facility, as of November 8, 1985 [CCCI] could not make the necessary certifications and consequently lost interim status." Defendants Response to Motion for Partial Summary Judgment at 8 (Jan. 21, 1987).
The court, thus, concludes that CCCI's Gary facility did indeed lose interim status on November 8, 1985.
It is undisputed that defendants did not resubmit either an original or modified closure plan within fifteen days of loss of interim status as required by 320 IAC 4.1-21-3(c)(1). The fact that defendants had already submitted one closure plan on July 13, 1984, and a second modified plan on May 14, 1983, does not fulfill the requirements of 320 IAC 4.1-21-3(c)(1), since that regulation makes it plain that a submission after loss of interim status is a different submission from that required 180 days before closure with the Part B permit application.[12] For instance, two copies of the plan must be submitted within fifteen days of loss of interim status, while only one is required otherwise. See 320 IAC 4.1-21-3(c)(1).
Thus, even outside of the issue of whether an "acceptable" closure plan is required, the court finds defendants violated 320 IAC 4.1-21-3(c)(1) by their admitted failure to file two copies of their closure plan within fifteen days of CCCI's loss of interim status on November 8, 1985.
(b) Interim Status Violations
In addition to the closure plan violation, the United States asserts that defendants *1229 violated a number of interim status regulations, thus incurring liability under Section 3008(a) of RCRA, 42 U.S.C. § 6928(a). Specifically, the United States offers the affidavit of Ted F. Warner, an environmental scientist employed by the Compliance Monitoring Section, Division of Land Pollution Control, Indiana State Board of Health, who stated that he inspected CCCI's Gary facility on March 25, 1985, and observed the following violations:
a. Pursuant to 320 IAC [4.1-41-6(d)] (40 CFR 265.15(d)), the owner or operator shall record inspections in an inspection log. Based on my observations, CCCI has not recorded daily inspections of the areas subject to spills in an inspection log.
b. Pursuant to 320 IAC [4.1-18-3(e)] (40 CFR 265.52(e)), the contingency plan shall include a list of all equipment at the facility, location of equipment, physical description of each item on the list, and a brief outline of its capabilities. Based on my review of the plan, CCCI has not included a brief outline of the capabilities of all emergency equipment in the contingency plan.
c. Pursuant to 320 IAC [4.1-19-4(b)] (40 CFR 265.73(b)(1)), the operating record shall contain a description and the quantity of each hazardous waste received and the method(s) and date(s) of each waste's treatment, storage, or disposal at the facility as required by Appendix I of 40 CFR 265. Based on my review of the record, CCCI has not provided a description and the quantity of each hazardous waste received and the method(s) and date(s) of each waste's treatment, storage, or disposal at the facility as required by Appendix I in operating record.
d. Pursuant to 320 IAC [4.1-16-5(b)] (40 CFR 265.14(b)), security measures shall include 24-hour surveillance or an artificial or natural barrier around the facility with a means to control entry. Based on my observations, CCCI has not provided security measures which include 24-hour surveillance or an artificial or natural barrier around the facility with a means to control entry. There is no controlled entry at the facility and the fence is in bad repair.
e. Pursuant to 320 IAC [4.1-17(2)] (40 CFR 265.31), the owner or operator shall manage hazardous wastes to prevent fire, explosion, or release of hazardous waste or hazardous waste constituents on premises which could threaten human health or the environment. Based on my observations, there is evidence of the release of hazardous waste or hazardous waste constituents on premises which could threaten human health or the environment. This release occurred when the surface impoundments were allowed to overflow.
f. Pursuant to IC 13-7-4-1(c), no person shall deposit any contaminants upon the land in such place and manner which creates, or which would create a pollution hazard. Based on my observations, CCCI has deposited contaminants upon the land. This deposition is a result of the overflow of the surface impoundment, and the spillage from tank number 19 which is leaking, and the spillage which has occurred in the general operating area.
g. Pursuant to 320 IAC [4.1-15-7(b) and (3)] (40 CFR 265.56(b) and (j)), whenever there is a release of hazardous waste, the mergence coordinator must immediately identify the character, exact source, amount, and a real extent of any released materials. Based on my observations, CCCI has not identified the spilled material at the facility.
h. Pursuant to 320 IAC [4.1-25-2, -3] (40 CFR 265.222), a minimum of 60 cm. (two feet) of freeboard shall be maintained in the surface impoundment. Based on my observations, CCCI has not maintained a minimum of 60 cm. (two feet) of freeboard in *1230 the hazardous waste surface impoundment.
i. Pursuant to 320 IAC [4.1-25-4] (40 CFR 265.223), earthen dikes shall have a protective cover. Based on my observations, CCCI has not provided a protective cover for earthen dikes at the surface impoundments.
j. Pursuant to 320 IAC [4.1-20-1 through 20-5] (40 CFR 265.90 [through 265.94]), the owner or operator of a surface impoundment which is used to manage hazardous waste must implement a groundwater monitoring program capable of determining the facility's impact on the quality of groundwater in the uppermost aquifer underlying the facility. Based on my observations, CCCI has not implemented a groundwater monitoring program for the surface impoundments.
Many of the tanks on the facility were leaking and there is overall evidence of substantial spills or releases of tank and surface impoundment contents onto the ground both on and off the facility.
Defendants admit that no brief outline of emergency equipment capability was included in the contingency plan as required by 320 IAC 4.1-18-3(e) (40 C.F.R. 265.52(e)), cited in Warner's list of violations at paragraph (b). Defendants also admit that CCCI's operating records did not have a code number for materials identified in them, therefore admitting in part the violation described in paragraph (c) of Warner's affidavit. Defendants assert these violations are de minimis, however, and argue that there are substantial factual disputes as to the other alleged violations.
Defendants base their claims of factual disputes on two grounds: (1) CCCI does not have a surface impoundment (land disposal unit), so certain of the regulations which were allegedly violated do not apply, and (2) defendants deny that the activity or omissions underlying some of the violations ever occurred.
With respect to the first argument, the court has already found that at least one land disposal unitBasin 19exists at CCCI's Gary facility. The claim that the interim status regulations at issue do not apply because there is no land disposal unit therefore is without merit. The regulations do apply.
Defendants' second argumentthat the actions or omissions never occurredis largely unsupported. Defendants offered no affidavit whatsoever to counter the Warner affidavit. Defendants do refer to a certified answer filed on September 20, 1985, by defendant CCCI and signed by Hjersted in Cause No. N 264 before the Environmental Management Board of the State of Indiana, a document to which the United States refers as well. That document, however, was in the record only as an exhibit in the preliminary injunction hearing held in this case in March, 1986, and was released on September 3, 1987, upon plaintiff's unopposed motion. Neither party has included a copy of the relevant portion(s) of that document with the summary judgment filings. The court, therefore, does not have the document before it to consider when ruling on the motion for partial summary judgment. The court will not speculate as to what is contained in a document not in the record, and will consider only the actual record before it.
Defendants' bald denials in their response to plaintiff's motion are not by themselves adequate to controvert Warner's affidavit. See Fed.R.Civ.P. 56(e).[13]See also Rule 11 of the General Rules of the United States District Court for the Northern District of Indiana.
Defendants also support their claim that certain of the alleged violations never occurred by asserting that the Warner affidavit, *1231 as well as the other affidavits submitted by the United States, are conclusory. With respect to the Warner affidavit, however, defendants challenge only paragraph (g): "Based on my observations, CCCI has not identified the spilled material at the facility." The court does consider this clause to be vague in that it does not specify what spilled material has not been properly identified. There is no dispute, however, that various materials have been spilled at the Gary facility, see e.g., Hjersted affidavit at ¶ 11, Jan. 20, 1987 (filed Jan. 21, 1987), and defendants do not so much as allege, much less support by affidavit or otherwise, that defendants did in fact identify any of that spilled material as mandated by 320 IAC 4.1-18-7(b) and (j) and 40 C.F.R. § 265.56(b) and (j). Thus, the court finds that paragraph (g) of the Warner affidavit, taken in conjunction with the remainder of the record, sufficiently supports plaintiff's allegations that a violation of 320 IAC 4.1-18-7(b) and (j) (40 C.F.R. § 265.56(b) and (j)), occurred, and that defendants have not raised a disputed factual issue on that point.
In sum, the court finds the United States has sufficiently supported its claims that defendants violated numerous interim status regulations, and defendants have failed to controvert those claims so as to raise disputed issues of material fact. Summary judgment in favor of plaintiff United States is therefore appropriate.
Conclusion
For the reasons stated above, the court finds plaintiff United States has established liability under RCRA on the part of defendants CCCI and Norman B. Hjersted, for violating the regulations governing closure plans and certain interim status requirements. Accordingly, the court GRANTS plaintiff United States' motion for partial summary judgment on the issue of liability. The issue of remedies, of course, remains to be determined.
NOTES
[1] The United States asserts at least some of the material was spent pickle liquor, while defendants claim it was processed waste water from manufacturing operations and pickle liquor which was chemically treated or neutralized.
[2] Defendants submitted an affidavit sworn to by Hjersted repudiating the report of a 1.8 pH in Basin 19. Hjersted claimed a metal tank left in Basin 19 for several years did not show signs of significant deterioration as it would have if the tank had been immersed in an acid bath of 1.8 pH for that period of time. As noted on pages 1225-1226 of this order, infra, however, circumstantial evidence that the material in Basin 19 may not have been highly acidic for years on end does not controvert the claim that, for at least a limited period of time, the material in Basic 19 did have a pH of 1.8.
[3] Person is defined as "an individual, trust, firm, joint stock company, corporation (including a government corporation), partnership, association, State, municipality, commission, political subdivision of a State, or any interstate body." 42 U.S.C. § 6903(15) (emphasis added).
[4] "Operator" is defined as "the person responsible for the overall operation of a facility." 320 IAC 4.1-1-7. Defendants concede in their response to the instant motion for partial summary judgment that "it is clear that the company [CCCI] is the person responsible for the facility's operation." Defendant's response, Jan. 21, 1987 at 17 (emphasis in original).
[5] The parties have stipulated that CCCI has treated and stored hazardous waste at the Gary facility, and defendants did not attempt to argue otherwise in their response to the instant motion.
[6] The court does not deem it important that Judge Miller cited to the definition of "operator" found in the federal regulations, 40 C.F.R. § 260.10, while the parties in this case have looked to the Indiana regulations, 320 1 AC 4.1-1-7. The two definitions are identical.
[7] The court notes that Hjersted would not be liable as an actively-involved corporate official for isolated occurrences done without his knowledge and contrary to company policy. None of the alleged violations are of that sort, however. All involve overt acts or omissions within his range of knowledge and responsibility, such as failure to file an acceptable closure plan, failure to keep certain records, or failure to provide cover or earthen dikes or sufficient freeboard around land impoundments.
[8] A "listed" hazardous waste is a waste included on the list found in 320 IAC 4.1-6-3, 40 C.F.R. § 261.32.
[9] "As stated earlier, [lime stabilized waste pickle liquor sludge ("LSWPLS")] is also generated by industries other than the iron and steel industry (e.g., engraving, fabricated metal products, household appliance, commercial treatment facilities, and others). Although the [Environmental Protection] Agency has determined that treatment of spent pickle liquor from the iron and steel industry is typically effective, this may not be the case for LSWPLS generated from other industry categories.
The Agency lacks comprehensive, industry-wide data on these other sludges and also does not have data on whether wastes with interfering properties might be commingled with these sludges. The iron and steel industry likewise has clarified that its petition has no applicability for LSWPLS generated by plants outside the iron and steel industry. Thus, the Agency will continue to proceed delisting petitions for LSWPLS that is generated in industries other than iron and steel on an individual basis" 40 Fed.Reg. 23284 (emphasis added).
[10] The Code of Federal Regulations contains passage setting out the same timetable and procedure. See 40 C.F.R. § 265.112(d)(4).
[11] The United States also refers to an exhibit presented at that hearing, but provides no copy of that exhibit with the instant motion. The exhibit itself was released to the United States on September 3, 1987, pursuant to its request.
[12] 320 IAC 4.1-21-3(c)(1) provides in pertinent part:
(c) The owner or operator must submit his closure plan to the Technical Secretary at least 180 days before the date he expects to begin closure. The owner or operator must submit two (2) copies of his closure plan to the Technical Secretary no later than 15 days after:
(1) termination of Interim Status (except when a final permit is issued to the facility simultaneously with termination of this Interim Permit).
[13] Fed.R.Civ.P. 56(e) provides in pertinent part:
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1524785/ | 909 F. Supp. 400 (1995)
In re FORD MOTOR CO. BRONCO II PRODUCTS LIABILITY LITIGATION.
Civ. A. No. MDL-991.
United States District Court, E.D. Louisiana.
November 13, 1995.
Order Denying Reconsideration December 13, 1995.
*401 *402 Colvin Gamble Norwood, Jr., Mark N. Bodin, McGlinchey, Stafford & Lang, New Orleans, LA, John H. Beisner, O'Melveny & Myers, Washington, DC, for Ford Motor Co. Bronco II.
Jack M. Weiss, Mark Benjamin Holton, Stone, Pigman, Walther, Wittmann & Hutchinson, LLP, New Orleans, LA, for Dow Jones & Company Inc.
Jack M. Weiss, Mark Benjamin Holton, Stone, Pigman, Walther, Wittmann & Hutchinson, LLP, New Orleans, LA, for Milo Geyelin.
Patricia Howard, Washington, DC, Pro se.
MEMORANDUM AND ORDER
SEAR, Chief Judge.
Background
Between June 23 and August 26, 1993, six consumer class actions[1] were filed asserting claims that 1983-1990 model year Ford Bronco II vehicles have design defects. On February 9, 1994, the Judicial Panel on Multidistrict Litigation consolidated and transferred the five pending federal actions to this court for pretrial proceedings pursuant to 28 U.S.C. § 1407. Another consumer class action, Roy L. Washington v. Ford Motor Company, C.A. No. 95-1676, was consolidated with the captioned litigation on August 3, 1995, and thus is a "tag-along" action.
On July 25, 1994, plaintiffs filed a Consolidated Amended Class Action Complaint ("Plaintiffs' Complaint") asserting claims based upon an alleged design defect in the Ford Bronco II that makes the vehicle unduly prone to roll over. Plaintiffs alleged therein that Ford knowingly failed and/or refused to correct the Bronco II's rollover problem and fraudulently concealed the problem from the public. They further alleged that Ford fraudulently advertised the Bronco II as a high quality vehicle free of dangerous defects. Plaintiffs asserted eleven different causes of action including federal claims under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1), and the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, et seq., and state law claims for fraud, misrepresentation, breach of express and implied warranty, breach of contract, strict liability, and negligence. Plaintiffs also asserted claims under the Product Liability Acts and Unfair Trade Practices Statutes of each jurisdiction and the Louisiana doctrine of redhibition, La.C.C. arts. 2520, et seq.
By Memorandum and Order dated August 15, 1995, I addressed Ford's Motion to Dismiss all the claims asserted in the five constituent actions transferred to this court on February 9, 1994. I dismissed the following claims with prejudice: plaintiffs' claims under the Lanham Act; plaintiffs' claims for violation of the Products Liability Acts and Unfair Trade Practices Act of each state, the District of Columbia and the Commonwealth of Puerto Rico; plaintiffs' state law claims for negligence and strict liability; plaintiffs' Florida state law claims for fraud and misrepresentation; plaintiffs' Louisiana state law claims for breach of express warranty, implied warranty and breach of contract; and plaintiffs' Mississippi, North Carolina and Florida state law breach of implied warranty claims.
Further, I dismissed the following claims without prejudice and with leave to amend: plaintiffs' claims under the Magnuson-Moss Act; plaintiffs' Louisiana, North Carolina and Mississippi state law claims for fraud and misrepresentation; plaintiffs' Mississippi and North Carolina state law claims for breach of implied warranty of fitness; plaintiffs' North Carolina state claims for breach of contract; and plaintiffs' Louisiana state law claims for redhibition.
*403 Finally, I denied Ford's motion to dismiss the following claims: plaintiffs' Mississippi, North Carolina, and Florida state law claims for breach of express warranty; plaintiffs' Florida state law claims for general breach of implied warranty; and plaintiffs' Mississippi and Florida state law claims for breach of contract.
On September 26, 1995, plaintiffs filed a Second Consolidated and Amended Class Action Complaint ("the Second Complaint"). By the Second Complaint, plaintiffs assert claims for fraud, breach of express warranty, breach of implied warranty of merchantability, breach of contract, redhibition, and violation of the Magnuson-Moss Warranty Act.[2] Plaintiffs seek a variety of equitable and damages relief, including repayment of the Bronco II purchase price, compensation for diminution in the value of the Bronco II, and/or an injunction requiring Ford to provide public notice that the Bronco II contains a latent, dangerous defect or to recall or retrofit all Bronco IIs. Plaintiffs also seek punitive damages, attorneys' fees, and costs. With respect to each of their claims, plaintiffs have sought to correct the deficiencies discussed in the August 15, 1995 Memorandum and Order. Plaintiffs also have named one hundred twenty (120) additional plaintiffs, bringing into play the laws of five more states: Indiana, Minnesota, New York, Texas and West Virginia.
Ford now moves for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), seeking dismissal of plaintiffs' claims on grounds that they are preempted[3] by the National Traffic and Motor Vehicle Safety Act of 1966, 15 U.S.C. §§ 1381-1431 ("Safety Act" or "Act").[4] Specifically, Ford asserts that plaintiffs' state common law claims are impliedly preempted under the Safety Act because The National Highway Traffic Safety Administration ("NHTSA" or "Agency"), the federal agency charged with promulgating uniform nationwide vehicle safety and information standards under the Safety Act, has determined that stability regulation of light utility vehicles is unwarranted. Plaintiffs oppose the motion.
Analysis
I. Standard Under Federal Rule of Civil Procedure 12(c)
A motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) is subject to the same standard as a Rule 12(b)(6) motion to dismiss.[5] Accordingly, all well-pleaded material allegations are taken as true and the complaint is viewed in the light most favorable to the pleader.[6] The court should not dismiss the complaint unless it appears beyond doubt that plaintiff can prove no set of facts that would entitle him to relief.
As when considering a Rule 12(b)(6) motion, the court's review is limited to the pleadings. However, reference to documents outside the pleadings is permitted in certain instances, as when documents are expressly incorporated into the pleadings or are referred to in the complaint and are central to plaintiffs' claims.[7] Also, the court may take judicial notice of matters of public record.[8]
II. Federal Preemption Doctrine
The Supremacy Clause, Article VI, cl. 2 of the United States Constitution, serves as the basis for Congress' power to preempt *404 state law.[9] The single most important factor to consider in any preemption analysis is the intent of Congress.[10] The Supreme Court, however, has cautioned lower courts to "start with the assumption that the historic police powers of the states [are] not to be superseded by [a] federal act unless that was the clear and manifest purpose of Congress."[11] That is, preemption is not to be lightly presumed and any doubt as to congressional purpose should be resolved against preemption, "for the state[s] [are] powerless to remove the ill effects of [a] decision, while the national government, which has the ultimate power, remains free to remove the burden."[12]
The Supreme Court has recognized three categories of preemption:
Congress' intent may be `explicitly stated in the statute's language or implicitly contained in its structure or purpose.' In the absence of an express congressional command, state law is preempted if that law actually conflicts with federal law, or if federal law so thoroughly occupies a legislative field `as to make reasonable the inference that Congress left room for the States to supplement it.'[13]
More succinctly stated, the three types of preemption are (1) express; (2) occupation-of-the-field; and (3) conflict. Insofar as neither occupation-of-the-field nor conflict are explicitly stated in a statute's language, both of these are forms of "implied" preemption.[14]
Ford relies on the concept of implied conflict preemption in seeking dismissal of plaintiffs' claims. Conflict preemption occurs when Congress has not necessarily expressed its intent to preempt state regulation in a particular field, but the state law in question conflicts or is otherwise impermissibly inconsistent with the applicable federal statute or regulation. According to the Supreme Court, such a conflict arises when "compliance with both federal and state regulation is a physical impossibility or the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."[15] The conflict between state and federal law must be concrete and immediate. "The existence of a hypothetical or potential conflict is insufficient to warrant the preemption of a state statute ... [or] regulatory scheme."[16]
The Supreme Court has emphasized that conflict preemption analysis "must be applied sensitively ... to prevent the diminution of the role Congress reserved to the States while at the same time preserving the federal role."[17] Clearly, an express statement is preferable to implication, and there is more of a general hesitancy to infer preemptive intent than to find preemption when Congress has expressly stated its intent.[18] While there is no categorical rule that implied (conflict) preemption cannot exist when Congress has chosen to include an express preemption clause in a statute, congressional intent is the touchstone of any preemption analysis and therefore, to the extent that an express preemption clause provides `a reliable indicium of congressional intent with respect to state authority,' it may, in a given case, weigh strongly against a *405 finding of implied preemption.[19]
III. The Safety Act
Congress enacted the Safety Act in 1966 "to reduce traffic accidents and deaths and injuries to persons resulting from traffic accidents."[20] The Act directs the Secretary of Transportation to promulgate "appropriate federal motor vehicle safety standards."[21] Such standards are defined by the Act as "minimum standard[s] for motor vehicle performance, or motor vehicle equipment performance, which is practicable, which meets the need for motor vehicle safety and which provides objective criteria."[22] The Secretary has delegated the authority to promulgate safety standards to the Administrator of the National Highway Traffic Safety Administration ("NHTSA" or "Agency").
In addition to the statement of purpose provision, two other provisions of the Act bear specifically on Congress' power to ensure uniformity through preemption. The Act contains an express preemption provision that prohibits nonidentical state regulations when a federal standard addresses the same aspect of performance. That clause provides as follows:
Whenever a Federal motor vehicle standard established under this subchapter is in effect, no State or political subdivision of a State shall have any authority either to establish, or to continue in effect, with respect to any motor vehicle or item of motor vehicle equipment any safety standard applicable to the same aspect of performance of such vehicle or item of equipment which is not identical to the Federal standard. Nothing in this section shall be construed as preventing any State from enforcing any safety standard which is identical to a Federal safety standard.[23]
Thus, states may enforce safety standards that are identical to federal standards and may also regulate aspects of performance that federal safety standards do not specifically cover.
The Act also contains a savings clause that appears to preserve common law remedies against automobile manufacturers. According to this provision, "[c]ompliance with any Federal motor vehicle safety standard issued under this subchapter does not exempt any person from any liability under common law."[24]
Defendant has placed at issue the NHTSA's action and/or inaction under the Safety Act with respect to stability standards for light utility vehicles like the Ford Bronco II. As early as 1973, the Agency began investigating the need for standards related to the tendency of motor vehicles to roll over.[25] In 1982, the Agency issued a notice of proposed rulemaking for adoption of a new consumer information regulation on the propensity of utility vehicles to rollover.[26] The final rule adopting the amendment was issued in May 1984, requiring manufacturers of utility vehicles to alert owners, through a vehicle sticker and the owner's manual, to the vehicles' special handling and maneuvering characteristics and to warn owners of the danger of rollover.[27] In taking this action, the agency recognized that the lack of consumer awareness was only part of the problem, but decided that, based on the findings to date, a consumer information regulation was the most cost effective manner of handling the situation.[28]
In December 1987 the NHTSA denied a rulemaking petition from then Congressman *406 Timothy E. Wirth that requested NHTSA to require that the "stability factor"[29] of light duty vehicles exceed a specified minimum value.[30] The Agency found that establishing a single minimum stability standard would not adequately encompass the causes of vehicle rollover or completely alleviate the problem, and therefore deferred any consideration of rulemaking on vehicle rollover characteristics until it could complete its ongoing and comprehensive research program on vehicle stability and rollover.[31] The Agency specifically noted that it in no way "intended to imply that the stability factor has an insignificant role in rollover involvement;" it simply desired to consider all of the factors which contributed to the rollover problem before taking further regulatory action.[32]
In September 1988 NHTSA granted a petition for rulemaking filed by the Consumers Union requesting the establishment of a minimum stability standard to protect against unreasonable risk of rollover, pursuant to its ongoing research efforts. In January 1992 the Agency issued an advance notice of proposed rulemaking advising that it was considering various forms of regulatory action to reduce casualties associated with the rollover of passenger cars, pickup trucks, vans and utility vehicles, including improved vehicle stability, improved crashworthiness, and consumer information on rollover propensity.[33] In this notice, the Agency explained its previous efforts in this area, briefly outlined the nature of its ongoing research, and invited public comment.
In June 1994 the Agency issued a notice of proposed rulemaking with regard to a new consumer information regulation and terminated rulemaking with regard to a proposed minimum "stability" safety standard.[34] As an initial matter, the Agency again noted that rollover crashes of passenger cars, trucks and utility vehicles occurred for many reasons, including the driver, the roadway, the vehicle and environmental conditions.[35] According to the Agency, "no single type of rulemaking or other agency action could solve all, or even a majority of, the problems associated with rollover."[36]
In the June 1994 notice, the Agency explained that, based on its extensive research and testing to date, it had found a correlation between several identified vehicle metrics (including stability-related factors) and the propensity of vehicles to roll over. The Agency decided, however, not to recommend adoption of a uniform stability standard at this time because the great majority of rollover fatalities (which occur in passenger cars) would be unaffected by such a standard[37] and there was no cost effective manner of imposing such a standard.[38] According to the Agency, it was "deferring any further action on this subject until such time as information becomes available demonstrating the cost effectiveness of such a rule."[39]
Although it deferred proposing a stability standard, the Agency's continuing concern about the rollover problem prompted it to propose a new consumer information regulation. The Agency "believe[d] that the correlation between stability and rollover risk is significant enough to justify [such] a consumer information regulation to relieve the possibility of uninformed risk."[40] The consumer information regulation proposed by the Agency, which purportedly will go into effect in some form in January 1996, requires manufacturers *407 of passenger cars and light trucks to label their vehicles with information relating to rollover stability, so that consumers may make informed choices in purchasing and operating such vehicles.[41]
IV. Preemption in this Case
Ford maintains that plaintiffs' state law claims are preempted because to impose common law liability on automobile manufacturers stands as an obstacle to the accomplishment of a federal policy of non-regulation of vehicle stability. Ford relies on the history of NHTSA activity in this area to argue that NHTSA has made a "conscious determination" to reject any role for utility vehicle stability standards and has exhibited "a consistent adherence to non-regulation" which has the "character of a ruling" of non-regulation. Ford maintains that NHTSA's election of a consumer information remedy further buttresses the inference that the prevailing policy is one of non-regulation. Finally, Ford argues, plaintiffs' state law claims are not preserved by the savings clause because the sole purpose of that clause is to prevent manufacturers from using compliance with federal standards as an affirmative defense.
Plaintiffs oppose Ford's motion on grounds that (1) there is no definitive federal standard for purposes of implied preemption; (2) assuming there is a definitive standard, there is no actual conflict between that standard and plaintiffs claims; and (3) Congress intended, by the savings clause, to preserve common law claims against automobile manufacturers.
It bears noting, at the outset, that the preemption scenario relied on by Ford, though tenable, is the most nebulous possible setting for a finding of preemption. First, Ford relies not on any actual, written safety standard promulgated under the Safety Act, but on the absence of agency action which Ford contends has the "character" of a policy or ruling of non-regulation. Second, the allegedly conflicting state standard likewise is not an actual, written safety standard or regulation, but rather a common law action for damages. Finally, the existence of an express preemption clause that does not mention common law claims, coupled with a savings clause that appears to preserve such claims, provides fairly reliable indicium of congressional intent not to preempt such claims by expression or implication.
A. Agency's Inaction as a "Standard"
Ford contends that the Agency's failure to propose a uniform stability standard for light utility vehicles has the character of a ruling that no such regulation, in any form, is appropriate and that the Agency has rejected any role for stability standards in the prevention of rollovers. The Supreme Court has recognized that "a federal decision to forego regulation in a given area may imply an authoritative federal determination that the area is best left unregulated, and in that event would have as much pre-emptive force as a decision to regulate."[42] To find congressional intent to preempt state regulation based on an agency's failure affirmatively to exercise its full authority, the failure to regulate must "take on the character of a ruling that no such regulation is appropriate or approved pursuant to the policy of the [federal] statute."[43] Moreover, under the Safety Act, such a decision not to regulate must be such as to satisfy the statutory criteria of being a "minimum" and "objective" standard.[44]
I have reviewed, inter alia, the Safety Act's language, legislative history and purpose, as well as the NHTSA's action and inaction under the Act. The purpose of the Act is to reduce traffic accidents and deaths and injuries to persons resulting from traffic accidents.[45] To achieve this end, the Secretary *408 of Transportation (and the NHTSA, by delegation) is authorized to promulgate "appropriate federal motor vehicle safety standards,"[46] which are defined as "minimum standard[s] for motor vehicle performance, or motor vehicle equipment performance, which is practicable, which meets the need for motor vehicle safety and which provides objective criteria."[47]
The NHTSA has conducted ongoing and extensive research into the causes of vehicle rollover. That research has been broad, encompassing not only rollover accidents involving utility vehicles, but many types of vehicles, including passenger vehicles. That the Agency has deferred proposing a uniform stability standard suggests to me not that the Agency has adopted a policy of non-regulation, but that its investigation and efforts are ongoing. Most recently, the Agency terminated rulemaking concerning stability standards; however, the Agency also advised that its findings should in no way be taken to reject or discount stability factors as a cause of vehicle rollovers. Indeed, the Agency has repeated this disclaimer each time it has spoken on the issue. Instead, as the Agency has explained, its choice not to adopt a minimum stability standard has been based largely on cost-benefit considerations and the breadth of its research. A consumer information standard simply is the most "appropriate" standard for which the Agency can provide "objective criteria" at this time, and is the minimum effort the Agency recognizes as preventive of rollover accidents in all types of vehicles.
I find it difficult to see how the language, legislative history, and purpose of the Safety Act, considered in conjunction with the Agency's explanations for forgoing uniform stability regulation at this time, can be viewed as a definitive standard prohibiting any and all regulation of stability factors. Instead, the lack of a federal standard has resulted from the Agency's decision that it has not compiled sufficient evidence at this time, from a cost-benefit perspective, to justify a singly, uniform stability standard. The absence of regulation cannot constitute regulation in this instance.
B. No Conflict Between Standard and Claims
Obviously, if there is no federal standard there is nothing with which plaintiffs' claims can conflict. However, even assuming that the NHTSA's failure to regulate stability standards in vehicles constitutes a standard of non-regulation, it is not clear that plaintiffs' common law claims conflict with such a standard so as to be implicitly preempted.
Ford maintains that the upshot of plaintiffs' claims is that the Ford Bronco II has a design defect and that the relief sought by plaintiffs is recall and/or retrofitting of the vehicles. According to Ford, this remedy "stands as an obstacle to the accomplishment and execution of [Congress'] full purposes and objectives" and, therefore, plaintiffs' claims are implicitly preempted.
First, although plaintiffs' claims do involve allegations of design defect, plaintiffs refer broadly to a "propensity to rollover" and do not limit the cause of that problem to stability factors. Second, plaintiffs allege that consumers were misinformed about the rollover problem, regardless of its cause, and thereby were prevented from making considered purchasing and operating decisions.[48] Finally, the relief sought by plaintiffs is not limited to recall and retrofitting; they also seek damages and equitable remedies other than recall. That Ford might choose to respond to plaintiffs' claims or any damages awards by recalling all Bronco IIs is too tenuous a reed on which to find a conflict.
Even if the position taken by the Agency could be said to foreclose the actual adoption of minimum stability standards by the states, *409 I cannot see how it forecloses all common law actions for damages caused by the propensity of a certain vehicle to rollover. Government regulations provide uniform performance requirements to deter manufacturers from marketing defectively designed products. Design defect litigation, because it is fact intensive, insulated from the political process, and capable of responding to rapid technological advances, provides more individualized remedies for harm caused by defective designs. Thus, whereas the NHTSA may have found it impossible, from a cost and benefit standpoint and based on the breadth of its research, to propose a uniform stability regulation at this time, litigation may be better suited to the task of assessing individual types of vehicles and incidents. Contrary to Ford's argument, it is not clear that this is not, in fact, what Congress had in mind when it included the "savings clause" in the Safety Act.[49]
Accordingly, I fail to see how allowing this litigation to go forward will stand as an obstacle to the accomplishment and execution of the full purposes and objectives of the Safety Act and any regulations thereunder.
For the foregoing reasons, plaintiffs claims are not preempted by federal law.
Accordingly,
IT IS ORDERED that Ford's motion for judgment on the pleadings IS DENIED.
MEMORANDUM AND ORDER ON RECONSIDERATION
By Memorandum and Order entered on November 13, 1995, I ruled on Ford Motor Company's ("Ford") Motion to Dismiss on grounds that plaintiffs' claims were preempted by the National Traffic and Motor Vehicle Safety Act of 1966, 15 U.S.C. §§ 1381-1431 ("Safety Act"), denying the motion.[1] On November 28, 1995, Ford filed a Motion for Reconsideration or, in the Alternative, for Leave to Seek Appellate Review Pursuant to 28 U.S.C. § 1292(b) of the Court's ruling on Ford's Motion to Dismiss.
The Fifth Circuit recognizes that a motion to reconsider a dispositive pre-trial motion, including a motion to dismiss, is analogous to a motion to "alter or amend the judgment" under Rule 59(e) of the Federal Rules of Civil Procedure or a motion for "relief from judgment" under Rule 60(b). Lavespere v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 173 (5th Cir.1990); Charles L.M. v. Northeast Indep. School Dist., 884 F.2d 869 (5th Cir.1989). A motion for reconsideration is considered a Rule 59(e) motion if it is served within ten days of the rendition of the judgment; if it is served after that time, it falls under Rule 60(b). Id. Because Ford served its motion for reconsideration within ten days of entry of the court's Memorandum and Order, Ford's motion shall be treated as a Rule 59(e) motion. Whether relief is warranted under Rule 59(e) is a determination addressed to the sound discretion of the district judge. Lavespere, 910 F.2d at 174.
First, Ford contends that the court improperly relied on the Safety Act's express preemption clause to limit the scope of implied preemption. Although I considered the express language of the Safety Act in deciding the implied preemption issue, I did not base my ruling on the principle that the presence of an express preemption clause forecloses implied preemption analysis. My construction of the Myrick case was consistent with Ford's that is, there is no categorical rule that implied preemption cannot exist when Congress has chosen to include an express preemption clause in a statute.[2] However, the Myrick court also recognized that the express language of the statute nevertheless may provide reliable indicia of congressional *410 intent. Accordingly, I conducted an implied preemption analysis, and found that an exhaustive review of the Safety Act's language, legislative history and purpose, as well as the agency's action and inaction under the Act,[3] did not mandate preemption. I therefore reject Ford's first basis for reconsideration.
Second, Ford maintains that the court improperly viewed the agency's conduct as deferring a decision on stability issues as opposed to making a final decision subject to reconsideration in the future. Ford's arguments on this issue are repetitive of those previously urged and considered by the court. Recognizing that agency inaction in a certain area may take on the character of a ruling of nonregulation, my review of the information before me failed to persuade me that the agency's inaction took on such a character in this instance. I reject this as a basis for reconsideration, as well.
Finally, Ford urges that the court erred in its consideration of the nature of relief sought by plaintiffs. According to Ford, neither the fact that plaintiffs' allegations extend beyond the stability factor nor that plaintiffs seek money damages should have influenced the court in deciding the issue of implied preemption. However, conflict preemption analysis requires a determination of whether compliance with both state and federal law is a physical impossibility or the state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress. California Federal Savings & Loan Association v. Guerra, 479 U.S. 272, 280, 107 S. Ct. 683, 689, 93 L. Ed. 2d 613 (1987). Such a determination necessarily requires inquiry into the nature of plaintiffs' allegations and the relief sought. The court did not hold that common law actions for money damages can never pose a conflict with federal regulation; rather, I found that, on the facts of this case, the regulation and claims are not so conflicting as to indicate preemption. I decline to reconsider my previous ruling based on Ford's final argument.
In the event that the court declines to reconsider its ruling on the motion to dismiss, Ford asks the court to amend its ruling to certify its decision for immediate appeal pursuant to 28 U.S.C. § 1292(b). Section 1292(b) of Title 28 provides:
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.
Ford contends that my decision satisfies the requirements of this provision.
The Fifth Circuit strongly disfavors certification of piecemeal decisions. I am not convinced that the elements of 28 U.S.C. § 1292(b) are satisfied so as to deviate from this policy. Most significantly, I consider there to be no substantial ground for difference of opinion on the issue of law presented.
Accordingly,
IT IS ORDERED that Ford's Motion for Reconsideration is DENIED.
NOTES
[1] Five of the actions were federal actions: Bates, et al. v. Ford Motor Company; Luis, et al. v. Ford Motor Company; Lewis, et al. v. Ford Motor Company; Armistead, et al. v. Ford Motor Company; Vitrano, et al. v. Ford Motor Company; Bates, et al. v. Ford Motor Company; and Luis, et al. v. Ford Motor Company.
The sixth action was a state court action: Rice, et al. v. Ford Motor Company.
[2] The relief sought by plaintiffs is the same. See fn. 2 supra.
[3] Ford first filed its preemption motion on July 26, 1995, and renewed the motion on October 13, 1995, following the filing of the Second Complaint.
[4] Recodified in 1994, without substantive change, at 49 U.S.C. § 30101 et seq.
[5] 5A C. Wright & A. Miller, Federal Practice and Procedure § 1368 (West 2d ed. 1990 & Supp. 1995).
[6] St. Paul Ins. Co. v. AFIA Worldwide Ins. Co., 937 F.2d 274, 279 (5th Cir.1991).
[7] C. Wright & A. Miller, Federal Practice and Procedure §§ 1327, 1371 (West 2d ed. 1990).
[8] Id. § 1367; Louisiana ex rel Guste v. United States, 656 F. Supp. 1310, 1314 n. 6 (W.D.La. 1986).
[9] Louisiana Public Service Commission v. FCC, 476 U.S. 355, 368-69, 106 S. Ct. 1890, 1898, 90 L. Ed. 2d 369 (1986).
[10] California Federal Savings & Loan Association v. Guerra, 479 U.S. 272, 280, 107 S. Ct. 683, 688, 93 L. Ed. 2d 613 (1987).
[11] Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152, 91 L. Ed. 1447 (1947).
[12] Penn Dairies v. Milk Control Commission, 318 U.S. 261, 275, 63 S. Ct. 617, 624, 87 L. Ed. 748 (1943).
[13] Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S. Ct. 2608, 2617, 120 L. Ed. 2d 407 (1992) (citations omitted).
[14] Hillsborough County, Florida v. Automated Medical Laboratories, Inc., 471 U.S. 707, 713, 105 S. Ct. 2371, 2375, 85 L. Ed. 2d 714 (1985).
[15] Guerra, 479 U.S. at 280, 107 S.Ct. at 689.
[16] Rice v. Norman Williams Co., 458 U.S. 654, 659, 102 S. Ct. 3294, 3299, 73 L. Ed. 2d 1042 (1982).
[17] Northwest Central Pipeline Corp. v. State Corp. Comm'n of Kansas, 489 U.S. 493, 517, 109 S. Ct. 1262, 1277, 103 L. Ed. 2d 509 (1989).
[18] Perry v. Mercedes Benz of North America, Inc., 957 F.2d 1257, 1261 (5th Cir.1992).
[19] Freightliner Corp. v. Myrick, ___ U.S. ___, ___-___, 115 S. Ct. 1483, 1487-88, 131 L. Ed. 2d 385 (1995) (citing Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517-18, 112 S. Ct. 2608, 2618, 120 L. Ed. 2d 407 (1992)).
[20] 15 U.S.C. § 1381.
[21] Id. § 1392(a).
[22] Id. § 1391(2).
[23] Id. § 1392(d).
[24] Id. § 1397(k).
[25] 57 Fed.Reg. 242, 244 (1992).
[26] 47 Fed.Reg. 58323 (1982).
[27] 49 Fed.Reg. 20016 (1984); 49 C.F.R. § 575.105.
[28] 49 Fed.Reg. at 20018.
[29] The stability factor, also referred to as the "static stability factor," represents an approximation, assuming that the vehicle is a rigid body, of the steady state lateral acceleration at which a vehicle will roll over. See 57 Fed.Reg. 242, 244 (1992).
[30] 52 Fed.Reg. 49033 (1987).
[31] 52 Fed.Reg. at 49037.
[32] 52 Fed.Reg. at 49036.
[33] 57 Fed.Reg. 242 (1992).
[34] 59 Fed.Reg. 33254 (1994).
[35] 59 Fed.Reg. at 33254.
[36] 59 Fed.Reg. at 33255.
[37] 59 Fed.Reg. at 33262.
[38] 59 Fed.Reg. at 33257, 33262.
[39] 59 Fed.Reg. at 33258.
[40] 59 Fed.Reg. at 33258.
[41] 59 Fed.Reg. at 33258, 33266.
[42] Arkansas Elec. Co-op v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375, 384, 103 S. Ct. 1905, 1912, 76 L. Ed. 2d 1 (1983) (citations omitted).
[43] Ray v. Atlantic Richfield Co., 435 U.S. 151, 178, 98 S. Ct. 988, 1004, 55 L. Ed. 2d 179 (1978) (citations omitted).
[44] Freightliner Corp. v. Myrick, ___ U.S. at ___, 115 S.Ct. at 1484.
[45] 15 U.S.C. § 1381.
[46] Id. § 1392(a) (emphasis added).
[47] Id. § 1391(2) (emphasis added).
[48] Indeed, if the most recently proposed consumer information standard were retroactive in effect, which it is not, there may be a preemption argument with regard to what information automobile manufacturers may be compelled to provide under state law. But I fail to see how plaintiffs allegations of misinformation conflict with a purported policy of non-regulation of stability standards.
[49] See legislative history to 15 U.S.C. § 1397(k), e.g., "[i]t is intended that this subsection establishes that compliance with safety standards is not to be a defense or otherwise to affect the right of parties under common law particularly those relating to warranty, contract, and tort liability." H.R.Rep. No. 1776, 89th Cong., 2d Sess. 24 (1966) U.S.Code Cong. & Admin.News 1966, p. 2709 (emphasis added).
[1] Recodified in 1994, without substantive change, at § 30101 et seq.
[2] Memorandum and Order at p. ___ (citing from body of Freightliner Corp. v. Myrick, ___ U.S. ___, ___-___, 115 S. Ct. 1483, 1487-88, 131 L. Ed. 2d 385).
[3] See Memorandum and Order at pp. 404-407. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1524951/ | 909 F. Supp. 872 (1995)
Reginald WALKER, et al., Plaintiffs,
v.
Thomas A. COUGHLIN, et al., Defendants.
No. 75-CV-538L.
United States District Court, W.D. New York.
December 15, 1995.
*873 *874 David Leven, Stephen Latimer, Prisoners' Legal Services, New York City, for plaintiffs.
Charles D. Steinman, Assistant Attorney General, Rochester, New York, for defendants.
DECISION AND ORDER
LARIMER, District Judge.
This case is a class action under 42 U.S.C. § 1983 brought by inmates in protective-custody status in correctional facilities administered by the New York State Department of Correctional Services ("DOCS"). The case was eventually settled and was dismissed in 1991, with the stipulation that the dismissal was without prejudice to plaintiffs moving for attorney's fees. Plaintiffs have now moved for an award of fees pursuant to 42 U.S.C. § 1988. Defendants oppose the motion.
BACKGROUND
The case was originally filed by a number of inmates pro se. They sought a number of changes in their privileges and living conditions.
In 1976, the Prisoners Legal Rights Project of the Legal Aid Society of New York City assumed representation of the plaintiffs. An amended complaint was filed in February 1977, and a class was certified in March 1977.
Prisoners' Legal Services ("PLS") was substituted as counsel for plaintiffs in 1981. The two attorneys for whom fees are sought on this motion are both PLS attorneys.
In January 1985, the parties began settlement negotiations. Although some areas of agreement emerged, there were disputed matters and the parties continued with discovery.
In November 1985, plaintiffs deposed Philip Coombe, the then-Deputy Commissioner of DOCS. At one point, he stated that because he had found there to be "some inconsistency" in the operation of the Protective Custody Units at different facilities, "four or five months [before the deposition], long before [he] ever heard of this case," he had [sat down and started piecing together what it is that [DOCS was] doing to make it more consistent." Affidavit of Charles D. Steinman, Esq. (Item 195) Ex. A at 11. When asked whether he had "been developing some kind of plans to make changes in the facilities Protective Custody Units' operations," he stated that he had. Steinman Aff. Ex. A at 12. He stated that his intention was to speak with various facility superintendents and then "make recommendations to the Commissioner and other Deputy Commissioners as to perhaps some standardizing of the operating of our units." Steinman Aff. Ex. A at 13.
In February 1986, Judge Michael A. Telesca (who was then presiding over the case) scheduled a pretrial conference. He directed plaintiffs' counsel to prepare a list of settlement demands to dispose of the case. Plaintiffs' counsel did so by letter dated March 6, 1986. See Affidavit of David C. Leven, Esq. (Item 193) Ex. D.
Defendants' then-counsel, Charles D. Steinman, Esq., responded by letter to the court dated March 26, 1986. In it, he stated that "[a]s I have indicated to the Court and plaintiffs' counsel previously, it is my expectation *875 that the new Departmental Directive on Protective Custody units will have a direct impact on a number of the relevant issues in this case." See Leven Aff. Ex. E.
Eight months later, on November 6, 1986, DOCS issued Directive 4948. The directive addressed many of the items listed in plaintiffs' settlement demand, such as family visits, recreational time, educational programs, etc. See Leven Aff. Ex. F.
Based on the new directive, counsel for both sides engaged in further settlement discussions. Some years went by as plaintiffs' counsel interviewed class members about the new policies, and the two sides worked out some remaining areas of dispute that were not specifically covered by Directive 4948. Eventually counsel agreed upon a stipulation of dismissal, which was filed on June 4, 1991.
Plaintiffs now move for $60,932.50 in attorney's fees. This figure represents 225.4 hours of work by Stephen M. Latimer, Esq., at $175 per hour, and 143.25 hours of work by David C. Leven, Esq., at $150 per hour. All the work for which compensation is sought was performed since January 1985; Latimer was not with PLS before December 1984, and Leven has no contemporaneous time records before 1985. See Declaration of Stephen M. Latimer (Attached to Motion for Attorney's Fees) ¶ 2.
DISCUSSION
I. Timeliness of Motion
Defendants oppose plaintiffs' fee request on several grounds. First, defendants contend that the motion is untimely. Defendants concede that there is no time limit as such for fee motions under § 1988, but, relying upon Baird v. Bellotti, 724 F.2d 1032 (1st Cir.), cert. denied, 467 U.S. 1227, 104 S. Ct. 2680, 81 L. Ed. 2d 875 (1984), they argue that the motion should be denied because the delay here is unreasonable, and because it creates actual prejudice to defendants.
In response, plaintiffs explain that they waited until 1995 to move for attorney's fees because PLS has been involved in other litigation with DOCS involving issues similar to those in the case at bar. One of those cases, Pease v. Coughlin, No. 84-688 (N.D.N.Y.), was not settled until February 1995. Plaintiffs contend that they feared that if they moved for attorney's fees in the instant case while the other litigation was pending, defendants might be more reluctant to settle the other cases; defendants might have chosen to try those cases in the hope that they would prevail on the merits and thus avoid having to pay any fees.
Although the lapse of time here between the entry of judgment and the motion for fees was unusually lengthy, I find on these facts that the delay does not justify denial of the fee request. First of all, the Stipulation of Dismissal specifically provided that dismissal could be entered "without prejudice to plaintiffs making, and defendants opposing, an application for Attorneys Fees." Leven Aff. Ex. G. No schedule or limitation was set for plaintiffs making such a motion. Defendants may have harbored the hope that no fee application would be made after some time passed, but they had been put on notice that such a motion could be filed and plaintiffs never made any representations to lull defendants into destroying whatever material was necessary to defend such a motion.
Plaintiffs' "strategy" of delay so as not to affect other cases might not carry the day here if there was true prejudice to defendants because of the four-year delay in seeking fees. But, in light of the agreement between the parties that plaintiffs could seek fees, the reason for the delay is less important than whether defendants actually suffered any prejudice because of it.
Based on my review, I do not see any prejudice to defendants occasioned by the delay here. As defendants recognize, the real concern here is not delay per se, but whether that delay has "unfairly surprise[d] or prejudice[d]" defendants. See White v. New Hampshire Dep't. of Employment Security, 455 U.S. 445, 454, 102 S. Ct. 1162, 1168, 71 L. Ed. 2d 325 (1982) (holding that motion for fees under § 1988 is not subject to ten-day time limit of Fed.R.Civ.P. 59(e)). The court in Baird, the case relied upon by defendants, also stated that "prejudice remains a significant factor" under the Supreme Court's decision in White. The court held *876 that even though the moving party's delay was both "unreasonable" and "unjustified counsel was simply too busy to be bothered," id. at 1036, the fees should still have been awarded because the non-moving party had not demonstrated any prejudice. Id.
Defendants contend that they have been prejudiced by the delay primarily because former defense counsel's memory of the relevant events has faded.[1] They also contend that most of his case file has been purged because of the lack of activity in the case.
For purposes of this motion, however, I am not convinced that these matters relating to counsel's memory and case file are especially relevant. The chief issue in dispute here is whether plaintiffs "prevailed" in this litigation in the sense that the instant lawsuit was a catalyst in bringing about DOCS's issuance of Directive 4948. Issues relating to the merits of the case, possible defenses, and so on, as to which defense counsel's recollections could be valuable, are not really central to this motion for fees.
Nor is this case like Baird, in which the court affirmed the denial of a party's request for fees (a different party than the one referred to above) because the nature, quality and amount of services rendered by the attorney for the moving party were significant issues, and opposing counsel's memory in that regard had greatly diminished. 724 F.2d at 1034-35. Although defendants here contend that some of the hours claimed are excessive, the work for which compensation is claimed is well-documented, and in my view the record is fully adequate for the court to decide whether portions of the hours claimed are excessive or duplicative.
As stated, the main dispute here concerns the effect, if any, that this litigation had on DOCS's decision to issue new directives concerning many of the matters that gave rise to this suit. Defendants have not identified what sort of materials are necessary, but lacking, to address that issue, and indeed, defendants themselves have submitted an excerpt from a deposition of a DOCS official relating to the background of the new Directive. The sequence of events, the demands made by plaintiffs in their complaint and during the settlement negotiations, and the contents of Directive 4948, are all matters of record, and provide a sufficient basis for the court to evaluate whether plaintiffs should be considered prevailing parties in this lawsuit.
II. Whether Plaintiffs Are "Prevailing Parties"
Section 1988 authorizes the court to award attorney's fees to a "prevailing party." Defendants argue that plaintiffs did not "prevail" in this case because, even though Directive 4948 gave plaintiffs much of what they sought in the litigation, there was no causal connection between the lawsuit and the directive. Defendants contend that DOCS would have issued the directive regardless of whether this case existed, and that it was little more than coincidence that the directive addressed many of plaintiffs' demands.
Plaintiffs claim that there was certainly a connection between this suit and Directive 4948. They contend that this action, together with two other contemporaneous class actions in the Northern District of New York, was a "catalyst" in bringing about the issuance of the new directive.
In Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983), the Court defined a prevailing party as one who "succeed[s] on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit." Id. at 433, 103 S.Ct. at 1939. That success can result from the defendant's voluntary change of policy, so long as the change was prompted by the lawsuit. "It is a settled matter that, where attorney's fees are permitted, and where a lawsuit provided the `catalyst' for the sought policy change, the plaintiff may be considered to have `prevailed' and attorney's fees may be justified." Rodonich v. Senyshyn, *877 52 F.3d 28, 33 (2d Cir.1995) (citing Hewitt v. Helms, 482 U.S. 755, 760-61, 107 S. Ct. 2672, 2675-76, 96 L. Ed. 2d 654 (1987)).
For plaintiffs to be entitled to fees under this "catalyst" theory, "there must be a causal connection; that is, the lawsuit must be `"a catalytic, necessary, or substantial factor in attaining the relief."'" Marbley v. Bane, 57 F.3d 224, 234 (2d Cir.1995) (quoting Koster v. Perales, 903 F.2d 131, 135 (2d Cir.1990). Thus, while "governments may change a policy without paying a toll or tribute to persons who advocated that policy change in court," Marbley, 57 F.3d at 234, "a plaintiff whose lawsuit has been the catalyst in bringing about a goal sought in litigation, by threat of victory (and not by dint of nuisance and threat of expense), has prevailed for purposes of an attorney's fee claim ..." Id. at 234-35.
Plaintiffs also need not obtain a judgment on the merits in order to prevail. It is well-established that a plaintiff who secures relief through settlement rather than court judgment may still be deemed a prevailing party. See Koster, 903 F.2d at 134. In fact, the Second Circuit has recently held that a plaintiff can be considered to have prevailed "even though the result [i.e. the defendant's change of position] has not been reduced to a judgment, consent decree, or settlement." Marbley, 57 F.3d at 235. All that is necessary is that the defendant have changed its position because of the lawsuit. Id. at 234.
In the case at bar, I believe that the record shows that this action was a catalyst with respect to DOCS's adoption of many of the policies embodied in Directive 4948. I therefore find that plaintiffs are prevailing parties for purposes of § 1988.
A comparison of plaintiffs' list of settlement demands prepared in March 1986 and the policies adopted in Directive 4948 is revealing. Of the seventeen specific items mentioned in plaintiffs' settlement demand, all but four were addressed in some fashion in the new Directive. Moreover, while not every demand was fully met, for the most part plaintiffs obtained at least some, and sometimes all, of what they wanted. For example, plaintiffs had demanded "[t]ime out of cell," including "passive recreation on the gallery" and use of the gallery television, and daily showers. Leven Aff. Ex. D. The Directive stated that inmates would have at least three hours a day of out-of-cell time, including gallery or yard recreation, that "[g]allery recreation will include opportunities for inmates to ... watch television," among other things, and that out-of-cell time could be used to take showers. Leven Aff. Ex. F. Similarly, plaintiffs had demanded "[r]einstatement of Family Reunion Program" and "[r]einstatement of the phone home program ..." The Directive provided that "inmates in Protective Custody Status will be permitted to participate in the telephone home program," and that they would "be eligible to apply for participation in the Family Reunion Program ..." Many of the other demands were similarly addressed in the Directive.
Although the Directive does not expressly mention this litigation (and there was no reason why it should have), the correlation between its provisions and plaintiffs' demands in this lawsuit is obvious, and in my view gives rise to a strong inference that this litigation had a definite connection to the issuance of Directive 4948. Although the Directive did not give plaintiffs everything they had asked for, that is not necessary for plaintiffs to be deemed prevailing parties under § 1988. All that is required is that plaintiffs "achieve[d] some of the benefit [they] sought in bringing suit." Hensley, 461 U.S. at 433, 103 S.Ct. at 1939. Clearly, plaintiffs did so here.
The stipulation of dismissal in this case stated that the action would be dismissed because, inter alia, "defendant Coughlin issued Directive 4948 governing the minimum conditions of confinement for inmates in Protective Custody status ...," and that "the policies announced in Directive 4948 ... altered many of the policies and practices previously in effect in the Protective Custody Unit ..." Leven Aff. Ex. G. Although the stipulation expressly stated that it was neither an admission by defendants nor a finding by the court of any wrongdoing on defendants' part, that is a common provision in settlement agreements and does not alter the *878 fact that defendants' change of policies during the pendency of this lawsuit bore a strong correlation to plaintiffs' demands. As plaintiffs note, defendants engaged in litigation under a statute with a fee-shifting provision "are usually reluctant to concede" that the litigation caused them to alter their position in any way. Vitale v. Secretary of H.H.S., 673 F. Supp. 1171, 1175 (N.D.N.Y. 1987) (quoting Posada v. Lamb County, Texas, 716 F.2d 1066, 1072 (5th Cir.1983)).
Defendants place particular importance on the deposition testimony of then-Deputy Commissioner Philip Coombe that he had begun the process that led to the new Directive "four or five months" before his deposition, "long before [he] ever heard of this case ..." I do not find that sufficient to overcome the plain connection between the provisions of the Directive and the relief sought in this action. For one thing, Coombe stated that what prompted him to review the protective-custody policies was there was "some inconsistency" among the various facilities. The Directive that was ultimately issued, however, clearly is aimed not just at standardizing procedures and policies, but with providing inmates certain rights and privileges that did not exist before. Many of those rights and privileges had been sought in the lawsuit.
Furthermore, it strains credulity to believe that Coombe and other DOCS officials were unaware of this state-wide class action before Coombe's deposition in November 1985. The suit challenging the status of inmates in protective custody had been pending for almost 10 years. It is hard to imagine that state officials charged with administering the prisons would have been ignorant of such a suit for so long. Nevertheless, even if I were to accept Coombe's deposition testimony in November 1985 that he had been "reviewing" the policies at the various state institutions prior to learning of the lawsuit, it remains a fact that Directive 4948 was not issued until almost a year after Coombe's deposition, in November 1986. Even assuming that Coombe did not learn about this suit until very shortly before his deposition, he was aware of the suit for over a year before the issuance of the Directive.
I cannot accept defendants' contention that it was just "coincidence" that Directive 4948 mirrored many of plaintiffs' settlement demands. The clear inference that must be drawn is that this lawsuit was, in part, a motivating factor in DOCS' decision to adopt Directive 4948 and to change or clarify its policies toward inmates in protective custody. As such, plaintiffs have demonstrated that they obtained "some of the benefit" that they sought in bringing suit and, therefore, may be denominated a prevailing party for purposes of § 1988.
III. Hourly Rates
Defendants also object to the amount of the fee requested, contending that both the hourly rates and the number of hours claimed are excessive. Defendants maintain that the hourly rates of $175 and $150 are higher than prevailing rates within this district, and that work performed more than three years ago should be compensated at unadjusted "historic" rates prevailing at the time in question.
Although the Second Circuit has endorsed the use of historic rates in "protracted" cases, see New York Ass'n for Retarded Children v. Carey, 711 F.2d 1136, 1152-53 (2d Cir.1983), it has not, as defendants' brief states, directed that such rates "must be used for services rendered more than three years prior to the application." Defendants' Memorandum of Law at 10-11. The court in that case stated that while "[n]either historic nor current rates are ideal," cases that have lasted many years may be divided into two phases, with the historic rate used for the earlier phase and the current rate for the later period. Id.
More recently, however, in Missouri v. Jenkins, 491 U.S. 274, 284, 109 S. Ct. 2463, 2469, 105 L. Ed. 2d 229 (1989), the Supreme Court held that the district court has discretion to make "an appropriate adjustment for delay in payment whether by the application of current rather than historic hourly rates or otherwise." Thus, after Jenkins, "a district court has the latitude to depart from the two-phase approach and may calculate all hours at whatever rate is necessary to compensate counsel for delay" in payment. *879 Grant v. Martinez, 973 F.2d 96, 100 (2d Cir.1992), cert. denied, 506 U.S. 1053, 113 S. Ct. 978, 122 L. Ed. 2d 132 (1993).
In the case at bar, I believe that the use of historic rates is more appropriate. The services in question were performed years before the attorney's fee motion were made. Although courts have recognized that where there is a delay in payment, historic rates may undercompensate parties because they "do not reflect inflation or the cost of foregone interest," New York State Ass'n of Retarded Children, 711 F.2d at 1152, see also Jenkins, 491 U.S. at 283, 109 S.Ct. at 2469, the use of current rates may also result in a windfall because prevailing market rates for attorney's fees may rise at rates higher than inflation. New York State Ass'n of Retarded Children, 711 F.2d at 1152-53; see also Saulpaugh v. Monroe Community Hosp., 4 F.3d 134, 146 (2d Cir.1993) (district court did not abuse discretion in applying average historic rate in order to avoid awarding defense counsel "a windfall due to the protracted nature of the litigation"), cert. denied, ___ U.S. ___, 114 S. Ct. 1189, 127 L. Ed. 2d 539 (1994).
Here, there has been a delay in payment, but that delay is attributable to plaintiffs' attorneys' decision to wait until 1995 to move for attorney's fees. Although I have found that it was not unreasonable for them to do so, the fact remains that it was their decision, made for purposes of strategy in another case. They should not receive a windfall as a result of that decision.
Nevertheless, bearing in mind that all of the hours claimed here date from 1985 and later, I find that the rates requested are not out of line with historic rates for experienced attorneys in complex civil rights litigation within this district. On August 21 1991, for example, I issued a decision in Holmes v. Sobol, 690 F. Supp. 154 (1988), awarding an attorney fees under § 1988 at the rate of $150 per hour. Two other attorneys received fees at the rates of $125 and $100 per hour (all three rates were those requested in the motion). The attorneys' work in that case was mostly performed from 1988 to 1990. In making the award, I noted that the first attorney had over fifteen years' experience in litigation, and that plaintiffs had submitted affidavits from two other local attorneys indicating that attorneys with that level of experience earned from $150 to $200 per hour for specialized litigation in federal court. Id. at 11.
Also, in United States v. City of Buffalo, 770 F. Supp. 108 (W.D.N.Y.1991), Judge John T. Curtin of this district, though declining to award fees at the requested rate of $225 to $275 per hour, awarded fees at an hourly rate of $175. The bulk of the work there seems to have been performed in the late 1980s; id. at 109. Noting that the attorney in question was "well qualified and experienced," id. at 110, Judge Curtin stated that $175 per hour was "the appropriate rate that would be charged in this community for work of similar competence." Id. at 115. Again, less-experienced attorneys received lower rates. Id.
In the case at bar, both attorneys are highly qualified and had many years' experience by the time they became involved in this lawsuit. Attorneys Latimer and Leven have been practicing law since 1968 and 1969 respectively, and both have extensive experience in civil rights litigation, including prisoners' civil rights actions. Leven has been Executive Director of PLS since 1979, and Latimer was the Senior Litigation Attorney during this suit. It should also be noted that the case was complex in a number of respects, and required competent experienced attorneys. I conclude, therefore, that the requested rates are reasonable historic rates for the nature and competence of the work performed.
IV. Number of Hours Claimed
Defendants also contend that the hours for which plaintiffs request compensation are excessive. Specifically, defendants contend that the hours spent on traveling from counsel's offices in New York City to Rochester should not be compensated because this case could have been handled by an attorney from PLS's Buffalo office. Defendants also argue that plaintiffs should not be compensated for both attorneys' presence at depositions on four dates, since one attorney would have sufficed. Third, defendants maintain that "a number of other entries [in counsel's time *880 records] are too vague to permit an evaluation of their reasonableness." Defendants' Memorandum of Law at 12.
I do believe that some reduction is warranted. With respect to the travel costs, I am not persuaded that this time should be completely disallowed on the grounds that counsel was from New York City. For one thing, part of the reason that a Buffalo attorney did not handle the case was that one of the PLS attorneys at that office was a former clerk to Judge Curtin, who presided over this case until 1985. The case was therefore handled by downstate attorneys to avoid any risk or appearance of a conflict of interest, which was certainly reasonable. Furthermore, some of the travel here was to Albany, which would have taken as long or longer to reach from Buffalo.
Nevertheless, I do agree with defendants that it is appropriate to compensate travel time at a lower rate. See, e.g., Davis v. City of New Rochelle, 156 F.R.D. 549, 559 (S.D.N.Y.1994) (rates for travel reduced by 50%); Loper v. New York City Police Dep't, 853 F. Supp. 716, 721 (S.D.N.Y.1994) (same); Jennette v. City of New York, 800 F. Supp. 1165, 1170 (S.D.N.Y.1992) (same).
In fact, a substantial portion of the requested time relates to travel. It appears from Latimer's records that he spent approximately 94 hours in travel out of the 225.4 hours claimed. Although attorney Latimer's time records specify the time spent traveling, Leven's records are less exact, and give only a total number of hours on all activity for each day. For example, the entry for March 22, 1985 lists ten hours for "travel; conference with Telesca; meet with Steinman." Their time records also show that they did not always travel together, so Latimer's records cannot simply be applied to Leven. See, e.g., Leven Time Records, entry for Oct. 15, 1985 (11 hours "trip to Great Meadow for depositions and inspection"). Based on the records available, I estimate Leven's travel time to be about 50 hours which includes one trip to Great Meadow "for depositions and inspection" on October 15, 1985. Some reduction is appropriate for all this travel time, and I believe that the rates should be reduced by 50 percent. Therefore, plaintiffs are entitled to recover $11,975.00 for a total of 144 hours of travel by attorneys Leven and Latimer.
Regarding the depositions, "prevailing parties are not barred as a matter of law from receiving fees for sending a second attorney to depositions ..." New York State Ass'n for Retarded Children, 711 F.2d at 1146. Nevertheless, where two attorneys appear at a deposition on behalf of a single set of clients, they have some burden to show "that each had a distinct responsibility in the case necessitating his or her presence ..." Kronfeld v. Transworld Airlines, Inc., 129 F.R.D. 598, 604 (S.D.N.Y.1990). Cf. Williamsburg Fair Housing Committee v. Ross-Rodney Housing Corp., 599 F. Supp. 509, 518 (S.D.N.Y.1984) (plaintiffs compensated for multiple attorneys' presence at depositions and hearings, since plaintiffs plausibly showed that "when more than one attorney was present, each attorney made a distinct contribution by his presence or participation").
Although plaintiffs make reference to the complexity of the case, they have not identified any particular circumstances necessitating that they both attend the depositions in question. As noted, both attorneys are well-experienced litigators, and this was not a case in which they found themselves "confronted with a bevy of hostile lawyers ... on the other side ..." Seigal v. Merrick, 619 F.2d 160 (2d Cir.1980).
I recognize, however, that as a practical matter, "division of responsibility may make it necessary for more than one attorney to attend activities such as depositions and hearings." Williamsburg, 599 F.Supp. at 518. Indeed, "[t]wo lawyers are the minimum in much private litigation." Bohen v. City of East Chicago, 666 F. Supp. 154, 157 (N.D.Ind.1987). Rather than disallow one attorney's hours completely for these depositions, then, I believe that here, too, it would be more appropriate simply to address the relative lack of a demonstrated need for two attorneys at the depositions through a reduction of the total time compensated.
*881 I also agree with defendants that counsel's time records do not always identify with precision what the nature or subject was of the work performed. For instance, both attorneys' records contain a number of entries for meetings and discussions with each other, without explanation of what was discussed. Thus, there is no way for the court to determine whether this time was reasonably spent.
These deficiencies in plaintiffs' fee request, though relatively minor, do support some reduction in the amount of time to be compensated. However, for the reasons stated, it would not be practicable to attempt to identify specifically which hours should or should not be included in the award.
"`[C]ourts have recognized,' in civil rights cases in which prevailing parties submit voluminous fee applications in an effort to recoup reasonable fees, `that it is unrealistic to expect a trial judge to evaluate and rule on every entry in an application.'" Terrydale Liquidating Trust v. Barness, No. 82 CIV 7920, 1987 WL 9694 at *5, 1987 U.S.Dist. LEXIS 2944 *10 (S.D.N.Y. Apr. 15, 1987) (quoting New York State Ass'n For Retarded Children, 711 F.2d at 1146). For that reason, many "courts have endorsed percentage cuts as a practical means of trimming fat from a fee application." New York State Ass'n for Retarded Children, 711 F.2d at 1146; see, e.g., Copeland v. Marshall, 641 F.2d 880, 903 (D.C.Cir.1980) (en banc) (22% cut); Ross v. Saltmarsh, 521 F. Supp. 753, 761-62 (S.D.N.Y.1981) (5% and 10% cuts), aff'd., 688 F.2d 816 (2d Cir.1982); Kane v. Martin Paint Stores, Inc., 439 F. Supp. 1054, 1056 (S.D.N.Y.1977) (10% cut), aff'd., 578 F.2d 1368 (2d Cir.1978).
The percentage reduction allows a court which is familiar with a protracted litigation to implement a finding that matters have been approached excessively or without sufficient attention to the problem of duplicative effort.
Rather than attempt to "identify and justify each disallowed hour," then, or to "announce what hours are permitted for each legal task," Mares v. Credit Bureau of Raton, 801 F.2d 1197, 1202 (10th Cir.1986), a process which "would quickly become odious" and which could easily "descend to a contest between court and counsel, with counsel insisting that his or her integrity is being impugned every time the court questions the number of hours logged for a given day or a particular task," id. at 1203, I find it more appropriate to reduce the total number of hours requested for non-travel items by 15 percent. On the basis of the record, I believe that this reduction fairly reflects the occasionally inadequate documentation and the lower rate of compensation appropriate under the circumstances described above.
Applying this reduction, then, the hours compensated for work done by Stephen M. Latimer, Esq., are reduced from 131.4[2] hours to 111.69 hours, at a rate of $175 per hour, for a total of $19,545.75 The hours compensated for work performed by David C. Leven, Esq., are reduced from 93.25 hours to 79.26 hours, at a rate of $150 per hour, for a total of $11,889.00. The amount of the fee award to plaintiffs is $31,435.00, for work not related to travel. The total award then to plaintiffs, including travel related fees, is $43,410.00.
CONCLUSION
Plaintiff's motion for attorney's fees (Item 192) under 42 U.S.C. § 1988 is granted in part. Plaintiffs are awarded attorney's fees in the amount of $43,410.00. That amount shall be paid by defendants within thirty (30) days of the date of entry of this Order.
IT IS SO ORDERED.
NOTES
[1] Charles D. Steinman, Esq., who represented defendants at the time of the settlement and dismissal, still represented defendants at the time the attorney's fee motion was filed, and he filed the opposing papers. He left the Attorney General's Office after all the papers had been submitted.
[2] 131.4 hours are obtained by subtracting the 94 travel hours from the total claimed hours of 225.4. Similarly, Leven's 93.25 hours are obtained by subtracting the 50 travel hours from the total claimed hours of 143.25. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1517759/ | 853 F. Supp. 716 (1994)
Jennifer LOPER and William Kaye, on behalf of themselves and all other persons who are similarly situated, Plaintiffs,
v.
NEW YORK CITY POLICE DEPARTMENT, and Lee P. Brown, as the Commissioner of Police of the New York City Police Department, Defendants.
No. 90 Civ. 7546 (RWS).
United States District Court, S.D. New York.
May 24, 1994.
*717 George Sommers, New York City and Hoboken, NJ, for plaintiffs.
Paul A. Crotty, Corp. Counsel, New York City (Paul Marks, Bruce Rosenbaum, of counsel), for defendants.
OPINION
SWEET, District Judge.
Plaintiffs Jennifer Loper and William Kaye, on behalf of themselves and the class they represent (collectively the "Plaintiffs"), move for an award of attorney fees and expenses pursuant to 42 U.S.C. § 1988. Defendants New York City Police Department ("NYPD") and Lee Brown, the former Commissioner of NYPD, (collectively, the "Defendants") oppose Plaintiffs' award request.
*718 The Parties, Facts and Prior Proceedings
The parties, facts and prior proceedings in this class action suit are fully set forth in the prior Opinions of this Court, familiarity with which is assumed. See Loper v. New York City Police Dep't, 999 F.2d 699 (2d Cir.1993) ("Loper VI"); Loper v. New York City Police Dep't, 802 F. Supp. 1029 (S.D.N.Y.1992) ("Loper V"); Loper v. New York City Police Dep't, 785 F. Supp. 464 (S.D.N.Y.1992) ("Loper IV"); Loper v. New York City Police Dep't, 90 Civ. 7546, 1991 WL 135631, 1991 U.S.Dist. LEXIS 9547 (S.D.N.Y. Jul. 16, 1991) ("Loper III"); Loper v. New York City Police Dep't, 766 F. Supp. 1280 (S.D.N.Y. 1991) ("Loper II"); Loper v. New York City Police Dep't, 135 F.R.D. 81 (S.D.N.Y.1991) ("Loper I"). A brief review of those facts and prior proceedings relevant to the instant motions is presented below.
The Plaintiffs filed this and a companion state action on November 23, 1990. The parties agreed to stay the state action pending the resolution of this lawsuit. In their Complaint, the Plaintiffs sought a declaration that an anti-loitering statute N.Y.Penal Law § 240.35(1) (the "Statute") and the Defendants' enforcement of it violated the First, Eighth, and Fourteenth Amendments to the United States Constitution, pursuant to 42 U.S.C. § 1983. They also sought relief under the New York State Constitution.
At the time they filed this action, the Plaintiffs requested that it be maintained as a class. Their request was granted on April 2, 1991, provided the Plaintiffs submitted a suitable definition of the term "needy." Loper I, 135 F.R.D. 81, 83 (S.D.N.Y.1991). On April 8, 1991, the Plaintiffs provided a further definition of "needy," which was accepted subject to modification as the facts developed. Loper III, No. 90 Civ. 7546, 1991 WL 135631, at *2, 1991 U.S.Dist. LEXIS 9547, at **4-6 (S.D.N.Y. July 16, 1991). Together, Loper I and Loper III define a Plaintiff Class consisting of all those "needy persons who live in the State of New York, who beg on the public streets or in the public parks of New York City," where a "needy person" is defined as "someone who, because of poverty, is unable to pay for the necessities of life, such as food, shelter, clothing, medical care, and transportation." Id. 1991 WL 135631 at *2, 1991 U.S.Dist. LEXIS at *5.
Both parties moved for summary judgment in February 1991, before any significant discovery had taken place. Their motions were denied with leave to renew upon further discovery on June 17, 1991. Loper II, 766 F. Supp. 1280 (S.D.N.Y.1991). On November 19, 1991, the Plaintiffs again moved for summary judgment prior to the close of the discovery period. This motion was denied without prejudice as well, principally on the ground that the City had raised a question of fact concerning its enforcement scheme. Loper IV, 785 F. Supp. 464 (S.D.N.Y.1992).
The Defendants filed their last motion for summary judgment on April 21, 1992, the Plaintiffs in the meantime having filed a motion for additional discovery. The Plaintiffs' motion was granted in part, and the Defendants were ordered to turn over additional data to the Plaintiffs, primarily concerning the number of summonses the Department has issued under the Statute. The Plaintiffs subsequently filed a cross-motion for summary judgment which was granted in Loper V, 802 F. Supp. 1029 (S.D.N.Y.1992).
In Loper V, 802 F. Supp. 1029 (S.D.N.Y. 1992), this Court declared that the named Plaintiffs have standing, id. at 1035-36, that begging is entitled to First Amendment protection, id. at 1036-38, and that the Statute is unconstitutional, id. at 1038-47, and permanently enjoined the Defendants from enforcing the Statute, id. at 1048. The Second Circuit affirmed the holding of Loper V in Loper VI, 999 F.2d 699 (2d Cir.1993).
In light of the Second Circuit's affirmance, the Plaintiffs are "prevailing parties" within the meaning of 42 U.S.C. § 1988. As such, Plaintiffs now seek the following attorneys fees and costs:
Hours Rate Lodestar Upward Adj.
963.84 $300.00 $289,152 $433,728
In addition, Plaintiffs seek expenses of $1,923.42 and additional fees for the 118 hours expended in the course of this fee application.
Defendants oppose the Plaintiffs' fee application on the following grounds: (1) excessive hourly rate; (2) inflated number of billable *719 hours; (3) lack of specificity in hours that are billed; (4) inappropriate request for compensation of travel time and clerical work; (5) enhancements are unjustified; and (6) incorrect calculation of costs and expenses. According to the Defendants, the Plaintiffs, counsel is entitled to only $64,847.92 in fees and $1,063.40 in expenses.
Although oral argument was heard on February 23, 1994, supplemental briefs and letter briefs were received by the Court through March 22, 1994, and the application was considered fully submitted as of that date.
Discussion
The sole issue before this Court is the determination of a reasonable amount of attorneys' fees to be awarded to the Plaintiffs in this action. This issue is considered in light of the Supreme Court's admonishment that "[a] request for attorneys' fees should not result in a second major litigation." Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S. Ct. 1933, 1941, 76 L. Ed. 2d 40 (1983). On a fee application, the claimant has the initial burden of documenting and proving its claims. Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S. Ct. 1933, 1941, 76 L. Ed. 2d 40 (1983). Although a fee application hearing is a possibility, to the extent that the Plaintiffs have met their burden in the moving papers, their fee application is granted, in part, pursuant to the parameters set forth below.
I. Reasonable Hourly Rates
Generally, in awarding attorneys' fees under federal civil rights fee-shifting statutes, courts are directed to use the lodestar method. Blanchard v. Bergeron, 489 U.S. 87, 109 S. Ct. 939, 103 L. Ed. 2d 67 (1989). The law of this Circuit further specifies that "the starting point of every fee award ... must be a calculation of the attorney's services in terms of the time he [or she] has expended on the case." City of Detroit v. Grinnell Corp., 495 F.2d 448, 470 (2d Cir. 1974) ("Grinnell I"). In Grinnell I, the Court of Appeals established what is known as the lodestar approach whereby a court multiplies the number of hours reasonably expended by a reasonable hourly rate to arrive at a reasonable attorneys' fee award. Grinnell I, 495 F.2d at 470-71; see also In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 226, 232 (2d Cir.1987), cert. denied, 487 U.S. 1234, 108 S. Ct. 2899, 101 L. Ed. 2d 932 (1988).
In setting the hourly rates of attorney fees, courts should use the prevailing market rates of the relevant legal community. See Blum v. Stenson, 465 U.S. 886, 896 n. 11, 104 S. Ct. 1541, 1547 n. 11, 79 L. Ed. 2d 891 (1984) (holding attorneys must demonstrate their fees are "in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation."); Miele v. New York State Teamsters Conference Pension & Retirement Fund, 831 F.2d 407, 408-09 (2d Cir.1987) (stating courts may apply prevailing market rates for "Wall Street" associates to fee award for non-profit organization).
The relevant community for fee determination is the judicial district in which the trial court sits, see In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 226, 232 (2d Cir.1987), in this case, the Southern District of New York. See also Shlomchik v. Richmond 103 Equities Co., 763 F. Supp. 732, 743-44 (S.D.N.Y.1991) (awarding suburban Philadelphia attorney a higher New York City rate as action was litigated in Southern District); Miele v. New York State Teamsters Conference Pension & Retirement Fund, 831 F.2d 407, 409 (2d Cir.1987) (judge may determine reasonable fees based on his or her knowledge of prevailing community rates); McGuire v. Wilson, 87 Civ. 6161, 1994 WL 68222, at *3, 1994 U.S.Dist. LEXIS 2000, at **7-9 (S.D.N.Y. Feb. 28, 1994) (awarding Long Island law firm fees at New York City rate levels for Southern District litigation).
Fees will be based upon the relevant market place, New York City, as this action was litigated in the Southern District of New York, notwithstanding that Plaintiffs' counsel maintains his office in Hoboken, New Jersey. The action concerns a New York City Statute and was initiated against the New York City Police Department, on behalf of a class, most of whom are presumably New York City residents. As the work was only conducted in the previous three and a half years, it is appropriate to use current, *720 and not historic, rates, see New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1153 (2d Cir.1983), and no fee augmentation will be awarded.
Plaintiffs' counsel supports his $300 an hour rate request with documentation as to his qualifications, background, training as well as information concerning his expertise in the area of First Amendment and general litigation. (Pls.' Letter of November 11, 1993.) Plaintiffs' counsel has submitted photocopies of large firm rate ranges for New York City. (Pls.' Certification Ex. C.)
Plaintiffs' counsel is now seven years out of law school and an acknowledged First Amendment litigator. The fact that this case presented and helped develop an interesting and complex area of constitutional law must also be considered in reviewing the rate request. Accordingly, Plaintiffs' counsel will be awarded an hourly fee of $250 per hour, a rate commensurate with fee awards at the partner level in this District, which appears to be more than a reasonable rate award for a sole practitioner of intermediate experience. See, e.g., Cabrera v. Fischler, 814 F. Supp. 269 (E.D.N.Y.1993) (awarding $200 per hour; citing civil rights cases fee awards ranging from $175-$250), aff'd in part, rev'd on other grounds, 24 F.3d 372, 393, 1994 U.S.App. LEXIS 10,276, at *61 (2d Cir.N.Y. 1994).[1]See also Monaghan v. SZS 33 Assocs., L.P., 154 F.R.D. 78, 85 (S.D.N.Y.1994) (awarding fee range $250 to $300 for experienced partners; $120 to $180 for associates over three year time period); McGuire v. Wilson, 87 Civ. 6161, 1994 WL 68222, at *3, 1994 U.S.Dist. LEXIS 2000, at **7-9 (S.D.N.Y. Feb. 25, 1994) (awarding fee range $190 to $225 per hour for partners, and $105 to $160 per associates for two year time period).
There remain two additional minor points raised by the Defendants concerning Plaintiffs' counsel reasonable hourly compensation. First, the Defendants claim that Plaintiffs' counsel should not be reimbursed at his lawyer rates for clerical work that he himself conducted. Regardless of who performed such tasks, $250 an hour is excessive compensation for clerical work. Therefore, Plaintiffs' counsel will be reimbursed for 55.08 hours of billed clerical work at a reasonable paralegal billing rate for such activities, that is a range of $70 to $85 per hour. See Missouri v. Jenkins, 491 U.S. 274, 286-89, 109 S. Ct. 2463, 2470-72, 105 L. Ed. 2d 229 (1989) (holding paralegals and law clerks may be billed separately at market rates pursuant to local market practice).
Second, Defendants object to the remuneration of Plaintiffs' counsel at full hourly rate for time expended in traveling to and from Manhattan. Here, too, a rate reduction is appropriate and Plaintiffs' counsel's travel time of 30 hours will be compensated at 50% of his hourly rate. See, e.g., Jennette v. City of New York, 800 F. Supp. 1165, 1170 (S.D.N.Y.1992) (reducing hourly rate fee by 50% for attorney travel time); In re "Agent Orange" Prod. Liab. Litig., 611 F. Supp. 1296, 1321-22, 1349 (E.D.N.Y.1985), aff'd in part & rev'd in part, 818 F.2d 226 (2d Cir.1987).
II. Plaintiffs' Counsel Describes Services Rendered With Adequate Specificity
A fee application must be supported by contemporaneous time records which describe with specificity the work done. New York State Assoc. for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir.1983). The "burden is on counsel to keep and present records from which the court may determine the nature of the work done, the need *721 for it, and the amount of time reasonably required; where adequate contemporaneous records have not been kept, the court should not award the full amount requested." F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1265 (2d Cir.1987) (rejecting time records with one word descriptions for an entire day's work). The Supreme Court has found that "counsel, of course, is not required to record in great detail how each minute of his [or her] time was expended[,] but at least counsel should identify the general subject matter of his [or her] time expenditures." Hensley, 461 U.S. at 437 n. 12, 103 S.Ct. at 1941 n. 12. Plaintiffs' counsel's billing records meet this burden.
In Orshan v. Macchiarola, 629 F. Supp. 1014, 1019 (E.D.N.Y.1986), the court disallowed a claim for fees for time supported only by such vagaries as "prepare correspondence" and "review correspondence." However, such is not the case here. As a general matter, Plaintiffs' counsel's billing records list the date, the concise description of the work product, and the amount of time expended. As such, they appear to be detailed enough to meet the standard set forth by the Second Circuit.
Defendants further challenge the remuneration of Plaintiffs' counsel for hours billed for the preparation and argument of certain initial motions in this case on the theory that these motions were "unproductive." (Defs.' Mem. of Law at 18 (citing Weisberg v. Coastal Gas Corp., 1982 WL 1311) (S.D.N.Y. June 16, 1982)). However, no such finding has been made by this Court, and in the absence of prejudicial or sanctionable conduct, Plaintiffs' counsel shall be duly awarded fees for work he conducted in the early stages of this litigation.
The Defendants next propose a 30% reduction in Plaintiffs' counsel's billable hours on the theory that counsel should not be compensated for allegedly excessive numbers of consecutive hours billed. (See Defs.' Mem. of Law at 19-20 (citing Chrapliwy v. Uniroyal, Inc., 583 F. Supp. 40, 49 (N.D.Ind. 1983)); Ramos v. Lamm, 713 F.2d 546, 553 n. 2 (10th Cir.1983).) It is not unheard of for lawyers to work excessive hours prior to depositions, discovery dates and filing deadlines in the Southern District. In addition, a review of the billing record indicates that there were only twelve days during the time the case was before the District Court in which the Plaintiffs' attorney worked for more than ten hours. (See Defs.' Ex. C, Table 3.) Similarly, there were only twelve days during the time this action was on appeal that Plaintiffs' counsel billed over ten hoursall but one of those days was in the two weeks before filing the appellate brief. In light of the difficulty of the constitutional questions in this case, it is not unreasonable for an attorney in this region of the country to bill more than eight hours a day prior to court deadlines. Therefore, these hours will be compensated.[2]
III. Fee Enhancements Are Barred by Precedent
Plaintiffs' counsel urges the Court to award a 50% upward enhancement from the lodestar calculations of his fees pursuant to the Supreme Court's statement that "in some cases of exceptional success an enhanced award may be justified." Hensley v. Eckerhart, 461 U.S. 424, 435, 103 S. Ct. 1933, 1940, 76 L. Ed. 2d 40 (1983) ("Hensley").[3] The party advocating such an enhancement *722 bears the burden of proof in establishing that the enhancement is necessary for a reasonable fee award. See United States Football League v. National Football League, 887 F.2d 408, 413 (2d Cir.1989), cert. denied, 493 U.S. 1071, 110 S. Ct. 1116, 107 L. Ed. 2d 1022 (1990).
However, since Hensley, the Supreme Court has extensively narrowed the circumstances in which an enhancement is available. The Court has "established a `strong presumption' that the lodestar represents the `reasonable fee'" under federal fee-shifting statutes. See City of Burlington v. Dague, ___ U.S. ___, ___, 112 S. Ct. 2638, 2641, 120 L. Ed. 2d 449 (1992) (quoting Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 565, 106 S. Ct. 3088, 3098, 92 L. Ed. 2d 439 (1986) (Delaware Valley I)). In addition, the Supreme Court has held that such factors as "the `novelty [and] complexity of the issues,' `the special skill and experience of counsel,' the `quality of representation,' and the `results obtained' from the litigation are presumably fully reflected in the lodestar amount, and cannot serve as independent bases for increasing the basic fee award." Delaware Valley I, 478 U.S. at 565, 106 S.Ct. at 3098 (quoting from Blum v. Stenson, 465 U.S. 886, 898-900, 104 S. Ct. 1541, 1548-50, 79 L. Ed. 2d 891 (1984)).
The Court's evolving fees jurisprudence has resulted in the inevitable conclusion that all of the foregoing factors are now considered to be subsumed in the lodestar calculation. See Dague v. City of Burlington, 935 F.2d 1343, 1359 (2d Cir.1991) ("Dague I"). As recently as 1991, the Second Circuit concluded that "[t]he enhancement possibility suggested by Hensley has thus eroded to the point where apparently the only thing that may still justify an enhancement is the contingency/risk factor" which was left open in Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 483 U.S. 711, 107 S. Ct. 3078, 97 L. Ed. 2d 585 (1987) ("Delaware Valley II"). See Dague v. City of Burlington, 935 F.2d 1343, 1359 (2d Cir.1991) (discussing the Supreme Court's 4-1-4 split in Delaware Valley II which found no enhancement for risk in that case, but refused to flatly reject multipliers in all cases).[4] In Dague I, the Second Circuit reaffirmed its prior opinion in Friends of the Earth v. Eastman Kodak Co., 834 F.2d 295 (2d Cir.1987) (holding that proper inquiry for fee enhancement concerns the risk of the litigation). See Dague I, 935 F.2d at 1360.
This was not the end of the matter, however. Upon review of the Second Circuit's determination in Dague I, the Supreme Court definitively held that "enhancement for contingency is not permitted under [] fee-shifting statutes" apparently shutting the enhancement door once and for all. See City of Burlington v. Dague, ___ U.S. ___, ___-___, 112 S. Ct. 2638, 2643-44, 120 L. Ed. 2d 449 (1992) ("Dague II"); see also Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1266 (D.C.Cir.1993) (finding "[i]n the context of the fee-shifting statutes, the lodestar approach but without enhancement for the Johnson factors has emerged as the prevailing method of fee calculation."); King v. Palmer, 950 F.2d 771, 784 (D.C.Cir.1991) (en banc) (barring the use of attorney fee enhancements in fee-shifting statute cases in D.C. Circuit), cert. denied, ___ U.S. ___, 112 S. Ct. 3054, 120 L. Ed. 2d 920 (1992).
A synthesis of Dague I and Dague II leads to the determination that fee enhancements under the fee-shifting statutes are no longer permissible in this Circuit. Therefore, Plaintiffs' request for an enhancement must be denied. See, e.g., Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, 92 Civ. 5517, 1994 WL 74871, at *6, 1994 U.S.Dist. LEXIS 2548, at **21-22 (S.D.N.Y. Mar. 7, 1994) (stating "the Supreme Court ruled out the use of multipliers in statutory fee shifting cases by holding that a multiplier was not justified based upon a contingency risk" in Dague II.); Dubin v. E.F. Hutton Group, 845 F. Supp. 1004, 1014 (S.D.N.Y.1994) (finding Dague II "culminated *723 a series of Supreme Court decisions restricting post-lodestar multipliers or fee enhancements in statutory fee shifting cases.").
There remains only three exceptions to the ban on fee enhancements in fee-shifting cases in the Second Circuit. First, in fee-shifting cases in which only a partial success is achieved a lodestar calculation may be downwardly enhanced, or more aptly, reduced. See Grant v. Martinez, 973 F.2d 96, 101 (2d Cir.1992) (holding downward enhancements are possible, but not mandated), cert. denied, ___ U.S. ___, 113 S. Ct. 978, 122 L. Ed. 2d 132 (1993);[5]United States Football League v. National Football League, 887 F.2d 408, 411-12 (2d Cir.1989), cert. denied, 493 U.S. 1071, 110 S. Ct. 1116, 107 L. Ed. 2d 1022 (1990) (holding downward departure permitted where plaintiffs receive nominal damages).
Second, a fee enhancement may be permitted in fee-shifting statute cases in which there is an excessive delay in paying the attorney's fees. See Missouri v. Jenkins, 491 U.S. 274, 284, 109 S. Ct. 2463, 2469, 105 L. Ed. 2d 229 (1989) (holding in district court's discretion to adjust fees for delays in payment); Grant v. Martinez, 973 F.2d 96, 101 (2d Cir.1992) (same), cert. denied, ___ U.S. ___, 113 S. Ct. 978, 122 L. Ed. 2d 132 (1993); Huntington Branch, NAACP v. Town of Huntington, 961 F.2d 1048, 1049 (2d Cir.1992) (same).
Finally, the Second Circuit has approved of the award of a risk multiplier when a court determines "as a matter of public policy, it is the type of case worthy of judicial encouragement." In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 226, 236 (2d Cir.1987). However, such "public policy" enhancements appear to have been upheld in, and are perhaps only applicable to, equitable fund cases and thus cannot be applied in the fee-shifting statute context. See, e.g., In re "Agent Orange" Prod. Liab. Litig., 818 F.2d at 234 n. 2 ("While the lodestar formula applies to both types of cases, equitable fund cases may afford courts more leeway in enhancing the lodestar, given the absence of any legislative directive."); Dubin v. E.F. Hutton Group, 845 F. Supp. 1004, 1014 (S.D.N.Y.1994) (holding that Dague II "does not prohibit post-lodestar fee enhancements in equitable fund cases" provided that they are awarded in the interest of encouraging the prosecution of "public policy" objectives which are "worthy of judicial encouragement.")
Although a "public policy" enhancement of attorneys' fees may still be permissible in a fee-shifting statute case in this Circuit, it is not appropriate in this case. As noted in Loper V, "[o]nly a handful of `pure begging' arrests can be identified; the rest are either erroneously quantified or represent some other form of objectionable behavior." Loper V, 802 F. Supp. 1029, 1036 (S.D.N.Y.1992). Given the uncertainty concerning the actual number of people affected and the ambiguity of the actual harm caused, this case does not warrant judicial encouragement in the interest of public policy.
Accordingly, Plaintiffs' counsel's request for a 50% fee enhancement is denied.
IV. Expenses
Plaintiffs' counsel has provided an adequate accounting of his expenses which ties the purported expenses with a specified legal product. See F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1269 (2d Cir.1987) (reducing award for expenses by 25% where records were "inadequate to permit a determination of the nature or timing of the activities that required most individual expenditures[.]"); Carrero v. New York City Hous. Auth., 685 F. Supp. 904, 909-10 (S.D.N.Y.1988) (disallowing fees for inadequate documentation of expenses), modified on other grounds, 890 F.2d 569 (2d Cir.1989).
Upon review of Defendants' challenge to these expenses, (see Defs.' Mem. of Law Table 4, Ex. D), Plaintiffs' counsel is entitled to the full amount of his rather minimal expense claims, with a sole exception. Defendants are not required to reimburse *724 Plaintiffs' counsel for his distribution of copies of briefs and so forth to individuals unrelated to this action. (See, e.g., Defs.' Mem. of Law, Ex. D, Table 4, Entries numbers 422, 424-29, 434, 587, 588, 600, 605, 642.)
Conclusion
Plaintiffs' counsel's fee application is hereby granted in conformance with the findings set forth above. Settle order on notice.
It is so ordered.
NOTES
[1] Cf. Ortiz v. Regan, 777 F. Supp. 1185 (S.D.N.Y. 1991) ($250 per hour), aff'd in part and rev'd in part on other grounds, 980 F.2d 138 (2d Cir. 1992); County of Suffolk v. Long Island Lighting Co., 710 F. Supp. 1477, 1481 (E.D.N.Y.1989) (awarding Farrell, Fritz $150 to $250 per hour for partners; $50 to $120 per hour for associates for work performed in 1988), rev'd on other grounds, 907 F.2d 1295, 1326 (2d Cir.1990); Williams v. City of New York, 728 F. Supp. 1067 (S.D.N.Y.1990) ($200 per hour for work performed in 1988-89); Suarez v. Ward, 88 Civ. 7169, 1993 WL 158462, 1993 U.S.Dist. LEXIS 6308 (S.D.N.Y. May 13, 1993) ($200 per hour for work performed in 1988-92); Carrero v. New York City Hous. Auth., 685 F. Supp. 904 (S.D.N.Y. 1988) ($150 per hour for less experienced attorneys), modified, 890 F.2d 569, 581-82 (2d Cir. 1989); Wilder v. Bernstein, 725 F. Supp. 1324 (S.D.N.Y.1989) ($200-250 per hour for work performed in 1987-89), rev'd on other grounds, 944 F.2d 1028 (2d Cir.1991).
[2] The Defendants' objections to certain specific billing entries cannot prevail in light of Plaintiffs' memorandum of law. The challenged items includes compensation for time reasonably expended on preparing homeless teenagers for depositions, the companion action, research on post-argument matters, moot court preparation for appellate argument and so forth. (See Pls.' Mem. of Law at 40-42, 44-46.)
[3] Under the American Rule, a prevailing party generally is not permitted to collect fees from the loser. However, there are several exceptions to this rule: (1) under Congressionally mandated fee-shifting statutes, such as 42 U.S.C. § 1988 here, the losing party may be forced to pay the "reasonable fees" of the prevailing party; (2) courts may assess fees in order to secure a party's compliance with the wilful violation of a court order; (3) courts may assess fees against parties who have acted in bad faith or vexatiously; and (4) the courts are empowered to assess fees in "common fund" cases which allow litigants to recover fees in securities or anti-trust cases. See Pennsylvania v. Delaware Valley Citizens Council for Clean Air, 478 U.S. 546, 561-62, 562 n. 6, 106 S. Ct. 3088, 3096-97, 3097 n. 6, 92 L. Ed. 2d 439 (1986).
[4] The D.C.Circuit, in Thompson v. Kennickell, 836 F.2d 616, 621 (D.C.Cir.1988) described the Court's somewhat unsettled position in Delaware Valley II as follows: "What, never? No, never!" for the plurality, and "What, never? Hardly ever!" for Justice O'Connor's concurrence.
[5] Grant is the only Second Circuit opinion concerning fee enhancements after the Supreme Court's ruling in Dague II. As the issue presented there concerned a proposed downward adjustment, it does not shed light on the Circuit's law regarding upward enhancements in a post-Dague II regime. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1518022/ | 853 F. Supp. 551 (1994)
Jon MILLS, et al., Plaintiffs,
v.
STATE OF MAINE, Defendant.
Civ. No. 92-410-P-H.
United States District Court, D. Maine.
June 1, 1994.
*552 John R. Lemieux, Maine State Employees Ass'n, Augusta, ME, for plaintiffs.
Linda S. Crawford, Asst. Atty. Gen., Portland, ME, for defendant.
ORDER ON A STIPULATED RECORD
HORNBY, District Judge.
In the liability portion of this dispute, I ruled that the State may treat its probation officers as employees working in a law enforcement capacity under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (the "FLSA"). Order on Cross-Motions for Summary Judgment (Dec. 21, 1993) 839 F. Supp. 3. The parties have now filed cross-motions on a stipulated record on four issues affecting what damages the State must pay the probation officers. I address them in turn.
APPLICABILITY OF THE LAW ENFORCEMENT EXCEPTION
The first issue is whether the State should calculate past overtime on a 40- or a 43-hour workweek. The plaintiffs claim that the 43-hour workweek is available only to employers who have been complying with the requirements of the law enforcement exception, whereas the State has previously treated its probation officers as totally exempt from the Act. The plaintiffs claim, therefore, that the State should not now be allowed "to pretend" that it has treated them all along under the law enforcement exception.
Martin v. Coventry Fire District, 981 F.2d 1358 (1st Cir.1992), resolves this issue against the plaintiffs. In that case, the court held that an employer who violates § 207(k) of the FLSA (the partial exemption for fire-fighters and law enforcement officers) may still calculate the overtime owed its employees in accordance with the overtime definition of subsection (k). Id. at 1361. The court reasoned that the statute itself provides adequate compensation to the underpaid employees and punishment to the delinquent employer. Specifically, the employees receive what they should have been paid originally and, in addition, the employer must pay them double damages, if the violation was not reasonable and in good faith, and must suffer more serious penalties, if the violation was willful. See 29 U.S.C. §§ 216, 260. The First Circuit found no reason "for assessing an especially heavy penalty" on top of those already provided in the FLSA. Martin, 981 F.2d at 1360. Likewise, here, damages are to be determined in accordance with the subsection (k) overtime definition and the FLSA's express damage and penalty provisions.
The plaintiffs cite Holmes v. Washington, 30 WH Cases 1630, 1992 WL 247444 (W.D.Wash. Mar. 13, 1992), as holding that failure to comply with the recordkeeping requirements of § 207(k) deprives an employer of its defense. Generally, however, the significance of recordkeeping requirements in FLSA cases is not in determining the proper *553 measure of damages but in setting respective burdens of proof on liability. See Secretary of Labor v. DeSisto, 929 F.2d 789, 792 (1st Cir.1991). Holmes is not inconsistent with this principle; it recognized a recordkeeping violation only for purposes of determining liability and did not address the proper measure of damages. Consequently, the 43-hour workweek is available to the State.
TREATMENT OF THE NON-STANDARD PAY PREMIUM
Probation officers receive a 16% pay premium under their collective bargaining agreement in exchange for being available at unusual hours and for more than 40 hours per week. The plaintiffs want to calculate their overtime at one and one-half times their total wages, the 16% included; the State wants not only to remove the 16% from the base figure before the time-and-a-half is applied, but also to use the 16% premium as an offset to any overtime found due. In certain situations, extra compensation is not included within an employee's regular rate of pay under the FLSA, 29 U.S.C. § 207(e), and sometimes the extra compensation is properly creditable toward unpaid overtime. Id. § 207(h). The 16% here, however, does not fit any of those categories.
Section 207(e)(7) excludes from the regular rate of pay a premium paid under a collective bargaining agreement
for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek ... where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement.
This section, known as a "clock overtime" or "clock pattern" provision, is to accommodate those industries requiring round-the-clock operation. An employer in such an industry may comply with the FLSA by paying premiums equal to the statutory overtime rate for work during certain hours on the clock. Brock v. Wilamowsky, 833 F.2d 11, 16 (2d Cir.1987). For instance, if 9 a.m. to 5 p.m. were the regular 8-hour workday and other hours were compensated at one and a half times the "9-to-5" rate, an employee working from 5 p.m. to 4 a.m. could be paid simply one and a half times the "9-to-5" rate for all of his hours of work, instead of an extra half again as much when he exceeded 8 hours. See 29 C.F.R. § 778.204(b).
Any premium, however, must be related to hours worked outside of a basic, normal or regular work period established in a collective bargaining agreement. The State contends that the collective bargaining agreement here specifies a premium to be paid in exchange for the probation officers working erratic hours in excess of 40 hours a week. Nowhere, however, does the State suggest that the collective bargaining agreement establishes the specific hours of a normal or regular workday or workweek as required by § 207(e)(7). Moreover, the 16% premium is part of a guaranteed periodic wage that is paid regardless of whether the plaintiffs actually "work outside of the hours established ... as the basic ... workweek." See Walo Depo. at 18-19; cf. Brennan v. Valley Towing Co., 515 F.2d 100, 106 (9th Cir.1975). Consequently, the premium does not comply with the requirements of § 207(e)(7).
For the same reason, two other provisions that might allow the 16% premium to be excluded from the regular rate of pay, § 207(e)(5) and § 207(e)(6) are inapplicable.[1] Section 207(e)(5) excludes "a premium rate paid for certain hours worked by the employee ... in excess of the maximum workweek applicable to such employee ... or in excess of the employee's normal working hours or regular working hours." Section 207(e)(6) excludes "a premium rate paid for work ... on Saturdays, Sundays, holidays, or regular days of rest." As already noted, the 16% premium is guaranteed income regardless of whether the employees work outside of their normal working hours, if any exist, and is not tied to "certain hours" or specific days worked by the employees.[2]
*554 Extra compensation paid as described in § 207(e)(5), (6) or (7)and only as described in one of those sectionsis creditable toward overtime compensation owed. 209 U.S.C. § 207(h); 29 C.F.R. § 778.200(c). Since the 16% premium does not fit any of those provisions, it may not be credited toward the overtime compensation owed by the State.
The parties have also made passing reference to the "Belo" provision, § 207(f), exempting employees who work irregular hours but are paid fixed weekly compensation. The Belo provision is relevant to liability, not damages, and was not raised by the State during the liability phase of this dispute. Moreover, the State does not cite the Belo provision to challenge liability, but suggests that § 207(f) offers an alternative method of measuring overtime credits or the regular rate of pay. That is not so. Section 207(f) does not provide a separate rule for calculating damages once a violation of the FLSA is found to exist. See 29 C.F.R. § 778.403; Martin v. David T. Saunders Constr. Co., 813 F. Supp. 893, 899, 902 (D.Mass.1992) (Keeton, J.) ("[W]hen a contract specifying weekly pay fails the requirements of § 207(f), the defendant is not entitled to credit its allocation of regular and overtime pay.")
LIQUIDATED DAMAGES
Since I have ruled that the State violated the FLSA, it must show that it acted both reasonably and in good faith to avoid obligatory liquidated damages. 29 U.S.C. §§ 216, 260; 29 C.F.R. § 790.22(b); Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 908-09 (3d Cir.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1473, 117 L. Ed. 2d 617 (1992); Walton v. United Consumers Club, Inc., 786 F.2d 303, 312 (7th Cir.1986). This duty is ongoing. The proper characterization of the State's conduct here rests upon what, if anything, the State did after 1985 to determine the appropriateness of continuing to treat its probation officers as completely exempt from the FLSA.
The State's own witnesses portray Freeman Wood in the Bureau of Human Resources as the decisionmaker responsible for approving the probation officers' treatment. They state that the Bureau of Human Resources was responsible for making such decisions, Tilton Aff. ¶ 18; Walo Depo. at 14, and that Freeman Wood, a Merit System Coordinator there, specifically "approved" the work of the job analysts who recommended the probation officers' treatment and was involved in the ultimate decision to consider them exempt. Walo Depo. at 14; Wood Depo. at 3-4, 8. Thus, the conduct of Wood and his work group is crucial. Wood's deposition testimony and affidavit tell patently conflicting stories about whether anyone ever reviewed the initial post-Garcia exemption decision. In his deposition, Wood acknowledged that neither he nor anyone in his work group revisited the overtime-exempt status of the plaintiffs after their original decision in 1985. Wood Depo. at 8-9. In Wood's affidavit, on the other hand, he claims to have discussed 1988 Department of Labor ("DOL") opinion letters with members of the Bureau of Human Resources, the Department of Corrections and counsel and to have "continued to review information and consider whether to change the exempt status." Wood Aff. ¶¶ 22-23. In order to determine whether the State fulfilled its ongoing duty to ascertain and comply with the FLSA's requirements, I must make sense of Wood's conflicting testimony.
I conclude that Wood's deposition testimony is more credible than his subsequently created affidavit. A deposition involves a witness's own spontaneous responses to questions. In this case, Wood's deposition was taken first and thus provides a more untutored recollection of events. Affidavits are usually drafted with the help of a lawyer for the strategic purpose of establishing specific facts. Here, Wood's affidavit makes no effort to explain its glaring inconsistency with the earlier deposition testimony (such as a refreshed recollection, for example), even though the inconsistency was apparent to the State. See Def.'s Statement of Material Facts ¶ 5. As a result, I credit the deposition and find that, while Wood was aware of post-Garcia DOL opinions and court rulings, *555 Wood Depo. at 9-10, 16, 28, he was not spurred to take reasonable steps to "revisit" the classification of probation officers.
Instead, I find that Wood entertained significant questions as a result of emerging caselaw, yet failed in any way to try to resolve them. The DOL opinions about which Wood knew each dealt with probation officers and the professional exemption. Wood states that the opinions "generated some questions in [his] mind." Wood Depo. at 9. Nevertheless, he did not discuss those questions with anyone else. Wood testified that he did not fully understand the functions played by the probation officers discussed in the opinions. Wood Depo. at 9-12. Yet he never made the effort to find out how those positions compared to Maine probation officers. Wood Depo. at 10. Specifically, he did not know and did not seek clarification from the Department of Corrections whether the reported positions required "the same type of social work" (on which the probation officers' classification so heavily relied) as Maine does. Wood Depo. at 11. Wood was the point person for ensuring the State's compliance with FLSA requirements. Based on his own account, however, his efforts to comply with the FLSA during the 1986 to 1992 period can only be described as unreasonably deficient, regardless of any possible good intentions.
The undisputed record does reveal some efforts by other State agents to follow up developments in the law. Although Wood and his team were responsible for keeping abreast of changes in the law, Wood Aff. ¶¶ 15, 22; Walo Depo. at 14, Peter Tilton, the Director of the Division of Probation and Parole, and the Department of Corrections were responsible for determining the duties of Maine's probation officers and comparing them to other states. Wood Aff. ¶ 22; Tilton Depo. at 14-15. Tilton states that following the 1988 and 1989 DOL opinion letter rulings he contacted representatives of other states to learn how they treated their probation officers with regard to the FLSA. Tilton Depo. at 15. Through contacting Utah, New Hampshire, Massachusetts, Missouri, New Jersey, Connecticut and Georgia, id. at 15-19, 26, Tilton discovered that there was a "wide discrepancy concerning the perceived applicability of the FLSA." Tilton Aff. ¶ 23. He also compared the responsibilities of probation officers in Florida to those in Maine following the decision in Dybach v. Florida Department of Corrections, 942 F.2d 1562 (11th Cir.1991). Tilton Depo. at 19-21. As a result of his inquiries, Tilton "considered [Maine's probation officers] to be more professional than similar officers elsewhere." Tilton Aff. ¶¶ 22-24. Such case-by-case analysis was appropriate, because exemptions to § 207(a) are based on a job's specific responsibilities and requirements, not on a mere job title. Reich v. Wyoming, 993 F.2d 739, 742 (10th Cir.1993). An incorrect conclusion based on such an analysis could well have been reasonable. The State has not claimed, however, that the information compiled by Tilton was ever conveyed to anyone, let alone Wood and his team in the Bureau of Human Resources. See Wood Depo. at 30. Consequently, it cannot have provided any basis for the decision to continue treating the probation officers as exempt. Liquidated damages are therefore available.
THE STATUTE OF LIMITATIONS
The plaintiffs may recover three years of back pay instead of the usual two years if they show that the State's violation was willful, that is, if the State knew it was violating the FLSA or showed reckless disregard for complying with the law. 29 U.S.C. § 255(a); McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S. Ct. 1677, 1681, 100 L. Ed. 2d 115 (1988). Although I have found that the State acted unreasonably, that is not enough to establish a willful violation or reckless disregard for the law; more flagrant conduct is required. Lopez v. Corporacion Azucarera de Puerto Rico, 938 F.2d 1510, 1515 (1st Cir.1991); cf. Mireles v. Frio Foods, Inc., 899 F.2d 1407, 1416 (5th Cir. 1990) (no reckless disregard where employer discussed law with state officials and reviewed some brochures and pamphlets). Here, the plaintiffs have not shown that the State acted willfully.
The State followed an organized procedure for determining the probation officers' original classification in 1985. A DOL representative *556 met with and trained Wood and his team of job analysts about the FLSA. Wood Aff. ¶ 7. The analysts proceeded to evaluate over 800 state job classifications and recommend treatment under the FLSA. Id. 5-6. Wood approved those recommendations and circulated them to the affected agency for feedback and reevaluation before final decisions were made. Id. 8, 11. This system was a reasonable way to classify the probation officers in 1985. After 1985, there no longer was a clear procedure for how the Bureau of Human Resources, the Department of Corrections and other State offices ought to communicate about changes in the law. Nevertheless, the unrefuted record shows that State employees, including Wood, did monitor developments. Wood was aware of the DOL's 1988 letter rulings as well as subsequent court decisions. Wood Depo. at 9-10, 12, 16-17. He considered them, concluded that they did not address comparable positions and did not require any change in the probation officers' classification. Wood Depo. at 9-11, 17. I have found that Wood's conclusions, based on his admittedly incomplete understanding of the positions evaluated in those opinions, were unreasonable. Still, they do not amount to recklessness.[3] Wood made efforts to keep up with developments in the law, even if he did not adequately follow up. In addition, the State's reason for treating probation officers as exempt from the FLSA has been public and known to the plaintiffs all along. Yet they did not challenge their treatment until late 1992. Such circumstances suggest that Wood's conclusions were not so obviously misplaced as to amount to reckless disregard for the law. Cf. Bratt v. County of Los Angeles, 912 F.2d 1066, 1072 (9th Cir.1990), cert. denied, 498 U.S. 1086, 111 S. Ct. 962, 112 L. Ed. 2d 1049 (1991); Brock v. Claridge Hotel & Casino, 711 F. Supp. 779, 784 (D.N.J.1989). Consequently, only two years of back pay are available.
CONCLUSION
I understand that the parties are attempting to reach an agreement on the number of hours worked. The Clerk's Office shall schedule a conference of counsel with me or the Magistrate Judge to determine whether judgment can now be entered or the nature of any trial or evidentiary hearing that is required.
SO ORDERED.
NOTES
[1] Sections 207(e)(1), (2) and (3) also specify compensation that is not includable in a regular rate of pay. Neither party has referred to these sub-sections, and I assume they do not apply.
[2] Brennan v. Valley Towing Co., 515 F.2d at 109, cited by the State, evaluated an "afterhours" pay structure consisting of non-guaranteed wage payments tied to the actual hours worked outside of a regular workweek, unlike the case here.
[3] In Taylor-Callahan-Coleman Counties v. Dole, 948 F.2d 953 (5th Cir.1991), the court held that "[a]dvisory opinions issued by the Wage and Hour Administrator are to guide the DOL in its operations. They are neither final nor binding on employers or employees." Id. at 957. In addition, although the Eleventh Circuit found in 1991 that Florida's probation officers were not exempt professionals, Dybach v. Florida Dep't of Corrections, 942 F.2d 1562 (11th Cir.1991), the cases demonstrate that the applicability of the FLSA to governmental employees must be determined by a fact-specific evaluation. See Taylor-Callahan-Coleman Counties, 948 F.2d at 953; Martin v. Wyoming, 770 F. Supp. 612 (D.Wyo. 1991), aff'd sub nom. Reich v. Wyoming, 993 F.2d 739 (10th Cir.1993). Consequently, the State's failure uncritically to adopt Dybach's outcome was not reckless. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1519738/ | 522 F. Supp. 1257 (1981)
REPROSYSTEM, B. V. and N. Norman Muller, Plaintiffs,
v.
SCM CORPORATION, Defendant.
No. 77 Civ. 5705 (RWS).
United States District Court, S. D. New York.
June 30, 1981.
*1258 *1259 Hale, Russell, Gray, Seaman & Birkett, New York City, for plaintiffs; Selvyn Seidel, Lee A. Pollock, New York City, of counsel.
Curtis, Mallet-Prevost, Colt & Mosle, New York City, for defendant; Peter Fleming, Jr., John E. Sprizzo, Jamie V. Gregg, New York City, of counsel.
OPINION
SWEET, District Judge.
This action was filed by plaintiffs Reprosystem, B. V. ("Reprosystem") a Netherlands corporation, and N. Norman Muller ("Muller"), a New York resident, against the defendant SCM Corporation ("SCM"), a New York corporation. The complaint alleged damages for breach of contract, promissory estoppel, failure to perform and to negotiate in good faith, unjust enrichment, and fraud under the federal securities law and the common law. After extensive discovery, a four week trial before the court was held in the course of which 17 witnesses testified and well over 1,000 documents were introduced into evidence. At issue are the rights and liabilities of the parties arising from an unsuccessful effort in 1976 by Muller and Reprosystem to purchase the European photocopier business of SCM. Both sides were represented by extremely able counsel, not only during the events giving rise to the litigation but particularly during its trial. The issues presented, both factual and legal, constitute an almost exhaustive pathology of an important corporate transaction. For reasons more fully set forth below, Reprosystem and Muller are entitled to recover certain of their damages resulting from SCM's breach of contract and failure to bargain in good faith.
FINDINGS OF FACT
The Parties
SCM is a multinational conglomerate manufacturing and distributing a number of industrial, commercial and consumer products. Its shares are listed on the New York Stock Exchange. Prior to 1975 and during 1976 and the first half of 1977 it engaged in the business of marketing, leasing and servicing office copiers, paper and toner throughout Western Europe, the Middle East and Africa. This business was conducted by its International Business Equipment Division through six wholly owned subsidiaries: Smith-Corona Marchant, S.A., a French corporation; SCM International S.A., a Belgian corporation; SCM (Switzerland) S.A., a Swiss corporation; SCM (Deutschland) GmbH, a German corporation; Smith-Corona Marchant International S.A., a Swiss (Chur) corporation; and SCM (United Kingdom) Ltd., a United Kingdom corporation. (These six subsidiaries are collectively referred to as the "copier subsidiaries" or "subsidiaries.") During the 1976 fiscal year (ending June 30, 1976) the copier subsidiaries had assets of about $17,000,000, total sales exceeding $40,000,000, operating profits exceeding $4,000,000, and approximately 1000 employees.
Reprosystem was organized in the fall of 1976 to hold the shares and assets of the subsidiaries. Its shares were owned by Reprographex Antilles, N.V., a Dutch Antilles corporation which in turn is a wholly owned subsidiary of Reprographex International, Inc., a Delaware subsidiary of MacMuller Industries, Inc., another Delaware corporation. At the time of the transaction, a majority interest of Reprographex International, Inc. was owned by Muller individually. Muller also owned a controlling interest in MacMuller Industries, Inc. which during most of the period in question owned and *1260 operated Eagle Shirts, Inc. and Petrocelli Clothes, Inc. Muller was responsible not only for his own conduct as an individual but for that of the corporations which he controlled. He was an experienced businessman with "ability to raise cash."
The Preliminaries
Late in 1975 at a corporate planning meeting in Bermuda, Paul Elicker, the President and Chief Executive and Chairman of the Board of SCM ("Elicker") and Herbert Egli, the Vice President Finance and Controller of SCM, ("Egli") and presumably others concluded it was in SCM's best interest to divest itself of its European copier business. This decision was communicated to Frank DeMaio, Vice President and General Manager of the International Group ("DeMaio").
The business of the subsidiaries consisted principally of the distribution of zinc oxide coated paper photocopiers, generally through lease of copier equipment, and sometimes through sale. Under the lease method, the subsidiaries would lease and service equipment, and this equipment was identified as Equipment Held for Lease. The subsidiaries also marketed paper supplies and toner to equipment users, and serviced the equipment. Between 1972 and 1974 annual operating profits of the copier subsidiaries ranged from about $4 million to about $5 million. DeMaio and Elicker sought out potential purchasers of this business, principally among its suppliers, without success. Through DeMaio a firm specializing in bringing together those interested in buying and selling corporate interests learned of the SCM purpose and advised Muller, who met first with DeMaio and then with Elicker and DeMaio in April, 1976. At the outset Muller and DeMaio had an understanding that if the proposed sale was accomplished DeMaio would receive an equity interest in the acquiring company. In May a meeting was attended by Muller, Elicker and William Rodich ("Rodich"), President of the Business Equipment Division of SCM of which the International Group and the copier subsidiaries were a part. The business of the subsidiaries was described. Muller was provided with a statement of the asset value of the subsidiaries as of March 31, 1976, showing an aggregate book value of $16.8 million on an unaudited basis. The current profit and loss statement, also provided to Muller, showed a nine month profit of about $3.0 million.
A subsequent review by SCM's accounting department indicated that this unaudited statement might have been overstated by $1 million. However, there is no evidence that, if the asset value was indeed overstated, the overstatement was deliberate and for a fraudulent purpose. The full disclosure offered to Muller and his accountants by SCM in the fall of 1976 also serves to refute any fraudulent purpose. A projected drop in operating profits in fiscal 1976-1977 for the subsidiaries of less than $600,000 was not disclosed.
Although not expressed in writing initially, both parties had certain underlying concerns. SCM desired to divest itself of the business, to protect against any further liabilities either on bank or employee severance guarantees, and to protect its good will and relationships with customers and suppliers since it intended to remain in the typewriter business. Muller sought to purchase an ongoing business and its distribution network with its capacity to introduce new items. Early in the discussions it was recognized that the availability of a plain paper copier as opposed to a zinc oxide coated paper copier was an important, if not vital, aspect of the business. SCM, having decided to get out of the copying business, sought to minimize its commitment to this new product, while Muller believed a plain paper copier essential to the continuation of the business. Rodich and DeMaio had concluded that the availability of plain paper copiers was necessary, regardless of the ownership of the business, and during the spring of 1976 DeMaio travelled to Japan and reached a preliminary understanding with Mita, a Japanese manufacturer, to provide plain paper copiers for SCM's benefit. These underlying concerns of the parties were articulated and understood *1261 but not made the subject of any writing at this early state.
By letter of May 7, 1976, Muller offered to pay $9.0 million for the subsidiaries. His letter also contained the following language, which forms a keynote to SCM's position on the law:
This offer is made subject to the following conditions:
1. that a satisfactory audit review will be performed by our accounting firm, S. D. Leidesdorf & Co.
2. that a formal agreement, which is satisfactory to SCM and ourselves be entered into.
Rodich informed Muller that his May 7 letter provided the basis for negotiation, but all further discussions were deferred because of a security offering by SCM and a consequent "quiet period." However, on August 4 discussions were resumed at a luncheon at the Atrium Club attended by Rodich, Egli, Muller and Brier, the latter being a participant in MacMuller Industries, as well as officers of Citibank where Muller and his companies banked. One of the purposes of the meeting was to discuss Muller's financial standing. Wallace of Citibank stated his satisfaction with the bank's relationship with Muller and added that he dealt only with seven figure accounts. No further representations were made or requested. Muller at the time was seeking financing from Citibank, financing which he failed to obtain. Shortly thereafter SCM obtained a Bishop's Service and a Dun & Bradstreet report relating to Muller. Muller's strengths were described in the Bishop's Service report by one source as "putting together financial deals, acquisitions and raising money." No further questions were raised concerning Muller's finances during this phase of the discussions.
The Agreement in Principle
Shortly after the Atrium meeting Rodich gave Muller a list of items which he considered to be essential to SCM in connection with the contemplated transaction. At a later meeting in September this list was supplemented by four additional items. These memoranda are annexed as an Appendix to this decision. These points were viewed as "the Bible" by Rodich according to Muller and were non-negotiable. Whether or not the term was in fact used, these documents constituted the basic agreement which remained in place throughout the discussions, including the formula by which the purchase price was to be calculated. Muller accepted these items, the firm of Hardee, Barovick, Konecky & Braun ("Hardee Barovick") was retained by Muller, meetings were held and at one point in August it was even suggested that consideration be given to a closing at the end of the month, an objective which continued to elude the parties.
In mid-September, principally as a consequence of Rodich's memoranda it had been agreed by Rodich and Muller that Muller would purchase the non-typewriter European business of SCM, that the purchase price would be calculated on the basis of a formula derived from Muller's offer of $9.0 million cash for $16.4 million assets as of August 31, 1976, that the typewriter assets would be stripped out by SCM prior to closing, that the business would be operated by SCM for Muller in its ordinary course after August 31, 1976 and that the purchase price would be adjusted to reflect events subsequent to that date. The transfer would be in a form determined by SCM, which initially called for the intended transfer of the stock of the French, German, Belgian and Swiss subsidiaries, and the transfer of the copier assets of the U.K. and Chur subsidiaries. SCM retained its claims against Xerox Corporation for damages in a pending litigation involving, among other things, claims that Xerox unfairly competed with the SCM copier subsidiaries. Muller assumed responsibility for possible employee severance and vacation pay obligations, leases and employees in the U.K. relating to the copier business, and the performance of SCM purchase agreements for equipment and supplies. Muller had the right to license and use the SCM name and logo for three years with appropriate safeguards on its use. SCM made certain warranties with respect to undisclosed liabilities, inventories *1262 and accounts receivable. Discussions on these matters correlated the "deep discount" from stated asset value with the assumption by Muller of the employee severance liability and lease obligations of SCM.
The burden of preparation of more formal documents fell upon Arthur J. Mannion, Jr. ("Mannion"), inside counsel for SCM, his work product then to be reviewed by the Hardee Barovick firm. The latter firm also employed Harvey Dale as outside tax consultant. A closing at the end of September was then anticipated. Both sides dispatched teams of lawyers and accountants to Europe, the latter to conduct "a businessman's review" and the former to obtain facts and delineate issues to be incorporated in the agreements to be signed. The parties resumed discussions in New York in the latter part of September dealing in part with issues resulting from the trip, including the effect of a French transfer tax and the anticipated time to obtain a necessary Bank of England approval.
In connection with its 10-K report for the fiscal year ending June 30, and other matters, Elicker met with the SCM board and after discussion the following resolution was adopted:
We have agreed in principle to sell our European office copier operations to N. Norman Muller, a private investor who owns substantial interests in various businesses. Current personnel and management will continue to operate the sold business.
SCM's 10-K filed with the SEC on September 30, 1976, stated in relevant part:
In late September, 1976, the Company reached an agreement in principle to sell its European copier sales and service operations. These operations account for approximately 40 percent of SCM's copier products net sales, with an operating income of approximately $2 million in fiscal 1976 which was expected to decline in fiscal 1977. The Company makes no assurance that this transaction will be completed.
During the same period Muller was anxious to make his presence felt in Europe and to establish a relationship with the general managers of the subsidiaries. A trade exhibition in Paris in late September 1976, the SICOB show, provided an opportunity to satisfy Muller's needs. That, together with SCM's reporting requirements, resulted in a press release which was issued on September 28, 1976, and which stated with respect to the transaction:
SCM Corporation has reached an agreement in principle to sell its office copier service organizations in the United Kingdom, France, Germany, Switzerland and Belgium and its distribution operations covering Europe, the Middle East and Africa to a company controlled by N. Norman Muller, a private investor.
While terms of the agreement in principle were not disclosed, Paul H. Elicker, president of SCM, indicated that SCM would incur a pre-tax loss of approximately $1.4 million on the transaction.
. . . . .
The proposed sale of the European copier business is subject to a definitive agreement expected to be reached soon. SCM said that all parts of the combined 900-man marketing operation would be sold to the new owners intact and the current management will continue to operate the business....
The announcement was reported in The New York Times, The Wall Street Journal, on the Dow Jones ticker tape and elsewhere. These events aroused sufficient interest in Muller to result in an article in Forbes which reported that Muller intended to use his own assets to buy the subsidiaries, a report that was more fictional than factual, given Muller's discussion with Citibank and his later discussions with the Chemical Bank to be considered below.
The "agreement in principle" thus approved by the SCM Board and announced to the public at large consisted largely of the thirteen items set forth in Rodich's August and September memoranda, to which Muller had agreed. These points with some *1263 additions and alterations remained central to the negotiations throughout.[1]
After the issuance of the September 28 press release, the principals left for Paris where the SICOB show was in progress. Rodich addressed a luncheon meeting of the general managers of the subsidiaries at the Hotel Crillon, sought their cooperation during the period before the contemplated transfer could take place, offered a substantial bonus in the event that the transaction was completed as contemplated, and introduced Muller as the intended buyer. He then left the meeting and returned to New York. Muller remained and discussed the business of the subsidiaries with the general managers, and attended the SICOB show and a reception given at the Hotel Intercontinental for the general managers and suppliers to the subsidiaries. These events ended up as charges to Muller's bill at the Crillon, as did the charges for the living expenses of Muller's party, all of which were subsequently paid for by the French subsidiary. SCM seeks repayment of approximately $14,000 by way of counterclaims, more to establish some of the color surrounding these events than to be made whole financially, and of course Muller is responsible for any expenses not related to his business activities. The evidence presented, however, has been inconclusive as to the amount properly attributable to Muller's personal expense.
*1264 The Drafting Period
After returning to New York a first draft of an agreement on the sale of one of the subsidiaries was prepared by Mannion. It was considered to be incomplete by the Hardee Barovick firm, some words were had on the subject, and by early November SCM retained Messrs. Sullivan & Cromwell to assist in the negotiations and preparation of agreements.
On November 8, 1976, SCM's Board of Directors adopted the following resolution:
RESOLVED, that the officers of the Company be and hereby are authorized to negotiate the sale of the Business Equipment Division copier operations in England, France, Germany, Belgium (including distributor operations) and Switzerland to N. Norman Muller or a company(ies) owned by N. Norman Muller at such prices and pursuant to such other terms and conditions, as in its absolute discretion, may be approved by the Executive Committee of the Board of Directors....
It is undisputed that both parties anticipated that a final written agreement would be reached and executed, an anticipation that, of course, was never fulfilled although a closing date of March 31, 1977 was acceptable to Rodich and was subsequently advanced at SCM's request as more fully set forth below. Meetings were held between counsel on November 16, 17, 18 and December 10 and with the participation of the respective clients on December 15 and 16. Drafts were discussed and negotiated. The starting points for these discussions were the thirteen points outlined by Rodich in August and September and accepted by Muller before the SICOB trip. The negotiations produced a number of refinements and changes.
The non-copier assets of the French, German, Swiss and Belgian subsidiaries, the shares of which were to be acquired by Muller, were not to be stripped out prior to closing but rather to be transferred to third parties, affiliates of SCM, for cash. Since the transaction contemplated a purchase price based on the formula described above, this change increased the cash in the subsidiaries at the time of closing and thus increased the cash required to close.
Throughout it was understood that SCM was concerned about its employee severance liability and its good will. Clauses were drafted to prevent dividends, loans and pledges which would transfer funds from the Muller operating companies to Muller or his holding companies.[2] These clauses were designed to prevent Muller from removing assets from the subsidiaries but did not by their terms prevent any other transfer pledges or loans to third parties.
SCM sought to obtain a personal guarantee from Muller and a commitment to operate the subsidiaries for three years. The request was refused, and no provision appeared in the last drafts on this subject. SCM sought a provision requiring approval by its Board of Directors before signing, a request which was rejected in view of the action already taken and upon the view of SCM's counsel that the signature would not be affixed unless the agreement was approved.
At the negotiations at the Atrium Club in August, SCM had sought reassurance as to Muller's financial competence. The Dun & Bradstreet and Bishop's reports had been reviewed. During the negotiations in the fall SCM sought Muller's personal guarantee and certified financials but these requests were rejected by Muller. The issue was resolved by the limitation on upstream pledges, loans and dividends, the purpose of which was to prevent the transfer of funds to Muller which might jeopardize the viability of the subsidiaries.
During this period from September through December it was understood by all concerned that the companies which were to be the subject of the agreement were being operated by SCM for the benefit of *1265 Muller. So-called "Flash Reports," weekly forms reporting the pertinent financial data, were shared with Muller. Rodich had instructed DeMaio to keep Muller apprised of all developments. No significant problems were raised or discussed between the parties during the period concerning the operation of the business in the normal course. However, one significant development, relating to the production and marketing of a plain paper copier, began to cast a shadow over the business picture.
DeMaio, after being instructed in the fall of 1975 that SCM intended to cast his division adrift, loyally assisted in the plans to locate a willing buyer to whom the business could be transferred. However, he was persuaded that the viability of the business even to its new owners required the capacity to compete in the plain paper copier field whether or not SCM had determined to abandon this field. To this end he had obtained Rodich's agreement to travel to Japan in the spring of 1976 to select a manufacturer of a plain paper copier and arrange for its production as recounted above. By early fall he had exchanged correspondence with Mita relating to the production of a plain paper copier, its testing and the purchase of a number of copiers. Muller shared DeMaio's belief that the availability of a plain paper copier was essential to the health of the European subsidiaries. The SICOB show was the public debut of the Mita plain paper copier, and the European managers were encouraged and enthusiastic, shared DeMaio's hope for the success of this product and the consequent commissions on sales, a factor which served to hold the sales organizations together during this period of uncertainty. Orders for sales were taken for production to commence some time around the first of the year, and these orders appeared on the Flash Reports.[3]
It was anticipated that the Mita copier would cost in the neighborhood of $3,000 and be sold for approximately $4,000 and that approximately 2,000 units would be involved in the first year's production. Thus an initial investment of $6 million was in contemplation. Since SCM in its 1976-77 budget had determined to reduce its commitment to the copier business and to liquidate its investment, and since Muller felt that plain paper copiers essential to his ability to carry on the business, the production of the plain paper copier had the potential of presenting a significant divergence in business objective between Muller and SCM. However, only the tip of this issue could be perceived on the horizon in mid-December, and neither of the parties focused upon it. By all that had been discussed between the parties and their counsel, the operation of the business was proceeding to the satisfaction of each.
The Agreement and Final Events of 1976
By mid-December counsel had produced 16 drafts, and pressures were building up for a resolution. Rodich was to be reassigned as of January 1, 1977 to become President of the Chemical and Metallurgical Division of SCM headquartered in Baltimore, and as the principal negotiator for SCM he sought to conclude the discussions. He called a meeting at SCM for December 15 to be attended by all counsel and their clients with the purpose of clearing up all matters then outstanding.
Rodich, Muller, and DeMaio, Robert Kay, and Ronald Konecky, counsel for the buyer, John Merow and Charles Sprague, counsel for the seller, James Conway, the chief auditor of SCM and Ben Evans, the S. D. Leidesdorf partner bearing accounting responsibility for Muller, and two other lawyers all testified as to the conduct of this meeting. Two drafts were discussed, one a "Global" Agreement between buyer and seller and the second, the agreement for the sale of the French company which was intended not only to serve to govern that transfer but also to serve as a prototype of the agreements to be completed with respect to the Belgian, Swiss and German *1266 companies. It is undisputed that the drafts were reviewed, page by page, and all open issues were sought to be resolved. Parties caucused in various groups, discussions were held, and agreement was reached wherever possible. It was contemplated that another draft would be generated by Sullivan & Cromwell, and indeed on the evening of December 15 another draft of the Global Agreement was produced.
The meeting continued on December 16, and at its conclusion the assembled group was asked by Rodich whether there were any open terms, and none were advanced. Sullivan & Cromwell was to provide agreements embodying the discussions. The negotiators were released, and adieus, season's greetings and congratulations were exchanged. Rodich escorted Muller to DeMaio's office, and advised the latter that the meetings had been successfully completed. Whether or not Rodich stated, as recalled by Muller and DeMaio, "Frank, shake hands with your new boss, the deal is done," the import of the meeting with DeMaio was to acknowledge in an informal manner the transfer of power. In addition Rodich took Muller to Egli's office and advised Muller that Egli would finish up the transaction. He also informed the finder that his fee could be expected around Christmas or shortly thereafter.
On December 16, the Board of SCM met and the following minute was made with respect to Elicker's report:
He commented on the sale of the European copier business and the assignment of domestic copiers to Allied Paper.
By deposition Elicker expanded on this subject, stating that he had informed the Board that he remained hopeful, that the negotiations were "stuck," that Rodich's transfer would be completed and that Egli would take over for the short and temporary period remaining.
Elicker also testified by deposition that a receivable for the Muller transaction had been booked by the Board in 1976. Both Egli and Conway disputed this fact, and testified that no such entry appears on the SCM books. Egli also indicated that Elicker must have confused the September write-down of the copier assets when he testified about this receivable. Given the clarity of Elicker's pretrial deposition, his absence at trial, the testimony of Conway that such an entry would not have been made for about ten days after year-end, and the findings shortly to be described concerning Egli's year-end memo, the preponderance of the evidence weighs on the side of the existence of the booking.
Just after the meeting, on behalf of Muller the following request was made to the French government for approval of the transaction:
[SCM] has come to an agreement with Mr. Norman Muller, a U.S. citizen, under which the Group of the latter will take over the SCM copier business in some of the European countries, i. e., West Germany, Belgium, the United Kingdom, Switzerland, and France.
As the negotiations were being held DeMaio telexed to Mita seeking to complete the plain paper copier transaction and confirming a Letter of Intent between Repro-system and Mita for the purchase of about $6,000,000 worth of plain paper copiers from Mita. On December 16 DeMaio also notified Mita that
we have agreed, on December 15, 1976, to the final terms and conditions pertaining to the sale of the six European companies and the distribution right in all other countries in all of Europe, the Middle East and Africa.
While the negotiations were in progress, DeMaio had prepared a telex for the managers keeping them advised of the events. Rodich approved the telex and it was transmitted on December 17. It read:
This is a brief report on the status of our negotiations to sell the Europe, Middle East and African copier group to N. Norman Muller.
I am sure you appreciate that the complexity of the transaction has made negotiations and workload much more extensive than anyone anticipated. However, we now feel that the problems are resolved and that the deal is made subject *1267 to approval by various government agencies.
Before year end the DeMaio letter to Mita was reviewed by Rodich and the SCM inside counsel. They perceived the danger of a long term commitment, as did Muller who on December 20 rejected any responsibility prior to taking title. SCM urges that this refusal by Muller evidences the lack of an agreement. A more rational inference is that Muller merely sought to defer his obligations until the expected closing. On December 28 Rodich wrote to Mita as follows:
I have had an opportunity to review Mr. F. D. DeMaio's letter of December 16, 1976, with which he transmitted a `Letter of Intent' in the name of Reprosystems, B.V. for the purchase of Copystar Model 251R.
As you are aware, SCM is in the process of selling its European based office copier business to Reprosystems, B.V. We have every reason to believe that this sale will be consummated; however, it is not possible to accurately state when the transaction will be completed.
We want to be sure that you understand that Mr. DeMaio's communication was on behalf of Reprosystems, B.V. and not SCM Corporation and that performance under the `Letter of Intent' is a legal and financial responsibility of Reprosystems B.V.
Reprosystems will be licensed by SCM to use its trademarks on copier products sold through the organizations which they will be acquiring. We understand that Reprosystems, B.V. intends to strengthen and expand its copier business, and we hope that Mita and Reprosystem will have a long and mutually profitable relationship.
After the negotiations of December 15 and 16 Egli again sought reassurance with respect to Muller's financial capacity and requested a financial statement which he said would be reviewed only by Rodich and Elicker and be held in confidence. This statement, supplied by Muller on December 20, 1976, showed a net worth of $6,179,000. History and the vigor of SCM's counsel has revealed that these assets were overstated, including as they did certain assets of Muller's wife and some evaluations of control stock that could have been the subject of varying opinions. In fact, on the same day, in connection with anticipated bank financing, Muller submitted more conservative figures to the Chemical Bank, which presumably had previously acquired data on Muller's assets. Muller set forth a net worth of $3,617,000 to the bank. However, in December, 1976 SCM chose not to pursue any further inquiry into Muller's finances.
On December 27 Sullivan & Cromwell provided what in the lexicon of this litigation have been termed the Final Drafts of the Global Agreement, and the French, Belgian, German and Swiss Purchase Agreements. On January 5 these were supplemented by the Final Drafts of the United Kingdom and Chur Asset Purchase Agreements. These Final Drafts, accomplished in the manner described, constituted written agreements between the parties on all material terms relating to the proposed sale, and it was so understood by all those involved as of the morning of December 31, 1976. It was also expected and understood that these Final Drafts might be subject to some minor changes and that they would be executed in the near future. The Global Agreement contained standard language to the effect that it as well as each of the Purchase Agreements would become binding only upon execution.
Counsel's notes indicate certain reservations of Muller's counsel concerning the non-competition, dividend limitation, severance liability, and SCM indemnity clauses in the Final Drafts, but no testimony was adduced to establish that these represented serious, deal-breaking issues for Muller. Indeed the most serious of these issues from SCM's professed point of view, the employee severance liability, engendered simply a query. The other clauses had been previously discussed and resolved so that renegotiation was not likely, despite the mark-ups made by Palley, one of Muller's counsel. In view of Muller's testimony concerning his own understanding of the transaction after *1268 the meeting of December 15 and 16 and Palley's testimony, the latter's notes represent no more than a careful lawyer's review in preparation for a further discussion with either his client or the other side, neither of which took place. Although some uncertainty existed with respect to the tax results of the French transaction and the time by which the necessary Bank of England approval could be obtained, these uncertainties were to be resolved by third parties and the preponderance of the evidence does not establish that these uncertainties were sufficient to negate the understandings set forth in the Final Drafts.
The Disagreement and Events in 1977
In accordance with his practice of reviewing financial matters at the end of each quarter and in order to familiarize himself with the transaction, Egli took home on New Year's Eve certain of the documents relating to the proposed sale to Muller. He reviewed the transaction and then made notes of his findings. These notes became the basis of his recommendation to Elicker on January 3. The handwritten notes were introduced, and the alternatives as viewed by Egli were described as follows:
Present Alternatives
1) Resolve open [Muller deal] issues & get contract signed (good for Muller not good for SCM).
2) Slow down on signing contract & send team to Europe to study other approaches to liquidating our investment.
3) Ask for cash payment put into escrow.
4) Kill deal and:
a) Try to spend $2.0-$2.5 [million] on liquidation before 6/30/77 to reduce taxes.
b) Develop a specific plan for each disposition separately.
These alternatives and the financial implications were discussed with Elicker and Hall, Senior Vice President-Administration of SCM on January 4, 1977. Although there is no report of the substance of any internal SCM discussions concerning the finances of the copier business, by year-end it was apparent to Egli that net income for the first half of the fiscal year would be in the neighborhood of $500,000, almost the prior estimate of $600,000 in profits for the entire year. By the projected closing date Egli estimated profits of over $1.2 million. Given the cash implications of the transaction, to be discussed below, it is inferred that these calculations resulted in Egli's conclusion that the deal was "good for Muller, not so good for SCM." Egli testified that at the January 4 meeting, it was determined that SCM would proceed with the deal, attempting to resolve all open issues. In that connection Egli presented at the meeting the following items, first noted in his December 31 memo:
1. Accrued vacation and holiday pay.
2. Interest on purchase price from 8/31.
3. 8/31 audit adjustments and calculation of purchase price.
4. Muller's ability or willingness to finance as necessary.
5. Timing of closenow after 3/31/77.
6. PPC's. [plain paper copiers]
7. Which [general managers] are going with Muller ....
8. Gov't approvals.
Only one of these issues interest on the purchase price had not been the subject of previous discussion, and none represented material issues beyond resolution except perhaps whatever was indicated by the item "PPC's," but in any case this item was not amplified or explained on January 5 when Egli met with Muller and his counsel Kay.
Prior to that meeting and subsequent to his meeting with Elicker, Egli met with counsel from Sullivan & Cromwell, and all open items were discussed. No testimony has been adduced that there was discussion at that meeting to the effect that the deal should be killed, and indeed there is no direct testimony from any SCM witness that the formal termination of negotiations which occurred later on February 2, 1977 resulted because of an intention of SCM to defeat the transaction.
From January 4 to February 2, 1977 events moved rapidly and quite inexorably. *1269 Despite Muller's belief that Egli's function was simply to conclude the arrangements, Egli at the January 5 meeting placed unresolved issues on the table adding four additional items to those he had noted over the weekend. Kay, having returned from the holidays, did not rejoin but merely recorded the positions taken by Egli. In the course of this meeting Egli stated his intention to visit the subsidiaries, a trip to which Muller objected, stating that it made more sense to accelerate the paperwork and complete the transaction. Egli insisted on the trip, the purpose of which was not satisfactorily explained by Egli at that time or at trial. DeMaio objected to the trip, carried his objections to Elicker and was overruled. DeMaio heard immediately after the trip from the managers of the subsidiaries who told him that Egli had indicated serious doubts about the completion of the transaction.
On January 11, William Cawley, Vice President and Treasurer of SCM, wrote to Muller and suggested that the SCM policy relating to equipment held for lease had not been complied with and that certain action would be taken. The letter further stated:
As you know, the contract requires SCM to carry on the business of the European companies in the ordinary course during the period between September 1 and closing. Our lawyers tell us that since those instructions may be construed to be not in the ordinary course that we should request your consent.
In fact, the evidence at trial established that Rodich had authorized the "additional investments" which were the subject of the letter.[4] The letter is significant since Cawley testified by deposition that it was written at Egli's request and during his European trip. The inference is thus drawn that after consultation with counsel, Egli viewed the Final Drafts as a contract and had embarked upon a change of direction for the European subsidiaries.
Egli then for the first time sought evidence of Muller's capacity to pay the cash required at closing, discussing the transaction with officers of the Chemical Bank. The bank provided Muller with an informal non-binding commitment letter dated January 20, 1977 which was turned over to SCM. Although SCM also used the resources of the Chemical Bank and although Conway of SCM had been in touch with the bank on the subject of Muller's financing, no further inquiries were made. In fact, unbeknownst to SCM, Muller had obtained the letter from Chemical on the understanding that the cash in the subsidiaries to be acquired would immediately be used to pay the purchase price advanced by the bank, an understanding which gave rise to serious questions raised by SCM after the litigation had commenced and which are dealt with below. Although the closing date had been fixed at March 31, Egli insisted, without objection by Muller, on its advance to February 28.
The purchase price and the attendant cash required to close had been the subject of calculations by the accountants on more than one occasion. Both Evans, representing Muller, and Conway of SCM were in agreement on the values as of August 31, 1976, and the formula to obtain adjustments to make these numbers current as of the closing date. Indeed the variation between the calculations as of the end of August and those at the end of November and December was relatively insignificant, the cash required to close hovering around $4.25 million. However, this figure took a significant jump in January. This increase resulted from a recalculation of certain Swiss accounts receivable prior to August 31, and most significantly from the demand for interest on the purchase price, approximately $145,000, and the request for $540,000 which resulted from an inter-company transfer. This transfer involved a loan from the German subsidiary to a Canadian *1270 SCM subsidiary, and the treatment of the exchange rates had significant tax effects. The work papers relating to this transaction were never turned over to Muller's accountants nor was the entry satisfactorily explained either at the time to Muller's representatives nor during the trial to the court. However, whatever ultimately might have been the accounting effect of this transaction, Muller agreed to accept the adjustment as presented. There was, however, no agreement on the demand for interest on the purchase price, and no evidence to counter the implication that this was an afterthought intended at the least to offset the profits earned by the subsidiaries.
Throughout the negotiations SCM had undertaken not to compete in the copier field, and indeed its stated purpose had been to withdraw from such competition. In January this stance was altered, SCM seeking to retain the ability to compete in the event that it acquired any copier rights from Xerox as a result of pending litigation.
However, the most significant actions taken by Egli related to operation in the normal course of business. Egli took steps to reduce the leasing of new equipment, presumably to increase cash sales. On January 11, as recounted above, SCM in effect withdrew the representation that the business had been conducted in the normal course. In addition Egli told Muller he intended to go to Europe to discuss the plain paper copier situation with Mita. Muller asked to accompany Egli who refused the request.
The plain paper copier issue had been precipitated by a request by Mita for a letter of credit to cover merchandise to be shipped. SCM, on the horns of a dilemma of its own making, sought to keep the relationship intact and at the same time to minimize capital commitment. On the second trip to Europe in January, Egli negotiated an understanding with Mita that relieved SCM of any substantial ongoing relationship but permitted the subsidiaries to meet their sales commitments. The substance of this negotiation was undertaken under a pledge of secrecy and substantially affected the business, as Egli knew it would.
Upon his return from Europe Egli met with Elicker, Rodich was called back to New York, and it was determined to fire DeMaio and the other New York administrators of the subsidiaries and their secretaries without discussion with Muller or any prior notice to him, although continuity of management had long been understood to be a consideration for Muller. Egli told DeMaio he was fired and directed that he be escorted out of the building. The firing of DeMaio previously a well-regarded executive of 11 years' standing,[5] resulted from the bottom line analysis by Egli of the financial results of the transaction and DeMaio's commitment to the continuation of the business on behalf of Muller, a course upon which DeMaio had earlier been set by Rodich in spite of the situation of inherent conflict that this created.
Egli explained the firing as a result of the Mita misunderstanding, a failure to implement the freeze on the leasing of new equipment, and an unconfirmed report that a controller in one of the subsidiaries sought to decrease the cash in the subsidiaries as of August 31, for Muller's benefit and at DeMaio's direction. In fact the freeze policy had been modified by Rodich unbeknownst to Egli, the reported event relating to the August 31 reports did not occur, and the report itself was neither investigated or confirmed. DeMaio's participation in the Mita transactions was known shortly after its occurrence and was faithful to the business-in-the-ordinary-course precept. The reasons given for the firing of DeMaio were pretextual, and therefore constitute significant evidence that Egli indeed sought to kill the deal.
*1271 By January 20, SCM issued a press release stating that it felt free to pursue "other alternatives" to a sale to Muller, who at the moment of being informed of this change of position was attendant upon an ill wife. He asked Conway to modify the language to soften its implication, a request which was refused.
On January 31 Muller wrote to Elicker seeking to enforce the agreement and on February 2 SCM formally terminated the negotiations. At no time did Egli carefully review or discuss the Final Drafts internally; at no time were any of the Final Drafts signed by any of the parties, nor did Muller ever tender the purchase price. In view of what was done as opposed to what may have been said at the meetings held on January 5, 6, 14 and 17, and on February 2, I find that SCM's financial interest required that the sale not go forward, that Egli realized that fact, that the actions taken in January, 1977 by Egli on behalf of SCM had the effect of slowing down the signing and killing the deal, and that a specific plan for disposition of each corporation was evolved, contrary to the Agreement in Principle and the Final Drafts. In other words, the acts performed require the inference that in January the responsible officers of SCM reached a conclusion to terminate the transaction with Muller.
The Ability to Perform the Agreement
Throughout the trial, if not during the negotiations, SCM insisted that Muller lacked the capacity to perform the transaction, and factual findings on this issue are required. At the outset it was understood that SCM was concerned about two significant items, its potential employee severance liability of approximately $6 million and its continuing bank guarantees. After Muller's refusal to give an undertaking to continue in business for three years and a personal guarantee, SCM sought security for the transferred companies through the restrictive provisions on pledges, loans and dividends described above, recognizing that the form of the transactions and the continuation of the companies in business with adequate funding were significant to its concerns.
As to the liability on bank guarantees, early on Muller undertook to have SCM removed from the guarantees. The pro forma financials submitted to the Chemical Bank in January in order to elicit its informal letter of commitment revealed short term loans of $2,363,000 as of November 30, 1976 as a liability of the new companies.[6]
Throughout the negotiations the requirement to produce a certified check at closing was the only provision relating to Muller's ability to close the transaction, other than the somewhat informal required financial representations already referred to. As evidenced by Muller's submissions to the Chemical Bank on January 7 it was his intention, at least at that point, to provide the cash required to close by a bridge loan, to be repaid out of the cash on hand in the acquired companies. In view of the facts now found, it is not necessary to determine the exact amount of cash required to close. If the transaction had gone forward on the basis of the Final Drafts, that amount would have been in the neighborhood of $4.5 million. Had all SCM's proposed accounting charges been accepted that amount would have been increased by approximately $1 million.
A substantial amount of testimony was adduced by both sides on the subject of Muller's capacity to perform the agreements represented by the Final Drafts. This included the refusal of Citibank in the early fall to provide financing and a similar refusal by the Chemical Bank International Division, though these refusals are by no means conclusive evidence on Muller's ability *1272 to finance the transaction. Citibank was dealing with different facts than those which were present in December, and Chemical had internal reasons for refusal. Nonetheless, these refusals do establish that financing for a $5 million transaction cannot be assumed.
It was agreed by certain witnesses for each side that some mention was made by Muller's representatives that they might seek to use the cash in the German company in connection with financing the purchase price. Muller and his representatives, Kay and Evans, all testified that it was understood by both sides that the cash on hand in the acquired companies could be used to finance the purchase price, and it is certain that some discussion along these lines, at least with respect to the German company, did take place. A review of the documentary evidence also establishes a preponderance of evidence that the issue was discussed, particularly in connection with the restrictive provisions which occupied a considerable amount of time in negotiation and drafting. The notes and recollection of Kay, Muller's counsel, are supported by a parallel reference in the notes of SCM's outside counsel relating to the same provision at the same meeting. In the vocabulary of the parties the entry "Purchase price may leave the pool" establishes the fact that the cash in the subsidiaries was considered with respect to Muller's financing, despite the inability of counsel for SCM to recall the significance of the phrase.
However, even though I find that this method of financing the purchase price was discussed between the parties, the discussion is relatively unimportant. SCM at no time sought to inhibit any such financing. The testimony concerning the commonality of such a practice is undisputed, and SCM could hardly be characterized as an ill-advised seller. There was no prohibition in the Final Drafts or in the discussions of the parties barring Muller from using the cash in the subsidiaries to assist in the financing of the purchase price.[7]
Of course, in the light of the facts so far found, it is obvious that Muller's ability to perform the contract he alleges cannot be established by anything that actually occurred, but rather by an assessment of what in all probability would have occurred. It is undisputed that Muller did not tender a certified check in the amount of the cash required at closing as it was calculated as of December 31, 1976 or for any other amount which might have been determined. Indeed, outside of the projected financing, no direct evidence was presented to establish that a source was available to provide the $4 million plus which would have been required. Muller's informal bank commitment letter from Chemical was just that. No commitment fee had been paid, and Chemical was not bound to produce the financing. Further, the projected financing depended on cash remaining in the companies to be sold.
Both Rodich and Muller testified that Muller had agreed to eliminate SCM's liability on the bank guarantees and that such a result could be achieved either by paying the loans or relieving SCM of its liability. It would not have violated the understanding between the parties for SCM to have required the subsidiaries to pay off the short term loans and overdrafts prior to closing, or to require Reprosystem to do so immediately after closing should the banks be unwilling to release SCM from its guarantees. SCM has successfully demonstrated that such an event would have stripped the subsidiaries of cash. Under such circumstances the contingent nature of the Chemical's informal commitment does not rise to the level of proof that Reprosystem would have been able to perform the contract and provide the necessary cash at closing. That Muller had assets, there is no doubt, but no direct evidence was presented as to the amount of cash which could have been generated by the use of these assets. Similarly, *1273 though the subsidiaries undoubtedly had value, no direct evidence was presented that any particular financial sources would have provided the bridge financing necessary. The commercial reality of Muller's ability to close the transaction was not established by a preponderance of the evidence.
CONCLUSIONS OF LAW
The facts as found above do not lead to simple conclusions of law, to be recited as first principles, known and recognized from the beginning of recorded legal history. What has been described is the complicated interaction which takes place when major corporations dispose and acquire substantial assets. Such transactions require lines to be drawn, projected from earlier established principles which then define duties and obligations perhaps not previously perceived or articulated as such.
In this instance the parties in December, 1976, agreed upon all material terms of a contract which was to be embodied in a final agreement to be executed. An agreement was reached, and that agreement required the good faith action of both parties to complete the transaction. SCM's acts from December 31 are inconsistent with its duty to perform its agreement to act in good faith. SCM has been unjustly enriched with profits earned on Muller's account, and must disgorge those profits as the most readily available approximation of the relief to which Muller is entitled in damages and restitution. On the other hand, given the failure of Muller to establish that Reprosystem was ready, willing and able to perform the bargain, Muller is not entitled to damages based on any profit which he might achieve had the end-transaction been performed, or full expectation damages measured in any other way.
SCM's acts, described above, while in violation of its obligations to Reprosystem, were motivated not by an intent to defraud or deceive but simply out of a careful financial analysis, not rising to the level of fraud under the securities laws or common law. It seems almost implicit that the federal claim, though facially sufficient, served principally to establish initial jurisdiction, which was accomplished without objection or motion. The claim, however, is insufficient both as a matter of law and fact.
The Securities Claim
If the strict language of Section 10(b) of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, were to be applied automatically because a sale of securities was contemplated, then virtually every sale of a business structured as was this transaction would call into play the panoply of rights and remedies under the securities law. An examination of the essential purpose of such laws is required whenever this outreach is sought.
The subject matter of this lawsuit is the purchase and sale of a business, even though that purchase and sale in part involved a transfer of ownership evidenced by stock. Recently, the Seventh Circuit Court of Appeals confronted the question of "whether alleged fraud regarding the sale of assets and stock in a corporation falls within the scope of [the federal securities] laws." In Frederiksen v. Poloway, 637 F.2d 1147, (7th Cir. 1981), cert. denied, ___ U.S. ___, 101 S. Ct. 3006, 69 L. Ed. 2d 389 (1981), it was held that the acquisition of a marina did not involve a "security" within the purview of the federal securities law. The court, at 637 F.2d 1150, quoted the following observation of the Supreme Court in United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 849, 95 S. Ct. 2051, 2059, 44 L. Ed. 2d 621 (1975):
The primary purpose of the Acts of 1933 and 1934 was to eliminate serious abuses in a largely unregulated securities market. The focus of the Acts is on the capital market of the enterprise system: the sale of securities to raise capital for profit-making purposes, the exchanges on which securities are traded, and the need for regulation to prevent fraud and to protect the interest of investors.
The Frederiksen court noted further the conclusion of the Court in Forman that the securities laws do not apply when the goal *1274 of a purchaser is not investment, but a desire to "use or consume the item purchased." 637 F.2d at 1150, quoting 421 U.S. at 852-53, 95 S.Ct. at 2060-61.
The 1934 Act provides that "[t]he term security means any ... stock," 15 U.S.C. § 78c(a)(10); but that definition, as are all the definitions in § 78c(a), is preceded by the phrase "unless the context otherwise requires;" the definition of "security" in the 1933 Act is prefaced by the same phrase, 15 U.S.C. § 77b(1). Although the transaction involved in Frederiksen appeared to be within the letter of the 1934 Act it was not given the commercial as opposed to investment character within the spirit, nor within the intention of its makers. Id. at 1150. Indeed, as the Frederiksen court noted, the "literal application" argument was specifically rejected by the Court in Forman, supra, 421 U.S. at 848, 95 S.Ct. at 2058, in the following terms:
We reject at the outset any suggestion that the present transaction evidenced by the sale of shares called `stock,' must be considered a security transaction simply because the statutory definition of a security includes the words `any ... stock.' Rather we adhere to the basic principal that has guided all of the Court's decisions in this area:
`[I]n searching for the meaning and scope of the word "security" in the Act[s], form should be disregarded for substance and the emphasis should be on economic reality.' Tcherepnin v. Knight, 389 U.S. 332, 336 [88 S. Ct. 548, 553, 19 L. Ed. 2d 564] (1967).
As in Frederiksen, the "economic reality" of this transaction was that Muller intended to manage and operate the business and had no intention to rely on the present and future efforts of SCM to produce profits. Thus, the securities law claim fails for the reason that the contemplated transaction did not involve an investment of money in a common enterprise from which the profits were expected "to come solely from the efforts of others." Int'l Brhd. of Teamsters v. Daniel, 439 U.S. 551, 558 & n.11, 99 S. Ct. 790, 815, 58 L. Ed. 2d 808 (1979), quoting Forman, supra, 421 U.S. at 851-522, 95 S.Ct. at 2060; SEC v. W. J. Howey Co., 328 U.S. 293, 301, 66 S. Ct. 1100, 1104, 90 L. Ed. 1244 (1946); Williamson v. Tucker, 632 F.2d 579, 592-601 (5th Cir. 1980); Glen-Arden Commodities, Inc. v. Costantino, 493 F.2d 1027 (2d Cir. 1974); Barsy v. Verin, 508 F. Supp. 952 (N.D.Ill.1981); Wieboldt v. Metz, 355 F. Supp. 255 (S.D.N.Y.1973).
Further, the claimed frauds of overstated assets and inflated income were not made with the scienter required to be established under the federal securities laws or under the common law. As set forth above, these were projections made in good faith. The profit projection proved to be more or less accurate although SCM management believed otherwise at one time. Although the assets described to Muller in the spring of 1976 may have been overstated by a million dollars, there is no evidence that such overstatement was made with a fraudulent intent or even recklessly. See Aaron v. SEC, 446 U.S. 680, 100 S. Ct. 1945, 64 L. Ed. 2d 611 (1980); Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976); Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 165 (2d Cir. 1980); Samuels v. Eleanora Baheer, B.V., 500 F. Supp. 1357, 1361-62 (S.D.N.Y.1980).
Of course, it has been found as fact above that SCM had determined not to complete the transaction after Egli's analysis at the end of 1976. There was no statement to that effect, and SCM sought to imply that it still intended to go forward with the transaction. There was, however, no misrepresentation to that effect. At worst there was a failure to disclose the fact of a decision to "kill the deal." Were the federal securities laws applicable, this omission would require further analysis. In the last analysis there was no purchase and sale of a security, and despite the dutiful citation of Omega Executive Services, Inc. v. Grant, [1979 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 96,848 at 95,445 (S.D.N.Y.1979) by Reprosystem, the securities laws are thus inapplicable.
The Contract Claim
These conclusions simply return the court to where the parties have been throughout *1275 the litigation, the determination of New York law with respect to the rights and liabilities of parties seeking to contract.[8] Several principles of law relevant to the determination of whether a contract existed are urged by the parties as "ancient," "cardinal" and "controlling." As is often the case, initial guidance is derived from Judge Weinfeld:
The day is long past when a red ribbon and seal is required upon documents which contain the terms of the parties' agreements in order to validate such agreements.
Royal Indemnity Co. v. Westinghouse Elec. Corp., 385 F. Supp. 520, 522 (S.D.N.Y.1974). Indeed, it is well established that where parties reach an agreement they are bound by it, whatever its form and however it is manifested. See e. g., Kleinschmidt Div. of SCM Corp. v. Futuronics Corp., 41 N.Y.2d 972, 395 N.Y.S.2d 151, 363 N.E.2d 701 (1977); Sanders v. Pottlitzer Bros. Fruit Co., 144 N.Y. 209, 39 N.E. 75 (1894).
What is looked to in determining whether an agreement has been reached is not the parties' after-the-fact professed subjective intent, but their objective intent as manifested by their expressed words and deeds at the time. Brown Bros. Electrical Contractors, Inc. v. Beam Constr. Corp., 41 N.Y.2d 397, 393 N.Y.S.2d 350, 352, 361 N.E.2d 999, 1001 (1977). If the parties' expressions and conduct would lead a reasonable man to determine that they intended to reach a binding agreement, their agreement will be enforced. Phillip v. Gallant, 62 N.Y. 256, 263 (1875). In determining whether the parties entered into a contractual agreement and what were its terms,
disproportionate emphasis is not to be put on any single act, phrase, or other expression, but, instead, on the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain [citations omitted].
Brown Bros., supra, 393 N.Y.S.2d at 352.
Moreover, while there is no enforceable agreement if the parties have not agreed on the essential terms, Interocean Shipping Co. v. Nat'l Shipping & Trading Co., 462 F.2d 673, 676 (2d Cir. 1972); ABC Trading Co. v. Westinghouse Elec. Supply Co., 382 F. Supp. 600 (E.D.N.Y.1974), in New York and across the country a binding contract can be formed despite "material open issues." See e. g., N.Y.U.C.C. ("UCC") 2-204, (McKinney 1964). As the New York Court of Appeals held in Kleinschmidt, supra:
Under the Uniform Commercial Code [2-204(3)], if the parties have intended to contract, and if an appropriate remedy may be fashioned, a contract for sale does not fail for indefiniteness if terms, even important terms, are left open .... It is no longer true that dispute over material terms inevitably prevents formation of a binding contract. What is true ... is that when a dispute over material terms manifests a lack of intention to contract, no contract results.
. . . . .
Thus, when there is basic agreement, however manifested and whether or not the precise moment of agreement may be determined, failure to articulate that agreement in the precise language of a lawyer, with every difficulty and contingency considered and resolved, will not prevent formation of a contract ....
395 N.Y.S.2d at 152, 363 N.E.2d at 702. If the parties fail to work every aspect of the agreement out, such terms can be resolved by the court. See e. g. United States v. Bedford Associates, 657 F.2d 1300 at 1310, 1311 (2d Cir. 1981); V'Soske v. Barwick, 404 F.2d 495 (2d Cir. 1968); American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F. Supp. 597 (S.D.N.Y.1971). Even failure *1276 to agree expressly on the payment terms does not alone prevent an enforceable agreement. Rose v. Spa Realty Associates, 42 N.Y.2d 336, 397 N.Y.S.2d 922, 366 N.E.2d 1279 (1977).
It is recognized that if the parties intend not to be bound until they have executed a formal document embodying their agreement, they will not be bound until then. Int'l Telemeter Corp. v. Teleprompter Corp., 592 F.2d 49, 56, and 57-58 (Friendly, J. concurring); V'Soske, supra, at 499; Chromalloy American Corp. v. Universal Housing Systems of America, Inc., 495 F. Supp. 544, 550 (S.D.N.Y.1980); Scheck v. Francis, 26 N.Y.2d 466, 311 N.Y.S.2d 841, 260 N.E.2d 493 (1970); UCC 2-305(4); Restatement (Second) of Contracts § 32, comment c (Tent. Drafts 1-7, 1973); 1 Williston on Contracts § 28 at 66-67 (3d ed. 1957). On the other hand the mere fact that the parties contemplate memorializing their agreement in a formal document does not prevent their less formal agreement from taking effect prior to that event. Teleprompter, supra; V'Soske, supra; Banking & Trading Corp. v. Floete, 257 F.2d 765, 769 (2d Cir. 1958); see also Sommer v. Hilton Hotels Corp., 376 F. Supp. 297 (S.D.N.Y. 1974); Tymon v. Linoki, 16 N.Y.2d 293, 266 N.Y.S.2d 357 (1965); APS Food Systems, Inc. v. Ward Foods, Inc., 70 A.D.2d 483, 421 N.Y.S.2d 223 (1st Dep't 1979); S. J. Groves & Sons Co. v. L. M. Pike & Son, Inc., 41 A.D.2d 584, 340 N.Y.S.2d 230 (4th Dept. 1973); Zirman v. Beck, 34 Misc. 2d 597, 225 N.Y.S.2d 330 (Sup.Ct.Bronx.Co.1962); Karson v. Arnow, 32 Misc. 2d 499, 224 N.Y.S.2d 891 (Sup.Ct.N.Y.Co.1962). As put succinctly by Professor Corbin:
The parties have power to contract as they please. They can bind themselves orally or by informal letters or telegrams if they like. On the other hand, they can maintain complete immunity from all obligation, even though they have expressed agreement orally or informally upon every detail of a complex transaction. The matter is merely one of expressed intention. If their expressions convince the court that they intended to be bound without a formal document, their contract is consummated, and the expected formal document will be nothing more than a memorial of that contract. [footnote omitted].
1 A. Corbin Contracts, § 30 at 98-99 (2d ed. 1963).
Again, these rules are but aspects of a broader governing principle which looks to reality and substance in a transaction, not form. As noted in V'Soske, supra, 404 F.2d at 499:
Contract law has progressed and evolved sounder principles since the days of ritualistic and formalistic sealed instrument requirements. Thus, these rules, placing the emphasis on intention rather than form, are sensible and reasonable.
This objective theory of contracts was stated by Judge Learned Hand in Hotchkiss v. National Bank of New York, 200 F. 287, 293 (S.D.N.Y.1911), aff'd, 201 F. 664 (2d Cir. 1912), aff'd, 231 U.S. 50, 34 S. Ct. 20, 58 L. Ed. 115 (1913), as follows:
A contract has, strictly speaking, nothing to do with personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort.
See Brown Bros., supra, 393 N.Y.S.2d at 351-52, 361 N.E.2d at 1000-02.
In a series of decisions which I find controlling here, our circuit has applied this objective theory of contracts to various transactions, some involving the transfer of substantial business entities, and found a contract to exist from an oral or informal agreement.
In American Cyanamid Co. v. Elizabeth Arden, supra, it was held that in a letter agreement for the purchase of a "far flung business" from a large and sophisticated *1277 corporation for about $35,000,000, it was not fatal to fail to include representations and warranties, to leave to further negotiations questions relating to an escrow fund for the purchase price, to fail to establish accounting principles to verify the net worth, and to omit the closing date. Similarly, an oral contract with Joseph E. Seagram & Sons, Inc. to provide the plaintiff with an opportunity to purchase a wholesale liquor distributorship of an approximate value and profit potential within a reasonable time has been upheld as sufficiently definite to be enforceable. Lee v. Joseph E. Seagram & Sons, Inc., 413 F. Supp. 693 (S.D.N.Y. 1976), aff'd, 552 F.2d 447 (2d Cir. 1977).
In V'Soske, supra, an informal exchange of "correspondence" resulted in an enforceable contract for the purchase of a business for approximately $1.7 million, even though the parties contemplated the subsequent execution of a formal written agreement. In Teleprompter, supra, International Telemeter and Teleprompter had engaged in a sequence of negotiations over the terms of an agreement settling complex patent litigation. A series of drafts of the settlement agreement was exchanged, and the parties orally agreed on the terms of the settlement. However, prior to delivery of the signed settlement documents, new management at Teleprompter refused to proceed with the settlement agreement. The Second Circuit upheld the District Court's finding under New York law that since the parties had reached a final agreement and had manifested objective indications of their intent to be bound, the settlement agreement would be enforced. In Viacom Int'l, Inc. v. Tandem Productions, Inc., 526 F.2d 593, 595-96 (2d Cir. 1975), an oral agreement governing distribution and syndication rights for the television program "All In The Family" was held to be binding. Accord, Ellis Canning Co. v. Bernstein, 348 F. Supp. 1212 (D.Colo.1972); Itek Corp. v. Chicago Aerial Industries, Inc., 248 A.2d 625 (Sup.Ct.Del.1968).
Thus, the objective manifestations of SCM and the plaintiffs must be weighed by the court and the line drawn between the competing principles set forth above. The weighing has been done, and it has been determined as a matter of fact that eventually both parties intended to be bound by the Final Drafts. Taking into account the totality of the parties' objective manifestations of intent as the transaction progressed and the circumstances surrounding the negotiations, I reject SCM's contention that a final signing would be required to constitute a binding agreement. In the circumstances at bar, SCM's indeed, both parties' contemplation of subsequent formal signed agreements did not overcome the objective facts which established an agreement. Implicit here, as well, is my conclusion that none of the contract terms which remained open after consensus was reached on the Agreement in Principle and then on the Final Drafts were such, taken separately or together, as to prevent the agreements from taking effect. The indefiniteness of the purchase price was insignificant in light of the formula provided by the parties for the court, if necessary, to give content to that term. United States v. Bedford Associates, supra, 657 F.2d at 1310. Additionally, the alleged need for SCM Board approval of any final agreements, e. g. Ashton v. Chrysler Corp., 261 F. Supp. 1009, 1013 (E.D.N.Y.1965); Weisner v. 791 Park Avenue Corp., 6 N.Y.2d 426, 434, 190 N.Y.S.2d 70, 75-76, 160 N.E.2d 720, 724 (1959), is without significance here, given the language of the Final Drafts and the involvement of the Board in the agreements already reached.
Nor is the existence of the agreement defeated by the requirements of the statute of frauds. Indeed, SCM does not seriously dispute the point.[9] It is well-established *1278 under New York law that the memorandum required by the statute of frauds need not be incorporated in a single document, but may be derived from several documents which relate to each other, only one of which need be prepared by the defendant. Weitnauer Trading Company Ltd. v. Annis, 516 F.2d 878, 880 (2d Cir. 1975); Great Destinations, Inc. v. Transportes Aereas Portuguese S.A.R.L., 460 F. Supp. 1160 (S.D.N.Y.1978); Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551 (1953); APS Food Systems, supra, 421 N.Y. S.2d at 225. The court in the Crabtree case thus recognized that the law "permit[s] the signed and unsigned writings to be read together, provided that they clearly refer to the same subject matter or transaction." 305 N.Y. at 55, 110 N.E.2d 551.
The statute of frauds requirements have been satisfied by the Final Drafts and the acts of SCM as found above, including the December 17, 1976 telexes to the general managers of the copier subsidiaries, the December 16, 1976 letter signed by Frank DeMaio to Mita Holland B.V., the testimony concerning the meetings of December 15 and 16 and the documents prepared on or about December 31, 1976 by Herbert Egli, referring to "the deal."
However, although under these principles a contract has been established, the matter does not end there. Even having established an enforceable agreement a plaintiff cannot be allowed to recover for an alleged breach of contract unless he can establish by a preponderance of the evidence that the defendant would have received "substantially what he bargained for." 6 Williston, supra, § 884 at 402. See United States v. Penn Foundry & Mfg. Co., 337 U.S. 198, 69 S. Ct. 1009, 93 L. Ed. 1308 (1949); United States Overseas Airlines, Inc. v. Compania Aerea Viajes Expresos de Venezuela, S.A., 246 F.2d 951, 952 (2d Cir. 1957); Hodes v. Hoffman Int'l Corp., 280 F. Supp. 252, 258-59 (S.D.N.Y.1968). Here, under both common law and the UCC, the spurned buyer's right of action for anticipatory breach depends on his shouldering the burden of demonstrating his readiness, willingness and ability to tender performance when due. See Scholle v. Cuban-Venezuelan Oil Voting Trust, 285 F.2d 318 (2d Cir. 1960); Decor by Nikkei Int'l, Inc. v. Federal Republic of Nigeria, 497 F. Supp. 893, 907-908 (S.D.N.Y.1980), aff'd, 647 F.2d 300 (2d Cir. 1981); UFITEC, S.A. v. Trade Bank & Trust Co., 21 A.D.2d 187, 249 N.Y.S.2d 557 (1st Dep't 1964), aff'd, 16 N.Y.2d 698, 261 N.Y.S.2d 893 (1965).
The aggrieved plaintiff does not, in order to satisfy his burden, have to actually tender a performance which has been rendered futile by defendant's repudiation, *1279 Scholle, supra; Allbrand Discount Liquors, Inc. v. Times Square Stores Corp., 60 A.D.2d 568, 399 N.Y.S.2d 700 (2d Dep't 1977); UFITEC, supra, 249 N.Y.S.2d at 560. Further, plaintiff's burden upon anticipatory repudiation by defendant could be satisfied by a showing that defendant, by his actions, rendered performance by plaintiff impossible. Amies v. Wesnofske, 255 N.Y. 156, 162-63, 174 N.E. 436 (1931). However, this record fails to establish that sort of impossibility. Here, I have found as a matter of fact that, quite apart from any wrongs committed by SCM, Muller has failed to demonstrate by a preponderance of the evidence that he possessed the ability to come up with the cash at closing. This failure bars enforcement of the otherwise enforceable agreement.
The Duty to Perform in Good Faith
On the facts as I have found them, I conclude not only that SCM breached the agreements reached at the end of 1976, but that it specifically breached its duty of good faith negotiation and performance required by those agreements. A fundamental obligation to deal in good faith, found in established case law, required SCM to act otherwise than to single-mindedly bail out of what it came to see as a bad deal.
Itek Corp. v. Chicago Aerial Industries, Inc., supra, presented a similar situation. In that case, Itek, a prospective purchaser of the assets of Chicago Aerial Industries, Inc. ("CAI"), sued for breach of a contract to sell those assets. The parties had arrived at an agreement on the price, which was subject to several conditions including "that formal documents be prepared to the satisfaction of the parties," and they had also signed a "Letter of Intent." Nevertheless, CAI received a better offer from another purchaser, terminated discussions with Itek and sold the assets to the higher bidder. The court held that there was evidence which would support the conclusion that at the time of the Letter of Intent, Itek and CAI intended to be bound to the agreement for the sale of assets, and further that the parties' "Letter of Intent," which set forth the basic terms of their transactions, "obligated each side to attempt in good faith to reach final and formal agreement." 248 A.2d at 625.
While the letter of intent involved in Itek contained an explicit requirement that the parties shall "make every reasonable effort" to close the deal formally, see also Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 (6th Cir. 1976); Thompson v. Liquichimica of America, Inc., 481 F. Supp. 361 (S.D.N.Y.1979) and 481 F. Supp. 365 (S.D.N.Y.1979); American Broadcasting Companies, Inc. v. Wolf, 52 N.Y.2d 394, 438 N.Y.S.2d 482 (1981), the Itek reasoning has been applied in similar commercial settings where the good-faith duty has been enunciated. Thus, in Pepsico, Inc. v. W. R. Grace & Co., 307 F. Supp. 713 (S.D.N.Y.1969), where the parties had issued a joint press release announcing their "agreement in principle" to sell a controlling interest in a subsidiary of Grace, the court noted Pepsico's argument, based on Itek, that the agreement in principle carried with it an obligation to negotiate the terms of a definitive agreement in good faith, and responded as follows:
Assuming that there was a binding agreement on May 8th [the date the agreement in principle was announced], we would agree that an obligation to negotiate in good faith was implied....
Id. at 720. See also American Cyanamid, supra, 331 F.Supp. at 606; Knapp, Enforcing the Contract to Bargain, 44 N.Y.U.L. Rev. 673, 716-23 (1969).[10]
*1280 Indeed, under New York law, every contract carries with it an implied obligation of good faith. Lowell v. Twin Disc, Inc., 527 F.2d 767, 770-71 (2d Cir. 1975); Niagara Mohawk Power Corp. v. Graver Tank & Mfg. Co., 470 F. Supp. 1308, 1316 (N.D.N.Y.1979); Joseph E. Seagram & Sons, Inc., supra, 413 F.Supp. at 698; Sommer v. Hilton Hotels Corp., supra, at 301-02; Matter of DeLaurentiis, 9 N.Y.2d 503, 215 N.Y.S.2d 60, 63-64, 174 N.E.2d 736, 738-739 (1961); Baker v. Chock Full O'Nuts Corp., 30 A.D.2d 329, 292 N.Y.S.2d 58 (1st Dep't 1968). This obligation has statutory force as well. The policy behind the Uniform Commercial Code is to "give effect to the agreement which has been made ... conditioned by the requirement of good faith action which is made an inherent part of all contracts within this Act." UCC § 2-305, Official Comment 6 (McKinney 1964). In addition, the Code in § 1-203 specifically provides that "[e]very contract or duty within this Act imposes an obligation of good faith in its performance or enforcement."
Thus, while a party to any negotiations for the purchase and sale of property is not automatically obligated to carry the negotiations through to closing, see Brause v. Goldman, 10 A.D.2d 328, 199 N.Y.S.2d 606, 611 (1st Dep't 1960), aff'd, 9 N.Y.2d 620, 210 N.Y.S.2d 225, 172 N.E.2d 78 (1961), consistent with principles of New York law dating back to Wood v. Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917), SCM was obligated to act fairly under the Agreement in Principle and the Final Drafts to negotiate in good faith to finalize matters and then presumably, to accomplish the end transaction.
The Damages
Although I have concluded that Muller is not entitled to recover his full expectation damages however those might be measured, compare Lee v. Joseph E. Seagram & Sons, Inc., supra, 413 F.Supp. at 705-07; Pennsylvania Co. v. Wilmington Trust Co., 39 Del. Ch. 453, 166 A.2d 726 (Ch.Ct.1960), aff'd, 40 Del. Ch. 140, 172 A.2d 63 (Sup.Ct.1961); Gold Seal Prods., Inc. v. R.K.O. Radio Pictures, Inc., 134 Cal. App. 2d 843, 286 P.2d 954 (Dist.Ct.App.1955), SCM's breach of the agreement reached and the concomitant breach of its good faith obligation entitle Muller to relief.
As the determination of liability on these facts is not simple, neither is the assignment of a proper remedy. The court has not been presented with nor has it discovered a similar case involving on the one hand the bad faith repudiation of a preliminary agreement for the sale of a business, and on the other hand the failure of proof by the would-be purchaser of his own ability to perform when such was to come due. A recovery allowed under these circumstances may be viewed as the appropriate compensation for the defendant's breach of its duty to deal in good faith, see American Broadcasting Companies, Inc. v. Wolf, supra, 438 N.Y.S.2d at 485, 487-88; Knapp, supra, at 723-26, or, more traditionally, as the appropriate measure of damages, all things considered, for SCM's repudiation of the agreement reached by the parties. Cf. Fair Sky, Inc. v. Int'l Cable Ride Corp., 23 A.D.2d 633, 257 N.Y.S.2d 351, 353 (1st Dep't 1965).
The most logical and readily available measure of damages under these circumstances is the profit earned by SCM in the period before the anticipated closing during which, according to the agreement, the copier subsidiaries were being run in the normal course of business on Muller's account. This fund, generated before to the anticipated closing date, was accruing to Muller above and beyond the value of the assets of the subsidiaries that he was to receive in *1281 exchange for the price that was finally to be agreed on. Given his failure to establish his own ability to perform, Muller certainly may not recover the bargained-for properties, the profit realized thereon after the would-be closing date or even the profit accruing to SCM from the sale of the properties to others. However, it would be inequitable in view of SCM's bad faith conduct from which it was able to profit so handsomely, to allow it to retain that amount which, in exchange for Muller's commitment to the deal, was to be accruing to his account even before his ability to perform was to be tested at closing.
This conclusion seems appropriate in the light of the doctrine of restitution or unjust enrichment. The remedy of restitution to prevent unjust enrichment is commonly applied both in the realm of quasi-contract and as an alternative basis for recovery upon breach of contract. See Restatement, supra, Topic 4-Restitution §§ 384, 391, and Introductory Note thereto (Tent. Draft No. 14, 1979); 5 Corbin, supra, §§ 1106-07. This doctrine rests, generally, upon the equitable principle that a person shall not be allowed to enrich himself at the expense of another. Miller v. Schloss, 218 N.Y. 400, 407, 113 N.E. 337 (1916). It is not necessarily grounded on contract or on promise but on an obligation created by law,
when and because the acts of the parties or others have placed in the possession of one person money, or its equivalent, under such circumstances that in equity and good conscience he ought not to retain it, and which ex aequo et bono belongs to another.
Id.; see Paramount Film Distributing Corp. v. State, 30 N.Y.2d 415, 334 N.Y.S.2d 388, 393, 285 N.E.2d 695, 698 (1972); Friar v. Vanguard Holding Corp., 78 A.D.2d 83, 434 N.Y.S.2d 698, 701-02 (2d Dep't 1980); Eightway Corp. v. Dime Savings Bank, 94 Misc. 2d 274, 404 N.Y.S.2d 302 (Civ.Ct. Queens Co. 1978), aff'd, 99 Misc. 2d 989, 420 N.Y.S.2d 837 (Sup.Ct. Queens Co. 1979). An element in the equation is that the unjust enrichment of the defendant be at the expense of the claimant, and this usually necessitates a finding that a benefit was conferred by the claimant, or in other words that a benefit corresponds to a loss to the claimant. See Nacional Financiera, S.A. v. Banco De Ponce, 120 N.Y.S.2d 373, 415-17 (Sup.Ct. N.Y.Co. 1953); aff'd, 283 A.D. 939, 131 N.Y.S.2d 303 (1st Dep't 1954); 50 N.Y. Jur. Restitution § 6 (1966). However, there is case support for a finding of unjust enrichment without such a readily identifiable correspondence. Saunders v. Kline, 55 A.D.2d 887, 391 N.Y.S.2d 1, 2 (1st Dep't 1977); 50 N.Y.Jur., supra, at 162; see also Brooks v. Peoples' Bank, 233 N.Y. 87, 134 N.E. 846 (1921); Roberts v. Ely, 113 N.Y. 128, 20 N.E. 606 (1889); Robert Reis & Co. v. Volck, 151 A.D. 613, 136 N.Y.S. 367 (1st Dep't 1912); Knapp, supra, at 724-25 n.174; see generally 4 Corbin, supra, § 979 and 5 Corbin, supra, § 1107.
Under the circumstances presented here where SCM had obligated itself as part of the agreements reached to run the copier subsidiaries for Muller's account from August 31, 1976 to the anticipated closing date, I conclude that to allow SCM to retain the profit earned during all of that period would be to condone unjust enrichment.[11]
*1282 Whatever the theory, there would be a certain logic to fashioning a recovery to encompass out-of-pocket legal and other expenditures in preparation for performance, or even the cost of forebearance (presumably the value of opportunities foregone). However, bearing in mind the flexibility of available contract remedies, see 5 Corbin, supra, § 996, since Muller is in a sense gaining the benefit of his bargain or, at least, as much of it as he is entitled to under the circumstances he will not at the same time recover his legal fees incurred to produce this benefit, apparently the only significant out-of-pocket expense, or any other reliance-type damages. See Corbin, supra, §§ 1034, 1036. Cf. Gruen Industries, Inc. v. Biller, 608 F.2d 274, 280-82 (7th Cir. 1979). I have concluded the proper remedy is the award to Muller of the profit earned by the copier subsidiaries from August 31, 1976 to February 2, 1977, the date of the repudiation.
On the basis of this opinion, a conference will be held on July 9, 1981 at 5:00 p. m. to determine whether any further hearing is required in order to enter judgment in accordance with this opinion.
IT IS SO ORDERED.
APPENDIX
The August memorandum reads as follows:
1. SCM to sell the stock of the German, French, Belgium and Swiss subsidiaries and the copier assets of the Chur and U.K. subsidiaries.
2. SCM shall have the right to allocate the total proceeds, assigning values to each of the four stock sales and two asset sales.
3. In no case will cash and securities be included nor will assets related to the typewriter distribution business (which is currently being separated out) be included.
4. The names of the purchased subsidiaries will be changed and the use of the SCM name and logo will be discontinued within an agreed upon time limit.
5. SCM will retain or discharge all balance sheet liabilities except those that relate to compensation and employee benefits, which will be assumed by the purchaser.
6. In the U.K., liability for employees and leases relating to the copier business will be assumed by the purchaser.
7. Goods in transit from suppliers (purchased under contract commitments and prepaid) will be reimbursed by purchaser at delivered cost rather than being included in the inventory account.
8. Purchaser will assume responsibility for performance under purchase agreements entered into by SCM for equipment and supplies for the operations to be sold.
9. New York personnel directly related to International Copier operations will be employed by purchaser.
The September memorandum reads as follows:
1. We will license use of name for three years with appropriate safeguards on its use.
2. We will warrant against undisclosed liabilities to the extent that they exceed a pool of $150,000, the purpose of which is to absorb claims not in excess of $10,000 per claim. We will have the right to dispose of claims as we see fit.
3. We will only be responsible for shortages of inventory count and then to *1283 the extent that such shortages exceed a pool equal to the inventory reserve. (time limitation)
4. We will be responsible for uncollectable receivables in excess of a pool which is to be equal to the receivable reserve plus $200,000, but not less than $500,000. We will reimburse purchaser at the rate of 53c/$ (?) for losses in excess of the pool. (time limitation)
NOTES
[1] Plaintiffs' version of the Agreement in Principle accords with the evidence. The thirteen points are integrated and summarized as follows:
(1) SCM was to sell and transfer all the six copier subsidiaries, except for business operations relating to typewriters.
(2) The typewriter assets were not to be transferred, but were to be retained by SCM.
(3) SCM was to retain all cash and cash equivalents of the copier business as of August 31.
(4) The transfer would be in a form determined by SCM; SCM determined, based on its tax interests, to transfer the stock of the French, German, Belgium and Swiss subsidiaries, and to transfer the copier assets of the U.K. and Chur subsidiaries.
(5) The purchaser would be a company to be formed by Mr. Muller.
(6) The purchase price was to be the dollar equivalent of 53.4% of the book value of the copier assets of the companies as of August 31, 1976, to be calculated after asset values were determined as of this date.
(a) As noted above plaintiffs assumed the balance sheet liabilities towards payment of the purchase price and, if any balance remained, this was to be paid in cash.
(b) SCM would have the right to allocate the total purchase price among the six subsidiaries and assign values to each of the four stock sales and two asset sales.
(7) SCM would retain claims it had against Xerox Corporation for damages in a pending litigation involving, among other things, claims that Xerox unfairly competed with the SCM copier subsidiaries.
(8) The purchaser would assume responsibility for:
(a) possible employee severance and also vacation pay obligations;
(b) in the U.K., leases relating to the copier business and employees relating to the copier business; and
(c) performance under purchase agreements of SCM for equipment and supplies.
(9) Plaintiffs would have the right to license and use the SCM name and logo for three years with appropriate safeguards on its use.
(10) As to possible undisclosed liabilities, shortages of inventory, and uncollectible receivables, SCM undertook as follows:
(a) It warranted against undisclosed liabilities for all claims over $10,000, and, if they were under $10,000 per claim, to the extent such claims in total exceeded $150,000.
(b) It would be responsible for shortages of inventory count to the extent they in total exceeded the inventory reserve.
(c) SCM would be responsible for uncollectible receivables to the extent they in total exceeded the receivable reserve plus $200,000 (but in no event less than $500,000) and to the extent of 53% for each dollar thus in excess.
The additional agreed-upon terms relating to transfer of the subsidiaries are accurately summarized by the plaintiffs as follows:
(1) The operations of the subsidiaries and any profit or loss after August 31, 1976 in the operations of the businesses would be for the plaintiffs' account and benefit.
(2) The businesses being sold would be operated "in the ordinary course of business" from August 31, 1976 until the closing, preserving, among other things, the companies' goodwill with general managers, suppliers and customers.
(3) The businesses would be transferred "intact" and as an "ongoing operation" and as part of this, all New York management personnel and all general managers would be transferred.
(4) Mr. DeMaio would be in charge of operations until closing.
[2] These clauses in the last drafts permitted upstream transfers "so long as the funds came to rest within the pool." In other words, for tax or accounting purposes the funds could be transferred simultaneously as long as they remained available for use in the pool.
[3] The orders for the plain paper copiers from late September through January, as indicated by the Flash Reports, were approximately 450.
[4] Cawley's request was for a waiver of the regular course of business representation as affected by a repetition of the freeze on acquiring new equipment which had been in effect throughout fiscal 1976-77. The freeze, part of SCM's investment plan, had been modified in operation by an understanding reached between DeMaio and Rodich that new equipment for lease would be acquired if necessary to satisfy old and important customers.
[5] DeMaio testified that though he had not discussed the Muller transaction in detail with Elicker, he had met his chief executive in the hall in December, 1976. Elicker thanked DeMaio for his efforts on the transaction, wished him well in his future endeavors in the same role under Muller's ownership and told him that he well deserved the reward.
[6] Egli on many occasions during the trial stressed his concern about SCM's liability on these guarantees. However, the guarantees were not the subject of identified documents, nor had they been tabulated and presented to Muller. No objective reason was advanced to indicate that any difficulty would be encountered in getting SCM off the guarantees other than the observation that SCM was a substantial corporation, and Reprosystem was not. Egli testified that Muller did nothing to accomplish the agreed upon substitution. Neither did SCM, which according to Egli would have had a far greater interest in the matter.
[7] Although such a gloss might be sought to be imposed upon the restrictive provisions, the language of the provisions reads otherwise.
[8] The parties have relied on New York law in support of their respective positions on the contract issue, assuming accurately that it would govern in this action where Muller and SCM are New York residents, virtually all of the negotiations and contract drafting took place here, and the various contract drafts all specify that New York law should govern disputes arising thereunder.
[9] The arguably relevant statute of frauds provisions are the following, which provide, in full or in pertinent part:
N.Y.G.O.L. § 5-701 (McKinney, Supp.1980):
(a) Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking:
(1) By its terms is not to be performed within one year from the making thereof ....
N.Y.U.C.C. § 1-206 (McKinney 1964):
(1) Except in the cases described in subsection (2) of this section a contract for the sale of personal property is not enforceable by way of action or defense beyond five thousand dollars in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a defined or stated price, reasonably identifies the subject matter, and is signed by the party against whom enforcement is sought or by his authorized agent. (2) Subsection (1) of this section does not apply to contracts for the sale of goods (Section 2-201) nor of securities (Section 8-319) nor to security agreements (Section 9-302).
N.Y.U.C.C. § 2-201 (McKinney 1964):
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
N.Y.U.C.C. § 8-319 (McKinney 1964):
A contract for the sale of securities is not enforceable by way of action or defense unless
(a) there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price....
[10] Professor Knapp who in his article advocates the enforcement of a preliminary agreement in such a context specifically as a contract to bargain, offers the following expression of the character of manifestation of intention which would serve to create such a contract:
The essential question is whether the parties have expressed both satisfaction with and commitment to the essential terms of the proposed transaction, to the extent that each would reasonably regard the other as unjustified in withdrawing for any reason other than a failure after negotiation in good faith to arrive at a complete and final agreement (footnote omitted). 44 N.Y.U.L.R. at 720. After some analysis, he suggests additionally:
[A] contract to bargain is likely to be enforced only where there has been either a unilateral withdrawal from negotiations or at least an insistence on terms so clearly unreasonable that they could not have been advanced with any expectation of acceptance, coupled with some demonstrable advantage to be gained by defendant in avoiding the contemplated transaction.
Id. at 723. See also Dugdale and Lowe, Contracts to Contract and Contracts to Negotiate, [1976] J.Bus.Law 28.
[11] The plaintiff has failed to establish the basis for promissory estoppel urged as an alternative ground for recovery.
Based on the reliance principle, the doctrine is set forth in § 90(1) of the Restatement, supra, (Tent.Drafts Nos. 1-7, 1973) as follows:
A promise which the promisor should reasonably expect to induce action or forebearance on the part of the promisee or a third person and which does induce such action or forebearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
See Schmidt v. McKay, 555 F.2d 30, 36 (2d Cir. 1977); James King & Son, Inc. v. DeSantis Constr. No. 2 Corp., 97 Misc. 2d 1063, 413 N.Y. S.2d 78, 81 (Sup.Ct. N.Y.Co. 1977). But see Swerdloff v. Mobil Oil Corp., 74 A.D.2d 258, 427 N.Y.S.2d 266, 268 (2d Dep't), appeal denied, 50 N.Y.2d 913, 431 N.Y.S.2d 523 (1980). The measure of damages under this theory would be the value of the claimant's action or forebearance in reliance, to its detriment. Such detriment may be found in forebearance from action which amounts to a change in position, in reliance on the words or deeds of the defendant. Cf. Warren v. Hudson Pulp & Paper Corp., 477 F.2d 229 (2d Cir. 1973). In the commercial setting of this case, the extent of Muller's detrimental reliance might be the value of other business opportunities foregone in anticipation of the closing of this deal pursuant to the agreements already reached. See Swerdloff, supra, 427 N.Y.S.2d at 268-270; Goetz and Scott, Enforcing Promises: An Examination of the Basis of Contract, 89 Yale L.J. 1261, 1267-70, 1287-88 (1980). However, no such evidence has been adduced. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1521286/ | 371 B.R. 244 (2007)
In re Kenneth M. MITAN, Debtor.
Frank J. Mitan, Appellant,
v.
Leonard Duval, et al., Appellee.
Civ.A. No. 06-15005.
United States District Court, E.D. Michigan, Southern Division.
June 4, 2007.
*245 *246 Keith J. Mitan, Mitan & Assoc., West Bloomfield, MI, for Appellant.
Katherine A. Weed, Fraser, Trebilcock, Detroit, MI, Mark R. Fox, Fraser, Trebilcock, Lansing, MI, for Appellee.
Erika D. Hart, Charles J. Taunt Assoc., Birmingham, MI, for Trustee.
OPINION AND ORDER AFFIRMING BANKRUPTCY COURT'S OCTOBER 25, 2006 CONVERSION OF CASE FROM CHAPTER 11 TO CHAPTER 7 WITH RETROACTIVE EFFECT AS OF FEBRUARY 9, 2004
FRIEDMAN, Chief Judge.
I. Introduction
This matter is an appeal by Appellant Frank Mitan from the Bankruptcy Court's October 25, 2006 Order ("Order"), which converted this case from a Chapter 11 to a Chapter 7, with a retroactive effect of February 9, 2004.
II. Standard of Review
While questions of law are reviewed de novo, a bankruptcy court's decision to dismiss or convert a case is reviewed for an abuse of discretion. "Under Bankruptcy Code § 112(b) the bankruptcy court is given wide discretion to convert a case to Chapter 7 for cause." In re Johnston, 149 B.R. 158, 160 (9th Cir. BAP 1992). "A bankruptcy court's order for conversion of a case is reviewed for an abuse of discretion." Id. To find an abuse of discretion, the reviewing court "must be firmly convinced that a mistake has been made." Damron v. Commissioner of Social Security, 104 F.3d 853, 855 (6th Cir. 1997).
III. Procedural History
The background in this case has been briefed and written about exhaustively in numerous motions and court orders. The following summary briefly repeats the case history.
Appellant originally filed his Chapter 11 case in the U.S. Bankruptcy Court in the Central District of California. The case was transferred to the U.S. Bankruptcy Court for the Eastern District of Michigan. Following the transfer, on February 9, 2004, the Bankruptcy Court converted the case to a liquidation under Chapter 7.
On September 29, 2005, the Bankruptcy Court granted summary judgment in favor of Creditors Frandorson, Corr, Duval and Rode on their claims of nondischargeability.
On April 27, 2006, the Sixth Circuit reversed the Bankruptcy Court's decision to convert the case to Chapter 7 on the ground that notice had been insufficient ("Sixth Circuit Opinion").
On September 28, 2006, the Bankruptcy Court issued an Order to Show Cause Why This Case Should Not Be Converted to Chapter 7 Nunc Pro Tune ("Show Cause Order"). On October 23, 2006, the Bankruptcy Court heard oral arguments regarding the Show Cause Order. The Bankruptcy Court then issued a bench ruling, ordering the case to be converted to Chapter 7, with retroactive effect given to its decision as of February 9, 2004.
IV. Facts
The facts of this case have been thoroughly recounted by the Bankruptcy Court and the Sixth Circuit, and the material facts for purposes of this motion are not in dispute. Pursuant to Federal Rule of Bankruptcy Procedure 8013, a district court shall not set aside the bankruptcy court's "findings of fact, whether based on oral or documentary evidence, unless *247 clearly erroneous." The Court has reviewed the Bankruptcy Court's previous findings of fact for clear error, and finding none, adopts them for purposes of this Opinion and Order.
V. Analysis
Appellant makes three arguments in support of his motion. First, he argues that the Bankruptcy Court violated the mandate rule and the law of the case in ordering the conversion with retroactive effect. Second, he argues that a retroactive conversion is contrary to Federal Rule of Bankruptcy Procedure 2002(a). Third, Appellant argues that the conversion was in error, because dismissal of the case was in the best interest of the creditors and the estate.
Appellant's first argument regards the Sixth Circuit's reversal of the Bankruptcy Courts decision to reinstate and convert the case to a Chapter 7 proceeding. The Sixth Circuit's reversal of the Bankruptcy Court's decision to reinstate and convert the case to a Chapter 7 was based on its finding that notice of the underlying proceedings had been insufficient. The Sixth Circuit's decision did not address whether the Bankruptcy Court's decision was otherwise proper. Following the Sixth Circuit's opinion, the Bankruptcy Court issued the Show Cause Order. Oral arguments we re held, and following such arguments, the Bankruptcy Court issued a bench ruling ordering the case to be converted to a Chapter 7, with retroactive effect given as of February 9, 2004.
Appellant argues that since the Mandate of the Sixth Circuit, issued on May 23, 2006, stated that "the mandate for this case hereby issues today," the Bankruptcy Court's conversion can not be upheld because the twenty-day prior notice requirement of Fed.R.Bankr.P. 2002(a) was not met when the initial conversion, which the Bankruptcy Court reversed, had been ordered. Appellant argues that by once again ordering the conversion, even after the Sixth Circuit had found that the initial conversion had been wrongfully ordered because of a lack of proper notice, the Bankruptcy Court disregarded the Sixth Circuit's contrary resolution of that issue, thereby violating the law of the case.
Appellant is incorrect. The Sixth Circuit clearly stated its reasoning for its decision. In its Opinion, the Sixth Circuit stated, "Because the bankruptcy court erred in converting the case to a Chapter 7 liquidation without giving Frank Mitan notice, we reverse its decision . . ." Sixth Circuit Opinion, p. 2. The Sixth Circuit made it clear that its decision was based entirely on the alleged lack of notice to Frank Mitan. Here, the alleged notice deficiency has been corrected. The Bankruptcy Court gave all parties twenty-five days notice of the hearing in which the nunc pro tune conversion was ordered. Accordingly, the Bankruptcy Court complied with both the requirements of Bankruptcy Rule 2002(a) and the mandate of the Sixth Circuit.
Appellant's second argument is that the Bankruptcy Court erred in converting the case from Chapter 11 to Chapter 7 with retroactive effect as of February 9, 2004. Appellant argues that such retroactive conversion is contrary to Federal Rule of Bankruptcy Procedure 2002(a), which requires notice of twenty days prior to conversion. He claims that a retroactive conversion is by definition inconsistent with that rule.
Appellees, however, correctly argue that Federal Bankruptcy Rule 9006(c) provides that a bankruptcy court may, in its discretion, reduce the amount of notice for conversion. However, such conversion may *248 only be ordered in extraordinary circumstances.
Here, the Bankruptcy Court, using its discretion, found such extraordinary circumstances. First, the Bankruptcy Court noted that it had already found in 2004 that conversion from Chapter 11 to Chapter 7 was appropriate. The reasons for the reversal of the conversion related to the alleged lack of notice, not to the propriety of such conversion. In addition, the Bankruptcy Court noted that the record "overwhelmingly establishes that there is no basis to keep this case in Chapter 11, nor does any party contend seriously or otherwise that the case should remain in Chapter 11." October 23, 2006 Bankruptcy Court transcript, p. 29.
The Bankruptcy Court next found that "the equities in this case overwhelmingly mandate such relief," and went on to discuss the factors leading it to such a conclusion. Id., p. 31. First, the Bankruptcy Court noted that the case was administered as a Chapter 7 case for more than two years since the Court first ordered the matter converted to a Chapter 7. The Bankruptcy Court, after listing much of the work done in such Chapter 7 administration, found that "it would be extraordinarily inequitable to hold all of that work now for naught which would be the effect of denying retroactive conversion at this time." Id. In addition, the Bankruptcy Court noted that Frank Mitan did not seek or obtain a stay of the Chapter 7 conversion, and that had he requested a stay, the case would not be in the predicament it is in today. Finally, the Bankruptcy Court stated that it
places substantial weight on the answer given by Frank Mitan's attorney to the Court's question as to what his client's position would have been on the issue of conversion or dismissal had the question been posed to him at the original hearing if he had been given notice and if he had been there. The answer was, he would have taken the position that it would have been in the better interest of creditors to dismiss rather than convert because there were no assets. Again, the Court has no difficulty stating of record now two and a half years later that if Mr. Frank Mitan had taken that position at that time the Court most certainly would have overruled that and rejected that position simply because at the time the record clearly demonstrated a need for a trustee to investigate that very issue.
Id., p. 33.
The Bankruptcy Court clearly outlined the extraordinary circumstances under which it found Federal Bankruptcy Rule 9006(c) allowed for him, in his discretion, to reduce the amount of notice given for conversion to a Chapter 7 case.
Finally, Appellant argues that the Bankruptcy Court erred in converting the case from Chapter 11 to Chapter 7 because dismissal was in the best interest of the creditors and the estate. Appellant argues that where there are no assets, as is allegedly the case here, dismissal rather than conversion to Chapter 7 is in the best interest of creditors and the estate.
The Bankruptcy Court specifically addressed this argument. First, it noted that a motion for dismissal was not before it. It further stated that, given Appellant's numerous appeals for alleged lack of notice of various proceedings, Appellant certainly could not expect that the Bankruptcy Court entertain its request for a dismissal without formal notice to the parties that it would be making such a request.
The Bankruptcy Court then specifically held that "[i]t's in the better interest of creditors now clearly to convert this matter *249 rather than dismiss it and that's even though there are little or no assets." Id. (emphasis added). The Bankruptcy Court further explained,
In addition, converting the case now rather than dismissing it gives the Court, the, trustees, and the U.S. Trustee the opportunity to determine the appropriate administration of the assets that are on hand. It also gives creditors the opportunity to object to the trustee's proposed closing of the case on the grounds that there is perhaps more investigation of the debtor's assets that the trustee can do should do.
Id., p. 35.
The Court finds that this reasoning is correct. Dismissal would only serve to cost the parties more money re-litigating and re-administering in a subsequent bankruptcy proceeding the same issues that had already been addressed in the present case.
VI. Conclusion
The Court finds that the Bankruptcy Court did not err in converting the Debtor's case from Chapter 11 to Chapter 7 nunc pro tune.
Accordingly, the Bankruptcy Court's October 25, 2006 Order converting the case from Chapter 11 to Chapter 7 with retroactive effect as of February 9, 2004 is AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1522011/ | 674 F. Supp. 872 (1987)
CHANNEL MASTER, DIV. OF AVNET, INC., Plaintiff,
v.
The UNITED STATES, Defendant.
Court No. 80-5-00802.
United States Court of International Trade.
November 25, 1987.
Fitch, King & Caffentzis (Richard C. King, New York City, on the motion), for plaintiff.
Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Intern. Trade Field Office (Saul Davis, New York City, on the motion), for defendant.
ON PLAINTIFF'S MOTION FOR REHEARING
RE, Chief Judge.
Pursuant to Rule 59(a) of the rules of this court, plaintiff has moved for a rehearing of the judgment in Channel Master, Div. of Avnet, Inc. v. United States, 10 CIT ___, 648 F. Supp. 10 (1986).
In Channel Master, plaintiff challenged the classification by the Customs Service of certain merchandise imported from Japan, and described on the customs invoice as "scanners." The merchandise was classified as "other solid-state (tubeless) radio receivers," under items 685.23 or 685.24 of the Tariff Schedules of the United States (TSUS), depending upon the date of importation. Consequently, the merchandise was assessed with duty at a rate of 10.4 per centum ad valorem.
After an examination of the merchandise, due deliberation of the pleadings, supporting papers, judicial precedents, and applicable authorities, the court held that the imported scanners were substantially complete radio receivers, and, therefore, had been properly classified as "other solid-state (tubeless) radio receivers," under items 685.23 or 685.24, TSUS.
By the present motion, plaintiff seeks to have the court vacate and set aside its judgment, and decide the case "on facts actually stipulated by the parties, rather than on new `facts' added by defendant, without plaintiff's concurrence." Specifically, plaintiff contends that "[i]n this case *873 the decision has been based upon a brief containing ... factual allegations not contained in the stipulation...."
After a thorough consideration of the plaintiff's motion the court holds that the plaintiff has not satisfied the requirements for the granting of a rehearing. Since plaintiff has failed to demonstrate any grounds that would justify the granting of its motion, plaintiff's motion for rehearing is denied.
It is well established that the decision to grant or deny a motion for a rehearing lies within the sound discretion of the court. See, e.g., ILWU Local 142 v. Donovan, 10 CIT ____, Slip Op. 86-28 (Mar. 13, 1986); Oak Laminates v. United States, 8 CIT 300, 601 F. Supp. 1031 (1984), aff'd, 783 F.2d 195 (Fed.Cir.1986). In addition, Rule 59(a) of the rules of this court provides that a rehearing may be granted "for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States...." USCIT R. 59(a).
In W.J. Byrnes & Co. v. United States, 68 Ct. Cust. 358, C.R.D. 72-5 (1972), the appropriate grounds for the granting of a rehearing were set out as follows:
A rehearing may be proper when there has been some error or irregularity in the trial, a serious evidentiary flaw, a discovery of important new evidence which was not available, even to the diligent party, at the time of the trial, or an occurrence at trial in the nature of an accident or unpredictable surprise or unavoidable mistake which severely impaired a party's ability to adequately present its case. In short, a rehearing is a method of rectifying a significant flaw in the conduct of the original proceeding.
Id. at 358.
In support of its contention that the decision in this case should be vacated and reheard, plaintiff cites Brookside Veneers, Ltd. v. United States, 9 CIT 596 (1985). In Brookside Veneers, the plaintiff submitted to the court a brief which appended as exhibits, materials which had not been stipulated by the parties. The court granted defendants motion to strike plaintiff's brief, and directed plaintiff to file a new brief which did not contain materials that contradicted or supplemented the stipulated facts. In its decision, the court noted that the parties were bound by the stipulations of the parties, and, therefore, materials which contradicted the stipulated facts had "been improperly presented to the Court." 9 CIT at 597. The court also stated the basic principle that, when stipulated facts and exhibits constitute the entire trial record, "evidence outside the stipulation is not properly before the Court." Id. Accordingly, in reaching its decision, the court refused to consider evidence improperly offered or submitted. Id. (citing R.C. Williams & Co., Inc. v. United States, 10 CCPA 210, 217-18, C.A.D. 19 (1938)).
The court addressed a related or similar issue in Jimlar Corp. v. United States, 10 CIT ____, 647 F. Supp. 932 (1986). In the Jimlar case, defendant, the United States, moved for an order to strike plaintiff's post-trial brief alleging that it contained "references to four affidavits which were not introduced into evidence at the trial." 647 F.Supp. at 933. As to one of the affidavits, the court agreed and held that references to that particular affidavit in plaintiff's brief were improper. Nevertheless, since the references to the affidavit in no way prejudiced or misled the court, the court denied the motion to strike. In discussing improper submissions or references in the brief, the court stated that it would simply "disregard whatever references may be improper." Id. 647 F.Supp. at 935.
The Brookside Veneers and Jimlar cases indicate clearly that, in reaching a decision, evidence may not be considered which is not properly before the court. It is important to note, however, that both of those cases dealt with motions to strike a brief before the court had reached a decision. In this case, plaintiff did not move to strike defendant's brief until after the decision was issued. Although not improper, it would seem clear that plaintiff's request is, in effect, an effort to have the court reconsider *874 its prior holding in the Channel Master case.
In essence, plaintiff contends that the court should not have considered certain assertions made by defendant, because they may have misled the court. The court is fully cognizant of the basic principle that factual assertions made by counsel must be based solely on the facts in evidence, or the court must disregard them. See Tropi-Cal v. United States, 63 Ct. Cust. 518, 521, C.D. 3945 (1969). Cases need hardly be cited for the proposition that counsel "... is not a witness." See 6 Wigmore, Evidence § 1806 (3d ed. 1940). Furthermore, it is fundamental in customs classification cases that "`in order to produce uniformity in the imposition of duties, the dutiable classification of articles imported must be ascertained by an examination of the imported article itself, in the condition in which it is imported.'" United States v. Citroen, 223 U.S. 407, 414-15, 32 S. Ct. 259, 260, 56 L. Ed. 486 (1912) (quoting Worthington v. Robbins, 139 U.S. 337, 341, 11 S. Ct. 581, 583, 35 L. Ed. 181 (1891)). In making a determination as to the proper classification of imported merchandise, the court must look to the merchandise and the evidence introduced. Unless this evidence supports counsel's assertions of fact, upon which a contention or claim is based, "such statements of counsel would not justify a favorable finding of fact." See Tropi-Cal v. United States, 63 Ct. Cust. 518, 521, C.D. 3945 (1969).
Plaintiff asserts that the defendant states in its brief that by placing batteries in the imported articles and turning up the volume, "the consumer would obtain the full audible range of radio frequencies the scanning receivers were capable of receiving." Plaintiff contends that there is "nothing in the stipulation to support [this] contention." In addition, plaintiff contends that the defendant also disregards the stipulation when it argues that "[t]he radio crystal is merely essential to filter out the undesirable radio frequencies designed to be received by the scanning receiver." Plaintiff asserts that the stipulation states that the crystals select the desired frequency. In its decision the court noted that selection, detection, and amplification, are the basic functions of radio receivers. Channel Master, 648 F.Supp. at 13. Therefore, plaintiff asserts that defendant has misrepresented the facts which show that it is the missing crystals that perform the required selection function.
According to plaintiff the omitted crystals "constitute the essence of the selection and detection functions" of the imported articles, and, therefore, the alleged misrepresentations by defendant as to the function of the crystals "should not be countenanced by this Court." Plaintiff emphasizes that the crystal is essential to the functioning of the scanners, and that an article which is missing an essential component cannot be "substantially complete."
The Channel Master opinion reveals that the court neither considered, nor relied upon, any allegedly improper material in the defendant's brief. In its decision, the court clearly stated that "[i]n the present case, the parties have stipulated that the scanners, as imported, do not `have the ability' to perform selection or detection." Channel Master, 648 F.Supp. at 13. In addition, the court stated that "[t]he parties also stipulated that, after the crystals are inserted, the scanners can operate to receive radio broadcasts." Id. 648 F.Supp. at 14. Hence, the court concluded that "once the appropriate crystals are inserted, the scanners can perform these three basic functions of selection, amplification, and detection." Id., 648 F.Supp. at 14.
In Channel Master, as the court noted, an article may be classified under item 685.24, TSUS, whether it is finished or unfinished. Id. 648 F.Supp. at 14 (citing General Electric Co. v. United States, 2 CIT 84, 90, 525 F. Supp. 1244, 1248 (1981), aff'd, 69 CCPA 166, 681 F.2d 785 (1982)). In determining that the imported articles were properly classified as unfinished radio receivers under Rule 10(h), the court applied the criteria set forth in Daisy-Heddon, Div. Victor Comptometer Corp. v. United States, 66 CCPA 96, 600 F.2d 799 (1979). Id. 648 F.Supp. at 12. In Daisy-Heddon, the court held that in determining whether an article is unfinished under Rule 10(h) *875 the test is whether the article is "substantially complete," not whether it lacks an "essential" part. 66 CCPA 96, 102, 600 F.2d 799.
The court, in Channel Master, found the scanners to be substantially complete because "although the crystals are necessary to permit the scanner to operate, the crystal is merely one of numerous other components, all of which enable the scanners to perform the basic functions of a radio receiver." 648 F.Supp. at 16. Plaintiff urged the court to adopt the "essential part" test, claiming that the crystals "are the `heart' of the radio, and that without them the scanners cannot properly be classified as radio receivers." Id. 648 F.Supp. at 16. The court, however, ruled against plaintiff on this point and stated that in Daisy-Heddon, the court of appeals expressly rejected the "essential part" test. See id. at 648 F.Supp. at 14.
In Channel Master, the court expressly stated that "[i]t is undisputed that the crystals are necessary to the use of the scanner as a radio receiver." Id. 648 F.Supp. at 16. The court, however, went on to state that this "does not prevent the scanners from being unfinished receivers pursuant to Rule 10(h) and the Daisy-Heddon criteria." Id. It is clear that, notwithstanding the contentions of plaintiff, the court applied the relevant case law to the stipulated facts, and concluded that the absence of the crystals did not preclude the imported scanners from being "substantially complete radio receivers." Id. 648 F.Supp. at 15. Hence, the court held that the scanners in their condition as imported were properly classified as "other solid-state (tubeless) radio receivers," under item 685.23 or 685.24, TSUS. Id. 648 F.Supp. at 16.
After careful consideration of the arguments of the parties, the court holds that plaintiff's contentions have been duly considered and decided in the case of Channel Master, Div. of Avnet, Inc., v. United States, 10 CIT ____, 648 F. Supp. 10 (1986). Plaintiff has not demonstrated any grounds that would justify the granting of its motion for rehearing. Hence, its motion for rehearing is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1522136/ | 217 F. Supp. 853 (1962)
UNITED STATES of America
v.
Clair CONWAY.
Crim. No. 62-116.
United States District Court D. Massachusetts.
May 23, 1962.
*854 W. Arthur Garrity, U. S. Atty., Paul J. Redmond, Asst. U. S. Atty., for U. S.
Sheldon Newman, Samuel Leader, Chelsea, Mass., for Clair Conway.
WYZANSKI, District Judge.
This case is before me on defendant's motion, pursuant to Rule 41(e), to suppress evidence and an alleged confession.
D'Alessandro, a special agent of the Intelligence Division of the Internal Revenue Service on April 5, 1962 made before United States Commissioner (1) an application to search the premises of Leaders Grocery, 74 Second St., Chelsea, and (2) a complaint that Jane Doe had violated 26 U.S.C. §§ 4411, 4412, and 7203.
The application stated:
"I have reason to believe that there is presently being held in the same premises in which I placed wagers with a person or persons whose true and correct identity is unknown to me on or about February 1, 1962, April 3, 1962 and on other occasions, certain gambling materials, devices, equipment, and money, in violation of Title 26, U.S.Code, Sections 4401, 4411, 4412, and 7203. Said premises described as Leaders Grocery, 74 Second Street, Chelsea, Massachusetts, being the first floor of a three story wood frame building painted brown and black and having a pitched roof, and a sign which reads "Leaders Grocery".
Supporting both the application and complaint D'Alessandro offered (1) his affidavit and (2) the affidavit of Rose, another special agent.
D'Alessandro's affidavit stated:
"That Jane Doe, white female, 53-57 years of age, 5'7"-5'9", 145-155 pounds, medium build, light complexion, grey hair, wears glasses, did accept wagers from the complainant at Leaders Grocery, 74 Second Street, Chelsea, Massachusetts *855 on or about February 1, 1962, April 3, 1962 and on other occasions and that the records of the District Director, Internal Revenue Service, Boston, Massachusetts as shown by the attached affidavit of Special Agent Frank E. Rose, failed to disclose that any person or persons has registered for the fiscal year beginning July 1, 1961 and ending June 30, 1962 as being engaged in the business of accepting wagers at the above described premises."
Rose's affidavit stated that his search of the tax records disclosed no record of the registration, or issuance of a special occupational tax stamp-wagering for any person at Leaders Grocery.
Commissioner Nelligan issued both (1) a warrant of arrest of Jane Doe and (2) a warrant to search Leaders Grocery for paraphernalia commonly used in the business of accepting wagers and said to be held in violation of 26 U.S.C. §§ 4401, 4411, 4412, and 7203.
The search warrant had in it this recital:
"Affidavit having been made before me by Special Agent Guido D. D'Alessandro that he has reason to believe that on the premises known as Leaders Grocery, 74 Second Street, Chelsea, Massachusetts, above described in the Judicial District of Massachusetts there is now being concealed certain property, namely books, records, papers, notebooks, pencils, memoranda sheets, racing forms (so called), money, and other paraphernalia commonly used in the business of accepting wagers, which are being held and possessed in violation of Title 26, U.S.Code, Sections 4401, 4411, 4412, and 7203 in that the special tax required by Section 4411 has not been paid for the fiscal year ending June 30, 1962."
Reavey, a regular deputy marshal, and McNally and Ginley, both special agents of the Intelligence Division of the Internal Revenue Service went to 74 Second St., Chelsea about 6 P.M. on April 5, 1962. Before their departure, with the telephoned consent of the Department of Justice, the United States Marshal the Honorable Robert Morey appointed McNally as a special deputy United States marshal.
When the trio arrived at 74 Second St., they found that no one was there and the premises were padlocked. Indeed the place was no longer a grocery store but was a daytime restaurant which had closed for the day.
McNally, who undertook the responsibility of executing the search warrant, demanded entrance. No one answering, Ginley procured a crowbar, and broke the lock, and all three entered. Later D'Alessandro joined them for five minutes.
Reavey and McNally searched for and found gambling paraphernalia. Before they had finished James Conway entered. In the presence of Reavey and Conway, McNally completed the inventory on the back of the search warrant. McNally swore to its accuracy and to the presence of Reavey and of Conway. McNally also gave a copy to Conway. The inventory listed these twelve categories of articles seized:
"A. 1 lot of various burned and torn number slips
B. 3 Ledger Books
C. $1.28 in cash
D. 15 3" × 5" Pads 9 new Pencils 3 Envelopes containing carbons for 3" × 5" pads
E. 1 3" × 5" pad with carbon inserted and dated 4/6
F. 1 Dream Book and 6 Lucky Number Cards
G. 8 Printed pages of Dream Book and 1 Electronic Brain publication
H. 1 Treasury Balance ticket
I. 2 Racing Publications
J. 3 Racing Publications
K. 4 Number Play tickets
L. Printed slip of Treasury Balance winning numbers"
*856 About 7:20 P.M. Mrs. Conway, who was the Jane Doe named in the warrants, arrived. Reavey at once placed her under arrest. Reavey claims that he told Mrs. Conway she did not have to make any statement, and that anything she said might be used in evidence against her. McNally, who was in the room, which was only about 12 feet by 12 feet, did not hear this admonition, and I find that Mrs. Conway did not hear it.
Then McNally started to address questions to Mrs. Conway. He says he also gave her notice that she need not speak, and that what she said might be used against her. But the mimeographed form on which McNally recorded the purport of her answers does not refer to any admonition that either should be given or was in fact given to Mrs. Conway. I find that if Mrs. Conway was warned, she did not hear the warning, and did not, with full knowledge of her right to remain silent, consent to speak. On April 5 McNally wrote out the gist of her answers to his questions on the mimeographed form. The next day he wrote an expanded account.
After both Mr. and Mrs. Conway had seen the seized articles, McNally and Reavey prepared to take Mrs. Conway to the Commissioner. At Mr. Conway's request they went in his car and arrived at about 8 P.M. at the Commissioner's. The seized articles are now in the custody of the Government, and seem to have been taken with the Conways to the Commissioner.
I turn from the findings of fact to questions of law.
First, I consider Mrs. Conway's statements. They were made while she was under arrest. In making them, she did not regard herself as free to refuse to answer. She did not realize her right under the Fifth Amendment not to incriminate herself. She responded solely because of the psychological pressure of the arrest to which she was then subject. Therefore, these statements, admissions, and confessions were given involuntarily. Cf. Judd v. United States, 89 U.S.App.D.C. 64, 190 F.2d 649, 651. Hence the second branch of the motion, seeking suppression of Mrs. Conway's statements, should be granted.
The more difficult question is whether the search warrant is valid.
On its face the warrant stated that gambling paraphernalia is being "held and possessed" in violation of 26 U.S.C. §§ 4401, 4411, 4412, and 7203, in that the special tax required by § 4411 has not been paid.
Despite what the warrant says, none of the sections just cited makes it a crime to hold or possess gambling paraphernalia. § 4401 imposes a tax on wagers to be paid by the person accepting them. § 4411 imposes an occupational tax on persons in the business of receiving wagers. § 4412 requires registration on persons in the occupation of accepting wagers. § 7203 provides that any person, required to pay taxes on wagers or on the occupation of accepting wagers, who wilfully fails to pay such tax shall be guilty of a misdemeanor.
The anomalous wording of the warrant leads the defendant to argue that, according to its own text, the warrant purports to search, not for articles used in connection with a crime, but for articles which are alleged themselves to be held and possessed as contraband; and that so construed, the warrant is invalid first because it is based on a mistake of law, and second because the affidavits upon which the warrant was issued do not recite that the affiants observed any of the articles described in the warrant.
The Government cannot meet the argument directly, but seeks to do so obliquely. It urges that the search warrant, though inexact in its wording, was issued to search for articles (that is gambling paraphernalia) used and in that sense "held" in connection with Jane Doe's crimes of wilfully evading the taxes on wagers and on the occupation of accepting wagers. That is, it is the government's position that the warrant was issued on the theory that when an affiant gives evidence that he has observed *857 a crime, and asserts his belief that the crime was committed by certain instruments, the issuing authority has probable cause to issue a warrant to search for the instruments. This argument is obviously premised on Federal Criminal Procedure Rule 41(b) (2) which provides that "[a] warrant may be issued under this rule to search for and seize any property. * * * (2) designed or intended for use or which is or has been used as the means of committing a criminal offense."
Where either evidence directly observed (see Dumbra v. United States, 268 U.S. 435, 441, 45 S. Ct. 546, 69 L. Ed. 1032) or reliable hearsay evidence (see Jones v. United States, 362 U.S. 257, 267-272, 80 S. Ct. 725, 4 L. Ed. 2d 697) is sufficient to lead a reasonably discreet and prudent man to believe both (a) that an offense has been committed, and (b) the commission involved the use of certain types of articles, then a warrant may issue to search for those articles. Dumbra v. United States, above; Jones v. United States, above; United States v. Ramirez, 2nd Cir., 279 F.2d 712, 716; Merit v. United States, 5th Cir., 249 F.2d 19, 21; United States v. Trujillo, 7th Cir., 191 F.2d 853; Shore v. United States, 60 U.S.App.D.C. 137, 49 F.2d 519. Federal Criminal Procedure Rule 41(b) (2).
But without challenging the rule just stated, defendant argues that a reasonably discreet and prudent man upon the evidence before the Commissioner would not have probable cause to believe both that a crime had been committed and that the crime had involved the use of the type of records, publications, and other paraphernalia referred to in the warrant.
Defendant points out that D'Alessandro's and Rose's affidavits recite as facts observed by them only that D'Alessandro saw Jane Doe accept wagers on at least four occasions at Leaders Grocery, and that Rose found no registration of a bookie at the address of Leaders Grocery.
Defendant first contends that these facts taken together do not show that a crime was committed at Leaders Grocery. The wagers may have been of a type for which no registration is required. Jane Doe may have had no fixed relationship to Leaders Grocery, as an owner or employee or other person with such a connection with the premises as to be expected to register at that address. Moreover, Jane Doe may have been registered at her home rather than at the place where she accepted bets. Hence there is no logical ground to believe that Jane Doe or anyone else committed a crime.
Defendant next contends that even if Jane Doe committed a crime at Leaders Grocery there is not in the affidavits any evidence as to the instruments, if any, that she used. She may merely have gone to the telephone and communicated the wagers to a bookie at some distant place. Or she may have relied on her memory. Nor is there the slightest indication as to the subject on which the wagers were made; they could have related to horse-racing, dog-racing, bank clearance numbers, political elections, or the weather. Nor is there any statement that Jane Doe received money; the wagers may have been on credit. Hence there is no logical relation to connect the observation of wagers of an unspecified type with a warrant to search premises for records, pads, pencils, racing forms, money, and other gambling paraphernalia.
The Government's answer is to the following effect.
When a person accepts four wagers on the same premises and no one registered as a bookie at that address, a Commissioner could reasonably believe that (1) some of those wagers were within the coverage of the federal tax law, (2) the person who accepted four wagers at the same place did business there, and (3) if the person were registered she probably would be registered at the place where she does business. Thus the Government's first step in supporting the warrant is that the Commissioner had reasonable ground to believe that Jane Doe *858 had violated 26 U.S.C. § 7203 by wilfully failing to pay the federal taxes on the occupation of accepting wagers.
Next the Government contends that although the Commissioner had no evidence as to what instruments Jane Doe used in taking wagers, common experience would logically support him in inferring that (1) a person who took wagers did not rely on his memory or solely on a telephone call to a distant point, but instead used records, pads, racing forms, and so forth, and (2) such records would be on the premises where bets were habitually made. Thus the Government's second step in supporting the warrant is that the Commissioner had reasonable ground to believe that in violating 26 U.S.C. § 7203 she used the articles specified in the search warrant.
Finally, the Government points out that in a close case a court must presume that the Commissioner acted upon the basis of probable cause. Jones v. United States, 362 U.S. 257, 267, 80 S. Ct. 725, 4 L. Ed. 2d 697; United States v. Ramirez, 2nd Cir., 279 F.2d 712, 716.
I conclude that the search warrant is invalid.
In this particular case, the Commissioner recited that he issued the warrant based on D'Alessandro's belief that the records and other paraphernalia were held and possessed in violation of federal law. That belief was untenable. One might as well assert that in the case of an individual who had wilfully evaded paying his federal income tax, he held and possessed his check book in violation of law. Indeed D'Alessandro's belief was expressed in such an untenable form that I am confident that the Commissioner did not take precise notice of D'Alessandro's affidavit, and I, therefore, cannot apply the rule that a Commissioner's warrant has the benefit of the presumption of regularity.
Furthermore, even if I were to construe the warrant as searching for records which were not possessed but were used in evading the tax on the occupation of wagering, I should hold the warrant invalid.
In so stating, I do not imply that there was no probable cause for D'Alessandro and the Commissioner to believe that Jane Doe had committed the misdemeanor of wilfully evading the federal tax upon the occupation of accepting wagers. For that belief there was ample basis. The Commissioner need not be furnished with proof of every element of a crime; nor with proof that no exception applies; nor with proof that nowhere was the defendant registered under the tax act.
But I do point to the absence of any detailed recital as to the wagering transactions which D'Alessandro observed. I cannot tell whether D'Alessandro saw any records or pads or other paraphernalia. If he never saw any such articles, I do not know on what basis he or the Commissioner formed their belief that such articles were present.
Where the correlation between the type of crime observed and the type of article sought to be seized is not made explicit by reference to personal observations, see Dumbra v. United States, 268 U.S. 435, 441, 45 S. Ct. 546, 69 L. Ed. 1032, or to reliable hearsay, see Jones v. United States, 362 U.S. 257, 267, 80 S. Ct. 725, 4 L. Ed. 2d 697, or to common experience of which one may take judicial notice, it is rare indeed that one can feel any assurance that the issuing authority acted as, in the words of Justice Stone in Dumbra v. United States, 268 U.S. 435, 441, 45 S. Ct. 546, 549, 69 L. Ed. 1032, "a reasonably discreet and prudent man". A prudent man would be mindful of the policies of privacy and civil liberty enshrined in the Fourth Amendment to the Constitution. And just as that Constitutional policy precludes him from issuing a search warrant upon a mere belief, (unsupported by direct observations or reliable hearsay,) that a crime has been committed on the premises, Nathanson v. United States, 290 U.S. 41, 54 S. Ct. 11, 78 L. Ed. 159, so he would hesitate to issue a search warrant for a particular type of article unless he had some better basis than unsupported belief for assuming that the *859 article was used in connection with a known crime.
Bearing in mind the considerations just recited, I am of the view that the skimpy affidavit of D'Alessandro lacked explicit detail adequate for a reasonably discreet and prudent man to have probable cause to find from observations of four undescribed wagers at Leaders Grocery a logical basis for believing that at that Grocery there were gambling records and gambling paraphernalia.
Motion to suppress granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1525010/ | 909 F. Supp. 554 (1995)
Douglas N. WASHBURN, Plaintiff,
v.
SAUER-SUNDSTRAND, INC., a corporation, Suzanne Sobkowiak, Richard Coffey, and William Glassman, Defendants.
No. 94 C 2708.
United States District Court, N.D. Illinois, Eastern Division.
November 1, 1995.
*555 *556 Kenneth A. Kozel, Petz & Kozel, LaSalle, IL, for plaintiff.
Thomas F. Ging, Robert Hill Smeltzer, Hinshaw & Culbertson, Chicago, IL, for defendants.
MEMORANDUM OPINION
GRADY, District Judge.
Plaintiff has sued under the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12101 et seq., alleging that defendants discriminated against him on the basis of his physical disabilities by terminating his employment.[1] Defendants have moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated in this opinion, the motion is granted.
BACKGROUND
Plaintiff, Douglas N. Washburn ("Washburn"), worked for defendant Sauer-Sundstrand, Inc. ("Sauer-Sundstrand"). Sauer-Sundstrand is a corporation that operates a manufacturing facility in LaSalle, Illinois. Washburn was employed in this facility as a machinist. He was hired by Sauer-Sundstrand on August 12, 1976. On August 7, 1992, Sauer-Sundstrand placed Washburn on suspension and told him not to come to work. Washburn notified his union, United Auto Workers ("UAW") Local 285, of this action by defendants. Edward Wrobleski, a Vice President of Local 285, subsequently told Washburn to return to work in a couple of days for a meeting with Sauer-Sundstrand personnel.
On August 12, 1992, Washburn, UAW representatives, and Sauer-Sundstrand representatives met at the LaSalle facility to discuss Washburn's attendance record and suspension. There is some disagreement as to who was present at the meeting. In addition to Washburn, the parties agree that defendants Suzanne Sobkowiak, Human Resources Team Leader, and Richard Coffey, Manufacturing Supervisor, attended on behalf of Sauer-Sundstrand. Also, the parties agree that Ronald Raef, first shift Steward, attended on behalf of the UAW. Defendants state that Wayne Casperson, Manufacturing Team Leader, also attended on behalf of Sauer-Sundstrand, and that George Wilson, a Vice *557 President of Local 285, and Al Espinoza, third shift Steward, also attended on behalf of the UAW. Defendants' Local Rule 12(m) Statement of Material Facts as to Which There is No Genuine Issue ("Defs.' 12(m) Statement") at ¶ 12. Plaintiff states that the additional attendees were defendant William Glassman, Director of Plant Operations of Sauer-Sundstrand, Wrobleski, and John Taylor, Treasurer of Local 285. Plaintiff's Response to Defendant's Statement of Facts ("Pl.'s 12(n) Response") at ¶ 12.
There is also disagreement between the parties as to the outcome of the meeting. Defendants contend that Washburn was formally terminated for excessive absenteeism. Defs.' 12(m) Statement at ¶¶ 1, 13. Plaintiff contends that he was not told he was being discharged, Pl.'s 12(n) Response at ¶ 13, but merely that he was being suspended because of absenteeism, and that he was not told, nor did he ask, how long the suspension would last. Washburn Dep. at 15-16.
Immediately after the August 12, 1992, meeting, Washburn signed a grievance that had been prepared by Espinoza. Washburn Dep. at 22-23; Espinoza Aff. The grievance protests Washburn's discharge. Espinoza Aff. Ex. 1. Washburn states that he did not read the grievance. Plaintiff's Statement of Additional Facts Which Require the Denial of Summary Judgment ("Pl.'s 12(n) Statement") at ¶ 4. Plaintiff did not receive any paychecks from Sauer-Sundstrand after August 12, 1992. He filed for unemployment benefits in 1992. Defendants state that Washburn's health benefits from Sauer-Sundstrand ceased as of August 12, 1992, and that he was sent a letter dated August 17, 1992, informing him that he had the option to pay for continued coverage under Sauer-Sundstrand's health insurance plan in spite of his termination. Defs.' 12(m) Statement at ¶¶ 17-18. Washburn contends that he was not sure whether his health benefits had been terminated, and that he had never received any correspondence from Sauer-Sundstrand regarding health insurance. Pl.'s 12(n) Response at ¶¶ 17-18.
Washburn's grievance was arbitrated on January 21, 1993. The arbitrator upheld Sauer-Sundstrand's termination of Washburn in a determination issued on March 22, 1993. Washburn states that he learned that he had been terminated upon receipt of the arbitrator's determination. Washburn Dep. at 31. Washburn filed a charge of discrimination against Sauer-Sundstrand with the Equal Employment Opportunity Commission ("EEOC") on September 20, 1993. Pl.'s 12(n) Response at ¶ 23. Plaintiff's EEOC charge was dismissed, and a right-to-sue letter was issued, on January 31, 1994. Washburn then filed this suit under the ADA. Defendant has moved for summary judgment.
DISCUSSION
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). A "genuine issue of material fact exists only where `there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.'" Wallace v. Tilley, 41 F.3d 296, 299 (7th Cir.1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986)). In considering such a motion, the court must view all inferences in the light most favorable to the nonmoving party. Tolentino v. Friedman, 46 F.3d 645, 649 (7th Cir.), cert. denied, ___ U.S. ___, 115 S. Ct. 2613, 132 L. Ed. 2d 856 (1995). The court will enter summary judgment against a party who does not come forward with evidence that would reasonably permit a finder of fact to find in his or her favor on a material question. McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir.1995).
Once the moving party has supported its motion for summary judgment, any fact asserted in the movant's affidavit will be accepted by the court as true unless the adverse party submits his own affidavits or other admissible evidence contradicting the assertion. See Lewis v. Faulkner, 689 F.2d 100, 102 (7th Cir.1982); see also Fed.R.Civ.P. 56(e) ("When a motion for summary judgment *558 is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.")
Sauer-Sundstrand has moved for summary judgment on the ground that there is no genuine issue of material fact as to whether Washburn's claim is time-barred under the ADA. The ADA, incorporating as it does the "powers, remedies, and procedures" of Title VII, 42 U.S.C. § 12117(a), requires that charges of discrimination be filed with the EEOC within 300 days "after the alleged unlawful employment practice occurred." 42 U.S.C. § 2000e-5(e)(1); Gilardi v. Schroeder, 833 F.2d 1226, 1230 (7th Cir.1987); Pacourek v. Inland Steel Co., 858 F. Supp. 1393, 1397-98 (N.D.Ill.1994). Plaintiff contends that he did not learn until March 20, 1993, that what he thought had been an indefinite suspension on August 12, 1992, had in fact been a discharge. Washburn Dep. at 15-16, 31. Washburn also does not dispute that he filed a charge of discrimination with the EEOC on September 20, 1993, Pl.'s 12(n) Response at ¶ 23, a date that is more than 300 days after August 12, 1992. Failure to satisfy the EEOC 300 day filing requirement is a bar to suit in federal court, but it is not an absolute bar. Perkins v. Silverstein, 939 F.2d 463, 469-70 (7th Cir.1991). Like a statute of limitations, the filing requirement "is subject to waiver, estoppel, and equitable tolling." Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 393, 102 S. Ct. 1127, 1132, 71 L. Ed. 2d 234 (1982).
"To defeat a motion for summary judgment alleging that the statute of limitations operates to bar the suit, the party opposing the motion must demonstrate the existence of a disputed material fact that presents a genuine issue for trial" as to whether waiver or modification of the limitations period is warranted. Janowiak v. Corporate City of South Bend, 750 F.2d 557, 561 (7th Cir.1984), rev'd on other grounds, 481 U.S. 1001, 107 S. Ct. 1620, 95 L. Ed. 2d 195 (1987). Plaintiff contends that the dispute over when Washburn learned that he had been terminated on August 12, 1992, as opposed to being merely suspended, presents a genuine issue for trial under the doctrines of equitable estoppel and equitable tolling. Defendants have provided affidavits from three people who attended the August 12, 1992, meeting. Sobkowiak Aff.; Wilson Aff.; Espinoza Aff. All three state that Washburn was told he was discharged at that meeting. Id. Defendants have also provided a copy of a union grievance protesting Washburn's "discharge" that was signed by Washburn and filed on August 12, 1992. Espinoza Aff. Ex. 1; Washburn Dep. at 22-23. Washburn, on the other hand, states that he was not told he was discharged on August 12, 1992, and that he did not read the grievance form he signed. Washburn Aff. at ¶¶ 1-2. There is a genuine issue of fact here. However, because the date on which Washburn learned he had been discharged is not material to the question of the applicability of the various equitable modification and waiver doctrines, Washburn cannot withstand summary judgment.
While plaintiff refers to equitable estoppel and equitable tolling, his argument actually invokes the "`discovery rule' of federal common law, which is read into statutes of limitations in federal-question cases." Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450 (7th Cir.1990), cert. denied, 501 U.S. 1261, 111 S. Ct. 2916, 115 L. Ed. 2d 1079 (1991). This rule "postpones the beginning of the limitations period from the date when the plaintiff is wronged to the date when he discovers he has been injured." Id. The problem with Washburn's argument is that he did in fact discover his injury on August 12, 1992. Discovery of injury in the employment context occurs "at the time the [adverse employment] decision was made and communicated" to the employee. Delaware State College v. Ricks, 449 U.S. 250, 258, 101 S. Ct. 498, 504, 66 L. Ed. 2d 431 (1980); Cada, 920 F.2d at 450. Washburn's case is similar to Ricks, where, because "the only challenged employment practice occur[red] before the termination date, the limitations periods *559 necessarily commence[d] to run before that date." Ricks, 449 U.S. at 259, 101 S.Ct. at 505.
In Washburn's case, like Ricks, there is only one challenged employment decision, and this decision was made and communicated to Washburn on August 12, 1992. Washburn acknowledges that he was not allowed to return to his Sauer-Sundstrand job after August 12, 1992, and that he stopped receiving paychecks after that date. Washburn Dep. at 15-16. He further acknowledges that he filed for unemployment compensation at some point after August 12, 1992, and before the end of that year. Washburn Dep. at 34. There is nothing in this record to suggest that Washburn could reasonably have regarded a discharge as discriminatory but an indefinite suspension as non-discriminatory. If discrimination occurred, it occurred when Washburn was disciplined for his absenteeism. Under the discovery rule, therefore, it is immaterial whether the adverse employment decision of August 12, 1992, was communicated to Washburn in terms of discharge or indefinite suspension.
In addition to the discovery rule, the Seventh Circuit has recognized that the two tolling doctrines mentioned in plaintiff's brief equitable estoppel and equitable tolling can modify the limitations period in ADA and Title VII cases. Cada, 920 F.2d at 451. However, like the discovery rule, neither of these doctrines will defeat summary judgment in Washburn's case. Equitable estoppel tolls the limitations period in cases where "the defendant takes active steps to prevent the plaintiff from suing in time, as by promising not to plead the statute of limitations." Cada, 920 F.2d at 450-51. Washburn has presented no evidence that shows, or supports the inference, that Sauer-Sundstrand was actively trying to prevent him from suing in time. In fact, as of March 22, 1993, the date that Washburn claims he first learned he had been discharged and not suspended, he still had plenty of time because the end of the limitation period was 78 days away.
Equitable tolling, on the other hand, allows a plaintiff to avoid a time-bar if "despite all due diligence he is unable to obtain vital information bearing on the existence of his claim." Id. at 451. Washburn fails to satisfy the due diligence requirement, because, assuming he needed to know whether he was discharged or suspended in order to be able to bring a claim, all he had to do was ask the union representatives who were handling his grievance. Also, equitable tolling is inapplicable because, again, at the time Washburn learned he had been discharged, 78 days remained in the limitations period. "When as here the necessary information is gathered after the claim arose but before the statute of limitations has run, the presumption should be that the plaintiff could bring suit within the statutory period and should have done so." Id. at 453. Washburn offers nothing to rebut this presumption.
Finally, plaintiff argues that the EEOC filing requirement should be waived because it violates the Fifth Amendment by denying due process and equal protection to a class of plaintiffs alleging employment discrimination. Plaintiff acknowledges that legislation like Title VII "that does not employ suspect classifications or impinge on fundamental rights must be upheld against equal protection attack when the legislative means are rationally related to a legitimate governmental purpose." Hodel v. Indiana, 452 U.S. 314, 331, 101 S. Ct. 2376, 2387, 69 L. Ed. 2d 40 (1981). Plaintiff ignores the fact, however, that "such legislation carries with it a presumption of rationality that can only be overcome by a clear showing of arbitrariness and irrationality." Id. at 331-32, 101 S.Ct. at 2387. There is no such showing here. Plaintiff simply asserts that the EEOC filing requirement is arbitrary and capricious. This assertion is particularly unpersuasive in view of the fact that the Supreme Court has recognized that limitations periods provide a reasonable means of accommodating the competing congressional interests of "guaranteeing the protection of the civil rights laws to those who promptly assert their rights, ... [and] protect[ing] employers from the burden of defending claims arising from employment decisions that are long past." Ricks, 449 U.S. at 256-57, 101 S.Ct. at 503. Moreover, Washburn's equal protection argument fails to identify any class of persons *560 receiving unequal treatment under the filing requirement, and his due process contention fails to identify any liberty or property interest of which these persons have been deprived.
CONCLUSION
For the reasons stated in this opinion, defendants' motion for summary judgment is granted, and summary judgment will be entered against the plaintiff.
NOTES
[1] According to the complaint, defendants Suzanne Sobkowiak, Richard Coffey, and William Glassman are supervisory employees of defendant Sauer-Sundstrand, Inc. who participated in the action plaintiff complains of. These individuals are probably entitled to a Rule 12(b)(6) dismissal on the basis of EEOC v. AIC Security Investigations, Ltd., 55 F.3d 1276 (7th Cir.1995), which held "that individuals who do not otherwise meet the statutory definition of `employer' cannot be liable under the ADA." Id. at 1282. However, these defendants have not moved for dismissal, and in view of the conclusion we have reached on defendants' summary judgment motion, we need not address this question. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1525656/ | 552 F. Supp. 2d 393 (2008)
David T. HARGETT, Petitioner,
v.
METROPOLITAN TRANSIT AUTHOITY, New York City Transit Authority, Stanley Grill, James Harding, Jr., May Mcintosh, Ken Neal, and David Ross. Respondents.
Nos. 1:06-cv-07094-CM-KNF, 06-CV-7095 (CM)(KNF).
United States District Court, S.D. New York.
April 7, 2008.
*396 David T. Hargett, pro se.
Robert Kenneth Drinan, New York City Transportation Authority, Brooklyn, NY, for defendants.
*397 DECISION AND ORDER GRANTING IN PART AND DENYING IN PART RESPONDENT'S MOTION TO DISMISS
McMAHON, District Judge.
Introduction
David T. Hargett commences this action alleging wrongful discharge in violation of his civil rights (42 U.S.C. § 1981), the Age Discrimination in Employment Act (ADEA) (29 U.S.C. § 621 et. seq.), and New York State Human Rights Law § 296 (N.Y.SHRL), as well as defamation, intentional infliction of emotional distress (IIED), and breach of contract. He sues the New York City Transit Authority (N.Y.CTA or the Authority) and three NYCTA executivesStanley Grill, Vice President (Grill), David Ross, Chief Operations Officer (Ross), and May Mcintosh, Assistant Chief Operations Officer (Mcintosh)(collectively, the NYCTA Defendants),as well as the Metropolitan Transit Authority (MTA) and two MTA employees-Ken Neal, director (Neal), and James Harding, Jr., commissioner (Harding) (collectively, the MTA Defendants). Plaintiff seeks compensatory and punitive damages in connection with his termination from the NYCTA on June 24, 2004.
Plaintiff, acting pro se, commenced these cases on September 16, 2006. The cases were reassigned to me from the docket of the late Judge Richard Conway Casey, and they were consolidated in a conference with the parties on October 5, 2007. Defendants have moved to dismiss under Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure. The NYCTA Defendants move to dismiss the HED, defamation, and breach of contract claims as against them, as well as to strike paragraphs 18 through 20 of the complaint. The MTA Defendants move to dismiss all charges against them.
The NYCTA's partial motion to dismiss and the MTA's motion to dismiss and are granted. The NYCTA Defendants' motion to strike paragraphs 18 through 20 in the complaint is denied.
Facts
The following well-pleaded facts are presumed to be true: Plaintiff David T. Hargett is an African American male who was employed by the NYCTA Materiel Division as an Operations Manager for five-and-a-half years, from mid-September 1998 until his termination on June 24, 2004. (N.Y.CTA Comp. ¶¶ 1-2.) Prior to his NYCTA employment, Hargett was a Business Advisor in the Small Business Development Center at Bronx Community College. (Id.) The NYCTA recruited him to his new post, where he was responsible for managing seven fulltime employees and some fifteen contracts valued at over $50,000,000. (Id. ¶¶ 7-8.) Plaintiff underwent finger printing and extensive background and employment checks in the process of being hired. During his time at the NYCTA, plaintiff had an unblemished work record and performed well. (Id. ¶¶ 9, 13.)
Plaintiff reported to NYCTA defendants Ross and Mcintosh, as well as to another man who is not a defendant in this case. (Id. ¶¶ 7, 12.) Plaintiffs initial job description did not include the direct management of subordinates. (Id. ¶ 7.) Over time, however, his supervisors evidently began assigning him routinely under-performing and problematic employees, and asked him to fire them, "to put a black face in-charge to disguise discrimination." (Id. ¶ 11.) Plaintiff refused to fire employees he had no history of supervising; instead, he offered to manage the employees to a satisfactory level, an endeavor with which he appears to have had success. (Id. ¶¶10-11.)
*398 One such employee was a female with over 16 years experience at the NYCTA. (Id. ¶¶ 10-11.) According to Hargett, his supervisors constantly pressured him to take disciplinary action against her, and he did issue her two warning letters. (Id. ¶ 12.) At a meeting among plaintiff, Mcintosh, and the female employee shortly after the warning letters were sent, Mcintosh told the employee that this was her last transfer and that she would be fired upon any further disciplinary action. (Id. ¶ 12.) Plaintiff also claims he heard [that] Mcintosh instructed the employee to build a case against plaintiff to save her job. (Id.)
About a week later, the female employee complained of receiving inappropriate emails from Hargett. (Id. ¶ 13.) Plaintiff denied the allegations, but thereafter defendants initiated a comprehensive investigation into his background and credit history. (Id.) Claiming that Hargett had violated the company's email policy, the NYCTA suspended plaintiff without pay and without dependent care benefits on June 24, 2004. (Id. ¶¶ 3, 14.) Security guards escorted plaintiff from the building without his personal belongings. (Id. at 14.)
The female employee sent a letter to Grill about six months later recanting her charges against Hargett, and saying that while they worked together he had, "... always been professional and respectful." (Id. ¶ 15; Opp. Memorandum, Exh. A.) In the letter, she claimed that Mcintosh encouraged her to build an email file against the plaintiff, and that the company's Labor Relations department later urged her to make sexual harassment allegations against him and forced her to sign a statement saying that he had sent her the inappropriate emails. (Opp.Memorandum, Exh. A.) Following receipt of the letter, no new action was taken on the matter. (NYCTA Comp. ¶ 15.)
At some point, either before or after his termination, the plaintiff wrote two letters of complaint to MTA defendants Neal and Harding, alleging disparate treatment by his superiors. Plaintiff claims no action was taken on those letters. (MTA Comp. ¶ 19.)
Standard of Review
On a motion to dismiss, the court must accept all factual allegations in the complaint as true. In re Xethanol Corp. Sec. Litig., No. 06 Civ. 10234(HB), 2007 WL 2572088, at *2 (S.D.N.Y. Sept.7, 2007) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S. Ct. 2499, 168 L. Ed. 2d 179 (2007)). The Conley v. Gibson standard, which held that dismissal is inappropriate "unless it appears beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief," 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957), was recently "retired" by the' United States Supreme Court in Bell Atlantic v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1964-65, 167 L. Ed. 2d 929 (2007). The Bell Court held that, "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the `grounds' of his `entitlement to relief requires more than labels and conclusions', and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-65 (citations omitted). For a plaintiff to survive a motion to dismiss, his, "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 1965 (citations omitted). In a postBell decision, the United States Court of Appeals for the Second Circuit, interpreting Bell, stated, "[T]he [Supreme] Court is *399 not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible `plausibility standard,' which obliges a pleader to amplify a claim with some factual allegation in those contexts where such amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.2007).
Discussion
The NYCTA Defendants' Motion to Dismiss Is Granted and Motion to Strike Is Denied
The NYCTA admits that it is plaintiffs employer. The NYCTA Defendants do not move to dismiss plaintiffs claims under 42 U.S.C. § 1981, the NYSHRL, or the ADEA, but they move to dismiss plaintiffs IIED, defamation, and contract claims, as well as his claim for punitive damages. That motion is granted. The NYCTA Defendants also move to strike certain paragraphs of the complaint, and that aspect of its motion is denied.
A. Plaintiffs IIED Claim
1. Is Plaintiffs IIED Claim Barred Because of Failure to Serve Notice of Claim?
Plaintiff alleges a claim for IIED against his employer, the NYCTA, and the individual NYCTA defendantsGrill, Ross, and Mcintosh.
Turning first to the claim against the NYCTA, New York Public Authorities Law § 1212 sets out specific procedures for complainants to follow in commencing tort actions against the NYCTA. It provides in pertinent part that complainants must serve notice of a claim on the NYTA within ninety days after the claim arose, in compliance with the procedures set forth in New York General Municipal Law § 50-e. N.Y. Pub. Auth. L. § 1212(2) (2007); Gen. Municipal L. § 50-e(1)(a) (2007). The NYCTA argues-and plaintiff does not dispute-that plaintiff failed to comply with this statutory requirement.
The statute also requires the plaintiffs complaint to contain an allegation that at least thirty days have passed since a notice of claim was served on the NYCTA. N.Y. Pub. Auth. L. §§ 1212(1), (4); Walker v. N.Y.C. Transit Auth., No. 99 CIV. 3337(DC), 2001 WL 1098022, at *14 (S.D.N.Y. Sept.19, 2001). Plaintiff made no such allegation in the complaint he filed on September 15, 2006, and he does not now move to amend his complaint.
Therefore, plaintiffs IIED claim against the NYCTA is dismissed for failing to comply with the requirements of § 1212.
The notice of claim requirements do not apply to the IIED claims as against Ross, Grill, and Mcintoshthe individual NYCTA defendants. General Municipal Law § 50-e(1)(b) provides that, "Service of the notice of claim upon an officer, appointee or employee of a public benefit corporation shall not be a condition precedent to the commencement of an action ... against such person." Therefore, service upon the individual NYCTA defendants is not defective.
2. Is Plaintiffs IIED Claim TimeBarred?
Plaintiffs IIED claim against the NYCTA Defendants is time barred. Federal courts apply state statutes of limitations to intentional tort claims. Duran v. Jamaica Hosp., 216 F. Supp. 2d 63, 66 (E.D.N.Y. 2002). New York law sets a one-year statute of limitations for IIED. N.Y. CPLR § 215(3). Plaintiff filed his complaint on September 15, 2006, just shy of two years and three months after the date of his termination, clearly beyond the one-year statute of limitations. See Jackson v. N.Y.C. Transit Auth, 274 A.D.2d 501, 712 *400 N.Y.S.2d 377, 377 (App.Div.2000). Plaintiffs IIED claim is therefore time-barred, unless the limitations period was tolled while his Equal Employment Opportunity Commission (EEOC) claims were pending. See Pierson v. City of New York, 56 N.Y.2d 950, 954-55, 453 N.Y.S.2d 615, 439 N.E.2d 331 (1982).
Plaintiff attached an EEOC "right to sue" letter, dated June 21, 2006, to his complaints. Although he does not address the EEOC claim in his papers, he does respond to the NYCTA Defendants' timebarred defense by citing 42 U.S.C. § 2000e-5(e)(1), so I will consider its import.
The Second Circuit has not definitively addressed whether the filing of an administrative charge with the EEOC tolls the statute of limitations as to all claims arising out of the same set of facts (as the plaintiffs claims in this case do), but, "The weight of authority ... has held that state common law claims are not tolled during the pendency of an ... EEOC claim." Duran, 216 F.Supp.2d at 68 (citing Callahan v. Image Bank, 184 F. Supp. 2d 362, 363 (S.D.N.Y.2002): accord Pasqualini v. MortgagelT, Inc., 498 F. Supp. 2d 659, 668-69 (S.D.N.Y.2007)); see also Duron, 216 F.Supp.2d at 67 (collecting cases). Other circuits agree that the pendency of an individual's EEOC complaint does not toll a state statute of limitations. Stordeur, 995 F.Supp. at 100; see, e.g., Juarez v. Ameritech Mobile Commc'ns, Inc., 957 F.2d 317, 322-23 (7th Cir.1992) (filing of EEOC charge did not toll the statute of limitation on employee's state law invasion of privacy claim); Arnold v. United States, 816 F.2d 1306, 1312-13 (9th Cir.1987) (holding state law tort claims are not tolled during pendency of Title VII action); Dupree v. Hutchins Bros., 521 F.2d 236, 238 (5th Cir.1975) (finding state statute of limitation for § 1981 action was not tolled during pendency of EEOC claim).
In this district, courts have come out on both sides of the question. Compare Lamb v. CitiBank, N.A., No. 93-CV-2358, 1994 WL 497275, at * 8 (S.D.N.Y. Sept.12, 1994) (finding state IIED claim distinct from Title VII and § 1983 claims and thus refusing to toll statute of limitations), with Brown v. Bronx Cross County Grp., 834 F. Supp. 105, 111 (S.D.N.Y.1993) (tolling claims while plaintiffs EEOC claims were pending). Courts in favor of tolling the statute of limitations as to state claims that arise out of the facts before the EEOC "have done so for two reasons: (1) to avoid duplicative litigation and judicial inefficiency, and (2) to further one of the central purposes of Title VII by allowing [administrative organizations] the opportunity to investigate allegations of employment discrimination in order to facilitate dispute resolution before litigation commences." Duran, 216 F.Supp.2d at 67 (quoting Stordeur v. Computer Assoc. Int'l Inc., 995 F. Supp. 94, 99 (E.D.N.Y. 1998)) (alteration in original). The rationale for not tolling the statute of limitations is that "a timely state law complaint could have been filed at the same time ... without the prerequisite that it go before an administrative body." Id. at 68 (citations omitted).
Supreme Court precedent supports the latter result. In Johnson v. Railway Express Agency, 421 U.S. 454, 466, 95 S. Ct. 1716, 44 L. Ed. 2d 295 (1975), the Court held that the timely filing of an employment discrimination charge with the EEOC does not toll the running of the limitations period under 42 U.S.C. § 1981, which is set by and borrowed from state law. Absent a conflicting federal policy underlying the cause of action, the state statute of limitations should be governed by its own rules of application, tolling, and *401 revival. Id. at 464, 95 S. Ct. 1716. The Court acknowledged that Title VII "embodies a strong federal policy in support of conciliation and voluntary compliance" and that failing to toll the statute would "force a plaintiff into premature and expensive litigation that would destroy" this policy goal. Nonetheless, it found the § 1981 remedy to be fundamentally separate from and independent of the procedural labyrinth of Title VII. Stordeur, 995 F.Supp. at 100-01 (quoting Johnson, 421 U.S. at 465-66, 95 S. Ct. 1716). Based on this decision, courts have held that, "Despite the laudable interest in judicial economy expressed by courts that have tolled the state statute of limitations, [district courts] must respect the general principle that statute of limitations schemes are exclusively the prerogative of the legislature and, absent a clear legislative declaration that any tolling is permissible, the courts should be reluctant to imply one." Duron, 216 F.Supp.2d at 68 (citations and quotations omitted).
As with Johnson's § 1981 claim, Hargett's common law tort claim for IIED offers a completely independent avenue of redress, subject to no procedural hurdles. Stordeur, 995 F.Supp. at 101. The receipt of an EEOC right-to-sue letter is not a condition precedent to filing a complaint alleging IIED. Plaintiff could have pursued his this purely state law claim at anytime after his cause of action accrued. Id.
Furthermore, although claimants may pursue ADEA claims only after filing charges with the EEOC, 29 U.S.C. § 626(d) (2000), a "right to sue" letter is not' required for plaintiffs to seek ADEA relief in federal court: A claimant exhausts the administrative process by withdrawing agency charges as long as he files a charge and it remains pending before the EEOC for at least 60 days. McPherson v. N.Y.C. Dep't of Educ., 457 F.3d 211, 215 (2d Cir. 2006) (citation omitted). In this case, Hargett took no action at all, choosing, instead, to sleep on his rights.
Like the Johnson Court, I can think of "no policy reason that excuses petitioner's failure to take the minimal steps necessary to preserve each claim independently." 421 U.S. at 466, 95 S. Ct. 1716. Thus, plaintiffs IIED claim is dismissed as time barred against the NYCTA Defendants.
3. Is Plaintiffs IIED Claim Viable, if Not Time Barred?
Even if Hargett's IIED claim were not time barred, it would be dismissed for failing to meet New York's strict standard for pleading a claim of IIED. New York IIED requires plaintiffs to plead: (1) extreme and outrageous conduct; (2) intent to cause, or reckless disregard of a substantial probability of causing, severe emotional distress; (3) a causal connection between the conduct and the injury; and (4) severe emotional distress. Conboy v. AT & T Corp., 241 F.3d 242, 258 (2d Cir.2001). "Liability has been found only where the conduct has been so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized society." Murphy v. Am. Home Prods. Corp., 58 N.Y.2d 293, 303, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983). In the employment context, "New York courts are exceedingly wary of claims for [IIED] ... because of their reluctance to allow plaintiffs to avoid the consequences of the employment-at-will doctrine by bringing a wrongful discharge claim under a different name." Mariani v. Consol. Edison Co., 982 F. Supp. 267, 275 (S.D.N.Y.1997), aff'd, 172 F.3d 38, 1998 WL 961111 (2d Cir.1998). "The rare instances where the New York courts have found the complaint sufficient to state an IIED claim in the employment context generally involve allegations of more significant *402 battery, or improper physical contact." Gilani v. Nat'l Ass'n of Sec. Dealers. Inc., No. 96 Civ. 8070, 1997 WL 473383, at *14 (S.D.N.Y. Aug.19, 1997).
In the present case, plaintiff alleges that he was wrongfully accused of sending inappropriate emails to a female subordinate; thoroughly investigated thereafter; fired for sending the emails without the opportunity to confront his accuser and despite the alleged fact that white executives were sending pornographic emails without consequence; escorted from the building by security guards; and forced to leave certain personal belongings behind. These allegations, while troubling if true, do not rise to the level of outrageousness New York law demands for a viable IIED claim. See, e.g., Murphy, 58 N.Y.2d at 293, 461 N.Y.S.2d 232, 448 N.E.2d 86. Thus, plaintiff fails to state an IIED claim.
B. Plaintiffs Defamation Claim
1. Is Plaintiffs Claim Barred Because of the Failure to Serve Notice of a Claim?
Like IIED claims, plaintiffs must pursue defamation claims in accordance with New York Public Authorities Law § 1212. In pursuing his defamation claim, plaintiff no more complied with that statute's service and notice requirements than he did in pursuit of his IIED claim. Therefore, that claim is dismissed as against the NYCTA.
2. Is Plaintiff's Defamation Claim Time-Barred?
Defamation, like IIED, is governed by the one-year statute of limitations for intentional torts in New York. See N.Y. CPLR § 215(3). Therefore, plaintiffs defamation claim is time barred as against the NYCTA Defendants, for the same reasons his IIED claim was.
3. Is Plaintiff's Defamation Claim Viable, if Not Time Barred?
Even if it were not time barred, plaintiffs defamation claim would fail as against the NYCTA Defendants.
Under New York law, the elements of a cause of action for slander are: (1) a defamatory statement of fact, (2) that is false, (3) published to a third party, (4) of and concerning the plaintiff, (5) made with the applicable level of fault on the part of the speaker, (6) either causing special harm or constituting slander per se, and (7) not protected by privilege. Albert v. Loksen, 239 F.3d 256, 265-66 (2d Cir. 2001). Although Hargett is not required to plead with particularity to survive dismissal under Rule 12(b)(6), state law requires him to allege in his complaint the spoken words that serve as the basis of the slander claim. CPLR § 3016; see Daniels v. Alvarado, No. 03 Civ. 5832(JBW), 2004 WL 502561, at *8 (E.D.N.Y. Mar. 12, 2004) (dismissing slander claim because plaintiff failed to allege "words spoken by [the defendants] that could be construed as an oral defamation"). He does not do so, so his defamation claim must be dismissed. Since the claim is time-barred (and was when filed), there is no need to grant plaintiff leave to amend.
3. Plaintiffs Breach of Contract Claim Is Dismissed
Plaintiffs breach of contract claim must also be dismissed. New York law generally does not recognize contract liability in at-will employment relationships. Nor does it recognize a tort for wrongful discharge, or require good faith in the employment relationship. Harrison v. Indosuez, 6 F. Supp. 2d 224, 231 (S.D.N.Y.1998) (citing DePetris v. Union Settlement Ass'n, Inc., 86 N.Y.2d 406, 633 N.Y.S.2d 274, 276, 657 N.E.2d 269 (1995)). The rule is that "`employment for an indefinite *403 or unspecified term' is presumed to be `at will and ... freely termina[ble] by either party at any time without cause or notice.'" Reddington v. Staten Island Univ. Hosp., 511 F.3d 126, 137 (2d Cir. 2007) (quoting Horn v. N.Y. Times, 100 N.Y.2d 85, 760 N.Y.S.2d 378, 790 N.E.2d 753, 755 (N.Y.2003)) (alteration in original).
The at-will presumption may be rebutted if the employee is able to show: (1) that the employer made the employee aware of an express written policy limiting its right of discharge, and (2) that the employee detrimentally relied on that policy in accepting the employment. Castro v. Local 1199, 964 F. Supp. 719, 730 (S.D.N.Y. 1997); see also Baron v. Port Auth. of New York & New Jersey, 271 F.3d 81, 85 (2d Cir.2001). The New York Court of Appeals has said, "[The][m]ere existence of a written policy ... does not limit an employer's right to discharge an at-will employee, or give rise to a legally enforceable claim by the employee against the employer." De Petris, 633 N.Y.S.2d at 276, 657 N.E.2d 269.
Plaintiff does not allege that he had a contract with any of the individual NYCTA defendants. With regard to the NYCTA itself, plaintiff has not alleged facts that will rebut the at-will employment presumption. He does not claim that he ever had a formal employment contract with the NYCTA. He purports to identify a contract arising partly out of an August 17, 1998 letter from the NYCTA that "extended an offer of employment to plaintiff stating an attractive annual salary and city residency waiver." NYCTA Comp. ¶ 42. This letter, as plaintiff himself acknowledges, is an "offer of employment"not a promise regarding any future performance.
Plaintiff further alleges that, "Defendant NYCT further represented to [him], both in oral statements and, on information and belief, through its written employment policies and manuals, that [he] would not be treated in a discriminatory fashion on account of his race." NYCTA Comp. ¶ 42. Plaintiff argues that he "relied on [the NYCTA's] representations and commitments as a term and condition of his employment relationship with defendant NYCTA, and as an inducement to leave his current employer." Id. ¶ 43. He concludes that his termination was "a breach of these representations and commitments" giving rise to a cause of action for a breach of contract. Id. ¶ 44.
But the representations alleged by plaintiff do not give rise to any contract because they are inadequate as consideration. Every employer in New York is obligated not to fire employees on the basis of their race. See N.Y. Human Rights Law § 296(1)(a) (2007), 42 U.S.C. § 1981 (2000). The NYCTA could not give the plaintiff equal treatment rights in exchange for his employment or promise equal treatment as consideration. See Von Bing v. Mangione, 309 A.D.2d 1038, 766 N.Y.S.2d 131, 133 (A.D.3d Dep't 2003); Restatement (Second) of Contracts § 73. Therefore, any promise by the NYCTA that it will not discriminate against its employees on the basis of race cannot constitute the consideration necessary to create a contract of employment. See Baron. 271 F.3d at 85; see also Murphy, 58 N.Y.2d at 300-301, 461 N.Y.S.2d 232, 448 N.E.2d 86. Thus, plaintiff cannot rebut the at-will employment presumption, and his contract claim fails.[1]
*404 4. Plaintiffs Request for Punitive Damages Is Dismissed
In connection to his relief under § 1981, plaintiff requests punitive damages from the NYCTA. The; Supreme Court has held that complaining parties may not recover punitive damages against government agencies or political subdivisions. See Kolstad v. Am., Dental Assoc., 527 U.S. 526, 534, 119 S. Ct. 2118, 144 L. Ed. 2d 494 (1999); see also Krohn v. N.Y.C. Police Dep't. 2 N.Y.3d 329, 778 N.Y.S.2d 746, 811 N.E.2d 8 (2004) (holding that punitive damages not available in employment discrimination case against municipality). Furthermore, "the twin justifications for punitive damagespunishment and deterrenceare hardly advanced when applied to a governmental unit" since it is the taxpayers who are ultimately penalized. Sharapata v. Town of lslip, 56 N.Y.2d 332, 338, 452 N.Y.S.2d 347, 437 N.E.2d 1104 (1982); see also Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987) (holding that the Long Island Rail Road should be exempt from liability for punitive damages because a large portion of its funding came from public sources and it served an "essential, governmental purpose" and, as a result, the burden would actually fall upon the taxpayers). Therefore, as a public benefit corporation, the NYCTA is immune from punitive damages. Accordingly, Hargett's request for punitive damages is dismissed.
5. The NYCTA Defendants' Motion to Strike Paragraphs 18-20 of the Complaint Is Denied
The NYCTA Defendants move to "dismiss" paragraphs 18 through 20 of Hargett's complaint. Memorandum in Support of Motion to Dismiss, p. 2. Defendants do not state the authority for their motion to "dismiss"perhaps because one does not "dismiss" paragraphs of complaints, one moves to "strike" them under Rule 12(f) of the Federal Rules of Civil Procedure, which permits the court to "strike from a pleading ... any redundant, immaterial, impertinent, or scandalous matter."
As a general rule, motions to strike are not favorably viewed, and will be granted only where "there is a strong reason for so doing." M'Baye v. World Boxing Ass'n, No. 05 Civ. 9581(DC), 2007 WL 844552, at *4 (S.D.N.Y. Mar.21, 2007) (quoting Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir.1976)). To prevail on a motion to strike, the defendant must show that: "(1) no evidence in support of the allegations would be admissible; (2) the allegations have no bearing on the relevant issues; and (3) permitting the allegations to stand would result in prejudice to the movant." Id. (citing Roe v. City of New York, 151 F. Supp. 2d 495, 510 (S.D.N.Y.2001)).
The allegations set forth in paragraphs 18 through 20 contain claims of race-based discrimination that are germane to the course of discriminatory conduct that plaintiff describes in his complaint and relevant to the legitimacy of the NYCTA's claim that they fired the plaintiff *405 for violating the company's email policy. They allege that:
¶ 18: On information and belief, defendant NYCT has taken no disciplinary action against white higher ups who admitted to violating the company's email policy by sending pornographic and offensive materials to co-workers, subordinates, friends, and to the president of NYCT via the company's email system. ¶ 19: On information and belief, defendant NYCT has taken no disciplinary action to investigate the background, credit history and employment applications of white higher ups who admitted to violating the company's email policy. ¶20: On information and belief, defendant NYCT has not fired white higher ups who have committed extremely serious transgressions.
NYCTA Comp. ¶18-20. The NYCTA Defendants make no colorable argument for why these paragraphs should be stricken, other than claiming that they contain "opinion." They fail to make any showing whatsoever as to how the facts alleged are "redundant, immaterial, impertinent, or scandalous." Therefore, the NYCTA Defendants' motion to strike is denied.
II. The MTA Defendants' Motion to Dismiss Is Granted
A. The Employment Discrimination Claims against the MTA Defendants are Dismissed Because the MTA Was Not Plaintiffs Employer
First, I will address the plaintiffs wrongful discharge claims against the MTA. Wrongful discharge claims under NYSHRL, § 1981, and the ADEA lie only against an "employer." These claims are dismissed as against the MTA because the NYCTA, not the MTA, was the plaintiffs employer.
Plaintiff's first wrongful discharge claim against the MTA is based on the ADEA. The ADEA states that, "It shall be 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) (2000) (emphasis added). Under the ADEA, an entity will be considered an "employer" where there is sufficient evidence that it had immediate control over another company's employees, and, even more importantly, over the employee alleging discrimination. Tomassi v. Insignia Fin. Grp., Inc., 398 F. Supp. 2d 263 (S.D.N.Y.2005); see also 29 U.S.C. § 630(b).
The plaintiff alleges his second wrongful discharge claim against the MTA under NYSHRL § 296. Under the pertinent provisions of the statute, it is unlawful for an employer to discharge an employee based on his race or age. N.Y. Exec. L. § 296(1)(a) (2007) (emphasis added). A given entity is an individual's "employer" based on the following factors: "1) whether the proposed employer had the power of the selection and engagement of the employee; 2) whether the proposed employer made the payment of salary or wages to the employee; 3) whether the proposed employer had the power of dismissal over the employee; and 4) whether the proposed employer had the power to control the employee's conduct." Goyette v. DCA Advertising, Inc., 830 F. Supp. 737, 746 (S.D.N.Y.1993) (citation omitted). Emphasis is on the fourth factor. Id. (citations omitted).
Plaintiff alleges his third wrongful discharge claim against the MTA under 42 U.S.C. § 1981. Section 1981 protects certain activities from racial discrimination, including the making and enforcement of contracts and "the full and equal benefit of *406 all laws and proceedings for the security of persons and property." 42 U.S.C. § 1981 (2000). The elements of a § 1981 and NYSHRL employment discrimination claim are identical. Reiter v. Metro. Transit Auth. of the State of New York, No. 01 Civ. 2762(JGK), 2002 WL 31190167, at *12 (S.D.N.Y., Sept.30, 2002). To state a prima facie case of employment discrimination, both statutes require: (1) membership in a protected class; (2) satisfactory job performance; (3) termination from employment or other adverse employment action; and (4) that this adverse employment decision occurred under circumstances giving rise to an inference of discrimination based on membership in the protected group. Id. (citing McGuinness v. Lincoln Hall, 263 F.3d 49, 53 (2d Cir.2001)) (other citation omitted). However, "A complaint consisting of nothing more than naked assertions and setting forth no facts upon which a court could find a violation of [§] 1981 fails to state a claim under Rule 12(b)(6)." Timmons v. City of Hartford, 283 F. Supp. 2d 712, 717 (D.Conn.2003) (citing Martin v. N.Y. State Dep't. of Mental Hygiene, 588 F.2d 371, 372 (2d Cir.1978)).
In this case, even under a generous construction, the MTA is not and cannot be the plaintiffs "employer." Plaintiff alleges that he was hired by the MTA through its "subsidiary company," NYTA. But unlike the Long Island Rail Road and MetroNorth, which are wholly owned subsidiaries of the MTA, the NYTA is not an MTA subsidiary. N.Y. Urban League v. State of New York, 71 F.3d 1031, 1033-34 (2d Cir.1995); see also N.Y. Pub. Auth. L. § 1204(11) (2007) (N.Y.CTA has the power to "assist and cooperate with the [MTA] in furtherance of the purposes and powers of the [NYCTA]."). The two companies are legally separate public benefit corporations. Id. § 1201(1). Each can sue and be sued in its own right and each makes its own organizational and management rules and regulations. Id. §§ 1204(1), (4). The two corporations have different functions with respect to public transportation: the MTA handles financing and planning for a regional transit system encompassing, not just New York City, but Westchester County and point north. The NYCTA is in charge of the operation of New York City's transit system. See Adams v. N.Y.C. Transit Auth., 140 A.D.2d 572, 528 N.Y.S.2d 638, 639 (A.D.2d Dep't 1998). The NYCTA's hiring and compensation schemes are its own. N.Y. Pub. Auth. L. § 1204(6); cf. id. § 1266(5) ("The employees of any [MTA] subsidiary corporation, except those who are also employees of the authority, shall not be deemed employees of the authority.").
The complaint's allegations are plainly insufficient to support an inference, that the MTA was plaintiffs employer. Plaintiffs complaint against the MTA merely repeats almost verbatim his claims against the NYCTA, which is alleged to have been his employer. The complaint states no facts that tend to suggest that plaintiff was employed by the MTA, had a duty to report to the MTA, or that the MTA had any control over Hargett or his work responsibilities. The MTA evidently had no involvement in his compensation, workplace responsibilities, or the decision to hire or fire him. Therefore, the plaintiff fails to allege any facts tending to show that the MTA was his "employer" for purposes of the ADEA, Exec. L. § 296, or § 1981 of the Civil Rights Act. All of his employment discrimination claims against the MTA must be dismissed.
Turning to the allegations against Harding and Neal (the individual MTA employees named as defendants), plaintiff similarly fails to state a claim of employment *407 discrimination against either defendant.
The ADEA claim is dismissed simply because individual defendants cannot be held liable under its provisions. Parker v. Metro. Transportation Auth., 97 F. Supp. 2d 437, 452 (S.D.N.Y.2000).
Under § 1981, however, directors, officers, and employees of a corporation may be held individually liable when they intentionally cause infringement of the rights the statute protects. Hardy v. New DN Co., No. 95 CIV. 5818(DLC), 1997 WL 666212, at * 12 (S.D.N.Y. Oct.24, 1997) (citation omitted). To support personal liability, the allegations "must demonstrate some affirmative link to causally connect the actor with the discriminatory action." Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62, 75 (2d Cir.2000) (internal citations omitted). In Hicks v. IBM, this court found that in "each of the cases that have allowed individual liability [under § 1981], the individuals have been supervisors who were personally involved in the discriminatory activity." 44 F. Supp. 2d 593, 597 (S.D.N.Y.1999).
Plaintiff alleges that, "On information and belief," Neal and Harding, both MTA officials, "took no action to investigate [Hargett's] claims of disparate treatment by his supervisor even after receiving two written complaint letters." MTA Comp. ¶19. Plaintiff additionally alleges that Hargett and Neal "knew of the widespread use of the company's email system by white senior management who admitted to sending pornographic materials to employee and associates, but none were fired." Opp. Memorandum at 6. Thus, he concludes, the two were "key contributors to the systematic discrimination." Id.
Here, Hargett does not allege that Neal and Harding (who were not employed by the NYCTA, plaintiffs actual employer), had any legal obligation to follow up on his complaints. Nor does he allege that they were his "supervisors [and] personally involved in the discriminatory activity."
Most important, plaintiff does not allege any facts suggesting that the two MTA employees had anything to do with the decision to fire him, which is the basis of his § 1981 claim against them. Thus, the § 1981 claims against Neal and Harding must be dismissed.
Plaintiffs NYSHRL claims must also be dismissed as against Harding and Neal. As stated earlier, § 296 makes it unlawful for an employer to discharge an employee based on his race or age. N.Y. Exec. L. § 296(1)(a) (2007). It also prohibits any person from aiding and abetting any of the acts forbidden in the statute. Id. § 296(6). The Second Circuit has found that § 296 only imposes liability for discriminatory conduct on an individual only if that person (a) has an ownership interest in the employer, or is the employer, (b) has the power to make, rather than carry out, personnel decisions or (c) actually participated in the conduct giving rise to the discrimination claim. Tomka v. Seiler Corp., 66 F.3d 1295, 1317 (2d Cir.1995) (citing Patrowich v. Chem. Bank, 63 N.Y.2d 541, 542, 483 N.Y.S.2d 659, 473 N.E.2d 11 (1984)). Plaintiff has failed to allege any of these elements.
First, plaintiff does not allege that these defendantsa "director" and a "commissioner," according to Hargettwere employees of his "employer." Rather, they are specifically alleged to be "employees of defendant MTA." MTA Comp. ¶ 4. There is no allegation that either man is plaintiffs "employer" and certainly none alleging that they had an "ownership interest in the employer," which is a public benefit corporation.
*408 Second, plaintiff does not allege that either defendant had the authority to terminate his employment or to prevent others from doing so.
Third, as stated earlier, plaintiff alleges only that the defendants failed to take an action with respect to his complaints, without alleging any facts tending to suggest that they were actually required to do so. He has not alleged that either Neal or Harding actually participated in the conduct giving rise to the discrimination claim, or that their inaction aided and abetted his termination.
Thus, plaintiffs § 296 claims against Neal and Harding must be dismissed.
B. Plaintiff's Tort and Contract Claims Are Dismissed
Plaintiffs IIED, defamation, and contract claims are no more viable against the MTA Defendants than they are against the NYCTA Defendants. They fail for the same reasons that they fail against the NYCTA Defendants. The breach of employment contract claim additionally fails because the MTA never employed the plaintiff.
Conclusion
The MTA Defendants' motion to dismiss is granted in its entirety. The NYCTA Defendants' motion to dismiss certain claims is granted, but the motion to dismiss paragraphs 18-20 of the complaint is denied.
This constitutes the decision and order of the Court.
NOTES
[1] The NYCTA also raises a statute of limitations defense to Hargett's contract claim, based on CPLR § 217. Under that provision, "Any action or proceeding by a[ ] ... former employee against an employer subject to article fourteen of the civil service law or article twenty of the labor law, an essential element of which is that an employee organization breached its duty of fair representation to the person making the complaint, shall be commenced within four months of the date the... former employee knew or should have known that the breach has occurred. ..." NY. CPLR § 217(2)(b); see, e.g., Simon v. N.Y.C. Transit Auth., 34 A.D.3d 823, 825 N.Y.S.2d 522, 523 (A.D.2d Dep't 2006). This statute of limitations pertains to breaches of a "duty of fan-representation" by a union. It has nothing to do with plaintiffs contract claims against his employer. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1525813/ | 552 F. Supp. 2d 256 (2008)
John HAWLEY, et. al., Plaintiffs,
v.
ACCOR NORTH AMERICA, INC., Defendant.
Civil Action No. 3:07-CV-1837 (JCH).
United States District Court, D. Connecticut.
April 22, 2008.
*258 A. Alan Sheffy, Sheffy Mazzaccaro Depaolo & Dunham, Southington, CT, for Plaintiffs.
Brian L. Wolinetz, Pepe & Hazard, Hartford, CT, for Defendant.
RULING ON DEFENDANT'S MOTION TO TRANSFER VENUE (Doc. No. 12)
JANET C. HALL, District Judge.
I. INTRODUCTION
The plaintiffs, John Hawley and Sheila Ronewicz, bring this personal injury action against Accor North America, Inc. ("Accor").[1] The suit concerns injuries plaintiffs sustained when Hawley slipped in the shower and Ronewicz fell over a broken toilet at the Motel 6 located at 1031 East Benson Highway in Tucson, Arizona. See Complaint at ¶¶ 4 and 6, Ex. A to Notice of Removal (Doc. No. 1). Plaintiffs filed a claim against Accor in Superior Court for the State of Connecticut. Accor removed the claim to this court on the basis of diversity between the parties. See Notice of Removal. Accor now moves this court to transfer the case to the District Court of Arizona. For the reasons set forth below, defendant's motion to transfer is DENIED.
II. DISCUSSION
Accor moves the court to transfer venue of this action pursuant to 28 U.S.C. § 1404. See Def.'s Mot. to Trans, at 1. Section 1404(a) of Title 28 of the United States Code declares that a district court may transfer a civil action to any district where it may have been brought "[f]or the convenience of the parties and witnesses, [and] in the interest of justice." 28 U.S.C. § 1404(a). A district court is given broad discretion in making determinations of convenience and fairness under this provision. D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 106 (2d Cir.2006). In making this decision, courts typically consider the following factors: "(1) the plaintiffs choice of forum, (2) the convenience of witnesses, (3) the location of relevant documents and relative ease of access to sources of proof, (4) the convenience of parties, (5) the locus of operative facts, (6) the availability of process to compel the *259 attendance of unwilling witnesses, [and] (7) the relative means of the parties."[2]Id. at 106-7 (citing Albert Fadem Trust v. Duke Energy Corp., 214 F. Supp. 2d 341, 343 (S.D.N.Y.2002)). The moving party, in his case Accor, has the "`burden of making out a strong case for transfer.'" Filmline (Cross-Country) Productions, Inc. v. United Artists Corp., 865 F.2d 513, 521 (2d Cir.1989) (citations omitted).
There is no dispute that this case could initially have been brought in the District of Arizona. Thus, the court must determine, weighing the above considerations, whether a transfer is appropriate "[f]or the convenience of the parties and witnesses, [and] in the interest of justice." 28 U.S.C. § 1404(a).
A. Plaintiffs Choice of Forum
The plaintiffs choice of forum is generally "entitled to substantial consideration." In re Warrick, 70 F.3d 736, 741 (2d Cir.1995); Charter Oak Fire Ins. Co. v. Broan-Nutone, L.L.C., 294 F. Supp. 2d 218, 220 (D.Conn.2003). "However `a plaintiffs choice of forum is given less weight where the case's operative facts have little connection with the chosen forum.'" Charter Oak, 294 F.Supp.2d at 220 (citations omitted). The operative facts of this case are largely based in Arizona, where plaintiffs suffered their injuries. Therefore, the court is deferential to plaintiffs' choice of forum, and this factor weighs against transfer. However, this factor weighs less heavily against transfer than it would were the operative facts centered in Connecticut.
B. Convenience of Witnesses
Convenience to the witnesses is another factor used to determine whether to transfer a case. A party moving under Section 1404(a) must specify the key witnesses to be called and make a general statement of what their testimony will cover. Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir.1978), rev'd on other grounds, 652 F.2d 278 (2d Cir.1981). "[I]t is not the prospective number of witnesses in each district that determines the appropriateness of a transfer, but, rather, the materiality of their anticipated testimony." Schwartz v. Marriott Hotel Servs., Inc., 186 F. Supp. 2d 245, 249 (E.D.N.Y.2002) (internal quotation omitted).
Accor points out that motel personnel who could testify as to the conditions at the Motel 6 and paramedics and other medical staff who may have treated plaintiffs in Arizona reside in Arizona. On the other hand, plaintiffs and the physicians treating their ongoing medical problems reside in Connecticut. As such, the convenience of witnesses weighs slightly in favor of transfer to Arizona.
C. Location of Relevant Documents and Sources of Proof
Although the location of relevant documents is entitled to some weight, modern photocopying technology and electronic storage often deprive this issue of practical or legal weight. See generally Ford Motor Co. v. Ryan, 182 F.2d 329, 331 (2d Cir.1950); see also Distefano v. Carozzi North America, Inc., 2002 WL 31640476, at *4 (E.D.N.Y.2002). With the possible exception of the "broken toilet" Ronewicz fell over, all of the evidence identified by Accor is documentary evidence that could easily be transmitted to Connecticut. *260 Therefore, the court finds that the location of the relevant evidence is not a factor that weighs for or against transfer.
D. Convenience of Parties
Transfer should not merely "shift the burden of inconvenience from one party to the other." Pitney Bowes, Inc. v. National Presort, Inc., 33 F. Supp. 2d 130, 132 (D.Conn.1998). "District Courts have broad discretion in making determinations of convenience under Section 1404(a) and notions of convenience and fairness are considered on a case-bycase basis." D.H. Blair, 462 F.3d at 106. Plaintiffs, who are residents of Connecticut, would be heavily, inconvenienced by transferal of this case to Arizona. Accor, in contrast, is a national company which does business in Connecticut. As such, the inconvenience to plaintiffs of transfer strongly outweighs the inconvenience to Accor in trying the case in Connecticut.
E. Locus of Operative Facts
The location of operative facts underlying a claim is a key factor in determining a motion to transfer venue. See TM Claims Service v. KLM Royal Dutch Airlines, 143 F. Supp. 2d 402, 404 (S.D.N.Y. 2001). "The core determination under Section 1404(a) is the center of gravity of the litigation." Id. at 403 (internal quotation omitted). "To determine the `locus of operative facts,' a court must look to the `site of the events from which the claim arises.'" Distefano, 2002 WL 31640476, at *3. Clearly, the claims arise from events which took place in Arizona; therefore this factor weighs in favor of transferring venue to that district.
F. Availability of Process to Compel Witnesses
A related factor in the court's determination of a transfer motion is the ability to compel the attendance of witnesses. Merkur v. Wyndham Int'l, Inc., 2001 WL 477268, at *4 (E.D.N.Y.2001). This factor "`is generally relevant only with respect to third-party witnesses, since employees of the parties will as a practical matter be available in any venue by virtue of the employment relationship.'" BRMS, LLC v. North Am. Flight Services, 2006 WL 1313338, at *5 n. 3 (D.Conn.2006) (citations omitted). The court cannot require "a person who is not a party or an officer of a party to travel to a place more than 100 miles from the place where that person resides, is employed or regularly transacts business to appear before it." See Fed.R.Civ.P. 45(c)(3)(A)(ii).
Accor argues that this factor weighs in favor of transfer because compulsory process "of essentially every witness relating to liability" would be available in Arizona. Def.'s Mem. at 5. The court finds this argument unavailing. The majority of Accor's witnesses regarding liability are likely to be motel employees, and thus available by virtue of their employment relationship. The testimony of other witnesses, such as the paramedics and medical personnel who initially treated plaintiffs, would only relate to damages. Their contemporaneous records could be interpreted by medical experts in Connecticut. Therefore, the court finds that there may be relevant witnesses who could not be compelled to testify in Connecticut, but that their live testimony is readily replaced with expert review of records. Therefore, this factor tips in favor of transfer, but only slightly.
G. Relative Means of Parties
The "relative financial hardship on the litigants and their respective abilities to prosecute or defend an action in a particular forum are legitimate factors to consider." Michelli v. City of Hope, 1994 WL *261 410964, at *3 (S.D.N.Y.1994). Plaintiffs are individuals; Accor is a nation-wide business. This factor clearly and strongly weighs against transfer.
H. Other Factors
Another factor that weighs in favor of transfer is this courts' familiarity with the governing law. Given that the accidents at issue took place in Arizona, the court agrees that Arizona law will likely govern the dispute. See Def.'s Mem. at 6. There is no doubt that a district court in Arizona would likely be more familiar with Arizona personal injury law than this court. However, personal injury cases are not generally legally complex, and this court has familiarity with them; therefore, this factor weighs only slightly in favor of transfer.
After examination of the factors listed above, the court finds that Accor has not demonstrated "`that convenience and justice for all parties demands that the litigation proceed elsewhere.'" Charter Oak, 294 F.Supp.2d at 222 (citations omitted). While a greater number of factors weighs in favor of transfer, including the locus of operative facts being there, some relevant witnesses and physical evidence being there, and Arizona law likely being the governing law, none of these factors weighs heavily. In contrast, the plaintiffs' choice of forum, the relative conveniences of the parties and especially the relative means of the parties all weigh heavily against transfer. Where plaintiffs are individuals bringing suit against a large corporation which does business in their home state, the court is mindful that transfer of venue may preclude plaintiffs' ability to prosecute their claim at all. Therefore, the court concludes that the balance of relevant factors weighs against transfer of venue in this case.
II. CONCLUSION
For the foregoing reasons, the defendant's motion to transfer is DENIED (Doc. No. 12).
SO ORDERED.
NOTES
[1] The plaintiffs acknowledge that the correct name of the defendant is Motel 6 Operating Limited Partnership, and state that they will seek to substitute the proper named defendant. See Pl.s' Mem. in Opp. at 2 n. 1 (Doc. No. 14).
[2] In addition to these factors, "other courts have identified two additional factors: (1) `the forum's familiarity with the governing law'; and (2) `trial efficiency and the interest of justice, based on the totality of the circumstances.' "Jones v. Walgreen, Co., 463 F. Supp. 2d 267, 271 (D.Conn.2006) (citations omitted). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1522171/ | 217 F. Supp. 423 (1962)
HULMAN FOUNDATION, INC., Plaintiff,
v.
UNITED STATES of America, Defendant.
No. TH 61-C-61.
United States District Court S. D. Indiana, Terre Haute Division.
July 2, 1962.
As Amended July 27, 1962.
*424 Marshall, Batman & Day, Terre Haute, Ind., for plaintiff.
Richard P. Stein, U. S. Atty., Indianapolis, Ind., for defendant.
HOLDER, District Judge.
This case was submitted to the Court for trial on the issues set forth in the plaintiff's complaint filed September 13, 1961, and supplemental complaints filed January 25, 1962, and June 12, 1962, as joined by the defendant's answer filed November 10, 1961, as amended in pretrial conference on January 5, 1962, and by defendant's declaration of issues filed January 19, 1962. The trial was commenced on January 25th and continued through January 26th, 1962, and adjourned to February 6, 1962, when the evidence was concluded and the matter was continued for post-trial briefing and final argument.
The Court having considered the evidence, the credibility of the witnesses, and the briefs of the parties (final argument having been waived on June 14, 1962) does now file its
FINDINGS OF FACTS
1. The parties stipulated that the Court has jurisdiction of the parties and of the subject matter.
2. The plaintiff at all times in question was a duly qualified Indiana corporation organized on December 10, 1940 under "The Indiana General Not-For-Profit Corporation Act" with its principal office and place of business in the City of Terre Haute, Vigo County, Indiana.
The purpose or purposes for which it is formed are as follows:
"a. To promote educational, literary, scientific, religious and charitable purposes.
"b. To receive by gift, devise, bequest or otherwise, any money or other property absolutely or in trust to be used either as to principal or income therefrom, or both, for the furtherance of any of the above mentioned purposes as designated in these articles, and in accordance with the purposes declared in the instrument of gift, devise, bequest, or other assignment, conveyance or transfer, to change the form of investment, except as prohibited by the terms of any instrument of gift, devise, bequest or other transfer, and for that or other purposes of the corporation to dispose of any securities or real estate or other purposes of the corporation to dispose of any securities or real estate or other property held by such corporation.
"c. In general, to do any and all things necessary and proper to carry out the objects for which the corporation is formed and to have and exercise all the rights, powers and privileges which are now, and may hereafter be conferred by the laws of the State of Indiana upon similar corporation; to execute from time to time general or special powers of attorney, to persons, firms or corporations, and to revoke the same, subject to the will of the Board of Directors, and to do all things heretofore set forth in the same manner as natural persons might or could do.
"d. The foregoing clauses shall be construed both as objects and powers, and unless otherwise expressly provided, the objects or powers therein specified shall in no wise be limited or restricted by reference to or inference from the terms of any other clause or clauses in these articles and the enumeration of specific powers therein shall not be held to limit or restrict in any manner the powers of this corporation, but the same will in furtherance of, and in addition to, and not in *425 limitation of the general powers of this corporation.
"e. All of the above and foregoing purposes, not being exclusive but consistent with the limitations and privileges as set forth in `Indiana General Not For Profit Corporation Act', can be used when necessary, convenient and expedient, to accomplish the purposes for which this corporation is formed."
The incorporators and at all times in question the directors were as follows:
Joseph R. Cloutier
Anton Hulman, Jr.
Ralph Horton
3. Prior to December 30, 1941, the plaintiff filed with the United States Treasury Department an application for exemption from Federal income taxes under Section 101(6) of the Internal Revenue Code of 1939. On December 30, 1941, the United States Treasury Department ruled that plaintiff was exempt, which ruling is quoted as follows:
"Hulman Foundation, Inc.
Wabash Ave., and Ninth Street,
Terre, Haute, Indiana.
"Sirs:
"It is the opinion of this office, based upon the evidence presented, that you are exempt from Federal income tax under the provisions of section 101(6) of the Internal Revenue Code and corresponding provisions of prior revenue acts.
"Accordingly, you will not be required to file returns of income unless you change the character of your organization, the purposes for which you are organized, or your method of operation. Any such changes should be reported immediately to the collector of internal revenue for your district in order that their effect upon your exempt status may be determined.
"Since any organization that is exempt from Federal income tax under the provisions of section 101 of the Internal Revenue Code also is exempt from the capital stock tax pursuant to the express provisions of section 1201(a) (1) of the Internal Revenue Code, you will not be required to file capital stock tax returns for future years so long as the exemption from income tax is effective. Furthermore, under substantially identical authority contained in sections 1426 and 1607 of the Code and/or corresponding provisions of the Social Security Act, the employment taxes imposed by such statutes are not applicable to remuneration for services performed in your employ so long as you meet the conditions prescribed above for retention of an exempt status for income tax purposes.
"Contributions made to you are deductible by the donors in arriving at their taxable net income in the manner and to the extent provided by section 23(o) and (q) of the Internal Revenue Code and corresponding provisions of prior revenue acts. Bequests, legacies, devises or transfers to or for your use are deductible in arriving at the value of the net estate of a decedent for estate tax purposes in the manner and to the extent provided by sections 812(d) and 861(a) (3) of the Code and/or corresponding provisions of prior revenue acts. Gifts of property to you are deductible in computing net gifts for gift tax purposes in the manner and to the extent provided in section 1004(a) (2) (B) and 1004(b) (2) and (3) of the Code and/or corresponding provisions of prior revenue acts.
"The collector of internal revenue for your district is being advised of this action.
"By direction of the Commissioner.
"Respectfully,
Deputy Commissioner"
4. On January 12, 1956, the defendant revoked its ruling of December 30, *426 1941 for each of the years 1951, 1952, 1953 and 1954, and subsequent years. The revoking letter of defendant is quoted as follows:
"Hulman Foundation, Inc.
Wabash Avenue and Ninth Street
Terre Haute, Indiana
"Gentlemen:
"This refers to your protest and to the conference held in this office with your representatives concerning the recommendation of the District Director of Internal Revenue at Indianapolis, Indiana that your exempt status under section 101(6) of the 1939 Internal Revenue Code (corresponding to section 501(c) (3) of the 1954 Code), to which you were held to be entitled in our ruling of December 30, 1941, be revoked for years 1951, 1952 and 1953 for unreasonable accumulation of income within the meaning of section 3814 of the 1939 Code (corresponding to section 504 of the 1954 Code).
"The information before us shows that you were incorporated December 13, 1940, under the laws of the State of Indiana, to promote educational, literary, scientific, religious and charitable purposes. To effectuate such purposes, you have made donations from time to time to other organizations and entities organized and operated in furtherance thereof.
"The information before us regarding your operations shows that for the first ten years thereof, that is, from 1940 through 1950, your total receipts amounted to $6,570,334.29. Of this amount, $2,150,398.90 represented gifts of cash and securities; $1,606,417.62, dividends; $56,957.99, interest; $5,235.95, profit on sale of securities; and $3,351,323.83, advances or loans from the Hulman Company, of which your officers and directors are principal stockholders and officers. During the same period donations of $477,253.05 were made by you in furtherance of the purposes stated above and the amount of $84.46 was distributed for expenses, resulting in an excess of receipts of $6,092,996.78. Exclusive of the gains on the sale of securities, your income receipts for the ten year period amounted to $1,063,375.61. The percentage of donations to income during such period was approximately 44.88 percent.
"For the years 1951 through 1953, your total receipts amounted to $1,197,043.27, divided as follows: contributions, $356,539.93; dividends, $579,612.77; interest, $64,100.50; and profit on sales on securities, $196,790.07. Disbursements for the three year period which totaled $1,859,521.75, included $1,786,403.55 for repayment of advances made to you by the Hulman Company, $69,800.00 for donations, and $3,318.20 for expenses. Exclusive of profit on gains of sale of securities, your income receipts for the three year period amounted to $643,713.27. The proportion of donations to income for such period was approximately 10.84 percent.
"The information return, Form 990A, filed by you for the year 1954 reflects gross receipts of $255,262.46, which include the following: interest, $7,758.60; dividends, $235,820.27; and gains on sales on securities, $11,683.59. Disbursements for such year were $1,174.30 for expenses and $40,394.62 for donations. Exclusive of the gain on sale of securities, income not distributed for exempt purposes during such year amounted to $202,009.95.
"Though gains on sales of securities have not been considered in computing the amount of income accumulated, a conclusion should not be drawn therefrom that all or any part thereof are properly excludible for tax purposes.
"It is shown that from an amount of $81,905.00 at the close of your *427 first year of operation, your net worth had increased, at December 31, 1953, to the amount of $3,865,598.02, representing the excess of your assets (cash, securities and notes receivable) over advances owing and payable to the Hulman Company.
"With respect to the advances obtained from the Hulman Company, you state that such indebtedness was incurred to improve your financial position and earning power. These advances were noninterest bearing and were carried as open book accounts by the Hulman Company, with no written evidence of indebtedness being executed by you for the repayment thereof. The first sums borrowed were in the year 1945, with substantial amounts being borrowed in the years 1949 and 1950. However, no payments were made in such years, the first repayment being made in the year 1951. It is also indicated that additional amounts were borrowed by you from the Hulman Company in 1954.
"A recapitulation of your operations for the years 1951 through 1954 reflects income receipts, exclusive of gains on sale of securities, totaling $887,292.14 as compared with donations of $110,194.62 for charitable purposes.
"Subsequent to the conference held in this office with your representatives, you submitted a proposal to the effect that should your exempt status for the years 1951 through 1954 not be disturbed, all indebtedness presently owing by you, approximately $1,800,000.00 would be discharged prior to the end of the year 1955, to be accomplished through the sale of some of your income-producing securities. You propose to distribute your income for the year 1955 to the extent of 95 percent or more thereof for the charitable purposes for which you were organized, such distribution to be accomplished within the calendar year, or not later than January 31, 1956.
"In addition, further correspondence has been received by us setting forth a proposed plan to underwrite the construction costs of a field house for the use of the public schools in Terre Haute, the estimated cost of which is $1,250,000.00. You state that to accomplish this within a reasonable period, it will be necessary to use part of your principal, as well as your earnings, during construction.
"Section 501(c) (3) provides for the exemption of corporations organized and operated exclusively for the purposes provided for in such section of the law.
"Section 504 of the Code states, in part, as follows:
"`In the case of any organization described in section 501(c) (3) to which section 503 is applicable, exemption under section 501 shall be denied for the taxable year if the amounts accumulated out of income during the taxable year or any prior taxable year and not actually paid out by the end of the taxable year
"`(1) are unreasonable in amount or duration in order to carry out the charitable, educational, or other purpose or function constituting the basis for exemption under section 501(a) of an organization described in section 501(c) (3); * * *'
"An organization claiming exemption under section 501(c) (3) of the Code, which is not excepted from the provisions of section 504, and which uses income to retire indebtedness incurred in the acquisition of property is considered to be accumulating income within the meaning of section 504. (See Rev.Rul. 54-420, C.B. 1954-2, 128).
"A review of the foregoing shows that notwithstanding that substantial *428 gifts of cash and securities have been received by you from your creators, you borrowed sums in excess of three and one half million dollars, with no evidenced purpose therefor other than as stated above, or, to increase your financial position and income earning capacity. During the years that you have been operating not only have you made substantial accumulations of income, but by incurring the indebtedness referred to herein you became obligated to use additional income for the repayment thereof. It is further shown that though you had income available in prior years to reduce the indebtedness incurred in those years, no payments were made thereon until the years presently under consideration.
"It is the opinion of this office that the amounts accumulated out of income during the years 1951 through 1954 are unreasonable within the intent of section 504 of the 1954 Code. The fact that during these years income was used to partially liquidate the indebtedness theretofore incurred does not change your position so far as the accumulation is concerned, in view of the position of the Service that the use of income in such manner is considered to be an accumulation. Further, the borrowing of funds merely for the purpose of increasing the earning power of an organization so that in future years it may have a larger operating fund is not a sufficient basis to justify the accumulation of income for the repayment thereof, or to establish that the accumulations were necessary to carry out the exempt purposes of the organization.
"It is our further opinion that your proposal to eliminate your indebtedness during the year 1955 by selling a part of your principal assets cannot have any retroactive effect with respect to the years during which your income is considered to have been unreasonably accumulated. Accordingly, we have concluded that you are not entitled to exemption from Federal income tax for the years 1951, 1952, 1953 and 1954 and your exempt status for such years is hereby revoked. Our ruling of December 30, 1941 is hereby modified in accordance therewith.
"You are required, therefore, to file Federal income tax returns for such years on Form 1120.
"With respect to your status for the year 1955 and subsequent years if the indebtedness to which you are presently subject is liquidated as proposed and you distribute your income for the year 1955 as indicated, consideration would be given to reinstating your exemption for such year and subsequent years. However, this is not to be considered as a definite commitment or a ruling for the year 1955 or subsequent years since only upon submission of the proper evidence to this office may a definite ruling be issued. Such evidence would include complete information as to the assets sold, to whom, the selling price, the terms of sale, financial statements, and any other agreements pertaining thereto which will evidence to the satisfaction of the Service that the circumstances causing the loss of your exemption have been eliminated.
"Your plan for supplying funds for the construction of the field house referred to above, and the reservation of income earned in future years to be used for such purpose, appears to be within the intent of the exemption statute. However, in order for us to issue a definite ruling as to whether the accumulation of income therefor is proper, it will be necessary that you advise, in addition to the information presently before us, the amount of funds you expect to supply, the amount of principal you expect to use, the approximate amount of income to be used or *429 set aside therefor, and the period such accumulation is expected to continue.
"The District Director of Internal Revenue at Indianapolis, Indiana, is being advised of the action taken herein.
"Very truly yours,
H. L. Swartz
Director, Tax Rulings Division"
5. By its written instrument dated January 20, 1956, the plaintiff created the "Hulman Public Building Trust" for the purpose of building and providing a civic building hereinafter referred to in these Findings in furtherance of the plaintiff's planning during and prior to the years 1951 through 1955. This instrument was amended on June 17, 1958, and again on April 16, 1960. This instrument and the two amendments are identified as Exhibit A, attached hereto and made a part hereof. This trust has been ruled tax exempt by the defendant.
The defendant restored plaintiff's exempt status for all years subsequent to the year 1954 and refunded to plaintiff taxes, penalties and interest for the years 1955 and 1956, all in accordance with defendant's letter of July 18, 1960 identified as Exhibit B, attached hereto and made a part hereof.
6. Pursuant to an audit of plaintiff and resulting determination by defendant that plaintiff owed income taxes for the years 1951 through 1954, the plaintiff on November 20, 1956, in compliance with this ruling, did execute and file with the Director of Internal Revenue for the District of Indiana, a "Waiver of Restrictions on Assessment and Collection of Deficiency in Tax", Form 870, waiving and consenting to the assessment and collection of deficiencies in income tax for the years 1951 through 1954 in the respective amounts of $62,523.91, $11,022.78, $13,490.86 and $10,947.50, reserving, however, the right to file a claim for refund of such deficiency for said years. At the same time, plaintiff paid said District Director the amount of each such deficiency for the years 1951 through 1954, and on December 26, 1956, plaintiff to defendant paid interest on each deficiency in the respective amounts of $17,557.96, $2,434.05, $2,169.60 and $1,103.73. Said payments amounted in total to $121,250.39.
7. On November 10, 1958, within the time limitations prescribed by law in effect at the time and in compliance with Section 7422 of Title 26 of the United States Code, plaintiff filed with said District Director of Internal Revenue for the District of Indiana at Indianapolis, Indiana, properly executed on Form 843 with attachments, separate claims for the refund of taxes together with interest for the years 1951, 1952, 1953 and 1954 in the amount of $80,081.87, $13,456.83, $15,660.46 and $12,051.23, respectively. In each of said claims, plaintiff demanded repayment of said above mentioned amounts paid by it to defendant, for the reasons that plaintiff, during each of said years, was exempt from income taxes and did not unreasonably accumulate its income.
8. By notice of disallowance dated September 15, 1959, mailed to plaintiff by registered letter, the said Director of Internal Revenue for the District of Indiana disallowed plaintiff's claim for refund of Federal income taxes and interest paid for the years 1951 through 1954 in the amounts of $80,081.87, $13,456,83, $15,660.46 and $12,051.23, respectively, together with interest thereon as provided by law. Subsequent to such disallowance, and within the time allowed by law, plaintiff filed this suit for refund of said amounts paid by it to defendant, with interest thereon as provided by law.
9. Mr. Anton Hulman, Jr. was the dominant organizer of and at all times in question controlled the plaintiff. Mr. Hulman and his ancestors for many years prior to plaintiff's incorporation and since have been closely associated with the business, cultural, civic, social, and charitable activities of the community of Vigo County, Indiana. The assets of the plaintiff referred to in these Findings were all acquired directly or indirectly *430 from members of the Hulman family, except a donation of $15,000 to plaintiff by Princeton Mining Company referred to in Finding of Fact No. 12.
10. During World War Two, Mr. Hulman was in charge of the war bond sales promotion. In this capacity it was necessary for him to provide meeting places for members of the public to fulfill his mission in Vigo County, Indiana. Then and at all times in question there was and is no adequate indoor meeting place to fulfill the cultural, civic, social, athletic and charitable needs of the public. Mr. Hulman, prior to 1950 and continuously since, individually and as a director jointly with the other directors of plaintiff, concluded to construct a coliseum or auditorium type structure and to maintain such thereafter for the community needs. The plaintiff during the times in question through its directors progressively studied the needs of the community, surveyed the community for a location and availability of real estate for a site, made a general study of approximate costs and maintenance costs in the future years, and explored for ways and means of increasing the capital funds and income of plaintiff to construct and maintain such structure and continue its other charitable purposes. The directors differed as to the estimated costs of construction and maintenance and with the passage of time were all aware that the costs were increasing. All directors agreed that the increase of the plaintiff's funds was a first requisite to the success of the project before prematurely engaging in the expense of concluding building plans. The plaintiff during the times in question as set forth elsewhere in these Findings did materially increase the funds of the plaintiff for the project.
11. The proposed civic building was at all times in question within the purposes of the plaintiff, originated by it, and was in the process of execution toward the ultimate construction and use thereof. At all times in question the plaintiff was committed to construct and maintain a building for the use of the public. No governmental unit intends and/or is able financially to construct and manage such project.
12. During the years 1940-1954, the plaintiff was funded by contributions scheduled as follows:
Year Hulman & Co. A. Hulman, Jr. Grace Hulman
1940 $ 80,000.00 $ 10,000.00
1941 65,000.00 10,000.00 $1,163,100.00 A. Hulman, Sr.
1942 45,000.00 15,000.00 $ 15,000.00
1943 45,000.00 15,000.00 6,000.00
1944 45,000.00 34,000.00 19,000.00 15,000.00 Princeton
1945 45,000.00 35,000.00 17,000.00 Mining Co.
1946 35,000.00 26,798.90 16,000.00 2,500.00 T. H. Heavy
1947 35,000.00 16,500.00 11,000.00 Hardware
1948 35,000.00 30,000.00 19,000.00
1949 35,000.00 34,500.00 16,000.00
1950 80,000.00 52,000.00 26,750.00
1951 135,191.62 40,000.00 24,000.00
1952 35,000.00 38,000.00 40,000.00
1953 35,000.00 34,000.00 27,000.00 13,182.73 Indpls. Motor
1954 35,375.49 77,000.00 40,000.00 17,500.00 Speedway
____________________________________________________________________________________
Total $785,567.11 $467,798.90 $276,750.00 $1,211,282.73
*431 The yearly total of such contributions and the accumulated balances thereof at the end of each year are scheduled as follows:
Yearly Accumulated
Year Contributions Contributions
1940 $ 90,000.00 $ 90,000.00
1941 1,238,100.00 1,328,100.00
1942 75,000.00 1,403,100.00
1943 66,000.00 1,469,100.00
1944 113,000.00 1,582,100.00
1945 97,000.00 1,679,100.00
1946 80,298.90 1,759,398.90
1947 62,500.00 1,821,898.90
1948 84,000.00 1,905,898.90
1949 85,500.00 1,991,398.90
1950 158,750.00 2,150,148.90
1951 199,191.62 2,349,340.52
1952 113,000.00 2,462,340.52
1953 109,182.73 2,571,523.25
1954 169,875.49 2,741,398.74
The stock of the donors, Indianapolis Motor Speedway Corporation and Terre Haute Heavy Hardware Company, was either wholly owned by Hulman and Company or by Hulman and Company and the plaintiff. Minority stock of the donor, Princeton Mining Company, Inc., was owned by members of the Hulman family. The stock of the donor, Hulman and Company, was owned by members of the Hulman family and the plaintiff. At all times pertinent to this lawsuit Hulman & Company controlled Indianapolis Motor Speedway Corporation and Terre Haute Heavy Hardware Company and Anton Hulman, Jr. and members of his family controlled Hulman & Company. Anton Hulman, Sr. was the father of Anton Hulman, Jr. and Grace Hulman is the mother of Anton Hulman, Jr.
13. Plaintiff borrowed money from Hulman and Company while plaintiff was a minority stockholder of Hulman and Company. Such loans were on open account without any obligations for interest or other charge. Plaintiff's purpose in borrowing such funds and Hulman and Company's purpose in loaning such funds from time to time was for plaintiff to invest and to acquire sufficient funds from the resulting capital gains and income therefrom for plaintiff to construct and maintain such civic building. The minimum estimated cost of constructing such building during the years in question was between $1,500,000.00 and $3,000,000.00 not including cost of maintenance thereafter. The cost was also dependent upon the success of plaintiff to acquire funds and then the extent of the facilities and type of construction would be governed by the quantity of plaintiff's funds without sacrificing its needed funds for regular yearly charitable donations and such new charitable undertakings that might arise. The following schedule recites these loan transactions between plaintiff and Hulman Company:
Years Plaintiff Borrowed Plaintiff Paid Plaintiff Owed
(Ending Dec. 31) (Hulman & Co. Loaned) To Hulman & Co. Hulman & Co.
Year End
1945 $ 140,000.00 $ 140,000.00
1946 210,000.00 $ 140,000.00 210,000.00
1947 442,000.00 190,000.00 462,000.00
1948 289,300.00 35,000.00 716,300.00
1949 1,312,151.18 115,000.00 1,913,451.18
1950 1,885,522.65 447,650.00 3,351,323.83
1951 18,700.00 1,322,398.75 2,047,625.08
1952 1,000.00 256,700.00 1,791,925.08
1953 108,500.00 337,629.00 1,562,795.28
1954 368,200.00 122,682.42 1,808,312.86
Total $4,775,373.83 $2,967,060.97
*432 The balance of the debt of $1,808,312.86 for the year ending December 31, 1954 was paid by plaintiff to Hulman and Company during the year 1955. The scheduled payments made during the years 1951-1954 by plaintiff to Hulman and Company was accomplished by the use of funds derived from the disposition of preferred stocks previously acquired by plaintiff by use of such borrowed money; by the use of funds derived from income on investments; by the use of funds derived from capital gains; and by the use of funds derived from contributions.
During the years 1950-1954, Hulman and Company expanded its business. In 1950, it purchased property in the State of Rhode Island for $2,095,713.95; property in the State of Arkansas for $462,447.14; and stock and debentures of F. W. Cook Company, Inc. of Evansville, Indiana, for $1,116,000.00. All of such purchase totaling $3,674,161.09 were paid for by Hulman and Company in the year 1950. In the years 1951-1954, Hulman and Company advanced moneys to F. W. Cook Company, Inc. (it being a majority stockholder) in the sum of $3,036,832.27. During the years 1951-1954, Hulman and Company paid dividends to its stockholders in excess of $900,000.00. Hulman and Company was indebted by reason of loans and the balance of its borrowings as of December 31, 1950 through 1954 were as follows:
Related
Year Banks Companies Stockholders Total
1950 $3,190,000.00 $420,000.00 $ 36,000.00 $3,646,000.00
1951 1,950,000.00 211,000.00 493,240.35 2,654,240.35
1952 1,200,000.00 342,000.00 605,747.55 2,147,747.55
1953 1,400,000.00 394,000.00 476,332.97 2,270,332.97
1954 1,300,000.00 99,000.00 1,107,076.04 2,506,076.04
No interest was paid to the related companies and the stockholders but interest was paid to the banks on such loans. During the period 1951-1954 business opportunities were offered and the soundest and best were accepted by the plaintiff. The larger of these investments were in stocks of the Indiana Gas and Chemical Corporation of Terre Haute, Indiana, the Tribune-Star Publishing Co., Inc. of Terre Haute, Indiana, and the Southern Indiana Gas and Electric Company of Evansville, Indiana. All of the Hulman and Company's said borrowings from banks, related companies and its stockholders as well as Hulman and Company loans to the plaintiff during the years 1950-1954 had economic reality, were real and not sham and none of them were entered into with any motive of tax avoidance. If no loans had been made by Hulman and Company during the years 1950-1954 to plaintiff, it is purely conjective on the part of the defendant in asserting that all or part of the borrowings Hulman and Company made from banks, related companies and stockholders would not have had to have been made in that it is further based on an assumption that Hulman and Company would not have taken the offered investments that were taken up by the plaintiff.
14. A schedule of plaintiff's earnings (interest, dividends and capital gains and losses); expenses, bad debts, charitable donations and accumulated earnings during the years 1940 through 1954 is as follows:
*433
Finding of Fact 14 Continued
Year Interest Dividends Capital Expenses Bad Contributions Accumulated
Received Received Gains (Losses) Debts Earnings
1940 $ 2,745.00 ($ 2,745.00)
1941 $ 300.00 11,605.50 ( 14,050.50)
1942 225.00 $ 85,350.00 7,065.00 64,459.50
1943 1,512.50 82,500.00 $ 6.00 132,500.00 15,966.00
1944 2,627.50 88,200.00 6.00 23,400.00 83,387.50
1945 2,740.00 82,124.72 19.81 14,900.00 153,332.41
1946 2,605.00 86,930.80 $ 5,235.95 6.00 24,100.00 223,998.16
1947 2,815.00 66,721.35 50,750.00 242,784.51
1948 6,149.94 80,685.50 12.00 14,282.55 315,325.40
1949 6,608.03 144,310.00 6.00 93,505.00 372,732.43
1950 31,375.02 289,595.25 28.65 102,400.00 591,274.05
1951 21,585.09 264,434.45 188,369.78 6.00 20,000.00 1,045,657.37
1952 18,413.53 156,919.98 1,484.50 30,400.00 1,189,106.38
1953 22,689.88 167,018.19 ( 1,120.29) 1,827.70 19,400.00 1,356,466.46
1954 10,258.60 236,432.77 5,080.82 1,186.80 $13,605.04 41,389.33 1,552,057.48
Total $129,905.09 $1,831,223.01 $197,566.26 $4,589.46 $13,605.04 $588,442.38
The gross earnings and capital appreciation set forth in the above schedule resulted from the investment of funds donated to plaintiff, from investments donated to plaintiff, and investment of funds loaned to plaintiff. A schedule of the stock acquisitions and dispositions yielding such is identified as Exhibit C, attached hereto and made a part hereof. A schedule of accounts and notes receivable *434 yielding such is identified as Exhibit D, attached hereto and made a part hereof. The plaintiff's gross income during the years 1951-1954 excluding contribution to it and giving effect to capital gains and losses as adjusted by defendant was $1,090,070.30. During this period of time, plaintiff reduced its debt to Hulman and Company by $1,543,010.97. The accumulated earnings of the plaintiff were being accumulated and used for the charitable purposes for which it was organized and exempted from the Internal Revenue Laws.
The expenses of $4,589.46 for the years 1940-1954 set forth in the schedule is made up of an annual charge for the rental by plaintiff of a safety deposit box, securities tax, cost of shipping securities, fees for escrow agents, and interest on purchase contract.
The contributions of $588,442.38 for the years 1940-1954 set forth in the schedule were made for charitable causes. The largest of such contributions to a single cause was made to the City of Terre Haute, Indiana, in the amount of $255,539.33 to acquire land for an airport and to construct buildings thereon. The next largest of such contributions to a single cause was made to St. Anthony Hospital of Terre Haute, Indiana, in the amount of $60,475.00 which institution was established many years ago through the efforts and donations of the grandparents of Anton Hulman, Jr. The next largest of such contributions to a single cause was made to the State of Indiana in the amount of $52,505.00 to assist in the acquiring of public parks and recreational areas in western Indiana. The next largest of such contributions to a single cause was made to the Rose Polytechnic Institute, an engineering college situated in Vigo County, Indiana, in the amount of $40,000.00. A schedule of all contributions as is follows:
DONEE AMOUNT
St. Anthony Hospital, Terre Haute $ 60,475.00
Roosevelt Hospital, New York City 10,000.00
Union Hospital, Terre Haute 3,305.50
St. Mary's Hospital, Evansville 10,000.00
St. Margaret & Mary's Church, Terre Haute 5,500.00
Centenary Methodist Church, Terre Haute 2,425.00
St. Benedict's Church, Terre Haute 2,500.00
St. Anne's Church, Terre Haute 1,000.00
Wabash Valley Fair Ass'n., Terre Haute 1,000.00
Day Nursery, Terre Haute 3,250.00
American Red Cross, Terre Haute 26,190.00
Community Funds 70,900.00
Vigo County Tuberculosis Soc., Terre Haute 4,600.00
Terre Haute Boy's Club 2,000.00
Y. M. C. A., Terre Haute 3,000.00
Dobb's Memorial Forest, Terre Haute 1,000.00
Indiana State College, Terre Haute 1,000.00
Rose Poly Tech. Institute, Terre Haute 40,000.00
Riley Centennial Research Fund, Indianapolis 1,000.00
United Jewish Relief, Terre Haute 1,500.00
Florence Crittenton Home, Terre Haute 1,500.00
Boy Scouts of America, Terre Haute 2,000.00
Devereux Foundation, Devon, Pa. 5,000.00
City of Terre Haute 255,539.33
State of Indiana 52,505.00
Veteran's Assistance Center, Terre Haute 1,400.00
*435
DONEE AMOUNT
Internat'l. Dairy Exposition, Indianapolis 1,000.00
Otter Creek Young Men's Club, N. Terre Haute 1,000.00
American Legion, Terre Haute 900.00
Speedway High School, Speedway, Ind. 3,000.00
Purdue University, Lafayette, Ind. 1,000.00
Cancer Society, Terre Haute 1,600.00
American Museum of Natural History,
New York City 10,000.00
Misc., not in excess of 200.00 1,352.55
___________
$588,442.38
The contributions to charitable causes ranged from an annual low of $2,745.00 to an annual high of $132,500.00. During the fourteen years of plaintiff's existence between the inclusive years of 1940-1954, the contributions of plaintiff averaged $42,031.59 per year. Plaintiff did not confine itself to donations to existing charities; it continued to make donations to charitable causes and institutions originated prior to the plaintiff's incorporation by the donors to plaintiff or their ancestors; in certain of its larger donations it can be said that plaintiff could be classed as a co-sponsor; and it originated the civic building cause for which the uncompensated executives of plaintiff have devoted many hours of effort and used the ingenuity and influence of these men of proven ability to the intended committed purpose as explained in these findings for the accumulation of funds for a massive outlay of plaintiff's funds to construction of the civic building and yearly maintenance thereafter.
The accumulated earnings set forth in the schedule were never sufficient for the plaintiff to commence and/or complete the project of the civic building and maintain it thereafter.
15. In addition to the itemized assets of accounts and notes receivable and corporate stocks of the plaintiff set forth in one of the schedules in Finding of Fact Number Fourteen, the plaintiff during the years 1940-1954 was also possessed of assets consisting of cash, United States Savings Bonds, and real estate and improvements as follows:
Year Cash U. S. Savings Real Estate
Bonds and Imp.
1940 $ 87,255.50
1941 86,449.50
1942 226,959.50
1943 149,610.52 $100,000.00
1944 311,761.02 100,000.00
1945 213,734.93 100,000.00
1946 139,507.88 100,000.00
1947 14,436.01 100,000.00
1948 128,248.35 100,000.00 $16,945.15
1949 234,499.08 100,000.00 17,880.93
1950 75,715.39 100,000.00 20,750.63
1951 93,870.34 100,000.00 20,259.41
1952 52,165.80 100,000.00 19,320.46
1953 42,327.36 100,000.00 31,498.75
1954 90,844.64 100,000.00
*436 16. The net worth of the plaintiff (its total assets less its total liabilities) for each of the years 1940-1954 exclusive of any Federal income taxes was:
Total
Year Total Assets Liabilities Net Worth
1940 $ 87,255.00 $ 87,255.00
1941 1,314,049.50 1,314,049.50
1942 1,467,559.50 1,467,559.50
1943 1,485,066.00 1,485,066.00
1944 1,665,487.50 1,665,487.50
1945 1,972,432.41 $ 140,000.00 1,832,432.41
1946 2,193,397.06 210,000.00 1,983,397.06
1947 2,526,683.41 462,000.00 2,064,683.41
1948 2,937,524.30 716,300.00 2,221,224.30
1949 4,292,582.51 1,928,451.18 2,364,131.33
1950 6,092,746.78 3,351,323.83 2,741,422.95
1951 5,442,622.97 2,047,625.08 3,394,997.89
1952 5,443,424.16 1,790,925.08 3,652,499.08
1953 5,490,837.17 1,561,795.28 3,929,041.89
1954 6,102,763.79 1,809,307.57 4,293,456.22
The use of $1,500,000 to $3,000,000 to construct such civic building during any one of the years 1951-1954 would have reduced its net worth to such an extent that beneficiaries of plaintiff's contributions since 1940-1954 would have received nothing and plaintiff would have been relegated to supporting the civic building only and even then of uncertain stability to maintain such project thereafter. The net worth of plaintiff during the years 1951-1954 was insufficient to support its purposes including the civic building.
17. The plaintiff's dealings during the years 1951-1954 with certain of its stocks and loans set forth in Finding of Fact Number Fourteen, pages 432 thru 435, disclose the following:
A. Richmond Gas Corporation, of Richmond, Indiana. The stock of this corporation was distributed between Anton Hulman, Jr., approximately 3800 shares, the plaintiff, 2850 shares, and other owners 3350 shares. Thus between the plaintiff and Mr. Hulman, or plaintiff and other owners, or Mr. Hulman and other owners, majority control of the corporation was assured in one of these three combinations. No loans were made by plaintiff to this corporation during the years 1951-1954.
B. The Wabash Valley Broadcasting Corporation. The Hulman family and other parties connected with plaintiff owned all but 50 shares of the stock of this corporation. By reason of a loan made in 1947 and 1948 to this corporation by plaintiff there existed an unpaid balance of $202,725.00 in the year 1951, $197,725.00 in the year 1952, $177,725.00 in the year 1953, and $177,725.00 in the year 1954. In the year 1954, the plaintiff loaned an additional $232,500.00 to this corporation. During this period, the plaintiff agreed to subordinate its loan to this corporation to another loan of the Indiana National Bank to this corporation. During the years 1951-1954, plaintiff did not own stock in this corporation.
C. T & H Corporation. During the years involved in this lawsuit plaintiff had $10,000 invested in T & H Corporation stock, which represented one half of the stock of said corporation. By reason of a loan made in 1949 by this corporation to plaintiff there existed an unpaid balance of $80,000 in each of the years 1951 and 1952, $50,000 in each of the years 1953 and 1954. During the *437 years 1951-1954, Anton Hulman, Jr., owned no stock in said corporation.
D. R. and J. Oil and Refining Co., Inc. 21.42% of the stock of this corporation was owned by the Hulman family. Plaintiff made loans to this corporation which had a balance of $100,000.00 in the year ending 1953 and of $225,000.00 in the year ending 1954. During the years 1951-1954, plaintiff did not own stock in this corporation.
E. Mechanical Suppliers, Inc. This corporation is a commercial enterprise. It was created by plaintiff and carries on a plumbing supply business. This corporation's stock is wholly owned by plaintiff and is its subsidiary.
F. Meadows Center, Inc. This corporation is a commercial enterprise. It was created by plaintiff and carries on the operation of a developed tract of real estate. This corporation's stock is wholly owned by plaintiff and is its subsidiary. When this corporation was formed, the plaintiff paid some of this corporation's expenses and plaintiff then charged this corporation and increased the amount of an outstanding loan from plaintiff to this corporation.
G. Gagel Realty Corporation. The plaintiff owns substantial or controlling interests in this corporation.
H. Hulman Realty Corporation. The plaintiff owns substantial or controlling interests in this corporation.
I. The Tribune Star Publishing Company. The plaintiff owns substantially all of this corporation's stock. This corporation is engaged in publishing the morning and evening newspapers of Terre Haute, Indiana, known as the Terre Haute Star and the Terre Haute Tribune.
18. The emphasis of plaintiff's conduct of its business was directed toward its immediate ultimate purpose of building and maintaining the civic building. It was necessary to better its financial position. The Hulman family at no time were in need of the plaintiff's funds and their sole intention was to aid the plaintiff for the accomplishment of its purpose. The borrowings of money from the Hulman family and their interests without any charge to plaintiff and the sound program of the investment thereof supports such intention and contrary to any expectancy of the Hulman family to create and use a tax free reservoir. During the year 1954 when the plaintiff made an interest paying loan of $232,500.00 to the Wabash Valley Broadcasting Corporation which was controlled by the Hulman family the Hulman and Company also controlled by the Hulman family during this year loaned to plaintiff without charge the sum of $245,517.58. The Hulman family might well have used this to loan to the Wabash Valley Broadcasting Corporation but chose to benefit the plaintiff with the donation of the income from such investment. The plaintiff's subordination of this loan was dominantly in the interest of plaintiff's charitable activities and only incidental to other purposes that are not tax free. The conduct of plaintiff's business as recited in these Findings of Fact was incidental to plaintiff's charitable activities. The conduct of plaintiff's charitable activities was pre-dominant to plaintiff's business activities. The Hulman family's fortune was the plaintiff's reservoir for future donations as well as executive guidance as evidenced by the past performance. The Hulman family and their interests did not use the plaintiff as a tax free reservoir of capital. The plaintiff did not permit and was not used by anyone as a tax free reservoir of capital. The ages of the Hulman family are also indicative of the pure charitable intentions of their donations and executive management given to the plaintiff from which many charities and charitable causes have in the past and will in the future benefit the general community of Terre Haute, Indiana. Finding of Fact Number Thirteen discloses the yearly borrowings without charge from the Hulman family interests and the yearly balances owing from plaintiff to the Hulman family interests. Such schedule discloses that if the Hulman family had any other motive or intention than as found by this Court debt could have been called for payment *438 from plaintiff at any time from year to year, cause those business interests allied to the Hulman family to pay off their loans to plaintiff or not to make any further borrowings from plaintiff, required plaintiff to sell its stock in all or any of the investments including those set forth in Finding of Fact Number Seventeen. Never at any time has the limited loans of plaintiff to corporations or stock ownership in other corporations, in which the Hulman family were interested, except for the plaintiff's stock in Hulman and Company exceeded or come in the near proximity to the loan balances due from plaintiff to the Hulman family and their interests. The objective of the plaintiff and as supported by the Hulman family and their interests is clear from all of their transactions and that was to beef up the plaintiff financially to construct the civic building, maintain it and support charities generally in accordance with the plaintiff's purposes for which it was exempted under the Internal Revenue Laws.
19. The plaintiff denied that its activities included in any way the carrying on of propaganda or otherwise attempting to influence legislation, or that it has ever participated in or intervened in any political campaign on behalf of any candidate for public office. This is not refuted by defendant and there is no evidence from which the Court could even remotely infer that there were such activities.
20. The plaintiff's earnings have in no way inured to the benefit of any private shareholder or individual.
21. During the taxable years 1951 through 1954, the plaintiff did not accumulate its income unreasonably, either in amount or duration in order to carry out the purposes constituting the basis for its exemption from income taxes, that it did not use its accumulated income to a substantial degree for purposes other than those constituting the basis for its said exemption, and it did not invest its accumulated income in such a manner as to jeopardize the carrying out of its exempt purposes.
22. Plaintiff's objective to build a civic building was and is a reasonable one in view of all of the found facts.
23. Plaintiff made no other payments or disbursements except as set forth in these Findings.
24. Plaintiff duly filed with defendant, for each of the tax years 1951-1954, the returns provided for in the Internal Revenue Laws, and which returns showed, among other facts, the plaintiff's gross income and the total debt of plaintiff at the end of each year.
25. This action arises under Section 7422 of Title 26 of the United States Code pertaining to suits for refund of Internal Revenue taxes allegedly erroneously and illegally collected. Jurisdiction of this Court over subject matter of plaintiff's complaint is founded under the provisions of Section 1346(a) (1) of Title 28 of the United States Code.
26. The plaintiff was qualified for exemption from income taxes under the Internal Revenue Laws in force in each of the years 1951, 1952, 1953, and 1954, and defendant has denied plaintiff's claim of exemption.
27. The defendant wrongfully and illegally collected the taxes and interest from plaintiff referred to in these Findings.
CONCLUSIONS OF LAW
1. The Court has jurisdiction of the parties and of the subject matter of the action.
2. The plaintiff has proved by a preponderance of the evidence all of the essential elements and facts of the complaint and supplemental complaints.
3. The plaintiff was an organization described in Section 101(6) of the Internal Revenue Code of 1939 to which Section 3813 of such Code was applicable, and plaintiff was an organization described in Section 501(c) (3) of the Internal Revenue Code of 1954 to which Section 503 of such Code was applicable.
4. The plaintiff's accumulations out of income during each of the tax years in question or any prior tax year *439 and not actually paid out by the end of the tax year were not unreasonable in amount or duration in order to carry out its exempt purposes.
5. The plaintiff's accumulations out of income during each of the tax years in question or any prior taxable year and not actually paid out by the end of the tax year were not used to a substantial degree for purposes or functions other than its exempt purposes.
6. The plaintiff's accumulations out of income during each of the tax years in question or any prior taxable year and not actually paid out by the end of the tax year were not invested in such a manner as to jeopardize the carrying out of its exempt purposes.
7. The plaintiff was exempt from income tax under the provisions of Section 101 of the Internal Revenue Code of 1939 for the years 1951, 1952, and 1953, and under Section 501 of the Internal Revenue Code of 1954 for the year 1954.
8. The defendant illegally and erroneously assessed and collected from plaintiff income taxes and interest for each of the years in question.
9. Any Finding of Fact which is deemed to be a Conclusion of Law is made a Conclusion of Law, and any Conclusion of Law which is deemed to be a Finding of Fact is made a Finding of Fact.
10. The plaintiff is entitled to recover Judgment from the defendant in the sum of $97,985.05 together with interest thereon at the rate of 6% per annum from November 20, 1956 to the date of Judgment on these Findings. The plaintiff is also entitled to recover from the defendant the sum of $23,265.34 together with interest thereon at the rate of 6% per annum from December 26, 1956 to the date of Judgment on these Findings. The Judgment shall bear interest at the rate of 6% per annum from the date of Judgment until refunded by defendant as provided by law. The Judgment shall provide for costs of this action assessed in the sum of $__________ against defendant.
The Clerk is directed to forthwith enter Judgment in accordance with the Federal Rules of Civil Procedure.
Finding of Fact Exhibit A
INDENTURE OF TRUST
HULMAN FOUNDATION, INC., an Indiana not-for-profit corporation, hereinafter sometimes called "Donor", for the purpose of constructing and/or otherwise acquiring properties for the benefit of Vigo County, Indiana, its inhabitants and the inhabitants of the surrounding area, and the ultimate establishment of a fund for maintenance of said properties, does hereby give, convey and set over absolutely and forever to THOMAS J. DOHERTY, of Terre Haute, Indiana, and LEONARD B. MARSHALL, of Terre Haute, Indiana, and ANTON HULMAN, JR., of Terre Haute, Indiana, and the additional Trustees, if any, who may be appointed as hereinafter provided, as Trustees, and their successors in trust, IN TRUST NEVERTHELESS for such purposes as are more fully set forth hereinafter, the property described in Schedule A, attached hereto and made a part hereof, receipt of which is hereby acknowledged by said named Trustees.
A. NAME OF TRUST
This Trust shall be known as the "HULMAN PUBLIC BUILDING TRUST".
B. PURPOSE OF TRUST
The primary purpose of this Trust in perpetuity is to provide for the building and/or maintaining of properties (including, but not limited to, a civic auditorium, field house, athletic field and/or coliseum) in Vigo County, Indiana, for the benefit of Vigo County, Indiana, and for its inhabitants and the inhabitants of the surrounding area. The Donor of this Trust wishes to provide a place of meeting and assembling available to the residents of said Vigo County and the surrounding area for civic, social and/or educational purposes, and for their pleasure, enjoyment, and entertainment. If it should ever become impossible or impracticable *440 to carry out that purpose as herein set forth, the Trustees are authorized and directed to administer and/or dispose of the assets of this Trust for the benefit of the inhabitants of the said Vigo County and the surrounding area in such manner and for such specific purposes and under such restrictions, terms and conditions as they, in their discretion, deem advisable.
C. TRUSTEES AND SUCCESSOR TRUSTEES
The term for which the Trustees are authorized to act as such after their appointment shall be for life. The Trustees shall constitute a self-perpetuating body. In the event any vacancy shall occur because of death, resignation, incapacity to act, or removal of a Trustee, the then remaining Trustees or Trustee at the time shall, within a reasonable time fill said vacancy or vacancies; provided, however, that a Trustee may be removed by not less than a majority vote of all of the Trustees when they deem that said Trustee is incompatible, or not in sympathy with the purposes of the Trust.
At any time hereafter, by written instrument executed by the then Trustees and Donor, two additional Trustees may be appointed so that the total number of Trustees then shall be five. Such additional Trustees shall be residents of Vigo County, Indiana, and shall have demonstrated, in the opinion of the parties to such agreement, an interest in the civic and social betterment of the community. Such additional Trustees so appointed shall have the same powers, rights and responsibilities as the original Trustees. After the number of Trustees is increased to five, that number shall be maintained.
In the event there shall be a total failure of Trustees or if the Trustees at the time are unable to agree upon a successor Trustee, or for any reason it becomes impossible to appoint successor Trustees as herein provided, then such successor Trustee shall be appointed by the Judge at the time of the Vigo Circuit Court, now being the 43rd Judicial Circuit of the State of Indiana.
Except as specifically provided herein, no person other than the original Trustees, or their successors as may be elected or appointed as provided herein, or as may be provided in any trust instrument amendatory hereto, may become a Trustee of said Trust.
D. POWERS OF TRUSTEES
The Trustees shall have full power and authority at all times to manage and control the property of this Trust and to do all things necessary or convenient to consummate the purpose of this Trust and to care for and control its assets. Without in any way limiting the generality of the foregoing, the Trustees shall have the following powers:
(a) To provide for the erection of a community building, to choose a location therefor, to contract for its building, and to choose materials and design, and to determine the amounts that will be invested in its construction, and to do all things necessary to provide for the building and maintaining of such community building;
(b) To rent the community building to such persons or groups of persons and upon such terms and conditions as the Trustees shall deem advisable;
(c) To improve, repair, and maintain the building after its erection; to set aside portions of the principal or income of this Trust for repairs or replacement, and to set aside portions of the principal and income of this Trust for the retirement of bonds or a mortgage on Trust property or for any other legitimate purpose;
(d) To accept property from other donors or further gifts from this same Donor to be held in trust for the purposes mentioned herein and under the terms of this indenture or upon conditions not inconsistent with the terms of this Trust;
(e) To borrow money for any of the purposes of this Trust, and the Trustees may pledge, mortgage, or assign property of this Trust as security;
*441 (f) To receive and accept in kind and to hold as an investment, as long as they shall deem it advisable, any and all property which may come to them as Trustees hereunder;
(g) To take by purchase, or otherwise, and to hold any real estate which may be necessary or proper for the execution of the Trust; to sell the same at public or private sale; to accept money or money's worth therefor; to bid for and become the purchaser thereof at any public sale and to again sell the same without any liability for any resulting loss; to make partition of real estate forming part of the Trust property, either through legal proceedings or otherwise, even though the Trustees, or any of them, may hold an interest in the same real estate in some other capacity;
(h) To lease any real estate at any time constituting any portion of the Trust property for such term or terms and rentals, and with such conditions and provisions as they shall deem proper;
(i) To exchange any real estate at any time constituting any portion of the Trust property at such prices and upon such terms and conditions and for such real or personal property as they shall deem advisable;
(j) To mortgage any real estate at any time constituting any portion of the Trust property on such terms and conditions as may seem to them proper for the payment of taxes and assessments or for the replacement of other liens or for the repair, construction or alteration of buildings thereon and for necessary expenses incident thereto;
(k) To make ordinary and extraordinary repairs and alterations to real estate, to raze old buildings, to erect new buildings, to insure against loss by fire and other casualties and generally to manage real estate as a prudent owner would do;
(l) To invest and reinvest funds in securities and properties suitable for Trust investments;
(m) To change and vary from time to time any investment of personal property, and for this or any other purpose of the Trust to sell any such investment at public or private sale or broker's board with the same right to purchase at public sale and to resell without liability for loss as in the case of real estate;
(n) To consent to or participate in any plan for the reorganization, consolidation, or merger of any corporation of which any securities are held by them, to consent to any contract of lease, mortgage, purchase or sale of property by or between such corporation and any other corporation or person, to exercise any right they may have as the holders of corporate securities, to convert the same into other securities or to acquire additional securities, to make any payments, exchange any securities or do any other act with reference thereto they may deem necessary or proper, and the securities thus held or acquired shall be deemed a proper investment for the Trustees to hold hereunder;
(o) To execute and deliver any proxies, powers of attorney, contracts, deeds, and other instruments necessary or proper in the administration of the Trust property;
(p) To determine whether money or other property coming into their possession is principal or income, or partly one and partly the other, and to charge and apportion expenses and losses to principal and income as they may deem just and equitable; and to make good any wasting investments so called, losses of principal or premiums paid for securities out of the income over such periods of time as they may deem advisable;
(q) To take and retain from the Trust funds received by them a reasonable compensation for their services as Trustees;
(r) To protect the Trust and all property of the Trust and the Trustees' interest therein from attack of any kind and to uphold the validity of all gifts hereunder, testamentary or otherwise;
(s) To cause the organization of such corporations or other agencies as may be necessary or proper to carry out the purposes of the Trust;
*442 (t) To exercise the powers herein conferred, either discretionary or otherwise, through representatives appointed by them, and to pay their reasonable compensation and expenses;
(u) To advise with counsel, and the opinion of counsel in writing signed by him shall be a full protection and justification to the Trustees for anything suffered or done by them in good faith and in accordance with such opinion;
(v) To transfer or convey its properties, or any or all of the assets of this Trust to any one or more of the following:
(i) any association or corporation existing or hereafter organized; or
(ii) the City of Terre Haute, Indiana, or any agency or department thereof; or
(iii) the County of Vigo, Indiana, or any agency, board or department thereof; or
(iv) the Board of School Trustees of the City of Terre Haute, Indiana; or
(v) to any board, agency, commission department or other body, existing at the time of such transfer or conveyance under the laws of the State of Indiana,
under such restrictions and conditions as will insure the use of the same for the purposes of this Trust, if at any time, in the judgment of the Trustees, it shall seem wise and prudent so to do.
In no event shall the Trustees be held liable for any neglect or wrongdoing of any agent or agents, provided reasonable care shall have been exercised in their selection, nor shall they be held liable for any loss or damage except that occasioned by their own gross neglect or wilful default.
E. MISCELLANEOUS PROVISIONS
The Trustees shall act by majority vote of all Trustees, and a majority vote of those attending a meeting of Trustees shall not be controlling unless that majority is also a majority of all the qualifying and acting Trustees.
The Trustees shall adopt rules and by-laws for conducting their meetings, which may be amended from time to time; they shall provide for regular meetings and they shall keep a record of the minutes of meetings, which record shall be available to any Trustee; but the Trustees shall not be required to file reports or account to any Court for the conduct of their Trusts.
The Trustees, or their successors, shall not be required to give any bond or surety for the faithful performance of this Trust.
Where the word "Trustees" is used, it shall be construed to include additional and successor Trustees as well as initial Trustees.
This Trust is a perpetual Trust and, for that reason, it is intended that the construction and interpretation of the powers of Trustees, and of the purposes of the Trust, and of the other terms of this Indenture, shall be given a broad interpretation, in order that future Trustees may be able to adapt the benefits of this Trust to the best interests of the inhabitants of Vigo County and the communities contiguous thereto.
The right is expressly reserved to alter, amend, enlarge and restrict the gift hereby made and any of the terms and conditions thereby by an amended trust instrument, but not to change the original purposes of this Trust in its entirety, nor to revoke this Trust, this Trust being irrevocable. In no circumstance shall any part of the trust property or income revert to Donor.
Each and every provision of this Indenture is to be regarded and construed as so far independent of every other provision that if it shall be determined that any provision is invalid, such determination shall not affect the validity of any of the remaining provisions, and the Trust shall be administered to carry out as far as possible the purposes of the settlor in accordance with the remaining valid provisions.
*443 IN WITNESS WHEREOF, this instrument is executed as of the 20th day of January, 1956.
HULMAN FOUNDATION, INC.
By ____________________
President
ATTEST:
(s) J. R. Cloutier
_____________________
Secretary
STATE OF INDIANA |
> SS:
COUNTY OF VIGO |
Personally appeared before me the within named Anton Hulman, Jr. and J. R. Cloutier, President and Secretary, respectively, of Hulman Foundation, Inc., and acknowledged the execution of the foregoing instrument to be the voluntary act and deed of said corporation for the uses and purposes therein set forth.
WITNESS my hand and official seal.
(s) Emma H. Wilson
_________________________
Notary Public
My commission expires:
Oct. 1, 1959.
ACCEPTANCE OF TRUST
The undersigned hereby accept the Trust, as set forth in the foregoing instrument.
(s) Thomas J. Doherty
__________________________
Thomas J. Doherty
(s) Leonard B. Marshall
__________________________
Leonard B. Marshall
(s) Anton Hulman, Jr.
__________________________
Anton Hulman, Jr.
Trustees
STATE OF INDIANA |
> SS:
COUNTY OF VIGO |
Personally appeared before me the within named Thomas J. Doherty, Leonard B. Marshall and Anton Hulman, Jr., Trustees in the foregoing instrument, and acknowledged the execution of the foregoing.
WITNESS my hand and official seal.
(s) Emma H. Wilson
__________________
Notary Public
My commission expires:
Oct. 1, 1959.
SCHEDULE A.
2,800 Shares of the Common Stock of Merritt-Chapman & Scott Corporation
FIRST AMENDMENT TO TRUST AGREEMENT DATED JANUARY 20, 1956
AGREEMENT by and between HULMAN FOUNDATION INC., an Indiana not-for-profit corporation, and THOMAS J. DOHERTY, LEONARD B. MARSHALL and ANTON HULMAN, JR., all of Terre Haute, Vigo County, Indiana, being all of the Trustees Under a Certain Indenture of Trust dated January 20, 1956, WITNESSES:
WHEREAS, pursuant to paragraph "E. Miscellaneous Provisions" of said Indenture of Trust dated January 20, 1956, the right was reserved to alter, amend, enlarge or restrict the gift therein made and any of the terms and conditions of said trust; and,
WHEREAS, the said Hulman Foundation Inc. deems it advisable to amend said original trust agreement as herein provided, and said Trustees agree to such amendment.
IT IS NOW, THEREFORE, by the parties hereto, AGREED:
1. That the paragraph denominated "B. Purpose of Trust" of the aforementioned Indenture of Trust dated January 20, 1956 be, and the same hereby is, amended to read as follows:
"B. PURPOSE OF TRUST
The primary purpose of this Trust in perpetuity is to provide for the building and/or maintaining of properties (including, but not limited to, a civic auditorium, field house, athletic field and/or *444 coliseum) in Vigo County, Indiana, for the benefit of Vigo County, Indiana, and for its inhabitants and the inhabitants of the surrounding area. The Donor of this Trust wishes to provide a place of meeting and assembling available to the residents of said Vigo County and the surrounding area for civic, social and/or educational purposes, and for their pleasure, enjoyment, and entertainment. If it should ever become impossible or impracticable to carry out that purpose as herein set forth, the Trustees are authorized and directed to administer and/or dispose of the assets of this Trust for the benefit of the inhabitants of the said Vigo County and the surrounding area in such manner and for such specific purposes and under such restrictions, terms and conditions as they, in their discretion, deem advisable; provided, however, that in the event the Trustees so continue to administer the assets of the Trust, the purposes of such administration shall be exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, that no part of the net earnings shall inure to the benefit of any private shareholder or individual, no substantial part of the activities of the Trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the Trust shall not participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of any candidate for public office.
Upon dissolution or termination of the Trust, the assets of the Trust shall be disposed of by transferring, assigning and setting over the same, as may be determined by the Trustees, at the time, to either:
(a) a corporation or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office; or,
(b) a municipal corporation or other governmental unit of the State of Indiana (that is, a political subdivision of the State of Indiana)."
2. Except as herein specifically provided in this instrument, the said Indenture of Trust dated January 20, 1956 shall be and remain in full force and effect, according to the terms thereof.
IN WITNESS WHEREOF we have hereunto set our hands and seals this 17th day of June, 1958.
HULMAN FOUNDATION, INC.
(s) Anton Hulman, Jr.
____________________________
By President
ATTEST:
(s) J. R. Cloutier
__________________
Secretary
(s) Thomas J. Doherty
________________________
Thomas J. Doherty
(s) Leonard B. Marshall
__________________________
Leonard B. Marshall
(s) Anton Hulman, Jr.
________________________
Anton Hulman, Jr.
TRUSTEES UNDER INDENTURE
OF TRUST DATED
JANUARY 20, 1956
STATE OF INDIANA |
> SS:
COUNTY OF VIGO |
Personally appeared before me, this 17th day of June, 1958, the within named Anton Hulman, Jr. and J. R. Cloutier, President and Secretary, respectively, of Hulman Foundation, Inc., and acknowledged *445 the execution of the foregoing instrument to be the voluntary act and deed of said corporation for the uses and purposes therein set forth.
WITNESS my hand and official seal.
(s) Emma H. Wilson
__________________
Notary Public
My commission expires:
Oct. 1, 1959.
STATE OF INDIANA |
> SS:
COUNTY OF VIGO |
Personally appeared before me, this 17th day of June, 1958, the within named Thomas J. Doherty, Leonard B. Marshall and Anton Hulman, Jr., Trustees Under Indenture of Trust dated January 20, 1956, and acknowledged the execution of the foregoing instrument to be the voluntary act and deed of said Trust for the uses and purposes therein set forth.
WITNESS my hand and official seal.
(s) Emma H. Wilson
__________________
Notary Public
My commission expires:
Oct. 1, 1959.
SECOND AMENDMENT OF INDENTURE OF TRUST
THIS INSTRUMENT, made by and between HULMAN FOUNDATION, INC., an Indiana not-for-profit corporation and THOMAS J. DOHERTY, LEONARD B. MARSHALL and ANTON HULMAN, JR., all of Terre Haute, Indiana, Trustees under Indenture of Trust dated January 20, 1956 with respect to a certain Trust known as the "Hulman Public Building Trust",
WITNESSES:
WHEREAS, Hulman Foundation, Inc. established a certain Trust known as "Hulman Public Building Trust" by Instrument dated January 20, 1956 under the terms of which the aforementioned Thomas J. Doherty, Leonard B. Marshall and Anton Hulman, Jr. were designated as the Trustees; and,
WHEREAS, The said Trust Instrument dated January 20, 1956 provides that the same may be amended; and,
WHEREAS, It has been determined by the parties hereto that it would be desirable and in the best interest of said Trust to amend said Trust Instrument so as to more clearly set out the purpose of the Trust and the powers of the Trustees.
IT IS NOW, THEREFORE, AGREED that the said Indenture of Trust dated January 20, 1956 (as amended June 17, 1958) be, and the same hereby is, amended as hereinafter set forth, to-wit:
1. PARAGRAPH "B. PURPOSE OF TRUST", thereof, is hereby amended to read as follows:
The purposes for which this Trust is established, and for the accomplishment of which it shall be operated exclusively, are educational, charitable and scientific purposes, and the promotion and support of educational, charitable and scientific purposes, or any of them, and for no other purpose or purposes. It is the wish and aim of the Donor of this Trust, by the establishment of this Trust, to establish and maintain a place of meeting and assembling primarily for the use of educational, charitable and scientific organizations in Vigo County, Indiana. If, however, it should ever become impossible or impracticable for the Trustees to accomplish that objective, the said Trustees are hereby authorized and directed to dispose of the assets of the Trust for the benefit of the organizations, or any of them, to which the assets of the Trust could be transferred, assigned or set over as hereinafter provided in subparagraph (u) of paragraph D hereof.
2. PARAGRAPH "D. POWERS OF TRUSTEES", thereof is hereby amended to read as follows:
The Trustees shall have full and plenary powers to manage and carry *446 on all the affairs of the Trust, such powers, however, to be exercised only in furtherance of the purposes for which the Trust is formed. Without in any way limiting the generality of the foregoing, the Trustees shall have the following powers:
(a) To provide for the erection of a building in Vigo County, Indiana primarily for the use of educational, charitable and scientific organizations, to choose materials and design, to determine the amounts that will be invested in its construction and to do all things necessary to provide for the construction and maintenance of such building and grounds appurtenant thereto;
(b) To rent (as an insubstantial part of its activities and incidental to the primary purpose of the Trust to provide a building for the use of educational, charitable and scientific organizations) and to permit such building to such persons or groups of persons, and upon such terms and conditions, as the Trustees shall deem advisable, from time to time; provided, however, that under no circumstances shall any organization exempt from taxation by virtue of the provisions of Section 501(c) (3), or any agency of the State of Indiana or any political subdivision thereof or of the United States using the building for public purposes, be charged any rent for the use of any property of the Trust;
(c) To improve, repair, and maintain such building after its erection; to set aside portions of the principal or income of this Trust for repairs or replacement, and to set aside portions of the principal and income of this Trust for the retirement of bonds or a mortgage on Trust property or for any other legitimate purpose;
(d) To receive and administer funds and property for the furtherance of the purposes for which this Trust is established, and for no other purposes, and for that end may take and hold by bequest, devise, gift, purchase or lease, either absolutely or in trust, for such objects and purposes, or any of them, any property, real, personal or mixed, without limitation as to amount or value, except such limitations, if any, as may be imposed by law. The Trustees may sell, convey and dispose of any such property and invest and reinvest the principal thereof, and deal with and dispose of the principal and income thereof, and deal with and dispose of the principal and income therefrom, for any of the before mentioned purposes, without limitation, except such limitations, if any, as may be contained in the instrument under which said property is received, and receive any property, real, personal or mixed, in trust under the terms of any will, deed of trust or other trust instrument for the foregoing purposes or any of them (but not for any other purposes) and administer the same to carry out the directions and exercise the powers contained in the instrument under which said property is received, including the principal as well as the income, for one or more of such purposes as authorized or directed in the trust instrument under which it is received, and to receive, take title to, hold, and use the profits and income of stocks, bonds, obligations or other securities of any corporation or corporations, domestic or foreign, for the foregoing purposes or some of them;
(e) To borrow money for any of the purposes of this Trust, and the Trustees may pledge, mortgage, or assign property of this Trust as security;
(f) To receive and accept in kind and to hold as an investment, as long as they shall deem it advisable, any and all property which may come to them as Trustees hereunder;
*447 (g) To take by purchase, or otherwise, and to hold any real estate which may be necessary or proper for the execution of the Trust; to sell the same at public or private sale; to accept money or money's worth therefor; to bid for and become the purchaser thereof at any public sale and to again sell the same without any liability for any resulting loss; to make partition of real estate forming part of the Trust property, either through legal proceedings or otherwise, even though the Trustees, or any of them, may hold an interest in the same real estate in some other capacity;
(h) To employ such assistants, agents, attorneys and clerical and other help as the Trustees deem desirable and to fix in order paid reasonable compensation to any person so employed and to incur and pay all expenses and obligations deemed by the Trustees necessary or convenient to carry out the purposes for which this Trust is established;
(i) To exchange any real estate at any time constituting any portion of the Trust property at such prices and upon such terms and conditions and for such real or personal property as they shall deem advisable;
(j) To mortgage any real estate at any time constituting any portion of the Trust property on such terms and conditions as may seem to them proper for the payment of taxes and assessments or for the replacement of other liens or for the repair, construction or alteration of buildings thereon and for necessary expenses incident thereto;
(k) To make ordinary and extraordinary repairs and alterations to real estate, to raze old buildings, to erect new buildings, to insure against loss by fire and other casualties and generally to manage real estate as a prudent owner would do;
(l) To invest and reinvest funds in securities and properties suitable for Trust investments;
(m) To change and vary from time to time any investment of personal property, and for this or any other purpose of the Trust to sell any such investment at public or private sale or broker's board with the same right to purchase at public sale and to resell without liability for loss as in the case of real estate;
(n) To consent to or participate in any plan for the reorganization, consolidation, or merger of any corporation of which any securities are held by them, to consent to any contract of lease, mortgage, purchase or sale of property by or between such corporation and any other corporation or person, to exercise any right they may have as the holders of corporate securities, to convert the same into other securities or to acquire additional securities, to make any payments, exchange any securities or do any other act with reference thereto they may deem necessary or proper, and the securities thus held or acquired shall be deemed a proper investment for the Trustees to hold hereunder;
(o) To execute and deliver any proxies, powers of attorney, contracts, deeds, and other instruments necessary or proper in the administration of the Trust property;
(p) To take and retain from the Trust funds received by them a reasonable compensation for their services as Trustees;
(q) To protect the Trust and all property of the Trust and the Trustees' interest therein from attack of any kind and to uphold the validity of all gifts, testamentary or otherwise;
(r) To cause the organization of such corporations or other agencies as may be necessary or proper to carry out the purposes of the Trust;
(s) To exercise the powers herein conferred, either discretionary or otherwise, through representatives appointed by them, and to pay their *448 reasonable compensation and expenses;
(t) To advise with counsel, and the opinion of counsel in writing signed by him shall be a full protection and justification to the Trustees for anything suffered or done by them in good faith and in accordance with such opinion;
(u) To transfer or convey all assets of this Trust, at the time, including any accumulated earnings, to any one or more of the following:
(i) a governmental unit of the State of Indiana (that is a political subdivision of the State of Indiana) to be used for exclusively public purposes, or to
(ii) a corporation, trust, or community chest, fund or foundation, created or organized under the law of the United States, or of the State of Indiana, organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation, to be used within the State of Indiana exclusively for religious, charitable, scientific, literary or educational purposes,
under such restrictions and conditions as will insure the use of the same for the purposes of this Trust, if at any time in the judgment of the Trustees it shall seem wise and prudent so to do.
In no event shall the Trustees be held liable for any neglect or wrongdoing of any agent or agents, provided reasonable care shall have been exercised in their selection, nor shall they be held liable for any loss or damage except that occasioned by their own gross neglect or willful default.
No part of the activities of the Trustees shall be the carrying on of propaganda or otherwise attempting to influence legislation.
3. Paragraphs 1 and 2, above of this Second Amendment of Indenture of Trust shall be deemed to supersede and supplant Paragraph B of the original Indenture of Trust dated January 20, 1956, as amended by First Amendment of said Indenture dated June 17, 1958, and Paragraph C of said Indenture of Trust dated January 20, 1956. Except as so amended hereby said original Indenture of Trust dated January 20, 1956, shall be and remain in full force and effect in accord with the terms and conditions set forth therein.
IN WITNESS WHEREOF this instrument is executed this 16th day of April, 1960.
HULMAN FOUNDATION, INC.
(s) By Anton Hulman Jr.
________________________
Its President
ATTEST:
(s) J. R. Cloutier
__________________
Its Secretary
DONOR
(s) Thomas J. Doherty
________________________
Thomas J. Doherty
(s) Leonard B. Marshall
________________________
Leonard B. Marshall
(s) Anton Hulman Jr.
________________________
Anton Hulman, Jr.
TRUSTEES
STATE OF INDIANA |
> SS:
COUNTY OF VIGO |
Personally appeared before me the within named Anton Hulman, Jr. and J. R. Cloutier, President and Secretary, respectively, of Hulman Foundation, Inc., and acknowledged the execution of the foregoing instrument to be the voluntary *449 act and deed of said corporation for the uses and purposes therein set forth.
WITNESS my hand and official seal.
(s) Margaret J. Burke
________________________
Notary Public
My commission expires:
August 28 1960
STATE OF INDIANA |
> SS:
COUNTY OF VIGO |
Personally appeared before me the within named Thomas J. Doherty, Leonard B. Marshall and Anton Hulman, Jr., Trustees of the "Hulman Public Building Trust", and acknowledged the execution of the foregoing instrument to be the voluntary act and deed of said Trust for the uses and purposes therein set forth.
WITNESS my hand and official seal.
(s) Margaret J. Burke
________________________
Notary Public
My commission expires:
August 28 1960
Finding of Fact Exhibit B
U. S. TREASURY DEPARTMENT
Washington 25
(Seal)
OFFICE OF
COMMISSIONER OF INTERNAL REVENUE
------
ADDRESS REPLY TO
COMMISSIONER OF INTERNAL REVENUE
WASHINGTON 25, D. C.
AND REFER TO
JUL 18 1960
T:R:EO:2
JAT
Hulman Foundation, Inc.
Wabash Avenue and Ninth Street
Terre Haute, Indiana
Gentlemen:
This is in reference to your application for exemption from Federal income tax as an organization described in section 501(c) (3) of the 1954 Code for 1955 and subsequent years.
Our records disclose that by ruling dated January 12, 1956, your exempt status was revoked for the years 1951 through 1954, inclusive, for having unreasonably accumulated income within the meaning of section 3814 of the 1939 Code which corresponds to section 504 of the 1954 Code. The information now before us discloses that on April 16, 1960, your board of directors unanimously adopted a resolution pledging to transfer to another organization exempt from Federal income tax pursuant to the provisions of section 501(c) (3) of the 1954 Code, a sum equal to the amount of your undistributed earnings reduced by Federal taxes and interest paid during the period January 1, 1951 to December 31, 1959. The resolution also provides that any refund of taxes for the years 1955 and 1956 together with all interest received will be paid to the donee organization within thirty days from the receipt thereof. Based upon the evidence now before us, we have concluded that you are exempt from Federal income tax as an organization described in section 501(c) (3) of the 1954 Code for 1955 and subsequent years as it is shown that you are organized and operated exclusively for charitable purposes.
You are not required to file Federal income tax returns so long as you retain an exempt status, unless you are subject to the tax imposed by section 511 of the Code and are required to file Form 990-T for the purpose of reporting unrelated business taxable income. Any changes in the character of your organization, the purposes for which you were organized or your method of operation should be reported immediately to the District Director of Internal Revenue for your district in order that their effect upon your exempt status may be determined.
You are required, however, to file an information return, Form 990A, annually, with the District Director of Internal Revenue for your district so long as this exemption remains in effect. This form may be obtained from the district director and is required to be filed on or before the fifteenth day of the fifth *450 month following the close of your annual accounting period which ends December 31.
Contributions made to you are deductible by the donors in computing their taxable income in the manner and to the extent provided by section 170 of the 1954 Code.
Bequests, legacies, devises or transfers to or for your use are deductible in computing the value of the taxable estate of a decedent for Federal estate tax purposes in the manner and to the extent provided by sections 2055 and 2106 of the 1954 Code. Gifts of property to or for your use are deductible in computing taxable gifts for Federal gift tax purposes in the manner and to the extent provided by section 2522 of the 1954 Code.
No liability is incurred by you for the taxes imposed under the Federal Insurance Contributions Act (Social Security taxes) unless you have filed a waiver of exemption certificate in accordance with the applicable provisions of such Act. In the event you desire social security coverage for your employees or have any questions relating to the filing of a waiver of exemption certificate you should take the matter up with your District Director of Internal Revenue.
This ruling is conditioned on the understanding that your accumulated income and any refund of taxes together with interest thereon will be dispersed in accordance with the terms of the resolution adopted on April 16, 1960, by your board of directors. In this connection, we should be supplied with a statement showing the amount distributed, the name of the donee organization, and the date of distribution.
The District Director of Internal Revenue for your district is being advised of this action.
Very truly yours,
(s) J. F. Worley
Chief, Exempt Organizations Branch
*451
Finding of Fact Exhibit C
HULMAN FOUNDATION, INC.
STOCKS PURCHASED, REC'D. by GIFT & SOLD 1940-54, inc.
(Dispositions in parenthesis)
By Purchase 1941-43 1944 1945 1946 1947 1948
Richmond Gas Corp. 57,000.00
Indiana National Bank 32,750.00
Hulman Realty Corp. 41,000.00
Ind. Gas & Chem. Corp.-Com. 105,000.00 63,536.51 155,324.10 39,657.75
" " " " " -Pfd. 227,501.00 185,880.19 167,804.12 28,023.37
Ind. Trust Co. 8,056.00
Merchants Nat'l. Bank 6,000.00
Group Securities 39,915.00
Wabash Valley Broadcasting Corp. 10,906.25
____________ ____________ ____________ ____________ ____________ _____________
Total purchased less sales 57,000.00 406,251.00 289,331.70 323,128.22 92,643.37
By Gift
Hulman & Co. 1,163,100.00
Pittsbg. Coal Co. 19,596.00 (11.16) scrip
T. H. Industrial District (1,500.00)
" " " " 15,000.00 (2,250.00) liquidation
____________ ____________ ____________ ____________ ____________ _____________
Total Gifts less sales 1,163,100.00 19,596.00 13,500.00 (2,261.16)
____________ ____________ ____________ ____________ ____________ _____________
1,220,100.00 19,596.00 406,251.00 289,331.70 336,628.22 90,382.21
____________ ____________ ____________ ____________ ____________ _____________
Stock acct. at yr. end 1,220,100.00 1,239,696.00 1,645,947.00 1,935,278.70 2,271,906.92 2,362,389.13
By Purchase 1949 1950 1951 1952 1953 1954
Richmond Gas Corp.
Ind. National Bank 26,565.00 (100.52) (1,884.03)
Hulman Realty Corp. 98,400.00
*452
HUMAN FOUNDATION, INC.
STOCKS PURCHASED REC'D. by GIFT & SOLD 1940-54, inc.
(Dispositions in Parenthesis)
1949 1950 1951 1952 1953 1954
Ind. Gas & Chem. Corp.-com. 54,394.78 18,418.97 6,751.60
" " " " " (5,400.00)
" " " " " -pfd. 6,193.42 8,380.48 (623,835.78) called
Ind. Trust Co.
Merchants Nat'l. Bank
Group Securities (39,915.00)
Wabash Valley Broadcasting (6,250.00)
" " " " 3,437.50 (8,093.75) HPS & JRC
So. Ind. Gas & Elec. Co. 780,000.00 (9,680.58) (6,764.95) rights
Gagel Realty Corp. 80,000.00
Tribune-Star Publ. Co.-pfd. 52,500.00
" " " " -com. 1,771,000.00
T. H. Community Corp. 250.00
Deep Vein Coal Co. 18,360.00 13,360.00 15,860.00 25,860.00
T & H Corp. 10,000.00
Meadows Center, Inc. 1,000.00 9,000.00
Misc. Trans. taxes 2.14 89.49
____________ ____________ ____________ ____________ ____________ _____________
Total purchased less sales 1,026,175.70 1,868,770.70 (643,787.04) 13,259.48 7,268.91 26,211.02
By Gift
Hulman & Co.
Pittsbg. Coal Co. (12,546.29)
T H Industrial Dist. (1,250.00) (3,000.00) (1,000.00) (500.00)
Listed Stocks (133,750.00)
" " 133,750.00 55,501.25 33,900.00 104,317.58
Hulman & Co. Subs. 135,191.62
____________ ____________ ____________ ____________ ____________ _____________
Total Gifts less sales (1,250.00) 130,750.00 43,396.58 33,400.00 104,317.58
____________ ____________ ____________ ____________ ____________ _____________
1,024,925.70 1,999,520.70 600,390.46 46,659.48 7,268.91 130,528.60
____________ ____________ ____________ ____________ ____________ _____________
Stock acct. at yr. end 3,387,214.83 5,386,735.53 4,786,345.07 4,833,004.55 4,840,273.46 4,970.802.06
*453
Finding of Fact Exhibit D
HULMAN FOUNDATION, INC.
ACCOUNTS & NOTES RECEIVABLE YEARS ENDING 1940-54 inc.
1941 1942 1943 1944 1945 1946 1947
E. E. Linburg 7,500.00 7,500.00 6,855.48 6,030.48 5,750.48 12,610.48 10,840.48
Isaac Walton League 13,000.00 8,500.00 8,000.00 7,000.00 6,000.00 5,500.00
Wabash Valley Broadcasting Corp. 124,000.00
___________ ___________ _____________ ____________ _____________ ___________ ____________
7,500.00 20,500.00 15,355.48 14,030.48 12,750.48 18,610.48 140,340.48
(Continued)
1948 1949 1950 1951 1952 1953 1954
E. E. Linburg 7,780.48 5,780.48 2,780.48 _ _ _ _
Wabash Valley Broadcasting Corp. 241,261.19 241,261.19 237,725.00 202,725.00 197,725.00 177,725.00 410,225.00
Richmond Gas Corp. 80,000.00 50,000.00 -- -- -- -- --
Grapette Bottling Co. 14,946.00 14,946.00 14,946.00 14,946.00 14,946.00
Gagel Realty Corp. 160,000.00 160,000.00 128,000.00 104,000.00 68,000.00 44,000.00
T & H Corp. 80,000.00 80,000.00 80,000.00 80,000.00 50,000.00 50,000.00
Ft. Harrison Post #40 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00
J. R. Cloutier 8,093.75 8,093.75 8,093.75 8,093.75 8,093.75
Wabash Valley Fair Ass'n. 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00
T. H. Community Corp. 750.00 750.00 750.00 750.00
Misc. Dividends Due 1,633.40 4,418.60 5,222.85 5,822.85
C & E I Ry. 23,000.00 23,000.00 23,000.00
Mechanical Suppliers, Inc. 16,000.00 16,000.00
R. J. Oil & Refining Co. Inc. 100,000.00 225,000.00
Meadows Center, Inc. 7,000.00 152,225.49
____________ ____________ ____________ ____________ ____________ ____________ ____________
330,041.67 552,987.67 509,545.23 442,148.15 438,933.35 476,737.60 941,117.09 | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1522214/ | 217 F. Supp. 581 (1963)
Neil E. MIMS, Plaintiff,
v.
Anthony J. CELEBREZZE, Secretary of Health, Education and Welfare, Defendant.
Civ. A. No. 7768.
United States District Court D. Colorado.
May 14, 1963.
*582 John D. Comer, Denver, Colo., for plaintiff.
Lawrence M. Henry, U. S. Atty., James P. McGruder, Asst. U. S. Atty., Denver, Colo., for defendant.
DOYLE, District Judge.
This is an action by the plaintiff, Neil E. Mims, to review a final decision of the defendant Secretary, denying the plaintiff's application for a period of disability and disability benefits authorized by the Social Security Act, as amended, Title 42 U.S.C. §§ 416(i) (1) and 423. Jurisdiction exists pursuant to Section 205(g) of the Social Security Act, Title 42 U.S.C. § 405(g).
Motions for summary judgment have been filed by both plaintiff and the defendant, and the case has been submitted upon stipulation by counsel that this matter may be determined upon the pleadings and the certified copy of the transcript of the record which includes the evidence upon which the findings and decision complained of are based.
Under the review provision, Title 42 U.S.C. § 405(g), the court is limited to a determination as to whether the Secretary's findings are supported by substantial evidence. In accordance with such determination the court may, on the basis of the record, enter judgment affirming, modifying, or reversing the Secretary's decision, with or without remanding the case for a rehearing. A hearing de novo may not be held on the record and the District Court may not in considering the facts substitute its findings or inferences for those of the Hearing Examiner which are supported by substantial evidence. Ferenz v. Folsom, 237 F.2d 46 at 49 (3 Cir., 1956). "Substantial evidence" means enough to justify a refusal to direct a verdict when the conclusion sought to be drawn from it *583 is one of fact for the jury. Dowling v. Ribicoff, 200 F. Supp. 543 (D.C.1961); Woolridge v. Celebrezze, 214 F. Supp. 686 (D.C.1963).
On February 2, 1961, plaintiff filed her application to establish a period of disability and for disability insurance benefits and such application was denied on April 17, 1961. A hearing was requested before the Bureau of Hearings and Appeals Social Security Administration. Such hearing was duly held March 15, 1962, and the Hearing Examiner also denied her application in a decision dated April 24, 1962. The plaintiff's request to have the Appeals Council review the decision was denied on August 3, 1962 and thus the decision of the Hearing Examiner became the final decision of the Secretary of Health, Education and Welfare, subject to review pursuant to Section 205(g) of the Social Security Act, Title 42 U.S.C. § 405(g). A previous application had been filed on September 1, 1955 which also had been denied.
The facts upon which the application was based are as follows: Mrs. Mims was born on September 18, 1901. Her formal education ended at the eighth grade and she went to work for the Mountain States Telephone and Telegraph Company in 1918 at the age of seventeen years. She had never worked for any other employer and during her employment was an operator, supervisor, evening chief operator and central office observer and supervisor of the information department. Her final job required her to frequently consult files for information involving much bending and stooping. The plaintiff alleges that she first became unable to work in December, 1948, when she was forty-seven years of age. This was due to a back injury and arthritis of the spine; and the record shows that for one year thereafter she received her salary on sick leave and after September 2, 1949, at age forty-eight, she received a "service pension" for which she was qualified because of her thirty years' service with the Telephone Company. With respect to the "service pension" the following excerpt from a letter by the Mountain States Telephone and Telegraph Company to the Hearing Examiner and dated March 14, 1962 is pertinent:
"Mrs. Mims was placed on a Telephone Company pension on September 2, 1949, at which time she was 48 years of age. Her period of service with the Company at that time was over thirty years. Mrs. Mims' retirement in September, 1949, was due solely to the fact that she was unable to return to work following a period during which she had received sickness benefits under the plan. She suffered principally from a progressive arthritis of the spine and the Company records contain medical reports attesting to her inability to return to work. Copies of these medical reports from Drs. Nilsson and Starks are attached to this letter and are identified as Exhibits `A' and `B'. These medical reports indicated that Mrs. Mims was unable to perform any job for the Telephone Company.
"At the time of Mrs. Mims' retirement she was entitled to a disability pension pursuant to Section 4(1) (c) but because of her length of service with the Company a pension entitled `service pension' was granted Mrs. Mims pursuant to the discretionary provisions of Section 4(1) (b) and the proviso of Section 4(1) (c). The Company records disclose that the only reason the Committee exercised its discretionary power to provide a `service pension' was because of Mrs. Mims' disability. There can be no question, therefore, that Mrs. Mims was retired for any reason other than disability and the only reason her pension is entitled `service pension' is because of the specific provisions of the Company plan. * * *"
Mrs. Mims' medical record is summarized in exhibit No. 9, a report dated March 9, 1953 by Dr. Charles G. Freed. Although the reports of other doctors are contained in the records both before and after December 31, 1953, this one has been selected as most complete and also most pertinent, since the plaintiff last met the earnings requirement for disability *584 benefits on December 31, 1953 and the record must disclose that she became disabled prior to that date to support her claim.
The report of Dr. Freed contains the following:
"She has had low back pain and ache steadily the past four years, intermittent 10 years before then. No trauma. She has no radiating pain in the legs or hips. She has associated pain in the metatarsal arch and she has a cramping of the feet bilaterally. This is worse at night when she is in bed. Coughing, sneezing, and straining at stool do not aggravate the pain. She uses a board under the mattress with some questionable relief. When she is on her feet any length of time the pain is aggravated. Walking is not difficult. She has a good deal of nausea and has vomited a number of times. She vomits usually on arising in the mornings. She has suffered with constipation over a period of many years. In 1949 she saw Dr. Starks; she had osteopathic manipulations and x-rays were taken; this was diagnosed as arthritis. She was referred by Dr. Metcalf through her sister. At present she is not under any medical care.
"Past History: Hysterectomy in 1949 by Dr. Cecchini. Surgical menopause. Tonsillectomy and adenoidectomy 20 years of age. Goitre operation in 1925 or 1926. Rectal fissure surgery in 1934. Rectal abscess surgery in 1945, the same site as the present pain. Surgery performed for a pinched nerve in the throat in 1947. About 20 or 25 years ago she had a bad fall in a shower and landed on her back. She fractured the right wrist 15 or 16 years ago. No serious illnesses. She has been married 10 years; husband is living and well. No children. She has had a constant buzz in the right ear for the past 5 years with some deafness.
* * * * * *
"Neurological Examination: Gait and posture normal. Romberg negative. Visual fields normal to hand movements. Eye movements normal. Facial movements and tongue movements normal. Speech normal. Hearing: Air conduction10 sec with right ear, 30 sec with left ear. Bone conduction15 sec with right ear, 15 sec with left ear. Weber not referred to either side. Right grip 60 pounds; left grip 40 pounds; right-handed. There is some limitatation of motion of the spine. Brings the finger tips within 1 foot of the floor without bending the knees. Lateral and backward bending slightly restricted. Spasm of back muscles. There is flattening of the normal lumbar curve. Dorsolumbar scolios upper lumbar spine, convexity to the right. No tenderness of the spine to percussion. * * * Patient does not guard her movements when getting up from a chair or when turning on the examining table. Knee jerks and ankle jerks depressed. Plantar reflexes normal. Abdominal reflexes normal. No tremors. * * *
"X-ray report: (Drs. Meister & Maresh)
"3-12-53, `THORACIC & LUMBAR SPINE: Studies of the thoracic and lumbar spine show marked scoliosis to the right in the upper lumbar region. There is compensatory scoliosis to the left in the lower thoracic region. Advanced hypertrophic arthritic changes are noted in the upper lumbar and lower thoracic segments. There is no evidence of secondary neoplastic metastasis. No erosion of the pedicles is noted. The disc spacing appears normal.
"`IMPRESSION: Scoliosis and hypertrophic spondylitis, as described.' "Conclusions: It is felt this patient's symptoms are seconday to the scoliosis and arthritis of the thoracic and lumbar spine. A course of x-ray treatment and a full length Taylor brace were recommended. Butazolidin was tried but *585 the patient was sensitive to this medication, and it had to be discontinued. She is now taking Pabolate tabs. II every 4 hours."
This report is most significant because it appears to have been the basis of the first denial of the plaintiff's application and was also relied upon most heavily by the hearing examiner in the present case. The latter's decision specifically refers to comments in this report concerning "No serious illnesses" and the fact that the plaintiff could bring her fingertips to within one foot of the floor without bending her knees to support his conclusion that she was not disabled at that time sufficiently to prevent her from engaging in some gainful activity.
"* * * The objective evidence as to the claimant's `back condition' does not show an impairment of such severity, at a time when the claimant met the earnings requirements, which continued until the date she filed her application, that would prevent the claimant from engaging in substantial gainful activity." [Hearing Examiner's decision, page 8]
One can not read this report, including the history of plaintiff, and not conclude that plaintiff has severe disability and pain. This is corroborated by the numerous other physicians' reports in the record.
The hearing examiner seems also to have placed much emphasis upon the fact that the plaintiff testified that, although in bed because of pain most of the day, she was able to do a little housework, and, further, that at the time she left her employment she was of the opinion that she might have been able to do another job for the Telephone Company had such position been available at that time.
However, the plaintiff testified that she has suffered from severe backache since prior to her hysterectomy and has not "been a minute without backache" since. She attempted to go back to work but would come home crying every night (Transcript 42) and that the only other experience she had was doing housework, but she wasn't able to do thatthat she was unable to stand or sit for any length of time and had to spend extensive periods in bed during every day. She also testified that the same Dr. Freed whose report was relied upon by the examiner, told her he could not operate on her because her whole spine was affected and after several trial treatments told her,
"There's not a thing I can do for you. There's not a thing any doctor can do I'm telling you truthfully, don't go running around to doctors spending your money or don't come back to me because there's nothing can be done for you. You're just going to have to live with yourself and thank God that you're even able to be on your feet in the condition of your back." [Transcript 48, 49]
It seems to be generally conceded that the plaintiff suffered from 1948 to 1953 and continues to suffer from curvature of the spine from an old accident and advanced hypertrophic arthritic changes in the lumbar spine, with some limitation of motion. The only question is whether there is substantial evidence to support the Secretary's determination that these conditions did not amount to disability within the meaning of the Social Security Act.
"Disability", as defined in the recent amendments to Section 216(i) and Section 223 of the Act, means inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, or impairments, which could be expected to result in death or to be of long-continued and indefinite duration.
The courts have held that such disability need not be total disability. See Little v. Celebrezze, 310 F.2d 636 (7 Cir., 1962):
"* * * the statute did not require utter helplessness, but only inability to engage in substantial and gainful activity commensurate with one's age, education, job training and experience, and mental and physical capacity."
*586 See also Teeter v. Flemming,, 270 F.2d 871, 77 A.L.R. 2d 636 (7 Cir., 1959); Kerner v. Flemming, 283 F.2d 916 (2 Cir., 1960).
A good summary of the criteria as derived from Kerner, supra, to be applied, are contained in Hayes v. Celebrezze, 311 F.2d 648 (5 Cir., 1963):
"The legal standards are now well outlined. For this sort of situation, they have been epitomized by the dual question: (1) what can appellant do? and (2) what employment opportunities are available to a man who can only do what the Claimant can do. And in finding the answer `mere theoretical ability to engage in substantial gainful activity is not enough if no reasonable opportunity for this is available.' Stringent as is the statutory standard of disability, it is to be administered with reason. Were it otherwise few would ever be able to qualify."
The same standards have been applied by the Sixth Circuit in Jarvis v. Ribicoff, 312 F.2d 707 (1963); Roberson v. Ribicoff, 299 F.2d 761 (1962); Hall v. Flemming, 289 F.2d 290 (1961) and King v. Flemming, 289 F.2d 808 (1961); by the Third Circuit in Hodgson v. Celebrezze, 312 F.2d 260 (1963); by the Second Circuit in Pollak v. Ribicoff, 300 F.2d 674 (1962); by the Ninth Circuit in Graham v. Ribicoff, 295 F.2d 391 (1961); by the Eighth Circuit in Ribicoff v. Hughes, 295 F.2d 833 (1961) and Kohrs v. Flemming, 272 F.2d 831 (1959); by the Fourth Circuit in Underwood v. Ribicoff, 298 F.2d 850 (1962), and the Fifth Circuit in Hayes v. Celebrezze, supra; Varnado v. Flemming, 295 F.2d 693 (1961); Ferran v. Flemming, 293 F.2d 568 (1961); Butler v. Flemming, 288 F.2d 591 (1961) and Flemming v. Booker, 283 F.2d 321 (1960); and by this court in Paul v. Ribicoff, 206 F. Supp. 606 (1962) and Staab v. Ribicoff, 208 F. Supp. 31 (1962).
The initial burden of proving that a disability exists is upon the claimant. Staab v. Ribicoff, 208 F. Supp. 31 (1962):
"After he has shown that his physical impairment prevents any further pursuit of his usual vocation, together with his advanced age and lack of education and other work experience, and if there is no indication in the record of other definite employment opportunities, he has satisfied the burden of proof under the Act."
The claimant is not required to exclude every reasonable hypothesis of possible employment. See Jarvis v. Ribicoff, 312 F.2d 707 at 710 (6 Cir., 1963); quoting with approval from Butler v. Flemming, 288 F.2d 591, 595 (5 Cir., 1961):
"[The claimant] was not required by the use of a catalogue of the nation's industrial occupations to go down the list and verbally negative his capacity for each of them or their availability to him as an actual opportunity for employment."
The claimant presented evidence that she was disabled and unable to do the work for which she had been trained and further that her employer considered her disabled for any job with the Company; thus, the claimant met her burden in this respect. Furthermore, it has been held that the ability to do a little house work is insufficient to negative the presumption that the claimant is unable to engage in substantial gainful employment. See Jarvis v. Ribicoff, 312 F.2d 707, at 710:
"* * * If he could wash the dishes in the home or perform any similar light duties, that would not constitute substantial gainful activity. * * *"
There has been some suggestion that those afflicted with arthritis, no matter how painful, are excluded from the benefits of the Social Security Act because pain is one of life's burdens. Adams v. Flemming, 276 F.2d 901 (2 Cir., 1960). It would appear that the findings and conclusions were based on this philosophy. However, this approach has been rejected as out of keeping with the purpose of the Social Security Act which is "to ameliorate some of these rigors that *587 life imposes." Butler v. Flemming, supra, quoted with approval in Hayes v. Celebrezze, supra.
The courts have almost uniformly granted relief to the plaintiff in circumstances similar to those before the court in the present case; e. g., Foster v. Ribicoff, 206 F. Supp. 99 (D.C.1962); Blankenship v. Ribicoff, 206 F. Supp. 165 (S.D. W.Va.1962); Kohrs v. Flemming, 272 F.2d 731 (8 Cir., 1959).
As there is not substantial evidence to support the Secretary's conclusion that there existed at the time in question substantial, gainful employment for which claimant was suited, the claimant is entitled to disability benefits. It is, therefore,
Ordered that the plaintiff's motion for summary judgment should be and is hereby granted. The motion of the Secretary for summary judgment is denied. The decision of the Secretary is reversed, and the case is remanded to the Secretary with directions that the plaintiff be granted a period of disability and disability insurance benefits to which she may be entitled in conformance with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1522959/ | 844 F. Supp. 808 (1994)
PHILLIPS COLLEGE, INC., Plaintiff,
v.
Richard W. RILEY, Secretary of the Department of Education, Defendant.
Civ. A. No. 93-1703 (CRR).
United States District Court, District of Columbia.
February 15, 1994.
*809 Jonathan B. Hill, Michael B. Goldstein, Blain B. Butner, and Sean D. Hughto, Dow, Lohnes & Albertson, Washington, DC, for plaintiff.
Michael T. Ambrosino, Asst. U.S. Atty., together with J. Ramsey Johnson, U.S. Atty., and John D. Bates, Asst. U.S. Atty. (Donald C. Phillips, Office of Gen. Counsel, Dept. of Educ., of counsel), for defendant.
CHARLES R. RICHEY, District Judge.
Before the Court are the parties' cross Motions for Summary Judgment in the above-captioned case. In its Complaint for Temporary, Preliminary and Permanent Injunctive and Declaratory Relief, plaintiff Phillips Colleges, Inc. ("PCI") alleges that defendant Richard W. Riley, Secretary of the Department of Education ("the Department"), violated Title IV of the Higher Education Act of 1965, as amended ("HEA"), 20 U.S.C. § 1070 et seq., and § 706(2) of the Administrative Procedure Act ("APA"). More specifically, the plaintiff challenges the Department's decision to collect approximately $2.2 million from the Bankers Trust Company by drawing on a standby Letter of Credit ("LOC") established by PCI in favor of the Department, on the grounds that this draw exceeds the Department's statutory authority and is arbitrary and capricious and otherwise not in accordance with the Department's regulations. The issue before the Court is whether the Department's draw on the LOC was proper.
After careful consideration of the papers filed by the parties, the oral arguments made by counsel at the motions hearing, the underlying law, and the entire record in this action, the Court shall grant the Defendant's Motion for Summary Judgment.
I. FACTS.
There is no dispute as to the material facts in this case. PCI owns and operates over 40 colleges throughout the country in 21 states. Thousands of students attend these colleges, which offer specialized programs in such areas as data processing, paralegal studies, secretarial training, and business administration. These colleges participate in student financial assistance programs ("SFA Programs") authorized under Title IV of the HEA.
During the week of March 18, 1991, the Department program review staff conducted a program review audit of PCI's corporate offices (the "1991 Program Review"). This review evaluated PCI's administration of the Pell Grant, Supplemental Educational Opportunity Grant, Perkins Loan, and Guaranteed Student Loan programs. Issued on September 25, 1991, the Department's Program Review Report stated that the Department found a high occurrence of late Stafford Loan and Pell Grant refunds for the colleges sampled, and concluded that PCI must "review the files of all students for whom a Title IV refund was required to be made who attended any of the Phillips Colleges during the 1987-88, 1988-89, 1989-90, and 1990-91 award years," submit certain specified information concerning these refund transactions, and have an independent CPA review and certify the pertinent information.
In March, 1992, PCI engaged the firm of Weworski & Associates, CPA ("Weworski") *810 to perform the review required by the Department in its September 25, 1991 Program Review Report. The Department, PCI, and Weworski negotiated and agreed upon procedures implemented by Weworski in evaluating the accuracy and completeness of the refund information. Specifically, these procedures consisted of examining a statistical sample of the refund transactions for the period in question.
In April, 1992, following a review of plaintiff's resources, the Department determined that PCI no longer met the financial responsibility requirements for the SFA programs specified in the Department's regulations. More specifically, as indicated in a later agreement, PCI agreed with the Department that "34 C.F.R. § 668.13, a regulatory provision implementing Title IV of the HEA, sets forth standards of financial responsibility that an institution must satisfy in order to begin and to continue to participate in the Title IV programs," and that "PCI and the Colleges did not demonstrate financial responsibility under 34 C.F.R. § 668.13(d) in the manner specified by the Department. ..." Subsequently, PCI began negotiations with the Department to continue its federal funding, culminating in their entering into a Financial Responsibility Agreement ("FRA") on July 24, 1992.
The FRA required that the Department of Education be provided a Letter of Credit ("LOC") in the amount of $5 million, and the original LOC was issued for the Department's benefit on June 18, 1992. Under the FRA, PCI agreed that "[t]he circumstances giving rise to the Department's right to draw on the letter of credit are set forth in the letter of credit and are not conditioned upon or subject to any term of this Agreement. ..." The LOC assures the Department payment where the Department presents the LOC, together with a statement by the Secretary or representative of the Secretary, certifying that:
(a) THE FUNDS AMOUNTING TO U.S. $____ DRAWN UNDER BANKERS TRUST COMPANY LETTER OF CREDIT NO. S-08574 ARE DRAWN DUE TO THE CLOSING OR OTHER FAILURE OF PHILLIPS COLLEGES, INC. (THE "INSTITUTION") TO PROVIDE SERVICES FOR WHICH ITS STUDENTS RECEIVING FINANCIAL ASSISTANCE UNDER TITLE IV OF THE HIGHER EDUCATION ACT OF 1965, AS AMENDED (HEA) HAVE CONTRACTED, OR FAILURE OF THE INSTITUTION TO COMPLY WITH THE REQUIREMENTS OF TITLE IV OF THE HEA; AND
(b) THE FUNDS RECEIVED IN PAYMENT OF THIS DRAWING WILL BE USED TO:
(1) PAY REFUNDS OF INSTITUTIONAL OR NON-INSTITUTIONAL CHARGES OWED TO OR ON BEHALF OF CURRENT OR FORMER STUDENTS OF THE INSTITUTION, WHETHER THE INSTITUTION REMAINS OPEN OR HAS CLOSED.
(2) PROVIDE FOR THE "TEACHOUT" OF STUDENTS ENROLLED AT THE TIME OF THE CLOSURE OF INSTITUTION.
(3) PAY ANY LIABILITIES OWING TO THE SECRETARY OF EDUCATION ARISING FROM ACTS OR OMISSIONS BY THE INSTITUTION, ON OR BEFORE THE EXPIRATION OF BANKERS TRUST COMPANY LETTER OF CREDIT NO. S-08574, IN VIOLATION OF HEA REQUIREMENTS, INCLUDING APPLICABLE REGULATIONS, OR FROM ANY VIOLATION OF ANY AGREEMENT ENTERED INTO BY THE INSTITUTION WITH THE SECRETARY REGARDING THE ADMINISTRATION OF PROGRAMS UNDER TITLE IV OF THE HEA.
The FRA does not limit the Department's right to draw on the LOC, with the exception that the FRA states that the Department must "afford PCI fifteen (15) days to make direct payment of any sums that the Department may otherwise draw upon the letter of credit." Significantly, the FRA also mandates that
PCI shall, within twenty (20) days of any draw by the Department upon said letter of credit, restore the value of the letter of credit to five million dollars ($5,000,000) or *811 such greater amount as PCI has been required to post and maintain.... Failure to post or to maintain said letter of credit shall constitute a material breach of this Agreement.
In addition, the FRA subjects PCI to certain oversight procedures, such as requiring PCI to retain an accounting firm to perform quarterly compliance reviews.
On January 29, 1993, Weworski issued a report ("Weworski Report") identifying $445,201 in total interest and special allowance liability, calculated on the entire refund population for the audited period, and stating that the sample summary encompassed $3,939,061 worth of refunds. Mr. Weworski explicitly stated that this latter figure represented refunds, and not liabilities.
Based on Weworski's report, the Department made a demand on plaintiff and a presentment to Bankers Trust for $4,384,262 on April 30, 1993, informing PCI that $3,939,061 of this draw would be "to cover unpaid, delinquent refunds due by PCI under the Title IV programs." PCI was given 15 days to make payment to the Department before the draw would go forward. At the conclusion of its April 30, 1993 letter informing PCI of its intent to make this draw, the Department stated that "[i]f you have any questions concerning this letter, please contact Carol Bengle in the Office of the General Counsel...." PCI then contacted the Department in an attempt to persuade the Department not to go ahead with the draw. As a result of negotiations between the two parties, they agreed that PCI would provide a supplemental report from Weworski ("Weworski Supplement") containing extrapolated liability figures from the findings Weworski made with regard to the statistical sample in the first report. Furthermore, PCI increased by ten percent (or $500,000) the funds secured by the LOC, pursuant to the Department's right to require such an increase under the FRA. On May 17, 1993, the Department agreed to rescind its threat of April 30, 1993, to draw on the letter of credit.
On June 18, 1993, PCI forwarded a copy of the Weworski Supplement to the Department. Extrapolating from a sample designed to be an estimate of liability and using a confidence level of 95%, the Weworski Supplement projected liabilities of $2,194,554.13.[1] On August 5, 1993, the Department made another demand on PCI. Stating its reliance on the Weworski Report and Supplement, the Department concluded that these studies identified liabilities of $2,194,554.13 and demanded payment from PCI in that amount. In the event PCI failed to make payment, the Department informed PCI that the Department would draw on the LOC. The LOC does not state any requirement that the Department render a final agency determination prior to the draw.
On August 25, 1993, the Department made presentment against the LOC by presenting (1) a draft in the amount of $2,194,554, and (2) the certified statement reading as required by the terms of the letter of credit. The following day, Bankers Trust Company paid the Department's draft by electronically transferring the funds to the Department's control. At the time of this presentment, the Department was confident that it had sufficient information available to it necessary to identify, student by student, lender by lender, and program by program, where every dollar of the $2,194,554 should be placed. Furthermore, the Department's draw on the LOC certified that PCI had failed to provide services for which its students have contracted and/or failed to comply with requirements of Title IV of HEA.[2] On September 15, 1993, the 20 day restoration period allowed *812 PCI under the FRA expired without PCI making restoration of the amount drawn.
On August 17, 1993, PCI filed a Complaint and Motion for Temporary Restraining Order and Preliminary Injunction. Judge Stanley Harris denied the Motion for Temporary Restraining Order on August 23, 1993. On August 30, 1993, this Court granted PCI's Motion for Consolidation of Hearing on the Preliminary Injunction with Trial on the Merits, pursuant to Rule 65.
II. STANDARD FOR SUMMARY JUDGMENT.
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Federal Rule of Civil Procedure 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87, 106 S. Ct. 1348, 1355-56, 89 L. Ed. 2d 538 (1986). "Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986) (quoting Fed.R.Civ.P. 1).
III. THE DEPARTMENT'S DRAW ON THE LOC MET THE LOC'S TERMS AND CONDITIONS.
The centerpiece of this litigation is the Letter of Credit, originally issued by the parties on June 18, 1992. As our Circuit has recently stated, a transaction involving this financial mechanism functions in the following way:
the buyer arranges for a bank whose credit the seller will accept to issue a letter of credit in which the bank agrees to pay drafts drawn on it by the seller if, but only if, such drafts are accompanied by specified documents, such as bills of lading or air freight receipts, representing title to the goods that are the subject matter of the transaction between buyer and seller. The bank undertakes this obligation for a specified period of time.
Confeccoes Texteis de Vouzela v. Riggs Nat'l Bank of Washington, D.C., 994 F.2d 851 (D.C.Cir.1993) (citations omitted). Therefore, "a credit transaction deals in documents and is wholly independent of the underlying transaction in goods." Id. (citations omitted). This independence principle revolves around the central function of a letter of credit certainty of payment. Centrifugal Casting Machine Co. v. American Bank & Trust, 966 F.2d 1348, 1352 (10th Cir.1992); see also Wood v. R.R. Donnelley & Sons Co., 888 F.2d 313, 318 (3rd Cir.1989) ("Pennsylvania considers this independence necessary to preserve the `basic policy of letter of credit law,' namely `to ensure prompt payment to sellers.'") (quoting Roman Ceramics Corp. v. Peoples Nat'l Bank, 714 F.2d 1207, 1212 (3rd Cir.1983)).
In the strict sense that its presentment was facially valid with respect to the terms stated on the LOC, it is clear and undisputed that the Department's draw on the LOC was proper. The terms set forth in the LOC are clear and unambiguous, in that the Department must certify: (1) the amount being drawn; (2) that PCI failed to provide services for which its students have contracted and/or failed to comply with requirements of Title IV of HEA; and (3) that the funds will be used for some or all of the purposes set forth in the LOC.
Both parties agree that the Department's draw on the LOC with Bankers Trust specified the amount being drawn as $2,194,554. Although PCI argues that the Department failed to make a showing that such a specific amount was due and owing, the Court notes that the LOC contained no condition requiring the Department to do so. Further, both agree that the Department certified to Bankers Trust that PCI had failed to provide services for which its students have contracted and/or failed to comply with Title IV of HEA, and that the funds will go towards refunds and to reimburse the Department for overpayments regarding interest and special payments.
PCI does strenuously object to the Department's characterization of these certifications as "proper," in that PCI argues (repeatedly) that the Department has not made a final *813 administrative determination regarding a program review to support its statements. PCI also disputes the amount of the liability figure, on the grounds that the Supplemental Weworski Report does not provide a sufficient or accurate determination of its liability. However, PCI does not deny its failure to comply with the requirements of Title IV. Moreover, nothing in the LOC mandates that the Department render a final agency decision in determining the extent of violations committed.
The Plaintiff is correct in pointing out that neither the independence principle nor any other law of credit can provide an absolute shield to the Government in this action. The Court's inquiry must go beyond the question of whether the Department followed the LOC's formalities in making its presentment, and address the more substantive questions of whether its decision to make the draw violated the APA.
IV. BECAUSE THE LOC'S UNDERLYING CONTRACT IS THE FRA AND NOT THE DEPARTMENT'S REGULATIONS, AND BECAUSE PCI FAILED TO PERFORM ON THE UNDERLYING CONTRACT, THE DEPARTMENT'S DRAW ON THE LOC WAS PROPER.
It is a well-established principle that a letter of credit arrangement has three relationships. E.g., Wood v. R.R. Donnelley & Sons Co., 888 F.2d 313, 317 (3rd Cir.1989); see Aetna Life & Casualty Co. v. Huntington Nat'l Bank, 934 F.2d 695, 699 (6th Cir.1991). The first is the underlying contract, the "true" bargain between the customer (PCI) and the beneficiary (the Department). The second relationship is between the customer and the issuer. The third is the letter of credit itself, which is the issuer's contract to pay the beneficiary upon the submission of certain documents.
PCI argues that the contract underlying the LOC is the Higher Education Act, and that a letter of credit is merely a payment mechanism guaranteeing the beneficiary the right to immediate collection of money once a liability has become due and owing. See Norfolk & Western Ry. v. American Train Dispatchers Ass'n, 499 U.S. 117, 129, 111 S. Ct. 1156, 1164, 113 L. Ed. 2d 95 (1991) ("Laws which subsist at the time and place of the making of a contract, and where it is to be performed, enter into and form a part of it, as fully as if they had been expressly referred to or incorporated in its terms."). The Plaintiff criticizes the Defendant for adopting a position in which the Government can draw at will from a letter of credit under a theory of "pay now, argue later." See Defendant's Motion for Summary Judgment at 9-10 (citing Eakin v. Continental Ill. Nat'l Bank and Trust Co. of Chicago, 875 F.2d 114, 116 (7th Cir.1989)). According to the Plaintiff's claim, the statutory and procedural framework established by Title IV and its implementing regulations are the "underlying contract" behind the LOC, and the Department's failure to obey these rules and regulations and issue a final determination means that PCI did not fail to perform its obligations. In an attempt to show capriciousness in the Defendant's position, PCI argues that if the Department were to follow the logical extension of its approach that the 1991 Program Review is some sort of ongoing dispute process, it would enable the Government to make a draw at a mere hint of a liability and hold the money until the Program Review's completion.
In putting forth these contentions, the Plaintiff misreads the context of the LOC. As the FRA states, PCI "shall maintain in effect an irrevocable letter of credit in favor of the Secretary." FRA at 3. Because the LOC is a product of that Agreement, the Court concurs with the Defendant that it is the FRA itself that is the "underlying contract." Furthermore, merely because the LOC refers to certain HEA requirements as certification benchmarks to trigger payment, the entire set of regulations promulgated pursuant to HEA are not incorporated into the LOC.
Most importantly, the FRA does not mandate exhaustion of the program review process as a predicate to the Department's ability to draw on the LOC. The underlying contract explicitly defines the boundaries for the LOC's interpretation:
*814 The circumstances giving rise to the Department's right to draw on the letter of credit are set forth in the letter of credit and are not conditioned upon or subject to any term of this Agreement, except for the conditions requiring that the Department afford PCI an opportunity to make a direct payment.
FRA at 4 (emphasis added). PCI could have negotiated different terms and conditions, or they could have not signed the FRA and LOC, in which case the administrative process would continue; evidently, it chose to do neither. Therefore, the terms of the LOC controls the Department's right to draw on the LOC.
V. BECAUSE THE FACTS CERTIFIED IN THE DEPARTMENT'S DRAW ARE TRUE, CONTRARY TO PCI'S ACCUSATIONS, THE DRAW SHOULD NOT BE REVERSED AS ARBITRARY, CAPRICIOUS, WRONGFUL, OR UNLAWFUL.[3]
The Plaintiff directly challenges the certification statements made by the Department to Bankers Trust Co. as being outright false. According to the Plaintiff, the Department's reliance on the Weworski Supplement as its basis for its demand and threatened draw raises concerns of incompetence and illegality on the Department's part. PCI asserts that the Government mistakenly thought that Weworski was the accountant retained by PCI under the FRA, relating to prospective or current refunds made after the FRA was signed, when in fact Weworski's analysis concerned past refunds relating to the Department's 1991 program review. Therefore, according to the Plaintiff, the Department's certification is based on a mistake of fact and is therefore false, and the draw should be returned.
As stated previously, because the unambiguous terms of the LOC do not hinge on any sort of final agency determination, the facts certified by the Department in its presentment were true. As the Government indicates, the language of the LOC does not support the Plaintiff's argument. The LOC does not restrict the methodology under which the Department may determine PCI's non-compliance with Title IV. The Department followed the terms of the LOC in relying on the Supplemental Weworski Report, which found that PCI had failed to pay refunds to lenders and had led the Department to overpay interest and special allowances totalling $2,194,554.13. Although Plaintiff observes that this report found overpayments of student refunds, and argues that these overpayments should be offset against underpayments, the Department nevertheless acted properly in certifying that PCI had failed to comply with HEA. Any miscalculation regarding an offset of liabilities does not change the underlying fact that PCI did not comply with Title IV.
PCI also takes issue with the Defendant's statement that "[a]t the time the Department made presentment on the LOC, the Department was confident that it had available to it sufficient information available to it necessary to identify, student by student, lender by lender, and program by program, where every dollar of the $2,194,554 should be placed." Opposition to Plaintiff's Motion for Preliminary Injunction at 18-19. According to PCI, such a "statement is misleading at best, if not dishonest," because Weworski merely extrapolated his findings, and the Department ignored Weworski's offset. Plaintiff's Motion for Summary Judgment at 32-33. However, PCI then acknowledges that the Department has available to it the information necessary to identify the refunds due by student, lender, and program, but complains that the Department has not yet done so, "and in PCI's view, is not likely to undertake the massive and costly task." Id. at 33. As the Government observes, what is important *815 here is not PCI's speculation regarding what the Department may do, but that the LOC only requires that the Department certify that the funds will be used for some or all of the purposes set forth in the LOC.
VI. BECAUSE THE DEPARTMENT ACTED IN A MANNER CONSISTENT WITH THE TERMS OF THE LOC, IT COMPLIED WITH SECTION 5-111 OF THE UNIFORM COMMERCIAL CODE.
According to Section 5-111(1) of the Uniform Commercial Code, entitled "Warranties on Transfer and Presentment," the "beneficiary by ... presenting a documentary draft or demand for payment warrants to all interested parties that the necessary conditions of the credit have been complied with." U.C.C. § 5-111(1) (emphasis added). Arguing that the Department's false certifications breach the presentment warranty of § 5-111(1), PCI relies heavily on Mellon Bank, N.A. v. General Elec. Credit Corp., 724 F. Supp. 360 (W.D.Pa.1989). Mellon held that, because only $15,000 was actually owed at the time of the draw in that case, a beneficiary's "assertion that $600,000 was due and owing was erroneous, and constitutes a breach of warranty under § 5-111." Id. at 364. PCI parallels Mellon to the case at hand, on the theory that the Department's draw was based on a "premature assertion of amounts due and owing," and that "[t]he Department knew at the time of its certification that it had not yet identified the individual refund payments to be made and that the draw amount, therefore, reflected nothing more than the estimate of a third-party as to the ultimate liability." Defendant's Opposition, at 27, 30.
The Court does not agree. Unlike the LOC signed by the parties in this case, the letter of credit in Mellon contained a "due and owing" clause as a requirement. Therefore, no final determination as to a precise amount of monies "due and owing" is necessary here. In addition, as stated supra, any "knowledge" that the Department may have had in terms of its lack of identification of individual payees is not relevant under the LOC, as the LOC requires only that the Department certify the purposes for which the funds will be used.
VII. THE DEPARTMENT'S DRAW ON THE LOC DID NOT ABRIDGE PCI'S RIGHTS UNDER THE APA OR DUE PROCESS CLAUSE.
One of PCI's principal arguments is that the Department violated the statutory and regulatory procedures required by the HEA regarding the program review of an institution. Under 20 U.S.C. § 1094(b), the Department must issue a "final program review determination" as the culmination of a program review, and the institution is entitled to appeal that determination administratively. The regulations implementing this statute sets out the procedure for such a review, in which an administrative law judge explains whether the final program review determination was supportable. 34 C.F.R. § 668 ("Subpart H"). Therefore, PCI reasons, the Department has violated the controlling statute and regulations by failing to issue a final program review determination in connection with the 1991 Program Review, and failing to allow PCI its administrative appeal. Accordingly, PCI asserts that the draw was premature and violated its statutory, regulatory, and due process rights.[4]Motor Vehicle Mfrs. Ass'n of the United States v. Ruckelshaus, 719 F.2d 1159, 1164 (D.C.Cir. 1983) ("Agency action is arbitrary and capricious if the agency has failed to meet statutory, procedural, or constitutional requirements") (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 414, 91 S. Ct. 814, 822, 28 L. Ed. 2d 136 (1971)).
The Court concludes that the Department's actions have not violated any of the Plaintiff's rights. As the Court stated at length previously, the LOC did not require exhaustion of administrative action before the Department could make a draw. The Court also distinguishes cases such as Esch v. Yeutter, 876 F.2d 976 (D.C.Cir.1989), which *816 the Plaintiff cites to demonstrate a situation where a court found an agency action to be contrary to its procedural regulations, because Esch did not involve a letter of credit or other financial mechanism in which a party negotiated a payment based on a similar document.
The Court also finds it significant that PCI still possesses its rights to challenge the amount of the draw through the program review framework. The Supplemental Weworski Report led the Department to make the draw on the LOC, but PCI will receive a full administrative hearing to determine the precise amount of its liability to the Department under the program review. Because PCI may attempt to show that the liabilities charged are excessive in the manner specified by statute, and the Department may respond in kind, PCI's due process rights have not been abridged.[5]
Declaring the draw to be contrary to law would also be contrary to the broader principles of the right to contract and fairness to the parties in this case. The purpose of a letter of credit is not to deny a subsequent challenge to the legitimacy of a beneficiary's claim, but to make sure that "contractual disputes wend their way towards resolution with money in the beneficiary's pocket rather than in pocket of the contacting party." Itek Corp. v. First Nat'l Bank of Boston, 730 F.2d 19, 24 (1st Cir.1984). The LOC was negotiated at arm's length, and PCI is a sophisticated consumer of federal educational funding. Because PCI knew that the process of its program review was already underway, allowing PCI to have a full agency determination before the Department can draw on the LOC would give PCI an additional bite of the apple. In drawing on the LOC and permitting the regulatory process to determine the precise amount of liability, the Department's actions are clearly consistent with the underlying concept of "pay now, argue later" that governs this area of law.
VIII. CONCLUSION.
The letter of credit that is the focus of this litigation clearly and unambiguously sets forth three requirements for certification. The Court finds that in its presentment of August 25, 1993, the Department properly complied with these conditions. Furthermore, in light of the fact that PCI has sufficient administrative paths of review to challenge the accuracy of the draw of $2.2 million, the Court concludes that the Department's actions did not violate the APA or the Constitution. Therefore, the Court shall enter summary judgment for the Defendant.
The Court shall enter an Order of even date herewith in accordance with this Opinion.
ORDER
Before the Court are the parties' cross Motions for Summary Judgment in the above-captioned case. After careful consideration of the parties' Motions, all the papers filed in this case, and the applicable law, and for the reasons articulated in the Opinion of the Court of even date herewith, it is, by the Court, this 15th day of February, 1994,
ORDERED that the Defendant's Motion for Summary Judgment shall be, and hereby is, GRANTED; and it is
FURTHER ORDERED that the Plaintiff's Motion for Summary Judgment shall be and hereby is DENIED; and it is
FURTHER ORDERED that the above-captioned case shall be, and hereby is, DISMISSED from the dockets of this Court.
NOTES
[1] In its objections to the Defendant's Statement of Material Facts as to Which There is No Genuine Issue, PCI notes that this figure was not adjusted by amounts identified in the Weworski Supplement as "over refunds and duplicate refunds," which are presented in a table entitled "Computation of Effect of Over Refunds and Duplicate Refunds on Refund Project Findings" in that Supplement. As the preamble to the latter table states, "This information [concerning the effects of over refunds and duplicate refunds] has been provided to enable the U.S. Department of Education to evaluate the overall effect of over refunds and duplicate refunds and determine if an offset against liability assessments would be appropriate."
[2] The parties dispute whether this certification was proper.
[3] At oral argument and the footnotes of its papers, the Plaintiff also accuses the Department of fraud in drawing on the LOC. See, e.g., Plaintiff's Opposition, at 24 n. 11. Under this theory of common-law fraud, the Plaintiff would have to show, inter alia, that "the contract deprives the beneficiary of even a `colorable' right to [call a letter of credit ..." and that "that the beneficiary's demand for payment has `absolutely no basis in fact,' ..." Ground Air Transfer v. Westates Airlines, Inc., 899 F.2d 1269, 1273 (1st Cir.1990) (citations omitted). Because the Plaintiff cannot even show that the Department's certifications were false, much less not "colorable," it falls far short of demonstrating fraudulent behavior by the Department.
[4] Section 706(2)(B) of the APA authorizes courts to make an independent assessment of constitutional issues.
[5] In April, 1992, after the Department's determination that Phillips did not satisfy the financial responsibility standards to participate in Title IV programs, Phillips chose not to pursue its right to a hearing under 20 U.S.C. § 1094 and Subpart H. Soon after, it entered into the FRA, which clearly stated that "PCI and Colleges did not demonstrate financial responsibility under 34 C.F.R. § 668.13(d) in the manner specified by the Department." The LOC permitted the Government to access the money for which it believed PCI was liable, and to adjudicate the precise amount of the program review through the regulatory process. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1523185/ | 162 B.R. 466 (1994)
James H. HARRIS, Appellant,
v.
UNITED STATES FIRE INSURANCE COMPANY and Urban Service Systems, Inc., Appellees.
Civ. A. No. 93-1278.
United States District Court, E.D. Virginia, Alexandria Division.
January 11, 1994.
*467 John K. Lally, Springfield, VA, for appellees.
Bruce A. Levine, Fairfax, VA, for appellant.
MEMORANDUM OPINION
CACHERIS, Chief Judge.
At issue in the instant action is whether the Bankruptcy Court has jurisdiction to render a money judgment in a dischargeability action, pursuant to 11 U.S.C. § 523. For the reasons set forth below, the Court answers the question in the affirmative.
I
The Bankruptcy Court granted summary judgment to the plaintiffs/appellees, United States Fire Insurance Company ("USFIC") and Urban Services System, Inc. ("USS") on their complaint to determine dischargeability of debt pursuant to 11 U.S.C. § 523(a)(4) and (a)(6). See United States Fire Insurance Company and Urban Services System, Inc. v. Harris (In re Harris), No. 88-00888-AT, APN 89-0623-AT (September 10, 1990) (unpublished opinion). The Bankruptcy Court's ruling was affirmed on appeal. See United States Fire Insurance Company and Urban Service Systems, Inc. v. Harris (In re Harris), No. 91-2081, 1992 WL 6803 (4th Cir. 1992) (unpublished opinion).
Thereafter, on May 19, 1993, the Bankruptcy Court, Judge Tice presiding, conducted a hearing on damages over the objection of defendant/appellant and entered an Order and Memorandum Opinion stating that $11,620.47 was not discharged pursuant to its previous summary judgment ruling. See United States Fire Insurance Company and Urban Service Systems, Inc. v. Harris (In re Harris), 155 B.R. 135 (Bkrtcy.E.D.Va.1993).
This amount reflected damage to a 1985 Mack truck that had been stolen from USS. Harris received the stolen vehicle, altered it, and conveyed it to his own use. As a result, Harris was indicted in the Circuit Court of Fairfax County for the felony of receiving stolen property and later plead guilty to the offense.
The Bankruptcy Court summarized the damage to the truck and repair costs as follows:
Damage Cost to repair
(1) Front assembly $7,000
(2) Rear hoist $11,740
(3) Repainting $940
Of the more than $18,000 in damages, Harris was held responsible only for the damage to the rear hoist, minus a $1,060 credit, and for restoring the truck to its original color. Thus, the damages excepted from discharge totaled $11,620.47, and the Bankruptcy Court entered a money judgment in that amount in favor of USFIC and USS.
The defendant/appellant, James H. Harris ("Harris"), contends on appeal that the Bankruptcy Court lacked jurisdiction to enter the money judgment as to the amount that was not discharged by the bankruptcy.
II
A bankruptcy court's conclusions of law are subject to de novo review by this Court. In re Sublett, 895 F.2d 1381 (11th Cir.1990); Matter of Bonnett, 895 F.2d 1155 (7th Cir. 1990). Findings of fact, however, are reviewable *468 under a clearly erroneous standard. In re Morris Communications NC, Inc., 914 F.2d 458, 467 (4th Cir.1990).
III
In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982), a plurality of the Supreme Court struck down former 28 U.S.C. § 1471, holding that its sweeping grant of jurisdiction to bankruptcy courts to hear any proceedings connected with bankruptcy petitions was an unconstitutional delegation of Article III powers to non-Article III courts. This ruling resulted in the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 340 (1984)[1], that sought to correct this constitutional infirmity.
Pursuant to 11 U.S.C. § 523(c), the bankruptcy court has exclusive equitable jurisdiction to determine the dischargeability of debts under 11 U.S.C. § 523(a)(2), (4) and (6). See 3 Lawrence P. King, Collier on Bankruptcy ¶ 523.13[9] (15th ed. 1993). Furthermore, 28 U.S.C. § 157(b)(1) grants bankruptcy judges the power to "hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, . . . and [to] enter appropriate orders and judgments. . . ." (emphasis added). One such core proceeding is "determinations as to the dischargeability of particular debts." 28 U.S.C. § 157(b)(2)(I). Accordingly, in the instant action, the Bankruptcy Court was authorized to enter an appropriate order and judgment.
Harris, while not disputing the above law, argues that this power does not extend as far as the granting of money judgments, but only allows the bankruptcy court to make findings of facts and recommendations regarding the amount of damages. The ultimate decision as to the amount of damages, Harris argues, is vested in the appropriate district court or state court.[2] Having considered Harris's arguments and the likely results of such an application, the Court finds the arguments unpersuasive and contrary to the interests of judicial economy.
It is a well-known maxim that once equitable jurisdiction has been properly invoked it will proceed to render a full and complete disposition of the controversy. Porter v. Warner Holding Co., 328 U.S. 395, 399, 66 S. Ct. 1086, 1089, 90 L. Ed. 1332 (1946); Alexander v. Hillman, 296 U.S. 222, 242, 56 S. Ct. 204, 211, 80 L. Ed. 192 (1935); Snyder v. Devitt (In re Devitt), 126 B.R. 212, 215 (Bankr.D.Md.1991). Such a result prevents duplication of effort, multiplicity of suits, wasted resources, and judicial economy. Allowing bankruptcy courts to rule not only on the issue of dischargeability but to also award money judgments on the damages it determines to be nondischargeable is in complete accord with this long standing maxim.
If it is acknowledged as beyond question that a complaint to determine dischargeability 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. . . . 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 the dischargeability function from the function of fixing the amount of the nondischargeable debt.
In re Devitt, 126 B.R. at 215.
The Court recognizes that this is a novel legal issue upon which there is some split in authority. However, the majority of the courts that have addressed the issue have concluded that bankruptcy courts may render money judgments in dischargeability cases. See N.I.S. Corporation and Ozark *469 Life Insurance Company v. Hallahan (Matter of Hallahan), 936 F.2d 1496, 1508 (7th Cir.1991); In re Devitt, 126 B.R. at 215; Siemens Components, Inc. v. Choi (In re Choi), 135 B.R. 649, 650-51 (Bankr.N.D.Cal. 1991); Kinney v. Higher Education Assistance Foundation (Matter of Kinney), 114 B.R. 670, 671 (Bankr.D.Neb.1990), In re Schmid, 54 B.R. 520, 522-23 (Bankr.E.D.Pa. 1985); but see In re Hooper, 112 B.R. 1009 (9th Cir.B.A.P.1990); In re Scialdone, Civ. No. 88-189-N (E.D.Va. June 9, 1988) (unpublished opinion).[3] Allowing the bankruptcy court to take this next logical step does not empower it with the type of sweeping powers that the Supreme Court has ruled should be reserved to Article III courts. See Northern Pipeline Construction Company v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982). It merely allows for the most efficient and economical resolution of the issue. Moreover, the bankruptcy court's ruling in such matters will continue to be subject to review by the district court.
Accordingly, the Court finds that the Bankruptcy Court does have jurisdiction to enter a money judgment in a dischargeability proceeding. Furthermore, the Court finds no evidence that the Bankruptcy Court's determination of the proper amount was clearly erroneous. Therefore, the ruling of the Bankruptcy Court is AFFIRMED.
An appropriate Order shall issue.
NOTES
[1] Codified at 28 U.S.C. § 151 et seq.
[2] Harris primarily relies upon Scaldione v. United Virginia Bank (In re Scaldione), Civ. No. 88-189-N (E.D.Va. June 9, 1988), an unpublished opinion which is not binding upon this Court.
[3] The United States Court of Appeals for the Fourth Circuit has yet to address the issue presented in the instant case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1523187/ | 844 F. Supp. 300 (1994)
FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff,
v.
Robert L. HARRINGTON, Jr., et al., Defendants.
Civ. A. No. 3:93-CV-0213-H.
United States District Court, N.D. Texas, Dallas Division.
January 18, 1994.
*301 James P. Laurence, U.S. Atty., U.S. Attorney's Office, Dept. of Justice, Dallas, TX, Michael F. Hertz, U.S. Dept. of Justice, Civ. Div., Washington, DC, Kenneth Tucker, FDIC, Legal Div., Dallas, TX, Polly A. Dammann, Patricia L. Hanower, U.S. Dept. of Justice, Civ. Div., Washington, DC, for F.D.I.C.
Robert M. Cohan, Cohan Simpson Cowlishaw Aranza & Wulff, Dallas, TX, for Robert L. Harrington, Jr., Charles E. Howard, Norman McMurray, Fred R. Orr, Stephen L. Goodman, Ted Luce, David T. Roberts, Frederick Burr Cordray, Jerry R. Long, Frank L. Williams, Jr., Thomas B. Shultz, Harold E. Mahanay, Robert W. Pope, John (Bobby) Ray.
Eric Arthur Liepins, James P. Moon, Simpson Dowd & Moon, Dallas, TX, for Jimmy B. Eubank.
George Webb, pro se.
Scott Edward Kurth, Law Office of Scott E. Kurth, DeSoto, TX, for Al W. Strzinek.
Stephen J. Segal, Law Office of S.J. Segal, Dallas, TX, for Willis C. Dearing.
Edward P. Perrin, Jr., Crouch & Hallett, Dallas, TX, for Donald D. Dismore.
E.W. Switzer, pro se.
Ted Luce, pro se.
James W. Mullen, pro se.
Eugene F. Weimer, pro se.
Maureen Powers, Atty. Gen. of Texas, Finance Div., Austin, TX, for State of Tex. Atty. Gen.
Mark Xavier Mullin, Haynes & Boone, Dallas, TX, for Peggy Hunsucker.
MEMORANDUM OPINION AND ORDER
SANDERS, Chief Judge.
Before the Court is Defendants Harrington, Howard, McMurry, Orr, Goodman, Roberts, Cordray, Long, Williams, Shultz, Mahanay, Pope, and Ray's ("Thirteen Defendants") Motion to Dismiss, filed July 12, *302 1993; Defendant Strzinek's Motion to Dismiss, filed July 12, 1993; Defendant Hunsucker's Motion to Dismiss, filed July 12, 1993; Defendant Dismore's Motion to Dismiss, filed July 12, 1993; Defendant Mullen's Motion to Dismiss, filed July 14, 1993; Plaintiff FDIC's Response, filed September 8, 1993; Thirteen Defendants' Reply, filed October 20, 1993; Defendant Dismore's Reply, filed October 20, 1993; Defendant Hunsucker's Reply, filed October 21, 1993; Defendant Switzer's Motion to Dismiss, filed October 8, 1993; Plaintiff's Response, filed November 1, 1993; and Dan Morales, Attorney General for the State of Texas' Motion to Intervene, filed January 3, 1994.
I. BACKGROUND
Defendants are among the former officers and directors of United City Corporation ("UCC"), a bank holding company, and/or its five subsidiary banks: City National Bank of Plano; United National Bank of Plano; First National Bank of DeSoto; City National Bank of Irving; and First State Bank of McKinney. Defendants Cordray, Luce, Roberts, Muller, and Weimer were officers, as well as directors, of UCC and/or its subsidiary banks. The remaining Defendants were directors of UCC and/or its subsidiary banks. All of the five subsidiary banks, which were insured by the FDIC, had failed by September 1990. The FDIC was appointed as receiver for each of the failed banks. Plaintiff brings the present suit to recover for damages sustained by the subsidiary banks due to Defendants' alleged negligence, gross negligence, negligence per se, and breach of fiduciary duties.
II. ANALYSIS
A. Standard for Dismissal under Rule 12(b)(6)
When considering a motion to dismiss a complaint for failure to state a claim, the Court must accept all well-pleaded facts as true. Associated Builders, Inc. v. Alabama Power Co., 505 F.2d 97, 100 (5th Cir. 1974). On the other hand, conclusory allegations and unwarranted deductions of fact are not admitted as true. See id. The Court may not look beyond the pleadings. See Mahone v. Addicks Util. Dist., 836 F.2d 921, 936 (5th Cir.1988). A Plaintiff's 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, 102, 2 L. Ed. 2d 80 (1957). See also Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974) ("The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.").
Dismissal for failure to state a claim is not favored by the law. Mahone, 836 F.2d at 926. However, "there are times when a court should exercise its power to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure." Id. at 927 (emphasis in original). See In re Plywood Antitrust Litig., 655 F.2d 627, 641 (5th Cir.1981) ("Despite the liberality of modern rules of pleading, a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory."), cert. dism'd, 462 U.S. 1125, 103 S. Ct. 3100, 77 L. Ed. 2d 1358 (1983); Orange Nat'l Bank v. Bank of La., 382 F.2d 945, 949 (5th Cir.1967) ("[S]terile allegations [do not] suffice to save [a complaint] from a motion to dismiss."); Delgado v. Federal Bureau of Prisons, 727 F. Supp. 24, 27 (D.D.C.1989) ("[E]ven a pro se complaint must outline all of the elements of the claim.").
With these general principles in mind, the Court turns to the motions to dismiss filed by Defendants in the present case. Because the separate motions filed by Defendants offer essentially the same arguments, the Court will consider them together.[1]
B. Defendants' Motions to Dismiss
1. Introduction
Defendants argue that Plaintiff's claims of negligence, negligence per se, and breach of fiduciary duty, as asserted in Counts I, III, *303 and IV of Plaintiff's Complaint, must be dismissed because no cause of action exists under Texas law against officers and directors of financial institutions for acts of simple negligence.[2] Some Defendants also contend that no cause of action exists for gross negligence under Texas law against officers and directors; they seek dismissal of Plaintiff's Count II as well. All Defendants agree that, if Texas law imposes any liability on officers and directors for breaching the duty of care, Texas law applies a gross negligence standard of liability. Defendants further argue that the Texas legislature recently codified the common law gross negligence standard in House Bill 1076. Tex.Rev.Civ.Stat.Ann. art. 342-410 (West Supp.1994) ("House Bill 1076"). Finally, Defendants argue that Plaintiff's Complaint should be dismissed because it is devoid of factual allegations that give rise to liability for gross negligence.
In response to Defendants' motions, Plaintiff first argues that federal common law, rather than state law, supplies the relevant standard of liability. Plaintiff's argument necessarily assumes that federal common law regarding the liability of officers and directors was not preempted by the Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). Alternatively, if Texas law applies, Plaintiff argues that Texas common law holds officers and directors liable for acts of simple negligence. Plaintiff further argues that House Bill 1076 is inapplicable to the present case, and that it is unenforceable because it violates the United States and Texas Constitutions. In reply, Defendants argue that FIRREA preempts federal common law, but not state law, claims against officers and directors. The Court will address each of these arguments in turn.
2. FIRREA Preemption of Federal Common Law
In 1989, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA").[3] Section 1821(k) of FIRREA creates a federal liability standard for officers and directors of federally insured depository institutions. 12 U.S.C. § 1821(k) (1989 & Supp.1993); FDIC v. Barham, 794 F. Supp. 187, 191 (W.D.La.1991), aff'd on other grounds, 995 F.2d 600 (5th Cir.1993). By its express terms, the statute requires a showing of gross negligence or greater violations of the duty of care. 12 U.S.C. § 1821(k). However, the final clause of the provision has caused confusion about whether officers and directors may be held liable under other state and federal laws for conduct less culpable than gross negligence. The clause reads, "Nothing in this paragraph shall impair or affect any right of the [FDIC] under other applicable law." Id. As Defendants note, "[C]ourts have engaged in a spirited three-way debate as to whether Section 1821(k) displaces both state and federal common law, displaces federal common law but not state law, or displaces neither state nor federal common law." Thirteen Defendants' Reply Brief, at 2. The Court first addresses Plaintiff's argument that Section 1821(k)'s *304 final clause was intended to preserve a federal common law cause of action for simple negligence against officers and directors of failed banks. FDIC's Response, at 5.
Although the Fifth Circuit has yet to rule on this issue, other district courts within the circuit have held that the federal common law regarding officer and director liability does not survive FIRREA. See RTC v. Miramon, 1993 WL 35131 1993 LEXIS 1624 (E.D.La.1993); FDIC v. Brown, 812 F. Supp. 722 (S.D.Tex.1992); RTC v. Holmes, 1992 U.S.Dist. LEXIS 18962 (S.D.Tex.1992); Barham, 794 F. Supp. 187; FDIC v. Mijalis, 1991 WL 501602 (W.D.La.1991). To date, the Seventh Circuit is the only circuit that has ruled on the issue. It held:
Based on the plain language of 1821(k), its legislative history and the Supreme Court's decision in [Milwaukee v. Illinois, 451 U.S. 304, 101 S. Ct. 1784, 68 L. Ed. 2d 114 (1981)] Milwaukee II, we find that Congress intended to pre-empt federal common law and establish a gross negligence standard of liability for officers and directors of failed federally chartered financial institutions.
RTC v. Gallagher, 10 F.3d 416, 424 (7th Cir.1993). For the reasons stated below, the Court is persuaded by the reasoning of the Seventh Circuit and district court cases cited above, and holds that no federal common law cause of action exists for the simple negligence of officers and directors.
The plain language of the statute guides the Court's interpretation. Gallagher, 10 F.3d at 420 ("The plain language of Section 1821(k) `speaks directly' to the issue presented in this case and establishes a gross negligence standard of liability for officers and directors of failed financial institutions."). In Section 1821(k), Congress created a federal statutory standard of gross negligence, and this standard supersedes any previous federal common law standard. One court notes:
Prior to the enactment of [Section 1821(k)], Congress had not legislated on the scope of claims brought by the FDIC against directors and officers of failed savings and loan associations. In doing so, Congress `spoke directly to the question' of the level of negligence required to sustain such a cause of action.
FDIC v. Gonzalez-Gorrondona, 833 F. Supp. 1545, 1553 (S.D.Fla.1993). See also Barham, 794 F.Supp. at 191 (citing Wayne v. Tennessee Valley Authority, 730 F.2d 392 (5th Cir. 1984), cert. denied, 469 U.S. 1159, 105 S. Ct. 908, 83 L. Ed. 2d 922 (1985)) ("When Congress has legislated on the subject, the legislation and not federal common law, will be deferred to."). In addition, the legislative history of the statute "does not demonstrate the kind of `clearly expressed legislative intention' necessary to trump the plain meaning of the statute." Gallagher, 10 F.3d at 423. See also Gonzalez-Gorrondona, 833 F.Supp. at 1552 n. 3.
Plaintiff cites six post-FIRREA cases for the proposition that a federal common law cause of action for simple negligence survives FIRREA.[4] Upon close review, however, the Court finds that none of the cases specifically held that post-FIRREA federal common law authorizes a suit for simple negligence. FDIC v. McSweeney, 976 F.2d 532 (9th Cir. 1992) (holding that Section 1821(k) allows suits for simple negligence where authorized by state law), cert. denied, ___ U.S. ___, 113 S. Ct. 2440, 124 L. Ed. 2d 658 (1993); FDIC v. Canfield, 967 F.2d 443 (10th Cir.) (holding that Section 1821(k) did not preempt state law actions for simple negligence), cert. dismissed, ___ U.S. ___, 113 S. Ct. 516, 121 L. Ed. 2d 527 (1992); Gaff v. FDIC, 919 F.2d 384 (6th Cir.1990) (stating in dicta that Section 1821(k) expresses an intent to nationalize the law of directors' and officers' liability), modified, 933 F.2d 400 (6th Cir.1991); RTC v. Hess, 820 F. Supp. 1359 (D.Utah 1993) (holding that Section 1821(k) does not preempt state or federal common law actions, but reserving the issue of the relevant federal common law standard of care); FDIC v. Nihiser, 799 F. Supp. 904 (C.D.Ill.1992) (holding that Section 1821(k) does not preempt state or federal common law actions, but failing to decide the applicable standard of care); FDIC v. Black, 777 F. Supp. 919 *305 (W.D.Okla.1991) (holding that Section 1821(k) does not preempt state law claims based on simple negligence). On the other hand, numerous courts have held that Section 1821(k) precludes federal common law claims against officers and directors for conduct less culpable than gross negligence. See, e.g., Miramon, 1993 WL 35131, 1993 U.S. Dist. LEXIS 1624; Brown, 812 F. Supp. 722; Holmes, 1992 WL 533256, 1992 U.S.Dist. LEXIS 18962; Mijalis, 1991 WL 501602; Barham, 794 F. Supp. 187. See also FDIC v. Bates, 838 F. Supp. 1216 (N.D.Ohio 1993); Gonzalez-Gorrondona, 833 F. Supp. 1545; RTC v. Farmer, 823 F. Supp. 302 (E.D.Pa.1993); FDIC v. Mintz, 816 F. Supp. 1541 (S.D.Fla. 1993); FDIC v. Miller, 781 F. Supp. 1271 (N.D.Ill.1991).
Relying on the statute's plain meaning, and on well-reasoned opinions from other district courts and the Seventh Circuit, the Court holds that FIRREA does not preserve a federal common law cause of action against officers and directors for conduct less culpable than gross negligence.
3. FIRREA Preemption of State Law
Plaintiff argues that if no federal common law cause of action for simple negligence is available, Defendants may be held liable under Texas common law for acts of simple negligence.[5] FDIC's Response, at 11. Plaintiff relies principally on two Fifth Circuit cases for the proposition that Texas law imposes liability for simple negligence, Meyers v. Moody, 693 F.2d 1196 (5th Cir.1982), cert. denied, 464 U.S. 920, 104 S. Ct. 287, 78 L. Ed. 2d 264 (1983), and FDIC v. Wheat, 970 F.2d 124 (5th Cir.1992). Defendants rely on Gearhart Industries, Inc. v. Smith Int'l, Inc., 741 F.2d 707 (5th Cir.1984), to argue that the Texas business judgment rule protects officers and directors from liability for negligent acts. Thirteen Defendants' Brief, at 5; Defendant Strzinek's Motion, at 2; and Defendant Switzer's Motion, at 2. Some Defendants read Gearhart as protecting grossly negligent acts as well. Defendant Hunsucker's Motion, at 4; and Defendant Dismore's Motion, at 4. All Defendants assert that, if officers and directors can be held liable for breaching the duty of care, Texas law applies a gross negligence standard of liability. Thirteen Defendants' Brief, at 4; Defendant Strzinek's Motion, at 2; Defendant Hunsucker's Motion, at 2; Defendant Dismore's Motion, at 2; and Defendant Switzer's Motion, at 2. They further argue that House Bill 1076 clarified that Texas applies a gross negligence standard to the conduct of officers and directors. Thirteen Defendants' Reply Brief, at 8. Plaintiff counters that House Bill 1076 is inapplicable to this case, and that it violates the U.S. and Texas Constitutions. FDIC's Response, at 17. After reviewing the relevant case law, the Court concludes that Texas law imposes liability only for grossly negligent acts.[6]
A review of the relationship between the fiduciary duties owed by officers *306 and directors and the business judgment rule is informative. Officers and directors have three fiduciary duties: the duty of obedience, the duty of loyalty, and the duty of care. Gearhart, 741 F.2d at 719. The duty of obedience forbids ultra vires acts, that is, acts outside the scope of corporate power. Id. The duty of loyalty requires that officers and directors act in good faith; this duty forbids them from engaging in "interested" transactions. Id. The duty of care requires officers and directors to manage the corporation's affairs with diligence and prudence. Id. at 720. The business judgment rule originated in Cates v. Sparkman, when the Texas Supreme Court held:
[The] negligence of a director, no matter how unwise or imprudent, does not constitute a breach of duty if the acts of the director were "within the exercise of their discretion and judgment in the development or prosecution of the enterprise in which their interests are involved."
Brown, 812 F.Supp. at 724 (quoting Cates v. Sparkman, 73 Tex. 619, 11 S.W. 846, 849 (1889)). These definitions illustrate an inherent tension between the duty of care and the protection of the business judgment rule.
In Gearhart, the Fifth Circuit clarified the relationship as follows: "Texas courts to this day will not impose liability upon a noninterested corporate director unless the challenged action is ultra vires or tainted by fraud." Gearhart, 741 F.2d at 721. Defendants Hunsucker and Dismore read this language as protecting directors from liability even for grossly negligent acts. Defendant Hunsucker's Motion, at 4; and Defendant Dismore's Motion, at 4. This interpretation essentially abolishes the duty of care, and imposes liability only for breach of the duty of loyalty or obedience. Most courts, however, have interpreted Gearhart as exempting from the protection of the business judgment rule any breach of the duty of care that amounts to gross negligence. See RTC v. Norris, 830 F. Supp. 351, 358-59 (S.D.Tex.1993); Brown, 812 F.Supp. at 725; RTC v. Bonner, 1993 WL 414679, *1-*2, 1993 U.S.Dist. LEXIS 11107, *7-*8 (S.D.Tex. 1993). These courts have contended that the business judgment rule also fails to protect officers and directors who abdicate their responsibilities and fail to exercise any judgment. Norris, 830 F.Supp. at 359; Brown, 812 F.Supp. at 726. As the Second Circuit explained of Connecticut's business judgment rule,
[T]he business judgment rule extends only as far as the reasons which justify its existence. Thus, it does not apply in cases, e.g., in which the corporate decision lacks a business purpose, is tainted by a conflict of interest, is so egregious as to amount to a no-win decision, or results from an obvious and prolonged failure to exercise oversight or supervision.
Joy v. North, 692 F.2d 880, 886 (2d Cir.1982), cert. denied, 460 U.S. 1051, 103 S. Ct. 1498, 75 L. Ed. 2d 930 (1983).[7]
Plaintiff cites Meyers and Wheat for the proposition that the Fifth Circuit has applied Texas law to hold officers and directors liable for simple negligence. Meyers, 693 F.2d 1196; Wheat, 970 F.2d 124. The Court agrees with the analysis of these cases by Judge Lake in the Southern District of Texas, see Brown, 812 F.Supp. at 724-25, and finds that they do not provide authority for imposing a simple negligence standard of liability. In Meyers, the Fifth Circuit upheld a judgment against an interested director under a number of alternative theories that included negligence, gross negligence, and breach of fiduciary duty. As Judge Lake notes, however, there is no indication that the defendant director ever raised the business judgment rule before the jury was charged. The Fifth Circuit had no occasion to ask whether the district court should have required the Plaintiff, upon a timely motion by the defendant director, to overcome the rule by amending its complaint. Brown, 812 F.Supp. at 724 (citing Meyers).
*307 In Wheat, the Circuit upheld a jury verdict for breach of fiduciary duty and negligence against a bank's chairman of the board. 970 F.2d 124. The Circuit approved jury instructions that included a definition of fiduciary duties owed by directors, as well as a definition of the business judgment rule. Without elaborating on the specific duty of care owed by the director, the Circuit found no reversible error in the jury instructions. Wheat, 970 F.2d at 130-31. Although this Court recognizes that Wheat is open to divergent interpretations, the Court concludes that the Fifth Circuit did not intend Wheat to overrule Gearhart. A reading of Wheat that overrules Gearhart would violate the Fifth Circuit's long-standing rule that one panel cannot overrule the decision of a prior panel. Brown, 812 F.Supp. at 725 (citing Ford v. United States, 618 F.2d 357, 361 (5th Cir. 1980)). In addition, the Court believes Gearhart provides the more accurate statement of Texas law regarding officer and director liability.[8]
For the reasons stated above, Defendants' Motions to Dismiss are GRANTED with respect to Counts I, III, and IV. Plaintiff's claims of negligence, negligence per se, and breach of fiduciary duty are hereby DISMISSED with prejudice.
4. Gross Negligence Claims
Defendants also argue that Plaintiff has pled insufficient facts to establish a claim for gross negligence. Thirteen Defendants' Brief, at 12; Defendant Strzinek's Motion, at 2; Defendant Hunsucker's Motion, at 7; Defendant Dismore's Motion, at 6; Defendant Mullen's Motion; and Defendant Switzer's Motion, at 2. Plaintiff counters that the Complaint pleads facts that, if taken as true, establish liability for gross negligence. FDIC's Response, at 22-25. Defendants have failed to show beyond doubt that Plaintiff can prove no set of facts in support of its gross negligence claims. Therefore, Defendants' Motions to Dismiss with respect to Count II are DENIED.
III. MOTION TO INTERVENE
Because the Court resolved the present motions without addressing the constitutionality of House Bill 1076, the Motion to Intervene filed by Dan Morales, Attorney General for the State of Texas, is MOOT and is therefore DENIED. See supra note 6.
IV. CONCLUSION
Defendants' Motions to Dismiss are GRANTED in part and DENIED in part. Plaintiff's claims of negligence, negligence per se, and breach of fiduciary duty, as asserted in Counts I, III, and IV of Plaintiff's Complaint, are hereby DISMISSED with prejudice. Defendants' Motions to Dismiss Plaintiff's gross negligence claims, as asserted in Count II of Plaintiff's Complaint, are DENIED. Dan Morales, Attorney General for the State of Texas' Motion to Intervene is DENIED.
SO ORDERED.
NOTES
[1] Defendants Eubank, Webb, Dearing, Luce, and Wiemer did not file Motions to Dismiss.
[2] The Court will refer to negligence as "simple negligence" in order to distinguish it from gross negligence.
[3] The Court notes as a preliminary matter that the parties have not raised the issue of retroactive application of Section 1821(k). FIRREA was enacted on August 9, 1989. Plaintiff's Complaint alleges conduct that occurred almost exclusively before that date. With no Fifth Circuit guidance on the issue, and no briefing from the parties, the Court declines to consider whether Section 1821(k) applies to a lawsuit filed after, but alleging conduct that occurred before the statute was enacted. Compare RTC v. O'Bear, Overholser, Smith & Huffer, 840 F. Supp. 1270 (N.D.Ind.1993) (applying Section 1821(k) retroactively and holding that it preempts state law claims), FDIC v. Gonzalez-Gorrondona, 833 F. Supp. 1545 (S.D.Fla.1993) (applying Section 1821(k) retroactively and holding that it preempts federal common law but not state law claims), and FDIC v. Gaubert, 1991 WL 318805 (N.D.Tex.1991) (applying FIRREA's statute of limitations provision retroactively) with RTC v. Norris, 830 F. Supp. 351 (S.D.Tex.1993) (declining to apply Section 1821(k) retroactively because it would be "manifestly unjust"); RTC v. Bonner, 1993 WL 414679 1993 U.S.Dist. LEXIS 11107 (S.D.Tex.1993) (same); FDIC v. Brown, 812 F. Supp. 722 (S.D.Tex.1992) (same); RTC v. Holmes, 1992 WL 533256 1992 U.S.Dist. LEXIS 18962 (S.D.Tex.1992) (same). Because the Court ultimately holds that Texas common law applies a gross negligence standard of liability to officers and directors, the same standard would apply to Plaintiff's case regardless of the retroactivity of Section 1821(k). Thus, a decision on the issue of retroactivity is not necessary to this opinion.
[4] The pre-FIRREA cases cited by Plaintiff are irrelevant to the discussion because they do not address the question of preemption. See FDIC's Response, at 8-10.
[5] Some courts and commentators have suggested that Section 1821(k) preempts both federal and state common law causes of action for simple negligence. See, e.g., Gaff v. FDIC, 919 F.2d 384, 391 (6th Cir.1990) ("Congress has clearly indicated that the liability of officers and directors of a bank are determined under federal law."), modified, 933 F.2d 400 (6th Cir.1991); FDIC v. Swager, 773 F. Supp. 1244, 1248 (D.Minn.1991) ("[Section] 1821(k) establishes a federal standard of liability ... and precludes the FDIC from maintaining actions against bank directors and officers based upon state law for conduct not amounting to gross negligence or a greater disregard of a duty of care."). See generally David B. Fischer, Comment, Bank Director Liability Under FIRREA: A New Defense for Directors and Officers of Insolvent Depository Institutions Or a Tighter Noose?, 39 U.S.L.A.L.Rev. 1703, 1764-76 (1992). Numerous other courts have held that Section 1821(k) does not preempt state common law causes of action. See, e.g., FDIC v. McSweeney, 976 F.2d 532 (9th Cir.1992); FDIC v. Canfield, 967 F.2d 443 (10th Cir.1992); RTC v. O'Bear, Overholser, Smith & Huffer, 840 F. Supp. 1270 (N.D.Ind.1993); RTC v. Hess, 820 F. Supp. 1359 (D.Utah 1993); Washington Bancorporation v. Said, 812 F. Supp. 1256, 1265 (D.D.C.1993); FDIC v. Nihiser, 799 F. Supp. 904 (C.D.Ill.1992); FDIC v. Barham, 794 F. Supp. 187 (W.D.La. 1991); FDIC v. Black, 777 F. Supp. 919 (W.D.Okla.1991). Because the Court concludes that Texas common law holds officers and directors liable only for acts of gross negligence, which is the same standard authorized under Section 1821(k), the Court need not determine whether FIRREA preempts state common law actions.
[6] Because the Court holds that Texas common law requires gross negligence for officer and director liability, the Court need not address the proper application or the constitutionality of House Bill 1076.
[7] Texas law defines gross negligence as "that entire want of care which would raise the belief that the act or omission complained of was the result of a conscious indifference to the right or welfare of the person or persons to be affected by it." Burk Royalty Co. v. Walls, 616 S.W.2d 911, 920 (Tex.1981) (citing Missouri Pacific Ry. v. Shuford, 72 Tex. 165, 10 S.W. 408, 411 (1888)). The Court believes that a director's total abdication of duties falls within this definition of gross negligence.
[8] The Texas legislature gave added weight to the Gearhart standard of liability when it enacted House Bill 1076. The statute explicitly provides that officers and directors may be held liable only for acts of gross negligence. The legislature explained that the statute was not intended to change, but merely to clarify, existing law regarding the proper standard of care for officers and directors of insured depository institutions. See House Bill 1076, § 2. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1524023/ | 826 F. Supp. 38 (1993)
FIBA LEASING COMPANY, INC., Plaintiff,
v.
AIRDYNE INDUSTRIES, INC., Defendant.
Civ. A. No. 93-40107-GN.
United States District Court, D. Massachusetts.
July 9, 1993.
*39 Jerry C. Effren and Ronald M. Stone, Catanzaro & Effren, Ashland, MA, for plaintiff.
Robert C. Barber and Wesley S. Chused, Looney & Grossman, Boston, MA, for defendant.
MEMORANDUM AND ORDER
GORTON, District Judge.
Pending before the Court are the parties' cross motions for a preliminary injunction in this action in which plaintiff, FIBA Leasing Company, Inc. ("FIBA"), seeks to recover damages for an alleged breach of several lease agreements ("the Leases") by defendant, Airdyne Industries, Inc. ("Airdyne"). FIBA seeks an order: 1) compelling Airdyne to disclose the location of the equipment that is the subject of the Leases (which includes trailers and compressed gas storage units), 2) restraining Airdyne from moving the equipment, 3) restraining Airdyne from interfering with FIBA's repossession attempts and 4) restraining Airdyne from selling any of its own assets.
Airdyne, in its motion, seeks an order: 1) restraining FIBA from repossessing any of the equipment, 2) restraining FIBA from contacting any of Airdyne's customers, 3) compelling FIBA to account for all sums paid by Airdyne under the Leases since February, 1987, and 4) compelling FIBA to re-register the trailer equipment for which FIBA has canceled the vehicle registrations.
I. PRELIMINARY INJUNCTION STANDARD
The First Circuit's quadripartite test for determining if a preliminary injunction should issue is well-established. A movant must demonstrate that 1) it is likely to succeed on the merits 2) it will suffer immediate and irreparable harm absent the injunction, 3) such harm outweighs any harm to the nonmovant if the injunction is imposed and 4) the public interest will not be adversely affected. Planned Parenthood v. Bellotti, 641 F.2d 1006, 1009 (1st Cir.1981); Narragansett Indian Tribe v. Guilbert, 934 F.2d 4, 5 (1st Cir.1991).
II. FIBA'S MOTION
FIBA has satisfied the Court that it is likely to succeed on the merits of its claim, given the fact that Airdyne admitted at the preliminary injunction hearing that it is delinquent on payments under the Leases. Nevertheless, FIBA has failed to satisfy the other three prerequisites for preliminary injunctive relief.
FIBA has not demonstrated that it will be irreparably harmed if the requested injunction does not issue. FIBA's irreparable harm argument rests on the claim that it could now be held liable if Airdyne causes a third party damage through use of the unregistered equipment. Even assuming that contention is a correct statement of the law, it does not satisfy the irreparable harm prong of the preliminary injunction standard. The only difference between Airdyne's operation of the equipment when it was in compliance with the Leases and its operation of the equipment today is that the equipment is now unregistered, a situation brought about by FIBA. A preliminary injunction movant does not satisfy the irreparable harm criterion when the alleged harm is self-inflicted. San Francisco Real Estate v. Real Estate Invest. Trust of America, 692 F.2d 814, 818 (1st Cir.1982).
Moreover, given the conclusion that it has not made a showing of avoidable, irreparable harm, FIBA cannot satisfy the third prong of the preliminary injunction standard if an injunction would cause harm to Airdyne. In opposition to FIBA's motion, Airdyne has submitted the affidavit of its president, Thomas Sabino ("Sabino"), which states that Airdyne's business is dependent on the equipment. Sabino contends that without the equipment, Airdyne will go out of business and thirty-eight people will be put out of work. The Court finds that the injunction that FIBA seeks would cause Airdyne significant harm and that such harm necessarily outweighs FIBA's insupportable claim of harm. Furthermore, FIBA has made no showing that the public interest would not be adversely affected by the issuance of the requested injunction.
*40 In sum, although FIBA has demonstrated a likelihood of success on the merits of its claim, it has failed to satisfy the remaining preliminary injunction criteria. Under the particular circumstances of this case, the Court concludes the preliminary relief sought by FIBA is unwarranted.
III. AIRDYNE'S MOTION
The First Circuit has recently asserted that the "sine qua non" of granting a party's request for a preliminary injunction is a showing by that party of a likelihood of success on the merits. Weaver v. Henderson, 984 F.2d 11, 12 (1st Cir.1993). "In the ordinary course, [movants] who are unable to convince the trial court that they will probably succeed on the merits will not obtain interim injunctive relief." Id.
In the case at bar, Airdyne has failed to demonstrate a likelihood of success on the merits of the only claim that is now before the Court, the claim of breach of the Leases. To the contrary, it is FIBA that has demonstrated a likelihood of success on the merits. (See supra, p. 39). Airdyne has therefore failed to satisfy the essential prerequisite for obtaining a preliminary injunction.
ORDER
For the foregoing reasons, it is hereby ORDERED:
1. Motion of plaintiff, FIBA Leasing Company, Inc., for a Preliminary Injunction is DENIED.
2. Motion of defendant, Airdyne Industries, Inc., for a Preliminary Injunction is DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1524009/ | 826 F. Supp. 617 (1993)
UNITED STATES of America, Plaintiff,
v.
William M. DAVIS, et al., Defendants.
No. CA 90-0484P.
United States District Court, D. Rhode Island.
May 11, 1993.
*618 Vicki A. O'Meara, Acting Asst. Atty. Gen., Environment & Natural Resources Div., Michele M. Giuliani, Bernard P. Bell, Robert E. Maher, Brian Burke, Trial Attys., Environmental Enforcement Section, Environment and Natural Resources Div., U.S. Dept. of Justice, Washington, DC, for plaintiff.
Deming E. Sherman, Providence, RI, for defendants.
ORDER
PETTINE, Senior District Judge.
The Memorandum and Order of United States Magistrate Judge Timothy M. Boudewyns filed on March 23, 1993 in the abovecaptioned matter is hereby accepted pursuant to 28 U.S.C. § 636(b)(1).
SO ORDERED.
MEMORANDUM AND ORDER
BOUDEWYNS, United States Magistrate Judge.
Plaintiff, United States, has moved this Court in limine for an Order in the trial of this matter admitting into evidence the November, 1986 final Draft Remedial Investigation Report ("RI Report") for the Davis Liquid Site (the "Site"). Plaintiff argues that the RI Report is either admissible under Federal Rule of Evidence ("FRE") 803(8)(C) as a public report setting forth factual findings of an investigation of the United States Environmental Protection Agency ("EPA") made pursuant to authority of law, or, alternatively, a record of regularly conducted activity pursuant to FRE 803(6). Defendants' oppose this motion on the grounds that, inter alia, the RI Report is untrustworthy, and that a motion in limine is an improper vehicle for admission of evidence prior to trial.[1]
The RI Report describes the investigative and analytical activities performed on behalf of EPA and contains extensive factual findings by EPA regarding the nature and extent of contamination at the Site, the transport pathways of such contaminants, and the resulting risk to human health and the environment. Among other things, the RI Report contains tables summarizing the results of hundreds of chemical analyses of samples collected from a variety of sources and environmental media on or near the Site, and *619 maps showing the location from which samples were taken.
The Remedial Investigation
During at least 1975 through 1978, defendants William and Eleanor Davis operated a hazardous waste disposal facility on their property located between Tarkiln Road and Log Road in Smithfield, Rhode Island. Thousands of gallons of liquid and other chemical wastes were dumped into two unlined pits at the Site. As a result of contamination detected at the Site, the Site was placed on the National Priorities List.[2]
EPA selected Camp, Dresser & McKee, Inc. ("CDM") to conduct the work for a Remedial Investigation/Feasibility Study ("RI/FS") at the Site. EPA selects as remedial contractors only companies that specialize in the field of investigating and cleaning up hazardous waste contamination. CDM is a well-known, widely recognized hazardous waste cleanup consultant.[3]
In November, 1986, the RI Report was approved by EPA and released to the public. The RI Report constitutes a finding by and on behalf of EPA resulting from extensive investigations of the Site conducted pursuant to EPA's authority under Section 104(b) of CERCLA, 42 U.S.C. § 9604(b), and the 1985 National Contingency Plan ("1985 NCP"), promulgated under the authority of CERCLA.[4]
The RI Report is divided into an Executive Summary and eight major sections. The Executive Summary states the objectives of the Remedial Investigation, summarizes the activities undertaken by EPA and the State of Rhode Island at the Site, and summarizes the major findings of the Remedial Investigation. The first section ("Introduction") following the Executive Summary describes the background and history of the Site and the nature and extent of the problem at the Site. It incorporates as Appendix A to the RI Report a summary of the Remedial Investigation field activities. The second section ("Site Features Investigation") describes the demography, land use, zoning, natural resources, and climate of the Davis Site, an understanding of which is essential to analyzing the human health and environmental impacts of the contamination at the Site.
The third section ("Hazardous Substance Investigation") describes in detail the areaspecific and media-specific investigation into the extent of the waste material at the Davis Site. The third section also summarizes EPA's findings regarding the nature of the soil contamination at the Site and the physical and chemical characteristics of the contaminated material. This phase of the Site investigation determined the extent of the waste present at the Site, which waste represents the source of contamination migrating to other media (such as groundwater, surface water and air) and other areas on and off the Site. Appendix C of the RI Report referenced in the third section contains supporting documentation for field work done for this phase of the Remedial Investigation, and consists of (1) test pit profiles, which reports the types of soils, rock and other materials, as well as the level of groundwater, found in twenty-nine test pits dug at the Site; and (2) results of sampling and analysis of materials removed from the test pits.
The fourth section ("Hydrogeologic Investigation") focuses on the groundwater at the Site, and describes the investigation undertaken by EPA to determine the nature and extent of on-Site and off-Site contamination in the groundwater, to characterize the groundwater flow system, and to identify contamination pathways. The fourth section also sets forth the findings of the hydrogeologic investigation. The fifth section ("Residential Wells") describes the investigation into the extent of contamination in the water wells of neighbors of the Site, and sets forth the findings of that investigation. Appendices D and E of the RI Report contain documentation of field work supporting the findings in the fourth and fifth sections, and include among other things, results of sampling *620 and analysis of groundwater taken from wells dug at the Site and taken from the drinking water wells of neighbors of the Site.
The sixth section ("Surface Water Investigation") describes EPA's investigation of contamination of surface water, including Latham Brook, and sets forth the findings of that investigation. Appendix F of the RI Report contains documentation of the field work supporting the findings of the sixth section, including among other things reports of the results of sampling and analysis of surface water and sediments of stream beds. The seventh section ("Air Investigation") describes air sampling done by EPA at the Site, and sets forth the results of such sampling.
The eighth section ("Baseline Risk Assessment") consists of EPA's findings with respect to the potential risks to public health and the environment caused by contaminants identified as being present at the Davis site prior to initiation of remedial activities.
Discussion
1. Motion in Limine
In their opposition, defendants suggest that a motion in limine may not be used to admit evidence prior to trial; rather, it may only be used to exclude evidence. This argument cannot be sustained. Motions in limine are heard by the district court pursuant to its inherent authority to manage the course of trial.[5] It is of no importance whether this motion is offered as a motion to admit or to exclude evidence. Ruling on these issues now will avoid a needless, time-consuming dispute in the middle of what is expected to be a very long trial. Therefore, this Court will exercise its discretion to rule on the motion now.
2. Authentication
Defendants argue that the RI Report has not been properly authenticated. In cases of public reports, the Federal Rules of Evidence require only that there be evidence sufficient to support a finding that the report is what its proponent claims.[6] Neil Handler, the Remedial Project Manager to the Davis Site, identified this exhibit as a true and correct copy of the RI Report for the Davis Site approved by EPA in November of 1986, and that RI Reports are routinely kept in EPA's records. Therefore, I find that the exhibit has been properly authenticated.[7]
3. Admissibility
a. Relevance
The initial inquiry in any evidentiary determination of admissibility is whether the evidence is relevant.[8] At the liability trial in this case (the so-called "Phase I" according to the pretrial order), the issue to be determined is whether any defendant is liable to the United States for all response costs incurred or to be incurred at the Site.[9] The results of the chemical analyses performed on samples taken at the Site are centrally relevant to one essential element of each defendant's alleged liability under Section 107(a) of CERCLA: whether there has been a "release, or "threatened release" of hazardous substances at or from the Site.[10] Moreover, the RI Report will be centrally relevant to whether hazardous substances for which the generators arranged for disposal, or that the transporters transported, and which were disposed of at the Site, are of the same kind as those found at the Site.[11] In short, the RI Report is plainly relevant to the issues in this proceeding. The only question, *621 therefore, is whether its admissibility is otherwise precluded by the hearsay rule.
b. Hearsay Exception 803(8)(C)
The RI Report is a collection of out-of-court statements which the United States wants to offer into evidence to prove the truth of the matters asserted in those statements; as such, it is within the general definition of hearsay.[12] Hearsay is not admissible unless an exception to its exclusion exists.[13]
FRE 803(8)(C) provides an exception to the hearsay rule for certain public records. The rule provides in pertinent part:
The following are not excluded by the hearsay rule, even though the declarant is available as a witness:
(8) Public records and reports. Records, reports, statements, or data compilations, in any form, of public offices or agencies, setting forth ... (C) ... factual findings resulting from an investigation made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.[14]
The policy behind this exception is that "public records or reports, by virtue of their being based on legal duty and authority, contain sufficient circumstantial guarantees of trustworthiness to justify their use at trial."[15] The assumption is that public officers will perform their duties, that they lack motive to falsify, and that the public inspection to which the records are subject will disclose inaccuracies.[16] Use of the records or reports also serves the public interest by saving time and the additional expenditure of public money in bringing many witnesses into court to testify about matters that have, in general, been accurately reported and recorded.[17] In CERCLA cases, courts have consistently held that public records excepted from the hearsay rule by FRE 803(8)(C) include precisely the type of data sought to be admitted here results of environmental investigations of hazardous substances conducted or commissioned by federal and state agencies.[18]
The United States has met its burden in proving that the RI Report meets the prima facie elements of FRE 803(8)(C). First, the RI Report is a "report of a public agency." Although initially drafted on a contract basis by CDM under the supervision of EPA, courts have held that such closely managed investigations satisfy the "report of a public agency" requirement under FRE 803(8).[19] Here, the EPA remained in charge of and closely involved with the Remedial Investigation at the Davis Site. EPA appointed the Remedial Project Manager ("RPM") for the Site as the primary contact between EPA and its contractor. EPA selected CDM in accordance with its requirements regarding the qualifications for Remedial Investigations. The field work and analysis were performed at the direction and under the guidance of EPA; proposed work plans were reviewed for conformity with EPA methodology and standards. This review *622 included making sure that the contractor followed EPA's quality assurance/quality control guidelines for sampling and chemical analysis. EPA remained in close contact with its contractors during the remedial investigation, and required its contractors to submit regular reports concerning the project. Finally, EPA reviewed prior drafts of the RI Report for technical accuracy and compliance with the 1985 NCP, requiring all necessary changes and additions to ensure the report's accuracy.
FRE 803(8)(C) also requires that the document set forth "factual findings."[20] The RI Report contains extensive statements of factual findings on behalf of EPA regarding the nature and extent of contamination at the Site, the presence and quantity of hazardous substances in samples taken from the Site, and the locations from which the samples were taken. These are simple findings of fact within the meaning or FRE 803(8)(C). Second, there are evaluations and conclusions summarizing the results of the chemical analyses of samples from the Site. These fit within the Supreme Court's broad interpretation of "factual findings" in FRE 803(8)(C).[21]
Finally, it is also clear that the findings contained in the RI Report result from an investigation "made pursuant to authority granted by law."[22] Section 104(b) of CERCLA, 42 U.S.C. § 9604(b), provides that, whenever EPA has a reason to believe that a release of hazardous substances has occurred or is about to occur, it may
undertake such investigations, monitoring, surveys, testing and other information gathering as [it] may deem necessary or appropriate to identify the existence and extent of the release or threat thereof, the source and nature of the hazardous substances ... and the extent of danger to the public health or welfare or the environment. In addition, [it] may undertake such ..., studies or investigations as [it] may deem necessary or appropriate to plan and direct response actions, to recover the costs thereof, and to enforce the provisions of this Act.[23]
Pursuant to this authority, Section 300.68(d) of the 1985 National Contingency Plan, which was in effect in 1986, specifically required that a remedial investigation be conducted prior to any decision to undertake remedial action at a site.[24] That requirement has been continued in the National Contingency Plan now in effect.[25] Accordingly, the RI Report was prepared pursuant to authority granted by law.
c. Trustworthiness
Once the above-discussed requirements are met, the proffered evidence should be admitted unless the party opposing the admission of the evidence makes an affirmative showing of untrustworthiness.[26] This was intended as an "ample provision for escape if sufficient negative factors are present."[27]
The Advisory Committee to the Federal Rules of Evidence has suggested possible factors for consideration on the question of trustworthiness: the timeliness of the investigation, the special skill or experience of the officials making the report, whether a hearing was held and the level at which it was conducted, and the existence of any possible *623 biases or motivational problems on the part of either the investigators or other sources of information.[28] District courts have also added other factors such as the finality of the findings made in the report, the extent to which the report is based upon hearsay, confidential communications or ex parte evidence, the extent to which such information is supplied by persons with an interest in the outcome of the case, and where the report purports to offer expert opinion, the extent to which the facts or data are of a type reasonably relied upon by experts in the particular field.[29]
Defendants attack the RI Report's trustworthiness on a number of grounds. They argue that it was not compiled in accordance with the Environmental Protection Agency's own regulations and procedures concerning Quality Assurance and Quality Control standards; that there was an inadequate showing of chain of custody of soil samples allegedly taken at the Site; that the report contains conflicting results for identical samples; that the report is a draft document which was prepared by the EPA in anticipation of this litigation; that it contains multiple-level, inadmissible hearsay statements; and that it is not a final agency finding.
In response, the United States argues that much of the procedures which were followed in compiling the RI Report were provided for and documented as part of the Project Operations Plan ("POP"), submitted by Camp, Dresser and McKee. Specifically, the POP contains the EPA Quality Assurance Project Plan, including quality assurance/quality control requirements, data quality objectives and field sample codes. The POP also includes sampling methods, intended parameters to be tested for in the sample, and data validation requirements.
The United States further responds that the number of samples without chain of custody signatures is small in relation to the total number of samples. With respect to the rest of the samples, routine procedures were followed as dictated by the Statements of Work and Written Standard Operating Procedures in the POP. Likewise, the amount of variation in some of the duplicate sample results was not significant in relation to the number of samples reliably collected, analyzed and reported.[30]
The United States would dismiss the RI Report's use of blank spaces in places where samples were either rejected or not analyzed as well as those where no contaminant was detected. It contends that the use of blank spaces suggests, if anything, that the RI Report understates the amount of contamination. Where a blank space for any contaminant is listed for a sample in a table, it was assumed for purposes of that sample that contaminant was not present. The United States was not relying on the presumed nondetects in proving its case that hazardous substances were released at the Site.
The United States further explains that although the title says "Draft" Remedial investigation, the EPA has accepted, presented and relied on this report as the final report. It also attempts to rebut the defendants' assertion that the RI Report was prepared in anticipation of litigation by pointing out that although the RI Report may be used in cost recovery actions, as an initial matter the statute and the National Contingency Plan ("NCP")[31] require that it be prepared to evaluate the extent of contamination at a Site and to support an agency decision on necessary remedial action. The RI Report has other purposes besides litigation, and it does not rise to the level of untrustworthiness simply because one of its intended uses in cost recovery actions.
Finally, the United States does not dispute that the RI Report contains some hearsay. Instead, they argue that a government record admissible under FRE 803(8)(C) should only be excluded if it is "pervaded" by hearsay *624 such that it becomes untrustworthy.[32] Similar to the rationale in Rollins v. Board of Governors for Higher Education,[33] reports such as the report in the instant case do not merely repeat what was told to the investigators by witnesses, but also draw inferences as to what in fact happened. The conclusions cannot be disentangled from the facts.[34] Absent a specific showing of untrustworthiness, such multiple layers of hearsay clearly fall within the scope of FRE 803(8)(C).
After careful review of the defendants' criticisms and the United States' responses, I find no one factor or combination of factors which indicate that the entire document is untrustworthy. The criticisms of the defendants as to minor errors and methodology do not impugn the overall reliability of the RI Report. In an investigation of the magnitude of the RI Report for the Davis Site, it was inevitable that some minor mistakes would be made. Defendants may adequately address their concern about these mistakes at trial to attack the weight given to the Report.[35]
In addition to defendants' failure in meeting their burden in establishing that the entire document is untrustworthy, they have not met their burden in demonstrating that any specific section of the RI Report should be excluded or redacted because of untrustworthiness.[36] On the contrary, their arguments are oriented toward the whole document. They contend that "it is not [their] burden to review the RI Report with exacting scrutiny and to tell the Court what parts may be admissible hearsay and what parts are not." This argument and the case law cited in defendants' briefs supposedly in support of that argument are clearly off point. While it might be true that the burden is normally on the proponent to extract admissible portions from a document otherwise excludable by the hearsay rule, once the prima facie elements of FRE 803(8)(C) are fulfilled, the entire document is presumed admissible, and the opponent must then demonstrate untrustworthiness.[37]
In fairness to the defendants, they do point to some statements in the RI Report which indicate the presence of hearsay. But, again, the presence of multiple levels of hearsay is only relevant insofar as it relates to the broader inquiry of trustworthiness. After reviewing these and the other arguments of the defendants, and after careful review of the RI Report, I find no section which is so lacking in trustworthiness that it should not be admitted.[38]
Conclusion
The United States' motion in limine for admission into evidence of the draft remedial investigation report for the Davis liquid site and for expedited consideration is granted.
Furthermore, in the interests of economy of the trial time of this matter and the conservation of judicial resources, counsel for the United States and liaison counsel are directed to discuss whether any portions of this exhibit can be excluded as extraneous, *625 repetitive or irrelevant.[39] If counsel can come to an agreement as to which portions can be excluded, counsel for the United States shall move for admission of an amended exhibit along with a stipulation signed by liaison counsel.
March 23, 1993.
NOTES
[1] Defendant Clairol has submitted a separate memorandum of law in opposition to the United States' motion for the stated purpose of addressing issues which "peculiarly" relate to Clairol. I have reviewed this memorandum and plaintiffs response and find no meritorious issue which was not or could not have been addressed by liaison counsel in the defendants' briefs. Liaison counsel more than adequately represented the interests of all the "generator defendants."
[2] 40 C.F.R. Part 300, App. B (No. 253) (1991).
[3] Defendants have raised no substantive challenge to the expertise of CDM in their opposition to this motion.
[4] Section 105 of CERCLA, 42 U.S.C. § 9605, and codified at 40 C.F.R. Part 300 (1986).
[5] Luce v. United States, 469 U.S. 38, 41 n. 4, 105 S. Ct. 460, 463 n. 4, 83 L. Ed. 2d 443 (1984).
[6] FRE 901(a) and (b)(7).
[7] Liaison counsel conceded the authenticity of the RI Report at the hearing on this motion.
[8] FRE 402 provides:
All relevant evidence is admissible, except as otherwise provided by the Constitution of the United States, by Act of Congress, by these rules, or by other rules prescribed by the Supreme Court pursuant to statutory authority. Evidence which is not relevant is not admissible.
FRE 402.
[9] Section 107(a) of CERCLA, 42 U.S.C. § 9607(a).
[10] Id.
[11] See United States v. Alcan Aluminum Corp., 755 F. Supp. 531, 542 (N.D.N.Y.1991).
[12] FRE 801(c).
[13] FRE 802.
[14] FRE 803(8)(C).
[15] Ellis v. International Playtex, Inc., 745 F.2d 292, 300 (4th Cir.1984).
[16] 5 Wigmore, Evidence § 1632 at 618-21 (Chadbourn rev. 1974).
[17] Michael H. Graham, Federal Practice and Procedure, § 6759 at 664 (Interim edition 1992).
[18] United States v. Summit Equipment & Supplies, Inc., 805 F. Supp. 1422 (N.D.Ohio, 1992); United States v. Northernaire Plating Co., 670 F. Supp. 742 (W.D.Mich.1987), aff'd sub nom. United States v. R.W. Meyer, Inc., 889 F.2d 1497 (6th Cir.1989), cert. denied, 494 U.S. 1057, 110 S. Ct. 1527, 108 L. Ed. 2d 767 (1990); United States v. Tyson, 25 Env't Rep.Cas. (BNA) 1897, 1986 WL 9250 (E.D.Pa.1986).
[19] The First Circuit has recognized that, in order for a document to qualify as a "report of a public agency," the agency need not have firsthand knowledge of all matters contained in the report, as long as it has "firsthand knowledge of the investigation by which it accumulates the published factual findings...." Robbins v. Whelan, 653 F.2d 47, 52 (1st Cir.) (emphasis in original), cert. denied, 454 U.S. 1123, 102 S. Ct. 972, 71 L. Ed. 2d 110 (1981). See also Tyson, 25 Env't Rep.Cas. (BNA) at 1094 ("The inclusion of findings made by independent contractors in the ordinary course of this [hazardous waste investigation] business does not preclude the Remedial Investigation Report's admissibility under Fed. R.Evid. 803(8)(C)....").
[20] Defendants concede that the RI Report contains factual findings.
[21] Beech Aircraft Corp. v. Rainey, 488 U.S. 153, 170, 109 S. Ct. 439, 450, 102 L. Ed. 2d 445 (1988).
[22] Defendants have conceded that the findings contained in the RI Report result from an investigation made pursuant to authority granted by law.
[23] 42 U.S.C. § 9604(b).
[24] 1985 NCP § 300.68(d), 50 Fed.Reg. 47969, 47973 (Nov. 20, 1985) (codified at 40 C.F.R. § 300.68(d) (1986)).
[25] 40 C.F.R. § 300.430 (1991).
[26] FRE 803(8)(C). Kehm v. Procter & Gamble Mfg. Co., 724 F.2d 613, 618 (8th Cir.1983). It is well-established that the burden of showing untrustworthiness rests on a party opposing the introduction of purported hearsay. Robbins v. Whelan, 653 F.2d 47, 51 (1st Cir) cert. denied 454 U.S. 1123, 102 S. Ct. 972, 71 L. Ed. 2d 110 (1981).
[27] FRE 803(8)(C) Advisory Committee's Note.
[28] Id.
[29] Zenith Radio Corp. v. Matsushita Electric Ind. Co., 505 F. Supp. 1125, 1146-47 (E.D.Pa.1980), aff'd in relevant part 723 F.2d 238 (3rd Cir.1983).
[30] Further, some of the samples with variation were soil samples. A high degree of variation is expected with soil samples because the distribution of contamination is usually not uniform. See 10/22/92 Handler Affidavit ¶ 5.
[31] 42 U.S.C. § 9604(b); 40 C.F.R. § 300.430.
[32] Zenith, 505 F.Supp. at 1148.
[33] Rollins v. Board of Governors for Higher Education, 761 F. Supp. 939, 943 (D.R.I.1991).
[34] Id.
[35] An example of an alleged error which could be adequately addressed at trial would be the absence of chain of custody signatures from some of the samples. On this point, see Ellis v. International Playtex, Inc., where the Fourth Circuit reversed a jury verdict for the defendant and ordered a new trial because the trial court had excluded government epidemiological data based upon insufficient scientific foundation. 745 F.2d 292, 307. The Court of Appeals held that challenges to the methodology of the government's scientific studies "should have been addressed to the relative weight accorded the evidence and not its admissibility." Id. at 303. See also Wolf v. Procter & Gamble Co., 555 F. Supp. 613, 625 (D.C.N.J.1982) ("Defendants assert that the research for the [government] studies was hastily conducted and suffered from serious methodological flaws. However, these considerations bear on the weight to be given the evidence by the jury rather than on its admissibility.").
[36] A trial judge may exclude specific sections of a report which are proven to be untrustworthy. Beech Aircraft Corp. v. Rainey, 488 U.S. 153, 167-68, 109 S. Ct. 439, 448-49, 102 L. Ed. 2d 445 (1989).
[37] See Zenith, 505 F.Supp. at 1148.
[38] Ellis v. International Playtex, Inc., 745 F.2d 292 (4th Cir.1984).
[39] For example, both parties may wish to agree on the deletion of the section concerning residential well samples, which the United States has suggested is not relevant to this stage of the litigation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4127563/ | TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
DANIEL E. LUNGREN
Attorney General
______________________________________
OPINION :
: No. 91-105
of :
: August 13, 1991
DANIEL E. LUNGREN :
Attorney General :
:
RODNEY O. LILYQUIST :
Deputy Attorney General :
:
______________________________________________________________________________
THE HONORABLE MICHAEL H. KRAUSNICK, COUNTY COUNSEL OF
STANISLAUS COUNTY, has requested an opinion on the following question:
Is a county required to issue certificates of compliance for 15 lots that were described
on a map properly recorded under a predecessor statute to the Subdivision Map Act, as well as local
ordinances enacted thereunder, and for fractions of 17 other lots described on the map, which
fractions were subsequently created by metes and bounds conveyances by deeds in which none of
the lots were identified or recognized?
CONCLUSION
A county is required to issue certificates of compliance for 15 lots that were described
on a map properly recorded under a predecessor statute to the Subdivision Map Act, as well as local
ordinances enacted thereunder, and certificates of compliance or conditional certificates of
compliance for fractions of 17 other lots that were described on the map, which fractions were
subsequently created by metes and bounds conveyances in which none of the lots were identified
or recognized.
ANALYSIS
We are informed that in 1914 a map was properly recorded under a predecessor
statute to the Subdivision Map Act (Gov. Code, §§ 66410-66499.37; hereafter "Act"),1 as well as
local ordinances enacted thereunder, describing 68 lots of approximately 20 acres each in size. None
of the lots were sold, and subsequent records ignored their existence and described the property as
a single parcel. In 1941 deeds were recorded that conveyed a portion of the property by metes and
1
All section references hereafter are to the Government Code unless otherwise specified.
1. 91-105
bounds description.2 The boundaries on the deeds cut through 17 of the lots. What remains today
and the focus of the present inquiry is the area of 15 of the original lots plus the 17 fractions of lots.
The specific question presented for resolution is whether "certificates of compliance"
(§ 66499.35) must be issued for these lots and fractions of lots. After describing the effects of such
certificates, we will conclude that they must be issued for the 15 lots but not for the 17 fractions of
lots. However, conditional certificates of compliance must be issued for the 17 fractions, if
certificates of compliance are not issued for them.
Section 66499.35 provides:
"(a) Any person owning real property . . . may request, and a local agency
shall determine, whether such real property complies with the provisions of this
division and of local ordinances enacted pursuant thereto. Upon making such a
determination the city or the county shall cause a certificate of compliance to be filed
for record with the recorder of the county in which the real property is located. The
certificate of compliance shall identify the real property and shall state that the
division thereof complies with applicable provisions of this division and of local
ordinances enacted pursuant thereto . . . .
"(b) If a local agency determines that such real property does not comply with
the provisions of this division or of local ordinances enacted pursuant thereto, it shall
issue a certificate of compliance or a conditional certificate of compliance. A local
agency may, as a condition to granting a certificate of compliance, impose such
conditions as would have been applicable to the division of the property at the time
the applicant acquired his or her interest therein, and which had been established at
such time by this division or local ordinance enacted pursuant thereto, except that
where the applicant was the owner of record at the time of the initial violation of the
provisions of this division or of local ordinances enacted pursuant thereto, and such
person is the current owner of record of one or more of the parcels which were
created as a result of the grant in violation of the division or local ordinances enacted
pursuant thereto, then the local agency may impose such conditions as would be
applicable to a current division of the property. Upon making such a determination
and establishing such conditions the city or county shall cause a conditional
certificate of compliance to be filed for record with the recorder of the county in
which the real property is located. . . . the fulfillment and implementation of such
conditions shall be required prior to subsequent issuance of a permit or other grant
of approval for development of the property.
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ."3
A certificate of compliance thus establishes that the "property complies with the
provisions of [the Act] and of local ordinances enacted pursuant thereto." Such a determination is
2
A metes and bounds description gives the boundary lines of the property with their terminal
points and angles. Essentially, it is any description other than by reference to particular lots and
parcels on a recorded subdivision map. (See Merritt, Metes and Bounds Descriptions: A Red Flag
Forewarning Possible Subdivision Map Act Violations (Cont.Ed.Bar 1990) 13 Real Prop. L. Rep.
117 (hereafter "Metes and Bounds").)
3
"This division" is the Act.
2. 91-105
significant in that divisions of land in violation of the Act may result in criminal prosecution (§
66499.31), rescission of conveyance transactions (§ 66499.32), a claim for damages (§ 66499.32),
a court injunction (§ 66499.33), and the withholding of development permits (§ 66499.34), among
other consequences. ( See Cal. Subdivision Map Act Practice (Cont.Ed.Bar 1987) §§ 8.1-8.8, pp.
197-205, hereafter "CEB"; 2 Longtin, Cal. Land Use Regulations (2d ed. 1987) §§ 6.60-6.62, pp.
702-707.)
The Act's predecessor statutes may be traced back to 1893 as legislation with
statewide impact. (Stats. 1974, ch. 1536; Stats. 1943, ch. 128; Stats. 1937, ch. 670; Stats. 1929, ch.
838; Stats. 1907, ch. 231; Stats. 1893, ch. 80; see Hays v. Vanek (1989) 217 Cal. App. 3d 271, 289;
64 Ops.Cal.Atty.Gen. 549, 551-552 (1981); CEB, supra, § 1.2, pp. 2-3; 2 Longtin, supra, § 6.02,
pp. 582-583; Metes and Bounds, supra, p. 119.) Even earlier statutes required the mapping of
subdivided public lands and private lands to be sold within individual cities and towns. (See, e.g.,
Stats. 1867-1868, ch. 331 [San Francisco].)
To what extent and under what conditions do parcels created under one of the Act's
predecessor statutes or in any manner other than pursuant to the current provisions of the Act
"comply" with the Act as it presently reads?
Section 66412.6 states in part:
"(a) For purposes of this division or of a local ordinance enacted pursuant
thereto, any parcel created prior to March 4, 1972, shall be conclusively presumed
to have been lawfully created if at the time of the creation of the parcel there was
compliance with any local ordinance or there was no local ordinance in effect which
regulated divisions of land creating fewer than five parcels.
"(b) For purposes of this division or of a local ordinance enacted pursuant
thereto, any parcel created prior to March 4, 1972, shall be conclusively presumed
to have been lawfully created if any subsequent purchaser acquired that parcel for
valuable consideration without actual or constructive knowledge of a violation of this
division or the local ordinance. Owners of parcels or units of land affected by the
provisions of this subdivision shall be required to obtain a certificate of compliance
or a conditional certificate of compliance pursuant to Section 66499.35 prior to
obtaining a permit or other grant of approval for development of the parcel or unit
of land. . . ."
With respect to the 15 original lost created in 1914, they were "created prior to March
4, 1972," for purposes of section 66412.6.4 These lots were also created in "compliance with any
local ordinance" in effect in 1914. Accordingly, the 15 lots in question are "conclusively" presumed
valid under the terms of section 66412.6, subdivision (a).
With respect to the 17 fractions of lots, they too were created prior to March 4, 1972
for purposes of section 66412.6. However, these fractions of lots were not created until 1941, when
deeds were recorded conveying portions of the lots by metes and bounds description. We do not
have the additional fact that the 17 fractions of lots were created in compliance with applicable 1941
4
The 1972 date is significant in that it was the effective date of the amendments to the Act (Stats.
1971, ch. 1446) requiring a map of divisions of four or fewer parcels. "Before this change, the
requirement of a parcel map for these divisions was left to the dictates of individual cities and
counties." (Metes and Bounds, supra, p. 121; see CEB (Supp. 1990) § 2.18, p. 9.)
3. 91-105
local ordinances. In fact, since the 1941 deeds did not create "fewer than five parcels," a map was
required to be recorded under the 1941 version of the Act and local ordinances enacted thereunder.
(See §§ 66424, 66499.30; 58 Ops.Cal.Atty.Gen. 593 (1975) [parcels created under a recorded
subdivision map that had portions of each condemned through eminent domain proceedings required
the filing of a new map in order to sell the remaining portions].) Thus the 17 fractions do not qualify
for the conclusive presumption of section 66412.6, subdivision (a). The fractions would also not
qualify under subdivision (b) of the statute, since the 1941 violation would be in the "chain of title,"
giving subsequent purchasers actual or constructive knowledge of the violation. (See Keiser v.
Adams (1970) 2 Cal. 3d 976, 979; CEB (Supp. 1990) § 2.18, pp. 9-10; Metes and Bounds, supra, pp.
121-122.) In any event, a certificate of compliance or conditional certificate of compliance must still
be obtained under this subdivision "prior to obtaining a permit or other grant of approval for
development. . . ."
One other statute requires analysis in order to fully answer the question submitted.
Subdivision (a) of section 66451.10 states:
"Notwithstanding Section 66424, except as is otherwise provided for in this
article, two or more contiguous parcels or units of land which have been created
under the provisions of this division, or any prior law regulating the division of land,
or a local ordinance enacted pursuant thereto, or which were not subject to those
provisions at the time of their creation, shall not be deemed merged by virtue of the
fact that the contiguous parcels or units are held by the same owner, and no further
proceeding under the provisions of this division or a local ordinance enacted
pursuant thereto shall be required for the purpose of sale, lease, or financing of the
contiguous parcels or units, or any of them."5
As long as the parcels "have been created under . . . any prior law regulating the division of land . . .
no further proceeding under the provisions of this division or a local ordinance enacted pursuant
thereto shall be required . . . ." (See § 66499.30, subd. (d) [filing a map is not required for any
parcels of a subdivision "in compliance with . . . any law . . . regulating the design and improvement
of subdivisions in effect at the time the subdivision was created"].)
The 15 lots qualify under section 66451.10 for separate treatment without any further
proceedings under the Act or local ordinances enacted thereunder. (See also § 66468 ["The filing
for record of a final or parcel map by the county recorder shall automatically and finally determine
the validity of such map and when recorded shall impart constructive notice thereto"]; County of Los
Angeles v. Hartford Acc. & Indem. Co. (1970) 3 Cal. App. 3d 809, 814 ["The recording of a final tract
map for a normal subdivision automatically converts what was formerly a single parcel into as many
separate lots as appear on the tract map"]; 59 Ops.Cal.Atty.Gen. 239, 241 (1976) ["A parcel once
recorded under the Subdivision Map Act need not be re-recorded so long as it is not further
divided"].) While various statutory means exist to change the configuration of lots described on a
valid subdivision map (see §§ 66412, 66499.11-66499.20 3/4; 64 Ops.Cal.Atty.Gen. 549, 553
(1981)), absence of their description in subsequent deeds of conveyances is not an authorized
method. (See also Civ. Code, § 1093; Hunt v. County of Shasta, supra, 225 Cal. App. 3d 432, 437-
439.) Accordingly, the provisions of sections 66412.6 and 66451.10 are consistent in validating the
5
Section 66424 is the basic provision of the Act defining a "subdivision" as "the division ... of
any unit or units of improved or unimproved land, or any portion thereof ... for the purpose of sale,
lease, or financing, whether immediate or future ...." The article of the Act of which section
66451.10 is a part deals with the merger of parcels by local ordinance (§§ 66451.10 - 66451.21); a
separate article deals with unmerger. (§§ 66451.30 - 66451.33.)
4. 91-105
15 lots described on the 1914 map, regardless of the later recordation of deeds that failed to refer
to them.
The 17 fractions of lots are a different matter. They are not identified on the 1914
subdivision map, since they were created by deeds of conveyances in 1941. Their creation violated
the requirement of a filed subdivision map under the Act or its predecessor statutes. Nonetheless,
each qualifies for a conditional certificate of compliance under subdivision (b) of 66499.35, if not
a certificate of compliance. As specified in the statute, however, the county may "impose such
conditions as would have been applicable to the division of the property at the time the applicant
acquired his or her interest therein" or conditions applicable to current divisions if the applicant was
the one who caused the violation. (See § 66499.34; Keiser v. Adams, supra, 2 Cal. 3d 976, 981;
CEB, supra, § 8.9, pp. 207-208.)
In this regard, we note that even if conditional certificates of compliance are issued
for the 17 fractions of lots, the county may prevent development of the lots pursuant to section
66499.34 regardless of when or by whom the violations occurred. Section 66499.34 states in part:
"No local agency shall issue any permit or grant any approval necessary to
develop any real property which has been divided, or which has resulted from a
division, in violation of the provisions of this division or of the provisions of local
ordinances enacted pursuant to this division if it finds that development of such real
property is contrary to the public health or the public safety. . . ."
Thus, for example, the county "may refuse to issue a building permit or to grant a rezoning variance
or a conditional use permit for a parcel that results from a division of land that violated the Map Act
. . . [if] based on a finding that development would be contrary to public health and safety." (CEB,
supra, § 8.6, p. 203.)
Finally, we necessarily point out that the certificates referred to in section 66499.35
are issued only for purposes of and with respect to the requirements of the Act and local ordinances
enacted thereunder. The same is true regarding the presumptions of section 66412.6 and the
proceedings specified in section 66451.10. Other land use regulations are unaffected by the
certificates and would require compliance with respect to the proposed activity to the extent
applicable under their own statutory schemes and ordinances.
In answer to the question presented, therefore, we conclude that a county is required
to issue certificates of compliance for 15 lots that were described on a map properly recorded under
a predecessor statute to the Subdivision Map Act, as well as local ordinances enacted thereunder,
and certificates of compliance or conditional certificates of compliance for fractions of 17 other lots
that were described on the map, which fractions were subsequently created by metes and bounds
conveyances in which none of the lots were identified.
*****
5. 91-105 | 01-03-2023 | 02-18-2017 |
https://www.courtlistener.com/api/rest/v3/opinions/1520873/ | 767 F.Supp. 191 (1991)
John GOMEZ, Plaintiff,
v.
AMOCO OIL COMPANY, Defendant.
No. H90-248.
United States District Court, N.D. Indiana, Hammond Division.
May 6, 1991.
Ruben Castillo, Chicago, Ill., for plaintiff.
Michael Weinbaum, Michael A. Warner, Chicago, Ill., and James E. McHie, Hammond, Ind., for defendant.
*192 MEMORANDUM OPINION AND ORDER
LOZANO, District Judge.
This matter is before the court on the Motion for Summary Judgment, filed March 18, 1991, by the defendant, Amoco Oil Company (hereinafter referred to as "Amoco"). For the reasons set forth herein, the Motion for Summary Judgment is hereby DENIED.
Background
The plaintiff, John Gomez (hereinafter referred to as "Gomez"), a Mexican-American, has been employed by the defendant, Amoco, at its refinery in Whiting, Indiana, since August 1970. On May 12, 1986, Gomez filed a charge with the Equal Employment Opportunity Commission ("EEOC"), alleging that Amoco had discriminated against him on the basis of national origin. On August 19, 1987, Gomez amended his original charge to change "Mexican" to "Hispanic", to add that the discrimination was "continuing", and to allege that Amoco discriminates against Hispanics as a class. Gomez amended his original charge a third time on April 12, 1988, to add fifteen (15) "particulars" concerning incidents in 1984 and 1985.
The EEOC conducted an investigation of Gomez's claims, and, on December 18, 1989, found reasonable cause to believe that Gomez had been subjected to discriminatory discipline and harassment. The EEOC also invited the parties to engage in conciliation and sent them a draft Conciliation Agreement. On February 2, 1990, the EEOC sent Amoco a revised Conciliation Agreement which would have afforded Gomez monetary and injunctive relief from the allegedly discriminatory discipline, harassment, and retaliation he suffered. Amoco agreed to and executed this revised Conciliation Agreement on February 27, 1990, but Gomez refused to accept this agreement because it does not provide relief for discriminatory denials of promotions.
On March 13, 1990, the EEOC informed Gomez's attorney that "[p]romotion was not an issue of Mr. Gomez's charge[,]" and that "[t]he Conciliation Agreement that we forwarded to you on February 28, 1990, which stemmed from the allegations of his charge provided full relief to Mr. Gomez." When Gomez persisted in his refusal to accept the Conciliation Agreement, the EEOC recommended that his charge be dismissed for "failure to accept full relief". On March 29, 1990, the EEOC issued to Gomez a Notice of Right to Sue, by which the EEOC stated that his charge had been dismissed because Amoco had "made a written settlement offer which affords full relief from the harm [Gomez] alleged."
On August 10, 1990, Gomez filed his Complaint under Title VII of the Civil Rights Act, 42 U.S.C. § 2000e, et seq., and the Indiana Civil Rights Act, Ind.Code § 22-9-1, et seq. By this Complaint, Gomez seeks damages and declaratory and injunctive relief for what he alleges to be discrimination in the terms and conditions of employment which deny promotional advancement opportunities because of national origin, and which results in a hostile working environment, and disparate disciplinary measures on the basis of national origin. Amoco denies these allegations, and has moved for summary judgment against Gomez.
Discussion
Amoco contends that Gomez's claims for relief based on Amoco's allegedly discriminatory practice of denying Hispanics promotional and training opportunities must be dismissed for several reasons. First, Amoco contends that these claims are not "like or reasonably related to" the allegations in his original EEOC charge, even considering both his amendments to that charge. Second, Amoco contends that Gomez's promotional claims are time-barred because he failed to identify any discriminatory denial of promotion within 300 days of his EEOC charge. Amoco also contends that Gomez's promotional claims fail as a matter of law because he rejected an offer of full relief. On these grounds, Amoco has moved for summary judgment.
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper only if it is demonstrated *193 "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." Walter v. Fiorenzo, 840 F.2d 427, 434 (7th Cir.1988); Beard v. Whitley County R.E. M.C., 840 F.2d 405, 409 (7th Cir.1988); Roman v. United States Postal Serv., 821 F.2d 382, 385 (7th Cir.1987); McGraw-Edison Co. v. Walt Disney Prods., 787 F.2d 1163, 1167 (7th Cir.1986); Fed. Deposit Ins. Corp. v. Meyer, 781 F.2d 1260, 1267 (7th Cir.1986). "Whether a fact is material depends on the substantive law underlying a particular claim and `only disputes over facts which might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment.'" Walter, 840 F.2d at 434 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202, 211 (1986)).
The burden is upon the moving party to establish that no material facts are in genuine dispute, and any doubt as to the existence of a genuine issue must be resolved against the moving party. Donald v. Polk County, 836 F.2d 376 (7th Cir.1988); Adickes v. S.H. Kress & Co., 398 U.S. 144, 160, 90 S.Ct. 1598, 1610, 26 L.Ed.2d 142 (1970); Backes v. Valspar Corp., 783 F.2d 77, 79 (7th Cir.1986). To preclude summary judgment, a non-moving party must show a material issue of fact. "A party who bears the burden of proof on a particular issue may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact which requires trial." Beard, 840 F.2d at 410. Therefore, if a party fails to establish the existence of an essential element of its case on which it bears the burden of proof at trial, summary judgment will be appropriate. Under such circumstances, "there can be no `genuine issue as to any material fact', since a complete failure of proof concerning an essential element of a nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265, 273 (1986). See also Anderson, 477 U.S. at 250, 106 S.Ct. at 2511, 91 L.Ed.2d at 212.
Amoco contends that since the word "promotion" was not included in the charge which Gomez signed on May 12, 1986, or in either of his amendments to his charge, the EEOC did not view his charge to include wrongful denial of promotions, and did not investigate these allegations. Amoco also contends that, as a result of Gomez's failure to include wrongful denial of promotions in his charge or subsequent amendments, Amoco was denied an opportunity to participate in conciliation regarding this allegation. Therefore, Amoco contends, Gomez's promotional claim is barred by the "scope of the charge" rule.
Gomez contends that there is a genuine issue of material fact regarding whether the denial of promotions was part of his original charge, and that this issue precludes summary judgment. To support this assertion, Gomez notes that the intake cover sheet completed by Mary Hagler of the Indiana Human Rights Commission on May 16, 1986, states that Gomez sought relief for "[l]oss of pay, loss of promotional advances, record cleared, cease all harassment[.]" (See Exhibit 7, Plaintiff's Appendix of Materials in Support of His Answer to Defendant's Motion for Summary Judgment, filed April 2, 1991 (hereinafter referred to as "Plaintiff's Exhibit [number]").) Additionally, during the course of the EEOC investigation, Gomez submitted an "EEOC Affidavit" in which he specifically listed incidents which he alleged demonstrated that he had been denied promotional opportunities due to his national origin. (See Plaintiff's Exhibit 12.)
Gomez also contends that EEOC Investigator Phyllis Jackson, who conducted the investigation of his charges prior to Investigator Vance, had informed him that loss of promotional opportunities was discussed as part of the investigation. (See Plaintiff's Exhibit 10, p. 4, paragraph 16; and Deposition of John Gomez, February 22, 1991, Defendant's Appendix of Materials in Support of Its Motion for Summary Judgment, filed March 18, 1991 (hereinafter referred to as "Defendant's Appendix"), Tab 1, p. 133.) Additionally, Gomez contends that Investigator Vance informed him that *194 when the class action component of his charge was investigated, promotions would be the main topic. (See Plaintiff's Exhibit 10, p. 5, paragraph 17.)
"In a Title VII case, the scope of the complaint is limited to the allegations included in a charge properly filed before the EEOC and the scope of the resulting EEOC investigation that would `reasonably be expected to grow out of the charge.'" Yarber v. Indiana State Prison, 713 F.Supp. 271, 275 (N.D.Ind.1988) (citing Jenkins v. Blue Cross Mut. Hosp. Ins., Inc., 538 F.2d 164, 167 (7th Cir.), cert. denied, 429 U.S. 986, 97 S.Ct. 506, 50 L.Ed.2d 598 (1976); Oubichon v. North Am. Rockwell Corp., 482 F.2d 569, 570 (9th Cir.1973); Sanchez v. Standard Brands, Inc., 431 F.2d 455 (5th Cir.1970); A. Larson and L. Larson, Employment Discrimination § 49.11(c)(1), at 9B-9). "Section 2000e-5(b) provides, in relevant part, that `[c]harges shall be in writing under oath or affirmation and shall contain such information and be in such form as the Commission requires.'" Philbin v. Gen. Elec. Capital Auto Lease, Inc., 929 F.2d 321, 323 (7th Cir.1991) (per curiam) (quoting 42 U.S.C. § 2000e-5(b)). Additionally, "[a] charge may be amended to cure technical defects or omissions," and "[s]uch amendments ... will relate back to the date the charge was first received." Philbin, 929 F.2d at 323 (quoting 29 C.F.R. § 1601.12(b)).
The United States Court of Appeals for the Seventh Circuit has held that "an intake questionnaire which is later verified may be sufficient to constitute a charge in some circumstances." Philbin, 929 F.2d at 323. This holding was based on the principle that "Title VII is remedial legislation which must be construed liberally[,]" such that technical interpretations of procedural provisions which would defeat its remedial purpose are to be avoided. Id. (citing Peterson v. City of Wichita, 888 F.2d 1307, 1309 (10th Cir.1989); Casavantes v. California State Univ., 732 F.2d 1441, 1442 (9th Cir.1984); Price v. Southwestern Bell Tel. Co., 687 F.2d 74, 77-78 n. 3 (5th Cir. 1982); Waiters v. Robert Bosch Corp., 683 F.2d 89, 92 (4th Cir.1982)).
The court of appeals did not, however, rule that all intake questionnaires could be considered charges, for such a ruling would render the EEOC's distinction between intake questionnaires and charges "meaningless", and would "defeat the purpose of a charge as providing notice and initiating the EEOC's investigation of the complaint." Id. (construing Steffen v. Meridian Life Ins. Co., 859 F.2d 534, 542 (7th Cir.1988)). Only when the "information contained in the intake questionnaire [is] sufficient to constitute a charge, and ... the plaintiff made it clear that he intended to activate the Act's machinery with the filing of the intake questionnaire[]" will an intake questionnaire constitute a "charge" within the meaning of 42 U.S.C. § 2000e-5(b). Philbin, 929 F.2d at 324-25 (construing Steffen, 859 F.2d at 544).
In the instant case, there is an issue of fact as to whether the information supplied by Gomez was sufficient to put the EEOC on notice that he wished to "activate the machinery" of the Civil Rights Act with respect to the investigation of his claim of denial of promotional opportunities based on national origin. While the intake cover sheet, which was not filled out by Gomez, and Gomez's EEOC Affidavit, executed August 19, 1987, contains sufficient information to constitute a charge within the meaning of 42 U.S.C. § 2000e-5(b), the typewritten charges reviewed and signed by Gomez do not contain this information. (See Plaintiff's Exhibit 7; Plaintiff's Deposition Exhibits 1 and 19, in Defendant's Appendix of Materials in Support of Its Motion for Summary Judgment filed March 18, 1991 (hereinafter referred to as "Defendant's Appendix"), Tabs 2 and 5).
Amoco contends that Gomez "cannot dispute that the EEOC did not actually investigate a promotion charge[,]", see Defendant's Brief filed March 18, 1991, p. 13, and that EEOC Investigator Edward Vance made it very clear to Gomez throughout the course of the investigation that denial of promotions was not an issue and was not part of the investigation. (See Weinbaum Affidavit Exhibit G, Defendant's Appendix, Tab 8(G).) Having reviewed the documents submitted by both parties in support of and *195 in opposition to the motion for summary judgment, this court concludes that loss of promotional opportunities may have been discussed, but it was not formally investigated. As Judge Miller held in Yarber, a
claim concerning denial of ... promotion is not reasonably related to ... charges [of racially motivated disciplinary matters and racially discriminatory work environment] before the EEOC. In investigating the claims specifically included in ... [these] charges, the EEOC would not have included the factual issues relevant to an allegedly discriminatory denial of promotion. An allegedly discriminatory denial of promotion would require an investigation into the positions involved, the applicant pool and the qualifications and race of other employees considered; these matters would not have been implicated by the ... charges [of racially motivated disciplinary matters and racially discriminatory work environment].
713 F.Supp. at 276. The materials submitted by the parties do not contain requests for this type of information. Therefore, this court must conclude that the investigation did not encompass this claim.
Amoco contends that since Gomez was represented by counsel throughout the EEOC investigation, and had extensive experience with civil rights law, his failure to amend his charges to specifically claim loss of promotional opportunities is inexcusable and must result in the dismissal of these charges from his complaint in this action. "[A]llowing a complaint to encompass allegations outside the ambit of the predicate EEOC charge would circumvent the EEOC's investigatory and conciliatory role, as well as deprive the charged party of notice of the charge, as surely as would an initial failure to file a timely EEOC charge." Babrocky v. Jewel Food Co., 773 F.2d 857, 863 (7th Cir.1985), as quoted in Schnellbaecher v. Baskin Clothing Co., 887 F.2d 124, 127 (7th Cir.1989). While this requirement does not restrict the subject matter jurisdiction of the court, but rather serves as a condition precedent which must be performed before filing suit in federal court, "the only claims of discrimination which are cognizable are those that are `those that are like or reasonably related to the allegations of the charge and growing out of such allegations.'" Schnellbaecher, 887 F.2d at 127 (quoting Babrocky, 773 F.2d at 864; Jenkins v. Blue Cross Mut. Hosp. Ins., Inc., 538 F.2d 164, 167 (7th Cir.1976) (en banc), cert. denied 429 U.S. 986, 97 S.Ct. 506, 50 L.Ed.2d 598 (1976)).
"However, a limited EEOC investigation will not necessarily defeat a complaint where the complaint contains allegations like or reasonably related to the EEOC charge, but which the EEOC failed to investigate." Schnellbaecher, 887 F.2d at 127. "In such a case, `the proper inquiry would be into what EEOC investigation could reasonably be expected to grow from the original complaint.'" Id. (quoting Babrocky, 773 F.2d at 864 n. 2). Accord Hicks v. ABT Assocs., Inc., 572 F.2d 960, 966 (3rd Cir.1978); Ostapowicz v. Johnson Bronze Co., 541 F.2d 394, 398-99 (3rd Cir. 1976), cert. denied, 429 U.S. 1041, 97 S.Ct. 741, 50 L.Ed.2d 753 (1977); Gamble v. Birmingham S.R.R., 514 F.2d 678, 688-89 (5th Cir.1975). Therefore, while "the investigation may help define the scope of the charge, it is primarily the charge to which [the court must look to determine] whether the scope requirement is satisfied." Schnellbaecher, 887 F.2d at 127 (citation omitted).
he chief operator training school. (See Deposition of Eric Weck at p. 18, Plaintiff's Exhibit 1.) Weck also stated that the supervisory position offered no difference in pay, and that he became a supervisor when a superintendent told him *196 he would. (See Deposition of Eric Weck at p. 40, Plaintiff's Exhibit 1.)
A foreman, Vyt Lausauzkas, stated that the decision to give an employee training to become a foreman was made by the scheduler and superintendent. (See Deposition of Vyt Lausauzkas at p. 20, Plaintiff's Exhibit 2.) Lausauzkas also stated that a "regimented type of evaluation" of an employee which focused on work habits, production, and errors was conducted to determine whether an employee would be given an opportunity to become a foreman. (See Deposition of Vyt Lausauzkas at p. 24, Plaintiff's Exhibit 2.) Another employee, Kathy Christopher, who is in charge of Amoco's Affirmative Action program, stated that the supervisor and superintendent do not consult with her before promoting someone when a vacancy occurs. (See Deposition of Kathy Christopher at p. 28, Plaintiff's Exhibit 3.) Christopher also stated that promotional decisions are based on a seniority list and that vacancies are not posted. Id.
In his EEOC Affidavit of August 19, 1987, Gomez cited Foreman Lausauzkas' failure to promote him as one of his complaints. (Plaintiff's Exhibit 12, p. 1.) Gomez also claimed that while he has the seniority and education to become a chief operator or foreman, his supervisors, who had the authority to promote him, discriminated against him on the basis of national origin. While it is not clear at this point that Gomez will be able to prove by a preponderance of the evidence that he was denied promotional opportunities on the basis of national origin, neither is it abundantly clear at this point that the EEOC investigation which could reasonably have been expected to grow from Gomez's claims would not have included an investigation of denial of promotional opportunities as a result of discrimination on the basis of national origin. As a result, summary judgment cannot be awarded on this issue. See McKinney v. Dole, 765 F.2d 1129, 1135 (D.C.Cir.1985) ("Summary judgment `should only be awarded when the truth is quite clear.'") (quoting Weiss v. Kay Jewelry Stores, Inc., 470 F.2d 1259, 1262 (D.C.Cir.1972) (footnote omitted)).
Amoco contends that even if denial of promotional opportunities due to discrimination on the basis of national origin was included in Gomez's EEOC charges, this claim is time-barred, even under the "continuing violation doctrine." Title VII provides that
[a] charge under this section ... in a case of an unlawful employment practice with respect to which the person aggrieved has initially instituted proceedings with a State or local agency ... shall be filed ... within three hundred days after the alleged unlawful employment practice occurred, or within thirty days after receiving notice that the State or local agency has terminated the proceedings under the State or local law, whichever is earlier[.]
42 U.S.C. § 2000e-5(e). Under the "continuing violation doctrine," "a systematic policy of discrimination is actionable even if some or all of the events evidencing its inception occurred prior to the limitations period." Williams v. Owens-Illinois, Inc., 665 F.2d 918, 924 (9th Cir.) (citing Elliot v. Sperry Rand Corp., 79 F.R.D. 580, 585-86 (D.Minn.1978)), cert. denied, 459 U.S. 971, 103 S.Ct. 302, 74 L.Ed.2d 283 (1982). However, in order for the doctrine to apply, "[t]here must be a violation within the period of the statute of limitations." Malhotra v. Cotter & Co., 885 F.2d 1305, 1310 (7th Cir.1989) (citing Young v. Will County Dep't of Pub. Aid, 882 F.2d 290, 293 (7th Cir.1989)).
Gomez claimed that he was told that he would act as chief operator from April until August 1985, and that, under his contract, maintaining this position for thirteen (13) weeks would enable him to maintain the higher rate of pay even if he were to return to his former position. (See Deposition of John Gomez of February 22, 1991, Defendant's Appendix, Tab 1, p. 197.) Gomez also stated that foremen are chosen from among the chief operators. (See Deposition of John Gomez of February 22, 1991, Defendant's Appendix, Tab 1, p. 198.) Gomez claimed that he informed his supervisors of his desire to be considered for a *197 promotion, but that his tenure as chief operator was intentionally ended "in the middle" so that he would lose not only the higher rate of pay but also the opportunity to compete for a foreman's position. (See Deposition of John Gomez of February 22, 1991, Defendant's Appendix, Tab 1, pp. 198-200.) Gomez claims that this action by his supervisors was the result of intentional discrimination on the basis of national origin.
Gomez first filed charges with the Indiana Human Rights Commission on May 12, 1986. By the intake cover sheet completed on that date by Mary Hagler of the Indiana Human Rights Commission, it appears that Gomez first raised the issue of loss of promotional opportunities as a result of discrimination on the basis of national origin on May 12, 1986. By his EEOC Affidavit of August 19, 1987, Gomez specifically identified his loss of a promotion in the summer of 1985 as proof of his claim of discrimination. Amendments to charges to cure omission will relate back to the time charges were first filed. Philbin, 929 F.2d at 323 (quoting 29 C.F.R. § 1601.12(b)).
If one subtracts 300 days from May 12, 1986, the statute of limitations requires that a violation of Title VII occur on or after July 4, 1985 in order for Gomez to pursue this claim in this action. While it is not clear that "`in the middle' of the summer of 1985" places Gomez's claim of intentional discrimination on or after July 4, 1985, nor is it clear that the allegedly discriminatory action by his supervisors occurred prior to that date. Therefore, summary judgment may not be awarded on this issue. McKinney, 765 F.2d at 1135 (citation omitted).
Finally, Amoco contends that summary judgment should be awarded on all of Gomez's other claims because he refused an offer which would have afforded him full relief at the close of the administrative proceedings. Summary judgment may be appropriate where an individual who claims employment discrimination rejects an offer of full relief made during administrative proceedings and opts to pursue his claims in a civil action. Wrenn v. Secretary, Dep't of Veterans Affairs, 918 F.2d 1073, 1074 (2d Cir.1990), cert. denied, ___ U.S. ___, 111 S.Ct. 1625, 113 L.Ed.2d 721 (1991). In such a case there must be no issue of fact as to whether the relief offered would have been full, or as to whether the claimant refused it. Id. at 1074-1077.
In this case, there is an issue of fact as to whether the EEOC investigation of Gomez's claims based on the information he supplied could reasonably have been expected to include denial of or loss of promotional opportunities as a result of intentional discrimination on the basis of national origin. Therefore, it is not clear at this point that the offer extended to him at the close of the administrative proceedings constituted an offer of full relief. Accordingly, summary judgment may not be awarded on this issue.
Conclusion
Based on the foregoing, the defendant's Motion for Summary Judgment is hereby DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1518852/ | 569 F.Supp. 1225 (1983)
Jesse I. and Jamie November LASKY, h/w et al.
v.
CONTINENTAL PRODUCTS CORPORATION, et al.
Civ. A. No. 82-3415.
United States District Court, E.D. Pennsylvania.
July 20, 1983.
*1226 William Zurzolo, Philadelphia, Pa., for plaintiffs.
George J. Lavin, Jr., Philadelphia, Pa., for Nissan.
Neil Jokelson, Philadelphia, Pa., for Continental.
MEMORANDUM
NEWCOMER, District Judge.
The defendant Nissan Motor Company, Ltd. (Japan) ("Nissan") has moved to dismiss all claims against it on the ground that this Court lacks personal jurisdiction over it. This motion will be denied.
This Court may, of course, exercise personal jurisdiction over a non-resident defendant to the extent allowed by the forum state. See, e.g., Rockwell International Corp. v. Costruzioni Aeronautiche, 553 F.Supp. 328 (E.D.Pa.1982). Pennsylvania's Long-Arm Statute, 42 Pa.C.S.A. § 5322, permits the exercise of personal jurisdiction to the fullest extent allowed under the United States Constitution. Accordingly, if the exercise of personal jurisdiction over Nissan satisfies the due process requirements of the United States Constitution, Nissan's motion must be denied.
Due process requires that a non-resident defendant have certain minimum contacts with the forum state such that the maintenance of the law suit in the forum state does not offend traditional notions of fair play. International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Such contacts are established by activities that give the defendant a reasonable expectation that it may be "haled before the Court" in the forum state. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).
In products liability cases such as the case sub judice, many courts have adopted the "stream of commerce" theory as a basis for jurisdiction over a foreign manufacturer. Under this theory personal jurisdiction may be obtained over a manufacturer in the forum in which the allegedly defective product was sold, notwithstanding the fact that the product was sold through an independent sales or distribution system. See DeJames v. Magnificence Carriers, Inc., 654 F.2d 280 (3d Cir.1981).
The product at issue in this suit is a Datsun automobile manufactured by Nissan. This automobile was apparently sold to a wholly owned subsidiary of Nissan, the Nissan Motor Corporation in U.S.A., for eventual resale in the United States. The plaintiff purchased this automobile in Pennsylvania and was injured in Pennsylvania as the result of an accident allegedly caused by a defect in the automobile.
Nissan asserts that it is a Japanese company with no offices or employees located in Pennsylvania; that it is not incorporated, licensed, or registered to do business in Pennsylvania; and that it carries on no activities whatsoever in Pennsylvania. Assuming, arguendo, the truth of these averments, it is still obvious that this Court may exercise personal jurisdiction over Nissan.
*1227 It cannot be disputed that the Datsun automobiles manufactured by Nissan are aggressively marketed and sold in Pennsylvania. The fact that Nissan conducts its marketing and distribution in the United States through an independent distribution system does not shield it from the imposition of in personam jurisdiction in Pennsylvania. Nissan had every reason to expect, and no doubt desired, that many of its automobiles would be sold in Pennsylvania. I find, therefore, that Nissan should reasonably expect to be haled into court in Pennsylvania. Nissan's motion to dismiss for lack of in personam jurisdiction will, therefore, be dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1578308/ | 439 F.Supp. 324 (1977)
Itha David BECKER, Hannah M. Kneafsey, on behalf of themselves and all other persons similarly situated, Plaintiffs,
v.
Phillip L. TOIA, as Commissioner of the New York State Department of Social Services, and Robert B. Travis, as Commissioner of the Sullivan County Department of Social Services, Defendants.
No. 77 Civ. 2561.
United States District Court, S. D. New York.
June 23, 1977.
*325 *326 Mid-Hudson Legal Services, Inc., Monticello, N. Y., Greater Up-State Law Project, Monroe County Legal Assistance, Rochester, N. Y., MFY Legal Services, Inc., New York City, for plaintiffs; David L. Posner, Joan E. Schmukler, David S. Yen, Monticello, N. Y., Rene Reixach, Rochester, N. Y., Ellice Fatoullah and Nancy E. LeBlanc, New York City, of counsel.
Louis Lefkowitz, Atty. Gen. of the State of New York, New York City, William C. Rosen, Sullivan County Atty., for defendant Robert B. Travis.
VINCENT L. BRODERICK, District Judge.
Plaintiffs Itha David Becker and Hannah M. Kneafsey, Medicaid beneficiaries, on behalf of themselves and all other persons similarly situated, allege in the complaint herein that New York State, in enacting and implementing Section 16 of Chapter 77 of the Laws of 1977 of the State of New York (hereinafter "Section 16"),[1] has violated the Equal Protection and the Due Process Clauses of the Constitution, and the federal Social Security Act and the regulations promulgated thereunder, as well as the Social Services Law of the State of New York. Section 16 by its terms mandates the Department of Social Services of the State of New York to impose, upon plaintiffs and other Medicaid beneficiaries, an obligation to make "co-payments" in an amount to be fixed by regulation with respect to purchases of prescription drugs and other medical services and supplies.
Named as defendants in the complaint are the Commissioner of New York State's Department of Social Services, and the Commissioner of the Department of Social Services of Sullivan County. The plaintiffs have moved for a preliminary injunction, pursuant to Rule 65(a) of the Federal Rules of Civil Procedure, enjoining the defendants from implementing and enforcing Section *327 16 and the regulations implementing it.[2] I find that there is a decided balance of hardships in favor of the plaintiffs, and that there are at a minimum sufficiently serious issues raised by the complaint as to make them "a fair ground for litigation". Sonesta Int'l Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973). I therefore grant plaintiffs' prayer for a preliminary injunction.[3]
The pertinent portion of Section 16 provides as follows:
6. Any inconsistent provision of law notwithstanding, rates of payment for claims for medical and prosthetic appliances, supplies and equipment, dental care and eyeglasses and each separate claim for drugs, furnished to persons twenty-one years of age or over but under sixty-two years of age, shall be reduced in accordance with department regulations by an amount not to exceed the maximum amount authorized by federal law and regulations, except that in the case of each separate claim for drugs such maximum amount shall not exceed fifty cents, as a co-payment amount, which co-payment amount the person providing such care, services, supplies and equipment, or drugs may charge the recipient, provided, however, that no such reduction may be made for any such care, services, supplies and equipment, or drugs provided to any recipient receiving care on an in-patient basis in a hospital as defined in article twenty-eight of the public health law; provided further that the exclusion of individuals age sixty-two or over from the co-payment provision of this subdivision shall apply to the extent consistent with federal law and regulations.
Section 16 pertains to the federal medical assistance program ("Medicaid") which has functioned in the State of New York pursuant to 42 U.S.C. § 1396, et seq. (Title XIX of the federal Social Security Act) and Sec. 363, et seq., of the New York Social Services Law. Under Medicaid the federal and state and local governments participate in funding medical aid, but various requirements with respect to such aid are spelled out in the federal lawconformance with those requirements is a condition of federal participation. 42 U.S.C. §§ 1396a, 1396c. See generally Feld v. Berger, 424 F.Supp. 1356, 1360 (S.D.N.Y.1976).
Plaintiffs do not allege that federal law prohibits the requirement of co-payments from Medicaid recipients: indeed, co-payment is specifically authorized by 42 U.S.C. § 1396a(a)(14) of the federal statute and 45 C.F.R. § 249.40(a)(3) of the federal regulations.
Plaintiffs do urge, however, that the imposition and implementation of co-payment requirements must conform to federal law in all respects. The thrust of the complaint is that co-payment requirements under Section 16 do not conform in that a) they have been imposed without satisfying notice requirements imposed by federal law; b) Section 16 was proposed, enacted and implemented in the absence of any consultation with a medical advisory committee which, under federal and state law, New York State was required to establish; and c) Section 16 as implemented requires co-payment from some but not all of categories and *328 recipients who pursuant to federal law must be treated equally.
Section 16 by its terms would reduce the rates of payment for medical appliances and drugs, "in accordance with department regulations", by an amount not more than the maximum authorized by federal law and regulations. Under Section 16 the amount of reduction is not to exceed $.50 for each separate claim for drugs. No reduction is to be made for medical services or drugs provided to an in-patient in a hospital. By its terms the co-payment provisions do not apply to persons under 21 or over 61, but the exemption for persons over 61 has been administratively deleted, and persons over 61 are now subject to the co-payment.[4] Also specifically exempted from the co-payment provisions of Section 16 are individuals receiving service on an in-patient basis in a hospital.
A. Jurisdiction
The threshold question is that of jurisdiction. Plaintiffs bring this action pursuant to 42 U.S.C. § 1983 and its jurisdictional counterpart, 28 U.S.C. § 1343(3) and (4), as well as 28 U.S.C. § 1331. Since I find that there is jurisdiction pursuant to 28 U.S.C. § 1343(3), the question of jurisdiction pursuant to 28 U.S.C. §§ 1343(4)[5] and 1331 need not be reached.
Jurisdiction under § 1343(3) properly lies where a constitutional claim has been raised and is not insubstantial or wholly without merit. See Lynch v. Philbrook, 550 F.2d 793 (2d Cir. 1977); Andrews v. Maher, 525 F.2d 113 (2d Cir. 1975). Regardless of the ultimate resolution of the issues on the merits, plaintiffs' claims are not "`so insubstantial, implausible, foreclosed by prior decisions of this Court or otherwise completely devoid of merit as not to involve a federal controversy within the jurisdiction of the District Court . . .' Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666-667 [94 S.Ct. 772, 39 L.Ed.2d 73] (1974)." Hagans v. Lavine, 415 U.S. 528, 543, 94 S.Ct. 1372, 1382, 39 L.Ed.2d 577 (1974). Thus I find that there is a colorable constitutional claim justifying the exercise of jurisdiction pursuant to § 1343(3). Having found that jurisdiction is established under this section on the constitutional claim, I find that it is appropriate to exercise pendent jurisdiction over the statutory claims. Hagans v. Lavine, supra at 536, 94 S.Ct. 1372; Lynch v. Philbrook, supra at 795.
B. Class Certification
An additional preliminary question is raised by plaintiffs' motion for class certification. Plaintiffs seek to have certified pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure a class composed of all persons twenty-one years of age or older[6] who are now or may in the future be eligible for medical assistance benefits in the State of New York and who are not receiving the care, services, supplies, equipment or drugs enumerated in Section 16 on an in-patient basis in a hospital, or on an out-patient basis from a facility or institution having such services, drugs or supplies included in their approved rate.[7]
*329 In order for the class action to be certified, the class must satisfy the prerequisites of Fed.R.Civ.P. 23(a) and (b)(2).
The first requirement of Rule 23(a), that joinder of all members of the class would be impracticable, has clearly been met. There are several hundred thousand persons who will be affected by the State's action and joinder of these would clearly be impracticable.
The second prerequisite of Rule 23(a) is that there be questions of law or fact common to the class. In this respect, there are Equal Protection and Due Process claims, as well as State claims under New York State Social Services Law § 365-c, which are common to all members of the proposed class.
There are also claims under the Social Security Act and the federal regulations which are applicable to the majority of the class members but are not applicable to a relatively small group of people who are "home relief" recipients for whom medical assistance is provided solely under state law.
The existence of this latter group does not necessarily render class action certification undesirable. It is possible that "home relief" recipients constitute a group which can be appropriately certified as a sub-class pursuant to Rule 23(c)(4). See, e. g., Federman v. Empire Fire & Marine Ins. Co., 19 F.R.Serv.2d 480 (S.D.N.Y.1974). Thus plaintiffs are not barred by Rule 23(a)(2) from obtaining class action certification.
Plaintiffs are next required to meet the requirement that the claims of the representatives are typical of the claims of the class. Since the named plaintiffs assert claims which are common to both the proposed class and the possible sub-class, the third requirement is met.
There can be no question that the plaintiffs are adequately represented here. Accordingly, the elements of Rule 23(c) have been satisfied.
Rule 23(b)(2) provides for class actions where the defendants have "acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole . . ." This requirement has obviously been met.
The defendants argue that the issues with respect to Section 16 can be raised and determined without the necessity of a class action. Denial of class action certification on this basis would appear to eviscerate the need for Rule 23(b)(2). See Rodriguez v. Percell, 391 F.Supp. 38, 41 n. 2 (S.D.N.Y. 1975). Moreover, "it seems advisable to cautiously safeguard the interests of the entire class by ensuring that any order runs to the class as a whole." Mendoza v. Lavine, 72 F.R.D. 520, 523 (S.D.N.Y.1976).
Thus I am inclined to grant certification, but shall defer such action pending further consultation with the parties with respect to the sub-division of the proposed class at the conference scheduled herein (see infra).
C. The Challenge to Section 16
1. Inadequate and Untimely Notice
Plaintiffs contend that the manner in which the co-payment provisions of Section 16 were implemented violated both the Due Process Clause and the regulations promulgated pursuant to the Social Security Act, 45 C.F.R. § 205.10(a)(4), in that the plaintiffs received insufficient notice of the reduction of benefits and of their rights, if any, to a pre-termination hearing. Consistent with the principle that the statutory claim is to be decided before considering constitutional issues, Hagans v. Lavine, supra, 415 U.S. at 543, 94 S.Ct. 1372, I address the statutory claim. See Dandridge v. Williams, 397 U.S. 471, 475-476, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970).
After enactment of Section 16, and pursuant to a directive of defendant Toia, Commissioner of the New York State Department of Social Services, defendant Travis *330 sent notice to Medicaid recipients in Sullivan County advising them of the co-payment provisions of Section 16, which were effective May 1, 1977. These notices were sent to the Medicaid recipients along with the May Medicaid cards on or about April 30, 1977,[8] thus giving them no advance notice. This same procedure has been followed in several other counties.[9] In some instances, Medicaid beneficiaries have been required to co-pay without receiving any notice.[10]
Defendant Toia issued an administrative letter (77 ADM-33) dated May 17, 1977, wherein he set forth a clarification of Section 16. 77 ADM-33 explained that the age ceiling of 61 is no longer in effect. It also added, as a group excluded from the co-payment provisions, out-patients of a facility or institution which includes in its approved rate services, drugs or supplies which would otherwise be subject to co-payment. Annexed to 77 ADM-33 was a sample notice to be sent to Medicaid recipients by local commissioners, informing them that as of May 1, 1977 they would be required to co-pay.[11] A copy of this sample notice letter was received by plaintiff Becker from defendant Travis on or about May 21, 1977almost three weeks after the effective date of Section 16 and after Mr. and Mrs. Becker had already, on a co-payment basis, expended money for drugs.[12] On May 19, 1977, William Toby, regional commissioner of the Department of Health, Education and Welfare, advised defendant Toia by letter that proper notice was required of the change contemplated by Section 16.[13]
New York State as a participant in the Medicaid program must conform to the pertinent provisions of the Social Security Act and the federal regulations which pertain to those provisions. See, e. g., Feld v. Berger, supra at 1360. 45 C.F.R. § 205.10(a)(4) was promulgated by the Department of Health, Education and Welfare ("HEW") in response to Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970) to establish the parameters of due process in this area. This regulation mandates, inter alia, that timely and adequate notice be given in the event of a decision by a state to "discontinue, terminate, suspend or reduce assistance".
Timely notice is defined as notice "mailed at least ten days before the date . . . upon which the action would become effective." 45 C.F.R. § 205.10(a)(4)(i)(A).
*331 Adequate notice, in the case of automatic grant adjustments effected by a change in either state or federal law, is notice which includes "a statement of the intended action, the reasons for such intended action, a statement of the specific change in law requiring such action and a statement of the circumstances under which a hearing may be obtained and assistance continued." 45 C.F.R. § 205.10(a)(4)(iii).
Despite defendant's arguments that the co-payment provisions authorized by Section 16 constitute neither a reduction in benefits nor a grant adjustment, such provisions clearly reduce the benefits to which the beneficiaries are entitled, and I find that they constitute a grant adjustment.[14]
The notice given by New York State with respect to the implementation of Section 16 was neither timely nor adequate under the regulations. The State did not give the mandatory 10 day notice prior to the effective date of the statute. Such notice was not only transmitted after the fact, but it failed to include a) the reasons for the action, b) a statement of the specific change of law requiring the action, and c) a statement of the circumstances under which a hearing may be obtained and aid continued.
Defendants maintain that regardless of plaintiffs' right to notice under the regulations, the mailing of timely and adequate notice would have had no effect on the ultimate resolution of the action. This argument fails to take into consideration the fact that under certain circumstances plaintiffs would be entitled under federal regulations to a pre-termination hearing. Thus 45 C.F.R. § 205.10(a)(5) requires an opportunity for a hearing to any applicant "who is aggrieved by any agency action resulting in suspension, reduction, discontinuance or termination of assistance." Although that regulation further provides that "[a] hearing need not be granted when either State or Federal law require automatic grant adjustments for classes of recipients," there is an exception to this provision where "the reason for an individual appeal is incorrect grant computation." Moreover, at a minimum, plaintiffs have the right to have aid continued (subject to recovery) pending a determination at a hearing that the sole issue is one of State or Federal law or policy and not one of incorrect grant computation. 45 C.F.R. § 205.10(a)(6)(i)(A).[15]See Viverito v. Smith, 421 F.Supp. 1305 (S.D.N.Y.1976).
Thus the requirement of timely and adequate notice, in the context of the implementation of Section 16, is a meaningful one. On this issue plaintiffs have established probable success on the merits, justifying the granting of a preliminary injunction. See Benton v. Rhodes, CCH Medicaid and Medicare Guide, ¶ 28,025 (S.D.Ohio 1976) (inadequate notice); Robinson v. Maher, CCH Medicaid and Medicare Guide, ¶ 27,707 (D.Conn.1976) (untimely notice).
2. Failure to Consult Medical Advisory Committee
Plaintiffs challenge the manner in which Section 16 was adopted and implemented as violative of the Social Security Act, 42 *332 U.S.C. § 1396a(a)(22) and the regulations thereunder, 45 C.F.R. § 246.10, and the New York State Social Services Law § 365-c (McKinney 1976) in that the Commissioner of the Department of Social Services failed to consult with a Medical Advisory Committee prior to the enactment of, and also prior to the implementation of, Section 16.
In order to receive federal funds under the Medicaid program, each state must establish standards and methods to assure the delivery of high quality medical care. 42 U.S.C. § 1396a(a)(22)(D). The federal regulations require each state to establish a Medical Advisory Committee ("M.A.C."), whose members must be selected from certain enumerated interest groups. 45 C.F.R. § 246.10. Once constituted, M.A.C. is to "have adequate opportunity for meaningful participation in policy development and program administration, including the furtherance of recipient participation in the program of the agency," and is to be provided such staff assistance "as [is] needed to enable it to make effective recommendations." 45 C.F.R. § 246.10(a)(3) and (a)(4). Consistent with these requirements, the New York State Legislature has established a M.A.C. to "advise the commissioner with respect to health and medical care services . . ." Social Services Law § 365-c.
There was no consultation with New York State's M.A.C. with respect to the proposal of Section 16, the adoption of Section 16, or the implementation of Section 16. Despite the requirements of 45 C.F.R. § 246.10, and of Section 365-c of the New York Social Services Law, there has been no functioning M.A.C. in New York State since 1974.[16] Thus the Commissioner did not consult with M.A.C. either before the enactment or before the implementation of Section 16. Had there been prior consultation with a functioning and broadly based M.A.C. prior to enactment of Section 16, alternatives to its co-payment provisions might have been proposed and adopted.[17]
Defendants maintain that, even if M.A.C. had been functioning, the Commissioner could not constructively have consulted with M.A.C. after enactment and prior to implementation of Section 16 because Section 16 as enacted left no discretion in the Commissioner to impose anything but the maximum co-payment permitted by federal law. Thus, they argue, any consultation with M.A.C. prior to implementation would have been fruitless. They contend that Section 16 mandated the Commissioner to impose upon Medicaid beneficiaries the maximum co-payments permitted by federal law.
Section 16 states in relevant part:
[P]ayment for claims . . . shall be reduced in accordance with department regulations by an amount not to exceed the maximum amount authorized by federal law and regulations . . .
Thus the language of Section 16 on its face appears to vest discretion in the Commissioner (who presumably promulgates departmental regulations) with respect to the amount of co-payments.
The Department of Social Services was actively involved not only in supporting Section 16, but in drafting the statute.[18] On this issue, as on all other issues, M.A.C. had no opportunity to make known its opinion.
Defendants argue that M.A.C.'s role is limited to major policy considerations. 45 C.F.R. § 246.10(a)(3) speaks of "participation in policy development and program administration." Proposal and enactment of a co-payment provision, where there was *333 none before, constitutes a major policy development, and participation by M.A.C. was required by the federal regulations, authority for which is found in the Social Security Act itself. 42 U.S.C. § 1396a(a)(14), 45 C.F.R. § 249.40(a)(3).
Moreover, Section 365-c of the Social Services Law refers to M.A.C.'s rendering advice with respect to health and medical care services provided pursuant to Title 11 of the Social Services Law. Since the co-payment provisions affect health and medical care services provided in Title 11, the failure of the Commissioner to consult with M.A.C. appears to have violated Section 365-c.
The co-payment provision is therefore clearly the type of provision with respect to which M.A.C. should have had input.[19]
The Commissioner's failure to consult with M.A.C. appears to have violated the federal regulations and the New York State statute. See Benton v. Rhodes, supra; Robinson v. Maher, supra; Diane Ho v. Andrew Chang, No. 76-0029 (D.Haw. April 27, 1977) (unreported decision); Dominguez v. Milliken, CCH Medicaid and Medicare Guide, ¶ 26,633 (W.D.Mich.1973). Accordingly, on this issue plaintiffs have established a probability of success warranting the grant of preliminary injunctive relief.
3. Discrimination in Favor of Certain Medicaid Recipients
Finally, plaintiffs challenge Section 16 as violative of the Equal Protection Clause, the Social Security Act, 42 U.S.C. § 1396a(a)(10)(B)(i) and (10)(C)(ii), and the federal regulations promulgated pursuant to the Social Security Act, 45 C.F.R. § 249.10(a)(6) and (a)(7), in that it fails to impose co-payments uniformly on all medical assistance beneficiaries. Instead, plaintiffs contend Section 16 impermissibly exempts certain groups from the co-payment provisions. Plaintiffs point to the exclusion of all those who are under 21 years of age, those who are receiving medical services on an in-patient basis in a hospital, and those out-patients of institutional clinics where the cost of items covered by Section 16's co-payment requirement is included in the reimbursement rate for the institution.
Following the precepts of Hagans v. Lavine, supra, I deal with the statutory issues in order to avoid reaching the constitutional issues herein.
The thrust of the plaintiffs' objection to Section 16 is that it violates those provisions of the Social Security Act which are commonly referred to as the "comparability" provisions. The Social Security Act defines two federal groups of medical assistance beneficiaries, the "categorically needy" and the "medically needy."[20] Under the comparability provisions of the Act, each person in each of these groups shall be eligible for the same "amount, duration and scope" of coverage as all the others in his or her group, subject to certain limited exceptions.
*334 Specifically, under the Social Security Act, 42 U.S.C. § 1396a(a)(10)(B)(i), applicable to the "categorically needy", "the medical assistance made available to any individual" in that group "shall not be less in amount, duration, or scope than the medical assistance made available to any other such individual." As to the "medically needy", the statute provides: "the medical assistance made available to all individuals . . shall be equal in amount, duration and scope ..." 42 U.S.C. § 1396a(a)(10)(C)(ii). And finally, § 1396a(a)(10)(B)(ii) requires that the "categorically needy" receive no "less in amount, duration or scope" than the "medically needy". White v. Beal, 413 F.Supp. 1141 (E.D.Pa.1976). See also 45 C.F.R. § 249.10(a)(6) and (a)(7).
Plaintiffs contend that the exemptions from Section 16's co-payment provisions violate all three of these comparability provisions.
With respect to the "medically needy", federal law generally permits co-payments, with certain limited exceptions relating to age requirements.[21] 42 U.S.C. § 1396a(a) (14)(B). Plaintiffs contend that Section 16's exemptionsfor those 21 and under, in-patients in hospitals, and out-patients of clinics where the reimbursement rate includes drugs, etc.do not fall within any of these exceptions, and that therefore the comparability requirements are violated within the "medically needy" category. Assuming Section 16's exemptions to be invalid as to the "medically needy" category, plaintiff's argument continues, they must also be invalid as to the "categorically needy" since the latter would be receiving less in amount, duration or scope of assistance by virtue of certain of the "medically needy" not being required to make co-payments.
Plaintiffs also contend that within the "categorically needy" group itself, Section 16 violates the comparability requirements of 42 U.S.C. § 1396a(a)(10). Unlike the "medically needy" for whom co-payments are generally permitted by federal laws, co-payments are prohibited for the "categorically needy" on certain enumerated services.[22] 42 U.S.C. § 1396a(a)(14). Plaintiffs contend that New York's statutory exemption is far broader than the prohibited categories listed, and that therefore the statute must fall on this ground as well.
Defendants contend that assuming the comparability requirements do apply to the co-payment provisions of Section 16,[23] the individuals exempted from the co-payment provisions of Section 16 are specifically exempted from the comparability requirements. First, defendants maintain that the exemption of those persons who are under 21 from co-payment is specifically authorized by the regulations. Defendants rely, for this contention, on the fact that co-payments are prohibited for the categorically needy on certain required services, one of which is the early and periodic screening, diagnosis and treatment program (hereinafter "EPSDT"). 45 C.F.R. § 249.10(a)(1) *335 and (b)(5). Moreover, defendants point out that with respect to both the "categorically needy" and the "medically needy", federal regulations specifically exempt the EPSDT program from the comparability requirements. See 45 C.F.R. §§ 249.10(a)(6)(iv) and 249.10(b)(4)(iii). Under the defendants' analysis it would be illegal for the state to impose co-payments on those under 21.
Plaintiffs do not dispute the fact that EPSDT is exempt from the comparability provisions of the regulation but argue that Section 16's statutory exemption is far broader than that provided in the regulations. EPSDT is defined in 45 C.F.R. § 249.10(b)(4)(ii) of the regulations as follows:
Early and periodic screening and diagnosis of individuals under the age of 21 who are eligible under the plan to ascertain their physical or mental defects, and health care, treatment and other measures to correct or ameliorate defects and chronic conditions discovered thereby.
In New York State and City this service is known as the Child Health Assurance Program ("CHAP"). The plaintiffs maintain that the state's argument erroneously assumes that all children under 21 are enrolled in CHAP and that all services they receive are CHAP services. This argument, they assert, is not only incorrect in law but unsupported in fact. CHAP, or EPSDT, according to the plaintiffs, is a program designed to encourage early and periodic screening of children and to correct defects and conditions discovered thereby. Plaintiffs distinguish this type of treatment from episodic care such as a cold or strep throat which is not, they argue, under CHAP. Moreover, plaintiffs point out that although all Medicaid beneficiaries under 21 are eligible for CHAP, most children under 21 are not CHAP-enrolled in this state. See Woodruff v. Lavine, 417 F.Supp. 824 (S.D. N.Y.1976).[24]
Both sides have submitted affidavits supporting their respective interpretations of the services provided under EPSDT. Although it appears from a reading of the definition of EPSDT that it is designed to cover only those defects and conditions discovered in the course of diagnosis and treatment, defendants point out that the Department of Social Services has determined that CHAP treatment is not limited to this type of treatment. See affidavits of Dr. Steibel, dated June 2 and June 8, 1977. Further, defendants argue that even if the plaintiffs' interpretation is correct, the difficulties inherent in distinguishing between treatment to children under 21 who are receiving CHAP treatment and those who are not would create an administrative morass not envisioned by the drafters of the federal regulations.
Regardless of the ultimate resolution of this issue, it is clear that at a minimum plaintiffs have shown sufficiently serious questions going to the merits on this issue to make them a fair ground for litigation. In view of my finding that there is a substantial question as to whether Section 16 violates the comparability provisions by excluding all those under 21 from its co-payment provisions, I find it unnecessary to reach the issue at this time of the other exemptions under Section 16.
D. Preliminary Injunction
The now familiar test in this Circuit for the granting of preliminary injunctive relief is whether there has been "'a clear showing of either (1) probable success on the merits and possible irreparable injury, or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.' Sonesta Int'l Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973) (emphasis in original)" Triebwasser & Katz v. American Tel. & Tel. Co., 535 F.2d 1356, 1358 (2d Cir. 1976).
*336 I have already found that there has been a clear showing by the plaintiffs of probable success on the merits with respect to notice and failure to consult the Medical Advisory Committee. With respect to discrimination in favor of certain Medicaid recipients there are sufficiently serious questions going to the merits to make them a fair ground for litigation.
Plaintiffs must also establish the element of the threat of irreparable harm as a prerequisite to relief. Triebwasser & Katz v. American Tel. & Tel. Co., supra at 1359. In support of their position that they will be irreparably harmed by the enforcement of Section 16, plaintiffs have submitted numerous affidavits indicating that the co-payment requirement can and will have drastic effects on the plaintiffs and others similarly situated, and in particular on geriatric beneficiaries of Medicaid. In some instances, beneficiaries will be forced to live below a subsistence level and give up other daily necessities in order to obtain life-sustaining drugs.[25] In other instances, beneficiaries, who are totally without funds, will be unable to purchase drugs which are medical necessaries.[26]
Defendants argue that although these co-payments may cause financial hardship for Medicaid recipients, they will not constitute irreparable harm. Further, the defendants argue that the State's budgetary problems will be aggravated by its inability to collect these co-payments and that the balance of equities tips in its favor.
Although I am sympathetic to the State's financial difficulties, I find that the balance of equities clearly weighs in favor of the plaintiffs. The implementation and enforcement of Section 16 will irreparably damage certain of the Medicaid beneficiaries who are required to make co-payments and who are without funds to do sonotably those in nursing homes who have no funds to make co-payments.[27] "The injury to those whose health is maintained on the slenderest chemical balance provided through medication is not merely irreparable; it is ultimate." Bass v. Richardson, 338 F.Supp. 478, 489 (S.D.N.Y.1971); See also Bass v. Rockefeller, 331 F.Supp. 945, 947 n. 3 (S.D.N.Y.) vacated on other grounds, 464 F.2d 1300 (2d Cir. 1971) (per curiam).
Plaintiffs have made a clear showing that they are entitled to preliminary relief on all three grounds upon which they have challenged Section 16. Accordingly, defendants will be preliminarily enjoined from implementing and enforcing Section 16.
The foregoing constitutes findings of fact and conclusions of law required by Rule 52.
An order implementing the above is being filed concurrently herein.
E. Further Proceedings
A hearing will be held herein on June 30, 1977 at 10 a. m. in Courtroom 318, United States Courthouse, Foley Square, New York, to consider the parameters of the class to be certified herein, and to delineate the issues to be tried. The trial is scheduled for July 7, 1977 at 10 a. m.
NOTES
[1] Section 16 was signed into law by the Governor of New York on or about April 12, 1977, effective May 1, 1977. It is to be codified in Social Services Law § 367-a.6.
[2] Plaintiffs also ask that the defendants be directed to notify all providers of medical supplies subject to the co-payment provisions of Section 16 that implementation of said section is preliminarily enjoined and that they are not permitted to collect any co-payment amounts from plaintiffs and other Medicaid beneficiaries.
[3] After a hearing on May 25, 1977, I issued a temporary restraining order enjoining the defendants from May 26 to and including June 3, 1977, from taking further steps to implement Section 16. At a hearing on June 3, 1977 good cause was shown for the modification of that temporary restraining order and for its extension for an additional ten days. The order was modified to enjoin the enforcement and implementation of Section 16 up to and including June 13, 1977, with the additional requirement that the State send notice to all social service districts in the State of New York that the co-payment provisions of Section 16 were suspended and that providers were not to charge co-payments for drugs and other medical supplies. At a hearing on June 13, 1977, that order was extended up to and including June 23, 1977.
[4] The exemption for persons over 61 applies by the terms of law "to the extent consistent with federal law and regulations." After the State Department of Social Services received a letter from the Department of Health, Education and Welfare's regional office on April 20, 1977, pointing out problems under federal law, the exemption for individuals over 61 was not implemented.
[5] There can be no jurisdiction, however, under 28 U.S.C. § 1343(4), which provides for federal jurisdiction over claims under any act of Congress providing for the protection of civil rights. The Court of Appeals for this Circuit has specifically rejected the contention that the Social Security Act was an act providing for the protection of civil rights under § 1343(4). Andrews v. Maher, 525 F.2d 113 (2d Cir. 1975).
[6] The class for which the complaint seeks certification is described as persons 21 or over and under 62. Since the State has administratively eliminated the Section 16 exemption of persons over 61 from the group subject to the co-payment requirements, the parameters of the proposed class were changed at the first hearing.
[7] The group for which plaintiffs seek class certification was not delineated as including those Medicaid beneficiaries who were not out-patients of institutional clinics where the cost of the item is included in the reimbursement rate for the institution. Such a delineation should be included in the description of the class to be certified. See 77 ADM-33, dated May 17, 1977.
[8] See affidavit of plaintiff Itha David Becker dated May 18, 1977.
[9] See affidavit of David L. Posner dated May 23, 1977.
[10] See affidavit of Cindy Detzauer dated June 2, 1977; affidavit of Norman Goodman dated June 3, 1977.
[11] The form letter for recipient notification reads as follows:
Dear Medicaid Recipient:
Recently a change was made in the New York State Medicaid Program which requires eligible Medicaid recipients twenty-one (21) years of age and older to be responsible for a co-payment amount of the approved charge for medical, prosthetic, orthotic appliances, supplies and equipment, dental care, eyeglasses and drug prescriptions.
The only exclusions to the co-payment requirement are eligible persons under 21 years of age, inpatients of a hospital, outpatients of a facility or institution having such services, drugs or supplies included in their approved rate and family planning services, drugs or supplies.
A pharmacy provider on or after May 1, 1977 must collect a co-payment amounting to no more than $.50 from the eligible Medicaid recipient for each individual drug prescription including original and refill orders.
Providers of medical, prosthetic, orthotic appliances, supplies and equipment, dental care and eyeglasses on or after May 1, 1977 must collect a co-payment from the eligible Medicaid recipient in accordance with a schedule that represents co-payment amounts to be paid by a Medicaid recipient depending on the approved charge for each specific service or supply. Each provider of service has been sent a schedule of co-payment charges that range from $.50 for an approved charge for each service or supply amounting to $10 or less with a maximum of $3.00 for those services or supplies $51 or more.
If you have any questions, please contact ______ at (Tel. #).
Sincerely,
[12] See affidavits of David L. Posner dated May 25, 1977 and May 23, 1977.
[13] See Exhibit to affidavit of David L. Posner dated May 23, 1977.
[14] This interpretation has been adopted by HEW in a letter dated May 19, 1977, from the Regional Commissioner of HEW, William Toby, to Commissioner Toia, Mr. Toby described the imposition of co-payment as a grant adjustment requiring a hearing where there is an incorrect grant computation. See Exhibit to affidavit of David L. Posner dated May 23, 1977. See also, HEW Amicus Brief.
Defendants further argue that even if Section 16 is a grant adjustment, it is not an automatic grant adjustment for classes of recipients triggering the notice requirement of 45 C.F.R. 205.10(a)(4)(iii). This argument is premised upon defendants' position that a co-payment would never be required of an individual who does not purchase a drug or medical device. Defendants argue that the term "automatic" should be interpreted to cover only those situations where no action on the part of a recipient is necessary to cause the intended action to commence. This argument I deem to be without merit.
[15] It should also be noted that Medicaid beneficiaries can seek permission for a single group hearing in those cases in which the sole issue involved is one of state or federal law requiring automatic grant adjustments for classes of recipients. 45 C.F.R. § 205.10(a)(5)(iv) and (v).
[16] The Medical Advisory Committee ("M.A. C."), as established by Social Services Law § 365-c, has not met since 1974 and is not now in existence. Of the 20 members required to serve on that committee, only six persons have been appointed. See affidavit of Ellice Fatoullah dated May 16, 1977.
At oral argument on June 13, 1977, counsel for the defendants stated that the rest of these positions are currently in the process of being filled.
[17] See affidavit of Martin Schiffer, dated May 19, 1977.
[18] See affidavits of Shirley Harvey, dated June 1, 1977; Emily Young, dated June 2, 1977; Robert Schiffer, dated June 1, 1977; and Patrick Bulgaro, dated June 1, 1977.
[19] Defendants argue that it would not have been feasible for the Commissioner to have conferred with M.A.C. since the Medicaid Assistance Manual (a publication of H.E.W.) suggests only that M.A.C. meet at a minimum of once every three months. This argument ignores the fact that pursuant to Social Services Law § 365-c special meetings of M.A.C. may be called by the Chairman at the request of the Governor or Commissioner. Moreover, the facts belie defendants' assertion since the regulation was issued on May 1, 1977, and the Department of Social Services was actively involved in the enactment of Section 16 as early as February 17, 1977, suggesting that there was more than sufficient time within which to consult M.A.C., if there had, indeed, been a functioning M.A.C. See affidavit of Shirley Harvey dated June 1, 1977.
[20] The "categorically needy" are persons actually receiving cash assistance under the Aid to Families with Dependent Children or Supplemental Security Income programs, 45 C.F.R. § 248.1(a), plus certain optional persons including those eligible for but not receiving such benefits. 45 C.F.R. § 248.1(c). New York has elected to cover such optional "categorically needy". New York has also elected to cover the "medically needy". The "medically needy" are those who but for excess income or resources would be "categorically needy" and whose medical expenses bring them down to the cash assistance level. 42 U.S.C. § 1396a(a)(10)(C)(i).
[21] Skilled nursing facility services can be limited to persons aged 21 or older, 42 U.S.C. § 1396d(a)(4)(B); early and periodic screening diagnosis and treatment can be limited to persons under 21, 42 U.S.C. § 1396d(a)(4)(B); family planning services and supplies can be limited to persons of childbearing age, 42 U.S.C. § 1396d(a)(4)(C); services in institutions for tuberculosis or mental institutions can be limited to persons aged 65 or over, 42 U.S.C. § 1396d(a)(14); and in-patient psychiatric hospital services can be limited to persons under 21, 42 U.S.C. § 1396d(a)(16).
[22] The services on which co-payments are prohibited are, in summary form: 1) in-patient hospital services (except in tuberculosis or mental hospitals); 2) out-patient hospital services; 3) laboratory and X-ray services; 4) skilled nursing facility services (other than in tuberculosis or mental institutions); 5) early and periodic screening, diagnosis and treatment; 6) family planning services and supplies; 7) physician's services; and 8) home health care services. 42 U.S.C. § 1396a(a)(14)(A)(i); § 1396d(a)(1-5) and (7).
[23] Defendants argue at the outset, that since the comparability provisions are framed in terms of "amount, duration and scope" there need not be any comparability as to the cost of services. This syllogism continues that since Section 16 affects the cost of services, it is not governed by the comparability provisions of the Social Security Act. I reject this argument as being without basis in law or logic.
[24] H.E.W. has also taken the position that not all children under 21 participating in the Medicaid program are covered by EPSDT or CHAP.
[25] See affidavits of plaintiff Itha David Becker, dated May 18, 1977 and Hannah M. Kneafsey dated May 18, 1977.
[26] See affidavits of Richard Roberts dated June 2, 1977; Salvatore J. Rubino, dated June 2, 1977; Robert Sherman, undated; Norman Goodman, dated June 3, 1977; Roy Watkis dated June 2, 1977. See also affidavits of Jack Bernstein dated June 2, 1977; Bertha Bernstein dated June 2, 1977; Bernard Witt dated May 25, 1977; Jesse Jones dated May 25, 1977; Ida Simons, undated; Myriam Rubin dated May 25, 1977.
[27] Defendants' "assurances" that the State will provide "necessary" drugs to adult home residents is too nebulous at this time for this Court to rely on it and risk the lives of numerous beneficiaries. Moreover, it still leaves many beneficiaries unprotected from the possibility of irreparable damage. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2986128/ | August 27, 2013
JUDGMENT
The Fourteenth Court of Appeals
GUILLERMO GARZA D/B/A WILHOME BUILDERS & CONSTRUCTION,
Appellant
NO. 14-11-00724-CV V.
JESSE CANTU, Appellee
________________________________
This court today issued a substitute opinion. We order this court’s former
judgment of May 11, 2013, vacated, set aside, and annulled. We further order this
court’s opinion of May 11, 2013, withdrawn. We deny the motion for panel
rehearing filed by appellee, Jesse Cantu. Appellee’s motion for en banc
reconsideration is denied as moot.
This cause, an appeal from the judgment in favor of appellee, Jesse Cantu,
signed May 10, 2011, was heard on the transcript of the record. We have inspected
the record and find error in the judgment. We therefore order the judgment of the
court below REVERSED and REMAND the cause for proceedings in accordance
with the court’s opinion.
We further order that all costs incurred by reason of this appeal be paid by
appellee, Jesse Cantu.
We further order this decision certified below for observance. | 01-03-2023 | 09-23-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1583923/ | 717 F.Supp. 468 (1989)
BORMAN'S, INC., Plaintiff,
v.
MICHIGAN PROPERTY AND CASUALTY GUARANTY ASSOCIATION, Defendant.
No. 86-CV-70122-DT.
United States District Court, E.D. Michigan.
June 30, 1989.
*469 Stephen Glazek, Elaine Fieldman, Detroit, Mich., for plaintiff.
Jeffrey Lipshaw, Donald S. Young, Detroit, Mich., for defendant.
OPINION
HACKETT, District Judge.
Plaintiff Borman's, Inc. (Borman's), is a Delaware corporation authorized to do business in the State of Michigan. Its principal place of business is located in the City of Detroit. Borman's is the owner and operator of the Farmer Jack Supermarkets chain. At the time the complaint was filed, there were more than 80 Farmer Jack stores located in the State of Michigan. Borman's also owns and operates certain subsidiaries and divisions involved in the manufacture and distribution of food products.
Defendant Michigan Property and Casualty Guaranty Association (Association) is a Michigan association created under the Michigan Property & Casualty Association Act (Act), M.C.L. § 500.7901, et seq. With limited exceptions, all insurers authorized to transact insurance in Michigan must be members of the Association. When a member insurer becomes insolvent, the Association steps into the insurer's shoes. The Association has the right to appear and defend claims, and the obligation to pay and discharge "covered claims." M.C.L. § 500.7931.
It is plaintiff's position that section 500.7925(3) of the Act, which denies reimbursement of claims filed by "... a person who has a net worth greater than 1/10 of 1% of the aggregate premiums written by member insurers in this state in the preceding calendar year," denies plaintiff its right to equal protection under the law as guaranteed by the fourteenth amendment to the United States Constitution and by article I, section 2, of the Michigan Constitution. For the reasons set forth below, the court agrees with plaintiff's position and finds that the means chosen to identify claimants entitled to reimbursement under the Act, that is, solely on the criterion of the claimant's net worth, is not rationally related to the legislative purpose of allocating loss to those best able to absorb loss. Therefore, the court determines that section 500.7925(3) of the Act violates plaintiff's right to equal protection under the law as guaranteed by both the United States and Michigan Constitutions.[1]
The Act
The Act provides:
To implement this chapter, there shall be maintained within this state, by all insurers authorized to transact in this state insurance other than life or disability insurance ... an association of those insurers to be known as the property and casualty guaranty association, hereafter referred to as the "association". Each insurer shall be a member of the association, as a condition of its authority to continue to transact insurance in this state.
M.C.L. § 500.7911(1). The Association is managed by a board of governors comprised of five member insurers and two persons from the general public. M.C.L. § 500.7912.
The Association's costs for administration, claims, and defense are paid for by an assessment levied on the member insurers:
To the extent necessary to secure funds for the association for payment of covered claims and for payment of reasonable costs of administering the association, including the cost of indemnifying members of the board of governors, other *470 member insurers, officers, employees, and other persons acting on behalf of the association to the extent permitted by law and the plan of the operation, the association shall levy assessments upon all member insurers. The association shall allocate its claim payments and costs to the following 5 categories:
(a) Worker's compensation insurance.
(b) Automobile insurance.
(c) Title insurance.
(d) Fire, allied lines, farm owner's multiple peril, homeowner's multiple peril, inland marine, earthquake and credit insurance.
(e) All other kinds of insurance except life and disability insurance.
M.C.L. § 500.7941(1). Under the Act, assessments are charged per category and may only be used to pay for claims and costs associated with that particular category:
Separate assessments shall be made for each category prescribed in subsection (1) [M.C.L. § 500.7941(1)]. The assessments for each category shall be used to pay the claim payments and costs allocated to that category. The assessment for each category shall be in proportion to the net direct premiums written, after deducting dividends paid or credited to policy holders, by each member insurer in this state for kinds of insurance included within each category, as reported in the most recent annual statement available at the time of assessment. The rate of assessment shall be a uniform percentage of the premiums for all member insurers. The assessments shall be remitted to and administered by the association in accordance with the plan of operation. Each member insurer assessed shall have not less than 30 days' advance written notice of the date the assessment is due and payable.
M.C.L. § 500.7941(2). As provided by the Act, member insurers may pass the cost of such assessments to their insureds as part of the premiums, and thus the funds needed by the Association to pay claims are paid by the insureds to the extent the assessments are included in the rates. Insureds who pay more premiums thus pay more assessment dollars. M.C.L. § 500.7941(4).
The Act provides that in order for a claim to be a "covered claim," it must arise out of a policy of an insolvent member insurer, and must be issued to a Michigan resident or payable to a Michigan resident:
"Covered claims" means obligations of an insolvent insurer which meet all of the following requirements:
(a) Arise out of the insurance policy contracts of the insolvent insurer issued to residents of this state or are payable to residents of this state on behalf of insureds of the insolvent insurer.
(b) Were unpaid by the insolvent insurer.
(c) Are presented as a claim to the receiver in this state or the association on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings.
(d) Were incurred or existed before, at the time of, or within 30 days after the date the receiver was appointed.
(e) Arise out of policy contracts of the insolvent insurer issued for all kinds of insurance except life and disability insurance.
(f) Arise out of insurance policy contracts issued on or before the last date on which the insolvent insurer was a member insurer.
M.C.L. § 500.7925(1). The amount of a covered claim is limited to the amount of coverage afforded under the policy and the maximum claim limit described in the Act. M.C.L. § 500.7925(4)(5).
Under the Act, persons and entities who have a net worth in excess of a statutory formula cannot recover from the fund:
Covered claims shall not include obligations to an insurer, insurance pool, underwriting association, or to a person who has a net worth greater than 1/10 of 1% of the aggregate premiums written by member insurers in this state in the preceding calendar year.
M.C.L. § 500.7925(3) (emphasis added). Net worth is not defined in the Act. Borman's *471 has challenged the constitutionality of section 500.7925(3). Borman's asserts that because there is no rational relationship between an insured's net worth and the insured's ability to absorb loss, Section 500.7925(3) violates the equal protection clauses of the United States and Michigan Constitutions.
Background
At trial, the Association offered the testimony of Elijah Poxson. Poxson was employed by Michigan Mutual Insurance Company (Michigan Mutual) from 1941 until 1977, at which time he took an early retirement. In 1969, he was General Counsel for Michigan Mutual and subsequently became Vice-President and Secretary. From 1974-1977, Poxson was the President of Michigan Mutual. During much of his employment with Michigan Mutual, Poxson participated in the American Mutual Insurance Alliance, a national trade association for insurance carriers (Trade Association). The Trade Association monitors legislation, attempts to affect the course of legislation, and participates as amicus curiae in litigation affecting the insurance industry.
Poxson testified that in the late 1960's the question of guaranty association legislation was discussed during Trade Association meetings. According to Poxson, certain federal legislation had been proposed which the insurance industry did not want enacted. In an effort to thwart such federal legislation, the Trade Association formed a sub-committee sometime in 1968, of which Poxson was a member, to draft a proposed model bill for state regulated post-assessment guaranty associations. The sub-committee drafted a proposed bill which was approved by the Trade Association. The proposed Trade Association model bill provided for a net worth limitation of $1 million, and provided for a maximum assessment on member insurers of 1% of net direct annual premiums written. The Trade Association bill was presented to and rejected by the National Association of Insurance Commissioners (NAIC). The model act ultimately accepted by the NAIC contained no net worth limitation, and contained a maximum assessment of 2% of net direct annual premiums written.
At the State level, on April 15, 1969, House Bill No. 3699 was introduced in the Michigan legislature. This was the original version of the bill that eventually became the Michigan Property & Casualty Association Act. House Bill No. 3699 did not contain a net worth limitation. Between April of 1969 (original bill) and May of 1969 (when a substitute bill was introduced), Poxson was asked to sit on a General Counsels' Committee to review the pending bill. The committee consisted of approximately five general counsels of major insurance companies and an actuary from the Michigan Insurance Bureau. Poxson reviewed House Bill No. 3699 but, according to his testimony, did not find it to his liking. He then obtained a copy of the model bill that the Trade Association subcommittee had drafted, and gave it to the actuary sitting on the General Counsels' Committee to be used as a substitute bill for presentation to the Michigan legislature. The Trade Association model bill was discussed at the meetings of the General Counsels' Committee. Poxson could not recall any specific committee discussion of the net worth provision, but he did state that the committee members agreed that a net worth limitation should be included. He recalled that the commission had considered looking solely at assets as a means to determine a person's ability to absorb loss, but that that option was rejected. Poxson stated that there was no discussion as to the meaning of the term net worth, its application or rationale, or whether net worth was indicative of financial condition. Poxson recalled that it was the committee actuary that devised the formula which caused the net worth limit to fluctuate based on premiums written by member insurers. He also recalled a comment, at one point, that "nobody feels sorry for General Motors."
Poxson, as general counsel for Michigan Mutual, testified that during committee discussions he was concerned about the impact of the assessment on Michigan Mutual and therefore wanted to limit the assessment to 1% of net direct premiums. The *472 proposed model bill submitted to the NAIC by the Trade Association, which bill had been obtained by Poxson, was modified to include a net worth limitation based on 1/10th of 1% of net direct premiums, and a maximum annual assessment of 1% of net direct premiums. This bill was introduced in the Michigan legislature as a substitute bill with some minor changes on May 2, 1969, and was enacted and became law on August 11, 1969. There was no testimony or evidence introduced in court concerning discussions by any committee or by the legislature regarding the net worth limitation, other than the above described testimony of Poxson.
The parties agree that the net direct premiums written in the state, net worth limitation, and maximum covered claims under the Act for the years 1977-1987 were:
Year Premiums Net Worth Maximum
Written Limit Claim
1977 $3,330,832,000 $3,330,832 $1,665,416
1978 $3,913,666,000 $3,913,666 $1,956,833
1979 $4,326,290,000 $4,326,290 $2,163,145
1980 $4,323,174,000 $4,323,174 $2,161,587
1981 $4,205,984,000 $4,205,984 $2,101,992
1982 $4,041,943,000 $4,041,943 $2,020,972
1983 $4,207,312,000 $4,207,312 $2,103,656
1984 $4,696,500,000 $4,696,500 $2,348,250
1985 $5,820,973,000 $5,820,973 $2,910,487
1986 $7,262,697,000 $7,262,697 $3,631,349
1987 $7,676,669,000 $7,676,669 $3,838,335
The parties agree that the net worth of Borman's, as of the end of the fiscal years ending January, 1980, through January, 1988, was:
Y/E January 26, 1980 $32,557,000
Y/E January 31, 1981 $32,006,000
Y/E January 30, 1982 $28,262,000
Y/E January 29, 1983 $35,304,000
Y/E January 28, 1984 $23,901,000
Y/E January 26, 1985 $22,797,000
Y/E January 25, 1986 $30,135,000
Y/E January 31, 1987 $38,783,000
Y/E January 30, 1988 $10,110,000
3rd Qtr. Nov 5, 1988 ($ 870,680)
The parties agree that for the period May 1, 1980, to May 1, 1984, Borman's primary general liability and auto insurance carrier was Ideal Mutual Insurance Company (Ideal), a New York company. Each of the policies which Ideal issued to Borman's had a combined single limit of $950,000 per occurrence, in excess of $50,000 per occurrence retained limit. According to trial testimony, Borman's purchased the Ideal insurance through Marsh and McLennan, identified as one of the largest insurance brokers in the country.
On February 7, 1985, the Supreme Court for the State of New York, County of New York, entered an order in a case entitled In the Matter of the Application of James P. Corcoran, as Superintendent of Insurance of the State of New York, for an Order to Take Possession and Liquidate the Business and Affairs of Ideal Mutual Insurance Company, Index No. 40275-85. The order stated that Borman's insurer, Ideal, was insolvent. The order appointed the New York Superintendent of Insurance as liquidator of Ideal to forthwith take possession of Ideal's property and liquidate the business and affairs of Ideal under the Uniform Insurer's Liquidation Act, as adopted in New York.
Ideal was a "member insurer" of the Michigan Property & Casualty Guarantee Association and an "insolvent insurer" as defined in the Act. M.C.L. § 500.7921. On March 25, 1985, the Michigan Commissioner of Insurance was appointed Ancillary Receiver of Ideal.
On August 7, 1981, Norris Frye had filed a complaint against Borman's in the Wayne County Circuit Court, State of Michigan, alleging damages arising out of a slip and fall which occurred at a Farmer Jack Store during August of 1980. The case proceeded through discovery and trial. On September 24, 1984, the Wayne County Circuit Court entered a judgment on a jury verdict against Borman's for $1.5 million plus interest of $638,569.00.
The Frye judgment against Borman's was covered under the Ideal policy. Subsequent to entry of the judgment, Ideal agreed to pay a minimum of $950,000 towards settlement of the Frye judgment. However, on December 26, 1984, the New York Supreme Court entered an order of rehabilitation. The order of rehabilitation and subsequent order of liquidation (entered on February 7, 1985) enjoined disposition of Ideal's property and enjoined further prosecution of any action. As a result of Ideal's failure to pay its share of the *473 agreed settlement of the Frye judgment, Borman's was required to contribute approximately one million dollars toward settlement of the Frye matter.
The Michigan Commissioner of Insurance, as Ancillary Receiver of Ideal, sent a notice to all Ideal policyholders and claimants in Michigan notifying them that all claims under the Act must be filed by February 7, 1986. Borman's filed a timely claim regarding the Frye judgment.
The Association declined to honor Borman's claim, however, based on the determination that Borman's net worth exceeded the statutory formula on the date of the liquidation order. M.C.L. § 500.7925(3).
The Proofs
The Michigan Insurance Bureau monitors the financial condition of insurance companies doing business in Michigan. During trial, the testimony of Jacqueline Reese was introduced. Reese is an auditor employed by the Department of Licensing and Regulation, Insurance Bureau, Financial Analyst Division, and she was the auditor in charge of the Ideal account during the years in question. During her testimony, Reese stated that the function of the auditors is to audit the financial statements of insurance companies in order to determine their financial solvency. The goal is to insure financial solvency of insurance companies for Michigan policyholders and residents. The aim of the financial analyst division is to prevent further injury to Michigan policyholders and residents by placing restrictions on companies which are in financial difficulty. These restrictions might include: premium limitations, policy limitations, suspension of writing policies, and cease and desist orders. Reese audited Ideal's financial information on a quarterly and annual basis from 1980 through its insolvency. Reese was satisfied that Ideal was not a risk to the public based on its 1980, 1981, and 1982 financial information, and the follow-up information that Reese requested from Ideal. Reese did not recommend imposing any restrictions on Ideal until 1984. She was of the opinion that Ideal was not in any financial difficulty until the 1983 year-end information was audited during the first quarter of 1984. According to Reese, the first time the Insurance Bureau informed Ideal that it was considering imposing restrictions was mid-1984, and the first time that the Insurance Bureau imposed restrictions on Ideal was August 17, 1984. The restrictions issued against Ideal in August, 1984, included a prohibition against the writing of new business without prior written approval by the Bureau and the requirement of a special deposit. The August, 1984, restrictions were informal agreements and were not communicated to the public.
According to the testimony of Lawrence Sullivan, president of a risk management services company, the Best's Key Rating Guide (Best's), published by A.M. Best Company, was the most commonly used source in the insurance industry for rating the financial stability of insurance companies during the time period in question. Sullivan stated that it was reasonable for insureds and insurance brokers to rely on Best's in choosing insurance companies and also to rely on the grant of a license by the state insurance regulators.
Ideal was rated as follows by Best's:
1980 B+
1981 A
1982 A
1983 Contingent A
Best's defines a B+ as: very good assigned to those companies which have achieved very good overall performance when compared to the norms of the property-casualty insurance industry. On a relative basis insurers rated B+/very good generally have demonstrated a very good ability to meet policyholder and other contractual obligations. Best's defines A as: excellent assigned to those companies which Best's finds to have achieved excellent overall performance when compared to the norms of the property/casualty insurance industry. On a relative basis, insurers rated A/excellent generally have demonstrated a strong ability to meet their respective policyholder and other contractual obligations. "Contingent" is assigned temporarily to a company when there has been a decline in performance, in its profitability, leverage, and/or liquidity, but the *474 decline has not been significant enough to warrant an actual reduction in the company's previously assigned rating.
Net worth is not defined in the Act nor is a formula or standard procedure prescribed for determining net worth.
Borman's introduced the testimony of David Simmons, a partner with Touche Ross & Co., as an expert witness. According to Simmons, the commonly accepted meaning of "net worth" is the balance sheet entry which shows recorded assets in excess of recorded liabilities. Defendant agrees with this definition.
Simmons testified that the net worth of a person or company may change radically from year to year based upon factors entirely within or outside their control. Factors within their control include, for example, a declaration of dividends, sale or acquisition of assets, leveraged buyout, restructuring of capital, changes in accounting practices, changes in tax reporting, revaluation of assets, etc. Factors outside their control include, for example, labor strike, market conditions, shortage of raw product, the economy, unanticipated loss, mandated changes in accounting methods, tax law changes, etc. According to Simmons, net worth is not determinative of the ability of an insured to absorb loss in the event of its insurer's insolvency.
Sullivan, the president of the risk management services company, agreed with Simmons, stating that there was no relationship between net worth and ability to absorb loss.
During the course of the testimony of Robert Epstein, General Counsel of Borman's, a comparison was made for the years 1984-1987, between the sales, total assets, and net worth of Borman's and those of Safeway Stores, identified as once the largest supermarket chain in the world. The following figures were offered as evidence:
COMPANY DATE TOTAL ASSETS SALES NET WORTH
Borman's 01/26/85 140,390,383 1,025,920,000 22,797,000
Safeway 12/29/84 4,537,229,000 19,642,201,000 1,469,023,000
Borman's 01/25/86 148,245,599 987,188,000 30,135,000
Safeway 12/28/85 4,840,611,000 19,650,542,000 1,622,614,000
Borman's 01/31/87 175,401,725 1,072,998,137 38,783,000
Safeway 01/03/87 7,443,877,000 20,311,480,000 2,902,000
Borman's 01/30/88 229,376,865 1,028,254,713 10,110,000
Safeway 01/02/88 4,917,479,000 18,301,625,000 (461,827,000)
According to both Epstein and Simmons, the decrease in the net worth of Safeway from $1,622,614,000 in December, 1985, to $2,902,000 in January, 1987, and a negative ($461,827,000) in January, 1988, was the result of a leveraged buyout and changes in accounting practices, and not a change in business conditions. Under the Act, Safeway, with many times the sales and assets of Borman's, would have its claims covered while Borman's would not. Simmons stated that the fact that Safeway's net worth was a negative ($461,827,000) as of January 2, 1988, did not mean that it could not absorb loss or that its ability to do so was less than Borman's, which at that time had a net worth of about $10 million. According to Simmons, change in net worth does not mean that a company has experienced a change in profitability or a change in its operations.
The testimony of defendant's accounting expert Julius Otten, a partner at Peat, Marwick, is consistent with Simmon's opinion in this respect. Otten described a company which the Association had found to be entitled to coverage under the Act in accordance with the Act's net worth provision. That company, as of its March 31 year-end, had a net worth over $6,400,000. In the ensuing year it had revenues of over $68,000,000 and an operating profit of over $3,200,000. Yet its net worth dropped from $6,400,000 to $700,000. This drop in net worth was not attributable to financial reverses but, rather, to the fact that the *475 company bought back its own stock and established an employee stock ownership trust. The difference in net worth was not related to the financial condition of the company or its ability to absorb loss.
Epstein testified that had Borman's changed its accounting method for inventory from LIFO to FIFO on November 5, 1988, a change that Borman's had seriously considered, its net worth as reflected on its balance sheet would have been a positive $15.8 million instead of a negative $870,000, an increase of more than $16 million. Assuming Borman's insurance carrier were to become insolvent in 1989, Borman's could recover from the Association if it continued to use a LIFO accounting method for valuing inventory, but if it merely changed to a FIFO method, Borman's could not recover from the Association. This difference in net worth had nothing to do with the financial condition of Borman's or its ability to absorb loss.
Simmons testified that financial condition can only be assessed by understanding each of the elements of the financial statement. The assets of a company must be analyzed, i.e., a receivable's age bears upon its value, and the method of accounting for inventory bears upon its value. Assets must also be analyzed to determine whether they are tangible or intangible. Goodwill, an intangible asset, is allowed under Generally Accepted Accounting Principles (GAAP), but is not a liquid asset and could not be used to absorb an unexpected loss. Similarly, the liabilities must be analyzed. Loan agreements may restrict uses of cash or may require that the company maintain certain ratios, which if not maintained could result in default and foreclosure. There may be obligations to employees under a collective bargaining agreement which impact on the financial condition of the company. In order to assess the financial condition of a company, one must also understand the industry and trends affecting the industry.
Simmons also testified regarding a "typical" real estate venture where the value of the asset (e.g. office building) is reported at acquisition cost less depreciation, resulting in a reduction in its value over time even though the market value of the asset may be substantially increasing during the same period. The increase in market value is normally not reflected on the balance sheet while the depreciation is. In this example, while the business may be profitable and the market value of the office building substantially increasing, the net worth continues to decline.
Another "typical" example introduced by plaintiff related to ownership of a shopping center or hotel venture. Often the owner will form a management company to operate the facility and obtain the insurance. Since it is the operating company which is at risk, typically it will be the operating company which will be sued as a result of a loss. Since the operating company has little, if any, assets, it will be covered under the Act. This results even though there is usually an identity of ownership between the operating company and the owner of the shopping center or hotel, and such owner may have a net worth substantially in excess of the net worth limitation.
The Association's accounting expert, Julius Otten, agreed that the real estate example and the management company example are typical. Otten also agreed that net worth may be radically different depending on the method of reporting utilized (i.e. cash, accrual, or tax basis) or on factors totally within the control of the company (such as a repurchase of stock). He also agreed that net worth does not show profitability. Otten felt, however, that it is rational to use net worth alone as the indicator of ability to absorb loss because, while net worth may be an imperfect measurement resulting in real or perceived inequities, net worth is an indicator of capacity to absorb loss which is generally understood and easily determined.
The Association asserted that both insurance companies and banks are examples which support the Association's position that a company's net worth indicates its ability to absorb loss. These businesses are heavily regulated, however, and their financial statements are governed by statute. Further, the testimony of the witnesses *476 does not support the defendant's argument. For example, Otten, the Association's witness, testified that insurance companies typically prepare two financial statements one conforming to statutory requirements and one prepared in accordance with GAAP. Otten stated that the net worth figure on the two statements, covering precisely the same period of time, could be radically different. This example, therefore, ultimately provides further support for plaintiff's position that net worth, standing alone, is not a valid indicator of a company's ability to absorb loss.
Plaintiff's witness, Simmons, also testified that the net worth figures for insurance companies and banks are without meaning in this context. According to Simmons, one would need to evaluate reinsurance, reserves, agents' balances, and other matters in assessing the financial condition of an insurance company. With respect to banks, one would need to know, among other things, the types of loans that the bank had issued and the types of assets owned. Sullivan also stated that he would not rely on the net worth of an insurance company to show its financial condition.
George Gottheimer, Jr., the Association's witness, has worked for or on behalf of insurance companies throughout his 35-year career. It is Gottheimer's opinion that "given the limited resources that are available, ... the institution of a net worth exclusion is a reasonable and rational one, and that the net worth in and of itself is not perhaps a perfect measurement of a persons wealth. I think it is one that is easily determinable, easy to administer, and it is probably the best measure of the ability of a person to absorb loss." When questioned by the court, Gottheimer stated that while the net worth figure may paint a certain picture, it could vary from day to day and it does not tell you about liquidity and collectibility of assets. When asked by the court whether one needs to look at things other than net worth in assessing financial condition, Gottheimer responded that net worth is easy to administer, and that that is why he believes the legislature adopted the net worth provision.
Jean Carlson, the deputy commissioner for policy at the Michigan Insurance Bureau, agreed in her testimony that the attractiveness of utilizing net worth is the ease in administration. When cross examined, Carlson admitted that she could tell nothing real about the financial condition of a company knowing only its net worth.
Gloria Freeland, claims manager for the Association, testified that her job would be more difficult if there were no net worth provision because there would be more claims.
James Lunstead, the controller for the Association, testified about the balance sheet of the Association from inception to September, 1988. Lunstead was asked whether, based on the Association's net worth, the Association would be able to cover claims in the event of another major insolvency. Lunstead responded that, just looking at net worth, one cannot get a true economic or financial picture.
In addition to claiming that an entity's net worth is indicative of its ability to absorb loss, the Association argues that those entities with a higher net worth can better analyze the financial condition of insurance companies. Defendant's expert, Gottheimer, testified that "wealthier persons" were in a better position to evaluate the financial condition of insurance companies because they can better review the financial statements or hire someone with the expertise to do so. Plaintiff disagrees, however, arguing that net worth is not related to the ability of an insured to predict the insolvency of its insurer.
As noted above, Ideal was rated by Best's as B+ in 1980, A in 1981-1982, contingent A in 1983, and was not in any way restricted by the Michigan Insurance Bureau (M.I.B.) until mid-1984. The M.I.B., which audited the financial statements of Ideal, determined that Ideal did not pose a danger to the public until mid-1984. Yet, by the end of that same year, Ideal was placed in rehabilitation and, in early 1985, Ideal was declared insolvent.
According to testimony at trial, insurance company financial statements are reviewed by Best's and by the M.I.B. Copies *477 of reports issued by Best's and state insurance regulators are available to all interested persons irrespective of net worth. Further, while large companies may have risk managers, no evidence was presented showing that these persons are better able than Best's or the state regulators to assess the future financial picture of an insurance company so as not to need the protection of the Guaranty Association. Plaintiff introduced exhibits showing that many large companies with net worths over the Act's limit have had insurance with companies which became insolvent.
The Association also argued that the fact that Borman's had a self-insured retention of $50,000 per occurrence indicates that Borman's is better able to absorb loss than is an entity which has first dollar insurance. However, defendant did not establish a direct relationship between net worth and the amount of self-insurance retention. Indeed, as Epstein and Sullivan pointed out, Borman's net worth in November of 1988 was $39 million less than what it was in January, 1987, while its self-insured retention had doubled to $100,000.
Analysis
It is plaintiff's position that section 500.7925(3) of the Act, which denies reimbursement of claims filed by "... a person who has a net worth greater than 1/10th of 1% of the aggregate premiums written by member insurers in the state in the preceding calendar year," denies plaintiff's right to equal protection of the law, as guaranteed by the fourteenth amendment to the United States Constitution, and by article 1, section 2, of the Michigan Constitution.
The parties agree that the net worth classification of section 500.7925(3) does not involve a fundamental right or suspect classification meriting "strict scrutiny" by the court. Rather, the legislation in question is economic in nature and, therefore, subject to the "rational basis" test. See Cleburne v. Cleburne Living Center, 473 U.S. 432, 440, 105 S.Ct. 3249, 3254, 87 L.Ed.2d 313 (1985). Application of the rational basis test requires an analysis of the purpose of the legislation in question, and a determination of whether the classification contained in that legislation bears a rational relationship to its purpose. Borden's Farm Products Co. v. Baldwin, 293 U.S. 194, 55 S.Ct. 187, 79 L.Ed. 281 (1934).[2]
The dispute between the parties centers on the constitutionality of the section 500.7925(3) classification of persons entitled to recover under the Act, i.e., classification of persons based upon their net worth. The only evidence submitted to the court regarding the purpose of the net worth limitation was presented through the testimony of the Association's witness, Elijah Poxson. According to Poxson, the purpose of the net worth limitation was to allocate loss to those persons best able to absorb loss.[3] There was no evidence submitted to the contrary, and there was no real dispute between the parties regarding the purpose *478 of section 500.7925(3) or the legitimacy of this purpose. Rather, the arguments and proofs submitted by the parties centered upon their respective attempts to negate or to support the existence of any rational relationship between one's net worth and ability to absorb loss.
In challenging the constitutionality of section 500.7925(3), plaintiff has the heavy burden of convincing the court that "the legislative facts on which the classification is apparently based could not reasonably be conceived to be true by the governmental decisionmaker." Vance v. Bradley, 440 U.S. 93, 111, 99 S.Ct. 939, 949, 59 L.Ed.2d 171 (1979), (citing Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-79, 31 S.Ct. 337, 340, 55 L.Ed. 369 (1911)). Further, "[a]lthough parties challenging legislation under the Equal Protection Clause may introduce evidence supporting their claim that it is irrational, ... they cannot prevail so long as `it is evident from all the considerations presented to [the legislature], and those of which we may take judicial notice, that the question is at least debatable.'" Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 464, 101 S.Ct. 715, 724, 66 L.Ed.2d 659 (1981) (citation and footnote omitted) quoting United States v. Carolene Products Co., 304 U.S. 144, 154, 58 S.Ct. 778, 784, 82 L.Ed. 1234 (1938). However, "[t]he State may not rely on a classification whose relationship to an asserted goal is so attenuated as to render the distinction arbitrary or irrational." Cleburne, 473 U.S. at 446, 105 S.Ct. at 3258 (citing Zobel v. Williams, 457 U.S. 55, 61-63, 102 S.Ct. 2309, 2313-14, 72 L.Ed.2d 672 (1982) and United States Dept. of Agriculture v. Moreno, 413 U.S. 528, 535, 93 S.Ct. 2821, 2826, 37 L.Ed.2d 782 (1973)).
Conflicting testimony was introduced at trial. For example, defendant's accounting expert, Julius Otten, testified that, in his opinion, it is rational to use net worth alone as the indicator of ability to absorb loss. According to Otten, although net worth may be an imperfect measurement resulting in real or perceived inequities, net worth is a generally understood and easily determined indicator of capacity to absorb loss. In contrast, according to the testimony of plaintiff's accounting expert, David Simmons, net worth is not an indicator of the ability of an insured to absorb loss. In light of this and other conflicting evidence introduced at trial, defendant argues that the rationality of the relationship between a person's net worth and that person's ability to absorb loss "is at least debatable," and therefore passes the rational basis test. Clover Leaf.
Plaintiff, on the other hand, interprets the evidence to show that the relationship between net worth and ability to absorb loss "is so attenuated as to render the distinction arbitrary and irrational." Cleburne. In support of its argument, plaintiff points to the uncontroverted evidence regarding: 1) the "typical" real estate venture where the value of the asset (e.g., office building) is reported at acquisition cost less depreciation, resulting in a reduction in the asset's value over time even though the market value of the asset may be substantially increasing during the same period; 2) the "typical" shopping center or hotel venture where a management company is formed to operate the facility and obtain insurance, and where that management company meets the Act's net worth limitation despite the identity of ownership between the management company and the owner of the shopping center or hotel, which may not meet the Act's net worth limitation; 3) the extreme decrease in the net worth of Safeway Stores, Inc., occurring over the three year period from December, 1984, to January, 1988, as the result of a leveraged buyout and changes in accounting practices, and not as the result of a change in business conditions or the ability of Safeway to absorb loss; 4) the fact that a person's net worth may change radically from year to year based upon factors entirely within their control (i.e., declaration of dividends, sale or acquisition of assets, leveraged buyout, restructuring of capital, changes in accounting practices, changes in tax reporting, revaluation of assets, etc.) and/or upon factors entirely outside their control (i.e., labor strike, market conditions, shortage of raw product, the economy, unanticipated loss, mandated *479 changes in accounting methods, tax law changes, etc.); and 5) the fact that a single company at any fixed point in time can have a dramatically different net worth based merely upon, for example, a change in its accounting method for inventory from LIFO to FIFO.
After careful consideration of the pleadings submitted, the proofs introduced at trial, the parties' arguments heard in open court, and the law relating to this issue, the court agrees with the plaintiff's position and finds that the classification of persons and entities entitled to recover from the Association, based solely upon their net worth at a given time, is arbitrary and is not a classification which is rationally related to the Michigan legislature's purpose of allocating loss to those best able to absorb loss. The court is also satisfied, with regard to the defendant's alternative or supporting argument, that plaintiff has shown that there is no meaningful relationship between net worth and the ability of a person or entity to predict the insolvency of an insurer.
The court therefore concludes that section 500.7925(3), as it applied to plaintiff, violates plaintiff's right to equal protection under the law as provided by both the United States and Michigan Constitutions. Defendant is ordered to pay and discharge the claim filed by plaintiff which arose out of the slip and fall accident involving Norris Frye.
Nonretroactivity
In Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), the Supreme Court enunciated three separate factors to be considered in determining whether a judicial decision should be applied nonretroactively.
[I]n the last few decades, we have recognized the doctrine of nonretroactivity outside the criminal area many times, in both constitutional and nonconstitutional cases. Cipriano v. City of Houma, 395 U.S. 701, 89 S.Ct. 1897, 23 L.Ed.2d 647; Allen v. State Board of Elections, 393 U.S. 544, 89 S.Ct. 817, 22 L.Ed.2d 1; Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231; Simpson v. Union Oil Co., 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98; England v. State Board of Medical Examiners, 375 U.S. 411, 84 S.Ct. 461, 11 L.Ed.2d 440; Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329.
In our cases dealing with the nonretroactivity question, we have generally considered three separate factors. First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, see e.g., Hanover Shoe, Inc. v. United Shoe Machinery Corp., supra, 392 U.S. at 496, 88 S.Ct., at 2233, or by deciding an issue of first impression whose resolution was not clearly foreshadowed, see, e.g., Allen v. State Board of Elections, supra, 393 U.S., at 572, 89 S.Ct., at 835. Second, it has been stressed that "we must * * * weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation." Linkletter v. Walker, supra, 381 U.S., [618] at 629, 85 S.Ct. [1731] at 1738[, 14 L.Ed.2d 601]. Finally, we have weighed the inequity imposed by retroactive application, for "[w]here a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the `injustice or hardship' by a holding of nonretroactivity." Cipriano v. City of Houma, supra, 395 U.S., at 706, 89 S.Ct., at 1900.
Id. at 107-108, 92 S.Ct. at 356.
An equal protection challenge to an insurance act provision which determines eligibility for reimbursement of claims based on net worth, has not, to this court's knowledge, previously been litigated. Nor was the resolution of this matter clearly foreshadowed by prior court decisions. Also, the purpose of the Act's net worth provision, i.e., to shift loss to those best able to absorb loss, would not be furthered by retroactive application of this court's ruling since it is unclear under the net *480 worth criterion whether those who have previously been denied reimbursement were or were not "best able to absorb loss." Finally, retroactive application of this court's decision could produce substantial inequitable results because insureds were on notice that the Act contained its net worth restriction, and the Association would likely suffer a severe depletion of its funds if it was now forced to reimburse each claimant who had previously been denied reimbursement under the Act on the basis of that claimant's net worth. Accordingly, the court's ruling in this matter shall be applied prospectively. Accord DiFranco v. Pickard, 427 Mich. 32, 75, 398 N.W.2d 896 (1986).
IT IS SO ORDERED.
NOTES
[1] Plaintiff also takes the position that application of the formula contained in section 500.7925(3) of the Act constitutes a denial of due process under the United States and Michigan Constitutions. Having found that plaintiff's right to equal protection under the laws has been violated by section 500.7925(3), the court finds it unnecessary to address plaintiff's due process argument.
[2] Plaintiff asserts that the test to be applied under Article I, section 2, of the Michigan Constitution is whether the net worth exclusion bears a fair and substantial relationship to the object of the Act. See Manistee Bank & Trust Co. v. McGowan, 394 Mich. 655, 232 N.W.2d 636 (1975). This test and the rational basis test under the fourteenth amendment to the United States Constitution are virtually indistinguishable. Therefore, the court will confine its discussion in the text to the rational basis test under the United States Constitution, and the court's conclusions shall apply with equal force to plaintiff's arguments regarding its right to equal protection under the Michigan Constitution.
[3] Plaintiff asserts that the purpose of the Act is "to protect from potentially catastrophic loss persons who have a right to rely on the existence of an insurance policy...." Metry v. Michigan Property & Casualty Guarantee Ass'n, 403 Mich. 117, 121, 267 N.W.2d 695 (1978). In making this statement, the Metry court was drawing a distinction between insureds, whom the Act was designed in general to protect, and law firms seeking reimbursement under the Act for fees incurred in providing legal services to insolvent insurers prior to insolvency. The Metry court ultimately concluded that the fees sought for legal services were not "covered claims" within the meaning of the Act.
In the instant case, the plaintiff is challenging specifically the net worth provision set forth in section 500.7925(3) of the Act. Therefore, it is the purpose of section 500.7925(3) which is relevant to this dispute, and the court finds the purpose to be one which is consistent with the overall purpose of the Act as described in Metry. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4555600/ | Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/14/2020 08:07 AM CDT
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SHELTER INS. CO. v. GOMEZ
Cite as 306 Neb. 607
Shelter Insurance Company, appellee and
cross-appellee, v. Santos Gomez, Jr., et al.,
appellees and cross-appellants, Carlene S.
Calder, Personal Representative of the
Estate of Jason Kraeger, deceased,
appellant, and Kate Benjamin,
appellee and cross-appellee.
___ N.W.2d ___
Filed July 31, 2020. No. S-18-927.
1. Summary Judgment: Appeal and Error. An appellate court will affirm
a lower court’s grant of summary judgment if the pleadings and admit-
ted evidence show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from those facts and
that the moving party is entitled to judgment as a matter of law.
2. ____: ____. In reviewing a summary judgment, an appellate court views
the evidence in the light most favorable to the party against whom the
judgment was granted and gives that party the benefit of all reasonable
inferences deducible from the evidence.
3. Statutes: Appeal and Error. Statutory interpretation presents a ques-
tion of law for which an appellate court has an obligation to reach an
independent conclusion irrespective of the decision made by the court
below.
4. Motor Carriers. Neb. Rev. Stat. § 75-363 (Cum. Supp. 2014) adopts,
as Nebraska law, several parts of the Federal Motor Carrier Safety
Regulations and makes them applicable to certain intrastate motor carri-
ers not otherwise subject to federal regulation.
5. Statutes: Appeal and Error. Statutory language is to be given its plain
and ordinary meaning, and an appellate court will not resort to inter-
pretation to ascertain the meaning of statutory words which are plain,
direct, and unambiguous.
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Cite as 306 Neb. 607
6. Statutes: Legislature: Intent. Components of a series or collection of
statutes pertaining to a certain subject matter are in pari materia and
should be conjunctively considered and construed to determine the
intent of the Legislature, so that different provisions are consistent, har-
monious, and sensible.
7. Statutes. It is not within the province of the courts to read a meaning
into a statute that is not there or to read anything direct and plain out of
a statute.
8. Motor Carriers: Insurance. Under the plain language of Neb. Rev.
Stat. § 75-363 (Cum. Supp. 2014) and part 387 of title 49 of the Code
of Federal Regulations adopted therein, compliance with the minimum
financial responsibility requirements is the responsibility of the motor
carrier, not the insurer.
9. ____: ____. Neither Neb. Rev. Stat. § 75-363 (Cum. Supp. 2014) nor
part 387 of title 49 of the Code of Federal Regulations adopted therein
require an insurer to issue a policy with liability limits that satisfy a
motor carrier’s minimum level of financial responsibility.
Appeal from the District Court for Box Butte County:
Derek C. Weimer, Judge. Affirmed.
Maren Lynn Chaloupka, of Chaloupka, Holyoke, Snyder,
Chaloupka & Longoria, P.C., L.L.O., for appellant.
Raymond E. Walden and Michael T. Gibbons, of Woodke &
Gibbons, P.C., L.L.O., for appellee Shelter Insurance Company.
Amy L. Patras, of Crites, Shaffer, Connealy, Watson, Patras
& Watson, P.C., L.L.O., for appellees Santos Gomez, Jr., et al.
Steven W. Olsen and Paul W. Snyder, of Simmons Olsen
Law Firm, P.C., for appellee Kate Benjamin.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Stacy, J.
Through the enactment of Neb. Rev. Stat. § 75-363 (Cum.
Supp. 2014), the Nebraska Legislature adopted several parts of
the Federal Motor Carrier Safety Regulations and made those
regulations applicable to certain intrastate motor carriers not
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otherwise subject to the federal regulations. 1 One of the fed-
eral regulations adopted by statute sets out minimum levels of
financial responsibility for motor carriers. 2 The central ques-
tion in this appeal is whether that federal regulation imposes a
duty on insurers to issue policies that satisfy a motor carrier’s
minimum level of financial responsibility. Because we con-
clude that compliance with the financial responsibility require-
ments under § 75-363 and the pertinent federal regulations is
the duty of the motor carrier and not its insurer, we affirm the
judgment of the district court.
I. UNDISPUTED FACTS
1. Collision
On May 27, 2015, Jason Kraeger was riding his bicycle on
a highway in Morrill County, Nebraska, when he was struck by
a 1988 Peterbilt semi-tractor being driven by Santos Gomez,
Jr. (Gomez Jr.). The negligence of Gomez Jr. is not in dispute.
Kraeger died from injuries sustained in the collision.
The Peterbilt involved in the collision was owned by the
driver’s parents, Santos Gomez, Sr., and Julia Gomez, who
operate Santos Gomez Trucking, an unincorporated commer-
cial trucking business operating exclusively within Nebraska
(collectively Gomez Trucking).
2. Shelter’s Policy
At the time of the collision, Gomez Trucking insured the
Peterbilt under a commercial automobile liability policy
with Shelter Insurance Company (Shelter). When applying
for insurance with Shelter, Gomez Trucking represented that
it had no federal motor carrier number and that its trucks
made no deliveries outside Nebraska. It requested a bodily
injury liability limit of $1 million. Gomez Trucking used local
Shelter agent Kate Benjamin to procure the Shelter policy
1
See Cruz v. Lopez, 301 Neb. 531, 919 N.W.2d 479 (2018).
2
See § 75-363(3)(d) (adopting “Part 387” of title 49 of the Code of Federal
Regulations).
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and to request periodic adjustments to the liability limits of
such policy.
Gomez Trucking had a business practice of adjusting the
liability limits on the Shelter policy either up or down, depend-
ing on how its trucks were to be used. The apparent goal of
this practice was to minimize the premium cost over time by
reducing the liability limit when a truck was not in use. The
evidence shows that after initially purchasing liability lim-
its of $1 million, Gomez Trucking requested, and Benjamin
made, the following adjustments to the liability limits on the
Shelter policy:
• On November 24, 2014, the liability limit was reduced from
$1 million to $100,000;
• On December 4, 2014, the liability limit was increased to
$1 million;
• On March 15, 2015, the policy was renewed and the liability
limit was reduced to $500,000;
• On March 19, 2015, the liability limit was reduced again to
$100,000;
• On April 15, 2015, the liability limit was increased to
$1 million;
• On April 20, 2015, the liability limit was reduced to $100,000.
On the day of the fatal collision, May 27, 2015, Julia vis-
ited Benjamin’s office twice, both times seeking to adjust the
liability limits. The first time, Julia asked to increase the lia-
bility limit from $100,000 to $500,000, explaining that Gomez
Jr. was going to be using the Peterbilt. Benjamin entered data
on the requested policy limit change into the computer sys-
tem, and Julia left Benjamin’s office. About 15 minutes after
Julia left Benjamin’s office, she returned, noticeably upset.
She told Benjamin that Gomez Jr. had collided with a bicy-
clist while driving the Peterbilt, and she asked whether the
liability limit could be increased again. Benjamin told Julia
she could do so, but the higher limit would not “backdate” to
an accident that already had occurred. The precise time of the
collision is not apparent from our record, but the appellant’s
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brief states the collision occurred just before Julia’s first visit
to Benjamin’s office.
As discussed in the next section, under § 75-363(3)(d) and
the federal regulation adopted therein, intrastate motor carri-
ers are required to obtain and have in effect certain minimum
levels of financial responsibility. Because those regulatory
requirements are central to the dispute which gave rise to this
declaratory judgment action, we set them out now and discuss
them in more detail later in our analysis.
3. § 75-363
At the time of the collision, § 75-363 provided, in perti-
nent part:
(1) The parts, subparts, and sections of Title 49 of the
Code of Federal Regulations listed below, as modified in
this section . . . in existence and effective as of January 1,
2014, are adopted as Nebraska law.
(2) Except as otherwise provided in this section, the
regulations shall be applicable to:
(a) All motor carriers, drivers, and vehicles to which
the federal regulations apply; and
(b) All motor carriers transporting persons or property
in intrastate commerce[.]
Subsection (3) of § 75-363 contained a list of the federal
regulations adopted as Nebraska law, and it included 49 C.F.R.
§ 387 (2014) (Part 387), which sets out the financial responsi-
bility requirements for motor carriers. 3
Part 387 is titled “Minimum Levels of Financial Respon
sibility for Motor Carriers,” and it is composed of several sub-
parts. Only subpart A, which applies to for-hire motor carriers
transporting property, 4 is pertinent to this case. The purpose of
that subpart is to prescribe
the minimum levels of financial responsibility required
to be maintained by motor carriers of property [and] to
3
§ 75-363(1) and (2) (Cum. Supp. 2014).
4
49 C.F.R. § 387.3(a).
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create additional incentives to motor carriers to main-
tain and operate their vehicles in a safe manner and to
assure that motor carriers maintain an appropriate level
of financial responsibility for motor vehicles operated on
public highways. 5
Under this federal regulation, “No motor carrier shall oper-
ate a motor vehicle until the motor carrier has obtained and
has in effect the minimum levels of financial responsibility as
set forth in § 387.9 of this subpart.” 6 That section identifies
different minimum levels of financial responsibility depend-
ing on the nature of the property being transported; the
type of vehicle being used; and whether it is being operated
in interstate, foreign, or intrastate commerce. 7 The lowest
level of financial responsibility is $750,000, and it applies
to for-hire vehicles operated in interstate or foreign com-
merce with a gross vehicle weight rating of 10,001 pounds or
more transporting nonhazardous property. 8 Higher levels of
financial responsibility are required for vehicles transporting
certain hazardous materials in interstate, intrastate, and for-
eign commerce. 9
As such, in Nebraska, § 75-363(2) makes the federal regu-
lations just described applicable not only to the motor carriers,
drivers, and vehicles to which the federal regulations already
apply, 10 but also to “[a]ll motor carriers transporting persons
or property in intrastate commerce,” 11 with certain excep-
tions. 12 The record suggests that before the fatal collision,
5
49 C.F.R. § 387.1.
6
49 C.F.R. § 387.7(a).
7
See 49 C.F.R. § 387.9(1) through (4).
8
49 C.F.R. § 387.9(1).
9
See 49 C.F.R. § 387.9(2) through (4).
10
§ 75-363(2)(a).
11
§ 75-363(2)(b).
12
See, e.g., § 75-363(5) (excluding certain farm trucks operated only in
intrastate commerce).
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the parties were generally unaware of the minimum financial
responsibility requirements imposed by § 75-363(3)(d) and
Part 387. 13
4. Wrongful Death Action
In 2015, the duly appointed personal representative for
Kraeger’s estate filed a wrongful death and survival action
against “Gomez Jr. and Santos Gomez, Sr., d/b/a Santos Gomez
Trucking.” Shelter offered to settle the suit on behalf of the
defendants for $100,000—the liability limit Shelter asserted
was in effect at the time of the collision. The personal rep-
resentative rejected Shelter’s offer, but eventually reached a
settlement directly with the defendants. Under that settlement,
the defendants confessed judgment in the amount of $750,000
and assigned to the personal representative any claim they may
have against Shelter and/or Benjamin under the policy issued
to Gomez Trucking.
5. Declaratory Judgment Action
In 2016, Shelter filed a declaratory judgment action in the
district court for Box Butte County. It sought a declaration
of the applicable liability limit under the policy issued to
Gomez Trucking for damages arising from the fatal bicycle
collision of May 27, 2015. Named as defendants and interested
parties in the declaratory judgment action were Benjamin,
Gomez Trucking, Gomez Jr., and the personal representative of
Kraeger’s estate.
As relevant to the issues on appeal, Shelter’s operative
amended complaint alleged that on the date of the fatal col-
lision, Shelter insured Gomez Trucking under a commercial
automobile liability policy with liability limits of $100,000,
13
But see Neb. Rev. Stat. § 75-369 (Reissue 2018) (requiring Department of
Motor Vehicles and county treasurers to distribute declaration regarding
federal regulations to each applicant who registers commercial motor
vehicle subject to § 75-363; applicants required to acknowledge they have
read declaration and are aware Federal Motor Carrier Safety Regulations
have been enacted into state law).
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and further alleged that the Peterbilt was a covered vehicle on
that policy. Shelter also alleged that the personal representa-
tive for Kraeger’s estate had demanded damages in excess of
Shelter’s $100,000 policy limits and was asserting Shelter was
“obligated to afford coverage in excess of that stated in the
policy due to certain federal regulations.”
Benjamin answered the amended complaint and gener-
ally joined in Shelter’s request for a declaratory judgment.
Summarized, Benjamin’s answer alleged the Shelter policy was
originally issued with liability limits of $1 million and that all
subsequent adjustments to the liability limits were made at the
insured’s request.
The personal representative answered Shelter’s amended
complaint both in her capacity as the personal representative
of Kraeger’s estate and as the assignee of Gomez Trucking
and Gomez Jr. The personal representative’s answer generally
denied Shelter’s allegation that the liability limits in place at the
time of the collision were $100,000, and she asserted that under
§ 75-363 and the federal regulations adopted therein, Benjamin
was required to sell, and Shelter was required to issue, a policy
with liability limits of at least $750,000. However, no request
was made to reform the policy. Instead, the personal represent
ative took the position that the parties’ real dispute was not
based in contract at all, but in professional negligence.
In that regard, the personal representative filed a counter-
claim against Shelter and a cross-claim against Benjamin, seek-
ing to recover $750,000 in damages for negligence and demand-
ing a jury trial. The cross-claim alleged Benjamin was negligent
in failing to advise Gomez Trucking that § 75-363 required
intrastate motor carriers to have a minimum of $750,000 in
liability coverage. The counterclaim alleged Benjamin’s neg-
ligence should be imputed to Shelter under an agency theory.
Shelter and Benjamin denied any negligence and raised several
affirmative defenses, including that Gomez Trucking was con-
tributorily negligent in failing to obtain the minimum levels of
financial responsibility required by § 75-363.
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6. Summary Judgment
All parties moved for summary judgment. In an order entered
September 20, 2018, the district court disposed of all issues in
the case by granting the summary judgment motions filed by
Shelter and Benjamin, and overruling those filed by all other
parties. The parties’ arguments, and the court’s reasoning, are
summarized below.
(a) Declaratory Judgment
In seeking and opposing summary judgment on the declara-
tory judgment, the parties did not dispute that the Shelter
policy issued to Gomez Trucking had a liability limit of
$100,000 at the time of the fatal collision. But they did dispute
whether such a limit was enforceable, given the provisions of
§ 75-363(3)(d).
The personal representative argued the $100,000 liability
limit was void and unenforceable as a matter of law because
it failed to comply with the minimum financial responsibil-
ity requirements imposed by § 76-363 and Part 387. Shelter
and Benjamin argued these provisions had no impact on the
enforceability of the $100,000 liability limit, because § 75-363
and Part 387 make it the responsibility of the motor carrier, not
the insurer, to obtain and have in effect the required minimum
levels of financial responsibility.
After analyzing the provisions of § 75-363 and Part 387, the
district court agreed with Shelter and Benjamin, reasoning:
[T]here is no reference to be found within the operative
statute and regulations that specifically create a duty on
the part of an insurer to ascertain or confirm the existence
of sufficient insurance policies, sureties or resources to
satisfy the minimum required amount of insurance under
[49 C.F.R.] § 387.9. All of the relevant provisions relate
to requirements of or for the “motor carrier”. The motor
carrier is to obtain and have in effect the minimum lev-
els of financial responsibility. The motor carrier is not to
operate a motor vehicle until it has so done. Neb. Rev.
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Stat. § 75-363 puts the onus on the motor carrier to com-
ply with the applicable C.F.R. provisions.
The district court also found it significant that under the fed-
eral regulations, “financial responsibility” was not limited to
insurance policies, but included surety bonds and approved
self-insurance. 14
The district court ultimately concluded there were no genu-
ine issues of material fact related to Shelter’s amended com-
plaint for declaratory judgment. It found that § 75-363 imposed
no duty on Shelter or Benjamin to “only sell or market an
insurance policy [to Gomez Trucking for] $750,000 or more,”
and it ultimately concluded, as a matter of law, that the
$100,000 liability limit in place at the time of the accident was
enforceable.
(b) Cross-Claim and Counterclaim
Regarding the cross-claim and counterclaim for professional
negligence, the district court also found Shelter and Benjamin
were entitled to judgment as a matter of law. Relying on
Hansmeier v. Hansmeier, 15 the court found Benjamin had
no legal duty to advise Gomez Trucking about the finan-
cial responsibility requirements of § 75-363 and no duty
to sell Gomez Trucking a liability policy that satisfied the
motor carrier’s minimum level of financial responsibility under
that statute. 16
The personal representative timely appealed from the sum-
mary judgment order, and Gomez Trucking and Gomez Jr.
cross-appealed. We moved the case to our docket on our own
motion.
14
See, e.g., 49 C.F.R. §§ 387.5 and 387.7(b) and (d).
15
Hansmeier v. Hansmeier, 25 Neb. Ct. App. 742, 752, 912 N.W.2d 268, 275-
76 (2018) (holding “an insurance agent has no duty to anticipate what
coverage an insured should have. . . . Rather, when an insured asks an
insurance agent to procure insurance, the insured has a duty to advise the
insurance agent as to the desired insurance”).
16
See, also, Dahlke v. John F. Zimmer Ins. Agency, 245 Neb. 800, 515
N.W.2d 767 (1994).
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II. ASSIGNMENTS OF ERROR
The personal representative assigns a single error: The dis-
trict court erred in granting declaratory judgment in favor of
Shelter and Benjamin and declaring the liability limit of the
Shelter policy was $100,000 “irrespective of the statutorily-
required minimum” under § 75-673. Similarly, the cross-appeal
of Gomez Trucking and Gomez Jr. assigns it was error to grant
summary judgment in favor of Shelter because its policy did
not provide “lawful coverage.”
III. STANDARD OF REVIEW
[1] An appellate court will affirm a lower court’s grant of
summary judgment if the pleadings and admitted evidence
show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from those
facts and that the moving party is entitled to judgment as a
matter of law. 17
[2] In reviewing a summary judgment, an appellate court
views the evidence in the light most favorable to the party
against whom the judgment was granted and gives that party
the benefit of all reasonable inferences deducible from the
evidence. 18
[3] Statutory interpretation presents a question of law for
which an appellate court has an obligation to reach an inde-
pendent conclusion irrespective of the decision made by the
court below. 19
IV. ANALYSIS
As a threshold matter, we note that neither the appellant nor
the cross-appellants assigned error to the trial court’s judg-
ment in favor of Benjamin and Shelter on the professional
17
JB & Assocs. v. Nebraska Cancer Coalition, 303 Neb. 855, 932 N.W.2d 71
(2019).
18
Id.
19
Id.; Cruz, supra note 1.
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negligence cross-claim and counterclaim. Instead, their assign-
ments of error focus exclusively on the district court’s declara-
tory judgment ruling which interpreted § 75-363(3)(d) and the
federal regulations incorporated therein. We limit our analysis
accordingly. 20
1. Minimum Levels of Financial
Responsibility Under
§ 75-363 and Part 387
[4] As stated earlier, § 75-363 adopts, as Nebraska law,
several parts of the Federal Motor Carrier Safety Regulations
and makes them applicable to certain intrastate motor carriers
not otherwise subject to federal regulation. 21 Since 2006, one
of the federal regulations included in § 75-363 has been Part
387, 22 which governs minimum levels of financial responsibil-
ity for motor carriers. This case presents our first opportunity
to consider the financial responsibility requirements imposed
by § 75-363 and Part 387, and the parties urge significantly
different interpretations.
The appellant and the cross-appellants argue that § 75-363
and Part 387 require insurers, when issuing policies to intra-
state motor carriers, to provide liability limits that will satisfy
the motor carrier’s minimum financial responsibility under 49
C.F.R. § 387.9. They contend that the Peterbilt was required to
have a minimum level of financial responsibility of $750,000
and argue that any policy providing lower limits was “illegal” 23
and unenforceable.
20
State v. Ferrin, 305 Neb. 762, 770-71, 942 N.W.2d 404, 411-12 (2020)
(“[t]o be considered by an appellate court, an alleged error must be both
specifically assigned and specifically argued in the brief of the party
asserting the error”).
21
See Cruz, supra note 1.
22
See 2006 Neb. Laws, L.B. 1007, § 13, codified as § 75-363(3)(d)
(adopting 49 C.F.R. § 387).
23
See, brief for appellant at 16, 18, 19, and 21; brief for appellees Gomez
Trucking and Gomez Jr. on cross-appeal at 41.
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Shelter and Benjamin generally argue that § 75-363 and
Part 387 put the burden on the motor carrier to obtain and
maintain the required minimum levels of financial respon
sibility and do not require an insurer to issue a policy with
liability limits that satisfy the motor carrier’s financial respon-
sibility. They contend that by enacting § 75-363 and Part 387,
the Legislature sought to regulate motor carriers, not insur-
ers, and they point out that Part 387 permits motor carriers to
meet their minimum level of financial responsibility through
more than one policy of insurance, and using methods other
than insurance. 24
[5-7] In considering the competing interpretations advanced
by the parties, we are guided by settled principles. Statutory
language is to be given its plain and ordinary meaning, and
an appellate court will not resort to interpretation to ascertain
the meaning of statutory words which are plain, direct, and
unambiguous. 25 Components of a series or collection of stat-
utes pertaining to a certain subject matter are in pari materia
and should be conjunctively considered and construed to deter-
mine the intent of the Legislature, so that different provisions
are consistent, harmonious, and sensible. 26 It is not within the
province of the courts to read a meaning into a statute that is
not there or to read anything direct and plain out of a statute. 27
We apply these rules of statutory construction both to § 75-383
and to Part 387, because that federal regulation has been
adopted as Nebraska law.
Before beginning our analysis, we pause to note that our
appellate record does not include evidence of the gross weight
rating of the Peterbilt or the nature of the load, if any, being
transported at the time of the accident. Consequently, while the
parties appear to generally agree the Peterbilt was the type of
24
See 49 C.F.R. §§ 387.5 and 387.7(b) and (d).
25
In re Application No. OP-0003, 303 Neb. 872, 932 N.W.2d 653 (2019).
26
Id.
27
State v. Montoya, 304 Neb. 96, 933 N.W.2d 558 (2019).
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vehicle described in 49 C.F.R. § 387.9(1) and thus was subject
to minimum financial responsibility of $750,000, we express
no opinion in that regard. Instead, as we explain further below,
we conclude that even if the Peterbilt was the type of vehicle
described in 49 C.F.R. § 387.9(1), the district court was cor-
rect to conclude that Part 387 imposes the minimum financial
responsibility requirements only on the motor carrier, not on
the insurer.
2. Compliance With § 75-363 and
Part 387 Is Responsibility
of Motor Carrier
The plain language of both § 75-363 and Part 387 focuses
exclusively on regulating motor carriers. Section 75-363 makes
the selected federal regulations applicable to “[a]ll motor car-
riers transporting . . . property in intrastate commerce” and to
the vehicles and drivers of such motor carriers. 28
Similarly, Part 387 applies only to “for-hire motor carriers,” 29
and the stated purpose of the regulation is to create additional
incentives for “motor carriers to maintain and operate their
vehicles in a safe manner and to assure that motor carriers
maintain an appropriate level of financial responsibility for
motor vehicles operated on public highways.” 30 The financial
responsibility requirements under Part 387 are directed to the
motor carrier, requiring that “[n]o motor carrier shall operate
a motor vehicle until the motor carrier has obtained and has
in effect the minimum levels of financial responsibility as set
forth in [49 C.F.R. § 387.9].” 31
[8] Given the plain language of § 75-363 and Part 387, we
conclude that compliance with the minimum financial respon-
sibility requirements is the responsibility of the motor carrier,
not the insurer.
28
§ 75-363(2)(b) (emphasis supplied).
29
49 C.F.R. § 387.3(a) (emphasis supplied).
30
49 C.F.R. § 387.1 (emphasis supplied).
31
49 C.F.R. § 387.7(a) (emphasis supplied).
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3. Motor Carriers Can Satisfy Minimum
Financial Responsibility Requirements
Through Combination of Resources
Importantly, Part 387, and the federal statute on which that
regulation is based, 32 allows a motor carrier to meet its mini-
mum financial responsibility through more than just a single
insurance policy. The federal statute provides that a “motor
carrier may obtain the required amount of financial respon-
sibility from more than one source provided the cumulative
amount is equal to the minimum requirements.” 33 Further, that
federal statute generally authorizes financial responsibility to
be established using “one or a combination of the following,”
including insurance, a guarantee, a surety bond, or qualifi-
cation as a self-insurer. 34 Part 387 similarly permits proof
of the required level of financial responsibility to be shown
through “[p]olicies of [i]nsurance,” surety bonds, or authorized
self-insurance. 35
The interpretation of Part 387 proposed by the appellant and
the cross-appellants does not accommodate, and would require
that we read out of the federal regulation altogether, those
provisions allowing motor carriers to combine more than one
policy, and use more than one method, to meet the minimum
financial responsibility requirement under Part 387.
4. Part 387 Does Not Require Insurers to Issue
Policy With Liability Limits That Satisfy
Motor Carrier’s Minimum Level of
Financial Responsibility
The appellant and the cross-appellants repeatedly character-
ize the $100,000 liability limit in Shelter’s policy as illegal
or unlawful under Part 387. The appellant relies on Steffen v.
32
See 49 U.S.C. § 31139 (2012).
33
49 U.S.C. § 31139(f)(3).
34
49 U.S.C. § 31139(f)(2).
35
49 C.F.R. § 387.7(d).
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Progressive Northern Ins. Co. 36 to argue that Shelter should
not be permitted to issue a policy containing less than the
statutorily required coverage and to argue that the minimum
financial responsibility requirements of Part 387 should be
read into the Shelter policy. We find the appellant’s position in
this regard contrary to the plain language of Part 387, and we
find the appellant’s reliance on Steffen to be misplaced.
It is true there are some Nebraska statutes which mandate
the type and amount of coverage insurers must provide when
issuing an automobile liability policy. For instance, Neb.
Rev. Stat. § 44-6408 (Reissue 2010) provides, “No policy
insuring against liability imposed by law for bodily injury,
sickness, disease, or death suffered by a natural person aris-
ing out of the ownership, operation, maintenance, or use of
a motor vehicle . . . shall be delivered, issued for delivery,
or renewed” unless it provides uninsured and underinsured
motorist coverage with limits of $25,000 per person and
$50,000 per accident. Similarly, other statutes within the
Uninsured and Underinsured Motorist Insurance Coverage
Act 37 (UUMICA) mandate definitions of an uninsured motor
vehicle 38 and an underinsured motor vehicle, 39 list avail-
able exclusions, 40 and address the priority of payment when
multiple policies apply. 41 As such, the plain language of the
UUMICA seeks to regulate the issuance of automobile insur-
ance policies in Nebraska and places the burden of complying
with certain statutory provisions directly on the insurer. For
36
Steffen v. Progressive Northern Ins. Co., 276 Neb. 378, 754 N.W.2d 730
(2008) (insurers may not issue policies that carry terms and conditions less
favorable to insured than those provided in Uninsured and Underinsured
Motorist Insurance Coverage Act).
37
Neb. Rev. Stat. §§ 44-6401 to 44-6414 (Reissue 2010).
38
See § 44-6405.
39
See § 44-6406.
40
See §§ 44-6407 and 44-6413.
41
See § 44-6411.
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the sake of completeness, we note the Shelter policy included
uninsured and underinsured motorist coverage in limits higher
than required by § 44-6408.
As this court made clear in Steffen, insurers may not issue
policies that carry terms and conditions less favorable to the
insured than those provided in the UUMICA. 42 When the terms
of such a policy are less favorable than the UUMICA requires,
the UUMICA, and not the policy, will be controlling. 43
But neither Steffen nor its reasoning apply here. Unlike the
compulsory provisions of the UUMICA, § 75-363 and Part
387 do not regulate the terms and conditions of insurance poli-
cies; instead, their purpose is to regulate motor carriers. The
plain language of § 75-363 applies only to motor carriers as
defined in that statute, and the stated purpose of Part 387 is
to “assure that motor carriers maintain an appropriate level of
financial responsibility for motor vehicles operated on public
highways.” 44 In construing a statute, a court must determine
and give effect to the purpose and intent of the Legislature as
ascertained from the entire language of the statute considered
in its plain, ordinary, and popular sense. 45
[9] The district court correctly concluded that neither
§ 75-363 nor Part 387 require an insurer to issue a policy with
liability limits that satisfy a motor carrier’s minimum level of
financial responsibility.
5. Declaratory Judgment
Correctly Decided
For the reasons set out above, we conclude the district
court was correct in finding, as a matter of law, that Shelter
was not required by the provisions of § 75-363 and Part 387
to issue Gomez Trucking a policy with liability limits of at
42
Steffen, supra note 36.
43
See id.
44
49 C.F.R. § 387.1.
45
Steffen, supra note 36.
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least $750,000 and that the $100,000 liability limit in place
at the time of the fatal collision was neither inconsistent with
nor repugnant to Nebraska law. Our conclusion in this regard
is compelled by the plain language of § 75-363 and Part 387,
both of which place the burden of compliance on the motor
carrier, and our reasoning is consistent with that of other courts
to have considered similar questions. 46
V. CONCLUSION
Finding no merit to the assigned errors, we affirm the dis-
trict court’s judgment.
Affirmed.
46
See, e.g., Illinois Central R. Co. v. Dupont, 326 F.3d 665 (5th Cir. 2003)
(financial responsibility under Part 387 is directed at motor carrier and
does not impose duty on insurer to make sure motor carrier complies
with requirements); North Carolina Farm Bureau Mut. Ins. Co., Inc.
v. Armwood, 361 N.C. 576, 653 S.E.2d 392 (2007) (reversing decision
to reform commercial automobile insurance policy to reflect minimum
liability limit of $750,000, reasoning federal motor carrier regulations
place duty to provide minimum level of financial responsibility on motor
carrier, not insurer); Howard v. Quality Xpress, Inc., 128 N.M. 79, 82, 989
P.2d 896, 899 (N.M. App. 1999) (“regulatory scheme [in Part 387] appears
to place the burden of compliance with the compulsory insurance coverage
requirements upon the motor carrier, not the insurer”). | 01-03-2023 | 08-14-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/1524309/ | 826 F. Supp. 712 (1993)
Kelvin MOYE, Plaintiff,
v.
Donald SELSKY and Roland Cote, Defendants.
No. 90 Civ. 2503(RJW).
United States District Court, S.D. New York.
July 2, 1993.
*713 Scott L. Lessing, New York City, for plaintiff.
Robert Abrams, Atty. Gen. of the State of NY, Barbara B. Butler, Asst. Atty. Gen., New York City, for defendants.
ROBERT J. WARD, District Judge.
Plaintiff Kelvin Moye has moved, pursuant to Rule 56, Fed.R.Civ.P., for partial summary judgment in this action.[1] Defendants Donald Selsky and Roland Cote ("defendants") have cross-moved, pursuant to Rule 56, Fed.R.Civ. P., for summary judgment. For the reasons that follow, plaintiff's motion is granted and defendants' motion is granted in part and denied in part.
*714 BACKGROUND
At all times relevant to this action, plaintiff was incarcerated in the Sing Sing Correctional Facility ("Sing Sing"), which is operated by the New York State Department of Correctional Services ("DOCS"). On February 23, 1988, an inmate named W. Francisco was stabbed in that facility. The next day, Moye was placed in a punitive segregation cell of the Sing Sing Special Housing Unit ("SHU") to await a superintendent's hearing ("the hearing") which would determine whether he was involved in the stabbing.
Cote, who is a DOCS hearing officer, conducted the hearing on March 1, March 7 and March 8, 1988. At the conclusion of the hearing, Cote found plaintiff guilty of assaulting Francisco and sentenced plaintiff to a year of confinement in the SHU.
Selsky is the Director of Special Housing and Inmate Discipline for DOCS. In that capacity, he is the person designated by the Commissioner of DOCS to review inmate appeals of decisions rendered by hearing officers such as Cote. Selsky reviewed and affirmed ("the review") Cote's decision.
On December 20, 1988, Justice Gerard E. Delaney of the New York State Supreme Court granted plaintiff's petition pursuant to Article 78 of the New York Civil Practice Law and Rules and annulled and vacated defendants' determination. Plaintiff was not released from the SHU until January 12, 1989, twenty-three days after Justice Delaney's decision.
In total, Moye was held in the SHU for 323 consecutive days in connection with the Francisco stabbing. Defendants do not dispute that, while plaintiff was in the SHU, he was "confined to a solitary cell twenty-three hours a day, seven days a week, without communication by telephone, without access to the commissary, and without packages from outside Sing Sing." Amended Complaint at ¶ 3.
In his amended complaint, Moye contends that the hearing before Cote and the review by Selsky violated his rights pursuant to 42 U.S.C. § 1983 and the due process clause of the Fourteenth Amendment.
Events Preceding the Hearing
On February 26, two days after he was placed in the SHU for his alleged role in the stabbing of Francisco, Moye was served with an "Inmate Misbehavior Report" which indicated that, "[b]ased on confidential information received in a continueing [sic] investigation from two reliable sources, you have been positively identified as the person who stabbed inmate W. Francisco ... on 2/23/88 on T gallery in [Housing Block "B"] at approx. 10:55 A.M." Lessing Aff.Ex. 1.
On the same day, Moye met with a DOCS employee who was assigned to assist him in preparing for the hearing. He told this individual that he wished to call as witnesses three inmates and a correction officer. Moye expected that these witnesses would provide an alibi by placing him in other locations within the prison at the time of the stabbing. Among these witnesses was an inmate named Dunbar, who was the gallery clerk for galleries "U" and "Z", which comprised a tier of cells in Sing Sing. Plaintiff was housed on gallery "Z" on the day of Francisco's stabbing. Moye expected Dunbar to make a statement[2] indicating that they had had a five to ten minute conversation at Dunbar's cell on the "U" gallery at about the time Francisco was stabbed on the "T" gallery. Moye believed that this would provide him with an alibi which would establish his innocence.
The Hearing and Appeal
On March 1, 1988, the first day of the hearing, Cote informed Moye that Dunbar had been transferred to another DOCS facility. Plaintiff refused to waive Dunbar as a witness, asserting that Dunbar's statement would help prove his innocence. Cote told Moye that he would explore the possibility of having Dunbar make a statement by telephone, a practice which was permitted under DOCS procedure.
*715 Other witnesses made statements to Cote on March 7 and 8.[3] One of these witnesses, Correction Officer Hicks, who was on duty on gallery "Z" at the time of the assault, was asked whether he saw plaintiff speaking with Dunbar on gallery "U" immediately prior to plaintiff's return to his cell for "lock-in." Hicks stated that lock-in occurred on February 23 between 10:45 and 11:00 a.m. However, he was unable to recall whether he had seen Moye speaking with Dunbar immediately prior to lock-in.
Moye called inmate Fred Scott, who was housed in the cell next to the one where Moye was housed at the time of the stabbing. Scott indicated that he saw Moye in the prison barber shop up until 10:30 a.m. on the morning of February 23 and that he then saw Moye return to his cell no later than 10:45 a.m.
Given Hicks's inability to recall whether he had seen Moye and Dunbar speaking immediately prior to lock-in, plaintiff asserted that Dunbar was the only person who could place him at a location other than the scene of the stabbing between 10:30 and 10:45. Nevertheless, Cote did not permit Dunbar to make a statement. Moreover, Cote did not provide Moye with a written statement explaining why Dunbar was not permitted to make a statement.
The only evidence presented at the hearing linking Moye to the stabbing consisted of statements by two correction officers, who indicated that confidential informants had implicated plaintiff in the assault. Moye was not present when the correction officers made their statements and Cote never interviewed any of the informants.
At the conclusion of the hearing, Cote informed Moye that the assault on Francisco did not occur at 10:55 a.m., as was stated on the Inmate Misbehavior Report. Instead, according to the prison logbook, the victim was found at 10:55 a.m. and the assault occurred an indeterminate amount of time before then.
Cote found Moye guilty of assaulting Francisco and sentenced him to a year of punitive segregation in the SHU. Moye filed an administrative appeal with Selsky, asserting that Cote had denied him the right to call Dunbar and citing Wolff v. McDonnell, 418 U.S. 539, 94 S. Ct. 2963, 41 L. Ed. 2d 935 (1974). On May 12, 1988, Selsky affirmed the hearing disposition.
As indicated above, defendants' determination was subsequently annulled and vacated by a Justice of the New York State Supreme Court in an Article 78 proceeding. That court found Cote's determination to prohibit Dunbar from making a statement, which was affirmed by Selsky, to be a violation of Moye's due process rights and DOCS's rules and regulations.
The Instant Motions
Plaintiff now moves for partial summary judgment with respect to Claims One and Three of the Amended Complaint,[4] but not with respect to Claim Two.[5] Plaintiff does *716 not move for summary judgment on the issue of damages with respect to these claims. Defendants cross-move for summary judgment on all three of plaintiff's claims.
DISCUSSION
A. Standards for Granting Summary Judgment Pursuant to Rule 56
Summary judgment may be granted when the moving party establishes "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Rosen v. Thornburgh, 928 F.2d 528, 532 (2d Cir.1991). If no rational fact-finder could find in the nonmovant's favor, there is no genuine issue of material fact and summary judgment is appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2511-12, 91 L. Ed. 2d 202 (1986). In making this determination, the court should not resolve disputed issues of fact, but rather, while resolving ambiguities and drawing reasonable inferences against the moving party, must assess whether material factual issues remain for the trier of fact. Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir.1990) (quoting Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S. Ct. 1570, 94 L. Ed. 2d 762 (1987)).
B. Claim One: Defendant Cote's Exclusion of Moye's Witness
In the context of a prison disciplinary proceeding, an inmate is entitled to call witnesses unless doing so would "be unduly hazardous to institutional safety," would delay swift punishment or would cause the proceeding to exceed "reasonable limits" due to "irrelevance [or] lack of necessity" of the statements such witnesses would provide. Wolff v. McDonnell, 418 U.S. 539, 566, 94 S. Ct. 2963, 2979, 41 L. Ed. 2d 935 (1974); see also Ponte v. Real, 471 U.S. 491, 495, 105 S. Ct. 2192, 2195, 85 L. Ed. 2d 553 (1985) ("the inmate's right to present witnesses is necessarily circumscribed by the penological need to provide swift discipline in individual cases"); Scott v. Kelly, 962 F.2d 145, 147 (2d Cir.1992). A court must employ a balancing test, weighing the inmate's liberty interest "against the needs of the prison, and some amount of flexibility and accommodation is required." Wolff v. McDonnell, 418 U.S. at 566, 94 S.Ct. at 2979; see also Freeman v. Rideout, 808 F.2d 949, 954 (2d Cir.1986) ("On review, it is the responsibility of the court to balance the concern to safeguard the rights of individual inmates with the legitimate needs and aims of the penal institution"), cert. denied, 485 U.S. 982, 108 S. Ct. 1273, 99 L. Ed. 2d 484 (1988).
It is true, as defendants assert, that the outcome of a prison disciplinary hearing passes constitutional muster so long as there was "some evidence in the record," "a modicum of evidence" or "any evidence in the record" upon which the finder of fact relied. Superintendent v. Hill, 472 U.S. 445, 454-56, 105 S. Ct. 2768, 2773-75, 86 L. Ed. 2d 356 (1985). But the evidentiary standard established by the Hill court concerns the weight of evidence necessary to impose further punishment on a prisoner, and does not apply to a procedural due process challenge, such as is presently before the Court, which alleges the unconstitutional exclusion of witnesses from an evidentiary hearing. See Freeman v. Rideout, 808 F.2d at 954-55 (first applying procedural due process test enunciated in Wolff and Ponte and then determining whether there is "some evidence" which supports decision of prison disciplinary board); Moore v. Scully, No. 90 Civ. 3817(MEL), 1993 WL 22129, at *3 (S.D.N.Y. Jan. 26, 1993).
The standard to be applied in a procedural due process challenge was articulated in Ponte v. Real, 471 U.S. 491, 105 S. Ct. 2192, 85 L. Ed. 2d 553 (1985). In that case, the Court was presented with the question of whether prison officials are required, under federal due process principles, to explain why witnesses were not allowed to testify at a prison disciplinary hearing. The Court held that prison officials may be required to proffer such an explanation, but they may do so either at the time of the hearing or in a later court proceeding in which the exclusion is challenged. The Court then stated, "so long as the reasons are logically related to preventing undue hazards to `institutional safety *717 or correctional goals,' the explanation should meet the due process requirements as outlined in Wolff." Id. at 497, 105 S.Ct. at 2196 (emphasis added) (quoting Wolff v. McDonnell, 418 U.S. at 566, 94 S.Ct. at 2979), quoted in Fox v. Coughlin, 893 F.2d 475, 478 (2d Cir.1990). The Ponte court explicitly rejected the proposed standard put forth by the prison officials in that case, which would have, "place[d] the burden of proof on the inmate to show why the action of the prison officials in refusing to call witnesses was arbitrary or capricious." Ponte v. Real, 471 U.S. at 499, 105 S.Ct. at 2197. Rather, the burden is on the prison official to prove the rationality of the decision to exclude witnesses. Kingsley v. Bureau of Prisons, 937 F.2d 26, 30-31 (2d Cir.1991); Fox v. Coughlin, 893 F.2d at 478; Joyner v. Coughlin, No. 92 Civ. 7613(RPP), 1993 WL 97224, at *3 (S.D.N.Y. Mar. 26, 1993); Moore v. Scully, 1993 WL 22129, at *1.
There is no evidence in the record that Cote gave reasons at the hearing for excluding Dunbar. Furthermore, the papers submitted by defendants in connection with the instant motions do not demonstrate a rational basis for Cote's decision. Defendants do not contend that Dunbar's presence at the hearing would have compromised institutional safety. Nor do defendants assert that Dunbar's statement would have been irrelevant. Finally, defendants do not argue that Dunbar, who had been transferred to another facility, could not have given a statement over the telephone. Rather, the correctional goal relied upon by defendants is contained in the "lack of necessity" prong of the Wolff test. In particular, defendants assert that any statement by Dunbar would not have established Moye's innocence and would have been cumulative to Scott's statement.
The Court finds that defendants have not proven a logical relationship between Cote's decision to exclude Dunbar and a correctional goal.[6] In reaching its conclusion, this Court is mindful of the Supreme Court's admonition that federal tribunals "should not be too ready to exercise oversight and put aside the judgment of prison administrators." Wolff v. McDonnell, 418 U.S. at 566, 94 S.Ct. at 2979.
Defendants note that, "Dunbar's statement, if believed, would not have necessarily established plaintiff's innocence since plaintiff could have spoken to ... Dunbar and still have assaulted the inmate. Unfortunately, it does not take more than a moment or two to go down a flight of stairs, stab someone and go back up the flight of stairs." Letter from Barbara B. Butler, Asst. Att'y Gen., to Judge Robert J. Ward (May 6, 1993) at 2.
Nevertheless, if Dunbar had credibly confirmed Moye's version of events, he would have provided corroboration of Moye's whereabouts during the 10:30 to 10:45 period *718 of time not accounted for by Scott's statement. Dunbar's statement would not have been cumulative and, although not definitively proving Moye's lack of involvement in the attack on Francisco, would have been highly probative.
While it is certainly true that any statement by Dunbar would not have established an airtight alibi, such a statement would have provided compelling evidence of Moye's innocence, particularly if Dunbar indicated that he and Moye spoke for a significant part of the fifteen minute time period not accounted for by Scott's statement.
Accordingly, the Court finds that Dunbar's statement was necessary to Moye's defense and that Cote's ruling was not logically related to any correctional goals. Given the significant deprivation facing Moye (i.e. one year in the SHU), and the lack of a convincing rationale for Cote's decision, the balance in this case tilts heavily in plaintiff's favor. Therefore, Cote's refusal to obtain a statement from Dunbar deprived plaintiff of due process.
C. Claim Two: Defendant Cote's Assessment of Confidential Informants
Neither the Second Circuit nor the Supreme Court has established a rule concerning how a prison hearing officer is to assess the reliability of information gleaned from confidential sources. Nevertheless, other circuit courts, as well as district courts in the Southern District of New York, have adopted rules requiring the hearing officer to make an independent assessment of confidential witnesses' credibility and/or reliability. See, e.g., Taylor v. Wallace, 931 F.2d 698, 701-02 (10th Cir.1991); Hensley v. Wilson, 850 F.2d 269, 276-77 (6th Cir.1988); Russell v. Coughlin, 774 F. Supp. 189, 196-97 (S.D.N.Y.1991), rev'd sub nom. on other grounds Russell v. Scully, No. 92-2057, 1993 WL 188677 (2d Cir. June 4, 1993); Vasquez v. Coughlin, 726 F. Supp. 466, 470-71 (S.D.N.Y.1989). The Court agrees with the persuasive reasoning in these cases and adopts this rule.
The parties dispute whether Cote made an independent assessment of the statements given by the confidential informants to the corrections officers. Inasmuch as the record is devoid of any clear indication as to whether Cote independently assessed the credibility and reliability of these confidential witnesses, the Court is presented with a disputed issue of material fact. For this reason, summary judgment on the merits is inappropriate with respect to Claim Two.
D. Claim Three: Absolute Quasi-Judicial Immunity for Selsky
Defendants assert that Selsky is entitled to absolute immunity inasmuch as he served a quasi-judicial function in reviewing and affirming Cote's decision. The Court will review the standards applicable to this assertion and then apply them to the instant matter.
1. Standards for Granting Absolute Immunity
It is well established that judges are immune from liability for their judicial acts. Cleavinger v. Saxner, 474 U.S. 193, 199-200, 106 S. Ct. 496, 499-500, 88 L. Ed. 2d 507 (1985). Absolute immunity applies, "`however erroneous the act may have been, and however injurious in its consequences it may have proved to the plaintiff.'" Id. (quoting Bradley v. Fisher, 13 Wall. 335, 347, 20 L. Ed. 646 (1872)).
Absolute immunity for judges engaged in judicial activity dates back to centuries-old English common law and has been adopted by American courts. Butz v. Economou, 438 U.S. 478, 508, 98 S. Ct. 2894, 2911, 57 L. Ed. 2d 895 (1978). This form of immunity was established to protect the independence of the judiciary, by allowing judges to perform their functions without the threat of harassment or intimidation. In particular, "[j]udges were often called to decide `[c]ontroversies involving not merely great pecuniary interests, but the liberty and character of the parties, and consequently exciting the deepest feelings.'" Id. at 509, 98 S.Ct. at 2912 (quoting Bradley v. Fisher, 13 Wall. at 348). If frustrated litigants could maintain a civil suit against a judge, "[j]udges would lose `that independence without which no judiciary can either *719 be respectable or useful.'" Id. (quoting Bradley v. Fisher, 13 Wall. at 347).
There is, however, a fundamental tension between the importance of protecting judicial independence and the principle that "[a]ll the officers of the government, from the highest to the lowest, are creatures of the law, and are bound to obey it." United States v. Lee, 106 U.S. 196, 220, 1 S. Ct. 240, 260, 27 L. Ed. 171 (1882) (quoted in Butz v. Economou, 438 U.S. at 506, 98 S.Ct. at 2910). It is this tension, as well as a recognition of "the salutary effects that the threat of liability can have," Forrester v. White, 484 U.S. 219, 223, 108 S. Ct. 538, 542, 98 L. Ed. 2d 555 (1988), that has caused the Supreme Court to be "cautious in recognizing claims that government officials should be free of the obligation to answer for their acts in court." Id. at 223-24, 108 S.Ct. at 542.
While absolute immunity has been extended to members of the executive branch who serve a judicial function, qualified immunity, rather than absolute immunity, remains the norm for executive branch officers. Buckley v. Fitzsimmons, ___ U.S. ___, ___, 113 S. Ct. 2606, 2621, 125 L. Ed. 2d 209 (1993). Indeed, courts "`have been quite sparing in [their] recognition of absolute immunity, and have refused to extend it any further than its justification would warrant.'" Antoine v. Byers & Anderson, Inc., ___ U.S. ___, ___ n. 4, 113 S. Ct. 2167, 2170 n. 4, 124 L. Ed. 2d 391 (1993) (quoting Burns v. Reed, ___ U.S. ___, ___, 111 S. Ct. 1934, 1939, 114 L. Ed. 2d 547 (1991)).
A government official who seeks absolute immunity bears the burden of showing that overriding public policy considerations justify a deviation from this norm. Forrester v. White, 484 U.S. at 224, 108 S.Ct. at 542; Cleavinger v. Saxner, 474 U.S. at 201, 106 S.Ct. at 500; Butz v. Economou, 438 U.S. at 506, 98 S.Ct. at 2910.
In deciding whether a government official is entitled to absolute immunity from a § 1983 suit, a court is to follow a functional approach, which involves evaluating the nature of the act performed by the official in connection with the alleged constitutional or statutory violation. If the official's action was judicial in nature, then absolute immunity applies. The official's rank, title or place within the government is not the determining factor.[7]Forrester v. White, 484 U.S. at 227, 108 S.Ct. at 544; Cleavinger v. Saxner, 474 U.S. at 201, 106 S.Ct. at 500; Butz v. Economou, 438 U.S. at 511, 98 S.Ct. at 2913.
When applying the functional test to ascertain whether the government official is acting in an adjudicatory role and is therefore entitled to absolute immunity, the court should consider the following six factors:
(a) the need to assure that the individual can perform his functions without harassment or intimidation; (b) the presence of safeguards that reduce the need for private damages actions as a means of controlling unconstitutional conduct; (c) insulation from political influence; (d) the importance of precedent; (e) the adversary nature of the process; and (f) the correctability of error on appeal.
Cleavinger v. Saxner, 474 U.S. at 202, 106 S.Ct. at 501 (citing Butz v. Economou, 438 U.S. at 512, 98 S.Ct. at 2913).
Federal hearing officers and administrative law judges are afforded absolute immunity. Butz v. Economou, 438 U.S. at 513-14, 98 S.Ct. at 2914-15. The Butz court found that the role of the modern federal hearing examiner or administrative law judge was "functionally comparable" to that of a trial judge:
adjudication within a federal administrative agency shares enough of the characteristics of the judicial process that those who participate in such adjudication should also be immune from suit for damages.... [F]ederal administrative law requires that agency adjudication contain many of the same safeguards as are available in the judicial process. The proceedings are adversary in nature. They are conducted before a trier of fact insulated from political *720 influence. A party is entitled to present his case by oral or documentary evidence, and the transcript of testimony and exhibits together with the pleadings constitute the exclusive record for decision. The parties are entitled to know the findings and conclusions on all of the issues of fact, law, or discretion presented on the record.
Id. at 512-13, 98 S.Ct. at 2914 (citations to Administrative Procedure Act omitted).
In addition, the Butz court explained that:
the process of agency adjudication is currently structured so as to assure that the hearing examiner exercises his independent judgment on the evidence before him, free from pressures by the parties or other individuals within the agency. Prior to the Administrative Procedure Act, there was considerable concern that persons hearing administrative cases at the trial level could not exercise independent judgment because they were required to perform prosecutorial and investigative functions as well as their judicial work and because they were often subordinate to executive officials within the agency.... [T]he Administrative Procedure Act contains a number of provisions designed to guarantee the independence of hearing examiners. They may not perform duties inconsistent with their duties as hearing examiners. When conducting a hearing under § 5 of the APA, a hearing examiner is not responsible to, or subject to the supervision or direction of, employees or agents engaged in the performance of investigative or prosecution functions for the agency. Nor may a hearing officer consult any person or party, including other agency officials, concerning a fact at issue in the hearing, unless on notice and opportunity for all parties to participate.... They may be removed only for good cause established and determined by the Civil Service Commission after a hearing on the record. Their pay is also controlled by the Civil Service Commission.
Id. at 513-14, 98 S.Ct. at 2915 (emphasis added; citations omitted). On the basis of these factors, the Butz court held that persons subject to the provisions of the APA are entitled to absolute immunity.
In contrast, the Supreme Court has held that a prison disciplinary board is not entitled to absolute immunity:
We do not perceive the discipline committee's function as a "classic" adjudicatory one.... Surely, the members of the committee, unlike a federal or state judge, are not "independent"; to say that they are is to ignore reality. They are not professional hearing officers, as are administrative law judges. They are, instead, prison officials, albeit no longer of the rank and file, temporarily diverted from their usual duties. They are employees of the Bureau of Prisons and they are the direct subordinates of the warden who reviews their decision. They work with the fellow employee who lodges the charge against the inmate upon whom they sit in judgment. The credibility determination they make often is one between a co-worker and an inmate. They thus are under obvious pressure to resolve a disciplinary dispute in favor of the institution and their fellow employee. It is the old situational problem of the relationship between the keeper and the kept, a relationship that hardly is conducive to a truly adjudicatory performance.
Cleavinger v. Saxner, 474 U.S. at 203-04, 106 S.Ct. at 502 (citations omitted); see also Zavaro v. Coughlin, 970 F.2d 1148, 1153 n. 2 (2d Cir.1992) ("absolute immunity does not extend to officers presiding at prison disciplinary hearings, in the absence of the procedural safeguards identified by the Supreme Court in Butz").
Despite the procedural safeguards present in the disciplinary proceeding at issue in Cleavinger,[8] the Supreme Court found that these were not sufficient to place the disciplinary board into a judicial role "of the kind and depth" required for absolute immunity. Cleavinger v. Saxner, 474 U.S. at 206, 106 *721 S.Ct. at 503. Among the missing factors, the Cleavinger court noted that the prisoner was afforded neither a lawyer nor an independent, nonstaff representative; had no right to compel the attendance of witnesses or to cross-examine those called as witnesses; had no right to discovery; and did not receive a verbatim transcript. Furthermore, there was no cognizable burden of proof and hearsay testimony was permitted. Id.
2. Application of Standards to Selsky
The Court now considers defendants' argument in light of the six factor analysis identified in Cleavinger. As an initial matter, there can be little doubt, in the prison context, that an appellate hearing officer must be permitted to perform his functions without harassment or intimidation. This Court and others have seen numerous "harassment" lawsuits filed by inmates. See Cleavinger v. Saxner, 474 U.S. at 203, 106 S.Ct. at 501 ("We also acknowledge that many inmates do not refrain from harassment and intimidation. The number of non-meritorious prisoners' cases that come to this Court's notice is evidence of this.")
Nevertheless, this Court has before it no evidence that defendant Selsky has been harassed or intimidated by lawsuits brought against him in his capacity as the DOCS Director of Inmate Discipline. Furthermore, the existence of qualified immunity and "firm application of the Federal Rules of Civil Procedure will ensure that federal officials are not harassed by frivolous lawsuits." Butz v. Economou, 438 U.S. at 507-08, 98 S.Ct. at 2911, quoted in Cleavinger v. Saxner, 474 U.S. at 206-07, 106 S.Ct. at 503-04. The same may be said of state officials sued in federal court under 42 U.S.C. § 1983.
The second factor to be considered is the presence of procedural safeguards that reduce the need for § 1983-type actions as a means of controlling unconstitutional conduct. As discussed supra, the Cleavinger court found that, despite the existence of certain procedural protections, such as prior notice of the hearing, representation by a prison staff member, the limited right to present evidence, the right to be present at the hearing, the requirement of a detailed record and the availability of further administrative review, there were still not enough procedural safeguards to justify extension of absolute immunity to a prison disciplinary board.
The Court focussed on the fact that the prisoner was afforded neither a lawyer nor an independent, nonstaff representative; had no right to compel the attendance of witnesses or to cross-examine those called as witnesses; had no right to discovery; and did not receive a verbatim transcript. Furthermore, there was no cognizable burden of proof and hearsay testimony was permitted. Cleavinger v. Saxner, 474 U.S. at 206, 106 S.Ct. at 503.
With one exception,[9] the procedural framework for an inmate appearing before the DOCS disciplinary board suffers from the same shortcomings as did the procedural framework found in Cleavinger. For example, such hearings rely heavily on hearsay, including unverifiable information from prison guards and informants. This lack of evidentiary rigor is in stark contrast to the strict evidentiary standards required in judicial proceedings. Cf. Julio A. Thompson, Note, A Board Does Not a Bench Make: Denying Quasi-Judicial Immunity to Parole Board Members in Section 1983 Damages Actions, 87 Mich.L.Rev. 241, 250-51 (1988) (arguing that parole board members are not entitled to absolute quasi-judicial immunity because, inter alia, parole board proceedings lack the evidentiary rigor of judicial proceedings).
These shortcomings were not cured by the administrative appeal to Selsky, who relied upon the same evidence (and, in the case of Dunbar, lack of evidence) considered by Cote. Thus, while the administrative appeal provided an extra level of review, Moye was not afforded any additional procedural safeguards in terms of the introduction of evidence or the assistance of outside counsel.
In light of this fact, it would be inequitable and inconsistent to afford the appellate officer absolute immunity while granting the *722 hearing officer the more limited protection of qualified immunity. While their rank within DOCS is different, their function is, for purposes of this analysis, is similar. See Buckley v. Fitzsimmons, ___ U.S. at ___, 113 S.Ct. at 2624 (Kennedy, J., concurring in part and dissenting in part) ("one of the unquestioned goals of our § 1983 immunity jurisprudence [is] ensuring parity in treatment among state actors engaged in identical functions"); see also id. at ___, 113 S.Ct. at 2621 (when prosecutor and police officer perform similar functions, it is "`neither appropriate nor justifiable that, for the same act, immunity should protect the one and not the other.'") (quoting Hampton v. Chicago, 484 F.2d 602, 608 (7th Cir.1973), cert. denied, 415 U.S. 917, 94 S. Ct. 1413, 39 L. Ed. 2d 471 (1974)); Burns v. Reed, ___ U.S. at ___, 111 S.Ct. at 1944 ("it is incongruous to allow prosecutors to be absolutely immune from liability for giving advice to the police, but to allow police officers only qualified immunity for following the advice."); Forrester v. White, 484 U.S. at 229, 108 S.Ct. at 545 ("a judge who hires or fires a probation officer cannot meaningfully be distinguished from a district attorney who hires and fires assistant district attorneys").
The third Cleavinger factor concerns insulation from external influence. Selsky's assertion of insulation notwithstanding, the "relationship between the keeper and the kept," Cleavinger v. Saxner, 474 U.S. at 204, 106 S.Ct. at 502, is present in the DOCS appellate procedure. As Chief Judge Winter of the Fourth Circuit wrote in dissent in a pre-Cleavinger case,
The majority finds the safeguards here in a prisoner's right to appeal an adverse disciplinary action to ... an officer of the central state administration of the prison system. To me this "safeguard" is more illusory than real.... [T]he state department administering the prison system [cannot] be expected to function as an impartial arbiter of conflicts between the institutional interests of the prisons and the rights of inmates. Without impugning the competence or integrity of prison administrators, I am unable to view this system of review as a reliable check on the discretion of prison disciplinary committees....
Ward v. Johnson, 690 F.2d 1098, 1115 (4th Cir.1982) (en banc) (Winter, C.J., dissenting).
Selsky lacks independence in two ways. First, unlike the hearing officers in Butz, who were subject to removal only by a neutral body,[10] Selsky is subordinate to, and subject to removal by, his superiors at DOCS. Cf. Butz v. Economou, 438 U.S. at 513-14, 98 S.Ct. at 2914 ("Prior to the Administrative Procedure Act, there was considerable concern that persons hearing administrative cases at the trial level could not exercise independent judgment because they were required to perform prosecutorial and investigative functions as well as their judicial work, and because they were often subordinate to executive officials within the agency") (citations omitted; emphasis added). While Selsky is not a subordinate of any facility superintendent, as were the defendants in Cleavinger, he is a direct subordinate of the DOCS Deputy Commissioner for Correctional Facilities and, ultimately, of course, the DOCS Commissioner.
Second, Selsky provides general advice to facility staff on how properly to conduct a disciplinary hearing, and also answers specific inquiries that arise during the course of a hearing.[11] This raises the possibility that *723 Selsky might be asked on appeal to reverse a ruling made at a disciplinary hearing by facility staff who solicited and relied on Selsky's advice in the matter. In essence, Selsky would be asked to reverse himself. This would not be an independent determination.
Defendants have filed an affidavit of Thomas A. Coughlin III, Commissioner of DOCS ("the Commissioner"), in which the Commissioner indicates that Selsky is permitted to exercise his independent judgment, free from institutional pressures.[12] Although this Court has not been presented with any evidence that Selsky has been directly pressured by the Commissioner or any other superior to decide appeals in a certain way, the Court is not prepared to say that other, more subtle forms of pressure might not influence Selsky's decision-making processes. The simple fact that Selsky serves at the pleasure of superiors within DOCS creates a dependence upon the goodwill of these officials, who may, on occasion, place institutional interests above the rights of inmates.
Accordingly, the fact that Selsky's "work performance is not reviewable by anyone whose decisions or actions would be before him on an appeal," Coughlin Aff. ¶ 10, offers only a partial guarantee of independence. Selsky may be asked to rule on the application of institution-wide practices or procedures in which his superiors have a direct interest. Thus, despite the existence of certain institutional safeguards, Selsky still serves at the pleasure of the "keepers" and his judgment cannot be truly independent.
As for the importance of precedent, the Commissioner has indicated that Selsky considers the facts from the disciplinary hearing "in relation to regulations, administrative precedent, and relevant case law." Coughlin Aff. ¶ 5. This assertion is undisputed by plaintiff. Therefore, in this regard, Selsky does serve a judicial function.
As noted above, neither the disciplinary hearing nor the appeal can be characterized as fully adversarial in nature. Inmates may not be represented by counsel and lack many opportunities to cross-examine and challenge witnesses and other evidence presented by DOCS officers and confidential informants.
As for Cleavinger's sixth factor the correctability of error on appeal it has been noted that, "[i]njunctive or declaratory relief is useless to a person who has already been injured. `For [such persons] it is damages or nothing.'" Butz v. Economou, 438 U.S. at 504-05, 98 S.Ct. at 2910 (quoting Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388, 410, 91 S. Ct. 1999, 2012, 29 L. Ed. 2d 619 (1971)). Moye's 323 days in the SHU, in violation of his due process rights, were an injury which could not be cured by injunctive or declaratory relief and so it is "damages or nothing."
The Court is aware that two other federal judges in New York State have found that Selsky is entitled to absolute immunity. See Parkinson v. Employee Assistant, No. 91 Civ. 7401(KMW), 1993 WL 118451 (S.D.N.Y. Apr. 12, 1993); Pacheco v. Kihl, No. CIV-90-549T *724 (W.D.N.Y. Dec. 17, 1991). Nevertheless, upon a careful application of the six Cleavinger factors to the DOCS inmate appeals procedure, this Court cannot agree with the conclusions reached by these colleagues. Accordingly, this Court finds Selsky is not entitled to absolute immunity.
E. Effect of the Subsequent Article 78 Proceeding
Defendants assert that the reversal of Cote's and Selsky's rulings in a subsequent Article 78 proceeding cured any due process violation suffered by Moye in his DOCS proceedings and that he therefore is not entitled to recover under § 1983.
The applicable case law does not support this conclusion. The Second Circuit has recently held that, "an inmate is not deprived of due process where an administrative appeal has cured a hearing's procedural defects." Russell v. Scully, No. 92-2057, 1993 WL 188677, at *3 (2d Cir. June 4, 1993) (emphasis added) (citing Young v. Hoffman, 970 F.2d 1154, 1156 (2d Cir.1992); Williams v. Tavormina, No. 89-1247T, 1992 WL 487335, 1992 U.S.Dist. LEXIS 21170 (W.D.N.Y. Aug. 28, 1992)). The rationale for this ruling was explained in Young: "We believe that, as a policy matter, this possibility of cure through the administrative appeals process will encourage prison administrators to correct errors as an alternative to forcing inmates to seek relief in state or federal courts." Young v. Hoffman, 970 F.2d at 1156 (emphasis added) (citing Harper v. Lee, 938 F.2d 104, 105 (8th Cir.1991)).
Moye was required to resort to an Article 78 proceeding in state court in order to obtain a reversal of the DOCS rulings. Inasmuch as the holdings in Russell and Young apply only when due process violations are cured through the administrative appeals process, they are not controlling in the instant action. Defendants' argument on this point must be rejected.[13]
F. Qualified Immunity
The standards for invoking the qualified immunity defense in the Second Circuit are well established. Public officials are entitled to qualified immunity from liability for damages if their conduct does not violate a clearly established statutory or constitutional right. Weg v. Macchiarola, 995 F.2d 15, 17 (2d Cir.1993). In order to receive this protection, a public official must demonstrate that it was objectively reasonable to believe that his or her conduct did not violate the clearly established right. Id. The Court is to look at what was clearly established at the time the action took place. Id.
In determining whether a particular right was clearly established at the time the allegedly unconstitutional acts took place, this Court must consider three factors:
(1) whether the right in question was defined with "reasonable specificity"; (2) whether the decisional law of the Supreme Court and the applicable circuit court support the existence of the right in question; and (3) whether under preexisting law a reasonable defendant official would have understood that his or her acts were unlawful.
Gan v. City of New York, No. 92-7971, 1993 WL 184198, at *9 (2d Cir. June 1, 1993) (citing Jermosen v. Smith, 945 F.2d 547, 550 (2d Cir.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1565, 118 L. Ed. 2d 211 (1992)).
In addition, defendants, as "`reasonably competent public official[s]' are presumed to have known `the law governing [their] conduct' in these matters. Harlow v. Fitzgerald, *725 457 U.S. 800, 819, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982). They `are charged with knowledge of relevant decisional law, especially the decisions of the circuit in which they perform their official duties.' Francis v. Coughlin, 891 F.2d 43, 46 (2d Cir.1989)." McCormack v. Cheers, 818 F. Supp. 584, 599 (S.D.N.Y.1993).
Finally, "[b]ecause the defense of qualified immunity is designed to relieve government officials of the burdens of litigation as well as of the threat of damages, summary judgment is encouraged as a device for disposing of claims barred by qualified immunity." Gan v. City of New York, 1993 WL 184198, at *10.
With these principles in mind, the Court will consider defendants' assertion that they are entitled to qualified immunity with respect to plaintiff's claims on both the exclusion of Dunbar and the assessment of confidential informants.
1. Exclusion of a Witness
At the time of Moye's hearing in March 1988, Cote and Selsky were on notice that witnesses should be permitted to give statements in prison disciplinary hearings unless there is a reason to exclude such statements which is logically related to protecting institutional safety or advancing other correctional goals. This Court has previously held that such a rule was clearly established in Ponte v. Real, which was decided by the Supreme Court in 1985. See Scott v. Coughlin, No. 89 Civ. 8436(RJW), slip op. at 18 (S.D.N.Y. Mar. 19, 1991) (citing Fox v. Coughlin, 893 F.2d 475, 478 (2d Cir.1990)). Thus, at the time of the hearing, no reasonable official could believe that denying Dunbar the right to testify, in the absence of threats to institutional safety or correctional goals, did not violate a clearly established constitutional right. Accordingly, qualified immunity is not available to defendants on Claims One and Three.
2. Assessment of Confidential Informants
As indicated above, neither the Second Circuit nor the Supreme Court has established a rule concerning how prison disciplinary boards are to assess the reliability of information provided by confidential informants. Thus, the second factor discussed in Gan, "whether the decisional law of the Supreme Court and the applicable circuit court support the existence of the right in question," Gan v. City of New York, 1993 WL 184198, at *9, tilts strongly in favor of defendants.
The lack of decisional law precisely on point does not fully dispose of the matter. In Weber v. Dell, 804 F.2d 796 (2d Cir.1986), cert. denied, 483 U.S. 1020, 107 S. Ct. 3263, 97 L. Ed. 2d 762 (1987), the Second Circuit held that a 1982 strip/body cavity search of an arrestee without reasonable suspicion that he was concealing a weapon or contraband violated the Fourth Amendment and that officials who conducted the search were not entitled to qualified immunity, despite the fact that the Second Circuit had not yet ruled on whether such searches were constitutional. The Second Circuit had, however, previously condemned the practice and, at the time of the search at issue in Weber, three other circuits had held such searches to be unconstitutional. Id. at 801 n. 6, 803; see also Shabazz v. Coughlin, 852 F.2d 697, 701 (2d Cir.1988) (discussing Weber). Thus, under certain circumstances, a right can be clearly established even in the absence of a specific ruling by the Second Circuit or Supreme Court.
Upon a review of the existing case law in March 1988, this Court finds that the right to have an independent assessment of confidential informants was not clearly established at the time of the hearing. Other courts in this district are divided over whether this right was clearly established by March 1988. Compare Howard v. Wilkerson, 768 F. Supp. 1002, 1008 (S.D.N.Y.1991) (right clearly established by October 1984) and Vasquez v. Coughlin, 726 F. Supp. 466, 472 (S.D.N.Y. 1989) (right clearly established by 1986) and Russell v. Coughlin, 774 F. Supp. 189, 199 (S.D.N.Y.1991) (adopting Vasquez approach), rev'd sub nom. on other grounds Russell v. Scully, No. 92-2057, 1993 WL 188677 (2d Cir. June 4, 1993) with Gittens v. Sullivan, 720 F. Supp. 40, 43-44 (S.D.N.Y.1989) (at time of Gittens's hearing in January 1988, right was not clearly established).
*726 The court in Russell v. Coughlin cited to four pre-1988 cases in which other circuits held that there was a constitutional right to independent assessment of confidential informants' credibility and reliability. Russell v. Coughlin, 774 F.Supp. at 196 (citing Dawson v. Smith, 719 F.2d 896 (7th Cir.1983); Kyle v. Hanberry, 677 F.2d 1386 (11th Cir.1982); Smith v. Rabalais, 659 F.2d 539, 540-42 (5th Cir.1981), cert. denied, 455 U.S. 992, 102 S. Ct. 1619, 71 L. Ed. 2d 853 (1982); Helms v. Hewitt, 655 F.2d 487, 502 (3d Cir.1981), rev'd on other grounds, 459 U.S. 460, 103 S. Ct. 864, 74 L. Ed. 2d 675 (1983)).
However, in March 1988, not all circuits agreed that there was such a right. As the Third Circuit noted in Helms, "[o]ther courts of appeals, faced with claims similar to those pressed here, have read Wolff to command almost complete deference to the judgment of prison officials on the need, if any, for administrative inquiry into the credibility and reliability of an informant." Helms v. Hewitt, 655 F.2d at 501 (citing Walker v. Hughes, 558 F.2d 1247, 1259 (6th Cir.1977); McLaughlin v. Hall, 520 F.2d 382, 384-85 (1st Cir.1975); Willis v. Ciccone, 506 F.2d 1011, 1018 (8th Cir.1974)). Thus, while the Helms court did not adopt the approach established in the First, Sixth and Eighth Circuits, it did acknowledge the split between circuits on this issue.
In light of this intercircuit split and the Second Circuit's silence on the issue, the right to have an independent assessment of the credibility and reliability of confidential informants was not clearly established at the time of Moye's hearing. Accordingly, Cote is entitled to qualified immunity with respect to Claim Two.
CONCLUSION
Plaintiff's motion for partial summary judgment is granted. Defendants' motion for summary judgment is granted in part and denied in part. That part of defendants' motion which seeks to dismiss Claims One and Three of the Amended Complaint is denied, while that part of the motion which seeks to dismiss claim Two is granted.
The parties are directed to complete discovery with respect to any remaining issues, including damages incurred in connection with Claims One and Three, by September 3, 1993 and to file a joint pre-trial order by October 1, 1993.
It is so ordered.
NOTES
[1] On August 1, 1990, plaintiff, appearing pro se, filed a Rule 56 motion for summary judgment in this action. Plaintiff subsequently secured counsel and, on March 29, 1993, filed the instant motion for (i) leave to amend the complaint, pursuant to Rule 15, Fed.R.Civ.P., and (ii) partial summary judgment. At the request of plaintiff's counsel, this Court endorsed the August 1, 1990 motion as withdrawn without prejudice on June 2, 1993. In addition, on April 20, 1993, the Court granted on consent that portion of the instant motion which sought leave to amend the complaint. Accordingly, the only portion of plaintiff's two dispositive motions that is currently pending before this Court is the instant motion for partial summary judgment.
[2] According to defendants, witnesses at disciplinary hearings make statements; they do not give sworn testimony. Letter from Barbara B. Butler, Asst. Att'y Gen., to Judge Robert J. Ward (May 6, 1993) at 2 n. 1.
[3] Francisco did not appear at the hearing because he did not see his assailant.
[4] In Claim One of the Amended Complaint, plaintiff alleges, in relevant part:
Cote, by refusing to permit ... Dunbar to present crucial testimony that posed no hazard to institutional safety or correctional goals, improperly and unjustifiably subjected Mr. Moye to 323 days of SHU incarceration, ... [thereby depriving] Mr. Moye of his liberty interest and his right to due process of law under the Fourteenth Amendment ... and 42 U.S.C. § 1983.
Amended Complaint ¶¶ 39-40.
In Claim Three of the Amended Complaint, plaintiff alleges, in relevant part:
Selsky, by failing to remedy defendant Cote's unconstitutional refusal to permit ... Dunbar to testify, after learning of defendant Cote's refusal through Mr. Moye's appeal, improperly and unjustifiably subjected Mr. Moye to 323 days of SHU incarceration, ... [thereby depriving] Mr. Moye of his liberty interest and his right to due process of law under the Fourteenth Amendment ... and 42 U.S.C. § 1983.
Id. ¶¶ 45-46.
[5] In Claim Two of the Amended Complaint, plaintiff alleges, in relevant part:
Cote, by failing to assess independently the reliability and credibility of the confidential informants who provided the only evidence against Mr. Moye, improperly and unjustifiably subjected Mr. Moye to 323 days of SHU incarceration, ... [thereby depriving] Mr. Moye of his liberty interest and his right to due process of law under the Fourteenth Amendment ... and 42 U.S.C. § 1983.
Amended Complaint ¶¶ 42-43.
[6] Pursuant to N.Y.Comp.Codes R. & Regs. tit. 7, § 251-5.1(b),
[t]he disciplinary hearing ... must be completed within 14 days following the writing of the misbehavior report unless otherwise authorized by the [DOCS] commissioner or his designee. Where a delay is authorized, the record of the hearing should reflect the reasons for any delay or adjournment, and an inmate should ordinarily be made aware of these reasons unless to do so would jeopardize institutional safety or correctional goals.
Defendants claim that, under this rule, the fourteen day period expired on March 8, 1988, while plaintiff contends that Cote had until March 9, 1988 to complete the hearing.
Regardless of which date is correct, Cote was notified on March 1, 1988, the first day of the hearing, of Moye's request for a statement by Dunbar. Cote therefore had seven or eight days to arrange for Dunbar to make a statement within the period allotted for completion of the hearing.
Furthermore, the DOCS Commissioner can authorize an extension of time within which to complete a disciplinary hearing. Id. Such extensions have previously been authorized in order to accommodate delays resulting from an inmate's request to call witnesses. See Aviles v. Scully, 154 A.D.2d 371, 372, 545 N.Y.S.2d 847, 848-49 (1989). Had Cote requested such an extension, in order to obtain a statement from Dunbar, it is highly unlikely that Moye would have objected. Inasmuch as the fourteen day rule was presumably promulgated for the inmate's protection, so that he would not have to remain in the SHU for an unreasonable amount of time pending adjudication of his case, see Vasquez v. Coughlin, 726 F. Supp. 466, 469-70 n. 5 (S.D.N.Y.1989), a waiver of this rule by an inmate would not violate any correctional goal other than the inmate's interest in a timely completion of the hearing.
[7] Indeed, a judge acting in an administrative, rather than a judicial, capacity is not entitled to absolute immunity. Forrester v. White, 484 U.S. 219, 108 S. Ct. 538 (state court judge's decision to demote and dismiss a court employee is administrative and thus not protected by absolute immunity).
[8] These safeguards included prior notice of the hearing, representation by a prison staff member, the right to present certain evidence, the right to be present, the requirement of a detailed record, the availability of further administrative review, and the availability of habeas corpus review by a federal court. Cleavinger v. Saxner, 474 U.S. at 206, 106 S.Ct. at 503.
[9] An inmate does receive a copy of the hearing transcript.
[10] The hearing officers in Butz could only be removed for good cause by the Civil Service Commission after a hearing on the record. 5 U.S.C. § 7521. In addition, their pay was controlled by the Civil Service Commission. Butz v. Economou, 438 U.S. at 514, 98 S.Ct. at 2914.
[11] In his deposition in another matter, Selsky engaged in the following colloquy:
Q: When you say that you provide technical assistance, what does that consist of?
A: Well, my office kind of serves a role of a kind of sounding board sometimes for facility staff. They may have a particular case that they are dealing with, they may make a phone call to us and, you know, just ask how to deal with a particular issue. It may not be a case currently ongoing, it may be in preparation of doing a hearing or something like that, they may just ask our advice, you know, not providing testimony or anything like that, just kind of using the experience that we have developed over the years to help them do the hearing properly.
Q: So, sometimes you get calls either prior to a hearing and sometimes you get calls during the course of a hearing?
A: Yes, that's correct.
Q: Do you ever get calls sort of about a problem that somebody at the facility, or on an issue that somebody at the facility level has spotted about the conduct of these hearings and they want your advice or suggestion on how to proceed?
A: I'm sure there have been instances where that has occurred, yes.
Reply Memorandum Ex. B at 11 (Deposition of Donald Selsky, conducted on December 2, 1992 in connection with Allah v. Mann, 90-CV-1370 (N.D.N.Y.)).
[12] The affidavit states, in relevant part,
[Selsky's] appellate decisions are only subject to outside judicial review and are completely insulated from institutional pressures within DOCS. The Appeals procedure Regulation, which I approved, is designed to permit [Selsky] to exercise his independent judgment.
I do not involve myself in the appeals process. Nor do I review [Selsky's] appellate dispositions individually. I have assigned [Selsky's] operational duties and his administrative authority with an intent to preserve his judicial independence....
[Selsky] is not subordinate to any prison superintendent. Nor does he supervise the individual hearing officers who conduct Tier III Hearings. Thus, his work performance is not reviewable by anyone whose decisions or actions would be before him on appeal. Nor is evaluation of his performance affected by how many or which appeals he affirms or reverses.
Coughlin Aff. ¶¶ 8-10 (originally filed in Parkinson v. Employee Assistant, No. 91 Civ. 7401(KMW), 1993 WL 118451 (S.D.N.Y.)).
[13] In connection with their discussion on this point, defendants note that the Russell court found that administrative confinement pending appeal is not a deprivation of liberty. See Russell v. Scully, 1993 WL 188677, at *2. Defendants claim that Moye's 323 days in the SHU were administrative, not punitive, confinement and therefore assert that Moye suffered no deprivation of liberty under § 1983. Letter from Barbara B. Butler, Asst. Att'y Gen., to Judge Robert J. Ward (June 14, 1993) at 2.
Plaintiff argues that the confinement was punitive, inasmuch as there is no administrative justification for Moye's loss of other privileges such as access to the telephone, commissary or packages. In addition, plaintiff points to the fact that there was no periodic review of plaintiff's segregation, as is required in the case of administrative confinement.
For the reasons stated by plaintiff, the Court finds that Moye's confinement was punitive. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1580648/ | 919 F. Supp. 1397 (1996)
CALIFORNIA DEMOCRATIC PARTY; Bill Press; Susan Kennedy; San Francisco County Democratic Central Committee; Carole Migden; Sacramento County Democratic Central Committee; Rita Hodgkins; and Douglas Denton, Plaintiffs,
v.
Daniel LUNGREN, Attorney General of the State of California, California Republican Party; Tirso Del Junco; and Does 1 through 20, inclusive, Defendants.
No. C-94-1703.
United States District Court, N.D. California.
March 15, 1996.
*1398 Joseph Remecho, Jamet E. Sommer, John A. Lewis, Remcho, Johansen & Purcell, San Francisco, CA, for Plaintiffs.
Daniel G. Stone, Deputy Attorney General, Sacramento, CA, for defendant Lungren.
James R. Parrinello, John E. Mueller, Nielsen, Merksamer, Hodgson, Parrinello & Mueller, Mill Valley, California, for defendants California Republic Party and Del Junco.
OPINION AND ORDER
ORRICK, District Judge.
Article II, section 6(b) of the Constitution of the State of California bars party endorsements of candidates for so-called nonpartisan elective offices. The question raised by cross-motions for summary judgment now before the Court is whether section 6(b) violates *1399 the First Amendment to the Constitution of the United States. The Court holds that it does, and for the reasons set forth herein grants plaintiffs' motion and denies defendants' motion.
I.
The efforts exerted by both parties to get the basic question of section 6(b)'s constitutionality settled have a long and tortured history in both state and federal court, which is recorded in some detail in a prior opinion of this Court. California Democratic Party v. Lungren, 860 F. Supp. 718, 719-20 (N.D.Cal.1994). For purposes of this Opinion, a few highlights will suffice.
Section 6(b) prohibits political parties from endorsing, supporting, or opposing candidates for nonpartisan office. Cal. Const. Art. II, § 6. It was enacted in 1986 through a voter initiative. That initiative had its genesis in an attempt to overturn the California Supreme Court's decision interpreting the predecessor provision of section 6(b) as not prohibiting political parties from endorsing candidates for nonpartisan offices. See Unger v. Superior Court, 37 Cal. 3d 612, 209 Cal. Rptr. 474, 692 P.2d 238 (1984).
Section 6(b) was challenged once before in this Court.[1]Geary v. Renne, 708 F. Supp. 278 (N.D.Cal.1988) ("Geary I"), rev'd, 880 F.2d 1062 (9th Cir.1989) ("Geary II"), rev'd on reh'g en banc, 911 F.2d 280 (9th Cir.1990) ("Geary III"), vacated on other grounds sub nom. Renne v. Geary, 501 U.S. 312, 111 S. Ct. 2331, 115 L. Ed. 2d 288 (1991) ("Geary IV").[2] The Ninth Circuit, sitting en banc, declared section 6(b)'s ban on nonpartisan endorsements unconstitutional and upheld the permanent injunction entered by the district court. Geary III, 911 F.2d at 280. The Supreme Court, however, vacated the Ninth Circuit's en banc decision on jurisdictional grounds, concluding that the case was not ripe, because the individuals challenging the law had not alleged "an intention to endorse any particular candidate." Geary IV, 501 U.S. at 321, 111 S.Ct. at 2339.[3]
As a prelude to this action, the California Democratic Party decided to support Delaine Eastin for State Superintendent of Public Instruction, a nonpartisan office, in the June 7, 1994, primary election. The Party produced a slate mailer endorsing Eastin and other candidates. Anticipating a challenge, the Party together with the other plaintiffs filed this action on May 13, 1994.
On May 25, 1994, the Republican Party sought a TRO from Sacramento Superior Court to halt distribution of the Democratic Party's slate mailer supporting Eastin. The Superior Court granted the application for a TRO the following day.
On May 27, 1994, plaintiffs applied in this Court for a TRO to prevent defendants from enforcing section 6(b) against them. The TRO was granted on June 1, 1994.
This Court subsequently granted plaintiffs' motion for a preliminary injunction on August 5, 1994, thereby allowing plaintiffs to endorse Eastin and other candidates for nonpartisan offices in the fall 1994 elections. *1400 California Democratic Party, 860 F.Supp. at 724, 727.
Plaintiffs now move for summary judgment, arguing that section 6(b) is unconstitutional on its face. Defendants likewise seek summary judgment, contending that section 6(b) is clearly not unconstitutional. In the alternative, defendants request that the Court uphold the statute insofar as it affects campaigns for elective judicial offices.
II.
"Congress shall make no law ... abridging the freedom of speech...." U.S. Const., amend. I. The First Amendment applies to the states as well by virtue of the Due Process Clause of the Fourteenth Amendment. See, e.g., NAACP v. Claiborne Hardware Co., 458 U.S. 886, 908 n. 43, 102 S. Ct. 3409, 3423, 73 L. Ed. 2d 1215 (1982).
To assess the constitutionality of a state election law such as section 6(b), the Court must first determine whether it burdens free speech rights protected by the First and Fourteenth Amendments. Eu v. San Francisco County Democratic Cent. Comm., 489 U.S. 214, 222, 109 S. Ct. 1013, 1019-20, 103 L. Ed. 2d 271 (1989). "If the challenged law burdens the rights of political parties and their members, it can survive constitutional scrutiny only if the State shows that it advances a compelling state interest, and is narrowly tailored to serve that interest." Id. (citations omitted).
A.
Article II, section 6 of the California Constitution provides as follows:
(a) All judicial, school, county, and city offices shall be nonpartisan.
(b) No political party or party central committee may endorse, support, or oppose a candidate for nonpartisan office.
Cal. Const. Art. II, § 6.
"Our form of government is built on the premise that every citizen shall have the right to engage in political expression and association." Sweezy v. New Hampshire, 354 U.S. 234, 250, 77 S. Ct. 1203, 1212, 1 L. Ed. 2d 1311 (1957). Because individuals exercise their free speech rights by participating in political parties, political parties also possess First Amendment rights. San Francisco County Democratic Cent. Comm. v. Eu, 826 F.2d 814, 818 (9th Cir.1987), aff'd, 489 U.S. 214, 109 S. Ct. 1013, 103 L. Ed. 2d 271 (1989) (citing Tashjian v. Republican Party of Conn., 479 U.S. 208, 212-16, 107 S. Ct. 544, 547-49, 93 L. Ed. 2d 514 (1986)). Indeed, "[a]ny interference with the freedom of a party is simultaneously an interference with the freedom of its adherents." Sweezy, 354 U.S. at 250, 77 S.Ct. at 1212.
At issue here is the speech of political parties during campaigns for elective office. The Supreme Court has explained that protection of such speech is especially important:
We have recognized repeatedly that "debate on the qualifications of candidates [is] integral to the operation of the system of government established by our Constitution." Buckley v. Valeo, 424 U.S. 1, 14 [, 96 S. Ct. 612, 632, 46 L. Ed. 2d 659] (1976) (per curiam). Indeed, the First Amendment "has its fullest and most urgent application" to speech uttered during a campaign for political office. Monitor Patriot Co. v. Roy, 401 U.S. 265, 272 [, 91 S. Ct. 621, 625, 28 L. Ed. 2d 35] (1971).
Eu, 489 U.S. at 223, 109 S.Ct. at 1020 (some citations omitted).
The Court finds, as it did previously, that section 6(b) unquestionably imposes a direct and substantial burden on core political speech. California Democratic Party, 860 F.Supp. at 724. Accordingly, the Court must apply strict scrutiny, that is, defendants must show that section 6(b) advances a compelling state interest and is narrowly tailored to serve that interest. Eu, 489 U.S. at 222, 109 S.Ct. at 1019-20.
B.
Defendants argue that California is entitled (1) to protect its nonpartisan election process from becoming partisan and (2) to create a "level playing field" for potential candidates for nonpartisan office. The foundation for these arguments is California's sovereign right to control its election process *1401 for state officers. See Tashjian, 479 U.S. at 217, 107 S.Ct. at 550.
California's broad authority to regulate state elections, however, "`does not extinguish the State's responsibility to observe the limits established by the First Amendment rights of the State's citizens.'" Eu, 489 U.S. at 222, 109 S.Ct. at 1019 (quoting Tashjian, 479 U.S. at 217, 107 S.Ct. at 550). Indeed, California's "power to regulate the time, place, and manner of elections does not justify, without more, the abridgment of fundamental rights." Tashjian, 479 U.S. at 217, 107 S.Ct. at 550.[4]
Defendants argue that nonpartisan offices were created, at least in part, to combat the corruption of the process caused by the influence of the major political parties; therefore, section 6(b) is essential to preventing corruption of nonpartisan offices.
This argument is misplaced. See California Democratic Party, 860 F.Supp. at 725. The type of "corruption" contemplated by the California Attorney General, viz., the potential for political parties' speech to influence voters, is wholly different from the risk of corruption that justified limits on campaign financing. Id.; see Geary III, 911 F.2d at 283-84. "Corruption is a subversion of the political process" whereby "[e]lected officials are influenced to act contrary to their obligations of office by the prospect of financial gain to themselves or infusions of money into their campaigns." Federal Election Comm'n v. National Conservative Political Action Comm., 470 U.S. 480, 497, 105 S. Ct. 1459, 1468, 84 L. Ed. 2d 455 (1985) (emphasis added).
What defendants characterize as "corruption" is, in fact, the heart of the political process itself. "The fact that candidates ... may alter or reaffirm their own positions on issues in response to political messages ... can hardly be called corruption, for one of the essential features of democracy is the presentation to the electorate of varying points of view." Id. at 498, 105 S.Ct. at 1469.
Judge Canby, in his dissent from the panel's decision in Geary II, underscores the argument that this Court accordingly adopts:
To accept California's position ... is to accept the proposition that the voters, in acting favorably upon a political party endorsement, are making a mistake. They are attaching too much meaning, or the wrong meaning, to the party's endorsement. Knowing that a particular party supports a candidate, the voters improperly vote for that candidate and give rise to too much party influence over local affairs. ... Consequently, [California] ... *1402 has prohibited statutory political parties from endorsing (or otherwise supporting) candidates in nonpartisan elections, and from publicizing such endorsements. Under our Constitution, however, that option is not open to California....
. . . . .
Properly viewed, the first amendment protects free expression as an end in itself. But even under a narrower, instrumental view of the first amendment, there is an irreducible core requirement. It is that political speech must be free so that the sovereign people can decide public issues. To posit that the people may decide incorrectly, and therefore should be denied information in order to steer their decisions, is to posit some other sovereign who can decide when the people are likely to be mistaken, and what they should be allowed to know. Little would be left of the first amendment under such a regime.
Geary II, 880 F.2d at 1083-84 (Canby, J., dissenting) (citation omitted). Thus, as a matter of law, the purported state interest in preventing voters from being unduly influenced by political party endorsements cannot meet strict scrutiny. Under any set of facts, that goal is not a compelling state interest; on the contrary, it is a wholly illegitimate one.
Defendants also contend that section 6(b) is essential to preserving the nonpartisan nature of the local, school, and judicial offices, avoiding the appearance of partiality, particularly of judges, and preventing the risk of partisan gridlock. In defendants' view, the endorsement of a political party creates the public perception that a candidate for nonpartisan office represents that party's agenda or is beholden to it in some way.
In support of this argument, defendants rely on United States Civil Service Commission v. National Association of Letter Carriers, 413 U.S. 548, 93 S. Ct. 2880, 37 L. Ed. 2d 796 (1973). In Letter Carriers, the Supreme Court upheld the restrictions on political activities of federal employees imposed by the Hatch Act, 5 U.S.C. §§ 7324 et seq. Such restrictions were found to be justified by the government's interests in preventing (1) political influence to affect its employees and (2) the appearance of partiality. See id. at 564-65, 93 S.Ct. at 2889-90.
The Court will assume, arguendo, that California has a compelling interest in preventing nonpartisan officeholders from engaging in conduct that tends to undermine the nonpartisan nature of their posts. Even so, section 6(b) misses the mark. The evil sought to be combatted is the unseemly partisanship of nonpartisan officeholders once they are in office, not the partisanship of political parties (which, of course, is the very nature of political parties). Section 6(b) purports to prevent officeholders from being "beholden" to political parties by imposing a ban on the parties' speech about candidates for office, rather than (as the Supreme Court approved in Letter Carriers) a ban on the partisan political conduct of the officeholders themselves. The distinction is crucial. The government has an interest in the manner in which its elected officials conduct themselves while in office. The government does not and cannot have a legitimate interest in silencing the speech of third parties about the qualifications and political views of candidates for those offices. See Eu, 489 U.S. at 223, 109 S.Ct. at 1020.
Defendants also claim that California has an interest in "leveling the playing field" for candidates in elections for nonpartisan offices. Their theory is that if parties are allowed to endorse candidates, then those candidates without party endorsements will be discouraged from running. The result, defendants contend, will be twofold: fewer candidates for nonpartisan office and an unauthorized, de facto primary process in which political parties "nominate" candidates by endorsing them.
The Court rejects this argument. California's desire to "level the playing field" for potential candidates by suppressing political parties' speech is not a compelling interest because it is entirely at odds with the First Amendment. The Supreme Court has rejected
the concept that government may restrict the speech of some elements of our society in order to enhance the relative voice of others [as] wholly foreign to the First *1403 Amendment, which was designed "to secure `the widest possible dissemination of information from diverse and antagonistic sources,'" and "`to assure unfettered interchange of ideas for the bringing about of political and social changes desired by the people.'"
Buckley v. Valeo, 424 U.S. 1, 48-49, 96 S. Ct. 612, 649, 46 L. Ed. 2d 659 (1976) (per curiam) (quoting New York Times Co. v. Sullivan, 376 U.S. 254, 266, 269, 84 S. Ct. 710, 718-19, 720, 11 L. Ed. 2d 686 (1964) (quoting Associated Press v. United States, 326 U.S. 1, 20, 65 S. Ct. 1416, 1424-25, 89 L. Ed. 2013 (1945) and Roth v. United States, 354 U.S. 476, 484, 77 S. Ct. 1304, 1308-09, 1 L. Ed. 2d 1498 (1957))).
Moreover, as a factual matter, the "level playing field" argument cannot succeed. Section 6(b) silences not only the two major political parties, but a myriad of smaller, less powerful parties as well, such as the Libertarian Party, the Peace and Freedom Party, and the Green Party.
Even if the Court were to assume that leveling the playing field is a compelling interest, section 6(b) is not narrowly tailored to achieve that goal. It does not silence political groups other than the political parties themselves. As a result, voters can receive campaign literature from any number of groups styling themselves as affiliates of political parties, though not the actual parties themselves, and "endorsing" particular candidates for nonpartisan office. (Lewis Decl. Ex. B.) Therefore, not only is section 6(b) not narrowly tailored, it actually increases the risk of voter confusion due to political groups masquerading as the official parties.
Indeed, plaintiffs have evidence of this phenomenon: Annemarie Conroy, a Republican running for the nonpartisan office of San Francisco County Supervisor, was listed as an "endorsed" candidate on a mailer called the "San Francisco Democratic Voter Checklist." (Berg Decl. ¶ 12 & Ex. D.) Because this Court's injunction was in place, the San Francisco Democratic Party was able to distribute its own mailer explaining that Conroy was not a Democrat and was not endorsed by the Democratic Party. (Id. ¶ 12 & Ex. E.) Nonetheless, it is likely that at least some voters were misled. Moreover, without the injunction, the Democratic Party would have been unable to counter this misrepresentation because it would have been barred from "oppos[ing] a candidate for nonpartisan office." Cal. Const. Art. II, § 6.
In addition, the argument that California is entitled to prevent the establishment of de facto primaries is unconvincing. The Court agrees with the reasoning of Judge Reinhardt in his concurrence in the en banc decision in Geary III:
[T]here is all the difference in the world between refusing to delegate to political parties the decision as to which candidates appear on the general-election ballot [by conducting primaries] and prohibiting political party organizations from announcing their views on the merits of candidates seeking public office....
The issue ... is not a matter of how to define or structure a "nonpartisan election." It is instead a question of the right of individuals to band together [in political parties] and express their collective views on a matter of public concern.
Geary III, 911 F.2d at 288 (Reinhardt, J., concurring) (footnote omitted); see also Geary II, 880 F.2d at 1085 (Canby, J., dissenting).
At the hearing, defendants argued that section 6(b) is analogous to the Supreme Court's decision in Burson v. Freeman, 504 U.S. 191, 112 S. Ct. 1846, 119 L. Ed. 2d 5 (1992). Burson involved a First Amendment challenge to a Tennessee statute prohibiting the solicitation of votes and the display and distribution of campaign literature within 100 feet of the entrance to a polling place. Acknowledging that the law was "not a facially content-neutral time, place, or manner restriction," 504 U.S. at 197, 112 S.Ct. at 1850, and was, therefore, subject to strict scrutiny, id. at 198, the Court nonetheless upheld the statute's constitutionality.
The Court concluded that "some restricted zone [around a polling place] [was] necessary in order to serve the States' compelling interests in preventing voter intimidation and election fraud." Id. at 206, 112 S.Ct. at 1855. In addition, the Court found that empirical proof to justify the size of the boundary was *1404 unnecessary and perhaps unobtainable. Id. at 208-09, 112 S.Ct. at 1856-57. The exact dimensions of such a zone did not determine whether the Tennessee law was narrowly tailored or not: The difference between a 100-foot zone and a 25-foot zone was not a question of constitutional proportions, but rather "a difference only in degree, not a less restrictive alternative in kind." Id. at 210, 112 S.Ct. at 1857. Noting that it takes about fifteen seconds to walk 100 feet, Justice Blackmun explained: "The State of Tennessee has decided that these last 15 seconds before its citizens enter the polling place should be their own, as free from interference as possible. We do not find that this is an unconstitutional choice." Id. (footnote omitted).
Burson lies at the current outer limits of the Supreme Court's jurisprudence on speech restrictions that are acceptable because of the states' interests in protecting the integrity of the voting process. Nevertheless, this Court finds that Burson does not extend far enough to reach this case.
Defendants' comparison of Burson's 100-foot zone to section 6(b)'s ban on party endorsements is unpersuasive. Burson is distinguishable because, like the ballot restriction cases, it is principally concerned with the mechanics of the voting process, i.e., the state's physical control over the polling place itself. Indeed, the Court's opinion discusses at length the origins of voting practices and the development of the "secret ballot secured ... by a restricted zone around the voting compartment[]." See id. at 200-06, 112 S.Ct. at 1852-55. Under Burson, the polling place is, in essence, an extension of the ballot itself. It is the private, protected sphere in which each individual is free to exercise that most fundamental of all our fundamental rights, the right to vote.[5]Cf. Madsen v. Women's Health Center, Inc., ___ U.S. ___, ___, 114 S. Ct. 2516, 2526-27, 129 L. Ed. 2d 593 (1994) (upholding injunction imposing 36-foot "buffer zone" around health clinic where abortions were performed, within which anti-abortion protesters could not picket; "the State has a strong interest in protecting a woman's freedom to seek lawful medical or counseling services in connection with her pregnancy") (citing Roe v. Wade, 410 U.S. 113, 93 S. Ct. 705, 35 L. Ed. 2d 147 (1973)).
Tennessee's 100-foot zone exists only on election day. It is a highly focused and short-lived restriction on speech that surrounds only the polling place. Within its limits, it does not discriminate: No one is allowed to campaign. By contrast, section 6(b) is an absolute ban on only political parties' speech during the entire duration of every nonpartisan election.
The views of Judges Rymer, Alarcon, and Fernandez notwithstanding (see Geary III, 911 F.2d at 295-315 (opinions of Rymer, J., dissenting and Alarcon, J., dissenting)), section 6(b) is a patently unconstitutional abridgement of political parties' free speech rights. The effort, however well-meaning, to protect voters from themselves by silencing those voices perceived to be the most influential during a campaign cannot be reconciled with the free marketplace of ideas contemplated by the First Amendment. See Buckley, 424 U.S. at 49, 96 S.Ct. at 649. As Justice Marshall succinctly put it, "the prospect that voters might be persuaded by party endorsements is not a corruption of the democratic political process; it is the democratic political process." Geary IV, 501 U.S. at 349, 111 S.Ct. at 2353 (Marshall, J., dissenting).
C.
In the alternative, defendants ask the Court to uphold section 6(b) insofar as it bans political party endorsements of candidates *1405 for state judicial office. Defendants argue, quite rightly, that it is especially crucial for judges to avoid the appearance of partiality. They err in their argument that the state's interest justifies section 6(b)'s ban on political parties' speech.
For obvious reasons, the Court is sympathetic to defendants' desire to protect judges from political pressures. Nonetheless, section 6(b) is no more constitutional as applied to judicial campaigns than it is as applied to other campaigns for nonpartisan office. California can, of course, prohibit judges from engaging in partisan political activity once they are in office. See Letter Carriers, 413 U.S. at 564-65, 93 S.Ct. at 2889-90. But California cannot suppress speech by political parties concerning the merits of judicial candidates' qualifications for office. See Buckley, 424 U.S. at 14, 96 S.Ct. at 632.
Once again, section 6(b) takes aim at the wrong evil. "The political threat to judicial independence ... is attributable far more to the decision to elect judges in the first place, and to subject them to re-election, than it is to party endorsement." Geary II, 880 F.2d at 1085 (Canby, J., dissenting). The choice that California can make is between permitting voters to elect judges, with all the partisan political activity that such campaigns entail, and appointing the state's judiciary in order to insulate judicial officers from political pressures. As Judge Reinhardt explained:
The State of California cannot have it both ways. If it wants to elect its judges, it cannot deprive its citizens of a full and robust election debate. It cannot forbid speech by persons or groups who wish to make their views, support, or endorsements known. Nor can it complain if the citizens wish to make their electoral judgments based in part on recommendations made by political parties. If the people are to be given the right to choose their judges directly, they are free, rightly or wrongly, to consider the political philosophy of the candidates.
Geary III, 911 F.2d at 294 (Reinhardt, J., concurring) (footnote omitted); see also Geary II, 880 F.2d at 1085 (Canby, J., dissenting).
III.
IT IS HEREBY ORDERED that:
1. Plaintiffs' motion for summary judgment is GRANTED.
2. Defendants' motion for summary judgment is DENIED.
3. Article II, section 6(b) of the Constitution of the State of California is hereby declared violative of the First and Fourteenth Amendments to the Constitution of the United States.
4. Defendants, their officers, agents, servants, employees, attorneys, and all persons acting under, in concert with, or for them, are, and each is, permanently enjoined from enforcing Article II, section 6(b) of the Constitution of the State of California.
NOTES
[1] It has also been challenged in state court. In 1993, the Democratic Party endorsed Michael Woo for Mayor of Los Angeles (a nonpartisan office). Shortly before the election, the Republican Party sought a temporary restraining order ("TRO") prohibiting the Democratic Party from supporting Woo. The TRO was granted. Del Junco v. Democratic Party of Cal., No. 534020 (Super.Ct. Sacramento County 1993). In response, the Democratic Party filed a petition for writ of mandate in the California Court of Appeal, Third Appellate District, seeking an immediate stay and reversal of the Superior Court's order. The Court of Appeal denied both emergency relief and the request for an expedited hearing and decision. Democratic Party of Cal. v. Superior Court, No. CO 16017 (Ct.App.3d Dist. 1993).
[2] On April 27, 1988, the late Judge Alfonso J. Zirpoli concluded that section 6(b) violated plaintiff's free speech rights under the Constitution and permanently enjoined its enforcement. Geary I, 708 F.Supp. at 278. That decision was overturned on appeal by a divided panel of the Ninth Circuit. Geary II, 880 F.2d at 1062. Subsequently, the Ninth Circuit reheard the case en banc and affirmed Judge Zirpoli's decision. Geary III, 911 F.2d at 280. That decision was vacated by the Supreme Court because the case was unripe. Geary IV, 501 U.S. at 312, 111 S.Ct. at 2333.
[3] Thus, the Ninth Circuit's en banc decision in Geary III has no precedential value, though it obviously offers some insight into how the Ninth Circuit might rule on the issue in the future.
[4] The Supreme Court has allowed the states to impose certain types of restrictions necessary to ensure the orderly conduct of elections. See California Democratic Party, 860 F.Supp. at 725-26. For example, "[t]he Court has recognized that a State has a legitimate interest in regulating the number of candidates on the ballot." Bullock v. Carter, 405 U.S. 134, 145, 92 S. Ct. 849, 857, 31 L. Ed. 2d 92 (1972) (citing Jenness v. Fortson, 403 U.S. 431, 442, 91 S. Ct. 1970, 1976, 29 L. Ed. 2d 554 (1971); Williams v. Rhodes, 393 U.S. 23, 32, 89 S. Ct. 5, 11, 21 L. Ed. 2d 24 (1968)). As Chief Justice Burger explained:
In so doing, the State understandably and properly seeks to prevent the clogging of its election machinery, avoid voter confusion, and assure that the winner is the choice of a majority, or at least a strong plurality, of those voting, without the expense and burden of runoff elections.... [W]e are bound to respect the legitimate objectives of the State in avoiding overcrowded ballots. Moreover, a State has an interest, if not a duty, to protect the integrity of its political processes from frivolous or fraudulent candidacies.
Bullock, 405 U.S. at 145, 92 S.Ct. at 857; see also Lubin v. Panish, 415 U.S. 709, 715-16, 94 S. Ct. 1315, 1319, 39 L. Ed. 2d 702 (1974).
Such restrictions, however, are not without limits. The Supreme Court has cautioned that they must always be balanced against the voters' "right to elect legislators in a free and unimpaired fashion," Reynolds v. Sims, 377 U.S. 533, 562, 84 S. Ct. 1362, 1382, 12 L. Ed. 2d 506 (1964), as well as the intertwined "right of a party or an individual to a place on a ballot." Lubin, 415 U.S. at 716, 94 S.Ct. at 1320. Thus, for example, the Court has struck down state laws imposing large filing fees on would-be candidates without providing any alternative means of ballot access. Id. at 718, 94 S.Ct. at 1320-21; Bullock, 405 U.S. at 149, 92 S.Ct. at 858-59.
The ban imposed by section 6(b) is readily distinguishable from the kinds of ballot restrictions that are aimed at preventing the "clogging of [the state's] election machinery." Bullock, 405 U.S. at 145, 92 S.Ct. at 857. Section 6(b) is a ban on pure speech, not a merely logistical regulation of how many and which candidates may be put on the official ballot. California Democratic Party, 860 F.Supp. at 726.
[5] "[T]he best way to preserve the secrecy of the ballot and safeguard the integrity of the election process is to limit access to the area around the voter." Ronald D. Rotunda, A Brief Comment on Politically Incorrect Speech in the Wake of R.A.V., 47 SMU L.Rev. 9, 18 n. 57 (1993); see also Calvin R. Massey, Hate Speech, Cultural Diversity, and the Foundational Paradigms of Free Expression, 40 UCLA L.Rev. 103, 186 (1992) ("Tennessee did not fear what political speakers would say so much as it feared that the very presence of political speech in close proximity to the polls would intimidate some voters into either not voting or casting a coerced ballot."); Richard Kirk Page & Kay Hartwell Hunnicutt, Freedom for the Thought We Hate: A Policy Analysis of Student Speech Regulation at America's Twenty Largest Public Universities, 21 J.C. & U.L. 1, 25-26 (1994) (same). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1580812/ | 919 F. Supp. 144 (1996)
Lorraine STORR, Plaintiff,
v.
ANDERSON SCHOOL and William Doyle, Defendants.
No. 95 Civ. 2351 (WCC).
United States District Court, S.D. New York.
March 13, 1996.
*145 Gellert & Cutler, P.C., Poughkeepsie, New York (Richard B. Wolf, of counsel), for plaintiff.
Lester Schwab Katz & Dwyer, New York City (Richard Granofsky, of counsel), for defendant, William Doyle.
OPINION AND ORDER
WILLIAM C. CONNER, Senior District Judge:
Plaintiff Lorraine Storr ("Storr") brings this action pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-3 and e-5 ("Title VII"), the Age Discrimination in Employment Act, 29 U.S.C. § 626(c) (the "ADEA"), section 102 of the Civil Rights Act of 1991, 42 U.S.C. § 1981a, and New York Executive Law § 297. Plaintiff asserts claims for sexual harassment, sex discrimination and age discrimination against her former employer, the Anderson School (the "Anderson School," or the "School"), and against William Doyle ("Doyle"), an employee of the School and a supervisor of plaintiff during times relevant to this case. The case presently is before the court on defendant Doyle's motion to dismiss pursuant to Fed. R.Civ.P. 12(b)(6) on the ground that a supervisor cannot be found individually liable under Title VII or the ADEA. For reasons discussed below, defendant Doyle's motion to dismiss is granted in part and denied in part.
BACKGROUND
Storr, a fifty-five year old woman, worked for the Anderson School, a New York State funded special educational school, for six years as a cook, and on occasion as a child care worker. Storr was employed in an Intermediate Care Facility for developmentally disabled, primarily autistic children. Storr was terminated from employment at the School in April 1994. Defendant Doyle supervised the Intermediate Care Facility at which Storr was employed at the time of her termination.
DISCUSSION
On a motion to dismiss under Rule 12(b)(6), we accept as true all allegations in *146 the complaint and draw all reasonable inferences in favor of plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974); Ortiz v. Cornetta, 867 F.2d 146, 149 (2d Cir.1989). A complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957).
I. Title VII and the ADEA
Title VII of the Civil Rights Act prohibits discrimination based upon sex by an "employer." 42 U.S.C. § 2000e-2. Similarly, the ADEA applies to discriminatory actions based on age by an "employer." 29 U.S.C. § 623(a). Under Title VII:
The term "employer" means a person engaged in an industry affecting commerce who has fifteen or more employees ... and any agent of such person.
42 U.S.C. § 2000e(b).[1]
Defendant Doyle argues that the plaintiff's claims should be dismissed because individuals do not qualify as employers under this statutory definition. Plaintiff, on the other hand, urges this court to accept the "plain meaning" of the statutory language in concluding that Doyle, as an agent of the School, is an "employer" within the meaning of the Act. See Goodstein v. Bombardier Capital, Inc., 889 F. Supp. 760 (D.Vt.1995) (Parker, J.):
Because the statute speaks with such clarity there is no need to look beyond the statutory language in an attempt to divine Congressional intent.... [T]he statute means what it says. Both employers of 15 or more persons and their agents may be held liable for Title VII violations.
Id., at 765.[2]
The canons of statutory construction require a court to recognize "that the starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). One must not move beyond the language, except "in the rare cases [in which] the literal application of a statute [would] produce a result demonstrably at odds with the intentions of its drafters." Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S. Ct. 3245, 3250, 73 L. Ed. 2d 973 (1982); Tomka v. Seiler Corp., 66 F.3d 1295, 1313 (2d Cir.1995). This appears to be such rare case. Tomka v. Seiler Corp., 66 F.3d 1295, 1314 (2d Cir.1995).
Courts of Appeals in at least four circuits, including the Second Circuit, have considered the question of a supervisor's individual liability and have held that a supervisor cannot be sued in his or her individual capacity under Title VII or the ADEA. See Tomka v. Seiler Corp., 66 F.3d 1295, 1314 (2d Cir.1995) (supervisors not individually liable under Title VII definition of "employer"); Smith v. Lomax, 45 F.3d 402, 403-04 n. 4 (11th Cir. 1995) (Title VII and ADEA); Grant v. Lone Star Co., 21 F.3d 649, 653 (5th Cir.) (Title VII), cert. denied, ___ U.S. ___, 115 S. Ct. 574, 130 L. Ed. 2d 491 (1994); Miller v. Maxwell's Int'l Inc., 991 F.2d 583, 587 (9th Cir. 1993) (Title VII and ADEA), cert. denied, ___ U.S. ___, 114 S. Ct. 1049, 127 L. Ed. 2d 372 (1994); see also E.E.O.C. v. AIC Security Investigations, Ltd., 55 F.3d 1276 (7th Cir.1995) (owner and sole shareholder not individually liable under Americans with Disabilities Act); Lenhardt v. Basic Institute of Technology, 55 F.3d 377 (8th Cir.1995) (supervisor not an "employer" under a Missouri state statute similar to Title VII and the ADEA). "The consensus of these courts is that Title VII actions brought against individual employees are against those employees in their `official' capacities, and that liability can be imposed only upon the common *147 employer of the plaintiff and of the individual fellow employees who are named as defendants." Lenhardt, 55 F.3d at 380. But see Paroline v. Unisys Corp., 879 F.2d 100, 104 (4th Cir.1989) (supervisory personnel may be personally liable under Title VII), rev'd in part, aff'd in relevant part, 900 F.2d 27 (4th Cir.1990) (en banc); Jones v. Continental Corp., 789 F.2d 1225, 1231 (6th Cir.1986) ("individuals may be held liable ... as `agents' of an employer under Title VII"); Goodstein, 889 F.Supp. at 764-65 (Parker, J.) (supervisor may be liable as agent of employer under Title VII); Shoemaker v. Metro Information Services, 910 F. Supp. 259, 265 (E.D.Va.1996) (supervisors who wield significant control over plaintiffs may be individually liable under Title VII); Vakharia v. Swedish Covenant Hosp., 824 F. Supp. 769, 785 (N.D.Ill.1993) (decision-making employees may be liable in their individual capacities under Title VII).
According to the Second Circuit, "individual defendants with supervisory control over a plaintiff may not be held personally liable under Title VII." Tomka, 66 F.3d at 1317. See also Cook v. Arrowsmith Shelburne, Inc., 69 F.3d 1235, 1241 n. 2 (2d Cir.1995) (dismissing Title VII claim against individual employee in light of Tomka). In Tomka, the court found that the statutory scheme and remedial provisions of Title VII indicate that Congress intended to limit liability to employer-entities with fifteen or more employees. Id., at 1314. The court concluded, "[a] finding of agent liability ... would lead to results that Congress could not have contemplated." Id. See also Ryan v. Grae & Rybicki, P.C., 1995 WL 170095, at *3 (E.D.N.Y. March 31, 1995). ("[I]t is illogical to suggest that liability would be restricted to employers with more than a certain number of employees and simultaneously decide that individuals can be held personally liable.").
The Tomka majority first looked to the statutory scheme of Title VII and reasoned that because Congress decided to protect small employers "in part because Congress did not want to burden small entities with the costs associated with litigating discrimination claims," it was "inconceivable" that a Congress concerned with protecting small employers would simultaneously allow civil liability to run against individual employees. Id., at 1314 (citing Maxwell's Int'l, 991 F.2d at 587).
The Tomka court then analyzed Title VII's remedial provisions and concluded that "Congress never intended to hold agents individually liable for violations of the Act." Id. The court looked to the Civil Rights Act of 1991, 42 U.S.C. § 1981a, for insight "into Congress' intent on the issue of individual liability." Id., at 1315 n. 13. Based on this approach, the court reasoned:
The CRA of 1991 adds compensatory and punitive damages to the remedies available to a victim of intentional discrimination.... Although money damages are of the type that an individual can normally be expected to pay, Congress calibrated the maximum allowable damage award to the size of the employer and failed to repeal the exemption for defendants with less than fifteen employees.... In addition, the CRA of 1991 does not contain similar limits on damage awards against agents of an employer, or even address the subject of individual liability.
Id., at 1315. The Tomka majority thus concluded that Congress must have "contemplated that only employer-entities could be held liable for compensatory and punitive damages, because `if Congress had envisioned individual liability ... it would have included individuals in this litany of limitations and discontinued the exemption for small employers ...'" Id. (citing Maxwell's Int'l, 991 F.2d at 588 n. 2).
The Tomka dissent argued that the majority's reading reduces the "and any agent" clause to mere surplusage. Id., at 1319 (Parker, J., dissenting). "Absent this clause, Title VII would nevertheless permit respondeat superior liability against employers for the acts of their agents under common law principles." Id. However, as the Tomka majority reasoned, the agent clause does serve an independent purpose with regard to the scope of an employer's vicarious liability for the acts of its agents: namely, that an employer's liability should be based on common law agency principles. Id., at 1316. See also Ryan, 1995 WL 170095, at *3 ("The legislature's *148 choice to define `employer' with a minimum threshold as found in these statutes surely is meant to restrict liability to those above that threshold.").
Despite Judge Parker's thoughtful dissent in Tomka, we are constrained to follow the Tomka majority and we find persuasive its reasoning and that of the other cases that have held that supervisors are not individually liable under Title VII or the ADEA. Cook, 69 F.3d at 1241 n. 2. We believe this result strikes an appropriate balance between the interests that Congress sought to pursue. "A responsible employer who has a great interest in avoiding liability under these statutes will not engage in discriminatory acts and will train his supervisory personnel to comply with the laws as well." Ryan, 1995 WL 170095, at *3. "Indeed, the normally deep pocketed and publicity conscious employer ... can be counted upon to be the most effective guardian of the marketplace." Id. It is true that increasing the number of potentially liable defendants would increase deterrence, as businesses put more resources into avoiding liability. However, Congress has struck a balance between deterrence and societal cost, and we will not upset that balance. We conclude that individuals who do not otherwise meet the statutory definition of "employer" cannot be liable under Title VII or the ADEA.
Plaintiff all but concedes, as she must be in light of Tomka, that the federal discrimination claims against Doyle must be dismissed. Plaintiff argues, however, that Doyle could be individually liable under the New York Human Rights Law, N.Y.Exec.Law § 297 (the "HRL").
II. New York Human Rights Law
The New York HRL prohibits an "employer" from discriminating on the basis of age or sex. N.Y.Exec.Law § 296(1)(a) (McKinney 1993). Unlike its federal counterparts, the HRL does not include an "and any agent" clause in the definition of employer. See N.Y.Exec.Law § 292. The HRL "provides no clue to whether individual employees of a corporate employer may be sued under its provision." Patrowich v. Chemical Bank, 63 N.Y.2d 541, 483 N.Y.S.2d 659, 660, 473 N.E.2d 11, 12 (1984) (citing N.Y.Exec. Law § 292(5)). In Patrowich, the New York Court of Appeals held that an employee is not individually subject to suit under section 296 of the HRL as an employer "if he is not shown to have any ownership interest or any power to do more than carry out personnel decisions made by others." Id. New York state courts have held that the standards set forth in Patrowich determine the issue of individual liability under the HRL. See, e.g., Foley v. Mobil Chemical Co., 214 A.D.2d 1005, 626 N.Y.S.2d 908, 909 (1995) (Defendant "is not subject to a discrimination suit under the Human Rights Law unless it is shown that he has an ownership interest in the corporation or the power to do more than carry out personnel decisions made by others."); Monsanto v. Electronic Data Systems Corp., 141 A.D.2d 514, 529 N.Y.S.2d 512 (1988) ("[A] corporate employee is not individually subject to discrimination suits under the Human Rights Law `if he is not shown to have any ownership interest or any power to do more than carry out personnel decisions made by others.'"); Petri v. Bank of New York Co., 153 Misc. 2d 426, 582 N.Y.S.2d 608, 612 n. 2 (N.Y.Sup.Ct.1992) ("[T]he liability of [individual defendants] depends upon their power over personnel decisions."). Plaintiff does not allege in the Amended Complaint that Doyle has an ownership interest in the Anderson School or that he had the power to hire or fire plaintiff.
The Tomka court, however, reversed the district court's dismissal of a New York state discrimination claim based on section 296(6) of the HRL, Tomka, 66 F.3d at 1317, which provides:
It shall be an unlawful discriminatory practice for any person to aid, abet, incite, compel or coerce the doing of any of the acts forbidden under this article, or to attempt to do so.
N.Y.Exec.Law § 296(6). The Tomka court noted that, "[b]ased on [the language of section 296(6)], several courts have distinguished Patrowich by holding that a defendant who actually participates in the conduct giving rise to a discrimination claim may be held personally liable under the HRL." Tomka, 66 F.3d at 1317 (citing Poulsen v. *149 City of North Tonawanda, N.Y., 811 F. Supp. 884, 900 (W.D.N.Y.1993); Bridges v. Eastman Kodak Co., 800 F. Supp. 1172, 1180-81 (S.D.N.Y.1992); Wanamaker v. Columbian Rope Co., 740 F. Supp. 127, 135-36 (N.D.N.Y. 1990)). See also Persaud v. S. Axelrod Co., 1996 WL 11197, at *3 (S.D.N.Y. Jan. 10, 1996) (plaintiff may maintain claims against an individual defendant for violations of the New York HRL if the individual defendant participated in the conduct giving rise to the discrimination claim) (citing Tomka, 66 F.3d at 1317). At least one New York state court has supported Tomka's reading of section 296(6) of the HRL and Patrowich. See Peck v. Sony Music Corp., 632 N.Y.S.2d 963, 963 (N.Y.App.Div.1995) ("The Executive Law, §§ 296(6) and 296(7), provides that an individual may be held liable for aiding and abetting discriminatory conduct. Patrowich ... is not a bar to maintenance of the action."); cf. Steadman v. Sinclair, 636 N.Y.S.2d 325, 326 (N.Y.App.Div.1996) (individuals may be held liable as aiders and abettors under section 296(6) for aiding employer in instigating retaliatory lawsuit in response to filing of EEOC complaint). But see Falbaum v. Pomerantz, 891 F. Supp. 986, 992 (S.D.N.Y.1995) (dismissing claim under section 296(6) of the HRL: "[T]he limitation embodied in the statutory definition of `employer' and in Patrowich, could be easily evaded by alleging claims either under an aiding and abetting or retaliation theory.... The various parts of a statute should be construed to give meaning to all.").[3] In the present case, plaintiff has alleged that Doyle created a hostile work environment by making sexually lewd remarks and derogatory comments about plaintiff's age while in her presence. Amended Compl. ¶¶ 6, 7, 11. Under the standard set forth in Tomka, these allegations are sufficient to satisfy section 296(6).
CONCLUSION
For the foregoing reasons, defendant Doyle's motion to dismiss is granted with prejudice as to plaintiff's federal claims, and denied as to plaintiff's state law claim.
SO ORDERED.
NOTES
[1] The definition of "employer" in Title VII mirrors the definition in the ADEA, and courts have applied arguments regarding individual liability to the two statutes interchangeably.
[2] Judge Parker, who now sits on the Second Circuit Court of Appeals, has stood by this position in his dissent in a Second Circuit case that has addressed this issue. See Tomka v. Seiler Corp., 66 F.3d 1295 (2d Cir.1995).
[3] In an unreported decision, the New York Supreme Court also rejected aiding and abetting liability under section 296(6) of the HRL based on its reading of Patrowich. See Cohen v. Alexander's Inc., 1987 WL 113754 (N.Y.Sup.Ct. Aug. 14, 1987). | 01-03-2023 | 10-30-2013 |
Subsets and Splits